CITIC Ltd v Mineralogy Pty Ltd
[2020] WASC 223
•18 JUNE 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CITIC LTD -v- MINERALOGY PTY LTD [2020] WASC 223
CORAM: KENNETH MARTIN J
HEARD: 27 MAY 2020
DELIVERED : 27 MAY 2020
PUBLISHED : 18 JUNE 2020
FILE NO/S: CIV 1514 of 2016
BETWEEN: CITIC LTD
First Plaintiff
SINO IRON PTY LTD
Second Plaintiff
KOREAN STEEL PTY LTD
Third Plaintiff
CAPE PRESTON RESOURCE HOLDINGS PTY LTD
Fourth Plaintiff
AND
MINERALOGY PTY LTD
First Defendant
CLIVE FREDERICK PALMER
Second Defendant
Catchwords:
Practice and procedure - Application for leave to amend defence and counterclaim - Seventh and eighth iterations of pleadings - Objections to late plea to add extra dimensions to claim for damages on counterclaim including expert actuarial and accounting expert evidence - Proposal to hive off damages aspects of counterclaim from pending trial - Damages on counterclaim to be determined later, if ever required - Conditional leave granted to amend pleading on that basis - Turns on own facts
Legislation:
Nil
Result:
First defendant's application conditionally granted
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr C M Scerri QC |
| Second Plaintiff | : | Mr C M Scerri QC |
| Third Plaintiff | : | Mr C M Scerri QC |
| Fourth Plaintiff | : | Mr C M Scerri QC |
| First Defendant | : | Mr K S Byrne |
| Second Defendant | : | Mr K S Byrne |
Solicitors:
| First Plaintiff | : | Allens |
| Second Plaintiff | : | Allens |
| Third Plaintiff | : | Allens |
| Fourth Plaintiff | : | Allens |
| First Defendant | : | Kane Jones |
| Second Defendant | : | Alexander Law |
Case(s) referred to in decision(s):
AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2014] WASC 406
KENNETH MARTIN J:
(This judgment was delivered extemporaneously on 27 May 2020 and has been edited from the transcript)
Introduction
Bearing in mind the December 2020 provisional trial dates which I have allocated for a determination of this action over 10 days, because of the preparations involved, the parties need to know immediately the position as regards the fate of the application made by the first defendant, Mineralogy Pty Ltd, for leave to again amend its defence and counterclaim made by summons filed 19 May 2020 (the application). I provided these reasons immediately after the hearing.
The application is to be determined from an evidentiary perspective upon the basis of the two affidavits of Mr Kane Jones sworn 19 and 27 May 2020 and an outline of submissions of 27 May 2020 filed by Mineralogy. For the resisting CITIC Parties (ie, the four plaintiffs), I hold the affidavit of Mr Jeremy Rich affirmed 27 May 2020.
To avoid any confusion, I will refer to the first plaintiff as 'CITIC Ltd'.
Broad summary of the parties' rival pleaded contentions
I am confronted with Mineralogy's application for leave to amend its pleading given previous orders I have made which are binding on all sides and require leave to be granted for any party to further amend their pleadings. Before venturing too much further, it may be helpful if I briefly summarise the respective cross contentions of the parties under their respective pleadings as they currently stood before the application. Those pleadings are namely:
(a)the CITIC Parties' amended statement of claim (ASOC) of 19 March 2018 (electronic document 32);
(b)Mineralogy's amended defence and amended counterclaim (the ADAC) of 26 November 2018 (electronic document 48);
(c)the CITIC Parties' amended reply and defence to counterclaim of 20 December 2018 (electronic document 50); and
(d)Mineralogy's amended reply to the defence to counterclaim of 11 February 2018 (electronic document 53).
I should also note that Mr Palmer, the second defendant, has filed various defences. However, by those defences Mr Palmer essentially repeats and relies on the defence of Mineralogy. By that position, any admission, denial or counterclaim of Mineralogy is repeated and relied upon by Mr Palmer.
CITIC Parties' claims
Under the ASOC the CITIC Parties basically assert that CITIC Ltd exercised its so-called 'First Option' (as defined - see [32] and Schedule A of these reasons) under an agreement titled the China Project Option Agreement (known as the CPOA) on 13 April 2012 (ASOC par 19). That plea is currently admitted by Mineralogy (ADAC par 27).
I should note that the parties to the CPOA are CITIC Ltd, Mineralogy and Mr Palmer who entered the agreement on 22 October 2008. The CPOA was subsequently varied on 30 March 2012. A detailed description of the CPOA can be found later in these reasons at [29] - [32].
In the past there have been various purported terminations of the CPOA by Mineralogy on the basis of an alleged repudiatory breach by CITIC Ltd and the consequent acceptance of that repudiatory breach by Mineralogy as an 'innocent party' to the breach. Such purported terminations occurred on 4 October 2012 by Mineralogy and on 17 October 2012 by Mr Palmer (ASOC pars 42 and 43 respectively). However, it is admitted by Mineralogy and by Mr Palmer that such purported terminations were not valid and had been disputed at the time by the CITIC Parties (ASOC pars 44 and 45 admitted under ADAC pars 53 and 54).
On 5 January 2015 Mineralogy claimed that the MRSLAs (Mining Right and Site Lease Agreements) it had entered with Sino Iron Pty Ltd (the second defendant) and Korean Steel Pty Ltd (the third defendant) had been terminated. As the MRSLAs have been heavily canvassed in other decisions concerning the same parties to this action, there is no need to discuss them in any greater detail here. In circumstances where Mineralogy has claimed the MRSLAs had been terminated, it was claimed the First Option of the CPOA could not proceed. That, amongst other matters, had led to the commencement by CITIC Ltd and others of a previous action in this court, CIV 3012 of 2012, against Mineralogy and Mr Palmer.
