Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16]
[2017] WASC 340
•24 NOVEMBER 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MINERALOGY PTY LTD -v- SINO IRON PTY LTD [No 16] [2017] WASC 340
CORAM: KENNETH MARTIN J
HEARD: 14-16, 19-23, 28 & 29 JUNE 2017 AND BY THE PARTIES' EXCHANGED WRITTEN SUBMISSIONS OF 12 & 19 OCTOBER 2017
DELIVERED : 24 NOVEMBER 2017
FILE NO/S: CIV 1808 of 2013
BETWEEN: MINERALOGY PTY LTD
Plaintiff
AND
SINO IRON PTY LTD
First DefendantKOREAN STEEL PTY LTD
Second DefendantCITIC LTD (formerly CITIC PACIFIC LTD)
Third Defendant
Catchwords:
Contract - Interpretation - Constructional choice - Royalty payment clause - Long term contract - Market pricing reference criteria - Independent products used by reference - Former benchmark pricing system for iron ore - Redundancy of former benchmark pricing system after 2010 - Criteria for market pricing in contract to derive royalty following redundancy of former benchmark pricing system - Argued severability of production royalty clause in contract - Prior negotiations evidence as an aid to interpretation of ambiguous royalty payment clause
Contract - Interpretation - Expert determination clause - Scope of expert's jurisdiction to interpret and apply aspects of market reference pricing clause
Contract - Contended implied terms - Non-severability of royalty component clause - Implied term contended in alternative for fair and reasonable royalty
Contract - Eshelby constraint - Royalty payments falling due after proceedings commenced
Practice and procedure - Cross-vesting - Whether court exercising jurisdiction conferred by cross-vesting legislation - Whether s 11(1)(c) of Cross-vesting Act applies
Legislation:
Civil Procedure Act 2005 (NSW)
Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW)
Jurisdiction of Courts (Cross-vesting) Act 1987 (WA)
Result:
Judgment for plaintiff against first and second defendants
Category: B
Representation:
Counsel:
Plaintiff: Mr T Bradley QC, Mr T R March & Mr K S Byrne
First Defendant : Mr C M Scerri QC, Mr S H Parmenter & Ms T N Spencer Bruce
Second Defendant : Mr C M Scerri QC, Mr S H Parmenter & Ms T N Spencer Bruce
Third Defendant : Mr C M Scerri QC, Mr S H Parmenter & Ms T N Spencer Bruce
Solicitors:
Plaintiff: Mr Kane Jones
First Defendant : Allens
Second Defendant : Allens
Third Defendant : Allens
Case(s) referred to in judgment(s):
AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd (formerly Txu Networks (Gas) Pty Ltd) [2006] VSCA 173
Australian Broadcasting Corporation v Waterhouse (1991) 25 NSWLR 519
Australian Mutual Provident Society v Overseas Telecommunications Commission (Australia) [1972] 2 NSWLR 806
Australian Tape Manufacturers Association Ltd v Commonwealth of Australia [1993] HCA 10; (1993) 176 CLR 480
Australian Vintage Ltd v Belvino Investments (No 2) Pty Ltd [2015] NSWCA 275; (2015) 90 NSWLR 367
Baldry v Jackson [1976] 2 NSWLR 415
Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2017] WASCA 127; (2017) 51 WAR 341
BHP Billiton Ltd v Schultz [2004] HCA 61; (2004) 221 CLR 400
Big River Paradise Ltd v Congreve [2008] NZCA 78; [2008] 2 NZLR 402
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334
Booker Industries Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600
Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833
Cable and Wireless PLC v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm); [2002] 2 All ER (Comm) 1041
CGS & Co Pty Ltd v The Owners - Strata Plan No 5290 [2010] NSWSC 1173
Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd [1986] HCA 14; (1986) 160 CLR 226
Cudgen Rutile (No 2) Pty Ltd v Chalk [1975] AC 520; [1975] 2 WLR 1
David Syme & Co Ltd v Grey (1992) 38 FCR 303; (1992) 115 ALR 247
Dovuro Pty Ltd v Wilkins [2000] FCA 1902; (2000) 105 FCR 476
Downer Engineering Power Pty Ltd v P & H Minepro Australasia Pty Ltd [2007] NSWCA 318
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Eshelby v Federated European Bank Ltd [1932] 1 KB 423
Esso Australia Ltd v Australian Petroleum Agents' & Distributors' Association [1999] 3 VR 642
F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53
Fitness First Australia Pty Ltd v Fenshaw Pty Ltd [2016] NSWCA 207; (2016) 92 NSWLR 128
Flaherty v Girgis [1987] HCA 17; (1987) 162 CLR 574
Foley v Classique Coaches Ltd [1934] All ER Rep 88; [1934] 2 KB 1
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160
Hawthorn Football Club Ltd v Harding [1988] VR 49
John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503
Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310
Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2001] 2 All ER (Comm) 193; [2001] EWCA Civ 406
Mercury Communications Ltd v Director General of Telecommunications [1994] CLC 1125
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] NSWSC 466
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2015] WASC 454
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 14] [2017] WASC 17
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 15] [2017] WASC 339
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 2] [2013] WASC 375
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 8] [2015] WASC 473
Morrow v Chinadotcom Corporation [2001] NSWSC 209
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Radley Court Pty Ltd v Hall (Unreported, NSWSC, 22 February 1978)
Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511
Rediffusion (Hong Kong) Ltd v Attorney-General (Hong Kong) [1970] AC 1136
Reidy v Trustee of the Christian Brothers (1994) 12 WAR 583
Savcor Pty Ltd v State of New South Wales [2001] NSWSC 596; (2001) 52 NSWLR 587
Scott v Avery (1856) 10 ER 1121
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Servcorp (Aust) Pty Ltd v Abgarus Pty Ltd (1995) 38 NSWLR 281
Shire of Rodney v Vibert [1915] VLR 388
Shoalhaven City Council v Firedam Civil Engineering Pty Ltd [2011] HCA 38; (2011) 244 CLR 305
Simic v New South Wales Land and Housing Corporation [2016] HCA 47; (2016) 339 ALR 200
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76
Sport Maska Inc v Zittrer [1988] 1 SCR 564
Stanton v Federal Commissioner of Taxation [1955] HCA 56; (1955) 92 CLR 630
Straits Exploration (Australia) Pty Ltd v Murchison United NL [2005] WASCA 241; (2005) 31 WAR 187
Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564
Water Authority of Western Australia v AIL Holdings Pty Ltd [No 2] (1992) 10 WAR 233
Wigan v Edwards (1973) 1 ALR 497; (1973) 47 ALJR 586
WMC Resources Ltd v Leighton Contractors Pty Ltd [1999] WASCA 10; (1999) 20 WAR 489
Table of Contents
PART A - OVERVIEW
A brief background: The fundamentals
Main issues at trial
Mineralogy's position
The CITIC defendants' positions
PART B: THE COURT'S CROSS-VESTED JURISDICTION
The main issues concerning cross-vested jurisdiction and its significance
Background facts concerning the transfer of the proceedings to this court
Parties' positions
Whether the chapeau to s 11(1) of the WA Cross-vesting Act is engaged or not
Section 11 of the WA Cross-vesting Act
Preliminary observations
Observations upon four 1988 articles about cross-vesting
My determination as regards the chapeau to s 11(1)
Whether procedural rules of New South Wales applies pursuant to s 11(1)(c)
An alternate approach
PART C: BACKGROUND FACTS SURROUNDING THE MRSLAs
The State Agreement between Mineralogy, Sino Iron and Korean Steel
Summary of background and lead-up MRSLA facts
March 2006: The 100% CITIC transaction ultimately entered
Concluding observations upon the lead-up negotiations culminating at March 2006
The trial evidence
Agreed facts in the December 1992 - July 2006 period arising out of the parties' chronology of agreed facts
December 1992 - May 2005
October 2005 - July 2006
April 2006 - July 2006
PART D: THE CONSTRUCTION OF THE MRP PHRASE USED IN 'PP' AND 'CP' IN THE RCB FORMULA IN MRSLA CL 8.2(a)
The legal nature of a royalty
Contractual construction: general principles
Contractual construction: Admissibility of prior negotiation evidence
Clause 8: The critical clause
Components of the RCB calculation formula not in dispute
General observations upon RCB within cl 8.2(a) of each MRSLA
Some further observations on the RCB formula in cl 8.2(a) of each MRSLA
An example calculation of RCB
Contended relevant surrounding circumstances as submitted by the parties as relevant context towards the interpretation of the MRSLAs
Surrounding conclusions on the MRP phrase environment
The parties' approach to the favoured meaning of the MRP phrase within the RCB calculation formula
Mineralogy's contended construction of the MRP phrase
The CITIC defendants' contended construction of the MRP phrase
Evaluation of the parties' contended construction of the RCB phrase
My end construction of the MRP phrase within the RCB calculation formula
Consequences flowing from the CITIC defendants' constructional choice interpretation
Severance
A contended fair and reasonable royalty for Mineralogy
Expert determination
PART E: AN EXPERT DETERMINATION UPON RCB
Clause 8.6 and cl 33 in the MRSLAs
Some general observations on MRSLA cl 33
Expert determination clauses: Legal principles
Scope of expert determination clauses
Mineralogy's submissions on cl 8.6 and cl 33
The CITIC defendants' submissions on cl 8.6 and cl 33
Conclusions on the parties' arguments on cl 8.6 and cl 33
Determination on expert process
The CITIC defendants' waiver arguments concerning the expert determination clauses
The position so far
PART F: THE EXPERT EVIDENCE AT THE TRIAL
The expert trial evidence: Overview
The CITIC defendants' six experts
Mr Barkas
Mr Buckley
Mr Norris
Dr Fisher
Mr Twigger
Mr Morris
Mr Brierley
Mr Brierley's approach to deriving annual DMTU FOB prices
Joint expert memorandum of 2 June 2017
Comments on the experts' areas of disagreement
Mr Brierley's use of the Vale SA pellet pricing data
The CITIC defendants' criticisms of Mr Brierley's work
Mineralogy's responses to the CITIC defendants' criticism of Mr Brierley's work
Conclusions regarding Mr Brierley's opinions
Mr Birkett
PART G: GUARANTEE CLAIMS FOR RCB AGAINST CITIC AS THE THIRD DEFENDANT
PART H: OTHER CLAIMS
The CITIC defendants' counterclaim that Mineralogy breached the express good faith term under cl 37.4
Implied terms contended for by the CITIC parties (absent severance)
PART I: SUMMARY OF CONCLUSIONS
Orders for judgment
KENNETH MARTIN J: Under Australian contract law it is unquestioned that the faithful performance of a promised future commitment that is made in exchange for a legal consideration and which is freely accepted is not optional.
PART A - OVERVIEW
Mineralogy Pty Ltd (Mineralogy) claims against the first and second defendants for liquidated royalty amounts it says are due and are payable to it as product volume royalties. The royalty obligation to Mineralogy is said to arise out of Mineralogy's contractual rights to be paid under two written contracts entered with the defendant corporations, Sino Iron Pty Ltd (Sino Iron) and Korean Steel Pty Ltd (Korean Steel), on 21 March 2006 respectively (see exhibits 1.17 and 1.20). Both contracts are expressly stated to be governed by Western Australian law under cl 38.4(a).
The two written contracts providing Mineralogy's rights to royalty payments from Sino Iron and Korean Steel are both called Mining Right and Site Lease Agreements (MRSLAs). They are expressly stated to be 'entire agreements' that supersede 'all previous agreements, understandings and negotiations' (MRSLA cl 38.7).
For all intents and purposes the two MRSLAs are identical in their terms (see ts 1,638). Sino Iron and Korean Steel are each individually allowed by Mineralogy to occupy and to mine for a fixed amount (one billion tonnes) of magnetite iron ore in a mining lease area (see MRSLA schedule, page 75). That mining lease area was granted to Mineralogy by the State of Western Australia (the State) and is in the north-west of Western Australia (in the area known as Cape Preston).
The two 2006 MRSLAs cover the same geographic area (see exhibit 1.17 and 1.20, Annexure 1, Plan B, page 78). That is the location for what in 2017 is now a massive iron ore mining, processing and export project that has been jointly constructed and operated by Sino Iron and Korean Steel (see exhibit 14, affidavit of Malcolm James Northey affirmed on 15 April 2017, par 28). Their joint approach effectively sees, as between the two MRSLAs, a total extraction limit of two billion tonnes of magnetite ore permitted to be mined over the long term duration of the two MRSLAs.
A third defendant, the overseas corporation CITIC Ltd (CITIC), became and is now, effectively, the ultimate parent holding corporation of Sino Iron and Korean Steel (see exhibit 1.76, annexure A). CITIC is a significant Hong Kong‑based corporate entity that is listed on the Hong Kong Stock Exchange.
CITIC is pursued in this action by Mineralogy, effectively as a contended guarantor of Sino Iron and Korean Steel's royalty payment obligations (see Mineralogy's fifth further amended statement of claim of 24 January 2017 (fifth FASOC), pars 41 - 46).
CITIC's guarantee obligations arise under another (subsequent) written agreement known as the Fortescue Coordination Deed of 22 October 2008 (FCD) (exhibit 1.24).
I will refer to the three defendants in aggregate as 'the CITIC defendants'.
The essential question at issue and concerning all defendants at the trial is whether or not any amounts of royalty money are due and payable, as claimed by Mineralogy under the MRSLAs, in respect of quarterly periods commencing from the end of the December 2013 quarter and in all successive quarters thereafter, for a product volume royalty identified within each MRSLA at cl 8.2(a) as Royalty Component B (RCB).
A brief background: The fundamentals
Within each MRSLA a 'Mineralogy Royalty' is the expressed consideration payable to Mineralogy by Sino Iron and Korean Steel (see cl 8.1). It is seen to be comprised of two components - Royalty Component A (RCA) and RCB (see cl 8.2(a)).
