Kestell v Davey [No 3]
[2023] WASC 289
•4 AUGUST 2023
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KESTELL -v- DAVEY [No 3] [2023] WASC 289
CORAM: SMITH J
HEARD: 5-9 & 20 DECEMBER 2022
DELIVERED : 4 AUGUST 2023
FILE NO/S: CIV 1727 of 2021
BETWEEN: TIMOTHY ARTHUR KESTELL
Plaintiff
AND
GRANT LAWRENCE BURNAFORD DAVEY
First Defendant
KAYELEKERA RESOURCES PTY LTD
Second Defendant
DAVEY HOLDINGS (AUS) PTY LTD
Third Defendant
DAVEY MANAGEMENT (AUS) PTY LTD
Fourth Defendant
Catchwords:
Contract - Terms partly oral, in writing and inferred by acts, conduct and communications exchanged over time
Contract - Whether substance of matters agreed constituted an agreement to agree - Whether terms vague or uncertain or not supported by consideration
Practice and procedure - Voir dire - Whether expert handwriting evidence admissible - Relevance - Basis rule - Statement of reasoning rule - Reasoning of expert insufficiently transparent - Expert opinion inadmissible
Legislation:
Nil
Result:
Declaration made that the second defendant holds 50,954,438 shares of Lotus Resources Ltd on trust for the plaintiff or his nominee
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr G D Cobby SC & Mr A J Papamatheos |
| First Defendant | : | Mr M L Bennett & Mr N Ekanayake |
| Second Defendant | : | Mr M L Bennett & Mr N Ekanayake |
| Third Defendant | : | Mr M L Bennett & Mr N Ekanayake |
| Fourth Defendant | : | Mr M L Bennett & Mr N Ekanayake |
Solicitors:
| Plaintiff | : | Tottle Partners |
| First Defendant | : | Bennett |
| Second Defendant | : | Bennett |
| Third Defendant | : | Bennett |
| Fourth Defendant | : | Bennett |
Cases referred to in decision:
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101
Australian Broadcasting Corporation v XIVTH Commonwealth Games Ltd (1988) 18 NSWLR 540
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 86 ALJR 522
Automasters Australia Pty Ltd v Bruness Pty Ltd [2004] WASCA 229
BBH v The Queen [2012] HCA 9; (2012) 245 CLR 499
Beer v Duracraft Pty Ltd [2004] WASCA 192
Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5
Blenkinsop v Wilson [2019] WASC 77
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Brown v Gould [1972] Ch 53
Claremont 24-7 Pty Ltd v Invox Pty Ltd [No 2] [2015] WASC 220
Classic Maritime Inc v Lion Diversified Holdings Berhad [2009] EWHC 1142
Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588
Fazio v Fazio [2012] WASCA 72
Forbes Engineering (Asia) Pte Limited v Forbes (No 4) [2009] FCA 675
Girgis v Poliwka [No 6] [2019] WASC 230
Global Container Lines Ltd v State Black Sea Shipping Co [1999] 1 Lloyd's Rep 127
Goldsmith v Sandilands [2002] HCA 31; (2000) 76 ALJR 1024
Huntingdale Village Pty Ltd (Receivers And Managers Appointed) v Corrs Chambers Westgarth (a Firm) [No 3] [2016] WASC 366
Ironside v Thisainayagan [2016] WASC 174
John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
Jones v Dunkel (1959) 101 CLR 298
Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
Marsden v Barclays Bank PLC [2016] EWHC 1601
Masters v Cameron (1954) 91 CLR 353
McMurray v AIG Insurance Australia Ltd [No 5] [2021] WASC 300
Meares v Safecar Security Ltd [1983] QB 54
Nikoloff v St George Bank - A Division of Westpac Banking Corporation [2022] WASCA 17
Phillips v The Queen [2006] HCA 4; (2006) 225 CLR 303
Pollock v Wellington (1996) 15 WAR 1
Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; (2022) 406 ALR 678
Rhoden v Wingate [2002] NSWCA 165
Rhu v The State of Western Australia [No 2] [2023] WASCA 49
Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334
Toyota Motor Corp Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106
Uranium Equities Ltd v Fewster [2008] WASCA 33; (2008) 36 WAR 97
Westminster City Council v Duke of Westminster [1991] 4 All ER 136
Table of Contents
1.0 Background
1.1 The parties
1.2 The dispute about investment in the Kayelekera Uranium project
1.3 The result
2.0 The witnesses
2.1 Legal principles - lay witnesses
2.2 Relevant principles - expert opinion evidence
2.3 The voir dire - Is the expert handwriting evidence admissible?
2.3.1 The expert evidence is not collateral to the issues to be determined in the proceedings
2.3.2 Is the expert evidence admissible?
2.4 The lay witnesses
2.4.1 Ms Burgess
2.4.2 Mr Kestell
2.4.3 Mr Davey
3.0 The evidence
3.1 Events prior to September 2018
3.2 Mr Kestell contacts Mr Davey on 7 September 2018, and they agree to work together
3.3 Mr Kestell and Mr Davey work together to formulate an offer to be put to Paladin Energy
3.4 Mr Kestell and Mr Davey agree on the terms of an offer to be put to Paladin Energy to acquire the Kayelekera Project
3.5 In November and December 2018, Mr Sullivan on behalf of Paladin Energy negotiates with Mr Kestell, and Mr Kestell and Mr Davey discuss the structure of the company vehicles to be used to acquire the Kayelekera Project
3.6 The relevant circumstances leading to Matador Capital entering into an exclusivity agreement with Paladin Energy
3.7 In or about February 2019 Mr Kestell and Mr Davey agree that Mr Davey would take the lead role in coordinating the acquisition of Paladin Energy's shares in Paladin Africa, and split their share to 10% and 5% of the 20% interest in the Kayelekera Project
3.8 Mr Kestell and Mr Davey continue efforts to identify a suitable listed shell company, and Matador Capital extends the exclusivity period after paying Paladin Energy $200,000
3.9 Mr Kestell and Mr Davey agree to use Hylea Metals to acquire Paladin Energy's interest in the Kayelekera Project, and Paladin Energy agree to further extend the exclusivity period
3.10 Relevant facts going to whether Mr Kestell reached an agreement with Mr Davey, as to 3.5% interest in the Kayelekera Project, on and between 11 June and 18 June 2019
3.11 Mr Kestell's and Mr Davey's involvement in the approval of the ASX announcements regarding Hylea Metals' shareholder approval for the acquisition of the Kayelekera Project
3.12 Relevant facts surrounding the agreement on 26 June 2019 to vary Mr Kestell's interest to 4.5%, and what were the agreed terms of the variation
3.13 Statements made about Mr Kestell's interest in the Kayelekera Project provided to ASX and the market in July and August 2019
3.14 The dispute about the rights issue
3.15 Discussions about the bare trust deed in late 2019 and 2020, and proposed changes to the Board of Lotus Resources Ltd prior to 31 March 2020
3.16 Mr Davey provides the bare trust deed and a side letter to Mr Kestell on 31 March 2020, and an amended side letter on 1 April 2020
3.17 Relevant events that occur after 1 April 2020
4.0 Mr Kestell's claim that he entered into a series of informal agreements or alternatively an inferred agreement and the defendants' defence
5.0 Legal principles - Determining whether a binding informal contract has been made and if so what are the terms
5.1 Uncertainty
5.2 Consideration
5.3 Oral contracts and ascertainment of terms by conduct, silence or inference
6.0 Disposition
6.1 Did Mr Kestell and Mr Davey enter into an enforceable agreement when they first spoke about the Kayelekera Project on 8 September 2018?
6.2 Did Mr Kestell and Mr Davey enter into an enforceable agreement in late November early December 2018?
6.3 Did Mr Kestell and Mr Davey enter into an enforceable agreement in in February 2019?
6.4 Did Mr Kestell and Mr Davey enter into a new agreement on and between 11 June 2019 and 18 June 2019, which agreement was varied on 26 June 2019, and what were the terms of the agreement and were some of the terms in writing, some oral and some inferred by their conduct?
6.4.1 - The condition pleaded par 19.1 of the Defence
6.4.2 - The condition pleaded in par 19.2 of the Defence
6.4.3 - The conditions pleaded in pars 19.3 and 19.4 of the Defence
6.4.4 - The conditions pleaded in pars 19.5 and 19.6 of the Defence
6.4.5 - The condition pleaded in par 19.7 of the Defence
6.4.6 - The condition pleaded in par 19.8 of the Defence
6.4.7 - Were the terms of agreement pleaded by Mr Kestell in par 19 and pars 22 and 23 of the Statement of Claim, supported by consideration, a concluded agreement or enforceable?
6.5 Did Mr Davey breach the conditions, and repudiate the agreement?
7.0 The relief
SMITH J:
1.0 Background
1.1 The parties
The plaintiff, Mr Kestell is, and was at all material times, a director of an investment company, Neon Capital Ltd. He is in the business of identifying opportunities for investment including the acquisition of mining assets. He is a former stockbroker and is experienced in the business of initial public offering of stock, reverse takeovers and raising capital.[1]
[1] Exhibit 4.
These proceedings arise out of a dispute between Mr Kestell and the first defendant, Mr Davey, about the terms of an oral agreement to acquire an interest in a mining project in Malawi, through a beneficial interest in shares in a company, Hylea Metals Ltd (now named Lotus Resources Ltd).
From 7 September 2017 to 31 May 2020, Mr Kestell was a director of Hylea Metals Ltd.
Mr Davey is an experienced mining engineer with over 25 years in senior management and operational experience in uranium, gold, platinum and coal who is a director of several exploration and mining companies.[2] He spent his early years in his career working in a large gold and uranium mine in South Africa for the Anglo Gold group. For the past 16 years Mr Davey has been engaged in the identification of, and investment in, mining projects and assets.
[2] Exhibit 184, 10.
Mr Davey is, and has been, at all material times, the sole director of the second defendant, Kayelekera Resources Pty Ltd, the third defendant, Davey Holdings (Aus) Pty Ltd, and the fourth defendant, Davey Management (Aus) Pty Ltd. Mr Davey is and has been a director of Matador Capital Pty Ltd since 2 July 2010.
1.2 The dispute about investment in the Kayelekera Uranium project
As at 2018, an existing, but not operational, uranium mine in Malawi known as the Kayelekera Project was under care and maintenance. At that time a Western Australian company, Paladin Energy Ltd, indirectly owned 85% of the Kayelekera Project, which project included the mine and various tenements, through a company incorporated in Malawi, Paladin Africa Ltd. The remaining 15% of Paladin Africa Ltd is owned by the Government of Malawi.
In August 2018, Mr Kestell commenced discussions with representatives of Paladin Energy with respect to the possible acquisition of the interest that it held in the Kayelekera Project through Paladin Africa.
Mr Kestell's case is that, in about August 2018, he introduced the opportunity to acquire Paladin Energy's interest in the Kayelekera Project to Mr Davey, and the two men thereafter agreed to work together to promote the acquisition of that interest by an Australian publicly listed company and, if successful, to share the benefits of that venture.
