CITIC Ltd v Mineralogy Pty Ltd [No 3]
[2020] WASC 398
•4 NOVEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CITIC LTD -v- MINERALOGY PTY LTD [No 3] [2020] WASC 398
CORAM: KENNETH MARTIN J
HEARD: 24 SEPTEMBER & 9 OCTOBER 2020
DELIVERED : 4 NOVEMBER 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 by CITIC Plaintiffs for leave to amend statement of claim and reply - Leave required under previous directions - Leave to amend opposed in certain respects - Issues concerning computation of Purchase Consideration upon exercise of First Option - Sub-issues concerning set-off from nominated Purchased Consideration of allowable Drilling Obligation costs incurred by CITIC Ltd - Further issues concerning upward adjustment of Purchase Price by reference to Consumer Price Index (CPI) - Arguments over interpretation and implied terms and set-off concerning alleged delays and breaches of contract by defendants in non-performance of CPOA - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA), O 21 r 5
Result:
Uncontroversial amendments allowed
Drilling costs amendments allowed
CPI Increase amendments refused
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr J H Karkar QC, Mr S Parmenter QC & Mr A Barraclough |
| Second Plaintiff | : | Mr J H Karkar QC, Mr S Parmenter QC & Mr A Barraclough |
| Third Plaintiff | : | Mr J H Karkar QC, Mr S Parmenter QC & Mr A Barraclough |
| Fourth Plaintiff | : | Mr J H Karkar QC, Mr S Parmenter QC & Mr A Barraclough |
| 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 | : | Alexander Law |
| Second Defendant | : | Alexander Law |
Cases referred to in decision:
AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
CITIC Ltd v Mineralogy Pty Ltd [2020] WASC 223
CITIC Ltd v Mineralogy Pty Ltd [No 2] [2020] WASC 252
Eshelby v Federated European Bank [1932] 1 KB 254
Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296
Mineralogy v Sino Iron & Ors [No 16] [2017] WASC 340
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 16] [2014] WASC 406
KENNETH MARTIN J:
Introduction
This action is currently listed for a two week trial before me commencing on 7 December 2020. Under directions issued some time ago there were to be no further amendments to the pleadings without leave. The action has been formally entered for the trial by the four plaintiffs (the CITIC Plaintiffs).
The subject matter of the presently opposed interlocutory application is the CITIC Plaintiffs' chamber summons of 22 September 2020 seeking leave for them to significantly amend both their statement of claim (the current iteration of which is the amended statement of claim (ASOC) of 19 March 2018) and as well, to alter their amended reply and defence to counterclaim of 20 December 2018.
Iterations of the proposed amendments to both pleadings of the CITIC Plaintiffs have been circulated as minutes of amended pleadings that were attached to an affidavit of the lawyers of record acting for the CITIC Plaintiffs, namely by Mr Jeremy Peter Rich affirmed 22 September 2020. Attachment JPR‑1 is the minute of proposed further amended statement of claim (Proposed FASOC). It displays the marked up amendments proposed in relation to the pleading.
Likewise, attachment JPR‑2 shows the CITIC Plaintiffs' proposed amended reply to the further amended defence and defence to further amended counterclaim (Proposed Amended Reply) in respect of which leave is also sought to amend.
At par 8 and par 9 of his affidavit, Mr Rich merely deposes that the as observed proposed amendments to the Proposed FASOC and Proposed Amended Reply have been determined by the CITIC Plaintiffs to be 'necessary and desirable'.
The CITIC Plaintiffs' chamber summons of 22 September 2020, seeking leave to make the amendments, was initially returnable before me for directions on 24 September 2020. The leave application was supported by a first tranche of written submissions as filed by the CITIC Plaintiffs on 22 September 2020.
Given current COVID‑19 adverse issues still affecting the nation, with the CITIC Plaintiffs' counsel largely located in Victoria and the defendants' legal representatives and counsel in Queensland, the leave application has been dealt with and heard remotely using Microsoft Teams capabilities between the respective parties' representatives and the court.
The CITIC Plaintiffs' first tranche of submissions explains the proposed amendments at some length (over 21 pages). It divides them, essentially, into six categories of amendment.
As subsequent events eventually clarified, it is only the first of the six as described category of amendments which are, substantively, opposed (category 1). That position ultimately came to be explained under the defendants' written outline of submissions filed 6 October 2020 (the defendants' submissions). The changes to the Proposed Amended Reply have effectively been put to one side bearing in mind another intruding event, namely, proposed changes to the defences of Mineralogy and Mr Palmer, as I will proceed to explain below.
Consequently, these reasons will not address at any length the leave to amend sought by the CITIC Plaintiffs in respect of the Proposed FASOC categories 2 through 6 ‑ although there are some minor qualifications to that in respect of category 6 raised by the parties.
Background
The subject matter of the imminent December 2020 trial concerns the CITIC Plaintiffs' ongoing efforts to compel a performance by the defendants of contractual obligations arising by reason of the admitted exercise in 2012 by CITIC Pacific Limited, as it was then known (now known as CITIC Ltd), of the first of a number of options afforded to it under a written agreement of 22 October 2008 (as subsequently varied on 30 March 2012). This agreement is commonly referred to as the China Project Operation Agreement (the CPOA).
The CPOA was perfected between the first defendant, Mineralogy, the second defendant, Mr Palmer and CITIC Ltd, the first plaintiff in the present litigation.
Earlier this year I delivered reasons in CITIC Ltd v Mineralogy Pty Ltd [2020] WASC 223 (CITIC v Mineralogy) (ex tempore on 27 May 2020, then revised and published on 18 June 2020) and concerning largely then Mineralogy's proposed pleading amendment issues. Later, my further reasons delivered as CITIC Ltd v Mineralogy Pty Ltd [No 2] [2020] WASC 252 (CITIC v Mineralogy [No 2]) (on 3 July 2020) dealt with further and better discovery issues still unresolved as between the parties in the lead up to trial. Those two sets of earlier reasons delivered this year will provide a sufficient background to the issues underlying the litigation. For present purposes I proceed on the basis of a reader's familiarity with those earlier 2020 reasons.
Bearing in mind an imminence of a looming complicated civil trial, I listed the present leave applications by the CITIC Plaintiffs in respect of both their Proposed FASOC and Proposed Amended Reply for urgent directions on 24 September 2020, only two days after the application was brought and filed at court.
At that time the defendants' responses to the proposed amendments as signified on behalf of Mineralogy and Mr Palmer by their lawyers of record was to the effect that the complexity of the proposed amendments was such that more time would be required for them to be properly considered. That was not really in contest. Consequently, on 24 September 2020, I issued directions essentially programming the substantive application to a special appointment hearing on Friday, 9 October 2020. This programming was done on the basis the parties were to exchange further written submissions and any further affidavit materials, if any of the proposed amendments by the CITIC Plaintiffs remained controversial.
But also at the time of the 24 September 2020 hearing there had just emerged what presented as a significant communication despatched by Mineralogy to the lawyers for the CITIC Plaintiffs (Allens) late on 22 September 2020 (Mineralogy's September communication). A further Annexure A to that letter communication was initially omitted by error and so was only despatched by Mineralogy the following day. That communication concerned Mineralogy and Mr Palmer's defence positions. As a result, I also issued a direction on 24 September 2020 requiring that Mineralogy should file a minute of amended defence and further amended counterclaim. The reason for that direction to Mineralogy should become evident as I turn to the content of Mineralogy's September communication.
By overview, through its communication, Mineralogy had advised of a very significant alteration to the basis of its (up to then) resistance stance opposing the performance relief sought by the CITIC Plaintiffs as regards implementing the obligations arising from the exercise of the First Option by CITIC Ltd (in 2012) and for all ensuing relief which was sought by the CITIC Plaintiffs, including for the fourth plaintiff, Cape Preston Resource Holdings (Cape Preston). Evidently the level of opposition which had, up to then, otherwise manifested by Mineralogy and Mr Palmer was seen to change.
Before turning to expose further Mineralogy's September communication, I need to provide a brief overview of relevant legal amendment principles and a brief recap in respect of some key matters in and around the present action which go back a number of years.
Amendment principles
The relevant principles governing leave to amend pleadings (where required) were not in dispute between the parties on this application. To that end, I refer to and repeat my observations at [38] in CITIC v Mineralogy. There I mention AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, Sino Iron Pty Ltd v Mineralogy Pty Ltd[No 16] [2014] WASC 406 per Edelman J at [31] ‑ [32] and Beech J's (as his Honour then was) observations made in Hightime Investments Pty Ltd v Lungan [No 2] [2010] WASC 296.
Nevertheless, bearing in mind the importance of the present leave to amend application to the parties, it will be nevertheless instructive to remind myself of all these principles again. I do so by a summary of them as a refresher upon the multiple considerations required to be bespokenly weighed in the overall context in an exercise of the court's discretion towards allowing pleading amendments.
