Errigal Ltd v Equatorial Mining Limited & 3 Ors

LEGISLATION CITED : Uniform Civil Procedure Rules 2005 (NSW)

Ninemia Maritime Corporation v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398 Vodafone Pacific Ltd v Mobile Innovations Ltd (2004) NSWCA 15 CASES CITED : Secured Income Real Estate Australia Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Hart v Macdonald (1910) 10 CLR 417 Harrison Partners Construction Pty Limited v Jevena Pty Limited (2005) NSWSC 1225

Errigal Ltd PARTIES : v Equatorial Mining Limited

COUNSEL : Plaintiff: Dr C Birch SC & J-J Loofs Defendants: I M Jackman SC, J R J Lockhart

SOLICITORS : Plaintiff: Larbalestier & Co Defendants: Atanaskovic Hartnell

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50098/06 Errigal Ltd v Equatorial Mining Ltd & 3 Ors JUDGMENT 1 HIS HONOUR: I am dealing with three applications. The first is by the plaintiff, Errigal Limited. It seeks an order restraining the first defendant, Equatorial Mining Ltd ("EQM"), from removing funds in Australia which would reduce the combined balance of accounts held by EQM with financial institutions to a sum of less than $A35,000,000. It also seeks ancillary relief. 2 The first, second and third defendants seek an order for security for costs, and an order setting aside a notice to produce served on them by the plaintiff. 3 I will deal first with the plaintiff's application for a Mareva injunction or for a freezing order, as it is now called (see Uniform Civil Procedure Rules 2005 (NSW), r 25.11 and 25.14). Background Facts 4 Errigal claims to be entitled to be paid substantial moneys from profits derived by a subsidiary of EQM called Compania Contractual Minera Leonor ("CCML"). CCML is a Chilean company. It is the fourth defendant. It has not yet been served. It is not known whether it will appear in these proceedings. CCML holds a 39% interest in a company sometimes called CCM El Tesoro and sometimes MET. CCM El Tesoro, or MET, owns and operates the El Tesoro copper mine in Chile. That mine is extremely valuable and profitable. 5 Errigal's claim stems from an agreement made in 1993 with EQM, CCML and two other subsidiaries of EQM. Those subsidiaries are Equatorial Resources Ltd (EQR) and Equatorial Treasure Ltd (EQT). The first issue on the present application is whether Errigal has demonstrated a good arguable case that it has a cause of action to recover moneys from the first defendant pursuant to that agreement. If so, the next question is whether it has demonstrated that there is a danger that any judgment against EQM will be unsatisfied because those assets might be removed from Australia or disposed of or dealt with or diminished in value. If so, the jurisdiction to make a freezing order would be enlivened and the question then would be whether, as a matter of discretion, the jurisdiction should be exercised, and if so, on what terms. 6 I take the background to the claim partly from what has been pleaded by the plaintiff in the summons, and partly from the affidavit evidence filed in support of the application. Errigal says that in 1991 it and EQM entered into a joint venture, pursuant to which they became entitled to acquire options to 20 contiguous mining claims in Leonor in northern Chile. This was an area believed to be rich in copper. Errigal paid $US1,000,000 in August 1991, and EQM paid $US2,000,000 in order to acquire those rights. Errigal says that in 1992, EQM caused EQT and EQR to be incorporated in Bermuda. Errigal acquired shares in EQT. The other shareholder in EQT, it says, was EQR, being a wholly-owned subsidiary of EQM. Errigal says that CCML was incorporated in July 1992 as a wholly-owned subsidiary of EQT and the option rights were transferred to CCML. Errigal says CCML exercised this option and acquired mining rights in April 1992. In August 1992, Errigal contributed another $US150,000 towards the cost of the mining venture. 7 Errigal pleads that in February 1993, EQM requested it to transfer all shares it held in EQT, so that EQM would be able to raise finance without there being a minority shareholding in the Leonor project. 8 In or about February 1993, Errigal, EQM, EQR, EQT and CCML entered into the agreement on which Errigal sues. It is very short. It provides: " WHEREAS Errigal has become entitled to take up shares in EQT and in lieu thereof has acquired 6,500,000 shares in EQM and has thereby agreed to relinquish all of its rights and entitlement to take up shares in EQT and the parties hereto have agreed to enter into this Agreement to record the agreements and understandings reached between them in relation thereto. WHEREBY AND IT IS HEREBY AGREED AND DECLARED as follows: 1. Errigal hereby irrevocably agrees to waive and forever forego all its rights and entitlement to the aggregate sum of United States Dollars One Million and One Hundred and Fifty Thousand (US$1,150,000) paid by Errigal to EQT in and by way of loan made upon terms that such amount was advanced on an interest free basis and repayable upon demand and all its rights and entitlement to take up shares in EQT. 2. In consideration of Errigal agreeing to waive all of its rights and entitlements in the terms of Clause 1 above, the Equatorial Group and each of them hereby agree and declare that they shall pay or procure the payment to Errigal of the following: (a) an amount equal to 15% of all dividends (net of any applicable taxes) that EQT may receive from CCM Leonor, and (b) an amount equal to 10% of any surplus (after payment of any applicable taxes) recovered by EQT or EQR as the case may be over and above the total amount invested in the Leonor project currently being undertaken by CCM Leonor (such investment to include the loan of US$5,500,000 made available by Placer B-C Limited together with interest thereon, the investment of US$1,300,000 made by Niugini Mining Limited and all funds contributed by the Equatorial Group and Errigal plus all carrying charges) in the event that EQT sells any of its shares in CCM Leonor and receives any such surplus or in the event that EQR sells any of its shares in EQT and receives any such surplus such an amount or amounts as may become so due to Errigal to be paid to Errigal within 30 days of receipt by the Equatorial Group or any one of them. 3. EQR hereby agrees that in its capacity as the beneficial holder of the entire issued share capital of EQT, it will issue an irrevocable direction and instruction to EQT in the terms of Clause 2 above to enable EQT to perform its obligations thereunder or otherwise comply with the provisions of such Clause. "

