IND Energy Inc (A Company Incorporated in the British Virgin Islands) v Scott David Harry Langdon and Clifford Stuart Rocke as Administrators of Petro Ventures International Ltd (Administrators Appointed)
[2014] WASC 364
•30 SEPTEMBER 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: IND ENERGY INC (A COMPANY INCORPORATED IN THE BRITISH VIRGIN ISLANDS) -v- SCOTT DAVID HARRY LANGDON and CLIFFORD STUART ROCKE AS ADMINISTRATORS OF PETRO VENTURES INTERNATIONAL LTD (ADMINISTRATORS APPOINTED) [2014] WASC 364
CORAM: EM HEENAN J
HEARD: 23, 24, 28 & 30 JANUARY, 4 & 7 FEBRUARY 2014
DELIVERED : 7 FEBRUARY 2014
PUBLISHED : 30 SEPTEMBER 2014
FILE NO/S: COR 227 of 2013
BETWEEN: IND ENERGY INC (A COMPANY INCORPORATED IN THE BRITISH VIRGIN ISLANDS)
Plaintiff
AND
SCOTT DAVID HARRY LANGDON and CLIFFORD STUART ROCKE AS ADMINISTRATORS OF PETRO VENTURES INTERNATIONAL LTD (ADMINISTRATORS APPOINTED)
First DefendantPETRO VENTURES INTERNATIONAL LIMITED (ADMINISTRATORS APPOINTED)
Second DefendantGEMINI OIL & GAS FUND II, LP (A PARTNERSHIP INCORPORATED IN THE CHANNEL ISLANDS)
Third Defendant
Catchwords:
Corporations - Administration - Applications to remove administrators - Corporations Act (Cth), s 449B - Application to restrain administrators and to enjoin retainer of solicitors - Corporations Act (Cth), s 447E - Objections to content of funding deed between administrators and one alleged creditor - Unnecessary and inappropriate control or influence given to one creditor by funding deed - Reasonable perception of compromise of independence and impartiality of administrators by association with one alleged creditor - Retention by administrators of same solicitors acting for funding creditor - Solicitors also advising administrators on legal proceedings pending in Holland concerning disputes over efficacy of principal creditor's debts and securities in which funding creditor was seeking to be a party and to oppose principal creditor's claims - Role of creditors and administrators to refinance or restructure company's subsidiary which held valuable oil and gas concessions - Funding creditor in dispute with company over its entitlement to those oil and gas concessions - Conflicts of interests between creditors - Position of administrators - Discretionary considerations - Legal professional privilege - Nature of common interest privilege
Legislation:
Corporations Act 2001 (Cth), s 436A, s 447E, s 449B
Result:
Application refused
Category: B
Representation:
Counsel:
Plaintiff: Ms P E Cahill SC (23, 24, 28 January 2014) & Mr WCJ Zappia (23, 24, 28, 30 January, 4 & 7 February 2014)
First Defendant : Mr S K Dharmananda SC (23, 24, 28 January, 4 & 7 February 2014) & Mr L D Ayres (30 January 2014)
Second Defendant : Mr S K Dharmananda SC (23, 24, 28 January & 4 & 7 February 2014) & Mr L D Ayres (30 January 2014)
Third Defendant : Mr M G Pendlebury
Solicitors:
Plaintiff: Henry Davis York
First Defendant : Minter Ellison
Second Defendant : Minter Ellison
Third Defendant : Clayton Utz
Case(s) referred to in judgment(s):
Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230; (1994) 12 ACLC 701
Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270
Australian Securities and Investment Commission (ASIC) v Edge [2007] VSC 170; (2007) 211 FLR 137
Australian Securities and Investment Commission (ASIC) v Letten [2010] FCA 140
Australian Securities and Investments Commission (ASIC) v Dunner [2013] FCA 872; (2013) 303 ALR 98
Boral Resources (SA) Ltd v Rick Martin Nominees Pty Ltd (No 2) [2012] SASC 192
Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612
Commonwealth Bank of Australia v Fernandez [2010] FCA 1487; (2010) 81 ACSR 262
Farrow Mortgage Services Pty Ltd (in liq) v Webb (1996) 39 NSWLR 601
Flynn v Theobald [2008] WASC 263
Harman v Secretary of State for the Home Department [1983] 1 AC 280; [1982] 1 All ER 532
Harvey v Burfield [2003] SASC 192; (2003) 175 FLR 385
Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456
Hughes v The Receivers and Managers of Westgem Investments Pty Ltd [No 3] [2012] WASC 360
Langdon and Rocke as administrators for Petro Ventures International Ltd (administrators appointed) [2014] WASC 48
National Australia Bank v Wily [2002] NSWSC 573
Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1
Re Allebart Pty Ltd (in liq) and the Companies Act [1971] 1 NSWLR 24
Re Australian Co‑Operative Foods Ltd (2001) 38 ACSR 71
Re Bartlett Researched Securities Pty Ltd (1994) 12 ACSR 707
Re Biposo; Condon v Rogers (1995) 120 FLR 399; (1995) 17 ACSR 730
Re Clutha Ltd [2000] NSWSC 647; (2000) 34 ACSR 685
Re Eraville Pty Ltd & Companies Act (1980) 5 ACLR 203
Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171
Re James Developments Pty Ltd (1998) 30 ACSR 62
Re Kala Capital Pty Ltd (in liq) [2012] NSWSC 1073
Re Laurie Cottier Production Pty Ltd (1992) 9 ACSR 513
Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 205; (2008) 26 ACLR 1089
Re Pan Pharmaceuticals Ltd (Administrators Appointed) [2003] FCA 855; (2003) 47 ACSR 139
Smarter Way (Aust) Pty Ltd v D'Aloia [2000] VSC 408; (2000) 35 ACSR 595
Tobin v Dodd [2004] WASCA 288
EM HEENAN J:
(These reasons were given ex tempore at the conclusion of the hearing on 7 February 2014 and have been edited from the transcript. As then explained, further reasons recounting the extensive history would be given later. Those follow after the shorter reasons first announced.)
Almost every time the court reconvenes to deal with this matter, evidence emerges showing that there have been very significant changes in the material circumstances. That is certainly the case again this morning. It will not be possible, in the time available to me, to give a full description of all these matters, which, in any event, are somewhat peripheral to the essential question that has to be determined by this application. That will be done later.
The situation remains that there is an application before the court for the removal of the existing administrators, of Petro Ventures International Limited (PVIL), on the grounds that their conduct in the course of the administration so far has given rise to a perception by reasonable observer that their independence, neutrality and even-handedness as between various creditors in the company has been lost or compromised. The basis upon which that contention is advanced in all the affidavits is, essentially, that, in a number of ways, the administrators have become closely associated with the interests and personnel of one of the claiming creditors, Gemini Oil & Gas Fund II, LP (Gemini), a partnership incorporated in the Channel Islands, and indeed had retained, were taking advice from, and were being represented by the solicitors who were also acting for Gemini.
It is not possible or desirable at the moment for me to give a full account of the basis upon which it is alleged that this association with Gemini and its solicitors led to such a degree of compromise of the administrators' position, or perceived position, as to justify their removal, but it is not confined simply to the fact that the same solicitors were acting both for the administrators and for Gemini. It involves a series of contentions concerning the role of the administrators in litigation pending in courts in Holland and the affairs of PVIL and IND Energy Inc (A Company Incorporated in the British Virgin Islands) (IND), particularly proceedings which sought to challenge the efficacy of certain securities granted by PVIL and its wholly owned subsidiary, Petro Ventures Europe BV (PVE) to PVIL.
There were three sets of proceedings, the first in the Dutch court in The Hague, initiated by IND, in which IND sought the leave of that court, under Dutch law, to sell a secured interest in the shares of PVE under a security agreement at a price nominated in the security agreement, contending that no better price could be derived by a public sale. After a hearing, the Dutch court decided that leave would be withheld on the basis that it was not satisfied that a better price could not be obtained by a public sale.
There were then proceedings in a Dutch court in Amsterdam, in which PVIL, in association with Gemini, challenged the validity or efficacy of security agreements in favour of IND over the shareholding in PVE. Those proceedings, as far as I can see, have not proceeded to any ultimate decision about the validity of those securities, but steps were taken, in what I will call the third set of proceedings, the inquiry proceedings, to have those proceedings, designed to challenge the validity of IND's security, consolidated with or heard together with the inquiry proceedings.
That application and the inquiry proceedings themselves were heard in the Enterprise Division of the Court of Appeal in Amsterdam, and a decision upon them was given very recently on 30 January 2014. The decision of that court is in evidence, together with an authenticated English translation. The effect is that the Dutch court has refused to grant any interim relief as sought by PVIL and its administrators, supported by Gemini, the effect of which would have been to take over the control of PVE and its directorship, and then to conduct a more extensive inquiry into the propriety of a series of managerial decisions taken since large loans were accepted by PVE from IND.
The Dutch court in Amsterdam decided that there was no basis immediately to grant any such interim relief, and adjourned the question of whether or not there should be an inquiry at all. The Dutch proceedings, which involve issues not before me, and which also involve questions of law relating to the validity of securities and the propriety of managerial actions, involve the determination of questions arising under the Dutch civil law and perhaps other European laws, and is not for this court to embark on any determination of those questions.
As I said, the significance of those proceedings for this present litigation arises from the apparent alliance, or the alleged alliance, between the positions of the administrators as adopted in those proceedings by their Dutch lawyers, and perhaps influenced, to some extent, by advice from Australian lawyers, and the position of Gemini, where Gemini was adopting the same position. Why might it be thought that that might cause any apprehension about the independence or neutrality of the administrators? The answer to that question is because the interests of Gemini are opposed to the interests of IND in relation to the disposition and treatment of the assets of the wholly owned subsidiary of PVIL, namely the company PVE.
Quite why that is so, and the extent of the competition between those interests are complicated matters which will require extensive explanation, which I hope to describe later in due course. It is enough that I am satisfied that there is a very real conflict, a very real discrepancy and antithesis between the interests of Gemini and IND in relation to the proceedings concerning the fate of PVE and the shares in it, which are controlled by IND. That is the basis upon which it is contended by the plaintiff in the present proceedings that the administrators ought be removed.
