Elders Ced Ltd v Zanex Ltd

[1986] FCA 458

45%

FOR LIMITED DISTRIBUTION

CATCHWORDS

Trade Practices - Misleading or deceptlve conduct - Appllcatlon for

mterlocu@y ~ n ~ u n c t l o n s - Statements made in report concerning

operation and terminatlon of a mine management agreement.

Trade Practlces Act 1974, S . 52

ELDERS CED LIMITED and ELDERS RESOURCES LIMITED v.

Z A N M LIMITED and

PETER JOHN STERLING

G270 of 1986

LOCKHART J.

SYDNEY

22 JULY 1986

FEDERAL COURT OF

PRINCIPAL

c

FOR LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRLIA )

)

NEW SOUTH WALES DISTRICT REGISTRY 1 No. G270 of 1986

DIVISION	GENERRL	)
ELDERS CED LIMITED

First Applicant

ELDERS RESOURCES LIMITED

Second Applicant

ZANM LIMITED

First Respondent

PETER JOHN STERLING

Second Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:	LOCKHART J.
WHERE ORDER MADE:	SYDNEY
DATE OF ORDM:	22 JULY 1986
THE COURT ORDERS THAT:

1. Upon the appllcants, by their counsel, giving the usual

undertaklng as to damages, the injunctions granted on 17 July

1986 shall be continued until the hearing of the proceeding

or further order, save that paragraph l(a)(B) of the

applicatlon 1s amended so that the date of the agreement

between the First Applicant and the First Respondent reads	14
February 1985.

2 .	The costs of the proceeding today shall	be the applicant's
costs in the proceedlngs.

NOTE:	Settlement and entry of orders is dealt with in Order	36	of
the Federal Court Rules.

FOP LIMITED DISTRIBUTION

IN THE FEDERAL COURT OF AUSTRLIA	)
)
N E W SOUTH WALES DISTRICT REGISTRY	) No. G 2 7 0 of 1986
GENERAL DIVISION
ELDERS CED LIMITED
Flrst Applicant ELDERS RESOURCES LIMITED

Second Applicant

ZANEX LIMITED

Flrst Respondent

PETER J O H N STERLING

Second Respondent

3 2 JULY 1986

REASONS FOR JUDGMENT

LOCKHART J.

This is an application for Interlocutory in~unctive relief by

two companles, Elders CED Limited ("Elders CED") and Elders Resources

Llmited. They seek to restrain Zanex Llmited ("Zanex") and Peter John

Sterling, the chalrman of the board of directors of Zanex from, In

essence, making statements orally or In writing to the effect that

Zanex terminated a management agreement between Elders C D and Zanex,

and further, from stating that that agreement was terminated on

account of the alleged breach by Elders CED of that agreement or Some

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fault, act or omission on its part or on the part of Elders Resources

Llmited.

The proceedings were commenced recently and came first before

the Court last week, namely 17 July, and after a brief hearing, I

granted lnjunctlons operative until and includlng today.

The relevant facts for present purposes may be briefly

stated. The applicants carry on the business of providmg

administrative management and technical advice and assistance in

connection with the exploration =and development of mineral deposits.

The appllcants are responsible for the management of a large number of

mining pro~ects. They are substantlal ventures into whlch some

bllllons of dollars have been or will be invested. Most of the

cQmpanles whlch use the servlces of the applicants are llsted with one

or more of the various Australian stock exchanges.

On 14 February 1985 Elders C D entered lnto a wrltten

agreement, called the management agreement, with Zanex under whlch

Elders C D was appointed as manager of a gold mlning project

undertaken by Zanex and another party in the Solomon Islands.

Following execution of that agreement Elders CED commenced to act as

manager of the project and it incurred expenses in so dolng.

3 .

Following certain correspondence between the parties, Elders

CED by letter dated 17 Februray 1986 addressed to Zanex purported to

terminate the management agreement on the ground that Zanex was in

breach of clause 8 of that agreement in that it had failed to

indemnify and reimburse Elders CED in respect of substantial sums of

money which were said by Elders	CED to be due to it under the terms of
that agreement.

