Aquila Resources Ltd v Pasminco Ltd (Administrators Appointed)
[2002] WASC 53
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: AQUILA RESOURCES LTD & ANOR -v- PASMINCO LTD (ADMINISTRATORS APPOINTED) & ORS [2002] WASC 53
CORAM: MASTER SANDERSON
HEARD: 26 FEBRUARY 2002
DELIVERED : 22 MARCH 2002
FILE NO/S: CIV 2618 of 2001
BETWEEN: AQUILA RESOURCES LTD (ACN 092 002 769)
First Applicant
AQUILA EHM PTY LTD (ACN 095 529 445)
Second ApplicantAND
PASMINCO LTD (ADMINISTRATORS APPOINTED) (ACN 004 368 674)
First RespondentMIM HOLDNGS LTD (ACN 009 814 019)
Second RespondentERNEST HENRY MINING PTY LTD (ACN 008 495 574)
Third RespondentSAVAGE RESOURCES LTD (ADMINISTRATORS APPOINTED) (ACN 009 551 624)
Fourth RespondentSAVAGE EHM FINANCE PTY LTD (ADMINISTRATORS APPOINTED) (ACN 071 375 221)
Fifth Respondent
FILE NO/S :COR 376 of 2001
BETWEEN :AQUILA RESOURCES LTD (ACN 092 002 769)
Applicant
AND
PASMINCO LTD (ADMINISTRATORS APPOINTED) (ACN 004 368 674)
First RespondentSAVAGE RESOURCES LTD (ADMINISTRATORS APPOINTED) (ACN 009 551 624)
Second RespondentSAVAGE EHM FINANCE PTY LTD (ADMINISTRATORS APPOINTED) (ACN 071 375 221)
Third Respondent
Catchwords:
Corporations Act - Whether application for pre-action discovery 'a proceeding' under s 440D(1) - Whether leave should be granted to bring proceeding
Practice and procedure - Pre-action discovery
Legislation:
Companies (Queensland) Code, s 371(2)
Corporations Act, s 440D(1)
Supreme Court Rules, O 26A r 4
Result:
Discovery ordered against first and second respondent
Category: A
Representation:
CIV 2618 of 2001
Counsel:
First Applicant : Mr C L Zelestis QC & Mr G H Murphy
Second Applicant : Mr C L Zelestis QC & Mr G H Murphy
First Respondent : Mr P D Evans
Second Respondent : Mr G M Abbott
Third Respondent : Mr G M Abbott
Fourth Respondent : Mr P D Evans
Fifth Respondent : Mr PD Evans
Solicitors:
First Applicant : Fearis Salter Power Shervington
Second Applicant : Fearis Salter Power Shervington
First Respondent : Freehills
Second Respondent : Allens Arthur Robinson
Third Respondent : Allens Arthur Robinson
Fourth Respondent : Freehills
Fifth Respondent : Freehills
COR 376 of 2001
Counsel:
Applicant: Mr C L Zelestis QC & Mr G H Murphy
First Respondent : Mr P D Evans
Second Respondent : Mr P D Evans
Third Respondent : Mr P D Evans
Solicitors:
Applicant: Fearis Salter Power Shervington
First Respondent : Freehills
Second Respondent : Freehills
Third Respondent : Freehills
Case(s) referred to in judgment(s):
Alliance Petroleum Australia (NL) v Australian Gas Light Co (1983) 48 ALR 69
Brian Rochford Ltd (Administrator Appointed) v Textile Clothing & Footwear Union of NSW (1998) 17 ACLC 152
Davis & Ors v Saygar Pty Ltd & Anor, unreported; SCt of WA; Library No 980443; 10 August 1998
dayTraderHQ Ltd v Hometrader Ltd & Ors [2001] WASC 283
Foxscroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063
Hill v National Australia Bank Ltd, unreported; SCt of WA; Library No 980676; 24 November 1998
Ledger & Anor v Natwest Australia Bank Ltd & Ors, unreported; SCt of WA; Library No 980061; 16 February 1998
Pioneer Water Tanks (Australia 94) Pty Ltd v Delat Pty Ltd (1997) 16 ACLC 36
Re Vassal Pty Ltd (1983) 8 ACLR 683
Reynolds v Panten & Anor [1999] WASCA 89
Simoon Pty Ltd v Renbay Systems Pty Ltd (1995) 13 ACLC 1792
Case(s) also cited:
Central Exchange Ltd v Anaconda Nickel Ltd [2001] WASC 128
Helm v Hansley Holdings Pty Ltd (In Liq) [1999] WASCA 71
J & B Records Ltd v Brashs Pty Ltd (1994) 13 ACSR 680
McCarthy & Ors v Dolpag Pty Ltd [2000] WASCA 106
Pasdale Pty Ltd v Concrete Constructions (1995) 19 ACSR 693
Rodgers v Radly (2000) 37 ACSR 158
Smiley v Watson [2001] QCA 269
