Armada Balnaves PTE Ltd v Woodside Energy Julimar Pty Ltd - [2022] WASC 357 - WASC 2023 case summary — Zoe

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Armada Balnaves PTE Ltd v Woodside Energy Julimar Pty Ltd

[2022] WASC 357

Supreme Court of WA|2023-01-11|Before: Smith J

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Source facts

Court

Supreme Court of WA

Decision date

2023-01-11

Before

Smith J

Source

Original judgment source is linked above.

Judgment (678 paragraphs)

[1]

For the reasons that I give below, I am satisfied that Zuleika has proved that the defendants breached the express and implied terms of the BTS Agreement as follows:

[2]

(a) the defendants breached the three pleaded implied terms and cl 2(a) and cl 2(c) by preventing Zuleika from contributing to Expenditure during the Earn‑in Period;
>
> (b) the defendants breached cl 5(a) and cl 5(c)(i) and the three pleaded implied terms by carrying out exploration activities without the prior approval of the Joint Venture Committee, or Zuleika and without the involvement of Zuleika as exploration manager of the Joint Venture who had responsibility for the conduct of all exploration operations;
>
> (c) the defendants funded Tenement costs, prepared budgets and engaged in project management without prior approval by the Joint Venture Committee in breach of and as required by cl 4(c)(vi) and cl 9;
>
> (d) the defendants failed to adhere to the obligations in cl 18 and the implied term that the parties co‑operate by failing to do all acts and things that may be reasonably required by Zuleika to effectively carry out and give effect to the terms and intentions of the BTS Agreement. In particular, the defendants breached cl 18 and failed to co‑operate by failing to make reasonable efforts to participate in the arrangement of and, by its representatives, attend Joint Venture Committee meetings and to reach determinations consistent with the terms of the BTS Agreement; > > (e) the defendants breached the first paragraph of cl 2(d) by not providing Zuleika with a duly executed transfer in respect of its Joint Venture Interest it had earned at the expiry of the extended Earn‑in Period; and > > (f) the defendants breached cl 13 by: > > > (i) failing to negotiate in good faith and by attempting to negotiate a formal joint venture agreement to replace the BTS Agreement that did not embody the terms and conditions contained in the BTS Agreement, which conduct also breached cl 18; and > > > > (ii) failing to respond to Zuleika's revised draft farm‑in agreement.

[9]

Zuleika adduced evidence from three witnesses.
The first was Mr Malcolm Carson who was the former executive chairman of Zuleika.
Mr Carson held academic qualifications in geology, economics, and mineral and resource management. He had a lengthy career working as an exploration geologist and manager, and held directorships in a number of mining companies. He was appointed to the board of Zuleika and Dampier Plutonic in May 2014.[19]
Unfortunately, by early January 2022, Mr Carson was terminally ill. As a result, his evidence was given de bene esse in late January 2022. By consent, Mr Carson's non‑contentious evidence in chief was given by way of an edited witness statement, and marked for identification. He also gave some brief oral evidence by audio‑visual link in two short hearings, on Saturday 22 January 2022 and on Tuesday 25 January 2022.
When the trial commenced, Mr Carson's non‑contentious witness statement[20] was tendered into evidence, subject to a number of objections made by the defendants on grounds of relevance, which objections I have had regard to in making relevant findings of fact in these reasons. The transcript of Mr Carson's oral evidence was also tended into evidence.[21]
The second witness called by Zuleika is also a director of Zuleika, Ms Hui Guo (known as Annie Guo). Ms Guo holds qualifications in economics and finance, and has substantial work experience in mergers and acquisitions with a focus on mining and resource sectors. Ms Guo became an alternative director of Zuleika in November 2013 and was appointed a director in June 2015. In addition, she was director of Dampier Plutonic from May 2014 until August 2016. Ms Guo became the managing director of Zuleika in October 2020.
Because of Covid 19 restrictions that were in place at the time of trial, Ms Guo and all of the other witnesses who gave evidence in the proceedings, with the exception of one of the defendants' witnesses, gave evidence by audio‑visual link. By consent, Ms Guo's evidence in chief was given in writing in the form of an edited witness outline.[22]
The third witness called by Zuleika was Zuleika's company secretary, Mr Michael Higginson. Mr Higginson was appointed a director of Zuleika, after the death of Mr Carson, in February 2022.[23] Mr Higginson is by occupation a professional company secretary for several companies including Dampier. He gave evidence by audio‑visual link from his office in Brisbane. By consent, he also gave his evidence in chief in writing in the form of an edited witness outline.[24]
Zuleika's case does not stand or fall on its witness evidence. Zuleika is able to make out its case of breach and repudiation on the undisputed contemporaneous documentary evidence, and on the oral evidence of Mr McInnes who gave evidence for the defendants.
However, I did find all of Zuleika's witnesses were credible and their evidence was reliable.
Turning first to Mr Carson and Mr Higginson, I am of the opinion that they each gave truthful and reliable evidence for the following reasons:

[11]

Ms Guo's evidence was also relatively short. I found Ms Guo to be a reliable witness in respect of the material and relevant issues between the parties. This is because when cross‑examined about what was said in some of the Joint Venture Committee meetings, her evidence about what she independently recollected, was not inconsistent with what is stated in the defendants' minutes of those meetings.
Although Ms Guo appeared to have a very high opinion of her experience in mining operations and geology when she does not have any formal qualifications in geology, mining or engineering, she was not asked, either in examination in chief or in cross‑examination, any relevant questions about her opinions about any technical aspects of mining operations. Consequently, I did not find her evidence about her experience in this work to be relevant, material, or affect the reliability of her evidence.
Although counsel for the defendants attempted to adduce evidence that Ms Guo had been found not to be a person of credit in proceedings before the Supreme Court in New South Wales, when the decision of Rees J in Guo v Xu is carefully read, it is clear that her Honour made no finding that Ms Guo was not a credible witness. After noting that cross‑examination of Ms Guo was extensive and was conducted over a video link which proved unstable, Rees J found that she was not in a position to form any views of Ms Guo's credit. However, Rees J then went on to say that Ms Guo's evidence did not raise any issues of concern in this regard and found that she answered questions simply and directly, was precise, had a good recall of detail, and made reasonable concessions.[25]
Despite counsel's approach to Ms Guo in cross‑examination in this matter, in their written closing submissions the defendants concede that there is no cause to suggest that Ms Guo was not an honest witness, but submit she was quick to say when she could not recall matters that could have potentially been against her and Zuleika's interests. In particular, it was raised that she did not recall if Zuleika and she 'personally agreed' to terminate the Ore Treatment Agreement (the agreement for the treatment of ore that the defendants were a party to together with Billabong). However, this point is not relevant. It was not up to Ms Guo personally or Zuleika to terminate the Ore Treatment Agreement. It was a matter for the defendants. Zuleika was not a party to the Ore Treatment Agreement.
In any event, it is not in dispute that Zuleika, through the actions of Mr Carson, agreed that the defendants should terminate the Ore Treatment Agreement. Ms Guo was clear in her evidence that she knew the agreement had been terminated.[26]
The defendants also submit that some of Ms Guo's evidence resembled submissions and specifically referred to her evidence stating that a number of formal requests had been made by herself and Mr Carson to visit the Tenement but were refused by the defendants. Plainly, her evidence on this point cannot be regarded in the nature of a submission. I note, however, no documents have been produced to the court which record that any request had been refused.[27] In any event, her evidence on this point is not material, nor relevant.

[17]

After Mr Carson became a director of Zuleika and Dampier Plutonic in May 2014, he reviewed and familiarised himself with the books and records of the companies, including each of the Plutonic Joint Venture Agreements. He also reviewed Vango's publicly available financial information and quarterly activity reports and formed the view that Zuleika had funds to explore the Plutonic Tenements, whereas, Vango did not when they entered into the agreements.[37]
Mr Carson also started familiarising himself with the tenements and had discussions with a geologist, Mr Howard Dawson, about a report prepared by a mining consultant for a funder to assess whether to provide funding to Zuleika. The purpose of the report was to assess the potential for discovery, continuity of mineralisation, and the potential for mining to occur in the area of the tenements within the Plutonic Dome Gold Project.[38] Mr Carson also had discussions with the outgoing managing director of Zuleika, Mr Richard Hay, who was retained for a period to assist with the handover to the new board concerning the tenements. Mr Hay told Mr Carson it was his opinion that some tenements could be dropped, others could be reduced, and he thought that K2 could be developed for an initial CAPEX of $6 million and $12 million over the life (of the mine).[39]
The K2 deposit had been last mined in 1997 by another company, Resolute, who mined the orebody from the boxcut and decline before the mine was prematurely closed in 1998 after only minor amounts of ore extraction.[40] After the mine was closed, the underground decline was flooded.
On 1 July 2014, Mr Dawson sent Mr Carson the June 2014 K2 Feasibility Report prepared by Entech Pty Ltd for Vango.[41] The stated objective of the report was to assess the economic viability of extracting ore from the K2 deposit using underground mining methods, and to assume the extracted ore would be treated at the nearby Plutonic Plant owned by Northern Star Resources Ltd, which was located 36 km away from the K2 deposit.[42]
The authors stated in the June 2014 K2 Feasibility Report that the estimate of the agreed capital cost (CAPEX) forecasts for the first year of the project was $6,212,241 and $2,964,606 for the second year (being a total of $9,176,847).[43] Zuleika contends that the forecast for the first year in this report is important, because it is Zuleika's case that the CAPEX for the development of the K2 deposit agreed to in cl 2(a) of the BTS Agreement, and in the definition of CAPEX as at the Commencement Date of $6 million in cl 26, was based upon the cost estimation of capital expenditure for the K2 underground for the first year in this report.[44]
Mr Carson explained, when he gave oral evidence, that the figure of $6,212,241 in the report estimate was not start‑up capital; it was working capital to get the mine up and running. He pointed out that the figure of $6 million was not a firm number, and said it did not include any engineering costs, but was an estimate of what it would cost to dewater the existing tunnels and refurbish the K2 underground.[45] Zuleika also points out this figure did not include the cost of the treatment of any ore removed from the K2 deposit.
On 1 July 2014, Vango made an announcement to the market that contained a comprehensive summary of matters stated in the June 2014 K2 Feasibility Report. In its announcement, it stated:[46]

[19]

In or about September 2014, Vango and Dampier Plutonic entered into the Ore Treatment Agreement with Northern Star to facilitate the processing of ore from the K2 deposit. Pursuant to the terms of the agreement, Northern Star was to be paid for the processing services through the provision of gold at the point of refining the ore.[47]
On 11 September 2014, Zuleika announced to the market that Vango had earned in a 30% Joint Venture Interest in the Plutonic Dome Gold Project, and Vango had advised Zuleika that it intended to undertake the 'sole risk' of the next $1 million of Joint Venture expenditure to increase its equity in the project to 45%.[48]
In early October 2014, Entech provided to Vango the October 2014 K2 Feasibility Update Report which assumed that the extracted ore from the K2 deposit would be treated at the nearby Northern Star processing plant.[49] This report contained a revised cost estimation of the CAPEX of $6,954,666, with a project cash flow estimation, before tax, of $6,464,814.[50] The author of the updated report forecast that the project cash flow showed a payback period of 19 months, the cumulative cash flow of the project completion would be $18.2 million, and the maximum depth of the cash trough was $6.6 million to be reached in month 13.[51] The updated report also contained a revised estimated CAPEX of $6,954,666 for the first year of the project, $2,879,472 for the second year, and $200,000 for the third year (being a total of $10,034,138).[52]
On 8 August 2014, Vango announced to the market the results of the October 2014 K2 Feasibility Update Report. The announcement summarised the report in detail and stated one of the highlights of the report was that the maximum capital drawdown was up 4%, and the pre‑tax net present value was up by 78%.[53]
During 2015, Mr Carson had a number of discussions with Mr McInnes about either Zuleika repurchasing Vango's interest in the Plutonic Dome Project, or Vango buying the balance of Zuleika's interest. Mr Carson told Mr McInnes that Zuleika or Vango should acquire 100% interest in the Plutonic Dome Gold Project tenements because they would not be able to raise capital with a diluting asset.[54]
On 19 January 2016, Zuleika announced to the market that it had entered into a binding heads of agreement for the sale of 100% of Dampier Plutonic to Vango.[55]
On 11 May 2016, Zuleika announced it had sold all of its shares in Dampier Plutonic to Vango. The sale disposed of Zuleika's remaining equity interest in the Plutonic Dome Gold Project.[56]
The Sale Agreement was formally executed by Zuleika, Dampier Plutonic and Vango in an agreement dated 16 August 2016 (Sale Agreement). At the time of sale, Dampier Plutonic was the registered holder of 57 live tenements in the Marymia‑Plutonic Greenstone Belt, which included Mining Lease 52/183.[57] Pursuant to the terms of the Sale Agreement, it was agreed that immediately prior to settlement Vango held a 60% interest and Dampier Plutonic held a 40% interest in the mining tenements and tenement applications listed in Schedule 1 of the Sale Agreement.[58]
The consideration for the Sale Agreement was:[59]

