In the matter of Timor Sea Oil & Gas Australia Pty Ltd (in liq)

[2023] NSWSC 1123

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Timor Sea Oil & Gas Australia Pty Ltd (in liq) [2023] NSWSC 1123

Hearing dates:

12 September 2023

Date of orders:

12 September 2023

Decision date:

12 September 2023

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Vesting order made under s 568F of the Corporations Act 2001 (Cth)

Catchwords:

CIVIL PROCEDURE — Application to adjourn a vesting application — Where interested party sought an adjournment to progress a proposed deed of company arrangement — Whether adjournment would facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings.

CORPORATIONS — Winding up — Conduct of liquidation — Where disclaimer of onerous property has occurred — Whether Commonwealth has interest in the property under the principle of bona vacantia — Whether vesting order should be made.

Legislation Cited:

- Civil Procedure Act 2005 (NSW), ss 56, 58

- Corporations Act 2001 (Cth), ss 568, 568F

- Supreme Court (Corporations) Rules 1999 (NSW), r 2.13

Cases Cited:

- David Barry Logistics Pty Ltd v Victoria (2021) 65 VR 233

- Re Energy Brix Australia Corporation Pty Ltd [2022] VSC 700

Category:

Principal judgment

Parties:

The Commonwealth of Australia (Plaintiff)
Castleton Commodities Merchant Asia Co Pte Ltd (Defendant)

Representation:

Counsel:
N Kirby (Plaintiff)

Solicitors:
Clayton Utz (Plaintiff)
A Karoll (Interested Party) (self-represented)

File Number(s):

2023/227455

Judgment

Adjournment application

1. By Originating Process filed on 17 July 2023, the Commonwealth of Australia (“Commonwealth”) sought an order under s 568F of the Corporations Act 2001 (Cth) (“Act”) that a ship known as the "Northern Endeavour" vest in the Commonwealth. This application is brought in circumstances that the Supreme Court of Western Australia has previously made vesting orders under that section in respect of undersea infrastructure associated with that vessel.

2. Mr Karoll, who was a director of Timor Sea Oil and Gas Australia Pty Limited (in liq) (“TSOGA”) now applies for a 45 day adjournment of the application in order to seek to progress a proposed deed of company arrangement (“DOCA”). He noted at the commencement of the hearing that he understood that the liquidator of TSOGA and other companies would bring that application, but Mr Gothard, who holds that role, has made clear that he does not do so, and the correspondence also makes clear that he has not yet formed any view as to the feasibility of the DOCA proposal.

3. In dealing with an adjournment application, I must apply the approach required by s 56 of the Civil Procedure Act 2005 (NSW) (“CPA”), which requires the Court to promote the overriding purpose of the just, quick and cheap resolution of the real issues in dispute. The Court is required to give effect to that overriding purpose when it exercises any power given to it by the Act or the rules of the Court. Section 58 of the CPA provides that the Court, in deciding whether to make any order or direction for the management of proceedings, must act in accordance with the dictates of justice. The Court is required to have regard to specified matters in exercising that discretion, including the degree of expedition with which the respective parties have approached the proceedings, the degree to which they have been timely in their interlocutory activities, and the use which they have made, or could have made, of any opportunity available to them in the course of proceedings, and the degree of injustice that will be suffered by the respective parties as a consequence of any order.

4. Here, I bear in mind that proceedings relating to TSOGA were previously commenced by a third party, Castleton Commodities Merchant Asia Co Pte Ltd (“CCMA”) and were ultimately resolved by a settlement between CCMA and the Commonwealth. This application is brought, after the settlement of those proceedings and after the Commonwealth’s successful vesting application in the Supreme Court of Western Australia in respect of the undersea infrastructure.

5. Mr Karoll has recently sought leave to be heard in this application under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW). At the hearing today, he sought an adjournment for a further 45 days, not so much to lead evidence as to an existing position, but to seek to progress a DOCA which presently has significant uncertainty. I refer further to those matters below.

