Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2)

[2021] NSWSC 1025

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025

Hearing dates:

1 to 5; 8 to 12; 15 to 19; 22 to 26 March 2021; 6 to 8, 14 to 16, 22, 23, 27 and 28 April 2021; 5 to 7, 10 to 14 May 2021

Decision date:

17 August 2021

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

(1)   Proceeding 2018/104383 (including the cross-claim) be dismissed.

(2)   Proceeding 2019/316305 (including the cross-claim) be dismissed.

(3)   Direct that within 28 days of the date of this judgment the parties either:

(a)   bring in short minutes of order to give effect to their agreement on costs; or,

(b)   if they cannot reach agreement, contact Associate to Ball J with a view to relisting the matter to deal with any outstanding questions in relation to costs.

Catchwords:

CONSUMER LAW – Misleading and deceptive conduct – Whether company officers made misleading statements when signing drawdown and rollover notices – Whether representations made by company officer personally or as company organs – Held company officers did not personally engage in misleading and deceptive conduct

CORPORATIONS – Insolvency – Whether company insolvent – Application of test under Corporations Act 2001 (Cth) – Where company alleged not to be able to repay future debt – Where future debt not current – Application of civil standard of proof to future or hypothetical event – Where ability to compromise debt relevant to the question of insolvency – Use of hindsight – Where use of hindsight impermissible – Where hindsight used not to show what was possible or likely at some point in the past but to establish a fact at an earlier point

PERSONAL PROPERTY – Assignment of choses in action – Prohibition on assignment of bare chose in action

TORTS – Duty of care – Whether company officers owed a duty of care to lenders in signing drawdown and rollover notices – Whether company officers personally made representations contained in drawdown and rollover notices and owed a duty of care to lenders when making representations – Whether representations made by company officers personally or as company organs – Held company officers did not owe a duty of care – Held representations made on behalf of the company – Held unreasonable for lenders to rely on representations as representations made personally by company officers – Breach – Where claim that company officers did not turn their mind to the question whether representations in the notices were true and did not make their own inquiries – Held company officers entitled to rely on management to be told if representations in the notices could not be made – Causation – Causation not found on the facts

TORTS – Duty of care – Held no reason to recognise a duty of care between sophisticated commercial entities when consequences of breach of contract are already set out in the agreements

TORTS – Duty of care – Whether director owed a duty of care to lenders before instructing company officers to draw all funds from facility agreements with lenders – Held director or employee does not owe a duty of care to avoid economic loss to third party when making and communicating a decision to another employee

TORTS – Duty of care – Accessorial liability – Directing or procuring breach of contract – Held director and employee not liable for directing or procuring breach of contract when director did not act personally but as an organ of the company – Directing or procuring breach of duty – Held that there is no duty in tort to take reasonable care to perform a contract

TORTS – Negligence – Where claim brought under negligent misstatement and negligence as two separate causes of action – Where officer of the company found to owe the lenders a duty of care in circumstances where lender made specific enquiries and officer could reasonably be expected to know or find out relevant information – Where reliance not proved on the facts

TORTS – Negligence – Whether legal advice was negligent and misleading and deceptive – Where allegation not proved

DAMAGES – Quantification – Alternative methodologies – Damages calculated comparing the position in which the lenders would have been but for the defendants’ wrongful conduct – Damages calculated assuming that but for the defendants’ wrongful conduct the company would have entered into voluntary administration earlier than it did – Where counterfactual not subject of evidence – Whether plaintiffs entitled to compound interest as damages –Whether claim should be converted into Australian dollars

Legislation Cited:

Australian Consumer Law

Australian Securities and Investment Commission Act 2001 (Cth)

Building and Construction Industry Security of Payment Act 2002 (Vic)

Civil Liability Act 2002 (NSW)

Corporations Act 2001 (Cth)

Evidence Act 1995 (NSW)

Cases Cited:

Anchorage Capital Master Offshore Pty Ltd v Sparkes [2019] NSWSC 384

Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17

Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640, [2013] HCA 54

Australian Executor Trustees Limited v Propell National Valuers (WA) Pty Ltd [2011] FCA 522

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 432

Australian Securities and Investments Commission v Narain (2008) 169 FCR 211, [2008] FCAFC 120

Australian Securities and Investments Commission v Plymin (2003) 175 FLR 124

Australian Securities and Investments Commission v Rent 2 Own Cars Australia Pty Ltd [2020] FCA 1312

Bakewell v Anchorage Capital Master Offshore Ltd (2019) 372 ALR 349; [2019] NSWCA 199

Bateman v Slatyer (1987) 71 ALR 553

Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1; [2008] WASC 239

Berry v CCL Secure Pty Ltd (2020) 381 ALR 427; [2020] HCA 27

Brookfield Multiplex Ltd v Owners Strata Plan No 61288 (2014) 254 CLR 185; [2014] HCA 36

C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317

Caltex Refineries (Qld) Pty Limited v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Emanuel Management Pty Ltd v Foster's Brewing Group Ltd (2003) 178 FLR 1, [2003] QSC 205

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241

EquuscorpPty Ltd vHaxton (2012) 246 CLR 498; [2012] HCA 7

Eureka Funds Management Ltd v Freehills Services Pty Ltd (2008) 19 VR 676; [2008] VSCA 156

Fightvision Pty Ltd v Onisforou; Tszyu v Fightvision Pty Ltd (1999) 47 NSWLR 473; [1999] NSWCA 323

Glegg v Bromley [1912] 3 KB

Houghton v Arms (2006) 225 CLR 553, [2006] HCA 59

Hungerfords v Walker (1989) 171 CLR 125

Insurance Commissioner v Associated Dominions Assurance Society Proprietary Limited (1953) 89 CLR 78

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; [2016] FCAFC 20

Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722

LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204; [2012] FCAFC 3

Lewis v Australian Capital Territory (2020) 381 ALR 375; [2020] HCA 26

Lewis v Doran (2004) 208 ALR 385; [2004] NSWSC 608

Lewis v Doran (2005) 219 ALR 555; [2005] NSWCA 243

Malec v JC Hutton Pty Ltd (1990) CLR 638; [1990] HCA 20

Manufacturers’ Mutual Insurance Ltd v Queensland Government Railways (1968) 118 CLR 314

March v E & MHStramare Pty Ltd (1991) 171 CLR 506

Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195

Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556

Octaviar Public Trustee (Qld) v Octaviar Ltd (2009) 73 ACSR 139; [2009] QSC 202

Performing Rights Society Limited v Ciryl Theatrical Syndicate Limited [1924] 1 KB 1

Pittmore Pty Ltd v Chan [2020] NSWCA 344

Rainham Chemical Works Ltd (In Liq) v Belvedere Fish Guano Co Ltd [1921] 2 AC 465

Re Cube Footware Pty Ltd [2013] 2 Qd R 501; [2012] QSC 398

Robinson v 470 St Kilda Road Pty Ltd (2018) 263 FCR 572; [2018] FCAFC 84

Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324, [2004] NZCA 97

Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53; [2003] HCA 75

San Sebastian Pty Ltd v The Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340

Sandell v Porter (1966) 115 CLR 666

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4

Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225

Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621

Spies v The Queen (2000) 201 CLR 603; [2000] HCA 43

Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19

Trendtex Trading Corporation v Credit Suisse [1982] AC 679

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65

Category:

Principal judgment

Parties:

2018/104383 Anchorage Proceedings

Anchorage Capital Master Offshore Ltd (First Plaintiff)
ACMO Finance (Ireland) Designated Activity Company (Second Plaintiff)
Midtown Acquisitions LP (Third Plaintiff)
Deutsche Bank Aktiengesellschaft (Fourth Plaintiff)
Commonwealth Bank Australia (Fifth Plaintiff)
Delia Sparkes (First Defendant)
Vera Verawati (Second Defendant)
Hazel Hall (Third Defendant)
Jaimee Lieu (Fourth Defendant)
Robert Bakewell (Fifth Defendant | Cross Claimant)
Herbert Smith Freehills (Cross Defendants)

2019/316305 BOC Proceedings

Bank of Communications (First Plaintiff)
Westpac Banking Corporation (Second Plaintiff)
Banco Bilbao Vizcaya Argentaria SA t/as Banco Bilbao Vizcaya Argentaria SA (Hong Kong Branch) (Third Plaintiff)
Delia Sparkes (First Defendant)
Robert Bakewell (Second Defendant | Cross Claimant)
Sarah Pearce (Third Defendant)
Herbert Smith Freehills (Cross Defendants)

Representation:

Counsel:

2018/104383 Anchorage Proceedings

AJ Bannon SC and MJ Darke SC with C Colquhoun, M Ellicott, M Jaireth and S Constable (Plaintiffs)
DL Williams SC with ML Rose and ND Riordan (First Defendant)
BF Katekar SC with EL Beechey (Second to Fourth Defendants)
MR Pesman SC with EAJ Hyde, AE Munro and D Farinha (Fifth Defendant | Cross Claimant)
RA Dick SC with DR Sulan and G Keesing (Cross Defendants)

2019/316305 BOC Proceedings

PW Collinson QC with P Meagher and J Granger (Plaintiffs)
DL Williams SC with ML Rose and ND Riordan (First Defendant)
MR Pesman SC with EAJ Hyde, AE Munro and D Farinha (Second Defendant | Cross Claimant)
NJ Owens SC with GO O’Mahoney (Third Defendant)
RA Dick SC with DR Sulan and G Keesing (Cross Defendants)

Solicitors:

2018/104383 Anchorage Proceedings

Gilbert + Tobin (Plaintiffs)
Norton Rose Fulbright (First Defendant)
Gadens (Second to Fourth Defendants)
Baker McKenzie (Fifth Defendant | Cross Claimant)
Clifford Chance (Cross Defendants)

2019/316305 BOC Proceedings

King & Wood Mallesons (Plaintiffs)
Norton Rose Fulbright (First Defendant)
Baker McKenzie (Second Defendant | Cross Claimant)
Johnson Winter & Slattery (Third Defendant)
Clifford Chance (Cross Defendants)

File Number(s):

2018/104383 and 2019/316305

Publication restriction:

None

Judgment

Judgment

Introduction

The Arrium Group

The Arrium business

The Treasury policy

Other facilities

The facility agreements

Factual background

Proposal for Strategic Review

Strategic Review approved

Meetings with Lenders in relation to Project Archer

Board meeting on 18 August 2015

Project Archer put on hold

Developments in relation to Project Columbus

ANZ exercises review rights

Project Polo

Revised forecast for FY16

Update in relation to Project Columbus

Board meeting on 2 December 2015

Ms Sparkes resigns

Arrium pursues debt restructuring proposal – Project Miwok

Meetings with NAB and Westpac

EY reports on Project Polo

Board meeting on 18 December 2015

Conversation between Mr Bakewell and Mr Nestel in December 2015

21 December 2015 cash flow forecast and the Bakewell Direction

Ms Sparkes’ telephone call with Morgan Stanley

Telephone call between Mr Bakewell and the Arrium advisers

Board meeting on 7 January 2016

Board meeting on 15 January 2016

Ms Sparkes resigns as a director of Finance and AIOH

EY delivers draft paper on Project Jacaranda

21 January 2016 board meeting

Meeting with Westpac on 29 January 2016

Meeting of the Audit and Compliance Committee on 3 February 2016

Board meeting on 4 February 2016

KPMG’s letter in relation to going concern

Mr Bakewell’s alleged instruction on 8 February 2016

Board meeting on 11 February 2016

Release of the HY16 results

HSBC refuses to fund Drawdown Notice

WBC’s initial response to release of results

Board meeting on 20 February 2016

Arrium enters recapitalisation deed with GSO

Reaction of the banks to the recapitalisation deed

Mr Bakewell resigns as CFO

Board meeting on 18 March 2016

Mr Roberts’ letter dated 23 March 2016

KWM’s letter dated 29 March 2016

Banks lose confidence in Arrium board; Arrium goes into voluntary administration

The solvency representation

The nature of the case

Relevant legal principles

Consideration

The MAE Representation

Introduction

The correct interpretation of the representation

The meaning of “financial position”

The meaning of “material”

Consideration

The claims in the Anchorage Proceeding

A preliminary issue

The claim against the signatories to the Drawdown Notices in negligence

Introduction

Was the MAE Representation made in the Drawdown and Rollover Notices?

Were Ms Verawati, Ms Hall and Ms Lieu Authorised Officers?

Did the signatories owe the Par Lenders a duty of care?

