FEDERAL COURT OF AUSTRALIA

Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd [2012] FCA 291

THE COURT ORDERS THAT:

1.    The application for pre-action discovery is refused.

2.    The application for declaratory orders as to the entitlement of the applicant to have access to the specified records of the respondents or either of them is refused.

3.    The applicant pay to the respondent their costs of the application to be taxed.

4.    The time in which any appeal, or application for leave to appeal, if leave to appeal is required in respect of Order 1 hereof is required, shall be 28 days from the date of publication of the reasons for the orders made this date.

5.    The applicant have leave, if so advised, to amend the application and file and serve a statement of claim seeking any substantive relief.

6.    Liberty to any party to apply within 21 days to vary or discharge order 5 hereof.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    This is an application for discovery from two prospective respondents pursuant to Order 15A rule 6 of the Federal Court Rules 1979 (Cth) (the FC Rules). I had incorrectly understood that the application had been overtaken by events, namely the commencement of proceedings in this court in matter VID 551 of 2010 in which I have given a decision on issues about the administering of interrogatories and whether further specific discovery should be ordered at the same time as these reasons: Alliance Craton Explorer Pty Ltd v Quasar Resources Pty Ltd and Heathgate Resources Pty Ltd [2012] FCA 290.

2    The applicant seeks, in the alternative, a declaration that it has a proprietary right to access and retain copies of all documents sought under the preliminary discovery application, as well as other documents, in each case comprising of the records maintained by the respondents acting as manager of a joint venture of which the applicant is a party.

BACKGROUND

3    On 17 June 2020 the applicant, Alliance Craton Explorer Pty Ltd (Alliance), became the registered holder of an exploration licence (the Tenement) located near Arkaroola in the north western Curnamona Craton, South Australia. The Tenement covers the area known to contain the Four Mile uranium deposits.

4    On 30 August 2002 Alliance and the second respondent, Heathgate Resources Pty Ltd (Heathgate), entered into joint venture agreement (JVA) in respect of the Four Mile Uranium Project. The purpose of the joint venture (JV) was to explore the Tenement for minerals, to determine whether a viable resource or resources existed, and if so, to develop and mine the relevant parts of the Tenement.

5    On 17 December 2002 Heathgate entered into a deed of assignment (Deed) assigning all of its rights, title and interest in the JVA to the first respondent, Quasar Resources Pty Ltd (Quasar).

6    Heathgate and Quasar have a close relationship. The shareholdings in both Heathgate and Quasar are controlled by Baywood Holdings Inc and the ultimate parent company is a United States corporation known as General Atomic Technologies Corporation. David Roberts is a director of both Heathgate and Quasar.

7    On 29 September 2004 Alliance and Quasar entered into an agreement to vary the terms of the JVA (JVA Variation). This variation extended the earn-in period to 30 October 2005 and inserted a new clause 5.3 which provided that if Quasar had not earned a beneficial interest in the Tenement in accordance with the JVA it would automatically cease to have any rights under the JVA, the JV would automatically be at an end and Quasar would, upon the expiry of the earn-in-period, deliver all Mining property to Alliance. It also increased the Minimum Expenditure that had to be spent during the earn-in period from $300,000 to $450,000. The separate proceeding referred to concerns the circumstances in which the earn-in period under the JVA was extended.

8    Accordingly, Quasar had to spend $450,000 on the Tenement before 30 October 2005 in order to earn an interest in the Tenement. This occurred and on 18 October 2005 Alliance transferred a 75% interest in the Tenement to Quasar. Alliance retained a 25% interest. Currently Quasar holds a beneficial ownership as tenant in common of an undivided share in 75% of all property of the JV, and has the obligation to contribute 75% of all mining JV costs. Alliance therefore holds a beneficial ownership as tenant in common of an undivided share in 25% of all property of the JV and the obligation to contribute 25% of all mining JV costs.

9    By letter dated 22 September 2008 Quasar notified Alliance of a decision to mine under clause 10.1 of the JVA in respect of the Tenement. The decision to mine took effect from 22 October 2008. It was based on the findings and recommendations set out in the “Feasibility Study for the Four Mile Development Area In-Situ Recovery Project” (the Feasibility Study Report) which was annexed to the letter. There is a dispute over whether the Feasibility Study Report also contained a program and budget document in accordance with Quasar’s obligations under clause 10.1 of the JVA.

10    On 14 November 2008 a Management Committee was established pursuant to clause 11 of the JVA. The Management Committee is the governing body of the JV, comprising of a representative from each of Quasar and Alliance. Quasar holds a simple majority at Management Committee meetings with 75 votes, while Alliance has 25 votes.

