Mineralogy Pty Ltd v Sino Iron Pty Ltd
[2021] WASC 45
•24 FEBRUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MINERALOGY PTY LTD -v- SINO IRON PTY LTD [2021] WASC 45
CORAM: KENNETH MARTIN J
HEARD: 16 - 20 & 24 NOVEMBER 2020
DELIVERED : 24 FEBRUARY 2021
FILE NO/S: CIV 2840 of 2018
BETWEEN: MINERALOGY PTY LTD
Plaintiff
AND
SINO IRON PTY LTD
First Defendant
KOREAN STEEL PTY LTD
Second Defendant
CITIC LIMITED
Third Defendant
SINO IRON PTY LTD
First Plaintiff by Counterclaim
KOREAN STEEL PTY LTD
Second Plaintiff by Counterclaim
AND
MINERALOGY PTY LTD
First Defendant by Counterclaim
Catchwords:
Contract - Interpretation -Words susceptible to more than one meaning - Mine site remediation obligation promise in contract - Site Remediation Fund to hold funds to be used for Site Remediation Costs - Contributions to be made by defendants on annual basis when notified of annual charge by plaintiff - Charge to be for forthcoming Operating Year of mining operations - Whether designated trust account set up - Attempted notification of annual charge in 2018 - Dispute over validity of 2018 notification - No contribution made to Site Remediation Fund by defendants - Dispute over proper construction of equation for annual charge - Whether to divide Site Remediation Costs over remaining years until Mine Closure as opposed to in full by lump payment - Whether 2018 determination valid
Trustees - Contractual agreement that Site Remediation Fund to be held by plaintiff on trust - Application to remove and replace trustee - Discretionary considerations - Whether valid trust - Whether court should exercise discretion
Legislation:
Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA)
Trustees Act 1962 (WA)
Result:
Plaintiff's claim dismissed
Defendants' counterclaim dismissed
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | Mr P Dunning QC, Mr K Byrne & Mr J Kennedy |
| First Defendant | : | Mr S K Dharmananda SC, Mr J H Kirkwood & Mr L N Firios |
| Second Defendant | : | Mr S K Dharmananda SC, Mr J H Kirkwood & Mr L N Firios |
| Third Defendant | : | Mr S K Dharmananda SC, Mr J H Kirkwood & Mr L N Firios |
Solicitors:
| Plaintiff | : | Kane Jones |
| First Defendant | : | Allens |
| Second Defendant | : | Allens |
| Third Defendant | : | Allens |
Counterclaim
Counsel:
| First Plaintiff by Counterclaim | : | Mr S K Dharmananda SC, Mr J H Kirkwood & Mr L N Firios |
| Second Plaintiff by Counterclaim | : | Mr S K Dharmananda SC, Mr J H Kirkwood & Mr L N Firios |
| First Defendant by Counterclaim | : | Mr P Dunning QC, Mr K Byrne & Mr J Kennedy |
Solicitors:
| First Plaintiff by Counterclaim | : | Allens |
| Second Plaintiff by Counterclaim | : | Allens |
| First Defendant by Counterclaim | : | Kane Jones |
Case(s) referred to in decision(s):
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335
Australian Broadcasting Commission v Australian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Baden Delvaux & Lecuit v Sociéte Générale pour Favoriser le Développement due Commerce et de L'Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Blenkinsop v Blenkinsop Nominees Pty Ltd as trustee for the Blenkinsop Family Trust [2015] WASC 463
BP Refinery (WesternPort) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [No 3] [2013] VSCA 179; (2013) 41 VR 636
Elovalis v Elovalis [2008] WASCA 141
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233
Hughes v St Barbara Mines Ltd [No 4] [2010] WASC 160
Letterstedt v Broers (1884) 9 App Cas 371
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2020] WASC 40
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 17] [2018] WASC 8
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 6] [2015] FCA 825; (2015) 329 ALR 1
Mount Bruce Mining v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9
Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641
Palmer v CITIC Ltd [No 2] [2019] WASC 14 (S)
Panizza v Clathington Pty Ltd as trustee for P and D Panizza Family Trust [2019] WASCA 344
Porteous v Rinehart (1998) 19 WAR 495
Princess Ann of Hesse v Field (1962) 80 WN (NSW) 66
Re Blanchard (1861) 3 De G F & J 130
Rowena Nominees Pty Ltd (in liq) v St George Bank Ltd [2002] WASC 270
Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146
Shepherd v Commissioner of Taxation (Cth) (1965) 113 CLR 385
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2020] WASC 311
Sino Iron Pty Ltd v Palmer [No 3] [2015] QSC 94; (2015) 2 Qd R 574
Vagliviello v Vagliviello [2003] WASC 61
Van Duren v Hammond & Roberts [2019] WASC 246
WMC Resources Ltd v Leighton Contractors Pty Ltd (1990) 20 WAR 489
Wood (as co-executor and trustee of the will of the deceased) v Wood [No 4] [2014] WASC 393
TABLE OF CONTENTS
Introduction
Past decisions concerning the MRSLAs
The present action
Relief
Mineralogy's relief sought under the ASOC
Sino Iron's and Korean Steel's counterclaim
Five self-evident early matters
MRSLA cl 20.4, cl 20.5 and cl 20.6
The key text in each MRSLA as to the Site Remediation Fund
Findings of fact
The documentary evidence at the trial
The parties' non-expert witnesses at trial
Mineralogy
Mr Nui Bruce Harris
The first MRSLAs
The second MRSLAs and CITIC's acquisition of Sino Iron and Korean Steel
Project proposals and annual environmental reports
First requests concerning the Site Remediation Fund by Mineralogy
Mr Michael Mashayanyika
The CITIC defendants' non-expert witnesses
Ms Yueh-Shin Eleanor Chen
Ms Emma Annamarie Boogaerdt
Mr Sten Silavecky
Ms Melanie Lee Rifici
Mr Charles Philip Blaxill
Construction of Commercial Contracts - Principles
Early interpretive observations concerning the text of MRSLA cl 20.4, 20.5 and 20.6
MRSLA cl 20.4 - 'Site Remediation Work'
MRSLA cl 20.5 - 'Mineralogy may require security'
MRSLA cl 20.6 - 'Site Remediation Fund'
Clause 20.6(a)
Clause 20.6(b)
Clause 20.6(c)
Clause 20.6(d)
Clauses 20.6(e) and (f)
The parties' submissions on the construction of cl 20.6(e)
The dispute
Mineralogy's position
CITIC defendants
The April 2018 Determination
Standard of review
Form of the notice
The CITIC defendants' position
Haste
Fundamental flaws
Mineralogy's response
Reasonableness
Contingency
Discounting
Inclusion of port and Camp 123 removal costs
Causeway D
Demolishment estimates
Other landform variations
Clause 20.6(e)
The reviewability of determination by Mineralogy
The correct construction
The experts
The reports
Evidence and cross‑examination
Observations on expert differences
Mineralogy's primary debt claim - 16 April 2018
Background communication
Mineralogy's receipt of Mr Slight's remediation estimate report of 16 April 2018
Mineralogy's April 2018 Determination
Observations on the April 2018 Determination
Determination as to the validity of the April 2018 Determination
Further communication concerning the annual charge
Mineralogy's alternate debt claim - 21 May 2018
Observations of the May 2018 Notice
Determination
MRSLA cl 20.6(e)
No dedicated trust account
The CITIC defendants' counterclaim
Arguments against Mineralogy as trustee
Prior dealings with Site Remediation Fund trust
Administrative Fund dealings
Chronic nature of disputation
Mr Palmer's position
The need for trust terms
Mineralogy's response
Prior dealings with Site Remediation Fund trust
Administrative Fund dealings
Chronic nature of disputation
Fulcrum group
Determination
Does a valid trust exist?
The court's discretion
Alternate trustee
Final orders
SCHEDULE A
SCHEDULE B
Chronology of mostly agreed facts found at the trial (see [73])
KENNETH MARTIN J:
Introduction
The key issues in dispute at the present trial concern the meaning of contractual terms addressing the issue of mine site remediation funding obligations. The contracts in question are two wholly written mining right and site lease agreements (known as a MRSLA) as perfected on 21 March 2006 and subsequently varied as between the plaintiff, Mineralogy Pty Ltd (Mineralogy), and each of the first defendant, Sino Iron Pty Ltd (Sino Iron) and the second defendant, Korean Steel Pty Ltd (Korean Steel).[1] CITIC Ltd (CITIC), the third defendant, is the parent corporation of Sino Iron and Korean Steel. Collectively, I refer to the the three defendants as the 'CITIC defendants'.
[1] CPM.587.007.0391, exhibit 1.0404 (Sino Iron MRSLA) and MPL.001.002.0180, exhibit 1.0027 (Korean Steel MRSLA). It is not in dispute that the Sino Iron MRSLA and Korean Steel MRSLA are in identical terms, save for a reference to 'Sino' in the former will be a reference to 'Korean' in the latter.
The present dispute over the true contractual meaning underlies Mineralogy's demand for a financial contribution (ie, payment) from Sino Iron and Korean Steel, which in aggregate exceeds half a billion dollars and which Mineralogy contends has been due and owing to it since it issued a request for payment of those funds in April 2018, further or alternatively in May 2018.
The underlying dispute over the true meaning of written text found used within the controversial contractual terms raises interpretive questions which give rival alternate meanings towards that text. Or, to use the terminology of the plurality of the High Court in Mount Bruce Mining v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, this is a situation of 'constructional choice'.
The present dispute focuses heavily upon MRSLA cl 20.5 and cl 20.6, the text of which is essentially identical within each MRSLA. For convenience, as was done at trial, in these reasons I will refer to the Sino Iron MRSLA as the template.
Past decisions concerning the MRSLAs
The same MRSLAs have already been the subject of prior disputation and litigation already conducted in this court. Edelman J's reasons in Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194 (Mineralogy [2013]) resolved an interpretive clash between the same parties over the true meaning of another MRSLA term dealing with the obligation of Sino Iron and Korean Steel to pay Mineralogy the royalty payment that is referred to as 'Royalty Component A' under MRSLA cl 8.1.
Subsequently, by my reasons for decision following trial in what is known as the 'Royalty Component B Proceedings' (see Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340 (Mineralogy [No 16]) delivered 24 November 2017) I considered there the disputed issues around the true meaning of a phrase used within the 'Royalty Component B' formula within cl 8.2(a). The appeal from that decision to the Court of Appeal in Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80 (Mineralogy [No 16] appeal) (delivered 21 May 2019) saw Buss P, Murphy & Beech JJA also discuss a number of clauses within each MRSLA as part of assessing the Royalty Component B formula used within its overall contractual context.
Further local litigation has followed concerning a contended engagement from time to time of another term within each MRSLA in Mineralogy's favour. That litigation has been conducted over what presents as argued penalty-like exposures for Sino Iron and Korean Steel under MRSLA cl 6.3, in the event of them each not producing 6 million tonnes of Product (as defined in the MRSLAs) by no later than seven years from the entering into the MRSLAs. Clause 6.3 is the subject of my reasons in Mineralogy Pty Ltd v Sino Iron Pty Ltd [2020] WASC 40 (delivered 13 February 2020) in a context of the CITIC defendants' successful abuse of process and Anshun estoppel challenges against Mineralogy's action. That decision is presently pending an appeal.
A further decision of mine published last year (see Sino Iron Pty Ltd v Mineralogy Pty Ltd [2020] WASC 311 (MCP decision, delivered 1 September 2020) considers a number of Project Agreements (including the same MRSLAs) between Sino Iron and Korean Steel, and CITIC.
