Subject: AFR: Dili Trial Leaves Bad Taste for Australian Investor

Australian Financial Review

August 8, 2003

Dili trial leaves bad taste

Rowan Callick

Australia's biggest investor in East Timor is reconsidering its role after losing a bizarre court battle against its former joint-venture partner, a local businessman. The Dili district court has awarded $US1.5 million ($2.32 million) damages against family-owned Queensland construction company JJ McDonald & Sons, chiefly for failing to register the name of its joint-venture partner, Foo Hau Kiun, and also for paying inadequate rents for equipment for the joint venture, East Timor Constructions, leased from him.

The company has filed an appeal against the judgement.

During the hearings, JMS's offices in Dili and those of its barrister in Darwin were burgled and court case documents targeted.

The court said its verdict could be executed immediately - meaning the seizure of plant and vehicles, effectively taking over JMS's business on the island.

It made this pronouncement even though six previous appeals were pending over the court's conduct of the case, and even though the husband of the court's presiding judge, Carmelita Moniz, has registered a business also named East Timor Constructions.

But last Friday JMS obtained an order from East Timor's new appeal court to freeze execution pending the outcome of the appeal. It is now fighting a subsequent application by Foo to the district court to seize JMS's assets.

The translator hired by the judges in the original case has a brother who is a business associate of Foo in the Indonesian province of Papua. In its appeal, JMS said "at many times during the hearings the translator did not properly and competently convey to the judges the translated testimony of the defendant's witnesses".

The judges, JMS claims, "acted as if they are advocates for the plaintiff", selectively taking into account the evidence of the plaintiff but not of the defendant, and denying the defendant full access to the documents in the court file. And "many of the decisions made by the panel of judges have been made without reference to any statute or other law".

And the court failed to ensure a proper transcript was taken, JMS says in its appeal.

"On occasions the registrar of the court would take notes but on other occasions he was observed to be sleeping," JMS says.

A new judge was appointed to the panel four days into the hearing, but without being able to read transcripts of previous evidence because there were none.

Adding to the tangled complexity of attempting to keep the business afloat, the whole proceedings may be jettisoned along with all other court cases over the past 28 years, because the newly constituted Court of Appeal has ruled Indonesian law as inapplicable in the country, because Indonesia's 1975 invasion was illegal. Instead, it says Portuguese law applies.

The judgement - delivered in Bahasa Indonesian - found against JMS, which spent $3 million making East Timor its first venture overseas, to aid reconstruction.

The United Nations Transitional Administration there had urged the company to find a local joint-venture partner. It chose Foo, one of a few local builders with his own quarry and graders.

JMS turned over about $60 million last financial year. It has ranged, depending on the projects in hand, between the biggest and third-biggest private sector employer in East Timor.

The court said that the registration of the joint venture without Foo's name was "an attempt by the defendant to perpetrate fraud and trickery".

JMS strongly denies this.

Although the registry book has mysteriously disappeared, JMS brought the chief registrar to court, where he was prepared to testify to the correct registration. But the judges would not hear him. Nor would they consider other documentary evidence from the registry - a mailing list - citing Foo and JMS as joint owners.

The judgement describes as "constituting bad faith" the company's appointment of PricewaterhouseCoopers to independently audit East Timor Constructions' books. Foo said that he should have approved this assignment, although JMS responded that he had by then quit the venture.

The court accuses the company of "fraud and manipulation" in keeping to itself profits that the firm says did not exist because the joint venture made a loss in its first two years.

The judgement reveals that the judges ruled as inadmissible or irrelevant almost all evidence produced by JMS, on grounds that they only occasionally explain. They did not explain how the $US 1.5 million "material compensation" figure was derived.

The JMS lawyers - solicitor Jeff Guy from Townsville and barrister Tim Lindsey, the director of Melbourne University's Asian Law Centre - face arrest if they return from Australia to Dili to fight the case. Foo's lawyer, Vital dos Santos, has threatened to sue for defamation, which is a criminal as well as a civil offence in East Timor.

The chairman of JMS and its chief witness, Chris Greig, was unable to appear in court because Foo had also issued a criminal complaint against him, making him liable to detention on arrival. The court declined JMS's request to hear the criminal matters first, so that it could then move on to the main civil case with the witnesses without the threat of detention, common practice in most countries.

Foo did not give evidence in court but his claims were accepted by the court almost in their entirety.

An appeal has been lodged by JMS, which says that the judgement was not based on the valid law of East Timor - Portuguese or Indonesian - and did not properly take into account all of the evidence, submissions or law applicable to the case.

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