Imperial Chemical Industries plc v Echo Tasmania Pty Limited
[2007] FCA 1731
•13 November 2007
FEDERAL COURT OF AUSTRALIA
Imperial Chemical Industries plc v Echo Tasmania Pty Limited [2007] FCA 1731
PRACTICE AND PROCEDURE – applications for discovery by prospective respondents
CORPORATIONS – requirements for the transfer of shares in proprietary companies under the Corporations Act
Held: orders for discovery should be made as sought
Federal Court Rules Order 15A r2, r6 and r10, Order 17 r1, Order 15 r2(2), r6, r11, r13 and r14, Form 22
Corporations Act 2001 (Cth) ss 9, 176, 761A, 1070A(1), 1071A, 1071B, 1073A, 1073D, 1073F, 1274B(2) and 1305
Corporations Regulations2001 (Cth) 1.0.02 and 7.11.01Environmental Management and Pollution Control Act 1994 (Tas)
Trade Practices Act 1974 (Cth)Hall v The Nominal Defendant (1966) 117 CLR 423
Malouf v Malouf (1999) 86 FCR 134
Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2007] FCA 1560
Cardale v Watkins (1820) V Maddock 18
Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 391
Hooper v Kirella Pty Ltd; Transfield Pty Ltd v Airservices Australia (1999) 96 FCR 1
St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147
John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679
Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728
Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216
Global Intertrade Pty Ltd v Adelaide Festival Centre Trust [1999] FCA 162IMPERIAL CHEMICAL INDUSTRIES PLC v ECHO TASMANIA PTY LIMITED AND DELOITTE GROWTH SOLUTIONS PTY LIMITED
NSD 1321 OF 2007GRAHAM J
13 NOVEMBER 2007
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1321 OF 2007
BETWEEN:
IMPERIAL CHEMICAL INDUSTRIES PLC
ApplicantAND:
ECHO TASMANIA PTY LIMITED
First RespondentDELOITTE GROWTH SOLUTIONS PTY LIMITED
Second Respondent
JUDGE:
GRAHAM J
DATE OF ORDER:
13 NOVEMBER 2007
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The first respondent make discovery to the applicant of any document of the kind described in the following Schedule:
SCHEDULE A
1.The Deed of Appointment of Replacement Probity Auditor dated 27 March 2006 between the first and second respondents (‘Replacement Probity Deed’).
2.Each and every notification given to a person appointed as ‘Probity Auditor’ under the Deed Appointing Probity Auditor, between the first respondent and Ernst & Young, dated 1 October 2002 (‘Probity Deed’) as amended by the Replacement Probity Deed, in respect of any one or more of the events the subject of:
(a)the letter from the second respondent to Mr Julian Homer at the first respondent, dated 31 May 2006 and entitled ‘Probity Audit Notice’ (‘May Probity Audit Notice’); and
(b)the letter from the second respondent to Mr Julian Homer at the first respondent, dated 1 November 2006 and entitled ‘Probity Audit Notice’ (‘November Probity Audit Notice’).
3.All documents and records of information provided to a Probity Auditor in relation to any one or more of those events.
4.All documents recording any instructions, information or documents given by the first respondent to any expert in relation to any one or more of those events.
5.All documents recording any and all communications between the first respondent and any expert in relation to any one or more of those events.
6.Each and every report, including any expert report, provided to the first respondent in respect of any one or more of those events.
7.All documents recording any and all communications between the first respondent and a Probity Auditor in relation to any one or more of those events.
8.Any other documents relating to the extent to which each event the subject of the May Probity Audit Notice and the November Probity Audit Notice was a “Payment Event” falling within clause 3.1 of the Probity Deed and not excluded by clause 3.2 of the Probity Deed.
9. All documents regarding:
(a)the transfer of shares in the first respondent from Christopher Ian James Hartley to Julian Charles Homer on 3 September 2003 which was notified to ASIC in the share transfer notification lodged with ASIC on 7 March 2005; and
(b)why that share transfer notification to ASIC was withdrawn,
excluding the first respondent’s share register and documents lodged with ASIC.
10.All documents regarding the first respondent’s verification processes for determining whether there had been a change in controlling shareholder of the first respondent prior to it making each of the June claim and the November claim.
2.Such discovery be made by the service of a verified list on the applicant within 28 days from the date of this Order.
3.The second respondent make discovery to the applicant of any document of the kind described in the following Schedule:
SCHEDULE B
1. The Replacement Probity Deed (as defined in Schedule A).
2.Documents recording communications with the second respondent in relation to it being retained to act as ‘Probity Auditor’.
3.Documents recording any information provided to the second respondent, or any consideration given by the second respondent, in relation to the reason(s) why the role of probity auditor had been created.
4.Documents held by the second respondent relating to the extent to which it knew that the applicant may be liable to pay to Westpac Banking Corporation all or any part of sums paid by Westpac Banking Corporation to the first respondent.
5. Any copy of any one or more of the following documents:
(a)the Share Purchase Agreement between Australian Titanium Products Pty Ltd (ACN 009 553 995) (‘ATP’) and the first respondent, dated 1 October 2002;
(b)the Probity Deed (as defined in Schedule A);
(c)the Westpac Banker’s Undertaking to the first respondent, dated 26 September 2002;
(d)the applicant’s indemnity to Westpac Banking Corporation, dated 26 September 2002.
6.Each and every notification given to the second respondent in respect of any one or more of the events the subject of the May Probity Audit Notice (as defined in Schedule A) and the November Probity Audit Notice (as defined in Schedule A).
7.All documents and records of information given to the second respondent that relate to any one or more of the events the subject of the May Probity Audit Notice and the November Probity Audit Notice.
8.Documents relating to any consideration given by the second respondent to any such notification, documentation and information.
9.Documents relating to any review undertaken or consideration given by the second respondent of the probity of the first respondent’s processes for validating the existence of a Payment Event as defined under clause 3.1 of the Probity Deed.
10.Documents relating to any consideration given by the second respondent to the report of any expert retained by the first respondent.
4.Such discovery be made by the service of a verified list on the applicant within 28 days from the date of this Order.
5.The applicant pay the costs of the respondents of making and serving their respective lists.
6.The applicant have liberty to apply on 5 days’ notice for orders that the discovered documents be produced for inspection by the applicant, at times and places to be specified in the orders.
7.The respondents pay the applicant’s costs of the application.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1321 OF 2007
BETWEEN:
IMPERIAL CHEMICAL INDUSTRIES PLC
ApplicantAND:
ECHO TASMANIA PTY LIMITED
First RespondentDELOITTE GROWTH SOLUTIONS PTY LIMITED
Second Respondent
JUDGE:
GRAHAM J
DATE:
13 NOVEMBER 2007
PLACE:
SYDNEY
REASONS FOR JUDGMENT
By an Application filed 11 July 2007 the applicant, Imperial Chemical Industries plc, seeks discovery from two prospective respondents – Echo Tasmania Pty Limited ACN 101 733 591, the first respondent, and Deloitte Growth Solutions Pty Limited, the second respondent, in accordance with Order 15A rule 6 of the Federal Court Rules (‘the Rules’).
Order 15A rule 6
Order 15A of the Rules was inserted in 1988. It allows for discovery to identify a respondent, discovery from a prospective respondent, discovery from a non-party, inspection of discovered documents and inspection, measurement, photocopying, preservation, custody and detention of property, the taking of samples, carrying out of experiments etc. (cf. Order 17 rule 1 of the Rules in respect of inter-partes proceedings which have already been commenced).