I must say that I consider that the association between the administrators, whose integrity has never been directly challenged, and lawyers also acting for Gemini, appears to me to have been very unwise and that there was at least a basis for a perception of a conflict of interest arising out of the fact that the administrators were retaining the same solicitors as were acting and advising Gemini, and who were involved in these contentious proceedings in Holland. That, had it continued, would have constituted a reason to remove the administrators, but it has not continued and there have recently been dramatic changes of circumstances.
These changes are to do with a variety of commercial choices available to be made by companies associated with or interested in PVE in order to provide capital to meet its imminent pressing obligations under its joint venture in its Black Sea oil and gas concessions. This also involves the future arrangements with IND about the fate of the large debt which is owed to IND by PVE guaranteed by PVIL.
If the evidence before me on these matters is to be accepted, and there is no reason really for me to doubt it, PVE is perilously close to committing defaults which would lose or imperil its major asset, namely its interest in the oil and gas concessions, the subject of its joint venture agreement. Without substantial financial support, PVE would appear to have no prospect of retaining those interests. What has happened is there has developed a battle for the spoils of that company between major creditors, or claiming creditors, IND and Gemini.
This gives rise to the question of whether IND, or for that matter, Gemini, is a creditor of PVIL and that is important because only as a creditor does IND have standing to pursue its present application. Like so much else in this litigation, that apparently simple question is clouded with many complexities. It seems clear from the initiation of these proceedings that it has been accepted by PVIL and its administrators that the plaintiff, IND, is a major creditor of the company, if not the major creditor, and that its debt runs from anything from US$24 million to something in the region of US$50 ‑ 60 million and it has now been asserted to be as high as US$81 million.
It is not possible on the evidence to determine the quantum of the debt but I am satisfied that at the commencement of the proceedings IND was a creditor and has remained a creditor. Very recently that status has been called into question. The reason for calling the status into question is that it is alleged that one of the commercial choices to resolve the liquidity problems of PVE is a capital raising which has been agreed upon in which IND would contribute approximately €3 million in return for a major share issue, one of the conditions of which it would either abandon, suspend or, in some other way, convert its claim for debt against PVE and/or PVIL to equity capital.
The exact terms of that agreement are not apparent from the evidence before me. There is a further dispute that the agreement, even if it has the effect contended for by the first defendant and Gemini, is now said to have fallen through or failed for want of compliance with a condition. I consider that the approach which I should take is that, in this position of uncertainty, I should continue to treat IND as a creditor of PVIL in the absence of any convincing evidence which would displace its former status.
As to Gemini, its claim to be a creditor is not essential for the resolution of any issue in these proceedings. It is not attempting to prove as a creditor in the administration. Its claim as a creditor is, as I understand it, as a contingent creditor as a claimant for liquidated damages for alleged breach of its investment contract with PVIL concerning the future royalties which it would obtain from the oil and gas concessions if and when they ever went into production.
It is not necessary for me to determine whether or not Gemini is a creditor and I do not do so. What has happened, however, is that in the light of the determination of the Enterprise Court of Appeal in Amsterdam that the inquiry proceedings should not immediately continue and that no immediate relief ought be granted, the administrators have recognised that the interests of PVIL require steps to be taken which will resolve the liquidity problems of PVE. So they have reversed a stance which they previously had adopted and have decided to support a capital raising which would result in IND and others obtaining a major shareholding in PVE and steps have been taken for that to be approved and implemented.
In taking that step, I am satisfied that the administrators have demonstrated, quite unequivocally, that any present conception of identification with the interests of Gemini is unfounded. Associated with the same development there has been a cessation of representation for the administrators by the solicitors acting for Gemini. I have been informed that the current solicitors who have been acting in these proceedings for the administrators have never been solicitors for Gemini are now retained on a permanent basis for the purpose of this administration by the administrators and that, together with the position now adopted in relation to capital raising for PVE, this seems to me to dispose of impressions which previously have existed to doubt their independence.
Consequently, I do not consider that, on all the evidence which is now before the court, there are grounds to remove the administrators for that reason. Therefore I refuse that application although, in doing so, I acknowledge that at the time it was brought one may well have been justified in holding a different impression but that impression has not survived the close degree of scrutiny and the changes of position which I have been describing.
There is a second limb to the plaintiff's application and it is that a series of orders, declarations, injunctions and associated relief should be granted controlling the manner in which the administrators are exercising their powers in this administration because their positions and actions, at least up until the time the application was brought, are such as to endanger the interests of the company or to imperil its assets or to act to the disadvantage of some of its creditors.
I am of the view that the essential basis for that application was the position which the administrators took in alliance with Gemini challenging, in the Dutch courts, the power of IND to realise on its security over the shares of PVE, to challenge the validity of that security and then to initiate the inquiry proceedings.
There is also another limb to this facet of the case and it seems to be that the plaintiff was contending that an apparent strategy of the administrators in refusing to endorse particular capital raising arrangements for PVE had two obvious consequences; one to favour Gemini, who contended that if there were a default by PVE it would, in some way, be entitled to PVE's interest in the oil and gas concessions; secondly, that by blocking the capital raising proposals a better price for PVEs interests in those assets or the shares in PVE could be obtained.
It was put on behalf of the administrators that this could be achieved by an orderly well-managed marketing arrangement for the sale or realisation of these assets. But because of the pressing nature and number of debts there was little prospect of there being sufficient time and the reality for this to occur. So it was put to me by the plaintiff that there was only one proposal on the table, namely the one that was coming from IND and interests associated with it, and if that failed, then default was inevitable and loss of the concessions likely.
When that scenario was put to Mr Langdon in cross-examination some days ago now his answer was that the administrators could not conceive that IND would allow such a situation to develop and would, despite its protests and evidence to the contrary, itself provide money which would finance the immediate cash-calls on PVE. When asked if that turned out to be wrong what alternative arrangement was available, Mr Langdon accepted that there was no plan B.
Now, had that posture been persisted with, I consider that that would be getting very close to action which might be regarded as jeopardising the interests of the company, or at least one of the creditors, but for reasons which I have already given, that attitude has not been persisted with. Now, once the strategy associated with the inquiry proceedings was found not to be effective, the administrators have decided that the capital raising represented the only solution to preserve PVE's assets. Accordingly, they then took steps to notify PVE, PVIL, PVSA, and have agreed to the capital raising.
So I do not consider that there are grounds upon which it can successfully be contended that in view of the developments, which have occurred recently, since I have been hearing this case, that the second basis for challenging the continued appointment of the administrators or controlling their activities can be established.
That, essentially, disposes of questions which arise from these originating proceedings. It does not dispose of the critical problems which confront PVIL, and more particularly, PVE, because, as this morning's hearing and the evidence received today has demonstrated, the attempts to solve the crisis by the capital raising are now, to say the least, under a cloud and possibly are in jeopardy but there is nothing which I think that the administrators can do to resolve that matter except to stand ready, as they claim they are, to implement the capital raising or some variation of it.
For these reasons, the second basis for relief claimed by the plaintiff will be refused.
I will hear from the parties on the question of costs but my present inclination, subject of course to submissions, is that there should be no order for costs and that each of the parties should bear its own costs.
EM HEENAN J:
(These are more extensive reasons which follow the brief ex tempore reasons given on 7 February 2014.)
This application to discharge the administrators appointed to Petro Ventures International Ltd (PVIL) pursuant to s 449B of the Corporations Act or alternatively for other relief pursuant to s 447E of the Act, underwent many mutations resulting from actions which both the plaintiff and the several defendants took in response to rapid changes in commercial developments and crises affecting related or other companies overseas.
Significantly, a number of material changes and developments were occurring more or less simultaneously with this hearing and it was necessary to consider and accommodate the impacts of them. They have resulted in the significant change of position by the first defendants during the short rapid course of this litigation which, eventually, satisfied me that the plaintiff's claims for relief should be refused. There were two principal reasons for this conclusion. The first is that the relief sought by the plaintiff was no longer essential and secondly, but related, the consequence was that no change in administrators would be likely, significantly, to improve the position of the plaintiff or to conduce to the resolution of the underlying dispute concerning other associated companies which forms the core of concern for the present litigants.
Relief claimed
By its originating process the plaintiff applies under s 447E and s 449B of the Corporations Act 2001 (Cth) and the inherent supervisory jurisdiction of this court for the following relief:
1.Pursuant to s 449B of the Act, an order that:
(a)the first defendants be removed as the joint and several voluntary administrators of the second defendant; and
(b)Matthew James Donnelly and Said Jahani or any other person this honourable court considers appropriate, be appointed as the joint and several voluntary administrators of the second defendant.
2.Further or in the alternative, an order pursuant to s 447E of the Act:
(a)directing that the first defendants terminate their retainer of Clayton Utz (a firm) and that they be permanently restrained from retaining Clayton Utz either in their capacity as administrators of the second defendant or for and on behalf of the second defendant in relation to any matters concerning the second defendant, including any matter arising out of, or in connection with, the administration or any subsequent liquidation of the second defendant;
(b)restraining the first defendants from providing the third defendant any document or information which has come to the first defendants' possession arising from their appointment as the joint and several voluntary administrators of the second defendant save for any document or information to which the third defendant might be entitled to the extent it may be, or claim to be, a creditor of the second defendant;
(c)restraining the third defendant from instructing Clayton Utz to provide any document or information received by Clayton Utz in their capacity as the solicitors for the first and second defendants; and
(d)restraining the third defendant from using or receiving any benefit from any document or information already disclosed to it by the first defendants or Clayton Utz whilst Clayton Utz were retained by the first defendants in relation to any matter concerning, or in any way relating to, the administration of the second defendant or the enforcement or dispute over any debts alleged to be owed by the second defendant to the plaintiff or the third defendant.
3.As further or alternative relief:
(a)an order pursuant to s 447E of the Act that the undated funding deed entered into between the first, second and third defendants, being Attachment AM44 to the affidavit of Albert Muaddi sworn 7 November 2013 (Funding Deed) be set aside unless, within seven days of the date of the order, the Funding Deed is varied by the parties thereto by deleting cl 10, 13 and 15 of the Funding Deed; and
(b)in the alternative to 3(a), an order pursuant to s 447E of the Act that the parties to the Funding Deed be restrained from enforcing or in any way giving effect to cl 10, 13 and 14 of the Funding Deed.
