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Superfund v Lindenfels - Shareholder Oppression and Director Duties

Australia Federal Court Latest Judgments

Filed March 20th, 2026

Detected April 2nd, 2026

Summary

Federal Court of Australia dismissed shareholder oppression claim by Jim & Felicja Superfund Pty Ltd against Lindenfels Pte Ltd. The plaintiff alleged breach of fiduciary duties and statutory directors' duties under ss 180-182 and 232-233 of the Corporations Act 2001 regarding coal marketing and offtake arrangements. The court found no fiduciary relationship existed, no implied term requiring fair market pricing, and no oppression or directors' duties breach established. File number NSD 479 of 2022.

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What changed

The Federal Court dismissed all claims in Our Jim & Felicja Superfund Pty Ltd v Lindenfels Pte Ltd [2026] FCA 307. The plaintiff alleged the marketing agent breached fiduciary duties by purchasing export coal under an offtake agreement before fulfilling marketing obligations, and that a related rights issue constituted oppression under s 233 of the Corporations Act. The court found: no fiduciary relationship existed between the parties; no implied term requiring the marketing agent to offer fair market price for coal purchased; and no breach of statutory directors' duties under ss 180, 181, 182 established. The further amended originating process is dismissed with costs to the defendant.\n\nFor compliance officers, this case clarifies the evidentiary burden for shareholder oppression claims in Australia—plaintiffs must establish actual fiduciary relationships and cannot rely on implied contractual terms not supported by the agreement's language. The dismissal confirms that nominal directors (including nominee directors) do not automatically breach duties absent actual conflict of interest and detriment. This is particularly relevant for companies with complex ownership structures or cross-border coal trading arrangements.

Source document (simplified)

Original Word Document (1 MB) Federal Court of Australia

Our Jim & Felicja Superfund Pty Ltd as trustee for the Jim & Felicja Superannuation Fund v Lindenfels Pte Ltd [2026] FCA 307

| File number(s): | NSD 479 of 2022 |
| | |
| Judgment of: | HALLEY J |
| | |
| Date of judgment: | 20 March 2026 |
| | |
| Catchwords: | CORPORATIONS – application for relief under s 233 of the Corporations Act 200 1 (Cth) (Corporations Act) for claim of oppression of minority shareholders – intersection between contractual rights and fiduciary obligations – intersection between fiduciary obligations and statutory causes of action for oppression – where agency agreement appointed a company as marketing agent for the marketing and sale of export coal (Export Coal) to end users – where agency agreement permitted direct sale of Export Coal to the marketing agent under offtake agreement instead of providing marketing activities – whether no conflict rule and no profit rule under fiduciary duties precluded marketing agent from purchasing Export Coal under offtake agreement until it discharged its marketing obligations under agency agreement – whether impugned coal trading conduct by marketing agent and related rights issue constituted oppression – whether breach of fiduciary duty dependent on breach of contract – whether alternative implied term existed in agency agreement requiring marketing agent to offer “fair market price” for Export Coal purchased under offtake agreement – whether breaches of fiduciary duty and statutory directors duties are relevant to establishing oppression –– where no fiduciary found –– where no implied term as pleaded – where no oppression established – further amended originating process to be dismissed with costs

CORPORATIONS - identification of counterfactual and principles to assess fair value for relief pursuant to s 233 of the Corporations Act if oppression had otherwise been established

CORPORATIONS – application for breach of statutory directors’ duties under ss 180, 181 and 182 of the Corporations Act – where nominee director alleged to be in a position of conflict of interest – whether nominee director failed to disclose information to company in breach of statutory directors’ duties and equitable duties – whether nominee director improperly used his position to detriment of company – breach of statutory directors’ duties or equitable duties not established |
| | |
| Legislation: | Corporations Act 2001 (Cth) ss 180, 181, 182, 232, 233, 236, 237, 1317H, 1317J, 1317K, 1317QC |
| | |
| Cases cited: | ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1

Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465

Anthony Hordern and Sons Limited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1

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Australian Securities and Investments Commission v Bettles [2023] FCA 975; (2023) 169 ACSR 244

Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384

Australian Securities and Investments Commission v Lindberg [2012] VSC 332; (2012) 91 ACSR 640

Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199

Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373

Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098; (2020) 382 ALR 425

Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) 174 FLR 128

Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489

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BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192

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Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62

Cessnock City Council v 123 259 932 Pty Ltd (2024) 281 CLR 39; [2024] HCA 17

Charles Philippe Louis Nilant as Trustee of the Property of Ramon Theodore Osborne, a Bankrupt v R L and K W Nominees Pty Ltd and Anor [2007] WASC 105

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Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2018] FCAFC 18

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Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21

Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104; [2021] FCAFC 201

International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644

Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

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ORDERS

| | | NSD 479 of 2022 |
| | | |
| BETWEEN: | OUR JIM & FELICJA SUPERFUND PTY LTD (ACN 600 222 740) AS TRUSTEE FOR THE JIM & FELICJA SUPERANNUATION FUND

First Plaintiff

AMBRE INVESTMENTS PTY LIMITED (ACN 104 320 783) AS TRUSTEE FOR THE POLCHOR SUPERANNUATION FUND

Second Plaintiff

ALESTE INVESTMENTS PTY LIMITED (ACN 080 441 425) AS TRUSTEE FOR THE BARKER SUPERANNUATION FUND (and others named in the Schedule)

Third Plaintiff | |
| AND: | LINDENFELS PTE LTD (UEN 201626321Z)

First Defendant

BATCHFIRE RESOURCES PTY LTD (ACN 607 340 11189)

Second Defendant

BENJAMIN BURGESS

Third Defendant | |

The further amended originating process is to be dismissed.
The plaintiffs are to pay the costs of the defendants.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

HALLEY J:

1 Central to the determination of the issues raised in this proceeding is the intersection between contractual rights and fiduciary obligations, and the intersection between fiduciary obligations and statutory causes of action for oppression.

2 In October 2016, the second defendant, Batchfire Resources Pty Ltd, completed the acquisition of the underperforming Callide thermal coal mine located in Central Queensland (Callide Mine). Prior to its acquisition of the Callide Mine, Batchfire had formulated an ambitious plan to turn it into a profitable coal mining operation (Turnaround Plan).

3 Batchfire’s principal investor was Avra Commodities Pte Ltd. Avra acquired a majority shareholding in Batchfire through a special purpose vehicle, the first defendant, Lindenfels Pte Ltd. Batchfire’s attempts to implement the Turnaround Plan, however, were ultimately not successful.

4 The plaintiffs, the minority shareholders in Batchfire, claim that the Turnaround Plan was doomed to fail from the outset because Avra and one of its nominee directors on the Batchfire board, the third defendant, Ben Burgess, always intended, and implemented a plan, to turn Batchfire into a “captive producer” of coal from the Callide Mine (Callide coal) solely for the benefit of Avra’s coal trading business.

5 As a condition of Avra’s initial investment, Batchfire was required to enter into an Agency Agreement appointing Avra as the exclusive marketing agent of Batchfire for Callide coal that was available for export (Export Coal) and an Offtake Agreement pursuant to which Avra could purchase Export Coal.

6 The plaintiffs contend that Avra’s failure to provide marketing activities under the terms of the Agency Agreement (Marketing Activities) meant that Batchfire had no choice but to sell the Export Coal to Avra under the Offtake Agreement at prices substantially less than the price for which Avra then sold the Export Coal to end-users (Coal Trading Conduct). The plaintiffs also contend that Avra had a parallel plan to force a rights issue in Batchfire through which it could gain control of Batchfire for the cheapest possible price, which ultimately succeeded when Avra obtained a majority shareholding, through Lindenfels, in April 2019 (2019 Rights Issue) and a super majority in 2020 (2 020 Rights Issue) (together, Rights Issues).

7 The plaintiffs contend that Avra breached fiduciary duties it owed to Batchfire (a) not to take advantage of an opportunity or knowledge derived from its fiduciary position without informed consent (no profit rule), and (b) not to advance its interests when there was a conflict, or a real or substantial possibility of conflict, between the interests of Avra and the interests of Batchfire (no conflict rule).

8 The plaintiffs contend that Mr Burgess orchestrated the breaches of fiduciary duty by Avra and also breached statutory and equitable duties that he owed to Batchfire as a director of the company.

9 The plaintiffs contend that the conduct of Avra and Mr Burgess in depriving Batchfire from substantial revenue from the sale of Export Coal by making it a captive supplier to Avra, and their conduct in relation to the 2019 Rights Issue and the 2020 Rights Issue, was oppressive in that it was contrary to the interests of Batchfire and objectively unfair and warrants the Court’s intervention under s 233 of the Corporations Act 2001 (Cth) (Corporations Act).

10 In order to bring an end to the alleged oppression, the plaintiffs seek an order, amongst other things, for the purchase of their shares in Batchfire at a price that reflects the value the shares would have had but for the oppressive conduct and also an order that Mr Burgess compensate Batchfire for revenue foregone from the sale of Export Coal to Avra under the Offtake Agreement by reason of his breaches of statutory and equitable duties.

11 At the conclusion of the hearing, the parties provided the Court with an agreed list of issues for determination (Agreed Issues). The Agreed Issues captured most but not all of the issues that remain to be determined in the proceeding and were not always expressed in a form that most effectively encapsulated the issue. These limitations may well reflect the challenges that parties in an adversarial system face after a lengthy hearing in seeking to agree issues for determination at a time when each has a strong incentive to frame issues for determination in a way that best suits the case they seek to advance.

12 For the reasons that follow, I have concluded that:

(a) Avra did not owe any fiduciary obligations to Batchfire with respect to its contractual obligations under the Agency Agreement to provide Marketing Activities to Batchfire;

(b) Avra’s contractual right to acquire Export Coal under the Offtake Agreement was not subject to its satisfactory performance of the Marketing Activities under the Agency Agreement;

(c) any fiduciary duty that Avra might otherwise have owed to Batchfire did not preclude Avra from acquiring Export Coal from Batchfire under the Offtake Agreement and selling that coal for a profit to end-users;

(d) the need for Batchfire to proceed with the 2019 Rights Issue and the 2020 Rights Issue would have arisen independently of any conduct of Avra, Lindenfels or Mr Burgess;

(e) Mr Burgess did not breach any statutory or equitable duties he owed as a director of Batchfire in the course of acting for Avra in its purchases of Export Coal under the Offtake Agreement;

(f) whether conduct is oppressive contrary to s 232 of the Corporations Act is not materially assisted by any inquiry as to whether the conduct is otherwise unlawful or in breach of a fiduciary duty;

(g) none of the conduct of Avra, Lindenfels or Mr Burgess relied upon by the plaintiffs was sufficient to constitute oppression for the purposes of s 232 of the Corporations Act;

(h) equitable principles governing relief are not relevant to any grant of relief pursuant to s 233 of the Corporations Act;

(i) an order cannot be made under s 233 for a director of a company to compensate the company for a breach of their statutory directors’ duties;

(j) if I had otherwise determined that the conduct of Avra, Lindenfels and Mr Burges relied upon by the plaintiff had caused the defendants to contravene s 232 of the Corporations Act, I am satisfied on the balance of probabilities that in the counterfactual advanced by the plaintiffs they would have suffered some loss;

(k) each of the various valuations advanced by the parties’ valuation experts had significant limitations but, ultimately, the discounted cash flow valuation (DCF) prepared by the plaintiffs’ valuation expert, Mr Hall, would have provided the preferable starting point from which to then determine a single figure that would represent the fair value of the plaintiffs’ shares in Batchfire but for the oppression;

(l) an appropriate discount to the discounted cash flow valuation of the shares in Batchfire in the counterfactual advanced by the plaintiffs, if the plaintiffs had otherwise succeeded, would be 80%.

13 The further amended originating process must be dismissed, and the plaintiffs must pay the costs of the defendants.

B. Dramatis Personae

| Person | D escription |
| Aleste Investments Pty Limited | The third plaintiff, being a shareholder of Batchfire holding 2,732,160 shares as at 19 June 2023 |
| Allen, Michael | A man engaged on a consulting basis by Australian Future Energy Pty Ltd, a company associated with Mr Choros, to assist Batchfire in developing a strategy for marketing and selling Export Coal. |
| Ambre Investments Pty Limited | The second plaintiff, being a shareholder of Batchfire holding 23,477,368 shares as at 19 June 2023 |
| Avra Commodities Pte Ltd | The entity that acquired a majority shareholding in Batchfire Resources Pty Ltd through the first defendant, Lindenfels Pte Ltd, a wholly owned subsidiary and special purpose vehicle. |
| Barker, Richard | A non-executive director of Batchfire in the period from 9 September 2015 to 30 June 2020. |
| Batchfire Resources Pty Ltd | The second defendant, being the entity that acquired and operated the Callide Mine |
| Burgess, Ben | Third defendant and a Lindenfels appointed non-executive director of Batchfire in the period from 31 October 2016 to 1 November 2019 and the Chief Executive Officer of Avra |
| Burns, Grant | The plaintiffs’ coal trading expert |
| Callide Power Management Pty Ltd | The owner of the Callide C power station, which together with the Callide B power station, received approximately 5.5 million tonnes of Callide coal per annum between 2001 and 2015 |
| Choros, Edek | An executive director of Batchfire in the period from 4 August 2015 to 16 June 2020 and a director of the second plaintiff, Ambre Investments Pty Limited, and the sole director of the eighth plaintiff Polchor Pty Ltd |
| Chua, Edwin | The Head of Legal at the Avra group of companies |
| Commodities Intelligence Centre Pte. Ltd | An entity to which non-Avra sales of Export Coal were made over the relevant period, that Mr Burns did not consider were at arm’s length from Avra |
| Crawford, Matthew | A Lindenfels nominated non-executive director of Batchfire from 1 November 2019 |
| Crittall, Peter | A person put forward by the minority shareholders as a Batchfire director on 17 June 2020 |
| CS Energy Ltd | The owner of the Callide B power station, which together with the Callide C power station, received approximately 5.5 million tonnes of Callide coal per annum between 2001 and 2015 |
| Cunningham, Eoghan | Lindenfels’ expert valuer |
| Dawson, Allan | A former general manager of the Ensham coal mine who provided a commentary on drafts of the Avra term sheet and Agency Agreement to Mr Westerhuis |
| EAC Partners | An entity retained by Batchfire on or about 23 August 2018 to act as its financial adviser in connection with a proposed fund raising of up to between $150 million and $160 million |
| Flame S.A | A coal trader and at all material times a competitor of Avra |
| Hall, Jeffrey | Valuation expert for the plaintiffs |
| Harrison, Simon | A Lindenfels nominated non-executive director of Batchfire in the period from 1 May 2017 to 17 October 2018 |
| Hayes, Joe | A partner of Wexted Advisors |
| Jaski, Campbell | Valuation expert for Lindenfels and Batchfire |
| Korean Midland Power Co Ltd | Korean Genco to which Avra sold Export Coal |
| Kubo, Kotaro | An executive of Toyota Tsusho |
| Lee, Lisa | The Chief Financial Officer of Batchfire during the relevant period |
| Leuthard, Mark | Avra’s Chief Operating Officer during the relevant period |
| Lindenfels Pte Ltd | A wholly owned subsidiary and special purpose vehicle of Avra and the first defendant |
| Lonie, Stephen | A non-executive director of Batchfire in the period from 8 September 2015 to 30 September 2016 |
| Middleton, Russell | The Chief Financial Officer of Batchfire in the relevant period |
| Moffat, Colin | The General Manager of the Callide Mine from 2015 to 2019 |
| NineSquared Pty Ltd | A specialist economic and commercial advisory firm engaged exclusively by Avra in July 2016 to advise on the Callide Mine including estimates of trading and revenue per export tonne of coal. |
| O’Connell, John | Batchfire’s Manager, Technical in the period from February 2018 to July 2021 and thereafter he has been Batchfire’s General Manager, Planning for the Callide Mine |
| O’Reilly, Terry | A director and the chairperson of Batchfire since 10 September 2015 and a Lindenfels nominee director since May 2017 |
| Ord Minnett | Batchfire’s exclusive financial adviser following its entry into the Callide SSA |
| PCA Resources DMCC | An entity to which non-Avra sales of Export Coal were made over the relevant period, that Mr Burns did not consider were at arm’s length from Avra |
| Polchor Pty Ltd | The eighth plaintiff, being a shareholder of Batchfire holding 887,650 shares as at 19 June 2023 |
| Poulsson, Esben | A non- executive director of Batchfire appointed by Lindenfels in the period between 17 October 2018 and 2 March 2021 |
| PT Virtue Dragon Nickel Industries | Indonesian nickel smelter, to which Avra sold Export Coal |
| Quinn, Greg | The founder of EAC Partners |
| Ranger Resources Pty Ltd | A company from which Batchfire received multiple funding offers in March 2019 and June 2020 |
| Rocksbridge Pty Ltd | An entity to which non-Avra sales of Export Coal were made over the relevant period, that Mr Burns did not consider were at arm’s length from Avra |
| Samson, Alexander | Senior Associate at DLA Piper during the relevant period who provided legal advice to the G4 |
| Sandy Pier Investments Pty Ltd | The sixth plaintiff being a shareholder of Batchfire holding 874,957 shares as at 27 June 2023 |
| Soorley, Jim | The Chairman of CS Energy during the relevant period |
| Southwood, Scott | Batchfire’s General Manager of Marketing, under the Avra Agency Agreement, appointed by Avra in November 2016 |
| Stapelton, Ken | An independent technical expert from MineOp who reviewed the reserves estimate on which 2019 Life of Mine Plan was based |
| Synthesis Energy Systems | Synthesis Energy Systems which held 11.35% and 11.6% shareholding in Batchfire at different points during the relevant period |
| TNB Fuel Services SDN. BHD | A Malaysian coal trading company |
| Westerhuis, Peter | The Chief Executive Officer of Batchfire in the period from 1 October 2015 to 5 May 2019 and the sole director of the sixth plaintiff, Sandy Pier Investments Pty Ltd |
| Wexted Advisors | A specialist corporate restructuring specialist appointed by Batchfire on or about 24 December 2018 to provide independent advice on the financial position of the company |
| Williams, Pat | A director of Ranger Resources Pty Ltd |
| Xenith Consulting Pty Ltd | A mining consulting firm commissioned by Batchfire in May 2015 to undertake and complete a geological review of the resources and reserves of the Callide Mine, a life of mine optionality study, and a five year mine plan |
C. Glossary

| Term | Definition |
| 2FASOC | Second further amended statement of claim accepted for filing on 18 February 2025 |
| 5-Year Mine Plan | A five year mine operating plan developed by Batchfire that builds upon the five year mine operating plan that Xenith was commissioned to produce for Batchfire in May 2015 |
| 5-Year Strategic Plan | A final draft of a 5-year strategic plan for FY19 – FY23 prepared by Mr Westerhuis in April 2018 |
| 2016 Term Sheet | A final version of a term sheet executed by Batchfire and Avra on 11 August 2016 for Avra’s investment in Batchfire |
| 2019 Life of Mine Plan | A life of mine plan for the Callide Mine dated 21 February 2019 and developed by Mr O’Reilly at the request of Mr Westerhuis |
| 2019 Rights Issue | A rights issue in Batchfire that the Batchfire board resolved to proceed with on 14 March 2019 to raise $25 million at $0.55 a share |
| 2019 Term Sheet | A term sheet provided by Avra to Batchfire on or about 15 March 2019 for a proposed subscription by Lindenfels for 45,454,545 shares in Batchfire at a price of $0.55 per share for a total investment of $25,000,000 |
| 2020 Rights Issue | A rights issue in Batchfire that the Batchfire board resolved to proceed with on 23 April 2020 to raise $20 million at $0.088 per share |
| 2020 Ranger Proposal | An offer received by Batchfire from Ranger Resources on 1 June 2020 to acquire shares in Batchfire for the price of between $0.20 and $0.30 per share, which included 60 day exclusivity period to permit Ranger Resources to undertake an updated due diligence review and a number of conditions described as “principles” |
| Adjusted DCF Valuation | Mr Hall’s DCF valuation, adjusted to reflect the assumption that the 2019 Rights Issue and 2020 Rights Issue did not take place |
| Agency Agreement | An agency agreement dated 31 October 2016 between Avra Commodities Pte Ltd, Batchfire Resources Pty Ltd, Callide Coalfields (Sales) Pty Ltd, Anglo Coal (Callide) Pty Ltd and Anglo Coal (Callide) No. 2 Pty Ltd appointing Avra Commodities Pte Ltd as the exclusive marketing agent of Batchfire |
| Agency Agreement Counterfactual | One of the counterfactuals advanced by the plaintiffs which proceeded on the basis that the only course open for Avra was to arrange sales under that Agency Agreement and postulated that, but for the Coal Trading Conduct, Batchfire could have achieved the same sales under the Agency Agreement that Avra was able to achieve with end-users |
| Agreed Issues | A list of agreed issues for determination filed on 28 April 2025 |
| Amended Constitution | An amended constitution for Batchfire that was approved by the Batchfire board on 27 September 2016. |
| Anglo American | Anglo American Metallurgical Coal Assets Pty Ltd and Anglo American Metallurgical Coal Holdings Pty Ltd, which together had acquired the Callide Mine in 2002 |
| Anglo Transaction | Batchfire’s purchase of the Callide Mine from Anglo American for a nominal $1.00, which was completed on 31 October 2016 |
| Avra Conduct Information | Information that the plaintiffs alleged Mr Burgess has failed to disclose to the board of Batchfire thereby contravening s 180(1) of the Corporations Act, comprising (a) the profits made by Avra on sales of coal under the Offtake Agreement and that it was purchasing coal from Batchfire under that agreement at prices below the market price for Callide coal, (b) Avra was performing no Marketing Activities under the Agency Agreement and had no intention of doing so, (c) Avra was entering into medium and long term contracts with end-users that provided a stable source of revenue for Avra, and (d) Batchfire was being misled about the prices that end-users were prepared to pay for Callide coal |
| Avra Control Plan | A plan for Avra to gain control of Batchfire set out in a slide presentation that Mr Burgess and Mr Southwood received via an internal Avra email on 5 October 2017 |
| Avra February 2019 Proposal | A proposal from the boards of Avra and Lindenfels for Lindenfels to subscribe for 45,454,545 shares in Batchfire at $0.55 per share, with put and call options enabling Lindenfels to acquire all of the shares held by other Batchfire shareholders, which Mr Burgess emailed to Mr O’Reilly, Mr Choros, Mr Barker, Mr Westerhuis and Mr Poulsson on 28 February 2019 |
| Avra fiduciary duty | The plaintiffs’ contention that Avra owed a fiduciary duty to Batchfire not to promote its own interests by making or pursuing a financial gain in circumstances in which there was a conflict, or a real or substantial possibility of a conflict, between its interests and the interests of Batchfire.

The plaintiffs allege that this included a duty on Avra not to exercise its powers under the Agency Agreement and the Offtake Agreement to make or pursue a financial gain for itself if doing so was in conflict with the economic interests of Batchfire in maximising profits earned from the sale of Export Coal and obtaining the highest price possible for Export Coal through export sales agreements procured by Avra under the Agency Agreement. |
| Avra Investment Paper | An internal Avra paper entitled “An Australian Investment Proposal” prepared in August 2016 explaining the rationale for an investment by Avra in Batchfire |
| Avra Ledger | A ledger prepared by Avra by Avra that contains the on-sale sales revenue, freight revenue and vessel details from 2018 through to 2024 |
| Avra Transaction | Lindenfels’ purchase of 36.99% of the shares in Batchfire for $35 million, completed on 28 September 2016 |
| Batchfire | Batchfire Resources Pty Ltd and from the date of completion of the Callide SSA, each of its operating subsidiaries, being Callide Coalfields (Sales) Pty Ltd, Anglo Coal (Callide) Pty Ltd, Anglo Coal (Callide) No. 2 Pty Ltd, and Anglo Coal (Callide Management) Pty Ltd |
| Batchfire Coal Sales Framework | A framework within Schedule 1 of the Agency Agreement under which the Marketing Activities were to be provided to Batchfire |
| Callide coal | Coal mined from the Callide Mine |
| Callide Mine | Callide thermal coal mine located in Central Queensland |
| Callide Power Stations | The Callide B power station and the Callide C power station |
| Callide SSA | A share sale agreement dated 24 December 2015 between Batchfire and Anglo American, under which Batchfire acquired the Callide Mine |
| Case 4 | One of the options identified in Xenith’s mine optionality study that was included in its five year mine operating plan, which was based on an assumption that coal production would proceed with the current mining fleet |
| Cash Deposit Account | An account to be established by Batchfire pursuant to cl 12.1 of the IPC Deed |
| Coal Supply Agreements | Coal supply agreements between Anglo American and the Callide Power Stations, comprising onerous contract provisions between $292 million and $702 million |
| Coal Trading Conduct | The plaintiffs’ contention that Avra’s alleged failure to provide Marketing Activities under the Agency Agreement meant that Batchfire had no choice but to sell the Export Coal to Avra under the Offtake Agreement at prices substantially less than the price for which Avra then sold the Export Coal to end-users |
| Crittall Resolution | Two resolutions relating to the appointment of Mr Crittall as a nominee director of the shareholders other than Lindenfels that was considered at the extraordinary general meeting on 22 September 2020 |
| Dawson Summary | A two-page summary produced on or about 26 August 2016 containing 17 points and comments that Mr Dawson had on the 2016 Term Sheet and the Agency Agreement |
| DCF | Discounted cash flow valuation |
| Discount | A discount to be applied to prices for Callide coal under the Flame Offtake Agreement pursuant to cl 10.1. |
| Explanatory Statement | An explanatory statement provided to Batchfire’s shareholders on 28 September 2016 with respect to the Callide SSA, transactions with CS Energy to secure compliance with three of the conditions in the Callide SSA, and the Avra transactions |
| Export Coal | Callide coal that was available for sale to end-users overseas either pursuant to the Agency Agreement or the Offtake Agreement |
| February 2020 Cash Flow Forecast | An updated Batchfire cashflow statement that the Batchfire board met to consider on 25 February 2020 which forecast that Batchfire would have a negative cash position of between $8 million and $19 million at the end of each month between March 2020 and December 2020 |
| Flame Offtake Agreement | An offtake agreement dated 19 January 2016 between Batchfire and Flame S.A |
| Flame Term Sheet | A term sheet dated 29 April 2016 executed by Batchfire and Flame S.A |
| FOR operating costs | Free on rail cost of transporting coal |
| Further Amended Constitution | A further amended version of Batchfire’s constitution which was approved by the Batchfire board at the extraordinary general meeting on 20 July 2020 |
| G4 | A group of four “foundation” shareholders of Batchfire, who referred to themselves as the G4, comprising Mr Choros (30.66% shareholding held by Ambre Investments Pty Limited and other related companies), Synthesis Energy Systems (11.35% shareholding), Mr Lonie (6.54% shareholding held by Engadine Estates), and Mr Barker (3.18% shareholding held by Aleste Investments Pty Limited). |
| ICI 3 | Argus/Coalindo Indonesian Coal Index 3, which is one of five indices, produced by Argus and PT Coalindo Energy, which provides weekly average prices for thermal coal grades sold on an FOB basis in Indonesia (a major competitor to Australian export thermal coals), as well as monthly averages for the previous three months |
| Implied Term | An implied term of the Agency Agreement alleged by the plaintiffs and plead in [70F] of the 2FASOC that if Avra elected to purchase Export Coal under the Offtake Agreement, it was obliged to offer at least “a fair market price” for the coal comparable to the sale price that would have been achieved, had it elected to procure Export Sales Agreements for Export Coal by conducting Marketing Activities pursuant to the Agency Agreement |
| Initial Ranger Resources Offer | An offer received by Batchfire from Ranger Resources on 11 March 2019 to acquire 100% of shares in Batchfire and associated assets, leases, equipment and infrastructure a price of $3.10 per share or, alternatively, if less than 100% but at least 51% of shareholders indicated an intention to sell, Ranger Resources and those shareholders would enter into an option deed providing a call option to Ranger Resources to acquire their shares at $2.50 per share (less an option fee of $0.05 per share) |
| Information Memorandum | An information memorandum published in March 2016 by Batchfire containing detailed information on its plans for the Callide Mine in an attempt to raise funds from investors and satisfy its capital raising obligations under the Callide SSA |
| IPC Deed | An Implementation, Participation and Commitment Deed executed on 31 October 2016 between Batchfire, CS Energy and Callide Energy |
| JORC Code | The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves |
| Kilburnie Property | An area of land adjacent to the Boundary Hill South mining area which was owned by family interests and included a heritage listed homestead and the graves of former owners, the coal from which was included as a probable reserve in the mine outputs for the 2019 Life of Mine Plan, on the assumption that Batchfire would be successful in obtaining the agreement of the owner and all necessary approvals to mine that area |
| KOMIPO contract | Avra’s contract with Korean Midland Power Co Ltd for the provision of Export Coal |
| Lindenfels nominee directors | Mr Burgess (from 31 October 2016 to 1 November 2019), Mr Poulsson (from 17 October 2018 to 2 March 2021), Mr Harrison (from 1 May 2017 to 17 October 2018) and Mr O’Reilly (from May 2017) |
| Lindenfels Subscription Agreement | A subscription agreement dated 28 September 2016 between Batchfire and Lindenfels under which Lindenfels acquired a 37.0% equity interest in Batchfire for $35 million |
| Marketing Activities | The marketing activities defined in the Agency Agreement, and which are the subject of cl 4 of the Agency Agreement |
| Minority Shareholder Resolutions | Resolutions proposed by the minority shareholders on 7 August 2020 to appoint Mr Moffatt and Peter Crittall as directors of Batchfire as nominees “of the shareholders other than Lindenfels” or, in the alternative, that they simply be appointed as directors of Batchfire, for the consideration of which an extraordinary general meeting of Batchfire was called |
| NBIO Parties | Entities or persons described by the plaintiffs as non-binding indicative offer parties who have advanced buy-out proposals to Batchfire through the plaintiffs after the commencement of these proceedings |
| NCV | Net calorific value |
| Non-Lindenfels directors | Mr O’Reilly (prior to May 2017), Mr Choros, Mr Barker and Mr Lonie. |
| Offtake Agreement | An offtake agreement dated 31 October 2016 between Avra Commodities Pte Ltd, Batchfire Resources Pty Ltd, Callide Coalfields (Sales) Pty Ltd, Anglo Coal (Callide) Pty Ltd and Anglo Coal (Callide) No. 2 Pty Ltd under which Avra Commodities Pte Ltd could purchase Export Coal |
| Offtake Agreement Counterfactual | One of the counterfactuals advanced by the plaintiffs for the purposes of the Implied Term claim, which proceeded on the basis that Avra was able to purchase coal from Batchfire under the Offtake Agreement and sell it for a profit but Avra was obliged to offer at least a fair market price for the coal that was comparable to the sale price that Avra could have achieved if Avra had instead procured export sales agreements for Batchfire by conducting the Marketing Activities |
| On-Sale Materials | On-sale contracts, freight invoices, on-sale invoices and bills of lading, held by Avra in a central repository, the information from which was used to prepare Avra Ledger, according to Mr Chua |
| pleaded equitable duty | The equitable duty that the plaintiffs alleged Mr Burgess owed to Batchfire and breached not to promote his own interests or the interests of another person, including Avra, or to make or pursue a gain for himself or any other person, including Avra, if it could give rise to a real or substantial possibility of a conflict with the interests of Batchfire, including its interest in maximising revenue from the sale of Callide coal for export |
| Project Review Group | A group required to be established and operated under cl 9 of the IPC to review the operation of the Callide Mine by Batchfire |
| Remediation Program | A program Batchfire was required to use reasonable endeavours to carry out pursuant to cl 8.1 of the IPC Deed to achieve a reduction in the amount of the present environmental liability financial security provided to the Queensland Government of $121,177,554 to approximately $80 million within five years of the commencement date of the IPC Deed |
| Revised Rangers Resources Offers | Revised funding offers provided to Batchfire on 18 and 21 March 2019 by Ranger Resources in similar terms to the Initial Ranger Resources Offer but with the addition of a proposed coal royalty agreement, accompanied by a request for security over the leases and both the fixed and mobile plant and equipment associated with the Boundary Hill operations |
| Revised 5-Year Plan | An updated version of the 5-Year Plan that was prepared by Batchfire in April 2018. |
| Rights Issues | 2019 Rights Issue and 2020 Rights Issue, referred to together |
| Shareholder Briefing | A briefing presented to Batchfire shareholders presented by Mr Westerhuis on 4 April 2019 in the form of a slide deck on the current operational and financial position of the company |
| Spot Sales Counterfactual | One of the counterfactuals advanced by the plaintiffs, which proceeded on the basis that Batchfire would have been able to make direct sales of Export Coal to customers on the spot market on terms that would have likely been different to the terms that Avra had negotiated with customers on a medium and long-term basis |
| Subsequent alleged oppressive conduct | The conduct of Avra and the Lindenfels nominee directors proceeding the 2019 Rights Issue that the plaintiffs alleged was contrary to the interests of shareholders and oppressive, unfairly prejudicial, or unfairly discriminatory to shareholders, other than Lindenfels, comprising (a) amending the Amended Constitution to relegate the protections in cl 26 dealing with conflicts of interest, (b) not permitting the two persons nominated by the minority shareholders to take up their positions on the Batchfire board, (c) continuing the Avra Prepayment Facility, which as at December 2024, stood at $140.8 million and $348.8 million in total, and (d) rejecting “out of hand” buy-out proposals advanced by the plaintiffs since 2020 |
| Turnaround Plan | A plan that was formulated by Batchfire to turn the Callide Mine into a profitable coal mining operation and was published in the Information Memorandum in March 2016 |
| Virtue Dragon contract | Avra’s contract with Virtue Dragon for provision of Export Coal |
| Wexted March 2019 Update | A response provided on 29 March 2019 by Mr Joe Hayes of Wexted Advisors to a request from Mr O’Reilly to advise whether “in the absence of a “sure” cash injection in late April”, the directors of Batchfire would “be heading towards insolvent trading” |
E. Evidence

E.1. Plaintiffs’ evidence

E.1.1. Mr Choros

14 Edek Choros is a director of the second plaintiff, Ambre Investments Pty Limited, and the sole director of the eighth plaintiff, Polchor Pty Ltd. As at 19 June 2023, Ambre, as the trustee of the Polchor Superannuation Fund, the Choros Mining Trust, the Choros Trust No 1 and the Choros Trust No 2, held 23,477,368 shares in Batchfire, being approximately 6.5% of Batchfire’s issued share capital at that date, and Polchor held 887,650 shares in Batchfire, being approximately 0.25% of Batchfire’s issued share capital. Both Ambre and Polchor were foundation shareholders of Batchfire.

15 Mr Choros was a director of Batchfire from 4 August 2015 until his resignation on 16 June 2020.

16 Mr Choros was extensively cross examined by senior counsel for Lindenfels and Mr Burgess on different topics over three days. He found giving oral evidence a challenging and confronting experience. He frequently appeared to misunderstand the questions put to him by his cross examiners. Many of his answers were non-responsive or argumentative. I accept that this was at least partly explicable to English not being his first language. Nevertheless, he had a pronounced tendency when responding to questions on important issues to engage in a debate with his cross examiners rather than responding directly to the questions put to him. The plaintiffs do not ask the Court to accept the evidence of Mr Choros unless it is independently corroborated.

17 Mr Choros was a most unsatisfactory witness. I was only able to accept his evidence to the extent that it was against interest, corroborated by contemporaneous documents, or consistent with the inherent logic of events.

E.1.2. The plaintiffs’ other lay witnesses

18 The plaintiffs relied on the following evidence from other lay witnesses.

19 Richard Barker is a director of the third plaintiff, Ale ste Investments Pty Limited. As at 19 June 2023, Aleste, as the trustee of the Barker Superannuation Fund and the Mosaic Trust, held 2,732,160 shares in Batchfire, being approximately 0.755% of Batchfire’s issued share capital. Aleste was a foundation shareholder of Batchfire. Mr Barker was a non-executive director of Batchfire from 9 September 2015 until 30 June 2020.

20 Peter Westerhuis is the sole director of the sixth plaintiff, Sandy Pier Investments Pty Ltd. As at 27 June 2023, Sandy Pier held 874,957 shares in Batchfire, being approximately 0.24% of Batchfire’s issued share capital. Mr Westerhuis was the Chief Executive Office of Batchfire from 1 October 2015 to 5 May 2019.

21 Michael Allen was engaged on a consulting basis by Australian Future Energy Pty Ltd, a company associated with Mr Choros, to assist Batchfire in developing a strategy for marketing and selling Export Coal. His involvement with Batchfire ceased in July 2016.

22 Colin Moffatt was the General Manager of the Callide Mine from 2015 to 2019.

23 Mr Barker, Mr Allend and Mr Moffatt were cross examined. Each of them, generally answered questions directly, made appropriate concessions, and I am satisfied their evidence was given to the best of their recollection. At times, however, the weight I could give to their evidence was reduced because of the absence or limited number of corroborative contemporaneous documents, the length of time that had elapsed since the matters they were giving evidence on had occurred, and apparent inconsistencies in their recollections with the inherent logic of events.

24 The plaintiffs also relied on affidavits from Stephen James Schmidt, Peter James Cross, Alison Mary Luther, James Mahood and Michael Patrick Howard. Each was an authorised representative of the first plaintiff, the seventh plaintiff, the fifth plaintiff, the tenth plaintiff and the nineth plaintiff in the proceeding respectively. None was required for cross examination.

E.2. Defendants’ lay witnesses

E.2.1. Lindenfels

25 Lindenfels filed lay affidavits from Scott Southwood but ultimately chose not to call him as a witness. Lindenfels was plainly in a position to have called Mr Southwood. No explanation was proffered as to why he was not called. As submitted by the plaintiffs, I infer that any evidence that he may have been expected to have given on disputed topics, to which he would have expected to have been in a position to give evidence, would not have assisted Lindenfels.

26 Lindenfels relied on an affidavit of Edwin Chua, the Head of Legal for the Avra group of companies, to prove the provenance of the data in the Avra Ledger. He was not required for cross examination.

E.2.2. Batchfire

27 Batchfire called Terrence O’Reilly, the chairperson of Batchfire since 10 September 2015, and John O’Connell, Batchfire’s Manager, Technical in the period from February 2018 to July 2021 and thereafter Batchfire’s General Manager, Planning for the Callide Mine.

28 Both Mr O’Reilly and Mr O’Connell were cross-examined. I was generally satisfied each answered questions honestly to the best of their recollection and made appropriate concessions when taken to contemporaneous documents. At times, however, Mr O’Connell had a tendency to become an advocate, particularly with respect to alleged shortcomings in the preparation of a life of mine plan for the Callide Mine dated 21 February 2019 that he had developed at the request of Mr Westerhuis (2019 Life of Mine Plan).

E.2.3. Mr Burgess

29 Mr Burgess prepared two affidavits but, ultimately, chose not to give evidence at the hearing. Mr Burgess did not give any explanation for his decision not to give evidence. As submitted by the plaintiffs, I infer that any evidence that he may have been expected to have given on disputed topics, to which he would have expected to have been in a position to give evidence, would not have assisted his defence.

E.3. Approach to fact finding

30 In this proceeding, as with many commercial disputes, the testimonial evidence at times appeared to be coloured by the witnesses’ perception of the issues at stake. Further, the evidence given by the plaintiffs’ witnesses often evinced a profound conviction that Avra, Lindenfels, and Mr Burgess had acted towards them in an unfair and oppressive manner.

31 Ultimately, I have assessed the weight that I can give to the testimonial evidence given in the proceeding by reference to the substantial body of contemporaneous documentary evidence that was admitted into evidence in the proceeding, which is, as Bell P (Bathurst CJ and Leeming JA agreeing) stated in Et -China.com International Holdings Ltd v Cheung [2021] NSWCA 24; (2021) 388 ALR 128 at [25]:

… a generally reliable reference point from which to assess the reliability of witness testimony.

32 At the same time, I recognise that contemporaneous documents often can only provide an incomplete picture of what may have occurred. This can be particularly the case in making findings as to what was said in meetings and conversations. Minutes of board meetings can be particularly problematic as complaints and contentious matters are unlikely to ever be recorded verbatim in the minutes, or even at all, in an effort to maintain board harmony and collegiality. Often a more reliable guide is the extent to which testimonial evidence of conversations is consistent with the inherent logic of events and other documentary evidence, in particular, emails.

33 Emails often have a tendency to provide an unfiltered and candid contemporaneous perception of the author regarding the significance of contemporaneous events and concerns. The emails in evidence in this case were voluminous and presented at times a very different picture to the testimonial evidence given by the plaintiffs’ witnesses and, to a more limited extent, the evidence of Mr O’Reilly and Mr O’Connell. I accept that in large part, with the exception of Mr Choros, the inconsistencies were likely attributable to the elapse of time since the relevant events and difficulties in recalling the chronological order in which events occurred and precisely when concerns may first have arisen and been expressed.

34 Contemporaneous written reports made by senior executives to boards also typically provide a more reliable record of contemporaneous concerns and objectives than testimonial evidence coloured by the exigencies of litigation and the elapse of time. A particularly noteworthy feature of the hearing of this proceeding was the extent to which witnesses, after being shown contemporaneous reports and related documents, conceded that their earlier evidence had been mistaken or incomplete.

F. The case advanced by the plaintiffs

35 The plaintiffs accept the Turnaround Plan was ambitious and that Batchfire encountered significant operational issues from the outset. They also accept that these issues caused delays in implementing the plan and were not attributable to Avra but maintain that the issues were for the most part “run of the mill” issues to be expected in any mining operation. The plaintiffs contend, however, that what is attributable to Avra and Mr Burgess is the lost opportunity for Batchfire to develop a brand for the sale of “Batchfire export coal” and to enter into similar medium and long term contracts over the Export Coal that Avra itself had entered into with end-users for substantial profits.

36 The case advanced by the plaintiffs in the proceeding can fairly be described as novel and ambitious. In many ways, it was no less ambitious than the Turnaround Plan.

37 The plaintiffs contend that the failure of the Turnaround Plan was largely because Avra and Mr Burgess sought to turn Batchfire into a captive producer of Export Coal solely for the benefit of Avra’s coal trading business. They contend that Avra’s deliberate failure to perform Marketing Activities meant that Batchfire had no alternative market for the sale of its Export Coal and had no choice but to sell the coal to Avra under the Offtake Agreement at an undervalue.

38 Relatedly, the plaintiffs contend that by no later than October 2017, Avra formulated a plan to force a rights issue and take control of Batchfire for the cheapest possible price. They contend that by mid-2018 Batchfire had been deprived of some $35 million to $81 million in revenue and it had a need for further working capital. They contend that Avra, Lindenfels and its nominee directors actively opposed any funding option other than the 2019 Rights Issue, which substantially undervalued Batchfire and permitted Lindenfels to gain a majority shareholding in Batchfire.

39 The plaintiffs have sought in the proceeding to advance a statutory oppression case seeking to rely in large part on breaches of alleged fiduciary duties owed by Avra to Batchfire. The conventional relief for a breach of fiduciary duty includes an account of profits. In this case, the plaintiffs claim that Avra breached fiduciary duties it owed to Batchfire by acquiring Export Coal at prices less than market price and then sold that coal to end-users for a profit. Had the plaintiffs sought to bring a derivative fiduciary claim in the name of Batchfire against Avra pursuant to s 236 and s 237 of the Corporations Act, rather than an oppression suit against Lindenfels and Batchfire, the equitable remedy of an account of profits would have provided a straightforward manner by which they could obtain relief.

40 By advancing a claim pursuant to s 232 and seeking relief pursuant to s 233 of the Corporations Act, the plaintiffs avoided the need to satisfy the statutory criteria in s 237 for bringing a proceeding on behalf of Batchfire, including that bringing the proceeding was in the best interests of the company and that there was a serious question to be tried.

41 A fiduciary is deprived of any benefits obtained by reason of a breach of the no conflict rule or no profit rule irrespective of whether the person to whom the fiduciary obligations was owed could or would have obtained the same benefits. At various times, the plaintiffs contended that because both Avra and Mr Burgess breached fiduciary duties that they owed to Batchfire, the Court does not need to determine whether the operational and financial issues confronting the Callide Mine following its acquisition by Batchfire would have meant that Batchfire, the victim of the alleged breaches, was unwilling, unlikely or unable to exploit the opportunities that Avra sought for itself and Mr Burgess sought to provide to Avra.

42 As a consequence, however, of their decision to pursue relief pursuant to s 232 and s 233 of the Corporations Act, rather than a fiduciary claim against Avra, the plaintiffs had to identify a counterfactual, then establish on the balance of probabilities that they had suffered loss and then, by reference to the degree of probabilities or possibilities, quantify that loss. Given the extent to which the counterfactual varied from the factual, both the plaintiffs and the defendants advanced extensive expert evidence directed at allegedly foregone coal trading revenue and valuation issues, much of which was necessarily dependent on speculative assumptions.

43 As explained below, the plaintiffs well understood the commercial implications of the position that Batchfire had placed itself in by agreeing to enter into the Agency Agreement and the Offtake Agreement in order to obtain the equity funding from Avra so that Batchfire could complete its acquisition of the Callide Mine. Nevertheless, the plaintiffs now seek to advance a case to the effect that the success of the Turnaround Plan depended on Avra not exercising its contractual rights to acquire specific quantities of Export Coal under the Offtake Agreement.

44 The plaintiffs seek to rely on the alleged fiduciary duties owed by Avra to Batchfire, and the statutory and fiduciary duties owed by Mr Burgess to Batchfire, as providing the basis for imposing significant qualifications on the contractual rights that Avra had bargained for under the Offtake Agreement to acquire and on-sell for profit Export Coal.

45 A particular hurdle for the plaintiffs’ case is their contention that the alleged fiduciary obligation owed by Avra to Batchfire only precluded it from exercising its contractual rights to acquire Export Coal under the Offtake Agreement if Avra had breached its contractual obligations by failing to provide Marketing Activities under the Agency Agreement. The proposition that the breach of a fiduciary obligation not to profit at a beneficiary’s expense is only engaged if the fiduciary breaches a term of a contract, particularly an obligation to provide broadly defined Marketing Activities, highlights the novelty of the alleged fiduciary duty and the difficulty of imposing fiduciary obligations that are inconsistent with freely negotiated and bargained for contractual rights.

46 A further hurdle for the plaintiffs is their attempt to rely on the alleged breaches of fiduciary duties owed by Avra to Batchfire and the statutory and fiduciary duties owed by Mr Burgess to Batchfire to establish, or at least to make it more likely, that the Court should find that the conduct of Batchfire’s affairs had been conducted in a manner that was oppressive, unfairly prejudicial to or unfairly discriminatory against them, contrary to s 232 of the Corporations Act.

47 It is important not to equate breaches of fiduciary duty or directors’ duties with conduct that can constitute oppression. In many cases the same conduct may constitute both a breach of statutory and fiduciary directors’ duties, and conduct that is oppressive contrary to s 232 of the Corporations Act, but there is no necessary connection between the two causes of action. That distinction has been blurred by the plaintiffs’ attempts to ground their statutory oppression claim on breaches of alleged fiduciary and statutory directors’ duties.

48 Equally potentially problematic is the plaintiffs seeking to recover compensation pursuant to s 233 of the Corporations Act for contraventions by Mr Burgess of his statutory and equitable directors’ duties. Not least because of the potential overlap with the claims for compensation that the plaintiffs advance against Lindenfels and whether the plaintiffs have standing to seek compensation for breaches of statutory directors’ civil penalty provisions given the restrictions on standing to seek compensation in s 1317J of the Corporations Act.

G. Batchfire acquisition of the Callide Mine

G.1. The Callide Mine

49 The Callide Mine is a thermal coal mine located approximately 120 kilometres southwest of the Port of Gladstone in Central Queensland. The mine produces low sulphur, sub-bituminous thermal coal.

50 Operations commenced at the Callide Mine in 1945. As at March 2016, approximately 232 million tonnes of coal had been produced at the Callide Mine.

51 As at December 2013, the Callide Mine had reserves of 237 million tonnes and total resources of 849 million tonnes, as defined in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). The JORC Code is produced by the Australasian Joint Ore Reserves Committee. It is a professional code of practice that sets minimum standards for the public reporting of Exploration Results, Mineral Resources and Ore Reserves.

52 The following description of the geology of the Callide Mine was provided in an Information Memorandum released by Batchfire to potential investors in March 2016:

The ‘Callide Seam Member’ consists of a number of discrete seams that, when coalesced, range from approximately 4m up to 32m in thickness. This seam member is mined where it is close enough to the surface to be economical. Currently, the coalesced thickness of coal being mined is ~22m at Boundary Hill, ~12m at Trap Gully, ~10m at The Hut, and ~16m at Dunn Creek. The thickest coalesced coal sequence occurs in the Boundary Hill Extension (Kilburnie) area, where it reaches the maximum thickness of 32m.

G.2. The Callide Mine under Anglo American

53 Anglo American Metallurgical Coal Assets Pty Ltd and Anglo American Metallurgical Coal Holdings Pty Ltd (together, Anglo American) acquired the Callide Mine in 2002.

54 In the period between 2001 and 2015, the Callide Mine achieved average saleable production of 8.6 million tonnes per annum. In that period, approximately 5.5 million tonnes per annum were delivered from the Callide Mine to the adjacent Callide B power station owned by CS Energy Ltd and the Callide C power station owned by Callide Power Management Pty Ltd (CPM) (together, Callide Power Stations).

55 In the period from 2012 to 2015, Anglo American reported onerous contract provisions between $292 million and $702 million in its annual financial statements for its coal supply agreements with the Callide Power Stations (Coal Supply Agreements). The agreements were stated to be for prices significantly below market rates with terms that extended to 2031. At the end of 2015, the provision reported was $572 million.

56 There was a significant decrease in production levels from the Callide Mine in the period from 2008 to 2015 due to a relocation by Anglo American of a large excavator to its other Australian operations, a reduction in demand from customers in the Gladstone area, a failure of a component in a dragline, and the impact of extreme weather events, in particular flooding in 2010 and early 2011. The significant decrease in production levels during this period was accompanied by a significant increase in operating costs. Operating costs increased from free on rail cost of transporting coal (FOR operating costs) per tonne of “$20.9” in 2008 to as high as “$45.9” in 2013 and then reduced to “$35.3” in 2015.

57 In the period between 2008 and 2015, total coal sales varied between 6.4 million tonnes and 9.8 million tonnes. During that period, domestic sales varied between 6.1 million tonnes and 8.8 million tonnes, and export sales between 0.3 million tonnes and 2.1 million tonnes. In 2015, total coal sales were 8.0 million tonnes of which 7.0 million tonnes were domestic sales and 1.0 million tonnes were export sales.

58 The historical Callide Mine income statements recorded losses before income tax of $18.5 million for 2014 and $9.9 million for 2015.

G.3. Batchfire acquisition of the Callide Mine

59 On 24 December 2015, Batchfire acquired the Callide Mine pursuant to the Callide SSA between Batchfire and Anglo American for a nominal price of $1.00. Completion of the Callide SSA was subject to a number of conditions, including (a) a release of claims that CS Energy and CPM had against the Anglo American and its associates, (b) Batchfire entering into enforceable commitments for $90 million private placement of shares in Batchfire, and (c) Batchfire securing and providing evidence to the Vendor of a bank guarantee in the sum of $121 million to replace the existing assurance provided to the State of Queensland with respect to the Callide Mine mining leases.

G.4. Principal objectives of the Turnaround Plan

60 The centre piece of the Turnaround Plan was stated to be the 5-Year Mine Plan prepared by Batchfire. The aim of the Turnaround Plan, as stated in the Information Memorandum, was to “return Callide to a significantly lower cost, higher output and higher margin producer”.

61 In summary, the 5-Year Mine Plan provided for (a) a reduction of approximately 20% in the strip ratio (the amount of material moved to produce coal), (b) an increase in production of coal from the Callide Mine from 7.9 million tonnes in 2015 to 9.5 million tonnes in year 1, 11.6 million tonnes in year 2, and approximately 13 million tonnes per annum in year 3 onwards, (c) an increase in Export Coal sales from less than 1 million tonnes in 2015 to 6 million tonnes from 2018, and (d) an increase in productivity per person from 11,600 tonnes per annum to 22,000 tonnes per annum. It also provided for a reduction of FOR to “$26.1” per tonne in year 1 and an average of “$21.7” per tonne in years 2-5.

G.5. Evolution of forecast production figures in the Information Memorandum

62 In March 2016, Batchfire released the Information Memorandum. It contained detailed information on its plans for the Callide Mine. It was released by Batchfire in an attempt to raise $90 million from investors in return for a 50% interest in Batchfire in order to satisfy its capital raising obligations under the share sale agreement between Batchfire and Anglo American pursuant to which Batchfire acquired the Callide Mine from Anglo American for a nominal price of $1.00 (Callide SSA).