11    Prior to the Management Committee’s inaugural meeting of 14 November 2008, by letter dated 12 November 2008, Alliance indicated that it had not been provided with a program and budget as contemplated by clause 11.2(c) of the JVA. It requested the removal of item 3(b) from the agenda for the meeting on 14 November 2008. On 20 November 2008, by letter, Quasar provided Alliance with a document entitled “Updated Preliminary Development Work Program and Budget” (the Quasar Budget). At a Management Committee meeting on 25 November the Quasar Budget was approved by a resolution passed by a majority vote. Alliance objected to the resolution on the basis that there was no program and budget that complied with the JVA.

12    On 15 April 2009 and 23 May 2009 Quasar, by letter, provided Alliance with documents containing updates to the Quasar Budget (2009 Updates). The 2009 Updates have not been approved by the Management Committee. It is said, by Quasar, that the 2009 Updates have been unable to be approved as Alliance has refused to participate in Management Committee Meetings since they were prepared.

13    The Quasar Budget and the 2009 Updates contained cash calls. Quasar, under clause 10.5 of the JVA, has issued purported cash calls in respect of mining JV costs paid or incurred during the preceding month and estimated costs for the upcoming months totalling $11,813,298.75. Alliance has made payment of the cash calls notwithstanding that it disputes that the program and budget was properly approved and that the cash calls were authorised under the JVA.

14    In short Alliance’s concerns in relation to the cash calls primarily relate to the following:

1.    The alleged failure by Quasar to provide a program and budget as required by the JVA;

2.    Quasar’s purported approval of the Quasar budget and 2009 Updates, which Alliance says was not formally submitted or approved by the Management Committee under clause 11.2(c) of the JVA; and

3.    The cash calls have been accompanied by a spreadsheet setting out line items in respect of particular categories of expenditure and shows the variance between the “Actual” and “Budget” expenditure in relation to those items. Alliance considers that the spreadsheets do not contain adequate information about the nature of the JV expenditure to enable Alliance to determine whether the cash calls are in accordance with any program and budget (assuming there is a valid program and budget) or whether the expenditure involves self-dealing. The categories of expenditure that raise particular concern for Alliance include:

(a)    Management fees payable to Heathgate as mine operator (15% of all allocable operating expenditure and 5% on capital costs);

(b)    Capital costs attributable to the upgrade of a processing plant (the Beverly Plant which is owned and operated by Heathgate);

(c)    Utilisation fees, payable to Heathgate, of $7.50 per pound of uranium processed at the Beverly Plant;

(d)    Exploration costs in respect of areas other than “Four Mile East,” in particular in relation to the area known as “Four Mile West,” which Alliance contends is outside the Mine Development Area; and

(e)    Costs pursuant to a purported agreement entered into between Quasar and Heathgate.

15    The documents sought under the preliminary discovery application relate to these three issues, and in particular to the five categories of expenditure set about above.

JURISDICTION

16    There was a preliminary issue raised by Heathgate in relation to jurisdiction that first needs to be addressed.

17    In respect of Alliance’s claim for pre-action discovery of documents, Alliance asserts that it has reasonable cause to believe that it has or may have the right to obtain relief in the Court from Quasar and or Heathgate for breach of the JVA, breach of fiduciary duty and for misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth) (the TP Act) as then in force (the TP Act claim)

18    Heathgate contends that Alliance’s claim for misleading and deceptive conduct under the TP Act is untenable and colourable. It claims that there has been no misrepresentation by Quasar or non-disclosure of the kind necessary to amount to a misrepresentation or any other form of misleading conduct. Alliance knew that Quasar intended to pay Heathgate the relevant charges and objected to their payment; and notwithstanding this knowledge participated in the JV and paid the cash calls. Thus, Heathgate says, no-one was misled. Heathgate further contends that it cannot be claimed that Alliance has relied on any misleading conduct which caused it loss.

19    As all the other potential claims are contractual or equitable, Heathgate claims that the action is outside the Court’s jurisdiction and ought to be dismissed.

20    Alliance, through Counsel, took issue with this argument as first Heathgate had not filed a conditional appearance. It then was represented at a directions hearing on 15 December 2009, where no point of jurisdiction was taken. Points of claim were filed, and Heathgate filed points of defence on 18 January 2010. Heathgate received and accepted the affidavit evidence of Alliance and notified objections on 15 January 2010. And so, in all the circumstances, there has been an unconditional submission to jurisdiction.

21    Alliance further opposed the argument, as the point of jurisdiction taken against it was one of fact and evidence, which requires a demonstration of bad faith or an intention to abuse the process of the court. Such bad faith or intention to abuse the Court’s process, it was said by Alliance, could not be made out.

