Supreme Court New South Wales Medium Neutral Citation: In the matter of Global Advanced Metals Pty Ltd [2019] NSWSC 1804 Hearing dates: 5-7 and 20 November 2019 Decision date: 11 December 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Leave not granted to Metallurg Inc to bring proceedings on behalf of Global Advanced Metals Pty Ltd under s 237 of the Corporations Act 2001 (Cth). Catchwords: CORPORATIONS – statutory derivative action – application by plaintiff to bring proceedings on behalf of company – where plaintiff has significant shareholding – where directors did not undertake further investigations to identify value in mining assets – where proposed proceedings against current directors of company – where proceedings may impact management of ongoing business – whether it is in company's best interests that plaintiff be granted leave – whether proposed proceedings involve a serious question to be tried – whether leave should be granted to plaintiff to commence proceedings on behalf of company. Legislation Cited: - Corporations Act 2001 (Cth) ss 180, 180(2), 189, 236, 237, 237(2), 237(2)(a), 237(2)(b), 237(2)(c), 237(2)(d), 237(3), 247A, 1317H, 1317S, 1318 - Evidence Act 1995 (NSW) s 136 Cases Cited: - Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 - Australian Securities and Investments Commission v Lindberg [2012] VSC 332; (2012) 91 ACSR 640 - Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 - Badenach v Calvert (2016) 257 CLR 440 - Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132 - D'Ortenzio v Charles Parletta Real Estate Pty Ltd [2018] SASC 37 - Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 - Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188 - Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431; (2014) 103 ACSR 137 - Huang v Wang [2016] NSWCA 164 - Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 - Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Limited [2012] NSWSC 462 - Metallurg v Global Advanced Metals Pty Ltd [2017] WASC 212 - MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367 - MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 - Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 - Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 - Re Fishinthenet Investments Pty Ltd [2014] NSWSC 260 - Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 - Re Imperium Projects Pty Ltd [2015] NSWSC 16 - Re Legal Practice Management Group Pty Ltd [2018] NSWSC 527 - Re Sirrah Pty Ltd [2018] NSWSC 1802 - Resource Equities Ltd v Garrett [2009] NSWSC 1385 - South Johnstone Mill Ltd v Dennis (2007) 244 ALR 730 - Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 - Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 - Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354 - The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 - Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 Category: Principal judgment Parties: Metallurg Inc (Plaintiff) Global Advanced Metals Pty Ltd (Defendant) Mineral Resources Limited (Interested Party) Representation: Counsel: C R C Newlinds SC/J D Williams (Plaintiff) I R Pike SC / A Shearer/T J Boyle (Defendant) A Smorchevsky (Interested Party) Solicitors: Horton Rhodes Lawyers (Plaintiff) Allen & Overy (Defendant) Bennett + Co (Interested Party) File Number(s): 2019/153765 Judgment Nature of the application 1. By Originating Process filed on 16 May 2019, the Plaintiff, Metallurg Inc ("Metallurg") applies for leave under ss 236 and 237 of the Corporations Act 2001 (Cth) to commence proceedings on behalf of the Defendant, Global Advanced Metals Pty Ltd ("GAM") against GAM's current chief executive officer and several current and former independent directors ("GAM Directors"). The GAM Directors are some but not all of GAM's directors at the relevant time, and I will generally use the term "GAM's directors" or the board to refer to GAM's directors generally. The proposed proceedings relate to the sale of assets ("Wodgina Assets") associated with a mine located at Wodgina in Western Australia, which was previously owned by a subsidiary of GAM, to a third party, Mineral Resources Limited ("MRL"). 2. The Plaintiff, Metallurg, is a subsidiary of AMG Advanced Metallurgical Group NV ("AMG") and holds approximately 13.25% of the issued ordinary shares in GAM. AMG is a company incorporated in the Netherlands and listed on the Euronext Amsterdam stock exchange, and holds, through subsidiaries, interests in metallurgical, mining and engineering companies. Metallurg acquired its interest in GAM in 2015, in consideration of a price reduction under a tantalum concentrate supply agreement between a subsidiary of AMG and a related entity of GAM. It appears that arrangement has subsequently been terminated, and litigation is under way in the United States between the parties in respect of that arrangement. The chief executive officer and chairman of the management board of AMG, Dr Schimmelbusch, was previously a director of GAM and held that role until November 2016, although Metallurg has had no nominee as a director of GAM since that date. 3. The Defendant in this application, GAM, is an Australian company engaged in the production, development and supply of tantalum which is used in the electronics, aerospace, automotive and chemical processing industries. The substantial majority of the shares in GAM are held, directly or indirectly, by entities associated with Resource Capital Funds, a private equity fund based in the United States. The proposed claim 1. In its proposed Commercial List Statement, Metallurg characterises the claim it seeks to bring for GAM as a claim against the GAM Directors for breaches of duties to exercise reasonable care and skill under s 180 of the Corporations Act and at general law. It contends, by way of summary of the claim, that: "In the period from about March 2016 to September 2016, under the control of the [GAM Directors], GAM considered, entered into and performed a transaction with [MRL]. In this transaction, GAM sold [the Wodgina Assets] to MRL for approximately A$60 million, in circumstances where the Wodgina Assets (particularly the lithium deposits which were the substantial part of the Wodgina Assets) had a value of not less than A$900 million. Alternatively, the Wodgina Assets had a value of A$245 million." 1. It will immediately be apparent that, to say the least, there is a wide range in the value that Metallurg attributes to the Wodgina Assets. As will emerge below, the evidence presently available to Metallurg does not have the capacity to establish either of the values for which it contends. Although Mr Newlinds, who appears with Ms Williams for Metallurg, sought to de-emphasise the claim based on the value of the Wodgina Assets in submissions and instead emphasise a "no transaction" case, the question of value still looms large in the proposed Commercial List Statement. 2. Metallurg further summarises the basis of the claim it seeks to bring on GAM's behalf in the proposed Commercial List Statement as follows: "The transaction with MRL was entered into with insufficient information obtained by and insufficient consideration given by the GAM Directors as to the value of the Wodgina Assets, whether or how to realise or exploit the Wodgina Assets in the best interest of GAM and whether selling the Wodgina Assets for the consideration paid for the Wodgina Assets was in the best interests of GAM." 1. Metallurg then fairly identifies the issues likely to arise in the claim as to whether the GAM Directors breached their duties that each owed to GAM in deciding to sell the Wodgina Assets, or in deciding to sell the Wodgina Assets on the terms agreed with MRL, or in several other respects relating to the process of and extent of advice obtained in respect of the sale. It also identified, in a short form that does not recognise its substantial complexity, a further issue as to "[t]he loss caused to GAM by any breach of duty." 2. The proposed Commercial List Statement then pleads the facts of the relevant transaction, and I will refer to aspects of that pleading in summarising the background facts below. Metallurg, for GAM, would contend (proposed Commercial List Statement [40], [50], [55]) that, between late 2015 and early March 2016, and again until a board resolution in early April 2016 and until an offer made by MRL in May 2016, the GAM Directors did not cause GAM to: "(a) investigate other methods of maximising the realisation of the value of the Wodgina Tenements or Wodgina Assets to GAM, including continued ownership and operation of those assets, joint venture exploitation of the assets, sale with a royalty or other continuing interest, auction, or an initial public offering of [the GAM subsidiary] (or such assets as it was determined to sell); (b) investigate undertaking, or undertake, testing of or obtaining a valuation of the Wodgina Tenements or Wodgina Assets, including the Site Assets, and particularly the [lithium deposits in hard rock ("Hard Rock Lithium Deposits"), except as pleaded above; (c) investigate undertaking or undertake a competitive marketing tender process for the Wodgina Tenements or Wodgina Assets; (d) engage professional advisers, including an investment bank or other advisers experienced in the sale of mineral tenements or rights, to advise on and assist in relation to the sale of the Wodgina Tenements or Wodgina Assets; or (e) otherwise investigate undertaking, or undertake, a process to market and maximise the price of the Wodgina Tenements or Wodgina Assets." 1. Metallurg, for GAM, would also contend (proposed Commercial List Statement [41], [51], [56]) that the GAM Directors did not make reasonable inquiries and take steps to place themselves in a position where they could make an informed decision about the value of the Wodgina Assets, including the lithium deposits; realising, and maximising the value of, the Wodgina Assets; and whether the Asset Sale Agreement being negotiated with MRL was in GAM's best interests. 2. Metallurg, for GAM, would also advance a claim in respect of a right of first refusal ("ROFR") binding on a third party, Pilbara Minerals Limited ("Pilbara Minerals") arising under a Pilgangoora Asset Sale Agreement dated 30 May 2014 and GAM's rights under a Pilgangoora Royalty Deed dated 25 July 2014 ("Pilgangoora Royalty") (proposed Commercial List Statement [60D]–[61], [61A]) that the GAM Directors did not consider undertaking or undertake any investigation or seek any advice either from external advisers to establish the value of the ROFR either on the open market or to MRL or Pilbara Minerals, or as to whether any consideration had been given to an appropriate method to marketing the assets to sale so as to achieve the best value; did not cause GAM to investigate undertaking, or undertake, any or any sufficient valuation of the Pilgangoora Royalty or the ROFR; and did not make any inquiry of GAM's management as to whether management had formed any view as to the value of that asset and if not why not. Metallurg would also contend, for GAM (proposed Commercial List Statement [61B]) that the ROFR had a market value and/or a value to MRL of approximately $50 million as at 27 June 2016. As will emerge below, the evidence on which Metallurg would rely to establish that proposition is not capable of doing so. 3. Metallurg, for GAM, would also contend (proposed Commercial List Statement [70(a)]) that the market value of the Hard Rock Lithium Deposits, being part of the Wodgina Assets was approximately A$190 million in June 2016. Metallurg seeks to support that contention on the basis that GAM had available drill core samples which should have been tested to properly market or value the Wodgina Assets and assumes, rather than demonstrates, that it could prove that the result that would follow from that testing was as favourable as that which emerged, from further drilling and investigations by MRL, in February 2017. That contention also relies on two reports of Mr Naidoo which were not tendered as expert evidence and which I address below. Metallurg, for GAM, would also contend (proposed Commercial List Statement [70(b)]) that the market value of the "Tailings Lithium Deposits" was in excess of $50 million, by taking the higher end of a valuation range previously identified by an adviser to GAM, Rothschild, in the light of testing results achieved by GAM prior to 27 June 2016. Metallurg, for GAM, would also contend (proposed Commercial List Statement [70(c)]) that the market value of the ROFR and the Pilgangoora royalty was approximately $50 million although, as I noted above, the evidence presently available to Metallurg could not support that proposition. Metallurg would also contend for GAM (proposed Commercial List Statement [70(d)]) that plant and equipment at the Wodgina site had a significant value, at least to any person operating the mine. That would likely depend on its condition and whether it was useable for the purpose for which the mine would be operated by such a person. 4. On this basis, Metallurg would plead, for GAM, breaches of the alleged statutory and general law duties by the several GAM Directors (proposed Commercial List Statement [71]-[75]) and that such breaches: "caused GAM to sell the Wodgina Assets to MRL in the Asset Sale Agreement for an amount (namely, the Purchase Price) which was significantly below market value." That allegation is in turn particularised by reference to other strategies which might have been adopted to deal with the Wodgina Assets. GAM would, on that basis, claim compensation for loss or damage at general law and under s 1317H of the Corporations Act. Background facts 1. I turn now to the factual background to the claim, drawing partly on Metallurg's proposed Commercial List Statement (to which I have referred above) and a sub-bundle of documents on which Metallurg relied in opening (Ex P7) and the parties' respective tender bundles. Mr Newlinds emphasises that the matters and documents on which Metallurg would rely at a hearing, in bringing a case on GAM's behalf, extend beyond those pleaded and particularised in the proposed Commercial List Statement, and the parties led voluminous documentary and other evidence in this application. Where the matters that are the subject of this application may ultimately be the subject of future proceedings, at least if an appellate court takes a different view from that which I have reached, I will only reach findings as to contested issues in that evidence to the extent that it is necessary in order to determine this application and explain the conclusions that I have reached. 2. Prior to the impugned transaction in 2016, a wholly owned subsidiary of GAM owned mineral tenements and other assets on a site near Wodgina in Western Australia, and had associated rights to explore for and mine the Hard Rock Lithium Deposits and also the Tailings Lithium Deposits, although GAM's core business was directed to tantalum rather than to lithium. In its opening submissions, GAM traces the history of GAM's ownership of the Wodgina Assets and another mine, the Greenbushes mine, and assessments made by GAM over a long period as to the feasibility of tantalum and other mining at the Wodgina site and as to the recoverability of lithium at that site. It is not necessary to address that history for the purposes of this application, beyond noting that GAM had long recognised the possibility that a lithium resource existed at the Wodgina site, at least in respect of the Tailings Lithium Deposits. However, the Wodgina Assets had a carrying value of nil in GAM's financial accounts by late 2014, reflecting a fall in the market price of tantalum ore and a consequential impairment of the assets of the GAM resources business. There is no suggestion that that impairment had, or could have, reflected any potential value of lithium assets on the site. 3. From early 2016, GAM's directors and senior management considered whether GAM should sell its shares in the subsidiary that owned the Wodgina Assets or some or all of the Wodgina Assets. By about that time, another mining company that was using certain infrastructure at the Wodgina site and had leased tenements from GAM in consideration of the payment of the royalties to GAM had suspended trading of its shares on the Australian Securities Exchange ("ASX") and was in negotiations with its creditors. GAM's directors then appear, not surprisingly, to have been concerned as to the possible failure of that company and the implications of such a failure for GAM's exposure to rehabilitation costs for the Wodgina site. 4. GAM was also assessing, at about that time, the extent of lithium contained in the tailings dam. In late January 2016, an internal email within GAM, addressed to GAM's general manager – strategic development noted the result of then sampling, which was described as a "good start" and also included an obviously humorous reference to the possible size of the lithium deposits (Ex D10, Tab 51; Ex P7, 14A). Another internal email dated 28 January 2016 from GAM's general manager – strategic development (Ex P6, 1505; Ex P7, 15) noted the options available to GAM to get value from the assets including GAM developing the tailings dam project or listing a new company or selling the assets; and also noted sub-options to the latter option including listing or selling the lithium rights, the tailings dam (with GAM retaining the infrastructure), the tailings dam and infrastructure to support the operation, or all the Wodgina Assets. That email noted that "[t]he valuation differential is huge mainly based on lithium recovery" and expressed the view that "if the market appetite is there, divesting the asset/assets is the highest value and lowest risk option rather than GAM developing the project". 