Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [No 2]
[2019] WASC 332
•12 SEPTEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: NU-FORTUNE GOLD LTD -v- ROXBURY TRADING PTY LTD [No 2] [2019] WASC 332
CORAM: ALLANSON J
HEARD: 5 SEPTEMBER 2019
DELIVERED : 12 SEPTEMBER 2019
FILE NO/S: CIV 2354 of 2019
BETWEEN: NU-FORTUNE GOLD LTD
First Plaintiff
ECO MINERALS RESEARCH LTD
Second Plaintiff
AND
ROXBURY TRADING PTY LTD
First Defendant
PAUL JAMES KENNEDY
Second Defendant
Catchwords:
Practice and procedure - Continuation of interlocutory injunction - Where plaintiffs rely on rights under sublease - Balance of convenience - Turns on own facts
Legislation:
Mines Safety and Inspection Act 1994 (WA), s 32A, s 33
Result:
Injunction continued
Category: B
Representation:
Counsel:
| First Plaintiff | : | I R Gillon |
| Second Plaintiff | : | I R Gillon |
| First Defendant | : | S Macdonald |
| Second Defendant | : | S Macdonald |
Solicitors:
| First Plaintiff | : | Lawton Gillon |
| Second Plaintiff | : | Lawton Gillon |
| First Defendant | : | Macdonald Rudder |
| Second Defendant | : | Macdonald Rudder |
Case(s) referred to in decision(s):
Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [2019] WASC 307
ALLANSON J:
On 21 August 2019, the court granted an interim injunction, until 5 September 2019 or further order, restraining the defendants from entering upon Crown Reserves 24144 and 24145 commonly known as the Menzies State Battery. The background to the dispute leading to that order is set out in the reasons published on 26 August 2019, and is not repeated here.[1]
[1] Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [2019] WASC 307.
On 5 September 2019, there was a further hearing to consider the question of continuation of the restraint until trial or further order.
In the days before the hearing, the defendants filed a defence and counterclaim, and the parties filed further evidence.
The evidence
The plaintiff relied on the affidavits of Paul Richard Hanna, sworn 12 August 2019, and Dean Gourdis, sworn 4 September 2019. The affidavit of Mr Gourdis was admitted subject to the rulings on the admissibility of two paragraphs and associated attachments.
The defendants relied on five affidavits:
(1)Paul James Kennedy, sworn 29 August 2019;
(2)Michael Henry Jankowski, sworn 29 August 2019;
(3)Stuart Brian Stanley Baldock, sworn 3 September 2019;
(4)Rennae Lee Martin, sworn 2 September 2019; and
(5)Roslyn May Kennedy, sworn 3 September 2019.
The plaintiffs' evidence
I dealt with the evidence of Mr Hanna in the earlier decision. His affidavit is primarily relevant in this application for the attached documents, and in particular the Heads of Agreement, Deed of Sublease, and Lease.
Mr Gourdis is an employee of Nu-Fortune and the registered mine manager for the purposes of the Mines Safety and Inspection Act 1994 (WA). He is now in control of the Menzies Battery site. Mr Gourdis said that he is now addressing the issues raised following the inspection of the site in July 2019.[2]
[2] See Nu-Fortune Gold Ltd v Roxbury Trading Pty Ltd [7] - [10]; affidavit of Dean Gourdis [4].
Mr Gourdis further said:
(1)After the execution of the Sublease, the plaintiffs have spent more than $600,000 in purchasing plant and equipment; and Eco Minerals, the second plaintiff, has spent more than $500,000 on installing vats.[3]
(2)The plant and equipment and the vats remain on the site.[4]
(3)Nu-Fortune has exercised an option under the Heads of Agreement to purchase 100% of the shares in Arrinooka Pty Ltd, a company which owns plant and equipment currently located at the site.[5]
(4)He is unaware of any plant and equipment of significance that is owned by the defendants and remains at the site.[6]
(5)The plaintiffs require possession of the site, as it houses demonstration plant and equipment developed by the plaintiffs in conjunction with CSIRO.[7]
(6)The plaintiffs are in the process of acquiring plant and equipment to enable the demonstration plant to again become operational.[8]
(7)One item of equipment was removed from the site but Nu‑Fortune is in the process of sourcing a replacement.[9]
[3] Affidavit of Dean Gourdis [7] ‑ [8].