6. I recognise that, in one sense, there would be little detriment to the Commonwealth by reason only of a further delay in the proceedings, where they have already had a long history. I also recognise that there would be detriment to Mr Karoll in declining the adjournment application if, and I emphasise that is a conditional proposition, there was sufficient evidence to indicate that the DOCA had real prospects of going forward, and adjourning the proceedings would allow the opportunity for that to occur. I also bear in mind that here the detriment that is in issue, although it is not addressed by evidence, is not limited to the conduct of the proceedings, where their subject is the decommissioning of a floating oil vessel situated in the ocean near Timor, which earlier evidence in the proceedings has indicated requires continuing maintenance which the Commonwealth is now providing, through third parties. In the context of insolvency proceedings of this character, however, the Court generally has regard, not only to s 56 of the CPA, but also to the extent to which there is evidence before the Court that a DOCA is capable of being implemented, and I will adopt a similar approach here.

7. Mr Karoll tenders several documents, and the Commonwealth has also tendered additional material and read an affidavit to confirm their position. Mr Karoll tenders a letter from the Minister of Petroleum and Mineral Resources of the Democratic Republic of Timor-Leste to the Minister of Resources of the Commonwealth which refers to an approach from Mr Karoll in respect of the current state of the relevant offshore oil field. The Minister notes the possibility that greater resources might be identified at that oil field, and indicates Timor-Leste's willingness to further explore and potentially support a “solution”, although the content of that “solution” is not there clearly identified. The Minister does there not appear to have engaged, nor would it necessarily be expected that he or she would have engaged, with the financial feasibility of any “solution” that may be proposed by Mr Karoll or his associated companies.

8. Second, Mr Karoll tenders his letter to the Court, which indicates that KPMG and his company, NOGA Holdings Pty Limited (“NOGAH”), have spent the period since the last hearing in this matter preparing a fourth DOCA. That is likely to be an inaccurate description of events, since Mr Gothard's role, of course, is not to prepare a DOCA for Mr Karoll’s or NOGAH’s submission to creditors, but, instead, to assess any DOCA which is proposed by Mr Karoll or NOGAH. As I understand the correspondence from KPMG, their role has been limited in that way, and they are not a co-proponent of a DOCA with NOGAH.

9. Mr Karoll also indicates that he has gained material support from several parties. They are identified as the Republic of Timor-Leste, an oil and gas producer, and finance providers in respect of a "restructuring of the company", and he refers to KPMG having submitted the DOCA proposal made by NOGAH to the Commonwealth last week and the Commonwealth's written response to that proposal.

10. I bear in mind that Mr Karoll, in submissions, also points out that this is NOGAH’s fourth DOCA proposal, and the first to which the Commonwealth has responded. That is a mixed blessing, so far as his argument is concerned, since it implies that NOGAH’s three previous DOCA proposals were not successfully actioned. He refers to the fact that the Northern Endeavour is an essential asset for the DOCA and I will assume that that is the case. He submits that the benefit of the Northern Endeavour will be lost for future generations if TSOGA is deprived of access to the Northern Endeavour. That does not follow, it seems to me, because what is sought by the Commonwealth is the vesting of that vessel, which it has maintained in recent years, in the Commonwealth. After that vessel is vested in the Commonwealth, it would still be open to TSOGA or any third party to approach the Commonwealth to seek to negotiate terms upon which that vessel could be used in a manner that would advance the public interest. The success of the Commonwealth’s application does not prevent that occurring, but confirms that the Commonwealth is the party with which an entity such as TSOGA would need to deal in that regard.

11. Mr Karoll also tenders a letter from a third party, which expresses interest, in a preliminary way, in undertaking due diligence as to a possible interest of up to 50 per cent ownership of the Timor Sea assets of NOGAH. I recognise that significant parts of those assets have already been vested in the Commonwealth by order made by the Supreme Court of Western Australia, and are otherwise the subject of this application. The letter indicates the credentials and capitalisation of the entity involved, which appear to be significant, but falls far short of a commitment to participation in or funding of the project.