5. A further email dated 5 February 2016 from GAM's general manager – strategic development to its executive committee reported on results from the trenching program on the tailings dam and described the consistency of the lithium grade across the dam area and through each trench profile as "really encouraging" and noted other ongoing work (Ex P6, 1546; Ex P7, 16). GAM's general manager – strategic development then sent a further email on 9 February 2016 to GAM's chief executive officer, copied to its executive committee, attaching a mineralogy report on the Wodgina tailings dam and noting "quiet excitement" as to the recovery rate (Ex P6, 1547; Ex P7, 17). 6. A conference call was set up for 25 February 2016, including GAM's chief executive officer and GAM's directors (Ex P7, 1558), with the purpose described as: "to brainstorm (initial) ideas on how to think about monetizing this (potential) GAM asset. Note: very early stage of discussion at management team so this will be an informal discussion rather than a review of formal management proposal(s)." The invitation noted that management were at an early stage of researching lithium content and potential in the Wodgina tailings pond and noted activity concerning that commodity. 1. GAM also took advice, in late February and early March 2016, from Rothschild as to listed companies in Australia and Canada which had an interest in the lithium sector and as to the potential value of the Tailings Lithium Deposits. An invitation for a conference call on 26 February 2016 between Rothschild, GAM's chief financial officer and a director of GAM noted that it was intended to cover the "plan of attack to maximum valuation", a timetable to move forward within 2–3 months, and the recommendation of potential brokers in Canada which could assist on a dual track process or sale to a trade or strategic buyer, possibly in the China region (Ex P6, 1581; Ex P7, 26). 2. Rothschild prepared indicative valuation advice (Ex P6, 1608; Ex P7, 33) by reference to a model prepared by GAM, including several assumptions as to, for example, recovery rate and concentration of the Tailings Lithium Deposits and noted that "valuation upside [is] highly dependent on the lithium recovery rate and price outlook" and also indicated that Rothschild sought a "better understanding as to a reasonable recovery rate". On that basis, Rothschild valued the Tailings Lithium Deposits within a very broad range of between A$19 million and A$171 million. Rothschild was not asked to and did not then value the Hard Rock Lithium Deposits, as to which less information was available. 3. An email dated 26 February 2016 from GAM's chief financial officer to one of GAM's directors noted that two alternative drilling programs to produce an Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Resources ("JORC Code") compliant mineral resource for the tailings dam would have estimated costs of $550,000 or $200,000 and the program would take 10-12 weeks to complete from mobilising the drill rig to finalising the mineral resource (Ex P6, 1575; Ex P7, 25). 4. An email dated 29 February 2016 from GAM's chief executive officer (Ex P6, 1560; Ex P7, 23) also referred to a meeting with MRL representatives on that morning and noted that: "We discussed the Wodgina tailings resource (light detail) and they are very interested in pursuing further. I mentioned our preference is to monetize sooner rather than later – i.e. sell asset in near term – but are open minded to other approaches. I said we were compiling necessary info and would share with them shortly. They are 'excited' to discuss further. Let's include in our target list." 1. On 29 February 2016, GAM's general counsel, company secretary and chief compliance officer circulated information to the GAM board in advance of the 9 March 2016 board meeting, including a presentation titled "Wodgina Tailings Project – Lithium" (Ex P6, 1597; Ex P7, 27) which referred to an estimated resource that was not compliant with the JORC Code and a partly completed work program and foreshadowed a board discussion on how to optimise value to GAM by, for example, GAM developing the asset, a joint venture or sale; engaging Rothschild to formalise an approach to key lithium players and launching the process. 2. An email dated 3 March 2016 from GAM's chief executive officer referred to a meeting with MRL, which had then indicated that it was not interested in an outright purchase of the Wodgina Assets but was "very interested" in purchasing an equity stake and developing in partnership, and where GAM's chief executive officer had raised the possibility of a monetary payment for a share of equity with a share of risk and upside (Ex P6, 1605-1606; Ex P7, 31-32). 3. A subsequent email dated 4 March 2016 from GAM's chief financial officer to its chief executive officer (Ex P6, 1605; Ex P7, 31) summarised the main points of a conference call with Rothschild as follows: "● GAM to complete further work around the recoveries. It clearly has the biggest impact on valuations. ● All the valuation is being applied to the tails. We need to see what further resource there could be in the hard rock asset. I[']m not proposing a drilling program but a follow up on the testing of the prior drill samples etc. ● [Rothschild] to provide a list of all lithium contacts that he has for China. One category of potential acquirers that will be hardest to identify is the Private Chinese group that really need to be flushed out to identify them. Getting the word out there is typically how this can be achieved which we won't do until agreement around the strategy forward. ● We all agreed the developments with [MRL] is very positive. There is nothing lost from sharing information as long as there are no restrictions around running a parallel process for determining the best outcome for monetarizing the asset. ● Timing: discuss with the board and agree strategy forward next week. Be in a position to chat with Brokers … on a names basis the week after the board meeting. Will need to firm up assumptions that drive valuations nailed down by them." 1. There was further discussion within GAM in early March 2016 of the geological information that it held in respect of the Wodgina site and the steps that could be taken to assess the lithium potential within the hard rock at the Wodgina site (Ex P6, 1640; Ex P7, 37). A further email dated 7 March 2016 from GAM's chief financial officer to its chief executive officer and others, including representatives of Rothschild, noted Rothschild's comments as to potential strategies as to maximising the value from the Wodgina Assets, including the identification of several potential acquirers, shelf companies, producers which were selling in the Chinese market and noted work then being undertaken by GAM (Ex P6, 1637; Ex P7, 38). 2. The further directors meeting of GAM held on 9 March 2016 (Ex P6, 1648; Ex P7, 39) included an update as to the potential sale of the Wodgina Assets including lithium resources; an update as to the status of lithium sampling analysis to evaluate the potential lithium resource deposits in the tailings dam, and as to the chief executive officer's meeting with MRL, and the board indicated it had no objection to management exploring a term sheet with MRL and reporting back once that term sheet was formulated. Metallurg criticises that process as having omitted the steps of obtaining further advice from Rothschild and implementing a sale process involving other participants. 3. An email dated 10 March 2016 from MRL outlined a "broad offer" providing a lump sum upfront to GAM and a share of total lithium produced from the site (Ex P6, 1657; Ex P7, 42) subject to due diligence arrangements. That email was then the subject of further correspondence between GAM management and several of the GAM Directors (Ex P6, 1656-1657; Ex P7, 44-45). 4. On or about 11 March 2016, GAM executed a due diligence agreement with MRL (Ex P6, 1666) which provided for MRL to pay a refundable deposit of A$10 million to GAM. On about 16 March 2016, MRL paid that deposit. Mr Newlinds, in submissions, contended that the receipt of a deposit may have impacted on GAM's subsequent approach, because a failure to agree a transaction with MRL would have given rise to the need to repay that deposit. That is a possibility, although not established by evidence in this application. 5. Metallurg, on GAM's behalf, would plead in the proposed Commercial List Statement (at [37]) that the GAM Directors were informed of these matters in March 2016 and then knew that the Tailings Lithium Deposits may have a value of between A$20 to A$170 million; the value of the Hard Rock Lithium Deposits was unknown to GAM; and site assets at the Wodgina mine had a currently unknown market value but had been valued at a substantial amount several years earlier. That earlier valuation would, I interpolate, provide little assistance in identifying what an arm's length purchaser would have paid for the equipment, depending on how it could be used on the site or elsewhere, at a later date. 6. On 31 March 2016, a board pack was circulated to GAM's directors for a board meeting on 5 April 2016 (Ex P6, 1752; Ex P7, 54) which included a detailed briefing as to the development of discussions with MRL and foreshadowed that GAM would make a counter proposal to MRL, which was to be discussed at that board meeting. That briefing noted that the Hard Rock Lithium Deposits had an "unknown" value, although identifying the size of the potential resource and its average lithium content, and also identified that the infrastructure on the site had a substantial cost but that its current "market value" was "unknown". That briefing addressed the possibility of alternative buyers to MRL of the Wodgina Assets, noting that: "While no viable alternative buyers have been approached … Management has been cognizant of timing and the liquidity of other potential buyers … as well as the ongoing involvement and exposure that may be attached to alternative offers." 1. That briefing also noted potential savings to GAM from the sale of the Wodgina Assets, including care and maintenance costs for the Wodgina site, and expressed the view that: "While further testing and/or launching a more extensive sales process may have the potential for higher valuation, Management believes there is the risk that the opposite may also occur given the view that the Lithium market is on a bull run that may come to an end at any time." Mr Pike, who appears with Mr Shearer and Mr Boyle for GAM submits, and I accept, that considerations of this kind would generally be regarded as matters of business or commercial judgment. 1. One of GAM's directors then followed up, by email dated 1 April 2016 (Ex P6, 1746; Ex P7, 60) requesting comparables for listed entities that have a lithium deposit and a comparison as to the "value spectrum" for that asset, and asking whether anyone had spoken to the Canadian brokers as to specified matters and noted the relevance of that information "to round out our knowledge base in making a decision" and in negotiations with MRL. By a second email (Ex P6, 1745; Ex P7, 61), that director also sought feedback as to the current value of plant and equipment at Wodgina and sought an addition of what GAM was offering in assets compared to the total value of what it was seeking for MRL. 2. GAM's chief financial officer responded, by email dated 2 April 2016 (Ex P6, 1745; Ex P7, 62) attaching a presentation from Rothschild and a valuation of the GAM tails project, and noting the approach which a cash shell entity would likely take to acquiring the assets, including an enforced escrow period over share consideration issued to GAM and noting that: "With the above in mind and as a result of [MRL] deposited a refundable A$10m into GAM's bank account, Management has been operating under the notion of exclusivity. No conversations have been held with any brokers. GAM continues to also perform its own tests in relation to recoveries of lithium from the tails. While still in the early stages of testing, recoveries from the tails continue to improve with further analysis." 1. By a further email dated 2 April 2016 to GAM's directors (Ex P6, 1744; Ex P7, 64), GAM's chief financial officer set out an estimate of the net value to GAM from the sale, comparing the valuation of the several items (but treating the value of the Hard Rock Lithium Deposits as unknown and noting that that was "blue sky" for MRL) and providing further explanation of the basis on which that value was calculated. GAM's chief financial officer there recognised that a minor change to the recovery rate in respect of lithium would have a material impact on the valuations and that no value had been assigned to the Hard Rock Lithium Deposits which "could be" worth more than the value attributable to the Tailings Lithium Deposits. That email appears to have exposed relevant issues for the directors' consideration. The fact that no value had been attached to the Hard Rock Lithium Deposits was again noted in further information provided to the GAM board immediately prior to its meeting on 5 April 2016. 2. One of GAM's directors responded, on 4 April 2016 (Ex P6, 1743; Ex P7, 66), identifying a number of questions as to the valuation approach and noting that: "… I guess the real difficulty here is what to conclude about the large ticket items in your list below. These appear to be the value of the tailings and the infrastructure. As you've rightly tried to do, a valuation of the tailings is heavily dependent on the quality of the information, particularly as it relates to the resource. We are under time constraints so, unless the latest data coming from our resource team gets us more comfort on grades and recoveries then it's a finger in the sky type estimate. On the infrastructure assets, it feels like a big swallow to see a very large asset replacement cost ($150m midpoint) and then to just fold those assets in without much more thought? This deal may be one of the limited options to deal with the assets but we may be giving them away for a penny and based on comments in the table we have no real justification to argue with MR[L] otherwise." 1. That director also noted that, as to alternative bidders, "the listed market is pretty skinny" and only one or two of the companies had any cash. He also addressed the question of negotiating strategy. That email, on its face, suggests an intelligent engagement with the relevant issues, although Metallurg attacks the outcome of the process. 2. GAM's chief executive officer then responded suggesting that matter be discussed on a call that night, and also noting that six months ago GAM had been planning to place the asset on care and maintenance, and the director in turn addressed the analysis by a further email on 5 April 2016 (Ex P6, 1749; Ex P7, 67). 3. On 6 April 2016, GAM's chief financial officer circulated a cash flow and net present value forecast (Ex D10, Tab 91) relating to the processing of the Tailings Lithium Deposits to GAM's directors, contrasting the alternatives of GAM undertaking the mining in respect of the tailings only, GAM entering a profit sharing agreement with MRL and other alternatives including placing the Wodgina mine on care and maintenance. That analysis did not extend to processing lithium from the Hard Rock Lithium Deposits, a matter that is now relied on by Metallurg in this application. 4. The minutes of the GAM board meeting on 7 April 2016 (Ex D10, Tab 92) record a briefing by GAM's chief executive officer to the board on negotiations with MRL and noted that GAM would prefer not to run a standalone lithium mining and processing operation. The minutes also recorded that: "The Board discussed this presentation and Management's recommendation, which included the view that the Company had no current plan to mine tantalum at Wodgina, the questionable valuation and resale potential of these assets, recognition of the thoroughness of Management's presentation given the number of assumptions, the apparent lack of viable alternatives and potential risk of waiting and losing this sales offer, the benefit of the Company's ability to participate in lithium recovery while not providing the capital, negotiations reputation of the buyer, and the volatility of the lithium market". 1. GAM's directors then resolved, inter alia, to approve a draft counteroffer to MRL by way of an amended term sheet, which included a purchase price of US$50 million (rather than A$50 million) and, inter alia, the sale of the right to 50% of lithium from the Wodgina tenements subject to specified matters, including a requirement for approval by GAM's shareholders (Ex P6, 1801, 1752; Ex P7, 68). 