Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [No 2] - [2010] WASC 16

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WRIGHT PROSPECTING PTY LTD -v- HANCOCK PROSPECTING PTY LTD [No 2] [2010] WASC 16

CORAM: MURRAY J

HEARD: 22 OCTOBER 2009

DELIVERED : 4 FEBRUARY 2010

FILE NO/S: CIV 1949 of 2008

BETWEEN: WRIGHT PROSPECTING PTY LTD (ACN 008 677 021)
Plaintiff
AND
HANCOCK PROSPECTING PTY LTD (ACN 008 676 417)
Defendant

Catchwords:

Practice and procedure - Application by plaintiff for pre-action discovery - Whether plaintiff may have a cause of action against defendant - Whether discretion to order preaction discovery should be exercised - Rules of Supreme Court 1971 (WA), O 26A r 4 - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 26A r 4

Result:

Pre-action discovery orders made

Confidentiality undertakings imposed

Category: B

Representation:

Counsel:

Plaintiff: Mr B W Walker SC & Mr G K Rich
Defendant: Mr C R C Newlinds SC

Solicitors:

Plaintiff: Lavan Legal
Defendant: Hunt & Humphry

Case(s) referred to in judgment(s):

Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382
Fairfax Media Publications Pty Ltd v Western Australian Rugby Union Inc [2008] WASCA 123
Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728
Waller v Waller [2009] WASCA 61
Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2009] WASC 34

MURRAY J: The matter before the court is an application by the plaintiff by way of originating summons for pre‑action discovery to be given by the defendant. The plaintiff proposes to sue the defendant if it has a cause of action which is maintainable.
The application depends upon that part of the Rules of the Supreme Court 1971 (WA), O 26A r 4, which applies where pre‑action discovery is sought from a known potential party. Here, as I have said, the plaintiff has no doubt that it would wish to proceed against the defendant, if the grounds to do so exist.

The law

At a preliminary stage of the progression of the application towards a hearing, I dealt with an application made by the defendant that the plaintiff produce to the court documents, in defined categories, which might bear on the determination of this application. In the reasons when I then published: Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2009] WASC 34 [2] ‑ [3], I summarised the material aspects of O 26A r 4. I need do no more, for present purposes, than to repeat what I then said.
I summarised the effect of the rule as being that the court had the power to make an order for pre‑action discovery -
1.on the application of a party who may have a cause of action against another, a potential party who is identified; if
2.the plaintiff wishes to take proceedings against the potential party;
3.the plaintiff has made reasonable inquiries, but has nonetheless been unable to obtain sufficient information to decide whether or not it might proceed upon the supposed cause of action; and
4.there are reasonable grounds to believe that the potential defendant is likely to have had, or does have, documents in its possession or power which may assist to make the decision whether or not to proceed.
It has been held that, in exercising the power conferred by the rule, it ought to be given an ample or beneficial interpretation because it should be borne in mind that it is essentially designed to allow a 'fishing expedition': Central Exchange Ltd v Anaconda Nickel Ltd (2001) 24 WAR 382 at 401 [46]; Paxus Services Ltd v People Bank Pty Ltd [1990] FCA 500; (1990) 99 ALR 728.
However, in applying the rule it should not be overlooked that it is, after all, concerned with a process of discovery in relation to which considerations of the confidentiality of documents and privacy of the party ordered to give discovery will not be overlooked. As Newnes AJA said, Buss JA agreeing, in Fairfax Media Publications Pty Ltd v Western Australian Rugby Union Inc [2008] WASCA 123:
