Mineralogy Pty Ltd v Sino Iron Pty Ltd

1. The Applicant pay the Respondents' costs of the application to amend on an indemnity basis, to be taxed if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 110 of 2013

JUDGE: EDELMAN J DATE: 8 JUNE 2015 PLACE: PERTH

Introduction 1 This is an application by the CITIC parties under r 40.02 of the Federal Court Rules 2011 (Cth) for an order that their costs of an amendment application be paid on an indemnity basis. The amendment application was brought by Mineralogy at the conclusion of the first week of trial immediately prior to the calling of witnesses; it was filed over the weekend, and agitated orally this morning. Very shortly after oral argument the amendment application was abandoned. 2 The principles concerning an application for indemnity costs are well known and do not need to be repeated. They were clearly stated by Gilmour J recently in DS Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd [2015] FCA 277 [13]. For the reasons which follow, I consider that in the exceptional circumstances of this case Mineralogy should pay the costs of the CITIC parties for the amendment application on an indemnity basis. Those circumstances described below include: (1) the gross delay by Mineralogy in bringing an extremely significant amendment application which responded to a pleading that had been largely unchanged for more than a year and which had been considered by three senior counsel and five junior counsel for Mineralogy; (2) the inevitable consequence of that application, if it were granted, being an adjournment of the trial potentially for a lengthy period of time and the substantial prejudice this would occasion to the CITIC parties; (3) the lack of any explanation by Mineralogy for the delay in bringing the application; and (4) the timing of the application which came at an intense time of trial, immediately before the commencement of evidence of the witnesses and cross-examination.

