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Robert Darmago v Fullerton Nominees Pty Ltd trading as Western Refrigeration 74 [1999] WASC 1008 (5 March 1999)

Last Updated: 31 January 2001

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CORAM : WHITE J

HEARD : 17-21 AUGUST 1998, 14-18 DECEMBER 1998

DELIVERED : 5 MARCH 1999

FILE NO/S : CIV 1007 of 1994

CIV 1242 of 1994

BETWEEN : ROBERT DARMAGO

Plaintiff

AND

FULLERTON NOMINEES PTY LTD trading as WESTERN REFRIGERATION 74

Defendant

Catchwords:

Contract - Provision for payment of "invisible costs" in Indonesia - Turns on own facts

Representation:

Counsel:

Plaintiff : Mr P G McGowan

Defendant : Mr R E Birmingham QC & Mr W J Clements

Solicitors:

Plaintiff : Wilson & Atkinson

Defendant : Williams Ellison

Case(s) referred to in judgment(s):

Case(s) also cited:

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Erikson v Carr (1945) 46 NSW (SR) 9

Foster v Driscoll [1929] 1 KB 470

Harrods Ltd v Lemon (1931) 2 KB 161

Hippisley v Knee Bros (1905) 1 KB 1

Keppel v Wheeler (1927) 1 KB 577

Nitedals Taendstifabrik v Bruster (1906) CR 671

Regazzoni v K C Sethia (1944) Ltd [1958] AC 301

Salomons v Pender [1865] EngR 365; (1865) 3 H & C 639

Thornton Hall & Partners v Wembley Electrical Appliances Ltd (1947) 2 All ER 630

Tombill Gold Mines v Hamilton (1955) 1 DLR 101

Turner v Laurentide Financial Realty Ltd 97 DLR (3rd Ed) 429

Library Number : 990101

WHITE J:

The plaintiff, an Australian citizen resident in Indonesia, carries on business as a member of an informal group, called the Australian Lobby, which acts, in effect, as a means of liaison between companies in Australia wishing to do business in Indonesia and Indonesian companies wishing to do business with Australian companies in Indonesia. His task is to introduce his clients to the appropriate officials and businessmen in Indonesia and to negotiate the necessary commercial contracts required to give efficacy to the transactions in question.

The defendant is in the refrigeration business and was interested in becoming involved in the construction and commissioning of abattoirs in Indonesia.

On 23 June 1992 the plaintiff was engaged by the defendant to carry out market research into the Indonesian market for a fee of $2,000 a month. He presented his report on 24 August 1992 and it was agreed that he would represent the defendant in Indonesia and that the defendant would contribute $2,000 a month towards his expenses of so doing.

The plaintiff and Mr Dallimore, representing the defendant, attended a Meat Technology Seminar in Indonesia on 23 October 1992 and the plaintiff informed Mr Dallimore of his requirements for entry into a formal arrangement with the defendant. In his letter (exhibit 35) dated 30 October 1992, the plaintiff set out what he had discussed with Mr Dallimore. That letter provides, inter alia, for a commission of 10% of the contract price to be payable to the plaintiff and contains in para 4 the following statement concerning invisible costs:

"4. Invisible costs for the project is estimated not to exceed 20% of contract price, and should there be a surplus after completion, excess funds are to be divided equally between Western Refrigeration 74 and Robert Darmago."

The defendant responded by a facsimile transmission on 2 November 1992 with certain counter proposals, including a sample project financial statement which includes both a 10% commission (calculated on the "quotation price", which includes the FOB price, the site installation and the freight) to the plaintiff and "invisible Indonesian costs at 20% of the project price" (comprising the aggregate of the quotation price and the 10% commission to the plaintiff). The letter also included the following passage:

"Robert Darmago is to invoice WR74 for the 'Invisible costs' and monies are to be disbursed as required. It is agreed that any remaining funds are to be equally shared between WR74 and Robert Darmago. It is also understood that documentation of these disbursements will be on the basis of your personal records."

The plaintiff replied on 4 November 1992 by a facsimile transmission which included the following:

"INVISIBLE COSTS

"Invisible costs must be paid throughout the duration of the project and not at the end. Often part is paid upon initiation and the remainder at completion. As Invisible costs have been included in the overall cost of the project, it must be paid proportionally upon WR-74's receipt of partial payment, together with Robert Darmago's commission. Thus the 10% commission portion in addition to the 20% invisible cost portion is NOT to be invoiced by Robert Darmago to WR-74, but is to be disbursed immediately by WR-74 upon receipt of all partial payments. Upon completion of the project, unspent funds allocated to invisible cost will be divided equally between WR-74 and Robert Darmago and its portion paid to WR-74."

On 15 November 1992, the parties executed a Memorandum of Understanding, not directed to a specific project but in general terms, following discussions and correspondence between them. That Memorandum of Understanding included provisions for the plaintiff to "solely represent" the defendant in Indonesia, for which a 10% commission of the defendant's project quotation price would be payable to the plaintiff, and stated that: "Invisible costs for the project are estimated not to exceed 20% of the total of WR'74 project quotation price plus the 10% commission payable to" the plaintiff. The term "solely represent" is, prima facie, capable of either of two meanings: namely that the plaintiff was to be the sole representative of the defendant in Indonesia or that the plaintiff was to represent only the defendant in Indonesia. The circumstances make it plain, in my opinion, that the true construction of that phrase was the former of those meanings. The plaintiff was, as I have indicated, a member of the Australian Lobby doing business with various Australian companies.