By ASOC par 52 the CITIC Parties contend that by their fourth further amended defence of 16 February 2015 filed in CIV 3012 of 2012, Mineralogy and Mr Palmer had then admitted that the plaintiffs in that action were, in effect, entitled to a declaration that the CPOA remained in full force and effect. Under Mineralogy's ADAC par 61, issue was taken to some extent with that plea.
Nevertheless, by ASOC par 62 the CITIC Parties refer to the consent orders of Chaney J made 30 September 2015 made in CIV 3012 of 2012 which had declared that:
With the consent of the parties, and having regard to the defendants' admissions on the pleadings, THE COURT DECLARES THAT:
1.The first Plaintiff [ie, CITIC Ltd] did not repudiate the China Project Option Agreement dated 22 October 2008 (CPOA) in 2012 by not acquiring Anshan Resources Pty Ltd (Anshan Resources), Balmoral Iron Pty Ltd (Balmoral Iron) or World Resources Group Pty Ltd (WRG) as the Further Company for the purpose of clause 3.6 of the CPOA.
2.The purported termination of the CPOA by the First Defendant [ie, Mineralogy] by letter dated 4 October 2012 and the Second Defendant [ie, Mr Palmer] by letter dated 17 October 2012 was invalid.
3.The First Defendant and the Second Defendant are not entitled to terminate the CPOA on the ground that the First Plaintiff did not in 2012 acquire Anshan Resources, Balmoral Iron or WRG as the Further Company for the purpose of clause 3.6 of the CPOA.
4.The Fortescue Coordination Deed dated 22 October 2008 has not been terminated by reason of the purported termination of the CPOA by the First Defendant by letter dated 4 October 2012 and the Second Defendant by letter dated 17 October 2012. (order 5 as to costs omitted)
That plea under ASOC par 62 as regards the consent order declarations by Chaney J on 30 September 2015 is admitted by Mineralogy under ADAC par 71.
Under ASOC par 67, the CITIC Parties essentially contend that following the exercise of the First Option by CITIC Ltd, Mineralogy and Mr Palmer, in breach of the terms of the CPOA, have failed to perform their obligations under the CPOA so as to complete the First Option to which CITIC Ltd is entitled. Various matters are complained of under that plea, including the alleged failures of Mineralogy and Mr Palmer to ensure that a Further Company, as defined in the CPOA, becomes a party to necessary project agreements to meet the requirements of cl 3.6(c) of the CPOA. There are further failures contended as regards Mineralogy and Mr Palmer's contended failures to within 90 days attempt to have the relevant Further Company become a party to the State Agreement upon the same terms by which Sino Iron is currently a party to the State Agreement to accord with CPOA cl 3.6(d).
Under that plea a further contended failure against Mineralogy and Mr Palmer is by reason of the alleged failure to provide a Project Agreement Notice pursuant to CPOA cl 3.6(c)(iii) and cl 3.6(d). Further, the CITIC Parties contend that Mineralogy and Mr Palmer have failed to enter into a Takeover Agreement with CITIC Ltd within seven days of providing the Project Agreement Notice as required by cl 3.6(f) of the CPOA.
Finally, the CITIC parties, by ASOC par 67, complain that Mineralogy and Mr Palmer have failed to execute on their own behalves, or on behalf of any other party to the State Agreement that has authorised Mineralogy to do so, any document necessary or desirable for the purposes of making the Further Company a party to the State Agreement as required by CPOA cl 3.6(g).
There is also a general complaint under ASOC par 67 that Mineralogy and Mr Palmer failed to use reasonable endeavours to obtain fulfilment of the conditions in CPOA cl 8.2 as required by cl 8.3. That plea is a general reference to obtaining the consent of the Treasurer of the Commonwealth of Australia under the Foreign Acquisitions and Takeovers Act 1975 (Cth) for the proposed acquisition of the sale interest and, furthermore, the receipt of any required approvals by the Commonwealth of Australia or the State of Western Australia for the project agreements with the Further Company as regards an increase in a Total Extraction Limit (as defined). These matters are all challenged by Mineralogy under ADAC par 67 in various respects.
Under ASOC par 68 CITIC Ltd contends that it is and has at all material times been ready, willing and able to comply with the terms of the CPOA as regards completing the First Option. It refers to various matters, including communications and, in particular, its exercise of the First Option at 13 April 2012 and its notification that, Cape Preston Resource Holdings Pty Ltd (the fourth plaintiff) would be the purchaser of the Further Company from either Mineralogy or Mr Palmer. Likewise, CITIC Ltd refers to its incorporation of a fresh company, ACN 606 342 778 Pty Ltd, for the purpose of essentially being the clean corporation to take the role of the Further Company in order to complete the First Option under the CPOA as at 10 June 2015.
In its defence, Mineralogy denies, for various reasons, that CITIC Ltd was, as it contends, ready, willing and able to comply with its obligations under the CPOA in order to complete the First Option (ADAC par 77).
