MINERALOGY PTY LTD -v- SINO IRON PTY LTD [No 6] [2015] WASC 80 (5 March 2015)

Supreme Court of WA|2015-03-05|Before: Chaney J

1 CHANEY J: The plaintiff's claim in this action is for orders that the defendants comply with certain provisions of agreements, referred to as Mining Right and Site Lease Agreements (MRSLAs), made between the plaintiff and each of the first and second defendants respectively, and for various declarations concerning the obligations arising under those agreements. The plaintiff's commercial relationship with the defendants, which is referred to as the Sino Iron Project and concerns the mining, processing and export of Magnetite, is governed by a number of agreements (Project Agreements), including the MRSLAs. I will refer, where appropriate, to the MRSLA between the plaintiff and the first defendant as to Sino MRSLA and the MRSLA between the plaintiff and the second defendant as to Korean MRSLA.

2 The defendants have counterclaimed in the action. The counterclaim raises an issue as to the proper construction of cl 8.2 of the MRSLAs (which are in identical terms), which concerns the payment of royalties (the Mineralogy Royalties) in respect of magnetite ore taken by the first and second defendants respectively from the tenements owned by the plaintiff, which are the subject of the MRSLAs. The Mineralogy Royalties payable under cl 8.2 are divided into two components, known as Royalty Component A and Royalty Component B. There is an issue in the proceedings as to whether Royalty Component B is capable of calculation, and, if not, what the contractual consequences are. In particular, there is an issue as to whether any amount is payable by the first or second defendants in relation to Royalty Component B. That issue in particular is at the heart of the dispute between the parties.

3 The parties' dispute has led to the issue by the plaintiff of a number of notices, purportedly under the MRSLAs, to each of the defendants. Some of those notices are the subject of the claims for orders and declarations in the substantive action. These reasons concern the defendants' application for interlocutory injunctions to restrain the plaintiff from taking further actions pursuant to various notices that have been issued pending resolution of the substantive action. The particular injunctions which are sought in the Amended Chamber Summons are as follows:

Until 21 days from the pronouncement of final orders, or earlier order in this proceeding, the Plaintiff, whether by itself, its officers, servants, agents or otherwise, be restrained, and an injunction is hereby granted restraining it, from:

(a) issuing or purporting to issue any notice to the First Defendant or the Second Defendant requiring them to suspend the operations carried out by, or on behalf of, either of them on the Project Area, as defined in the Sino Iron Mining Right and Site Lease Agreement (as amended) (Sino MRSLA) and the Korean Steel Mining Right and Site Lease Agreement (as amended) (Korean MRSLA); or

(b) issuing or purporting to issue any notice to terminate the Sino MRSLA or the Korean MRSLA; or

(c) terminating or purporting to terminate the Sino MRSLA or the Korean MRSLA,

in reliance upon, or in respect of the defaults alleged in, the purported notices of default issued by the Plaintiff to the First Defendant and the Second Defendant on 10 July 2014 and 18 July 2014 under clause 30.4(d) of the Sino MRSLA and the Korean MRSLA.

Until 21 days from the pronouncement of final orders, or earlier order in this proceeding, the Plaintiff, whether by itself, its officers, servants, agents or otherwise, be restrained, and an injunction is hereby granted restraining it, from:

(a) entering the Mine Area; or

(b) doing anything or executing any works,

purportedly pursuant to clause 30.2(b) of the Sino MRSLA or the Korean MRSLA, in reliance upon, or in respect of the defaults alleged in, the purported notices of default issued by the Plaintiff to the First Defendant and the Second Defendant on 18 July 2014 under clause 30.2(a) of the Sino MRSLA and the Korean MRSLA.

2A. Until 21 days from the pronouncement of final orders, or earlier order in this proceeding, the Plaintiff, whether by itself its officers, servants, agents or otherwise, be restrained, and an injunction is hereby granted restraining it from:

(a) issuing or purporting to issue any notice to the First Defendant or the Second Defendant requiring them to suspend the operations carried out by, or on behalf of, either of them on the Project Area, as defined in the Sino MRSLA and the Korean MRSLA; or

(b) issuing or purporting to issue any notice to terminate the Sino MRSLA or the Korean MRSLA; or

(c) terminating or purporting to terminate the Sino MRSLA or the Korean MRSLA, or

(d) taking any other step, save for a step in this proceeding,

in reliance upon, or in respect of the defaults alleged in the purported notices of default issued by the Plaintiff to the First Defendant and the Second Defendant 12, 15 and 16 September 2014, or the purported notice of suspension issued by the Plaintiff to the First Defendant and the Second Defendant on 22 September 2014, or the purported notices of termination issued by the Plaintiff to the First Defendant and the Second Defendant on 12 and 18 September 2014, under clause 30.4(d) of the Sino MRSLA and the Korean MRSLA.

4 The Amended Chamber Summons also included a further injunction seeking to restrain the plaintiff from issuing any notices to the first defendant (Sino) or the second defendant (Korean) under the MRSLAs in relation to any default under those agreements. The application for that broad injunction was abandoned shortly before the hearing of the interlocutory application.

