Venus Metals Corporation Ltd v DJ Carmichael Pty Ltd
[2019] WASC 455
•11 DECEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: VENUS METALS CORPORATION LTD -v- DJ CARMICHAEL PTY LTD [2019] WASC 455
CORAM: LE MIERE J
HEARD: 6 DECEMBER 2019
DELIVERED : 11 DECEMBER 2019
FILE NO/S: CIV 2779 of 2019
BETWEEN: VENUS METALS CORPORATION LTD
Plaintiff
AND
DJ CARMICHAEL PTY LTD
First Defendant
DAVIDE BOSIO
Second Defendant
PAUL DAVID ADAMS
Third Defendant
SPECTRUM METALS LTD
Fourth Defendant
ZEBRA MINERALS PTY LTD
Fifth Defendant
Catchwords:
Practice and procedure - Application for trial of separate issues - Bifurcation of issues of liability and loss and damage - Desirability of early resolution of liability issues - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA), O 1 r 4, O 1 r 4A, O 32 r 4
Result:
The separate question or issue specified by the fourth and fifth defendants be tried separately from and after any other issues in the proceeding
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr T O'Leary |
| First Defendant | : | Mr J Gilmour QC & Mr A Papamatheos |
| Second Defendant | : | Mr J Gilmour QC & Mr A Papamatheos |
| Third Defendant | : | Mr J Gilmour QC & Mr A Papamatheos |
| Fourth Defendant | : | Mr S Penglis SC |
| Fifth Defendant | : | Mr S Penglis SC |
Solicitors:
| Plaintiff | : | Gilbert + Tobin |
| First Defendant | : | Clayton Utz |
| Second Defendant | : | Clayton Utz |
| Third Defendant | : | Clayton Utz |
| Fourth Defendant | : | Bennett + Co |
| Fifth Defendant | : | Bennett + Co |
Case(s) referred to in decision(s):
Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566
Giumelli v Giumelli (1999) 196 CLR 101
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
Landsdale Pty Ltd v Moore [2009] WASCA 176
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
LE MIERE J:
The plaintiff, Venus Metals Corporation Limited (Venus Metals), brings this action against DJ Carmichael Pty Limited (DJ Carmichael), Mr Davide Bosio and Mr Paul Adams, who I will refer to as the DJ Carmichael defendants, and Spectrum Metals Limited (Spectrum) and its wholly owned subsidiary Zebra Minerals Pty Ltd (Zebra) who I will together refer to as the Spectrum defendants.
The Spectrum defendants have applied for an order pursuant to O 32 r 4 of the Rules of the Supreme Court 1971 (RSC) that the issue of the quantification of any loss and damage suffered by Venus Metals and any damages, equitable compensation or account of profits to which Venus Metals may be found to be entitled be tried separately from and after the trial of all other issues.
I will order that the separate question or issue specified by the Spectrum defendants be tried separately from and after any other issues in the proceeding for the following reasons.
The proceeding
Venus Metals outlined its claim in its announcement of 10 October 2019 to the ASX as follows. In July and August 2019 Venus Metals provided confidential information to Mr Bosio and Mr Adams including information about the Penny West gold mine (Penny West) and Venus Metals' proposal to acquire Penny West. Venus Metals provided the information to Mr Bosio in his capacity as a director of DJ Carmichael and to Mr Adams in his capacity as technical advisor to DJ Carmichael. Venus Metals and DJ Carmichael signed a confidentiality deed. At that time, both Mr Bosio and Mr Adams were also directors of Spectrum. Spectrum, including Mr Adams, then undertook negotiations to acquire Penny West and Spectrum announced that it had entered into an agreement to acquire Penny West in October 2018.
Venus Metals alleges against the DJ Carmichael defendants breach of a duty of confidence owed to Venus Metals, breach of fiduciary duty owed to Venus Metals, a breach of the confidentiality deed and a breach of a contract between Venus Metals and the DJ Carmichael defendants. Venus Metals alleges that the Spectrum defendants knowingly assisted the DJ Carmichael defendants in breaching fiduciary duties owed to Venus Metals by acquiring Penny West.
