Pegasus Gold Inc v Bateman Project - [1999] FCA 722

FEDERAL COURT OF AUSTRALIA
Pegasus Gold Inc v Bateman Project
Engineering Pty Ltd [1999] FCA 722
PEGASUS GOLD INC & ANOR v BATEMAN PROJECT ENGINEERING PTY LTD & ORS
NG 471 OF 1998
PEGASUS GOLD AUSTRALIA PTY LTD v BATEMAN PROJECT
ENGINEERING PTY LTD & ORS
NG 1403 OF 1998
EMMETT J
25 MAY 1999
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NG 471 of 1998

BETWEEN:

PEGASUS GOLD INC
First Applicant

PEGASUS GOLD CORPORATION
Second Applicant

AND:

BATEMAN PROJECT ENGINEERING PTY LIMITED
(ACN 056 741 596)
First Respondent

KINHILL PACIFIC PTY LIMITED
(ACN 010 241 620)
Second Respondent

KILBORN ENGINEERING PACIFIC PTY LIMITED
(ACN 000 864 353)
Third Respondent

NG 1403 OF 1998

BETWEEN:

PEGASUS GOLD AUSTRALIA PTY LIMITED (UNDER DEED OF COMPANY ARRANGEMENT)
Applicant

AND:

BATEMAN PROJECT ENGINEERING PTY LIMITED
(ACN 056 741 596)
First Respondent

KINHILL PACIFIC PTY LIMITED
(ACN 010 241 620)
Second Respondent

KILBORN ENGINEERING PACIFIC PTY LIMITED
(ACN 000 864 353)
Third Respondent

JUDGE:

EMMETT J

DATE OF ORDER:

25 MAY 1999

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The First to Third Respondents be granted leave to file a cross-claim against Svedala Australia Ltd in the form annexed and marked “A” to the notice of motion filed by the respondents on 19 May 1999, such cross-claim to be made returnable before Beaumont J at 9.30am on 9 June 1999.
2.Costs of the motion be parties’ costs of the proceedings.

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

NG 471 of 1998

BETWEEN:

PEGASUS GOLD INC

First Applicant

PEGASUS GOLD CORPORATION

Second Applicant

AND:

BATEMAN PROJECT ENGINEERING PTY LIMITED
(ACN 056 741 596)

First Respondent

KINHILL PACIFIC PTY LIMITED (ACN 010 241 620)

Second Respondent

KILBORN ENGINEERING PACIFIC PTY LIMITED
(ACN 000 864 353)
Third Respondent

NG 1403 OF 1998

BETWEEN:

PEGASUS GOLD AUSTRALIA PTY LIMITED (UNDER DEED OF COMPANY ARRANGEMENT)

Applicant

AND:

BATEMAN PROJECT ENGINEERING PTY LIMITED
(ACN 056 741 596)

First Respondent

KINHILL PACIFIC PTY LIMITED (ACN 010 241 620)

Second Respondent

KILBORN ENGINEERING PACIFIC PTY LIMITED
(ACN 000 864 353)
Third Respondent

JUDGE:

EMMETT J

DATE:

25 MAY 1999

PLACE:

SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

I have before me an application, brought by notice of motion, for leave for respondents in proceedings in this Court to file a cross-claim against a party other than the applicant. Order 5, rule 8(1) provides relevantly as follows:
“A respondent may cross-claim against an applicant or any other party without the leave of the Court but may not cross-claim against any other person not being a party without such leave.”
There are two proceedings in this Court, being NG471 of 1998 and NG1403 of 1998. Beaumont J, who is the docket judge in respect of those proceedings, has already made an order for the consolidation of those proceedings. However, his Honour has not yet given directions concerning the new pleadings which will be required in consequence of that consolidation. At present, the applicants in both proceedings are separately represented.
The proceedings arise out of a project in the Northern Territory involving the expansion of the Mount Todd Gold Mine (“the Mine”). Pegasus Gold Australia Pty Limited (“PGA”), the applicant in proceedings 1403 of 1998, is the owner of the Mine. Those proceedings were originally commenced in the Northern Territory Supreme Court, but were cross-vested to this Court by order of the Supreme Court of the Northern Territory.
The applicants in the other proceeding in this Court are Pegasus Gold Inc. (“PGI”) and Pegasus Gold Corporation (“PGC”). They are interested in the issued share capital of PGA, although I do not have before me detailed evidence of the relevant interest which they have. That, of itself, is not relevant except that it is clear that each has a significant interest in the issued capital of PGA.
The respondents in both proceedings, together, constituted a joint venture. I shall refer to the respondents jointly as “BKK”. PGA retained BKK to prepare a feasibility study for the expansion of the Mine. Subsequently, PGA also retained BKK to oversee the expansion. In the course of those two contracts, BKK entered into arrangements with Svedala Australia Limited (“Svedala”).
There is an issue as to the precise relationship that existed between BKK, on the one hand, and Svedala on the other. However, the subject of their arrangement was the provision, for the expansion of the Mine, of mining equipment comprising Barmac Crushers. Part of the process of the mining for gold involves the crushing of ore-bearing material and, subsequently, further refinement by means of chemical processes.
Svedala has commenced proceedings in the Supreme Court of the Northern Territory against BKK claiming moneys said to be owing as a result of the arrangements entered into between BKK and Svedala relating to the supply of the Barmac Crushers. BKK made an application to the Supreme Court of the Northern Territory for the cross-vesting of that proceeding to this Court. Angel J of the Supreme Court of the Northern Territory declined that application.
His Honour did not give detailed reasons, apparently because the parties said they did not require reasons. I have, however, had the advantage of reading the transcript of argument before Angel J on the hearing of the application. It appears from the consideration of the transcript that one of the matters which influenced his Honour to decline the application was that there had not yet been formulated by BKK cross-claims which it had foreshadowed that it wished to make and bring against Svedala. In the course of argument, Justice Angel said as follows:
“I really think your client [referring to BKK] has to formulate and fully plead its case, for want of a better expression, against the plaintiff [meaning Svedala]... either by way of re-pleading the present defence or third party proceedings in the Federal Court when one has a better idea I think of whether the whole matter ought to go to New South Wales [meaning the Federal Court in the NSW Registry] or whether this action should continue here.”
His Honour concluded that until such a pleading was available the question of cross-vesting was premature.
BKK has formulated the cross-claim which it wishes to file in the consolidated proceeding in this Court. One difficulty, of course, with giving leave to file a cross-claim, is the absence of a pleading against BKK in the consolidated proceedings which consolidates the claims both by PGA and by PGI and PGC. It is necessary to consider the statements of claim in the two separate proceedings as they presently stand in order to determine whether there is a factual issue which will be raised in the proposed cross-claim which would overlap with or coincide with claims made in the existing proceedings.
It is not suggested on behalf of BKK that there is complete overlap between the claims made by PGA against it, on the one hand, and the claims which it wishes to make against Svedala on the other hand. The claims made by PGA against BKK involve the whole of the expansion of the Mine of which the Barmac crushers were only a part.
The claims made by PGA against BKK involve, inter alia, an allegation of breaches by BKK of an obligation to perform the feasibility study work in an efficient manner and exercise the standards of care, skill and diligence exercised by competent persons in the performance of such work. The breaches alleged in paragraph 10 of the statement of claim include the following:
“(m)The crushing circuit (as purportedly designed and specified by the respondents) did not produce and achieve a mill feed size of 2.6mm, at a throughput rate of about 1,200 tonnes per hour and 8 million tonnes per annum (mtpa), thereby affecting the quantity and quality of gold extraction.
…………
