Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 9]
[2016] WASC 10
•13 JANUARY 2016
MINERALOGY PTY LTD -v- SINO IRON PTY LTD [No 9] [2016] WASC 10
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 10 | |
| Case No: | CIV:1808/2013 | ON THE PAPERS | |
| Coram: | CHANEY J | 13/01/16 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Order varied | ||
| B | |||
| PDF Version |
| Parties: | MINERALOGY PTY LTD SINO IRON PTY LTD KOREAN STEEL PTY LTD CITIC PACIFIC LTD ATTORNEY GENERAL OF WESTERN AUSTRALIA |
Catchwords: | Practice and procedure Indemnity costs orders Variation of perfected order Changed circumstance |
Legislation: | Nil |
Case References: | Dinive Holdings Pty Ltd v Paracel Pty Ltd (1980) 4 ACLR 928 Mineralogy Pty Ltd v Sino Iron Pty Ltd [2015] WASC 454 Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 4] [2014] WASC 282 Ryan Nominees Pty Ltd v Western Australian Planning Commission [2003] WASCA 134 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SINO IRON PTY LTD
First Defendant
KOREAN STEEL PTY LTD
Second Defendant
CITIC PACIFIC LTD
Third Defendant
ATTORNEY GENERAL OF WESTERN AUSTRALIA
Intervener
Catchwords:
Practice and procedure - Indemnity costs orders - Variation of perfected order - Changed circumstance
Legislation:
Nil
Result:
Order varied
Category: B
Representation:
Counsel:
Plaintiff : No appearance
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Intervener : No appearance
Solicitors:
Plaintiff : Kilmurray Legal
First Defendant : Allens
Second Defendant : Allens
Third Defendant : Allens
Intervener : State Solicitor for Western Australia
Case(s) referred to in judgment(s):
Dinive Holdings Pty Ltd v Paracel Pty Ltd (1980) 4 ACLR 928
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2015] WASC 454
Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 4] [2014] WASC 282
Ryan Nominees Pty Ltd v Western Australian Planning Commission [2003] WASCA 134
1 CHANEY J: On 12 August 2014, Justice Edelman made orders in these proceedings which included an order (indemnity costs order) that:
The plaintiff pay the defendants' costs of and occasioned by the claims which were previously made in paragraphs 18 to 44 of the second further amended statement of claim dated 10 December 2013 (being the defendants' costs of and occasioned by the plaintiff's frustration claim), those costs to be taxed on an indemnity basis and paid forthwith.
2 As will be more fully discussed below, the indemnity costs order was made in circumstances where the plaintiff (Mineralogy) had abandoned claims that certain agreements central to these proceedings, referred to generally as the MRSLAs, had been frustrated. Since those orders were made, the defendants (CITIC parties) have amended their pleadings so as to introduce a claim, albeit on a contingent basis, that the MRSLAs have been frustrated.
3 Against that background, Mineralogy issued a summons seeking orders that the indemnity costs order made by Edelman J be vacated.
Power of the court to vacate the order
4 It was not in issue between the parties that the court has the power to vacate an earlier order. Circumstances in which that may occur were outlined by McKechnie J (with whom Barker J agreed) in Ryan Nominees Pty Ltd v Western Australian Planning Commission [2003] WASCA 134 where his Honour said:
Ground 1(a) is an alternative to ground 1. It asserts that the 'orders made on 9 August 2001 should not be disturbed without good reason'. The principles for interfering with a perfected order are set out by Master Sanderson in Ansons Pty Ltd v Merlex Corporation Pty Ltd (2001) WASC 204 at 49 and are not in issue in this case. Indeed, they have been applied by Judges of this Court in other matters. Those principles are:
'(1) There is power to vary or discharge a perfected or entered order.
(2) The power should be exercised with care and only in the most unusual circumstances.
(3) If the perfected order has continuing operation and there is a change in the underlying circumstances which applied when the order was made, then the order can be varied or discharged to take account of those changed circumstances.
(4) In a circumstance where the substratum of fact or law underpinning the order has changed, the perfected order can be discharged or varied by a single Judge.
(5) The fact that the perfected order in question was made by consent and pursuant to an agreement between the parties does not in any way affect the power of the Court to vary or discharge the order.'
Although not expressed directly by Master Sanderson, in my view, by implication, there is an overriding condition, namely the interests of justice in a particular case [2] - [3].