9 This case principally concerns clause 2(a). In 1996, CCML and another Chilean company formed what has been called a joint venture company known as Mineral El Tesoro or ("MET") or sometimes called CCM El Tesoro. The other 61% interest is held by a subsidiary of Antofagasta Plc. Antofagasta Plc is an English company with predominantly Chilean-based mining operations. Errigal pleads that this came about because in 1995 and 1996, the company controlled by Antofagasta contributed its adjacent mineral deposits to the venture and CCML contributed the Leonor deposits to the venture. 10 According to EQM's 2004 annual report, during the year ended 31 December 2004, MET repaid in full loans that had been provided by its shareholders in the form of subordinated debt. In that year, CCML received a dividend from MET of $US19,200,000. In the year ended 31 December 2005, CCML received a dividend from MET of $US40,950,000. MET also used surplus cash to repay project debt of $US44,000,000. 11 According to a recent report from the directors of EQM, in April 2006, CCML received a dividend from CCM El Tesoro of $US15,600,000, and in July 2006, it received a further dividend of $US21,450,000. Thus, from 2004, CCML has apparently received dividends from MET which total $US97,200,000 up to July 2006. 12 The financial reports of EQM state that CCML has not itself paid a dividend. According to EQM's 2004 annual report, at the end of 2003, EQM held cash of $A1,066,000. This increased during 2004, such that by year-end of 2004, EQM held cash of $A19,165,000. At 31 December 2005, it held cash of $A80,950,000. There is evidence that as at 30 June 2006, it held cash of $A98,000,000 (see footnote 9 to the report of Lonergan Edwards, which is part of exhibit B). Subsidiaries of EQM are said to have held cash at 30 June 2006 of another $A29,000,000. 13 Errigal contends that it should be inferred that the cash now held by EQM is the result of a distribution of profits from CCML. I accept there is a good arguable case that this is so. EQM's 2004 annual report described the group's principal activities. Apart from the interest held by CCML in the El Tesoro copper mine, the other significant activities of the group were an interest in a copper mine at Tonapah in North America, water rights held by CCML in Chile, and exploration rights in the vicinity of the El Tesoro mine. 14 The Tonapah copper mine was held through a different chain of subsidiary companies. However, it had been closed and reclamation work was being undertaken to meet statutory environmental standards. The only source of cash from this operation would appear to be the cash which arose from a settlement of litigation. According to the annual report, the EQM group reached a settlement of litigation for an amount of $US101,000,000; of which $US89,000,000 was received in 2004, $US6,000,000 in January 2005, and the final $US6,000,000 in January 2006. 15 The 2004 annual report discloses that the funds received from that settlement were applied in repaying external debt, redeeming externally held preference shares and making a return of capital to shareholders. This accounted for $A104,200,000 expended in 2004. 16 It does not appear from the annual report that any significant cash was received from the exploration rights which subsidiaries of EQM held in Chile. The exploitation of water rights apparently yields income to CCML through the amounts it receives from the El Tesoro copper production. 17 According to the financial statements, the principal inflow of funds to EQM in 2004 was an amount of $A85,661,000, described as "redemption of preference shares by controlled entity". I infer that one or more of EQM's subsidiaries had issued preference shares to EQM and these were redeemed in that amount. A question then arises as to which subsidiaries issued the preference shares and from where they derived the funds to redeem them. The funds were not raised by external borrowings. 