22    The authorities that address the test of what is a “colourable” claim were summarised by Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 1645. His Honour at [53] said that Wilcox CJ in Fitzroy Motors Pty Ltd v Hyundai Automotive Distributors Australia Pty Ltd (1995) 133 ALR 445 at 450 treated the Full Court’s decision in Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 as deciding that the Court’s jurisdiction is not lost because the federal claim is not maintainable unless that claim is not “genuinely” brought. Wilcox CJ said (at 450):

I think that the test adopted in Burgundy Royale was simply a test of genuineness; the primary claim must not be a sham claim for the purpose of fabricating a jurisdiction that would not otherwise exist. If the claim was unarguable, this would tend to suggest that it was not being genuinely made and that the purpose of the claim was to fabricate jurisdiction. On further reflection, I think that, in Burgundy Royale, the Full Court was merely saying that this was not the situation in that case; the applicant’s Trade Practices Act claim was not unarguable and was made bona fide. If there is only one test, it is at least theoretically possible for there to be a case where the primary claim is unarguable, but the applicant persuades the court that the claim was not fabricated. In such a case, the court will not lack jurisdiction to determine the associated claim.

23    Accordingly, Merkel J concluded that the fact that a federal claim, that is genuinely brought, is dismissed or struck out on a summary application on the basis that it is not arguable does not result in the Court losing its jurisdiction. However, if the Court is satisfied that no relevant relief could be granted against a respondent whose presence in the proceeding was “merely for the purpose of obtaining jurisdiction” then the jurisdictional element is “colourable.”

24    I am not satisfied that Alliance has not been genuine in bringing the TP Act claim or that, when it brought this claim for pre-action discovery, it believed that part of its foreshadowed claim to be unarguable. I am satisfied that the inability of Alliance to articulate the precise nature of any misrepresentations or non-disclosure by Quasar that may amount to misleading conduct is due to the nature of the action. The principal claim is for preliminary discovery. Thus it is claimed that Alliance does not have sufficient information to make the decision whether to commence an action under the TP Act or not. This does not demonstrate bad faith or an intention to abuse the processes of the Court.

PRELIMINARY DISCOVERY

25    This application was for preliminary discovery. At the time of the hearing of the contentions, Alliance was requested to satisfy each of the criteria specified in Order 15A rule 6 of the FC Rules as then in force. It 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 inquiries, 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 that 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 that person shall make discovery to the applicant of any document of the kind described in paragraph (c)

26    For present purposes, the relevant Rule under the Federal Court Rules 2011 is not materially different. The application having been heard, I consider that the provisions of the former Federal Court Rules are to apply. The Rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the Court, exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733; Minister for Health & Aged Care v Harrington Associates Ltd [1999] FCA 549 at [27].

27    Alliance must establish each of the three elements, prescribed in sub-paragraphs (a), (b) and (c) of the Rule to obtain an order for preliminary discovery: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at [38]. I will therefore address the principles relevant to each subparagraph in turn below.

28    In addition, if the three elements in the Order 15A rule 6 are enlivened, the exercise of the power to order preliminary discovery is discretionary: Telstra Corporation Limited v Minister for Broadband, Communications and the Digital Economy (2008) 166 FCR 64 at [57].

(a) Reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court

29    The test for determining whether the applicant has ‘reasonable cause to believe’, as required by sub-paragraph (a), is an objective one: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at [39].

30    The applicant does not have to make out a prima facie case: Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at [24]. Belief requires more than mere assertion and more than suspicion or conjecture. Hely J in St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [26(d)] summarised what is required:

Belief is an inclination of the 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 [citations omitted].

(b) After making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding

31    There are two questions posed by sub-paragraph (b). First is whether all reasonable inquires have been made, meaning a reasonable exhaustion of alternative sources of information. It is not necessary to show that further inquires would have been fruitful, but simply whether they may be reasonably considered to have been relevant and useful: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad (2001) 187 ALR 279 at [25] and [30].

32    The second question is whether an applicant has ‘sufficient information’ to decide whether to commence proceedings in the Court. To determine whether an applicant has ‘sufficient information’ requires an objective assessment to be made: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at [40]. The sub-paragraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings.

33    It is important to note that the question posed by sub-paragraph (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: Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at [33] – [34].

(c) Reasonable cause to believe respondent has information which would assist in making the decision to commence proceedings

34    Under this subsection the applicant must first show a reasonable cause to believe the respondents have, or have had or are likely to have or have had, possession of documents relating to its right to obtain relief. This is an objective test: Telstra Corporation Limited v Minister for Broadband, Communications and the Digital Economy [2008] FCAFC 7 at [59].

35    Second the applicant must establish that the inspection of those documents would assist in making the decision whether to commence proceedings.

Discretionary considerations

36    As noted above, if the elements of Order 15A Rule 6 are established, it is still in the Court’s discretion whether or not to make an order.

37    The matters that are relevant to the exercise of the discretion include: any delay in making the application; any tactical advantage to the applicant in receiving the order; and any oppression to the prospective respondent, including a consideration of whether documents would be commercially sensitive, and could injure the prospective respondent’s position or provide an unfair advantage to a competitor: Optiver Australia Pty Ltd v Tibra Trading Pty Ltd (2007) 245 ALD 199 at [28]-[29].