As was helpfully collected and summarised by the CITIC Plaintiffs at par 11 of the outline of written submissions filed 22 September 2020, and uncontroversially, the following principles may be restated again in very summary form:
(a)the effect of an amendment on the Court and on other litigants is relevant;
(b)there is no right to amend to introduce an arguable case and it is wrong to say that only in extreme circumstances would a party be shut out from litigating an arguable case;
(c)justice requires that parties have a proper opportunity to plead their case, but limits may be placed on repleading when delay and cost are taken into account;
(d)a just resolution does not mean that a party will always be permitted to raise any arguable case at any point in the proceedings, on payment of costs, even indemnity costs;
(e)the inevitable strains of litigation must be taken into account in weighing the adverse consequences of delay ‑ this applies to natural persons and other litigants;
(f)the nature and importance of the amendment to the party amending must be taken into account;
(g)attention must be given to the extent of the delay, and the costs associated with it, the prejudice which might reasonably be assumed to follow from it and any prejudice that is shown;
(h)the point in the litigation relative to a trial may be an important consideration;
(i)where a discretion is sought to be exercised in favour of a party, an explanation will be called for;
(j)the point can be reached where a party has had a sufficient opportunity to put its case;
(k)Order 1 rule 4A provides that a goal of the Supreme Court practice and procedure is the elimination of delay; and
(l)Order 1 rule 4B provides for the principles of caseflow management including (a) the just determination of litigation, as well as the following (which are, in any event, aspects of (a)); (b) the efficient disposition of the Court's business, the efficient use of judicial resources; the timely disposal of business, and proportionality.
In CITIC v Mineralogy Ltd at [39], I summarised the considerations concerning that particular amendment application by Mineralogy as ultimately distilling to '… whether the proposed amendments are coherent and … whether the counterparties and the court can live with the amendments as proposed … within a horizon of a looming trial which is provisionally set for 10 days in December 2020.'
Here, with the trial now even closer temporally, as I have indicated, the proposed amendments by the CITIC Plaintiffs across categories 2 ‑ 6, and which are not opposed by Mineralogy and Mr Palmer, should be allowed.
The remaining disputed amendments in the Proposed FASOC
The disputed category 1 amendments to the CITIC Plaintiffs' Proposed FASOC essentially fall under two sub‑categories. The first subset of proposed amendments relates to the drilling costs of CITIC Ltd which, as seen, are specified as a subtractable amount, as against a Purchase Consideration sum that is to be calculated and derived by reference to a CPOA nominated starting price of $US200 million. The CITIC v Mineralogy [No 2] reasons discuss, in that context of further and better discovery, various issues around those CITIC drilling costs incurred. The drilling costs issue is complex.
The other subset of strongly disputed category 1 proposed amendments concerns the amount of the CPI Increase allowable to the CPOA Purchase Consideration.
I will now turn to those costs and amounts within the CPOA.
Brief recap of the relevant clauses of the CPOA
By reference to the terms of the CPOA, I will mention at first its express cl 1.1 definition of the term 'Purchase Consideration', presenting there in the following terms:
Purchase Consideration shall mean US$200,000,000 (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.
My reasons, CITIC v Mineralogy explain that there are a number of key definitions used in the CPOA. Schedule A to those reasons collects some of those definitions. I incorporate them all here by reference, but do not repeat them.
Fundamentally, however, cl 3.3 of the CPOA, as regards the so called First Option (defined by subclause 3.1), says:
3.3The exercise price for the First Option will be the Purchase Consideration.
Relevantly, therefore, to any future ascertainment upon a precise $US figure to be paid over as the Purchase Consideration are its two fundamental ingredients ‑ one upward and one downward, as to price.
First, by reference to the definition of Purchase Consideration there must be found, the amount spent by CITIC Ltd to comply with its described Drilling Obligation seen set out in cl 2.4 and Schedule 1 of the CPOA, the downward factor, an essential aspect of the to be calculated Purchase Consideration end figure (and often referred to as the drilling costs).
In my further and better discovery reasons, CITIC v Mineralogy [No 2], I had discussed that CITIC Ltd Drilling Obligation costs factor at some length: see [35] ‑ [37].
Secondly, the other key input factor to be ascertained in any exercise of arriving at a final Purchase Consideration amount payable under the CPOA is the CPI (Consumer Price Index) Increase, 'from 1 March 2006 until the date of transfer of any Sale Interest in respect of a Further Company …'. This is the upward adjustment factor to the Purchase Consideration.
Within the definition provisions of the CPOA at cl 1.1 is to be found as well, a definition for 'CPI Increase':
CPI Increase means US$200,000,000 x (CPI2 ‑ CPI1)
CPI1Where CPI1 is the last published CPI figure before 1 March 2006 and CPI2 is the last published CPI figure before the date of completion of a Takeover Agreement.
Key dates
For general orientation purposes some key dates as discussed below need to be kept in front of mind upon the present application seeking leave to amend.
The CPOA itself between CITIC Ltd, Mineralogy and Mr Palmer was entered on 22 October 2008 and subsequently varied on 30 March 2012.
Relevantly, that variation had allowed some further time for the exercise by CITIC Ltd of the First Option, under CPOA cl 3. Originally, by CPOA cl 3.2, the time that was allowed for an exercise of the First Option had been until 5:00 pm on 31 March 2012. Under the agreed variation, the time allowed was extended, essentially by a further two weeks, out until 14 April 2012.
Following that extension, the First Option under the CPOA (as is admitted) came to be exercised by CITIC Ltd, on 13 April 2012.
But after April 2012, there have ensued in this court two civil actions as between the CPOA parties, essentially over whether the CPOA had come to be terminated for breach or repudiation by CITIC Ltd, as has been suggested by Mineralogy and Mr Palmer, with the consequence that the contention that First Option rights had also ended.
That termination stance by Mineralogy and Mr Palmer led first, to a commencement of litigation by CITIC Ltd in this court as CIV 3012 of 2012. Subsequently, that action was resolved the day before its trial was due to commence ‑ on the basis of consent orders made by Chaney J on 30 September 2015. Such settlement events as to that first action are explained by me in CITIC v Mineralogy at [25] ‑ [27].
Nevertheless, the CPOA parties only some nine months later were in further litigation over the CPOA, once again in this court, with the commencement of the present action, which is CIV 1514 of 2016. That was on 31 March 2016 and again it was an action by the CITIC Plaintiffs against Mineralogy and Mr Palmer as defendants.
Additional history of CIV 1514 of 2016
Under my orders of 26 February 2018 I gave leave to add a fourth plaintiff, Cape Preston to this action: see again CITIC v Mineralogy at [28] ‑ [32].
As mentioned, those reasons were issued in a context of then proposed amendments to Mineralogy's pleadings, and extensively so, as to its counterclaim for damages against the CITIC Plaintiffs ‑ and seeking significant economic damages. The defences and counterclaims of Mineralogy and Mr Palmer at that time are summarised at [20] of CITIC v Mineralogy.
Those pleadings had to then, included defences by Mineralogy and Mr Palmer raised to the effect that the CITIC Plaintiffs had again breached essential terms of the CPOA, or had repudiated or renounced their obligations under the CPOA ‑ with the end consequence that Mineralogy and Mr Palmer, as the 'innocent' CPOA counter‑parties presented with such alleged breaches, had (in the face of a contended wrongful CPOA breach conduct by the CITIC Plaintiffs) then effectively chosen to terminate all obligations of further performance on that contract.
There were further defence pleas by Mineralogy and Mr Palmer raised and grounded on an alleged contractual frustration of the CPOA; breaches by CITIC Ltd of essential obligations concerning drilling exploration expenditure; and an asserted inadequacy of the available magnetite ore within Area A ‑ effectively rendering it impracticable or impossible to viably grant any further CPOA options to CITIC Ltd. Likewise, there was a plea of a suggested lack of readiness, willingness or ability of CITIC Ltd to perform its obligations under the CPOA at 30 or 31 March 2016 when this action was commenced. Also raised were suggested breach implications of a failure of Sino Iron and Korean Steel to meet their Royalty Component B obligation payments to Mineralogy under other agreements (the MRSLAs) and, thereby bearing against, it was put, any grant of equitable relief in the nature of specific performance of the First Option exercise generated rights under the CPOA.
Also contended were alleged delays by CITIC Ltd in terms of the CITIC Plaintiffs not taking timely steps to enable a completion on the First Option. Finally contended was an alleged engagement of CPOA cl 3.7, as regards a contractual termination of the CPOA. To that end see [21] of my reasons in CITIC v Mineralogy.
Also looming then, for a December 2020 trial horizon, were Mineralogy's complex now counterclaim damage arguments, as discussed in those reasons, but essentially predicated upon an alleged breach or breaches of the CPOA leading to as justifiable termination for breach by Mineralogy as the innocent counter‑party, and from there, to Mineralogy's contended entitlement to significant loss of bargain breach damages.