Under the ASOC prayer for relief, the CITIC Parties seek various matters, including declarations that the CPOA remains in full force and effect. The CITIC Parties also seek a declaration that on the proper construction of CPOA cl 3.7, the CPOA only terminates automatically (and neither party has any claim or right of action against the other) in the event that CITIC Ltd does not exercise any Option (as defined) under the CPOA before the expiry or termination of the Option Period, being 31 March 2016 (but subsequently varied to the extended date of 14 April 2016). Specifically by way of obtaining specific performance of the CPOA as regards the exercise of the First Option thereunder, the CITIC Parties' prayer B for relief seeks:
An order that Mineralogy and [Mr] Palmer complete the First Option by undertaking the following steps required by clauses 3.6(a), (c), (d), (f), (g), (h) and 8.3 of the CPOA:
(ia)requesting that CITIC [Ltd] or its lawyers incorporate a company to be the Further Company for the purposes of the completion of the First Option;
(ib)notifying CITIC [Ltd] in writing that the company referred to in the preceding paragraph is the Further Company that has been nominated as the vehicle for completion of the First Option and whether [Mr] Palmer or Mineralogy will be the Seller, in accordance with Clause 3.6(a) of the CPOA;
(i)ensuring that the Further Company, becomes a party to the necessary Project Agreements in accordance with Clause 3.6(c) of the CPOA;
(ii)attempting to have the Further Company, become a party to the State Agreement on the same terms as the terms on which Sino Iron is a party to the State Agreement in accordance with Clause 3.6(d) of the CPOA;
(iii)providing CITIC [Ltd] with the notices that it is satisfied its obligations under clause 3.6(c)(i) and 3.6(d) as soon as possible after those obligations have been satisfied pursuant to clause 3.6(c)(iii) and 3.6(d) of the CPOA;
(iv)entering into a Takeover Agreement substantially in the same terms as the Korean Steel Takeover Agreement but modified in the manner specified in Schedule 3 to the CPOA pursuant to clause 3.6(f) of the CPOA;
(v)completing all transactions contemplated by the Takeover Agreement as required by clause 3.6(f) of the CPOA;
(vi) executing on Mineralogy's behalf and on behalf of any other party to the State Agreement that has authorised Mineralogy to do so (including without limitation the parties to the Fortescue Projects Coordination Deed) any document necessary or desirable for the purpose of making the Further Company, a party to the State Agreement; and
(vii)using their reasonable endeavours to obtain the fulfilment of the conditions in clause 8.2 of the CPOA as required under clause 8.3 of the CPOA.
Mineralogy's defence
Against the CITIC Parties' claims, Mineralogy and Mr Palmer assemble various defences that I will attempt to summarise. By my assessment, the various defences (under the ADAC) can be summarised as follows:
(a)essentially as found under pars 77 - 88, pleas to the effect that by various conduct CITIC Ltd or various of the CITIC Parties have breached either essential terms of the CPOA or by their conduct have repudiated or renounced their obligations under the CPOA, as a consequence of which Mineralogy and Mr Palmer have elected to terminate all further performance of all obligations under the CPOA and that agreement is at an end (see particularly ADAC par 78);
(b)contended pleas of frustration as to the ongoing performance of the CPOA for various reasons, including the inability to vary the State Agreement in order for the Further Company to become a party to the State Agreement on the same terms as Sino Iron by reason of the inability to meet the requirements of cl 32 of the State Agreement within 90 days of the exercise date and the suggested inability to perform CPOA cl 3.6(d) (see ADAC pars 100A and 100AB) and a general plea of frustration of the CPOA and the Option Agreement (ADAC par 100B(c));
(c)pleas concerning certain drilling exploration and expense arguments directed at CITIC Ltd as regards a possible disengagement with CPOA cl 2.4 (ADAC par 94);
(d)a plea that by reference to CPOA cl 2.4 and cl 2.5 there is not enough further ore within Area A up to 6 billion tonnes but only under a September 2010 report by Golder Associates Pty Ltd located, measured and indicated magnetite ore up to 2.3184 billion tonnes (ADAC par 94(b));
(e)a plea that CITIC Ltd is not ready, willing and able to perform its obligations under the CPOA at 30 or 31 March 2016 when it, as one of the plaintiffs, commenced this action (ADAC par 77);
(f)contended pleas under ADAC pars 102 - 121 to the effect that past failures by Sino Iron and Korean Steel to pay all amounts of Royalty Component B due under cl 8.1(b) of the respective Sino Iron and Korean Steel MRSLAs bear adversely against the ability of the CITIC Parties to obtain specific performance of the First Option under the CPOA. This culminates in ADAC par 121 pleading that:
In the premises of paragraphs 118, 119 and 120 above, CITIC [Ltd] evinced an intention to cause the Further Company, if it were to enter into the Project Agreements and were taken over by Cape Preston Resource Holdings Pty Ltd [the fourth plaintiff] to breach its MRSLA by failing to pay Royalty Component B.
(g)that as a matter of discretion the court ought refuse the so-called specific performance relief sought as regards the First Option under the CPOA for various reasons found expressed under ADAC par 140, including by par 140(e), an alleged delay of CITIC Ltd in taking steps to enable the completion of the First Option and by other matters therein; and finally
(h)that under the plea at ADAC par 100, for reasons not entirely discernible, CPOA cl 3.7, as regards the termination of that Agreement in the event that CITIC Ltd did not exercise all Options before expiry or termination of the Option Period, is engaged.
Identifying those contentions and defences focuses attention upon the underlying importance of two particular matters. First, attention should be focused on the orders of Chaney J made in action CIV 3012 of 2012 between, essentially, the same parties (except for Cape Preston) which were made by consent. For that reason, I earlier set out (at [11]) the terms of those consent orders as issued by the court in their precise terms. The other matter of fundamental importance is, of course, the CPOA and, in particular, cl 3 thereof. Consequently, given the requirement for close attention to its terms, I will set out that clause as well subsequently in these reasons.
That provides an introductory context for the present application made by Mineralogy to further amend its current ADAC. I will now proceed to discuss that application.
Context to the application
The application for leave presently filed by Mineralogy originally sought leave to amend again its ADAC in accord with a minute of proposed further and amended defence and counterclaim which was dated 19 May 2020. That minute of proposed amendment to its defence and counterclaim had been appended as KCJ-1 to Mr Kane Jones' first affidavit of 19 May 2020. But things developed further from there, as I explain below.
On my assessment of the action, that proposed minute will be the seventh iteration of a defence or defence and counterclaim that is filed for Mineralogy since these proceedings were commenced by CITIC Ltd and the other plaintiffs on 31 March 2016. For convenience, I will refer to it as the '7ADAC Minute'.
