Gujarat NRE India Pty Ltd v Wollongong Coal Ltd

[2018] NSWSC 1459

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Gujarat NRE India Pty Ltd v Wollongong Coal Limited [2018] NSWSC 1459

Hearing dates:

13 – 15 March 2017; 4-5 September 2017; 28 – 31 May 2018 and 6-7 June 2018

Decision date:

28 September 2018

Jurisdiction:

Equity

Before:

Robb J

Decision:

1.Declaration that the plaintiff is entitled to be indemnified by the defendant in respect of the sale by UIL (Singapore) Pte Ltd of the plaintiff’s 150,000,000 shares in the defendant charged by the plaintiff to secure the indebtedness of the defendant under the deed called the Override Deed made on 25 July 2013.

 

2. Declaration that the defendant is indebted to the plaintiff in the sum of $6,565,398.06.

 

3. Direct the parties to bring in short minutes of order to give further effect to these reasons including in respect of interest payable by the defendant to the plaintiff pursuant to s 101 of the Civil Procedure Act 2005 (NSW).

 4. Direct the parties to exchange and deliver to the associate to Robb J submissions on the costs orders that should be made by the Court.

Catchwords:

GUARANTEE AND INDEMNITY — Guarantor — Rights against debtor — Right of indemnity — Whether the plaintiff as a guarantor and third-party chargee should be indemnified by the defendant debtor in the amount of $12,000,000 in respect of the liability of the defendant to a creditor

 

GUARANTEE AND INDEMNITY — Contract of guarantee — Deed — Construction GUARANTEE AND INDEMNITY — Contract of guarantee — Waiver — Debtor’s rights to enforce waiver of indemnity given by guarantor in general terms — permanent and irrevocable waiver — whether the plaintiff is disentitled from seeking indemnity from the defendant GUARANTEE AND INDEMNITY — Contract of guarantee — Privity of contract GUARANTEE AND INDEMNITY — Contract of guarantee — Contractual intention GUARANTEE AND INDEMNITY — Contract of guarantee — Enforcement — whether the defendant is entitled to enforce a term in a multi-party deed in circumstances where the clause is expressed in general terms without identifying which of the parties to the deed is entitled to enforce it — whether every party to a multi-party deed is entitled to enforce every term in it — the waiver of indemnity was a covenant made by the guarantor in favour of the creditor alone and was not intended to be enforceable by the debtor — the debtor is not entitled to enforce the waiver of indemnity

 

GUARANTEE AND INDEMNITY — Contract of guarantee — Construction — Rules of construction — whether the waiver of indemnity given by the guarantor should be read down to cease operating after the creditor has been fully repaid GUARANTEE AND INDEMNITY — Guarantor — Right to contribution — whether the guarantor is entitled to contribution from the debtor GUARANTEE AND INDEMNITY — Breach — Implied Term — whether the guarantor may recover damages from the debtor for breach of implied terms — whether there was an implied term that the debtor would indemnify the guarantor — whether the guarantor is entitled to recover damages from the debtor for breach of an implied term to act in good faith

 

DEBT — Money had and received — whether the plaintiff is entitled in debt to the return of money as money had and received — money paid by the plaintiff to the defendant without consideration and in the absence of any objective intention that the defendant would be entitled to retain the money — whether a payment made by the plaintiff to the defendant under a sub-underwriting agreement should be repaid because of a failure of consideration — whether a payment made by the plaintiff to the defendant was a loan and that the plaintiff is entitled to repayment of the balance outstanding

 

GUARANTEE AND INDEMNITY — Contract of guarantee — Set-off EQUITY — General principles and maxims — Set-off — whether the defendant is entitled to set-off debts it owes to the plaintiff — the defendant is not entitled to set-off debts it owes to the plaintiff

  RESTITUTION — Nature of restitutionary liability — Unjust enrichment

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71
Israel v Foreshore Properties Pty Ltd (1980) 54 ALJR 421; 30 ALR 631
Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116
Re A & K Holdings Pty Ltd [1964] VR 257
Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564
Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 343 ALR 58
Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; (2005) 12 BPR 23,923
Hong Kong Bank of Australia Ltd v Larobi Pty Ltd (1991) 23 NSWLR 593
Felton v Mulligan (1971) 124 CLR 367; [1971] HCA 39
Cochrane v Cochrane (1985) 3 NSWLR 403
Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44
Barber v De Prima [2018] NSWSC 601
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Erratt v Grills [2015] NSWSC 594; (2015) 18 BPR 35,345
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329
Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32
Paciocco v Australian and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Payne v Parker [1976] 1 NSWLR 191
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48
Hawes v Dean [2014] NSWCA 380
Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221

Texts Cited:

Cheshire & Fifoot, Law of Contract 11th Australian Edition
O’Donovan and Phillips, The Modern Contract of Guarantee (3rd English edition)

Category:

Principal judgment

Parties:

Gujarat NRE India Pty Ltd (plaintiff)
Wollongong Coal Limited (defendant)

Representation:

Counsel:
D Pritchard SC/A Macauley (plaintiff)
DL Williams SC/CD Wood/ND Riordan (defendant)

  Solicitors:
Gillard Consulting Lawyers (plaintiff)
Thomson Geer (defendant)

File Number(s):

2014/211688

Judgment

1. The plaintiff in these proceedings is Gujarat NRE India Pty Ltd (GNI). GNI is an Australian company.

2. The defendant is Wollongong Coal Limited, which was formerly known as Gujarat NRE Coking Coal Ltd, and which at all material times has been listed on the Australian Stock Exchange. As have the parties, I will refer to this company as “WLC”, to conform to the manner in which it is identified by the ASX.

3. GNI is one of a number of companies that comprise the Gujarat Group, which are companies incorporated in Australia and India involved in the production of metallurgical coal.

4. The parent company of the group is Gujarat NRE Coke Ltd (Gujarat India), which at material times was listed on both the Bombay Stock Exchange and the National Stock Exchange of India.

5. In the period between 7 April 2017 and 11 January 2018, Gujarat India was in external administration pursuant to the provisions of the Insolvency and Bankruptcy Code 2016 (India) (the Code), called a “corporate insolvency resolution process”. The objective of the process was to put into effect a resolution plan that would preserve the company’s corporate existence, but the plan was not approved by sufficient creditors. Gujarat India was ordered to be wound up pursuant to s 33(1) of the Code on 11 January 2018.

6. As at March 2013, which is the time primarily relevant to the commencement of the events the subject of the present dispute, Gujarat India owned 100% of the shares in an Australian company called Gujarat NRE Ltd (GNL), which in turn owned 100% of the shares in GNI.

7. GNL also owned 100% of the shares in an Australian company called Wonga Coal Pty Ltd (Wonga).

8. Companies in the Gujarat Group owned shares in WLC as follows: Gujarat India (6.26%), GNL (25.21%), GNI (13.39%) and Wonga (17.35%), giving a total of 62.21%.

