CITIC LTD -v- MINERALOGY PTY LTD [2020] WASC 223 (18 June 2020)

CITIC LTD -v- MINERALOGY PTY LTD [2020] WASC 223 (18 June 2020) - WASC 2020 case summary — Zoe

[10]

Under the ASOC the CITIC Parties basically assert that CITIC Ltd exercised its so-called 'First Option' (as defined - see [32] and Schedule A of these reasons) under an agreement titled the China Project Option Agreement (known as the CPOA) on 13 April 2012 (ASOC par 19). That plea is currently admitted by Mineralogy (ADAC par 27).
I should note that the parties to the CPOA are CITIC Ltd, Mineralogy and Mr Palmer who entered the agreement on 22 October 2008. The CPOA was subsequently varied on 30 March 2012. A detailed description of the CPOA can be found later in these reasons at [29] - [32].
In the past there have been various purported terminations of the CPOA by Mineralogy on the basis of an alleged repudiatory breach by CITIC Ltd and the consequent acceptance of that repudiatory breach by Mineralogy as an 'innocent party' to the breach. Such purported terminations occurred on 4 October 2012 by Mineralogy and on 17 October 2012 by Mr Palmer (ASOC pars 42 and 43 respectively). However, it is admitted by Mineralogy and by Mr Palmer that such purported terminations were not valid and had been disputed at the time by the CITIC Parties (ASOC pars 44 and 45 admitted under ADAC pars 53 and 54).
On 5 January 2015 Mineralogy claimed that the MRSLAs (Mining Right and Site Lease Agreements) it had entered with Sino Iron Pty Ltd (the second defendant) and Korean Steel Pty Ltd (the third defendant) had been terminated. As the MRSLAs have been heavily canvassed in other decisions concerning the same parties to this action, there is no need to discuss them in any greater detail here. In circumstances where Mineralogy has claimed the MRSLAs had been terminated, it was claimed the First Option of the CPOA could not proceed. That, amongst other matters, had led to the commencement by CITIC Ltd and others of a previous action in this court, CIV 3012 of 2012, against Mineralogy and Mr Palmer.
By ASOC par 52 the CITIC Parties contend that by their fourth further amended defence of 16 February 2015 filed in CIV 3012 of 2012, Mineralogy and Mr Palmer had then admitted that the plaintiffs in that action were, in effect, entitled to a declaration that the CPOA remained in full force and effect. Under Mineralogy's ADAC par 61, issue was taken to some extent with that plea.
Nevertheless, by ASOC par 62 the CITIC Parties refer to the consent orders of Chaney J made 30 September 2015 made in CIV 3012 of 2012 which had declared that:

[12]

