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Court in the Act
24 May, 2004  
Ok Tedi: litigation drowned in tailings

Slater & Gordon’s Ok Tedi saga … The class action that was swept away in the tailings

imageSlater & Gordon, the Melbourne class action and no win-no fee law shop, has taken a frightful hit with the long running Ok Tedi saga. The firm has written off between $2 million and $3 million in fees after finally settling earlier this year the second round in the action against BHP Billiton.

It is the second expensive tropical class action exercise in which the firm has come a cropper: see report on Ross Mining litigation in the Solomon Islands

The firm was acting for up to 46,000 Papua New Guinea villagers whose subsistence lifestyles were damaged by waste from the BHP copper and gold mine.

The villagers’ 2001 class action alleged that the mining giant had failed to comply with a 1996 settlement agreement, which was designed to compensate them for the environmental damage and reduce further pollution.

With 90,000 tonnes of pulverised waste rock, or tailings, still flowing daily into the Fly River, it seems as though nothing has changed. A hearing date was set for April, but the case settled in January this year, with Slater & Gordon agreeing that BHP Billiton had never breached the 1996 settlement.

It’s a complicated tale. “Everything about Ok Tedi is,” says Andrew Grech, managing partner of Slater & Gordon.

Over the three-year history of the second case, a lot of the circumstances changed. Crucially, the PNG government became a major stakeholder in the now profitable mine, which contributes about a third of the country’s tax revenue.

The government in the 1980s agonised for years over what to do about a tailings dam and whether it would make the project unprofitable and scare off the foreign investors. In the end it got right behind the project allowing the miner to make a mess on national interest grounds.

Today it wants the mine open for as long as possible – at least until 2010, when the ore body is expected to be exhausted. This is despite a World Bank recommendation that the mine be closed to halt the environmental degradation.

Many of the downstream villagers now rely on the mine’s cash economy to survive, no longer able to live off fishing or the choked sago swamps. Consequently, a large number of the initial plaintiff group opted out of the court case by signing Ok Tedi Mining Ltd’s Community Mine Continuation Agreements (CMCAs).

So many villages had signed CMCAs, which provide meagre compensation in exchange for a waiver of legal rights, that Slater & Gordon was left late last year with only 2,000 to 3,000 plaintiffs who wanted to pursue the case.

Feelings are raw on the Fly River. Villagers and landowners have a depleted river system, minimal compensation and no further avenues of redress. Igor O’Neill of the Mineral Policy Institute (MPI), a Sydney-based mining policy NGO, comments:

“In my opinion BHP never got serious about fulfilling the requirement to find a solution to the mine waste problem, and that the latest case was dropped for other reasons more related to the difficulties faced by the law firm who were brave enough to take on BHP on behalf of the people of Western Province.”

The MPI thinks that the compensation schemes did not represent fair value for the damage wreaked. The institute claims that in the worst affected regions the CMCA payments work out per person to just 48 kina a year – around . School fees cost 500 kina a year. In some cases the funds are applied for development work and are not cash payments.

BHP Billiton was contacted by Justinian but did not wish to speak to us for this story. Allens Arthur Robinson, which acts for the mining giant, sought permission from its client to speak, but permission was declined.

One group of objectors felt that all the lawyers, including Slater & Gordon, were involved in a conspiracy with BHP to shut down the case before it received a proper hearing. Robin Moken, a spokesman for one of the Fly River clans laments the years of hoping and waiting for the judge’s verdict.

“Three years, [then] a letter telling us that there is no case. I couldn’t believe what they were saying, because they should have told us in the first place that story, that there’s no case. Finished. If they’re professionals, they should have told us, like that.”

And what dashed those expectations?

In Moken’s opinion, it was money. Slater & Gordon ran the class action on the basis of no win-no fee agreements:

“They wanted to get out of there fast because the case was run on the lawyers’ expenses, the people don’t have the money to pay for the expenses and the lawyers think it’s best to settle matters fast.”