Order 15A rule 2 ensures that a person providing discovery under Order 15A is not required to produce documents which, on the ground of privilege, the person could not be required to produce.
In relation to the inspection of documents discovered pursuant to an order made under Order 15A, Order 15A rule 10 provides:
‘10 Division 2 of Order 15 shall, with any necessary modification, apply to the inspection of the documents referred to in a list of documents made and served in accordance with this Order as if the list were a list of documents as mentioned in Order 15 rule 2.’
Order 15 deals with discovery and inspection of documents in normal inter-partes proceedings. Division 2 of that Order deals with inspection and includes rules 10 – 14. Order 15 rules 11, 13 and 14 relevantly provide:
‘11 (1) Where:
(a)it appears from a list of documents filed by a party under this Order that any document is in his possession, custody or power;
…
the Court may, subject to any question of privilege which may arise, order the party:
(d)to produce the document for inspection by any other party at a time and place specified in the order; or …
…
13(1) The Court may, at any stage of any proceeding, order any party to produce to the Court any document in his possession, custody or power relating to any matter in question in the proceeding.
(2)Upon production of a document to the Court pursuant to an order under subrule (1), the Court may deal with the document in such manner as the Court thinks fit.
14Where an application is made for an order under rule 11 for the production of any document for inspection by another party or for an order under rule 13 for the production of any document to the Court and a claim is made that the document is privileged from production or an objection to production is made on any other ground, the Court may inspect the document for the purpose of deciding the validity of the claim or objection.’
Order 15A rule 11 deals with costs in relation to an order that a prospective respondent make discovery to an applicant of documents, an order that a prospective additional respondent make discovery to an applicant of documents and an order that a third party make discovery to an applicant of documents. It provides as follows:
‘11(1)The Court may make an order for the costs and expenses of the applicant, a party to the proceeding or a person against whom an order is made or sought, including the following:
(a)the costs of making and serving a list of documents;
(b)the costs of producing a document for inspection in accordance with rule 10;
(c)the costs of complying with an order made under Division 2 of Order 15;
(d)if the order made or sought was similar to a subpoena – expenses or compensation that would have been allowable under Order 27, rule 11 if the order was for a subpoena.
(2)The Court may make an order under this Order on condition that the applicant give security for the costs and expenses of the person against whom the order is made.’
The power of the Court to order discovery by a prospective respondent is to be found in Order 15A rule 6, which provides as follows:
‘6 Where:
(a)there is reasonable cause to believe that the applicant has or may have the right to obtain relief in the Court from a person whose description has been ascertained;
(b)after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief; and
(c)there is reasonable cause to believe that that person has or is likely to have or has had or is likely to have had possession of any document relating to the question whether the applicant has the right to obtain the relief and that inspection of the document by the applicant would assist in making the decision;
the Court may order that that person shall make discovery to the applicant of any document of the kind described in paragraph (c).’
An order made on an application in proceedings preliminary to the bringing of an action, which does not preclude a further application to like effect being brought, is interlocutory (per Taylor J in Hall v The Nominal Defendant (1966) 117 CLR 423 (‘Hall’) at 440; see also per Owen J at 447).
It is not of the essence of an interlocutory order that it is one made in the course of a pending action or suit (per Taylor J in Hall at 440; see also per Owen J at 447).
An order made in the course of an action or suit which does not conclude the rights of the parties inter se, although it may conclude the fate of the particular application in which it is made, is interlocutory only (per Taylor J in Hall at 440; see also per Owen J at 447).
The character of proceedings such as an application under Order 15A rule 6 may be of more significance than the result for an applicant, in determining whether an order is interlocutory or not (per Windeyer J in Hall at 445).
An order made in an application under Order 15A rule 6 will be interlocutory, given that it will not preclude a further application (per Beaumont, Lee and Dowsett JJ in Malouf v Malouf (1999) 86 FCR 134 at 143; see also per Tamberlin J in Optiver Australia Pty Ltd v Tibra Trading Pty Ltd [2007] FCA 1560 at [10]-[20]).
It is inappropriate on an application such as that which is presently before the Court to make any findings of fact other than those that are proper in an interlocutory context.
Discovery against a prospective respondent is invasive. In Cardale v Watkins (1820) V Maddock 18, a case where a bill for discovery was sought but for no stated purpose, Vice Chancellor, Sir John Leach observed:
‘a Court of Equity does not compel Discovery for the mere gratification of curiosity, but in aid of some other Proceeding either pending or intended, and … there must be Allegations to that effect.’
Order 15A rule 6 is directed to aiding an applicant who is having real difficulty, and reasonably so, in deciding whether to litigate because of a lack of key information, whether relating to its own case or to that of the proposed respondent, which is in the possession of the respondent. It requires evidence demonstrating that the applicant for relief is on the horns of a dilemma: whether to sue or not to sue (per Lindgren J in Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 391 (‘Alphapharm’) at [45]).
In relation to the power conferred on the court by Order 15A rule 6 of the Rules Wilcox, Sackville and Katz JJ held in Hooper v Kirella Pty Ltd; Transfield Pty Ltd v Airservices Australia (1999) 96 FCR 1 at [59] that the Court has the power to grant relief against a prospective respondent even though proceedings claiming substantive relief may never be instituted if the applicant has asserted a claim arising under a law of the Parliament and done so in proceedings instituted in the Court under the relevant rule (see also at [61]).
In his reasons for judgment in Alphapharm, Lindgren J made certain observations concerning Order 15A rule 6 at [41] as follows:
‘1.Paragraphs 6 (a) and 6 (c) pose an objective test, the opening words “there is” in each paragraph signifying “there exists”; but the “insufficiency test” of para 6 (b) has both subjective and objective aspects.
2.Although I need not explore the subjective aspect fully, it seems clear that if the evidence went so far as to show that a particular applicant was already able to decide to commence a proceeding by, for example, showing that the applicant had in fact decided to do so, para 6 (b) would not be satisfied even though the information available satisfied the objective aspect of the insufficiency test referred to below.
3.The fact that a particular applicant genuinely feels unable, because of a lack of information, to decide to commence a proceeding does not, without more, satisfy para 6 (b); the objective aspect of the paragraph requires it to be shown as an objective fact that the applicant lacks “sufficient information to enable a decision to be made whether to commence a proceeding”.
4.In my view, the objective aspect of para 6 (b) invokes a notion of “reasonable sufficiency”, the question raised being whether it is reasonable that the applicant for an order be required to take its decision without having the information to become available from inspection of the document or documents of which discovery is sought.
5.If the insufficiency test is satisfied, a second question will arise, namely, whether the Court's discretion should be exercised in favour of the making of an order.
6.The questions posed by rule 6 and referred to above are to be answered in the context of an adversary system of forensic contest in which a proposed respondent is ordinarily entitled to withhold its evidence, certainly prior to the commencement of proceedings.
7.The questions are also to be answered in the light of the nature of the “cause of action” contemplated and the range of information potentially available in respect of a cause of action of that kind.
8.… in my opinion rule 6 is not necessarily rendered unavailable by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief. This is made clear by the reference in para (a) to the existence of “reasonable cause to believe that the applicant has ... the right to obtain relief ...” (emphasis supplied). It would impose an artificial constraint on rule 6, not supported by its terms or purpose, to exclude, a priori, all cases in which the insufficiency of the information possessed by the applicant to enable a decision to be made whether to litigate is due to a matter of “defence” which would defeat the prima facie case.
9.Rule 6 does not provide a means by which an applicant will be enabled to have available to it every document which would assist it in deciding whether to litigate. If that were the intention, paras (a) and (c) would stand alone and the additional condition set out in para (b) would not be necessary.