It is common ground that Hylea Metals was the publicly listed company that Mr Kestell and Mr Davey agreed should be used, and was used to ultimately acquire Paladin Energy's interest in the Kayelekera Project.
On 29 August 2019, Hylea Metals changed its name to Lotus Resources Ltd. By August 2021, Lotus Resources Ltd had acquired the shares that Paladin Energy owned in Paladin Africa, through a joint venture company, Lotus Resources Pty Ltd (now known as Lily Resources Pty Ltd).
Initially, Lotus Resources Ltd, when it was named Hylea Metals, held 76.5% of the issued shares in Lotus Resources Pty Ltd (renamed Lily Resources Pty Ltd on 29 August 2019), with the remaining 23.5% being held by Chichewa Resources Pty Ltd (renamed Kayelekera Resources Pty Ltd on 30 July 2019).
In 2021, Lotus Resources Ltd issued 226,463,927 ordinary shares to Kayelekera Resources to acquire Kayelekera Resources' 23.5% of the shares in Lily Resources leaving Lotus Resources Ltd holding all of the issued shares in Lily Resources. Consequently, Lotus Resources Ltd controls 85% of the shares in Paladin Africa (being the entire interest that had been held by Paladin Energy prior to the acquisition), and thereby holds the controlling interest in the Kayelekera Project.
Mr Kestell contends that he and Mr Davey agreed that he would receive shares in Hylea Metals (now Lotus Resources Ltd) equivalent to 4.5% of the Kayelekera Project, now being 50,954,438 shares of Lotus Resources Ltd.
His case is that his entitlement to 4.5% of the shares arose pursuant to an oral agreement he and Mr Davey made in September 2018, as subsequently varied on 13 December 2018, in or about February 2019, on or about 11 June 2019, and finally varied again on 26 June 2019.
Alternatively, Mr Kestell contends that an agreement with Mr Davey on behalf of Kayelekera Resources, alternatively Davey Holdings and Davey Management, was made by about 18 June 2019, which inferred agreement was further varied by further oral agreement on 26 June 2019 being an agreement to the effect set out in [13] which agreement is to be inferred from the communications he had with Mr Davey, and their conduct.
Mr Kestell pleads that in or about April or May 2020, Mr Davey repudiated the agreement, as varied.
The defendants deny Mr Kestell is entitled to any shares of Lotus Resources Ltd (formerly Hylea Metals).
The defendants say that in or about September 2018, Mr Davey and Mr Kestell orally agreed to work together with respect to the possible acquisition and execution of the Kayelekera Project, subject to Mr Davey being satisfied with the outcome of the preliminary due diligence, and that any benefits of the acquisition and execution of the Kayelekera Project would be distributed based on the respective contributions of any parties involved, including Mr Davey and Mr Kestell, to be finalised at a later date after the Kayelekera Project was evaluated and secured, and the substance of this agreement was an agreement to agree.[3]
[3] Further Amended Defence to Further Re‑Amended Statement of Claim dated 14 November 2022 (Defence), pars 8.3 ‑ 8.5.2.
The defendants also plead that the purported agreements and variations pleaded by Mr Kestell are so vague, uncertain, and devoid of specific consideration, that it is not possible to construe them as a binding contract.[4]
[4] Defence, pars 8.5.3, 10A.2, 13.3, 19A and 23A.
In contrast, the defendants contend that, in any event, if a binding agreement was made between Mr Davey on behalf of Kayelekera Resources and Mr Kestell an agreement only came into force on or about 11 June 2019, the terms of which if capable of enforcement was orally varied with Mr Kestell on 26 June 2019.
The defendants claim the terms of this agreement were that Mr Kestell or his nominee would be entitled to a 17.5% share of the issued capital of Kayelekera Resources (which was varied on 26 June 2019 to increase Mr Kestell's interest to 22.5%), which agreement was subject to the conditions pleaded in par 19 of the Further Amended Defence to Further Re‑Amended Statement of Claim (Defence).[5] This plea can only be properly understood as a plea in the alternative, although it is not specifically pleaded as such.
[5] The pleaded conditions are set out and considered in [222] - [223] and 6.4 of these reasons; See also [436].
On the defendants' case, the agreement pleaded in par 19 of the Defence was entered into on or about 11 June 2019, was varied on 26 June 2019, and the terms of this agreement were reduced to writing on or about 31 March 2020.
The defendants plead that in the event that the court concludes that there was a binding agreement between the parties and the terms of the agreement were as identified by the defendants, the defendants contend that Mr Kestell is not entitled to relief because he repudiated this agreement, or alternatively, he has not satisfied the conditions in par 19 of the Defence.
In the alternative, the defendants plead that if it is found that the agreement in the terms pleaded by the defendants remains enforceable, it should be found that the terms of that agreement were that Mr Kestell has a beneficial interest over 22.5% of the issued capital of Kayelekera Resources, and not 50,954,438 shares in Lotus Resources Ltd (formerly Hylea Metals).
Mr Kestell denies that any agreement was reached on about 11 June 2019 in the terms pleaded by the defendants. He further denies that the agreement alleged by the defendants was varied as they allege on 26 June 2019.
It is common ground that the agreements relied upon by the parties were substantially oral. The principal issues to be determined are:
(a)whether as claimed, Mr Kestell and Mr Davey entered into either a series of binding agreements, or (in the alternative) an inferred agreement on the terms, and subject to the conditions, claimed by Mr Kestell, an agreement to agree or an agreement in the terms, and subject to the conditions, alleged by the defendants;
(b)whether the relevant agreement or agreements alleged by Mr Kestell were supported by consideration, and were the essential terms certain;
(c)what were the terms of the agreement or agreements, particularly:
(i)what was Mr Kestell to receive for his participation in the venture; and in what form or structure was that to be done; and
(ii)what, if any, conditions (other than the acquisition be completed) were agreed to be imposed upon Mr Kestell's interest; and
(d)whether Mr Kestell or Mr Davey have breached and/or repudiated any agreement reached.
1.3 The result
For the reasons that follow, I am satisfied that Mr Kestell has proved to the requisite standard that he entered into an enforceable agreement with Mr Davey that he or his nominee is entitled to a 4.5% share of the Kayelekera Project, being equivalent to 4.5% of the shares that Paladin Energy held in Paladin Africa, being 50,954,438 ordinary shares in Lotus Resources Ltd, and that Kayelekera Resources Pty Ltd holds these shares on trust for Mr Kestell or his nominee. In addition, I have found that it is an inferred condition of the agreement that Mr Kestell or his nominee is entitled to call for transfer of these shares.
2.0 The witnesses
2.1 Legal principles - lay witnesses
The most reliable indication of a person's knowledge of transactions and events is not their recollection of what was said by them and others years ago, it is what they did and how they conducted themselves at the relevant time.
Contemporaneous, or near contemporaneous, documents provide more valuable and revealing information than what may be flawed attempts at recollection of those facts by witnesses, in particular, those with an interest in the outcome of the litigation. Contemporaneous statements in the form of email communications and other records of contemporaneous communications, more generally, are likely to be a more accurate reflection of the underlying events than oral evidence at trial the later at a time when false memories can intrude.[6]
[6] See similar observations made in respect of evidence in chief given in witness statements in Girgis v Poliwka [No 6] [2019] WASC 230 [123]; citing Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 6] [2019] WASC 5 [26(f), (g)].
Consequently, in assessing evidence which relies upon the recollection of events which occurred four to five years ago, I have placed significant weight upon contemporaneous documents and upon inferences that can be properly drawn from that evidence. Where it is possible to establish objective facts from their evidence, I have assessed the written and oral testimony of each witness in light of the inherent probabilities of particular versions of events, in the context of established facts.
2.2 Relevant principles - expert opinion evidence
J D Heydon, in the 12th edition of Cross on Evidence, summarised the following conditions for the admissibility of expert opinion evidence.[7] These are, first, it must be demonstrated that there is a field of specialised knowledge. Secondly, there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert. Thirdly, it must be demonstrated that the opinion proffered is wholly or substantially based on the witness's expert knowledge. Fourthly, the expert must identify the assumptions of primary fact on which the opinion is offered (assumption identification rule). Fifthly, the opinion is not admissible unless evidence has been, or will be, admitted, whether from an expert or from some other source, which is capable of supporting findings of primary fact (basis rule). Sixthly, there must be a demonstration that the facts on which the opinion is based form a proper foundation for it. Seventhly, the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached (statement of reasoning rule).
[7] Cross on Evidence (12th Aust ed, 2020) [29045].
In Dasreef Pty Ltd v Hawchar, Heydon J outlined the function of the assumption identification rule as follows:[8]
The rule facilitates the operation of the proof of assumption rule and other rules of admissibility. It helps to distinguish between what the expert has observed and what the expert has been told; to ensure that the expert is basing the opinion only on relevant facts; to ensure that experts do not pick and choose for themselves what aspects of the primary evidence they reject, what they accept, how they interpret it and what the court should find; and to ascertain whether there is substantial correspondence between the facts assumed and the evidence admitted to establish them.
[8] Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 [65] (footnotes omitted).
The function of the proof of assumption rule was explained by Heydon J in Dasreef Pty Ltd v Hawchar as follows:[9]
The function of the proof of assumption rule is to highlight the irrelevance of expert opinion evidence resting on assumptions not backed by primary evidence. It is irrelevant because it stands in a void, unconnected with the issues thrown up by the evidence and the reasoning processes which the trier of fact may employ to resolve them. If the expert's conclusion does not have some rational relationship with the facts proved, it is irrelevant. That is because in not tending to establish the conclusion asserted, it lacks probative capacity. Opinion evidence is a bridge between data in the form of primary evidence and a conclusion which cannot be reached without the application of expertise. The bridge cannot stand if the primary evidence end of it does not exist. The expert opinion is then only a misleading jumble, uselessly cluttering up the evidentiary scene.
[9] Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 [90] (footnotes omitted).
Consequently, one of the most important rules for admissibility is that the admission of expert evidence is conditional upon proof of the assumed basal facts, that is, the factual basis of the opinion must be established by the evidence (basis rule).[10]
[10] Rhoden v Wingate [2002] NSWCA 165 [60] (Heydon JA); Automasters Australia Pty Ltd v Bruness Pty Ltd [2004] WASCA 229 [29] (Steytler J, Murray &Wheeler JJ agreeing); see also Pollock v Wellington (1996) 15 WAR 1, 3 (Anderson J); Makita (Aust) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 [85] (Heydon JA); Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 [32], [37], [66], [100].
In relation to the statement of reasoning rule McLure J in Beer v Duracraft Pty Ltd explained:[11]
An expert must either prove by admissible means the facts on which the opinion is based or explicitly state the assumptions as to fact on which the opinion is based: Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370; Pollock v Wellington (1996) 15 WAR 1; Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705.
Further, the process of inference that leads to the formation of the relevant opinion must be stated or revealed in a way that enables the conclusions to be tested and a judgment made about their reliability: Pollock v Wellington at 4 per Anderson J; Makita v Sprowles at 741 per Heydon JA.
[11] Beer v Duracraft Pty Ltd [2004] WASCA 192 [78] ‑ [79].