Needless to say, Slater & Gordon does not accept that interpretation. Andrew Grech told us:

“I guess, other than saying it’s offensive and disgraceful they should say that, knowing the commitment my firm has made to them and their cause over a very long period of time, the best thing to say is that the settlement was approved by the court who I can assure you does not just rubber stamp these things. There’s a very detailed analysis of the reasons for the settlement which included senior counsel’s advice.”

A confidential affidavit of the plaintiffs’ reasons for settling was filed with the court and Grech says that their clients had seen the material in that affidavit.

Grech told Justinian the case alleging a breach of the 1996 settlement took three years to resolve because after a drawn-out interlocutory process, extensive document discovery had to be completed. Eventually, it became clear that Slater & Gordon couldn’t find the documents it was looking for.

Many of the plaintiffs believed that the 1996 settlement, which included million in compensation and legal fees of million, also required BHP to build a tailings dam or pipeline, to stop the mine’s waste pouring into the river.

It turned out not to be quite so simple, as Grech explains:

“What [BHP] was supposed to do was abide by a government recommendation to build a technically and economically feasible tailings mitigation option. And the option favoured by the landowners was a tailings pipeline.”

BHP’s case was that there was no properly constituted government inquiry, and even if there was, it made no such recommendation.

The plaintiffs insisted there was a government inquiry and recommendation, and if there wasn’t, it was because BHP thwarted all attempts for that to happen. However, Grech said:

“When we got through the discovery phase, we came to realise that in fact we couldn’t prove they had ever done anything to stop the government from conducting the inquiry In fact, the evidence tended to suggest that they had encouraged the government to conduct it but the government simply hadn’t.”

imageThe PNG government’s role in the Ok Tedi saga is mired in contention. In 2002, overcome by the bad odour from the environmental catastrophe, BHP Billiton transferred its 52 percent shareholding in Ok Tedi to PNG Sustainable Development Program Limited, a Singapore based trust in which the PNG government was a beneficiary.

At the time Paul Anderson, BHP Billiton’s managing director, explained that the company was “not comfortable” with its continued operation of the mine.

The PNG government now has a 30 percent shareholding in Ok Tedi Mining Ltd (OTML). Of that, 15 percent is held directly, 12.5 percent on behalf of the Western Province and 2.5 percent for the landowners.

In February this year The Sydney Morning Herald reported that OTML’s profit margin on the cost of production was running at “an astonishing 60 per cent”.

Unhappy with the prospect of losing such a lucrative revenue stream, the government introduced into parliament the Mining (Ok Tedi Mine Continuation Agreement) Act, 2001, which gave legal force to the CMCAs, the compensation schemes that had been put in place, and removed villagers’ rights to pursue further legal action over the pollution. As Grech put it:

“BHP basically had a statutory immunity from the government.”

Sir Michael Somare, the PNG Prime Minister (just), and at the time the Bill was introduced the PNG Opposition Leader, filed a constitutional challenge to the legislation on the basis that it took away people’s rights without just compensation.

The challenge was never heard and was discontinued as part of this year’s settlement. Grech said:

“Once Sir Michael Somare got into government his attitude to pursuing the constitutional references seemed to change. Funny that.”

At around this time the then PNG Prime Minister, Sir Mekere Morauta, was making his feelings about Slater & Gordon known to the parliament:

“This firm is infamous for the havoc and chaos it causes in developing countries in its neo-colonial attempts to exploit villagers for their own financial gain”

Slater & Gordon also ran proceedings against Ok Tedi Mining Ltd, claiming that the Mine Continuation Agreements and the legislation which defeated the claims, amounted to a contempt of the court process. Orders were also sought to injunct the defendants from enforcing the Mine Continuation Agreements.

The action was settled with consent to some of the orders sought and the company paid S & G’s costs, the only costs it ever recovered in connection to the 2001 class action.

