[2014] wamw 18[2014] wamw 18 _____ ammon v pilbara iron ore p/l & dg dmp [2014] wamw 18 page 3...

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[2014] WAMW 18 __________________________________________________________________________________ Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 1 JURISDICTION : MINING WARDEN TITLE OF COURT : WARDEN’S COURT LOCATION : PERTH CITATION : AMMON v PILBARA IRON ORE P/L & DG DMP [2014] WAMW 18 CORAM : WILSON M HEARD : 5, 6 DECEMBER 2011, 18, 19, 20, 21, 22 MARCH 2013 & 8 MAY 2013 DELIVERED : 16 SEPTEMBER 2014 FILE NO/S : PLAINT KR 1/078 TENEMENT NO/S : EXPLORATION LICENCE 47/1140 BETWEEN : Derek Noel Ammon (Plaintiff) v Pilbara Iron Ore Pty Ltd (1 st Defendant) & The Director General of Mines (2 nd Defendant) Catchwords: Plaint Breach of Farmin & Joint Venture Agreement Feasibility Study Sufficiency of Feasibility Study to make Election or Seek to Raise Finance Implied Terms Accuracy Independence Completeness Ore Reserve Statement Legislation: Nil Result: The Claim by the Plaintiff is proven The Plaintiff is entitled to the Relief claimed and costs Representation: Counsel:

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Page 1: [2014] WAMW 18[2014] WAMW 18 _____ Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 3 Study. On or about 25 January 2008, the 1st Defendant delivered to the Plaintiff a report

[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 1

JURISDICTION : MINING WARDEN

TITLE OF COURT : WARDEN’S COURT

LOCATION : PERTH

CITATION : AMMON v PILBARA IRON ORE P/L & DG DMP [2014]

WAMW 18

CORAM : WILSON M

HEARD : 5, 6 DECEMBER 2011, 18, 19, 20, 21, 22 MARCH 2013 & 8

MAY 2013

DELIVERED : 16 SEPTEMBER 2014

FILE NO/S : PLAINT KR 1/078

TENEMENT NO/S : EXPLORATION LICENCE 47/1140

BETWEEN : Derek Noel Ammon

(Plaintiff)

v

Pilbara Iron Ore Pty Ltd

(1st Defendant)

&

The Director General of Mines

(2nd

Defendant)

Catchwords:

Plaint – Breach of Farmin & Joint Venture Agreement – Feasibility Study – Sufficiency

of Feasibility Study to make Election or Seek to Raise Finance – Implied Terms –

Accuracy – Independence – Completeness – Ore Reserve Statement

Legislation:

Nil

Result:

The Claim by the Plaintiff is proven

The Plaintiff is entitled to the Relief claimed and costs

Representation:

Counsel:

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 2

Plaintiff : Mr CP Shanahan SC & Mr A Herchowitz

1st Defendant : Mr C L Zelestis QC & Mr MP Feutrill

2nd

Defendant : Nil

Solicitors:

Plaintiff : Dwyer Durack

1st Defendant : Corrs Chambers Westgarth

2nd

Defendant : Nil

Case(s) referred to in judgment(s):

Ammon v Pilbara Iron Ore Pty Ltd (No 2) [2009] WAMW 12

Ammon v Pilbara Iron Ore P/L & anor [2012] WAMW 14

Ammon v Pilbara Iron Ore P/L & anor [2013] WAMW 4

Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370

Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705

Jones v Dunkel (1959) 101 CLR 298

Fazio v Fazio [2012] WASCA 72

Payne v Parker [1976] NSWLR 191

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361

RPS v The Queen (2000) 199 CLR 620

Background

1. Derek Noel Ammon (“the Plaintiff”) claims he is the legal and beneficial owner of E

47/1140 (“E”).

2. In summary, the issues in this action are the Plaintiff and Pilbara Iron Ore Pty Ltd

(“1st Defendant”) are parties to the Mindy Mindy Farmin and Joint Venture Heads of

Agreement (“Agreement”) dated 3 September 2002 (“Commencement Date”)

concerning the E. The Plaintiff submits that pursuant to the Agreement the 1st

Defendant was required by 29 January 2008 to have ‘completed a feasibility study’

(“the Study”) in respect of E and provided the Plaintiff with a copy in order for the 1st

Defendant to earn an 80% interest in the E.

3. The Plaintiff and the 1st Defendant were the only two participants in the Agreement.

The 1st Defendant is owned in equal shares (50/50) by Consolidated Minerals Ltd

(“CML”) and Fortescue Metals Group Ltd (“FMG”).

4. In or about July 2006, SRK Consulting Australasia Pty Ltd (“SRK”) was engaged by

CML for and on behalf of the 1st Defendant for the purposes of the preparation of the

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 3

Study. On or about 25 January 2008, the 1st Defendant delivered to the Plaintiff a

report prepared by SRK (“SRK Report”) that the 1st Defendant said was the Study.

5. The Plaintiff contends the SRK Report was not the Study, that is a completed

feasibility study, for the purposes of the Agreement as the SRK Report could not, and

did not, enable the Plaintiff to exercise his rights under clause 4.6 of the Agreement

(to make an election to either contribute to the joint venture or withdraw from the

joint venture under the terms of the Agreement) or clause 4.7 of the Agreement (if an

election is made to contribute under the Agreement to raise finance).

6. The Plaintiff submits the 1st Defendant having failed to provide him with the Study is

deemed to have withdrawn from the Agreement and thereby forfeited any rights to

any interest in E.

7. The Plaintiff alleges that, in purported reliance upon clause 6.9 of the Agreement, the

1st Defendant lodged with the Department of Industry and Resources (“DOIR”), now

Department of Mines and Petroleum, a power of attorney. The Plaintiff submits the

1st Defendant was not authorised to lodge the power of attorney and claims he was

not notified by the 1st Defendant of its intention to lodge the power of attorney with

DOIR.

8. The Plaintiff states on or about 11 March 2008 the 1st Defendant, in purported

reliance upon the Agreement and the power of attorney, lodged with DOIR a transfer

of an 80% interest in E from the Plaintiff to the 1st Defendant. The Plaintiff submits

such lodgment or transfer was not authorized by him and, in any event, the 1st

Defendant, by that date, was deemed to have withdrawn from the Agreement.

9. On 4 April 2008 an injunction was granted by this Court preventing the registration

by the Director General, DOIR, (“the 2nd

Defendant”) of the transfer of the 80%

interest held by the Plaintiff in the E to the 1st Defendant.

10. The Plaintiff seeks a declarations that the 1st Defendant is deemed to have withdrawn

from the joint venture, that the power of attorney is invalid and that the form of

transfer of the 80% interest in the E is also invalid. An injunction is also sought by

the Plaintiff restraining the 1st Defendant from representing that it has any right or

interest in E, from representing that it holds a power of attorney to sign on behalf of

the Plaintiff to do anything necessary to maintain the E and from representing that it

is the manager of the joint venture operations in respect of E.

Preliminary Issues

11. On 5 December 2011, shortly after the commencement of the substantive hearing in

this matter, the parties sought the determination of Preliminary Issues. On 6

December 2011, the Plaintiff applied for and was granted leave to amend the Plaint

(“Amended Plaint”). The 1st Defendant did not seek to amend its Response. The

Preliminary Issues were determined in Ammon v Pilbara Iron Ore P/L & anor

[2012] WAMW 14 (“the PI Decision”) and were summarised in Ammon v Pilbara

Iron Ore P/L & anor [2013] WAMW 4 at paras [3] to [6] as follows:

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 4

“3. That decision followed the commencement of the hearing of the substantive proceedings

between the parties on 5 December 2011. On 6 December 2011, the Plaintiff sought and

was granted leave to further amend the Plaint (“the Amended Plaint”). The Plaintiff

and the 1st Respondent agreed the Amended Plaint raised the Preliminary Issues on the

construction of some of the terms of the Agreement. The 1st Respondent did not seek to

amend its Response to the Amended Plaint and its counsel advised the Warden it did not

intend to do so.

4. As a consequence of the Amended Plaint both the Plaintiff and the 1st Respondent

agreed the hearing of the substantive proceedings should be adjourned to allow the

Warden to determine the following Preliminary Issues:

Whether the Agreement should be construed as pleaded by the Plaintiff at

paragraph 11 of the Amended Plaint, and

Whether the implied term pleaded by the Plaintiff at paragraph 12 of the

Amended Plaint can be implied according to law.

5. The terms of the Amended Plaint the subject of the Preliminary Issues states:

“11. On a proper construction of the Agreement, the Plaintiff says that the purpose of the

"feasibility study" to be completed by the First Defendant under clause 4.5 of the

Agreement was to inform the Plaintiff's Election, which required that any such

feasibility study be delivered to the Plaintiff, to allow the Plaintiff to decide either to:

(1) Withdraw and first offer to transfer his interest in the First Defendant pursuant

to clause 4.6 of the Agreement, for the then net present value of that interest

calculated by reference to the "feasibility study", or

(2) Contribute to Joint Venture Expenditure and seek to raise project finance

pursuant to clause 4.7 of the Agreement.

12. It was an implied term of the Agreement that to be a "completed feasibility study" for

the purposes of the Agreement, including those at paragraph 11, any such feasibility

study must:

(1) be accurate enough to enable the Plaintiff to seek to raise project finance

pursuant to clause 4.7 of the Agreement;

(2) be independent, in that any information provided by or on behalf of, a

participant in the Joint Venture (‘Participant’) for the purposes of producing

such a feasibility study be independently verified;

(3) be reliable, in that any information or data is provided by a Participant for the

purposes of producing such a feasibility study not be inaccurate or incomplete,

and

(4) include any reserve statement required to enable the Plaintiff to seek to raise

project finance pursuant to clause 4.7 of the Agreement.” (“Implied Term”)

6. The Decision answered each of the Preliminary Issues in the affirmative. On 10 August

2012, the 1st Respondent filed a notice of appeal against the Decision in respect to the

Preliminary Issues. That appeal was withdrawn by the 1st Respondent because, I

understand, the determination of the Preliminary Issues was not a final decision of the

substantive proceedings between the parties pursuant to s. 147(1) of the Mining Act

(“the Act”).”

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 5

The Breach of the Implied Term

12. The determination of the Preliminary Issues of the existence of implied terms in the

Agreement (“Implied Terms”) gives rise to the alleged breach of the Agreement by

the 1st Defendant. For the purposes of completeness and a full understanding of the

closing submissions by both the Plaintiff and the 1st Defendant it is appropriate to

note the provision of clause 19 of the Amended Plaint which states:

“19. In breach of the implied term the SRK Report was not accurate independent, reliable or

complete as required by the Implied Term.

Particulars of Breach of Implied Term

A. The SRK Report was not accurate enough to enable the plaintiff to seek to raise project

finance pursuant to clause 4.7 of the agreement because it was not accurate to, at least ±

10 – 15%, in that:

i. The work completed by SRK, to assess the hydro-geological, geotechnical and

mining issues going to the technical and economic feasibility of development and

mining of the Tenement, was classed by SRK, “as being at Scoping to Pre-

Feasibility levels of accuracy”, and the resulting in overall level of accuracy for the

work completed by SRK was classed by SRK as “Pre-Feasibility” (SRK Scope,

Appendix 26, at 1);

ii. The study completed by Dowding, Reynard & Associates Pacific (Pty) Ltd)

(“DRAP”) relied on by SRK in estimating the cost of the crushing and screening

options for mining the Tenement deposit (“DRAP Study”), was described by DRAP

as a “Scoping Study”, “ based on details, information and assumptions provided by

others”( the correctness of which could not be guaranteed by DRAP), and was

expressed by DRAP to have a ± 30% level of accuracy; it was intended solely for the

confidential usage of CML and was not for distribution to any third party and could

not be used for the raising of finance without the written approval of DRAP;

iii. The study relied on by SRK, to estimate the costs of transporting the Minerals mined

at the Tenement, was provided by Worley Parsons (“WP”) and was expressed by

WP to be a “screening level estimate, normally defined as ± 25-30% accuracy”, with

“considerably more engineering required to produce a definitive estimate of ± 15%

accuracy”, and

iv. The financial sensitivity ascribed by SRK for the purpose of calculating the post-tax

net present value of the Tenement was ± 40% for the iron ore pricing and ± 50% for

the operating costs (SRK Report, at 129).

B. The SRK Report was not independent in that:

i. it relied on information and data provided by the First Defendant to SRK (and

sourced from CML or FMG whose interests were in common with the First

Defendant) and which information was not independently verified by SRK, which

information and data included:

a. the quantity, extent and nature of the Minerals (SRK Report, at 19);

b. the financial input parameters used by SRK to optimise the estimated

resources of the Tenement deposit (SRK Report, Covering letter, dated 24

January 2008 at 2), and

c. iron ore price forecasts and marketing, and

ii. SRK, by the First Defendant's Instructions, was not required to provide a reserve

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 6

statement for the Tenement as part of the SRK Report, and despite the fact that such

a statement was identified by SRK, by reference to the JORC Code 2004, as being

the “minimum standard“ to ensure that investors and their advisers have all the

information they would reasonably require for forming a reliable opinion on the

results and estimates being reported” (SRK Scope, Appendix 26 at 3) such a

statement was not included in the SRK Report; and

iii. SRK acknowledges (in Appendix 26 of the SRK Report at 3) that it did not

critically review the WP, DRAP, HWE and Coffey reports.

C. The SRK Report was not reliable in that information and data supplied to SRK by the

First Defendant for the purposes of producing the SRK Report in accordance with the

First Defendant's Instructions was in accurate or incomplete, in that:

i. SRK's estimate that there is 23.6 Mt (million tonnes) of all available in the tenement

was based on a 55% Fe cut off, and is predicated on SR case review of work by

Twomey and Chen for a report, dated February 2006, which was provided to SRK by

the first defendant, (SRK Report at 19) and is RK's estimate does not take into

account any subsequent work which, according to the first defendant's application to

renew the tenement licence (made in December 2007) had delineated “a resource of

44.8Mt based on a 55.2% Fe cut off”;

ii. SRK's conclusions concerning hydro-geological conditions in the Tenement are based

on data from a study conducted in 2004 for FMG in an area of the East Pilbara that

did not include the Tenement, and which data has not been substantiated by any field

investigations in the Tenement (SRK Report at 75) at an additional cost of

$287,000, quadrillion and labour (SRK Report at 74) , to address “the issue of

collecting field data" for the Tenement (SRK Report at 73);

iii. SRK’s geotechnical analysis is based on old drill records and core photos (SRK

Report at 76) from earlier scoping and pre-feasibility work (SRK Scope, in

Appendix 26 at 1) and has not been confirmed by additional field work (SRK

Report at 76) , thus "further feasibility work is recommended" (SRK Report at 83)

at an additional cost of "approximately $100,000 for consultants plus [an estimated ]

drilling costs for proximally 16 holes”,(SRK Report at 76);

iv. SRK's mining study is based on previous scoping and pre-feasibility work (SRK

Scope, Appendix 26 at 1) a 2006 mineral resource review completed by CML which

was constrained by a 45% Fe grade shell (SRK Report at 86) and did not include

the dilution data that was collected (SRK Report at 97);

v. SRK’s mining study excludes two areas of the ore body due to limited drill hole

support (SRK Report at 96); and indicates that more detailed feasibility studies are

needed in the following areas:

a. to “refine the or loss parameters”(SRK Report at 97);

b. to "better quantify the effects of the foot wall undulation on dilution /ore

loss” (SRK Report at 98);

c. to "define the ‘shape’ of the contact footwall surface - as this would have a

significant impact on dilution and/or ore loss” (SRK Report at 98-99);

d. to “ define the water table and volume of ‘wet ore’…”(SRK Report at

102);

e. to “determine the schedule for feeding the wet ore through the process

plant” (SRK Report at 102);

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 7

f. to “further investigate the in-pit and external dewatering systems” (SRK

Report at 103);

g. to assess the extent to which the ore might be extracted using “free dig or

rip, doze and load operations as an alternative to drill and blast” (SRK

Report at 104);

h. to explore the “opportunity to minimise the amount of waste hauled external

to the pit - as this will impact positively on mining costs” (SRK Report at

106);

i. to ensure the pit and operations are adequately protected against cyclones

(SRK Report at106);

j. to define extent of the ore deposit in the southern portion of the Tenement

which was not included in the financial evaluation but could add more than

the 1.3 million tonnes of ore that was excluded from the feasibility study

(SRK Report at 106), and

k. the operational cost estimates, provided to SRK by the First Defendant,

included an item that issued the Plaintiff would elect to contribute to the

Joint Venture (pursuant to clause 4.6 of the Agreement) but would be unable

to obtain a project finance (within the meaning of clause 4.7), and would

therefore be entitled to a 2.5% Royalty, notwithstanding that such an

entitlement could only arise after the Plaintiff made his election under

clause 4.6 of the Agreement and that was yet to happen on 25 January 2008

when the SRK Report was delivered to the Plaintiff (SRK Report at 122,

124 and Appendix 25 p 1).

D. The SRK Report was not complete because it failed to include a reserve statement.”

Onus of Proof

13. The Plaintiff bears the onus of proof to prove, on the balance of probabilities, that

the SRK Report did not amount to the Study as required under the Agreement as the

SRK Report could not, and did not enable the Plaintiff to exercise his rights under

clauses 4.6 or 4.7 of the Agreement as pleaded in paragraphs 11 and 12 of the

Amended Plaint.

The Case for the Plaintiff

Witnesses and Exhibits

14. The Plaintiff's case comprised of the admission into evidence of the various

documents it says were used and were relied upon in the preparation of the SRK

Report by the 1st Defendant in what it says amounts to the Study. Various other

documents pertaining to the giving or taking of instructions by the 1st Defendant for

the purposes of the preparation of the SRK Report were also produced into evidence

by the Plaintiff.

15. The documents relied upon by the Plaintiff and produced into evidence were reports

by expert witnesses including Mr Quentin George Amos (“Mr Amos”) and Mr

Michael John Lawrence (“Mr Lawrence”) who analysed the content of the SRK

Report to determine whether, in their opinion, the content of the SRK Report met the

requirements to be considered the Study. Those expert witnesses also gave oral

evidence.

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 8

16. Mr Peter Roderick Williams (“Mr Williams”) as also called by the Plaintiff to give

evidence regarding the preparation of the SRK Report.

The Agreement

17. The Plaintiff submits it is important to understand the Agreement and manner in

which it says the Agreement was intended to operate if one is to appreciate his case

against the 1st Defendant.

Participants in the Agreement

18. The Plaintiff and the 1st Defendant were the only two participants in the Agreement

on the Commencement Date with the 1st Defendant equally owned in joint shares

(50/50) by CML and FMG.

The Commencement Date of Agreement and Joint Venture

19. On the Commencement Date the Plaintiff was then the applicant for the grant of the

E. It was not until 30 January 2003 the E was granted (“Grant Date”) to the Plaintiff.

The Agreement commenced on the Commencement Date but unincorporated joint

venture agreement between the Plaintiff and the 1st Defendant did not commence in

accordance with the terms of the Agreement until the Grant Date.

20. The nature of the Agreement between the Plaintiff and the 1st Defendant is described

under the definition of ‘Formation’ to mean:

“The Participants hereby associate in an unincorporated joint venture for the

purpose of exploring and, if warranted, developing and mining the Tenements.”

21. The tenements described in the Agreement include the E. However, the Agreement

also contemplates the inclusion of ‘any other mining tenement or interest in a mining

tenement acquired by the Joint Venture’.

Interest Retained by the Plaintiff

22. The Agreement provides that any ‘Joint Venture Interest’ in the ‘Tenements’ was

subject to the Plaintiffs ‘Retained Interest’ contained within clause 5 which states:

“Ammon retains at all times, full ownership and interest in the Mindy Mindy

bedded hematite resource located in the southern portion of the Tenements and

covered by blocks 2585u and 2586q, r, v and w.”

Payments to Plaintiff Prior to Grant Date

23. The 1st Defendant agreed under the terms of clause 3 of the Agreement to make two

payments to the Plaintiff prior to the Grant Date being:

a. At clause 3.1, commencing on the Commencement Date, the 1st Defendant

would pay to the Plaintiff in advance the sum of $5000 for every 30 day period

until the Grant Date, and

b. At clause 3.2, within 14 days of the Grant Date the 1st Defendant agreed to pay

to the Plaintiff $250,000 by way of reimbursement for past expenditure in

relation to the Tenements.

