L&M Coal Holdings Limited v Bathurst Resources Limited
[2017] NZHC 2315
•25 September 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 2315
IN THE MATTER of the interpretation of an Agreement for
Sale and Purchase of Shares in L&M Coal Limited dated 10 June 2010 (including subsequent amendments) between L&M Coal Holdings Limited and Bathurst Resources Limited, and a Deed of Royalty (undated) between L&M Coal Limited, L&M Coal Holdings Limited and Bathurst Resources Limited
BETWEEN
L&M COAL HOLDINGS LIMITED Plaintiff
AND
BATHURST RESOURCES LIMITED First Defendant
AND
BULLER COAL LIMITED Second Defendant
Hearing: 10 August 2017 Appearances:
D R Kalderimis and O T Neas for Plaintiff
R J Gordon and D P MacKenzie for DefendantsJudgment:
25 September 2017
JUDGMENT OF CLARK J
Introduction
[1] This judgment determines an application made under r 8.19 of the High Court
Rules for particular discovery.
L&M COAL HOLDINGS LIMTED v BATHURST RESOURCES LIMITED [2017] NZHC 2315 [25 September
2017]
The substantive proceeding
[2] The substantive proceeding concerns the interpretation of an agreement for sale and purchase of shares (SPA) and associated deeds and amendments, relating to Bathurst Resources Ltd’s (the first defendant) purchase from L&M Coal (the plaintiff) in 2010 of the shares in Buller Coal Ltd (the second defendant). The plaintiff sues for a performance payment of US$40 million which it claims as a debt fallen due under the SPA. The defendants say the payment is a performance payment not yet fallen due and they dispute their liability to pay the alleged debt.
[3] The parties agree the proceeding gives rise to two issues which counsel have formulated in a joint memorandum as follows:
(i) Has the performance payment of US$40 million fallen due under clause 3.4(a) of the SPA – i.e has the first 25,000 tonnes of coal being shipped from the Permit Areas?
(ii) If so, is the plaintiff prevented from suing for the performance payment by clause 3.10 of the SPA (introduced by a third amendment deed dated 21 August 2012), which provides that “a failure by the Purchaser to make, when and as due, a Performance Payment is not an actionable breach of or default under this Agreement for so long as the relevant royalty payments continue to be made under the Royalty Deed”?
[4] In respect of the first issue it is common ground that the plaintiff has been paid royalties on more than 25,000 tonnes of coal from the Escarpment Mine sold and delivered to customers. However, the defendants contend that the performance payments under the SPA are triggered by a different contractual measure from that which appears in the Royalty Deed; and the words appearing in cl 3.4(a) of the SPA have a particular meaning, based upon (inter alia) the structure of the transaction and the commercial context in which they were used.
[5] With regard to the second issue it is common ground that in 2016 the defendants placed the Escarpment Mine on the Permit Area into a regime of “care and maintenance”. The impact of that event on the parties’ contractual arrangements is disputed. The defendants maintain that cl 3.10 still applies to bar the plaintiff from suing for a performance payment which would otherwise be due and payable.
[6] General discovery was ordered on 22 March 2017 with verified lists to be exchanged by 19 May 2017. But the parties have been unable to agree the scale of discovery obligations and the plaintiff filed its application for particular discovery by the defendants.
A preliminary issue: late amendment to application
[7] The plaintiff filed its application for particular discovery on 30 June 2017. At a case management conference on 4 July 2017 Dobson J allocated a half-day fixture on 10 August 2017 for the argument of interlocutory discovery applications.
[8] The defendants filed a notice of opposition on 24 July 2017. After that date two affidavits were filed on behalf of the defendants:
(a) on 31 July 2017, an affidavit of Jason Hungerford in support of the
defendants’ opposition to the interlocutory application; and
(b) on 8 August 2017, a supplementary affidavit of documents sworn by
Alison Brown.1
[9] On 8 August Mr Kalderimis emailed the Registrar and counsel for the defendants. He attached to his email an amended interlocutory application for particular discovery. Mr Kalderimis advised in his email that in light of the narrowing of the issues, as reflected in the submissions filed the day before, it was thought helpful to file and serve a tracked amended application confirming the scope of the orders sought.
[10] Mr Gordon, for the defendants, objected strongly to the plaintiff “completely
re-casting its interlocutory application at the eleventh hour”.