18 Apart from any surplus funds arising from the settlement of litigation, the only available source of funds identified in the annual report which might have been used for the purpose of paying monies to EQM on the redemption of preference shares is through the profits generated from the El Tesoro copper mine. The annual report said that the El Tesoro copper mine was expected, "once again [to] provide a substantial cash flow to the company." 19 The 2005 financial statements disclosed that the principal source of cash received by EQM in that year was $A42,081,000 described as funds raised from "redemption of preference shares by controlled entity", as well as $A22,581,000 from "dividends received". The dividends received were stated not to come from CCML. 20 The directors' statement accompanying the 2005 accounts states that the company's share of the dividends in 2005 from the El Tesoro operation was $US40,950,000. This was derived by CCML. The directors then say, "The majority of the dividend funds was transferred to the parent company through the repayment of intercompany loans and the redemption of intercompany preference shares". 21 There is thus a reasonable basis for inferring that a substantial part of the cash received by EQM in 2004 and 2005 from the redemption of preference shares issued to it by its subsidiaries had as its source the profits derived by CCML from the El Tesoro operation. 22 EQM states that CCML has not paid any dividends and that no dividend flow is expected. There is no contrary evidence if "dividends" is understood in the sense of dividends declared as such by the company to be paid to its shareholder, as distinct from a distribution of profits by any means. 23 Errigal relied on certain statements appearing in an information memorandum released last year by EQM. It was contended that it should be concluded from those statements that EQM, as distinct from EQM or its subsidiaries, had admitted to receiving dividends from MET. However, when read in context, that was plainly not what was intended to be conveyed. 24 EQM is, or was, a publicly listed company. In July and August 2006, takeover offers were received for its shares. The later and higher offer was from Sierra Gorda Copper Pty Limited. Sierra Gorda is another subsidiary of Antofagasta Plc. Sierra Gorda has now acquired a relevant interest in 97% of the shares in EQM. On Sierra Gorda completing the compulsory acquisition of the remaining shares in EQM, subsidiaries of Antofagasta Plc will control the whole of the El Tesoro mining operation. 25 The solicitors for the first to third defendants have advised that EQR and EQT, being both Bermudan companies, have been amalgamated with EQM, and that EQM has assumed their assets and their liabilities. It is not clear when this took place. Both EQR and EQT have appeared in these proceedings. They are also shown as separate legal entities in EQM's 2005 annual report. Errigal's Causes of Action 26 With that background, I turn to the first question of whether Errigal has demonstrated that it has a good arguable case on an accrued cause of action. Errigal did not contend that it should obtain a freezing order in relation to a cause of action which has not yet accrued. The commentary in Ritchie's Uniform Civil Procedure (NSW) to r 25.14 says that the expression "good arguable case" in r 25.14(1)(b) has as its provenance the judgment of Mustill J (as his Lordship was) in Ninemia Maritime Corporation v Trave GmbH & Co KG (The Niedersachsen) [1984] 1 All ER 398 at 404. His Lordship there said that: " I consider that the right course is to adopt the test of a good arguable case, in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one the judge considers would have better than a 50% chance of success. "