On 20 March 1986 Elders CED commenced proceedings in the

Supreme Court of New South Wales against Zanex in which it claimed the

sum of $313,719.06 in respect of the expenses which Elders CED asserts that it incurred in carrying out its duties as project manager under the management agreement, together wlth interest and costs. Following

the commencement of those proceedings Zanex paid to Elders C D the sum

of $178,534.98 in partial payment of the sum claimed. Those

proceedlngs have been referred to arbitratlon for hearing.

There is evidence before me, which I accept, that at no time

during or after the exchange of correspondence between the parties,

including the letter of termination to which I have referred, have the

respondents challenged the right of Elders CED to terminate the

management agreement. There is however a considerable amount of

material before the Court bearing on the relationship between the

applicants and Zanex.

Zanex asserts that it was dissatisfied with the way in which

Elders CED administered the management agreement on various counts,

4.

Although I have read much of the material in which Zanex

asserts that this dissatisfaction with Elders CED underlay what may

have become an unsatisfactory relationship between them, I make, of

course, no findings on that but will simply assume that those matters

are in issue between the parties in the appropriate forum, which is

not this Court.

On 3 March 1986, a letter was written by Zanex to Elders C m ,

enclosing a proposed new3 release to the shareholders of Zanex stating

that Zanex announced that as from a particular day, which appears to

be 17 March 1986, Zanex had taken direct responsibility for management

of its mining operations in the Solomon Islands; and the company

acknowledged the significant contribution made by Elders Resources

during the difficult start up period. Elders CED took exception to

that document primarily because It asserted that it was misleading in

that it did not specify the reasons for the change in management of

mining operations in the Solomon Islands project, namely, termination

by Elders CED of the management agreement on the basis of breaches

committed by Zanex, and that the release implied that the management

agreement was terminated by Zanex.

I will pass over the intervening discussions and

correspondence between the parties until a critical document came into

existence, namely, a quarterly report to 31 March 1986, sent by Zanex

5.

to Its home stock exchange, the Melbourne Stock Exchange. I am

satisfled that upon receipt of that communication, the Melbourne Stock

Exchange then, m accordance wlth recognised stock exchange

procedures, informed other stock exchanges In Australia of the

contents of that quarterly report so far as relevant, probably by

telex. The contents of those telexes are the same as the contents of

the quarterly report, to which I wlll now refer.

That quarterly report, so far as relevant, states under the

heading "r,OLD" the following:

"SOLOMON ISLANDS

ZMIEX/MAWJ JOINT VENTURE (ZANEX 70% DIRECT AND

INDIRECT)

Problems associated with management communlcatlons

resulted in the termination of the contract wlth

Elders on 18.3.86. Productlon at the mlne was

curtalled on 12.3.86 at the Ministry of Natural vacatlng the slte."

Then under	the	heading	"MINING LEASE REINSTATED"	the	document
proceeded:

"The Solomon Islands Ministry of Natural Resources

unconditionally lifted the suspension	of the Zanex
Mavu minlng lease on 29.4.86.

Gold productlon during the quarter was

dlsappomtmg 474 ounces. According to reports

received from Elders Resources this was mainly due

to low staff and machlnery avallability.

6.

STAFF APPOINTMENTS

The Company has appointed Mr George Reynolds as

General Manager and Mr John Davidson as Mine

Manager, both senior Mining Engineers with wide experience in the mining industry.

GOLD PRODUCTION INCREASE

During the mine rehabilitation period, a number	of
modifications will be made to the plant, which,

along with changes to operational proceedures,

should ensure greater ore throughput and gold

production. "

The applicants seek to restrain Zanex and Mr. Sterling from

making any further statements to the like effect of the quarterly

report. Their case, in this Court, is based upon S. 52 of the T r a d e

Practices Act, 1974. It is said that the terms of the communication

by Zanex to the stock exchange constituted misleading or deceptive

conduct in that It conveys the impression that the management

agreement was terminated by Zanex and not by Elders CED, and that the

termination was caused by problems associated with management

communications, that is, problems with Elders CED	or, perhaps, Elders
Resources or both companies.

