Tito v. Waddell

[1977] 2 WLR 496 (Ch.D.)

Chancery Division

Summary:
The plaintiffs were the native occupants of a small island in the South Pacific that contained a large amount of phosphate.  A defendant mining company was granted the rights to mine the phosphate on the island. A term of the mining contract was that the mining company would replant trees on the island once the mining was over.  The mining was extensive and eventually all of the inhabitants of the island were moved to a neighboring island.  There was also a claim for additional royalties for the
original inhabitants. Furthermore, a claim was made on the basis of a fiduciary duty, to order the cleaning up of the island. 

 

The court held that there was no enforceable right to additional royalties, but there was a duty to replant/recover the mined out areas. However the court refused to grant specific performance because it made neither aesthetic nor economic sense. Therefore the issue become one of what was the appropriate quantum of damages.

 

It was held that even where there is a disparity between the cost of cure and the diminution of value if the cure is not implemented, the cure will be ordered by specific performance only if the work has been done or if it can be shown that it will be done.  However in this case there was no evidence that the trees would be replanted; there was no “fixed intention” to complete the work which was supposed to be done under the contract. The question in each case is: what damage has the plaintiff suffered from the breach?

 

Full Judgment:
 ACTIONS
The facts are stated in the judgment.
1976. November 29. MEGARRY V.-C. read the following judgment.

I. GENERAL
1. Introduction.This is litigation on a grand scale. From
April 8, 1975, until June 18, 1976, I was engaged in hearing two cases relating to Ocean Island. Each was commenced by the same writ, issued on November 10, 1971. However, as one substantial section of the plaintiffs' claim did not directly concern one group of defendants, the three British Phosphate Commissioners, a sensible arrangement was made with a view to saving part of what were bound to be massive costs. A second writ was accordingly issued on June 18, 1973, with the British Phosphate Commissioners among the defendants; and then on September 20, 1973, the commissioners were struck out of the first action, which was left to proceed against Her Majesty's Attorney-General as the sole remaining defendant to a substantially reduced set of claims.
It was agreed on all hands that the action as constituted by the second writ should be heard first, and that the original action, in its reduced form, should follow immediately afterwards. As a result, the action heard first became known as "Ocean Island No. 1," even though it was the subject of the second writ; the action heard second, based on the reduced form of the original writ, thus became "Ocean Island No. 2." I shall continue to use these names, or the abbreviations "No. 1" or "No. 2." Put explicitly, Rotan Tito & Ors. v. Waddell & Ors., 1973 R.2013 is "No. 1," and Rotan Tito & Another v. Her Majesty's Attorney-General, 1971 R.3670 is "No. 2."
There was no agreement that the evidence in one case should constitute evidence in the other; but inevitably there was some degree of cross-reference between the two cases, and in No. 2 it was agreed that I should use in that case the background knowledge that I had acquired in No. 1. This inter-relation of the two cases was accentuated by various common elements. One was the sharing of counsel. For the plaintiffs there was accretion, and for the Attorney-General subtraction. Mr. Macdonald led for the plaintiffs in No. 1, and in No. 2 he was himself led for the plaintiffs by Mr. Mowbray. For the Attorney-General in No. 1, Mr. Le Quesne, until he left the Bar for other duties, led Mr. Vinelott, and thereafter Mr. Vinelott led for the rest of No. 1 and for all of No. 2. For the British Phosphate Commissioners, I may say, Mr. MacCrindle led Mr. Browne-Wilkinson in No. 1.
Another common factor was much of the documentation. Fifty bundles of agreed letters, reports, minutes, and other documents did duty in both actions, together with a rich miscellany of other documents; and five more bundles served in No. 1. In all, well over 10,000 pages must have been put before me. The documents and transcripts of the evidence, when stacked, stand well over six feet high, or perhaps I should say a little over two metres. This included the pleadings, which in No. 1 are over 120 pages long, ending with an amended surrejoinder to amended rejoinder; in No. 2 they are rather less in bulk and considerably shorter in substance, since over 35 pages consist of a detailed enumeration of documents relied on by the plaintiffs. In both cases there were many arguments on the pleadings, and much amendment during the hearings. In this, No. 2 perhaps surpassed No. 1; certainly its pleadings became more prismatic. On the other hand, No. 1 amply demonstrated for all concerned the physical difficulties in conducting litigation in an orthodox courtroom when in addition to the voluminous documents and a wealth of authorities there are manifold maps and plans, some of them five feet or more long or wide, and some with an area of 20 square feet or more.
In duration, No. 1 took 106 court days as against the 100 days of No. 2: and it also required the additional 15 days (between Day 74 and Day 75 of the hearing) that were needed for holding a view of the locus in quo in the circumstances that I have related in
Tito v. Waddell[1975] 1 W.L.R. 1303. I heard much evidence, though in No. 1 there were many more witnesses than in No. 2: there were over 30 in No. 1 as against nine in No. 2. This difference was reflected in the speeches; in No. 1 they took a little more than 60 days out of 106, whereas in No. 2 they lasted for about three-quarters of the 100 days. It took Mr. Macdonald about a month to open No. 1 and another month to reply. Much law was involved in each case. Over 130 reported cases were cited in No. 1 and over 90 in No. 2, with many passages from textbooks and other sources as well.
I have recited these statistical details at the outset as they help to explain a number of matters. First, all concerned have encountered the obvious difficulties of volume and complexity. Second, the press of materials inevitably left some loose ends, with some points doubtless thought to be not worth the pursuit. Third, the judgment in such cases is bound to be massive, and to deal with every point that has been raised would make it of intolerable length. Fourth, I propose to set out in one judgment much material that is common to both actions, and then to treat as being incorporated by reference such of the material as is relevant to each action, without repeating it. Fifth, I propose to deliver judgment first in No. 2, which is what remains of the original action, and then to deliver judgment in No. 1. I may add that I fully concur with counsel in thinking that the appropriate course to pursue was to hear both cases before delivering judgment in either.
There is one other matter that I must mention at this stage. I was told that a third
Ocean Island action was waiting to come on after No. 1 and No. 2 had been decided. Subject to one reservation by the British Phosphate Commissioners, I was accordingly pressed on all hands in Ocean Island No. 1 to express my views on all the issues that arose, even if by reason of some finding of fact or some ruling on a point of law that issue did not necessarily arise for decision in No. 1; for these views, it was said, might be of assistance in reaching a settlement in No. 3. No. 3, I was told, has not far short of 300 plaintiffs, instead of the dozen or so in No. 1 whose cases were intended to represent the various combinations of fact that might arise in No. 3. In due course I shall have to consider how far I can properly give effect to this request, and to the reservation that went with it: this related to what was known as the purple land. For the present I merely record it, and also the fact that I know little more about No. 3 than is indicated by this statement.
I should add that in this judgment I have inserted a number of headings; and I shall preface the transcript with a list of these headings in order to provide something of a table of contents. I do this merely for ease of reference; the headings are not intended in any way to affect the meaning of the text.
2. Ocean Island.I must first say something about
Ocean Island. It lies just south of the equator in the Western Pacific, about 170o west of Greenwich, and roughly half-way between the Hawaiian Islands and the coast of Australia. Its nearest neighbour is Nauru, lying some 160 miles to the west; and Nauru plays an important though subsidiary part in the story. Both islands are known as phosphate islands, in that nature has given them deep deposits of high- grade phosphates. Whether these are of avian or marine origin seems to be uncertain. Ocean Island has a surface area of not much over 1,500 acres, or some 2 1/2 square miles. It is roughly circular in shape, except for a bite taken out of the southern side, which is called Home Bay. Viewed in profile, the island is the shape of a shallow dome, with the centre of the island rising to some 250 feet. The structure of the island consists of a coral limestone base overlaid by phosphate; and there is a surrounding coral reef which dries out at low tide. On the island the coral is mainly in the form of a large collection of what are usually called "pinnacles." These are not easy to describe, and although the photographs are helpful, they do not really convey the picture that meets the eye. In its natural state, the surface of the island consisted of grass, trees and vegetation, growing more or less directly out of alluvial phosphate, with very little of what could be called "topsoil" in any real sense of the word; but there are outcroppings of coral pinnacles, of a greyish colour. The process of extracting the phosphate consisted of open-cast working which removed the relatively small quantity of alluvial phosphate, consisting of small fragments down to a dust, and the relatively large quantity of phosphate in rock form, some rocks weighing many tons. The phosphate deposits were deepest in the centre of the island, and there the process of extraction has left a terrain consisting of scores of pinnacles to the acre, many standing 60 or 80 feet high, or more, with pits beside each of them narrowing down to a small area. The pinnacles themselves are of widely varying shapes and sizes, with abundant pitting and erosion; admirers of modern sculpture might find much to please them in the pinnacles.
The depth of the phosphate deposits decreases as one approaches the coast, and there is a substantial "pinnacle belt" of exposed pinnacles, mainly on the east and north, where the land drops away on the seaward side. On the surrounding rim of the island there is not enough phosphate to be worth mining. The main residential quarter for the staff and workmen who extract the phosphate is near the south-west and west of the coast; and the plant for treating the phosphate and providing services is on the south. I shall say more about the physical features of the island in due course; for the present that suffices.
