Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 18] - [2018] WASC 307

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   MINERALOGY PTY LTD -v- SINO IRON PTY LTD [No 18] [2018] WASC 307
CORAM:   QUINLAN CJ
HEARD:   11 SEPTEMBER 2018
DELIVERED          :   8 OCTOBER 2018
FILE NO/S:   CIV 1808 of 2013
BETWEEN:   MINERALOGY PTY LTD
Plaintiff
AND
SINO IRON PTY LTD
First Defendant
KOREAN STEEL PTY LTD
Second Defendant
CITIC PACIFIC LTD
Third Defendant

Catchwords:

Undertakings as to damages - Interlocutory injunctions wrongfully granted - Exchange rate losses - Application by unsuccessful party to enforce undertakings - Discretion whether to enforce - Measure of damages

Legislation:

Nil

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff	:	T Bradley QC & K S Byrne
First Defendant	:	C M Scerri QC & T Spencer Bruce
Second Defendant	:	C M Scerri QC & T Spencer Bruce
Third Defendant	:	C M Scerri QC & T Spencer Bruce

Solicitors:

Plaintiff	:	Kane Jones
First Defendant	:	Allens
Second Defendant	:	Allens
Third Defendant	:	Allens

Case(s) referred to in decision(s):

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Cadwallader v Bajco Pty Ltd [2002] NSWCA 328
European Bank Ltd v Evans (2010) 240 CLR 432
Graham v Campbell (1878) 7 Ch D 490
Griffiths v Blake (1884) 27 Ch D 474
Harrigan v Brown [1967] 1 NSWR 342
Hoffman-La Roche & Co AG v Secretary for Trade and Industry [1975] AC 295
Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336
Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430
McCleary v DPP (Cth) (1998) 20 WAR 288
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 16] [2017] WASC 340
Sino Iron Pty Ltd v Mineralogy Pty Ltd [2017] WASCA 24
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76
Smith v Day (1882) 21 Ch D 421

QUINLAN CJ:

Introduction

The first defendant (Sino Iron) and second defendant (Korean Steel) apply to enforce undertakings as to damages given by the plaintiff (Mineralogy) in support of its application for interlocutory injunctions requiring Sino Iron and Korean Steel to pay money into court.
By orders made by Martin J on 14 December 2016 and 27 January 2017, Sino Iron and Korean Steel were, relevantly, ordered to pay into court monies that ultimately totalled $AUD97,652,937.47.[1]
[1] See Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403; Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 14] [2017] WASC 17.
As the payments giving rise to the application were made by and returned to Sino Iron, the application is pressed by Sino Iron only.
In essence, Sino Iron seeks damages in relation to what it claims are losses it suffered as a consequence of foreign exchange transactions necessary to pay the money into court in Australian dollars. The losses are said to arise from the difference in the USD/AUD exchange rate between the dates on which the money was paid into court (between 30 January 2017 and 31 March 2017) and the date on which the money was returned (1 May 2017). The money was returned following a successful appeal setting aside the orders of 14 December 2016 and 27 January 2017.^[2]
[2] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76.
There are two broad issues that arise in the application:
(a)whether I ought to exercise a discretion not to enforce the undertakings; and
(b)if the undertakings are enforced, the measure of any damages payable by reason of the undertakings.
The application is unusual in this respect. The monies paid into court pursuant to the interlocutory injunctions ($AUD97,652,937.47) were said to be referrable to royalty payments alleged to be due and owing to Mineralogy by Sino Iron and Korean Steel in the main action brought by Mineralogy. In the result, notwithstanding that the interlocutory injunctions were set aside by the Court of Appeal prior to trial, Mineralogy was successful in the main action, with Sino Iron and Korean Steel found to be severally liable for royalties totalling $US149,413,470 plus interest.
Whether, in light of all of the circumstances, Mineralogy's success in the main action is such that the court should, in its discretion, decline to enforce the undertakings as to damages, is an issue that looms large in this application.
Before turning to the issues, it is necessary to set out some of the protracted procedural history of the matter.

