FEDERAL COURT OF AUSTRALIA

Newcrest Mining Limited v Apache Northwest Pty Ltd [2008] FCA 1527

PRACTICE AND PROCEDURE – discovery – preliminary discovery – whether Court lacks jurisdiction – whether federal claim colourable or bound to fail

Federal Court Rules O 15A r 6

WG & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd [1999] FCA 1776 cited

St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 applied

Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 cited

Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 cited

NEWCREST MINING LIMITED (ABN 20 005 683 625) v APACHE NORTHWEST PTY LTD (ABN 58 009 140 854) and SANTOS (BOL) PTY LTD (ABN 35 000 670 575)

VID 742 of 2008

TRACEY J

17 OCTOBER 2008

MELBOURNE

THE COURT ORDERS THAT:

1.                  On or before 30 October 2008 the first respondent file and serve on the applicant a verified list of documents, which are or have been in its possession, custody or power, relating to:

(a)                The method for calculating and the amount of allocation or proposed or forecast allocation of gas by the first respondent to its customers, including the applicant, during the period between 3 June 2008 and 15 December 2008 (both dates inclusive), as has been or shall be processed through the East Spar Joint Venture processing facility on Varanus Island;

(b)               The processing capacity or forecast processing capacity of the East Spar Joint Venture processing facility on Varanus Island during the period between 3 June 2008 and 15 December 2008 (both dates inclusive);

(c)                The firm commitments of the first respondent to other customers for the sale and purchase of gas from the John Brookes gas field (including but not limited to agreements for the supply of gas to those customers), for delivery at any time between 3 June 2008 and 15 December 2008 (both dates inclusive);

(d)               The proposed step-down in allocation of gas by the first respondent to the applicant from 1 October 2008; and

(e)                The proposed step-up in allocation of gas by the first respondent to the applicant from 15 December 2008.

2.                  The first respondent pay the applicant’s costs of the application.

3.                  The application made against the second respondent be dismissed with no order as to costs.

4.                  The further hearing of the applicant’s application be adjourned sine die.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     This is an application by Newcrest Mining (“Newcrest”) for preliminary discovery from the respondents under O 15A r 6 of the Federal Court Rules.

2                     Newcrest moved on the affidavit of Mr Ronald Brown sworn on 17 September 2008.  A further affidavit, sworn on 26 September 2008 by Mr Christopher Goddard, was also relied on.  Apache Northwest Pty Ltd (“Apache”) relied on an affidavit of Mr Murray Durham sworn on 26 September 2008 and Santos (BOL) Pty Ltd (“Santos”) relied on an affidavit of Mr Andrew Freeman sworn on 26 September 2008.  None of the deponents was required for cross-examination.

3                     Before argument concluded the Court was advised that Newcrest had discontinued its application against Santos.

BACKGROUND

4                     Newcrest operates the Telfer Gold Mine in the Northwest of Western Australia.  Electrical power for the mine is provided by onsite generators.  These generators are, for economic reasons, fuelled by natural gas.  The gas is supplied pursuant to contractual arrangements between Newcrest and Apache as to 55% and Santos as to 45%.  Under the contract Newcrest is entitled to receive certain agreed quantities of gas.  Apache Energy Ltd (“Apache Energy”) was appointed by Apache and Santos as their Sellers’ Representative under the contract.  The gas comes from the John Brookes gas field (“the Brookes field”) which lies offshore in the Indian Ocean.  The gas is processed on Varanus Island and then piped ashore and on to the mine.

5                     On 3 June 2008 a catastrophic explosion occurred on Varanus Island which completely interrupted the supply of gas from the Brookes field and other surrounding fields including the Harriet field.  Repair work commenced quickly and is continuing.  Limited supplies of gas became available in early August but supplies are not expected to return to normal for some time yet.

6                     Towards the end of June Apache’s American parent company issued a media statement in which it said that it estimated that production to the level of 200 TJ/day would be restored by 15 August increasing to 350 TJ/day by December.  The press release advised:

“The East Spar J.V. [processing] facilities are located the greatest distance from the rupture and sustained less damage.  Export pipelines and associated valves, two compressors, instrumentation and control facilities are being repaired to meet the timetable of restoring production by mid-August.”