[44]

(a) the Joint Venture was formed on the date that the last of the parties executed the BTS Agreement (cl 1(a) and cl 26 definition of Commencement Date),[75] which was 12 May 2017;[76]
>
> (b) Zuleika may acquire an interest in the Tenement (defined as Mining Lease 52/183 (and other mining interests which do not apply)) and form an unincorporated joint venture in respect of the development of the Tenement (Joint Venture);[77]
>
> (c) Zuleika shall be the exploration manager of the Joint Venture and have the conduct of all of the exploration operations of the Joint Venture on behalf of the parties, subject at all times to the reasonable directions of the Joint Venture Committee (cl 5(a));[78]
>
> (d) the defendants shall be the development manager of the Joint Venture and have the conduct of all the development operations of the Joint Venture on behalf of the parties, subject at all times to the reasonable directions of the Joint Venture Committee (cl 5(b));[79]
>
> (e) the defendants shall conduct Joint Venture operations in accordance with programs, budgets and decisions made by the Joint Venture Committee (cl 5(c)(i));[80]
>
> (f) by cl 2(a), Zuleika agreed to contribute up to the lesser of 50% of the CAPEX (defined in cl 26 as the capital cost estimate for the development of the mine of the Tenement being, as at the Commencement Date $6 million, or such other amount as agreed in writing by the parties) or $3 million to the costs of the:[81] > > > (i) development of a mine on the Tenement;
> >
> > (ii) exploration for the mining of gold ore and its processing for the extraction of gold; and
> >
> > (iii) any other items, as agreed by the Joint Venture Committee; > >
>
> (g) in consideration for Zuleika's Expenditure, Zuleika shall earn a Joint Venture Interest (as defined in cl 26) equal to the lesser of Zuleika's Expenditure as a percentage of the CAPEX or 50% within two years from the Commencement Date (Earn-in Period) (cl 2(c));[82]
>
> (h) the sum of $245,239.78 that Zuleika had expended in relation to the Tenement prior to the Commencement Date shall be deemed to form part of Zuleika's Expenditure (cl 3(a));[83]
>
> (i) save for Zuleika's pre‑Joint Venture Expenditure, Joint Venture Expenditure should be made in tranches approved by the Joint Venture Committee with funds provided within 5 business days of the Joint Venture Committee's approval (cl 2(b));[84]
>
> (j) upon the proper construction of the BTS Agreement, Zuleika was not required to agree, and the defendants were not entitled to require Zuleika to agree, to vary the CAPEX from $6 million prior to the parties agreeing Expenditure, including Zuleika's expenditure;[85]
>
> (k) upon the expiry of the Earn-in Period or the issue of the notice by Zuleika to the defendants under cl 2(d) of the BTS Agreement, whichever occurs first, each party must contribute to expenditure made or incurred in respect of the Joint Venture in proportion to their then Joint Venture Interest, which expenditure must be authorised by the Joint Venture Committee (cl 3(b)). If a party does not contribute to the total Joint Venture Expenditure in accordance with its Joint Venture Interest, their Joint Venture Interest will dilute with the non‑contributing Joint Venturer's interest decreasing and the Joint Venture Interest of the other Joint Venturer increasing (cl 3(c));[86] and
>
> (l) on the Commencement Date, but immediately prior to the parties executing the BTS Agreement, the Joint Venture Interests of the parties were: Zuleika ‑ 0% and the defendants ‑ 100%.[87]

[62]

In essence, the defendants' argument must be that the words 'up to' qualifies the quantum of contribution to Expenditure by Zuleika by requiring Zuleika to contribute 50% of the CAPEX or $3 million, and if Zuleika contributes less than either 50% of CAPEX or $3 million it does not earn‑in any interest in the Joint Venture.
The defendants refer to cl 2(c) which relevantly reads: '[i]n consideration for the Expenditure, [Zuleika] will earn a Joint Venture Interest equal to the lesser of (i) the Expenditure as a percentage of the CAPEX; or (ii) 50%, within the [Earn-in Period]'. The defendants argue that cl 2(c), properly construed in the circumstances of this case, simply means if Zuleika contributes $3 million as Expenditure during the Earn‑in Period it will earn a 50% Joint Venture Interest but, cl 2(c)(i) only operates when the parties agree to increase the CAPEX from $6 million.
The defendants contend that their construction of the BTS Agreement is confirmed by the opening text of the first paragraph of cl 2(d) which reads '[f]ollowing [Zuleika] satisfying the Expenditure during the Earn‑in Period, [Zuleika] will be deemed to have earned the Joint Venture Interest ...'.
Thus, the defendants argue the Expenditure was always $3 million (no less). To 'satisfy' is to fulfil, and even on Zuleika's best case it does not suggest that it 'satisfied' the Expenditure amount of $3 million.
The third part of the defendants' construction argument is that, insofar as Zuleika relies on the second paragraph of cl 2(d) to allege it may by notice claim a proportionate (less than 50%) Joint Venture Interest, this part of cl 2(d) is expressly 'subject to clause 2(c)' and points to the fact that Zuleika gave no notice to the defendants requiring it be transferred a 4.1% or 11.87% Joint Venture Interest, and Zuleika purported to accept the defendants' alleged repudiation of the BTS Agreement without giving any such notice.[95]
Consequently, the defendants contend that the proper construction of the BTS Agreement was that the bargain between the parties and the consideration to be provided by the parties was clear and certain; $3 million for a 50% Joint Venture Interest. The defendants contend that Zuleika did not satisfy its share of the bargain so it receives nothing and, in these circumstances, Zuleika has lost the sum of $245,239.78.[96]
The defendants say that it necessarily follows that if their construction of the BTS Agreement is accepted, Zuleika's action must be dismissed and no issue of repudiation arises. This is said to be so because the extended Earn‑in Period expired on 12 November 2019, which prohibits Zuleika from relying upon its letter of demand from its lawyers dated 12 February 2020 in which it alleged it accepted repudiation of the BTS Agreement by the defendants and purportedly terminated the BTS Agreement, when in fact the BTS Agreement had come to an end on the expiry of the extended Earn‑in Period.

[64]

The defendants contend that cl 3(a) of the BTS Agreement cannot operate, as Zuleika alleges, because this construction is inconsistent with the express term in cl 1(b) which does not state on the Commencement Day Zuleika's interest was 4.1% (or 11.87%) It states that Zuleika's interest was 0%.
The defendants' construction ignores the unambiguous obvious meaning of the language used in cl 1(b) when read together with cl 3(a), in particular the words 'initial Joint Venture Interests of the Parties' on the Commencement Date and the use of capitalisation of the word Expenditure in cl 3(a).
The commercially sensible and coherent reading of these clauses, when considered by regard to establish principles of construction of commercial contracts, is as follows.
First, the use of the words 'initial Joint Venture Interests', when read together with the words 'On the Commencement Date' in cl 1(a), when also read with the definition of Commencement Date in cl 26, must necessarily be read as the interests of the parties on the date the last of the parties executing the agreement which were the interests of those parties on the date the last of the parties signed the agreement and before the commencement of the Earn‑in Period. On that date, and immediately before the Earn‑in Period commenced, Zuleika's interest in the Joint Venture was 0%.
Second, as the defendants point out in their opening outline of submissions, the BTS Agreement is to be read in the ordinary way, from the beginning onwards, in the sequence in which it is written.[97] Clause 1 of the BTS Agreement establishes the formation of the Joint Venture and the terms that follow in the remaining agreement set out the commercial terms which were agreed to by the parties.
The deeming provision in cl 3(a) is one of the following commercial terms in cl 3 which operates to establish what are the amounts to be contributed by Zuleika as Expenditure during the Earn-in Period and following the Earn-in Period. The Earn‑in Period commenced on the coming into operation of the BTS Agreement and ended on 12 November 2019.
The defendants importantly do not submit that to earn‑in an interest in the Earn-in Period, Zuleika was to contribute the sum of $3 million in addition to the deemed Expenditure amount. They agree that Zuleika only had to contribute an amount of $2,754,760.30 in the Earn‑in Period because the sum of $245,239.78 is by operation of cl 3(a) deemed to form part of Zuleika's contribution to the $3 million Expenditure.
Consequently, the sum of $245,239.78 cannot be regarded as expenditure in a different sense than Expenditure. It is Expenditure for the purpose of earning‑in a Joint Venture Interest pursuant to cl 2(a) and cl 2(c).
The second part of the defendants' argument is when the BTS Agreement is properly construed, the parties' bargain was that Zuleika was to spend $3 million for a 50% Joint Venture Interest and no less.
The defendants say it necessarily follows that if the parties agreed to reduce the CAPEX, then under cl 2(a), Zuleika would have been obliged to expend only 50% of that reduced CAPEX (less than $3 million) to earn a 50% Joint Venture Interest under cl 2(c). However, if the parties agreed to increase the CAPEX, Zuleika would have been obliged to only expend $3 million (less than 50% of the CAPEX) to earn a Joint Venture Interest proportionate to the new agreed CAPEX under cl 2(c). In such a case, Zuleika could elect to expend 50% of any agreed increased CAPEX (more than $3 million) and would still earn only a 50% Joint Venture Interest. However, if at the expiry of the Earn‑in Period Zuleika had expended more than 50%, the defendants would have to contribute in proportion otherwise their Joint Venture Interest would dilute.[98] I agree that this construction of cl 2(a) and cl 2(c) is clear from the text and is a commercially sensible and coherent reading of cl 2(a) and cl 2(c) when having regard to the context and purpose of the BTS Agreement. However, it is clear that the amount required to be expended by Zuleika included the amount of deemed Expenditure as an amount it had already contributed during the Earn‑in Period.
I agree that it is clear from the text and the purpose of the BTS Agreement that at the time of entering the agreement, Zuleika knew (and a reasonable business person standing in the shoes of Zuleika would know) it would need to spend $3 million to earn a 50% Joint Venture Interest (unless it was agreed in writing that the CAPEX of $6 million was reduced to an amount below $6 million), and the defendants knew (and a reasonable business person standing in the shoes of the defendants would know) during the Earn‑in Period $3 million was intended to be expended by Zuleika on their Tenement for which they would be transferred a 50% interest.
When the terms of the BTS Agreement are properly construed, it is clear from the text and purpose of the BTS Agreement that Zuleika could have earnt‑in less than a 50% Joint Venture Interest by spending less than $3 million as Expenditure.
However, the defendants submit that if less than $3 million was contributed to Expenditure by Zuleika during the Earn-in Period, then the defendants as the asset holders are no worse off because the operative effect of these provisions is that they will maintain their whole interest in the Tenement, unless the parties have agreed to a reduced price for a 50% Joint Venture Interest by agreeing to a reduced CAPEX.
I do not agree. Zuleika properly points out, on the proper construction of cl 2(a) and cl 2(c) of the BTS Agreement, Zuleika would have earned a Joint Venture Interest provided that it has contributed some funds towards Expenditure within the Earn-in Period. The BTS Agreement expressly recognises a deemed contribution to Expenditure by Zuleika in the amount of $245,239.78, which deemed contribution took immediate effect upon all parties executing the BTS Agreement. That contribution clearly occurred within the Earn-in Period.
As Zuleika contends, the defendants' construction requires a meaning to be attributed to the words 'up to' in cl 2(a) that is commercially absurd and ignores the clear meaning of those words when read in context of cl 2. The words 'up to' qualify the maximum Joint Venture Interest, but not the minimum Joint Venture Interest that could be earnt by Zuleika in the Earn-in Period. The express language recognises that Zuleika agreed to contribute up to the lesser of 50% of the CAPEX or $3 million, the clear meaning of which is that it could contribute less than either and still earn‑in a Joint Venture Interest. Thus, there is no minimum amount that the plaintiff was required to contribute in order to be become eligible to earn a Joint Venture Interest.
This is because cl 2(a) must be read with cl 2(c)(i) which contemplates that if the parties do not agree to increase or decrease the CAPEX, in consideration for Expenditure actually expended by Zuleika (which the parties agree includes the sum of $245,239.78, pursuant to cl 3(a)), Zuleika was to earn a Joint Venture Interest equal to Expenditure as a percentage of the CAPEX within the Earn-in Period.