5 The plaintiff opposed the application for interlocutory relief. The current position is that, although the first and second defendants are producing and selling magnetite ore under the MRSLAs, no payments are being made in relation to Royalty Component B on the basis of the dispute concerning the status of that part of cl 8.2 concerning Royalty Component B. In those circumstances, whilst opposing the application for interlocutory injunctions, the plaintiff proffered an undertaking not to take any step or retake possession of the areas covered by the MRSLAs consequent upon certain termination notices that had been served, other than on one month's written notice or by action through the Court. That undertaking was proffered on the condition that the first and second defendants provided crossundertakings as to damages and also to pay the plaintiff $22 million in respect of Royalty Component B and quarterly payments of Royalty Component B on an ongoing basis at a nominated rate per dry metric tonne of Products (as defined in the MRSLAs). The plaintiff also sought a crossundertaking that the defendants promptly and diligently cooperate with the other parties to the proceedings to identify questions in the proceedings concerning Royalty Component B which might be determined early and in advance of other issues in the proceedings.

6 In order to understand how the various interlocutory injunctions would affect the parties, it is necessary to consider the terms of the various notices referred to in the proposed injunctions. That assessment needs to have regard to the fact that a significant number of the notices referred to in the application have in fact been withdrawn by the plaintiff.

7 The notices referred to in the Amended Chamber Summons were issued pursuant to cl 30.4(d) of the MRSLAs, save for the notice of 18 July 2014 referred to in paragraph 2, which was issued pursuant to cl 30.2(a) of the Sino MRSLA.

(a) Certain breaches of this Agreement including without limitation breaches of the conditions contained in Clauses 7 and 27(b), the Schedule and a failure to comply with Legal Requirements, will not be capable of remedy or of compensation by the payment of damages only.

(b) In relation to such a breach, Sino acknowledges that the breach will cause Mineralogy to suffer loss and damage. Sino agrees that Mineralogy will be entitled to an order for specific performance and/or an injunction to prevent or restrain the breach, and Sino will consent to any application brought by Mineralogy for specific performance or injunction.

(c) Sino will be liable to reimburse Mineralogy in respect of all costs and expenses (including, without limitation, any solicitors or other legal costs) in respect of such action.

(d) In the event that such default, or a default in Sino's obligations to pay Mineralogy the Mineralogy Royalty or the State Government Royalties payable pursuant to this Agreement or any, continues for a period of twenty one (21) days after written notice of such default requiring Sino to remedy the same, Mineralogy shall be entitled by notice in writing to Sino to require Sino to suspend all operations carried out by or on behalf of Sino upon the Project Area until payment is resumed. lf such default has not been remedied after 90 days from the service of any notice pursuant to this clause, Mineralogy has the right on twenty one days written notice to terminate this Agreement.

9 Clause 30.4(d) thus contemplates three different types of notices. The first is a notice of the relevant default requiring remedy within 21 days (default notice). If the default is not remedied within 21 days, the plaintiff is entitled to give notice suspending all operations on the project area (suspension notice). If the default is not remedied after 90 days from the service of the default notice, the plaintiff can give 21 days' written notice to terminate the agreement (termination notice). I understand that the parties do not agree whether the service of a suspension notice is a prerequisite to service of a termination notice, but that is not an issue which is necessary to determine for present purposes.

30.2 Mineralogy may remedy default at cost of Sino

If Sino breaches any of its obligations under this Agreement then:

(a) Mineralogy may serve upon Sino a notice in writing specifying the obligation and requiring Sino to rectify the Sino must rectify the breach [sic] within the period specified in the notice.

(b) If Sino fails to do so within that period, Mineralogy may enter the Mine Area and do all such things and execute all such works as Mineralogy considers necessary to rectify the breach. Sino will on demand, pay to Mineralogy the costs and liabilities incurred by Mineralogy in so acting.

11 The first injunction sought by the defendant is to restrain the plaintiff issuing a suspension notice or a termination notice, or terminating the MRSLAs in reliance on default notices issued on 10 July 2014[1] (to both Sino and Korean in identical terms) and 18 July 2014[2] (to both Sino and Korean in identical terms) under cl 30.4(d).

12 The 10 July 2014 notices alleged a breach of cl 33.2(b) of the MRSLAs. The MRSLAs provide for certain disputes to be resolved by an expert. Clause 33 provides the mechanism by which that is to occur. Clause 33.2(a) provides that where the parties are unable to agree as to the identity of the expert, they are to agree on an appropriate nominating authority, or failing agreement, 'either party may request' the President of the Law Society of Western Australia to decide the nominating body. Clause 33.2(b) provides that following identification of the nominating body, the parties will, as soon as practicable, request the president or the most senior officer of the nominating body to nominate the expert.