[11] At the beginning of the hearing on 10 August I heard argument addressed to the question whether the hearing of the amended application should in fact proceed
or be adjourned. Mr Gordon maintained his strong objection to what he described as
1 Ms Brown is employed by Bathurst as its General Counsel and, Buller being a wholly owned subsidiary of Bathurst, was authorised to make her affidavit on behalf of both defendants.
the “late outpouring of an amended application”. He said there had been no opportunity to respond and very little opportunity to consider it. Mr Gordon submitted the hearing was intended to address the unresolved issues concerning the subset of documents identified at [2](c) of the original application. (For convenient reference I have set out in an appendix to this judgment the original application dated 30 June 2017 alongside the amended application notified on 8 August 2017.)
[12] In short, Mr Gordon regarded the amended application as very much a new beast. Without a proper opportunity to address the new orders sought Mr Gordon maintained the defendants were seriously prejudiced.
[13] Mr Kalderimis rejected the proposition that the amended application was substantively different. He took me through the four categories of documents in respect of which particular discovery is sought to demonstrate the amendments effected a narrowing of the orders sought or, if they did not, presented no surprise to the defendants.
[14] I ruled that the hearing should proceed on the basis of the amendments and that my reasons would be recorded in my determination of the application for particular discovery. The following four paragraphs contain my reasons.
[15] I see the amendments as being more in the nature of adjustments to the scope of the orders originally sought in light of the defendants’ disclosures following the filing of the interlocutory application. It is sensible for any applicant for orders to confirm the scope of the orders sought as at the day of the hearing because developments up to that point may render pointless orders that were relevant to circumstances that have become historical.
[16] Here, the changed circumstances were that after the interlocutory application for particular discovery was filed the two further affidavits which I have identified at [8] above, were filed on behalf of the defendants.
[17] Mr Kalderimis submitted that it had taken a careful reading of
Mr Hungerford’s affidavit and exhibits to determine that what had been done was not
adequate. I pressed Mr Kalderimis as to why, having reached a conclusion that discovery was inadequate from the plaintiff’s perspective, that view was not communicated to Mr Gordon. Mr Kalderimis responded that no confirmed position was reached until the evening of 4 August, submissions were being finalised, but most importantly there seemed to be little point in informal communications. That is because the defendants have sworn they have complied with the first discovery order and the plaintiff does not accept that. In fact, the plaintiff contends that further disclosures have been made only as a result of its application for particular discovery. Mr Kalderimis submitted all the information necessary to determine the point is before the Court and it is important to proceed with the hearing as the plaintiff’s evidence is to be filed in mid-September (or, on the defendants’ proposed timetable, mid-October) and the plaintiff ought not to have to file evidence without full discovery.
[18] Ultimately I was persuaded the amended application was not substantively different and presented no surprise to the defendants. Further it would not be efficient to conduct two hearings, one on 10 August 2017 concerning a subset of documents and a subsequent hearing to deal with all documents covered by the application for particular discovery. The discovery issues have been on foot for some months and need to be resolved particularly in the context of a complex case being managed to a trial in approximately six months time. That said, I would not have directed that the hearing should proceed if I had doubts about whether or not the defendants were prejudiced. I formed the view they were not.
Plaintiff ’s application for particular discovery
[19] The plaintiff seeks particular discovery in respect of four categories of documents:
(a) the defendants’ internal emails;
(b) Bathurst’s shareholder correspondence; (c) Bathurst’s auditor documents; and
(d) Bathurst’s forward-looking operational and strategic documents.
[20] I come later to the specific orders sought and the detailed grounds set out in the interlocutory application. For the moment, the essential grounds are:
(a) in respect of emails and shareholder correspondence, that unduly restrictive searches have resulted in relevant documents not being disclosed;
(b)in respect of auditor documents, while Mr Hungerford has confirmed that certain auditor documents for the years 2014–2016 will now be disclosed, the plaintiff says the years 2012–2013 are also relevant;
(c) Bathurst’s forward-looking operational and strategic documents are said to pertain to the defendants’ plans for the Escarpment Mine and therefore the plaintiff’s argument that Buller is contractually obliged to conduct mining operations in accordance with the Royalty Deed and to exercise, for proper purposes, its discretion as to whether and how to mine.
Jurisdiction
[21] Under r 8.19 of the High Court Rules an order for particular discovery after commencement of a proceeding may be made where:
… it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered …
[22] The principles are not in contention.