In relation to the meaning of the term "invisible costs" referred to in the Memorandum of Understanding, the parties were in dispute.

This dispute is a central issue in the action and I shall revert to it in due course.

Among the papers tendered is a Memorandum of Understanding between the plaintiff and PT Bintang Dharma Hurip Appraisal and Property Consultants ("Hurip") bearing the date 18 November 1992, whereby Hurip agreed to act as exclusive consultant and adviser to the plaintiff in relation to abattoir projects in Indonesia. The agreement includes the following provisions:

"Party B '[the plaintiff]' agrees to provide operational funding to Party A '[Hurip]' for the purpose of Party A's invisible costs.

The agreed value of Party B's contribution to Party A's invisible cost shall be Rp.3,000,000 per month (Three million Rupiahs) and shall be payable at the beginning of each month.

Upon the success of a project as initiated by Party A, Party B will also pay to Party A further invisible costs. This invisible cost is not to exceed 20% of the total project quotation price."

The proposals relating to projects in Aceh and in Lhok Seumawe, to which the earlier agreements and arrangements related did not come to fruition.

In or about January 1993, the plaintiff and the defendant entered into an agreement, partly written and partly oral, whereby the plaintiff agreed to act as the defendant's agent in connection with a proposed contract between the defendant and an Indonesian company, PT Bina Karunia Alam Nusantara ("BKAN") for the construction and commission by the defendant of a proposed abattoir complex in Indonesia. The parties executed a written Memorandum of Understanding which is dated 6 January 1993. That document contains, inter alia, the following provisions:

"This MOU is established between the two parties, herein after referred to as:-

PARTY A being Western Refrigeration 74

13 Newburn Road, Kewdale, Western Australia.

PARTY B being Mr Robert A Darmago

JI Sekolah Kencana II/27 Pondok Indah

Jakarta Selatan 12310 Indonesia.

Where by Party B agrees to act on behalf of Party A to endeavour to secure an irrevocable Letter of Credit to the value of Fifty thousand United States dollars (USD50,000.00) as a security commitment fee for the design, documentation and finance application for the credit facility (undertaken by Party A) to construct and commission the proposed Abattoir complex for PT Bina Karunia Alam Nusantara (herein after referred to as BKAN) of Jalan Kaliurang km 5 No.36 Yogyakarta 55225 Indonesia.

The Irrevocable Letter of Credit is to be established with an Indonesian Bank acceptable to the Banking authorities in Australia.

...

Party B (Robert A Darmago) is to solely represent Party A for the BKAN project, for which an agreed 10% (ten percent) commission on Western Refrigeration 74 quoted F.O.B contract price will be paid by Party A to Party B. This commission is to be disbursed progressively once supply contract is signed and deposit monies are received.

'Invisible costs' for the BKAN project is not to exceed 20% of the F.O.B project quotation price. These Invisible costs are to be the responsibility of Party B and disbursed accordingly."

Subsequently, it seems, a company with the same directorate as BKAN was substituted for BKAN as the contracting party for whom the abattoir was to be built. That company was PT Abilowo Djoyo Cattle Industries ("ADCI"). The leading director of both BKAN and ADCI was one, Drs Sasmita and he played a significant role in what took place. I was informed that he had declined an invitation to give evidence in this action so that I have not had the advantage of hearing from him as to his version of what occurred.

A contract was concluded between ADCI and the defendant for the construction and commissioning of the abattoir. The free on board contract price eventually struck for the construction of the abattoir by the defendant was US$1,800,000 to which must be added the freight and commissioning charges of US$142,987.

Drs Sasmita asked the defendant to increase the stated contract price by a further US$500,000, to be paid by the defendant to his company, as it was cheaper to borrow funds from the Australian organisation, Export Finance and Insurance Corporation ("EFIC"), than from Indonesian sources. This was agreed to by the defendant. The effect was that when the defendant applied to EFIC for an advance of funds in connection with the contract, the defendant misrepresented the contract price to EFIC by the additional US$500,000. The contract was concluded in time and the final contract price was $2,982,987, made up as follows:

FOB price US$1,800,000

plaintiff's commission US$ 180,000

invisible costs US$ 360,000

Freight & commissioning US$ 142,987

Sasmita's "mark-up" US$ 500,000

US$2,982,987

No mention was made in the defendant's application to EFIC of either the commission or the invisible costs payable to the plaintiff and it is clear that the figure given included the additional US$500,000 requested by Drs Sasmita. As to the question of commission, the defendant wrote "N/A" against the item: "(viii) Commissions payable by the exporter."

Mr Dallimore gave the following relevant evidence under cross-examination:

"So when you met with Mr Darmago early in January 1993 you had fully costed the job, hadn't you?---Subject to the scope of supply being verified, yes.

In fact, you had costed the job so precisely that you were able to give Mr Darmago an FOB figure, weren't you?---In round figures, 1.8 million.

