NZ Iron Sands Holdings Ltd v Toward Industries Ltd
[2019] NZHC 2883
•6 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001975
[2019] NZHC 2883
BETWEEN NZ IRON SANDS HOLDINGS LIMITED
Plaintiff
AND
TOWARD INDUSTRIES LIMITED
First Defendant
TAHAROA IRONSANDS LIMITED
Second Defendant
Hearing: 22, 23, 24, 25, 29, 30, 31 October and 1, 4 and 5 November 2019 Appearances:
M D O’Brien QC, M G Colson and M H A Ho for Plaintiff
J E Hodder QC, J A McKay, J I Kerkin and R M Irvine-Shanks for First Defendant
M A Corlett QC, R J Gordon and A S Kirk for Second DefendantJudgment:
6 November 2019
REASONS FOR JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 6 November 2019 at 11.00 am
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors:
Gilbert Walker, Auckland Chapman Tripp, Auckland
Minter Ellison Rudd Watts, Auckland
Counsel:
M D O’Brien QC, Auckland M G Colson, Auckland
J E Hodder QC, Auckland M A Corlett QC, Auckland
NZ IRON SANDS HOLDINGS LTD v TOWARD INDUSTRIES LTD [2019] NZHC 2883 [6 November 2019]
Introduction
[1] This trial commenced at 9.00 am on Tuesday 22 October 2019. On the same day, the plaintiff, NZ Iron Sands Holdings Ltd (NZIS), filed an application for further discovery against both the first defendant, Toward Industries Ltd (TIL) and the second defendant, Taharoa Ironsands Ltd (formerly known as NZ Steel Mining Ltd and referred to as NZSM).
[2] Trial time is tight. Counsel initially advised the Court that the hearing would take four weeks. A fixture was allocated on the basis of that advice. When the evidence was exchanged, counsel advised that the hearing would instead take six weeks. I was able to allocate an additional week, and the hearing has been starting each day at 9.00 am to allow extra time so that the matter can be completed. The application for further discovery was thus an unwelcome distraction.
[3] By agreement, counsel deferred dealing with the application until 29 October 2019. I then heard from Mr Colson on behalf of NZIS and from Ms Irvine-Shanks for TIL and Mr Gordon for NZSM, on the morning of 30 October 2019.
[4] After taking time overnight to consider the issue, I advised counsel on the morning of 31 October 2019 that the application was declined. After hearing from counsel, I awarded costs against NZIS on a 2B basis, together with an uplift of 25 per cent. I now set out my reasons for my decision.
Background
[5] This proceeding arises out of an unsuccessful attempt by NZIS to purchase the shares in NZSM from TIL.
[6] NZSM owned and operated an iron sand mining business at Taharoa on the west coast of the North Island. It was a wholly-owned subsidiary of TIL, which in turn, was a wholly-owned subsidiary of Bluescope Steel Ltd (Bluescope) – an ASX listed company.
[7] The iron sands mine is on land owned by the Proprietors of Taharoa C Block Incorporated (Tahaora C). It leased the land to NZSM.
[8] In March 2016, TIL, with the assistance of an investment bank, Moelis and Company (Moelis), began marketing the iron sand mining business by offering the shares in NZSM for sale. TIL’s (and Bluescope’s) position was that unless the iron sands mine could be sold, it would have to be closed down.
[9] The sales process initiated by TIL and Bluescope was brought to the attention of a number of potential buyers. Ultimately, however, it was only NZIS which submitted a formal bid to buy the shares in NZSM.
[10] NZIS is a special purpose vehicle which was established for the purpose of acquiring the shares in NZSM. It was established by Gleneagle Securities (Aust) Pty Ltd (Gleneagle), a financial entity which provides advisory and fund management services to a range of clients. NZIS comprises a syndicate of various Gleneagle clients, who were interested in acquiring NZSM’s shares and the iron sands mining business.
[11] On 14 November 2016, each of the parties to this proceeding – NZIS, TIL and NZSM – entered into a share sale agreement, pursuant to which NZIS agreed to purchase from TIL all of the shares in NZSM for a purchase price of $1. In addition, NZIS agreed to make future royalty payments of up to $131,700,000 to TIL if the price of iron ore exceeded a fixed sum and to inject a minimum of $30,000,000 into NZSM to fund expansion of the iron sands mine.