Background

As noted above, the claim by Mineralogy in the main action (after a number of twists and turns) was essentially that it was entitled to royalty payments by Sino Iron and Korean Steel under two written contracts called Mining Right and Site Lease Agreements (MRSLAs).[3] The MRSLAs relate to an iron ore project conducted by Sino Iron and Korean Steel at Cape Preston in the Pilbara region of Western Australia (the Project). That claim depended upon whether an amount was payable under the MRSLAs in relation to what is described, in cl 8.2 of the MRSLAs, as Royalty Component B.
[3] See generally the history of the action in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340.
Royalty Component B forms part of a royalty payable under the MRSLAs in respect of magnetite ore taken by Sino Iron and Korean Steel in the exercise of mining rights granted under the agreements. In accordance with cl 8.2(a), Royalty Component B was calculated, inter alia, by reference to 'prevailing published annual FOB' prices for certain iron ore pellets and fines.
There was no dispute that, prior to the trial of the main action, Sino Iron and Korean Steel had paid nothing to Mineralogy by way of Royalty Component B, since it had started to produce 'product', within the meaning of MRSLAs, in 2013. Their position was, essentially, that Royalty Component B could not be ascertained (and could be severed from the MRSLAs) following the cessation of an annual benchmark pricing system in April 2010. Accordingly, on their case, no amount for Royalty Component B was payable.
Mineralogy, conversely, contended that Royalty Component B was at all times capable of being ascertained and paid. Mineralogy maintained that it was at all times entitled to be paid a quarterly royalty payment that included an amount for Royalty Component B.
In November 2015, Mineralogy applied for a mandatory interlocutory injunction requiring Sino Iron and Korean Steel to pay Mineralogy an amount based on their substantive claim in these proceedings. The application was dismissed by Tottle J.[4] On appeal, the decision of Tottle J was overturned and the application was remitted for reconsideration.[5] The Court of Appeal concluded, in essence, that Tottle J fell into error by declining to make an assessment of the strength of Mineralogy's case on the merits in determining whether to grant the injunction.
[4] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 8] [2015] WASC 473.
[5] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105.
In October 2016, Mineralogy's application was re-heard by Martin J. His Honour granted an injunction.[6]
[6] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403.
On 14 December 2016 and 27 January 2017, Sino Iron and Korean Steel were ordered, upon Mineralogy filing undertakings as to damages, both to pay money into court and to pay an equivalent sum directly to Mineralogy (the Injunction Payment Orders). The Injunction Payment Orders specified amounts payable in USD, or the equivalent in AUD on the day of the payment.[7]
[7] ts 1510.
In granting the injunctions and making the Injunction Payment Orders, Martin J concluded that Mineralogy had demonstrated a strong prima facie case that it had an entitlement against Sino Iron and Korean Steel to be receiving quarterly payments of at least some reasonable amount of royalty funds in respect of Royalty Component B.[8]
[8] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403 [203].
Without outlining all of Martin J's consideration of the balance of convenience (including the adequacy of common law damages), it may be noted that his Honour had regard to potential harm that might be suffered by Mineralogy in the event that it did not receive some form of interim payment,[9] and also to the prospect that any funds paid to Mineralogy may not be recoverable in the event that it ultimately failed at trial.[10]
[9] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403 [211], [212], [216].
[10] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403 [213].
It was considerations of this kind that led his Honour to order that half of the funds payable under the Injunction Payment Orders be paid to Mineralogy and half be paid into court. His Honour stated:[11]
A payment into court of a half component of that amount is directed towards addressing legitimate concerns of the CITIC parties concerning possible later recoupment, were that necessary post trial from Mineralogy. It also caters, conservatively, to address quantum adjustment issues that could be required, once the parties' respective experts set about their further work for trial, in relation to issues concerning working out the level of a fair or reasonable royalty in respect of Product in lieu of RCB - should it be the case that the calculations and methodology adopted by Mineralogy's experts to date (Messrs Brierley, Sorbello and Birkett) prove to be excessive. It is unlikely, however, on my present assessment, that these calculations would prove to be excessive to an extent of more than half of the Birkett amounts. That half component would remain in court, until a final determination of these issues.
[11] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 13] [2016] WASC 403 [220].
It may be noted, in this context, that the orders for payment into court under the Injunction Payment Orders were not orders sought by Mineralogy in its application but, rather, were fashioned by his Honour for the reasons set out above.[12]
[12] Albeit that Mineralogy sought to uphold the orders on appeal: see the references to its submissions in relation to ground 4 in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 at [100].
Shortly after, Sino Iron and Korean Steel lodged appeals against the Injunction Payment Orders and applied for a stay of the Injunction Payment Orders in so far as they required payment to Mineralogy. The stay was granted.[13]
[13] Sino Iron Pty Ltd v Mineralogy Pty Ltd [2017] WASCA 24.
On 27 January 2017 and 24 February 2017, Mineralogy filed the usual undertakings, inter alia, to pay to any party restrained or affected by the restraints imposed by the injunctions such compensation as the court may in its discretion consider in the circumstances to be just.[14]