13 The 10 July 2014 notices recite steps taken by the plaintiff to seek to appoint an expert to deal with a dispute as to the amount of the Mineralogy Royalty for the quarter ending March 2014, including having the President of the Law Society identify the appropriate nominating body. It recites that the defendants' solicitors had advised that the defendants would not be making a request to the body nominated by the president of the Law Society of Western Australia, namely the Australian Institute of Mining and Metallurgy, to nominate an expert. The notices assert that that refusal amounts to a breach of cl 33.2(b) of the MRSLAs and require the default to be remedied within 21 days. They recite that, if the default was not complied with, the plaintiff would be entitled to require suspension of all operations in the project area pursuant to cl 30.4(d) of the MRSLAs.

14 The 10 July 2014 default notices have not been complied with. There is no evidence that that plaintiff has endeavoured to issue a suspension notice or a termination notice on the basis of that default.

15 The other notices referred to in paragraph 1 of the Amended Chamber Summons are default notices dated 18 July 2014 issued pursuant to cl 30.4. The notices allege a breach of cl 8.1 of the MRSLAs for failing to pay any amount to the plaintiff in respect of Royalty Component B for the June 2014 quarter. Those default notices were subsequently withdrawn by the plaintiff under cover of a letter from its solicitors dated 8 September 2014. It is not, therefore, open to the plaintiff to suspend operations or terminate the relevant MRSLAs on the basis of the 18 July 2014 default notices. It would be first necessary to issue fresh default notices in respect of the alleged defaults before suspension or termination notices could be served.

16 The injunction sought not only seeks to restrain steps being taken in reliance on the notices, but also steps being taken in respect of defaults alleged in those notices. That is, the injunction seeks to restrain the issue of fresh default notices (and any subsequent notices based on noncompliance with any fresh default notice) based upon defaults referred to in the withdrawn notices. The plaintiff, in withdrawing the notices, stipulated that it reserved its rights to rely upon the defaults the subject of the withdrawn notices. Apart from that reservation, there is no evidence that the plaintiff intends to issue further notices based on those alleged defaults.

17 The substance of the injunctions sought in paragraph 1 of the Amended Chamber Summons is thus to restrain issue of a suspension notice or a termination notice by reason of the refusal by the defendants to request the nomination of an expert for the purpose of adjudicating the dispute as to the calculation of Royalty Component B. The defendants' defence in the substantive action pleads, in summary, that the dispute as to the operation of the formula for calculation Royalty Component B is not one susceptible to expert determination under the MRSLAs. Rather, they seek to have that matter determined in the substantive proceedings. If the defendants' position is correct, then the 10 July 2014 default notice will be found to be of no force or effect, and any purported suspension notice or termination notice based on the default notices would not be of any force or effect.

18 The second injunction sought relates to notices also dated 18 July 2014[3] issued under cl 30.2(a) of each of the MRSLAs. Those notices referred to the obligation found in cl 8.4 of the MRSLAs to accompany each payment of the Mineralogy Royalty with a statement showing in detail the calculation of the Mineralogy Royalty. The notices assert a breach of cl 8.4 in relation to the Mineralogy Royalty payment for the June quarter 2014 by failing to provide a statement as to the calculation of Royalty Component B. The second injunction seeks to restrain the plaintiff from entering the mine area or doing or executing any works purportedly pursuant to cl 30.2(b) of the MRSLAs.

19 The defendants' failure to comply with the notice is clearly the result of their attitude that Royalty Component B is not capable of calculation. It is not apparent what things might be done, or works executed, by the plaintiff in order to rectify the failure to provide a statement as to calculation of Royalty Component B. The effective threat under the notice would appear to be simply to enter the mine area, although entry to the mine area could only be effected for the purpose of endeavouring to rectify the breach. The point of the notice in the context of the current proceedings is not readily apparent, although it appears from the parties' written submissions that the purpose of the notice is to enable the plaintiff to examine books and records to determine the amount of Product (as defined in the MRSLAs) taken in the relevant period.

20 The parties addressed the consequences of the grant of the injunction in relation to the 18 July 2014 cl 30.2 notice in the context of evidence and submissions in relation to the balance of convenience. The plaintiff put it on the basis that, if an injunction is granted, 'Mineralogy will be denied recourse to the contractual mechanism by which defaults were to be notified, and denied use of an effective mechanism to require payment of Royalty Component B'.[4] Given that the dispute as to Royalty Component B turns on the proper construction of the pricing mechanism described in cl 8.2, which is not likely to be elucidated by any inspection of the defendants' records, it is not apparent to me how reliance on the notice might provide 'an effective mechanism to require' the royalty payment to be made.

21 The defendants say that, if Mineralogy enters the mine area, there might be serious safety threats to the mine managers, employees and contractors through noncompliance by Mineralogy with the mine managers' procedures governing site access.[5] There is no reason to think, or more importantly no evidence to suggest, that Mineralogy would not adhere to procedures governing site access. The MRSLAs specifically contemplate site access pursuant to cl 30.2(b). It is nonsense to suggest that that contractual right should be defeated by some speculative risk that safety procedures might be ignored.