The first component, RCA, is payable by reference to the assessed amount of magnetite ore that is 'taken' in a quarterly period: see Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194. RCA has been fully paid as the Mineralogy Royalty to date. No issues arise concerning the payment of RCA amounts due to Mineralogy in this trial (see Mineralogy's closing submissions, par 146).
The second Mineralogy Royalty component, RCB, is payable upon the volume of 'Product' (a term defined in MRSLA cl 1.1) as produced by Sino Iron and Korean Steel in each quarterly period (see MRSLA cl 8.2(a)).
The basis upon which RCB becomes payable to Mineralogy by Sino Iron and Korean Steel is most elaborately specified under cl 8.2(a) of each MRSLA. In short, RCB falls due to Mineralogy under each MRSLA by reference to a 'formula'.
The formula specified for RCB presents as something of a machinery provision in each MRSLA. It contains a number of distinct and combined ingredients - all to be ultimately applied as elements in a product volume royalty calculation. The monetary royalty amount calculation is to be made against the quantum of 'Product' that is produced by Sino Iron and Korean Steel in each quarter.
Two key elements in what will be seen to present as this elaborate RCB algebraic formula are called 'PP' and 'CP' (also defined in MRSLA cl 8.2(a)). Both PP and CP mention a US dollars price for two as referenced iron ore products.
PP and CP display what is suggested by the CITIC defendants to be a common problematic phrase.
PP and CP within the RCB calculation formula both refer to a 'prevailing published annual FOB price' which is expressed in US dollars per DMTU. I will refer to these words as 'the MRP phrase'. In both PP and CP, that phrase is used towards a species of iron ore reference product, namely, 'pellets' for PP and 'fines' for CP. Hence, the acronyms PP (meaning 'Pellet Price') and CP (meaning 'Concentrate Price' - but using fines as something of an analogue for iron ore concentrate as product) are found used in these parts of the RCB formula (see ts 1,666, 1,695, 1,999, 2,498).
The true meaning of the MRP phrase used in the definitions of PP and CP within the RCB calculation formula is at the heart of the parties' dispute at this trial.
Mineralogy began the current proceedings out of the Supreme Court of New South Wales on 18 March 2013 (see exhibits 1.75, 1.76). Mineralogy was claiming a liquidated amount allegedly due to it under cl 6.3 of each MRSLA and arising by reason of the alleged failure of Sino Iron and Korean Steel to produce six million tonnes of 'Product'. Those New South Wales proceedings were subsequently transferred to this court under the national State to State cross-vesting regime on 30 April 2013: see Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] NSWSC 466.
Later, during 2014, Mineralogy attempted to refer a dispute over non‑payment of RCB amounts to an expert for a determination under MRSLA cl 8.6. That was Mineralogy's grievance over not receiving any payment at all for RCB at the end of the first quarter of 2014, notwithstanding an undoubted production by then and the export of significant quantities of iron ore concentrate as 'Product' by Sino Iron and Korean Steel in that quarter (see exhibit 1.28).
Mineralogy in 2014 was seeking to invoke an expert determination process provided for under MRSLA cl 33 in conjunction with cl 8.6 for its RCB non-payment disputes during 2014 against Sino Iron and Korean Steel (see exhibit 1.38).
However, Sino Iron and Korean Steel in 2014 both refused to join Mineralogy in the making of a joint request (as is required under cl 33.2(b) of each MRSLA) to the President of an identified nominating body to appoint the expert to perform the dispute resolution tasks under cl 8.6 (see exhibit 1.38). Consequently, no expert was appointed to determine RCB as Mineralogy had sought.
Main issues at trial
The trial was concerned with two main issues. The first issue concerned the true meaning of the MRP phrase used in the definitions of PP and CP in the MRSLA cl 8.2 RCB calculation formula. The second main issue was whether or not the parties' dispute concerning the non-payment of RCB to Mineralogy could properly be referred to an expert for a determination under cl 8.6 of the MRSLAs.
There are also multiple ancillary issues raised in the trial that must be addressed as well. These include the implications of this court's cross-vested jurisdiction (if any) via the Supreme Court of New South Wales and Mineralogy's claims against CITIC as guarantor of Sino Iron and Korean Steel's obligations under the FCD.
The CITIC defendants also contend for some terms to be implied ad hoc into the MRSLAs and, by their counterclaim, also contend that Mineralogy has breached the express good faith term that is found in the MRSLAs.
Mineralogy's position
Mineralogy's basal claim at this trial is that it is due the agreed payment of the liquidated royalty amounts of roughly $US75 million by each of Sino Iron and Korean Steel (ie, $US150 million in aggregate), for the unpaid RCB amounts falling due to Mineralogy since January 2014 (see ts 1,639). Mineralogy says that these amounts are also fully guaranteed to it by CITIC under the FCD (see Mineralogy's fifth FASOC, pars 41 - 46). CITIC is therefore obligated to pay to Mineralogy the guaranteed amount of just over $US150 million (without interest) in respect of the unmet payment obligations of Sino Iron and Korean Steel.
Mineralogy's debt claim is ultimately grounded on its submission as to the true construction of the MRP phrase (ie, 'prevailing published annual FOB price') as used in the definitions of PP and CP within the RCB calculation formula.
Mineralogy contends that the MRP phrase is, in simple terms, just a pricing standard that was selected by the parties. It refers, correctly understood, to the market reference prices for the two market reference products that were prevailing from time to time (see Mineralogy's closing submissions, par 160). Mineralogy also submits that the MRP phrase, correctly understood, did not refer to the (former) annual benchmark pricing system (ABPS) as the exclusive source of market reference prices for the two chosen reference products used in PP and CP of the RCB formula (see Mineralogy's closing submissions, par 159).
Mineralogy next contends that Sino Iron and Korean Steel have breached cl 33.2(b) of the MRSLAs (see Mineralogy's fifth FASOC, pars 12 - 29). This is because Mineralogy says they failed during 2014 to co-operate with Mineralogy in the making of a joint request to the President of the Australasian Institute of Mining and Metallurgy (AIMM) for the President to appoint an expert to determine Mineralogy's claims concerning its entitlement to receive RCB from Sino Iron and Korean Steel (see Mineralogy's fifth FASOC, par 28). This is in the circumstance of there being an express obligation of good faith upon the MRSLA parties by cl 37.4 of the MRSLAs.
The President of the Law Society of Western Australia in 2014 had nominated the AIMM as the appropriate body to nominate an expert to resolve the dispute between the parties in relation to Sino Iron and Korean Steel's failure to make any RCB payments to Mineralogy (see exhibit 1.40).
The CITIC defendants resolutely reject all of Mineralogy's claims, as I will explain later in these reasons.
Under its Reply to the defence to the fifth further amended statement of claim and defence to the sixth further amended counterclaim of 10 February 2017 (Reply pleading), Mineralogy also rejects all the implied terms contended for in the MRSLAs as pleaded in the alternative by the CITIC defendants.
It should also be recorded at an early point in these reasons that the trial in June 2017 proceeded on the basis that the MRSLAs currently remain as valid, subsisting and binding contractual commitments as between all the parties. Mineralogy no longer contends, as it once did, that it terminated the MRSLAs for reasons of alleged serious breach by Sino Iron and Korean Steel (see exhibit 1.82, pars 107 - 110 compared to Mineralogy's fifth FASOC).
Hence, many formerly pleaded distracting issues, once raised during the interlocutory phases of the litigation (2013 - 2017), no longer remain relevant at trial. These departed issues include Mineralogy's claims for rectification of the MRSLAs (see exhibit 1.82, par 134; ts 1,639), claims for restitutionary relief (see exhibit 1.82, par 135) and the pursuit of payment of amounts arising as the subject of cl 6.3(b) under each MRSLA (see exhibit 1.82, pars 46 - 49) (being the amounts Mineralogy had then claimed were due when it commenced these proceedings out of the Supreme Court of New South Wales).
The CITIC defendants' positions
The CITIC defendants contend the problematic MRP phrase used in the definitions of PP and CP, when correctly understood in overall context, refers exclusively to the former ABPS published prices (for pellets or fines for export) (see the CITIC defendants' closing submissions, par 75).
The CITIC defendants argue that a consequence of an international iron ore industry evolution towards index based pricing, following China overtaking Japan as the largest international importer of iron ore, was that from April 2010 it became no longer possible, upon the demise of the ABPS at that time, to ascertain 'annual' market reference prices (for pellets or fines for export) (see the CITIC defendants' closing submissions, par 128).
Hence, the CITIC defendants say that PP and CP simply could not be ascertained after April 2010 upon the demise of the former ABPS.
As a result, it is argued by the CITIC defendants that the whole RCB formula became dysfunctional at that point. Thus the former ABPS could not be called upon when the RCB formula became potentially applicable with the commencement of the production of 'Product' at the Cape Preston project (ie, at the last quarter of 2013) (see Mineralogy's closing submissions, par 3; ts 1,726).
The CITIC defendants' related primary submission is that, in the post April 2010 circumstances of a now defunct ABPS, all references in the MRSLAs to RCB can simply be severed out of the MRSLAs. This still leaves, they submit, the residual terms of those MRSLAs as fully ongoing and functional in their future performances (see the CITIC defendants' defence to the fifth further amended statement of claim and sixth further amended statement of claim of 6 February 2017 (D and CC), par 25) - but, correlatively, would leave Mineralogy without the right to receive any 'Product' linked royalty component (ie, RCB) within its Mineralogy Royalty - and which was to be the 'enduring royalty' for Mineralogy (see cl 8.1(b) under each MRSLA).
Of course, that functional severance outcome submission only arises upon an acceptance of the CITIC defendants' advocated true construction of the problematic MRP phrase within the RCB formula in each MRSLA. Correlatively, if the CITIC defendants' advocated true construction of the problematic MRP phrase as used in PP and CP within the RCB formula is not ultimately accepted, then the CITIC defendants' severance arguments are not needed and must fall away.
The CITIC defendants resist all of Mineralogy's claims against them under their current pleaded defences in the litigation. However, the CITIC defendants advance further to counterclaim declaratory and other relief.
If the CITIC defendants are found to be correct on their primary construction argument about the MRP phrase's true meaning, but are then found to be wrong on their RCB severance contentions, they would contend, alternatively, that ad hoc implied terms should be found in the MRSLAs. The contended consequence of one such implied term would be that Mineralogy was not permitted to commence these proceedings - prior to first negotiating in good faith with the CITIC defendants to agree upon an appropriate replacement formula for the calculation of RCB (or for the whole Mineralogy Royalty) (see the CITIC defendants' D and CC, pars 26 - 27).
I must say at an early stage that I cannot accept this implied term. The MRSLAs do not say that, when they easily could have. And there has been ample time for talks between April 2010 and 14 January 2014 when, arguably, some RCB on product might first have been due to Mineralogy by Sino Iron and Korean Steel.
As a lesser fall-back alternative, the CITIC defendants would then contend for another implied term found in each MRSLA. This is to the effect that Mineralogy can be accepted to be entitled to receive under each MRSLA an (overall) royalty that is 'fair and reasonable', and which is then to be determined by this court, having regard to 'all relevant circumstances' (see the CITIC defendants' D and CC, par 28).
The CITIC defendants' further and final fall-back contention pleaded alternatively under their counterclaim prayers, albeit the lowest tier option, is that the MRSLAs were terminated for frustration - by reason of a problematic non‑ascertainment of RCB in the absence of the former ABPS (see the CITIC defendants' D and CC, par 29). A declaration sought towards that alternative termination by frustration outcome was the subject matter of prayer G of the CITIC defendants' counterclaim prayers in the D and CC.
However, the alternative frustration pleas were never pressed for at the trial by the CITIC defendants. During opening, senior counsel for the CITIC defendants, Mr Scerri QC, suggested as much (see ts 1,728). Frustration relief as regards the MRSLAs as a whole was later seen to be expressly abandoned under the CITIC defendants' closing submissions (see par 151).
In any event, on my assessment, a $US12 billion plus project investment to date made by the CITIC defendants and the confronting reality of what is now a busy, ongoing export operation by Sino Iron and Korean Steel from the project site at Cape Preston is simply not rationally reconcilable with a frustration conclusion. A contended frustration of the MRSLAs as a whole was always an untenable proposition - given what is currently still unfolding on a massive scale on a daily basis at the Cape Preston project site (see exhibit 1.184, the CITIC defendants' video explaining these operations).
The CITIC defendants also reject Mineralogy's claims that they breached a requirement under the MRSLAs to facilitate an expert determination (see the CITIC defendants' D and CC, par 47). Their position has been and remains that they will not join Mineralogy in making any request to the President of the AIMM to appoint an expert to determine an RCB dispute (see exhibit 1.38). [It looks to be accepted by the parties, and I would agree, that as a matter of the proper construction of MRSLA cl 33.2(b), a joint request to the President of the AIMM is needed to validly appoint such an expert.] The CITIC defendants reject the role of such an expert (under cl 8.6 and cl 33 of each MRSLA) because they contend, in effect, that:
(a)Mineralogy chose to commence these proceedings out of the Supreme Court of New South Wales on 18 March 2013 and so, from that time, a court became fully seized of resolving the parties' RCB dispute(s) whenever they arose; and
(b)the nature of the present RCB curial dispute is, in essence, over the true contractual meaning of aspects of the RCB formula as used in cl 8.2(a) of the MRSLAs. That controversy as to meaning raises a question of law which does not, they say, correctly characterised, relate to any dispute over an 'amount of Mineralogy Royalty'. Therefore, cl 8.6 of each MRSLA, they argue, is not enlivened. Such a legal dispute can only be determined by a court and so an expert acting under cl 33 of each MRSLA cannot be appointed to make the determination for the purposes of an RCB dispute (see the CITIC defendants' closing submissions, pars 165 - 166).