That background summary as to key dates and events will provide a sufficient context around the present amendment applications advanced by the CITIC Plaintiffs, by reference to the disputed category 1 proposed amendments.
Before turning to those specifically proposed and opposed amendments, it is first necessary to see and digest the content of Mineralogy's September communication. As will be seen, there looks to be significant forensic ramifications for the trial carried under that recent as communicated change of defence position as articulated for Mineralogy and Mr Palmer. Such communications were only provided to the court the evening before the urgently convened directions hearing under attachments KCJ‑1 and KCJ‑3 to an affidavit of Mr Kane Christopher Jones, a lawyer of record for Mineralogy sworn on 23 September 2020.
Mineralogy's September communication
Given an obvious forensic significance for a December 2020 trial, it is necessary to see the September communications in full. As I will explain, Mineralogy's September communication is in two parts but should be read together.
I also note that while the communication was sent on behalf of Mineralogy, at par 2 it is explicitly stated that the communication was also sent with the authority of Mr Palmer.
Mineralogy's September communication is seen as signed off by two persons. They described themselves as 'Legal Counsel' for Mineralogy, namely Mr Kane Jones and a Mr Geoff Smith.
Although referred to by the text of the letter at par 18, in fact, Annexure A to the communication was not then provided at that time. The lawyers for the CITIC Plaintiffs soon detected its absence and requested it be provided. That followed under Mr Jones' email of the following day to Allens, on 23 September 2020 at 10.18 am (see KCJ‑3).
Mineralogy's September communication sent to Allens for the CITIC Plaintiffs, reads:
Dear Colleagues
RE:China Project Operation Agreement (CPOA) ‑ Mineralogy Pty Ltd ats CITIC Ltd (CIV1514/2016)
[1]We refer to the China Project Option Agreement dated 22 October 2008 and to Supreme Court of Western Australia Proceeding CIV1514 of 2016.
[2]We write this letter on behalf of Mineralogy Pty Ltd.
[3]We are authorised to send this letter on behalf of Mr Palmer.
[4]We advise that Mineralogy and Mr Palmer (defendants) withdraw the contention that the CPOA has been terminated. The defendants are ready, willing and able to perform the CPOA.
[5]We advise that completion of the First Option will occur consistently with the following paragraphs.
[6]Mineralogy will advise that the Further Company will be Balmoral Iron Pty Lt d.
[7]Mineralogy will advise that the Seller will be Mineralogy.
[8]We understand from CITIC Ltd's previous communications that Cape Preston Resource Holdings Pty Ltd (CPRH) would be the purchaser under the CPOA. If that is not correct, please let us know. Assuming CPRH will be the purchaser, it will acquire the issued shares in Balmoral Iron.
[9]Mineralogy is a party to the following agreements with Balmoral Iron (and other parties, as the case may be):
(a)Mining Right and Site Lease Agreement dated 21 March 2006 (Balmoral MRSLA);
(b)Deed of Variation to the Balmoral MRSLA dated 30 March 2006;
(c)Facilities Deed dated 26 October 2001 (Balmoral Facilities Deed);
(d)Variation to the Balmoral Facilities Deed dated 21 March 2006;
(e)a Fortescue Projects Consolidation Agreement dated 26 October 2001;
(f)Variation Deed to the Fortescue Projects Consolidation Agreement dated 7 February 2003;
(g) the State Agreement.
[10]Mineralogy will enter into the following instruments with Balmoral Iron in accordance with clause 3.6(c)(i) of the CPOA :
(a)a Fortescue Coordination Deed or, in good faith performance, will become a party on the same terms to the Fortescue Coordination Deed dated 22 October 2008;
(b)an Amendment Deed amending the Balmoral MRSLA to be on the same terms as the Sino Iron MRSLA;
(c)a Variation Deed amending the Balmoral Facilities Deed to be on the same terms as the Sino Iron Facilities Deed.
[11]Mineralogy will advise that Balmoral Iron does not have any assets and therefore does not need to dispose of any assets under clause 3.6(c)(ii) of the CPOA.
[12]Mr Clive Palmer will enter into a Deed of Guarantee with CPRH and CITIC as required by subparagraph (b) of Schedule 3 of the CPOA. The Deed of Guarantee will include an indemnity from Mr Palmer in respect of claims against or liabilities of Balmoral Iron arising before its acquisition by CPRH.
[13]The parties will enter into a Takeover Agreement in substantially the same form as the Korean Steel Takeover Agreement as required by clause 3.6(f) of the CPOA.
[14]The parties will use their reasonable endeavours in good faith to obtain FIRB approval for the acquisition of the shares in Balmoral Iron Pty Ltd as required by clause 8 of the CPOA.
Documents
[15]In good faith, we enclose for your attention:
(a)Balmoral MRSLA;
(b)Deed of Variation to the Balmoral MRSLA dated 30 March 2006;
(c)Balmoral Facilities Deed;
(d)Variation to the Balmoral Facilities Deed;
(e)draft Balmoral Fortescue Coordination Deed;
(f)draft Amendment Deed amending the Balmoral MRSLA to be on the same terms as the Sino Iron MRSLA;
(g)draft Variation Deed amending the Balmoral Facilities Deed to be on the same terms as the Sino Facilities Deed;
(h)draft Deed of Guarantee;
(i)draft Takeover Agreement.
[16]We also enclose audited financial statements for Balmoral Iron for the year ending 30 June 2020.
Purchase Consideration
[17]The Purchase Consideration under the CPOA will be USD$135,207,177.77. We have accepted your calculation regarding drilling costs to remove any conflict between the parties.
[18]The calculation of the Purchase consideration is included in Annexure A to this communication.
Clear exit
[19]We advise that Balmoral Iron has been a member of the Mineralogy Pty Ltd tax consolidated group from 1 July 2003 until 16 December 2018 and of the Mineralogy International Limited tax consolidated group from 16 December 2018 until the present time. Mineralogy became a wholly‑owned subsidiary of Mineralogy International Limited on 16 December 2018 and pursuant to a choice made under subsection 615‑30(2) of the ITAA 1997 Mineralogy International Limited became the head company of the consolidated group from [t]his time.
[20]Mineralogy had a valid Tax Sharing Agreement in place for income tax purposes which was entered into on 21 March 2006 which included Balmoral Iron as a contributing member. On 26 March 2019 a new Tax Sharing Agreement with Mineralogy International Limited as the head company was entered into to reflect the 16 December 2018 restructure. Balmoral Iron is also a contributing member under this Tax Sharing Agreement.
[21]The Tax Sharing Agreements provide for a clear exit from group tax‑related liabilities where a contributing member will cease to be a member of the consolidated group. It is proposed that Balmoral Iron, as a contributing member, will on sale exit from the Mineralogy International Limited tax consolidated group under the clear exit provisions such that it will leave the consolidated group clear of all group tax‑related liabilities (refer section 721‑35 of the ITAA 1997) . Mineralogy International Limited will act to comply with these requirements.
Proceeding CIV1514
[22]The content of this letter will affect Proceeding CIV1514.
[23]We note Proceeding CIV1514 is listed for review before the Court on 24 September 2020.
[24]We consider it is appropriate for the parties to raise with the Court this communication.
Next steps
[25]We await your response to this communication.
[26]We trust the parties can work collaboratively towards completion of the First Option consistently with the content of this communication.
Yours faithfully
Geoff Smith Kane Jones
Legal Counsel Legal Counsel
Mineralogy Pty Ltd Mineralogy Pty Ltd
Next, I also set out the full content of the Annexure A to the letter as it was eventually received the next day:
Annexure A ‑ Calculation of purchase consideration Unadjusted purchase consideration Unadjusted Purchase consideration under the CPOA $200,000,000.00 CPI Increase Formula: $200,000,000 x ((CPI2‑CPI1)/CPII) CPIl (as at 1 March 2006) 84.50 CPI2 (as at 30 June 2020) 114.40 Calculation: $200,000,000 x ((114.4‑84.5)/84.5) = $70,769,230.77 Drilling costs Letter from CPMM to Min dated 27 September 2012 $135,562,053.00 Adjusted purchase consideration Unadjusted Purchase consideration $200,000,000.00 Plus CPI Increase $70,769,230.00 Less Drilling Costs ($135,562,053.00) Grand total $135,207,177.77
Notes:
1.Date of calculation: 22 September 2020.
2.All dollar values in US dollars.
3.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.
4.CPI means the Consumer Price Index (All Groups Weighted Average of Eight Capital Cities) as published by the Australian Bureau of Statistics, or other such measure of the Australian inflation rate as the parties may agree from time to time or if no agreement can be reached as determined under the procedures for disputes set out in this agreement or the courts.
