Mesa's submissions
33 Mesa submits the real issue is whether the Court in its discretion should be satisfied that Mighty River is acting in good faith and that the proposed inspection is for a proper purpose, so as to fulfil the statutory precondition. It says the unique facts of this case mean that the Court's assessment must take into account a history of prior hostilities and litigation spanning at least five years, referred to generally above and discussed further below.
34 In its closing submissions, Mesa addresses what it calls "the nature of Mighty River's evidence" with a focus on the oral evidence of Mr Xie during cross-examination, which Mesa says alternated between being evasive on the one hand, and candidly detrimental to Mighty River's application on the other.
35 Mr Xie's evidence, it is submitted, establishes that the dominant purpose of Mighty River is to use s 247A as an instrument (directly or indirectly) to:
(1) usurp the well defined powers of the Board of Directors of Mesa in order to control decisions of Mesa by obtaining a de facto seat at the board table; and/or
(2) extract a financial gain from MRL or the directors of Mesa.
36 In order to achieve these improper purposes, Mesa contends Mighty River has asked that this Court allow access to a vast number of internal and confidential documents that have already been the subject of:
(1) litigation between Mighty River and Mesa in the 2010 proceeding;
(2) specific requests for information by Mighty River's former solicitors to Mesa's solicitors in 2010, which were answered;
(3) further requests for information from Mr Xie directly to Mesa's directorship in 2010 and 2011;
(4) discovery sought by Mighty River in its further litigation with MRL in the 2012 proceeding, which action was settled on terms that applied to MRL and its subsidiaries; and
(5) conferral in respect of a foreshadowed pre-action discovery application abandoned shortly before the filing of the present application.
37 In each case, Mesa says, the topic of port rights has been raised with Mesa and its directors in the context of litigation or proposed litigation. Mesa notes that although Mighty River has asserted that it had identified a cause of action as recently as 2014, it apparently did not occur to Mighty River - until it was suggested by counsel in cross-examination - to take the logical first step of enquiring with its former solicitors as to whether the key documents it seeks were already in the possession of its former solicitors.
38 Further to that, Mesa contends Mighty River has made no reasonable attempt to analyse the information that is readily available to it by way of public disclosures to the ASX, which it says it monitors. For instance, Mr Xie was unaware of the most recent financial report of Mesa until it was attached to an affidavit filed by Mesa in this action, and had not asked Mighty River's accountants or other advisers to examine and interpret any of the financial reports annexed to his own affidavit.
39 Mesa says there is no case for investigation, and that if Mighty River believed otherwise, it would have taken steps over the last five years to investigate matters that had been voluntarily disclosed to it, both directly and via the ASX. Mesa contends that for these reasons alone, the application must logically be seen as contrived and artificial, and therefore within a category of request that ought not be endorsed by the Court.
40 Mesa points to the fact that Mighty River requires access to, in Mesa's submission, the internal management information of Mesa, and that Mr Xie said in cross-examination that once Mighty River has that information, it proposes to share it with its shareholders and other business associates, advisors and accountants - notwithstanding it has not given the information already available via the ASX releases to its accountants. Further, Mesa notes Mighty River and/or Mr Xie are heavily involved in the business of marketing metals including manganese, in circumstances where Mr Xie said in his affidavit that he learnt a significant amount about the business and operation of Mesa by virtue of his former directorship of Auvex. The Court should also note, submits Mesa, that Mr Xie did not consider the scope of his request to access every document in Mesa's possession vaguely relating to its port rights to be oppressive or inappropriate.
41 In these circumstances, Mesa contends that this Court should decline to authorise the access requested. It says this is not the case of a genuinely concerned shareholder seeking to protect its investment; Mighty River continues to buy shares in Mesa no doubt with a view to maintaining or increasing its influence and leverage as a significant shareholder. In Mesa's submission, the purchase of additional shares means either the concern as to its shareholding is not genuine (or if genuine, has been allayed) or Mighty River anticipates a buyout at a premium, and the recent purchases are an arbitrage.
42 To the extent the requirement relating to good faith and proper purposes is a composite expression, Mesa submits the application should be dismissed for lack of proper purpose. If the "good faith" aspect retains a disjunctive quality, as I noted in Yara Australia Pty Ltd v Burrup Holdings Limited [2010] FCA 1273; (2010) 80 ACSR 641 at [129], Mesa says the application should fail, whatever the purpose of the application is found to be.
43 Mesa then identifies what it describes as the critical evidence of Mighty River affecting consideration of the composite notion of good faith and proper purposes.