[4] Affidavit of Dean Gourdis [9].
[5] Affidavit of Dean Gourdis [10] ‑ [12].
[6] Affidavit of Dean Gourdis [13].
[7] Affidavit of Dean Gourdis [15].
[8] Affidavit of Dean Gourdis [16].
[9] Affidavit of Dean Gourdis [17].
Mr Gourdis stated his belief that the 'stamp mill' at the site is not currently working and is not capable of treating ore, and would require approval of the Department of Mines Industry Regulation and Safety before it can become operational.[10] As he is the registered mine manager for the site, I believe that opinion is admissible.
The defendants' evidence
[10] Affidavit of Dean Gourdis [18].
The principal affidavit filed on behalf of the defendants was that of the second defendant, Mr Kennedy.
Mr Kennedy said that, through Roxbury, he first acquired a lease over the site of the Menzies Battery in about 2000. He built or restored the stamp mill gold processing plant (the stamp battery) and developed the battery land.
Mr Kennedy said that the battery land has water rights and approvals to carry out mineral processing and is very valuable.
In May 2015, Roxbury was placed into administration. Mr Kennedy was introduced to Mr Hanna as someone who might help. Mr Kennedy had met Mr Hanna before when looking to raise money. Mr Kennedy said that he 'made it clear' to Mr Hanna that the battery land was not part of any agreement between them.[11]
[11] Affidavit of Paul Kennedy [3] ‑ [7].
Mr Kennedy said the Heads of Agreement was made in early March 2016, and a gravity feed processing plant was installed on the battery land at about the end of March or early April 2016. That plant enabled Mr Kennedy to process gold more efficiently but was only suitable for treating high grade ore. A cyanide plant was needed to treat low-grade ore, such as the stockpile on the battery land.[12]
[12] Affidavit of Paul Kennedy [8] ‑ [9].
Mr Hanna was introduced to CSIRO and its technology that could extract gold without using cyanide. In March 2017, Mr Kennedy attended the battery with a scientist from CSIRO, Dr Breuer, to determine whether the ore from the gravity circuit was suitable for treatment by the CSIRO plant. Mr Kennedy said he was not involved in negotiations with CSIRO, but was happy for it to test its plant on the battery land.[13]
[13] Affidavit of Paul Kennedy [10] ‑ [13].
Mr Kennedy attached documents including emails between 21 February 2017 and 4 August 2018 relating to the agreement with CSIRO.
Nu-Fortune and CSIRO made two agreements in August 2017: a Researcher Placement Agreement;[14] and a Collaborative Project Agreement.[15]
[14] Affidavit of Paul Kennedy PJK3, 31 ‑ 38.
[15] Affidavit of Paul Kennedy PJK3, 40 - 51.
The Project was described in the Researcher Placement Agreement as:
CSIRO will investigate the feasibility of a CSIRO product for leaching gold, and particularly the potential for this to unlock the recovery of gold from problematic ore and tails, such as those at the Menzies battery site.
The aims of the Project are to determine the amenability of problematic ores and tails using CSIRO product validated for leaching gold.[16]
[16] Affidavit of Paul Kennedy PJK3, 31.
Pursuant to the Collaborative Project Agreement, Nu-Fortune was to 'make the Menzies stamp battery site available for the demonstration and support the demonstration as detailed in the Attachment', and CSIRO was to provide technical expertise and in-kind support for the demonstration of a proprietary non-toxic product that can leach and recover gold.[17]
[17] Affidavit of Paul Kennedy PJK3, 40.
The attachment to the Collaborative Project Agreement set out the the contributions to be made by Nu-Fortune between July 2017 and August 2018, including:
•Prepare the site, including site clearing, levelling and pads for equipment, dams, etc.
•Purchase and install screens, vats and any required process solution dams (eg wash water) and tailing facilities
•Provide power and water
•Provide ore for treatment in the demonstration plant - gravity plant and/or battery sands tailings
•Feeding ore to the process and appropriate removal/disposal of the tailings
•Operate the existing mill and gravity circuit and assist with and support the operation of the leaching process
•Operate the site, including safety and site inductions
•Provide access to on-site accommodation and meals[18]
[18] Affidavit of Paul Kennedy PJK3, 49 ‑ 50.