Those considerations apply with at least equal force to an application for discovery against a non‑party. The privacy of a person is not to be invaded, and the person put to inconvenience and possible irrecoverable expense, for the purposes of litigation in which that person is not involved unless, and only to the extent that, the applicant establishes that it is reasonably necessary to do so in order to achieve the proper administration of justice [29].
The reference to achieving the proper administration of justice reminds us that the rule involves a discretionary judgment. As Burchett J said in Paxus, at 733:
It would be unfortunate if a rule designed to amplify the court's power to penetrate obscurities and uncertainties in the interests of justice were to be weakened by restrictive and unnecessary glosses. I think the rule is of a beneficial kind within the meaning of the well‑known principle of interpretation, and should be given the fullest scope its language will reasonably allow. The proper brake on any excesses in its use is the discretion of the court, which is required to be exercised in the particular circumstances of each case [20].
The exercise of the discretionary judgment will, in the ordinary way, involve a balancing exercise between the interests of the plaintiff in invoking the court's assistance to enable it to investigate whether or not it may have a cause of action which it would wish to pursue against the defendant, because its own reasonable inquiries have not produced the necessary information upon which its decision may be made, and the interest of the defendant and any other interested person in the preservation of its privacy in relation to its legitimate business affairs and the records it has.
One further matter ought to be mentioned in this case. In Waller v Waller [2009] WASCA 61, Martin CJ described, as 'the jurisdictional threshold' for the application of the rule, the need for the applicant to establish that it might have a cause of action which could be pursued. It is certainly not necessary for the applicant to show a prima facie case in that regard. To so require would be to unduly fetter the proper application of the rule. In Waller, Martin CJ said:
It would be contrary to the evident purpose of such a rule to require an applicant to demonstrate the elements of a good cause of action as a condition of the exercise of a power which is intended to enable the applicant to assess whether or not he or she does in fact have a good cause of action. It would therefore be wrong in principle to approach the rule with an undue focus or emphasis upon the demonstration of the prospective cause of action. Thus, the jurisdictional question is whether there might be a cause of action which could be demonstrated by the provision of the documents sought. However, something more than mere assertion, conjecture or suspicion is required to enable the court to conclude that there might be such a cause of action [4].
Without wishing to promote debate about whether the requirement that the applicant demonstrate that it 'may have a cause of action' poses a different question to the equivalent rule of the Federal Court, O 15A r 6(a), which requires the applicant to show that there is 'reasonable cause to believe' that it 'has or may have the right to obtain relief', I accept what was said in Waller by Le Miere AJA, that:
The court must make its own evaluation of the circumstances which ground the applicant's belief that he may have a cause of action against the potential party. The test is objective in the sense that it is not sufficient that the applicant believes that he may have a cause of action against a potential party; the court might determine this belief to be unfounded. It is not necessary that the applicant have a prima facie case. However, there must be material to establish that the applicant may have a cause of action against the potential party. There must be some tangible backing, or objective foundation, that takes the existence of the cause of action beyond a mere allegation, suspicion or assertion [75].
In short, there must be some objective support for the belief or suspicion which the plaintiff has, that there is or may be a cause of action which it may pursue and would wish to pursue against the defendant.

