FOR LIMITED DISTRIBUTION CATCHWORDS Trade Practices - Misleading or deceptive conduct - Application for interlocutty injunctions - Statements made in report concerning operation and termination of a mine management agreement. Trade Practices Act 1974, s. 52 ELDERS CED LIMITED and ELDERS RESOURCES LIMITED v. ZANEX LIMITED and PETER JOHN STERLING G270 of 1986 LOCKHART J. SYDNEY 22 JULY 1986 mf A _e RECE) 2140CTiI96 =| FEDERAL COURT OF AUSTRALIA 2A PRINCIPAL we, REGISTRY A FOR LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRLIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G270 of 1986 ) ) GENERAL DIVISION ELDERS CED LIMITED First Applicant ELDERS RESOURCES LIMITED Second Applicant ZANEX LIMITED First Respondent PETER JOHN STERLING Second Respondent MINUTE OF ORDER JUDGE MAKING ORDER: LOCKHART J. WHERE ORDER MADE: SYDNEY DATE OF ORDER: 22 JULY 1986 THE COURT ORDERS THAT: l. NOTE: Upon the applicants, by their counsel, giving the usual undertaking as to damages, the injunctions granted on 17 July 1986 shall be continued until the hearing of the proceeding or further order, save that paragraph 1({a)(B) of the application 1s amended so that the date Of the agreement between the First Applicant and the First Respondent reads 14 February 1985. The costs of the proceeding today shail be the applicant's costs in the proceedings. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. FOP LIMITED DISTRIBUTION IN THE FEDERAL COURT OF AUSTRLIA NEW SOUTH WALES DISTRICT REGISTRY No. G270 of 1986 weer rw GENERAL DIVISION ELDERS CED LIMITED First Applicant ELDERS RESOURCES LIMITED Second Applicant ZANEX LIMITED First Respondent PETER JOHN STERLING Second Respondent 22 JULY 1986 REASONS FOR JUDGMENT LOCKHART J. This is an application for interlocutory injunctive relief by two companies, Elders CED Limited ("Elders CED") and Elders Resources Limited. They seek to restrain Zanex Limited ("Zanex") and Peter John Sterling, the chairman of the board of directors of Zanex from, in essence, making statements orally or in writing to the effect that Zanex terminated a management agreement between Elders CED and Zanex, and further, from stating that that agreement was terminated on account of the alleged breach by Elders CED of that agreement or some fault, act or omission on its part or on the part of Elders Resources Limited. The proceedings were commenced recently and came first before the Court last week, namely 17 July, and after a brief hearing, I granted injunctions operative until and including today. The relevant facts for present purposes may be briefly stated. The applicants carry on the business of providing administrative management and technical advice and assistance in connection with the exploration and development of mineral deposits. The applicants are responsible for the management of a large number of mining projects. They are substantial ventures into which some billions of dollars have been or will be invested. Most of the companies which use the services of the applicants are listed with one or more of the various Australian stock exchanges. On 14 February 1985 Elders CED entered into a written agreement, called the management agreement, with Zanex under which Elders CED was appointed as manager of a gold mining project undertaken by Zanex and another party in the Solomon Islands. Following execution of that agreement Elders CED commenced to act as manager of the project and it incurred expenses in so doing. 3. Following certain correspondence between the parties, Elders CED by letter dated 17 Februray 1986 addressed to Zanex purported to terminate the management agreement on the ground that Zanex was in breach of clause 8 of that agreement in that it had failed to indemnify and reimburse Elders CED in respect of substantial sums of money which were said by Elders CED to be due to it under the terms of that agreement. On 20 March 1986 Elders CED commenced proceedings in the Supreme Court of New South Wales against Zanex in which it claimed the sum of $313,719.06 in respect of the expenses which Elders CED asserts that it incurred in carrying out its duties as project manager under the management agreement, together with interest and costs. Following the commencement of those proceedings Zanex paid to Elders CED the sum of $178,534.98 in partial payment of the sum claimed. Those proceedings have been referred to arbitration for hearing. There is evidence before me, which I accept, that at no time during or after the exchange of correspondence between the parties, including the letter of termination to which I have referred, have the respondents challenged the right of Elders CED to terminate the management agreement. There is however a considerable amount of material before the Court bearing on the relationship between the applicants and Zanex. Zanex asserts that it was dissatisfied with the way in which Elders CED administered the management agreement on various counts, 4. and no doubt these matters will be the subject of dispute before the arbitrator. Although I have read much of the material in which Zanex asserts that this dissatisfaction with Elders CED underlay what may have become an unsatisfactory relationship between them, I make, of course, no findings on that but will simply assume that those matters are in issue between the parties in the appropriate forum, which is not this Court. On 3 March 1986, a letter was written by Zanex to Elders CED, enclosing a proposed news release to the shareholders of Zanex stating that Zanex announced that as from a particular day, which appears to be 17 March 1986, Zanex had taken direct responsibility for management of its mining operations in the Solomon Islands; and the company acknowledged the significant contribution made by Elders Resources during the difficult start up period. Elders CED took exception to that document primarily because 1t asserted that it was misleading in that it did not specify the reasons for the change in management of mining operations in the Solomon Islands project, namely, termination by Elders CED of the management agreement on the basis of breaches committed by Zanex, and that the release implied that the management agreement was terminated by Zanex. I will pass over the intervening discussions and correspondence between the parties until a critical document came into existence, namely, a quarterly report to 31 March 1986, sent by Zanex 5. to 1ts home stock exchange, the Melbourne Stock Exchange. I am satisfied that upon receipt of that communication, the Melbourne Stock Exchange then, in accordance with recognised stock exchange procedures, informed other stock exchanges in Australia of the contents of that quarterly report so far as relevant, probably by telex. The contents of those telexes are the same as the contents of the quarterly report, to which I will now refer. That quarterly report, so far as relevant, states