The first Plaintiff [ie, CITIC Ltd] did not repudiate the China Project Option Agreement dated 22 October 2008 (CPOA) in 2012 by not acquiring Anshan Resources Pty Ltd (Anshan Resources), Balmoral Iron Pty Ltd (Balmoral Iron) or World Resources Group Pty Ltd (WRG) as the Further Company for the purpose of clause 3.6 of the CPOA.
The purported termination of the CPOA by the First Defendant [ie, Mineralogy] by letter dated 4 October 2012 and the Second Defendant [ie, Mr Palmer] by letter dated 17 October 2012 was invalid.
The First Defendant and the Second Defendant are not entitled to terminate the CPOA on the ground that the First Plaintiff did not in 2012 acquire Anshan Resources, Balmoral Iron or WRG as the Further Company for the purpose of clause 3.6 of the CPOA.
The Fortescue Coordination Deed dated 22 October 2008 has not been terminated by reason of the purported termination of the CPOA by the First Defendant by letter dated 4 October 2012 and the Second Defendant by letter dated 17 October 2012. (order 5 as to costs omitted)
That plea under ASOC par 62 as regards the consent order declarations by Chaney J on 30 September 2015 is admitted by Mineralogy under ADAC par 71.
Under ASOC par 67, the CITIC Parties essentially contend that following the exercise of the First Option by CITIC Ltd, Mineralogy and Mr Palmer, in breach of the terms of the CPOA, have failed to perform their obligations under the CPOA so as to complete the First Option to which CITIC Ltd is entitled. Various matters are complained of under that plea, including the alleged failures of Mineralogy and Mr Palmer to ensure that a Further Company, as defined in the CPOA, becomes a party to necessary project agreements to meet the requirements of cl 3.6(c) of the CPOA. There are further failures contended as regards Mineralogy and Mr Palmer's contended failures to within 90 days attempt to have the relevant Further Company become a party to the State Agreement upon the same terms by which Sino Iron is currently a party to the State Agreement to accord with CPOA cl 3.6(d).
Under that plea a further contended failure against Mineralogy and Mr Palmer is by reason of the alleged failure to provide a Project Agreement Notice pursuant to CPOA cl 3.6(c)(iii) and cl 3.6(d). Further, the CITIC Parties contend that Mineralogy and Mr Palmer have failed to enter into a Takeover Agreement with CITIC Ltd within seven days of providing the Project Agreement Notice as required by cl 3.6(f) of the CPOA.
Finally, the CITIC parties, by ASOC par 67, complain that Mineralogy and Mr Palmer have failed to execute on their own behalves, or on behalf of any other party to the State Agreement that has authorised Mineralogy to do so, any document necessary or desirable for the purposes of making the Further Company a party to the State Agreement as required by CPOA cl 3.6(g).
There is also a general complaint under ASOC par 67 that Mineralogy and Mr Palmer failed to use reasonable endeavours to obtain fulfilment of the conditions in CPOA cl 8.2 as required by cl 8.3. That plea is a general reference to obtaining the consent of the Treasurer of the Commonwealth of Australia under the Foreign Acquisitions and Takeovers Act 1975 (Cth) for the proposed acquisition of the sale interest and, furthermore, the receipt of any required approvals by the Commonwealth of Australia or the State of Western Australia for the project agreements with the Further Company as regards an increase in a Total Extraction Limit (as defined). These matters are all challenged by Mineralogy under ADAC par 67 in various respects.
Under ASOC par 68 CITIC Ltd contends that it is and has at all material times been ready, willing and able to comply with the terms of the CPOA as regards completing the First Option. It refers to various matters, including communications and, in particular, its exercise of the First Option at 13 April 2012 and its notification that, Cape Preston Resource Holdings Pty Ltd (the fourth plaintiff) would be the purchaser of the Further Company from either Mineralogy or Mr Palmer. Likewise, CITIC Ltd refers to its incorporation of a fresh company, ACN 606 342 778 Pty Ltd, for the purpose of essentially being the clean corporation to take the role of the Further Company in order to complete the First Option under the CPOA as at 10 June 2015.
In its defence, Mineralogy denies, for various reasons, that CITIC Ltd was, as it contends, ready, willing and able to comply with its obligations under the CPOA in order to complete the First Option (ADAC par 77).
Under the ASOC prayer for relief, the CITIC Parties seek various matters, including declarations that the CPOA remains in full force and effect. The CITIC Parties also seek a declaration that on the proper construction of CPOA cl 3.7, the CPOA only terminates automatically (and neither party has any claim or right of action against the other) in the event that CITIC Ltd does not exercise any Option (as defined) under the CPOA before the expiry or termination of the Option Period, being 31 March 2016 (but subsequently varied to the extended date of 14 April 2016). Specifically by way of obtaining specific performance of the CPOA as regards the exercise of the First Option thereunder, the CITIC Parties' prayer B for relief seeks:

[13]

An order that Mineralogy and [Mr] Palmer complete the First Option by undertaking the following steps required by clauses 3.6(a), (c), (d), (f), (g), (h) and 8.3 of the CPOA:

(ia) requesting that CITIC [Ltd] or its lawyers incorporate a company to be the Further Company for the purposes of the completion of the First Option;

(ib) notifying CITIC [Ltd] in writing that the company referred to in the preceding paragraph is the Further Company that has been nominated as the vehicle for completion of the First Option and whether [Mr] Palmer or Mineralogy will be the Seller, in accordance with Clause 3.6(a) of the CPOA;

(i) ensuring that the Further Company, becomes a party to the necessary Project Agreements in accordance with Clause 3.6(c) of the CPOA;

(ii) attempting to have the Further Company, become a party to the State Agreement on the same terms as the terms on which Sino Iron is a party to the State Agreement in accordance with Clause 3.6(d) of the CPOA;

(iii) providing CITIC [Ltd] with the notices that it is satisfied its obligations under clause 3.6(c)(i) and 3.6(d) as soon as possible after those obligations have been satisfied pursuant to clause 3.6(c)(iii) and 3.6(d) of the CPOA;

(iv) entering into a Takeover Agreement substantially in the same terms as the Korean Steel Takeover Agreement but modified in the manner specified in Schedule 3 to the CPOA pursuant to clause 3.6(f) of the CPOA;

(v) completing all transactions contemplated by the Takeover Agreement as required by clause 3.6(f) of the CPOA;

(vi) executing on Mineralogy's behalf and on behalf of any other party to the State Agreement that has authorised Mineralogy to do so (including without limitation the parties to the Fortescue Projects Coordination Deed) any document necessary or desirable for the purpose of making the Further Company, a party to the State Agreement; and

(vii) using their reasonable endeavours to obtain the fulfilment of the conditions in clause 8.2 of the CPOA as required under clause 8.3 of the CPOA.

