Astor Management AG & Anor v Atalaya Mining Plc & Ors

These are my reasons which were reserved at the hearing on 24 March 2017 for my decisions on two issues consequential to the judgment given on 6 March 2017.

The first issue is the appropriate form of the declarations which should be made to give effect to the conclusion summarised at paragraph 110(iii) of the judgment.

I consider that, save for making it clear that the reference to the “Consideration” in clause 6(g)(iv) of the Master Agreement includes the Deferred Consideration, the declarations should reflect the language of the clause, and should read as follows:

“1.

On a true construction of clause 6(g)(iv)(A) of the Master Agreement, until such time as the Consideration (including the Deferred Consideration) has been paid to the Claimants in full, the Second Defendant must not make, declare or pay any dividend or distribution or make any repayment or other payment in respect of loans from members of the EMED Group (“EMED Group Loans”) (other than as required for up to US$10 million per annum in aggregate for EMED Group expenses (excluding dividends or any other distributions to the shareholders of the First Defendant) related to matters other than the project (“EMED Group Expenses”)), nor borrow or agree to borrow any amount other than pursuant to the Senior Debt Facility or EMED Group Loans without the prior written consent of the Claimants (not to be unreasonably withheld or delayed).

2.

On a true construction of clause 6(g)(iv)(B) of the Master Agreement, the Second Defendant must apply any excess cash (after payment of operating expenses and sustaining capital expenditure for the Project, debt service requirements under the Senior Debt Facility and US$10 million per annum for EMED Group Expenses (without double counting EMED Group Expenses taken into account under clause 6(g)(iv)(A) of the Master Agreement)) to pay any outstanding amounts of the Consideration due to the Claimants (including the Deferred Consideration and amounts payable under the Loan Assignment) early.”

Counsel for Astor submitted that the “Deferred Consideration” should be defined in the order so as to include the Up-Tick Payments totalling €15.9m as well as the basic amount of €43.8m. I do not accept this. I am recording my reasons for rejecting that submission as, although the point is not at present of practical significance, it may become so in the future.

As set out in Schedule 2 of the Master Agreement, the basic amount of the Deferred Consideration is payable in instalments. Schedule 2 also provides in paragraph (c) that, in addition to each instalment of the Deferred Consideration, EMED Tartessus will also be required to pay an additional amount described as an “Up-Tick Payment” if, for the period of three months commencing on the due date for the relevant instalment of the Deferred Consideration, the average copper price is equal to or exceeds $6,613.86 per tonne.

The wording of the contract is ambiguous as to whether the Up-Tick Payments are part of the “Deferred Consideration”. The wording of clause 6 suggests that they are, but the wording of Schedule 2 treats the Up-Tick Payments as separate from and additional to the Deferred Consideration. The better view seems to me to be that the reference in clause 6 to the Deferred Consideration is to be read as a shorthand for “the Deferred Consideration and any applicable Up-Tick Payments”. But whichever view is taken, the fundamental distinction between the two types of payment, as I see it, is that the basic amount of the Deferred Consideration is an outstanding amount owed to Astor, payment of which has been deferred until the dates specified in Schedule 2, whereas the Up-Tick Payments are not amounts owed to Astor. They are merely amounts which EMED Tartessus will also be required to pay to Astor if (and only if), when the dates specified in Schedule 2 arrive, the condition stipulated in paragraph (c) is met.

The underlying difference is that the Deferred Consideration is delayed payment for benefits which the defendants have already received under the Master Agreement, whereas the Up-Tick Payments are an additional profit-share arrangement which is only applicable if the defendants derive a benefit from the price of copper reaching a particular level at a particular time.

Clause 6(g)(iv)(B), reflected in the second declaration set out above, requires EMED Tartessus to apply any excess cash “to pay any outstanding amounts of the Consideration due to [Astor]…early”. If the phrase “due to” Astor were interpreted as meaning “presently payable”, the clause would be nonsensical. That is because, if the obligation to pay any outstanding amount pursuant to this clause only arose when an amount is presently payable, there could be no obligation to pay the amount early. I therefore consider that, to make sense of the clause, the words “due to” must be read simply as designating the party to whom the outstanding amount of the Deferred Consideration is owed and not as requiring that the payment date specified in Schedule 2 has arrived.

