Montague Mining Pty Ltd v Gore

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FEDERAL COURT OF AUSTRALIA

Montague Mining Pty Ltd v Gore [1999] FCA 1528

DAMAGES – Negligence by solicitor in respect of advice and documentation concerning mining transactions – Assessment of damages for loss of rights under concluded agreements – Value of lost chance – Methods of valuing unexplored mining tenements – Comments about use of future expenditure as basis for valuation – Discount and adjustments to take account of possibilities in respect of applicant’s future actions if rights retained.

MONTAGUE MINING PTY LIMITED v PETER L GORE, MICHAEL J MORROW, GEOFFREY N HARLEY, JEREMY C CHARLSTON, PAUL H CORBIERE, MICHAEL O KLUG, JOHN D ELLIOTT, DAVID G COMINOS, ROSS G PERRETT, DARRYL D MCDONOUGH, TIMOTHY D FERRIER, CHRISTOPHER T COYNE, ROGER I BURNELL, RANDAL J DENNINGS, ALAN H MAGUIRE, ARCHIBALD FLETCHER, LLOYD S NASH, BRIAN C NOBLE, SIMON W LAND, DALE S BRACKIN, PAUL C CALLAGHAN, SALLY A PITKIN, BRIAN J CONRICK, KAREN M TRAINER, RUTH A COPELIN, ROGER V BYRNE, MARK W WALLER, JOHN D POWELL, ANDREW W SMITH, JENNIFER A MCVEIGH, ANNE MILNER and DARREN B FOOKS trading as CLAYTON UTZ and SPINIFEX GOLD NL

NG563 of 1997

WILCOX J

SYDNEY
5 NOVEMBER 1999


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

 NG563 of 1997

BETWEEN:

MONTAGUE MINING PTY LIMITED
Applicant

AND:

PETER L GORE, MICHAEL J MORROW, GEOFFREY N HARLEY, JEREMY C CHARLSTON, PAUL H CORBIERE, MICHAEL O KLUG, JOHN D ELLIOTT, DAVID G COMINOS, ROSS G PERRETT, DARRYL D MCDONOUGH, TIMOTHY D FERRIER, CHRISTOPHER T COYNE, ROGER I BURNELL, RANDAL J DENNINGS, ALAN H MAGUIRE, ARCHIBALD FLETCHER, LLOYD S NASH, BRIAN C NOBLE, SIMON W LAND, DALE S BRACKIN, PAUL C CALLAGHAN, SALLY A PITKIN, BRIAN J CONRICK, KAREN M TRAINER, RUTH A COPELIN, ROGER V BYRNE, MARK W WALLER, JOHN D POWELL, ANDREW W SMITH, JENNIFER A MCVEIGH, ANNE MILNER and DARREN B FOOKS trading as CLAYTON UTZ
First Respondents

SPINIFEX GOLD NL
Second Respondent

JUDGE:

WILCOX J

DATE OF ORDER:

5 NOVEMBER 1999

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.Judgment be entered in favour of the applicant, Montague Mining Pty Limited, against the first respondents, Peter L Gore and others trading as Clayton Utz, in the sum of five hundred and sixty one thousand four hundred and sixty dollars ($561,460).

2.The first respondents pay the costs of the applicant, including the costs incurred by it in connection with the hearing regarding liability in respect of which reasons were published on 23 October 1998.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

 NG563 of 1997

BETWEEN:

MONTAGUE MINING PTY LIMITED
Applicant

AND:

PETER L GORE, MICHAEL J MORROW, GEOFFREY N HARLEY, JEREMY C CHARLSTON, PAUL H CORBIERE, MICHAEL O KLUG, JOHN D ELLIOTT, DAVID G COMINOS, ROSS G PERRETT, DARRYL D MCDONOUGH, TIMOTHY D FERRIER, CHRISTOPHER T COYNE, ROGER I BURNELL, RANDAL J DENNINGS, ALAN H MAGUIRE, ARCHIBALD FLETCHER, LLOYD S…

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Details
Case
[1999] FCA 1528
Decision Date

CaseChat Overview and Summary

Montague Mining Pty Ltd sued Gore and others, trading as Clayton Utz, over alleged negligent advice and documentation related to mining transactions. The primary dispute concerned the assessment of damages resulting from the loss of rights under concluded agreements, focusing on the value of lost chances and the valuation of unexplored mining tenements. The court was tasked with determining how to value the lost opportunities and whether future expenditure could be used as a basis for valuation. Additionally, the court had to consider appropriate discounts and adjustments to account for the applicant's future actions if the rights had been retained.