That, in broad terms then, is a simplified overview of the core issues that arise at this trial. I will now move to discuss this court's cross-vested jurisdiction over this matter, since that issue may carry procedural repercussions upon Mineralogy's liquidated claims for RCB amounts said to be due in quarters arising after Mineralogy first commenced the present litigation in March 2013.
PART B: THE COURT'S CROSS-VESTED JURISDICTION
The main issues concerning cross-vested jurisdiction and its significance
The present litigation was commenced out of the Supreme Court of New South Wales on 18 March 2013 (see exhibit 1.75) and was then transferred on 30 April 2013 to this court under the Jurisdiction of Courts (Cross‑vesting) Act 1987 (NSW) (NSW Cross-vesting Act).
Two key questions arise from the transfer of the action under the cross‑vesting regime. First, is the chapeau to s 11(1) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (WA) (the WA Cross‑vesting Act) engaged? Second, if the chapeau to s 11(1) is engaged, can procedural rules of New South Wales apply in the present action, albeit this is a proceeding conducted in the Supreme Court of Western Australia?
The significance of the answers to these two questions carries a potential impact towards the scope of the causes of action that may be determined in this trial. If the procedural rules of the Supreme Court of New South Wales can apply, then this court could resolve all the pleaded causes of action that are raised under Mineralogy's current pleading. Importantly, this would include Mineralogy's claims to receive RCB payments allegedly falling due to it at dates arising after the commencement of the present action out of the Supreme Court of New South Wales.
As I will explain below, I am, in the end, of the view that the answer to both questions posed above is in the affirmative.
Background facts concerning the transfer of the proceedings to this court
The action was commenced by Mineralogy in the Supreme Court of New South Wales under a summons filed in the equity division (commercial list), given case number SC 2013/82818 (see exhibit 1.75). Mineralogy's summons was accompanied by a New South Wales Commercial List Statement filed the same day (see exhibit 1.76).
As I earlier observed, the two MRSLAs (see MRSLA cl 38.4) and the FCD (see exhibit 1.24, cl 18.1) are expressly stated to be governed by Western Australian law. The Mineralogy mining lease area and the Cape Preston long-term magnetite processing project are geographically located in the north‑west of Western Australia on mining leases granted to Mineralogy by the State under the Mining Act 1978 (WA) (see Mineralogy's opening submissions, pars 14 - 15; Mineralogy's fifth FASOC, par 5). Furthermore, there is an overarching written agreement of 5 December 2001 between the State, Mineralogy and six other parties, including Sino Iron and Korean Steel, concerning the project area (State Agreement) (exhibit 1.63).
Given all those facts and the ostensible absence of any otherwise identifiable link to the State of New South Wales, it is wholly unsurprising that Mineralogy's action was transferred to this court under s 5(2) of the NSW Cross‑vesting Act): see [2013] NSWSC 466 [30]. Stevenson J had observed 'the proceedings seem to have no connection at all with New South Wales' [24].
So, from May 2013 this court has dealt with Mineralogy's transferred action, now renumbered in this court as CIV 1808 of 2013. Since then, relevant case managers have included Edelman J, Chaney J and myself. Justice Tottle was called upon to urgently deal with Mineralogy's 2015 application. Mineralogy sought a mandatory interlocutory injunction to compel the CITIC defendants to remit amounts of RCB then said to have fallen due and claimed by Mineralogy on an interim basis before trial (see Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 8] [2015] WASC 473).
The CITIC defendants filed a counterclaim against Mineralogy in this court on 20 June 2013. The relief sought under the CITIC defendants' counterclaimed prayers has altered over time. So, indeed, have the claims advanced by Mineralogy under its pleadings.
Parties' positions
The potential implications of cross‑vesting for the present trial really only emerged into focus late during closing submissions at the trial (see ts 2,387 - 2,400, 2,505 - 2,515). Even then, the potential ramifications of cross‑vesting were only touched upon rather indirectly. As a result, after closing submissions and the reserving of my decision, I decided to afford the parties a further opportunity to provide further written submissions addressing cross‑vesting and its possible implications.
I am grateful to the parties for the assistance provided under their further written submissions of 12 October 2017 and respective responsive submissions of 19 October 2017. It is apparent, however, that the parties remain in fundamental disagreement over the question of whether there is scope for a potential engagement of s 11(1) and thereby s 11(1)(c) of the WA Cross-vesting Act in the present trial.
The base submission of the CITIC defendants essentially is that following the transfer of Mineralogy's action to this court in 2013, there is no exercise of jurisdiction conferred under any cross‑vesting law (including, it would seem, they say, under the WA Cross-vesting Act) (see the CITIC defendants' submissions of 12 October 2017, par 11). Hence, the CITIC defendants contend that the chapeau to s 11(1) is not relevantly engaged. Consequently, there can be no viable path to s 11(1)(c).
The CITIC defendants contend that I am dealing essentially with a common law contract case - raising issues of contractual interpretation about the meaning of clauses within the parties' MRSLAs or in the FCD or, alternatively, Mineralogy's claim for damages for breach of terms in those agreements concerning RCB. They contend that no New South Wales legislation bears upon the subject matter of the present trial (see the CITIC defendants' submissions of 12 October 2017, par 11). It is a trial where the agreements at issue all expressly provide that Western Australian law is the parties' chosen law for the contracts. There is also a non‑exclusive choice of forum clause for the courts of Western Australia under MRSLA cl 38.4(b) and in the FCD (exhibit 1.24, cl 18.2) (see the CITIC defendants' submissions of 12 October 2017, par 14).
But Mineralogy contends to the contrary as regards the application of the WA Cross-vesting Act. It submits that its regular commencement of this action in the Supreme Court of New South Wales and the CITIC defendants' ensuing submission to that curial forum, validly engaged New South Wales jurisdiction from the outset. Mineralogy says further that it is clear there was no writ or other originating process ever issued to commence the present litigation out of this court (see Mineralogy's submissions of 12 October 2017, pars 8, 11). To that end, Mineralogy invokes the High Court of Australia's observations in Flaherty v Girgis [1987] HCA 17; (1987) 162 CLR 574 (Mason ACJ, Wilson & Dawson JJ):
It is true to say, as was said by this Court in Laurie v Carroll, that where an action is in personam and transitory, the jurisdiction of a court of unlimited jurisdiction does not depend upon subject-matter but upon the amenability of the defendant to the writ expressing the Sovereign's command. At common law the writ does not run beyond the limits of the State (598). (footnote omitted)
See also Laurie v Carroll [1958] HCA 4; (1958) 98 CLR 310, 322 - 323 (Dixon CJ, Williams & Webb JJ).
Whether the chapeau to s 11(1) of the WA Cross-vesting Act is engaged or not
As I have said, the first question to be answered is whether the chapeau of s 11(1) is engaged. In other words, does it appear in this trial the Supreme Court of Western Australia 'will, or will be likely to' be exercising jurisdiction conferred on this court by the WA Cross-vesting Act or the jurisdiction that is conferred by a law of New South Wales relating to a cross-vesting of that court's jurisdiction to this court? Towards that enquiry, I turn first to the terms of the legislation itself.
Section 11 of the WA Cross-vesting Act
It is convenient to set out the terms of s 11(1) and s 11(3) from the WA Cross‑vesting Act. They provide:
11.Conduct of proceedings
(1)Where it appears to a court that the court will, or will be likely to, in determining a matter for determination in a proceeding, be exercising jurisdiction conferred by this Act or by a law of the Commonwealth or a State relating to cross-vesting of jurisdiction -
(a)subject to paragraphs (b) and (c), the court shall, in determining that matter, apply the law in force in the State or Territory in which the court is sitting (including choice of law rules);
(b)subject to paragraph (c), if that matter is a right of action arising under a written law of another State or Territory, the court shall, in determining that matter, apply the written and unwritten law of that State or Territory; and
(c)the rules of evidence and procedure to be applied in dealing with that matter shall be such as the court considers appropriate in the circumstances, being rules that are applied in a superior court in Australia or in an external Territory.
…
(3)Where a proceeding is transferred or removed to a court (in this subsection referred to as the transferee court) from another court (in this subsection referred to as the transferor court), the transferee court shall deal with the proceeding as if, subject to any order of the transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order), or similar steps, had been taken in the transferee court.
Preliminary observations
Before reaching a final determination as to whether or not the chapeau to s 11(1) is presently engaged, it is necessary to render some preliminary observations.
First, this present issue looks to have been noticed by Gummow J in BHP Billiton Ltd v Schultz [2004] HCA 61; (2004) 221 CLR 400. In relation to the phrase 'exercising jurisdiction conferred', his Honour had said:
There is a question whether, in the circumstances of this case, where subject matter jurisdiction already subsisted in the South Australian transferee court and BHP was amenable to its processes by, at least, the use of the Process Act, the court, after the transfer, would have been exercising jurisdiction 'conferred by any cross-vesting law' [52].
His Honour then said that it was unnecessary to resolve that question of construction of the cross-vesting legislation: see [53]. The question left open by Gummow J in Schultz looks to be precisely the point of contention between the parties here.
Second, there is no dispute that Mineralogy regularly commenced this action out of the Supreme Court of New South Wales. There is also no issue over the regular service of the CITIC defendants of the action once it was commenced in New South Wales and their subsequent submission to that curial jurisdiction (see Mineralogy's submissions of 19 October 2017, par 33).
Consequently, prior to Mineralogy's action being transferred to this court by Stevenson J on 30 April 2013, the CITIC defendants were all then fully amenable to the jurisdiction of the Supreme Court of New South Wales to determine Mineralogy's action.
That position as regards regular service of the defendants may be contrasted strongly to a different controversy which arose over the regular service and the related extent of the in personam jurisdiction of the Supreme Court of the Australian Capital Territory over defendants in David Syme & Co Ltd v Grey (1992) 38 FCR 303; (1992) 115 ALR 247. In particular, I note Gummow J's extensive discussion within that decision between pages 327 - 333 concerning cross-vested jurisdiction and the scope to serve defendants not otherwise amenable to a court's jurisdiction. That appellate decision by the Full Federal Court preceded Gummow J's subsequent discussion in Schultz at passages previously indicated, where the present question was identified but not ultimately resolved.
Third, it should be noted in the cross-vesting context that I am dealing with a State to State transfer of superior court litigation. No federal jurisdiction bearing upon the transfer of proceedings is engaged here. [I note, however, that the published reasons of Stevenson J seem to have referred to s 5(2) of the Commonwealth cross-vesting legislation, Jurisdiction of Courts (Cross‑vesting) Act 1987 (Cth), in the decision to transfer the New South Wales proceedings to this court: see [2013] NSWSC 466 [2]. However, with great respect, that reference looks to be an error and it looks to me overwhelmingly more likely that his Honour had been referring to the same section in the NSW Cross-vesting Act.]
Fourth, it should be noted that s 4(3) of the NSW Cross-vesting Act invests a Supreme Court of another State (ie, here, the Supreme Court of Western Australia) with both the original and appellate jurisdiction of the Supreme Court of New South Wales for 'State matters'. The term 'State matters' is uniformly defined by s 3(1) of the Cross-vesting Act as a matter
(a)in which the Supreme Court has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State;
As I have said, during March and April 2013 the Supreme Court of New South Wales held in personam jurisdiction over the CITIC defendants and so over the subject matter of the dispute raised then by Mineralogy in its own right, prior to Mineralogy's action being transferred to this court. Consequently, SC 2013/82818 was concerned with a New South Wales 'State matter', for the purposes of s 4(3).
Fifth, if a proceeding is transferred (as here) under the national cross‑vesting laws by one State Supreme Court to another State Supreme Court, the jurisdiction of the transferee State court to determine the transferred proceeding is found at s 9 of the transferee State court's cross-vesting legislation. I refer in particular to s 9(b) of the WA Cross-vesting Act.
Section 9 of the WA Cross-vesting Act was the global subject of Anderson J's observations rendered in this court in Reidy v Trustee of the Christian Brothers (1994) 12 WAR 583, 586. His Honour had said:
The jurisdiction of this Court to hear and determine an action commenced in the Supreme Court of Victoria and which by juridical act has been transferred to this Court is contained in s 9 of the Jurisdiction of Courts (Cross-vesting) Act 1987 (WA). That section provides:
'The Supreme Court or the State Family Court -
(a)may exercise jurisdiction (whether original or appellate) conferred on that court by a provision of this Act or of a law of the Commonwealth or a State relating to cross‑vesting of jurisdiction; and
(b)may hear and determine a proceeding transferred to that court under such a provision.'
It is noteworthy that at page 586 of Reidy, Anderson J referred to all of s 9, not merely to s 9(b). That was under his Honour's observations as to s 9 being the source of the Supreme Court of Western Australia's jurisdiction to hear and determine that action - which had been commenced in the Supreme Court of Victoria and was later transferred from Victoria to the Supreme Court of Western Australia.
Anderson J then continued:
Even if there is room for debate about the question whether under the cross-vesting legislation this Court will be in truth exercising the jurisdiction of the Supreme Court of Victoria, the undeniable fact is that it will be exercising jurisdiction in respect of wrongs alleged to have occurred within its territory arising under the laws of its forum and involving people who at the time were domiciled here (586).
So, in the end, in Reidy Anderson J, with respect, like Gummow J in Schultz, did not need to authoritatively resolve whether or not the Supreme Court of Western Australia would be exercising any component of the Supreme Court of Victoria's jurisdiction in going about determining that transferred litigation in the Supreme Court of Western Australia. In Reidy, the issue was whether a relevant limitation of action provision from Victoria could apply in the transferred action heard in Western Australia. His Honour's preceding discussion upon whether limitation of action provisions were procedural or substantive laws seen at page 585 was, of course, conducted prior to the High Court of Australia's seminal decision upon that issue in John Pfeiffer Pty Ltd v Rogerson [2000] HCA 36; (2000) 203 CLR 503. That changed feature, however, is not presently significant here.