9. In the period that followed up to about November 2013, the Gujarat Group lost majority control over WLC. By 18 November 2013, companies in the Jindal Group, being another group based in India, said to be involved in steel manufacturing and power generation, held 53.63% of the shares in WLC, and the Gujarat Group held 43.31%. Subsequently, the Gujarat Group’s ownership of shares in WLC has diminished to less than 2%.

10. Mr Arun Kumar Jagatramka has at all material times been the managing director and chairman of Gujarat India. He has also been the managing director of GNI, and also until 26 October 2013 the chairman and chief executive officer of WLC. Mr Jagatramka was then replaced as an office holder of WLC by Mr Jasbir Singh, who was a representative of the Jindal Group. According to the ASIC record, Mr Jagatramka finally ceased to be a director of WLC on 14 February 2014.

11. The evidence did not deal in detail with the nature of WLC’s business, but it has at relevant times operated a number of coal mines in the southern coalfields of New South Wales.

12. At all material times the chief commercial officer and company secretary of WLC has been Mr Sanjay Sharma.

Claims made by GNI

13. The claims made by GNI at the hearing are as formulated in its third further amended statement of claim filed on 13 September 2017 (SOC).

14. GNI makes two separate claims against WLC. As pleaded, GNI claims as a guarantor and third-party chargee to be indemnified by WLC in the amount of $12,000,000 in respect of the liability of WLC to a company called UIL (Singapore) Pte Ltd (UIL). GNI granted a charge in favour of UIL over 150,000,000 shares owned by it in WLC. On 15 May 2014, UIL and WLC entered into a settlement deed. One consequence of the settlement was that UIL sold the shares charged to it by GNI in part repayment of the outstanding debt owed to it by WLC. WLC did not use whatever financial resources may have been available to it to repay that part of the debt itself.

15. GNI has formulated a number of alternative grounds to support its claim for an indemnity from WLC, or alternatively an award of damages in the same amount as that for which it claims indemnity. Those different grounds will best be understood after the essential facts relevant to the dispute have been set out.

16. The second claim made by GNI concerns a payment made by GNI to WLC on 24 June 2013 of $7,962,974.88. Of that amount, $2,088,126.00 has been repaid, leaving a balance of $6,565,398.06. GNI claims an entitlement to be paid that amount by WLC, on the basis that the original payment was made under a sub-underwriting agreement, in return for the issue of shares in WLC to GNI, for which the consideration has totally failed, because the rights issue to which the sub-underwriting agreement related was cancelled and no shares were issued to GNI. Alternatively, GNI claims that the payment was a loan to WLC and GNI is now entitled to the repayment of the balance outstanding.

WLC’s financial circumstances

17. The financial circumstances of WLC, over the period during which the events that have given rise to GNI’s claims have occurred, are generally relevant to a background understanding of the conduct of the parties, and in some cases important to the determination of grounds relied upon by GNI to support its claims.

18. The evidence shows that, over the whole of the period, WLC was in a parlous, if not desperate, financial position, and there is every appearance that it was not able to pay all of its debts as and when they fell due from its own resources, because it frequently did not do so. It is not strictly necessary for the Court to make a finding about whether or not WLC was insolvent, but if, to an experienced lawyer, the fact that a company is constantly engaged in managing and farming its creditors, who are demanding repayment of overdue debts and making threats to institute recovery action, is highly suggestive of insolvency, the present case gives every appearance that WLC was insolvent.

19. The reasons for WLC’s financial difficulties were not explored in any detail in the evidence. It is not necessary for the Court to make any definitive findings on that issue. There are suggestions that there were periods when one or both of WLC’s coal mines were not operating, or operating effectively. There may have been marketing difficulties with the coal mined by WLC. WLC shipped coal to Gujarat India or other companies in the Gujarat Group, and was not paid promptly. As will be seen, WLC ultimately obtained a judgment from this Court in the sum of US$59,718,101.53 in respect of this accumulated debt. WLC was unsuccessful in a substantial rights issue that it made to its shareholders.

20. The evidence of WLC’s dealings with its creditors focused on the period 22 to 28 March 2013. The reason, as I understand it, is that the Coal Purchase Agreement (CPA), which was the original source of WLC’s debt to UIL, was entered into on 25 March 2013. That period represented the start of the events that have been the subject of the present proceedings. As I understand it, the evidence of WLC’s dealings with its creditors was not exhaustive, and the evidence concerning the period 22 to 28 March 2013 is likely to be reasonably representative of subsequent periods. The evidence also included isolated events that reflected WLC’s continuing financial difficulties.

21. On 23 October 2013, an originating process was filed in this Court seeking an order for the winding up of WLC. WLC defended the proceedings, which included at one stage UIL becoming substituted as the plaintiff in the proceedings. That led to the making of a compromise between UIL and WLC that will be seen to be relevant to one of the claims now made by GNI.

22. Ultimately, WLC survived. It does not go too far to describe that result as something of a marvel. It seems, as a general matter, that while the Gujarat Group had majority control of WLC, it was not capable of injecting into the company sufficient capital to allow it to escape from its financial woes. However, in conjunction with the Jindal Group wresting control of WLC from the Gujarat Group, various capital raisings and borrowings occurred which the Court can infer ultimately financed WLC’s survival. As will be seen, the availability to WLC of that additional capital is also material to the resolution of the claims made by GNI.

23. It is not really necessary for the Court to analyse and make findings concerning the intensity of WLC’s financial difficulties over the period. The issue is, however, relevant, because in my view the efforts made by Mr Jagatramka and Mr Sharma, and others on behalf of WLC, to manage WLC’s creditors and to raise funds, must for much of the period have been intense and extremely distracting. That matter will be seen to be relevant when I come to deal with a claim made by WLC concerning the honesty of certain conduct on the part of Mr Jagatramka that is relevant to GNI’s second claim.

24. It is not easy to distil from the evidence concerning WLC’s dealings with its creditors in the period from 22 to 28 March 2013 the circumstances and effect of each dealing, because it is necessary to interpret a number of incomplete and unexplained documents, including chains of emails. I will set out the following in outline, principally to give a flavour of the events that were occurring. The outline is not complete. I will identify page references from the Court Book, to allow a more elaborate understanding of the events if that becomes necessary:

1. 21 March 2013 (409). WLC received a demand for an overdue $38,955.45 on behalf of a creditor, to be paid on 28 March 2013.

2. 25 and 26 March 2013 (412-414). WLC’s debt to Komatsu had not been paid for September, October or November 2012. An internal email to Mr Sharma stated: “we need to sort Komatsu – $13.5 approx. we will not be able to load/unload any supplies without Forklift”.

