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EMPLOYMENT TRIBUNAL – BRIAN A LITTLE v MAGELLAN AEROSPACE AND OTHERS Tue 31 March 2009 – 2pm Start Application Hearing

BL WITNESS AL CHAIR

Re my Aide Memoire – Barbara Hadfield – had a witness order so no need for her to support. One issue disturbs me. Linsdell is a E/Y partner for the Group. I‟ve understood the difficulties compelling him to appear. Not address E/Y except subjects 1b/3b. I‟m happy I have the docs to support my reasonable belief. If I‟m wrong on those matters – there would be up to four docs. I‟m happy that my points are – PwC – my position is they‟d become particularly hostile witnesses exposed as personal professional indemnity. For months I‟ve tried to engage on a voluntary basis with PwC…

We can‟t assist with that.

Well leave it as is. If I‟m so wrong I don‟t understand why the Resps don‟t expose them to cross exam. Resps‟ witnesses – AL referred to this as a “fishing expedition” and that the Resps would be prejudiced if they were produced. I‟ve felt for some time and it‟s been confirmed in subsequent disclosures that I was prejudiced.

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BL WITNESS AL CHAIR

I do want to call up to five of those wits. Every person is as a result of subsequent disclosures. MW – Doc disclosed Mar 08. Vol 3 original notice re HM and relocation, p1120a re alleg 13 and Vol 5 p2059.

When was 1120a disclosed?

Mar 2008.

What is the relevance of 1120a to MW‟s evidence and how does it require her to be recalled?

MW was asked about the doc – notes of the meeting in Aug 06. She and JB recorded in the meeting that SS was feeling constructively dismissed.

Is this re the job change?

Yes. My view is HM felt his nose was out of joint. MW said to me he was feeling set up to be dismissed. It wasn‟t possible to question on this without this doc. HM had agreed to move out and felt he was not getting returned as he‟d been told.

Let‟s look at alleg 13. HM‟s evidence confirms it at para 18. The context is HM was saying that. You don‟t accept you told HM.

My position was he needed to sort it out with Jim & Phil.

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BL WITNESS AL CHAIR

The issue is MW was simply recounting what HM told her as he told you.. I‟m not sure MW can assist with that. We need to see what HM says. This is a matter you needed to put to HM to contextualize. This is a matter for HM not MW.

I didn‟t have the doc to do that but I‟ll close this and withdraw it.

PU. Docs disclosed in Dec 08/Jan 09 re statutory a/c – p3566-3375 Vol 9. Disclosed 12 Dec 08. P3545-3547 disclosed 12 Dec 08. P3551 disclosed 12 Dec 08. I want to ask at what point in time did the public policy re supply payment terms change to exclude the payment terms.

This application is not going to be made today. It‟s difficult to follow scientifically with the aircon going. It‟s new to AL so you must continue what you‟re doing but in writing and serve it on AL. You must identify the docs you say are involved re late disclosure; identify which parts of those docs are relevant to asking further questions;

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BL WITNESS AL CHAIR

State what those questions are and why they’re relevant to the outcome of this litigation. You need to identify where they are inconsistent with the evidence (make submissions on this) and you need to focus on whether there is material in the new docs that is germane to your case that you weren‟t in a position to put to the witnesses but are now. Re yourself, you need to explain why there‟s further documentation and why you simply can‟t make submissions. I give you 14 days to submit it and AL 14 days to provide a written response.

Re list of docs – I‟ve read through it and there‟s a lot of info. 3597-3605 new docs?

Yes. All been disclosed since ME gave his evidence.

Two are from the Claimant.

I‟ve seen that.

Report from Bobbi re PwC/A340 and PwC doc. We submit it is outside what is permissible questioning.

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BL WITNESS AL CHAIR

The only new doc is written by the claimant and we wouldn‟t accept that questioning on that doc would be appropriate to ask questions of ME. The doc from Bobbi, by way of principle we would argue the same. We haven‟t been appraised re the remaining three docs.

