Hill End Gold Ltd v First Tiffany Resource Corp - [2008] NSWSC 866

No judgment structure available for this case.

CITATION: Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 866

HEARING DATE(S): 14 & 15 July 2008

JUDGMENT DATE :
22 August 2008

JURISDICTION: Equity Division
Expedition List

JUDGMENT OF: Brereton J

DECISION: Leave granted to defendant to withdraw admissions made in amended defence filed 19 July 2007.

CATCHWORDS: PROCEDURE – ADMISSIONS – application to withdraw admissions made in amended defence – where admissions made with legal advice and in pursuit of narrowing issues in dispute – whether admissions wrongly and/or inadvertently made – where admissions made whilst defendant changing solicitors – where withholding leave to withdraw admissions would result in matter proceeding on false factual basis and preclude defendant from pleading a viable defence – balance of prejudice – whether prejudice occasioned to plaintiff irreversibly detrimental – whether withholding leave to withdraw admissions in the interests of the “just, cheap and quick” resolution of the dispute.

LEGISLATION CITED: (NSW) Uniform Civil Procedure Rules, r 12.6

CATEGORY: Procedural and other rulings

CASES CITED: Drabsch v Switzerland General Insurance Co Ltd (NSWSC, 16 October 1996, unreported, BC9604909)
For the Good Times Pty Ltd v Coltern Pty Ltd [2007] NSWSC 108
Jeans v Commonwealth Bank of Australia [2003] FCAFC 309, (2003) 204 ALR 327
Silver v Dome Resources NL [2005] NSWSC 265
Sirius Shipping Corp v Ship 'Sunrise' [2006] NSWSC 164
SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816

PARTIES: Hill End Gold Limited (plaintiff/respondent)
First Tiffany Resource Corporation (defendant/applicant)

FILE NUMBER(S): SC 5655/05

COUNSEL: Mr B J Weber SC w Mr C N Bova (plaintiff/respondent)
Dr K A Stern (defendant/applicant)

SOLICITORS: Ian Congdon (plaintiff/respondent)
Watson Mangioni (defendant/applicant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Friday, 22 August 2008

5655/05 Hill End Gold Ltd v First Tiffany Resource Corporation

JUDGMENT

1 HIS HONOUR: By Notice of Motion filed on 4 December 2007, the defendant First Tiffany Resource Corporation (“Tiffany”) claims leave to withdraw certain admissions made by it in its Amended Defence filed on 19 July 2007, to the Amended Statement of Claim filed by the plaintiff Hill End Gold Limited (“HEGL”), by which HEGL claims a declaration that in the events which have transpired Tiffany has no right to participate in certain mining development leases, and that Tiffany’s non-contributing interests in those leases have been extinguished. I conclude that such leave should be granted, as to do so will enable the case to be decided on the real issues rather than on a false premise, and will not occasion incurable prejudice to HEGL.

The commercial history

2 In order to appreciate the significance of the admissions sought to be withdrawn and the surrounding arguments, some understanding of the history of the commercial dealings and the litigation to date, and of the competing cases of the parties, is required.

3 Prior to March 1982, Silver Orchid Pty Limited held certain mining tenements in the Hill End area of New South Wales. By an agreement made on 18 March 1982 and amended on 10 June 1982, Silver Orchid Pty Limited agreed to sell to Tiffany an undivided 20% “free carried interest” in those tenements, for valuable consideration (“the 1982 Agreement”). The 1982 Agreement contemplated that Silver Orchid and Tiffany would execute a joint venture agreement – in a form said to be annexed but which has never been produced – “upon closing to permit Tiffany to participate in the development of such properties”.

4 On 18 January 1983, Mr Cleaver on behalf of Silver Orchid and Mr McAlpine on behalf of Tiffany executed a memorandum (“the 1983 Memorandum”), which recorded that, in consideration for an advance by Tiffany to an Australian company for use in covering some immediate payments due on the Hill End Properties, which advance would now be considered non-repayable, Tiffany would be entitled to maintain its 20% interest in the Hill End mining tenements when an economic feasibility study is received by paying its 20% share of the funds required to bring the property or properties into production.

5 On 24 August 1983, Northern Gold NL, Silver Orchid, Tiffany and McAdam Mining Corporation entered into a joint venture agreement (“the 1983 Joint Venture Agreement”), which provided that Tiffany had a 20% interest; that all costs of exploration and development up to and including completion of a feasibility study would be borne by Northern; that if as a result of any feasibility study a decision was made to develop a commercial mining operation on the area covered by such study, that area would be excised from the joint venture and the parties interested in the joint venture would then enter into a new agreement in respect of it, and in respect of the remaining area all further costs of exploration and development would be borne jointly by Northern Gold, Silver Orchid and Tiffany in their proportionate percentage interests, namely 60:20:20. The 1983 Joint Venture Agreement also contained the following definition of “feasibility study”:

a geological, metallurgical, engineering and economic evaluation of any Mineral Deposit in order to determine the merits of implementing further appraisal and development of the Mineral Deposit, such evaluation being on a scale which will provide sufficient information -

(i) to indicate clearly whether the Mineral Deposit can be made commercially viable; and

(ii) to allow the Parties to approach banks and other financial institutions in order to raise funds to finance the further appraisal and development of the Mineral Deposit.