So are you saying that the true FOB figure as at 11 January was $US2.79 million?---That's what that says, yes.

Is that what you say?---It's a form I have filled in; that's what I have said, yes.

It's not true, is it?---Obviously not.

And you knew that at the time. You knew that at the time because you and Mr Fullerton had put in the hard yards to work out the more precise figures, hadn't you?---We had been working - well, subject to confirmation of the scope of supply, we done it.

And you knew because of the work you had done that that figure wasn't true?---Yes.

You knew that you were leading EFIC to believe that the estimated total contract value was $3,000,000 when you knew that the contract value was a lesser sum?---Yes, to bring us under that, so we didn't have to go through the paperwork again."

It is clear, therefore, that the defendant made false representations to EFIC, well-knowing them to be false, in order to obtain a greater sum of money from EFIC than it could have received had it disclosed the true position. Drs Sasmita and his company were privy to that deception.

The question of "invisible costs" looms large in this action, the plaintiff describing them variously as a "success fee" but also as a payment by way of fees to his consultants and advisers for services rendered, whereas the defendant said that the plaintiff had informed it that the invisible costs represented bribes necessarily to be paid to Indonesian officials so as to ensure that the project upon which the parties were to embark could go ahead. Mr Dallimore, a witness called by the defendant, gave evidence to the effect that on or about 9 or 10 February 1993 there was a meeting attended by the plaintiff and representatives of the defendant, in the course of which the plaintiff showed the persons present certain documents, two of which he handed over (exhibits 92 and 93). These were marked at the foot "(THIS PAGE IS ACTUAL AND MAY BE SHOWN TO WESTERN REFRIGERATION 74 ONLY)". With reference to that meeting, Mr Dallimore gave the following evidence:

"Was there any inquiry made of Mr Darmago at that time as to the invisible costs?---Certainly.

What was said?---It is during the course of this meeting and what I believe to be page 3 of this document that there was a schedule of where invisible costs would be disbursed and you can see that

We will come to that?---Okay.

Were any questions asked about the payment of invisible costs of Mr Darmago as to who would be paid?---Yes. We asked where they were going and the

Did he provide you with that information?---He didn't hand over the sheet to us but I saw the sheet across the desk, yes.

Did he read from the sheet?---He was referring to the sheet in front of him, yes, during our discussion.

Did he say to whom the invisible costs were to be disbursed?---Just basically as far as I can recall he was sitting there with the sheet in front of him. The names were written down there and the invisible costs would be disbursed to these people at the appropriate stages of disbursement.

At the time that he made that disclosure to you what did you do?---I was sitting across the table and I was writing these down because to me the figures didn't seem to add up.

Could you look at this document? It's a more legible copy of page 330. What were you told and what did you record on that document at that time?---I recorded there up the top, 'Combined price of 540,000 for Robert Darmago's commission and invisible costs,' and then I have noted where payments were going to be made as percentages of the contract price. I noted there, 'Governor of Central Java, director-general of animal health, mayor of Salatiga'

Okay. Governor of Central Java? Could you just read out what you have written?---Right. '10 per cent of contract value, $298,298,' and then, 'Director-general, the director of animal health and the mayor of Salatiga, 1 per cent each, 89,490, BAPINDO Bank, 2.5 per cent, 72,322, Sri Dadi's staff, .5 per cent, 14,465, being a total amount of $474,575.' Then I wrote underneath, 'Total to Robert Darmago,' or RD, '540,000 less 474,575, is 65,425.' After working

You wrote this out?---I wrote that off what I saw across the table.

Was Mr Darmago speaking to that document, reading from that document?---He was making reference to the document and talking amongst the group that were there, yes."

He said that that the plaintiff showed to the defendant's representatives the document, now exhibit 92a, which refers, inter alia, to invisible costs, upon which document, Mr Dallimore has recorded the information which, he says, was given by the plaintiff at the relevant time as to how the invisible costs were made up, namely:

"Governor Central Java

10% contract value 298,298

Director General, Director Animal

Health, Mayor Selatiga 1% each 89,490

Bapindo Bank 2.5% 72,322

Sri Dadi staff .5% 14,465

Total = 474,575

Total to RD = 540,000 - 474,575 = 65,425"

The figures represent United States Dollars.

The FOB price under the contract was US$1,800,000 so that the upper limit of the invisible costs was US$360,000. Accordingly, the arrangement between the parties was that the contract price should be the aggregate of the FOB price of $1,800,000, the commission payable to the plaintiff of $180,000 and the further sum, for invisible costs of $360,000, a contract price of US$2,340,000 to which the freight charges were to be added.

In the pleadings, it was said by the plaintiff that the invisible costs were the costs to be incurred by the plaintiff in the engagement of such Indonesian consultants and agents as the plaintiff saw fit in order to secure the contract. Indeed, evidence was given by the plaintiff and by his witness Izwar Thaib to the effect that the plaintiff had paid US$360,000 to Hurip, which the plaintiff had secretly engaged as a consultant. The identity of the plaintiff's consultants were to be kept confidential and not disclosed to the defendant.