5 The CITIC parties submitted that a change in circumstances sufficient to enliven the power to vacate an order ought to go to the essence of the situation as it was at the time when the order was made. They relied on Dinive Holdings Pty Ltd v Paracel Pty Ltd (1980) 4 ACLR 928 as authority for that proposition. In Dinive Holdings, Burt CJ dealt with an application to vary an interlocutory order made that, pending trial of the action, the plaintiff be restrained from selling or transferring certain shares and from exercising any voting rights as to them. The variation was sought by reason of the emergence of a takeover offer which had not been in contemplation at the time the orders were made. Burt CJ observed that, in the application before him, it was not open to him to go behind the order as if he were sitting on an appeal from it. It was necessary to proceed on the basis that the order was correct when made (at 930). He concluded however that the change in circumstances was not such as to change the situation as it was at the time of the interlocutory order, which was directed to the preservation of property pending the outcome of litigation. Accordingly, he declined to vary the earlier order.
6 In this case, Mineralogy contends that an important factor in play when the indemnity costs order was made was that, any claim for frustration of the MRSLAs no longer being made in the action, the CITIC parties' costs of dealing with that issue were wasted. The changed circumstance upon which Mineralogy relies is that those costs can no longer be said to have been wasted because a frustration claim, and claims consequential upon the MRSLAs having been frustrated, again form part of the pleadings in this and other related actions.
The basis for the indemnity costs order
7 The reasons for the indemnity costs order are reported as Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 4] [2014] WASC 282. The order was made against the background of a chronology outlined by Edelman J as follows:
The following chronology borrows from the affidavit evidence contained in affidavits of Mr McKenna, Mr Woods, and Mr Quan-Sing as well as my broad summary in Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 3]. This action was brought by Mineralogy in New South Wales by a writ of summons filed on 18 March 2013 and subsequently transferred to this Court. It involved an allegation that Mining Right and Site Lease Agreements (MRSLAs) between (1) Mineralogy and Sino Iron, and (2) Mineralogy and Korean Steel, were valid and that the Royalty Component B under those agreements was to be calculated according to cl 8.2 of the MRSLAs. Mineralogy's statement of claim was amended twice (on 5 June 2013, 14 August 2013) but these central allegations were maintained, sometimes in very strong terms, until November 2013.
On 29 August 2013, an application for an interlocutory injunction was brought by Sino Iron and Korean Steel. The application was granted.
On 18 September 2013, Mineralogy sought urgent discovery. The application was adjourned in circumstances in which there was insufficient information concerning whether the discovery orders sought by Mineralogy could be made, and in which it appeared that the parties had not engaged in proper conferral. The application was not subsequently pressed by Mineralogy.
On 6 November 2013, Mineralogy brought another application. Counsel for Mineralogy said that Mineralogy needed to have an urgent hearing in order to decide whether it could have time extended in order to bring an application to strike out all or part of the Citic parties' defences. Counsel for Mineralogy foreshadowed the strike out of the defences as an abuse of process apparently on the basis that some or all of the Citic parties had provided in accounts filed in Hong Kong for a current liability to pay royalties.
On 25 November 2013 Mineralogy abandoned its extension of time application and, consequently, abandoned its strike out application. In the meantime, around 17 November 2013, Mineralogy informed the Citic parties of its intent to make radical changes to its statement of claim. The radical changes were made in Mineralogy's amended reply and defence to counterclaim. They involved a claim that Royalty Component B was not capable of calculation and an allegation that the MRSLAs were frustrated.
On 2 December 2013, Mineralogy's counsel sought to have an urgent trial of this frustration issue. The frustration issue involved new, and potentially complex questions of law, fact, and expert evidence. It arose in the context of the multi-billion dollar litigation. Mineralogy sought to have the matter listed for trial in nine working days. The Citic parties had not yet even amended their pleadings in response. That application was refused.
On 24 January 2014, the Citic parties amended their pleadings including the following:
(1) denying frustration of the MRSLAs,
(2) alleging estoppel,
(3) alleging that if performance of the 2006 MRSLAs was frustrated then the 2005 Sino Iron MRSLA and the Korean Steel Sub-lease remained on foot,
(4) bringing restitutionary counter-claims by two defendants (Sino Iron and Korean Steel) against Mineralogy, and
(5) proposing additional counter-claims seeking restitution if the MRSLAs were found to have been frustrated.
The proposed counter-claims involved joining Sino Iron Holdings Pty Ltd (SIH) and Balmoral Holdings Pty Ltd (BIH) as counterclaimants against Mineralogy and Mr Clive Palmer. The basis for these counterclaims was that if performance of the MRSLAs had been frustrated then Mineralogy and Mr Palmer would have been unjustly enriched by payments of US$215 million and US$200 million. Those payments were made by SIH and BIH to Mineralogy and Mr Palmer for the acquisition of the issued shares in the first and second defendant.
