Ward v Neometals Ltd
[2018] WASC 175
•13 JUNE 2018
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: WARD -v- NEOMETALS LTD [2018] WASC 175
CORAM: REGISTRAR C BOYLE
HEARD: 3 APRIL 2018 & 6 APRIL 2018
DELIVERED : 13 JUNE 2018
FILE NO/S: CIV 2965 of 2017
BETWEEN: MURRAY THOMAS WARD
First Plaintiff
ROSELAND CAPITAL PTY LTD
Second Plaintiff
AND
NEOMETALS LTD
Defendant
Catchwords:
Pre-action discovery - Relevance of statements by defendant in course of hearing - Turns on own facts
Legislation:
Australian Consumer Law
Rules of the Supreme Court 1971 (WA), O 26A
Trade Practices Act
Result:
Orders made
Category: B
Representation:
Counsel:
| First Plaintiff | : | Mr B H Taylor |
| Second Plaintiff | : | Mr B H Taylor |
| Defendant | : | Mr C G Hicks |
Solicitors:
| First Plaintiff | : | Mills Oakley |
| Second Plaintiff | : | Mills Oakley |
| Defendant | : | Herbert Smith Freehills |
Case(s) referred to in decision(s):
Hill v National Australia Bank Ltd (Unreported, WASC, Library No 980676, BC9806263, 24 November 1998)
Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14
McCarthy & Ors v Dolpag Pty Ltd [2000] WASCA 106
Ronald Charles Davis & Ors v Sagar Pty Ltd & Ors [1998] WASC 249
Waller v Waller [2009] WASCA 61
REGISTRAR C BOYLE:
The plaintiffs seek pre-action discovery from the defendant under O 26A r 4 of the Rules of the Supreme Court 1971 (WA): the plaintiffs identify the defendant in this application as the prospective defendant in a substantive action.
The principles to be applied are not contentious. Both parties accepted in their submissions that they are summarised, and most of the important authorities are referred to, in Civil Procedure WA at [26A.4.0] and [26A.4.1]. These reasons concentrate on what is in dispute, not on uncontroversial law, or requirements that the defendant concedes are met.
The plaintiffs rely on the substantial affidavit of Murray Thomas Ward sworn 16 November 2017. The defendant has filed no affidavit sworn by any officer of the defendant in opposition, but does rely on two affidavits from a solicitor that put correspondence in evidence and also deal with the question of what would be required to give the discovery sought. Both parties filed written submissions, which were amplified in oral argument. As related below, that oral argument took an unexpected turn during an adjournment and it is for that reason I reserved my decision.
Mr Ward is both the first plaintiff and a director of the second plaintiff and authorised to swear the affidavit in support on its behalf. In that affidavit Mr Ward identifies three possible causes of action. It would have been possible for this application to become bogged down in subtle arguments about which of the prospective plaintiffs was entitled to rely on which cause of action, and therefore what form of discovery should be ordered. The defendant has constructively declined to take any such point, which simplifies matters considerably.
Mr Ward's affidavit identifies three prospective causes of action.
The Offtake Fee Agreement
The first is described in Mr Ward's affidavit as the Offtake Fee Agreement and the term was used by both parties in submissions and argument. This is described in Mr Ward's affidavit at paras 12 and 13, although the affidavit enlarges on that description later.
Mr Ward's evidence is that the Offtake Fee Agreement was a contractual agreement contained in an exchange of emails between him and the defendant in November and December 2009. Later, Mr Ward says there was an effective novation of that agreement so that the contracting parties would be not Mr Ward and Neometals Ltd, but his company Roseland Capital Pty Ltd and the defendant.
The gist of the Offtake Fee Agreement was that in consideration of Mr Ward introducing to the defendant a party that subsequently entered into an agreement to purchase the defendant's nickel, the defendant would pay a commission. The rate of commission is specified in the exchange.
To this point, one might observe that the exchange of emails attached to Mr Ward's affidavit can easily be analysed to demonstrate the classic contractual elements of offer, acceptance, consideration, intention to create legal relations, and contractual certainty.
The plaintiffs can therefore demonstrate an arguable case that there was a contract: why should there be any uncertainty about whether to commence proceedings?
The answer to that difficulty lies in the fact that under the contract alleged the plaintiffs would be entitled to commission only if the relevant plaintiff had introduced the purchaser to the defendant. The plaintiffs say that they require pre-action discovery to show, from the defendant's documents, that the plaintiffs were the effective cause of the introduction of the party that–as is common ground and a matter of public record–entered into an offtake agreement with the defendant to purchase lithium concentrate.