2. About that time, the ROFR (to which I referred above in outlining the proposed Commercial List Statement) was raised in negotiations between GAM and MRL and MRL then insisted that it be included in the transaction (Ex P6, 1810, 1811; Ex P7, 71, 73). On 18 April 2016, GAM's chief executive officer sent a further email to GAM's directors summarising recent discussions with MRL and noting changes to the then draft terms sheet with MRL, which included a change so that lithium in the hard rock was acquired by MRL, rather than rights being split with GAM, referred to the inclusion of the ROFR in the transaction and also noted indications of higher concentrations of lithium in the hard rock (Ex P6, 1857; Ex P7, 99). Metallurg criticises that process on the basis that that terms sheet was provided to GAM's directors without commentary from management as to why it was appropriate for GAM to sell the ROFR as part of the transaction nor any commentary as to management's opinion as to the market value of the ROFR or its value to MRL or Pilbara Minerals. Metallurg also refers to further and encouraging test results of the Hard Rock Lithium Deposits, which were obtained by GAM and reported to its directors at about that time (Ex P6, 1819, 1824, 1876; Ex P7, 81, 92, 105, 107). 3. About this time, GAM put a proposal to MRL that GAM should be paid a royalty on lithium extracted from the Hard Rock Lithium Deposits, if those deposits were sold to MRL and MRL rejected that proposal. A summary of the discussions was circulated to GAM's directors on 18 April 2016 which also noted that two other companies had expressed interest in the Wodgina Assets and identified several options for consideration (Ex P7, 92). That position was also reported to GAM's directors at a further board meeting on 19 April 2016 (Ex P6, 1859A). Discussion at that board meeting recognised the impact on the sales process if GAM sought a further period to finalise its internal lithium sampling, identified a "perceived short window of [lithium] opportunity based on the 'frothy' [lithium] market and expected correction", and identified: "the benefits to the company's shareholder interest to finalize the sale based on the current terms versus the risk of pursuing uncertain [lithium] hard rock benefits and other comparative buyer interest." The board then authorised GAM management to continue negotiations with MRL to "attempt to improve the Company's [lithium] hard rock participation rights while not at the expense of losing the sale." 1. It is apparent that, in this period, GAM's management and directors had at least recognised the possibility of lithium recovery from the Hard Rock Lithium Deposits, but also recognised that a sale to MRL would relieve GAM of liabilities in respect of the Wodgina Assets, allow GAM to reduce debt, and have advantages, albeit then on the basis that the transaction contemplated that GAM would receive a royalty stream both from the Hard Rock Lithium Deposits and the Tailings Lithium Deposits, as well as allowing a low cost source of tantalum for GAM for use in its core business. 2. GAM's management were not successful in renegotiating the terms applicable to the Hard Rock Lithium Deposits with MRL. In further correspondence on 20 April 2016 (Ex P6, 1856; Ex P7, 98), GAM's chief executive officer informed GAM's directors of his attempt to negotiate a royalty on lithium in the hard rock payable by MRL, as had been previously approved by the board; MRL's "angry and negative" reaction, including the apparent cancellation of the deal; and the fact that the deal was then put "back on track" following further discussions. GAM's directors were further briefed on the proposed terms by material provided prior to the board meeting to be held on 26 April 2016 (Ex P7, 105). 3. About 26 April 2016, a circular resolution was sent to Relevant Shareholders of GAM (as defined in a shareholders deed) proposing the sale of the shares in GAM's subsidiary holding the Wodgina Assets to MRL, although the then terms sheet for the transaction was not provided to Metallurg. 4. The negotiations with MRL were further discussed at a GAM board meeting on 26 April 2016 (Ex P6, 1884; Ex P7, 140). The minutes of that board meeting recorded that: "[The chief executive officer] presented Management's recommendation for the Board to approve the current draft Term Sheet of key sale terms of [the relevant subsidiary] to Mineral Resources Ltd (MRL), a copy of which was provided to the Board in advance of this meeting. He updated the Board of changes in these terms and that, as discussed during the last board meeting, MRL rejected the Company's proposal to include its profit share participation in proceeds from MRL's prospective lithium Wodgina hard rock deposit sales in addition to the tails dam deposits. … The Board discussed this update and the terms of the share sale agreement from signing to completion …" GAM's directors then resolved to approve, with qualifications, a proposed term sheet as the basis to finalise a definitive agreement and necessary ancillary agreements and documents with MRL in connection with the prospective sale of the Wodgina Assets. I have referred above to the pleaded criticisms of the directors' conduct in that period in Metallurg's proposed Commercial List Statement. 1. In early May 2016, MRL made a further revised offer of A$60 million, with several changes to the previous offer including that MRL was to assume all rehabilitation liability at Wodgina and GAM was to receive a 1.75% royalty on total lithium tailings revenue instead of a 50% profit share in the Tailings Lithium Deposits. By email dated 9 May 2016 (Ex P6, 1897-1898; Ex P7, 143-144), the company's chief executive officer updated GAM's directors on negotiations with MRL noting that: "We continue to negotiate many items toward a target signing date of Friday May 13 subject to standard trailing closing conditions. - Several differences between the parties remain (e.g. rehab liability issues, assigning Atlas royalty to GAM and others). - MRL issued a revised offer over the last 2 weeks. Negotiations on this revised offer were conducted in parallel to finalization of existing agreed commercial terms. - Management recommends acceptance of this new proposal." That email also contained a summary of changes and their effect, including reference to the increased cash payment from a consideration of A$47 million to A$60 million, the treatment of rehabilitation liabilities, the third party royalty, and the change in the treatment from a 50/50 profit share on lithium in the tailings dam to a 1.75% royalty on total lithium tailings. GAM's chief executive officer also advised GAM's directors of management's assessment that: "… this is a much improved offer: extra AU$13M up-front cash, no rehab liability, no exposure to [the third party then conducting operations on the site], ongoing [tantalum] rights and ongoing [lithium] revenue st[r]eam (without profit share complications)." 1. An email from one of the directors (Ex D18, Tab 142) then noted the changed terms of the transaction at that time and recognised the loss of "blue sky" from the Tailings Lithium Deposits, which he also noted could not be quantified with accuracy. 2. By a further email dated 10 May 2016 (Ex P6, 1897; Ex P7, 143), GAM's general counsel and company secretary requested the board to approve the new terms of the sale of Wodgina Assets referred to in the 9 May email and to approve a circular resolution to be sent to GAM's Relevant Shareholders (as defined) seeking approval of those terms. 3. By a further email dated 10 May 2016 (Ex D10, Tab 142), GAM's chief executive officer also recognised the possibility that MRL saw greater value in the Tailings Lithium Deposits than GAM did, but expressed the view that GAM and MRL likely had a similar outlook that: "(a) recovery will be challenging and b) market is frothy and c) a lot of potential supply in the market in the near future …" 1. Further communications between GAM's management and its directors around that time addressed the manner in which the sale proceeds would be dealt with by GAM, including in repaying some shareholder loans. 2. In late June 2016, GAM entered into an Asset Sale Agreement with MRL in respect of the Wodgina Assets. That agreement provided for a sale price of A$60 million, as adjusted in accordance with the Asset Sale Agreement, and for MRL to pay a 1.75% royalty on Gross Revenue (as defined in a Lithium Royalty Deed) from the sale of lithium extracted and recovered from processing the Tailings Lithium Deposits and also provided for the assignment to MRL of GAM's rights to the Pilgangoora Royalty and certain rights under the Pilgangoora Assets Sale Agreement dated 30 May 2014, including the ROFR. That agreement also allowed GAM rights to tantalum extracted in the course of lithium processing, under a tantalum circuit installation and operations agreement, and provided for the rehabilitation liability for the site to be transferred to MRL. The Asset Sale Agreement was completed on 9 September 2016. 3. Several weeks after the entry into the Asset Sale Agreement, MRL reached agreement with Pilbara Minerals to settle the litigation it had commenced on taking an assignment of the ROFR from GAM, on the basis it would relinquish the ROFR and royalties right and provide further services to Pilbara Minerals in exchange for the issue to it of shares in Pilbara Minerals valued at A$50 million (Ex P6, 2803; Ex P7, 9). Metallurg originally contended that that transaction demonstrated that the ROFR and Pilgangoora Royalty was worth A$50 million. Mr Pike responds that that contention cannot be accepted given the other elements of the transaction between MRL and Pilbara Minerals. It seems to me that contention was flawed, where it at least neglected the value of the other services to be provided by MRL under the settlement agreement and the value impact of the fact that the shares issued to MRL would likely be escrowed for a significant period under the ASX Listing Rules. I proceed on the basis that the value of the ROFR and Pilgangoora Royalty is presently uncertain, although it may have been significant. 4. On 17 February 2017, MRL announced to the ASX that "recent re-sampling and infill drilling" at the Wodgina tenements had indicated a new mineral resource estimate of 25.35Mt at 1.38% lithium in one of the hard rock areas and 20.5Mt at 1.02% lithium in the tailings dam (Ex P3, 2900; Ex P7, 147). In June 2017, an analyst's report issued by Deutsche Bank (Ex P6, 2956; Ex P7, 10, subject to a limiting order under s 136 of the Evidence Act 1995 (NSW) such that it was not evidence of the asserted fact) estimated a very substantial value for the Wodgina Assets acquired by MRL from GAM. In its 2017 annual report, MRL described the Wodgina tenements as "the world's largest known hard rock lithium resource with 198 million tonnes at 1.18% [lithium] and a mine life in excess of 30 years" (Ex P6, 3198). The amount of that resource had, by then, been further revised upward from earlier estimates. In late 2018, MRL sold an interest in the Wodgina lithium project, including the Wodgina tenements, for US$1.15 billion to a third party (Ex P6, 3477; Ex P7, 11). Metallurg relies on that transaction to contend that, by 2018, the Wodgina Assets were worth more than $2 billion. There is an obvious difficulty with hindsight in that proposition, and that value necessarily reflected the demand for lithium in late 2018 rather than June or September 2016. That contention also has no regard to expenditures by MRL in developing the Wodgina Assets between their purchase in 2016 and the point of the sale of an interest in them in late 2018. That contention also requires the further qualification that, shortly prior to this hearing, MRL and the purchaser of the interest in the Wodgina Assets placed them on care and maintenance, by reason of a decline in lithium prices (Ex D12, Tab 6). That development emphasised the fact that a mining resource obviously needs to be valued at a point in time, and, if it is not valued at the time of the relevant transaction, then there is no better reason to value it in late 2018 at a substantial amount rather than in late 2019 at a presumably substantially lower amount. The affidavit and other evidence on which Metallurg relies 1. Metallurg relies on the affidavit dated 14 May 2019 of Mr Jackson Dunckel, who is treasurer and a director of Metallurg and also a member of the management board of its parent company, AMG and the chief financial officer of AMG. Mr Dunckel's affidavit is lengthy and sets out, inter alia, information about Metallurg and AMG and about GAM; gives an account of the sale of assets associated with the Wodgina mine by GAM to MRL; refers to proceedings that were previously brought by Metallurg under s 247A of the Act to seek documentation relating to that sale; and sets out Mr Dunckel's views as to the value of the Wodgina Assets and the processes undertaken by GAM's directors in relation to the sale of those assets. Mr Dunckel also refers to the existence of other proceedings between GAM and Metallurg, on which GAM relied to contend that this application was not brought by GAM in good faith. I will address that issue below. 2. Mr Dunckel refers to GAM's previous interest, held through a wholly owned subsidiary, in the Wodgina Assets (Dunckel 14.5.19 [31]) and in other assets including the royalty deed dated 25 July 2014 with Pilbara Minerals and the ROFR with Pilbara Minerals. Mr Dunckel also refers to the sale of some of the Wodgina Assets to a wholly owned subsidiary of MRL, and his evidence is that neither Dr Schimmelbusch, the chief executive officer of Metallurg and then a director of GAM, nor Metallurg participated in the decision to sell those assets, by reason of GAM's contention that they were conflicted in respect of the transaction as trade competitors of GAM. I will refer to that contention further below. Mr Dunckel also refers to subsequent events, including the release of an ASX announcement by Pilbara Minerals relating to its resolution of a dispute with MRL on terms that involved the issue of A$50 million in shares to MRL for a consideration, inter alia, including the relinquishment of the ROFR and Pilgangoora Royalty and to the Deutsche Bank report to which I referred above. Mr Dunckel also sets out, at length, documents relating to the implementation of the sale of the Wodgina Assets by GAM to MRL (by its subsidiary), in evidence that was admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding and as submission. The documents referred to in that aspect of his affidavit were generally also referred to in the proposed Commercial List Statement, and I have addressed their content in outlining the background facts above. 3. Mr Dunckel expressed the view, also admitted with a limiting order under s 136 of the Evidence Act, that GAM's directors had not considered or valued certain assets included in the transaction, namely the ROFR and the Pilgangoora Royalty. Mr Dunckel expressed the view (Dunckel 14.5.19 [70]), in evidence also admitted with a limiting order under s 136 of the Evidence Act as evidence of his understanding, and not proof of the fact, that: "… in my opinion, the GAM directors did not make reasonable enquiries and take steps to place themselves in a position where they could make a rational and informed decision about: (a) the value of the Wodgina Assets, including the lithium deposits; (b) realising, and maximising the value of, the Wodgina Assets; (c) whether the proposed agreement with MRL was in GAM's best interests." 1. Mr Dunckel also referred to a first valuation obtained from Mr Naidoo, the principal geologist of CSA Global and a further report prepared by Mr Naidoo, to which I will refer below. Mr Dunckel also referred to an opinion provided by an experienced company director, Mr Bradley, although Metallurg did not seek to lead evidence from Mr Bradley in the application. Mr Dunckel also referred to, and Metallurg waived privilege in, an advice provided by Mr Giles SC and Ms Williams as to GAM's prospects of success in the proposed claim, to which I refer below. Mr Dunckel also referred to a then draft Commercial List Statement, although Metallurg relied on a revised draft Commercial List Statement in this application. Mr Dunckel also referred to his understanding, which appears to be common ground between the parties, that the GAM Directors are insured under various directors and officers liability policies. 2. Mr Dunckel in turn led evidence (Dunckel 14.5.19 [93]ff) that he believed that the GAM Directors had caused GAM substantial loss by causing GAM to enter into the Asset Sale Agreement with MRL; he believed that GAM had a prima facie case against the GAM Directors; and that GAM would likely be able to recover in the order of US$50 million under the insurance policies, less defence costs, and any other amount that the GAM Directors could personally pay. He expressed the belief that it was in GAM's best interests to bring proceedings against the GAM Directors on that basis. He expressed the view that that amount was significant, including as a percentage of GAM's total net assets, and would also provide significant liquidity to GAM that would enable it to continue to operate and invest in the business. As I noted above, Mr Dunckel also disclosed the existence of other proceedings between Metallurg, GAM and their affiliates in the United States, and referred to the nature of those proceedings. 