Joint Venture Interests of Plaintiff and Defendant at the Grant Date

24. On the Grant Date, the Agreement provides at clause 2.2 that the respective ‘Joint

Venture Interest’ held by the Plaintiff and the 1st Defendant is as follows:

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 9

‘The Joint Venture shall commence on the Grant Date and on that date

the Joint Venture Interests of the Participants are:

PIO 0%

Ammon 100% ‘

25. Accordingly, on the Grant Date when the Joint Venture commenced between the

Plaintiff and the 1st Defendant the Joint Venture Interest held by the 1

st Defendant

was 0%.

26. The Agreement defines ‘Joint Venture Interest’ at clause 1.1 as follows:

‘means, subject to the Retained Interest, the following obligations, benefits and

rights of a Participant expressed as a percentage and determined in accordance with

this Agreement:

a) the obligation, subject to the terms of this Agreement, to contribute

that percentage of all Joint Venture Expenditure;

b) the ownership of an right and benefit as a tenant in common to receive

in kind and to dispose of for its own account that percentage of

Minerals produced by the Joint Venture;

c) the beneficial ownership as a tenant in common of an undivided share

in that percentage of all Joint Venture Property.’

The Earning Period

27. The terms of the Agreement provide for a process that enabled the 1st Defendant,

from the Grant Date, to increase its Joint Venture Interest from 0% and earn a Joint

Venture Interest of 80%.

28. The Agreement defines at clause 1.1 an ‘Earning Period’ which means:

‘..the period commencing on the Grant Date and ending as provided in clause 4.2.’

29. The extent of the Earning Period is defined at clause 4.2 of the Agreement to be as

follows:

‘Subject to clause 4.3, the Earning Period will end when PIO has completed a

feasibility study on the tenement or 5 years from the Grant Date whichever occurs

sooner.’

30. It is the contention of the Plaintiff that the verb ‘earn’ was intended to encapsulate

the 1st Defendant's obligation to complete a feasibility study and that was the primary

obligation during the Earning Period.

31. Accordingly, the Earning Period began on 30 January 2003 and continued until

either:

i. the expiry of five years on 30 January 2008, or

ii. the completion and delivery of a feasibility study by the 1st Defendant to

the Plaintiff,

whichever occurred the sooner.

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 10

32. In the PI Decision, the Warden found for the 1st Defendant to have ‘completed a

feasibility study’ a copy of the Study was required to have been delivered to the

Plaintiff.

33. The Agreement, at clause 4.1, required that during the first 30 months of the Earning

Period, the 1st Defendant was to contribute ‘not less than $1,000,000’ to ‘Joint

Venture Expenditure.’ Accordingly, between the Grant Date and over a period of 30

months the 1st Defendant was obliged to expend a minimum of $1,000,000 on the

types of expenditure defined within clause 1.1 as Joint Venture Expenditure as

meaning:

‘..all costs, expenses and liabilities incurred in connection with the exploration, development

and mining of the Tenement for Minerals, accounted for in accordance with accounting principles

accepted in Australia including (without limitation):

a) Outgoings;

b) an administrative overhead charge not exceeding 10% of the direct

expenditure, excluding expenditure on the construction of facilities for a

mining operation or in the conduct of a mining operation;

c) the cost of negotiations with native title claimants, whether pursuant to the

Commonwealth Native Title Act 1993 or otherwise, and the costs associated

with obtaining any necessary aboriginal heritage clearances in respect of the

Tenements.’

34. Expenditure incurred by the 1st Defendant prior to the Grant Date and therefore

before the commencement of the Earning Period in respect of expenditure defined at

paragraph c) of the definition of Joint Venture Expenditure was deemed to have been

incurred during the Earning Period pursuant to clause 4.1 of the Agreement.

Completed Feasibility Study

35. The events that would occur if the 1st Defendant did or did not complete a feasibility

study during the Earning Period are contained within clauses 4.4 and 4.5 of the

Agreement and state:

‘4.4 Effect of failure to Complete Feasibility Study

If PIO fails to complete a feasibility study during the Ending Period then it shall be

deemed to have withdrawn from the Joint Venture pursuant to clause 15.1.

4.5 Assignment of Earned Interest

If PIO completes a feasibility study during the Earning Period, PIO shall be deemed

to have acquired from Ammon and 80% Joint Venture Interest, so that at the

expiration of the Joint Venture Interest of the Participants shall be as follows:

PIO 80%

Ammon 20%

The Effect of a Completed Feasibility Study

36. Pivotal to the Amended Plaint is whether the delivery by the 1st Defendant to the

Plaintiff of the SRK Report amounted to the delivery of the Study within the 5 year

period from the Grant Date and then signalled the end of the Earning Period under

the terms of the Agreement.

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[2014] WAMW 18 __________________________________________________________________________________

Ammon v Pilbara Iron Ore P/L & DG DMP [2014] WAMW 18 Page 11

37. The importance of the delivery of the SRK Report by the 1st Defendant to the

Plaintiff and whether it amounted to the Study is that it is the determinative feature

as to whether the Joint Venture remained on foot and if it did not then the 1st

Defendant was deemed, pursuant to clause 15.1 of the Agreement, to have

withdrawn from the Agreement.

38. The Plaintiff contends the SRK Report is not the Study and therefore the Agreement

with the 1st Defendant is at an end. It is for that reason the Plaintiff submits the 1

st

Defendant and the Plaintiff place such significance within the Agreement for the

requirement for the Study.

39. On the other hand, the Plaintiff contends if it is the case the 1st Defendant by

delivering the SRK Report to the Plaintiff has met its requirements to have delivered

the Study the 1st Defendant has increased its Joint venture Interest from 0% to 80 %

and holds a significant majority interest.

40. What also follows if the 1st Defendant has, by delivering the SRK Report to the

Plaintiff, also delivered the Study is the Plaintiff must make an election (“Election”)

regarding the 20% Joint Venture Interest then held by the Plaintiff pursuant to clause

4.6 of the Agreement.

41. The Plaintiff submits the SRK Report is not the Study delivered to the Plaintiff

within the Earning Period and as such the Plaintiff continues to enjoy a 100% Joint

Venture Interest and has not been required to make an Election under clause 4.6 of

the Agreement. As a consequence, the Plaintiff submits the Earning Period ended on

30 January 2008, being five years after the Grant Date, and the 1st Defendant is

deemed to have withdrawn from the Agreement.

Election by the Plaintiff

42. Clause 4.6 of the Agreement allows the Plaintiff to make an Election from a number

of choices in respect to his continued involvement under the terms of the Agreement.

The Plaintiff maintains the Election by him was only required to be made if the SRK

Report was the Study, which is denied by him, and it was delivered within the

Earning Period.

43. Clause 4.6 of the Agreement provides:

‘4.6 Election by Ammon

Upon PIO earning its 80% Joint Venture Interest it shall notify Ammon of this in writing

and Ammon shall have a period of 90 days within which to elect, by notice in writing

whether he wishes to

…[(i)]… Contribute to the Joint Venture in accordance with his 20% Joint Venture

Interest or …..

…[(ii)]… Withdraw from this Agreement and the Joint Venture.

If Ammon elects to withdraw he shall first offer to transfer his Joint Venture Interest to

PIO for the then net present value calculated by reference to the feasibility study and on

terms to be agreed between Ammon and PIO at that time.

PIO and Ammon shall have a period of three months from the date of Ammon’s offer to

PIO within which to agree the terms, and PIO shall have a further three months from the

date upon which such terms are agreed within which to make payment.

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If PIO does not elect to accept Ammon’s offer, or if terms cannot be agreed within the

three month period, Ammon may offer to sell his Joint Venture Interest to a third party.

If terms are agreed but PIO does not make payment within the further three month period

then PIO shall be liable to pay interest on the outstanding amount at the rate prescribed in

clause 9.2, unless the parties have agreed to extend the further three month period.’

44. The Plaintiff does not dispute the SRK Report was delivered to the Plaintiff by the 1st

Defendant on or about 25 January 2008. However, the Plaintiff denies the SRK

Report was the Study and as such the Plaintiff maintains he was not required to make

the Election under clause 4.6 of the Agreement within the 90 day period that would

have expired on or about 23 April 2008.

Free Carry Period

45. The Agreement provides at clause 2.5 for a Free Carry Period during which the

Plaintiff was free from any liability under the terms of the Agreement. Clause 2.5 of

the Agreement provides:

‘2.5 Several Liability

During the Free Carry Period Ammon shall not be liable to PIO or any third parties and

shall be indemnified in respect of such liability by PIO. After the Free Carry Period the

liabilities of the participants to each other and to third parties shall be several in

proportion to their respective Joint Venture Interest from time to time and shall not be

either joined or joint and several.’

46. The term ‘Free Carry Period' is defined in clause 1.1 of the Agreement as follows:

‘means the period from the Commencement Date up until the date upon which Ammon

elects, in accordance with clause 4.6, that he intends to contribute to the Joint Venture in

accordance with his Joint Venture Interest.’

47. The Plaintiff contends until the end of the Free Carry Period the Plaintiff has no

liabilities under the Agreement and no need to seek finance of any sort. The Plaintiff

also contends, failure by the 1st Defendant to complete the Study within the Earning

Period means the Plaintiff has never been put to his Election under clause 4.6 of the

Agreement. In those circumstances, the Plaintiff maintains the Free Carry Period has

not ended, other than as a consequence of the deemed withdrawal by the 1st

Defendant under clause 4.4 of the Agreement.

Finance

48. The Agreement makes provision, in clause 4.6 of the Agreement, for the means by

which the Plaintiff is entitled to raise funds to fund contributions that he would

become liable for if the Plaintiff was to make the Election pursuant to clause 4.7 (a)

of the Agreement, that is to contribute in accordance with clause 4.6 of the

Agreement.

49. Clause 4.7 of the Agreement provides:

‘4.7 Obtaining of Finance by Ammon

a) If Ammon elects to contribute in accordance with clause 4.6 he shall have a

period of 12 months from the date of notification by PIO to Ammon that PIO has

earned its 80% Joint Venture Interest within which to raise project finance (‘the

Finance Raising Period')

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b) During the Finance Raising Period PIO shall find Ammon’s share of Joint

Venture Expenditure until such time as Ammon succeeds in obtaining project

finance, at which time Ammon shall repay to PIO all such expenses incurred by

PIO on Ammon’s behalf during the Finance Raising Period without delay.

c) If Ammon is successful in obtaining project finance he shall immediately advise

PIO in writing and, from that time, he she or become responsible for contributing

to Joint Venture Expenditure in accordance with his Joint Venture Interest, which

shall include liability for cash calls in accordance with clause 9.

d) If Ammon is unsuccessful in obtaining project finance during the Finance

Raising Period or at the election of Ammon at any time during the Finance

Raising Period, Ammon’s Joint Venture Interest will convert to a 2.5% gross

value FOB production royalty in respect of all production of iron or by PIO from

the Tenements, Ammon shall be deemed to have withdrawn from the Joint Venture

and Ammon shall transfer his interest in the Tenements is to PIO at no cost.’

50. The Plaintiff maintains he has not been put to his Election under clause 4.6 of the

Agreement because the SRK Report is not the Study.

51. Further, the Plaintiff maintains the Agreement ensures the Plaintiff could have no

liability to contribute to Joint Venture Expenditure either:

a. during the Free Carry Period, or,

b. pursuant to clause 4.6 if the Plaintiff had made an Election to

contribute, unless he had first successfully obtained project finance

to make the contributions required in clause 4.7.

52. In the absence of an Election by the Plaintiff to contribute under clause 4.6 of the

Agreement, the Plaintiff submits clause 4.7 of the Agreement has no work to do.

53. Accordingly, the Plaintiff maintains he could only continue to participate under the

terms of the Agreement if he:

received the Study;

made an Election to contribute in accordance with clause 4.6, and

having made his Election, successfully obtained project finance

during the Finance Raising Period to make the required contributions

under clause 4.7.

Witnesses for the Plaintiff

Peter Roderick Williams

54. Mr Williams gave evidence he was the managing director of SRK from about 1999

until March 2010, although he finished working for SRK on about 1 July 2012.

55. Mr Williams said another person had prepared the SRK covering letter dated 24

January 2008 under which the SRK Report was transmitted to the 1st Defendant,

although Mr Williams said he signed that letter (‘Transmittal Letter’).

56. The SRK Report was prepared by Mr Carl Murray (“Mr Murray”) a Project Manager

at SRK, according to Mr Williams. Mr Williams said he had no input in the

preparation of the SRK Report.

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57. In 2009, Mr Williams said the solicitors for SRK was Tottle Partners and it was he

who the responsible for dealing with them. Mr Williams was referred to a letter from

Tottle Partners to Dwyer Durack, solicitors for the Plaintiff, dated 30 October 2009

in which details were provided by Tottle Partners on behalf of SRK as to the source

of the AME Forecast Figures used in the preparation of the SRK Report. Mr

Williams confirmed the information was provided to him by Mr Murray.

58. Mr Williams was also referred to a further letter from Tottle Partners to Dwyer

Durack dated 15 December 2009. Mr Williams said he recalled that letter and

obtained the information that forms the basis for the response by Tottle Partners to

Dwyer Durack as having been provided to him by Mr Murray, the author of the SRK

Report.

59. The procedure Mr Williams said was followed within SRK for the preparations of

responses to requests made from their solicitors was for a request to be forwarded to

SRK and a draft answer prepared by Tottle Partners that was forwarded to SRK for

approval.

60. The 1st Defendant did not cross examine Mr Williams.

Quentin George Amos

61. Mr Amos is the managing director of A & M Amos Pty Ltd who supplies consulting

services to the mining industry, infrastructure industry and related industries and also

to non-mining business. Mr Amos is also a teacher in project finance and corporate

finance for various institutions. Further, Mr Amos holds a Bachelor of Science

Degree with Honours in Geology. He is also a Fellow of the Australasian Institute of

Mining and Metallurgy and the Financial Services Institute of Australia.

62. On 11 November 2011, Mr Amos completed a report on the SRK Report at the

request of the solicitors for the Plaintiff (“Amos Report”). By way of summary of the

SRK Report, the Amos Report stated the following:

“In my opinion the SRK Report cannot be considered as a study, which contains

comprehensive information and which has an accuracy level of ± 10-15%. Indeed many

recommendations for additional work are made to bring information, which is

concluded to be at pre-feasibility or scoping study level to feasibility study levels of

accuracy. In some instances information is totally lacking such as hydro-geological

data from the tenement. In other instances as referred to in the body of this report there

is no independent checking of data or conclusions. With those factors in mind I do not

consider that the SRK Report constitutes a feasibility study as would be normally

expected to be delivered to a potential project financier for consideration to advance

funds. Indeed in my opinion with the amount of outstanding issues no project financier

would advance funds to complete the SRK Report to feasibility level even if there was a

year available to complete such work, particularly in today's very tight labour and

mining equipment markets which would make any such sensible completion of a report

within the time frame of one year highly improbable - there is simply a great deal of

work to complete. In my opinion a project financier would consider that the risks of

losing the funds it might advance could be very high and asked it is extremely unlikely

that project finance could be sought successfully by Mr Ammon on the basis of the SRK

Report.”

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63. In cross examination, Mr Amos said he had worked as a geologist in a number of

mines and had been involved in the preparation of feasibility studies in relation to

gold and tin in about 1986. He has not been involved in the preparation of feasibility

studies for iron ore deposits but has had a lot of experience as a financial adviser

looking at iron ore projects.

64. Mr Amos said he used the term “project finance” in the Amos Report to mean

‘where the financiers look towards the economic unit which is - these are the asset

or group of assets from which earnings at derived and to the project cash flows for

the sole repayment of either the loans or the equity involved, and can take security

only over the assets or group of assets of the companies.’ Further, Mr Amos said he

understood the word ‘project’ to mean the development of mining related

infrastructure and the conduct of mining operations.

65. It was not the case that Mr Amos considered ‘project finance’ to be restricted to debt

finance from a bank or other lending institution. He said ‘project finance’ is not

confined to debt and he never, in any way, assumed that was the only recourse to

finance in this case. He went on to explain it could be debt or equity or quasi-debt or

combination thereof in very specific and different circumstances provided by a

variety of different styles of provider.

66. Mr Amos said in preparing the Amos Report he was conscious the Plaintiff might be

seeking project finance for only a 20% interest and the Plaintiff would be seeking

borrowings in the way of finance from any institution which would provide finance

not just a lending institution. The institutions could also include a fund that could

loan the money or a trade finance investor. Mr Amos clarified his meaning of

‘project finance’ as being ‘the injection of money to sustain the development of the

project’.

67. Mr Amos was questioned concerning this reference to the level of accuracy that

banking institutions would expect by way of a level of accuracy of a study that is

presented to it. He was also asked if the reference to the level of accuracy was to the

overall content of the study. Mr Amos said the accuracy he referred to was the

accuracy that one would expect to each piece of data within the data set. He went on

to say he would expect that each piece of data delivered in a project finance sense,

particularly in the categories of operating costs, capital cost, machine performance,

hydrology, seismology, the amount of drilling conducted and particularly with

regard to the accuracy that are derived therefrom he would expect it to be in respect

to each and every single piece of data, not an overall term, but a term specific to each

part of the dataset.

68. It was conceded by Mr Amos that what he would expect may not be what he receives

and what is reflected but, that is what he would expect. Mr Amos was then asked if

the absence of that level of accuracy in each and every item is not necessarily fatal to

the utility of the study for the purposes of seeking finance. Mr Amos was of the view

that not each and every item would be expected to be of that level of accuracy, but if

he were to receive something which had possibly more than one item or one of those

items was less than that degree of accuracy he would be sending the proponent away

and informing them to ‘go and do your homework’.

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69. Mr Amos said if one was looking to start up a mining project that needs some

infrastructure to be built, finance may be needed not only to cover the capital costs

but also to cover a period during which operating expenditure is incurred before

revenue starts to flow.

70. Mr Amos also said requests made to banks and other institutions for the funding of a

mining project would generally construct their own financial model of the project if

they are going to consider it in any detail. However, if the bank or financial

institution did not receive a financial model from the company prior to the bank or

financial institution doing that they would have severe reservations about the data

provided to them by the proponent. It could be the case, said Mr Amos, a prospective

financier would generally either obtain and adopt a proponent’s model or prepare

their own or they could do either.

71. Mr Amos was asked whether lending institutions approached for project finance in

respect to Australian mining projects would have their own economics Department

which assess financial parameters, interest rates, foreign exchange rates in

commodity prices and the like. Mr Amos said the process is one whereby the lending

institution would be given a price deck for inclusion in a model which may pertain to

such items as commodity prices or foreign exchange rates. Mr Amos went on to say

when it came to other matters to be included in the model a lending institution would

seek outside assistance on such things as commodity prices from independent

sources. Such decisions by lending institutions as to whether they use internal or

external sources to provide information varies on the nature of the institution.

72. It was agreed by Mr Amos that in order to engage the attention of a lending

institution who may be prepared to consider to advance some kind of finance for a

mining project the proponent would need to present the leading institution with a

study which concluded that the project was technically feasible, economically viable

and other factors including political and environmental were all satisfactorily dealt

with otherwise the lending institution may not seriously consider the proposal.

73. If all such factors do not point to the proposal being viable or feasible Mr Amos was

of the view there would be no point being there. There may be other modifying

factors which may need to be considered even though a project is economically

viable and technically feasible including political and environmental issues.

74. Mr Amos indicated a proponent who presents a prospective mining project to a

financial institution seeking funding would generally require the proponent to pay

for an independent consultant to review the study and report back to it. However, Mr

Amos said there had been circumstances in which a lending institution has paid for

such studies.

75. Further, Mr Amos generally agreed that alumina and silica are impurities found in

the iron ore and one of the issues for any potential mine project for iron ore is the

issue of how the impurities will react and behave in a furnace with the various levels

of iron ore being processed. He agreed there was more to the marketability of iron

ore than just looking at the grade of iron within the ore.

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76. In re-examination, Mr Amos said a financial institution would not waste its time

conducting or undertaking any of its own work if it is not convinced the level of

accuracy and completeness of data is sufficient for it to be engaged in such a project.

Mr Amos further said, financial institutions have many opportunities all the time and

if someone were to pay them a visit with something that was considered not to reach

those levels of completeness or accuracy there would be a request that they went

back and did some more hard work and then produce a study that had been

completed because then and only then would it be suitable for the financial

institution to commit time and expense to dealing with the proposal in its own right.

77. The level of accuracy and completeness that Mr Amos said he would seek to see in a

feasibility study would be ± 10% to ±15% on all factors particularly the major

factors. On the issue of completeness of data, Mr Amos said were it appears that if

data was not complete it can either be interpreted as a lack of ability or, at worst, a

subterfuge and it would be regarded as being poorly advised to proceed in such a

case.