[12] The share sale agreement was subject to three conditions precedent. In summary:
(a)The parties agreed to negotiate with a Japanese shipping line – Nippon Yusem Kabushiki Kaisha (NYK) – which chartered two purpose-built ships to NZSM so that NZSM could export in bulk the iron sands mined by it. The purpose of the negotiations was to seek to persuade NYK to
reduce the charter rate for the ships and/or to renegotiate the then operative charter agreements.
(b)The parties agreed to negotiate with Taharoa C to seek to persuade it to unconditionally discharge another Bluescope subsidiary – New Zealand Steel Ltd – from their obligations under the mining lease. In particular, they wanted to be released from the obligation to reinstate the land once mining had ceased.
(c)NZIS agreed to provide a mine expansion plan to TIL’s nominated consultant, who was to approve the plan if he/she considered that it met the objectives set out in the share sale agreement.
[13] Clause 3.4 of the share sale agreement required each party to use all reasonable endeavours (other than waiver) to ensure that each condition was fulfilled as soon as was reasonably practicable, and, in any event, on or before 14 December 2016.
[14] The conditions precedent set out in para 12(a) and (b) were not satisfied by the due date. The share sale agreement provided that so long as a party had first complied with, inter alia, cl 3.4, it was entitled to terminate the agreement at any time before its completion if any of the conditions precedent was not fulfilled by the due date. TIL cancelled the share sale agreement, relying on the termination provision, on 15 December 2016.
[15] In late 2016/early 2017, TIL undertook a second sales process in relation to the iron sands mine. NZIS participated again. Another entity – Taharoa Mining Investments Ltd (TMI) – also participated.
[16] The second sales process culminated in TIL, TMI and NZSM entering into a second share sale agreement in March 2017, whereby TMI agreed to purchase the shares in NZSM. The second share sale agreement was settled on 1 May 2017.
The proceedings
[17] In August 2017, NZIS filed the present proceedings. They raise five causes of action. NZIS alleges in summary that:
(a)in breach of the first share sale agreement, TIL and NZSM failed to use all reasonable endeavours to fulfil the conditions precedent. As a result, TIL’s termination notice was wrongly issued. This allegation forms the basis of the first cause of action against TIL, and the second cause of action against NZSM;
(b)both TIL and NZSM failed to make NZIS aware of their knowledge of the limited likelihood of NYK agreeing to reduce the charter rates. It is asserted that this was a misrepresentation and/or misleading or deceptive conduct. The misrepresentation is said to have been pre- contractual, and the conduct to have been in trade pursuant to s 19 of the Financial Markets Conduct Act 2013 and s 9 of the Fair Trading Act 1986. This is the third cause of action alleged against both TIL and NZSM;
(c)TIL breached the Financial Markets Conduct Act and the Fair Trading Act by the way in which it dealt with NZIS in relation to the conditions precedent in the first share sale agreement. It is alleged that TIL failed to keep NZIS informed of all discussions, negotiations and correspondence with NYK and Taharoa C. This is the fourth cause of action against TIL;
(d)TIL, through its agent (a Moelis employee), misrepresented NZIS’s prospects of success if it participated in the second sales process which led to the second share sale agreement. Again, it is alleged that this was in breach of the Financial Markets Conduct Act and the Fair Trading Act. This is the fifth cause of action against TIL.1
1 This cause of action was in place when I gave the ruling on the application for further discovery. It was abandoned by NZIS on 4 November 2019.
[18] NZIS claims that it lost the opportunity to acquire the shares in NZSM for a purchase price of $1, when the market value of the shares as at 15 December 2016 was
$506,800,000. It claims damages in that sum on each of the five causes of action and from both TIL and NZSM.
[19] TIL denies the claims in their entirety. In addition, it pleads five affirmative defences. NZSM denies the claims detailed in the second and third causes of action brought against it.