On 16 August 1993, the defendant wrote to the plaintiff a letter which included the following passage;

"INVISIBLE COSTS

At the meeting you stated that you had made payments of 'invisible costs' to various parties - could you please, by return mail, confirm the names of the parties, amounts paid and dates of such payments."

The plaintiff replied, in a letter dated 18 August 1993, saying:

"INVISIBLE COST

In my commitment to maintain confidentiality and hence uphold my reputation in Indonesia I must decline your request to confirm names, dates and exact amount."

Mr Dallimore said that the defendant had been told by the plaintiff that, in order to do business in Indonesia, it would be necessary to pay bribes to various government officials who could facilitate matters if so induced. The defendant was, therefore, prepared to charge the customer and pay over to the plaintiff an amount of US$360,000, to be used to pay bribes, but on the understanding that if the whole of that sum were not needed for the stated purpose, any amount remaining would be divided between the plaintiff and the defendant in equal shares.

The plaintiff denied that the invisible costs represented bribe money and said that the money was needed to pay his consultants. He said that he did not wish to inform the defendant of the name of his consultants, for fear that the defendant might dispense with his services in future and deal directly with them.

In further particulars furnished by the plaintiff on 19 June 1998, the plaintiff set out in some detail the services said to have been provided by Hurip to him in connection with the contract for the abattoir and for which he paid them US$60,000, pursuant to an invoice dated 13 July 1993, $100,000 pursuant to an invoice dated 7 December 1993 and $200,000 pursuant to an invoice dated 6 January 1994. While in the further particulars filed on 19 June 1998, the plaintiff has set out details of the services allegedly furnished by Hurip to him covering 10 pages of typescript, the invoices actually sent to the plaintiff by Hurip gave no details whatsoever as to services rendered, each containing the brief narrative "invisible costs" alone. There was no explanation of the reason for three invoices, of which only the first could arguably be based upon the proposition that these invisible costs should be paid progressively as the defendant received payment from EFIC or from ADCI. It is, I think, remarkable, if the plaintiff's evidence be true, that the invoices from Hurip took the form of the exhibits tendered, being exhibits 161, 218 and 233. There was no obvious reason, if what the plaintiff said was true, why the Hurip invoices should not have reflected details of the services allegedly provided by Hurip or, as the case may be, that they represented a part of the "success fee" negotiated between the plaintiff and Hurip. There was an air of unreality about these invoices, as there was about the evidence of Izwar Thaib, who gave evidence through interpreters, notwithstanding that he had, in his curriculum vitae described his knowledge of English as good and notwithstanding that his agreements with the plaintiff were written in English. His evidence during his examination-in-chief concerning invisible costs was as follows:

(T338-339:)

"THE INTERPRETER: The word given to me is 'invisible costing'.

McGOWAN, MR: But what was the account for?---Our duty here is to start making a study of - feasibility study for this project and to introduce in some of the areas Mr Darmago and to facilitate or to help arrange the permits, permission. There is a difference between the consultancy language. Therefore the invisible cost means in that area that when the project doesn't go through, then we don't receive payment and when we say consultancy fee, this fee is payable even if the project fails."

The plaintiff's evidence (at 338) was:

"What was the account for?---Here we enter the invisible costs.

At 343:

Do invisible costs include costs associated with contract preparation and negotiation?---Yes, that is for the result of our work.

Do you as a consultant pay invisible costs to any other person?---No."

At 353:

"The invisible costs do occur but it is not specifically in that connection. They occur when we don't know yet whether the project will or will not succeed.

Do they involve work that is done for contract preparation and negotiation. Just direct him to that question?---No. They do not occur then."

It is of course always difficult to make findings of credibility in the case where the witness speaks through an interpreter, largely because the question whether the witness really understood the questions is uncertain. On the face of it, the above answers under cross-examination were mutually contradictory.

For the plaintiff, two different meanings of the term "invisible costs" were suggested, namely:-

1. Fees paid to the plaintiff's consultants and advisers;

2. A success fee depending on the project proceeding;

For the defendant it was alleged that the term meant bribes for Indonesian officials, both governmental and banking.

There are several difficulties, as I see it, in accepting the plaintiff's contention as to the meaning of the term "invisible costs".

The plaintiff's facsimile transmission of 4 November 1992, which I have quoted above and which contended for the payment of invisible costs throughout the duration of the project, seems wholly inconsistent with the "invisible costs" being a success fee, which would be dependant upon the successful conclusion of the project.

The plaintiff maintained that the reason for calling them "invisible costs" was that he was unwilling to disclose the identity of his consultants - for fear that the defendant would go straight to them instead of working through the plaintiff. There was no satisfactory explanation offered by the plaintiff for his not having described the amount in the written agreements or correspondence, as fees payable to consultants whose identity would remain confidential to him.

