Depisch v Doral Mineral Sands Pty Ltd
[2022] WASC 87
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: DEPISCH -v- DORAL MINERAL SANDS PTY LTD [2022] WASC 87
CORAM: MASTER SANDERSON
HEARD: 25 JANUARY 2022
DELIVERED : 15 MARCH 2022
PUBLISHED : 15 MARCH 2022
FILE NO/S: CIV 2129 of 2021
BETWEEN: MARTIN DEPISCH
Plaintiff
AND
DORAL MINERAL SANDS PTY LTD
Defendant
Catchwords:
Practice and procedure - Application for pre-action discovery - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA)
Result:
Application dismissed
Representation:
Counsel:
| Plaintiff | : | ML Bennett |
| Defendant | : | C Hicks & A D Roberts |
Solicitors:
| Plaintiff | : | Bennett + Co |
| Defendant | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
BWS v ARV (No 2) [2021] WASCA 62
MASTER SANDERSON:
This is the plaintiff's application for pre‑action discovery. It is brought under O 26A r 4 of the Rules of the Supreme Court 1971 (WA) (RSC). The application is supported by an affidavit of the plaintiff sworn 26 October 2021. The defendant has not filed any affidavit material. It did file written submissions opposing the plaintiff's application. Before detailing the grounds of opposition of the defendant I should summarise the relevant facts, none of which were in dispute.
As at 30 June 2018, the plaintiff was a major shareholder of MZI Resources Limited (in liquidation) (MZI). MZI was a listed company whose subsidiaries (including the wholly owned Keysbrook Leucoxene Pty Ltd (KLPL)) specialised in the mining and processing of high value minerals including leucoxene. MZI's flagship operating asset was the KLPL's Keysbrook Minerals Sands Mine (Keysbrook Mine) which is located some 70 kilometres south of Perth. At the Keysbrook Mine, mineral sands were mined and processed to produce a heavy metal concentrate which was processed into a final product at Doral's Mineral Separation Plant in Picton.
In or about April 2019, MZI and Doral entered into a processing agreement. Pursuant to this agreement, Doral was to treat Keysbrook's heavy mineral concentrate at Doral's Mineral Separation Plant. Production commenced in late 2015. From about June 2017, MZI experienced a decrease in total production and sales of leucoxene with MZI failing to deliver sustained recovery levels. These recovery levels were the key driver of value for MZI, accounting for about 2/3 of its revenue. The under recovery was attributed to amongst other things, the highly variable physical characteristics of the leucoxene particles in the orebody, and the effectiveness of certain equipment to deal with this element within the flowsheet configuration: See affidavit of the plaintiff, paragraph 12.4.
As at 30 June 2018, MZI reported a consolidated loss of $7 million and a net liability position of $36 million. In about June of 2018, MZI engaged metallurgical experts, METS Engineering Group (METS), to identify the potential to improve recovery of leucoxene. This involved a detailed engineering study and point scale test to be conducted at the Picton site. This was done in agreement with the defendant. As at December 2018, achieving a targeted recovery of leucoxene remained a challenge for MZI, notwithstanding the work undertaken by METS to evaluate and improve recovery. In January 2019, the board of MZI initiated a process to explore the sale of the Keysbrook Mine in order to realise its inherent value. On or about 15 March 2019, MZI received an offer for the Keysbrook Mine from the defendant, however the offer was insufficient to repay secured lenders in full. On or about 16 April 2019, MZI went into voluntary administration. The administrator's report to creditors was to the effect that MZI's financial difficulties were attributable to KLPL's failure to achieve projected leucoxene recoveries at the Keysbrook Mine. In or about June 2019, the administrators entered into an agreement with the defendant for the sale and purchase by the defendant of the Keysbrook Mine.
There was no dispute between the parties as to the applicable principles in an application made under O 26A r 4 RSC. The plaintiff must satisfy the following conditions:
1.It must establish it may have a cause of action against a potential party;
2.The potential cause of action is against a person whose description has been ascertained;
3.The applicant wants to commence proceedings against the potential party;
4.After reasonable enquiries, the applicant has not been able to ascertain sufficient information to decide whether or not to commence proceedings;
5.At the time of making the application, the applicant has not reached a decision about whether or not to take proceedings;
6.There are reasonable grounds for believing that the potential party has in its possession documents that may assist in making a decision; and
7.The application must be supported by an affidavit which is served on the potential party.