6 On 6 May 1987, Northern Gold gave notice of its “complete withdrawal” from the joint venture. Although it is not entirely clear, it appears that Silver Orchid may have bought out the interest of Northern Gold for $100,000. Tiffany has contended that there was an agreement – partly oral, partly written and party implied – to terminate the 1983 Joint Venture agreement (“the 1987 Termination Agreement”). Save for a letter on behalf of Northern Gold confirming its withdrawal and that it no longer had any interest in the tenements, no written agreement has been produced. Nonetheless, on 19 March 1990, the 1983 Joint Venture Agreement was removed from the mining titles registration records “as the arrangements thereunder have now been terminated and the Agreements are no longer in force”, according to a letter from the Department of Minerals and Energy of that date.

7 Meanwhile, in 1987, a further joint venture agreement between Silver Orchid, Tiffany and BNP Gold Mines Limited (“BNP”) was drafted, but so far as appears at this stage, it was never executed.

8 On 25 June 1993, a letter agreement between Big Nugget Partnership (now, HEGL, which name is used hereafter for convenience) and Silver Orchid granted BNP/HEGL an option to acquire 50% of Silver Orchid’s mining holdings in Hill End. The agreement also made provision for the dilution of the holding of either party if the other decided to continue with further expenditure on the holdings and the first did not. The agreement contained no reference to Tiffany’s 20% holding. However, a letter agreement dated 4 August 1993 between BNP/HEGL and Tiffany recited that Silver Orchid had sold an undivided 20% free carried interest in its holdings in the Hill End area to Tiffany, and that by agreement dated 25 June 1993 BNP/HEGL had been given an option to earn 50% of Silver Orchid’s 80% interest in the holdings, and provided that Tiffany would sell BNP/HEGL 25% of its free carried interest for $10.

9 BNP/HEGL issued an “Offering Memorandum” dated 1 July 1993, to raise funds, which included the following:

Silver Orchid currently owns an 80% interest in the holdings. In March 1982, First Tiffany Resource Corporation (“Tiffany”) acquired a 20% free carried interest in the holdings. Tiffany is an Alberta corporation currently not trading due to filing deficiencies. In view of the potential activity, Tiffany sold 25% of its 20% position, or 5% of the carried interest to BNP in consideration of the property expenditures by BNP.

Upon exercise of the option the ownership in the holdings will be:

15%

10 On 13 April 1995, Silver Orchid acknowledged that HEGL had satisfied the conditions of its option, and had earned the right to 50% of Silver Orchid’s interest in the holdings.

11 On 7 February 1997, the Mining Warden’s Court heard and decided an application by HEGL against Silver Orchid and Tiffany. The Warden determined, inter alia, that the non-contributing legal and equitable interests were HEGL 5% and Tiffany 15%, and that the contributing interests (after application of the dilution provision) were HEGL 62.96% of 80%, and Silver Orchid 37.04% of 80%. Although HEGL had also originally sought a determination by the Warden that Tiffany’s non-contributing interest converted to a contributing interest when a bankable feasibility study for production was completed, it did not press that claim.

12 A deed of transfer dated 16 March 1999 recited that Silver Orchid had held 80% of the legal and equitable interest in the tenements, and transferred all Silver Orchid’s legal and equitable interest in the tenements to HEGL.

The dispute

13 On 9 September 2003, HEGL submitted to Tiffany a group of reports, which it asserted constituted a mining feasibility study, and called for Tiffany’s first contribution (said to be in accordance with the terms of the 1983 Joint Venture Agreement). Tiffany responded on 21 October 2003, to the effect that no feasibility study had been completed, and requested a copy of the clause in the relevant contract said to support the demand. On 18 November 2003, HEGL replied, asserting that under the 1982 Agreement the “free carried interest” conferred entitlements only in respect of exploration and gave Tiffany no rights, or rights considerably less than a 15% contributing interest, in respect of any development, but offering Tiffany the opportunity to elect to participate in development by paying its first call, and stating that if it declined to do so its interest in the area subject to development would extinguish.

14 Tiffany responded on 7 January 2004, invoking provisions of the 1983 Joint Venture Agreement to contend that its “free carried interest” meant that all costs would be borne by Northern Gold “until completion of a mining feasibility study after which Silver Orchid will contribute pro rata to all costs and Tiffany will contribute pro rata to all costs in certain defined areas”. The definition of “feasibility study” in the 1983 Joint Venture Agreement was also relied on, as was a 1995 press release of HEGL, which stated “First Tiffany has a free carried interest up to and including a feasibility stage”.