The Equity Fee Agreement
The second cause of action is identified as the Equity Fee Agreement, described in paras 15, 80 and 81 of Mr Ward's affidavit.
The plaintiffs assert that this agreement was reached in an exchange of emails in March 2015. They are referred to and annexed to the affidavit.
The defendant and Mineral Resources Ltd (through a wholly owned subsidiary) together owned a company called Reed Industrial Minerals Pty Ltd ("RIM"). The Equity Fee Agreement alleged by the plaintiffs is that the defendant agreed to pay the second plaintiff a fee of 5% on equity taken up in Reed Industrial Minerals by a purchasers introduced by the second plaintiff.
Again, the exchange of emails (which even went so far as to incorporate draft agreements) arguably evidences the formation of a binding contract.
As with the Offtake Fee Agreement, it is not in dispute, and evidenced by public records, that Jiangxi Ganfeng Lithium Co. Ltd ("Ganfeng") subsequently entered into an agreement under which Ganfeng acquired a 25% shareholding in RIM, leaving Neometals with 45% and Mineral Resources Ltd with 30%: attachment 'MW-92'.
Again, as with the Offtake Fee Agreement, the plaintiffs say that in order to make a decision about whether to commence proceedings, they need to know from the defendant's discovery that there is evidence that it was the second plaintiff that was the effective cause of the introduction of Ganfeng to Neometals and the joint venture.
The Representation Claim
The third cause of action the plaintiffs foreshadow (and which was not foreshadowed in their solicitor's letter of August 2016) is explained in para 85 of Mr Ward's affidavit. That relates events in March 2015, when Neometals was in negotiations with a party called China Gold that the plaintiffs had introduced. It was shortly after the parties had (on the plaintiffs' cause) entered into the Equity Fee Agreement. It appears that the stage had been reached at which China Gold had indicated that it did not wish to participate in equity, but had expressed a willingness and capacity to approach Ganfeng to do so.
The core of it is in para 85 of Mr Ward's affidavit. He deposes that he asked Mr Chris Reed for assurances that Neometals would not deal with Ganfeng outside its agreement with Roseland, and that if Ganfeng approached Neometals, Mr Reed would inform Mr Ward. Mr Ward further deposes that Mr Reed responded 'with words to the effect that he agreed with that.'
The plaintiffs describe what Mr Reed said as representations. The ground is being laid for the statutory cause of action under the Trade Practices Act/Australian Consumer Law for misleading and deceptive conduct.
Preliminary conclusions: causes of action and reasonable enquiries
In order to establish grounds for making an order, I must find that the plaintiffs 'may have a cause of action' as that phrase in O 26A r 4 is to be understood. That is, there is 'something more than mere assertion, conjecture or suspicion' as Martin CJ put it in Waller v Waller [2009] WASCA 61 [4], and there is 'some tangible backing, or objective foundation, that takes the existence of the cause of action beyond a mere allegation, suspicion or assertion', as it was put by Le Miere AJA in the same case at [75]. See also Kelbush Pty Ltd v Australia and New Zealand Banking Group Ltd [2016] WASCA 14, [69]–[71].
In relation to each of the Offtake Fee Agreement and the Equity Fee Agreement, I find that the plaintiffs may have an action by reference to the test outlined above. Each, as described above, is a prospective cause of action of a completely conventional and unsurprising kind. The plaintiffs seek discovery of documents that would whether there have been events that would trigger liability to make payments in compliance with the suggested agreements.
Whether the plaintiffs have made out that they may have a cause of action in relation to the Representation Claim is best considered by dealing with the defendant's grounds for opposing that limb of the application. I do so below.
I also need to find that the plaintiffs have made 'reasonable enquiries', in that there is a body of correspondence evidencing requests for voluntary discovery.
It is not necessary that the plaintiffs should have made enquiries of the third parties with which the defendant had dealt, namely Ganfeng and Mineral Resources. I find that the plaintiffs have made reasonable enquiries, constituted by the emails and letters from the plaintiffs and solicitors acting for them variously to the defendant and its solicitors. There have been explicit demands. Some of those communications are identified below.
The Opposition: decision made
The defendant's opposition to the making of orders for discovery is based on two jurisdictional propositions.
The first is that the defendants submit that the plaintiffs have made a decision to commence action. If that is the case, submits the defendant, applying for pre-action discovery is an abuse of process: Ronald Charles Davis & Ors v Sagar Pty Ltd & Ors [1998] WASC 249 at [8].