Venus Metals' primary claim is for a declaration that the Spectrum defendants hold Penny West on trust for Venus Metals. Further or alternatively, Venus Metals claims that the DJ Carmichael defendants and the Spectrum defendants account to Venus Metals for profits derived by reason of breaches of confidence and fiduciary duty, equitable compensation and damages.
The DJ Carmichael defendants deny that they received confidential information about Penny West, deny the alleged breaches of fiduciary duty, breaches of confidence and misuse of information provided by Venus Metals to them, deny breach of the confidentiality deed and deny the alleged breach of contract. Further, the DJ Carmichael defendants assert that Venus Metals is barred by laches from any relief claimed against the DJ Carmichael defendants.
The Spectrum defendants outlined their defence to the claims against them in their announcement of 12 November 2019 to the ASX. Spectrum summarised its defence as follows. Spectrum was actively engaged in negotiations to acquire Penny West more than six months prior to the alleged discussions between Venus Metals and DJ Carmichael. The Spectrum defendants do not admit that Venus Metals disclosed confidential information to DJ Carmichael as alleged by Venus Metals, deny that the circumstances and material facts alleged by Venus Metals give rise to fiduciary duties or duties of confidentiality owed by DJ Carmichael to Venus Metals and deny breach of those duties by DJ Carmichael. The Spectrum defendants deny that DJ Carmichael disclosed to them confidential information of Venus Metals, deny that they used Venus Metals' confidential information to acquire Penny West and deny that they knowingly assisted the DJ Carmichael defendants in breaching fiduciary duties owed to Venus Metals by acquiring Penny West.
The Spectrum defendants say that Venus Metals has no entitlement to a constructive trust over Penny West given that Venus Metals asserts that a separate company was to acquire Penny West not Venus Metals. Furthermore, the Spectrum defendants assert that Venus Metals is barred by laches or acquiescence from attaining equitable relief by reason of its delay. The Spectrum defendants say that Venus Metals was aware Spectrum had acquired Penny West in October 2018 and Spectrum subsequently made numerous public announcements to the market outlining its exploration and spending to develop the asset, and it was not until Spectrum unlocked the value of Penny West that Venus Metals decided to bring its claim.
Trial of separate questions - legal principles
In the ordinary course, all of the issues in a proceeding should be determined together at one time. Notwithstanding this, in some cases the conduct of the proceeding may be more efficient by determining some issues before other issues. The court may order that any question or issue in the proceedings be decided before, at or after any trial or further trial in the proceedings ‑ that is, as a separate question or issue.[1]
[1] See RSC O 32 r 4.
The party seeking an order that the issue of liability and a constructive trust be determined separately from the issues of loss and damage, equitable compensation, account of profits or damages, the Spectrum defendants, must satisfy the court that it is desirable for these issues to be bifurcated. An application for separate trials is to be approached with caution for the reasons explained by Kirby and Callinan JJ in Tepko Pty Ltd v Water Board[2] and by Newnes JA in Landsdale Pty Ltd v Moore.[3] Nevertheless, the court's power to direct separate trials of issues cannot be fettered and must be exercised judicially on a discretionary basis. The court is to exercise the power to order the trial of separate questions so as best to promote the just determination of the litigation, dispose efficiently of the business of the court, maximise the efficient use of judicial resources and facilitate the timely disposal of business.[4]
[2] Tepko Pty Ltd v Water Board (2001) 206 CLR 1, 169 ‑ 170.
[3] Landsdale Pty Ltd v Moore [2009] WASCA 176 [20].
[4] RSC O 1 r 4 and O 1 r 4A.
Bifurcation of the issues
Liability and damages issues frequently are susceptible to bifurcation. In this case the determination of equitable compensation, account of profits and damages presents its own set of issues separate and apart from the liability and constructive trust aspects of the case. Proof of loss and damage, or lost profits, is likely to involve extensive evidence and complicated financial analysis by economic experts.
In an appropriate case, the court may order that the liability of the defendants and the appropriate remedy be tried separately from the quantification of equitable compensation, damages or an account of profits.