On 23 October 2017, the Department of Mines Industry Regulation and Safety wrote to CSIRO regarding the Project, and the requirement to comply with the Mines Safety and Inspection Act and regulations.[19] Dr Breuer responded that the demonstration was to be conducted in collaboration with Nu-Fortune who were the leaseholders of the site and were taking the lead on approvals and regulatory requirements.[20]
[19] Affidavit of Paul Kennedy PJK3, 54.
[20] Affidavit of Paul Kennedy PJK3, 55.
The Department responded, asking how the Nu-Fortune tenements interacted with those owned by Roxbury at the Menzies Battery.[21]
[21] Affidavit of Paul Kennedy PJK3, 56.
Mr Kennedy said that, at a meeting with Mr Hanna at the offices of Nu‑Fortune, Mr Hanna told him that the CSIRO must have the right to test their plant on the battery before they would go ahead. Mr Hanna said it would not be long-term.
The Sublease was executed the following month.
At that time, Mr Kennedy was not a director of Roxbury. His wife, Roslyn, and daughter, Rennae Martin, signed the Sublease as directors.[22] The Sublease was prepared by Mr Kennedy's lawyers. Mr Kennedy said he saw the document and tried to read it before it was signed, but did not understand it.[23]
[22] Affidavit of Paul Kennedy [14] ‑ [15].
[23] Affidavit of Paul Kennedy [18].
On 8 October 2018, a Research Agreement was made between Eco Minerals and CSIRO under which CSIRO would enable Eco Minerals to use the Leach Solution Processing Plant at the Menzies site, and provide technical and research services to support that use.[24] The agreement with CSIRO appears to have been novated to Clean Mining Ltd, a listed public company. Eco Minerals owned 69.06% of the shares in Clean Mining.[25] There is no evidence as to when that occurred.
[24] Affidavit of Paul Kennedy PJK3, 71 ‑ 79.
[25] Affidavit of Paul Kennedy PJK3, 81.
Mr Kennedy said he has living quarters on the site and spent much of his time living there. CSIRO moved its plant onto the land in late 2017 and started testing in early 2018. Mr Kennedy continued to spend most of his time on the land until September 2018, when Nu‑Fortune asked him to spend less time there.[26]
[26] Affidavit of Paul Kennedy [21].
Mr Kennedy said that, from November 2018, Nu-Fortune stopped paying his wage.[27] Mr Kennedy also complains about not being a director of Nu-Fortune, and having his shareholding[28] reduced to below 30%.[29] Those matters are all relevant in the counterclaim but of limited importance in the present dispute.
[27] Affidavit of Paul Kennedy [22].
[28] Through Kalchoice Pty Ltd, the trustee of the superannuation fund for Mr Kennedy and his wife: affidavit of Paul Kennedy [24].
[29] Affidavit of Paul Kennedy [23] ‑ [24].
Mr Kennedy said that when he went on to the battery land in June 2019 it was, apart from a caretaker, unoccupied. Major parts of the gravity feed plant had been removed, making that plant and the CSIRO plant inoperable.[30]
[30] Affidavit of Paul Kennedy [26].
Mr Kennedy said that, if given possession of the battery land until trial, he would use the stamp mill to treat ore supplied by others and would also treat the 'battery sands', which I understand to be the stockpile on the site. He said that he would, in that way, be able to earn about $800 a day after costs.[31]
[31] Affidavit of Paul Kennedy [30] ‑ [31].
Mr Jankowski was with Mr Kennedy when he went on to the battery site on 28 June 2019. The following day he went on an inspection of the site with Mr Kennedy and observed spillages of fuel and oil throughout the site and the forcible removal of parts of the gravity circuit (the feeder bin and the conveyor belt). Mr Jankowski said a lot of equipment that had been on the site in December 2018 was missing.[32]
[32] Affidavit of Michael Jankowski [2] ‑ [4].
In his affidavit, Stuart Baldock said that he was an associate of Mr Kennedy. Mr Kennedy introduced him to Mr Hanna. Mr Baldock was engaged by Nu-Fortune as its CEO in about August 2016.
Mr Baldock said that in 2016, a gravity circuit plant was installed at the Menzies State Battery, soon after the Heads of Agreement was signed.
In about late 2016, Nu-Fortune started to look for a cyanide plant to treat the residue sands processed by the battery. It was around this time that Mr Hanna was introduced to CSIRO.[33]
[33] Affidavit of Stuart Baldock [2] ‑ [5].