What is more significant is that in Reidy, Anderson J proceeded further to evaluate and ultimately reject, a potential applicability of s 11(1)(c) of the WA Cross-vesting Act in going about determining what would be the applicable rules of evidence and procedure to apply in that transferred action. That was so albeit it was clear from the assembled facts that the underlying wrongs had all occurred in this State.
Sixth, s 9(a) of the WA Cross-vesting Act is clearly wider than s 9(b). It extends well beyond conferring the jurisdiction to hear and determine a transferred proceeding.
Section 9(a) presents as the local authorising counterpart provision where there is a utilisation of cross‑vested jurisdiction emanating from another Supreme Court, under s 4(3) of the other State's own cross-vesting legislation.
So it is that a conferral of one State's jurisdiction (over 'State matters') to a Supreme Court of another State is then seen to be locally sanctioned for that recipient State court via s 9(a).
That is still the authorising position even though there may not necessarily exist any allied transfer of an action from the other State.
But in either case, under s 9(a) and s 9(b), as Anderson J observed in Reidy at 586, the deciding court's jurisdiction will emanate from s 9 of the local cross-vesting statute - which locally authorises the exercise of the extra jurisdiction.
Seventh, after Anderson J noted that the subject matter of the transferred Victorian litigation in Reidy had been concerned with alleged wrongs occurring in Western Australian territory and with local laws and persons who had been domiciled in Western Australia, his Honour, nevertheless, still proceeded to conduct an evaluation as to the applicability or otherwise of the Victorian limitation of action law via s 11(1)(c). It appears to have been accepted in Reidy, therefore, that s 11(1) of the WA Cross-vesting Act had been engaged. Anderson J noted what was, in effect, a concession by the parties at page 587:
Accepting for present purposes, as all parties did, that in proceeding to determine these cases this Court 'will, or will be likely to … be exercising jurisdiction conferred by …' the Jurisdiction of Courts (Cross-vesting) Act 1987 (WA) … the question is what rule of procedure relating to the limitation of actions this Court 'considers appropriate in the circumstances' to be applied in dealing with these cases. This is the question presented by s 11(1)(c).
Justice Anderson continued to observe whilst resolving ultimately not to apply the Victorian limitation of action provision:
I can see nothing in s 11(1)(c) of the Jurisdiction of Courts (Cross‑vesting) Act (Vic) or s 9 of the Jurisdiction of Courts (Cross‑vesting) Act (WA) to the effect that it is the intention of this legislation that the juridical advantages that might have been gained by the institution of proceedings in one forum should be kept and enjoyed upon a cross-vesting to another forum, although this is not to say that the potential loss of some such advantage may not be a relevant consideration in deciding whether or not to make a cross-vesting order (587).
Eighth, if in present circumstances within this trial the chapeau to s 11(1) of the WA Cross-vesting Act is engaged, then it follows by s 11(1)(a) that I should apply the contractual laws of Western Australia towards the MRSLAs and the FCD in resolving the present dispute. Section 11(1)(b) of the WA Cross-vesting Act would not be engaged as there is no relevant written law of New South Wales bearing upon the subject matter of the parties' presently pleaded disputes.
Nevertheless, it is also explicit that s 11(1)(a) and (b) of the WA Cross‑vesting Act are expressly made subject to s 11(1)(c) - as regards an applicability of laws of evidence and procedure considered by the transferee court hearing the proceeding to be appropriate in all the circumstances.
Ninth, exceptional care needs to be applied in any evaluation conducted under s 11(1)(c), if that is required, given a limitation upon appeals from such decisions as stipulated under s 13(b) of the WA Cross‑vesting Act.
Observations upon four 1988 articles about cross-vesting
In their exchanged written submissions and responsive submissions of October 2017, the parties referred me to a number of journal articles.
A series of four articles were published in the Australian Law Journal during 1988 when the national cross-vesting laws took effect on 1 July that year. The first of these articles is titled 'The Cross-vesting Scheme' (1988) 62 Australian Law Journal 328 by Keith Mason QC and Professor James Crawford. That article was followed by 'Choice of Law Under Cross-vesting Legislation' (1988) 62 Australian Law Journal 589 by David St L Kelly and Professor Crawford.
The third article about the new cross-vesting regime was a reply by Gavin Griffith QC, Dennis Rose and Stephen Gageler to certain specific points in Kelly and Crawford's article. It is titled 'Choice of Law in Cross-vested Jurisdiction: A Reply to Kelly and Crawford' (1988) 62 Australian Law Journal 698.
Lastly, there was a further article by Griffith, Rose and Gageler titled 'Further Aspects of the Cross-vesting Scheme' (1988) 62 Australian Law Journal 1016. That article responds to some further aspects of the cross-vesting scheme raised by Mason and Crawford in their first article.
The CITIC defendants' submissions upon this cross-vesting issue rely in particular upon aspects of the two articles co-authored by Professor Crawford. However, it is apparent that at the time, at least in certain respects, a wider view was taken of the cross-vesting laws by the then Solicitor General of Australia and members of the Commonwealth Attorney General's department. Of course, those 1988 articles need to be read in light of subsequent case law, including particularly the decision of the High Court in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511 which invalidated aspects of the national cross‑vesting laws concerning any attempted vesting of State jurisdiction under such laws to Commonwealth courts.
There are several aspects of the Griffith, Rose and Gageler articles I find insightful towards my present task. In the first place, I would note the following observation from the first article at page 698:
The essence of cross-vesting is that the jurisdiction of any one court forming part of the cross-vesting scheme is vested in every other court forming part of the scheme. In this way no proceeding within the compass of the scheme can fail for want of jurisdiction, though proceedings commenced in an inappropriate court can be transferred in accordance with the detailed criteria set out in the legislation. Within the compass of the scheme, it will not be necessary for a court to determine whether it is truly exercising its ordinary federal, State or Territory jurisdiction, or whether it is exercising some cross-vested jurisdiction. It will only need to form opinions on these demarcation issues for limited purposes and to a limited extent [noting footnote 2 to those observations makes reference to decisions under s 5 as regards transfer of proceedings or decisions under [s] 11(1)(c)].
The same sentiment towards the hoped for general redundancy in needing to definitively define a source of jurisdiction in the future can be found at page 1,016 of their second article.
The sentiment towards a cross-vested amalgamation of jurisdictions avoiding all future need for courts to be side-tracked by fine demarcation disputes over their jurisdiction resonates for me, measured against the CITIC defendants' contentions that post a transfer of Mineralogy's action to this court in 2013, this court does not exercise even a residual morsel of New South Wales jurisdiction in this proceeding. To my mind, that submission overlooks the repercussions of the formative circumstances of March 2013 by which the present action was validly commenced by Mineralogy out of the Supreme Court of New South Wales under a regular exercise of that court's in personam jurisdiction.
A second aspect of Griffith, Rose and Gageler's articles I find instructive is the authors' observation at pages 701 and 702 of their first article concerning a cross-vested State jurisdiction being cumulative upon the normal jurisdiction of the cross-vested court. That point was expressed in the following terms:
The position of the Supreme Court of Victoria in relation to cross-vested New South Wales jurisdiction is that the Court may exercise the entirety of its own jurisdiction as well as the full jurisdiction of the Supreme Court of New South Wales. The two jurisdictions are separate and concurrent. There is no inconsistency, even as to enforcement (702).
The last observation by Griffith, Rose and Gageler which I find instructive is in their second article, where it was observed:
Although the term 'jurisdiction' is capable of being confined to the power of a court to determine an issue by reference only to its subject-matter, that is narrower than the ordinary connotation of the word. The scheme, on analysis, provides no warrant for excluding from the term, as used in the Acts, the power of a court to determine an issue by reference also to the parties, the kind of relief sought or any combination of these factors (1,022). (footnote omitted)
By my assessment, the broader approach advocated by Griffith, Rose and Gageler to the meaning of the term 'jurisdiction' is the more persuasive. This is in circumstances where the preamble to the cross-vesting legislation records the function of that legislative reform against the problems of inconvenience and expense that had been caused to litigants by the jurisdictional limitations of Australian courts and the desirability of achieving the three objectives in the preamble.
My determination as regards the chapeau to s 11(1)
By reference to the terms of the chapeau of s 11(1) of the WA Cross‑vesting Act, I reach the end position that, although it is only strictly necessary to engage with one of the criteria stated there, for this case it 'appears' to me to be 'likely' that in determining this trial I will be exercising jurisdiction that is conferred on this court by both:
(i)s 9(b) of the WA Cross-vesting Act; and
(ii)s 4(3) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (NSW)
in respect of Mineralogy's transferred action. I reach that view essentially for four reasons.
First, it is naive, in my view, to ignore how the present action was regularly commenced by Mineralogy out of the Supreme Court of New South Wales. By Mineralogy's written submissions of 19 October 2017 at par 15 it was said:
In the present case, no writ was issued by the WASC and so none was served. There was no issue about whether any of the parties could be made amenable to the WASC's command by an endorsement to any WASC process invoking the provisions of the Service and Execution of Process Act. When the transfer order was made, the parties, who then were amenable to the jurisdiction of the NSWSC because of the filing and service of process of that court, were made amenable to the command of the sovereign in Right of the State of Western Australia (exercised by the WASC) by the jurisdiction conferred by s 4(3) of the NSW Act and authorised by s 9 of the WA Act.
The force of that submission by Mineralogy must be accepted.
Second, on my assessment, that was the approach taken by Anderson J in Reidy at 586, where his Honour referred to the jurisdiction of this court to hear and determine an action commenced in the Supreme Court of Victoria which was then transferred to the Supreme Court of Western Australia - as being jurisdiction contained in s 9 of the WA Cross-vesting Act.
Here, there is a proceeding transferred from the Supreme Court of New South Wales to this court that must meet at least the description of s 9(b) of the WA Cross‑vesting Act. That gives rise to the necessary conclusion that, at least in some cumulative respect, it appears that this court will be likely to exercise an aspect of the cross-vested jurisdiction of the Supreme Court of New South Wales, the utilisation of which extra jurisdiction is then authorised by s 9 of the local Act.
It might be argued the New South Wales cross-vesting legislation by s 4(3) is, in truth, the source of the conferral of the additional cross-vested jurisdiction enjoyed by the Supreme Court of Western Australia. However, that is too fine a distinction in the circumstances - where it is plain that s 4(3) of the New South Wales's cross‑vesting law operates 'hand in glove' along with s 9 of the local cross-vesting law as regards a legitimised exercise of cross-vested jurisdiction (see Griffith, Rose & Gageler's first article, 700).
Third, I have set out observations from the articles by Griffith, Rose and Gageler which I have found instructive. In particular, I am moved by the force of the observation that it should now be unnecessary to definitively demark the sources of all jurisdiction in relation to a national cross-vesting regime of laws for Australia post 1 July 1988. By my assessment, a functional and pragmatic approach to the meaning of 'jurisdiction' is appropriate given the three objectives in the preamble of the cross-vesting legislation.
Fourth, although there are some differences, I believe it appropriate for me in all the circumstances at first instance to follow Anderson J's approach in Reidy as regards a fulfilment of the chapeau aspects of s 11(1) of the WA Cross‑vesting Act. Consistency in overall decision making would suggest that same approach should be adopted, unless I was persuaded that his Honour's decision was clearly wrong. I am not of that view. Furthermore, an engagement of s 11(1) of the WA Cross‑vesting Act would seem to be supported by Australian Broadcasting Corporation v Waterhouse (1991) 25 NSWLR 519 in respect of a matter that is transferred from one State jurisdiction to another State jurisdiction.
My view is that the chapeau to s 11(1) of the WA Cross-vesting Act is engaged within this proceeding. I conclude that this court is likely to be exercising some cumulative component of the jurisdiction of the Supreme Court of New South Wales in aggregate with this court's own jurisdiction over the parties' dispute as it proceeded to trial.
It also should be noted that the CITIC defendants (see the CITIC defendants' submissions of 19 October 2017, pars 16 - 17), by their submissions concerning cross-vesting, point to Mineralogy's asserted failure to ever plead that any question of cross‑vested jurisdiction arises or to comply with the provisions of O 81E of the rules of this court: see O 81E r 11(2) Rules of the Supreme Court 1971 (WA) (RSCWA) as regards pleadings needing to include a statement to that effect, if the rules of evidence and procedure applied in another court are sought to be applied under s 11(1)(c).
It is true that this rule would not yet appear to have been complied with by Mineralogy for present circumstances. But the underlying policy intent of that rule would seem to be directed towards avoidance of surprises and a giving of proper notice to all trial participants of such an issue. A failure to strictly meet that rule by Mineralogy to date, on my assessment, is an irregularity capable of being excused under O 2 r 1(2), were I otherwise to reach the view that it is appropriate via s 11(1)(c) of the WA Cross-vesting Act to apply New South Wales procedural rules in this trial. There is no issue as to surprise in present circumstances, as I will explain.
I will proceed to consider next whether or not it is appropriate to apply only New South Wales procedural rules in this trial via s 11(1)(c) of the WA Cross-vesting Act.
Whether procedural rules of New South Wales applies pursuant to s 11(1)(c)
Given the chapeau to s 11(1) is engaged, the potential for s 11(1)(c) to apply in the present trial is open. Section 11(1)(c) is the paramount subparagraph within s 11(1). However, its scope is narrow. It is confined to rules of evidence and procedure, rather than being directed at the substantive laws governing the cause(s) of action applicable to the particular subject matter under determination.