[14] Affidavit of Ian Peter Scott O’Donahoo sworn on 15 December 2017, Annexure POD-6, Annexure POD-7 (O'Donahoo Affidavit).
Between January and March 2017, pursuant to the Injunction Payment Orders, Sino Iron paid $AUD97,652,937.47 into court, which was subsequently transferred to the Public Trustee for investment.[15] The money was paid in AUD as the court was unable to accept USD.[16] Sino Iron say that they were required to convert USD to AUD to make those payments.
[15] O’Donahoo Affidavit [29]-[30].
[16] O’Donahoo Affidavit [24].
On 20 April 2017, the Injunction Payment Orders were set aside by the Court of Appeal.[17]
[17] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76.
The reasons of the Court of Appeal, not surprisingly, were largely concerned with those aspects of the Injunction Payment Orders requiring payment directly to Mineralogy.[18] In upholding ground 1, for example, the Court of Appeal held:[19]
[18] See particularly the points summarised in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 from [158]-[168].
[19] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 [169].
For the purpose of ground 1 of the appeal, the following matters in particular indicate the absence of any relevant equity in Mineralogy:
(a)both liability and quantum in relation to Royalty B were in dispute, and it was evident (and Mineralogy did not contend otherwise) that such a dispute could not be resolved summarily in favour of Mineralogy;
(b)the judge accepted that although the CITIC Parties were 'potentially mistaken' in relation to the construction and operation of cl 8.2 of the Mining Agreements, their position was not inconsistent with an acknowledgement of an ongoing contractual obligation to pay the royalty payments;
(c)Mineralogy's remedies at trial were at law, including for Default Interest under the Mining Agreements, and the contractual limitation on damages in cl 30.3(b) did not point to or give rise to any inadequacy in Mineralogy's legal remedies;
(d)there was no finding (or notice of contention contending for a finding) to the effect that the CITIC Parties would be unable to pay any sums awarded against them on final judgment after trial, or that there was any material risk in that regard;
(e)there was no finding that Mineralogy faced external administration, with the resultant loss of goodwill to its business, if it only received Royalty A payments pending final determination at trial;
(f) Mineralogy, in 5 FASOC, was not contending that the Mining Agreements had been terminated in October 2014, or at all; and
(g)as at the date of the decisions under appeal and the grant of the interlocutory payment orders, there was no curial or equivalent restraint by way of undertaking to the court which precluded Mineralogy from terminating the Mining Agreements for the non-payment of the Royalty B payments which had allegedly fallen due after 26 July 2013 (including on the basis of the 15 October 2015 notices), and there was no occasion for his Honour to consider that interlocutory payment orders were required to restore a 'proper balance' to the parties' contractual relationship in that regard.
As can be seen, only item (d) was directly referable to the issues that would be relevant to a payment into court, that is, whether there was a material risk that Sino Iron and Korean Steel would be unable to pay any sums awarded after trial. That this was not the principal focus of Mineralogy's application appears later in the reasons (in the context of ground 2):[20]
The focus of Mineralogy's submissions and evidence are the adverse consequences for it, and for related third parties, of it not receiving payments of Royalty B. Orders for payment into court do nothing to ameliorate those consequences, and so such consequences are not relevant to an assessment of the adequacy of legal remedies in the context of the orders for payment into court. Neither Mineralogy's submissions nor the judge's reasons appear to consider the adequacy of damages in that context.
[20] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 [183]. Ground 4, which was directly concerned with the order for payment into court, is briefly disposed of by the Court of Appeal at [191].
Finally, in relation to the Court of Appeal's reasons, I note that the Court of Appeal did not disagree with Martin J's conclusion that Mineralogy had a strong prima facie case for payment of Royalty Component B.[21]
[21] The only reference to that issue by the Court of Appeal is at Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 2] [2017] WASCA 76 at [170]: 'Even accepting that Mineralogy has a strong prima facie case on its claim for debt and Default Interest …'.
On 1 May 2017 Sino Iron was repaid $AUD97,758,998.16, being the total amount paid into court plus interest, minus fees.[22] Between the dates of the payments into court and 1 May 2017, the value of the AUD had fallen compared to the USD. Rather than convert the funds back into USD, Sino Iron used the money to pay operating expenses in May 2017 (which would otherwise have required the purchase of AUD).
[22] Affidavit of Aaron Van Huynh affirmed on 23 May 2018 [38] (Van Huynh Affidavit); O'Donahoo Affidavit [43].
The substantive claims in these proceedings have since been tried. On 24 November 2017, judgment was entered for Mineralogy against Sino Iron and Korean Steel.[23]
[23] Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340.
In this application, Sino Iron seeks two orders: first, that it is entitled to enforce Mineralogy's undertakings as to damages and secondly, that Mineralogy pay to Sino Iron and Korean Steel damages in a sum to be assessed by the court.
Sino Iron submits that but for the Injunction Payment Orders, it would not have entered into foreign exchange transactions between 30 January and 31 March 2017 to meet the payments into court. As a result of the change in exchange rate from January to March and May 2017, Sino Iron submits that it suffered a loss of $US1,258,539.50.

