L & M Coal Holdings Limited v Bathurst Resources Limited
[2017] NZHC 3138
•14 December 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE
CIV-2016-485-1007 [2017] NZHC 3138
BETWEEN L & M COAL HOLDINGS LIMITED
Plaintiff
AND
BATHURST RESOURCES LIMITED First Defendant
BULLER COAL LIMITED Second Defendant
Hearing: 7 December 2017 Counsel:
D R Kalderimis and O T H Neas for plaintiff/respondent
J E Hodder QC and D P MacKenzie for defendants/applicantsJudgment:
14 December 2017
RESERVED JUDGMENT OF DOBSON J (further particulars)
[1] This proceeding is set down for a two week substantive hearing in February
2018. The parties have had on-going differences about the adequacy of the plaintiff’s allegations in its amended statement of claim, which was filed and served in March
2017.
[2] The defendants have served two notices requiring particulars of allegations about their conduct that is alleged to constitute or contribute to breaches of impliedly permitted purposes for which they may exercise a contractual discretion. On the plaintiff’s case, it is a discretion allowed to them under the terms of the contracts at
issue in the plaintiff’s claim.
L & M COAL HOLDINGS LIMITED v BATHURST RESOURCES LIMITED [2017] NZHC 3138 [14
December 2017]
[3] In June 2010, the parties completed an agreement for sale and purchase (SPA) recording the plaintiff’s sale to the first defendant of all the shares in the second defendant. That company’s assets included rights to exploit a mining permit for coal at the Escarpment Mine in the Buller District. The terms of the sale required a deposit, payment on settlement of cash consideration of US$40 million, and subsequent to that performance payments and the prospect of performance shares being issued to the plaintiff. There was also a requirement for an on-going royalty to be paid on coal produced from the Escarpment Mine, at rates that would reduce over time depending on the volume of coal extracted, and payment of the performance payments when due.
[4] In August 2010, the parties completed a separate royalty deed that provided the terms on which the defendants were to comply with relevant terms of the permits to mine, and how royalty payments were to be calculated and paid (the royalty deed).
[5] In August 2012, the parties completed a third amendment to the terms of the SPA that addressed the prospect of the defendants deferring payment of a performance payment when it would otherwise be due, in return for continuing to pay royalties at the highest rate which would otherwise be payable at a reduced rate once the performance payment had been made (cl. 3.10). The interpretation of that third amendment to the SPA is an issue in the proceedings, but it is not directly relevant to the defendants’ application for particulars of the amended statement of claim.
[6] After extracting coal from the mine from July 2014 until April or May 2016, no further mining activities were undertaken by the defendants. The plaintiff alleges that 25,000 tonnes of coal have been shipped from the mine triggering the defendants’ obligation to make the first performance payment of US$40 million. That level of relevant production is denied by the defendants.
[7] In March 2016, the defendants announced the voluntary suspension of operations at the Escarpment Mine, and since then the mine has been in a regime of “care and maintenance”. The defendants intend not to resume mining operations until international coal prices return to a level where it is profitable to continue mining there.
[8] The plaintiff will argue that suspension of mining was initiated by the defendants in circumstances that were outside the permitted scope of a discretion to defer payment of the performance payment triggered on production of 25,000 tonnes of coal. The essence of this claim is that an election to defer that payment could only be made consistently with the terms of the contract if the rate of production was to continue at a level that would guarantee payment of royalties at the highest rate provided in the contracts so that the plaintiff received meaningful consideration for deferring receipt of the performance payment that was otherwise due.
[9] Against that background, the amended statement of claim pleads:
52 Following the Voluntary Suspension:
52.1 contrary to clause 3.10, and/or the Implied Term, continued royalty payments (since at least October 2016) have been notional, do not reflect the proceeds of ongoing mining and substantive coal sales,
and have not provided commercial value for [the plaintiff] being denied receipt of a sum otherwise due and owing; and/or
52.2 Buller’s mining and coal sales programme – and its consequential calculation and payment of royalties (since at least October 2016) – has not been conducted in accordance with clause 8 of the Royalty Deed, or for proper purposes including as specified in the Royalty Deed.