In this case, it was the defendant's position the plaintiff had not established it may have a cause of action against the defendant. None of the other criteria were in dispute, each having been satisfied. In addition, the defendant maintained even if the plaintiff was able to establish he may have a cause of action against the defendant in the exercise of the discretion conferred by O 26A r 4 RSC, discovery ought be refused. This was very much a fallback position - the primary contention of the defendant was as to the cause of action.
Before setting out the respective position of the parties I should detail the documents which the plaintiff sought. These were set out in paragraph 1 of the originating summons which reads as follows:
1.1 any report produced by METS Engineering Group Pty Ltd (ACN 077 221 722) (METS Engineering) which refer to mining operations at:
1.1.1 the Mineral Sands Mine located in Keysbrook; or
1.1.2 the Mineral Separation Plant now owned and operated by the Defendant in Picton;
1.2 any correspondence, file notes or other documents passing between the Defendant and METS Engineering between the period July 2018 and July 2019 (inclusive) or any notes of conversations between the Defendant and METS Engineering in that period; and
1.3 any correspondence, file notes or other documents passing between the Defendant and MZI Resources Ltd (in liquidation) (ACN 077 221 722) between July 2018 and July 2019 (inclusive) or any note of communication between the Defendant and MZI Resources Ltd in that period.
The plaintiff, in his written submissions, set out how he said a cause of action may have arisen. It was put in this way:
Cause of action
25. Mr Depisch may have a cause of action against Doral pursuant to section 18 of The Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth) for misleading or deceptive conduct in circumstances where:
25.1.Doral operated the Mineral Separation Plant at which KLPL’s heavy mineral concentrate was treated;
25.2.METS engineering undertook at Doral’s Mineral Separation Plant detailed engineering studies in order to improve potential recovery of L88;
25.3.accordingly, Doral knew of MZI’s inability to extract projected level of L88 at Doral’s plant; and
25.4.Doral purchased the Keysbrook Mine with this knowledge.
26. Mr Depisch considers Doral’s purchase to be explicable if Doral had knowledge or was in possession of information that disclosed ways by which higher L88 recovery rates were to be achieved, which information was withheld from MZI or its shareholders.
27. If documents sought reveal that:
27.1. Doral had such knowledge or information prior to the appointment of administrators;
27.2. there was a reasonable expectation that Doral should have disclosed any such knowledge or information or implemented improved recovery processes for MZI;
27.3. Doral did not implement (or seek to implement) those steps; and
27.4. by omitting to improve recoveries, caused or allowed MZI to fail, Doral will have acquired the Keysbrook Mine at a price less than what it was actually worth.
28. These factual circumstances may give rise to a cause of action for Mr Depisch against Doral individually or derivatively as a member of a class of MZI shareholders, for misleading or deceptive conduct pursuant to the Competition and Consumer Act 2010 (Cth).
In response, the defendant maintained that the plaintiff's delineation of the potential cause of action was 'flawed and speculative'. The defendant put the position this way:
Mr Depisch’s potential cause of action is flawed and speculative
[14] The only relevant potential cause of action is one personal to Mr Depisch. As to this, to be entitled to relief for misleading or deceptive conduct, Mr Depisch would need to show that:
(a) Doral engaged in some conduct that was misleading or deceptive (or likely to mislead or deceive); and
(b) Doral’s conduct caused Mr Depisch to suffer loss and damage.
[15] Mr Depisch formulates the potential misleading or deceptive conduct in two ways:
(a) Doral failed to implement improved L88 recovery processes for MZI, thereby allowing or causing MZI to fail; or
(b) Doral was in possession of information that disclosed ways by which higher L88 recovery rates were to be achieved, which information was withheld from MZI or its shareholders.
[16] The first formulation is doomed to fail.
[17] First, Mr Depisch does not explain how Doral allegedly failing to implement steps to improve L88 recovery rates could constitute misleading or deceptive conduct, being conduct that induces, or is capable of inducing, error on the part of MZI’s shareholders, including Mr Depisch. Put another way, Mr Depisch does not explain how Doral allegedly failing to take such steps caused MZI’s shareholders (or was capable of causing them) to misapprehend the true state of affairs. Mr Depisch also does not explain what he would have done differently had he been aware of the true state of affairs.