The 2020 reasons address the two MRSLAs in the MCP decision context of a strikeout application centred around cl 15 and cl 16 in each MRSLA (see [148] and [151]). MRSLA cl 16 is the Standard of Work provision found in each MRSLA. As I said at [156]:
The key point presently, however, is that the two MRSLAs entered in 2006, are very obviously long term agreements spanning potentially 30 years' duration, or more. They envisage, objectively assessed of course, a first construction phase of mining infrastructure, to establish an ore processing plant at Area A at Cape Preston prior to the following envisaged production of 'Product' (as defined in MRSLA cl 8.2(a)). The construction phase to establish the processing plant at a greenfields mining location and any delays associated with getting that plant established to the point of readiness to generate Product for offshore shipment, are obviously now all events of the somewhat distant past as regard the ongoing performances of the two MRSLAs.
Those reasons also address, in a peripheral way, MRSLA cl 20.4, cl 20.5 and cl 20.6, commencing at [157] and following.
From that summary of prior litigious disputes around the MRSLAs as have been already conducted within this court, it may be seen that various MRSLA provisions have already received intensive constructional scrutiny. So also has a further and related written agreement perfected between (amongst others) Mineralogy and CITIC, through another written instrument, known as the Fortescue Coordination Deed, executed on 22 October 2008 (the FCD).[2] By the FCD, CITIC essentially guaranteed the performance of the MRSLAs by Sino Iron and Korean Steel.
[2] MPL.001.001.0157, exhibit 1.0057.
In the Royalty Component B Proceeding there was an invoked reliance by Mineralogy upon guarantee provisions of the FCD which were a subject of my reasons in Mineralogy [No 16] at [782] - [815] and then, under my subsequent further reasons in that proceeding, Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 17] [2018] WASC 8 (Mineralogy [No 17]) (delivered 12 January 2018) at [24] - [26] and [28].
It may be appreciated, therefore, that since 2012 various provisions of the MRSLAs and the FCD have already been the subject of a deal of local curial scrutiny concerning and resolving disputed contractual interpretations involving aspects of various clauses within those two instruments, both at primary and appellate level.
The present action
The present action is a further, but distinct contractual dispute over other MRSLA terms, this time over the issue of payments into a Site Remediation Fund, which is addressed under the MRSLAs. The action by Mineralogy was commenced in this court under Mineralogy's writ on 22 October 2018. What is essentially an interpretive dispute over the true meaning of further MRSLA provisions, carries with it discrete and wholly unique issues requiring further consideration by the court.
As is firmly established, Mineralogy is the owner of mining tenements on which there is an operating magnetite iron ore mine at Cape Preston in the north of Western Australia. By the two MRSLAs, Mineralogy granted Sino Iron and Korean Steel rights to mine for magnetite ore at Cape Preston. However, as with most mining activities, some onerous remediation work will be required to be undertaken by the mining participants, to ensure the mine area is left post mining in an acceptable condition as ore extraction ends and mining works are concluded.
As I will come to explain in greater detail later in the reasons, this dispute arises out of obligations on Mineralogy and on Sino Iron/Korean Steel concerning the funding of the remediation work at the greenfields mine location in question.
Ultimately, Mineralogy is directly responsible in law to the State for the remediation of these mine areas as its tenements. However, the provisions of each MRSLA then require that Sino Iron and Korean Steel must carry out themselves the required remediation work as a result of their activities. The cost of doing so is Sino Iron and Korean Steel's contractual obligation under the MRSLAs. It is the need for a payment of funds to pay for that remediation work when due into a Site Remediation Fund at the behest of Mineralogy under the MRSLAs which is at the heart of this dispute.
Relief
It will be helpful at the outset to see the final relief sought by the parties under Mineralogy's claim and, correspondingly, under the counterclaim of Sino Iron and Korean Steel.
To that end, I record that there was a significant adjustment to the pleadings of Mineralogy on the fifth day of the trial, which was subsequently responded to afterwards by the CITIC defendants. That resulted in the final pleadings being Mineralogy's amended statement of claim of 20 November 2020 (ASOC) and the CITIC defendants' further amended defence and counterclaim of the same day (FADC).
Mineralogy's relief sought under the ASOC
Under the final iteration of Mineralogy's ASOC the relief sought is as identified under pars 80 through 88, as follows:
And the Plaintiff seeks the following relief:
80.The sum of $529,378,207.
81.Alternatively, an order that CITIC, Sino and Korean pay $529,378,207 into the Site Remediation Fund within 30 days of the date of making this order.
82.Alternatively, an order that CITIC, Sino and Korean pay such amount as determined by the Court into the Site Remediation Fund that provides reasonable security for Sino's and Korean's Site Remediation Obligations.
83.An order restraining CITIC, Sino and Korean from undertaking any Sino and Korean Activities until such time as the amounts described above are paid in full.
84.A declaration that CITIC, Sino and Korean are obliged to pay $529,378,207 into the Site Remediation Fund, alternatively such amount as determined by Court into the Site Remediation Fund that provides reasonable security for Sino's and Korean's Site Remediation Obligations.
85.Damages.
86.Interest.
87.Costs.
88.Such other orders as the Court deems appropriate.
As is evident under the claim as identified under par 80 of Mineralogy's prayer for relief, it pursues a liquidated sum said to be due to it against all three defendants. Against CITIC, it is evident from pars 67 through 78 of Mineralogy's ASOC, that it relies to that end upon guarantee obligations of CITIC under the FCD, particularly by cl 11.6(c) and cl 11.5(b).
In reference to Sino Iron and Korean Steel, Mineralogy's claim for a liquidated sum of $529,378,207 is identified at par 54 of the ASOC - which in turn refers to pars 18 - 20 and 31 - 53. The liquidated amount claimed is identified under par 50, as the contended subject of Mineralogy's letter to CITIC Pacific Mining Management Pty Ltd (CPM) of 16 April 2018. There is no controversy that CPM is CITIC's agent, concerning Sino Iron's and Korean Steel's activities. It may also be seen by reference to the preceding ASOC par 48, that exactly the same sum is said to have been a subject of an estimate by an expert in the management of mine closures and the costings for such exercises. This is Mr Michael (Mike) Slight of Mike Slight & Associates. Mineralogy says Mr Slight was engaged by it to provide an estimate of the costs and liabilities to be incurred in respect of 'Site Remediation Work'.
Later in the reasons I set out a significant component of Mineralogy's letter to CPM of 16 April 2018, given it is still the original basis for the alleged debt claim as raised against Sino Iron and Korean Steel.
However, as a result of the amendments eventually made by my leave to Mineralogy's statement of claim on day five of the trial, new pleas under pars 51A, 51B and 51C were then added to the ASOC - so as to raise an alternative basis for the same debt claim. The new pleas directed an alternative reliance upon Mineralogy's separate notices as given by letters separately to Sino Iron and to Korean Steel of 21 May 2018 (with each as well copied to CITIC), notifying of Mineralogy's asserted determination regarding respective shares of demanded contributions into the Site Remediation Fund (effectively, as half of the $529,378,207 amount from each of Sino Iron and Korean Steel).
I also point out that by par 54 of Mineralogy's ASOC, it is contended that the liquidated sum was due by Sino Iron and Korean Steel as at 22 October 2018. But a basis for that chosen due date is not there revealed.
The further relief seen as sought by Mineralogy under ASOC by par 81 (in the alternative), in relation to Mineralogy's claiming of the very same amount, looks to be the subject of pleas under pars 55 through 60 of Mineralogy's ASOC. They appear under the heading 'Specific Performance of Sino's and Korean's Obligations'. Problematic nomenclature of 'specific performance' is used towards these obligations under ASOC pars 56, 57 and 60.
As clearly noted, the respective MRSLAs were first perfected in 2006, then later varied. Clearly, those agreements have since been intensively performed thereafter and in very significant respects by all the parties. Thus, language of 'specific performance' used towards a remedy sought by Mineralogy under par 81 looks to be inapt - see the MCP decision at [76] - [82]. A better description would be to characterise the equitable relief sought as a mandatory final injunctive order - compelling the three defendants under final orders of the court to render the identified payment sum to the Site Remediation Fund within 30 days.
An alternative money claim is also seen made by Mineralogy under ASOC par 82 - this time by reference to it seeking an order of the court as regards the three defendants paying 'such amount as determined by the Court into the Site Remediation Fund'. Such claim displays what is a pursuit of, in effect, fallback relief by Mineralogy, by it asking the court, in effect, to render its own determination as to an amount that 'provides reasonable security' for Sino Iron's and Korean Steel's site remediation obligations. That looks to emerge out of alternate pleas seen under par 60 of Mineralogy's ASOC.
Further relief is seen claimed under par 83, where Mineralogy seeks as well a negative injunction to be issued, against the defendants 'from undertaking any Sino and Korean Activities until such time as the amounts described above are paid in full'. Sino's and Korean's Activities are defined terms in the MRSLA. Such relief would obviously be problematic for the present trial circumstances in 2020. No submissions were made on behalf of Mineralogy during the trial concerning a serious pursuit of such an injunctive restraint. I do not propose to consider that issue further, other than to observe that such relief in the wider circumstances of the ongoing operations at Cape Preston involving these parties, would be inappropriate. Such relief, however, appears to be the subject matter of pleas under ASOC pars 61 through 63 of Mineralogy's ASOC.
Further relief sought by Mineralogy under par 84 seeks declarations against all defendants, either as to the liquidated amount identified, or 'alternatively such amount as determined by the Court'. Such claimed declaratory relief looks to be the subject of ASOC pleas under pars 64 through 66.
Sino Iron's and Korean Steel's counterclaim
All three (3) defendants flatly resist Mineralogy's claims towards the ASOC issues canvassed at this trial. But Sino Iron and Korean Steel (not CITIC) also pursue a counterclaim against Mineralogy. This begins at par 89 of the FADC. The essential counterclaim relief sought by Sino Iron and Korean Steel under their prayers for relief reads:
Sino Iron and Korean Steel seek:
A.Orders appointing a new trustee, in place of Mineralogy for the Site Remediation Fund trust account.
B.Orders requiring the new trustee, alternatively Mineralogy, to:
a.execute a formal trust deed to govern the Site Remediation Fund trust account;
b.further or alternatively, establish an account for the Site Remediation Fund which is designated as a trust account.
C.Declarations that, for the purpose of clause 20.6(e) of the Sino Iron and Korean Agreements, the annual charge to be made by Sino Iron and Korean Steel in the Operating Year commencing on 1 July 2018 is $6 million or such other amount as the Court determines is a reasonably satisfactory annual charge for the Operating Year commencing on 1 July 2018, determined in accordance with clause 20.6(e) of the Sino and Korean Agreements.
D.Declarations that the Purported September 2010 Notification, the Purported December 2017 Notification, the Purported April 2018 Notification, the Purported May 2018 Notices, the Purported August 2018 Notice, the Purported September 2018 Demand, the Purported October 2018 Demand and the Purported October 2018 Notification are invalid and of no effect.
[For the purposes of the ASOC trial exercise in relation to so‑called 'Purported' September 2010 and December 2017 Notifications mentioned above, no reliance, other than as background, looks to be placed upon par D from a debt liability creation perspective, by Mineralogy. However, as explained earlier, Mineralogy does rely upon its April 2018, further and alternatively on its May 2018, notifications and notices, to ground its debt claim put against the CITIC defendants.]
E.Declarations that Mineralogy has failed to act in good faith towards Sino Iron and Korean Steel in relation to the performance of the Sino and Korean Agreements, and has thereby breached clause 37.4 of the Sino and Korean Agreements, as pleaded in paragraphs 51(b)(xv) and 74(b)(xxiii) above.
F.Costs.
G.Such further or other orders as the Court thinks fit.
Relief claimed from this court under the counterclaim, by the appointing of a new trustee in place of Mineralogy by Sino and Korean, sees reliance grounded upon the court's inherent jurisdiction to replace a trustee when expedient but, as seen from the counterclaim plea at FADC par 100(c), also relying on s 77(1) of the Trustees Act 1962 (WA).