27 In its summons, Errigal claims that from 2004 to April 2006, CCML has received sums totalling $US69,734,000 which were available to it to distribute as a dividend to EQT. Alternatively, it says that after allowing for CCML's 39% interest in voluntary payment of debt and the payment out of a finance lease by MET, it is owed $US37,207,000 available for distribution as a dividend. It claims 15% of either sum in the alternative. It can be noted that its pleading does not pick up the further dividend paid to CCML in July 2006 of $US21,450,000. Information about that payment has only become available very recently. I presume that the summons will be amended in due course to deal with that matter. 28 Errigal's first claim is that: " 41 On its proper construction, paragraph 2(a) of the Agreement [means] that Errigal is entitled to promptly receive 15% of those sums being the surplus from payments received by CCML from MET and receivable by CCML from MET but for use by MET to make voluntary payments of debt and payment out of finance leases by MET after payment by CCML of all its proper operating costs and all proper financing costs and any applicable taxes in regard to the investment in MET which includes the Leonor deposits. "

29 In my view, this contention is not seriously arguable. Clause 2(a) of the agreement does not so provide, on any view of its words. Clause 2(a) entitles Errigal to be paid an amount equal to 15% of dividends that EQT may receive from CCML. As I shall explain shortly, it may be arguable that Errigal is entitled to 15% of an amount which can be described as dividends which may be received by other companies in the Equatorial group. However, clause 2(a) does not provide that Errigal is entitled to 15% of moneys that would be available for distribution as a dividend. I do not consider that the contrary is seriously arguable. 30 However, during the course of argument, counsel for Errigal advanced a more persuasive argument. Dr Birch SC, who appeared with Mr Loofs for Errigal, pointed out that the agreement is sparse. It contains no terms regulating when dividends are to be paid. If the expression "dividends" means dividends declared by CCML, then the apparent intention of clause 2(a) could easily be defeated by CCML distributing its profits other than by way of dividend. Hence, he submitted that the expression "dividends" should not be narrowly construed but applied to any means taken by CCML to distribute its profits. 31 I accept that it is reasonably arguable that this is the correct approach to interpreting the clause. The meaning to be given to the word "dividends" depends on the context in which the word is used. In its dictionary sense "dividend" includes (Macquarie Dictionary, 3 ed rev.): " (a) a pro rata share in an amount to be distributed;

(b) a sum of money paid to shareholders of a company or trading concern out of earnings. " 32 Daniel Greenberg, Stroud's Judicial Dictionary of Words and Phrases, Vol 1, 7th ed, Street & Maxwell, London, 2006 includes the following: " 'The word 'dividend' carries no spell with it. Applicable to various subjects, it is not intelligible without knowing the matter to which it is meant as referring'; but its ordinary meaning is share of profits (per Knight-Bruce LJ, Henry v Great Northern Railway , 27 L.J. Ch. 1). 'I am quite unable to follow the argument that 'dividend' means a fixed rate of dividend; it means the right of a shareholder to receive his aliquot portion of the profits of the undertaking' (per Sir E Fry, Re Chelsea Waterworks Co and Metropolitan Water Board , 73 LJKB 535). "