22 The third injunction seeks to restrain the plaintiff from issuing any suspension notice or termination notice, or from terminating or purporting to terminate the MRSLAs, or taking any other step in reliance upon defaults alleged in default notices issued on 12,[6] 15[7] and 16 September 2014,[8] a notice of suspension issued on 22 September 2014,[9] and purported notices of termination of 12[10] and 18 September 2014[11].

23 The default notices issued on 12, 15 and 16 September 2014 concerned various alleged breaches by each of Sino and Korean of provisions of the MRSLAs. These included alleged breaches of:

clause 25.2, which requires the provision to Mineralogy of technical plans, designs and layouts for project facilities;
clause 25.3, which requires Sino and Korean to promptly pass to Mineralogy copies of all notices received by Sino or Korean from any government authority relating to the project;
clause 12.1(c), which concerns an obligation to comply with conditions imposed by Mineralogy as to Sino and Korean's access to and use of what is defined as the 'Access Area';
clause 16.1, which concerns an obligation of Sino and Korean to carry out certain activities to certain required standards;
clause 16.2(b), which concerns an obligation on Sino and Korean to give prompt notice in writing of any accidents or defects in the project facilities; and
clause 22.2(c), which concerns the requirement to comply with Mineralogy's request to provide inspection of copies of insurance policies.

24 In addition, notices in relation to some of the same alleged breaches were served pursuant to another of the project agreements, known as the 'Direct Agreement'.

25 All of those notices were subsequently withdrawn by Mineralogy by letters dated 19, 22 and 23 September 2014. It follows, as is the case in relation to the 18 July 2014 default notice which was also withdrawn, it is not now open to the plaintiff to issue either a suspension notice nor a termination notice in relation to the default notices of 12, 15 and 16 September 2014.

26 A termination notice was also issued on 12 September 2014. That notice relied upon a default which was the subject of a default notice served on 12 July 2012.[12] The 12 September 2014 termination notice stipulated that by reason of the failure to remedy the defaults identified in the 12 July 2012 notice, the MRSLAs 'shall terminate at the expiry of 21 days from the date hereof'.

27 The 12 July 2012 notice is headed 'notice of default and requirement to remedy', but makes no reference to cl 30.4(d) of the MRSLAs. It recites 'multiple defaults under a number of clauses of the MRSLA'. The clauses said to have been breached are:

clause 25.1 and cl 27(a)(x), by reason of a failure to comply with the request to provide full copies of geological and other information in respect of the mine area;
clause 18.2(a), by reason of Mineralogy not having been presented with and not having approved changes to a health and safety management plan;
clause 18(2)(f), by reason of a failure to provide copies of annual reports;
clause 20.7, by reason of Mineralogy not having been presented with and not having approved changes to an environmental management plan.

28 The notice also refers to a breach of a condition of access which required the establishment of an 'Area Rehabilitation Fund' and a condition which required approval from Mineralogy to the construction of new facilities.

29 The 12 July 2012 notice required rectification of the defaults within five business days, failing which 'Mineralogy reserves its rights to take appropriate legal action including but not limited to mandatory injunctions and, or, specific performance'.

30 The 12 September termination notice, if it were effective, would result in the MRSLAs having been terminated on 3 October 2014.

31 In their counterclaim, the defendants seek a declaration that the 12 September termination notice is invalid, and an injunction permanently restraining Mineralogy from acting in reliance upon the 12 September termination notice. The invalidity is said to flow from various defects in the 12 July 2012 notices and waiver by the plaintiff by reason of not acting on the notices between July 2012 and September 2014.

32 The 12 September termination notice was either effective in its terms or it was not. That is a matter to be determined ultimately in the substantive action. The only practical effect of the injunctions sought in paragraph 2A of the Amended Chamber Summons, so far as it relates to the 12 September 2014 termination notice, would be to prevent Mineralogy from taking a step in reliance on the termination notice such as endeavouring to retake possession of the project area. At the hearing of this application, and in its written submissions,[13] Mineralogy expressly disavowed any intention on the part of Mineralogy to physically attempt to retake possession of the premises prior to the resolution of these proceedings.

33 The injunction sought in paragraph 2A also seeks to restrain the taking of specified steps in reliance upon termination notices to each of Sino and Korean dated 18 September 2014. Those termination notices relied upon a failure to comply with default notices to each of Sino and Korean dated 5 April 2013.[14] The notices stipulated that MRSLAs would terminate at the expiry of 21 days from the date of the notices, which would be 9 October 2014.

34 The 5 April 2013 default notices to each of Korean and Sino were said to be served pursuant to cl 30.4 of the MRSLAs. The notices assert breaches of cl 6.2 of the MRSLAs which requires compliance by Sino and Korean with various agreements and 'legal requirements'. It also asserts a breach of cl 27(b) which contains an acknowledgment that Sino or Korean will not act in a way that would adversely affect the interest of Mineralogy in certain property of which Mineralogy is the beneficial legal owner.