Mr Baldock said that he was told, and believes to be true, that CSIRO completed their trials in July 2018 and left the site in August 2018.[34]
[34] Affidavit of Stuart Baldock [15].
Mr Baldock said that he returned to the site in June 2019 and there was no one there. He said that about 8,000 tons of untreated battery residue sands had been removed from the stockpile, some of which was not accounted for. Sections of the gravity circuit had been removed and the plant could not be operated. A water storage tank for processed water had also been removed.
Mr Baldock said that he owns a gravity concentrator that can be used to recover gold from the Battery sands. He agreed to allow Mr Kennedy to use it.[35]
[35] Affidavit of Stuart Baldock [16] ‑ [20].
Rennae Martin was a director of Roxbury from September 2016 until February 2019. In October or November 2019, her mother called her and told her about a sublease that CSIRO wanted Roxbury to sign. Ms Martin executed the Sublease on behalf of Roxbury.[36]
[36] Affidavit of Rennae Martin.
Roslyn Kennedy is a director of Roxbury. She said that in mid to late 2017, her husband told her about a plan CSIRO had to test a processing plant on the Menzies site. Later, he explained to her that CSIRO required a sublease to be entered into before they would go ahead. She concluded from what she was told that CSIRO were only leasing a small part of the property.
Ms Kennedy received a copy of the Sublease in around late October 2017. Her husband told her that the Sublease needed to be signed for the deal to go through, and, from what she was told, she believed that there was some urgency. She executed the Sublease as a director of Roxbury.[37]
The Heads of Agreement
[37] Affidavit of Roslyn Kennedy.
The Heads of Agreement was signed in March 2016.
It recited, as background, that Roxbury was in administration and that Mr Hanna and Mr Kennedy were proposing:
1.to evaluate and recover resources at two tenements held by Mr Kennedy;
2.to form a Newco (Nu-Fortune) in which a Kennedy entity would hold a 30% shareholding and investors convened by Mr Hanna would hold 70%;
3.the DOCA be paid out and control of Roxbury returned to Mr Kennedy unencumbered;
4.the Menzies Battery may be upgraded to recover minerals from the Battery Ore Stockpile.
The Heads of Agreement provided, in cl 6, for Nu-Fortune to commence mining operations at the two tenements, with Mr Kennedy engaged to carry out exploration operations and mining operations on behalf of the company for an agreed salary. Nu-Fortune was to meet all costs of exploration and mining operations.
By cl 7, Roxbury was to cause the Menzies Battery to be used for the treatment of gold ore mined at the Mining Operations with Nu‑Fortune to have first preference for the treatment of its ore.
Clause 8 provided:
(a)Newco has the option until 31 December 2019 to elect to treat the Battery Ore Stockpile.
(b)If Newco exercises the option in clause (a) above it must cause an upgrade/modification to be made to Menzies Battery which is estimated to cost $350,000 to allow such treatment (ownership of such works will pass to Roxbury);
(c)All costs of treatment of the Battery Ore Stockpile will be met by Newco; and
(d)Proceeds from such treatment will first reimburse Newco for the costs of upgrade/modifications, then the operating costs and the balance will be shared equally between Roxbury and Newco.
The parties acknowledged that the Heads of Agreement was a preliminary document only.[38] It was, however, stated to be binding.[39]
[38] Heads of Agreement cl 13.
[39] Heads of Agreement cl 16.
By cl 15, the parties agreed a process for the resolution of disputes by arbitration. Neither party has sought to follow the agreed procedure.
The Deed of Sublease was executed in November 2017.[40] By it, Roxbury granted a sublease to Nu-Fortune and Eco Minerals over the premises described as Menzies Reserve 24144 and 24145. The term of the Sublease is from the commencement date until 17 May 2020. Subject to cl 15.2, Nu-Fortune and Eco Minerals have the option to extend for two further terms, each of five years.[41]
[40] Affidavit of Paul Hanna, Attachment E.
[41] Deed of Sublease cl 15.1.
By cl 9(b) Roxbury covenanted:
…that the Sub-Tenant duly paying the Base Rent and performing and observing the covenants and the conditions contained in this Sublease shall peaceably and quietly hold and enjoy the Premises during the Term without any interruption by the Tenant.
The defence and counterclaim
The defendants admit the grant of the Lease and Sublease. They deny breach of the Sublease and plead that the plaintiffs, in breach of the Sublease, failed to pay rent.