The background to the amendment application 3 These proceedings were brought by Mineralogy more than two years ago. The primary relief sought by Mineralogy was, and remains, the termination of Facilities Deeds which first entered into force in 2001. In very broad terms, Mineralogy says that the Facilities Deeds have been terminated because of serious and persistent breaches by the CITIC parties. The essence of many of the alleged breaches is said to be that the CITIC parties have denied Mineralogy its right to operate facilities (as defined) in the area of the port of Cape Preston. 4 A termination of the Facilities Deeds, and a change in the operator of the facilities, could have a significant effect on the multi-billion dollar project. Prior to the commencement of this trial, Mineralogy provided written submissions running to nearly 100 pages. Mineralogy is represented by senior counsel and two junior counsel. Preliminary matters and opening addresses, including submissions during a view, took the whole of the first week. 5 Late on Friday afternoon, senior counsel for the CITIC parties was concluding his opening submissions. One submission he made was said to be a "complete answer" to Mineralogy's claim. That submission was that Mineralogy had entered a Port Terminal Operation Agreement with the CITIC parties on 23 March 2010. Senior counsel for the CITIC parties submitted that Mineralogy and the CITIC parties had agreed that whilst the Port was a single-user port an agent of the CITIC parties, CPMM, would perform the role of Terminal Operator in respect of the facilities to be developed for or on behalf of the CITIC parties which include the facilities in dispute in this litigation. Mineralogy was to be responsible for the Harbour Master role in the Port. 6 This submission reflected the pleaded case of the CITIC parties. It had been pleaded by the CITIC parties since 13 February 2014. That pleading had remained substantively unchanged for more than a year. Mineralogy had responded to that defence in a Reply which was filed on 12 March 2014. No fewer than three senior counsel and five junior counsel had reviewed the defence and signed off on Mineralogy's Reply, including an amendment to particulars to the Reply. The submission in written and oral opening by the CITIC parties reflected this defence which had existed in substantially unchanged form for more than a year. It restated the language of the two page letter. The point could not have come as any surprise to Mineralogy. There is no suggestion that it did. 7 Since 12 March 2014, the only substantive pleaded matter in Mineralogy's Reply has been an allegation that the Port Terminal Operation Agreement was "contingent" on the parties agreeing a set of port operating protocols. This pleading relies on particulars of correspondence which post-date the Port Terminal Operation Agreement. However, Mineralogy's written submissions filed shortly before trial raised different unpleaded responses to the issues concerning the alleged Port Terminal Operation Agreement. In written submissions Mineralogy said (i) that no concluded agreement was reached, (ii) that neither Sino Iron nor Korean Steel was a party to the agreement, (iii) that the agreement was an interim one which would only endure while the port was a single user port, and (iv) that by allowing CPMM to perform the role of Terminal Operator, whatever the scope of that role, at most the agreement could be a sub-contracting by Mineralogy of its obligations under the Facilities Deeds to operate and maintain those facilities. 8 In oral opening submissions, senior counsel for Mineralogy touched only on the Port Terminal Operation Agreement extremely briefly. He said (at ts 118): Submissions we will make based upon the evidence of the communications are twofold: (a) that there was no certain concluded agreement, and (b) that if there had been it was mutually abandoned reasonably soon thereafter. As I say, we [indistinct] most of the detail of that, unless it becomes of significance. 9 Neither of these matters concerning uncertainty or abandonment was pleaded. Neither of these matters had been raised in written submissions. No explanation was given for why counsel thought that the Port Terminal Operation Agreement might not become of significance. As I have explained, this point had always been pleaded by the CITIC parties. It was addressed in written submissions under a heading "Clause 24 of the Facilities Deeds must be read subject to the Port Terminal Operation Agreement". In the course of those entirely predictable written submissions, the CITIC parties correctly observed that "Mineralogy does not contend by its pleadings that there was any subsequent termination or variation" of the Port Terminal Operation Agreement. 10 In responsive oral opening submissions, senior counsel for the CITIC parties made plain that which is clear from the pleadings and written submissions. Senior counsel took the court to the two page letter that was said to constitute the Port Terminal Operation Agreement as well as the surrounding correspondence. 11 The effect of the submissions by senior counsel for the CITIC parties left me uncertain about the content of Mineralogy's reply to this issue that had been consistently raised by the CITIC parties. 12 A brief exchange then occurred with senior counsel for Mineralogy. He explained to the Court that the pleading that the Port Terminal Operation Agreement was "contingent" upon agreeing a "set of port operating protocols" was intended to be a plea that the alleged Port Terminal Operation Agreement was void for uncertainty because of uncertainty about the meaning of the words "terminal operator" that had been used. With respect, it is simply impossible to divine this argument from the pleading. I adjourned the trial briefly to allow Mineralogy to formulate its proposed amendment. But when court resumed 25 minutes later, senior counsel said that he was unable to formulate the amendment. He said that there was "another matter" that he needed to address in the amendment application which was the assertion of "mutual abandonment". 13 Over the weekend, Mineralogy brought an application to amend its Reply to raise all of the matters raised in its opening written submissions and also to raise these two new substantive defences mentioned by senior counsel for Mineralogy at the conclusion of the senior counsel for the CITIC parties' opening submissions: uncertainty and abandonment.

Mineralogy's pleaded Reply and the Port Terminal Operation Agreement issue 14 In para 20 of Mineralogy's Second Further Amended Statement of Claim, Mineralogy pleaded the following: (1) the Facilities within the Circled Area have vested in Mineralogy; (2) Mineralogy is the operator of the Port; (3) Mineralogy has responsibility for scheduling all operations at the Port to move and export Product through the Facilities; and (4) Mineralogy has responsibility for the operations and maintenance of the Facilities. 15 One response to this plea by the CITIC parties is based on para 24 where the CITIC parties' defence plead as follows: Port Terminal Operation Agreement On or about 23 March 2010 Mineralogy and the CITIC parties agreed, whilst the Port was a single-user port, that CPMM would perform the role of Terminal Operator (in respect of the facilities to be developed for or on behalf of the CITIC parties which include the facilities in the Circled Area) and that Mineralogy would be responsible for the Harbour Master role in the Port. Particulars Letter from Mineralogy Pty Ltd to CITIC Pacific Mining Management Pty Ltd dated 23 March 2010. 16 This paragraph is relied upon by the CITIC parties to plead that if the Facilities Deed had this effect then "the agreement referred to in paragraph 24 above effected a variation of clause 24(b) in respect of the port facilities developed by or on behalf of the CITIC parties (including the Facilities in the Circled Area)". 17 In para 15 of its Reply, Mineralogy says: As to paragraph 24 of the defence, Mineralogy denies the allegation contained therein and says further that: (a) any agreement that CPMM would perform the role of Terminal Operator was contingent on the parties agreeing a set of port operating protocols; and (b) any port operating protocols were never agreed. Particulars Mineralogy refers to the letter of Mineralogy addressed to Sino, Korean and CITIC Pacific dated 5 August 2010 and the letters of Mineralogy addressed to CPMM of 10 December 2010 and 9 March 2011. 18 Several points should be observed about these pleadings. 19 First, apart from a formatting amendment to introduce the abbreviation for CPMM, para 24 of the CITIC parties' pleading has existed in that form unaltered since its first defence. Similarly, until today, para 15 of Mineralogy's Reply has remained substantially unaltered since 12 March 2014. 20 Secondly, in the defence filed by the CITIC parties, para 24 was a core part of the defence. Paragraph 24 was cross-referenced in paras 32(d) and 32(e). 21 Thirdly, in Mineralogy's Reply the allegation that any agreement was "contingent" was the only positive matter pleaded in support of Mineralogy's denial: see Federal Court Rules 2011 (Cth) r 16.05(2).