The defendant submits that the plaintiffs have twice informed the defendant that they intend to commence proceedings.
The first of these occasions is said to be an email from Mr Ward to Mr Chris Reed of the defendant dated 11 August 2015. It is attachment 'MW-103' to Mr Ward's affidavit. After complaining of a lack of acknowledgment by Neometals of an obligation to pay fees to the second plaintiff, and a failure to respond, the email concludes,
This leaves us little alternative but to now protect our rights.
Can you please indicate to whom you would prefer the service of documents for RIM and Neometals in this matter?
This is a letter of demand written by a non-lawyer. It is neither specific nor clear about the exact nature of the rights asserted. The appending to such a letter of what is in effect a request for the addressee to nominate solicitors having instructions to accept service for process is in my view indicative more of bravado than of settled intention.
The second communication that the defendant points to is the letter of 24 February 2016 from the plaintiffs' then solicitors Taylor Olivier to Mr Simon Reed at Herbert Smith Freehills. This letter asserts the existence of the Offtake Fee Agreement and the Equity Introduction Fee Agreement (but not the third cause of action described below). It demands an acknowledgment of entitlement to payment and an undertaking to pay. The letter then goes on to say that,
In the event that written acknowledgment is not provided by Neometals our clients intend to instruct us to commence proceedings to seek [various relief]
The concluding sentence is,
Our clients reserve all of their rights.
It is not unknown for lawyers to write letters threatening proceedings and then, on further consideration, realise that more is needed before an action can properly be commenced.
I would not regard either of those communications, or the two taken together, as establishing the proposition the defendant puts.
More critically, the fact is that Mr Ward has sworn that no decision has been made and the application is made to obtain discovery in order to enable that decision: Ward affidavit para 11. Mr Ward has put on oath that no decision has been made. That evidence is plausible. It is not unambiguously contradicted by the communications to which the defendant refers. I am obliged to accept that the plaintiffs have made no decision to commence proceedings, and I so find.
The opposition: the Representation Claim
The defendant's response to the third limb of the application, concerning the Representation Claim, is different.
In its written submissions, the defendant's objection was put on the basis that the representations claim did not extend beyond mere allegation, suspicion or assertion.
In oral submissions, counsel for the defendant amplified this in a subtly different way. The proposition was put that, if proved, Mr Reed's assurances were nothing more than that the defendant would honour the two earlier agreements. If, the submission went on, those earlier agreements were contractually binding, then the plaintiffs would have remedies under those contracts and the supposed misrepresentation claim could have no content. It would add nothing to the contractual claim, as the plaintiffs could recover damages once only and if the plaintiffs recovered on the contractual claims there would be no loss or damage to which the representation claim could answer.
On the other hand, submits the defendant, if the earlier agreements were not binding, then the plaintiffs would have suffered no contractual loss that could sound in damages on the misleading and deceptive conduct claim.
The plaintiffs' reply to that submission was that if the two earlier agreements were not binding, then the representations effectively bound the defendant to ensure that the plaintiffs received the benefits they thought they were entitled to under the Offtake Fee Agreement and the Equity Fee Agreement. The representation claim would therefore serve to provide a remedy.
Further, the defendant submits, if Mr Reed made the representations that Mr Ward deposes to, they were representations about future matters. They had to be misleading at the time they were made. There was no evidence of that. Therefore the claim is mere speculation. The plaintiffs' reply is that that is precisely the point of the discovery sought. It is not necessary for a party seeking pre-action discovery to show it has evidence of every fact that would need to be proved at trial.
The defendant raises a further objection to this claim. That is that there would be no purpose in ordering discovery. That is because it is already known that the defendant dealt with Ganfeng other than through the plaintiffs or China Gold. That is self-evident from a considerable body of materials. There could be nothing new to discover on that point.
The plaintiffs' reply is succinct: it is not enough that the defendant dealt with Ganfeng. In order for the plaintiffs to succeed, they would have to show how the introduction to Ganfeng came about.
It is not necessary that I find that the plaintiffs have a substantial prospect of success or even that they have a prima facie case. The bar is set low. The claims by the plaintiffs may fail at trial, but that is not the point. I find that the plaintiffs have passed the threshold of showing they might have such a claim: perhaps the bar has rocked from the brush of a heel, but it has not fallen.
The unexpected twist
The hearing was initially listed for a Tuesday in the belief that it would be completed that day. As it happened, that was not possible and the hearing resumed on the Friday of the same week.
As mentioned at the beginning of these reasons, the hearing took an unexpected turn part way through.