Michael John Lawrence

78. Mr Lawrence is the Chief Executive Officer and Chief Valuer of a business named

Minval Associates that services the mineral industry in the area of due diligence and

project assessment and subsequent valuation and dispute resolution services. Mr

Lawrence has qualifications in Geology and is, amongst many other qualifications.

Memberships and awards, a fellow of the Australasian Institute of Mining and

Metallurgy.

79. Mr Lawrence is the author of a report dated 4 July 2011 titled ‘Independent Expert

Opinion on Pilbara Iron Ore Pty Ltd’s Mindy Mindy Feasibility Study’ (“Lawrence

Report”). Mr Lawrence confirmed it contained his opinion on the matters he was

asked to examine under a letter of appointment and instruction from the Plaintiff’s

solicitors dated 26 June 2011. Prior to that letter of appointment and instruction Mr

Lawrence had received material forwarded to him by the Plaintiff’s solicitor

pertaining to the request on about 5 February 2008. Certain parts of the Lawrence

Report were excluded from evidence consistent with rulings of the Warden on 21 &

22 March 2013.

80. The material received by Mr Lawrence included, apart from letters of instructions

from the Plaintiff’s solicitors, a copy of the SRK Report, the Transmittal Letter and

copies of modelling used in preparation of the SRK Report. A number of

typographical errors were corrected in the Lawrence Report.

81. Mr Lawrence said in the Lawrence Report:

‘The ultimate objective is to produce a document that does (or does not) support the

internal or external allocation of funds to develop the deposit into a mine - the

Bankable/Definitive/Final Feasibility Study. While support for going ahead or not

with a project must be very thoroughly examined and reviewed so as to provide an

unequivocal conclusion, it is paramount that its result is as accurate, precise and

reliable as possible. Hence it also must be complete.’

82. Mr Lawrence outlined the generally non-controversial 3 types of techno-financial

studies of mineral projects in order of their increasing reliability of content and

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advice, which he said is necessarily related to the stage of the development of the

project and thus the extent and availability of geo-scientific and related financial

information on development and likely mining/processing/transport/sales costs. The

three types of techno financial studies of mineral projects cited by Mr Lawrence are:

Scoping Study - asking what could the mineral project be; and is accessible to

continue to explore it. It is a preliminary initial review involving conceptual

designs an order of magnitude costings so that is expected to have study of

imports accurate to only ± 40% to ± 50%.

Pre-feasibility Study - asking what should the mineral project be; it has the

optimum way forward (project configuration and parameters) been identified by

examining and reviewing all of the available options/alternatives. It is a precursor

study to the feasibility study with inputs expected to be accurate to ± 20% to ±

25%.

Feasibility Study - what will the mineral project be; what are the likely risks and

rewards involved with the chosen project configuration/parameters and optimise

design basis for the design specifications; and is the investment case unlikely to

vary significantly because of the thoroughness and due diligence exercise to select

the scenario adopted. It is a holistic technical, economic and socio-political

analysis that must have sought to identify and proposed management of all the

possible ‘project killer’ risks and provide a reliable estimate of project value upon

which an investment decision and allocation of funds can be made. Often the

terms ‘Definitive’ or ‘Bankable’ or ‘Final’ are added to emphasise this primary

purpose. It is expected to have study imports accurate to ± 10% to ± 15%.

83. Mr Lawrence said in the Lawrence Report that an appropriate quantity and quality of

ore reserves are critical to the final economic assessment of iron ore project. An Ore

Reserve Statement (“Reserve Statement”) is required before project funding can

realistically be expected to be allocated according to Mr Lawrence. Mr Lawrence

also noted in the Lawrence Report that the absence of any independently prepared

and verified JORC Code compliant Reserve Statement is another fatal flaw in the

SRK Study because it underpins any claim about the quantity and quality of iron or

that can be produced. According to Mr Lawrence, there was no evidence of material

attempts by SRK to critically verify the assumptions behind the core inputs to its

conclusions, as expected by the JORC Code or the VALMIN Code.

84. In cross examination, Mr Lawrence said in the past 20 years he has not been

involved in the preparation of either a Scoping Study or a Pre-Feasibility Study but

has been retained to examine them from a due diligence point of view to assist

clients establish if the study was adequate for their needs. In the 1970’s, Mr

Lawrence said he has been involved in the preparation of such studies.

85. Mr Lawrence said he had not prepared a Feasibility Study for an iron ore deposit but

has examined then to express an opinion. Much of his work in the last 10 years has

been the valuation of proposals by proponents for prospective financiers for possible

mining projects.

86. Mr Lawrence said when referring in the Lawrence Report to the SRK Report ‘not

containing sufficient reliable information relating to the project’ his focus was the

Plaintiff had to make an Election and needed to have information to make that

Election and what subsequently happened after that was to raise finance to develop

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it. In general terms, Mr Lawrence said project finance generally related to events

after exploration and included development by way of construction of infrastructure.

87. It was pointed out by Mr Lawrence, that generally speaking, it is understood the

raising of project finance is obtained from external banks or other sorts of capital. In

some cases project finance can be raised internally from very large companies but

that also involves a proponent dealing with the board and seeking to advance their

request for funds for a project over some else’s project. Accordingly, Mr Lawrence

made the point that internal funding of project finance still requires consideration of

the feasibility of the proposed project but it is not as demanding as funding from an

external source.

88. In answering the questions posed to him in his instructions from the Plaintiffs

solicitors, Mr Lawrence said his main focus was to ask would the Plaintiff, or if I

was him, have enough information to make an Election. Mr Lawrence went on to say

the Plaintiff had the first hurdle of knowing what to do and as such all information is

reasonably required to make that decision.

89. For the Plaintiff to make an Election, Mr Lawrence said the Plaintiff must base their

decision on the reliability of the information given to him and he should have

confidence of completeness and reliability. Beyond that stage, Mr Lawrence said the

same types of questions would be asked by a bank if the Plaintiff were to approach

them for Project Finance and the question would be ‘why should we?’

90. Mr Lawrence said he understood the maximum interest the Plaintiff would have

under the Agreement was 20% but he did not understand Project Finance to simply

be debt or borrowing and envisaged that it could include equity. However, Mr

Lawrence said he didn't envisage Project Finance would come from an IPO and issue

it meant borrowing of money from somebody that may include a bank or other

lending institution including private equity.

91. According to Mr Lawrence, the amount he understood from the SRK Report that

could be sought by the Plaintiff was approximately 20% of $300 million. Mr

Lawrence said he is aware that there is finance available for 20% shares in projects

but consideration would be on the manner in which the other participants may be

financing their contributions. Mr Lawrence said in the back of his mind during the

preparation of the Lawrence Report he sensed that that may be the direction the

Plaintiff would go to raise Project Finance if required. In those circumstances, Mr

Lawrence said a financier would require a feasibility study conducted to a particular

level of accuracy, whether it is a bank or some other source, of ± 10% to ± 15%

accuracy.

92. It is also the case, said Mr Lawrence, that banks and other financial institutions in

Australia to whom approaches for finance for mining projects are made will almost

invariably require the project proponent to engage an independent firm of engineers

to undertake a review of any feasibility study proffered by the proponent and have it

audited or a due diligence conducted upon it to ensure it has been properly done. The

cost of that review is borne by the proponent.

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93. Mr Lawrence confirmed that major banks have their own economics departments

that attend to their own economic forecasting of financial parameters including

interest rates, foreign exchange, discount rates and commodity prices. Some of those

functions maybe contracted out to consultants. Financial models for mining

proposals are also held by banks or they will utilise the services of a consultant. Mr

Lawrence said banks and other financial institutions will use their own data and

financial parameters when considering mining proposals by proponents and reach

their own conclusions as to the viability of the proposed project.

94. Mr Lawrence was asked by counsel for the 1st Defendant the following:

‘No. I’m just looking at the stage of what happens when someone goes with a

proposal with a feasibility study, how the bank actually enters into the process of

decision making? --- They don't do what you are doing until they are satisfied it is

complete, it's reliable, accurate, precise, all those things and if things are missing - if

certain things are missing, like an ore reserve or something, they simply don't

proceed. They don't bother to waste a scintilla. They have got limited money on a

number of people wanting a piece of it. They expect projects that they are going to -

and so does it internally. You have to have it cooked. It's like a cake; you don't sort of

selling half cooked.’

95. Mr Lawrence agreed the studying of the possible mining venture to exploit a mineral

deposit whether it's by scoping, prefeasibility or feasibility study is an iterative

process. There exists interdependence or interrelationship between the various

factors which affect both be technical and economic feasibility. However, Mr

Lawrence said what is technically feasible and what is economically viable does not

necessarily follow in the mining industry.

96. Further, Mr Lawrence said he would expect those that are involved in reviewing

proposals for finance for mining projects including those associated with the

engineering mining and geo-technical qualifications and those involved in the

financial qualifications would consider, in accordance with their obligations to any

professional bodies, the risks associated with the project and its viability from all

aspects.

97. The content of financial modelling is, according to Mr Lawrence, only as good as the

quality of the imports in and imports out. Financial modelling involves the

application of various sensitivities to determine the impact of various changes in

financial parameters.

98. Mr Lawrence said he prepares valuations of mining proposals and utilises the

services of other professionals depending on the nature of what is required.

According to Mr Lawrence, whether the project is doing a feasibility study, a

valuation or a due diligence the report that is produced is generally collaborative

involving people of different disciplines. The lead author will receive information

for from all other professionals and will give it a reality check by critically

evaluating its content.

99. Mr Lawrence was referred to the cut-off grades for iron ore contained within the

SRK Report. Mr Lawrence said the cut-off grades determine the mine design to

ensure the better grades of all are removed from the mine the first. As a consequence

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by assessing cut-off grades models can be prepared for pit design by varying various

parameters.

100. Mr Lawrence agreed that financial models used as part of a process of studying the

possible mining project is generally speaking to capture all costs which are

potentially going to be incurred by the project participants.

101. In re-examination, Mr Lawrence said he understood when preparing the Lawrence

Report the terms of the Agreement provided, at one end, for the Plaintiff to make an

Election to either contribute or, at the other end, to withdraw. Mr Lawrence said he

understood the word "contributions" to mean if the Plaintiff elected to take 20% he

would therefore be in that position of having to contribute and he would then have to

find money from somewhere.

Closing Submissions by the Plaintiff

102. The Plaintiff submits on an analysis of the documentary and oral evidence presented

in this case he has demonstrated to the requisite standard of proof the SRK Report

delivered by the 1st Defendant to the Plaintiff, on or about 25 January 2008, was not

the Study for the purposes of the Agreement because the SRK Report could not, and

did not, enable the Plaintiff to exercise his rights under either of clauses 4.6 or 4.7 of

the Agreement.

103. The Plaintiff’s assessment of the terms of the Agreement has previously been

referred to in this decision. The Plaintiff also relies upon the evidence of Mr

Lawrence and his assessment of the 3 three types of techno-financial studies of

mineral projects being ‘Scoping Study” of what could the mineral project be with

inputs accurate to only ± 40% - ± 50%, ‘Pre-Feasibility Study’ of what should the

mineral project be with inputs accurate to only ± 20% - ± 25%, and, ‘Feasibility

Study’ of what will the mineral project be with inputs accurate to only ± 10% - ±

15%.

The Role of SRK in the Preparation of the SRK Report

104. The Plaintiff submits the communications associated with the preparation of the

SRK Report and the SRK Report itself all demonstrates the 1st Defendant and its co-

owners, CML and FMG, all acted as one. The role of CML and FMG in the

management and flow of data and information to SRK and the engagement of

contractors is outlined in Appendix 26 to the SRK Report. (Exhibit 21, Volume 10,

pages 4048 to 4051).

105. SRK states in Appendix 26 to the SRK Report that CML, on behalf of the 1st

Defendant, approached SRK in July 2006 and requested SRK submit a proposal for a

Pre-Feasibility Study on the E. The Plaintiff submits the request from CML to SRK

in July 2006 for the proposed Pre-Feasibility Study was done by CML for the sole

purpose of generating a ‘completed feasibility study’ in accordance with the terms of

the Agreement. In January 2007, CML instructed SRK that ‘the FS would commence

in February 2007 with completion targeted for June 2007’.

106. The Plaintiff submits SRK in its own assessment of the SRK Report noted it was

accurate only to ‘Pre-Feasibility’ level. The Plaintiff says, on the basis of the

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unchallenged evidence of Mr Lawrence the level of ‘Pre-Feasibility’ accuracy is ±

20% - ± 25%.

107. Further, the Plaintiff says, as a whole, the SRK Report could never be more than the

accuracy of SRK's own work to a level of ± 20% - ± 25% that is despite SRK’s role

in the provision of its own work and its role in the compilation of the SRK Report.

108. The Plaintiff argues SRK attempts to draw a distinction between work it has

completed itself and work completed by contractor's or information, data or material

provided by others, including work or data and information provided by the 1st

Defendant or its co-owners, CML and FMG, when it refers to SRK being tasked

with ‘compiling a complete study report for PIO’.

109. Although the role of SRK was to compile work completed by both itself and others

and thereby provide to the 1st Defendant a feasibility study, the Plaintiff notes that

some of the work was provided directly to SRK from other contractors including

WP, HWE, Coffey and DRAP. The Plaintiff opines that, in the absence of any other

explanation from the 1st Defendant, the providing of aspects of studies directly to

SRK by other contractors maybe to allow the 1st Defendant to have greater control

over some parameters of the work of SRK.

110. Despite SRK receiving work directly from WP, HWE, Coffey and DRAP the

Plaintiff submits SRK considered that work ‘should be considered as integral to the

substance and outcomes of the report’. (Exhibit 18, Volume 7, page 1700).

111. The Plaintiff commented on the work of DRAP and WP that was received directly

by SRK. Those comments are as follows:

a. DRAP Study

The study completed by DRAP was described by DRAP as a

‘Scoping Study’. The nature and accuracy of the DRAP Study is

contained within it is disclaimer which states the study; ‘is based

largely and materially… on details, information and assumptions

provided by others and DRAP cannot therefore guaranteed the

correctness of the review or study’.

The opinions expressed by DRAP in its study are said by DRAP to

be ‘based solely on the information provided to DRAP’.

The Plaintiff submits the unchallenged evidence of Mr Lawrence is

that a ‘Scoping Study’ is accurate only to ± 40% - ± 50% and not

accurate to ± 20% - ± 25%. DRAP evaluated the accuracy of its

own study at ± 30% which the Plaintiff says he is well below the

level of a Pre-Feasibility study of ± 20% - ± 25%. This, submits the

Plaintiff, is further evidence of the efficacy of the various levels of

accuracy of such reports as described by Mr Lawrence.

Further, DRAP reports that their study was intended for the

confidential use of CML and not a distribution to any third party. It

follows submits the Plaintiff that SRK could only have received a

copy of the DRAP study from CML.

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b. Worley Parsons Study

The WP study was completed in two stages. The first stage was

used by SRK to estimate the cost of transporting minerals mined at

the tenements and is dated 25 October 2007. The second stage is

dated 3 December 2007 and is focused on what was described as

being on the eastern haul route.

WP describes the Stage 1 report as accurate to ± 40% or better. The

Plaintiff submits the Stage 1 report was no better than a ‘Scoping

Study’ in accordance with the categories alluded to by Mr

Lawrence.

WP describes the intention of the Stage 2 study ‘to further develop

their preferred option to a feasibility level of precision to achieve

the feasibility submissions timeline for the eastern route.’ The

Plaintiff submits the comment by WP of the intention of the Stage 2

study demonstrates that the Stage 1 report was less than a

‘Feasibility Study’ and no better than a ‘Scoping Study’ when one

compares it to the evidence and description of Mr Lawrence on the

various levels techno-financial studies.

The WP Study - Stage 2 was submitted directly to be 1st Defendant.

The executive summary of that study was noted by WP to be

accurate to ± 20% - ± 25% and noted as specifically falling short of

‘a definitive estimate of ± 15% accuracy’.

The language used in Stage 2 of the WP study reflects the evidence

of Mr Lawrence in that accuracy of ± 20% - ± 25% is something

less than a ‘Pre-Feasibility’ study or a ‘screening level estimate’.

The Plaintiff submits WP acknowledged that they did not reach the

level of accuracy of a ‘Feasibility’ level of precision with at least ‘±

15% accuracy’.

The key drivers emphasised in the ‘SRK Scope’ of the SRK Report

that place significance on the WP study were identified early in that

Report as being:

capital to construct the road train haul road,

operational cost of the road train haulage,

operational cost of the rail, port and ship loading facility

It was noted by SRK that the 1st Defendant focus resources on the

above three key areas to increase the overall accuracy of the study

in the time available.

112. The Plaintiff submits SRK certainly understood the SRK Report was intended to be a

‘Feasibility Study’ because SRK acknowledged that in the Transmittal Letter to the

1st Defendant. The Plaintiff noted that SRK identified the overall level of accuracy of

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its work as being something other than what was required as it noted the standard

that was reached was to a degree of accuracy of "Pre-Feasibility".

113. The significance of the level of accuracy of "Pre-Feasibility" in SRK Report was

made apparent, argues the Plaintiff, in the unchallenged expert evidence of Mr

Lawrence regarding the relationship between the three levels of techno-financial

studies in which he said:

“It is common ground throughout the Mineral Industry that there are 3 types of

studies concerned with examining the technical feasibility and economic viability of

exploiting a mineral deposit - a Scoping Study, a Pre-Feasibility Study and a

Feasibility Study - each with an increasing level of confidence and certainty in its

conclusions, due to an increasing level of accuracy and precision in the inputs and

generally greater comprehensiveness in the data. The selected inputs at every stage

must be demonstrably reasonable and objective, with the high expectations of

reliability been for a Feasibility Study, which is more about our business plan and

just construction of a mine and its facilities.”

114. The Plaintiff submits the increasing accuracy, precision and comprehensiveness of

the data results in the ‘high expectation of reliability.. for a Feasibility Study’. From

a commercial sense, the Plaintiff says the evolution required by the different levels

of studies would ensure a financial institution or other source of finance would be

more disposed to lend money if a proposal that is well documented is presented in a

report of what a mineral project will be and is considered to be accurate, concise,

comprehensive and reliable as confirmed by the expert evidence of Mr Amos.

115. The Plaintiff argues SRK was well aware of the purpose of the SRK Report as it

noted the following:

‘Pilbara Iron ore Pty Ltd (PIO) a 50/50 incorporated joint venture between

Consolidated Minerals Ltd (CML) and Fortescue Metals Group (FMG) , is farming

into exploration licence 47/1140 (EL 47/1140) under the Mindy Mindy Farmin and

Joint Venture Heads of Agreement. Under the terms of this agreement PIO must

conduct and present a Feasibility Study (FS) on the viability of EL 47/1140..’ (See:

Exhibit 18, Volume 7 p 1705)

116. Further, SRK stated the following:

‘…the objective of the FS is to determine whether a particular project is:

Technically and practically executable;

Commercially possible and adhere to legislative requirements; and

Financially viable.’

(See: Exhibit 18, Volume 7 p 1706)

117. The Plaintiff contends it is clear SRK well understood the requirements of the task it

was embarking on in the preparation of the SRK Report. Further, the Plaintiff

contends SRK clearly understood it was obliged to produce a ‘Feasibility Study’ and

not a ‘Pre-Feasibility Study’ and that is why SRK went to considerable lengths in the

‘SRK Scope’ to explain the SRK Report was not accurate to the required level of ±

10% - ± 15%.

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118. The Plaintiff relies upon the expert evidence of Mr Lawrence of the role of each

level of techno-financial studies and the requirement for there to be increasing levels

of accuracy in the input data associated with those studies. In that regard, the

Plaintiff submits it is only the highest level of accuracy of inputs, ± 10% - ± 15%, in

a ‘Definitive/Bankable/Feasibility Study’ that is likely to obtain funding.

119. Accordingly, it is the Plaintiff's case that, a ‘Pre-Feasibility’ level of accuracy (at

best) adopted by the SRK Report precluded the Plaintiff's exercise of his rights under

the Agreement to seek to raise Project Finance because it failed to provide a

‘feasibility study’ that was accurate, independent, comprehensive and reliable

The Feasibility Study

Purpose

120. The Plaintiff notes the parties consented to split the case by dealing with 2

preliminary questions of law before going on to the question of the alleged breach.

The preliminary questions of law and its result has been summarised earlier in this

decision. The Plaintiff submits the significance of the “Yes” answers to both the

preliminary questions of law is the purpose of the Study required by the Agreement

and its content have been determined and those issues are no longer a matter for

argument.

121. The purpose of the Study is that set out in paragraph 11 of the Amended Plaint and

its required contents are identified by the Implied Term at paragraph 12 of the

Amended Plaint.