MASTER SANDERSON: By originating summons filed 18 October 2001, the first and second applicants sought orders against the first to fifth respondents for pre‑action discovery pursuant to O 26A r 4 of the Supreme Court Rules. Some time prior to the hearing, the applicants indicated that they would not proceed with their application so far as it concerned the third to fifth respondents and they reduced the scope of the orders sought against the remaining two respondents. I will outline the terms of the orders sought by the applicants below. However, it is fair to say that, as a result of the applicants limiting the scope of the orders they sought, much of the voluminous affidavit evidence filed in support of, and in opposition to, the application was rendered superfluous.
At the same time as the discovery application was filed, Aquila Resources Ltd issued proceedings seeking an order under the Corporations Act for leave to proceed against the three respondents who were in administration. Perhaps surprisingly, this Corporations Act application and the originating summons were programmed and eventually heard together. Because the applicants in the originating summons proceedings decided not to pursue remedies against the fourth and fifth respondents, the application for leave to proceed was limited to Pasminco Ltd, the first respondent. Aquila Resources Ltd submitted that leave was not necessary to bring an application for pre‑action discovery, but if leave was necessary, it should, in the circumstances of this case, be granted. On behalf of Pasminco Ltd, it was submitted that not only was leave necessary, but it ought not be granted. After hearing argument, I advised the parties that I was satisfied that leave was required and that it ought be granted. I indicated I would publish reasons for reaching that conclusion. It is convenient if I state briefly the reasons for my conclusion before dealing with the originating summons application.
Section 440D(1) of the Corporations Act is in the following terms:
"During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:
(a)with the administrator's written consent; or
(b)with the leave of the Court and in accordance with such terms (if any) as the Court imposes."
The first question is whether the application for pre‑action discovery is "a proceeding in the court against the company". Although there is an absence of direct authority on this point, this and like expressions have been considered by the courts from time to time. So, in Re Vassal Pty Ltd (1983) 8 ACLR 683, Kelly J determined that the expression "civil proceeding" in s 371(2) of the Companies (Queensland) Code included an arbitration. The South Australian Full Court reached a similar conclusion in Alliance Petroleum Australia (NL) v Australian Gas Light Co (1983) 48 ALR 69. A reading of these decisions indicates that the expression must be interpreted in the context in which it is used. Steytler J eloquently made this point in Reynolds v Panten & Anor [1999] WASCA 89 at 58. His Honour was not there dealing with the Corporations Act or its predecessors, but his discussion of the proper interpretation of the word "proceeding" is apposite.
In my view, it is proper to look at what is intended by the provisions of s 440D. An administrator appointed to assess the financial position of a corporation should do so unhindered by the need to defend legal proceedings. This is but one aspect of the moratorium provided to a company while its future is assessed by an independent party. In my view, it is of no consequence whether the "proceeding" is an arbitration, an action in the Industrial Relations Commission (as in Brian Rochford Ltd (Administrator Appointed) v Textile Clothing & Footwear Union of NSW (1998) 17 ACLC 152) or an interlocutory proceeding prior to the issue of a writ. In all of these cases, an administrator is to be protected from a party wishing to pursue an action unless he consents, or unless the court approves the proceedings being pursued. Accordingly, I am satisfied that leave in this case is required.