63 The Information Memorandum recorded that Batchfire had commissioned Xenith Consulting Pty Ltd, “an independent and reputable mining consulting firm”, in May 2015 to undertake and complete a geological review of the resources and reserves of the Callide Mine, a life of mine optionality study, and a five year mine plan. It was then stated in the Information Memorandum that the studies undertaken by Xenith:

… identified, quantified and validated opportunities for improvement and optimisation across the entire mining operation. Subsequently, extensive due-diligence has been completed by Batchfire and an experienced senior management team recruited. This team has developed a mine turnaround plan, including the transition to the 5-Year Mine Plan, which builds upon the work completed by Xenith in its five year mine operation plan.

64 It was stated in the Information Memorandum that the 5-Year Mine Plan was “built” on the five year mine operation plan prepared by Xenith. More specifically, as made clear in the Information Memorandum, Batchfire “built” upon the work completed by Xenith by providing for increased production volumes and significant reductions in operating costs to improve the economic performance of the Callide Mine, as forecast in the 5-Year Mine Plan. These improvements were claimed to be achieved by (a) identifying and mining lower strip ratio, lower cost coal, (b) introducing economies of scale by increasing production with minimal equipment changes, and (c) achieving labour efficiencies and reduced overheads.

65 Xenith had identified a base case and four life of mine production options in its mine optionality study that was included in its five year mine operating plan, with mining volume schedules for each option run over 30 years. These mine production options included a C ase 4. Unlike the other mine production options considered by Xenith, Case 4 was based on an assumption that coal production would proceed with the current mining fleet.

66 The Information Memorandum purported to summarise the alternative mine production options considered by Xenith in a table that inaccurately referred to Case 4 as a “Base Case” that it described as “Increase production to 13 Mtpa, through maintaining current mining fleet” (that is the Case 4 considered by Xenith). It was stated in the Information Memorandum that:

Batchfire will adopt and implement the Base Case as the operational model for Callide, which presents a predictable, low capex operational plan to transform the economic performance of Callide.

67 Xenith’s Case 4 only provided for 12 Mtpa for years 3 to 5. Case 4 then forecast production between 11 and 12 Mtpa based on the existing fleet for years 6 to 20. Mr Moffatt subsequently persuaded Xenith to revisit their forecast production figures for years 3 to 5. As a result, Xenith calculated that a figure of approximately 13 Mtpa per annum could be used for years 3 to 5 for the purposes of Batchfire’s 5-Year Mine Plan. When Batchfire asked Xenith to calculate the volumes beyond year 5, Xenith confirmed a reduction to approximately 12 Mtpa in Case 4 for years 6 to 20. Notwithstanding this confirmation from Xenith, Batchfire used the forecast lower strip ratio identified by Xenith in years 3 to 5, for the purpose of forecasting productions of 13 Mtpa in the 5-Year Mine Plan for years 6 to 20. In a contemporaneous email, Mr Moffatt explained to the Batchfire board that he had “finally got Xenith across the line” and referred to the 5-Year Mine Plan as a standalone document that did not “reflect on” Xenith’s five year mine operation plan. In cross examination, Mr Moffatt confirmed that he did this deliberately to avoid comparison against the first plan.

G.6. Batchfire’s fundraising efforts are unsuccessful

68 Following its entry into the Callide SSA, Batchfire retained Ord Minnett as its exclusive financial adviser to assist it in raising the $90 million equity investment at an investment price of $1.70 per share to satisfy the condition precedent to completion of the agreement.

69 On 18 February 2016, Mr Westerhuis advised the Batchfire board that the “proposed teaser”, being a two-page investment flyer, would be sent to “something like 100 email addresses”.

70 On 10 March 2016, Mr Westerhuis informed Mr Middleton, Mr Allen and Mr Moffatt that:

The response to the Batchfire fund raising efforts so far has been very underwhelming. I didn’t get much encouragement from this morning’s update meeting.

The target list, currently about 160, is a wide spectrum with quite a few that can be categorised as very low prospects. There is no clear distinction of the 15 or 20 large funds with a coal mandate that should be our focus. At this time we really only have 2, possibly 3 that have shown some interest.

71 On 23 March 2016, Mr Westerhuis emailed the Batchfire board in which he made a case for reducing the target investment in response to feedback from Ord Minnett that the proposed $90 million investment for a 50% stake in Batchfire was “presenting as a hurdle”. The rationale for a proposed reduction to $70 million included that a forecast $20 million allocated for replacement capital for “some old dozers, drills and water trucks” in year 1 was “highly unlikely” to be spent. Mr Westerhuis assessed that even when the financial model assumptions for the Callide Mine were adjusted to reflect a “dark skies scenario”, the cash position by the first quarter of year 2 would only reduce to $34 million. On that basis, he recommended a reduction in the target to $70 million and suggested:

We can socialise this with (potential) investors using the rationale that the $20M allocated in Year 1 for equipment replacement has been withdrawn and will be replaced with a hire/purchase agreement...

72 Batchfire was able initially to progress substantive investment negotiations with two entities, Caledon Coal Pty Ltd (or “GRAM”) and ATEC Rail Group Pty Ltd, but ultimately neither negotiation was successful.

73 On 5 May 2016, Mr Westerhuis informed the Batchfire board that he and Mr Choros had met “this afternoon” with two representatives of Caledon/GRAM and that:

The upshot is they will not be proceeding on the basis of the term sheet. They have formed the view that 50% of the asset is not worth $90M, noting the term sheet contemplated 20% equity for $36M. They were unwilling to share their value of the opportunity, even approximately, only to say it was substantially different (less) that ours. My take is they are trying to leverage a negotiating position as they would not rule out an equity participation for a lesser amount, but are looking to us to lower our expectations.

(Emphasis in original.)

74 On 13 July 2016, Mr Westerhuis informed the Batchfire board that it was increasingly unlikely that ATEC and CS Energy would be able to find sufficient common ground to “conclude the deal around securities” but that Anglo American and CS Energy remained committed to “see” the Batchfire acquisition succeed, with or without ATEC. He also advised the board that DLA Piper and the lawyers representing Avra were reviewing the “AVRA term sheet”.

75 It is necessary to turn now to the negotiations that were being conducted between Batchfire and AVRA that culminated in the execution of the agreements and arrangements the subject of this proceeding.

G.7. Batchfire’s initial approach to Avra

76 By February 2016, substantive negotiations between Batchfire and Avra had commenced. From the outset, those negotiations were focused on opportunities for Avra to market Export Coal, including by way of purchases under some form of offtake arrangement in which Avra would purchase and then on-sell coal to end-users.

77 On 15 February 2016, Mr Southwood and Mr Burgess exchanged emails about an approach that Mr Westerhuis had made to Mr Southwood in relation to Batchfire’s acquisition of the Callide Mine. Mr Southwood informed Mr Burgess that the Callide coal would make a “pretty good blend with Curragh” and Mr Westerhuis wanted a meeting next week to present “some kind of finance proposal ($1m-$5m)”. Mr Southwood then observed:

Offtake finance is ok. Or some money for convertible equity that we can convert to amortised offtake later. All options are open. We should think about how much finance we have available for him and what our payback time is and then discuss options with him next week.

78 Mr Southwood also advised Mr Burgess:

[Mr Westerhuis] is trying to get an equity raising off the ground, so offtake and finance from us will really help him. In return we can probably get our hands on big tonnes. They are looking at 2.8Mt of exports in year 1, ramping to 4.3Mt in year 2 then 6.4Mt form year 3 onwards. But the quality is basically Indo sub-bit standard. They have no marketers or agents and will need a lot of help. Peter is interested in whether we can get him a contract in TNBF or elsewhere.

79 Mr Burgess responded:

Tnbf easy provided they give us sole marketing rights.

80 On 18 February 2016, Mr Allen sent the following email to Mr Westerhuis, Mr Choros and Mr Middleton:

Peter,

As we discussed this morning I believe that we should be looking to sell the right to trade our coal. We are not selling our marketing rights but merely seeking consideration from potential partners and traders who may assist us in the future in moving tonnes.

Traders have traditionally either taken a per tonne fee for sales that are entered into between the producer and ultimate end user or alternatively they have purchased as principal and added a margin to then on sell to the end user or oyher [sic] trader.

The coal industry has been providing a free platform for intermediaries now since day 1 and I think the right to participate in selling /marketing our coal has implicit value.

In the case of Avra I think we should seek the A41m as a non refundable payment for marketing access to the coal over a period of 3 years at an annual tonnage level of 0.5 Mtpa. That is they gain access to 1.5 Mt in total and pay us A$lm for the right to take it and make a margin as much as they like on this. The cost of this right is 66c/tonne.

I believe that we should broke this concept with Avra and see the reaction but more importantly believe that we should adopt this concept as part of our long term marketing strategy.

I do not see this concept applying to Flame as the consideration that they have brought to Batchfire has been the credibility in selling the deal to potential investors.

Other potential traders like Noble or Trafigura or Glencore even can participate on the basis that they are providing us with payment for the right to play in the game. The industry has been too easy and free in the past in how it has dealt with traders.

Accordingly, if you support this concept then perhaps we should raise this with Scott now so that AVRA can consider this in terms of the proposal they make to us.

Mike

81 It is significant that Mr Allen recommended in his email that Batchfire should propose to Avra that it be given access to 1.5 million tonne in total over three years for $1 million and then Avra could “make a margin as much as they like on this” and that this concept “be adopted as part of our long term marketing strategy”, other than with Flame S.A.

82 It is readily apparent from Mr Allen’s 18 February 2016 email that Batchfire recognised from the outset of its negotiations with Avra that industry practice was that traders who had acquired marketing rights to coal would either take a fee per tonne of sales made or would purchase the coal as principal and then add a margin and on-sell it to an end-user.

83 Negotiations between Batchfire and Avra then proceeded in earnest.

84 On 24 March 2016, Mr Westerhuis advised Mr Choros that Mr Southwood had just confirmed that Avra had agreed to provide US$10 million to Batchfire, half as equity and half as a loan, and Avra would provide a written proposal “over the weekend”.

85 On 29 March 2016, Mr Burgess provided Mr Westerhuis with a written proposal for Avra to provide US$5 million for a 5% equity stake in “Callide”, US$5 million in pre-finance and an Export Coal sales agency. The proposed agency structure provided for an “open book agency” on all export and export bound sales of Callide coal with an agency fee of the greater of US$0.65 per metric tonne sold or 1% of the US$ per metric tonnes sales price and specified marketing responsibilities to be undertaken by Avra. In addition, the proposed agency structure included what was described as an “Agents Purchase Option” that provided that, for the life of the agreement, Avra would have the right to purchase up to 1 million tonne per annum of Callide coal at US$40.00 per metric tonne. This was the precursor of what ultimately became the agreement known as the Offtake Agreement, as described below.

86 On 4 April 2016, Mr Westerhuis emailed Mr Allen, Mr Middleton and Mr Choros a proposed response to Avra in which he suggested a 6 year term for the proposed Offtake Agreement with a base tonnage up to 1 million tonne in year 1, up to 2 million tonne in year 2 and up to 2.5 million tonne in years 3-6 but on request from Avra, Batchfire might from time to time agree to provide additional tonnage. He recommended that price would be determined by reference to the “Global COAL NEWC Index”, adjusted “for NCV and then plus/minus an adjustment Factor”. He proposed that the adjustment factor would be reviewed and agreed on a quarterly basis.

87 The implications of the proposed offtake arrangement were soon recognised by Batchfire.

88 In his response to Mr Westerhuis’s email later that day, Mr Allen advised Mr Westerhuis, Mr Middleton and Mr Choros that:

I don’t like the idea of giving marketing services to traders.

They either buy as principal or are a representative /agent. The simple fact is they can’t be an offtaker and make a margin on their sales plus also get a marketing fee irrespective of whether they do anything. Their margin on direct purchases and sales is one thing that effectively we are giving them for nothing and we do not share it. They can’t have it both ways.

We started this conversation with them by asking for US$1m for marketing rights and now we are planning to pay them for “marketing services”.

I can’t justify paying a marketing services fee for sales that we make directly ourselves or sales that they have absolutely no role in initiating and may have been brought to us by other parties. We may have other representatives that we pay to secure markets and we would be doubling up paying Avra.

I see a danger to our marketing to have Avra gaining information /knowledge of our marketing activitie[s] and picking up 25c /tonne for it. That knowledge of our markets and strategy is invaluable to them as traders.

If, however we were to agree to having Avra provide marketing services, then it should be on the basis of regular monthly market reports and for this they get a retainer payment. However this type of arrangement is unlikely to be acceptable to Avra as they won’t give up all of their market intelligence for a small retainer. Our own network of contacts should be able to garner this intel for us.

A trader wearing 2 hats as a buyer and as an adviser/ representative just doesn’t work. I have had too many arguments over these types of arrangements over the years. They don't work.

89 Mr Choros then emailed Mr Westerhuis stating:

Maybe we should wait a bit before inviting AVRA to start their DD? Mike is listing some very big issues in his e-mail.

90 Equally, the risk of an equity investor moving to take control of a corporation was recognised by Batchfire by mid-April 2016.

91 On 14 April 2016, Mr Barker emailed Mr O’Reilly, Mr Lonie, Mr Choros and Mr Westerhuis with his views on the “ideal” capital structure for Batchfire in the context of a proposed acquisition by Caledon/GRAM of a 20% interest in Batchfire for $36 million. Mr Barker identified the following “Issues” with respect to that proposed equity injection:

• GRAM IS NOT a PE fund and does not act like one ie financially driven;

• It is a predator and a 20% interest is effectively option value for them — they have history in moving on from their initial toe holding to complete take out;

• So we need to be aware that we are inviting the wolf in —this is not a bad thing, but I suggest (provided that we have the choice in funding alternatives) that we limit them to 20% interest in BF (also strongly prefer that they are not at the JV level);

• We need to ensure that their presence on the share register, particularly once BF is listed, does not place a lid on market value of the company – limiting their shareholding to 20% should accomplish this;

• Will be interesting to see if the price is marched down by them after DD.

92 In his email, Mr Barker also identified issues with respect to offtake financing from Flame, Avra or other entities for $10-20 million, including “Price negotiated to take the coal the subject of the offtake facility” and “Marketing rights over uncommitted coal sales”.

G.8. Batchfire directors recognise the commercial implications of the proposed Offtake Agreement

93 On 9 May 2016, Mr Westerhuis emailed a proposed term sheet for Avra’s potential investment in Batchfire to Mr O’Reilly, Mr Choros, Mr Lonie and Mr Barker. The term sheet provided for Avra to provide $US10 million (US$5 million for a 3.6% equity stake, subject to a right to divest after 2 years, and US$5 million as a pre-payment for agency services as a principal and interest loan to be repaid within 3 years). The term sheet also provided for a 5-year marketing and sales agency agreement granting Avra exclusivity to market the sale of coal in specific regions, and a direct sale option under the proposed Offtake Agreement giving Avra up to 1 million tonnes per annum from year 3 onwards.

94 The need for a mechanism to determine pricing under the proposed Offtake Agreement was recognised in the term sheet, as was the potential tension between sales made under the proposed Offtake Agreement and sales made by Avra as an agent of Batchfire.

95 The term sheet provided that a “pricing mechanism will be agreed that uses the “GlobalCOAL NEWC Index”, or another agreed Index, as a reference adjusted for NCV and other properties”. It was also stated in the term sheet that:

AVRA will liaise regularly with Batchfire to ensure that shipments on-sold under the off-take agreement are not in competition with sales of Callide coal placed into markets either directly by Batchfire (Callide Coal Sales) or other commodity traders.

Batchfire and AVRA will develop an understanding to distinguish those markets where AVRA may wish to trade as distinct from those exclusive markets where AVRA has agency rights and is representing Batchfire. There is potential overlap that will need to be identified and the treatment of same resolved.

Agency fees will not be applicable to tonnages sold to AVRA under the off-take agreement.

96 On 6 June 2016, the potential negative implications of entering into both equity and offtake arrangements with Avra were highlighted by Mr Allen in an email he sent to Mr Westerhuis and Mr Middleton, that he copied to Mr Choros and Mr O’Reilly. The email commenced with the following cautionary statements:

We are in the pointy end of discussions with various potential parties on equity and offtake arrangements as part of the equity investment.

I thought it might be useful to outline my thoughts on this in the context of what we may have to live with post settlement. I recognise the need to do the deal but I caution against rushing to lock into equity offtake combos that may prove to be a noose around our necks post acquisition.

97 On 8 June 2016, Mr Westerhuis circulated a revised term sheet to Mr O’Reilly, Mr Choros, Mr Lonie and Mr Barker that provided for Avra to contribute an unconditional equity injection of $35 million in return for 20.5 million shares in Batchfire at $1.70 per share that would give Avra a 27.8% equity stake in Batchfire. Mr Westerhuis, however, observed that given the proposal would not include any debt or pre-payment to Avra :

Of course they will want their “pound of flesh” in return. Basically this means they want access to all of Callide’s export tonnage (minus Flame tonnes) for their own purchase (& on-sell) or agency to sell to end-users on Batchfire's behalf. In essence this means they will become our marketing department, but accountable to Mike Allen, the GM Marketing. These things are described in the term sheet.

98 Later that day, Mr Choros responded:

It is great deal, which is giving us an opportunity to close Callide Mine acquisition in the next four weeks plus we are retaining management control and 70% ownership of the company. In addition to that, the interest of both AVRA and Batchfire is very well aligned.

I recommend to proceed with this deal.

99 Mr Barker agreed that it was “potentially a very good deal” and raised a number of queries including what the offtake tonnage commitment from Avra per annum would be and stated that he considered Batchfire needed to include the actual tonnage that Avra would purchase each year under the offtake arrangements rather than as agency sales.

100 In his response to the revised term sheet, Mr Lonie focused on conflict of interest and performance issues. He observed:

I do see two key issues to address - and they will be in the detail - what are the governance arrangements in the light of the potential conflict of interest in being a shareholder and in this case sole marketing agent and then what are the terms and conditions and in particular the performance conditions and term of actual marketing agency agreement - and let me assure you that, with many years of having that issue in a similar vein at my other mining company, it is real issue and can potentially be an issue of significant and potentially significant consequences.

101 The tonnage to be acquired by Avra under the offtake arrangements remained an issue for the directors of Batchfire.

102 On 8 June 2016, Mr Barker emailed Mr Westerhuis about the revised terms sheet, stating:

It looks good to me, but I am still confused about the tonnage that AVRA will have for dedicated offtake versus agency sales. The schedule under Clause 8. Export tonnage assigned to AVRA, seems to indicate that all export sales ie 6.7mtpa from year 6 will be assigned to AVRA as offtake. Is this correct and if so what agency business will they be doing for Batchfire?

103 On 9 June 2016, Mr Lonie responded to Mr Barker’s email, copying the other directors of Batchfire and Mr Westerhuis, observing:

I think that we do need very clear position on direct sales and agency roles as already raised - and to Richard’s point?

104 Mr Choros continued to recognise that Avra would be looking to extract a highly favourable arrangement from Batchfire.

105 On 13 June 2016, Mr Choros emailed Mr Barker advising him that:

Peter, Mark and I have had very good meeting with AVRA today to talk about value proposition. They are very keen to do a deal, but they would want to get a “few pounds of flesh”..... They have promised to give us their proposal by Wednesday - Thursday this week.

106 On 6 July 2016, a further draft term sheet for Avra’s investment in Batchfire was prepared. The term sheet provided for Avra to assist Batchfire in completing the Callide SSA by contributing the sum of $35 million in exchange for (a) an issue of 31,818,182 fully paid shares in Batchfire at a price of $1.10 per share, giving Avra a 37.4% equity interest in Batchfire, (b) appointing Avra as its exclusive marketing agent for the purpose of “introducing, marketing and selling all Callide export coal”, and (c) selling Callide coal directly to Avra under offtake arrangements.

107 The further draft term sheet provided that Avra would generally be allocated export tonnage of Callide coal in accordance with the following schedule:

| Year | Total Scheduled Export (Mtpa) | AVRA minimum tonnage (Mtpa) |
| 1 | 2.7 | 1.2 |
| 2 | 4.7 | 3.2 |
| 3,4,5 | 6.7 | 5.2 |
| 6 onwards | 6.7 | 6.7 |
108 Significantly, the further draft term sheet provided for Avra to be allocated all export tonnage from year 6 and it did not seek to specify any proportion of sales to be made under the agency arrangements and the offtake arrangements. Rather, it provided that:

AVRA allocated tonnage will be utilised by AVRA as either “off-take” tonnes or “agency” tonnes. Every quarter AVRA will determine, in consultation with the Batchfire GM Marketing (Export) and within the guidelines agreed for the sale of export coal the apportionment of tonnage allocation to either the Agency Agreement (to sell on behalf of Batchfire) or an Offtake Agreement (to acquire on its own behalf). Tonnage which the GM Marketing (Export) allocates to AVRA under the Offtake Agreement will be at arm’s length rates on terms no less favourable than those bid by other potential off-takers over the preceding 1 month period.

109 The further draft term sheet provided that the “GM Marketing (Export)” was to be nominated by Avra, but their salary would be paid by Batchfire and they would be accountable to, and report to, the Batchfire Chief Executive Officer.

110 In addition, the further draft term sheet included (a) proposed agency fees for sales made by Avra under the proposed Agency Agreement, but not the proposed Offtake Agreement, and (b) a statement that the tonnage of Export Coal to be supplied under the offtake agreement would be agreed from “time to time” and would be included in the schedule in the term sheet described as “Export tonnage assigned to AVRA”. The key terms of the proposed Offtake Agreement set forth in the term sheet included next to a heading “Relationship with Agency Agreement”:

Batchfire and AVRA will jointly develop an understanding to distinguish those markets in which AVRA wishes to trade from those markets in which AVRA will act as Batchfire's agent under the Agency Agreement. There is potential overlap that will need to be identified and the treatment of same resolved.

111 After reviewing the draft further term sheet, Mr Lonie remained very concerned about what he perceived to be a fundamental conflict of interest.

112 On 7 July 2016, Mr Lonie emailed Mr Barker a summary of his “key issues/thoughts” on the draft further term sheet that included the following observations on the proposed Offtake Agreement:

There is a fundamental conflict of interest in the off take sales agreement particularly when we have to employ their people – I would much rather see a marketing services agreement at arms’ length which would pay AVRA the agency fees they have scheduled for sales that we approve as we have to produce it at specification required and that deal is a % year + 5 year option + 5 year option but there must be performance standards – and then they employ their people nit [sic] us - and an off take agreement in which AVRA simply commits to buy coal from us at an agreed benchmark adjusted price annually over whatever term they want but against agreed product specification and credit FOB settlement arrangements so we do not wear the credit and demurrage risks. We just cannot be in a situation where we are penalised for their non-performance? And Ben has a fundamental conflict of interest as a Director – he could spend most of his life outside of the room as he would have to declare a conflict on all marketing issues if he was being careful and looking after himself but I am sure that he would not get that problem!

G.9. Avra’s initial investment rationale is not to obtain control of Batchfire

113 Financial modelling of Batchfire undertaken by NineSquared Pty Ltd, a specialist economic and commercial advisory firm engaged exclusively for Avra in July 2016, included estimates of Avra’s likely trading and revenue per export tonne of coal from the Callide Mine. NineSquared calculated that the inclusion of a 50 cents per tonne margin for 25% of export sales under “agency” and a $2.50 per tonne margin for 75% of export sales under “offtake”, resulting in a weighted average margin per tonne of $2.00, significantly improved the internal rate of return on Avra’s investment in Batchfire.

114 In August 2016, an internal Avra paper entitled “An Australian Investment Proposal” was prepared explaining the rationale for an investment by Avra in Batchfire (Avra Investment Paper). It was stated in the paper that Avra’s first-hand knowledge of the Callide Mine, the Batchfire CEO and Mine Manager, the mechanics of the Indonesian and Australian coal industry, and the potential export markets for Callide’s product:

… explains why the deal came to AVRA, why AVRA had a significant advantage in understanding and building confidence in the Batchfire company and its business case, and how AVRA was able to secure exclusivity in negotiations for an investment tied to marketing rights and offtake.

115 Export tonnage was identified as the key driver of the investment by Avra and the Avra Investment Paper noted in that regard:

Fortunately, there is a strong alignment with Batchfire in this. Batchfire needs to increase production as much as possible in order to drive unit costs down to make its domestic sales profitable.

116 The major risk to export sales was stated to be alternative sales in the domestic market but this risk was reduced or eliminated by (a) having a strong board presence on Batchfire, (b) having Mr Southwood acting as marketing manager, (c) establishing export sales at close to 100% of capacity, (d) achieving export sales at profitable levels for the mine, (e) considering export buyers as logical targets for a future trade sale of Batchfire, and (f) by CS Energy prohibitions on long term fixed price sales contracts.

117 The benefits of the investment were said to include (a) a steady and predictable stream of income from the marketing/offtake agreements, (b) providing Avra with new general industry sales markets in Korea and Japan, (c) enabling Avra to enter into longer term deals with tier 1 counter parties, knowing supply was secure, and (d) providing an ability for Avra to sell down equity immediately to “bring in a strategic partner and/or reduce AVRA’s exposure while maintaining a control position in the mine”.

118 The key deal metrics listed in the Avra Investment Paper included options that, if vested due to “non-performance of export tonnage”, would take Avra’s ownership of Batchfire to 41% over 5 years.

119 Avra’s proposed strategy for the Callide Mine and monetisation of its investment was stated to be very simple, namely being:

Firstly, to successfully turn the operation into a profitable and large scale exporter. Secondly, to earn revenue from trading and marketing this coal and providing freight. Thirdly, to wait for the thermal coal market to recover. Once the mine has ramped up, demonstrated solid performance and been significantly de-risked in terms of tonnage, marketing and financial performance, the value of the investment will increase and timing will be more appropriate for a sell down to a suitable investor that will not interfere with AVRA’s marketing revenue.

120 The proposed strategy, as expressed in the Avra Investment Paper, was not consistent with the simple captive producer strategy advanced by the plaintiffs in this proceeding. The proposed strategy was directed at increasing the value of its investment in Batchfire by improving the operational, marketing and financial performance of the Callide Mine and then selling its interest to a “suitable investor” and at the same time earning revenue from trading and marketing Export Coal. The two objectives were seen by Avra as complementary, not inconsistent, strategies.

G.10. Finalisation of the 2016 Term Sheet

121 On 3 August 2016 and 9 August 2016, further drafts of the term sheet were produced. They did not materially change from the version produced on 6 July 2016. Both further versions of the term sheet provided that the proposed Offtake Agreement would have a term of 15 years in order to “mirror the Agency Agreement” and also specified the circumstances in which the Offtake Agreement could be terminated.

122 On 9 August 2016, Mr Lonie advised Mr Barker that the latest version of the term sheet, combined with the separate term sheet negotiated with CS Energy, was as “good as it will get despite the limitations in both” and Mr Barker responded:

I am just finalising my comments to all at the moment.

I only have minor comments, generally ok given that we have no real competition here.

There are some clauses that I do not like but we are not in a strong position to tell them to piss off!

123 On 10 August 2016, Mr Westerhuis informed the Batchfire board that the term sheet with Avra had “now been, literally, kicked to death” and it was “in a state where we can live with it”.

124 On 11 August 2016, the final version of the term sheet was executed by Batchfire and Avra (2016 Term Sheet). It included the following explanations of the basis on which prices would be determined for purchases under the proposed Offtake Agreement:

Tonnage which the GM Marketing (Export) allocates to AVRA under the Offtake Agreement will be at arm’s length rates on terms no less favourable than those bid by other potential off-takers (other than Avra) over the preceding 1 month period and require approval by the Batchfire CEO if within the CEO Guidelines.

For the avoidance of doubt, the GM Marketing (Export) shall negotiate and agree pricing and terms of sale for all export coal, including Under the Flame SA offtake agreement. in accordance with the “ Batchfire Coal Sales Framework ” (Schedule 2).

(Emphasis in original.)

125 Schedule 2 to the 2016 Term Sheet provided that the GM Marketing (Export) was accountable for the timely sales of Export Coal, taking into account production, railing and shipping schedules, in order to ensure:

a) Maximum possible revenue available & generated

b) Reliable offtake matching production quality and quantity, i.e. regular uplifts

c) Minimum costs of sales (eg penalties, demurrage)

d) Effective mining and stocking

• consistent railings

• avoidance of stock issues at port

G.11. Negotiation of the Agency and Offtake Agreements

126 Following the execution of the 2016 Term Sheet, Batchfire and Avra commenced negotiating the terms of the proposed Agency Agreement and Offtake Agreement.

127 On 22 August 2016, Avra provided an initial draft of the Agency Agreement to Batchfire. Clause 4.1 of the initial draft provided that:

Notwithstanding the appointment of AVRA in accordance with clause 2.1, the Parties acknowledge and agree that:

(a) AVRA may elect to purchase any amount of Export Coal in accordance with the terms and conditions contained in the AVRA Offtake Agreement; and

(b) Batchfire has agreed to procure that from Completion, the Callide Companies will enter into agreements with Flame SA granting it the exclusive right to market the Flame Coal to certain third party customers listed in the undated binding term sheet entered into by Batchfire and Flame SA as varied or amended (Flame Customers);

(Emphasis in original.)

128 The reference to the appointment of Avra in accordance with cl 2.1 was an erroneous cross-reference. Avra was to be appointed as the exclusive agent of the Callide JV for the purpose of marketing and selling Export Coal during the term of the agreement pursuant to cl 3.1, not cl 2.1.

129 Mr Westerhuis provided the 2016 Term Sheet and the initial draft of the Agency Agreement to Mr Allan Dawson, a former general manager of the Ensham Coal Mine, for his review.

130 On or about 26 August 2016, Mr Dawson produced a two-page summary of 17 points and comments that he had on the 2016 Term Sheet and the Agency Agreement (Dawson Summary). Mr Dawson made the following points and comments emphasising the importance of clear frameworks to determine pricing for sales made under the proposed Agency Agreement and the potential conflict of interest facing Mr Southwood in setting prices:

5. Agency Agreement Clause 1: Freight Costs and Freight Services — I am always suspicious when the trader wants to securer the freight and then pass the freight costs onto the producer. Generally you have no control and no knowledge of what “side payments” have been arranged between the trader and the freight group. In the past, I have usually sold the coal to the trader only on an FOB basis and the trader then arranges the freight and negotiates the delivered selling price with the customer (see also Clause 9.1(h)).

…

Agency Agreement Clause 8: Very important to get the Coal Sales Framework clear and cover all possibilities. How you determine what is a “fair and reasonable price” is going to be the biggest issue ... many these days reference the globalcoal, Newc or BJ indices to try to avoid arguments and maybe Scott will have some good thoughts on comparing Callide with, perhaps, Indonesian coal index as a similar quality. On a similar line to agreeing price, could AVRA use an argument that price could not be agreed with Batchfire in order to off-set damages for underachievement of contract sales tonnes? See also point #11 below.

10. How do you reconcile a situation in which AVRA insist the price should be lower than that envisaged by Batchfire? I think Scott is in a difficult position having worked for AVRA and now having to maximise price for Batchfire.

131 Of most significance, however, was the following comment made by Mr Dawson that starkly highlighted the tension between sales under the proposed Agency Agreement and sales under the proposed Offtake Agreement:

Schedule 2— Agency Fee and Commission: Seems reasonable until Clause 1.4 which effectively gives AVRA the option to buy the coal directly and then (because they are not a user) to on-sell the coal to an end user at a higher profit than they’d get from commission. This will work in every case in which the profit made by AVRA exceeds the commission. This has the potential for AVRA to always ensure the price officially offered by a “buyer” is always less than they can actually achieve. They then make the offer to buy the coal as principal at a higher price and sell the coal on to the end user at the real price.

132 Although Mr Westerhuis, when pressed in cross examination, did not specifically recall requesting or receiving the comments on the 2016 Term Sheet and the proposed Agency Agreement from Mr Dawson, I am satisfied that subsequent suggested revisions made by Mr Westerhuis to the Agency Agreement confirm that he had received and had specific regard to the Dawson Summary.

133 The amendments to the initial draft of the Agency Agreement advanced by Mr Westerhuis included a revised cl 4.1(a) in the following terms:

4.1 Notwithstanding the appointment of AVRA in accordance with clause 2.1, the Parties acknowledge and agree that:

(a) Tonnage allocated to AVRA by the mine can be utilised by AVRA as either direct purchased “off-take” tonnes or “agency” tonnes. Batchfire and AVRA will jointly develop an understanding to distinguish those markets in which AVRA wishes to trade from those markets in which AVRA will act as Batchfire's agent under this Agency Agreement. This potential overlap shall be identified and every quarter AVRA will determine, in consultation with the Batchfire GM Marketing and within the “ Batchfire Coal Sales Framework ”, the approximate apportionment of tonnage allocation for the subsequent quarter to either this Agency Agreement (to sell to third party end-users on behalf of Batchfire) or an Offtake Agreement (to acquire on its own behalf). Tonnage acquired by AVRA on its own behalf will be purchased in accordance with the terms and conditions contained in the AVRA Offtake Agreement; and

(Emphasis in original.)

134 The proposed revision provided for a division to be made between markets in which Avra could sell Export Coal that it purchased under the proposed Offtake Agreement and markets in which Avra could only sell Export Coal as Batchfire’s agent under the Agency Agreement. The proposed revision was not accepted by Avra. Rather, Avra responded by suggesting the following revision to cl 4.1(a) to confirm that Avra was not under any obligation to provide Marketing Activities for Export Coal sold under the proposed Offtake Agreement:

135 Further, in a comment addressed to a proposal by Batchfire in cl 5 that an apportionment be determined by Avra, in consultation with the Batchfire GM Marketing, between sales under the proposed Agency Agreement and the Offtake Agreement within one month of the end of each quarter for sales to be made in the following quarter, Avra’s lawyers observed:

Our instructions are that, in practice, it will be difficult if not impossible to estimate the apportionment on a quarterly basis, or on any fixed periodic basis.

136 In response to Avra’s revised version of cl 4.1(a), Mr Westerhuis made a further attempt to address his concerns about the absence of any restriction on purchases under the proposed Offtake Agreement by suggesting the following amendment to Avra’s revised version of cl 4.1(a):

137 Mr Westerhuis noted in a comment next to his proposed revision to cl 4.1(a):

Let’s be blunt. What I am trying to avoid here is a situation where AVRA has an unfettered right with absolute discretion to purchase all or most of the export coal and then on-sell to end-users et a large mark-up. This would be great for AVRA but sub-optimal for Batchfire.

138 The commercial implications of cl 4.1(a) for Batchfire were well understood and appreciated by Mr Westerhuis, prior to Batchfire entering into the Agency Agreement and the Offtake Agreement. As Mr Westerhuis confirmed in the following extract from his cross examination when he was questioned about his “Let’s be blunt” comment:

And that was a representation as to your state of mind in reading the election clause at the time?---Yes.

And, as you know, a clause to that effect ended up in the final agreement?---This – (a) as written here?

Very close to?---But this is not the final one.

No, but you were trying to change. Do you see?---Yes, I would have been trying to change that. Yes.

And you didn’t succeed, and the clause that ended up being in the agreement was in the terms of the Redchip drafting. Do you recall that?---I accept that.

Yes. So you were alive to the ability of Avra to take the coal through the offtake?---I was.

Yes. And you were alive to the fact that that may be for a profit?---Yes.

And you were alive to the fact that that may be to Avra’s advantage?---Yes.

And were you alive to the fact that that may be suboptimal for the company?---For Batchfire, yes.

Yes. And they’re things that you knew prior to the entry into the agreement?---I did.

And they were things that you knew once the agreements were in place?---I did.

139 On 19 September 2016, notwithstanding these concerns, Mr Westerhuis recommended that the Batchfire directors in its most recent amended form be accepted. He advised the directors:

I attach for your information the extensively worked draft of the Batchfire/Avra Agency Agreement. This, first drafted by HDY, has been back & forth between myself/DLAP and Redchip/Avra (Scott & Ben) 5 times in the last 4 weeks. I have to now say I think it is as good as it is going to get; I'm getting to the point of diminishing returns. The Avra folks are being very hard-nosed about further changing it as they say it is the core reason for their $35M investment. This, I think, is a bit simplistic because they have much more to gain from their 38% investment than a lousy $0.50/t commission. Anyway, they are obsessed with protecting their Agency position.

140 Mr Westerhuis then observed that the draft was “fine in terms of articulating the obligations of parties, the commercial arrangements, term and the key performance measures by which Avra will be assessed as Agents” but the “hairs” on it were in relation to what Batchfire was able to do if Avra underperformed. He noted, however, that Avra “might, and probably will, do a fantastic job as Agents. They have a reputation to construct and protect”.

141 Mr Westerhuis made no reference in his email to the Batchfire directors to any concerns that he had about the working of cl 4.1(a) and that it might be “suboptimal” for Batchfire.

142 Between 19 and 22 September 2016, Mr O’Reilly, Mr Barker and Mr Lonie responded to Mr Westerhuis’ email with relatively minor comments. No further material changes were made to the Agency Agreement.

143 On 28 September 2016, the Lindenfels Subscription Agreement was executed under which Lindenfels, as the nominee company used by Avra, acquired an approximately 37.0% equity interest in Batchfire for $35 million at a price per share of $1.10. Pursuant to cl 5.5.3.5 of the Lindenfels Subscription Agreement, Batchfire was required to procure the execution of the proposed Agency Agreement and the Offtake Agreement by Callide Coalfields (Sales) Pty Ltd (Callide Sales), Anglo Coal (Callide) Pty Ltd (Callide 1) and Anglo Coal (Callide) No. 2 Pty Ltd (Callide 2).

144 On 31 October 2016, both the Agency Agreement and the Offtake Agreement were executed by Callide Sales, Callide 1 and Callide 2.

G.12. Amended Constitution

145 On 27 September 2016, the Batchfire board approved an Amended Constitution. The approval of the Amended Constitution was a condition precedent to the Avra investment in Batchfire, through Lindenfels. Clause 17.6 of the Amended Constitution proved that following a “Board Retention Period”, while Lindenfels held at least 25%, but less than 50% of the shares in Batchfire, it could appoint two directors, and if it held at least 50% of the shares in Batchfire it could appoint three directors. Under cl 17.7, while Lindenfels held 25% of the Shares in Batchfire, it could also appoint an independent director who (under cl. 17.11 would initially act as the chairperson).

G.13. Explanatory Statement to Batchfire’s shareholders

146 On 28 September 2016, Batchfire’s shareholders were provided with an explanatory statement with respect to (a) the Callide SSA, (b) the transactions with CS Energy to secure compliance with three of the conditions in the Callide SSA, including the replacement of the Callide Mine’s rehabilitation bond commitment to the State of Queensland, and (c) the Avra transactions (Explanatory Statement). The statement included the following disclosure concerning the acquisition by Avra’s nominee subsidiary, Lindenfels, of an approximately 37.0% interest in Batchfire for $35 million at an issue price of $1.10 per share:

Lindenfels’ investment is also conditional on the following:

• That AVRA be given exclusive coal marketing rights to all export coal produced from Callide. As Batchfire does not currently have international export coal marketing capabilities, it sees this condition (coupled with Lindenfels’ investment) as mutually beneficial for both parties. The term of these agreement[s] is 15 years.

• That Lindenfels be given options over ordinary shares in Batchfire which will be exercisable by Lindenfels if Batchfire does not meet agreed export targets for the initial five years. The purpose of this is to incentivise Batchfire to ramp up its international coal exports.

• That Lindenfels been given ‘cure rights’ to cure any possible ‘Take Out Event’ under the IPC Deed (in order to protect its investment). This will be implemented by Lindenfels having a right to subscribe for convertible notes in Batchfire in certain circumstances, if the subscription price for a convertible note would prevent the ‘Take Out Event’ occurring. Batchfire would then have a period of 90 days to repay the subscription price (and accrued interest), failing which the convertible note would convert to ordinary shares in Batchfire. On conversion, the existing shareholders of Batchfire will be entitled to subscribe for shares in order to maintain their equity positions.

• The shareholders of Batchfire enter into a shareholders agreement (details of which are set out in section 3).

• The shareholders of Batchfire resolve to adopt a new constitution of Batchfire which has been negotiated and agreed in principle between Batchfire and Lindenfels (details of which are set out in section 3).

147 The Explanatory Statement included the following diagram detailing the existing and future shareholding of Batchfire following the Lindenfels investment:

148 Section 3 of the Explanatory Statement included a summary of Lindenfels’ entitlement to appoint directors to the Batchfire board and for its nominees to attend board meetings of the company. It also included the following statement with respect to conflicts of interest:

In recognition that there may be conflicts of interest issues for Lindenfels arising by virtue of its shareholding and the coal marketing services AVRA will provide to Batchfire, a conflicts policy has been included in the constitution which prevents Lindenfels or its nominee director from voting on matters in which it is deemed to have an interest.

G.14. Constraints imposed by the IPC Deed on Batchfire

149 Batchfire also sought financial assistance from CS Energy to satisfy the conditions in the Callide SSA. A condition of the assistance to be provided by CS Energy was for Batchfire to execute an “Implementation, Participation and Commitment Deed” (IPC Deed).

150 The IPC Deed included the following terms and conditions that placed significant financial and operational constraints on Batchfire and impacted on its potential ability to obtain funding from third parties.

151 First, cl 8.1 of the IPC Deed required Batchfire to use its reasonable endeavours to carry out a Remediation Program for the Callide Mine in order to achieve a reduction in the amount of the present environmental liability financial security provided to the Queensland Government of $121,177,554 to approximately $80 million within five years of the commencement date of the IPC Deed.

152 Second, cl 9 provided for the establishment and operation of a Project Review Group to review the operation of the Callide Mine by Batchfire including (a) the solvency of Batchfire, (b) Batchfire’s performance in carrying out the Remediation Program, (c) the progress of the Turnaround Plan, and (d) the performance of Batchfire under the “Coal Sales Agreements”. The Project Review Group comprised two senior managers to be appointed by CS Energy and two senior managers to be appointed by Batchfire.

153 Third, cl 10 provided an acknowledgment by Batchfire that it must, subject to force majeure events, comply with minimum operating standards for the Callide Mine with respect to the Coal Supply Agreements, including a maximum cost of production of $30 per tonne and compliance with quality and quantity requirements specified in the Coal Supply Agreements.

154 Fourth, cl 11 imposed specific obligations on Batchfire to operate the Callide Mine in a manner compliant with all laws and in a manner that minimised the risk of the Queensland Government calling on the Replacement Bond, including maintaining minimum available funds, and operating the Callide Mine generally in accordance with the Turnaround Plan. It also provided that (a) the subsidiaries of Batchfire required the prior written consent of CS Energy to any disposal of any of their assets or undertaking to Batchfire or any of its associates, other than in the ordinary course of business, (b) the Batchfire subsidiaries ensure that only they, their agents and contractors, including Lindenfels, undertake any activities in connection with the Callide Mine, including all marketing and sales of Export Coal, and (c) Batchfire was not to pay any dividends until the cash balance in a Cash Deposit Account to be established by Batchfire pursuant to cl 12.1, reached specified thresholds.

155 Fifth, cl 12 required Batchfire to establish and maintain the Cash Deposit Account from the completion date of the Callide SSA, commencing with a minimum balance of $4 million to be deposited within three days of the Callide SSA completion date and then increasing every six months thereafter up to a minimum balance of $94 million by the end of the fifth year from the Callide SSA completion date.

156 Sixth, cl 14 gave CS Energy an option to acquire, at its election, all of the issued share capital of any of Batchfire’s subsidiaries and any assets of Batchfire, including the Callide Mine, in the event of any broadly defined Take Out Event occurring including unremedied or irremediable defaults under any finance or transaction documents.

H. Position of the Callide Mine when acquired by Batchfire

H.1. Overview

157 The position of the Callide Mine at the time it was acquired by Batchfire informs the context in which both the alleged fiduciary duties owed by Avra to Batchfire were alleged to have arisen and been breached, and the alleged breaches by Mr Burgess of his statutory and fiduciary duties to Batchfire. It also provides the initial framework to determine the extent to which the Coal Trading Conduct might have contributed to the failure of the Turnaround Plan and the need for the 2019 Rights Issue and the 2020 Rights Issue.

158 The principal challenges that confronted Batchfire at the time that it acquired the Callide Mine were the existing commitments under the Coal Supply Agreements, the agreements with Flame and the current condition of the mine.

H.2. Constraints imposed by the Coal Supply Agreements

159 The Coal Supply Agreements provided for specified tonnages to be supplied to CS Energy and CPM in priority to all other sales of Callide coal, including export sales. Batchfire was required to supply a minimum of 2.4 million tonnes per annum to CS Energy until 2032 at a price of approximately $27 per tonne, and 3 million tonnes per annum to CPM until 2033 at a price of approximately $27 per tonne. In addition, Batchfire was required to supply 1.5 million tonnes per annum to Queensland Alumina Limited (Q AL) until around 2021 at a price per tonne of $48.50.

160 The Coal Supply Agreements not only limited the quantity of Callide coal that was available for sale as Export Coal it also locked Batchfire into long term contracts that were at prices that were much lower than prices that Batchfire was able to negotiate with Avra for purchases of Export Coal under the Offtake Agreement.

H.3. Significance of the Flame Agreements

161 Flame was a coal trader that competed with Avra.

162 On 19 January 2016, Batchfire and Flame entered into an offtake agreement (Flame Offtake Agreement).

163 On 29 April 2016, Batchfire and Flame signed a term sheet for an unsecured US$1 million loan to be provided by Flame to Batchfire (Flame Term Sheet). The Flame Term Sheet provided for Batchfire on completion to enter into an exclusivity agreement with Flame under which Flame would be granted the exclusive right to market the sale of Export Coal to specific customers set out in a schedule to the Flame Term Sheet on commercial arms’ length terms. The customers included Korean “gencos” (electricity generating corporations) and Indian companies.

164 The Flame Offtake Agreement was for a term of five years and provided for Flame to acquire a base annual quantity of 1.5 million tonnes of Callide coal containing less than 18% ash. Flame was entitled to reject any shipment of Export Coal if the net calorific value (NCV) was less than 4,300 kcal/kg. The agreement provided for Flame to provide Batchfire each year with an annual delivery schedule of the quantity of Export Coal it proposed to acquire each quarter during that year and at scheduled intervals for the provision of quarterly and monthly delivery schedules of shipments and shipment sizes.

165 Pricing for Export Coal to be acquired under the Flame Offtake Agreement was to be determined in accordance with cl 10 of the agreement. Clause 10.1 provided that the price for each shipment of Callide coal was to be determined by reference to the “globalCOAL NEWC Index” monthly index published by globalCOAL, or an alternative index agreed by the parties, for the month prior to the shipment, adjusted for NCV and other chemical properties, less a Discount.

166 Clause 10.3 provided the following mechanism for the determination of the Discount:

10.3.1 Notwithstanding Clause 10.1.1, a Discount shall be reviewed and agreed on a quarterly basis in accordance with this Clause 10.3, The Parties agree that the purpose of a quarterly review in accordance with this Clause 10.3 is to determine the applicable delta which should apply with respect to the NEWC Index or any Alternative Index which may be determined in accordance with Clause 10.2.

10.3.1.1 A Discount applicable for Shipments to be Delivered in a quarter shall be agreed by the parties, acting in good faith and in a commercially reasonable manner, no later than two (2) months prior to the commencement of a quarter in each Contract Year.

10.3.1.2 Notwithstanding Clause 10.3.1.1, the Discount applicable for Shipments in the three months following the Delivery Commencement Date shall be agreed by the Parties within fourteen (14) days of the Effective Date.

10.3.2 Notwithstanding Clause 10.3.1, where the Parties are unable to agree on the applicable Discount, the Parties shall be released, without any liability, from their respective obligations to Deliver, take and pay for any Coal in the period to which the Parties’ failure to agree a Discount relates and the Base Annual Quantity for the relevant Contract Year shall be reduced pro rata accordingly. The Discount applicable to Shipments to be Delivered in the remainder (if any) of the quarter in which the three months from the Delivery Commencement Date expire shall be determined in accordance with Clause 10.3.1.

167 Significantly, the requirement to agree the Discount demonstrated that the price to be paid by Flame for purchases under the Flame Offtake Agreement was not a “market price” but rather a “market price” less an amount agreed by the parties “acting in good faith and in a commercially reasonable manner”. If the applicable Discount could not be agreed, then both parties would be released from any obligation to sell or acquire that shipment of Export Coal.

168 On 6 June 2016, Mr Allen emailed Mr Westerhuis and Mr Middleton, copying Mr Choros and Mr O’Reilly, advising them that Avra’s request for unrestricted access to markets in exchange for their equity investment would “no doubt overlap with markets that Flame have requested and to which we have already agreed with Flame”.

169 By July 2016, Flame had advanced the first half of the $1 million loan to Batchfire, but on 29 July, Mr Westerhuis advised the Batchfire board that he suspected that Flame:

… may be getting cold feet on this deal. They know about AVRA and are perhaps baulking at providing finance to a deal in which a competitor will have a significant stake.

170 On 17 January 2027, in an operations update to the Batchfire board, Mr Westerhuis reported that:

• Flame SA accepted repayment of the US$0.5M loan. They do not accept our proposal to dissolve the loan & exclusivity termsheet. There has been a hardening and litigious tone in their language. They are unhappy about our current inability to offer them tonnes

171 Flame never acquired any Export Coal from Batchfire under the Flame Offtake Agreement, and the agreement was terminated by Flame on 25 August 2017.

H.4. Condition of the Callide Mine at acquisition is worse than anticipated

172 In the course of the preparation of the Turnaround Plan, Blu e field AMS Pty Ltd had been commissioned to review the condition and future maintenance cost associated with operating the equipment at the Callide Mine.

173 On 20 April 2015, Bluefield completed their report. Bluefield concluded:

In general the equipment has been maintained to a reasonable standard given the limited capital investment in the equipment. A large proportion of the mobile equipment is near or past the economic life and overdue for replacement. The maintenance department have tailored the budget and maintenance strategies to allow for an aging fleet that is not likely to be replaced under the existing owner.

The infrastructure is in reasonable condition however some modifications will be required to accommodate the significant increase in production and the larger equipment proposed in the Base Case.

174 Mr O’Reilly gave evidence, that I accept, that when Batchfire completed the acquisition of the Callide Mine in November 2016, the state of the Callide Mine was “not as was expected” and it was apparent to him from information contained in Board papers that included reports from relevant managers and officers that:

(a) the assumptions regarding the state of the mine on handover had changed considerably with far less prestrip of coal in advance being done over 2016, meaning more truck and shovel capacity was required to enable the draglines to uncover coal;

(b) the mine plan assumed a start point and strip ratios that were not available resulting in the need to remove more waste material;

(d) additional truck and shovel fleets and associated manning were required to remove waste and the existing EX8000 excavator had to be recommissioned (and a contractor fleet (Mackellar) had to be engaged in 2017);

(e) there were serious performance issues with the existing equipment (notwithstanding that there had been an equipment review undertaken by Mr Mahood’s company, Blue Field Group, as part of the IM). For example, the 4500 truck fleet was stood down in November 2016;

(f) labour requirements were significantly under-estimated and recruitment proved more difficult than anticipated;

(g) the quality of the coal which was anticipated to be available for export sales was not available because it was not possible to mine at Boundary Hill South.

175 In his November 2016 report to the Batchfire board, Mr Westerhuis advised that during the extended acquisition period for the company’s acquisition of the Callide Mine, Anglo American had consumed extensive stripping inventories. The stripping inventories were overburden removed in advance of coal mining, in the Boundary Hill and Dunns Creek mining areas.

176 Further, contrary to the assumption in the Turnaround Plan that mining operations would continue at Boundary Hill (a) operations at that site had been suspended in September 2016, (b) all the stockpiled pre-strip coal had been consumed, (c) mining equipment had been removed, and (d) the Boundary Hill workforce had been absorbed into the Southern site workforce and the number of casual personnel had been reduced. This had the consequence that there was no stockpile of pre-strip coal available for the dragline and water in the pit known as Campbell’s pit had to be removed before mining could resume.

I. Difficulties encountered by Batchfire in operating the Callide Mine

I.1. Overview

177 As Mr Westerhuis accepted in cross examination that, in at least simple terms, the success of the Turnaround Plan depended on (a) reducing the cost base of the Callide Mine, (b) increasing the volume of Callide coal to be produced, and (c) the calorific value and specifications of the Callide coal that was produced. As stated in the Information Memorandum, the centrepiece of the Turnaround Plan was the 5-Year Mine Plan under which Batchfire planned to increase production of coal and reduce operating costs.