CPI Increase means US$200,000,000 x CPI1 ‑ CPI2 / CPI1 [sic]
Preliminary observations upon Mineralogy's September communication
Whilst initially it had been the CITIC Plaintiffs' 22 September 2020 application seeking leave which was made returnable for directions on 24 September 2020, obviously the as communicated alterations as to the heavily revised defensive stances of Mineralogy and Mr Palmer under the September communication now bore very strongly upon how matters would progress, particularly bearing in mind the imminent December 2020 trial.
It appeared implicit in Mineralogy's September communication that the change of defence position as to it withdrawing all contentions that the CPOA had earlier been terminated and now articulating that Mineralogy and Mr Palmer were from now themselves ready, willing and able to perform the CPOA, correlatively must also convey that Mineralogy's counterclaim ‑ seeking loss and damage grounded upon the alleged breach and termination of the CPOA by Mineralogy and Mr Palmer as the innocent CPOA counter‑parties ‑ was no longer open. The breach of damages position underlying it conceptually was then, in effect, overtaken.
Drilling costs
The issue over drilling costs in terms of eventually calculating a Purchase Consideration $US figure by reference to the incurred expenditure of CITIC Ltd is seen to be specifically addressed by Mineralogy's September communication.
At par 17 of the letter, it was stated by Mineralogy and Mr Palmer, as now seen, 'We have accepted your calculation regarding drilling costs to remove any conflict between the parties.' And the Annexure A calculation, once provided, confirmed that to be the case, see the 'Drilling costs' amount by reference to the 'Letter from CPMM [CITIC Ltd] to Mineralogy dated 27 September 2012 $135,562,053.00.'
That same $US figure was then seen identified under the sub‑heading 'Adjusted purchase consideration', by reference to the bracketed figure in Annexure A described as 'Less Drilling Costs', again displaying the amount as a deduction from the Purchase Consideration calculation seen there.
On that basis prior controversy over ascertaining the amount of the CITIC Ltd Drilling Obligation costs deduction amount from the Purchase Consideration payable under the CPOA, appeared to have been quelled.
That being the case for the drilling costs of CITIC Ltd, any real need for the sub‑category 1 controversial amendments of the CITIC Plaintiffs, as proposed for the Proposed FASOC under proposed pars 67A ‑ 67O, then looked unnecessary and redundant.
My assessment to that end as regards CITIC Ltd's drilling costs was essentially confirmed later, under Mineralogy's written outline of submissions provided on 6 October 2020.
Those written submissions of Mineralogy had then said under par 13 and par 14, under the heading 'Drilling Costs Amount':
[13]This plea is contained in FASOC [67A] to [67O].
[14]By letter dated 22 September 2020, Mineralogy and Mr Palmer indicated the plaintiffs' calculation of drilling costs were accepted. Accordingly, there is no utility in granting leave to plead paragraphs [67A] to [67O].
Qualification to concession on drilling costs
Surprisingly then, when the amendment application returned for substantive argument on 9 October 2020, Mr Byrne, who then appeared as counsel for Mineralogy and Mr Palmer, now told me that what had looked then to be the ostensible concession made by Mineralogy and Mr Palmer concerning the amount of the CITIC Ltd drilling costs, at a figure identified in Annexure A of $US135,562,053.00, would require a vital qualification.
Mr Byrne indicated his instructions were (and this was expressly confirmed again during the hearing ‑ see ts 220) that agreement as to the amount of the CITIC Ltd drilling costs at the identified $US figure was only offered, in effect, upon the condition that it was accepted that the 'Further Company' for the purposes of a completion on the First Option would be, as identified by par 6 of the Mineralogy's September correspondence, Balmoral Iron Pty Ltd. I was told the drilling costs figure would not be admitted otherwise, for any other person as the 'Further Company'. That as qualified position was obviously then directly inconsistent with par 14 of Mineralogy's written submissions filed at 6 October 2020. Consequently, Mr Byrne told me then that par 14 needed to be formally withdrawn.
I was also informed by Mr Byrne that discussions were continuing between the CPOA parties' lawyers in relation to whether the CITIC Plaintiffs would agree to accept Mineralogy's nomination of Balmoral Iron Pty Ltd or not. However, there can be no assuredness in that respect.
Previously nominated 'Further Company'
A long history of the present and previous civil actions displays that in the past at least four corporations have been nominated by Mineralogy or Mr Palmer, only then to be withdrawn, in relation to performing the role of the CPOA 'Further Company', for the purpose of performance as the 'company that will be acquired by CITIC [Ltd] or its nominee on completion of the exercise of an option', or 'if CITIC [Ltd] 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 Ltd in relation to its trading, financial and tax history, …': see also CPOA cl 3.1 and cl 3.6.
By reference to par 29 of the current ASOC, I note Mineralogy's admitted (by par 37 of its further amended defence and counterclaim dated 26 May 2020) withdrawal, on 11 July 2012, of Anshan Resources Pty Ltd as the then proposed 'Further Company' and Mineralogy's subsequent nomination of (it seems a presently, re‑nominated in 2020, in effect) Balmoral Iron Pty Ltd, as the Further Company. Then by reference to par 36 of the ASOC, I note Mineralogy's withdrawal at 12 September 2012, of its nomination of Balmoral Iron as the further company and nomination at then, of World Resources Group Pty Ltd as the Further Company (as admitted by Mineralogy at par 44). None of that past history appears to be in factual controversy by the state of the current pleadings.
Subsequently, on 10 June 2015, at Mineralogy's request, CITIC Ltd secured a shelf company. This was corporation ACN 606 342 778 Pty Ltd ‑ ostensibly then secured for the purposes of its propose implementation of the First Option under the CPOA and eventual takeover by Cape Preston. Subsequently, however, that did not come about and the shelf corporation looks later to have been deregistered on 5 November 2017 (ASOC par 58A, admitted by Mineralogy at par 67A).
Forensic implications of Mineralogy's September communication
As explained, in light of their change of defence position as communicated on 22 and 23 September 2020, I had ordered on 24 September 2020 that Mineralogy file a minute of proposed further amended defence and further amended counterclaim articulated in Mineralogy's September communication.
In fulfilment of that direction on 6 October 2020 there duly emerged (as folio document 112) Mineralogy's minute of proposed second further amended defence and further amended counterclaim (Mineralogy's defence minute).
Mineralogy's defence minute assists in terms of assessing some of the potential December 2020 trial ramifications arising out of what Mineralogy and Mr Palmer have communicated. This is particularly towards their recent acceptance as to the CPOA still being on foot in 2020 as regards the First Option obligations and their expressed willingness to perform those obligations under the CPOA in relation to the exercise of the First Option as communicated by CITIC Ltd on 13 April 2012.
In light of those developments what looks to be the residual scope of the December 2020 trial?
Residual scope of trial
Mineralogy's counterclaim for CPOA breach damages
First, and without attempting to be exclusive, as already indicated by these reasons, my assessment is that Mineralogy's former counterclaim for CPOA breach damages was now effectively abandoned.
That must follow because the recent acceptance that the CPOA remains on foot and has not to this point been terminated in its performance for breach as regards First Option rights which would effectively end Mineralogy and Mr Palmer's capacity to also contend that they should receive any loss of bargain damages for a wrongful breach of the CPOA by reason of a wrongful CPOA termination for breach.
That assessment is confirmed by Mineralogy's defence minute where the former amended counterclaim is seen from pars 141 onwards has been entirely struck through. I assess then, that any formerly raised counterclaim issues are now gone.
Purchase Consideration
Second, in terms of what still remains live for the trial, there is obviously the need to ascertain the correct quantum amount for the Purchase Consideration to be payable in respect of the exercise of the First Option.
In that realm, issues concerning CITIC Ltd's incurred drilling costs once looked to have been resolved at 23 September 2020 by Mineralogy's September communications, as I explained. But the $US drilling costs number to be set off against $US200 million may not be resolved, if Mineralogy's nomination of Balmoral Iron Pty Ltd as the 'Further Company' proves in 2020 to be as contentious as it ostensibly once did, at 12 September 2012.
Further controversial issues
Third and beyond from what has already been discussed, Mineralogy's September communication, read later with Mineralogy's defence minute, would seem now to indicate the only other controversial issues for the December 2020 trial will concern its and Mr Palmer's non‑admission as upon the readiness, willingness and ability of the CITIC Plaintiffs to perform their obligations in respect of the admitted exercise of the First Option under the CPOA. The CITIC Plaintiffs are effectively put to the formal proof of that requirement for relief.
Fourth, a last controversial trial feature potentially relates to the nomination by Mineralogy (again) of Balmoral Iron Pty Ltd as the Further Company and the possible rejection of that corporation by CITIC Ltd. That remains to be seen.
A shrinkage then of issues for the purpose of the trial follows consequent upon Mineralogy's September communication articulating the change of defence position, by the removal of many otherwise diverting issues that would otherwise need to be confronted.