The question then is whether or not leave ought be granted. The authorities suggest that generally leave ought be refused. In Foxscroft v The Ink Group Pty Ltd (1994) 12 ACLC 1063, Young J put the position as follows (at 1065):
"The provisions of Part 5.3A, as exemplified in sections such as 437C, 437F, 440C and 440D, provide that there shall be a complete freeze of proceedings against the company during the administration so that the administrator can have time to assess the situation, and the company's creditors have an opportunity to work out the net position and adopt an attitude under section 439C which will be in their common interest. To allow one creditor or potential creditor to proceed would not only take the administrator's attention from what he needs to do under the division in a relatively short period of time, but it would also involve costs in running the legal action on behalf of the administrator, as well as perhaps giving the claimant some advantage over the other creditors or potential creditors.
Accordingly, it seems to me that an application under section 440D will rarely be granted. It may be that where the company is insured against the liability the subject of the proceedings, the administrator will ordinarily consent or the court will give conditional leave, but outside this field it is hard to see situations where it would be proper to grant leave, though doubtless there are such situations."
In those cases where leave has been granted, it has usually been for a limited purpose. For instance, in Brian Rochford Ltd (supra) Austin J was prepared to grant leave to validate proceedings which had already been issued in the Industrial Relations Commission and all steps taken in those proceedings up to the date of the application to the court for leave, but otherwise the proceedings were staged. In Simoon Pty Ltd v Renbay Systems Pty Ltd (1995) 13 ACLC 1792, leave was granted to a plaintiff to apply for security for costs in an action brought by a company under administration. In Pioneer Water Tanks (Australia 94) Pty Ltd v Delat Pty Ltd (1997) 16 ACLC 36, leave was given to issue proceedings seeking an injunction to force patent rights. But it is apparent from these and other cases that, as Young J said in Foxcroft (supra), leave will not generally be granted.
This case is somewhat unusual. The application for the grant of leave to proceed was brought simultaneously with the action seeking discovery. Strictly speaking, leave was needed before the action seeking discovery could be issued. Section 440D says that an action cannot be "begun" until leave is obtained. But Pasminco Ltd did not take this point. They responded to the application for discovery by marshalling their evidence and filing extensive affidavit material. If inconvenience has been occasioned to the administrator, it is now in the past. Costs have been incurred. To now refuse a grant of leave would not achieve the aims of the section. It is true that if an order for discovery is made, there may be some further inconvenience and the administrator may incur some further costs. The extent of the evidence already filed makes it plain that to now provide the limited discovery sought by the applicants would involve very little further work. Pasminco Ltd can be protected with respect to the costs of giving discovery by an order under r 7. In the rather special circumstances of this case, then, I am satisfied that leave ought be granted.
I think the proper order is that leave ought be granted nunc pro tunc. This was the order made by Kelly J in Re Vassal Pty Ltd (supra). It also reflects the orders foreshadowed by Austin J in Brian Rochford Ltd. I will hear the parties as to the precise form of the order in due course.
Turning, then, to the application for pre‑action discovery, it is convenient if I first adopt the nomenclature for the parties which they have adopted in the affidavit material. The applicants are referred to collectively as "Aquila". The first respondent is referred to as "Pasminco", the second respondent as "MIM" and the third respondent as "EHM".
Prior to 13 January 2001, Pasminco held a 49 per cent interest in the Ernest Henry mine (the mine) in northern Queensland. The remaining 50 per cent interest was held by MIM. In fact, the mine assets were owned by EHM and 51 per cent of the share capital of that company was owned by MIM. The remaining 49 per cent was owned by a wholly‑owned subsidiary of Pasminco (the fourth respondent). Administrators were appointed to Pasminco on 19 September 2001. All the events which occurred and which are relevant to this application took place well before the appointment of the administrator.