3. 26 March 2013 (416). Internal emails show that WLC could not obtain electrical consumables ordered in December 2012, because it was on “stop credit”. The following comment was made by a WLC purchase manager: “We have run out of all options for electrical consumables”.

4. 26 March 2013 (419). Internal emails indicate that WLC had to pay outstanding debts of $21,542.40 in order “to get more particulate filters”.

5. 27 March 2013 (420). A creditor who claimed to be owed $175,000 stated in an email that it expected confirmation of at least half payment of the $175,000 due by the next day.

6. 25 March 2013 (425). WLC received an email on behalf of a lender concerning payment of interest and an instalment due on 18 December 2012 that had not been paid. It appears to state that the “irregularity” was US$18,120,000.

7. 22 March 2013 (426). A creditor stated in an email that legal action would be put on hold on the basis that full payment of $24,181.44 was made by 27 March 2013.

8. 27 March 2018 (429). Mr Sharma offered to a creditor “a payment of $100,000 tomorrow as a token money to reiterate our intention to clear your outstanding”.

9. 20 March 2013 (453). Mr Sharma offered to a creditor payment of $200,000-$400,000 by 28 March 2013, and the remaining balance by 19 April 2013.

10. 26 March 2013 (454). A creditor threatened to seek judgment for $250,000 against WLC.

11. 26 March 2013 (455). An internal email refers to Dunn & Bradstreet seeking to recover $89,680.80 for a client. Payment of $10,000 the same day needed to be confirmed “else they will be going legal”.

12. 28 March 2013 (457). An email to a creditor offered $25,000 on 28 March 2013, $50,000 on 15 April 2013 and $70,760.54 on 30 April 2013.

13. 28 March 2013 (462). A creditor observed by email that it understood that an overdue balance of $28,667.20 and a further amount of $112,512.45 due on 30 March 2013 would be paid by mid-April.

14. 28 March 2013 (465). Internal emails show that WLC was contemplating requiring staff to take annual or long service leave.

15. 28 March 2013 (468). A creditor stated: “the suggested payment of $100k as a token is not satisfactory given the $3.6m that has been overdue for several months”.

25. Some only of the subsequent events that demonstrate WLC’s continuing financial difficulties include:

1. On 21 May 2013, the ATO offered to WLC to accept a late payment of tax of $4,428,050.84 on 30 June 2013 (430).

2. On 3 June 2013, WLC assured Environmental Resources Management Australia that it would receive payment of outstanding invoices to the value of $201,119.32 before 21 June 2013, in return for which ERM would withdraw its current legal action (410).

3. On 21 June 2013, a creditor required WLC to pay it interest of $105,629.54 on an overdue debt (912).

4. On 25 June 2013, WLC’s auditor notified ASIC: “… We are aware that [WLC] and its controlled entities… have not paid invoices within normal trading terms and have received various statutory demands from creditors, including the ATO. We therefore have reasonable grounds to suspect that the Company and Group could possibly be trading insolvently, and therefore could be in contravention of Section 588G of the Corporations Act” (917).

5. On 5 September 2013, a lawyer for WLC wrote to the ATO seeking to commence negotiations concerning a statutory demand dated 12 August 2013 requiring payment of $4,113,014.66 (1034).

6. A legal notices spreadsheet as at 17 September 2013 in respect of claims made against both WLC and Wonga (Tab 63) listed a substantial number of claims, and explained the status of those claims. The list included (1069) a reference to 8 statutory demands issued against WLC, in the respective amounts of $3,384,089.76, $941,100.94, $311,532.27, $4,113,014.66, $3,803,198.79, $124,943.37, $2,131,891.87 and $68,887.35. The first three of those amounts were said to be in dispute. The statutory demand for $311,532.27 was the one upon which the winding up claim was based.

1. On 2 October 2013, WLC received 14 garnishee notices issued by the ATO (1120-1179).

2. Tab 73 of the Court Book contains statutory demands received by WLC between October 2013 and October 2015. Between 10 October 2013 and 11 November 2013, WLC received five statutory demands for a total of $3,016,974.08 plus US$548,420.93. WLC received a further statutory demand on 29 April 2014 for $600,000.98.

Coal Purchase Agreement

26. GNI’s first claim arises out of the fact that WLC and UIL entered into an agreement called the "Coal Purchase Agreement" on 25 March 2013. It will be clearly apparent from the following analysis of the terms of this agreement that it was entered into by WLC to raise immediate cash to keep its many creditors at bay.

27. Under cl 1 of the CPA, WLC agreed to sell and UIL agreed to purchase “225,000 metric tons (+/-10%) of [WLC] A unwashed coking coal subject to shipping tolerance".

28. Under cl 2.2, delivery of the coal was to be made during the period from the date of the agreement to 30 June 2013.

29. Clause 10 provided for payment terms as follows:

The Buyer to remit US $20.00 million as advance payment latest by 27th March, 2013 to the Seller's Bank account at Sydney. The Buyer will submit to Seller a copy of bank advice for having effected the transfer of funds to the designated account of Seller towards advance payment by 27th March, 2013. The advance payment shall be proportionately adjusted from the sales invoice(s) commencing from the first shipment against submission of the following documents…

30. Clause 10 had the effect of requiring UIL to pay to WLC US$20 million as an advance payment for all of the coal to be delivered.

31. Security was to be provided to UIL for the advance payment and the other obligations of WLC under the agreement, as required by clause 13, which was in the following terms:

The Seller agrees to provide charge, by way of pledge, over 150,000,000 fully paid ordinary share (sic) in the capital of the Seller (Security) held by [GNI] (Grantor) for the due payment by the Ultimate Buyer for all the cargo shipped equivalent to an amount of USD 20 million based on the shipment made from time to time. The same would be formalised by way of Specific Security Deed to be granted by the Grantor on or about the date of this agreement.

32. Aspects of this provision may be explained by the fact that UIL was a trader in coal and other minerals. It did not acquire coal for its own use. The term "Ultimate Buyer" is not defined in the CPA. It is referred to in clause 2 in the following terms:

Buyer and Seller intend to cooperate in establishing dates for actual loading in maximum 6 shipments on mutually agreed laycans to an Ultimate Buyer to be nominated by the Seller".

33. This term contemplated that WLC, the Seller, rather than UIL, would identify and nominate the ultimate buyer for each shipment of coal.

34. The way that the security required by clause 13 was intended to work was that UIL would receive payment for shipments of coal to Ultimate Buyers from those buyers, and in that manner the payment made to WLC in accordance with clause 10 would be repaid. The pledge over the 150 million ordinary shares in WLC was to be limited to securing payment by Ultimate Buyers to UIL of an amount equivalent to USD 20 million.