[18] Second, there is no objective foundation to Mr Depisch’s suggestion that Doral may have been obliged to implement steps to improve L88 recovery rates, or that MZI’s shareholders may have had a reasonable expectation that Doral would have implemented such steps. This suggestion rises no higher than assertion, conjecture or suspicion.
[19] Third, none of the documents Mr Depisch seeks concerns the question of whether Doral failed to implement steps to improve L88 recovery rates. Mr Depisch states that he seeks documents to understand what Doral knew. The documents sought would not reveal what Doral did, or did not, do in its capacity as operator of the Picton Mineral Separation Plant.
[20] Fourth, what Mr Depisch describes in his first formulation is, if anything, a potential claim by MZI for breach of contract. Mr Depisch would not have a personal right to sue for Doral’s breach of contract and has not obtained leave to bring a claim on MZI’s behalf. For the reasons stated in [11] to [13] above, such a claim can be put to one side.
[21] The second formulation - a failure to disclose information to one or both of MZI and its shareholders - is equally problematic, but for different reasons.
[22] First, as to the alleged failure to disclose to MZI, the objective evidence shows that, prior to its collapse, MZI was itself aware of the reasons for historically low recovery rates, and how it might recover higher rates of L88. MZI failed despite being aware of this information. No claim could be made against Doral for failing to disclose to MZI information that was already in MZI’s possession. In any event, this could not give rise to a cause of action in the name of Mr Depsich. Again, for the reasons stated in [11] to [13] above, such a claim can be put to one side.
[23] Second, as to the alleged failure to disclose to Mr Depisch as a shareholder of MZI, Mr Depisch points to nothing that indicates a reasonable expectation that Doral would disclose to MZI’s shareholders information about how MZI could achieve higher L88 recovery rates. Doral performed toll treatment services for MZI under a processing agreement. There was no relationship between Doral and MZI’s shareholders. Doral was under no legal or equitable duty to disclose information about those services to MZI’s shareholders. Doral made no representations to MZI’s shareholders that might have given rise to a reasonable expectation that it would disclose such information. Even if the documents sought revealed that Doral held such information, those documents would not answer the question of whether there was a reasonable expectation that Doral would disclose that information to MZI’s shareholders.
[24] Third, there is no tangible backing or objective foundation to Mr Depisch’s suspicion that, prior to MZI’s collapse, Doral held information unknown to MZI that disclosed ways by which higher L88 recovery rates were to be achieved. Mr Depisch’s subjective concerns rise no higher than assertion, conjecture or suspicion. Mr Depisch says that he considers Doral’s purchase of the Keysbrook Mine explicable if it possessed this information and withheld it from MZI or its shareholders. The purported logic to this submission appears to be that Doral would not have bought the underperforming Keysbrook Mine unless it was aware of how to recover commercially viable quantities of L88.
[25] Putting to one side that this ignores that MZI itself was aware of this information, “there is a leap in [Mr Depisch’s] reasoning into the realm of speculation”. Doral’s purchase of the Keysbrook Mine is equally consistent with a number of other innocent hypotheses, including that:
(a)unlike MZI, Doral had the expertise to extract minerals from the Keysbrook Mine in a way that made it possible to recover higher rates of L88;
(b) unlike MZI, Doral had the financial capacity to implement necessary changes to recover higher rates of L88;
(c) the purchase price of the Keysbrook Mine was such that Doral could viably operate the mine notwithstanding the lower L88 recovery rates;
(d) Doral could viably operate the Keysbrook Mine because it could process minerals using its existing Picton Mineral Separation Plant, and, unlike MZI, did not need to pay for toll treatment services;
(e) Doral did not intend to extract L88 from the Keysbrook Mine; or
(f) Doral’s purchase of the Keysbrook Mine was uneconomic.
[26] Mr Depisch ignores these alternative plausible hypotheses in favour of a single hypothesis supporting his potential case. Whilst the circumstances surrounding Doral’s purchase of the Keysbrook Mine may create suspicion in the mind of Mr Depisch or give rise to conjecture or assertion, they do not objectively allow an inference to be drawn that Doral was in possession of information that it withheld from MZI. The bare possibility that Doral has withheld information from MZI is insufficient to enliven the Court’s jurisdiction.