35 The 18 September 2014 termination notices are also the subject of the counterclaim in the substantive action. A declaration is sought as to their invalidity on the basis that the 5 April 2013 default notice is said to be defective and for other reasons.

36 As is the case with the 12 September 2014 termination notice, the interlocutory injunction now sought could only have the practical effect of restraining Mineralogy from taking a step, such as attempting to retake possession, on the basis that the 18 September termination notices had effectively terminated the MRSLAs.

37 The other notice referred to in the injunction sought at paragraph 2A of the Amended Chamber Summons is what is described as a 'purported notice of suspension' issued on 22 September 2014. That is a peculiar document, in the form of a letter. In its terms, it gives notice that 'immediately upon termination' of the MRSLAs Sino Iron and Korean Steel 'must suspend the operations and cease all activity carried out by, or on behalf of, either of them on the Project Area'. Mineralogy submits,[15] and I accept, that the communication of 22 September 2014 does not have the effect of a suspension notice under cl 30.4(d) of the MRSLAs. It also submits,[16] and I agree, that the letter has no consequences for Sino or Korean in addition to the termination notice upon which it was premised. Given that acknowledgment by Mineralogy, there seems no prospect of that Mineralogy proposes take any steps in reliance upon that communication.

Conclusion as to the practical effect of the injunctions

38 Against that analysis, the injunctions which are sought by the defendants would achieve the following:

Mineralogy would be prevented from issuing a suspension notice or a termination notice on the basis of the defendants' refusal to join in requesting nomination of an expert to deal with the issue concerning Royalty Component B, that is on the basis of their failure to comply with the 10 July 2014 default notice (paragraph 1 of the Amended Chamber Summons).
Mineralogy would be prevented from entering the mine area for the purpose of rectifying Sino and Korean's alleged breaches of their obligations to provide a statement as to the calculation of Royalty Component B. In practical terms, that means being prevented from examining books and records relevant to calculation of Royalty Component B (par 2 of the amended summons).
Mineralogy would be prevented from taking steps in reliance on their contention that the MRSLAs have been terminated on either 3 October 2014 or 9 October 2014 by reason of the 12 September 2014 termination or the 18 September 2014 termination notice. In a practical sense, that means being prevented from attempting to take possession of the site, although the plaintiff has disavowed any present intention to take any such step (par 2A).
Mineralogy would be prevented from issuing any further default notices in relation to the alleged defaults the subject of the various default notices which it has withdrawn (par 1 and par 2A).

39 The principles governing the grant or refusal of interlocutory injunctions routinely applied in Australian courts were summarised by Mason ACJ in Castlemaine Tooheys Ltd v State of South Australia[17] where his Honour said:

In order to secure such an injunction the plaintiff must show (1) that there is a serious question to be tried or that the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief; (2) that he will suffer irreparable injury for which damages will not be an adequate compensation unless an injunction is granted; and (3) that the balance of convenience favours the granting of an injunction.

40 Further explanation of those principles is conveniently summarised by Beech J in Twinside Pty Ltd v Venetian Nominees Pty Ltd,[18] where his Honour said:

These principles were further explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill [2006] HCA 46 ; (2006) 227 CLR 57, [65] [71] (Gleeson CJ and Crennan J agreeing). Their Honours stated that the relevant principles are those stated in Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618, where the two main inquiries were said to be whether the plaintiff had made out a prima facie case and whether the balance of convenience favours the grant of the injunction. The phrase 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks: [65], [71].

The apparent statement by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 at 407 that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, there will be a serious question to be tried, is not to be followed. The governing consideration is that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory orders sought. These principles make it clear that the various considerations identified by Mason ACJ in Castlemaine Tooheys are to be considered together.

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

41 In their written submissions, the parties directed extensive argument to the question of whether or not there was a serious question to be tried in relation to the various notices relied upon by the plaintiff and in respect of which the defendant seeks injunctive relief. I do not intend to canvas those arguments in detail. Questions of the validity of the various notices arise in the substantive proceedings, either by way of the claim or the counterclaim. The notices have been issued in the context of what would appear to be a dysfunctional and deteriorating commercial relationship. The pleadings comprise roughly 115 pages, not including the very substantial schedule annexed to the defence. The plaintiff submits that I should conclude that there is no serious question to be tried in relation to any of the issues underlying the notices the subject of these proceedings. That somewhat ambitious submission amounts, in substance, to a rehearsal of the arguments which will undoubtedly run at the trial of the action. Given the nature of the issues, I do not consider that they are capable of definitive resolution in the context of an interlocutory application where all of the factual and documentary material relevant to the issues is not before the Court. I am satisfied that there is a serious question to be tried, in the relevant sense, in relation to at least those notices in respect of which the injunctions sought might have some practical effect.