(a) In determining applications under r 8.19 the affidavits of documents already filed are presumed to be conclusive. The party seeking further discovery is to establish the existing affidavits of documents are
incomplete.2
(b)The applicant for particular discovery is not required to meet a high threshold. That is because the words “should have been discovered” in r 8.19 are to be construed generously in light of a party’s continuing obligation to discover documents. A narrow approach does not serve the overarching objective of discovery which is to achieve disclosure of information relevant to the parties’ cases before trial.3
[23] In Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd4 Asher J took a four-stage approach which has since been adopted as a convenient way to analyse the amalgam of factors relevant to an application for further discovery under r 8:19:5
(a) Are the documents sought relevant and, if so, how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(b)Is discovery proportionate? Proportionality is to be assessed by balancing the time and cost of discovery against the potential value of discovery. The concept of proportionality is said to reinforce the requirement that a discovery order ought not to be oppressive.6
(c) Weighing and balancing these matters, in the Court’s discretion
applying r 8.19, is an order appropriate?
[24] I turn now to consider, in light of these principles, the four categories of documents covered by the interlocutory application.
2 McCullagh v Robt Jones Holdings [2015] NZHC 1462, (2015) 22 PRNZ 615 at [7].
3 Hoyle v Hoyle [2015] NZHC 3001 at [24].
4 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760 at [14].
5 See for example Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [16].
6 Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [17].
Category one: internal emails
Background to the application
[25] This category requires the defendants to extend their internal email searches to include:
(a) the period from 2009 to the present, rather than the years 2010 to
2012 only; and
(b) email accounts of further personnel, including Bathurst’s CEO and
the defendants’ past and present board members.
[26] Part of the impetus for the plaintiff’s interlocutory application dated 30 June
2017 was that the defendants’ discovery included only one internal email chain.
[27] Concerned about the adequacy of the defendants’ discovery the plaintiff, through counsel, wrote to the defendants on 16 June 2017 expressing surprise at how few documents had been discovered and noting the marked absence of documents evidencing Bathurst’s internal communications and decision-making concerning the events at the centre of this dispute, for example: the negotiation of the SPA in 2009–
2010; Bathurst’s reasons for seeking the Third Amendment in 2012; Bathurst’s mining of the Escarpment Mine and sale of product; Bathurst’s decision to place Bathurst into care and maintenance; and Bathurst’s future plans concerning the Escarpment Mine.
[28] The gaps suggested to the plaintiff that the methodology outlined in Ms Brown’s affidavit had been ineffective in retrieving potentially relevant documents within Bathurst’s control or properly identifying potentially relevant documents previously in Bathurst’s control. Ms Brown deposed in her affidavit that a number of email accounts of former employees were deleted in 2015. The plaintiff contended steps should have been taken to confirm whether or not the emails were recoverable (through archives or back-up copies). The plaintiff sought confirmation of the steps taken to recover such emails.
[29] The defendants’ letter of reply dated 26 June advised:
Mrs Brown has recorded in her affidavit … how, unfortunately, Bathurst does not hold a copy of their email records. As such they are no longer recoverable and available for discovery.
[30] The plaintiff filed its interlocutory application. One of the orders it sought required the defendants to provide an affidavit confirming what internal emails of its employees, who held management positions at relevant times, had been or remained in the defendants’ control. The plaintiff also required the defendants to describe the nature and methodology of the searches for such emails “in order to adequately explain why only one relevant email … has been discovered for a dispute covering a period from 2009 to 2017”.
[31] The defendants’ advice that email accounts “are no longer recoverable and available for discovery” has now been confirmed to be incorrect. In their notice of opposition the defendants respond as follows to that part of the interlocutory application seeking orders relating to emails:
… through new forensic recovery work by the defendants’ IT provider, the defendants … have recovered a copy of Hamish Bohannan’s email account taken shortly before he left [Bathurst’s] employment in March 2015.
[32] On 31 July 2017 Jason Hungerford, the Chief Financial Officer for the first defendant, filed an affidavit in which he addressed Bathurst’s attempts to recover historic emails. Mr Hungerford explained the basis upon which he and Ms Brown, who he assisted in seeking to locate potentially relevant documents, were originally informed that email accounts of former executives, Tim Manners and Gerry Cooper, were no longer recoverable and the email account of a third executive, Hamish Bohannan was unable to be retrieved.