44 It says this is the kind of case that requires an inquiry into the plaintiff's purposes at "several levels of immediacy" with respect to its conduct in bringing the application. At an initial level, Mighty River says that it seeks to obtain the required documents so that it can discern information in relation to the use of the port rights. At a second level, it says that, having obtained the documents and information, it proposes to do numerous things, including:
(1) share this information with various unidentified parties associated with Mighty River in order to determine the action it should take;
(2) discuss the information with the Board of Mesa; and
(3) consider taking action against the Board of Mesa itself, or bring proceedings on behalf of Mesa against the Board, including (possibly) filing an application for pre-action discovery, which Mesa disputes could be sought.
45 Mesa says it is entitled to test the truth of these assertions, and the Court is entitled to enquire as to whether these purposes are borne out having regarding to all of the circumstances, and whether these purposes are in fact proper. Mesa notes the application is predicated on the notion that there is some obvious case for investigation - or some irregularity - which it denies.
46 Mesa notes that in or about August 2010, MRL acquired approximately 64% of the shares in Mesa via a takeover bid. Mighty River acquired a significant number of shares in Mesa during 2010, holding in April 2010 approximately 19% of the issued shares. After Mighty River requisitioned two spill motions, Mesa obtained a declaration from the Takeovers Panel in relation to findings of unacceptable circumstances in contravention of the Act, relating to Mighty River's shareholding in Mesa. Mighty River elected not to accept into the MRL bid, retaining its significant - but minority - shareholding thereafter.
47 Mesa says Mighty River first raised MRL's use of Mesa's port rights in approximately November 2010 when its former solicitors wrote to Mesa. In the letter, Mighty River's former solicitors referred to Mesa's confidential agreements with the Port Hedland Port Authority by name and date. Although the letter asks a series of direct questions, it does not ask for copies of the documents to be produced. Mesa notes it had in fact produced copies of the agreement in question, and the deed of variation, by way of preliminary discovery to Auvex's solicitors on 22 September 2010. Mr Xie, it notes, accepted in cross-examination that he was a director of Auvex at that time, and he "presumed" that these had been disclosed to Auvex. Although Mr Xie said he had not seen the agreements, he "presumed" that Mighty River's solicitors had contacted the Board of Auvex, and Mesa obtained copies of the agreements from the Board.
48 That letter of November 2010 was responded to by Mesa's solicitors on 15 November 2010, confirming that MRL had used the port rights for "good consideration". In that regard, Mr Xie accepted in cross-examination, Mesa says, that he had been aware of this matter since approximately 2010:
You had been aware, hadn't you, since 2010 that MRL utilised the port capacity, hadn't you?--Yes.
But at the time, you were aware that, as asserted in your email of 30 October 2014, MRL had used the port and laydown and stockpile facility last four years. Is that right?---As Mr Ellison confirmed. (Emphasis added.)
49 Mr Xie wrote to Mr Ellison, director of Mesa and MRL, in December 2010 as follows:
When auvex can do it with 3.5 usd pmtu you should be able to do it better! If you think you aren't able to do it, allow mighty river to give it a try! Additionally, we have prepaid port capacity we should have good saving there! Atlas technically paid 100million for aurox port access' I do not know how mrl are justified using mesa port capacity paying no or little consideration! (As in original.)
50 Mr Xie, Mesa says, further accepted that Mighty River had alleged improper use by MRL/Mesa of Mesa's port rights as part of the 2010 proceeding between Mesa and Auvex in the Supreme Court of Western Australia. Mesa notes Mr Xie accepted that he had participated in attempts by Mesa and Auvex to resolve those proceedings, and that in doing so he sought to acquire the marketing rights for all of Mesa's product produced in its joint venture with Auvex. Mr Xie says in his affidavit that the proceedings were resolved on 2 August 2011. Despite being represented throughout by solicitors who had raised the matter directly with Mesa, Mr Xie did not take the matter any further at that time or refer back to these former solicitors.
51 Further, Mesa notes the date for "resolution" of the proceedings, 2 August 2011, coincides with the day on which MRL finalised its acquisition of the shares in Auvex, in respect of which Mighty River had held shares, and Mr Xie was a former director.
52 Soon after, in late August 2011, Mr Xie wrote to Mr Ellison again, stating that he was "very disappointed on your answer about your commitment of acquisition of Might river's Mesa shares ..." (as in original). In this email Mr Xie makes an offer to accept the transfer of Mighty River's Mesa shares on the same terms as had been offered to Mesa's shareholders by MRL in its takeover bid: 1 MRL share, for every 70.6 Mesa shares.