ALLIANCE’S CONTENTIONS

38    As noted above Alliance has concerns over the validity of the Quasar Budget as well as the 2009 Updates as they apparently have not formally been submitted or approved by the management committee. It contends that Quasar has no power to issue cash calls unless and until the management committee has validly approved a work program and budget under clause 11.2(c) of the JVA.

39    Alliance contends the categories of expenditure in the cash calls are not “Mining Joint Venture Costs” for the purpose of the JVA, as they are charged in a fixed amount and are not expressed to be “reimbursement for costs incurred in connection with the joint venture activities in relation only to the relevant Mine Development Area and accounted for in accordance with accepted accounting principles in Australia.”

40    It is asserted that Quasar has acted in breach of its fiduciary duties in engaging in effective self-dealing through its transactions with Heathgate, which have not been approved by Alliance, nor have they been the subject of disclosures that would have enabled Alliance to give its fully informed consent.

41    The information provided in the Quasar Budget and 2009 Updates are, Alliance claims, insufficient to enable it to make a decision whether to commence proceedings in respect of the categories of expenditure, or to decide what relief to claim in any such proceedings. Alliance asserts it has sought but been denied access to information regarding the categories of expenditure, and it reasonably requires access to the documents identified which will inform it in respect of the issues identified. These are all documents, Alliance contends, the respondents should have, and which ought to have been provided to Alliance as a JV party in any event.

Management fee

42    The management fees are payable to Heathgate, rather than Quasar. Alliance claims that Quasar is the Manager under the JVA, and disputes that Heathgate has been validly appointed as “Mine Operator.” Alliance says it has not had access to the terms of any agreement pursuant to which Heathgate has been appointed “Mine Operator” or to any underlying assessment which may, and ought to, have been undertaken by Quasar regarding the commerciality of the transaction.

43    In addition, the payment of a fixed management fee (determined prospectively) is in contravention of the JVA, which permits recovery of Mining Joint Venture Costs that are limited to costs incurred in connection with joint venture activities.

44    The relief available to Alliance is likely to be affected by the actual costs incurred by Heathgate and the extent to which the fee is reimbursement for those costs. Alliance claims that the extent to which management fee paid to Heathgate exceeds costs for which Heathgate (or Quasar) might be permitted reimbursement is unknown. Further, until the commerciality of terms of the engagement are known and assessed Alliance claims it is not possible for it to determine whether to seek injunctive relief restraining the continuation by Heathgate as “Mine Operator” or from receiving payment of the management fee.

Utilisation fee

45    Alliance claims it has not had access to the terms of any agreement which might have been entered between Quasar and Heathgate pursuant to which the JV is to utilise its Beverly Plant for a fee payable to Heathgate. The commerciality of the arrangement cannot be assessed by Alliance until it receives documents outlining the parties’ rights and obligations. In particular Alliance claims it is unaware of:

    the terms of arrangements struck between Quasar and Heathgate concerning capital improvements, whether or not they are legally binding, and the manner which the arrangements were negotiated;

    the benefit to be derived by Heathgate from the capital improvements, and what share (if any) of the expenditure is being met by Heathgate;

    the extent to which amounts might already have been expended in improving plant, thereby representing sunk costs;

    the terms as to risk, ownership and the like, arising from the improvements to (what would otherwise comprise) Heathgate’s asset;

    the extent Quasar has undertaken an assessment of alternative means of treating and processing ore and the respective costs and benefits of alternatives; and

    the extent of the profit forecast to be derived by Heathgate and whether this has been considered by Quasar.

46    Alliance contends that its decision whether or not to seek injunctive relieve to restrain the future improvements of the plant, and whether to seek compensation for the amounts expended to date will be influenced by the commerciality of arrangements viewed as a whole. It says it can not reasonably make these decisions until it has been provided with the information set out above.

Four Mile East

47    The cash calls contain expenditure in relation to the exploration of the area which extends outside the Four Mile East area. Alliance says that the decision to mine, which Quasar notified Alliance of on 22 September 2008, is limited to the area known as “Four Mile East.” The decision to mine was based on the feasibility study which recommended that it be in relation to the “first stage mining area” otherwise known as “Four Mile East.” Any area outside the Four Mile East area purportedly within the decision is argued to be outside the scope of the right conferred upon Quasar and is unauthorised.

48    In addition, Alliance contends that the activities conducted by Quasar on behalf of JV have in truth been exploration and not mining activities, thus pursuant to clause 4.4 they are the cost of Quasar and not properly the subject of a cash call under clause 10.4

49    Alliance claims it requires access to documents establishing the extent of the exploration of the area outside of Four Mile East and the associated costs charged to the JV to be in a position to commence proceedings in relation to an invalid cash call.

Quasar-Heathgate Agreement Costs

50    The Quasar budget includes proposed expenditure of $51,040 for the “Quasar-Heathgate Agreement”. Alliance says it has no knowledge of this agreement, its terms nor its purpose. In absence of this knowledge, and whether any benefits may flow to the joint venture, Alliance says it is unable to make an assessment whether to commence proceedings in relation to any such agreement or any proposed expenditure.

