Sanrus Pty Ltd and Ors v Monto Coal 2 Pty Ltd and Ors [2014] QSC 23

Judgment (68 paragraphs)

[1]

[1] The Defendants make application for orders that the Plaintiffs be refused leave to deliver a proposed amended consolidated statement of claim ("the pleading"), that certain paragraphs of the amended consolidated statement of claim be struck out, and further orders prohibiting the Plaintiffs from repleading any positive allegation of economic viability without the leave of the Court.

[2]

[2] The application was initially returnable on 14 November 2013. It was then adjourned to enable delivery of the pleading. On 29 November 2013, the application was further adjourned to enable the Plaintiffs to provide particulars of an aspect of the pleading. Those particulars were delivered on 14 February 2014.

[3]

[3] The Plaintiffs claim damages for breach of a written joint venture agreement. That agreement, executed on 16 May 2002, concerned arrangements for undertaking coal exploration and mining development of rural land near Monto in the State of Queensland. It envisaged a two stage process. The first stage was to be undertaken as part of the agreement. The second stage was dependent on a number of factors. Relevantly, for present purposes, one of those factors was the "economic viability" of the project.

[4]

[4] A dispute between the joint venture partners arose in 2003. The dispute related to differing views as to the economic viability of the project. Ultimately, the project was suspended by the Defendants. The Defendants assert the Plaintiffs' position as to the economic viability of the project changed from 2003 to 2006. They contend the Plaintiffs accepted the project was not economically viable but later asserted the project could be shown to be economically viable.

[5]

[5] On 1 October 2007, the Plaintiffs commenced these proceedings. They claimed damages for breach of contract arising from the Defendants' alleged conduct in breach of the joint venture agreement. At the heart of those allegations was a decision to not undertake the Stage 2 feasibility study envisaged by the Joint Venture Agreement. The loss claimed by the Plaintiff includes a loss of opportunity to make profits from both Stage 1 and Stage 2.

[6]

[6] In its initial pleading, the Plaintiff did not specifically assert the project was economically viable. However, the Defendants, in their defence, alleged the project was not economically viable. After delivery of that defence, the Plaintiffs acknowledged economic viability was a central issue. Counsel confirmed the Plaintiff would positively assert the project was economically viable. Orders were made for the delivery of an amended reply, and for particulars of that allegation.

[7]

[7] On 11 March 2008, an amended reply was filed by the Plaintiffs alleging the project was economically viable. Thereafter, particulars were provided by the Plaintiffs and the Defendants concerning their respective assertions as to the economic viability of the project. The proceeding then languished in the interlocutory steps of disclosure and the provision of expert reports until 2011.

[8]

[8] In 2011, as a consequence of case management reviews, orders were made for further particularisation of the allegations relevant to the economic viability of the project. As part of this process, on 13 April 2011, orders were made requiring the Defendants file and serve further and better particulars of the allegation the project was not economically viable. Such particulars were to be provided, in respect of each individual year, in a staged process. The Plaintiffs were also ordered to provide particulars of their allegation the project remained economically viable. Those particulars were to be provided on a similar staged basis.

[9]

[9] The time for compliance with those orders was extended on a number of occasions thereafter, with the consent of the parties. These requests for extensions of time related to compliance with the respective orders by the Plaintiffs and by the Defendants. It appears to be accepted by both parties that preparation of the particulars was a complex and lengthy task.

[10]

[10] The provision of particulars by the Defendants was not completed until late 2011. The time for compliance by the Plaintiffs in respect of delivery of their particulars was correspondingly extended. During 2012, there was a lengthy period during which the parties placed the matter in abeyance whilst settlement discussions were undertaken. At the conclusion of that process the Plaintiffs' current solicitor took over carriage of the matter. There was a delay thereafter whilst access was obtained to the file, and associated material.