42 In their written submissions, the defendants submitted that, if Mineralogy is not restrained from taking steps in reliance on the notices, the defendants will suffer irreparable harm. That harm was described by Mr David John Mason in his affidavit affirmed on 4 September 2014. It identified what are undoubtedly very substantial costs, losses and expenses which would flow from the defendants suspending their operations in the project area. It is not necessary to recite the details of those costs, losses and expenses. Given the enormous capital investment by the defendants in the project so far, the impact of suspension of operations and the immobilisation of the project employing thousands of people is obvious. I have no hesitation in concluding that, if the consequence of a refusal to grant the injunctions was that mining operations were to cease, either temporarily or permanently, then the balance of convenience would be overwhelmingly in favour of the grant of the injunctions.

43 The question is, however, whether suspension of the mining operations would, in fact, follow if the injunctions are not granted. The current status quo is that the defendants are continuing to carry out mining operations and exercise their rights under the Project Agreements on the basis that they do not consider themselves to be in breach of the MRSLAs (or other Project Agreements), and they do not consider any of the notices of default, suspension or termination, to be valid or effectual. Whether or not they are correct will ultimately be determined by resolution of the substantive proceedings.

44 On the other hand, the plaintiff considers that, not only have Sino and Korean defaulted under the MRSLAs, but the MRSLAs have effectively been terminated on either 3 October 2014 or 9 October 2014. It contends that it has merely been exercising its contractual rights in the face of defaults by the first and second defendants, and ought not be restrained from exercising its contractual rights in the future. Whether or not its contentions as to breaches or termination are correct is also a matter which will ultimately be determined in the substantive proceedings.

45 The relevant status quo is thus that defendants are continuing to conduct mining operations pursuant to the project agreements notwithstanding the plaintiff's allegations that they are in breach, and on the basis that they have no present obligation to pay Royalty Component B, at least until the question of the proper construction of cl 8.2 is determined in these proceedings. The plaintiff has disavowed any intention to actually force the defendants to cease operating, either by endeavouring to forcibly retake possession of the project area (a course which, while the parties' dispute remains unresolved, is probably not a practical reality anyway), or by seeking some interlocutory court order requiring the defendants to cease operation (a course most unlikely to succeed given the issues in the substantive proceedings and the questions of balance of convenience).

46 In those circumstances, there does not appear to be any present prospect that the detriment identified by Mr Mason in his affidavit is likely to be suffered if the injunctions are not granted. The real detriment to the defendants, having regard to the practical effect of the injunctions which I have identified above, is quite different.

47 The first practical effect is the prevention of the issue of a suspension notice by reason of the refusal to join in requesting nomination of an expert. The default notice was issued on 10 July 2014. There has been no subsequent suspension notice, although the tenor of the plaintiff's submissions is that it may issue such a notice,[19] and it is clearly open for the plaintiff to do so if not prevented by injunction. If the plaintiff were to take that course, it is quite clear from the defendants' pleaded position (that expert determination is not available in relation to construction of the formula in cl 8.2 for the calculation of Royalty Component B) that the defendants would consider the suspension notice, or any subsequent termination notice, to be invalid. They would be proved either right or wrong on that contention when this issue is finally determined at trial. In the meantime, unless the plaintiff were to successfully take some action to effectively close down the operation of the project by the defendants, nothing would change.

48 The plaintiff's written submissions seem to proceed on the basis that, if an injunction is not granted, the defendants would be likely to cooperate with the expert determination process rather than risk suspension or termination if they are found to be wrong on their construction of cl 33 of the MRSLAs. Given the history of the disputes in these proceedings, that assumption may be unjustified. If, however, the assumption is correct, the prejudice to the defendants would be that they would be subjected to participation in the expert determination process and, assuming that process resulted in a determination before the question of construction of cl 33 could be determined in these proceedings, they may have to pay any amount determined as payable as Royalty Component B until the construction question is determined. If they ultimately succeeded in the construction question, they would be entitled to a refund from Mineralogy. No injunction is necessary to enable the defendants to pursue their actions based on their construction of cl 33. If they are ultimately found to be wrong, I do not consider that injunctions should protect them from the contractual consequences.

49 The second practical effect of an injunction is to prevent Mineralogy from entering the mine area to rectify the failure to provide a statement as to the calculation of Royalty Component B. The prejudice to the defendants would only be that they would have to make the relevant books and records available to the plaintiff. The defendants contend that the inspection of books and records would not assist the plaintiff. As the plaintiff submits, that is not a basis to refuse exercise of a contractual right to inspect books and accounts. The contractual right to do so enables the plaintiff to make its own assessment as to whether there are relevant materials by inspecting them. No substantive prejudice flows to the defendants from a refusal of the injunction sought in paragraph 2 of the Amended Chamber Summons.