[107]

The matters discussed at this meeting are important.
First, they show that, as at 21 May 2017, the defendants were complying with the terms of the BTS Agreement, in that Mr McInnes, as a representative of the defendants, showed a clear intention to co‑operate and facilitate the proper engagement of Zuleika in its role as exploration manager.
It is evident from the statements recorded in these minutes that it was agreed Mr Carson was to liaise with one of Vango's employees, Mr Jon Dugdale, Vango's chief consulting geologist, to oversee the drilling program and refine the program for review and approval of the Joint Venture Committee (which included K2, K1 and the satellite bodies near K2). In particular, it is clear that Mr McInnes acknowledged that Zuleika's role was to have the conduct of all the exploration operations of the Joint Venture on behalf of the parties.[117]
However, this co‑operation was short lived.
By a letter dated 12 June 2017, Mr Chris Bradbrook, a director of Superior Gold (the Canadian parent company of Billabong), raised a claim that the entering into the BTS Agreement triggered a requirement for an offer to be made to Billabong from the defendants, pursuant to cl 12.6 of the Ore Treatment Agreement, which if accepted would in effect confer on Billabong the right to earn‑in an interest in the Tenement on the same terms as Zuleika.[118]
The letter of demand by Superior Gold was directed also to Zuleika, even though it was not a party to that agreement. After the letter was received, Zuleika called a meeting to discuss the claim.
A consequence of Billabong's claim was that the relationship between the defendants and Billabong soured.
In addition, after Billabong made its demand, Vango made its position clear to Zuleika that it did not want to proceed with the Joint Venture to develop the Tenement with Zuleika. From this time on, Vango actively stonewalled and put in place obstructions to stop Zuleika from contributing to Expenditure in an attempt to stop it from earning‑in any interest in the Tenement.
The defendants from then on ignored Zuleika's role as exploration manager and in effect removed its ability to carry out its appointed functions as exploration manager by conduct which could be colloquially described as 'ghosting'; generally doing what it could to prevent Zuleika from having the benefit of the terms of the BTS Agreement.
On 25 July 2017, the parties met to discuss the Billabong claim. The meeting was attended by Mr Carson, Ms Guo, Mr McInnes and John Griffin from Vango. It was agreed by all present that the best course of action was to terminate the Ore Treatment Agreement.[119]
It appears, however, that Zuleika's agreement to terminate the agreement would in any event have been irrelevant because Mr McInnes had already prepared a letter, dated 24 July 2017, attaching a notice of termination to the effect that the Ore Treatment Agreement was to terminate on 25 October 2017, giving 3 months and 1 days' notice of termination.[120] In the letter of termination, Mr McInnes, on behalf of Vango, stated that it was Vango's view that the obligations under the Ore Treatment Agreement had not commenced, including the right of first refusal in cl 12.6, denying that Vango was in breach of the agreement.[121]
At the meeting on 25 July 2017, Mr McInnes told those present that 'the pre‑emptive right' sought to be exercised by Billabong 'was a major issue for them and for the Joint Venture and that we should tear up the joint venture and put in place a new agreement'. Mr Carson and Ms Guo did not agree.[122]
By this time it appears that the defendants had commenced drilling on the Tenement.[123]
The termination of the Ore Treatment Agreement and the breakdown in the relationship between the defendants and Billabong created a problem for the progression of mining gold from the K2 deposit because, as Mr Carson stated, it was his view the project could get up and running without its own treatment plant.[124] This did not mean the BTS Agreement had to come to an end. The defendants do not plead a defence of frustration.
It does appear, however, that the parties may not have intended to rely upon Billabong in the long‑term to process ore from the Tenement. Prior to the termination of the Ore Treatment Agreement, Mr Carson made enquiries to try and find a second‑hand ore processing plant that could be used to process ore from the K2 deposit.[125]
Following the termination of the Ore Treatment Agreement, Mr Carson considered that Zuleika and the defendants had four options to process ore from the K2 deposit. These were:[126]

[109]

It was Mr Carson's opinion that the most logical and commercial options to process ore from the K2 deposit was to enter into a new ore treatment agreement with Billabong on similar terms to the previous Ore Treatment Agreement.[127] Mr Carson had discussions with Mr Bradbrook after the termination of the Ore Treatment Agreement which Mr Carson regarded as very encouraging because Mr Bradbrook indicated enthusiasm about negotiating a new ore treatment agreement.[128]
However, Vango would not agree.
It is Mr Carson's evidence that Mr McInnes told him that they (the defendants) would not deal with Billabong under any circumstance.[129] Ms Guo was present during this discussion. She gave similar evidence, and added that Mr McInnes insisted that the K2 joint venture should set up a brand-new processing plant. She told him that option was not commercial or economical.[130]
After the termination of the Ore Treatment Agreement, Mr Carson, together with Ms Guo, continued to look for a second-hand processing plant to treat ore mined from the K2 deposit, including visiting a second‑hand processing plant in New South Wales.[131] However, Mr Carson was unable to locate a suitable plant.[132]
Mr McInnes gave evidence to the effect that Vango's relationship with Billabong had broken down prior to the termination of the Ore Treatment Agreement. He said a dispute had arisen the night after Northern Star had assigned its interests in the Ore Treatment Agreement to Billabong in October 2016, when Mr McInnes met with Mr Bradbrook in Perth after the completion of the assignment of the agreement. Mr McInnes testified that Mr Bradbrook told him that 'their plant was full' and they would not have any ability to process any ore (from K2); they did not intend to honour the terms of the Ore Treatment Agreement.
Mr McInnes' evidence on this point must be treated with caution because no uncertainty in the adherence to the Ore Treatment Agreement in 2017 or 2018 was reported to the market.
In an ASX announcement on 14 February 2017, Vango reported on the Entech February 2017 K2 Update Report and its agreement with Zuleika to bring the K2 deposit into production, stating that the ore processing schedule was based upon delivered ore being processed when made available to the Northern Star Resources Plutonic Processing Plant, and referred specifically to the binding Ore Treatment Agreement with Billabong in positive terms.[133]
However, it does appear from Mr Carson's evidence that the parties may have been considering whether to purchase second‑hand plant prior to the termination of the Ore Treatment Agreement.

[136]

When cross‑examined, Mr McInnes claimed that by the middle of 2017 the collapse of the western wall resulted in a material change to the ($6 million CAPEX) figure in the three Entech reports because it changed the integrity of the rock and earth that they were going to be dealing with.[150]
The effect of Mr McInnes' evidence on this point is that, because a collapse of the western wall of the open pit occurred by mid-2017, by mid‑2017 the two 2014 Entech feasibility study reports of the estimates of CAPEX of developing the K2 underground mine in year one (that were relied upon as forming the basis of the agreed CAPEX of $6 million in the BTS Agreement) could not now be relied upon. This, he claims, and the defendants claim, is the reason why the defendants subsequently sought to renegotiate a new figure of CAPEX that was to form the basis of Zuleika's right to earn‑in an interest in the Joint Venture.
It is clear that Mr McInnes' evidence about this issue is not credible.
Although it is clear that there was a collapse of the western wall of the open pit to the K2 deposit, the fact that it happened was not relevant to any of the discussions Mr McInnes had with Mr Carson. This is because the first collapse referred to by Mr McInnes occurred in 1990, well prior to the Tenements being acquired by Dampier Plutonic and well before the preparation of any of the Entech reports.
I do not accept Mr McInnes' evidence that he discussed with Mr Carson that they needed to look at an alternative access into the base of the mineralised zone, and that 'their simplistic view' of how they were going to start mining K2 did not exist anymore because of a further collapse of the western wall of the open pit.
It is Mr Carson's evidence that he does not recall any mention being made to him of any significant wall collapses during the term of the BTS Agreement.[151] Mr McInnes' evidence, that from the middle of 2017 it emerged that the cost of the commencement of mining of K2 had changed and Mr McInnes told him this, was not put to Mr Carson when he gave evidence.
More importantly, there is no mention in any of the relevant contemporaneous documents that passed between the parties of a collapse of the western wall of the open pit in the middle of 2017, or any anticipated change in the cost of refurbishment and dewatering of the K2 underground because of this event.
Also of importance, this evidence is inconsistent with the statements Vango made to the market in 2017 and 2018.
Mr McInnes conceded that, despite his view, he did not put any information out to the market about this issue because his opinion had not been substantiated (in 2017 or 2018) by any geologist or engineer.[152]
When then asked what steps, if any, he took to ascertain whether or not his opinion had substance, he said that they engaged a geotechnical report from (a geotechnical engineer employed by Entech), Mr Parrott.
When he was asked about what the result of Mr Parrott's report was, Mr McInnes said:

[138]

In 2017 and 2018, Mr Hepburn‑Brown was employed as Vango's project manager and had responsibility for the implementation of the development plan to take the K2 deposit into production, including implementing a dewatering program for the K2 open pit and underground workings in preparation for mining activities, and refurbishing the K2 decline and additional resource drilling.[153]
However, Mr McInnes said when giving evidence that he did not speak to Mr Hepburn-Brown until early in 2018 or the middle of 2018 (about this matter) which was not long before Mr Hepburn-Brown died.[154]
If this was such an issue of significance to the method and cost of exploration and refurbishing the K2 decline, it can be inferred the matter would have been raised in mid‑2017 with Mr Hepburn-Brown, and it would have been a matter discussed with Mr Carson at one of the Joint Venture Committee meetings in 2017.
To the contrary, Mr McInnes' evidence on this point is directly contradicted by Mr Carson's minutes of the Joint Venture Committee meeting on 24 October 2017, the accuracy of which Mr McInnes does not dispute.[155]
Mr McInnes, Mr Hepburn-Brown and Mr Dugdale attended the meeting on 24 October 2017, as did Mr Carson.[156] Mr Carson took notes. At the meeting Mr Hepburn‑Brown stated that dewatering could be accomplished without refurbishing the decline, and provided information as to the method that would be used to target the base of the decline. Mr Dugdale provided information about a review of a new drill program. Mr Carson suggested setting out a template for future meetings and it appeared to be agreed by Mr McInnes that monthly meetings would be set with extra meetings if required.
It was also agreed at the meeting on 24 October 2017 that Mr Hepburn‑Brown would come back with a dewatering rate and costing, and Mr Dugdale would present with a proposed drill program (at the next meeting).
Importantly, in the minutes of this meeting there is no mention of a recent collapse of the western wall of the K2 open pit, or that there was a need to look at an alternative entry into the base of the mineralised zone.
In addition, Mr McInnes' evidence that in mid‑2017 they needed to look at an alternative entry into the base of the mineralised zone is not supported by the observations and opinions of Mr Parrott.
An assessment was made in March 2017 by Mr Parrott as to whether the dewatering activities of the underground area of the K2 deposit could have been accessed from the K2 open pit.
Mr Parrott wrote a letter report addressed to Mr McInnes containing site visit notes and photographs of his inspection of the walls of the open pit to the K2 deposit on 23 March 2017.[157]
In his letter report, he states that he was requested to provide a summary of a geotechnical review undertaken for the K2 pit and underground workings to access K2, and part of the scope of the work was to review the K2 pit in terms of geotechnical stability and serviceability for the purposes of re‑entry for undertaking dewatering activities.
In the letter report, under the heading 'K2 Open Pit SITE VISIT NOTES ‑ 23rd MARCH 2017', Mr Parrott stated:[158]