3. By a further affidavit dated 17 October 2019, Mr Dunckel replied to affidavits of Mr Williams dated 23 September 2019, Mr McGarvie dated 23 September 2019 and Mr Beatty affirmed 25 September 2019, to which I refer below. Mr Dunckel's further evidence was directed to establishing the proposition that AMG has not sold tantalum to GAM for some time; the volume of tantalum concentrate produced by GAM was small by comparison to that produced by AMG, and GAM and AMG do not compete within the same markets; and, in substance, GAM and AMG or Metallurg were not competitors. Mr Dunckel's evidence was (Dunckel 17.10.19 [21]) in turn that: "The reason Metallurg has commenced these proceedings is because it considers that the board of GAM did not follow proper process in connection with its decision to sell Wodgina and its ultimate sale. These proceedings have not been commenced for any competitive or perceived competitive purpose with GAM or because of the ongoing litigation to which I refer below." 1. Mr Dunckel in turn referred to the position in respect of proceedings in the United States, although it subsequently emerged that there were errors in aspects of his evidence in that respect, including a significant error as to whether discovery had been sought in the US proceedings as to the issues sought to be raised in these proceedings. It was put to Mr Dunckel in cross-examination that Metallurg either wished to cause disruption to GAM or to strengthen positions in negotiations in the US proceedings, by the commencement of these proceedings on behalf of GAM, and he denied that proposition. I will return to that matter below. 2. Mr Pike submitted that aspects of Mr Dunckel's evidence and his approach to giving evidence were unsatisfactory. It appears that parts of Mr Dunckel's affidavit, including evidence as to GAM's directors and officers insurance cover, were drafted by others and he adopted that evidence without reviewing the underlying policies (T101). There was also, at best, a degree of inconsistency in his evidence as to whether he had read all the exhibits to his affidavit and the opinion of Mr Giles and Ms Williams on which Metallurg relied (T111, 115). While it was unfortunate that Mr Dunckel had not taken greater care with his affidavit evidence, it seems to me that Mr Dunckel genuinely holds the views which he expressed, and that he had made reasonable inquiries, albeit with others' assistance, before performing those views. I have not neglected GAM's further submission that Mr Dunckel's evidence was directed to the initial formulation of the proposed Commercial List Statement, rather than the revised version. I give little weight to that matter, where it seems to me highly unlikely that the amendments would weaken the case that Metallurg seeks to bring on GAM's behalf. I also recognise that Mr Dunckel had relied on Mr Naidoo's opinions in forming his opinion, and that is a matter of greater difficulty, given the difficulties that I address below in respect of Mr Naidoo's report. 3. Mr Pike placed significant weight on the fact that Metallurg had not led evidence from Dr Schimmelbusch, who was then the director nominated by it to GAM's board. Mr Pike submitted that Dr Schimmelbusch had approved financial statements of GAM that had previously attributed a nil value to the Wodgina Assets and that he was aware of the then circumstances of the Wodgina Assets. In oral submissions, Mr Pike also emphasised the absence of evidence of Dr Schimmelbusch (T227). However, Dr Schimmelbusch had been excluded from the sale process which is in issue, by reason of the suggested conflict of interest affecting Metallurg, and it does not seem to me that Metallurg should have led his evidence in addition to Mr Dunckel's evidence, particularly in an application of this character. In any event, an inference that his evidence would not have assisted Metallurg's case would not have advanced GAM's defence of the application. 4. Metallurg also tendered two reports prepared by Mr Naidoo of CSA Global on a limited basis, subject to a limitation that they were "evidence only of the opinions expressed by Mr Naidoo indicating the nature of quantification evidence which might be available or which [Metallurg] expects to have available at a final hearing" (T149-150). Mr Newlinds, in opening, fairly accepted that criticisms advanced by GAM of Mr Naidoo's reports were "well made" (T17), but that concession is not sufficient to address the difficulties with that report, given the significance of value to the case which Metallurg seeks to put on GAM's behalf. 5. In his first report dated 8 May 2019 (Ex P4), Mr Naidoo assessed the "possible value" of the Wodgina lithium project, purportedly as at June 2016, on a first scenario as in the range of A$130 million to A$250 million, with a "preferred" value of A$190 million, a preference for which Mr Naidoo offers no meaningful explanation. That assessment was made by reference to the value of the maiden resource announced by MRL in February 2017, discounted by a discount of 20% to 25% "to acknowledge the risk in the resource not being officially estimated at June 2016". The use of information available at the later date appears to turn on an assumption or an opinion (not justified by reasoning) that an inferred mineral resource for lithium could have been established in June 2016 with little or no additional drilling by GAM, based on assaying previously drilled samples for lithium, and notwithstanding that MRL undertook further drilling over an extended period before it released that statement. The arbitrary discount that Mr Naidoo then applies seems to be intended to mitigate the difficulties with that impermissible approach. 6. I am not persuaded these difficulties are resolved by Metallurg's contention that further investigations could have been made in June 2016 which would then produce information that became available to MRL by February 2017, because that begs the questions of what further investigations would have been made by GAM in June 2016 and how long they would have taken to complete. Mr Newlinds also submits that, in the period between July 2016 and February 2017, MRL undertook "just 27 additional drill hole tests" to announce a significant hard rock resource in areas close to those already drilled by GAM prior to the transaction. In oral submissions, Mr Newlinds relied on a map of drill holes undertaken by GAM and its predecessors in the hard rock (MFI 7) and submitted (T207) that only limited further drilling was necessary for MRL to make the announcement they made to the market some months later. There is, however, no evidence that would allow an assessment that drilling 27 additional holes was not a significant exercise, either as a matter of time or cost, or that that process could have or should have been undertaken by GAM, either in a shorter period or by delaying the transaction for over 7 months and running the risk that it would be lost. Metallurg does not seek to explain why MRL itself took several months to undertake the further investigations which, on Metallurg's case, GAM could have undertaken within short order so as to derive this information by June 2016. 7. On Mr Naidoo's second scenario, he assessed the "possible value" of the Wodgina lithium project as at June 2016 as within the range of A$900 million to A$1,350 million, with a "preferred value" of A$1,100 million, by reference to the tonnage, average grade and resource classifications announced in an MRL update some nine months later, in March 2017. While Mr Naidoo recognises that that information was not available in June 2016, he either assumes, or expresses an opinion (again without adequate supporting reasoning) that an assessment of known information at Wodgina prior to June 2016 would have produced a similar result. Mr Naidoo, in his first report, alternatively valued the Wodgina mine on a per square kilometre of tenement area basis in the range of $25-$102 million with a preferred value of $51 million, although the expert evidence led by GAM (to which I refer below) indicates that valuation is also likely to be overstated. 8. In his second report dated 4 October 2019 (Ex P5), Mr Naidoo responds to the reports of Ms Lord and Mr Hall on which GAM relies. He there expresses the view that, if the information known as at June 2016 had been supplemented by re-analysing sample pulps from previous drilling campaigns, it would have been possible to estimate the likely quantum of lithium mineral resources at the inferred level of confidence, for the purposes of the JORC Code. Mr Naidoo refers to the fact that, at the time of preparing his first report, he was not aware of the extent of lithium sampling that had previously been carried out, but his view was there was sufficient information available to reach a conclusion in June 2016. Mr Naidoo also there expresses views that appear to range beyond his professional qualifications, as to the basis on which a potential acquirer of the Wodgina mine would have valued that asset. Mr Naidoo also expresses the view that additional information provided to him supports the "preferred" approach adopted in his first report. 9. The difficulties with Mr Naidoo's approach are exacerbated by evidence that emerged in the course of the hearing, from documents produced in response to a notice to produce, as to the manner in which those reports were prepared and amended. Those difficulties were addressed in GAM's closing submissions and by Mr Shearer in oral submissions. I will address them relatively briefly, given the nature of this application. GAM points out that Mr Naidoo or his firm and KordaMentha had originally both been engaged to prepare expert reports, and Mr Naidoo's reports appear to reflect interactions with KordaMentha, although Metallurg did not seek to rely on any report of KordaMentha in this application. 10. Mr Naidoo's original engagement letter dated 31 July 2018 (Ex D12, Tab 19) recorded that: "In preparing our valuations, we should have regard only to publicly available information at or around the valuation dates. In respect of our valuation at June 2016, this may mean that our valuation is based on information in the maiden resource statement released by [MRL] in February 2017 … and other publicly available information, with appropriate caveats." That observation obviously highlighted the question whether a statement released in February 2017 could fairly be described as "publicly available information at or around" a valuation date of June 2016, and what would be the "appropriate caveats" in that situation. 1. An initial draft of Mr Naidoo's report (Ex D12, Tab 31) valued the Wodgina Assets in a range of $50-$250 million with a preferred value of A$100 million, a figure that is substantially less than that adopted in his later reports. The second scenario in Mr Naidoo's first report, which had regard to the position released by MRL in March 2017, seems to have been introduced at the suggestion of a solicitor acting for Metallurg (Ex D12, Tab 40), although Mr Naidoo had rightly recognised that MRL's March 2017 position reflected significant extra drilling and resources that were not known in June 2016 and could not reasonably have been quantified in June 2016 and KordaMentha had expressed agreement with that view (Ex D12, Tab 34). KordaMentha later confirmed (Ex D12, Tab 42) that it was its and Mr Naidoo's joint view that the value of the project in March 2017 was not the same as the value of the project in June 2016. Mr Naidoo had then made express, in an earlier draft of his first report, that his second scenario assumed that the work to support MRL's estimate in March 2017 had been completed by June 2016, as he had been asked to assume, but that qualification was deleted at the request of Metallurg's solicitors (Ex D12, Tab 48). That qualification would have starkly demonstrated the implausibility of the scenario, and it was regrettable, to say the least, that it was omitted from the version of the report put before the Court. 2. There is substantial force in GAM's submission that these matters would have led the Court not to put any weight on the opinions expressed in Mr Naidoo's reports. However, I do not need to reach that view on that basis, given the limited basis on which those reports were tendered and the fundamental flaws in its methodology, to which I have referred above. In summary, Mr Naidoo's evidence does not assist Metallurg in establishing the fact of a sale of the Wodgina Assets at undervalue given the limited basis on which it was tendered and, so far as Mr Naidoo's evidence is indicative of the kind of evidence that Metallurg expects to have available at a final hearing, that is adverse to the application for leave. I note, for completeness, that Mr Shearer also addressed an issue as to whether comparable transactions on which Mr Naidoo relied were appropriate (T237ff). I need not address that submission, given the limited basis on which that report was tendered and the findings I have reached on other grounds above. 3. Metallurg also relies on the joint opinion dated 30 April 2019 of Mr Giles and Ms Williams (Ex P7, 198) which addressed GAM's prospects of establishing breaches of the GAM Directors' common law or statutory duties of reasonable care and diligence in relation to the sale of the Wodgina Assets, and also addressed potential defences to the allegations that may be raised by the GAM Directors. Mr Giles and Ms Williams relied on an expert report of Mr Bradley, whose evidence was tendered by Metallurg subject to a limiting order under s 136 of the Evidence Act, rather than led as expert evidence in this application. Their opinion also relied on Mr Naidoo's first report, which (as I noted above) Mr Newlinds did not seek to read as expert evidence in this application, and they expressly assumed that Mr Naidoo's opinion would at least in general effect be accepted by the Court. As will be apparent from my comments above, quite apart from the fact that Mr Naidoo's report was not read as expert evidence in this application, and also putting aside any question as to whether that report would be admissible in its present form, it does not seem to me to be capable of establishing the matters which Metallurg seeks to establish on GAM's behalf. 4. Mr Giles and Ms Williams also address the requirements for the grant of leave to bring derivative proceedings, in uncontroversial terms, and the factual background to the transaction, to which I have referred above, in greater detail than has been necessary for the purposes of this judgment. They express the view, in summary, that Metallurg (which is presumably intended to be a reference to GAM) has good prospects of establishing breach and likely significant loss, although success was not certain. In particular, they express the view that Metallurg has good prospects of establishing that the GAM Directors breached their duties by failing to take sufficient steps to consider alternative means of maximising the value of the Wodgina Assets to GAM, and permitting a process by which GAM engaged with only one potential buyer, and failing to cause GAM to take steps to adequately ascertain the likely value of the Wodgina Assets before selling those assets. They express the view (at paragraph 60) that, in the particular circumstances, a reasonable director acting with due care and skill ought to have undertaken one or both of taking further steps to better ascertain the likely value of the lithium deposits and an assessment of the alternative methods of realising value including a competitive sale process if there was to be a sale to an exploration or mining company. Counsel also note, and address, the concern of the GAM Directors as to a "frothy", or overheated, lithium market that might bring about a fall in the sale price for lithium assets. 5. Mr Giles and Ms Williams also address, in largely uncontroversial terms, the scope of directors' duties under s 180 of the Corporations Act, and refer to the recent consideration of the scope of that duty in Termite Resources NL (in liq) v Meadows, in the matter of Termite Resources NL (in liq) (No 2) [2019] FCA 354 at [180]ff, [662]ff. They also consider the potential operation of the statutory business judgment rule under s 180(2) of the Corporations Act, considered by Austin J in Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 and the possibility that the directors might also rely on s 189 of the Corporations Act dealing with reliance on others. 6. In respect of causation and damage, Mr Giles and Ms Williams assume, as I noted above, that Mr Naidoo's report is accepted, although indicating they have no reason to doubt that assumption. I have formed a different view as to the cogency of that report. On that basis, they note that the market value of the lithium assets comprising part of the Wodgina Assets exceeded (by multiples) the price obtained. They fairly recognise, however, that establishing causation and damage on that basis involves a hypothetical counterfactual, and that there is a question as to whether GAM could have obtained market value for the Wodgina Assets in a market that was likely to have relatively few participants. They express the view that it is likely that causation should be established, and note the possibility of an initial public offering or GAM exploiting the assets itself (although also noting a question as to whether GAM would be able to do so), and note an alternative argument that GAM lost the chance of realising the Wodgina Assets for market value. 