The plaintiff gave the following evidence as to the meaning of "invisible costs":

(T59):

"Yes, doing the best you can, if you could tell his Honour what you said and what Mr Dallimore said?---Right. So basically I mentioned to him that our relationship now needs to be more formalised because things are moving and we don't really know where we stand, so conceptually Phil Dallimore first of all said, 'Okay, what we will do is we will get agreements from our clients,' and we discussed, first of all - it was a very long meeting at the time - the concept of the memorandum of understanding which we should get from - between ourselves. So we talked about the concept of the 10 per cent commission. We talked about the - but the commission was based on the total project quotation prices, and we also talked about the concept of the 20 per cent invisible cost. Again I explained to Phil Dallimore what invisible costs are. I didn't know what else to call it because the thing is that you know that my business is in the form of representing many Australian companies which I am not an expert at, and I do have my consultants and advisers. I cannot tell you who they are because if I told you who they are then I am out of a job and this is just my asset that I don't tell you what or who these people are.

What you're telling your Honour, is that what you told Mr Dallimore?---Yes. Yes, so basically Phil Dallimore agreed to this, that this is part of my asset, and so we will term this as invisible cost; invisible, that means it is actually almost like a translation of Indonesian phrase which means that it cannot be seen. That means I am not to show you who I'm paying.

So who first used the term 'invisible cost'?---I did.

Right. Did Mr Dallimore ask you to explain it?---Yes, he did.

Did you give the explanation that you have just given?---Yes, I just - yes."

In relation to a meeting he had with Graham Johnson, Richard Fullerton and Dokdorandus Sasmita on 17 September 1993, the plaintiff gave this evidence:

"Can you tell his Honour what was said at the meeting?---At the meeting Richard Fullerton asked me who it was that I paid as invisible costs. I repeated the matter again because I have told him, 'We have been through correspondence. You have asked me earlier. I have talked all throughout the system that the invisible costs is not for me to disclose. It is to be paid automatically once supply contract is signed and once I receive the letter of credit of $50,000.' It has been in the past that I also told him that I am not to disclose who it is because it is paid automatically. I gave the example of the $81,000. It was they that gave me the wording of the $81,000. We have to remember that the $81,000 - two-thirds of that is the invisible costs component. So only $27,000 was my commission which I had to receive and the remainder, which is about $54,000, is actually the invisible cost component of that project and that was paid automatic without me giving an invoice or telling them what that invisible cost was made for. Then Richard Fullerton told me if I don't disclose to him who the invisible costs were paid to, he would not pay me the remainder of the funds.

Did you say something in response to that?---Yes, I did. I said, 'We have an agreement as shown in 6 January 1993. If you don't pay me these funds, then I will take legal action in Australia.'

Did Mr Fullerton respond to that?---No, he did not.

How did the meeting conclude?---After that we just left."

When the plaintiff was cross-examined, the following took place (T176):

"Are invisible costs bribes?---No.

Were they ever described as bribes?---No.

Never?---Not by me.

Are you certain of that?---Yes.

They are known in Indonesia as bribes, aren't they?---No.

Not at any stage?---People may call them that but that's not what I or my consultant refer it as.

Well, are invisible costs also known as bribes in Indonesia?---Are they also known as bribes?

Yes. Does the term "invisible cost" include bribes?---I don't know. It may be used by some people but that's not what I use it for.

I will come back to that point, if it please your Honour.

Did you suggest that the moneys you would have to pay - or that may be added to the cost of any project in Indonesia, were bribes to conceal the fact that you were unable to do the work yourself?---No.

Would you have a look at this please? What is the date of that document? In the middle of it, it has got a file name?---Dated 24 February 1997.

It is described as a Substance of Expert Evidence, on the face of the document?---Yes.

It is filed by Messrs Phillips Fox for the plaintiff? ---Yes.

Could you read the part that is highlighted?

'---The meaning of invisible costs does include payments in the nature of bribes but is not limited to those types of payments.'

I take it that that was done in accordance with your instructions?---I don't quite - yes, perhaps.

As at February of 1997, did you then consider that invisible costs includes bribes?---Invisible costs may include bribes but not necessarily it is bribes."

I asked the plaintiff (T190):

"Mr Darmago, who first suggested a figure of 20 per cent for the invisible costs?"

He replied:

"When I first met with my consultant I asked them how it was that they normally worked. They said to me, 'We would either have it on an hourly basis between 25 to 250 dollars an hour or we can have an arrangement.' I told him that I was not willing to go to the 25 to 250 dollars range because that means if the project hadn't been successful, I would have to pay all this money to them and I wasn't willing to take that commercial risk. So they tell me a range. They have also been involved in promoting companies and doing studies and promotions based on percentage of a figure. So it was actually my consultant who told me that roughly they will go between 20 to 30 per cent on that figure but that was based almost on a success. So therefore if the project was not successful, then it was not payable. He gave me the example of, 'What we are doing here is just like drilling for oil. So what we do is we drill for many holes but then once we hit one, then we have got to make sure that that is going to be very high in order to cover all our costs.' So that 20 per cent figure was actually mentioned by my consultant."

That evidence led to the following exchange:

"BIRMINGHAM, MR: Am I right in understanding then that the - so a consultant tells you 20 per cent, he gives you certain advice and this certain advice is used for a number of projects?---Initially, yes.

The advice is to be paid for by 20 per cent on every project that is successful?---That was the arrangement that I had.