10.Paragraph 6 (b) contemplates that after making all reasonable inquiries, the applicant has come up against a problem, namely, that it is lacking a piece of information or pieces of information reasonably necessary to enable it to decide whether to commence a proceeding.’
In St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 (‘St George Bank’) Hely J stated a series of propositions which his Honour considered had emerged from the authorities in relation to the proper application of Order 15A rule 6 at [26] as follows:
‘(a)the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper brake on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case: Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 733; 20 IPR 79 at 85; Minister for Health and Aged Care v Harrington Associates Ltd [1999] FCA 549; BC9902167 at [27];
(b)each of the elements prescribed in subparas (a), (b) and (c) of the rule must be established: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 11 [38] ; 167 ALR 385 at 367; 47 IPR 21 at 30. Preliminary discovery cannot itself be used to remedy deficiencies in the satisfaction of the conditions themselves: Airservices Australia v Transfield Pty Ltd (1999) 92 FCR 200 at 202–3 [5]; 164 ALR 330 at 332;
(c)the test for determining whether the applicant has “reasonable cause to believe”, as required by subpara (a), is an objective one: Hooper at FCR 11–12 [39]; ALR 367; IPR 30; Malouf v Malouf [1999] FCA 710; BC9902833 at [16]; Quanta Software International Pty Ltd v Computer Management Services Pty Ltd (2000) 175 ALR 536 at 541-2 [24]; 49 IPR 25 at 31; Alphapharm Pty Ltd v Eli Lilly Australia Pty Ltd [1996] FCA 391; BC9602085 at 23. Further, the words “or may have” cannot be ignored. The applicant does not have to make out a prima facie case: Quanta Software at ALR 541-2 [24]; IPR 31; Paxus Services at ALR 733; IPR 85;
(d)belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action: John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679; BC200403021 at [13], [14], [17] and [73];
(e)while uncertainty as to only one element of a cause of action might be compatible with the “reasonable cause to believe” required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe: Glowatzky v Insultech Group Pty Ltd (1997) 39 IPR 215;
(f)the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the court: Quanta Software at ALR 543 [33]-[34]; IPR 32-3, Alphapharm at 24–6. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award: CGU Insurance Ltd v Malaysia International Shipping Corp Berhad (2001) 187 ALR at 285 [21]; Quanta Software at ALR 543 [33]-[34]; IPR 32-3, Alphapharm at 24–6, Airservices Australia at FCR 202–3 [5]; ALR 332
(g)whether an applicant has “sufficient information” for the purposes of subpara (b) also requires an objective assessment to be made: Minister for Health at [44]; Alphapharm at 23–4, Hooper at FCR 12 [40]; ALR 367; IPR 31. The subparagraph contemplates that the applicant is lacking a piece (or pieces) of information reasonably necessary to decide whether to commence proceedings;
(h)it is no answer to an application under the rule to say that the proceeding is in the nature of a “fishing expedition”: Paxus Services at ALR 733; IPR 85. Indeed O 15A r 6 “expressly contemplates” what once might have been castigated as “fishing”: Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 at 143 [27]; 182 ALR 264 at 270-1; 20 IPR 79 at 85. As Burchett J commented in Paxus Services, the rule is (at ALR 733; IPR 85):
… designed to enable an applicant, in a situation where his proof can rise no higher than the level the rule describes, to ascertain whether he has a case against the prospective respondent …’
If the evidence on an application under Order 15A rule 6 suggests that there is reasonable cause to believe that an inference can be drawn, the inference can be more confidently drawn where a respondent adduces no evidence to deny the fact or matter. It may be that, upon full exploration of the matter, the inference would be rebutted. However, where an applicant is not met by any denial by those best able to throw light on whether an inference as to a relevant fact or matter is correct, namely the respondents in this case, the inference can be drawn more confidently (per Emmett J in John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [16]; see also Burchett J in Paxus Services Ltd v People Bank Pty Ltd (1990) 99 ALR 728 at 732-3).
In St George Bank Hely J emphasised that the bare possibility that something may have occurred is insufficient to satisfy the test in rule 6(a) that there is reasonable cause to believe that an applicant may have the right to obtain relief in the Court from another person. Whilst an applicant does not need to go so far as to establish a prima facie case, it does have to establish that there is reasonable cause to believe that each of the necessary elements of a potential cause of action exists. The evidence must incline the mind to the view that each necessary element exists. Whilst the threshold test under paragraph (a) of rule 6 is set at quite a low level, it is not sufficient to point to a mere possibility that an applicant may have a claim when that claim is completely dependent on as yet unknown facts. Unsupported speculation will not suffice (per Hely J in St George Bank at [29] and [32]). Mere assertion, conjecture or suspicion is insufficient to establish reasonable cause to believe that an applicant may have a right to obtain relief in the Court from another person. Reliance upon suspicion or a ‘hunch’ will not suffice (per Middleton J in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 at [76] and [81]).
Whilst Order 15A makes no provision for the means whereby discovery should be given by parties such as the respondents to a party such as the applicant, it seems clear to me that discovery must be given in the manner for which Order 15 rule 2(2) provides, namely:
‘2(2)Unless the Court or a Judge orders otherwise, a party must give discovery by serving:
(a)a list of documents required to be disclosed; and
(b)an affidavit verifying the list.’
Mansfield J expressed the same view in Global Intertrade Pty Ltd v Adelaide Festival Centre Trust [1999] FCA 162 at [2].
The form of the list of documents may, in my opinion, be taken to be regulated by Order 15 rule 6, which relevantly provides:
‘6(1)A list of documents required by or under this Order shall, unless the Court otherwise orders, be in accordance with Form 22 and conform to the requirements of this rule.
(2)A list of documents shall enumerate the documents which are or have been in the possession, custody or power of the party making the list.
(3)A list of documents shall enumerate the documents in a convenient sequence and as shortly as possible, but shall describe each document or, in the case of a group of documents of the same nature, shall describe the group, sufficiently to enable the document or group to be identified.
…
(5)A list of documents shall distinguish those documents which are in the possession, custody or power of the party making the list from those that have been but are no longer in his possession, custody or power.
(6)A list of documents shall, as to any document which has been but is not then in the possession, custody or power of the party making the list, state when he parted with the document and what has become of it.
…
(8)Where a party making a list of documents has a solicitor in the proceeding, the solicitor shall certify on the list that, according to his instructions, the list and the statements in the list are correct.’
Form 22, of course, provides for documents to be enumerated one by one in either Schedule 1 Part 1, Schedule 1 Part 2 or Schedule 2 of the relevant list. The operative words in Form 22 include:
‘1.The party has in his possession, custody or power, the documents enumerated in Schedule 1.
2.The documents enumerated in Part 2 of Schedule 1 are privileged from production on the ground – …
3.The party has had, but does not now have, in his possession, custody or power, the document (sic) enumerated in Schedule 2.
4(a)document … referred to in Schedule 2 was last in the respondent’s position, custody or power on …
…’
Background
Prior to 1 October 2002 Tioxide Australia Pty Limited ACN 004 214 439 was a wholly owned subsidiary of Australian Titanium Products Pty Limited ACN 009 553 995, which in turn was a wholly owned subsidiary of the applicant. Until about July 1996 Tioxide Australia Pty Limited operated a titanium dioxide pigment manufacturing plant at a site located five kilometres east of the city of Burnie in Tasmania (‘the Heybridge site’). In about July 1996 the plant was closed and in 1999 the remaining titanium dioxide businesses of Australian Titanium Products Pty limited and Tioxide Australia Pty Limited were sold. This left Tioxide Australia Pty Limited as the owner of the Heybridge site, on which significant remediation work had to be undertaken.
