Interlocutory injunction - Joint venture agreement - Application to restrain meeting of management committee - Turns on own facts

Supreme Court Act 1935 (WA), s 25(9)

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199

Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670

Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49

Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67

Todd v Novotny [2001] WASC 171

1 ALLANSON J: The plaintiff, Aquila Steel Pty Ltd (Aquila), and the defendant, AMCI (IO) Pty Ltd (AMCI), are the two equal participants in the Australian Premium Iron Joint Venture, a joint venture established for the exploration and mining of iron ore deposits. The joint venture is established by an agreement made in February 2005.

2 Clause 4 of the joint venture agreement provides for a management committee for the control and direction of the joint venture. The management committee is authorised to make all decisions on the nature and extent of the business and affairs of the joint venture: cl 4.2. Each of the participants is represented on the management committee and has one vote. The joint venture agreement provides for a manager, API Management Pty Ltd, whose shares are held by the participants equally. The manager is represented on the management committee but has no vote.

3 The management committee is to meet at least once every quarter, and the manager or either participant may at any time call on a meeting by giving at least 14 days notice: cl 4.14, cl 4.15. There is normally to be an agenda for each meeting. Any representative may add items to the agenda for a meeting, on notice to the other participant and the manager: cl 4.18. Decisions of the management committee are by majority vote 'and will be binding on the participants, and to the extent necessary, the manager': cl 4.12.

4 Some decisions, specified in cl 4, are 'Material Decisions'. A proposal for a material decision specified in paragraphs (a) to (k) of cl 5 requires 75% approval of those entitled to vote at a meeting of the management committee before it can be adopted or implemented. A proposal for 'the decision to undertake mine development for a development area' (cl 5.l(1)) requires 100% approval before it can be adopted or implemented.

If a proposal is put to the Management Committee to undertake a Mine Development and:

(a) the proposal included a Feasibility Study for a Development Area and which study shows an after tax return on investment greater than 15% for that Development Area and included a delineation of the Development Area; and

(b) the proposal is not approved by the Management Committee at two or more Management Committee Meetings (the first and last such non-approval occurring not less than three months apart); and

(c) votes were cast in favour of the proposal by participants having at least 50% of the voting entitlement in respect of the proposal,

then

(d) the Participant whose Representatives voted in favour of the proposal ('Assenting Participant') has an option to acquire the other Participant's ('Dissenting Participant') Venture Interest (and not just part of it) in the Development Area including its interest in the Tenements forming the subject of the Development Area and all other related assets including the benefit of any Feasibility Study and the Mining Information in relation to that Development Area (the 'Development Area Interest'), at a purchase price determined in accordance with clause 6(e).

6 In effect the purchase price is 50% of the fair market value of the development area interest, as determined by an independent expert, unless the dissenting participant, within a limited time, obtains a binding letter of offer from a third party to purchase its interest.

7 Clause 12 provides a further mechanism for dispute resolution, including of 'any deadlock at a meeting of the Management Committee'.

8 On 6 September 2010, AMCI proposed two draft resolutions for a meeting of the management committee which was held on 21 September 2010. The first resolution was that the management committee 'hereby gives approval to the proposal to undertake the Mine Development described in the Feasibility Study dated 5 August 2010'. That approval was to cease if any or all of four conditions then listed was not fulfilled. The second resolution was consequential on the first being passed.

9 The first resolution was defeated and the second was not put. These proceedings relate to the first of those resolutions (I will adopt Aquila's term and refer to it as the defendant's resolution).

10 On 6 December 2010, AMCI gave notice to Aquila that it would convene a meeting of the management committee on 22 December 2010. There is a single agenda item: consideration, and if thought appropriate approval of the resolutions put to the meeting of 21 September 2010.

11 Accordingly, if each of the following matters is satisfied AMCI will have an option to buy-out Aquila's interest in the development area unless Aquila can first sell its interest to a third party. First, the defendant's resolution is a proposal to undertake mine development for a development area; second, it complies with cl 6(a) of the joint venture agreement; third, it is put to the meeting of 22 December 2010; fourth, AMCI votes in favour; and fifth, Aquila does not support it.

12 On 10 December 2010, Aquila commenced proceedings against AMCI by writ of summons. In those proceedings, Aquila claims relief including:

1. A declaration that the Defendant's Resolution was not put in compliance, and did not comply, with the requirements of the [joint venture agreement].
2. A declaration that the Defendant's Resolution, if put at the meeting of the Management Committee on 22 December 2010, would not be put in compliance, and would not comply, with the requirements of the [joint venture agreement].

1. The Defendant, whether by itself, its servants or agents, be restrained and an injunction be granted restraining them, from putting the Defendant's Resolution (or any resolution to the same effect as the Defendant's Resolution) to a vote at any Management Committee meeting of the Joint Venture (including the meeting called for 22 December 2010), until further order of this Honourable Court.

1. In the alternative to paragraph (c), the Defendant, whether by itself, its servants or agents, be restrained and an injunction be granted restraining them, from putting the Defendant's Resolution (or any resolution to the same effect as the Defendant's Resolution) to a vote at any Management Committee meeting of the Joint Venture (including the meeting called for 22 December 2010), if it is put by the Defendant on the basis that it would (if not approved) constitute the second occasion on which the Purported Proposal was not approved for the purposes of clause 6, until further order of this Honourable Court.

13 Aquila seeks interlocutory relief in terms of pars C and D of the relief sought in the writ.

14 In a minute of proposed orders handed up at the hearing, the interlocutory relief sought is differently expressed, in effect requiring four conditions to be fulfilled before the defendant's resolution can be put as a resolution 'pursuant to clause 6'. It is not necessary, for present purposes, to discuss whether the changes affect the substance of the relief sought.