15 On 20 August 2004, HEGL responded that, as Tiffany had elected not to contribute, its interest in the area the subject of development was extinguished. It rejected the argument that the 1983 Joint Venture Agreement could shed light on the “free carried interest” – for the reason that that agreement had been terminated by March 1990, prior to the acquisition by HEGL of its interest in 1993. The press release was put aside, on the basis that it was not “part of a binding agreement between the parties, and is therefore of no substance”.

16 HEGL sought advice from senior counsel, which was furnished on 12 January 2005; a copy was also provided to Tiffany. On the basis of the (incomplete) documentation briefed, counsel concluded that the concept of a feasibility study being the trigger for Tiffany’s interest to become contributory was not contractually founded, and that the trigger was the intention of HEGL to proceed to development coupled with the legal power to do so. Counsel further concluded that, as no such joint venture agreement as was contemplated by the 1982 Agreement was ever made, Tiffany in the circumstances had no right to participate in the development.

The proceedings

17 HEGL commenced the present proceedings by summons filed on 31 October 2005, seeking a declaration that Tiffany had no interest in the relevant tenements. A statement of claim pleading the cause of action said to support that relief was filed in March 2006. In general terms, it asserted that, in the absence of the joint venture agreement contemplated by the 1982 agreement, Tiffany’s interest was only in “exploration”, and evaporated upon commencement of development.

18 Tiffany filed and served its defence in May 2006, asserting that it retained an undivided 15% free carried interest until the completion of a “feasibility study” within the meaning of that expression in the 1983 Joint Venture Agreement. Subsequently, on 12 January 2007, Tiffany’s then solicitors, Deacons, provided to HEGL’s solicitor, Ian Congdon, a signed and verified but unfiled amended defence and cross-claim (“the first proposed amended defence and cross-claim”), which descended to far greater detail than its predecessor, and:

· particularised the contention that Tiffany’s interest was non-contributing until a feasibility study, within the meaning of the 1983 Joint Venture Agreement, was completed, by reference to the 1983 Memorandum, of which HEGL had until then been unaware;

Upon completion of a feasibility study in relation to any or all of the 1982 Lease Holdings (as defined in the 1983 Joint Venture Agreement), and not earlier, [Tiffany] could be required to contribute to the costs of development of those 1982 Lease Holdings that are the subject of a Feasibility Study.

· particularised the 1987 Termination Agreement as partly oral, partly written, and partly implied, and insofar as it was oral to be comprised by conversations between Mr Cleaver on behalf of Tiffany, Mr Cleaver also on behalf of Silver Orchid, and Mr Maguire on behalf of Northern Gold (to which conversations HEGL was not party and of which it had no knowledge).

The Amended Statement of Claim

19 HEGL considered that the 1983 Memorandum, and its lack of knowledge of the 1987 transactions, made it likely that Tiffany’s assertion – that its free carried interest became contributory only upon completion of a feasibility study – would prevail. HEGL therefore decided to accept that position, and to amend its statement of claim. Accordingly, on 3 May 2007, HEGL filed its amended statement of claim – which, in substance, adopted the position, thitherto advanced by Tiffany, that Tiffany had a free carried interest until a feasibility study was provided, and alleged that such a study had been provided, and that by reason of not having contributed thereafter, Tiffany had lost its entitlement to participate.

20 Paragraphs 1 and 2, which pleaded formal matters such as incorporation, were unamended. Paragraph 3 pleaded that, subject to the relief claimed in the proceedings, HEGL held (and had since September 2002 held) an 80% contributing and a 5% undivided non-contributing interest in the relevant mining tenements, which allegation was particularised by reference to the history of agreements summarised above. Paragraph 4 pleaded that, subject to the grant of relief which HEGL claimed in the proceedings, Tiffany held and had since at least November 1999 held, a 15% undivided free carried interest in the development leases.

21 Paragraph 5 was as follows:

5. During the period in or around 1993 to in or around 1996, it was agreed between Silver Orchid, First Tiffany and BNP (now HEGL) that:

1983 Joint Venture Agreement

Feasibility Study

Payment Term

Non-retention Term

Particulars

(a) Memorandum dated 18 January 1983 signed by C.L. McAlpine for First Tiffany and R.B. Cleaver for Silver Orchid.

(b) Agreement made in or around 1987 between Silver Orchid, Northern Gold and First Tiffany by which the 1983 Joint Venture Agreement was terminated.

(c) Recitals to the second draft of proposed Joint Venture Agreement between BNP, Silver Orchid and First Tiffany, which was Exhibit 14 to the proceedings in the Mining Warden’s Court commenced by summons dated 12 June 1996.

(d) ‘Feasibility Study’ in the 1983 Joint Venture Agreement was defined as:

‘a geological, metallurgical, engineering and economic evaluation of any Mineral Deposit in order to determine the merits of implementing further appraisal and development of the Mineral Deposit, such evaluation being on a scale which will provide sufficient information -

(i) to indicate clearly whether the Mineral Deposit can be made commercially viable; and

(ii) to allow the Parties to approach banks and other financial institutions in order to raise funds to finance the further appraisal and development of the Mineral Deposit.’