35. Clause 14 provided for damages for non-performance in the following terms:

If the Seller fails to physically deliver the cargo by way of actual shipment of the same to the Ultimate Buyer under this Agreement for any reason whatsoever including Force Majeure, OR the due payment by the Ultimate Buyer ("Event of Default") the Seller shall return to the Buyer within 15 days upon expiry of the Delivery Period, the entire amount of the advance payment or the unadjusted amount of advance payment, as the case may be. In addition he shall at the same time pay and transfer to Buyer's bank account, liquidated damages in the sum calculated at 3 months US$ LIBOR plus 6% pa. calculated for the period from the date of advance payment till the date of refund by the Seller to the Buyer's designated bank account, which the Seller agrees and accepts is a genuine estimate of the Buyer's reasonably anticipated losses in case the Seller fails to perform this agreement.

In case the Seller is unable to return to the Buyer within 15 days upon expiry of the Delivery Period, the Buyer shall invoke the Security provided under clause 13 above and from the sale proceeds thereof adjust the entire amount of advance payment or the unadjusted amount of advance payment, (Refund Amount).

Further any amount of the Refund Amount remaining unadjusted from the sale proceeds of the Security, the same will be adjusted by issuing such number of fully paid ordinary share in the capital of the Seller, to a nominee of the Buyer, each at the Issue Price as defined below such that the value of shares so issued is equal to the unadjusted Refund Amount.

Issue Price: Is defined as the 30 days volume weighted average price (VWAP) of the shares on the ASX as on the date of expiry of the Delivery Period.

36. Therefore, if an Event of Default occurred, it was contemplated that the shares the subject of the Security would be sold and the proceeds deducted from the adjusted amount of the advance payment. In the case of a shortfall, WLC would be required to issue additional shares in WLC to UIL, with an issue price equal in total to the amount of the shortfall.

37. By an addendum to the CPA made on 15 August 2013, the Delivery Period was extended up to 31 August 2013.

Specific Security Deed

38. In compliance with the requirements of clause 13 of the CPA, on 26 March 2013 GNI and UIL entered into an agreement called the "Specific Security Deed (Shares)" (Security Deed).

39. Paragraph A of the Background states: “The Grantor enters into this deed in connection with the Coal Purchase Agreement”.

40. By par B of the Background, it is recited that: "The Grantor has agreed to grant a Security Interest over the Secured Property to secure the payment of the Secured Money".

41. The following definitions in clause 1.1 of the Security Deed are material:

Event of Default has the same meaning as in the Coal Purchase Agreement.

PPS Act means the Personal Property Securities Act 2009 (Cth).

PPSA Security Interest means a "security interest" as defined in the PPS Act.

Present Security means each of the shares held by the Grantor in [WLC] comprising not less than 150,000,000 fully (sic) ordinary shares in the [WLC].

Secured Money means all present and future debts and monetary liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity) of each obligor to the Secured Party for any reason under or in connection with a Transaction Document and irrespective of whether those documents or liabilities are…

42. Although the term "each Obligor" is used in the definition of Secured Money, the term is not defined in the Security Deed.

43. Although “Secured Money” is defined by reference to obligations “under or in connection with a Transaction Document”, there is no definition of the term “Transaction Document”. The only candidates for inclusion within that term by this time were the CPA and the Security Deed itself.

44. The security is created by clause 2.1, which provided:

The Grantor grants a PPSA Security Interest over the Secured Property to the Secured Party as security for the due and punctual payment of all of the Secured Money. The Grantor does this as legal and beneficial owner of the Secured Property.

45. Clause 4.1 contains a general undertaking by GNI in the following terms: "The Grantor must promptly pay the Secured Money in accordance with this Document and must ensure that no Event of Default occurs".

46. Thus, GNI covenanted to pay the amount owed by WLC to UIL personally and to ensure that no Event of Default occurred.

47. As the property the subject of the security was shares in a publicly listed company, the Security Deed contained various provisions that were designed to enable UIL to control the receipt and exercise of rights and benefits from GNI's ownership of the shares in WLC.

48. Clause 4.5 provides for the event that UIL became holder of the shares in WLC in the following terms:

At any time after an Event of Default occurs and while it subsists, the Secured Party may procure itself or its nominee to be registered as the holder of any or all of the Secured Property. To facilitate this, the Grantor irrevocably and unconditionally authorises the Secured Party to [do what was necessary to effect the transfer].

49. Clause 5.1 provides that if an Event of Default occurred, the Security was “immediately enforceable without further notice to any Party”, and “the Secured Money is immediately due and payable”. By cl 5.2, after the Security has become enforceable "the Secured Party may in its absolute discretion enforce all or any part of this deed in any manner it sees fit". Clause 7.2 empowered UIL to exercise the powers of the receiver itself.

50. Clause 7.6 excludes each of the provisions of the PPS Act referred to in ss 115(1) and 115(7) of the PPS Act.

51. Clause 13.6 is entitled "No competition" and provides:

(a)   Until the Secured Money has been fully paid, the Grantor will not, for any reason:

(i)   be subrogated to any rights, security or moneys held, received or receivable by the Secured Party (or any trustee or agent on its behalf);

(ii)   be entitled to any right of contribution or indemnity in respect of any payment made or moneys received on account of the Grantor's liability under this Clause 13.6;

(iii)   claim, rank, prove or vote as a creditor of any Obligor or its estate in competition with the Secured Party (or any trustee or agent on its behalf);

(iv)   receive, claim or have the benefit of any payment, distribution or security from or on account of, or exercise any right of set-off as against, any Obligor; or

(v)   raise any defence or counterclaim in reduction of its obligation under this document.

(b)   The Grantor must hold in trust for and immediately pay or transfer to the Secured Party any payment or distribution or benefit of security received by it contrary to this Clause 13.6.

52. It is relevant to note that this clause has the effect of postponing GNI’s right to act in the manner described in the sub-paragraphs of par (a) until the Secured Money has been fully paid to UIL. Provisions in guarantees containing restrictions of the nature of those contained in cl 13.6 were described by Ward JA (as her Honour then was) in O’Brien v Bank of Western Australia Ltd [2013] NSWCA 71 at [26] as “suspension” and “preservation” or “pay now, litigate later” clauses.

53. If cl 13.6 were the only impediment to GNI seeking indemnity from WLC in respect of the value of the shares that were charged to UIL and ultimately sold in part repayment of WLC’s debt, it would not prevent GNI from claiming indemnity because, as the whole of UIL’s claim had been fully paid (by reason of the accord and satisfaction constituted by the settlement) the restriction on GNI claiming the indemnity will have lapsed. (That is the reason why GNI has put a submission that the suspension provision in cl 13.6 continues to apply separately to any right of indemnity that arises in respect of GNI’s obligations under the Security Deed).