On 13 January 2001, Pasminco, Aquila and other parties executed a Deed of Commitment. This Deed of Commitment provided that, subject to the satisfaction of various conditions precedent, the parties would execute a share sale agreement which would, in effect, result in Aquila acquiring Pasminco's 49 per cent interest in the mine. The arrangements between Pasminco and MIM in relation to the mine were such that MIM had a pre‑emptive right if Pasminco wished to dispose of its interest. The pre‑emptive right held by MIM was triggered by the issue of a document referred to as a transfer notice. The Deed of Commitment provided that a transfer notice would issue. The provisions of the Deed of Commitment provided that, if various conditions precedent were not satisfied on or before 21 March 2001, or 35 days after MIM had received the transfer notice, then either Pasminco or Aquila could terminate the deed. In the event, the period of 35 business days allowed to MIM expired on 5 March 2001. Thus, the date for satisfaction or waiver of the conditions precedent was 21 March 2001. As one would expect, the Deed of Commitment required all parties to use their best endeavours to ensure sale of the mine to Aquila. The Deed of Commitment also provided that, in the event the sale to Aquila did not proceed as a result of MIM exercising its pre‑emptive right, Aquila would be entitled to receive a "termination fee" of $3,000,000.
It is worthy of note that this was a not insignificant transaction. The purchase price Aquila was to pay Pasminco for its interest in the mine was $145,000,000. It must also be assumed, although it is not readily apparent from the evidence, that MIM, when it received the transfer notice, had to move with despatch. It had only 35 days to decide whether to commit $145,000,000. MIM is a publicly‑listed company with huge capitalisation and significant resources. Nonetheless, even for a company of its size, a commitment to expenditure of this magnitude is not a decision to be taken lightly. This point was made by counsel for Aquila during the course of his submissions and, in my view, it was a point well made. It provides background to the events which follow.
By letter dated 30 January 2001, MIM wrote to Pasminco alleging that the transfer notice was invalid: see annexure DAL1 to the affidavit of David Andrew Lambert, sworn 23 January 2002. Pasminco wrote back to MIM by letter dated 2 February 2001 denying that the transfer notice was invalid: see annexure NHB16 to the affidavit of Nicholas Henry Brown, sworn 18 October 2001. There then followed further correspondence between Pasminco and MIM in which MIM maintained that the transfer notice was defective and Pasminco maintained it was not. During this period, MIM informed Aquila that it disputed the effectiveness of the transfer notice. In a letter of 23 February 2001, MIM wrote to Pasminco maintaining its position with respect to the transfer notice, but offering to "meet to work through the issues": see exhibit DAL5 to Lambert's affidavit.
On 21 February 2001, Aquila wrote to Pasminco seeking an extension of the cut‑off date by three weeks. The letter made it plain that Aquila had not resolved to proceed with the acquisition of the mine even if the extension was granted. Throughout this period, there is nothing in the correspondence suggesting MIM intended to resort to litigation to protect its position with respect to the transfer notice.
On 27 February 2001, MIM invited Aquila to Brisbane to discuss procedural matters relevant to Aquila's proposed acquisition of Pasminco's interest in the mine. That meeting took place on 1 March. On the same day two representatives of MIM, Messrs Graham and Zilman, met a representative of Pasminco in the Melbourne offices of Freehills, Pasminco's solicitor. It would appear that at this meeting there was still no threat of litigation in relation to the transfer notice. However, MIM did raise the question of a possibility of the extension of the pre‑emption period. At this stage, MIM had not indicated one way or the other whether they intended to exercise their right of pre‑emption.
On 2 March, two representatives of MIM, Messrs Baker and Graham, telephoned Lambert, a representative of Pasminco, seeking a meeting on Monday 5 March and requesting an extension of the pre‑emption period. Lambert then telephoned Baker and said that if the pre‑emption period was to be extended, Pasminco and Aquila would require MIM to confirm the validity of the transfer notice. Up to this point no agreement about any extension of the pre‑emption period had been reached. Also on 2 March, Freehills, Pasminco's solicitors, telephoned Fearis Salter Power Shervington ("FSPS") saying that MIM was requesting an extension of the pre‑emption period and that Pasminco would agree if MIM would acknowledge the validity of the pre‑emption notice. That is how the matter was left to rest on the afternoon of Friday 2 March 2001.
