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Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd QLC 41
LAND COURT OF QUEENSLAND
Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd & Ors (No 21)  QLC 41
Cherwell Creek Coal Pty Ltd
(ACN 063 763 002)
BHP Queensland Coal Investments Pty Ltd
(ACN 098 876 825)
QCT Resources Pty Ltd
(ACN 010 808 705)
BHP Coal Pty Ltd
(ACN 010 595 721)
QCT Mining Pty Ltd
(ACN 010 487 840)
Mitsubishi Development Pty Ltd
(ACN 009 779 873)
QCT Investment Pty Ltd
(ACN 010 487 831)
Umal Consolidated Pty Ltd
(ACN 000 767 386)
Hearing of application
8 November 2019
21 October 2019
CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COURT SUPERVISION – AMENDMENT – ORIGINATING PROCESS, PLEADINGS ETC – where the respondent sought to amend its defence – whether leave was required – where the Court found leave was not required – where the Court held that, if leave was required, it would not have adjourned the application and would have granted leave
CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PROCEDURAL ASPECTS OF EVIDENCE – EXPERT REPORTS AND EXPERT EVIDENCE – OTHER MATTERS – where the respondent gave additional instructions to their expert – where leave was required to do so – where the Court made orders to allow the applicant to provide further instructions to its expert on the same matter
Mineral Resources Act 1989, s 334ZJ(4), s 334ZJ(5), s 334ZJ(8)(k)
Uniform Civil Procedure Rules 1999, r 378
Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd & Ors (No. 8)  QLC 7, cited
Hartnett v Hynes  QSC 225, applied
N Owens SC and N Loos (instructed by Holding Redlich Lawyers) for the applicant
S Doyle QC and S Webster (instructed by Allens) for the respondent
- BMA has applied for leave, if that is needed, to file and serve the Third Amended Defence to the Fourth Amended Annexure A (to the Originating Application) (“the Third Amended Defence”) and for consequential directions for Cherwell Creek to file an amended Reply. Cherwell Creek says leave is required and does not oppose all but two amendments. It seeks orders that would allow BMA’s application in relation to the uncontested amendments but otherwise adjourns the application so BMA can provide further information about the effect of the proposed amendments. There is also an issue between the parties about instructions given by BMA to an expert witness about an issue that is connected to the dispute about the pleadings.
- The issues are:
- Does BMA need leave to file its proposed amended defence?
- If leave is required, should the Court grant leave or adjourn the application, to the extent it is contested?
- Should the Court make orders arising from BMA’s instructions to Mr Van Homrigh?
Does BMA need leave to file an amended defence?
- BMA relies on r 378 of the Uniform Civil Proceedings Rules 1999, which allows a party to amend its pleading without leave at any time before it has filed a request for trial date. I dealt with the same argument at an earlier stage in these proceedings and decided the previous listing of trial dates did not oust the operation of r 378.
- Cherwell Creek argues the circumstances are different now; there have been further orders listing the case for trial and detailed orders about the pre-trial steps. While the case has advanced considerably since I last considered the matter, it is not in a materially different position in terms of the pleadings. The parties have not certified the matter is ready for trial and could not be expected to do so before the expert evidence is finalised. The parties agree the pleadings must be revised when the expert reports are finalised, albeit to refine the issues, not to raise new ones.
- Cherwell Creek also relies on an order I made on 17 September 2019, by which I directed BMA to file its further amended defence by 24 April 2020; the amendments being limited to changes to bring the pleadings into conformity with the expert evidence.
- I made that order in the knowledge that BMA wished to make other amendments and would bring that to a later review if there was any contest about that. Given that, the order made on 17 September 2019 should not be read so as to preclude BMA from either amending its defence or seeking leave to do so.
- I consider leave is not required under the current directions.
If leave is required, should the Court grant leave or adjourn the application, to the extent it is contested?
- I have concluded that BMA does not need leave to file its proposed amended defence. However, if leave was required, I would not adjourn the application and I would grant leave, for the following reasons.
Should the application be adjourned?
- Cherwell Creek seeks an adjournment and orders:
- requiring BMA to provide further and better particulars and a summary of the evidence to be adduced by Mr Van Homrigh in relation to paragraphs 14(h)(ii), Particular (E) and 23(b) Particular (vi);
- allowing Cherwell Creek to confer with Mr Hall in relation to BMA’s proposed amendments and the evidence to be adduced from Mr Van Homrigh.
