Sears and another v Minco Plc and Others
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Hodge |
| Judgment Date | 04 March 2016 |
| Neutral Citation | [2016] EWHC 433 (Ch) |
| Date | 04 March 2016 |
| Court | Chancery Division |
| Docket Number | Case No: HC-2013-000036 |
[2016] EWHC 433 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
London EC4A 1NL
His Honour Judge Hodge QC
sitting as a Judge of the High Court
Case No: HC-2013-000036
Ms Ruth den Besten (instructed by Russell-Cooke LLP) for the Claimants
Mr Christopher Lundie (instructed by Marriott Harrison LLP) for the Defendants
Hearing dates: 19–22, 25–27 and 29 January 2016
His Honour Judge Hodge QC:
The first claimant ( Mr Sears) is a private investor who, between 1 April 2010 and 11 April 2011, caused almost 8 million shares to be purchased in the first defendant ( Minco), an AIM listed company incorporated and registered in the Republic of Ireland which is engaged in investing in mining exploration projects, principally through a 43% interest in Xtierra Inc (involved in the Central Mexican silver belt) and, relevantly for this litigation, at that time (through a wholly-owned Irish subsidiary, Minco Ireland Ltd) a 23.6% interest in a joint venture with a subsidiary of Xstrata Plc (a major mining company then listed in the FTSE 100) in a zinc-lead exploration project at Pallas Green, near Limerick, Ireland ( Pallas Green). All but a small number of the shares were purchased at Mr Sears's direction and on his behalf through a self-administered personal pension scheme which is held by the second claimant as trustee for Mr Sears (as explained in an unchallenged witness statement dated 29 October 2015 of Mr Bruce Robinson, the Group Legal Service Director of the Scheme Administrator). For the purposes of this judgment, it is unnecessary to distinguish between the claims of Mr Sears and his pension trustee. By a claim form issued on 30 October 2013 it is claimed that Mr Sears was induced to purchase and/or retain the shares by misrepresentations on the part of Minco and the two individual defendants, Mr Terence McKillen ( Mr McKillen), a professional geologist with over 40 years' experience in the mining industry who was then the chief executive officer of Minco (based in Canada) and was (and remains) a member of its board of directors, and Mr Danesh Varma ( Mr Varma), a qualified chartered accountant with over 35 years' experience in the mining finance industry who was and is the chief financial officer and company secretary of Minco and the only director in its UK administrative office. As against all three defendants, damages are claimed for fraudulent misrepresentation or the tort of deceit. As against Minco there are also claims for damages for negligent misstatement (on the basis that, on the particular facts of this case, Minco assumed a duty of care to Mr Sears in respect of the shares purchased and/or retained) and/or under s.2 (1) of the Misrepresentation Act 1967 in respect of those shares which were purchased from Minco by way of share placement, rather than on the AIM, in August 2010 and April 2011.
The nature of the claim is summarised in broad terms at paragraphs 5 to 9 of Mr Sears's 3 rd witness statement. Mr Sears claims that he was induced to purchase and retain his shares in Minco on the strength of representations by the defendants that the terms of the governing Joint Venture Agreement (the JVA) provided that Minco's interest in the Pallas Green project could not be diluted below 10% and that the defendants knew and were familiar with the terms of the JVA in general and the dilution provision (contained in clause 16.7) in particular. Mr Sears believes that those representations were made by the defendants with the intention of inducing him to purchase and to retain shares in Minco. Those representations turned out to be false. In particular, Minco's position under the JVA was clear and unambiguous: Under the heading " Elimination of Minority Interest" clause 16.7.4 provided that if Minco's interest was diluted to less than 5% then Minco would be deemed to have withdrawn from the joint venture and would relinquish its entire interest in Pallas Green and instead become entitled to a 15% net profit payment from 8 [sic: in fact, 7] of the 10 exploration licences at Pallas Green. Mr Sears claims that he (or his pension fund) have suffered significant loss and damage as a result (in particular, by way of loss of profits on alternative investments that would otherwise have been made). Since (by paragraph 13 of an Order made on 20 July 2015) this trial is limited to the issue of liability only, the quantum of that loss will (if necessary) be the subject of a trial on quantum at a later date.