Further telephone discussions took place between Lambert and Mr Tony Poli ("Poli"), the managing director of Aquila. Brown, in his affidavit of 18 October 2001 (par 29), recounts Poli's version of events in the following way:
"… Subsequently, on 4 and 5 March, further discussions took place by telephone between Mr Lambert and Mr Stewart on behalf of Pasminco and Mr Poli on behalf of Aquila in which Mr Lambert and Mr Stewart stated that MIM was continuing to dispute the validity of the Transfer Notice but was prepared to acknowledge its validity if it was granted an extension of the Pre‑emption Period. Mr Lambert and Mr Stewart said in effect that the matter would end up in Court unless Aquila consented to an extension of the Pre‑emption Period."
Brown then refers to correspondence passing between Freehills and FSPS dated 5 March 2001 (exhibit NHB11). Relevantly, this letter reads:
"If MIM's pre‑emption period is not extended, then the current uncertainty as to the validity of the transfer notice will remain. In those circumstances, Pasminco would be required to disclose the matters in dispute to Aquila so as to comply with the disclosure warranty in the share sale agreement attached to the transfer notice. The disclosure would qualify Pasminco's warranty in relation to its ability to sell its 49% shareholding. We imagine that Aquila would also be required to disclose MIM's position to ABN Amro.
In addition, if Aquila publicly announces the expiry of MIM's pre‑emption period, we expect that, to ensure the announcement is not misleading, it would have to refer to MIM's position. Even if the announcement did not mention MIM's position it would be likely to prompt a response from MIM stating that MIM does not accept the validity of the notice. We do not consider that turning the dispute as to the validity of the transfer notice into a public 'spat' would be in the interests of any of the parties."
The letter goes on to urge Aquila to agree to the extension of the pre‑emption period in exchange for MIM's undertaking not to dispute the validity of the transfer notice. Lambert deals with these events at par 28 of his affidavit sworn 23 January 2002. He refers to telephone discussions with Poli on 4 March 2001. He continues:
"… During that discussion I raised with Tony Poli MIM's request for an extension of the pre‑emption period and the potential benefit for both Pasminco in Aquila and Aquila agreeing to an extension of MIM's pre‑emption period. I said that in exchange for Pasminco and Aquila agreeing to an extension of the pre‑emption period, MIM would be required to confirm the validity of the Transfer Notice issued on 12 January 2001 so that issue would cease to be in dispute. I said that while we had formed the view that the Transfer Notice was valid, it was possible, given their assertions of invalidity, that MIM might challenge our view. I said that in those circumstances Pasminco and SRL would not be able to warrant clear title to the EHM shares, and presumably Aquila's financiers would not be prepared to advance funds and enable the sale to Aquila to complete. He did not ask for further details on the nature of MIM's objections to the Transfer Notice. I told him that Pasminco would be meeting with MIM personnel on Monday, 5 March 2001, and that I was seeking agreement from him to the granting of an extension of the pre‑emption period. He did not agree to this extension during that telephone conversation."
Lambert then refers to a meeting in Melbourne on 5 March with representatives of MIM. Lambert advised MIM that he had requested an extension of the pre‑emption period from Aquila but that Aquila had not yet agreed to any such extension. In par 30, Lambert recounts telephone conversations he had with Poli on Monday 5 March 2001. Lambert does not deal directly with the allegation in Brown's affidavit that he told Poli that if Aquila did not agree to an extension of the pre‑emption period the matter would "end up in court". Nor in par 30 or elsewhere in his affidavit does Lambert say that MIM indicated that they would take the matter to court. There is no doubt MIM disputed the validity of the transfer notice and there is also no doubt that up until 5 March they had not conceded the validity of the notice. But there is no evidence from Lambert to suggest legal action was ever threatened.