(e) ‘Mineral Deposit’ in the 1983 Joint Venture Agreement was defined as:

‘a deposit of minerals estimated to contain proven, probable or possible reserves of one or more Mineral Products in sufficient volume and of a sufficient grade to be capable of being the subject of a commercially viable extraction operation having regard to the estimated costs of establishing such operation and of bringing the deposit into production and to the then current market price of the Mineral Product or Products which can be won from such deposit’.

(f) ‘Mineral Product’ in the 1983 Joint Venture Agreement was defined as:

‘all minerals, metals and/or ores which contain mineral matter or substances.’

22 Paragraph 6 was as follows:

6. Further or in the alternative to paragraph 5 above, since at least in or around 1987 there has been a common understanding between First Tiffany and HEGL that:

(i) First Tiffany would continue to hold a 15% free-carried interest in the Development Leases, until such time as a Feasibility Study, was provided by BNP (now HEGL) to First Tiffany; and

Payment Understanding

Non-retention Understanding

Particulars

(a) HEGL repeats the particulars to paragraph 5 above.

(b) Paragraphs 57 and 58 of First Tiffany’s amended defence filed in or around January 2007.

23 Paragraph 7 alleged that on or around 9 September 2003, HEGL provided Tiffany with a feasibility study. Paragraphs 8 and 9 were as follows:

8. Pursuant to the Payment Term and/or the Payment Understanding, upon receiving a Feasibility Study, First Tiffany was required to pay to HEGL 15% of the funds required to bring the Development Leases into production.

Particulars

HEGL repeats the particulars to paragraph 5 above.

9. First Tiffany has not paid its 15% share of the funds required to bring the Development Leases into production in accordance with the Payment Term and/or the Payment Understanding.

Particulars

Letter from First Tiffany to HEGL dated 7 January 2004.

24 Paragraph 10 alleged that as a consequence, Tiffany had forfeited its 15% interest in the development leases, and had no right to participate in their development nor in the property or consequential profits, and that HEGL now held a 100% interest in the development leases.

25 By this time, Tiffany had become discontented with the manner in which Deacons had conducted the proceedings on its behalf, and the costs that had been incurred. In a letter responding to Tiffany’s complaints, on 22 May 2007, Deacons sought to point out that the effect of the amended statement of claim was that HEGL had “now admitted that Tiffany holds a 15% ‘undivided free carried interest’ in the Development Leases, which could only become contributory once a ‘bankable feasibility study’ had been prepared”, and that HEGL had thus effectively admitted the existence of Tiffany’s entitlement – so that that issue had evaporated – and had refined and limited its claim to asserting that the material so far provided constituted a “bankable feasibility study”, with the result that there was practically only one issue left in the case, namely whether the material provided amounted to a “bankable feasibility study”. Deacons foreshadowed that, as a result, all that needed to be done was “for us to file a new Defence in which, subject to your instructions, we would propose to admit paragraphs 1, 2, 3, 4, 5, 6, 8 and 9 of the Amended Statement of Claim and simply deny paragraphs 7 and 10”, and that once such defence was on, each side’s evidence would likely comprise expert opinion as to whether the material provided was a bankable feasibility study, adding:

If, as you assert, the material was not bankable, then with the right expert retained, this should be a relatively simple exercise and subject to the Court’s directions and the other side’s vicissitudes we can move the matter forward to hearing very quickly.

26 On 22 June 2007, Tiffany instructed Gilbert + Tobin in place of Deacons. Notice of change of solicitor was filed on 3 July 2007 and served on 13 July 2007. Mr McGuiness, the partner in Gilbert + Tobin responsible for the matter who became the solicitor on the record, was aware that Tiffany was required by directions to serve its amended defence by 18 May 2007 and had not done so, and that time for that purpose had been extended to 22 June 2007. Gilbert + Tobin represented Tiffany at a directions hearing on 16 July, when time to file an amended defence was further extended to 20 July 2007. From communications and correspondence with Deacons, Mr McGuiness then understood the only issue in dispute to be whether the material furnished comprised a bankable feasibility study. He did not have time to review the files prior to filing the amended defence.

27 Thus, on 14 July 2007 Tiffany served its amended defence and cross claim, which it filed on 19 July 2007, the amended defence admitting the allegations contained in paragraphs 1, 2, 3, 4, 5, 6, 8 and 9 of HEGL’s amended statement of claim and denying paragraphs 7 and 10. Accordingly, the only issues which then remained on the pleadings were (1) whether or not HEGL by letter dated 9 September 2003 provided Tiffany with a feasibility study within the meaning of the 1983 Joint Venture Agreement and (2) if so, whether or not Tiffany had forfeited its interest because it had not paid a 15% share of the funds required to bring the development leases into production.

28 On 10 August 2007, Mr McGuiness left Gilbert + Tobin, taking the matter with him to Watson Mangioni, which firm now acts for Tiffany. On 20 August 2007 the Court, by consent, adjourned the matter to the Expert Evidence List on 29 August 2007, when Hamilton J ordered that a court expert be appointed to determine whether HEGL had provided Tiffany with a feasibility study. However, on 5 September, his Honour revoked that order and granted leave to both parties to adduce expert evidence on that issue, directing that the plaintiff serve its lay and expert evidence by 10 October, and the defendant by 21 November 2007.