The need to assess which procedural rules to apply in this proceeding is stimulated by the potential consequences arising from the Court of Appeal's observations in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76.
At [26] and [73] of that decision, the Court of Appeal noted that Mineralogy's present RCB causes of action claiming debt and damages were to be viewed as accruing temporally after the commencement of this action.
Those observations eventually led to the CITIC defendants' submission to me at trial that Mineralogy was effectively non-suited as regards it presently pursuing any liquidated claims seeking RCB amounts which fell due only after the litigation had been commenced (or damages by reason of the non‑payments) (see ts 2,399 - 2,400).
The inability to pursue causes of action for debt and damages that only accrued after a commencement of an action emerges from Samuel JA's determinations in Baldry v Jackson [1976] 2 NSWLR 415, 417. His Honour's observations in turn refer back even further to the legal principle that was established and exemplified by Eshelby v Federated European Bank Ltd [1932] 1 KB 423. The so-called Eshelby principle was later confirmed in the High Court of Australia in Wigan v Edwards (1973) 1 ALR 497; (1973) 47 ALJR 586 - as regards a problematic pursuit of causes of action grounded upon events arising only after the commencement of litigation.
Samuels JA in Baldry v Jackson at 419 observed that the word 'matter', (as then used in the New South Wales equivalent to RSCWA O 20 r 10) did not include cause of action.
The Eshelby principle still applies with undiminished force in Western Australia. The principle has locally delivered continuing adverse procedural repercussions for many plaintiff litigants: see Water Authority of Western Australia v AIL Holdings Pty Ltd [No 2] (1992) 10 WAR 233 and Boase v Axis International Management Pty Ltd [No 2] [2012] WASC 334.
It should be noted that the problems for litigants caused by the Eshelby principle as explained in Baldry v Jackson in New South Wales were essentially redressed by a reform in New South Wales effected under s 64(3) of the Civil Procedure Act 2005 (NSW). It now provides:
(3)An order under this section may be made even if the amendment would have the effect of adding or substituting a cause of action that has arisen after the commencement of the proceedings but, in that case, the date of commencement of the proceedings, in relation to that cause of action, is, subject to section 65, taken to be the date on which the amendment is made. (my emphasis)
In CGS & Co Pty Ltd v The Owners - Strata Plan No 5290 [2010] NSWSC 1173 Bryson AJ observed, concerning the status of Baldry v Jackson that:
60.… The judgment of Samuels JA clearly contemplates that the rule is no more than a rule of procedure, and cited a statement to that effect in Wigan v Edwards (1973) 47 ALJR 586 at 592 (Gibbs J); no important principle is at stake. The Civil Procedure Act 2005 s 64(3) makes a quite different rule to that applied and acted on in Baldry v Jackson. Amendment to add a cause of action which arose after commencement of proceedings is authorised by s 64(3), which also cures a principal ground upon which the previous rule was based, the anomaly of giving a litigant the benefit of an earlier date of commencement of proceedings than would otherwise be available for the purpose of defences relating to effluxion of time. The position was fully and clearly stated in Jericho Developments Pty Ltd v Garden Tower (NSW) Pty Ltd [2006] NSWSC 595 at [21] - [26] (Gzell J) and I follow that decision.
During closing arguments at the trial, Mr Bradley QC for Mineralogy had drawn my attention to s 64(3) of the Civil Procedure Act 2005 (NSW). That was in a context of Mineralogy's closing submission effectively attempting to address the CITIC defendants' non-suit arguments based on the Eshelby principle (see ts 2,509 - 2,510).
The question now then is whether s 64(3) of the Civil Procedure Act 2005 (NSW) applies in present circumstances, where this court is effectively exercising some aspects of the cross-vested jurisdiction of the Supreme Court of New South Wales. For such circumstances, this court is asked by Mineralogy to consider the procedural utility of s 64(3) in Mineralogy's action (see Mineralogy's submissions of 19 October 2017, par 22).
Section 11(1)(c) of the local cross‑vesting legislation, as now seen, effectively provides this court with a discretion to select from outside the forum appropriate procedural rules - as regards rules of evidence and procedure that may be applied from another State Supreme Court, such as the procedural rules of New South Wales in this case, for instance.
At this point, it is useful to recall Gibbs J's (as his Honour then was) observations in Wigan v Edwards. His Honour had said:
The principle that an amendment cannot be made which will introduce a new cause of action which arose after the commencement of proceedings is purely one of procedure and can be varied or abolished by statute (508).
For the present circumstances of this trial, I am of the view that the procedural rules of the Supreme Court of New South Wales should apply, via s 11(1)(c) of the WA Cross-vesting Act. Accordingly, s 64(3) of the Civil Procedure Act 2005 (NSW) will apply as regards pleaded causes of action. In the end, and with the benefit of the parties' post hearing written submissions on the point, I reach that position essentially for four main reasons.
First, the transferred action retains a commencement nexus to the jurisdiction of the Supreme Court of New South Wales. Mineralogy ought not suffer in terms of a very late realised constrained capacity in the transferee court to deal with the merits of all the pleaded issues squarely raised for determination at trial. Here the Eshelby constraint would not have inhibited the Supreme Court of New South Wales from dealing with the substantive merits of the causes of action raised under Mineralogy's amended trial pleadings. Procedural constraints of this temporal nature arising by the Eshelby principle would also appear to have been reformed and corrected elsewhere across the nation, as in Queensland, in Victoria and, as now seen, in New South Wales: see the Supreme Court (General Civil Procedure) Rules 2015 (Vic), O 36.01(3) and the Uniform Civil Procedure Rules 1999 (Qld), r 375(2).
The second reason is that since 2013 in this court, all previous case managers for this litigation at all times until trial and without the slightest of objections ever being raised - have proceeded on an open understanding that it was fully within the jurisdiction and power of this court to deal with all the pleaded claims raised by Mineralogy. For instance, on 6 August 2014, Edelman J directed Mineralogy to plead out its cause of action in respect of its attempt to refer the then dispute over unpaid RCB amounts to an expert for determination. No objection was raised by the CITIC defendants to that course on the basis of the Eshelby principle inhibiting that course. In fact, the course taken was positively advocated, it would appear, by the CITIC defendants at that time.
Further, the Court of Appeal of this State in [2017] WASCA 76 at [24] - [25] observed that Chaney J, at 27 November 2015, had granted a permanent stay of two actions which had been freshly commenced by Mineralogy, namely, the proceedings CIV 2203 of 2015 and CIV 2368 of 2015. The stay was on the basis that his Honour had assessed Mineralogy's actions in bringing those fresh actions as abuses of process. It was said that the proper course was for Mineralogy to seek leave to amend its pleading in the current proceedings to advance these fresh grievances: see Mineralogy Pty Ltd v Sino Iron Pty Ltd [2015] WASC 454 [30]. Clearly, it could not have been an abuse of process by Mineralogy to commence fresh actions if application of the Eshelby principle carried the foreseen consequence that such causes of action arose too late in time in 2015 to be properly pursued in the present action commenced in 2013.
Additionally, in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 14] [2017] WASC 17, I granted, over firm opposition from the CITIC defendants, leave for Mineralogy to amend its pleadings to plead out its current iteration of the statement of claim to be pursued at the trial. I also indicated at [27] that Mineralogy would be able to update its calculations in respect of its RCB claims as they continued to accrue subsequent to 1 April 2016. No Eshelby principle constraint was ever pointed to about that course being a wholly problematic grant of leave. Preparations for trial and the exchanged submissions on the causes of action to be evaluated all unfolded on that assumed unconstrained basis.
Third, the pleaded issues currently in dispute on all sides had been comprehensively prepared for and argued out on a basis that there was no Eshelby constraint on Mineralogy to inhibit this court's full consideration of all the pleaded issues. Many difficult and wide ranging trial issues have been squarely confronted by the parties under their exchanged opening submissions before the trial expressly concerning Mineralogy's claims in debt for RCB. This included Mineralogy's claims for RCB amounts in quarterly periods identified under Mineralogy's current pleadings for debt and damages for quarterly periods extending up to the end of the March 2017 quarter.
Fourth, the Eshelby principle implications of the Court of Appeal's observations at [26] and [73] in [2017] WASCA 76 were clearly not fully appreciated by the parties until after I directed attention at them during opening submissions on day one of the trial.
Eventually, the point was taken up by senior counsel for the CITIC defendants. But that was only on the seventh day of the trial (22 June 2017). At that time, Mr Scerri QC for the CITIC defendants candidly said:
It's a problem that we had not realised before, and none of - I can just say this with - as an excuse, none of the case managers have ever raised it and it wasn't raised by the first Court of Appeal. But it's really a matter for Mineralogy to see if they want to say anything to your Honour about it.
The reason I mention it now is that it might be a good idea to work out when that should be done (ts 2,198).
The Eshelby principle and its potential ramifications against Mineralogy's causes of action in this trial was only really confronted during the parties' closing submissions on the last two hearing days of the trial. That was when I received (on the penultimate hearing day) the CITIC defendants' written closing written submissions: see pars 36 - 41. Mineralogy then responded on the final day of the trial.
Given all of that, my end view is that it is overwhelmingly in the interests of justice at this trial that I should apply the rules of evidence and procedures of New South Wales. That approach does not affect or alter any of my rulings made to date during the course of the trial. Happily, most procedural rulings were uncontroversial save for my ruling in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 15] [2017] WASC 339. And that decision would be no different under the rules of evidence and procedure of New South Wales.
By that route then, s 64(3) of the Civil Procedure Act 2005 (NSW) is, in my view, applicable as regards it allowing Mineralogy's pleaded causes of action for debt or damages to be evaluated upon their merits at this trial. That is the position even though Mineralogy clearly does advance causes of action seeking RCB debts claimed as due from Sino Iron and Korean Steel and as against CITIC under the FCD that arose, if they did, well after this action was commenced in March 2013.
An alternate approach
In the end, therefore, I have concluded it is appropriate and necessary in present trial circumstances to have recourse to s 64(3) of the Civil Procedure Act 2005 (NSW) to facilitate the ends of justice and a fair trial of the pleaded issues.
Two further things are clear. First, in this State, the effect of the so-called Eshelby principle has not been ameliorated by any reforming legislation, as has been the position in other States. The position in this State then is as indicated under decisions such as Boase [66] (Beech J) and the Court of Appeal's decision in [2017] WASC 76 [26], [73]. That position needs to be looked at.
Second, the clear insight arising from the recent Court of Appeal decision (post this trial's hearing) in Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2017] WASCA 127; (2017) 51 WAR 341, as regards causes of action maturing after a commencement of these proceedings on 18 March 2013, is that Mineralogy cannot be assisted with its Eshelby problems by the provisions of RSCWA O 21 r 5(2) to (5). Nor could I, as was suggested at one point by Mr Bradley QC (see ts 2,513), treat Mineralogy's fifth FASOC (albeit I did grant leave to amend it in [2017] WASC 17) as a new proceeding commenced from the date of my leave. None of those suggested solutions by Mineralogy meet the underlying Eshelby problem on my assessment.
However, Mineralogy theoretically does hold an alternative relief pathway to the same outcome if I had concluded that s 64(3) of the Civil Procedure Act 2005 (NSW) does not apply.
Mineralogy could have, without leave being required, issued a further generally endorsed writ and sought under an endorsement of claim all RCB debt amounts or damages relating to RCB which have fallen due subsequently and up to the end of March 2017 quarterly period as currently claimed under Mineralogy's fifth FASOC.
If such a generally endorsed writ were issued and served by Mineralogy, it would then be open to Mineralogy to apply in the CMC list of this court for all pleadings and discovery in the fresh action to be waived and for that fresh 2017 action to be consolidated with the present action - pursuant to the terms of RSCWA O 83 r 1. Orders could be sought for all pleaded issues to be determined from the existing action, CIV 1808 of 2013, in the as consolidated action.
On the face of it, there look to be no limitation of action issues otherwise presenting. So it is presently difficult to see any prejudice to the CITIC defendants by a consolidation of actions course, if it was needed to be followed.
Upon such a consolidation, with the fresh 2017 action as the lead action, any judgment in Mineralogy's favour would then, for Eshelby purposes, effectively fall within the temporal scope of the newly consolidated 2017 action. If that were the consolidated course proposed to be followed by Mineralogy, then the parties would need to be heard beforehand and no doubt various other matters considered.
Nevertheless, if the s 11(1)(c) cross-vesting pathway to s 64(3) of the Civil Procedure Act 2005 (NSW) were found to be closed off, then I would indicate now a clear view that the interests of justice and the overall ends of sensible case management would, in my view, strongly support the making of consolidation of action orders along those lines.
PART C: BACKGROUND FACTS SURROUNDING THE MRSLAs
Until 31 March 2006, Sino Iron had been a 100% owned and fully controlled subsidiary corporation of Mineralogy. Mineralogy at all material times is and has been controlled by Mr Clive Palmer.
On 31 March 2006, Mineralogy sold its 100% shareholding in Sino Iron to a subsidiary entity of CITIC, Sino Iron Holdings Pty Ltd, for $US215 million under a share takeover agreement (the Sino Takeover Agreement).
On 1 November 2007, a similarly structured share takeover agreement (the Korean Steel Takeover Agreement) was entered to effect the sale of all the shares in Korean Steel for $US200 million to CITIC's subsidiary, Balmoral Holdings Pty Ltd.
Following the settlement upon CITIC's share acquisitions (through subsidiary corporations) to obtain control over all the issued shares in Sino Iron and Korean Steel, CITIC essentially became the Hong Kong-based controlling parent corporation of the two participating parties to each MRSLA with Mineralogy.
The State Agreement between Mineralogy, Sino Iron and Korean Steel
Since it is a relevant surrounding circumstance to the MRSLA relationships, something more needs to be said about the State Agreement. It was ratified by the Parliament of Western Australia on 24 September 2002 (see Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA)).