50 The third practical effect is the prevention of any attempt by the plaintiff to actually force the defendants to suspend or cease operating the project. The balance of convenience clearly favours such steps not being taken. The plaintiff has indicated that it does not intend to take steps to that end. It proffered an undertaking to that effect coupled with a condition as to payment of an amount by way of Royalty Component B. For reasons which I will discuss below, I do not consider that a condition along the lines suggested by the plaintiff is appropriate, and the defendants are not prepared to proffer an undertaking to make the payment sought. It is not entirely clear from the plaintiff's submissions at the hearing as to whether it is prepared to proffer an unconditional undertaking not to take steps to interfere with the continued operation of the project pending resolution of the proceedings. Although, in practical terms, the plaintiff is likely to be confronted with enormous difficulties if it were to attempt to effectively shut down the defendants' operation, it is appropriate that there be some safeguard to prevent that occurring pending resolution of the proceedings. If the plaintiff is not prepared to proffer an unconditional undertaking to that effect, then I would be inclined to grant an injunction in terms which prevented the effective shutdown of the mining and other operations under the MRSLAs.

51 The final practical effect of the injunction sought would be to prevent the plaintiff from issuing further default notices in relation to the alleged defaults the subject of various withdrawn default notices. The defendants contend in their counterclaim that these notices which were withdrawn were not valid, and seek declarations to that effect. There is no immediate threat by the plaintiff to issue fresh notices, a course of action that would be very surprising in light of its previous withdrawal of those notices, and the passage of time since the alleged defaults were said to have occurred. But to the extent that the plaintiff has a contractual right to issue notices based on alleged defaults, I see no basis for why it should be prevented from doing so. Although, no doubt, there would be issues as to whether or not those further notices are valid and effectual, the mere issue of those notices will not have any practical effect of the status quo pending trial. It is not appropriate for the Court to seek to oversee the ongoing contractual relationship between the parties, and the exercise of their asserted contractual rights when no practical consequences are likely to flow from such actions before the ultimate resolution of the proceedings. It is not appropriate for the parties to use the processes of the Court to vary or avoid contractual obligations. The Court's role is ultimately to determine the rights and obligations of the parties which are in dispute. In the meantime, the parties must make their own assessment of their rights and obligations and act accordingly. There are risks that a party's assessment may prove to be wrong. It is not the role of an interlocutory injunction to protect a party from contractual consequences flowing from that party's conduct in relation to its contract. Rather, it is to preserve the position so as to avoid irreparable damage to a party if its position is ultimately found to be correct.

52 Having concluded that the plaintiff should be restrained, either by its own undertaking or by a suitably framed injunction from taking steps to prevent the defendants carrying on the project pending resolution of the proceedings, the question arises as to whether that restraint should be subject to a condition for the payment for an amount by way of Royalty Component B. In my view, it should not.

53 I take that view notwithstanding that there is considerable force in the plaintiff's contention that, in all but one of the alternative constructions as to cl 8.2 contended for by the defendants, an amount will ultimately be payable in respect to Royalty Component B.

54 The particular condition sought is that the defendants undertake to pay to the plaintiff the sum of US$22 million in respect of the Royalty Component B on account of the amount owed up to the quarter ending 31 December 2014, and, for future quarters occurring after 31 December 2014, an amount of US$11.65 per dry metric tonne of Products (as defined in the MRSLAs) produced in respect of Royalty Component B.

55 The basis for those figures is a report prepared by Mr Steven Alfred Sorbello. Mr Sorbello is a chartered accountant. His report effectively consisted of his applying a range of figures to the formula, found in cl 8.2, for the calculation of Royalty Component B. The figures which he inserted were, for the most part, inserted by reason of instructions he was given to utilise figures provided by AME Group and by the plaintiff. A report by AME Group appended to Mr Sorbello's report contained an 'important notice' which specified that AME had obtained data from a variety of sources and continued:

Unless otherwise noted in the tables, figures or headings in this report, no reliance is to be placed on the information contained within any table, figure or heading. AME does not make any representation or warranty as to the quality or accuracy of the information contained within this report.

56 Mr Sorbello's report itself specifies that it relies specifically on the information and instructions provided to his firm by Mineralogy and says: 'as instructed, we have not conducted any audit, review, due diligence or other verification procedures on the information provided to us. We make no statement about the accuracy of the information'.

57 The report then provides calculations based on various scenarios identified using tables extracted from the AME report. Utilising different scenarios, the calculation produces figures for the calculation of Royalty Component B from the fourth quarter of 2013 to the fourth quarter of 2014 of US$27,522,718, US$13,879,749, and US$28,941,192 respectively. Those figures are based upon figures for the price per dry metric tonne of Product of US$14.56, US$7.34, and US$15.31 respectively.

58 No explanation is proffered by the plaintiff as to where the proposed figure of $22 million comes from. Even apart from that, it is quite apparent that there is no reliable basis upon which Mr Sorbello's calculations can be accepted, and if they were accepted, which of the three alternative figures should be chosen. The foundation upon which the opinion expressed by Mr Sorbello is based is not properly established by admissible evidence, and I would uphold the defendants' objections to the affidavit of Mr Sorbello on that basis.

59 It follows that there is no basis upon which any figure can reliably be adopted to support the imposition of a condition on the grant of an injunction.