It ought be hoped as well that controversy over the numerical calculation of CITIC Ltd's drilling costs amount for the purposes of computing that input factor towards the Purchase Consideration should also resolve.
The Drilling Costs proposed amendments
Estoppel and waiver arguments aside, the position concerning the proposed FASOC as regards the CITIC Ltd drilling costs input factor to the Purchase Consideration remains unresolved ‑ as regards a need for leave to effect those amendment changes.
That unresolved position is obviously wasteful and less than satisfactory. Despite what on the face of it looked otherwise to be an unqualified use of terminology in Mineralogy's September communication over this drilling costs issue and, indeed, by the unqualified terms of the Annexure A to that letter, it remains still necessary to canvass the terms of the proposed drilling costs amendments under Proposed FASOC pars 67A ‑ 67O ‑ for a purpose of ascertaining the grant of leave to amend.
In that respect, Mineralogy's written submissions, to the extent that they have not been withdrawn, in opposing leave to amend, will need to be considered.
The essence of the proposed amendments under the as proposed pars 67A ‑ 67O look to be advanced, essentially, upon a basis of contending for Mineralogy and Mr Palmer's alleged acts of waiver by their conduct. Such acts being in relation to them failing, when ample opportunity had been extended to them, to contest the drilling costs amount claimed by CITIC Ltd, as a reduction against the Purchase Consideration, being in the amount of $US135,562,053.00: see also in particular a proposed amendment under proposed par 67N(b).
Determination: Drilling Costs
Evaluating whether or not to allow the proposed amendments as regards drilling costs for trial purposes, I first must reject Mineralogy's contention that the plea by par 67A of the Proposed FASOC is not coherent, by the reference in that paragraph to Mineralogy's 'Verification and Challenge Right' as defined and as particularised. By my assessment, those matters are plain and also plainly arguable. They also do not on their face carry with them a high level of new factual controversy that might bear against the ability or capacity to conclude all issues at the looming trial across 10 (ten) days in December 2020.
Likewise, I must reject Mineralogy's contentions put against proposed subparagraphs 67A to 67N ‑ invoking what appear to be Eshelby principle contentions against raising events that occurred subsequent to the commencement of the present litigation (see Eshelby v Federated European Bank Ltd [1932] 1 KB 254). In this case, the relevant date of commencement is 31 March 2016.
On my assessment, those Eshelby objections are misplaced. As I assess the proposed drilling costs amendments, the CITIC Plaintiffs only seek to make reference to conduct. They do not appear to do so for a purpose of advancing a new cause of action against Mineralogy, but merely to contend that Mineralogy and Mr Palmer, by their conduct, must be assessed to have waived or abandoned their verification and challenge rights as to CITIC Ltd's drilling costs by that inaction. Alternatively, as I understand it, the CITIC Plaintiffs seek to put that Mineralogy and Mr Palmer have not exercised those rights within a reasonable time of being notified of a drilling costs amount as claimed by CITIC Ltd as spent by it in complying with CPOA drilling obligations (see proposed par 67K).
It is true par 67M contends for a breach of a term of the CPOA ‑ namely the term as pleaded by one of these recent amendments in par 17(ja). But that earlier amendment to add par 17(ja), is not opposed.
The proposed 67M amendment itself only contends for the implication of a term within the CPOA that requires the CPOA parties to co‑operate to do all that is necessary on their part to enable the other parties to receive the benefits and to perform the obligations conferred and imposed by the CPOA. That implied term described is found in commercial contracts as a matter of law: see the observations of Mason J (as his Honour then was) in Secured IncomeReal Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597. The breach as contended for under proposed par 67M, in reference to that co‑operation implied term, by the plea under par 67N, is seen to be raised in a context not of a new or independent cause of action for damages for a breach of that term. Rather, it is raised only by reference to the contention of waiver seen under par 67N(b) and a following contention that all Verification and Challenge Rights of Mineralogy and Mr Palmer relating to drilling costs may no longer be exercised. This is said to be on the basis of them not being allowed to take advantage of their own breaches of (CPOA) contract: see proposed par 67N(a). That is an understandable and plainly arguable plea that does not seek to introduce a new cause of action.
I would also accept the reply submission by the CITIC Plaintiffs, that any need for an eventual quantification exercise and evidence arising in relation to the ascertainment of the precise CITIC Ltd drilling costs amount, in a process of ascertaining the CPOA Purchase Consideration relevant to the exercise of the First Option, can be separated away from the December 2020 trial, to be dealt with, if necessary, and later. Indeed, it has been decided that there will be a separation process decided upon in relation to dealing with any quantification issues arising, if that were ever necessary, in and around Mineralogy's amended counterclaim pursuing loss of bargain breach damages upon the as alleged wrongful termination of the CPOA by CITIC Ltd, if found.
At all events, I am satisfied from a forensic perspective that CITIC Ltd's quantification implications arising around the drilling costs issue are fully capable of being managed without jeopardising the December 2020 trial dates. To that end, I am persuaded there is no forensic prejudice bearing upon a completion of the December 2020 trial arising out of the proposed CITIC Plaintiffs' amendments, in so far as they concern the CITIC Ltd's drilling costs issue, if it is still necessary to resolve that issue at the trial.
Legitimate explanation
The allied leave question that arises in the context of a relatively late and close to trial application for leave to amend by the proposed amendments as regards drilling costs and whether that application meets the criteria for leave. Approaching that threshold, I bear in mind a need for some legitimate explanation to support the grant of, in effect, indulgence to the CITIC Plaintiffs in this respect. In that quarter, I note this second action over the CPOA has been on foot since March 2016, seeking to compel a performance of obligations relating to an admitted exercise of the First Option as long ago as 13 April 2012.
Admittedly, the explanation for all the amendments as provided by Mr Rich's first affidavit is less than fulsome. I return to that aspect of the application later, in the context of the changes proposed to be introduced under the CPI Increase amendments. However, I do find a sufficient explicated basis for the proposed amendments as to drilling costs of CITIC Ltd, bearing in mind the case management history of this litigation, as was explained by senior counsel for the CITIC Plaintiffs at the 9 October 2020 hearing. Senior counsel did so reference to what emerged at previous interlocutory hearings this year, concerning a need for clarification as regards the precise compulsive orders sought to be made by the court, as the relief for the CITIC Plaintiffs in respect of the First Option and towards the Further Company. That is persuasive enough for this particular amendment issue in terms of showing that there emerged a genuine forensic need to support the present amendment as regards the Purchase Consideration derived amount if the drilling costs issue does remain as live.
Consequently, I will grant leave to allow the drilling cost amendments under category 1, as sought. Nevertheless, I reiterate that Mineralogy and Mr Palmer as a matter of good sense should consider their communicated positions towards seeking to confine what was said about this issue only to Balmoral Iron Pty Ltd as the Further Company.
The CPI Increase issue and proposed amendments
Alongside the drilling costs issue, however, are the as proposed potential increase in the CPOA 'Purchase Consideration' amendments of the CITIC Plaintiffs, by an upward adjustment factor attributable to CPI Increases. From Annexure A that figure is now seen to be numerically significant.
But these late augmentations to the pleadings are controversial. Opposed further amendments sought by the CITIC Plaintiffs, in respect of their Proposed FASOC under proposed pars 67P ‑ 67V. They are now directed towards a CPI Increase issue, which would be newly introduced into the litigation by those amendments as proposed.
The CPI Increase proposed amendments carry with them, effectively, what would be entirely new arguments to be advanced from the CITIC Plaintiffs and directed either as a matter of law, or as a matter of the suggested true interpretation of the CPOA, or further, by an application of an ad hoc implied term, or even further, by a contention of breach and application of an equitable set‑off of damages, to limit the full impact of a CPI Increase to the Purchase Consideration, when calculated to now. There presents essentially a $US28 million gulf likely to be raised as between the parties, over the correct CPI Increase figure ‑ applied to a computation of the Purchase Consideration and potentially arising from the amendments to the Proposed FASOC.
The CITIC Plaintiffs by their materials would seem to accept a CPI Increase of $US42,959,427.21. But by Annexure A, Mineralogy's CPI Increase figure is almost $US28 million higher.
Numerically, in any event, the proposed amendments in respect of the CPI Increase carry a new and extra dimension for the trial. Nevertheless, as seen, the December 2020 trial that now looms has otherwise shrunk somewhat, in terms of the magnitude of once disputed issues needed to be raised and resolved. All this is to be weighed applying the principles around amendments earlier discussed.
A remaining leave question then bearing in mind the December 2020 trial is whether the category 1 further subset proposal amendments, as sought in respect of limiting the range of the CPI Increase adjustment to the Purchase Consideration issues, may be allowed at this time. For the purposes of evaluating CPI Increase limitation issues and their possible trial ramifications, I first need to collect and set them out in full below.