7. Mr Giles and Ms Williams also addressed the question of the quantum of damage by reference to Mr Naidoo's first report, the deficiencies in which I identified above. While they identify an alternative counterfactual that GAM itself kept or exploited the assets, they do not explore it further, having regard to the view of loss which they formed by reference to Mr Naidoo's first report, which exceeded the available directors and officers liability insurance. By contrast, Mr Newlinds placed primary weight on that alternative in this application. Mr Giles and Ms Williams also fairly recognised that they expected there would be a debate: "as to whether the value of the Wodgina Assets is by reference to information which existed at the time of the sale and was known by the Directors, or by reference to the information which could have been known by the Directors if the Directors had made adequate enquiries and informed themselves of the value of the Wodgina Assets. We accept that proposition to be debatable …" They did not seek to further address that debate, having regard to their assumption in respect of Mr Naidoo's report. 1. Mr Giles and Ms Williams also fairly recognised a matter to which the parties gave little attention in this application, that the position in respect of a claim against an executive director may differ from that in respect of a claim against non-executive directors in proceedings of this kind. They also addressed the possibility of relief against liability under s 1317S or s 1318 of the Act, while rightly recognising that successful applications for such relief were relatively rare. The affidavit and other evidence on which GAM relies 1. GAM in turn relies on the affidavit dated 23 September 2019 of its chief financial officer, Mr Williams. Mr Williams sets out, at some length, the background to the sale of the Wodgina Assets and the steps taken to implement that sale. Mr Williams also refers to GAM's assessment that the value of the Wodgina Assets suggested by earlier valuations provided by Rothschild would not be achievable. That assessment had in turn prompted further valuation analysis internally within GAM in respect of the lithium resources and further identification by Rothschild of potential purchasers of those assets and a recognition of their limited cash resources, to which I have referred above. Mr Williams also addresses the consideration by GAM's board of MRL's proposals and the assignment to MRL of the ROFR and the Pilgangoora Royalty, so far as they related to lithium, as part of that transaction. He also refers to the circumstances in which GAM received a notice in relation to lithium pursuant to the ROFR in early July 2016, after it had contracted to sell its rights under the Pilgangoora Asset Sale Agreement to MRL, and subsequently entered a deed of variation to the Asset Sale Agreement with MRL to assign the lithium aspect of the ROFR to MRL, and MRL commenced proceedings against Pilbara Minerals in relation to that notice. 2. Mr Williams also leads evidence of GAM's financial position at the time of the sale of the Wodgina Assets, including its reliance on shareholder loans, which is relevant both to the advantages to be obtained from a cash sale of the Wodgina Assets and the limits on GAM's capacity to develop the lithium assets for itself. Mr Williams also referred to bank funding of an affiliated entity, which was then due to mature in April 2017, and the need for that affiliate to hold cash at bank in order to be able to refinance that facility. 3. Mr Williams expresses the view that the transaction was in GAM's best interests for several reasons, although he recognises that the then assessment of the value of the assets that GAM was selling was subject to the unknown value of the Hard Rock Lithium Deposits and the uncertain value of the Tailings Lithium Deposits. He also noted issues relating to a third party then conducting mining operations on the Wodgina site which meant that it was highly desirable for GAM to sell those assets in the near future, and to the fact that it was unlikely that GAM would have recommenced direct mining at Wodgina in the foreseeable future, so that a transaction that allowed GAM tantalum rights arising from MRL's lithium mining operation on that site was attractive to GAM. Mr Pike submits, and I accept, that Metallurg largely ignored Mr Williams' evidence of the perceived advantages of a prompt sale of the Wodgina Assets for GAM, focussing on its submission that that sale had taken place at undervalue or without sufficient investigations by GAM without particular regard to those advantages. 4. GAM also relied on the affidavit dated 23 September 2019 of Mr Maxwell McGarvie, who is the executive general manager – resources of GAM. That affidavit was read subject to a claim for confidentiality, and I address its content in only the most general terms. It referred, inter alia, to the GAM group's business, the process for recovering minerals such as tantalum from a mine site, including where lithium was also present; and identified certain advantages to GAM of entry into the proposed transaction with MRL. 5. GAM relies on the affidavits dated 11 and 17 July 2019 of Mr Brett Beatty, who is a director of GAM, who was appointed after the date of the events in issue. In his first affidavit dated 11 July 2019, Mr Beatty referred to his appointment to GAM's board of directors on 9 May 2019, as a nominee of the majority shareholder of GAM, Resource Capital Funds, which indirectly holds approximately 79.84% of GAM's shares. Mr Beatty referred to the constitution of GAM's board; the background to the proceedings, as he understood them; the absence of any assessment by GAM of whether it had claims in respect of the directors, prior to the service of materials by Metallurg on 22 May 2019; and the establishment of a special litigation committee, comprised of Mr Beatty, to consider whether GAM should itself bring the proceedings. 6. GAM also relies on Mr Beatty's third affidavit dated 25 September 2019. Mr Beatty's evidence is that GAM (as I noted above) had established a special litigation committee, of which he was the sole member and chair, in order to investigate and consider whether GAM would bring the proceedings proposed by Metallurg, and how it would respond to Metallurg's application. He refers to the steps that he has taken in considering those matters, including meeting regularly with GAM's general counsel and its external solicitors, seeking external opinions in respect of matters that were the subject of the proposed proceedings, and obtaining advice from Counsel in respect of prospects of success of the proceedings (which was not tendered by GAM). 7. Mr Beatty indicates that he has formed the view that it is not in GAM's best interests to commence the proceedings proposed by Metallurg. He identifies several reasons for that view, including his assessment that the chances that a Court would find that the relevant directors had breached their directors' duties in the circumstances were low and that the proposed proceedings were likely to fail; he did not consider that the evidence showed that GAM sold the Wodgina Assets at a material undervalue; and he noted that: "even if Metallurg was allowed to bring the Proposed Proceedings on behalf of [GAM] and it was successful, there is nothing compelling that suggests to me that [GAM] would be able to prove that it has suffered damage so that it could obtain a material amount of compensation." 1. Mr Beatty also expressed a concern as to costs, which it appears will be met by the undertaking to meet the costs of the proceedings and any order for costs against GAM in them, and the security for that undertaking, now offered by Metallurg. He also refers to concerns as to the impact of the proposed proceedings upon GAM's ability to refinance loan facilities provided by shareholders which will mature on 31 December 2019; the extent to which litigation over a significant period of time would disrupt and distract GAM from continuing its ordinary business, where three current directors would be Defendants, including GAM's current chief executive officer; and that the existence of proceedings brought by GAM against its directors would deter appropriately qualified prospective directors from taking up directorships with GAM in the future, where it needed persons on its board with substantial expertise and experience in the mining and mineral processing sector. Mr Beatty also expressed concern that, if the proposed proceedings were brought and even if they were ultimately successful, it may become more difficult or more expensive for GAM to obtain directors and officers insurance or a sufficient level of insurance in the future. I will return to several of those concerns below. Mr Beatty's evidence is that none of GAM's shareholders other than Metallurg had, so far as he was aware, suggested that GAM investigate or bring the proposed proceeding. 2. Mr Beatty also referred to matters which had led him to form the view that GAM should oppose Metallurg's application to commence the proposed proceedings, on grounds including that it would be the fifth piece of litigation commenced by Metallurg against GAM in the last two years; that Metallurg was a "competitor" to GAM; and that there were issues as to whether Metallurg would preserve the confidentiality of information held by GAM, given a matter that was addressed in an earlier judgment of the Supreme Court of Western Australia. I give limited weight to those matters for reasons noted below. 3. Mr Newlinds placed emphasis, in cross-examination of Mr Beatty and in submissions, on the fact that GAM had not conducted an internal review of the transaction prior to Metallurg advancing its claim. It does not seem to me that that matter is relevant to whether leave should be granted to bring the derivative claim, where it is common ground (as I note below) that GAM would not now itself bring the proceedings, and whether it formed that view at an earlier point or only when Mr Beatty further investigated the matter does not take matters further. In oral submissions, Mr Newlinds (T199) also submitted that Mr Beatty's evidence did not allow an assessment of whether the conclusion that he had drawn that the proceedings should not be brought was a reasonable one. There is force in that submission, at least so far as Mr Beatty placed reliance on having taken legal advice, without GAM waiving legal professional privilege in that advice to allow the cogency of its reasoning or conclusions to be assessed. 4. GAM also relied on the affidavit dated 29 October 2019 of Mr Martin Kriewaldt, which expressed a view as to whether the GAM Directors had breached their duties as directors. I recognise, in assessing Mr Kriewaldt's evidence, that expert evidence is not necessary to establish either a breach of s 180 of the Corporations Act or the corresponding general law duty: Resource Equities Ltd v Garrett [2009] NSWSC 1385 at [188]; Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 at [182]. I also do not consider it is determinative, although it is relevant, in displacing such a breach. Mr Newlinds also submits, with considerable force, that that report turned, in substantial part, on Mr Kriewaldt's assessment of the documentary evidence, which will be a matter as to which the Court would ultimately need to reach findings in any proceedings brought by Metallurg on GAM's behalf. I give it limited weight for the purposes of this application. 5. GAM also relied on the affidavit of Ms Deborah Lord dated 28 October 2019 and on her expert report dated 16 September 2019 (Ex D4). Ms Lord indicated her disagreement with the approach adopted in Mr Naidoo's first report, to value the Wodgina project as at 30 June 2016 and 21 November 2018, on the basis that Mr Naidoo's report considered information that was not available at the relevant time and that was only known in hindsight. Ms Lord expressed the view, inter alia, that that approach was inconsistent with the Australasian Code for Public Reporting of Technical Assessments and Valuations of Mineral Assets, which required that a practitioner ensure that an opinion expressed and valuation provided was consistent with the circumstances as of the valuation date. I recognise the possibility that that requirement may be directed to securing currency in expert reports, rather than to the use of hindsight, which one might not expect to be a common difficulty in such reports. Ms Lord also noted that Mr Naidoo's valuation of the asset as at November 2018 was, obviously enough, not relevant to its value at the transaction date, where it was directed to different market conditions and a then more advanced development of the project. Not surprisingly, Ms Lord also took issue with the fact that Mr Naidoo had relied, in a valuation of the Wodgina Assets at June 2016, on the maiden lithium mineral resource estimate released by MRL in February 2017, which had reflected additional drilling work and possibly additional sampling undertaken by MRL by that time, over a period of some eight months. Mr Newlinds in turn criticised aspects of Ms Lord's methodology, including her focus on a "Mineral Estimate" rather than an "Inferred Estimate" (for the purposes of the JORC Code) as the basis for valuing the Hard Rock Lithium Deposits at June 2016, and the absence of an assessment in her report of the information then available to GAM or available to it with limited additional work. 6. GAM relied on the affidavit dated 3 November 2019 of Mr Jeffrey Hall and on his report dated 16 September 2019. Mr Hall expressed the primary view that the value of the Wodgina Assets as at June 2016 was the amount paid by MRL on the basis that that was the price at which the asset changed hands in an arm's length transaction. I give little weight to that approach, which does not recognise the possibility that a transaction may occur other than at fair market price, including because of a party's lack of appropriate information or failures in negotiation. Mr Hall also criticised the approach adopted by Mr Naidoo in his first valuation, and it seems to me that those criticisms had substantial weight. Mr Hall undertook a valuation on a comparative value per square kilometre of tenement area basis, and estimated the fair market value for the Wodgina mine on that basis as in the range of $30-$60 million, and a lesser amount based only on transactions announced prior to 27 June 2016. 7. Mr Newlinds emphasised, in closing submissions, that the GAM Directors individually had not given evidence, and submitted that the Court could draw an inference that their evidence would not have assisted GAM in resisting the application for leave to bring derivative proceedings. Mr Pike responds (T223) that, although the GAM Directors did not give evidence, there is a record of their consideration of relevant issues in the minutes of directors meetings. It is not necessary to draw such an inference, where I find below that a serious question to be tried is established without needing to rely on such an inference, and the GAM Directors were in no better position (and, in the case of former directors, were in a worse position) than Mr Beatty to address the matters relevant to whether the proceedings were in GAM's best interests. 8. Mr Pike in turn places significant weight in submissions on the fact that Metallurg did not seek to cross-examine the witnesses who had led lay and expert evidence in GAM's case, other than Mr Beatty. I give little weight to that matter, given the nature of this application and the fact that it would have been unreasonable for Metallurg to have sought to do so, where the application had already extended beyond its allocated time to a fourth hearing day. Requirements for the grant of leave 1. Turning now to the applicable legal principles and the parties' submissions, I have had regard to all of those submissions, which address a wide range of issues of greater and lesser relevance and significance. In particular, GAM made very detailed submissions in opposition to the application. There is force in Mr Newlinds' observation that GAM sought, in those submissions, to have the Court reach findings of a kind that would ordinarily be made at a final hearing, and on the implicit assumption that the only evidence at a final hearing would be that which was led on this application. I do not reach such findings, in dealing with this application, both because it is not appropriate to do so and because there is no reason to assume that further evidence would not be available at a final hearing. 