The parties seeking the bifurcation of issues must show that bifurcation is more likely than not to result in the just, expeditious and least expensive determination of the proceeding on its merits.
Spectrum and Venus Metals are public companies listed on the ASX. Penny West is the main asset of the Spectrum defendants. It is important that the ownership, or entitlement to, Penny West is determined quickly. This proceeding, and the claims advanced in the proceeding, have a significant impact on the Spectrum defendants and their shareholders, including the vendors of Penny West who received shares in Penny West in consideration for the sale of Penny West to Zebra, and on Venus Metals and its shareholders.
The impact of this action and the claims by Venus Metals are reflected in movements in Spectrum's share price and market capitalisation. The price of shares in Spectrum fell from 11 cents on 10 October 2019, the day on which these proceedings were commenced and announced to the ASX, to 7.5 cents within four days, a fall of 32%. The fall in the share price from 11 cents on 10 October to the closing price on 4 December 2019 of 7.7 cents reflects a decrease in Spectrum's market capitalisation of $45,738,000.
Furthermore, the nature of the claims against the DJ Carmichael defendants is such that the claims should be resolved quickly.
The parties are agreed that Venus Metals' claims should be resolved as soon as possible. Indeed, in its ASX announcement regarding the commencement of these proceedings, Venus Metals announced that it 'will request that the court hears the matter at the earliest opportunity'.
Availability of expedited hearing
At the first case management conference the parties agreed that the case could not be ready for hearing before March 2020. I reserved eight days commencing on 3 March 2020. Those were the first available dates for the court to hear the matter. There were only eight days then available because of the court's other trial commitments.
At this time the eight days commencing 3 March 2020 remain available for the hearing of this matter. It is probable that the court will also be available for half a day on 13 March 2020. The court also has some days available between 14 and 17 April 2020. It is not feasible to hear the whole of this proceeding, including quantification of loss and damage, equitable compensation or profits during the days reserved in March 2020. If the whole of the action is to be tried at one time, it is not possible to hear the action until after the winter recess which finishes on 20 July 2020 because of the court's availability.
In those circumstances the DJ Carmichael defendants and the Spectrum defendants press upon the court a bifurcation of the issues with the issues of liability and entitlement to relief being heard in March 2020 separately from the issues of quantification of damages, compensation and account of profits.
Reasons for bifurcation advanced by the DJ Carmichael defendants and the Spectrum defendants (the defendants)
The defendants submit it is just and convenient for the court to determine the proposed questions separately for a number of reasons.
First, the proposed separate issues will resolve the proceeding if the issues of liability are determined in favour of the defendants or the issues of liability and a constructive trust are determined in favour of the plaintiff. Determining these issues will result in significant time and cost savings because, if determined in the way the defendants contend for, or the way the plaintiff contends for, it would relieve the court of the need to determine the contested questions in relation to quantification of loss and damage, equitable compensation, damages or account of profits which arise only if the defendants' contentions and the plaintiff's primary contentions fail.
Secondly, even if the court determines the issues of liability in favour of the plaintiff but determines the issue of whether a constructive trust should be imposed against the plaintiff, it may facilitate the resolution of the dispute or part of the dispute between the parties. That is, the parties are more likely to resolve questions of equitable compensation, damages or account of profits if the most controversial issues (liability and whether a constructive trust should be imposed) have been determined.
Thirdly, the question of whether the Spectrum defendants hold Penny West, which is their main asset, on trust for Venus Metals is important to Spectrum and should be determined as soon as possible for the reasons I have set out earlier.
Fourthly, whether the DJ Carmichael defendants have committed breaches of duties of confidence or fiduciary duties is important to them as professionals in the financial advisory and services industry and should be determined as soon as possible.
Fifthly, the determination of whether or not the Spectrum defendants hold Penny West on trust for Venus Metals and whether the DJ Carmichael defendants have committed the alleged breach of duty may be determined quickly if the issues of liability and constructive trust are determined separately from issues of equitable compensation, account of profits or damages. The separate questions may be tried in March 2020, but if all of the issues in the action are tried at the one time the trial will not be able to commence until late July 2020 at the earliest.