4.Such other relief as the court considers fit.
Basic chronology
PVIL is the sole shareholder in Petro Ventures Europe BV (a Dutch company registered in Amsterdam, Holland( (PVE) which owns major assets of significance for PVIL.
On 13 September 2013, the first defendants, Scott David Harry Langdon (Mr Langdon) and Clifford Stuart Rocke (Mr Rocke) were appointed as administrators of PVIL pursuant to s 436A of the Corporations Act 2001 (Cth). On 25 September 2013, the first meeting of creditors of PVIL was held. The plaintiff, IND Energy Inc (IND) was appointed as the sole member of the committee of creditors of PVIL. Despite that appointment and issues later arising between actual, alleged or contingent creditors, no meeting of the committee of creditors has ever been convened.
On 17 October 2013, by an order of this court, the time to convene a second meeting of creditors of PVIL and to receive a report or proposal from the administrators was extended until 31 January 2014. In the midst of the hearing of the present application, I heard a separate application by the administrators and PVIL for a further extension of the period to convene the second meeting of creditors of PVIL. On 30 January 2014 I granted an extension of time for holding that second meeting of creditors for 21 days dating from 31 January 2014 ‑ Langdon and Rocke as administrators for Petro Ventures International Ltd (administrators appointed) [2014] WASC 48. The reasons for granting that extension included the uncertainties and other effects which this present litigation were having on the course of the administration and how there was no prospect of proposing any deed of company arrangement or other resolution of the affairs of PVIL while the dispute the subject of this present litigation and associated disputes remained unresolved.
The assets of PVE of significance for the present proceedings are the following:
(a)Midia Pelican Block, being a joint venture project with Sterling Resources (65% interest), Gas Plus International (15% interest) and PVIL (20% interest). The Midia Block licence was awarded in 1992 and has a term of 30 years from that date, expiring in 2022. The records of PVIL as at the date of the appointment of the administrators suggest that this asset is valued at the equivalent of approximately US$40 million;
(b)Exxon Agreement, being an entitlement under an agreement with ExxonMobil to receive three tranches of moneys from the Midia Pelican Block subject to production, calculated as totalling US$23 million, being US$9 million in tranche 1, US$9 million in tranche 2 and US$5 million in tranche 3;
(c)The Refund, being an estimated value of €6 million;
(d)Block 25 Luceafarul, being a joint venture project with Midia Resources (50%) of which the value is unknown. This project is located in the Black Sea and is under-developed to date. Accordingly, its value is uncertain.
On 28 September 2012:
•IND as lender and PVE as borrower entered into loan facility agreement pursuant to which IND agreed to lend, and PVE agreed to repay, funds totalling up to an amount of US$39 million, comprised of a loan facility of up to US$24 million plus an additional loan of up to US$15 million.
•IND as lender and PVE as borrower and, among others, PVIL as obligor, signed a loan supplement.
•IND as lender and PVIL as guarantor entered into a guarantee pursuant to which PVIL agreed to guarantee the liability of PVE to IND under the loan agreement.
•IND, as assignee, and PVIL, as assignor, entered into a security assignment as security for repayment under the loan agreement.
On 18 October 2012, PVIL, IND and PVE entered into a Deed of First Ranking Right of Pledge Over Shares by which PVIL granted security to IND over the issued shares in PVE as security for repayment of the loan agreement (the share pledge).
On 2 May 2013 PVE issued a second promissory note to IND acknowledging indebtedness to IND in the sum of US$56,102,503.20. The promissory note was also signed for and on behalf of PVIL. According to the records of IND, the total moneys advanced by it to PVE under the loan agreement and the associated liability by PVE as at 28 October 2013 was US$67,158,831.62.
Between March/June 2013, IND negotiated with PVE and PVIL with a view to the possible extension of the commitment period of the loan facility advanced pursuant to the loan agreement and to increase the funding available thereunder. On 17 June 2013, IND gave notice to PVIL of certain events and default under the loan agreement and, while reserving its rights, indicated its readiness to enter into proposals to restructure financial arrangements with PVIL. A response was received by IND from PVIL by letter of 26 June 2013 declaring its financial position to be fragile and demanding further advances from IND to settle PVIL's liabilities. This correspondence revealed that the solvency position of PVIL was then precarious. The response from IND was by letter of 27 June 2003 which, among other things:
(a)demanded immediate repayment of all the outstanding indebtedness, then asserted to be US$58,978,010.97 plus interest accruing at 3% per month;
(b)notified PVIL that if PVE should fail to make that payment demand for payment of a like amount from PVIL immediately was made under the guarantee;
(c)exercised all its powers to transfer the voting rights of the shares in PVE to IND;
(d)notified PVIL and PVE that IND was commencing proceedings in the courts of the Netherlands to enforce a private sale of the shares of PVE;
(e)took steps to ensure the removal of the existing directors of PVE.
This action was followed by a series of statutory demands made by IND and others upon PVIL which in turn led to the appointment of the administrators.
Alternative administrators
Affidavit evidence was filed by the plaintiff which I accept demonstrates that the two proposed substitute administrators which the plaintiff seeks to have appointed in place of the first defendants are suitably qualified, impartial, independent and sufficiently resourced to act as administrators for PVIL in this administration were the court to decide that they should be appointed. No challenge was made by any of the defendants to the suitability or independence of those proposed, nor was any other person or persons proposed as substitute administrator or administrators. I am satisfied, therefore, that if the court were to decide that the second defendants should be replaced as administrators, then Messrs Matthew James Donnelly and Said Jahani of the firm Grant Thornton would be suitable persons to be so appointed.
The parties
The plaintiff, PVIL, specialises in oil and gas exploration and development and has done so since its inception in 2007. So far as is presently material, its major asset is its shareholding in PVE. Significantly, PVE has the assets mentioned, which include oil and gas exploration and development concessions in areas of the Black Sea granted by, and under control of, the Government of Romania. PVE is a member of a joint venture with the other companies mentioned for the exploration and development of the Black Sea oil and gas concessions.
There is an operating company for that joint venture, Midia Resources Ltd, which, subject to the terms of the joint venture agreement and the rights of the co‑joint venturers thereunder, has the responsibility for and authority over the development and management of those concessions. Among the powers and duties of the JV manager is the right to call for capital contributions from the co‑venturers for the maintenance or furtherance of the exploration and other developments of the joint venture. Consequently, a series of calls for capital contributions have been made by Midia Resources on behalf of the JVA partners to PVE and others for further contributions. At the time of this hearing, a recent call for capital of approximately $US4 million had been made and payment of which was due by 4 February 2014. The evidence indicated that, without further financial support, by loans, capital raising or other restructures, PVE was not in a position to meet that call. Default, if it occurred and continued, meant that PVE was in jeopardy of losing its interest in the joint venture and its interest in the Black Sea oil and gas concessions which, on any account were believed to be very valuable.
Consequently, PVIL's shareholding in PVE was considered itself to be very valuable but, also to be very fragile in that it was susceptible to complete loss in the imminent future, if the call for capital by the co‑joint venturers of PVE could not be met.
The plaintiff IND is the major creditor of PVIL. The extent of the indebtedness of PVIL to the plaintiff did not precisely emerge but was common ground that it was in the order of $US40 million to $US80 million if not more depending on the resolution of certain contentious issues which need not be identified or examined. At the first meeting of creditors of PVIL, IND was admitted as a creditor to the value of $66,651,788.
Because of the large debt due by PVIL to IND, the plaintiff IND had taken security over PVIL's principal asset, its shares in PVE under the security referred to as the share pledge agreement. PVIL was in default in its financial obligations to IND and generally, and under the share pledge agreement, and IND therefore sought to avail of simple remedies which claimed it could enforce under the share pledge agreement. These included:
(a)a right to sell all the shares in PVE the subject of the security by private sale, if no better price could be obtained by a public sale for an amount of €15,000; and
(b)the right to appoint a sole director (IND CS) to the board of PVE in substitution for all its then existing directors and which would have all the managerial and executive power over the affairs of PVE.
Steps taken by IND to exercise the first of these powers, that is to sell all PVIL's shareholding in PVE privately resulted in a challenge to that action brought by PVIL in Dutch courts both in The Hague and in Amsterdam. This litigation in Holland is important in the present circumstances and will be examined and described more fully later.
To an extent, which was very controversial, the proceedings in Holland by PVIL to prevent the purported exercise by IND of its powers under the share pledge agreement to sell PVIL's shareholding in PVE was supported and pursued in association with the third defendant, Gemini. It will be important to say more about the role and influence of Gemini later but, for the present, its involvement with PVIL both generally and in relation to the Dutch litigation is central to the plaintiff's case which seeks the removal of the present administrators.
Its action taken by IND in reliance upon the share pledge agreement over PVE's shares held by PVIL was to appoint a sole substitute director of PVE. This is the company IND CS which is associated with or alleged to be influenced by a Mr Diab who was previously, but is not presently, closely associated with the plaintiff and other companies in its group. IND CS was, at the time of this hearing, the sole director and spokesman for PVE and in full control of all its executive powers.
Gemini's relationship with IND and PVIL
Gemini Oil and Gas Fund II LP (Gemini) is a limited partnership incorporated in Jersey. Details of its incorporation, the establishment and maintenance of limited partnerships in Jersey, the identity of its general partner and other partners are contained in documents exhibited to the first affidavit of the plaintiff's witness Mr Albert Muaddi of 7 November 2013 (AM12 ‑ AM15).
Gemini and PVIL are parties to an investment agreement dated 12 December 2007 ('Gemini Investment Agreement' or the 'GIA') pursuant to which Gemini agreed to invest $US3 million in PVIL in exchange for a royalty calculated as a percentage of the gross revenues from the production and sale of gas from an area within the oil and gas concessions of PVE in the Black Sea.