53 His email ends with the words
like mention to you on the phone, unless Min rather than use Mesa's port allocation for its iron ore export. of course iron ore have better profibility to Min. Let's see about that! (As in original.)
54 Mesa says Mr Xie accepted, essentially, that this was akin to him having said to Mr Ellison "buy my shares, unless MRL would rather use Mesa's port allocation for its iron ore export", as was put to him by counsel in cross-examination. He would not accept that his final words were intended by him to convey a threat in relation to MRL's use of the port rights, and said his statement was in relation to the future outlook for iron ore.
55 Mesa submits that evidence should be rejected as an unlikely explanation, particularly given that in 2011 that market was in a boom period, and that litigation was in fact commenced by Mighty River against MRL (and subsequently, Mr Ellison and Mr Peter Wade, directors of MRL) shortly after the offer was rejected by MRL. Mesa notes this issue was taken up by counsel with Mr Xie during cross-examination:
And that was - that email of 24 August 2011 was some months prior to you suing alleging you had an agreement?---Because our lawyers said there is an agreement, Mr Bennett.
So your purpose doesn't---?---Never mind. Never mind. I don't want to say anything. Yes. That's fine.
So your purpose doesn't include an attempt to so threaten the directors of MESA, including Mr Ellison and Mr Goulds, as to provoke them to buy out your shares that are locked in as a minority?---lt's very simple, Mr Bennett. It's very simple. Mr Ellison coming to me everyday or most and calling Mr Cunningham, asking me for help so that he can acquire Auvex. Okay. And I have helped him, he agreed to buy my share and he - and then after this he said - he said he don't have agreement. No - you know. I mean, I'm stupid enough to believe him and - we hadn't have an agreement on paper. To the solicitor saying, you know - they … solicitor was … on the … and everything is go. And, you know - and there's no agreement. Now, obviously I … the case … taking a lot of my time. My shareholders say, look, Yuzheng, why you - you know. There is a lot of things that need to be done. You know. Why spending time on this. You know. So … agreement. Look, I have … I mean, that agreement is … you say it is not - that it is, you know - it's - sometimes people make a commitment. We do - in Asia we do a lot of - a lot of deals on a handshake. People - I - basically every day we do these. You know. We never have any problem. All right. When Mr Ellison says he's going to buy the share, I thought it's a done deal. All right. But these - like, if he say he … no agreement, you know,
I'm - you know. I just didn't want to … you know, so …
So Mighty River, in your view, is trapped as a shareholder because Mr Ellison didn't honour some ---?---It's not.
--- commitment?---It's not trapped as a shareholder. If he want to buy … offer to buy and … he … buy it, he bought it, then it's fine. It's our - worth our investment offloaded. He haven't … then we're happy to hold it and then we continue to want to be engaged with this company and to make best out of the investment. So it's - we sold a lot of investments. We invested in so many projects here and then all … from before 2012. Three iron ore projects we've sold.
56 Mesa refers to the minutes of the MRL Board annexed to Mr Goulds' affidavit made 3 March 2015, which contains reference to continual approaches by Mr Xie throughout this period seeking to "offload" (as Mr Xie put it in his oral evidence extracted above) Mighty River's stake in Mesa. Mesa notes Mr Goulds was not cross-examined on the contents of any of the minutes, nor were objections taken.
57 Mesa says Mighty River brought the 2012 proceeding, notwithstanding that Mr Xie's email of late August 2011 contained an offer that post-dated the alleged agreement, and contained the statement "at lease we make it clear now, we DON'T have an agreement!" (as in original). Mesa further notes the litigation was also prefaced by a letter from Mighty River's former solicitors to MRL, which read in part as follows:
Our client is ready, willing, and able to complete the Settlement Agreement forthwith.
...
To this end, we are instructed to demand from MRL, as we hereby do, that it transfers to our client, in an off market transaction, the MRL Settlement Shares to satisfy the terms of the Settlement Agreement. This will amount to MRL transferring to our client 1,283,880 MRL shares in exchange for the 90 million shares owned by our client in Mesa.
Alternatively, MRL can pay our client the cash equivalent of the MRL Settlement Shares as at the date of this letter.
58 It was put to Mr Xie, says Mesa, that MRL shares were trading on the ASX at or about that time for approximately $6 or $7 per share.