CHESS Tripartite Deed

54. Apparently because the subject of the Security Deed was shares in a publicly listed company, GNI, UIL and Argonaut Securities Pty Ltd (Argonaut) entered into a deed on 26 March 2013 called the "CHESS Tripartite Deed" (Tripartite Deed). The deed contains relatively technical provisions by which, in simple terms, Argonaut acted as stakeholder in respect of GNI's CHESS Holding concerning its 150 million shares in WLC. In effect, Argonaut warranted to UIL that it had been appointed by GNI "as Controlling Participant in respect of the CHESS Holding on the terms of the Sponsorship Agreement" (cl 3.1(a)(i)). The Sponsorship Agreement was not in evidence, but it apparently was required to comply with the "Settlement Rules" which was defined to mean "the ASX Settlement Operating Rules in respect of the settlement facility provided by ASX Settlement".

Demand by UIL

55. WLC was unable to deliver to UIL any of the coal required to be delivered under the CPA, and by email communications on 16 and 17 July 2013, apparently between representatives of GNI and UIL, UIL demanded that the contracted coal be delivered or that the money be refunded within 24 hours. Mr Jagatramka responded to UIL in the following terms:

I confirm our phone discyssions just now (1020 am) india time that we shall refund uil singapore full amount if 20m within 31 july 2013.

You have accepted this and promise not to take any action and in particular not to transfer 150 m shares in any manner…

Override Deed

56. GNI, WLC, UIL and Argonaut entered into a deed called the "Override Deed" on 25 July 2013.

57. It is important to note that there were four separate parties to the Override Deed, although, as will be seen, the deed varied and affirmed the earlier agreements to which some only of the parties to the Override Deed were parties.

58. The reason this is important is that the question at the heart of this aspect of the dispute is whether WLC is entitled to enforce one of the terms of the Override Deed against GNI, in circumstances where the clause is expressed in general terms, without identifying which of the parties to the Override Deed is entitled to enforce it. The question that arises is whether every party to a deed is entitled to enforce every term in it that may benefit that party, simply because of the privity that arises from the fact of being a party.

59. The Background in the Override Deed recites the essential matters concerning the CPA, the Security Deed and the Tripartite Deed, and in particular recited:

A.   On 25 March 2013, [WLC] and UIL entered into a coal purchase agreement (CPA).

B.   [WLC’s] obligations under the CPA were secured by [GNI] granting a specific security deed dated 26 March 2013 (Original Security Deed)… The CPA is a Transaction Document and [WLC] and [GNI] are Obligors for the purposes of the Original Security Deed.

C.   The Original Security Deed was perfected by UIL taking control of the Security Shares through entering into a tripartite deed between [GNI], UIL and Argonaut dated 26 March 2013 (Tripartite Deed).

D.   The Tripartite Deed restricts the exercise of rights by [GNI] and Argonaut under a CHESS sponsorship agreement between [GNI] and Argonaut…

E.   Argonaut has entered into a clearing and settlement agreement with Pershing Securities Australia Pty Ltd…

F.   On 27 March 2013 UIL advanced [WLC] US$20 million as advance payment of its obligations under the CPA (Advance Payment).

G.   As at the date of this agreement, [WLC] has not shipped any Coal to UIL as required in accordance with the CPA.

H.   On 16 July 2013, UIL notified Argonaut that an event of default under clause 14 of the CPA had occurred and had requested the transfer of the Security Shares to its own account (Tripartite Notice).

I.   On the terms set out in this deed, UIL has agreed to withdraw the Tripartite Notice and [WLC] has agreed not to sell or deliver any Coal to UIL under the CPA on the basis that UIL is paid the Repayment Instalment on or prior to 3pm on the relevant Repayment Date, which the Securities Shares will be transferred to UIL in accordance with the Existing Security Deed.

60. As appears from Recital I, at the centre of the commercial arrangement intended to be effected by the Override Deed was the withdrawal of the Tripartite Notice and the cancellation of the agreement by WLC to sell coal to UIL under the CPA. That was to occur on the basis of the payment of the Repayment Instalment by specified times and the transfer to UIL of the Security Shares. This was all to be: “On the terms set out in this deed…”

61. Clause 2.1 provides for Repayment Dates of 31 July 2013 and 15 August 2013, on which dates Repayment Instalments of $4,500,000 were to be made. Clause 1.1 defines the Final Repayment Date as meaning 31 August 2013, and on that day, in effect, the balance due was required to be repaid.

62. Clause 1.1 defines "Obligors” as meaning WLC and GNI. This is consistent with the fact that both of those companies covenanted to pay the amount owed to UIL under the CPA and the Security Deed respectively.

63. Clause 2.1(c) releases WLC and UIL from the obligation to sell and buy coal created by the CPA. However, cl 2.2 contemplates that WLC may nonetheless by separate agreement with UIL perform its obligations to make payments under the Override Deed by delivering coal. As consideration for the release of the obligations in the CPA to buy and sell coal, WLC promised to pay the Repayment Amount by paying the Repayment Instalment on each Repayment Date as set out in the table. Effectively, the principal commercial object of the CPA was extinguished in return for WLC paying the Repayment Amount.

64. In the various components of cl 2, which is headed “CPA”, the parties to the Override Deed attended to the issue of which parties were making covenants, and which parties would be bound. Clause 2.1 provides: “[WLC] and UIL agree that for the purposes of the CPA and all other purposes…” Clause 2.3 contains an acknowledgement by UIL, GNI and WLC as to the amount of the Repayment Amount on 23 July 2013. Clause 2.4 contains an agreement by “the parties” “for the purposes of the CPA and all other purposes” that any failure by WLC to pay any Repayment Instalment will be an Event of Default under the CPA, the Existing Security Deed and the Tripartite Deed. The reference to “the parties” is sensible because the agreement relates to all of the prior agreements to which several of the parties to the Override Deed were parties.

65. Thus, to reflect the fact that the Override Deed had four parties, but varied earlier agreements to which some only of the parties were party, to some degree the Override Deed explicitly identified the parties that were to be affected by particular terms. This circumstance will be relevant to the consideration of whether, on its proper construction, cl 5.3 of the Override Deed gives WLC standing to insist that GNI has waived its entitlement to be indemnified by WLC.

66. Clause 3.1 of the Override Deed makes a number of amendments to the Security Deed. It commences by stating: “The parties agree that for the purposes of the Existing Security Deed and all other purposes”. Although all of the parties made this agreement, to the extent that the sub-clause made amendments to the Security Deed, it would remain the case that only the parties to that deed would be bound by it. Nothing in the Override Deed gave WLC or Argonaut any standing to enforce the Security Deed

67. Clause 3.1(a) amends cl 1.1 of the Security Deed by inserting a definition of "Obligor" as meaning WLC and GNI.

68. Clause 3.1(a) also has the effect of inserting into the Security Deed a definition of “Transaction Document”, which as has been observed above, was omitted from that deed. The definition inserted is:

“Transaction Document” means:

(a)   this deed;

(b)   the tripartite deed…;

(c)   the Override Deed;

(d)   any other document [GNI] and [UIL] agree is to be a Transaction Document.