7                     In a letter to Newcrest on 30 July 2008 Apache advised that it expected initial production volumes in early August to be of the order of 75-120 TJ/day “increasing to approximately 200 TJ/day by mid-August”.  That letter also contained a paragraph which read:

“Until both the John Brookes and Harriet Fields resume pre-3 June 2008 production volumes we ask that you examine your base gas needs and consider nominating the only minimum volumes of gas that you absolutely require.  Every terajoule of gas that exceeds your base requirements can be used by other customers to meet theirs.  Within the constraints of our obligations under our contracts, our goal during the period of limited production is to deliver enough gas to our customers to fulfil their minimum required volume levels but we will need your cooperation to accomplish this. …”

8                     There was no evidence as to whether or not the production levels expected by mid-August were or were not achieved. 

9                     On 2 August 2008 Santos wrote to Newcrest advising that:

  ·                    It was expected that there would be a partial reinstatement of gas processing and deliveries from early August 2008.

  ·                    Initially total gas production would be of the order of 75 to 120 TJ/ day.

  ·                    By mid to late August production was expected to increase to 200 to 230 TJ/per day.

  ·                    200 to 230 TJ/day did not represent the full processing capacity on Varanus Island.

  ·                    Santos would distribute its share of available gas to its customers “on the basis of a pro-rated share of firm gas delivery obligations.”

10                  Santos provided Newcrest, in tabular form, the quantities of gas it could expect to receive between 4 August and the end of the year.  The figure rose progressively between 5 August and 30 September.  It then fell back until 15 December when it rose slightly.  At no point during this time period did the projected amount of gas to be made available to Newcrest reach the delivery obligation provided for in the contract.  Santos advised that the step down from 1 October was due to “a change in Santos’ contracted position and some additional contracted supply volume commences.”  Newcrest was advised that this additional contractual obligation would impact on all its customers on a pro-rata basis.  The step up from 15 December was attributed to an expected full reinstatement of processing facilities on Varanus Island.

11                  On 6 August 2008 Newcrest issued a press release in which it announced that partial gas supplies from Varanus Island had begun, supplies were flowing to the Telfer Mine and that Telfer’s “remaining requirements” were expected to be supplied by Apache around mid-August.  As a result Newcrest had terminated some of its interim gas supply arrangements with other suppliers.

12                  On 30 August 2008 Apache Energy advised Newcrest that its allocations were forecast to be:

  ·           1 – 15 September: 21.5-22.2 TJ/day

  ·           16 – 30 September: 19.5-20.4 TJ/day

  ·           1 – 31 October: 16.8-17.5 TJ/day.

13                  On 1 September 2008 Newcrest asked Apache Energy to provide it with the reasons for the anticipated reductions in supply from 16 September onwards.  A week later Apache Energy advised Newcrest that the allocation “reflects the supply obligations we have, including existing commitments, contracts that expire and contracts that pre-date the FM event that had a scheduled nomination in place for firm deliveries.”  No attempt was made to provide Newcrest with a detailed explanation of the kind which Santos had supplied on 2 August.  Although these e-mail exchanges were “signed” by an employee of Apache Energy they were not stated to be replies by Apache Energy in its capacity as the Sellers’ Representative.

14                  On 9 September 2008 Newcrest wrote to the two suppliers.  The letter was addressed c/- Apache Energy.  The evidence suggests that the letter was not forwarded to Santos.  It advised that Newcrest did not understand the basis on which the sellers were allocating gas supply to customers who had entitlement to gas from the Brookes field.  In particular it drew attention to the proposed step down commencing on 1 October 2008.  It then asked a series of questions.  They included a request that the sellers provide information in writing as to:

“(c)   the basis on which the Sellers are currently allocating gas to its (sic) customers, including Newcrest;

(d)         the reason why the Sellers are proposing to reduce the volume of gas available to Newcrest during the period between 1 October 2008 and December 2008, including the basis on which the Sellers propose to allocate gas as between its customers during that period; and

(e)          the contractual basis on which the Sellers have adopted or proposed to adopt, the allocations referred to in paragraphs (c) and (d) above.”

15                  A response was requested by 12 September 2008.  No response had been received by 16 September 2008 when Newcrest wrote again to the Sellers.  Again the letter was addressed to Apache Energy.  It drew attention to the proposed reduction in supply between 1 October and 15 December 2008 and asked for the production of documents relating to the allocation of gas in the period between 3 June 2008 and the end of the year to be provided by the following day.