The State Agreement is addressed at some length in the decision of the Full Federal Court (Besanko, McKerracher & Beach JJ) in Mineralogy Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 delivered on 30 March 2017. Their Honours observed in terms:
The commercial and legal reality is that the State Agreement lies at the apex of a suite of agreements pertaining to the Sino Iron Project. The State Agreement is between Mineralogy, Sino Iron, Korean Steel, other subsidiaries or related companies of Mineralogy and the State [222].
In the course of those reasons their Honours noted that the State Agreement had been ratified by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002 (WA), then varied in 2008 by the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Act 2008 (WA). It was observed at [28] that:
The State Agreement made provision for Proposals to be approved by the State and five Proposals were approved over the period from February 2008 and January 2010. The primary judge held that the Facilities Deeds did not give Mineralogy any right to operate any of the Company Facilities. He went on to hold that if that was wrong, nevertheless cl 7(6) of the State Agreement would have varied any such right in the Facilities Deeds so that Mineralogy no longer had a right to operate Company Facilities of Sino Iron and Korean Steel (at [577]) [referring to [577] of Edelman J's decision in Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825; (2016) 329 ALR 1].
For circumstances where litigation has been commenced before invoking the expert under cl 33 (linked back to cl 8.6), my view, as earlier expressed, is that it would be open for the party seeking the expert's task to be concluded (under a proper reference) to apply to the court for a temporary stay of the expert determination process. That, of course, did not occur here.
The cl 33 expert is essentially required by MRSLA cl 33.5 to render a determination within three months of appointment, or in a further agreed period. That feature, particularly concerning the role of the expert, is not easily reconcilable with the CITIC defendants' contended implied term under prayer B.
A further ad hoc implied term is contended for under the CITIC parties' counterclaim (prayer E):
Alternatively to paragraphs A to D above, a declaration that:
(a)on the proper construction of clause 8.2 of the MRSLAs, or pursuant to an implied term of the MRSLAs, the Mineralogy royalty that is payable by Sino Iron and Korean Steel to Mineralogy is the royalty that is fair and reasonable; and
(b)the Mineralogy Royalty that is fair and reasonable is to be determined by [the] Court having regard to all relevant circumstances including those pleaded under paragraph 28(b) of the defence.
As I have indicated earlier in these reasons, I am thoroughly unpersuaded that any such ad hoc implied term as contended for can be found here.
The contention that post the demise of the ABPS the Mineralogy Royalty should just be implied to be something that is left as being 'fair and reasonable' for Mineralogy, on my assessment, is vacuous. It lacks sufficient content or linkage to the parties' clear cl 8 MRSLA bargain. It presents as spectacularly bland and fully ripe for future disagreements in every quarter.
Consequently, I do not assess this proposed ad hoc implied term as being obvious or necessary. It would also be fundamentally inconsistent with the essence of the basal additional royalty bargain sought to be entrenched and protected by cl 8 of the MRSLAs.
PART I: SUMMARY OF CONCLUSIONS
For these reasons, I have, at the end, concluded:
•I accept the constructional choice of the MRP phrase contended by Mineralogy. Consequently, US dollars amounts of RCB royalty monies are due by Sino Iron and Korean Steel to Mineralogy as from the 15th day of each following month after each quarterly period in which RCB is payable;
•the quarterly US dollars per DMTU reference prices that are necessary to derive PP and CP in respect of the two reference products as nominated within the RCB formula in MRSLA cl 8.2(a) are, and have always been and remain, fully capable of a reliable ascertainment and quantification when required in order to calculate RCB amounts on a quarterly basis;
•there has not been and remains no legitimate or principled basis to sever the RCB component of the Mineralogy Royalty as provided for under cl 8.2(a) from the MRSLAs. The Mineralogy Royalty (namely, RCA and RCB) is an essential aspect of the legal consideration Mineralogy is to receive under each MRSLA. A severance of RCB from the MRSLAs (leaving the Mineralogy Royalty as comprising only of RCA, with no product volume royalty entitlements, as the MRSLAs are to be performed as long‑term contracts in future) would deliver a resultant disruption of seismic proportions to the essence of each MRSLA. Severance of RCB out of each MRSLA is not an outcome seriously open for the CITIC defendants to contend - were it ever necessary to consider the recourse to severing RCB from the MRSLAs (which I conclude is not required since RCB is well capable of ascertainment).
•the quantification and ascertainment of the amounts of RCB that are payable to Mineralogy, in each quarter from and after the quarter ending at 31 December 2013, by Sino Iron and Korean Steel is a task perfectly suited for and capable of being carried out by an independent expert rendering a determination under cl 8.6 and cl 33 of each MRSLA;
•notwithstanding that, I have determined the amounts of RCB due to Mineralogy in the December 2013 to March 2017 quarters upon the trial evidence;
•an expert determination (absent manifest error) is final and binding as between the MRSLA parties once carried out by a properly appointed expert who is acting under cl 8.6 of each MRSLA and is following the MRSLA expert determination process under cl 33;
•these proceedings were commenced by Mineralogy on 18 March 2013 out of the Supreme Court of New South Wales before being transferred on 30 April 2013 to the Supreme Court of Western Australia under the national cross-vesting legislation. At that time, no amounts for RCB were due by Sino Iron or Korean Steel to Mineralogy. Production of 'Product' had not then begun. At that time Mineralogy was only claiming amounts under cl 6.3(b) of each MRSLA;
•it is not presently open under Western Australian law as a matter of procedure to pursue liquidated amounts of money that fall due in a period that is after the Western Australian proceedings have been commenced. However, these proceedings were originally commenced by Mineralogy out of the Supreme Court of New South Wales. The New South Wales procedural position, under reforming legislation against the Eshelby principle, is less prescriptive to a full determining of pleaded causes of action as raised. Here, New South Wales procedure rules should be used in this trial as a matter of overall fairness in the circumstances I have related;
•MRSLA disputes between Mineralogy and Sino Iron and Korean Steel over RCB amounts, as claimed by Mineralogy in quarterly periods after 31 December 2013 and thereafter, could have been pursued under the MRSLA expert determination process had there been an ability to appoint an expert to perform that task under cl 8.6 of each MRSLA and the process allowed by cl 33 in those agreements;
•parties to the MRSLAs must act in good faith towards each other. This is an express good faith obligation applicable between them imposed under cl 37.4 of the MRSLAs. Furthermore, by the term implied by law in all commercial contracts, the MRSLA parties must also co‑operate with each other in conferring the benefits of their contractual relationship upon each other: see Secured Income. Good faith and proper co‑operation, I would conclude, extend to participating in any future joint requests with Mineralogy issued under MRSLA cl 33.2(b) to appoint an expert to undertake the ascertainment and quantification of RCB claimed as due under cl 8.2(a) in future periods;
•the issues put by Sino Iron and Korean Steel against a utilisation of an expert under cl 8.6 were either misconceived, or have now been rendered otiose, once a true meaning of the MRP phrase as used in PP and CP within the RCB calculation formula is determined in this litigation;
•the CITIC defendants must co‑operate in future with Mineralogy and join it in any future requests made to the relevant nominating body under cl 33.2(b) for that person to nominate the expert to perform the role and tasks under cl 8.6 as regards determining disputes over RCB amounts in future quarterly periods.
Orders for judgment
Prima facie and subject to hearing the parties, it appears that the following orders should issue:
1.There should be judgment for Mineralogy severally against Sino Iron and Korean Steel for unpaid amounts of RCB that have fallen due in the quarters ended 31 December 2013 to 31 March 2017 inclusive, in the respective amounts of:
(a)Sino Iron $US149,413,470 ÷ 2 = $US74,706,735; and
(b)Korean Steel $US149,413,470 ÷ 2 = $US74,706,735.
2.As regards the third defendant, Mineralogy may apply for leave to amend its current statement of claim by a minute that pleads out all relevant written demands it has issued to the CITIC defendants in respect of unpaid amounts of RCB claimed by Mineralogy from Sino Iron and Korean Steel in the quarterly periods between 31 December 2013 through to the quarter ended 31 March 2017 inclusive.
3.The CITIC defendants' counterclaim is dismissed.
4.All other questions as to interest, costs and any consequential relief are reserved.
SCHEDULE A
October 2007 - November 2007
| 30 October 2007 | Mr Mensink resigns as director of Korean Steel. Mr Palmer remained a director of Korean Steel. |
| 1 November 2007 | Takeover Agreement executed between Mineralogy, Sino Iron Holdings Pty Ltd and CITIC which provides of the sale of all shares in Korean Steel to Balmoral Iron Holdings Pty Limited for a total consideration of $US200 million to be paid by Balmoral Iron Holdings Pty Ltd (with $US199,960,000 to be paid to Mr Palmer and US$40,000 to be paid to Mineralogy) (Korean Steel Takeover Agreement). |
January 2008 - April 2012
| 2008 | Sino Iron Direct Agreement entered into between Mineralogy, Sino Iron and the China Development Bank. |
| 8 January 2008 | Sino Iron MRSLA amended. |
| 22 October 2008 | Mr Vernon Francis Moore, Mr Peter Chung Hing Lee, Mr Barry Wayne Fitzgerald, Mr Gong Cheng Wang and Mr Milton Ming To Law are appointed as directors of Korean Steel. |
| 22 October 2008 | Korean Steel MRSLA amended. |
| 22 October 2008 | Fortescue Coordination Deed executed by Mineralogy Pty Ltd, Sino Iron, Korean Steel and CITIC. |
| 22 October 2008 | China Project Option Agreement executed by Mineralogy, Mr Palmer and CITIC. |
| 14 November2008 | The variation agreement with respect to the State Agreement is made. |
| 11 December 2008 | The variation agreement referred to in the above item, comprising Schedule 2 of the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Amendment Act 2008 (WA), came into operation. |
| March 2009 | CITIC Board of Directors release the CITIC 2008 Annual Report with financial statements containing a non-current liability provision for Mining Rights of HK$680 million. |
| 11 June 2009 | Korean Steel Proposal under clause 8(1) of the State Agreement is approved. |
| 22 June 2009 | Sino Iron Concentrate Proposal under clause 8(1) of the State Agreement is approved. |
| Early 2010 | Annual Benchmark Pricing System ceased to operate. |
| 6 January 2010 | Second Sino Iron Concentrate Proposal under Clause 8(1) of the State Agreement is approved. |
| 6 January 2010 | Second Korean Steel Concentrate Proposal under Clause 8(1) of the State Agreement is approved. |
| March 2010 | CITIC Board of Directors release the CITIC 2009 Annual Report with financial statements containing a non-current liability provision for Mining Rights of HK$706 million. |
| March 2011 | CITIC Board of Directors release the CITIC 2010 Annual Report with financial statements containing a non-current liability provision for Mining Rights of HK$1511 million. |
| March 2012 | CITIC Board of Directors release the CITIC 2011 Annual Report with financial statements containing a non-current liability provision for Mining Rights of HK$1524 million. |
| 13 April 2012 | The CITIC Board of Directors release an announcement that CITIC has on 13 April 2012 exercised the First Option under the China Project Option Agreement with the right to extract a further 1 billion tonnes of magnetite ore for a consideration of US$200 million, adjusted for inflation between 1 March 2006 and the date of completion of the Acquisition less the costs incurred for the drilling program under the further drilling obligations. It was anticipated that the consideration will not exceed US$200 million. Upon the acquisition of the additional 1 billion tonnes of magnetite ore under the First Option, CITIC will have rights to mine a total of 3 billion tonnes of magnetite ore. |
July 2012 - March 2013: Relationships deteriorate
| 11 July 2012 | Notices of default from Mineralogy to: i. Sino Iron for alleged breaches of clauses 8.1, 8.2 and 8.4 of the Sino Iron MRSLA; ii. Korean Steel for alleged breaches of clauses 8.1, 8.2 and 8.4 of the Korean MRSLA; and iii. Sino Iron and China Development Bank pursuant to cl 4 of the Direct Agreement, arising from alleged breaches of clauses 8.1, 8.2 and 8.4 of Sino Iron MRSLA. |
| September 2012 | CITIC Board of Directors release the 'CITIC Half Yearly Report for 2012 with financial statements containing a current liability provision for mining rights of HK$2081 million. |
| 2 November 2012 | Notice from Mineralogy to CITIC, Sino Iron and Korean Steel, purportedly notifying Mineralogy's intention to terminate the MRSLAs based on 11 July 2012 notices of default. |
| 08 February 2013 | Letter from Hopgood Ganim on behalf of Mineralogy to Allens on behalf of CITIC regarding the correct calculation of Royalty Component B. |
| 12 February 2013 | Letter from Hopgood Ganim on behalf of Mineralogy to Allens on behalf of CITIC regarding the correct calculation of Royalty Component B. |
| March 2013 | CITIC Board of Directors release the CITIC 2012 Annual Report with financial statements containing a current liability provision for the Mining Rights of HK$1524 million, with a note at [34] that: 'Due to changes in the iron ore market the formula for determining the amount in the contract is not capable of calculation. In the event that a liability crystalizes as a result of such a clause, a provision has been made for this liability as reasonably estimated by the Group and as required by accounting standards. Therefore, the amount provided for in the accounts may differ from any eventual liability. A corresponding increase in intangible mining assets has been made in relation to this provision. The Group has commenced a reassessment of its liability under these clauses.' |
| 18 March 2013 | Mineralogy issues Proceeding 2013/82818 against Sino Iron and Korean Steel and CITIC Limited in the Supreme Court of NSW. |
April 2013 - April 2014
| 12 April 2013 | Quarterly Statement for the Mineralogy Royalty for March Quarter 2013 issued by CITIC Pacific Mining Management Pty Ltd (CPMM) to Mineralogy - 60,556 tonnes of magnetite ore taken in the March 2013 quarter. |
| 30 April 2013 | Proceeding 2013/82818 transferred to the Supreme Court of Western Australia and allocated proceeding number CIV 1808 of 2013. |
| 12 July 2013 | Quarterly Statement for the Mineralogy Royalty for June Quarter 2013 issued by CPMM to Mineralogy - 299,659 tonnes of magnetite ore taken in the June 2013 quarter. |
| 26 July 2013 | Notice of default from Mineralogy to Sino Iron and Korean Steel, for alleged breaches of clauses 8.1(c) and 8.4 of the MRSLAs. |
| 14 October 2013 | Quarterly Statement for the Mineralogy Royalty for September Quarter 2013 issued by CPMM to Mineralogy - 489,513 tonnes of magnetite ore taken in the September 2013 quarter. |