Discovery
[20] Discovery has been fraught with difficulty from the outset. By way of example:
(a)NZIS sought non-party discovery against various non-parties including Taharoa C, TMI and Mr and Mrs Coffey. Mr Coffey is the Chairman of Taharoa C. I declined the application for non-party discovery on 28 June 2018;
(b)NZIS challenged claims to privilege made by TIL. After a protracted process, involving the inspection of a sample number of the challenged documents by an Associate Judge, NZIS’s challenge to the privilege claim was also dismissed.
[21] Relevant to the present application, tailored discovery was debated by the parties at length during the first half of 2018. Ultimately, the parties agreed to discover 18 detailed categories of documents, and I made an order requiring discovery in terms of the agreed position on 28 June 2018. Relevantly, NZSM was required to discover its financial statements for the period January 2013 to 1 May 2017.
[22] As noted, the 1 May 2017 date was the date on which the sale of the shares in NZSM to TMI settled.
[23] Verified lists of documents were exchanged in October 2018. In particular, NZSM discovered its financial statements in terms of the agreed order.
[24] A timetable put in place by the Court required any further interlocutory applications arising out of discovery to be filed by November 2018. That date was extended on three subsequent occasions, ultimately out to 1 February 2019. NZIS filed an application for further discovery as against TIL, but it did not seek anything further as against NZSM.
The present application
[25]NZIS now seeks:
(a)as against TIL – all advice provided by a company known as TZ Minerals International Pty Ltd (TZMI) in the period 2013 to 2014 to TIL or any other party in respect of any possible or proposed expansion plan at the iron sands mine; and
(b)as against NZSM – its annual financial statements and monthly management accounts from 1 May 2017 until 30 September 2019.
[26] Nine other categories of documents were also sought from TIL. In oral argument, Mr Colson “parked up” these further aspects of the application. He indicated that he might seek to renew the application depending on the success of another application lodged by NZIS – also on 22 October 2019 – that the issue of quantum be adjourned, and for orders that liability and quantum be tried separately.2
[27] The material sought from TIL requires brief explanation. TIL has filed a brief of evidence from a Mr Gilman – an extractive metallurgist. It is anticipated that Mr Gilman will say that he visited the Taharoa mine in 2013/2014, and that TZMI – the company in which he is a partner – was hired by Bluescope to review its progress in implementing part of an expansion plan that Bluescope had for the mine. Mr Gilman will likely go on to say that he has been asked to give expert evidence on the technical mining and mineral processing features of the Taharoa mine and the
2 At the time I made the ruling the subject of this reasons judgment, that application was still partially outstanding. I had heard from Mr Colson, but not from other counsel in relation to it. That was because further information had become available about my availability, in the event that split trials were to be ordered. Mr Colson needed time to discuss the position with his client. In the event, the application has since been withdrawn.
expansion plan that could have a material impact on the assessment of the market value of the Taharoa project and thus of the shares in NZSM. For that purpose, he proposes to say that he considered two related work streams – first, documents contained in an electronic data room provided to prospective tenderers by TIL, and secondly, matters raised about the operation of the mine by TIL’s valuation experts. It will be argued that these matters are relevant to the market value of the mine, and thus to the quantum of NZIS’s claim, in the event that it can establish liability.
[28] The provision of Mr Gilman’s brief of evidence (and a related brief of evidence from a Mr Benjamin), has, it seems, embarrassed NZIS. It appears that it did not anticipate that evidence of this kind would be filed. It has had some difficulty in obtaining a mining specialist to reply to it. At the time I declined the application, its reply evidence in relation to Mr Gilman’s and Mr Benjamin’s evidence had not been filed, although counsel told me that it was to be filed on 30 October 2019. Initially, I was told that the mining specialist belatedly engaged by NZIS needed to see the material sought in the application for further discovery. Given that the reply evidence was due to be filed before the discovery application was determined, and certainly before any documents were discovered in the event that the application was granted, it seems unlikely that that necessity existed. Further, in discussions with me, Mr Colson responsibly accepted that, in reality, the further material is sought for the purposes of cross-examining Mr Gilman. It appears that NZIS is hopeful that it might glean something from such 2013/2014 reports that exist that might undermine the opinions Mr Gilman proposes to give evidence of when he is called by TIL.