Materials relied upon

In support of the application, Sino Iron read the following affidavits:
(a)an affidavit of Ian Peter Scott O'Donahoo sworn on 15 December 2017; and
(b)an affidavit of Aaron Van Huynh affirmed on 23 May 2018.
Mineralogy read the following affidavits:
(a)an affidavit of Kane Christopher Jones sworn on 25 June 2018; and
(b)a second affidavit of Kane Christopher Jones sworn on 31 August 2018.
Correspondence from Sino Iron's solicitors to Mineralogy setting out Sino Iron's final calculation of its alleged loss ($US1,258,539.50) was also received as Exhibit 1.

The Issues

In any matter concerning the enforcement of an undertaking as to damages two broad issues (at least theoretically) arise: first, whether to enforce the undertaking and, secondly, the measure of damages. The first issue raises a matter of discretion. The second does not. As Lord Diplock described the position in Hoffman-La Roche & Co AG v Secretary for Trade and Industry:[24]
The undertaking is not given to the defendant but to the court itself. Non-performance of it is contempt of court, not breach of contract, and attracts the remedies available for contempts, but the court exacts the undertaking for the defendant's benefit. It retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so, but if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction.
[24] Hoffman-La Roche & Co AG v Secretary for Trade and Industry [1975] AC 295, 361 (Diplock LJ).
In the present case, in my view, it is convenient to deal with the assessment of damages first (that is, on the assumption that the undertakings are to be enforced). This is for two reasons. First, the issues in relation to the assessment of damages are more straight-forward. Secondly, in my view, the nature of the loss in the present case bears some relevance to the exercise of the discretion whether to enforce the undertakings.
I therefore turn to the measure of damages.