The Gemini Investment Agreement of 12 December 2007 is in evidence as annexure AM16 to the affidavit of Mr A Muaddi sworn 7 November 2013. It is a lengthy document (consisting of 31 pages). It is not necessary or appropriate to set out the whole of cl 5, or even subcl 5.13(b) of that deed, in full because it is enough to acknowledge that it does provide that if a concession default as a result of a failure to pay money by PVE occurs which PVE is unwilling or unable to remedy within seven days, 'Gemini shall have the right but not the obligation to have the entirety of the company interest [PVE's interest] assigned to it for $US1 without prejudice to any other legal right of Gemini --- '.
A cogent summary of the position of Gemini and its connection with PVIL, which I am satisfied accords with the evidence received in these proceedings, was given by the Enterprise Division of the Amsterdam Court of Appeal in its decision on the inquiry proceedings on 30 January 2014 which I quote and adopt.
2.1PVE was founded on 15 August 2007 by PVIL and PVIL is the sole shareholder of PVE. PVE has an interest in two Romanian oil and gas extraction sites in the Black Sea; namely an interest of 20% in the Midia/Pelican concession and an interest of 50% in the Lucearful concession (hereinafter jointly: the concession).
2.2On 12 December 2007 Gemini and PVIL concluded an agreement (hereinafter: the investment agreement) [sometimes referred to in these proceedings as the GIA agreement] based on which Gemini provided PVIL with US$3 million to finance PVE's share in the cost of test drilling in the concession area in exchange for a percentage of the yield from the sale of oil and gas from the concession area. One of the stipulations of the Investment Agreement was that if PVIL is in breach of the Investment Agreement, PVIL is obliged to transfer PVE's participation in the concession to Gemini for US$1. [This is a reference to cl 5.13(b) of the GIA.]
2.3On 28 December 2012 IND Energy and PVE concluded an agreement (hereinafter: the loan facility) on the basis of which IND Energy has provided PVE with a loan of US$24 million with a repayment tenure of one year. On the same day, 28 September 2012, PVIL entered into an agreement (hereinafter: the Guarantee) to act as guarantor for PVE in fulfilling its obligations under the Loan Facility.
2.4By notarial deed on 18 October 2012 PVIL granted IND Energy a right of pledge to (inter alia) the shares it holds in PVE (hereinafter: the pledge). The deed of pledge (article 2.5.1) stipulates the voting rights on the shares be transferred to IND Energy as pledgee under condition precedent of an Event of Default and with concurrent notice from IND Energy of an intention to exercise its voting right.
2.5On 18 October 2012, PVE acquired 20% of the interest in the Midia/Pelican concession from Sterling Resources Ltd (hereinafter: Sterling) on the basis of a Transfer Agreement. On the same day, PVE became a party to the Joint Operating Agreement between Sterling and the other participants in the Midia/Pelican concession by a Deed of Novation. The Joint Operating Agreement places an obligation on the participants to finance certain investments and stipulates that if a participant is in breach or has been in breach for longer than 60 days during the period of 12 consecutive calendar months with regard to its financial obligations, the other participants have the right to acquire the interest in the participants in question without reward or considering. Concerning the Lucearful concession, PVE became party to a similar joint operating agreement with Sterling and Gas Plus International VB (hereinafter referred to jointly as joint operating agreements).
2.6On 22 March 2013, Gemini adopted the position with regard to PVIL that PVIL was in breach of complying with the Investment Agreement because the loan facility and the guarantee were put in place without Gemini's permission and PVIL pledged shares in PVE without Gemini's consent.
2.7On 17 June 2013, IND Energy notified PVE and PVIL that they were in breach with regard to the loan facility and guarantee respectively. By letter of 27 June 2013 to PVE and PVIL IND Energy:
-claimed immediate repayment of the loan by PVE
-plus repayments fees stipulated in the loan facility of more than US$30 million
-appealed to a claim under the guarantee in the event that PVE would be unable to immediately pay the total amount of more than US$58.9 million
-exercised its right to have the voting rights on the shares in PVE transferred
-announced that it would enforce its right of pledge
-let it be known that it accepted the resignation of the directors of PVE (Feroz Sultan, Bob Barret and Gregory Lee) on 27 June 2013
-disclosed that IND CS was appointed as administrator of PVE on 27 June 2013
-announced that a general assembly of PVE shareholders would take place on 12 July 2013
…
2.10On 29 August 2013, Gemini demanded the transfer from PVIL of the interest of PVE in the concession for the sum of US$1. On the same day Gemini levied a pre-judgment attachment from PVIL on the shares held by PVIL in PVE.
…
2.12Per letter to IND Energy of 17 September 2013 and 17 October 2013 respectively, Gemini and PVIL have annulled the Pledge extra‑judicially as set out in article 3.45 DCC.
In or about December 2012, a dispute arose between PVIL and Gemini in relation to the investment agreement. The nature of that dispute and its potential consequences are both complicated and contentious and were never fully revealed as that was unnecessary in the present proceedings. Nevertheless, a brief albeit simplified and incomplete description is necessary. There are two aspects to this dispute, one in which PVIL was asserting that Gemini was in breach of the GIA and the other in which Gemini was asserting that PVIL was in breach of the GIA. Reduced to the most elementary terms, PVIL alleged that Gemini had unreasonably withheld its consent to a proposed sale to Shell Oil of PVE's joint venture interest in the Black sea oil and gas concessions for a price of $US40 million payable by Shell to PVIL. This was in circumstances where Gemini's consent was needed, under the GIA, to any sale or disposition of PVE's interests in the joint venture for the oil and gas concessions. This dispute had arisen before PVIL was put into administration. The GIA contained a dispute mechanism procedure to deal with issues arising between the parties and this had been invoked by PVIL.
On the other hand, Gemini alleged that PVIL was in breach of the GIA by entering into the secured loan agreements, including the share pledge over its shares in PVE, with PVIL. It contended that the share pledge agreement and the security granted by PVIL to IND over its PVE shares was invalid or voidable. Gemini also contended that because of PVIL's alleged breaches of the GIA it, Gemini, was entitled to damages ‑ the $US3 million which Gemini had invested in the GIA agreement and other damages and, further, that by reason of their alleged breaches Gemini may be able to exercise an option contained in the GIA requiring PVIL to procure the transfer of PVE's interest in the Romanian joint venture interest to Gemini (under cl 5.13(b) of the GIA).
Accordingly, the claims being advanced by Gemini, whether or not they were sustainable, included a claim for unliquidated damages against PVIL, because of the latter's entry into the share pledge agreement and other loan agreements with IND, and, in the event that IND's securities over the shares in PVE were unenforceable, a potential claim to the whole of PVE's interest in the Romanian oil and gas joint venture.
By letter dated 17 September 2013 to IND Gemini sought, unilaterally, or 'extra judicially' as it was described in the Dutch proceedings, to annul the share pledge agreement under the provisions of the Dutch Civil Code. IND rejected that alleged annulment by return correspondence. Also by letter of 17 September 2013 the solicitors acting for PVIL in Holland, De Brauw Blackstone Westbroek, and for the administrators, sought unilaterally to annul the share pledge again under the Dutch Civil Code.
At various points of these fast‑moving proceedings, Gemini and/or PVIL asserted, or at least implied, that Gemini was a creditor of PVIL although, when that issue came to be contested in these present proceedings, the highest that Gemini could appear to put its claim was that it was a contingent creditor of PVIL - depending upon success in its claim for damages - or that it had an interest akin to that of a creditor including the potentiality that it could eventually succeed to PVIL's shares in PVE or to the latter's interest in the joint venture over the Romanian oil and gas concessions.
Despite positions taken by Gemini in the legal proceedings in Holland (which as said will be examined more closely later) Mr Langdon for the first defendants and on behalf of PVIL had never received or accepted a proof of debt by Gemini against PVIL in this administration. Nor had he investigated whether or not Gemini was a creditor or had any right, actual or contingent, to PVIL's shares in PVE or to the latter's interest in the joint venture in the Romanian oil and gas concessions. In short, neither PVIL nor its administrators had ever formally acknowledged that Gemini was a creditor of PVIL, although many of their actions suggested that they had.
There can be no doubt that the real contest between the parties to this litigation and the associated companies which I have mentioned, is over the fate of PVIL's shares in PVE. This is just another way of stating that the contest is over PVE's share in the joint venture in the Romanian oil and gas concessions.
The implications clearly arising from the evidence are that if some means can be found of recapitalising or financing PVE, or alternatively for PVE to be taken over by another party with sufficient funds, then that will lead to preserving and securing PVE's interest in the Black Sea oil and gas concessions even if that involves them passing into new hands. The victor in that struggle will have won the prize, being the control of PVE's interest in the joint venture or at least to its Black Sea oil and gas concessions. There can be no doubt that this is the commercial goal being pursued by the various rivals.
Several avenues to that end were revealed by the evidence. First, if IND's share pledge agreement with PVIL over the PVE shares were valid and enforceable, then PVIL could force a sale of those shares to a private third party which may be associated with it. This is indeed what IND first set out to attempt by taking steps to sell those shares to PVSA, a company which sought to acquire them as a private buyer for €15,000 provided for in the share pledge agreement. That move was attacked by PVIL by its administrators and by Gemini in the first and subsequent Dutch proceedings and resulted in a temporary impasse.
Second, if Gemini were to be successful in blocking IND's claims to the PVE shares under the share pledge agreement, it may be in a position to advance its own claims for damages against PVIL and/or to force its claims to acquisition of the PVE shares or the latter's interest in the Black Sea joint venture.
Thirdly, and either alternatively or concurrently, any impasse or long delay in the resolution of the claims by IND to the PVE shares or its continued control of PVIL through its appointed director IND-CS, coupled with the commercial pressures on PVE to meet the capital call by the joint venture manager due on 4 February 2014 could lead to a commercial crisis in which a restructure of PVE or a sale of its interest in the joint venture would be forced upon it on terms which would be likely to favour either Gemini or IND.