There's no distribution of cost of this consultant as between the failed Aceh project or the Lhokseumawe project of the BKAN project?---Because the advice and information given was common to all. For example, when I was still under the first MOU and when I made - they advise about the meeting with Sri Dadi Wiryosuhanto and also attending the seminar at the Hyatt at which time I met with Doktorandus Sasmita which led to the project of BKAN. So you cannot say that anything that I paid them before the BKAN project was not for the BKAN project because it was an ongoing, flowing thing. So the documents I also had that they provided me for Aceh and also the documents that they provided me for abattoirs and so on that they provided to me early in the case were still common to the BKAN project because that gave me a background of the industry and a background of the market in Indonesia which, of course, assisted greatly when I made my presentation to BAPINDO bank to show them that the project is feasible. It showed them my understanding of the situation and it convinced them that the project was feasible.

But, Mr Darmago, all of this sort of information, isn't it the very thing that you learned when you were doing your market research?---No. It is a different thing between a feasibility study and a market research. A market research

Is it fair to say that what you have outlined, that the client is going to - on your basis he's expected to pay the person who is having the abattoir built or the freezer plant or whatever - is expected to pay 20 per cent on top of the purchase price every time for this one piece of information that you have got?---I'm sorry, are you speaking about between my consultant and I?

The 20 per cent invisibles?---Yes.

You get some information and you say, 'Because of that I charge an extra 20 per cent because I'm obliged to pay my consultant 20 per cent'?---Yes.

And you then use that information for some other project somewhere else, maybe even a different client. You still have to pay him 20 per cent?---This is to my consultant?

Yes?---At that time the arrangement was such, yes."

The fact that Hurip invoiced the plaintiff for its "services" by using the term "invisible costs" as the sole and entire recital, throws doubt upon the allegation that the invoices related either to consultancy services or to a "success fee". Had there been any truth in the allegations that the "invisible costs" were either the consultancy fees or a success fee, one would have expected, as between Hurip and the plaintiff, a proper description of the charge allegedly made by Hurip. There was no apparent reason for any disguise, as between those parties, of the nature of the charge being raised. I am left with the strong impression that the Hurip invoices are entirely fictional. I was not favourably impressed by either the plaintiff or Mr Thaib as witnesses of the truth and their evidence as to the nature of the "invisible costs" lacked persuasion. As I have indicated, the plaintiff was at times quite prepared to furnish false invoices to the defendant (with the connivance of the latter), probably for the purpose of obtaining funds to which the defendant was not entitled and which would not have been paid to it had the invoices been truthful. Although this was denied by the defendant, there was no reasonable alternative explanation for the necessity to alter the wording of the plaintiff's invoices to the defendant as between those parties.

I find, as a matter of probability, upon the evidence as a whole, that the plaintiff represented to the defendant and the defendant acted in the belief that the invisible costs were moneys to be used to bribe Indonesian government or banking officials to facilitate the progress of the contract for the construction and commissioning of an abattoir in Indonesia. Of course, I need hardly say that I make no finding that the moneys so provided were in fact used for such a purpose - there is no evidence which would support any such finding, albeit there is evidence that the plaintiff orally gave to the defendant details of payments allegedly made by him to various officials, which were noted by Mr Dallimore as I have mentioned.

The fact that the parties agreed that, if the invisible costs were not used for the agreed purpose, they would share the unused portion equally between them (rather than refund the unused portion to ADCI as might be expected) is a further pointer to the dubious morality of the contract between the parties. I am not persuaded that the plaintiff paid any consultancy fees (or any success fee) to Hurip. The plaintiff has denied having paid any amounts as bribes to officials in Indonesia. Accordingly, the plaintiff has not satisfied me on a balance of probabilities that he in fact incurred any invisible costs for which he is entitled to be paid.

At this stage it is appropriate to comment on the double standard displayed by the defendant. The defendant, having agreed to be a party to the illegal bribing of officials, pleads that the plaintiff is not entitled to recover the agreed invisible costs because the enforcement of such a contract is contrary to public policy. The evidence shows that a payment of US$81,000 was made by the defendant to the plaintiff pursuant to the agreement between them, made up of US$21,000 as part of the plaintiff's commission and as to US$60,000 as part of the invisible costs element in the draw-down received by the defendant. Despite the aforesaid contention by the defendant that the enforcement of the contract is contrary to public policy, the defendant counterclaims for repayment of the US$81,000.

I should at this stage state that I am not persuaded that the plaintiff was otherwise in breach of his contract with the defendant. The abattoir was constructed and paid for to the defendant, which received the entire contract price, including both the 10% commission payable to the plaintiff and the 20% invisible costs. For some reason, not satisfactorily explained, the defendant, while refunding part of the contract price to Drs Sasmita personally (and not, it seems to ADCI), retained a substantial amount for its own undisclosed purposes, namely US$110,490 (T929). At a meeting at the Sheraton Hotel on 1 March 1994, Mrs Fullerton, on behalf of the defendant, informed the plaintiff that the defendant had paid out all the contract moneys except for US$99,000. Although Mrs Fullerton denied this, the probability is that that sum was intended to refer to the difference between the agreed commission payable to the plaintiff (namely US$180,000) and the aggregate of US$81,000 which the defendant had previously paid to the plaintiff for part of the agreed commission and invisible costs.