The Measure of Damages Sought by Sino Iron

As reflected in the above passage from Hoffman-La Roche & Co AG v Secretary for Trade and Industry, the measure of damages payable by reason of an undertaking as to damages should proceed by analogy with contractual damages. This is consistent with the approach taken by the High Court of Australia, albeit that the analogy must be applied having regard to the equitable nature of the remedy and cannot be constrained by a rigid formulation.[25]
[25] European Bank Ltd v Evans (2010) 240 CLR 432 [10], [17]-[18] (French CJ, Gummow, Hayne, Heydon & Kiefel JJ).

In proving its alleged loss, Sino Iron relied upon the evidence of Mr Aaron Van Huynh, the Manager of Treasury and Insurance for CITIC Pacific Mining Management Pty Ltd (CPM). CPM is the entity responsible for managing the assets of Sino Iron. The evidence of Mr Van Huynh was not the subject of any challenge and I accept it for the purposes of the application.
Mr Van Huynh deposed that Sino Iron and Korean Steel are both, from an accounting perspective, USD functional, meaning that USD is the main currency used and received by them in the course of business. In particular, all of the revenue derived from the sale of concentrate produced at the Project is paid in USD and the royalty payable under the MRSLAs is calculated in USD.
In addition to USD expenses, Sino Iron also requires substantial funds in AUD to pay operating expenses and capital expenses associated with the Project. For this reason, Sino Iron and CPM maintain bank accounts in both USD and AUD. In that regard, Mr Van Huynh deposed to a practice whereby he conducts a daily review of upcoming AUD payments required to be made in relation to the Project and, in the event that additional AUD is required in Sino Iron's AUD accounts, arranges for funds held in the USD accounts to be exchanged for AUD.[26]
[26] Van Huynh Affidavit [13]-[14].
As a consequence of the Injunction Payment Orders, Mr Van Huynh deposed to having arranged for the purchase of AUD on various dates to meet the payments into court made on 30 January 2017, 28 February 2017 and 31 March 2017. Those payments were $AUD14,200,678.13, $AUD38,728,801.17 and $AUD44,723,458.17 respectively.[27]
[27] Van Huynh Affidavit [22], [29], [36].
Not all of the AUD purchased on these occasions was used to pay money into court. That was because Sino Iron also required AUD to meet its Australian expenses. Nevertheless, Mr Van Huynh deposes, and I accept, that were it not for the need to pay AUD into court, he would have arranged to purchase only those amounts of AUD required to meet the Australian expenses.[28] Accordingly, I find, for the purposes of the application, that Sino Iron was required to convert the entirety of the funds necessary to meet the payments into court from USD into AUD.
[28] Van Huynh Affidavit [19], [26], [33].
Of course, as the purchase of the AUD by Sino Iron did not occur all at once, Mr Van Huynh deposed to having arranged a series of transactions on different days at different exchange rates.[29] For the purposes of its claim for loss, Sino Iron has assigned the USD converted to meet the payments into court as being those which were exchanged at the lowest USD/AUD exchange rate. Put another way, Sino Iron's claim for loss proceeded from the starting point that the AUD it paid into court was that which had cost it the least at the time. I am satisfied that that conservative approach is an appropriate starting point for assessing any foreign currency exchange losses suffered as a result of the Injunction Payment Orders.
[29] The various transactions are summarised in a table forming part of paragraph 42 of the Van Huynh Affidavit. The fact of the transactions was not challenged by Mineralogy. Due to the potential commercial sensitivity in relation to the exchange rates obtained by Sino Iron, I have not reproduced the details of the particular transactions.
On that basis the total USD converted to meet the payments into court was $US74,440,925.52.[30]
[30] Van Huynh Affidavit [42]-[43].
As noted above, on 1 May 2017, once the Injunction Payment Orders were set aside on appeal, Sino Iron was repaid $AUD97,758,998.16, being the total amount paid into court plus interest, minus fees.[31] The USD/AUD exchange rate, as published by the Reserve Bank of Australia on that date was 0.7486.[32] According to that rate, the USD value of the funds returned to Sino Iron was $73,182,386.02.
[31] Van Huynh Affidavit [38]; O'Donahoo Affidavit [43].
[32] Van Huynh Affidavit [39]; Affidavit of Kane Christopher Jones sworn 25 June 2018, Annexure KCJ-02.
Sino Iron, accordingly, calculates its loss as follows:[33]
[33] Exhibit 1.

Description	AUD	USD
Total amount of payments into court	97,652,937.47
USD transferred to meet payments into court as per the table in paragraph 42 of the Van Huynh Affidavit	74,440,925.52 (A)
Funds returned from court on or about 1 May 2017, including interest, minus fees	97,758,998.16 (B)
USD equivalent of B as at 1 May 2017 (using RBA exchange rate of 0.7486)	73,182,386.02 (C)
Foreign exchange loss (A-C)	1,258,539.50 USD