3. The litigation.The general shape of the litigation is that various claims are made by the Banabans against the British Phosphate Commissioners and the Attorney-General, as representing the Government of the
United Kingdom. Before I outline these claims, I must say something about the background. When phosphate was discovered on Ocean Island in 1900 the island was occupied by a population of some 500 indigenous inhabitants who called the island "Banaba " and were themselves known as "Banabans": in each name the first "a" is long, being pronounced as if an "r" were inserted between it and the following "n. " For 20 years the phosphate was extracted by a British company, first by the Pacific Islands Co. Ltd., and soon, from 1902, by its subsidiary, the Pacific Phosphate Co. Ltd. Then in 1920 the British Phosphate Commissioners were constituted by the governments of the United Kingdom, Australia and New Zealand. This was when the governments had jointly acquired the mining undertakings which the company had built up on Ocean Island and on the neighbouring Nauru as well.
Since 1920 the mining has been conducted by the British Phosphate Commissioners, with one commissioner appointed by each of the three countries. The commissioners, who were never incorporated, held the undertaking in trust for the three governments in the proportion of 42 per cent. for the
United Kingdom, 42 per cent. for Australia, and 16 per cent. for New Zealand. The mining of phosphate on Ocean Island was carried on with the Banabans remaining in residence; but the outbreak of World War II in 1939, and the subsequent occupation of the island by the Japanese in 1942, first curtailed production and then brought it to an end. The Japanese transferred most of the Banabans to other islands, and when in 1945 Ocean Island was recovered from the Japanese, it had been devastated and was uninhabitable. Though the Banabans' right to return to Ocean Island has been carefully preserved, it was plainly impossible for them to go back immediately after the war. Another island, Rabi (pronounced as if an "m" separated the "a" and the "b") had been bought for them in 1942 out of a fund which had been built up for them out of phosphate royalties; and it was to Rabi that they went, and where, after a plebiscite in May 1947, they finally decided to remain as their "headquarters and home."
One complication was that whereas Ocean Island was part of the Gilbert and Ellice Islands Colony, Rabi was in the Fiji Colony: it lies some 1,600 miles south-east of Ocean Island, and is some 17,000 acres in extent, compared with Ocean Island's 1,500 acres. Parties of Banabans have from time to time visited
Ocean Island and remained there for some while; indeed, a party was in residence when I visited it. But from any practical point of view there has long been no question of the Banaban community as a whole ever returning to live on Ocean Island. About three-quarters of the island has now had phosphate extracted from it, and when the last of the workable phosphate has gone in another two or three years, little will be left save a desolation of uninhabitable pinnacles surrounded by a rim of land bearing such buildings and plant on it as the British Phosphate Commissioners abandon there.
I think that I should at this stage give an outline of the litigation so that when I come to the detailed facts they may be seen in relation to the broad issues between the parties. I shall, of course, be guilty of some degree of duplication in doing this, since I shall have to consider the claims in detail at a later stage: but the size and complexity of the case seems to me to make repetition on a modest and selective scale a virtue rather than a fault. The litigation has two main aspects, one physical and the other financial: Ocean Island No. 1 is principally concerned with the former and Ocean Island No. 2 with the latter. In No. 1, claims are made by a selection of Banaban landowners against the first three defendants, who were the British Phosphate Commissioners when the writ was issued. The first, Sir Alexander Waddell, was appointed by the United Kingdom Government on
January 1, 1965; the second, Mr. Gainey, was appointed by the New Zealand Government on February 1, 1973. Unhappily, he died during the hearing of No. 1; but all concerned expressed themselves as being satisfied that any consequent procedural complications could be overcome. The third defendant, Sir Allen Brown, was appointed by the Australian Government on July 1, 1970; but after I had reserved judgment I was informed that as from July 1, 1976, he had been replaced by Mr. Maurice Carmel Timbs.
In very broad terms, the claims in Ocean Island No. 1 that were made against the first three defendants fall under three main heads. First, there is a claim for specific performance of contractual obligations to replant certain land with trees and shrubs, or alternatively for damages; and this is the main issue in the case. Second, there is a claim for overmining. This seeks damages for the wrongful removal of phosphate from what was called the purple land, consisting of long thin strips just outside the boundaries of the mining areas on the east and north of the island. Third, there is the sand claim. This alleges that there has been an unauthorised removal of sand from what was called the red land, on the south-east coast of the island. The fourth defendant, the Attorney-General, is concerned with only the first of these claims, and then only in minor degree. The contention is that the United Kingdom Government, acting by the Governor of the Gilbert and Ellice Islands Colony, is bound to prescribe the trees and shrubs that are to be planted.
That is No. 1. No. 2 is very different. The claim is made by Mr. Rotan Tito, who claims to be the owner of much land on
Ocean Island, and by the Council of Leaders, an incorporated body which is, in effect, the governing body of the Banabans. The sole defendant is the Attorney-General. Again there are three main heads of claim. The first two relate to the Crown standing in a fiduciary position towards the Banabans in connection with two transactions, one in 1931 and the other in 1947. These were quite different. The 1931 transaction was in essence the compulsory acquisition of 150 acres, whereas the 1947 transaction was a voluntary disposition of two areas of 291 and 380 acres. For the 1931 transaction, the core of the plaintiffs' claim is that the royalty payable to the Banabans under the mining lease granted to the British Phosphate Commissioners by the resident commissioner of the Gilbert and Ellice Islands Colony as part of the compulsory process was fixed under the relevant statute by an officer of the Crown (the resident commissioner) in a transaction in which the mining rights were being conferred by the Crown upon the Crown itself, in the shape of the British Phosphate Commissioners, so that there was a conflict of duty and interest. The royalty was fixed at less than a proper figure, say the plaintiffs, and so the Crown must pay compensation to make up the amount in fact paid by way of royalties to the amount that ought to have been paid. An alternative basis for the claim is that the mining lease was a lease by a fiduciary to itself, and that this produces the same consequences.
That is the 1931 transaction. The 1947 transaction consisted of an agreement made by the Banaban landowners with the British Phosphate Commissioners for the mining of the 291 and 380 acres, in return for certain lump sums and a royalty. No direct element of compulsion entered into this, though the compulsory powers still existed and had not been forgotten; but the claim is that the Crown stood in a fiduciary position towards the Banabans, and so the agreement was an agreement between a fiduciary acting by its creatures, the British Phosphate Commissioners, and the beneficiaries of that fiduciary. The Crown as such fiduciary was therefore, it is claimed (and I put it very broadly), under a duty to make full disclosure to the Banaban landowners, and to ensure either that they received a full commercial price, or that they had competent independent advice. The Crown failed to discharge this duty, it is said, by failing to reveal that the phosphate was being sold at less than its true value to Australian and
New Zealand concerns for manufacture into superphosphates. Substantial benefits were thus being conferred on Australian and New Zealand farmers instead of larger royalties being paid to the Banabans. Furthermore, there had been no disclosure of what sums were being paid by the British Phosphate Commissioners to the Gilbert and Ellice Islands Colony in respect of phosphate exports, in lieu of taxation or otherwise; and nothing was done to ensure that the Banabans had proper advice. The royalty payable under the 1947 agreement was far below the proper royalty, and so the Banabans were entitled to compensation against the Crown.
Those are the first two claims, based primarily on the alleged fiduciary position of the Crown; and together they constitute the major part of Ocean Island No. 2. The third claim is completely different. It relates to certain of the sums in respect of phosphate exports that I have just mentioned. These sums were made payable by the British Phosphate Commissioners to the Gilbert and Ellice Islands Colony in lieu of taxation, or in relation to taxation, by a series of agreements between the British Phosphate Commissioners and the Gilbert and Ellice Islands Colony government, and by a series of Gilbert and Ellice Islands Colony Ordinances. What the plaintiffs contend under what for brevity may be called "the Crown royalties claim" is that certain other Ordinances of the Gilbert and Ellice Islands Colony and of
Fiji catch these payments, and make them payable to the Banabans instead. Here the question is essentially one of construing the relevant documents. The relief under all three heads is primarily claimed in the form of a series of declarations that the Crown is liable or bound to pay or transfer the sums in question (and not in the form of judgments for the money, or orders to pay it), with supporting accounts, inquiries and directions.
4. The constitutional position of Ocean Island.Before I consider any of these claims, there are other matters that I should outline. First, there is the constitutional position of
Ocean Island. I do not propose to discuss this in any great detail. The broad position is that under the Pacific Islanders Protection Act 1875, the British Settlements Act 1887, the Foreign Jurisdiction Act 1890 and the Pacific Order in Council 1893 a High Commissioner for the Western Pacific was established, together with a system of courts and other institutions, and provisions as to the law applicable. Article 108 of the Order in Council empowered the High Commissioner to make, alter and revoke "Queen's Regulations" for various purposes. In 1892 the islands in the Gilbert and Ellice groups (not then including Ocean Island) were proclaimed as British protectorates. On October 2, 1900, after some correspondence between the Pacific Islands Co. Ltd. and the Colonial Office in Downing Street, a licence in the name of Queen Victoria and executed by the Secretary of State for the Colonies was granted to the company: the company had applied for such a licence on January 4, 1900. The licence granted the company the exclusive right to occupy Ocean Island for 21 years from January 1, 1901, for the purpose of removing guano and other fertilising substances, and to display the British flag in token of the occupation.