2. Counsel referred to the principles applicable to the grant of leave under s 237 of the Corporations Act. I have drawn below on Counsel's submissions and my summary of those principles in Re Legal Practice Management Group Pty Ltd [2018] NSWSC 527 at [50]–[54] in outlining those principles below. In an application for leave to bring statutory derivative proceedings, Metallurg must satisfy the criteria for the grant of leave specified in s 237(2) of the Corporations Act. In order to grant leave under that section, the Court must be satisfied of five matters, and must grant that leave if satisfied of those matters. Those matters are that it is probable that GAM will not itself bring the proceedings; Metallurg is acting in good faith; it is in the best interests of GAM that Metallurg be granted leave; there is a serious question to be tried; and at least 14 days before making the application, Metallurg gave written notice to GAM of its intention to apply for leave and of the reasons for applying, or the Court should dispense with that requirement. Metallurg bears the onus of establishing that each of these matters is satisfied on the balance of probabilities: Swansson v R A Pratt Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313 at [26]; Huang v Wang [2016] NSWCA 164. If all the requirements of s 237(2) are satisfied, the Court must grant leave to bring the proposed proceedings. If any or all of the criteria specified in that section are not satisfied, then the Court should not grant that leave: Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12]–[13]; Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183; (2009) 76 NSWLR 69 at [55]–[65]. I note, for completeness, that it is common ground that the statutory presumption in s 237(3) of the Act is not relevant in this application, by reason of the definition of "third party" in that sub-section. 3. Both Counsel made submissions as to whether the present proceedings were final or interlocutory. The parties' particular interest in that question may have reflected Metallurg's contemplation of a further application, if the difficulties that have emerged in this application brought about its failure, and GAM's wish to foreclose the possibility of such an application. Differing views as to this question have been expressed in the case law, including the decisions of the Court of Appeal in Huang v Wang above and the subsequent decision in D'Ortenzio v Charles Parletta Real Estate Pty Ltd [2018] SASC 37. I do not consider it necessary to express a view as to this question, where it is clear enough that, whether the application is treated as final or interlocutory, leave to bring a derivative action would not be given lightly: Swansson v R A Pratt Properties Pty Ltd above at [24]. The parties also advanced submissions as to the extent to which Metallurg had had access to documents, prior to bringing this application, and the significance or otherwise of that matter for the application. It is not necessary to address that question given the findings that I reach below on other grounds. Whether GAM will bring the proceedings 1. It is common ground that the first of the requirements for a grant of leave to bring a derivative action under s 237(2)(a) of the Corporations Act, that it is likely that GAM would not itself bring the proceedings, is satisfied. That position follows from Mr Beatty's evidence, reaffirmed in cross-examination, that he does not consider the proposed proceedings are in GAM's best interests, and from the position taken by GAM in this application. Whether Metallurg is acting in good faith 1. The second requirement for a grant of leave to bring a derivative action, under s 237(2)(b) of the Corporations Act, is that Metallurg must establish to the Court's satisfaction that they are acting in good faith. Factors relevant to that requirement include whether Metallurg has an honest belief that a good cause of action exists and has reasonable prospects of success, although that belief will be tested against whether a reasonable person in the circumstances would hold that belief, and whether Metallurg is seeking to bring the action for a collateral purpose. In Swansson v R A Pratt Properties Pty Ltd above at [36], Palmer J observed that: "… there are at least two interrelated factors to which the Courts will always have regard in determining whether the good faith requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success. Clearly, whether the applicant honestly holds such a belief would not simply be a matter of bald assertion: the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief. The second factor is whether the applicant is seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process." 1. It is relatively easy to satisfy this requirement if an application is made by a current shareholder who has more than a token shareholding, as Metallurg has, and the derivative action seeks recovery of property so that the value of the applicant's shares would be increased: Swansson v R A Pratt Properties Pty Ltd above at [38]; Re Gladstone Pacific Nickel Ltd [2011] NSWSC 1235; (2011) 86 ACSR 432 at [58]; Mathews Capital Partners Pty Limited v Coal of Queensland Holdings Limited [2012] NSWSC 462. 2. In oral submissions, Mr Newlinds submitted (T200) that the fact that Metallurg was prepared to put its own funds at risk in the conduct of the proceedings supported a finding that it was acting in good faith. Mr Newlinds fairly recognised, in closing submissions, that the relationship between GAM and Metallurg could be described as "acrimonious", and, in oral submissions, Mr Newlinds characterised that position as at least partly a result of Metallurg's dissatisfaction with the conduct of GAM's affairs (T201). Mr Newlinds also pointed out that the existence of an acrimonious relationship did not, in itself, support any inference of improper purpose in respect of the conduct of the application. GAM in turn placed weight on the existence of prior litigation between GAM and Metallurg and their related companies, although I recognise that aspects of those disputes have involved Metallurg's attempt to obtain information to pursue this application and the subsequent proceedings. There was also a prior dispute between the parties in which Metallurg was successful in enforcing rights to inspect documents for accounting purposes under a shareholders agreement: Global Advanced Metals Pty Ltd v Metallurg Inc [2017] WASCA 188; Metallurg v Global Advanced Metals Pty Ltd [2017] WASC 212. There are also proceedings in the United States between related companies, to which I have referred above, in respect of alleged breaches of a supply agreement between those companies, which are listed for trial in March 2020. 3. Notwithstanding the vigorous cross-examination of Mr Dunckel, I have not been persuaded that Metallurg has, at least as a predominant or substantial purpose, a collateral purpose other than to seek substantial recoveries for GAM which would increase the value of its shareholding in GAM. I recognise that, as GAM pointed out, the costs of the proceedings are likely to be substantial, and Metallurg will only obtain part of the recoveries in respect of its shareholding, but that is not an answer to its assessment of the value of a substantial recovery to GAM's financial position. I have also had regard to GAM's criticism of an error made by Metallurg in handling confidential information in an earlier application. I give little weight to that matter where, as Mr Newlinds rightly points out, GAM has had the information relating to this matter for a considerable period and little further risk will arise from the commencement of the proceedings. The information in issue is also plainly somewhat dated, and its confidentiality is questionable, given the passage of time and the deterioration in the lithium market since the transaction occurred. 4. The parties also devoted significant attention to the question whether GAM and Metallurg, or GAM and AMG, were "competitors" and both Mr Dunckel and Mr Beatty were cross-examined as to that matter at some length. That cross-examination was not particularly illuminating and appeared to depend to some extent on the meaning that was given to the concept of "competitor". Metallurg and GAM are not directly competing in the sale of tantalum concentrate to third parties, since Metallurg is a supplier of tantalum concentrate to third parties and GAM uses tantalum concentrate in producing other items which are onsold to third parties. However, there seems to me to be sufficient overlap in Metallurg and GAM's activities, arising from their common interest in the tantalum market, that there is reason for GAM to be sensitive to the possibility that Metallurg may have other commercial interests than that of shareholder in its dealings with GAM. 5. As I noted above, it was put to Mr Dunckel in cross-examination that Metallurg either wished to cause disruption to GAM or to strengthen positions in negotiations in the US proceedings, by the commencement of these proceedings on behalf of GAM. Mr Newlinds characterised that proposition, in closing submissions, as a "fanciful conspiracy theory" and as "paranoid speculation". While I would not go so far as that, it seems to me that GAM's claim as to an ulterior purpose does not rise beyond speculation, or displace the inference of good faith that is available, having regard to the existence of a serious question to be tried, Metallurg's shareholder interest in GAM and the advantages of a significant recovery (if the basis for it was established) for GAM's financial position. There is also force in Mr Newlinds' submission that the amounts involved in this claim, if damages could be established, would likely exceed the amounts involved in the US proceedings by a significant amount. 6. On balance, it seems to me that the good faith requirement is satisfied, where Metallurg has a significant shareholding in GAM. If it were correct in its assessment of the damages recoverable in the proceedings, then the amount of recoveries would be substantial and its assessment that they would provide funding for GAM that would otherwise be required from the shareholders, including Metallurg, is plausible. The Court may more readily draw an inference of good faith where Metallurg has invested significant effort in assembling the evidence necessary to bring the case, including obtaining document production by GAM, over substantial resistance by GAM, and where Metallurg sought expert advice (notwithstanding the deficiencies in the advice it obtained) and obtained a detailed Counsel's opinion before commencing this application. Whether there is a serious question to be tried 1. The third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in GAM's best interests. I will defer dealing with this question until after I have addressed the question whether a serious question to be tried is established. 2. The fourth requirement for the grant of leave, under s 237(2)(d) of the Corporations Act, is that there is a serious question to be tried in the proceedings. Whether there is a serious question to be tried requires the application of the same test as applied by the Court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd above at [25]; Vinciguerra v MG Corrosion Consultants Pty Ltd [2010] FCA 763; (2010) 79 ACSR 293 at [140], upheld on appeal in MG Corrosion Consultants Pty Ltd v Vinciguerra [2011] FCAFC 31; (2011) 82 ACSR 367. In Re Gladstone Pacific Nickel Ltd above, Ball J summarised the test as to whether there is a serious question to be tried as follows (at [56]): "The test of whether there is a serious question to be tried is the same as the test that is applied by the court in determining whether to grant an interlocutory injunction: Swansson v R A Pratt Properties Pty Ltd [above] at [25] per Palmer J; Oates v Consolidated Capital Services Ltd [above] at [164] per Campbell JA, with whom Spigelman CJ and Allsop P agreed. Consequently, the same relatively low threshold is applicable. It is not appropriate for the court to attempt to resolve disputed questions of fact. For that reason, cross-examination going to the merits of the case will only be permitted with leave of the court and then only to a limited extent. Whether the court should attempt to resolve a disputed question of law will depend on the particular circumstances of the case, including whether the question is novel or difficult and whether it is susceptible of resolution on the present state of the evidence: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535 per McLelland J (as he then was). In answering the question whether there is a serious question to be tried, the court must obviously have regard to the material before it; and the material that is available may affect the result. As the Full Federal Court explained in Aboriginal Development Commission v Ralkon Agricultural Co Pty Ltd (1987) 15 FCR 159 at 163; 74 ALR 505 at 509–10: However, applying the "serious question" test, it is clear that the inquiry whether there is a serious question to be tried must be answered with reference to the circumstances of the case. There may be cases in which the facts are so clearly and comprehensively established at the time of the application for the interim order that the court would conclude that the applicant had no arguable case. At the opposite extreme there may be cases in which the applicant has had little opportunity to ascertain the facts and to adduce evidence but there is some material to suggest an entitlement to relief. Upon further investigation that material may turn out to be capable of ready refutation or explanation but, in the meantime, it may be appropriate for the court to intervene. Everything must depend upon the circumstances of the case, including the extent to which the applicant has had an opportunity to present the facts to the court and the consequences of granting or of refusing relief." 1. I have referred above to the authorities which indicate that the test for a serious question to be tried is a "relatively low threshold": Swansson v R A Pratt Properties Pty Ltd above at [25]; Re Gladstone Pacific Nickel Ltd above at [56]; The App Shop Pty Ltd v Jalal Brothers Pty Ltd [2019] NSWSC 490 at [29]. Metallurg submits, and I accept, that an application of this character does not involve a consideration of the underlying merits of the proposed litigation, except to the extent that it is necessary to determine whether there is a serious question to be tried and it will not generally be appropriate for the Court to attempt to resolve disputed questions of fact in such an application: Huang v Wang above at [60]: Swansson v R A Pratt Properties Pty Ltd above at [25]; Re Gladstone Pacific Nickel Ltd above at [56]; Re Legal Practice Management Group Pty Ltd above at [94]. 2. In opening submissions, Metallurg fairly draws attention to authority that directors must exercise care and diligence in assessing the risks and rewards of corporate actions: Australian Securities and Investments Commission v Lindberg [2012] VSC 332; (2012) 91 ACSR 640 at [72]. Metallurg there described the claim for breach of directors' duties that it seeks to bring on GAM's behalf as involving the elements that the GAM Directors had caused GAM to enter into the Asset Sale Agreement where they had no reasonable basis to determine whether MRL's offer for the Wodgina Assets was good or bad; they knew the Wodgina Assets were possibly worth substantially more than MRL had offered to pay; they also knew that GAM could obtain further information about the lithium deposits in the Wodgina tenements which was "critical" to their value, within weeks, or at least over a period of time; they knew that third parties were interested in acquiring the Wodgina Assets and they had not been offered the opportunity to do so; there was no imperative that compelled GAM to conclude a sale to MRL before the GAM Directors had a better understanding of what the assets were actually worth; the ROFR "worth $50 million" was thrown into the deal at the last minute with no consideration as to value; and the plant and equipment that the GAM Directors were advised had a substantial replacement value was treated as having no value internally for no apparent reason. There are difficulties with aspects of these propositions, to which I have referred above. 3. Mr Pike responds, in closing submissions, to each of the elements of GAM's case. It should immediately be noted that that case must, of course, be considered as a whole and not only in those several elements. First, Mr Pike contends that GAM not adopting a competitive tender process did not amount to a breach of duty by the GAM Directors, and submits that that is not a fair characterisation of the process in any event. He refers to Mr Williams' affidavit evidence to the effect that earlier inquiries had indicated little interest in the infrastructure assets at Wodgina and that possible purchasers of the lithium assets at Wodgina lacked the capital to purchase the assets for cash. Mr Pike also refers to Mr Kriewaldt's opinion that a competitive process was not feasible in the relevant circumstances, but it seems to me that the contrary view is plainly arguable. More significantly, Mr Pike points out that Metallurg has not led, or identified how it might go about leading, evidence establishing any likelihood that a competitive tender process would have brought about a different result, in that there was a purchaser at a higher price that would or was likely to have emerged from that process. 4. Second, Mr Pike responds to the criticism of the lack of testing or valuation of the hard rock by pointing to Ms Lord's evidence that an exploration program would increase project value if its results were successful, but could downgrade that valuation if results were not as expected or the lithium market did not continue to rise. Ms Lord also points to the element of commercial strategy involved in a decision whether to undertake such testing, having regard to its cost and the risk of unfavourable results. That is plainly a significant matter, and emphasises that the judgment whether to conduct such testing involved an assessment of benefits and risks of that course, involving elements of management and commercial judgment. I also recognise that, even if more favourable testing results had been available, that would not have addressed causation issues as to GAM's capacity to fund the development of a processing plant on the site for a mineral outside its core business, or persuade a third party to acquire the Wodgina Assets or enter a joint venture on the site, on more favourable terms than were available from MRL. Again, Metallurg does not indicate how it will, or could, fill that evidentiary gap at a hearing. I will return to questions of causation and loss below. 