[33] Following receipt of the plaintiff’s application for discovery Mr Hungerford wished to double-check that it was no longer possible to recover the deleted emails. As a consequence of Mr Hungerford’s efforts and conversations with Bathurst’s IT provider further documents have been located. Mr Hungerford deposed to his understanding that the defendants’ intention was to provide the additional material in a supplementary affidavit of documents.
[34] A supplementary affidavit was indeed filed by Ms Brown on 8 August 2017. Ms Brown described the defendants’ response to the plaintiff’s interlocutory application in the following way:
Also in response to the plaintiff’s application for particular discovery, the defendants have been able to regenerate a previously undetected copy of the first defendant’s former Chief Executive Officer’s email account as at
19 February 2015. More detail about this process is explained in Mr Hungerford’s affidavit. Relevant documents from a review of same are listed in this affidavit. Relevant search terms were used to refine the numbers of documents reviewed.
[35] The affidavit does not reassure the plaintiff. In her affidavit sworn 17 May
2017 Ms Brown deposed to initiating searches for records of former Bathurst employees holding management roles from 2009. Mr Kalderimis’ concern is that Ms Brown’s latest affidavit does not suggest that the searches have been for other than the email records of former Bathurst employees.
[36] The plaintiff’s position is that Ms Brown’s affidavit shows documents have been identified as a result of broader searches being undertaken. As well, the defendant has disclosed a wider range of documents (from 2010–2016) which, the plaintiff says, means the defendants implicitly concede there could be relevant emails over the period. But what is missing is any statement by Ms Brown that there have been searches for more email accounts. As a consequence the plaintiff now seeks an affidavit from the defendants setting out the results of internal email searches for relevant documents from 2009 to the present (rather than only the years
2010—2012) and email accounts of personnel (other than Hamish Bohannan, Gerry Cooper and Tim Manners) including Bathurst’s CEO and the defendants’ past and present board members.
Relevance of documents
[37] The plaintiff is not entitled to an order for particular discovery unless it is able to demonstrate the relevance of the documents covered by its application. As I understand the position the plaintiff seeks sworn reassurance as to the nature of the searches that have been undertaken for relevant emails. Even so, the class of documents to be covered by such affidavit evidence will need to meet the test of relevance. The plaintiff has met this first threshold:
(a) The first issue to which the proceeding gives rise7 is whether the first performance payment has fallen due. Mr Kalderimis submitted the underlying question is whether Bathurst has shipped 25,000 tonnes of coal from the Permit Areas thereby triggering the first performance payment. The plaintiff says Bathurst’s present view — that the first performance payment is triggered only once the 25,000 tonnes have been literally “shipped” for export, domestic sales being insufficient
— was not referenced in Bathurst’s correspondence with the plaintiff prior to proceedings being filed and contradicts public statements made by Bathurst. The plaintiff’s position is that post-2012 communications may be relevant to whether Bathurst genuinely considered or believed the interpretation now being asserted by Bathurst’s lawyers.
(b)If the performance payment has been triggered the second issue, as Mr Kalderimis formulated it, is whether the defendants can nonetheless continue to defer payment of the US$40 million by claiming that “relevant royalty payments” are being made (although nominal because of Bathurst’s decision to place the Escarpment Mine into care and maintenance). The plaintiff’s case is that, to the extent commercial viability is relevant, the commerciality of ongoing mining requires to be tested; and that if the defendants are not making good faith attempts to commercially mine that may very well be relevant. Mr Kalderimis pressed the legal argument the plaintiff will advance at trial: that the defendants are required to exercise any contractual discretions for proper purposes (legitimate operational reasons) rather than to avoid payment to the plaintiff of post-sale consideration that would otherwise be due and payable.
[38] The defendants’ opposition to the orders sought in respect of internal emails is based on an objection to being required to conduct more searches than have already been undertaken. I do not understand there to be any argument about
relevance.
7 See [3](i) above.
Grounds for belief documents may exist
[39] The primary issue in contention is whether the plaintiff has grounds for its belief that the documents it seeks may exist. Mr Gordon submitted from the bar that some 30,000 emails have been assessed for relevance and it was wrong to suggest otherwise. Mr Kalderimis’s response is that if 30,000 emails have in fact been reviewed the plaintiff should have that information in the form of an affidavit. His further point was that the defendants were not saying they should not have to search but that the search had been undertaken.