The plaintiff's inquiries

The application for pre‑action discovery must, by O 26A r 4(3), be supported by affidavit. In this case, the principal document is the affidavit of Mr Brandli, which he makes as a director of the plaintiff, and as its former principal accountant. He is also, in that way, familiar with the affairs of the partnership between the plaintiff and the defendant, known as Hancock & Wright.
As I observed in [2009] WASC 34:
He testifies to a search of the plaintiff's records and those of the partnership, and to a search of mineral tenements and other records particularly concerned with the tenements in the Pilbara which may be referred to as Hope Downs, the subject of the Iron Ore (Hope Downs) Agreement Act 1992 (WA) and an unincorporated joint venture in relation to the development of Hope Downs and exploitation of its iron ore assets, between Rio Tinto Ltd and the defendant [5].
Contentious paragraphs of his affidavit upon which it was sought, unsuccessfully, to cross‑examine Mr Brandli, are as follows:
51.The plaintiff is considering commencing proceedings against the defendant for breach of contract and breach of its fiduciary obligations in relation to Hope Downs 1, 2 and 3. However, the plaintiff does not have sufficient information to decide whether such proceedings should be commenced. In particular, although it is my belief that the defendant has entered into an arrangement whereby the Hancock & Wright partnership is not to receive any royalties in respect of iron ore produced and sold from Hope Downs 1, 2 or 3, the plaintiff does not yet know what deal the defendant in fact entered into. It is not yet known, for example, whether the defendant has secured a deal whereby royalties are payable to the defendant (or its subsidiary), or whether the defendant has negotiated some alternative benefit for itself (or its subsidiary) in exchange for foregoing a royalty.
52.The plaintiff has not yet reached a decision as to whether to commence proceedings against the defendant for breach of contract and breach of its fiduciary obligations. I anticipate that the documents sought in the present application will assist the plaintiff to make that decision.
There has been lengthy correspondence between the parties in relation to the information sought by the plaintiff. It seeks, in the present application, discovery of documents falling within four broad categories, insofar as they relate to events from 1 July 2004 to the present time. It may be that the start date is intended to be 1 July 2005, upon which date Rio Tinto Limited (Rio), issued a press release that it had been agreed with the defendant that they would enter into a 50:50 unincorporated joint venture to develop the Hope Downs iron ore assets, with the development and ongoing operation of the venture to be managed by Rio: affidavit of Brandli, sworn 16 July 2008, REB39.
Other such documents are annexed to Mr Brandli's affidavit, and further inquiries for such material are deposed to by a Ms Porter, a solicitor employed by the plaintiff's solicitors, who deposes to her inquiries for information published by Rio, and by or on behalf of the defendant: affidavit sworn 4 July 2008. She found public presentations indicating that production of ore for processing commenced on 15 November 2007, with what was described as progression to full production being expected by the end of 2008.
It should be noted that none of the inquiries to which Mr Brandli deposes have produced relevant information as to the contractual arrangements demonstrating the nature of the joint venture into which the defendant and Rio have entered. No information has been obtained by the plaintiff as to whether or not the defendant is entitled to a royalty, or as to the nature of the financial arrangements between the defendant and Rio. I will not set out in detail the nature of the inquiries made on behalf of the plaintiff, but I consider that upon the evidence provided by the plaintiff, reasonable inquiries have been made without success.
In particular, specific inquiry has been made of the defendant, over a considerable period, as to whether or not royalties are payable in respect of iron ore produced and sold from Hope Downs. If so, what are the particular arrangements for such payments, and if not, what are the particular financial arrangements made by the defendant with Rio.
That has been done in the context of the plaintiff advising the precise nature of its interest. For example, by letter dated 14 April 2008, written by the solicitors for the plaintiff to the then solicitors for the defendant, the following observations are made:
13.1If royalties are payable by third parties in respect of iron ore produced and sold from the Hope Downs tenements, then WPPL is entitled to (but has not received) 50% of such royalties. Further, HPPL's failure to provide any information to date indicates that HPPL has no intention of accounting to WPPL in respect of such royalties in the future. A failure to account to WPPL in respect of those royalties would constitute a breach of the 1983 Partnership Agreement (as amended) and a breach of HPPL's fiduciary obligations as partner.
13.2If royalties are not payable by third parties in respect of iron ore produced and sold from the Hope Downs tenements, then HPPL's conduct in concluding agreements or arrangements which had that effect may have involved a breach of the 1983 Partnership Agreement (as amended) and HPPL's fiduciary obligations as partner. On the proper construction of the 1983 Partnership Agreement (as amended), or alternatively by reason of a term implied in that agreement, HPPL may not unilaterally conclude an agreement which has the effect of reducing, disposing of or forsaking any royalties which would otherwise be payable to the Partnership by a third party in respect of iron ore produced and sold from Hope Downs tenements. Further, as a fiduciary, HPPL may not withhold from the partnership or exploit for its own benefit, an opportunity for the Partnership to obtain such royalties from third parties.

The discovery sought

In essence, the discovery sought from the defendant, is from the relevant start date, in respect of iron ore produced or sold from Hope Downs:
1.'all written contracts, deeds, agreements or arrangements' entered into by the defendant and Rio or their subsidiaries 'which refer to or affect an obligation to pay or a right to receive royalties';
2.'Accounting records … which evidence the receipt or payment of royalties';
3.documents of any kind, 'which refer to an actual or potential obligation to pay or an actual or potential right to receive royalties'; and
4.'all financial models or assessments, valuations or other analyses … which refer to or include the actual or potential payment or receipt of royalties'.
I observe, in case it may be relevant to the exercise of my discretion in this matter, that the documents sought are of kinds which might assist the plaintiff to make a decision whether or not to proceed against the defendant in respect of the causes of action asserted, as referred to in Mr Brandli's affidavit and the passage I have quoted from the letter written by the plaintiff's solicitors, dated 14 April 2008. Nor does it appear to me that the documents sought to be discovered could not be readily identified and, as will be seen, the plaintiff is prepared to prune the discovery sought in the general terms of the originating summons.