The company had in fact already hoisted the British flag. This had been done on
May 5, 1900, by Albert Ellis, an employee of the company, who had discovered the presence of rich phosphate deposits on the island. On May 3, two days before the flag was hoisted, Ellis had entered into a short written agreement on behalf of the company with the "King and Natives of Ocean Island," expressed to be made "for and on behalf of the entire population of Ocean Island." The agreement purported to give the company the sole right to raise and ship all rock and alluvial phosphate on the island; it provided for the company to pay the natives £50 a year, or trade to that value; and the company agreed not to remove any alluvial phosphate from land where coconut trees or other trees or plants cultivated by the Banabans were growing. I do not think that I need comment on this piece of commercial enterprise. Nor shall I mention the other provisions of the agreement, apart from observing that it was to be in force for 999 years. This concept can have meant little to the Banabans, if, indeed, it was ever put to them: the interpreter stated that he was never told to interpret it to the Banabans, and his competence as an interpreter of written English seems at least doubtful. The "King" was not in fact a king; he was, it seems, a ceremonial functionary of a much lower stature. Within a year it had been agreed that the annual £50 was to be divided among the landowners whose land had been worked. Active operations had begun in August 1900, when representatives of the company landed and started to erect houses and work the phosphate. But I need not pursue the point, for nothing that I have to decide turns on this initial agreement. It is the licence from the Crown that was the significant document. In addition to making the provisions that I have mentioned, it prohibited any assignment or underletting without the written consent of the Secretary of State for the Colonies, and it provided for the company to pay £50 a year to him for the use of the Crown; and there were various other provisions that I need not recite.
On November 28, 1900, the High Commissioner issued a proclamation applying the Pacific Order in Council 1893, and such of the Queen's Regulations made thereunder as applied to the islands of the Gilbert and Ellice Islands Protectorate, to all persons within Ocean Island, which was thereupon included within the jurisdiction of the resident commissioner and deputy commissioner of the protectorate. Two days later, on
November 30, 1900, the High Commissioner made a Queen's Regulation. In this regulation, the term "Gilbert and Ellice Islands Protectorate" was to include Ocean Island; and the removal of guano and other fertilising substances from waste or unoccupied lands in the protectorate without the prior permission of the High Commissioner or resident commissioner was prohibited. On September 28, 1901, the captain of H.M.S. Pylades, on Admiralty instructions, hoisted the British flag on Ocean Island, and took possession of Ocean Island in the name of Edward VII. In doing this, the captain read a proclamation stating that the hoisting of the flag showed that the jurisdiction of the resident commissioner and deputy commissioner of the protectorate, as notified by the proclamation of November 28, 1900, extended to Ocean Island.
In the meantime, a revised licence dated
August 13, 1901, had been issued to the company in place of the first licence dated October 2, 1900. This was for a term of 99 years from January 1, 1901. On August 15, 1902, the Secretary of State gave approval for the assignment of the licence for Ocean Island by the Pacific Islands Co. Ltd. to its newlyformed subsidiary, the Pacific Phosphate Co. Ltd. (which I shall call "the company"). This assignment was soon made. Shortly afterwards, by a deed dated December 31, 1902, the third and final licence was granted. This was in the form of a grant by Edward VII to the company in substitution for the second licence. It conferred an exclusive right to occupy Ocean Island for the purpose of working phosphate deposits for the term of 99 years from January 1, 1902. By clause 2 of the licence the company covenanted to pay to the Secretary of State, for the use of His Majesty, £50 a year for the first four years, and then, in lieu thereof, on or before March 31, 1907, and every subsequent March 31 until and including the year 2,000, "a royalty of 6d. a ton" upon all guano and other fertilising substances exported by the company from the island during the preceding year. There were a number of other terms and provisions, and of these I think I need mention only clause 5. By this the company covenanted that it would properly feed, support and treat all its employees, and "duly respect the persons and rights of other inhabitants of the said island." This third licence, I may say, is the licence that has remained in force throughout.
I can now come forward to
November 10, 1915, when the Gilbert and Ellice Islands Order in Council 1915 was made. By that order, the Gilbert and Ellice Islands within the protectorate were annexed to His Majesty's dominions, and became known as the Gilbert and Ellice Islands Colony. The order made a number of provisions relating to powers, jurisdiction, offices, and so on, which I need not mention at this stage. The order took effect on January 12, 1916. Shortly afterwards, by an Order in Council made on January 27, 1916, and taking effect on May 19, 1916, the boundaries of the Gilbert and Ellice Islands Colony were extended so as to include, inter alia, Ocean Island.
I can now summarise the position as follows. Jurisdiction over Ocean Island was obtained peacefully and without any overt act of conquest or cession. It became part of the Crown's dominions by virtue of the occupation of the island by the company and the hoisting of the flag on
May 5, 1900, coupled with the Crown's licence to the company; and it thereupon became a British settlement under the British Settlements Act 1887. The law officers (Sir Robert Finlay and Sir Edward Carson) so advised on May 16, 1904, and I think they were right. Although on February 29, 1912, the then law officers (Sir Rufus Isaacs and Sir John Simon) disagreed with part of their predecessors' opinion, that was on another point. On any footing Ocean Island was part of the Gilbert and Ellice Islands Colony from 1916 onwards. In 1975, I was told, the Gilbert Islands and the Ellice Islands were divided into two separate colonies, with Ocean Island remaining part of the Gilberts. But that, of course, was long after these proceedings had been commenced; and at all material times from 1916 onwards Ocean Island was part of the undivided Gilbert and Ellice Islands Colony. Before that, Ocean Island seems to have been a British possession administered as part of a protectorate. I do not think that any serious issue remains between the parties arising from this constitutional situation.
As a colony by settlement,
Ocean Island received English law, apart from any relevant native customary law; and this was not affected when in 1916 Ocean Island became a part of the Gilbert and Ellice Islands Colony, a colony by cession. Article 20 of the Pacific Islands Order in Council 1893 provides that subject to the other provisions of the Order, civil and criminal jurisdiction exercisable under the Order are, "so far as circumstances admit," to be exercised "upon the principles of and in conformity with the substance of the law for the time being in force in and for England...." That language, it is contended, is wide enough to let in any recognised Banaban law; and this is not seriously disputed. What has been disputed is the extent to which the owner of the surface of land on Ocean Island is also the owner of the subjacent minerals, or has any right to dispose of them; and the Attorney-General contends that no such ownership or right has been established. Subject to this, I do not think that it is questioned that in essence English law has at all material times applied to Ocean Island, subject to local statute law.
5. The land transactions.The land transactions between the British Phosphate Commissioners and their predecessors, the two companies, on the one hand, and the Banabans on the other hand, may be ranged under seven heads. In setting out the facts, I may say, I shall refer to many dates not because the exact date has any special significance, but in order to facilitate reference to the particular document, and so on.
(1) 1900-1913: before the 1913 agreement. First, there was the period from 1900 to 1913, before the 1913 agreement had been made. During this period the company (by which I mean the relevant company at the time) at first entered into many somewhat haphazard transactions with individual Banabans. The island was divided into a large number of small separate plots of land, identifiable by landmarks, in a wide variety of irregular shapes; and most plots were substantially less than an acre in area. Many landowners owned more plots than one; and the Banaban custom of landholding kept the land within the family, so that on the death of a landowner his land would pass to one or more of his children. However, others could readily be adopted so as to take by descent, and so inheritance was not confined to issue of the landowner. At various times this system was described by Europeans as being one of the land being entailed, though this is obviously a very rough analogy.
It has long been a matter of dispute how far a landowner could dispose of his land inter vivos; but despite that dispute, in early days a number of  leases and purchases were made from individual landowners. The company in effect made such bargains as could be made with those landowners who were willing to deal with the company, the general pattern being that of freehold sales at about £15 or £16 an acre. At an early stage, however, the Colonial Office drew the company's attention to the Queen's Regulations and other legislation which, in brief, prohibited outright purchases of native lands, with minor exceptions, and severely restricted leases of such lands. Under regulations 22 and 23 of the amended and consolidated King's Regulations 1908, purchases required the approval of the resident commissioner or High Commissioner; they were restricted to plots not exceeding one acre; nobody could buy more than one plot in any one island; and land in cultivation with permanent food-producing crops was excluded. Any conveyance required the endorsement of the resident commissioner as to the vendor's title, as to the land not being required for his support, and as to the fairness of the contract; and even when the conveyance had been thus endorsed, it might be disallowed by the High Commissioner. These provisions replaced the absolute prohibition on sales which regulation 17 of the King's Regulations 1903 had imposed.
Leases were dealt with by regulation 24. They were restricted to 99 years and to land in any island not exceeding five acres. Furthermore, the lessee, if a non-native, was required to submit the lease to the resident commissioner, who was to make suitable inquiries of the lessor and native authorities. He was to refuse to confirm the lease
"if it shall appear that the land sought to be leased is not the property of the proposed lessor, or that the lease had been unfairly obtained, or that the terms are manifestly to the disadvantage of the native lessor, or that there will not be left sufficient land to support the family of the lessor, or that the lease is otherwise contrary to sound public policy."