Breach

Causation

The claims against the signatories for misleading and deceptive conduct

Other claims against Ms Sparkes

Introduction

The claim in negligence

The claims based on accessorial liability

Claims against Mr Bakewell

Introduction

The claim in respect of the Bakewell Direction

The claims based on accessorial liability

The validity of the assignments

The claims in the BOC Proceeding

Introduction

The case that Ms Sparkes and Mr Bakewell personally engaged in misleading and deceptive conduct

Causation

Damages

Introduction

The Anchorage Plaintiffs’ claim in respect of new debt

The counterfactual

Assumptions made by Mr Halligan and Ms Wright

Other issues relating to the calculation of the loss

Contributory negligence and concurrent wrongdoer defences

Mr Bakewell’s cross-claim against HSF

Conclusion and orders

Introduction

1. Before the Court are two proceedings arising from the collapse in April 2016 of Arrium Limited (now known as ACN 004 410 833 Limited (In Liq)) (Arrium), an Australian listed public company, and a number of its subsidiaries. Both proceedings are brought by banks who had either lent money to Arrium or to two of its wholly owned subsidiaries, Arrium Finance Pty Limited (now known as OS Finance Pty Limited) (In Liq)) (Finance) or Arrium Iron Ore Holdings Pty Ltd (now known as AIOH Pty Limited) (In Liq)) (AIOH) (together, the Arrium Entities), or who had taken assignments of debts either directly or indirectly from banks who had lent money to the Arrium Entities. In this judgment, a bank which lent money to one or more of the Arrium Entities will be referred to as a “Par Lender” or “Lender”. A bank which directly or indirectly took an assignment of a Par Lender’s debt will be referred to as an “Assignee”. A third proceeding brought by the liquidators of the Arrium Entities against the directors of those companies for insolvent trading settled in principle during the course of the hearing.

2. Both the remaining proceedings are brought in respect of Drawdown Notices and Rollover Notices issued pursuant to facility agreements to which the Par Lenders were parties.

3. The first proceeding in time (the Anchorage Proceeding) is brought by Anchorage Capital Master Offshore, Ltd (Anchorage), ACMO Finance (Ireland) Designated Activity Company (Anchorage Ireland), Midtown Acquisitions L.P. (Midtown), Deutsche Bank Aktiengesellschaft (DB) and the Commonwealth Bank of Australia (CBA). They sue Ms Delia Sparkes, who at all material times up until 29 January 2016 was the Group Treasurer of Arrium, Mr Robert Bakewell, who at all material times was the Chief Financial Officer (CFO) of the Arrium Group, and three employees of Arrium, Ms Vera Verawati, Ms Hazel Hall and Ms Jaimee Lieu, who each signed one or more of the Drawdown Notices or Rollover Notices in respect of which a claim is made.

4. Anchorage, Anchorage Ireland and Midtown bring their claims as Assignees. DB and CBA bring their claims both as Assignees of some debts and Par Lenders in respect of others. The claims are brought in respect of loans made under the following facility agreements:

1. A bilateral loan agreement made on or about 13 June 2014 between Morgan Stanley Bank NA (Morgan Stanley) as “Lender”, Finance and AIOH as “Original Borrowers” and Arrium as “Parent” under which Morgan Stanley made available USD75 million to be repaid by 16 July 2017 (the Morgan Stanley Facility Agreement);

2. A bilateral loan agreement made on or about 18 June 2014 between CBA as Lender, Finance, AIOH and a number of other wholly owned subsidiaries of Arrium as Original Borrowers and Arrium as Parent under which CBA made available AUD150 million to be repaid by 10 July 2017 (the CBA Facility Agreement);

3. A syndicated facility agreement made on or about 31 May 2013 between Finance and AIOH as Original Borrowers, Arrium as Parent and the National Australia Bank Limited (NAB) as agent for those participants named in Schedule 1 to that document (as amended from time to time) (together the 2013 SFA Lenders) by which the 2013 SFA Lenders agreed to provide a USD533.4 million multi-currency revolving facility which was to be repaid in full by 10 July 2017 and a USD266.6 million revolving facility, which was to be repaid in full by 10 July 2018 (the 2013 SFA);

4. A syndicated facility agreement made on or about 16 June 2014 between Finance, AIOH and AltaSteel Ltd as Original Borrowers, Arrium as Parent and NAB as agent for those participants named in Part A of Schedule 1 to that document (as amended from time to time) (together the 2014 SFA Lenders) by which the 2014 SFA Lenders agreed to provide a multi-currency revolving facility of up to a maximum amount of AUD255 million (Tranche A), a USD term facilities of up to a total maximum amount of USD130 million (Tranche B), a USD revolving facility of up to a maximum amount of USD120 million (Tranche C), a CAD revolving facility of up to a maximum amount of CAD60 million (Tranche D), a CAD term facility of up to a maximum amount of CAD100 million (Tranche E) and a USD term facility up to a maximum amount of USD90,300,000 (Tranche F) which were due to be repaid on 10 July 2018 and 10 July 2019 (the 2014 SFA);

5. A syndicated facility agreement made on or about 21 May 2015 between Finance, AIOH and AltaSteel Ltd as Original Borrowers, Arrium as Parent and NAB as agent for those participants named in Part A of Schedule 1 to that document (as amended from time to time) (together the 2015 SFA Lenders) comprising a USD term facility of up to a maximum amount of USD62 million (Tranche A), a CAD term facility of up to a maximum amount of CAD82 million (Tranche B) and a CAD revolving facility of up to a maximum amount of CAD34 million (Tranche C), each of which was due to be repaid on 10 July 2019 (the 2015 SFA).

5. The claims are complex and more will need to be said about them later in this judgment. However, in essence, what is alleged is that each Drawdown Notice and each Rollover Notice that was issued in accordance with the relevant facility agreement in order to drawdown or rollover funds to be advanced or advanced under the agreements contained, and by virtue of the terms of the relevant facility agreement made (1) a representation to the effect that there had been no change in the financial position of Arrium since 31 December 2012 (in the case of the 2013 SFA) and since the date up until when the last published accounts of Arrium were prepared (in the case of the other agreements) that had a material adverse effect on the borrowers’ ability to perform their obligations under the agreement (the MAE Representation); and (2) a representation to the effect that no event of default or potential event of default had occurred or continued unremedied (the No Event of Default Representation). Each of the Drawdown and Rollover Notices was signed by two of the defendants (other than Mr Bakewell). The plaintiffs claim that by signing the notices the signatories owed the relevant Par Lender or Par Lenders a duty of care which they breached causing the Par Lenders to suffer loss.

5. The breaches are said to arise from the fact that there had been a change in Arrium’s financial position that had the relevant effect. That meant that the MAE Representation was false. It also meant that the No Event of Default Representation was false because it was a potential event of default under the facility agreements if there was a change in the financial condition of the group (excluding certain subsidiaries) that had a Material Adverse Effect (“potential” because, in order for an event of default to occur, Arrium had to fail to remedy the situation within 15 Business Days of being required to do so by a Lender).

6. In the case of money advanced pursuant to Drawdown Notices, the loss is said to be in the amount of money advanced plus interest, less any amount recovered in respect of the relevant loan. In the case of loans that were rolled over, the loss is said to be the difference between the amount recovered in the administration of the Arrium Entities in respect of the relevant loan and the amount that would have been recovered if the Arrium Entities had gone into voluntary administration on or around 31 December 2015 (rather than 7 April 2016) following the relevant Par Lenders’ refusal to roll over the loan in question. The Assignees claim that these causes of action were validly assigned to them at the time they took an assignment of the debts acquired by them.

7. DB and CBA bring similar claims alleging that the relevant employees, by signing the notices, engaged in misleading and deceptive conduct in contravention of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), s 1041H of the Corporations Act 2001 (Cth) (the Corporations Act) and s 18 of the Australian Consumer Law (ACL). They claim damages assessed in the same way under s 12GF of the ASIC Act, s 1041I of the Corporations Act or s 236 of the ACL. No such claims are brought by the plaintiffs to the extent that they are Assignees, since the plaintiffs accept that the statutory claims cannot be assigned.

8. Annexure 1 (59266, pdf) to this judgment is a table setting out:

1. The date of each notice;

2. The date of drawdown or rollover;

3. The facility agreement and tranche under which the notice was issued;

4. The amount of the drawdown or rollover;

5. The relevant Assignee plaintiffs;

6. The relevant Par Lender plaintiffs;

7. The signatories to the notice.

10. As against Mr Bakewell, the plaintiffs advance three types of claim.

11. First, it is said that he owed the Par Lenders a duty of care which he breached either by (1) directing Ms Sparkes or alternatively one or more of Ms Verawati, Ms Hall and Ms Lieu in December 2015 to drawdown all available funds under each of the available facilities (the Bakewell Direction) and reaffirming that direction on 8 February 2016; or (2) failing to take steps to ensure that a number of representations including the MAE Representation and the No Event of Default Representation were true and accurate.

12. Second, it is alleged that the representations contained in or made by the Drawdown Notices were made by the Arrium Entities negligently or in breach of contract and that Mr Bakewell was liable for that conduct because he directed or procured it.

13. Third, to the extent that the representations contained in or made by the Drawdown Notices were made to the Par Lenders who bring claims in respect of that conduct, it is alleged that the relevant Arrium Entity engaged in misleading and deceptive conduct in contravention of s 12DA of the ASIC Act, s 1041H of the Corporations Act and s 18 of the ACL and that Mr Bakewell was a person involved in that contravention within the meaning of s 79 of the Corporations Act and s 236(1) of the ACL, with the result that he is liable for the same damages as the Arrium Entities.

14. Three additional claims were also advanced against Ms Sparkes. First, it is alleged that on 31 December 2015 she made a number of oral representations to Morgan Stanley concerning the accuracy of representations made in the Drawdown Notice dated 29 December 2015 and the progress of the sale of Arrium’s Mining Consumables business. Negligence claims are advanced against Ms Sparkes on the basis of those representations. Second, it is alleged that Ms Sparkes directed or procured breaches by the Arrium Entities of their breaches of duty or breach of contract. Third, it is alleged that Ms Sparkes, prior to 30 January 2016, was involved in contraventions by the Arrium Entities of s 12DA of the ASIC Act, s 1041H of the Corporations Act and s 18 of the ACL. These last two claims mirror similar claims made against Mr Bakewell.

15. The second proceeding (the BOC Proceeding) is brought by Bank of Communications Co., Ltd (BOC), Westpac Banking Corporation (WBC) and Banco Bilbao Vizcaya Argentaria SA t/as Banco Bilbao Vizcaya Argentaria SA (Hong Kong Branch) (BBVA). They sue Ms Sparkes and Mr Bakewell in respect of loans made by them (as Par Lenders) under the 2013 SFA, the 2014 SFA, the 2015 SFA and the following bilateral agreements:

1. A bilateral loan agreement made on or about 20 November 2014 between the Arrium Entities and WBC by which WBC made available AUD50 million to be repaid by 18 October 2017 (the Westpac Facility Agreement);

2. A bilateral facility agreement made on or about 30 June 2015 between Arrium and Finance and BBVA by which BBVA agreed to make available USD20 million to Finance to be repaid by 9 January 2017 (the BBVA Facility Agreement).

16. It will be convenient in this judgment to refer to the facilities that are the subject of the two proceedings as the Facilities.

17. A claim against Ms Sarah Pearce, who replaced Ms Sparkes as Group Treasurer on 30 January 2016, by the BOC Plaintiffs was settled during the course of the proceedings. Nothing more needs to be said about it.

18. The claim brought in the BOC Proceeding is far simpler than that brought in the Anchorage Proceeding. The claim is limited to direct claims against Ms Sparkes and Mr Bakewell for misleading and deceptive conduct in contravention of s 18 of the ACL. Both are said to be liable for misleading statements said to be contained in or made by virtue of a number of Drawdown Notices issued by the Arrium Entities between 7 January 2016 and 10 February 2016. Details of the relevant notices are set out in Annexure 2 (61530, pdf) .

19. Both Ms Sparkes and Mr Bakewell are alleged to have engaged in misleading conduct in connection with the Drawdown Notices because both it is said were responsible for causing the Drawdown Notices to be executed and issued. Ms Sparkes’ responsibility is said to arise from the fact that she had authority to make and was responsible for making decisions as to which borrower would issue a Drawdown Notice, the relevant facility agreement in respect of which a Drawdown Notice would be issued, the amount of any such Drawdown Notice and that she was responsible for causing the execution and issuance of Drawdown Notices to give effect to her decisions. Mr Bakewell’s responsibility is said to arise from the fact that he gave the Bakewell Direction to Ms Sparkes in early January 2016 and to Ms Pearce on 8 February 2016.