33 Profits can be distributed in many ways. In this agreement, I think it is arguable that, for example, a distribution of profits by the issuing of preference shares and the redemption of those shares at a premium paid out of profits, would be payment of a dividend. Arguably, a loan repayable on demand might be a distribution of profit if there were no intention that the loan be repaid and if the borrower controlled the lender and so could ensure that no demand was made. 34 As it is not known how CCML's profits have been dealt with, it is fruitless to speculate on whether particular steps could amount to payment of a dividend within the meaning of this clause. Nonetheless, I accept that it is arguable that the word may extend to any means taken by CCML to distribute its profits. 35 Clause 2(a) refers to Errigal being entitled to an amount equal to 15% of all dividends that EQT may receive from CCML. However, the concluding words of clause 2 provide for an amount due to Errigal to be paid within 30 days of "receipt by the Equatorial group or any one of them". The receipt there referred to is, at least arguably, the receipt of a dividend. 36 As it is not yet known what moneys, if any, were paid by CCML to EQT, it is not necessary to pursue the implications of the concluding words of clause 2. It suffices to say that it is arguable that the payment of a "dividend" in a wide sense to another company in the Equatorial group may trigger the obligation to pay Errigal. It may also be arguable that the concluding words of clause 2 contemplate that a company in the Equatorial group, other than EQT, may receive a "dividend" which will trigger an obligation to pay moneys to Errigal, and that that adds support to a construction of the word "dividend" in a wider, rather than in a narrower, sense. 37 The summons then pleads three implied terms. The first is as follows: " 43 It was an implied term of the said Agreement that if and to the extent CCML received funds from MET that were surplus after payment of all proper operating costs and all proper financing costs of its investment in MET which includes the Leonor deposits and any applicable taxes it would distribute such funds as dividends to EQT, or pay Errigal such sum as it would be entitled to receive under the Agreement if such dividend was paid. "

38 The second alleged implied term is: " 45 Further and/or alternatively in the event that this Honourable Court should determine that the implied term described in paragraph 43 was not a term of the said Agreement then it was a term of the said Agreement that if CCML held funds from distributions received from MET that the officers of CCML were legally entitled to distribute, and that such officers acting reasonably would distribute, then CCML would distribute those funds as dividends to EQT or pay Errigal such sum as it would have been entitled to if such dividend had been paid. "