[40] I am persuaded to the plaintiff’s view. It is not so much that the plaintiff challenges the conclusiveness of the supplementary affidavit filed by the defendants but that the affidavit does not go far enough. The rules require a party to make a reasonable search for discoverable documents and to include in an affidavit the
particular steps taken in fulfilment of that obligation.8
[41] There is a sound basis for the plaintiff’s challenge to the adequacy of the search. The evidence shows the plaintiff’s concerns about the adequacy of discovery raised in the letter of 16 June 2017 elicited no response beyond that the relevant Bathurst executives had left and their email records were no longer recoverable and available for discovery. As Mr Kalderimis submitted without the interlocutory application for particular discovery the plaintiff would “still be in the dark”. Yet the further affidavits do not sufficiently address the very matter that concerns the plaintiff.
[42] The plaintiff has established grounds for its belief that relevant documents exist:
(a) The fact the defendants’ discovery originally comprised only a single internal email chain does not, of itself, provide justification for the application. In that regard I agree with Mr Gordon’s submission. But as a result of this application more emails have been discovered
although limited to the period 2010 to 2012 and in respect of only
8 High Court Rules, r 8.15.
three individuals. I have already set out the background to the application.9 While not doubting the reasons the defendants’ sworn evidence has been found to be incorrect there is substance to the plaintiff’s concern that the further affidavit sworn by Ms Brown on
8 August does not attest to searches being conducted for other than the email records of former Bathurst employees. It appears to the plaintiff other relevant emails may exist for three reasons:
(i)A confidentiality agreement between Bathurst and the plaintiff shows negotiations commenced, at least, in August 2009.
(ii)Documents disclosed in discovery indicate particular board members and executives10 were involved for Bathurst in negotiations relating to the 2010 SPA. Their email accounts may contain potentially relevant documents between 2009 and
2012 but the accounts may not have been reviewed.
(iii)Communications and documents after 2012 are also potentially relevant and may not have been reviewed. The plaintiff attached as a schedule to its written submissions a list of the defendants’ board members since 2010.
(b)The defendants discovered a letter dated 24 January 2017 from the Ministry of Business, Innovation and Employment addressed to Hamish McLauchlan of Bathurst. The letter confirms Buller has met the minimum work programme obligation under the mining permit. But the email communications between the Ministry and Mr McLauchlan leading up to the Ministry’s letter reveal Mr McLauchlan’s substantial role in drafting the letter. Yet the defendants did not discover this correspondence. The plaintiff obtained it pursuant to an Official Information Act request. The
documents, received by Chapman Tripp on 9 August 2017, show:
9 See [26]–[36] above.
10 Who are identified by name in the plaintiff ’s written submissions.
(i)Mr McLauchlan asked the Ministry to write a letter confirming Buller was not in breach of permit conditions “to support the company in a court case between them and L&M”.
(ii)Mr McLauchlan provided to the Ministry a draft of the letter it wished the Ministry to provide.
(iii)The letter from the Ministry to Mr McLauchlan is substantially identical to the draft which Mr McLauchlan provided.
[43] An order for discovery will be made although not in the broad terms sought in the amended order ie “email accounts of further personnel”. The original application was in respect of the defendants’ employees in management positions. And schedule 2 attached to the plaintiff ’s submissions lists the directors of both defendant companies and the period of appointment of each. The order will reflect the proper focus of the particular discovery, being in respect of the email accounts of board members and those in senior management positions.
Category two: shareholder correspondence
[44] This category of documents is described as:
correspondence between BRL and its major shareholders relating to the
Escarpment Mine and/or the Permit Areas.
Relevance
[45] The plaintiff pleads that under the SPA two deferred performance payments of US$40 million were due: the first, triggered when 25,000 tonnes of coal had been shipped from the permit area; the second, at 1,000,000 tonnes. In their statement of defence the defendants plead the performance payments are payable only upon achievement of certain production stages of the anticipated export mine construction project and this has not been achieved.