- Cherwell Creek has not specified the further particulars it seeks. That is important, given the contested amendments are, themselves, particulars. It is not clear to me what further particulars could be provided.
- As for the summary of evidence, Mr Van Homrigh has already provided a report that explains where he agrees and disagrees with the discounting method and assumptions of his counterpart, Mr Hall. Mr Van Homrigh has not yet provided a report on the issue raised in BMA’s recent instructions. At a prior review, counsel for BMA initially asked for leave to confer with Mr Van Homrigh to provide further instructions but, later, agreed the instructions could be provided in writing. Without leave to confer with Mr Van Homrigh, who is in a meeting process with Mr Hall, BMA could not provide the summary of evidence that Cherwell Creek seeks. Given my understanding of the effect of the amendments, discussed below, I do not consider it either necessary or appropriate for BMA to confer with Mr Van Homrigh for that purpose, and BMA has not asked for leave to do so.
Should leave be granted to file an amended defence?
- Cherwell Creek opposes BMA having leave to add particulars to each of paragraphs 14(h) and 23 of the Third Amended Defence. In both cases, the particulars include a reference to funding the costs of the proposed mining operation.
- The purpose of particulars is to give focus to a broad allegation to explain the case raised against a party and to prevent surprise at trial. In exercising the discretion to grant leave to amend the pleadings, courts recognise a distinction between amendments necessary for the just and expeditious resolution of the real issues in dispute, and amendments that raise new claims or issues.
- Cherwell Creek argues the effect of the contested amendments is to raise a new issue, or to broaden the scope of an issue in dispute. BMA says the issue already arises on the pleadings and, in any case, is one that the Court must consider in deciding Cherwell Creek’s claim.
- The proposed additional particular to paragraph 14(h)(ii) is:
- “(E)The financial resources required also included the ability to fund the costs associated with constructing and operating a mine (whether through equity, debt or a combination of the two).”
- Paragraph 14 of the defence is responsive to paragraph 5(h) of the Fourth Amended Annexure A to the Originating Application (“Annexure A”). In 5(h), Cherwell Creek alleges it would have been granted a mining lease and any necessary infrastructure mining lease appropriate to commercialise the MDLA364 coal resource because, amongst other reasons, it had the necessary financial capability to carry on the proposed mining operation.
- In its particulars to that allegation, Cherwell Creek asserts:
- “(a)QCoal was a 50% shareholder of the Applicant;
- (b)It was supported financially by the QCoal Group of companies and by Mr Wallin, the director and shareholder of QCoal;
- (c)QCoal Sonoma Pty Ltd, a member of the QCoal group owned and developed the Sonoma Mine from in or about early 2008;
- (d)If required, the QCoal Group would have provided a commitment to the DRNM that it would ensure the Applicant would have the financial ability to construct and operate the mine.”
- In 14(h), BMA denies Cherwell Creek had the necessary financial ability to carry on the proposed mining operation because:
- Cherwell Creek had limited specified assets (14(h)(i))
- The financial resources required would have been extensive (14(h)(ii))
- Cherwell Creek did not have the financial capability to provide a financial assurance in respect of its environmental obligations (14(h)(iii))
- Cherwell Creek did not have the financial capability to carry on the proposed mining operation (14(h)(iv)).
- Cherwell Creek argues the effect of adding particular E is to allege Cherwell Creek could have funded the project through a combination of debt and/or equity funding. I do not accept particular E sets up a positive case to that effect.
- BMA expressly denies Cherwell Creek’s assertion it had the financial capability to carry on the mining operation. One reason given for that denial is that Cherwell Creek required extensive financial resources in order to carry on the mining operation. Particular E identifies the ability to fund the costs of constructing and operating the mine as one particular of the extensive financial resources BMA says Cherwell Creek required (and by implication did not have).
- Although Cherwell Creek’s particulars of its financial capability refer to support from the QCoal group, it has not pleaded that it would receive funding free of financing costs.
- The argument about the effect of the reference to Mr Hall’s report is also relevant to the other contested amendment, to which I now turn.
- BMA proposes to add a particular to paragraph 23(b). That paragraph of the defence is responsive to paragraph 14 of Annexure A, by which Cherwell Creek alleges what would have been the likely coal revenue generation costs on six cases against two scenarios. The differences between the six cases are not important for this application. The two scenarios are that Cherwell Creek would have developed and operated the mine:
- (a)until about July 2012, when it would have sold its interest in the mine;
- (b)until production of the coal became cash flow negative.