In response to Lambert's affidavit, Poli swore an affidavit of 12 February 2002. In that affidavit he dealt with Lambert's affidavit and said (at par 5.7):
"As to paragraph 28, in my conversation with Mr Lambert (which was very short), I recall Mr Lambert saying words to the effect that it was in all parties' interests to grant MIM an extension of time, otherwise it would end up in litigation. I said to Mr Lambert that I would call him the following day when I returned to the office. In our conversation, Mr Lambert did not raise any of the other issues as suggested in paragraph 28 of his affidavit. These issues were not raised until I received a copy of Freehills' letter dated 5 March 2001. … Mr Lambert did not inform me of the proposed meeting with representatives of MIM on Monday, 5 March."
Poli goes on to detail further discussions he says he held with Lambert and later Stewart, on 5 March (par 5.8). During these discussions Poli says that he was again told that if Aquila did not agree to an extension of the pre‑emption period "the whole transaction would wind up in the courts". Based upon these representations and the prospect of litigation, Poli says that Aquila agreed to an extension of the pre‑emption period. During that extended time MIM exercised its pre‑emptive rights and acquired Pasminco's interest in the mine. Aquila was left aggrieved. The payment of the $3 million termination fee was not sufficient to assuage Aquila's disappointment.
The evidence filed by MIM in relation to this application does not directly address the question of what took place between Pasminco and MIM in the early part of March. MIM have filed two affidavits sworn by Angus Alexander Graham. Mr Graham is a corporate lawyer employed by MIM. He deals in some detail with allegations which were made by Aquila soon after MIM exercised its right of pre‑emption. These allegations had to do with a financial benefit which Aquila alleged passed between MIM and Pasminco and which Aquila believed may have played a part in MIM exercising its right of pre‑emption. As part of his submissions, counsel for Aquila did raise these concerns about an arrangement between Pasminco and MIM but they were very much an incidental part of the application. In any event, Mr Graham's affidavits are directed essentially at what might be termed these financial issues and say little or nothing about discussions which took place in March.
Against that background, Aquila's position can be summarised in this way. Aquila says, through Poli, Pasminco represented that if Aquila did not agree to an extension of MIM's pre‑emption period, then MIM would take legal action to challenge the validity of the transfer notice. The evidence does not indicate that in fact such a threat was ever made by MIM to Pasminco. That being so, the conduct of Pasminco may have been misleading and deceptive contrary to s 52 of the Trade Practices Act. So far as MIM is concerned, Aquila says that MIM may have been knowingly concerned in the breach by Pasminco of the provisions of the Trade Practices Act. This is the relatively simple and straightforward basis upon which Aquila puts its case.
On behalf of Pasminco it is said that there is not a scintilla of evidence to suggest that the company acted to mislead or deceive Aquila. From the first, Pasminco drew to Aquila's attention the fact that MIM disputed the validity of the transfer notice. Pasminco pointed out to Aquila the consequences of a dispute as to the notice - in particular the effect upon warranties that Pasminco might be able to give in relation to the transfer of its interest in the mine and the effect any dispute in relation to the transfer notice might have on the financing of Aquila's acquisition of the mine. Furthermore, it was submitted the evidence shows that Pasminco, through Lambert, used every endeavour to facilitate Aquila's acquisition of the mine. The evidence discloses, it was said, a consistent position on the part of MIM in the face of Pasminco's assertion that the transfer notice was valid and effective. While Pasminco's legal advice was to the effect that the transfer notice was valid, there must, on any reasonable view of the matter, have been a prospect of litigation. The compromise, whereby MIM accepted the validity of the transfer notice in exchange for an extension of the pre‑emption period was in all the circumstances reasonable. It was submitted that the evidence, viewed as a whole, simply did not support any suggestion of misleading and deceptive conduct on the part of Pasminco.
MIM adopted very much the same position. Counsel pointed out that MIM was in fact one stage further removed from what occurred between Aquila and Pasminco. Accepting that representations may have been made by Lambert on behalf of Pasminco that MIM would challenge the validity of the transfer notice in the courts, there was no evidence at all to suggest that MIM knew of such a threat, let alone that they were a party to Pasminco using the prospect of legal action to induce Aquila to grant an extension of the pre‑emption agreement. In short, it was submitted that there was no basis at all on which it could be said Aquila may have a claim against MIM.
