2 WLR 496 (Ch.D.)
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?
The facts are stated in the judgment.
1976. November 29. MEGARRY V.-C. read the following judgment.
1. Introduction.This is litigation on a grand scale. From
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 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
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
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
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
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
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
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
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
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
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
The company had in fact already hoisted the British flag. This had been done on
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
In the meantime, a revised licence dated
I can now come forward to
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
As a colony by settlement,
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
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
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
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
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,
Matters came to a head with a letter dated
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
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
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
I do not propose to set out in full the 11 numbered paragraphs of the recapitulation in the Colonial Office letter of
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
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
"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
The discussions on
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
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
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
There is then the date
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
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
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
"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
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,
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
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
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
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,
On the face of it, the 1919 agreement applied only to
That brings me to articles 9 to 14, the articles which became applicable to
"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
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
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."