As may also be seen from pars 90 through 98 of the counterclaim, a significant component of the material facts contended for relate to Mineralogy's alleged conduct in, around or concerning some other contractual agreements Mineralogy had entered with each of Sino Iron and Korean Steel - referred to as 'Facilities Deeds' of 26 October 2001, as subsequently varied.
In brief, the terms of the Facilities Deeds had provided for Mineralogy to open an account styled 'Port Palmer Operations' (see par 92 of the counterclaim) with the National Australia Bank (the NAB) referred to as an 'Administrative Fund Bank Account'. Part of the counterclaim contentions directed against Mineralogy to support its ordered removal as the Site Remediation Fund trustee under each MRSLA, relates to transfers of amounts of $10 million and $2,167,165.60. Those amounts were drawn by Mineralogy against the Administrative Fund Bank Account under two cheques in those respective amounts that were signed by Mr Clive Palmer (director of Mineralogy) and made payable respectively to Cosmo Developments Pty Ltd and Media Circus Network Pty Ltd respectively (referred to as the First and Second Payments). This same conduct has already been the subject of litigation now determined in the Supreme Court of Queensland known as the 'Cosmo Proceeding'. I will return to this conduct later in the reasons.
Sino Iron's and Korean Steel's contentions under par 98 of the counterclaim, is that the First and Second Payments:
(a)were not a use of the administrative fund for any of the purposes identified in clause 5 of the Facilities Deeds; and
(b)were made in breach of Mineralogy's obligations in clause 5 of the Facilities Deeds to use the Administrative Fund only for the purposes identified in that clause.
Such prior dealings by Mineralogy with the Administrative Fund Bank Account under the Facilities Deeds are essentially relied upon by Sino Iron and Korean Steel as conduct now rendering it to be expedient and in the best interests of the beneficiaries of any Site Remediation Fund trust account, that this court remove Mineralogy and to instead then appoint a new trustee (see par 100 of the counterclaim) over that trust.
With that truncated description of the parties' rival relief claims as pursued under their respective primary pleadings, I can turn to mention five relatively self-evident matters of directional importance to the reasons.
Five self-evident early matters
Five relatively obvious matters may conveniently be isolated and identified at the outset. This can be accomplished in relatively brief terms.
First, at the time of the trial during November 2020, the two MRSLAs (in which cl 20.5 and cl 20.6 were in controversy) both remained operative and on foot. All MRSLA provisions remained fully enforceable in these long term contractual agreements which continue to bind all parties to stipulated performance obligations as elaborately stated therein for each of the MRSLA contractual participants. That same observation applies as regards the FCD, insofar as CITIC's continuing guarantee obligations are concerned, towards the obligations of its corporate subsidiary entities, namely, Sino Iron and Korean Steel.
Second, to adopt somewhat abbreviated nomenclature frequently applied around an interpretive exercise these days towards a wholly written instrument, the task of a court under a required contractual interpretation exercise calls for an examination of the relevant text, context and 'objectively ascertained' purpose of the parties; see my reasons in Van Duren v Hammond & Roberts [2019] WASC 246 at [56]. In that process, when dealing with the terms of a wholly written agreement that is a commercial instrument (a description the MRSLAs plainly satisfy) there needs to be afforded a sensible commercial meaning applied consistently towards the text the parties have chosen to use. It is the case, of course, as between typical commercial contracting parties, that their individual commercial objectives may well diverge, in terms of each participant seeking to advance their own respective commercial interests and to position themselves to gain maximum commercial advantage. Reasonable objective minds may differ over a contended commercial advantage or disadvantage under a perfected contract. But in the end, there is only one true meaning applicable for the text under consideration. See Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 and principles there collected concerning construction of contract principles at [42], particularly at [42(9)].
Third, in the court's task it must apply what are well established principles towards the contractual interpretation of commercial instruments under Australian law, such as, for instance, the classic observations by Gibbs J in Australian Broadcasting Commission v Australian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109. A court, in striving to arrive at a sensible commercial meaning overall towards the parties' agreed chosen terminology evaluated objectively, where possible, will seek to find a role or function for all words as utilised by the parties in an attempt to afford them all a sensible level of utility when evaluated holistically in the overall scheme of the complete instrument as so evaluated.
Fourth, the meaning of text under scrutiny within each MRSLA must necessarily be evaluated at the time the parties perfected their contractual bargain (not later in time as their bargain implementation problems emerge). For the MRSLAs, their perfections were in March 2006 - now almost 15 years ago. The MRSLA textual provisions are not to be interpreted ex post facto in light of subsequent events or problematic issues which emerge. The proper temporal focus from an interpretation exercise perspective, as regards ascertaining true meaning of text, must therefore be scrupulously directed at the time when the parties perfected their bargain, not thereafter.
Fifth, as has already been exposed under some previous interpretive excursions conducted by this court at both primary and appellate levels towards the very same MRSLAs, they will each be seen to be heavily laden with a number of key definitions used towards MRSLA terms or phrases, then needing to be subsequently deployed throughout the text of each MRSLA instrument. Consequently, those chosen MRSLA definitions will need to be remembered, then picked up and incorporated into the text of the various clauses, where a utilised definition is applicable, so that, in the end, an overall assimilated meaning consistent with a utilisation of a chosen definition, will be achieved.
There are numerous key MRSLA definitions all bearing on the present constructional exercise. To avoid unduly cluttering the reasons with all such MRSLA definitions, I have chosen to locate as many of them as possible within the attached Schedule A to the reasons. As an attempted aid, where a key definition is first seen in these reasons, at that point, I endeavour to highlight a MRSLA use of the definition by using bold type - to identify the deployed definition and so, to alert a reader to keep the definition in mind in the interpretive process.
I have also set out in Schedule A the full text of MRSLA cl 20, so that the subclauses 20.5 and 20.6 can be seen there in their overall cl 20 context (and the definitions used therein).
MRSLA cl 20.4, cl 20.5 and cl 20.6
With the benefit of those introductory observations, it is now possible to move to expose the controversial text of MRSLA cl 20.4, cl 20.5 and cl 20.6.
As some introduction to them all, I first endeavour to expose a little more of the battleground for the current trial controversy. It arises around the Site Remediation Fund, seen defined then described in cl 20.6.
Non-exclusively, I highlight the following six matters around the Site Remediation Fund in a context of the present interpretive dispute.
First, on 16 April 2018, Mineralogy by Mr Clive Palmer sent a letter to CPM.[3] The letter required that an amount of $529,378,207 be paid by Sino Iron and Korean Steel into the Site Remediation Fund. As will be seen, that money demand, numerically, was temporally proximate to Mineralogy's receipt the very same day of a report prepared for Mineralogy by Mr Slight.
[3] CPM.634.001.4208, exhibit 1.0651 (April 2018 Notice or April 2018 Determination).
Prior to 16 April 2018, as between Mineralogy, Sino Iron, Korean Steel and CITIC, the issue of contributions towards a Site Remediation Fund had been extensively canvassed under passing communications going back to 2010 - but without any substantive agreement ever being reached.
After Mineralogy's April 2018 Notice, Sino Iron and Korean Steel (and CITIC) responded - and all firmly declined to offer anything towards then the Site Remediation Fund. That was two days later - on a basis that Mineralogy's April 2018 Notice was 'invalid'.[4]
[4] MPL.001.001.3884, exhibit 1.0679.
Subsequently, at 21 May 2018, Mineralogy issued a further, but more elaborate notice, this time to each of Sino Iron and Korean Steel now requiring them each then to pay 50% of the as earlier nominated amount of 16 April 2018 within 14 days.[5] But again there was expressed disagreement. Nothing was offered then. This action was then commenced by Mineralogy during October 2018.
[5] MPL.001.001.3222, exhibit 1.0711 (Sino Iron notice); MPL.001.001.3224, exhibit 1.0710 (Korean Steel notice) (May 2018 Notice or May 2018 Determination).
Subsequently, Sino Iron and Korean Steel, during 2018, have made an open offer to Mineralogy to pay an annual amount of approximately $6 million into a properly constituted Site Remediation Fund account.[6] A further open offer was made by the CITIC defendants in October 2019, this time that Sino Iron and Korean Steel each pay $8 million into the Site Remediation Fund for the years 2016 - 2021.[7] Both offers were rejected.
[6] MPL.001.001.3342, exhibit 1.0759. Mineralogy's rejection is at CPM.634.001.5129, exhibit 1.0760.
[7] CPM.629.015.0005, exhibit 1.0876.
Second, when viewing cl 20.6 in that subclauses surrounding setting in each MRSLA, it will be helpful if particular attention is directed towards a feature as is expressly identified under cl 20.6(c) - for the maintenance of the Site Remediation Fund in a separate interest‑bearing trust account, to be controlled by Mineralogy as trustee 'and which will be designated as a trust account.'
The requirement for a 'designated' trust account as seen expressed under cl 20.6(c), has divided the parties since at least April 2018 over the requirements of such an obligation.
Mineralogy indeed opened an account with the NAB in 2014 (NAB account). It is into that bank account that Mineralogy has sought to have Sino Iron and Korean Steel render Site Remediation Fund payments. But the CITIC defendants contend that this NAB account does not, in fact, properly carry or exhibit the designated character of being the required interest‑bearing account, as is expressed by MRSLA cl 20.6(c). They say fundamentally that this account is not in any way an account that is designated by the NAB as being a trust account. They say it has never been so designated by the NAB. Mineralogy contends to the contrary. It says the NAB account that it opened in 2014 is a MRSLA cl 20.6(c) compliant account. The divide is another area of fundamental disagreement.
If the objection of the CITIC defendants is correct as to the NAB account not ever being properly 'designated' as a trust account, then it must follow that no legal obligation to render a payment into such a non‑compliant (with MRSLA cl 20.6(c)) account has yet arisen. Consequently, Mineralogy's April or May 2018 Notices and its resulting debt claims, as are put against Sino Iron and Korean Steel (and necessarily so correlatively against CITIC, as guarantor obligations under the FCD) would all fail - on that non-compliant account basis alone. I turn back to this key issue later in the reasons.
Third, if it is ascertained that there subsists, or if, at some point in the future, that Mineralogy does then cause there to be established a properly designated and cl 20.6(c) compliant trust account, then another and more substantive constructional choice also still divides the parties and this further issue presents for resolution in this trial as well.
This is the essential divide over the true meaning of the words seen used in cl 20.6(e)(ii), towards the contractual criteria required to be considered by Mineralogy, in reaching its determination as to the amount of the 'annual charge', that Mineralogy is contractually empowered to issue against Sino Iron and Korean Steel under MRSLA cl 20.6(f).
As will be seen, the terminology of MRSLA cl 20.6(e) is explicit, in relation to a need for a determination by Mineralogy of an annual charge to be reached by Mineralogy 'having regard to' the as nominated conjoint criteria then seen specified under (e)(i) and (e)(ii).
The fundamental issue of interpretive controversy arising at this point as between the parties emerges out of cl 20.6(e)(ii). Does the subclause refer to the criteria of a division by the 'number of years remaining until Mine Closure' (a defined term). The text sees the parties at odds over the implications for the annual charge and for the amount to be contributed to the fund each year by Sino Iron and Korean Steel. Mineralogy contends its annual charge contributions should be paid as an 'up front', essentially as a lump sum payment of the entire Site Remediation Costs, then to be adjusted as necessary over subsequent years. But the CITIC defendants contend that the annual charge is to be by incremental and aggregating series payments of Site Remediation Costs made annually over time, until Mine Closure.