QUASAR’S CONTENTIONS

51    Quasar asserts that the application for preliminary discovery ought to be dismissed by reason of the following three matters:

1.    Alliance has not made all reasonable inquiries relevant to the categories of documents which it now seeks;

2.    Alliance has sufficient information to formulate its alleged causes of action; and

3.    Even if the Court is satisfied all requirements of O 15A r 6 have been met, it should nevertheless exercise its discretion to refuse the application.

All reasonable inquiries

52    The documents sought by Alliance before instituting these proceedings were set out in a letter dated 9 October 2009. Quasar argues that the application for preliminary discovery seeks a greater volume and wider range of materials than sought by that letter. By way of example, the letter sought documents evidencing Quasar’s consideration of the Quasar budget and documents explaining it, however Alliance now seeks documents showing the development and preparation of the Quasar budget.

53    In addition, there have been no previous inquires made seeking documents which are now sought relating to the “Quasar Heathgate Agreement” charges.

Sufficient information

54    It is argued that the extent Alliance alleges a breach of either the JVA or any fiduciary duties, the obligations imposed on Quasar become a matter of contractual construction of the JVA and JVA Variation. Alliance has access to both of those documents, which it is said is sufficient information to make a decision whether to commence proceedings. Further, Quasar says Alliance clearly possesses sufficient information to commence proceedings for breach of fiduciary duty as it had done so in the Supreme Court of South Australia in respect of the JV.

55    In any event, Quasar says it has provided Alliance with extensive documentation relating to the JV including the feasibility report, the Quasar budget, the 2009 Updates, monthly accounting packs, access rights to the JV bank account information, annual reports, purchase orders, a report by Ferrier Hodgson which discusses alternative options and whether fees are fair and reasonable, as well as information to applicant’s external auditors.

56    In relation to the misleading and deceptive conduct claim Quasar says that if Alliance now contends that information historically presented to it is untrue, it now must know the actual position and therefore does not require any further information to plead its case. If it does not now have the information in its possession which demonstrates that the historical information is untrue it can presently put forward no reasonable basis other than speculation that the failure to disclose has been misleading and deceptive.

57    In relation to the specific categories of expenditure Quasar says that Alliance has been provided with sufficient information. The information relating to the management fee, including the proposal to retain Heathgate and the actual charges, are detailed in the Quasar budget. In addition, the reasonableness of the management fee was detailed in a letter from Quasar to Alliance dated 24 November 2009.

58    The capital costs of the Beverly Plant were included in the Quasar budget and details of all payments are included in the accounting packs. Alliance has been provided with a report by Ferrier Hodgson, which outlines the net present value of use of the Beverly plant in comparison to a new facility. Further, the reasons for using and modifying the plant were set out by Quasar in letters to Alliance dated 11 October and 24 November 2008, and 9 February and 20 April 2009.

59    All costs expended on mine development and ancillary capital operations are detailed in the cash calls and accounting packs which have been provided to Alliance. Quasar has corresponded with Alliance explaining the scope of the Mine Development Area and outlining further activities in that area, which has included details of both Four Mile East and Four Mile West.

60    Alliance has been informed that there is no agreement between Heathgate and Quasar beyond the arrangement that Heathgate performs services on a month by month basis. No charges have been levied in relation the “Quasar Heathgate Agreement” as is shown in the cash calls issued by Quasar to Alliance.

Discretion

61    As noted above, if the Court is satisfied all requirements of O 15A r 6 have been met, it retains discretion to refuse application.

62    Quasar argues that it has taken almost 12 months to articulate claims and this delay is unreasonable. The fact that Alliance has publicly promoted the benefits of its association with Heathgate which are irreconcilable with the complaints raised in the application, ought to also be taken into account.

63    Further the scope of the documents sought goes well beyond all documents and other information which would be properly discoverable. This, Quasar says, would provide Alliance with an unreasonable tactical advantage which should also be taken into account by the Court when exercising its discretion.

HEATHGATE’S CONTENTIONS

64    In addition to the challenge of jurisdiction as discussed above, Heathgate asserts that the application for preliminary discovery from Heathgate ought to be dismissed by reason of the following three matters:

1.    There is no reasonable cause to believe Alliance either has or may have a right to relief against Heathgate in respect of the claims or that Heathgate has any accessorial liability in respect of Alliance’s claims against Quasar;

2.    Alliance has not made all reasonable inquiries in respect of the documents sought from Heathgate; and

3.    Alliance has sufficient information to decide whether to commence proceedings and has not placed before the Court all evidence that is already available to it.

Reasonable cause to believe

65    First Heathgate contends there is no claim against it under the TP Act. As Alliance can only seek preliminary discovery from the person from whom there is reasonable cause to believe that they are entitled to obtain relief, Heathgate asserts that Alliance is not entitled to seek preliminary discovery from Heathgate for documents relating to the entitlement to relief from Quasar under the TP Act. I have rejected that contention earlier in these reasons.