178 As explained above at [37 ], a central tenet of the plaintiffs’ case is that the failure of the Turnaround Plan can be sheeted home to the Coal Trading Conduct. The plaintiffs contend that the revenue foregone by reason of the Coal Trading Conduct put Batchfire in a precarious financial position and left it with no practical alternative but to proceed with the highly dilutive Rights Issues and ensured that Batchfire remained captive to Avra’s coal trading operations. They contend that Avra and Batchfire breached their fiduciary and statutory duties they respectively owed to Batchfire by engaging in the Coal Trading Conduct and their conduct otherwise made good their oppression claims.

179 Identifying and then evaluating the significance of the difficulties encountered by Batchfire is necessary both to determine the extent to which the Coal Trading Conduct contributed to the failure of the Turnaround Plan and an assessment of the position that Batchfire would likely have found itself if, as alleged by the plaintiffs, Avra would not have been permitted to acquire Export Coal under the Offtake Agreement until it had satisfied its obligations to provide the Marketing Activities under the Agency Agreement.

I.2. Batchfire fails to meet production targets

180 The annual production targets assumed in the Turnaround Plan, but ultimately advanced in the Information Memorandum independently of Xenith (see [67 ] above) were never achieved by Batchfire in its operation of the Callide Mine. The table below compares assumed production figures in the Information Memorandum with the production in fact achieved by Batchfire in the five years after its acquisition of the Callide Mine:

Assumed v Achieved | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Assumed | 9,500,000 | 11,600,000 | 13,400,000 | 13,400,000 | 13,400,000 |
| Achieved | 7,454,079 | 11,231,880 | 10,410,274 | 10,313,173 | 8,105,930 |
| Variance | (2,045,921) (21.54%) | (2,045,921) (3.17%) | (2,989,726) (22.31%) | (3,086,827) (23.04%) | (5,294,070) (39.51%) |
I.3. Coal sales are less than assumed in the Turnaround Plan

181 Relatedly, the annual domestic and export sales targets assumed in the Turnaround Plan were not achieved by Batchfire in its operation of the Callide Mine, other than in years 2 and 3 for domestic sales. The tables below compare assumed annual domestic and export sales against annual domestic and export sales in fact achieved by Batchfire:

Assumed v Achieved | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Assumed | 6,700,000 | 6,700,000 | 6,700,000 | 6,700,000 | 6,700,000 |
| Achieved | 6,141,398 | 7,388,218 | 7,091,002 | 6,026,812 | 5,288,266 |
| Variance | (558,602) (8.3%) | 688,218 10.27% | 391,002 5.84% | (673,188) (10.05%) | (1,411,734) (21.07%) |

Assumed v Achieved | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Assumed | 2,800,000 | 4,800,000 | 6,800,000 | 6,800,000 | 6,800,000 |
| Achieved | 2,398,158 | 3,816,234 | 3,612,344 | 3,576,414 | 3,308,102 |
| Variance | (401,842) (14.35%) | (983,766) (20.15%) | (3,187,656) (47%) | (3,223,586) (47%) | (3,491,898) (51.35%) |
182 Table 3 demonstrates that the cumulative shortfall by the end of year 5 in the volume of export sales achieved by Batchfire from the volumes assumed in the Turnaround Plan had reached 11,288,748 tonnes.

183 The inability of Batchfire to achieve the volume of export sales assumed in the Information Memorandum had a very significant impact on the revenue from export sales assumed in the Information Memorandum. The table below compares forecast revenue derived from forecast sales at forecast prices against achieved sales volume at forecast prices:

Forecast revenue v Achieved volume at forecast prices | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Forecast price (A$/t) | $51.90 | $51.40 | $53.00 | $56.00 | $55.60 |
| Forecast export revenue | $145,320,000 | $246,720,000 | $360,400,000 | $380,800,000 | $378,080,000 |
| Achieved volume at forecast price | $124,464,400 | $196,154,428 | $191,454,232 | $200,279,184 | $183,930,471 |
| Variance | ($20,855,600) | ($50,565,572) | ($168,945,768) | ($180,520,816) | ($194,149,529) |
| Percentage variance | (14.35%) | (20. 50 %) | (46.8 8 %) | (47.40%) | (51.35%) |
184 Table 4 demonstrates the significance of Batchfire’s failure to mine sufficient coal from the Callide Mine in years 1 to 5 to meet the benchmarks set in the Turnaround Plan. The cumulative variance in forecast revenue by year 5, assuming sales at the prices forecast in the Information Memorandum, was $615,037,285. The plaintiffs’ complaint is not that Avra failed to sell Export Coal, but rather that it purchased all, or substantially all, available Export Coal under the Offtake Agreement.

I.4. Batchfire does not achieve targeted strip ratios

185 A strip ratio measures the amount of overburden that needs to be handled for every tonne of coal that is ultimately extracted. Mr Moffatt explained that strip ratios can be calculated using at least three methods. The first is referred to as a “cookie cutter” or “geological” method in which a hole is drilled to identify the thickness of the overburden layer and the coal layer, without determining the total overburden that would need to be handled to extract the coal. The second measures the actual overburden, referred to as the “prime” overburden, that is handled and removed in one single movement to extract the coal. The third is the “total” overburden that is handled, including “rehandling” where a proportion of the coal cannot be handled in a single movement.

186 The strip ratios forecast in the Information Memorandum were 5.1 bcm/t for years 1 to 5 and thereafter 6.0 bcm/t. Lindenfels submits, and I accept, that although there is some ambiguity in the method used to calculate strip ratios in the Information Memorandum, when those strip ratios are compared with the strip ratios used in the 5-Year Mine Plan, it is apparent that the strip ratios assumed in the Information Memorandum were “prime” ratios and thus measured overburden handled (in one single movement).

187 Batchfire was unable to achieve the prime strip ratios forecast in the Information Memorandum, and the forecast cost of the handling of the overburden, when the “total overburden” was taken into account, was not modelled in the Information Memorandum. The table below identifies the prime ratios forecast in the Information Memorandum against the prime strip ratios and total overburden strip ratios in fact achieved by Batchfire:

Forecast against achieved | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Forecast Prime strip ratio | 5.1 | 5.1 | 5.1 | 5.1 | 5.1 |
| Prime strip ratio achieved | 6.61 | 5.80 | 6.87 | 5.73 | 6.51 |
| Percentage variance | 29.6 1 % | 13.72% | 34.70% | 12.35% | 27.6 5 % |
| Total overburden strip ratio achieved | 8.84 | 6.95 | 8.30 | 7.03 | 7.86 |
188 Over the first five years of the operation of the Callide Mine by Batchfire, the average prime strip ratio achieved was 6.3, and the average total overburden strip ratio was 7.8.

189 By at least April 2018, the Batchfire board was aware of the discrepancy between strip ratios forecast in the Information Memorandum and the strip ratios that were being achieved for the Callide Mine. In that month, the Batchfire board approved a Revised 5 -Year Plan in which a prime strip ratio average of 6.8 and a total overburden strip ratio average of 8.0 was forecast the period FY2019 to FY2023.

I.5. Batchfire fails to generate forecast cost reductions

190 Other than a small reduction in actual costs against assumed costs in the Information Memorandum in the first year after completion of Batchfire’s acquisition of the Callide Mine (that is, year 1), and a more significant reduction in actual costs in year 4, the actual costs of operating the Callide Mine significantly exceeded the costs assumed in the Information Memorandum. In addition, other than a materially reduced actual capital expenditure in year 1 against assumed capital expenditure in the Information Memorandum, capital expenditure in years 2 and 3 significantly exceeded assumed capital expenditure. The Information Memorandum did not include figures for assumed capital expenditure in years 4 and 5.

191 The tables below compare assumed mine costs and capital expenditure against actual mine costs and capital expenditure incurred by Batchfire, noting that the assumed and actual figures for mine costs are for the years from completion (that is from 1 November of each year to 31 October of the following year) but for capital expenditure the assumed figures are for years from completion but the actual figures are for financial years:

Assumed v Actual | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Assumed | 246,050,000 | 269,100,000 | 274,050,000 | 297,000,000 | 290,250,000 |
| Actual | 245,617,000 | 356,430,000 | 348,491,000 | 265,552,000 | 301,421,000 |
| Variance | (433,000) | 87,330,000 | 74,441,000 | (31,448,000) | 11,171,000 |
| Percentage variance | (0.17 6 %) | 32.45% | 27.16% | (10.5 9 %) | 3.8 5 % |

Assumed v Actual | | | | | |
| | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Assumed | 34,466,000 | 16,540,000 | 27,855,000 | N/A | N/A |
| Actual | 8,296,414 | 45,767,000 | 93,646,000 | 31,200,000 | 74,895,000 |
| Variance | (26,169,586) | 29,227,000 | 65,791,000 | N/A | N/A |
| Percentage variance | (75.9 3 %) | 176.70% | 236.19% | N/A | N/A |
192 Over the first five years following completion of Batchfire’s acquisition of the Callide Mine, the actual costs of operating the Callide Mine exceeded costs assumed in the Information Memorandum by $141,061,000. In addition, actual capital expenditure for years 1 to 3 exceeded the amount assumed in the Information Memorandum by approximately $68,848,414 (noting that in the first and last periods, the differences in time periods between years from completion and financial years could be expected to alter the precise aggregate figure).

193 The materially reduced capital expenditure in year 1 was largely due to a deferral of an assumed expenditure of $16 million to repair or replace a number of key components of the Callide Mine’s principal dragline. This expenditure was deferred until year 5, at part in least because of the $55 million funding shortfall on Batchfire’s acquisition of the Callide Mine. The deferral of the repairs to the principal dragline reduced its availability from a target of 85% to 77% in year 1. The reduced availability of the principal dragline impacted overburden removal capacity and reduced coal uncover for mining and subsequent sale, translating into reduced revenues and profitability.

194 Further, Batchfire was not able to reduce the FOR operating costs for the Callide Mine to the figures assumed in the Turnaround Plan. Batchfire stated in the Information Memorandum that it expected to achieve FOR operating costs of “$26.1” per tonne in year 1 and then – an average of “$21.7” per tonne over years 2 to 5. Mr Choros stated in cross examination that Batchfire’s objective was to get FOR operating costs below $30 per tonne in order “to at least achieve break even sale points” on the Coal Supply Agreements but conceded that in the period when he was a director of Batchfire, it was never able to reduce consistently its FOR operating costs below $30 per tonne.

I.6. Batchfire does not achieve projected coal quality

195 Batchfire failed to achieve the coal quality from the Callide Mine that it had forecast in the Turnaround Plan. The export marketing strategy advanced in the Information Memorandum was to sell a single grade product with a calorific value of 4,800 GAR (4,550 NAR) as received, and total moisture content of 18%, ash of 18%, volatile matter of 22% and total sulphur of 0.2%.

196 The spot agreements and delivery records in evidence for the period 27 October 2016 to 5 June 2024 demonstrate that in a significant majority of cases the Export Coal sold by Batchfire failed to meet the specifications in the Information Memorandum and the quality of coal, particularly measured in calorific value, fluctuated considerably. By way of example, in 2017 the calorific value of Export Coal, varied from a low of 3,138 NAR to a high of 4,946 NAR.

197 On 9 April 2019, the practical implications of an inability to meet ash levels of no higher than 18% in negotiating long term contracts with end-users was highlighted by Mr Westerhuis in an email he sent to Mr Choros, copied to Mr O’Reilly and Mr Southwood. In expressing his preference as to how Batchfire should pursue a potential sales channel into the Malaysian entity, TNB Fuel Services SDN. BHD (TNB F), Mr Westerhuis relevantly observed:

1. Batchfire already has a relationship with members of the TNB fuel procurement team. TNBF is the coal procurement arm of TNB, which is responsible for purchasing 100% of the coal used in the Malaysian coal fired stations, and Scott knows them well. Last year we pre-qualified as a potential coal tenderer. We expect the next step would be for TNBF to invite a trial cargo from Batchfire. We can do this once we have confidence about quantity & quality out of BH South.

The spec sought by TNB is 15% ash max. Right now we couldn’t get close; anything that resembles <18% ash is preferenced to the Korean Gencos. Once BH South starts producing and we develop some comfort in the as-mined quality we can then expand our customer targets.
Nills was under the impression we could supply 1 x cape per month of 15% max ash coal. Right now we couldn’t guarantee one panamax a year at 15% ash, let alone one cape/month.

I.7. Access to projected mining areas is delayed

198 Batchfire also experienced difficulties in accessing and operating mining areas that it had assumed in the Turnaround Plan would be available.

199 These difficulties included an inability to mine Boundary Hill North, contrary to the three to five year estimate in the Information Memorandum, and delays in securing a mining lease extension for Boundary Hill South.

200 The April 2020 monthly report to the Batchfire board noted that mining at Boundary Hill South had been impacted by geotechnical issues and wet weather and stated that quality control at Boundary Hill South was a concern as sulphur and free silica levels were high and required constant management.

201 In view of the delays in mining Boundary Hill South and that the Boundary Hill North area had been exhausted of coal, Batchfire decided to proceed with mining Boundary Hill East. The coal in Boundary Hill East had not previously been included in any previous mining plans because the coal in that area was of poorer quality and higher strip ratios than other Boundary Hill areas. The adverse consequences to Batchfire of pursuing mining in Boundary Hill East were recognised by Mr Moffatt and Mr Southwood in an email exchange on 19 August 2017. After referring to his understanding of the standard specifications in the “Callide Power Station contract” and the “QAL contract”, Mr Moffatt observed:

So as we are seeing BHEast as the way to stretch our QAL deliveries, until BH South gets going, my brain is telling me that we certainly can’t sell the average energy or Ash to QAL, so we would have to pick out the good stuff and get Scott S to sell more boat loads of shite.

202 Mr Southwood responded to Mr Moffatt informing him of the average calorific value for Boundary Hill East and then stating:

This is certainly nothing to write home about and will have to be cherry-picked as you rightly point out to produce QAL grade and standard export grade, which means boat loads of shite left over for Avra (BB – copy this?).

The other thing immediately apparent here is that dilution is worse than loss in this area.

(Emphasis in original.)

203 Mr Southwood also advised Mr Moffatt:

The more we look into medium term deliveries from the mine, the more it seems we are going to have two Callide export products, a standard and a shite.

We need a schedule from the mine that gives us QQT on these products:

• standard 20GJ/t export and

• whatever is left-over

We can sell most specs if we have enough notice and if China/India keep buying. Lower quality just puts us in lower paying and riskier markets.

Then we can understand impact on revenue, profit and cashflow of various blending options and we can set-up to deal with the product in the optimal way considering the qualities we have.

204 The exchange between Mr Southwood and Mr Moffatt highlighted the practical difficulties encountered by Batchfire in seeking to secure attractive contracts for the sale of Export Coal given the varying quality of Callide coal.

205 In early 2019, Batchfire met with further difficulties in extracting Callide coal because of the movement of a dragline from the Dunn Creek area to the Trap Gully area in February 2019. Mr Choros agreed in cross examination that it was a “very poorly executed decision” because of the combination of a comparatively short dragline pit and an extremely wet weather event in the previous quarter. Mr Moffatt reported to the Batchfire board in May 2019 that “export railings” were at 55% of the “6+6 budget reforecast” due to coal “uncovery and mining delays in Trap Gully” and in most instances mining outcomes in May were:

… less than the 6+6 budget reforecast, with most of the shortfalls resulting from a range of contributions from previous months, including extensive rainfall events, drilling and blasting shortfalls and Dragline 2 sequence changes in Trap Gully.

206 In cross examination, Mr Moffatt agreed that the delays in coal recovery and mining in Trap Gully “had quite an impact” on the recovery of coal and a failure to meet the nominations with CS Energy would potentially result in a liquidated damages claim. He also confirmed that he was still working for Batchfire when a liquidated damages claim was made by CS Energy and one of the primary reasons for Batchfire’s failures to meet the nominations for CS Energy were the issues in relation to Trap Gully.

I.8. Mining fleet and equipment is in worse condition than anticipated

207 The Information Memorandum provided the following assessment of the state of the mining equipment at the Callide Mine:

Callide has a well maintained fleet of mining equipment. With the exception of some minor replacements, the majority of the current fleet will service the mine over the medium to long term.

208 In a presentation to the Batchfire board in December 2016, the Turnaround Plan, as reflected in the 5-Year Mine Plan, was described as “straight forward”. It was stated that it comprised a “ Return to lower strip ratio areas ” and “ Use existing equipment fleet to rated capacity to increase coal production & sales. The lower strip ratio secures economies of scale. No additional equipment required.” (emphasis in original)

209 Mr Choros acknowledged in both his affidavit evidence and in cross examination that when Batchfire took control of the Callide Mine in November 2016 the mining fleet was in a much worse condition than he had anticipated.

210 By December 2017 it had become apparent that significant and unexpected expenditure was required for the Callide Mine, contrary to the assumptions made in the Turnaround Plan. In that month Mr Westerhuis reported to the Batchfire board that:

To continue development of the Callide Mine so the Company meets future production targets, and to recover production deficits associated with the condition of equipment acquired, Batchfire proposes to make a number of expenditure commitments during 2018. These are in addition to existing financial commitments associated with the CSE security deeds and final settlement of the Anglo Completion payment. The major items of expenditure between now and end-2018 are:

~$18.6M to execute extended maintenance shutdowns of both Draglines, the purpose being to improve reliability and provide increased production assurance;
~$3.5M to procure a new overburden blasthole drill and enter into a drilling alliance contract with JSW Drilling Pty Ltd. The alliance contract will progressively reduce unit drilling costs by 40%;

3. Development of infrastructure to facilitate the development of Boundary Hill South, preliminary estimate is in the range of $5M to $8M;

4. Establishing the Boundary Hill South pit boxcut and wall batters, preliminary estimate is in the range ^'$25M to $30M;

5. $5.0M final settlement of the Anglo completion adjustment (Dec 17);

6. $28.0M as additional security deposits for CSE.

Whilst detailed cash forecasts are currently being developed, it is apparent this level of one-off expenditure cannot be supported completely from operating cashflows generated over the period of expenditure. Therefore, it is proposed that alternative funding including the possibility for a (external)debt facility to fund these, and potentially other projects (wholly or partially) be investigated.

A number of funding options are being considered. The Board is requested to consider these options and to endorse the recommended process moving forward.

211 I accept that the distinction between new capital expenditure and expenditure on maintenance of existing capital assets might not always be an easy distinction to draw. The particular difficulty confronting Batchfire by December 2017, however, was that it had only been able to raise $35 million of the up to $90 million investment that it was hoping to raise from investors. As Batchfire stated in the Information Memorandum:

The funds raised from the Offer are key to the implementation of the 5-Year Mine Plan, and will be allocated across a number of work streams, including: maintenance overhaul of the existing Marion 8750 dragline; new mining equipment; personnel redundancy costs; working capital requirements; and transaction costs.

212 As foreshadowed by Mr Westerhuis to the Batchfire board in December 2017, the shortfall in capital effectively locked Batchfire into a position where it had to obtain additional significant funding to maintain mining operations at the Callide Mine.

I.9. Batchfire does not achieve labour efficiencies

213 The Turnaround Plan included the following summary of a proposal to increase labour productivity by aligning the workforce at the Callide Mine to efficient production requirements:

The site workforce at Callide, in 2015, consisted of approximately 700 people, including a fleet of 600 maintenance and production personnel, and 100 site management, services and administration staff. Batchfire expects to reduce the overall workforce to approximately 550 people in Years 1 to 3, before increasing staff numbers up to approximately 580 people from Year 4 onwards, as production increases to a steady state of 13Mtpa. This represents a labour productivity increase from approximately 11,600 tonnes per annum per person (tpapp) to 22,000tpapp, which is an approximate 90% improvement.

214 Batchfire was not able to achieve the labour efficiencies that it had forecast in the Turnaround Plan. By October 2017, (towards the end of year 1) Batchfire had 630 employees working at the Callide Mine and was looking to engage more contractors but was having difficulty finding people who were prepared to do the work.

I.10. Volume of export sales is less than forecast

215 The value of export sales depended on both the price and the quantity of Export Coal sold. As explained at [181 ]-[184 ] above, the quantity of Export Coal sold was much less than what had been forecast in the Information Memorandum.

216 From the outset, the Batchfire board was made aware of shortfalls in the availability of Export Coal for sale. In a presentation to the board in January 2017, Batchfire directors were advised that until the company could get “additional overburden removal going” it would struggle to meet its targets for the sale of Export Coal and given:

• Export coal volume and revenue is what makes us successful (profitable), so we are in for a few more loss making months before we come out the other side.

217 On 15 June 2017, Mr Southwood emailed Mr Westerhuis, Mr Moffatt, Mr Burgess and other Batchfire and Avra employees confirming that two Export Coal cargoes had been booked for Avra in July but there was still no production forecast for July.

218 On the following day Mr Westerhuis emailed Mr Moffatt advising him:

It is unsatisfactory that on the 15 th June we still don’t have a production & product delivery schedule for July. What has happened to the 13 week schedule that gets updated every 4 weeks? I can’t pressure Avra to do their bit when operations can’t describe what is available to sell. Can’t run a business that way.

219 Mr Westerhuis then forwarded his email to Mr Moffatt to Mr Southwood and observed:

I share your frustration; watch this space. CM needs to light a fire under some of his (well-meaning) charges.

220 At a board meeting on 14 November 2017, the Batchfire directors were informed that the low stocks of coal mined were placing sales of Export Coal in the first quarter of 2018 at risk and no export sales had been committed for January and February 2018 because of those low stocks.

221 Shortfalls in coal production at the Callide Mine continued into 2018.

222 On 10 July 2018, Mr Westerhuis instructed a Batchfire employee, Stuart Schmidt, by email, to conduct a mine planning and scheduling review for the Callide Mine, in conjunction with another Batchfire employee, John O’Connell, and an external consultant, such as Jim Mahood of “Blufield”, Ian Alexander of “JT Boyd” or Stuart Ashdown of “Minserve”. Mr Westerhuis explained in his email to Mr Schmidt:

The context is that during the latter half of FY18 there were serious mismatches between what was forecast by successive 12-week plans and what was actually delivered. Ships were ordered in response to coal delivery schedules, they turned up at Gladstone for loading but ended up waiting for extended periods. The demurrage bills were horrendous. Some sales couldn’t be finalized. The subsequent impact on company finances have been extensively discussed.

223 In contrast, the price at which Export Coal was in fact sold, including sales to Avra under the Offtake Agreement, in year 1 at least, exceeded the prices for Export Coal assumed in the Information Memorandum.

224 In September 2017, Mr Westerhuis reported in slides prepared for a Batchfire strategy planning workshop that the price for Export Coal that had been achieved to date was $42.72 against an assumed $32.52 in the Information Memorandum, the export cost per tonne was $33.12 against a forecast $32.34, the export tonnage was 2.26 million tonnes (annualised from the 1.88 million tonnes achieved for the 10 months to 31 August 2017) against forecast annual tonnage of 3.9 million tonnes leading to export revenue of $102.4 million since November 2016, but increasing to $141 million if annualised to account for anticipated September and October 2017 sales, against a forecast annual revenue of $139 million. Mr Westerhuis observed that “Higher export price compensated for lower production” and “This is just luck… … Not good management”.

225 Mr Westerhuis agreed in cross examination that in the period to December 2018 the prices achieved by Batchfire for Export Coal had not affected the company’s ability to “hit the turnaround plan”, rather it had been “production and volume issues”. The weighted average price for Export Coal in the period between March 2017 and December 2018 had been $60.14 compared with a price anticipated in the Information Memorandum of approximately $52.

J. Fiduciary Duty Claims

J.1. Overview

226 The plaintiffs allege that Avra owed a fiduciary duty to Batchfire not to promote its own interests by making or pursuing a financial gain in circumstances in which there was a conflict, or a real or substantial possibility of a conflict, between its interests and the interests of Batchfire. They allege that this included a duty on Avra not to exercise its powers under the Agency Agreement and the Offtake Agreement to make or pursue a financial gain for itself if doing so was in conflict with the economic interests of Batchfire in maximising profits earned from the sale of Export Coal and obtaining the highest price possible for Export Coal through export sales agreements procured by Avra for Batchfire under the Agency Agreement (Avra fiduciary duty).

227 The plaintiffs contend that the Avra fiduciary duty arose by reason of (a) Avra’s appointment as the exclusive agent for the sale of Export Coal and by operation of law, as the relationship between principal and agent is an accepted category of fiduciary relationship, (b) the special opportunity Avra had to exercise its powers under the Agency Agreement to the detriment of Batchfire, (c) the vulnerability of the Batchfire companies to Avra’s misuse of its fiduciary position, (d) Avra’s agreement to act in the proper and best interests of Batchfire with the utmost good faith in the exercise of its powers or discretions that affected the interests of Batchfire, and (e) the entitlement to rely, and reliance in fact, of the Non-Lindenfels directors on Avra to perform its obligations under the Agency Agreement in good faith and to act in the best interests of the Batchfire companies in pursuing opportunities to export Export Coal to overseas markets.

228 The plaintiffs contend that by reason of Avra’s fiduciary duty, Avra could not (a) purchase Export Coal under the Offtake Agreement for the purpose of selling it in overseas markets for profit rather than conducting Marketing Activities and pursuing direct sales of Export Coal from Batchfire to end-users, or (b) generate profits for itself from the resale of Export Coal without obtaining the informed consent of the Batchfire shareholders.

229 Senior Counsel for plaintiffs contended in his closing oral submissions that Avra’s breach of the no conflict rule and the no profit rule “goes a long way towards establishing oppression”, and in “other words, we just have to show that there was a breach of the no conflict rule or a breach of the no profit rule to establish a breach for the purposes of making out our case on oppression.”

J.2. Legal principles

230 There is no generally agreed definition of who is a fiduciary: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at 177. The characteristics which define a fiduciary relationship cannot be exhaustively defined: ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 at 1066.

231 The following critical features of fiduciary relationships were identified by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97:

… the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

232 The essential fiduciary principle, as stated by Mason J in Hospital Products at 103, is that a fiduciary:

… is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect.

233 This is generally referred to as an obligation, in the absence of informed consent, to avoid a conflict between the personal interests of the fiduciary and those to whom the duty is owed: Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at 78. The alleged conflict may be between either duty and duty or between interest and duty. Both are manifestations of an over-riding duty of undivided loyalty: Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408 at 201.

234 An agency relationship may give rise to fiduciary obligations. The central notion of agency has been said to be “acting or having actual or apparent authority to act as representative of, or for, or on behalf of, the principal”: Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2013] FCAFC 29; (2013) 296 ALR 465 at 73, and as connoting “an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties”: International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ).

235 The formulation of a fiduciary relationship in a contractual setting raises for consideration (a) whether a contractual obligation inserted for the benefit of a party gives rise to an undertaking to act for or on behalf of that party and, consequently, to act in relation to the contract solely in the interests of that party, and (b) when does an offer by one party to enter into a contract with another party for the mutual benefit of both parties become such an undertaking: John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at 89.

236 As Deane J observed in Hospital Products at 122-123:

The express term of the contract in the present case requiring the distributor to use its “best efforts” to build up the market for, and distribute, the products in Australia “to the common benefit” of both manufacturer and distributor did not, of itself, impose a general fiduciary duty on the distributor to seek no profit or benefit for itself or to disregard its own interests where they conflicted with the manufacturer’s. In the context of the term precluding the distributor from dealing in any competing product, the reference to “the common benefit” was no more than a reflection of the commercial fact that, while the distributorship subsisted, it was in the interests of both manufacturer and distributor that, consistently with ordinary economic restraints on pricing, the market for the manufacturer’s product in the relevant area be maximized.

237 In a passage referred to with approval by the High Court in John Alexander Clubs at [91], Mason J stated in Hospital Products (at 97), where contract provides the foundation for an alleged fiduciary relationship, it is:

… the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

238 Where the parties are in a contractual relationship, the determination of whether a party is subject to fiduciary obligations and the scope of any fiduciary obligations is to be resolved by construing the contract as a whole in the light of the surrounding circumstances known to the parties and the purpose and object of the transaction, consistently with the ordinary principles of contractual construction: Australian Securities Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35; [2007] FCA 963 at 281 (cited with approval by Gageler J in Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [107]) .

239 Notwithstanding that the manufacturer in Hospital Products relied on the distributor to promote the sale of its products in Australia and left it to the distributor to determine how to do that, and the distributor had the power to affect the manufacturer’s interests both beneficially and adversely, Gibbs CJ considered there were two insuperable obstacles to the contention that the distributor and the manufacturer were in a fiduciary relationship (at 72). First, the arrangement was a commercial one entered into “at arm’s length and on an equal footing” and it was open for the manufacturer to include whatever terms it considered necessary to protect its position. Second, the whole purpose of the transaction, known to both parties, was that the distributor should make a profit.

240 In Pavan v Ratnam (1996) 23 ACSR 214, Beazley JA observed at 224:

The characteristics of a fiduciary have been dealt with recently by the Supreme Court of Canada in Hodgkinson v Simms (1994) 117 DLR (4th) 161, where La Forest J at 175 described the fiduciary duty as “until recently … a legal obligation in search of a principle”.

In identifying a fiduciary, his Honour stated at 176:

. . . outside the established categories, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party.

So defined, the relationship between the respondent and the appellant could not be described as involving a fiduciary relationship. However, this statement is too narrow (and too narrow in terms of his Honour’s overall identification of the fiduciary obligation). For example, so expressed, it fails to acknowledge that a fiduciary may, with the informed consent of the party to when the duty is owed, act in the fiduciary’s own interest…

In my opinion, despite the optimism of La Forest J, there are difficulties in attempting to find an all embracing statement of principle to categorise a relationship which, as Mason J pointed out in Hospital Products is “infinitely varied”. It is preferable to approach the matter by looking at all the circumstances of the case and determining whether there are factors which solely, or in combination, establish the nature or the relationship as a fiduciary one…

241 Vulnerability is not the touchstone of a fiduciary relationship but it is relevant to the existence of a fiduciary relationship to the extent that it is suggestive of a responsibility on the part of the putative fiduciary to act in the interests of the vulnerable party to the exclusion of its own interests: Naaman v Jaken Properties Australia Pty Limited (2025) 281 CLR 635; [2025] HCA 1, 43.

242 As Dawson J observed in Hospital Products at 147:

Moreover, a fiduciary relationship does not arise where one of the parties to a contract has failed to protect himself adequately by accepting terms which are insufficient to safeguard his interests. Where a relationship is such that by appropriate contractual provisions or other legal means the parties could adequately have protected themselves but have failed to do so, there is no basis without more for the imposition of fiduciary obligations in order to overcome the shortcomings in the arrangement between them.

243 Further, a person may be in a fiduciary relationship as to some aspects of a relationship but not with respect to other aspects. By way of example, a bank may be in a fiduciary relationship with its clients in providing financial advice to the clients as to the suitability of an investment, but may be expected to act in its own interests in taking security for the loan it might advance to facilitate the making of that investment: Citigroup Global at 285, citing Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 at 391 (Davies, Sheppard and Gummow JJ).

244 In order to determine the subject matter over which the fiduciary obligations extend, it is necessary to focus on the actual functions or responsibilities assumed by the fiduciary: Grimaldi at 179.

J.3. Submissions

J.3.1. Plaintiffs’ submissions

245 The plaintiffs advance the following principal submissions in support of their fiduciary claim against Avra.

246 First, the Avra fiduciary duty to Batchfire arose because (a) Batchfire had no option but to sell Export Coal through Avra under the Agency Agreement or to Avra under the Offtake Agreement, and Batchfire was therefore vulnerable to how well or poorly Avra performed its marketing obligations under the Agency Agreement, and (b) Avra had a contractual obligation in the Agency Agreement to act in Batchfire’s “proper and best interests” and with the “utmost good faith”. The plaintiffs submit that the Avra fiduciary duty meant, in practical terms, that Avra could not earn any profits on the sale of Export Coal under the Agency Agreement and the Offtake Agreement or use its fiduciary position to secure opportunities or other benefits for itself, without the fully informed consent of Batchfire’s shareholders.

247 Second, the plaintiffs accept that cl 4.1(a) of the Agency Agreement gave Avra an option to purchase Export Coal for itself but submit that the option was only intended to be exercised by Avra for tonnages of Export Coal that had not otherwise been allocated to other purchasers identified by Avra in undertaking Marketing Activities under the Agency Agreement. They submit that this makes “complete commercial sense”, as a central plank of the Turnaround Plan was to increase its direct export sales and develop its own brand recognition in the export market. They claim that “in ceding control of its marketing function to Avra, it is a commercial nonsense to suggest Batchfire expected anything less than Avra performing that function in such a way to maximise the prospects of Batchfire achieving the objectives of that central plank”.

248 Third, there is no textual support for any contention that the option in the Agency Agreement for Avra to purchase Export Coal under the Offtake Agreement permitted Avra to wholly abdicate its obligations under the Agency Agreement, including its obligations to undertake the Marketing Activities under the agreement.

249 Fourth, the Offtake Agreement and the Agency Agreement must be read together. The plaintiffs submit that applying a sensible businesslike interpretation to the agreements, in particular because of the good faith obligation in cl 1.4 of the Agency Agreement, an obligation was imposed on Avra to act in the best interests of Batchfire. They submit that read together, the agreements provide that Avra was not entitled to exercise its rights under cl 4.1(a) of the Agency Agreement to acquire Export Coal from Batchfire unless it had undertaken the Marketing Activities in good faith pursuant to cl 11 of the Agency Agreement. They submit that unless the Marketing Activities were undertaken by Avra, there would be no export market for Export Coal, Batchfire would only receive what Avra was prepared to pay under the Offtake Agreement, and the Turnaround Plan was highly unlikely to be successful.

250 Fifth, given it was readily apparent that Batchfire could not sustain or expand operations of the Callide Mine without a growth in export sales, given its legacy Coal Supply Agreements, it was a condition of Avra’s investment in Batchfire that it would provide the Marketing Activities as the exclusive marketing agent to Batchfire under the Agency Agreement for the sale of Export Coal. They submit that it would be “a commercially unsensible result” if, in the face of that condition, the Agency Agreement and Offtake Agreement were to be construed in such a manner to permit Avra effectively to abandon this condition of its investment in Batchfire.

J.3.2. Defendants’ submissions

251 Lindenfels submits that cl 4.1(a) provides that if Avra purchased all Export Coal produced by Batchfire, then it would remove the obligation to perform any Marketing Activities under the Agency Agreement, but accepted this was ultimately a hypothetical issue because Avra did not purchase all the Export Coal sold by Batchfire.

252 Mr Burgess submits that an alternative construction of cl 4.1(a) to that proposed by Lindenfels is that there remained an obligation on Avra to provide a degree of Marketing Activities pursuant to cl 11.4 and other provisions of the Agency Agreement, even if Avra had otherwise acquired all Export Coal from Batchfire under the Offtake Agreement. He submits, however, that any breach of that obligation may amount to a breach of the Agency Agreement but is not relevant to any alleged fiduciary obligation or otherwise impacts on Avra’s contractual entitlement to acquire Export Coal from Batchfire under the Offtake Agreement.

253 Mr Burgess also submits that cl 10 of the Agency Agreement prohibited Avra from doing anything on behalf of Batchfire unless it was expressly permitted under the Agency Agreement. He submits that cl 10 makes plain that the obligation to act in the best interests of Batchfire and with the utmost good faith in cl 11.4 was no more than a contractual promise as to how Avra would perform the Marketing Activities under the Agency Agreement, and it was not capable of converting a commercial relationship for profit into a fiduciary one.

J.4. The critical issue to be resolved

254 The critical issue to be resolved is whether Avra’s alleged fiduciary duty can be superimposed on the contractual relationship between Avra and Batchfire in such a way so as not to alter the operation of the Agency Agreement and the Offtake Agreement.

255 The determination of that issue largely turns on the contractual entitlement of Avra to acquire Export Coal under the Offtake Agreement and the contractual obligation imposed on Avra under the Agency Agreement to provide Marketing Activities to Batchfire. In particular, the extent to which a failure to provide the Marketing Activities may qualify any contractual right of Avra to acquire Callide Export Coal under the Offtake Agreement.

J.5. Avra did not have to provide Marketing Activities for sales made under the Offtake Agreement

256 The contractual obligation to provide Marketing Activities was imposed on Avra pursuant to cl 3.1 of the Agency Agreement.

257 Clause 3.1 of the Agency Agreement provided that Avra was to be appointed as the exclusive marketing agent of Batchfire with effect on and from the Effective Date for the purpose of providing Marketing Activities to Batchfire.

258 Clause 4.1(a) of the Agency Agreement provided (noting the reference to cl 2.1 was an incorrect reference to cl 3.1):

4.1 Notwithstanding the appointment of AVRA in accordance with clause 2.1, the Parties acknowledge and agree that:

(a) AVRA may, instead of providing Marketing Activities in relation to Export Coal under this Agreement, elect to itself purchase any amount of Export Coal in accordance with the terms and conditions contained in the AVRA Offtake Agreement;

259 Textually, it is plain that cl 4.1(a) permits AVRA to purchase “any amount” of Export Coal pursuant to the Offtake Agreement, notwithstanding its appointment as the exclusive marketing agent of Batchfire.

260 Avra’s entitlement to purchase Export Coal under the Offtake Agreement without undertaking Marketing Activities was also confirmed by the terms of the Offtake Agreement. Clause 3.2 of the Offtake Agreement provided that:

The Seller grants to [Avra], in accordance with the terms and subject to the conditions of this Agreement, the right, but not the obligation, to offer to purchase at [Avra’s] election at any time during the Term, Export Coal in accordance with the terms of the AVRA Spot Agreement, as agreed between [Avra] and Seller from time to time.

261 Pursuant to cl 3.2, Avra could elect to make an offer to purchase any quantity of Export Coal at any time during the term of the Offtake Agreement, and any purchase would be subject to the terms and conditions of the Offtake Agreement, including the spot agreement attached to the Offtake Agreement, not the terms and conditions of the Agency Agreement.

J.6. Avra was always subject to a residual obligation to provide Marketing Activities

262 Further, although the clause could have been written more clearly, textually, the exemption from the obligation to provide Marketing Activities is confined to Export Coal purchased by Avra under the Offtake Agreement.

263 For the following reasons, however, it does not follow, contrary to submissions advanced by Lindenfels, that if Avra were to purchase all Export Coal under the Offtake Agreement, cl 4.1(a) should be construed as relieving Avra from providing any Marketing Activities.

264 First, it is readily apparent from the definition of Marketing Activities in the Agency Agreement that they are not limited to activities directed at specific sales of Export Coal. The following definition of Marketing Activities is provided in cl 1.1 of the Agency Agreement:

Marketing Activities means all activities from time to time conducted for, or incidental to, the promotion, marketing and sale of Export Coal for the account of Callide JV, carried out by AVRA as agent for Callide JV, including but not limited to:

(a) identifying potential Export Customers;

(b) negotiating, but not entering into, Export Sales Agreements on Callide Sales' behalf, including negotiating Export Prices and delivery schedules acceptable to and approved by Callide Sales and which are otherwise within the Batchfire Coal Sales Framework;

(c) provide to Callide Sales marketing information pertaining to the supply of Export Coal in the Export Markets on a timely basis through utilisation of AVRA's internal sales and shipping infrastructure;

(d) assist Callide Sales and Batchfire with formulation of a marketing strategy, which will be presented to the Batchfire General Manager Marketing on a monthly basis or as otherwise required from time to time by the board of directors of Batchfire;

(e) providing Callide Sales and Batchfire with the necessary information enabling the Batchfire General Manager Marketing to prepare the annual Export Sales Plan for Batchfire for use in the business planning and budgeting process in accordance with this agreement;

(f) each month provide Callide Sales and Batchfire with necessary information enabling the Batchfire General Manager Marketing to prepare the rolling 12-month forward looking re-forecast of the Export Sales Plan;

(g) liaise with Callide Sales on coal availability, quality, quantity from the Callide Mine and schedules to ensure all Export Coal is sold in an optimal manner. This includes assisting with preparation of annual, quarterly and monthly coal delivery schedules. Typically these schedules contain tonnages, shipments, shipments sizes and laycans;

(h) outline spot and term sales opportunities for the Export Coal as and when relevant;

(i) assist in the preparation of Export Sales Agreements;

(j) assist in the collection of any accounts receivable of Callide Sales from Export Customers (including, but not limited to, demurrage and despatch costs); and

(k) provide market based Freight Services in accordance with clause 8;

(1) providing for the storage, transport, loading and insurance of Export Coal in connection with Export Sales Agreements entered into with Export Customers, to the extent required; and

(m) doing all such things as are agreed between Callide JV or Callide Sales and AVRA from time to time in order to secure Export Sales Agreements, which will include, as at the date of this Agreement, informing potential Export Customers of:

(i) the quantities;

(ii) the potential delivery dates; and

(iii) shipping grades,

of Export Coal.

265 Marketing Activities extended to the identification of sales opportunities generally and the preparation of business plans and annual, quarterly and monthly delivery schedules. Inherently, marketing a product is a broader and less specific concept than selling a product. It would be unusual to speak in terms of marketing a product to a specific purchaser.

266 Second, both cl 5.1 and cl 5.2 of the Agency Agreement imposed specific marketing obligations on Avra independently of any specific sale of Export Coal. Those clauses provided:

5.1 On the Effective Date, and on every anniversary thereafter, AVRA must notify to Callide Sales a forecast on a monthly basis, extrapolated from the Export Sales Plan, identifying for the following 12 months:

(a) sales to customers, including any unallocated;

(b) tonnages;

(d) an estimate of the AVRA direct off-take tonnage to be acquired under the AVRA Offtake Agreement (which the parties agree is normally expected to be a portion of the unallocated tonnage).

5.2 On a monthly basis or at such frequency and for such periods as are agreed by the Parties. AVRA will determine, in consultation with the Batchfire General Manager Marketing, the approximate apportionment of Export Coal between this Agreement and the AVRA Offtake Agreement which must be consistent with the current Export Sales Plan.

267 The absence of any sales under the Agency Agreement would not relieve Avra from the obligation in cl 5.1 of the Agency Agreement to identify the information stipulated on a monthly basis and the obligation in cl 5.2 on a monthly, or otherwise agreed, basis to undertake the approximate apportionment determination.

268 Third, Avra was entitled to be paid a monthly fee for providing Marketing Activities independently of the quantity of sales made under the Agency Agreement. Clause 7.5 of the Agency Agreement provided:

Callide JV must pay to AVRA:

(a) Commission on all sales of Export Coal to Export Customers; and

(b) Monthly Fee in consideration for the services provided by AVRA in accordance with this Agreement,

which will be payable in accordance with Schedule 2.

269 Schedule 2 provided a sliding scale for the payment of Commission, in specific time periods, by reference to the net export price obtained for direct sales by Batchfire of Export Coal under the Agency Agreement. In contrast, cl 1.3 of Schedule 2 provided:

Callide JV will pay AVRA a Monthly Fee on the following basis:

(a) US$20,000 per month during Years 1 to 5 (inclusive):

(b) US$21,000 per month during Years 6 to 10 (inclusive);

(d) US$23,000 per month for every month after the Initial Term until the expiry of the Term.

270 The amount of the Monthly Fee was not connected to the quantity of sales of Export Coal made under the Agency Agreement.

J.7. Avra was under a contractual – not fiduciary – obligation to provide Marketing Activities

271 The clauses in the Agency Agreement relied on by the plaintiffs in support of their contention that Avra owed a fiduciary duty to Batchfire only serve to emphasise the contractual, rather than fiduciary, nature of the obligation imposed on Avra to provide Marketing Activities. The clauses demonstrate the extent to which the parties turned their attention to the manner in which the Marketing Activities were to be provided and sought to make their provision subject to express contractual provisions and controls.

272 Clauses 11.3 to 11.5 of the Agency Agreement provided:

11.3 AVRA shall manage and conduct all Marketing Activities with the skill, diligence and care normally exercised by qualified persons in the performance of comparable work and in accordance with generally accepted industry standards and practices.

11.4 AVRA shall be accountable to Callide Sales and must act in the proper and best interests of Callide Sales and each of Callide I and Callide 2 and with the utmost good faith.

11.5 AVRA shall keep and maintain accurate, correct and up-to-date records in a manner that fully and fairly explains all Marketing Activities and transactions effected in respect of the Marketing Activities pursuant to this Agreement.

273 These were express contractual provisions governing the manner in which Avra was to provide the Marketing Activities. The use of the language of “skill, diligence and care normally exercised by qualified persons” imposes an objective contractual standard to be applied to the provision of Marketing Activities by Avra. The use of the expressions to “act in the proper and best interests” and “with the utmost good faith” does not transform Avra’s contractual obligations into fiduciary obligations. Rather they inform the standard by which Avra’s performance of its contractual obligations to provide Marketing Activities are to be assessed.

274 The extent to which the parties sought to make the provision of Marketing Activities subject to express contractual provisions is further reinforced by the inclusion in the Agency Agreement of a Batchfire Coal Sales Framework under which the Marketing Activities were to be provided. Clause 9 of the Agency Agreement provided:

9.1 The Parties agree that Marketing Activities are to be provided by AVRA:

(a) in accordance with the section of the Coal Sales Framework headed "Export Sales Approval Process (Coal Sales Mandate)"; and

(b) otherwise having regard generally to the Batchfire Coal Sales Framework.

9.2 The Parties, acting reasonably and in good faith, may agree to vary the terms of the Batchfire Coal Sales Framework.

275 The Batchfire Coal Sales Framework was set forth in Schedule 1 to the Agency Agreement. It included an “Export Sales Approval Process (Coal Sales Mandate)” and terms addressing spot sale, shorter term sales and longer term sales. The sales approval process was stated to be broadly as follows:

• The CEO will regularly consult the Lindenfels appointed Director for advice regarding customer developments, marketing opportunities, sales strategies, pricing and industry trends. The Director will access the AVRA marketing network &representatives (staff and agents) across Asia.

• The CEO will prepare and submit for board approval a marketing framework which stipulates parameters for sales approvals , typically:

o Price not below cash cost a margin. This margin, which will be discussed by the CEO and the GM Marketing, but which will ultimately be determined by the CEO, will fluctuate over time and will depend on prevailing market conditions and the measures to be taken to meet the market. Accurate cost information will be provided to the GM Marketing

o Policy on fixed / index-based pricing / hedging

o Agreed definition of "spot" and "term" sales based on duration and tonnage

o Differentiated approval levels for term sales based on duration and tonnage

o For CIF and CFR sales, shipping price (including as a range) and risk margin.

• If the marketing framework is approved by the board of Batchfire, the framework will constitute the "CEO Guidelines", until such time as those guidelines are revised by the board of Batchfire.

• CEO will consult with Lindenfels appointed Director when offered prices fall outside CEO Guidelines.

• Approvals process dependent on scope of sale (spot or term).

276 Although the sales approval process expressly provided for the CEO of Batchfire to prepare a marketing framework for approval by the Batchfire board, Mr Westerhuis confirmed that he never prepared a marketing framework for approval by the board.

277 The Batchfire Coal Sales Framework also provided for the following in relation to “Board of Directors Feedback”:

• GMM reports to Directors at each Board Meeting with a sales presentation;

• Sales Presentation to include details of the sales strategy and sales made in previous period;

• Sales reports include:

• Destination;

• Quality;

• Price;

• Strategy/reason for sale

• Directors may discuss sales and strategy and comment on sales made and if consensus opinion is dissatisfied, the Board may consider a new framework for sales approvals.

278 The GMM was a reference to the General Manager of Marketing for Batchfire, namely Mr Southwood. Although Mr Southwood was appointed to that position, the obligation to provide Marketing Activities was exclusively imposed on Avra.

279 Further, cl 15 of the Agency Agreement included a specific framework for performance reviews of Avra’s provisions of Marketing Activities, to which I return at [635 ] below.

280 The foregoing provisions of the Agency Agreement make plain that Batchfire had the benefit of express contractual provisions to address any perceived vulnerability that might arise if Avra failed to provide Marketing Activities. Any decision by Batchfire not to rely on those contractual provisions, including any decision not to prepare a marketing framework for the purpose of the sales approval process, cannot be relied upon to establish vulnerability or otherwise give rise to any fiduciary obligation.

J.8. Avra did provide some Marketing Activities

281 There was limited evidence of Avra undertaking Marketing Activities.

282 In part, that may have been because of the absence of any express pleading that Avra had failed to undertake any, or any substantive, Marketing Activities. Nevertheless, I am satisfied that the adequacy of Marketing Activities undertaken by Avra was raised in both the second further amended statement of claim (2FASOC) and in the plaintiffs’ opening submissions:

Throughout the period from November 2016 to date, Avra has purchased the Avra Coal Offtakes…rather than…identifying potential third-party customers…negotiating the sale of the Callide Coal with such third-party customers…

…

Further, Avra’s conduct in purchasing the Avra Coal Offtakes…was contrary to…the requirement pursuant to clause 11.3 of the Avra Agency Agreement that Avra conduct all marketing activities with skill, diligence and care normally exercised…

…

Further, contrary to the Avra Agency Agreement…Avra did not conduct its marketing activities by reference to or in compliance with a marketing framework or CEO Guidelines as required by Schedule 1 of the Avra Agency Agreement;

283 The plaintiffs then relevantly contend in the 2FASOC at [115] and [287]:

The conduct pleaded in this Part C was and is…oppressive to, unfairly prejudicial to and unfairly discriminatory against the members of the Company other than Lindenfels.

…

The Plaintiffs rely upon the entirety of the conduct of the Company, Avra, Lindenfels and their representatives set out in this pleading, and the cumulative effect of that conduct, in respect of the relief it seeks under section 233 of the Corporations Act.

(Emphasis in original.)

284 The plaintiffs submitted in their opening written submissions at [2], [13] and [22]:

Avra exploited Batchfire’s vulnerability from the start, and instead of conducting the Marketing Activities under the Agency Agreement, Avra systematically proceeded to purchase over 90% of the Company’s coal for export and continued to do so up to around mid-2018 well below market rates.

…

Instead of pursuing the Marketing Activities, Southwood and Burgess consistently advised the CEO and the Board that sales of export coal to Avra were all that was available and were on the best terms reasonably available for the Company …

…

What the Lindenfels-directors did not disclose to the other members of the Board was that by the coal trading conduct, Avra was earning a very significant margin which Batchfire could have earned had the Marketing Activities been performed under the Agency Agreement.

285 In the course of his oral opening submissions, senior counsel for the plaintiffs submitted that no Marketing Activities had been undertaken by Avra, and that there was no evidence in the affidavits of Mr Burgess and Mr Southwood of actual Marketing Activities being undertaken by them, but subsequently qualified those submissions by submitting:

If you search through all of the monthly reports that Mr Southwood prepared, and you search through the affidavit evidence of Mr Southwood and Mr Burgess, you will – there might be one example of an attempt to market coal to Japan. But it’s otherwise scant.

…

Anyway. The extent of marketing activities is certainly something that will be – can and will be explored in the cross-examination. It also has to be remembered when we are looking at vulnerability that Batchfire didn’t have the capacity or experience itself to market coal for export sales, and that’s why Avra was retained.

286 I am satisfied that the above extracts from the 2FASOC and from the plaintiffs’ opening submissions make explicit that the plaintiffs had, at least, advanced a case that Avra had failed to undertake sufficient Marketing Activities to satisfy its obligations under the Agency Agreement. Hence at the time that Lindenfels made the forensic decision not to call Mr Burgess or Mr Southwood and not to seek to lead any specific evidence from them of Marketing Activities that had been undertaken by Avra, it was on notice that the scope and extent of Marketing Activities undertaken by Avra was in issue in the proceeding.

287 In any event, in closing submissions Lindenfels sought to rely on the following documents that were in evidence to establish that it had conducted Marketing Activities.

288 On 14 February 2017, Mr Southwood reported to the Batchfire board that there was:

… plenty of interest in visit to Philippines & Taiwan. Potential Tai Power contract this year.