under the heading "GOLD" the following: "SOLOMON ISLANDS ZANEX/MAVU JOINT VENTURE (ZANEX 70% DIRECT AND INDIRECT) Problems associated with management communications resulted in the termination of the contract with Elders on 18.3.86. Production at the mine was curtalled on 12.3.86 at the Ministry of Natural Resources request, just prior to Elders Resources vacating the site." Then under the heading "MINING LEASE REINSTATED" the document proceeded: "The Solomon Islands Ministry of Natural Resources unconditionally lifted the suspension of the Zanex Mavu mining lease on 29.4.86. Gold production during the quarter was a disappointing 474 ounces. According to reports received from Elders Resources this was mainly due to low staff and machinery availability. STAFF APPOINTMENTS The Company has appointed Mr George Reynolds as General Manager and Mr John Davidson as Mine Manager, both senior Mining Engineers with wide experience in the mining industry. GOLD PRODUCTION INCREASE During the mine rehabilitation period, a number of modifications will be made to the plant, which, along with changes to operational proceedures, should ensure greater ore throughput and gold production." The applicants seek to restrain Zanex and Mr. Sterling from making any further statements to the like effect of the quarterly report. Their case, in this Court, is based upon s. 52 of the Trade Practices Act, 1974. It is said that the terms of the communication by Zanex to the stock exchange constituted misleading or deceptive conduct in that it conveys the impression that the management agreement was terminated by Zanex and not by Elders CED, and that' the termination was caused by problems associated with management communications, that is, problems with Elders CED or, perhaps, Elders Resources or both companies. Counsel for Zanex and Mr. Sterling argued that there 1s no prima facie or seriously arguable case because, on the evidence, there were problems associated with management communication between Elders CED and Zanex, and that in the mind of Zanex, it led to the ultimate termination of the management agreement. The resolution of these questions is, of course, a matter for the trial, and it is not appropriate that I say much about it at this wee ee re ree eee de interlocutory stage. Of course, I do not determine any of the questions on a final basis. However, it is appropriate, in some circumstances, in cases of this nature, for the Court to express its view as to whether the case of the applicants is strong or weak, or somewhere in between. The strength of the applicants' case 1s relevant to the question of whether a prima facie case or a _ seriously arguable question has been established and indeed, as has been said in many cases, is relevant also on the question of balance of convenience. In other words, in the appropriate case, the stronger the case for the applicant, often the greater the balance of convenience in favour of j granting the injunctive relief. I think the case as made out by Elders CED is a_ strong case. The allegations of misleading or deceptive conduct establish a_ strong prima facie or seriously arguable question. There remains the question of the balance of convenience. I have already touched on that a moment ago, but there are some further facts which need recitation. It is proposed that there be in the near future a meeting of shareholders of Zanex, held purusant to a requisition of certain shareholders of that company who have expressed some dissatisfaction with the management of the company. I say nothing whatever, of course, about the soundness or otherwise of what they have asserted, as I know nothing about it, but what it does disclose is that there are shareholders in Zanex who seek to cause .. 8. .changes to the board of directors and one of the matters relied upon by them, as justifying change, is their assertion that, in effect, Zanex mishandled the management agreement with Elders CED in some way. Zanex is anxious not to be restrained as sought by the applicant because it wants to feel free to say whatever it wishes to the shareholders whether before or at the meeting that will be held in the near future and, therefore, to assert what it regards as the facts governing the relationship between Elders CED and Zanex which it says ultimately led to the termination of the management agreement. What Zanex or its directors say to its shareholders is a matter entirely for them; it is not for me to comment on that, nor on the wisdom of making assertions to shareholders at a time when the very matters in question are in the process of being litigated in more than one forum. However, this is not a case where the applicants seek to restrain any right of free speech. They seek to restrain what they assert is an abuse of that right. They simply say that what must not be said to anybody, including the shareholders of Zanex, is that Zanex terminated the management agreement and further, that it did so on the ground, in effect, of alleged incompetence or mismanagement by Elders CED. The fact that those who control the affairs of Zanex wish to feel free to make statements to shareholders, when considered in the light of what I have said about the quarterly report to the Melbourne Stock Exchange, poses, I think, a very real threat of a repetition of + 9. the conduct complained of and therefore militates in favour of the "grant of interlocutory injunctions. It was argued by counsel for the respondents, that this is, in essence, a defamation action and that the principles governing the grant of interlocutory injunctions in those cases should apply. I was referred to a number of authorities, to which I donot find it necessary, at this hour, to recite, except to say that I have, of course, considered them and I am very familiar with the propositions which they expound, namely, that the courts must be very slow in defamation cases to interfere by way of interlocutory injunctive relief. I do not think those cases apply in this case which is nota defamation case either directly or indirectly. It is a case based on s. 52 of the Trade Practices Act although what is asserted is that the alleged offending conduct will harm the reputation and goodwill of the applicants or either of them. That is conduct that squarely falls within s. 52 and [I do not regard the defamation principles as being applicable. Even if they were I would still interfere by way of interlocutory injunctive relief within the framework of those principles. There is a possibility of damage ensuing to the applicants or either of them if there is a repetition of the conduct which the applicants seek to restrain. Accordingly, in all the circumstances I think the appropriate course is to grant the relief sought. I certify that this and the eight (8) preceding Pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Lockhart. Kun. Lroke, Associate Dated: 22 July 1986