[29] The material sought from the second defendant is rather more straightforward. Mr Coffey, who it is anticipated will give evidence for NZSM, will apparently refer briefly to the fact that NZIS’s valuation expert, a Mr Andrawes, has not seen NZSM’s financial statements since it took over the mine. Mr Colson also relied on the decisions of the House of Lords in Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company3 and Golden Strait Corpn v Nippon Yusen Kubishika Kaisha,4 for the principle that where necessary, and to ensure that damages
3 The Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v The Pontypridd Waterworks Company
[1903] AC 426 (HL).
4 Golden Strait Corpn v Nippon Yusen Kubishika Kaisha [2007] UKHL 12, [2007] 2 AC 353.
serve their proper compensatory purpose, a Court can take into account subsequent events, and need not listen to conjecture on matters which have become accomplished facts.
Analysis
[30] The application for further discovery was filed some considerable time after the close of pleadings date. Pleadings closed on 7 June 2019. Leave was accordingly required pursuant to r 7.7 of the High Court Rules.
[31]I am not persuaded that leave should be granted.
[32] The evidence proposed to be called by TIL and NZSM was served on NZIS in mid to late August 2019. Despite this, the further material now sought from TIL was not requested until 18 October 2019 – the Friday before the trial was due to start. The further material now sought from NZSM was first sought by letter on 15 September 2019. The request was declined on 20 September 2019. There was a further exchange of correspondence, and again NZSM declined to provide the additional material sought on 4 October 2019. Nevertheless, NZIS did not file its application until 22 October 2019. There is no explanation offered for the delays.
[33] The close of pleadings date has a clear purpose. It is intended to ensure that pleadings have been completed and that all interlocutory matters have been attended to, so that the parties can concentrate on preparing for trial. Preparation for trial is demanding work which requires clear time and attention, and the rules are directed to ensure that that time should not be subject to disruption by interlocutory matters.5 In order to obtain leave to file further interlocutory applications after the close of pleadings date, it is necessary to surmount “three formidable hurdles” – namely that it is in the interests of justice to grant leave, that granting leave will not significantly prejudice other parties and that it will not cause significant delay.6 The closer the application is to trial, the more formidable those hurdles will become.7
5 RHH Ltd v Anderson (No 3) [2018] NZHC 2045 at [9].
6 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.
7 Lyttleton Port Co Ltd v Aon New Zealand [2019] NZHC 726 at [22].
[34] Here, I do not consider that NZIS’s application for further discovery can get over any of these hurdles.
[35] The application is seeking material that has no obvious relevance to the proceedings.
[36] The further information sought from TIL does not seem to be required by the mining specialist NZIS proposes to call in reply to Mr Gilman’s and Mr Benjamin’s evidence. NZIS’s mining expert can only give reply evidence. As I understand it, Mr Gilman’s evidence focuses on what a prospective purchaser, and a prospective purchaser’s mining advisor, should have made of material available in the electronic data room set up by TIL and Bluescope when the mine was offered for sale. NZIS’s mining expert will have to limit himself to the material commented on by Mr Gilman and Mr Benjamin and whether or not he agrees with what they say about that material. As I understand it from counsel, some of the documents produced in 2013 and 2014 by TZMI were disclosed in the electronic data room. Others were not – presumably because they were not considered to be relevant by TIL and Bluescope. It is difficult to see that such other reports as may have been prepared by Mr Gilman’s company in 2013/2014 can have any bearing on the value of the shares in NZSM on 15 December 2016 when the first share sale agreement was terminated. Rather, it seems that NZIS seeks the additional material in an attempt to undermine Mr Gilman’s evidence through cross-examination. Whether or not Mr Gilman’s proposed evidence is or is not consistent with advice his company gave in 2013/2014 is not known. In my judgment, the application as against the first defendant is nothing more than a fishing expedition, and for a collateral purpose.