The point of this condition is that the expert's reasoning and process must be transparent reasoning. The point was made by Heydon J in Dasreef Pty Ltd v Hawchar as follows:[12]
At common law there is no doubt that an expert opinion is inadmissible unless the expert states in chief the reasoning by which the expert conclusion arrived at flows from the facts proved or assumed by the expert so as to reveal that the opinion is based on the expert's expertise. The court does not have to be satisfied that the reasoning is correct: 'the giving of correct expert evidence cannot be treated as a qualification necessary for giving expert evidence'. But the reasoning must be stated. The opposing party is not to be left to find out about the expert's thinking for the first time in cross-examination.
[12] Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011) 243 CLR 588 [91].
It is clear from the above that in order to assess the reliability of the expert evidence, the process of reasoning of the expert must be revealed by being articulated in evidence in chief of the expert. Thus, the facts upon which the opinion is based, the assumptions and methodology must be expressed in a manner that permits the conclusion to be scrutinised by the opposing party, and the court must be in a position to make a judgment about its reliability.
2.3 The voir dire - Is the expert handwriting evidence admissible?
Forensic document examiners, Justin Watts and John Alexander McGinn, examined and prepared reports about the results of the examination of four handwritten notes discovered by Mr Davey in an affidavit of discovery sworn by him on 24 December 2021, bearing the dates of 5 February 2019, 26 June 2019, 18 September 2019 and 21 January 2020.
It is not in dispute that each of the four handwritten notes were written on pages that had been torn from a spiral bound notebook, or that Mr Davey is the author of the handwriting.
Mr Kestell seeks that the expert evidence be admitted into evidence in the trial, in particular, the expert evidence that shows the handwritten note dated 26 June 2019 could not have been made at a meeting in his presence on that date, but instead, this note could only have been written some time after the note dated 18 September 2019.
Mr Watts and Mr McGinn gave their evidence in a voir dire, and their reports were marked for identification.
The defendants do not dispute that Mr Watts and Mr McGinn are by reason of their training, study and experience experts in forensic examination of questioned documents. The defendants do, however, submit that the evidence of Mr Watts and Mr McGinn should be excluded on grounds of inadmissibility, or given no weight.
The grounds upon which the defendants claim the evidence of Mr Watts and Mr McGinn should be excluded are as follows:
(a)the expert evidence of both Mr Watts and Mr McGinn does not go to a material fact in issue in the proceedings, and therefore the authenticity of the handwritten notes is a collateral fact. At the highest, the authenticity of the notes goes solely to credit;
(b)Mr Watts' oral evidence and the opinions he provides in his written report,[13] is inadmissible on grounds of relevance, because he could not opine on the actual order in which the notes were physically made; and
(c)Mr McGinn's evidence is inadmissible because he has not set out his reasoning in full in his written report,[14] so that the defendants who received the opinion can discern only the conclusions comprising his opinion, but not his process of reasoning.
2.3.1 The expert evidence is not collateral to the issues to be determined in the proceedings
[13] MFI 1.
[14] MFI 3.
I do not agree that expert evidence of Mr Watts and Mr McGinn only goes to the collateral matter of the credit of Mr Davey.
The collateral evidence rule provides that answers given by a witness to questions put to him or her in cross‑examination concerning collateral facts are final. Those answers cannot be contradicted or rebutted by other evidence. Collateral facts are facts that do not relate directly to the matters in dispute between the parties. In most cases a fact that affects the credibility of a witness is a collateral fact, hence an answer given by a witness to a matter that relates to credibility only is final and cannot be rebutted.[15]
[15] Rhu v The State of Western Australia [No 2] [2023] WASCA 49 [127]; applying Goldsmith v Sandilands [2002] HCA 31; (2000) 76 ALJR 1024 [3] (Gleeson CJ).
As Corboy J pointed out in Blenkinsop v Wilson:[16]
In short, a question going only to the credit of a witness is a question relating to a collateral fact. A cross examiner is bound by the witnesses' answers to such questions; the answers cannot be contradicted or rebutted by other evidence. The rationale for the rule lies in the desirability of avoiding a multiplicity of issues. The rule is intended to preserve the efficiency and effectiveness of the trial process and ensure that the finder of fact is only required to decide those facts that are in issue rather than be required to conduct a trial within the trial.
[16] Blenkinsop v Wilson [2019] WASC 77 [231].
Evidence is not admissible unless it is relevant to an issue in the case. Evidence is relevant if it could rationally effect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceedings.[17] Evidence may be relevant if it assists in the evaluation of other evidence.[18]
[17] Goldsmith v Sandilands [2002] HCA 31; (2002) 190 ALR 370 [2] (Gleeson CJ); Phillips v The Queen[2006] HCA 4; (2006) 225 CLR 303 [50].
[18] BBH v The Queen [2012] HCA 9; (2012) 245 CLR 499 [51] (French CJ).
Although whether Mr Davey's evidence about the note bearing the date 26 June 2019 should be accepted goes to his credibility, which is a collateral fact, the question whether the note in question was made at a particular meeting on a particular day is an issue in the proceedings that not only goes to this collateral fact but the contents of this handwritten note also goes to a pleaded issue, which are relevant to the assessment of the probability of the existence of the pleaded fact in issue in the proceedings.
When Mr Davey gave evidence he claimed the handwritten note dated 26 June 2019 was a note that he made whilst he was speaking to Mr Kestell when they met on that day.
What was discussed at this meeting between Mr Kestell and Mr Davey goes to what terms were agreed on 26 June 2019, which terms are pleaded as facts in issue in pars 22 and 23 of the Statement of Claim and pars 22 and 23 of the Defence.
The handwritten note dated 26 June 2019 forensically examined by Mr Watts and Mr McGinn[19] contains a note written by Mr Davey stating, 'Agreed on options to be given to employee's which would ensure no further present interest. Options to be issued as a priority by Board'. These statements are relevant to the issue pleaded by the defendants in par 19.1 (and par 23) of the Defence that it was a term of an oral agreement made between Mr Davey and Mr Kestell on or about 11 June 2019, that Mr Kestell was to facilitate the issue of Lotus Resources Ltd options to interested persons, which agreement was varied.
[19] The original of this note was tendered into evidence as Exhibit 513.
The findings of surrounding circumstances, the facts about this note and another note Mr Kestell says was made by Mr Davey at the meeting on 26 June 2019, and what was discussed and agreed on 26 June 2019, which discussions had the effect to vary the terms of an agreement made between Mr Kestell and Mr Davey on and between 11 June and 18 June 2019, are set out in [287] to [338] of these reasons.
2.3.2 Is the expert evidence admissible?
The short answer to this question is no.
Although it is clear that the expert evidence is not collateral, I am of the opinion that the evidence of Mr Watts and Mr McGinn should not be admitted.
Mr Watts' evidence should not be admitted because his opinion does not assist in the assessment of the probability of any fact in issue in the proceedings.
Mr McGinn's evidence should not be admitted because his expert report does not satisfy the basis rule and the statement of reasoning rule, which in the absence of compliance renders an expert opinion inadmissible.
Turning first to the expert opinion of Mr Watts, Mr Watts examined each of the four handwritten notes using oblique light examination by applying light from eight separate directions covering 360°, with an image captured each time. Select images were then digitally blended to provide a comprehensive oblique light image for each document.
In his written report, Mr Watts recorded that he had been asked to opine on the order which the four original notes were prepared, and in response he stated:[20]
It is not possible using the oblique light technique to determine whether handwritten entries occurred on the page before impressions, or whether impressions were already present in the paper when the hand written entries were formed.
[20] MFI 1, 9.
When cross‑examined, Mr Watts explained that the sequence of the paper as determined by the impressions is demonstrated to be that the documents were overlaid on each other because when handwriting was written on the top page, it caused impressions be formed on the pages underneath.[21] Consequently, these impressions revealed a sequence referred to in his written report as follows. The note which bears the date 18 September 2019 was overlaid over the note bearing the date 26 June 2019, which in turn was overlaid over the note bearing the date 21 January 2020, which in turn was overlaid over the note bearing the date 5 February 2019.
[21] ts 380.
Despite the fact that Mr Watts was able by his examination to reveal this sequence, he said that using the oblique light technique he could not opine on the actual order in which the notes were physically made.[22]
[22] ts 381.
In re-examination, senior counsel for the plaintiff asked Mr Watts whether there was a way of determining the sequence in which the notes were written, to which he responded that there is a technique using a device called the electrostatic detection apparatus (ESDA). When Mr Watts was asked why he did not do that test he said he did not have access to an ESDA in his private capacity.
Consequently, as the defendants point out, it is clear that Mr Watts' evidence establishes no fact that could rationally affect either directly or indirectly, the assessment of the probability of whether the note bearing the date 26 June 2019 was actually made on that date.
For these reasons, Mr Watts' evidence is irrelevant, and for this reason his evidence is also inadmissible.
In Mr McGinn's written report, he states that he had undertaken examinations of the documents by using an ESDA machine, a video spectral comparator, a stereo microscope and a digital camera. His examination revealed that all the writing on each of the four handwritten documents were completed with a ballpoint pen and in a black colour ink.
Mr McGinn, like Mr Watts, used a sidelight to examine the presence of various impressions made by writing and marks. Using the ESDA machine he performed non‑destructive testing of the documents by creating a direct hard copy of impressed writings on each note to show the relationship of those impressions to any original writing that may be present. The resultant hard copy is described by Mr McGinn as an ESDA lift. On an ESDA lift, indented impressions will appear dark in colour and the original writing will appear light or neutral in colour, and where impressions from multiple pages are present, these can overlap with each other.
As a result of his examinations, particularly the examination he conducted on the ESDA lifts of each document, Mr McGinn formed the opinion that the indented impressions showed that the sequence of pages were that the handwritten note bearing the date of 18 September 2019 was written before the note bearing the date 26 June 2019, the note bearing the date 26 June 2019 was written before the note bearing the date 21 January 2020, and the note bearing the date 21 January 2020 was written before the note bearing the date 5 February 2019.
When Mr McGinn gave evidence he made it clear that the ESDA scientific examination sequencing technique is not the most definitive determinant of dating of ink application to a document.[23] In his report, under the heading 'Recommendations and Comments', he said that further chemical analysis of the notes could be conducted, which may provide evidence as to the timeframes in which they have been created but indicated that such examination would require that the original of the documents be released for examination internationally.[24]
[23] ts 393.
[24] MFI 3, 14.
In his report, Mr McGinn stated that in conducting his analysis of the writing order, he referenced the Journal article, Impressions/Ink Intersection Sequencing - A Comprehensive Overview by authors RW Radley and BS Lindblom,[25] which he considers the details of the article to be authoritative within the document examination discipline on the basis that:[26]
i.It reflects comprehensive research by recognised and experienced practitioners
ii.It is referenced widely, including within modern textbooks
iii.The results described correspond with past testing I have undertaken in this area.
[25] MFI 3, Appendix F; Journal of American Society of Question Document Examiners Inc, Vol 14, No 2, December 2011.
[26] MFI 3, 11.
The authors, Radley and Lindblom, in their paper explore the sequencing technique between ESDA detectable impressions and ink strokes and sets out critical factors, suggested procedures, interpretation and tips on conducting the work in detail. Importantly, the authors make the following points about the sequencing technique:[27]
[27] MFI 3, Appendix F.