BL you are entitled to cross exam on topics not cross examined before and revisit areas where further docs have been disclosed and no questions asked previously.

Docs 3597-3605 re A340 – I couldn‟t see anything in the transcript.

I‟ve got an exchange.

You haven‟t put any matters re the A340. AL – I note indicates he did ask him.

P20 we say does indicate he was asked re A340.

Maybe these are docs he can put to the witness that can help with ME. Next question re A340 is doc at 3890 – Mark Bobbi report.

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BL WITNESS AL CHAIR

It‟s all your general contentions just put to ME. Taking him to the doc is not going to assist. You can put your contentions to ME.

Docs 3566-3575 I just want to ask has he ever seen that.

No objections.

3999-4005 – Would he see that or does he think he should do so. If he has seen it I will ask A340 questions on whom he was relying.

Fine.

PwC comparison doc. We provided that to the Resps – para 240 financial control. P3891a-3891f para b.

That was deleted from the report. What do you want to ask?

What action did he take in his role as Chairman about the draft criticism.

We don‟t object.

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Live telelink commenced at 3.10pm with witness Murray Edwards

BL WITNESS AL CHAIR

ME affirmed and confirmed his details.

I‟m going to refer to some of RN‟s evidence of 14 Nov 07 and JD‟s of Apr 08. In both cases it relates to A340/500/600 programs. I‟ll focus on RN and questions asked by the Chair and by my QC AS. Discussion re Aeronca spares “RN don‟t agree- ?????????????? (Chairman tells BL read out later)

You would recognize this as one of the largest inventory items in 2006?

I don‟t have this level of detail. I was clearly aware it was a major programme for Magellan. I don‟t have the degree of familiarity re spares.

In staff meetings there‟d be discussions and docs to be reviewed and you‟d be involved?

I‟d attend 60% to 70% of the time. I was aware it was a large contract for Magellan. Biggest things for us we had a contract with Airbus and Aircelle not sure. There was much discussion and we negotiated for 3 or 4 years. The contract called for certain price adjustments and it was resolved favourably. That‟s my degree of knowledge.

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BL WITNESS AL CHAIR

It was a large contract; commercial discussions went on and it was resolved satisfactorily in 2008. MAC gained a “material” price increase of $10m to $15m for the A340 program late last year.

We‟ve looked at your attendance at staff meetings – it‟s 90%.

Go to vol 4 doc 1242 – you were on the circulation?

Yes.

Do you recollect a discussion of 30/40 mins a couple of days later?

No. It was one of numerous emails I was given day to day. As I said, there were a number of contract discussions. I rely on management to deal with the detail.

Do you remember it being raised in Feb 06 directly with you?

No.

P1437.

OK.

Email to RN ccd to ME. 2nd para onwards.

Again, your emails were often very difficult to read; your thought processes were difficult to understand. Again it was a large contract and Magellan were entitled to certain contractual benefits. It was satisfactorily resolved.

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BL WITNESS AL CHAIR

It also says carry no more than 300 aircraft and it was sent directly to you. I said it was significant…

I don‟t recall that. It was a very important contract for us and Aircelle. Our ops people were always confident there was entitlement.

Are you saying you believe the pricing side was addressed but you‟re not sure of the 2006 financial accounts?

We have independent auditors come into Magellan on a regular basis and in Bristol to do annual review. In each case E/Y signed off the statements. I have to rely on my professional advisors.

The financial statements that E/Y rely on are produced by management?

When you auditors statements they have done a thorough, detailed review. Directors can‟t get into details and rely on the professionals. Given your sensitivity and since you‟ve gone we have gone through due diligence and we have to rely on them.

Vol 1 p309v. These are mins of the 30 Mar 07 Board Meeting approving the a/c for 2006. Point 3 (reads out). Now go to Vol 7, p2881.