[37] Similarly, it is difficult to see that the documents sought from NZSM are relevant, or that discovery of them is required in the interests of justice. As noted above, NZIS’s claim is for the opportunity it says it lost to purchase the shares in NZSM. Its pleaded claim relies on the market value of the shares as at 15 December 2016, when the share sale agreement was terminated. The documents that NZIS now seeks are NZSM’s annual financial statements and monthly management accounts to date. It is difficult to see that those financial statements can assist. So far four expert valuation witnesses have filed briefs of evidence – Mr Andrawes, for NZIS, and three
valuation witnesses for TIL and/or NZSM. All have been able to address the market value of NZSM’s shares as at 15 December 2016, relying on the material already discovered under the tailor discovery order. Relevantly, Mr Andrawes has relied on a financial model prepared by Moelis as part of the sales process, and on NZIS’s instructions, has made a number of amendments to that model. The key amendments he has made are in relation to:
(a)the hedging of iron ore prices;
(b)the backloading of freight; and
(c)cost savings as a result of a bespoke mine plan.
As I understand it, the evidence will be that, since the shares in NZSM were sold to TMI pursuant to the second share sale agreement, none of these amendments to the operation of the mine have been undertaken by NZSM. It has not hedged iron ore prices. It has not backloaded freight, and it did not adopt NZIS’s bespoke mine expansion plan. Considering NZSM’s financial information from 1 May 2017 to date seems to me to be irrelevant, because the business model proposed by NZIS, on which it has based its claim to damages, has not been adopted by NZSM. Further, it is telling that no evidence has been adduced by NZIS explaining why Mr Andrawes requires the further information sought in order to further refine his valuation, and in particular, in order to file his reply evidence, which is now long overdue. There is absence of any evidential support for the application now brought as against NZSM.
[38] In addition, requiring the parties to belatedly discover the additional material now sought would cause prejudice to them. This is a complicated trial, involving much evidence and very large sums of money. The parties are fully engaged in conducting the trial. They should not be distracted from that task at this very late stage because of unexplained delay by NZIS.
[39] There is affidavit evidence filed on behalf of TIL that it would take some four weeks for TIL to conduct separate electronic searches of its technical staff’s archived data files to try and extract the information sought. In addition, it would take TIL’s
solicitors further time to review the documents, their relevance and privilege. Mr Colson responsibly accepted that NZIS cannot challenge that evidence, and it has not sought to do so.
[40] The information sought from NZSM might well be more readily obtainable, but once again, its counsel and legal representatives are fully engaged in the present trial. Further, NZSM is now a privately held company. Its financial statements and management accounts are confidential and commercially sensitive. Earlier in this trial, information was leaked to the media, including Mr Andrawes’ proposed brief of evidence. NZIS denies responsibility for that leak, and for other leaks, but NZSM is understandably concerned that its private information might end up in the public domain. There might well be mechanisms which could be put in place to address that, but the parties should not be distracted from the conduct of the trial by trying to negotiate these issues.
[41] In my judgment, allowing NZIS leave to proceed with the application for further and better discovery would be likely to cause significant prejudice and yet further delay.
[42] Accordingly, I decline leave to NZIS to make the application for further discovery.
[43] For the sake of completeness, I record that even if I had been minded to grant leave, that I would have nevertheless have declined to order further discovery of the documents sought. For the reasons I have set out above, I am not persuaded that the documents sought are of such relevance to the matters in issue that discovery of them is now appropriate.
Costs
[44] I discussed costs with counsel. TIL and NZSM sought costs on a 2B basis, together with a 25 per cent uplift. Mr O’Brien QC, who dealt with this aspect of the matter in Mr Colson’s absence, suggested that costs should form part of the cause, and that in any event, there was no justification for an uplift.
[45] I am not persuaded that costs should form part of the cause. This was a discrete application. Further, I am not persuaded that an uplift is inappropriate. The application was made at a very late point in time. No explanation was offered for the delay. NZIS has failed to comply with directions of the Court, and the application was an unnecessary step, which lacked merit. In my judgment, TIL and NZSM have been put to unnecessary time and expense in opposing it.
[46] I agree with counsel that the application is properly categorised as on a 2B basis. Standing back and looking at the costs award, in my judgment, an uplift is appropriate, for the reasons I have set out. I order costs in favour of each of them, TIL and NZSM, on a 2B basis with a 25 per cent uplift.
Wylie J
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