They commence at proposed par 67P, under a heading 'CPI Increase' and read:
67P.Further, by reason of Mineralogy's and Palmer's breaches of the terms of the CPOA pleaded in paragraph 67 above, Mineralogy and Palmer caused inordinate delay in completion of the First Option.
67Q.By reason of the matters pleaded in paragraph 67P above, Mineralogy and Palmer cannot take advantage of their own breach of contract and, accordingly, the CPI Increase to the Purchase Consideration should apply from 1 March 2006 for no longer than a period of six months after exercise of the First Option (being 13 October 2012), that being a reasonable period for completion of the First Option after its exercise, and, so applied, the CPI Increase is US$42,959,427.21.
Particulars
The CPI Increase is calculated as follows:
US$200,000,00 x (CPI2 ‑ CPI1)/CPI1, where CPI1 is 83.8, being the last published CPI figure before 1 March 2006 and CPI2 is 101.8, being the last published CPI figure before 31 October 2012.
67R.Further or alternatively to paragraph 67P above, it was an implied term of the CPOA that the CPI Increase would not apply to any period of delay in completion of the First Option caused by Mineralogy's or Palmer's breaches of the CPOA.
Particulars
The term was implied in order to give business efficacy to the CPOA.
67S.Further or alternatively to paragraph 67Q above, by reason of the matters pleaded in paragraphs 67P and 67R above, the CPI Increase to the Purchase Consideration should apply from 1 March 2006 for no longer than a period of six months after exercise of the Frist Option (being 13 October 2012), that being a reasonable period for completion of the First Option after its exercise and, so applied, the CPI Increase is $42,959,427.21.
Particulars
The plaintiffs refer to and repeat the particulars to paragraph 67Q above.
67T.Alternatively to paragraphs 67P to 67S above, by reason of Mineralogy's and Palmer's breaches of the terms of the CPOA pleaded in paragraph 67 above, and if (which is denied) the CPI Increase to the Purchase Consideration applies from 1 March 2006 without reduction, CITIC will have suffered loss and damage in the amount of $30,071,599.05, being the CPI Increase from 13 October 2012.
Particulars
The amount of US$30,071,599.05 is calculated as follows:
A ‑ B, where A is US$73,031,026.25, calculated as follows:
US$200,000,000 x (CPI2 ‑ CPI1)/CPI1 is 83.8, being the last published CPI figure before 1 March 2006 and CPI2 is 114.4, being the last published CPI figure before the date of this pleading and B is US$42,959,427.21 calculated as in paragraph 67Q above.
The loss and damage is continuing.
67U.By reason of the matters pleaded in paragraph 67T above, CITIC is entitled to, and hereby does, set off the loss and damage pleaded in paragraph 67T above against the CPI Increase otherwise applying from 1 March 2006 and, as a consequence of that set off, the CPI Increase is US$42,959,427.21.
Particulars
The amount of $42,959,427.21 is calculated as follows:
US$73,031,026.25 (calculated as set out in paragraph 67T above) less $30,071,599.05 (calculated as set out in paragraph 67T above).
Purchase Consideration
67V.By reason of the matters pleaded in paragraphs 67A to 67U above, the Purchase Consideration payable by CITIC or Cape Preston on completion of the First Option is made up as follows:
(a) US$200,000,000; plus
(b)US$42,959,427.21, as referred to in paragraphs 67Q, 67S and 67U above; less
(c) either:
(i)US$135,562,053, by reason of the matters pleaded in paragraphs 67A to 67N above; or
(ii)US$91,888,129, by reason of the matters pleaded in paragraphs 67A to 67N above, or
(iii)US$135,562,053, as referred to in paragraph 67O above.
It is necessary, as well, to see the related and further proposed prayers for relief in the amendments, which are also in controversy:
B.An order that Mineralogy and Palmer complete the First Option by undertaking the following steps required by clauses 3.5, 3.6 (a), (c), (d), (f), (g), and (h) and 8.3 of the CPOA and the terms of the CPOA pleaded in paragraphs 17(ja) and 17C above:
…
d.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, by Mineralogy and Palmer entering into a Takeover Agreement in a form approved by the Court, with the Purchase Consideration to be that pleaded in paragraph 67V above;
…
BA.If (which is denied) the CPI Increase to the Purchase Consideration applies from 1 March 2006 without reduction, an order that the Defendants pay CITIC damages for breach of contract as pleaded in paragraph 67T above in such amount as is determined by this Honourable Court.
BB.Alternatively to paragraphs A to BA above, damages in lieu of specific performance.
To comprehend the ramifications of the proposed CPI Increase limit amendment pleas, it is also necessary to see amendments to be made to proposed par 67. Those proposed amendments are not opposed for par 67. Hence, they will be allowed and made consensually. Paragraph 67 is, however, picked up under the controversial par 67P plea, as seen. The reference via par 67 to another, earlier but presently uncontroversial amendment by par 17(j)(a), has already been observed upon (see above [91]).
Paragraph 67, amended, will read:
Breach of the terms of the CPOA relating to the First Option
67.Subsequent to the exercise of the First Option by CITIC, and in breach of clauses 3.6(a), (c), (d), (f), (g) and (h) and 8.3 of the CPOA and the term
sof the CPOA pleaded in paragraph 17(ja) above, Mineralogy and Palmer have failed to perform their obligations under the CPOA so as to complete the First Option, including the obligations:(a)to ensure that the Further Company
. ACN 606 342 778 Ptv Ltd.becomes a party to the necessary Project Agreements being:(i)the Sublease dated 25 October 2001 between Mineralogy and Sino Iron Pty Ltd;
(ii)the Facilities Deed dated 28 November 2001 between Mineralogy and Sino Iron (as amended on or about 21 March 2006);
(iii)the Fortescue Projects Consolidation Agreement between Mineralogy, Sino Iron and others; and
(iv)the Fortescue Co‑ordination Deed dated 22 October 2008,
in accordance with clause 3.6(c) of the CPOA.
(b)within 90 days of the exercise of the First Option to attempt to have the Further Company,
ACN 606 342 778 Pty Ltd,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;(c)to provide the Project Agreement Notice pursuant to clauses 3.6(c)(iii) of the CPOA and the notice pursuant to clause 3.6(d) of the CPOA;
(d)to enter into a Takeover Agreement with CITIC within 7 days of providing the Project Agreement Notice as required by clause 3.6(f) of the CPOA; and
(e)to execute on its own behalf and on behalf of any other party to the State Agreement that has authorised it to do so any document ·necessary or desirable for the purpose of making a Further Company,
ACN 606 342 778Pty Ltd, a party to the State Agreement as required by clause 3.6(g).Particulars
CITIC has not received notice that Mineralogy has satisfied its obligations under:
(i)clauses 3.6(c)(i) or 3.6(d) of the CPOA to ensure that the Further Company becomes a party to the necessary Project Agreements and State Agreement;
(ii)clause 3.6(g) that Mineralogy has executed on its behalf or any other party all documents necessary or desirable for the purpose of making a Further Company a party to the State Agreement
(f)to use their reasonable endeavours to obtain the fulfilment of the conditions in clause 8.2 of the CPOA as required by clause 8.3 of the CPOA.
As now seen, these proposed CPI Increase limit amendments, in effect would, if allowed, see the CITIC Plaintiffs seeking to contend at trial that a period of six months after the exercise of the First Option by CITIC Ltd (which exercise was at 13 April 2012 and therefore would allow until 13 October 2012 for completion) is said to be 'a reasonable period for completion of the First Option …': (see proposed pars 67Q, 67S and particulars to par 67T, which in turn refer to the interest calculation under par 67Q).
A number of entirely new legal arguments would be introduced under these proposed amendments:
(a)By proposed par 67Q, an argument grounded on the principle that the contract breaker cannot take advantage of their own breach of contract. The argument as framed identifies a principle of underlying areas of contract law that is well understood. Nevertheless as expressed under proposed par 67Q, the observed proposition, as regards finding a temporal limitation bearing against the text of the CPOA, and so as against allowing any CPI Increase to the Purchase Consideration after 13 October 2012, does not appear to be fully developed. It currently presents as something of a sentiment only. It may be that this proposed plea is seeking to support some argument of contractual interpretation and meaning towards the true meaning of 'Purchase Consideration' as text used by the CPOA. But presently the basis of the plea as framed looks to require some further amplification as to what is actually being contended for.
(b)Next, the proposed ad hoc implied term seen under proposed par 67R, namely that a CPI Increase would not 'apply to any period of delay in completion of the First Option caused by Mineralogy or Mr Palmer's breaches of the CPOA', is clearer and so, more understandable as a matter of legal concept. The plea looks to be linked via proposed par 67S to a like six month cut‑off period as the suggested reasonable period after 13 April 2012 ‑ as the 'reasonable period for completion of the First Option after its exercise'.