59 Following the filing of pleadings and the giving of discovery, Mighty River's former solicitors wrote to MRL's solicitors on 25 October 2012, in which the issue of the use of port rights was raised again, by way of the request for discovery of:
All and any communications which your client has had with the Port Hedland Port Authority ('PHPA') in relation to the Utah Point Development and the port access agreement between Mesa Minerals and PHPA.
60 In re-examination, Mesa notes, Mr Xie confirmed that these documents requested in the letter of 25 October 2012 are the same as those now being sought in these proceedings.
61 Thereafter, in February 2013, Mr Xie instructed Mighty River's former solicitors to join Mr Ellison and Mr Wade personally to the proceedings.
62 On or around 1 October 2013, the parties executed a Deed of Settlement and Release, and the 2012 proceeding was discontinued. The terms of the Deed extend to MRL and its subsidiaries, including Mesa, by virtue of the definition of "Mineral Resources" in cl 1.1(e), and which terms are canvassed in Mr Goulds' affidavit. Mr Goulds was not cross-examined in relation to that paragraph, and there was no specific objection taken.
63 Following the events described above, Mesa says Mighty River agitated two applications, the first the proposed pre-action discovery between July and November 2014 and the second being the present application, first foreshadowed in Mighty River's solicitors' letter of 10 November 2014. Mesa notes the following with regard to these applications.
(1) The letter of 30 July 2014 from Mighty River's solicitors to Mesa in relation to proposed pre-action discovery is phrased in terms that misleadingly suggest Mighty River did not know the identity of the "third party" said to be using Mesa's port rights. As set out above, this had been known to Mr Xie since November 2010. In the letter of 8 October 2014 from Mighty River's solicitors to Mesa's solicitors, this state of knowledge is attributed to Mr Xie as of 11 September 2014 (four years later) by virtue of having been informed by Mr Ellison that MRL had used Mesa's port rights. Nonetheless, Mr Xie's affidavit in these proceedings deposes that he has known of the state of affairs for "some years". Mr Xie also confirmed he was aware of the matter at the time Mighty River's solicitors wrote to Mesa in relation to the proposed pre-action discovery application.
(2) The documents sought in the abandoned proposed pre-action discovery application were in substance the same as those now sought in this application, as confirmed by Mr Xie. The letter of 10 November 2014 from Mighty River's solicitors suggests the proposed pre-action discovery application was abandoned because Mesa would not "voluntarily" provide the documents sought. However, Mr Xie explained the change in strategy, in cross-examination, in the following way:
And why was it that you abandoned your application for pre-action discovery and on 10 November gave notice that you wanted to exercise rights under section 247A? You had written from July 'til November a pre-action discovery?---Actually, I figured that - the thing is - actually I need to get all the fact together and understand it properly. And if there is a case then we will make a discovery. So I think our solicitors have reminded me basically, you know, we've got to find the information before we can -.
(3) Mr Xie's statement in cross-examination therefore suggests that the present application has been brought as a "work-around" to the proposed pre-action discovery application, in an attempt to gather information that would otherwise be difficult to obtain by that process (it actually suggests that Mr Xie intends to use any information obtained to bring a further application for pre-action discovery). It is notable that the abandonment of the proposed pre-action discovery application coincides with an offer being delivered by Mr Peter Main, purported agent of Mighty River, to Mr Goulds in an email dated 17 October 2014, which contained the words that Mighty River "knows where Mineral Resources stands". In effect, Mighty River had asserted a known cause of action against Mesa/MRL such as to preclude pre-action discovery, which was confirmed in Mr Xie's email to Mr Ellison of 30 October 2014 (referred to further below).
(4) Despite Mr Xie's numerous suggestions that he requires additional information in relation to the terms of MRL's use, he has taken no steps since November 2010 to obtain that information. This includes that he has not even contacted Mighty River's former solicitors to ascertain whether they hold the documents now sought. In that regard, Mr Xie "presumed" that they did hold at least two of the three categories of documents sought in the present application.
(5) In any event, the assertion that Mr Xie requires additional information as to the terms of MRL's use is inconsistent with his own statements to Mr Ellison:
(a) in December 2010, Mr Xie said in an email to Mr Ellison that he does not know "how mrl are justified using mesa port capacity paying no or little consideration"; and
(b) four years later, on 30 October 2014, his email to Mr Ellison said (as referred to above):
At last, as we spoke over the phone and you know that the facts are mineral resource benefited greatly from port access and lay down and stockpile facility Mesa owns last 4 years. Mesa's director fails to act best interest all Mesa shareholders we will be seeking for justice in that regard. (As in original.)