29 On 18 October 2007, HEGL served the expert report of Mr George Ryan, who opined that HEGL had provided Tiffany with a feasibility study as defined.

30 Tiffany has never complied with the direction for service of its expert evidence. Mr McGuiness had the files reviewed by his employed solicitor Ms Rose, following which, on 15 November 2007, he caused a letter to be sent to Mr Congdon, foreshadowing an application to withdraw the admissions made in the amended defence and setting out reasons for doing so – in short, that as the 1983 Joint Venture Agreement had admittedly been terminated by the 1987 Termination Agreement, the free carried interest was no longer subject to conditions pertaining to provision of a feasibility study contained in the 1983 Joint Venture Agreement. The letter also pointed out, accurately enough, that the matters particularised pursuant to paragraphs 5 and 6 of the amended statement of claim could not support the contract pleaded in paragraph 5, nor the common understanding pleaded in paragraph 6. When HEGL declined to consent to the withdrawal of the admissions, Tiffany filed its motion claiming leave to withdraw its admissions of paragraphs 5, 6, 8 and 9 of the amended statement of claim, and leave to file a further amended defence. The hearing of that motion was, on HEGL’s application, expedited, but has been delayed by the intervening deregistration of Tiffany, which required action to have its registration reinstated in Canada.

The approach to withdrawal of admissions

31 There is not significant dispute as to the applicable principles, which were expounded by Santow J (as he then was) in Drabsch v Switzerland General Insurance Co Ltd (NSWSC, 16 October 1996, unreported, BC9604909), as follows (at 7-8):

Coopers Brewery Ltd v Panfida Foods Ltd

IOL Petroleum Ltd v O'Neill

Apex Pallett Hire Pty Ltd v Brambles Holdings Ltd

H Clark (Doncaster) Ltd v Wilkinson

IOL Petroleum Ltd v O'Neill

Coopers Brewery Ltd v Panfida Foods Ltd

Devae Prufcoat Pty Ltd v Altex Industrial Paints Ltd

H Clark (Doncaster) Ltd v Wilkinson

Cohen v Mc William and Anor

32 That summary has been repeatedly endorsed [Silver v Dome Resources NL [2005] NSWSC 265, [8]-[9] (Hamilton J); Jeans v Commonwealth Bank of Australia [2003] FCAFC 309, (2003) 204 ALR 327, [18] (Hill, Madgwick and Conti JJ); SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816, [55]-[56] (White J)]. In Jeans, the Full Federal Court said (at [18]) that the true position was that there was no principle that admissions might or might not be withdrawn, but that the court had a broad discretion to weigh up all matters with the overall question being to ensure that there was a fair trial. In SLE Worldwide, White J said (at [56]) that the approach to this overall question was guided by the principles expounded in Drabsch by Santow J:

Silver v Dome Resources NL

33 His Honour then proceeded to hold (at [57]) that it was not sufficient reason to permit SLE to withdraw its admission of liability that, on some grounds, it was reasonably arguable that SLE might not be liable:

[57] I therefore start from the position that the admissions deliberately and formally made should not be permitted to be withdrawn, unless sufficient cause is shown why they should be. I accept that on some of the grounds upon which the case between SLE and WGB might be decided, or the cross-claim between WGB and Gerling might be decided, it is reasonably arguable, considering only the terms of the two agreements and the pleadings, that SLE might not be liable to indemnify Gerling in respect of the disputed deductions. I do not consider that to be a sufficient reason for permitting SLE to withdraw the admissions. The prejudice to Gerling cannot only be measured in terms of the additional cost which it will incur in the litigation, or the costs thrown away by reason of the amendments. The prolongation of the litigation, which has already been prolonged for too long, with the inevitable expenditure of executives’ time, is part of the prejudice which Gerling will suffer if the amendments are allowed.

34 Ultimately, consistent with what the Full Federal Court suggested in Jeans, “the question is one of the attainment of justice rather than trying to apply an artificial approach” [Sirius Shipping Corp v Ship 'Sunrise' [2006] NSWSC 164, [4] (Young CJ in Eq)]. And as the Chief Judge has elsewhere observed [For the Good Times Pty Ltd v Coltern Pty Ltd [2007] NSWSC 108, [3]]:

Essentially, the court is after the truth. … Thus, in principle, an erroneous admission should be able to be withdrawn unless other factors outweigh. The principal factor that might outweigh is that there is such great prejudice to the other party, because of the way in which that party has prepared his or her case on the basis of the admission, that the leave should not be given.

35 In addition, (at [4]):

There must be some evidence as to how the admission was made and there must be some material to show that it was erroneous.