The evidence for the defendant

The defendant has filed affidavits in opposition to the plaintiff's application. The affidavit of the solicitor, Mr McKenna, sworn 23 April 2009, is concerned with correspondence between the parties' solicitors in relation to the question of the confidentiality of the material sought. When the originating summons came on for hearing, senior counsel for Rio appeared by leave to inform me that, unsurprisingly, Rio was particularly concerned with issues of confidentiality which might arise in relation to the documents sought to be subjected to discovery and I undertook to hear their views, if that should prove to be necessary.
Similar concerns about confidentiality of the information sought are raised at length in an affidavit sworn by Mr Newby, the chief financial officer of the Hancock Group of companies of which the defendant is a part. In the affidavit, sworn on 23 April 2009, the point is made that financial information relating to the defendant's business affairs is confidential and is not and should not be disclosed to the plaintiff, who, although it remains the defendant's partner, is regarded as a competitor of the defendant generally in respect of iron ore interests in the Pilbara. It is put in this way:
HPPL and WPPL therefore compete, both currently and potentially in the future, for access to scarce resources in the iron ore industry such as land, infrastructure, labour, equipment, finance and financial services, and potentially may compete for product market share (par 8).
The nature of various financial and other records thought to be relevant to the discovery sought, which are maintained within the defendant, are described. It seems to me to be doubtful whether some of them are in fact included in the categories of documents sought. But I stress that it is always open to 'fine tune' an order for discovery to ensure that relevant information is provided without undue duplication or repetition.
Paragraph 22 of Mr Newby's affidavit refers to what he was told by a Mr Bickerton, the information manager of the defendant. Mr Newby says that Mr Bickerton:
[e]stimates that the amount of time required to respond to the requests as made is in excess of 2,300 person hours, with many hours in excess of 2,300 being required for such purposes as copying, redacting irrelevant information, listing the documents, etc.
Mr Newby's affidavit implies that Mr Bickerton would have to do all the work himself. The defendant, Mr Newby says, 'does not have a team of people that can be allocated to assist Mr Bickerton'. He observes that it would be difficult to engage casual staff and still preserve the confidentiality of the documents.
I must say that I find those statements to be rather remarkable. It should be accepted that the court would make an order in terms designed to meet the justice of the plaintiff's case for discovery, without imposing unduly upon the defendant and its resources. There is nothing to indicate that responsible persons, bound by suitably framed confidentiality undertakings, could not be engaged to do the work, and no particulars are provided to assist the court to a conclusion as to what may be required and how long it might reasonably take.
It would be an extraordinary outcome indeed, if the plaintiff were to otherwise make out a case for the relief sought in the originating summons, that the court should decline to make such an order on the ground that Mr Bickerton might have to do all the work himself, over an extended period of time, the engagement of temporary staff being described as 'somewhat impractical'.
My review of the evidence does establish a number of relevant matters with clarity. If the plaintiff has either or both of the causes of action it nominates against the defendant, it wishes to take the proceedings which may be necessary to obtain relief. It has made reasonable inquiries in the public domain, and of the defendant, as to whether or not it may have either of the causes of action which it suspects exist. The documents generally described, of which the plaintiff seeks discovery, are of a kind which may assist the plaintiff to make the decision whether or not to proceed. The defendant, in effect, admits that it has such documents, although, of course, it makes no admission that they will establish either of the causes of action upon which the plaintiff would rely.