[47]

The real sticking point over the 8ADAC Minute is the question of damages sought under Mineralogy's proposed revisions to its counterclaim. That issue seems to be the chief concern today, from a possible forensic prejudice perspective as articulated today by senior counsel for the CITIC Parties in opposing this aspect of the application for leave to amend.
Mr Scerri QC for the CITIC Parties points out by reference to par 143 of the existing counterclaim (the ADAC) that a newly proposed augmentation to par 143A which only today emerges under the 8ADAC Minute (as seen marked in blue) will, if allowed, take matters to a different realm, well beyond the relatively straightforward former damages claim, under what was formerly ADAC par 143(a)(i) and (ii).
The counter argument by Mr Byrne for Mineralogy in pressing for leave was that within ADAC par 143(a)(i), the existing claim relates to a loss of opportunity by Mineralogy of not getting either a further MRSLA issued either to a Further Company under the CPOA or to Sino Iron or Korean Steel via CPOA cl 3.6(e)(i). That claim proceeds on the basis that the issuance of a further MRSLA would necessarily be followed by more production of 'product'. Resulting from that would be the generation of extra hypothetical product from which Mineralogy would receive (upon Royalty A and Royalty B) royalty money with the potential to extend over the 30 year period of another MRSLA - or possibly longer. It is the loss of this opportunity to gain those royalties to which the current damages plea is directed.
I must say that had not been my reading of ADAC par 143(a)(i). It asks too much of the words 'on no less than 6,000,000 tonnes of Products', in my view.
The forensic grievance to the CITIC Parties that emerges and would suggest against leave needs to be understood in two stages. The first stage is the proposed amendment to be added par 143A (which is the amendment currently in red) had finished in four lines. That amendment was introduced under the 7ADAC Minute. The basis of that claim (in red) was for completion of steps as contemplated in CPOA cl 3.6, and so generating Mineralogy's damages for loss of the right to receive the CPOA's 'Purchase Consideration'. The 'Purchase Consideration' is a fixed amount under the CPOA (see [32] and Schedule A). It read in these terms:

[57]