In order to succeed on either the Offtake Fee Agreement claim or the Equity Fee Agreement claim, the relevant plaintiff would have to prove as a material fact that it was the effective cause of the introduction of Ganfeng to the defendant. A prominent purpose of the plaintiffs' application was therefore to obtain discovery of documents relating to the defendant's dealings with Ganfeng in order to show that it was the plaintiffs who were responsible for introducing Ganfeng to the defendant. Centrally to that aim, the plaintiffs sought discovery of communications between the defendant and Ganfeng in the relevant period. If there were, then the plaintiffs might not have been responsible for the introduction, that having occurred already.
When the hearing was well advanced, counsel for the defendant announced from the bar table that he was instructed to advise that, if the plaintiff commenced proceedings as foreshadowed, the defendant would say that there were no dealings between the defendant and Ganfeng in that earlier period. When the hearing resumed on the Friday, counsel for the defendant tendered without objection a further affidavit of his sworn that day setting out correspondence between the solicitors of the previous day. Part of that was a letter from the defendant's solicitors to the plaintiffs' that read, in part,
First, we are instructed that there were no dealings between our client and Ganfeng in the period 1 July 2014 to 2 May 2015 (when, according to Mr Ward, he 'believed that a potential deal between Neometals and Ganfeng was dead'. Our client denies (among other things) that your clients introduced Ganfeng as a potential counterparty to either an offtake or equity transaction. However, our client does not, and will not, say in its defence to your clients' allegations that our client, directly or indirectly, dealt with Ganfeng in the period referred to above. We have seen no evidence to support such a defence. As Mr Hicks said in his oral submissions, if such evidence existed it would have been disclosed (or at least adverted to).
(Affidavit of Christopher Guy Hicks affirmed 6 April 2018, page 5, Attachment 'CGH-1')
On that basis, counsel submitted, the entire ground for the plaintiffs' application fell away: the need for the material the plaintiffs sought disappeared. The plaintiffs had all they needed to decide whether to commence action.
The status of this pronouncement was unclear. The plaintiffs wanted to know whether the defendant was offering a formal undertaking. After some time and many carefully-chosen words, it became apparent the defendant was not offering a formal undertaking. And it was unclear to me whether an estoppel would arise. The exchanges were quite lengthy (ts 27-52).
I am not critical of what was in my view an effort in good faith to narrow the differences between the parties. But I think that the affidavit from Mr Hicks and statements that were made from the bar table did not provide a sufficient reason not to make discovery orders if the plaintiffs had otherwise made out their case. It would not obviate the need for discovery. That is, if the plaintiffs had otherwise established the entitlement to discovery, what was said provided no reason either to dismiss the application or narrow the terms of an order. If it is the case that the response to the question of whether there were communications in the relevant period is that there were none to discover, that is not a substantial imposition.
The orders to be made
I find that the plaintiffs wish to take proceedings against the defendant. I find that the plaintiffs have shown that they may have each of the three potential causes of action I have described above. I find that the plaintiffs, having made reasonable enquiries, do not have sufficient information to decide whether to commence action. I find that there are reasonable grounds for believing that the defendant has or may have documents that may assist the plaintiffs in deciding whether to take action.
The plaintiffs are entitled to appropriate orders. The question is what those may be. Orders should be made only to the extent that they are reasonably necessary to achieve the proper administration of justice bearing in mind that discovery is an intrusion on rights of privacy and commercial confidentiality (McCarthy & Ors v Dolpag Pty Ltd [2000] WASCA 106, [13]). Pre-action discovery is for the purpose of enabling a party to decide whether to take action and it is not appropriate to order in effect what would be full discovery to inform a party how to conduct an action (Hill v National Australia Bank Ltd (Unreported, WASC, Library No 980676, BC9806263, 24 November 1998) (Sanderson M)). That is, orders for pre-action discovery should be framed to satisfy the need to give the prospective plaintiff sufficient to decide whether to commence action, and no more.
The application as filed was very broad. In the course of the application the plaintiffs produced a substantially narrowed minute of proposed orders.