Early agreements

The crucial question then is whether the plaintiff may have either or both of those causes of action for breach of contract or breach of fiduciary duty by the defendant, and it is to that question I now turn, against the background of my discussion of the law. I need to pay particular regard to the question whether such causes of action are, or either of them is, objectively established as being potentially open, rather than that a cause of action asserted by the plaintiff is suspected without a foundation in objective fact, but always remembering that it is not for me, at this stage, to determine whether the plaintiff has a prima facie case which would support the pursuit of either or both causes of action.
The plaintiff would rely on contractual obligations imposed upon the defendant and, I think, obligations to the same effect, having regard to the contractual framework, which are fiduciary in character, having regard to the fact, which I have already mentioned, that the plaintiff and the defendant are partners in the business of mineral exploration, and the mining and exploitation generally of ore discovered and reserved to the partners in some form of mining tenement, generally assisted by joint venture arrangements entered into with a third party. That commercial background is of some interest in considering the question whether the plaintiff may have a cause of action against the defendant in the terms formulated by it.
For many years, the partners operated under the general law as provided by the Partnership Act 1895 (WA), and the common law. The corporate entities which are the plaintiff and the defendant were, in those days, the commercial vehicles for the activities conducted by the partners' governing directors, Mr Langley (Lang) Hancock and Mr Ernest (Peter) Wright.
On 2 March 1978, the partners entered into their first written partnership agreement. By cl 23 of that agreement, the partnership was given a life of at least 80 years. It could not be dissolved before 2058.
The partners entered into a variation agreement on 24 May 1983. Clause 1 of that agreement provides for the firm name, 'Hancock and Wright'. By cl 2, the assets of the partnership included not only those currently held by the partners, but those which 'may be from time to time acquired by the Partners to carry on the business of the Partnership'. Clause 2 provides that those assets would be held equally by the partners and, generally, losses, profits and liabilities of the partnership are to be shared equally unless, by agreement in respect of any particular financial year, some different arrangement is made.
The agreement is concerned to provide for the conduct of the affairs of the partnership upon the death of either of Messrs Hancock or Wright. Broadly put, the company having the surviving governing director, would become the managing partner of the partnership, with ample powers to conduct its affairs, but subject to certain controls. Clause 13 provides that the obligation would then be to bring into production as soon as reasonably possible, 'the then mining prospects of the existing Partnership always seeking (inter alia) a Royalty', but not acting alone to involve the partnership in new prospecting or in mine management.
Clause 13, for the first time, contains specific protection for the partners in relation to royalties. But there is provision, in that clause, for the managing partner to be entitled to continue to prospect and develop new prospects 'for its own account and entirely at its own expense'. Again, however, by cl 15, the life of the partnership was extended to a period of 80 years from 24 May 1983.
It is in the 1983 agreement for the first time that one finds, in cl 7, a reference to the fiduciary obligations of the partners in relation to the partnership business and assets. Clause 7 requires each partner to be just and faithful to the other, and to give a true account of the partnership business to the other, whenever reasonably required, 'without any concealment or suppression'. The latter obligation is reinforced by cl 8 in relation to the provision by one partner to the other of various documents concerning the business of the partnership.
I take the opportunity to observe that, in my view, this is not the occasion to consider, at any depth, the fiduciary obligation of the defendant in relation to Hope Downs, upon which, in addition to the defendant's contractual obligations, the plaintiff would seek to rely. There does not appear to be a different content in the fiduciary obligations asserted, from the contractual obligations relied upon.
The plaintiff contends that, having regard to the relevant contractual provisions, the defendant, as a partner and the plaintiff's fiduciary, is obliged to conduct itself, in relation to Hope Downs, with just and faithful regard to the interest of the plaintiff. The plaintiff asserts that the defendant is required, by its fiduciary obligation, to refrain from entering into a contractual arrangement or any transaction in relation to Hope Downs, where, by reason of the defendant's personal interests, it comes into conflict with the duty to have regard to the interests of the plaintiff as its partner. A further aspect which, as I understand it, the plaintiff would rely upon, is the obligation to make full disclosure of those matters affecting the interests of the plaintiff, as the defendant's partner, in respect of partnership business. These are also, essentially, the contractual obligations upon which the plaintiff would rely.
It contends that, in dealing with Hope Downs, and in entering into joint venture arrangements with Rio, the defendant was precluded from securing a royalty for itself, without accounting to the plaintiff and without sharing equally any royalty obtained. Further, the plaintiff asserts that the defendant would be precluded from entering into an agreement with Rio by way of a joint venture which did not provide for Rio to pay a royalty upon iron ore mined and sold from the tenements in question, but which provided for some other means of defraying the expenditure of the defendant, and providing the defendant with remuneration for the Hope Downs assets made the subject of the joint venture agreement.
The plaintiff, of course, says, and has made good the proposition, that it cannot pursue any cause of action framed on the basis of factual scenarios pleaded in the alternative. It cannot, it says, get beyond the proposition that it may have a cause of action of the kind described because, in all likelihood, the joint venture arrangements will be of one kind or another, or possibly a combination of both. It cannot, the plaintiff says, make its decision whether or not it may proceed upon the proposed causes of action without the benefit of pre‑action discovery calculated to reveal what are the contractual arrangements and transactions in relation to royalties, into which the defendant and Rio have entered.
As I have said, so much is clear, but the question upon which these proceedings turn, whether the plaintiff may have a cause of action against the defendant, depends upon the construction of the relevant contractual provisions which would, at trial, be required to be undertaken against the factual background of the dealings of the partners with each other, and the commercial realities affecting their business activities. I consider that it is unnecessary for me to examine those matters to any extent now, but I will need to consider whether the construction of the relevant provisions for which the plaintiff contends, may be open.