20. Like the Anchorage Plaintiffs, the BOC Plaintiffs rely on the MAE Representation contained in and made by virtue of the Drawdown Notices, although, as will be explained, they say the representation was false for more limited reasons. Unlike the Anchorage Plaintiffs, the BOC Plaintiffs also contend that the representations made by the Drawdown Notices were false because the Arrium Entities were insolvent at the time they were made.

21. The BOC Plaintiffs contend that if Mr Bakewell and Ms Sparkes had not engaged in the misleading conduct, none of the Drawdown Notices would have been issued and none of the advances the subject of those notices would have been made, with the result that the Arrium Entities would have been placed into administration by no later than 7 January 2016. On that basis, the BOC Plaintiffs claim the difference between the amount they advanced and the amount they have recovered. In the alternative, they claim the difference between the amount they have recovered and the amount they would have recovered if the Arrium Entities had been placed into administration on 7 January 2016.

22. In each case, Mr Bakewell has brought a cross-claim against Herbert Smith Freehills (HSF) alleging that if he is liable to the plaintiffs then they are liable to him on the basis that, in December 2015, HSF gave advice which caused Mr Bakewell to give the Bakewell Direction and gave advice on the solvency of Arrium on which Mr Bakewell relied.

23. The defendants also rely on contributory negligence and proportionate liability defences. The proportionate liability defences name each of the other defendants as a concurrent wrongdoer together with the Arrium Entities. Mr Bakewell’s proportionate liability defence also names HSF as a concurrent wrongdoer.

24. Finally, each of the defendants deny that the causes of action on which the Assignees sue were assignable.

The Arrium Group

The Arrium business

25. Arrium was listed on the Australian Securities Exchange (ASX) in October 2000. It operated three main businesses through a large number of subsidiaries (together, the Arrium Group), which together employed over 8,000 employees in a number of different countries. The three businesses were Mining, Mining Consumables and Steel. The Mining division operated mines in South Australia, 60 kilometres from Whyalla and 90 kilometres from Cooper Pedy which produced lower grade iron ore. The ore was exported through a port Arrium owned in Whyalla and was used by Arrium in its steel mill in Whyalla. For the year ended 30 June 2015, Mining reported revenue of $889 million and underlying EBITDA (earnings before interest, tax, depreciation and amortisation) of $90 million. The Mining Consumables business comprised the Moly-Cop grinding media businesses, the Waratah Steel Mill and AltaSteel. It supplied a range of mining consumables including grinding media, wire ropes and rail wheels. The Moly-Cop business was the largest supplier of grinding material in the world. It was (and remains) a successful business and was described as the jewel in Arrium’s crown. For the year ended 30 June 2015, Mining Consumables reported revenue of $1,591 million and underlying EBITDA of $211 million. The Steel business included manufacturing operations in Whyalla and two electric arc furnaces in New South Wales and Victoria which processed ferrous scrap metal. It also included downstream retail businesses which distributed the Arrium Group’s products and third-party products to the construction, manufacturing and resource markets. For the year ended 30 June 2015, the Steel business reported revenues of $2,870 million and underlying EBITDA of $62 million. During the same period, the recycling division of that business generated $1,073 million in revenue and underlying EBITDA of $8 million.

26. Each of the operating divisions of Arrium had its own finance department, which maintained the financial accounts for the Division, including the preparation of profit and loss statements and cash flows. Each division also operated its own bank accounts, which were generally held with the Australian and New Zealand Banking Group Limited (ANZ). In addition, Arrium also had a shared services function, known within Arrium as the “Finance Division”, which provided corporate services across the whole of the Arrium Group including finance, treasury, tax, internal audit, transactional services and business support. The four divisional heads, including the CFO (who headed the Finance Division) reported to the CEO, who at all relevant times was Mr Andrew Roberts.

27. The Arrium Group operated a centralised treasury operation within the Finance Division, which encompassed the management of transactional banking, debt facilities, guarantee facilities, trade finance facilities and the risk management functions. Ms Sparkes, who as Group Treasurer was in charge of those operations, reported to Mr Bakewell. Her responsibilities were set out in Arrium Group’s Treasury Policy, about which more will be said shortly.

28. Arrium’s cash and borrowings were managed centrally by the Finance Division through Finance, AIOH and another entity known as OneSteel US Group Holdings, Inc. Finance was the lender of inter-company funding and trading transactions within Australian domiciled entities. AIOH was the lender for US dollar denominated funding transactions between Australia and overseas domiciled entities. Mr Bakewell and Ms Sparkes were directors of each of Finance and AIOH.

29. The Group Financial Controller of Arrium was Mr Anthony Brooks, who also reported to Mr Bakewell. Mr Brooks’ responsibilities included ensuring and maintaining the integrity of the data in the Arrium Group’s accounting systems, preparation of the Arrium Group’s month-end accounts, cash flows and forecasts and the preparation of Compliance Certificates certifying the Arrium Group’s compliance with its obligations under covenants contained in the facility agreements.

30. The Arrium board typically met ten times a year in each month except April and October. However, during the period with which this judgment is primarily concerned, it met far more frequently than that – in all, on 21 occasions between December 2015 and April 2016. Board papers, which were often voluminous, were typically distributed to attendees (including external advisers) by email several days before the relevant meeting. Mr Mark Edler, the General Counsel and later Company Secretary of Arrium, prepared draft minutes of each board meeting.

The Treasury policy

31. The Arrium Group maintained a written treasury policy, on which the plaintiffs place some reliance. The one in force during the relevant period was dated July 2015 and was approved by the Arrium board on or around 18 August 2015. The policy sets out the respective responsibilities of the board, the Treasury Committee, the CFO, the Group Treasurer and the General Managers Commercial. Section 3.5 of the policy states that the responsibilities of the CFO included the following:

•   recommend to the Treasury Committee the establishment of, and amendments to, the Policy;

•   implement all financial accommodation and financial arrangements of Arrium as delegated by the Board;

•   authorise borrowing, investment and hedging transactions within the constraints of this Policy;

•   where appropriate, delegate authority for borrowing, investment, and hedging activities;

•   review and, where appropriate, endorse risk management strategies put forward by the Group Treasurer;

•   review and oversee the borrowing, investment, and hedging activities which have been delegated to ensure that the Treasury function is meeting its objectives, and the Treasury function has not exceeded Board-approved delegation and exposure limits;

•   initiate and ensure that timely and accurate cash flow forecasts are always available, taking into account cash profits, working capital movements and capital expenditure. Where necessary, to take action to ensure that the Company has adequate liquidity. This may include initiating the liquidation of working capital, asset sales, suspension of capital expenditure, suspension of EAF [Electric Arc Furnace] operations or other steps to assure liquidity;

•   make recommendations to the Treasury Committee for new financial instruments and techniques for managing the financial exposures of Arrium;

•   ensure that the Treasury Committee and the Board is aware at all times of the impact of financial exposures on the profitability of Arrium; and,

•   provide feedback from the Board, if any, regarding the effectiveness of Treasury reporting and to convey special requests, if any, from the Board to Treasury;

•   Review and approve new bank accounts;

•   Oversee business units to ensure that effect is given to Treasury Policy.

32. Section 3.6 of the Policy stated that the Group Treasurer “is responsible for the daily management of Arrium’s borrowing, investment and hedging activities”. It states that the Group Treasurer’s specific responsibilities included:

•   undertake borrowing, investment and hedging transactions as delegated by the CFO;

•   undertake negotiations on behalf of Arrium when financial accommodation is required;

•   make recommendations on the debt funding of Arrium, in light of maturities and forecast requirements at least annually to the Treasury Committee and the Board;

•   develop strategies to achieve Arrium’s financial management objectives that are within the limits of this Policy for consideration by the CFO;

•   ensure an appropriate spread of debt maturities;

•   ensure hedge accounting AASB 139 or equivalent is applied to derivatives where practical;

•   calculate weighted average cost of capital (WACC) and advise business for use in modelling future acquisitions, capital proposals and impairment testing;

•   make recommendations to the CFO on amendments to the Policy;

•   quantify and report all of Arrium’s exposure to financial risk to the CFO on a monthly basis;

•   prepare sensitivity analysis and forecasts on financial covenants and recommend strategies to mitigate potential breaches;

•   ensure that accurate records with respect to Arrium’s cash flow requirements are maintained, and that the cash needs of Arrium are met in a cost-effective and timely manner;

•   maintain all necessary records with respect to the foreign exchange, interest rate and commodity requirements for Arrium;

•   review and approve authorised officers within established policy guidelines;

•   report to the CFO the liquidity position and short term forecast liquidity position for Arrium;

•   highlight the risks of breaching this policy and recommend corrective action to the CFO and Treasury Committee in a timely manner and,

•   work with businesses to achieve stated financial objectives.

33. The Group Treasurer was also responsible for the preparation of a funding plan for the Arrium Group, which was submitted to the Arrium board for approval annually, usually in or around April or May.

34. Section 4 of the policy deals with liquidity management. Section 4.3, dealing with liquidity risk, relevantly states:

Projected Debt levels will be compared against the level of Committed Facilities to the final maturity date of the facility which provides a clear signal of Arrium’s liquidity requirements in both the short and longer term.

For longer-term management, projections will show expected Projected Debt levels on at least a rolling 12-month basis at monthly intervals and will include monthly cash flow forecasts from Arrium’s operating divisions. For short-term management, Treasury’s 8-week Forecast will be complied (at daily intervals) from each of the operating divisions of Arrium on a weekly basis.

The Group Treasurer will compile information of liquidity available and required.

35. Section 4.4.2 dealing with cash management required the establishment of a liquidity reserve, which was set at $150 million. The Treasury policy gives the following explanation for that figure:

The liquidity reserve has been set based on an evaluation of the accuracy of cashflow forecasting historically in Arrium and intramonth movements. This has shown that a reserve of $150 million will adequately cover fluctuations in cashflow within the month. This is calculated at the end of each month.

Other facilities

36. In addition to the Facilities, the Arrium Group had a series of uncommitted facilities which could be withdrawn by Lenders upon notice at any time. These took the form of overdraft facilities, bank guarantees, trade lines, prime receivable financing lines, foreign exchange, commodity and swap lines. As at 30 June 2015, the Arrium Group had access to $583.3 million by way of uncommitted facilities, which had reduced to $385.2 million by 30 September 2015 and to $232.7 million by 31 December 2015. Uncommitted lines were not taken into account in reports to the board on Arrium’s liquidity position.

36. Arrium Group’s transactional banking facilities were supplied by ANZ. Those facilities included bank accounts, point of sale and merchant facilities, electronic payment facilities including an intraday “pay away” facility that allowed for same day receipt and payment of funds. ANZ also provided certain guarantee facilities including Arrium’s WorkCover performance bonds that underpinned the company’s self‑insurance status, a facility under which the Arrium Group could elect to sell receivables to ANZ up to a maximum limit and its commercial credit card facilities. The various facilities were primarily provided under a facility offer letter dated 1 November 2013 (as amended). The facility offer letter provided for the facilities to be reviewed annually by ANZ. ANZ had a right to cancel one or more of its facilities after review, after giving notice and engaging in good faith negotiations for a period of at least 30 days.

37. Arrium (through OneSteel US Investments, a Delaware general partnership) had also issued notes in the US bond market with a face value of USD200 million in July 2008. The notes were issued in three series with varying interest rates. The 7% Series 2008 – Tranche 1 with a face value of USD50 million were payable on 9 July 2015, the 7.33% Series 2008 – Tranche 2 with a face value of USD97 million were payable on 9 July 2018 and the 7.43% Series 2008 – Tranche 3 with a face value of USD53 million were payable on 9 July 2020. OneSteel US Investments’ obligations under the notes were guaranteed by Arrium, Finance and later AIOH. Arrium made a further issue of notes with a face value of USD200 million in June 2011. Again, those notes were issued in three tranches with various interest rates. The first tranche of USD50 million was due to be paid on 28 June 2018, the second tranche of USD125 million was due to be paid on 28 June 2021. The third tranche of USD25 million was due to be paid on 28 June 2023. Both sets of notes were generally referred to as the USPP Notes.