The Basic Premise of the Method
When liquids and chemicals come into contact with a document, existing ESDA impression lines will be permanently destroyed. The outcome is the same when an ink (a combination of chemicals) overwrites ESDA impression lines provided the ink coverage is continuous, without striations or skips at the points of intersection. This latter point is an immensely important criterion for the reliability of the technique and is discussed in more detail later in the paper.
From the above premise, the following results might be expected - although in practice this is not necessarily always the case:
•If the visible ink line was produced before the ESDA detectable impressions, then the dark ESDA impression lines may appear unbroken at the point of intersection - in other words, they run (or partially run) across the visible ink line.
•Alternatively, if the visible ink lines were written after the ESDA detectable impressions were made, then no ESDA impression will run across the intersection, or even partially across it, as the ink line will destroy the ESDA impressions. This presumes that the ink line is free of striations, skips or other voids at the points of intersection. The ESDA impression line will not be destroyed in the un-inked areas. This latter point is addressed in detail later.
The question of whether all intersection points provide an answer to the sequence of production is emphatically NO. Many factors come into play that impact on the suitability of a particular intersection to provide a result. Consequently, it is desirable to have as many intersection points for examination as possible, although in some cases only very limited intersections can give very positive evidence of sequence.
Variables that Must be Considered
It has long been known that good ESDA results depend on a variety of factors, such as:
•Pen type - fiber tip, ballpoint, gel, or marker
•Pen pressure - light to heavy, sometimes causing a significant groove in the paper surface, and sometimes not; contrast between light upstrokes and heavy downstrokes
•Paper surface - smooth, rough or fibrous
•Underlying surface - hard, soft or irregular
•Impressions made over wet ink
Radley and Lindblom go on in the article to state that experimentation and practical casework reveal that the sequence of writing/ESDA impression lines is more easily and more often conclusively identified in documents written with a non‑ballpoint pen. They then point out that the interpretation of ballpoint pen writings and ESDA impression intersections can be more problematic than those involving non‑ballpoint pen writing.
Radley and Lindblom consider at some length the complexities in analysing ESDA ballpoint pen impressions, and point out the condition of the intersection is dependent to a large degree upon the quality and clarity of the detectable ESDA impression lines and the pen pressures involved, and then go on to state:[28]
With respect to ballpoint pen lines, in practical terms a continuous impression line may not be seen at every intersection. Rather, it is more likely that only a small percentage (possibly 0% - 40%) of instances will reveal the true sequence when moderate writing pressures are involved (see Figure 5). Even if no ESDA impression lines whatsoever over ink are seen this does not necessarily indicate the ink is over the impression. This is because such a result can also be seen where there are either (l) poor quality ESDA impression lines or (2) the impressions are generally clear but, as stated previously, broken when intersecting with heavily written ink strokes.
These circumstances can potentially give rise to a misleading 'false negative', unless full appreciation of this behaviour is recognised. Given the preceding, it is essential that great caution be exercised.
[28] MFI 3, 76.
Mr McGinn followed this analysis and took into account the variables that the authors say should be followed. In his report, he referred to these variables and stated that his ability to conduct a writing order analysis is supported by regard to the following matters:[29]
i.The paper substrate is of a quality that is receptive to strong impression enhancement;
ii.The paper substrate does not display evidence of poor handling or storage, minimising interference to the enhanced results;
iii.The indented impressions have developed strongly on all the ESDA lifts;
iv.The writer employs a variable pen pressure;
v.The writing inks display some minor evidence of damage in the form of striation marks however, in all cases, there is a significant layering of continuous ink present;
vi.The writing ink has developed as a neutral image on all the ESDA lifts, having a white-coloured appearance; and
vii.On the ESDA lifts, there is distinct clarity where an intersection of an indented impression and a writing ink line occurs.
[29] MFI 3, 11.
Mr McGinn then stated in his report:[30]
[30] MFI 3, 11 - 14.
42.My analysis factors the following premise:
i.If the visible ink line was produced before the ESDA detectable impressions, then the dark ESDA impression lines may appear unbroken at the point of intersection in other words they run (or partially run) across the visible ink line.
The image here shows the effect,
with the arrows pointing to
intersections where the black
ESDA impression line continues
across the ink stroke line.
ii.If the visible ink lines were written after the ESDA detectable impressions were made, then no ESDA impression will run across the intersection, or even partially across it, as the ink line will destroy the ESDA impressions. This presumes that the ink line is free of striation, skips or other voids at the point of intersection.
The image here shows the effect,
with the arrows pointing to
intersections where the black
ESDA impression line is broken
when intersecting with the ink
stroke line.
43.On the ESDA lifts, I observe the presence of numerous intersections and overlaps between (i) the indented impressions from DAV.018.001.0002(O) [18 September 2019] and the original writing on DAV.018.001.0003(O) [26 June 2019], (ii) the indented impressions from DAV.018.001.0003(O) [26 June 2019] and the original writing on DAV.018.001.0001(O) [21 January 2020] and (iii) the indented impressions from DAV.018.001.0001(O) [21 January 2020] and the original writing on DAV.018.001.0004(O) [5 February 2019].
44.For all documents, I have examined each intersection and overlap observing that the ink stroke breaks the black ESDA impression line. I observe the break to the black ESDA impression line occurs whether the pressure of the ink stroke is
heavy or light, such as when the ink stroke tapers
as the pen lifts from the page.
From the DAV.018.001.0003(O) ESDA lift, this
image shows an example of both an overlap (the
letters 'A' and 'N') and an intersection between a
black ESDA impression line and an ink stroke
(the x[31]).
Charts demonstrating the intersections and overlaps of the ink strokes and ESDA impression lines for each of the documents are shown at pages 30 to 32 of this report.
45.I have considered the impact of a heavy writing pressure and a deep writing groove during my analysis, as this has the potential to create a false positive which contradicts the premise outlined above. I have considered:
i.The frequency of intersections and overlaps, and the consistency of the observations made;
ii.The same observation is made whether the ink stroke is heavy or light;
iii.The same observation is made when the ink stroke and ESDA impression overlap significantly (both travelling together), minimising the impact of a deep writing groove created by the original writing.
[31] The letter referred to as 'x' in the lower red circle is not in fact an 'x' but, 'm', as it is an impression of the word Employee's; ts 404 - 405.
Mr McGinn then goes on in his report to draw his conclusions based on his various examinations which conclusions include that the four handwritten documents were written when the pages were positioned as if secured by the spiral binding, and the writing order of each of the documents, which sequence is set out in [66] of these reasons.
Pages 30 to 32 of Mr McGinn's report contains magnified images of four images from part of the ESDA lifts for each of the three notes dated 26 June 2019, 21 January 2020 and 5 February 2019.[32] These images do not show all of the intersections on these three notes, and each image only shows a few words. However, Mr McGinn, does provide photo copies of each of the ESDA lifts in Appendix E. While some of the intersections on the copies of the ESDA lifts in Appendix E can be seen with the naked eye, others cannot.
[32] MFI 3, 30 - 32.
As set out in 2.2 of these reasons:
(a)the basis rule requires that the expert or from some other source must provide evidence which are capable of supporting the factual assumptions on which the opinion is based to render the opinion of value;
(b)the statement of reasoning rule requires that the reasoning of the process by which an expert came to a particular opinion (conclusion) must be transparently revealed so as to enable the opposing party to be in a position to test the veracity of the opinion by prior to testing the assumptions and opinions made in an expert report during cross-examination.
The question the court must determine in considering whether Mr McGinn has sufficiently revealed in his report his reasoning to justify his expert opinion, so as to render his expert opinion admissible. The question going to admissibility is not whether his reasoning justifies his opinion.
Mr McGinn adequately explained his process of reasoning of the effect of pen pressure in that he explained what he took into account in applying the ESDA sequencing technique. In particular, he stated that he had regard to the fact that the writer employs a variable pen pressure,[33] and that in each of the documents he observed the break to the black ESDA impression line occurs whether the pressure of the ink stroke is heavy or light.[34] Mr McGinn also explained his process of reasoning in respect of the impact of a heavy writing pressure and a deep writing groove during his analysis as this has the potential to create a false positive:
(a)by considering the frequency of intersections and overlaps;
(b)the consistency of the observations made, and
(c)the fact that the same observation is made whether the ink stroke is heavy or light, and when the ink stroke and the impression overlaps significantly.[35]
[33] [72] of these reasons.
[34] [73] subpar 44 of these reasons.
[35] [73] subpar 45 of these reasons.
However, Mr McGinn's process of reasoning and the evidence he provided to support the statement made in his report that he considered each intersection points in each of the three documents from which he took ESDA lifts is somewhat opaque in that only his conclusions are revealed in his report.
This point clearly emerged in the following exchange between counsel for the defendants and Mr McGinn in cross‑examination:[36]
[36] ts 386 - 388; see also ts 406.
BENNETT, MR: At paragraph 50, you say, Mr McGinn - sorry, my name is Bennett. I'm - - -?---Mr Bennett.
- - - dealing with this. You say, you take account you have a requirement to prepare additional demonstrative material. Now, the additional demonstrative material you there spoke of, would be material to supplement the material that you use for illustrative purposes in pages 31 and 32. Is that right?---And elsewhere, yes. Potentially elsewhere.
I'm dealing with 31 and 32?---Let me go to that.
You provide limited examples, don't you, of impression lines broken or overlapping with ink stroke. Is that right?---Correct. I provide representative samples, yes.
And those representative samples don't reflect, do they, your analysis of the documents in full?---They are a representative example of the intersections that exist as shown on the impression results elsewhere in the report.
Now, let me just understand that. In forming your opinion, you took into account matters other than that shown on pages 31 and 32?---Yes. I examined the impression results in their entirety.
And you had in mind the scholarly article written by Radley and Lindblom that you attached as appendix F?---I did.
If you just turn that up, please?---Yes.
If you turn to the second page. You see under the heading, The Basic Premise of the Method, paragraph on the second column:
The question of whether all intersection points provide an answer to the sequence of production is emphatically no.
…
That's an opinion with which you concur?---
…
Yes, I agree with that statement.
And what you need to do is consider the number of intersection points?---You need to consider each intersection point, yes.
All right. Show me in your report where you consider and disclose to me all the intersection points you had regard to?---In my report, I state that I have examined the intersections.
Yes, where do you identify those - - -?---Sorry, let me - - -
- - - intersections, sir? I've got pages of photographs. I've got samples on pages 31 and 32. Where else do you tell her Honour your process of reasoning is based on what observations? For example, take appendix E. Turn up appendix E. Do you have appendix E?---I do. Yes, appendix E.
How do we see from that the intersection points to which you had regard in forming your conclusion?---I believe they are visible to a degree in addition to my oral evidence.
So who - visible to who? To an expert?---Certainly, yes, to me examining them under a microscope, yes.