In relation to the fate of repaid funds, Mr Van Huynh deposed that, due to the funds having been returned by the court in AUD, it was not necessary to arrange for the conversion of further USD to AUD in order to meet the monthly Australian expenses in May 2017. Rather the funds returned by the court were returned to CPM for that purpose or paid directly to creditors of Sino Iron.[34]
[34] Van Huynh Affidavit [41].
In response to the claim for damages, leaving aside the issue of discretion, Mineralogy makes the following submissions:
(a)as Sino Iron did not convert the AUD back into USD when it was returned but, rather, used the funds to pay Australian expenses, it did not, in fact, suffer any loss as a result of the transactions; and
(b)the loss claimed did not, in any event, naturally or directly flow from the Injunction Payment Orders and could not have been foreseen at the time of the making of the orders.[35]
[35] In making the submission in these terms Mineralogy invokes the rule in Hadley v Baxendale. As observed by the High Court European Bank Ltd v Evans at [14], reliance upon the rule in Hadley v Baxendale in an application such as this must be only by way of analogy. In the circumstances, in my view, it is an appropriate analogy.
There are two aspects to the first of these submissions.
First, Mineralogy submits that, because there was no conversion of the returned funds into USD and as the funds were used to discharge AUD obligations, the loss claimed was never 'crystallised' and no actual loss was suffered.
Secondly, Mineralogy relies upon the fact that Sino Iron, as a regular purchaser of foreign currency, is able to obtain more favourable exchange rates than the Reserve Bank of Australia rate. It follows, Mineralogy submits, that the loss in value identified by Sino Iron is merely a 'notional loss' based on a notional conversion of AUD into USD, rather than a rate actually obtained by Sino Iron.
I accept, as a matter of fact, based on the Reserve Bank exchange rates revealed in the affidavit of Mr Jones, when compared with the transactions arranged by Mr Van Huynh, that Sino Iron is generally able to obtain more favourable exchange rates than those published by the Reserve Bank.
Nevertheless, I reject Mineralogy's challenge to the 'actuality' of Sino Iron's loss.
First, it is correct that the return of the funds to Sino Iron on 1 May 2017 meant that it did not need to enter into further foreign currency transactions in May 2017 to meet its Australian expenses. Nevertheless, I am satisfied that, in the absence of those funds, Sino Iron would have been required, in the usual course of its business, to have entered into comparable foreign exchange transactions in May 2017 to meet its Australian expenses. Either way, it required AUD to meet its Australian expenses.
The fact that it used the funds returned from the court rather than convert further funds was, as Mineralogy accepted, a perfectly logical thing to do. It remains the case, however, that, as a consequence of the transactions required to pay the money into court, the AUD that Sino Iron had available to it in May were more expensive because they had been purchased earlier in the year when the exchange rate was higher. That is, Sino Iron had paid more (in USD) to satisfy its May 2017 Australian expenses than if it had converted funds in May 2017 in accordance with its usual practice.
This, in my view, reflects an actual loss to Sino Iron in the value of its assets. Following the return of the funds on 1 May 2017, Sino Iron was left with AUD that were (in USD terms) worth less than what they had cost Sino Iron to purchase. In the circumstances, that loss did not need to be 'crystallised' (as Mineralogy put it) for it to be real. Sino Iron could have, for example, 'crystallised' its loss in May 2017 by converting the funds returned by the court into USD and then entering into a separate transaction converting USD into AUD to meet its Australian expenses. That would, as Mineralogy accepted, have been an illogical thing to do. The fact that it did not do so does not make its loss any less real or 'actual'.
Similarly, the fact that Sino Iron may have been able to obtain a more favourable exchange rate in May 2017 than the Reserve Bank rate does not, in my view, negate the reality of the loss claimed. The fact is that, for perfectly logical reasons, Sino Iron did not enter into a foreign exchange transaction in May 2017 from which the rate it might have obtained can be determined. At the same time, there can be no doubt that the value of the AUD, compared to the USD, generally fell during the period in which the funds were held in court.[36] The fact of the loss is therefore clear.
[36] The trend of the AUD/USD exchange rate can be seen in the graph annexed to the Affidavit of Kane Christopher Jones sworn on 25 June 2018 as Annexure KCJ-01.
As to the extent or size of the loss, in my view, in the absence of any other evidence, the Reserve Bank rate is the best evidence available to determine the extent of loss to Sino Iron in the value of the funds over the period. The position may have been different had there been evidence, by cross-examination of Mr Van Huynh or some other means, of the extent to which the exchange rate able to be obtained by Mr Van Huynh would have been different in May 2017. In the absence of such evidence, however, I am satisfied that the amount of $US1,258,539.50 reflects the loss caused to Sino Iron by reason of it having entered into the foreign exchange transactions in order to comply with the Injunction Payment Orders.
In relation to what may be described as the Hadley v Baxendale point, Mineralogy submits that foreign exchange transactions (and losses), necessary to comply with the Injunction Payment Orders, were neither the natural nor the foreseeable consequence of the orders. As the High Court emphasised in European Bank Ltd v Evans,[37] the inquiry concerning foreseeability is 'an inquiry as to whether a loss of the kind actually sustained could have been foreseen'.
[37] European Bank Ltd v Evans [29].
In my view, for the reasons that follow, the kind of loss alleged in the present case (that is, foreign currency losses) was loss flowing directly from the Injunction Payment Orders and which could have been foreseen at the time of the orders.
First, the orders required the payment into court of an amount in USD (or its equivalent in AUD as at the date of the payment). USD was, relevantly, the reference point by which the obligation under the Injunction Payment Orders was to be discharged. It was, in this context, well known to the parties that the royalty payable under the MRSLAs was payable in USD. While the orders contemplated that the payment into court may be made in AUD, the amount payable was nevertheless to be determined by reference to an amount in USD and, I infer from the uncontested fact that Sino Iron is 'USD functional', would have been paid into court in USD if that were possible.
Secondly, the reason why the orders provided that the funds to be paid pursuant to the Injunction Payment Orders could be paid in 'the Australian dollar equivalent on the day the funds are provided to the Court'[38] was to account for the possibility that the court could not accept funds in USD.[39] As it transpired, the court was unable to do so.[40]
[38] O'Donahoo Affidavit, Annexure POD-3.
[39] O'Donahoo Affidavit [14]. The option to pay in AUD was not, for example, available in relation to the orders for the payment of sums directly to Mineralogy.
[40] O'Donahoo Affidavit [24].
Accordingly, having regard to the fact that (a) Sino Iron is USD functional, (b) the royalty payments in relation to which the injunctions were sought were payable in USD, (c) the orders specifically provided for a payment into court expressed in USD (or its AUD equivalent as at the date of payment) and (d) the court could not accept USD, in my view, it could have been foreseen that Sino Iron would enter into foreign currency transactions in order to comply with the Injunction Payment Orders.
That being the case, in my view, the losses resulting from changes in foreign currency rates are losses of a kind that could have been foreseen at the time of the making of the orders. It is not necessary that the actual losses (including the exchange rate movements) be foreseen.
I am therefore satisfied that, in the event that the undertakings are to be enforced, the loss suffered by Sino Iron by reason of the Injunction Payment Orders was $US1,258,539.50.
It is to the question of discretion that I now turn.