36 For Tiffany, Dr Stern submitted that leave should be granted because:

· The matters admitted were simply wrong in fact and in law;

· The admissions were made by mistake and confusion, and an explanation has been provided; and

37 For HEGL, Mr Weber SC submitted that leave should be refused, because:

· The admissions were not incorrect in substance, but reflected Tiffany’s long-standing position;

· The admissions were made deliberately and formally, after a full opportunity to consider the position, and the explanation advanced on behalf of Tiffany by Mr Cleaver was untrue; and

Were the admissions wrongly made?

38 For convenience, I shall refer to a term to the effect that to retain its interest once an economic feasibility study was provided Tiffany would have to contribute to the costs of development, as a “Feasibility Study Term”.

39 Paragraph 5 of the amended statement of claim alleges an agreement, made between 1993 and 1996 between Silver Orchid, Tiffany and HEGL, containing a Feasibility Study Term. However, the matters particularised pursuant to paragraph 5 refer to documents or agreements made in 1983 and 1987 – with the exception of “the second draft proposed joint venture agreement” exhibited in the 1996 proceedings in the Mining Warden’s Court. It is not apparent how the matters particularised could support any such agreement as is alleged in paragraph 5. The 1983 Joint Venture Agreement had long since terminated, and HEGL was never a party to it. The 1996 draft agreement was admittedly never concluded. The 1993 agreements between Tiffany, Silver Orchid and HEGL contain no reference to Tiffany’s interest becoming contributing, and the draft joint venture agreement between them was never finalised, because Mr Cleaver on behalf of Tiffany would not agree to a clause relating to the interest becoming contributory. Some contemporaneous documentation (BNP’s confidential Offering Memorandum) refers to Tiffany’s interest without any suggestion that it became contributory. Mr Reveleigh accepted in cross-examination that there was nothing to which he could point which comprised an agreement to the effect that Tiffany’s interest would become contributory. And it is also significant that, having at first claimed in the Mining Warden’s Court proceedings an order to the effect that Tiffany’s interest became contributory on provision of a bankable feasibility study, HEGL ultimately did not press that claim for relief. Tiffany’s original defence (of 2 May 2006), and the first proposed amended defence and cross-claim (of January 2007) plead the 1993 agreement in terms that involve no admission that it contained any Feasibility Study Term.

40 Paragraph 6 alternatively alleges a common understanding between Tiffany and HEGL since about 1987. However, it is manifest that HEGL (and its predecessors) had no involvement prior to 1993, so it is impossible that there could have been any such common understanding as alleged since 1987. Nor does the pleading explain how any liability would flow from the common understanding alleged in paragraph 6.

41 Mr Weber accepted that there were difficulties with the contract and the common understanding as pleaded. That concession was in my view rightly made.

42 It follows that, upon scrutiny, the admissions were wrongly made, in the sense that the matters pleaded in paragraphs 5 and 6 are not sustainable. The contract alleged in paragraph 5 is not supported by the particulars, and nothing in the evidence suggests that the defect could be remedied. Nor is the common understanding alleged in paragraph 6 sustained by the particulars, and moreover it does not have any apparent legal consequence.

43 However, Mr Weber submitted that, while in a technical sense the admissions might be incorrect, in substance they were not, in that Tiffany’s “free carried interest” was subject to a Feasibility Study Term, and HEGL’s interest was a derivative one acquired from Silver Orchid, by reason of which it had the same rights as against Tiffany that Silver Orchid previously enjoyed.

44 The amended 1982 Agreement does not contain a Feasibility Study Term, although it does contemplate execution of a joint venture agreement “upon closing” to permit Tiffany to participate in development. The 1983 Memorandum introduced a Feasibility Study Term. Although, on one view, the 1983 Joint Venture Agreement superseded the 1983 Memorandum, its termination by the 1987 Termination Agreement at least arguably resurrected the preceding 1983 Memorandum, or alternatively was on terms that preserved a Feasibility Study Term (as indeed Tiffany had pleaded in its first proposed amended defence and cross claim).

45 However, as Dr Stern points out, insofar as HEGL’s rights are derivative, the 1993 documentation contains no reference to the circumstances in which Tiffany’s interest might become contributory. The 25 June 1993 agreement between BNP and Silver Orchid provides for the acquisition by BNP of an interest in all Silver Orchid’s mining holdings in Hill End, and the 4 August 1993 agreement between BNP and Tiffany provides for the acquisition by BNP of 25% of Tiffany’s undivided 20% free carried interest. The deed of transfer between Silver Orchid and Nugget Resources (HEGL) dated 16 March 1999 recited that Silver Orchid had held 80% of the legal and equitable interest in the relevant tenements, and transferred all Silver Orchid’s legal and equitable interest in the tenements to HEGL. It is not by any means manifestly plain, though it is not unarguable, that these dealings caught, or had the effect of conveying to HEGL, any right or interest in respect of Tiffany’s remaining 15% undivided free carried interest.

46 Thus, while there is undoubtedly an available argument that Tiffany’s interest is subject to a Feasibility Study Term, it is not manifestly clear that that is so, and in any event it would arise in a manner different from that pleaded. Similarly, while it is not unarguable, it is not manifestly clear that HEGL has succeeded to any rights in respect of Tiffany’s residual 15% carried interest. There is at least a seriously arguable case to the contrary.