69. The CPA is not included in the definition of Transaction Document, presumably because it had effectively been extinguished. The only document included in the definition to which WLC was a party is the Override Deed itself.

70. The Override Deed does not contain a separate definition of “Secured Moneys”. Instead, cl 3.1(b) provides: “The Secured Moneys include the Repayment Amount”.

71. It is implicit in the making of amendments to the Security Deed that, after the making of the Override Deed, the Security Deed continued to be in force as amended.

72. This is a significant result, as it means that not only did the charge created by the Security Deed continue in effect, but so did the ‘suspension provision’ in cl 13.6.

73. The effect of the Override Deed, in retrospectively inserting a definition of “Transaction Document” into the Security Deed, was that, whatever the effect of the definition of “Secured Money” may originally have been (perhaps necessarily being limited to obligations of WLC arising under the CPA), the effect changed in that the definition in practical terms extended only to all obligations of WLC arising under the Override Deed. That is because the Secured Money now meant, with respect to WLC’s liability to UIL, “all present and future debts and monetary liabilities” of WLC “under or in connection with” the Override Deed (being the only Transaction Document to which WLC was a party).

69. Consequently, while cl 13.6 of the Security Deed continued in effect, the Secured Money to which it now applied consisted of WLC’s debts and liabilities arising under the Override Deed.

70. Under cl 4.1, UIL withdrew the Tripartite Notice, but reserved the right to give a further notice under the Tripartite Deed.

71. As was the case for the Security Deed, cl 4.2 provided: “The parties agree that for the purposes of the Tripartite Deed and all other purposes”, certain listed amendments to the Tripartite Deed were made. Clause 4.2(i) contained the following provision:

Each of Argonaut and [GNI] agree that to the extent within its control it will not take any action or terminate or waive any rights or obligations under the Sponsorship Agreement, the Tripartite Deed or the Settlement Agreement (insofar as it relates to the Security Shares) without the prior written consent of UIL.

77. The only significance of this term for present purposes is that it is a specific agreement by Argonaut and GNI that confines the exercise of rights available to them under the identified agreements.

78. Otherwise, the amended Tripartite Deed remained in effect, and the only parties who could enforce it were the parties to that deed.

79. Clause 5 of the Override Deed provides:

5.   GUARANTEE

5.1   Guarantee and Indemnity

[GNI] unconditionally and irrevocably:

(a)   guarantees to UIL the payment when due of all amounts payable by [WLC] under or pursuant to this deed and the other Transaction Document;

(b)   undertakes to ensure that [WLC] will perform when due all its obligations under or pursuant to this deed and the other Transaction Document;

(c)   agrees that if and each time [WLC] fails to make any payment when it is due under or pursuant to this deed or any other Transaction Document, [GNI] must on demand (without requiring UIL to first to take steps against [WLC] or any other person) pay that amount to UIL as if it were the principal obligor in respect of that amount; and

(d)   agrees as principal debtor and primary obligor to indemnify UIL against, and to pay to UIL on demand an amount equal to, all Losses… directly or indirectly incurred or suffered by UIL arising out of or in connection with any non-payment or default of any kind by [WLC] under or pursuant to this deed or any other Transaction Document.

5.2   Obligations not affected by certain matters

The obligations of [GNI] under this deed are not affected by any matter or thing which but for this deed might operate to affect or prejudice those obligations, including…

5.3   Waiver of rights

[GNI] irrevocably waives and must not exercise any right of indemnity or subrogation which it otherwise might be entitled to claim and enforce against or in respect of [WLC].

5.4   [WLC’s] actions to bind [GNI]

Any agreement, waiver, consent or release given by [WLC] binds [GNI] including under the terms of this deed.

80. Clause 5.1(a) is the primary aspect of clause 5, in so far as it creates a general guarantee by GNI in favour of UIL in respect of all amounts payable by WLC “under or pursuant to this deed and the other Transaction Document”. It is clearly provided that this promise made by GNI is made solely to UIL, through the use of the words: “[GNI] unconditionally and revocably guarantees to UIL…” In the subsequent paragraphs of cl 5.1, GNI “undertakes” or “agrees”, but following cl 5.1(a) as they do, it is implicit that these undertakings and agreements are to UIL, and not any other party to the Override Deed.

81. Clause 5.2 stipulates matters of a conventional nature that might otherwise affect or prejudice GNI’s obligations under the Override Deed.

82. Clause 5.3 is the crucial provision for the purposes of this aspect of the case. WLC raises a defence that GNI is disentitled by the provision from seeking indemnity from it for the value of the shares in WLC that were charged to UIL under the Security Deed and, as will be seen, ultimately sold by UIL in reduction of WLC’s debt arising under the Override Deed. WLC says that GNI has waived and undertaken not to exercise any right of indemnity against it.

83. WLC’s defence must succeed if cl 5.3 is given its literal meaning, and WLC is entitled to enforce the term simply by reason of its being a party to the Override Deed.

84. Clause 5.3 differs from the effect of cl 13.6 of the Security Deed (which, as is observed above, continued to operate along with the balance of the amended Security Deed) in that cl 5.3 is not limited to suspending GNI’s entitlement to exercise the rights referred to until UIL has been paid in full. The clause is not drafted as a suspension of rights, but is literally a permanent prohibition on their exercise, even after UIL has been repaid in full.

85. Clause 5.3 takes the form of a permanent and irrevocable waiver and prohibition against the exercise of any right of indemnity or subrogation which GNI might otherwise have been entitled to. It does not otherwise purport to extinguish such rights. It does not create them and if given its literal meaning applies to any that might happen to arise.

86. Clause 6.1(a) provides in relation to the transfer of the 150 million shares in WLC that were the subject of the Security Deed:

The parties agree that for the purposes of the Tripartite Agreement, the Existing Security Deed and all other purposes if [WLC] fails to pay to UIL (or procure the payment to UIL of) any Repayment Instalment as UIL directs by 3pm on the applicable Repayment Date Argonaut will transfer the Security Shares held on the Holder Identification Number 0062441437 to the UIL trading account set up with Argonaut (with account number G1098846) on the immediately following Business Day…

87. It will be convenient to collect the various ways that the Override Deed deals with the rights and obligations of the four parties, given the significance of this issue to the proper construction of cl 5.3. The Override Deed deals with many subjects and three prior agreements, which appears to be reflected in the choice of the word “Override” as part of the name of the deed. Relevantly, in the Override Deed:

1. Clause 2 is an agreement between WLC and UIL concerning the effect of the CPA, although cl 2.3(b) contains an acknowledgement by UIL, GNI and WLC, and cl 2.4 is an agreement by all of the parties concerning any failure of WLC to pay a Repayment Instalment.