12. The Commonwealth reads the affidavit dated 11 September 2023 of its solicitor, Mr Belyea, which refers to correspondence between his firm and the liquidator in respect of the DOCA. Annexed to that affidavit is a letter from Mr Gothard, the liquidator of TSOGA and other entities dealing with the DOCA proposal. That letter makes clear that the proposal, as it then existed, was at a preliminary stage. Mr Gothard there requests a deferral of this hearing for a period of 45 days while the proposal is evaluated, but did not pursue that application at this hearing.

13. Mr Gothard also summarises the DOCA proposal in that letter, which involves a number of significant contingencies. The first is that a disclaimer of assets previously made by the liquidators be reversed with the consent of the impacted parties. It is not apparent whether the impacted parties, presumably including at least the liquidator, the Commonwealth and CCMA would consent to that position, where significant costs will have been incurred, at least by the Commonwealth in maintaining the vessel in the period since that disclaimer took place.

14. Significantly, the DOCA contemplates $20 million in funding from NOGAH, but it is not apparent whether NOGAH has access to $20 million to provide such funding. The proposal also contemplates up to $200 million in secured debt funding from a lender experienced in the Australian oil and gas industry, but there is no evidence that any lender has committed to provide that amount. It contemplates additional capital from a farm-in partner for a 50 per cent operator interest in the oil fields, and I have referred above to a letter from a third party dealing with that matter which falls far short of committal to the proposal. It contemplates various other steps, including the recommencement of production, although it is not apparent what feasibility studies have been undertaken to explore the feasibility of that occurring, particularly if the Commonwealth is not supportive of the proposal and the undersea infrastructure of the vessel has, as is the case, already been vested in it. It also contemplates an agreement between the Commonwealth and Timor-Leste regarding certain matters.

15. By a second letter dated 11 September 2023 from Mr Gothard to the Commonwealth's solicitor, Mr Gothard responds to several matters raised by the Commonwealth, including the extent of the capital investment in the proposal by comparison with the costs incurred by or committed by the Commonwealth to date. He also recognises other matters that the DOCA proposal does not resolve, including ownership of subsea infrastructure and regulatory processes and the current state of the vessel, and recognises that those are matters for further investigation. That proposition, of course, is plainly correct, but it does not advance the feasibility of the DOCA proposal. Mr Gothard also indicates that he would need to be satisfied of several other matters, including solvency and the ability to fund the proposal, in the course of his further investigations. It is implicit that, obviously enough, he has not yet been provided with information that would satisfy himself of those matters.

16. In assessing the adjournment application, the Court must have regard to the extent to which the feasibility of the DOCA proposal has been established. It seems to me that, here, what is contemplated is a lengthy adjournment to develop a proposal which is presently subject to substantial contingencies, where there is no evidence before the Court to establish that those contingencies can be satisfied in that period or at all. This is not a question of an adjournment in order to seek to lead further evidence of an existing state of affairs, as I noted above, but an adjournment in order to allow Mr Karoll or NOGAH as the proponents of the DOCA to move it, or not, from a speculative state toward a less speculative state.

17. I am not satisfied that there is sufficient basis to adjourn the application. I bear in mind that the success of the application would not divest TSOGA or any property in the vessel, where that occurred long ago when the liquidator disclaimed the vessel, leaving the Commonwealth to incur the costs of maintaining it. As I noted above, it seems to me that this application, and its success, would also not be fatal to the proposed DOCA, but merely has the consequence that there will be confirmation, if the Commonwealth succeeds in its application, that the proponents of the DOCA will need to deal with the Commonwealth, not only in respect of access to the undersea infrastructure, as is already the case, but also in respect of the vessel, and satisfy the Commonwealth that any proposal that they put should be accepted by the Commonwealth.

18. For these reasons, I decline to adjourn the application.

The vesting application

19. As I noted above, the Commonwealth seeks an order that the Northern Endeavour vest in the Commonwealth under s 568F of the Act. CCMA, which had previously commenced these proceedings seeking delivery of the ship to it, consents to the relief which is sought by the Commonwealth. I will refer below to notice of this application which has been given to third parties. Mr Karoll, a director of TSOGA, has been heard in the application under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW) and I will refer to his submissions below.