53The “relevant” royalty payments have, accordingly, not continued to be made under the Royalty Deed pursuant to clause 3.10 of the SPA.
[10] In September 2017, the defendants served a first notice requiring further particulars of the contractual discretion alleged to arise in decisions about mining operations, and particulars of the proper purposes for which those discretions could allegedly be exercised. In addition, the first notice sought particulars of how it was alleged that the defendants had not conducted operations in accordance with the relevant provision in the royalty deed and how the defendants’ conduct was not for proper purposes.
[11] The plaintiff did not accept that it was required to provide further particulars, but nonetheless provided a statement that included the following:
1(b) The contractual discretions include discretions, once the trigger for the First Performance Payment has been met:
(i) as to how the defendants will continue to conduct mining operations at the Escarpment Mine; and
(ii) to defer the First Performance Payment, otherwise due and owing, by electing instead to pay royalties at the highest applicable rate under the Royalty Deed.
1(c) The proper purposes include the defendants exercising the discretions outlined above in order to:
(i) as to (i) above:
(A) satisfy the minimum work programme in respect of the Mining Permit, including by making “all reasonable efforts” (as pleaded in paragraph 13) to strip topsoil and overburden and extract coal by opencast methods;
(B) conduct mining operations at the Escarpment Mine in accordance with good mining practice and with a view to maximisation of Coal sales at the best available price; and
(collectively, the Active Mining Obligations)
(ii) as to (ii) above, manage their liquidity and the timing of future capital raising initiatives by obtaining greater flexibility over the date at which the defendants would be required to pay the First Performance Payment to LMCH, in exchange for the defendants’ continued payment to LMCH of royalties from mining at the highest applicable rate.
The proper purposes exclude the defendants exercising the discretions outlined above:
(i) otherwise than in good faith;
(ii) arbitrarily or capriciously;
(iii) for purposes collateral to conducting Active Mining
Operations; and/or
(iv) in order to directly or indirectly, expressly or implicitly, diminish or subvert the defendants’ substantive rights under the SPA, including the right to receive the total Aggregate Consideration owed by the defendants to LMCH.
2(a) The notional royalties paid by the defendants since October 2016 are the result of it failing to conduct Active Mining Operations.
2(b) The notional royalties paid by the defendants since October 2016 are the result of it (in the alternative):
(i) acting otherwise than in good faith;
(ii) acting arbitrarily and capriciously;
(iii) acting for purposes collateral to conducting Active Mining
Operations; and/or
(iv) directly or indirectly, expressly or implicitly, seeking to diminish or subvert the defendants’ substantive rights under the SPA.
[12] The terms of those particulars triggered the present application seeking further and better particulars, this time in respect of the “improper purposes” that the plaintiff was alleging. The defendants sought particulars of all conduct and/or circumstances which are alleged by the plaintiff to constitute conduct by the defendants in bad faith or which has been arbitrary or capricious or dishonest.
[13] Once again, solicitors for the plaintiff denied that they were obliged to provide any further particulars. In a letter of 16 November 2017, they clarified this aspect of the plaintiff’s case in the following terms:1
… in the face of its contractual obligation to pay royalties and the first performance payment, BRL has deliberately structured its mining operation to avoid those contractual obligations. This includes BRL’s:
3.1 change of strategy between that expressed in PwC’s audit report dated
31 December 2013 (which anticipated the first performance payment being made in June 2016) and that set out in PwC’s audit report dated
21 August 2014 (which anticipated that mining and sales would take place for only two years and neither further royalty nor lump sum
payments would be paid until the Escarpment mine resumed production following a planned suspension);
3.2Voluntary Suspension of the Escarpment Mine (as defined in paragraph 41 of the amended statement of claim); and
3.3decisions to prioritise developing other mining assets over conducting mining in the Permit Areas.
[14] The defendants did not accept the adequacy of these explanations and sought a prompt hearing to pursue their application. Counsel for both parties filed comprehensive submissions in support of and opposing the justification for further particulars. At the hearing, counsel focused appropriately on the practical import of
further particulars, and the perspective of both sides was aired efficiently.