In circumstances where many if not most of the impressions on the copies of the ESDA lifts attached as Appendix E to Mr McGinn's report cannot be seen by the naked eye, and the authors Radley and Lindblom indicate a cautionary approach is to be applied to drawing conclusions from the sequencing technique, it is clear that the readers of Mr McGinn's report (including the court) are not in a position to make a proper assessment as to whether Mr McGinn's conclusions as to sequencing are valid.
In particular, it is not sufficient for an expert to simply state that all of the intersections have been examined in each of the three documents, and are visible under a microscope. In the absence of evidence that can be viewed in court about the specific number of and quality of the intersections, the court is not in the position to make an independent assessment as to whether there are any factors present which could potentially give rise to a misleading false negative, so as to decide whether Mr McGinn's process of reasoning and conclusions as to sequencing should be accepted.
In addition, and importantly in the absence of transparency in respect of this issue, the defendants have not properly been in a position to test the veracity of the conclusions reached by Mr McGinn in his written report.
2.4 The lay witnesses
Mr Kestell gave evidence and adduced evidence from one other lay witness, Amanda Burgess.
Mr Kestell called two forensic document examination experts to give evidence.
Mr Davey was the only defence witness.
The defendants claim that Mr Kestell should have called Mr Simon Andrew who was the managing director of Lotus Resources Ltd in 2019 and until May 2020, and the failure to call Mr Andrew gives rise to a Jones v Dunkel inference.[37]
[37] ts 614.
The defendants point out that Mr Andrew went to Malawi with Mr Davey and met with members of the Malawian government and authorities, and he took the lead role in the finalisation of the notices of meeting, dealt with the Australian Securities Exchange Ltd (ASX) compliance, and drove the giving of instructions to the independent expert report.
However, when regard is had the relevant factual circumstances in 3.0 and 6.0 of these reasons, it is apparent that Mr Andrew was not a party to any relevant discussion between Mr Davey and Mr Kestell or any other person, or party to any disputed document which could shed light on the essential terms of the agreement made between Mr Kestell and Mr Davey in respect of the acquisition by Mr Kestell or his nominee of a beneficial interest in shares of Lotus Resources Ltd.
For this reason, appropriate circumstances do not exist to support any inference that the failure to call Mr Andrew in respect of the matters identified in the defendants' submissions would not have assisted Mr Kestell's case.
2.4.1 Ms Burgess
Ms Burgess was the company secretary of Hylea Metals from 2 January 2019 to 20 September 2020. Her evidence was peripherally relevant to two matters. The first was that Ms Burgess prepared a number of documents containing disclosures by the directors of Hylea Metals to the ASX, including Mr Kestell when he was a director, which disclosures the defendants claim are relevant to a determination by the court as to the terms of any agreement Mr Kestell made with Mr Davey. The second also relates to the terms of matters agreed between Mr Davey and Mr Kestell. Her evidence that is relevant to this issue is that on instructions from Mr Davey, Ms Burgess sent to Mr Kestell drafts of bare trust deeds.
It is common ground that Ms Burgess gave evidence in a careful and sensible manner and the parties agree that her evidence should be accepted by the court.
2.4.2 Mr Kestell
Although Mr Kestell at times gave answers to questions in cross‑examination that were non‑responsive, it is to be noted that Mr Davey also gave many answers to questions in cross‑examination that were non‑responsive.
I found Mr Kestell to be a truthful and credible witness whose evidence in general was reliable. Of importance, when relevant contemporaneous documents are examined as set out below in these reasons, those documents substantially support the oral evidence of Mr Kestell of the matters he claims were agreed by him and Mr Davey at material times in 2018 and 2019.
2.4.3 Mr Davey
In general, I did not find Mr Davey to be a credible witness. His recollection of events appeared to be generally poor, which I found surprising given that the contemporaneous documents record that Mr Davey spent a considerable amount of time and effort (as did Mr Kestell) in carrying out all of the necessary work to acquire Paladin Energy's interest in the Kayelekera Project, which asset appears to be very valuable and potentially very profitable for all (including Mr Davey), who invested in its acquisition.
Throughout his testimony Mr Davey attempted to tailor his evidence about what he had agreed with Mr Kestell, by claiming that nothing had been agreed about what interest Mr Kestell would receive until the acquisition of the Kayelekera Project by Lotus Resources Ltd was complete, which claim was at least in part contrary to the defendants' pleaded case. Importantly, this contention is not supported by the many documents that Mr Davey approved, or had knowledge of, that were submitted to ASX by, or on behalf of, Lotus Resources Ltd (then known as Hylea Metals).
In addition, as set out below, his evidence departed from the defendants' pleaded case as to the terms and conditions of an agreement the defendants claim was made on or about 11 June 2019.[38]
[38] Defence, par 19.
3.0 The evidence
3.1 Events prior to September 2018
It is uncontroversial that sometime in 2017, Mr Kestell and Mr Davey became acquainted when Mr Kestell (in his capacity as a director of Neon Capital) attended a capital raising presentation by Boss Resources Ltd. The presentation was to promote investment in a uranium asset in South Australia, known as the Honeymoon uranium mine. Mr Davey was a large stakeholder in Boss Resources through companies that he controlled.[39]
[39] ts 479.
Boss Resources had initially acquired 80% of the Honeymoon uranium asset,[40] and another company, Wattle Mining Pty Ltd, acquired 20%. Boss Resources subsequently acquired 100% of the Honeymoon uranium asset when it subsequently acquired Wattle.[41]
[40] ts 418.
[41] ts 479.
The structure of the acquisition of the Honeymoon uranium mine by Boss Resources is important for the disposition of Mr Kestell's action in these proceedings because the structure used in the acquisition of the Honeymoon uranium asset was substantially similar to the structure utilised to acquire Paladin Energy's interest in the Kayelekera Project.
After Mr Kestell attended the meeting at which he met Mr Davey, Neon Capital subsequently invested in the capital raising conducted by Boss Resources, and became a shareholder of Boss Resources.[42]
[42] ts 207.
In 2018, Neon Capital secured an interest in two other companies that had uranium assets, one of which was Paladin Energy. As a result, Neon Capital secured an interest of 1% in Paladin Energy.[43]
[43] ts 207.
Although other directors in Neon were not interested in investing in any other uranium assets after these acquisitions, Mr Kestell wanted to pursue further investments in uranium and started looking at other investment opportunities to pursue on his own.[44]
[44] ts 208.
Later in 2018, Mr Kestell spoke to Andrew Mirco, who was at that time a business development director at Paladin Energy, about two uranium assets, one of which was in the Northern Territory and the other in Western Australia. After a preliminary assessment of these two assets, Mr Kestell formed the view that they were not suitable for investment.[45]
[45] ts 208.
After speaking to Mr Mirco again, Mr Kestell started looking at the Kayelekera Project. His research revealed that it comprised a relatively large mine in care and maintenance that had never reached commercial production. He was uncertain whether it was going to be for sale by Paladin Energy.[46] Mr Kestell decided to make enquiry of Paladin Energy as to their appetite for sale, and for this purpose he met with Mr Mirco who subsequently conveyed Mr Kestell's interest in the Kayelekera Project to the new managing director of Paladin Energy, Scott Sullivan. As a result of this enquiry, Mr Kestell met with Mr Sullivan in August 2018.[47]
[46] ts 208.
[47] ts 209.
When they met, Mr Sullivan told him that for Paladin Energy to be interested in selling the Kayelekera Project a bond of US$10 million would have to be replaced and the annual cost of approximately US$5 million for care and maintenance would need to be addressed (by payments of an appropriate sum).[48]
[48] ts 209.
Following this conversation, Mr Kestell purchased a shelf company, Globalwide Corporation Pty Ltd, and became its sole director of this company for the purpose of pursuing this potential investment. By letter dated 17 August 2018, Mr Kestell then put an expression of interest to Paladin Energy to acquire the Kayelekera Project through Globalwide:[49]
[49] Exhibit 4.
EXPRESSION OF INTEREST TO MAKE A FORMAL OFFER FOR KAYELEKERA MINE
I represent a group that is interested in purchasing the Kayelekera mine and all Malawi assets and tenements.
The group includes experienced corporate executives with significant experience at sourcing and combining assets, expertise and finance and also includes brokers, broking firms, funds management companies and technical people that all have experience in the Uranium space in some respect.
Offer:
For all the Malawi assets and tenure we would be prepared to offer the following:
1.$10,000,000USD to replace the current bonds
2.$15,000,000USD on re commencement of commercial production
3.Subject to 30 days Due Diligence
Our view is that these assets would need significant capital and a uranium price (spot) that is 3 times the current price to re start, in our view this would be at least 4 years away and at the current care and maintenance costs this would be saving Paladin at least $20,000,000USD.
If agreed to we would form a SPV immediately and have our lawyers start drafting a formal agreement.
On or about 28 August 2018, Mr Kestell executed a confidentiality deed on behalf of Globalwide, whereby Paladin Energy agreed to provide information for the express purpose to assist Globalwide to consider and evaluate, conduct due diligence, discuss and negotiate the potential acquisition of the Kayelekera uranium mine.[50]
[50] Exhibit 6, cl 1.1, definition Express Purpose, 4.
On 31 August 2018, Mr Kestell received virtual data information via a Dropbox link.[51] Mr Kestell went through the information and formed the opinion that nothing he saw in the information would 'kill the deal that he had put forward'. However, given his expertise was limited to commercial matters, he formed the opinion that he needed an assessment by someone who had the necessary technical experience in uranium to carry out the due diligence, and also find a shell company to use as a vehicle to acquire the Kayelekera Project.[52]
[51] Exhibit 8.
[52] ts 211.
Mr Kestell prepared a list of due diligence questions about the Kayelekera Project and sent them to Mr Mirco on 5 September 2018.[53]
3.2 Mr Kestell contacts Mr Davey on 7 September 2018, and they agree to work together
[53] Exhibit 10.
Mr Kestell approached Mr Davey about conducting the due diligence and acquiring the Kayelekera Project, and for this purpose, on 7 September 2018, he spoke to Mr Davey on the telephone for about half an hour.[54]
[54] ts 211, 251 and 470.
During this conversation, Mr Kestell told Mr Davey that he had submitted an expression of interest to Paladin Energy, had entered into the confidentiality agreement, and had been given access to a virtual data room (via Dropbox).[55] Mr Kestell gave evidence that he gave Mr Davey a brief of the asset, including a history of what he knew about the Kayelekera Project, that $US200 million had been spent on developing the Kayelekera Project at a time when the price of uranium was higher, but after Fukushima in 2011 or 2013, the price of uranium fell dramatically prior to the mill reaching commercial production.[56]
[55] ts 211.
[56] ts 212.
Mr Kestell also testified that he told Mr Davey that:
(a)he needed due diligence done on the asset, and that if the first pass on the due diligence was 'all good' a site visit would be required, so there would be two parts to the due diligence; and
(b)he needed a 'shell' (a company to acquire the asset).[57]
[57] ts 212.
Mr Kestell's evidence about what Mr Davey said in response about conducting due diligence and obtaining a 'shell' (to use as the means for the acquisition), is set out in the following exchange with senior counsel in his examination in chief:[58]
And what was said about the due diligence?---Mr Davey said that - and talked about Matador Capital, and history that he had, and the history that his people at Matador had. I think it was Keith Bowers, or Bowes. Neil Inwood talked about their experience at Boss and said that his team could certainly do the due diligence, and if it got to that point, a site visit.