On 10 February 2014, the Citic parties brought an application for joinder of the additional counterclaimants and joinder of Mr Palmer as a defendant to their counterclaim.
On 12 February 2014, a lengthy directions hearing was held. The issues considered at that hearing included questions surrounding the joinder application by the Citic parties. I made orders including listing the joinder application for hearing on 2 April 2014. I also listed for hearing on the same date the foreshadowed 'dismissal' applications by Mineralogy (including any stay, injunction, or strike out application).
During March 2014, Mineralogy filed submissions opposing the joinder application. It also applied to strike out the proposed counterclaim or to stay the proceedings. But, shortly before 20 March 2014, Mineralogy indicated an intention to amend its statement of claim to remove its allegation that the performance of the MRSLAs had been frustrated.
On 16 April 2014, Mineralogy applied to make a fifth amendment to its statement of claim. Mineralogy effectively sought to withdraw its claim for frustration [7] - [18].
8 Edelman J explained his reasons for ordering indemnity costs in relation to the frustration claim as follows:
In broad summary, Mineralogy's frustration claim was brought against a backdrop of changes to its case, and interlocutory proceedings including abandoned applications for discovery, extension of time, and strike out. The frustration claim was not brought until eight months after Mineralogy commenced its claim, and two months after the issue had been ventilated at a strategic conference. Senior counsel for the Citic parties had emphasised on a number of occasions that no claim of frustration was made and the commercial difficulty that would be presented by such a claim.Despite the radical nature of the change to its case, Mineralogy introduced its plea of frustration with submissions that the issue go to trial as a matter of great urgency. After the Citic parties spent thousands of hours of work on the issue, Mineralogy abandoned the issue only four months' later.
Mineralogy's Managing Director of Legal says that the reason why Mineralogy abandoned its frustration claim was Mineralogy's discovery that it had been mistaken in its belief that, by pleading frustration, the parties could achieve a resolution of the matter within a short period of time.Mineralogy said that it abandoned the frustration allegation because it did not anticipate that in response to the plea of frustration:
(i) the factual enquiry in the proceedings would be significantly expanded because of the Citic parties' restitution claim and proposed restitution claim based on the Takeover Agreements;
(ii) the time required to bring the matter to trial would be increased;
(iii) the Citic parties would plead an alternative construction of cl 8.2 for the first time; and
(iv) the Citic parties would expand their counterclaim by seeking to join new parties and run new claims under other project agreements.
Essentially, Mineralogy's Managing Director of Legal says that Mineralogy abandoned its frustration claim when it realised that there was 'no realistic means of achieving an early determination of the proceeding' and the frustration claim would also disrupt Australia-China trade relations and could lead to a very bad commercial result for the Citic parties if it were successful.
With respect to Mineralogy and its legal advisers (although senior counsel who signed Mineralogy's submissions in relation to each of these applications was not involved before the Court in any of the events discussed below), both Mineralogy's belief that a plea of frustration would lead to resolution of the matter within a short period of time, and the manner in which Mineralogy acted upon that belief were, to say the least, unreasonable. There are three reasons for this.
First, the time period in which Mineralogy claimed that the frustration issue could be heard was unreasonable. This is so even if it were assumed (a very large assumption) that trial of a preliminary issue was appropriate. In a separate judgment, I explained the absurdity of the submission by counsel for Mineralogy that the frustration issue could be tried within nine working days of it being pleaded by Mineralogy. There had been no pleading on this issue by the Citic parties, there had been no lay evidence on the issue, there had been no expert evidence, there was no trial bundle, and there were no legal submissions.
Secondly, the possibility of restitutionary claims by the Citic parties could not have come as a surprise. That possibility was ventilated on a number of occasions. It was ventilated in a strategic conference on 24 July 2013 at which I asked about different intermediate issues arising from any failure of the royalty clause. Mineralogy's in-house legal counsel and junior counsel were both present at that conference. I raised the question of restitutionary claims arising from any invalidity. Counsel for Mineralogy emphasised that Mineralogy did not want to allege frustration.At a hearing on 10 October 2013, senior counsel for the Citic parties reiterated that no party to the proceedings sought to argue that the MRSLAs were unenforceable. He described such an outcome as 'Armageddon'.During the same hearing the possibility was raised that questions of frustration might raise consequential restitutionary issues amounting to billions of dollars.