122. The Plaintiff’s case on ‘breach’ has to be determined in the context of the PI

Decision.

123. Accordingly, the Plaintiff submits, the purpose of the Study to be completed by the

1st Defendant was to inform the Plaintiff's Election to allow the Plaintiff to decide

either to:

a. Withdraw and first offer to transfer his interest to the 1st Defendant

pursuant to clause 4.6 of the Agreement, for the then net present value of

the interest calculated by reference to the Study, or

b. Contribute to Joint Venture Expenditure and seek to raise Project

Finance pursuant to clause 4.7 of the Agreement.

124. It is of note, submits the Plaintiff, the choices the Plaintiff had to elect from as

provided in the Agreement were choices solely to be made by the Plaintiff and then

only made on the basis of a ‘completed feasibility study’. Accordingly, the continued

participation by the Plaintiff is determined by the Election made by the Plaintiff. In a

like manner, the continued participation by the 1st Defendant is made by its

assessment and evaluation of a ‘completed feasibility study’. That issue was referred

to by the Warden in the PI Decision at [81] to [83].

125. In reference to the PI Decision, the Plaintiff submits that whilst the ‘completed

feasibility study’ was for the benefit of both participants, it was to inform the

Plaintiff of his Election and future participation in any joint venture. The Election

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was a matter solely for the Plaintiff and was not a joint decision between the Plaintiff

and the 1st Defendant.

126. The Plaintiff submits, the importance of the Study is the basis to determine

participation in the joint venture by the Plaintiff’s Election and the 1st Defendant's

decision whether to withdraw or seek the transfer of the 80% Joint Venture Interest

and the ‘completed feasibility study’ could be used by the ‘Joint Venture participants

to utilise the purposes of advancing the objects of the Agreement’. (see: PI Decision

at [81])

127. Further, the Plaintiff submits this is what makes the Agreement more than a mere

‘farmin’ Agreement. The Agreement is at the heart of the determination of who is to

continue to participate in the joint venture in respect of the mineral project described

in any ‘completed feasibility study’ delivered to the Plaintiff by the 1st Defendant.

Until those who are to continue to participate in the joint venture identified the

mineral project described in any ‘feasibility study’ cannot be advanced.

128. The manner contemplated by the Agreement to determine who was to participate in

the joint venture is by the Plaintiff either electing to withdraw, or, electing to

contribute, pursuant to clause 4.6 of the Agreement, but, in the event he can't raise

Project Finance, the Plaintiff ultimately cannot continue to participate in the joint

venture at all (save that the Plaintiff would still receive a royalty). In such

circumstances, the 1st Defendant would be left with a 100% Joint Venture Interest

and the consequence would be that the Agreement would be rendered nugatory.

129. Accordingly, the Plaintiff submits the only manner in which he can continue to

participate in the joint venture is if he makes his Election to contribute and is able to

raise Project Finance as required by clause 4.7 of the Agreement. The choices the

Plaintiff had on his Election are all dictated by the ‘feasibility study’ to be

‘completed’ by the 1st Defendant.

130. The Plaintiff states SRK were requested by the 1st Defendant to examine and report

on a very discreet project based solely on the E. SRK described the project the

subject of the SRK Report as follows:

‘This study reports the likely outcomes from establishing a mining and processing

operation of the deposit utilising or only from E 47/1140, within the limits of the

study supplied by PIO’ (Exhibit 18, Volume 7, Tab 46, page 1700)

131. Notwithstanding the discrete project based solely on the E that SRK took 5 years to

complete a report on, SRK noted:

‘..further studies are required on a number of aspects of the feasibility study to allow

certainty in the final detailed mine design stage of the project’(Exhibit 18, Volume 7,

Tab 46, page 1700)

132. The Plaintiff submits there was no prospect that he could be armed with any

‘feasibility study’ other than the SRK Report during the 90 days in which he had to

make his Election, or during the Finance Raising Period described in clause 4.7 (a)

of the Agreement, that being 12 months less the time taken to make the Election. The

Plaintiff argues if the SRK Report was not ‘complete’, in that, it either (i) did not

allow the him to seek to raise Project Finance pursuant to clause 4.7 of the

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Agreement, (ii) was not independent, (iii) was unreliable, or (iv) was incomplete,

then any Election by him would become meaningless because, ultimately, he would

be forced to withdraw from the Joint Venture.

133. In that regard, the Plaintiff refers to the PI Decision at [85] in which the Warden

found the entire purpose of the Agreement was:

‘.. to determine if it was feasible for the Joint Venture to explore and, if warranted,

mine the Tenement. The tool agreed by the Plaintiff and the 1st Defendant in the

Agreement to determine the feasibility of the very purpose the Joint Venture was the

Feasibility Study the 1st Defendant agreed to undertake in return for gaining an 80%

Joint Venture Interest. The Plaintiff and the 1st Defendant would be entitled under

the terms of the Agreement to make their own independent and informed decision on

the basis of the completed Feasibility Study whether they considered the objects of

the Joint Venture were in fact feasible. Upon making such independent and informed

decisions from the content of the Feasibility Study both the Plaintiff and the 1st

Defendant could make the election of which of their rights they wish to exercise

under the Agreement.’

134. Accordingly, the Plaintiff maintains it is the ‘completed feasibility study’ that

describes the only project for which any Project Finance could be sought by the

Plaintiff. It is also the ‘completed feasibility study’ that provides the basis for

calculating the net present value of the Plaintiff's 20% Joint Venture Interest if the

Plaintiff makes his Election to withdraw from the joint venture.

135. The only Project Finance the Plaintiff is entitled to raise are those described under

clause 4.7 of the Agreement in respect to the Plaintiff's contribution to Joint Venture

Expenditure, that the Plaintiff described as being in respect to 20% Joint Venture

Interest. Joint Venture Expenditure is a defined term under the Agreement and is

described by the Plaintiff as being both retrospective and prospective to include

holding costs of the tenements and future costs towards project expenditure.

136. The Plaintiff submits that SRK understood, as Mr Lawrence opined, a ‘Feasibility

Study’ is required to address a particular mineral project as that project ‘will be’ and

also to address the financing of it.

137. To that extent, the Plaintiff submits, the unchallenged expert evidence of both Mr

Lawrence and Mr Amos was to seek Project Finance such a feasibility study to be

complete must be accurate to ± 10% - ± 15% and include a Reserve Statement.

138. The Plaintiff maintains the only purported ‘feasibility study’ available to him was the

SRK Report that was not complete because it was neither accurate to ± 10% - ± 15%

nor did it include a Reserve Statement.

139. Accordingly, the Plaintiff says the failure of the 1st Defendant to ‘complete’ a

‘feasibility study’ within the meaning of the Agreement rendered the Plaintiff's

Election meaningless and deprived him of the opportunity to participate in the joint

venture.

140. The second issue determined by the Warden in the PI Decision was whether the

Implied Term pleaded by the Plaintiff at paragraph 12 of the Amended Plaint was to

be implied. The Warden determined it was the implied term of the Agreement that

for there to be a ‘completed feasibility study’ it must that any feasibility study be

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accurate, independent, reliable (not incomplete or inaccurate) and include a Reserve

Statement.

141. The Plaintiff submits the basis upon which the Warden determined the Implied Term

was to be implied captured the essence of the Plaintiff's case, that is the SRK Report

did not put the Plaintiff in a position where he could exercise his rights under clauses

4.6 and 4.7 the Agreement because it was not complete and provided him either with

‘no information or insufficient information to enable him to exercise his rights’.

142. The Warden said in determining that the Implied Term was to be implied in the PI

Decision at [92] – [94] the following:

’92. The terms of the Agreement does not define nor specifies what the 1st Defendant

must do to be said to have ‘completed a Feasibility Study on the Tenements'

pursuant to clause 4.2 of the Agreement. On a proper construction of the

Agreement it is clear that implications must be made to enable the terms of the

Agreement to be properly implemented for the benefit of both the Plaintiff and the

1st Defendant.

93. To enable the Plaintiff to properly inform himself of his election under the

provisions of clause 4.6 of the Agreement or to seek to contribute to Joint Venture

Expenditure and raise Project Finance pursuant to the provisions of clause 4.7 of

the Agreement goes without saying that the Feasibility Study must contain

information of the standard that commercially validates the findings or conclusions

of the information contained within the Feasibility Study. There is no common

sense for the 1st Defendant to suggest it was not contemplated by the Plaintiff that

the Feasibility Study it was required to complete within 5 years would not be

utilised either by it or the Plaintiff for the advancement of any obligations or rights

they had under the terms of the Agreement or for the advancement of the very

purpose of the Agreement being ‘for exploring and, if warranted, developing and

mining tenements’ as contained within clause 2.1 of the Agreement.

94. If that were not the case the 1st Defendant could, on production of a document of

little commercial worth purported to be a document created in compliance with

clause 4.2 of the Agreement, earn an 80% Joint Venture Interest and leave the

Plaintiff in a position that he was none the wiser as to the feasibility of exploring

and, if warranted, developing and mining tenements and have no information or

insufficient information to enable him to exercise his rights under clause 4.6 of the

Agreement and therefore destined the Plaintiff to lose his Joint Venture Interest.

Such a situation is not contemplated on a proper construction of the Agreement.’

143. Accordingly, the Plaintiff’s case on breach of the Agreement focusses on paragraphs

14 and 19 of the Amended Plaint and engages deficits in the SRK Report going to

accuracy, independence, reliability and completeness.

Breach

Accuracy – Clause 14(1) and 19A Amended Plaint

144. The Plaintiff submits the PI Decision require that any ‘completed feasibility study’ be

accurate enough to enable the Plaintiff to seek to raise Project Finance pursuant to

clause 4.7 of the Agreement. If the Plaintiff elected to contribute to Joint Venture

Expenditure it would be in accordance with a 20% Joint Venture Interest to make

contributions in accordance with clauses 4.7(b) and 4.79(c) of the Agreement.

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145. The Plaintiff maintains if a ‘Feasibility Study’ that was accurate to it least ± 10% - ±

15% was required to seek Project Finance then the Plaintiff is entitled to judgement

against the 1st Defendant because the SRK Report was not such a ‘feasibility study’.

146. The Plaintiff submits its case on accuracy relies upon the breaches pleaded at

paragraphs 19A(i), (ii), (iii) and (iv) of the Amended Plaint that go to the level of

accuracy of:

a. the work completed by SRK (19A(i));

b. the DRAP Study (19A(ii));

c. the WP Study (19A(iii)), and

d. the financial sensitivity prescribed by SRK for the purpose of calculating

the net present value of the project (19A(iv)).

147. It is the Plaintiff's case that in order for the Plaintiff to be able to seek to raise

Project Finance pursuant to clause 4.7 of the Agreement the accuracy of a

‘completed feasibility study’ was required to be at least ± 10% - ± 15%. That degree

of accuracy of ± 10% - ± 15% for a ‘completed feasibility study’ is established,

submits the Plaintiff, by the unchallenged expert evidence of Mr Lawrence and Mr

Amos.

148. The Plaintiff relies upon the evidence of Mr Lawrence that if techno-financial

studies are incomplete or not to a high enough standard where material inputs are

expected to be known to it least ± 10% - ± 15% as in a Bankable/Definitive/Final

Feasibility Study the project funding application would be refused. The objective

review and assessment by Mr Lawrence of the SRK Report concluded the SRK

Report did not meet these criteria and his opinion was not challenged in cross-

examination. Similarly, Mr Lawrence held the opinion that project financiers would

be unable to assess the commercial merits of the exploitation of the E on the basis of

the SRK Report and Project Finance would not be made available to fund the

Plaintiff’s participation in any joint venture. The opinions of Mr Lawrence as to the

level of accuracy required to seek to raise Project Finance and the content of the

SRK Report, submits the Plaintiff, all fit into the various types of reports described

by Mr Lawrence as Scoping Studies, Pre-Feasibility Studies and Feasibility Studies.

149. The Plaintiff also submits Mr Amos gave unchallenged expert opinion that

established the levels of accuracy within the SRK Report were not of a level of

accuracy that would receive any serious consideration for finance particularly where

inputs on hydro-geological, geotechnical and mining issues were classified as pre-

feasibility levels of accuracy. Mr Amos concluded the SRK Report cannot be

considered a study which contains comprehensive information and which has an

accuracy level of ± 10% - ± 15%.

150. The Plaintiff then dealt with each of the alleged breaches on this ground of the

Amended Plaint.

Work by SRK

151. The work completed by SRK to assess the hydro-geological, geotechnical and

mining issues were classified by SRK as being at a level of ‘Scoping’ to ‘Pre-

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Feasibility' levels of accuracy and the resulting overall levels of accuracy for the

work completed by SRK was classified as ‘Pre-Feasibility’.

152. The Plaintiff submits SRK stated in the SRK Report that it was required to produce

a “Feasibility Study” and not a ‘Pre-Feasibility Study’. However, the Plaintiff

submits that because of SRK’s role as a compiler and analysis of information

provided by others for the purposes of the SRK Report the level of accuracy in the

vicinity of ± 20% - ± 25% tainted the whole of the SRK Report. Accordingly, the

Plaintiff submits the SRK Report was effectively a ‘Pre-Feasibility Report 'and not

a ‘Feasibility Study'.

DRAP Study

153. Studies provided to SRK for the purpose of producing the SRK Report, including

the DRAP Study, were integral to the substance of the outcome of the SRK Report

and were not accurate to a level of ± 10% - ± 15%. The Plaintiff submits the DRAP

Study was a ‘Scoping Study’ that was evaluated by DRAP to an accuracy of ± 30%.

That was well below the level of a ‘Pre-Feasibility Study’ and certainly not within

the requirements of a ‘Feasibility Study’.

WP Study

154. The WP Study was produced to estimate cost of transporting minerals and was

expressed by WP to be ‘a screening level estimate, normally defined as ± 25% - ±

30% accuracy’. The WP Study stated that considerably more engineering was

required to produce a definitive estimate of ± 15% accuracy.

155. In similar circumstances to the DRAP Study, the Plaintiff the submits when one

combines the level of accuracy of the WP Study with the levels of SRK’s own work

the multiplied outcome results in an even higher level of inaccuracy.

Sensitivity Analysis

156. The Plaintiff points to the financial sensitivity ascribed by SRK for the purpose of

calculating the net present value was ± 40% for iron ore pricing and ± 50% for

operating costs. The use this level of sensitivity was the subject of opinion by Mr

Amos who stated:

“However, there can be no confidence in the accuracy and precision of all inputs to

the SRK Financial Model from an objective review of the evidence in the MM Study

since no final level of accuracy/ provision is provided. One would reasonably expect

the accuracy/precision level of inputs to be given in such a study and that it would be

the required ± 10% - ± 15%. Instead, there is only the indication that it was much

less precise that (sic) required because the financial sensitivity analysis was

performed using a much higher ± 40% which is more typical of a Scoping Study than

a Feasibility Study.”

Independence – Clause 19B Amended Plaint

157. The Plaintiff submits the SRK Report was not independent in that it relied on

information and data provided by the 1st Defendant, including its co-owners CML

and FMG, that was not independently verified by SRK.

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158. The term ‘independently verified’ is used in the context, submits the Plaintiff, to

refer to the fact that SRK accepted such information and data uncritically and did not

seek to confirm the accuracy or reliability of such information or data. The Plaintiff,

says SRK, acknowledged it accepted the information and data uncritically in the

Transmittal Letter. (Exhibit 18, Volume 7, Tab 46, page 1701).

159. The Plaintiff identifies the information and data used in the compilation of the SRK

Report includes the 3 categories in paragraphs 19B(i), (ii) & (iii) of the Amended

Plaint as:

a. quantity, extent and nature of the minerals,

b. the financial input parameters used by SRK to optimise the estimated

resources of the tenement deposit, and ,

c. iron ore price forecasts and marketing.

160. The unchallenged opinion evidence of Mr Lawrence, argues the Plaintiff, is

supportive of his case when Mr Lawrence stated in the Lawrence Report that it is:

‘imperative that any Feasibility Study produce an objectively accurate result that can

be relied upon when making a decision on the technical feasibility and economic

viability of a project.’ and ‘otherwise it is deficient and there can be no confidence in

its content and conclusion’ and further that, ‘is widely inputs to any Feasibility Study

must come from independent sources about which there can be no reasonable

apprehension of bias.’ (Exhibit 3 page 47 lines317-1324)

161. The Plaintiff argues SRK identifies within the SRK Report that it did not

independently verify the information and data it used particularly as follows:

a. the accuracy of the results and conclusions from the review are entirely

reliant on the accuracy and completeness of the information and data

supplied by others (Exhibit 18, Volume 7, page 1733);

b. SRK optimised the resource primarily based on financial input parameters

supplied directly from CML, DRAP, FMG, WP and the 1st Defendant and

did not independently undertake any first principal costings studies or

independent benchmarking studies to verify the information supplied

(Exhibit 18, Volume 7, page 1701);

c. the financial model presented in the SRK Report relies on the same

information used with the mining study, but also included further

information supplied by the 1st Defendant (Exhibit 18, Volume 7, page

1701), and

d. SRK has not critically reviewed the WP, DRAP, HWE or Coffey reports

and has taken information supplied from these reports in good faith

(Exhibit 21, Volume 10, page 4051).

Clause 19B(i)(a) and 19B(ii) of the Amended Plaint

162. The Plaintiff submits, SRK was instructed by the 1st Defendant not to provide a

Reserve Statement for the ‘Tenements’ as part of the SRK Report (‘SRK Scope”,

Exhibit 21 Volume 10 page 4051) that being despite the fact such a Reserve

Statement was identified by SRK, by reference to the JORC Code (2004) as being

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the ‘minimum’ and standard ‘in to ensure that investors and their advisers have all

the information they would reasonably require for forming a reliable opinion on the

results and estimates are being reported’ such a statement was not included in the

SRK Report (Exhibit 21, Volume 10, page 4051).

163. It is the position of the Plaintiff such an instruction by the 1st Defendant

compromised the independence of the SRK Report.

164. The Plaintiff argues such a lack of independence is demonstrated in that the study by

Twomey and Chen (2006) was prepared internally by the 1st Defendant and went

into the critical question of the quantity, extent and nature of the minerals. (Exhibit

19, Volume 8, page 2127)

165. The Plaintiff further argues, the Warden’s findings in the PI Decision dispelled the

argument by the 1st Defendant that the JORC Code (2004) and the VALMIN Code

(2005) did not apply in respect of attending the proper content of a ‘completed

feasibility study’. (PI Decision at [96])

166. The requirement there be a Reserve Statement included in a ‘completed feasibility

study’, the Plaintiff contends, arises from both the JORC Code (2004) and the

established practice by project financiers as noted by the expert evidence of Mr

Amos. (see: Exhibit 4, page 14, [30])

167. It is argued by the Plaintiff that SRK accepted the SRK Report should be JORC

compliant. In that regard, the Plaintiff says the description of a study by Twomey

and Chen (2006) titled ‘Final JORC Report’ was used by SRK to determine the

extent of the mineral resource on the ‘Tenements’. SRK stated in the ‘SRK Scope’

that the SRK Report was based upon the ‘mineralised resource’ rather than a JORC

compliant reserve:

“SRK was not asked to report on a reserve statement for the Mindy Mindy FS.

The use of the term ‘ore’ in this report does not imply that the material has been

assessed following the guidelines of the JORC Code and should be read as a

‘mineralised resource’ above 55% Fe, 3.32 Al203 and 7.725% SiO2 ONLY’.

Clause 19B(i)(b) of the Amended Plaint

168. The Plaintiff submits that most of the financial input parameters relied upon by SRK

in compiling the SRK Report were provided by the 1st Defendant, including from its

co-owners CML and FMG, and none of those parameters were independently verify.

An analysis, by the Plaintiff, of the final financial model used by SRK evidences, it

is submitted, the following sources of information and data:

From CML:

a. exchange rates to be used,

b. date for variable and fixed native title compensation,

c. corporate data regarding the nominal discount rate, annual CPI and corporate overheads

and taxes,

d. Global Lump Ratio data,

e. information on ‘contingencies’ to be utilised,

f. information and data on ore moisture content and a Wet or Dry model,

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g. Ore Shipping Specifications to be used including data on Fe%,

h. Office Capex Costs,

i. Process Plant Salvage data, and,

j. operating and labour costs.

From FMG:

a. data for use on a Royalty Lump, Royalty Fines and Ammon Royalty, and,

b. metal prices used for Iron Ore Pricing (Fines) and the Annual Iron Ore Price Increase.