This was virtually the same as regulation 18 of the King's Regulations 1903, save that this had contained no five acre limit, and the maximum term had been 21 years. If the resident commissioner confirmed the lease, he was to register it by having a copy entered in a book, indorse it, and charge £1. These and many other provisions of the King's Regulations were plainly designed to protect the native inhabitants against exploitation.
The difficulties for the company resulting from these provisions of the King's Regulations and other legislation were met in part by a King's Regulation made on
February 18, 1903. This validated 19 specified outright sales to the company that had been made in 1901. For the most part, however, the company sought to avoid the impact of the King's Regulations for the future by evolving what became known as the "P and T" deeds, the initials standing for "phosphate and trees." These were documents expressed to be made in consideration of the payment by the company of a lump sum which varied from £6 to £30 per acre. The usual practice was to make an additional payment for any coconut trees on the land, though this was done outside the formal agreement, which remained silent on the matter. The landowner was expressed to sell to the company all the coconut, pandanus and other trees growing or to be grown on his land, and all the rock and alluvial phosphate that might be found on it, with the right to remove and ship the same within a period which was sometimes five years and sometimes ten.
Though expressed to be deeds, the documents were executed under hand only, with the landowner usually affixing his mark in lieu of a signature. The deeds were very short, and often the detailed description of the land was longer than the rest of the deed. I may take one such deed at random. It is dated
November 27, 1903, and relates to Nei Benia's land. The description gives the area, and then continues, "Commencing at peg 1, and proceeding on a bearing of 311o 42' for 72 links to peg 2, thence on a bearing of 323o 20' for 43 links to peg 3...," and so on, for 12 typewritten lines. A plan on the back shows the 12- sided plot. The word "Nei," I may say, is a prefix used to denote that Benia was a female; this prefix is used for married and unmarried women alike. Among the Banabans there is not, and never has been, so far as I am aware, any difference between men and women in relation to the ownership of land or any other legal rights; and on marriage a woman has always retained her own name and has not assumed that of her husband. In such matters Ocean Island has never required the statutory reforms which England found necessary in the last century and this.
The P & T deeds were thus, it was thought, a solution of the company's difficulties under the King's Regulations. Without purchasing the land or taking a lease of it, the company nevertheless acquired the rights that it needed for the extraction of the phosphates. The deeds were registered, at first with the High Commissioner and soon with the resident commissioner. The first of these deeds was registered in April 1904. But acquisitions remained haphazard; the company was still acquiring small individual plots of land, as and when it could, by individual bargains with those landowners who were willing. The result was in some degree unsatisfactory to all concerned. The small island was becoming dotted about with small plots here and there that were being mined. This presented obvious mining difficulties for the company, and could hardly have been welcome to those neighbouring landowners who were not willing to have their land mined. Further, the company had no assurance how much more land would become available for mining. By the end of 1908 the company had worked some 65 acres and had another 135 acres available under P & T deeds; and the annual rate of export of raw phosphate had begun to exceed 200,000 tons. The Colonial Office decided that instead of the resident commissioner merely visiting
Ocean Island from time to time (for he was then based on Tarawa) Ocean Island should become the headquarters of the Gilbert and Ellice Islands Protectorate. Thus at the end of 1907 it became a seat of government, and remained so until the resident commissioner left in World War II. The Colonial Office also decided that as from April 1, 1909, the revenue under the Crown licence of 1902 should be paid to the government of the Gilbert and Ellice Islands Protectorate. Early in 1909, if not before, there was an acting resident commissioner in residence on the island.
By this time the Banabans were understandably getting alarmed at the extent of the company's operations in relation to the size of their island. The Banabans lived in four villages. Tabwewa was near the west coast. Tabiang was near the south-west coast, and at the western end of
Home Bay. Ooma was not far from the coast near the centre of the curve of Home Bay, and rather further from Ooma Point (or Sydney Point) which is the southern tip of the island and forms the eastern extremity of Home Bay. Buakonikai was near the summit of the island, a little to the east of centre. All stood on phosphate land, though Buakonikai, in contrast with the others, was in the heart of the land with the greatest depth of phosphate.
The Banabans were not surprisingly concerned with their future in relation to the mining. Before 1900, they had been supporting themselves with some difficulty. The average rainfall was desperately small, and in times of drought they had had to collect what water they could from underground caves in the subjacent coral limestone, known as "bangabangas." They had in the main subsisted on the fruit of coconut, pandanus and almond trees, together with what fish they could catch. In years of drought hundreds had died of starvation when the fruit trees died. The coming of the company had meant that water could be obtained (the company produced it by condensing sea-water), and the money received under P & T deeds and for working for the company enabled them to buy food from the company's store. In that sense their lot had been improved; certainly their mode of life had greatly changed. But the land on their small island was being replaced at an alarming speed by the barren workings from which phosphate had been extracted: a scattered pattern of 65 acres of worked- out land out of a total of some 1,500 acres must have been striking, and so must the acceleration in the process that had occurred between 1900 and 1908.
In April 1909 the acting resident commissioner reported to the High Commissioner that, after allowing for the area occupied by the villages and also the area of the barren coral pinnacles, over one-third of the island was then useless to the Banabans. The future plainly held the grave question whether the company was to stop mining at some point, or whether the Banabans should be persuaded to go and live on some other island; and there was a suggestion that the company should purchase another island, Kuria, to be exchanged for Ocean Island. Questions such as these were being discussed at the time, not least in the Colonial Office minutes; and those minutes began to raise the question whether the P & T deeds were not an attempt to evade regulation 24 of the King's Regulations 1908. Even as early as this,
Ocean Island had been the subject of debate in the House of Commons and discussion in the newspapers. The company was finding increasing difficulty in persuading landowners to part with land near the existing workings; and while some owners contented themselves with asking £100 or £150 for their plots, others flatly refused to make any dispositions.
Matters came to a head with a letter dated
November 12, 1909, from the resident commissioner to the company. In this, the resident commissioner said that he was unable to see that certain agreements which had been sent to him for registration were in accordance with any of the existing regulations, and so he could not register them until the High Commissioner had decided the matter. The agreements were evidently P & T deeds. A month later, after discussion with representatives of the company, the resident commissioner proposed that certain areas should be marked off for mining, with enough in them to last the company for another 20 years, and that no mining should take place except in a mining area. Land outside the areas which the company had already acquired, he suggested, should either be sold back to the former owner, or exchanged for land inside a mining area. He proposed that 170 acres should be marked off in addition to the areas already acquired by the company. He also suggested that the company should pay an annual sum to be held in trust for the general benefit of the Banabans, "always having in view the purchase of another island in the Gilbert group and the ultimate transfer of the natives to that island."
The company viewed the general tenor of these proposals with favour, though it wished to make some variations in the terms. Thus for the resident commissioner's 170 acres the company wished to substitute 300, a figure which was later increased to 500. There was a long period of discussion of the proposals. There were discussions between the company and the Colonial Office, and discussions within the company and within the Colonial Office. The resident commissioner, the High Commissioner and various officials all played their part in the proposals and counter-proposals, understandings and misunderstandings, and agreements and disagreements; and there was at least one official rebuke within the colonial service. Steps were taken, and steps were retraced; and from time to time there were massive recapitulations of the march of events. The Colonial Office was emphatic that there could be no question of removing the Banabans from
Ocean Island unless the transfer was most clearly for their benefit and also voluntary in the full sense of the word.
I shall not attempt to summarise the ebb and flow of negotiations. The company, as it was entitled to, throughout bargained hard and astutely for its own benefit; but the Colonial Office was showing great concern for the protection of the Banabans, and so was the resident commissioner and, to a somewhat lesser extent, the High Commissioner. Innumerable arguments and contentions emerged from the company, whereas the Colonial Office, the resident commissioner and the High Commissioner, with whom rested the ultimate legislative and administrative power, argued less with the company and more among themselves. On the official side there was an evident concern that no terms should be put before the Banabans for acceptance unless they were considered to be proper and in the best interests of the Banabans. On all sides it was accepted that nothing could be done unless the Banabans agreed.
During this period there had been discussions on
Ocean Island between the resident commissioner and representatives of the company as to the proposed mining areas. As far back as June 1910 a large meeting of Banabans had unanimously approved the principle of mining areas, and had left the details to the resident commissioner. After many discussions, by the end of 1911 three areas had been agreed, with a total of some 477 acres. There was a northern area of 171 acres, a central area which. with its extension, was 171.8 acres, and an eastern area of 134 acres. The company was not to be allowed to acquire all the land in these areas: they were to be areas within which future acquisitions could be made by the company up to a total of whatever acreage was finally agreed. In other words, the mining areas were to constitute an "envelope," as it has been called, within which the company was to be permitted to acquire further land for mining up to the total of the agreed "ration," so that if (as was the case) the "ration" was less than the land available within the "envelope," some of the "envelope" would have to be left unmined. In the event, the acquisitions already made by the company in the northern area meant that the new acquisitions would all have to be in the central and eastern areas.