The facility agreements

39. With two exceptions to which I will come, the facility agreements relevantly contained substantially the same terms. Many of the submissions made during the course of the hearing were made by reference to the Morgan Stanley Facility Agreement and for that reason the terms of that agreement are set out in some detail in this judgment and most of the analysis contained in this judgment is made by reference to that agreement. The two exceptions aside, it was not suggested that the outcome of either case would be different depending on the agreement under which the relevant Drawdown Notices were issued.

40. Clause 6 of the Morgan Stanley Facility Agreement states:

The Facility is a revolving facility and will be available for multiple Drawings during the Availability Period. If a Borrower wishes to effect a Drawing (including, to avoid doubt, a Rollover Drawing), it must give a Drawdown Notice to the Lender. A Drawdown Notice is irrevocable and must be:

(a)   in the form set out in schedule 3;

(b)   duly completed and signed by an Authorised Officer of the relevant Borrower; and

(c)   delivered to the Lender on a Business Day no later than 11.00am three Business Days before the proposed Drawdown Date or such shorter period as may be agreed with the Lender.

The Drawdown Date specified in a Drawdown Notice must be a Business Day.

41. “Drawing” is defined in cl 1.1 to mean “each loan provided or to be provided by the Lender to the Borrower under this Agreement and, to avoid doubt, includes a Rollover Drawing”. “Rollover Drawing” is defined to mean one or more Drawings “(a) made or to be made on the same day that a Drawing matures; and (b) the aggregate amount of which is equal to or less than the maturing Drawing”.

42. Clause 4.2 sets out a number of conditions precedent to a Drawing which include:

…

(b)   (no default) no Event of Default or (except in the case of a Rollover Drawing) no Potential Event of Default is subsisting at the date of the relevant Drawdown Notice or at the relevant Drawdown Date or will result from the provision of the Drawing; and

(c)   (representations and warranties) (except in the case of a Rollover Drawing) each representation and warranty made by each Borrower Party in this Agreement which is required to be repeated under clause 14.3 as at the Drawdown Date is true and correct in all material respects and is neither misleading nor deceptive in any material respect as at the date of the relevant Drawdown Notice and at the relevant Drawdown Date as though it had been made on and as of that date (other than in the case of the representation and warranty referred to in clause 14.1(g) which is made with respect to the facts and circumstances existing on the date indicated on the relevant information, or, at the time the relevant information was provided, as applicable).

43. The representations and warranties are set out in cl 14.1. That clause relevantly provides:

Each Borrower Party (except in the case of (i) clause 14.1(i) and 14.1(v), in which case only the Parent, and (ii) clause 14.1(w), in which case each Borrower represents and warrants in relation to itself only and the Parent represents and warrants in relation to itself and each of its Subsidiaries) represents and warrants to the Lender in relation to itself, and the Parent represents and warrants in relation to each Guarantor (as if references in this clause 14.1 to "it" were references to that Guarantor), that:

(a)   …

…

(h)   (Accounts) the most recent Accounts of the Group and of the Relevant Group are a true, fair and accurate statement of their consolidated financial position as at the date to which they are prepared and disclose or reflect their actual and contingent liabilities;

(i)   (no material change) in the case of the Parent only, there has been no change in the Group's financial position since the end of the accounting period for its most recent Accounts delivered pursuant to clause 15.1 which constitutes a Material Adverse Effect;

(j)   …

(k)   (Event of Default) other than as notified pursuant to an obligation to do so under the Transaction Documents no Event of Default or (except when this representation is repeated) Potential Event of Default, has occurred or continues unremedied;

…

(m)   (solvency) it is solvent and at each Drawdown Date, it will continue to be able to pay all its debts as and when they become due and payable;

…

44. “Accounts” is defined in cl 1.1 to mean “consolidated balance sheet, income statement, cash flow statements and statements, reports (including, without limitation, any directors’ reports and auditors’ reports) and notes, if any, attached to, or intended to read with any of them prepared in accordance with Australian Accounting Standards”.

45. Clause 14.3 relevantly states:

Representations and Warranties Repeated

Each representation and warranty in this Agreement except the representations and warranties set out in clause 14.1(j), (l), (u) and (v) is repeated, with reference to the facts and circumstances existing at the time on each Drawdown Date …

46. “Drawdown Date” is defined to mean “a date on which a Drawing is or is to be made pursuant to a Drawdown Notice”.

47. Clause 15 requires Arrium to give the Lender the audited consolidated annual accounts for the Group as soon as possible after the annual balance date (and at the latest 120 days after that date) and the unaudited consolidated semi‑annual accounts for the Group as soon as possible after the first half year of their financial year and at the latest 90 days after the end of that half year. Clause 15.2 states that the accounts must be prepared and, if applicable, audited by a suitably qualified accountant in accordance with the Australian Accounting Standards. Clause 15.1(d) requires Arrium to give to a Lender “within fourteen days after a request by the Lender, such other financial information as the Lender may reasonably require”.

48. Clause 16 sets out certain undertakings given by each Borrower Party, including an obligation under cl 16.1(g) that it “will ensure that guarantees in favour of the Lender are in place from the Parent and its Material Subsidiaries (other than a Borrower) at all times”. Under cl 16.1(j) each Borrower Party undertakes that “it will not create or allow to exist … a Security Interest over any of its … assets other than a Permitted Security Interest”. “Permitted Security Interest” is defined to include a Security Interest existing or created with the prior consent of the Lender or a Security Interest that does not secure monetary obligations with a total value of more than 5 percent of Arrium’s Total Assets from time to time.

49. Clause 16.2 provides:

Subject to clause 16.3 the Borrowers undertake to the Lender as follows:

(a)   (gearing) they will ensure that the ratio of Consolidated Net Financial Indebtedness to Consolidated Net Financial Indebtedness plus Consolidated Net Worth will not exceed 0.55 to 1.00 at any time; and

(b)   (Interest Cover on 12 month rolling basis) they will ensure that the ratio of EBITDA to Debt Service for any rolling 12 month period ending on a Reporting Date will exceed 3.35 to 1.00.

50. Clause 17.1 relevantly states:

Events of Default

Unless waived by the Lender, each of the following is an Event of Default (whether or not it is in the control of the Group):

(a)   …

…

(c)   (representations and warranties) a representation and warranty given by an Obligor [that is, Arrium, a borrower or a guarantor] in a Transaction Document is untrue, incorrect or misleading in a material respect when made or deemed to be repeated, the consequences of which the Lender (acting reasonably) considers constitutes a Material Adverse Effect and such consequences are not remedied within 15 Business Days of receipt of notice from the Lender requiring such remedy;

…

(i)   (material adverse change) a change occurs in the financial condition of the Relevant Group, or a change occurs in the whole or a major part of Business Operations of the Relevant Group, which constitutes a Material Adverse Effect (and the situation is not remedied within 15 Business Days of being required to do so by notice from the Lender);

…

51. “Material Adverse Effect” is defined in cl 1.1 to mean “any thing which has a material adverse effect on a member of the Relevant Group's ability to perform the obligations under a Transaction Document”. “Business Operations” is defined to mean “the production, manufacture, recycling, distribution and sale of iron ore, mining consumables, steel and related products, building and construction materials and other materials being recycled, and such activities as may be related or ancillary thereto”. “Potential Event of Default” is defined to mean “any event, thing or circumstance which with the giving of notice, the passage of time, or both, would become an Event of Default”.

52. Clause 17.2 provides:

Effect of Event of Default

(a)   If an Event of Default occurs, the Lender may by notice to the Borrowers:

(i)   declare that the Amount Owing is:

(A)   due and payable on demand; or

(B)   immediately due and payable;

(ii)   cancel the whole or any part of the Commitment with immediate effect; or

(iii)   do both (i) and (ii) above.

(b)   On receipt of a notice under paragraph (a)(i), each Borrower must immediately pay the Amount Owing (including the Principal Outstanding) to the Lender.

53. Clause 30.6(b) provides:

The rights, Powers and remedies provided to the Lender in the Transaction Documents are in addition to, and do not exclude or limit, any right, power or remedy provided by law.

54. Clause 31.7 provides:

Authorised Officers and communications

Each Borrower Party irrevocably authorises the Lender to rely on:

(a)   a certificate by any person purporting to be a director or secretary of the Borrower Party as to the identity and signatures of its Authorised Officers. Each Borrower Party warrants that those persons have been authorised to give notices and communications under or in connection with the Transaction Documents; and

(b)   any notice or other document contemplated by any Transaction Document which bears the purported signature (whether given by facsimile or otherwise) of an Authorised Officer of the Borrower Party.

55. “Authorised Officer” is defined in cl 1.1 to mean:

(a)   in the case of a Borrower Party, any person from time to time nominated as an Authorised Officer by that Borrower Party by a notice to the Lender and in respect of which:

(i)   the identity of that person has been verified to the Lender's satisfaction in order to manage the Lender's anti-money laundering, counter-terrorism financing or economic and trade sanctions risk or to comply with any laws or regulations in Australia or any other country; and

(ii)   the Lender has not received notice of revocation of the appointment;

…

56. Schedule 3 of the agreement is in the following terms:

Drawdown Notice

(Clause 6)

BORROWER'S LETTERHEAD

To:   [name and address of Lender]

Attention:    [   ]

We refer to the Facility Agreement dated [   ] 2014, as amended from time to time (Facility Agreement).

Under clause 6 of the Facility Agreement:

1.   We give you irrevocable notice that we wish to draw down under the Facility Agreement on [  ] 20[   ] (Drawdown Date).

Note: Drawdown Date must be a Business Day - see clause 6

2.   The aggregate principal amount to be drawn is [   ].

3.   Particulars of each Drawing required are as follows:

Amount	Interest Period
[  ]	[  ]

Note: Amounts to comply with clause 7.2. Interest Periods to comply with clause 8.

4.   [If not a Rollover Drawing] We request that the proceeds of each Drawing be remitted to account number [  ] at [  ] [insert alternative Instructions, if required].

[If a Rollover Drawing] We request that the proceeds of this/each Drawing be applied to repay the Drawing[s] made pursuant to the Drawdown Notice dated [x].

5.   We represent and warrant that:

(a)   [(except as disclosed in paragraph (c)] the representations and warranties in the Facility Agreement which are required to be repeated under clause 14.3 are true as though they had been made at the date of this Drawdown Notice and the Drawdown Date specified above in respect of the facts and circumstances then subsisting (except for the representation and warranty in clause 14.1(g) which is repeated with reference to the facts and circumstances existing on the date indicated on the relevant information, or, at the time the relevant information was provided, as applicable);

(b)   [(except as disclosed in paragraph (c)] no Event of Default [or Potential Event of Default] [1] is subsisting or will result from the provision of the Drawing(s); [and]

1. Wording in square brackets not to be included in any Drawdown Notice for a Rollover Drawing.

(c)   [details of the exceptions to paragraphs (a) and (b) are as follows:

[   ],

and we [have taken][propose] the following remedial action:

[   ].

We acknowledge that inclusion of a statement under paragraph (c) will not prejudice the rights of the Lender under the Facility Agreement.

Expressions defined in the Facility Agreement have the same meaning in this Drawdown Notice.

Dated:

For and on behalf of [*]

…………………………….

Authorised Officer

Name:

Title:

57. As I have mentioned, there are two respects in which a facility agreement is said to be materially different from the Morgan Stanley Facility Agreement. First, as already referred to, cl 18.1(i) of the 2013 SFA, dealing with representations and warranties, states the no material change representation in these terms:

(no material change) in the case of the Parent only, there has been no change in the Group’s financial position since 31 December 2012 which constitutes a Material Adverse Effect

58. Second, in the case of the BBVA Facility Agreement, the pro forma Drawdown Notice set out in Schedule 3 refers to cl 13.2 (the equivalent of cl 14.2 of the Morgan Stanley Facility Agreement) rather than cl 13.3 of the agreement (the equivalent of cl 14.3 of the Morgan Stanley Facility Agreement). Clause 13.2 of the BBVA Facility Agreement and cl 14.2 of the Morgan Stanley Facility Agreement contain representations in a relation to a trust. The Drawdown Notice provided to BBVA on 10 February 2016 followed accurately the form of Schedule 3 and referred to cl 13.2. The reference to cl 13.2 is plainly the result of a typographical error. Clause 13.3 of the BBVA Facility Agreement is the clause that requires representations to be repeated. Clause 13.2 does not. Consequently, when Schedule 3 of the BBVA Facility Agreement refers to “the representations and warranties in the Facility Agreement which are required to be repeated under clause 13.2”, it must be read as referring to the representations and warranties required to be repeated under cl 13.3. The actual notice must be read in the same way.