As this hearing proceeded in late January and early February, this commercial crisis did indeed eventuate. Various proposals have been put forward to refinance PVE or to restructure it, so as to secure its interest in the joint venture over the Black Sea oil and gas concessions or to recapitalise it by issuing large numbers of shares to IND which would give the latter effective control over PVE and its concessions and in doing so dilute to minor proportions existing shares in PVE to which PVIL or Gemini may lay claim.
It was the urgency of this impending financial crisis of PVE that led to the resolution of the present proceedings by causing the first defendants, at a later stage, to support a particular solution for PVE's financial crisis which was one at variance with the position thereto adopted by Gemini. That involved the first defendants choosing a course which showed them to be operating separately and distinctly from any perceived support of, or allegiance to, Gemini.
However, the existence of such an allegiance or support by the first defendants for Gemini, or alternatively the existence of a reasonable objective basis for an independent observer to believe that such a relationship existed, is what led to the plaintiff bringing this application. How that arose and the basis for the plaintiff's claims in that regard remains to be explained.
But first, some more historical detail must be described. For the present it is necessary to note that IND and Gemini were rivals for the control of PVE and/or its interests in the joint venture over the Black Sea oil and gas concessions. Their interests were directly antithetical in this regard and each was clearly pursuing variable strategies to achieve its end, on the part of IND by securing control of the shares held by PVIL in PVE and in the process getting full control of PVE's interest in the joint venture. On the other hand, Gemini was intent on thwarting IND's efforts in this regard, first by attacking the validity or efficacy of the share pledge agreement, secondly, by asserting that it was either an actual or potential creditor of PVIL and thereby influencing the administration to secure a commercial outcome of the imminent financial crisis descending on PVE on terms which favoured Gemini. This latter expedient was implemented by Gemini refusing to authorise any dealing by PVIL in PVE's joint venture interests claiming a right of veto over any such action by PVIL under the litigation funding agreement. The validity of that asserted position was never put in issue but it loomed as an obstacle to any restructuring arrangements for the shareholding or financial support of PVE, during the crucial days leading up to the deadline of 4 February 2014 thus effectively putting Gemini in a blocking position.
The position of the first and second defendants in this regard, however, was one of asserted independence and neutrality. For reasons associated with limited financial resources available to them to engage in long running and expensive litigation, the administrators explained they had sought to avoid litigious solutions to these various disputes and, instead, to negotiate with the parties and other prospective buyers or investors in PVE's joint venture, to secure a commercial solution. They claimed that to do so they needed time and an opportunity to negotiate with these parties and others rather than being drawn into long contested legal proceedings.
To achieve that end, as explained by Mr Langdon, the administrators adopted a position, on legal advice both from Australia and Holland, that they should take steps to preserve the status quo and that these involved, among other things, joining in the litigation in Holland to prevent IND from succeeding in its claim to enforce its rights under the share pledge agreement. In adopting that course, either innocently or oblivious to the full implications of that conduct, the administrators initially supported Gemini in the various challenges to the conduct of IND in all three sets of legal proceedings in Holland. Indeed, in the plaintiff's eyes, they went further than this by directly aligning themselves with Gemini.
The funding agreement
The administrators' funding deed between the first defendants, the second defendant and the third defendant is undated but it was entered into on or before 24 September 2013 and was in place before the first meeting of creditors of PVIL held in Perth on 25 September 2013. The attendance register for that meeting of creditors shows that the plaintiff IND Energy Inc was admitted as a creditor and entitled to vote for a debt of $66,531,788 which made it, by far, the largest creditor represented at that meeting. Of the 15 creditors recorded as attending in person or by proxy the largest other creditor had a debt admitted at $407,000. Gemini was not listed as a creditor or as attending at that meeting of creditors. Despite the magnitude of its admitted debt, IND was not consulted or informed about any funding arrangements for the administrators and was only provided with a copy of the funding deed after it had been made.
The funding deed recites that PVIL and Gemini are parties to an investment agreement under which Gemini provided to PVIL an advance of US$3 million and that Gemini has agreed to lend to the administrators of PVIL the amount of $100,000 on the terms contained in the deed. The minutes of the first meeting of creditors referred to the funding agreement with Gemini and noted that it provided for:
•an initial payment of $100,000
•an ability to draw down further funding from Gemini
•the repayment of the loan to Gemini as a cost of the administration of the company
•that the administrators were liable only for the repayment of the loan under s 443A of the Corporations Act on a limited recourse basis and without personal liability.
As it emerged, the plaintiff contends that cl 10, cl 13 and cl 14 of the funding deed should be deleted or that orders should be made restraining any of the parties to the deed from giving effect to those clauses. The reasons for these contentions will be examined more closely later but, essentially, the plaintiff contends that such provisions impair the independence of the administrators or give rise to a reasonable objective perception that they have an unacceptable allegiance to a particular creditor, namely Gemini. Further, the plaintiff submits that cl 10 and cl 13 require disclosure of confidential privileged legal information concerning the state of the administration, particularly in relation to the litigation in Holland. They also submit that cl 13 has put Gemini in a position in which it could veto any proposals considered necessary or desirable for the restructuring, refinancing or sale of PVIL or any of its assets. Those challenged clauses are as follows:
10.Legal Proceedings
The administrators acknowledge and agree that they will, in any legal proceedings utilising funds received as a part of the administrators' loan, engage legal advisers on the basis that any and all communication and information provided by legal advisers in those proceedings are for the joint benefit and in the common interest of both the administrators and Gemini and that such communication and information relating to the proceedings will be promptly communicated with Gemini.
…
13.Negative pledge
Subject always to the administrators' duties under the Act, and except with the consent of Gemini, the administrators will not:
(a)incur an additional debt other than trade creditors, fees payable to professional advisers retained by the administrators and disbursements and costs incurred by the administrators in discharging his proper functions and duties; or
(b)sell, relinquish, control or otherwise deal with any assets of the administrators or PVIL in any material respects.
It is unnecessary to set out cl 14 in full as it is sufficient to note that it provides that the administrators' funding deed will continue to apply even in the event the PVIL executed a deed of company arrangement (DOCA) which is consented to by Gemini or if PVIL were to be placed in liquidation and the administrators were appointed as liquidators.
The objection to cl 10 is principally concerned with the provision of confidential or privileged legal information to Gemini in relation to legal proceedings in circumstances where the interests of Gemini and PVIL may not be congruent (and with the implicit assumption that their interests are congruent); the objection to cl 13 is in relation to the subclause which prohibits the administrators selling or disposing of any assets of PVIL or relinquishing control of them; and the objection to cl 14 is that it provides for continuity of the funding deed even in the event of a DCOA or liquidation and, hence, provides for the perpetuation of the power and influence of Gemini over the affairs of the administration or liquidation.
Appointment of solicitors by administrators
By letter dated 24 September 2013 the solicitors for IND wrote to the administrators expressing concern about their appointment of the firm of Clayton Utz as their solicitors and their entry into the funding agreement with Gemini. By its solicitors the plaintiff asserted that there was a potential conflict of interest if Messrs Clayton Utz were to act for or advise the administrators. It is unnecessary here to set out the full details of those concerns but they included assertions that:
(1)Clayton Utz acted for Gemini against PVIL in the former's capacity as a claimed creditor in a dispute between PVIL and Gemini in relation to the operation and effect of the GIA, a dispute which, it was said, Gemini was still pursuing.
(2)Clayton Utz were acting for PVIL prior to the appointment of the administrators and prepared a memorandum of advice on voluntary administration in Australia for use in the District Court of The Hague by PVIL's Dutch solicitors, Messrs De Brauw Blackstone Westbroek, in proceedings in which Gemini was also involved.
(3)The administrators proposed to enter into a funding agreement with Gemini, which then soon after eventuated, in circumstances where:
(a)Gemini was a creditor of the company PVIL with a pre-existing dispute with the company PVIL and was opposed to IND in relation to the share pledge security;
(b)Clayton Utz acted for, and still was acting for Gemini, in relation to that dispute;
(c)Gemini had actively sought to involve itself in the proceedings in the District Court of The Hague listed for hearing on 25 September 2013 opposing the relief sought by IND in that suit.
The administrators maintained that there was, and is, no conflict of interest in them dealing with Gemini or in retaining Clayton Utz as the solicitors to advise them in the course of the administration or to correspond with PVIL's solicitors in Holland.
The Dutch proceedings
There are three sets of legal proceedings in Holland which are of relevance. Each involves the preparation and filing of substantial written submissions, the equivalents of pleadings, and have resulted in very full, thorough and comprehensive reasons for the decisions given by the Dutch courts. All those materials are in evidence but are too voluminous to be separately identified or described. A brief summary will have to suffice.
The first set of proceedings was commenced by IND in the District Court of The Hague on 1 August 2013 - that is, before the appointment of the first defendants as administrators of PVIL. In these IND was seeking leave of the Dutch court to proceed to effect a private sale of all PVIL's shares in PVE for the sum of €15,000 pursuant to rights said to confer that power in the share pledge agreement. Such a power could be exercised, under that contract, if it appeared that no better price could be achieved by a public sale, a contention which IND was advancing because of its allegations about the parlous financial condition of both PVE and PVIL at that time.
By the time those proceedings came to be heard in The Hague the administrators had been appointed to PVIL and they retained their Dutch solicitors, Messrs De Brauw Blackstone Westbroek to oppose the plan. Gemini joined in the proceedings, represented by a London firm of solicitors, Freshfields, also to oppose the claim.
In its defence in these Hague proceedings Gemini alleged that the share pledge by PVIL of the PVE shares was not valid under Dutch law and, further, for reasons contained in the submissions, that PVE was not in default. Gemini also asserted that the loan agreement was a 'non‑commercial agreement that is challengeable under Australian and English law'. It also contended that the proposed sale price of €15,000 offered by Petro Ventures SA was well below the market value for the shares in PVE and was not an arm's length transaction. It contended that it was plausible that a public sale or a sale to a third party would result in higher proceeds.
Gemini claimed to be an interested party because it asserted that it had a special relationship with PVE and PVIL. It described its position as follows:
First, it is a creditor of PVIL, but in addition the parties wanted give it, factually and economically, the position of shareholder in PVE. Via the so‑called Gemini entitlement Gemini, like PVIL, is entitled to PVE's profit. This right is directly related to the income of PVE.