One of the difficulties confronting the villagers with class action law is that all members of the group are bound by the court-approved settlement agreement, even those who objected to it.

imageGrech says that Slater & Gordon began the case with instructions from “thousands” of PNG landowners. The groups objecting to the settlement agreement were bound, despite their objections, because Alan Archibald for BHP Billiton argued successfully before Justice Bongiorno (pictured) last January that they had not successfully established any real chance of success in the proceedings, nor distinguished themselves from the majority of the group in any way. As Bongiorno J commented:

” Let’s hope that clause three of this order (the clause listing the people bound by it) never has to be litigated.”

Despite the fact that all the objectors have the benefits of the CMCAs, many felt that it was an unjust outcome. For Grech, that’s fair enough:

“Frankly, everyone on our side agrees with those sentiments. It’s a terribly unfair result. The lifestyle of these people has been detrimentally affected and the companies involved have been able to get away with it by simply having legislative regimes in place which compensate them at a very minimum level. But I think it’s fair to say that we’re now satisfied that what they’ve done doesn’t constitute a breach of the 1996 settlement agreement.”

There were other problems. The notices that were posted around the relevant villages in PNG included both the court approved form – advising people that the case was to be settled, subject to court approval – but also contained an inaccurate statement that the case had already been dismissed. In relation to that slip, Justice Bongiorno said:

“I frankly think it’s a little disturbing that that first sentence appeared in that document.”

imageArchibald (pictured) pointed out that of the three forms of notice – radio broadcasts and other posters – only one got it wrong. That was sufficient for the court. However, Bongiorno was concerned about the brevity of a two-week notification period.

After three years of litigation for remote communities, without telephones or internet access, to be informed of the pending settlement and to file any objections within a fortnight seemed too hasty.

Grech admits it was an unusually short notification period. He told Justinian:

“Our clients had a grave fear that there was a real risk of violence taking place in the villages because there was a real contest between the court case supporters, and the people who weren’t court case supporters. On our instructions there was due to be a payment under the Community Mine Continuation Agreements, and that was a bit of a flash point. So yes there was pressure, we would have liked to have had a longer notification period, but our instructions from our clients were to do it as quickly as possible.”

There was also no river patrol, a direct person-to-person form of notification which had been used extensively before. Grech points out that this notification period only targeted the eight villages which had steadfastly refused to sign the CMCAs.

“You’re not delivering them [the notices] personally?” Bongiorno asked Charles Scerri, for OTML, in the December settlement application.

“No, we nominated Mr Archibald but he ”

“I have prior commitments,” Archibald advised the court.

The way OTML handled the CMCAs has also been questioned. Robin Moken alleged that CMCA documents were given to junior people in the clans who had no authority and whose uninformed signatures were used to bind entire clans.

“I cannot bind another clan, it has to be signed by the clan leader to bind his own members. What happened here was they put some stupid person on the boat and tried to bind everybody along the river, and that is not on. That’s not how we work here, that is not in line with our custom, it doesn’t work like that.”

This is backed up by an independent report prepared by the University of Papua New Guinea, which concluded that the people in its sample communities had not been fully informed of the implications and consequences of signing the CMCAs. The report’s author, Dr Lawrence Kalinoe, wrote:

“There was only partial and selective disclosure, and thus little to no informed consent.”

As for Slater & Gordon, it’s been an expensive case. Grech told Justinian that the firm wrote off “two to three million dollars in professional fees,” adding that their only costs recovery, under the no winno fee agreement was for disbursements and some professional fees in the contempt proceedings and nothing at all for the breach of settlement matter.

But he says the losses will not deter Slater & Gordon from pursuing future public interest litigation.

“I think people have short memories. We’ve won and lost lots of cases. When we ran the first Wittenoom mine cases in the 1980s, we lost the first three. We’ve been going for 65 years, we will not be deterred. We believe in what we do, and we’ll keep on doing it.

“But in the end, you know, lawyers should never be zealots. What [clients] are mostly relying on you for is to give them objective advice. And as difficult as that sometimes is, and as painful as it is, that’s your obligation to them. As a professional person that’s what you’ve got to do, whether it’s someone paying you tens of thousands of dollars or someone paying you nothing, they’re still entitled to objectivity.”

Reporter: Kelsey Munro