(p)The Respondents failed, adequately or at all, to design and construct a crushing circuit to produce the required throughput of ore of 8 mtpa or about 1,220 tonnes per hour at 75% availability, to a size of 2.6mm. In particular they:
(i)failed to provide to at least one of its subcontractors, Svedala, the correct design criteria to enable a proper or accurate estimation of the number of crushers needed to meet and achieve a production rate of 8 mtpa; and
(ii)were aware, as at 24 January 1996, that the 8 quaternary Barmac crushers that they had recommended, and on which the Feasibility Study Report was based, were inadequate and that 10 crushers were required but failed to inform the Applicant.
…………
(aa)The Respondents failed to identify, adequately or at all, whether the proposed Phase II secondary crushers could achieve the required reduction ratio.
(ab)The Respondents failed to identify, adequately or at all, whether the proposed Phase II tertiary crushers could achieve the required reduction ratio.
(ac)The Respondents failed to identify, adequately or at all, whether the proposed Phase II quaternary crushers could achieve the required reduction ratio.”
PGA also alleges in its statement of claim that BKK was in breach of a term of the contract for the overseeing and procurement of the expansion that the expanded works would achieve the performance criteria set out in appendix L to the relevant contract. The particulars of the breach are pleaded in relevantly identical terms to the particulars set out above of the breach of the obligation contained in the feasibility study contract.
The damages alleged to have been suffered by PGA are in the vicinity of $A340 million comprising:
(a)fees paid to the respondents for the feasibility study and the procurement works,
(b)the net wasted expenditure on the project,
(c)losses from the period of operation of the Phase II plant,
(d)losses arising from the subsequent closure of the Mine; and
(e)the losses arising from PGA entering into voluntary administration and then a deed of company arrangement.
I am informed that a principal answer of BKK to the allegations and claims made by PGA is that the failure of the Mine was the result, not of negligent design and construction of the expansion, but a substantial drop in the world price of gold. However, against the possibility that the claims made against BKK may succeed, BKK seeks indemnity or at least contribution from Svedala in terms to which I will come directly.
In their claim, PGI and PGC allege that BKK was negligent in the preparation of the feasibility study. Particulars of the alleged negligence are set out. It is also alleged that in delivering the feasibility study to PGA and to PGI and PGC, BKK contravened section 52 of the Trade Practices Act 1974 in that, by so doing, they engaged in conduct which was misleading or deceptive. The statement of claim also alleges that BKK was negligent in the design and construction of the plant. Particulars of that negligence are also furnished in the pleading.
The particulars of the two heads of negligence include an allegation of negligence in advising that, using the design in construction which they recommended, the ore could be crushed to a size of 2.6 millimetres and in failing to design and construct a crushing circuit to produce the required throughput of ore of 8 million tonnes per annum to a size of 2.6 millimetres. To that extent, there is therefore a coincidence with the allegations made in the proceeding by PGA.
In its proposed cross-claim against Svedala, BKK recites the appointment by PGA to prepare the feasibility study report into the expansion of the Mine. BKK alleges that Svedala made certain representations to BKK concerning the capacities and performance characteristics of Barmac crushers. BKK then refers to the allegation made by PGA concerning the inadequacies of the crushers, the particulars of which I have set out above. BKK then goes on to say that if, despite BKK’s denial of the allegations made by PGA, the Court makes findings in favour of PGA in relation to the matters to which I have just referred, then by making, and failing to correct, the representations which Svedala made about the Barmac crushers, Svedala breached duties of care alleged to have been owing by it to BKK.
The statement of claim also recites the construction of a crushing circuit incorporating Barmac crushers and alleges that in December 1995, BKK entered into contracts with Svedala for the purchase of plant and equipment for incorporation into the crushing circuit. The cross claim alleges that it was an express term of the contracts between Svedala and BKK that Svedala would indemnify BKK against any claims resulting from or connected with Svedala’s performance of its obligations under the contracts or the supply of the plant and equipment thereunder.
The cross claim also alleges, that if the Court makes findings in favour of PGA in relation to the matters to which I have already referred, then in breach of the contract between BKK and Svedala, the Barmac crushers:
(a)did not or were unable to fulfil in all respects, the operating conditions specified by BKK;
(b)did not correspond with the specification stipulated by BKK;
(c) were not reasonably fit for the purposes specified by BKK; and
(d) were not of merchantable quality.
In the cross claim BKK claims damages or alternatively an indemnity or contribution from Svedala to any liability which BKK might be found to have to PGA.
