FE Accommodation Pty Ltd v Gold Valley Iron Ore Pty Ltd

[2021] NTSC 85

CITATION:FE Accommodation Pty Ltd & Anor v Gold Valley Iron Ore Pty Ltd [2021] NTSC 85

PARTIES:FE ACCOMMODATION PTY LTD (ACN 160 943 082)

and

G&C PASTORAL CO PTY LTD
(ACN 008 039 405)

v

GOLD VALLEY IRON ORE PTY LTD (ACN 618 094 634)

TITLE OF COURT:  SUPREME COURT OF THE NORTHERN TERRITORY

JURISDICTION:  SUPREME COURT exercising Territory Jurisdiction

FILE NO:21830728

DELIVERED:  4 November 2021

HEARING DATE:  15 October 2021

JUDGMENT OF:  Grant CJ

CATCHWORDS:

CIVIL PROCEDURE – Interim preservation – Freezing orders – Requirements to be met before order made

Application for freezing order requiring that defendant not dispose of or deal with its Australian assets up to value of $5 million – Application for order that defendant keep the plaintiffs informed in writing of all its assets, including value, location and encumbrances – Plaintiffs already have judgment on liability with damages to be assessed – Plaintiffs must establish realistic prospect of succeeding in obtaining relief against the defendant – Plaintiffs’ prospects of receiving monies in mitigation properly taken into account – Risk of dissipation of assets if freezing order not made – Present value of defendant’s shareholding in third-party company adequate to meet danger that prospective judgment will be wholly or partly unsatisfied – Balance of convenience does not militate against the grant of injunction of that limited scope.

Supreme Court Rules 1987 (NT) O 37A

Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452, Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194, Patterson v BTR Engineering (Aust) Ltd (1989) NSWLR 319, Pearce v Waterhouse [1986] VR 603, Pelechowski v Registrar, Court of Appeal (1998) 198 CLR 435, Taylor v Diamond Developments Pty Ltd (1997) 6 NTLR 164, referred to.

REPRESENTATION:

Counsel:

Plaintiffs:  A Harris QC with B Raumteen

Defendant:A Wyvill SC with T Silvester

Solicitors:

Plaintiffs:Maher Raumteen Solicitors

Defendant:  HWL Ebsworth Lawyers

Judgment category classification:     B

Judgment ID Number:  Gra2119

Number of pages:  11

IN THE SUPREME COURT
OF THE NORTHERN TERRITORY
OF AUSTRALIA
AT DARWIN

FE Accommodation Pty Ltd & Anor v Gold Valley
Iron Ore Pty Ltd [2021] NTSC 85

No 21830728

BETWEEN:

FE ACCOMMODATION PTY LTD (ACN 160 943 082)

First Plaintiff

AND:

G&C PASTORAL CO PTY LTD (ACN 008 039 405)

Second Plaintiff

AND:

GOLD VALLEY IRON ORE PTY LTD (ACN 618 094 634)

Defendant

CORAM:    GRANT CJ

REASONS FOR DECISION

(Delivered 4 November 2021)

1. The plaintiffs have made an application for a freezing order against the defendant pursuant to Order 37A of the Supreme Court Rules 1987 (NT). By way of broad summary, the terms of the order sought would require that the defendant not dispose of or deal with its Australian assets up to the unencumbered value of $5 million; and that the defendant keep the plaintiffs informed in writing of all its assets, including their value, location and encumbrances.

2. The application is made following the delivery of the decision in Gold Valley Iron Ore Pty Ltd v FE Accommodation Pty Ltd & Anor [2021] NTCA 2 by the Court of Appeal on 16 August 2021. So far as is relevant for these purposes, that decision found that the trial Judge had correctly concluded that the defendant is liable to the plaintiffs for the wrongful repudiation of a contract for the sale of a mining camp and related plant and equipment, with damages to be assessed. The defendant has filed an application for special leave to bring an appeal from that decision to the High Court.

3. Order 37A of the Supreme Court Rules relevantly provides that the Court may make a freezing order to prevent the frustration or inhibition of the Court’s processes by meeting a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.  The order may restrain the respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of the assets.  The Court may also make ancillary orders for the purpose of eliciting information relating to assets relevant to the freezing order. 