[11]

[11] On 15 July 2013, further orders were made by this Court. Relevantly, they required the Plaintiffs to file and serve an amended reply by 4.00pm on 16 September 2013. The time limited for the Plaintiffs to file and serve their particulars of the positive allegation of economic viability was also extended to that date.

[12]

[12] The amended reply was delivered on 23 September 2013, as was the Plaintiffs' response to the Defendants' particulars of the allegation the project was not economically viable. The amended reply no longer alleged the project was "economically viable". Instead, the pleading alleged a proper construction of the Joint Venture Agreement imposed a positive obligation on the Defendants in respect of Stage 1 and Stage 2. Alternatively, it placed a positive obligation on the Defendants unless the Defendants demonstrated the project was not economically viable. The Plaintiffs contended that having regard to the removal of a positive allegation of economic viability, they no longer had an obligation to provide particulars of that positive allegation.

[13]

[13] As a consequence of that position, the Defendants' solicitors sought confirmation from the Plaintiffs' solicitors that a positive allegation of economic viability no longer formed a part of the Plaintiffs' case on any issue. That confirmation was not forthcoming. However, at a review hearing on 14 October 2013, the Plaintiffs' counsel accepted the Plaintiff was not advancing a positive case the project was in fact economically viable.

[14]

[14] Despite that indication, the Defendants' solicitors pressed for written confirmation. When that was not forthcoming, the present application was filed. At the initial hearing of the application, the Plaintiffs asserted reliance on economic viability insofar as its claim for loss of opportunity was concerned, but not in respect of liability itself.

[15]

[15] That indication led to an order requiring the Plaintiffs to provide further and better particulars of paragraph 23(c)(d) of the pleading, wherein the Plaintiffs alleged they had lost the opportunity to earn a profit from the sale of coal from Stage 2 and to earn royalties, and that the Stage 2 feasibility study, if undertaken, would have demonstrated Stage 2 would have been profitable.

[16]

[16] Those particulars, delivered on 14 February 2014, are in short compass. Whilst aspects will require elucidation at trial, the proposed particulars inform the Defendants of the case to be met at trial. The Plaintiffs' counsel readily concedes those particulars are based on an expert report commissioned by the Plaintiffs. It is contended delivery of that report will provide the necessary further elucidation.

[17]

[17] The Defendants submit that having regard to the Plaintiffs' express removal of a positive allegation of economic viability in the amended reply delivered on 23 September 2013, and the subsequent confirmation by the Plaintiffs' counsel on 14 October 2013 that the Plaintiffs no longer relied on a positive allegation of economic viability, the Plaintiffs ought not now to be able to seek to plead and prove a positive case of economic viability of the project.

[18]

[18] The Defendants submit principles of case management, together with public policy considerations, require the Plaintiffs be held to their decision to abandon any positive reliance on economic viability. To do otherwise would be to make a mockery of the obligations placed on litigants. Further, as no explanation has been provided for the change in position, an amendment ought not to be allowed having regard to the principles enunciated in Aon Risk Services Australia Ltd v Australian National University.[1]

[19]

[19] The Defendants submit to allow the amendment at this late stage would also cause them actual prejudice. They rely on the impact of time on the availability and recollection of witnesses, and the practical difficulties any expert witnesses will have in being able to place themselves into the position that existed at the time any feasibility study ought to have been undertaken.

[20]

[20] The Defendants also submit the pleading fails to properly plead a causal link between the claimed losses and the conduct complained of such that those aspects of the pleading are properly to be struck out. Whilst the Defendants accept the Plaintiffs ought to be allowed to replead, the Defendants contend that having regard to the Plaintiffs' prior express decision to abandon any positive reliance on economic viability, an order should be made positively excluding such reliance in any further pleading, without the leave of the court.

[21]

[21] The Plaintiffs submit the relief sought by the Defendants is misconceived as there has been no breach by the Plaintiffs of any court order of such magnitude as to justify denying a party the right to litigate its case. Further, there is no proper basis upon which this court could find that the principles of case management or other relevant public policy considerations justify the making of orders denying a party the opportunity to advance a case in a proceeding that is still in the pleading stage.