As an attempted illustration of this key interpretive divide, I hypothesise a situation of a projected period until Mine Closure being assessed by Mineralogy at a point in time as being, say, some 30 years off. On that basis, consider a best prevailing estimate assessment towards Site Remediation Costs rendered by Mineralogy at, say, $300 million (of course, a gross over‑simplification). On that hypothesis of facts, would Sino Iron and Korean Steel be permitted under the terms of MRSLA cl 20.6(e) properly understood, to each render their annual contributions to the Site Remediation Fund of $5 million each, over the as assessed remaining 30 years of mine life (ie, $5 million x 30 years x 2 = $300 million)? Of course, some adjustments to the annual charges as a result of changes to the level of the assessed Site Remediation Costs amount would need from time to time to be incorporated each year's annual determination. Or, as Mineralogy contends, must all the $300 million be contributed up front in a lump sum (ie, $150 million each) as the first annual charge, in order to immediately constitute an accessible Site Remediation Fund of money capable of being accessed and drawn upon, if or when needed from then on to meet the full costs of Site Remediation Work. Mineralogy says this is the preferred interpretive approach, since it will provide for certainty and real and effective security for it, in particular, to meet the possible contingency of remediating at an earlier than expected Mine Closure - such as would happen on any unforeseen permanent Mine Closure circumstance arising sooner than otherwise anticipated by reason of, say, hypothetical operator insolvency, or upon some other unexpected earlier intervening event bringing about an earlier than anticipated permanent mine closure.
Fourth, obviously, and as was observed upon by Edelman J as long ago as 2013 (in Mineralogy [2013]). See also his Honour's subsequent Federal Court reasons (Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 6] [2015] FCA 825; (2015) 329 ALR 1) and which were then affirmed by the Full Federal Court (Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55, especially at [197], [222] and [375]), the MRSLAs must always be viewed within their contextual place under the apex of the Iron Ore Processing (Mineralogy Pty Ltd) Agreement (State Agreement) which was given force by the Iron Ore Processing (Mineralogy) Pty Ltd Agreement Act 2002 (WA) (State Agreement Act). Those overriding State Agreement commitments see Mineralogy as the holder of various tenements and mining leases granted to it by the State of Western Australia. Those tenements in turn were then made available by Mineralogy to Sino Iron and Korean Steel under their respective MRSLAs for the purpose of their contractual exploitation under the MRSLAs, in the pursuit of magnetite iron ore so as eventually to generate 'Product' (defined as 'Products'). Because Mineralogy is the tenement holder from the State it, of course, carries primary site rehabilitation and remediation exposure obligations to the State - albeit both Sino Iron and Korean Steel are also named co‑proponents under the State Agreement.
Fifth, whilst Mineralogy carries direct remediation exposure to the State as the Mining Lease tenement holder under ultimate site remediation obligations to rehabilitate the Mining Areas, when mining is at an end, nevertheless, by the MRSLAs, Mineralogy, in effect, has contractually redirected those rehabilitation obligations as the subject of a 'back to back' transfer, across to Sino Iron and Korean Steel (guaranteed by CITIC). This can be seen explicitly at MRSLA cl 20.4.
For circumstances in which Mineralogy's ongoing rehabilitation exposure to the State is contractually shifted downwards to Sino Iron and Korean Steel under the MRSLA bargains, Mineralogy emphasises by its construction approach its primary exposure and so, a need to hold full funding certainty and security. This, it says, will be achieved by constituting an accessible and viable fund of all money needed in the Site Remediation Fund -thereby delivering Mineralogy the required level of secured protection for its primary remediation exposures to the State and not only at the time of the projected end of mining, but also, viably at hand under the event of any unforeseen earlier permanent mine closure remediation exposure for Mineralogy - if that event were to transpire.
Sixth, as will be seen from the terms of cl 20.6(c), the Site Remediation Fund, whilst to be maintained in a separate interest‑bearing trust account, is also to be 'controlled by Mineralogy as trustee'.
As now mentioned, within this trial, the counterclaim advanced by two of the three CITIC defendants, seeks relief from the court to the end of having Mineralogy removed and replaced as the trustee of the Site Remediation Fund account. The counterclaim to that end invokes the inherent jurisdiction of the court over trustees, as well as s 77(1) of the Trustees Act (WA).
Discretionary equitable relief by way of a removal of Mineralogy as trustee of the Site Remediation Fund is strongly advanced, notwithstanding Sino Iron and Korean Steel's refusals to pay any funds to date to the account that was opened with the NAB by Mineralogy back in 2014. Beyond the obstacles as already discussed, it is put as well that this refusal is justified on a basis that to date no operative or enforceable annual charge for a specified Operating Year has yet been validly issued by Mineralogy, either to Sino Iron or to Korean Steel.
The key text in each MRSLA as to the Site Remediation Fund
With those early observations in mind as orientation (the full text of cl 20 being found in Schedule A) the text of MRSLA subclauses 20.4, 20.5 and 20.6 can now be exposed, in terms (with my own emphasis in bold to highlight MRSLA defined terms to be imported):
...
20.4 Site Remediation Work
(a)As and when required by Legal Requirements, Sino will carry out all Site Remediation Work that may be required as a result of Sino's Activities. All Site Remediation Work must meet Legal Requirements.
(b)Following Mine Closure, Sino will remove and dispose of all Sino's Project Facilities in accordance with Legal Requirements, and will carry out all necessary Site Remediation Work. Sino will comply, and will continue to comply, with all ongoing Legal Requirements relating to Site Remediation Work on areas affected by Sino's Activities.
20.5Mineralogy may require security
Mineralogy may from time to time require Sino to provide reasonable security for the performance of its obligations under this Clause 20. Such security will be provided in the form of a Site Remediation Fund.
20.6Site Remediation Fund
(a)In order to make provision and to provide security for payment of future Site Remediation Costs as they become payable, Mineralogy will establish a Site Remediation Fund, and Sino will make payments into the Site Remediation Fund in the manner set out in this clause.
(b)The Site Remediation Fund is intended to provide security and certainty for the benefit of Sino, and for Mineralogy as the holder of the Mining Lease, that sufficient funds will be available at Mine Closure to meet Site Remediation Costs.
(c)The Site Remediation Fund will be maintained in a separate interest-bearing trust account controlled by Mineralogy as trustee, and which will be designated as a trust account. The interest earned on funds in the Site Remediation Fund will be retained in the Site Remediation Fund.
(d)The Site Remediation Fund may be used solely for the purpose of paying Site Remediation Costs as they become payable. The Site Remediation Fund may not be used or accessed for any other purpose.
(e)For each Operating Year, Mineralogy will determine an annual charge on account of future Site Remediation Costs to be made by Sino in that Operating Year. The amount of the annual charge is to be determined by Mineralogy, having regard to:
(i)Mineralogy's best prevailing estimate of the amount of future Site Remediation Costs, and the amount (if any) already contributed by Sino into the Site Remediation Fund; and
(ii)the number of years remaining until Mine Closure.
(f)At least 30 days prior to commencement of each Operating Year, Mineralogy will notify Sino of its annual charge in respect of the forthcoming Operating Year.
Findings of fact
To accord with standard pre-trial case management directions, by my orders of 3 September 2020 (although subsequently varied), I required the parties to exchange their respective (sourced) chronologies of fact contended for prior to trial. The exchange was intended to, first, identify all common facts as agreed between the parties but, second, to identify any controversial facts the parties required a resolution upon at the trial.
I duly received Mineralogy's 'draft' chronology for the trial of 9 November 2020, spanning some 29 pages and extending over the period 23 June 1993 to 31 August 2020 (exhibit 14). I then received the CITIC defendants' 13 November 2020 response to Mineralogy's draft chronology spanning 10 pages (exhibit 15).[8] The CITIC defendants' chronology was divided into two parts - the first being for events concerned with Mineralogy's primary and alternate debt claims, and the second being events relating to the CITIC defendants' counterclaim.
[8] However, the facts sought to be identified under par 25 of an earlier chronology lodged on behalf of the CITIC defendants (folio document 112) in relation to facts around the CITIC defendants' counterclaim against Mineralogy in relation to an ASIC media release are not received, given an earlier interlocutory ruling of mine concerning the inadmissibility of such matters.
In the end result, there appeared very little contention over any of the underlying contended facts seen specified in each respective chronology. Overwhelmingly, the majority of the facts contended for under both chronologies were and can be verified from tendered documents found as sub-exhibited in the Trial Bundle (exhibit 1). I find that all such facts are established.
Nevertheless, as a formal exercise in fact finding if ever required, I shall include a formal chronology of found facts for trial as Schedule B to the reasons. In doing that, it is more convenient to use the facts assembled under the CITIC defendants' chronology, which is the more concise of the two versions. I have also amended and revised that chronology somewhat in places to add sometimes extra document source references, or to remove tendentious terminology.
It must also go without saying that, primarily, the contents of tendered documents (as referenced to various facts) speak for themselves - and the facts are not tempered by the parties' attempted characterisation of the documents' content. Nevertheless, the brief summary of the 'Event' as included in the chronology to be found in Schedule B may be helpful for orientation and navigation purposes.
But it is unnecessary and diverting to set out in Schedule B any facts as included in the CITIC defendants' chronology relating to the counterclaim - given the other conclusions I have reached upon the ultimate demerits of the counterclaim. For formal fact finding purposes, if ever necessary, the facts as contended for in exhibit 15 towards the counterclaim may be taken as having been proved - by reference to the various documentary sources as identified and relied upon to that end.
All facts in the as submitted chronologies therefore stand for the future - should they be required further. These substantive reasons, however, direct themselves essentially to the fundamental and more distilled issues of contractual interpretation that present and are required to be resolved in relation to Site Remediation Fund issues which, as seen, arise particularly around cl 20.5 and cl 20.6 within each MRSLA.
The documentary evidence at the trial
Prior to turning to the precise issues in dispute, I also need to render some further observations as to the documentary evidence submitted in the trial.
Although a portion of the trial was concerned with the evidence from both non-expert and expert witnesses, the overwhelming evidence relied upon by the parties within the trial was documentary.
The trial was conducted as an e-Trial. The total size of the electronic documents provided to the court approached 6.00 GB. File types included Word documents, PDFs and Excel spreadsheets and image files and included documents such as emails, letters, reports (internal and external), maps, images, copies of websites and social media, and banking documents.
The parties' electronic trial bundle was accepted as exhibit 1. Within exhibit 1, as explained by the index and table that is exhibit 12, the documents adduced and tendered, effectively, all by consent (with some intentional sequential gaps) range between sub-exhibits 1.0001 through to 1.1109.
Formally, all electronic documents carry a sub-exhibit number. They also display a source identifier in terms of their unique electronic designation. So, a preface commencing 'MPL' to a source identifier indicates the document is sourced from the plaintiff, Mineralogy. Likewise, a source identifier commencing 'CPM' indicates that the electronic document is sourced from the CITIC defendants.
The commencing 'SUB', as a source identifier, indicates the document has been obtained on subpoena.
These reasons will refer to exhibits by reference to their source identifier in order to facilitate a more ready electronic access as required - as well as their formalised exhibit number for ease. I would also note some documents are marked 'Confidential' at the request of the parties. These documents were not publicly displayed at the trial and will not be accessible to third parties without leave of the court.
Exhibit 12 is the final version of the trial exhibit list, containing a tabulated sub-exhibit list of exhibit 1, and spanning some 31 pages. In total, some 728 documents were tendered.
Exhibits 2 through to 7 (7A and 7B) then comprise the lay witness statements tendered at trial by the respective parties - either through a witness, or where cross‑examination was not required, by consent.
Exhibits 9A and 9B comprise two expert reports for Mineralogy by its site remediation mining expert, Mr Mike Slight, the former being his first report of 27 August 2020 and the latter his responsive report of 23 October 2020.
The CITIC defendants' expert site remediation mining expert submitted at trial was from Mr Michael Cramer. Mr Cramer provided his expert report of 23 October 2020. It became exhibit 10.