CIV 3012 of 2012
As I have mentioned, prior to 2016, there were even an earlier proceedings over the CPOA in this court - being CIV 3012 of 2012. That action was commenced by CITIC Ltd (under that corporation's former name - Citic Pacific Limited), Sino Iron and Korean Steel against Mineralogy (as first defendant) and Mr Clive Palmer (as second defendant) on 13 December 2012. That action was resolved essentially under the consent orders as made by Chaney J of this court on 30 September 2015 and which I have earlier set out at [11].
The thrust of Chaney J's orders and declaration had consensually settled the position (then) that the CPOA had not (to that time) been repudiated or ended in its ongoing performance by certain conduct as identified under Chaney J's orders. For completeness, I point out that the CPOA was perfected on 22 October 2008, being the same day that the Fortescue Coordination Deed (the FCD) referred to in order 4 of Chaney J 's orders, was also entered. Unlike the parties to the CPOA (Mineralogy, Mr Palmer and CITIC Ltd), the parties to the FCD are not the same. Mr Palmer is not a party to the FCD. Sino Iron and Korean Steel are parties to the FCD, along with CITIC Ltd and Mineralogy Pty Ltd.
So at 1 October 2015, the CPOA had at then been consensually declared, in effect, to be fully afoot, notwithstanding that it had been entered originally on 22 October 2008, then was subsequently varied on 30 March 2012.
CIV 1514 of 2016
The present litigation was commenced by CITIC Ltd, along with Sino Iron and Korean Steel, on 31 March 2016 against Mineralogy and Mr Palmer. On 26 February 2018, by my orders, there was leave for Cape Preston to be added as a fourth plaintiff.
The relevant component of the CPOA that looks to have proved problematic over the years addresses the acquisition of further entitlements in corporations under four (4) options under CPOA cl 3 given to CITIC Ltd by Mineralogy and Mr Palmer.
CPOA cl 3 essentially regulates how the exercise of an option by CITIC Ltd to acquire from Mineralogy a further billion tonnes of magnetite ore to be processed would be completed by takeover arrangements. The process would essentially be by recourse to CITIC Ltd's acquisition of a Mineralogy subsidiary corporation holding contractual rights afforded it by Mineralogy - akin to what had taken place in the past with the acquisition by CITIC Ltd (through an intermediary Corporation) of Sino Iron and Korean Steel - and so to gain the rights these former Mineralogy subsidiary corporations enjoyed under their MRSLA contracts perfected with Mineralogy.
It is an understatement to say that CITIC Ltd's efforts to exercise the CPOA (First) Option (and there are four (4) such options referred to in CPOA cl 3) have, in effect, got nowhere.
In the context of the present application to amend by Mineralogy it assists to see CPOA cl 3 in its entirety. For the purposes of understanding cl 3 of the CPOA a number of embedded definitions in the CPOA found in the definition and interpretation cl 1.1 all need to be assimilated. In order to avoid unduly cluttering these reasons, I will collect those definitions in Schedule A to these reasons. The relevant definitions, however, are for the terms:
(i) Commencement Date
(ii) Expiry Date
(iii) Fortescue Coordination Deed
(iv) First Option
(v) Further Company
(vi) Further Option
(vii) Korean Takeover Agreement
(viii) Option
(ix) Option Notice
(x) Option Period
(xi) Product Makeup
(xii) Project
(xiii) Project Agreements
(xix) Purchase Consideration
(xx) Seller
(xxi) State Agreement
(xxii) Sino Takeover Agreement
(xxiii) Takeover Agreement
(xxiv) Total Extraction LimitI can now turn to set out the critically important content of CPOA cl 3:
3.Acquisition of further entitlements
First Option
3.1Provided the Korean Takeover Agreement has been completed, CITIC or its nominee will have an option to acquire a Further Company (First Option).
3.2The First Option may be exercised at any time up to 5pm, 31 March 2012. [Note: Under a variation agreement to the CPOA of 30 March 2012 the date seen in cl 3.2 was varied to read '14 April 2012'.]
3.3The exercise price for the First Option will be the Purchase Consideration.
Further Options
3.4Provided it has exercised the First Option and there are sufficient resources in Area A, CITIC (either in its own name or on behalf of a nominee) may, subject to the conditions referred to in clauses 2 and 8 hereof, exercise any of the Further Options by giving written notice to Seller at any time during the Option Period. Any options not exercised in the Option Period shall, upon the expiry of such period, lapse. The exercise of any option hereunder is subject, if required, to any necessary government approval of the Project Agreements in respect of any Further Company.
Form of acquisition
3.5Subject to clause 3.6(e) the First Option and any Further Option may only be exercised in the form of the acquisition from the Seller of all of the shares in a Further Company, which shall have entered into the Project Agreements subject to any necessary Government approval and which has the same rights as Sino Iron to carry out a Project.
Conduct after exercise of an option
3.6Following the exercise of any option:
(a)the Seller must immediately notify CITIC in writing of the name and details of the relevant Further Company that the Seller has nominated as the vehicle for completion of that option and whether Palmer or Mineralogy will be the Seller;
(b)CITIC must notify the Seller of the name and details of the proposed purchaser of the Further Company.
(c)Mineralogy must ensure that, no later than 20 Business Days after the Exercise Date:
(i)the Further Company becomes a party to the necessary Project Agreements;
(ii)the Further Company has disposed of any assets to the Seller or its nominee at a nominal amount of $1 including any shares or assets which are not required for the development of the Project; and
(iii)it gives CITIC written notice that it has satisfied its obligations under paragraphs (i) and (ii), as soon as possible after those obligations are satisfied; and
(d)If the Further Company is not a party to the State Agreement then, for a period of 90 days from the Exercise Date, Mineralogy must attempt to have the Further Company become a party to the State Agreement on the same terms as the terms on which Sino Iron is a party to the State Agreement. If the Further Company is not a party to the State Agreement then upon the Further Company becoming a party to the State Agreement Mineralogy must give notice to CITIC that it has done so.