66    Second, there is no reasonable cause to believe Alliance either has or may have a right to relief against Heathgate in respect of the claims in relation to breaching the JV (or a fiduciary duty) and whether Heathgate knowingly assisted in, or “induced” those breaches.

67    Since inception of the JV, Alliance has anticipated and promoted the potential for access to Heathgate’s services and facilities, subject to appropriate commercial arrangements. Heathgate says it is in fact its engagement that is a key factor in the viability of project.

68    It is said there is no reasonable cause to believe Quasar acted in breach of its fiduciary duties by engaging Heathgate to provide services to it and by paying management fees to Heathgate in respect of those services. Heathgate contends that Quasar has not profited by the arrangement or put itself in any position of conflict, and there is nothing inappropriate about Quasar as manager engaging Heathgate to provide services. Such arrangements are not prevented by the terms of the JVA. Alliance has known at least since the provision of the feasibility study dated 22 September 2008 that Quasar proposed to obtain management services from Heathgate for a 15% management fee on operating expenses and 5% on capital costs. Alliance has been provided with the Quasar budget which incorporates those features, the monthly accounting packages which includes details of payment of management fees to Heathgate, and the Ferrier Hodgson report which was an independent and favourable assessment of commerciality of the proposed management fee.

69    Further Quasar argues that the management fee does not contravene the definition of “Mining Joint Venture Costs” in clause 1 of the JVA, and it is absurd to assert that a third party should provide services to the JV “at cost.”

70    The proposal to process uranium at the Beverly plant for a fee of $7.50 per lb was disclosed to Alliance in the feasibility study, in the preliminary program and budget, and in the Ferrier Hodgson report. The basis upon which Quasar considered the fee to be reasonable, commercially justified and in the best interest of the JV was also disclosed to Alliance in correspondence. Heathgate contends that there is no evidence of feasible alternatives to using the Beverly plant or that the proposed fee is anything other than commercially reasonable. Objectively therefore it is said there is no reasonable cause to believe that Alliance has a right to relief in the Court in respect of the proposed utilisation fees or for accessorial liability against Heathgate. Further, the proposal to expend capital for modifications to the Beverly plant was disclosed to Alliance in the feasibility study and preliminary program and budget and also in the Quasar Budget and in the 2009 Updates. The reasons for the modifications were discussed in correspondence before and after Alliance decided to participate in the JV. Therefore there is no reasonable cause to believe Heathgate has any accessorial liability in respect of the inclusion of amounts in cash calls to Alliance, on account of capital expenditure for modifications to the Beverly facility.

71    Heathgate says there is clear evidence that Quasar’s “decision to mine” was made in respect of the area encompassing both Four Mile East and Four Mile West. This was in section 1.1 feasibility study, the mining lease application, and in correspondence both before and after Alliance decided to become a financial partner of the JV. Therefore there is no reasonable cause to believe Alliance has any right to relief against either Heathgate or Quasar in respect of this aspect of the claim.

72    Lastly, Heathgate argues, although a line item was included for “Quasar Heathgate Agreement” costs in the Quasar budget, no amounts have been charged in relation to this agreement, and therefore there is no reasonable cause to believe Alliance has any right to relief against either Heathgate or Quasar in respect of this aspect of the claim.

Reasonable Inquiries

73    Heathgate contends Alliance has not made all reasonable inquiries in respect of the documents sought from Heathgate in these proceedings. The categories of documents which are set out in Schedule B to the application extend well beyond what was sought from Heathgate in correspondence. Namely, in the letter from Alliance to Heathgate dated 9 October 2009 it did not seek documents within categories 1 to 6 of the schedule. Accordingly Heathgate argues Alliance has failed to make all reasonable inquiries and has not satisfied O 15A r 6(b).

Sufficient information

74    Heathgate also asserts Alliance has sufficient information to make a decision whether to commence proceedings in the Court. First, Heathgate contends Alliance failed to demonstrate that the information it already has is insufficient. It has failed to show the extent of information it already has is not sufficient, and why categories of documents are needed into order to decide whether to commence proceedings.

75    Second, objectively assessed, Heathgate contends Alliance already has sufficient evidence, as they are already able to plead a case against Heathgate in a draft statement of claim, and evidence of the fees have already been disclosed (as set out in [68] above). Further Alliance has already commenced substantive proceedings for relief, principally a declaration as to its proprietary right to documents under the JVA. Heathgate says the application is therefore incompetent and should be dismissed.

CONSIDERATION – PRELIMINARY DISCOVERY

76    I have decided that the application for preliminary discovery should be refused.

77    I accept that Alliance has reasonable cause to believe that it has or may have the rights to obtain relief in this Court from Quasar and Heathgate. In relation to Heathgate, in my view, the corporate and contractual relationship between them is sufficient to conclude that Alliance, objectively, has reasonable cause to believe that Quasar and Heathgate have acted cooperatively in relation to the JVA.