Under the heading ‘Principal activities’ in a directors’ report for Tioxide Australia Pty Limited for the year ended 31 December 2001 the following appeared:
‘Until 30 April 1999, the principal activities of the company consisted of the import and sale of pigments used in the paint, plastics, printing, ink and paper industries. From this date, the principal activity of the company consisted of rehabilitation of the Burnie site that was previously used for the manufacture of pigment.’
Under the heading ‘Review of operations’ the following appeared:
‘The Company ceased the importation and distribution of pigment as from 30 April 1999. From this date, the remaining employees at the Ascot Vale marketing branch were made redundant and no trading activities have since occurred.
The Company’s current operations now relate to the continued rehabilitation of the Burnie site that was previously used for the manufacture of pigment.’
The statement of financial position of Tioxide Australia Pty Limited as at 31 December 2001 showed current assets of $24,317,000 made up of $15,204,000 held on deposit with Australia and New Zealand Banking Group Limited and $9,011,000 on loan to a related corporation and ‘other debtors’ of $102,000. The only other asset of Tioxide Australia Pty Limited was shown as property, plant and equipment ($310,000) comprising freehold land ($229,000), freehold building ($48,000) and plant and equipment, less accumulated depreciation ($33,000). The net assets of Tioxide Australia Pty Limited were shown in the statement of financial position as at 31 December 2001 at $25,046,000.
The relevant liabilities were shown in the statement of financial position as $100,000 for trade creditors, $5,000 for other creditors, $137,000 for loans from other related corporations, $482,000 as ‘provision for closure costs’ and $100,000 for income tax. Given an allowance of $1,243,000 for ‘costs yet to be reimbursed’, the liabilities of Tioxide Australia Pty Limited in fact increased the net asset position by $661,000. At the conclusion of note 10 to the accounts dealing with ‘provisions’ the following entry appeared:
‘A provision for closure costs at Burnie has been established in the books of a related company. At 31 December 2001, the balance remaining in this provision is approximately $1,807,000. This related company reimburses closure costs to the company on a periodic basis based on invoices raised by the company. To the extent that future closure costs exceed this provision, the excess will be funded from the company’s reserves.’
According to Mr R L G K Ross, Vice-President Corporate Finance at the applicant, who in 2002 was Senior Taxation Manager with the applicant and a member of the applicant’s team that worked on the sale of Tioxide Australia Pty Limited, Tioxide Australia Pty Limited had approximately $24 million in cash as at 1 October 2002. In his affidavit sworn 9 July 2007 he deposed:
‘19… Prior to the sale, TAPL [referring to Tioxide Australia Pty Limited] management had estimated the total cost of the ongoing remediation work to be $23 million, and this had been verified by independent consultants to the Tasmanian Government. There were also plans to develop a visitors’ centre at the Heybridge site. Of the original funds, $6 million was earmarked for construction of the visitors’ centre. The balance of $18 million (together with investment income arising on these funds over the twenty year project) was expected to cover all the remediation costs, in the absence of a significant catastrophic incident, particularly one in the first few years.’
Australian Titanium Products Pty Limited was registered on 31 October 1985. It would appear that on 14 February 2003 it was wound up under a members’ voluntary winding up. On 5 June 2004 it was dissolved and deregistered.
Between 1999 and 2003 a Mr Christopher Ian James Hartley served the applicant as its Country Manager in Australia. Mr Hartley previously served the ICI group as Chief Executive Officer of National Starch & Chemical Pty Limited and then as Chief Executive Officer of ICI South Pacific Holdings Pty Limited. Mr Hartley was appointed as a director of Tioxide Australia Pty Limited on 3 July 1998. As at 31 December 2001 the directors of Tioxide Australia Pty Limited were Mr Hartley and Mr Roderick A McLeod, who had been appointed as a director on 1 December 1999.
The first respondent was registered on 16 August 2002 at the instigation, so it would seem, of Mr Hartley, who apparently became its sole director and company secretary on that day. This step was clearly undertaken with the blessing of the applicant.
The register of members of the first respondent shows Mr Hartley as having acquired one ordinary share in the first respondent on 16 August 2002, that being the only issued share in the capital of the company at that time. Further shares in the capital of the first respondent would appear to have been issued on 1 April 2003 and further mention of them will be made shortly.
On 1 October 2002 Australian Titanium Products Pty Limited entered into a Share Purchase Agreement with the first respondent whereunder the first respondent acquired Tioxide Australia Pty Limited for a purchase price of $1.00. The Share Purchase Agreement was apparently signed by A K Cornell as agent for Australian Titanium Products Pty Limited and by Mr Hartley as the sole director and secretary of the first respondent.
On 3 July 1996 three separate Environment Protection Notices (numbers 39/1, 40/1 and 41/1) had been issued to Tioxide Australia Pty Limited under the Environmental Management and Pollution Control Act 1994 (Tas). These all related to decommissioning and rehabilitation works at the Heybridge site. The notices alleged that environmental harm had occurred for which Tioxide Australia Pty Limited was responsible and in respect of which remediation was required.
Under cover of a letter from the Acting Director of Environmental Management in the Department of Environment and Land Management of the State of Tasmania to Tioxide Australia Pty Limited dated 15 June 1998 three Environment Protection Notice Compliance Certificates were provided to Tioxide Australia Pty Limited recording that, on the evidence available to the Acting Director of Environmental Management, Tioxide Australia Pty Limited had complied with the requirements of the three Environment Protection Notices (numbers 39/1, 40/1 and 41/1). The Acting Director’s letter concluded as follows:
‘I will advise the Recorder of Titles of the Compliance Certificates, pursuant to Section 46(6) of the Environmental Management and Pollution Control Act 1994 (EMPCA),with a view to cancelling the currently registered EPNs, under Section 46(7) of the EMPCA.
At that time, I propose to issue a new EPN, specific to the sludge dams and landfill land parcels, for lodgement with the Recorder of Titles, pursuant to Sections 44(1)(a) and 46(1)(b) of the EMPCA.’
On 20 July 1998 a further Environment Protection Notice was issued to Tioxide Australia Pty Limited in respect of the Heybridge site. The covering letter of the Acting Director of Environmental Management included:
‘As outlined in that letter [dated 15 June 1998], I am now issuing a new EPN no. 323/1, replacing all the environmental requirements of EPN no. 39/1.’
The land the subject of Environment Protection Notice number 323/1 was identified as Lot 1 in plan registered number D109263 having an area of 185.1 hectares. The ground upon which the notice was issued was expressed as follows:
‘It is necessary to ensure appropriate environmental management of the decommissioned and rehabilitated leach residue dams and site landfills, as the potential exists to cause environmental harm, if not managed appropriately.’