[46] The parties agree that whether the first performance payment has fallen due depends on:
(a) whether 25,000 tonnes of coal has been shipped from the Permit Areas such that the first performance payment is payable under cl 3.4(a) of the SPA; and
(b)if so, whether the plaintiff is prevented from suing for that payment by cl 3.10 (introduced by the Third Amendment Deed in 2012) which provides that “a failure by the Purchaser to make, when and as due, a Performance Payment is not an actionable breach of or default under this Agreement for so long as the relevant royalty payments continue to be made under the Royalty Deed”.
[47] The shareholder correspondence category is said to be relevant to the second issue in [46](b) above. Mr Kalderimis put it this way in his written submissions:
whether, if the trigger has been reached, the defendants can nonetheless continue to defer payment of the US$40 million deferred consideration by claiming that “relevant royalty payments” are being made — even though such payments are nominal because of Bathurst’s decision to place the Escarpment Mine into care and maintenance.
[48] Mr Kalderimis submitted this issue requires scrutiny in its full commercial context.
[49] The plaintiff points to Mr Hungerford’s suggestion that mining at Escarpment in not currently commercially viable but the plaintiff says there is an issue as to whether commercial viability is a relevant consideration. The principal point the plaintiff makes is that the commerciality of ongoing mining requires to be tested. The plaintiff argues that, in order to defer the US$40 million, the defendants are required to mine in accordance with good mining practice and to exercise any contractual discretions for legitimate operational reasons rather than to keep the plaintiff out of post-sale consideration that would otherwise be due and payable.
[50] In the defendants’ notice of opposition to the interlocutory application11 the defendants agreed to provide an affidavit confirming that, following additional
11 I note there is no difference between the original and amended interlocutory application in respect of this category of documents.
enquiries, to the best of their knowledge, all relevant documents under this category of discovery have already been discovered.
[51] In his affidavit filed 31 July 2017 Mr Hungerford deposes to asking the current CEO and Board of Directors “whether or not they have communicated with any shareholders specifically about the [SPA] or any of its amendments and/or the decision to place the Escarpment Mine into care and maintenance”. Mr Hungerford confirmed that to the best of his knowledge there have been no such communications.
[52] While I am in no doubt about the relevance of this category of documents the grounds for believing they exist are less obvious to me. On the one hand, as Mr Gordon submitted, the defendants made enquiries of their management team about the response to the category of documents under “shareholder correspondence”. These enquiries led to Mr Hungerford’s confirmation that there are no documents within this category that have not already been discovered. This is the same position outlined in the letter from the defendants’ legal advisors dated
26 June 2017.
[53] On the other hand, as Mr Kalderimis submitted, it is unclear what steps the current CEO or the Board have taken to determine whether such communications exist, particularly where it appears that none of these parties (or Bathurst’s private equity shareholders themselves) have been specifically asked to review email accounts or diary notes for relevant documents. Further light is likely to be shed in a proper review of internal email accounts of the defendants’ management team and board members.
[54] Ultimately I accept the plaintiff’s argument. It is not clear from Mr Hungerford’s affidavit what steps have been taken and the defendants should provide an affidavit confirming whether correspondence between Bathurst and its major shareholders relating to the Escarpment Mine and/or the Permit Areas are within the defendants’ control, and if so, list the documents.
Category three: auditor documents
[55] This category of documents relates to the 2012 and 2013 audits of Bathurst including:
(a) documents prepared by Bathurst’s auditors relating to the preparation of Bathurst’s accounts, including documents setting out the scope of audits and reports or minutes of any internal audit board or committee; and
(b)correspondence between Bathurst and its auditors especially documents relating to the meaning and effect of the Third Amended Deed.
[56] There appears to be no real dispute that the documents exist. Mr Hungerford deposes to the audits by Bathurst’s auditors PricewaterhouseCoopers (PwC) and PwC’s audit of assumptions reflected in Bathurst’s financial statements. The real contest is as to relevance. The defendants do not accept that the auditor documents are relevant to the plaintiff’s claim for an alleged breach of contract but they have taken a pragmatic approach and have discovered the following documents:
(a) minutes of the Audit and Risk Committee for the financial years ending 30 June 2014, 30 June 2015 and 30 June 2016; and
(b) PwC’s reports to the Audit and Risk Committee during that time
period.
[57] But the plaintiff seeks also documents relating to the audits of Bathurst for the 2012 and 2013 and financial years. Those documents, it is said, are potentially relevant to the interpretation of the Third Amendment Deed.