(e)
(i)If the Further Company is not or does not become a party to the State Agreement within the period of 90 days from the Exercise Date and CITIC has not agreed to extend the period then CITIC is not obliged to proceed to acquire the Further Company and may instead by notice to Mineralogy require that the Total Extraction Limit (as defined in the relevant Mining Right and Site Lease Agreement) for a company already owned by CITIC be increased by 1,000,000,000 tonnes (which for the avoidance of doubt may be a company in respect of which CITIC has previously given a notice under another application of the clause). Upon such notice being given the Mining Right and Site Lease Agreement for that Company will be deemed amended as provided in Part B of Schedule 2. Where the Total Extraction Limit (as defined in the Mining Right and Site Lease Agreement) is increased in accordance with this paragraph (e), the obligation to pay the Mineralogy Royalty (as defined in the Mining Right and Site Lease Agreement) and the State Government Royalty (as defined in the Mining Right and Site Lease Agreement) applies to the Total Extraction Limited [sic] (as defined in the Mining Right and Site Lease Agreement) as increased by one billion [sic] tonnes.
(ii)At the same time as giving the notice referred to in paragraph (e)(i) CITIC must procure that the company which holds the Mining Right and Site Lease Agreement pays to Mineralogy an amount equal to what would have been the Purchase Consideration if CITIC had acquired a Further Company in accordance with this clause 3.
(iii)Any exercise by CITIC of its rights under this paragraph (e) to cause an increase in the Total Extraction Limit (as defined in the relevant Mining Right and Site Lease Agreement) will extinguish one of the Options.
(iv)If CITIC fails to procure that the Further Company pay the amount referred to in sub-paragraph (e)(ii) then the relevant Option will be deemed not to have been exercised.
(f)No later than the date which is the 7 Business Days after the date that CITIC receives written notice under paragraph (c), the relevant parties must enter into a Takeover Agreement in substantially the same form as the Korean Steel Takeover Agreement but modified in the manner described in Schedule 3 and must complete the transactions contemplated by it in accordance with its terms including entering into or varying the Project Agreements.
(g)Mineralogy must execute on its own behalf and on behalf of any other party to the State Agreement that has authorised it to do so (including without limitation, the parties to the Fortescue Projects Consolidation Deed) any document necessary or desirable for the purpose of making a Further Company a party to the State Agreement.
(h)Mineralogy must maintain any authorisation it has to execute amendments to the State Agreement on behalf of other parties to the State Agreement (including the attorney granted to it under the Fortescue Projects Consolidation Deed) even if any such party ceases to be a wholly owned subsidiary of Mineralogy.
Failure to Exercise the Option
3.7CITIC agrees with the Seller that in the event that CITIC does not exercise all Options before the expiry or termination of the Option Period:
(a)it will forfeit the payment described in clause 2.1, together with all interest and any other income which has accrued thereto; and
(b)this Agreement shall automatically terminate and, subject to clause 2.1, neither party shall have any claim or right of action against the other.
Project Approval
3.8CITIC shall be responsible for ensuring that each Further Company obtains all Project Approvals required in respect of projects being carried out by that Further Company. Mineralogy must use its best endeavours to assist CITIC or its nominee to obtain the Project Approvals.
Product Makeup
3.9The Parties acknowledge that a Further Company may not exceed the Product Makeup.
Mineralogy's application
As mentioned, the 7ADAC Minute as proposed defence and counterclaim by Mineralogy was circulated on 19 May 2020. In some parts, it seeks to make excisions or clarifications which, after the lawyers for the CITIC Parties had the opportunity to review them, are not the subject of any dispute.
Real issues of controversy have emerged only very late, and effectively only under lawyer correspondence passing yesterday (the day before the hearing of the application), and even this morning as between the parties' representatives. This information is largely contained in either Mr Rich's affidavit of 27 May 2020 or in Mr Kane Jones' affidavit of 27 May 2020, which includes the passing correspondence of today.
Proposed amendments to Mineralogy's pleadings have now progressed to a point, essentially, of an eighth evolved iteration of a proposed defence and counterclaim pleading for Mineralogy in respect of which the leave to amend is sought, and which has been effectively the subject of today's materials, essentially overtaking the 7ADAC.
This is an iteration by the minute of amended defence and counterclaim of 26 May 2020, found as an attachment to Mr Rich's 27 May 2020 affidavit within JPR-5 commencing at page 24. Putting aside what are now the uncontroversial matters by excisions or the like, there are now, essentially, two critical issues that emerge for my determination as regards the leave to amend in the terms of what I will refer to as the '8ADAC Minute'.
Legal principles
Where leave to amend a pleading is sought, bespoken determinations need to be made by reference to criteria as explained by the High Court in AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 then later, in this court by Edelman J under his decision in a previous Mineralogy decision Sino Iron Pty Ltd v Mineralogy Pty Ltd [2014] WASC 406 at [31] - [32]. In that decision Edelman J refers to an earlier decision in this court in Hightime Investments Pty Ltdv Lungan [No 2] [2010] WASC 296 and to Beech J's observations there as to leave to amend in that decision. There is no need for me to rehearse again those well settled principles here.
The issues in the application
Here, the leave question ultimately distils down to whether the proposed amendments are coherent and to whether the counterparties and the court can live with the amendments as proposed under the 8ADAC Minute within a horizon of a looming trial which is provisionally set for 10 days in December 2020.
Paragraph 138A
Previewing the 8ADAC Minute, I must say that I still hold some coherence concerns over revised par 138A, in terms of whether it does raise any respectable argument in accord with the now observed terminology of CPOA cl 3.6(e)(i).
The CITIC Parties say they share that reservation. But they say they are, in effect, prepared to live with par 138A. On that basis, an argument introduced by that amendment over the true meaning of the words of CPOA cl 3.6(e)(i) may effectively be read as a compulsive fallback obligation upon CITIC Ltd, if the option exercise path under cl 3.6(a) to (d) becomes unachievable for some reason (being the acquisition of another Mineralogy subsidiary corporation holding valuable mining and site lease contractual rights). The essence of the construction argument of Mineralogy is that in context the word 'may' in CPOA cl 3.6(e)(i) is to be read as meaning 'must'.