And what was said about the shell?---He said he had access to shells with cash, which I was surprised at. I wasn't really going to Grant for that side of it. I put a number of feelers out elsewhere for shells. So it was good to hear that he had the ability to do the due diligence and had access to shells with cash.
What if anything was said about the data room?---I said - I just said that we had access to a data room, and that - yes, that was it.
And what was your response if any to what you were told about the shell?---I said to Mr Davey if he had the ability to deliver a shell and could do the due diligence, it would be great to work together and we could split the rewards, going forward, and Mr Davey was pretty happy with that and said something along the lines of, 'That would be fine with me'.
[58] ts 213 (my emphasis); it is to be noted that Mr Kestell's evidence about this conversation was not challenged in cross‑examination.
Mr Kestell's evidence about this part of the conversation was not challenged in cross‑examination. He was only asked if he spoke to Mr Davey on 7 September 2018, whether he gave Mr Davey a summary of the Kayelekera Project, and whether he understood Mr Davey to be interested in the Kayelekera Project. It was not put to Mr Kestell that there was no agreement to split the rewards. Importantly, the allegation in par 8.5.1 of the Defence, that Mr Kestell and Mr Davey agreed during this conversation to split the rewards based on the contributions of any parties involved in the acquisition and execution of the Kayelekera Project, including Mr Kestell and Mr Davey, to be determined at a later date, was not put to Mr Kestell.
It is not in dispute that during this conversation Mr Kestell spoke to Mr Davey about conducting due diligence on the information provided by Paladin Energy.
When asked in examination in chief what was the extent of the discussion he had had with Mr Kestell, Mr Davey said that Mr Kestell asked him whether he wanted to get involved and help out with the due diligence, and he said to Mr Kestell, 'let me have a look at it first before we go to that stage'.[59] I do not accept this evidence.
[59] ts 419.
It is Mr Davey's evidence that Mr Kestell telephoned him and asked him what he knew about the Kayelekera Project in Malawi, and he told Mr Kestell that he did not know much.
Mr Davey denied that Mr Kestell told him about the history of the Kayelekera Project.[60] I do not accept Mr Davey's evidence about this because Mr Kestell had been through the information provided by Paladin Energy in the data Dropbox prior to calling Mr Davey, and given the purpose of the call was for Mr Kestell to engender the interest of Mr Davey to assist in the pursuit of the acquisition of this asset, it is improbable that Mr Kestell would not have told Mr Davey what he had learnt about the history of the Kayelekera Project when reviewing the data provided by Paladin Energy.
[60] ts 471.
Mr Davey did, however, agree that Mr Kestell asked him whether he would be interested in having a look at the project with him, to which he said 'yes'. He said when giving evidence that he told Mr Kestell he would have to do his own due diligence first and understand what the investment opportunity was because he had heard that there had been a landslide that seriously affected the plant at Kayelekera Project, and there were tailings dam problems with the mine.[61]
[61] ts 419.
When cross‑examined, Mr Davey said that the conversation was more about what deal could Mr Kestell get with Paladin Energy, and if he got a deal, he was prepared to do the due diligence, and before that time he could do some ground due diligence.[62] Mr Davey's recollection of other aspects of what was discussed in this initial telephone conversation on 7 September 2018 was vague. He could not recall whether Mr Kestell told him he had submitted an expression of interest to Paladin Energy,[63] or that whether he discussed with Mr Kestell that he had a team of people who worked for his company, Matador Capital Pty Ltd, who are very experienced in uranium.[64] However, he then said he was sure that he would have told Mr Kestell about the team and their expertise. Initially he said he could not recall whether Mr Kestell told him he needed access to a 'shell' but then said he thought he did mention to Mr Kestell during the conversation that he had access to a couple of 'shells' that might be fit for purpose (of acquiring the Kayelekera Project).[65]
[62] ts 473.
[63] ts 471.
[64] ts 471 - 472.
[65] ts 471.
When cross‑examined, Mr Davey was very vague about what was said in the conversation about 'working together' or 'splitting the rewards' of acquiring the Kayelekera Project. His evidence on this point in cross‑examination is set out in the following exchange with senior counsel:[66]
COBBY, MR: Sorry - yes, Mr Kestell said to you, Mr Davey, that if you had the ability to deliver a shell, you could do the due diligence, it would be great to work together?---I did not see it that way, no. I can't recall those words. It was more about the fact that my team - and he knew my team had uranium experience, and he wanted to - he wanted to see whether there was a way forward.
And he said to you that the two of you could split the rewards if you worked together, didn't he?---I'm not too sure. You know, those - those have come up, those - those wording has come up, and I can't remember whether it was in SMSs or emails, but that could have meant a lot of things.
And you said to him that would be fine with you, something to that effect?---Very possibly, yes.
[66] ts 473 - 474.
It is clear from the conduct of Mr Davey that followed the telephone conversation on 7 September 2018, Mr Davey agreed to work together with Mr Kestell in respect to the possible acquisition of Paladin Energy's interest in the Kayelekera Project, and, subject to the review of the due diligence information and a satisfactory arrangement being reached with Paladin Energy to purchase the Kayelekera Project, Mr Davey would undertake a site visit and locate a suitable shell to be used to acquire the project. It also clear that, on 7 September 2018, Mr Davey and Mr Kestell agreed to split the rewards if the acquisition of the Kayelekera Project was successful.
On 20 September 2020, Mr Kestell provided Mr Davey with access to the electronic data room (the Dropbox link).[67] It is not in dispute that over the next several months Mr Davey and Mr Kestell worked together to prepare an offer to be put to Paladin Energy to acquire the Kayelekera Project.[68] Nor was it disputed by Mr Davey that during this time his team reviewed the due diligence material obtained from Paladin Energy.[69]
3.3 Mr Kestell and Mr Davey work together to formulate an offer to be put to Paladin Energy
[67] ts 213 and Exhibit 13.
[68] ts 251 and 474.
[69] ts 474 - 475.
Mr Davey admitted that shortly after he received the due diligence material (on 20 September 2018) his team started accessing the information, including Keith Bowes and either Neil Inwood or Alf Gillman.[70]
[70] ts 474 - 475.
The contemporaneous documentary evidence that follows after Mr Kestell and Mr Davey spoke on 7 September 2018, including text messages between Mr Kestell and Mr Davey, revealed that up until early February 2019, Mr Kestell took the lead role in discussions with Paladin Energy as to terms of a deal to acquire the Kayelekera Project. The contemporaneous documentary evidence in text messages also reveals that during this time Mr Davey was actively pursuing a suitable shell company to use for the purposes of acquiring the asset, and Mr Davey's team were reviewing the due diligence Dropbox information.
The following text messages between 20 September 2018 and 1 October 2018 evidence that Mr Kestell and Mr Davey together formulated the terms and the structure of a beneficial deal that would be acceptable to Paladin Energy (and to a shell company), and the steps that Mr Davey took to identify a suitable shell:[71]
(a)on 20 September 2018, Mr Kestell sent Mr Davey a message in which he said that he had had another meeting with the chief executive officer of Paladin Energy yesterday and asked Mr Davey to call him about Kayelekera;[72]
(b)early in the morning on 1 October 2018, Mr Kestell sent Mr Davey a message asking whether Mr Davey had any further thoughts on Kayelekera;
(c)Mr Davey responded later that morning by asking, 'What is the deal with Kayelekera?' (When asked in cross‑examination what he meant by this question, Mr Davey said that he did not understand the deal, he did not want to go ahead and spend a lot of money doing due diligence and take his team's focus off other work if there was not a deal (with Paladin Africa) that was suitable).[73] Mr Kestell responded to this question that afternoon by stating in a message, '$0 upfront with Bond repaid down track and assume all costs. I haven't put it to them yet as need to work out shell etc'. Mr Davey sent a message in response in which he asked, 'What is the bond again?' Mr Kestell responded, '$10m USD';
(d)Mr Davey replied the same day in a message that proposed: 'US2 million upfront, US$3 million after 2 years and $5 million back ended', to which Mr Kestell replied, 'Would potentially work, would need $10‑15m for first few years, it's a tricky one due to holding costs which I agree can come down significantly but will still need $2m USD per year'. US$2 million for each year was needed for care and maintenance of the mine.[74] When Mr Davey gave evidence he explained that the $10‑$15 million was the amount of capital that they would need to raise to keep the company working for two years;[75]
(e)Later on the same day Mr Davey replied by a message in which he indicated that he had identified three companies may be suitable shells. In this message he said: 'Yep I get that. Have a look at EQX [Equatorial Resources Ltd] or ODY [Odyssey Gold Ltd].[76] How quickly can Paladin move?' 'I am in advanced discussions with U1 [Uranium One] but not sure that will go quickly'.[77] (These companies were shell companies that Ian Middlemas, a person known to Mr Davey, had access to); and
(f)Mr Kestell indicated in his reply message on the same day that he was in Hong Kong and would call Mr Davey on Thursday, to which Mr Davey responded by sending a message in which he stated that he was away in Bali from Wednesday until Monday but he would be available for a chat, to which, Mr Kestell replied by a thumbs up emoji, and a further text message stating that he did not think PDN (Paladin Energy) had 'hundreds knocking on [the] door'.[78]
[71] Exhibit 476, 1 - 2.
[72] Exhibit 476, 1.
[73] ts 421.
[74] ts 253.
[75] ts 421.
[76] ts 422.
[77] ts 423.
[78] Exhibit 476, 1.
In October 2018, Mr Kestell and Mr Davey continued to discuss the structure of a proposal to put to Paladin Energy. This continuing discussion is reflected in the following text messages:[79]
(a)on 15 October 2018, Mr Kestell informed Mr Davey by message that he had ascertained that the Bond of $US10 million was 'cash backed' (sic) in a Netherlands bank; and
(b)in a message on 16 October 2018, Mr Davey put to Mr Kestell a slightly different proposal to acquire the Kayelekera Project which was to pay Paladin Energy $2 million upfront, $3 million after two years and $5 million after four years. In a responsive message, Mr Kestell questioned whether a shell 'would be happy to see $3 million go out the door straight away', and said he would call Mr Davey later that morning to discuss. Mr Kestell sent a further message that day which he said to Mr Davey that he would, 'put it to Paladin and revert with feedback'.
3.4 Mr Kestell and Mr Davey agree on the terms of an offer to be put to Paladin Energy to acquire the Kayelekera Project
[79] Exhibit 476, 2.
On 26 October 2018, Mr Kestell and Mr Davey met at the Cottesloe Tennis Club to discuss the terms of the proposal to be put to Paladin Energy that they had been in the process of formulating. They both wanted to put a proposal that would be palatable to a shell and acceptable to Paladin Energy,[80] and it was at that meeting that they agreed the terms that Mr Kestell would put forward to Paladin Energy.[81]
[80] ts 252 and 431.
[81] ts 476.