39 I do not consider that Errigal has demonstrated a good arguable case for the implication of these terms or, in the case of the second alleged implied term, that such a term, if implied, has been breached. There is no evidence of what duties are required of the directors of CCML under Chilean law. I therefore assume that those duties are the same as under Australian law. Under Australian law, the directors must decide in good faith, and having regard to what they consider to be the best interests of the company, whether dividends should be declared if there are available profits. No doubt a company can contract to pay dividends from available profits, but it cannot be necessary, in order to give business efficacy to a contract, to imply a term that dividends will be declared, or that 15% of profits available to be paid as dividends will be paid to Errigal, when that may not be considered by the directors, acting in good faith, to be in the best interests of the company. 40 It is difficult to give content to the second implied term alleged in para 45. It is difficult in my view to see why there should be any implied term concerning the declaration of dividends, other than that the company's directors will act according to their duties as prescribed by law, and that the Equatorial group companies will perform their obligations under the agreement in good faith. However, if the term alleged in para 45 were implied, there is no evidence at the moment as to what matters the directors of CCML have taken into account in deciding not to declare dividends. Even if a term of "acting reasonably" were implied, I doubt that there is evidence of its being breached, except in a respect to which I will now turn. 41 The third alleged implied term was that the Equatorial group companies would act in good faith in regard to their obligations under the agreement. I accept that it is seriously arguable that an obligation to act in good faith would be implied (see Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [189]-[191] and the cases there referred to). 42 Good faith may import, as well as acting honestly, the doing of what is necessary to enable the other party to have the benefit of the contract, or such an implication may arise from express words of the contract (Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607; Hart v Macdonald (1910) 10 CLR 417; and Vodafone Pacific Ltd v Mobile Innovations Ltd at [193] and following). 43 The question is what content can arguably be given to such an implied term. Errigal pleaded that the same implied terms as it had earlier pleaded arose pursuant to the obligation to act in good faith. It seems to me such terms face the same objections, in that they would seek to fetter the exercise in good faith by the directors of CCML of their power to declare dividends and to act according to what they judge to be in the best interests of the company. Nonetheless, I accept it is seriously arguable that there is an implied obligation to act in good faith, and perhaps reasonably (see Vodafone at [189] and [190]), which precludes any of the Equatorial group companies from acting so as to deprive Errigal of the benefits of the agreement, and which requires CCML to ensure that its directors do not exercise their powers in relation to the declaration of dividends, or the distribution of profits other than by way of declaration of dividends, with the purpose of depriving Errigal of those benefits. 44 If clause 2(a) only applies to dividends strictly so-called, it applies only to such dividends paid by CCML to EQT. The question still arises as to why CCML has not distributed its profit by way of dividends, but apparently by the "repayment of company loans and the redemption of intercompany preference shares". There is a serious question to be tried as to whether it has so acted so that it and the other Equatorial group companies would not have to pay Errigal 15% of moneys which would otherwise have been distributed as dividends. 45 Finally, Errigal pleads in its summons an alternative claim for rectification of the agreement. There was no evidence to support a claim for rectification on the present application. 46 Nonetheless, for the reasons I have given, I am satisfied that Errigal has demonstrated a good arguable case within the language of r 25.14(1)(b) of the UCPR that it is entitled to 15% of the profits of CCML which CCML has distributed, by whatever means, to other companies in the Equatorial group. That arguable claim arises either on the express construction of the agreement, reading "dividend" widely, or pursuant to an implied term of good faith which would require CCML to ensure that its directors did not exercise their powers in relation to the declaration of dividends, or the distribution of profits other than by way of dividend, for the purpose of depriving Errigal of the benefits of clause 2(a) of the agreement. 47 It is difficult to identify in the present evidence what is the quantum of such a claim. Mr Brogan, the company secretary of Errigal, contends that CCML has had $US19,500,000 million to distribute by way of dividends in 2004 and $US84,174,000 to distribute by way of dividend in 2005 and 2006. I am not sure of his maths. Given his maths, these sums would total $US103,674,000. 15% of that sum is $US15,550,000, or at the exchange rate referred to in Mr Brogan's affidavit, $A20,460,000. 48 Counsel for Errigal do not seek a freezing order in respect of profits not yet earned by CCML, or distributed by CCML, and did not press for Mareva relief in a greater sum. 49 The amounts of cash received by EQM in 2004 and 2005 from the redemption of preference shares was $A128,642,000. Not all of that sum may have been sourced from the profits of CCML, but the defendants did not seek to demonstrate how much of those moneys had come from that source. 50 It is a reasonable inference that the further cash received by EQM between 1 January 2006 and 30 June 2006 (another $A17,000,000) was substantially sourced from CCML's profits from the El Tesoro mine. I take into account that $US6,000,000 was received in January 2006 as the last tranche of the settlement of the litigation. Nonetheless, it is a reasonable inference that at least another $A9,000,000 of the cash now held by EQM, and received in 2006 was derived from CCML's profits. 51 Fifteen percent of $137,600,000 is $20,640,000. Regard must be had to the fact that if Errigal is successful in its claims, it will be entitled to interest on any judgment from the time its causes of action accrued. That is to say it will be entitled to interest on various amounts distributed between 2004 and 2006. 52 I also take into account the fact that the uncertainty as to the quantum of Errigal's claim arises because it has not had access to the defendants' records and depends upon publicly available information. The defendants have not themselves produced any evidence on the application. 53 Taking all of these matters into account I am satisfied that Errigal has a good arguable case within the meaning of r 25.14(b) of a cause of action for the recovery of amounts, including interest, of $A20,500,000. Danger of Judgment being Unsatisfied 54 I turn to the next question of whether there is a danger that any judgment against the first defendant will be unsatisfied because the assets of EQM might be removed from Australia or disposed of or dealt with or diminished in value (see r 25.14(4)). The plaintiff submits that: " It is not incumbent upon the plaintiff to show that there is a positive intention on the part of EQM's new owners to frustrate any judgment of the court. It is sufficient if there is a danger that assets will be dealt with in a way which will in fact prevent the plaintiff from recovering on any judgment (see Patterson v BTR Engineering Australia Limited (1989) 18 NSWLR 319 at 321F; Beach Petroleum NL v Johnson (1992) 9 ACSR 404 at 406; Cardile v LED Builders Pty Limited (1999) 198 CLR 380 at 389). "