4. Order 37A does not diminish the inherent, implied or statutory jurisdiction of the Court to grant what is commonly known as a Mareva injunction. The parties are in agreement that the same principles have application, regardless of whether the order is sought pursuant to the Supreme Court Rules or in the exercise of the Court’s inherent jurisdiction.

5. The application first came before the Court on 25 August 2021.  At that time, the application was adjourned for hearing on 17 September 2021 on an undertaking by the defendant that it would not in any way dispose of, deal with or diminish the value of its shareholding in the company FE Limited (ACN 112 731 638), which apparently forms the defendant’s principal asset in terms of value.  The defendant owns 54,292,341 shares in FE Limited with a present value of approximately $2.1 million.  The value of that shareholding is tied to and fluctuates with the market value of iron ore, which is starkly illustrated by the fact that the value of the shareholding was approximately $5.4 million as at 28 July 2021, and then $3.4 million as at 19 August 2021.

6. On the day prior to the hearing listed for 17 September 2021, the solicitors for the plaintiffs filed and served an affidavit relating to the financial affairs of companies related to the defendant which are also controlled by the defendant’s principal.  The defendant sought an adjournment of the matter to allow it opportunity to put on affidavit material in response, the undertaking was continued, and the matter was listed for hearing on 15 October 2021.

7. At the commencement of the hearing, counsel for the defendant advised the Court on an open basis that the defendant was prepared to continue the undertaking that it would not dispose of, deal with or diminish the value of its shareholding in FE Limited until such time as the defendant gave 21 days’ notice, or the High Court granted special leave and allowed the defendant’s appeal, or the defendant fully satisfied any judgment and costs liability, whichever event was the earlier.  That position reflects the defendant’s primary contention that the value of the shares in FE Limited exceeds the quantum of any award of damages which might conceivably be made in favour of the plaintiffs.  The plaintiffs continued to press for a freezing order in the terms annexed to its summons filed on 20 August 2021, seeking to freeze all of the defendant’s assets up to a value of $5 million and to impose an obligation on the defendant to provide information in relation to its assets.

8. Although fundamentally at odds on that issue, the parties are in agreement that the discretion to grant relief of this nature is conditioned on the applicant establishing the following matters.  First, there must be a realistic prospect of the applicant succeeding in obtaining relief against the respondent in the substantive proceedings: see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, [68]; Pearce v Waterhouse [1986] VR 603, 605. Second, there must be a risk of dissipation of the assets if the order is not made: see Patterson v BTR Engineering (Aust) Ltd (1989) NSWLR 319, 321-322; Taylor v Diamond Developments Pty Ltd (1997) 6 NTLR 164. Third, the balance of convenience must favour the grant of the injunction: see Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194, [13].

9. In the present matter, the requirement for the plaintiffs to establish a reasonably arguable case on those legal and factual matters which govern liability is satisfied by the fact that the plaintiffs have the benefit of a judgment, confirmed on appeal, that the defendant is liable to the plaintiffs for the wrongful repudiation of the contract.  It is common ground that the Court has jurisdiction to grant Mareva relief after judgment: see Pelechowski v Registrar, Court of Appeal (1998) 198 CLR 435, [142]. Although that decision on appeal is subject to an application for special leave to the High Court, as matters presently stand the plaintiffs have already succeeded in obtaining judgment against the defendant. As described above, the dispute concerning the first condition for the grant of relief centres on the plaintiffs’ prospects of obtaining any award of damages contingent on the judgment, and the likely quantum of damages in the event an award is made.

10. The plaintiffs accept that they must demonstrate on a prima facie basis that their damages are likely to be assessed in an amount at least equal to the value of the assets sought to be frozen in the application, which in this case is $5 million.  The plaintiffs contend that the award of damages in their favour is likely to be in the order of $7.3 million, which is calculated on the following basis.  The value of the contract was $7.7 million.  Prior to repudiation, the defendant made a part payment in the amount of $1.1 million.  Interest on the balance of $6.6 million has been accruing daily from the time of the repudiation in August 2018 at a rate of 10 percent per annum, yielding a total of $2.3 million.  The plaintiffs’ legal costs of the proceedings and of mitigating their loss are estimated to be in the amount of $600,000.  From that total sum are to be deducted the value of the drilling rig found by the Court of Appeal to form part of the contract of sale, which is estimated at $200,000, and the amounts received to date by the plaintiffs on the subsequent sale of the camp and the related plant and equipment (referred to collectively as the ‘asset sale deeds’) to the current holder of the mineral leases on which the camp is situated (‘Britmar’), which is said to be $2 million. 