On the same day, after he had met with Mr Davey, Mr Kestell sent an email to Mr Sullivan and Mr Micro at Paladin Energy, in which he said he had just had a meeting with the 'others' and they would have a proposal to put to Paladin Energy by the next day.[82]
[82] Exhibit 478.
On 27 October 2018, Mr Kestell sent an email to Mr Sullivan and Mr Micro (with a copy to Mr Davey) attaching an offer for the acquisition of the Kayelekera Project. The terms of the offer were as agreed by Mr Davey and Mr Kestell on 26 October 2018 at the Cottesloe Tennis Club and were as follows:[83]
[83] Exhibit 18.
OFFER FOR KAYELEKERA MINE
Further to our previous expression of interest to purchase the Kayelekera mine and all Malawi assets (including Companies holding tax losses) and tenements and after conducting DD we are prepared to make the following offer.
Offer:
For all the Malawi assets and tenure we would be prepared to offer the following:
1.$10,000,000USD to replace the current bonds ($2m upfront on formal signing, $3m after 2yrs from date of sign in g and the final $5m 4yrs from signing)
2.3% NSR capped at $10,000,000USD
3.Subject to a final site visit to be conducted within 2 weeks (we suggest a HOA be entered into prior site visit).
If agreed to by Paladin we would then show ability to complete financially via a ASX listed shell company.
When Mr Davey gave evidence he claimed that at that time of the Tennis Club meeting he was trying to work out how to 'structure this that a junior mining company or shell could benefit from this',[84] yet he and Mr Kestell were already discussing structuring the transaction to purchase the Kayelekera Project through a shell company. Consistent with what they had agreed at that time, the proposal Mr Kestell put to Paladin Energy on 27 October 2018 at the final line referred to 'we would show ability to complete financially via a ASX listed shell company'.
3.5 In November and December 2018, Mr Sullivan on behalf of Paladin Energy negotiates with Mr Kestell, and Mr Kestell and Mr Davey discuss the structure of the company vehicles to be used to acquire the Kayelekera Project
[84] ts 431.
It appears that the Board of Paladin Energy met to discuss the offer on 8 November 2018.[85]
[85] Exhibit 476, 3.
On the same day, Mr Sullivan sent an email to Mr Kestell requesting a meeting on the following Monday or Tuesday.[86] On the same day, Mr Kestell responded and suggested they meet the following Monday.[87] Mr Kestell sent a text message to Mr Davey advising him of the meeting, to which Mr Davey responded by a message in which he asked whether Mr Kestell would like him to attend, to which Mr Kestell said in a reply text message 'that would be good'.[88]
[86] Exhibit 20.
[87] Exhibit 20.
[88] Exhibit 476, 3.
On 12 November 2018, Mr Kestell and Mr Davey met with Mr Sullivan at the Bark Café in Subiaco, and they discussed terms of the offer and what Paladin Energy were seeking.
Immediately after the meeting, Mr Davey walked out of the café with Mr Kestell. It is Mr Kestell's evidence that:
(a)he asked Mr Davey if he had progress with obtaining any shell companies with cash;
(b)Mr Davey said in response he would speak to Mr Middlemas; and
(c)he said then they spoke of the structure of the acquisition that Mr Davey put forward which was the 'Boss style of structure', whereby the vendors hold 20% outside 'at the project level'.
When Mr Kestell gave evidence, he said he was familiar with the 'Boss style' of transaction because Neon was an investor in Boss Resources and it was a good deal for the 'vendors'.[89]
[89] ts 216; The term 'vendors' was used by the parties in the context of those who put the deal together to acquire an asset.
The Boss Resources' structure was set out in a draft unexecuted bare trust deed provided to Mr Kestell by Mr Davey on 18 June 2019, which bare trust deed had been used for the Boss Resources' vendors to acquire 20% of a uranium project owned by Uranium One Australia Pty Ltd, through a holding company, Boss Energy Pty Ltd.[90] The structure used in the Boss Resources' deed reflected in the draft bare trust deed provided to Mr Kestell that the ownership, control and management of Boss Energy was structured through a shareholders agreement with Boss Resources, Wattle Mining Pty Ltd, and the third defendant in these proceedings Davey Holdings (in the capacity of trustee to hold shares in Boss Resources as bare trustee for each beneficiary), whereby Boss Resources held 80% of the issued shares in Boss Energy and Wattle Mining held 20% of the issue shares in Boss Energy.[91]
[90] Exhibit 115.
[91] Exhibit 115.
Defendants' submissions on the Determination limits for Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b)
[489] The defendants rely on BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 5] [2023] WASC 116 [79] ‑ [80] (Archer J).
The defendants contend that in the event that the court is of the view that special costs should be ordered, then not all of the items for which an uplift is sought should be allowed. The defendants' submissions in response to the plaintiff's claim to uplift the Determination scales for Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b) are summarised as follows.
In relation to Item 1(a) of the 2020 Determination (Writ), the defendants say that the basis for the plaintiff's claim under this item was that the task of preparing the writs was required to be completed in a short period of time. They argue that timing alone is relied upon by the plaintiff for the assertion that the scale amount is insufficient and that no justification is provided that the scale amount is insufficient because of an element of unusual difficulty, complexity or importance.
In relation to Item 1(c) of the 2020 Determination (Statement of Claim), the defendants argue that the drafting of the statement of claim filed on 19 August 2021 was a complete overhaul of the claim indorsed on the writ, and that the amendments on 14 October 2022 were excessive and merely an issue of case management for the plaintiff. Accordingly, the defendants should not be required to pay above the scale for the plaintiff to correct his own oversights or omissions in his pleaded case. Furthermore, the plaintiff has not sufficiently established that the amount of work required for the statement of claim is because of the unusual difficulty, complexity or importance of this matter.
In relation to Item 7(b) of the 2020 Determination (Giving Discovery), the defendants dispute the plaintiff's claim that the 'discovery of documents potentially bearing upon ascertainment of whether each contract was entered into and its terms' was a substantial task. The 420 documents discovered by the plaintiff is described in the defendants' submissions as being 'hardly a significant volume'. According to the defendants, the plaintiff has not established the required connection between the work undertaken by the plaintiff (and therefore the costs incurred) in giving discovery, because of the unusual difficulty, complexity or importance of the matter.
In relation to Item 19 of the 2020 Determination and Item 19 of the 2022 Determination (preparation of case), the defendants repeat their argument above that the volume of documentary evidence does not justify an uplift in the scale for preparation of the plaintiff's case. According to the defendants, the plaintiff again fails to point to any connection between the time spent on these items and any matters of unusual difficulty, complexity or importance.
In relation to Item 22(a) of the 2022 Determination (fee on brief for counsel), the defendants claim that if a greater amount of work was done by counsel and senior counsel that would ordinarily be the case, where effectively counsel has undertaken solicitor's work, this should not entitle the plaintiff to an uplift on counsel's fee on brief and the full amount (or even an uplift) of other items under the scale.[490]
[490] The defendant relies on the affidavit of Audrey Pieterse sworn 24 August 2023 at par 11 that states: 'a greater proportion of the work [was] being done by counsel and senior counsel than would ordinarily be the case'.
The defendants argue that where an uplift is sought for both the preparation of the case (Item 19) and for counsel's fee on brief (Item 22(a)) on the basis that counsel undertook solicitors' work, as was the case for the plaintiff in this matter, it would appear that the plaintiff is seeking to claim additional costs by the use of counsel that they would not otherwise be able to claim if the work was undertaken by a senior practitioner. For these reasons, the defendants contend that the plaintiff has not sufficiently justified lifting of the scale for Item 22(a).
In relation to Item 22(b) of the 2022 Determination (fee on brief for senior counsel and first day of trial), the defendants repeat their submissions in respect of Item 22(a). Furthermore, the defendants say that whilst a party is entitled to brief senior counsel at an early stage, the fact that senior counsel for the plaintiff performed the work of a senior practitioner (at a higher rate than the senior practitioner's scale rate) throughout the proceeding, without more, does not justify a lifting of the scale limits.
Disposition
Pursuant to order 8 of the orders made on 4 August 2023, and having considered the written submissions filed on behalf of the plaintiff and defendants, for the reasons that follow, I am of the opinion that:
(a)special costs orders should be made removing the Determination limits for Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b);
(b)a special cost order should not be made to lift the rate for senior counsel above the Determination limits;
(c)the defendants should pay the costs of the plaintiff as provided for in (a) above; and
(d)the defendants should pay the plaintiff's costs of the application for special costs orders.
Principles that apply when considering making special costs orders
The consideration of special costs orders requires a two‑stage process which a court must be satisfied of before issuing such an order.
Relevantly, Vandongen J, in Bolt v Bolt,[491] applying the reasons of the Court of Appeal in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2],[492] summarised the two‑stage process and principles to be applied when considering whether to make a special cost order pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA):[493]
[491] Bolt v Bolt [2023] WASC 162 (S).
[492] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S).
[493] Bolt v Bolt [2023] WASC 162 (S) [10] ‑ [13].
Where a special costs order is sought, the court is required to consider two questions, namely:
(a)Are the maximum amounts allowable under the relevant items in the applicable costs determination inadequate in the sense that there is a fairly arguable case that, on taxation, costs may properly be allowed in an amount greater than the maximum amounts?
(b)Does the inadequacy of the costs allowable under the costs determination arise because of the unusual difficulty, complexity, or importance of the matter?
If the answer to both of those questions is 'yes', then the court may do all or any of the things referred to in s 141(3)(a) - (d) of the Uniform Act [Legal Profession Uniform Law Application Act 2022 (WA)]. In this case the plaintiff submits that the court should exercise the power provided for in s 141(3)(c) by removing the limits that are fixed under item 10(a) of the Costs Determination, namely, costs relating to proceedings in chambers.
The issues that arise when a court is required to consider whether it has formed the opinion that is referred to in s 141(3) of the Uniform Act should be dealt with based on impression, rather than by conducting a detailed and precise evaluation. This means that it will not ordinarily be necessary for the court to determine what amount should be allowed on taxation, but only whether there is a fairly arguable case that a greater amount should be allowed than is otherwise allowable under the relevant costs determination. The mere fact that a party incurred greater costs than those that are allowable will not, of itself, suffice.
It does not necessarily follow that a party who is a beneficiary of an order made under s 141(3) of the Uniform Act will recover costs in an amount that exceeds the amount allowable under the relevant determination. This is because if a special costs order is made it will then be up to the taxing officer to 'consider the reasonableness of and necessity for the work undertaken, and to make a judgment about the remuneration reasonably required'.
Are the Determination limits for Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b) inadequate?
First I am required to reach a view about whether the amounts allowable under the Determination items are inadequate in the sense that there is a fairly arguable case that, on taxation, costs may properly be allowed in an amount greater than the maximum amounts?
The proper approach, on taxation, to the determination of allowances for items set out in a costs determination were stated by Asprey J in W & A Gilbey Ltd v Continental Liqueurs Pty Ltd:[494]
… a taxing officer in a party and party taxation should allow a successful litigant, in whose favour an order for costs has been made, a just and reasonable amount in respect of each item claimed in such litigant's bill of costs where such item was, in fact, incurred on behalf of the litigant by his solicitor in respect of some step or matter in the litigation which either (1) was necessarily taken or performed for the attainment of justice or the maintaining or defending of the litigant's rights in the circumstances of the particular case, or, (2) although not necessarily taken or performed for such purposes, would reasonably have been taken or performed for any of those purposes by a solicitor acting at the time when it was taken or performed without extravagance in conformity with the then situation of the case and not in conflict with the statutes and rules, the practice of the court, and the usages of the legal profession appertaining to such a case.
