Palmer faces $12bn lawsuit as China burns at possible court loss

Clive Palmer could be hit with a massive legal action if he succeeds in kicking China’s Citic out of the Sino Iron project.

Clive Palmer arrives at the ABC studios in Ultimo, Sydney, for an appearance on Q&A last night. Picture: Kelly Barnes

Clive Palmer could be hit with a legal action seeking more than $12 billion in restitution if the MP succeeds in kicking China’s Citic out of the Sino Iron project in Western Australia.

In what would rank as one of the largest legal claims in Australian history, the West Australian Supreme Court yesterday heard that Citic would look to recoup “every cent” of the estimated $US10bn ($12.6bn) it has spent on the project to date if court proceedings did not go its way.

The restitution claim emerged as an effective fallback position in Citic’s legal disputes with Mr Palmer. Citic and Mr Palmer’s private company, Mineralogy, have been fighting on several legal fronts amid a bitter falling out ­between the two parties.

The restitution claim relates to a crucial fight over the so-called Royalty B agreement, which is ­potentially worth hundreds of millions of dollars in payments to Mr Palmer. The original iron ore price benchmarks behind the Royalty B calculation no longer exist, and Citic is continuing to argue that Royalty B can no longer be calculated and should be severed from the contract between it and Mr Palmer. Mineralogy, through its lawyer Simon Couper, has argued for the use of a new formula based on spot iron ore prices.

The lawyer representing Citic, Charles Scerri QC, said the restitution claim was being made in the event the court found against Citic and ruled that the contract ­between Citic and Mineralogy was no longer valid.

“If contrary to our case the court comes to the conclusion that the various alternatives for working out Royalty B do not work, and Mr Couper’s various formula do not work, the only conclusion the court can come to is to either to sever the Royalty B provisions or (the contract) has been frustrated.”

It is only if the contract is ­declared frustrated that Citic would push ahead with the restitution claim. The scale of the restitution that Citic would seek dwarfs the personal wealth of Mr Palmer several times over.

The Palmer United Party leader’s other business interests are under pressure, at the same time as the resignation of two PUP senators has reduced his level of influence in Canberra. Operations at Mr Palmer’s Coolum Resort in Queensland have been scaled back after years of declining visitor numbers, while his Queensland nickel refinery has been squeezed by ongoing low nickel prices.

Mineralogy moved to strike out the restitution claim, with Mr Couper saying Citic would argue it was “entitled to get back every cent they paid under the contracts”. The application will be heard in July.

The claim would cover everything, from the costs spent on ­developing the port and mine infrastructure at Sino Iron, through to the spending on project approvals, the royalties paid to the state government and Mr Palmer, as well as the initial $415 million payment Citic made to Mr Palmer to buy into the project.

The latest twist in the saga ­between the two estranged parties came as the West Australian ­government moved to expand its intervention into the case. The state’s Attorney-General moved to intervene in a series of Supreme Court disputes, including the Royalty B case, after taking the same step on Friday in a Federal Court hearing over the possession of Sino Iron project’s port. The intervention would give the government a voice in the legal proceedings as they head towards trials. The move by the state into the disputes has been supported by Citic but has been sharply criticised by Mr Palmer.

Mr Palmer said in a Mineralogy press release that the move by the West Australian government was a disgrace. “This is a commercial agreement between Citic Limited and Mineralogy; the WA government is not part of those agreements,” Mr Palmer said.

“Serious questions need to be raised of the allegiance of the WA government and its minister to the people who elected him.”

According to an affidavit filed by the Attorney-General’s office, the state is concerned about whether it is possible for Mr Palmer to terminate Citic’s interest in Sino Iron given both parties are bound under the state agreement that governs the project to keep the project in continuous operation.

Under the terms of the state agreement, the Sino Iron project is required to run continuously. Mr Palmer’s legal challenge threatens to force the shutdown of the mine.

The Attorney-General’s office noted that the provisions of state agreements took effect notwithstanding any other contracts or agreements.

Mr Palmer and Mineralogy have bombarded Citic with dozens of termination notices as their legal disputes have intensified. State agreements are legal contracts between the government and project proponents that spell out the rights and obligations of parties behind the development of major projects.

Mr Palmer also took to Twitter to accuse Citic of shipping iron ore to China without paying Mineralogy its royalties. Citic has paid Mr Palmer millions of dollars in royalties under the Royalty A agreement, as well as all royalties owing to the state government.

Mr Scerri yesterday moved for Citic and Mineralogy to join the state government in arbitration over the dispute, saying that “the stakes in this case are so high that the parties should take all the steps possible” to sort out the impasse.

“The fact the state has become involved reflects the importance of this case,” he said.

While the Sino Iron project has had a torrid history — costing billions more than expected, running several years behind schedule and triggering numerous ugly lawsuits between Mr Palmer and Citic — it remains one of the few iron ore developments in Western Australia that is continuing to push ahead in the current low iron ore price environment. The project is losing money on each tonne of ore it produces, but Citic is pushing ahead with expansion efforts to reduce costs and salvage something from its investment to date.