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BL WITNESS AL CHAIR

Heading Customer Unit Delivery. If this is the case what doc would you expect management to produce internally and what are they obliged to provide to E/Y?

Extracting it from 31 Dec 06 – gross through number that is p2879 is risk factors which provide to the reader what they should be looking at – eg foreign currencies; level of indebtedness. Then risk factors at p2881 – competitive pressure etc. No matter what programme you are on provides risk in any business.

My question is what docs internally would you expect your management team to have to satisfy the risk?

I can‟t comment. They‟re professional advisors. I would be comfortable to reasonably assume they show due diligence.

You were annoyed at spending C$3m to PwC. They excluded the Customer „s, that is Airbus production programme projections

We don‟t know what PwC looked at.

PwC deliberately ignored it!

That’s your case to put in submissions.

I was not annoyed with PwC I was annoyed with you re the cos you put us through with this process!

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BL WITNESS AL CHAIR

Independent committee of directors and given PwC etc would carry out their duties with due diligence. They‟re a respectable company.

Clearly my case is they haven‟t done so!

Vol 2 p690, para 8.58. See what PwC report is over the course of a two year period….ending at 2012.

These are levels of details of the aero industry I don‟t have the level of expertise. I see what the para says. We have to rely on PwC and their diligence and approach.

Para 8.61 on the following page. Your evidence is the correct EAC used by E/Y by RN/JD was 1285 units to recover all of NRL by 2012. That‟s what E/Y relied on from management.

OK.

Look at the table at para 8.62. Qtr2 Fin 06. The estimate of complete Q2 was the point I raised, PD22, with RN was a result of reading this. At the bottom this was showing a gross loss of 5 million. 2006 the same vols but break-even.

Revenue curve. Significant part why recovery is made is revenue is increased by almost C$10m.

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BL WITNESS AL CHAIR

The price was escalated and the volumes pushed to the right. Were you aware?

I have to rely on the professional skills of E/Y and PWC and the Board of Directors relies on the skill and management of the people doing these numbers. PwC/E/Y accepted these were justified and if not Magellan would take appropriate action. There has been no write-off. Any programme to be successful – any good management will always look to minimise costs and maximise performance. You have to look at the pricing and costs forecasts as well as the unit sales. As a Board of Directors all we ask for is for management and auditors to provide us with a clear statement which had been signed-off. Far be it for me – I was fully confident on relying on E/Y. I have to be and a reasonable person would to rely on them and I say it is reasonable and fair.

Vol 9, p3600. Have you seen this before?

I got it sent to me yesterday.

You‟ve not seen anything like it before then?

I have seen different forecasts but I can‟t say this.

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BL WITNESS AL CHAIR

A340 programme volumes re wing deliveries 2007 – 13 , 2008 – 10 and 2009 – 9 per year. This was given to PwC & E/Y by the company. I gave them a similar doc which was part of a similar discussion.

Vol 6, p2179. Look at 35a. Doc for staff meetings 12 Sep 06. There‟s a discussion re Airbus. Do you have any recollection?

No recollection.

Look at p2175 you were present.

I can‟t say I was. Often these docs say I was when I wasn‟t. Often I only attend on the phone for a few mins. Again I say we rely on financial advisors who provide the financial statements. The A340 had not been brought to the table of the Board of Directors for write-off.

Qtr3. He‟s already been questioned on this. That is the end of the meeting 12 Sep. He doesn‟t recollect.

Doc 3605. This was in disclosure in Dec. Produced by Aeronca and also provided to PwC?E/Y. Top Line – A340/500.

This is the first time I‟ve seen it.

Further 172 estimated by FY2021. You,ve heard me refer to EAC

which stated to EY -1285 units to be delivered by 2012.

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BL WITNESS AL CHAIR

Ok

Having looked at the doc – max 14 nacelles per year therefore from 2010-2012 for this doc to support Q4.2006 EAC to EY audit – there have to be some 450-500 units produced in 2010-2012..