Mineralogy's proposed amendments to its Reply 22 Following consideration of amendments over the weekend, Mineralogy sent proposed amendments to the CITIC parties on Saturday and applied this morning to amend its Reply in the terms sent. In broad terms, Mineralogy proposed to delete entirely its pleading in para 15 and to replace that with a pleading of paragraphs as follows: 15A. By email dated 15 March 2010, Mr Lam on behalf of CPMM communicated to Mineralogy that Mineralogy would be required to expand on the role of Terminal Operator for the respondents' consideration. 15B. By letter dated 17 March 2010 Mineralogy informed CPMM that an Operations Level Agreement between Mineralogy and CPMM defining the role of Terminal Operator was yet to be negotiated. 15C. The letter of 23 March 2010 was expressed by Mr Robinson to be his understanding of how issues had been resolved. 15D. In the premises, Mineralogy and CPMM did not intend to form a concluded agreement that CPMM would be Terminal Operator until such time as the role of Terminal Operator was defined by further agreement. 15E. Further, the absence of intention to form a concluded agreement is to be inferred from the sending by Mineralogy of the letter dated 5 August 2010 and the written acceptance of its terms by Sino/Korean, and the sending by Mineralogy of letters dated 10 December 2010 and 9 March 2011. 15F. Alternatively, no agreement was formed on 23 March 2010 as to the respective roles of Mineralogy and CPMM, because the meaning of the term Terminal Operator was uncertain. 15G. Alternatively, the alleged agreement was terminated by agreement or mutually abandoned by the sending and acceptance of the terms of the letter dated 5 August 2010. 15H. Further and alternatively, if there was an agreement, which is denied: (a) It was not an agreement to which Sino Iron and Korean Steel were parties; (b) It did not vary the Facilities Deeds; (c) It did not permit CPMM to subcontract the role of terminal operator to any other party; (d) It was not performed by CPMM. 23 The proposed amendments can be divided into seven categories: (1) Paragraphs 15A to 15E which senior counsel said were pleadings to clarify Mineralogy's existing Reply pleading and plead a Masters v Cameron (1954) 91 CLR 353, category 3 case. (2) Paragraph 15F which pleaded that no agreement was formed because the 23 March 2010 letter was too uncertain. (3) Paragraph 15G which pleaded that any agreement was abandoned. (4) Paragraph 15H, the first matter, which pleaded that this was not an agreement to which Sino Iron and Korean Steel were parties. (5) Paragraph 15H, the second matter, that the Port Terminal Operation Agreement did not vary the Facilities Deeds. (6) Paragraph 15H, the third matter, that the Port Terminal Operation Agreement did not permit CPMM to subcontract the role of terminal operator to any other party was also raised by Mineralogy in its opening written submissions and responded to by the CITIC parties. (7) Paragraph 15H, the fourth matter, which raises an allegation of lack of performance. 24 During oral submissions this morning, senior counsel for Mineralogy accepted that the matters raised in points (6) and (7) did not relate to any identified legal issue between the parties. He abandoned reliance on those matters. He also said that point (5) had already been pleaded elsewhere; this was accepted by senior counsel for the CITIC parties and no real argument was directed to point (5). 25 The focus of the argument was on points (2), (3) and (4) which senior counsel for Mineralogy accepted to be wholly new points. As I explain below, the CITIC parties filed affidavit evidence which pointed inevitably to an adjournment of the trial if any of these amendments were allowed. At least in relation to points (2) and (3), not only do I accept this evidence but I consider that evidence to this effect was wholly predictable. An inference could probably have been drawn to this effect even without the evidence. 26 As to (2), the obvious difficulties causing delay in the trial would include the need to explore whether there was a meaning of "Terminal Operator" known to both parties or whether there was an industry meaning of the term. This may require expert evidence. 27 As to (3), and the proposed abandonment plea, the difficulties include the need for the CITIC parties to explore what is meant in the 5 August 2010 letter about "discussions today": who were the parties to those discussions? Were they continuing? If they were continuing then what had previously been discussed? Are those persons still employed by the CITIC parties? The difficulties also include the need to determine what occurred between the time of the 23 March 2010 letter and the alleged abandonment on 5 August 2010? Why does the 5 August 2010 letter which is said to abandon any agreement on 23 March 2010 fail to refer to the 23 March 2010 letter? Was the 5 August 2010 alleged agreement conditional? If so, were the conditions satisfied? Could any estoppel by convention of the nature already pleaded arise to prevent the Facilities Deeds, if varied by the 23 March 2010 letter, from having the variation removed when the 5 August 2010 alleged agreement took effect? 28 As to (1), there was dispute about whether this was a new point or whether it was a point which clarified the existing pleading. It is clear that it is expressed differently from the existing pleading. To the extent that it clarified the existing pleading it was not opposed by the CITIC parties but their senior counsel explained that the language of 15A to 15E had moved from the previous focus on a "contingency". 29 In oral submissions, senior counsel for Mineralogy submitted that the plea that Mineralogy and CPMM intended to reach an agreement but not a concluded agreement was intended to be a reference to the third category in Masters v Cameron (1954) 91 CLR 353. In that case, the High Court explained three possible legal characterisations of an agreement expressed to be "subject to contract". One category was that the parties intended to be bound immediately and the restatement in a later contract was a mere formality. The second category is a circumstance in which the parties intend to be immediately bound but performance is suspended until they execute a formal contract. The third category is a circumstance in which the parties do not intend to be bound until a formal agreement is executed. In Masters v Cameron the High Court said (at 361): Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. 30 These are questions to be determined objectively in light of "the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances": Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95, 105-106 [25] (Gaudron, McHugh, Hayne & Callinan JJ). 31 This proposed pleading of paras 15A to 15E was not altogether too different from the pleading it sought to replace and which alleges that the 23 March 2010 letter was "contingent". This is also consistent with the reiteration in para 15E of the previously pleaded, but subsequent, correspondence as somehow reinforcing the "contingent" nature of the 23 March 2010 letter. Nevertheless, there are some potentially material differences. The most significant of these, to which senior counsel for the CITIC parties referred, is the reference to the "contingency" being the role of "Terminal Operator" rather than "the parties agreeing a set of port operating protocols". As I have explained in relation to the proposed pleading at para 15F, this is a potentially substantial difference. 32 Many of these submissions by senior counsel for the CITIC parties were entirely predictable. As I had explained to senior counsel for Mineralogy last Friday, questions of abandonment often involve very fact-intensive enquiries. It was inevitable on any objective assessment of the application that if it had succeeded then the trial would have been adjourned, potentially for a long time. Given the seriousness of this litigation, its potential effect on the CITIC parties, and the multi-billion dollar nature of the project, such delay and accompanying uncertainty would be a matter of considerable prejudice to the CITIC parties.