Shortly before the trial Mr Slight and Mr Cramer participated in a facilitated expert conclave - with a view to then providing an agreed joint expert memorandum exposing their distilled areas of substantive expert agreement or disagreement. A Joint Expert Memorandum of Messrs Slight and Cramer, dated 15 November 2020, became exhibit 11. Later in the reasons I set that memorandum out in full.
After evidence in trial was completed, Mr Cramer, by a letter, clarified, as I had allowed, that some of his evidence concerning a correction to his report which, with the benefit of some post trial digestion time, Mr Cramer was able to confirm and accept. This letter became exhibit 13A. There followed an email from the solicitors for Mineralogy confirming they were content for the letter to be brought to the court's attention: see exhibit 13B.
Exhibits 14 and 15 comprise the already mentioned respective chronologies of Mineralogy and the CITIC defendants, filed in accordance with my pre-trial directions for their exchange.
I can now turn to the submitted trial evidence of the parties' respective witnesses.
The parties' non-expert witnesses at trial
Mineralogy
Mineralogy adduced evidence at the trial from two witnesses by witness statement. These were the witness statements of Mr Nui Bruce Harris and Mr Michael Mashayanyika.
Mr Nui Bruce Harris
Mr Harris's witness statement was produced to be read into evidence for Mineralogy without need for any cross‑examination. It became exhibit 2. There were no objections to Mr Harris's witness statement. Consequently, all this evidence is uncontroversial at the trial and is accepted.
In summary, Mr Harris is an employee of Mineralogy. His statement relates he has been employed in various capacities with Mineralogy for a period in excess of 10 years. Mr Harris has over 30 years' experience with coal and minerals mining and the construction industry. He has experience as a project manager and chief executive officer for a variety of mining businesses, having worked on mine and rail projects and some port projects. He holds a graduate diploma in surveying (obtained in 1986), is a registered mine surveyor (registered 1990) and obtained a Bachelor of Science majoring in surveying from the Queensland Institute of Technology in 1992.
Mr Harris was authorised by Mineralogy to provide the information in his witness statement on behalf of his employer. Mr Harris explains that he has a thorough understanding of the Mineralogy group's iron ore projects. He had access to the books of Mineralogy and has had that access since he commenced his role with Mineralogy over a decade ago.
At pars 9 - 11 of his witness statement Mr Harris provides formal information in the way of the various company searches undertaken with the Australian Securities and Investment Commission (ASIC) in respect of various entities, including Sino Iron, Sino Iron Holdings Pty Ltd (Sino Iron Holdings), Korean Steel, Balmoral Iron Holdings Pty Ltd (Balmoral Iron Holdings) and CPM.
Mr Harris has also undertaken a search of the companies register for CITIC (formerly known as CITIC Pacific Ltd). That search was undertaken for CITIC as a corporation registered for the Hong Kong Special Administrative Region.
Explaining the CITIC corporate holding structure around various corporate entities, Mr Harris explains a pyramid-like structure, which ultimately sees CITIC as the ultimate holding company of the various entities mentioned, including for CPM. He relates that Korean Steel and Sino Iron were former subsidiary companies of Mineralogy, but then, that Mineralogy had sold all of its shareholding in Sino Iron to Sino Iron Holdings on 6 July 2006. Furthermore, Mr Harris explains that on 22 October 2008 Mineralogy sold off 100% of its shareholding in Korean Steel to Balmoral Iron Holdings. Both holding corporations are ultimately subsidiaries of CITIC.
Commencing at par 12, Mr Harris identifies a series of mining tenements in respect of which Mineralogy is the registered holder. The tenements include miscellaneous licence 08/20, mining leases 08/123 through 08/125, mining leases 08/264 through 08/266 and general purpose leases G08/52 through G08/54. At par 13, Mr Harris explains the location of these tenements is identified on a map prepared by Whelans Surveyors.[9]
[9] MPL.001.004.0022, exhibit 1.0411.
In the context of site remediation obligations applicable to these tenements Mr Harris, under his par 15, assembles in tabular fashion his as undertaken extraction of various conditions said to be applicable to each of the different tenements. For instance, at par 15(a), in relation to miscellaneous licence 08/20, by Condition 5 Mr Harris identifies there the obligation of Mineralogy to the effect:
All topsoil that may be removed ahead of pipelaying operations to be stockpiled for replacement in accordance with the directions of the Inspector.
By Condition 3 in the same miscellaneous licence, terms and conditions contained within Statement No 000635 as issued by the Minister for the Environment on 20 October 2003 are identified.
Mr Harris then identifies multiple and various conditions applicable to the different mining tenements, for instance, obligations in relation to the capping, filling or otherwise making safe of all surface holes drilled for the purposes of exploration or the determination of ore reserves, obligations in respect of the separate stockpiling for replacement after backfilling or completion of operations in relation to all topsoil removed ahead of Mining Operations, the removal of all buildings and structures at the completion of operations to the extent of them being demolished or buried to the satisfaction of the Director, Environmental Division of the Department of Industry and Resources and the like. There are also extensive reporting obligations identified (for instance, see Condition 14 to General Purpose Lease 08/54) concerning project operations, mine site environmental management and rehabilitation work undertaken in the previous 12 months and proposed operations and management plans and rehabilitation programmes for the following 12 months. That is a reporting obligation to the Executive Director, Environmental Division DMP.
Under pars 16 and 17 Mr Harris explains a series of sublease agreements that Mineralogy entered with various subsidiary corporations in the period between 25 October and 21 November 2001. In this period, mining subleases were entered into with Sino Iron (under its prior name of Bellswater Pty Ltd). Bellswater later changed its name to Sino Iron, on 8 March 2005. Subleases were also entered with Korean Steel and Balmoral Iron at the same time. On 21 November 2001, a sublease was entered with International Minerals Pty Ltd (International Minerals).
Under pars 18 and 19 Mr Harris explains that a State Agreement as entered between the State of Western Australia and Mineralogy, Sino Iron and Korean Steel, was ratified by an Act of Parliament that was assented to on 24 September 2002. This is the earlier mentioned State Agreement Act.
Under pars 20 through 23 of his statement Mr Harris then identifies a Joint Development Agreement (JDA) of 12 March 2005 entered into between Mineralogy, Mineralogy Mine Management Pty Ltd, International Minerals, Balmoral Iron and Sino Iron. He explains that at that time each of the companies (other than International Minerals) were subsidiaries of Mineralogy. The purpose of the JDA is explained at par 21 by Mr Harris - by reference to what is outlined by the recitals of the JDA. Mr Harris relates by his pars 21 and 22, and in uncontroversial terms, that:
... Mineralogy had granted, through the Subleases described above, rights to mine magnetite iron ore to several of its subsidiaries which were party to the JDA, but the extraction of the ore pursuant to those rights required a single open cut operation. The JDA, accordingly, sought to coordinate the manner in which the mining rights granted under the Subleases were to be exercised, including through the use of a 'Manager' which was initially to be Mineralogy Mine Management Pty Ltd.
Schedule 1 to the JDA included an allocation of 'Mine Costs' among each of the companies participating in the mining operations.
By his par 22 Mr Harris explains that part of the 'Mine Costs' were 'Site Remediation Costs'. He further explains that cl 5 of schedule 1 to the JDA had said that security was to be provided for Site Remediation Costs by the establishment of a 'Site Remediation Fund'. This reference would appear to be the earliest in time documentary identification of such a fund being established. However, Mr Harris explains, based upon his review of Mineralogy's books and records, that he is not aware of any payments ever having been made by any of the parties to a JDA fund.
The first MRSLAs
At pars 24 through 29, Mr Harris explains that a series of 2005 mining right and site lease agreements entered into between Mineralogy (not to be confused with the subsequent 2006 MRSLAs). The first is referred to as a 'First Sino MRSLA' of 11 May 2005.[10] Similarly, on 27 May 2005 Mineralogy entered a mining right and site lease agreement with Korean Steel, being substantially identical to the First Sino MRSLA, save for references to Sino Iron were instead references to Korean Steel (First Korean MRSLA).[11]
[10] MPL.001.001.1732, exhibit 1.0021.
[11] MPL.001.002.0017, exhibit 1.0022.
Mr Harris observes at his par 26 that the First Sino MRSLA, amongst other things:
(a)was a variation and restatement of and so, had replaced the Sino sublease of 25 October 2001 (referring to cl 2.1 of the First Sino MRSLA);
(b)that Sino Iron was granted certain rights by Mineralogy with respect to the mining of magnetite iron ore, although such rights were to be 'in accordance with the JDA' (cl 4.2) and subject to the terms and conditions identified, including terms and conditions in the JDA (cl 4.3); and
(c)by cl 18.5 of the First Sino MRSLA, that Mineralogy could require Sino Iron to provide reasonable security for the performance of its obligations to carry out 'Site Remediation Work' in the form of a Site Remediation Fund as provided for in the JDA.
For current purposes, the First Sino MRSLA would appear to display a manifestation of a proposed fund to be established for site remediation work - this time on the basis of its establishment for a purpose of providing 'reasonable security' for the performance of such obligations. The First Korean MRSLA contained similar recitals and terms to the First Sino MRSLA.
Mr Harris next relates (at par 29) that on 11 May 2005 Mineralogy had also entered into a mining right and site lease agreement with Balmoral Iron, which he refers to as the 'Balmoral MRSLA'.[12] The recitals in terms of the Balmoral MRSLA area substantially identical to those contained in the First Sino MRSLA.
The second MRSLAs and CITIC's acquisition of Sino Iron and Korean Steel
[12] MPL.001.004.0006, exhibit 1.0019.
At pars 30 through 37 of his statement Mr Harris explains that the First Sino and Korean MRSLAs were further varied and restated under later agreement documents of 21 March 2006, referred to respectively as the 'Second Sino MRSLA'[13] and the 'Second Korean MRSLA'[14] - being the MRSLAs with which this trial is concerned, albeit before their subsequent variations.
[13] MPL.001.001.3530, exhibit 1.0026.
[14] MPL.001.001.3529, exhibit 1.0024.
On the same day, there was a variation and restatement of the Mining Right and Site Lease Agreement with Balmoral, referred to as the 'Second Balmoral MRSLA', and again, containing substantially identical terms as those in the Second Sino and Korean MRSLAs.
Summarising the emergences of the Second Sino and Second Korean MRSLAs, Mr Harris relates (par 32):
(a)the 2006 MRSLAs were a variation and restatement of and so, effectively replaced the First Sino and First Korean MRSLAs (cl 2.1);
(b)a granting of certain rights to Sino Iron and Korean Steel by Mineralogy was no longer to be in accordance with or subject to the terms of the JDA; and
(c)nonetheless, cl 20.5 and 20.6 in each MRSLA enabled Mineralogy to require a provision of reasonable security for the performance of Sino Iron and Korean Steel's obligations to carry out Site Remediation Work on the basis of such security being provided in the form of a Site Remediation Fund.
At par 33(a), Mr Harris explains that on 31 March 2006 Mineralogy, Sino Iron, Sino Iron Holdings and CITIC entered into a takeover agreement (Sino Takeover Agreement).[15] By the Sino Takeover Agreement, Sino Iron Holdings agreed to acquire all the issued share capital in Sino Iron (remembering Sino Iron Holdings was a subsidiary of CITIC as its ultimate holding company).
[15] MPL.001.004.0021, exhibit 1.0034.
Likewise, a similar takeover agreement was entered into between Mineralogy, Balmoral Iron, Balmoral Iron Holdings and CITIC and pursuant to which Balmoral Iron Holdings agreed to acquire all of the issued share capital in Balmoral (Balmoral Takeover Agreement).[16] However, as Mr Harris explains at his par 36, CITIC did not, in the end, proceed with the acquisition of Balmoral under the Balmoral Takeover Agreement. As he relates, in due course a different takeover arrangement was implemented instead and by which, on 27 October 2007, the earlier Balmoral Takeover Agreement was then terminated. In its place, on 1 November 2007, Mineralogy, Korean Steel, Balmoral Iron Holdings, CITIC and various other parties all then entered into a fresh takeover agreement.[17] Under this later agreement Balmoral Iron Holdings (ultimately a subsidiary of CITIC) agreed then to acquire all of the issued share capital in Korean Steel.