Paragraph 143A
The real sticking point over the 8ADAC Minute is the question of damages sought under Mineralogy's proposed revisions to its counterclaim. That issue seems to be the chief concern today, from a possible forensic prejudice perspective as articulated today by senior counsel for the CITIC Parties in opposing this aspect of the application for leave to amend.
Mr Scerri QC for the CITIC Parties points out by reference to par 143 of the existing counterclaim (the ADAC) that a newly proposed augmentation to par 143A which only today emerges under the 8ADAC Minute (as seen marked in blue) will, if allowed, take matters to a different realm, well beyond the relatively straightforward former damages claim, under what was formerly ADAC par 143(a)(i) and (ii).
The counter argument by Mr Byrne for Mineralogy in pressing for leave was that within ADAC par 143(a)(i), the existing claim relates to a loss of opportunity by Mineralogy of not getting either a further MRSLA issued either to a Further Company under the CPOA or to Sino Iron or Korean Steel via CPOA cl 3.6(e)(i). That claim proceeds on the basis that the issuance of a further MRSLA would necessarily be followed by more production of 'product'. Resulting from that would be the generation of extra hypothetical product from which Mineralogy would receive (upon Royalty A and Royalty B) royalty money with the potential to extend over the 30 year period of another MRSLA - or possibly longer. It is the loss of this opportunity to gain those royalties to which the current damages plea is directed.
I must say that had not been my reading of ADAC par 143(a)(i). It asks too much of the words 'on no less than 6,000,000 tonnes of Products', in my view.
The forensic grievance to the CITIC Parties that emerges and would suggest against leave needs to be understood in two stages. The first stage is the proposed amendment to be added par 143A (which is the amendment currently in red) had finished in four lines. That amendment was introduced under the 7ADAC Minute. The basis of that claim (in red) was for completion of steps as contemplated in CPOA cl 3.6, and so generating Mineralogy's damages for loss of the right to receive the CPOA's 'Purchase Consideration'. The 'Purchase Consideration' is a fixed amount under the CPOA (see [32] and Schedule A). It read in these terms:
Alternatively, due to the matters pleaded in paragraph 138A herein, the first defendant has lost the opportunity to benefit from the completion of the steps contemplated in clause 3.6 of the CPOA comprised in the first defendant's right to receive the Purchase Consideration under the CPOA.
That was the position for the counterclaim under the 7ADAC Minute. But a second stage of amendment to par 143A only came under the recent 8ADAC Minute, which has just emerged last night. Under that amendment some further words are sought to be added to par 143A that are said to be highly problematic by the CITIC Parties. These are the extra words that follow from the end of the red amendment and are in blue, reading:
... and the first defendant's right to receive the Mineralogy Royalty payable on the additional 1,000,000,000 tonnes of magnetite ore which would have been allocated to Sino Iron or Korean Steel under one of their respective MRSLAs.
I agree that this overnight augmentation in the nature of the loss of opportunity damages claim in Mineralogy's counterclaim would go a lot further, adding a new forensic dimension to the trial as regards damages ascertainment on Mineralogy's counterclaim and is a forensic problem to accommodate for the trial.
An exercise in terms of identifying lost 'Purchase Consideration' under the CPOA is relatively straightforward (insofar as anything is straightforward in this litigation). As seen under CPOA cl 1.1, 'Purchase Consideration' is a defined term in an amount of US$200 million. However, that amount is subject to upward CPI adjustment after 1 March 2006, but also, to downward adjustment by reference to the 'Drilling Obligation' expenses of CITIC Ltd, as also defined.
Paragraph 147AA
That now seen addition to the counterclaim by par 143A (in blue) dovetails with a following newly proposed plea now to be seen in a new par 147AA. That proposed augmentation is wholly marked in blue. It has emerged overnight, as regards a foreshadowed loss claim to what seems to be a structurally similar claim by Mineralogy for a loss of opportunity damages that is framed to seek 'a sum to be particularised' and being:
the value of the lost opportunity to receive the Mineralogy Royalty payable on the additional 1,000,000,000 tonnes of magnetite ore allocated to Sino Iron or Korean Steel under one of their respective MRSLAs.
The particulars to par 147AA also foreshadow further particulars of loss, after the receipt of expert evidence prior to the trial.
Paragraph 148(bA)
Likewise to the newly arrived (overnight) prayer for relief, also marked in blue seen under the 8ADAC Minute as the new par 148(bA), which is formulated on the basis of seeking lost opportunity breach damages for a repudiation of contract (ie, the CPOA) in a sum 'to be particularised', also again, tantalisingly, as for proposed par 147AA.
Arguments on Mineralogy's application - the counterclaim
In brief terms, the major concern of the CITIC Parties as now expressed and put against these proposed augmentations to Mineralogy's counterclaim (under the 8ADAC Minute) is that they will carry with them a significant change of dimension in terms of the loss of opportunity damages enquiry at trial. They seek to pursue a potential loss of royalties, hypothetically, upon hypothetical extra product as a lost opportunity, by reference to a hypothetical mining of an extra billion tonnes of magnetite ore to generate product on which the Mineralogy Royalty would be payable and the subject of the CPOA first tier (of four) option arrangements and over potentially the next 30 years or so.
That will add extra dimensions to the trial towards damages and future loss projections. They will require expert evidence to be gathered for trial as to likely levels and future product as to future prices all worked out no doubt on an actuarial basis projected into the future with discount factors and contingency adjustments. This all arises, as I assess it, overnight, in such a way that a damages exercise complication at trial, will now be made a much far more complicated exercise under these late proposed damages augmentations.