The prejudice to the CITIC parties if amendments were allowed 33 Even if evidence had been needed to explain why the trial would inevitably have been adjourned if the amendments had been granted, that evidence was provided to Mineralogy yesterday. Still Mineralogy persisted in its application this morning. 34 A solicitor for the CITIC parties swore an affidavit deposing to the prejudice to the CITIC parties if the proposed amendments were allowed. In summary, he described the substantial periods of unavailability for senior and junior counsel for the remainder of this year and next year. And he said the following: (1) the CITIC parties would need to review documents held by the CITIC parties in the period between March 2010 and March 2011 so as fully to understand the context in which the letters now sought to be relied upon by Mineralogy for the additional purposes to be pleaded were written. This has not been an exercise that has been necessary to undertake to date as, although the letters referred to in the proposed amended pleading are particularised in the current Reply, they are particularised as supporting a contention that the Port Terminal Operator Agreement was subject to a contingency and that such contingency was never satisfied. (2) The CITIC parties would need to review documents from the period immediately before the 23 March 2010 agreement in order to formulate any response to the allegations in the proposed paragraphs 15A to 15D and 15F. (3) The CITIC parties would need to review documents from the period between August 2010 and March 2011 in order to respond to the allegations in paragraph 15E and 15G. (4) The CITIC parties would need to interview witnesses who were engaged in discussions with Mineralogy during the period between January 2010 and March 2011 both to understand the context and considering whether further witness statements would be required. Those persons would include: (a) Mr Milton Law; (b) Dr Dongyi Hua; (c) Mr Fei Xu; (d) Mr Gordon Lam; (e) Mr Andrew Thompson; and (f) Mr Anthony Kirke. (5) Some of these persons are no longer employees of the CITIC Parties. One does not reside in Australia. The whereabouts of others is unknown. (6) The CITIC parties would need to consider the legal issues arising and seek considered advice from counsel. (7) In relation to the allegation of uncertainty, the CITIC parties would need to investigate whether the term Terminal Operator had an established industry meaning and, if so, seeking to obtain expert industry evidence of that fact; further amending the rejoinder, and formulating written submissions in response; and advising and seeking instructions in relation to all of the above.