[16] MPL.001.002.0038, exhibit 1.0033.
[17] MPL.001.002.0169, exhibit 1.1109.
As explained by Mr Harris at par 33(d) on 31 March 2006, Mineralogy and Sino Iron later entered into a deed of variation which rendered some minor amendments to the Second Sino MRSLA (of 21 March 2006).[18]
[18] MPL.001.002.0018, exhibit 1.0035.
Mr Harris also explained by his par 33(c) that the parties to the JDA, together with the purchasing entities of Sino Iron and Balmoral Iron (at that time) entered into an agreement then suspending the operation of the JDA.[19]
[19] MPL.001.004.0007, exhibit 1.0032.
Mr Harris relates at par 34 that by cl 7.3(d) of the Sino and Balmoral Takeover Agreements:
... Mineralogy, with effect from 'Completion', conditionally assigned all of its rights, title and interest under the JDA to CITIC, but that if CITIC did not exercise a certain option by a certain time, such right, title and interest was to be reassigned back to Mineralogy.
By par 35, Mr Harris explains that a completion in respect of the sale of shares by Mineralogy in its then subsidiary Sino Iron to Sino Iron Holdings duly came to be completed on 6 July 2006. Consequently, Sino Iron then became a subsidiary of CITIC on and from that date.
At par 37, Mr Harris explains that in or about February 2007 another subsidiary of CITIC, namely, CPM was appointed by Sino Iron and Korean Steel to manage the day to day operations of their mining activities under the Second Sino and Second Korean MRSLAs.
At pars 38 through 42 of his witness statement Mr Harris then explains certain events in 2008 concerning the MRSLAs and the FCD.
Concerning the Second Sino MRSLA (entered 21 March 2006, but varied in minor respects on 28 March 2006) Mr Harris relates that this agreement was further amended (completion under the Sino Takeover Agreement having now occurred on 6 July 2006) under a deed of amendment of 8 January 2008.[20] He observes, however, that cl 20.5 and cl 20.6 in the Second Sino MRSLA were not the subject of any amendments.
[20] MPL.001.001.3531, exhibit 1.0048.
In relation to Korean Steel, Mr Harris explains that on 22 October 2008 a takeover by Balmoral Iron Holdings was completed. On that day, Korean Steel from then ultimately became, like Sino Iron before it, a subsidiary of CITIC.
Two further matters of significance occurred on 22 October 2008. First, as Mr Harris explains at par 40(a), Mineralogy and Korean Steel entered into a deed of amendment to amend the Second Korean MRSLA.[21] The amendments were consistent with the amendments made to the Second Sino MRSLA at 8 January 2008.
[21] MPL.001.001.3532, exhibit 1.0054.
Second, on this day, Mineralogy, CITIC, Sino Iron and Korean Steel all then entered into the FCD.[22]
[22] MPL.001.001.0157, exhibit 1.0057.
By reference to cl 2 of the FCD, Mr Harris explains at par 41 that the parties had:
... agreed that the JDA would be suspended and eventually, subject to certain conditions, terminated, with CITIC or its nominee taking on the responsibility for coordinating the activities of Sino Iron and Korean Steel and each of CITIC, Sino Iron and Korean Steel being solely responsible for all 'Mine Costs' incurred.
Finally, Mr Harris relates that subsequent to 22 October 2008 there have been no further amendments made to the Second Sino and the Korean MRSLAs - being the key documents whose clauses are under consideration and at issue in this trial.
Project proposals and annual environmental reports
Mr Harris, at par 43, proceeds to explain that under the State Agreement, Mineralogy as proponent, and Sino Iron and Korean Steel as co‑proponents, had submitted a number of project proposals relating to mining activities to be undertaken by Sino Iron and Korean Steel. Mr Harris identifies five such proposals spanning the period 2 May 2008 through to 6 January 2010. All of the proposals are identified as having been approved.
At par 43(f) Mr Harris identifies proposals which are the subject, variously, of Ministerial Statement 635, Ministerial Statement 882, Ministerial Statement 823, Ministerial Statement 827 or Ministerial Statement 1066. He says that the last proposal by reference to Ministerial Statement 1066 was a proposal in the name of Sino Iron and Korean Steel only. Regarding the subpar 43(f) proposals, Mr Harris does not indicate as to whether they have been approved or otherwise.
By his par 44, Mr Harris refers to two of the submitted project proposals - as the Second Sino Iron concentrate proposal (approved 6 January 2010)[23] and the Second Korean Steel concentrate proposal (also approved 6 January 2010).[24] Mr Harris relates that cl 3.6 of each proposal provides under the heading 'Rehabilitation and Closure', in the following terms:
A Preliminary Decommissioning and Closure management plan has been approved by the EPA. Progressive rehabilitation in accordance with the WRL and TSF Management Plans will take place on the waste rock landforms and the TSF. The WRL and TSF areas located on Plans B, C and D are rehabilitated footprints allowing for re-working of the gradient and batter angles to produce a final form. The WRL and TSF will be built to include a buffer of approximately 50 m at relevant tenement boundaries.
[23] MPL.001.004.0010, exhibit 1.0070.
[24] MPL.001.004.0015, exhibit 1.0071.
Under his par 45, Mr Harris then identifies across the years 2009 - 2010 advancing through to 2018 - 2019, the annual environment reports as were prepared by CPM relating to mining activities as undertaken by Sino Iron and Korean Steel. Mineralogy had submitted those reports annually to the Department of Mines and Petroleum. The 10 annual reports as identified by Mr Harris are referenced to the identified electronic documents found in the trial book.
First requests concerning the Site Remediation Fund by Mineralogy
Commencing at par 46 Mr Harris relates a series of communications emanating from Mineralogy extending back to 11 May 2010, concerning a meeting between CPM and Mineralogy of 10 February 2010.[25] During that meeting it is said that the Site Remediation Fund was discussed and some further information was requested from CPM by Mineralogy at that time. Further correspondence from Mineralogy of 11 June 2010 to CITIC and then Mineralogy's further communication of 8 September 2010 to CPM is identified by Mr Harris at par 48, where Mineralogy had required CPM to deposit $200 million as a site remediation payment.[26]
[25] MPL.001.004.0023, exhibit 1.0106.
[26] MPL.001.001.0146, exhibit 1.0142.
At par 49, Mr Harris identifies a series of communications by letter or email correspondence from Mineralogy to either CPM or CITIC and then, to the responses received to those communications across a period 13 September 2010 to 18 January 2012. As related by Mr Harris, this is essentially background. No suggestion is made in the trial that any of this correspondence constituted a notification by Mineralogy to either Sino Iron or Korean Steel of an annual charge notification that had issued in accordance with the requirements of MRSLA cl 20.6(e) or (f).
At pars 50 and 51 Mr Harris then relates that the NAB account was opened by Mineralogy in April 2014. He says:
50.In April 2014, Mineralogy established a bank account with the National Australia Bank under the name 'Mineralogy Pty Ltd Remediation Account'.
51.On 11 April 2014, Mr Joel Borgeaud of HopgoodGanim (solicitors for Mineralogy at the time) sent an email to Allens, the solicitors for CITIC, Sino Iron, Korean Steel and CPM, advising of the establishment of Site Remediation Fund (MPL.001.001.3051 [exhibit 1.0343].)
Given its forensic importance, I will refer specifically to the full content of the 11 April 2014 communication later in the reasons.
Under pars 52 through 57 of his witness statement, Mr Harris relates various other matters, including Mineralogy's receipt at 10 July 2017 of a letter from the solicitors for the CITIC defendants, Allens, warning, he says, amongst other things, of a 'suspension of the defendants' mining activities in the second half of 2017.'[27]
[27] MPL.001.002.0044, exhibit 1.0479.
At par 53 of his witness statement, Mr Harris refers to a statement by a Mr Chang Zhenming, the chairman of CITIC on 29 August 2017, by way of letter to CITIC shareholders warning of an adverse development potentially jeopardising or leading to the suspension of Sino and Korean Activities.[28] Mr Harris also identifies a communication from Allens to Mineralogy, referring to a potential suspension 'or cessation of activities by Sino Iron and Korean Steel' as at 13 November 2017.[29]
[28] MPL.001.002.0171, exhibit 1.0493.
[29] MPL.001.001.1515, exhibit 1.0502.
At par 55, Mr Harris notes the delivery of my reasons for decision on 24 November 2017 in Mineralogy [No 16].
Then at par 56 he refers to a letter from CPM to Mineralogy of 18 December 2017 making, according to Mr Harris, 'representations as to the potential suspension or cessation of activities by Sino Iron and Korean Steel.'[30] Mr Harris also relates at par 57, a 31 January 2018 statement to the press by CPM entitled 'CITIC appeals judgment in fight to secure Sino Iron's future' and an extract therein to the effect that 'among other things, that the risks identified in the Chairman's letter (described in paragraph 53 above) "remained real".'[31] All this material is relied upon by Mineralogy in terms of supporting its argument about a need for certainty and security as regards it holding available funds for undertaking, if needed, potential early Site Remediation Work. However, albeit uncontroversial, I note in passing that none of the matters as identified by Mr Harris under his pars 52 through 57 of his witness statement, on my assessment, engage against the MRSLA definition of a Mine Closure.
[30] MPL.001.002.0043, exhibit 1.0514.
[31] MPL.001.002.0174, exhibit 1.0724.
Mine Closure is there defined as 'Mine Closure means the permanent cessation of operations at the Mine' (my emphasis). The word 'Mine' is defined as, 'Mine means the open-cut mine to be developed within the Mine Area by Sino and/or other Mine Participants for the mining and extraction of Magnetite Ore.' The term 'Mine Closure' is significant within each MRSLA as regards cl 20. In particular, in subclause 20.6 and in subclause 20.6(e)(ii), which refers to an input factor that is described in terms as 'the number of years remaining until Mine Closure.'
On close examination, none of the matters as identified by Mr Harris under his pars 52 through 57 would, in my assessment, sufficiently engage with the concept of a permanent cessation, or with a threatened permanent cessation of 'operations'. A suspension or temporary suspension of Mining Activities is, of course, a wholly different notion to the permanent cessation of such activities. Against that of course the argument will be made that the materials as collected at this part of Mr Harris' witness statement are still relevant to the prospects of a risk of a permanent cessation following on, in the aftermath of some initial temporary cessation. I will accept this evidence as relevant to be weighed in that respect, in relation to arguments about long-term risks of a permanent early cessation of mining activities.
Commencing at par 58 of his witness statement, Mr Harris now identifies Mineralogy's exchanges with CPM or CITIC, by correspondence exchanged between December 2017 and April 2018, concerning the making of payments into a Site Remediation Fund and Mineralogy's requests for information said to be relevant towards it determining an amount to be paid into such a fund. I note each of the 14 items by way of correspondence or communication under subparagraphs 58(a) through (n) across the period 27 December 2017 to 9 April 2018, including Mineralogy's communications seeking to arrange a site visit in late March 2018.
At pars 59 and 60 of his witness statement, Mr Harris identifies an email communication of 7 February 2018,[32] under which Mineralogy sought to engage Mr Mike Slight and '… requesting him to provide an estimate of costs of remediating the areas the subject of Sino Iron's and Korean Steel's mining activities', and then, Mr Slight's response with a proposal concerning the provision of such an estimate on 10 February 2018.[33]
[32] MPL.001.001.2289, exhibit 1.0540.
[33] MPL.001.001.2073, exhibit 1.0549.