11. The plaintiffs submit that the total amount payable under the asset sale deeds is not properly brought to account in that calculation because the purchaser has been in persistent breach of its payment obligations.  The argument follows that the prospects of mitigation of damages should not be assessed on the basis of assumptions favourable to the party whose breach of contract has occasioned the loss: see Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452, 506.

12. Conversely, the defendant says that the plaintiffs will not be entitled to damages at all in the final analysis, and that, at most, the plaintiffs’ entitlement to damages will not exceed the value of the defendant’s shareholding in FE Limited.  The defendant’s submission in that respect is founded largely on the plaintiffs’ entitlements under the asset sale deeds.  On 10 July 2019, the first plaintiff entered into a contract for the sale of the camp to Britmar for the purchase price of $6,050,000.  On the same day, the second plaintiff entered into a contract for the sale of the plant and equipment to Britmar for a purchase price of $550,000.  The purchaser’s obligations under those asset sale deeds are guaranteed by related entities with a net asset value sufficient to meet those obligations.  The first defendant subsequently sold 20 accommodation units and a laundry module excluded from the asset sale deeds to third parties for a combined price in the order of $930,000. 

13. On that analysis, the total amount received or receivable by the plaintiffs in respect of the camp and the plant and equipment, including the payments previously made by the defendant under the contract of sale, is in the order of $8.6 million.  In addition to those receipts, the plaintiffs have retained 10 accommodation buildings and seven fuel pods of unknown, but greater than notional, value.  Based on the price realised on the sale of the other accommodation units, the remaining 10 would be worth in the order of $450,000.  Ranged against that, the plaintiffs’ principal deposes to a concern that the units have been exposed to the weather for many years and that their value has been diminished significantly as a result.  Finally, the value of the drilling rig found by the Court of Appeal to form part of the contract of sale is estimated variously at between $200,000 and $300,000.

14. While it may be accepted that for the purpose of this application the plaintiffs need only demonstrate that they have a prima facie case for the award of damages in the amount claimed, that assessment is not properly conducted on the basis that the plaintiffs will derive no further benefit from the asset sale deeds.  The prospect that the plaintiffs’ losses will be mitigated must be both assessed and taken into account in determining whether a freezing order is properly made and, if so, the value of assets properly frozen.  By way of analogy, in circumstances where a plaintiff has failed to take all reasonable steps to mitigate the loss consequent on breach, it will be necessary for the court to conduct some hypothetical assessment of the degree to which damages would have been reduced if reasonable steps had been taken.  Although the Court is not required to make any final determination for the purpose of an application of this nature, it remains necessary to make some assessment of the extent to which the plaintiffs’ loss might be mitigated.  While the plaintiffs’ duty to mitigate would not extend to conducting protracted and expensive litigation against Britmar in the event it defaulted under the asset sale deeds, it cannot be presumed for the purpose of this application that Britmar will do so.

15. The appropriate means of conducting the assessment is by calculating the sum payable under the asset sale deeds, and then reducing that sum by taking into account the chance of the adverse contingency that Britmar might default.  Given that Britmar has a contractual obligation under the asset sale deeds, and that those obligations were guaranteed to the apparent satisfaction of the plaintiffs at the time the deeds were executed, it might be considered that the probability of default is low, and perhaps even speculative.  Although Britmar has been late in making instalment payments under the asset sale deeds, those payments have eventually been made in response to notices of demand issued by the plaintiffs to Britmar and the guarantors.  Thus far, Britmar has paid the plaintiffs in excess of $1.1 million under the asset sale deeds, and has invested very considerable sums in preparation for the exploitation of the mineral leases.  Even if the monies receivable under the asset sale deeds were to be discounted by 25 percent, the total figure would still be in the order of $5 million.