You‟re going beyond my level of detail. This is not my job. I rely on professional advisors. I‟m confident they‟d show due diligence on which we rely. In three audit years this issue as not come back to the Board of Directors. I don‟t know where you get these numbers from.

P3602. Have you seen this before?

No.

Airbus website. Orders column for A340/500/600. Total now 153. This was the doc provided to PwC and also included in what was given to PwC. Have you any idea of what the orders position is re this aircraft?

Not at all.

It is reduced. The orders position has reduced. Do you see why I continued to be concerned that you‟re not aware that management have misrepresented, misled and been untruthful to the public and to the auditors and PwC have not included any docs that would undermine this?

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BL WITNESS AL CHAIR

What is being suggested is management has deliberately overstated the health of this project by deliberately misstating the figs. Are you able to comment?

He used the word untruthful and I take some offence to that. My view of RN, JD, JBut – they do things right and with integrity. It bothers me to hear that comment. It is a global industry with variables. E/Y has been in my view absolutely diligent in producing these a/c. Have been super sensitive and have never provided the Board of Dirs with any reason for write-off – given their degree of professionalism – one can always point to a number of variables. Economy has slowed down, have to look at pricing/cost forecast. We don‟t have the skill-set to focus on this one issue. PWC/E&Y would also look at revenue and costs.

I‟m going to refer to RN‟s evidence of 14 Nov now…..

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BL WITNESS AL CHAIR

AS – There was some discussion and debate within Aeronca – whether they had forecast the rate of spares quick than was accurate. RN – Don’t agree – spread over the number of components that Aeronca expected to sell – looked at EACs only from the manufacture of new components. There was time to include within the EAC’s spares – started doing that in the last years…. CHAIR – Originally did not take into account spares? RN – Yes. AS – Fewer sold – fewer the op to sell spares? RN – Yes. AS – 300 originally thought – 2006 April – were only 74 odd aircraft out there? RN – Correct – that is what this doc says. AS – There was a meeting Toronto – 8th Aug 06 – which was attended by you and BL. Whilst there he discussed with you his concerns of the balance sheet treatment of the A340 NRCs. RN – Correct. AS – Said to you – there was an arbitration ongoing regarding the way the price increase worked.

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BL WITNESS AL CHAIR

AS – He said even if arbitration goes in our favour – still have to write off all the profits.

In terms of staff meetings, Board discussions, do you recall my concern re production levels re A340?

I thought you answered that. You don‟t recollect.

Correct. The biggest thing re this programme was to get the pricing contract sorted. Three-way variable – Biggest issue for Magellan was correct price – purely opposite to provide price adjustment. We‟ve had PwC in 2007 review this based on their professional standards and E/Y. For you to suggest they were not thorough is unreasonable.

(Reads again from RN‟s evidence) RN - Agree that he discussed the write down of profits – would add that uses a very specialist titanium alloy. We had agreed with them that they would pay the full price of increase in aluminium price. I said to him that we’d ignored the spares. Also agreed regarding how long these planes would last. I said that the anticipated sale – there is absolutely no question that we would cover all of the costs…. PwC go into this.

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BL WITNESS AL CHAIR

We looked at this very seriously – before we came to that conclusion. Already had a plan from Airbus – that is higher than that briefing. CHAIR Asked if Airbus were now more confident. RN - It’s very technical – aircraft can fly anywhere. CHAIR – You did not share the pessimism. Your cynicism about that pessimism has been vindicated because you have sold more? RN - Correct. I chose to call the suppliers and discussed with them how they saw the future – they said this estimate in the journal was extremely pessimistic. AS – When did you have that discussion? RN - Q1 2006 – q3 and another one just a month ago. AS - you could see what the forecast said and spoke to RR? RN – One of many. AS - said that it was pessimistic and as events turned out proved to be pessimistic? RN – Yes. AS - 8/2998 – Dead plane flying. April 2007 – over the page. They have said that the forecast - not 163 as previously forecast – now 139. RN – Yes. AS – Still predicting low forecast?