[22]

[22] The Plaintiffs also submit the pleading adequately pleads the necessary causal link. Any deficiencies in that pleading are not such as to justify use of the power for summary dismissal, having regard to the principles for the exercise of such a power.

[23]

[23] In Aon, the plurality observed that whilst litigants have choices as to the claims made in any litigation, and the framing of those claims, limits will be placed on their ability to effect changes to the pleadings. Relevant factors to any determination as to whether leave should be given to change the pleadings include the stage of the litigation, in particular, how advanced it is towards a trial,[2] the history of the litigation, and the effects of the proposed amendments on the timely determination of the proceedings. Those effects include the strain litigation imposes on the particular litigants, and on litigants generally.

[24]

[24] Relevant to those considerations, the plurality observed the discretion to allow an amendment will generally be exercised in circumstances where an explanation for that amendment has been provided by the party seeking the exercise of the discretion in its favour. The plurality said:[3]

[25]

"Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by Rule 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case."

[26]

[25] A central issue relied upon by the Defendants in support of the contention the Plaintiffs ought not now be given leave to further amend their pleadings is the failure on the part of the Plaintiffs to provide any explanation for the change in what appears to have been a deliberate, conscious decision, in the face of court orders, to abandon reliance upon a positive allegation of economic viability.

[27]

[26] That fact was a significant factor in Aon. However, the current application is made in very different circumstances. In Aon, the application to amend sought to introduce new and substantial claims requiring the Defendant to defend again, and was made in the time set for trial and would result in the abandonment of that trial. Those circumstances plainly required an explanation.

[28]

[27] By contrast, the present application involves reinstating a positive allegation which had only been abandoned some two months prior, in circumstances where the proceeding is still at a pleading stage. Whilst the failure to provide an explanation is a relevant factor in determining whether to give the Plaintiffs leave to deliver the pleading, the change in position occurs in circumstances where a positive allegation of economic viability was a feature of the Plaintiffs' case until 23 September 2013. Although abandoned at that time, it reappeared as part of the Plaintiffs' case only some two months later. That is a very short hiatus.

[29]

[28] That short period must also be viewed against the stage of the proceeding. The proceeding is far from ready for trial. Even if the Plaintiffs are refused leave to deliver the amended pleading, much work has yet to be done by the Plaintiffs and the Defendants prior to trial. Further, the demands on available court listings mean even if the proceeding was ready for trial in the next few months, it is unlikely to achieve any listing in 2014. Depending on the length of the trial, it may also be unlikely to receive a listing in the first half of 2015.

[30]

[29] The Court is therefore faced with an application to deliver a further pleading which seeks to rely upon a positive allegation previously the subject of court orders but abandoned without complying with court orders, in a proceeding which is a long way from being ready for trial, and where the positive allegation was only abandoned two months before being reagitated by the Plaintiffs in respect of loss.

[31]

[30] The Plaintiffs' counsel, in submissions, indicated the proposed pleading is based on an expert report shortly to be delivered to the Defendants. If that expert report supports the proposed pleaded allegations, and is accepted at trial, it would provide a basis for this Court to find in the Plaintiffs' favour. A judgment, in that event, would be for a considerable sum. To deny a Plaintiff the opportunity to advance such a substantial claim is a significant step, not to be lightly undertaken.

[32]

[31] Case management regimes are important, having regard to the significant demands on court time and the need for courts to weigh the interests of all litigants in the allocation of court resources. However, case management principles are not a means of punishment. A litigant is not to be denied the opportunity to advance a substantial claim on the basis of case management principles, if the interests of justice and the interests of other litigants, including, most particularly, that of the opposing party in the particular litigation, can be justly and adequately protected by the making of directions and appropriate costs orders.