- With respect to each case and scenario, Cherwell Creek nominated a figure for the total cash costs of generating the revenue “in the manner more fully particularised in” the annexures to the report of Mr Hall dated 16 November 2015. The annexures are tables that support Mr Hall’s estimation of the net value of the lost opportunity, on Cherwell Creek’s six cases and three scenarios (the two scenarios referred to above; the third scenario being the sale of the mine on 8 May 2008). It is not immediately obvious how the annexures support the figures pleaded by Cherwell Creek in paragraph 14. Those figures do not appear as totals against any particular line or column items in the table in the referenced annexure. That does not need to be resolved for this application.
- In paragraph 23(b) of its defence, BMA asserts that if Cherwell Creek had commenced construction of the mine (which it denies it would have done), the costs would have been substantially more extensive than those pleaded by Cherwell Creek.
- The proposed amendment seeks to add the following as a particular to that allegation:
“(vi) The costs would also have included costs of funding expenditure required for the mine (whether through equity, debt or a combination of the two).”
- Cherwell Creek alleges this is a new issue. BMA says it arises from Cherwell Creek referencing Mr Hall’s report in quantifying coal revenue generation costs.
- Cherwell Creek engaged Mr Hall to value its loss of opportunity to develop the mine under various cases and scenarios. In his report, Mr Hall estimates the profits and cash flows for the mine, which he discounts to their equivalent value as at 8 May 2008. In undertaking that discounting exercise, Mr Hall draws a distinction between cash flows generated from 8 May 2008 to 30 June 2015, which he refers to as “actual” cash flows; and cash flows after 30 June 2015, which he refers to as “projected” cash flows. Mr Hall selected 30 June 2015, not the date of his report, for convenience.
- Although Mr Hall applies different approaches to the two types of cash flows, both incorporate the cost of money as an element in the exercise.
- The term “actual cash flows” is apt to mislead. As the mine was not developed, the “actual” cash flows are estimates. For actual (estimated) cash flows, Mr Hall applies after-tax interest rates, estimated by taking the risk free rate (based on the 10-year Australian Government bond rate) plus a lending margin, (by reference to those applied by expert valuers of coal mines at the relevant dates) minus the tax rate.
- For projected cash flows, Mr Hall applies a Weighted Average Cost of Capital (WACC), a formula that involves assumptions about the proportion of and the cost of finance through debt and equity.
- If the argument was based on Mr Hall’s report alone, Cherwell Creek would be on firmer ground. However, although it instructed Mr Hall to value its alleged lost opportunity to develop and/or sell the mine, Cherwell Creek has employed Mr Hall’s calculations for other purposes in its pleadings.
- First, it relies on Mr Hall’s calculations in alleging it had the necessary financial capability to develop the mine. Second, it relies on those calculations to quantify the likely coal revenue generation costs. As currently pleaded, then, Cherwell Creek appears to have adopted Mr Hall’s assumptions about the likely cost of financing the mine, in establishing its case.
- In responding to those allegations, BMA has made explicit its position that the cost of finance is relevant to both Cherwell Creek’s capacity to develop the mine and the likely coal revenue generation costs had it developed the mine, while contesting Mr Hall’s calculation of those costs. That contest is evident on Mr Van Homrigh’s report. I am not persuaded that, in responding to Cherwell Creek’s pleading, BMA has raised any new issue.
- Even if BMA’s amendments did raise a new issue, it is one the Court must address in deciding the claim. The Court must decide whether compensation should be payable and, if so, in what amount. In making both decisions, the Court “must have regard to the likelihood that Cherwell Creek …would have been able to commercialise the MDLA364 resource, having regard to…the likely coal revenue generation costs. The definition of coal revenue generation costs includes “the costs of or relating to … financing.”
- BMA’s particulars clarify what its position is with respect to both the likelihood of Cherwell Creek being able to commercialise the resource and the calculation of relevant costs.
- Cherwell Creek raises the prospect that it may need to lead further evidence, but was not clear about what further evidence might be required. The submissions about prejudice relate more to the effect of BMA’s recent instructions to Mr Van Homrigh, and Mr Hall’s expertise to deal with the question it poses, than the proposed amendments to the defence. I will now turn to those instructions.
Should the Court make orders arising from BMA’s instructions to Mr Van Homrigh?
- BMA provided the following further instructions to Mr Van Homrigh:
“As to the impact of the compensation payable by CCC to BMA…on the cash flow and value of the mine, please include in your opinion any consideration of the impact of the cost of funding expenditure required.”