The 1984 agreement

The agreement between the parties which is central to the question which arises in these proceedings, is one made on 12 June 1987. That was an agreement made against the background of an agreement between the parties made on 15 February 1984. An important preamble to the 1984 agreement recites the fact that the partners had agreed that each would 'assume individual control over certain of the assets and interests of the Partnership to the exclusion of the other Partner and shall have the option to require the division of such assets between the Partners'.
This agreement is central to other proceedings between these parties, which were tried by me. Following a lengthy period of exchange of written submissions and arguments, and written reviews of the evidence, I have, as time has allowed, been working on the judgment in that case. I mention that now because I want to make it clear that nothing which I shall now write, for the purpose of these proceedings, impinges upon the matters at issue in that other action.
Clauses 1(a) and 1(b), and schedules 1 and 2 to the 1984 agreement, identify the partnership assets which were to fall solely under the control of the plaintiff and defendant respectively. But that was done without actually removing them from the ownership of the partners jointly and placing them in the possession and ownership of the partners, severally. They remained partnership assets, but they could be administered, developed and disposed of, according to the decisions taken by the partner under whose sole control they were placed. There was also the option provided in cl 4 for each partner to require the transfer to it of the interests identified with it.
Clause 6 provides that the party having the control of a particular asset is to keep the other partner fully informed of the progress of all negotiations and other matters pertaining to any major development and the commencement of substantial mining activities. In addition, the managing partner, if I may term it such, is to offer to the other partner a half share in its own right to participate in any mining venture, at a cost equal to half the costs, net of the premiums, if any, paid by third parties, which the managing partner has incurred.
This and, in a somewhat different context, cl 10, became known as the best friends provisions, but the point to be made is that part of the background to the making of the 1987 agreement was the 1984 agreement, which was devoted to giving individual partners control of particular partnership assets and the right to develop them on the best terms possible, without, at the same time, altering their status as partnership assets.
That situation was reinforced by the way in which royalties are dealt with in the 1984 agreement. Royalties earned in respect of assets controlled by individual partners did not become the income of that particular partner. They were excluded from the operation of cl 1, except that, by cl 1(c), a partner having control of an interest:
shall be entitled to conclude any negotiations and make any agreement having the effect of reducing or disposing completely of any of the said royalties or premiums to which the Partnership may or shall be entitled PROVIDED THAT the making of such agreement shall not be undertaken other than as a last resort to ensure that any relevant mining venture can proceed.
At this stage then, by this agreement, although particular partnership assets might be controlled and developed by a particular partner, including by entering into joint venture arrangements, whether or not the other partner was offered the opportunity to participate directly in any such joint venture, any royalty income generated remained income of the partnership, to be shared equally.
The 1984 agreement makes no reference to Hope Downs tenements. The plaintiff provided a chronology extracted from relevant documentary evidence, which sets out how the Hope Downs interest has been constituted and developed. It seems that Mr Hancock was conducting negotiations to acquire the Hope Downs interest at about the time of the 1984 agreement. Temporary reserves were created, and were later converted into exploration licences. So far as I can see, they were always held by the defendant or a subsidiary.
However that may be, it seems that Mr Hancock represented to members of Peter Wright's family, after his death in September 1985, that the Hope Downs tenements were partnership assets, however they were, in fact, held. The State Agreement, which was ratified and authorised by the Iron Ore (Hope Downs) Agreement Act 1992 (WA), was entered into by a subsidiary of the defendant, and I think it is right to say that the tenements were always held by the defendant or a subsidiary.
As I have already mentioned, the joint venture entered into with Rio in 2005 was by way of agreement made with the defendant from whom Rio purchased a 50% interest in the assets. There is certainly no evidence to show that the Hope Downs interest, or any part of it, or any interest in the joint venture, was ever offered by the defendant to the plaintiff on a 'best friends' basis, pursuant to cl 10 of the 1984 agreement, or otherwise.