By the spring of 1913 the company and the Colonial Office had finally reached agreement. By then nearly 215 acres in all had been the subject of P & T deeds; and of this area, nearly 130 acres remained unworked. On
March 14, 1913, the Colonial Office wrote to the company, setting out in 11 numbered paragraphs a recapitulation of the terms that had been agreed. The company had suggested that a draft agreement embodying the terms should be submitted to the company for approval; but the Colonial Office replied that a formal and definite agreement could not conveniently be drawn up until the consent of the native owners had been obtained. In fact, no formal agreement was ever drawn up. By a further letter dated April 11, 1913, the Colonial Office agreed an amendment to the terms set out in its earlier letter, and then on April 23, 1913, the company replied. This reply was not a simple acceptance of the 11 numbered paragraphs in the Colonial Office letter of March 14, but set out nine of these 11 paragraphs in extenso. The two omitted paragraphs related to the prices for goods sold by the company, and the sale of water to the Banabans. In one sense nothing turns on these omissions; but they do go some way towards supporting a contention that was put forward in Ocean Island No. 2. Looked at in terms of offer and acceptance in the law of contract, the exchange of letters has its problems; looked at in terms of an agreement relating to the exercise of governmental powers the difficulties disappear. In fact, the two omitted terms duly appear in the 1913 agreement made between the company and the Banabans.
I do not propose to set out in full the 11 numbered paragraphs of the recapitulation in the Colonial Office letter of
March 14, 1913; but I must make some reference to them. By paragraph 1, the future mining operations of the company were to be confined to the three mining areas that I have mentioned, with a "ration" of 50 acres in the northern area, 100 acres in the central area, and 100 acres in the eastern area. By paragraph 2, the mining rights in 103 acres of land within the mining areas which had already been acquired by the company under P & T deeds were to be recognised; and the mining rights on unworked land outside the mining areas were, with the consent of the landowners, to be exchangeable for mining rights in equivalent land within the mining areas. There was a time limit on this, which, however, was omitted from paragraph 2 in the company's letter. Instead, the company's letter included a paragraph protesting about this time limit. Paragraph 3 of the Colonial Office letter prescribed that, apart from land exchanged, a price of not more than £60 an acre and not less than £40 an acre should be paid for "the total of 147 acres (more or less) to be purchased," with a provision for paying any deficiency between the total paid and £6,000 "to the fund for the general benefit of the natives." The 147 acres, I may say, when added to the 103 acres that the company already had in the mining areas, made up the total of 250 acres that the company was to be allowed. Paragraph 4 then provided that when the lands had been worked out they should revert to the native owners as soon as this could take place without inconvenience to the company's operations.
Paragraph 5 I should set out in full:
"That an additional royalty of 6d. per ton be paid by the company on all phosphate shipped from Ocean Island as from July 1, 1912, the royalty to be calculated on the same basis as the existing royalty, viz., on the total tonnage of phosphate exported by the company from the island, the proceeds of this additional royalty to be devoted to the general benefit of the natives."
This is a provision on which considerable argument developed in Ocean Island No. 2. At this stage I propose to say no more than that the original 6d. royalty payable to the Crown had, by this stage, as I have already mentioned, become payable by the company to the government of the Gilbert and Ellice Islands Protectorate; and although paragraph 5 does not in terms specify the payee, it seems plain that the additional royalty, like the original royalty, was to be paid to the same government.
Paragraphs 6 and 7 dealt with mining rights in the 250 acres, allowing the company to make up the 250 acres gradually if there was difficulty in getting native owners to sell simultaneously, and permitting mining for the remaining period of the company's licence, subject to the provision for reverter. Paragraphs 8 and 9 dealt with trees and shrubs. They were not to be cut down on any of the 250 acres on which mining operations were not being conducted. Paragraph 9 read:
"That the company shall replant with suitable trees and shrubs any land on which mining operations have been completed, before handing back the land to the owners."
By a letter dated
April 11, 1913, the Colonial Office agreed to meet the company's wishes by inserting between "completed" and "before" the words "at least to the extent to which the land was previously planted." Paragraphs 10 and 11 of the main letter I have already mentioned.
That was the agreement that was ultimately achieved between the company and the Colonial Office. Not until it had been made was the company in a position to proceed with the acquisition of any land from the Banabans. But, in addition, there had to be in existence forms for the individual transactions with the landowners, to take the place of the P & T deeds for the future. By May 1913 the Chief Judicial Commissioner of the High Commission had made a start in drafting these instruments. The Colonial Office then took a hand in the drafting, and on August 13 sent the company three draft deeds. These became known as the A, B and C deeds respectively. The B deeds, intended for exchanges of land, were of no importance. They ran into difficulties, and I think in the end only one was ever executed. At all events, it was agreed during the hearing of Ocean Island No. 1 that there was no need to consider the B deeds. But the A and C deeds, when finally settled, were used extensively. The A deed was drafted for the case where the company had a P & T deed for the land and was surrendering its rights and interests under that deed for the rights granted by the A deed. The C deed was drafted for cases where there was no existing P & T deed. On August 15 the company made detailed comments on the draft deeds, and on August 23 the Colonial Office sent to the company drafts revised so as to meet the company's points.
A day or two earlier Mr. Eliot, the new resident commissioner, had left
London for Fiji and Ocean Island, taking the revised drafts with him. It was he who drew up the form of agreement between the company and the Banabans which was to become the 1913 agreement. The agreement, he said, "embodied the conditions arrived at between the Colonial Office and the company's board." The agreement also contained an important group of provisions agreed on Ocean Island between the resident commissioner and representatives of the company who had gone to Ocean Island. These provisions were set out in a letter from the resident commissioner dated November 10, 1913, and the company's reply dated November 11; and on November 12 the resident commissioner reported the substance of these proposals to the High Commissioner, and sent a copy to the Colonial Office.
On
December 19, 1913, after the 1913 agreement containing these terms had been signed, the High Commissioner wrote to the Colonial Office, concurring in the resident commissioner's proposals and recommending approval by the Colonial Office. I think that I should read most of the resident commissioner's letter to the High Commissioner. After some introductory matters, the resident commissioner wrote:
"3. As Your Excellency is aware, the Pacific Phosphate Co. have undertaken to pay the extra 6d. a ton to the proposed Banaban Fund as from
July 1, 1912, and I think it probable that I shall require the whole of the first year's payment, viz., from July 1, 1912, to June 30, 1913, for immediate expenditure, provided that the further leases are first signed. I propose that this money which, according to Mr. Ellis's calculation, represents a sum of £4,743, should be paid direct to me in the presence of the Banabans, and that it should be drawn out, whenever required, by the Banaban community with the approval of the Native Magistrate and Kaubure of the island, subject to my being satisfied that it was not used for any wasteful purposes. Mr. Ellis agrees to this proposal on behalf of his directors; the company would, of course, benefit by the expenditure of most of this money in the island, though I have no doubt that a portion of it would be used by the Banabans in travelling around the Gilbert Islands, and to this I see no objection. 4. Should I find that the purposes of the proposed trust fund are understood, and deemed satisfactory, I should not bring forward the above proposal, but it should be borne in mind that the greatest opposition to future leases within the permitted areas will be from the oldest members of the community, and I deem it essential that I should be able to demonstrate to them, by the immediate transfer of this sum for their use, that they will personally benefit, as well as the younger generation, by the early settlement of this business. 5. It will be made clear that no part of this trust money can be touched as from July 1, 1913, without the permission of Your Excellency and the Secretary of State, but that I have no doubt that permission might be obtained to utilize the accruing interest for the payment of an annuity to those who have parted with their lands. 6. I trust Your Excellency may be able to support my action to the Secretary of State if I find it advisable to expedite the final settlement by going beyond the powers given to me, and without further delaying matters by obtaining sanction for this proposal. I am aware that I shall bind the Government by so doing, and that I must incur the full responsibility for such action."
The discussions on
Ocean Island began on November 7, 1913, the day that representatives of the company reached the island. From November 7 to 17 there were daily meetings between the resident commissioner and the representatives of the company; and out of these arose the exchange of letters that I have mentioned. On November 18 long public meetings with the Banabans began, as well as separate meetings by the Banabans among themselves. Detailed accounts of the meetings between the resident commissioner and the company on the one hand and the Banabans on the other hand have survived. The proposed agreement was explained and discussed in considerable detail, and many questions and complaints were answered as well. Though the representatives of the company took part, the resident commissioner carried the main burden of the discussions with the Banabans. I think that it is reasonably clear that the resident commissioner did explain to the Banabans the provisions of the agreement relating to the Banaban fund on the general lines set out in his letter of November 12 to the High Commissioner, though he went further in relation to the interest on the fund. Instead of the tentative reference to "permission might be obtained to utilising the accruing interest for the payment of an annuity to those who have parted with their lands," there was the firm provision that the interest would be utilised thus. One record of the meeting on November 19 records the resident commissioner as telling this to the Banabans, and saying that future generations of Banabans would be the richest natives in the Pacific. He also said that he did not know what would be done with all the money, but the British Government would find a way to expend it in their interests, and would listen to suggestions from them in the matter.
At the public meetings a division between the Banabans began to emerge, with Buakonikai and Tabwewa tending to be in favour of the agreement and Tabiang and Ooma against it. On November 28 the resident commission allowed Banabans to begin signing the agreement, and 72 landowners signed; and within a few days 74 more had signed. On December 10 deputations from Tabiang and Ooma came to the resident commissioner to say they now wanted to accept the terms. At a meeting that day 86 more signed the agreement, and by then 250 landowners were in favour of the agreement and 63 against. Soon a number of others signed the agreement, and in the end it was signed by a total of 258 Banabans.