(c)A further freshly proposed CPI Increase limit argument emerges arising from the combination of proposed par 67P and par 67S, as to Mineralogy and Mr Palmer's alleged breaches of CPOA terms, and thereby to causing suggested inordinate delay in the completion of the First Option. This again is ultimately linked to the same temporal limit contention, namely, that a period six months after exercise of the First Option, was the reasonable period for completion. I confess I do not as yet fully comprehend the juridical basis of this hybrid plea, seen formulated as to what it carries beyond the true meaning or ad hoc implied term amendment contentions, as already canvassed.
(d)By reference to proposed par 67T is further found another fresh argument, this time of a contended equitable set‑off of breach damages, put against the CPI Increase figure if fully allowed, by reference to CITIC Ltd's contended suffering of loss and damage after 13 October 2012 which, by proposed par 67U, is to be set‑off against any CPI Increase. Again, the same contended maximum allowable six‑month reasonable contention period features.
Likewise, proposed par 67V(b) is seen as a consequential plea aligned to the proposed fresh CPI increase constraint contentions sought to be introduced.
Further evidence
The end question as to leave to amend is whether as a matter of discretion, bearing in mind a looming 10‑day December 2020 trial, the amendments in the Proposed FASOC, directed at limiting the full temporal range of the CPI Increase amount to the CPOA's Purchase Consideration for the First Option, can be allowed weighing all the principles, as earlier summarised.
To the end of that required evaluation more affidavits were filed before 9 October 2020 by the parties addressing the leave question, particularly in the respects identified as to amendments concerning the CPI Increase and to its proposed limits under the CITIC Plaintiffs' proposed amendments. For Mineralogy and Mr Palmer the affidavit of Mr Sameh Morris Iskander sworn and filed 6 October 2020 is read and relied upon.
Supporting the amendments as proposed by the CITIC Plaintiffs is a further affidavit of its lawyers of record, Mr Jeremy Peter Rich, by his second affidavit in support of this application and filed on 8 October 2020.
Mr Iskander's affidavit
Mr Iskander's affidavit was heavily criticised during the verbal arguments of senior counsel for the CITIC Plaintiffs. At par 20 onwards, Mr Iskander, on behalf of Mineralogy and Mr Palmer, contends that considerable time will be needed to deal with all the opposed amendments, particularly in relation to questions of fact surrounding an ascertainment of a reasonable period for the completion of the First Option (after exercise) as being six months.
To that end, Mr Iskander had said, commencing at par 23:
23.I anticipate that I will need to collate evidence of the relevant circumstances existing at the time alleged by the plaintiffs for performance (ie, April to October 2012).
24.The evidence will include the circumstances known to the parties at that time, including:
(a)the previous experience in seeking and obtaining approval of the State and how that might affect enabling a Further Company to become a party to the State Agreement;
(b)seeking and obtaining approval of the Treasurer under the Foreign Acquisitions and Takeovers Act 1975 (Cth), any experience at that time regarding foreign acquisitions of mining interests and otherwise including the processes in respect of the acquisition of Sino Iron Pty Ltd and Korean Steel Pty Ltd;
(c)the time to complete a Takeover Agreement in substantially the same form as the Korean Steel Takeover Agreement, including the considerations that the Korean Steel Takeover Agreement is date 1 November 2007 but completed on 22 October 2008 and itself provided for completion to occur up to 14 calendar months after the contract date (ie, from 1 November 2007).
25.I expect I will need to interview Mr Palmer and Mr Smith as to any relevant circumstances which may bear on the question of what was a 'reasonable time' after exercise of the First Option.
26.I expect some areas which may comprise relevant circumstances would include the relationship with the plaintiffs at that time, the expectation in respect of the manner in which the First Option would be completed, the conduct of the parties and the parties previous circumstances in respect of the other acquisitions of companies.
27.As the events occurred 8 years ago, I expect it will require multiple interviews to ascertain the 'relevant circumstances' existing at the time for the performance of the CPOA as alleged by the plaintiffs.
28.As to the amendment of the State Agreement, in Schedule A to the Defence to the Fourth Further Amended Statement of Claim and Proposed Fifth Further Amended Counterclaim dated 29 April 2016 of Sino Iron Pty Ltd, Korean Steel Pty Ltd and CITIC Ltd in Supreme Court of Western Australia proceedings CIV 1808 of 2013 those parties pleaded that in April 2006, CITIC commenced discussions with representatives from the Department of Infrastructure and Resources in relation to the amendment of the State Agreement to allow for the development of a project to export iron ore concentrate.
29.On 11 December 2008, the amendment to the State Agreement, comprising the Iron Ore Processing (Mineralogy Pty Limited) Agreement Amendment Act 2008 (WA), came into force.
30.I anticipate that I will need to instruct the defendants' electronic discovery consultants to undertake keyword searches on this topic to identify relevant records.
…
38.In my opinion, the processes identified above with respect to responding to the new allegations will prejudice the defendants' ability to prepare for the trial in December 2020. The defendants and their legal representatives will be required to devote the next 5 weeks to respond to the new allegations and then prepare for the trial. Absent the new allegations, those steps would not be taken and the trial would proceed on the limited basis of the current pleadings and in view of the defendants' letter dated 22 September 2020.
Mr Rich's second affidavit
Mr Rich's second affidavit of 8 October 2020 canvassed issues back to March 2006 in relation to the implementation then of the Sino Iron Takeover and then subsequently, to the Korean Steel Takeover at 1 November 2007.
This was all from the perspective of identifying the time taken at around 2006 and 2007 for completing all the various steps to be undertaken leading up to the eventual completion of those earlier two Takeover Agreements in respect of the corporation that enjoyed MRSLA derived contractual rights obtained from Mineralogy. This was pursued for a purpose of comparing, contrasting and evaluating what reasonable period should have been reasonably allowable, after 13 April 2012, to complete for a Takeover Agreement in respect of the Further Company after CITIC Ltd's exercise of the First Option under the CPOA in those 2012 underlying circumstances. Reference was made back to Schedule 3 of the CPOA and the unique form of a proposed Takeover Agreement for the Further Company. There is to be noticed an excision of an issue that appears to have taken some time to resolve in relation to getting an approval in the past at 2007, in order to finalise the Korean Steel Takeover Agreement.
Paragraphs 16 to 26 of Mr Rich's second affidavit deal with even more history, concerning the time taken in the past for former negotiations regarding variations to the State Agreement going back to November 2007 to July 2008. Again this is all raised in a context of ascertaining at the December 2020 trial what is the a reasonable period, by taking some regard to the time taken in the past to negotiate and complete proposed amendments to the State Agreement. The exercise is, again, used effectively as a suggested comparator for a trial exercise in forming an assessment that is said to be manageable and, in effect, overblown as to its difficulties as suggested by Mr Iskander for Mineralogy, over how long it should reasonably have taken to obtain an amendment to the State Agreement. Those amendments should then allow the perfection of aspects of the CPOA as regards completing on the First Option and so, the Further Company could be assimilated under coverage by the State Agreement once varied to effect that.
Likewise, under pars 32 ‑ 34 of Mr Rich's second affidavit is his review of correspondence going back to 2006 and 2007, in relation to the time taken previously to obtain the approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth), in respect of the Korean Steel and Sino Iron Takeover transactions of 2006 and 2007. Again, that exercise was undertaken for the purpose of assisting in drawing some comparisons and then, a conclusion about what would be an allowable reasonable period to complete on the First Option in present circumstances. All this is suggested as manageable, in effect, for the December 2020 trial, contrary to Mineralogy's concerns to the contrary.
Determination: CPI Increase
On my assessment, if the CPI Increase amendments, as proposed by the CITIC Plaintiffs, under their current Proposed FASOC were to be allowed at this time, they necessarily carry with them a need to resolve a newly introduced factual issue ‑ over the court's required ascertainment of what is or would have been a reasonable period to allow for a completion after CITIC Ltd's exercise of the First Option, back at 13 April 2012.
As the recently exchanged affidavits show, grappling with the introduction of that new factual issue will likely carry with it a need to turn back to canvass prior Takeover Agreement events of 2006 and 2007 in relation to the Korean Steel and the Sino Iron Takeover Agreements, for comparative purposes. These are events I previously confronted in an earlier context of the Royalty Component B MRSLA disputation, the subject of my reasons in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340, in particular therein at my reasons at [150] ‑ [153], [199] ‑ [204], [223] and [232]. I assess that there would be old 2006 ‑ 2007 Takeover Agreement documentation to be unearthed to be considered all over again in a quest to show what would have been a reasonable period to allow for completion after 13 April 2012.