There is a further question whether the clause still operates if it can be said with confidence that the first payment date is never going to arrive.

At paragraph 104 of the judgment I expressed the view that the clause does operate in those circumstances. Counsel for Astor have sought to rely on that conclusion to argue that the clause applies as much to the Up-Tick Payments as to the basic Deferred Consideration. They point out that the Up-Tick Payments are triggered on the same timetable as the instalments of the Deferred Consideration. They submit that, by parity of reasoning, even if the stipulated date for payment of any of the Up-Tick Payments is a date which is never going to arrive, payment of the relevant amount can still be made early.

The flaw in that submission, in my view, is that the question whether the Up-Tick Payments are required to be made is not simply a matter of timing. They are in a different category from the outstanding amounts of Deferred Consideration which are undoubtedly owed and in relation to which the only question is when the payment obligation accrues. As I have indicated, the Up-Tick Payments are conditional in a different and more fundamental way in that they are not outstanding amounts payment of which has been deferred: they are amounts which are not owed and never will be owed unless the price of copper is at or above the specified level at the specified time. Thus, unless and until the specified time arrives, no Up-Tick Payment is applicable and there is therefore no possibility of making any such payment early.

I also agree with counsel for the defendants that Astor’s argument can be tested by considering the hypothetical situation where the Deferred Consideration was payable in accordance with Schedule 2 and the copper price was below the level required to trigger Up-Tick Payments. If Astor’s interpretation were correct, the requirements of clause 6(g)(iv) would nevertheless continue to apply until EMED Tartessus had made the Up-Tick Payments. That makes no sense and is obviously not what the parties intended.

I therefore consider that the reference in the declarations to the Deferred Consideration should not be defined as including the “Up-Tick Payments”. For the avoidance of doubt I would add that, as matters now stand, the only situation, in my view, in which the Up-Tick Payments could ever become payable is in the unlikely scenario referred to at paragraph 104 of the judgment in which mining stops at some point in the future and a Senior Debt Facility is then secured for a sum sufficient to restart mining operations.

The second matter addressed in this judgment is the defendants’ application for permission to appeal from the decision to make the declarations which I have set out at paragraph 3 above.

The defendants’ first draft ground of appeal is that this decision is unjust because of a serious procedural irregularity. As counsel for the defendants point out, a serious procedural irregularity occurs where a party has not had a proper opportunity to present its case. They have cited the example of Omnibridge Consulting Ltd v Clearsprings (Management) Ltd [2004] EWHC 2276 (Comm). In that case an arbitrator had assessed the amount of a bonus payable to the claimants in a manner which was contrary to the common position of both parties. The court held that this was a serious procedural irregularity since, if the arbitrator had raised the point, it would have been “forcefully” pointed out to him that the contrary view was common ground between the parties and there was “at least a serious possibility” that he would have decided the issue differently (para 46). The defendants assert that the situation was similar in the present case. They say that Astor did not advance any argument to the effect that the requirements of clause 6(g)(iv) of the Master Agreement continue to apply even if the trigger conditions in Schedule 2 for payment of the Deferred Consideration have not been satisfied. They maintain that it was in fact common ground throughout the proceedings that, if the trigger conditions had not been met, the requirements of clause 6(g)(iv) would not apply. They further say that, as this point was not in dispute between the parties, the defendants did not make and did not have an opportunity to make submissions on it.

The defendants’ complaint that they were not given a proper opportunity to present their case with the result that a serious procedural irregularity has occurred is a serious complaint to make. I consider it, however, to be a baseless complaint. In case the complaint is pursued in the Court of Appeal, I think it necessary to explain my reasons for regarding it as baseless.

I would first observe that, if the defendants believed that the judge was about to decide against them a point which was not in fact in dispute between the parties, they ought to have pointed this out (forcefully, if necessary) when the judgment was sent to them in draft. The purpose of circulating a judgment in draft is not of course to facilitate or license the re-opening of issues which have already been argued. But nor is it solely to enable typographical or similar errors to be corrected. A further purpose is to enable a party to draw the court’s attention before it is too late to what appears to be – or could be considered to be – a material omission or misunderstanding in the draft judgment. A situation in which the draft judgment has mistakenly treated as in dispute a point which was in fact common ground between the parties is a paradigm instance of this.