[33]

[32] The Defendants contend no such accommodation can be made in the present case as the Plaintiffs' conduct of the litigation has caused it actual prejudice. That prejudice would be exacerbated by the giving of leave to amend. It would essentially place the proceedings back to where it would have been had there been compliance with the orders made in 2011. Further, the Defendant would be required to call numerous expert witnesses, significantly lengthening the trial and increasing costs. This will lead to a substantial delay in the matter coming on for trial. The delay will also make it difficult for those expert witnesses to fairly assess the factors that would have been relevant to the outcome of the Stage 2 Feasibility Study. The delay to date has also impacted on the available witnesses of fact. One witness is dead, and several witnesses are of advanced age. Many of the individuals working for the project at the relevant time have also now left the Defendants' employ.

[34]

[33] Whilst each of these matters is relevant, they do not constitute prejudice of such a nature which would justify depriving a litigant of the opportunity to advance a substantial claim in proceedings presently on foot. The deceased witness died before the change in the Plaintiffs' position in 2011. The advancing age of the witnesses is not of such a magnitude that there will be significant prejudice. Any expert witnesses will have access to historical data relevant to any feasibility study, had it been undertaken pursuant to the Joint Venture Agreement. There is also no reason why the fact a witness is no longer in the employ of the Defendant will impact upon the ability of that witness to give cogent, reliable evidence at any trial.

[35]

[34] Further, this Court can make directions, with strict timelines, to ensure this matter is prepared for trial at the earliest opportunity. Those directions can limit further delays to ensure the proceeding is brought to trial in a timely way.

[36]

[35] Balancing all of the relevant factors, and notwithstanding the absence of an explanation by the Plaintiffs for the change in position, I am satisfied it is appropriate the Plaintiffs be given leave to deliver the pleading. Any prejudice to the Defendants can be adequately and justly met by the imposition of costs orders in favour of the Defendants, together with further directions as to the completion of other interlocutory steps and the delivery of expert reports.

[37]

[36] The Defendants application for orders striking out paragraphs 23(c), 23(e) and 32(c) of the proposed statement of claim is the basis those paragraphs do not plead a causal nexus between breach and the loss and damage claimed by the Plaintiffs. It is further submitted the only causal nexus which could be pleaded would be one dependent upon a positive case of economic viability, and for the reasons previously relied upon the Plaintiffs ought not to be able to rely upon such a positive case.

[38]

[37] My ruling in relation to leave to deliver the pleading, which does rely upon a positive case of economic viability, renders the second argument no longer relevant. As to the first, paragraph 23 provides:

[39]

"23. By reason of Monto Coal 2's breaches of the Joint Venture Agreement:

[40]

(a) the development of Stage 1 has not been achieved;

[41]

(b) the Stage 2 fFeasibility sStudy has not been undertaken;

[42]

(c) the Plaintiffs have lost the opportunity to sell coal earn a profit from the sale of coal from Stage 2 and to earn Royalties under the Monto Coal Royalty Deed;

[43]

(a) Stage 1 would have been completed and would have been profitable;

[44]

(b) The State 2 Feasibility Study (as that term is defined in clause 1 of the Joint Venture Agreement) would have been prepared by about May 2005;

[45]

(c) Coal produced from Stage 1 would have obtained market acceptance and would have been sold at a profit during Stage 1;

[46]

(d) The Stage 2 Feasibility Study would have demonstrated that Mine Development of Stage 2 would have been profitable;

[47]

(e) The Joint Venture Participants or the Manager would have convened a Meeting of the Management Committee to vote on whether Mine Development of State 2 should be undertaken;

[48]

(f) Each of the Participants' Representatives, would have attended that meeting and, acting in the best interests of the Joint Venture in accordance with clause 7.5 and 7.6 of the Joint Venture Agreement, would have exercised their vote in favour of undertaking the Mine Development of Stage 2;

[49]

(g) Coal would have been produced and sold from Stage 2 at a profit;

[50]

(h) The total export coal sold from Stage 2 in any calendar year would have exceeded 1,500,000 tonnes;