Clause 19B(i)(c) of the Amended Plaint

169. The Plaintiff submits the iron ore prices provided to SRK were created by using the

AME data September 2007 to 2008 and using FMG’s ‘internal conservative

assumptions’. The Plaintiff further submits, the ultimate decisions regarding the

source of iron ore prices to be used in the SRK Model was made by CML. The

sources for the ‘Iron Ore Pricing (Fines) ’ and ‘Annual Iron Ore Price Increases’ is in

a memorandum from Mr Daman Edwards of FMG to Mr Hans Mohle of CML in a

memorandum dated 11 September 2007.

170. The unchallenged expert opinion evidence given by Mr Lawrence is relied upon by

the Plaintiff to establish the lack of independence in the SRK Report including:

‘The basic parameters and assumptions underlying the SRK Model Pre-Feasibility

Cost Model calculations appear to me to be mainly based upon uncritical acceptance

of the unreasonably pessimistic, unrealistically inaccurate, and/or unsubstantiated

import provided by FMG and CML; an import from sub-consultants that was

disclaimed and/or stated to be of an unacceptably unreliable accuracy and precision

for a Feasibility Study.’ (Exhibit 3, page 47 & 48, line 1336-1341).

171. Further examples of what the Plaintiff says is lack of independence in the SRK

Report is noted in the Lawrence Report and includes:

‘the absence of any independently prepared and verified JORC Code compliant

reserves is another fatal flaw in the…[SRK Report] … because they underpin any

claim about the quantity and quality of iron ore that can be produced. Iron ore

specifications provided by FMG via ….[the 1st Defendant] … were uncritically

accepted and used by SRK’. (Exhibit 3, Page 49, lines 1394-1397)

and,

‘Without independently verify data to acceptable levels of accuracy/precision (± 10%

- ± 15%), especially with key data coming from non-independent related parties;

with overall VALMIN Code non-compliance; without a JORC Code-compliant Ore

Reserve Statement…[the SRK Report]…. is not independent’. (Exhibit 3, page 50,

lines 1425-1430)

and, further,

‘the SRK Report failed to ensure that many critical inputs were free from

apprehension of bias.’ (Exhibit 3, page 64, Lines 1860-1861)

172. The Plaintiff also submits the unchallenged evidence of Mr Amos was also critical of

the lack of independence in the SRK Report including:

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‘In some instances information is totally lacking… in other instances.. there is no

independent checking of data or conclusions with those factors in mind I do not

consider that the SRK Report constitutes a feasibility study as would normally be

expected to be delivered to a potential project financier for consideration to advance

funds’. (Exhibit 4, page 25, paragraph [52])

Reliable and not Inaccurate or Incomplete – Clause 19C Amended Plaint

173. The Plaintiff argues the SRK Report was not a Feasibility Study that was reliable or

complete as required by the Implied Term as the information and data supplied to

SRK by the 1st Defendant was unreliable, inaccurate or incomplete. The failure to

meet that requirement is made clear, submits the Plaintiff, by the content of the SRK

Report itself and confirmed by the expert opinions of Mr Lawrence and Mr Amos.

174. The acknowledgement by SRK that further significant work remains to be done is

apparent within the Transmittal Letter and identifies additional in-depth studies that

would have to be undertaken at significant costs and includes:

a. a Resource Review;

b. further Geotechnical Review;

c. further Hydrogeological Review;

d. further Mining and Environmental Studies, and

e. a Port Option Review.

175. Further, the ‘Executive Summary' of the SRK Report records the need of a further

geotechnical work to be completed with an estimated cost of $100,000 in fees.

176. The Plaintiff further submits the evidence that establishes the SRK Report was

inaccurate or incomplete includes:

a) no reference to and no substantiated field investigation of data

gathered from the E concerning hydro geological conditions;

b) provision for a further $400,000 to be spent on hydrological study

and $500,000 to be spent on a ‘definitive feasibility study’;

c) failure to confirm by additional fieldwork, geotechnical analysis

based on old drill records and core photos from earlier Scoping and

Pre-Feasibility work in;

d) information based on previous Scoping and Pre-Feasibility of a

mineral resource review completed by CML in 2006 constrained by

a 45% Fe grade shall and did not include the dilution data that was

collected;

e) excludes two areas of the ore body and establishes the need for

more detailed feasibility studies in a number of areas including all

loss parameters, effects of footwall undulation on dilution/ore loss,

and the water table and volume of ‘wet ore’, determined the

schedule feeding the ‘wet ore’ through the process plant, further

investigate the in-pit and external dewatering system, assess the

extent to which all might be extracted using free dig or rip, doze

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and load operations as an alternative to drill and blast, explore the

opportunity to minimise the amount of waste hauled external to the

pit as this will impact positively on mining costs, ensuring pit

operations are adequately protected against cyclones, define the

extent of the order deposit in the southern portion of the tenement

as it was not including financial evaluations and could add more

than 1.3 million tonnes or ore that was excluded from feasibility

study;

f) estimate for the payment of a 2.5% royalty.

177. The Plaintiff points to the opinion of Mr Lawrence that if material technical studies

remain to be undertaken the SRK Report is rendered unreliable and there can be little

confidence in its results. The failure to provide a JORC Code compliant Reserves

Report as would be expected by potential financiers in a Feasibility Study is also

evidence Mr Lawrence says renders the SRK Report more unreliable.

178. There is effectively no information and data in the SRK Report with respect to the

hydrogeology, dewatering and groundwater salinity issues on the E and that,

according to Mr Lawrence, has an impact on the completeness of that report. The

Plaintiff also highlights the SRK Report acknowledges the need to carry out further

hydrogeological drilling and consultant study on the Tenements for the next level of

the Feasibility Study. The lack of hydrogeological information is inextricably linked,

according to Mr Lawrence, to a similar lack of tenement specific environmental

management and approval information that would impact on a project financier

considering funding options until regulatory approvals are in place.

179. Further, the Plaintiff submits that Mr Lawrence was of the opinion the lack of

information of the geotechnical nature and missing Mining Study and Port Option

Review would have a moderate to minor impact but overall says the absence of such

studies would make the SRK Report unreliable.

180. In a similar vein, Mr Amos also reached similar conclusions, as did Mr Lawrence,

concerning the incompleteness of the SRK Report and its potential effect upon any

application for Project Finance.

Reserve Statement – Clause 14(2) and 19D Amended Plaint

181. The Plaintiff submits the SRK Report was not complete because it failed to include a

Reserve Statement. Further, the Plaintiff submits the 1st Defendant does not dispute

the SRK Report did not contain a Reserve Statement.

182. SRK stated in the SRK Scope that the SRK Report was based upon the “mineralised

resource” rather than JORC compliant reserves because:

‘SRK was not asked to report on a reserve statement for the Mindy Mindy FS.

The use of the term ‘ore’ in this report does not imply that the material has been

assessed following the guidelines of the JORC Code and should be read as a

‘mineralised resource’ above 55% Fe, 3.32% Al203 and 7.725% Si02 ONLY.’

183. The Plaintiff submits the evidence of Mr Lawrence that an appropriate quantity and

quality of ore reserves are critical in the final economic assessment of an iron ore

project. Reference was made by Mr Lawrence to a paper by Butler (1994) which

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describes ‘a banker's view of cash flow’ confirms the opinion of Mr Lawrence that

ore reserves are required before project funding could realistically be expected to be

allocated.

184. Further, the Plaintiff argues Mr Lawrence also gave evidence that a Reserve

Statement, not an ore resource statement is required in the SRK Report which has

been given to the Plaintiff for, inter-alia, the purpose of the Plaintiff making his

Election under the Agreement with such an Election only being able to be made on a

reasonably informed commercial basis. The Plaintiff also relies on the opinion of Mr

Lawrence that there is no evidence of any material attempts by SRK to critically

verify the assumptions behind the critical inputs to its conclusions as would be

expected under the JORC Code (2004) and VALMIN Code (2005).

185. The Plaintiff also relies upon the observations and opinions of Mr Lawrence that the

absence of any independently prepared and verified JORC Code ore reserve is

another fatal flaw in the SRK Report because that underpins any claim about the

quantity and quality of iron ore that can be produced. Mr Lawrence also noted the

iron ore specifications provided by FMG via the 1st Defendant were uncritically

accepted and used by SRK.

186. The unchallenged opinions of Mr Amos are also relied upon by the Plaintiff to

demonstrate the consequences of the lack of a Reserve Statement. Mr Amos noted

the lack of a Reserve Statement would imply that the project cannot be demonstrated

to be economically viable at this time, and, the inclusion of a Reserve Statement

within the Feasibility Study would be expected by a great majority of financiers,

especially if asked to finance a minority joint venture in a mining project. Mr Amos

went on to note the successful raising of project finance without a Reserve Statement

would be highly improbable.

187. In particular, the Plaintiff relies upon the acknowledgement by SRK of the JORC

Code (2004) as being the ‘minimum’ standard ‘to ensure that investors and advisers

have all the information they would reasonably require for forming a reliable

opinion on the results and estimates being reported.’ (Exhibit 21, Volume 10, page

4051)

1st Defendant’s Defence

Affirmative Defence

188. The Plaintiff argues the 1st Defendant pleads a denial at paragraph 19(c) of its

Second Further Amended Response that the SRK Report ‘failed to conform’ with the

alleged Implied Term. However, the Plaintiff says the 1st Defendant then pleads in

the Particulars to paragraph 19(d) of the Second Further Amended Response (“the

Particulars”) an affirmative defence the SRK Report did meet the requirements of

the Implied Term.

189. It is not the case, argues the Plaintiff, the 1st Defendant can refer to the Implied Term

as an ‘alleged implied term’ when the PI Decision found the Implied Term is a term

of the Agreement and if the SRK Report does not meet the terms of the Implied

Term then the 1st Defendant has failed to deliver a ‘completed feasibility study’ for

the purposes of the Agreement.

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190. The 1st Defendant was required to provide references of the material upon which it

relied in support the Particulars. That material was provided in the form of a Table

referred to a ‘References to Feasibility Study in 1st Defendant’s Particulars’ dated 18

March 2013. The Plaintiff states that Table is the only account available of the

meaning of the Particulars in the context of the voluminous material adduced into

evidence in this proceeding.

1st Defendant’s Particulars of Defence – Generally

191. The Plaintiff observed the 1st Defendant adduced none of its own expert evidence nor

did it adduce any evidence at all in support of the affirmative defence pleaded in the

Particulars.

192. Further, the Plaintiff submits, the pleadings by the 1st Defendant in the Particulars

1(a) state ‘the authors of the SRK Report’ reached their conclusion ‘for reasons that

were fully explained’ that the ‘undertaking of a development and mining operation

on any part of the tenement is as a stand-alone activity indicated marginal economic

returns and net economic parameters would need to change significantly in order to

return results which would lead to investment.’ The 1st Defendant also pleaded at

paragraph 1(b) of the Particulars that ‘the authors of the SRK Report reached their

conclusions based on calculations of various kinds and other non-quantitative

evaluations that were considered it in an iterative and independent manner all of

which were assessed as a whole’.

193. None of the ‘authors’ were called to give evidence regarding the significant detail

relied upon by the 1st Defendant in paragraph 1(c)(i)-(iv) of the Particulars upon

which it is contended the conclusions expressed in the SRK Report were based.

194. The 1st Defendant, despite having every opportunity to do so and in the absence of

any suggestion they were unable to do so, submits the Plaintiff failed to call or

adduce any evidence from the ‘authors of the SRK Report’ who could give evidence

about the matters they took into consideration, their reasoning and matters they

independently verified, how thy explained that reasoning, their conclusions and what

they were based upon and how it could be said the SRK Report could be constituted

as a ‘feasibility study’ that it had been commissioned to provide.

195. In those circumstances, the Plaintiff submits, the Warden should draw an inference

the ‘authors of the SRK Report’ were unable to give any evidence that would assist

the 1st Defendant in establishing the affirmative defences pleaded in the Particulars.

196. The Plaintiff argues the SRK Report speaks for its self as there is no evidence before

the Court from the ‘authors of the SRK Report’ they independently verified the

matters pleaded in paragraphs 3 and 4 of the Particulars, or evidence regarding the

general and unparticularised allegations at paragraphs 1(a) of the Particulars, or what

they took into consideration and whether those matters included the matters pleaded

in paragraph 1(b) and (c) of the Particulars.

197. The Plaintiff drew the attention of the Warden to the consideration of the High Court

in Jones v Dunkel (1959) 101 CLR 298 in respect to when an adverse inference

might be drawn from the unexplained failure of a party to lead evidence from

particular witnesses. The considerations of the scope and operation of the principles

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in Jones v Dunkel (supra) in the decision in the High Court in RPS v The Queen

(2000) 199 CLR 620 at [25]-[26], Kuhl v Zurich Financial Services Australia Ltd

(2011) 243 CLR 361 at [63]–[64] and the Supreme Court of WA (Court of Appeal)

in Fazio v Fazio [2012] WASCA 72 at [135] were all referred to by the Plaintiff.

198. The Plaintiff submits it is the 1st Defendant who needs to explain or contradict the

discrepancies identified by the Plaintiff in the SRK Report in circumstances where

the authors of the SRK Report had been commissioned by the 1st Defendant and

acted upon the 1st Defendant instructions. In those circumstances, the Plaintiff argues

the appropriate inference that should be drawn is the evidence of the ‘authors of the

SRK Report’ could not assist the 1st Defendant.

Paragraph 1 of the 1st Defendants Particulars

199. In paragraph 1 of the Particulars, the Plaintiff submits, the 1st Defendant pleads the

positive defence in that the SRK Report was ‘sufficiently accurate’ and did not

require a Reserve Statement for some 4 reasons. The Plaintiff argues this plea by the

1st Defendant meets the contention at paragraph 14 of the Amended Plaint that a

‘completed feasibility study’ had to be both accurate to ± 10% - ± 15% and contain a

Reserve Statement.

200. There has been no expert evidence to support such a defence adduced by the 1st

Defendant, argues the Plaintiff, and further, to the extent the 1st Defendant relies

upon the ‘authors of the SRK Report’ it should be subject to the inference based on

the rule in Jones v Dunkel (supra).

201. Further, the Plaintiff contends the unchallenged expert evidence he led contradicts

the affirmative defence pleaded by the 1st Defendant.

202. The positive defence relied upon by the 1st Defendant is done so, submits the

Plaintiff, because, firstly, the 1st Defendant says the ‘authors of the SRK Report’

concluded, for reasons that were ‘fully explained’ the undertaking of a development

and mining operation on any part of the E as a stand-alone entity indicated marginal

economic returns and that economic parameters would need to change significantly

in order to return results which would lead to investment. The Plaintiff argues the 1st

Defendant ignores the purpose for which the SRK Report was required under the

terms of the Agreement and the reasons identified in the PI Decision being to allow

both parties to exercise their rights under the Agreement including, in the Plaintiff's

case his Election whether to withdraw to contribute to the Joint Venture.

203. The Plaintiff says the ‘completed feasibility study’ was not intended to establish

some rule of thumb as to whether mining should proceed immediately, it was, inter

alia, to give to the Plaintiff an accurate, independent, reliable a complete account of

the E to established industry levels for the purpose of the Plaintiff deciding whether

to, in his view developing and mining the E may be ‘warranted’ during the period

contemplated by the Agreement.

204. The unchallenged evidence of both Mr Lawrence and Mr Amos, submits the

Plaintiff, is the SRK Report should have included a Reserve Statement according to

the JORC Code without which the Plaintiff would be denied the information he

required to make his Election. Further, the Plaintiff submits the SRK Report was

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self-consciously aware of the need to comply with the JORC Code as it specifically

notes the reasons why there was no Reserve Statement as it was at the instruction of

the 1st Defendant.

205. Secondly, the Plaintiff says the 1st Defendant contended the authors of the SRK

Report reach conclusions based on calculations of various kinds and other non-

quantitative evaluations that were considered in an iterative and interdependent

manner all of which were assessed as a whole. The Plaintiff notes that no references

have been made to the Table referred to a ‘References to Feasibility Study in 1st

Defendant’s Particulars’ dated 18 March 2013.

206. The Plaintiff argues the affirmative defence pleaded by the 1st Defendant at

paragraph 1(a) of the Particulars does not negate the need for a Reserve Statement

and ignores the purpose of a ‘completed feasibility study’ as found by the Warden in

the PI Decision. It is the case, states the Plaintiff, the conclusions of a ‘completed

feasibility study’ may deliver a negative net present value of what the Plaintiff

bargain for in return for an 80% Joint Venture Interest was a reliable study that could

support his decision-making regarding the E and hence the decision concerning the

Implied Term contained within the PI Decision that an inaccurate, partial, unreliable

or incomplete study was worthless to the Plaintiff as a basis for such decision-

making. The Plaintiff contends he is entitled to be sceptical of the SRK Report it

being a report prepared upon the instructions of the 1st Defendant that concluded the

E had a negative net present value of -$22 m to -$5m but which had been the subject

of significant litigation since early 2008.

207. Thirdly, the Plaintiff submits, the 1st Defendant at paragraph 1(c) of the Particulars

say the ‘authors of the SRK Report’ reach their conclusions based on assessments of

various factors including the distance of the E from the coast the deposit size could

not support the construction of dedicated port and rail facilities and so on. Without

evidence from the said ‘authors’ the Plaintiff submits he cannot know with certainty.

However, the Plaintiff points to the ‘authors’ themselves acknowledging in the SRK

Report of the need to carry out further investigations and produce a report that was

accurate to ± 10% - ± 15% at a future cost of $500,000 for a further feasibility

study, ‘a Definitive Feasibility Study’.

208. Finally, in paragraph 1(d) of the Particulars, the 1st Defendant states there was no

present or prospective identifiable expenditure to which the Plaintiff could seek to

raise Project Finance. The Plaintiff submits the whole purpose of a ‘completed

feasibility study’ is to identify with particularity the project to which it relates and

the project for which the Plaintiff might seek finance under clause 4.7( c) of the

Agreement, as stated in the words of Mr Lawrence what the project ‘will be’. The

evidence of Mr Lawrence was mirrored by SRK’s own account of its task in

preparing the SRK Report.

Paragraph 2 of the 1st Defendants Particulars

209. The 1st Defendant claims in defence to the matters raised in paragraph 19 of the

Amended Plaint that the SRK Report is sufficiently accurate and reliable having

regard to the assessments made by the authors of the SRK Report of the principal

factors affecting feasibility and viability of developing and mining the E.

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210. The Plaintiff submits this defence by the 1st Defendant is directly contradicted by the

expert evidence of Mr Amos and Mr Lawrence that the SRK Report was not

accurate as required by the Agreement and was incomplete.

Paragraph 3 & 4 of the 1st Defendants Particulars

211. The 1st Defendant claims in its Particulars the SRK Report was independent because

it was ‘independently verified by the authors expressly and implicitly.’

212. The Plaintiff submits the defence by the 1st Defendant has not been made out and

relies upon the content of SRK Report itself in which it states the extent to which

SRK did not independently verify information provided to it:

‘SRK optimise the resource primarily based on financial input parameters supplied

directly from CML, DRAP, Fortescue Metals Group (FMG), Worley Parsons (WP),

and PIO. SRK did not independently undertake any first principle costing studies or

independent bench-marking studies to verify the information supplied.’ (Exhibit 18,

Volume 7, Tab 46, page 1701)

213. Further, the Plaintiff points to the authors of the WP Study who deferred to client

expectations and the nominated option to be used. The source of the financial

parameters used by SRK to optimise the resource puts this beyond doubt in that

many aspects of the SRK Report stated further work or information was needed or

required.

214. The unchallenged expert evidence of Mr Lawrence as to uncritical acceptance of

input from sub-consultants that are disclaimed and/or stated to be of unacceptability

unreliable accuracy and precision for feasibility studies and that information must

come from independent sources to eliminate any arguments of a reasonable

apprehension of bias forms the very argument, submits the Plaintiff, that the East RK

report was not independent and was not independently verified by the authors.

215. As to paragraph 4 of the Particulars, concerning the source of the iron ore price

forecasts that were said by, the 1st Defendant, to have been obtained from an

independent source namely, AME Mineral Economics, and otherwise reviewed by

the authors of the SRK Report, the Plaintiff says the unchallenged adduced evidence

were they were created by FMG and the ultimate decision to use those prices in the

SRK Model was made by CML.

216. The Plaintiff further submits, paragraph 4(d) of the Particulars and the defence by the

1st Defendant that information from WP, DRAP, HWE, and Coffey was all derive

from independent sources does not answer the allegations of breach as that

information is not independently verified by SRK as it was required to do under the

terms of the Agreement. The Plaintiff says SRK by simply obtaining unreliable or

inaccurate information or data from a 3rd

party cannot meet the standards of

independence and inaccuracy required by the Implied Term.