[58] I accept the materiality to the plaintiff’s case of the documents it seeks. The plaintiff’s pleaded case is that the calculation of “relevant royalties” (for the purpose of clause 3.10 of the SPA) assumes compliance with an implied term that ongoing mining at Escarpment Mine is being conducted in accordance with the Royalty Deed
and that “all contractual discretions are being exercised for proper purposes
including as specified in the Royalty Deed”.
[59] The forensic point to be advanced is that contractual powers may not be exercised for an improper purpose. Communications with Bathurst’s auditors may shed light on what the parties thought they were agreeing to at the time of the Third Amendment Deed in 2012. Mr Kalderimis submitted that if the defendants contemplated they could unilaterally arrange mining operations so that, even if the trigger was reached, they could avoid either paying the US$40 million or paying substantial royalties, that understanding would call into question whether the US$40 million was a genuine liability and what accounting treatment was appropriate.
[60] I accept grounds for particular discovery have been made out.
Category four: forward-looking operational documents
[61] This category of documents is described as:
forward-looking mine plans, budgets and other internal [Bathurst] operational and strategic documents relating to mine planning, and the operation and intended utilisation of the Escarpment Mine in the context of [Bathurst’s] other assets.
[62] In their notice of opposition the defendants undertook to provide by way of a supplementary affidavit of documents, “certain documents relating to mine planning between November 2013 and March 2016 (i.e. when the Escarpment Mine was placed into care and maintenance).” The defendants otherwise oppose the granting of any order for forward-looking operational documents from March 2016 onwards and any documents in relation to the Cascade permit area on the basis such documents are irrelevant to the matters at issue in the proceeding.
[63] Mr Gordon strongly opposed discovery of documents in this category. Even putting aside the highly commercially sensitive and confidential nature of such material, the defendants’ position is that the documents are simply not relevant to the claim. Mr Gordon submitted the plaintiff’s claim makes its position crystal clear:
(a) The plaintiff is pursuing a performance payment of US$40 million which it says has already fallen due under clause 3.4 of the SPA.
(b)The contractual threshold under clause 3.4 of the SPA, of 25,000 tonnes of coal “shipped” from the subject Permit Areas, was (on the plaintiff’s case) reached on or around 30 September 2015. That is when the debt crystallised, and documents beyond this date cannot be relevant. Mr Gordon submitted either the performance payment had fallen due — and the defendants were then in breach of the SPA and had to meet the plaintiff’s demand for payment — or it had not. “But on no basis are the defendants forward-looking operational documents relevant to that determination.”
[64] Mr Kalderimis submitted that the forward-looking documents setting out Bathurst’s plans beyond 2016 are relevant because Buller is required to “conduct mining operations in accordance with good mining practice and with a view to maximisation of coal sales at the best available price”. That is required by cl 8 of the Royalty Deed.
[65] I am persuaded this category of documents is relevant to the issues raised in the proceeding.
[66] Over the defendants’ protests the fact is the plaintiff intends to run an argument that the defendants must exercise their contractual discretions as to whether and how to mine for proper purposes including those set out in the Royalty Deed. If the defendants’ purpose is to mothball permit areas to avoid payment that is not a proper exercise of contractual discretion. I accept the plaintiff is not “fishing” but seeks to understand whether the defendants are attempting to game their assets. Although the defendants dispute the point, the plaintiff’s legal argument is available on the pleadings, and relevant documents are to be discovered. Further, while concerns about commercial sensitivity have been raised that is not a basis for avoiding discovery of potentially relevant documents. Appropriate restrictions may be placed on the inspection and use of such documents. Simply listing the documents does not compromise their confidential nature and to the extent
there are confidential documents the defendants can make claims of confidentiality to protect them, if necessary, from inspection.
Discretion
[67] I am satisfied that an order made in the terms sought would not be oppressive to the defendants. The effort and cost is proportionate to the potential value of discovery to the plaintiff particularly in the context of its claim for payment of US$40 million plus interest.