Reasons plaintiff opposes bifurcation of issues
The plaintiff submits that there are a number of reasons why the court should not order a separate trial of liability and entitlement to remedies before trying quantification issues. First, the plaintiff says that the Spectrum defendants' proposal, for the trial of issues of liability and entitlement to relief to be heard in March 2020, does not accommodate the likely expert evidence on those issues or the 'vendor issue'. Counsel for the plaintiff identified three issues on which expert evidence might be adduced. In response the defendants submit that agreement might be reached between the parties, which would obviate expert evidence being adduced, and, if expert evidence is required, it will be narrow, occupy little time and can be accommodated within the March hearing time.
The foreshadowed expert evidence has been discussed by senior counsel for each party. The first matter on which the plaintiff may lead expert evidence is in relation to the plea by Venus Metals in [30(g)] of its further amended statement of claim, that a helicopter‑borne electromagnetic survey at Penny West 'had highlighted significant anomalies up the Youanmi shear for future drilling targets'. The plaintiff foreshadows leading expert evidence as to the meaning of 'anomalies' and 'targets'. It is unlikely there will be any, or any significant, controversy about the meaning of those mining terms. The meanings may well be agreed. If they are not agreed, I am satisfied that the expert evidence in relation to those matters will not take up any significant time.
The plaintiff foreshadows that, if agreement cannot be reached, it is likely that it will adduce expert evidence as to the effect on the Spectrum share price of:
(a)Spectrum's failure to disclose the matters giving rise to the proceedings;
(b)Spectrum's failure to disclose the 'excluded information' in the Defective Notice (defined in [7(g)(iii)] of the amended reply to the Spectrum defendants) such that the 150 million fully paid ordinary shares in Spectrum were issued in October 2018 without disclosure; and
(c)trading by the defendants and related parties in Spectrum shares, as well as placees of the placements for which DJ Carmichael was the lead broker.
It is not clear that expert evidence will be required or admissible in relation to these matters. If the expert evidence is required, and cannot be agreed, it is unlikely that the evidence will be controversial, or significantly controversial. The evidence will not take up any significant time.
The vendor issue concerns Venus Metals' plea in [7(b)(v)] of its amended reply that to the extent that the vendors of Penny West acquired shares in Spectrum as part of the consideration for Zebra's acquisition of Penny West and continue to hold those shares, Venus Metals:
undertakes, as a condition of any declaration that Spectrum Metals holds Penny West on trust for Venus Metals, to tender to [the vendors] a proposal that will put [the vendors] in the same position as they are in under the arrangement with Spectrum Metals and Zebra Minerals.
Venus Metals foreshadows leading expert evidence in relation to the number of shares in Venus Metals, which would put the vendors in the same position as they are under the arrangement with the Spectrum defendants. It is not clear at this time that any expert evidence will be required. The defendants accept that valuations and calculations could be made to yield a notional number of Venus Metals' shares (assuming Penny West is an asset of Venus Metals) that would have the same notional value as the shares held by the vendors in Spectrum (on the basis that Penny West is an asset of Zebra). Spectrum's case is that, notwithstanding that such a calculation could be made, the imposition of a constructive trust over Penny West in favour of Venus Metals would have an unfair and unjust effect on the vendors.
It is unlikely that expert evidence of the sort foreshadowed will be adduced. It is not relevant on the present pleadings. Furthermore, if the pleadings are amended it is not likely that the valuations and calculations referred to will give rise to any significant controversy. It is the relevance or significance of those matters which will be the subject of argument. The evidence, if adduced, will not take up any significant trial time.
The second matter raised by Venus Metals is that the bifurcation of issues proposed by Spectrum is inconsistent with the High Court's direction that a court should first consider alternative remedies before imposing a constructive trust. The plaintiff refers to Bathurst City Council v PWC Properties Pty Ltd[5] and Giumelli v Giumelli.[6]
[5] Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566, 585.
[6] Giumelli v Giumelli (1999) 196 CLR 101 [10].