Paragraph 5 of the 1st Defendants Particulars

217. The Plaintiff submits the defence raised by the 1st Defendant paragraph 5 of the

Particulars that the sensitivities analysis within the SRK Report is not affected by the

conclusions expressed by the authors of the studies has not been made out.

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218. The argument of the Plaintiff is the expert evidence of Mr Lawrence was levels of

financial sensitivities ascribed by SRK for the purposes of calculating the net present

value of ± 40% for iron ore pricing and ± 50% for operating costs directly impacts

on the conclusions in the SRK Report.

219. The Plaintiff refers to paragraph 5(a) of the Particulars to demonstrate the 1st

Defendants argument the size of the ore body refer to any application to renew the E

was based on a cut-off grade of 52% Fe whereas the estimate in the SRK Report was

based on a cut-off grade of 55.2% Fe. The variation in the Fe % cut-off grade

between the SRK Report and the renewal application for the E is unexplained by the

1st Defendant as is the reason the % cut-off grade was chosen by SRK. The Plaintiff

points out the variation in the Fe % cut-off grade represents a difference between a

resource of 44.84 Mt at a cut-off grade of 52% Fe and 23.64 Mt with a cut-off grade

of 55.2% Fe used in the SRK Report.

220. The variation in the resource of iron ore between the cut off grades of 52% and

55.2% is massive, as argued by the Plaintiff, and can only be explained as being

unreliable (in the absence of an explanation) or inaccurate (the wrong cut-off grade

being chosen).

221. Further, the Plaintiff submits in paragraph 5(c) of the Particulars in which the 1st

Defendant contends the inclusion of the 2.5% royalty does not affect the reliability,

accuracy or completeness of the SRK Report is not made out. The Plaintiff says

there has been no evidence produced by the 1st Defendant to counter the expert

evidence of Mr Lawrence and Mr Amos on this issue.

222. In cross-examination of Mr Lawrence and Mr Amos by the 1st Defendant, the

Plaintiff submits the 1st Defendant sought to raise issues not pleaded in that,

generally speaking, lending institutions will take their own view either internally or

externally or a mixture of both on the financial parameters in each case.

223. The Plaintiff argues, in the PI Decision, the Warden found the purpose of a

‘completed feasibility study’ precludes any case run by the 1st Defendant that the

accuracy, independence, reliability or completeness of such a study doesn't matter

because a bank or financier will conduct their own due diligence. The Plaintiff

submits that is so for two reasons, firstly, a ‘completed feasibility study’ was to

inform the Election by the Plaintiff as well is to allow him to raise Project Finance.

Accordingly, argues the Plaintiff, if the SRK Report was flawed, as is alleged by the

Plaintiff, then the Plaintiff does not get to the point of raising Project Finance at all

because the SRK Report doesn't support the exercise of the Plaintiff’s right to make

the Election. Secondly, the Plaintiff submits, in accordance with the expert opinion

of Mr Amos, any approach made to a potential project financier with the SRK

Report would not have been treated seriously and additional work would need to be

done to bring the levels of accuracy within those normally expected of a ‘feasibility

study’.

224. The cross-examination of the Plaintiff's expert witnesses that the words ‘project

finance’ was a reference to finance for the development, being building the

infrastructure, roads accused trips and opening up land for crushing and screening,

and a mining operation is argued by the Plaintiff to be an attempt by the 1st

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Defendant to enter into an argument about construction issues of the Agreement

which had already been decided in the PI Decision and which has been held cannot

be revisited.

225. In any event, the Plaintiff argues Project Finance to be raised pursuant to clause 4.7

(c) of the Agreement can only be in relation to the Plaintiff’s 20% Joint Venture

Interest in the project described in such a ‘completed feasibility study’ and is not

finance required to conduct the whole of the project but includes the Plaintiff’s share

of Joint Venture Expenditure.

226. For those reasons, the Plaintiff submits, the breaches it has identified in the manner

in which the 1st Defendant instructed SRK on how the SRK Report should be

prepared, what it should contain, the manner in which information and data upon

which it was based was sourced, created and compiled, precluded the Plaintiff from

relying upon it to make his Election or to seek finance.

227. Accordingly, the Plaintiff say he is entitled to the relief as pleaded.

Case for the 1st Defendant

Witnesses for the 1st Defendant

228. The 1st Defendant did not call any witnesses to give oral evidence.

Closing Submissions by the 1st Defendant

229. The 1st Defendant submits in its extensive closing submission that a feasibility study

evaluates the prospects of successfully exploiting a mineral deposit and such a study

requires an examination of technical feasibility, economic viability and the so called

‘modifying factors’ being external risk factors such as political, environmental and

other matters.

230. A feasibility study relating to a mineral deposit has, submits the 1st Defendant, many

possible outcomes that may range from an opinion that it is likely that a mineral

deposit can be successfully exploited in prevailing and reasonably foreseeable

circumstances to an opinion that it is to the contrary.

231. The conclusion reached in the SRK Report indicated, argues the 1st Defendant, a

negative conclusion being the mineral deposit was likely to give a ‘marginal

financial return’ and that ‘economic parameters would need to change significantly

in order to return results which would lead to an investment.’

232. The 1st Defendant submits the Plaintiff in the Amended Plaint makes no challenge to

the outcome of the SRK Report. Accordingly, the 1st Defendant says in considering

whether the SRK Report confirmed the Implied Terms which has been found to be

part of the Agreement it is necessary to take into account both the fact the SRK

Report reached a negative conclusion and this conclusion is not challenged in these

proceedings.

233. The 1st Defendant further submits the Plaintiff has not proved the SRK Report was

prepared in breach of the Implied Terms because in essence:

a. it was not inaccuracy which prevented the SRK Report from being

used to assist the raising of Project Finance, it was the fact the SRK

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Report reached a negative conclusion, and in any event there was

no evidence a study which reaches a negative conclusion requires a

particular degree of accuracy;

b. a report which reaches a negative conclusion cannot be found to be

unreliable because of alleged inaccuracies or incompleteness unless

the inaccuracies or incompleteness affect the conclusion which the

Plaintiff does not allege in this case;

c. the Implied Terms of independence does not apply to information

obtained by a participant from an independent consultant and

passed on to the persons who are conducting a feasibility study, nor

does it apply to information which is properly and reasonably

provided by joint venture participant who has engaged a consultant

to prepare a feasibility study and, in any event, if any information

did require independent verification it was sufficiently verified by

SRK;

d. the SRK Report was not incomplete because of the absence of a

Reserve Statement as no such statement could be prepared because

of the negative conclusions.

Issues

234. The 1st Defendant submits the issue in these proceedings is whether the 1

st Defendant

completed the Study during the Earning Period in compliance with clauses 4.2 to 4.5

of the Agreement and thereby earned an 80% Joint Venture Interest. That issue

raises 2 questions being the proper construction of the Agreement and the

application of that construction to the facts. The first question has, submits the 1st

Defendant, been dealt with in the PI Decision wherein the Warden held the

Agreement made between the Plaintiff and the 1st Defendant includes the Implied

Terms pleaded in paragraph 12 of the Amended Plaint. Consequently in Ammon v

Pilbara Iron Ore P/L & anor [2013] WAMW 4 the Warden held that no further

issue of construction may be raised by the 1st Defendant at trial and leave to amend

the Response was refused.

235. The only matter the 1st Defendant submits is now to be determined is whether the

SRK Report does, or, does not conform with the Implied Terms of the Agreement

found to exist by the Warden.

236. The 1st Defendant submits the Plaintiffs case is the content of the SRK Report does

not conform with the Implied Terms. The Plaintiff’s pleaded case is confined,

submits the 1st Defendant, to specific allegations made in paragraph 19 of the

Amended Plaint and, therefore, the Plaintiff has no further, or alternative, case

regarding breach of the Implied Terms. Therefore, the 1st Defendant submits as the

Plaintiff bears the onus of establishing the SRK Report did not conform with the

Implied Terms in the manner alleged in paragraph 19 of the Amended Plaint. If the

Plaintiff fails it follows that the 1st Defendant has earned an 80% Joint Venture

Interest.

The Implied Terms of the Agreement

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237. The 1st Defendant raises two aspects of the Implied Terms as found by the Warden in

the PI Decision.

238. Firstly, the 1st Defendant submits in February 2013 the Plaintiff argued the term

‘project finance’ means finance for the purpose of funding the Plaintiff's

contributions to Joint Venture Expenditure. The 1st Defendant submits the Warden’s

decision does not expressly deal with that point and thus it is not clear whether the

Warden has accepted the Plaintiff’s submission or has taken the view the point need

not be decided.

239. Accordingly, the 1st Defendant submits if the Warden has implicitly accepted the

Plaintiff’s submissions as to the meaning of ‘project finance’ then it would seem that

the Implied Terms requires a ‘completed feasibility study’ to be one which enables

the Plaintiff to seek to raise any finance that might be required for the Plaintiff’s

share of any Joint Venture Expenditure that might be incurred at any time.

240. Secondly, the 1st Defendant submits it has not been held that the Implied Terms

means a ‘completed feasibility study’ must be a study that opines that mining of the

E is technically feasible and economically viable. If the Implied Terms were to have

the meaning the 1st Defendant says it would be inconsistent with the express terms of

the Agreement which referred to a feasibility study. The meaning the 1st Defendant

submits should be attributed to feasibility study is a study conducted for the purpose

of evaluating feasibility and viability of mining tenement. A feasibility study is not

something that, the 1st Defendant submits, involves a predetermined outcome.

According to the 1st Defendant, this point was expressly accepted by the Plaintiff in

oral submissions made on 26 February 2013 and there is nothing in the Warden’s

written reasons in 2012 and 2013 to suggest that this undisputed point is to be

disregarded.

241. The 1st Defendant further submits the Plaintiff, during its Closing Submissions, sort

to depart from previous submissions made as to the meaning of the term ‘project

finance’ and contended that apart from finance for the Plaintiff’s share of past

expenditure the expression also refers to the Plaintiffs 20% share of finance for

prospective contributions to expenditure on the project identified in a ‘completed

feasibility study’. Such contentions by the Plaintiff is said by the 1st Defendant to

represent a new and significant difference in the Plaintiffs previous position in that it

seeks to link ‘project finance’ to a possible project that is the subject matter of the

feasibility study. It cannot be the case, the 1st Defendant submits, that ‘project

finance’ could be sought for a project that is not assessed to be technically feasible

and economically viable it is clear the Plaintiff now contends that to be a ‘completed

feasibility study’ it must result in the identification of a technically and economically

feasible and definitive and identifiable, project with the development and mining of

the tenement in respect of which the ‘project finance’ could be sought.

242. The 1st Defendant submits the Plaintiff’s submissions is founded upon an unpleaded

meaning of ‘project finance’ that is different to that upon which the Plaintiff opened

his case and that is inconsistent with the Plaintiff’s acceptance that the Study does

not require such a study to result in a positive conclusion that development and

mining of the E is technically and economically feasible. Accordingly, the 1st

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Defendant submits no leave should be given to the Plaintiff to now raise that

contention.

243. In any event, the 1st Defendant submits the Plaintiff’s submission is absurd as it

means the parties to the Agreement intended the scope of the project they were

responsible for carrying out and for which the Plaintiff should have the opportunity

to seek Project Finance should be determined by a consultant and not the parties

themselves or that the Plaintiff is to have an opportunity to seek finance for a project

to which the majority participant has made no commitment at all. The 1st Defendant

submits the language of the Agreement is not capable of yielding such a senseless

meaning.

244. Further, the 1st Defendant submits, on the contrary, the point sought to be raised by

the Plaintiff completely ignores the express provisions of the Agreement that deals

very clearly and sensibly with how decisions are to be made by the participants

themselves as to whether they will proceed with a mining project and, if justified,

what the project will be.

Scope of the Breaches Alleged by Plaintiff in Paragraph 19 of Amended Plaint

245. The 1st Defendant submits the alleged breach by the Plaintiff of the Implied Terms

are found in clause 19 of the Amended Plaint and are based on the premise the SRK

Report was not accurate, independent, reliable or complete in 4 respects being:

19A: Insufficient accuracy to seek to raise project finance;

19B: Not independent because related parties provided information that was

not verified by SRK;

19C: Unreliable because data supplied to SRK by the 1st Defendant was

inaccurate or incomplete, and;

19D: Incomplete because of the absence of a reserve statement.

246. The 1st Defendant submits, the Plaintiff in paragraph 19A of the Amended relies

upon 4 grounds being:

a) the failure to carry out 3 particular aspects of the SRK Report being,

hydrological, geotechnical and mining issues, cost of crushing and

screening options and cost of road transport, to a level of accuracy of ±

10% - ± 15%;

b) the conduct of the sensitivity analysis being a consideration of project

economics based upon a range of iron ore prices and operating costs.

247. It is noted by the 1st Defendant the Plaintiff does not identify any inaccuracy in any

input data in respect to the sensitivity analysis.

248. In respect to paragraph 19B of the Amended Plaint, the 1st Defendant submits the

Plaintiff relies upon 3 grounds being:

a) information provided by the owners of the 1st Defendant, namely CML

and FMG;

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b) acceptance of an alleged instruction from the 1st Defendant not to

provide a Reserve Statement, and;

c) the alleged absence of any critical review of the reports submitted by

WP, DRAP, HWE and Coffey.

249. In respect to paragraph 19C of the Amended Plaint, the 1st Defendant submits the

Plaintiff relies upon 6 grounds that each identify information and data supplied by

the 1st Defendant which the Plaintiff alleges is in accurate or incomplete being:

a) a resource estimate referred to by the 1st Defendant in a renewal

lodgement of December 2007;

b) the inclusion of a royalty payment that could become payable to the

Plaintiff under clause 4.7 of the Agreement which was included because

it was a potential cost, and;

c) 4 other grounds identified in various aspects of the SRK Report that

were identified by SRK as requiring further avenues of study.

250. The 1st Defendant submits it does not follow the identification of the matters in issue

in paragraph 19C of the Amended Plaint renders the SRK Report unreliable. The 1st

Defendant submits the inaccuracy or incompleteness of data and information used in

the SRK Report can only render the SRK Report unreliable if the inaccuracy or

incompleteness somehow affects the validity of the conclusions reached in the study.

The 1st Defendant submits that is not what is alleged by the Plaintiff in clause 19C of

the Amended Plaint.

251. In respect to paragraph 19D of the Amended Plaint the 1st Defendant submits the

Plaintiff relies upon only 1ground and that is the SRK Report was incomplete

because it failed to include a Reserve Statement.

252. The 1st Defendant submits the cross-examination of Mr Lawrence and Mr Amos

resulted in it being made clear that a study which concluded that mining is not

economically viable cannot support a Reserve Statement.

253. In deciding whether the Implied Terms have been breached, the 1st Defendant

submits it is important to recognise the Plaintiff has raised specific allegations of a

confined nature in paragraph 19 of the Amended Plaint particularly:

a) there is no allegation the Implied Terms were breached because the SRK

Report failed to reach a positive conclusion as to the economic viability

of mining the E;

b) there is no allegation deficiency in the SRK Report had any effect upon

the validity or reasonableness of the conclusions that were reached, and;

c) there is no allegation deficiencies in the SRK Report were such as to

deprive it of the character of a feasibility study.

254. The analysis of paragraph 19 of the Amended Plaint by the 1st Defendant is

confirmed, it is submitted, by the ruling of the Warden on admissibility of evidence

delivered 21 March 2013 when it was held that:

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a) the pleadings are decisive in the parties are bound by what is raised,

accordingly the Plaintiff is confined to the case pleaded in paragraph 19

of the Amended Plaint;

b) paragraph 19 of the Amended Plaint does not include any allegation the

SRK Report could not be used to enable the calculation of the net present

value of the Plaintiffs interest and informed his intention under clause

4.6 of the Agreement;

c) there is a distinction between the scope of an obligation and the extent to

which the obligation is said to have been breached, and paragraph 19 of

the Amended Plaint does not allege that any of the deficiencies pleaded

in the Implied Terms affected the conclusion of the SRK Report, and;

d) paragraph 19 of the Amended Plaint does not specifically allege the SRK

Report was incapable of being used as a feasibility study or the Plaintiff's

Election was hindered.

Evidence of the Experts Mr Amos and Mr Lawrence

255. According to the 1st Defendant, both Mr Lawrence and Mr Amos analysed the SRK

Report on the understanding the SRK Report would enable the Plaintiff to seek to

raise ‘Project Finance’ for the Plaintiff’s share of development and mining project

described in the SRK Report with capital costs of approximately $300 million. The

1st Defendant highlights that none of the expert evidence of either Mr Lawrence or

Mr Amos address the capacity of a feasibility study to be used to raise Project

Finance for unspecified investigation of a mining tenement. The 1st Defendant

submits that position is not surprising as it would be difficult to imagine how Project

Finance could be sought at all for an unspecified amount, for an unspecified period

for unspecified activities or purposes.

256. According to the 1st Defendant, both Mr Amos and Mr Lawrence also confirmed the

following:

a) a financier would undertake its own review or analysis of any feasibility

study presented by a project proponent, at the cost of the project

proponent in which you would provide its own financial inputs;

b) a competent person preparing a Reserve Statement under the JORC Code

would be concerned with whether the proposed project was technically

feasible, economically viable and not subject to any other external risk

factors;

c) a financier would not begin to consider a request to provide project

finance unless the project proponents had prepared a study which

concluded that it was feasible and viable to mine the relevant deposit and

there were no negative external or modifying factors;

d) the main financial parameters used in a feasibility study were usually

provided to the study authors by the person for whom the study was

being conducted, and;

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e) a feasibility study of a possible mining venture is an iterative process,

where there is interdependence and interrelationships between technical

and financial factors affecting feasibility and viability.

257. The 1st Defendant also submits Mr Lawrence held the view that authors of feasibility

studies expressly or implicitly evaluate financial parameters provided to them by

project proponents and includes them if the parameters appear to be reasonable.

Accordingly, it is submitted that even if a project proponent is the source of part of

the information used in the study, provided that information is expressly or implicitly

evaluated then considered reasonable the author of the report may use that

information without affecting the independence of the study.

258. It is submitted that Mr Amos confirmed in his evidence that financiers use their own

project model and financial inputs/parameters to assess the merits of a finance

proposal. He confirmed that financial parameters used in the study provided by a

party seeking finance are not necessarily relied upon by financiers. Accordingly, it is

said it follows the provenance and accuracy of the financial parameters used in such

a study have no effect on the usefulness of the study in the process of seeking

finance.

259. The 1st Defendant, submits the Plaintiff has failed to prove that the authors of the

SRK Report uncritically accepted or did not independently verify the resource

estimate for the E and financial parameters upon which the SRK model was based or

that the SRK Report contained the inaccuracies alleged in paragraphs 19C(ii)-(v) of

the Amended Plaint. The 1st Defendant argues large sections of the Lawrence and

Amos Report are either inadmissible or should be given no weight on the grounds

the opinions expressed are based on unproven facts. In many instances, the 1st

Defendant maintains the opinions of Mr Amos and Mr Lawrence are to be properly

characterised as argument and not matters of expert opinion.

260. The 1st Defendant details by reference to each of paragraph 19 of the amended plaint

why it submits the Plaintiff has failed to prove his case.

Was SRK Report Sufficiently Accurate for Project Finance ? – Paragraph 19A

261. The 1st Defendant submits the Plaintiffs pleaded case is the SRK Report required a

level of accuracy of at least ± 10% - ± 15% to enable Project Finance to be raised.

262. The 1st Defendant concedes while the level of accuracy of at least ± 10% - ± 15% is

not part of the Implied Terms itself, it may be accepted that prospective financiers

will generally require a project proponent to produce a positive feasibility study of

that level of accuracy when seeking project finance for developing a mining project.

In that regard, the 1st Defendant said both Mr Lawrence and Mr Amos expressed

opinions of the expected level of accuracy but were referring expressly to a case

where finance was being sought for the development of a mining operation and not

something else.

263. It is self-evident, submits the 1st Defendant, the expert evidence of Mr Lawrence and

Mr Amos established that financiers will not contemplate providing project finance

where the proponent’s feasibility study suggests that mining is not technically

feasible or economically viable.

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264. It is the conclusion that mining the E was not economically viable that prevented the

SRK Report from being of any assistance to the Plaintiff in seeking to raise Project

Finance. Put another way, the 1st Defendant submits, the SRK Report concluded

there was no commercially viable project that should be developed. Accordingly, the

feasibility study was complete, according to the 1st Defendant, without the need to

further investigation to demonstrate to a higher level of accuracy that there will not

be a commercially viable project. As there was no project identified in the SRK

Report to which the Plaintiff would need to seek to raise finance if he were to elect

to contribute towards Joint Venture Expenditure.