The Discretion Whether to Enforce the Undertakings as to Damages

The parties did not dispute that the court has a discretion whether to enforce an undertaking as to damages.[41] In that sense there is no 'entitlement' to the enforcement of the undertakings. The undertakings having been given to the court, it is for the court to determine whether, in its discretion, it should enforce them.[42]
[41] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, 311-312 (Gibbs J), 323 (Mason J); McCleary v DPP (Cth) (1998) 20 WAR 288, 310 (Ipp J) (Malcom CJ & Franklyn J agreeing).
[42] European Bank Ltd v Evans [14].
Nevertheless, it is often said that, generally, an undertaking will be enforced unless special circumstances exist.[43] Lord Neuberger went so far as to say a 'defendant can normally expect, virtually as of right, to have an enquiry as to … damages'.[44]
[43] See Ipp J's summary of the authorities in McCleary v DPP (Cth) at 307-310.
[44] Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430 [42] (Neuberger LJ).
The context in which these statements of principle have been made, however, is important. In all such cases, the references to the undertaking 'generally' being enforced are made in relation to circumstances where the restrained party (usually the defendant) is ultimately successful in the main action. That is, the usual case is one in which the restrained party has, in relation to the substantive dispute between the parties, ultimately been vindicated. The statements of principle were not made in a context in which the restrained party was ultimately unsuccessful in the litigation.
A few examples will suffice.
In Graham v Campbell,[45] the Court of Appeal said:
The undertaking as to damages which ought to be given on every interlocutory injunction is one to which (unless under special circumstances) effect ought to be given. If any damage has been occasioned by an interlocutory injunction, which on the hearing is found to have been wrongly asked for, justice requires that such damage should fall on the voluntary litigant who fails, not on the litigant who has been without just cause made so. (emphasis added)
[45] Graham v Campbell (1878) 7 Ch D 490, 494 (James, Cotton & Thesiger LJJ).
The reference to the 'litigant who has been without just cause made so', in context, is clearly a reference to the successful litigant who ought not have been sued on the substantive claim.
Similarly, in Griffiths v Blake,[46] each member of the Court expressed the rule in terms of ultimate success on the merits:
(a)'If the Defendants turn out to be right, it appears to me that they can, under the undertaking, obtain compensation for all injury sustained by them from the granting of the injunction';[47]
(b)'[W]henever the undertaking is given, and the plaintiff ultimately fails on the merits, an inquiry as to damages will be granted unless there are special circumstances to the contrary';[48]
(c)'[If] the Plaintiffs ultimately fail, the Defendants can obtain under the undertaking full compensation for the injury done to them by the injunction'.[49]
(emphasis added)
[46] Griffiths v Blake (1884) 27 Ch D 474.
[47] Griffiths v Blake, 476 (Baggallay LJ).
[48] Griffiths v Blake, 477 (Cotton LJ).
[49] Griffiths v Blake, 477 (Lindley LJ).
The same is true of the Australian authorities. In Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd Gibbs J stated the principle thus:[50]
The court has a discretion not to enforce such an undertaking, but unless the defendant has been guilty of conduct that would render it inequitable to enforce the undertaking it would seem just, speaking generally, that a plaintiff who has failed on the merits should recompense the defendant for the damage that he has suffered as the result of the making of the interlocutory order. (emphasis added)
[50] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd, 311-312.
In this State, in McCleary v DPP (Cth),[51] Ipp J, having reviewed the authorities, summarised the position as follows:
In my opinion, on the authority of Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd and Griffith v Blake, the following propositions can be extracted:
(a) The court has a discretion not to enforce an undertaking as to damages given in ordinary civil litigation, but that discretion is to be exercised in accordance with well-settled principle.
(b) Where a plaintiff has failed on the merits, the undertaking will be enforced unless special circumstances exist.
(c) Generally, special circumstances will involve conduct of the defendant (unrelated to the plaintiff's failure on the merits) such that would render it inequitable to enforce the undertaking.
(d) Special circumstances will not be constituted by the reasons for the plaintiff's ultimate failure, or by the fact that the plaintiff acted reasonably in obtaining the injunction, or that the injunction was granted by a mistake of law or fact on the part of the court.
[51] McCleary v DPP (Cth), 310 (Ipp J) (Malcom CJ & Franklyn J agreeing).
It is notable that Ipp J prefaced the general rule in (b) as applying 'where a plaintiff has failed on the merits'. Indeed, at the conclusion of his Honour's discussion of 'special circumstances' in that case, Ipp J emphasised:[52]
The critical factor is ultimate failure on the merits, ie in the main action.
[52] McCleary v DPP (Cth), 311 (Ipp J) (Malcom CJ & Franklyn J agreeing).
It will therefore be apparent that in none of the prior authorities in which the principles regarding enforcement of an undertaking as to damages are set out, was the court considering the situation where, albeit that an interlocutory injunction was found to be 'wrongly granted', the plaintiff was ultimately successful at trial.
Indeed, neither party was able to identify any case in which an undertaking as to damages was enforced against a plaintiff who was ultimately successful on the merits of the main action, notwithstanding that an interlocutory injunction had been set aside due to an error of law.
This is not to say that enforcement of an undertaking in such circumstances is never possible. Sir George Jessel referred to such a possibility in Smith v Day:[53]
The Court in such a case has a discretion under all the circumstances, the Defendant ought to have damages in respect of the injunction having been improperly granted, though a perpetual injunction is granted at the trial.
[53] Smith v Day (1882) 21 Ch D 421, 425 (Jessel MR). In Smith v Day itself the discretion was exercised not to enforce the undertaking in relation to a defendant who was ultimately successful (on appeal). It should be noted that another aspect of Jessel MR's reasons in Smith v Day (namely that the undertaking could not be enforced where the injunction was set aside owing to a mistake by the court such as an error of law) has been expressly disapproved of in later authorities including Griffiths v Blake (1884) 27 Ch D 474 and Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd.