From this point of view Gemini's position is equal to that of PVIL pursuant to [is] shareholdership.
… (Clause 29 of the English translation of Gemini's defence in that suit)
The decision of the District Court at The Hague in those proceedings was given on 9 October 2013. After dealing with issues relating to jurisdiction of the Dutch court, the learned Judge, having reviewed the deed of share pledge, the loan facility and the guarantee and the allegations of default decided that it should be assumed in those proceedings that IND was entitled to sell the shares in PVE and take recourse on the proceeds of such sale, but that the appropriate place for the assessment of the legal validity of the attempted nullification by Gemini of the right of pledge, the challenge to the alleged default and Gemini's assertions that the loan facility could be annulled in whole or in part pursuant to Australian insolvency law should be in proceedings initiated by writ under a specified article of the Dutch Civil Code.
For that reason, the learned Judge considered that it was only necessary for him to assess whether the proposed private sale would result in more favourable proceeds for the creditors than would a public sale as provided for the enforcement of the pledge under the provisions of the Dutch Civil Code. His Honour concluded that had it not been established that a private sale of the shares in PVE would achieve a more favourable result for creditors than a public sale, and that there was reason to believe that PVE shares might fetch a much higher price on a public sale. Consequently, his Honour refused leave to IND to proceed with a private sale and ordered it to pay costs. No decision was made on the issues of whether or not the share pledge was illegal or invalid or could be annulled as both PVIL and Gemini had asserted.
There then followed, nearly simultaneously, two sets of proceedings in the District Court of Amsterdam commenced respectively by PVIL (administrators appointed) and by Gemini, each against IND. Steps were taken to have those two proceedings consolidated or heard together and that largely, but not entirely, occurred. The first of these two related sets of proceedings was commenced by PVIL on 24 September 2013, again with the Dutch solicitors De Brauw Blackstone Westbroek acting for the administrators. By this action the PVIL administrators were seeking orders to prevent IND from conducting any sale of the PVE shares pending a determination by the administrators of the propriety or enforceability of IND's claim against PVIL under the share pledge. On 15 October 2013, again in the District Court of Amsterdam, Gemini commenced similar proceedings essentially seeking the same relief against IND.
Decisions in the second set of Dutch proceedings
In the first of these claims by PVIL that company sought a consolidation of its claim with the similar claim brought by Gemini then pending in the District Court of Amsterdam or, alternatively, a simultaneous hearing. It also sought an injunction prohibiting IND from taking any steps to conduct a public sale of the PVE shares and a further prohibition directed to IND against exercising its alleged right of pledge to the PVE shares until the PVIL administrators have completed their investigation of the claims against PVIL filed in the administration and IND accepts the findings or opinions of the administrators. In support of those claims PVIL by its administrators was asserting that:
(a)IND did not have a valid right of pledge;
(b)alternatively, PVIL was not in default or that if there were a default that default 'is lifted by the creditors' default by IND'.
In the associated proceedings by Gemini it again asserted that it was a creditor of PVIL and had been since 2007. It contended that by creating a right of pledge over the PVE shares and proceeding to enforce it IND was involved in a fraudulent preference resulting in prejudice to creditors (an actio pauliana under Dutch law). It too contended that the right of pledge was invalid and that any attempt by IND to enforce its security should be prohibited.
A judgment was given in the consolidated proceedings in the District Court of Amsterdam on 22 November 2013. This was essentially interlocutory in nature. The learned Judge concluded that it was insufficiently likely that the attempted unilateral annulments of the share pledge agreement ('the extra judicial annulments') by both PVIL and PVE would be effective but that it was arguable that there may not have been defaults by PVE and that immediate enforcement by IND of its securities would have irreversible consequences for the administrators and other creditors. His Honour found that there was insufficient ground for an immediate prohibition on enforcement by IND of its securities but that there was cause to suspend enforcement for a period of nine months, during which time the administrators would take steps to prepare an orderly sale of PVIL's assets, including the PVE shares. The court found that there was, at that point, reason to expect that 'the claims of more excessive scope' (referring to the claims for illegality or unenforceability of IND's securities) should be denied. Accordingly, no resolution of the underlying disputes occurred but IND was restrained from enforcing its security over the PVE shares for the nine-month period.
A further application was then made by the first defendants as administrators of PVIL to the Enterprise Division of the Amsterdam Court of Appeal. This is the third set of proceedings in Holland. Interested parties were named as IND and Gemini, both, effectively, defendants or respondents. These were known and referred to by the parties as the 'inquiry proceedings'. Although the analogy is far from exact, it seems that the first and second defendants, by these proceedings, were seeking to invoke a judicial remedy available in Holland which, in some ways, is comparable to proceedings against corporations in Australia by shareholders or creditors who assert that the affairs of the company are being conducted in a manner which is oppressive or prejudicial to certain interests, including shareholders or creditors which, if it could be established, would open the way to a wide variety of remedies to control the affairs of the company.
By these proceedings the administrators of PVIL were seeking that the court undertake an inquiry or research into the policy and course of affairs of PVE between September 2012 and judgment; that it suspend and prohibit the execution of any decisions made during the extraordinary shareholders' meeting of PVE of 10 January 2014 (when it was under the control of PVIL); to transfer all the shares in PVE to a person nominated by the Enterprise Division of the Amsterdam court; and to appoint a supervisory director to PVE to whose decision all acts and decisions of the existing board of the company must be submitted for approval. Gemini joined with the administrators and PVIL in supporting the relief claimed and the institution of the inquiry sought by PVIL.
To a significant extent, the progress of that claim was continuing in Amsterdam during the period of 14 days or so during which this present application was being heard before this court, including adjournments, and with obvious implications for these proceedings.
The hearing of those inquiry proceedings took place in the Enterprise Division of the Amsterdam Court of Appeal on 16 January 2014, and that court then confirmed its findings and decision would be delivered within two weeks. That decision was still pending during the early part of the course of the hearing of these present proceedings in this court. Accordingly, I adjourned these proceedings on 30 January 2014 until 4 February 2014 in order to await the outcome of any decision by the Enterprise Division of the Amsterdam Court of Appeal.
The decision of that court on the inquiry proceedings was given on 30 January 2014 (Amsterdam time). The decision is Annexure SDHL1 to the affidavit of Mr SDH Langdon sworn 3 February 2014. In very thorough reasons given by that court, the court addressed a then recent development that an extraordinary meeting of shareholders of PVE had been called for 31 January 2014, with a view to issuing 2 million ordinary shares in the capital of PVE with a nominal value of €1 to PVSA (a company believed to be associated with IND) the effect of which would be to raise capital to meet PVE's most pressing and urgent financial needs but which would also dilute, to a point of minor significance, the existing shareholding in PVE held by PVIL.
Again, in the inquiry proceedings, Gemini had contended that it was a creditor of PVIL but not of PVE. In the result, the Enterprise Chamber denied Gemini's request to be admitted as an interested party in the inquiry proceedings; also denied the applications by the administrators of PVIL and by PVE for immediate injunctive relief and directed that the applications by the administrators for an order for an inquiry into the policy and affairs of PVE should take place at a later hearing.
This left the way open for the extraordinary general meeting of shareholders of PVE to consider the proposed issue of further shares, which would dilute the PVIL holdings or, for that matter, other measures to restructure the shareholding or financial arrangements for PVE.
These decisions came into effect very shortly before the deadline of 4 February 2014 when PVE was required to meet the call of US$4 million made by the joint venture manager or be in jeopardy of losing its joint venture interest in the Black Sea oil and gas concessions.
This chain of events led to an alteration in the position of the administrators of PVIL with regard to the equity raising for PVE which had been proposed at the EGM of 31 January and the associated PVSA funding proposal. The administrators had secured a short extension of time to consider their position. As described in his affidavit of 3 February 2014, Mr Langdon explained how the administrators had decided to vote for and on behalf of PVIL in favour of the PVSA funding proposal and to accept the IND offer of financial support. Mr Langdon explained that he and Mr Rocke had determined on this course in view of the following considerations:
(a)legal advice received from the Dutch lawyers during the course of 1 and 2 February 2014 and the inquiry proceedings, leading to their view that there were limited alternate options available to PVIL in relation to the proposed fund raising activities at the PVE level;
(b)uncertainty as to Gemini's position to continue funding the administrators;
(c)the PVSA funding proposal and the IND offer of financial support being on offer for only a very short period;
(d)the observations made by the Enterprise Chamber in the initial course of the inquiry proceedings to the effect that the relationships between INDCS, PVE and PVSA did not appear to be impermissible;
(e)the advantages to PVIL if IND would withdraw its claim against PVIL under the guarantee subject to the restructuring proposal being accepted.
This effectively involved the administrators taking a separate and independent stance from that of Gemini and acting in a way that demonstrated resistance to any real or imagined influence over them by Gemini. Despite deciding to support the PVE restructuring proposal and the IND financial support being offered, the administrators expressed the view that they believed it was unlikely that the restructure of the company would be possible and that the probabilities were that PVIL would be placed into liquidation.
False measure of hope - the Exxon sale proceeds
In the fraught period leading up to 4 February 2014 when PVE was required to meet the call from the joint venture operator, the matter of critical concern was whether or not PVE could find funds to meet that and other obligations before suffering irreversible prejudice. Various restructuring proposals had been put to PVE and PVIL by IND or interests associated with IND but none was then acceptable to the administrators and/or Gemini.
The position of the administrators in relation to these matters was explained by Mr Langdon in the course of his cross-examination in these proceedings. Essentially, it was that the proposals being offered by IND or its affiliates were not sufficiently attractive and that if more time could be gained to allow the administrators to put proposals to a wider group of investors under a well marketed proposal, a superior result could be achieved. However, Mr Langdon estimated that it may take eight months or so for such a managed sale of PVIL's assets to be properly conducted. This did not meet the very pressing and urgent demand for immediate funds before 4 February and Mr Langdon had no real answer to that dilemma. His position, however, was that the administrators believed that it was inconceivable that IND would allow PVE to default and that its impending financial crisis would almost inevitably have to be solved by IND or its associates providing further funding to PVIL and/or PVE. He maintained this position notwithstanding that requests or proposals to this effect which had been put to IND had been rejected and that Mr Muaddi on behalf of IND when giving evidence and under cross‑examination had unequivocally maintained that IND would not provide any further loans or capital under then existing arrangements. Accordingly, the position adopted by the administrators in this regard, supported by Gemini, was one of great brinkmanship because, if their hypothesis about IND reluctantly coming to the aid of PVIL or PVE did not come to pass, no other solution was available.