265. The negative outcome of the SRK Report was not challenged in paragraph 19 of the

Amended Plaint by the Plaintiff. The Implied Terms did not require the SRK Report

to be positive. In those circumstances, the 1st Defendant submits, the Implied Terms

cannot possibly apply to a study that reaches a negative conclusion, irrespective of

the meaning attributed to ‘project finance’ for the purposes of the Implied Terms.

266. For those reasons the 1st Defendant submits none of the alleged breaches pleaded by

the Plaintiff in paragraph 19A (i) – (iii) of the Amended Plaint have been

established.

267. The terms of paragraph 19A (iv) of the Amended Plaint is according to the 1st

Defendant of a different character to the other allegations in paragraph 19A. This

ground of the breach does not affect accuracy at all and means the base case

analysed by SRK was subjected to a sensitivity analysis involving a range of iron ore

prices and operating costs with both Mr Lawrence and Mr Amos indicating it was

usual practice to include a sensitivity analysis in a project model.

Was SRK Report Independent? - Paragraph 19B

268. The 1st Defendant submits paragraph 19B of the Amended Plaint alleges the SRK

Report was not independent because SRK relied on information and data provided

by the 1st Defendant or from its owners CML or FMG. The threshold question the 1

st

Defendant submits arises is whether paragraph 12(2) of the Amended Plaint

pertaining to the Implied Terms found to apply to the Agreement has any application

to the information and data.

269. It is argued by the 1st Defendant that information and data obtained by a participant,

or a related party of the participant, from an independent, 3rd

party consultant, and

passed on to another consultant who has the responsibility for the preparation of a

feasibility study, is not in any relevant sense of lacking in independence. Such

information and data cannot possibly require independent verification submits the 1st

Defendant. Accordingly, the 1st Defendant submits CML managed the flow of

information between FMG, the 1st

Defendant, 3rd

parties and SRK is irrelevant and

does not come within paragraph 12(2) of the Amended Plaint.

270. The Agreement provides, argues the 1st Defendant, for the 1

st Defendant to complete

the feasibility study and it is the 1st Defendant who is entitled to conduct the study or

engaged others to do so, and in the latter case to provide information to the study

authors. The 1st Defendant correctly points out the feasibility study is not required

exclusively for the Plaintiff.

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271. The 1st Defendant further says, the expert evidence of both Mr Lawrence and Mr

Amos clearly establish it is usual practice, for good reason, for a joint venturer who

has arranged for a feasibility study to be conducted to supply the major financial

parameters to be used in the study model (e.g.: forecasts of interest rates, exchange

rates, minerals prices). That is because, submits the 1st Defendant, these parameters

relate to major areas of risk and a venturer is entitled to take its own view of the

level of risk that it is prepared to assume. As such, any recipient of a feasibility

study, including the study model, whether a prospective financier or another joint-

venture participant can make use of the study and model by inserting its own

financial parameters. The 1st Defendant argues the inclusion in the study model of

the major proponents financial input does not affect the independence or utility of

the study.

272. There is no explanation or reason within the Lawrence Report, says the 1st

Defendant, that supports an opinion to the effect that SRK should have

independently verified the conclusions in information relied on by WP, DRAP,

HWE or Coffey simply because those parties had been engaged by one or more of

CML, FMG or the 1st Defendant.. Further, the Lawrence Report does not support an

opinion to the effect that a failure to do so gives rise to an apprehension of bias,

deficiency or lack of confidence in the content or conclusion of the SRK Report.

Accordingly, on that basis the 1st Defendant submits to the extent the Lawrence

Report expresses such opinions, they are inadmissible or are to be given no weight

and this affects the whole of sections 5.6 and 6(e)(ii) of the Lawrence Report. (see:

Pownall v Conlan Management Pty Ltd (1995) 12 WAR 370, 375-378, 387-390,

and Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85]).

273. It is argued by the 1st Defendant for those reasons that, in so far as paragraph 19B(i)

of the Amended Plaint relates to an independent 3rd

party consultants information

which was passed on to SRK by the 1st Defendant and insofar as that information

relates to financial input parameters which a proponent is expected to provide, there

can be no breach of paragraph 12(2) of the Amended Plaint pertaining to the Implied

Terms found to apply to the Agreement because that part of the Implied Terms is

inapplicable to those matters. In any event independent verification by a feasibility

study author can occur either expressly, implicitly or by a combination of both

submits the 1st Defendant. In that regard, it is said by the 1

st Defendant that Mr

Lawrence accepted that a professional person to whom information is provided were

almost invariably implicitly scrutinise information to reasonable as before adopting

it.

274. The 1st Defendant noted the authors of the SRK Report made an express statement

that ‘SRK has exercised all due care in reviewing the supplied information. While

SRK has compared key supplied data with expected values, the accuracy of the

results and conclusion from the review are reliant on the accuracy and completeness

of the supplied data’. (SRK Report - Ex 18, volume 7, page 1733)

275. Three further matters are raised by the 1st Defendant pertaining to paragraph 19B(i)

of the Amended Plaint being:

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a) the SRK Report expressly states the mineral resources estimate was

reviewed as should be evident by the detailed discussion of that topic in the

report and there is no evidence to the contrary;

b) the financial input parameters used by SRK to optimise the estimated

resources of the tenement deposit were expressly or implicitly assessed as

is apparent from the detail extent of the consideration of the topic as

follows:

i. as to all parameters as noted in Exhibit 18, volume 7,

Appendix 19 and Appendix 22 contained within Exhibit 21

Volume 10 where SRK stated it was responsible for mining

optimisation meaning it reviewed and evaluated the darter for

that purpose;

ii. as to DRAP, Exhibit 18 Volume 7;

iii. as to WP, Exhibit 18 Volume 7 and Appendices 4-5 in Exhibit

19 Volume 8;

iv. as to CML, Exhibit 18 Volume 7;

v. as to FMG, Exhibit 18 Volume 7.

c) The iron ore price forecasts were sourced from a leading industry

forecaster, AME, and needed no further verification and SRK’s adoption of

the conservative approach to escalation implicitly involved an assessment

and acceptance of the reasonableness of that approach. (Appendix 6 to

SRK Report at Exhibit 18, Volume 7, and Exhibit 19, Volume 8)

276. Further, the 1st Defendant says the Plaintiff has failed to adduce any direct evidence

capable of proving that the authors of the SRK Report did not independently verify

or uncritically accept the financial parameters. It is argued by the 1st Defendant that

the Plaintiff's case is founded on the construction of the SRK Report and certain

communications none of which supports the Plaintiff's contention, in that:

a. The statement in the Transmittal Letter that ‘SRK did not

independently undertake any first principle costing studies or

independent benchmarking studies to verify the information

supplied’. The 1st Defendant states that independent first principle

costing or benchmarking studies were not perform does not give rise

to an inference that the express implicit independent assessment of

those parameters by SRK referred to above will not carried out.

Further, the 1st Defendant points to the evidence of Mr Lawrence

where he acknowledged that he would expect the author of a

feasibility study to have undertaken assessments of that kind. It is

said by the 1st Defendant the submission by the Plaintiff that SRK

acknowledge in this letter that it uncritically accepted information

and data is plainly wrong.

b. In a similar vein, the 1st Defendant says this statement in Appendix

26 of the SRK Report that SRK had not critically reviewed the WP,

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DRAP, HWE or Coffey reports does not affect the independence of

those reports or infer that the contents of those reports were not

expressly or implicitly assessed by SRK in the manner referred to

previously. Put in its context it is submitted the statement by SRK

simply means that the information in the WP, DRAP, HWE and

Coffey reports were not verified by SRK performing or

commissioning its own first principle costing or benchmarking

studies.

c. The Plaintiff's reliance upon passages in the Lawrence Report are

based upon the unproven assumptions the authors of the SRK

Report did not independently verify financial parameters. Similarly,

the 1st Defendants submits those parts of the Lawrence Report it has

referred to its written submissions are for the reasons previously

expressed inadmissible or should be given no weight.

d. The e-mails from Mr Hans Mohle to Mr Murray on 21 November

2007 do not establish that the ultimate decisions regarding the

source of iron ore prices to be used in the SRK Model were made by

CML. The source of the iron ore prices used in the case of SRK

Report are disclosed in Appendix 6 of that report (see: Exhibit 19

Volume 8) and the reasons why and what information was relied

upon is explained in the same report at Exhibit 18 Volume 7. The

prices used were based on the forecast of AME, a reliable

independent source for iron ore price is recommended by FMG and

accepted to be such by Mr Amos. The assumptions about the

marketability of iron ore were based on a signed MOU between

FMG and Rizhao Steel Holdings Group Ltd. It is argued by the 1st

Defendant that SRK implicitly assessed and accepted the

reasonableness of these parameters and the assumptions upon which

they were based.

277. It is contended by the 1st Defendant that no inference can be drawn the evidence of

Mr Murray would not have assisted the 1st Defendant can be drawn by the failure of

the 1st Defendant to call him. In that regard, the SRK Report speaks for itself and the

authors expressly or implicitly indicate they have assessed and accepted as

reasonable the information and data upon which they have relied to draw the

conclusions they have expressed in the SRK Report. Accordingly, the 1st Defendant

submits the principles derived from Jones v Dunkel (supra) and Fazio v Fazio

(supra) have no application because the 1st Defendant was not required to explain or

contradict anything upon which the evidence of one or more of the authors of the

SRK Report could be expected to shed light.

278. In any event, the 1st Defendant submits the authors of the SRK Report could not be

regarded as persons the 1st Defendant would be expected to call as there was no

evidence of any ongoing relationship between SRK or Mr Murray and the 1st

Defendant or any other matter from which it could be inferred that SRK or Mr

Murray should be regarded as being in the 1st Defendant’s camp. It is pointed out by

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the 1st Defendant that the Plaintiff subpoenaed Mr Murray with the intention of

calling him as a witness and then, without explanation, failed to do so. Accordingly,

in those circumstances, the 1st Defendant argues Mr Murray should be considered at

least, equally available to both parties, and in such circumstances the rule in Jones v

Dunkel (supra) has no application. (Payne v Parker [1976] NSWLR 191).

279. It is submitted by the 1st Defendant the Plaintiff misstates the effect of the sentence

in Appendix 26 of the SRK Report (Exhibit 21, Volume 10) that SRK were

instructed not to prepare a Reserve Statement. The correct interpretation of that

sentence, according to the 1st Defendant, is SRK was ‘not asked to report a Reserve

Statement’ which does not mean they were instructed not to do so. The inclusion or

otherwise was left to SRK.

280. Despite that the evidence was, according to the 1st Defendant, the preparation of the

SRK Report was an iterative process in which many factors are affected each other.

The preparation of a Reserve Statement was necessarily bound up with an

assessment of the technical feasibility and economic viability of a possible project

for the exploitation of the tenement is and as such they were interdependent

considerations.

281. Because the conclusion of the SRK Report was that he would not be technically or

economically feasible to develop the E it follows, argues the 1st Defendant, the

Reserve Statement was neither required nor possible. Accordingly, even if the

sentence in question can be read as an instruction it did not distract from the

independence of the SRK Report given that the authors of that report concluded that

mining was not viable.

282. It is argued the contention of the Plaintiff in paragraph 19B (ii) of the Amended

Plaint that SRK did not critically review the work of the 4 other consultants is not

supported by any evidence that the 4 consultants were not independent of SRK and

the 1st Defendant. In those circumstances, there was no need for the work of the 4

consultants to be critically reviewed or verified. The 1st Defendant says it pleaded in

its defence the SRK Report both expressly and implicitly evaluated the work of the 4

consultants. Despite that the 1st Defendant submits the work of the 4 consultants

were self-evidently from an independent source because:

a) the evaluation of options by WP reflects an implicit assessment of

information supplied (see: Exhibit 18, Volume 7 and Exhibit 19, Volume

8);

b) one of 3 DRAP options were selected and it reflects an express evaluation

of those options from Appendix 3 (see: Exhibit 18, Volume 8 and Exhibit

19, Volume 8;

c) the analysis by HWE reflects an implicit assessment of the information

supplied from Appendices 10-17 (see: Exhibit 18, Volume 7 and Exhibit

21, Volume 10);

d) the analysis by Coffey reflects an implicit assessment of the information

supplied from Appendices 24 (see: Exhibit 18, Volume 7 and Exhibit 21,

Volume 10).

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283. Moreover, the Plaintiff does not allege any want of independence of information or

data affected either the accuracy of the conclusion expressed in the SRK Report or

the capacity of that report to assist the raising of Project Finance within the plea

contained in paragraph 19B of the Amended Plaint.

Was SRK Report Unreliable because of Inaccurate or Incomplete Instructions from

1st Defendant? – Paragraph 19C

284. The Plaintiff complains in paragraph 19C of the Amended Plaint that information

provided by the 1st Defendant was unreliable because it was inaccurate or

incomplete.

285. The 1st Defendant submits a feasibility study is not unreliable, merely because it has

some inaccuracies or some incompleteness about it. Further, the 1st Defendant says

inaccuracy or incompleteness can only affect reliability where the inaccuracy or

incompleteness is of such a kind or extent as to detract from or destroy the validity

or reasonableness of the conclusions reached in the study. The 1st Defendant further

states information may be incomplete or inaccurate without having the slightest

effect on the conclusions reached in a study or the principal reasons for the

conclusions.

286. The Plaintiffs pleadings, says the 1st Defendant, raises no allegation in paragraph

19C(ii)-(iv) of the Amended Plaint that any of the matters there alleged has had any

effect on the reasonableness or validity of any of the conclusions reached in the SRK

Report or of the principal reasons for those conclusions.

287. The 1st Defendant submits in respect to paragraph 19C (i) of the Amended Plaint the

resource estimate of 44.8 Mt stated in the application for extension of term of the E

in December 2007 reveals a transposition error of information that was reflected in

the table of the SRK Report. The renewal application confuses Fe % content with Fe

% cut-off grade.

288. Further, the 1st Defendant submits the reference by the Plaintiff in paragraph 19C(i)

of the Amended Plaint to the SRK Report not taking account of any subsequent

work, wrongly conveys the impression that there had been further studies conducted

since the Twomey and Chen Report (2006), when clearly of the 1st Defendant’s

lodgement of an application for extension of term in December 2007 was referring to

the same material that SRK relied upon. That lodgement and application for

extension of term, submits the 1st Defendant, was made before the SRK Report was

completed in January 2008 and, therefore, refers to work done after the grant of the

E and not work done after the SRK Report was completed.

289. The inclusion of the royalty that could be payable to the Plaintiff under clause 4.7 of

the Agreement represents, submits the 1st Defendant, the inclusion of the potential

cost over which all participants have no control. Further, the 1st Defendant says the

Implied Terms or the Express Terms of the Agreement required the SRK Report to

be one made exclusively for the purposes of the Plaintiff and was for the benefit of

both parties to the Agreement. (PI Decision at [81]). The 1st Defendant submits the

inclusion of the potential royalty payment to the Plaintiff was appropriate to ensure

the SRK Report addressed all potential costs of the participants taken together.

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Despite there being no introduction to include the potential royalty payment, SRK

were invited to do so because that cost represented a worst-case scenario for a

possible mining project and as with any other financial input, the model can be run

with a different amount inserted. Accordingly, the 1st Defendant says the presence of

the potential amount of royalty does not affect the reliability of the SRK Report at

all.

290. The 1st Defendant submits the balance of matters alleged by the Plaintiff in

paragraph 19C (ii)-(v) of the Amended Plaint maintains the SRK Report was

unreliable because data and information supplied to SRK by the 1st Defendant was

inaccurate or incomplete. These pleadings by the Plaintiff is said by the 1st

Defendant to be an attempt by the Plaintiff to prove a breach of paragraph 12 (3) of

the Amended Plaint as to reliability as found to apply to the Agreement in the PI

Decision. Further, the 1st Defendant submits paragraph 19C (ii)-(v) of the Amended

Plaint does not correctly state the terms and effect of the SRK Report. The correct

and proper context in which SRK Report is to be considered is set out in a Table

attached to the written submissions. The 1st Defendant maintains the authors of the

SRK Report have made no unqualified recommendations to the effect that further

feasibility or other work be undertaken. It says in each instance, the authors drew

attention to additional work, review or study that could be undertaken should there

be any further feasibility work. In those circumstances, it is submitted these matters

do not reveal any unreliability, inaccuracy or incompleteness of information and data

for the purposes of a feasibility study.

291. The opinions of Mr Lawrence and Mr Amos are said by the 1st Defendant to be

inadmissible or to be given no weight to the extent they rely on the alleged

inaccuracies identified in paragraphs 19C (ii)-(v) of the Amended Plaint as they are

based on unproven assumptions. Further, the opinions expressed by Mr Lawrence

and Mr Amos are said by the 1st Defendant to suggest be SRK Report is not reliable

because further studies would be required in order for it to be sufficiently accurate to

obtain finance for the development and mining of the tenements. The 1st Defendant

submits the opinions of Mr Lawrence and Mr Amos are irrelevant because the SRK

Report is unchallenged in its conclusion, that is, development and mining of the

tenements is not economically viable. Accordingly, the reliability of the SRK Report

as the means for informing all parties about the lack of economic viability of

developing a mining tenement is not in question or addressed by Mr Lawrence or Mr

Amos in their respective reports.

Was SRK Report Incomplete in absence of Ore Reserve Statement?–Paragraph 19D

292. The 1st Defendant agreed the SRK Report did not include a Reserve Statement, but

did include a ‘resource estimate’ which was said by the authors of the SRK Report

to be JORC Code compliant.

293. The Plaintiff pleads in paragraph 12(4) of the Amended Plaint that a ‘completed

feasibility study’ requires there to be included a Reserve Statement to enable the

Plaintiff to seek to raise Project Finance pursuant to clause 4.7 of the Agreement.

The 1st Defendant submits a Reserve Statement can only be properly made where it

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is concluded that mining a deposit is technically feasible and economically viable

and the ‘modifying factors’ are or can be favourably resolved.

294. As the SRK Report did not reach a positive conclusion that mining on the E was

technically feasible, economically viable and the modifying factors are or can be

favourably resolved, the 1st Defendant says that such a Reserve Statement is

therefore not required. In any event, the 1st Defendant submits the Implied Terms do

not require the SRK Report to reach a positive conclusion or do what is not proper,

that is, to include a Reserve Statement when no positive conclusion was reached.

295. For those reasons the 1st Defendant considers the Plaintiff has failed to prove his

claim. Accordingly, the 1st Defendant says it has earned an 80% Joint Venture

Interest of the E pursuant to the terms of the Agreement. Further, the 1st Defendant

says it is entitled to a declaration it is entitled to be registered as proprietor of 80% of

the E and the Plaintiff must do all things necessary to enable the 1st Defendant to be

registered as the 80% owner of the E. Further, the 1st Defendant requires an order the

Plaintiff execute and provide a registrable transfer of an 80% interest in the E.

Findings

296. The general rule is the performance of a contract must be precise and exact. Whether

the alleged performance satisfies this criterion is a question to be answered, first, by

ascertaining the construction of the contract, so as to see what the parties mean by

performance, and, then, to ascertain the facts so as to see whether that which has

been done corresponds to that which was promised. If there is the slightest deviation

from the terms of the contract, the party not in default would be entitled to say the

contract has not been performed.

297. The purpose for which the 1st Defendant was obliged to ‘complete a feasibility study’

for the use of the Plaintiff was determined in the PI Decision at [85] and noted in this

decision at [133].

298. The Implied Terms of the Agreement and the reasons why the Implied Terms were

required were determined in the PI Decision at [92] – [94] and noted in this decision

at [142].

299. I find the Plaintiff was entitled to expect in performance of the express and Implied

Terms of the Agreement by the 1st Defendant that, at the end of the Earning Period

and in return for an 80% Joint Venture Interest in the E, the 1st Defendant would

deliver to him and have ‘completed a feasibility study’ sufficient that the Plaintiff

could inform himself of his Election to either withdraw and act in accordance with

clause 4.6 of the Agreement or contribute and act in accordance with clause 4.7 of

the Agreement.

300. I find the task to be undertaken by the 1st Defendant, in accordance with the express

terms and Implied Terms of the Agreement, was to have ‘completed a feasibility

study’ within the Earning Period, not a Scoping Study or a Pre-Feasibility Study, but

a Feasibility Study.