As a further factor in support of their application, Aquila pointed to certain discrepancies in the accounts of MIM which, it was said, raised concerns about whether or not there was some financial accommodation as between MIM and Pasminco which might have been related to Pasminco's obtaining the extension of MIM's pre‑emption rights. This concern was raised early on in correspondence between solicitors. Subsequent to the issue of this application, correspondence took place between solicitors and it appears as a result that Aquila are in large measure satisfied that there was no financial inducement provided by MIM to Pasminco. For its part, Pasminco filed an affidavit of an accountant in its employ, Paul Anthony Tongs, sworn 11 January 2002, which goes to some lengths to rebut any suggestion of financial accommodation. I do not propose to go through the evidence on this question in any detail. The financing of the operations of the mine were rather complex involving borrowings from subsidiaries of the two mine owners. On sale of the mine these loans had to be repaid and this in turn involved closing out currency hedge contracts used to protect borrowings in US dollars. While I would accept that there may be an error in MIM's accounts in relation to its acquisition of the mine, I am not satisfied on the evidence as a whole that there is any matter which requires further investigation. That issue can be put to one side.
This application is brought under the provisions of O 26A r 4. Relevantly, that rule reads as follows:
"1.Interpretation
In this Order, unless the contrary intention appears ¾
'description', in relation to person who is or may be a potential party, includes the person's name, sex, age, occupation, place of residence, place of business and whether the person is an individual, a body corporate or an unincorporated body of persons;
'document' has the same definition as in Order 26 Rule 1A;
'possession' includes custody or power.
2.Public interest immunity not affected
This Order does not affect any rule of law that authorises or requires the withholding of a document on the ground that its disclosure would be injurious to the public interest."
Rule 4 embodies a number of elements, all of which must be satisfied if an order is to be made. These elements are:
(1)The applicant must show that it "may have a cause of action".
(2)It must establish that it wants to commence proceedings against a potential party.
(3)It must establish that reasonable enquiries have been made.
(4)Having shown reasonable enquiries have been made, it must show that it has not been able to obtain sufficient information to enable a decision to be made whether to commence proceedings.
(5)It must show that there are reasonable grounds for believing the potential party has documents which may assist in making the decision.
In this case it is the first and last of these criteria which are in issue. I am satisfied on the evidence that Aquila has established that it wants to commence proceedings against Pasminco and MIM, that it has made reasonable enquiries, but that it has not obtained sufficient information to enable it to make a decision. There was a suggestion by counsel for Pasminco that the evidence established that Aquila had already determined that it would take proceedings and therefore it could not avail itself of the rule: See Hill v National Australia Bank Ltd, unreported; SCt of WA; Library No 980676; 24 November 1998. In my view the evidence is not to that effect. I am satisfied Aquila has established that it is yet to determine whether to take action or not.
On a number of occasions I have had cause to consider just what is meant by the phrase "may have a cause of action". It is enough if I refer to these decisions without examining any in detail: See Davis & Ors v Saygar Pty Ltd & Anor, unreported; SCt of WA; Library No 980443; 10 August 1998; Ledger & Anor v Natwest Australia Bank Ltd & Ors, unreported; SCt of WA; Library No 980061; 16 February 1998; dayTraderHQ Ltd v Hometrader Ltd & Ors [2001] WASC 283.
It is, I think, reasonable to say that on the one hand it is not necessary for an applicant to establish with any degree of certainty that it has a cause of action against a potential party. The use of the word "may" suggests an element of speculation. After all, the purpose of the pre‑action discovery process is to allow a decision to be made. On that basis a detailed examination of the merits of a potential action is unwarranted. But at the other end, the applicant must establish something more than what I described in the dayTraderHQ Ltd decision as a "pious hope". Between these two extremes each case falls to be determined on its merits.
I am satisfied that in this case Aquila has established, as against Pasminco, that it may have a cause of action. The evidence of Poli that he was told by Pasminco that MIM might take legal action to challenge the validity of the transfer notice and that based upon that representation, he agreed on behalf of Aquila to an extension of MIM's pre‑emption period, may, in my view, give rise to a cause of action. I accept that there are all sorts of obstacles in the way of any such action succeeding. Not the least of these obstacles is the prospect that Pasminco could establish even if the representations were made, they were nothing more than a reasonable assessment of MIM's position based upon what had passed between Pasminco and MIM prior to 5 March. But even acknowledging all of these obstacles, I am satisfied on balance that Aquila has established that it may have a cause of action against Pasminco.