[155]

In respect of the failure wall deterioration on the western wall, Mr O'Bryan stated it was not possible to identify the timing of local falls of ground which occurred in this sector between 2007 and 2020, but that degradation of stability conditions was expected in the area. Additionally, Mr O'Bryan noted that tension cracking on the surface was significant, and its location and trace on the surface suggest that the slope immediately south of the re‑excavated sector of the wall had relaxed.[166]
Mr O'Bryan made recommendations about the future open pit access and the work that needed to be undertaken for safe access if open pit mining was to occur, indicating that rehabilitation of the decline could be performed in concert with the dewatering operation of the underground.[167]
Mr O'Bryan also inspected the boxcut and decline portal briefly. He did not enter the decline of the boxcut but observed the boxcut walls were fundamentally stable and opined that access to the portal could be re‑established with a moderate amount of earthwork on the ramp and drainage from the surface to the portal.[168] Mr O'Bryan inferred that a substantial proportion of the initial leg of the decline to the boxcut would have to be developed in weathered ground, and the use of sprayed concrete support (shotcrete, as used at and immediately inside the portal) would have been required. He noted that the condition of reinforcing elements (rockbolts) was also unknown and opined that re‑establishment of decline access for operation would be slow, requiring testing of shotcrete thickness and quality, shotcrete adhesion (to the weathered rock mass), and assessment of the condition of the steel reinforcing elements installed in the decline. He observed that the existing decline profile was smaller than those typically adopted in current operations which, in his opinion, restricts flexibility, equipment selection, and likely compromises achievable productivity.[169]
Mr O'Bryan did not indicate in his report that dewatering of the underground could only be undertaken from the open pit. It is clear from his report that there is a lot of work to be done to bring the K2 deposit into production, including work to be done to the decline from the K2 boxcut. However, there is nothing in his report that supports a material change in the information known to Vango in mid‑2017 which rendered the Entech feasibility study estimates for developing the K2 Underground mine in year one to be unreliable.
In any event, none of the announcements made by Vango to the market in 2017 or in 2018 mentioned an increased costs of mining and development because of the collapse of a part of the western wall of the open pit of K2, or for any other reason.
To the contrary, in an investor presentation to the market in July 2018, Vango reiterated the estimated pre‑production capital cost of $6.4 million in the February 2017 K2 Update Report and described the report as highly positive.[170] The investor announcement also stated there had been no material changes to the forecast financial information derived from the production targets in that report.[171]
Also of importance, the Entech reports assessed the feasibility of mining the underground from the boxcut decline, not from the K2 open pit.[172]
The only mention of any problem with the wall which affected the mine plan in contemporaneous documents that passed between the parties was in an agenda Vango sent to Mr Carson and Ms Guo on 7 December 2018. Item 1 of this agenda referred to a proposed discussion at the next Joint Venture Committee meeting about updating the underground mine plan for the escape ways and ventilation shafts required by the Department due to 'instability of west wall'.[173]
Importantly, the minutes of the Joint Venture Committee meeting on 11 January 2019 which was the meeting that followed the provision of the agenda, there is no mention of any discussion about issues arising out of the instability of the west wall.[174] Further, and of importance, no discussion is recorded in these minutes about ground conditions.
It was not until approximately four weeks prior to declaring the BTS Agreement to be at an end did Vango make any ASX announcement suggesting that the pre‑production capital cost estimate in its 14 February 2017 announcement may no longer be reliable.
In its announcement to the market on 10 October 2019, in a chairman's update to shareholders, Mr McInnes stated:[175]

[172]

Mr Carson presented to Mr McInnes a spreadsheet in which he had summarised Zuleika's understanding of Vango's financial position. Mr Carson's notes also record that he made an offer on behalf of Zuleika to complete arrangements for debt finance for Zuleika to go ahead to fund 100% of the development of the K2 deposit and for Vango to receive a royalty on production, which would equate to Vango's net financial position. Mr Carson recorded in his notes that Mr McInnes declined the offer.[187]
Mr Carson and Mr McInnes met again on 15 February 2018, together with Ms Guo. Mr Carson recorded what was said in that meeting in an email he sent to Mr McInnes on 20 February 2018.[188] The contents of the email records that the topic of conversation was the termination of the Ore Treatment Agreement and the claim being made against the defendants by Superior Gold on behalf of Billabong. In the email, Mr Carson set out the matters stated on behalf of Vango and the matters stated on behalf of Zuleika. Mr Carson recorded in the email that Vango was of the view that the only solution (to the situation with Billabong) was 'to tear up the Term Sheet and enter into a new arrangement'. When Ms Guo gave evidence, she said she could recall Mr McInnes repeatedly making this statement at the meeting.[189]
Another meeting on a date unknown in February or March 2018 may also have taken place between Mr McInnes, Mr Carson and Ms Guo at which Mr Carson and Ms Guo attempted to get the defendants to affirm the BTS Agreement.[190]
By a memorandum dated 16 February 2018, Mr Dugdale provided a summary and recommendation for approval by the board of Vango of a program and budget for the Trident tenement, K2 drilling, as well as the dewatering holes.[191] This internal memorandum was not provided to Zuleika or produced by Vango for consideration by the Joint Venture Committee. The total drilling costs stated in this memorandum for K2 were $511,250 and dewatering costs of $286,000, being a total of $797,250.[192] The work programmed to be performed at K2 was described in this memorandum as follows:[193]
1. K2 (see Figure 2):

[184]

By letter dated 28 June 2018, lawyers for Vango sent a letter to Zuleika's lawyers stating that, 'as your client is aware', the first draft of the formal Joint Venture Agreement is not acceptable to our client in its current form. The letter also stated that Mr McInnes would be on leave from 28 June 2018 until 5 July 2018, so Vango proposed to hold a meeting on 10 July 2018 and requested that an agenda be sent as soon as possible.[199]
On 28 June 2018, Mr Carson sent an email to Mr McInnes providing the following agenda for the next Joint Venture Committee meeting which Zuleika said should take place on 6 July 2018:[200]
1. Nomination of Vango representatives to the JV Committee
2. Appointment of Dampier as Exploration Manager
3. Confirmation of Dampier's rights to earn 50% in the K2 Project and its extensions
4. Confirmation of the commercial Terms set out in the Binding Terms Sheet
5. Status of the formal Joint Venture agreement, reference to the November 2017 Draft presented by Dampier
6. Other business
By letter dated 30 June 2018, Zuleika's lawyers sent a further formal agenda for a Joint Venture Committee meeting to Vango's lawyers.[201]
On 4 July 2018, Vango made an announcement to the market that it had agreed terms with sophisticated and professional investors to raise $5.1 million by issuing 28.3 million fully paid ordinary shares at $0.18 per new share to use the funds for planned exploration and development of Vango's 100% owned Plutonic Dome Gold Project, and for working capital.[202]
Despite Mr McInnes' evidence that by mid‑2017 the Entech feasibility CAPEX figures could not be relied upon because of changed ground conditions, the investor presentation released to the market in July 2018 to attract those investors relied upon the Entech February 2017 K2 Update Report and specifically stated that the forecast financial information derived from the production targets (in that report) continue to apply and had not materially changed since the disclosure provided in the announcement to the market on 14 February 2017.[203] In addition, under the heading 'Indicative Timelines and Investment Catalysts' and under the subheading 'K2', the investor presentation indicated the following work had been planned:[204]
- Dewatering program - 2H 2018
- Additional resource / reserve drilling including open pits - Q3 2018
- Refurbishment of decline and commencement of underground ore development - 2H 2018 and/or
- Open pit mining (e.g. K2 North) and alternative underground access - 2H 2018
- Potential gold production from K2 from 1H 2019 (assuming toll treating or alternative processing option)
On 9 July 2018, Mr Carson sent to Mr McInnes a detailed agenda for the Joint Venture Committee meeting which, by this time, had been scheduled for the following day, which stated:[205]

[208]

From this document it can be seen that, excluding the open pit of K2, the costs of developing the underground decline and rehabilitation of the decline, together with a ventilation shaft, was estimated to be $4.5 million. The document in this form was not provided to Zuleika.
The Joint Venture Committee meeting on 10 July 2018 was attended by Mr Carson, Ms Guo and Mr Higginson (by telephone) on behalf of Zuleika, and Mr McInnes and Mr Peter Hepburn‑Brown on behalf of the defendants.
Prior to the commencement of the Joint Venture Committee meeting on 10 July 2018, during a general discussion about the Billabong claim Mr McInnes tabled an edited version of the document prepared by Mr Hepburn‑Brown.[211]
After the meeting, Mr Carson asked Mr Higginson to prepare draft minutes, to which Mr Carson made some amendments before sending a copy of the minutes to Mr McInnes on 12 July 2018.[212] The defendants did not produce their own minutes of this meeting.
The minutes record that prior to the commencement of the Joint Venture Committee, there was a discussion about the K2 costs memo produced by Mr McInnes and the milling costs which were raised due to the issues with Billabong. The minutes record that Mr Carson said the Sedgemen costing from several years ago of $42 million for a small processing plant was far too high. Mr Hepburn‑Brown agreed and stated that Vango had approached Como Engineering in Perth for an updated/sensible cost estimate. There was also discussion about the general costings being presented for the development of a possible K2 North pit which would eliminate 200m of decline ($6 million) and underground development and rehabilitation of the old decline.
The minutes record that Mr McInnes then said that since the Billabong issue was unresolved, there was no need to have the Joint Venture meeting. However, Mr Carson and Ms Guo insisted they go ahead with the Joint Venture meeting.
The minutes record the opening of the meeting at 11.10 am and closed at 12.15 pm. During that period of time the following discussion occurred in respect of each of the items on Zuleika's agenda.
The first item of business was the 'Project Status'. The minutes relevantly record the following discussion in respect of this item:

[218]

The second item of business on the agenda was 'Information'. The minutes record that Mr Carson said Vango must by now have a comprehensive database containing key documents, and that this should be shared with Zuleika so it can refine its expenditure schedule and timeline. Mr McInnes said in response the database was a mess and that it needed to be brought into order. Mr McInnes, together with Mr Hepburn‑Brown, then discussed various data sharing options including email and Dropbox.
When Mr McInnes was cross-examined about if the documents sought by Zuleika at this meeting were subsequently provided to Zuleika, Mr McInnes claimed that the exploration, plan drill programs, budgets, contracts timeline and report documents were documents that should have been supplied by Zuleika to assist Vango to develop the K2 deposit, but then said that some of these documents were provided to Zuleika prior to 31 October 2018. He then conceded that he did not know whether any of the documents were provided after 31 October 2018.[213] When he was re‑examined about documents that he said should have been supplied by Zuleika, he said that these were the documents that the geologist in charge of the proposed drilling program would promote to the Joint Venture Committee. He also said in re‑examination that Zuleika were provided with a pro forma budget, an ordering plan and program budgets.[214]
The third item on the agenda was 'Dampier Budget'. Both Mr Carson and Ms Guo referred to the Gantt spreadsheet which set out the proposed expenditure schedule for Zuleika's $3 million contribution to the project and stated that on receipt of the latest information (as requested), Zuleika could update the schedule. Mr McInnes and Mr Hepburn‑Brown did not make any comments in response.
The fourth item on the agenda was 'J V Administration'. Mr Carson enquired about agreeing a budget and Mr McInnes stated that a budget could not be finalised until all data was available.
It was Mr Carson's evidence that the minutes of the meeting (set out above) are an accurate record of what occurred and was discussed at the meeting.[215]
Mr Higginson also gave evidence that these minutes were accurate.[216]
Mr McInnes gave evidence that he had no independent recollection of what occurred but, after having his memory refreshed by reference to the minutes, when cross‑examined he recalled some matters.[217]
When Mr McInnes was cross‑examined, he was asked to explain what was wrong with Zuleika's budget of how it intended to expend $3 million (taking into account the initial deemed contribution of approximately $245,000). In response, Mr McInnes claimed that a budget for drilling has to have attached to it numerous supporting documents to support a geologist 'application for us to give approval to it'.[218]
This evidence of Mr McInnes makes no sense because:

[235]

In early August 2018, Mr Carson tried to arrange another Joint Venture Committee meeting and provided Mr McInnes with an agenda for a meeting on 7 August 2018. The meeting was rescheduled and was proposed to be held on 16 August 2018. The agenda effectively contained two items. The first was the Joint Venture Committee's approval of an exploration program and budgets to enable Zuleika to define its expenditure schedule over exploration and predevelopment. The second item was to set a time for a next meeting.[226]
By a letter sent by email to Mr McInnes and Mr Zhou, Zuleika's lawyers gave notice to Vango of a dispute, pursuant to cl 20 of the BTS Agreement, claiming that Vango was acting in breach of the BTS Agreement. The notice stated the outcomes and actions sought by Zuleika to resolve the dispute.[227]
Six weeks after the service of the notice of dispute, Vango launched a takeover bid to acquire all of the issued capital in Zuleika. The takeover bid was unsuccessful. When cross‑examined about the takeover bid, Mr McInnes, in effect, conceded that one of the motivating factors of making the takeover bid was that it was a solution to avoid the dispute between Vango and Zuleika.[228]
On 28 September 2018, Mr Carson sent Mr McInnes an email proposing dates for a Joint Venture Committee meeting in early October 2018 and attached a proposed agenda for the meeting.[229]
Prior to preparing the agenda, a search of the Department register of the Tenement indicated that Vango had reported, as at 1 February 2018, that $505,259 had been spent on the Tenement and of this amount $457,099 had been spent on exploration activities.[230]
In light of this information, Zuleika proposed items on the agenda that the Joint Venture Committee approve; either Zuleika contribute as Expenditure the full amount of $505,259 or, alternatively, 50% of this amount.[231]
On 5 October 2018, Mr McInnes sent an email to Mr Carson indicating that they were happy to attend a meeting from 16 to 19 October 2018.[232]
On 8 October 2018, Mr Carson sent an email attaching another agenda to Mr McInnes, with a copy to Mr Zhou, and proposed a meeting on 16, 17 or 18 October 2018.[233] Mr Carson did not receive a response to this email.
On 22 October 2018, Mr Carson sent another email to Mr McInnes and Mr Zhou in which he repeated the content of his email on 8 October 2018 and then said:[234]

[267]

Zuleika's minutes of the meeting on 31 October 2018 record that Mr McInnes stated that Vango did not believe that the meeting was a Joint Venture meeting and the parties do not have a joint venture, they only have a term sheet.[243] Although this statement is not specifically recorded in the Vango minutes, when cross‑examined, Mr McInnes agreed he had said this.[244] In any event, it is clear from the matters recorded in Vango's minutes that Mr McInnes and Mr Zhou were clearly pressing a view that the Joint Venture between the defendants and Zuleika had not commenced, because Zuleika had proposed a formal agreement, the BTS Agreement had been superseded.[245]
Of importance, when cross‑examined, Mr McInnes maintained what he had said at the meeting; there was no joint venture as at the date of the meeting because Zuleika had served formal documentation for a formal joint venture agreement. However, when pressed on this point, Mr McInnes conceded there was a joint venture in place at the time and when he made that statement at the meeting on 31 October 2018, he knew that statement to be untrue.[246]
Mr McInnes also reluctantly conceded that by 31 October 2018, he had come to the conclusion that the agreement with Zuleika, which allowed them to earn‑in an interest of 50% of the Tenement by expending an amount of $3 million, was no longer a commercially favourable transaction for Vango.[247]
Although the meeting on 31 October 2018 took only 40 minutes, the parties did consider each of the items of Zuleika's agenda. The representatives of the defendants voted with the representatives of Zuleika to authorise Vango to proceed with establishing a Joint Venture bank account. All other resolutions put forward by Zuleika were defeated by the votes of Mr McInnes and Mr Zhou as representatives of the defendants.[248]
Proposed resolutions 1 and 2 were for the Joint Venture Committee to approve a contribution by Zuleika to Expenditure which, if either resolution was approved, would have had the effect that Zuleika would have earned in an additional Joint Venture Interest in the Tenement of either 8.29% or 12.50%.
There had been, however, funds expended on exploration work on the Tenement by the defendants. Zuleika's minutes of the meeting on 31 October 2018 record that Mr Carson asked Mr McInnes why resolution 1 and resolution 2 were defeated. Mr McInnes simply said that Vango had to proceed with exploration in order to meet its expenditure commitments on all of its tenements; it had already expended the amount of $505,295, and did not need any contribution from Zuleika.[249]
However, when cross‑examined about this evidence, Mr McInnes conceded that he knew by 31 October 2018 the defendants were carrying out more work than the required minimum expenditure (required by the Department) for all of Dampier Plutonic's tenements.[250]
On 9 November 2018, Zuleika made an announcement to the market that Billabong had filed a writ of summons against Vango.[251] At this time, shareholders of Zuleika had not yet voted to reject Vango's takeover bid.
On 16 November 2018, Mr Carson sent to Mr McInnes an agenda for the next Joint Venture meeting which he had prepared in conjunction with Zuleika's lawyers.[252] Proposed resolution 1 and proposed resolution 2 of Item 1 were the same as the resolutions Zuleika had put forward and were considered by the Joint Venture Committee on 31 October 2018.
Item 2 proposed that Vango provide Joint Venture bank account details to Zuleika so that Zuleika could arrange user and signatory access.
Item 3 proposed that Vango provide the documents for the Tenements set out in the list in the agenda dated 9 July 2018 and for Vango to account to Zuleika as to Expenditure so far incurred on the Tenement for the 2018 expenditure year.
Item 4 proposed that Vango table a contribution schedule (which was agreed to be provided at the Joint Venture Committee meeting on 31 October 2018) and for the committee to discuss the contribution schedule.
Item 5 proposed dates in December 2018 to be set for the next Joint Venture Committee meeting.
Item 6 proposed:[253]

[339]

Fourth, when Mr McInnes gave evidence he conceded that the Ripago report was prepared on his instructions because he wanted to have something to give to Zuleika by way of an independent report to substantiate the defendant's position that the $6 million CAPEX (for Zuleika to earn‑in a 50% interest in the Tenement) was no longer fair and reasonable.[290] Mr McInnes also conceded that when he received the report, Vango did not make an announcement to the market because the report was not of sufficient substance or sufficiently reliable to cause Vango to make a disclosure to the public.[291]
When Mr Carson gave oral evidence he was highly critical of the estimates made in the Ripago report. He was also critical of the estimates in contemporaneous correspondence he sent to Mr McInnes.
Zuleika also points out some of the items that the defendants claimed were necessary expenditure to develop the Tenement were items that would be of benefit to the Plutonic Dome tenements as a whole. Mr McInnes gave evidence that 'K2, as a standalone mine, with an ore treatment agreement in place and the provision of camp and other facilities, would have been a profitable mine'.[292]
However, Mr McInnes accepted that other tenements held by the defendants across the Marymia Gold Project required a milling arrangement and the development of those tenements would benefit from the capital infrastructure costs Vango would incur in developing the K2 mine.[293]
As Zuleika points out, some the items included in the revised CAPEX that the defendants sought the plaintiff to agree, as set out in exhibits 638, 625, 626 and 634, included capital infrastructure costs that Vango would have otherwise had to incur in relation to its other nearby tenements. On 24 April 2018, Vango made it clear in an announcement to the market that it intended to develop the Trident Gold Deposit and the K2 deposit to develop the Plutonic Dome into a significant, stand‑alone, gold mining and processing operation.[294] On 16 May 2018, it announced to the market the results of the Trident and K2 drilling programs and stated that the objective of both programs 'was to prove‑up sufficient high‑grade gold resources to support a stand‑alone, high‑margin, gold mining and processing operation on the Plutonic Dome Project'.[295] Vango made similar statements to the market in its investor presentation in support of its capital raising in July 2018.[296]
In a bidders statement filed with the Australian Securities and Investments Commission to acquire all of the shares in Zuleika on 17 September 2018, Vango relevantly stated:[297]

[413]

It is clear, however, that the scope, nature and functions of the parties under the BTS Agreement required each of the parties to co‑operate. Without reasonable co‑operation, the terms of the BTS Agreement could not be performed.
The scope and nature of the BTS Agreement as a joint venture agreement required the parties to carry out specific functions under the agreement. These functions could only be properly carried out by the parties if they co‑operated and complied with cl 18 by doing all acts and things as may be reasonably required by the other party to effectively carry out and give effect to the terms and intentions of the BTS Agreement. This is because the work necessary to explore and bring into production ore from the Tenement was divided between the parties but both were required to conduct that work through decisions being made by the Joint Venture Committee, which committee was comprised of the parties. The work to be carried out pursuant to the terms of the BTS Agreement was divided between the parties as exploration operations and development operations. Pursuant to cl 5 of the BTS Agreement, by assigning to Zuleika the work of exploration manager and the defendants the work of the development manager, each were required to conduct these Joint Venture operations in accordance with the programs, budgets and decisions made by the Joint Venture Committee, and in accordance with accepted mining and exploration methods and practices. Put simply, it was necessary for the parties to work together through the Joint Venture Committee to explore and develop the Tenement.
The carrying out of acts by the parties in accordance with cl 4 (the obligations of the Joint Venture Committee) and cl 5 were necessary to the performance by the parties of the obligations of the contract. Unless the parties reasonably co‑operated with each other in the performance of the functions of exploration and development, the purpose of the contract would likely not be fulfilled. This work comprised fundamental obligations of the contract.
In addition, cl 18 was not on its own sufficient to require co‑operation, but if the term is implied then it necessarily follows that the doing of acts and things that were reasonably required to carry out and give effect to cl 4 and cl 5 of the BTS Agreement would require the parties to co‑operate in doing those acts and things. In addition, without the co‑operation of the defendants as a member of the Joint Venture Committee, Zuleika would be unable to contribute to Expenditure pursuant to cl 2(b) to earn‑in an interest in the Tenement.
For these reasons, implying a duty to co‑operate in the BTS Agreement does not rise above the promises made by the parties or extend beyond the obligations of the contract.[318]

[415]