59. It can be seen from the provisions referred to that relevantly the structure of the facility agreements is that the Borrowing Parties and the Parent make certain representations which are contained in cl 14.1 of the Morgan Stanley Facility Agreement. The MAE Representation is made by Arrium alone. The other relevant representations are made by each Borrower in respect of itself and by Arrium in respect of itself and each member of the Arrium Group. The No Event of Default Representation extends to cover Potential Events of Default when the representation is first made (on entry into the agreement), but not on other occasions. Under cl 14.3 and its equivalents, the representations are repeated at the time of each Drawdown Date – that is, the date at which money is advanced or rolled over pursuant to a Drawdown Notice or a Rollover Notice.

60. Under cl 4.2 and its equivalents, it is a condition precedent to each drawdown (but not rollover) that (1) no Event of Default or Potential Event of Default is subsisting; (2) the representations made by virtue of cl 14.3 are true and correct and not misleading nor deceptive. Under cl 17.1(c) and its equivalents, unless waived by the Lender, it is an Event of Default if (1) a representation is untrue, incorrect, misleading or deceptive in a material respect; (2) the Lender reasonably considers it to have a Material Adverse Effect and gives notice to that effect; and (3) the consequences are not remedied within 15 Business Days. If an Event of Default occurs, the Lender may terminate the facility and demand repayment of the total amount owing. It is also an Event of Default if there is a change in the financial condition of the Group, or a change in the whole or a major part of Business Operations of the Group, which constitutes a Material Adverse Effect and the situation is not remedied within 15 Business Days after being required to do so by the Lender.

61. The representations made by the agreements are repeated in the Drawdown Notices. However, the representations made by the Drawdown Notices are made both at the time of the notice and at the time of the Drawdown Date. More significantly, in the case of new drawings (but not rollovers) a representation is made by the notice that there is no Potential Event of Default subsisting. That representation mirrors the condition precedent included in cl 4.2(b) and its equivalents.

Factual background

Proposal for Strategic Review

62. In about June 2015, as part of its strategy, budget and business planning process, Arrium commenced work on a strategic review to assess the options available to it to address its debt position (the Strategic Review). The Strategic Review occurred against a backdrop of a rapidly declining “spot” price for iron ore in early 2015 and the fact that approximately $1.125 billion of Arrium’s debt was due to mature in the period from July 2017 to December 2017 and the balance was due to mature between July 2018 and July 2023. In connection with the Strategic Review, Arrium engaged UBS and Lazard to advise it on available options and strategies.

63. The Arrium board met for two days on 18 and 19 May 2015. At that meeting, the board considered the FY16 Budget and Plan, which included a budget for the financial year and a five-year business plan. At the same meeting, Mr Roberts presented a paper setting out the strategic options available to the company. The paper (dated 13 May 2015) provided the following background in relation to the review:

Arrium’s net debt as at the end of April 2015 was $2.0B, equivalent to 6.2x the latest draft May forecast underlying EBITDA for FY15 of $326M. The draft May forecast has net debt in a range of $1611-1771M as at 30 June 2015 (4.9-5.4x FY15 forecast underlying EBITDA), which is $180-340M higher than 31 December 2014 largely due to negative operating cash flow and $110-130M due to lower period end FX. Further restructuring of the Mining business is needed and will reduce the cash drain of this business on the Group in FY16 if iron ore prices remain at current levels. Iron ore prices are expected to remain volatile over the next 18 months, but are considered unlikely to significantly increase from current levels.

Even with the improved cash position from further restructuring of the Mining business, based on the draft Budget and Business Plan the Group is not expected to generate any significant cash to pay down debt in the next 18 months, absent asset sales. Interest cover is expected to be close to covenant levels at 30 June 2015 and 31 December 2015 and is then forecast to improve under the draft Budget & Business Plan as Steel earnings improve.

The company is in the final stages of finalising a $200M refinancing of a $370M syndicated facility expiring in July 2016, however, the process has been extremely difficult. A larger syndicated and bilateral facilities of ~$900M is due to become current in July 2016 and lenders have indicated that refinancing this will be a challenge if the company is unable to proceed with its current refinancing strategy to in part refinance this facility through an Asian subordinated debt issue and business cash flows do not improve. The subordinated debt market is currently closed to Arrium due to the decline in iron ore prices and it remains uncertain if and when this market might reopen. [footnotes omitted]

64. The paper set out the following options to deal with Arrium’s future-maturing debt:

•   Asset sales – Sell Steel or Mining Consumables. A sale of Mining is not considered feasible at present given its cash negative position at current prices.

•   Refinance – Renegotiate existing facilities on a secured basis for extended tenor/reduced covenants and/or refinance existing facilities through markets for sub-investment grade debt (eg Term Loan B).

•   Recapitalise – Seek funds from existing shareholders or seek new shareholders.

•   Debt Restructuring / Work-out – Engage with lenders and negotiate a work-out plan under which a plan is agreed to pay-down debt (in time).

The paper identified the sale of Mining Consumables (which became known as Project Columbus) as the preferred option. It recommended that before the June 2015 board meeting, UBS and Lazard be appointed as financial advisers in relation to the potential sale and that Arrium start preparatory work for the sale.

65. Also included in the board papers was a memorandum dated 12 May 2015 prepared by Mr Bakewell in relation to the funding plan and a paper prepared by Grant Samuel, who had been retained by Arrium to give advice on debt restructuring options (which became known as Project Archer). That paper stated:

In the absence of a material improvement in its credit standing achieved through substantial deleveraging in the immediate term, we do not believe Archer [that is, Arrium] will be able to refinance its existing debt volume under its current capital structure.

Grant Samuel recommended that Arrium agree to provide security for its debt and seek to establish a multi layered capital structure. The proposal that Arrium offer security to Lenders in exchange for reduced financial covenants and an extension in its facilities became known as an “Amend and Extend” proposal.

66. In a further memorandum prepared by Mr Roberts in relation to Project Columbus, Mr Roberts set out an overview of the key considerations and planning for a potential divestment of the Mining Consumables business. That paper observed that “Based on advice received from UBS and Lazard, Arrium Management expects the sale of Mining Consumables to deliver gross proceeds of A$1.7 - $2.2bn…”.

Strategic Review approved

67. The Arrium board approved the Strategic Review at a board meeting on 12 June 2015. In a memorandum to the board dated 8 June 2015, Mr Roberts explained the Strategic Review in these terms:

Key elements of the Strategic Review which will be progressed in parallel are:

•   a sale process for the Mining Consumables business to determine the achievable sale price (Project Columbus);

•   an internal review to develop plans for the Steel and Mining businesses on a standalone basis (Project Marco);

•   a process to engage lenders on the terms on which the company might move to a secured debt platform and subsequently refinance debt through US debt markets (Project Archer); and,

•   a broad program for engagement with key stakeholders regarding strategic options.

…

In addition to these planned proactive elements of the Strategic Review, Arrium will be prepared to respond to inbound enquiries, including from parties interested in Steel, Mining or the whole of Arrium. The appropriate response to such parties will depend on the nature of the interest expressed. However, the general approach will be to seek sufficient details from the inbound enquirer of the nature of their interest, key components of their approach, and potential hurdles to enable an assessment to be made of both potential value and executability.

…

68. The memo contemplated that the three identified projects would occur in parallel and that the following preparatory steps would be taken in June and July 2015:

COLUMBUS

•   Vendor due diligence

•   IM preparation

•   Transaction structuring

•   Buyer identification

•   Pre-marketing

MARCO

•   Overheads review

•   Standalone financial modelling

•   Finalise restricting plans for Mining, OMC / ATM, Recycling (already underway)

•   Equity story for NewCo

ARCHER

•   Detailed feasibility review for granting security in return for covenant relief

•   Bank meetings and formal request issued – response received late July

•   Ratings review (Refi + NewCo)

STAKE-HOLDERS

•   Initial engagement regarding strategic options following strategic review announcement

69. The memo also contemplated that UBS and Lazard would be appointed to advise on Project Columbus and to provide assistance with Project Marco, that Grant Samuel and Lazard would advise on Project Archer and that Herbert Smith Freehills (HSF) would be appointed as legal advisers on the Strategic Review.

70. Arrium investigated a number of other proposals during the course of the Strategic Review. Some are mentioned later in this judgment. Others included (1) Project Chess, which involved the partial investment in or full acquisition of the Arrium Group’s steel business by Brookfield and which had been on foot before the commencement of the Strategic Review; (2) Project Green, which involved discussions with Asia Pacific Resources Development (APRD) about a takeover of Arrium by that entity; and (3) Project Blue, a proposal by a group of Korean institutional investors initially to takeover Arrium and then to recapitalise it. Ultimately, those projects came to nothing; and it is not suggested that their existence or the work done on them are relevant to the outcome of these proceedings. For that reason, they are not discussed further in this judgment. Similarly, during the course of the Strategic Review, Arrium had discussions with the Commonwealth and South Australian governments about the future particularly of its steel business in Whyalla. But again, the nature and outcome of those discussions are not said to be relevant to the issues in these proceedings. They, too, are not dealt with further in this judgment.

71. On 15 June 2015, Arrium announced its Strategic Review publicly. The announcement stated that “The review includes an assessment of options for achieving an appropriate structure and level of debt. This will include the potential divestment of significant assets or businesses.”

Meetings with Lenders in relation to Project Archer

72. After the announcement of the Strategic Review, one or more of Mr Bakewell, Ms Sparkes and Ms Pearce spoke to the Lenders about whether they would participate in a further refinance. According to evidence given by Ms Sparkes, she attended a meeting with representatives of one or another of the Lenders a couple of times a week. The meetings were usually with Mr Bakewell, sometimes Mr Bakewell and Ms Pearce and occasionally with Ms Pearce alone.

73. PowerPoint presentations were also given to the Lenders in July 2015. The presentation described Project Archer in these terms:

Stage 1

▪   Arrium offers senior lenders general security over its assets

•   Lenders are elevated in the capital structure ahead of all other unsecured creditors

•   Credit position of lenders significantly improved

▪   Arrium in return requests from lenders

•   A revised covenant package

–   Interest Cover > 2.0x

–   Gearing < 60%

•   Extension of the July 17 maturities to July 19

Stage 2

▪   The revised covenant package obtained during Stage 1 allows Arrium to pursue a debt capital markets issue on a 2nd ranking or unsecured basis with net proceeds being used to repay debt

▪   Arrium is proposing a comprehensive security package comprising general security over its present and future acquired property in the following jurisdictions:

•   Australia

•   Hong Kong

•   United Kingdom

•   United States

•   Canada

▪   Lenders will have an indirect security interest over MolyCop South America through UK Holdco

▪   Security held by security trustee and enforcement controlled by the Banks and USPP noteholders

Board meeting on 18 August 2015

74. There was a board meeting on 18 August 2015. Included in the board papers was a memorandum prepared by Mr Roberts providing an update in relation to the Strategic Review. The update attached a presentation prepared by Lazard entitled “Evaluation Framework – Working Draft for discussion”. That presentation identified three possibilities in relation to Project Columbus. One was that Arrium received indicative bids for Mining Consumables on the high side (in excess of $2 billion), which it is said would create shareholder value. A second was that the indicative bids were unattractive (below $1.5 billion). A third was described as a “grey zone” where there was limited interest from strategic bidders (who were expected to be willing to pay more), where some bids may appear attractive but where Arrium could only be confident of receiving $1.6 billion to $1.8 billion based on the interest of “sponsors” – that is buyers who intended to buy Mining Consumables with a view to resale in the medium term (five to seven years) and who, most likely, would depend on borrowings to acquire the business. That led to three possibilities. One was that Marco (that is, the remaining business) remained viable and attractive. The second was a “Marco Grey Zone”, where the remaining business was viable on a base case but unattractive on a downside case. The third was where Marco was unviable or unattractive even on the base case.

75. At the meeting on 18 August 2015, the board also considered and approved Arrium’s accounts for the financial year ending 30 June 2015 (FY15). Those results were released to the market the following day. They indicated that total revenue for ordinary activities was $6,085,600,000 ($7,006,600,000 in FY14), that the statutory loss after tax for the year was $1,918,200,000 (compared to a profit of $205,500,000 in FY14 and a loss of $316,300,000 for the 12 months up to 31 December 2012) and that the underlying loss from ordinary activities after tax for the year was $6,700,000 (compared to a profit of $296,300,000 in FY14 and a profit for the 12 months up to 31 December 2012 of $169,200,000). The results also disclosed net assets of $2,554,900,000 (down from $3,730,900,000 as at 30 June 2014 and from $3,833,700,000 as at 31 December 2012). The statutory loss in the last twelve months (LTM) to 31 December 2012 included impairment charges of $469,900,000. The statutory loss of $1,918,200,000 included impairment charges of $1,410,500,000, which primarily related to the impact of low iron ore prices on the Mining business and the mothballing of Southern Iron, one of Arrium’s businesses.