Mineralogy's lack of explanation for the late change in pleading 35 The possibility that the trial might be adjourned for a lengthy period of time, when coupled with the lack of explanation by Mineralogy for the delay made it inevitable that the application would be refused in relation to all the proposed new pleadings. 36 As to the lack of explanation for the delay, this was properly conceded by senior counsel for Mineralogy. Mineralogy supported its application to amend with an affidavit from one of its solicitors. In his affidavit, the solicitor described at length the history of the pleadings in this matter and the amendments to the pleadings. The solicitor referred to the fact that the CITIC parties' Third Further Amended Defence had expanded to 239 paragraphs. The solicitor referred to the numerous defences raised by the CITIC parties. He said that the Port Terminal Operation Agreement is raised only in two paragraphs of the defence and only in 8 paragraphs of the submissions. 37 The affidavit was remarkable for what it did not say. The solicitor did not say that Mineralogy was unaware that the CITIC parties were contending that the Port Terminal Operation Agreement was a defence to the action. The solicitor did not say that Mineralogy considered the Port Terminal Operation Agreement to be unimportant to the issues involved in the litigation. The solicitor did not say that Mineralogy was surprised by the submission by senior counsel for the CITIC parties that the Port Terminal Operation Agreement was a complete answer to Mineralogy's claim. The solicitor did not say that Mineralogy was confused by, or did not fully comprehend, the nature of the CITIC parties' defence concerning the Port Terminal Operation Agreement.

The nature and timing of the amendment application 38 Not only was the application one which would inevitably have led to an adjournment of the trial, but it was an application brought immediately before the calling and cross-examination of witnesses at a time which involved intense preparation by all the parties. 39 This aspect of timing, coupled with the lack of explanation by Mineralogy for the delay is remarkable. As I have explained, this is a trial of a case involving a project worth billions of dollars, where the parties have spent millions on legal fees over more than two years and have been represented by teams of solicitors and highly skilled counsel. The plea to which numerous new matters were sought to be raised in Reply had been considered, and signed off, by three senior counsel and five junior counsel for Mineralogy.

Conclusion 40 The costs of the adjournment application should be paid by Mineralogy on an indemnity basis. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.