(2) 1913-1920: the 1913 agreement. With the signing of the 1913 agreement comes the second main period. The agreement was the first comprehensive bargain with the Banabans, and it was to govern dealings in phosphate land on
Ocean Island until the 1931 transaction. I propose to read the entire agreement, pausing from time to time to make brief comments on its provisions, but leaving any longer discussions until the end. The agreement, with the consequent A and C deeds, is in the forefront of Ocean Island No. 1; in Ocean Island No. 2 it is an important part of the background to the claims based on the 1931 and 1947 transactions.
The agreement begins as follows:
"Agreement entered into on the under-mentioned days of November and December, in the year 1913, A.D., by us the undersigned landowners and natives of the island of Banaba, and by Albert F. Ellis, local director of the Pacific Phosphate Co., in the presence of E. C. Eliot, His Britannic Majesty's resident commissioner of this protectorate."
It will be observed that neither the resident commissioner nor any other organ of government is expressed to be a party. It is merely that all concerned signed in the presence of the resident commissioner.
The agreement continues:
"2. This agreement shall be subject to the fulfilment of the conditions enumerated below, and shall entail on us the obligations herein stated. 3. That land to the extent of 145 acres within the delimited areas shall be acquired by the Pacific Phosphate Co. on the terms laid down by His Majesty's Government, and which are embodied in the deeds which shall hereafter be signed."
The "delimited areas" are, of course, what has been called the "envelope," and the deeds in question are the A, B and C deeds.
"4. That as soon as each plot of land has been surveyed the owner of such land shall sign the prepared deeds before the resident commissioner on payment being made to him of the purchase price as arranged, namely, at a sum of not more than £60, and not less than £40, per acre, according to the position and quality of the land, or by exchange by mutual consent, also compensation for food-producing trees as has been done in the past under the 'Phosphate and Tree Purchase' agreements."
The Banabans had had it explained to them that the company was offering to pay £60 an acre for land in the central mining area and £40 in the eastern mining area; the deposits of phosphate were deeper in the central area than in the eastern.
"5. That as soon as the deeds have been signed to the extent of eight acres in the central mining area, and eight acres in the eastern mining area, the company will at once comply with the terms agreed upon and which are embodied below, but it is hereby undertaken that as each lot is surveyed, up to the limit of 145 acres aforesaid, we, the landowners concerned, will be prepared to receive our purchase money and sign the deeds. 6. We understand that should we, the Banaban landowners, fail to comply with these conditions, the company would be at liberty to cancel the obligations imposed upon them."
I do not think that I need comment on these two clauses; it is the next five clauses which form the central core of difficulty in the agreement. I shall read them without a break.
"7. On the above conditions the company hereby undertakes to hand over to the resident commissioner the whole of the first year's contributions to the Banaban Fund, namely, from July 1, 1912, to June 30, 1913, which amounts to a sum of £4,734, and that this money shall be devoted to the following uses: - 8. After deducting a sum of £300 to start the annuity fund (at the rate of £150 for the two years 1913 and 1914), the whole of this amount shall be expended for the benefit of the existing Banaban community in any way which may be recommended by them, and agreed to by their Native Magistrate and Kaubure, and subject to the decision of the resident commissioner that such expenditure is equitable and not wasteful. 9. That this sum of £300 reserved out of the total payment of £4,734 shall be used to start the annuity scheme, which scheme is as follows: - 10. For the three years, 1913, 1914, and 1915, a sum of £150 will be available each year, and in the following years this amount will be increased by £150 each year; this represents the simple interest on the yearly sum of £5,000, payable by the company to the Banabans (through the Government) in royalty. That this money shall be used each year for distribution among all Banabans who lease land to the company from this date, in the proportion recommended by the Banabans themselves, and subject to the decision of the resident commissioner that such division is equitable. 11. That this sum of £ 5,000 is approximate only, and would be subject to increase or decrease, according to the yearly tonnage shipped by the company."
I shall leave these clauses for discussion later. At this stage I merely say that the origin of this group of clauses was not in the correspondence between the Colonial Office and the company, but in the local discussions between the resident commissioner and the representatives of the company in November 1913. The reference in clause 7 to "the first year's contributions to the Banaban Fund" is a reference not to any existing fund, but to a new fund which by implication was to be established and fed by the new 6d. royalty. I may add that at the meeting with the Banabans on
November 28, 1913, when Mr. Ellis signed the agreement on behalf of the company, he handed to the resident commissioner a cheque for £4,743 with a covering letter. This was to the effect that the cheque should be held until the Banabans had signed the agreement and also had sold to the company eight acres in both the central and eastern areas, and should only be applied on the agreed terms after this had been done.
I continue with the agreement:
"12. That so soon as the 16 acres of land referred to in paragraph 5 hereof have been leased to the company, the company shall comply with the following conditions from that date, namely: - (a) That they shall return all worked out lands to the original owners, and that they shall replant such lands - whenever possible - with coconuts and other food- bearing trees, both in the lands already worked out and in those to be worked out. (b) That the royalty of 6d. a ton on all phosphate shipped shall be paid to the Government by the company for the Banaban Fund as from July 1, 1912, which includes the first year's payment of £4,734 referred to in paragraph 7 hereof. (c) That the Banabans shall enjoy the right to cultivate all lands leased by them to the company until the company actually require to work such land, or to put up covered-in areas, or to make railways, etc., over such lands. (d) That the company will adopt a system of uniform prices for all goods sold by them, either to their own employees, or to any natives or other inhabitants of
Ocean Island, and pending the arrangement of this matter an immediate reduction in price will be made on many articles as specified on the attached list. (e) That the company shall provide each adult Banaban native with one gallon of fresh water per diem whenever necessary, at the price of three farthings per gallon." The agreement then ends as follows: "In witness whereof we, the undersigned, have hereby placed our signatures and duly witnessed marks, on the under- mentioned days and months in the year of Our Lord 1913, in the presence of the resident commissioner, at Ocean Island."
There is then the date
November 28, 1913. The agreement is signed by Mr. Ellis "per pro" the company, and by 258 Banabans, many signing by a mark, on a range of dates running from November 28 to December 16, 1913. At the end of the signatures there are the words "All the above signatures were affixed in my presence," and the signature of the resident commissioner.
I return to the group of clauses which have given rise to difficulty and argument, clauses 7 to 11. Before I consider these, I must mention clause 12 (b) which, despite its position, really forms a prelude to this group of clauses. It introduces an altogether new feature into the relationship between the Banabans and the company, a royalty of 6d. a ton on all phosphate shipped as from
July 1, 1912. This, of course, was quite distinct from the 6d. royalty already payable under the Crown licence of 1902, a royalty which since April 1, 1909, as I have mentioned, had been payable to the government of the Gilbert and Ellice Islands Protectorate. It was the new royalty which was often referred to as the "additional royalty," as from the point of view of the company it plainly was. The 1913 agreement was, to some extent, back-dated in its operation. The phosphate year from July 1, 1912, to June 30, 1913, had ended over four months before the agreement was signed, so that the tonnage for that year was already known, and the amount of the royalty for the year had already been ascertained to be the sum of£4,734 mentioned. The amount of the royalties for future years was, of course, unknown, but for the purpose of the agreement, and to facilitate explanation to the Banabans, the amount was taken to be£5,000, with the provision for increase and decrease made by clause 11.
By the terms of clause 12 (b) all royalties, including the initial £4,734, were to be "paid to the Government by the company for the Banaban Fund." No explanation of "the Banaban Fund" in the documents seems to have been thought necessary, beyond what could be gathered from clauses 7 to 12. The royalty was payable on all phosphate shipped since July 1, 1912, irrespective of the plots of land it came from; it was not confined to land newly provided under the 1913 agreement, but extended to phosphate taken from land which the company had already obtained.
I can now turn to the effect of clauses 7 to 11. I found these some-what elusive, and by no means easy to comprehend; and more than once during the hearing I had to return to a careful study of them to avoid misunderstandings. I think that their main import is as follows. First, what is established is a single fund, the Banaban Fund. The reference to "the annuity fund" in clause 8 seems to have been a slip for "the annuity scheme"; for under the agreement there never was any separate annuity fund. Second, the Banaban Fund had two quite different functions. One related to the initial payment of £4,734. Of this, £300 was to be used for the annuity scheme. The remaining £4,434 was to be expended "for the benefit of the existing Banaban community" in accordance with clause 8. This, it will be observed, was a "once for all" provision for the first payment alone, with nothing to match it for later years.
The other function of the Banaban Fund was to provide money for the annuity scheme. The £300 taken from the first payment of £4,734 provided for the years 1913 and 1914, at the fixed rate of £150 a year. For 1915 and subsequent years, however, two new elements came in. First, the payments were variable with the royalty paid. Thus if in 1915 the royalty were to be £5,000 exactly, £150 would be distributable under the annuity scheme; whereas if the royalty was more than £5,000, or less than £5,000, the annuity payment would be correspondingly more or less. £150 is 3 per cent. of £5,000, and so in effect the annuity payments would be 3 per cent. of the actual royalty paid. Second, from 1915 onwards the annuity payments were to be cumulative. If one assumes royalty payments to be constant at £5,000 each year, the annuity payments would be £150 for 1915. £300 for 1916, £450 for 1917, and so on.