[51]

(i) EPDC (the Japanese power utility whom Talbot addressed, as alleged in paragraph 24(e) of the Consolidated Statement of Claim); and

[52]

(ii) China Hua Neng Hong Kong Limited (or an associated entity);

[53]

(j) likely purchasers and markets are those identified in the Barlow Jonker Marketing Reviews (executive summaries of which are referred to in the Monto Coal Project Stage 1 Feasibility Study - Final Report dated January, 2002);

[54]

(k) Monto Coal 2 would have paid its Respective Proportion (being 51%) of the Royalty payable to the Plaintiffs quarterly at a rate of 1% of the FOBT price at which export Coal was sold;

[55]

(l) the Plaintiffs will supply further particulars of these markets and likely buyers after disclosure and the provision of expert reports;

[56]

(d) further or alternatively, the Plaintiffs have lost the opportunity to sell their respective Interests in the Joint Venture at a value which would reflect the stage to which the Monto Coal Project would have advanced, had Monto Coal 2 not breached its obligations; and

[57]

Had Stage 1 been developed in accordance with the obligations in the Joint Venture Agreement, the Participants would have been producing coal by May, 2005, at the latest.
Those operations would have yielded profits for the Plaintiffs, and the value of their Interests in the Monto Coal Joint Venture would have been enhanced, as summarised in Schedule 1 and as further particularised in the Sumner Hall Report dated 8 November 2010.

[58]

The Plaintiffs have lost the opportunity to earn a profit from the sale of coal and to earn royalties produced from Stage 2 as pleaded in paragraph 23(c) and Schedule 1 and as further particularised in the Sumner Hall Report dated 8 November 2010.

[59]

The Plaintiffs will provide further particulars of their loss and damage prior to trial, following receipt of expert evidence."

[60]

[38] The obligation on the Plaintiffs is to plead necessary material facts to establish a causal nexus between breach and loss and damage. Where, as here, the claim includes a loss of opportunity, the Plaintiffs must plead sufficient facts to establish the Defendants' breach caused it to lose a valuable commercial opportunity.[4] Relevantly, the essential elements include pursuit of an identified opportunity to make profits of some real value, and that the Defendants' conduct contributed to an inability to pursue that opportunity.

[61]

[39] In the pleading, the Plaintiffs allege the lost opportunity arises because Stage 1 would have been completed and would have been profitable, and the Stage 2 Feasibility Study would have demonstrated development of Stage 2 would also have been profitable. The Plaintiffs further allege a decision would have been made to proceed with Stage 2, and coal produced from that stage would have been sold at a profit, and in an amount exceeding 1.5 million tonnes in any calendar year.

[62]

[40] Those allegations represent the salient features necessary for an allegation of a loss of opportunity to earn a profit from the sale of coal from Stage 2, and to earn royalties in accordance with the Royalty Deed. Whilst there are many variables to be considered in the proof of that allegation, and it may be that at trial the Plaintiffs fail to establish that allegation to the requisite standard, it cannot be said the pleading in its present form discloses no reasonable cause of action.

[63]

[41] The power to terminate proceedings on a summary basis is exercised with caution.[5] If the allegations have more than a fanciful prospect of success, and involve a determination of factual issues in dispute between the parties, summary dismissal should not be awarded. I am satisfied the Plaintiffs' allegations do raise real questions to be determined, resolution of which will involve findings of fact in respect of matters in dispute. Those disputes are properly to be the subject of a trial.

[64]

[42] I decline, in the exercise of my discretion, to strike out paragraphs 23(c), 23(e) and 32(c) of the pleading.

[65]

[43] The Defendants' application is dismissed. I shall hear the parties as to the form of orders, and costs.

[66]

[2] Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 [112].

[67]

[4] Chapman v Luminis Pty Ltd No 5 (2001) FCA 1106 [757].

[68]

[5] Spence v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 131 [24].

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Judgment (68 paragraphs)

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