16                  On 17 September 2008 Apache responded to Newcrest’s letters of 9 and 16 September.  It did so on Apache Energy letterhead.  It answered questions (c) to (e) as follows:

·                         As to question (c):

“Response: As we advised you in our correspondence of 3 August 2008, Apache has been allocating gas to its customers, including Newcrest, as follows:

Based on our analysis and communications with you over the past several weeks, we have determined to make allocations to all customers receiving gas from Varanus Island equitability in accordance with the principles described below.  Without any way prejudicing our right to adjust or reconsider these allocations, your allocation for gas day …  This is based on the lesser of:

1.      your daily gas nomination before the forced majeure occurred (reduced proportionately by the amount of gas not available during the forced majeure);

2.      the maximum amount you can take and consume in your operations without reselling the gas (provided that this does not prevent customers who were Gas Retailers on 3 June 2008 from making retail gas sales); or

3.      the volume you have told us you need.

If you are unable actually to use the above volume in your operations, please notify us of that so that we can reallocate it to other customers who will be able to use the gas in their operations.

…”

[I interpolate here that the evidence suggests that Newcrest had not earlier received the 3 August 2008 correspondence].

·                         As to question (d):

“Response:  As we advised you on 8 September 2008, the allocation reflects the supply obligations we have, including existing commitments, contracts that expire and contracts that pre-date the FM event that had a scheduled nomination in place for firm deliveries.  We have provided you with a projected allocation through 31 October 2008.  We have not provided one to you yet for November or December.”

·                         As to question (e):

“Response:  The Force Majeure provisions in clause 17 of the Contract.”

JURISDICTION

17                  Apache resists the application on a number of grounds.  It stresses the intrusive nature of an order for discovery and submits that the Court should not readily make orders which might undermine commercial confidentiality or impose onerous burdens.  It contends that the Court lacks jurisdiction to entertain the application because the only federal claim which is made, that under the Trade Practices Act 1974 (Cth) (“the TPA”), is colourable and bound, in any event, to fail.

18                  It is convenient to deal first with Apache’s jurisdictional objection.  It is not in dispute that, in the absence of the claims which are founded on the TPA, Newcrest could not pursue a case based on allegations of breach of contract in this Court.  Nor is it in dispute that the Court will lack jurisdiction to deal with a controversy in circumstances in which the only federal claims relied are either colourable (in the sense of not being bona fide but rather relied on solely to attract the Court’s jurisdiction) or trivial or insubstantial.  In WG & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd [1999] FCA 1776 Finkelstein J stated the relevant principles (at [11] to [14]) as follows:

“[11]    This then requires me to determine whether the non-federal claims are justiciable in the Federal Court.  The relevant cases show that if a federal claim which is said to enliven the accrued jurisdiction of the court to dispose of non-federal claims is trivial or unsubstantial, that will not be sufficient to attract that jurisdiction.  The cases are collected in the judgment of Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 165.  As Merkel J pointed out, triviality in this context does not require an examination as to whether the federal claim is less likely to succeed than the non-federal claim.  Accrued jurisdiction does not depend upon an assessment being made of the strengths of the federal claim; rather the question is whether the federal claim is genuine.  If the federal claim is colourable in the sense that it was made for the purpose of fabricating jurisdiction, of course the jurisdiction of the court is not enlivened: see Fitzroy Motors Pty Ltd v Hyundai Automotive Distributors Australia Pty Ltd (1995) 133 ALR 445.  How is the genuineness of the claim to be determined?  One way is to ask whether the federal claim is bound to fail, that is to say, to ask whether the claim is unarguable.  If the federal claim is hopeless then it is difficult to see how an applicant could contend that it was pursuing the claim bona fide.

[12]     However, it is not only when a federal claim is colourable that the Federal Court would lack jurisdiction to deal with non-federal matters.  In Fencott v Muller (at 609-610) in a joint judgment of Mason, Murphy, Brennan and Deane JJ, the following was said:

“However, federal judicial power is attracted to the whole of a controversy only if the federal claim is a substantial aspect of that controversy.  A federal claim which is a trivial or insubstantial aspect of the controversy must, of course, itself be resolved in federal jurisdiction, but it would be neither appropriate nor convenient in such a case to translate to federal jurisdiction the determination of the substantial aspects of the controversy from the jurisdiction to which they are subject in order to determine the trivial or insubstantial federal aspect.  Again, impression and practical judgment must determine whether it is appropriate and convenient that the whole controversy be determined by the exercise of federal judicial power.”

[13]     In the present case, on balance I am not prepared to conclude that the asserted federal claims are not genuine in the sense that they are colourable and only brought for the purpose of fabricating jurisdiction, but what does seem plain to me is that the cause of action under s52 of the Trade Practices Act is “trivial or insubstantial” in the sense explained by the High Court in Fencott v Muller.  This is not a claim that would be appropriately and conveniently determined in the exercise of federal jurisdiction.