When the draft judgment was circulated in this case, counsel for Astor drew attention to the fact that two points which they had pleaded were not addressed. In the light of that assistance, I added a paragraph to the judgment to address one of those points, though I did not think it necessary to refer to the other (which had not featured in Astor’s submissions at the trial). Counsel for the defendants, on the other hand, pointed out only typographical errors. It is possible – given the history that I am about to describe – that the reason why the defendants did not raise the complaint which they now make is that they did not at that time perceive there to be any potential procedural irregularity. But if they did, I think it was improper for them to keep their powder dry and not to point it out.

Turning to the substance of the complaint, I cannot accept either that it was common ground or that the defendants ever proceeded on the assumption that it was common ground that, if the trigger conditions for payment of the Deferred Consideration had not been met, the requirements of clause 6(g)(iv) ceased to apply. That was the position for which the defendants argued in correspondence and at the trial but Astor’s case was the opposite of that.

In the amended claim form Astor claimed declarations as to the proper construction of clause 6(g)(iv) in substantially the same form as those which I have made. It was not suggested in the amended claim form, nor in any subsequent statement of Astor’s case, nor in any submission made on behalf of Astor before or at the trial, that the claim for such declarations was made or maintained only in the event that Astor succeeded in its primary claim that the Deferred Consideration had already become payable.

Counsel for the defendants have not been able to point to any statement in any document or transcript of any hearing in which Astor made any such concession. The sole foundation for their suggestion that this point was not in dispute is a passage in Astor’s opening written submissions for the trial (at paragraphs 102-105). On behalf of the defendants, Mr Browne-Wilkinson QC has observed – and I accept – that this passage appeared in the middle of submissions on whether the Deferred Consideration had become payable. I also accept that – whether because they did not think the opposite view seriously arguable or for some other reason – Astor did not give as much prominence to the point as it has since assumed. Far from conceding the point, however, Astor maintained its pleaded case on the effect of clause 6(g)(iv).

The argument made by Astor in the relevant passage started from the premise that clause 6(g)(iv) has the effect of preventing EMED Tartessus from repaying money borrowed from any group company, and of requiring EMED Tartessus to apply any excess cash to pay the Deferred Consideration, until the Deferred Consideration has been paid in full to Astor. It was then submitted that this is a reason for preferring Astor’s construction of the agreement whereby payment of the Deferred Consideration is triggered once the defendants have raised finance sufficient to restart mining operations, even when that finance does not take the form of a Senior Debt Facility. At paragraph 105 of their written submissions, counsel for Astor said:

“In short, if the defendants’ construction is correct, the Project is stultified: cash will accumulate in the hands of EMED Tartessus from sales of copper which EMED Tartessus can do nothing with unless it opts to pay the Deferred Consideration to Astor. That makes no commercial sense.”

This argument was a two-edged one for Astor to make since, if it were valid, it might have resulted in an own goal. That is because Astor’s argument, like any argument, can work in either of two directions: instead of accepting the conclusion, there is always the alternative of rejecting the premise. Thus, if the court were to conclude (as I have) that payment of the Deferred Consideration has not been triggered, Astor’s argument might have been used to infer that Astor was wrong in maintaining that the requirements of clause 6(g)(iv) still apply. As it is, fortunately from Astor’s point of view, the argument was in my opinion a bad argument. As Mr Browne-Wilkinson QC has pointed out, clause 6(g)(iv) does not on any view give EMED Tartessus an option whether to pay the Deferred Consideration to Astor because sub-clause (B), where it applies, requires excess cash to be applied to pay the Deferred Consideration. So there is no question of cash accumulating in the hands of EMED Tartessus which EMED Tartessus can do nothing with.

What matters for present purposes, however, is whether Astor was in this passage of its opening written submissions conceding that, if payment of the Deferred Consideration has not been triggered, the provisions of clause 6(g)(iv) do not apply. I think it plain that Astor was not making any such concession. Indeed, the implication of Astor’s argument was the exact opposite of that suggested by the defendants.