The defendant submitted that the relationship between the parties was of a fiduciary nature. All of the facts and circumstances must be carefully examined to see if a fiduciary relationship exists and the nature of that relationship: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41. It submitted that the relationship between the defendant and the plaintiff was such that the defendant was entitled to expect that the plaintiff would act honestly in its interests: Lintrose Nominees Pty Ltd v King [1995] VicRp 35; [1995] 1 VR 574; Tweedvale Investments v Thiran Pty Ltd (1995) 14 WAR 109. The defendant submitted that an agent is not entitled to remuneration in respect of transactions in relation to which he is in breach of his duties as agent, where the breach goes to the root of the contract or otherwise justifies the principal's repudiation of the liability to pay: Bowstead on Agency 15th ed pp 240-241.

In this regard, I accept the following submissions by counsel for the plaintiff:

"The principle that a fiduciary loses the right to recover remuneration when he has breached his fiduciary duty recognises the features of the special relationship. Application of the principle should therefore take into account the nature of the relationship and any contractual variations to the fiduciary duties that would otherwise exist.(Boardman v Phipps [1966] UKHL 2; (1967) 2 AC 46,123-5). Salomons v Render [1865] EngR 365; (1863) 3 H & C 639, Turner v Law on Tide Finance Ltd 97 DLR 3rd Ed 429, Thornton Hall & Partners v Wembley Electrical Appliances Ltd (1947) 2 ALL ER 630, Tombill Gold Mines v Hamilton (1955) 1 DLR 101, Harrods Ltd v Lemon (1931) 2 RB 161.

The fiduciary may be entitled to remuneration if there was no dishonest intent. Keppel v Wheeler (1927) 1 KB 577, Erikson v Carr (1945) 46 NSW (SR) 9, Hippisley v Knee Bros (1905) 1 KB 1.

The alleged breaches of duty must be referable to the remuneration. The alleged conduct pleaded in paragraphs 3(ix) and 20(i) and (ii) of the defence to counterclaim relates to conduct prior to the 6 January 1993 MOU. If the alleged conduct occurred it could not be a basis for loss of remuneration due under a subsequent contract. (Nitedals Taendstifabrik v Bruster (1906) CR 671, Erickson v Carr (1945) 46 NSW (SR) 9."

In any event, as I shall mention shortly, I consider that the defendant is not in a position to complain of breach of duty by the plaintiff in the circumstances of its own breaches of contract.

In the circumstances, I do not uphold this submission by the defendant.

The defendant went on to contend that the plaintiff's conduct:

"(i) in misrepresenting:-

(a) his capacity to perform the required task;

(b) the payment of invisible costs;

(c) that he was authorised by Dr Sasmita to receive money and make payments on behalf of BKAN;

(ii) by seeking to require Dr Sasmita to compel the Defendant to pay the Plaintiff;

(iii) by making overtures to the Defendant's competitors in an effort to bolster his position before making his demands on 5th January 1993 and to thereafter continue to deal with the Defendant's competitors;

all strike at the very essence of the fiduciary obligations so as to be fatal to the Plaintiff's entitlement to remuneration."

The nature of the relationship between the parties must be analysed to determine the scope of the plaintiff's duties and obligations to the defendant: Boardman v Phipps [1966] UKHL 2; (1967) 2 AC 46 at 123-5. Such duties and obligations may be limited by agreement: Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178. The plaintiff was not under a duty not to represent any other Australian company than the defendant in Indonesia.

The defendant was in breach of its contract with the plaintiff from the outset and I am not persuaded that the plaintiff did breach his fiduciary duties as alleged or, if he did, that this occurred before the defendant was itself in breach of contract. On that basis, the defendant cannot, in my opinion, complain of a breach of duty by the plaintiff resulting from its own breach of contract.

There were further submissions by the defendant, namely:

"The failure of the Plaintiff to perform his task to assist BKAN of obtaining all relevant authorisations and to comply with the EFIC requirements or to pay the invisible costs as undertaken by him on behalf of BKAN or to account to the Defendant in respect of those incurred, is a breach of the terms of his appointment whereby the Plaintiff is not entitled to the or any remuneration claimed."

In relation to that submission, I uphold the submission on behalf of the plaintiff that it is not a term of the contract between the parties that the plaintiff would do everything to secure the supply contract. His obligation was basically to assist. It is no answer to the plaintiff's claim that the defendant and Drs Sasmita were also required to attend meetings, to travel to Indonesia and generally assist in securing the supply contract.

The defendant then submitted that:

"The MOU on its face is uncertain insofar as the term 'invisible costs' and the manner in which the same are to be dealt with is, at best, ambiguous or unclear. The Defendant accepts that extrinsic evidence may be admitted to clarify any ambiguity: Codelfa Construction Pty Ltd -v- State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352."

I do not accept that submission. The meaning of the term "invisible costs" has been clarified by the evidence, as I have indicated above. I agree with the submission by counsel for the plaintiff that the court should be reluctant to hold an agreement uncertain when the parties have shown they understood and can apply the terms of the agreement: York Air Conditioning and Refrigeration (A'sia) Pty Ltd v The Commonwealth [1949] HCA 23; (1949) 80 CLR 11, 53; Sinclair v Schildt (1914) 16 WALR 100. I have found that the plaintiff informed the defendant that the term meant moneys paid as bribes to Indonesian officials and that the defendant understood that and agreed thereto.