78    I have rejected the contention that Alliance’s belief does not extend to the TP Act claim, that is, to a cause of action justiciable in this Court. The draft Statement of Claim put forward by Alliance identifies its causes of action against Quasar, and against Heathgate. They are obviously claims which should be heard together. It is correct that the proposed TP Act claim is not asserted against Heathgate. However, in my view, if the jurisdiction of the Court is properly invoked against Quasar (as I have concluded it could be) the Court would be seized of the matter generally, including dealing with the closely associated claims against Heathgate. In that circumstance, I consider that Alliance’s belief extends to Heathgate for the purposes of this application.

79    However, I am not persuaded that Alliance does not presently have sufficient information to determine whether to commence its foreshadowed proceedings. In my view, it has sufficient information. The primary documents to found its foreshadowed claim, including those to establish the fiduciary duties to be alleged or the contractual duties to be alleged, are available. The conduct which is said to attract the description of making of representations is known. Alliance has shown that it has access to extensive material upon which it asserts that it has reason to believe that those duties have been breached or that that conduct has been misleading. In the course of submissions, I have been taken to that material.

80    There will sometimes be a fine line between information which is sufficient to decide whether to commence proceedings on the one hand, and information which is not. It can be put another way: there is sometimes difficulty in discerning whether the available information is reasonably required to decide whether to institute proceedings, or is really required to decide how strong the case is although there is sufficient to decide to institute proceedings. It is only in the case where an applicant has real difficulty in deciding whether to bring a claim, and reasonably so, that the power of the Court under O 15A r 6 (now Division 7.3 of the Federal Court Rules 2011) may be exercised.

81    Upon analysis of all the material to which I have been referred, I am not persuaded that the preliminary discovery now sought by Alliance is reasonably required by it to decide whether to bring the foreshadowed proceedings. I do not think it is helpful to refer in detail to that material, to parse and analyse its significance. The information available to Alliance must be accreted to reach that conclusion. The respective submissions of the parties highlight particular features of those documents. Alliance has the documents on which the duties asserted are said to arise, and if there are additional relevant facts to that issue, it would be familiar with them. It has significant information as to how Quasar has gone about managing the Joint Venture under the JVA, including the Management Committee program and budgets and the monthly accounting packs. It has a range of other documents, including some reviewing the merits of the relationship between Quasar and Heathgate in relation to the Joint Venture. It has itself commissioned an independent scoping study into resource estimate and costs of the Four Mile project. If, as I assume, Alliance can identify the representations made to it by Quasar which it suspects are not accurate, it has sufficient material presently to assess whether or not that is the case; otherwise, that claim is purely speculative and should not form the basis for a preliminary discovery order. It is largely aware of the fees paid to Heathgate, and so is in a position in my view to determine whether it can properly challenge them as inappropriate or improper. It should have access to independent expert advice to address that. The proposed preliminary discovery is not necessary to advance that decision. I also consider that it is in a sufficient position to express and pursue its concerns about the utilisation fees, the capital costs of modifying the Beverley Plant, and the exploration costs. I do not think Alliance has shown that its concerns about the “Quasar Heathgate Agreement” are sufficient to show that it reasonably believes it has a cause of action in relation to any such document.

82    If I were otherwise minded to make an order for preliminary discovery, I would not decline to make that order in my discretion. I do not consider that the timing of the application in relation to the events which are said to give rise to the proposed proceeding or Alliance’s public comments about the benefits of the Joint Venture would lead to the application being refused. However, I do not need to address those contentions in detail.

83    The application for preliminary discovery is refused.

PROPRIETARY CLAIM

84    There is a separate claim for what is, in effect, final declaratory relief.

85    “Joint Venture Interest” is defined in clause 1 of the JVA as meaning “the following obligations, benefits, and rights of a joint venturer expressed as a percentage determined in accordance with this Agreement:

1.1    the obligations, subject to the terms of this Agreement, to contribute that percentage of all joint venture expenditure;

1.2    the ownership of and obligations, right and benefit as tenant in common to receive in kind and to dispose of for its own account that percentage of minerals produced by the joint venture in accordance with clause 10.11; and

1.3    the beneficial ownership as a tenant in common of an undivided share in that percentage of all property of the joint venture.”

86    “Property” of the joint venture is not defined. However “Mining Property” is defined in clause 1 as “the Tenement and all data, records and information relating to the Tenement.”

87    Alliance argues that it has a proprietary right to access the JV records as:

1.    Alliance is the beneficial owner as tenant in common of an undivided share in 25% of all property for the JV including the JV records. It is therefore entitled to inspect and take copies of the JV records; and/or

2.    Quasar as manager of the JV holds the JV records on trust for the beneficial owners of the property of the JV, thus Alliance has equitable right to access the JV records; and/or

3.    Quasar owes a fiduciary duty to keep beneficial owners informed in relation to the performance of the JV and to render accounts and to permit beneficial owners to inspect the JV records; and/or

4.    The joint ventures have an express right under the JVA (in particular clauses 5.3 and 13.1) to access information, records and data relating to the JV or there is an implied term as a matter of business efficacy that the joint venturers have a right to access such information, records and data.