Evidence led in this application

20. The Commonwealth reads the affidavit dated 17 July 2023 of Mr Shane McWhinney, who is a general manager of the Northern Endeavour Branch, which is part of the Oil and Gas Division of the Department of Industry, Science and Resources, and has been established to deal with issues in respect of the ship. Mr McWhinney outlines the factual basis of the application and notes that the ship is a floating production storage and offloading vessel, currently located approximately 550 kilometres north-west of Darwin in the Timor Sea, in a production area in respect of offshore oil fields. He refers to the history of the grant of production licences in respect of those oil fields, and to the circumstances in which TSOGA was initially placed in voluntary administration and subsequently in liquidation. Mr Karoll has in turn addressed those circumstances, at some length, in his submissions.

21. Mr McWhinney also outlines the Commonwealth's role in addressing potential environmental and safety concerns related to the Northern Endeavour, after property in that vessel was disclaimed by the liquidators of TSOGA. He points to the risk arising from the vessel being unstaffed and inoperative, while connected to the subsea infrastructure, and the steps which the Commonwealth has taken to engage third parties who have taken possession of and maintained the vessel, and now have commenced a decommissioning process in respect of the vessel. Mr McWhinney also refers to the fact that vesting orders have previously been made in the Supreme Court of Western Australia, in a corresponding application, in respect of undersea infrastructure associated with the vessel. Mr McWhinney notes that the vessel itself was not included within the scope of those orders because the proceedings with CCMA were unresolved at the time those orders were made. Mr McWhinney also refers to the notice which has been given to other parties of this application, and that matter is addressed in further evidence on which the Commonwealth also relies.

22. An exhibit to Mr McWhinney's affidavit includes voluminous documentary material, including the disclaimer of the vessel by the liquidators of TSOGA, where it was characterised as onerous property; the orders which were made in this Court granting leave to CCMA to discontinue the proceedings which it had brought against the Commonwealth, and noting the agreement of CCMA and the Commonwealth to commence these proceedings to transfer title of the vessel, which is now the subject of this application; and the orders made by the Supreme Court of Western Australia in respect of the vesting of the undersea infrastructure in the Commonwealth.

23. By a second affidavit dated 13 August 2023, Ms Woods gives evidence of notification to various parties, including Mr Karoll, of this application, and of their response to this application. By an affidavit dated 11 September 2023, Mr Belyea, a solicitor acting for the Commonwealth in the application, addresses correspondence between his firm and the liquidator of TSOGA and other entities in respect of a recently proposed deed of company arrangement, apparently a fourth proposed deed of company arrangement in respect of TSOGA and other entities, which would contemplate the continued use of the vessel, subject to a significant number of conditions and substantial funding requirements, to which I referred above in declining to adjourn this application.

The parties’ submissions

24. In written submissions, Mr Kirby, who appears for the Commonwealth, addresses the history of the proceedings and of the Commonwealth's involvement with the Northern Endeavour, and the circumstances in which vesting orders were made in respect of the undersea infrastructure in the Supreme Court of Western Australia. He refers to the liquidator's power to disclaim a company’s property under s 568(1) of the Act, a power which has been exercised by the liquidator of TSOGA in this case. He also refers to s 568F of the Act, on which the Commonwealth relies in this application, which provides that the Court may order that disclaimed property vest in, or be delivered to, a person entitled to that property, or a person in or to whom it seems to the Court appropriate that the property be vested or delivered. The Commonwealth here contends that it is a person to whom the property should be delivered on both of those bases.

25. First, Mr Kirby refers to the legal principles of bona vacantia, which relate to the Crown's entitlement to possess personal property to which no other party claims ownership and where the vessel is located in Commonwealth waters. Mr Kirby points out, and I accept, that the Northern Endeavour may here be properly characterised as personal property, albeit of a large size, and that those principles apply following the disclaimer of that property by the liquidator of TSOGA. He points out, however, that the Crown's right to bona vacantia is not indefeasible, since s 568F of the Act permits the Court to make orders in respect of the vessel. That issue has been addressed in the case law, including David Barry Logistics Pty Ltd v Victoria (2021) 65 VR 233 at 245ff, to which Mr Kirby refers, and in the context of real property in Re Energy Brix Australia Corporation Pty Ltd [2022] VSC 700 (“Energy Brix”), to which I will refer further below.