An ‘environmental requirement’ was imposed by the Environment Protection Notice number 323/1 which called for management and monitoring of the subject land to be undertaken in accordance with a revised ‘Tioxide Site Environmental Monitoring Program’ approved by the Acting Director of Environmental Management on 11 June 1998 or as otherwise requested by the Acting Director. The Tioxide Site Environmental Monitoring Program called for sampling of surface water in eight different locations and for sampling of ground water in four different locations. Testing of surface water was to be undertaken quarterly for the first twelve months and thereafter subject to a review of available data. Sampling of ground water was to be undertaken on a six monthly basis with reports submitted in the first instance after six and twelve months. The environmental requirement contained in the Environment Protection Notice number 323/1 included:
‘6The nominated effluent discharges must comply with the following limits:
Arsenic <0.05 mg/L
Cadmium <0.01 mg/L
Chromium (hexavalent) <0.05 mg/L
Chromium (trivalent) <0.5 mg/L
Copper <1.0 mg/L
Iron and Manganese (combined total filtrable) <1.0 mg/L
Lead <0.05 mg/L
Mercury <0.002 mg/L
Zinc <5.0 mg/L’A brochure published by Tioxide Australia Pty Limited incorporated a number of photographs depicting the Heybridge site with the following captions:
‘The way we were’
‘The way we ended’
‘Our Environmental Commitment’
‘The Demolition’
‘The Clean Up’The text of the brochure included:
‘The original Tioxide plant was constructed at Heybridge, … in 1948.
The company enjoyed 50 years of successful operation …
…The Tasmanian operation was small by global standards. The plant was distant from raw materials supply and markets.
These factors, with increasing globalisation and competition … made closure inevitable.
Tioxide Australia and parent company ICI are committed to the rehabilitation of the site. To date, a total of $A30 million has been spent on the remediation program.
…The Environmental Decommissioning and Rehabilitation Plan features two phases – demolition, then remediation.
The demolition of the factory site was conducted in accordance with strict occupational health and safety provisions and was undertaken free of any accidents or injuries.
The demolition was completed on time and within budget.
The initial clean up involved the safe removal of 140,000 cubic metres of material from the site.
The three sludge dams were filled and capped with clay and systems developed to collect the acidic and iron-rich leachate for biological filtering.’
Each page of the brochure incorporates an ICI logo. The final photographs appear to indicate a bare site with all structures removed.
According to Mr Ross’ affidavit, the applicant authorised Mr Hartley to negotiate an arrangement with the Tasmanian government on the applicant’s behalf which allowed the applicant to sell Tioxide Australia Pty Limited in a manner which met both the applicant’s commercial needs and the Tasmanian Government’s requirement to have sufficient financial and organisational resources in place to ensure the remediation of the Heybridge site. Mr Hartley apparently took direct charge of the project and handled all the main negotiations, reporting to the applicant’s main board and the applicant’s team which was working on the sale of Tioxide Australia Pty Limited, including Mr Ross.
In July 2002 a proposal was put to the applicant which was approved by the applicant’s main board that included the following elements:
(a)a new company [ultimately the first respondent] was to be incorporated with Mr Hartley as its shareholder and sole director;
(b)Tioxide Australia Pty Limited was to be sold to the new company for $1 with the new company thereafter responsible for the remediation of the Heybridge site;
(c)remediation was to be effected with the $24 million-odd held by Tioxide Australia Pty Limited at the time of its sale;
(d)a separate $15 million bank guarantee arrangement was to be set up with Westpac Banking Corporation to meet specifically-identified classes of expense for the first five years after the sale with the applicant standing behind such a guarantee and the applicant’s interests to be protected by an independent ‘probity auditor’.
The protection afforded to the applicant by the sale documents in respect of any potential liability under the bank guarantee arrangement was not what one might call fulsome.
The Share Purchase Agreement of 1 October 2002 made no provision for the first respondent to ensure that the environmental requirements imposed upon Tioxide Australia Pty Limited by Environment Protection Notice number 323/1 of 20 July 1998 were duly satisfied.
By virtue of clause 2.1 of the Share Purchase Agreement there were two conditions precedent to the contract proceeding to completion. Clause 2.1 provided:
‘2.1 Completion will not proceed unless:
(a)a notice in writing is issued by, or on behalf of, the Director of Environmental Management confirming his consent to the parties entering into and completing this Agreement either unconditionally or on terms reasonably acceptable to the Buyer; and
(b)the Bank [defined to mean Westpac Banking Corporation] provides the Banker’s Undertaking in the form set out in Annexure C.’
Clause 4.1 of the Share Purchase Agreement provided for completion to take place at Hobart, Tasmania on the day of satisfaction or waiver of the last of the two conditions precedent or such later time as may be agreed by the parties. There is no express evidence as to when the Share Purchase Agreement was completed but it may be inferred from the date of the other documents required to be provided at completion that the agreement was completed contemporaneously with its execution, that is to say on 1 October 2002.
Under clause 4.2 of the Share Purchase Agreement Australian Titanium Products Pty Limited was required to give certain documents to the first respondent at completion. These included :
‘(e)a counterpart of each Transaction Document executed by each party (other than the Buyer) …’
‘Transaction Documents’ was defined in clause 1.1 of the Share Purchase Agreement to mean:
‘(a)Deed Appointing Probity Auditor between the Buyer and Ernst and Young and in the form set out in Annexure A;
(b)Deed of Access and Indemnity between the Seller and Christopher I. J. Hartley in the form set out in Annexure B; and
(c)Westpac Banker’s Undertaking given to the Buyer in the form set out in Annexure C …’
The form of ‘Deed of Appointment of Probity Auditor’ set out in Annexure A to the Share Purchase Agreement was recorded on 13 typed pages to which four schedules, identified as Schedule 1, Schedule 2, Schedule 3 and Schedule 4, were attached.
Annexure B to the Share Purchase Agreement was a form of ‘Deed of Access and Indemnity’ to be completed on the letterhead of Australian Titanium Products Pty Limited and to which minutes of a resolution of Australian Titanium Products Pty Limited were to be attached.
The letter was to acknowledge the resignation of Mr Hartley as a director of Australian Titanium Products Pty Limited on 19 September 2002 and the provision to him of an indemnity and release in consideration of the payment by him of $100 to Australian Titanium Products Pty Limited.
It would appear that another ‘Release’ was given by the applicant to Mr Hartley on 10 March 2006. A letter from Mr Hartley’s solicitors to the applicant of 30 August 2007 included:
‘Our client is aware of his obligations to ICI PLC and related companies both at general law and pursuant to the Release dated 10 March 2006. …’
Annexure C to the Share Purchase Agreement set out the form of an undertaking under the heading ‘WESTPAC BANKER’S UNDERTAKING’. It provided for the provision of an undertaking by Westpac Banking Corporation to pay up to $15 million to the first respondent in certain circumstances.
It would appear that on 6 June 2006 a claim for payment was made on Westpac Banking Corporation by the first respondent which resulted in the payment by Westpac Banking Corporation of $4,063,367 to the first respondent in early June 2006. The claim would appear to have consisted of two duplicate copies of a letter from the first respondent to Westpac Banking Corporation dated 5 June 2006 which were apparently re-executed by Julian Homer and T T Harrison for the first respondent on 6 June 2006, their respective signatures being witnessed by a notary public in Sydney, in the case of Mr Homer, and a notary public in Hobart, in the case of Mr Harrison. The payment request was accompanied by a Probity Audit Notice provided by the second respondent to the first respondent and dated 31 May 2006.
On 7 June 2006 Westpac Banking Corporation demanded payment of a like amount from the applicant ‘within five days of the date of this demand’ pursuant to an ‘Indemnity Re: Bonds and GX Guarantees dated 26 September 2002’ issued by the applicant in favour of Westpac Banking Corporation.
It would appear that the demand made by Westpac Banking Corporation on the applicant was not met until 9 October 2006 when $4,165,210.23 was remitted to Westpac Banking Corporation.