Thirdly, the introduction of Mineralogy's frustration claim concerning the performance of the MRSLAs underlying a joint venture in relation to which the Citic parties have spent more than $7 billion was undoubtedly a matter of enormous significance to the Citic parties. It could not reasonably have been expected to be an issue with which they would deal by providing only minimal evidence or submission. The legal issues were also immensely difficult. From my perusal of all the matters arising from the frustration claims while they were on foot, my initial impression was that the issue of frustration as well as the consequences if the performance of the MRSLAs had been held to be frustrated would give rise to a number of very difficult issues, some of which may not yet have been resolved in Australian law.
Given the considerable difficulty, and the extreme importance of the frustration issues, coupled with the urgency professed by Mineralogy in moving this matter to a hearing, it is unsurprising that the Citic parties devoted vast time, energy and resources into investigating, researching, and responding to this claim over several months. Prior to Mineralogy abandoning its frustration claim in April 2014 the solicitors for the Citic parties spent 2,565 hours working on matters relating to the frustration claim. Although Mineralogy resists the alternative submission by the Citic parties that the Scale of costs in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2012 (WA) should be lifted in various respects, it is clear beyond peradventure that each of the amounts in the Scale items to which the Citic parties refer (pleadings and particulars, proceedings in chambers, preparation of case) is grossly inadequate in relation to the work done on the frustration claim, and that the inadequacy arises because of the unusual difficulty, or complexity, or importance of the matter (all three being applicable in this case).If I had not awarded indemnity costs (the primary submission of the Citic parties) then I would have ordered uplift of all the Scale items sought, without imposing any ceiling to constrain the taxing officer.
The three matters above, in isolation, would have caused me to award indemnity costs. But these three matters must also be considered in the context of the background circumstances surrounding Mineralogy's abandonment of its frustration claim. In light of all the circumstances, I consider that the only appropriate order is that an award of indemnity costs should be made [21] - [29].
Developments since the orders were made
9 On 29 May 2015, the CITIC parties filed their further amended defence and fourth further amended counterclaim. Paragraph 69A of that pleading reads as follows:
69A Alternatively to paragraphs 66 to 69 above, if this Honourable Court holds that:
(a) as pleaded in paragraph 65 above, all of those parts of clause 8.2 of the MRSLAs which related to Royalty Component B are, and have been since about early 2010 (or some other date), uncertain, void and/or unenforceable: but
(b) contrary to the defendants' case:
(i) all of those parts of clause 8.2 of the 2006 MRSLAs which relate to Royalty Component B are not to be severed from the 2006 MRSLAs:
(ii) there are no implied terms of the 2006 MRSLAs to the effect alleged in paragraphs 67 and 68 above: and
(iii) the proper construction of clause 8.2 of the 2006 MRSLAs is not as alleged in paragraph 69(a) above and there is no implied term of the 2006 MRSLAs to the effect alleged in that paragraph,
then:
(c) the performance by the parties of their obligations under the 2006 MRSLAs has been frustrated because Royalty Component B is not capable of calculation in accordance with clause 8.2 of the 2006 MRSLAs; and
(d) the 2006 MRSLAs were terminated by reason of such frustration:
(i) at about the time when Royalty Component B would otherwise first have been payable; alternatively
(ii) in about early 2010.
11 In an affidavit of Marshall Timothy McKenna dated 5 May 2014 in support of the CITIC parties' application for indemnity costs on the frustration issue, it was asserted at [19] and [20] that:
19. As Mineralogy no longer asserts that the MRSLAs are frustrated, inter alia:
(a) SIH's and BIH's proposed claims in restitution no longer arise; and
(b) all of the steps taken by the CITIC Parties in relation to Frustration Claim, and the costs incurred thereby, have been rendered unnecessary.
20. From initial consideration and preparation of the CITIC Parties' response to the Frustration Claim until Mineralogy confirmed its change of position on 15 April 2014, Allens lawyers spent approximately 2,565 hours on work related to:
(a) considering the CITIC Parties' position in relation to the Frustration Claim;
(b) preparation of the CITIC Parties' case in response to the Frustration Claim;
(c) drafting the defence, counterclaim and proposed counterclaim in response to the Frustration Claim;
(d) conferral with Mineralogy's lawyers and Mr Palmer's lawyers in relation to the Frustration Claim;
(e) being in a position to make submissions concerning various aspects of the Frustration Claim at hearings on 4 December and 10 December 2013, and 22 January, 12 February and 20 March 2014;
(f) liaising with senior and junior counsel in relation to various aspects of, and documents in relation to, the Frustration Claim; and
(g) preparing to provide particulars of the Defence to the Second Further Amended Statement of Claim and Amended Counterclaim, in response to two requests for particulars which were made by Mineralogy.