[14]     In the result two things follow.  First, the court does not have jurisdiction to entertain the non-federal claims.  Second, there being no other claims that are relied upon to found jurisdiction in the Federal Court, the proceeding must be dismissed with costs.”

19                  Newcrest alleges that the respondents expressed opinions and made forecasts without having reasonable grounds to do so.  It relies on ss 51A and 52 of the TPA.  The particular opinions and forecasts are said to be found in the following documents:

  ·        The late June 2008 press release;

  ·        The 30 July 2008 letter from Apache; and

  ·        The 2 August 2008 letter from Santos.

20                  It is said that those documents contain representations that, by mid-August, the respondents would be supplying Newcrest with its full gas entitlement under the contract.  Newcrest says that, acting on these representations, it cancelled some temporary arrangements and then was forced to make further alternative arrangements when, in mid-August, full supply had not been restored.  This led to Newcrest incurring substantial losses.

21                  The respondents deny that any such representations were made.  Santos went further and said that, if such representations were made, they were not made by it.  Apache contends that there was nothing in any of the documents which are relied on to justify Newcrest’s conclusion that gas supplies to its Telfer Mine would be fully restored by mid-August.  On the contrary, they point to the fact that Newcrest was advised that only 300-340 TJ/day would be available by mid-August and that Santos had told Newcrest on 2 August that reduced supplies could be expected at least until the end of the year. 

22                  It is not appropriate, on an interlocutory application of this kind, for the Court to make findings of fact on what might, at trial, prove to be contentious issues.

23                  Having examined the documentary evidence which is before the Court I am led to reject Apache’s objections that Newcrest’s federal claim is colourable and bound to fail. 

24                  As already noted that claim is a claim for loss and damage founded on an alleged contravention of s 52 of the TPA Act.  The representations by Apache, on which Newcrest relies, are to be found inApache’s June 2008 press release and its letter to Newcrest dated 30 July 2008.  The relevant parts of these documents are set out above at [6] and [7].  There is a certain degree of ambiguity to be found in both documents.  The press release does, however, refer to Apache’s “timetable of restoring production by mid-August.”  The letter refers to Apache’s “goal during the period of limited production … to deliver enough gas to our customers to fulfil their minimum required volume levels …” (Emphasis added).  These passages are open to the construction that full supplies would be restored to Apache’s customers by mid August.  Whether such a construction would be sustainable having regard to other passages in these documents and other evidence must remain a matter for trial should there be one.  For present purposes it is sufficient to note that Newcrest has an arguable case that the representations on which it relies were made. 

25                  There is no evidence as to whether the projected production levels in August or subsequently were achieved.  Production levels are matters peculiarly within the knowledge of the respondents.  Apache has not provided any evidence as to actual production levels from the Brookes field at relevant times.  It cannot, therefore, be said that Newcrest’s claim that the representations were misleading is bound to fail.  Newcrest will, if need be, be able to call in aid the reverse onus provisions of s 51A(2) of the TPA.

26                  Apache submits that, even if it made the alleged representations in June and July 2008, those representations had, effectively, been superseded by the information contained in Santos’s letter dated 2 August 2008.  There was, accordingly, no basis for Newcrest’s assertion that it had relied on the earlier representations when it terminated some of its interim gas supply arrangements on 6 August 2008 or shortly before that date.  Newcrest responds by pointing out that 2 August 2008 was a Saturday and that, even if the Santos letter had been posted on that day it may well have been that Newcrest did not receive it in time to consider its contents before adjusting its gas supply arrangements.  The relevant facts will need to be determined at trial.  Newcrest’s claim to have relied on the representations made by Apache cannot, at this stage, be characterised as hopeless.

27                  There is uncontradicted evidence that Newcrest suffered financial loss as a result of its having cancelled some of its gas supply contracts and then having to find alternative sources of energy.

28                  It is for these reasons that I reject Apache’s principal objections to Newcrest’s application.

PRE-TRIAL DISCOVERY

29                  In its application Newcrest seeks discovery, by Apache, of documents in its possession, custody or power which contain the following information:

·                    The allocation or proposed allocation of gas by Apache to its customers, including Newcrest, during the period between 3 June 2008 and 15 December 2008 (both dates inclusive) as shall be processed through the East Spar Joint Venture processing facility on Varanus Island;

·                    The processing capacity or forecast processing capacity of the East Spar Joint Venture processing facility on Varanus Island during the period between 3 June 2008 and 15 December 2008 (both dates inclusive);

·                    The firm commitments of Apache to other customers for the sale and purchase of gas from the Brookes gas field (including but not limited to agreements for the supply of gas to those customers), for delivery at any time between 3 June 2008 and 15 December 2008 (both dates inclusive);

·                    The proposed step-down in allocation of gas by Apache to Newcrest from 1 October 2008; and

·                    The proposed step-up in allocation of gas by Apache to Newcrest from 15 December 2008.