5. Mr Pike also responds to Metallurg's submission that GAM should have explored the possibility of a sale to two other identified companies. There is force in Mr Pike's submission that the first of those companies was unlikely to have been a viable purchaser, given there is evidence that it was then suffering financial challenges or difficulties which were of concern to GAM in its ongoing relationship with that company. There is less evidence as to the potential interest or the financial resources of the other of those companies. Although Mr Kriewaldt touches upon these matters in his evidence, they are questions of fact that would need to be established by evidence at a final hearing. 6. Mr Pike responds to the submission that the ROFR was included in the transaction without sufficient attention by the GAM Directors and had significant value by pointing to Mr Williams' evidence that GAM's management knew that the lithium aspect of that ROFR could have strategic importance to MRL and that matter was recognised in contemporaneous correspondence. Mr Pike also points out that the inclusion of the ROFR in the transaction was drawn to the GAM Directors' attention, and Mr Pike submits, and I accept, that the Court would not speculate that the GAM Directors had not read the information provided to them. There is less justification for such a speculation where, on the face of it, the GAM Directors appear to have actively addressed, in correspondence with GAM's management and in board meetings, the underlying commercial issues in respect of the proposed transaction. Mr Pike also seeks to have the Court infer that the GAM Directors discussed, among themselves and with GAM's management, the questionable value of the Wodgina Assets and approved management's approach on that basis. While that is perhaps the probability, it is not presently established by the evidence and I do not consider I should draw that inference. Mr Pike also traces, in closing submissions, the steps by which the consideration payable by MRL to acquire the Wodgina Assets was increased, as changes were made to the structure of the proposal, including in respect of the ROFR. 7. Mr Pike submits, and I accept, that it is relevant that the GAM Directors have experience in the mining and finance industries and would know of the risk attached to mining resource exploration projects and that matters not then known in respect of the Wodgina Assets might ultimately prove to be unfavourable for GAM. Mr Pike submits that Metallurg's contention that other methods were not sufficiently explored before proceeding with the sale to MRL "overlooks the reality of the situation", including the risk of a decline in the demand and price for lithium; the time and cost of obtaining further information about the lithium potential of the Wodgina Assets, and GAM's assessment that it had pushed MRL to its limit in respect of the transaction, and there was little prospect of securing a royalty in relation to the hard rock resource at Wodgina. I accept that these matters may well be established at a trial, but they do not seem to me to be appropriately determined at this point, particularly where the GAM Directors have not given evidence, and do not seem to me to have the result that Metallurg's claim is not seriously arguable. 8. Mr Pike also submitted that the GAM Directors' decision was a "business judgment" and that it would be open to the GAM Directors to rely on the protection for a business judgment under s 180(2) of the Corporations Act. Section 180(2) of the Act provides that a director or other officer of a corporation who makes a business judgment, as defined, will be taken to meet the requirements of the duty of care and diligence in s 180(1), and their equivalent duties at common law and in equity, in respect of that judgment in certain circumstances. The term "business judgment" is defined in s 180(3) as any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. In order to have the benefit of the statutory business judgment rule, a director or other officer must, inter alia, make the judgment in good faith for a proper purpose; must not have a material personal interest in the subject matter of the judgment; and must inform himself or herself about the subject matter of the judgment to the extent he or she reasonably believes to be appropriate. Matters relevant to the extent of inquiry necessary to satisfy that rule may include the importance of the business judgment to be made; the time available for obtaining information; the cost of obtaining information; the state of the company's business and the nature of competing demands on the board's attention; and whether or not material information is reasonably available to the director: Australian Securities and Investments Commission v Rich above; see also Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431; (2014) 103 ACSR 137 at [45]ff. The requirement that the director have informed himself to the extent he or she reasonably believed to be appropriate may leave it open to a director to take into account the time which is realistically available in deciding the extent to which he or she be informed in relation to a particular decision. 9. In order to have the protection of the business judgment rule, a director must also show that he or she rationally believed that the judgment was in the best interests of the corporation. Section 180(2) provides that the director's or officer's belief that the judgment is in the best interests of the corporation is taken to be a rational one, unless the belief is one which no reasonable person in his or her position would hold. In Australian Securities and Investments Commission v Rich above at [7290], Austin J observed that the requirement that the director or officer rationally believe that the judgment is in the corporation's best interests is satisfied if the evidence shows that a defendant believed that matter, and that belief was supported by a reasoning process sufficient to warrant describing it as a rational belief, whether or not the reasoning process was objectively a convincing one. His Honour observed (at [7242]) that the business judgment rule can therefore apply where a director's belief that a decision is in the best interests of the corporation is "rational" although it may be objectively unreasonable and therefore contravene the statutory standard. 10. I accept that the judgment made by the GAM Directors that Metallurg seeks to challenge, on GAM's behalf, likely had the character of a "business judgment". However, I also accept Mr Newlinds' submission that there would likely be a contest at a final hearing as to whether the directors were properly informed in making the relevant judgment. It seems to me that the character of the decision is not sufficient to exclude a serious question to be tried, particularly where the onus will rest on the GAM Directors to establish any business judgment defence at a final hearing: Australian Securities and Investments Commission v Rich above at [7264]. 11. It seems to me that several of Metallurg's submissions can fairly be described as seriously arguable, including that, given the very wide range in the values attributed to the Tailings Lithium Deposits, the sensitivity of that value to the assumed lithium recovery rate and existing assessments that high grade lithium concentrate could be produced from the tailings, a delay to complete ongoing testing to determine an indicative recovery rate would have assisted GAM in better valuing the Tailings Lithium Deposits. It is also seriously arguable that there would have been potential benefit to GAM, although also risk, in undertaking further assessment of sampling results for the Hard Rock Lithium Deposits, where its value was then unknown and it was recognised that it "could be worth more" than the tailings dam. There is force in Metallurg's criticism that, at least on the documents, it is not apparent what assessment was made by GAM's management, or required by the GAM Directors, before the 50% profit share was replaced by a 1.75% royalty on the Tailings Lithium Deposits only. 12. On balance, it seems to me that it is seriously arguable that the GAM Directors could have undertaken further investigations, albeit with delay in the transaction and a risk that it would be lost, and would then have identified greater value in the Wodgina Assets. It also seems to me to be seriously arguable that the failure to do so amounted to a breach of the duty of care and skill under s 180 of the Act and at general law in the relevant circumstances. That is not to say that the case that Metallurg seeks to bring for GAM is likely to succeed, where the GAM Directors appear to have been informed of relevant considerations, may well have taken them into account, and may well have preferred the certainty of a transaction for a substantial amount over the risk of delay and loss of that transaction. However, the fourth limb under s 237 of the Act requires only that the proposed claim be seriously arguable, and it seems to me to rise to that level, with the qualification noted below as to GAM's ability to establish loss in the proposed proceedings. 13. It seems to me that the likelihood of recovery in the proceedings is best addressed in consideration of whether they are in GAM's best interests, and I turn to that question below. Mr Newlinds submitted, in oral submissions, that the question of Metallurg's ability to establish damages, on GAM's behalf, was relevant to whether a serious question to be tried was established rather than to whether the proceedings were in GAM's best interests. I do not accept that proposition, since it seems to me that an assessment of a company's "best interests" necessarily involves reference both to what would be gained and what will be lost by its bringing proceedings. However, if that proposition were correct, and it were necessary for Metallurg to establish a serious question to be tried that GAM could recover substantial damages in the proposed proceedings, it does not seem to me that it has done so in this application for the reasons noted below. Whether the proposed proceedings are in GAM's best interests 1. As I noted above, the third requirement for the grant of leave to bring a derivative action, under s 237(2)(c) of the Corporations Act, is that the grant of such leave is in GAM's best interests. This issue was in contest between the parties. 2. The Explanatory Memorandum to the Corporate Law Economic Reform Program Bill 1998, which introduced these provisions, observed (at [6.38]-[6.39]) that the "best interests" criterion: "… would allow the Court to focus on the true nature and purpose of the proceedings. It would recognise that a company might have sound business reasons for not pursuing a cause of action open to it and that its management might legitimately have decided that the best interests of the company would be served by not taking action. For example, a decision may be taken in a case where, although it may be clear that there has been a breach of duty by a director, the loss to the company may only be nominal. In this case, the costs of taking proceedings may outweigh any benefit to the company. The inclusion of this criterion would allow the Court to refuse to grant leave in these circumstances because the applicant for leave would not be able to show that to do so would be in the best interests of the company." 1. That summary was quoted and applied by Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732 at [44]. The relevant principles were also summarised in Swansson v R A Pratt Properties Pty Ltd above at [55]–[60], where Palmer J noted that that provision required that the Court be satisfied that the proposed action actually is, on the balance of probabilities, in the relevant company's best interests. In order to prove that leave is in the best interests of the company, an applicant should generally give evidence of the character of the company, in the sense of the nature of the company's operations; the business of the company so that the effects of the proposed litigation on the conduct of its business may be appreciated; whether there are other means of obtaining the same redress so that the company does not have to be brought into litigation against its will; and the proposed defendant's ability to meet at least a substantial part of any judgment in favour of the company so that the Court may ascertain whether the action would be of practical benefit to the company. In Re Gladstone Pacific Nickel Ltd above, Ball J identified relevant matters including the prospects of success of the action; the likely costs of the action; the likely recovery if the action is successful; and the likely consequences to the company if the action is unsuccessful. 2. In opening submissions, Mr Newlinds fairly recognised that the "best interests" of GAM involved its separate and independent welfare, predominantly reflecting the interests of its shareholders: Huang v Wang above at [59]. In oral submissions, Mr Newlinds distinguished (T194) that decision as turning on a positive finding that the company would not there be able to establish a basis for relief. That does not, of course, exclude the possibility that an applicant for leave to bring a derivative action may fail to establish that it is in the best interests of the company to bring the claim, without the Court necessarily concluding that the claim is hopeless. Mr Newlinds also recognised that whether the proposed proceedings were in GAM's best interests would be determined by reference to the range of circumstances identified in Swansson v R A Pratt Properties Pty Ltd above at [56]-[60], and the impact of the proposed litigation on GAM's business was a relevant consideration. In oral submissions, Mr Newlinds recognised (T193) that it was logically possible that the Court could find that there was a serious question to be tried as to breach, including in respect of the steps taken by GAM to investigate a sale, but not find that it was in the company's best interests to bring a claim, if the Court was not satisfied that the likelihood of a recovery would exceed the detriment to GAM in bringing the claim. Mr Newlinds also accepted (T194) that whether it was in the best interests of GAM to bring a claim would depend not only on whether it might succeed as to liability, but whether there would be any practical benefit from its success. 3. Mr Pike in turn draws attention to my observation in Re Imperium Projects Pty Ltd [2015] NSWSC 16 at [14] that it did not follow that it was in a company's best interests that a remedy be pursued, merely because it appeared to have suffered an actionable wrong, and any assessment of the company's best interests depended on matters including "the strength of the suggested claims". In a subsequent decision, in Re Sirrah Pty Ltd [2018] NSWSC 1802 at [21], I also noted that, where a serious question to be tried exists, and there is a prospect of substantial recovery if the proceedings are successful, it may well be in a company's best interests that it have the opportunity to make that recovery, so long as it is not exposed to an unjustified risk of costs in doing so. However, the assessment of that question will be more difficult where, as in this case, a company conducts an ongoing business which is likely to be adversely affected by the conduct of the proceedings; a case could not be described as strong, although a serious question to be tried exists; and any prospect of substantial recovery is by no means established by the evidence presently available to Metallurg. 4. Mr Newlinds accepted, in closing submissions, that the proceedings would cause "some disruption and distraction" to GAM, although submitting that was inherent in derivative proceedings, and contending that it would be reduced by the extent to which documents had already been produced. It seems to me the involvement of GAM's current chief executive officer and three current directors as defendants will increase the level of that disruption, overlapping with the concern that GAM will be suing its current and former directors. While Mr Newlinds submits that the latter is "hardly unusual" in derivative applications, it is less common in respect of companies that are conducting apparently viable ongoing businesses. 