289 On 10 April 2017 Mr Westerhuis sent the following email to Mr O’Reilly, Mr Choros, and Mr Barker with the subject line “Avra visit”, reflecting a positive view of Avra’s Marketing Activities at least in April 2017:

Gents

FYI - Last week when I was in Jakarta I attended a day-long briefing & discussion at Avra’s offices. I gave an overview presentation on Callide that was well appreciated. I then received very comprehensive explanations of all the things the Avra regional people are doing to promote Callide product. This from men doing their thing in the following regions:

• China

• Malaysia

• Korea

• Indonesia (Sulawesi)

• India

• Thailand

• Philippines

• + an outline of the present and future prognosis of the global bulk shipping market

I can say that the Avra team are certainly all over it. Very professional & switched on. There are some significant successes looming, particularly with:

Virtue Dragon - Nickel Smelter in Sulawesi. I also had dinner with Mr Andrew Zhu, President Director. They are currently on track to start receiving regular, monthly cargos of 60Kt from Callide. There is a strong possibility this can increase, in 2018, to 24 x 60Kt cargos per year (ie 2 per month).
Huaneng - Thermal coal into southern China for power stations. At this time 4 x 150Kt per year is a strong possibility. We have already commenced this supply.
KOSEP - Korean Genco. At this time 4 x 150Kt per year is a strong possibility. The first vessel is scheduled for loading later this month.

There are good leads in all other markets, some stronger than others. I have a lot of confidence in those guys’ ability to move Callide tonnes; in fact there is a risk of being too bullish and over-selling, something I’ll need to monitor.

(Emphasis added.)

290 On 11 May 2017, Mr Southwood emailed Mr Burgess and various coal traders at Avra attaching a presentation for discussion in Bali and stating that the intention:

… is to renew thinking on Callide marketing with a view towards specific marketing plans going forward…We have been going for six months now and still doing 100% pure spot. This is understandable for a new product but would be good to secure some contracts going forward (Aboitiz, HKE, TNBF, TPC, Gencos, PLN, Huaneng etc)”.

291 An email chain commencing with an email sent 12 October 2017 from Muhamad Firdaus Muhammad, an employee in the Business Relation & Stakeholder Management department at TNBF, records that TNBF was planning to conduct a due diligence exercise on the Callide Mine during the “Coal Pre-Qualification No. PQ01/16”, and that Avra had proposed dates within December 2017. Subsequent emails on 19 and 20 October 2017 show Mr Ang, Mr Burgess and Mr Southwood liaised in relation to organising the mine visit and associated flights and itinerary.

292 On 19 October 2017, Mr Handoro Ang of Avra emailed Mr Southwood, copying Mr Burgess, and attaching a series of documents said to have been provided to TNBF. The attachments included schedules containing (a) coal quality data of “Callide Southern” coal (b) the “applicant’s details”, which lists Avra as the applicant, Batchfire as the owner of the Callide mine, both Mr Burgess and Mr Ang as contact persons, and provides a statement that “AVRA HAS FULL MARKETING RIGHT TO MARKET CALLIDE COAL”, (c) a mine profile, and (d) loading ports details. The document is signed by Marc Leuthard as a director and is stamped with an Avra company stamp on each page.

293 On 11 February 2019 at 8.26 am, Ms Lisa Lee of Batchfire emailed Mr Westerhuis with the subject line “TNB – Letter” stating:

Hi Peter,

Further to the communications regarding TNB, now that we’re comfortable to proceed, attached is the letter (and standard NDA) we need to send to TNB.

…

294 Some ten minutes later, Mr Westerhuis emailed Mr Southwood forwarding the correspondence with Ms Lee and informing Mr Southwood that “[t]he intent here is an equity & offtake deal with TNB”.

295 Later that morning, Mr Southwood replied to Mr Westerhuis’s email confirming that “[a]s you know, we are pre-qualified with TNBF and will try to obtain a sales contract with them once we can produce 15% ash coal” from Boundary Hill South. Mr Southwood acknowledged, however, that “[t]he chance of getting a Malaysian government power utility to invest in us in our required timeframe is nil” and that there was “very little chance to succeed in my opinion”. Mr Southwood added that they “could start the process, give them a little info, see how interested they really are” but that “[m]y guess is that TNB Fuels have very little interest”.

296 Notwithstanding Mr Westerhuis’ reference to “offtake” in his email to Mr Southwood, I am satisfied that, read as whole, these communications with TNB constituted Marketing Activities undertaken by Avra for Batchfire.

297 Separately, Lindenfels relies on various emails throughout 2018 as evidence of Marketing Activities involving Toyota Tsusho and J-Power. In an email chain spanning 9 May 2018 to 18 May 2018 between Mr Burgess and Toyota Tsusho, Kotaro Kubo of Toyota Tsusho requested “to review and share the info of Callide Mine with our team in Tokyo” and requested a “typical spec of Callide export product”.

298 On 18 May 2018, Mr Burgess forwarded the email chain to Mr Southwood and stated:

J Power will be able to take BHS according to them

We should target this for direct sale by Batchfire.

299 On 2 July 2018, Mr Burgess sent the following email to Mr Westerhuis regarding the arrangement of a visit to the Callide Mine by Toyota Tsusho:

I have arranged for Toyota Tsusho to visit us on 9 th August.

While we initially hoped J-Power would join this visit, it appears they need further convincing.

Toyota T. is hoping to be Batchfire’s channel to J-Power, they are the only Japanese trading house to show interest in Callide for the Japanese market.

300 On 16 August 2018, Mr Kubo emailed Mr Burgess and Mr Southwood stating he was “scheduling customers visit (J-POWER, Tohoku, Chugoku, etc) to report our visit and promote Callide for JFY2019 trials” and requested “presentation materials of Callide shown in the visit” to use in customer meetings.

301 On 21 September 2018, Mr Kubo emailed Mr Southwood, copying Mr Burgess, and confirming:

We have been discussing with potential buyers of Callide in Japan (J-POWER, Tohoku, Hokkaido, Chugoku, etc) and we see positive reactions from the potential buyers.

As discussed in the mine visit, we would like to ask you to visit Japan (maybe 3 days or so?) to see those potential buyers especially J-POWER who are interested in to try in 2H of CY2019.

302 Subsequent correspondence between Mr Kubo and Mr Southwood, to which Mr Burgess was copied, culminated in a meeting planned in Tokyo with J-Power on 6 November 2018 and a proposed meeting with Chugoku EPC.

303 Notwithstanding some ambiguity, I am satisfied that, at least with regards to communications and visits involving J-Power, such activities were Marketing Activities undertaken by Avra for Batchfire.

304 In light of the above evidence, I am satisfied that Avra did conduct some substantive Marketing Activities, particularly in 2017 and 2018, in consultation with Mr Westerhuis.

305 In any event, given the challenges that Batchfire was facing with production and quality issues, Avra’s contractual rights under the Offtake Agreement to acquire Export Coal, and Avra’s desire to market the sale of that coal to end-users, it is hardly surprising that relatively few Marketing Activities were undertaken by Avra directed at securing medium and long term contracts between Batchfire and end-users under the Agency Agreement.

306 Moreover, the distinction between marketing Callide coal for export and marketing Batchfire as a supplier to end-users is relatively fluid. The marketing of Callide coal for export was an essential first step to any successful marketing of Batchfire as a direct seller to end-users. Batchfire had no existing profile in any coal market, and its only asset was Callide coal. As Mr Westerhuis explained in his affidavit evidence:

At the time when Batchfire took over the Callide Mine in November 2016, coal from the mine did not have a substantially established reputation or footprint in the target markets into which Batchfire was proposing to primarily export (such as South Korea, China, lndia, and Taiwan). Anglo American had previously sold some Callide coal into South Korea, China and Japan, but primarily as a blended product. ln addition, Batchfire itself, as a wholly new company, had no reputation at all in these markets.

(Emphasis added.)

307 Further, as Mr Westerhuis then stated, his expectation (noting that this evidence was expressly only admitted as to his subjective beliefs and opinion, not as evidence of any asserted facts) was that:

Having regard to these matters and discussions with Mr Burgess in the context of negotiating the deal, and from experience, my expectation was that there would be an initial transitional period during which Batchfire would be reliant on Avra to penetrate these markets and to build a brand and reputation for Batchfire coal. I expected that in order to achieve this, Avra would need to work hard for Batchfire under the Agency Agreement, as well as by selling Callide coal into these markets by acquiring it for itself under the Offtake Agreement and on-selling it to Avra's customers for the purposes of developing the Callide brand.

(Emphasis added.)

308 It may have been the case, given the relatively limited evidence of Marketing Activities directed at securing medium and long term contracts between Batchfire and end-users for sales under the Agency Agreement, that Avra may not have complied with its contractual obligations, but the plaintiffs have not sought to advance any claims for breach of contract against Avra in this proceeding.

J.9. Absence of contemporaneous complaints

309 The plaintiffs accept that Avra had the option to purchase Export Coal under the Offtake Agreement but submit that:

… this option was only intended to be exercised by Avra in respect of the tonnages of Callide coal not otherwise allocated to other purchasers identified through the Marketing Activities that Avra was required to undertake under the Agency Agreement. Looking at it objectively, this makes complete commercial sense: a central plank of the Turnaround Plan was Batchfire increasing direct export sales and developing its own brand recognition in the export market.

310 It is not possible, however, to reconcile that submission with the limited, if any, contemporaneous complaints by the non-Lindenfels directors about Avra acquiring Export Coal under the Offtake Agreement rather than selling Export Coal to nominated purchasers under the Agency Agreement who had been identified as a result of Avra undertaking Marketing Activities. Irrespective of whether it might have been thought at some time to be a “central plank” of the Turnaround Plan, the non-Lindenfels directors did not express any contemporaneous concern that a central plank of the Turnaround Plan had been abandoned by Avra because it was purchasing Export Coal under the Offtake Agreement.

311 The plaintiffs’ attempts to explain away the absence of any contemporaneous complaints are not persuasive. The non-Lindenfels directors and Mr Westerhuis were aware that Avra was purchasing Export Coal under the Offtake Agreement rather than selling Export Coal to end-user for Batchfire under the Agency Agreement. Indeed, the plaintiffs seek to rely on alleged representations made to the non-Lindenfels directors that the prices being offered by Avra under the Offtake Agreement were the best available prices for Export Coal.

312 I am satisfied that the following evidence demonstrates that the principal concern of the non-Lindenfels directors was achieving the highest price for sales under the Offtake Agreement, rather than (a) the absence of sales under the Agency Agreement, (b) the scope or extent of Marketing Activities undertaken by Avra, or (c) Avra profiting by on-selling Export Coal to end-users.

313 Mr Choros gave evidence that during every board meeting, sales of Export Coal were discussed, and he continued to “raise… concerns regarding the prices of coal sales to Avra by reference to the market” and to “press Mr Southwood and Mr Burgess on the pricing, sales volumes and lack of long term contracts”. He claimed that these concerns were met with responses to the effect that “the prices were the best obtainable prices and at a fair market value because the Callide coal was of poor quality or the mine schedule was unreliable”, and that in these circumstances, Avra was doing Batchfire “a favour in purchasing all the Company’s coal”. Notwithstanding my concerns about the weight I can give to any evidence given by Mr Choros, I am prepared to accept that on occasions, Mr Choros did question Mr Southwood and Mr Burgess about the prices that Avra was paying for Export Coal that it had acquired from Batchfire under the Offtake Agreement.

314 In any event, the weight that could be given to this evidence of Mr Choros is materially diminished by the following evidence that Mr Choros gave in cross-examination:

And you assumed at all of those times, didn’t you, that Avra was onselling the coal it was acquiring under the offtake agreement for a profit?---I assumed that Avra would need to make some profit, but I was just assuming that the profit is alive – in line with other – other coal traders, which will be around one per cent of FOB.

But you didn’t know what the profit was, did you?---I did not know what the profit was.

You didn’t ask for Avra to disclose what the profit was?---We didn’t have the opportunity, I think, to ask for disclosure of the profit.

What do you mean you didn’t have an opportunity to ask for it?---I don’t – I don’t – I don’t know how to answer that question. I’m not sure if you are able to – we had also confidential Avra’s information we are not prepared to share, I – I – I would have assumed.

315 Mr Choros subsequently agreed that there was nothing stopping him from simply asking Mr Burgess to disclose the profit margin that Avra was making on the coal that it was on-selling. I do not accept, however, that Mr Choros had any expectation that Mr Burgess would have been prepared to provide that information, had it been requested. I am satisfied that Mr Choros well understood that Avra was under no obligation to provide that information and would have regarded the information as commercially sensitive.

316 This evidence of Mr Choros establishes that Mr Choros was aware that Avra was purchasing Export Coal under the Offtake Agreement and selling it to end-users at higher prices than it was paying to Batchfire under the Offtake Agreement.

317 Mr Barker claimed in his affidavit evidence that Mr Southwood responded to queries raised at Batchfire board meetings about whether the prices being obtained for Export Coal were the “best available in the market” by either confirming that they were the best available or they were the “market prices”.

318 Mr Barker also claimed in his affidavit evidence that:

Neither Mr Burgess nor Mr Southwood ever confirmed that Avra was in fact taking coal for itself under the Offtake Agreement at an undervalue and on-selling it at a premium. Rather, Mr Burgess and Mr Southwood expressly stated that the sales being achieved were the best that could be obtained in the market…

319 This evidence of Mr Barker, however, must be understood in the context of the following evidence that he gave in cross examination:

You never challenged Mr Burgess or Mr Southwood at the board that Avra was onselling offtake coal at a premium, did you?---No.

No. And the reason you didn’t challenge them is because you knew very well that Avra was charging a premium on offtake coal, didn’t you?---No, that’s not correct. The reason we didn’t challenge them – or I didn’t challenge them was because – I didn’t specifically challenge them that they were charging a premium. I said, “Can we not get better pricing?”, which is not quite the same but still has the same impact.

And you’ve seen what they say in their evidence; correct?---Yes, and I don’t agree with it.

All right. There’s nothing in any of the minutes where you challenged Mr Southwood or Mr Burgess to – about pricing, is there?---No, but it was every meeting just about, either myself or Edek Choros.

There’s no email that you refer to in your documents where you’ve challenged Mr Southwood or Mr Burgess about pricing, is there?---I’m not aware of any.

I suggest to you that you didn’t like it, but you accepted that Avra had an ability to charge a premium on offtake sales because that was part of the commercial deal that Batchfire had struck?--- Yes, I would agree with that.

(Emphasis added.)

320 This evidence of Mr Barker makes plain that he knew that Avra was able to charge a premium on the sales of Export Coal that it had acquired under the Offtake Agreement

321 In context, I am satisfied any references that Mr Burgess or Mr Southwood might have made to “market prices” were of a generic nature and did not convey, and were understood by the non-Lindenfels directors and Mr Westerhuis as not conveying, any representation or suggestion that Avra was paying “market prices” to Batchfire for purchases of Export Coal. Rather, they were representations to the effect that prices agreed between Avra and Batchfire for Export Coal sold under the Offtake Agreement took into account and were determined by reference to the “market prices” that Avra was able to negotiate with end-users. I do not accept that Mr Choros or Mr Barker were so commercially naïve to think that the prices that Avra paid to Batchfire under the Offtake Agreement were the same “market prices” for which Avra sold Export Coal to end-users.

322 Moreover, any concerns about prices being offered by Avra under the Offtake Agreement did not preclude Mr Westerhuis in the period from February to May 2019 from directing Mr Moffatt to allocate additional Callide coal for export sales. These directions were made notwithstanding that in that period, Batchfire was having difficulties with meeting its domestic supply commitments with CS Energy under the Coal Supply Agreements and the consequential risk of liquidated damages claims. Batchfire’s decision to take those risks is explained in the following extract from the cross examination of Mr Moffatt:

Do you recall any discussions about the implications that may have for a potential liquidated damages claim?---Yes.

And who did you have those discussions with?---I think the whole executive team yes I’m pretty sure it was with the whole executive team.

And how would you describe then the decision to pursue still the allocation of export coal over the risk of liquidated damages?---I, and I’m stretching my memory a little, but I also met with CS Energy. There was a performance review meeting monthly, fortnightly, I can’t remember, and one of the issues we discussed was this because you could see it was building up over a number of months. CS Energy were quite accommodating, notwithstanding the contractual liquidated liability clauses. If I remember correctly, what they didn’t want was for us to go broke, so they were quite accommodating with we understand you’re not delivering the coal we need, we have reserves to use anyway, but you’ve got contractual obligations. But we don’t want to you stop exporting and just give us all the coal because we do have reserves, and we don’t want you to go broke. Something along those lines, which was refreshing because they were – CS Energy were never aggressive towards us. They were pleased that we were there, as I’ve mentioned, and so there was this bit of optimisation of export a bit and make some cash, but give us some more call because you have to contractually. That’s what I recall vaguely.

And do you recall how that fits with a liquidated damages claim of $10 million? ---I thought it was more than that actually.

$12 million?---Yes.

…

Would this be an accurate summary: that the risk to liquidated damages was an obvious risk?---Yes.

But it was a risk the executive decided was worth taking to maximise the revenue from export sales?---Yes.

323 The fact that Batchfire was prepared to risk exposure to substantial liquidated damages claims by allocating Callide coal to export sales is difficult to reconcile with any contention that the prices being offered by Avra for the purchase of Export Coal under the Offtake Agreement were the subject of any contemporaneous substantive concerns by Batchfire. Mr Moffatt certainly appreciated that the prices achieved by Batchfire for sales of Export Coal under the Offtake Agreement were superior to those that Batchfire was able to achieve under the Coal Supply Agreements.

324 I accept, however, that the absence of long-term contracts may have been raised by Mr Westerhuis and the non-Lindenfels directors with Mr Burgess and Mr Southwood from time to time.

325 In January 2019, the Batchfire board was provided with a slide presentation that included slides reporting on issues that had arisen with procuring long term direct sales contracts. One of the slides recorded the following with respect to direct sales contracts with Korean Gencos (Korean Genco slide):

• Contracts held by Avra

• uncertain situation with Flame regarding exclusivities etc in 2017

• BF hid behind Avra multi-source contracts

• First time bidders need to have a track record with either other Gencos or Taipower or J Power

• If new bidder participates, a performance bond of 10% of value of contract is required

• Liquidated damages for delays and quantity shortages

• Buyer contracts have penalties and hard rejections on many parameters

• NCV, TS, Ash, IDT, N, VM, Na, K, Si, Al, Ca, Fe

• Quality penalties too much risk given state of the mine in 2017, so we let Avra manage the risk

326 The benefits of sales under the Offtake Agreement identified in the Korean Genco slide included by “hiding behind” Avra’s “multi-source” contracts, Batchfire could avoid the requirement to provide a performance bond and the risk of liquidated damages and penalties.

327 Mr Westerhuis gave evidence that the slides in the slide presentation addressing direct sales contracts set out “reasons why (according to Mr Southwood) he and Avra had been hampered in achieving long term contracts to date, a plan for obtaining such agreements, and the purported benefits to Batchfire of Avra taking most coal through the Offtake Agreement.”

328 I accept that there may well have been a degree of self interest in the explanations given by Mr Southwood, but the reasoning provided by him was by no means implausible. These slides appear to be the only document recording or evidencing any contemporaneous consideration of the lack of long term contracts. I am not satisfied that the slides corroborate claims made by Mr Westerhuis, Mr Choros and Mr Barker that they frequently challenged Mr Southwood and Mr Burgess at Batchfire board meetings about the lack of long term agreements with end-users and Avra purchasing Export Coal under the Offtake Agreement. I accept that board minutes might not always record criticisms or complaints made by directors in the course of a board meeting, but the apparent absence of any record of the issues even being raised is telling, as is the absence of any contemporaneous emails to Mr Burgess or Mr Southwood raising concerns about these issues.

329 Moreover, the final draft of the 5 -Y ear S trategic P lan for FY19 – FY23 prepared by Mr Westerhuis in April 2018 forecast export sales of 5 million tonne in FY19, of which only 0.1 million tonnes would be from long term direct contracts, export sales of 7 million tonnes in FY21, of which 1 million tonnes would be from long term direct contracts, and export sales of 8 million tonnes in FY23, of which 2 million tonnes would be from long term direct contracts. Successfully negotiating a long term direct contract would depend on marketing, but in April 2018, Batchfire was not anticipating entry into significant long term direct contracts until 2021. It is also telling that the 5-Year Strategic Plan forecast that the average price per tonne for sales to end-users on direct contracts would be 5% higher than on Avra contracts. The difference in average price recognised, or at the very least was consistent with, the non-Lindenfels directors and Mr Westerhuis being acutely aware that Avra was not offering to acquire Export Coal under the Offtake Agreement at the prices that Avra was able to sell the Export Coal to end-users.

J.10. Scope of agency conferred on Avra

330 The authority conferred on Avra to act on behalf of Batchfire was significantly circumscribed by cl 10 of the Agency Agreement. Clause 10 provided:

10.1 The terms and conditions of all Export Sales Agreements (including, but not limited to, Export Price, margins and scheduling) will be agreed by the Parties in consultation with the Batchfire General Manager Marketing and the Batchfire Chief Executive Officer.

10.2 AVRA must not, unless permitted by this Agreement or otherwise authorised by Callide JV:

(a) agree to the final terms and conditions of an Export Sales Agreement;

(b) execute any agreement or deed on behalf of Batchfire or any Callide Company, including an Export Sales Agreement;

(d) assume any obligation on behalf of Callide Sales except as authorised by this Agreement;

(e) hold itself out as having authority from Callide Sales except as permitted under this Agreement;

(f) contract out or delegate any of its obligations or responsibilities under this agreement, other than in accordance with this Agreement or with the prior written consent of Callide Sales.

10.3 For the purposes of this clause 10:

(a) for Export Sales Agreements which accord with the Batchfire Coal Sales Framework, the approval of the Batchfire General Manager Marketing will be deemed to be the approval of Callide JV; and

(b) for all other Export Sales Agreements, only the approval of the Batchfire Chief Executive Officer will be deemed to be the approval of Callide Sales.

331 Clause 10.2 makes plain that Avra’s obligations as Batchfire’s agent were confined to and governed by the express terms and conditions of the Agency Agreement. Avra had no authority or capacity to create legal relations between Batchfire and a third party except to the extent that such authority or capacity was conferred contractually pursuant to the terms of the Agency Agreement or was otherwise independently expressly authorised by Batchfire. Moreover, any ability of Avra to act as a representative of Batchfire or to act for, or on Batchfire’s behalf, was expressly limited to the execution of agreements, the performance of acts, and the assumption of obligations that were expressly authorised or permitted under the Agency Agreement.

J.11. There was no constraint on Avra’s exercise of rights under Offtake Agreement

332 More fundamentally, even if it were to be assumed that Avra owed a fiduciary duty to perform the Marketing Activities, contrary to my reasoning at [271 ]-[280 ] above, that fiduciary duty could not extend to acquisitions of Export Coal under the Offtake Agreement. That is so not least because cl 6.1 of the Offtake Agreement expressly provided that nothing in the agreement was to be construed as constituting a joint venture, agency or partnership between the parties Further, Batchfire recognised prior to entry into the Agency Agreement and the Offtake Agreement, that Avra would be both entitled, and have a strong incentive, to purchase Export Coal under the Offtake Agreement, rather than sell it for Batchfire under the Agency Agreement (see [93 ]-[105 ], [111 ]-[112 ], [129 ]-[140 ] above).

333 The plaintiffs sought to overcome these difficulties by recasting their fiduciary case in closing oral submissions by contending that the opening words of [70D] of the 2FASOC should be read as:

In the premises, Avra owed a fiduciary duty to the Batchfire Companies, except to the e xtent that it otherwise complied with its obli gations to engage in marketing activities for Batchfire, not to promote its own interests …

(Emphasis added.)

334 The essential fallacy in the Avra fiduciary duty case is that it rests on the proposition that Avra was not permitted, absent informed consent, to make any profit from purchasing any quantity of Export Coal under the Offtake Agreement unless it had discharged its obligations to provide Marketing Activities. This, in turn, gave rise to the following almost impossible conundrum, not least because the plaintiffs’ case is founded on the proposition that had Avra discharged its obligations to provide Marketing Activities, Batchfire would have been able to enter into medium and long term contracts for direct sales to end-users equivalent to the sales that Avra in fact entered into with end-users.

335 On the plaintiffs’ case, as ultimately advanced in oral closing submissions, it was only if Avra was unsuccessful in selling Export Coal under the Agency Agreement, after discharging its obligations to provide Marketing Activities, that it was permitted to make an offer to purchase Export Coal under the Offtake Agreement. Somewhat elliptically, senior counsel for the plaintiffs submitted that in those circumstances, Avra would be buying Export Coal under the Offtake Agreement but it “will be buying it at market price because there are no other takers”, the “market price will be the price that reflects the absence of any other market”, and “whatever they bid will be reflective of the fact that there is no other customer or taker for the coal”. When confronted with the obvious difficulty that there would then be no market for the Export Coal, senior counsel for the plaintiffs responded:

So be it. There’s nothing here that actually – that requires them to make an offer for the coal. They don’t have to make an offer for the coal.

336 If the plaintiffs’ reasoning were to be accepted, Avra would only be entitled to exercise its rights to make an offer to acquire Export Coal under the Offtake Agreement if it were able to demonstrate that, after discharging its obligations to undertake Marketing Activities, there was no market for the Export Coal, a commercially absurd result. Avra was a coal trader, not an end-user of coal. If there was no market for the Export Coal, it had no value to Avra.

337 The plaintiffs’ approach is largely driven by the inevitable tension between an unqualified contractual entitlement to acquire Export Coal under the Offtake Agreement and to sell it for a profit to an end-user, and the unqualified prohibitions on a fiduciary breaching the no conflict rule and no profit rule, absent fully informed consent.

338 The plaintiffs’ approach would deprive the Offtake Agreement of any commercial operation and would impose fiduciary obligations on Avra that were plainly inconsistent with any plausible contractual construction of cl 4.1(a) of the Agency Agreement and the Offtake Agreement. The Offtake Agreement was a commercial agreement negotiated between arm’s length parties with the benefit of legal advice. To the extent that the exclusive appointment of Avra as the marketing agent of Batchfire for the sale of Export Coal placed Batchfire in a vulnerable position, it was self-induced and driven by its chronic need for capital and the absence of any alternative funding sources (see [68 ]-[74 ] above). Batchfire chose to accept the $35 million equity investment from Avra on the condition that Batchfire also entered into the Agency Agreement and the Offtake Agreement, fully cognisant of the commercial implications of the terms of those agreements.

339 The plaintiffs submitted that the Agency Agreement would not function in a commercially rational way if cl 4.1(a) was interpreted to mean that instead of looking at marketing generally, you looked at it on a cargo-by-cargo basis. I do not accept that submission. As I have explained above, the obligation to provide Marketing Activities included, but was not limited to, general market activities. Necessarily, by reason of cl 4.1(a), the objective intention of the parties was that there was no obligation on Avra to undertake Marketing Activities with respect to specific quantities of Export Coal purchased under the Offtake Agreement. No other textual or commercially plausible construction can be given to the right to elect to purchase any amount of Export Coal “instead of providing Marketing Activities” language used in cl 4.1(a).

340 The irreconcilable tension between an express contractual right and an alleged overriding fiduciary obligation was well illustrated in the following exchange between the Court and senior counsel for the plaintiff in the course of the plaintiffs’ oral closing submissions in reply:

HIS HONOUR: Well, accept there was a breach of fiduciary duty with respect to those marketing activities. How does that necessarily advance your case?

MR WITHERS: Well, it advances my case - - -

HIS HONOUR: Because they’re still entitled to acquire coal under the offtake agreement with respect to specific quantities.

MR WITHERS: Well, the breach is in not undertaking the marketing, and it wasn’t undertaken because they saw it as best way to make a profit, by buying it under the offtake agreement, so that’s where the breach lies.

HIS HONOUR: But they’re entitled to purchase it under the offtake agreement.

MR WITHERS: No, you’re not entitled to abdicate responsibility to conduct marketing activities because you have a contractual entitlement under 4.1(a). You’re just not entitled to do that. You’re not entitled to switch off that obligation because you say I’m going to buy under the - - -

HIS HONOUR: Well, no, you’re not switching it off. You may have breached it, but why does that prevent you being able to use four – you’re saying 4.1(a) has to be read as subject to a requirement for Avra to otherwise supply the marketing agreement – the marketing activities that it agreed to offer under this agreement, and if it failed to do so, it couldn’t exercise its rights under 4.1(a)?

MR WITHERS: Well, we haven’t consented in those circumstances – the company hasn’t consented in those circumstances to Avra making that profit.

HIS HONOUR: But this is a contracted-for opportunity.

MR WITHERS: No, it’s not.

HIS HONOUR: This isn’t something that wasn’t contracted for.

MR WITHERS: Your Honour, it is a - - -

HIS HONOUR: There’s a pound of flesh that was contracted for.

MR WITHERS: The fiduciary obligation.

HIS HONOUR: No, the ability to purchase under the offtake agreement.

MR WITHERS: You can’t – you can’t – you cannot look at it in that way. We have to – if you accept that there is a fiduciary obligation to act in the best interests, then you can’t take advantage of 4.1(a) and say, well, now I can go and buy this coal, not market these particular cargoes, and then just keep doing that repeatedly to make the profits I want to make, because that would be having the effect of switching off this agreement. It would - - -

HIS HONOUR: Well, no, the third defendant at least accepts, it seems, it doesn’t switch it off. It just means with respect to those quantities of coal, it can exercise its rights under the offtake agreement. It doesn’t mean that it’s not otherwise required to comply with the terms of the agreement and the marketing activities, and to the extent it’s failed to do so, remedies can be pursued – you say for breach of fiduciary duty. The third defendant would suggest probably breach of contract.

But how does that preclude – I mean, informed consent is obviously fundamental to the question of whether or not there can be a breach of fiduciary duty. You’ve identified a basis upon which you say fiduciary duties were owed, and I understand the basis upon which you put that forward, but to the extent there is an express contractual entitlement to do something, that goes, on one sense, beyond informed consent because it’s contractually agreed between the parties a particular commercial activity can be undertaken, notwithstanding the other terms of the agreement, and 4.1(a) seems to say, well, notwithstanding everything else, Avra can, as and when it chooses, seek to – well, not seek to, it can elect to purchase quantities of coal under the offtake agreement.

MR WITHERS: It can, and if it does that, if it hasn’t engaged in marketing, if it has breached its fiduciary duty, the consequence is there is not the market that there otherwise would have been. There is not the competitive tension. The consequence is they buy the coal for a lesser amount than would have been – they would have paid for it had they discharged their fiduciary duty. They make an additional profit because they buy at a lesser amount, and it’s that additional profit that Batchfire hasn’t consented to. There is no informed consent to that profit which is directly derived from the breach of fiduciary duty.

341 Further, the fundamental inconsistency between Avra’s contractual rights to purchase Export Coal under the Offtake Agreement and the fiduciary duties sought to be imposed on Avra was exposed when the question arose of when, on the plaintiffs’ case, was Avra alleged to have been precluded from acquiring Export Coal under the Offtake Agreement by reason of its failure to comply with its obligations to provide Marketing Activities.

342 As explained at [335 ] above, the plaintiffs’ fiduciary case against Avra turns on the proposition that Avra was not entitled to exercise its rights under the Offtake Agreement until it had discharged its contractual obligations to provide the Marketing Activities and, in effect, it had established that there was no market for the Export Coal. Necessarily, those contractual obligations could not be satisfied immediately upon entry into the Agency Agreement and the Offtake Agreement.

343 Senior counsel for the plaintiffs submitted that Avra had to start providing Marketing Activities from the day the Agency Agreement was entered into, but the plaintiffs did not suggest that any failure to do so on that day would breach the fiduciary duties owed by Avra to Batchfire. When pressed by the Court as to when the plaintiffs contend that Avra first breached its fiduciary duties by acquiring Export Coal under the Offtake Agreement for resale at a profit, senior counsel for the plaintiffs had the following exchange with the Court:

MR WITHERS: Well, the – it will be that – within a short period of time. It’s hard to put an exact date on it, but within the first few months of operation, given that there were – they were buying offtake sales within the first few months of operation without having conducted any marketing activities whatsoever and not pursuing trial cargoes or anything like that. So I can’t be exact on the date, but certainly within the first few months of operation of the agency agreement. Now, how can I be any more precise than that …

HIS HONOUR: Well, it’s - - -

MR WITHERS: - - - with respect?

HIS HONOUR: You’re contending a breach of fiduciary duty.

MR WITHERS: Yes.

HIS HONOUR: You bear the onus of establishing there has been a breach, and I need to know the period in which you say that breach occurred. You’re now saying it is not from day 1 on the construction you have of clause 4.1(a), so I need to know from what date, and then I need to know what evidence there is to support why it’s that date and not some other date.

MR WITHERS: Your Honour, there is – this kind of – a breach of fiduciary duty of this case doesn’t lend itself to me providing your Honour with an exact date.

344 When pressed further as to when the breach of fiduciary duty was alleged to have arisen, senior counsel for the plaintiffs submitted:

MR WITHERS: Your Honour, you can’t pursue a profit in that way if you have not – if the reason why that profit is available is because you’re the exclusive agent, and you haven’t marketed it, and there’s no one else that the company can sell the coal to. So we just have to, with respect, apply the conflict and the profit rules to the facts. Not marketing is acting while in a position of conflict. Seeking to make a gain from their position as exclusive agent, generating a profit from the fact that they haven’t marketed and, therefore, there’s no market – no other person that can buy the coal. That’s how they’re making their profit. That’s how they’re obtaining the opportunities to enter into medium and long-term agreements. That’s the breach.

Now, I’ve also given your Honour the 2005 G & M decision of the Victorian Court of Appeal which says:

In the case of a breach of fiduciary duty, on causation one only needs a minimum level of evidence to establish causation.

So on that basis, we say within the first few months of 2017, if your Honour is satisfied that no marketing activities were taken at that point in time, and a profit was made on offtake sales early in 2017, then that’s when we say your Honour would be satisfied there has been a breach, and that’s obviously on causation…

345 I am not satisfied that there is any principled basis upon which a breach of a fiduciary duty can inextricably be dependent on the breach of a contractual obligation, in particular, a contractual obligation expressed in terms as broadly expressed as the Marketing Activities in the Agency Agreement and that was subject to an express exclusion, at least with respect to specific quantities of coal.

346 Once it is accepted that Avra had an unqualified contractual right to acquire a specific quantity of Export Coal under the Offtake Agreement, without providing Marketing Activities with respect to that quantity of coal, the Avra fiduciary claim is untenable and must fail. Given the express terms of cl 4.1(a), any fiduciary duty owed by Avra under the Agency Agreement or more generally could not extend to the acquisition of Export Coal under the Offtake Agreement.

J.12. In any event Batchfire shareholders provided informed consent

347 The plaintiffs submit that there was no informed consent from Batchfire to the breach by Avra of its duty not to promote its own interests by making or pursuing a financial gain by acquiring Export Coal from Batchfire under the Offtake Agreement. They submit that the financial gain was only achieved because of Avra’s failure to undertake Marketing Activities.

348 If, contrary to my finding above, the plaintiffs had succeeded in establishing the existence of the Avra fiduciary duty, I am satisfied that the Batchfire shareholders gave their informed consent to Avra making a profit on sales of Export Coal to end-users that it had purchased from Batchfire under the Offtake Agreement. The disclosure made in the Explanatory Statement (see [146 ]-[148 ] above) was sufficient to put Batchfire shareholders on notice of the potential conflict of interest that Avra faced in deciding whether to acquire Export Coal under the Offtake Agreement or to sell Export Coal for Batchfire under the Agency Agreement.

349 Contrary to the submissions advanced by the plaintiffs, I do not accept that informed consent required disclosure of the “magnitude of the profit” that Avra might have been able to make on the sales of Export Coal, Avra’s objective of establishing markets for itself rather than for Batchfire, or any alleged harm to Batchfire. None of these matters materially added to the disclosure made to shareholders in the Explanatory Statement. Each was a natural and almost self-evident consequence of the Offtake Agreement. If Avra were contractually entitled to purchase Export Coal under the Offtake Agreement, it would need to market for itself the on-sale of the coal, it would expect to make a profit on those sales, and, to the extent that Export Coal was sold under the Offtake Agreement, rather than the Agency Agreement, the revenue generated from the sale of Export Coal would likely be reduced. At the same time, however, the risk of Batchfire incurring penalties by reason of failures to meet delivery schedules or rejections of shipments of Export Coal because of quality issues would be eliminated.

K. Implied Term Claim

K.1. Overview

350 Further, or alternatively to their fiduciary duty claims, the plaintiffs plead in [70F] of the 2FASOC that it was an implied term of the Agency Agreement that if Avra elected to purchase Export Coal under the Offtake Agreement, it was obliged to offer at least “a fair market price” for the coal comparable to the sale price that would have been achieved, had it elected to procure Export Sales Agreements for Batchfire of Export Coal by conducting Marketing Activities pursuant to the Agency Agreement (Implied Term).

351 The plaintiffs submit that the Implied Term satisfies each of the five criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283 (Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel). They submit that the Implied Term was (a) reasonable and equitable, given Batchfire’s vulnerable position, (b) necessary to give business efficacy to the Agency Agreement as, otherwise, Avra could purchase all the Export Coal under the Offtake Agreement, and Batchfire would have no choice but to sell to Avra at the price Avra wanted as the exclusivity arrangements prevented it from selling the Export Coal to anyone else, (c) so obvious it went without saying because it made no commercial sense for Avra to be able to acquire the Export Coal from Batchfire at less than a “fair market price”, (d) capable of clear expression, as formulated in [70F], and (e) consistent with the terms of the Agency Agreement, because purchases under the Offtake Agreement would be “instead of” conducting Marketing Activities to achieve a fair market price and, therefore, the price under the Offtake Agreement should correlate with the market price that could have been obtained if the Marketing Activities had been conducted.

K.2. The alleged Implied Term did not arise

352 I do not accept that the Implied Term satisfies any of the five BP Refinery criteria.

353 First, the Agency Agreement was the result of an arm’s length commercial negotiation. It was an integral part of the basis on which Avra was prepared to make a $35 million equity investment in Batchfire. The fact that Batchfire may not have been able to procure an investment on more favourable terms does not give rise to any relevant vulnerability. As the contemporaneous emails referred to at [93 ]-[105 ], [111 ]-[112 ], [129 ]-[140 ] above demonstrate, the Batchfire board was acutely aware of the onerous nature of the framework for the sale of Export Coal erected by the Agency Agreement and the Offtake Agreement but took a considered commercial decision to proceed with the Avra investment.

354 Second, the Implied Term was not necessary to give business efficacy to the Agency Agreement. If Avra and Batchfire were not able to agree a price for the purchase of Export Coal under the Offtake Agreement, Avra was contractually required to conduct Marketing Activities with respect to that quantity of Export Coal and sell it for Batchfire under the Agency Agreement.

355 Third, as explained at [316 ] to [320 ] above, given that both Mr Choros and Mr Barker recognised that Avra would be selling the Export Coal acquired under the Offtake Agreement to end-users at a price above the price paid to Batchfire, it could not be said that it would make no commercial sense to sell the Export Coal at less than a “fair market price”. Rather, it would make no commercial sense for Avra to purchase Export Coal from Batchfire at “a fair market price” and then sell it to end-users at that same “fair market price”.

356 Fourth, on no view was the Implied Term formulated in terms that were clearly expressed. The concept of a price for coal being comparable with a hypothetical sale price that would have been achieved, had Marketing Activities been conducted, under a separate agreement that culminated in a hypothetical sale is inherently imprecise and incapable of any objective characterisation.

357 Fifth, it might be said that it was not inconsistent with the terms of the Agency Agreement to achieve a fair market price because purchases under the Offtake Agreement would be “instead of” conducting the Marketing Activities. It is not apparent, however, why prices under the Offtake Agreement should therefore correlate with the market price that could have been obtained if the Marketing Activities had been conducted. The Offtake Agreement provided for prices to be negotiated between Avra and Batchfire in the expectation that Avra would then on-sell the Export Coal at a fair market price to end-users. Avra was a coal trader, not an end-user. In effect, the “fair market price” for a direct sale by Batchfire under the Agency Agreement to end-users was a retail price, whereas a price negotiated under the Offtake Agreement was a wholesale price, and, in turn, the “fair market price” negotiated by Avra with end-users was a retail price.

L. Oppression Claims

L.1. Overview

358 The plaintiffs’ pleaded oppression case is advanced in the 2FASOC at [287] on the basis of the “entirety of the conduct of Batchfire, Avra, Lindenfels and their representatives set out in this pleading and the cumulative effect of that conduct”. The entirety of the pleaded conduct, in summary, comprised four components.

359 First, the acquisition by Avra under the Offtake Agreement, at below market rates, of more than 90% of Batchfire’s coal that was available for export, which is alleged to have deprived Batchfire of substantial revenue and working capital it needed for its operations. This is the Coal Trading Conduct.

360 Second, the failure of Batchfire to take any action against Avra and Mr Burgess causing Batchfire to lose the opportunity to generate revenue and substantial profits from the sale of Export Coal at market prices, as a consequence of which, Batchfire needed further funding which led to the 2019 Rights Issue, which gave effect to a plan by Avra to take control of Batchfire that had formally been in place since at least October 2019.

361 Third, the continuation of the failure of Batchfire to take any action against Avra and Mr Burgess causing Batchfire to continue to lose the opportunity to generate revenue and substantial profits from the sale of Export Coal at market prices and the entry into prepayment facilities with Avra, as a consequence of which, Batchfire needed further funding, which led to the 2020 Rights Issue, which also gave effect to a plan by Avra to take control of Batchfire that had formally been in place since at least October 2019.

362 Fourth, various conduct of Avra, Lindenfels and its nominee directors and Batchfire management following the 2020 Rights Issue.

363 The plaintiffs’ oppression case is advanced against (a) Batchfire by reason of its failure to take any action against Avra and Mr Burgess, and (b) Lindenfels.

364 The oppression case is advanced against Lindenfels on the basis that it was aware, by reason of Mr Burgess’ knowledge, that Avra had profited from its breaches of fiduciary duties and from Mr Burgess’ breaches of his fiduciary and statutory duties, and Lindenfels had taken advantage of those breaches by acquiring a majority interest in Batchfire pursuant to the 2019 Rights Issue and a super majority interest pursuant to the 2020 Rights Issue. The plaintiffs contend that Lindenfels failed to take any action to prevent Avra from purchasing or continuing to purchase Export Coal at less than its market value and it permitted and acquiesced in Mr Burgess’ conduct by taking no action against him, including by removing him as a director of Batchfire, because the sale of Export Coal on those terms was to the benefit of its parent, Avra.

365 In substance, although advanced as four discrete components all of the alleged oppressive conduct each component was inextricably tied to the Coal Trading Conduct. The plaintiffs contend the but for Coal Trading Conduct, the Rights Issues would not have been necessary and the subsequent conduct following the 2020 Rights Issue after Lindenfels had obtained a super majority would not have occurred.

366 Lindenfels submits, in summary, that the sales of Export Coal under the Offtake Agreement pursuant to the Coal Trading Conduct were not unfair or oppressive because they were done in accordance with the contractual rights and obligations that had been bargained for by Avra and Batchfire at the time of Avra’s initial investment in Batchfire, and Batchfire agreed, through a commercial negotiation, with each sale of Export Coal to Avra under the Offtake Agreement on a sale-by-sale basis.

L.2. Legal principles

367 Section 232 of the Corporations Act provides:

Grounds for Court order

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

is either:

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

368 It is well established that the essential criterion of oppressive conduct for the purpose of s 232(e) of the Corporations Act is “commercial unfairness”: Wayde v NSW Rugby League Ltd (1985) 180 CLR 459, 472–473 (Brennan J); Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 (Young J); Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336; [2012] FCAFC 73, 4. Commercial unfairness requires an objective assessment of whether, in the eyes of a commercial bystander, the conduct in question was so unfair that reasonable directors who consider the matter would not have thought it fair: Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1467, 135; BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192, 48; WIJOAV Services Pty Ltd v Goldstone Private Equity Pty Ltd [2025] FCA 622, 154.

369 It requires an objective assessment that (a) is a question of fact and degree: Wayde, 472 (Brannan J), (b) ought to be conducted with regard to the context in which the conduct occurs: Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62, 9, and (c) does not depend upon the motives for what was done; it is the effect of the conduct that is material: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25, 176; Catalano, [9], 19.

370 Nevertheless, evidence of purpose or motive for the conduct may be relevant. By way of example, if a decision-maker was motivated in making a decision to achieve some particular unfairness against a member, it might enable the Court more readily to conclude that the effect of the decision was as intended (that is, unfair): Wilmar Sugar Australia Ltd v Mackay Sugar Ltd [2017] FCAFC 40; (2017) 345 ALR 174, 73; Sharif v Vitruvian Investments Pty Ltd (No 3) [2023] FCA 920, 247.

371 The conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful: Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168, 74; WIJOAV at 156.

372 The onus is on the plaintiff to prove oppression or unfairness: proof of mere prejudice to, or discrimination against, a member is insufficient to attract the court's jurisdiction to intervene: Wayde, 472 (Brannan J); WIJOAV, 156.

373 Separate instances of conduct may, cumulatively, constitute oppression: Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473; [2001] VSCA 104, 61; Hylepin Pty Ltd v Doshay Pty Ltd (2021) 288 FCR 104; [2021] FCAFC 201, 136.

374 Oppressive conduct does not need to continue and exist at the time of the application or the trial: Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; (2016) 114 ACSR 1, 147; Vitnell v Vellenga, in the matters of Australian Carer Pty Ltd [2024] FCA 1492, 15.

375 As to s 232(d) of the Corporations Act, the conduct in question does not necessarily need to be commercially unfair to fall under this provision: Turnbull v NRMA [2004] NSWSC 577; (2004) 186 FLR 360 at 32; WIJOAV at 160.

376 Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct “contrary to the interests of the members as a whole” for the purposes of s 232(d): Tzavaras v Tzavaras, 74, restating the statement of principles outlined by Stevenson J in Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133, [22(5)], citing Basten JA in Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359, [185].

L.3. Intersection between breaches of duties and unfairness

377 In their closing written submissions, the plaintiffs submit that where a breach of fiduciary and/or directors’ duties has been established, (a) the evidentiary burden shifts to the defendants to demonstrate that, despite the breach, the conduct is not unfair under s 232(e) of the Corporations Act, and (b) in the absence of such an explanation, the Court may infer unfairness. In their oral submissions, the plaintiffs submit that once breaches of directors’ duties have been established, the onus of proof shifts on the directors of a company to prove that the conduct in question is not oppressive. In support of these submissions, the plaintiffs refer to Jenkins v Enterprise Gold Mines NL (1992) 6 ACSR 539 and Re LQD Investments Pty Ltd [2019] VSC 864.

378 In Jenkins, as a result of certain decisions made by the directors of a company (Enterprise), who were also directors of other companies within a group, large sums of money left Enterprise for the benefit of these other companies. The transactions in question were found to involve (a) an unnecessary risk and no apparent commercial benefit to Enterprise, and (b) an apparent conflict of interest on the part of the directors of Enterprise. It was in this context that the Full Court of the Supreme Court of Western Australia observed that the evidentiary burden fell on Enterprise to establish the commercial reality of the arrangements and to explain (a) the commercial benefits of the transactions to the Enterprise, and (b) how the directors have resolved the conflicts of interest involved. In the absence of any (or any satisfactory) explanation, the Full Court concluded that inferences of unfairness could be drawn.

379 At 550–551, Malcolm CJ, Rowland and Franklyn JJ said in relation to onus:

This leads to the question of onus. It was the respondent's case below, and before us, that the appellant bore the onus of establishing the relevant unfair discrimination. That is not in issue. On more than one occasion his Honour pointed out that there was no evidence to show that a particular transaction was not commercially sound. He noted that one of the directors, about whom complaint was made, was not cross- examined as to certain transactions. He noted that the appellant had not cross- examined another director at all. In relation to the complaint that the director, Webb, had not been cross-examined concerning one transaction, counsel for the appellant conceded that that was an oversight on his part brought about in the main by the fact that that witness gave evidence-in-chief that he had not been personally involved in a certain incident that was the subject of complaint. In general terms counsel for the appellant drew attention to the fact that on some occasions a director had been called by the respondent, but had not given evidence-in-chief concerning a certain transaction. This all led to the appellant's submission that once he had led evidence that established that in each of the relevant transactions the directors had been shown to have a conflict of interest in connection with the subject matter being dealt with and notwithstanding that conflict had participated in the making of decisions which resulted in substantial losses to the company, then the evidentiary burden shifted to the company to show that notwithstanding this conflict and notwithstanding the resultant loss, the conduct did not unfairly discriminate. Or to put it another way, an evidentiary burden fell upon the company to establish how the directors who had a conflict had resolved that conflict. Absent such an explanation it was said the trial judge may draw an appropriate inference adverse to the company. We have been asked in each case to draw that inference and find relevant unfairness. Counsel for the respondent submitted that it was not sufficient to show a prima facie case. Again we agree. The inference must be reasonably open and it must in fact be drawn so as to establish unfairness …

(Emphasis added.)

380 Their Honours considered that a failure of a director of a company to act in the interest of that company in a transaction with another company in a group would involve a breach of both fiduciary duty at general law and statutory directors’ duties, and then relevantly observed at 552:

Where the directors act in breach of their fiduciary duty that fact will be relevant to determine whether there has been unfairness in the context of oppression: Residue Treatment & Trading Co v Southern Resources Ltd (No 2) (1987) 7 ACLC 1130 at 1153. It follows that oppression may be established where the controlling directors have pursued a course of conduct designed by them to advance their own interests or the interests of others of their choice to the detriment of the company or to the detriment of minority shareholders: Re Bright Pine Mills Pty Ltd [1969] VR 1002 at 1111.

381 The Full Court in Jenkins made clear that a director’s breach of fiduciary duty was relevant to a determination of unfairness – not that it established unfairness for the purposes of oppression. It is relevant in the sense that conduct in breach of fiduciary duty may also be conduct that is detrimental in the sense that it was commercially unfair toward minority shareholders. The critical issue in determining whether the impugned conduct offends s 232(e) of the Corporations Act is whether the conduct is commercially unfair. It does not necessarily follow that a director’s breach of fiduciary duty will be commercially unfair toward minority shareholders.

382 Moreover, Jenkins is not an authority for the broad proposition advanced by the plaintiffs that once a prim a facie case of a breach of directors’ duties is established, the evidentiary burden (or the onus of proof, as was put by the plaintiffs in their oral submissions) shifts to the defendants to demonstrate that, despite the breach, the conduct is not unfair under s 232(e) of the Corporations Act. As Kenny J stated in Valda Pty Ltd v Macarthur Coal Ltd [2012] FCA 1264 at [17]:

The applicants referred to Jenkins to support their submission that “it is at least arguable that once the applicants have raised a prime facie case [sic] the onus of proving that the relevant conduct was not oppressive falls on the company”. In Jenkins, the appellant did indeed make such an argument (at 550), but it was rejected by the Full Court of the Supreme Court of Western Australia (at 551) and accordingly Jenkins does not assist the applicants.

383 Rather, properly understood, Jenkins stands for the proposition that unfairness may be inferred where, in the absence of a satisfactory explanation, a transaction does not provide sufficient commercial value to a company to outweigh a conflict of interest on the part of a director: Macquarie University v Macquarie University Union Limited (No 2) [2007] FCA 844, 41; Charles Philippe Louis Nilant as Trustee of the Property of Ramon Theodore Osborne, a Bankrupt v R L and K W Nominees Pty Ltd and Anor [2007] WASC 105, 113; Dawning Investments Pty Ltd and Dawning Developments Pty Ltd, Re (2022) 68 VR 226; [2022] VSC 641, 31.

384 I acknowledge that in Re LQD, Efthim AsJ observed at [84]:

Here Mr Prendergast has entered into a transaction for the benefit of Yora at the expense of the Company. The Oppression Plaintiffs submit that there is a conflict of interest. In such circumstances, it says the evidential burden shifts to PMC to establish that there has been no oppression. In [Jenkins ], the Full Court of the Western Australian Supreme Court held that the onus shifts on directors to explain that a transaction entered into involving a conflict of interest by a director for no apparent commercial benefit was not unfair. If the director is unable to meet that burden then the Court will infer unfairness for the purposes of s 232.

385 With respect, his Honour appears to have misinterpreted the Full Court’s judgment. In any event, Efthim AsJ did not apply this observation and did not draw any inferences of unfairness, as his Honour was satisfied the oppressive conduct was otherwise proven ([85]).

386 The onus of proof always rests on the party asserting the conduct that is contrary to the interests of the members as a whole, or that is oppressive, unfairly prejudicial or unfairly discriminatory: Shelton v National Roads and Motorists’ Assn Ltd [2004] FCA 1393; (2004) 51 ACSR 278, 24; Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654, 139; Valda, 18. To satisfy this onus, it is necessary for each single allegation in an oppression case to be pleaded clearly in order to assess whether the totality may amount to oppression: Shelton, 24; Valda, 18; also see Weatherall v Satellite Receiving Systems (Aust) Pty Ltd (1999) 92 FCR 101; [1999] FCA 741. It is not the case that if a plaintiff in an oppression case proves that a director has breached their fiduciary or statutory duties to the company, the onus or proof shifts to the defendant to prove that the conduct in question was not unfair.