301. I find the Plaintiff was entitled to make his Election, based upon the content of the

1st Defendant having ‘completed a feasibility study’, in any way he chose,

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notwithstanding the conclusion reached by the ‘completed feasibility study’ may

have been positive or negative on the development of the E, because the Plaintiff,

and the Plaintiff alone, was entitled to make his Election of either of the options

available to him pursuant to clause 4.6 and 4.7 of the Agreement.

302. I further find, in accordance with the obligation upon the 1st Defendant to have

‘completed a feasibility study’, the Plaintiff was entitled to expect the inputs used in

the compilation of the SRK Report and the SRK Report as a whole would amount to

a ‘feasibility study’ by the 1st Defendant would meet the requirements of the Implied

Terms to be accurate, independent, reliable (not inaccurate or incomplete) and

contain a Reserve Statement. I accept the uncontested oral and documentary

evidence of Mr Lawrence and Mr Amos and find the SRK Report lacked such

features and did not meet the Implied Terms of the Agreement such that the SRK

Report could be considered to be a feasibility study.

303. I find the only document upon which the Plaintiff could rely in the exercise of any of

the Plaintiff’s rights under the Agreement, irrespective of which options the Plaintiff

exercised under his Election, was the ‘completed feasibility study’.

304. Central to the determination of the Plaint is the classification of the varying types of

techno-financial studies concerning proposed mining projects. The unchallenged oral

and documentary expert evidence of Mr Lawrence establishes there are 3 levels of

techno-financial studies of proposed mining projects, each with inputs of information

and data of expected degrees of accuracy, being Scoping Study (what project could

be with input accuracy ± 40% - ± 50%), Pre-Feasibility Study (what project should

be with input accuracy ± 20% - ± 25%) and Feasibility Study (what project will be

with input accuracy ± 10% - ± 15%) (Exhibit 3 pages 11-14).

305. I accept the evidence of Mr Lawrence and find the 3 levels of techno-financial

studies and their associated purposes and levels of input and conclusions of accuracy

described by Mr Lawrence are understood and accepted within the mining industry

as the standards by which such reports should be and are prepared.

306. I find upon the documentary evidence, the 1st Defendant including its co-owners

FMG and CML and many of the companies contracted to contribute to the various

reports and data used in the preparation of the SRK Report and SRK itself all made

reference to the degrees of accuracy of either the inputs or the conclusions they

reached in terms consistent with the 3 types of techno-financial studies of proposed

mining projects as described by Mr Lawrence.

307. I find SRK, WP and DRAP were well aware of the varying types of techno-financial

studies, the respective levels of input accuracy required in such studies and that they

were preparing a study for a Feasibility Study. SRK makes reference in the SRK

Report to both Pre-Feasibility Study and Feasibility Study. SRK also identified the

level of accuracy of its own work within the SRK Report as being to a level of a Pre-

Feasibility Study of ± 20% - ± 25%. Further, the DRAP work within the SRK Report

was reported by its authors to be at a level of a Scoping Study being a level of

accuracy of ± 40% - ± 50%. Despite the assessment by DRAP that the level of

accuracy of its study was that of a Scoping Study it independently assessed its

accuracy at ± 30%. WP reported Stage 1 of its study as accurate to ± 40% or better

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which is according to the evidence of Mr Lawrence no better than a Scoping Study.

Stage 2 of the WP study was noted by WP as accurate to ± 20% - ± 25% and falling

short of a ‘definitive estimate of ± 15% accuracy’. In this regard the content of the

various reports prepared by the contributors to the SRK Report all identify the

standard and level of accuracy of their reports. I find the level of accuracy of these

reports all speak for themselves as measured by their authors.

308. I find on the above basis and accept that each of the authors of the various studies

used in the compilation of the SRK Report were familiar with the varying types of

techno-financial studies and the respective levels of input accuracy required in such

studies.

309. I am fortified, because of the above conclusions by the authors of the various reports

used within the SRK Report, in my conclusion and findings that the 3 types of

techno-financial studies of proposed mining projects described by Mr Lawrence are

well understood and accepted within the mining industry as the standards by which

such reports are prepared.

310. I find, in accordance with Appendix 26 to the SRK Report, the 1st Defendant and its

co-owners CML and FMG, acted as one in the engagement of contractors to prepare

various studies for inclusion in the SRK Report and also managed the flow of data

and information to SRK. I also find, in accordance with Appendix 26 to the SRK

Report, the role of SRK was to compile a report of all the studies received directly

from other contractors engaged by either CML or FMG on behalf of the 1st

Defendant, the data and information forwarded to SRK by the 1st Defendant and the

work carried out and its own assessment of the hydro-geological, geotechnical and

mining issues by SRK for the E. The information received from the other

contractors, including WP, HWE, Coffey and DRAP, were included in the SRK

Report on the basis it ‘should be considered integral to the substance and outcomes

of the report’. (Exhibit 18, Volume 7, page 1700)

311. I find SRK was well aware of why it was engaged by the 1st Defendant. As early as

July 2006, SRK had been approached by CML to prepare a proposal for the

preparation of a Pre-Feasibility Study on the E to investigate the financial viability of

a standalone project mining only Direct Shipping Ore from the E. Later, in January

2007, CML advised SRK that a Feasibility Study would commence in February 2007

with a completion targeted for June 2007. SRK were instructed by CML to

commence the work on 22 January 2007. (Exhibit 21, Volume 10, Tab 49, pages

4049 to 4050). Further, SRK, in its covering Transmittal Letter dated 24 January

2008, referred to the document it was forwarding to the 1st Defendant as a Feasibility

Study. (Exhibit 18, Volume 7, Tab 46, page 1700).

312. I reject any suggestion or submission by the 1st Defendant that there is no allegation

by the Plaintiff any deficiency in the SRK Report had any effect upon the validity or

reasonableness of the conclusion reached or the Plaintiff was inhibited in making his

Election at because the conclusion of reached or there were any deficiencies in the

SRK Report were such as to deprive it of the character of a feasibility study.

313. The case pleaded by the Plaintiff is the SRK Report did not meet what was required

to be produced under the express terms and Implied Terms of the Agreement such

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that it was a ‘feasibility study’. The 1st Defendant submits the Plaintiff should have

and could have made his Election on the SRK Report despite its negative conclusion.

I reject that submission by the 1st Defendant. The SRK Report did not meet the

standard required to be considered to be a ‘feasibility study’ because it did not meet

the Implied Terms of being accurate, independent, reliable (not being incomplete or

inaccurate) and containing a Reserve Statement. The PI Decision at [92] – [94] and

repeated at [142] of this decision made it clear that the very existence of the Implied

Terms was to ensure the 1st Defendant did not produce a document of a standard that

did not commercially validate the findings and conclusions within the document

purported to be the ‘Feasibility Study’.

314. I find the 1st Defendant produced, in the form of the SRK Report, a document that

was of little commercial worth and did not adequately validate its findings or

conclusions because it was inaccurate, not independent, not reliable (because it was

incomplete and inaccurate) and contained no Reserve Statement. The uncontested

oral and documentary evidence of Mr Lawrence and Mr Amos adequately

demonstrates the shortfall and failings in the SRK Report. It is beyond

comprehension the inputs of the various reports could not each meet the same level

of accuracy and varied between being of a standard of a Scoping Study (± 30%) in

the case of the DRAP Study and of a standard of a Screening Level (± 25 % - ± 30

%) in the case of the WP Study with an overall level of standard of a Pre-Feasibility

Study of accuracy of (± 20 % - ± 25 %) for the whole of the SRK Report. That is

against the background of the admission by various authors of the reports that form

the SRK Report that there is incomplete information used within their reports or that

further information was required before the SRK Report would meet the standard

required to be considered a Feasibility Study.

315. It is not the case the express terms or the Implied Terms of the Agreement required

the Plaintiff to make his Election based on whatever the content of the SRK Report

was that was produced to him. The Plaintiff was obliged to receive a report that

amounted to a ‘completed feasibility study’ that incorporated the Implied Terms. The

Plaintiff did not receive a ‘completed feasibility study’ that incorporated the Implied

Terms and as such he was not only not obliged to make his Election but he could not

as the terms of the Agreement had not been met by the 1st Defendant as the Plaintiff

was presented with the SRK Report that was inaccurate, not independent, was

unreliable and did not contain a Reserve Statement. I find the Plaintiff could have no

faith in the content of the SRK Report because of the failings in it meeting the

Implied Terms and was, therefore, not a Feasibility Study.

316. I do not to accept the terms of the Agreement have been substantially performed by

the 1st Defendant. I accept the uncontested evidence of both Mr Lawrence and Mr

Amos and find the various defects in the SRK Report, including the shortfalls and

additional information required to be ascertained, make it inaccurate, not

independent, unreliable and did not contain a Reserve Statement to the extent it was

significantly short of what was required for it to be considered a Feasibility Study

under the terms of the Agreement or that the Plaintiff could rely upon to make his

Election.

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317. I specifically find the 1st Defendant failed to ‘complete a feasibility study’ that met

the requirement of the Implied Terms for the following reasons.

Accuracy

318. I accept the uncontested evidence of both Mr Amos and Mr Lawrence and find that

for a proponent to seek project finance for a mining proposal they must produce a

Feasibility Study with inputs accurate to ± 10% - ± 15%. I also accept the evidence

of Mr Amos and Mr Lawrence and find the content of the SRK Report was not

accurate to a level of ± 10% - ± 15% and it was at best a Pre-Feasibility Study with a

level of accuracy of ± 20% - ± 25%. I also accept the evidence of Mr Amos and Mr

Lawrence the SRK Report if produced to seek finance would be unable to be

assessed on its commercial merits and funding would be refused.

319. I find the studies by SRK, DRAP and WP used as part of the SRK Report were all

self-evaluated by the authors to be at a level of accuracy to be at best Pre-Feasibility

Study level of ± 20% - ± 25%. The Plaintiff was entitled, under the express terms

and Implied Terms of the Agreement, to receive a Feasibility Study with a level of

accuracy of ± 10% - ± 15% that being sufficient to inform the Plaintiff of his

Election and as previously stated, if necessary upon the Election of the Plaintiff to

seek Project Finance or to be the basis of the exercise of any other right that may

exist under the terms of the Agreement.

320. The reason the 1st Defendant was required by the Implied Terms to produce a

Feasibility Study that was accurate was because it would enabled the Plaintiff to

inform himself of his Election under the provisions of clause 4.6 of the Agreement or

to seek to contribute to Joint Venture Expenditure and raise Project Finance pursuant

to the provisions of clause 4.7 of the Agreement. The PI Decision at [93] went on to

say ‘the feasibility study must contain information of a standard that commercially

validates the findings or conclusions of the information contained within the

Feasibility Study. The Plaintiff was entitled to expect the content of the SRK Report

would be accurate to a standard recognized for a Feasibility Study and capable of

informing his Election to either withdraw and act in accordance with clause 4.6 of

the Agreement or contribute and act in accordance with clause 4.7 of the Agreement.

321. The unchallenged evidence of both Mr Lawrence and Mr Amos is clear, the level of

accuracy of the SRK Report fell below what is accepted for a Feasibility Study and it

was incapable of supporting the exercise of the Plaintiff’s ability to an Election to

contribute and then act in accordance with clause 4.7 of the Agreement.

322. I do not propose to repeat the documentary or oral evidence of Mr Lawrence and Mr

Amos or the closing submissions of the Plaintiff on the Implied Terms. I wholly

accept the evidence lead by the Plaintiff and submissions of the Plaintiff in this

regard.

323. The Plaintiff was entitled to expect the 1st Defendant would ‘completed a feasibility

study’ that was based upon and contained information of a sufficient standard and

degree of accuracy he could rely upon in the exercise of his Election and then also

rely upon, if necessary, to seek to pursue the exercise of the rights as a consequence

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of his Election, including seeking Project Finance within the time constraints under

the Agreement.

324. I find the level of accuracy required of the 1st Defendant for the SRK Report to be

regarded as the 1st Defendant having ‘completed a feasibility study’ has not been

met.

Independence

325. I accept the submission of the Plaintiff and find various data, information and reports

received by SRK for the preparation of the SRK Report were not independently

verified and the information was accepted uncritically and was not verified for

accuracy or reliability and as such is not independent.

326. I do not propose to repeat the documentary or oral evidence of Mr Lawrence and Mr

Amos or the closing submissions of the Plaintiff on this Implied Term. I wholly

accept the evidence lead and the closing submission by the Plaintiff in this regard.

327. The unchallenged evidence of both Mr Lawrence and Mr Amos is critical of the

acceptance of information and data from the various contractors of either SRK or the

1st Defendant by SRK, including both CML and FMG, without independent

verification. Both Mr Lawrence and Mr Amos made comment and were critical of

such actions and explained the need for there to be objectively accurate results so

there can be no reasonable apprehension of bias.

328. I accept that evidence, in the circumstances of this case, is at the very heart of the

need for the verification of data and information in the preparation of such report.

The Plaintiff is entitled to be confident the content of a ‘completed feasibility study’

is based upon information and data that is not biased or inaccurate particularly where

the source of that information is from or arranged by a party that has an interest in

the outcome of the purpose of the supply of the information and data in the first

place. It is also the case the information and data provided, in the circumstances of

this case, must be of a standard for the purposes for which it may be used including

the need for the information and data to be passed on and assessed for the purposes

of raising Project Finance, if so required, by the Election of the Plaintiff.

329. I find the level of independence required of the 1st Defendant for the SRK Report to

be regarded as the 1st Defendant having ‘completed a feasibility study’ has not been

met.

Reliable (not Inaccurate or Incomplete)

330. I accept the unchallenged evidence of both Mr Lawrence and Mr Amos and find the

SRK Report was not reliable because it was incomplete and/or inaccurate.

331. The SRK Report acknowledges additional in-depth studies need to be undertaken at

significant cost, details of which are outlined at paragraph [174] of this decision. I

accept the SRK Report acknowledges the need for further geotechnical work to be

completed. I further accept the unchallenged evidence of both Mr Lawrence and Mr

Amos of aspects of the SRK Report that are either inaccurate or incomplete as

outlined in paragraphs [176] to [180] of this decision.

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332. I accept the unchallenged evidence of Mr Lawrence and find the SRK Report

contained almost no information and data in respect to the hydrogeology, dewatering

and groundwater salinity issues on the E.

333. I find the SRK Report was not reliable because aspects of the SRK Report were

incomplete and/or inaccurate. I further find the 1st Defendant failed to comply with

the Implied Term of the Agreement.

334. The 1st Defendant had a significant obligation upon it when it entered into the

Agreement with the Plaintiff to ‘complete a feasibility study.’ The Feasibility Study

was for the benefit of both the Plaintiff and the 1st Defendant in the decisions they

were to exercise regarding their respective rights under the terms of the Agreement.

The 1st Defendant had, as part of its obligation to ‘complete a feasibility study’, to

ensure it presented to the Plaintiff a Feasibility Study that was reliable and not

incomplete and/or inaccurate in any aspect. The Plaintiff had no role to play in the

preparation of the Feasibility Study, yet was obliged under the terms of the

Agreement to rely upon the 1st Defendant to provide to him with a ‘complete

feasibility study’ such that he utilise the content to both inform and decide on the

Election he should make under the terms of the Agreement. Further, if the Election

the Plaintiff was to make under the terms of the Agreement was to contribute the

Plaintiff was obliged to raise finance within restrictive time frames and would be

reliant on the Feasibility Study to seek that finance.

335. It is against that background the Plaintiff was entitled to have confidence the 1st

Defendant would ‘complete a feasibility study’ to aid the making of his Election in

the knowledge the feasibility study produced by the 1st Defendant was reliable by not

being inaccurate or incomplete and he could also use the Feasibility Study to seek

finance if that was his Election.

336. I accept the unchallenged evidence of both Mr Lawrence and Mr Amos and the

content of the SRK Report and find the SRK Report was unreliable because it

required further significant information and data as noted above.

337. I find the SRK Report was not reliable, as its content was incomplete and/or

inaccurate, and could not be regarded as the 1st Defendant having ‘completed a

feasibility study’ in accordance with the terms of the Agreement.

Reserve Statement

338. I find the SRK Report was not complete because it did not contain a Reserve

Statement.

339. There is no dispute by the 1st Defendant that the SRK Report did not contain a

Reserve Statement. The 1st Defendant says a Reserve Statement was not necessary

because of the negative conclusion reached by the SRK Report.

340. The unchallenged evidence of Mr Lawrence was a Reserve Statement was critical in

the final economic assessment of an iron ore project. Further, Mr Lawrence stated a

Reserve Statement was necessary before Project Finance could realistically be

expected to be allocated. Mr Lawrence also stated a Reserve Statement, and not an

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ore resource statement, was required by the Plaintiff to reasonably and commercially

inform his Election.

341. Mr Lawrence stated the absence of any material attempts by SRK to critically verify

assumptions in the conclusions as would be expected under the JORC Code and

VALMIN Code. The failure to provide a JORC Code and VALMIN Code compliant

conclusion is regarded by Mr Lawrence as another ‘fatal flaw’ in the SRK Report

because it underpins any claim about the quantity and quality or iron ore that can be

produced.

342. Mr Amos gave unchallenged evidence the lack of a Reserve Statement would imply

a project cannot be demonstrated to be economically viable. The inclusion of a

Reserve Statement is expected by a great majority of financiers for mining projects

and it would be highly improbable the Plaintiff would be able to obtain Project

Finance without such a statement.

343. The absence of a Reserve Statement was said by SRK to be as a result of SRK ‘not

being asked to report on a reserve statement’. SRK also acknowledged the

importance of assessments under the JORC Code as being the minimum standard ‘to

ensure that investors and advisors have all the information they would reasonably

require for forming a reliable opinion on the results and estimates being reported’.

344. I accept the unchallenged evidence of Mr Lawrence and Mr Amos and find a

Reserve Statement was required for the SRK Report to be considered as the 1st

Defendant having ‘completed a feasibility study.’

345. I accept the evidence of Mr Lawrence and find the failure to include an Ore Reserve

Statement within the SRK Report was a fatal flaw to the ability of the Plaintiff to

make his Election and, if necessary, to raise Project Finance.

346. Without information concerning the quality and quantity of the very mineral at the

heart of the Agreement between the Plaintiff and the 1st Defendant, I find the

Plaintiff could not be in a position to properly assess the viability of any potential

mining project and, therefore, would not be in a position to properly make his

Election as required under the express and Implied Terms of the Agreement. Further,

I find the lack of a Reserve Statement within a completed Feasibility Study would

almost certainly render any application for finance, if the Election was made by the

Plaintiff to contribute, highly improbable of success as the viability of any potential

mining project would be unable to be assessed.

347. Although the 1st Defendant may not have requested of SRK a Reserve Statement be

included in the SRK Report, I accept and find on the unchallenged evidence of both

Mr Lawrence and Mr Amos it was necessary because a Feasibility Study at a level of

accuracy of ± 10% - ± 15% requires it to be present and given the very purpose for

which the completed Feasibility Study may be called upon to be used for by the

Plaintiff in this case, included the raising of finance such application would demand

it be present before any probability of success were to be expected.

348. I find the SRK Report did not contain a Reserve Statement and could not be regarded

as the 1st Defendant having ‘completed a feasibility study’ in accordance with the

terms of the Agreement.

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Conclusion

349. For those reasons, the Plaintiff has discharge the onus upon him and I am satisfied

upon the balance of probabilities the 1st Defendant did not deliver to the Plaintiff a

‘completed feasibility study’ within the time limits and the express terms and Implied

Terms of the Agreement.

350. The Plaintiff is entitled to the relief sought in the Plaint.

351. Accordingly, subject to submissions from the Plaintiff, the I propose to make the

following orders:

i) There is a declaration the 1st Defendant is deemed to have withdrawn from the

Joint Venture;

ii) There is a declaration that Power of Attorney No 10265H is invalid, and

iii) There is a declaration the Transfer lodged by the 1st Defendant on 11 March

2008 to transfer an 80% interest in E 47/1140 to itself is invalid.

iv) An injunction is granted restraining the Mining Registrar from registering the

Transfer lodged by the 1st Defendant on 11 March 2008 to transfer an 80%

interest in E 47/1140 to itself.

v) An injunction be granted restraining the 1st Defendant, its servants, workmen

and agents from representing the 1st Defendant:

a. has any right or interest n E 47/1140;

b. holds a power of attorney to sign on behalf of the Plaintiff to do

everything necessary to maintain E 47/1140; and,

c. is the manager of the Joint Venture Operations in relation to E

47/1140.

vi) The 1st Defendant is to pay the costs of the Plaintiff, including any reserved

costs and the costs of any expert witnesses, to be assessed if not agreed.

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