The second main feature of these clauses of the 1913 agreement relates to the recipients of the payments. The £4,434 was to be expended "for the benefit of the existing Banaban community," in accordance with clause 8; and no particular point arises on this. The annuity scheme, on the other hand, was that "this money" (which must mean the money available for annuities) was to be distributed "among all Banabans who lease land to the company from this date " in accordance with clause 10. No difficulty has arisen before me relating to the mode of distributing this money; but it is noteworthy that the recipients of the annuities were by no means the same as those whose land had given rise to the royalty that produced the annuities. As I have mentioned, the royalty was payable on all phosphate shipped after
July 1, 1912. Thus if phosphate had been shipped from A's land in 1912 or 1913, and A was not one of those who leased land to the company "from this date" (probably November 28, 1913) within clause 10, A would get no annuity, even though his land had helped to produce the royalty; whereas B, who leased land to the company under the 1913 agreement, was entitled to share in the annuity scheme. However, so far as A was concerned, he had struck his bargain with the company before the 1913 agreement was made, and the 6d. a ton royalty was no part of that bargain. The agreement was drafted so as to provide an inducement to Banaban landowners to lease land to the company; and, in a sense, the payment by the company of a royalty in respect of land which they already had was mere bounty. Similar considerations apply to the devotion of the initial £4,434 to the benefit of the existing Banaban community.
The third main feature of these clauses of the 1913 agreement is the absence of any provision for the capital of the Banaban Fund. The fund would be increased each year by the royalties of £5,000 a year, more or less, and the notional interest at 3 per cent. on the accumulated royalties would be distributed each year as annuities. Not a word is said about how long this process was to continue, or whether and for what purposes any of the capital of the fund could be expended, apart, of course, from the initial £4,734; this was to go as to £300 for annuities and as to the rest for the benefit of the existing Banaban community. This express provision for the disposition of the first year's royalty throws into relief the absence of any provision for all subsequent royalties. So far as the 1913 agreement itself was concerned, the accumulated annual royalties were to be held in perpetuity, yielding each year the appropriate annuities for those who leased land to the company "from this date" within clause 10.
That leads me to the fourth main feature. "The Government" had important functions under the agreement. One was the receipt of the 6d. royalty payable under the agreement. In clause 10 of the agreement this was expressed in the form of the yearly sum "payable by the company to the Banabans (through the Government) in royalty." Clause 12 (b) states that the 6d. royalty is to be "paid to the Government by the company for the Banaban Fund." The latter form of expression seems to me to be the dominant form, so far as the forms conflict. Clause 12 (b) is an operative provision, obliging the company to make the payment, whereas in clause 10 the words are merely exegetical, explaining what the annuity payments of £150 represent. Furthermore, the words "the Banabans" in clause 10 are somewhat indefinite in meaning, whereas "the Banaban Fund," though unexplained, represents a more intelligible concept for money which is intended to yield annual payments of annuities. I should also mention the reference in clause 3 to "His Majesty's Government" in relation to the A and C deeds.
In addition to these direct functions, there are a number of other functions which are consigned to a government official, the resident commissioner. He is to witness the A and C deeds (clause 4), he is to receive the initial £4,734 (clause 7), he is to consider whether the expenditure of the £4,434 is "equitable and not wasteful" (clause 8), and he is to consider whether the Banabans' proposals for dividing the annuities are "equitable" (clause 9). Nevertheless, despite these governmental functions, neither the government nor the resident commissioner was made a party to the 1913 agreement: that was an agreement between the company and the Banabans who signed it, and them alone.
There was also what might be called the fifth main feature of these clauses, save that it does not appear in them at all. This was the practice that grew up and was acquiesced in by the 1913 landowners of making payments out of the interest on the fund for the provision and maintenance of various services to the Banabans, such as education, medical services, and so on, with certain other payments, for example, to Banaban elders and for drought relief. Such payments, of course, reduced the sums available for the landowners, but were accepted by them without demur. Despite these payments, by 1930 the balance available for the 1913 landowners provided an income of about £6 a head.
I shall have to return to the 1913 agreement both for Ocean Island No. 1 and Ocean Island No. 2; but for the present I need say no more than that in No. 1 the agreement (and in particular clause 12 (a)) is relied upon by the plaintiffs for the obligation imposed on the company to replant the worked-out land with coconut and other food-bearing trees, while in No. 2 it is relied upon by the plaintiffs as helping to establish that prior-to the 1931 transaction the Crown was in a fiduciary position in relation to the Banabans. With that, I can, I think, turn to the A and C deeds, which are mainly of importance in No. 1.
The A and C deeds were printed forms, normally completed mainly in typewriting. An original deed was put in evidence as exhibit D.7, and I take this as being typical of the physical condition of the deeds. I think that I ought to set out a specimen of each type of deed. An example of an A deed is the deed made between Naribaua and the company dated
March 13, 1916. It is headed with the number allotted to the land concerned, in this case A.233, and the words "Deed for use where there is a licence already existing in respect of the land concerned." The deed then proceeds:
"This deed is made March 13, 1916, between Naribaua his heirs executors or assigns of the first part the Pacific Phosphate Co. Ltd. of London and Melbourne (hereinafter called the company) of the second part and Edward Carlyon Eliot His Majesty's Resident Commissioner in Ocean Island (hereinafter called the Resident Commissioner) of the third part. Whereas by a deed dated September 1, 1912, the said Naribaua sold to the company all the cocoanut pandanus and all other trees then growing or that should be grown and all the rock and alluvial phosphate that might be found (with the right to remove the same within the next" [blank] "years) on that piece of land situated at Ooma, Ocean Island as described in the plan on the back of the said deed. and whereas the company has requested the said Naribaua his heirs executors or assigns to extend the said term of" [blank] "years referred to in he said deed which the said Naribaua his heirs executors or assigns has consented to do in the manner and upon the terms and conditions hereinafter appearing and subject to the concurrence of the resident commissioner being obtained to the transaction. and whereas the resident commissioner has agreed to join in this deed for the purpose of signifying his concurrence as aforesaid. Now it is hereby declared as follows: (1) The company hereby surrenders to the said Naribaua his heirs executors or assigns all the rights and interests conferred on it by the said deed of
September 1, 1912, to the intent that the said rights and interests may from the date of this deed absolutely cease and determine. (2) (i) The said Naribaua his heirs executors or assigns, hereby grants to the company the right to remove from that piece of land situated at Ooma, Ocean Island the dimensions of which are described in the plan on the back of this deed all rock and alluvial phosphate that may be found therein during the term beginning at the date hereof and ending on December 31, 1999, and the right during the said term to cut down and remove all trees, shrubs, etc., on the said land the cutting down and removing whereof may be necessary (a) for the exercise of any operations actually commenced or immediately contemplated by the company for the purpose of or with a view to extracting any such rock or alluvial phosphate, or (b) to enable the company to construct any railway which may be required for the carrying on of its operations as aforesaid on the said land or any land adjoining the same from which the company has the right to take rock and alluvial phosphate. (ii) Until any such operations are commenced and being carried on the said Naribaua his heirs executors or assigns, his servants and agents shall have free access at all times to the said land for the purpose of cultivating the same and collecting and removing the vegetable produce thereof. (iii) Whenever the said land shall whether before or at the end of the said term cease to be used by the company for the exercise of the rights hereby granted the company shall replant the said land as nearly as possible to the extent to which it was planted at the date of the commencement of the company's operations under clause I (i) hereof with such indigenous trees and shrubs or either of them as shall be prescribed by the resident commissioner for the time being in Ocean Island and the said lands shall when and as soon as in the opinion of the said resident commissioner this may be without prejudice to the company's operations as aforesaid revert to and become revested in the said Naribaua his heirs executors or assigns, freed and discharged from all rights of the company under this deed. In witness whereof the parties hereto have hereunto affixed their signatures this 13th day of March, 1916."
The signatures are then witnessed, and there is a notation by rubber stamp showing that the transaction was registered in the resident commissioner's office on, in this case,
March 15, 1916. There is also a plan with a statement of the area and a description of the boundaries, in the style used for the P & T deeds.
I pause there to mention three points. First, in addition to misspelling the grantor's name in the first recital, this particular deed is obviously imperfect in its failure in the second and third recitals to mention the term of years of the P & T deed which is to be extended. Second, the reference in clause (2) (iii) to the date of commencement of the company's operations "under clause I (i) hereof" is an obvious slip; the reference should be to "clause (2) (i) hereof." Probably the slip came about through taking a C deed, where the reference is correct, and then producing an A deed by the insertion of a new clause 1 to effect the surrender, renumbering the former clause 1 so as to make it clause 2, and then forgetting to alter the reference in what had become clause 2 (iii). Nothing, fortunately, turns on it. Nor has anything turned on the third point, that of the A and C deeds being called "deeds" and yet providing for execution (and in fact being executed) under hand only. Perhaps they merely carried on an
Ocean Island tradition established by the P & T deeds.