A further payment request was made by the first respondent on Westpac Banking Corporation under the Westpac Banker’s undertaking on 1 November 2006. The relevant payment request was signed for and on behalf of the first respondent by Julian Homer and Tony Harrison whose signatures were witnessed by a notary public. The payment requested on this occasion was $1,009,110.30. The payment request was supported by a further Probity Audit Notice issued by the second respondent to the first respondent on 1 November 2006.
The payment request of 1 November 2006 would appear to have been presented to Westpac Banking Corporation on 6 November 2006. Presumably it was met by a payment in the amount requested in early November 2006. By letter dated 6 November 2006 Westpac Banking Corporation demanded payment of a like amount from the applicant within five days of the demand made by Westpac Banking Corporation in accordance with the ‘Indemnity Re: Bonds and GX Guarantees dated 26 September 2002’.
On 23 November 2006 the applicant appears to have met Westpac Banking Corporation’s demand by remitting an amount of $1,011,654.81 to Westpac Banking Corporation.
The first respondent’s payment request which was lodged with Westpac Banking Corporation on 6 June 2006 was expressed as follows:
‘Payment Request and Claim Certification
We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited dated 1 October 2002 and as amended by the Deed of Appointment of the Replacement Probity Auditor dated 27 March 2006
The sum of $4,063,367 is payable to Echo Tasmania Pty Limited
The payment amount must be paid as follows:
[a] to account number Echo Tasmania 017010 837670989
[b] by no later than 11 am on the 6 June 2006
The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for the probity (sic) by the Probity Auditor under the Deed. Conformation of the Probity Auditor’s determination is set out in the attached notice
This Payment Request is dated 5 June 2006’
The attached notice referred to in the payment request was a Probity Audit Notice issued by the second respondent to the first respondent in the following terms:
‘Probity Audit Notice
We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited (Echo) dated October 2002 (Deed) as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006.
Terms defined in the Deed have the same meaning in this notice.
In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in Clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment event:
1.1 Payment Event:
Failure of reduction system giving rise to a payment event pursuant to clauses 3.1(a) and 3.1(b) of the Deed.
1.2 Payment Request:
$3,742,301
2.1 Payment Event:
Decontamination caused by leakage from a buried fuel tank, giving rise to a payment event pursuant to Clause 3.1(b) of the Deed.
2.2 Payment Request:
$321,066’
On 6 June 2006 Dobson, Mitchell & Allport, the then solicitors for the first respondent, forwarded a facsimile to Westpac Banking Corporation in which the notary public who witnessed the execution of the Probity Audit Notice by the second respondent said:
‘I certify that Simon Lester of Deloitte is a director of Deloitte Growth Solutions Pty Ltd ACN 010 764 306, which is the successor to the probity auditor Ernst & Young.’
The first respondent’s second payment request, which was lodged with Westpac Banking Corporation on 1 November 2006, was expressed as follows:
‘Payment Request and Claim Certification
We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited dated 1 October 2002 (“Deed”) as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006.
Terms defined in the Deed have the same meaning in this notice.
The sum of $1,009,111.30 is payable by the Bank to Echo Tasmania Pty Limited.
The Payment Amount must be paid as follows;
(a) to account number 837670989 bsb 017 010
(b) by no later than 11.00am on 6 November 2006The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for probity by the Probity Auditor under the Deed. Confirmation of the Probity Auditor’s determination is set out in the attached notice.
This Payment Request is dated 1 November 2006.’
The attached notice referred to in the second payment request was a Probity Audit Notice issued by the second respondent to the first respondent in the following terms:
‘Probity Audit Notice
We refer to the Deed between Ernst and Young and Echo Tasmania Pty Limited (Echo) dated October 2002 (Deed) as amended by Deed of Appointment of Replacement Probity Auditor dated 27 March 2006.
Terms defined in the Deed have the same meaning in this notice.
In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in Clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment event:
Payment Event:
Removal of infrastructure giving rise to a payment event pursuant to clause 3.1(b) of the Deed.
Payment Request:
$1,009,111.30’
The Probity Audit Notice was signed by S Lester as a Director of the second respondent. The notary public who witnessed the execution of the probity audit notice by Mr Lester provided a confirmation in the following terms:
‘I confirm that this document has been signed, and witnessed by myself, by Simon Lester, who is a partner from the Australian Office of Deloittes (sic) Growth Solutions Pty Limited, who are the appointed Probity Auditor.
I confirm that Simon Lester has provided me with sufficient proof to (sic) his identity.’
It is plain from the arrangements that the applicant put in place in 2002 to rid itself of the Heybridge site that it contemplated the possibility of a liability to contribute more funds to the disposal of Tioxide Australia Pty Limited than the $24 million which it left in Tioxide Australia Pty Limited at the time of its sale to the first respondent for $1.
The question which presently arises is whether circumstances arose which came within the purview of the ‘Deed of Appointment of Probity Auditor’ such that:
(a)Westpac Banking Corporation was obliged to make the payments to the first respondent pursuant to the first respondent’s payment requests referred to above, and
(b)the applicant was obliged to make the payments mentioned above to Westpac Banking Corporation.
The applicant submits that there exists reasonable cause to believe that it may have the right to obtain relief in the Court from each of the respondents for misleading and deceptive conduct within the meaning of the Trade Practices Act 1974 (Cth) and for negligence in respect of the issue by the second respondent of the probity audit notices and the making by the first respondent of payment requests to Westpac Banking Corporation based on those probity audit notices.
One of the ‘Transaction Documents’ which Australian Titanium Products Pty Limited was required to give to the first respondent at completion of the Share Purchase Agreement was a Deed Appointing Probity Auditor executed by Ernst & Young.
As it transpires such a Deed was made between Ernst & Young and the first respondent on 1 October 2002. Amongst other things the Deed contemplated the retirement of Ernst & Young as Probity Auditor and the replacement of that firm by another Probity Auditor. Clause 2.3 of the Deed provided:
‘2.3 Retirement of Probity Auditor
(a)Subject to Clause 2.3(b), the Probity Auditor may retire by 1 month’s written notice to Echo [referring to the first respondent].
(b)The Probity Auditor may not retire unless a replacement Probity Auditor has been appointed and has agreed to be bound by the terms of this Deed as if named in this Deed as the original Probity Auditor but in any event the Probity Auditor will not be required to continue to act for a period greater than 3 months from the date of the notice referred to in Clause 2.3(a) and may retire at the end of this period even if a replacement Probity Auditor has not been appointed.
(c)On receipt of a retirement notice under Clause 2.3(a), Echo must in good faith seek a replacement Probity Auditor. If agreement with a third party is not reached within 30 days of receipt of retirement notice Echo must appoint any person nominated by the President of the Institute of Chartered Accountants in Australia as replacement Probity Auditor.
(d)On retirement, a retiring Probity Auditor is released from all obligations under this Deed.’
No agreement by the second respondent with Ernst & Young and the first respondent or either of them has been tendered in evidence on the present application, under which the second respondent agreed to be bound by the terms of the Probity Deed made 1 October 2002 as if named in that Deed as the original Probity Auditor. Each of the first respondent and the second respondent has issued documents referring to the Deed Appointing Probity Auditor between Ernst & Young and the first respondent ‘as amended by Deed of Appointment of (the) Replacement Probity Auditor dated 27 March 2006’.
Notwithstanding requests for the production of the amending Deed dated 27 March 2006 neither the first respondent nor the second respondent has produced same for inspection by the applicant.