Whilst some aspects of Mr Iskander's suggested forensic preparations assessment in terms of time needed to interview witnesses such as Mr Palmer and a former head of legal Mr Geoff Smith are not entirely convincing, and I would also assess Mineralogy's potential legal resources for it to urgently prepare as unconstrained, in the end, I do accept that a foreshadowed comparator exercise to past events of 2006, 2007 and 2012 will necessarily be unavoidable in terms of a newly introduced required factual exercise, towards what is to be assessed as a reasonable period for the First Option's completion after 13 April 2012 under the CPOA. The factual reasonable time issue is new and will require preparatory resources to be urgently devoted to that task. The task will carry with it a need to scrutinise a reasonable amount of anterior factual material going back to at least 2006 and will introduce that new and controversial issue for determination and which is not yet otherwise 'on the table'. I also accept it would be unjust not to allow Mineralogy and Mr Palmer, through their legal representatives, some further time to prepare before the trial, in a documentary and investigative sense, to fairly get ready to deal with that new issue at a contested December 2020 trial.
During the course of verbal addresses by counsel on 9 October 2020, it was made very clear to me by senior counsel for the CITIC Plaintiffs that it was imperative that the December 2020 trial dates as currently allocated, be retained and not be jeopardised. I accept that given past history. One of the potentialities I had then canvassed with counsel was a plenary allowing of all proposed amendments, but vacating the December 2020 trial dates and re‑listing a trial some time later, during 2021. But a trial deferral option was understandably said to be unattractive to the CITIC Plaintiffs. Likewise to the court at this time. The defendants were more amenable, if a trial could be re‑listed in the earlier part of the 2021 calendar year. But civil trial dates are scarce and precious in this court. There are other parties waiting for their civil cases to be listed for trial.
My assessment, weighing up the respective contentions, is that whilst a component of what is now sought to be introduced by the CITIC Plaintiffs in relation to proposed CPI Increase amendments, seen as framed under proposed pars 67P ‑ 67V delivers new issues by multiple alternatives, raising legal arguments capable of being accommodated, that nevertheless, these CPI Increase limit amendments go well beyond raising only new matters of law for determination. They necessarily carry with them, on my assessment, a factual dispute and a required investigation exercise over the required ascertainment upon what is the reasonable period to allow for completion, after the exercise of the First Option at 13 April 2012 and an ensuing completion of a Takeover Agreement in respect of the Further Company. This would all need to be weighed up in 2020, looking back at the required approvals and other matters to be achieved and associated with a 2012 completion process, as identified in the CPOA.
My assessment is that allowing some fair period for Mineralogy to prepare and respond to these new issues, as a matter of fairness, would very much be irreconcilable with keeping the December 2020 trial dates. The time between now and the trial is simply insufficient to fairly accommodate this aspect of what are impactful forensic changes proposed to the CITIC Plaintiffs' case. It would therefore overall be unfair and so, prejudicial to Mineralogy and Mr Palmer, to force them to be ready in time to address new and controversial issues of fact surrounding the reasonable period issues, if allowed to be introduced. The potential monetary impact of these arguments is also significant, as seen. These are new CPI Increase arguments that are not occasioned by or responsive to Mineralogy's alteration to their defence stances as outlined in Mineralogy's September communication.
Conclusion and further observations
At the end, as regard the proposed amendments concerning CPI Increase, I have concluded leave should not be granted for them. To that end, I observe upon some further matters.
First, the fundamental CPOA position as expressed by the CITIC Plaintiffs is that they presently stand as ready, willing and able to perform all their obligations arising after the exercise by CITIC Ltd of the First Option at 13 April 2012 and, hence, to do everything that must follow in consequence on their parts to complete on the acquisition transaction. One vital component of such expressed amenability to complete is to pay over, when required, the Purchase Consideration as calculated under the CPOA.
Yet, in the next breath, needing to resolve the as proposed CPI Increase limit amendments will essentially open up in this court a new front, in a battle beginning, in this court, back at commencement of CIV 3012 of 2012, resulting in a need to resolve extra issues not previously live, within in a complex, multifaceted and ongoing dispute between the CPOA parties. Allowing the CPI Increase arguments will require this new battle to be resolved before the First Option Purchase Consideration could be quantified, so as to facilitate a completion.
As mentioned, prior to this action commenced in 2016 the CITIC Plaintiffs' previous action, CIV 3012 of 2012, over the CPOA, was on foot for several years before being consensually resolved under orders of Chaney J at 1 September 2015 just before a trial was to begin.
My assessment of the newly proposed CPI Increase arguments as proposed by the CITIC Plaintiffs to the effect that, a reasonable time for completion on the exercise of the First Option was no later than 13 October 2012, is that such arguments could have emerged to be ventilated years ago. I see no real reason why such temporal limit to CPI Increase arguments could not have been articulated to be put as a brake against an ongoing CPI Increase in this 2016 action under the first iteration of the CITIC Plaintiffs' statement of claim at the commencement of the present proceedings back in 2016. At that time in 2016, of course, it was still then some 3 1/2 years post October 2012, when the now suggested six‑month temporal period would have lapsed, post 13 April 2012.
Second, I cannot accept, with respect, that the CPI Increase amendment arguments now proposed for leave emerge as a result of anything substantively discussed earlier during the prior interlocutory hearings conducted for this action before me during 2020. I did, in contrast, accept that to be the case for the CITIC drilling cost amendments. But the position as regards limiting the duration of the CPI Increase, towards calculating the Purchase Consideration payable for the First Option under the CPOA, looks to emerge, only now, as something of an unexplained 'bolt out of the blue' ‑ within the Proposed FASOC arriving under Mr Rich's first affidavit.
Third, and correlatively in terms of a need to provide some level of proper explanation towards obtaining leave for such CPI Increase limit amendments, I will not accept that merely because (as Mr Rich says at par 8), the CITIC Plaintiffs say that they have determined it is 'necessary and desirable' that they seek to make these amendments) that this state of mind can carry any sort of meaningful explanation that properly delivers a persuasive factor bearing upon the court and upon which there might ground an affirmative exercise of discretion to grant leave to amend as regards the CPI Increase amendments. That as submitted explanation, on my assessment, is insufficient, applying case management principles, as canvassed by AON. The CPI Increase limit amendment issues present as only recently unearthed during the intensive preparations for the trial. That is just not a sufficient explanation to support the indulgence sought from the court in the short time before trial.
Fourth, and fundamentally, it looms as a potential injection of new controversial issues of fact, as regards an ascertainment of a reasonable period, which at the end I assess as being the overwhelmingly determinative factor against leave, on the basis that a pursuit of that new issue would, as I see it, add an extra battle field of fresh factual disputation needing to be resolved. Given the imminence of a trial it is not fair to expect Mineralogy and Mr Palmer to deal with that new factual issue in the limited preparation time available as between now and the commencement of the December 2020 trial.
Fifth, I do not, prima facie, assess these proposed CPI Increase amendment arguments as being as so overwhelmingly of merit as more likely than not as proving successful. Whilst arguable, a respectable counter position is that if the CITIC Plaintiffs would no longer tolerate from 2012 ‑ 2020 the suggested inordinate delays and CPOA breach of conduct of Mineralogy and Mr Palmer by not completing on the First Option, then they themselves, as 'innocent parties' to such CPOA breaches, could have terminated the proposed CPOA and the First Option as exercised, and then claimed loss of bargain breach damages. They have chosen not to do that over eight years. By deliberately not taking a termination stance after 13 April 2012 until now and by litigating instead so as to compel the performance and completion of the First Option by Mineralogy and Mr Palmer, so then must they themselves also perform and thereby accept the terms of the CPOA as being fully afoot as to 'Purchase Consideration'. In effect, they must take the rough with the smooth. If the rough delivers a CPI Increase up to the time of completion on the First Option, then so be it.
I only mention the last factor since an amendment proposed that is assessable on its face as being of overwhelming and demonstrable merit is one thing ‑ as opposed to an amendment for something merely respectably arguable.
Furthermore, given all the past, it is in the interests of justice that the December 2020 trial proceed at the dates allocated for and that this fundamental dispute resolution objective and imperative not be prejudiced. Consequently, I refuse the CPI Increase amendment application in respects as identified.
Final Orders
I will allow the as proposed uncontroversial amendments to the Proposed FASOC. As I mentioned earlier, some adjustments to category 6 were agreed, in principle, by the parties ‑ albeit somewhat contingent on my determination as to other categories. Having now been provided with these reasons, the parties should confer as to what category 6 amendments should be made based on their previous agreement. Any required changes to the CITIC Plaintiffs' reply, must await the formalising of Mineralogy's and Mr Palmer's defences.
I will also allow the amendments as to the CITIC Ltd drilling costs under the Proposed FASOC pars 67A ‑ 67O. However, I will not allow the CPI Increase amendments under proposed pars 67P ‑ 67U.
I will hear the parties as to orders implementing these reasons and as to costs, if necessary.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin4 NOVEMBER 2020
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