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BL WITNESS AL CHAIR

RN – Yes. AS – Belies the optimism that you have just stated. RN - Moved the numbers up by 3 – phased out by 2010 – do not hear Airbus saying that. AS – The fundamental is – even if pessimistic – the sales were never going to reach the 300 aircraft originally projected by MAC. RN - We had projected 1200 nacelles sold – we have now added to that – the number to be sold through spares – that takes number up to 1500-1600. Significantly in excess of what’s needed. To the original EAC’s we have added in the line for spares – and looked at the total number that will be sold…….Either way – it exceeds the number. AS - Ignoring spares – concentrating the numbers of new aircraft – has MAC ever reduced its expected number of sales from 300? RN – Yes – the pessimistic scenario. AS – Accounts are passed on pessimistic. RN – No realistic. AS – Where are accounts placed? RN – Between the two. AS – Where is it now? RN – Lower than 300 – probably between 250 and 300.

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BL WITNESS AL CHAIR

AS – MAC has downgraded the number of aircraft to be sold? RN – Yes. AS – When? RN – Each qtr end- look at likely sales – we do it at each qtr end. AS – When downgrade? RN – Each qtr end. AS – When start? RN – 4/4 2006 AS – The meeting on 8th Aug – you agree that BL raised the concerns? You agree that he explained what about? You did not share anything about BL the reduction of service life? RN – I showed him a copy of the work done regarding the expected life of the plane – there was some certainty based on the research carried out in Canada. AS – 5/2006 – the sub-cert for 2/4 – see 2 items here A340 – TO DISCUSS. On an important document – the issue of NRC – clearly formal concerns expressed by him. RN – Yes. AS – You would have been clear that it was NRCs that he was referring to? RN – Yes.

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BL WITNESS AL CHAIR

AS – Given that you had a discussion on the 8th – and he signs certificate with qualification – must have been clear that BL not entirely comfortable? RN – Correct – but his experience – with airframe – more with engine and spares – parts wear out and are replaced more frequently than wings – so a difference in our experiences. AS – 6/2115 – will see dated 7th Sep 06 – An Airbus doc – move forward to 6/2117. 3rd box down A340-500, A340-600. RN – Assuming also 7th Sep. AS – These are the projections? RN – No plan for production. AS – It doesn’t look healthy for 2006 – and appears to be diminishing from 2005-2008. RN – Yes. AS – Aware of this at time? RN – Yes. AS – There was pessimism from Airbus at the time? RN – Yes. AS – The only trade estimates referred to by PwC are Forecast International. RN – OK. AS – No ref to the Teal forecasts. You had access to it. Did you provide Teal?

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BL WITNESS AL CHAIR

RN – We gave everything we had to hand – included the plan for production. Didn’t include the Forecast International – I think it included Teal but cannot recall. CHAIRMAN – Did you provide data from other publications? RN - Yes.

This is for submissions.

P3597/8 – I‟m pretty sure you‟ve not seen this before.

I don‟t recall seeing it.

Can you tell me what you think it says?

Do you know what it refers to?

Talking about the number of units A340 – again think need to ask RN re details.

What it says is what is provided to the auditors is very substantial spares.

These are questions to RN. ME has repeated he‟s not involved with this level of detail and has to take it on trust. If he can comment…

2nd para - Holy Cow!! Have to ask RN. He‟s a professional engineer and a very qualified individual.

You‟d understand if a part is scheduled for replacement there‟d e quite a bit of info available to authorities and carriers? Mandatory…..

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BL WITNESS AL CHAIR

No.