Clause 2.1 of the Deed of Appointment of Probity Auditor provided for the appointment of Ernst & Young as ‘a probity auditor for the purposes of this Deed’ and provided for the payment of consideration by the first respondent to Ernst & Young as the Probity Auditor calculated upon the time and expertise necessarily involved at Ernst & Young’s standard rates, less a discount of 20 per cent. Clause 2.1 also provided for the appointment to be subject to Ernst & Young’s Terms and Conditions of Business as set out in Schedule 4 to the Deed to the extent that they were not directly in contradiction with the other terms and conditions of the Deed.
The applicant submits that, in the absence of the ‘Deed of Appointment of Replacement Probity Auditor dated 27 March 2006’, the use of the words ‘as amended’ inclines one to the view that the second respondent did not simply agree to be bound by the terms of the 1 October 2002 Deed as if named in it as the original Probity Auditor, thus providing reasonable cause to believe that the second respondent lacked authority to act as a replacement Probity Auditor under the Deed made 1 October 2002.
Another Transaction Document which Australian Titanium Products Pty Limited was required to give to the first respondent at completion of the Share Purchase Agreement was Westpac Banking Corporation’s ‘Banker’s Undertaking’ in the form of annexure C to that agreement. Such an undertaking was given by Westpac Banking Corporation to the first respondent by a Banker’s Undertaking dated 26 September 2002, executed by an attorney for the Bank under a registered power of attorney. The Banker’s Undertaking consisted of two pages of typed script to which a Schedule 1 comprising two pages was attached and a Schedule 2 comprising one page. The Banker’s Undertaking relevantly provided:
‘ Banker’s Undertaking
By: Westpac Banking Corporation ABN 33 007 457 141
To: Echo Tasmania Pty Limited
In consideration of Echo Tasmania Pty Limited (the Favouree) accepting this undertaking and subject to satisfaction of the conditions below, Westpac Banking Corporation (Westpac) undertakes to pay any sum or sums which may from time to time be demanded by the Favouree up to a maximum aggregate sum of $15,000,000.00 (Fifteen million dollars) Australian Currency (the Sum).
This undertaking is to continue until the first to occur of:
(a)Westpac receives written notification from the Favouree that the Sum is no longer required by the Favouree; or
(b) this undertaking is returned by the Favouree to Westpac; or
(c)payment to the Favouree by Westpac of an amount equal to the whole of the Sum or such part as the Favouree may require; or
(d)4-00 p.m. on the 5th anniversary of the date of this undertaking provided that any letter of demand for payment must be delivered into the hands of a Manager of Westpac, at Level 3, 255 Elizabeth Street, Sydney prior to that time.
Westpac agrees to pay to the Favouree the whole or any part or parts of the Sum provided the following conditions are satisfied:-
(i)Westpac receives a certificate which in Westpac’s reasonable opinion is substantially in the form annexed hereto as Schedule 1 (“the Certificate”); and
(ii)The Certificate:-
(a)is duly notarised by a Notary Public practising in Australia confirming that it has been signed by a partner (or person of similar authority) from an Australian office of Messrs Ernst & Young (or any authorised signatory of any successor Probity Auditor from time to time thereof); and
(b)purports to be signed by two authorised signatories of the Favouree whose names and specimen signatures are set out in Schedule 2 hereto (as amended from time to time by notice to Westpac in writing).
…
Westpac agrees that other than as set out above, payments claimed in accordance with this undertaking will be made to the Favouree forthwith without reference to any third party. …
…SCHEDULE 1
Westpac Banking Corporation
Level 3
255 Elizabeth Street
Sydney NSW 2000Dear Sirs
Payment Request and Claim Certification
We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited dated [date] 2002 (“Deed”).
Terms defined in the Deed have the same meaning in this notice.
The sum of $[amount] (“Payment Amount”) is payable by the Bank to Echo Tasmania Pty Limited.
The Payment Amount must be paid as follows:
(a) to account number [account number];
(b) by no later than 11.00 am on [date].
The Payment Amount has been independently determined by an expert third party and the process of that determination has been audited for probity by the Probity Auditor under the Deed. Confirmation of the Probity Auditor’s determination is set out in the attached notice.
This Payment Request is dated [date].
Signed for and on behalf of
ECHO TASMANIA PTY LIMITED
Acting byAuthorised Signatory
Authorised Signatory
The Company Secretary
Echo Tasmania Pty Limited
1st Floor
Cnr Reiby and Victoria Street
Ulverstone TAS 7135Dear Sir
Probity Audit Notice
We refer to the Deed between Ernst & Young and Echo Tasmania Pty Limited (“Echo”) dated [date] 2002 (“Deed”).
Terms defined in the Deed have the same meaning in this notice.
In accordance with Clause 3.5 of the Deed, the Probity Auditor is of the opinion that the processes adopted by Echo and referred to in clause 3.4(f) have been carried out in a fair and equitable manner and conducted with due probity in respect of the following Payment Event:
(a) [insert description of Payment Event]
(b) [insert amount of Payment Request]
Signed sealed and delivered )
by ERNST & YOUNG )
in the presence of: )Notary Public Partner
Name (please print)
…’It may be seen that Westpac’s agreement to pay monies under its Banker’s Undertaking was dependent upon its receipt of a certificate which in the Bank’s reasonable opinion was substantially in the form of Schedule 1. Schedule 1, of course, comprised two documents being a Payment Request and Claim Certification from the first respondent to the Bank and a Probity Audit Notice from the Probity Auditor to the first respondent providing confirmation of the Probity Auditor’s determination, it being a requirement that the second document be attached to the first.
Returning to the Deed Appointing Probity Auditor made 1 October 2002 between Ernst & Young and the first respondent, regard should be had to the following provisions of that Deed:
‘BACKGROUND
A.Echo is proposing to purchase all of the issued shares in Tioxide Australia Pty Ltd (ACN 004 214 439) (the “Company”). The Company owns the Site which is the subject of a remediation project.
B.Westpac Banking Corporation (the “Bank”) is providing a Banker’s Undertaking for the costs of undertaking any remediation work at the Site as a result of specific natural disasters or uncontrollable circumstances and for other specified liabilities of the Company in existence at the date of sale.
C.The Probity Auditor has agreed to report to Echo whether the process for making a claim has been carried out with probity.
THIS DEED WITNESSES:
1.DEFINITIONS AND INTERPRETATION
1.1Definitions
In this Deed:
…
“Completion” means completion of the sale and purchase of all of the issued shares of the Company under the Share Sale Agreement;
“Completion Date” means the date on which Completion occurs;
“Confidential Information” means all:
(a)information relating to the existence of or the terms of this Deed;
(b)information contained in or relating to any Payment Request or deliberation thereon (including, without limitation, the existence of the Payment Request and the liability asserted to be the basis for the Payment Request);
(c)trade secrets and all financial, marketing and technological information, contracts, negotiations, ideas, concepts, know how, technology, processes and knowledge which is confidential or of a sensitive nature,
but excludes that which is in the public domain;
…
“EPN” means Environmental Protection Notices numbers 323/1, 39/1, 40/1 and 41/1 issued by the Department;
“Expert” has the meaning given by Clause 3.4(a);
“Expert Report” means the report issued by an Expert pursuant to Clause 3.4(b);
“Excluded Liability” has the meaning given in Clause 3.2;
…
“Payment Event” has the meaning given in Clause 3.1;
“Payment Notification” means the notice of intention by Echo to make a Payment Request on the Bank delivered under Clause 3.3(a);
“Payment Request” means the request made by Echo to the Bank for any loss or cost of Echo or the Company arising out of a Payment Event;
“Probity Audit Notice” has the meaning given in Clause 3.5;
…
“Share Sale Agreement” means the share sale agreement between Echo and Australian Titanium Products Pty Limited … pursuant to which Echo is to purchase the shares in the Company; …
…
“Term” means the period from the Completion Date until the earlier of the date:
a) 5 years from the Completion Date;
b)when monies paid by the Bank to Echo or the Company total A$15,000,000;
c)that any person other than Echo or a Related Corporation of Echo assumes all the actual, contingent and prospective liabilities of the Company [meaning Tioxide Australia Pty Limited] in existence as at the date of assumption; and
d)that there is a change in the controlling shareholder of Echo.