13 Shortly after the CITIC parties' amendment to their defence and counterclaim to introduce [69A], the first and second defendants in these proceedings and two other companies within the CITIC Ltd group, namely Sino Iron Holdings Pty Ltd and Balmoral Iron Holdings Pty Ltd, commenced an action, CIV 1431 of 2015, against Mineralogy and Clive Frederick Palmer. In those proceedings, the plaintiffs seek restitution against Mineralogy and Mr Palmer in the event that there is a finding in this action that the MRSLAs have been frustrated. Those claims are a reflection of the restitutionary claims which were pleaded in this action in response to Mineralogy's frustration claim prior to its abandonment. I have subsequently determined that the claims by Sino Iron Holdings Pty Ltd and Balmoral Iron Holdings Pty Ltd against Mr Palmer should be permanently stayed, but the claims for restitution against Mineralogy remain on foot - see Mineralogy Pty Ltd v Sino Iron Pty Ltd [2015] WASC 454.
14 On 19 February 2015, the defendants' solicitors filed a bill of costs claimed under the indemnity costs order. Mr Byrne, in his affidavit dated 3 July 2015, deposed to the fact that the bill of costs runs to 120 pages and is in the amount of $1,388,189.20.
Change in underlying circumstances
15 Since Edelman J made the indemnity costs order, there has been a material change in the underlying circumstances which applied at the time when his order was made. That change is that some, and potentially a significant amount of, costs which then appeared to have been wasted cannot now be said to have been wasted in light of the CITIC parties' introduction of a plea of frustration and the commencement of CIV 1431 of 2015. Against the history of this action, the reintroduction of the claim for frustration, albeit contingent upon rejection at trial of the CITIC parties' primary contentions, can fairly be said to amount to an unusual circumstance in a sense alluded to by McKechnie J in Ryan Nominees. The change in circumstances is sufficient, in my view, to enliven the discretion to vary the indemnity costs order.
Should the indemnity costs order be vacated?
16 The indemnity costs order was not based solely on the fact that the costs in relation to the frustration claim were thrown away. Justice Edelman found that Mineralogy's motivation for the plea of frustration, namely that it would lead to resolution of the matter within a short period of time, was unreasonable. His Honour was also influenced by Mineralogy's frequent changes of position. Those bases for the decision are unaffected by any change in circumstances. The change that has occurred does not, therefore, necessarily demand that the order be vacated.
17 As McKechnie J observed in Ryan Nominees, an overriding consideration as to whether a perfected order should be interfered with is the interests of justice in the particular case. If the indemnity costs order is left without alteration, the CITIC parties will have the benefit of Mineralogy paying for work which is of undoubted value to the CITIC parties in relation to [69A] of their current defence and counterclaim, and in relation to the restitution claim in CIV 1431 of 2015. But for the indemnity costs order, liability for costs in relation to that work would not be determined until the ultimate merits of the frustration and restitution claims are the subject of adjudication. In my view, the interests of justice are best served by varying the indemnity costs order to reflect the changed underlying circumstances. That is best achieved by limiting the indemnity costs order to those costs thrown away by the abandonment of the claims made in [18] to [44] of the second further amended statement of claim dated 10 December 2013 having regard to the reintroduction of a claim for frustration in [69A] of the defendants' further amended defence and fourth further amended counterclaim filed 29 May 2015, and the claims for restitution in CIV 1431 of 2015. Those costs thrown away should still be paid on an indemnity basis and paid forthwith having regard to the conclusions as to unreasonable conduct reached by Edelman J.
18 I would therefore vary [3] of the orders made by Edelman J on 12 August 2014 by substituting the following in place of [3]:
The plaintiff pay the defendants' costs thrown away by reason of the abandonment by the plaintiff of the claims previously made in [18] to [44] of the second further amended statement of claim dated 10 December 2013 such costs to be assessed having regard to the defendants' introduction of [69A] to the defendants' further amended defence and fourth further amended counterclaim filed 29 May 2015 and the claims made by the first and second defendants in CIV 1431 of 2015, those costs to be taxed on an indemnity basis and paid forthwith.
19 In practical terms that will have the effect that much of the work done in 'getting up' the response to the frustration and restitution claims will no longer be covered by the order. The order will however cover unnecessary costs such as preparation of amendments to pleadings and wasted appearances.
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