Mr Harris now relates, relevantly to Mineralogy's primary debt claim against Sino Iron, Korean Steel and CITIC in this action, at pars 61 through 63, in the following terms:
61.On 16 April 2018, Mineralogy received from Mike Slight a report entitled Mineralogy Pty Ltd Cape Preston Project Remediation Estimate Report of Mike Slight (2018 Slight Report), which estimated the Site Remediation Costs based on the then-current disturbance at $529,378,207 (MPL.001.001.3866 [exhibit 1.0666]).
62.Later on 16 April 2018, Mineralogy sent a letter to CPM giving notice of its determination for Sino Iron and Korean Steel to pay $529,378,207 into the Site Remediation Fund (2018 Determination) (MPL.001.001.3866 [exhibit 1.0666]).
63.On 18 April 2018, CPM responded to Mineralogy's 2018 Determination stating, in effect, that neither Sino Iron nor Korean Steel would make payments into the Site Remediation Fund (MPL.001.001.3884 [exhibit 1.0679]).
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin
24 FEBRUARY 2021
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: MINERALOGY PTY LTD -v- SINO IRON PTY LTD [2021] WASC 45 (S)
CORAM: KENNETH MARTIN J
HEARD: ON THE PAPERS
DELIVERED : 29 SEPTEMBER 2022
FILE NO/S: CIV 2840 of 2018
BETWEEN: MINERALOGY PTY LTD
Plaintiff
AND
SINO IRON PTY LTD
First Defendant
KOREAN STEEL PTY LTD
Second Defendant
CITIC LTD
Third Defendant
SINO IRON PTY LTD
First Plaintiff by Counterclaim
KOREAN STEEL PTY LTD
Second Plaintiff by Counterclaim
AND
MINERALOGY PTY LTD
First Defendant by Counterclaim
Catchwords:
Costs - Determination after reasons for decision - Decision on the papers on the basis of exchange of written submissions - Turns on own facts
Legislation:
Legal Profession Act 2008 (WA)
Result:
Application for one third costs apportionment dismissed
Application for special costs orders allowed
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | No appearance |
| First Defendant | : | No appearance |
| Second Defendant | : | No appearance |
| Third Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Hamid Mirza |
| First Defendant | : | Allens |
| Second Defendant | : | Allens |
| Third Defendant | : | Allens |
Counterclaim
Counsel:
| First Plaintiff by Counterclaim | : | No appearance |
| Second Plaintiff by Counterclaim | : | No appearance |
| First Defendant by Counterclaim | : | No appearance |
Solicitors:
| First Plaintiff by Counterclaim | : | Allens |
| Second Plaintiff by Counterclaim | : | Allens |
| First Defendant by Counterclaim | : | Hamid Mirza |
Case(s) referred to in decision(s):
CITIC Ltd v Mineralogy Pty Ltd [No 7] [2021] WASC 371
Heartlink Pty Ltd v Jones (as liquidator of HL Diagnostics Pty Ltd (in liq)) [2007] WASC 254
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2021] WASC 45
Samsung C&T Corporation v Loots [2016] WASC 330 (S)
Souter v Condor Developments Pty Ltd [2012] WASCA 227
KENNETH MARTIN J:
Introduction
The trial of this action proceeded across six days during November 2020. The reasons for decision spanned 160 pages and were delivered on 24 February 2021 in Mineralogy Pty Ltd v Sino Iron Pty Ltd [2021] WASC 45.
Essentially, my conclusion was that the plaintiff's (Mineralogy's) claim wholly failed. Likewise, the counterclaim of the defendants (Sino Iron, Korean Steel and CITIC) ('the CITIC parties') against Mineralogy also failed.
At the conclusion of the primary reasons at [574], [575] and [576], I continued:
574.These reasons will now be provided to the parties before any orders are made.
575.In the end result, however, the orders that should issue, prima facie, present as being:
1.Mineralogy's action is dismissed.
2.The counterclaim of the CITIC defendants is dismissed.
3.In each instance, costs should follow those outcomes.
576.I will hear the parties if necessary as to the final dispositive orders, including as to costs, if post conferral over a period of 14 days, the parties are unable to present an agreed minute of orders to the court giving effect to these reasons.
At 27 April 2021, the parties had not reached agreement concerning dispositive orders or orders as to costs. At that time, I made orders programming an exchange of rival minutes and written submissions by the parties - which the parties had consented to by a signed minute of proposed consent orders provided to chambers on 22 April 2021.
Mineralogy's minute of proposed final orders is found at annexure A of its submissions filed on 4 May 2021 (folio 156). The CITIC parties' minute of proposed final orders was also filed on 4 May 2021 (folio 158).
The parties' respective minutes as exchanged confirm that there is a dispute over costs orders, including a making of the special costs orders in the wake of the trial reasons.
But there was no disagreement concerning dispositive orders addressing the claim and the counterclaim.
Consequently, on 20 May 2021, final orders issued in terms that:
1.The plaintiff's action is dismissed.
2.The defendants' counterclaim is dismissed.
3.All other issues including as to costs and special costs orders are reserved to be dealt with either on the papers or following a further hearing appointment to be advised.
As a result of order 3 above, these reasons are concerned with the residual questions of costs and special costs orders - as identified and reserved under the orders of 20 May 2021, as seen above.
In the interim, the matter proceeded to an appeal which was heard before the Court of Appeal during May 2022, with the reasons for decision presently reserved.
The parties' positions on costs orders
Before elaborating further on the parties' current disagreement concerning costs and special costs orders, it is convenient to contrast the rival minutes of as proposed final orders which they have submitted on those issues.
By Mineralogy's minute of proposed final orders, it was proposed:
…
3.The plaintiff shall pay one-third of the defendants' costs of the action (including any reserved costs) to be taxed if not agreed.
4.The defendants shall pay the plaintiff's costs of the counterclaim (including any reserved costs) to be taxed if not agreed.
By contrast, the minute of proposed final orders as was submitted on behalf of the CITIC parties contended for orders:
…
3.The plaintiff shall pay the defendants' costs of the action (including any reserved costs) to be taxed if not agreed.
4.The defendants shall pay the plaintiff's costs of the counterclaim (including any reserved costs) to be taxed if not agreed.
5.Special costs orders be made under s 280(2) of the Legal Profession Act 2008 (WA) that the defendants' costs of the action, and the plaintiff's costs of the counterclaim, be taxed without the limits imposed by: -
(a)the maximum allowable hourly and daily rates for Senior Counsel and Senior practitioners fixed under Table A of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA) and under Table A of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2020 (WA); and
(b)the maximum allowances for time, number of legal practitioners and total costs or by the classification of the experience of the fee earner under items 3, 4, 7, 8, 10(a), 18, 21 and 25 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 (WA) and under items 10(a), 19, 22 and 27 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2020 (WA),
and any taxation be performed on the basis that an allowance be made for the costs of Senior Counsel and two Junior Counsel including for attendance at all pre-trial hearings and the trial.
As might be discerned from comparing the two minutes, concerning costs and special costs orders, there are essentially two key areas of disagreement manifesting as between the parties.
First, and less difficult to resolve, is their disagreement over special costs orders - as articulated under proposed order 5 of the CITIC parties' proposed minute. Mineralogy's written costs submissions of 4 May 2021 (folio 156), as will be seen, do not agree with those orders. However, at par 30 of its submissions, Mineralogy had effectively reserved its position until after seeing the CITIC parties' submissions.
Paragraph 30 of Mineralogy's submissions also said, however, that if such orders for increased levels of allowance were made, then they ought be made equally in its favour - concerning its entitlement to receive costs regarding the dismissal of the CITIC parties' counterclaim.
As now seen, the CITIC parties' proposed orders were framed in those equivalent terms for the counterclaim costs under proposed order 4 of its minute. Likewise, see the chapeau to proposed order 5 of the CITIC parties' minute - which specifies that any taxation be performed with an allowance for the costs of two junior counsel and senior counsel.
The second and greater area of controversy arises over Mineralogy's suggested costs apportionment for its action in relation to proposed order 3 of its minute. There seen, it is proposed that, notwithstanding defeat of its action, that Mineralogy should only bear an exposure to one‑third of the CITIC parties' costs.
As I will explain, I am ultimately of the view that the prima facie costs position, as was indicated at the conclusion of my reasons under [575] at point 3 therein, remains the appropriate final disposition concerning costs.
The present costs application is being determined on the papers without need for the in person attendances of counsel.
My chambers was notified by email on 24 May 2022 by Mr Andrew Burns of Allens, the lawyers for the CITIC parties (copied to the lawyers for Mineralogy), that '… the parties are content for these issues to be determined on the papers and, in those circumstance, respectfully request that the Court proceed to determine them on that basis.'
I proceed accordingly.
Special costs orders
Under s 280(2) of the Legal Profession Act 2008 (WA), there are two limbs to be satisfied. The first is that a court, or judicial officer, is of the opinion that the costs allowable under a costs determination would be inadequate - then second, that the reason for the inadequacy is found in one or more of the unusual difficulty, complexity or importance of the matter. See observations of Martin CJ in Heartlink Pty Ltd v Jones (as liquidator of HL Diagnostics Pty Ltd (in liq)) [2007] WASC 254 at [10], [23].
Concerning the first in principle area of disagreement over special costs orders, I am thoroughly satisfied here, as trial judge that an orthodox taxation approach would be unlikely to deliver a fair result over a recoupment of legal costs outlaid by either side. This view is driven by reference to my more than well remembered assessment of the considerable scale and magnitude of issues in dispute at that trial
- and in considering the costs of the action and the defending the action and the counterclaim. The first limb of s 280(2) of the Legal Profession Act 2008 (WA) is accordingly, well met.In terms of the second limb of s 280(2), I am equally satisfied that all the tripartite, disjunctive criteria, specifying unusual difficulty, complexity and importance for the matter to the parties - are thoroughly satisfied by these trial and counterclaim underlying circumstances. Understandably, no real arguments to the contrary were made on that point.
Costs apportionment by reference to issues won and lost in the action
The more substantively disputed issue is over a suggested costs apportionment for the action, as sought by Mineralogy. This exercise requires a redigestion of my 24 February 2021 reasons - given the time has now elapsed since those trial reasons were delivered. Indeed, a redigestion of past issues is needed to support any adjustment away upon the prima facie entitlement to costs ordered in favour of the CITIC parties - as the successful trial parties on that action, vis-à-vis the failure of Mineralogy's action at trial.
As usual, the parties exchanged written submissions to facilitate an on the papers costs determination exercise. To that end, I hold exchanged written submissions concerning final orders and costs:
(a)The CITIC parties' submissions on final costs orders (folio 157, filed 4 May 2021);
(b)Mineralogy's submissions on final costs orders (folio 156, also filed 4 May 2021); and
(c)The CITIC parties' reply submissions on final costs orders (folio 160, filed 7 May 2021).
For the purposes of the present exercise, I simply incorporate all those costs submissions respectively as Schedules A, B and C to the reasons.
The written submissions may be viewed, in their totality, from a perspective of this residual issue over whether or not there ought be a costs adjustment made concerning the action - and if Mineralogy should be granted, in effect, a two‑thirds taxed costs denial order it is seeking against the CITIC parties.
As further evidence, the CITIC parties also read and rely upon the affidavit of Richard Gordon Lilly dated 4 May 2021 (folio 159). It stands as essentially uncontradicted evidence, which I will accept.
Discussion
My earlier costs reasons in CITIC Ltd v Mineralogy Pty Ltd [No 7] [2021] WASC 371 identified a number of legal principles concerning the rendering of post-trial costs orders: see [13] - [31] inclusive from those reasons.
Those reasons were essentially delivered in another civil dispute between the same protagonists as the China Project Option Agreement (CPOA) litigation.