1 Footnotes omitted.
[15] The written submissions for the plaintiff stated that allegations of bad faith or dishonest conduct by the defendants would not be pursued. In essence, the plaintiff’s case will be that the defendants intentionally decided on a course of conduct (in the largely negative sense that it would involve inactivity) to cease production from the Escarpment Mine so as not to trigger further payment obligations under the terms of their contracts with the plaintiff. The plaintiff does not allege that the defendants embarked on that course of conduct knowing that it involved an exercise of a discretion granted to them under the terms of the contracts for other than a proper purpose, although Mr Kalderimis suggested that that additional fact may be made out on the evidence.
[16] Given the need to resolve this pleading point in reasonable time before the fixture, at the conclusion of the hearing I indicated that I would order further particulars of who on behalf of the defendants, when, and how conduct occurred for the defendants that was for other than proper contractual purposes. I said that I would provide reasons for this order as time permitted, and now do so.
[17] The difference that has developed between counsel over the need for these particulars is perhaps understandable. In responding to both notices, and in the course of argument before Clark J in August 2017 on an application by the plaintiff for further discovery by the defendants, Mr Kalderimis has foreshadowed more extensively than might usually be expected the elements of the relevant aspect of the plaintiff’s claim. It alleges the existence under the contractual terms of a discretion in favour of the defendants that was to be exercised only for limited purposes, and the plaintiff’s case
is that the evidence will establish the defendants have exercised that discretion, but for other than a proper purpose. To pursue this argument, it is unnecessary for the plaintiff to establish that the decisions were made in bad faith, or dishonestly.
[18] The clarification provided in these various statements on behalf of the plaintiff may aid an understanding of how this aspect of the plaintiff’s claim will be pursued at trial. However, such assistance is not a substitute for the basic obligation for a statement of claim to give sufficient particulars of time, place, names of persons, and
other circumstances to inform the Court and opposite parties of the plaintiff’s cause of action.2
[19] When I invited Mr Kalderimis to clarify for me who within the defendants it is alleged was responsible for the conduct, when the conduct occurred and how it was achieved, he provided partial clarification by cross-referencing, for example to the terms of para 41 of the amended statement of claim and the particulars to it. In other respects, Mr Kalderimis volunteered explanations which answered those basic questions about this pleading, but which are not readily conveyed to the Court and opposing parties in the pleading. Because of that remaining inadequacy, I directed the provision of particulars was to occur in the terms described in [16] above.
[20] The defendants’ application relied substantially on the requirement for any allegations of fraud or bad faith to be fully particularised. The withdrawal of the allegation that the defendants had acted other than in good faith, or dishonestly, means that the adequacy of the pleading is not to be assessed by that standard. If the allegation of conduct said to be arbitrary or capricious remains, the particulars within the scope specified at [16] above of that type should be particularised.3
[21] In directing these further particulars, I acknowledged that the defendants could not expect particulars to be provided in exhaustive terms. Given that the allegations are in relation to conduct of the defendants which must be all within their knowledge, particulars provided in inclusive terms that reasonably identify the metes and bounds of the conduct referred to will sufficiently discharge the plaintiff’s obligation.
[22] I also did not impose a time limit within which the particulars are to be provided. I would propose that seven working days should be sufficient, but (particularly given the delay in being able to issue this judgment) if this time limit
causes concern, the parties may apply for further directions.
2 High Court Rules, r 5.26(b).
3 Given the withdrawal of other allegations, in the course of argument I invited Mr Kalderimis to reflect on the utility of leaving in this allegation. Obviously, if it is also removed, then no particulars will be needed.
[23] I did not invite submissions from counsel on costs. Given the background to the matter and relatively how close to trial the issue required a determination from the Court, it is preferable that costs be reserved and are to be considered as an aspect of costs on the substantive trial.
Dobson J
Solicitors:
Chapman Tripp, Wellington for plaintiff
Minter Ellison Rudd Watts, Wellington for defendants
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