The defendant submitted that on its proper construction the agreement required the plaintiff to account to the defendant in respect of all 'invisible costs' dispersed by him and that this obligation is to be found from the terms of the agreement and implied by the nature of their relationship whereby an agent is obliged to account to his principal in respect of all acts and expenditure incurred. In my opinion, it was a term of the agreement between the parties that the plaintiff would not disclose to the defendant the identity of the payees of the proposed bribes, nor the amounts thereof. In any event, as I have found that the plaintiff has not established an entitlement to be paid "invisible costs", this submission falls away.

The defendant submitted that

"An agreement made in Australia which contemplates the performance in a foreign and friendly country of some act which is harmful to the public welfare of that country is a breach of international comity and is regarded as illegal by Australian Courts: -Foster -v- Driscoll [1929] 1 KB 470, 510, 520-22; [1928] All ER 130, 143, 147-9.

Agreements to do an act which will violate local law is similarly illegal. - Regazzoni -v- K C Sethia (1944) Ltd [1958] AC 301; [1957] 3 All ER 286.

The MOU between the Plaintiff and Defendant is void from its inception and the Plaintiff cannot seek to enforce it.

The Plaintiff's claim for commission is so bound up with the entire agreement and its performance that severance of the offending portion of the agreement is not possible."

I accept the propositions of law contained in those submissions. However, the plaintiff denies that bribes were paid and I have already pointed out that the evidence does not establish that they were in fact paid. In my opinion, the contractual terms relating to the invisible costs were severable from the remainder of the contract. The finding that the plaintiff is not entitled to any part of the invisible costs is not a bar to his entitlement to be paid his commission.

The defendant submits that it would not have agreed to continue dealing with the plaintiff if the true position had been disclosed, save for his threat to take the project elsewhere: Westpac Banking Corporation v Cockerill & Ors (1998) 152 ALR 267; Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40. I am not satisfied that the evidence makes out that position. In my opinion, the defendant was prepared to go to extraordinary lengths to secure the Indonesian contract in the face of its own financial problems as they then existed. The defendant was prepared to agree with the plaintiff that the latter should utilise client's funds to pay bribes in Indonesia and it also went along with the client's proposal to inflate the contract price so as to obtain a greater advance from EFIC than would have been available had the true contract price been disclosed.

The defendant was agreeable to the artificial inflation of the contract price by an amount of US$500,000 at the request of Drs Sasmita, apparently on the basis that it would be cheaper for Drs Sasmita's company if the funds he required were made available from EFIC rather than from some Indonesian bank, whose rates of interest were higher. This involved a misrepresentation to EFIC in connection with the funding of the contract.

Furthermore, when invoices were submitted by the plaintiff to the defendant, the latter, through Mr Dallimore, asked the plaintiff to issue new invoices containing patently false narratives. Mr McGowan suggested to Mr Dallimore that this had been done in order to obtain moneys from the Australian Trade Commission or from EFIC, but Mr Dallimore denied this.

The plaintiff's invoice No 093/CFI/VI/003 dated 1 June 1993, submitted in respect of US$60,000 of the invisible costs, contained the following narrative:

"Promotion of Fullerton Contact Plate Freezers

-December 1992 to May 1993 US$30,000.00

-June 1993 to November 1993 US$30,000.00

Total US$60,000.00"

On 16 July 1993, Mr Dallimore, on behalf of the defendant wrote to the plaintiff a letter, reading in part:

"Please find attached copy of wording required on the invoice for your sixty (60) thousand US dollar account.

Will you send us a fax of the modified invoice and mail the original to our office as soon as possible."

The plaintiff complied and the "modified" invoice, sent to the defendant under cover of a facsimile transmission dated 19.07.93 (exhibit 168) read:

"5th July 1993

Establishment of Western Refrigeration 74 office facilities in Jakarta.

Establishment fee for period 1st July 1993 to 30 June 1994

TOTAL US$60,000.00."

The facts stated in that invoice bore no relation to the truth.

The defendant, through Mrs Fullerton, produced as exhibit 264, a list of payments said to have been made by the defendant on behalf of Drs Sasmita, such sums being deducted from the moneys owing to ADCI. There was a strong air of contrivance about that list and the defendant's evidence relating to it was unconvincing.

The plaintiff has failed to persuade me that he is entitled to any part of the amount described as "invisible costs", and his claim for the balance of that item fails accordingly. The defendant has not demonstrated any defence to the claim for the agreed commission of US$180,000, against which the sum paid, namely US$81,000 must be offset. The defendant was paid that amount by ADCI and has retained it. In my opinion, it is not justified in so doing: the contract was completed and the defendant was paid the full contract price. In my opinion, therefore, the plaintiff is entitled to recover from the defendant the balance of his agreed commission, namely US$99,000. The defendant's counterclaim must fail accordingly.

In the result, I award judgment in favour of the plaintiff in the sum of US$99,000.

I shall hear from counsel as to the appropriate order as to interest and costs in the circumstances.


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