You‟ve consistently said you‟ve relied on management, auditors, PwC talked about how much money. I‟ve tried to show you material that shows the levels reducing. Would you be sufficiently concerned to look at this yourself? I say again to the Tribunal – I‟m publicly whistle -blowing.

This isn‟t relevant. Can ME assist in the mechanics of the A340?

3891b – Did you read all draft PwC yourself?

I was provided with a copy and went through it at a high level.

Final report?

Yes in fine detail.

In comparison – look at para 2.40 – deleted. Did you read it when you read the draft?

No. I don‟t recall reading it.

Read it now.

OK.

Is your evidence you never read it? You‟ve no recollection?

Yes.

What actions would you take in your role as Chairman – as reading it then or if you can‟t recall – now.

PwC provided to Audit Committee who have full stewardship.

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BL WITNESS AL CHAIR

When Audit Committee reported back to the Board they did report – need to focus on additional staff and improve areas of financial control – and we have appointed additional accountants. There‟s always opportunities for improvement. BD is a well respected practitioner of governance. We‟re always getting better in stewardship.

P3566 – scan through.

It‟s difficult as it‟s long.

Ever see?

No. Not a Director.

P4003a – Do you see the audit results or is it BD?

This is an E/Y doc produced to Audit Committee for 2006 – produced in Mar 07.

Would you normally see this?

Standard practice they‟d provide this to the Audit Committee so I would see a doc like this.

Go to inventory evaluation contract to say they‟re declining scope and continued with 3999. Does this scope deal adequately with the issues I raised earlier beyond accounts?

If look at this – E/Y comments on 4003a – revenue recognition “have assessed”..etc. Again seeing E/Y does a diligent revue. Asset impairment – 2nd sentence-

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BL WITNESS AL CHAIR

Appears supportive. Again E/Y are a professional firm and have done due diligence.(Briefly lost Telelink at this point). E/Y are a professional firm who have a standard which is very high. They wouldn‟t do a report without due diligence. To sit here in hindsight is difficult for us to question their level of professionalism.

No point in asking question 12.

Question 13 – In your w/s you placed heavy reliance on what probably told I was not being supportive. As you look through the bundles a number of things were going on behind my back which tends to support the view they didn‟t want to deal with the challenges I raised. Go now to p1711 – email from the bottom to the top.

OK.

When you received it from JB what did you think?

Given it was about three years ago I think it‟s difficult to recall – I can‟t recall anything.

Would it influence your view re the bonus?

I don‟t think this will help.

It‟s the view re JB and bankrupting the company – I thought he‟d remember! It sounds like you‟ve had a conversation.

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BL WITNESS AL CHAIR

I don‟t recall it.

ME – BL‟s case is particularly during 2006 he discovered certain matters that he considered wrong in MALUK and he was very concerned re the wrongdoing. If they‟re right, his concerns are correct, what view would you take of senior officers‟ wrongdoing?

Through 2006 at no time did he come forward.

It was prefaced with IF.

We‟re a public company – we have WB policy. He can bring it directly to the Chair of the Audit Committee. BD brings forward any calls in that line and if something is brought, we have full rights to hire independent investigators who would deal with serious prudent. There are full mechanisms to address and deal. He can‟t come back and do things in hindsight – we‟d hire independent professional advisors.

P78, part 3 “all employees” etc…

It‟s a powerful statement and correct.

I had discussions on 8/9 Aug with you and RN – PD23 – on 10 Aug. 14 Sep with JD.

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BL WITNESS AL CHAIR

Did you know it is my view that a substantive element of why I was dismissed was because I was going to expose there would be a requirement for substantial write-off in 2006 and RN didn‟t want that to happen on his watch and that is part of what he and JD used to remove me?

I‟ve no reason to believe – I‟ve seen no evidence. JD and RN do the right things. My view is there‟s never been any connection to your dismissal.

No further questions.

No re-examination.

In accordance with those questions – just check you have asked them all.

Confirmed.

ME‟s evidence is concluded.

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