387 The plaintiffs also submit that while unlawfulness is not a precondition to oppression, unfairness will be more readily established where unlawful conduct has occurred, including where directors breach their fiduciary duties. In support of this submission, the plaintiffs seek to rely on Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993) 10 ACSR 489 (ASC v MSS), Campbell at [176] and [217], Wayde at 471 and Jenkins at 549.

388 None of these authorities other than ASC v MSS provides any support for the proposition put by the plaintiffs.

389 In ASC v MSS, the issue for determination was whether a cancellation of a person’s membership without reasonable basis and/or a failure to permit him to inspect the register of members was oppressive or unfairly prejudicial or discriminatory against that person. At 507, Zeeman J observed:

The lawfulness or otherwise of the conduct complained of ought to be examined. While it is not necessary for the applicant to establish that any of the conduct of the respondent was unlawful in the sense of it having been in breach of the Law, or contrary to the articles or otherwise unlawful, if it was unlawful such unlawfulness is relevant to the question of whether such conduct falls within s 260(2)(b). An act which is otherwise prejudicial to a member may more readily be described as being unfairly so if it is an unlawful act. An act which is discriminatory against a member may more readily be said to be unfairly so if it is an unlawful act. An act may more readily be said to be contrary to the interests of the members as a whole if it is an unlawful act. Unlawfulness may more readily justify intervention under s 260: see Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 538-9.

390 Immediately following this observation, Zeeman J stated that the respondent’s failure to provide the relevant person with access to the register of members, which was a breach of the Corporations Law, standing alone, would not constitute a sufficient reason to justify the making of any of the orders sought.

391 Ultimately, the issue to be determined in every oppression case is whether the impugned conduct was oppressive or unfairly prejudicial to or unfairly discriminatory against members of a corporation. In many, but not all cases, the impugned conduct might also be unlawful, but I do not accept that this relatively self-evident proposition requires a Court to undertake any assessment or make any determination of whether the impugned conduct was otherwise unlawful. Nor do I accept that any determination that the impugned conduct was otherwise unlawful elevates the seriousness of the conduct for the purposes of determining whether it was oppressive. The impugned conduct must be considered through the lens and from the perspective of the principles governing oppression. To the extent that Zeeman J’s observations in ASC v MSS as 507 suggest to the contrary, with respect, for the foregoing reasons, there is a compelling reason to depart from those observations, and they should not be followed.

L.4. Coal Trading Conduct

392 The Coal Trading Conduct is relied upon by the plaintiffs for the purposes of both their fiduciary and statutory claims against Avra and Mr Burgess and to make good their oppression case under s 232 of the Corporations Act.

393 It is not necessary to set out again the facts and contentions concerning the Coal Trading Conduct. It is sufficient to observe that Avra was exercising its bargained for contractual rights to acquire Export Coal under the Offtake Agreement and then on-sell that Export Coal to end-users for a profit. It was under no obligation to provide at least specific Marketing Activities with respect to its purchases of Export Coal under the Offtake Agreement. Moreover, the prices that it was offering Batchfire under the Offtake Agreement (a) may have been less than the prices that Avra was able to negotiate with end-users, but (b) were negotiated consistently with the terms of the Offtake Agreement, (c) were each ultimately approved by Mr Westerhuis for Batchfire, and (d) could not be suggested to be derisory.

394 The Coal Trading Conduct could not be characterised as commercially unfair by reference to ordinary standards of reasonableness and fair dealing. It was not conduct that reasonable competent directors, acting in good faith, would not think to be fair. The Coal Trading Conduct was not hidden, disguised or underhand. It was undertaken pursuant to express contractual rights that had been negotiated at arm’s length between sophisticated commercial entities, with the benefit of advice from lawyers and independent experts.

395 There is little question but that the terms of the Agency Agreement and the Offtake Agreement were favourable to Avra, and that it had driven a hard bargain with Batchfire, but the commercial implications of the contractual right given to Avra to purchase Export Coal under the Offtake Agreement, subject to agreement on price, rather than providing Marketing Activities and selling the Export Coal under the Agency Agreement, was well understood by Batchfire before it entered into the agreements.

396 Ultimately, the Coal Trading Conduct was the almost inevitable outcome of the contractual arrangements that Batchfire had willingly entered into with its eyes open, after exhausting all other potential options to obtain the necessary investment to enable it to proceed with the settlement of the Callide SSA. The absence of any commercial unfairness is highlighted by (a) the extent to which the prices paid by Avra for Export Coal exceeded the prices forecast in the Turnaround Plan (see [223 ]-[225 ] above), (b) the absence of any substantive contemporaneous complaints about the conduct (see [309 ]-[321 ], [324 ]-[329 ] above), and (c) Mr Westerhuis’ preference to sell Callide coal to Avra under the Offtake Agreement, in circumstances where it might expose Batchfire to liquidated damages claims for failing to meet its obligations under the Coal Supply Agreements (see [322 ]-[323 ] above).

L.5. 2019 Rights Issue

L.5.1. Overview

397 On 14 March 2019, the Batchfire board resolved to proceed with the 2019 Rights Issue to raise $25 million at $0.55 a share.

398 On 29 April 2019, the Batchfire board resolved to issue Lindenfels its pro-rata allocation of the shares offered by the company in the 2019 Rights Issue, together with all shares offered to but not taken up by other shareholders in Batchfire. In aggregate, Lindenfels acquired 45,400,545 of the 45,454,545 shares offered under the 2019 Rights Issue and this increased Lindenfels shareholding in Batchfire from 39.22% to 60.50%.

399 The plaintiffs contend that the conduct of Lindenfels and its nominee directors in taking over and increasing Lindenfels’ shareholding in Batchfire through the dilutive 2019 Rights Issue was objectively unfair.

400 The plaintiffs contend that the Coal Trading Conduct provides the “starting point” for the 2019 Rights Issue oppression case that they advance because it deprived Batchfire of revenue and gave rise to the need for Batchfire to procure additional funds. They also contend that by the second half of 2018, Lindenfels, through its nominee directors, caused Batchfire’s affairs to be conducted in a manner that was not in the interests of all shareholders and prejudicial to all other minority shareholders.

401 The plaintiffs submit that the Lindenfels’ nominee directors opposed all attempts by Batchfire to obtain working capital other than by a dilutive equity raising which was taken up by Lindenfels in order to give effect to Avra’s plan to take control of Batchfire. They submit that the Lindenfels nominee directors (a) prematurely raised solvency concerns without seeking expert advice, (b) refused to accept independent valuations of shares in Batchfire, (c) failed to exhaust all other reasonable financing options available for Batchfire, (d) stymied attempts by Batchfire to find and consider superior proposals, including by insisting on exclusivity, and (e) voted in favour of the 2019 Rights Issue despite having a clear conflict of interest.

402 For the reasons advanced at [182 ]-[222 ] above, I am satisfied that the need for the 2019 Rights Issue arose independently of the Coal Trading Conduct.

403 The oppression case advanced by the plaintiffs in relation to the 2019 Rights Issue otherwise raises for consideration whether (a) the rights issue was an integral element of a plan by Avra, Lindenfels and Mr Burgess to secure majority control of Batchfire at a consideration that was at a significant undervalue, to the detriment of the other shareholders of Batchfire, and, relatedly, (b) whether there were plausible alternatives to the 2019 Rights Issue to address the agreed need for a material cash injection into Batchfire from mid-2018.

L.5.2. Salient facts

L.5.2.1. Avra’s intentions

404 On 5 October 2017, Mr Burgess and Mr Southwood (at his Avra email address) received an internal Avra email attaching a slide presentation that set out a plan for Avra to gain control of Batchfire (Avra Contro l Plan). The plan contained four options for consideration. The first was an initial consolidation by acquiring the interests of two minority shareholders, Grills and Wood Field, that it had assessed were willing sellers. The second option was an acquisition of the 11.6% shareholding that Synthesis Energy Systems (SES), held in Batchfire at that time, Avra believed SES was currently facing financial difficulties and would be a forced seller in the event of an “insolvency event” under the Batchfire constitution. The third option was a capital raising from existing shareholders by way of a rights issue. The final option was sounding out minority shareholders to determine whether they were interested in selling their shares in Batchfire.

405 The Avra Control Plan proposed that the offer of shares under a $20 million rights issue would be “priced to incentivize existing shareholders to participate” by way of example at $0.72 per share, being a 10% discount to the last traded share price of $0.80. The plan envisaged that some shareholders, including Mr Choros, his “Associates” and SES, would not participate in the rights issue, and therefore following the rights issue, Avra would have a greater than 50% shareholding in Batchfire.

406 In addition to acquiring a majority shareholding in Batchfire, the Avra Control Plan also provided a timetable for implementing “Necessary Company Changes” to ensure that there was a clear path to increase production at lower cost, including (a) consideration of a revised mine plan and existing capital expenditure requirements, (b) an assessment of Batchfire’s internal mine development proposals that were expected to be available in around October 2017, (c) replacing the existing CS Energy mine rehabilitation financial assurances with a commercial bank guarantee or a Queensland Government fund, and (d) raising bank debt to meet other funding requirements for further capital expenditure, equipment leasing and general working capital.

407 On 7 October 2017, Mr Southwood, forwarded Mr Harrison a document that he described as “Ben’s brain dump” that had been prepared by Mr Burgess and to which Mr Southwood had added some statistics and his thoughts. The document provided the following explanation of the objectives of a proposed discussion with the non-Lindenfels directors:

• To let the board know that current level of performance against plans is poor (whatever the reasons/excuses)

• To get a consensus from the board that:

o increased production is a priority (beyond current mining capacity – whatever that actually is)

o Callide will not meet its promised production (export) level in Y1 or Y2

o current operating costs are too high o maintenance of draglines needs to be done – it is putting the company at risk

• Push for improvement through:

o Higher production levels

o Better reliability of equipment (new equipment or better maintenance)

o More (or bigger) equipment

o Better mine planning

• Advise Board members that funding should not be considered a constraint and they should not risk fucking up by ignoring our offer of more potential capital to allow Batchfire to manage the risks and achieve promised production and cost levels

408 The document recorded that Batchfire had only achieved year 1 production (on an annualised basis) of 8.5 million tonnes against a planned 9.5 million tonnes, actual operating costs of $34.50 per tonne FOR against a planned $26.80 per tonne (as at August 2017) and exports of 2.5 million tonnes against a planned 3.2 million tonnes.

409 The document also included these question for consideration:

Are FY 17 results sufficiently poor that small shareholders will want to sell out at $0.80/share?

Is it not better to make a full bid at US$2.00/share (or other price) given we have valued the mine in excess of $11/share. The upside goes straight to our balance sheet next reporting season.

Or are we better off just firing Terry and forcing a rights issue?

Can we do this if Edek aligned shareholders have a majority?

410 It was in that context, that Mr Southwood stated in the email forwarding the document to Mr Harrison, copied to Mr Burgess:

…

I think we all agree.

This trip should be used to set up for a rights issue.

Complain like fuck about governance issues, mine performance and risk, offer (in principal) capital from Avra to facilitate risk mitigation and performance improvement to initial planned levels, say we think it is needed, and that the Board has a duty to manage risks and achieve promised performance for all shareholders. There will be a number of triggers for a rights issue. Peter and the other directors are kidding themselves if they think they can work around it. We just have to disagree with their half-baked financing plans and we can force it.

411 Mr Southwood’s reference to “Peter” was to Mr Westerhuis.

412 Mr Southwood’s email and the attached Ben’s brain dump document revealed that less than a year after Avra’s investment in Batchfire through Lindenfels, Mr Burgess and Mr Southwood were very concerned about the current operational and financial position of Batchfire and they had little confidence in alternative financing plans that had been advanced by the non-Lindenfels directors as early as October 2017.

L.5.2.2. Funding options being considered by Batchfire

413 In a paper to the Batchfire board dated 7 December 2017, Mr Westerhuis reported that a number of funding options were being considered to pay for major items of expenditure that had been identified in addition to existing financial commitments associated with the CS Energy security deeds and the final settlement of the payment to Anglo American. These expenditure items included approximately $18.6 million to execute maintenance shutdowns on the Callide Mines’ two draglines and $28 million in additional security deposits for CS Energy. Mr Westerhuis observed that:

Whilst detailed cash forecasts are currently being developed, it is apparent this level of one-off expenditure cannot be supported completely from operating cashflows generated over the period of expenditure. Therefore, it is proposed that alternative funding including the possibility for a (external) debt facility to fund these, and potentially other projects (wholly or partially) be investigated.

414 Mr Westerhuis recommended that the following financing options be progressed in parallel, (a) the preparation of a request for proposal for the purpose of soliciting proposals from prospective financiers, (b) compiling and presenting information that had been sought by Avra to support the making of a bridging loan by Avra to Batchfire, and (c) commencing a consultation process with CS Energy to negotiate an acceptable alternative to the existing cash collateral payments schedule. Mr Westerhuis also referred to the possibility of a loan in conjunction with a rights issue to existing shareholders and that some “existing shareholders may consider an opportunity to increase their equity position in Batchfire”.

L.5.2.3. Establishment of the G4

415 By late April 2018, a group of four “foundation” shareholders of Batchfire, who referred to themselves as the G4, formulated a proposal for a sale of their shares that they held in the company at that time. The G4 comprised Mr Choros (30.66% shareholding held by Ambre and other related companies), SES (11.35% shareholding), Mr Lonie (6.54% shareholding held by Engadine Estates), and Mr Barker (3.18% shareholding held by Aleste). In aggregate, the G4 held a 51.73% shareholding in Batchfire.

416 On 29 April 2018, Mr Barker emailed the other members of the G4 noting that it had been agreed between them that “it is imperative to maximise sale value that the four G4 members be tied together as a shareholding block, as the 51.7% combined shareholding is far more valuable than a shareholding of <50%”. He also noted that it had been agreed that DLA Piper should be retained to draft an agreement as soon as possible that addressed a number of issues, including that the G4 “act as one shareholding block in order to effect the best possible sale price for all their shares” and strict confidentiality provisions. The issues to be addressed by DLA Piper included the following with respect to the sale price of the shares:

Initial floor sale price, subject to further discussions, of $7.00/share – this has been broadly derived as follows: 2018/19 forecast BFR EBITDA of A$120 million X EBITDA multiple of say 5 = equity value of A$600 million (assuming no debt, no cash), divided by 86 million shares on issue = A$6.98/share, say A$7.00/share. At this level the G4 would be prepared to sell their shareholdings. However, as the sale process unfolds there will be further discussions on the price, particularly once we appoint an investment bank, which will undertake an assessment of potential sale value (given all the transaction issues);

L.5.2.4. Batchfire’s need for a capital injection

417 From at least mid-2018, it is common ground that Batchfire required a capital injection.

L.5.2.5. IPO approaches made by the G4

418 By the middle of August 2018, the G4 had approached seven investment banks or stockbrokers in connection with a possible initial public offering to monetise their shareholding in Batchfire. The G4 only received proposals from Bell Potter and Rothschild.

419 On 21 August 2018, Mr Barker advised the other G4 members that when adjusted to enable a like for like comparison, Bell Potter had advanced an equity valuation range on listing for Batchfire of $450 million to $500 million, and Rothschild had advanced an equity valuation range of $400 million to $475 million.

L.5.2.6. Batchfire’s retention of EAC Partners

420 On or about 23 August 2018, Batchfire retained EAC Partners to act as the company’s financial adviser in connection with a proposed fund raising of up to between $150 million and $160 million, independently of the approaches made by the G4 to monetise their shareholding in Batchfire.

421 On 19 September 2018, Mr Westerhuis circulated a document described as a draft “ Teaser ” to the Batchfire board for their review. He advised them that “when it is hammered into the right shape”, Batchfire and EAC Partners intend to distribute the Teaser selectively to potential lending groups by the end of September, and then, subject to confidentiality arrangements and board approval, it is proposed that interested parties would then be issued with an information memorandum providing further details of the proposed debt financing in late November or early December 2018.

422 In October 2018, EAC Partners provided Batchfire with a preliminary valuation which calculated a “post-money equity value” for Batchfire of $543.2 million, with an implied indicative share price of $4.95.

423 At the Batchfire board meeting on 17 October 2018, Mr Westerhuis reported that EAC Partners were “making good progress” since their appointment as financial advisors to Batchfire and advised that he had met with some equity advisors and brokers to discuss valuation issues. He stated that in the light of valuations of current ASX listed coal projects, a valuation of $4 to $5 a share for Batchfire was “not unrealistic”, given the market would primarily adopt an Enterprise Value/EBITDA multiple valuation metric. The minutes of the board meeting also record that he advised that, given the ASX was not currently “densely populated with mid cap coal companies”, there was an opportunity “to conduct in conjunction with debt funding an IPO of up to $100m”.

L.5.2.7. Lindenfels nominee directors express concerns about the solvency of Batchfire

424 At the Batchfire board meeting on 22 November 2018, both Esben Poulsson, who had recently been appointed as an Avra representative on the board, and Mr Burgess expressed significant concerns about the solvency position of the company. Mr Poulsson stated that, to his observation, the “company’s financial situation seems to have significantly deteriorated”, the remedial steps proposed “ignore a much bigger problem”, the board was running the risk of not acting in good faith, the Chinese market “is not buying”, and “[w]e run the risk of becoming insolvent. I am quite shocked by what I am seeing. I think we need a reality check and look at this seriously”.

425 Mr Burgess agreed with Mr Poulsson and stated that “this is not the first time we’ve raised this issue (for example in September) and since then other funding potential options haven’t eventuated”. Mr O’Reilly agreed a funding injection was required and, in the absence of a debt facility, if a “V shaped market turnaround does not eventuate”, the business would “need to be rescoped from April 2019 to fit the cash generation capability”. Mr Westerhuis acknowledged that cashflow forecasts had “not factored in any significant losses for wet season delays”.

426 A further Batchfire board meeting was held on 29 November 2018 to consider the cash position of the company and a potential rights issue. Mr O’Reilly stated that based on the cashflow concerns for the next three months, the timing of a rights issue needed to be discussed. Mr Burgess stated that a rights issue needed to be undertaken as soon as possible and, given that the last traded share price was $0.80, and that the business had “gone backwards since then”, the rights issue should be priced at a discount of $0.55 per share. He also stated that “we need all shareholders to contribute”. Mr Barker responded by saying that (a) the price suggested by Mr Burgess “would not fly”, (b) the “[n]et tangible assets per share were $2.69”, (c) the last traded share price for Batchfire was not relevant, and (d) an independent valuation was being conducted to provide support for the pricing to be used and to protect “directors from any minority shareholders action that may arise from a low priced rights issue”. In turn, Mr Burgess queried how such litigation could arise, as a low price would allow shareholders to contribute, whereas if an issue price was set too high, there would also be disgruntled shareholders.

427 In December 2018, EAC Partners provided a status update to Batchfire of the negotiations that EAC Partners had been conducting with potential equity investors and debt funders Of the potential equity investors identified by EAC Partners, nine were classified as “Probable”, six – as “Possible”, thirteen – as “Unknown”, four – as “Unlikely”, and six – as “No”. The 32 potential debt funders identified by EAC Partners included 14 banks.

428 On 4 December 2018, DLA Piper provided advice to Mr Westerhuis about the risks that Batchfire might face if it set an offer price for shares in a rights issue at a discount or premium to their market value, being the potential for litigation by an aggrieved shareholder, and the mitigation of such risks, including exhausting all other reasonable financing options available to the company.

L.5.2.8. CS Energy raises concerns about Batchfire’s solvency

429 On 4 December 2018, Mr Jim Soorley, the Chairman of CS Energy, wrote to Mr O’Reilly about requests that Mr Westerhuis had made to CS Energy for assistance by way of prepayments, fortnightly payments and further credit. Mr Soorley advised Mr O’Reilly that while he appreciated all the “excellent work” that had occurred to date to ensure stable supply of Callide coal to the Callide Power Stations, CS Energy was “becoming increasingly concerned about the recurrence of short term funding issues and the request for CS Energy to provide additional assistance, in lieu of further fund or debt raising.” Mr Soorley also noted that CS Energy intended to invoke its right to audit Batchfire’s records in accordance with cl 7.6 of the IPC Deed and reminded Batchfire of its obligations under the IPC Deed, particularly in relation to “Notifiable Events”, as that term was defined in the IPC Deed.

L.5.2.9. Proposed price for 2019 Rights Issue

430 On 6 December 2018, Mr Burgess and Mr Poulsson wrote to the other directors of Batchfire formally advising them that they disagreed with the approach taken by the majority of the directors at the Batchfire board meeting on 4 December 2018. The majority of the directors had stated at that meeting that if a rights issue were to proceed, it would “only proceed at a price higher than A$0.55 per share”. Mr Burgess and Mr Poulsson confirmed that, given the current financial position of Batchfire, Lindenfels was only prepared to pay $0.55 per share and stated as follows:

We would add that it is both our, and Lindenfels', preference that all shareholders participate equally in the rights issue to the full extent of their respective entitlements. In that regard, the range of prices discussed by the majority of the directors would seem to exclude such a possibility, and this leads us to question whether the approach taken by such directors has the best interests of the Company as its focus.

431 Mr Burgess and Mr Poulsson also stated in their letter that if the majority of the board continued to insist on a price higher than Lindenfels was prepared to pay, Batchfire will have “approached a point where the safe harbour term” in the Corporations Act would be “coming to an end”. Consequently, he proposed that a further board meeting be called for 10 December 2018, for the board to consider all appropriate financial reports and a proposal to appoint an administrator to Batchfire, given its inability to pay its future debts in the absence of a fully subscribed rights issue.

L.5.2.10. The Batchfire board considers alternatives to the proposed 2019 Rights Issue

432 The next board meeting of Batchfire was in fact held on 11 December 2018. Mr Greg Quinn of EAC Partners addressed a paper prepared by EAC Partners on the capital structure of Batchfire that included a base case providing for a QAL prepayment of $20 million, a $25 million rights issue and a debt facility to be drawdown from July 2019 of $50 million. Mr O’Reilly advised that the non-Lindenfels directors had obtained legal advice reinforcing the advice from DLA Piper that the directors had to exhaust all other alternatives before undertaking a potentially highly dilutive rights issue. The majority of the board agreed that (a) a subcommittee should be formed to explore the prospect of a third party equity interest in a share issue, (b) concurrently, an information notice to shareholders should be drafted, and (c) the minimum price for any share issue would be $1.10.

433 On 24 December 2018, Mr Brett Heading, a partner of Jones Day, emailed Mr Burgess and Mr Poulsson advising them that he had been instructed to respond to their letter of 6 December 2018. Mr Heading informed Mr Burgess and Mr Poulsson in his email that Wexted Advisors, a specialist corporate restructuring specialist, had been appointed to provide independent advice on the financial position of Batchfire, and their preliminary view was that the company’s “short term cash flow issues can be managed whilst third party funding is thoroughly reviewed”. Mr Heading then stated:

4. I understand the Board has been advised by EAC Partners that there is expressed interest from at least four parties for participation in an equity raising of $25 million priced at $2.50 per share. EAC Partners have also advised that there are two possible short term financing alternatives with Industrial and Commercial Bank of China (ICBC) and Maia Financial. In the case of ICBC, the application has been taken to a stage of Credit Committee approval. EAC Partners have indicated that Due Diligence and a Term Sheet will take approximately six weeks.

5. Based on the progress that the Company is making and pending the report from Wexted, your comments in relation to safe harbour and administration are unnecessary and unhelpful. With respect, nominee directors need to take care in promoting a proposal from a nominating shareholder, which clearly is not, based on an objective analysis, in the best interests of the Company and other shareholders.

6. I have had the benefit of reviewing an advice prepared by the Company's corporate lawyers DLA Piper dated 4 December 2018. It was succinctly and properly expressed in that advice that the Board is obliged to exhaust other reasonable financing options available to the Company. That is precisely what the Board and management is currently undertaking. Prudent directors must test management and must be concerned about ensuring a company can meet its debts as they fall due. However to simply repeatedly demand (at the behest of your nominating shareholder) that the Company conduct a highly dilutive rights issue at a price which bears no substance to the value of the Company, does not demonstrate the appropriate level of care and diligence demanded at general law and under Section 180 of the Corporations Act. Further, it could give rise to a question as to whether you are acting in good faith and for a proper purpose as required in equity and under Section 181 of the Corporations Act.

434 On 28 December 2018, Mr O’Reilly advised the other directors of Batchfire that Wexted had been engaged to provide independent advice to himself and the Batchfire board, as well as management, on the adequacy of cash flow management for cash forecasts and continuing solvency of the company. He also forwarded to them a preliminary report from Wexted on their initial review of Batchfire’s cashflow modelling.

L.5.2.11. EAC Partners updates the Batchfire board on third party funding options

435 On 28 December 2018, there was also a Batchfire board meeting. EAC provided an update to the board on progress that had been made in pursuing third party funding options. Mr O’Reilly questioned whether a “rights issue in shareholders hands” in early January 2019 was consistent with the financing process that was being undertaken. Mr Burgess asked “do we want to move the rights issue to further down the track”, to which Mr Barker responded that it would allow a further due diligence period for investors “to firm up interest”. Mr Choros agreed with this approach. Mr O’Reilly stated that a decision on the rights issue could be deferred until 16/17 January 2019, and Mr Westerhuis added that “the rights issue will be ready to go when it needs to”. The minutes of the board meeting record that it was agreed that the rights issue be deferred until 16/17 January 2019.

436 On 15 January 2019, Wexted provided a further report to the Batchfire board on short-term cashflow projections and the company’s financial position. Wexted reported that Batchfire was “suffering from a lack of liquidity” that could be addressed by implementing a more appropriate capital structure, and the EAC Partners fund raising process “should be allowed to continue in a stable but efficient manner reflecting the range of business risks to properly exploit the equity and debt opportunities identified to source cost effective capital”. Wexted concluded that should “funding be identified and the necessary investment be made”, then it would appear that Batchfire was “capable of creating real and significant value for its investors”. Wexted recommended that the following “next steps” should be taken:

• The Board should continue the process of seeking new capital and, based on the [Short Term Cash Flow], have time to allow that process to unfold in a stable manner, but recognising the matter must be addressed expediently.

• Over the next six months, there are some critical points which need to be managed to ensure [Batchfire] is able to meet its commitments for the review period and beyond.

437 On 28 February 2019, Mr Burgess emailed Mr O’Reilly, Mr Choros, Mr Barker, Mr Westerhuis and Mr Poulsson a proposal from the boards of Avra and Lindenfels for Lindenfels to subscribe for 45,454,545 shares in Batchfire at $0.55 per share, with put and call options enabling Lindenfels to acquire all of the shares held by other Batchfire shareholders (Avra February 2019 Proposal). The proposal was stated to be valid until 6 March 2019 and, thereafter, it would be subject to review by the Avra board of directors.

438 In March 2019, EAC Partners provided the Batchfire board with an analysis of the Avra February 2019 Proposal, in which they concluded that Batchfire shares would be more appropriately priced at $2.50, and Batchfire should therefore seek to increase the subscription price.

439 On 8 March 2019 and 11 March 2019, Mr Burgess emailed Mr O’Reilly, Mr Choros, Mr Barker, Mr Westerhuis and Mr Poulsson revised versions of the Avra February 2019 Proposal, but both the quantity of the shares to be acquired and the issue price were not altered.

L.5.2.12. Ranger Resources makes an initial offer

440 On 11 March 2019, Batchfire received an offer from Ranger Resources Pty Ltd to acquire 100% of shares in Batchfire and associated assets, leases, equipment and infrastructure a price of $3.10 per share or, alternatively, if less than 100% but at least 51% of shareholders indicated an intention to sell, Ranger Resources and those shareholders would enter into an option deed providing a call option to Ranger Resources to acquire their shares at $2.50 per share (less an option fee of $0.05 per share) (Initial Ranger Resources Offer). The Initial Ranger Resources Offer was subject to due diligence and included the following exclusivity condition:

We are pleased to set forth the following terms with a view to establishing a period of exclusivity to allow our team and nominated advisors to undertake final due diligence reviews, and pending Ranger's satisfaction with the due diligence process, the negotiation of definitive transaction documentation for the resulting transaction. It is acknowledged that the information provided so far is incomplete and not satisfactory for a full and final investment approval, which we are placed to complete in an efficient and timely manner.

L.5.2.13. Batchfire accepts the Avra rights issue proposal

441 On 14 March 2019, at 7.08 pm, Ms Lisa Lee, the Chief Financial Officer of Batchfire, emailed Mr Barker and Mr Choros, copying Mr O’Reilly and Mr Westerhuis, the following proposed email to Mr Burgess, that she stated had been provided by Mr O’Reilly, for their approval:

The Batchfire Board unanimously agrees to a rights issue as summarized

Issue of shares to raise $25m at share price of 55c per share.
Lindenfels confirms that it will subscribe to the full numbers of shares.
Waiver to pre-emptive rights from non-Lindenfels shareholders.
A mechanism of share sale and purchase to be finalized after tax/legal advice that meets the commercial parameters that have been discussed and agreed.
Adjusted NPAT as previously defined.
FIRB approval obtained during the execution period.

As discussed at the Board meeting, we are awaiting high level advice regarding point 4 above and will share it as soon as it's in hand.

442 At 7.10 pm, Mr Barker responded:

Agreed subject to inserting one more condition:

Directors to continue to discharge their duties to find a superior offer.

443 At 7.27 pm, Mr O’Reilly emailed Mr Burgess, Mr Choros, Mr Barker and Mr Poulsson, copying in Mr Westerhuis and Ms Lee, a copy of the email drafted by Ms Lee without adding the obligation to find a superior offer condition proposed by Mr Barker.

L.5.2.14. Funding of the Initial Ranger Resources Offer

444 The Initial Ranger Resources Offer included the following explanation of how the offer was to be funded:

Subject to satisfactory investment and related stakeholder approval, we have secured financing from reputable global funding providers. Preliminary capitalisation of the acquisition SPV has commenced.

445 The Batchfire directors, however, were not confident that Ranger Resources had the funds to proceed with the offer it had made to Batchfire or that the security sought by Ranger Resources could be provided given the terms of the IPC Deed.

446 Mr Barker identified what he described as “some obvious issues” in an email he sent on 17 March 2019 to his fellow directors and Batchfire management in relation to the Initial Ranger Resources Offer, including:

Funding – we need to now understand who the "reputable global funding providers" are. They must understand by now that this is a credibility issue for them, so some comfort on who their finance partners are is now appropriate;

L.5.2.15. Ranger Resources makes two subsequent offers

447 On 18 and 21 March 2019, Ranger Resources provided revised funding offers to Batchfire in similar terms to the Initial Ranger Resources Offer but with the addition of a proposed coal royalty agreement, accompanied by a request for security over the leases and both the fixed and mobile plant and equipment associated with the Boundary Hill operations (Revised Ranger Resources Offer s).

448 On 18 March 2019, Mr Barker and Mr Westerhuis approved a response drafted by Mr Greg Quinn of EAC Partners to the first of the Revised Ranger Resources Offers. The draft response included the following comment with respect to security:

The most critical aspect of the proposal is the royalty arrangement. As discussed we believe it will be challenging to secure the security package requested in the time frame available. As a consequence we propose an unsecured royalty agreement.

449 It was also stated in the draft response that “[w]e would like to get greater certainty over the source of the $25m” and it included the following comment:

2. Funding – As discussed in the meeting you have provided us with several possible sources of funds for the royalty agreement and that you are in discussions with two private equity funds in respect of the broader offer. As we discussed getting greater certainty around both is critical but clearly the funding for the royalty agreement is time critical.

450 At the same time that the Batchfire board were expressing concerns about the source of the funding of the offers made by Ranger Resources, Pat Williams, a director of Ranger Resources, was expressing concerns about the quality of the information that he was receiving from Batchfire.

451 On 20 March 2019, at 11.25 pm, Mr Williams advised Mr Quinn, in response to a reconciliation that Mr Quinn had given him between the 2019 Life of Mine Plan and the Revised 5-Year Mine Plan:

In any world that I belong to, this answer is both a disgrace and offensive.

I am sorry if you think I am wasting your, or the executive team at BRF's time. Following our meeting on Monday where both the CFO and CEO exposure on this subject was evident, I am appalled at this "dog ate my homework" response. It is evident there is a divergence in assumption between the LOM, 5yr and shorter term timeframes. Put very simply, these models need to be updated, aligned and made work together - not explained away by some nonsense about differing assumptions. Fix the source of the problem and get an aligned set of plans. The essence of credibility of a coal mine is the robustness of their mine plan. How does the rest of the LOM plan look? What and how are those assumptions to be validated? What does the proper LOM plan look like?

We have grave concerns the Executive Team attitudes on this subject reflect the difficulty ahead in meeting very compressed timeframes.

We have prepared a final draft of the Royalty Agreement, we have revised, ready for submission, the Letter of Offer with updated considerations added and we are prepared to circulate the Option Deed for review by the end of the week. Unfortunately, at significant expense to ourselves, this appears to have been in vein.

Please consider our interest in pursuing this opportunity with BFR now terminated.

452 Then, at 11.36 pm that night, Mr Williams forwarded his response to Mr Quinn on to Mr Choros and informed him:

I'm sorry, but we need to pull the handbrake on here.

This is a totally useless response and a waste of a week in a precious timeline. We have a lot to do and a great deal revolves around credible baseline (and integrated) plans showing value. These will be closely audited and held as value/security. At the moment, we have nothing. I could not imagine a more unhelpful response that what has been provided. I am happy to wait for a quality response, but I am certain now nothing will come.

Added to that, I have yet to "formally" receive anything back on the Boundary Hill JORC tonnages.

At the rate things are going, we have no chance of meeting timelines.

453 On 27 March 2019, Mr Westerhuis advised Mr Quinn, Mr Choros, Mr O’Reilly and Mr Barker that CS Energy “have recently indicated they would baulk at relaxing any aspect of the security covenants they currently hold” because of increased risk with the QTC bond, given Batchfire’s financial difficulties and their knowledge that there was “a potential equity funding proposal on the table”, which would present less risk for them. On the following day, he reiterated this advice to them stating that CS Energy was “not inclined to let any aspect of their current security be diminished”.

454 On 28 March 2019, Mr Quinn advised Mr Williams that Batchfire had received informal feedback from CS Energy that it was unlikely to release security to enable Batchfire to provide security to Ranger Resources. On the same day, Mr Williams responded by saying that Ranger Resources “cannot progress unsecured” so that “a redraft without it is not a productive step”.

L.5.2.16. Avra proposes to subscribe for shares in Batchfire

455 On or about 15 March 2019, Avra provided Batchfire with a term sheet for a proposed subscription by Lindenfels for 45,454,545 shares in Batchfire at a price of $0.55 per share for a total investment of $25,000,000 (2019 Term Sheet). The 2019 Term Sheet included an exclusivity provision in item 14 in the following terms:

As Lindenfels will expend resources in due diligence review of Batchfire and in negotiating the definitive binding agreements for the Transaction, during the period from the date of this term sheet until 5.00pm (AEST) on Friday, 29 March 2019:

(a) Batchfire must not, and must ensure that its officers, directors, employees or advisors do not, directly or indirectly, solicit or encourage inquiries or proposals, or participate in any discussions or negotiations, with respect to any transaction involving the issue of new shares in Batchfire to any person; and

(b) if Batchfire receives a bona fide offer from a third-party investor that is capable of acceptance by Batchfire, Batchfire must notify Lindenfels, providing all details and evidence of the offer to Lindenfels.

456 On 18 March 2019, Mr O’Reilly emailed Mr Burgess and Mr Poulsson a response from the “non-Avra directors” to the 2019 Term Sheet. Mr O’Reilly included the following response to the exclusivity provision sought by Avra:

Item 14 – The Board of Batchfire cannot agree to the terms of exclusivity proposed by Lindenfels on the basis that the proposed subscription agreement is highly conditional, imposing a high degree of risk that a binding contract for Lindenfels to subscribe for shares in Batchfire will ever come into effect. In addition, given the current offer on the table from Ranger Resources and continuing discussions with other potential funding parties, as well as Batchfire's current financial position, the Board is advised that it may be incapable of satisfying its fiduciary duties to shareholders if it were to provide Lindenfels with unconditional exclusivity at this point in time. Accordingly, Batchfire will only agree to exclusivity as proposed on the basis that there is a standard fiduciary carve out that will allow the Batchfire Board to receive, discuss and pursue a proposal that it believes will provide a super outcome to shareholders when compared with the terms and conditions of the offer set out in the term sheet. Batchfire would be prepared to have unconditional exclusivity apply at the point in time that the last of the conditions precedent in the Subscription Agreement are satisfied or waived in accordance with that Subscription Agreement. The fiduciary carve out to the exclusivity right is critical for the Board of Batchfire in light of Lindenfel's highly conditional offer and the resulting heightened risk of shareholder issues, if a superior proposal is received that the Board cannot act on. The Board is seeking to limit this risk to the greatest extent possible.

457 On 19 March 2019, Mr Burgess provided the following explanation of why Avra was seeking an exclusivity provision in response to Mr O’Reilly’s 18 March 2019 email:

Avra: The exclusivity provision is necessary to ensure the parties commit to facilitating the funding by Lindenfels within the specified period of time. The exclusivity provision does not require a fiduciary duty carve out as you propose as:

(a) the exclusivity applies for a short period;

(b) the exclusivity is limited in scope and the board would not be prevented from soliciting other funding, provided such funding does not entail the issue of shares in Batchfire to any person; and

(c) Batchfire is not otherwise prevented from receiving an unsolicited bona fide offer from a third-party investor (which we understand was the case with the Ranger Resources offer).

As the board has previously determined that $25 million in capital is urgently required by Batchfire to resolve the short and medium term cash flow issues, and CS Energy has expressed its concerns about the funding of the company, we consider that the board has a fiduciary obligation to act in good faith for the benefit of the company to secure timely funding, which can be provided by Lindenfels.

Further, we do not consider our proposal to be highly conditional, particularly when compared to the conditions of the Ranger Resources offer. Rather, the conditions are minimal and commercially reasonable and would enable the deal to promptly complete provided the parties co-operate.

458 On 20 March 2019, Mr O’Reilly provided the following response to the exclusivity explanation given by Mr Burgess in his 19 March 2019 email:

Item 14 - Re exclusivity – "if a superior equity proposal is received and that proposal has real prospects of completing in the same period as the Avra proposal then Directors have a fiduciary duty to consider." This is the carve out sought.

459 On 21 March 2019, Mr Burgess proposed to Mr O’Reilly the following amended wording to the exclusivity provision in item 14 of the 2019 Term Sheet:

(a) subject to the remainder of this item 14, Batchfire must not, and must ensure that its officers, directors, employees or advisors do not, directly or indirectly, solicit or encourage inquiries or proposals, or participate in any discussions or negotiations, with respect to any transaction involving the issue of new shares in Batchfire to any person; and

Nothing in this item 14 prevents Batchfire soliciting or discussing an equity investment in Batchfire from a third party investor, provided that:

(a) the proposed equity investment is for a total subscription price that is higher than the amount set out in this Term Sheet and is otherwise on terms more favourable (when considered as a whole) to Batchfire than the terms contemplated by this Term Sheet; and

(b) the proposed equity investment is a bona fide offer with reasonable prospects of completing on or before the Transaction proposed in this Term Sheet (determined on the basis that the parties will act in good faith to complete the Transaction set out in this Term Sheet); and

(c) Batchfire notifies Lindenfels of the third party offer immediately upon receiving same, providing all details and evidence of the offer to Lindenfels.

460 On 23 March 2019, Mr O’Reilly advised Mr Burgess that Avra’s proposed amended exclusivity clause in the 2019 Term Sheet was “ok”.

461 During March 2019, while the 2019 Term Sheet was being negotiated, Batchfire received the Revised Ranger Resources Offers, following feedback from EAC Capital, but no agreement or term sheet was concluded.

462 On 27 March 2019, Mr Burgess advised the Batchfire board that Lindenfels withdrew the 2019 Term Sheet offer because “[r]egretfully we have received nothing from Batchfire”. The Batchfire board, including Mr Burgess and Mr Poulsson, subsequently agreed to proceed with the 2019 Rights Issue without any exclusivity provision.

L.5.2.17. The Batchfire board resolves to proceed with the 2019 Rights Issue

463 On 28 March 2019, the Batchfire board met to discuss the company’s funding requirements. In the course of the board meeting, Mr Westerhuis advised that there was no “other apparent or certain option (other than to proceed with the rights issue) and quickest way to resolve the cash/liquidity issues in the immediate term”, “in 4 weeks we run out of cash”, and “if the rights issue is not approved tomorrow, the Company will be required to inform [CS Energy] of a Notifiable Event”. In response to representations made by Mr Choros and Mr Barker that clauses should be included to allow the rights issue to be replaced or reduced if a superior offer emerged, Mr Burgess and Mr Poulsson responded that their position was as follows:

… the business needs certainty around an injection of capital, as we're looking at insolvency event, were supportive of additional equity injection (on top of rights issue) but AVRA would not support/participate in a rights issue with a revocation or reduction clause present.

464 It was ultimately agreed that a further board meeting would be held the following day, after legal advice had been received on whether “a fiduciary carve-out” was required for the rights issue.

465 On 29 March 2019, Mr Joe Hayes of Wexted provided a response to a request from Mr O’Reilly to advise whether “in the absence of a “sure” cash injection in late April”, the directors would “be heading towards insolvent trading” (Wexted March 2019 Update).

466 The Wexted March 2019 Update included the following advice:

In answer to your specific question, the Board is heading towards a position where solvency is not assured after 26 April if there is no new source of funds (ie Batchfire will potentially be insolvent and will need to cease trading or appoint an Administrator). However, on the basis debts are incurred in now/early April 2019, for delivery in early May 2019, in normal circumstances those debts will be included in the measure of accrued payables at 26 April 2019 and so incorporated into our projections. The forecast should include all such debts, if the accounting process is properly recognising them.

The position is very tight with no room to move, and certainty is now required. It is necessary/ appropriate the Board now have a certain source of funds by late April 2019, to ensure the neutral working capital position is rectified, as further deficiencies are forecast during May/June/July. I am not fully informed about the various funding options being considered, but understand a rights issue process has now been formally commenced that provides a backdrop of certainty that funds will be received on time, with some remaining flexibility to pursue options that create more value. Noting the valuations ascribed to the business that we saw in January 2019, on a long term maintainable earnings basis, it is reasonable for shareholders to want to progress those issues as far as they can.

The Batchfire forecast has material working capital swings and exposure to external issues outside your control. For the rest of April 2019 it is critical that (a) the rights issue funds are on target for certain receipt by late April 2019 and (b) there is no further working capital deterioration (that is, receivables are locked in and accrued liabilities include all debts incurred, and the position does not worsen). We would be happy to undertake more regular reviews of the working capital position if that gave the Board some comfort that the process remains on track.

I am happy this note is shared with other Directors.

467 At 11.25am on 29 March 2019, Mr Westerhius advised, in his covering email forwarding a copy of the Wexted March 2019 Update to the Batchfire board, that Wexted was making the point that “our position is very tight with no room to move, we’re out of time, and certainty is now required.”

468 On 29 March 2019, the directors of Batchfire also received an email from Mr Alexander Samson of DLA Piper in relation to their fiduciary duties in connection with the proposed rights issue, in which he advised:

A reduction and / or revocation right will ensure that the board can 'act in the best interests' of the Company to the extent that a superior proposal is forthcoming during the rights issue offer period, or if the capital requirement suddenly ceases to exist. However, the non-inclusion of these rights in a rights issue process does not, of itself, expose the directors to a breach of their fiduciary duties if those circumstances do indeed eventuate. Whilst reduction and revocation concepts are not uncommon, they are not used in every rights issue process.

We have previously given advice that conducting a highly dilutive rights issue may be in conflict with the duty to 'act in the best interests' of the Company. The risk of a breach of this duty in the context of a highly dilutive rights issue is diminished where other sources of funding have been investigated and it has been determined that there are no other viable alternatives.

If the Company is at this juncture, our view is that any possible risk associated with not including these rights in the rights issue is diminished. However, putting the law on fiduciary duties aside, we would have thought that is in the best interests of the Company and the shareholders as a whole that, the Board not be precluded at any stage from considering and pursuing superior proposals that may provide a better outcome for the company as a whole, including all shareholders, and not doing so, opens the board up to risk of criticism and shareholder claims (whether valid or not).

469 Later that day, the Batchfire directors resolved at a board meeting to approve the 2019 Rights Issue by way of a pro-rata entitlement offer to all shareholders at an issue price of $0.55 to raise up to $25 million. The minutes of the meeting record that the board considered it was appropriate to proceed with the 2019 Rights Issue because:

4.1.1 The Company requires equity funding in the amount of $25 million to assist with its capital expenditure and working capital requirements, due to, among other things:

4.1.1.1 Aurizon's performance under the coal haulage agreement with the Company's subsidiary, Batchfire Callide Coal Sales Pty Ltd; and

4.1.1.2 the decline in thermal coal imports into China, and the resulting oversupply of thermal coal in the global market.

4.1.2 The Company has investigated, and continues to investigate, sources of capital to satisfy its funding requirements.

4.1.3 At the date of this meeting, the Company has not secured debt funding to satisfy its short-term funding requirements.

4.1.4 Having reviewed the capital expenditure and working capital requirements of the Company, the Board is of the view that the Entitlement Offer is in the best interests of the Company and its shareholders as a whole.

470 The minutes of the 29 March 2019 board meeting also recorded that while Mr Barker and Mr Choros approved the resolutions to proceed with the right issue, “in their view the removal of reduction and revocation clauses were not in the best interest of shareholders”.

L.5.2.18. Shareholder briefing on 4 April 2019

471 On 4 April 2019, Mr Westerhuis presented a briefing in the form of a slide deck to Batchfire shareholders on the current operational and financial position of the company (Sharehold er Briefing). The Shareholder Briefing included a slide identifying the following “headwinds” that Batchfire had faced in the export thermal coal market:

• China import quota imposed Aug – Dec 2018.

• After quota relaxed late January 2019, Chinese government imposed customs restrictions on Australian coal.

• Aus coal restrictions expected until end May.

• Customers in other regions squeezing Aus coal suppliers in response (eg India, Korea) and traders shorting the market.

• Long term seaborne thermal coal demand is still solid but currently in northern shoulder season and period of high hydro availability (seasonal weakness for coal).

• Chinese production restrictions during 2017/18 now overcome, China increasing production again.

• May lead to lower volatility (slower for longer)

• JRP settled last week at USD94.75, Newc now trading <$80

472 Further, the Shareholder Briefing included slides explaining the impact of port closures in China on the price for Export Coal, the failure of Aurizon to haul contracted tonnages for the Callide Mine and stated that the 600,000 tonne deficit between actual and budgeted FY19 export sales would very likely have been reduced by 300,000 to 400,000 tonnes, had it not been for the “Aurizon performance and Chinese import restrictions”. The impact of these issues on export sales was quantified as $38 million in reduced export volume and $20 million in lower export prices.

473 The Shareholder Briefing also included slides summarising the steps that EAC Partners had taken to seek additional funding for Batchfire, noting that cashflow from operating activities had been heavily impacted by development costs for Beacon Hill South and “other requirements and opportunities” and the following explanation:

• Responding to this limited interest from the financial market, in December 2018 the Company received an indicative offer from Lindenfels (39.2% shareholder) for a A$25 million equity placement, priced at A$0.55 per share.

• The Board appointed Wexted Advisors, specialists in advising companies in financial difficulties, to assist with cash management and associated reporting. Wexted also confirmed that the Company did not have an immediate need to accept the Lindenfels offer and should persist in sourcing alternative, potentially superior proposals.

• The Company continued the engagement with the debt markets and further broadened the field of targeted investors to include those sections of the finance market with a preference for equity or a combination of debt and equity.

• In early March 2019, the Chinese port restrictions became more widespread and severe.

• Despite a protracted, in-depth process of engagement with many financiers and potential investors, Batchfire and EAC Partners were unable to obtain any substantive, unconditional commitments to fund or invest in the Company.

474 The Shareholder Briefing concluded with an explanation of the 2019 Rights Issue. It included a slide with the following overview of the rights issue:

• In response to the compounding effects of lower railings, lower export sales, lower export prices and the inability to obtain external funding, the Batchfire Board resolved to accept the December '18 Rights Issue proposal by Lindenfels:

• Company conduct an issue of new fully paid ordinary shares via a pro-rata entitlement offer at an issue price of A$0.55 per new share

• Lindenfels taking up any shortfall arising from shareholders not taking up their pro-rata share

• The Board determined this is the most effective and timely method to maintain an acceptable level of cash holdings.

• Batchfire requires a A$25 million equity raising for:

• Capital expenditure related to the BHS development; and

• Working capital purposes.

• The New Shares are offered on a pro-rata basis to existing shareholders, as required under the Company's Constitution.

Total Shares

Shares currently on issue 86,009,173

New Shares to be issued pursuant to the Rights Issue (maximum) 45,454,545

Shares on issue after the completion of the Rights Issue (maximum) 131,463,718

475 The Shareholder Briefing did not make any reference to any lack of Marketing Activities as the reasons for any shortfall in the revenue that had been forecast from the sale of Export Coal or the reason for the need to obtain additional funding for Batchfire.

L.5.2.19. Completion of 2019 Rights Issue

476 On 29 April 2019, the 2019 Rights Issue was completed, and Lindenfels thereby increased its interest in Batchfire to a 60.49% shareholding and, pursuant to cl 17.6 of the Batchfire constitution, exercised its right to appoint an independent director chairman by reappointing Mr O’Reilly to that position.

L.5.3. Submissions

477 The plaintiffs submit that the conduct of Avra, Lindenfels and its nominee directors in acting to take over and increase Lindenfels’ shareholding in Batchfire through the dilutive 2019 Rights Issue was objectively unfair for the following principal reasons.

478 First, the need for a capital injection form mid-2018 was in part due to operational challenges experienced by the Callide Mine, but also because of the conduct of Avra, Lindenfels and Mr Burgess in failing to undertake Marketing Activities, and Avra purchasing Export Coal under the Offtake Agreement at an undervalue.

479 Second, the Lindenfels’ nominee directors opposed all attempts by Batchfire to obtain working capital other than by a dilutive equity raising which was taken up by Lindenfels in order to give effect to Avra’s plan to take control of Batchfire.

480 Third, there was “strong evidence” that the purpose of the 2019 Rights Issue was to dilute the appellants’ percentage shareholding. The plaintiffs point to (a) early internal Avra correspondence about its plans to take control of Batchfire, (b) the insistence of Lindenfels and its nominee directors during the lead up to the 2019 Rights Issue on a low-priced rights issue and ignoring legal advice about the risks associated with that approach, (c) insisting on exclusivity and refusing to accept a superior offer clause, thus inhibiting attempts by Batchfire to explore alternative financing offers, including from Ranger Resources, (d) the knowledge of Lindenfels and its nominee directors that a rights issue at $0.55 per share would be highly dilutive and would allow Lindenfels to take control of Batchfire.

481 Lindenfels submits that there was no unfairness or oppression occasioned to the plaintiffs by the 2019 Rights Issue. It submits that first, there could be no doubt that Batchfire needed the funds because of its initial undercapitalisation and the “myriad of issues affecting the mine” that could not be attributable to Avra, and second, the only potential alternative offer identified by the plaintiffs, from Ranger Resources, was not viable. In these circumstances, Lindenfels submits that it attained its majority shareholding through fair means, on terms which were in the best interests of Batchfire in the circumstances, and only because other shareholders chose not to take up their pro-rata allotment.

L.5.4. Consideration

482 I am not satisfied for the following reasons that any conduct of Lindenfels or the Lindenfels nominee directors in relation to the 2019 Rights Issue constituted conduct that was not in the interests of shareholders of Batchfire as a whole or that it was oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiffs, contrary to s 232 of the Corporations Act.

483 First, and fundamentally, the plaintiffs accept, and the contemporaneous documents referred to above establish, that from mid-2018, Batchfire required a significant capital injection in order to meet its ongoing liabilities and expenses. The need for additional capital was genuine and by the time the Wexted March 2019 Update had been provided to Batchfire, it had become urgent. As Wexted advised the Batchfire Board in that update, if funds were not obtained by 26 April 2019, the solvency of Batchfire “could not be assured”.