88    Alliance asserts that it has a contractual right to access the records as on the proper construction of the JVA all documents and records are JV property and beneficially owned by each of the joint venturers. It argues that this interpretation is consistent with the definition of Joint Venture Interest in clause 1 of the JVA.

89    It is well established that tenants in common have a right to access and possess joint property. Co-owners in a tenancy in common have a unity of possession - each is entitled to possession and enjoyment of the whole of the property but does not have the right to exclusive possession and cannot exclude the co-owner from any part of the property.

90    Alliance asserts the documents brought into existence by an agent while in the employ of a principal belong to the principal (the joint venturers) and not the agent (the manager). Documents generated by Quasar (or Heathgate as its delegate), while acting as manager of the joint venture, it is argued belong to the joint venturers. Further, the documents are said to be chattels, the ownership and right to exclusive possession of which are enjoyed by the joint ventures. Access to records it is said is an incident of the ownership rights.

91    Alternatively it is argued that Quasar, and Heathgate to the extent relevant, holds records created in the capacity as manager on trust for the joint venturers as it is administering the JV as trustee for the beneficial owners of the property of JV. On this argument, Alliance has equitable right to access records created because of its beneficial interest in the property of the JV. The trust is asserted to be a bare trust. The trustee ought prima facie to provide access to trust documents absent “special circumstances” which the trustee bears the onus of establishing.

92    In the further alternative, Alliance claims the right to access to the documents arises from the fiduciary duty of a trustee to keep the beneficiary informed and to render accounts.

CONSIDERATION – PROPRIETARY CLAIM

93    Alliance has put forward four reasons why it has a proprietary right in (and to) the Joint Venture Records (the Records).

94    They are: as an incident of ownership of the Joint Venture property as tenants in common; secondly, because Quasar (and to some extent Heathgate) as manager of the Joint Venture holds the Records on trust for the joint venturers including Alliance; thirdly, that Quasar as manager of the Joint Venture owes a duty to the joint venturers, including Alliance, to keep it informed about matters concerning the Joint Venture so as to entitle Alliance to inspect the Records at its option; and fourthly, pursuant to an express or implied term of the JVA.

95    There is nothing in the JVA which expressly requires Quasar as the manager of the Joint Venture to keep particular records. There is in the JVA no definition of “Joint Venture Records” or any term prescribing rights of access to documents created by Quasar as the manager.

96    In my view, there is no express or implied term in the JVA which creates or provides for the proprietary or contractual right which Alliance asserts. Heathgate is remote from any such arrangement in any event, and contracts with Quasar as an independent contractor.

97    The term “property” is used in the JVA only in the definition of Joint Venture Interest. I do not think that definition, properly construed, is intended to refer to the documentary materials which the Manager from time to time of the Joint Venture assembles or creates. Its meaning must be determined in conjunction with other terms of the JVA including the term “Mining Property” which – by way of contrast – expressly refers to “all data, records and information relating to the Tenement”. The contrasting definitions, in my view, provide further reason to reject the Proprietary Claim based upon the terms of the JVA. I do not accept that the Records are Joint Venture Property as asserted by Alliance.

98    Nor do I accept that, because Quasar is the Manager of the Joint Venture, its records are held by it on trust for the Joint Venturers including Alliance. In my view, that contention falls at the first hurdle: the existence of a trust in relation to the Records. More accurately, subject of course to the obligations of the joint venturers as between themselves, the relationship between Alliance as one of the Joint Venturers and Quasar as manager of the Joint Venture is a contractual one, so that the entitlement (if any) to the records of Quasar as manager should be determined under the management contract. It has not been suggested that that contract entitles Alliance to access the Records, except to the extent that Alliance’s claim is based on the JVA itself; that is a contention I have already rejected.

99    Finally, I reject the contentions that, because Quasar as manager of the Joint Venture brings a range of documents into existence, all those documents may be accessed by Alliance because Quasar is its agent as manager of the Joint Venture or because Quasar owes it a fiduciary duty to permit it to inspect those documents. There is no assertion of agency in the relationship of Joint Venturer/Manager in the proposed Statement of Claim. Clause 13.6 of the JVA expressly says the relationship is not one of principal and agent. The terms of the relevant agreements define the nature of the relationship and, save as the law implies obligations, they also define the rights and obligations under them: see Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 at [13] and [35]-[36]; Wentworth v De Montfort (1988) 15 NSWLR 348 at 353.

CONCLUSION

100    For the reasons give, I concluded that the application should be dismissed. I made consequential orders, including to accommodate the fact that the reasons for that decision were published a little later than the orders themselves were made.

Associate:

Dated:    4 April 2012