47 Accordingly:

· In terms of the present pleadings, the admissions were wrongly made;

Was the admission made inadvertently and has an explanation been provided?

48 The commercial dealings which regulate Tiffany’s free carried interest have occurred over a lengthy period of time (since 1982) and are complex and to some extent confusing. It is, as I have said, at least arguable that Tiffany’s interest is subject to a Feasibility Study Term, but it is plain that no contract between Tiffany and HEGL imposes any such term. And, if one assumes that HEGL’s interest is derivative, it is not manifest that HEGL acquired any rights in respect of Tiffany’s residual 15% carried interest, though it is not unarguable that it did so. As Dr Stern has pointed out, neither Tiffany’s original defence, nor its first proposed amended defence and cross-claim, admitted that the 1993 agreements contained any such term, and although they did assert that the 1987 Termination Agreement preserved a Feasibility Study Term, they did not admit or assert that any such term governed Tiffany’s current relationship with HEGL.

49 The context in which the admissions were made involved, first, a dispute between Tiffany and its then solicitors, culminating in a change of solicitors; secondly, those solicitors seeking to justify what had been achieved to that point, including by reference to the apparent acceptance by HEGL of Tiffany’s interest subject to a Feasibility Study Term and the benefits of this to Tiffany; thirdly, the pressure imposed by the Court’s direction to file an amended defence; and fourthly, the suggestion advanced by Deacons that the result of HEGL’s amended statement of claim was that the only issue remaining in dispute would be whether the material supplied constituted a “feasibility study”, on which it was supposed that an expert opinion would give Tiffany good prospects of success.

50 This situation does not lend itself to simple characterisation as a mistake of an inadvertent or other nature. On the one hand, I accept that it was inadvertent in the sense that no attention was given to the particular contract or common understanding pleaded, and Gilbert + Tobin (who were on the record when the amended defence was filed) did not review the commercial history in detail but acted on the course which had been proposed by Deacons. And while I accept that there was a deliberate decision to narrow the issues, by leaving for resolution only whether the material provided amounted to a bankable feasibility study, this did not involve a deliberate decision to jettison a defence to the effect that Tiffany’s interest was never to become a contributory one – because the availability of such a defence was not adverted to at that point. On the other hand, I am inclined to accept that Tiffany resiled from the decision to narrow the issues only after having received HEGL’s expert report, opining that there had indeed been a bankable feasibility study, and I am unable to accept Mr Cleaver’s evidence that he was confused as a result of the Mining Warden’s decision: on no reasonable view could a reader of that decision have gained the impression that the Mining Warden had determined that Tiffany’s interest became contributory on provision of a bankable feasibility study.

51 In summary:

· The admissions were made deliberately and on advice, to limit the issues to whether a bankable feasibility study had been provided. However, they were made without adverting to the contractual or other basis upon which a Feasibility Study Term was said to arise, without appreciating that there was an at least arguable case there was not such a term, and in a context of advice coloured by the dispute between Tiffany and its former solicitors, without its new solicitors reviewing the matter and without appreciation of the true contractual position.

purely

Where does the balance of prejudice lie?

52 HEGL has not changed its position on the faith of the admissions that are now sought to be withdrawn. HEGL contends that, when it amended its statement of claim, it amended its case so as to adopt “Tiffany’s historical position” that it had a free carried interest subject only to a Feasibility Study Term. That may be so, but that was before the relevant admissions now sought to be withdrawn were made. If Tiffany had denied rather than admitted paragraphs 5, 6, 8 and 9, HEGL would still have changed its position in that way.

53 Moreover, the change in HEGL’s position is not irretrievable. It can, if it wishes, revert to the case that it originally pleaded. I am unpersuaded by the argument that this involves some immeasurable prejudice said to affect a litigant by changing its forensic position. In this case, no departure from any factual position previously asserted is involved, only (potentially) reversion to a formulation of the case which was previously abandoned for the sake of narrowing the dispute. In my view, HEGL can resume its original position without detriment.

54 Tiffany gave notice of its intention to seek leave to withdraw the admissions at a relatively early stage, four months after they were made. The case has not yet been set down for hearing, and no hearing date will be jeopardised by permitting the withdrawal of the admissions.

55 It is true that the case will be a lengthier and more complex one than would be the case if the admissions stand. The longer hearing time required will probably mean that there will be a longer wait for a hearing date. But there is no reason why the case cannot be heard at least early in 2009. On the other hand, if leave is not granted, Tiffany will be deprived of an arguable defence, and the case would be determined on a false premise.

Conclusion

56 I have therefore reached the following conclusions.

57 First, the admissions (in respect of paragraphs 5 and 6) were wrongly made in terms of the paragraph as pleaded. The admissions of paragraphs 8 and 9 flow from paragraphs 5 and 6.

58 Secondly, though HEGL might succeed, on an alternative basis not presently pleaded, in establishing that Tiffany’s interest is subject to a Feasibility Study Term, it is not manifest that it must do so, and any such basis has not been articulated in the pleading.