- BMA raised the necessity to provide Mr Van Homrigh further instructions at an earlier review. It also identified the topic upon which it wished to provide further instructions. It seems to me that the instructions provided to Mr Van Homrigh are consistent with what I was told at the review. I am concerned, though, that BMA proceeded with the instruction in the face of Cherwell Creek’s concern about the issue. At the close of the review, I observed that, if there were any issues between the parties about either the amendments to the defence or the further instructions, I would deal with them at the next review. In the circumstances, BMA should not have proceeded to further instruct Mr Van Homrigh without the leave of the Court.
- The trial will commence on 3 August 2020. Mr Hall and Mr Van Homrigh are now engaged in their meeting and reporting process. BMA has already provided Mr Van Homrigh the instructions it considers necessary to ensure he directly addresses the impact of the compensation liability on the value and cash flow of the mine. BMA submits that Mr Hall has already addressed that issue in his report. If he has not, then it is appropriate that both experts address the issue. BMA does not oppose Cherwell Creek providing those further instructions to Mr Hall. I will make directions that will allow that.
- If either expert requires further information or instruction to complete their joint expert report, or if an expert considers the issue beyond their expertise, they can raise that with the CMEE Convenor who can facilitate discussions with the parties within the CMEE process, or list the case for further review if further directions are required.
- The Court has made detailed directions that provide little time for additional preparation of witness statements or expert reports. Cherwell Creek’s submissions raise the prospect of further evidence about the likely costs of finance. Given the stage the CMEE process has reached, that must be clarified as soon as practicable. If a party wants to lead evidence from a witness other than Mr Hall or Mr Van Homrigh, they must seek further directions, unless that evidence is included in a summary of evidence of a lay witness or an expert report already filed.
- Although I have concluded leave is not required to amend the pleadings under current directions, the case is being closely managed and it makes sense to ensure any further amendments are dealt with through directions, not governed by a pleading regime more suitable for a less complex case.
- I will hear from the parties about the formulation for directions that will:
- prevent further amendments to the pleadings without leave, except those provided for by the order made on 19 September 2019 and the directions giving effect to this decision;
- allow and set times for:
- (a)BMA to file an amended defence in the form exhibited to the affidavit of Alana Maree Petty filed on 11 October 2019;
- (b)Cherwell Creek to file an amended Reply;
- (c)Cherwell Creek to provide further instructions to Mr Hall about the further instructions by BMA to Mr Van Homrigh
- prevent parties from leading evidence from a witness other than Mr Hall or Mr Van Homrigh about the costs of financing the mine without seeking further directions, unless that evidence is included in a summary of evidence of a lay witness or an expert report that is already filed.
- I will hear from the parties as to costs.
PRESIDENT OF THE LAND COURT
 Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd & Ors (No. 8)  QLC 7 -.
 Order 5 made on 17 September 2019.
 T 1-21 (6 September 2019) (TMB1 to Affidavit of Toby Boys filed on 18 October 2019); T 1-19 (11 September 2019) (TMB2 to Affidavit of Toby Boys filed on 18 October 2019).
 Hartnett v Hynes  QSC 225 .
 Applicant’s Answers to the Request (Dated 8 March 2017) for Further and Better Particulars of the Third Amended Annexure A to the Originating Application filed on 26 April 2017 at .
 Cherwell Creek submissions filed on 18 October 2019 at .
 Second Amended Defence to the Fourth Amended Annexure A filed on 1 May 2018 at [14(h)].
 Ibid [14(h)(ii)].
 Filed on 17 October 2018.
 Ibid [19(e)(iii) Particular L].
 Mr Hall’s report dated 16 November 2015 at -.
 Ibid .
 Ibid .
 Ibid  - .
 Ibid -.
 Ibid .
 Mineral Resources Act 1989 ss 334ZJ(4), 334ZJ(5).
 Ibid s 334ZJ(5)(f).
 Ibid s 334ZJ (8)(k).
 T 1-14 lines 37 to 39; T 1-19 lines 1 to 6.
 T 1-19 (11 September 2019) (TMB2 to Affidavit of Toby Boys filed on 18 October 2019).
 Ibid T 1-22 lines 2 to 5.
- Published Case Name:
Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd
- Shortened Case Name:
Cherwell Creek Coal Pty Ltd v BHP Queensland Coal Investments Pty Ltd
 QLC 41
08 Nov 2019