I turn to the C deed. The specimen that I have taken is headed "C.101," with the title "Deed for new plots within the mining areas." The deed then reads as follows:
"This deed is made April 17 between Nei Mimi of the first part the Pacific Islands Phosphate Co. Ltd. of London and Melbourne (hereinafter called the company) of the second part and Edward Carlyon Eliot His Majesty's resident commissioner in Ocean Island (hereinafter called the resident commissioner) of the third part to record the following transaction: - (1) - (i) In consideration of the sum of £97.11.11 paid to the said Nei Mimi by the company (the receipt whereof the said Nei Mimi hereby acknowledges) the said Nei Mimi hereby grants to the company the right to remove from that piece of land situated at Paukonikai Ocean Island the dimensions of which are described in the plan on the back of this deed, all rock and alluvial phosphate that may be found therein during the term beginning at the date hereof and ending on December 31, 1999, and the right during the said term to cut down and remove all trees shrubs etc. on the said land the cutting down and removing whereof may be necessary (a) for the exercise of any operations actually commenced or immediately contemplated by the company for the purpose of or with a view to extracting any such rock or alluvial phosphate or (b) to enable the company to construct any railway which may be required for the carrying on of its operations as aforesaid on the said land or any land adjoining the same from which the company has the right to take rock and alluvial phosphate. (ii) Until any such operations are commenced and being carried on the said Nei Mimi his servants and agents shall have free access at all times to the said land for the purpose [of] cultivating the same and collecting and removing the vegetable produce thereof. (iii) Whenever the said land shall whether before or at the end of the said term cease to be used by the company for the exercise of the rights hereby granted the company shall replant the said land as nearly as possible to the extent to which it was planted at the date of the commencement of the company's operations under clause I (i) hereof with such indigenous trees and shrubs or either of them as shall be prescribed by the resident commissioner for the time being in Ocean Island and the said lands shall when and as soon as in the opinion of the said resident commissioner this may be without prejudice to the company's operations as aforesaid revert to and become revested in the said Nei Mimi freed and discharged from all rights of the company under this deed. In witness whereof the parties hereto have hereunto affixed their signatures this
17th April, 1914."
The rest of the document is on much the same lines as the A deed that I have set out.
It will be observed that in each deed the last subclause (clause (2) (iii) in the A deed and clause (1) (iii) in the C deed) is in identical form, and contains a replanting obligation and a provision for reverter. Both play a prominent part in Ocean Island No. 1. I shall have to return to them later. It will also be observed that the resident commissioner is a party to each deed, though on this the deeds differ somewhat in their terms. In the C deed, the resident commissioner is a party simpliciter, whereas in the A deed it is recited that the landowner has agreed to extend the period stated in his P & T deed subject to the concurrence of the resident commissioner being obtained to the transaction; and it is then recited that the resident commissioner has agreed to join in the deed "for the purpose of signifying his concurrence as aforesaid." There is also the difference that in the A deed there is no express statement of any consideration, though there is a surrender by the company of its rights under the P & T deed and a grant by the landowner of the right of removal. In the C deed there is an expression of consideration in the payment of the stated sum for the grant of the right of removal.
It will also be observed that the last subclause provides for "the resident commissioner for the time being in
Ocean Island" to prescribe the indigenous trees and shrubs to be planted, and that the third party to the agreement is the resident commissioner, Mr. Eliot, who was in office at the time. There is nothing to constitute the resident commissioner a corporation, and so, on the face of it, this cannot be more than an agreement by an individual who has long ceased to hold the office of resident commissioner (and is, I think, dead) that whoever is resident commissioner at the relevant time will do the necessary prescribing. There is also a minor difficulty about the words "for the time being in Ocean Island." At some time during World War II the resident commissioner left Ocean Island, and Ocean Island ceased to be the headquarters of the resident commissioner for the Gilbert and Ellice Islands Colony; these were established elsewhere in the colony. Thereafter there could thus be said to be no resident commissioner "in" Ocean Island, though there was a resident commissioner "for" Ocean Island, as for the rest of the colony. These are matters that I shall have to consider later.
Having described the 1913 agreement and the A and C deeds, I can pass quickly over the next six years. The necessary eight acres in each of the central and eastern mining areas were quickly provided by the Banabans, and large numbers of A and C deeds were duly executed. In the period 1913 to 1922 inclusive I think there were just under 300 in all. All were executed before the British Phosphate Commissioners came on the scene at the end of 1920, save for three C deeds, two of which were executed in June 1921 and the other in January 1922; but these are not directly concerned in the present proceedings. I can now come forward to 1920, when the British Phosphate Commissioners were constituted and took over; and that is the third period.
(3) 1920-1931: the British Phosphate Commissioners and the compulsory acquisition. As I have indicated,
Ocean Island and Nauru have to a considerable degree been interlinked in relation to phosphate deposits. Before World War I Nauru was a German possession; but the Pacific Phosphate Co. had by contract acquired considerable rights for the working of phosphates there, and during the war British forces occupied the island. After the armistice in 1918, there was much negotiation, and in the end three instruments were executed which have a considerable bearing on the issues before me. These instruments were as follows. First, there was a tripartite agreement dated July 2, 1919, made between "His Majesty's Government in London, His Majesty's Government of the Commonwealth of Australia and His Majesty's Government of the Dominion of New Zealand." I shall call this the "1919 agreement." Second, there was a five-part agreement dated June 25, 1920, which I shall call the "1920 agreement." Third, there was a six-part indenture dated December 31, 1920, which I shall call the "1920 indenture."
On the face of it, the 1919 agreement applied only to
Nauru; but as will be seen, the 1920 indenture made articles 9 to 14, inclusive, of the 1919 agreement apply to Ocean Island as well. The 1919 agreement recited that a mandate for the administration of Nauru had been conferred upon the British Empire, and that it was necessary to provide for exercising the mandate and mining the phosphate. It was then stated that the three governments agreed as set out in the following provisions. The administration of the island was to be vested in an administrator; and the Australian Government was to appoint the first administrator, for a term of five years. The powers of the administrator were defined. Then by articles 3 and 4 it was provided that there should be a board of commissioners with three members, one to be appointed by each government, and each was to hold office at the pleasure of the government appointing him. Their remuneration was to be fixed by the three governments, or by a majority of them, and the title to the phosphate deposits on Nauru and all the land, buildings, plant and equipment used for working them was to vest in the commissioners. The rights of the Pacific Phosphate Co. were converted into a claim for compensation at a fair valuation, to be contributed by the three governments in the proportions they agreed, or in default in the proportions set out in article 14 of the agreement.
That brings me to articles 9 to 14, the articles which became applicable to
Ocean Island as well as Nauru. I think I should set them out in full.
"9. The deposits shall be worked and sold under the direction management and control of the commissioners subject to the terms of this agreement. It shall be the duty of the commissioners to dispose of the phosphates for the purpose of the agricultural requirements of the United Kingdom Australia and
New Zealand so far as those requirements extend. 10. The commissioners shall not except with the unanimous consent of the three commissioners sell or supply any phosphates to or for shipment to any country or place other than the United Kingdom Australia or New Zealand."
In the event, very little of the phosphate from either island went to the United Kingdom, largely owing to the distances involved and the discovery of large deposits of phosphate in Morocco. Virtually the whole output went to Australia and, to a lesser extent, New Zealand, though from time to time there were surpluses which were exported to Japan and elsewhere.
I continue with the agreement:
"11. Phosphates shall be supplied to the United Kingdom Australia and New Zealand at the same f.o.b. price to be fixed by the commissioners on a basis which will cover working expenses cost of management contribution to administrative expenses interest on capital a sinking fund for the redemption of capital and for other purposes unanimously agreed on by the commissioners and other charges. Any phosphates not required by the three governments may be sold by the commissioners at the best price obtainable. 12. All expenses costs and charges shall be debited against receipts and if by reason of sales to countries other than the United Kingdom Australia or New Zealand or by other means or circumstances any surplus funds are accumulated they shall be credited by the commissioners to the three governments in the proportions in which the three governments have contributed under article 8 of this agreement and held by the commissioners in trust for the three governments to such uses as those governments may direct or if so directed by the government for which they are held shall be paid over to that government."
Article 11 established the system whereby phosphate was sold to purchasers in the three countries at cost price, after allowing for interest on capital (which was charged at 6 per cent.) and a sinking fund. Outside sales, on the other hand, were to be at the best price obtainable. In practice, the commissioners established an "f.o.b. equalisation fund," with a normal level of £100,000, and this provided a cushion whereby profits made in one year could be used to offset losses made in another year. The "phosphate year" ran from July 1 to June 30, and the price to be charged for phosphate was normally fixed in advance for the whole
of a phosphate year. The expenses of the year might, of course, be more or less than the estimate; and another important variable was the quantity of phosphate sold during the year. If the sales were less than the estimate, the overheads would be larger in relation to each ton of phosphate sold, and so the prospects of a loss were increased; and conversely, if more phosphate was sold than was estimated. Furthermore, the operations of the British Phosphate Commissioners on the two islands were for many purposes treated by them as one, so that problems arose in this litigation in segregating the Ocean Island element from the Nauru element, particularly in relation to operating and other costs.
Next there is article 13:
"There shall be no interference by any of the three governments with the direction management or control of the business of working shipping or selling the phosphates and each of the three governments binds itself not to do or to permit any act or thing contrary to or inconsistent with the terms and purposes of this agreement."