The defendants say that by reason of the plaintiffs' breach and matters pleaded in the counterclaim they re-entered the land and terminated the Sublease.
The counterclaim, as filed, is brought by Roxbury and Mr Kennedy and also by a third plaintiff by counterclaim, Kalchoice Pty Ltd, the trustee of the superannuation fund for Mr Kennedy and his wife. It is not necessary for present purposes to decide whether Kalchoice can properly be joined as a plaintiff in this way.
The plaintiffs by counterclaim plead that Roxbury entered the Sublease in reliance on misleading or deceptive conduct by representations that CSIRO required the right to test their plant on the Battery Land, the right would not be long-term, and the Sublease was the document that CSIRO required Roxbury to sign.
The plaintiffs by counterclaim also allege breaches of the Heads of Agreement and conversion. These claims are matters for trial. They do not affect the present question regarding the Lease.
The defendants' submissions
The defendants submitted that the Menzies Battery was their main asset and source of income. They granted the Sublease because Mr Kennedy was told, in effect, that CSIRO would not go ahead with the demonstration of its plant for extracting gold without the use of cyanide unless Roxbury signed the Sublease.
In relation to the balance of convenience, the defendants submitted that, by August 2018, the Menzies Battery site was not being used and parts of the equipment had been removed. They submit that the plaintiffs suffer no loss in being excluded from the land when they had all but abandoned it before Mr Kennedy re-entered.
The defendants submit that they, however, would suffer loss in that Mr Kennedy will lose his ability to earn a living if he cannot process ore on the land.
Finally, the defendants submitted that the financial statements of Nu‑Fortune at 30 June 2018 show that it was, at that time, insolvent. I understood that submission to go to the worth of the undertaking that the plaintiffs had offered.
Consideration
On an application for an interlocutory injunction, the court will not attempt to resolve disputed questions of fact. It is, however, possible to make some preliminary findings about matters which were not in dispute or arise from the documents. These matters are relevant to the balance of convenience in continuing the injunction.
First, I accept that in June 2019, the plaintiffs were not actively processing ore at the site. The plant on the site was not operable and some parts of it had been removed.
In October 2018, however, Eco Minerals made the Research Agreement with CSIRO with a delivery date 12 months after the start date. The evidence does not enable me to make a finding about the current state of the agreement.
The evidence of Mr Gourdis is that the plaintiffs are in the process of acquiring plant and equipment to enable the demonstration plant to again become operational.
Second, Nu-Fortune remains the principal employer of the mine site and is required by s 33(3) of the Mines Safety and Inspection Act to have daily control and supervision of it. The Act provides for a change in the identity of the principal employer,[42] but until that is done the responsibility rests on Nu-Fortune.
[42] See s 32A.
Third, unless the Sublease is set aside or is found to have been lawfully terminated, the plaintiffs remain entitled under it to possession of the land. That is itself a valuable right.
I have had regard to the effect of the continuation of the injunction on the ability of Mr Kennedy to earn a living. There are, however, two factors which detract from his position.
The first is the effect of the Sublease.
Second, by the Heads of Agreement, Nu-Fortune has an option, exercisable until 31 December 2019, to elect to treat the stockpile at the Menzies Battery. Clause 8 of the Heads of Agreement provides for capital costs, operating costs, and the sharing of proceeds. Mr Kennedy's proposed use of the site may be in breach of that agreement.
The critical matters for Mr Kennedy are whether the Lease can be challenged, or whether he can establish that it has been lawfully terminated. Those matters should be resolved as quickly as practicable. But on the present state of the evidence, I am satisfied that the balance of convenience favours the plaintiffs as the party claiming the right of possession pursuant to an executed instrument
Finally, the defendants and the plaintiffs have each put forward balance sheets for Nu-Fortune. The defendants question whether, on the basis of a balance sheet for Nu-Fortune for the year ended 30 June 2018, the company is insolvent. The plaintiffs rely on balance sheets for Nu‑Fortune and Eco Minerals as at 30 June 2019 to show both companies are solvent.
I am not satisfied that Nu-Fortune and Eco Minerals are currently insolvent, so that the court should not accept the undertaking as to damages.
The injunction will be continued until further order of the court. I will hear the parties on programming the matter for trial.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CG
Associate to the Honourable Justice Allanson12 SEPTEMBER 2019
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