At paragraphs 191–2 of his 3 rd witness statement Mr Sears records that the defendants have sought to ascribe the falsity of their representations to misfortune or memory lapse or otherwise to their own "honest but erroneous" recollection of the JVA. However, Mr Sears asserts that the information provided was so often repeated and so far from the truth that this cannot be accepted. The directors confirmed to him, in face to face meetings, the existence of a clause in the JVA which gave Minco an invulnerable 10% interest in Pallas Green. That turned out to be untrue. Even if the defendants somehow gave that confirmation in ignorance, it is said to have been incumbent on them to correct the misrepresentations as soon as they discovered their error, which they failed to do. Mr Sears believes that they must have reviewed the JVA and discovered that the minimum dilution representation was false either in the course of (1) a further share placement in April 2011, or (2) during later negotiations for the sale of Minco's interest in Pallas Green to Xstrata, or (3) in any event, by 31 May 2011 when Mr McKillen responded to a question by email from Mr Tim Melia (a private investor in Minco) asking "Do we have a 'guaranteed' 10% carry on Pallas Green come what may even if we were not to provide any more project funding or be unable to do so?" by an email asserting that "There is provision for a carried net profits interest". Mr Sears claims that the defendants should not be able to evade responsibility for the losses he has suffered because of their conduct, which cannot simply be dismissed as mere "casualness" as Minco's executive chairman and (in succession to Mr McKillen) presently its chief executive officer, Mr John Kearney ( Mr Kearney), a qualified solicitor, is said to have done in response to a question posed by Mr Sears at the extraordinary general meeting held on 24 October 2011 to approve the sale of Minco's interest in the Pallas Green project to Xstrata.
In her written closing counsel for the claimants submitted that their case was and always had been a simple one. It is that the nature of Minco's interest in Pallas Green had been materially misrepresented to Mr Sears (for whose benefit shares in Minco had been purchased and retained within a pension fund held by the second claimant) in that he had been told only that Minco's interest in Pallas Green could not be diluted below 10% ( the minimum dilution representation); yet the terms of the JVA were clear and (as the court had observed during the course of Mr Varma's cross-examination) to understand the true extent of Minco's interest in Pallas Green, " all one needs to do is just to look at the Joint Venture Agreement… if one looks at the Joint Venture Agreement it is absolutely clear what one has" (Transcript Day 7, p. 128, lines 9–15; hereafter cited in the form T7/128/9–15). In fact the dilution provisions in clause 16.7.4 of the JVA did not provide that Minco's interest could not be diluted below 10%, but rather that " If any Participant's Participating Interest is diluted to less than 5% such Participant shall be deemed to have withdrawn from this Joint Venture and shall relinquish its entire Participating Interest which relinquished Participating Interest shall be deemed to have accrued automatically to the other Participant and the withdrawing Participant shall be entitled to receive in lieu of its Participating Interest a Net Profit Payment thereafter" (emphasis added by counsel). " Net Profit Payment" was defined (by clause 1.1 of the JVA) as an annual payment of 15% of Net Profits from operations in relation to seven of the prospecting licences for Pallas Green calculated as provided in the 2 nd Schedule to the JVA (less any underlying royalties).
The defendants' position is (amongst other matters) that the JVA was not consulted at any material time and that any misrepresentation was simply an "honest error" made by Mr McKillen which accorded with his understanding that the JVA provided for Minco's interest to be reduced to a 10% "carried interest" (in the sense of a 10% net profit payment) which, so the defendants say, is not materially different to a conversion to a 15% net profit payment if Minco's interest was reduced to less than 5%, which was thus their only real error. The defendants assert that what Minco enjoyed under the JVA was in fact better than what Mr Sears had been told, i.e. an entitlement to a 15% net profit payment rather than to a 10% net profit payment. The claimants say that the difficulty with the defendants' position is that Mr Sears was never told that Minco's interest in Pallas Green would convert to something different, and that the minimum dilution representation was obviously wrong or misleading in the following ways: First, the point to which Minco's interest in Pallas Green might be diluted was misstated to be 10%, rather than the 5% provided by the JVA. Secondly, Mr Sears was never informed that, following dilution, there would be a change in the nature of Minco's interest in Pallas Green (then a 23.6% "participating interest", or, loosely, "equity") so as to suggest that, if reduced to 10% (or in fact 5%), Minco would be deemed to have...
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