60 The plaintiff makes no claim, in the substantive proceedings, for the payment of any amount by way of Royalty Component B. That is apparently because the defendants have made clear that, if Royalty Component B is capable of calculation, it will pay the amount payable. The condition which the plaintiff would have the Court impose is simply, as counsel for the plaintiff put it, the price that the defendants should pay for the injunction. It is quite apparent that, until at least some of the core issues between these parties are resolved, the defendants should not be exposed to the enormous costs and losses that would result from suspension or termination (in fact) of operations on the project area. The plaintiff has indicated that it does not intend to take that drastic step. If no injunctions are granted, the issues will proceed to determination without the plaintiff receiving any interim payment of Royalty Component B. Any injunction or undertaking is designed simply to formalise that position. I do not consider that the Court should exact a price for the restraint in those circumstances, especially given the impossibility of reliably determining an amount of any payment on the basis of admissible evidence.

61 The fact that the parties had been unable to progress the question of the proper construction of cl 8.2, or at least, on an interim basis, some commercial arrangement in relation to what, if any, payments should be made by way of Royalty Component B, is testament to the dysfunction in the relationship between these parties. The resolution of the question of construction of cl 8.2 should be dealt with efficiently, and if necessary, separately from at least some of the other issues raised in these proceedings. The plaintiff also sought a condition which, in effect, required the defendants to cooperate with the other parties in dealing with that question promptly. I do not consider that such a condition is necessary. The matter is being casemanaged. Parties are obliged to act cooperatively and diligently in resolving the issues efficiently and speedily. They do not need an order to do so. These parties are represented by senior experienced solicitors and counsel.

62 Their observance, which I do not doubt, of their duties to the Court should be sufficient to achieve the end sought by the condition as to cooperation. The questions of the efficient disposition of the matter, and the focus on the resolution of the central issue of Royalty Component B will be the subject of close attention in the context of case management of the matter.

63 The undertaking proffered by the plaintiff, subject to crossundertakings by the defendants was in the following terms:

The plaintiff undertakes that, until the hearing and determination of these proceedings, or earlier order, it will not take any step to retake possession of the Mine Area and Site Lease Area (as defined in the Sino Iron Mining Right and Site Lease Agreement (as amended) (Sino MRSLA) and the Korean Steel Mining Right and Site Lease Agreement (as amended) (Korean MRSLA) (together MRSLAs)), consequent upon the termination of the MRSLAs pursuant to any of the Termination Notices dated 12 September 2014 and 18 September 2014, other than on one months' [sic] prior written notice to the defendants or in any action before a Court.

64 In the hearing, counsel for the plaintiff accepted that one month's notice may be insufficient, and indicated that it would make little practical difference to the plaintiff if that period were 60 days. I agree that 60 days is a more appropriate notice period.

65 If, in light of these reasons, the plaintiff proffers that undertaking unconditionally, I would accept it in satisfaction of the remedy sought by the defendants in this application. If it is not prepared to proffer that undertaking, I would order an interlocutory injunction until further order expressed in substantially the same terms.

[1] Affidavit of David John Mason affirmed 4 September 2014, annexures DJM-43 (pages 900 902) and DJM44 (pages 903 905).

[2] Affidavit of David John Mason affirmed 4 September 2014, annexures DJM-47 (pages 917 919) and DJM48 (pages 920 922).

[3] Affidavit of David John Mason affirmed 4 September 2014, annexures DJM-51 (pages 933 935) and DJM52 (pages 936 938).

[4] Outline of submissions on behalf of plaintiff, dated 8 December 2014 [144].

[5] Affidavit of David John Mason affirmed 4 September 2014 [133] [136].

[6] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexures JQS-3 (pages 35 98) and JQS4 (pages 99 100).

[7] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexures JQS-7 (pages 139 158), JQS8 (pages 159 162), JQS9 (pages 163 194) and JQS10 (page 195).

[8] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexures JQS-13 (pages 212 219) and JQS-14 (pages 220 227).

[9] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexure JQS-21 (pages 288 295).

[10] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexure JQS-2 (pages 17 34).

[11] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexure JQS-17 (pages 240 251).

[12] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexure JQS-2 (pages 19 25 and 28 34), attached to 12 September 2014 termination notices.

[13] Outline of submissions on behalf of the plaintiff, dated 8 December 2014 [160] [161].

[14] Affidavit of Jeremy Damon Quan-Sing sworn 24 September 2014, annexure JQS-17 (pages 248 251), attached to 18 September 2014 termination notices.

[15] Outline of submissions on behalf of the plaintiff, dated 8 December 2014 [162] [165].

[16] Outline of submissions on behalf of the plaintiff, dated 8 December 2014 [167].

[17] Castlemaine Tooheys Ltd v State of South Australia [1986] HCA 58; (1986) 161 CLR 148, 153.

[18] Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110 [9] [11].

[19] Outline of submissions on behalf of the plaintiff, dated 8 December 2014 [102].

At a glance

Court

Decision date

Before

Source

Judgment (103 paragraphs)

Cases Cited (3)