15 Each party has filed and relies on one affidavit: that of Mr Russell Tipper, sworn 15 December 2010, for the plaintiff; and of Mr Robert Lawrence McNamara, sworn 16 December 2010, for the defendant. The affidavits of both parties contain confidential information, and are currently subject to temporary orders preserving their confidentiality - I will hear the parties with regard to further orders.

16 The court has power under s 25(9) of the Supreme Court Act 1935 (WA) to grant an interlocutory injunction in all cases in which it appears to be just or convenient that the order be made. The remedy is discretionary, but the discretion is not at large. It is necessary to identify the legal or equitable rights which are to be determined at trial and in respect of which final relief is sought: see Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2001) 208 CLR 199 [11], [105]. The court may grant the injunction for the purpose of keeping matters in status quo until the parties' rights are determined at trial.

17 The considerations to which the court should have regard in such an application are well established. They are conveniently summarised by Beech J in Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [7] - [12]. I will not repeat them here.

18 Aquila claims that for three reasons, cl 6 does not apply to the defendant's resolution. I summarise the contentions below - it is not intended to be a full consideration of the detailed arguments which were put.

19 First, the defendant's resolution is conditioned by the detail of its proposed implementation; some of those conditions may not be capable of being fulfilled. Clause 6, properly construed, does not apply to a proposal to undertake mine development which is subject to conditions in this way.

20 Second, the defendant's resolution does not comply with cl 6(a) because the proposal is based on the August feasibility study, and that is not a feasibility study for the purposes of cl 6 of the joint venture agreement. The joint venture agreement requires a feasibility study to be of the standard customarily required by major financial institutions in support of project finance. Aquila contends that this requires a feasibility study to be of a standard required to support a decision to grant finance, so that a participant may reliably assess whether it will be able to fund the proposal when it is called upon to make a decision. The August feasibility study does not meet that standard.

21 Third, the defendant's resolution is not a proposal to 'undertake a mine development' because the joint venture participants can make no real decision to that effect unless and until it is determined who is responsible for development of the required port facility. The port facility is the largest component of the overall project. The uncertainty regarding both who would be the proponent of the port development, and the timing of the development, means that no real and effective decision may be made whether to establish a mine.

22 Further, Aquila submitted, no real decision to undertake a mine development can be made unless and until the position is reached with regard to the third party joint venturers who have interests in the relevant development area, that Aquila and AMCI are entitled to undertake a mine development on that area.

23 AMCI joins issue with Aquila over the question of construction of the joint venture agreement, and in particular cl 6. It submits that the August feasibility study complies with the joint venture agreement, and is sufficient for the purposes of cl 6.

24 The defendant also submits that even if Aquila has a prima facie case on any of its contentions, AMCI is still entitled to put the defendant's proposal to undertake mine development to the meeting on 22 December 2010.

25 There is no question about the validity of the meeting. The ability of a participant in the joint venture to call a meeting, and put a proposal to that meeting that the joint venture undertake a mine development, is not conditioned in the way the plaintiff claims. Provided AMCI gives notice the meeting, and notice of the resolution as an agenda item, in accordance with cl 4, there is no breach of the joint venture agreement, and no legal wrong in putting a proposal to the meeting. Clause 5 sets out the requirements for approving a proposal when that would be a 'Material Decision'; and cl 6 prescribes the consequences when a proposal to undertake mine development includes a feasibility study which meets the criteria in that section and is not approved on two or more occasions. But the joint venture agreement does not provide for a proposal to be put 'pursuant to clause 6'. And it does not prescribe conditions, such as those set out in Aquila's minute of proposed orders, that must be met before a proposal to undertake a mine development may be put to a meeting.

26 In my opinion, the defendant's arguments are correct. The plaintiff's contentions go to whether cl 6 will give AMCI an option to acquire its interest, should the defendant's resolution be put and Aquila vote against it. But Aquila can point to no breach of the agreement and no legal wrong in AMCI putting the proposal. Its claims do not provide a basis to restrain either the holding of the meeting, or the consideration of the defendant's resolution.

27 Whether the defendant's resolution is one to which cl 6 would attach the consequence of compulsory acquisition of Aquila's interest by AMCI may not be resolved. Each party has been explicit about the practical consequences of whatever decision I make. The plaintiff says that, unless the restraint is granted, it will be compelled to support the resolution at the meeting of 22 December 2010. The commercial implications of triggering the option in cl 6 are so serious that no other decision is open. The defendant is similarly frank. If the meeting proceeds, and AMCI votes in favour of the resolution and Aquila votes against it, AMCI proposes, subject to Board approval, to exercise the option to acquire Aquila's interest in the development area.

28 Notwithstanding the practical consequences, in my opinion the decision must be made by reference to the parties' legal rights under the agreement.

29 The various considerations relevant to the grant of an interlocutory injunction must be considered together. The grant of an injunction involves balancing the injustice which might be suffered by AMCI if the injunction is granted and Aquila later fails at trial, against the injustice which might be suffered by Aquila if the injunction is not granted and it later succeeds: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670; Madaffari v Labenai Nominees Pty Ltd [2002] WASC 67 [14]. As the apparent strength of the applicant's case diminishes, the balance of convenience moves against the making of an order: Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49, 54 - 55; Todd v Novotny [2001] WASC 171.

30 In the circumstances, it is not necessary to closely consider the balance of convenience. Aquila is left with a commercial judgment for the meeting of 22 December 2010. It may have no alternative but to support the resolution because of the potential consequences of not doing so. But both parties are entitled to exercise their rights under the agreement.

31 Because, in my opinion, there is no legal basis to restrain the meeting, the application should be dismissed.

32 I will hear the parties further about any consequential orders, including continuing orders for the confidentiality of parts of the affidavits.