| 02 December 2013 | CITIC announces that the first shipment of iron ore will be loading on 2 December 2013. |
| 23 December 2013 | Mineralogy lodged its financial statement for the financial year ended 30 June 2013. Page 27 of the financial statement states: On 17 November 2013, the Directors wrote to CITIC advising they agree with CITIC's position that it was not possible to calculate Royalty Component B (including the minimum royalty amount) using that basis. This being the case, the Directors have assessed the Agreements are frustrated and as such have elected to derecognise the minimum royalty receivable and associated deferred revenue at 30 June 2013. |
| 14 January 2014 | Quarterly Statement for the Mineralogy Royalty for December Quarter 2014 issued by CPMM to Mineralogy - 38,179 dry metric tonnes (DMT) of saleable concentrate shipped in period October to December 2013. |
| 11 April 2014 | Quarterly Statement for the Mineralogy Royalty for March Quarter 2014 issued by CPMM to Mineralogy - 300,817 DMT of saleable concentrate shipped in period January to March 2014. |
June 2014 - April 2017
| 2 June 2014 | Letter Mineralogy to Sino Iron and Korean Steel and CPMM by which Mineralogy provided each of Sino, Korean and CITIC with a notice in writing that Mineralogy disputed the amount of the royalty paid for the quarter ended 31 March 2014 (the 2 June notice). |
| 6 June 2014 | Letter Allens to Hopgood Gamin responding to the 2 June notice indicating that Sino Iron and Korean Steel (Sino/Korean) consider that the 2 June notice is invalid and that the process to refer the matter to an expert had not been validly invoked, while also inviting Mineralogy to specify with precision the nature of the dispute and specifying how the amount of Mineralogy Royalty for which it contends has been calculated. |
| 8 June 2014 | Letter Mineralogy to Allens in response to the letter described in the above item. |
| 11 June 2014 | Letter Allens to Mineralogy in response to the letter described in the above item, noting that Mineralogy's letter dated 8 June 2014 does not address issues raised in Allens' letter of 6 June 2014, while restating Sino/Korean's position that the 2 June notice is invalid, and that the process to refer the matter to an expert had not been validly invoked. |
| 13 June 2014 | Letter Mineralogy to Allens in response to the letter described in the above item, continuing to press for an expert determination of the matters the subject of the 2 June notice. |
| 17 June 2014 | Letter Mineralogy to President of the Law Society of Western Australia in relation to the Sino Iron MRSLA, by which Mineralogy requested the President of the Law Society of Western Australia to decide the nominating body which was to nominate an independent expert to resolve the dispute the subject of the 2 June notice. |
| 17 June 2014 | Letter Mineralogy to President of the Law Society of Western Australia in relation to the Korean Steel MRSLA by which Mineralogy requested the President of the Law Society of Western Australia to decide the nominating body which was to nominate an independent expert to resolve the dispute the subject of the 2 June notice. |
| 18 June 2014 | By letter from Allens to Mineralogy, sent in response to Mineralogy's letter dated 13 June 2014, Sino/Korean maintained their view that the 2 June notice is invalid and that the process to refer the matter to an expert as set out in clause 33 of the MRSLAs had not been validly invoked. |
| 19 June 2014 | Letter Allens to President, Law Society of Western Australia requesting that the Law Society of Western Australia confirm that, in the circumstances (which include the ongoing proceedings and the parties' ongoing dispute regarding clause 8.6 of the MRSLAs), not to proceed to decide the nominating body to nominate an independent expert in the case of both Sino Iron and Korean Steel. |
| 23 June 2014 | Letter from President of the Law Society of Western Australia, referring to Mineralogy's letters dated 17 June 2014 and Allens' letter dated 19 June 2014, advising the parties that he intended to make a decision as requested by Mineralogy under both contracts on 7 July 2014 unless directed otherwise by the Supreme Court. |
| 4 July 2014 | Letter from Allens to President of the Law Society of Western Australia, indicating Sino/Korean's position that if a body was to be nominated, that body should be the Australian Bar Association, from which an experienced legal practitioner (drawn from a large pool of expertise) can determine the issues of the proper construction and application of clause 8.2 of MRSLAs in all the relevant circumstances. |
| 7 July 2014 | Mineralogy's response to the letter dated 23 June 2014 the President of the Law Society of Western Australia. |
| 8 July 2014 | The President of the Law Society of Western Australia communicated to Mr Peter O'Donahoo and Mr Jeremy Quan-Sing (Allens), Mr Vimal Sharma (Mineralogy) and Mr Peter Burge (Hopgood Gamin) on 8 July 2014, a decision that the Australasian Institute of Mining and Metallurgy should be the body which was to nominate the expert to resolve the dispute the subject of the 2 June notice. |
| 9 July 2014 | Sino Iron and Korean Steel communicated to Mineralogy (by a letter from Allens) dated 9 July 2014 that: (a) Clause 33.2(b) of the MRSLAs required the Parties to jointly request the President or most senior officer of the nominating body to nominate the Expert; and (b) They would not be making a joint request with Mineralogy to have the Australasian Institute of Mining and Metallurgy to nominate an Expert to determine the dispute the subject of the 2 June notice. |
| 10 July 2014 | Notice Mineralogy to Sino Iron, CITIC and Allens alleging breach of clause 33.2(b) of MRSLAs. |
| 10 July 2014 | Notice Mineralogy to Korean Steel, CITIC and Allens alleging breach of clause 33.2(b) of MRSLAs. |
| 11 July 2014 | Notice of default from Mineralogy to Sino Iron and China Development Bank, purportedly pursuant to clause 4 of the Direct Agreement. |
| 14 July 2014 | Quarterly Statement for the Mineralogy Royalty for June Quarter 2014 issued by CPMM to Mineralogy - 464,083 tonnes (DMT) of saleable concentrate shipped in period March to June 2014. |
| 17 July 2014 | Letter Allens to Mineralogy requesting Mineralogy to withdraw its Notices of 10 July 2014 issued to each of Sino Iron, CITIC and Allens, and Korean Steel, CITIC and Allens, notice to Sino Iron Pty Ltd and the China Development Bank dated 10 July 2013, delivered 10 July 2014, under clause 4 of the Direct Agreement and notice to Sino Iron Pty Ltd and the China Development Bank dated 10 July 2014, delivered 11 July 2014. |
| 18 July 2014 | Notices of Default from Mineralogy to: i. Sino Iron for an alleged breach of cl 8.1 of the Sino Iron MRSLA; ii. Korean Steel for an alleged breach of cl 8.1 of the Korean Steel MRSLA; iii. Sino Iron and China Development Bank pursuant to cl 4 of the Direct Agreement; iv. Korean Steel and China Development Bank pursuant to cl 4 of the Direct Agreement; v. Sino Iron for an alleged breach of cl 8.4 of the Sino Iron MRSLA; and vi. Korean Steel for an alleged breach of cl 8.4 of the Korean Steel MRSLA. |
| 25 July 2014 | Allens wrote to Mineralogy regarding its purported notices of default dated 18 July 2014, indicating Sino/Korean's position that each notice is invalid. |
| 28 July 2014 | Letter Mineralogy to Allens, referring to Allens' letters of 17 July 2014 and 25 July 2014 and indicating that it stands by its default notices. |
| 1 August 2014 | Mineralogy (by a letter from its solicitors Hopgood Gamin of 1 August 2014), requested that Sino Iron and Korean Steel join with it in requesting the President of the Australasian Institute of Mining and Metallurgy to appoint an independent expert to determine the dispute the subject of the 2 June notice. |
| 1 August 2014 | Letter Hopgood Gamin to Allens regarding a proposed application in respect of expert determination. |
| 4 August 2014 | Sino Iron and Korean Steel communicated to Mineralogy that they would not join with Mineralogy in requesting the President of the Australasian Institute of Mining and Metallurgy to appoint an independent expert to determine the dispute the subject of the 2 June notice. The communication is contained in an email from Mr Peter O'Donahoo (Allens) on behalf of Sino Iron and Korean Steel to Mr Peter Burge, Mr Kris Byrne and Mr Joel Borgeaud (Hopgood Gamin) dated 4 August 2014. |
| 18 August 2014 | In a letter from Allens to HopgoodGamin, Sino Iron, Korean Steel and CPMM informed Mineralogy of their position that: · the 4 August Notice was invalid; · the 4 August Notice was not a valid reference of the June 2014 Quarter Dispute; and/or · the June 2014 Quarter dispute was not one that should be referred to an expert given the court proceedings between them. |
| 10 September 2014 | Mineralogy provides undertaking to the Court that it would refrain from taking certain steps, including issuing or purporting to issue any notice to terminate the MRSLAs in reliance upon the 10 July 2014 default notices. |
| 12 September 2014 | Mineralogy provides written undertaking to the Court that it would refrain from taking certain steps, including issuing or purporting to issue any notice to terminate the MRSLAs in reliance upon the 10 July 2014 default notices. |
| 12 September 2014 | Notices from Mineralogy to: · Sino Iron purporting to terminate the Sino Iron MRSLA; · Korean Steel purporting to terminate the Korean Steel MRSLA. |
| 12 September 2014 | Notices of Default from Mineralogy to: · Sino Iron for an alleged breach of cl 25.2 of the Sino Iron MRSLA; · Korean Steel for an alleged breach of cl 25.2 of the Korean Steel MRSLA; · Sino Iron for an alleged breach of cl 25.3 of the Sino Iron MRSLA; · Korean Steel for an alleged breach of cl 25.3 of the Korean Steel MRSLA; and · Sino Iron and China Development Bank pursuant to cl 4 of the Direct Agreement. |
| 15 September 2014 | Notices of default from Mineralogy to: · Sino Iron for an alleged breach of cl 12.1(c) of the Sino Iron MRSLA; · Korean Steel for an alleged breach of cl 12.1(c) of the Korean Steel MRSLA; · Sino Iron for an alleged breach of cl 16.1 of the Sino Iron MRSLA; · Korean Steel for an alleged breach of cl 16.1 of the Korean Steel MRSLA; · Korean Steel for an alleged breach of cl 25.2 of the Korean Steel MRSLA; · Korean Steel for an alleged breach of cl 25.3 of the Korean Steel MRSLA; and · Sino Iron and China Development Bank pursuant to cl 4 of the Direct Agreement. |
| 16 September 2014 | Notices of default from Mineralogy to: · Sino Iron for an alleged breach of [cl] 16.2(b) of the Sino Iron MRSLA; · Korean Steel for an alleged breach of [cl] 16.2(b) of the Korean Steel MRSLA; · Sino Iron for an alleged breach of cl 22.2(c) of the Sino Iron MRSLA; · Korean Steel for an alleged breach of cl 22.2(c) of the Korean Steel MRSLA; and · Sino Iron and China Development Bank pursuant to cl 4 of the Direct Agreement. |
| 17 September 2014 (and subsequently on 22 and 24 September) | Allens informed Mineralogy of Sino Iron and Korean Steel's position that each of the September Notices were invalid. |
| 18 September 2014 | Notices from Mineralogy to: · Sino Iron purporting to terminate the Sino Iron MRSLA; and · Korean Steel purporting to terminate the Korean Steel MRSLA. |
| 19 September 2014 | Mineralogy informed Sino Iron and Korean Steel that it withdrew a number of the notices issued on 12 and 15 September 2014 |
| 22 September 2014 | Mineralogy informed Sino Iron and Korean Steel that it withdraw a number of the notices issued on 12 and 15 September 2014, but these did not include the termination notices issued on 12 and 18 September 2014. |
| 22 September 2014 | Notices from Mineralogy to Sino Iron and Korean Steel, stating that Sino Iron and Korean Steel must immediately suspend the operations and cease all activities carried out by, or on behalf of, either of them on the Project Area. |
| 22 September 2014 | Mineralogy requested a full explanation as to why the CITIC directors had failed to disclose to the Hong Kong Stock Exchange the fact that Mineralogy had issued various notices of default and notices of termination. |
| 23 September 2014 | HopgoodGamin wrote to Allens informing them that Mineralogy withdrew the notices issued on 16 September 2016, but that by withdrawing these, Mineralogy did not waive its rights in respect of the defaults or to issue similar notices in the event that the MRSLAs were not terminated on 3 October 2014. |
| 26 and 30 September 2014 | Mineralogy issued media releases stating that: · The CITIC directors failed to declare the 12 September 2014 termination notices to the Hong Kong market and may have breached the law; and · The Hong Kong Stock Exchange and authorities should immediately commence an investigation into the failure of the directors to declare the 12 July 2012 notices and the 12 September 2014 termination notices. |
| 14 October 2014 | Quarterly Statement for the Mineralogy Royalty for September Quarter 2014 issued by CPMM to Mineralogy - 835,048 DMT of saleable concentrate shipped in period July to September 2014. |
| 14 January 2015 | Quarterly Statement for the Mineralogy Royalty for December Quarter 2014 issued by CPMM to Mineralogy - 569,208 DMT of saleable concentrate shipped in period October to December 2014. |
| 14 April 2015 | Quarterly Statement for the Mineralogy Royalty for March Quarter 2015 issued by CPMM to Mineralogy - 389,770 DMT of saleable concentrate shipped in period January to March 2015. |
| 14 July 2015 | Quarterly Statement for the Mineralogy Royalty for June Quarter 2015 issued by CPMM to Mineralogy - 718,923 DMT of saleable concentrate shipped in period April to June 2015. |
| 14 October 2015 | Quarterly Statement for the Mineralogy Royalty for September Quarter 2015 issued by CPMM to Mineralogy - 1,418,352 DMT of saleable concentrate shipped in period July to September 2015. |
| 16 October 2015 | Mineralogy sent letters to Sino Iron and Korean Steel described as 'Notice to deliver vacant possession of [sic] and cease to occupy'. |
| 14 January 2016 | Quarterly Statement for the Mineralogy Royalty for December Quarter 2015 issued by CPMM to Mineralogy - 1,021,595 DMT of saleable concentrate shipped in period October to December 2015 (as notified in the letter dated 14 April 2016). |
| 14 April 2016 | Quarterly Statement for the Mineralogy Royalty for March Quarter 2016 issued by CPMM to Mineralogy - 1,634,605 DMT of saleable concentrate shipped in period January to March 2016. |
| 14 July 2016 | Quarterly Statement for the Mineralogy Royalty for June Quarter 2016 issued by CPMM to Mineralogy - 2,765,252 DMT of saleable concentrate shipped in period April to June 2016. |
| 14 October 2016 | Quarterly Statement for the Mineralogy Royalty for September Quarter 2016 issued by CPMM to Mineralogy - 2,666,323 DMT of saleable concentrate shipped in period July to September 2016. |
| 28 December 2016 | Mineralogy wrote to Allens stating that it withdrew all termination notices and default notices which it had issued up until that date, including the September 2014 Notices that had not previously been withdrawn. |
| 13 January 2017 | Quarterly Statement for the Mineralogy Royalty for December 2016 issued by CPMM to Mineralogy - 3,045,608 DMT of saleable concentrate shipped in period October to December 2016. |
| 14 April 2017 | Quarterly Statement for the Mineralogy Royalty for March 2017 issued by CPMM to Mineralogy - 3,061,258 DMT of saleable concentrate shipped in period January to March 2017. |
SCHEDULE B
The submissions below are extracted from Mineralogy's detailed responses to the CITIC defendants' experts' criticisms of Mr Brierley's assumptions and methodology, as provided under Mineralogy's closing submissions.