My ninth to sixteenth points from these CPOA costs reasons address issues around a potential costs apportionment - predicated upon partial degrees of success or failure - in a trial context of where multiple issues were decided at trial. For ease of reference, I repeat those reasons below:
[23]Ninth, the discretion of a court concerning an award of costs allows it to evaluate the parties' respective successes or failures upon the issues in dispute at the trial: see RSC O 66 r 1(3). Nevertheless, a court will be slow to proceed to exercise that discretion by reference to the discrete issues resolved by a trial: see Les Laboratoires Servier v Apotex Pty Ltd [2015] FCAFC 27; (2016) 247 FCR 61 at [303] and Souter v Condor Developments Pty Ltd [2012] WASCA 227 at [28].
[24]Tenth, even if a court does not accept all of a successful party's arguments at a trial, that does not of itself render it appropriate to deal with costs orders on an issue by issue basis: see State of Victoria v Sportsbet Pty Ltd (No 2) [2012] FCAFC 174 at [8] (Emmett, Kenny and Middleton JJ).
[25]Eleventh¸ a court's discretion to render an award of costs by undertaking an assessment conducted by reference to trial issues won or lost, would only to be exercised in the clearest of cases: see KSG Investments Pty Ltd v Open Markets Group Ltd (No 2) [2021] VSC 359 at [8] (Nichols J).
[26]Twelfth, a court may depart from the ordinary rule that costs follow the event - so as to modify a costs order to take into account matters such as a level of unreasonable conduct by an otherwise successful party, or say by the failure at trial of the otherwise successful party upon one or more specifically identifiable issues that had consumed trial resources: see Strzlecki Holdings v Jorgensen[2019] WASCA 96 at [50].
[27]Thirteenth, what constitutes success in proceedings is to be determined by the reality of the circumstances involved in any particular case: see Strzelecki Holdings v Jorgenson at [50], referring to Oshlack v Richmond River Council at [70] per McHugh J.
[28]Fourteenth, the extent to which a court's discretion is exercised to reduce costs for a successful party, ought be approached as a matter of overall impression, without requiring any higher degree of mathematical precision: Amica Pty Ltd v Hannell [2007] WASCA 158 (S) at [7]; May v Thomas [2014] WASCA 176 (S) at [5] (Martin CJ); David Weiping Chen & Ors v Kim Man Chan & Ors (No 2) (2009) VSCA 233 at [10] (Maxwell P, Redlich JA and Forrest AJA).
[29]Fifteenth, a court does not go back to 'comb' through resolved proceedings to separate out issues on which the successful party has not been successful so as, in some way, to moderate a usual order as to costs: see KSG Investments Pty Ltd v Open Markets Group Ltd (No 2) at [8] (Nichols J).
[30]Sixteenth, an exercise of the court's discretion as to costs by some evaluation conducted towards issues won or lost - may be more appropriate where discrete and severable issues can be readily identified and upon which the otherwise generally successful party can be seen to have failed especially where the determination of such issues is discerned to have added to the cost of the proceedings in a significant way: see Amica v Hannell at [7] (Martin CJ, Steytler P and McLure JA). Nevertheless, the court exercises 'particular caution before departing from the ordinary rule that costs follow the event': see Sandoz Pty Ltd v H Lundbeck A/S (No 2) [2021] FCAFC 47 at [57] (Nicholas, Yates and Beach JJ).
Within the present context, an (issues based) apportionment against the costs of the action, so as to reduce the prima facie costs exposure of Mineralogy to the CITIC parties, is summarised at par 3 of Mineralogy's written submissions (see Schedule B). That outcome is advocated on a basis it is said that Mineralogy succeeded on the issue it called the 'remediation costs estimate'.
Mineralogy said at par 3 of its costs submissions that:
The correctness of Mineralogy's remediation costs estimate was put in issue by the defendants and turned what would otherwise have been a relatively short and straightforward proceeding involving questions of contractual construction [concerning the MRSLAs and other clauses concerning a Site Remediation Fund to be established] into a proceeding that saw tens-of-thousands of documents produced in discovery, long and complex expert evidence and significant time spent at trial dealing with technical matters of estimating remediation costs.
It is also said, for Mineralogy, that the CITIC parties ought not to receive their, no doubt, very substantial legal costs incurred pursuing this discrete issue which they (unnecessarily) put into contention - and upon which Mineralogy says the CITIC parties failed at trial in the end.
Under par 8 of its written submissions, Mineralogy says there were essentially three major issues in play in the action at the trial, namely MRSLA construction issues, the designated trust account issue and then, the other remediation costs estimate issue.
Mineralogy says that the construction issues and trust account issues were essentially straightforward - but that it was the remediation costs estimate issue which generated the need for a massive discovery, the expert evidence and associated waste under circumstances - where the CITIC parties ultimately failed on that last issue (see also pars 9 through 15 of Mineralogy's submissions on costs).
At par 17 of its costs submissions, Mineralogy said:
This was in contradistinction to the questions relevant to the remediation costs estimate issue, including the standard of review -
referring to reasons [342] - [351] of the primary decision and
[391] - [395] -and the grounds of attack made by the defendants on Mr Slight's [Mineralogy's expert] estimate -
under reasons for decision [360] - [390] and [400] - [428].
By par 19 of its costs submissions, Mineralogy says the fact it succeeded at trial on the question of the (non)reviewability, and reasonableness of its as adopted 'best prevailing estimate' for remediation costs, demonstrates the extent to which this issue had involved a wholly discrete and so, a severable trial issue - apart from those on which the CITIC parties did succeed.
Mineralogy further contends, by pars 20 through 27 of its submissions, that this remediation costs estimate issue added substantially to the legal costs of the action - emphasising particularly what was a substantial discovery obligation occasioned on each side. This issue also gave rise to complex expert evidence spanning two of the six days of the trial and involving the use and discussion of detailed site remediation costing models.
There followed then, the significant closing trial submissions over these remediation estimates - on which Mineralogy was ultimately successful. But that issue success was of no ultimate reward to Mineralogy - by reason of its failure in respect of the other two significant issues in the action.
Mineralogy concluded its costs submissions at par 27 - seeking an order that the CITIC parties pay its costs of the counterclaim, observing correctly that such an order was not contested. More controversially, Mineralogy suggested the CITIC parties should only receive one-third of their costs of Mineralogy's action, as:
... in light of the fact that the majority of costs incurred by the defendants were likely attributable to the remediation costs estimate issue on which they failed. Alternatively, and consistent with the outcome in Merilla [Merilla Pty Ltd v Commonwealth of Australia [2015] WASC 309 (S)], the defendants would be content for there to simply be no order as to costs in these proceedings.
Nevertheless, the CITIC parties' reply submissions on costs orders (see Schedule C), point to dangers of an issues based approach being applied to the questions of costs in the wake of a trial result - where there are some measures of success and failure on various claims and issues. In particular, they emphasised the cautionary observations made to that end by Newnes JA in Souter v Condor Developments Pty Ltd [2012] WASCA 227 at [28] and later, to the observations of Beech J (as his Honour then was) in Samsung C&T Corporation v Loots [2016] WASC 330 (S) at [8] - [9].
The CITIC parties contend that the viability of the views of Mr Slight, who was Mineralogy's expert, and his remediation costs estimate had permeated the whole of Mineralogy's action - and so was not capable of a 'clean' severance as Mineralogy suggested.
They point out that there had been a related allegation of bad faith predicated on the CITIC parties' failure to pay amounts demanded under Mineralogy's notices of demand - which were issued at the levels of the very same amount as Mr Slight's estimate had provided to Mineralogy. It was said that the assertion of bad faith invited attention to the validity of the estimate giving rise to the demands as issued.
Furthermore, the CITIC parties point out, correctly and convincingly, in my view, that the trial was conducted by reference to Mineralogy's statement of claim - a pleading which sought as its relief, in the alternative, that the court would render its own substitute determination towards setting a reasonable security amount to be payable by the CITIC parties.
They observed, again correctly in my view, that any such assessment by the court would have been needed to have been undertaken, necessarily, by reference to expert evidence - as well as by regard to issues of construction as exposed by the pleadings. There is also force in that submission, as I will explain shortly.
The CITIC parties also submit, at par 7, by their reply submissions, that Mr Slight's evidence was relied upon by Mineralogy to support its preferred contractual construction for remediation obligations being said to be 'common practice in the mining industry'. Therefore, providing of 'up front security' for the 'full cost' of a remediation as Mineralogy had sought had provided, in effect, a part of the surrounding circumstances influencing a construction of cl 20.6 in the MRSLAs as had been favoured by Mineralogy at the trial of the action.
Consequentially, it was legitimate for the CITIC parties, they submit, to respond to controversial expert evidence from Mineralogy with evidence adduced from their own remediation expert, Mr Cramer. His evidence was adduced to clarify practices within the mining industry and to explain the difference between financial assurance and financial liability estimates by the experts - and as between various forms of up front and progressive, cash and non-cash forms of remediation security provided generally - in the overall context of remediation obligations concerning mining projects.
All this bears to support the base submission of the CITIC parties
- that the site remediation issue was never a discrete and severable issue as Mineralogy now seeks to portray it. Rather, that issue, the CITIC parties say, permeated the whole trial. That I must say was strongly the impression I discerned as the trial judge.
Resolution
I have afforded close consideration to the apportionment submission by Mineralogy concerning the contended costs reduction it now seeks to reduce its prima facie costs exposure to the CITIC parties - vis-à-vis the costs of the action. However, on my assessment, Mineralogy's apportionment contention is afflicted by an undue reliance upon the benefits of a post trial level of hindsight, acquired from the trial reasons as provided.
Using all the benefits of hindsight, I have little doubt, viewing the rival positions as ultimately reached under the reasons concerning the action, that the site remediation issue may have been earlier amendable to being carved out - to be reduced to its constructional essence for the purpose of a more confined issues trial - by confining the exercise to one of the pure interpretation of the words of cl 20.6 manifesting in each MRSLA.
If, for instance, again using the benefit of too much hindsight, the parties had asked the court merely to determine whether, for the purposes of cl 20.6(e)(i), a best prevailing estimate of Mineralogy of an amount of future site remediation costs, if rendered honestly, was capable of being challenged or reviewed by the CITIC parties over its merits - then I may well have accepted earlier that the scale of discovery and the range of the expert evidence that came to be adduced at the trial might have been significantly truncated.
However, the parties chose in the end to pursue this litigation under their historically observed attritional 'scorched earth' battle approach - raising every possible argument and then every conceivable defence argument in opposition for the court to resolve.
The attritional approach to civil litigation is both expensive and exhausting. Here, I accept the force of the CITIC parties' observation that, as the action approached a trial and as the trial was conducted, Mineralogy was seeking to forensically shore up its position to obtain end relief (see pars 82 and 84 of the final iteration of its pleading
- which may be found set out at [20] of the primary reasons) - on a basis that a court would itself, and should, if Mineralogy's own estimate amount was not accepted, go on to determine an appropriate amount towards the payments by the CITIC parties into the site remediation fund.Ultimately, I rejected the appropriateness of any such fall-back exercise argument. But that relief was certainly a live potentiality throughout the course of the trial. The potential task for the court was not disposed of until, with the benefit at trial of all the trial submissions, the court was able to safely conclude that it would not undertake such a task (see the primary reasons at [303] and [458]).
At the end, I am of the view that the remediation costs estimate issue was very much always closely bound up in the action - to an extent that it was not unreasonable for the CITIC parties to comprehensively engage with it at all levels - as they did.
In such circumstances, an issue grounded apportionment towards costs in respect of that issue, on my view, would not be a just or tenable costs outcome assessed in all the circumstances.
Consequently, orders should now issue upon the publication of these reasons as proposed towards costs in the terms of the CITIC parties' minute as seen set out earlier at pars 3, 4 and 5 at [13].
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DM
Associate to the Honourable Justice Martin
29 SEPTEMBER 2022
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