The 1987 agreement

It is against this background that on 12 June 1987, the partners entered into the agreement which is central to these proceedings. The preamble says that it was the intention of the partners to vary and supplement the existing terms and conditions governing the partnership as established by the 1983 and 1984 agreements. That is undoubtedly the effect of the agreement. In the first place, whatever might, in fact, have been the status of the Hope Downs tenements, by cl 1(b), the plaintiff 'relinquished', in favour of the defendant, its interest in Hope Downs. In this context, to relinquish an interest must bear its ordinary meaning, to give up or surrender the interest. I think it is unarguable that whatever might then have been the nature of the interest which the plaintiff had in the Hope Downs asset, substantively thereafter it had no interest in Hope Downs, which could not thereafter be regarded as a partnership asset.
Similarly, by cl 1(c), the defendant relinquished to the plaintiff its interest in the Marandoo temporary reserve, which had formerly been an interest of the defendant under par (a) of schedule 1 of the 1984 agreement. Under cl 1(b), special provision was made in relation to joint venture participation of both the plaintiff and the defendant in respect of the area comprised in the project covered by the Wittenoom Agreement. But certainly, it seems to me that under cl 1(b) and cl 1(c), Hope Downs and Marandoo could no longer be regarded as partnership assets which might be developed and brought into production to generate income, by royalties or otherwise, for the partnership.
Two other troublesome provisions in relation to negotiating for the development and exploitation of partnership assets by individual partners are dealt with by the 1987 agreement. Clause 1(a) effectively overturns cl 1(c) of the 1984 agreement by providing that, in relation to their individual interests under that agreement, insofar as they remain partnership assets, the partner with the control of the asset shall not be entitled to make agreements, 'having the effect of reducing or disposing completely of any royalties to which the Partnership shall otherwise be entitled for the purpose of proceeding with any relevant mining venture'.
As the subclause itself makes clear, this is concerned with the negotiation of agreements in relation to partnership assets, to turn them to account for the benefit of the partnership. It is a provision which would have no application in relation to the activities of individual partners relative to assets held by them individually, or otherwise outside the partnership.
Further, as to the activities by way of exploration, the acquisition of assets, their development and the negotiation of agreements with respect to them, by partners individually, outside the framework of the partnership, the 1987 agreement was concerned to get rid of the 'best friends' provisions of the 1984 agreement. Clause 5 of the 1987 agreement provides:
5. Future Exploration
Each partner shall be entitled to prospect for minerals of any type and take up any type of mining or other tenement (whether or not previously owned by the Partnership) without being obliged to offer to the other Partner any opportunity to participate in such activity or tenement and in no circumstances shall one Partner be liable to pay any royalty to the other in respect of iron ore or any other mineral produced from such activity or tenement.
By cl 1(e) ‑ (i), specific provision is made for royalty income received by specific partners or the partners generally, in respect of particular projects, or generally. The particular provision of current interest is cl 1(e), which provides that:
[R]oyalties received from third parties by the Partnership in respect of iron ore produced and sold by them from the following tenements or projects shall be divided equally between the Partners, namely:
(i)Rhodes Ridge;
(ii)Hope Downs;
I have said that as from the date of operation of the 1987 agreement, and the plaintiff's relinquishment to the defendant of its interest in Hope Downs under cl 1(b), Hope Downs could no longer be regarded as a partnership asset generating income for the partnership. However, I note that cl 1(b) makes the relinquishment, 'subject to subclause (d) hereof'. Clause 1(d) has nothing to do with Hope Downs. As we have seen, it is abundantly clear that the reference in cl 1(b) to its operation being subject to cl 1(d), should be a reference to cl 1(e).
There has been a typographical error which the court must recognise, and the effect is that, although Hope Downs ceased to be a partnership asset capable of generating royalty income from third parties to the partnership, it was to be treated in respect of royalties received from third parties by the partner whose asset it became - the defendant, as if it remained a partnership asset and there is a specific requirement that such royalties received from third parties are to be divided equally between the partners.
The difficulty in the way in which cl 1(e) is expressed would seem to be derived from the reference to both Rhodes Ridge and Hope Downs in the one subclause. Hope Downs ceased to be a partnership asset, and became an asset of the defendant which, however, was not, in 1987, generating royalty income, according to the evidence before me. So cl 1(e) is undoubtedly directed to such income generated in respect of the Hope Downs asset, and payable by a third party such as Rio, pursuant to the terms of a joint venture agreement.
On the other hand, when the 1987 agreement was made, Rhodes Ridge remained (and in fact remains today) a partnership asset. It is an asset nominated to be controlled by the plaintiff under the 1984 agreement, cl 1(b), and par (a) of schedule 2. In those circumstances, it is perfectly appropriate to refer to royalties received from third parties by the partnership to be divided equally between the plaintiff and the defendant, although the partnership asset is nominated to be controlled and developed by the plaintiff.
In my opinion, unless cl 1(e) is construed in the way that I have referred to above, it could have no work to do in relation to Hope Downs, in the light of the effect of cl 1(b) whereby Hope Downs ceased to be a partnership asset capable of generating income, by royalty or otherwise, for the partners. At least, in my opinion, it is arguable that the interpretation I have suggested would be that which might be successfully pressed upon the court at trial, and it would follow that, because of those specific provisions concerned with royalty payments by third parties in respect of Hope Downs, cl 5 of the 1987 agreement could not have an operation with respect to Hope Downs, but should be regarded as a general provision in respect of royalty income generated by new prospects taken up and developed by individual partners outside of the framework of partnership activities.
I add, as an aside, that I can see no difficulty in concluding, where there is a joint venture agreement such as that publicly announced by Rio in respect of Hope Downs, which makes Rio the operator and manager of the mine and the venture, that Rio may be regarded as a third party producing and selling iron ore from Hope Downs, within the meaning of cl 1(e).