Result
[68] The defendants are to file and serve an affidavit:
1.1setting out the results of internal email searches for relevant documents:
(a) from 2009 to the present (rather than the years 2010 to 2012 only); and
(b) email accounts of Bathurst’s CEO and the defendants’ past and
present board members;
1.2provide an affidavit confirming (including on the basis of the email searches above) whether the following classes of documents are within the defendants’ control, and if so, listing and making available for inspection:
(a) correspondence between Bathurst and its major shareholders relating to the Escarpment Mine and/or the Permit Areas;
(b)documents relating to the 2012 and 2013 audits of Bathurst, including:
(i)documents prepared by Bathurst’s auditors relating to the preparation of Bathurst’s accounts, including documents
setting out the scope of audits and reports or minutes of any internal audit board or committee; and
(ii)correspondence between Bathurst and its auditors, including especially documents relating to the meaning and effect of the Third Amendment Deed; and
(c) forward-looking mine plans, budgets and other internal Bathurst operational and strategic documents relating to mine planning, and the operation and intended utilisation of the Escarpment Mine in the context of Bathurst’s other assets.
[69] The plaintiff has succeeded and costs should follow the event. If the parties are unable to agree costs I will receive focused memoranda which should be no more
than four pages in length.
Karen Clark J
Solicitors:
Chapman Tripp, Wellington for Plaintiff
MinterEllisonRuddWatts, Wellington for Defendants
Appendix
Plaintiff’s Interlocutory Application
dated 30 June 2017
Plaintiff’s Amended Interlocutory
Application dated 8 August 2017
1. The applicant, L&M Coal Holdings (LMCH), will on 10 August 2017 apply to the court for orders that the
respondents, Bathurst Resources Limited
(BRL) and Buller Coal Limited (Buller):1. The applicant, L&M Coal Holdings
(LMCH), will on 10 August 2017 apply
to the court for orders that the respondents, Bathurst Resources Limited (BRL) and Buller Coal Limited (Buller):
1.1 provide an affidavit confirming what internal emails of the respondents’ employees who held management positions at relevant times are or have been in the respondents’ control, and describing the nature and methodology of searches conducted for such emails, including:
(a) which email servers were identified and searched
(whether in Wellington,
Westport or Australia);
(b) which email accounts were reviewed;
(c) which email accounts were deleted;
(d) which email accounts are
irrecoverable; and
(e) whether any backup files exist of deleted accounts,
in order to adequately explain
why only one relevant email (BRL.004.00030) has been discovered for a dispute covering a period from 2009 to
2017;
1.1 provide an affidavit setting out the results of internal email searches for relevant documents which extend to:
(a) the period from 2009 to the present, rather than the years 2010 to 2012 only; and
(b) email accounts of further personnel (other than Hamish Bohannan, Gerry Cooper and Tim Manners), including BRL’s CEO and the defendants’ past and present board members;
1.2 provide an affidavit confirming whether the following classes of documents are within the respondents’ control, and if so, listing and making them available for inspection:
(a) correspondence between BRL and its major shareholders relating to the Escarpment Mine and/or the Permit Areas (shareholder correspondence);
1.2 provide an affidavit confirming (including on the basis of the email searches above) whether the following classes of documents are within the respondents’ control,
and if so, listing and making available for inspection:
(a) correspondence between
BRL and its major shareholders relating to the
Escarpment Mine and/or the
Permit Areas (shareholder correspondence);
(b) documents relating to
the audits of BRL (auditor documents),
including:
(i) documents prepared by BRL’s auditors relating to the preparation of BRL’s accounts, including
documents setting out the scope of
audits and reports or minutes of any
internal audit board or committee; and
(ii) correspondence between BRL and its auditors,
relating to the
Escarpment Mine and/or the Permit Areas and
especially the notes in
the financial statements and annual reports set
out in the Schedule
annexed to this application; and
(c) mine plans, budgets and
other internal BRL operational and strategic documents relating to mine planning, work undertaken at the Escarpment Mine and the operation and intended utilisation of the Escarpment Mine in the context of BRL’s
other assets (operational documents); and
(b) documents relating to the
2012 and 2013 audits of
BRL (auditor documents), including:
(i) documents prepared by BRL’s auditors relating to the preparation of
BRL’s accounts,
including documents setting out the scope of
audits and reports or
minutes of any internal audit board or
committee; and
(ii) correspondence between BRL and its auditors, including especially documents relating to the meaning and effect of the Third Amendment Deed; and
(c) forward-looking mine plans, budgets and other internal BRL operational and strategic documents relating to mine planning, and the operation and intended utilisation of the Escarpment Mine in the context of
BRL’s other assets (forward- looking operational
documents); and
1.3 be required to pay the applicant’s costs of this application
1.3 be required to pay the applicant’s
costs of this application.
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