Astor could not have made the argument advanced in paragraph 105 of its written opening if it had been common ground that the requirements of clause 6(g)(iv) do not apply if the defendants are right that the obligation to pay the Deferred Consideration has not been triggered. Had this been common ground, there could be no question of the project being stultified if the defendants’ construction was correct. Rather, the consequence of the defendants’ construction being correct would have been that the requirements of clause 6(g)(iv) would fall away. It was only because Astor maintained that the requirements of clause 6(g)(iv) would still apply in such circumstances that they were able to argue that the defendants’ construction made no commercial sense.

The defendants must have understood this because they replied to Astor’s case about the effect of clause 6(g)(iv) at paragraph 38 of their own skeleton argument. There they advanced two arguments to the effect that if (as they contended) the Deferred Consideration had not become payable and is not going to become payable, clause 6(g)(iv) does not prevent EMED Tartessus from making any distribution or any repayment of the money borrowed from EMED Holdings. It would have been unnecessary for the defendants to make those arguments if they had believed it to be common ground that the requirements of clause 6(g)(iv) would not apply in such circumstances. The very fact that they were arguing the point shows that they recognised that it was in dispute.

The arguments on this issue did not end there. On the first day of the trial, during the claimants’ opening, I asked Mr Smith QC whether it was Astor’s alternative case that, if the defendants were right that clause 6(g)(iv) of the Master Agreement allowed the defendants to fund the restart of mining through group loans without triggering payment of the Deferred Consideration, clause 6(g)(iv) nevertheless did not allow the defendants to repay the loans or take any money out of EMED Tartessus until the Deferred Consideration has been paid. Mr Smith QC repeated the argument made at paragraph 105 of Astor’s written opening submissions but, when pressed on the point, he expressly confirmed more than once that this was indeed Astor’s case: see the transcript for 30 January 2017 at pages 28-31. If the defendants had previously been under a misapprehension about whether Astor was making such a case, they could not have been under any such misapprehension after that exchange.

It is plain that they were not because in the closing oral submissions on the last day of the trial, this issue, which the defendants now say was common ground, was debated between the parties at some length: see pages 22-24, 99-105 and 150-155 of the transcript for 2 February 2017. To give a flavour of that debate, one of the arguments developed by Mr Browne-Wilkinson QC was that, if the defendants are right that the Deferred Consideration has not been triggered, the correct analysis is that the Deferred Consideration is not payable at all and that the Consideration has been paid in full, with the result that the restrictions in clause 6(g)(iv) do not apply. The object of that argument could only have been to attempt to establish the proposition which the defendants now say that they did not understand to be in dispute.

I addressed the arguments made by the defendants on this issue and gave my reasons for rejecting them at paragraphs 102-108 of the judgment.

The reality is that the defendants had a full and fair and opportunity to present their case on the issue on which they now seek permission to appeal. More than that, they availed themselves of the opportunity. In these circumstances the contention that there has been a procedural irregularity, serious or otherwise, is entirely without merit.

The defendants’ second proposed ground of appeal is that the reasons given in the judgment for rejecting their arguments on this issue are erroneous. They submit that an appeal on this ground would have at least a real prospect of success. They make several points in their draft grounds of appeal and supporting submissions, some of which they made at the trial and some of which are new – but all of which focus on the language of clause 6(g)(iv) and, in particular, on the meaning of words used in that clause such as “due to” and “early”.

If the construction of a contract were purely a matter of linguistic analysis, I would accept that the case made by the defendants would be reasonably arguable. However, it is also necessary to have regard to whether the defendants’ interpretation is a commercially reasonable interpretation of the contract. I have explained at paragraph 106 of the judgment why, in my view, it is not. In particular, if clause 6(g)(iv) of the Master Agreement were to be interpreted in the way the defendants suggest, the consequence would be that, by funding the restart of mining operations without senior debt finance, the defendants would not only avoid having to begin paying the Deferred Consideration immediately but would free themselves from ever having to do so even when the cash becomes available from which the Deferred Consideration could be paid. That would produce a massive windfall for the defendants for no apparent reason. I see no justification for attributing such an intention to the parties and no real prospect that such an uncommercial interpretation would succeed on an appeal.

For these reasons, I refuse the defendants’ application for permission to appeal (as I have the application for permission to appeal made by Astor).