(6) Furthermore, and in any event, the terms of MRL's use of the port rights have been disclosed by Mesa in its financial reports lodged with the ASX, annexed to Mr Xie's affidavit. Mr Xie nonetheless rejected matters put by counsel as being matters of "assumption"; however, it is apparent that counsel was merely "piecing together" Mr Xie's own knowledge as noted in cross-examination. Mesa also brought to Mr Xie's attention its 2014 interim report. Mr Xie had not seen the document before the hearing.
64 Mesa submits that while Mighty River says that it needs inspection under s 247A in order to "protect its investment", its conduct suggests otherwise. Mesa makes the following observations.
(1) Mighty River has purchased an additional 750,000 shares since Mr Goulds' affidavit was filed, as accepted by Mr Xie.
(2) Mr Xie could not explain why in his affidavit (sworn in December 2014) he deposed to holding 97,369,622 shares in Mesa, approximately 5 million more shares than at the date of Mr Goulds' affidavit in March 2015.
(3) Mr Xie (and apparently Mighty River, and or its shareholders) remains "keen to progress investing in [Mesa]". Despite threatening oppression proceedings and/or proceedings to wind up Mesa on various occasions - including in relation to the proposed pre-action discovery application - he is "not interested in winding up the company".
(4) Mr Xie apparently does not pay close attention to his trading in Mesa. In cross-examination he said that he instructs a broker to buy shares, sometimes the broker does not transact exactly the right numbers, and Mr Xie finds out from checking the register how many shares Mighty River holds. In that regard, Mr Xie admits to being "very vague with these numbers".
(5) Mr Xie only sees roughly every second ASX announcement that is made by Mesa, has no alert set up to prompt him to read ASX announcements, and, critically, had not read the latest financial report issued by Mesa following the commencement of these proceedings.
(6) Mr Xie does not have a thorough understanding of the ASX financial reporting system, and yet has not sought to have an accountant or adviser review the financial and annual reports annexed to his own affidavit and which he relies on in these proceedings, despite the fact that Mighty River has ready access to accountants.
(7) As set out above, Mighty River made no attempt to ascertain whether any of the information that it now seeks has actually been in the possession of its former solicitors (and arguably its own possession) for over four years. In cross-examination, Mr Xie accepted that he "should have requested" these documents before commencing proceedings and said he intends now to do this.
65 Mesa submits that what actually emerges from the totality of the evidence before the Court is not evidence of a shareholder with a genuine concern as to protecting its investment, or any concern at all as to the use of the port rights. Mesa contends that the evidence suggests that Mighty River, having elected not to accept into MRL's takeover bid, now seeks to conduct itself as a de facto director of Mesa. It says this is evident from the following exchange between Mr Xie and counsel for Mesa:
I mean, I need to understand this. If your contemplation involves winding up the company, you have just bought another 750,000 shares?---I am not interested in winding up the company.
Well, why do you refer to 461? Why did you do that for five months last year and just a moment ago say you will evaluate it?---We just - actually the purpose is to - we discover in the document - not discover, basically to review - to get a document from the company. We will need to review it. Then we need ... maybe have a - engage a discussion with the - with directors in the company and, you know, when they made decision what they think is fair and, you know, so what the decision basis on - what is commercial enough and then we can talk about whether we need to get the court to get involved.
So you are going to say to the directors, 'We challenge your commercial judgment as directors of this public company and if you don't want to discuss it then we will get a court involved or, alternatively, buy out our shares'. Is that the nature of the discussion you contemplate?---That's - no. That's not what I'm saying, Mr Bennett.
It's what you have sought to achieve for five years - four years?---Look, if I was sought to achieve I could have … to take over - take over ... this company have a lot of potential. We see a lot of - we will continue to see a lot of potential. We just need to make sure that, you know, we - you know, if we made a wrong judgment, we need to understand where we have done wrong and, you know.
66 In that regard, Mesa contends the constant references by Mr Xie to "we" when speaking about Mighty River's shares in Mesa must be understood as his shareholders and advisors. It says this evidence shows that Mighty River's purpose is that Mighty River's stake in Mesa be offloaded to MRL for value, or Mighty River will hold its shares and push to be "engaged with this company and to make best out of the investment" as Mr Xie explained. Mesa says, however, that Mr Xie's concept of "engaging" with the company is not one which is congruent with Australian company law and is tantamount to assuming the powers of a de facto director. Mesa submits this is inappropriate, particularly where the shareholders of Mesa are bound by constitutionally limited rights of interference with the Board's decisions.