24. Mr Kirby further submits that, although the Northern Endeavour is already vested in the Commonwealth by reason of the principle of bona vacantia or by reason of the Commonwealth's possession of the vessel, further orders should now be made under s 568F of the Act to confirm that position. Mr Kirby there refers to the matters addressed by Mr McWhinney's evidence, namely the Commonwealth's activities in order to address and mitigate potential environmental and safety implications concerning the vessel, related property and the surrounding seabed, and the steps which the Commonwealth and contractors engaged by it have taken to disconnect the Northern Endeavour from the subsea equipment and temporarily plug the relevant oil well, with a view to decommissioning the vessel. The Commonwealth, in these circumstances, seeks orders pursuant to s 568F of the Act to confirm its title to the vessel.

25. I should briefly refer to Mr Karoll's submissions, before returning to the case law and its application in the relevant circumstances. Mr Karoll outlined, at some length, the circumstances in which the vessel ceased to be used for active production, but it is not the Court's role in an application of this kind to adjudicate those circumstances, as distinct from dealing with the position concerning the vessel as it now exists. Mr Karoll outlines the circumstances of three previous DOCA proposals put by interests associated with him in respect of TSOGA which, implicitly, have not gone forward, and a fourth proposal which has recently been put. Mr Karoll also submits that the vessel should be put to continued use, so far as he contends that it is a high-quality vessel in overall good condition, with 36 years remaining in its design life, in order to extract oil and gas from the Timor Sea. Plainly, that proposition involves matters of some complexity, which include at least the attitude which members of the community might hold to the expansion of activities in extraction of oil and gas and the environmental risks which may be involved with such activities and the continued use of the vessel. Those are not matters which I need to decide, but matters for TSOGA, Mr Karoll, the liquidators and the Commonwealth so far as there may be any further discussions in respect of the use to which the vessel is to be put, which Mr Karoll hopes will occur.

Determination

28. It seems to me that the Commonwealth must succeed in this application. As Mr Kirby has pointed out, and as I have noted above, the Supreme Court of Western Australia previously dealt with an application of this character in respect of the undersea infrastructure associated with the vessel, and there is no difference in principle between the position in respect of that infrastructure, which has been vested in the Commonwealth, and the position in respect of the vessel. Second, the position seems to me to be closely analogous with that considered by the Supreme Court of Victoria in Energy Brix. Hetyey AsJ there undertook a detailed review of the authorities, in holding that a claimant in that case, the State of Victoria, would be entitled to a vesting order if the Court were satisfied that a disclaimer had occurred, and that person either had an interest in the disclaimed property or was entitled to the disclaimed property or was a person to whom it seemed to the Court appropriate that the property be vested or delivered.

29. The relevant factors are similarly satisfied in this case. The Northern Endeavour was disclaimed by the liquidators, as I have noted above, under s 568 of the Act, and there is no suggestion that the disclaimer was ineffective. As a consequence of the disclaimer, the Crown, in right of the Commonwealth, takes the vessel as bona vacantia, just as the State of Victoria took the relevant land under principles of escheat in Energy Brix. Here, as in Energy Brix, there is a further basis for a vesting of the Northern Endeavour in the Commonwealth, because the Commonwealth is in control of the vessel, and has incurred significant expenses in making it safe and reducing the environmental risk of its continued situation in the Timor Sea. It seems to me that those factors, like the similar factors which existed in Energy Brix, have the consequence that the vesting order should be made. As I noted in dealing with an adjournment application, that does not have the consequence that the vessel will necessarily be decommissioned, but it does have the consequence that the Commonwealth will have a full entitlement to deal with the vessel, and would be the party with which any person or interest seeking to use the vessel will need to deal.

Orders

30. For these reasons, I make orders in accordance with the short minutes of order initialled by me and placed in the file. I also make a further order that the exhibits be returned.

**********

Decision last updated: 15 September 2023