The court reasoned that while there was no universally accepted method for valuing the lost chance, it was possible to apply a valuation method that gave effect to the lost chance of the applicant. The court emphasised that the valuation of the lost chance should consider both the probability of the chance occurring and the value of the chance if it did occur. The court also noted that future expenditure could be relevant in determining the value of the lost chance but should be approached with caution. The court concluded that the applicant was entitled to damages of $561,460, which included appropriate discounts and adjustments for the applicant's future actions.

The court ordered that judgment be entered in favour of Montague Mining Pty Ltd against the first respondents, Peter L Gore and others trading as Clayton Utz, in the sum of $561,460. The first respondents were also ordered to pay the costs of the applicant, including the costs incurred in connection with the hearing regarding liability.

Orders

Orders of the court

1. Judgment be entered in favour of the applicant, Montague Mining Pty Limited, against the first respondents, Peter L Gore and others trading as Clayton Utz, in the sum of five hundred and sixty one thousand four hundred and sixty dollars ($561,460).

2. The first respondents pay the costs of the applicant, including the costs incurred by it in connection with the hearing regarding liability in respect of which reasons were published on 23 October 1998.

Background

Background to the litigation

The hearing resumed on Monday, 18 October 1999. Five witnesses were called. The witnesses called on behalf of the applicant were Tony Joseph Wassaf, a solicitor specialising in mining law, and Michael John Lawrence, a geologist with considerable experience in the valuation of mining interests. The respondents’ witnesses comprised Peter Thomas Goldner, a geologist, Neil Herbert Cole, a consulting engineer with experience in mining valuations, and Klaus Peter Eckhof, a director of Spinifex. Various documents were also admitted into evidence. Of course, the evidence admitted at the 1998 hearing remained before the Court and available to be taken into account, to the extent it was relevant.Additional facts I do not propose to repeat the facts set out in my 1998 reasons for judgment; the present reasons ought to be read in conjunction with the 1998 reasons. However, some relevant additional facts emerged at the recent hearing. They should be mentioned. First, the earlier reasons referred to a conversation between Mr Williams, of Montague, and Mr Gore, of Clayton Utz, on 16 December 1996. The conversation related to a form of agreement that had been signed by two directors on behalf of Spinifex but was not yet signed on behalf of Montague. After the conversation, Mr Williams signed the document on behalf of Montague and Mr Gore witnessed his signature. Mr Gore then faxed a copy of the document to Mr Gajewski of Spinifex. In my earlier reasons I set out the operative parts of this document. I did not reproduce the recitals. As they achieved some prominence in the recent hearing, I now do so. They read:“Whereas A.Spinifex are experienced and has the capability (financial and technical) in carrying out gold mining operations and the treatment of gold bearing ores so as to produce gold metal. Spinifex would be managers of the Joint Venture.B.Montague is a party to Mineral Sharing Agreements (No. 034-95-X) Alegria, (No. 033-95-X) Malimono/Mainit, Exploration Permits located in Agusan Del Norte (16,200ha) and Jabonga/Santiago. These exploration permits will form part of this agreement and shall be knows [sic: known] as the (‘Contract Area’)C.Montague and Spinifex wish to enter into a Joint Venture Agreement (‘JVA’) in respect of the area’s referred to in recital B on the basis of the following equity breakdown whereas Montague will be entitled to 70% of the Philippine Gold Project as per Memorandum Of Agreement signed 20th November, 1966 with Diotrepis M Bautista, Estrella F Bautista and Dopester Minerals, INC (‘the Philippino Parties’): Montague Mining Pty Limited70% Philippine Gold ProjectHenry Bien (Philippino Finders Fee) 1% - Net Profit Interest to be met by Montague and Spinifex where no voting powers are inferred.John Ellis Syndicate (Australian FindersFee)1% - Net Profit interest to be met by Montague where no voting powers are inferred.…MontagueSpinifex(19%)(51%)John Ellis(1%)MontagueSpinifex(18%)(51%).5% .5%Henry Bien(1%)Montague Philippino Parties Spinifex(17%) (30%) (50.5%)NOTE:that the voting power upon distribution from the finders fees above illustrate the voting powers of Montague to be (18.5%) and Spinifex (51.5%).D.Spinifex shall undertake and shoulder the costs and expenses for the exploration with detailed geological studies and/or report with a view to bringing the above mentioned (B) contract areas into bankable project within 2 years or any extensions thereon as approved by Philippines Mines Dept. The contract areas shall be brought into bankable project upon Montague’s satisfaction that the project is feasible from an economic, geological, metallurgical, mining engineering and environmental perspective as audited and confirmed by independent sources.E.Spinifex shall undertake the sourcing of finance to bring the Philippine Gold Project into Gold Production Status.F.Once the contract area is brought to bankable project status each party will become a contributing party for Joint Venture purposes as follows:Spinifex 51%Philippino Parties 30%Montague 19%100%G.Once bankable project status has been achieved should one or more parties decide not to contribute standard dilution clauses to apply.H.Spinifex to have the first right of refusal to acquire other parties interest should they wish to relinquish their interests on a pro-rata basis with Montague.”