In brief terms, the major concern of the CITIC Parties as now expressed and put against these proposed augmentations to Mineralogy's counterclaim (under the 8ADAC Minute) is that they will carry with them a significant change of dimension in terms of the loss of opportunity damages enquiry at trial. They seek to pursue a potential loss of royalties, hypothetically, upon hypothetical extra product as a lost opportunity, by reference to a hypothetical mining of an extra billion tonnes of magnetite ore to generate product on which the Mineralogy Royalty would be payable and the subject of the CPOA first tier (of four) option arrangements and over potentially the next 30 years or so.
That will add extra dimensions to the trial towards damages and future loss projections. They will require expert evidence to be gathered for trial as to likely levels and future product as to future prices all worked out no doubt on an actuarial basis projected into the future with discount factors and contingency adjustments. This all arises, as I assess it, overnight, in such a way that a damages exercise complication at trial, will now be made a much far more complicated exercise under these late proposed damages augmentations.
As the pleadings currently stand (under the ADAC), the damages exercise at trial would be (relatively) easier and straightforward involving an identification of a lost Purchase Consideration under the CPOA as adjusted, or alternatively for the potential failure to produce six million tonnes of product in the first seven years (as per the MRP liquidated payment under MRSLA cl 6.3)
Even calculating a loss of royalties looking back over the last six years under a (lost) but hypothetically equivalent MRSLA entered into by a Further Company (or, on an extra billion tonnes of ore by Sino Iron or Korean Steel via CPOA cl 3.6(e)), would be a relatively finite loss calculation exercise - or would have been relatively finite when looking back at the past, say, seven year period, during a December 2020 trial.
Leave to pursue the extra damages claims by the 8ADAC Minute that project losses of royalty payments on extra product over potentially the next 30 years is said by the CITIC Parties to be forensically problematic within the framework of the proposed December 2020 trial. On that basis, these changes are now opposed by the CITIC Parties.
Nevertheless, the CITIC Parties in this respect do also offer a sensible concession, that is put to alleviate the suggested counterclaim prejudice in terms of allowing Mineralogy and Mr Palmer one day to pursue such an expanded counterclaim.
The terms of the CITIC Parties' concession by which they essentially agree to live with all (almost) changes under the 8ADAC Minute, is put on a basis that all trial damages issues under the counterclaim be essentially hived off from the December 2020 trial, which will then be confined to issues other than quantification of damages. Those damages issues will await a separate and later determination if that ever becomes necessary, in the wake of a December 2020 trial. Hence, if, perchance, as a result of the December 2020 trial, the primary claim by the CITIC Parties was to be rejected (being the CPOA specific performance claim), and correlatively, duly Mineralogy succeeded in proving CITIC Ltd's alleged repudiatory breaches of the CPOA, thereby giving rise to a common law loss of opportunity damages entitlement for Mineralogy or Mr Palmer, then any such damages ascertainment issues from that point on could be later pursued under further directions or orders of the court at a subsequent trial. That may consist of a further trial and hearing for Mineralogy essentially to quantify its damages, if that exercise became necessary. That quantification trial may then proceed at a later time with properly assembled expert actuarial forensic loss accounting evidence, giving the parties time to prepare a significant allocation of resources, if damages could not be agreed.
On the other hand, if the CITIC Parties do succeed after a December 2020 trial on their specific performance claim and Mineralogy was ordered to perform the CPOA, then that would be a result wholly incompatible with the CPOA being ended under Mineralogy's acceptance of a breach of an essential term thereof, or by a repudiatory breach of the CPOA, by CITIC Ltd. In that scenario, a loss of opportunity damages claim by Mineralogy for breach on its counterclaim would then be redundant.
I assess that going all the way down the proposed amended counterclaim damages path via new 8ADAC Minute pars 143A, 147AA and 148(bA) will be a highly resource intensive, expensive and time consuming exercise that might, ultimately, all prove to be unnecessary. I therefore will accede to the damages compromise amendment position as articulated by Mr Scerri QC for the CITIC Parties. Thus, leave can be given in respect of all the amendments under the 8ADAC Minute, but only on a basis that any damages assessment exercise under Mineralogy's counterclaim will be pursued separately and later, to the December 2020 trial if that becomes necessary. Any damages quantification exercise needed and arising on Mineralogy's counterclaim will thus be hived off from the December 2020 trial, which will be conducted on all other issues. The CITIC Parties, of course, only seek specific performance on their case, and not damages upon their CPOA option exercise claims as regards getting the shares in a new corporation holding MRSLA rights over a billion extra tonnes of magnetite ore.

[58]

There are some residual CITIC Parties objections of principle against Mineralogy's proposed JDA amendment claim under the 8ADAC Minute. The JDA is a Joint Development Agreement entered between Mineralogy, Sino Iron and others on or about 12 March 2005. This issue carries slightly different considerations in terms of Mineralogy's amendments that are pressed for, as regards eighth proposed defence par 147A(a)(iii), which manifests in the Mineralogy counterclaim (in red and blue).
There is, as Mr Scerri SC points out, some overlap between an attack against similar pleas by a pleading strike out application that is currently pending and is the subject of my reserved decision in CIV 1915 of 2019, being another action I am case managing in this court featuring the same litigation protagonists. On that strike out application, I had heard arguments only last week, effectively attacking similar pleas as to the one time suspension of the JDA effected under the FCD (FCD cl 2.1) being ended by reason of the CPOA option lapsing without being exercised, thereby by FCD cl 2.3 reinstating the JDA in full force and effect.
In such circumstances, I will reserve my decision as regards the pleas seen at 8ADAC Minute par 147A(a)(iii), and the following particulars (C), (D) and (F) and Mineralogy's counterclaim relief prayer plea 148(c) (in red). I do so on the basis that what eventually I decide as regards the pending strike out (in CIV 1915 of 2019) may hold a capacity to bear upon a pursuit of those claims by Mineralogy on its counterclaim in this proceeding. In any event, the challenged JDA pleas look to carry only small forensic repercussions for the December 2020 trial. The pleas essentially invoke express terms of the FCD as regards suggested consequences for the suspension of the JDA by reason of the eventual fate of the CPOA option either 'lapsing' or being 'expired'.
It may be that I will simply give leave in due course for that to be pursued for these JDA counterclaim pleas, as there do not seem to be any forensic prejudicial aspects to it.
But for the present, I will simply reserve the question of leave in respect to those JDA contended reactivation paragraphs for the moment, pending delivery of my reasons in the reserved strike out application in CIV 1915 of 2019.

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