Counsel for Zanex and Mr. Sterling argued that there 1s no

were problems associated with management communication between Elders prima facie or seriously arguable case because, on the evidence, there termination of the management agreement.

The resolution of these questions is, of course, a matter for

the trial, and it is not appropriate that I say much about it at thls

I .

interlocutory stage. Of course, I do not determine any of the

questions on a final basis. However, it is appropriate, in some

circumstances, in cases of this nature, for the Court to express its vlew as to whether the case of the applicants is strong or weak, or somewhere in between.

The strength of the applicants' case is relevant to the

question of whether a prima facie case or a seriously arguable question has been established and indeed, as has been said in many

cases, is relevant also on the question of balance of convenience. In

other words, in the appropriate case, the stronger the case for the

applicant, often the greater the balance	of convenience in favour of
grantlng the injunctive relief.

I think the case as made out by Elders CED Is a strong case.

The allegations of misleading or deceptlve conduct establxsh	a strong
prima facle or seriously arguable questlon.

There remalns the question of the balance of convenience. I

have already touched on that a moment ago, but there are some further

facts which need recitation. It is proposed that there be in the near

future a meeting of shareholders of Zanex, held purusant to a

requisition of certain shareholders of that company who have expressed

some dissatisfaction with the management of the company. I say

nothlnq whatever, of course, about the soundness or otherwise of what

they have asserted, as I know nothing about it, but what it does

disclose is that there are shareholders in Zanex who seek to cause

8 .

.changes to the board of directors and one of the matters relied upon

by them, as justifying change, is their assertion that, in effect,

Zanex mishandled the management agreement with Elders CED in some way.

Zanex I s anxious not to be restrained as sought by the

applicant because it wants to feel free to say whatever It wishes to

the shareholders whether before or at the meeting that will be held in

the near future and, therefore, to assert what it regards as the facts

governing the relationship between Elders CED and Zanex which it says

ultimately led to the termination of the management agreement. What

Zanex or its directors say to its shareholders is a matter entirely

for them; it is not for me to comment on that, nor on the wisdom of

making assertions to shareholders at a time when the very matters in

question are in the process of being litigated in more than one forum.

However, this is not a case where the applicants seek to

restrain any right of free speech. They seek to restrain what they

assert is an abuse of that right. They simply say that what must not

be said to anybody, includlng the shareholders of Zanex, is that Zanex

terminated the management agreement and further, that it did so on the

ground, in effect, of alleged incompetence	or mismanagement by Elders
cm.

The fact that those who control the affairs of Zanex wish to

feel free to make statements to shareholders, when considered in the

light of what I have said about the quarterly report to the Melbourne

Stock Exchange, poses, I think, a very real threat of a repetition of

9 .

.r

the conduct complained of and therefore militates in	favour of	the
-grant of interlocutory injunctions.

It was argued by counsel for the respondents, that this is,

in essence, a defamation action and that the principles governing the

grant of interlocutory injunctions in those cases should apply. I was

referred to a number of authorities, to which I do not find it

necessary, at this hour, to recite, except to say that I have, of

course, considered them and I am very familiar with the propositions

which they expound, namely, that the courts must be very slow in

defamation cases to interfere by way of interlocutory injunctive

relief. I do not think those cases apply in this case which is not a

defamation case either directly or indirectly. It is a case based on

S. 52 of the Trade Practices Act although what is asserted is that the

alleged offending conduct will harm the reputation and goodwill of the

applicants or either of them. That is conduct that squarely falls

within S. 52 and I do not regard the defamation principles as being

applicable. Even if they were I would still interfere by way of

interlocutory	injunctlve	relief	withln	the	framework	of	those
principles.

There is a possibility of damage ensuing to the applicants or

either of them if there is a repetition of the conduct which the

applicants seek to restrain. Accordingly, in all the circumstances	I
think the appropriate course is to grant the relief sought.

I certlfy that thls and the eight ( 8 ) precedlng pages are a true copy of the Reasons for Judgment herem of h i s Ilonour Hr. Justice Lockhart.

Dated: 22 July 1986