This stance by the administrators was another reason relied upon by the plaintiff for seeking the removal of the administrators and because, so the plaintiff submitted, this was a course of conduct likely to cause prejudice to PVIL and its creditors, so much so that the only prudent course would be to take the management and control of PVIL out of the hands of the existing administrators by appointing different administrators.
In these circumstances, the administrators and PVIL contended that there was a sudden ray of hope for the relief of PVE's most pressing financial circumstances in the shape of sale proceeds payable to it by Exxon. This proved to be a false hope because the entitlement to those sale proceeds was immediately claimed by IND as being subject to its securities over the assets of PVIL and PVE so that none of the money coming would be available to PVE to meet the joint venture call or other pressing liabilities.
The source for the funds which it had been hoped would relieve PVE from its most pressing obligations was the sale of interests held by PVE in petroleum exploration, development and production in Blocks XII Pelican and XV Midia. In October 2012 ExxonMobil Exploration & Production Romania Ltd, OMV Petron SA, Sterling Resources Ltd and PVE had entered into an agreement whereby Exxon and OMV Petron would purchase and Sterling Resources and PVE would sell relevant interests held by Sterling Resources and PVE in those two blocks. Under the terms of that agreement the purchasers would pay Sterling Resources and PVE an initial total instalment of US$38,250,000 comprising:
•US$29,250,000 to Sterling Resources and
•US$9 million to PVE
The transfer of those relevant interests occurred only on or about 29 January 2014, as a result of which an immediate payment of US$9 million (before tax) was expected to be paid to PVE before 4 February 2014 and that, after tax, PVE was expected to receive approximately US$7,500,000. As indicated, however, the imminent receipt of those moneys was not regarded as providing a solution to the urgent liabilities of PVIL/PVE because IND immediately laid claim to those moneys pursuant to its loan securities and made it clear that it would not release any portion of the funds under then existing circumstances.
Submissions of the parties
The plaintiff's submissions
The plaintiff contends that there is a perception of a lack of independence of the administrators from Gemini which warrants their removal. It accepts that to obtain such relief it has the onus of establishing the perception of a real and not merely a theoretical conflict of interest, Flynn v Theobald [2008] WASC 263 [105] - [107], and, secondly, that there is at least a prima facie case that in the interests of the public, removal of the administrator would be for the general advantage of persons interested in the administration: Flynn v Theobald; Australian Securities and Investment Commission (ASIC) v Letten [2010] FCA 140 [36]; Bovis Lend Lease Pty Ltd v Wily [2003] NSWSC 467; (2003) 45 ACSR 612 [140] - [141]; and Re Biposo; Condon v Rogers (1995) 120 FLR 399; (1995) 17 ACSR 730, 403.
As for the alternative relief sought by the plaintiff under s 447E of the Corporations Act, the plaintiff accepts the onus of establishing that the administrators have managed or are managing the business, property or affairs of PVIL in a way that is prejudicial to the interests of some or all of the creditors or members, or have done or propose to do an act or omission that is or will be prejudicial. Mere potential for prejudice is insufficient. Establishment of the ground requires proof of conduct or proposed conduct that is or would be prejudicial: Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456 [79].
The plaintiff submits, and I accept, that the power of the court under s 447E, once enlivened, is broad and should not be read down: Re Pan Pharmaceuticals Ltd (Administrators Appointed) [2003] FCA 855; (2003) 47 ACSR 139 [50] ; and Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 [17]. However, any order proposed under s 447E must have a sufficient nexus with the administrators' prejudicial behaviour by regulating, remedying or compensating for it or in preventing its repetition or conduct of similar nature: Honest Remark v Allstate Exploration NL.
The roles of administrators in the course of performing their tasks in an administration have been examined by Austin J in Bovis Lend Lease Pty Ltd v Wily [133], by Sanderson M in Re Monarch Gold Mining Co Ltd; Ex parte Hughes [2008] WASC 205; (2008) 26 ACLR 1089 [15] and by Corboy J in Hughes v The Receivers and Managers of Westgem Investments Pty Ltd[No 3] [2012] WASC 360 [17]. They require that administrators be, and be perceived to be, independent of the company, its directors and shareholders and individual creditors; act, and be perceived to act, impartially in discharging the duties and responsibilities of their office; and ensure that they do not place themselves in a position where there is, or might be, a conflict between their duty to creditors and their personal interest. The plaintiffs submit that an administrator is a trustee and has the same duty of impartiality as courts of equity impose on trustees: Commonwealth Bank of Australia v Fernandez [2010] FCA 1487; (2010) 81 ACSR 262 [63], a proposition which I accept.
It is the objective appearance of independence by an administrator which is critical and hence, in a case like the present, a court is not required to assess whether an administrator will in fact act independently but, rather, whether there is an objectively reasonable apprehension based on existing or past events that the administrator will not act independently or not be perceived to be so acting.
The conduct of the administrators which, in the plaintiff's submission, warrants their removal or, alternatively, other relief under s 447E is identified under the following headings:
(a)the engagement of Clayton Utz;
(b)administrators' failure to investigate the company's claim against Gemini;
(c)the entry into and the terms of the funding deed between the administrators of PVIL and Gemini;
(d)the administrators' conduct in reaching a view on IND's claim against PVIL and the enforceability of the share pledge agreement within days of their appointment;
(e)the administrators' failure fairly, independently and impartially to assess the plaintiff's claim.
The circumstances which led to this position which endured up until 22 January 2014 are, however, explicable on the basis that Mr Langdon and his co-administrator were led to believe, and did believe, that the steps taken by IND in September and October of 2013 to seek leave to sell PVIL's shareholding in PVE to an affiliated company or entity by private sale for €15,000 represented a major threat to the administration. I am satisfied that the administrators believed, and with some reason, that that would amount to an uneconomic disposal of the principal asset of PVIL and that steps should be taken to prevent that if possible. For that reason, PVIL joined in the proceedings in the District Court in The Hague to oppose that relief and was joined in that effort by Gemini pursuing the same objective.
However, while it was convenient for the administrators and Gemini to join together in opposing IND's attempts to sell PVIL's shareholding in PVE pursuant to the share pledge for that nominal amount, I am satisfied that there are, or there were, grounds upon which a reasonable objective observer would doubt the independence or impartiality of the administrators in joining in any wider alliance with Gemini. There are many reasons for this but the principal one is the history of the unresolved and continuing dispute between Gemini and PVIL under the GIA, including Gemini's claim to be entitled to all PVE's shareholding for the nominal amount of US$1. The rapaciousness of Gemini to secure the PVE shares for US$1 does not appear to be very different from the desire of IND to procure the acquisition, by an affiliate, of those same shares for €15,000. On any objective basis, there was reason for the administrators to accept that each of IND and Gemini was a claimant against PVIL and that each was seeking to acquire PVIL's shareholding in PVE, so that the interests of PVIL and all its other creditors demanded that the utmost rigour and distance be maintained between PVIL and its administrators on the one hand and each of those two claimants separately.
Whatever the urgency may have been for the administrators to join with Gemini in the first set of proceedings in Holland, (the District Court of The Hague proceedings), once leave for IND to proceed with the private sale of the PVE shares was refused by that court, there was, in my view, both the necessity and the opportunity for PVIL and its administrators to examine more closely its association with Gemini and its retention of the same solicitors who had been acting for Gemini both before the administration and in relation to The Hague litigation.
There is nothing to suggest that this occurred. Rather, the close alliance between PVIL and its administrators and Gemini on the other hand continued and was taken to a greater level of collaboration when it came to the subsequent proceedings in the District Court of Amsterdam and in the inquiry proceedings shortly afterwards commenced before the Enterprise Division of the Court of Appeal in Amsterdam. This is surprising because in those proceedings in Holland both Gemini and PVIL represented or submitted that Gemini was a creditor of PVIL yet no proof of debt by Gemini was lodged or accepted in the administration of PVIL in this State, nor was Gemini treated as a creditor or admitted to vote at PVIL's first meeting of creditors.
In cross-examination in this court Mr Langdon accepted that Gemini had not sought to prove as a creditor in the administration and had not been accepted as one. Nor was Gemini accepted by the administrators as a contingent creditor of PVIL. Similarly, he acknowledged that neither he nor his co-administrator had investigated whether or not Gemini was a creditor. This is very odd. One explanation may lie in the sense in which the term 'creditor' is used in Dutch law because, from the reasons for decision of the Dutch courts, it seems to be the case that the term 'creditor ' was used in the sense of a party having a sufficient interest to participate in the type of proceedings then before those courts but that it need not be a 'creditor' in the debtor/creditor relationship accepted at common law but, rather, a party with a contingent interest or a claim which might mature into a commercial or proprietary interest given the outcome of the subsequent succession of events.
Nevertheless, the alliance between Gemini and the administrators of PVIL continued in all the proceedings in Holland. The principal focus of them was to delay, invalidate or circumvent the loan/guarantee/share pledge and security interests claimed by IND over the assets of PVIL and PVE. This stance inevitably, although perhaps not fully appreciated by Mr Langdon and not brought to his attention by solicitors who were also acting for Gemini, put the administrators in a position where, whether they realised it or not, they were quite obviously favouring the interests of Gemini over the interests of IND in relation to the administration and in circumstances where, as the Dutch courts held, all the appearances were that IND was a creditor with security over the assets of PVIL and that there was no reason, at least on a summary basis, to question or invalidate the indebtedness claimed by IND or the apparent validity of its securities. It seems to be a realisation of this fact which led to the institution of the inquiry proceedings before the Enterprise Division of the Court of Appeal in Amsterdam which sought to delay or circumvent the claims by IND by rather different means.