The evidence overwhelmingly establishes Zuleika has proved that the defendants breached each of the three pleaded implied terms, by preventing Zuleika from contributing to Expenditure during the Earn‑in Period.
The evidence also establishes that the defendants by their conduct repudiated the BTS Agreement by preventing Zuleika from contributing to Expenditure during the Earn‑in Period. The defendants clearly did not want Zuleika to earn‑in an interest in the Tenement after the Ore Treatment Agreement was terminated.
As senior counsel for Zuleika submitted in closing, when Billabong raised its head in June 2017 by its parent company Superior Gold writing to Vango and Zuleika and claiming, pursuant to the Ore Treatment Agreement, Billabong had first right of refusal to earn‑in an interest of 50% in the Tenement, all of a sudden, the defendants stood to lose everything. This was because if the Billabong claim was successful then the defendants' other 50% interest in the Tenement would become the subject of a separate binding terms sheet with Billabong potentially resulting in the defendants ending up with no interest in the Tenement.[319]
From this time onwards, the defendants wanted to tear up the BTS Agreement and renegotiate a new agreement to potentially allow Zuleika to only earn‑in a 10% to 15% interest in the Tenement. This strategy was revealed in the minutes of a meeting of the board of Vango on 8 January 2018,[320] and discussed again at Vango's board meeting on 11 October 2019.
The defendants' strategy was to renegotiate the terms of the BTS Agreement, and they were not going to allow Zuleika to contribute to Expenditure to earn‑in until Zuleika agreed to renegotiate.
Consistently throughout the term of the BTS Agreement, Zuleika sought to pass resolutions by the Joint Venture Committee so as to enable it to contribute to Expenditure. The defendants did not co‑operate.
At a Joint Venture Committee meeting on 25 July 2017, after the defendants had terminated the Ore Treatment Agreement, Mr McInnes expressed the view that the parties should 'tear up the joint venture' and put in place a new agreement.[321]
Mr McInnes maintained this view thereafter, and made the statement again at Joint Venture Committee meetings on 15 February 2018[322] and 7 May 2019.[323]
The defendants repeatedly prevented Zuleika from contributing to Expenditure by repeatedly refusing to agree to any resolution to allow Zuleika to contribute at a Joint Venture Committee meeting. Formal resolutions to this effect were voted against by the defendants on 31 October 2018,[324] 21 November 2018,[325] 11 January 2019,[326] and 17 May 2019.[327]
It is formally admitted by the defendants that, during the extended Earn‑in Period, the defendants proposed alternative figures for the CAPEX to Zuleika on multiple occasions and sought to agree an alternative figure for the CAPEX with Zuleika.[328]
Whilst the defendants formally deny that they sought to require Zuleika to agree an alternative figure for CAPEX prior to approving any Expenditure schedules or development work programmes,[329] the evidence set out in 5.1.7 to 5.1.9 clearly demonstrates otherwise.
However, the defendants admit that, since as early as 10 July 2018, the defendants insisted on 15 occasions that Zuleika agree to a revised CAPEX.[330] The last of these occasions was at a meeting of the Joint Venture Committee on 17 May 2019.[331]
Mr McInnes gave evidence that, based on what he understood to be the actual costs associated with the development of the K2 mine, he no longer wanted Zuleika to earn a 50% interest in the Tenement by expending $3 million and wanted Zuleika to agree to a lesser percentage Joint Venture Interest by agreeing to a revised (higher) CAPEX to achieve that result.[332]
Mr McInnes made it very clear to Zuleika, including in correspondence, that the defendants would not agree to approve any tranche of Expenditure unless Zuleika first agreed to a revised CAPEX.
Mr McInnes knew that the defendants could not compel Zuleika to agree a revised CAPEX figure under the BTS Agreement.[333] Notwithstanding, Mr McInnes (and Mr Zhou) sought to cause Zuleika to do exactly that, going so far as to allege that Zuleika was in breach of the BTS Agreement for not doing so.[334]
The position of the defendants not to approve any contributions by Zuleika to Expenditure and to demand that Zuleika first agree to an increased CAPEX for the development of the K2 underground mine was not only misconceived but had no legal basis.
What is fundamental is that the total amount for the exploration, development and production of ore of the Tenement pursuant to the terms of BTS Agreement is and was not contemplated to be a total of only $6 million. This can be clearly illustrated by the following example.
Clause 3 of the BTS Agreement expressly provided for an amount of total Joint Venture Expenditure incurred which was not limited to any maximum amount.
The CAPEX of $6 million was, as defined in cl 26, to be the capital cost estimate for the development of the mine on the Tenement being, as at the Commencement Date, $6 million, or such other amount as agreed in writing by the parties.
As the defendants point out in their submissions, the defendants had no obligation to contribute to Expenditure until the end of the Earn‑in Period, but if they had made no contributions during this period, and if Zuleika made contributions of $3 million pursuant to cl 3(b) of the BTS Agreement on the expiry of the Earn‑in Period, the defendants would have had to contribute to Expenditure incurred by that date in respect of the Joint Venture in proportion to their Joint Venture Interest, otherwise pursuant to cl 3(b) their interest would dilute.
The effect of these provisions were that if, by the end of the Earn‑in Period, only $3 million of 'Expenditure' had actually been incurred and the CAPEX remained at $6 million within the meaning of that term in cl 26, Zuleika had contributed that amount, and the defendants had made no contribution, unless the defendants then made a contribution of $3 million to Expenditure, their Joint Venture Interest would dilute.
This construction is clear from cl 3(a) and cl 3(b) when read with the second paragraph of cl 2(d), which provides as an example (if notice is given to bring the Earn‑in Period to an end early), that if Zuleika had contributed $3 million to Expenditure at the date of the shortened period of the Earn-in Period and the total CAPEX to that date was $4 million, Zuleika would be entitled to the maximum initial 50% Joint Venture Interest, with such Joint Venture Interest increasing by 25% to 75% if the defendants' interest diluted under cl 3(c) (by not contributing to Expenditure in accordance with their 50% Joint Venture Interest).
Clause 2(a) required Zuleika to contribute up to the lesser 50% of the CAPEX (being $6 million or such other amount agreed in writing by the parties) or $3 million to Expenditure to earn‑in a Joint Venture Interest of 50%. This was not the only contribution they were required to make. After the expiry of the Earn‑in Period, but for the termination of the BTS Agreement by Zuleika by letter dated 12 February 2020, they would have been required to equally contribute to the 'total Joint Venture Expenditure' (within the meaning of cl 3(c)), being the total of all costs incurred in connection with the activities of exploration, development and mining of the Tenement.
If, after Zuleika had earned‑in a 50% Joint Venture Interest by the end of the Earn‑in Period by expending an amount of $3 million on the basis that the agreed CAPEX was $6 million, but not all works had been carried out and to bring the Tenement into production ultimately required Expenditure of an amount of $14 million in addition to $6 million, pursuant to cl 3 of the BTS Agreement, Zuleika would have been required to contribute an additional $7 million as Expenditure to maintain their 50% interest in the Joint Venture.
At least by February 2018, there was clearly exploration and refurbishment work to be carried out on the Tenement. However, the defendants refused to allow Zuleika to contribute to the cost of this work.[335] Yet the defendants expended their own funds on exploration work. This was work pursuant to the terms of the BTS Agreement that, but for the non-cooperation of the defendants, Zuleika was entitled to contribute to Expenditure pursuant to cl 2 of the BTS Agreement.
Zuleika was prevented from contributing as Expenditure for the cost of this work by the defendants repeatedly refusing to agree to any resolution by the Joint Venture Committee to approve contributions by Zuleika until or unless Zuleika agreed to an alternative CAPEX higher than $6 million.
For these reasons, I am satisfied that Zuleika has proved that the defendants have breached:

[419]

The defendants admit that, during the extended Earn‑in Period, they conducted exploration operations without the prior approval of the Joint Venture Committee or Zuleika, and without the involvement of Zuleika as exploration manager of the Joint Venture.[336]
As set out in [133] of these reasons the defendants concede that on the face of it, they breached cl 5(a) and cl 5(c)(i) of the BTS Agreement by carrying out exploration activities in circumstances where, if approved by the Joint Venture Committee, Zuleika would have been responsible for preparing and performing the exploration activities. However, they argue that the exploration activities carried out by them are not breaches of the BTS Agreement that constitute repudiation. This is because they claim that because they hold the Tenement subject to a condition of the grant they are required to incur a minimum amount of Expenditure on mining or in connection with mining, or obtain an exemption from any shortfall in Expenditure. The defendants point out that if the annual Expenditure condition was not met during the Earn‑in Period, the defendants were at risk of forfeiting the Tenement pursuant to the provisions of the Mining Act 1978 (WA) (Mining Act) and Mining Regulations 1981 (WA) (Mining Regulations).
The minimum yearly Expenditure required by the Department for the Tenement from 2007 until 2021 was $90,300.[337] Although an exemption can be obtained from the Department to spend the minimum expenditure amount for a number of tenements only on one tenement, pursuant to s 115 of the Mining Act, there is no evidence before the court at the material time that the defendants had received approval to do so.[338]
Pursuant to cl 9 of the BTS Agreement, the parties were responsible for ensuring that the Tenement was maintained in good standing in accordance with any applicable laws and in proportion with their equitable interest in the Tenement. In November 2018, in an email to Mr Carson, Mr McInnes claimed that Vango had expended money on the Tenement because it was obliged to keep the Tenement in good standing, pursuant to cl 9 of the BTS Agreement.[339] However, the defendants expended significantly more than the minimum expenditure required by the Department to keep the Tenement in good standing. Mr McInnes conceded when cross‑examined that every time he told Zuleika that the defendants had expended money on the Tenement because they had to keep it in good standing, he knew that the defendants had expended far more than the required minimum expenditure.[340]
It was obvious to Zuleika that the defendants had done so. The actual total Expenditure on the Tenement reported to the Department in the reporting years for 2017, 2018 and 2019 was $2,065,376.60 with $1,893,193 spent on exploration activities.[341]
Mr McInnes gave evidence purporting to justify the defendants' expenditure on the Tenements by reference to a threat by the Department to take 'the tenements off us for non‑expenditure'. After senior counsel for Zuleika called for the Department letters to this effect, Mr McInnes accepted that the documents produced in answer to the call related to applications for other tenements and were notices that came into existence prior to the execution of the BTS Agreement.[342]
When Mr McInnes was cross-examined he conceded that drilling on the Tenement was undertaken by the defendants without consultation with Zuleika, and Zuleika was not given an opportunity to fund exploration activities.[343] Mr McInnes also admitted that he caused exploration work to be carried out on the Tenement during the Earn‑in Period.[344] Indeed, Mr McInnes gave evidence that he did not tell Zuleika anything about the exploration activities until the middle of 2018 in response to Zuleika specifically asking about Vango's exploration activities.[345]
As set out in 5.1.7 to 5.1.9 of these reasons, despite many requests and items being placed on the agenda for several consecutive Joint Venture Committee meetings, the defendants provided Zuleika with limited information about the exploration activities they had undertaken, did not provide any information directly to Zuleika about exploration outcomes, and provided no account to Zuleika of the amounts it expended as Expenditure on the Tenement.
The exploration activities undertaken by the defendants were not insignificant. These activities included drilling on the Tenement and preparation of plans and budgets. On 16 February 2018, Vango approved a drilling programme and budget for K2.[346] Vango made the following relevant statements in announcements to the market about the work it had planned and carried out, and to Zuleika at Joint Venture meetings:

[421]

Mr McInnes gave evidence that he considered Zuleika could have, if it chose to do so, undertaken Joint Venture work and after incurring the costs of the work sought approval from the Joint Venture Committee to authorise those costs as its contribution to Expenditure. Given that the defendants consistently refused to allow Zuleika to contribute to Expenditure to allow it to earn‑in an interest in the Tenement, Zuleika could have had no confidence that the cost of any work would be approved. In any event, as a matter of practicality, Zuleika did not have possession of, or day-to-day management of the Tenement. In addition, it was the defendants who had sufficient information to agree to resolutions of the Joint Venture Committee for programmes and budgets for Zuleika to contribute Expenditure during the extended Earn‑in Period.
In about March 2018, Mr Clynk prepared a memorandum of schedule of work to be undertaken prior to recommencing underground mining and estimates of cost for each step which was designed by Vango to inform and mitigate the risk associated with any decision to commit CAPEX to the K2 Underground project. In this memorandum, he outlined 15 steps. The last of the steps was to complete all required plans for sign off by the Joint Venture Committee. Each of the steps were costed which when added, totalled between $7,880,000 to $8,200,000.[353]
Mr Clynk sent a copy of this memorandum to Vango's mine manager Mr Povey by email on 28 March 2019. On the same day, Mr Povey made amendments to the document, by removing all of the cost information, and removing some of the details of the proposed scheduled work and added some additional notes, but did not delete any of the 15 steps.[354] Later that day Mr Clynk sent a copy of the memorandum as altered by Mr Povey to Mr McInnes. In the email attaching the altered memorandum he stated 'Attached steps required to support decision to commit CAPEX to the K2 Underground mining operation. Let us know when you are ready to chat.'[355]
The original memorandum and the amended memorandum set out a blueprint of the work required to be done to progress the Joint Venture and Expenditure for much of that work could have been approved by the Joint Venture Committee, as contributions by Zuleika to Expenditure.
It does not appear, however, that the original of the memorandum with the cost information prepared by Mr Clynk or the amended copy was provided to Zuleika. When Mr McInnes was cross‑examined about this document, he could not recall reading it but he did not claim he had not received the email.[356] He did however concede that all of the work listed in the 15 points could have been carried out or paid for by Zuleika.[357]
When regard is had to all of this evidence, it is clear that Zuleika has proved that the defendants breached cl 5(a) and cl 5(c)(i) of the BTS Agreement and wrongfully repudiated the BTS Agreement. Clause 5(a) and cl 5(c)(i) were fundamental terms. Zuleika has proved the defendants carried out exploration work during the extended Earn‑in Period and did more work that was necessary to keep the Tenement in good standing as required by the Mining Act, the Mining Regulations and cl 9 of the BTS Agreement.
In carrying out exploration work on the Tenement during the extended Earn‑in Period without the prior approval of the Joint Venture Committee or Zuleika, or without the involvement of Zuleika as exploration manager and who had responsibility for the conduct of all exploration operations, the defendants not only breached cl 5(a) and cl 5(c)(i), but this conduct can only be described as renunciation of the fundamental obligations under cl 5(a) and cl 5(c)(i) of the BTS Agreement and the three implied terms.
The fundamental obligations under cl 5(a) and cl 5(c)(i), together with cl 18 and the three implied terms, required the defendants:

[423]

I am also satisfied that Zuleika has proved that the defendants funded Tenement costs, prepared budgets, and engaged in project management without prior approval by the Joint Venture Committee in breach of and as required by cl 4(c)(vi) and cl 9 of the BTS Agreement.
Clause 4(c)(vi) provided that the Joint Venture Committee shall be responsible for preparing budgets and project management (including maintaining the tenements in good standing) and cl 9 provided that the parties are responsible for ensuring that the Tenement is maintained in good standing. Although the defendants as the legal owners of the Tenement are responsible under the Mining Act and the Mining Regulations for incurring a minimum amount of Expenditure on mining or connection with mining, or obtain an exemption from any shortfall Expenditure, cl 4(c)(vi) and cl 9 of the BTS Agreement required that all Expenditure on the Tenement be approved by the Joint Venture Committee. These provisions required the approval of Zuleika to approve budgets and project management for the Tenement for all work including work to keep the Tenement in good standing, as Zuleika was, during the extended Earn‑in Period, a member of the Joint Venture Committee.
The defendants' conduct in carrying out exploration work, funding Tenement costs, preparing budgets, and engaging in project management on the Tenement without the approval of the Joint Venture Committee and Zuleika's involvement as exploration manager in these circumstances can only be properly characterised to convey to a reasonable person, in the situation of Zuleika, as a renunciation of these fundamental obligations. Not only did the defendants not involve Zuleika in this work as exploration manager and as a member of the Joint Venture Committee, the defendants provided Zuleika with limited information about their activities. This conduct of the defendants, as Zuleika claims, was conduct from at least July 2018 to the end of the extended Earn‑in Period which evinced a clear intention that the defendants were unwilling to substantially perform the BTS Agreement in accordance with its terms. In addition, the defendants' conduct constituted acts that were substantially inconsistent with their obligations under the BTS Agreement.
For these reasons, I am satisfied that Zuleika has proved that the defendants repudiated these fundamental obligations under the BTS Agreement.

[427]

On 5 February 2020, Vango made an announcement to the market in which it described its action not to grant any further extensions as 'not [consenting] to a further extension of the termination date' of the BTS Agreement.[359] Clearly, it was wrong to describe or characterise extensions of the Earn-in Period as extensions of the termination date of the BTS Agreement.
Although nothing arises of consequence out of the fact that the defendants did not agree to further extend the Earn‑in Period, as set out in 4.3 and 4.5 of these reasons, at the expiry of the extended Earn‑in Period, pursuant to the first paragraph of cl 2(d) and cl 3(a) of the BTS Agreement, Zuleika had earned in a Joint Venture Interest of 4.1%.
Because Zuleika had an equitable interest in the Tenement of 4.1%, upon the expiration of the extended Earn-in Period, the BTS Agreement did not lapse and the parties rights and obligations with respect to the Joint Venture in respect of the Tenement continued to be governed by the BTS Agreement until Zuleika accepted the defendants' repudiation and terminated the agreement, by letter dated 12 February 2020.
The defendants intentionally refused to acknowledge that Zuleika had earned a Joint Venture Interest and, up until Zuleika accepted the defendants' repudiation, the defendants refused to acknowledge that the BTS Agreement continued to operate.
As at 14 November 2019, pursuant to the first paragraph of cl 2(d) of the BTS Agreement, Zuleika was and is entitled to be provided with a duly executed transfer in respect of its Joint Venture Interest in the Tenement in order to enable Zuleika to be registered as a legal and beneficial holder of the Tenement in the amount of the Joint Venture Interest of 4.1%.
Consequently, it is clear that Zuleika has proved that the defendants have breached cl 2(d) by failing to provide Zuleika with a duly executed transfer in respect of its 4.1% interest in the Tenement.
I am satisfied that by wrongly denying and continuing to deny that Zuleika had an equitable interest in the Tenement, and by wrongfully asserting that the BTS Agreement had lapsed on 14 November 2019, Zuleika has proved that the defendants wrongly repudiated the BTS Agreement by conduct that evinced an intention to no longer be bound by the contract in circumstances that constituted a renunciation of the contract as a whole.

[429]

It is admitted by the defendants that the effect of cl 13 of the BTS Agreement, that if either Zuleika or the defendants notifies the other in writing expressing an intention for a formal joint agreement to replace the BTS Agreement, then the party shall negotiate in good faith and use their best endeavours to execute a detailed joint venture agreement on normal terms (which includes clauses that are usually contained in such joint venture agreements) embodying the terms and conditions contained in the BTS Agreement (a Formal Agreement).[360]
It is also admitted that cl 18 of the BTS Agreement required each party to sign and execute and do all deeds, acts, documents and things as may be reasonably required by the other party to effectively carry out and give effect to the terms and intentions of the BTS Agreement.[361]
As set out in 5.1.6 of these reasons, on 14 November 2017, Mr Carson sent to Mr McInnes a draft farm‑in agreement which Mr McInnes acknowledged receiving. Despite repeated requests from Mr Carson for a response, Mr McInnes did not send Mr Carson a substantive response until June 2018.
On 6 June 2018, Mr McInnes sent to Mr Carson, via Ray Galea (an employee of Vango), Vango's response to Zuleika's draft farm‑in agreement.[362]
The defendants point out that they did respond during the term of the BTS Agreement to Zuleika's first draft farm‑in agreement and contend that they at all times properly considered Zuleika had a 0% interest in the Joint Venture. In these circumstances, they claim there was no pressing need for a formal joint venture agreement. For the reasons already given above, this contention is fundamentally wrong.
Given that the term of the Earn‑in Period was two years from the Commencement Date, the failure of the defendants to respond in a timely manner to the draft provided by Zuleika could be said to be in breach of the obligation to negotiate in good faith.
However, leaving aside this issue which I do not find necessary to decide, it is clear that Vango's response was fundamentally inconsistent with the terms of the BTS Agreement which, pursuant to cl 13, a Formal Agreement was to incorporate. This is because the language of cl 13 is clear in that the terms of a Formal Agreement must embody the terms contained in the BTS Agreement and, accordingly, all substantive terms and conditions of the BTS agreement are required to be terms and conditions of the Formal Agreement.
The terms proposed by Vango in its response to Zuleika's draft farm‑in agreement that were fundamentally inconsistent with the terms of the BTS Agreement were as follows:[363]

[431]

These amendments proposed by the defendants to Zuleika's draft farm‑in agreement were fundamentally inconsistent with the terms of the BTS Agreement in two respects.
First, the defendants proposed that by operation of the terms and conditions of a Formal Agreement, Zuleika would only be entitled to earn‑in a 10% or 15% Joint Venture Interest in the Tenement, in circumstances where it had an existing right to earn‑in a 50% Joint Venture Interest.
Second, Zuleika would be removed from its role as exploration manager of the Joint Venture.
When Mr McInnes gave evidence, he did not shy away from admitting that he knew the purpose of a Formal Agreement was to give effect to and, where appropriate, expand upon the basic terms of the BTS Agreement.[368]
Importantly, he also did not shy away from admitting when cross‑examined that the defendants' response to Zuleika's draft farm‑in agreement was an attempt to seek to renegotiate terms of the BTS Agreement.[369] When asked in cross examination whether he was seeking to renegotiate the subject matter of the BTS Agreement, Mr McInnes responded 'most emphatically correct at this point, yes.'[370] Mr McInnes also accepted in cross-examination that the variations proposed by the defendants represented substantial changes to the BTS Agreement.[371]
Mr McInnes sought to defend the defendants' response to Zuleika's draft farm‑in agreement by claiming that Zuleika's draft departed from the terms of the BTS Agreement, and that he proposed amendments with a view that the parties would have 'a meeting of the minds in the middle'.[372] However, there was no attempt by the defendants to negotiate in good faith the terms of a Formal Agreement that embodied the terms and conditions contained in the BTS Agreement.
In the defendants' written closing submissions it is submitted that Zuleika's contention that the defendants repudiated the BTS Agreement by the substance of their response to Zuleika's draft farm‑in agreement must fall away because the terms of Zuleika's draft farm‑in agreement were themselves materially inconsistent with the BTS Agreement. The provisions of the draft which the defendants claim are inconsistent with the terms and conditions of the BTS Agreement are:

[433]

I do not accept these contentions.
First, I do not accept that cl 2.3 of the draft proposed by Zuleika was materially inconsistent with the terms and conditions of the BTS Agreement.
Pursuant to cl 3 of the BTS Agreement, upon the expiry of the Earn‑in Period, if one of the parties did not equally contribute to the 'total Joint Venture Expenditure; as at that date their interest would dilute. If at the end of the Earn‑in Period Zuleika had earned‑in a 50% Joint Venture Interest by contributing $3 million and the CAPEX still remained $6 million, the defendants would be required to contribute $3 million to Expenditure otherwise their interest in the Tenement would dilute and Zuleika would in effect earn‑in a greater interest than 50%.
The deemed amount of Expenditure had been converted by the terms of the BTS Agreement from a debt to deemed Expenditure. It was not materially inconsistent for Zuleika to propose that Zuleika be afforded an option to convert that sum back to a debt if a decision to mine was not made, or failed to proceed.
Second, none of these contentions were raised by the defendants in Vango's response it sent to Mr Carson on 6 June 2018.
Third, although the defendants did not have to contribute to Expenditure prior to the expiration of the Earn‑in Period under the terms of the BTS Agreement, clearly they could do so if their contributions were approved by the Joint Venture Committee and they were obligated to do so immediately on the expiration of the Earn‑in Period. Consequently, although Zuleika proposed in cl 2.4 that the defendants' contribution during the Earn‑in Period could be said to be inconsistent with the terms of the BTS Agreement, this draft provision by itself could not be found to be fundamentally inconsistent with the terms of the BTS Agreement, unlike the terms proposed by the defendants in their response in June 2018. Such terms sought to reduce the maximum that Zuleika could earn‑in to either 10% or 15%, and to reduce Zuleika's right under the BTS Agreement to be an equal partner in the development, mining and production of ore from the Tenement.
In any event, the evidence of Mr McInnes clearly establishes that the defendants did not wish to enter into a formal joint venture agreement that allowed Zuleika to retain its right to earn‑in a 50% interest in the Tenement.
Zuleika did not agree to the issues raised in the defendants' response and proposed amendments, and requested that the defendants comply with their obligations under the BTS Agreement.[373]
On or about 16 November 2018, Zuleika provided the defendants with a revised version of the draft Formal Joint Venture Agreement.[374]
The defendants did not respond to Zuleika's revised draft. Importantly, Mc McInnes gave evidence that he did not read the revised draft.[375]
During the trial, Zuleika made an application to amend its Statement of Claim by pleading as an additional particular to its plea that the defendants breached cl 13 of the BTS Agreement by not providing any response to Zuleika's revised draft farm‑in agreement. After allowing the defendants to take some instructions and hearing from the parties the amendment was allowed.
Although the defendants objected to the amendment, the defendants could not be said to be prejudiced by this amendment as the fact that a revised draft was provided to the defendants in November 2018 was not in dispute and it was not in dispute that the defendants did not respond to the revised draft.
In light of the fact that no real prejudice to the defendants was raised and the amendment sought to raise a minor issue of fact, did not require the discovery of any documents and did not result in any wasted costs, it was appropriate to allow the amendment.
Failing to respond at all to the revised draft constituted a clear breach of cl 13 of the BTS Agreement by the defendants. This breach was not as serious as the breach of cl 13 by the defendants in attempting to renegotiate a whole new agreement which would not embody the terms of the BTS Agreement which entitled Zuleika to earn‑in a 50% interest in the Tenement.
The defendants also failed to negotiate in good faith and breached cl 13 by the acts of Mr McInnes and Mr Zhou set out in 5.1.4 of these reasons by claiming that the BTS Agreement was not binding and was subject to conditions precedent including entering into a comprehensive agreement.
For these reasons, I am satisfied that Zuleika has proved that not only did the defendant's breach cl 13 of the BTS Agreement, but the defendants also repudiated the whole of the BTS Agreement by their conduct which can only properly be described as evincing an intention not to be bound by the contractual terms of the BTS Agreement; conduct substantially inconsistent with their obligations under the BTS Agreement.
For these reasons, by this conduct the defendants engaged in renunciation of the whole of the BTS Agreement. This is because it was a fundamental term of the BTS Agreement that Zuleika was conferred a right to earn‑in an interest of 50% in the Tenement by making contributions to Expenditure, by tranches approved by the Joint Venture Committee, which right was not contingent or subject to any condition precedent.