16. The entitlement to interest and costs are also not matters which fall to be determined with precision in the context of this application, but the plaintiffs’ calculations in relation to both matters are contestable. 

17. So far as interest is concerned, on an orthodox analysis the plaintiffs’ entitlement to interest at 10 per cent per annum under the terms of the contract of sale ceased when the defendant’s repudiation was accepted in August 2018 and the contract was terminated. After that time, the plaintiffs’ entitlement was to damages and interest on those damages pursuant to s 84 of the Supreme Court Act, at a substantially lower rate than provided for under the contract.  While the plaintiffs intend to press an argument in the assessment of damages that interest is properly awarded at the contractual rate, that argument might be considered somewhat tenuous on a preliminary and entirely prospective assessment.  The plaintiffs’ calculation of interest is also made by reference to the figure of $6.6 million, being the value of the contract less the payment of $1.1 million previously made by the defendant.  Whatever rate is adopted, the calculation of interest will need to take into account the fact that the plaintiffs have received something in the order of $2.25 million in payments for the camp, plant and equipment since the date of termination, in addition to any further payments made prior to the date of the assessment. 

18. So far as costs are concerned, the plaintiffs’ calculations include an allowance of $400,000 for the costs of the proceedings and $200,000 for the legal costs of mitigating damages.  The orders made for the costs of the proceedings will ultimately depend upon the outcome of the assessment of damages and whether damages are found to be payable by the defendant to the plaintiffs.  It may be accepted that the plaintiffs can recover monies reasonably spent in mitigating or attempting to mitigate the effects of the breach of contract, including reasonable expenditure on legal costs.  However, that assessment will also be subject to verification and contest as to quantum.

19. On the assumptions I have made concerning the plaintiffs’ prospects of receiving monies in mitigation under the asset sale deeds, and even allowing $1.5 million in respect of the plaintiffs’ entitlement to costs and interest, I have concluded that the present value of the 54,292,341 shares in FE Limited is adequate to meet the danger that the Court’s prospective judgment will be wholly or partly unsatisfied.  Moreover, the value of that asset is entirely transparent because the share price is always publicly available, making any ancillary relief in relation to the provision of information unnecessary.  In reaching that conclusion, I am mindful of the principle that any restraint on the disposal of assets should not extend beyond the minimum disturbance which is reasonably necessary to protect the applicant’s interests. 

20. Given that conclusion, the defendant’s open indication of a preparedness to continue the undertaking makes it arguably unnecessary to consider whether there is a risk of dissipation of the assets if the order is not made, and whether the balance of convenience favours the grant of the injunction.  However, the defendant did not concede that matter in contesting the application.  To the extent it may be necessary, I am satisfied that the affidavit material filed by the plaintiffs establishes that the controlling mind of the defendant has, on occasion, conducted the affairs of related companies controlled by him in a manner apt to place the assets of those companies beyond the reach of creditors.  In reaching that conclusion, it is unnecessary to determine whether or not those transactions were undertaken for legitimate business purposes, or whether or not those dealings are properly the subject of any claim by a liquidator.  The conduct is sufficient to ground a finding on an interlocutory basis that there is at least a risk of dissipation of the assets if the freezing order is not made.  The defendant does not suggest that the balance of convenience militates against the grant of the injunction limited in its operation to the shares in FE Limited.

21. Accordingly, I make the following Orders:

    A.Until further order, the defendant must not, either itself or through its directors, officers, partners, employees, agents or others acting on its behalf, or on the instructions of any of them, remove from Australia or in any way dispose of, deal with or diminish the value of its unencumbered shareholding of 54,292,341 ordinary shares in FE Limited (ACN 112 731 638).

    B.This order does not prohibit the defendant from dealing with, disposing of or diminishing the value of any of its shareholding in FE Limited to the extent required by law.

    C.The undertakings as to damages given by the plaintiffs in the form filed on 20 August 2021 apply until the defendant is released from the order in paragraph A above.

1. I will hear the parties in relation to any variation to the form of the Orders and costs if need be.

   -------------------------------------