5. Mr Newlinds also fairly accepts that the bringing of the proceedings will probably cause an increase in GAM's directors and officers insurance premiums and it seems to me that, as a matter of commercial probability, it would also likely put the level of cover or the availability of continued cover at risk. Mr Newlinds submits that GAM's expressed concern as to the impact of the proposed proceedings on potential financiers to GAM should be given no weight, where it could be explained to a financier that GAM was fully indemnified by Metallurg for its costs of the proceedings and that a directors and officers liability policy was available to the GAM Directors, and where no financier had given evidence to support that concern. I do not accept that submission, where the situation where a company has brought proceedings against its current chief executive officer and several of its directors, who remain in those positions, plainly has risks for the company which would reasonably be understood by a financier as well out of the ordinary course. 6. Mr Newlinds also submits that no weight should be given to the suggestion that no shareholder in GAM other than Metallurg wants to have the case brought, where they may have approached the question in the context of Mr Beatty's assessment that it has low prospects of success. It seems to me that matter should be given some weight and, at least so far as Metallurg's damages claim was concerned, Mr Beatty's assessment was largely correct on the present state of the evidence gathered by Metallurg for the reasons that I note below. 7. Turning now to the question of whether Metallurg could establish any substantial loss, on GAM's behalf, in opening submissions, Mr Pike fairly submits that the value of the Wodgina Assets would ordinarily be determined as their "market value" or "exchange value", applying the approach adopted in Spencer v Commonwealth [1907] HCA 82; (1907) 5 CLR 418 at 432, where Griffith CJ considered that concept in respect of the valuation of land, and observed that: "In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell? It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural." [emphasis added] 1. His Honour also observed (at 432) that: "The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together." 1. The nature of a "market value" test was subsequently described in MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451; (2004) 63 NSWLR 167 at [55], in the context of the purchase of shares on exercise of a call option, by Spigelman CJ (with whom Mason P and Hodgson JA agreed) as follows: "A test of a "market value", whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v Commonwealth of Australia (1907) 5 CLR 418 esp at 432 and 440–441 of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd [1988] HCA 69 ; (1998) 196 CLR 494 at 514: … The value … is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it." Mr Pike emphasises that that approach focuses upon the value of the asset at the time of the transaction, rather than at a later date. To the extent that the parties are treated as "fully informed", their knowledge presumably reflects the information that was available at that time, or, possibly, could have been obtained by reasonable inquiries at that time, not information that only subsequently became available. 1. Mr Newlinds in turn draws particular attention to the treatment of a similar question in South Johnstone Mill Ltd v Dennis (2007) 244 ALR 730, in a claim for sale at under value brought against receivers and managers. In that case, Middleton J was prepared to find that there was sufficient evidence of damage, without determining whether the applicant's expert evidence was admissible. It does not seem to me that that approach is applicable here, both because the case for damages was of a much simpler character in that claim than in this case, and because of the substantive difficulties with the evidence on which Metallurg relied, to which I have referred above. 2. Mr Newlinds, in closing submissions, also submitted that to require admissible evidence as to damages recoverable by GAM: "would be to impose a requirement that an applicant on this type of application must have direct and admissible evidence for every aspect of the case. That is not the law." 1. I do not accept that submission. I do not accept that this is a case, by contrast with South Johnstone Mill Ltd v Dennis above, that any inference supporting a claim for substantial compensation could be drawn only from the documentary evidence, or Mr Dunckel's evidence led in Metallurg's case, and the evidence led in GAM's case is to the contrary. The damages case that Metallurg seeks to bring on GAM's behalf is very complex; the fact of a sale to a third party, where the correspondence between GAM's management and the GAM Directors suggest that they were at least alert to the relevant issues, makes it less likely that a sale would have taken place at under value; Metallurg does not suggest that GAM's management or the GAM Directors had any reason not to maximise the value realised for the Wodgina Assets in a sale; GAM leads admissible expert evidence which, on its face, suggests that it has suffered no loss; and the existence of a substantial claim for damages is significant for an assessment of whether the proceedings are in GAM's best interests, where they have other disadvantages for GAM. In these circumstances, it seems to me that it is necessary for Metallurg to lead evidence that would indicate it could so, or at least identify a cogent plan to do so. For the reasons noted below, it seems to me that Metallurg has not done so. 2. Mr Newlinds submits that an assessment of the value of the Wodgina Assets at the time of the sale would have regard not only to what was known to GAM but also to what was known to MRL. Assuming, without deciding, that that is the case, and that MRL's assessment of the value of the assets might, for example, increase their value beyond what would otherwise be established by an objective assessment, there is nonetheless no evidence presently available to indicate that, at the time, MRL placed a substantially higher value on the assets than the amount that it paid for them, although it plainly would have done so after undertaking the further investigations that permitted its February 2017 announcement. Mr Newlinds also submits that a proper valuation methodology would assume that the vendor would take reasonable steps to inform itself as to the value of the asset. Again assuming without deciding that that proposition is correct, the evidence led by Metallurg did not identify, with any specificity, what particular steps it would have been reasonable for GAM to take, in the sense that they could have been taken for a reasonable cost and time and without an undue risk of loss of MRL as a potential purchaser or, more fundamentally, the value that could have been attributed to the Wodgina Assets had such reasonable steps been taken. As I have noted above, Mr Naidoo's evidence relied on hindsight and the steps taken by MRL over an extended period, rather than on any provable assumption as to what GAM should have done and what would have emerged from its doing so. 3. In oral submissions, Mr Newlinds addressed the time at which damages would be assessed, and submitted that the assessment of compensation in equity would not necessarily be limited to a calculation at the date of breach (T207-208). I do not consider it necessary to address that submission where, even if the Court adopted an approach that permitted the application of hindsight, there would be no reason to value the Wodgina Assets at the point they have their highest value with hindsight, rather than, for example, at their current value, after they were placed on care and maintenance prior to the hearing of this application. 4. In closing submissions, Mr Newlinds also developed a "no transaction" case, but Metallurg did not show how it could be established that GAM had the resources to develop the Wodgina Assets to a point that they achieved a more substantial value than the sale price to MRL recognised, if that transaction had not occurred. Mr Newlinds also identified an alternative "counterfactual" that GAM would have completed a transaction with MRL on the originally proposed terms that GAM share in 50% of the lithium profits, but did not indicate how Metallurg would seek to establish that MRL would have accepted a transaction on those terms. Fairly, Mr Newlinds also accepted in submissions (T18) that the claim that GAM could have sold the Wodgina Assets to MRL at a higher price and on different terms was a "very hard counterfactual to ever prove". Mr Newlinds' further proposition that damages would then be calculated by reference to the loss of a chance of US$1.15 billion, being the amount for which MRL sold 50% of its lithium interests to a third party in November 2018, disregarded both the question whether GAM could establish that that outcome was more probable than not, given the other difficulties to which I have referred above, and the costs incurred by MRL in reaching the point at which that sale took place. 5. Mr Newlinds also pointed to the possibility that the proceedings might settle rather than proceed to trial. I accept that that is always possible, but it does not seem to me to alter the assessment of what is in the best interests of GAM. Any settlement of the claim would likely be under the control of GAM's directors and officers liability insurers, so far as the GAM Directors were indemnified for that claim under that policy, and there is no reason to think that they would settle proceedings for any substantial amount unless there was reason to think that GAM would likely establish compensation of at least that amount at a contested hearing. 6. It seems to me that the several adverse impacts of the litigation on GAM's business are real and significant, although their likely impact is presently not quantifiable in financial terms. It would be difficult for the chief executive officer and directors to focus on current business decisions, which necessarily involve the taking of business risks, while they are defendants in proceedings of this kind; potential lenders would need to incorporate the real risk of management and board instability in their assessment of GAM's credit risk; and GAM's directors and officers liability insurers would likely reassess the risk of insuring the company, and, if they were at risk in respect of the litigation, would potentially reprice future cover so as to seek to mitigate that risk. 7. I accept that Metallurg could not pursue the proceedings in its own name and that provides some support for the grant of leave to bring the derivative proceedings. It is common ground between the parties that the GAM Directors could meet a judgment, at least up to the level of indemnity available under the directors and officers liability insurance, although whether any further recovery could be made from their personal assets has not been established. The case does not seem to me to be a particularly strong case, so far as the liability case will involve difficult questions of whether the decisions made were within a proper range of business judgment and the prospect of recovery by GAM in a case brought by Metallurg seems to me to be speculative, on the evidence as it stands. It seems to me that each of the several ways in which Metallurg seeks to put the case it seeks to bring in GAM's name have substantial evidentiary gaps which it has not adequately addressed in this application, nor has it identified how they could be addressed at a substantive hearing. Its initial case, based on sale at an undervalue, could not be supported by expert evidence in the form that it has obtained and it is not apparent whether evidence that applied a proper methodology would support that case or undermine it. 8. Metallurg's alternative case that the GAM Directors should have caused GAM to contract on a basis that MRL agreed to a royalty share on any Hard Rock Lithium Deposits, or not to include the ROFR in the transaction, is presently not supported by evidence that MRL would not have continued to insist on its existing negotiating position and Metallurg has not sought to explain how such evidence would be obtained. No inference of that kind could be drawn without such evidence, since it is hardly implausible that MRL would have been cautious as to the level of expenditure that developing the mine would require and as to the risk of a decline in demand for lithium and a fall in the market price, prejudicing the viability of the mine. That risk was readily apparent at the time, without needing to rely on the fact that, with hindsight, it may now have eventuated. The proposition that third party purchasers might have been identified from further market inquiries required by the GAM Directors, and might have been prepared to pay a higher price or contract on more favourable terms is presently no more than speculation, and Metallurg makes no attempt to show how it could be established by evidence at trial. 9. The "no transaction" case on which Mr Newlinds placed primary weight in submissions is also not presently supported by evidence as to its critical elements. The proposition that GAM could have sold the ROFR and associated rights for $50 million of shares in Pilbara Minerals has the difficulty that MRL did not sell those rights for shares of that value, but settled litigation on a basis that included surrender of the ROFR and the provision of services to Pilbara Minerals. Whether that transaction would have been open to GAM, absent the litigation to be settled, or the value attributable to the ROFR as distinct from the settlement and the services, is unknown, and the evidence indicates that GAM was then seeking to raise cash, rather than acquire a shareholding in Pilbara Minerals. The extent to which such a shareholding would be immediately realisable, given the applicable escrow requirements under the ASX Listing Rules, was not addressed by Metallurg in evidence. So far as Mr Newlinds contends that GAM could later have sold a share in the asset for a substantial price, as MRL did, that neglects both the expenditures required to develop the asset and the question whether GAM could have funded them. So far as Mr Newlinds suggests the asset would have substantial present value when retained by GAM, that neglects the decline in the lithium market which has recently caused MRL to place the mine on care and maintenance. 10. Mr Newlinds alternatively formulates the proposed claim as a claim for the loss of opportunity to enter a more favourable transaction. Mr Pike responds that, to establish such a case, Metallurg would need to demonstrate, on GAM's behalf, that there was a "substantial, and not merely speculative, prospect" that the relevant benefit could have been acquired: Badenach v Calvert (2016) 257 CLR 440 at [38]-[41]. Metallurg has not shown how GAM could establish that substantial prospect, or that a case brought on that basis has sufficient prospects of success to outweigh the detriments to GAM to which I referred above, when Metallurg has not identified whether or how GAM could address the issues noted above so as to establish substantive damages. 11. The question of an adequate indemnity to be given by Metallurg in favour of GAM in respect of, relevantly, the costs to which it would be exposed if the proceedings were unsuccessful is also relevant to whether the proceedings are in GAM's best interests. Such an indemnity is a means of addressing the risk of prejudice to GAM from the commencement of the proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders: Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 at [108]; Cassegrain v Gerard Cassegrain & Co Pty Ltd [2008] NSWSC 976; (2008) 68 ACSR 132; Vinciguerra v MG Corrosion Consultants Pty Ltd above; Re Fishinthenet Investments Pty Ltd [2014] NSWSC 260 at [31]; Re Legal Practice Management Group Pty Ltd above. Metallurg is prepared to give such an indemnity and is also prepared to give security for it, to address a concern identified by GAM that it did not have assets in the jurisdiction, other than its shares in GAM. Notice requirement 1. GAM does not contest that the requirement for 14 days' written notice of Metallurg's intention to apply for leave would be dispensed with, in the relevant circumstances. Summary and orders 1. I am satisfied, for the purposes of s 237 of the Corporations Act, that it is probable that GAM will not itself bring the proceedings, which was common ground between the parties; that Metallurg is acting in good faith in seeking to bring the proceedings, where it would potentially benefit financially from a recovery in the proceedings, as a substantial shareholder in GAM, and notwithstanding the other areas of dispute between the parties. However, I am not satisfied that it is in the best interests of GAM that Metallurg be granted leave to bring the proceedings, given the detriments to which the proceedings would expose GAM and the substantial unresolved issues as to quantification. The undertaking offered by Metallurg as to costs orders does not displace that difficulty, where the detriments which GAM would suffer are not limited to the risk of costs of the proceedings. I am satisfied that there is a serious question to be tried in the proceedings, although not that Metallurg has established the capacity to recover substantive damages in the proceedings. It is common ground that Metallurg gave the necessary notice of its intention to apply for leave. Where one of the requirements essential to a grant of leave is not satisfied, the Court must not grant leave to bring the relevant proceedings. 2. The Originating Process is therefore dismissed. While costs would ordinarily follow the event, I should hear the parties in that regard. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2019