In Giumelli a plurality of the High Court said:
Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust.[7]
[7] Giumelli v Giumelli [10], referring to Bathurst City Council v PWC Properties Pty Ltd (584 ‑ 585).
It is common ground that on the hearing of the proposed separate questions the court must consider whether a constructive trust should be imposed and, in so deciding, the court must consider whether there is an appropriate equitable remedy which falls short of the imposition of a trust. The alternative equitable remedy in this case is equitable compensation. What the court is required to consider is the appropriateness of granting equitable compensation, rather than imposing a constructive trust. The court is not required to quantify the equitable compensation before determining whether it is appropriate to impose a constructive trust. That is apparent from the decision of the Full Federal Court in Grimaldi v Chameleon Mining NL (No 2).[8]
[8] Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296.
The third matter raised by the plaintiff is that the separate question trial proposed by Spectrum does not identify why it would be 'just and convenient' to conduct a trial of preliminary issues, given that the Spectrum defendants would still be subject to a claim for equitable compensation in the event that the court is not minded to grant a constructive trust after finding they have liability for knowingly assisting the breaches of confidence and fiduciary duty.
There are two answers to that point. First, the court may find liability issues against the plaintiff or find liability issues in favour of the plaintiff, and that the imposition of a constructive trust is appropriate. In either event there would be no further trial. Secondly, if the court found liability issues in favour of the plaintiff, refused to impose a constructive trust and found that the plaintiff is entitled to equitable compensation, there is a realistic prospect that the parties would reach a compromise settlement which would obviate a further hearing. Thirdly, the question which is of greatest significance, and should be resolved quickly, is whether or not a constructive trust should be ordered. As the Spectrum defendants submitted in the reply submissions 'there is a world of difference between a company which has a claim in rem hanging over its main asset and a company that has hanging over it a claim for a dollar amount'. The plaintiff has not quantified its alternative claim for equitable compensation but the uncertainty hanging over Spectrum would be greatly diminished if it is known whether its main asset is subject to a constructive trust or there is a claim against it for a money amount.
Fourthly, the plaintiff says that the hearing of the preliminary issue would not likely be completed in the available dates in March 2020.
The parties have discussed the conduct of the hearing and the witnesses likely to be called. The defendants estimate that the hearing could be completed in eight days on the following basis. First, the parties prepare written opening submissions and would be limited to speaking to their written submissions which would be completed in three hours. Secondly, if expert evidence is to be adduced, it would be heard concurrently and would take less than half a day. Thirdly, closing submissions would be delivered at a later time.
Estimating the length of the trial of the proposed separate issues is difficult. Hofstadter's law describes the widely experienced difficulty of accurately estimating the time it will take to complete tasks of substantial complexity, such as a trial: it always takes longer than you expect, even when you take into account Hofstadters's law. Nevertheless doing the best I can, I conclude that the hearing of the proposed preliminary issue may be heard within the reserved March 2020 dates on the following basis. First, each party will deliver full written opening submissions. There will be no oral opening submissions except with leave of the court. Leave to make oral written submissions will be given only on demonstrating that it is necessary or will render the hearing more efficient and expeditious and, if granted, will be subject to strict time limits. Secondly, senior counsel for the DJ Carmichael defendants and the Spectrum defendants are to confer and ensure there is no duplication in their cross‑examination of the plaintiff's witnesses. Thirdly, any expert evidence to be adduced will be in relation to questions settled by the court and after any experts with conflicting opinions have conferred to remove or narrow any differences between them. Fourthly, the morning of 13 March 2020 will be reserved to provide an additional half day for the hearing of evidence if required. Fifthly, the parties will deliver full written closing submissions and oral closing submissions will be restricted to speaking to the written submissions and subject to time constraints. The speaking to the closing submissions will be on the first day available to the court in the week beginning 14 April 2020.
Conclusion
The considerations outlined above in favour of the separate trial of the issues of liability and appropriate remedy outweigh the difficulties pointed out by the plaintiff. I will order the trial of the separate issues identified by the defendants.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MS
Associate to the Honourable Justice Le Miere11 DECEMBER 2019
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