2. Clause 3 is an agreement between all of the parties as to amendments to the Security Deed, but the amended deed will only bind GNI and UIL, as the parties to it.

3. Clause 4 is primarily an agreement between all of the parties as to amendments to the Tripartite Deed, but the amended deed will only bind GNI, Argonaut and UIL, as the parties to it.

4. Clause 5 commences in cl 5.1(a) as being a guarantee by GNI in favour of UIL. The balance of the provisions in cl 5.1 and 5.2 appear to be for the benefit of UIL, although they are silent in specific terms as to the parties bound and benefited. Clause 5.3 is silent as well on that issue.

5. Clause 6 is an agreement between all of the parties “for the purposes of the Tripartite Agreement, the Existing Security Deed and all other purposes”, to the effect that if WLC fails to pay any Repayment Instalment, Argonaut will transfer the Security Shares to the UIL trading account. Clause 6.2 contains a release, discharge and indemnity by WLC, GNI and UIL in favour of Argonaut.

6. Clause 7 deals with the manner of payments, and is silent as to the parties bound and benefited, although cl 7.3 requires payments made by WLC and GNI to be clear of all deductions and withholdings, and cl 7.4 is a waiver by WLC and GNI of rights of set-off.

7. The balance of the provisions deal with administrative type matters, and where references are made to the parties it is generally in terms of “all of the parties”, “each party” or “any party”. The exception is that cl 9.5 requires GNI to pay all stamp duty on or relating to the deed.

8. It should be noticed that cl 9.1(b) provides: “Each party is bound by [the CPA], Existing Security Deed and Tripartite Deed as amended by this deed”, but it is very doubtful that this provision would have any effect in relation to parties who did not have rights and obligations as parties under the several agreements. For example, as WLC was not a party to the Security Deed, and had no obligations under it cl 9.1(b) did not impose any obligations on WLC. Although the parties all became bound by the earlier agreements, they were not given any additional rights to enforce those agreements if they were not already parties.

Subsequent events

88. On 23 September 2013, Argonaut sent an email to Mr Sharma WLC which said:

Argonaut has been served with a notice under the Override Deed between Argonaut, [GNI] & UIL.

That notice specifies that an event of default has occurred, and that as such, Argonaut is directed to transfer the 150,000,000 [WLC] shares held in [GNI's] account into that specified by UIL, without further enquiry.

UIL has accordingly instructed Argonaut to make this transfer and as the notice is valid, Argonaut must now transfer the securities into the designated account which UIL has created with Argonaut.

89. On 27 September 2013, UIL wrote a letter to WLC in which, after referring to the Override Deed, the Security Deed and the Tripartite Deed said:

On 23 September 2013, UIL took possession of property of [GNI] under the Specific Security Deed and Tripartite Deed as amended by the Override Deed, being 150 million shares in [WLC] owned by [GNI].

Under section 429 of the Corporations Act, UIL notifies [GNI] that it is a controller of property of [GNI].

We draw your attention to the requirements of section 429(2)(b) of the Corporations Act.

Deed of Settlement and Release

90. On 15 May 2014, UIL and WLC entered into a deed called the "Deed of Settlement and Release".

91. In the Background, the deed recites the CPA, the Security Deed, the Tripartite Deed, the making of the US$20 million payment by UIL, and the Override Deed, and then recites:

G.   On 31 July 2013, WLC delivered to UIL bills of lading in respect of 50,000 metric tonnes of coal, to be delivered to New Mangalore, with a value of USD $4.6 million. This coal was on-supplied by UIL to Gujarat NRE Coke Limited (GNCL) in India. UIL accepted the amount recovered under those bills of lading in reduction of the amount owing under the Override Deed.

H.   UIL has exercised its rights to the Security Property and it now holds the Security Property in its own right.

I.   The parties have agreed that on the Effective Date, Settlement Amount will remain owing by WLC to UIL under the Override Deed.

J.   UIL and WLC wish to agree under the terms of this deed on the full and final satisfaction of any Claims UIL may have against WLC under the UIL Agreements.

92. It should be noted that recital H was drafted on the basis that UIL by that stage held the 150 million shares previously owned by GNI in WLC in its own right.

93. In substance, the Deed of Settlement and Release provides that, upon payment by WLC to UIL of the Settlement Amount, following delivery of the bills of lading in respect of the coal with a value of USD 4,600,000, there would be a full and final settlement of all claims between the two parties: see cl 2.1(a).

94. "Settlement Amount" is defined in cl 1.2 as meaning:

(a)   the balance due and owing under the Override Deed which the parties agree is US$2,240,000 as calculated in the connection to this deed; and

(b)   the legal costs of UIL in the amount of US$400,000.

95. The Settlement Amount was calculated by deducting from the original advance payment of US$20 million, the US$4,600,000 value of the coal shipment, and two amounts paid to UIL by WLC of USD 1 million on 7 and 19 August 2013, leaving a balance of US$13,400,000.

96. From this amount the following was also deducted:

Amount ($USD)
Less adjustment for value of Secured Property being 150 million WLC shares at an agreed value per WLC share of AUD 8 cents at the agreed conversion rate of AUD/USD of 0.93	11,160,000

97. On 4 June 2014, UIL wrote a letter to GNI. The letter said:

We refer to our letter dated 18 September 2013, in which we notified you that Argonaut was directed to transfer to UIL the 150 million shares in WLC provided by [GNI] as security in relation to amounts owing under the Override Deed (Shares).

We write to notify you that on 29 May 2014 the Shares were disposed of for a consideration of 0.08 AUD per share… As a result, the sum of US $11,139,600 has been applied in reduction of the amount owing under the Override Deed.

In the circumstances, UIL is satisfied that the price of 0.08 AUD is the best price it could obtain for the shares at this time …

Basis of GNI’s claim for indemnity or damages

98. It will now be appropriate to consider the claims as they are pleaded by GNI in the SOC to be entitled to be indemnified by WLC for the value of the shares sold by UIL for the purpose of the partial repayment of the debt owed by WLC to UIL, or alternatively to damages or other relief equal to the value of the shares.

99. GNI has pleaded an array of claims involving breaches of express and implied terms of the Security Deed and the Override Deed, in some cases raising questions of construction, obligations of good faith, entitlement to contribution, entitlement to restitution on the basis of unjust enrichment, and estoppel by convention. May I say, with respect, that I have not found the structure in which these various claims have been set out in the SOC conducive to the efficient determination of the issues. I propose to deal with the claims in a different order than that in which they are raised in the SOC.