55 EQM does not dispute the correctness of this submission. It accords with the judgment of Brereton J in Harrison Partners Construction Pty Limited v Jevena Pty Limited [2005] NSWSC 1225; (2005) 225 ALR 369. His Honour, after reviewing the authorities, concluded (at 378 [42]-[43]): "42 Thus, although the authorities sometimes use language which approaches that of suggesting that intent is required, proper analysis shows that in fact they focus on the anticipated result, and not on the subjective intent that accompanies it. A better word than intent would be "calculated" or "liable to", rather than "intended to" produce the result of defeating an anticipated judgment. 43 Accordingly, I would hold that an applicant for Mareva relief, in establishing a serious risk of dissipation, need not establish that a defendant may deal with the assets in a manner intended to produce the result that the plaintiff, if successful, would not be able to have his or her judgment satisfied. It will suffice to establish that there is a real risk that the defendant will deal with the assets in a manner calculated, or liable, to produce the result that a judgment in the favour of the plaintiff would not be satisfied."

56 However, it was submitted for EQM that the fact that the honesty and motivation of EQM are not impugned is relevant as indicating that there is no realistic danger that any judgment would be unsatisfied. According to the most recent information, EQM currently has net assets of about $A327,000,000, consisting primarily of cash of $A98,000,000 and its investments in its subsidiaries. It was said that it was unthinkable that the directors, acting honestly, could so deal with the company's assets that it would be unable to pay a judgment debt of, say, $A20,000,000. 57 Counsel for the plaintiff pointed to a number of facts as indicating that there was a danger that a judgment will be unsatisfied because assets might be dealt with. The enquiries made by Errigal to EQM for information have not produced any substantial response. Secondly, EQM does not conduct any business activity in Australia. It has few staff in Australia and they appear to be associated with maintaining its registered office. Most importantly, EQM has now been taken over by a subsidiary of Antofagasta Plc, whose subsidiaries conduct mining operations in Chile. It is reasonable to expect that the cash presently held in Australia will be repatriated to the Chilean operations. 58 Furthermore, it appears from EQM's accounts that it would be open for EQM to distribute its cash by way of dividend rather than by loan. It has earned sufficient profits in 2004 and 2005 to do so and it has no creditors except Errigal, whose debt it disputes. Were it to do so, and if Errigal obtained judgment against EQM which was unsatisfied, a liquidator of EQM would have to seek to raise money by the sale of shares in CCML, or by the appointment of new directors to CCML and the procurement of a distribution to EQM. However, between now and the time when judgment may be obtained and a liquidator appointed to EQM, the El Tesoro operation may have been restructured. 59 I accept that it is possible that those in control of the Antofagasta group might, quite properly, consider that a restructure of the El Tesoro mine was appropriate now that it controls both subsidiaries of MET. There may be perfectly good regulatory or fiscal reasons for its doing so. I also accept that it is likely that cash would be paid to some other member in the Antofagasta group to be used in the Chilean mining operations. That might be done by way of declaration of dividend rather than by way of loan. 60 In any event, it could be difficult for a liquidator of EQM to seek to realise foreign assets, whether they are in the form of shares in a Chilean company, or in the form of a debt which might be owed by a Chilean company to EQM. That difficulty could arise notwithstanding that those in control of EQM might act properly in dealing with its assets. 61 Accordingly, I consider that the grounds for making a freezing order under r 25.14(4) have been established. No evidence was led by the defendants that the making of such an order would cause hardship to EQM or to any other company in the Antofagasta group. The plaintiff submits that it would be content with a freezing order moulded in such a fashion that, upon EQM giving appropriate notice in writing to it of an intention to remove funds, and a statement of the purpose of doing so, the order would dissolve unless pertinent application were made to the court by the plaintiff. 62 Having regard to those proposed terms, and to the absence of evidence of hardship, I think it appropriate that the jurisdiction under r 25.14 be exercised. In due course, upon the plaintiff by its counsel giving the usual undertaking as to damages, I will make an order that the first defendant by itself, its servants or agents be restrained from removing from accounts held with any financial institution in Australia, funds which would reduce the combined balance of such accounts to a sum less than $A20,500,000 million. The order will also need to incorporate the terms proposed in the plaintiff's submission to which I have just referred. Ancillary Relief 63 The plaintiff seeks an ancillary order that EQM provide an affidavit setting out the balance of accounts held by it with any financial institution in Australia as at 10.00 am on 31 August 2006. I do not think it is entitled to an order in