The position with respect to MIM is rather more problematical. It is somewhat difficult to see how MIM is tied in to any alleged representation by Pasminco. Aquila's claim against MIM seems to be based upon a conspiracy theory for which there is no evidence. On my reading of the evidence Pasminco stood to gain nothing from MIM exercising its pre‑emption rights to the exclusion of Aquila. Quite the contrary - if those pre‑emption rights were exercised, then Pasminco was required to pay to Aquila $3 million which had the effect of reducing the price paid for the mine by that amount. However, having said all of that, it is clear that discussions took place between Pasminco and MIM in the early part of March prior to any representation being made by Lambert to Poli. In the circumstances, it seems only proper that any documents relating to these matters which were produced by MMI should be made available to the applicant. To do otherwise would perhaps lead to an unbalanced view of the interaction that took place between Pasminco and MMI before any representations were made by Pasminco to Aquila.
The further question is whether there are reasonable grounds for believing that the potential parties have in their possession documents that may assist in Aquila making its decision. Aquila are not able to point directly to any such documents. That is perhaps not surprising. There is no reason why they should have access to any diary notes maintained by officers of Pasminco and/or MIM, nor would they be in a position to know what correspondence, if any, passed between the two companies. However, it should be borne in mind that this was a commercial transaction involving a significant asset for which one party or another was to pay a very large sum of money. It is reasonable to assume that as prudent corporate officers, the individuals involved at Pasminco and MIM would have maintained some records of their interaction. Perhaps given the rapid fire nature of the exchanges between the parties, no records were kept. But in my view it is reasonable to assume they were and on that basis I am satisfied that Aquila meets the appropriate test. In my view it is proper that orders should be made on the application.
During the course of submissions, counsel for the applicant produced a minute of proposed orders, and these orders were the subject of submissions by each of the parties during the course of the application. That being the case, I think it is proper that I should indicate that I would make the following order with respect to discovery:
"Each of the first and second respondents within 14 days provide verified discovery of any and all documents in the period 23 February 2001 to 31 March 2001 relating to:
(a)a transfer notice dated on or about 12 January 2001 from the first respondent to the second respondent in relation to the third respondent;
(b)an extension, proposed extension and any communications, understanding, arrangement or agreement in relation to an extension, or any proposed extension, of the period for the second respondent to exercise rights of pre‑emption in 2001 in relation to shares in the third respondent;
(c)the obligation to make payment to the first applicant of a termination fee by the first respondent pursuant to a deed of commitment dated about 13 January 2001."
There then remains the question of the costs associated with providing discovery. Rule 7 provides that any order for discovery can be made conditional upon an applicant providing security for the costs and expenses of the person against whom the order is made. Subject to hearing from the parties I would be prepared to order security be provided in this case. Unless the parties are able to agree the amount of the security, the respondents should provide evidence as to the costs of providing discovery and indicate the basis upon which the costs are calculated. They should also indicate the form of security they would seek. The applicant should have the chance to respond.
So far as the costs of the application itself are concerned, in my view they should be reserved. I think this is the proper order in a case brought under r 4. If the applicants, after considering the discovered documents, decide not to issue proceedings, then the respondents can approach the court seeking an order their costs be paid. The appropriate costs order can be determined against that background. If the applicant determines to issue proceedings, then generally speaking it seems to me proper to reserve the costs to the trial Judge. After trial, a proper determination can be made as to whether or not the pre‑action discovery was appropriate, that determination being made in the light of the result of the proceedings. Of course, costs orders will vary from case to case and I am not in any way attempting to lay down hard and fast rules. These observations are intended solely as a guide for applications of this nature.
While foreshadowing the orders I would propose in this case I will give the parties the opportunity to make further submissions as to the precise form of the orders.
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