[518]

By s 141(1) and (2) of the Legal Profession Uniform Law Application Act a party's recoverable costs are confined, in effect, by the scale limits in costs determinations. Section 141(3) like the former s 280(2) of the Legal Profession Act 2008 operates as an exception to s 141(1) of the Legal Profession Uniform Law Application Act.[391]
Section 141(3) of the Legal Profession Uniform Law Application Act provides that a court may make a special costs order where it is of the opinion that 'the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter'.
Section 141 of the Legal Profession Uniform Law Application Act is protective of the successful party to the litigation and, on that account, also serves the administration of justice by facilitating, within the limits imposed by the statutory criteria, the operation of the general principle that a successful party is entitled to its costs of the litigation.[392]
Even where orders are made pursuant to s 141(3), it nevertheless remains the task of the taxing officer pursuant to s 141(4) to consider the reasonableness of, and necessity for the work undertaken, and to make a judgment about the remuneration reasonably required.[393]
The court must form an opinion about two matters before it can make an order pursuant to s 141(3). First, it must form an opinion that the maximum amount allowable under the relevant scale item is inadequate, in that, there is a fairly arguable case that on taxation the costs allowed by the applicable legal costs determination may properly be allowed in an amount that is greater than the limit imposed by the costs determination. Second, it must form an opinion that the amount allowed is inadequate because of the 'unusual difficulty, complexity or importance of the matter'.[394] This requires that there be a causal connection between the unusual difficulty, complexity or importance of the matter and the inadequacy of the costs allowable under the relevant costs determination.[395]
An assessment of whether an amount of costs allowed in respect of a matter under a legal costs determination is inadequate, is not to be determined by the court in a precise way.
If the preconditions for making a special costs order are met, then the court may make all or any of the orders provided for in s 141(3).
In Blatchford v Laine, Vaughan J also pointed out the following propositions that are established by the authorities, which propositions now have application when the court is considering an application made pursuant to s 141 of the Legal Profession Uniform Law Application Act:[396]

[534]

This offer is made in accordance with the principles contained in Calderbank v Calderbank and will remain open for 21 days from the date of this letter.
The defendants point out that the offer to the plaintiff to settle the whole of the action for a 5% interest in the Tenement was made when the plaintiff was only claiming a 4.1% interest, and prior to the orders being made for the deferred issues to be heard and determined separately.
The defendants accept at this point in time the court cannot determine if the Calderbank offer was unreasonably rejected, because the court is yet to hear and determine the deferred damages issues. However, the defendants claim that they should be entitled to rely upon the Calderbank offer if they are successful in defending the deferred issues. They claim that if the plaintiff is awarded no damages the court should find after the hearing of the deferred issues that the offer was reasonable and should have been accepted by the plaintiff.
As senior counsel for the plaintiff pointed out, even if the plaintiff was to be only awarded nominal damages in a hearing on the deferred issues it could not be found that the defendants offer was reasonable and should have been accepted by the plaintiff.
First, when the offer was made the plaintiff's claim was declaratory relief with respect to a 4.1% interest in the Tenement, and any contiguous tenements which cover adjacent, on‑strike or dip‑down extensions of the K2 ore body or mineralised zones (Extensions), and damages for breach of contract and repudiation. Other than the assessment of damages which was deferred, the plaintiff was awarded the relief it sought.
However, the Calderbank offer to the plaintiff was for different relief it was to agree to a 5% interest in the Tenement but not any Extensions, and to enter into a new binding agreement, including the CAPEX for the development of any mine to be agreed, and did not provide for any payment to the plaintiff towards the plaintiff's costs of proceeding to that date.
Second, although the offer was to agree to a 5% interest in the Tenement, the plaintiff's interest could be diluted if it did not contribute in proportion to its interest to a CAPEX amount that was yet to be agreed.
It cannot be said to have been unreasonable for the plaintiff to have rejected the offer in circumstances where what was offered was of a completely different nature than that sought by the plaintiff. The plaintiff was entitled to insist upon the relief to which it was entitled, not something that was entirely different.
Third, the offer was uncertain in that it required further agreement as to the CAPEX for the development of any mine on the Tenement, and a new binding Heads of Agreement, the proposed terms of which were unknown.
Fourth, in circumstances where the relationship between the parties had totally broken down it could not be found to be unreasonable for the plaintiff not to agree to enter into a new joint venture by entering into a new binding Heads of Agreement, which proposed terms were unknown and would have to be the subject of further agreement.
For these reasons, the orders sought by the defendants should be refused.

[536]

The plaintiff claims that the court should order indemnity costs against the defendants because the defendants' defence to the plaintiff's claim was hopeless, was conducted by the defendants in wilful disregard of known facts, and that the defendants, properly advised, knew or should have known that, since the commencement of the action.
Having considered the matter carefully, although the defendants defence failed, I am not satisfied that this is one of those cases where the court should make an award for indemnity costs.
In respect of whether the plaintiff had earned in a joint venture interest on the proper construction of the BTS Agreement, although the defendants' construction was rejected, and in part the defendants' construction was found to be commercially absurd, this part of the dispute as to the proper construction of the BTS Agreement was not straightforward. Consideration of the plaintiff's and defendants' construction arguments occupied almost 14 pages of the primary reasons for decision.
If the only issue in the trial on the preliminary issue had been whether the defendants breached the terms of, and wrongly repudiated the terms of the BTS Agreement, I would make an indemnity costs order. This is because the undisputed documentary evidence before the court overwhelmingly established that the defendants had by their conduct engaged in multiple breaches of, and had repudiated, the terms of the BTS Agreement.
However, if I was to make an indemnity costs order, the order would only be for costs of the action incurred by the plaintiff prior to 28 January 2022, which was the date that the plaintiff amended its statement of claim to claim an 11.87% interest in the Tenement, with the claim for a 4.1% interest remaining as alternative relief. Although the defendants concede that the plaintiff's argument in respect of this issue played a very small part in the resources required to be engaged in the trial of the preliminary issue, given that the plaintiff's claim that it was entitled to 11.87% interest failed, it could not be found that the defendants' defence of the plaintiff's claim for relief after the plaintiff amended its claim on 28 January 2022 was hopeless.
For these reasons, I am not satisfied that an indemnity costs order should be made in favour of the plaintiff.

[538]

The plaintiff does not seek to lift the hourly rates allowable in each of the Determination items, but does seek the removal of the hourly limits for Items 4 (reply), 7 (discovery), 19 (preparation of case), and 22(a) (trial).
In the affidavit of Chloe Alyssa Tolley affirmed 22 November 2022, Ms Tolley deposes that the time spent on work falling within each of these items exceeds the maximum hours and thus the amounts allowable under the 2018 Costs Determination and the 2020 Costs Determination.
Item 4 (reply to defence) in each of the determinations prescribes a maximum limit of 10 hours to be charged for the work of a senior practitioner.
In respect of Item 4, Ms Tolley states, the defendants filed five versions of the defence and the plaintiff filed five versions of its reply to defence, and the time spent on work falling within Item 4 was at least 101 hours of work, being 4.5 hours of work by senior counsel, 5 hours of work by junior counsel, 56.6 hours of work by senior practitioners, 15.5 hours of work by a junior practitioner and 19.4 hours of work by a restricted practitioner.[399]
Item 7 (discovery) of the 2020 Determination prescribes a maximum limit of 10 hours for work to be charged by a senior practitioner for a notice requiring discovery and giving discovery of documents.
In respect of Item 7, Ms Tolley states that the parties agreed to provide discovery electronically and following orders made on 21 July 2020 requiring the parties to give general discovery, a total of approximately 4,625 documents were discovered by the parties of which the plaintiff discovered a total of 3,510 documents. In addition, there were 16 tranches of supplementary informal discovery exchanged, and the time spent on work falling within Item 7 of the Determination was at least 638.4 hours, being 225.3 hours of work by senior practitioners, 126.2 hours of work by a junior practitioner, 239.5 hours of work by a restricted practitioner and 47.4 hours of work by a clerk/paralegal.[400]
Item 19 (preparation of case) of 2020 Determination prescribes the maximum hours for the preparation of case for trial to be 120 hours of work carried out by a senior practitioner.
In her affidavit, Ms Tolley states that in respect of preparation of case, among other things, the plaintiff prepared the urgent de bene esse application, witness outlines for three witnesses and supplementary witness outlines for two witnesses, objections to the defendants' witness outlines, issued, and inspected the produced documents from, four subpoenas, prepared an electronic trial bundle containing over 950 documents, which over 500 documents became trial exhibits, trial materials including papers for the judge, subsequent amendments to the pleadings, and a chronology of events.[401]
Ms Tolley also states that the time spent on work falling within Item 19 of the Determination is, at least 1,585.2 hours, being 54.8 hours of work by senior counsel, 110.2 hours of work by junior counsel, 512.2 hours of work by senior practitioners, 447.8 hours of work by a junior practitioner, 312 hours of work by a restricted practitioner and 148.2 hours of work by clerks/paralegals.[402]
Item 22 (trial) of the 2020 Determination prescribes a maximum period of 3.5 days' work for a fee on brief for junior counsel, for first day of trial and preparation, including submissions.
Ms Tolley states in her affidavit that the time spent by junior counsel on work falling within Item 22(a) was at least 137 hours.

[542]

The defendants point out that the issues in dispute were confined to a commercial agreement between the parties, and did not raise issues of significance for the public or the community generally. Although the defendants argue that the trial on the liability issues was not ultimately, factually complex, I do not agree.
It is common ground that the trial of the liability issues did not raise any difficult or complex questions of law. However, a voluminous number of documents required consideration by the parties and the court.
I accept the plaintiff's submission that the matter was factually complex in that there was a large amount of material to be marshalled in order to prove each of the breaches and repudiation of the BTS Agreement.
As senior counsel for the plaintiff points out, the conduct of the defendants through its officers of the company, in particular Mr McInnes, was critical to establishing the breaches of contract. For the plaintiff to make out its case not only was a large volume of documents necessary to be discovered but senior counsel and junior counsel and those instructing them were required to analyse and assemble those documents to enable the plaintiff to make out its case not only by a lengthy analysis of the contemporaneous documents but also through the lengthy cross‑examination of Mr McInnes. I accept that this work added significantly to the time required to adequately prepare a reply to the defendants' defence, discovery, preparation of case and preparation for trial by junior counsel.
This was not a simple case of only one breach and repudiation of an agreement. The summary of the findings of breach and repudiation in my reasons for decision delivered in the primary decision comprise five pages and the factual findings of breach and repudiation extend over 100 pages.
The matter is important to the parties. It involves two ASX publicly listed companies, the refurbishment and development of an existing underground gold mine, and the right of the plaintiff to earn in an interest of 50% of a tenement, that included the gold mine.
I am also satisfied that having regard to the nature and number of contested factual issues, the volume of evidence and the importance of the action, the services of more than one counsel were reasonably necessary for the adequate presentation of the case at trial. Thus, the trial of preliminary issues as to liability justified the involvement and attendance of both senior and junior counsel at trial and allowance should be made for the same.