100. As I read GNI’s detailed final written submissions, they do not appear to deal with all of the claims that have been pleaded, and sometimes appear to put the claims in a slightly different way than they have been pleaded and with different emphasis. I do not consider these changes to have exceeded the boundaries of the pleaded claims, and the contrary was not suggested by WLC.

101. In its closing submissions, GNI expressly abandoned a pleaded claim based upon the principles of conventional estoppel (SOC pars 114 to 119) and a claim for rectification of cl 5.3 of the Override Deed (SOC pars 78 to 80). There are other pleaded claims that I apprehend have not been supported, or supported in any detail, in GNI’s final submissions. As they have not been abandoned, I will treat them as remaining alive.

102. In SOC pars 36, 59, 64, 105 and 109, GNI pleads reliance upon implied terms that it alleged arose out of the Security Deed, or both the Security Deed and the Override Deed. As WLC is not a party to the former deed, it could not be bound by any terms to be implied in that deed. As I understand GNI’s final submissions, it accepted this necessary conclusion.

103. I have found it convenient to deal with GNI’s pleaded claims in the following order: generally proceeding from claims based upon the express terms of the relevant deeds, as properly construed, to alleged implied terms, and then alternative bases for relief. The claims are:

1. GNI is entitled to damages for breach by WLC of the express terms in the Override Deed that required WLC to pay the Repayment Amount to UIL (SOC pars 72 to 77).

2. GNI’s equitable right to be indemnified by WLC is not extinguished by cl 5.3 of the Override Deed on its proper construction (SOC pars 123 to 129). (In SOC par 128 GNI simply pleads that its right of indemnity has not been waived on the proper construction of the Override Deed, and refers to cl 5.3 in the particulars. This allegation is not confined to any particular reason for the alleged construction to be adopted. It may be noted that, in its closing submissions par 119, GNI put the submission on the basis that WLC is prevented from relying upon the waiver contained in cl 5.3 “at all times when it is in breach of the Override Deed”. I have proceeded on the basis that the specific argument put in par 119 does not prevent GNI from relying upon any basis for the construction of cl 5.3 as alleged in SOC par 128. GNI confirmed in its reply submissions in the bullet point response to WLC’s par 28 “that cl 5.3 cannot be enforced or relied upon by WLC – it was for the benefit of UIL”).

3. GNI’s equitable right to be indemnified by WLC has survived because the right of indemnity arises under both the Security Deed and the Override Deed, which continued to operate coincidently, and cl 13.6 of the Security Deed no longer prevents the indemnity being enforced, because UIL has been fully repaid, so that it does not matter even if cl 5.3 of the Override Deed has extinguished GNI’s right of indemnity in so far as it arises under that deed (SOC pars 129A to 129K). See also closing submissions pars 114 to 117.

4. GNI’s equitable right to be indemnified by WLC is not extinguished by cl 5.3 of the Override Deed because, on the proper construction of that term, it is to be read down so that it does not operate after UIL has been fully repaid (SOC par 118).

5. Even if GNI’s equitable right to be indemnified by WLC is extinguished by cl 5.3 of the Override Deed, that term only applies to GNI’s right to be indemnified or to be subrogated to the rights of UIL, and not to GNI’s right of contribution, so GNI is entitled to contribution from WLC in respect of half of the difference between the value of the shares that were sold in order to repay WLC’s debt to UIL and the amounts repaid to UIL by WLC (SOC pars 90 to 104).

6. GNI is entitled to damages from WLC for breach of an implied term in the Override Deed, that is implied by law, to the effect that WLC would indemnify the plaintiff in respect of the value of the shares that were sold in order to repay WLC’s debt to UIL (SOC pars 120, 121).

7. GNI is entitled to damages from WLC for breach of an implied term in the Override Deed, that is implied in fact and by law, to the effect that WLC would pay the Repayment Amount to UIL whether or not UIL resorted to the guarantee and indemnity granted by GNI (SOC par 71).

8. GNI’s equitable right to be indemnified by WLC is not extinguished by cl 5.3 of the Override Deed because the Override Deed contains an implied term, that is implied in fact and by law, to the effect that cl 5.3 will not apply where the Repayment Amount is paid by accord and satisfaction (SOC pars 69, 70).

9. GNI is entitled to damages from WLC for breach of an implied term in the Override Deed, that is implied in fact and by law, to the effect that WLC would do all acts and things necessary to enable the Repayment Instalments to be made on time to UIL, and if not on time whenever it became possible, so as to ensure that GNI’s shares in WLC were not sacrificed or prejudiced by WLC (SOC pars 59 to 61).

10. GNI is entitled to damages from WLC for breach of the duty to act in good faith (and reasonably) and also a duty to that effect implied in the Override Deed, that is implied in fact and by law (SOC pars 62 to 68, and separately pars 109 to 113).

11. Even if GNI is not entitled to be indemnified by WLC or damages for breach of any duty or an implied term, GNI is entitled to restitution from WLC for the value of the shares that were sold in order to pay WLC’s debt to UIL on the ground that WLC was unjustly enriched (SOC par 122).

Is WLC liable for breaching an express term to pay UIL? Claim (1)?

104. GNI claims that it is entitled to damages for breach by WLC of that company’s express obligation in cl 2.1(c) of the Override Deed to pay the Repayment Amount in accordance with the timetable set out in that provision. I note that this claim does not appear to have been supported by GNI in its closing submissions.

105. This claim fails because cl 2.1 of the Override Deed was expressly an agreement between WLC and UIL, and as a matter of contract the covenant by WLC was not made in favour of GNI and is not enforceable by that company.

106. In any event, GNI also agreed with UIL, in cl 4.1 of the Security Deed and cl 5.1(d) of the Override Deed as principal debtor and primary obligor, to pay to UIL the same amount as GNI complains WLC failed to pay UIL. As a matter of contract, both GNI and WLC were in breach of obligations to pay the same amount to UIL. Putting aside the issue of who could enforce those covenants, neither could succeed in recovering damages from the other because each was in breach for the same amount. In part, because of the inability of the law of contract to deal adequately with this situation, equity has developed rules for determining whether the obligations of co-obligors are coordinate or whether in reality, notwithstanding the contractual position, one is a primary and the other is a secondary obligation. Subject to what is said below concerning GNI’s multiple implied term claims, success by GNI in establishing a right to indemnity or contribution must depend upon the application of equitable principles, provided that the terms of the Override Deed do not extinguish GNI’s equitable rights.

492. I note that in its submissions, GNI seeks the opportunity to make submissions as to the appropriate costs order to be made in these proceedings, including why any special cost order should be made. I will give the parties the opportunity to submit written submissions on this issue.

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Amendments

31 December 2018 - Formatting correction at par 151

Decision last updated: 31 December 2018