Such an interpretation might, of course, be argued to be uncommercial and to involve the notion that the plaintiff would get a free ride to receive half of any royalties negotiated in respect of the ore produced and sold. But in that regard it should not be overlooked that the plaintiff has relinquished its interest in Hope Downs in favour of the defendant, apparently without any other consideration than a half share in the royalties which might be generated.
I think it may be arguable that the terms of the 1983 agreement, as amended by subsequent agreements, may be construed as imposing an obligation upon the defendant not to negotiate terms of a joint venture agreement with Rio in respect of Hope Downs which, for the purpose of achieving agreement, disposed of or would forego the payment of a royalty in respect of the ore produced and sold from Hope Downs, although I note that generally, in relation to such negotiations, it was, from 1987, the case that there was no obligation to negotiate a royalty in relation to new ventures, under cl 5 of the 1987 agreement.
However that may be, it seems to me that there is a much stronger case for the proposition that, if any royalty has been negotiated in respect of the Hope Downs joint venture which is payable to the defendant, then the defendant will be obliged to pay 50% of that royalty to the plaintiff. If the defendant, because of the terms of the joint venture agreement it has negotiated with Rio, has not honoured its obligations in that regard, it might be held to have breached the partnership agreements into which it has entered and to be involved in a breach of its fiduciary duty not to act in its own interest in such a way that it fails to discharge its fiduciary obligation to have regard, not only to its own interests, but also to the interests of the plaintiff. The plaintiff may have such causes of action which it may pursue against the defendant, depending upon the terms of the joint venture agreement into which it has entered, and the transactions in pursuit of that joint venture which have occurred.
I will make the order for pre‑action discovery generally in the terms sought, which I have already observed are, in my view, broadly appropriate. I will do that unless there are particular discretionary matters which militate against the making of such an order.
I have said that I stop short of considering whether the plaintiff may have a prima facie case to pursue the causes of action upon which it proposes to rely. But I am satisfied, as I have indicated, that the plaintiff may have such a cause of action which could be demonstrated by the process of pre‑action discovery. There is objective evidence which supports that conclusion, to which I have referred, concerned with the sort of negotiations which might be anticipated in relation to the making of a joint venture agreement and the fact that the negotiation of royalty payments may, at least in part, constitute the remuneration which may be paid by one joint venturer to another. I am satisfied that there is more than mere assertion, conjecture or suspicion to support the present application.

Discretionary considerations

The documents sought to be discovered are generally of appropriate kinds, although the ambit of the order for discovery might be confined, rather than merely relying upon the broad description of the categories of documents contained in the originating summons. The documents sought are crucial to inform the plaintiff's deliberations as to whether or not it may have a cause of action.
They are, of course, commercially sensitive documents involving privacy issues, at least so far as Rio is concerned. But there is nothing to suggest that those who may assist with the process of discovery, and those who may need to receive, in unredacted form, advice about the discovered documents, and who may need to inspect the documents, may not be bound by appropriately formulated confidentiality undertakings so as to preserve the confidentiality of the documents, while at the same time allowing access to them by those, primarily counsel and instructing solicitors, who may be required to advise the plaintiff whether it may have a cause of action which may be pursued against the defendant. As at present advised, I do not see it as being necessary, for the purpose to be achieved, for those who are involved in the management of the plaintiff, to have access to commercially sensitive documents.
As one aspect of the discretionary considerations relied upon, the defendant presented an argument that the timing of the present application, having regard to the nature and disposal of other litigation in which those who are the guiding mind and will of the plaintiff have been involved, provides reason to suppose that the plaintiff's application, made now, exhibits bad faith, and may be regarded as an abuse of process. It would be pointless to discuss the matters relied upon in any detail. I need only say that, in my view, there was no ground for the contention advanced which, to counsel's credit, was, I think, submitted with some diffidence.
Finally, I have already commented upon the argument that the discovery sought would be unduly onerous and oppressive. I think that would not be the case. But I note that in the submissions filed by the plaintiff in reply, the offer is made to limit the way in which the third category of documents sought is described, and in the schedule to the submissions, various documents and categories of documents which the plaintiff would be content to exclude from the order made, are described. That is a reasonable process which should be pursued.
I will publish these reasons and invite the parties to confer and produce a minute of final orders to give effect to these reasons. As at present advised, I see no reason why costs should not follow the event, and the involvement of senior counsel was appropriate, in my opinion. The minute may include appropriate costs orders. In addition, counsel for Rio should be involved in discussion about the terms of confidentiality undertakings, and agreement should be reached on those who may be required to have access to the documents, who would not, without an order of the court, be entitled to do so. Such matters may be included in a comprehensive minute of final orders.
If there is disagreement upon any of the above matters which cannot be resolved by the parties, I will, of course, hear counsel, and resolve the matters in dispute.