484 I am satisfied that the need for the capital injection arose because of the unforeseen operational challenges facing the Callide Mine, and Batchfire’s failure to raise the $90 million investment on which the Turnaround Plan had been constructed. The contemporaneous documents, in particular the Shareholder Briefing, do not record or seek to sheet home responsibility for the need for a capital injection to any failure by Avra to conduct Marketing Activities or more generally to the Coal Trading Conduct.

485 Second, I do not accept, contrary to the submission advanced by the plaintiffs, that the Lindenfels’ nominee directors opposed all attempts by Batchfire to obtain working capital other than by a dilutive equity raising. There was no evidence to suggest that the Lindenfels’ nominee directors had sought to frustrate or otherwise prevent EAC Partners from approaching third parties to provide funding to Batchfire.

486 In March 2019, Avra had initially proposed investing $25 million in Batchfire at $0.55 per share pursuant to the terms of the 2019 Term Sheet. It was in that context that Avra had insisted on an exclusivity condition, a condition that could not be considered exceptional for the reasons explained by Mr Burgess in his 19 March 2019 email to Mr O’Reilly. The 2019 Rights Issue was not subject to any exclusivity conditions.

487 Third, given the deteriorating financial position of Batchfire by the time the Avra Control Plan was formulated in October 2017 and Batchfire’s previous difficulties in obtaining funding to complete its acquisition of the Callide Mine, it would have been readily apparent to Avra and the Lindenfels nominee directors that Avra was likely to be the only source of additional funds. In that context, it is hardly surprising that Avra, through Lindenfels, would want to obtain a controlling interest in Batchfire, not only to protect any further investment but to protect its existing $35 million investment, through Lindenfels, in Batchfire.

488 In stark contrast to the Avra Control Plan, Avra’s strategy at the time it made its initial investment in Batchfire in late 2016, as stated in the Avra Investment Paper, was to turn Batchfire into a profitable and large scale exporter of Callide coal and then to sell down its interest to a suitable investor (see [119 ] above). The decision to seek a controlling interest in Batchfire only emerged when the operational and financial challenges confronting Batchfire became increasingly apparent in the period leading up to the formulation of the Avra Control Plan.

489 Fourth, notwithstanding the large number of potential investors approached by EAC Partners no plausible alternative source of funding could be identified and, on no view, within the time period necessary to address the solvency concerns identified by Wexted. The offers made by Ranger Resources did not progress beyond term sheets that were subject to (a) requests for security that were likely to be inconsistent with the IPC Deed, and (b) extensive due diligence that was beginning to raise concerns for Ranger Resources. Moreover, the source of the funds that were proposed to be advanced under the offers made by Ranger Resources was only identified in opaque and generic terms. Furthermore, non-Lindenfels directors themselves raised issues with the Ranger Resources proposals, with Mr O’Rielly going as far as to say that, in his view, they were never capable of acceptance.

490 F if th, in the absence of any plausible funding options, the price at which the 2019 Rights Issue was to be conducted was a matter to be negotiated between Avra and Batchfire. Moreover, unlike a subscription for shares, a rights issue permits existing shareholders to also acquire shares to ensure that their interests are not diluted. Even if it were assumed that the Batchfire shares had been offered at an undervalue in the 2019 Rights Issue, a rights issue that is made at a price that undervalues a company is inherently more attractive than a rights issue that is made at a price that overstates the value of a company.

491 A rights issue is only “highly dilutive” if a shareholder does not take up their entitlement. The plaintiffs’ attempts to discredit and impugn the $0.55 per share price for the 2019 Rights Issue by referring to contemporaneous valuations obtained by the self-styled G4 shareholders only serve to highlight the fundamental tension in the plaintiffs’ deliberate dilution case theory. Avra, via Lindenfels, was only able to gain control of Batchfire by the 2019 Rights Issue because the G4 shareholders failed to take up their entitlement at a price per share, on the plaintiffs’ case, that grossly undervalued Batchfire. As explained at [415 ]-[416 ], [418 ]-[419 ] above, rather than making any attempt to take up their entitlement, the G4 pursued their own strategy from late April 2018 of selling their shares in Batchfire for the highest possible price.

L.6. 2020 Rights Issue

L.6.1. Overview

492 On 23 April 2020, the Batchfire board unanimously agreed to proceed with the 2020 Rights Issue to raise $20 million at $0.088 per share.

493 On 4 June 2020, the Batchfire board resolved to approve the issue to Lindenfels, the only shareholder that accepted the 2020 Rights Issue, of 227,272,727 shares in Batchfire at $0.088 per share for a total consideration of $20 million. The resolution was approved by the then three Lindenfels nominated directors with Mr Choros and Mr Barker abstaining.

494 The plaintiffs submit that the conduct of Lindenfels and its nominee directors following the 2019 Rights Issue and in the lead up to the 2020 Rights Issues, was a continuation of similar conduct that had led to the 2019 Rights Issue.

495 The plaintiffs’ 2020 Rights Issue case critically depends on two fundamental and related pillars. First, the need for a further rights issue was “engineered” by Avra and the Lindenfels nominated directors by extending and then demanding repayment of the Avra Prepayment Facility, and second, there was a plausible alternative to a further rights issue that was frustrated by the Lindenfels nominated directors.

496 I am not satisfied that either of the pillars on which the 2020 Right Issue oppression case was constructed has been established.

L.6.2. Submissions

497 The plaintiffs rely on the following conduct of Avra and the Lindenfels nominee directors as constituting oppressive conduct in relation to the 2020 Rights Issue.

498 First, the dismissal of the Batchfire CFO, Ms Lee, and CEO, Mr Westerhuis, without any notice or consultation with the non-Lindenfels directors. They submit that this had a detrimental effect on Batchfire’s coal mining operations that caused Batchfire to fail to meet its commitments to supply Callide Coal to CS Energy during “that period” and incur more than $10 million in liquidated damages penalties. They submit that, in turn, the need to make up the shortfall in production reduced the availability of Export Coal, reduced export revenue and further drained working capital.

499 Second, raising the need for a further rights issue to make payments under the Avra Prepayment Facility by the time of the 19 March 2020 board meeting. The plaintiffs contend that the Lindenfels nominee directors should not have done so because of their conflict of interest, particularly in circumstances where it was unlikely that other shareholders of Batchfire were likely to participate in a rights issue. They submit that by reason of cl 26 of the Amended Constitution, the Lindenfels nominee directors should not have actively participated in any decisions concerning the 2020 Rights Issue. The plaintiffs submit that had they not participated, the decisions would have been made by Mr Choros and Mr Barker, and the 2020 Rights Issue would not have proceeded at all or only proceeded at a fair price.

500 Third, insisting on a valuation of $0.088 per share for the 2020 Rights Issue, which was (a) even lower than the net assets based valuation of the Batchfire CFO of $0.337 per share (notwithstanding independent advice from EAC Partners that a DCF or EBITDA method was more appropriate than a net assets method), and (b) not reasonable, but rather was based on an interest in acquiring shares in Batchfire below their value.

501 Fourth, insisting on an undervalued rights issue price and in carrying out a rights issue for the purpose of securing an immediate repayment of unsecured debt to Avra, in circumstances where the unsecured debt to Avra was “supposed to be paid via ongoing coal deliveries under the Offtake Agreement”.

502 Fifth, proceeding with the 2020 Rights Issue, despite it not being the only option available for Batchfire. There was an alternative funding option available from Ranger Resources, but the Lindenfels nominee directors refused to (a) give proper consideration to the offers from Ranger Resources, or (b) appoint a safe harbour advisor.

503 Sixth, insisting the 2020 Rights Issue was completed by 4 June 2020 in order to repay Avra in full but then accepting the repayment of prepayment debts to Avra over time from ongoing export sales under the Offtake Agreement.

L.6.3. Dismissal of executives and conflicts of interest

504 The plaintiffs do not advance any coherent connection between the dismissal of Mr Westerhuis, as CEO, and Ms Lee, as CFO, and the need for the 2020 Rights Issue. Nor do the plaintiffs explain why the 2020 Rights Issue would not have proceeded, or only proceeded at a “fair price”, if the Lindenfels nominated directors had excused themselves from any active involvement in the decision to proceed with the rights issue.

L.6.7. The 2020 Rights Issue was not “engineered” by Avra

505 On any objective analysis, Batchfire was continuing to experience severe cashflow difficulties following the 2019 Rights Issue.

506 The need for the further rights issue was not relevantly “engineered” by Avra and the Lindenfels nominated directors by extending and then demanding repayment of the Avra Prepayment Facility. Rather, as explained below, in order to alleviate Batchfire’s continuing cashflow difficulties, Avra agreed to enter into and then, over a period of some 12 months, agreed to extend those prepayment facilities with Batchfire in circumstances, where Batchfire was experiencing considerable challenges in obtaining alternative finance. It was only after attempts to obtain alternative financing had been exhausted that Avra pressed for a repayment plan and, ultimately, agreed to support a further rights issue. Until that time, Avra’s principal objective was to obtain repayment of the amounts outstanding under the prepayment facilities – not to “engineer” a further rights issue.

507 On 20 May 2019, Avra entered into a prepayment facility with Batchfire by way of an addendum to the Offtake Agreement (Prepayment Facility). Batchfire was entitled under the Prepayment Facility to claim prepayment of up to 75% of the total coal value sold in each prepayment cycle, subject to a ceiling of US$15 million, in the period between 1 June 2019 and 1 December 2020. Batchfire was required to pay US$1.00 per tonne of coal for all Export Coal sold under the Prepayment Facility.

508 By 5 June 2019, the Prepayment Facility had been fully drawn down, and the minutes of the 5 June 2019 Batchfire board meeting record that “[c]ash was forecast to go negative mid July 19”.

509 On 22 July 2019, Avra agreed to amend the Prepayment Facility by way of a second addendum to the Offtake Agreement. The amendment to the Prepayment Facility provided for a temporary increase to US$25 million in the maximum amount that Batchfire could claim prepayment for under the facility in the period from 22 July 2019 to 21 October 2019, following which the maximum amount of the prepayment facility would revert to US$15 million.

510 On 26 September 2019, Avra agreed to a further amendment to the Prepayment Facility by way of a third addendum to the Offtake Agreement. The further amendment provided a first prepayment tranche of US$15 million for the period from 1 October 2019 to 31 December 2020 and an additional second prepayment tranche of US$20 million for the period from 1 October 2019 to 28 February 2020. Thus, for the period from 1 October 2019 to 28 February 2020, Batchfire was able to access up to US$35 million under the Prepayment Facility.

511 On 17 December 2019, Matthew Crawford, who had replaced Mr Burgess as a Lindenfels nominated director, emailed the other Batchfire directors foreshadowing that he intended to propose a capital raising option at the next board meeting in January 2020. Mr Crawford observed in his email as follows:

Positively, the mine is being turned around and with some productivity improvements we will move to eventual profitability, however the current margins are being severely impacted by softening export coal prices and historic prepayments implemented to keep the company afloat during the past 12 months.

We have to face the reality that basically all of our current coal inventory is presold, Aurizon are being problematic in terms of reliability (canceling trains) for the export market and the reduction in tonnes from the Power Station is negatively impeding our cash flow performance. This is further compounded with significant mandatory scheduled outgoings to Avra of circa US$30m in February and March and a payment to CSE of AU$11m in April.

My view is if we do not commence a capital raising by February we will be facing insolvency issues. The prepayments have kept us alive but they are in turn "kicking the problem down the road" and our current slim margins in my opinion will not get us out of pending solvency issues in the required time frame.

512 On 12 February 2020, Avra agreed to a further amendment to the Prepayment Facility by way of a fourth addendum to the Offtake Agreement. The further amendment provided for a one-month extension of the end date of the second prepayment tranche until 31 March 2020.. Following this further amendment, for the period from 1 October 2019 to 31 March 2020, Batchfire was able to access up to US$35 million under the Prepayment Facility.

513 On 25 February 2020, the Batchfire board met to consider an updated Batchfire cashflow statement that had been circulated to the directors of Batchfire earlier that day which forecast that Batchfire would have a negative cash position of between $8 million and $19 million at the end of each month between March 2020 and December 2020 (February 2020 Cash Flow Forecast). After discussing the implications of the negative cash positions in the February 2020 Cash Flow Forecast, the Batchfire board agreed to proceed with a $35 million rights issue/equity proposal and seek a further one-month extension from Avra of the second prepayment tranche component of the Prepayment Facility to 30 April 2020.

514 On 25 February 2020, following the board meeting, Batchfire sought an extension of the second prepayment tranche component of the Prepayment Facility to 30 April 2020 on the basis that the board’s view was that the only source of funds to repay the second tranche was to approach Batchfire’s shareholders for equity capital. Batchfire advised Avra that the total funds to be sought from shareholders would be $35 million, but in order to enable SES to participate, the equity raising would not be completed by 31 March 2020, and hence Batchfire was seeking a one-month extension of the second tranche component.

515 On 24 March 2020, Mr Burgess advised Batchfire that following discussions with the major shareholders of Avra:

They have agreed to allow Avra to extend the repayment date of Tranche 2 to April 30th, 2020 while also reserving the right to call the amount at any time prior to April 30th, 2020.

They would like it noted that they are extending this courtesy to Batchfire in light of the extraordinary circumstances we find ourselves in due to the global outbreak of COVID-19. However, Avra continues to encourage the board of Batchfire to seek alternate forms of funding.

The decision to extend the repayment date does not reflect in any way the views of Lindenfels, nor the value it currently ascribes to Batchfire stock (either pre or post the mooted equity raising to replace this prepayment facility).

516 On 20 April 2020, Mark Leuthard, Avra’s Chief Operating Officer, advised Batchfire, after noting the US$20 million extension would expire at the end of the month:

Unfortunately, following the expiration of this current second extension and due to the ongoing market circumstances, we are not in a position to give any further extensions.

Therefore, we kindly request you to settle the US$20 million of Tranche 2 in line with the agreement by 30 April 2020.

517 On 21 April 2020, Mr O’Reilly advised Mr Choros and Mr Barker that Avra had declined to provide any further extension beyond 30 April 2020 of the second tranche component of the Prepayment Facility, and thus Batchfire would “need some sort of repayment plan” as it “cannot repay US$30m in one hit”. I infer that the reference to the payment of US$30 million was an inadvertent error and was intended to have been a reference to US$20 million, being the second tranche limit.

518 On 22 April 2020, Mr O’Reilly emailed Mr Burgess noting that he understood Lindenfels was “agreeable to a A$20m Batchfire rights issue” and asked at what price Lindenfels would participate as Batchfire had a board meeting the following day.

519 On 23 April 2020, at 9.48 am, Mr Burgess emailed Mr O’Reilly confirming that Avra would be “willing to support its pro-rata entitlement of a A$20,000,000 rights issue if the offer was priced at A$0.088 per share” and provided a brief explanation by reference to the value of Batchfire’s net assets recorded in its management accounts, adjusted for the difference between real and discounted environmental rehabilitation liability and then discounted by 45% to take into account a number of matters, including (a) a “very poor outlook for export coal demand and pricing”, (b) a currently unfunded capital expenditure for FY21 of approximately $52 million, and (c) a coal prepayment liability of approximately $58 million. Mr Burgess stated that Avra “may also consider participating over and above its pro-rata entitlement” but otherwise noted that Avra’s support for a rights issue at $0.088 per share was only valid until 5.00 pm (Brisbane time) that day, and thereafter it would be “subject to review”.

520 At the Batchfire board meeting that commenced at 3.00 pm that day, the Board resolved unanimously to proceed with a $20 million rights issue at $0.088 per share and to seek assistance for a repayment strategy for its prepayment liabilities. Mr Barker agreed to proceed with the rights issue as “other funding seemed problematic”. Mr Barker, however, stated that $20 million would not “solve the funding problem” and pricing should have been based on a multiple of future earnings, not on a net tangible assets basis, as that was not relevant to the value of the business.

521 At 5.28 pm that day, Mr O’Reilly informed Mr Burgess by email:

The Batchfire Board agrees unanimously to the pricing of a rights issue at 8.8 cents per share to raise A$20m. The Board also expresses its welcome recognition of Lindenfels continued support.

We do ask that the transition to reduce the existing credit line be managed in line with the timing of the rights issue and planned cash flows.

522 On Thursday, 30 April 2020, at 7.10 pm, Mark Fraser, the company secretary of Batchfire, emailed the Batchfire directors copies of draft rights issue offer documents that had been prepared by the company’s management and legal advisers, Bird & Bird, for their approval. The documents comprised a 24-page information memorandum, a company notice, an offer acceptance form and a waiver deed poll. Mr Fraser requested that the directors carefully review the documents and provide any comments to him or Mr Saunders by not later than 2.00 pm the following day, Friday, 1 May 2020, because “[b]ased on the required funding timeline”, the documents had to be sent to Batchfire’s shareholders by 5.00 pm on 1 May 2020.

523 On Friday, 1 May 2020, at 9.53 am, Mr Barker replied to Mr Fraser’s email advising that he considered the less than 19 hours’ timeframe provided to review the draft rights issue offer documents was not reasonable and that he would review the documents “over the weekend and revert”.

524 At 1.56 pm that day, Mr Choros also replied to Mr Fraser’s email complaining about the short timeframe provided to review the draft documents and stated he would review them and “respond early next week”.

525 Then, at 2.10 pm, Mr O’Reilly responded stating that he appreciated the comments that had been made by Mr Barker and Mr Choros and that “you may like a little extra time to review and then discuss”. Mr O’Reilly proposed that in order to meet that need for more time:

… the Batchfire Board meet on Sunday 10am via video/phone. This gives adequate time for review and the opportunity to discuss any matters. It is imperative we do not put the company at risk by delaying the cash injection that Batchfire urgently needs.

526 On 3 May 2020, at 4.03 pm, Mr Barker emailed the other Batchfire directors expressing his concerns about the one-sided and negative view of the business of the company that had been presented in the information memorandum. He advised them that he considered that:

…As currently framed, it is a discouragement for shareholders to invest, not something that we want to present. In my 35+ years in corporate finance, I have reviewed hundreds of disclosure documents for capital raisings, for both public and private companies, and I have prepared dozens, but never seen one as negative as this draft IM. It needs to have more balance, with the points Edek suggested below to be incorporated as a minimum. It cannot go to Batchfire shareholders in its current form and requires a lot of rectification as it does not provide sufficient information for shareholders to make an informed decision.

527 Mr Barker concluded:

The document as framed is inadequate and cannot be approved in its current form. It needs to be re-drafted to provide sufficient information for shareholders to make an informed decision on whether to invest or not. I would have thought that since many of these issues were discussed last year at the time of the previous rights issue they would have been addressed.

L.6.8. There were no plausible funding alternatives to the 2020 Rights Issue

528 The plaintiffs’ contentions that Ranger Resources provided a plausible funding alternative to the 2020 Rights Issue cannot be accepted.

529 On 1 June 2020, Ranger Resource advanced a proposal to Batchfire that it acquire $20 million of shares in the company (2020 Ranger Proposal). The proposal was advanced some five weeks after the Batchfire board had unanimously resolved to proceed with the 2020 Rights Issue and only three days before the rights issue was completed. The only identity of the entity proposed to acquire the shares was “an appropriately structured SPV to be nominated”. I infer that the reference to an SPV was to a Special Purpose Vehicle.

530 The 2020 Ranger Proposal envisaged that there would be a 60 day exclusivity period to permit Ranger Resources to undertake an updated due diligence review, foreshadowed an offer in the range of $0.20 to $0.30 a share and included a number of conditions described as “principles”, including that any other capital raising by Batchfire was to be deferred to a minimum of 70 days from the date on which the period of exclusivity is granted, all existing shareholders had to waive their pre-emptive rights and, perhaps most controversially, a condition subsequent that “the IPC Deed will be retired with none of the conditions remaining from September 2020 (or soon after) onwards”. Mr Barker acknowledged in cross examination when pressed about the prospect of being able to retire the IPC Deed, “to be blunt, that was not going to happen”, but then stated somewhat unconvincingly, “perhaps it’s me being an optimistic investment banker – I would have started to negotiate that point away”.

531 The source of the funding for the 2020 Ranger Proposal was not specifically identified. The proposal only stated:

Subject to satisfactory investment and related stakeholder approval, we have secured financing from reputable global funding providers.

532 The 2020 Ranger Proposal was considered at a Batchfire board meeting held on 3 June 2019. The discussion at the meeting was taped, and a written transcript was prepared and admitted into evidence. The discussion at the meeting could fairly be described as heated. Mr O’Reilly commenced the meeting by stating that:

I sent out a brief agenda as I saw it with the Mustang Offer if we can call it that. The issues were for me really the immediacy as the funds needs is foremost in my mind and then secondly the condition present for this and also and the condition subsequent. If I put my view of the funds, this is not dissimilar to the way we were last year with Ranger of where we get a last minute offer but funds are needed now and we’re looking at deferral of the rights issue or maybe that’s better cancellation for 70 days and I’m not quite sure what this proposal would mean for us in that intervening period we would be bereft of funds.

533 Both Mr Choros and Mr Barker stated that given the 2020 Ranger Proposal was clearly superior to the existing 8.8 cents per share offer under the 2020 Rights Issue, the Board had a duty to all shareholders to consider the proposal and to seek to defer the outstanding payment due to Avra. Mr Barker also stated that Batchfire should appoint a safe harbour advisor if there was a genuine concern about the solvency of Batchfire.

534 Ultimately, the three Lindenfels nominees voted against a proposal by Mr Choros and Mr Barker that the “Board extends the Rights issue by 2 weeks to the extent legally possible”.

535 Given the relatively embryonic nature of the 2020 Ranger Proposal, Batchfire’s current financial position, the imminent injection of money from the 2020 Rights Issue and the limited prospect of Batchfire being able to satisfy the conditions to enable the IPC Deed to be retired in the foreseeable future, the 2020 Ranger Proposal was not a plausible alternative to the 2020 Rights Issue. I therefore do not accept that the refusal by the Lindenfels nominee directors at the 3 June 2020 board meeting to agree to the resolution that the 2020 Rights Issue be extended by two weeks was conduct that could be characterised as oppressive or unfair to the shareholders other than Lindenfels or not in the best interests of Batchfire as a whole. Nor do I accept that any subsequent agreement by Avra not to require an immediate repayment of the Prepayment Facility from the proceeds of the 2020 Rights Issue demonstrates that the cashflow challenges faced by Batchfire were not genuine.

L.7. Subsequent alleged oppressive conduct

L.7.1. Overview

536 The plaintiffs contend that by reason of the super majority that they had secured following the 2020 Rights Issue and the appointment of members of management associated with Avra, Avra and the Lindenfels nominee directors continued to engage in conduct following the 2020 Rights Issue that was contrary to the interests of shareholders and oppressive, unfairly prejudicial, or unfairly discriminatory to shareholders, other than Lindenfels.

537 The conduct of Avra and the Lindenfels nominee directors relied upon by the plaintiffs to make good that claim comprised (a) amending the Amended Constitution to relegate the protections in cl 26 dealing with conflicts of interest, (b) not permitting the two persons nominated by the minority shareholders to take up their positions on the Batchfire board, (c) continuing the Avra Prepayment Facility, which as at December 2024, stood at $140.8 million and $348.8 million in total, and (d) rejecting “out of hand” buy-out proposals advanced by the plaintiffs since 2020 (together, Subsequent allege d oppressive conduc t).

L.7.2. Amendments to Amended Constitution

538 On 17 June 2020, Mr Burgess requested that the directors of Batchfire call an extraordinary general meeting of the company to repeal the existing Amended Constitution and adopt a new constitution in the form annexed to a letter from Mr Burgess to Mr O’Reilly dated 16 June 2020 (Further Amended Constitution). Mr Burgess stated in his 16 June 2020 letter:

The current Constitution was adopted by the Company in 2016. Since that time, it has come to the attention of Lindenfels that there are a number of outdated, unnecessary or otherwise inconsistent provisions in the current Constitution. Consequently, Lindenfels seeks to repeal the current Constitution and replace it with the updated Proposed Constitution. Lindenfels considers that the Proposed Constitution is consistent with current applicable laws, regulations and corporate governance practices.

539 The Further Amended Constitution included substantial revisions to the conflict of interest provisions in cl 26 of the Amended Constitution. From the text of those revisions and the statement made by Mr Burgess in his 16 June 2020 reproduced above, I readily infer that the proposed amendments were directed at seeking to ensure that the Lindenfels nominee directors were not precluded from receiving board papers, being present at board meetings and voting or participating in board decisions by reason of any potential conflicts of interest arising from the contractual relationships between Avra and Batchfire, in particular the Offtake Agreement.

540 On 20 July 2020, the Further Amended Constitution was approved at an extraordinary general meeting of Batchfire.

541 I am satisfied that the amendments introduced in the Further Amended Constitution reflected the practical realities and inevitable implications of the contractual arrangements willingly entered into between Batchfire and Avra. I do not accept that amending the Amended Constitution in those circumstances constituted any evidence of ongoing oppression on the part of Avra, Lindenfels or Mr Burgess.

L.7.3. Exclusion of individuals nominated by minority shareholders

542 On 7 August 2020, the minority shareholders in Batchfire requested that the directors call an extraordinary general meeting of the company to appoint Mr Moffatt and Peter Crittall as directors of the company as nominees “of the shareholders other than Lindenfels” or, in the alternative, that they simply be appointed as directors of the company (Minority Shareholder Resolutions).

543 On 28 August 2020, the Batchfire board issued a notice of an extraordinary general meeting of the company to be held on 22 September 2020 to consider the Minority Shareholder Resolutions. In the explanatory statement accompanying the notice, the board recommended that the shareholders vote against the resolution because the board considered that the resolutions did not comply with the requirements of the Further Amended Constitution because the constitution (a) did “not contain a right of the Shareholders to appoint Directors at a general meeting”, and (b) provided that the replaceable rules contained in the Corporations Act, including the rule in s 201G enabling a company to appoint a director by resolution passed in a general meeting, did not apply to Batchfire.

544 On or around 18 September 2020, Mr Moffatt withdrew his consent to act as a director of Batchfire, and, consequently, according to the meeting minutes of the extraordinary general meeting conducted on 22 September 2020, Mr Choros and Mr Barker no longer wished to pursue Mr Moffatt’s appointment at that meeting, and resolutions relating to his appointment were not raised for consideration. In these circumstances, the plaintiffs’ submissions that the “exclusion from representation” of Mr Moffatt, who was nominated by the minority shareholders to take up a seat on the Batchfire board, constituted oppressive conduct or highlighted the ongoing oppression cannot be accepted.

545 At the extraordinary general meeting on 22 September 2020, the shareholders were asked to consider two resolutions relating to the appointment of Mr Crittall as a nominee director of the shareholders other than Lindenfels (Crittall Resolution) and to vote on it via a poll. Once the poll was closed, it was confirmed that, in accordance with its results, the Crittall Resolution was not carried.

546 Before the voting of the shareholders commenced, Mr O’Reilly noted that (a) Batchfire was bound to act in accordance with the Further Amended Constitution, and (b) the Further Amended Constitution “contain[ed] a power to appoint directors in favour of Lindenfels and a power in favour of all of the Members, excluding Lindenfels, acting jointly”. Based on contemporaneous correspondence, it appears that the power that Mr O’Rielly was referring to was contained in cl 17.6.2 of the Further Amended Constitution, which provided that “all of the Members (excluding Lindenfels) may jointly appoint two Directors”. This clause was interpreted by the Batchfire board as requiring the approval of all non-Lindenfels shareholders for the appointment. This construction may have been debatable but, as submitted by Lindenfels, the matter could have been resolved by a construction suit at the time. I am not satisfied that it constituted any evidence of ongoing oppression on the part of Avra, Lindenfels or Mr Burgess. Mr O’Reilly gave unchallenged evidence that he did not vote for Mr Crittall as he did not consider him to be an appropriate appointment to the Batchfire board and he was not influenced in any way by Lindenfels or any Lindenfels nominee directors in arriving at that decision. The absence of any challenge to that evidence is not conclusive but is significant, given the lack of any coherent explanation advanced by the plaintiffs as to why a debateable construction of a company’s constitution, in all the circumstances, could constitute evidence of ongoing oppression.

L.7.4. Continuation of Avra Prepayment Facility

547 It is not apparent how the continuation of the Prepayment Facility could amount to conduct that was unfair or oppressive. As at December 2024, the amount outstanding under the Prepayment Facility was $140.8 million, and the amounts owing under prepayment facilities with other counterparties at that time was, in aggregate, $208 million. The Prepayment Facility and the prepayment facilities with other counterparties provided Batchfire with significant working capital and funding in advance of when payments would otherwise have been received. Had the Prepayment Facility not been continued, Batchfire would have been in an even worse financial position.

L.7.5. Rejection of buy-out proposals advanced by the plaintiffs

548 The plaintiffs contend that since 2022, Batchfire, in circumstances where it had become “controlled by Lindenfels”, had rejected “out of hand” various buy-out proposals that the plaintiffs had advanced. The buy-out proposals were advanced after the commencement of proceedings, stated to be for the purpose of providing a viable means to resolving the dispute, did not include any suggested price, only disclosed an alleged willingness to negotiate and were stated to be advanced on behalf of entities that were only described as non-binding indicative offer parties (NBIO Part i es). The plaintiffs do not advance any coherent contention as to how the rejection of the buy-out proposals advanced by the plaintiffs on behalf of NBIO Parties after the commencement of this proceeding can constitute oppression.

M. Claims against Mr Burgess

M.1. Overview

549 The plaintiffs allege that Mr Burgess breached his statutory directors’ duties under s 180(1), s 181(1) and s 182(1) of the Corporations Act.

550 The plaintiffs also allege that Mr Burgess breached an equitable duty not to promote his own interests or the interests of another person, including Avra, or to make or pursue a gain for himself or any other person, including Avra, if it could give rise to a real or substantial possibility of a conflict with the interests of Batchfire, including its interest in maximising revenue from the sale of Export Coal for export (pleaded equitable duty).

551 The plaintiffs contend Mr Burgess contravened s 180(1) of the Corporations Act by failing to disclose to the board of Batchfire (a) the profits made by Avra on sales of Export Coal under the Offtake Agreement and that it was purchasing Export Coal from Batchfire under that agreement at prices below the market price for Export Coal, (b) Avra was performing no Marketing Activities under the Agency Agreement and had no intention of doing so, (c) Avra was entering into medium and long term contracts with end-users that provided a stable source of revenue for Avra, and (d) Batchfire was being misled about the prices that end-users were prepared to pay for Export Coal (Avra Conduct Information).

552 Relatedly, the plaintiffs contend that Mr Burgess contravened s 181(1) of the Corporations Act because his subjective purpose in engaging in “deliberately deceitful negotiations” for the sale of Export Coal under the Offtake Agreement and failing to disclose the Avra Conduct Information was conduct that was not in the interests of Batchfire.

553 Next, the plaintiffs contend that Mr Burgess contravened s 182(1) of the Corporations Act by improperly using his position as a director of Batchfire at the time he was negotiating sales of Export Coal on behalf of Avra under the Offtake Agreement by using his knowledge of “the financial constraints facing” Batchfire to Avra’s advantage.

554 The plaintiffs contend that Mr Burgess breached the pleaded equitable duty because in negotiating sales of Export Coal under the Offtake Agreement for Avra, he was in a position of “untenable conflict”.

M.2. Legal principles

M.2.1. Section 180(1)

555 Section 180(1) of the Corporations Act provides:

(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a) were a director or officer of a corporation in the corporation’s circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

556 The degree of care and diligence required by s 180(1) of the Corporations Act is an objective standard, having regard to (a) the corporation’s circumstances, and (b) the office and responsibilities of the officer in question within the corporation: Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18 at 18. The assessment of whether a director has failed to meet the objective standard required by s 180(1) is a fact-intensive analysis: Cassimatis v Australian Securities and Investments Commission (2020) 275 FCR 533; [2020] FCAFC 52, 24.

557 In Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [100], Brereton J listed the circumstances of the corporation as including:

…the type of company, the provisions of its constitution, the size and nature of the company’s business, the composition of the board, the director’s position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director…and the circumstances of the specific case.

(Footnotes omitted.)

558 The corporation’s circumstances under s 180(1)(a) also include the competence of the corporation’s advisers and management and the distribution of responsibilities within the company as between directors and as between directors and officers: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199 at 240.

559 By its terms, s 180(1) only applies where a director is exercising their powers and discharging their duties as a director of the corporation to which they have been appointed. This requires an identification of both (a) the power or duty that is being exercised or discharged, and (b) the specific source of that power or duty: Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384 at 2526, citing Cassimatis, 25 and 639 [450]-452.

560 As Greenwood J stated in Cassimatis at [27]:

… The primary source of the powers to be exercised by directors and the duties to be discharged by them are to be found in the Memorandum and Articles of Association for the company (the “Constitution”), the Act, any responsibilities of the director within the corporation and the scope, according to the jurisprudence, of the powers and duties of governance to be exercised by the directors…

561 A director or officer’s “responsibilities within the corporation” referred to in s 180(1)(b) include not only matters specifically delegated, but also how work is distributed “in fact” within the corporation, and the expectations placed by those arrangements on the director or officer: Macdonald at 241 citing Australian Securities and Investments Commission v Rich [2003] NSWSC 85; (2003) 174 FLR 128 at 50; Get S wift, 2532. Other relevant matters include responsibilities imposed by law as well as “whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed on that officer”: Shafron at 18.

562 Section 180(1)(a) and s 180(1)(b) are directed at the scope and range of responsibilities “actually carried out” by the director or officer, which may involve “fewer, as well as additional, responsibilities to those that may traditionally have been exercised by a person holding the relevant office”: Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [908]. The objective test under s 180(1) is therefore measured by what an ordinary person, with the knowledge and experience of the relevant director or officer, would have done: GetSwift, 2527 citing United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2018] VSC 347; (2018) 128 ACSR 324 at 609.

563 Determining whether a director has breached s 180(1) requires balancing the foreseeable risk of harm to the company, including the nature, magnitude and degree of probability of the risk, against the potential benefits of the conduct that could be reasonably expected to accrue to the company, together with the difficulty and cost of alleviating action: GetSwift at 2528 citing Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449-450 (Ipp J) and Maxwell at 102. Determining what a reasonable person would have done is “forward-looking” exercise; it not a “backward-looking” exercise to determine what actions would have avoided the harm: GetSwift at 2528 citing Cassimatis, 87.

564 The relevant risks are not necessarily confined to commercial factors or monetary consequences but also include “all of the interests of the corporation, including its continued existence and its interest in pursuing lawful activity”. It has been acknowledged that companies are often operated to facilitate the taking of risks that individuals may not themselves be willing to undertake, but this does not mean the “company fiction” facilitates “unlawful risky activity” without personal responsibility: Cassimatis, 459; Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098; (2020) 382 ALR 425 at 1431; GetSwift at 2529.

565 Finally, s 180 does not impose “a standard of perfection”, and making a mistake will not automatically demonstrate a lack of due care and diligence: GetSwift at 2533 citing Australian Securities and Investments Commission v Lindberg [2012] VSC 332; (2012) 91 ACSR 640 at 72.

M.2.2. Sections 181(1) and 182(1)

566 Section 181(1) of the Corporations Act provides:

(1) A director or other officer of a corporation must exercise their powers and discharge their duties:

(a) in good faith in the best interests of the corporation; and

(b) for a proper purpose.

567 Section 182(1) of the Corporations Act provides:

(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

568 The principles governing s 181(1) and s 182(1) of the Corporations Act are also well settled. They were succinctly summarised by Markovic J in Australian Securities and Investments Commission v Bettles [2023] FCA 975; (2023) 169 ACSR 244 at [441], which summary I respectfully adopt. For present purposes, the following distillation of those principles is sufficient.

569 The content of the duty to act in good faith is s 181(1) of the Corporations Act includes requiring directors to (a) exercise their powers in the company’s interests, (b) refrain from abusing or misusing their powers, (c) avoid a conflict between the company’s interests and their own, (d) refrain from taking advantage of their position to secretly make profits, and (e) not misappropriate assets of the company for their own benefit. While it is unsettled whether s 181(1)(a) requires deliberately engaging in conduct known to not be within the company’s best interests or whether this limb is determined according to what is reasonable in the circumstances, establishing a breach under s 181(1) involves subjective and objective elements, being what the director’s subjective purpose was, and whether that purpose was objectively proper. Like s 180(1), a breach of s 181(1) involves balancing the foreseeable risks against “the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question”: Bettles, 441, quoting Vrisakis, 450 (Ipp J).

570 Section 182(1) is contravened if (a) a director “used” their position, (b) the use was improper, and (c) the use was to gain an advantage or cause the company detriment. A director’s use of their position would be “improper” if it fell short of the standard of conduct that reasonable persons would expect of someone in the director’s position, having regard to (a) the circumstances, including the commercial context, and (b) the director’s duties, powers and authority. It need not be established that an advantage was gained “in fact” by the director nor that detriment was “in fact” caused to the company, as determining the presence of the proscribed purposes requires a consideration of the director’s “particular duties and responsibilities” and their “appreciation of the circumstances at the time”: Bettles, 441.

M.2.3. Equitable duties owed by Mr Burgess

571 It is well established that notwithstanding their “broad judicial formulations fiduciary duties are not infinitely extensible”: Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at 34.

572 In a commercial relationship, the scope of fiduciary duties is to be determined by the character of that relationship, the express agreements between the parties and the course of dealings between them: Howard at [34]. Fiduciary duties must be “moulded according to the nature of the relationship and the facts of the case”: Hospital Products at 102 (Mason J).

573 The plurality in Maguire v Makaronis (1997) 188 CLR 449 at 463-464 cautioned against attempts to impose “a fiduciary mantle over commercial and personal relationships and dealings which might not have been thought previously to contain a fiduciary element.”

574 Moreover, as French CJ and Keane J observed in Howard at [35], overbroad assertions of fiduciary duty, “uniformed by a close consideration of the facts and circumstances of the particular case”, are sometimes made for reasons unrelated to the protective rationale of fiduciary duties and may include taking advantage of equitable remedies or avoid stringent limitation periods.

M.3. Duties of nominee directors

M.3.1. Plaintiffs’ submissions

575 The plaintiffs accept that cl 17.19.1 of the Amended Constitution permitted Mr Burgess to have regard to and represent the interests of Lindenfels and to act on the wishes of Lindenfels in performing any of his duties or exercising any power, right or discretion as a director of Batchfire but submit it did not absolve or relieve Mr Burgess from his fiduciary or statutory duties owed to Batchfire. The plaintiffs submit that (a) this must follow from the chapeau to cl 17.19 that provides that the clause is “subject to compliance with the duties applying to directors under the Corporations Act”, and (b) the “basal duty of loyalty that directors as fiduciaries owe to a company cannot be reduced so much so that a director can disregard the interests of the company and pursue the interests of another party.”

576 The plaintiffs submit that the untenable conflict that gave rise to the breach of the pleaded equitable duty arose because on the one hand, as a director of Batchfire, Mr Burgess was responsible for ensuring that Batchfire’s principal objective of securing sales of Export Coal on a sustainable basis was achieved, and the mechanism by which export sales of Export Coal was intended to be achieved was by Avra performing the Marketing Activities under the Agency Agreement, but on the other hand, he was the primary person at Avra involved in negotiating and agreeing spot sales with Batchfire for Avra’s purchase of Export Coal under the Offtake Agreement.

577 The plaintiffs submit that Avra’s interests in securing the acquisition of Export Coal for on-sale at the lowest possible price was in stark conflict with Batchfire’s interests in achieving the best possible price for that coal. The plaintiffs submit that nonetheless, Mr Burgess continued to act. Not only that, in his efforts to secure Export Coal at the lowest price, he used information that he had obtained in his capacity as a director of Batchfire to the detriment of Batchfire. The plaintiffs submit that the conduct of Mr Burgess clearly breached the equitable duty pleaded in [110(a)] of the 2FASOC.

M.3.2. When does the obligation to act in the best interests of the company arise?

578 Nominee directors can act in the interests of their appointer “provided that such interests are also compatible with the best interests of the company”, and their “independent judgment and discretion are not otherwise fettered”: State Street Australia Ltd v Retirement Villages Group Management Pty Ltd [2016] FCA 675; (2016) 113 ACSR 483 at 43.

579 Where, however, there is an actual or potential conflict between the company’s interests and the appointer’s interests, the former must prevail: State Street Australia at 43; Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1) (NSW) 307 at 311 (Street J); Re News Corp oration at 244-245 (Bowen CJ).

580 The obligation imposed on nominee directors to ensure that the interests of the company to which they are appointed prevail over the interests of the company appointing them, where there is a conflict of interest, arise where the nominee directors are exercising powers and discharging duties in their capacity as a director of the company to which they have been appointed. This obligation is not directed at the exercise of powers and discharge of duties owed by nominee directors to the company that appointed them.

581 I accept, however, that there may be occasions in which, adopting the plaintiffs’ expression, the “basal duty of loyalty” owed by a director to a company might be construed as requiring a nominee director, in order to discharge their duties to the company, to disclose information antithetical to the company’s interests or not to act in a manner that is inconsistent with a company’s interests but consistent with the appointing company’s interests. The determination of whether such a duty to disclose or not to act arises is necessarily fact-specific and must have regard to the specific factual context in which it is alleged that a disclosure was required.

M.4. Was Mr Burgess under a duty to disclose the Avra Conduct Information?

582 The obligations imposed on a director to act with due care and diligence under s 180(1) and to act in good faith, in the best interests of a corporation and for a proper purpose under s 181(1) are directed at the director’s “exercise of their powers” and the “discharge of their duties”.

583 Given that Mr Burgess was exercising his powers and discharging his duties as a director or officer of Avra in relation to the Coal Trading Conduct, the plaintiffs’ s 180(1) and s 181(1) cases are advanced on the basis that Mr Burgess failed to disclose the Avra Conduct Information to Batchfire. They proceed on the premise that in order “to discharge”’ his duties as a director of Batchfire with the requisite degree of care and diligence and in good faith in the best interests of Batchfire for a proper purpose it was necessary for him to disclose the Avra Conduct Information to Batchfire.

584 The plaintiffs advance the following principal submissions in support of their non-disclosure case against Mr Burgess.

585 First, the plaintiffs submit there is no reason why Mr Burgess would not have disclosed the Avra Conduct Information to Batchfire, apart from an awareness on his part that the disclosure would mean that Avra would lose control of the marketing of Export Coal and jeopardise the continuation of its strategy to hold Batchfire as a captive producer and, ultimately, gain control of it. They submit that Mr Burgess must have appreciated the real possibility that, if the Avra Conduct Information had been disclosed, the Batchfire board would have taken action, for example, to (a) require Avra to perform properly the Marketing Activities, (b) implement the performance review mechanisms under cl. 15 of the Agency Agreement, or (c) seek to terminate the Agency Agreement and the Offtake Agreement and replace Avra with a new marketing agent.

586 Second, the plaintiffs submit that had Mr Burgess (a) not been a director (or CEO) of Avra at the time, (b) not been the person at Avra involved in negotiating and agreeing spot sales with Batchfire for Avra’s purchase of Export Coal, and (c) not been the person at Avra with final authority to approve the price and terms of all agreements under which Avra sold Export Coal, but had come to know, by some means, the Avra Conduct Information, there is no doubt he would have failed to discharge his duties to Batchfire with the degree of care and diligence that a reasonable director, in his position, would have exercised in Batchfire’s circumstances. They submit that s 180(1) of the Corporations Act does not countenance a lesser standard of care simply because Mr Burgess was also, at that time, a director of Avra.

587 Third, the plaintiffs submit that the reality of the relationship between Batchfire and Avra was that Batchfire always had in contemplation obtaining the best possible price it could for the sale of Export Coal and entering into contracts for the sale of Export Coal with end-users. They contend that this was a central plank of the Turnaround Plan. They submit that “[t]aking up the export market opportunities that Burgess failed to disclose to Batchfire, and that Avra in fact took up and could only take up through the use of Export Coal it purchased at an undervalue, was squarely within Burgess’ fiduciary duties he owed to Batchfire, including the duty to act in good faith and in the best interests” of Batchfire.

588 It can readily be accepted as a general proposition that a nominee director is subject to the same statutory and fiduciary duties as other directors. Necessarily, however, the precise scope of those duties must accommodate the commercial reality of any contractual relationship between the corporation to which the nominee director is appointed and the corporation that appointed the nominee director.

589 The plaintiffs’ contentions that Mr Burgess contravened s 180(1) by failing to disclose the Avra Conduct Information rely in substantial part on the decision of Yates J in Hakea Holdings Pty Ltd v McGrath (No 2) [2022] FCA 995; (2022) 162 ACSR 316.

590 In Hakea, a director of Hakea Holding Pty Ltd, Mr McGrath, was also the sole director, shareholder, secretary and general manager of a building company, Denham Constructions Pty Ltd. In October 2012, Hakea had entered into a contract with Denham to design and construct a building. Hakea alleged that by 21 May 2015, Denham was either insolvent or in severe financial distress, and it was unlikely that it would be able to complete the construction of the building by the agreed date of practical completion. Hakea contended, and Yates J found, that Mr McGrath’s duty of care and diligence under s 180(1) of the Corporations Act required him to disclose those matters to the board of Hakea (at [166], [186]). His Honour found that Mr McGrath deliberately did not disclose Denham’s severe financial distress to Hakea and that he must have appreciated that if the information were disclosed, Hakea would either terminate the building contract with Denham or appoint another builder to complete the work (at [185]). His Honour then observed at [186]:

In all the circumstances, I am satisfied that, as a director of Hakea, Mr McGrath breached the duty imposed on him by s 180(1) of the Corporations Act by not disclosing, on or after 21 May 2015, that Denham was in severe financial distress and unable to complete the project in a timely fashion. Had Mr McGrath not been Denham’s sole director and shareholder but had come to know, by some means, of Denham’s financial position and circumstances as at 21 May 2015, and had failed, for whatever reason, to impart that knowledge to Hakea, I have no doubt that he would have failed to discharge his duties with the degree of care and diligence that a reasonable director, in his position, would exercise in Hakea’s circumstances. Section 180(1) of the Corporations Act does not countenance a lesser standard of care simply because Mr McGrath was also, at that time, a director of Denham.

591 It might be accepted that a director would often have an obligation, irrespectively of their specific duties and responsibilities, to disclose to a company materially adverse information of which they become aware. The findings made by Yates in Hakea, however, necessarily turned on the particular facts before his Honour.

592 In my view, as submitted by Mr Burgess, the facts in Hakea are readily distinguishable from the position in this case. The Avra Conduct Information was of a fundamentally different character to the information that was the subject of Mr McGrath’s failure to disclose in Hakea. It was not of a nature that would readily lead to a conclusion that a director would have breached their duties of care and diligence if they had independently become aware of it but had not disclosed it to their company.

593 When viewed in the context of the reality of the financial and operational challenges confronting Batchfire, and the absence of any alternative sources of finance, Avra’s purchases of Export Coal under the Offtake Agreement could not be said to be antithetical to the interests of Batchfire.

594 Moreover, the ultimate decision to accept the prices offered by Avra was made by Mr Westerhuis for Batchfire. The decisions were made in circumstances where (a) the prices paid by Avra for Export Coal exceeded the prices forecast in the Information Memorandum and were well in excess of the prices under the Coal Sale Agreements (see [223 ]-[225 ] above), (b) the scope of any Marketing Activities undertaken by Avra could be, and at least in 2017 were, the subject of investigation by Mr Westerhuis (see [289 ] above, and (c) Non-Lindenfels directors were well aware that Avra was making a margin on its sale of the Export Coal to end-users (see [316 ] - [320 ] above).

595 The components of the Avra Conduct Information were either well known to Batchfire, at least at a general level, or have not been established. As explained at [281 ]-[308 ] above, Avra did undertake some Marketing Activities, and any plan by Avra to gain control of Batchfire or any acquisition of Export Coal under the Offtake Agreement do not provide a sufficient basis to find that Avra had no intention of undertaking further Marketing Activities. Moreover, given the Non-Lindenfels directors’ knowledge that Avra was making a surplus on its sales to end-users of Export Coal, as explained at [314 ] to [320 ] above, I am satisfied that the Non-Lindenfels directors were well aware that Avra was making a profit on its sales of Export Coal acquired from Batchfire under the Offtake Agreement.

596 Nor is it apparent why Mr Burgess was under any duty or obligation to disclose to Batchfire the specific contracts that Avra had or proposed to enter into with end-users for the sale of Export Coal and the prices that Avra had negotiated for those contracts. The critical issue that I am satisfied was well known to all Batchfire directors was the price that Batchfire had paid for securing Avra’s investment, through Lindenfels, in Batchfire. As noted at [97 ] and [107 ] above, the “pound of flesh” was that Avra was free to acquire Export Coal under the Offtake Agreement and on-sell it for a profit, without providing Marketing Activities with respect to that coal, on commercial terms to be negotiated, between Mr Burgess, for Avra, and Mr Westerhuis, for Batchfire. The specific level of the profit that might have been obtained by Avra on the on-sale of the Export Coal was of comparatively little significance for the purpose of obtaining informed consent to the proposed arrangements.

M.5. Did Mr Burgess improperly use his position as a Batchfire director?

597 In addition to the non-disclosure of the Avra Conduct Information case, the plaintiffs seek to advance a case that Mr Burgess improperly used his position as a director of Batchfire to gain an advantage for Avra and cause detriment to Batchfire, contrary to s 182(1) of the Corporations Act.

598 The plaintiffs submit that Mr Burgess knew, as a director of Batchfire, that Mr Westerhuis would have no choice but to approve the pricing that Mr Burgess put forward to Mr Southwood in those negotiations, because (a) of the financial constraints facing the Company, and (b) Mr Westerhuis had no bargaining power, having regard to “Batchfire being held captive by an exclusive agent who had performed no Marketing Activities for it”.

599 The plaintiffs submit that it may reasonably be inferred that during the negotiations concerning the sale of Export Coal, Mr Burgess used this knowledge to Avra’s advantage. The plaintiffs submit that a “stark example” of Mr Burgess using his position as a Batchfire director for an improper purpose to gain an advantage for Avra to the detriment of Batchfire was the negotiation that occurred on 16 January 2019 with respect to a delivery to Virtue Dragon in February 2019, the very day after Wexted had provided a report to the Batchfire board on the short-term cash flow projections and financial position of Batchfire advising that Batchfire was suffering from a lack of liquidity.

600 The plaintiffs acknowledge that cl 17.19.1 of the Amended Constitution permitted Mr Burgess to have regard to and represent the interests of Lindenfels but submit that the basal duty of loyalty that a director as a fiduciary owes to a company cannot be reduced so much that it would permit a director to use information, obtained as a director of Batchfire, to the detriment of Batchfire.

601 Clauses 17.18 and 17.19 of the Amended Constitution provided:

Director is nominee of the appointing Member

17.18 Each party acknowledges that a Director appointed under clause 17.6 is the nominee of the relevant person or persons who appointed them under clause 17.6, with the exception of the Independent Director who is no person's nominee.

17.19 Subject to compliance with the duties applying to directors under the Corporations Act, a Director appointed under clause 17.6 (except the Independent Director) may do each of the following:

17.19.1 have regard to and represent the interests of the persons appointing them under clause 17.6; and

17.19.2 act on the wishes of those persons in performing any of the Director's duties or exercising any power, right or discretion

602 Plainly, cl 17.19.1 and cl 17.19.2, by reason of the chapeaux to cl 17.9, do not purport to relieve a director from compliance with their duties under the Corporations Act. It is necessary, however, to focus on the capacity in which a director is acting, particularly when a director is a director of companies on both sides of a commercial transaction. Inevitably in those circumstances, a director will have knowledge of matters pertaining to one company that might be of commercial value to the other. The critical question is whether the director has used information to the benefit of one company and to the detriment of the other company.

603 I do not accept that there is a sufficient evidentiary foundation to make good any allegation that Mr Burgess used his knowledge of the financial constraints confronting Batchfire to secure an advantage for Avra to the detriment of Batchfire. The allegation is advanced at such a degree of generality to be almost meaningless and relies only on inferences that, in some unexplained manner, the information as to Batchfire’s financial position was used to secure prices for Export Coal that were lower than the prices which would have been obtained by Batchfire, had Mr Burgess not had that information.

604 Moreover, and in any event, cl 17.20 of the Amended Constitution provided that:

Director may provide information to the appointing Member

17.20 A Director may do each of the following:

17.20.1 communicate any information, in respect of the affairs of the Company, received or made available to the Director, to the person or persons who appointed him or her and to that person's officers; and

17.20.2 provide copies of the information to the persons who appointed him or her and to that person's officers.

605 As submitted by Mr Burgess, in circumstances where Mr Burgess was expressly permitted to communicate his knowledge of Batchfire’s financial position to Lindenfels, was otherwise permitted by the Batchfire board to act as Avra’s representative in the Offtake Agreement negotiations and was not exercising any powers or duties as a director of Batchfire in doing so, there could be no breach of s 182(1) of the Corporations Act or any alleged equitable duty.