30                  In order for Newcrest to obtain the orders which it seeks it is necessary that the conditions, prescribed by O 15A r 6 be satisfied.  The rule provides: 

“Where:

(a)                         there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;

(b)                        after making all reasonable enquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and

(c)                         there is reasonable cause to believe that the person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;

the Court may order that the person shall make discovery to the applicant of any document of the kind described in paragraph (c).”

31                  In St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 153-154 Hely J summarized a series of propositions which he derived from cases which had considered the construction of O 15A r 6.  Those propositions were:

“(a)      the rule is to be beneficially construed, given the fullest scope that its language would reasonably allow, with the proper brake on excesses lying in the discretion of the Court, exercised in the particular circumstances of each case ..;

(b)        each of the elements prescribed in subparas (a), (b) and (c) of the rule must be established …  Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves …;

(c)        the test for determining whether the applicant has “reasonable cause to believe”, as required by subpara (a), is an objective one …  The applicant does not have to make out a prima facie case …;

(d)        belief requires more than mere assertion and more than suspicion or conjecture.  Belief is an inclination of mind towards assenting to, rather than rejecting a proposition.  Thus it is not sufficient to point to a mere possibility.  The evidence must incline the mind towards the matter or fact in question.  If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action …;

(e)        while uncertainty as to only one element of a cause of action might be compatible with the “reasonable cause to believe” required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe …;

(f)         the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent.  The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the court …  Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defendants, or to determine the extent of the respondent’s breach and the likely quantum of any damages award …;

(g)        whether an applicant has “sufficient information” for the purposes of subpara (b) also requires an objective assessment to be made … The subparagraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings;

(h)        it is no answer to an application under the rule to say that the proceeding is in the nature of a “fishing expedition” …  Indeed order 15A r 6 “expressly contemplates” what once might have been castigated as “fishing” …”

See also Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 at [44].

32                  In Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 at [43] Black CJ and Sackville J held that Hely J had “correctly summarised” the principles governing the proper construction of O 15A r 6 insofar as his summary dealt with O 15A r 6(a).

33                  In his affidavit Mr Brown seeks to establish that each of the conditions, imposed by O 15A r 6, has been met.  He deposes that Newcrest believes that it has or may have a right to obtain relief against the respondents on the basis that it believes that the respondents have breached a contractual obligation to provide Newcrest with its fair pro-rated share of gas produced from the Brookes field and that the respondents have made statements which may constitute misleading and deceptive conduct in contravention of s 52 of the TPA and/or s 10 of the Fair Trading Act 1987 (WA).  He says that the attempts made by Newcrest to obtain relevant information have proved fruitless and that he believes that the respondents have or are likely to have relevant documents in their possession.

34                  For reasons already given in dealing with Apache’s argument relating to jurisdiction, I consider that there is reasonable cause to believe that Newcrest may have a right to obtain relief under the TPA.  The evidence suggests that each element of a cause of action under s 52 of the TPA may be present.  Moreover, Apache did not seriously contest Newcrest’s contention that it had, in addition, a viable cause of action for breach of its supply contract with Apache. 

35                  Newcrest made a series of inquiries of Apache in an effort to obtain the information which it submits it needs in order to determine whether to commence proceedings in the Court.  It directed a series of questions in writing to Apache.  After some delay it received a guarded response.  Most of the answers were lacking in detail.  Some were only partially responsive to the question asked.  One was non responsive.  The questions and Apache’s responses to them are set out above at [14] and [16].  In these circumstances I consider that Newcrest has made all reasonable inquiries to obtain the additional information which it needs.  I am also satisfied that it is likely that Apache has in its possession documents disclosing the information sought by Newcrest in order that Newcrest may determine whether or not to commence a proceeding.

DISPOSITION

36                  Orders should, therefore, be made that Apache make discovery to Newcrest of the documents of which discovery has been sought in the application.  The application should be adjourned sine die so that, if any difficulties arise in relation to the time within which discovery is to be given or orders in relation to inspection become necessary, it can be relisted at short notice.

Associate:

Dated:         17 October 2008