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Cut-rate dispute

Business Review Weekly - 27 May 2004 - Page 24
By Lucinda Schmidt

Arbitration of a complex mining dispute was speedier and cheaper outside the courts. Only a lawyer could describe a four-year arbitration process as "fast", or its cost, about $40 million, as "cheap", but in the context of the battle by Minara Resources for compensation over defects in its $1.6-billion Murrin Murrin nickel project, in Western Australia, such comments by Clayton Utz partner Andrew Stephenson are probably fair enough. And, more important, Stephenson's client agrees.

The Murrin Murrin saga was settled on May 5, and Minara's chief financial officer, Stephen Dennis, believes arbitration was faster and cheaper than litigation through the courts. "We had something like 500 contentions about design defects and problems, so it was extremely complex ... Quite frankly, we would have liked it to end earlier, but mediation at the start and several earlier attempts at settlement failed ... And we were not prepared at any stage to walk away, because we felt we had a strong case."

Minara's persistence in pursuing claims against the mine's designer and builder, Fluor Daniel, and its insurer, Lloyd's of London, has netted the listed resources company a total of about $400 million, says Dennis. That figure is after legal costs, which included bringing a QC from London to lead the case, three local junior barristers and expenses for expert witnesses, including engineering professors from the United States.

Dennis says Minara is extremely happy with the outcome and would "most definitely" use arbitration again. It is an attitude that Stephenson believes more companies should adopt. He says big Japanese, European and Chinese companies will usually insist on an arbitration clause in contracts with foreign companies, but Australian companies are not as aware of the advantages.

With the rising number of cross-border deals, and free-trade agreements giving globalisation a further kick along, Stephenson says the Minara result is proof that arbitration can work for extremely complex disputes.

An important feature of the Minara arbitration was the "stop-clock" examination of witnesses. Stephenson explains that this means that, of the six weeks allocated for the first part of the arbitration and the four weeks for the second part, each side was allotted half the time to question witnesses. "That is an amazing discipline for lawyers, otherwise they will just keep asking questions," he says. Each side presents its case in written documents filed before the arbitration, then uses its allotted time to cross-examine factual and expert witnesses from the other side.

Another feature of the Minara arbitration was its use of three international arbitrators - none from Australia nor the US, where Fluor has its headquarters - to ensure impartiality. Using overseas adjudicators can help speed things up, Stephenson says, because they want to get back home, plus they are usually paid on a lump-sum basis, so they have no vested interest in letting proceedings drag on.

Anaconda to Minara
1993: Prospector Peter Salter stakes claims in the West Australian desert and names the deposit Anaconda, after an abandoned copper mine there. Entrepreneur Andrew "Twiggy" Forrest takes over the project and plans to build the world's most sophisticated nickel/cobalt production facility.

1994-99: Anaconda Nickel floats on the Australian Stock Exchange. Forrest raises $1.4 billion over five years, mainly from overseas. The Swiss metals trader Glencore International takes a 40% stake, and Forrest raises $800 million in junk bonds from US investors.

1997: Anaconda signs an "engineering, procurement and construction" contract with the US engineering giant Fluor Daniel, to design and build the Murrin Murrin nickel production facility, for a fixed cost of $1 billion.

1999: Anaconda draws down a $45-million performance guarantee, supplied by Fluor, to rectify defects. Fluor secures a Victorian Supreme Court injunction freezing the $45 million, but Anaconda wins a High Court case to allow it to spend the money. The plant is completed in December, one year behind schedule and with design flaws.

2000: Anaconda's claim against its insurer is knocked back, but the insurer eventually pays $113 million after an arbitration in London. In August, phase one of a separate arbitration against Fluor Daniel begins.

2001: Anaconda is on the verge of collapse, due to problems with the Murrin Murrin facility and a slump in nickel prices.

2002: Anaconda defaults on its debt repayments to the US bondholders. The phase one arbitration is heard in Melbourne over six weeks, and Anaconda is awarded $150 million, set off against Fluor's award for $107 million (including the $45-million guarantee). In September, phase two of the arbitration begins.

2003: Anaconda negotiates a settlement with US bondholders to extinguish $775 million in debt for 25� in the dollar. After a $323-million rights issue and a one-for-15 share consolidation, the company is left debt-free. Nickel prices are rising. Phase two arbitration is heard in Melbourne over four weeks. Anaconda Nickel becomes Minara Resources.

2004: The parties settle in May, before the expected July arbitrators' decision. Fluor pays Anaconda $155 million to settle all claims: $93 million goes to Minara, $62 million to Glencore. Minara says that, by June, the plant should reach its capacity of 45,000 tonnes of nickel a year.

We gratefully acknowledge the permission from Lucinda Schmidt & Business Review Weekly to reprint this article.