Evidence

Evidence Before The Court

In Mr Wassaf’s opinion, it made little difference which set of assumptions was adopted. He thought that, on the first set of assumptions, a solicitor specialising in international mining joint venture agreements would have advised Montague to sign a joint venture agreement incorporating the terms of the MOA and 16 December agreement. On the second set of assumptions, a solicitor would have structured the arrangement between Montague and Spinifex in such a way as to procure the same commercial result. He said there were at least two ways in which this could be done:“A.Spinifex could agree to provide equity funds to the Applicant and in return it would have the right to receive shares in the Applicant such that Spinifex could end up with 51/70 of the issued shares in the capital of the Applicant. Spinifex would then have an indirect interest equivalent to its 51% direct interest in the project through equity ownership in the Applicant on the basis that the Applicant had no assets and liabilities except its rights in the project. This may be regarded as an equivalent commercial result (disregarding tax considerations).B.Spinifex could agree to provide funding for the project to the Applicant to bankable project status and in return receive from the Applicant the right to receive the quantity of minerals extracted from the contract areas which it would have received had it held a 51% interest in the project. This contractual right to receive minerals has a number of disadvantages but it has been used in previous transactions – see for example the case of Mount Isa Mines Limited v. Seltrust Mining Corporation Pty Ltd and other (1985 – reported at Volume 13(4) AMPLA Bulletin 172-198). This arrangement was also used by an Arimco NL subsidiary in 1986 as a way to purchase indirectly various interests in joint ventures from Cyprus Minerals Australia Company. Over time, the Arimco NL subsidiary was able to negotiate for a direct interest in those joint ventures. I acted for the Arimco NL subsidiary in those transactions. The disadvantages associated with the contractual right include a lack of security of title including the risk of the holder of the title being liquidated. Issues relating to title security can be dealt with by providing for a charge over the title holder's assets to be given to the funding party and by having irrevocable payment directions so that funds are paid directly to suppliers. One advantage of this alternative was that the tax advice at the time was that the tax benefits were generally equivalent to holding a direct interest in the project.”Mr Wassaf’s evidence was not the subject of rebuttal or serious challenge. Mr Lawrence’s evidence Mr Lawrence is a chartered practising geologist, a chartered engineer and a licensed investment advisor. He has had 33 years experience in the mineral industry at a senior executive level, mostly as a consultant to major companies in Australasia, Southeast Asia and the Pacific. Mr Lawrence specialises in technical audits and reviews of mineral and coal projects and their financial analysis and evaluation, especially in connection with merger and acquisition proposals. He operates through a company called Minval Associates Pty Limited. Mr Lawrence is the current President of the Australasian Institute of Mining and Metallurgy. He represents the Institute on a committee formed with the Australian Securities and Investment Commission and the ASX. He played a significant role in developing what is generally called “the Valmin Code”; its full title being “Code and guidelines for technical assessment and/or valuation of mineral and petroleum assets and mineral and petroleum securities for independent expert reports”. This code was amended in some respects in 1997, effective from 1 April 1998.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.