[494] W & A Gilbey Ltd v Continental Liqueurs Pty Ltd [1964] NSWR 527, 534. This passage was subsequently referred to by Vandongen J in Bolt v Bolt [2023] WASC 162 (S) [31] and is reproduced in Gething M et al: Civil Procedure: Western Australia [66.11.2].
An application for a special costs order is usually required to be accompanied by an affidavit annexing a bill of costs. In Atwell v Roberts,[495] the Court of Appeal said that where a party makes an application for a special costs order the affidavit filed in support of the application 'should annex a draft bill of costs that specifies the amounts proposed to be claimed under each discrete sub-item and the total amount proposed to be claimed'.[496]
[495] Atwell v Roberts [2013] WASCA 37 (S).
[496] Atwell v Roberts [2013] WASCA 37 (S) [23]; Bolt v Bolt [2023] WASC 162 (S) [18] (Vandongen J).
A draft bill of costs 'AP30' was annexed to Ms Pieterse's affidavit that sets out the amounts proposed to be claimed (by date) under each sub‑item of the Determination accompanied by a brief description of the work completed. The affidavit is summarised above at [7] ‑ [12] which shows that the time spent on work under Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b) of the Determination exceeds the prescribed maximums for each of those items.
Given that the actual costs incurred by the plaintiff submitted to the court in the draft bill of costs substantially exceeds the amounts permitted under the items of the Determination, and based on my own knowledge of the case and its circumstances, I am of the opinion that the plaintiff has made out that there is a fairly arguable case that the amounts allowable under the items in the Determination are inadequate.
Does the inadequacy of the costs allowable for Items 1(a), 1(c), 7(b), 19, 22(a) and 22(b) of the Determination arise because of the unusual difficulty, complexity or importance of the matter?
The next question which I must address for the plaintiff is whether the inadequacy of the costs which might be allowed under the specified item in the Determinations arises because of the unusual difficulty, complexity or importance of the matter.
The defendants' submissions deny that any of the features of the proceedings claimed by the plaintiff as set out in [14] ‑ [22] of these reasons, give rise to a justification for special costs orders. Furthermore, the defendants claim that the plaintiff has failed to demonstrate a sufficient connection between any circumstances of unusual difficulty, complexity or importance and each individual item claimed by the plaintiff.
The question of unusual difficulty, complexity or importance arises in respect of the proceedings as a whole and not in respect of each individual item in a costs determination. In Blatchford v Laine,[497] Vaughan J stated that the 'adjectival characteristics of unusual difficulty, complexity or importance qualify the issue, dispute or controversy before the court rather than the work done or services provided in respect of each applicable item'.[498]
[497] Blatchford v Laine [2018] WASC 207 (S).
[498] Blatchford v Laine [2018] WASC 207 (S) [51].
Deciding whether there is 'unusual difficulty' involves an evaluative judgment by which the court compares its experience of the particular case and the usual run of civil cases determined in the court.[499] This is also the approach to the other two descriptors. In O'Rourke v P & B Corporation Pty Ltd,[500] Martin CJ stated:[501]
… the word 'unusual' means unusual having regard to what one might describe as the usual run of civil cases. The question is not, for example, in this case, whether this was an unusually difficult, complex or important case for specific performance of a contract for the sale of land which at the time the contract was entered into was not subdivided. Rather, the question is whether this was an unusually difficult, complex or important case, having regard to the usual run of civil cases determined in the Supreme Court and generally in the District Court, because, of course, the Scale is generally applicable to proceedings in both courts.
It also seems to me that the assessment of the question of whether or not there is 'unusual difficulty, complexity or importance' is essentially a value judgment to be made by the court, and which the court is particularly well qualified to make, having regard to the fact that the court has heard and determined the trial and can take into account the court's experience of the usual run of civil cases in the superior courts of the State.
[499] Blatchford v Laine [2018] WASC 207 (S) [49] (Vaughan J); Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [15].
[500] O'Rourke v P & B Corporation Pty Ltd [2008] WASC 36 (S).
[501] O'Rourke v P & B Corporation Pty Ltd [2008] WASC 36 (S) [23] ‑ [24].
Having heard and determined the trial and taking account of the court's experience of the usual run of civil cases, I accept the plaintiff's submissions that the Determination limits for Items 1(a), 1(c), 7(b), 19, 22(a), and 22(b) are inadequate due to the unusual difficulty, complexity and importance of the proceedings as a whole.
The plaintiff has adequately justified the contention of the unusual difficulty and complexity of the matter by pointing to the nature of the proceedings that required the court to construe a series of informal (oral and inferred) agreements from a large volume of documentary evidence and lengthy witness cross-examination. In my opinion, the defendants claim that these are features which the court grapples with on a daily basis and therefore should not give rise to a special costs order, understate the unusual difficulty and complexity of the factual findings that were required to be considered through numerous oral and written communications, which communications were largely informal over a lengthy period of time in determining whether the parties had entered into a concluded contract.
Although the trial of the action was completed in six days, the issues raised by the parties were complex and resulted in lengthy 196 page reasons for decision. Consequently, it is not surprising that the plaintiff's legal representatives spent more time than is allowable on work relating to the Items claimed by the plaintiff.
The complexity of the matter arose largely because of the length and informality of the contract negotiations. This complexity required sifting through and considering the consequences of decisions made, and agreements reached, in informal communications between the parties throughout an evolving process of acquiring a very valuable mining asset through a listed company and the second defendant.
In determining 'importance', a matter will not necessarily meet this criterion merely because the amount of money involved is large, it would depend on the circumstances.[502] Accordingly, as the defendants point out, the value of the shares alone that were ultimately awarded as transferable to the plaintiff, should not be considered as determinative.[503] However, I accept that in this matter the requirement to determine the nature of the interest in the Kayelekera Project between the plaintiff and first defendant who were both in the business of identifying and promoting investments in mining acquisitions, combined with the significant value of the shares, provides sufficient justification to categorise the proceedings as important.
[502] BCBC Singapore Pte Ltd v PT Bayan Resources TBK [No 5] [2023] WASC 116 [80] (Archer J).
[503] Defendants' Submissions in Opposition to the Plaintiff's Application for Special Costs Orders dated 24 August 2023 filed 11 September 2023 par 18.
Accordingly, I am of the view that it is fairly arguable that the bill the plaintiff will present to a taxing officer in relation to orders for special costs may properly be taxed at amounts greater than the maximums allowable under Items 1(a), 1(c), 7(b), 19, 22(a), and 22(b) of the Determinations, and that this is because of the unusual difficulty, complexity and importance of the proceedings. This does not mean that the taxing officer must allow a greater amount than the limits in the Determinations. It remains for the taxing officer to 'consider the reasonableness of and necessity for the work undertaken, and to make a judgment about the remuneration reasonably required'.[504]
Should the maximum hourly rate in the Determination be lifted for senior counsel?
[504] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 (S) [11]; cited in Bolt v Bolt [2023] WASC 162 (S) [13] (Vandongen J).
In relation to lifting the hourly rate for senior counsel in the Determination, it has been previously noted by Edelman J in Crawley Investments Pty Ltd v Elman,[505] that this court does not lift the limit on hourly rates merely because a party's counsel has charged at a rate higher than the scale.[506] Pullin J in Flotilla Nominees Pty Ltd v Western Australian Land Authority,[507] also stated in relation to cost agreements that charged rates above scale:[508]
… there should be no expectation that, as a matter of course, rates in the costs agreement which are above scale will be ordered to be the rates to apply in taxation as between party and party. There would have to be evidence justifying the higher rate. The whole point of the existing scale is that the rates are struck by reference to what is being charged within the profession. It is true that the hourly rates can only be an average or mean of the upper rates determined in the survey, and there will be some cases where the unusual complexity or importance of the case warrants the special expertise of the practitioner involved and warrants an increase in the hourly rate. In some cases not involving unusual complexity or importance, the higher rates paid will not be recoverable. A party is always entitled to the luxury of retaining the highest paid practitioners in the conduct of their case, but they cannot always expect to recover these costs from the other party. If the hourly rates in the scale are thought by parties or practitioners to be too low for work which is not of unusual complexity or importance, then submissions should be made to the Legal Costs Committee to increase the rates in the scale.
[505] Crawley Investments Pty Ltd v Elman [2014] WASC 233 (S).
[506] Crawley Investments Pty Ltd v Elman [2014] WASC 233 (S) [22]; see also North West Pilots Pty Ltd as Trustee for the Port Hedland Pilots Unit Trust Trading as Port Hedland Pilots v Daniel [2023] WASC 73 (S) [21] (Hill J).
[507] Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S).
[508] Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S) [22] (emphasis added).
The plaintiff submits that having regard to the unusual difficulty, complexity or importance of the matter justifies lifting the hourly rate in the Determination for senior counsel to $825.
Although, as I have found above, the matter involved issues of unusual difficulty, complexity and importance to the parties, I do not consider that it is fairly arguable that these issues were such that the hourly rate for senior counsel in the Determinations should be lifted. It is the plaintiff's choice to brief senior counsel who charges a higher rate than that provided for in the Determinations. In addition, as Pullin J averted to in Flotilla Nominees Pty Ltd v Western Australian Land Authority in the passage above, the court should be mindful of not encouraging rates of counsel generally to be lifted across the profession. Consequently, in the absence of justifying circumstances that special expertise was required of the counsel briefed in the matter, no order should be made to increase hourly rates.
Accordingly, I am of the opinion that there should be no cost order made to raise the hourly rate for senior counsel.
Conclusion
For these reasons, I am of the opinion that the following orders should be made:
1.Pursuant to s 141(3) of the Legal Profession Uniform Law Application Act 2022 (WA):
1.1the limits on costs that are fixed by the following items of the Legal Profession (Supreme And District Courts) (Contentious Business) Determination 2018 (2018 Determination), the Legal Profession (Supreme And District Courts) (Contentious Business) Determination 2020 (2020 Determination) and the Legal Profession (Supreme and District Courts) (Contentious Business) Costs Determination 2022 (2022 Determination) are removed, and the plaintiff's costs are to be taxed without regard to those limits:
(a)Item 1(a) of the 2020 Determination (Writ);
(b)Item 1(c) of the 2020 Determination (Statement of Claim);
(c)Item 7(b) of the 2020 Determination (Giving Discovery);
(d)Item 18 of the 2018 Determination, Item 19 of 2020 Determination and Item 19 of the 2022 Determination (Preparation of case);
(e)Item 22(a) of the 2022 Determination (fee on brief for Counsel);
(f)Item 22(b) of the 2022 Determination (fee on brief for Senior Counsel); and
1.2 The defendants pay the plaintiff's costs of the application for special costs orders.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
SO
Associate to the Judge
10 OCTOBER 2023
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