As the pleadings currently stand (under the ADAC), the damages exercise at trial would be (relatively) easier and straightforward involving an identification of a lost Purchase Consideration under the CPOA as adjusted, or alternatively for the potential failure to produce six million tonnes of product in the first seven years (as per the MRP liquidated payment under MRSLA cl 6.3)
Even calculating a loss of royalties looking back over the last six years under a (lost) but hypothetically equivalent MRSLA entered into by a Further Company (or, on an extra billion tonnes of ore by Sino Iron or Korean Steel via CPOA cl 3.6(e)), would be a relatively finite loss calculation exercise - or would have been relatively finite when looking back at the past, say, seven year period, during a December 2020 trial.
Leave to pursue the extra damages claims by the 8ADAC Minute that project losses of royalty payments on extra product over potentially the next 30 years is said by the CITIC Parties to be forensically problematic within the framework of the proposed December 2020 trial. On that basis, these changes are now opposed by the CITIC Parties.
Nevertheless, the CITIC Parties in this respect do also offer a sensible concession, that is put to alleviate the suggested counterclaim prejudice in terms of allowing Mineralogy and Mr Palmer one day to pursue such an expanded counterclaim.
The terms of the CITIC Parties' concession by which they essentially agree to live with all (almost) changes under the 8ADAC Minute, is put on a basis that all trial damages issues under the counterclaim be essentially hived off from the December 2020 trial, which will then be confined to issues other than quantification of damages. Those damages issues will await a separate and later determination if that ever becomes necessary, in the wake of a December 2020 trial. Hence, if, perchance, as a result of the December 2020 trial, the primary claim by the CITIC Parties was to be rejected (being the CPOA specific performance claim), and correlatively, duly Mineralogy succeeded in proving CITIC Ltd's alleged repudiatory breaches of the CPOA, thereby giving rise to a common law loss of opportunity damages entitlement for Mineralogy or Mr Palmer, then any such damages ascertainment issues from that point on could be later pursued under further directions or orders of the court at a subsequent trial. That may consist of a further trial and hearing for Mineralogy essentially to quantify its damages, if that exercise became necessary. That quantification trial may then proceed at a later time with properly assembled expert actuarial forensic loss accounting evidence, giving the parties time to prepare a significant allocation of resources, if damages could not be agreed.
On the other hand, if the CITIC Parties do succeed after a December 2020 trial on their specific performance claim and Mineralogy was ordered to perform the CPOA, then that would be a result wholly incompatible with the CPOA being ended under Mineralogy's acceptance of a breach of an essential term thereof, or by a repudiatory breach of the CPOA, by CITIC Ltd. In that scenario, a loss of opportunity damages claim by Mineralogy for breach on its counterclaim would then be redundant.
I assess that going all the way down the proposed amended counterclaim damages path via new 8ADAC Minute pars 143A, 147AA and 148(bA) will be a highly resource intensive, expensive and time consuming exercise that might, ultimately, all prove to be unnecessary. I therefore will accede to the damages compromise amendment position as articulated by Mr Scerri QC for the CITIC Parties. Thus, leave can be given in respect of all the amendments under the 8ADAC Minute, but only on a basis that any damages assessment exercise under Mineralogy's counterclaim will be pursued separately and later, to the December 2020 trial if that becomes necessary. Any damages quantification exercise needed and arising on Mineralogy's counterclaim will thus be hived off from the December 2020 trial, which will be conducted on all other issues. The CITIC Parties, of course, only seek specific performance on their case, and not damages upon their CPOA option exercise claims as regards getting the shares in a new corporation holding MRSLA rights over a billion extra tonnes of magnetite ore.
The JDA amendments: 8ADAC Minute par 147A(a)(iii)
There are some residual CITIC Parties objections of principle against Mineralogy's proposed JDA amendment claim under the 8ADAC Minute. The JDA is a Joint Development Agreement entered between Mineralogy, Sino Iron and others on or about 12 March 2005. This issue carries slightly different considerations in terms of Mineralogy's amendments that are pressed for, as regards eighth proposed defence par 147A(a)(iii), which manifests in the Mineralogy counterclaim (in red and blue).
There is, as Mr Scerri SC points out, some overlap between an attack against similar pleas by a pleading strike out application that is currently pending and is the subject of my reserved decision in CIV 1915 of 2019, being another action I am case managing in this court featuring the same litigation protagonists. On that strike out application, I had heard arguments only last week, effectively attacking similar pleas as to the one time suspension of the JDA effected under the FCD (FCD cl 2.1) being ended by reason of the CPOA option lapsing without being exercised, thereby by FCD cl 2.3 reinstating the JDA in full force and effect.
In such circumstances, I will reserve my decision as regards the pleas seen at 8ADAC Minute par 147A(a)(iii), and the following particulars (C), (D) and (F) and Mineralogy's counterclaim relief prayer plea 148(c) (in red). I do so on the basis that what eventually I decide as regards the pending strike out (in CIV 1915 of 2019) may hold a capacity to bear upon a pursuit of those claims by Mineralogy on its counterclaim in this proceeding. In any event, the challenged JDA pleas look to carry only small forensic repercussions for the December 2020 trial. The pleas essentially invoke express terms of the FCD as regards suggested consequences for the suspension of the JDA by reason of the eventual fate of the CPOA option either 'lapsing' or being 'expired'.
It may be that I will simply give leave in due course for that to be pursued for these JDA counterclaim pleas, as there do not seem to be any forensic prejudicial aspects to it.
But for the present, I will simply reserve the question of leave in respect to those JDA contended reactivation paragraphs for the moment, pending delivery of my reasons in the reserved strike out application in CIV 1915 of 2019.