Project Archer put on hold

76. There was a meeting of the board on 21 September 2015. A further meeting to discuss the Strategic Review was scheduled for 28 September 2015. However, much of the material in relation to the Strategic Review was contained in the board papers for the meeting on 21 September 2015. Included in those papers was a memorandum from Mr Bakewell reporting on discussions with the banks. Mr Bakewell said:

Since the August Board we have continued to engage with our banks on Project Archer, including in relation to the changes to the proposal that were put to the August Board. Feedback from the banks has been mixed. There is general support for the relaxation of the ICR covenant in exchange for the grant of security with the concept of a two-stage step down in the ICR covenant receiving a high level of acceptance.

However, there has been wide spread resistance to the request for an extension of facilities out to 2019 with BNP and BBVA rejecting this proposal outright. Other banks have been prepared to consider the maturity extension but only in conjunction with the imposition of further conditions / constraints (refer to the attached paper from Grant Samuel for a summary of the position of each bank).

There has also been a change in the nature of the engagement from a number of the banks over the past month, led by the 4 domestic banks. Lenders continue to express the view that Arrium needs to significantly deleverage its balance sheet and several have now advised that, due to the timing of Project Columbus, they would prefer to wait until the outcome of that process is known before re-engaging on Project Archer. This was identified as a possibility in running the Archer and Columbus projects in parallel.

As a result it is unlikely we will be able to execute Stage 1 of Project Archer prior to the 28 September Board Meeting. We will continue to engage with the banks, generally on a reactive basis, at least until the outcome of Stage 1 of Project Columbus is known. At that point we will need to reassess whether and on what basis we re-engage with the banks on Project Archer and other considerations.

Mr Bakewell added that in order to keep the refinancing options open “we continue to work on the steps required to undertake an issuance of a 144a high yield bond”.

77. Arrium ultimately terminated Grant Samuel’s engagement in relation to Project Archer effective 31 October 2015. The letter terminating the engagement stated:

Arrium has decided not to progress Project Archer as the contemplated transaction was not able to be achieved.

Developments in relation to Project Columbus

78. By 25 September 2015, Arrium had received 11 indicative bids for Mining Consumables as part of the Project Columbus process. Those indicative bids ranged from approximately $1.47 billion to $1.972 billion (USD1.043 billion to USD1.4 billion). The indicative bids were discussed at the board meeting on 28 September 2015. The minutes of that meeting record:

The Board NOTED the memo from UBS/Lazard dated 28 September 2015 and verbal update from Kelvin Barry [from UBS] and Daniel Kleijn [from Lazard]. The Board noted the recommendation from UBS and Lazard that the company proceed to Stage 2 of the Columbus sale process and that there were good prospects of achieving sale proceeds of at least US$1.35B.

79. In a paper prepared by Lazard and UBS for that meeting, they also advised that “On the above basis and assuming the current economic environment does not further deteriorate, Marco would be a viable standalone entity”.

ANZ exercises review rights

80. On 9 November 2015, ANZ informed Arrium that it would be sending Arrium a notice under the review provisions of the facility offer letter. That notice was sent the following day. It stated that ANZ intended to exercise its review rights by reducing a number of the facilities it provided to Arrium. That led to negotiations between Arrium and ANZ which culminated in Arrium providing cash collateral of $61.7 million in order to maintain its transaction facilities with ANZ while it developed a plan for replacing ANZ as its transactional banker.

Project Polo

81. On 13 November 2015, Arrium representatives met with Ernst & Young (EY) to discuss having EY undertake a “limited scope” review in relation to Arrium Group’s cash flow forecasting processes and liquidity management (which became known as Project Polo). The final engagement letter for that work was signed on 30 November 2015. In late December 2015, the scope of EY’s work was expanded to include working with Arrium’s Group Treasury on the production of a 13 week forecast, which became known as Project Polo II.

Revised forecast for FY16

82. There was a board meeting on 17 November 2015. Included in the board papers for that meeting was a revised forecast for FY16. The revised forecast included adjustments to a number of key external assumptions, including the AUD:USD exchange rate and the prices for iron ore, scrap metal and steel. In accordance with Arrium’s usual practice, the assumptions were generally taken from CRU, a well-known business intelligence company headquartered in London that focuses on global mining, metals and fertilizer markets and that produces short, medium and long-term analysis for major commodities. At the time, the iron ore price was taken from the S&P Platts index, which is a well-recognised source of pricing information in metals commodity markets. Arrium continued to use assumptions based on forecasts made by CRU up until the beginning of 2016, when Arrium adopted a forecasting methodology based on a basket of forecasts following a change in methodology used by CRU.

83. The forecast for FY16 included anticipated savings of approximately $60 million from Project Marco together with associated restructuring costs of approximately $17 million and a provision for asset sales (other than Mining Consumables).

84. The forecast indicated that full year underlying EBITDA was $33 million unfavourable to budget. It included the following explanation:

•   Mining Consumables $18m unfavourable, lower mining activity across most regions are impacting Grinding Media volumes in addition to unfavourable movements in CRUspi and scrap. SG&A and FX are providing some favourable offset.

•   Steel $12m unfavourable, volume 30kt unfavourable driven by lower Structurals partially offset by Rebar, lower margins driven by SE Asian prices, partially offset by cost initiatives.

•   Mining $24m unfavourable driven by Platts price ($1.6/dmt unfavourable), recovery (1.1% unfavourable), freight and Pellet costs, partially offset by cash costs ($1.2/wmt favourable) and FX.

•   Recycling $8m unfavourable driven by Ferrous and Non Ferrous volumes and prices, partially offset by cost savings.

•   ATM $8m favourable driven by increased volume (10% favourable) and reductions in coil prices (primarily in H1).

•   Corporate $20m favourable driven by Project Marco benefits and FY15 STIP write back.

85. The full year operating cash flow before tax of $74 million was $78 million unfavourable to budget. The difference was explained in the following terms:

•   Cash Working Profits is $111m unfavourable driven by underlying EBITDA and $66m of additional non underlying costs (Project and restructure costs in Corporate and Steel).

•   Working capital cashflows are $43m favourable driven primarily by Mining Consumables and Steel balances impacted by lower volumes and prices.

•   Capital Expenditure is $9m unfavourable due to additional Stripping activity in Mining.

•   Asset Sales are in line with Budget.

86. The summary also stated:

•   Net Debt at Dec 2015 of $2,015m is $135m unfavourable to Budget driven primarily by Operating cash outflow. At Budget FX rates Net Debt at Dec 2015 would be $1,958m.

562. As to the assumption that in the hypothetical administration Arrium would not have needed to draw down on any debt after 31 December 2015, the BOC Plaintiffs submit that it is clear that it would not have needed to do so. They point out that Arrium had cash of $303.6 million as at 31 December 2015. According to evidence given by Ms Wright, in a hypothetical administration Arrium would have experienced a trading result somewhere between a profit of $2.4 million and a loss of $57.3 million. On the other hand, they say that the administrators would have collected a further approximately $200 million from debtors during the administration – which is the equivalent cash collected by the administrators between 7 April 2016 to November 2016. Moreover, they say that the amount of $597 million paid to trade creditors between 1 January to 31 March 2016 and the interest paid to Lenders would not have been paid. The BOC Plaintiffs submit that it is plain from those figures that there would have been sufficient cash available for the administration. They also say that Mr Samuel and Mr Potter conceded as much when giving oral evidence.

563. In my opinion, the position is not as clear as the BOC Plaintiffs claim that it is. Mr Samuel and Mr Potter said that they had not considered the issue in detail. The difficulty with the BOC Plaintiffs’ analysis is that they use the position as at 31 December 2015 as a proxy for the position as at 7 January 2016. However, 31 December 2015 is not a good proxy for the position as at 7 January 2016 because of the reporting initiatives undertaken by Arrium at year end to reduce debt. As Mr Potter explains in his report, one step Arrium had taken was to sell its accounts receivables under a factoring facility which resulted in the large cash at bank balance at 31 December 2015 of $303.6 million. As a result, it cannot be assumed that the administrators in the hypothetical administration would have been able to collect the same amount in trade debtors as was collected in the actual administration. Moreover, as Mr Halligan points out, Arrium deferred paying trade creditors in the amount of $189.7 million. It cannot be assumed that those trade debtors remained unpaid as at 7 January 2016. I accept, however, that the likelihood is that any additional borrowing would have been relatively small and is unlikely to have had a material effect on the damages calculation.

564. The assumption that Arrium would have gone into voluntary administration at the beginning of 2016 but for the impugned conduct and the assumption that Arrium would have been able in the hypothetical administration to sell its assets and business for the same price as it obtained in the actual administration are both critical to the conclusions reached by Mr Halligan and Ms Wright. Neither assumption has been made out. For that reason alone, the conclusions of Mr Halligan and Ms Wright cannot be accepted and the plaintiffs have failed to prove their loss based on a case that Arrium would have gone into administration at the beginning of January 2016 but for the defendants’ breaches of duty. It is, therefore, unnecessary to consider Mr Halligan and Ms Wright’s evidence in any detail. I should, however, say something about some of the issues raised by Mr Potter and Mr Samuel in relation to that evidence which were the subject of submissions.

Other issues relating to the calculation of the loss

571. Both Mr Potter and Mr Samuel accept the general approach taken by Mr Halligan and Ms Wright, which involves making adjustments to the actual position to arrive at the hypothetical position. However, they take issue with a number of those adjustments, and a great deal of evidence was devoted to the question of what adjustments should be made in circumstances where all the experts conceded that the available evidence did not allow for precise calculations and required estimates and assumptions to be made. The analysis was complicated by the fact that major changes occurred to Arrium’s financial position between 31 December 2015 and 7 April 2016, not least because of the unwinding of the reporting initiatives and the drawing down of approximately $372 million in impugned debt.

572. Standing back from the detail, however, several observations can be made. First, it is not suggested that between 31 December 2015 and 31 March 2016 (which was used as a proxy for 7 April 2016, since precise figures were known for the earlier but not the later date), Arrium made substantial losses. Mr Samuel says in evidence that it made a small cash operating profit, which Mr Halligan says was $8.6 million. Ms Wright records it as making a trading loss of $16.9 million, but, if correct, that is not significant in the scheme of things. Accordingly, it cannot be said that the Lenders were substantially worse off because Arrium incurred trading losses over the three months. It seems likely that if Arrium had gone into administration three months earlier, some cost savings would have been made. There was, however, no real evidence of what those savings would have been or how they should be determined. Mr Potter, when giving oral evidence, suggested that they could be as much as $60 million, but that figure must be understood as an allowance that he was prepared to make for the purposes of the calculations under consideration rather than a considered estimate of the losses. Moreover, it is unclear whether Arrium would have earned the same income as it did if it had been under administration. That issue was not the subject of considered evidence from any expert. Mr Halligan does point to the fact that in the first six months of the administration, the administrators earned a cash profit of $155.5 million, which equates to approximately $26 million per month. However, it is important to bear in mind that, in calculating that profit, the administrators were not liable for past expenses.

573. Of critical importance is the fact that the Lenders did advance the additional $372 million and ultimately received dividends of approximately 80 cents in the dollar in its place. The Lenders were obviously worse off to the extent that they did not recover the full amount of the drawdowns. However, the Anchorage Plaintiffs make a separate claim in respect of that loss. They were also worse off to the extent that the total pool of provable debts increased as a result of those additional advances. But in the case of the Anchorage Plaintiffs, that increase would be limited to advances made by the BOC Plaintiffs, since, as I have said, to the extent that it includes advances made by Lenders in respect of whom the Anchorage Plaintiffs make a claim, the relevant losses are claimed separately. On the other hand, it might be thought that in the actual compared to the hypothetical world the Lenders were better off because the pool of assets from which dividends were payable had been increased by the $372 million. Of course, it is not that simple, since much of the $372 million was not kept in cash but used in Arrium’s business. It is unclear how it was used but it is reasonable to infer from an analysis undertaken by Mr Potter that it was largely used in paying trade creditors and investing in the business. As a result, trade creditors were reduced (resulting in a higher dividend for remaining creditors than would otherwise have been paid) and it is likely that the value of Arrium’s businesses were increased or at least costs were incurred that would have been incurred by the administrators in the hypothetical administration. In any event, in my opinion it was for the plaintiffs to prove that some or all of the $372 million was wasted as part of proving their loss, since it was for the plaintiffs to prove the likely outcome of the hypothetical administration. Although framed somewhat differently, much of the debate between the experts turned on these issues.