terms as wide as those. There was no real argument in relation to the ancillary orders sought in para 2 of the notice of motion. My prima facie view is that the plaintiff is entitled to be told of the financial institutions and the accounts in which an amount of at least $A20,500,000 is to be held, and to be given prior notice before such accounts are changed. I will leave it to counsel to bring in short minutes of order in relation to this paragraph and if there is any dispute about the order I will hear further argument on that. Security for Costs 64 I turn then to the notice of motion of the first to third defendants. Those defendants seek orders that the plaintiff provide security for costs. The plaintiff is an Irish company and there is no dispute that it should provide security for costs. Nor is there any dispute as to the quantum of the security which the first to third defendants seek. Nor is there any dispute as to the time by which, or the tranches in which, such security should be provided. 65 The only issue raised in relation to the provision of security for costs was that the plaintiff wishes to protect itself against having to provide security not only for the costs of the first to third defendants, but also additional security for costs of the fourth defendant, if the fourth defendant should later appear. 66 I can see the merit in the argument that where all of the defendants are part of the same corporate group, the plaintiff should not be required to provide security for more than one set of costs. However, this is not the occasion to determine that question. The fourth defendant has not yet been served. It is not known whether it will appear. If it does appear, it is not known whether it will make a separate application for security for costs. If it does, I do not know what matters might be advanced by it in support of that argument. 67 Accordingly, it was agreed during the course of the hearing that the plaintiff was sufficiently protected by its being noted that, in not opposing the orders for security sought by the first to third defendants, it was not to be taken as conceding that it may be required to provide additional security for the fourth defendant. To the contrary, the making of the orders for security is without prejudice to the plaintiff's being entitled to resist an application that it provide further security for costs of the fourth defendant, if such an application is ever made. It is sufficient that that is noted in the judgment. Accordingly, I make orders as sought in paragraphs 1 to 3 of the first to third defendants' notice of motion filed on 25 August 2006. Notice to Produce 68 The remaining application is the first to third defendants' application to set aside a notice to produce dated 11 August 2006. On 11 August 2006, orders were made in these proceedings by consent. The orders provided for the defendants, other than the fourth defendant, to file and serve a commercial list response within 21 days of security for costs being provided. Provision was made for the return of subpoenas and for the parties to exchange categories of discovery. 69 The exchange of categories of documents for discovery was required to take place by 8 September 2006. Because there has been a contest in relation to the form in which security for costs as contemplated in those orders was proffered, that timetable has not taken effect. The timetable provides for the giving of discovery in the usual way. 70 The plaintiff served a notice to produce because it has incomplete information concerning the circumstances of the defendants, and the moneys received by CCML and paid by it. It submitted that it should be entitled to ascertain, at the earliest possible stage, whether the inferences it had drawn in relation to its case were correct or not. To date, it has depended solely on the provision of publicly available information. 71 However, the notice to produce which has been served seems to me to go well beyond any such purpose. It contains an extensive description of documents required to be produced. These extend, by way of example, to all documents coming into existence since 1 January 1992 evidencing approvals sought in Chile in connection with the Leonor project, CCML or MET. At present, I do not understand how documents of that width would be relevant to the claims which the plaintiff makes in these proceedings, let alone why the production of such documents would be necessary for the limited purpose identified in the plaintiff's submissions. 72 Whilst I can see the advantage of the early production of documents establishing how CCML has dealt with its profits and the source of the cash received by EQM, I do not think that it is conducive to the cheap and just resolution of the issues, that discovery be given in successive waves. Even if the notice to produce could be pared down, it would not be efficient for the defendants to have to search their documents for a certain category of documents at this stage, and then later have to review them again when categories of documents for discovery are finalised. 73 The usual principle is that, where orders are made for the giving of discovery, it is an abuse of process for a party to serve a notice to produce to require the production of documents outside that discovery process. 74 For these reasons I make the orders sought in paragraph 4 of the first to third defendants' notice of motion dated 25 August 2006.

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