The somewhat cursory analysis which I have just undertaken in relation to the present pleadings in the proceedings in this Court and the proposed cross claim, indicates that there is a question which will arise, both in the claims by PGA, PGI and PGC against BKK and in the claim by BKK against Svedala albeit, in the latter case, hypothetically. That is to say, BKK is in the position where it denies what is alleged against it by PGA, PGI and PGC but wants to be in a position to say, that if the Court, despite that denial, finds it liable, then it is entitled to either damages or contribution of indemnity from Svedala. It would be unthinkable that those questions should be raised in two different proceedings and should be litigated at different times. A fortiori it would be unthinkable that they should be litigated in different courts.
The only way in which the issues can be litigated at the same time and in the same Court, would be for leave to be given for the cross claim to be filed as sought in the notice of motion. As I understand it, the opposition to that course is, in a sense, based on the fortuitous circumstance that Svedala has already commenced the proceedings in the Northern Territory Supreme Court. It was accepted that if there were no such claim in the Supreme Court of the Northern Territory, then any inconvenience to the applicants in this Court would be outweighed by the inconvenience of having to litigate the same issue in different courts.
It was said, however, as I understood the contention, that because there was already a forum where the matter could be raised, the inconvenience to the applicants was not outweighed by inconvenience to BKK. That contention seems to me to be without foundation, if it is accepted, as I have accepted, that the same question will be raised in the cross claim, whenever that is litigated, as will be raised in the claims already in this Court and which is before Beaumont J.
It was put on behalf of PGA that the pleading does not show a common substratum of facts with that in the existing proceedings. The analysis which I have undertaken indicates that, while the claim against Svedala may only be a small part of the claim brought by PGA against BKK, there is nevertheless a complete coincidence in relation to some common questions. There will, of course, be other issues raised by the cross claim which would not be common to the matters raised by PGA, PGI and PGC. Whether those other issues should be litigated at the same time as PGA’s claims will be a matter for the docket judge in the general management of the case.
It may well be, for example, that orders could be made that issues that are not common to the cross claim and to the existing proceedings are to be determined separately from and after or even before the determination of the issues in the current proceedings. I would not presume to express any view one way or the other. That will be a matter for the docket judge who has control of the case.
It has also been suggested that the reason for seeking leave to file the cross claim is, in some way, tainted by an improper purpose. Counsel for BKK acknowledged, quite openly, that the timing of the application was prompted by Angel J’s comments and observations to which I have already referred. However, I do not consider that that is in any way an indication of any impropriety in the bringing of the application. For the reasons I have already indicated, it would be most unfortunate for the issues raised by the cross claim to be litigated separately from the identical issues raised by PGA, PGI and PGC.
Finally and this is really, I think, an aspect of what has already been addressed in a slightly different context above, there is the question of the impact which joinder will have on the proceedings. As I have said, that is a matter for the docket judge. Even though it may be inconvenient, so far as the existing applicants are concerned, to have the cross claim litigated at the same time, the extent to which any delay in the hearing will result from the joinder is a matter which is within the control of the docket judge. The proceedings are still in a fairly early stage. It is not suggested that the joinder will have any impact on the hearing date. Nor is anybody at this stage able to give any indication of the impact which it could have on the hearing time, assuming all issues on the cross claim were heard at the same time as the principal proceedings.
I do not regard any of the matters which have been raised as a true objection to the granting of leave pursuant to Order 5 Rule 8. Svedala was served with the Notice of Motion, although strictly it is probably not a necessary party to the application. I have heard brief submissions on behalf of Svedala. They were really directed to ensuring that Svedala’s position, whatever it might be in relation to the Northern Territory proceedings, would not be prejudiced by the filing of the cross claim.
Whether, as a result of the cross claim having been filed in this Court, Angel J or any other judge of the Supreme Court of the Northern Territory takes a different view is entirely a matter for that Court. I certainly do not want to be understood to be expressing any view one way or the other on a matter which is totally within the purview of the Supreme Court of the Northern Territory. However, once the cross claim is filed, Svedala will be a party to the proceedings in this Court.
A defence and cross claim has already been filed by BKK in the Northern Territory proceedings. PGA, PGI and PGC were anxious to point out the possible duplication of issues between those two cross claims. That of course, as I have said, is a matter of pure fortuity so far as those parties are concerned. To the extent that there is any duplication between the two cross claims, the only party which appears to have any interest in the matter is Svedala. Whether it would be oppressive for Svedala to be cross respondent or cross defendant in two cross claims is a matter for Svedala to consider if and when the cross claim in this Court is filed and served. Whether Svedala wants to take any action in relation to that matter is a matter for Svedala.