Sino Iron also relied upon the observation by Dr Spry that 'in special cases' a plaintiff that is ultimately successful may be called upon to pay damages where a defendant has unjustly suffered damage through the inappropriate imposition of an interlocutory restraint.[54]
[54] Spry ICF, The Principles of Equitable Remedies (9^th ed, 2014), 682. The authority cited by Dr Spry in this passage is Smith v Day.
I accept that, in an appropriate case, an undertaking as to damages could be enforced against a plaintiff who was ultimately successful on the merits of the main action. As with the enforcement of an undertaking generally, it is a matter of discretion. Much will, of course, depend upon the circumstances of the particular case (including the nature of the interim injunction and the final relief, and the conduct of the parties generally). Nevertheless, in my view, in such a case the plaintiff's ultimate success is a matter relevant to the exercise of the discretion.
Whether success on the merits is to be regarded as part of 'special circumstances' (as that phrase is used in the authorities) or as an additional matter relevant to the exercise of the discretion, in my view, ultimately does not matter. For the purposes of this application I will adopt the former approach.

The Exercise of the Discretion in the Present Case

I am satisfied that, in light of the Court of Appeal's decision setting them aside, the injunctions and the Injunction Payment Orders were 'wrongly granted', within the meaning contemplated by the authorities, notwithstanding that there was no misconduct on the part of Mineralogy in relation to the application. The fact that the Injunction Payment Orders should not have been made enlivens the discretion whether to enforce the undertakings.
Nevertheless, the fact that the Injunction Payment Orders should not have been made is the starting point (not the end point) in relation to that discretion.
In the present case, Mineralogy was ultimately successful at trial, with Sino Iron and Korean Steel found to be severally liable for royalties in respect of Royalty Component B totalling $US149,413,470 plus interest. The sums ordered to be owing to Mineralogy, following trial, were found to be owing on the same basis that the sums were ordered to be paid into court by the Injunction Payment Orders (i.e. Royalty Component B).
In my view it follows that, whatever its reason for doing so, Sino Iron (as well as Korean Steel) wrongfully retained funds (between 31 December 2013 and 31 March 2017) that it ought to have paid to Mineralogy. In this context, I use the expression 'wrongfully' only in the sense that it was in breach of its contractual obligations, without any further pejorative meaning.
Sino Iron's claim for exchange rate losses in relation to the funds deposited into court in early 2017 therefore relates to funds that, had Sino Iron performed its contractual obligations, it would not have had[55] and, indeed, as is now known, should not have had.
[55] For completeness, I note that in accordance with the findings of Martin J at trial, the amount of Royalty Component B that had accrued by the end of 2016 was $US124,045,491: see Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340 [775].
The nature of the loss claimed by Sino Iron is, in my view, relevant to the exercise of the discretion. It is, in essence, a claim arising from the loss of the use of funds for the period during which those funds were held in court.[56] There is a certain element of chutzpah in a claim for loss of the use of funds which, according to its contractual obligations, a party should not have had in the first place.
[56] Of course, a claim for loss of use not in the form of interest but in exchange rate movements.
Mineralogy characterises that position as Sino Iron coming to the court with 'unclean hands', which it submits gives rise to a basis for not enforcing the undertakings. While other expressions, such as 'wanting in good faith', were used by Mineralogy, in the end Mineralogy contended that it was sufficient to establish a lack of 'clean hands' that Sino Iron was in breach of its contractual obligations to Mineralogy.[57]
[57] See Harrigan v Brown [1967] 1 NSWR 342, 347 (Street J); Cadwallader v Bajco Pty Ltd [2002] NSWCA 328 [179] (Heydon JA) (Santow JA & Gzell J agreeing).
I agree with that characterisation and, in any event, am of the view that Mineralogy's ultimate success at trial in establishing that, at all relevant times, Sino Iron was in breach of its contractual obligations is a matter clearly relevant to the exercise of the discretion whether to enforce the undertakings as to damages. The fact that Sino Iron was in breach of its obligation to pay Royalty Component B bears an 'immediate and necessary relation to the equity' it sues for.[58] As I have observed, the funds of which it lost the use (for approximately three months) were funds it would not have had (for up to three years) had it performed its obligations.
[58] Kation Pty Ltd v Lamru Pty Ltd (2009) 257 ALR 336 [8] (Allsop P), [28] (Hodgson JA).
Due to the position it adopted as to the operation of the MRSLAs, Sino Iron had to be sued for those funds. It was not, to use the expression first used by the Court of Appeal in Graham v Campbell, a 'litigant who has been without just cause made so'.[59] As Mineralogy's ultimate success on the merits demonstrates, Sino Iron was made a litigant with 'just cause'.
[59] Graham v Campbell, 494 (James, Cotton & Thesiger LJJ).
In that context, Mineralogy relies upon a variety of references, both in Martin J's reasons following trial[60] and in earlier decisions,[61] as to the strength of Mineralogy's case. While the relative strength of Mineralogy's case for payment of Royalty Component B is of some relevance, I do not give it significant weight in the exercise of the discretion on this application. After all, as the Court of Appeal held, this was not a case that could be disposed of summarily. It is enough, in my view, that Sino Iron was ultimately found to be in breach of contract, including at the time that it was required to pay the money into court.
[60] See, for example, characterisation of Sino Iron's and Korean Steel's case in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 16] [2017] WASC 340 at [421] ('commercially unreal'), [422] ('self-serving … repugnant to commercial common sense'), [458] ('wholly untenable outcome'), [459] ('always thoroughly misconceived').
[61] For example Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 [25] (McLure P) ('the claim that RCB is uncertain, void and severable faces formidable obstacles').
In response, Sino Iron submits that at no point did it refuse to comply with the MRSLAs; it simply took a different view as to its contractual obligations. The fact remains, however, that it was at all material times in breach and (as the quantum reflects) substantially so. Sino Iron submitted that the fact that a defendant was in breach of contract could not be disentitling conduct in relation to the enforcement of an undertaking because 'if that were the case, there would be no point ever having [an undertaking as to] damages in any contract case'.[62]
[62] ts 2654.
The difficulty with that proposition is that it ignores the fact that, in the ordinary course, the undertaking will be sought to be enforced in circumstances in which the plaintiff's claim fails and the defendant is ultimately successful. In the context of a contract case, that would be the case where the defendant is ultimately held not to be in breach of contract. The undertaking as to damages would very much have a point in such a case.
That is not this case. The significance of the breach of contract in this case is that it was ultimately established. The issue which therefore arises is whether Sino Iron should be compensated for the loss of use of funds which it has been found not to have been entitled to and which ought to have been paid to Mineralogy much earlier.
Sino Iron's response is that the proper mechanism for addressing the fact that Mineralogy was 'out of money' for so long is an award of interest.[63] That is not, in my view, an adequate response to the circumstances in the present case. This is for two reasons.
[63] ts 2614.
First, I do not accept that the payment of interest can be regarded as a panacea for the effect that the breach of a contractual obligation to pay money has on the party not in breach. The right of a party to have contractual disputes determined in legal proceedings cannot be equated with a licence of a party to breach its contractual obligations, so long as it is prepared to pay interest when ultimately proven wrong.
Secondly, and more importantly, the issue in the present case is not whether Mineralogy has been, or should be, adequately compensated for being deprived of the benefit of Royalty Component B for the years during which Sino Iron and Korean Steel were in breach of their obligations to pay that royalty component. The issue is whether Sino Iron should be compensated for having been deprived of the benefit of funds, for approximately three months, in circumstances in which it owed those funds to Mineralogy. That issue concerns whether it is inequitable for Sino Iron to be compensated at the expense of Mineralogy.
In light of all of the circumstances, including:
(a)the fact that Sino Iron was in breach of its obligation to pay Royalty Component B from 31 December 2013 to 31 March 2017;
(b)the fact that the effect of the (wrongfully granted) injunctions was to require Sino Iron to pay funds into court, by reference to Royalty Component B;
(c)the fact that Sino Iron's claim for damages arises from exchange rate losses in relation to funds that, had it performed its contractual obligations, it would not have had;
(d)Mineralogy's ultimate success at trial in establishing that Sino Iron and Korean Steel were severally liable for royalties in respect of Royalty Component B totalling $US149,413,470 plus interest; and
(e)the absence of any misconduct on the part of Mineralogy in seeking the injunctions,
in my view, the proper course is to exercise the discretion not to enforce Mineralogy's undertakings as to damages.
In so far as it is necessary that 'special circumstances' exist for the exercise of the discretion in a case where the plaintiff is successful on the merits, I am satisfied that there are special circumstances for not enforcing the undertakings.
Accordingly, I dismiss the application.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EA
RESEARCH ASSOCIATE TO THE HONOURABLE CHIEF JUSTICE QUINLAN
8 OCTOBER 2018