Litigation and strategy – testing the limits in the Mirabela liquidation

Litigation is often a series of strategic plays. The Full Federal Court decision in Madden (Receiver) v Mining Standards International Pty Ltd [2025] FCAFC 142 provides helpful guidance regarding the difference between impermissible tactical claim splitting and legitimate financial constraints influencing a party’s approach in litigation.

Madden v MSI reaffirms the High Court’s warnings Aon and UBS v Tyne, that the administration of modern civil justice will not accommodate gamesmanship that burdens both courts and the parties. Ultimately, lawyers must ensure their clients’ tactical ambitions never eclipse their obligations to the court. (Clayton Utz acted for the Receivers in the WA and Federal Court proceedings.)

An asset sale agreement is terminated

This dispute arose from the termination of an asset sale agreement dated 1 November 2017 (ASA), under which Mining Standards International Pty Ltd was to purchase all shares that Mirabela Nickel Ltd (Receivers and Managers Appointed) and its subsidiary (the Sellers) held in a Brazilian mining company, Mirabela Mineracao Ltda (BrazilCo). The Sellers were under the control of the Receivers at the time.

The Receivers issued a notice to MSI to terminate the ASA, arising from a failure to meet a finance condition precedent. MSI disputed the validity of the notice on various grounds claiming the ASA remained on foot.

The assets the subject of the ASA were subsequently sold to a third party.

The Receivers sought directions in the Supreme Court of Western Australia regarding the distribution of the sale proceeds (which were obtained). The Receivers then sought declarations in the same court on the validity of the termination of the ASA.

In the WA Supreme Court proceeding, Mining Standards PL initially pleaded a defence based on the Sellers’ and Receivers’ alleged failure to use reasonable endeavours (cl 2.2 of the ASA), but later withdrew this part of its defence. Before the WA Supreme Court judgment was delivered, Mining Standards PL then sought to pursue similar claims in the Federal Court, by commencing proceedings against BrazilCo for breach of the ASA and unconscionable conduct. BrazilCo then commenced a cross claim against the Receivers, effectively joining them to the Federal Court Proceeding.

The WA Supreme Court decision was then appealed and the Court of Appeal declared that the Receivers' termination was valid.

In the Federal Court Mining Standards PL argued that its decision to withdraw the cl 2.2 defence (defence claims) and not pursue a counterclaim in the WA proceeding was driven by a lack of litigation funding and a desire to avoid delay and costs, rather than for any tactical advantage.

Tactical claim splitting

BrazilCo and the Receivers applied to stay Mining Standard PL’s Federal Court proceedings on the basis that it was an abuse of process. At first instance, the judge refused to grant the stay, in part due to Mining Standard PL's financial inability to pursue all claims in the WA proceeding.

The Full Federal Court found that the overlap caused by the splitting of proceedings as between the Western Australian courts and the Federal Court meant that the was a real risk of inconsistent findings and unjustifiable oppression to the Receivers. The Full Federal Court also agreed with the Receivers' submissions that the claim brought by Mining Standard PL would be barred by an Anshun estoppel.

The Full Federal Court reversed the decision at first instance, finding that Mining Standard PL’s conduct went beyond what could be justified by financial constraints and amounted to tactical claim splitting.

The key factors contributing to this finding included:

• Withdrawal to expedite proceedings: A strategic decision to withdraw a claim to expedite the proceeding and avoid evidence issues. Mining Standard PL’s withdrawal of the defence claims was not solely due to lack of funding.

• Lack of transparency: Mining Standard PL failed to clearly communicate to the Receivers and the Court that it intended to pursue the withdrawn claims in later proceedings and did not come clean about its intentions, which deprived the Court and the other parties of the opportunity to manage the litigation efficiently.

• Deferred, not abandoned, claims: Mining Standard PL intended to merely defer the withdrawn claims for later litigation, which undermined the utility and finality of the WA Supreme Court proceedings.

The Full Federal Court was also critical of the notion that a party or its funder could unilaterally dictate the timing and scope of litigation based on funding availability, without regard to the interests of the other parties or the Court..

Public vs private considerations

The Full Federal Court's acceptance of MSI’s inability to secure funding for a counterclaim in the WA proceeding was a significant factor in its decision-making. Nonetheless it found that the efficient administration of justice and use of court resources, the avoidance of duplicative litigation and the need for finality are paramount. The overriding consideration is whether, in all the circumstances, the party’s conduct constitutes a misuse or abuse of the court’s process, having regard to both private and public interests.

Ethical considerations and obligations of lawyers

The undertone throughout Madden v MSI is that lawyers must not allow clients to drive strategies that may undermine their obligations to the court and interfere to finality and efficiency of the justice system.

The Full Federal Court summarised lawyers' obligations:

Candour and transparency: Disclose intended claims and litigation strategies (where in interferes with the conduct of the case); and put your cards on the table to avoid surprise at trial.

Assist in case management: Lawyers are expected to assist the court in achieving the overarching purposes of litigation; help the court manage proceedings efficiently; disclose related claims.

Avoid tactical manoeuvring: Do not split claims or withhold issues for private advantage; always have in mind the interests of justice.

Duty to the court: Lawyers' duty to the court is paramount and should not be curtailed by client’s private interests.

Avoid abuse of process: Do not use court processes oppressively or wastefully.

Key takeaways

The message is clear from the Federal Court bench: the conduct of modern litigation is a matter for the court and not for private strategists. Financial hardship and funder preferences, though relevant, will rarely outweigh the overarching need for efficiency, finality and consistency.

It is open to Mining Standards PL to seek special leave to appeal to the High Court.