[27] Fourth, Mr Depisch says he suspects that Doral obtained the information in question from either METS or MZI. It is circular (and frankly risible) to suggest that Doral failed to disclose to MZI’s shareholders information that it obtained from MZI. That means the question could only be whether Doral obtained information from METS. But there is no objective evidence to indicate that METS may have provided information to Doral that was not also provided to MZI. There is also no logical reason why METS would have done so. MZI engaged METS to “determine opportunities to improve recovery at the Picton MSP”. Why would METS have withheld critical information from its principal, MZI, but provided it to Doral?
[28] Mr Depisch points to the liquidators’ acknowledgement that they are “in possession of certain METS reports and correspondence between MZI, METS and Doral”. This does not speak to the existence of correspondence between METS and Doral to the exclusion of MZI. That the liquidators possess such documents defeats that suggestion. Put another way, there are no reasonable grounds to believe that Doral has the second category of documents that Mr Depisch seeks.
[29] Fifth, assuming Doral withheld information from Mr Depisch, there is no objective evidence suggesting that this may have caused Mr Depisch loss. Loss and damage is the gist of an action for misleading or deceptive conduct. Mr Depisch could have adduced some objective evidence about what he would have done differently if the information had been disclosed to him. He has not done so. The loss he may have suffered is not at all self-evident. For the purposes of Mr Depisch’s claim (as opposed to a claim on behalf of MZI), it is irrelevant that Doral may have “acquired the Keysbrook Mine at a price less than what it was actually worth”. In any event, the evidence shows this was not the case. There is certainly no objective evidence that the Keysbrook Mine was worth more than what Doral paid.
(It is generally unhelpful simply to repeat written submissions filed by counsel. However, in this case, the submissions were both concise and pointed and I was satisfied they adequately summarised the respective positions.)
In the recent decision of BWS v ARV (No 2) [2021] WASCA 62 the Court of Appeal considered again the principles relevant to O 26A r 4 RSC with particular reference to when a party 'may' have a cause of action. Other than to say the case concerned an application for pre‑action discovery of documents the plaintiff (respondent to the appeal) said to establish a cause of action it is unnecessary to detail the facts of the case. In the course of their joint judgment the Court of Appeal said:
[54] Counsel for the respondent submitted that there was sufficient evidence to infer that the appellant had made one or more statements defamatory of the respondent to one or more of the complainants. That submission overstated what the respondent was required to establish to meet the jurisdictional threshold under O 26A r 4 RSC. The respondent was not required to adduce evidence whereby the inference ought to be drawn. Nor was the respondent required to adduce evidence whereby the inference prima facie ought to be drawn. In terms of the first aspect of O 26A r 4(1), it is enough that there are objective grounds from which the court can be satisfied that the respondent 'may' have a cause of action against the appellant. Mere assertion, conjecture or suspicion on the part of the respondent is insufficient. This means, relevantly, that the respondent must establish grounds upon which the court can be satisfied that the appellant may have made defamatory statements about the respondent.
Neither counsel suggested this decision in any way altered the established principles relevant to O 26A r 4 RSC. Counsel for the defendant submitted the decision highlighted that speculation as to a cause of action was not sufficient to ground an order for discovery. In general terms, counsel for the plaintiff agreed with that submission. Where they differed was whether, in this case, the evidence of the plaintiff amounted to mere assertion, conjecture or suspicion.
On balance, I am satisfied it does. In other words, the plaintiff has not established it may have a cause of action against the defendant. It is unnecessary for me to say anything more than that I accept the submissions put by the defendant. It is difficult to see on the facts available that the plaintiff could have any cause of action, whether under the Australian Consumer law or otherwise. There are too many logical difficulties standing in the plaintiff's way and the possibility there is evidence which would support his position is no more than speculation.
For the sake of completeness, I should mention one other matter raised by the defendant in resisting the application. The defendant notes it is the applicant who must establish he may have a cause of action against the potential party. The defendant points out that, on the face of it at least, it would appear that MZI is the entity having the cause of action. After all, it was the shareholder and presumably it is MZI who has suffered any loss. As no leave had been granted to the plaintiff to bring representative proceedings on behalf of MZI no relief is available. Without examining the issue in detail, it is sufficient if I say I am satisfied the defendant made good this argument and it provides a further reason for refusing the application.
The plaintiff's originating summons will be dismissed. The plaintiff should pay the defendant's costs of the action, including reserved costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AH
Associate to Master Sanderson
15 MARCH 2022
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