606 In any event, the financial constraints facing Batchfire were well known to all directors of Batchfire and Mr Westerhius. It was equally well known to all directors of Batchfire that Mr Burgess was negotiating purchases on behalf of Avra under the Offtake Agreement, Mr Westerhuis was acting for Batchfire in those negotiations, and Avra was making a margin on the Export Coal that it was purchasing from Batchfire. It was not alleged, and there was no evidence to suggest, that Mr Burgess had any knowledge of the financial position of Batchfire that was not known by the other directors of Batchfire and Mr Westerhuis. Moreover, any facts that could support an inference or finding that Batchfire was “being held captive by Avra” were known by all Batchfire directors and Mr Westerhuis, not least because of their contemporaneous concerns about entry into the Offtake Agreement as a condition of the Avra Investment, referred to at [93 ] -[105 ], [111 ]-[112 ], [129 ]-[140 ] above.

607 For these reasons, I do not accept that Mr Burgess improperly use d his position t o gain an advantage for Avra or to cause detriment to Batchfire during the negotiations for the purchase by Avra of Export Coal under the Offtake Agreement.

M.6. Did Mr Burgess have an untenable conflict?

608 The imposition of an equitable duty on Mr Burgess not to make or pursue a gain for Avra in the context of the Coal Trading Conduct is inconsistent with (a) the express terms of the Agency Agreement and the Offtake Agreement, (b) the character of the relationship between Avra and Batchfire, and (c) the manner in which coal was acquired by Avra under the Offtake Agreement.

609 Avra’s contractual entitlement to acquire Export Coal under the Offtake Agreement was plainly antithetical to the imposition of a no conflict or no profit fiduciary duty on Mr Burgess. On no view, was Mr Burgess acting for or on behalf of Batchfire when he was negotiating with Mr Westerhuis the prices that Avra was prepared to pay for the purchase of Export Coal under the Offtake Agreement. That Mr Burgess was acting for Avra in those negotiations was well appreciated, and there was no contemporaneous complaint from any Batchfire director about that arrangement. Nor was there any contemporaneous request or demand from any Batchfire director that Mr Burgess disclose the price at which Avra sold Export Coal acquired under the Offtake Agreement to end-users, details of the contracts that Avra had entered into with end-users or the profit that Avra made on sales of Export Coal acquired under the Offtake Agreement.

610 The alleged “best price” representations made by Mr Burgess, in context, were in substance directed at the price that Avra was prepared to pay for Export Coal under the Offtake Agreement. It is implausible, given the nature of the commercial relationship between Avra and Batchfire, that Mr Burgess was representing that the “best prices” were the prices that Avra had or was able to negotiate with end-users, as it would result in Avra making no margin on its sales of Export Coal. As Mr Westerhuis conceded in cross examination, Batchfire had no legal right to request that Avra disclose the margin it was obtaining on the sale of coal it had acquired under the Offtake Agreement and, although he may have tried to find out what the margin might have been, he had no expectation that Avra would disclose the margin to Batchfire, because they were the counterparty to the transactions under the Offtake Agreement.

611 The fact that Avra may have secured a more advantageous contractual arrangement whereby it could offer to acquire specific quantities of Export Coal under the Offtake Agreement, rather than providing Marketing Activities with respect to those specific quantities and selling them under the Agency Agreement, does not permit or justify the imposition of any equitable duty on Mr Burgess precluding him from taking any action or step that would enable Avra to obtain a commercial benefit from the sale of Export Coal acquired under the Offtake Agreement. As Mr Westerhuis acknowledged in cross examination, he knew, prior to the entry into the Offtake Agreement, that (a) it would enable Avra to acquire Export Coal under the Offtake Agreement, (b) Avra may make a profit from the sale of that Export Coal, (c) any profit would be to Avra’s advantage, and (d) this would be “sub-optimal” for Batchfire.

M.7. Did Mr Burgess breach his duties by failing to disclose long term agreements?

612 The case advanced by the plaintiffs against Mr Burgess included a claim that Mr Burgess breached his director’s duties to Batchfire by failing to disclose that Avra had entered into long-term coal sale agreements with third parties for the delivery of Export Coal. Relatedly, the plaintiffs contend that Mr Burgess breached his director’s duties to Batchfire by failing to make any disclosures to Batchfire that Avra already had long-term agreements with end-users at the time it was negotiating prices under the Offtake Agreement.

613 The plaintiffs sought to make good these contentions by reference to contracts that Avra had entered into with an Indonesian nickel smelter, PT Virtue Dragon Nickel Industries, on 23 March 2018 (Virtue Dragon contract), and a Korean Genco, Korean Midland Power Co Ltd (KOMIPO), on 15 June 2018 (KOMIPO contract).

614 The Virtue Dragon contract was for the supply of “Australian Steam Coal” for a five-year period from May 2018 to April 2023. It provided that Virtue Dragon was to purchase between 3,000,000 and 4,250,000 metric tonnes during the term of the contract or the equivalent of between 600,000 and 850,000 metric tonnes each year of the contract (each figure was (+/-10% at Avra’s option). The quantity of coal supplied in each shipment was stipulated to be 60,000 metric tonnes (again +/-10% at Avra’s option). The contract included specifications for the coal to be acquired, including (a) its NCV with both typical and penalty figures, and (b) total moisture, ash and total sulphur content with both typical and penalty figures.

615 The price for coal sold by Avra under the Virtue Dragon contract was derived by reference to the monthly globalCOAL Newcastle Monthly Index for the month prior to the first day of each laycan. The contract included a price adjustment mechanism if the NCV of the coal sold to Virtue Dragon was above or below the contractually specified NCV.

616 The tender criteria for the KOMIPO contract stipulated that new bidders were not allowed, and that a performance bond in favour of KOMIPO in an amount of not less than 10% of the contract value was required. The tender criteria also specified that the coal must be supplied entirely from a single mine owned by the successful bidder, and the mine must have an annual production record of at least 5 million metric tonnes over the last three years.

617 The recitals to the KOMIPO contract stated that Avra “is the owner and operation of the AVRA mine”. The contract provided for the purchase by KOMIPO of 500,000 metric tonnes of “AVRA Coal” (+/-10% at Avra’s option) for each year of the contract, and the shipment schedule stated that the coal “shall be delivered on a fairly evenly spread basis”.

618 The KOMIPO contract included detailed specifications for the coal to be sold to KOMIPO, including maximum ranges for total moisture, sulphur and ash content and minimum ranges for calorific value and grindability, together with Avra’s guaranteed values for these characteristics.

619 The base price under the KOMIPO contract was US$[REDACTED] per metric tonne based on a calorific value of [REDACTED] kcal/kg. The final price for each shipment of coal was determined by adjusting the base price by reference to the “Final Certificate of Analysis” that provided for reductions in the base price to take into account variations in contracted specifications for the coal.

620 The plaintiffs claim that had Mr Burgess disclosed the existence of the Virtue Dragon contract and the KOMIPO contract, it would have given Batchfire the ability to make a complaint under the Agency Agreement that Avra had failed to enter into those contracts on behalf of Batchfire.

621 The claim is misconceived in that the existence of term contracts with Virtue Dragon and KOMIPO was expressly disclosed by Mr Southwood in the board papers for the 16 January 2019 Batchfire board meeting, as explained at [628 ] below.

622 Moreover, I do not accept, given the financial and operational challenges confronting Batchfire in late 2017 and 2018 (see [407 ]-[409 ], [413 ]-[414 ], [417 ] above), that if Mr Burgess had disclosed the existence of the Virtue Dragon contract or the KOMIPO contract, the non-Lindenfels directors would have complained that Avra had failed to enter into those contracts on behalf of Batchfire. The penalty provisions in those contracts, including by way of price adjustment mechanisms, for failing to meet delivery schedules and quality benchmarks and the need for performance bonds would have exposed Batchfire to significantly greater financial risk than sales under the Offtake Agreement to Avra. As Mr Southwood explained to the Batchfire board in January 2019, in addressing the issue of Avra, rather than Batchfire, entering into contracts with end-users, “Quality penalties too much risk given state of the mine in 2017, so we let Avra manage the risk” (see [325 ] above).

M.8. Other allegations

M.8.1. Overview

623 The plaintiffs also seek to advance allegations that Mr Burgess breached his fiduciary and statutory duties to Batchfire by (a) engaging in deliberate dishonesty and deceit, (b) attempting to turn Batchfire into a “captive producer” for Avra, and (c) securing on-sale contracts for Avra for Export Coal purchased under the Offtake Agreement.

624 Mr Burgess submits that none of these allegations have been pleaded or particularised, and it is only just that the plaintiffs should be held to their pleaded and particularised claims. I accept that there is considerable force in the submission made by Mr Burgess but, given the inherent complexity, breadth, interrelated and evolving nature of the claims advanced by the plaintiffs in the proceeding and the absence of any explicit prejudice to Mr Burgess in responding to the allegations, I am prepared to permit them to be advanced.

625 I address each of the allegations below.

M.8.2. Intentional dishonesty and deceit

626 The plaintiffs allege that Mr Burgess engaged in deliberately dishonest conduct by intentionally deceiving Batchfire, including Mr Southwood, as to various matters, including (a) the prices that end-users were prepared to pay for Export Coal, (b) export opportunities, (c) the ability of Batchfire to enter into medium- and long-term contracts with end-users overseas, and (d) the existence and terms of Avra’s contracts with end-users.

627 The absence of any express pleading of dishonesty or deceit might be thought by itself to be fatal to these allegations, but in any event, I am not satisfied, for the following principal reasons, that there is any evidentiary foundation for the allegations.

628 First, the existence of Avra’s term contracts with Virtue Dragon and KOMIPO was disclosed in the board papers for the 16 January 2019 Batchfire board meeting in the following terms as a bullet point under a slide entitled “Direct Contract Sales Agreements”:

• Nevertheless BF has obtained some term business through Avra

• Korean Gencos

• Virtue Dragon

629 The reference to “term business” was sufficient to convey the contracts were for fixed periods rather than spot sales. Mr Burgess was not under any obligation to disclose to Batchfire the pricing for these contracts, and the non-Lindenfels directors did not make any contemporaneous request for the prices obtained by Avra. As Mr Choros acknowledged in cross-examination:

None of us had the rights to ask Avra for – for the information about how much profit they were making.

630 Second, given Mr Westerhuis always appreciated that Avra was making a margin on its sales to end-users of Export Coal purchased under the Offtake Agreement, any representation as to prices must have been understood as prices that Avra was prepared to pay to Batchfire, not the prices that Avra was being offered by end-users. The distinction may have been blurred in some contemporaneous documents, but the negotiations between Mr Burgess and Batchfire were concerned with the price that Avra was willing to pay to Batchfire, although, there no doubt that price could be expected to have reflected some assessment of the price that Avra had, or expected to have, negotiated with end-users.

631 Third, the plaintiffs’ contentions that Mr Burgess mislead Mr Southwood by falsely conveying that he was negotiating prices that end-users were prepared to pay for the purpose of Avra paying less for Export Coal under the Offtake Agreement does not, as Mr Burgess submits, sit “comfortably” with the plaintiffs’ claims that Mr Southwood retained an ongoing role with and loyalty to Avra. In any event, the alleged lies relied upon by the plaintiffs were not as clear cut as submitted by the plaintiffs. Although Avra had a long term contract with Virtue Dragon with minimum supply requirements, the timing of individual deliveries remained to be negotiated and in turn this affected pricing because the pricing for each delivery was dependent on the current globalCOAL Newcastle Monthly Index published on the globalCOAL website for Newcastle coal.

632 Further, and more critically, Mr Westerhuis, not Mr Southwood, was the relevant decision-maker for Batchfire for sales made under the Offtake Agreement. There was no evidence that any alleged misrepresentation or lie made by Mr Burgess to Mr Southwood was ever conveyed to Mr Westerhuis. Nor was there any evidence that Mr Westerhuis was ever mislead by any such alleged misrepresentation or lie.

M.8.3. Captive user plan

633 The plaintiffs allege that Mr Burgess “orchestrated” a plan not to undertake any “Marketing Activities” in order to turn Batchfire into a “captive producer” and prevent it from entering into any direct sales contracts with end-users.

634 The use of emotive terms such as “orchestrated” and “captive user” cannot elevate conduct undertaken pursuant to express contractual rights conferred on Avra by Batchfire as the price for Avra agreeing to make a $35 million investment in an underperforming coal mine into oppressive conduct. Batchfire’s inability to obtain any alternative funding, notwithstanding the extensive efforts undertaken by EAC Partners, to permit it to complete the Callide SSA highlights the market’s scepticism as to the prospects for success of the Turnaround Plan. Equally telling is that Avra was only prepared to make its investment on the basis that it also obtained the ability to purchase Export Coal, subject to agreement on price, from Avra under the Offtake Agreement independently of its obligations to provide Marketing Activities under the Agency Agreement.

635 In any event, some Marketing Activities were undertaken by Avra (see [281 ]-[308 ] above), and the extent to which Avra was in fact undertaking Marketing Activities was information that was well known by the non-Lindenfels directors by reason of marketing reports made by Mr Southwood at Batchfire board meetings. Moreover, cl 15 of the Agency Agreement contained comprehensive performance parameters, including the “efficacy of relationships developed by Avra in its role as agent under the Agreement” and the “effectiveness of AVRA in marketing and selling the Export Coal”. Although cl 15.1 provided that the performance review was to be conducted every five years, cl 15.11 provided that performance reviews could be conducted more frequently “if in Batchfire’s opinion, (acting reasonably) the circumstances of Avra’s performance measured against the Performance Parameter warrant it”. Mr Westerhuis acknowledged in cross examination that Batchfire never sought to implement the performance measures aspect of the Agency Agreement and agreed that he understood independently of the performance measures that Batchfire had an inherent right to terminate the Agency Agreement.

M.8.4. Securing on-sale contracts

636 The plaintiffs submit that Mr Burgess breached his fiduciary duties to Batchfire, including the duty to act in good faith and in the best interests of the company, by “taking up the export market opportunities” that he failed to disclose to Batchfire and that “Avra in fact took up and could only take up through the use of Callide coal it purchased at an undervalue”.

637 The allegation is misconceived. Avra did not owe any fiduciary duties to Batchfire with respect to the purchase of Export Coal under the Offtake Agreement. Avra was under no contractual restraint as to the identity of the end-users of the Export Coal or the prices for which it could sell the Export Coal. Further, any conduct of Mr Burgess in “taking up the export opportunities” for Avra, in his capacity as a director or employee of Avra, was conduct outside the scope of any statutory or fiduciary duties he owed to Batchfire.

N. Legal principles – section 233 of the Corporations Act

N.1. Overview

638 Given my conclusion that the plaintiffs have not established that the conduct of Avra, Lindenfels, Batchfire or Mr Burgess contravened s 232 of the Corporations Act, the issue of relief does not arise. Nevertheless, in the event that conclusion is overturned on appeal, I turn now to consider the claims for relief advanced by the plaintiffs under s 233 of the Corporations Act.

639 The plaintiffs contend that the Court should exercise its broad discretion under s 233 of the Corporations Act to order that the plaintiffs’ shares be purchased by Lindenfels or its nominee at the value the shares would have had, but for the oppressive conduct, including the undervalued Export Coal sales to Avra, the dilution caused by the Rights Issues and the diminution in the value of the plaintiffs’ shares, as a result of Batchfire’s indebtedness to Avra or its related entities pursuant to the Avra prepayment arrangements.

640 Alternatively, the plaintiffs seek orders rectifying the share register of Batchfire on the basis that the Rights Issues had not taken place or, alternatively, had taken place at a fair value for Batchfire’s shares, and that Lindenfels or its nominee offers to purchase the shares held by the plaintiffs at a fair value as recorded in the rectified share register. As a further alternative, the plaintiffs seek an order that Lindenfels offers to sell its shareholding in Batchfire, as recorded in the rectified share register, to a third party-purchaser on terms determined by the Court to be reasonable. This further alternative was advanced in the plaintiffs’ written closing submissions but abandoned in oral closing submissions.

641 The plaintiffs, in their expert valuation evidence, in summary, advanced the following method to determine the fair value of their shareholding in Batchfire on the assumption that the alleged oppressive conduct had not occurred. It involved the following steps (a) ascertain the revenue foregone by reason of the Coal Trading Conduct claims; (b) restate the accounts of Batchfire to include the revenue foregone as at four specific dates, being 14 March 2019, 29 April 2019, 3 June 2020 and the date of the expert valuation evidence; (c) value 100% of the equity in Batchfire as at these dates, using the restated accounts; and (d) undertake a pro rata assessment of the value of their shares in Batchfire as at each of those dates as a proportion of the total value of Batchfire, as determined in the third step above.

642 The plaintiffs contend that because Avra and Mr Burgess breached the fiduciary duties that each owed Batchfire, the Court does not need to enquire into whether the operational and financial issues with the Callide Mine identified by the plaintiffs would have meant that Batchfire was unwilling, unlikely or unable to exploit the opportunities that Avra sought for itself and which Mr Burgess sought to confer upon Avra.

N.2. Legal principles

643 Section 233 of the Corporations Act provides that the Court can make any order under the section that it considers appropriate if it is satisfied that a company or those that control the company have engaged in conduct in contravention of s 232, including orders that the company be wound up, for the purchase of shares, and requiring a person to do a specified act.

644 Section 233 of the Corporations Act confers a wide discretion on the Court to choose the appropriate remedy (Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; (2004) ALR 136, 70 citing United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWCA 910, [34]–38). In exercising this discretion, the purpose of the remedy chosen is to end the effects of oppression; the nature of the remedy will depend on the conclusions drawn as to the type of the oppression at hand, and the Court will choose the remedy which is least intrusive: Zong v Lin [2022] NSWCA 136, 79; Millsave Holdings Pty Ltd v Connective Group Pty Ltd (2023) 75 VR 239; [2023] VSCA 326, 1024.

O. Determination of revenue foregone – section 233 of the Corporations Act

O.1. Expert evidence

O.1.1. Overview

645 The plaintiffs and Lindenfels relied on evidence from coal trading experts, Grant Burns and Eoghan Cunninham, respectively, on whether any revenue has been foregone by Batchfire by reason of the Coal Trading Conduct, and, if so, what was its quantum.

646 Mr Burns and Mr Cunningham provided detailed reports, reports in reply and supplementary reports. In addition, they prepared a joint coal trading experts’ report and gave oral evidence concurrently in the course of the hearing.

647 Both the plaintiffs and Lindenfels challenged the impartiality and weight to be given to each other’s coal trading expert. While there was some force in the concerns each expressed about the other’s expert, ultimately, I am satisfied that (a) the concerns raised were largely driven by the assumptions each was asked to make or inadvertent oversights in preparing their respective reports, and (b) in most cases, each made appropriate concessions, when they were confronted with the concerns in the course of concurrent evidence.

648 Mr Burns and Mr Cunningham generally agreed that during the relevant period of the Coal Trading Conduct, there was a ready expert market for thermal coal, the characteristics of Callide coal did not make it unsuitable for sale to third parties in the export market during that period, and the Argus/Coalindo Indonesian Coal Index 3 (ICI 3), as adjusted for calorific value and freight, was the index most closely correlated with the characteristics of Callide coal. ICI 3 is one of five indices, produced by Argus and PT Coalindo Energy, which provides weekly average prices for thermal coal grades sold on an FOB basis in Indonesia (a major competitor to Australian export thermal coals), as well as monthly averages for the previous three months. The figures supplied in the ICI 3 are for Indonesian thermal coal grade 5,000 kcal/kg GAR, which the experts considered to be similar to the specifications of Callide coal.

O.1.2. Mr Burns

649 Mr Burns prepared three expert reports addressing the revenue foregone by Batchfire as an alleged result of the Coal Trading Conduct. Mr Burns stated in his first report that he could not see any clear reason on the information available to him, why Avra could not have achieved the same long-term contracts for Batchfire, as its agent under the Agency Agreement, that Avra itself had entered into with end-users. Accordingly, Mr Burns proceeded on the basis that but for the Coal Trading Conduct, Batchfire would have been able to enter into equivalent long-term contracts with end-users, as Avra had in fact entered into, in the period from 2016 to 2024.

650 Mr Burns advanced four scenarios in his reply report in which he calculated the revenue foregone by Batchfire after receiving additional material, in particular, the Avra Ledger. Scenarios 1A and 1B relied on data from the Avra Ledger (with adjustments), and Scenarios 2A and 2B utilised data from the Panjiva Register. Both the Avra Ledger and the Panjiva Register are considered in more detail below.

651 In Scenario 1A, Mr Burns calculated revenue foregone only in relation to Export Coal. The Avra Ledger included prices for approximately 10.4 million tonnes of Export Coal. Mr Burns relied on pricing information in the Avra Ledger to compare the prices paid by Avra to Batchfire for Export Coal with the prices Avra obtained on the sale of Export Coal to end-users. Next, he compared the premia or discount each transaction achieved for which prices were recorded in the Avra Ledger with ICI 3 prices. He then applied those figures to the 6.7 million tonnes of Export Coal for which no prices were recorded in the Avra Ledger. Mr Burns calculated that the total revenue foregone by Batchfire in Scenario 1A was $115,039,991, which he subsequently revised in the course of the hearing to $116,155,885.52.

652 Scenario 1B also included the $12.5 million margin that Avra achieved on freight revenue on the sale of Export Coal to end-users, a $22.7 million discrepancy between data in the Avra Ledger and the Panjiva Register with respect to a 2.1 million tonne shipment to Indonesia and $29 million in revenue earned from sales of Export Coal by Batchfire to two entities described as Rocksbridge Pty Ltd and PCA Resources DMCC, that Mr Burns considered may not be wholly unrelated to Avra. Mr Burns calculated that the total revenue foregone by Batchfire in Scenario 1B was $185,148,204, which he subsequently revised in the course of the hearing to $179,354,063.42.

653 In Scenario 2A, Mr Burns variously relied on data from Avra marketing updates, Avra on-sale contracts and the Panjiva Register, but largely disregarded the information in the Avra Ledger. These sources provided data for 71.7% of Batchfire sales of Export Coal to Avra. Mr Burns relied on this data to determine the difference between the prices paid by Avra to Batchfire for Export Coal and the prices achieved by Avra on its sales of the Export Coal to end-users. This approach effectively removed the impact of third-party supplied coal used for blending. Mr Burns concluded in this scenario that Avra made an overall volume weighted average margin of 30.1% on the sale of Export Coal to end-users, applied that margin to the 4.9 million tonnes for which he did not have pricing information and calculated total revenue foregone of $224,392,319.48, which he subsequently revised in the course of the hearing to $224,609,614.33.

654 In Scenario 2B, Mr Burns used the same information sources that he had used in Scenario 2A, but rather than applying a weighted average margin to the sales for which he did not have pricing information, Mr Burns compared the difference in percentage terms against the prevailing ICI 3 prices for each shipment of coal and then applied that differential on a country specific basis, other than for Indonesia, to the 4.9 million tonnes in total of coal sold, for which he did not have pricing information. Mr Burns used an overall global weighted average for Indonesia because he considered that Indonesia was not a likely future market for Batchfire. Using that more precise methodology, Mr Burns calculated that the total revenue foregone by Batchfire was $178,100,461.51.

O.1.3. Mr Cunningham

655 Mr Cunningham advanced two methodologies to calculate the revenue foregone by Batchfire. In his primary methodology, Mr Cunningham determined the difference between the weighted average discount/premium to ICI 3 that Avra and non-Avra sales achieved on a yearly basis and applied these differences to the tonnages sold to Avra, having excluded (a) 2016 and 2017, as sales in these years were sales for small train or stockpile-based sales, which the experts agreed were not representative of fair market value, and (b) 2022, due to the extreme coal price volatility that year, caused by the Russian invasion of Ukraine. On this basis, Mr Cunningham concluded that there was no revenue foregone, because Avra, in fact, overpaid in its coal purchases from Batchfire by $18 million since 2016. In his secondary methodology, Mr Cunningham quantified the profit margin that Avra made on sales of Export Coal to end-users, based on data from the Avra Ledger. In the course of giving concurrent evidence at the hearing, Mr Cunningham resiled from his primary methodology. Only the results from Mr Cunningham’s primary methodology, however, were provided to Lindenfels’ valuation expert.

656 Mr Cunningham’s secondary methodology was similar to Mr Burns’ Scenario 1A. The principal differences between the two approaches were that (a) Mr Burns allocated the whole benefit of selling Export Coal that had been blended with other coal to Batchfire, whereas Mr Cunningham only allocated a proportionate share, and (b) Mr Burns included the margin made by Avra on freight revenue that Avra had obtained on sales to end-users, whereas Mr Cunningham considered that Batchfire would not have been able to negotiate freight revenue clauses with end-users that provided those margins.

657 In his second methodology, Mr Cunningham used Avra’s on-sale revenue as a guide to fair value for Export Coal. Mr Cunningham first calculated a percentage margin for non-blended Export Coal from the on-sales revenue, as recorded in the Avra Ledger, that Avra was able to achieve in is sales to end-users over what it paid Batchfire. This produced a non-blended margin of 8.62%. Mr Cunningham then (a) calculated the profit margin achieved by Avra for the sales of single blended coal by taking into account both Export Coal and third-party blend coal on an aggregate basis, which produced an average profit margin of 12.74%, (b) determined for each destination an overall weighted average profit margin each year and an overall 9.62% gross profit, (c) assigned the 9.62% margin for the 252,000 tonnes of Export Coal, where the destination was not evident, and (d) applied the overall weighted average profit margins by country for sales, where he had no information on Avra’s sale prices, and for multi-blend cargoes, where it was not possible to identify the volume for each component of third party coal included in those sales.

658 Applying this methodology, Mr Cunningham arrived at a weighted average margin of 9.58% for the 17.2 million tonnes of Export Coal on-sold by Avra to end-users from 2016 to 2024 and an overall gross margin for that period of $77,024,611. Mr Cunningham calculated that had these sales been made by Avra for Batchfire under the Agency Agreement, Avra would have been entitled to a commission of $10,779,597.

659 Mr Cunningham also compared the spot prices paid by Avra to Batchfire for Export Coal against the ICI 3 and the Avra on-sale prices to end-users against the ICI 3. On a weighted average basis, he calculated that for the period from 2016 to 2024, the spot price paid by Avra to Batchfire was 27.52% less than the ICI 3 and the Avra on-sale price was 20.79% less than the ICI 3.

O.2. Principal issues for determination

660 The plaintiffs’ claims for relief raise the following principal issues for determination with respect to loss and quantification of revenue foregone:

(a) what is the most appropriate counterfactual to determine whether the Coal Trading Conduct caused the plaintiffs’ loss?

(b) did the Coal Trading Conduct cause any loss to the plaintiffs?

(c) to what extent can the plaintiffs rely on equitable remedy principles in determining statutory relief for contraventions of the Corporations Act, including presumptions by reason of deliberate wrongdoing?

(d) should the quantum of any loss be determined by reference to the data in the Avra Ledger relied upon by Mr Cunningham or the data in the Panjiva Register principally relied upon by Mr Burns?

(e) how should any loss be quantified?

O.3. The counterfactuals advanced by the plaintiffs

661 The identification of an appropriate counterfactual is necessary to determine both (a) whether, on the balance of probabilities, the plaintiffs have suffered loss that was caused by the Coal Trading Conduct, and, if so, (b) what is the quantum of that loss, “by reference to the degree of probabilities or possibilities” involved in the hypothetical counterfactual: Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355 (Mason CJ, Dawson, Toohey and Gaudron J); Generic Health Pty Ltd v Bayer Pharma Aktiengesellschaft [2018] FCAFC 18 at 182.

662 In the period prior to their closing submissions, the plaintiffs advanced two counterfactuals.

663 The principal counterfactual of the plaintiffs came to be referred to as the Agency Agreement Counterfactual. The Agency Agreement Counterfactual proceeded on the basis that the only course open for Avra was to arrange sales under that Agency Agreement and postulated that, but for the Coal Trading Conduct, Batchfire could have achieved the same sales under the Agency Agreement that Avra was able to achieve with end-users.

664 The other counterfactual relied on by the plaintiffs was referred to by Lindenfels as the Offtake Agreement Counterfactual. It was advanced by the plaintiffs for the purposes of the Implied Term claim. It proceeded on the basis that Avra was able to purchase Export Coal from Batchfire under the Offtake Agreement and sell it for a profit but Avra was obliged to offer at least a fair market price for the coal that was comparable to the sale price that Avra could have achieved if Avra had instead procured export sales agreements for Batchfire by conducting the Marketing Activities.

O.4. The Agency Agreement Counterfactual is the relevant counterfactual

665 In their closing written and oral submissions, the plaintiffs advanced an alternative counterfactual to the Agency Agreement Counterfactual (Spot Sales Counterfactual) and otherwise confirmed the Offtake Agreement Counterfactual was limited to the Implied Term claim.

666 The Spot Sales Counterfactual was materially different to the Agency Agreement Counterfactual. It was advanced by the plaintiffs on the basis that Batchfire would have been able to make direct sales of Export Coal to end-users on the spot market on terms that would have likely been different to the terms that Avra had negotiated with end-users on a medium and long-term basis. The plaintiffs contend that the calculations undertaken by Mr Burns that were based on the assumption that, under the Agency Agreement, Batchfire would have been able to make the same sales to the same customers as Avra was able to achieve, could be used as a “model or proxy for estimating real-world outcomes in terms of revenue foregone”. They contend that this approach is consistent with the principle that where a person’s conduct has made an accurate or precise determination of damages problematic, doubtful questions should be resolved against the wrongdoer. They submit that it follows that it is not necessary for the plaintiffs to establish in the Spot Sales Counterfactual that Batchfire could or would have entered into “ precisely the same coal sale agreements that Avra entered into, and made precisely the same gains or losses.” They maintain that it is sufficient to establish that Avra’s impugned conduct led to Batchfire “losing some opportunity for profit”, and then the potential quantum of that lost opportunity can be approximated through Mr Burns’ model.

667 It would rarely be consistent with either efficient case management or the interests of justice to permit a party to advance an alternative counterfactual in closing submissions after all lay and expert evidence has been concluded. In this proceeding, the plaintiffs’ case at trial was advanced by reference to lay evidence and extensive expert evidence from coal trading experts and, in turn, valuation experts, on the basis of the Agency Agreement Counterfactual.

668 As submitted by Lindenfels, the Spot Sales Counterfactual was not addressed by Mr Choros, Mr Barker or Mr Westerhuis in their evidence, it was not put to Mr O’Reilly in cross examination, it was not the subject of any evidence from Mr Burns, and it was not an issue that Mr Cunningham and Mr Burns were asked to address in their expert conclave. Further, Lindenfels submit that Avra’s sales are not a reliable proxy for sales Batchfire could have made on the spot market.

669 The plaintiffs should not now be permitted to rely on the Spot Sales Counterfactual in an apparent attempt to reposition their case, given the assumption made by, or implicitly given to, Mr Burns that but for the Coal Trading Conduct, Batchfire would have been able to enter into equivalent medium and long term contracts with end-users as those in fact entered into by Avra.

670 The counterfactuals advanced by the plaintiffs otherwise highlight the inherent difficulty in seeking to determine whether, as a result of the impugned conduct of a wrongdoer, a party has been deprived of an opportunity of value, and, if so, what is the fair value of that opportunity. The difficulty for the plaintiffs in the present case is exacerbated by the extent to which the counterfactuals advanced vary from what in fact transpired, following the acquisition by Batchfire of the Callide Mine.

671 Plainly, given Avra did not facilitate sales for Batchfire through the Agency Agreement, and Batchfire did not sell Export Coal on the spot market to end-users, no data exists from which any empirical quantification of the revenue foregone by reason of the Coal Trading Conduct can be calculated.

672 Moreover, there was simply no evidentiary basis from which any coherent assessment could be made by reference to the Spot Market Counterfactual or the Offtake Agreement Counterfactual.

673 The insurmountable difficulty with the Spot Market Counterfactual is that the plaintiffs made no attempt to lead any evidence from which sales by Batchfire on the spot market could be postulated, either as to quantities or price, or the identity of the counterparty to the spot contract. The contention that the evidence advanced through Mr Burns in support of the Agency Agreement Counterfactual could be used as a “proxy” to determine the existence and quantification of loss under the Spot Market Counterfactual cannot be accepted. Rather, the contention only serves to highlight that the only plausible starting point from which loss can be addressed is the delta between the revenue that was in fact received by Avra under its sales to end-users and the revenue received by Batchfire under the Offtake Agreement. This delta provides a base from which discounts can be made to reflect the uncertainties of Batchfire successfully selling Export Coal directly to end-users.

674 Similarly, there was no evidentiary base to support the Offtake Agreement Counterfactual. In effect, the contention advanced in that counterfactual was that the loss could be measured as the difference between (a) the prices in fact paid by Avra to Batchfire for Export Coal under the Offtake Agreement, and (b) the prices that would have been paid by Avra to Batchfire if Avra was obliged to offer at least a fair market price for the coal that was comparable to the sale price that Avra could have achieved if Avra had instead procured export sales agreements for Batchfire by conducting the Marketing Activities. There was no evidence as to what might have constituted a “fair market price” or how it could be determined if a price was “comparable” to a price that could have been achieved under the Agency Agreement if Marketing Activities had been undertaken.

675 For these reasons, I am satisfied that the Agency Agreement Counterfactual is the only plausible counterfactual, if I had otherwise found in favour of the plaintiffs, for determining whether the plaintiffs have suffered any loss and then for quantifying that loss.

O.5. The plaintiffs have established some loss for causation purposes

676 Contrary to the submissions advanced by the plaintiffs, equitable relief is not available for a breach of a statutory oppression claim, notwithstanding that the conduct relied upon might also be characterised as a breach of fiduciary duty. The plaintiffs must therefore establish that Batchfire would have been able to avail itself of the same opportunity to profit as Avra.

677 Where the alleged loss is a loss of a commercial opportunity, a plaintiff discharges its onus of proof that its loss was caused by the defendant’s conduct “by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities”: Sellars, 368 (Brennan J). Once that causal link is established, the value of the loss suffered by the plaintiff ought to be ascertained by reference to the court’s assessment of the prospects of success of that opportunity, had it been pursued, by reference to the degree of possibilities or probabilities: Sellars, 355 (Mason CJ, Dawson, Toohey and Gaudron JJ).

678 For the following reasons, I am satisfied, on the balance of probabilities, that had Avra not engaged in the Coal Trading Conduct and had undertaken more extensive Marketing Activities, it would have successfully facilitated some direct sales of Export Coal by Batchfire to end-users in the Agency Agreement Counterfactual, and the revenue that Batchfire would have received would have exceeded the revenue that Batchfire had in fact received from Avra under the Offtake Agreement.

679 First, and most significantly, as demonstrated by the sales of Export Coal made by Avra to end-users, the coal was saleable at the prices achieved by Avra that were materially higher than the prices paid by Avra to Batchfire under the Offtake Agreement.

680 Second, only a relatively small proportion of sales made by Avra to end-users was blended: 27% of sales made by Avra had some amount of blending, but only 6% of all Export Coal sold by Avra was blended.

681 Third, this was not a case where Avra had in fact undertaken significant Marketing Activities that proved to be unsuccessful. There was no apparent reason why a series of targeted trail cargoes followed by successful deliveries may not ultimately have resulted in Batchfire entering into some medium-term and long-term contracts in its own name with end-users.

682 Fourth, although there may have been little prospect of Batchfire entering into medium and long term contracts in its own name with end-users in the first two years after acquiring the Callide Mine, as each year passed after that period, it became more likely that if substantive Marketing Activities had been undertaken by Avra, Batchfire would have had more success.

O.6. Equitable principles are not relevant to relief for oppression

683 The plaintiffs submit that the operational challenges and financial constraints that the defendants contend would preclude Batchfire from obtaining the same revenue that Avra was able to generate from sales to end-users are irrelevant because in determining relief for breaches of fiduciary duty, there is no need for any inquiry into whether the party to whom the fiduciary duty was owed could have availed itself of the same opportunity to profit.

684 The plaintiffs submit that, in any event, the correct counterfactual through which the Court should undertake its assessment is the position of Batchfire, had Avra not breached its fiduciary duty, and in fact performed Marketing Activities and developed a brand for Batchfire Callide coal for export, and had Burgess not dishonestly breached his statutory and equitable duties he owed the Company.

685 Lindenfels submits that the plaintiffs have impermissibly attempted to rely on principles governing relief for breaches of fiduciary duty in seeking orders for statutory relief pursuant to s 233 of the Corporations Act for oppressive conduct in contravention of s 232 of the Corporations Act.

686 For the purposes of considering relief, I am proceeding on the basis that, contrary to my findings above, Avra owed fiduciary duties to Batchfire and breached them, Mr Burgess breached statutory and fiduciary duties he owed to Batchfire, the conduct of the defendants was informed by these breaches and, was oppressive contrary to s 232 of the Corporations Act. It does not follow, however, that because the underlying conduct giving rise to oppression can also constitute a breach of fiduciary duties, equitable principles governing relief can relevantly inform the grant of statutory relief under s 233 of the Corporations Act.

687 Hence I am satisfied that in assessing the relief to be granted under s 233 of the Corporations Act, on the assumption I was otherwise satisfied that the plaintiffs had established their oppression claims, the principles governing relief for breaches of fiduciary duties are not engaged, notwithstanding that the conduct constituting the oppressive conduct is conduct that is also in breach of fiduciary duties owed to the company. Nor am I content, given the absence of any pleaded or particularised case of dishonesty against Mr Burgess, to proceed on the basis that his conduct was dishonest.

688 Had equitable principles governing relief been engaged, the plaintiffs would only have needed to (a) quantify the profit that Avra had made on the sale of Export Coal to end-users, and (b) sought an account of those profits by reason of a breach of the no profit rule.

O.7. The Avra Ledger is to be preferred to the Panjiva Register

689 The plaintiffs submit that the appropriate data to use for the purpose of quantifying the Batchfire revenue that was lost by reason of Coal Trading Conduct is the data in the Panjiva Register used by Mr Burns in Scenarios 2(A) and 2(B), not the data in the Avra Ledger used by Mr Cunningham and Mr Burns in Scenarios 1(A) and 1(B).

690 The plaintiffs submit that the Avra Ledger is “not a very reliable document” because there was no “real evidence” as to any practice or procedure by which it had been prepared. They submit that it was “just updated on an ad-hoc basis by employees”, and all Mr Chua, the Head of Legal at the Avra group of companies, could do was “give some hearsay evidence” about what had happened before he joined Avra.

691 Somewhat counterintuitively, the plaintiffs then submit that the Panjiva Register can be relied upon because there is a data point in the Panjiva Register that matches exactly the Avra Ledger, namely the tonnages of coal sold. The pricing data in the Panjiva Register was, however, higher than in the Avra Ledger. They submit that the higher pricing figures in the Panjiva Register should be used because doubtful questions should be resolved against the wrongdoer in order to avoid the risk of under-compensating the plaintiffs.

692 There was no other evidence substantiating the accuracy or reliability of the data in the Panjiva Register in circumstances, where Mr Burns conceded that he had not previously had recourse to any data produced by Panjiva.

693 In contrast, Mr Chua gave evidence that the Avra Ledger was prepared from the information in On -Sale Materials, including on-sale contracts, freight invoices, on-sale invoices and bills of lading, held by Avra in a central repository that was accessible by the Avra risk management team. Mr Chua confirmed that (a) he regularly has or obtains access to and uses the On-Sale Materials in the course of his work, (b) he regularly liaises with the risk management team, (c) he has discussions with Avra management about Avra’s document repositories and document management systems, and (d) the risk management team’s responsibilities included creating, reviewing and updating an excel spreadsheet (the Avra Ledger) that extracted key information from the On-Sale Materials for Export Coal purchased from Batchfire and sold to end-users.

694 To the extent that any of this evidence of Mr Chua was hearsay, it was admitted without objection and was not challenged in cross examination.

695 I am satisfied that the evidence given by Mr Chua provides a sufficient basis to prefer the pricing information in the Avra Ledger over the pricing information contained in the Panjiva Register.

O.8. Scenario 1A should be used to determine revenue foregone

696 Given my conclusion that the data in the Avra Ledger is to be preferred to the data in the Panjiva Register, Scenarios 2A and 2B advanced by Mr Burns may be put to one side.

697 Scenario 1B advanced by Mr Burns can also be discarded. It includes an additional $22.7 million in revenue that is attributed to a discrepancy between the freight inclusive data in the Panjiva Register and the freight inclusive gross revenue figures contained in the Avra Ledger.

698 I do not accept that freight revenue should be included in any calculation of revenue foregone by reason of the Coal Trading Conduct. Pursuant to cl 8.3 of the Agency Agreement, Batchfire was required to appoint Avra as its exclusive supplier of freight. The plaintiffs accepted that in the Agency Agreement Counterfactual, Avra would have been entitled to earn a reasonable market rate for providing freight, but any amount that Avra was able to negotiate above that level, described by the plaintiffs as a “super premium”, would be profit that would have been payable to Batchfire.

699 The plaintiffs contend that Batchfire would have been able to secure the super premium for itself in the Agency Agreement Counterfactual because, if the amount charged by Avra to Batchfire for freight services included the super premium, Batchfire could “vote with its feet” and exercise its rights under cl 8.6 of the Agency Agreement to terminate Avra’s appointment as the exclusive supplier of freight services. As submitted by Lindenfels, the contention is self-defeating. If Avra was terminated as the supplier of freight services, any alleged super premium on freight that might otherwise have been negotiated by Avra would not exist. In any event, the plaintiffs did not adduce any evidence from which it would be possible to draw a boundary between a reasonable margin for the provision of freight services and any alleged super premium.

700 In addition, Scenario 1B includes foregone revenue of approximately $35.9 million from sales of Export Coal to Rocksbridge, PCA and Commodities Intelligence Centre Pte. Ltd (CIC). Other than speculative inferences, there was simply no evidentiary foundation for Mr Burns’ belief that there were “strong reasons to doubt that the non-Avra sales to Rocksbridge, CIC and PCA were at arm’s length from or unrelated to Avra”.

701 The reasons advanced by Mr Burns for including revenue attributable to sales to Rocksbridge, PCA and CIC were not persuasive. As submitted by Lindenfels, any belief that they were “financiers and not real traders” says nothing about their relationship with Avra. Next, contrary to Mr Burns’ claim that it was extraordinary that the contracts did not have rejection limits, the contracts with both CIC and PCA contained rejection limits. Further, contrary to Mr Burns’ claim that substantially all of the Export Coal being sold to Rocksbridge, CIC and PCA was being on-sold to almost the same, if not the same, customers, only three of 21 sales made to CIC were on-sold to customers who were also customers of Avra, some sales were made by PCA and Rocksbridge to countries or ports in which Avar also sold Export Coal to end-users, and some sales were made to Korean Gencos to which Avra also sold Export Coal.

702 On balance, I am satisfied, for the following reasons, that Mr Burns’ Scenario 1A provides a more complete foundation for the determination of revenue foregone in the Agency Agreement Counterfactual than Mr Cunningham’s second methodology.

703 As explained at [656 ] above, Mr Cunningham’s second methodology provided for a pro-rata allocation of the benefit of the surplus on the sale of Export Coal that has been blended with coal from third parties procured by Avra. The Agency Agreement Counterfactual proceeds on the basis, however, that Batchfire would have entered into the same medium and long-term contracts that Avra entered into with end-users. In my view, this includes an implicit, if not explicit, assumption that Avra, acting as Batchfire’s agent, would have procured coal for blending from third parties in performing the Marketing Activities, and Batchfire would then be entitled to the whole of the surplus on the sale of the blended coal to end-users.

P. Valuation Issues – section 233 of the Corporations Act

P.1. Overview

704 The expert valuation evidence in the proceeding was provided by Jeffrey Hall for the plaintiffs and Campbell Jaski for Lindenfels and Batchfire.

705 In addition to their expert reports, Mr Hall and Mr Jaski prepared a joint expert report and gave oral evidence concurrently at the hearing.

706 Mr Hall valued Batchfire by reference to the revenue foregone figures calculated by Mr Burns in each of his four scenarios.

707 As explained below, Mr Jaski ultimately valued Batchfire by reference to Mr Burns’ Scenarios 1A and 1B.

708 Given my conclusion above that the appropriate scenario to determine revenue foregone was Scenario 1A, it is only necessary to consider Mr Hall’s valuation based on Mr Burns’ determination of revenue foregone in that scenario.

P.2. Valuation Date

709 Mr Hall was instructed to prepare valuations of Batchfire as at 14 March 2019, 29 April 2019, 3 June 2020 and the date of his report, which he took to be 31 May 2024, being the month end closest to the date of his report.

710 I am satisfied that the appropriate valuation date is 31 May 2024. In closing submissions, the plaintiffs submitted that the appropriate valuation date was 31 May 2024, or the date of judgment, or any other date that the Court considers appropriate in light of its findings. Lindenfels submitted that the only appropriate valuation date was 31 May 2024 because the plaintiffs had advanced a continuing oppression case based on the Coal Trading Conduct and, therefore, the last of the four valuation dates was the relevant date. Further, the date of judgment would not be appropriate, given that it would require the parties to adduce further evidence, beyond simply purely mathematical adjustments, in circumstances where valuation issues have already been extensively addressed by the parties and considered by the Court.

711 It is therefore unnecessary to consider the valuations of Batchfire advanced by Mr Hall at the dates earlier than 31 May 2024.

P.3. Mr Hall’s valuation methodologies

712 Mr Hall’s principal valuation methodology was to use a discounted cash flow (DCF) approach. As a secondary methodology, Mr Hall valued Batchfire by using a market-based approach, relying on comparable transactions to determine a value based on per tonne of coal resource.

713 Mr Hall used the 2019 Life of Mine Plan to undertake his DCF valuations of Batchfire, including for the final valuation date of 31 May 2024.

714 In his reply report dated 13 December 2024, Mr Hall provided revised valuations for each of the four revenue foregone scenarios calculated by Mr Burns in his reply report. For Scenario 1A, Mr Hall compared his DCF valuation as at 31 May 2024 of $1,778 million with his comparable transaction valuation based on per tonne of coal resource of $291 million and then selected a final value for the Callide Mine, as at that date for that scenario, of $1,600 million. His rationale for reducing the DCF valuation by only approximately 10% was that, in his experience, where a DCF valuation is higher than a per tonne of coal resource valuation, potential purchasers do not place significant weight on a per tonne of coal resource valuation. After deducting net debt of $170 million, Mr Hall determined that the net equity value for 100% of Batchfire as at 31 May 2024 for Scenario 1A was $1,430 million, which implied a value of $13.83 per share on the basis that there were 103,542,000 shares on issue as at that date.

715 In his supplementary expert report dated 7 March 2025, Mr Hall revised his DCF valuations of Batchfire in response to receiving revised revenue foregone figures calculated by Mr Burns. Using the revised revenue foregone figures for Mr Burns’ Scenario 1A, Mr Hall calculated the net equity value of Batchfire as at 31 May 2024 to be $1,423 million, which, in turn, implied a net value per share of $13.74.

P.4. Mr Jaski’s valuation methodologies

716 Mr Jaski was instructed to prepare his valuations based on three alternative scenarios with different assumptions as to foregone revenue on four different valuation dates. Ultimately, only the third scenario, in which Mr Jaski was asked to assume the same revenue foregone as Mr Hall had assumed in his reports, and the last valuation date of 3 July 2024 remained relevant. Scenario 1, which was based on the assumption that there was no foregone revenue, fell away because both coal trading experts agreed there was at least some foregone revenue. Scenario 2 could also be disregarded because it assumed the revenue foregone that was calculated by Mr Cunnigham in his primary methodology that Mr Cunnigham ultimately disavowed.

717 Mr Jaski agreed with Mr Burns that a DCF methodology was the most commonly adopted methodology to value a coal mining asset but considered that there was no sufficiently reliable cashflow data available for Batchfire as at each of the valuation dates to enable a DCF to be used as the primary valuation method. Instead, he applied a market approach valuation using the comparable transactions method as his primary methodology and then used a DCF valuation as a first cross-check and, ultimately, a net asset value of the Callide Mine as a second cross-check.

718 Using his primary methodology, Mr Jaski determined a market value of the enterprise value of Batchfire as at 3 July 2024 of between $0 and $483.4 million for his third scenario. After deducting net debt of $60.6 million, Mr Jaski calculated a market value of equity of between $0 and $422.8 million that implied a fair value per share of $4.75 (on the assumption that neither the 2019 Rights Issue nor the 2020 Rights Issue had taken place). He then applied a minority interest discount of between 36.0% and 58.0%to this figure to produce a market value per share of between $0 and $1.99. The minority interest discount that Mr Jaski applied to his calculations was at the high end of the range of between 36.0% and 58.0% that he considered was appropriate to value a minority interest. Had Mr Jaski applied a minority interest discount at the mid-point of his range, that is of 47.0%, the high end of the market value per share using this methodology would have increased to $2.52.

719 Mr Jaski’s primary valuation assessment for Scenario 3 as at 3 July 2024 was expressed as a range between $0 and $422.8 million, rather than any particular figure within that range. He directed the Court to use the mid-point of the range, if a single figure was required, because he had decided not to attempt to narrow the range by making subjective adjustments. Using his two cross-check valuation methodologies, Mr Jaski assessed the market value of the equity value of Batchfire to be $172.6 million in his DCF valuation, and a market value of the equity value of Batchfire to be $0 in his Net Asset Valuation.

P.5. Principal issues for determination

720 The plaintiffs’ claims for relief raise the following principal valuation issues for determination:

(a) can the 2019 Life of Mine Plan be used to prepare a reliable DCF valuation of Batchfire as at 31 May 2024?

(b) what is the appropriate discount rate to use if the 2019 Life of Mine Plan was used to prepare a DCF valuation of Batchfire’s shares as at 31 May 2024?

(d) what weight can be given to the DCF and Net Asset valuations undertaken by Mr Jaski?

(e) what fair value should be attributed to the plaintiffs’ shares in Batchfire as at 31 May 2024?

P.6. Can the 2019 Life of Mine Plan be used for a DCF valuation?

721 The plaintiffs submit that Mr Hall’s use of the 2019 Life of Mine Plan to undertake DCF valuations of Batchfire was appropriate because the model was, contrary to an assumption in substance given to Mr Jaski, “accurate” and “reliable” at the time it was prepared.

722 In the course of giving concurrent evidence, Mr Hall agreed that he had taken the position that he had a sufficient basis to use the 2019 Life of Mine Plan for his DCF valuations of Batchfire because (a) the 2019 Life of Mine Plan was based on a reserves estimate that had been considered and reviewed by Mr Stapelton of MineOp, an independent technical expert, and (b) senior management of Batchfire had prepared, reviewed and signed off on the reasonableness of the assumptions in the model. Mr Hall also acknowledged, however, that (a) the purpose of a reserve estimate is to determine whether proposed reserves are economically viable, which is a different question from preparing a market valuation, (b) there is a difference between undertaking financial modelling for a reserves estimate and a market valuation, and (c) he was not aware what work Mr Stapleton and his team did to review the 2019 Life of Mine Plan.

723 The plaintiffs submit that the use of the 2019 Life of Mine Plan for a DCF valuation as at 31 May 2024 is permissible given the more contemporaneous 10-Year Plan for the Callide Mine prepared by Batchfire dated 12 August 2024 was not suitable because (a) it was limited to only 10 years, (b) the critical issue, as Mr Hall explained, was not looking back to see how actual performance tracked against the 2019 Life of Mine Plan but rather looking forward from the valuation date to see whether trends were going to continue, and (c) the absence of any mining from the Ki lburnie Property (see [729 ] below) as at 31 May 2024 was not material, as mining was not forecast in the 2019 Life of Mine Plan to commence from that property before 2035.

724 The principal difficulty with using the 2019 Life of Mine Plan to undertake a DCF valuation of Batchfire as at 31 May 2024 is that the cost structure and operations of the Callide Mine had fundamentally changed in the period between 2019 and 2024. The following matters highlight the extent to which the assumptions underpinning the 2019 Life of Mine Plan had been superseded by Batchfire’s actual experience in operating the Callide Mine.