574. Mr Potter and Mr Samuel say that, to the extent that the $372 million was used to pay trade creditors, it is already taken into account in the models they rely on since, as Mr Samuel explained, “the actual distribution rates capture actual creditors and the hypothetical distribution rate captures hypothetical creditors, best estimates of those figures”. However, according to Mr Potter and Mr Samuel, that leaves an amount of approximately $260 million. Mr Potter treated that amount as an increase in asset values comprising two parts. One was a change in cash debtors and inventory (excluding Mining Consumables assets) totalling $127.6 million. The other was items of expenditure over the period totalling $132.9 million comprising capital investment expenditure and other items which were largely transaction and restructuring costs. However, he was prepared to concede that that figure should, perhaps, be reduced to $200 million to allow for savings that the administrators would have been able to achieve in the event of an earlier administration. Mr Halligan makes no adjustment for that amount in his calculations for two reasons. First, he says that there is insufficient information to be able to do so. Second, he says that there are two off-setting items. One is based on the idea that the hypothetical administration could have lasted three months longer and the administrators would have earned a profit during that time, consistently with the profit they earned in the first six months. The other is based on the unwinding of the reporting initiatives.

575. Three points may be made about Mr Halligan’s response. First, as I have explained, absent any evidence, it is reasonable to infer that the $372 million was used productively in the business (including by paying creditors). The onus was not on the defendants to prove that it wasn’t. Second, there is no reason to assume that the hypothetical administration would have lasted longer than the actual one. In my opinion, it is reasonable to assume, absent some evidence to the contrary, that the hypothetical administration would have been conducted in the same way as the actual administration and that steps taken in the administration would have taken the same length of time. Third, it is not easy to understand Mr Halligan’s point about the reporting initiatives. The point appears to be that the reporting initiatives included deferring the payment of $189.7 million of accounts payable until after 31 December 2015, when they were subsequently paid. Consequently, in the actual world, those accounts payable were paid and there was a corresponding reduction in Arrium’s assets. On the other hand, in the counterfactual world, those accounts payable would not have been paid and the $189.7 million would have been available for distribution between creditors. I do not accept that analysis. The important comparison was between the position at 31 December 2015 with the position at 7 April 2016. The unwinding of the reporting initiatives was reflected in the position at 7 April 2016. To make a further allowance for it would involve double counting.

576. For those reasons, I am not persuaded that the Financier Creditors would have been better off if Arrium had gone into administration on 31 December 2015 (once they are compensated for losses suffered in respect of the impugned drawdowns), even on the assumptions made by Mr Halligan.

577. The position is not as clear in the case of the BOC Plaintiffs. Unlike Mr Halligan, Ms Wright accepted that any analysis of the BOC Plaintiffs’ loss must take into account any benefits arising in the actual world from the fact that Arrium received the impugned drawdowns. Like Mr Potter, she sought to assess those benefits by looking at changes in Arrium’s working capital between 31 December 2015 and 31 March 2016. Ms Wright assumed that Arrium’s cash balance as at 7 April 2016 was $125 million and on that basis she calculated that there was, in fact, a decrease in working capital between 31 December 2015 (as a proxy for 7 January 2016) and 31 March 2016 (as a proxy for 7 April 2016) of $30.3 million. That is, according to her, as a result of movements in working capital there was an additional $30.3 million available to be distributed in the hypothetical world. In reaching that conclusion, she made an adjustment of $70.6 million for additional creditors at the earlier date. She did not make any adjustment for capital investment expenditure and the other items which Mr Potter identified as being largely transaction and restructuring costs, on the basis that there was no evidence that they contributed to an increase in the value of Arrium’s assets. Set out below is a table taken from a spreadsheet prepared by Ms Wright comparing her position with that taken by Mr Potter in relation to working capital adjustments:

Wright	Potter
Cash and cash equivalent		178.6	8.2
4 January Drawdowns		58.3
Debtors		(179.2)	(178.8)
Inventory		43.2	43.0
Creditors		(70.6)
Total working capital movements		30.3	(127.6)
Capital and investment expenditure		(55.9)
Other Potter items		(69.2)
Asset sales		2.5
Tax payments		(10.3)
Potter assumed lower value		30.3	(260.5)

578. In their final written submissions, the BOC Plaintiffs accept that Ms Wright’s figures understate the cash held at the date of administration and that the appropriate cash figure is $295 million. They also accept that if 31 December 2015 is used as a proxy for 7 January 2016, then it is not appropriate to include the 4 January 2016 drawdowns totalling $58.3 million, which results in an adjustment to Ms Wright’s figures of $228.3 million. On that basis, the BOC Plaintiffs accept that there should be a working capital adjustment of approximately $198 million, which is very close to Mr Potter’s suggested figure of $200 million. However, the components are different. Ms Wright’s figure includes a $70.6 million adjustment for creditors. Mr Potter and Mr Samuel were of the opinion that that involved double counting because, according to them, the movement in creditors was already included in the assumed distribution rates. On the other hand, Ms Wright makes no allowance for capital and investment expenditure or transaction and restructuring costs.

579. Having regard to the ultimate position of the parties in relation to the calculations and the conclusions that I have formed on the BOC Plaintiffs damages claim generally, there is little point in attempting to analyse the underlying disputes in any detail. It is sufficient to say that I prefer the approach of Mr Potter and Mr Samuel.

580. In my opinion, the approach taken by Ms Wright to capital and investment expenditure and transaction and restructuring costs has the effect of reversing the onus of proof. There can be no question that between 31 December 2015 and 5 April 2016, Arrium received $372 million that it would not have received in the hypothetical world. It is the BOC Plaintiffs’ case that that hypothetical world can be created by, in effect, working backwards from the actual world. In order to do that, it is necessary to subtract the $372 million. If the BOC Plaintiffs’ case is that it is not necessary to subtract the whole of the $372 million because part of it was wasted (in the sense that it did not lead to an increase in asset values and was not used to discharge a liability) then the BOC Plaintiffs bore the onus of establishing that was the case. They have not discharged that onus in relation to the contested items of expenditure.

581. As to the adjustment of $70.6 million to account for a reduction in creditors between 31 December 2015 and 31 March 2016, it was, as I have said, Mr Samuel and Mr Potter’s evidence that that involved double counting. It is not entirely clear from the evidence given on this topic whether that is true or not because it appears to depend on a detailed understanding of the way in which Ms Wright’s model works. However, Mr Potter and Mr Samuel state that it was taken into account in their models because they used the actual figures for creditors at the two dates, with the result that the actual and hypothetical distributions based on the total value of creditors at the relevant dates already accounted for the movement in creditors. That, it seems to me, is a logical approach. As Mr Potter pointed out in oral evidence, it seems odd to include a movement in creditors as representing a change in distributable assets when the creditors are not an asset and they are the persons making claims to distributions which in turn affect the amount distributable to the Financier Creditors.

582. There are some other minor differences between Ms Wright, Mr Potter and Mr Samuel. They only have a marginal effect on the calculation of damages and were not specifically addressed by the parties in their submissions. Allowing for those differences suggests a degree of accuracy in the overall calculations which does not exist. If it ever becomes necessary to determine the question of damages, further calculations and submissions will be necessary. Consequently, there is no point in addressing those issues in the present context. There are, however, several other issues raised by the BOC Plaintiffs about which I should say something.

583. One issue between the experts is what percentage premium should be applied to the Financier Creditors’ distributions to reflect the fact that the Financier Creditors received a higher distribution than other creditors in the actual administration. Mr Potter and Mr Samuel used the figure of 9.7 percent, which was the figure they agreed with Mr Halligan. Ms Wright used a figure of 9.0 percent, which had the effect of decreasing the damages slightly. On the available evidence there is no real reason for choosing one figure over the other. Consistently with the principle that the BOC Plaintiffs should not recover more than they claim, I would have chosen the figure adopted by Ms Wright.

584. Second, it is agreed between the experts that in determining the creditors as at 31 December 2015 it is necessary to increase the figure stated in the accounts to allow for the fact that the debts owing to a number of creditors crystallised on the appointment of administrators. Mr Potter uses the actual figure in the administration of $320 million. Ms Wright seeks to derive the percentage increase in the actual administration and applies that percentage to the known trade creditors to arrive at a figure of $294 million. Both methods involve estimates. Both have their advantages. Accordingly, I would have split the difference between the experts.

585. A third issue concerns the date on which amounts expressed in foreign currencies are converted into Australian dollars. The question to be determined is the difference in the position the BOC Plaintiffs are in with the position they would have been in under a hypothetical administration that occurred three months earlier. I have already indicated that unless there is a good reason for making a different assumption, it should be assumed that what happened in the actual administration would have happened in the hypothetical one three months earlier. Under the actual administration, debts were converted to Australian dollars on the date of the administration. No good reason has been advanced for assuming that a different result would have been reached in the hypothetical administration. Accordingly, it should be assumed that the same principle applies.

586. The last issue concerns discounting and interest calculations. Ms Wright discounts cash flows in the hypothetical and actual world at the risk-free rate to 31 December 2015 (which she takes to be the loss date) and then applies interest at Court rates to arrive at the damages payable to each Bank. I would not have applied that approach. In my opinion, it has the effect of artificially increasing the BOC Plaintiffs’ damages. In my opinion, a better approach is simply to allow interest on the actual and hypothetical cash flows from the dates the relevant amounts were or would have been paid and to calculate the loss as the difference between those amounts.

Contributory negligence and concurrent wrongdoer defences

587. As I have said, the defendants raise contributory negligence and concurrent wrongdoer defences. Having regard to the conclusions I have reached, it is neither necessary nor practical to express a view on these defences. In order to do so, it would be necessary to know the basis of the defendants’ liability. Accordingly, I do not deal with these issues in this judgment.

Mr Bakewell’s cross-claim against HSF

588. Mr Bakewell brings cross-claims against HSF in both proceedings. The cross-claims in both are similar. In each it is alleged that (1) HSF gave advice in relation to solvency on 18 December 2015 (the solvency advice) and advice in late December 2015 that Arrium should drawdown the remaining facilities and deposit the amount drawn down with a non-lender bank (the drawdown and deposit advice), which at no time was amended or withdrawn; (2) HSF owed Mr Bakewell a duty of care in relation to the advice that it gave; (3) if the plaintiffs succeed against Mr Bakewell, the advice was negligent and misleading and deceptive in contravention of s 18 of the ACL; (4) but for the advice, Mr Bakewell would not have engaged in the conduct which has visited liability on him; (5) accordingly, he is entitled to recover as damages from HSF the amount of his liability.

589. In my opinion, the cross-claims must fail for a number of reasons. It is convenient to deal with the solvency advice first.

590. It seems clear that the solvency advice was given. It had two aspects. First, there is the memorandum presented to the board which explains the legal test of solvency and which relevantly states that “A company will be insolvent now if it can be said with certainty, or practical certainty, that there is no way it will be able to deal with a debt falling due at some future date”. Second, there was the oral advice from Mr Nestel to the effect that (to quote from the minutes of the meeting) “there is not an insolvent trading issue at this time given the time until the Company’s next significant debt maturity and the work currently under way, but that given the Company is operating under different circumstances than it has been before, the board should consider receiving more regular information on liquidity”.

591. It is plain that the solvency advice is not relevant to the Anchorage Proceeding, since no allegation is made in that proceeding that Arrium was insolvent at any relevant time. The advice can only be relevant to the BOC Proceeding and the conduct alleged to have been engaged in by Mr Bakewell that is said to give rise to his liability in that proceeding. In substance, as the case was finally put, that conduct is that Mr Bakewell authorised the Drawdown Notices dated 9 and 10 February 2016. Consequently, Mr Bakewell’s case must be that he would not have authorised those notices but for HSF’s advice. Moreover, the BOC Plaintiffs claim that Arrium was insolvent at that time not because it could not pay its trade creditors as and when they became due. Rather, the case is that it could not pay its debt to the Lenders falling due in July 2017 and later. The case against HSF must be considered on the basis that that is the case that succeeds. Understood in that way, it is difficult to see how Mr Nestel’s oral advice could be relevant. That advice was plainly to the effect that Arrium was not insolvent in December 2015 because it had sufficient liquidity to pay its trade creditors but that going forward the position needed to be monitored more closely. Even assuming that having given that advice Mr Nestel came under some duty to inform the board (and Mr Bakewell) that circumstances had changed to the point where Arrium was no longer solvent, on the BOC Plaintiffs’ case the occasion for that advice never arose because there was no suggestion that Arrium became insolvent for that reason during the relevant period – that is, up until mid-February 2016.