59 Thirdly, it follows, that refusing leave to withdraw the admissions would shut Tiffany out from maintaining an arguable defence, and result in the case being determined on a false premise.

60 Fourthly, though the admissions were made with the benefit of legal advice, and for the tactical benefit of limiting the scope of the case, there was nonetheless an element of inadvertence, in that they were made without appreciation that the pleading did not accurately reflect the actual contractual position, or that another defence (to the effect that Tiffany’s interest did not become contributory in any circumstances) might be available. It was also affected by the dispute between Tiffany and its then solicitors, which complicated the pressing need to file a defence.

61 That the defence that Tiffany’s interests did not become contributory in any circumstances had not been previously adverted to does not mean that it is not a “real” issue. There can be a “real” – or “genuine” – issue in proceedings, notwithstanding that its availability has not always been appreciated.

62 Though an element of tactics was involved both in making the admissions and in seeking to withdraw them, HEGL has not suffered any irreversible detriment as a result.

63 Cases should be decided on the real issues, so far as justice permits that to be achieved. It is true that the withdrawal of the admissions would lengthen an otherwise relatively narrow case, but insofar as it is submitted that to permit that course would be contrary to the statutory command to promote the “just, quick and cheap” resolution of proceedings, the alternative course of allowing the case to go to judgment while the admissions stand would mean that the case would be determined on a false premise. That would not be a just resolution. Refusing leave might promote the quick and cheap but not the just resolution of the proceedings, and it is no coincidence that in the statutory formula, “just” is foremost.

64 In this case, it is possible to achieve the objective of deciding the case on the real issues, without incurable prejudice to HEGL. I will therefore grant the leave sought. But as the necessity for the application has been occasioned by Tiffany’s erroneous amended defence, it should bear the costs.

65 My orders are:

1. Pursuant to (NSW) Uniform Civil Procedure Rules, r 12.6, grant leave to the defendant to withdraw the admissions made in its amended defence filed on 19 July 2007 of the allegations contained in paragraphs 5, 6, 8 and 9 of the amended statement of claim.

2. Grant leave to the plaintiff to file any further amended statement of claim by 5 September 2008.

3. Direct that the defendant by 19 September 2008 file and serve its defence to any further amended statement of claim, or if no such further amended statement of claim is filed, its further amended defence.

4. Direct that at the hearing the evidence in chief be by way of affidavit.

5. Direct that the plaintiff not be entitled to rely at the hearing without the leave of the Court on any affidavit evidence which has not been served by 10 October 2008.

6. Direct that the defendant not be entitled to rely at the hearing without the leave of the Court on any affidavit evidence which has not been served by 31 October 2008.

7. Direct that the plaintiff not be entitled to rely at the hearing without the leave of the Court on any affidavit evidence in reply which has not been served by 21 November 2008.
8. Order that the defendant pay the plaintiff’s costs of the motion filed 4 December 2007.

66 I will provisionally fix the matter for final hearing before me in February 2009.

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Citations

Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 866

Most Recent Citation

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CITATION:	Hill End Gold Ltd v First Tiffany Resource Corp [2008] NSWSC 866
HEARING DATE(S):	14 & 15 July 2008
JUDGMENT DATE :	22 August 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
DECISION:	Leave granted to defendant to withdraw admissions made in amended defence filed 19 July 2007.
CATCHWORDS:	PROCEDURE – ADMISSIONS – application to withdraw admissions made in amended defence – where admissions made with legal advice and in pursuit of narrowing issues in dispute – whether admissions wrongly and/or inadvertently made – where admissions made whilst defendant changing solicitors – where withholding leave to withdraw admissions would result in matter proceeding on false factual basis and preclude defendant from pleading a viable defence – balance of prejudice – whether prejudice occasioned to plaintiff irreversibly detrimental – whether withholding leave to withdraw admissions in the interests of the “just, cheap and quick” resolution of the dispute.
LEGISLATION CITED:	(NSW) Uniform Civil Procedure Rules, r 12.6
CATEGORY:	Procedural and other rulings
CASES CITED:	Drabsch v Switzerland General Insurance Co Ltd (NSWSC, 16 October 1996, unreported, BC9604909) For the Good Times Pty Ltd v Coltern Pty Ltd [2007] NSWSC 108 Jeans v Commonwealth Bank of Australia [2003] FCAFC 309, (2003) 204 ALR 327 Silver v Dome Resources NL [2005] NSWSC 265 Sirius Shipping Corp v Ship 'Sunrise' [2006] NSWSC 164 SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816
PARTIES:	Hill End Gold Limited (plaintiff/respondent) First Tiffany Resource Corporation (defendant/applicant)
FILE NUMBER(S):	SC 5655/05
COUNSEL:	Mr B J Weber SC w Mr C N Bova (plaintiff/respondent) Dr K A Stern (defendant/applicant)
SOLICITORS:	Ian Congdon (plaintiff/respondent) Watson Mangioni (defendant/applicant)