725 First, the FOR operating costs assumed by Mr Hall that were taken from the 2019 Life of Mine Plan were significantly less than the actual costs incurred by Batchfire in the period between FY19 and FY24, as demonstrated in the following tables:

| Table 8 | | | | | | |
| FOR operating costs per tonne mined | | | | | | |
| | FY19 | FY 20 | FY 21 | FY 22 | FY 23 | FY 24 |
| Actual | 35.30 | 28. 75 | 33.07 | 53.36 | 60.10 | 57.90 |
| 2019 Life o f Mine Plan | 34.30 | 33.89 | 31.18 | 29.54 | 26.86 | 32.44 |
| Percentage

variance | 2.92% | (15.17%) | 6.06% | 80.64% | 123.75% | 78.48% |

| Table 9 | | | | | | |
| FOR operating costs per tonne sold | | | | | | |
| | FY19 | FY 20 | FY 21 | FY 22 | FY 23 | FY24 |
| Actual | 33.46 | 31.31 | 31.71 | 52.07 | 73.97 | 55.90 |
| 2019 Life o f Mine Plan | 32.96 | 34.32 | 31.18 | 29. 54 | 26.86 | 32.44 |
| Percentage variance | 1.52% | (8.77%) | 1.70% | 76. 27% | 175.39% | 72.32% |
726 It is readily apparent from Tables 8 and 9 that the FOR operating costs by FY22 significantly exceeded the costs forecast in the 2019 Life of Mine Plan, both by tonnes mined and tonnes sold.

727 Second, the shortfalls between actual coal mined and actual coal sold that were achieved by Batchfire in the period FY19 to FY24 and forecast coal mined and sold in the 2019 Life of Mine Plan were equally stark, as shown in the following tables:

| Table 10 | | | | | | |
| Coal mined | | | | | | |
| | FY19 | FY 20 | FY 21 | FY 22 | FY 23 | FY24 |
| Actual coal mined | 10,808,867 | 11,174,649 | 8,203,566 | 3,810,613 | 3,913, 545 | 4,713,533 |
| 2019 Life o f Mine Plan | 12,161,000 | 12,315,000 | 12,971,000 | 13,751,000 | 14,893,000 | 10,160,000 |
| Percentage variance | (11.12%) | (9.26%) | (36.75%) | (72.29%) | (73.72%) | (53.61%) |

| Table 1 1 | | | | | | |
| Domestic Sales | | | | | | |
| | FY19 | FY 20 | FY 21 | FY 22 | FY 23 | FY24 |
| Actual domestic sales | 7,064,727 | 6,797,803 | 5,494,668 | 2,436,774 | 1,976,783 | 2,272,080 |
| 2019 Life o f Mine Plan | 7,457,000 | 7,457,000 | 7,457,000 | 7,457,000 | 7,457,000 | 7,457,000 |
| Percentage variance | (5.26%) | (8.84%) | (26.32%) | (67.32%) | (73.49%) | (69.53%) |

| Table 1 2 | | | | | | |
| Export Sales | | | | | | |
| | FY19 | FY 20 | FY 21 | FY 22 | FY 23 | FY24 |
| Actual e xport sales | 4,338,389 | 3,461,509 | 3,061,100 | 1,468,360 | 1,202,850 | 2,610,031 |
| 2019 Life o f Mine Plan | 5,197,000 | 4,705,000 | 5,515,000 | 6,295,000 | 7,436,000 | 2,704,000 |
| Percentage variance | (16.52%) | (26.43%) | (44.50%) | (76.67%) | (83.82%) | (3.48%) |
728 Third, in May 2020, a dragline was moved into the Boundary Hill South area, but it soon became apparent that the geology of that area was not suitable for dragline use, and the “truck and shovel” method had to be used, which significantly increased the cost of mining in that area, compared with the forecast use of a dragline in the 2019 Life of Mine Plan.

729 Fourth, the mine outputs for the 2019 Life of Mine Plan included coal from the Kilburnie Property as a probable reserve, on the assumption that Batchfire would be successful in obtaining the agreement of the owner and all necessary approvals to mine that area. The Kilburnie Property was an area of land adjacent to the Boundary Hill South mining area which was owned by family interests and included a heritage listed homestead and the graves of former owners. Of the 230.1 million tonnes of coal included as a probable reserve in the JORC Reserves Estimate which was prepared as part of the preparation of the 2019 Life of Mine Plan, 150 million tonnes had been attributed to the Kilburnie Property. After the 2019 Life of Mine Plan was prepared and by the time of the preparation of the 10-Year Plan in late 2023 and early 2024, the ongoing uncertainties in obtaining mine tenure over the Kilburnie Property had led to the removal of the probable reserves attributable to the Kilburnie Property from the 10-Year Plan.

730 There is no apparent reason why each of the matters outlined above would not have similarly impacted the cost structure and operations of the Callide Mine in the Agency Agreement Counterfactual in the period between 2019 and 2024. It was not suggested that sales of Export Coal would be higher in the Agency Agreement Counterfactual. Rather, the plaintiffs contended that Batchfire would achieve the same volume of sales and the same prices that Avra had achieved in its sales of Export Coal to end-users. Nor was it suggested that operational issues with draglines or difficulties in obtaining mining tenure to the Kilburnie Property would be different in the Agency Agreement Counterfactual. None of these are matters that could be discounted on the basis that doubtful questions should be resolved against the party’s actions that have made an accurate determination of damage or loss problematic.

731 The differences between the forecast costs of mining and export sale tonnages in the 2019 Life of Mine Plan and actual mining costs and export sales in the period between 2016 and 2024, together with the other matters referred to above, must significantly reduce the weight that can be given to the DCF valuation undertaken by Mr Hall.

P.7. What is the appropriate discount rate?

732 A beta loading factor is an integer that feeds into the discount rate that is used in a DCF valuation to account for risks that are specific to a particular mine or company. There is no “correct” beta, and both Mr Hall and Mr Jaski agreed that the identification of an appropriate beta is an inherently subjective exercise. Mr Hall used a beta loading factor of 0.25 in his expert reports but agreed in concurrent evidence that the use of a beta loading factor of between 0.25 and 0.75 would be reasonable for the purpose of valuing Batchfire.

733 Mr Hall confirmed in the joint report that if a beta of 0.75 was adopted for the 31 May 2024 valuation date, then the discount rate in his DCF valuation for that date would increase from 7% to 10%, and the DCF valuation would fall from $1.778 billion to $1.249 billion. He further confirmed in concurrent evidence that his calculation of the enterprise value for Batchfire as at that date would then reduce from $1.6 billion to $1.125 billion, and that, in turn, would lead to a reduction in the equity value of Batchfire from $1.423 billion to $0.948 billion.

734 Mr Jaski used a formula that is used to calculate financial leverage to calculate operational leverage for the purpose of calculating the beta factor to use for his DCF valuation. Mr Jaski agreed in his oral evidence that he was not able to give any example where, to his knowledge, any valuer had used a financial leverage formula to calculate operational leverage and he was not aware of any academic article that supported such an approach. Mr Hall described the approach adopted by Mr Jaski as inconsistent with both corporate finance theory and market practice.

735 In his use of a financial leverage model to calculate operational leverage, Mr Jaski adopted a debt-to-equity ratio that included in “debt” the onerous contract liabilities, rather than the actual debt-to-equity ratios in Batchfire’s accounts. He did this notwithstanding that, by 2019 and thereafter, the contracts may no longer had a negative value, if they were viewed in the context of the whole of the business of Batchfire.

736 Mr Jaski’s unconventional use of a financial leverage model to calculate operational leverage led him to a beta factor of 4.687 at his final valuation date of 3 July 2024, which was higher than any beta factor Mr Jaski had previously used in a valuation. The use of that beta factor for that date produced a discount rate of 30% for Mr Jaski’s third scenario.

737 In the circumstances, given the inherent subjectivity of the selection of an appropriate beta, Mr Hall’s acceptance that a use of a beta of between 0.25 and 0.75 would be reasonable, the apparent novelty of the methodology adopted by Mr Jaski but much higher figure it generated of 4.687, I consider that a beta of 0.75 should be used, being the figure at the upper end of Mr Hall’s range but considerably lower than Mr Jaski’s figure of 4.687.

P.8. Comparable transactions method

P.8.1. Overview

738 The comparable transactions valuation methodologies employed by Mr Jaski, as his primary valuation, and Mr Hall, as his secondary valuation, both need to be approached with caution.

P.8.2. Mr Jaski’s comparables valuations

739 Mr Jaski concluded that given Batchfire’s unique challenges, the only possible comparable transactions were transactions involving the Callide Mine. This, in turn, led him to proceed on the basis that the only two comparable transactions for valuation purposes were (a) what he described as the “ Anglo Transaction ”, being Batchfire’s purchase of the Callide Mine from Anglo American for a nominal $1.00, which was completed on 31 October 2016, and (b) the purchase by Lindenfels of 36.99% of the shares in Batchfire for $35 million, completed on 28 September 2016, which he referred to as the “ Avra Transaction ”.

740 Confining the comparable transactions to the Anglo Transaction and the Avra Transaction led Mr Jaski to conclude that the Anglo Transaction ascribed a value of only $1.00 to Batchfire, and the Avra Transaction – a value of $126.2 million.

741 Mr Jaski explained that while the Anglo Transaction of the Callide Mine for $1 was nominal, it captured the essence of Batchfire’s financial distress, the burden of its unfavourable contracts and its future prospects as at the date of the transaction. In approaching the consideration paid in the Anglo Transaction in that way, Mr Jaski did not attribute any specific value to the release that Anglo American had obtained from the onerous contract liabilities from the Coal Supply Agreements, which had been valued at $761.2 million by Anglo American and at $155.4 million by Batchfire (as recorded in its audited accounts as at 31 October 2016).

742 I accept Mr Jaski’s evidence that (a) valuation practice and corporate finance theory establish that the enterprise value of an asset is equal to equity plus debt minus cash, (b) debt can only be raised externally, and (c) an onerous contract is not a source of finance. I also accept Mr Jaski’s evidence that Anglo American’s reported gain of US$564 million in its audited accounts for 2016 records a “gain on asset sold” which is the accounting gain recognised when liabilities transferred to a purchaser exceed the net book value of the assets of the subsidiary being sold. As Mr Jaski explained, Mr Hall’s approach of treating onerous contracts as “debt like” implicitly assumes that Anglo American’s gain from relieving itself of the onerous contracts results in an increase in the enterprise value of the Callide Mine is in effect double counting the gain. Rather, the gain to Anglo American is an implied loss to Batchfire, as the purchaser of the Callide Mine.

743 I do not accept, however, Mr Jaski’s contention that the Anglo Transaction and the Avra Transaction were both “very strong indicators of value”, which formed “a natural low and high valuation case”, and that the Court should be directed to the mid-point of that range if a single figure was required. The circumstances in which Anglo American entered into the Ango Transaction for a nominal sale price of $1.00 to dispose of its interests in the Callide Mine on the one hand, and Avra acquired an interest in the Callide Mine pursuant to the Avra Transaction on the other hand, were fundamentally different. Those differences drove the radically different approaches Anglo American and Avra had to the enterprise value of the Callide Mine, as reflected in the purchase prices for the two transactions. The value ascribed by Anglo American in the Anglo Transaction was in a divestiture context, independently of any apparent consideration of transforming the Callide Mine to a profitable mining operation by pursuing plans equivalent to the Turnaround Plan.

744 In contrast, I am satisfied that the Avra Transaction does provide a more useful benchmark to determine the value of Batchfire. The price paid by Avra reflects its contemporaneous assessment of the value of Batchfire based on its view on a risk weighted basis of Batchfire’s prospects of successfully implementing the Turnaround Plan. Moreover, it is a benchmark that provided a value more attuned to the Agency Agreement Counterfactual because it reflects Avra’s perception of the value of the sales of Export Coal that it expected to make to end-users that it had acquired under the Offtake Agreement. In the Agency Agreement Counterfactual, the profit on these sales, less the commission payable to Avra, would be received by Batchfire.

745 If Mr Jaski’s primary methodology is confined to the Avra Transaction, then each of the high figures in his valuation as at 3 July 2024 would be applicable, other than the minority discount. In my view, the appropriate figure to use for the minority discount would be the mid-point of the range advanced by Mr Jaski, namely 47.0%. The minority discount was agnostic as to what figure within the range of market equity values was selected. The use of Mr Jaski’s mid-point minority discount would produce a market value per Batchfire share of $2.52 (assuming 89,000,000 shares on issue on the basis neither Rights Issue took place).

746 Contrary to the submissions advanced by the plaintiffs, I do not consider that Mr Jaski’s adjustment to his implied Enterprise Valuation/Ore Reserve multiples to account for Batchfire’s “financial performance” by calculating and then applying an “adopted value uplift factor” is done in an inappropriate manner which calls for his whole primary methodology to be disregarded. Mr Jaski may have calculated the adopted value uplift factor for Scenario 3 by dividing the “implied cumulative EBITDA margin” for Scenario 3 by the “implied cumulative EBITDA margin” for the abandoned Scenario 2. Given Mr Burns did not include any calculation of an uplift factor in his comparables analysis, the inclusion of an incorrectly calculated uplift factor could only mean that the valuation was overstated – not that the valuation should otherwise be discounted.

747 Nor do I accept, contrary to the plaintiffs’ submissions, that Mr Jaski’s acceptance of the fact that an essential integer of a determination of an appropriate adjustment to an Enterprise Value/Ore Reserve multiple is a risk profile required him to quantify Batchfire’s risk profile at the time of the Anglo Transaction / Avra Transaction or subsequently and compare the two. Mr Jaski undertook a qualitative analysis for periods after 2016 by reference to documents with which he had been briefed. There was no evidence that a quantitative assessment of risk must be performed in a comparables analysis. In any event, Mr Hall did not make any adjustments for any change in Batchfire’s risk profile between the dates of his comparables and the valuation dates.

748 Ultimately, however, Mr Jaski’s primary methodology suffers from only having two comparables, one of which is of doubtful utility. The Anglo Transaction produces a value of $0, in stark contrast to an interrelated comparable that does suggest substantial value.

749 Moreover, the single comparable that does suggest value, the Avra Transaction, is only for the acquisition of a minority interest. It does not provide a range of values from which a midpoint might be selected in circumstances where it is often difficult to account in any coherent fashion for differences between the assets the subject of the transaction and the assets of comparable transactions. A comparable of one only serves to highlight the significance of differences between the target and the comparable transaction, particularly when relying on a comparable transaction that occurred some eight years prior to the 31 May 2024 and 3 July 2024 valuation dates.

750 Further, any consideration of the value of Batchfire suggested by the Avra Transaction necessarily would need to take into account the value that Avra ascribed to the likely benefits it could obtain under the Offtake Agreement. As made plain in the Avra Investment Paper, an important rationale for Avra’s investment in Batchfire was a steady and predictable stream of income from the marketing and offtake agreements (see [117 ] above). In that sense, the Avra Transaction established the value that Avra may have placed on a 35% shareholding in Batchfire in the context of the interrelated Agency Agreement and Offtake Agreement but not a standalone valuation from which a fair market value might readily be determined.

P.8.3. Mr Hall’s comparables valuation

751 The secondary comparables valuation of Batchfire that was undertaken by Mr Hall raises two significant issues.

752 First, Mr Hall’s selection of comparables for his valuation. The transactions chosen by Mr Hall were not restricted to transactions involving companies that operated thermal coal and open cut mines. The majority of the companies operated coking coal mines, and several operated underground mines. Moreover, the mines had significant exposure to international markets rather than onerous domestic contractual liabilities. The comparables did not include the Anglo Transaction or the Avra Transaction.

753 Mr Jaski considered that none of the ten transactions on which Mr Hall had placed the most weight for his valuation as at 31 May 2024 involved mines that were sufficiently comparable to the Callide Mine to enable a meaningful comparison to be undertaken for valuation purposes. He reached the same conclusion for ten additional transactions that he had identified involving coal assets. He pointed in particular to Batchfire’s bespoke unfavourable Coal Supply Agreements, the lower energy content and higher ash content of Batchfire coal and the funding constraints imposed on Batchfire by the IPC Deed.

754 There is some force in Mr Hall’s contention that the market data that he has relied on does not show a “clear correlation” between coal type, or mine type, and the magnitude of implied values and multiples for coal assets. Nevertheless, I am satisfied that the differences identified by Mr Jaski in the market data relied on by Mr Hall do materially reduce the weight that can be given to Mr Hall’s comparables valuation of Batchfire.

755 Se cond, the application of a discount of 50% by Mr Hall to the comparables he had identified to account for the differences between the comparables and Batchfire was inherently subjective and not accompanied by any empirical or substantive reasoning. Mr Hall applied a discount of 50% to the comparables valuation that he had performed for each of the four valuation dates on the basis in each case of the following explanation:

…I have then reduced these figures by 50% to reflect factors specific to the Callide Coal Mine including the relative coal quality, the proportion of thermal coal (which is 100% for the Callide Coal Mine but less than 100% for some of the comparable companies and transactions even where they involve thermal coal assets) and the relative proportion of domestic and export coal sales for the Callide Coal Mine by comparison to other mines…

756 I accept that the determination of any discount to account for differences between an entity being valued and the comparables that have been relied upon is an almost inevitably subjective exercise and one that is rarely capable of any sound empirical foundation. In this case, however, these considerations apply with even greater force because Mr Hall chose a substantial and somewhat arbitrary discount of 50% to account for the differences he has identified. On one view, it might be thought that he was merely adopting a conservative approach, but the more compelling inference is that he was not able to account for the differences in the comparables that he had chosen. Equally relevant to an assessment of the reliability of the selection of the 50% discount is that Mr Hall applied it on each valuation date with an identical explanation, notwithstanding the selection of different comparables for each valuation date. The absence of any differentiation in the explanations for the discount emphasises the lack of any precision in the estimate and its inherent subjectivity.

P.8.4. Little weight can be attributed to Mr Jaski’s cross-check valuations

757 For the purposes of his DCF valuation, Mr Jaski relied on the Revised 5-Year Mine Plan prepared by Batchfire in April 2018 and the 10-Year Mine Plan prepared by Batchfire in late 2023 and 2024. He stated that he used the DCF method “cautiously as a cross-check”, given his view that the forecast financial information in the plans was “not based on reasonable grounds”.

758 As Mr Jaski’s DCF valuation did not have regard to the 2019 Life of Mine Plan, it was not based on forecast cash flows for the life of the Callide Mine. This meant his DCF valuations were heavily dependent on the determination of a terminal value to estimate the remaining value of the resource after the end of the implied life of the mine, for which cash flows were included in the plans. There is considerable force in the plaintiffs’ submission that this had the effect of producing a valuation, particularly for the 5-Year Plan, that in substance was a valuation derived from whatever value was chosen for the terminal value, with the net present value of a “short-term cash flow tacked onto the front”.

759 Moreover, the utility of Mr Jaski’s DCF valuation as a cross-check valuation is significantly reduced because he adopted the value per tonne of resources and reserves from his primary valuation approach, namely the implied value per tonne from the Anglo Transaction and the Avro Transaction, for the terminal value. As Mr Hall explained, this meant that Mr Jaski’s DCF valuation was “largely a circular application of Mr Jaski’s primary valuation approach”.

760 I am also satisfied that little weight can be attributed to the use by Mr Jaski of a Net Asset Value approach, as a second cross-check valuation. In Mr Hall’s opinion, a Net Asset Value approach is entirely inappropriate for the valuation of Batchfire’s Callide Mine, other than in a winding up and, in that case, a valuation of the mineral reserves and resources would have to be undertaken, not just the adoption of the book value of the assets and liabilities from Batchfire’s balance sheet, as Mr Jaski has done. Further, Mr Jaski observed that for mining operations, the appropriateness of the Net Asset Value approach was heavily depended on the stage of the project’s development and the information available and noted that, given Batchfire’s Callide Mine was classified as a “Production Project” under the VALMIN Code, the use of the Net Asset Value approach “will ordinarily not be the most appropriate primary methodology to utilise.”

761 Further, it is readily apparent from the following evidence of Mr Jaski that he recognised the significant limitations in both his cross-check valuations:

I have considered alternative approaches to use as cross-checks and while these alternative methods have a number of limitations, I consider that they are somewhat helpful, so long as they are used with caution, to help inform the reasonableness of the values that I have determined using my primary valuation methodology. Given the limitations of the cross-check methodologies, I have not afforded them significant weight.

P.9. Valuation of shares in Batchfire

P.9.1. Overview

762 The Agency Agreement Counterfactual advanced by the plaintiff varies significantly from the factual and requires findings to be made as to matters that are not amenable to precise calculation. Most significantly, it requires a determinations to be made as to (a) the revenue that Batchfire would have received, had direct sales of Export Coal to end-users been made under the Agency Agreement, rather than to Avra under the Offtake Agreement, (b) the cost of mining Export Coal, and (c) whether, and if so, at what price either or both of the Rights Issues would have taken place. These are not matters that can be definitively assessed by the coal trading and valuation experts relied on by the parties.

P.9.2. Legal principles & approach to valuation

763 The Court is not relieved from the obligation to assess loss because the calculation is difficult or because the circumstances do not allow for damages to be assessed with certainty: McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 412 (Dixon and Fullagar JJ). When faced with uncertainty, the Court must do the best it can not to allow difficulty of estimating loss or damage to deprive the plaintiff of a remedy, particularly where that difficulty arose because of the defendant’s wrongdoing: Cessnock City Council v 123 259 932 Pty Ltd (2024) 281 CLR 39; [2024] HCA 17 at 139. Consistent with this proposition is the so-called “facilitation of proof principle”. This principle qualifies the general rule that the plaintiff bears the onus of proof of its loss in circumstances where the defendant’s wrongdoing has resulted in uncertainty regarding the quantum of loss: Cessnock at 129; Pitcher Partners Consulting Pty Ltd v Neville's Bus Service Pty Ltd (2019) 271 FCR 392; [2019] FCAFC 119 at 17.

764 In some cases, the facilitation of proof principle has been referred to as a “presumption against the wrongdoer”, however, the plurality in Cessnock observed at [128] that the usage of this term best be avoided in this context. In a claim for lost opportunity “the uncertainty resulting from the defendant’s breach permits the plaintiff to prove the existence of the valuable opportunity merely by showing “a real (more than negligible) possibility” of that opportunity”, while the quantification of that valuable opportunity will still depend on informed estimation: Cessnock at 157. As such, the facilitation principle merely facilities the discharge of the plaintiff’s burden of proof that an opportunity of value in a hypothetical scenario has been lost – it does not extend to resolving every uncertainty relevant to a determination of the value of that opportunity in the plaintiff’s favour.

765 Further, it is important to distinguish between the market value of an asset based on counterfactual assumptions and an assessment of loss and damage suffered by a plaintiff. Expert valuers and industry experts can assist with the former exercise, but the second exercise is a matter for the Court. Necessarily, it requires an evaluative assessment of the possibilities or probabilities of the counterfactuals occurring in the “but for” world and the application of a discount to reflect that evaluative assessment.

766 Ultimately, an evaluative assessment must arrive at a single figure, but the Court should be careful not to inject an artificial or false sense of precision in the quantification of loss or damage, where the assessment must be made having regard to what could be expected to have happened but for the impugned conduct, not what has happened.

767 Moreover, the use of different valuation methodologies and assumptions made by or provided to experts often lead to very different ultimate valuations of an asset.

768 As in this case, the Court may receive some assistance from industry experts and expert valuers in undertaking an assessment of loss or damage. Invariably, that assistance depends on the acceptance of assumptions as to the state of affairs in a “but for” world – assumptions that have either been provided to an expert by the party calling the expert or assumptions made by the expert. Those assumptions are rarely amenable to proof on the balance of probabilities.

P.9.3. Valuations of Mr Hall and Mr Jaski

769 The valuations of the equity value of Batchfire and the fair value of its shares advanced by Mr Hall and Mr Jaski necessarily depend on assumptions that have been provided to them, or made by them, as to matters that have not occurred but are contended would have occurred, but for the Coal Trading Conduct.

770 For the purposes of assessing coal trading revenue foregone in their DCF valuations, both Mr Hall and Mr Jaski relevantly proceeded on the basis that Batchfire would have received the revenue that Avra had achieved from its sales of Export Coal to end-users, less the Agency Agreement commission, rather than the revenue that Batchfire in fact has received from Avra under the Offtake Agreement. That approach was largely driven by the absence of any coherent or plausible basis on which any alternative revenue figures could be calculated for the Agency Agreement Counterfactual The revenue figures were advanced as the maximum amount that Batchfire could have received. It was never suggested and there was no evidentiary basis to contend that Batchfire would have been able to achieve additional or more profitable sales to end-users than those achieved by Avra from the sale of Export Coal.

771 By way of summary, the following valuations of the equity value of Batchfire were advanced for the final valuation date of 31 May 2024 (by Mr Hall) and 3 July 2024 (by Mr Jaski):

(a) Mr Hall’s DCF valuation – $948 million (using a beta of 0.75);

(b) Mr Hall’s comparable coal resource valuation – $291 million;

(d) Mr Jaski’s DCF valuation – $172.6 million;

(e) Mr Jaski’s net asset valuation – $0.

772 In turn, these valuations of Mr Hall and Mr Jaski implied the following market values per share in Batchfire as at the 2024 valuation dates:

(a) Mr Hall’s DCF valuation – $9.16 per share with no minority discount (assuming 103,542,000 shares on issue);

(b) Mr Hall’s comparable coal resource valuation – $2.80 per share (not calculated by Mr Hall, but assuming no minority discount and 103,542,000 shares on issue);

(c) Mr Jaski’s primary methodology – $2.52 per share, after applying a mid-range minority discount of 47.0% (not calculated by Mr Jaski, but assuming 89,000,000 shares on issue on the basis neither of the Rights Issues took place);

(d) Mr Jaski’s DCF valuation – $1.03 per share (not calculated by Mr Jaski, but assuming a mid-range minority discount of 47.0% and 89,000,000 shares on issue on the basis neither of the Rights Issues took place);

(e) Mr Jaski’s net asset valuation – $0.

773 In order to compare the various per share valuations more effectively, it is necessary to adjust them to use common figures for shares on issue and minority discounts.

774 Somewhat counter-intuitively, Mr Hall’s valuations proceed on the basis that the Rights Issues would not take place, but the shares on issue for the purpose of calculating a price per share would be actual shares on issue that included the Rights Issues. In contrast, equally counter-intuitively, Mr Jaski’s valuations proceed on the basis that the Rights Issues would have taken place, and he therefore applied a minority discount, but the shares on issue for the purpose of calculating a price per share did not include shares issued in the Rights Issues.

775 In these circumstances, I have adjusted the valuations advanced by Mr Hall and Mr Jaski to reflect the assumption that the Rights Issues did not take place. In order to give effect to that adjustment, I have assumed that there were 89,000,000 shares on issue at the 2024 valuation dates and applied only a “marketability discount” of 25%, being the mid-point of Mr Jaski’s lack of marketability discounts, in order to calculate a per share market value. Those adjustments give rise to the following market values per share in Batchfire as at the 2024 valuation dates:

(a) Mr Hall’s DCF valuation – $7.99 per share ($948,000,000 divided by 89,000,000 shares less 25%) (Adjusted DCF Valuation);

(b) Mr Hall’s comparable coal resource valuation – $2.45 per share;

(d) Mr Jaski’s DCF valuation – $1.45 per share ($172 million divided by 89,000,000 less 25%);

(e) Mr Jaski’s net asset valuation – $0.

776 The determination of loss in this case is made more difficult because of the different primary valuation methods advanced by Mr Hall and Mr Jaski and, more fundamentally, the significant limitations in both their primary and alternative valuations summarised at [712 ] to [719 ] above.

P.9.4. The Adjusted DCF Valuation is the appropriate starting point

777 Ultimately, it is necessary to identify a figure to which a discount can be applied to reflect the possibilities and probabilities of Batchfire achieving in the Agency Agreement Counterfactual the revenue alleged to have been foregone by reason of the Coal Trading Conduct. Once that discount has been applied to the alleged revenue foregone a loss on a per share basis for the plaintiffs can then be calculated.

778 Given the very different valuation approaches by Mr Hall and Mr Jaski, I am not persuaded that any simple or weighted average of the various valuations advanced by Mr Hall and Mr Jaski can be adopted. In my view, any such approach would inject a false sense of precision and empirical rigour.

779 On balance, given the bespoke financial and operational challenges faced by Batchfire, including those created by cl 4.1(a) of the Agency Agreement and the IPC Deed, I have concluded that the DCF valuations provide a flawed but more reliable starting point to quantify the loss suffered by the plaintiffs than the comparable valuations.

780 Mr Hall does not attempt to quantify the significance of the differences between Batchfire and the coal assets the subject of his comparable transactions. I am not satisfied that acknowledging the different circumstances that Batchfire faced and then applying a simple 50% discount produces a valuation that can be relied upon, even as a starting point.

781 Mr Jaski’s primary valuation is, in substance, as explained at [749 ] above, a comparable of one, being a transaction entered into some eight years before the 2024 valuation dates for the acquisition of only a minority interest in Batchfire and a value inextricably tied to the bespoke Agency Agreement and the Offtake Agreement.

782 The difficulty with Mr Jaski’s DCF valuation, as explained at [758 ]-[759 ] above, is that it does not rely on any life of mine plan and is largely dependent on a terminal value that is derived from his primary valuation. Nor, for the reasons advanced at [760 ] above, am I satisfied that any real weight can be given to Mr Jaski’s net asset valuation of nil.

783 I accept that Mr Hall’s DCF valuation, as explained at [724 ]-[727 ] above, relies on forecast cost and other indicia in the 2019 Life of Mine Plan that by 2024 had proven to be wildly optimistic. Further, I accept that it was likely that the reasons for those forecasts being wildly optimistic would also have existed in the Agency Agreement Counterfactual. The Adjusted DCF Valuation does provide, however, a figure that can then be discounted to take into account the various significant challenges that Batchfire would have faced in the Agency Agreement Counterfactual. More generally, a DCF valuation lends itself more to a discounting to take account of challenges and uncertainties than a comparables valuation because those matters can be tied more closely to the inputs and assumption on which the DCF valuation is based and the risks inherent in those inputs and assumptions being achieved in a counterfactual.

P.9.5. What discount must be applied to the Adjusted DCF Valuation

784 When undertaking an assessment of the possibilities or probabilities of a hypothetical counterfactual, the Court is engaged in the task of estimation, which requires a discount to be applied to reflect the less than certain fulfilment of the relevant hypotheses and possibilities: Generic Health at [186], 191. The amount of the necessary discount to reflect the prospects of success can be arrived at by evaluating the possibilities or probabilities that events favourable to the plaintiff within its counterfactual would have materialised: see Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88; (2017) 372 ALR 440 at 411.

785 The plaintiffs submit that in assessing the fair value of their shared in Batchfire the Court should proceed on the basis of the following statement in Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415 at [122]:

where a party’s actions have made an accurate determination of damage or loss problematic, doubtful questions should be resolved against that party and the Court should assess damages or compensation in a robust manner.

786 While at a general level that statement of principle is uncontroversial and can be accepted, it does not carry with it any necessary implication that in quantifying damages by reference to a counterfactual that all doubtful questions should be resolved against the wrongdoer. Such a proposition would be antithetical to the statements of principle in Sellars, Cessnock, Generic Health and Masters Home Improvement, referred to above.

787 The more relevant principle in the present context was the following principle enunciated by the Full Court in Pitcher Partners. After surveying the relevant authorities addressing proof of loss where the conduct of a wrongdoer had made it difficult for the victim to prove damages, their Honours stated at [116]:

These passages reveal that the general proposition that the claimant has the onus to prove its damages is qualified in circumstances where the (deliberate) wrong has caused the position of uncertainty or difficulty of proof. Even in cases of breach of contract where it has become difficult or impossible for the plaintiff to prove it would have recovered its expenses from the performance of the contract, the onus shifts to the defendant to prove that the plaintiff would not have done so, or that the contract was worthless: Amann Aviation at CLR 94–5; ALR 19–20 (Mason CJ and Dawson) CLR 106–7; ALR 29–30 (Brennan J) and CLR 128; ALR 45 (Deane J); and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 15 BPR 28,563; [2010] NSWCA 268 at [163] per Hodgson JA (Allsop P and Macfarlan JA agreeing); and see Waddams op cit at 58 and HK Lücke “The So-Called Reliance Interest in the High Court” (1994) 6 Corporate and Business Law Journal 117 at 142–147.

788 In determining the quantum of the discount that would have need to be applied to the Adjusted DCF Valuation in order to determine the fair value of the plaintiffs’ shares in Batchfire, had the plaintiffs otherwise succeeded, I have proceeded on the basis that the evidentiary onus in assessing the discount necessary to take account of the possibilities and probabilities of that fair value being achieved in the Agency Agreement Counterfactual shifted to the defendants and that a robust approach should be undertaken to that task.

789 The defendants have adduced comprehensive evidence of the challenges that Batchfire would have faced in the Agency Agreement Counterfactual including challenges that had not been anticipated in the Turnaround Plan and the 2019 Life of Mine Plan. I am satisfied that those challenges would have likely also been present in the Agency Agreement Counterfactual. These included insufficient working capital because funding of only $35 million, not $90 million, had been procured prior to completion of the Callide SSA and the failures to achieve production targets, targeted strip ration, cost reductions, projected coal quality, access to mining areas and labour efficiencies as outlined at [180 ]-[214 ] above. I am satisfied that these challenges would have presented significant obstacles to Batchfire obtaining equivalent medium term and long term contracts with end-users in the Agency Agreement Counterfactual to those contracts that Avra had in fact achieved.

790 In this case, the essential premise of the Agency Agreement Counterfactual is that Batchfire would have succeeded in obtaining equivalent medium and long term sales of Export Coal to those in fact achieved by Avra. The only substantive rationale advanced by Batchfire in support of that essential premise is that because Avra was able to negotiate sales to end-users of Export Coal that it had acquired under the Offtake Agreement, Batchfire would have similarly been able to enter into medium and long term contracts with end-users if Avra engaged in Marketing Activities that were exclusively directed at procuring sales of Export Coal from Batchfire to end-users under the Agency Agreement. No greater particularity of the facts by which that outcome could have been achieved were advanced.

791 The Adjusted DCF Valuation must therefore be discounted to account for the risk that even if Avra undertook the Marketing Activities in the manner contended for by the plaintiffs, Batchfire would not have been able to obtain equivalent mid-term and long-term contracts with end-users to those achieved by Avra. Necessarily, that determination must take into account the risk of the plaintiffs not being able to achieve equivalent direct sales to end-users under the Agency Agreement to those sales that were in fact achieved by Avra. That raises for consideration the likely success of the Marketing Activities that the plaintiffs contend were required to be conducted by Avra before it was entitled to make offers to acquire Export Coal under the Offtake Agreement.

792 Any assessment of the extent to which those sales could be achieved is inherently speculative, not least because of the plaintiffs’ contention that Avra was not permitted to make offers to acquire Export Coal under the Offtake Agreement until it had established that there was no market for direct sales by Batchfire under the Agency Agreement. That contention carries with it the likelihood that there would be fewer, and most likely significantly delayed, sales of Export Coal to Avra under the Offtake Agreement. Further, any deterioration in the financial or operational position of Batchfire in the Agency Agreement Counterfactual because of such reduced and delayed sales under the Offtake Agreement would have made it even less likely that Batchfire might have been able to accept penalty and rejection clauses in contracts with end-users for the sale of Export Coal. It would also have made it even more difficult for Batchfire to engage in blending activities.

793 In any event, as explained at [329 ] above, the final draft of the 5- Year Strategic plan for FY19-FY23 prepared by Mr Westerhuis in April 2018 forecast export sales from long term contracts of only 0.1 million tonnes in FY19, 1 million tonnes in FY21, and 2Mt in FY23. Successfully negotiating a long term direct contract would depend on marketing but in April 2018, Batchfire was not anticipating entry into any significant long term direct contracts until at least 2021. In comparison the 5-Year Strategic Plan forecast sales to end-users through Avra contracts of between 5 million tonne and 6 million tonnes each year between FY19 and FY23.

794 Moreover, the following evidence of Mr Westerhuis is telling, given his position within Batchfire as a critical decision maker, in assessing what was likely to have happened in the Agency Agreement Counterfactual (notwithstanding that the evidence was expressly only admitted as to his subjective beliefs and opinion, not as evidence of any asserted facts):

Over time, as Batchfire's brand reputation increased, I expected that Avra would on behalf of Batchfire shift most tonnage to sales directly with customers under the Agency Agreement. As part of this transition, I also expected that over time Avra would convert one-off or spot sale transactions with customers (negotiated on an ad hoc basis) into long term offtake agreements with customers. lt was never my expectation that 100% of export coal produced would be committed to long-term agreements with customers. I knew from experience that even well-established thermal coal mining operations will usually be left with some uncommitted, floating portion of production. However, I did expect that in the near term (one or two years), Avra and Mr Southwood secure some long-term coal sale agreements with customers for Batchfire by marketing and developing the Callide brand.

(Emphasis added.)

795 It is difficult to reconcile this evidence of Mr Westerhuis with the fundamental premise underlying the Agency Agreement Counterfactual that from the commencement of the Agency Agreement Avra would have been in a position to arrange direct sales from Batchfire to end-users rather than acquiring Export Coal under the Offtake Agreement.

796 A further consideration is that unlike Avra, Batchfire lacked an established brand in offshore markets for the sale of coal, it was not a coal trader, it was not as well placed to satisfy pre-qualification requirements in tender criteria and it lacked an established track record in meeting delivery schedules and quality requirements.

797 In addition, Mr Hall’s Adjusted DCF Valuation would have to be discounted for the risk that one or both of the Rights Issues would have taken place in the Agency Agreement Counterfactual, and if not, what alternative funding may have been required, and if so, on what terms. Given the likely delay between undertaking Marketing Activities and achieving direct sales under the Agency Agreement, the financial position of Batchfire might still have required an equity injection, particularly at the time of the 2019 Rights Issue or, alternatively, some form of debt facility. Further, the operational challenges that Batchfire encountered in the years following its acquisition of the Callide Mine and the need for capital to address those challenges could be expected to have equally been present in the Agency Agreement Counterfactual. Equally, present would have been the significant shortfall in funds from the $90 million investment proposed in the Turnaround Plan.

798 Mr Hall considered in his Scenario 1A that Batchfire would have had sufficient cash from December 2016 to some point between July 2019 and October 2019, but Batchfire:

… may then have required a capital injection either in the form of a rights issue in an amount similar to the 2019Rights Issue, additional debt or an increase in one or more of the coal prepayment facilities, including the Avra Prepayment Facility. Batchfire may subsequently have required a further capital injection in August 2020 either in the form of a rights issue in an amount similar to the 2020 Rights Issue, additional debt or an increase in one or more of the coal prepayment facilities, including the Avra Prepayment Facility;

799 If the Rights Issues had taken place, then a minority discount would have to be applied to the Adjusted DCF Valuation. Given the terms of the IPC Deed, the likely similar, if not worse financial position of Batchfire in the Agency Agreement Counterfactual at the time of each of the Rights Issues and the likely absence of any alternative funding options, given Batchfire’s sustained but unsuccessful attempts to obtain funding in the period leading up to each Rights Issue, it was highly likely that the Rights Issues would have been the only plausible source of additional funding in the Agency Agreement Counterfactual.

800 Relatedly, Mr Hall’s Adjusted DCF Valuation would have to be discounted to reflect the risk that the Avra prepayment facilities would also have been required, given the cash flow deficiencies that would likely also have arisen in the Agency Agreement Counterfactual. This would particularly have been likely in the period in which Avra would have been seeking, on the plaintiffs’ case, to establish a market for direct sales of Export Coal by Batchfire to end-users, and Batchfire would not have been receiving equivalent revenue from sales of Export Coal to Avra under the Offtake Agreement.

801 Taking all these matters into account and undertaking what must necessarily be an evaluative, not an empirical, exercise, I am satisfied that the appropriate discount to Mr Hall’s Adjusted DCF Valuation is 80%.

802 Had I otherwise been satisfied that the plaintiffs had been successful in their oppression case, I would have been satisfied that the least intrusive remedy to cure the oppression would have been an order that Lindenfels purchase the plaintiffs’ shares in Batchfire at a price of $1.60 ($7.99 less 80%).

803 Finally, I note that the plaintiffs sought to reserve their position to adduce further evidence on quantification, depending on what specific findings I may make in relation to the integers relied upon by the valuation experts in their respective valuations. Given the robust, but broadbrush, approach that I have taken to the determination of fair value on the assumption that the plaintiffs had otherwise succeeded, it is not evident to me what additional evidence would have been necessary. In any event, given the plaintiffs have not succeeded on liability, the question of any application to rely on further evidence on fair value would appear to be inutile.

Q. Relief – compensation sought from Mr Burgess

Q.1. Power to order compensation for breach of directors’ duties

804 Mr Burgess contends that the Court has no power to order compensatory relief under s 233 of the Corporations Act for breaches of directors’ duties. He submits that there is no binding authority on the issue and the existing authorities are divided.

805 In summary, Mr Burgess submits that (a) section 233 must be construed in the context of the Corporations Act as a whole, (b) the only remedy for a contravention of the directors’ statutory duties in s 180, s 181 and s 182 of the Corporations Act is an order under s 1317H, (c) s 1317J(2) provides that only ASIC and the corporation may apply for an order under s 1317H, (d) s 1317J(4) provides that no person may apply for a compensation order to be made “unless permitted by this section”, and (e) any construction that permitted a compensation order to be made under s 233 against a director for a breach of statutory directors’ duties would be inconsistent with that express statutory prohibition and would contravene the Anthony Hordern principle.

806 The Anthony Hordern principle is a reference to the following passage from the judgment of Gavan Duffy CJ and Dixon J in Anthony Hordern and Sons L imited v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7:

When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power.

807 The principles underpinning the Anthony Hordern principle were identified in the following terms by French CJ, Hayne, Crennan, Kiefel and Keane JJ in Plaintiff S4/2014 v Minister for Immigration and Border Protection (2014) 253 CLR 219; [2014] HCA 34 at [42]-[43]:

…As was said by four members of this court in Project Blue Sky Inc v Australian Broadcasting Authority, “[t]he meaning of [a] provision must be determined ‘by reference to the language of the instrument viewed as a whole’”. And an Act must be read as a whole “on the prima facie basis that its provisions are intended to give effect to harmonious goals”. Construction should favour coherence in the law.

It is these fundamental principles which underpin what is sometimes called the “Anthony Hordern principle” and the proposition on which that principle depends: “that an enactment in affirmative words appointing a course to be followed usually may be understood as importing a negative, namely, that the same matter is not to be done according to some other course”.

(Footnotes omitted.)

808 As also submitted by Mr Burgess, (a) s 233 of the Corporations Act includes a “long list of remedies” but does not include the making of any order for compensation, and (b) s 236 and s 237 together provide an express right for a shareholder to bring a claim for breaches of fiduciary duties in the name of the company, which is the only vehicle for shareholders to circumvent the prohibition in s 1317J.

809 Two interrelated issues arise for determination.

810 First, whether an order for compensation against a director can be made under s 233 of the Corporations Act. It is now relatively well established that the Court can make an order for a director, who has conducted the affairs of a company in a way which engages s 232, to compensate the company pursuant to s 233: LPD Holdings (Aust) Pty Ltd v Phillips (2013) 281 FLR 227; [2013] QSC 225 at [53], 58; Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2017] SASC 137; (2017) 123 ACSR 19 at 56; Parker v Auswild; Bergmuller v Auswild [2022] VSCA 8; (2022) 403 ALR 111 (Ferguson CJ, Kennedy JA and Garde AJA) at [133]; McMillan v Coolah Home Base Pty Ltd (No 4) [2022] NSWSC 584 at 458.

811 Second, and less settled, is whether an order for compensation can be made under s 233 of the Corporations Act requiring a director to compensate a company for a breach by the director of their statutory or fiduciary duties under s 180, s 181 and/or s 182.

812 In Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293, Gilmour J observed at [123]:

The defendant refers to a possible alternative of the plaintiff commencing proceedings for oppression, pursuant to ss 232 and 233 of the Act. Those provisions are not, in my opinion, apt to facts alleged in the draft statement of claim. In particular s 233 does not contemplate an order for payment of damages or compensation by a director to the company for breach of statutory and/or fiduciary duties.

813 A more expansive view of the scope of the Court’s power to make compensation orders under s 233 of the Corporations Act for breaches of directors’ duties was taken by the Court of Appeal of the Victorian Supreme Court in Parker. The directors of several companies had incurred significant costs in bringing unsuccessful legal proceedings on behalf of the companies. The primary judge (a) found that in filing and maintaining the legal proceedings, the directors had a conflict of interest and had breached their fiduciary duties but not their statutory duties, (b) was satisfied that the breaches of fiduciary duty could and, in this case, did found a claim for oppression, and (c) made an order under s 233(1) that the directors reimburse the companies for the costs and disbursements that they had caused the companies to incur in the legal proceedings.

814 In dismissing the appeal from the decision of the primary judge, the Court of Appeal (Ferguson CJ, Kennedy JA and Garde AJA) in Parker observed at [133], [137] and [138]:

In our view, the observations of Spigelman CJ and Priestley JA [in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672] as to the legislative intent underlying s 260(2) of the Corporations Law are just as applicable to s 233(1) of the Act. Section 233(1) permits the court to make any order it considers appropriate in relation to a company including a list of specified orders. They include an order under s 233(1)(j) requiring a person to do any specified act. The general discretionary powers of the court under s 233, and in particular the power under s 233(1)(j), authorise an order that the applicants reimburse the plaintiff companies for the costs and disbursements which they have incurred in a proceeding, as well as other expenses or losses which they may have incurred or been ordered to pay.

…

While doubt has been expressed as to whether the court has power to directly make an award of damages against a company director for breach of statutory or fiduciary duties, [referring to Vinciguerra at [123] and True Value Solar Holdings Pty Ltd v Fernandez [2013] VSCA 27 at 21] this does not mean that the powers of a court listed in s 233(1) of the Act should be given a confined construction.

In accordance with the authorities set out above, it is our view that the powers given to courts under s 233 should be given a liberal construction in order that the oppression with which ss 232 and 233 of the Act are concerned may be more fully relieved. In the present case, the orders made by the primary judge were within the general powers conferred by s 233(1), and particularly s 233(1)(j).

(Footnotes omitted.)

815 Given the primary judge had dismissed the statutory directors’ duties claims, any potential (at least direct) application of the Anthony Hordern principle by reason of s 1317J of the Corporations Act did not arise in Parker, and their Honours made no reference to the principle in their joint judgment.

816 A more nuanced approach to the relevance of breaches of directors’ statutory and fiduciary duties to claims for oppression was advanced by Lindsay J in Re Estate Soulos [2022] NSWSC 1507. The claims for oppression by a minority shareholder were accompanied by allegations that the directors of the company, Esperia Court Pty Ltd, had breached their statutory and fiduciary duties to the company. His Honour found that the company’s affairs had been conducted in an oppressive manner in breach of s 232 of the Corporations Act, and that the directors of the company had breached their duties under s 180, s 181 and s 182 by pursuing their own self-interest, in disregard of the minority shareholder, in acquiring a property on speculative terms and entering into a long term lease on less than commercial terms (at [385]-[386]; [391]).

817 His Honour then observed at [392]:

In my opinion, these breaches of statutory duties (or comparable general law duties) serve not as a means of holding the directors to account for the payment of compensation to the Company but to inform the nature and extent of the relief necessary, and appropriate, to put an end to the “oppression” found to have affected the conduct of the affairs of Esperia Court.

818 In context given his Honour’s conclusion at [392], I am satisfied that the second and third sentences of the following passage in Soulos at [248], that the plaintiffs seek to rely on, are a recitation of the case advanced by the minority shareholder, Maria Pagones, not findings made by Lindsay J:

Maria claims standing as a member of Esperia Court to include in her claim for relief under section 233 of the Corporations Act 2001 Cth a claim, on behalf of the Company, that the Company be compensated for the breaches of duty she alleges. She has not sought, or obtained, a grant of leave under section 237 of the Corporations Act 2001 Cth to pursue a “derivative action” on behalf of the Company. The course thus taken is authorised by section 233: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [527] –[528]; Parker v Auswild; Bergmuller v Auswild [2022] VSCA 8 at [133] -[138]; Re Imperium Projects Pty Ltd [2015] NSWSC 16 at [15].

819 In any event, I am satisfied that the observation by Lindsay J at [392] of Soulos is a correct statement of principle, notwithstanding the breadth of the statements made by the Court of Appeal of the Victorian Supreme Court in Parker, and should be followed. Section 233(1)(g) of the Corporations Act relevantly allows the Court to make an order authorising a shareholder to bring specified proceedings in the name and on behalf of the company. Such an order, however, can only be made if the Court is otherwise satisfied that there has been oppressive conduct in contravention of s 232.

820 For completeness, although some of Lindsay J’s findings, including that the grant of the lease was an instance of oppressive conduct and amounted to a breach of director’s duties, were overturned on appeal, the statement of principle at [392] remained undisturbed: Soulos v Pagones; Soulos v Soulos; Soulos v Soulos; Soulos v Pagones; Kristallis v Soulos; Kristallis v Soulos; Kristallis v Pagones [2023] NSWCA 243; (2023) 416 ALR 181.

821 By way of contrast, a shareholder may bring a derivative suit on behalf of a company and in the company’s name pursuant to s 236 of the Corporations Act against a director for a breach of the director’s statutory or fiduciary duties. The shareholder must, however, obtain leave pursuant to s 237 of the Corporations Act in order to bring a derivative suit. If leave is granted to bring such a derivative suit, then the shareholder can seek orders for compensation for the breaches of duty, because it is a suit in the name of the company for a breach of directors’ duties and, therefore, the restrictions in s 1317J do not apply. Moreover, the limitation period in s 1317K would be engaged, and the statutory defence in 1317QC could potentially be relied upon. Permitting a shareholder to seek an order requiring a director to pay compensation pursuant to s 233, rather than through a derivative suit pursuant to s 236 and s 237, to a company for a breach of their director’s duties would deprive the director of the protection of the s 1317K limitation period and a s 1317QC defence, other than, perhaps, on discretionary grounds. Such a construction would be antithetical to a harmonious construction of the Corporations Act.

822 The conduct constituting oppressive conduct might in many cases also constitute a breach of a director’s statutory and fiduciary duties, but that does not provide any basis for a shareholder to seek to hold a director to account by way of payment of compensation to a company for breaches of those duties. It is important that the distinction between oppressive conduct and breaches of directors’ statutory and fiduciary duties is preserved and not overlooked. The latter does not invariably or inevitably give rise to the former. Moreover, in exercising the discretion to make an order under s 233 of the Corporations Act, the Court will choose the remedy that is the least obtrusive remedy to put an end to the oppression: Zong v Lin, 79. The Court is concerned with ending the effects of the oppression, not holding directors to account for breaches of statutory and fiduciary duties.

823 Further, I do not discern any relevant application of the Anthony Hordern principle that would preclude an order for compensation to be made against a director whose conduct had otherwise been found to contravene s 232 of the Corporations Act. While s 1317J makes plain that only ASIC and the company may obtain relief for breaches of statutory directors’ duties, it does not speak to conduct giving rise to contraventions of s 232.

824 The fundamental difficulty with the compensation order that the plaintiffs seek against Mr Burgess under s 233, however, is the apparent double recovery it might give rise to, given the buyout relief that the plaintiffs seek against Lindenfels that is aimed at bringing to account the alleged breaches by Mr Burgess of his statutory and equitable duties. The plaintiffs did not advance any coherent basis on which the relief sought would not amount to double recovery.

Q.2. Equitable compensation claimed against Mr Burgess

825 The plaintiffs’ claim for equitable compensation against Mr Burgess is advanced on the basis that he caused Batchfire to lose the opportunity to generate substantial profits from the sale of its coal under the Agency Agreement at market value.

826 Had the plaintiffs otherwise succeeded in establishing their allegations that Mr Burgess had breached his fiduciary duties to Batchfire by engaging in the Coal Trading Conduct or the other allegations advanced by the plaintiffs against him, then the quantum of any equitable compensation would fall to be determined in a similar manner to the oppression claim advanced against Lindenfels.

827 The equitable compensation claim, however, would also give rise to the same double recovery or overcompensation issues as any claim for compensation under s 233 of the Corporations Act, referred to at [824 ] above. Again, the plaintiffs did not advance any coherent basis on which the relief sought would not amount to double recovery.

828 In these circumstances, it is therefore not necessary to address the statutory limitation period defences raised by Mr Burgess based on s 1317K of the Corporations Act, including the extent to which they would equally apply by analogy to the equitable claims advanced against Mr Burgess.

R. Disposition

829 For the foregoing reasons, the plaintiffs’ further amended originating application is to be dismissed, and the plaintiffs are to pay the costs of the defendants.

| I certify that the preceding eight hundred and twenty-nine (829) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Halley. |
Associate:

Dated: 10 March 2026

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