The first category seeks discovery of
1.All email communications exchanged between (including emails copied to them) the following officers, employees or consultants of, the defendant, Neometals Ltd (formerly Reed Resources Ltd) (Neometals):
(a)David John Reed;
(b)Christopher John Reed (Reed)
(c)Steven Cole;
(d)Douglas Campbell Walter Ritchie;
(e)Natalia Streltsova;
(f)Jason Carone;
(g)Michael Tamlin (Tamlin);
(h)Darren Wates; or
(i)Eileen Hao (Hao),
(together, Neometals Representatives) and:
(a)each other;
(b)officers, employees or consultants of Mineral Resources Ltd (Mineral Resources); or
(c)officers, employees or consultants of Reed Industrial Minerals Pty Ltd (RIM),
which make reference by words to:
(a)the first plaintiff, Murray Ward (Ward);
(b)the second plaintiff, Roseland Capital Pty Ltd (Roseland);
(c)Rosemead Pty Ltd;
(d)Jiangxi Ganfeng Lithium Co. Ltg (Ganfeng); or
(e)China Gold Group Investment Co., Ltd (China Gold),
in the period between 1 January 2015 and 31 July 2015.
2.All meeting minutes, site visit logs or diary entries recording:
(a)site meetings in Western Australia involving;
(b)meetings held between; or
(c)what occurred at any meetings between
the Neometals Representatives and officers, employees and consultants of Ganfeng in the period between 1 January 2015 and 31 July 2015.
3.All email communications between (including emails copied to them) any of the following officers, employees or consultants of Neometals:
(a)Reed;
(b)Tamlin; or
(c)Hao,
and officers, employees and consultants of Ganfeng during the period between 1 July 2014 and 31 July 2015
7.All email communications between Ward ([email protected]) and Reed in the period between 1 February 2011 and 31 May 2011, attaching a letter (draft or otherwise) from, or on behalf of, RIM, concerning an offtake agreement.
8.Any email communications during the period between 1 September 2013 and 31 December 2013:
(a)from Ward to Reed requesting confirmation of an offtake agreement between Ward or Roseland and Neometals; or
(b)from Reed to Ward responding to such a request.
I was informed from the bar table, without objection, that the named persons are almost all the persons associated with the defendant, which is a fairly small company. It was said to be, as I recall without checking the transcript, 'everyone but the tea lady'. There would be a very large number of emails that would have to be filtered. Granted, as the plaintiffs submit, the use of defined search terms in the proposed orders would allow automation of that process to a considerable extent but it would still be a very large burden.
The defendant relied on two affidavits of Ms Tormey of the defendant's solicitors that outlined what would be required to comply. I accept that evidence, which was unchallenged.
I find that category 1 is too sweeping. It is aimed at classes of documents beyond the plaintiffs' legitimate requirements and to order discovery in those terms would be oppressive and not required, particularly in light of the more limited orders I propose.
Categories 2, 3, 7 and 8 as amended are as follows (categories 4, 5, and 6 were not pursued):
2.All meeting minutes, site visit logs or diary entries recording:
(a)site meetings in Western Australia involving;
(b)meetings held between; or
(c)what occurred at any meetings between
the Neometals Representatives and officers, employees and consultants of Ganfeng in the period between 1 January 2015 and 31 July 2015.
3.All email communications between (including emails copied to them) any of the following officers, employees or consultants of Neometals:
(a)Christopher John Reed (Reed);
(b)Michael Tamlin; or
(c)a Chinese consultant with the name of 'Valerie' Hao,
and officers, employees and consultants of Ganfeng during the period between 1 July 2014 and 31 July 2015
7.All email communications between Ward ([email protected]) and Reed in the period between 1 February 2011 and 31 May 2011, attaching a letter (draft or otherwise) from, or on behalf of, RIM, concerning an offtake agreement.
8.Any email communications during the period between 1 September 2013 and 31 December 2013:
(a)from Ward to Reed requesting confirmation of an offtake agreement between Ward or Roseland and Neometals; or
(b)from Reed to Ward responding to such a request.
Category 2 is more targeted and in my view aimed directly at the plaintiffs' proper purposes and no more. An order in those terms would be appropriate. Category 3 is similarly tightly targeted to just three people on the Neometals side and anyone at Ganfeng, for a defined period that is appropriate in light of the evidence about the plaintiffs' prospective claims.
Category 7 might at first seem curious, because it seeks communications to which the first plaintiff was a party. However, Mr Ward's unchallenged evidence was that he had lost his emails from that period and thus the order is justified.
Finally, category 8 is again narrowly targeted to communications between just two people over a limited period.
There will be orders in those terms. I will hear the parties as to costs, while indicating that my preliminary view is that the plaintiffs should pay the defendant's costs of giving discovery, to be assessed by a Registrar if not agreed. I will hear the parties as to the costs of the application, bearing in mind that the plaintiff has been at least significantly successful in the face of complete opposition.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AP
ASSOCIATE TO REGISTRAR C BOYLE13 JUNE 2018
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