The granting of leave, of course, would have no effect on Svedala’s entitlement to raise those matters one way or the other or to take whatever stance it is advised in relation to the question of cross vesting of the Northern Territory proceeding. BKK, of course, has made its position quite clear. That is to say, BKK will seek once again to agitate the question of cross vesting. That, as I have said, is not a matter which is before me and is not a matter on which I express any view one way or the other.
In all the circumstances, I consider the appropriate order is to make Order 2, in the notice of motion which was filed on 19 May 1999. I have been informed that the consolidated proceeding is listed for directions before Beaumont J on 9 June at 9.30 am. It seems appropriate that the cross claim can be made returnable before Beaumont J on that day. The costs of the motion should be the parties’ costs of the proceedings.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
Associate:
Dated: 25 May 1999

Counsel for Pegasus Gold Inc and Pegasus Gold Corp: R.E. Dubler

Solicitor for Pegasus Gold Inc and Pegasus Gold Corp: Slater & Gordon

Solicitor for Pegasus Gold Australia: R.L. O’Brien of Allen Allen & Hemsley

Counsel for the Respondents: T.D. Castle with J. Clarke

Solicitor for the Respondents: Tress Cocks & Maddox

Solicitor for Svedala: C. Cureton of Clayton Utz

Date of Hearing: 25 May 1999

Date of Judgment: 25 May 1999

JUDGE:	EMMETT J
DATE OF ORDER:	25 MAY 1999
WHERE MADE:	SYDNEY

BETWEEN:	PEGASUS GOLD AUSTRALIA PTY LIMITED (UNDER DEED OF COMPANY ARRANGEMENT) Applicant
AND:	BATEMAN PROJECT ENGINEERING PTY LIMITED (ACN 056 741 596) First Respondent KINHILL PACIFIC PTY LIMITED (ACN 010 241 620) Second Respondent KILBORN ENGINEERING PACIFIC PTY LIMITED (ACN 000 864 353) Third Respondent
JUDGE:	EMMETT J
DATE:	25 MAY 1999
PLACE:	SYDNEY

Counsel for Pegasus Gold Inc and Pegasus Gold Corp:	R.E. Dubler
Solicitor for Pegasus Gold Inc and Pegasus Gold Corp:	Slater & Gordon
Solicitor for Pegasus Gold Australia:	R.L. O’Brien of Allen Allen & Hemsley
Counsel for the Respondents:	T.D. Castle with J. Clarke
Solicitor for the Respondents:	Tress Cocks & Maddox
Solicitor for Svedala:	C. Cureton of Clayton Utz
Date of Hearing:	25 May 1999
Date of Judgment:	25 May 1999