…
2.4Term
Echo will notify the Probity Auditor immediately should any of the events referred to in paragraphs (b), (c) or (d) of the definition of “Term” in Clause 1.1 occur.
3. REQUEST FOR PAYMENT
3.1 Payment Events
For the purposes of this Deed, each of the following is a “Payment Event”:
(a)the Site has been adversely affected by fire, flood, storm, drought, natural disaster or reed death; and
(b)Echo or the Company becomes aware of any actual or contingent liability of the Company which:
(i) was in existence as at the Completion Date; or
(ii)arose after the Completion Date as a direct or indirect result of an act or omission by any person (including, without limitation, the Company or officers, employees, or agents of the Company) prior to the Completion Date.
3.2 Limitations on Payment
(a)Echo is not entitled to make a Payment Request in respect of an Excluded Liability. For the purposes of this Deed, each of the following is an “Excluded Liability”:
(i)a liability arising under the EPN or any liability for works required to be undertaken to comply with the EPN or any Environmental Law with respect to the Site except when it arises directly out of an event referred to in Clause 3.1(a);
(ii)a liability to make any payment or lodge any form of performance bond or surety arising under the EPN or any Environmental Laws;
(iii)a liability for which a provision was made in the Accounts but where that provision is insufficient to meet that liability. To the extent only of that deficiency, the liability is an Excluded Liability; or
(iv)a liability that is less than $50,000.
(b)Echo must reimburse to the Bank an amount equal to any sum paid by the Bank in accordance with any Payment Request which is subsequently recovered by or paid to the Company by any third party (including without limitation any insurer).
3.3Notice of Payment Event
(a)Echo may at any time during the Term give written notification to the Probity Auditor of its intention to make a Payment Request to the Bank for any loss or cost arising out of a Payment Event (“Payment Notification”).
(b)A Payment Notification must include the following information:
(i)an outline of the circumstances under which Echo considers that a Payment Event has occurred;
(ii)if Echo considers that a Payment Event under Clause 3.1(a) has occurred, the amount that Echo considers necessary to be paid by the Bank for application by Echo to rectify the damage or otherwise necessary to enable remediation of the Site to be undertaken in accordance with the EPN;
(iii)if Echo considers that a Payment Event under Clause 3.1(b) has occurred, the amount of that liability; and
(iv)all information regarding the appointment by Echo of Expert(s) in respect of the Payment Event;
(v)all information and documentation relating to the Payment Event; and
(vi)any other information reasonably requested from time to time by the Probity Auditor to be provided in a Payment Notification.
(c)Echo may issue more than one Payment Notification in respect of the same Payment Event.
3.4Consideration of Payment Notification
(a)The Probity Auditor must consider each Payment Notification and in consultation with Echo conduct an independent review of the probity of Echo’s processes for validating the Payment Event. Echo’s processes will include the appointment of one or more appropriate experts (“Expert(s)”) qualified to make the reports and determinations required under Clause 3.4(b) and which is sufficiently independent of Echo to act impartially.
(b)The Expert(s) shall determine:
(i)whether a Payment Event has occurred;
(ii)if the Payment Event arises under Clause 3.1(a), the amount required by Echo to rectify the damage the subject of the Payment Event or otherwise necessary to undertake remediation of the Site in accordance with the EPN; and
(iii)if the Payment Event arises under Clause 3.1(b), the amount required by Echo to meet the liability the subject of the Payment Event,
and issue a report in respect of these matters.
(c)Echo must provide the Expert(s) with any information reasonably required to review any request for payment under a Payment Request.
(d)The Probity Auditor shall review and evaluate all processes adopted by Echo to validate the Payment Event.
(e)The Probity Auditor’s procedures will include but not necessarily be limited to:
(i)ensuring that the processes adopted by Echo for appointing the Expert(s), as well as the process for monitoring and review of the Expert(s) work, are fair and reasonable and likely to lead to an impartial and reliable Expert Report;
(ii)monitoring communications between Echo and any Expert(s) during Echo’s validation of the Payment Event and the final recommendation by the Expert(s) and it shall be Echo’s responsibility to provide the Probity Auditor with copies of all such communications as reasonably requested by the Probity Auditor; and
(iii)reporting to Echo on any issues raised that relate to the probity of the above processes as they arise.
(f)The Probity Auditor will consider the Expert Report(s) and the report made by Echo and report to Echo as expeditiously as possible and in any event within 1 month of receipt by the Probity Auditor of the Expert(s) Report and the report made by Echo as to whether the processes adopted by Echo to validate:
(i)whether a Payment Event has occurred; and
(ii)if such an (sic) Payment Event has occurred the amount Echo determines is payable under the Payment Request,
have been fair and equitable and conducted with due probity.
(g)In making its report under Clause 3.4(f), the Probity Auditor acts as an expert and not as an arbitrator. The Probity Auditor is an independent observer and advisor, who will not be held responsible for the conclusions reached by Echo and/or the Expert(s) but is merely retained to monitor the probity of the processes undertaken by Echo.
3.5Probity Audit Notice
When the Probity Auditor issues its report to Echo pursuant to Clause 3.4(f), if the results of that report confirm that all processes relating to the Payment Event adopted by Echo have been fair and equitable and conducted with due probity, it shall also provide Echo with a notice in the form of Schedule 1 (a “Probity Audit Notice”).
4. CONFIDENTIALITY
4.1 Confidentiality Undertaking
A Party:
(a)must keep confidential any Confidential Information and all Confidential Information disclosed to, by or on behalf of a Party, or of which the Party becomes aware (whether before or after the date of this Agreement); and
(b)may only disclose any Confidential Information in respect of which the Party has an obligation of confidentiality:
(i)to those of its officers, employees, agents, consultants or advisers who:
(A)have a need to know for the purpose of this Deed and transactions contemplated by it; and
(B)undertake to be bound by the confidentiality undertakings in this Clause;
(ii)if required to do so by any Applicable Law; or
(i)(sic) with the prior written approval of the other Party to this Deed.
…’
I am satisfied that each of the three elements has been satisfied in relation to each of the prospective respondents. This is not a case where the applicant was placing reliance upon mere assertion, conjecture or suspicion. What’s more, Mr Ross’ evidence was unchallenged and no evidence was forthcoming from Mr Hartley, Mr Homer or Mr Harrison for the first respondent or from Mr Lester for the second respondent.
In my opinion the respondents should be ordered to pay the applicant’s costs of the application, subject to orders being made that the costs of making the relevant discovery be paid by the applicant.
I certify that the preceding one hundred and thirty-five (135) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate:
Dated: 13 November 2007
Counsel for the Applicant: I M Jackman SC and M R Elliott Solicitors for the Applicant: Mallesons Stephen Jaques Counsel for the First Respondent: G K J Rich Solicitors for the First Respondent: Addisons Counsel for the Second Respondent: F Gleeson SC Solicitors for the Second Respondent: Freehills Dates of Hearing: 22, 23 October 2007 Date of Judgment: 13 November 2007
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