189.There is common ground between the parties' experts on a range of matters that are relevant to whether a prevailing published annual FOB price can be calculated with sufficient accuracy.
190.The experts agree that the benchmark price that had been set under the annual Benchmark Pricing System prior to March 2010 was a reference price. That is, upon the price being settled, it acted as a price by reference to which other contracting parties entered into commercial arrangements for the sale of iron ore products.
191.Index‑based pricing has since come to be the pricing system that is applied 'almost universally' in long term agreements for the sale of iron ore. It refers to a methodology under which a selected spot market index is averaged over a contractually agreed quotation period to generate a price. They also agreed that Platts IODEX 62% fines price has been the principal iron ore price reference since April 2010. The Platts IODEX 62% fines price is an assessment of the spot market prices of cargoes of iron ore into China. Prices are quoted on a cost and freight, or 'CFR' basis and are denominated in US Dollars per Dry Metric Tonne. Mr Brierley gave oral evidence that Vale, Rio Tinto and Fortescue (the first, second and fourth largest producers of iron ore respectively) all now use the Platts IODEX 62% fines price. Dr Fisher agreed that BHP, Rio Tinto and Vale have sold about 85%, 92% and 69% of their respective volumes on some form of indexed pricing.
192.The defendants' experts also agreed that quotation period over which the price is averaged is a matter for negotiation between contracting parties. Commercial parties have to make choices as averaging periods for their contracts. It is a trade‑off between volatility and currency. Generally speaking, the longer the averaging period over which prices are smoothed, the less variability in price should be seen. A rolling average will typically smooth the series of prices. Lagging the average by a period makes the price less current, but more predictable, because it is calculated on past prices already known to the parties. Currently, lagged‑quarter, current‑quarter and monthly averages are all commonly used. Once a base price has been calculated by averaging over the contractually selected averaging period, it may be adjusted for the difference between the iron content of the index specification and that of the delivered product. Other adjustments may be applied, including for ocean freight and ore quality.
193.Where the relevant ocean freight rate is not known, spot market freight rates can be used to derive FOB prices known as netbacks from the quoted CFR prices. The Baltic Exchange is a reliable supplier of published spot ocean freight rates, quoted in US dollars per wet metric tonne.
194.The working out of calculation using 'PP' and 'CP' inputs involves some assumptions. [Mr] Barkas agreed with Mr Birkett at [6] of the joint memorandum that the calculations in Mr Birkett's report evaluating Royalty B are dependent on intuitive and reasonable assumptions that, in clause 8.2(a) of the MRSLAs, Product is to be measured in dry (rather than wet) tonnes and the words 'of the pellet price' and 'of the concentrate price' are to be disregarded.
195.What is in contest between some of the experts is whether reference 'PP' and 'CP' prices can be calculated with sufficient accuracy. Mr Brierley has given evidence that it can be done with reasonable accuracy. When pressed in cross‑examination for an answer as to what he considered to be 'reasonably accurate', Mr Brierley indicated plus or minus 1‑2%.
196.Mr Barkas, Dr Fisher and Mr Buckley expressed the view that 'Mr Brierley's calculation methodology may be sufficient in the context of an analyst attempting to estimate trends of net earnings', but were not sufficient 'to accurately estimate the FOB price inputs required for definitive calculation' of Royalty B (emphasis added). Properly understood, this is a difference of degree, with Mr Brierley content with a 'reasonable accuracy' of +/1‑2% and Mr Barkas, Dr Fisher and Mr Buckley declaring the calculation not to be 'definitive'.
197.Unhelpfully, in places, the defendants' experts appear to move from consideration of whether a reference price can be calculated from currently available price indices to whether a price can be derived that is an 'analogue' of, or that 'replicates', the benchmark price. This is unhelpful as the latter matter does not assist in answering the question before the court. For example:
(a)While he was not specifically asked the question in his instructions, Mr Barkas reported that it is not possible to use currently available index prices to derive prices that 'are analogues' of the benchmark prices that existed prior to March 2010.
(b)Dr Fisher was specifically asked whether it was possible 'to accurately estimate an equivalent annual FOB price for Mt Newman fines that would accurately replicate the price that would have been determined under the annual benchmark pricing system'. Dr Fisher took his instructions quite literally, responding that 'key features of the benchmark pricing system are not able to be replicated after the fact by any means except by conducting actual negotiations in private between the key iron ore exporters and their major customers' and on this basis he concluded it was not possible to accurately replicate the price.
198.The degree of accuracy is revealed in the steps reported by Mr Brierley.
199.To derive a concentrate price (CP), Mr Brierley performed the following calculation:
(a)Platts IODEX 62%, which is a price per dry metric tonne, was selected as a reference price (and a view was taken that it is sufficiently analogous or comparable to Mount Newman Fines that a further adjustment, eg for impurities, was not required);
(b)The spot iron ore freight rate for Western Australia to Qingdao, China in a Capesize vessel was selected from the Baltic Exchange;
(c)The freight rates, quoted in wet metric tonnes, were adjusted using an average moisture content assumption of 8%, to derive a freight rate in dry metric tonnes;
(d)The freight rate in dry metric tonnes was then subtracted from the Platts IODEX 62% CFR price to arrive at an FOB price per dry metric tonne;
(e)The FOB price per dry metric tonne was divided by 62 to derive an FOB price per dry metric tonne unit;
(f)For each day where there was a published freight rate but not a published iron ore or pellet price, or vice versa, no FOB price per DMTU was calculated and the day was excluded from the quarterly and annual average calculations; and
(g)Rolling, four quarter arithmetic averages were then calculated using daily FOB prices per DMTU, to derive an annual price FOB price per dry metric tonne unit.
200.Regarding the pellet price (PP), the experts agree that Vale is and has been at all relevant times the largest supplier and seller of pellets in Brazil for export.
201.To derive the pellet price, Mr Brierley took the following steps:
(a)The average sale price for pellets each quarter was taken from Vale's published quarterly earnings results;
(b)The proportion of pellets sold on a CFR basis and an FOB basis was taken from the same published results (with an estimate made for the quarters Q1 2012 to Q1 2014 where no published ratio was provided);
(c)The CFR/FOB ratio was adjusted mathematically;
(d)Freight rates were taken from Vale's published results;
(e)The freight rates, quoted in wet metric tonnes, were adjusted using an average moisture content assumption of 3%, to derive a freight rate in dry metric tonnes;
(f)The freight rate in dry metric tonnes was then subtracted from the average sales price (adjusted to account for the published CFR/FOB ratios each quarter) to arrive at an FOB price per dry metric tonne;
(g)An average iron ore content of 66.5% was assumed; and
(h)The FOB price per dry metric tonne was divided by 66.5 to derive an FOB price per dry metric tonne unit.
202.As a cross check, Mr Brierley used spot blast furnace 65% Fe CFR prices from Brazil sourced from UMetal.
203.Based upon Mr Brierley's calculated concentrate prices and pellet prices, Mr Birkett calculated the amount of Royalty B for each quarter. Mr Birkett reported that the total amount of Royalty B for all quarters to the end of the March 2017 quarter was $149,413,470.
204.During the course of his oral evidence, Mr Brierley acknowledged that there had been a minor error in the prices he had recorded in his written evidence. He had corrected those figures in a document, which became Exhibit 12. As Mr Brierley indicated in Exhibit 12, the amendments would have increased the March 2017 quarterly average Platts 62% price by 0.17% and the annual average Platts 62% by 0.06%.
…
The iron grade assumption
222.To arrive at a price per dry metric tonne unit, which is required by the formula in clause 8.2, Mr Brierley subtracted the moisture adjusted freight rate from the CFR price before dividing the relevant figure by 62 to arrive at the FOB price on a per DMTU basis.
223.Mr Barkas takes issue with the final step in this analysis, ie with the division of the relevant figure by 62 to arrive at the DMTU price, on the basis that the Platts IODEX 62%Fe recognises a lack of linearity in the value of each 1%Fe.
224.Under cross examination, Mr Brierley acknowledged that the Platts IODEX 62% price was 'not totally linear now', however 'when you use a reference price of 62 per cent as your price reference point, I think it's - makes commonsense to - if you're going to change it convert it into per dry metric tonne unit, to convert it at 62, because that's the price.'
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Average sales price
245.The first issue Mr Barkas identified is that, Vale's published 'average realised prices' are in fact 'average realized revenues', the reporting basis of which changed over the period calculated by Mr Brierley. He said that, prior to 2015 Q4, the prices relied on by Mr Brierley were gross operating revenues, which included value added tax. After that period, Mr Barkas said, the prices relied on by Mr Brierley and published by Vale were net operating revenues, where value added tax had been removed.
246.Whatever the underlying basis for the figures, they are reported by Vale as being their 'average realized prices'. Plainly, Vale took the view that prior to 2015 Q4 the VAT was part of the 'realized price' and, from that time took a different view. This change may have been the result of a changed accounting practice or legal developments in Brazil. Whatever the explanation, the 'realized prices' published by Vale were those used by Mr Brierley. In any event, as Mr Brierley indicated, the difference between gross operating revenues and net operating revenues is only approximately 3%.
247.The second issue identified by Mr Barkas is that the reported revenues are from the sale of pellets across all markets, including the Brazilian domestic market.
248.However, as Mr Barkas indicated, domestic pellet prices, in the only quarter to which Mr Barkas refers (ie 2014 Q3), differed from export pellet prices, with Vale citing 'lower premiums in the Brazilian market' as one of the reasons for its lower price realisation in that quarter. On that basis, the inclusion of domestic sales in the published 'average realized prices' meant the average was lower than it likely would have been without them, so that Mr Brierley's analysis was conservative.
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The average iron content assumption
260.As Mr Barkas indicated, during the relevant period Vale's pellet production included direct reduction pellets grading around 67.8% Fe and blast furnace pellets ranging in iron grade from 65.2% to 65.7%.
261.Mr Brierley's evidence was that, firstly, he did not distinguish between blast furnace pellets and direct reduction pellets, as the formula in cl 8.2 did not distinguish between pellet type, and secondly he considered the selected iron grade of 66.5% to be reasonable.
262.Mr Barkas's criticism was similar to that made in respect of the iron grade assumption in the Mount Newman fines calculation. That is, that pricing is not linear and the selection of the 66.5% iron grade assumption does not account for the premium that would have been achieved by the 67.8% direct reduction pellets.
263.Assuming a lack of price linearity, a lower iron grade would have increased the pellet price per DMTU. In the circumstances, Mr Brierley's selection of an iron grade towards the upper end of the range was a reasonable, prudent and conservative decision.
The Umetal cross check
264.Mr Brierley uses Umetal to perform a cross check of the Vale calculations and has indicated that the cross check does not raise any doubts about the accuracy of the Vale data.
265.Mr Barkas, Mr Buckley and Dr Fisher take issue with this conclusion in the joint memorandum pointing to the fact that the use of the alternative methodologies changes the purported value of Royalty B by US$6.442 million over the period 2013 Q4 to 2017 Q1 inclusive. This is an issue the defendants specifically take up in their closing submissions at [124].
266.It should however be observed that the amount of Royalty B said to be owing over that same period was $US149,413,470. The difference pointed to by the defendants is 4.31% of the total owing. (footnotes omitted)
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