Final orders
Following conferral and further input from the parties, I duly issued orders in the terms seen below on 28 May 2020, as follows:
1.Leave to amend is granted to the first defendant for it to further amend its current Amended Defence and Counterclaim (efile document 48), dated 26 November 2018, in the terms of the minute that is attached as JPR-5 (pages 24-54) to the affidavit of Jeremy Peter Rich affirmed 27 May 2020, but save for the proposed amendments to:
(a)Paragraph 143A (in blue), 147AA and 148(bA) concerning damages on the counterclaim and as to which leave will only be granted on the conditional basis that the trial listed in December 2020 proceeds only as to issues of liability on the plaintiffs' claim and first defendant's counterclaim, and that any damages issues arising, or left from that trial exercise, as to the basis of the quantification of damages upon the first defendant's counterclaim are deferred, to be dealt with, as necessary, after the determination of the trial on liability issues;
(b)Leave as to the amendments by proposal of paragraphs 147A and 148(c) is reserved, pending the determination of the strikeout application in CIV 1915 of 2019 (heard and reserved by his Honour in that action on Monday, 18 May 2020).
2.The first defendant is to pay the plaintiffs' costs of this application, in any event, to be taxed if not agreed.
SCHEDULE A
1.Definitions and interpretation
Definitions
1.1In this Agreement unless the context otherwise requires the following terms shall have the following meanings:
...
Commencement Date shall be at 31 March 2006.
...
Expiry Date shall means [sic] 120 months from the Commencement Date.
...
Fortescue Coordination Deed means the deed of that name dated [22 October] 2008 between Mineralogy, CITIC [,] Korean Steel and Sino Iron.
First Option means the option granted under clause 3.1 to acquire 100% of a Further Company which will have entered into Project Agreements with Mineralogy.
Further Company means a company:
(a)incorporated at Palmer's request by CITIC or their lawyers, and nominated by the Seller to be the company which will be acquired by CITIC or its nominee on completion of the exercise of an option; or
(b)if CITIC otherwise agrees, nominated by the Seller and wholly owned by Mineralogy and or Palmer at all times since its incorporation, such company to be acceptable to CITIC in relation to its trading, financial and tax history,
in either case, which must be party to a set of agreements in the same terms as the Project Agreements.
Further Option means an option to acquire 100% of the shares in a Further Company which will have entered into the Project Agreements with Mineralogy under clause 3.4.
...
Korean Takeover Agreement means the agreement dated on or about 1 November 2007 between Mineralogy, Palmer, CITIC, Balmoral Iron Holdings Pty Limited, Korean Steel and other parties, for the sale of all of the issued shares in Korean Steel to Balmoral Iron Holdings Pty Limited.
...
Option shall mean the options granted by Seller to CITIC in accordance with clause 2.2.
Option Notice means a notice issued pursuant to clause 3.1.
Option Period shall mean the period commencing on completion of the Korean Takeover Agreement and concluding on the earlier of:
(a)the Expiry Date;
(b)the date CITIC has exercised all the options granted under this Agreement; and
(c)five years from the Commencement Date if CITIC has not exercised the First Option.
...
Product Makeup means the amount of annual production or exportable or saleable Product produced by a Further Company which shall not exceed a total of 12,000,000 (twelve million) tonnes (or such greater amount as is permitted under clause 26 of the Fortescue Coordination Deed) per year of product for any single Further Company for each 1,000,000,000 (one billion) tonnes of Magnetite Ore which may be extracted by that Further Company.
Project means the development of a mine or mines to mine Magnetite Ore in Area A, and the establishment or obtaining access to, and operation of, further processing and related infrastructure needed to process Magnetite Ore into concentrate, pellets or HBI by the relevant company.
Project Agreements means the following agreements between Sino Iron and Mineralogy as amended from time to time:
(a)the Sublease dated 25 October 2001 between the Seller and Sino Iron as amended from time to time;
(b)the Facilities Deed dated 28 November 2001 between Mineralogy and Sino Iron (as amended on or about 21 March 2006);
(c)the Fortescue Projects Consolidation Agreement between Mineralogy, Austeel Pty Limited, Balmoral Iron, Balmoral Mining Pty Limited, Brunei Steel Pty Limited, International Minerals Pty Limited, Korean Steel Pty Limited and Sino Iron (as amended); and
(d)the Fortescue Co-ordination [sic] Deed.
and, where the context requires, includes agreements between Mineralogy and a Further Company in the same terms as those agreements.
...
Project Approvals means all authorisations of the Western Australian and Australian Government required for a Further Company to build and operate its Project.
Purchase Consideration shall mean $US200,000,000 (two hundred million US dollars) for each and every Sale Interest, plus the CPI Increase from the 1 March 2006 until the date of transfer of any Sale Interest in respect of a Further Company, under any option set out in this Agreement. The Purchase Consideration for the first or subsequent Sale Interests will be reduced by the amount which CITIC spends to comply with the Drilling Obligation.
...
Seller means Palmer or Mineralogy as the case may be.
...
State Agreement means the agreement dated 5 December 2001 between Geoffrey Gallop, Mineralogy, Austeel Pty Limited, Balmoral Iron Pty Limited, Sino Iron Pty Limited, Brunei Steel Pty Limited, International Minerals Pty Limited and Korean Steel Pty Limited.
Sino Takeover Agreement means the agreement between CITIC, Mineralogy and ACN 118 791 772 Pty Limited, which has completed and was executed on or about the Commencement Date, whereby ACN 118 791 772 Pty Limited acquired all of the existing issued ordinary shares of Sino Iron.
Takeover Agreement means an agreement between CITIC, the Seller and a nominee of CITIC whereby the nominee of CITIC will acquire all of the existing issued ordinary shares of a Further Company.
…
Total Extraction Limit means the total extraction limit permitted for Sino Iron, Korean Steel or a Further Company under the Mining Right/Lease Agreement which that company has signed with Mineralogy and in each case shall be 1,000,000,000 tonnes of Magnetite Ore.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
IH
Research Orderly to Justice Kenneth Martin18 JUNE 2020
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