592. Mr Bakewell’s case, therefore, must be that the real problem with HSF’s advice was with their legal analysis and, in particular, their test of “practical certainty” as applied to debts payable in the future. That was plainly a statement of legal opinion. To be actionable in negligence, it was necessary for Mr Bakewell to establish that HSF did not exercise reasonable care in forming or expressing the opinion. To be actionable under s 18 of the ACL, it would necessary to prove that HSF did not have a reasonable basis for the opinion: Bateman v Slatyer (1987) 71 ALR 553 at 559 per Burchett J. Mr Bakewell has made no attempt to establish either of those matters. For the reasons I have given, in my opinion, HSF’s advice was substantially correct. But even if that conclusion is wrong, it seems to me it was a conclusion that was reasonably open on the authorities. That is a fatal difficulty with the cross-claim.

593. Having reached that conclusion, it is unnecessary to deal with the other elements of Mr Bakewell’s case. I should, however, say something about the question of reliance and causation. The relevant hypothetical is one in which HSF would have given the correct advice. On the BOC Plaintiffs’ case that advice would have been to the effect Arrium was insolvent if it was more likely than not that it would not be able to repay the loans falling due in 2017 and beyond. It cannot be part of the hypothetical that Mr Nestel actually advised Arrium (or Mr Bakewell) that, in his opinion, Arrium was solvent applying that test. It was one thing for Mr Nestel to express an opinion on solvency on the basis of the then existing cash flows and what he understood was the relevant test. It is quite another thing for him to have expressed an opinion on solvency if that opinion required him to form a view on whether it was more likely than not that Arrium would be able to repay the Lenders when their debts fell due.

594. If the board and Mr Bakewell had been told what the correct test was (on the BOC Plaintiffs’ case), I am not satisfied it would have made any difference. No evidence was led by Mr Bakewell on that question and he made no submissions on it. Mr Bakewell was prepared on 16 February 2016 to state that there had been no material change in the financial position of Arrium since 30 June 2015 that would have a Material Adverse Effect on Arrium’s ability to comply with its obligations under the facility agreements evidence. It would be strange if, a week earlier, he had thought that it was more likely than not that Arrium would not be able to repay the Lenders when their debts fell due and that consequently, given the correct advice, he would not have authorised the Drawdown Notices that were issued at that time. Moreover, as the factual narrative set out earlier demonstrates, although a number of scenarios that were modelled showed that Arrium would be unable to repay the Lenders unless they agreed to write-off some of their debt, that was not true of all scenarios. In particular, the presentation by UBS and Lazard at the board meeting on 11 February 2016 indicated that the Amend and Extend (no haircut) option was a viable option on the “Equity Upside Scenario”. That adopted the then independent forecasts for commodity prices, which might reasonably be thought to be the most likely outcome. Mr Bakewell does not explain why, in the light of that information and the correct legal advice, he would not have authorised the drawdowns for which he is said to be responsible.

595. That leaves the drawdown and deposit advice.

596. If the claim against Mr Bakewell had succeeded in the Anchorage Proceeding, it would be because (to simplify):

1. Mr Bakewell gave the Bakewell Direction and was negligent in doing so;

2. Mr Bakewell negligently failed to ensure that the MAE Representation was true;

3. Mr Bakewell procured the MAE Representation which was made negligently or in breach of contract; or

4. Mr Bakewell was involved in a contravention of s 18 of the ACL (and its equivalents) arising from the falsity of the MAE Representation.

597. If the claim had succeeded against Mr Bakewell in the BOC Proceeding it would relevantly be because Mr Bakewell, by giving the Bakewell Direction, authorised the representations made by virtue of the Drawdown Notices dated 9 and 10 February 2016 and, in doing so, authorised the making of the MAE Representation.

598. It is easy to see the connection between the case that Mr Bakewell is liable for the Bakewell Direction and the claim that HSF is liable to Mr Bakewell because of the drawdown and deposit advice. Mr Bakewell’s case is that but for the drawdown and deposit advice he would not have given the Bakewell Direction and therefore would not be liable for its consequences.

599. It is, however, difficult to see what the connection is between the other claims against Mr Bakewell and the drawdown and deposit advice. Mr Bakewell’s submissions are silent on the question. Unless it is said that the drawdown and deposit advice led to the Bakewell Direction which in turn led to the impugned drawdowns there is no connection between the advice and Mr Bakewell’s liability.

600. But even assuming that Mr Bakewell’s claim against HSF is limited to a case where he is found liable for the Bakewell Direction, there are two fundamental problems with it.

601. First, I am not satisfied that the drawdown and deposit advice was given. The only evidence that that advice was given by HSF in December 2015 was evidence given by Mr Bakewell of a conversation he had with Mr Nestel between 10 and 17 December 2015. It seems clear that the main purpose of the conversation was to discuss Mr Nestel’s advice that Arrium should not repay debt and should instead keep any surplus in cash, to avoid incurring new debt. Mr Bakewell says that during the conversation Mr Nestel also suggested that Arrium may as well draw down all remaining amounts under the facilities. In my opinion, it is likely that Mr Bakewell has confused the two concepts. There is no objective evidence that Mr Nestel said anything about drawing down the remaining amounts under the facilities. In his email dated 23 December 2015, he reminds Mr Bakewell of his advice about not repaying debt. If the idea of drawing down the remaining amounts was discussed during the same conversation, it is to be expected that Mr Nestel would have referred to that as well. The position appears to be that the idea of drawing down the remaining amounts came from Mr Edwards, not Mr Nestel and that Mr Bakewell has confused the advice given by Mr Nestel with the advice given by Mr Edwards. It is true that Mr Nestel did not give evidence but was obviously available to do so. Nonetheless, Mr Bakewell bears the onus of proof on the issue and I am not satisfied that he has discharged that onus.

602. There is evidence that the proposal to drawdown all remaining amounts under the facilities was discussed with Mr Nestel on 8 February 2016. It appears that the idea had been discussed at the board meeting on 4 February 2016 and that the board had given its tacit if not actual approval to the idea at that time. It is not clear who followed up implementation of the proposal with Ms Pearce. Ms Pearce suggests that it could have been Mr Nestel. However, that seems unlikely since the conversation (whoever it was with) prompted a call from Mr Bakewell and Ms Pearce to Mr Nestel to discuss the proposal. It might be thought that it would be unnecessary for Mr Bakewell and Ms Pearce to speak to Mr Nestel about the proposal if Mr Nestel had already advised Ms Pearce that it should be implemented. It is unclear what advice Mr Nestel gave during the conference call. Ms Pearce’s note of the conversation records the following (among other things):

–   not in breach

–   no EOD [Event of Default]

–   point of drawing? Maintain liquidity, we will be entitled but they may refuse.

It is impossible to work out from these notes what advice Mr Nestel gave and on the basis of what assumptions the advice was given. For example, the reference to “not in breach” and “no EOD” could easily be a reference to what Mr Nestel was told. Mr Bakewell has no recollection of the conversation.

603. Second, and following on from the point made in the previous paragraph, it cannot be assumed that the scope of Mr Nestel’s advice (even if he gave it) corresponded to the scope of the Bakewell Direction. If Mr Bakewell is liable in respect of the Bakewell Direction it is because he gave the direction and in doing so became, in some way or another, liable for the fact that the MAE Representation was false. However, it does not follow that in giving the drawdown and deposit advice Mr Nestel was saying anything about the ability of the Arrium Entities to make the MAE Representation. Mr Bakewell’s claim seems to be that in giving the drawdown and deposit advice, Mr Nestel was impliedly representing that the Arrium Entities could make the MAE Representation in the Drawdown and Rollover Notices. However, no such case is pleaded and any such case seems improbable. It could not seriously be suggested that Mr Nestel was in a position to form an opinion on whether there had been a change in Arrium’s financial position since 30 June 2015 or 31 December 2012 so as to give rise to a Material Adverse Effect or that Mr Bakewell relied or could reasonably have relied on any view impliedly expressed by Mr Nestel on that question. Mr Bakewell was in a far better position to form a view on that question himself. Some of those matters appear to have been discussed during the conversation on 8 February 2016. However, what was said to or by Mr Nestel on the subject is entirely unclear. Moreover, it seems implausible that Mr Bakewell relied on advice from Mr Nestel that the Arrium Entities could make the MAE Representation (assuming the advice was given) when he has no recollection of the conversation. In my opinion, any advice Mr Nestel gave to the effect that Arrium should not repay debt and should drawdown on the remaining facilities would have to have been understood as advice that it should do so provided that at the time it actually served the relevant notices it was satisfied that it could make the representations the notices contained.

604. Accordingly, had it been necessary, I would have concluded that Mr Bakewell’s cross-claim against HSF would have failed even if the case against him had succeeded.

605. These conclusions make it unnecessary to deal with a number of other issues raised by HSF. However, I should refer to one of them having regard to the attention it received during submissions. It is plain that the advice given by Mr Nestel in December 2015 included advice that Arrium should not repay debt but instead should deposit spare cash with a non-Lender financial institution, obviously with a view to avoiding incurring new debts. It is equally plain that Arrium did not follow that advice. HSF submitted that it was not open to Mr Bakewell to pick and choose which parts of Mr Nestel’s advice to follow and to claim damages based on that part of the advice that he did follow but not give credit for any benefit that would have flowed from that part of the advice he did not follow. They point out that no attempt was made by Mr Bakewell to quantify the value of any benefit that he received. Consequently, according to them Mr Bakewell had failed to prove his loss. Although there is force in this point, it is not clear to me that the onus of proof on this issue lay with Mr Bakewell. The point raised by HSF appears to be a point akin to a mitigation or contributory negligence point. The case is that if Mr Bakewell was going to rely on HSF’s advice then he should have followed the whole of the advice rather than only part of it and, if he had, his liability would have been lower. Put like that, the submission raises the question whether Arrium was able to follow the advice or whether it had already given irrevocable notice that it intended to repay part of the debt and whether it was reasonable to expect Arrium to follow that part of the advice, given the consequences it might have had for its half yearly financial report. It also raises the question of who bears the onus of proof in relation to the benefits that would have flowed from following the advice. Having regard to the conclusions I have reached, it is not necessary to express a view on these questions, although I am inclined to think that the onus lay with HSF.

606. I should mention one other point in relation to the cross-claims against HSF. During the course of the hearing, Mr Bakewell sought to amend the cross-claims by adding two particulars. One alleged that Mr Pike, Mr Andrew Rich and Mr Apathy of HSF attended the Arrium board meeting on 4 February 2016 at which time a memorandum of Mr Bakewell dated 2 February 2016 regarding liquidity and a report of UBS and Lazard regarding Project Columbus were discussed. The other alleged that advice was sought from HSF on the preparation of the 31 December 2015 accounts and that HSF knew or ought to have known of the correspondence with KPMG on the emphasis of matter issue. Those amendments were opposed by HSF and the question of whether the amendments should be allowed was left to be determined in this judgment. Having regard to the conclusions I have reached, nothing turns on the amendments. However, had it been necessary, I would have permitted the amendments. The amendments plead background facts that were already the subject of evidence and were part of the facts against which the scope of HSF’s duty of care was to be assessed. In my opinion, HSF could not have been prejudiced by the amendments.

Conclusion and orders

607. It follows from what I have said that both proceedings and the cross-claims must be dismissed. If the parties cannot agree on costs, I will hear argument on that question at a time to be fixed with my Associate.

608. The orders of the Court, therefore, are:

1. Proceeding 2018/104383 (including the cross-claim) be dismissed.

2. Proceeding 2019/316305 (including the cross-claim) be dismissed.

3. Direct that within 28 days of the date of this judgment the parties either:

1. bring in short minutes of order to give effect to their agreement on costs; or,

2. if they cannot reach agreement, contact my Associate with a view to relisting the matter to deal with any outstanding questions in relation to costs.

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Endnote

Amendments

17 August 2021 - corrected typographical error on coversheet

18 August 2021 - paragraph [275] - changed "Martine Olde" to "Quentin Olde".

Decision last updated: 18 August 2021