However, throughout this period I am satisfied that the conduct of the first defendants was motivated almost entirely by an attempt to preserve the assets of PVIL and PVE from the risk of imminent disposal at low values. It was also motivated by an appreciation that the resources available to the administrators, even with the funding provided by Gemini, would be insufficient to engage in major litigation, whether in Holland, Australia or elsewhere. The litigation in Holland was to determine the validity or enforceability of IND's claims under the securities or, almost inevitably connected, Gemini's claims for damages or shares under the GIA. The strategy, Mr Langdon quite openly acknowledged, was to preserve the status quo and to gain time in order to negotiate a 'commercial solution' for the sale of the assets of PVIL or for its restructuring. That continued to be his aim even after 22 January 2014 and throughout the duration of this hearing.
In this, however, he was handicapped because the terms of the funding agreement effectively gave Gemini a veto over any proposals to sell or dispose of assets in PVE or PVIL. More to the point, as PVE was unable to meet the call made by Midia Resources, the joint venture manager, for payment of US$4 million or more for the joint venture operations by 4 February 2014, that meant that a financial crisis of major consequence would be looming. This was not a crisis which was neutral in its effects upon the respective disputing parties because if PVE defaulted in its obligations to the co-venturers then, under the GIA, Gemini claimed to be entitled to have procured to it a transfer of all PVIL's assets in the concessions, so that missing the deadline or failing to reach a financial solution for the recapitalisation or restructure of PVIL/PVE before 4 February 2014 had the prospect of advantaging Gemini if it should turn out that IND's share pledge and securities over PVIL were, for any reason, ineffective.
Consequently, from the very outset, I am satisfied that there was an irreconcilable difference of interests between IND and Gemini when it came to the claims which each made in respect of PVIL. In these circumstances, I consider that it was necessary, once the administrators became fully apprised of the position, to avoid any association or alliance with either of those parties or with solicitors acting for either one of them and to adopt an entirely independent and neutral position in relation to the administration as a whole, not just for the benefit of PVIL but also for its other creditors.
This also meant that it was inappropriate for the administrators and PVIL to continue with the retainer of Clayton Utz once the initial decision in the District Court in The Hague refusing leave to IND to sell the PVE shares under its security with PVIL had been given. The submissions by the first and second defendants were that the administrators were sufficiently protected or fulfilling their duty of independence by reliance on an expectation that if a perceived conflict of interest arose that Clayton Utz would inform the administrators and in that event the company, the administrators and the solicitors could be expected to observe their duties. That appears to be, with all respect, a euphemism devoid of any content. They further submitted that if a conflict did arise the solicitors would cease to act for the administrators but continue to act for Gemini.
Divergence of interest between clients of the same solicitors
In support of the submission that there was no actual conflict or divergence of interest between the company PVIL and Gemini at the time when the administrators engaged the firm Clayton Utz or throughout the time that they continued to engage that firm and that a mere potentiality for a conflict of interest to arise in the future was not sufficient to ground any reasonably objective perception that the administrators were not acting independently or impartially, counsel for the third defendant referred to some observations which I made in the case of Tobin v Dodd [2004] WASCA 288 with which Murray and Le Miere JJ both agreed. The point that I was addressing in the passage at [45], which was cited by the third defendant in the present case, concerned the question of whether or not a court would recognise the existence of a dual duty of care by a firm of solicitors who were acting in a personal injury claim for a young woman whose father had retained the solicitors to act on her behalf and where the contract of retainer was between the father and the firm rather than between the firm and the daughter. The submission, rejected by the Full Court in that case, was that a court would not recognise the existence of parallel duties of care by the solicitor to the father in contract and to the daughter in tort because of the potential for a conflict of interest to develop and because solicitors could only have one duty towards their client. The passage relied upon in the present case by the third defendant is as follows:
At the moment, on the face of the allegation in the proposed statement of claim that the respondents acted for both the appellant and his daughter, there is nothing intrinsically objectionable about that. Furthermore, the interests of the appellant and his daughter may well have been coincident and have been expected to remain so. In that case, there could never have been any objection to the respondents' firm acting for both parties. Sometimes, however, even interests which were expected to be, and to remain, coincident may diverge and the situation could be reached in which it would have been necessary for the solicitors to arrange separate representation for each of their former clients. This is a possibility in every case where solicitors act for two or more people with apparently coincident interests, such as partners, beneficiaries of a trust of estate, co‑owners of property, a group of shareholders in a corporation or multiple claimants in a class action. If the mere potentiality for some conflict of interest to develop between parties, whose interests had hitherto always been coincident, were sufficient to prevent solicitors acting for those presenting with apparently coincident interests, there could never be a situation in which a solicitor could act for more than one person, a theoretical result repudiated by common experience both in and out of court.
Nothing which I have written in these present reasons should in any way be regarded as detracting from that expression of principle or to be in any way inconsistent with it. The point of departure in the present case is that long before the administrators retained Clayton Utz the interests of PVIL and Gemini were not coincident. They were, in fact, sharply opposed because of the unresolved disputes which had arisen and which were still being pursued in relation to the investment agreement concerning the Black Sea oil concessions (the GIA). The nature and magnitude of that divergence of interest have already been extensively explained in these reasons. The fact that there may have been a temporary, but limited, coincidence of interests between Gemini, PVIL and the administrators in opposing PVIL's claim for leave to sell the PVE shares privately in the first set of proceedings in the District Court of The Hague does not alter, or remove this fact. All it means is that, for a short time and for a very limited purpose, opponents combined to oppose a third party. However, that does not excuse or condone the engagement by the administrators of solicitors acting for Gemini whose abiding interests, including their interests relating to those proceedings in the District Court of The Hague, were ultimately hostile to the interests of PVIL.
It was then, in my view, both correct and inevitable that the administrators should, by their solicitors, make the open offer on 22 January 2014 that upon the proceedings being dismissed by consent without any order as to costs, they would cease retaining Clayton Utz and that, by consent of Gemini, cl 10 and 13 of the funding deed would not be relied upon. This is not a case of some routine or unassociated connection between the solicitors for the administrators and some creditor or creditors of the company pre-existing the appointment of the administrators where the retention of the same solicitors was innocuous for the course of the administration.
The opposition of IND and Gemini and their conflicting interests in respect to the PVE shares was very great indeed and pivotal to the resolution of the administration as, indeed, the facts have proved to establish. The inevitability of that conflict remained from the beginning and only got greater as time wore on and the deadline of 4 February 2014 got closer and closer. This is not a case where there was merely a potential for a conflict of interest or a potential for a perception that the administrators' associations with Clayton Utz and Gemini may give rise to a well-founded objective perception of lack of independence or impartiality. I am satisfied that there was every reason to apprehend that there was such an objective basis for doubt about the existence of the necessary impartiality and independence. Accordingly, had not the control or resolution of the financial disputes and restructuring of PVIL/PVE been largely resolved, as it were at five minutes to midnight (if not later) before the 4 February 2014 deadline, I consider that intervention by this court either under s 447E or s 449B of the Corporations Act would have been necessary.
As it was, however, and for reasons described in the affidavit of Mr Langdon of 30 January 2014, the impasse in relation to the restructuring arrangements and new equity raisings for PVIL/PVE was addressed by votes at an extraordinary general meeting of PVE held on 31 January 2014 and shortly afterwards.
The capital reconstruction proposals and their resolution
During the currency of this litigation in Western Australia, steps were being taken by PVE under the directorship and control of IND CS to reach a resolution of the dispute, which would achieve at least a temporary solution to the financial crisis confronting PVE.
In early January 2014, PVSA had offered to invest €$3 million in the share capital of PVE in return for 2 million newly issued shares by PVE. That proposal was considered by an EGM of PVE on 10 January 2014, but it was not supported by PVIL who then immediately commenced the inquiry proceedings in the Enterprise Chamber of the Court of Appeal in Amsterdam on 10 January 2014.
On 15 January 2014, PVSA offered to PVE an extension of its offer to invest until 16 January 2014, when the Enterprise Chamber of the Court of Appeal in Amsterdam hearing was to occur, subject to the following three additional terms:
1.An irrevocable agreement by PVIL to the share issue of 2 million shares, of €1.5 per share for a total of €3 million, to PVSA which would enable the company to be funded throughout the first quarter of 2014.
2.A standstill by IND on its loan to PVE, which entails that no further interest or fees will accrue and no payments by PVIL to IND will become due, save for the current assigned receivables to IND, during six months from the date of the EGM in which the share issue is approved by the general meeting of PVE.
3.PVSA recognises that PVE will require additional funding of approximately €15 million during Q2 to Q4 of 2014, and will source further capital from the company on a best effort basis. It will agree, however, that PVE will grant an assignable option, valid for 90 days, to PVIL and an assignable option, valid for 90 days, to IND, to buy 2 million newly issued shares in the share capital of PVE each at €1.5 per share, valid for 90 days (ie, on the same terms and conditions as PVSA's own offer). During this time, PVSA will commit not to alter the status of the company by issuing further equity or entering into a farm‑out or sale process.
As a result, an EGM of PVE was convened for 31 January 2014 at Amsterdam to consider, among other things, the following items on the agenda:
3.Proposal to issue 2 million ordinary shares in the capital of PVE with a nominal value of €1 each, numbered 18,001 through 2,018,000 (new shares and each new share) to Petro Ventures SA, on the terms set out below and subject to the fulfilment of the conditions set out below:
(a)pre‑emption rights of the existing shareholder of the company excluded with respect to this issuance;
(b)the New Shares are issued at an issue price of €1.50 per share, totalling to a subscription price of €3 million in the aggregate, which amount must be paid in cash to the company's bank account prior to the moment on which the issuance of the New Shares takes full force and effect;
(c)if, after the new shares have been issued, it is resolved to make distributions on shares in the capital of the Company, each New Share shall have the same entitlement to such distributions as each existing share in the capital of the Company;
(d)Petro Ventures International Ltd will vote in favour of this proposal;
(e)IND Energy Inc will provide a stand‑still on its loan to the Company, which entails that no further interest or fees will accrue and no payments by the Company to IND Energy Inc will become due, save for the current assigned receivables to IND Energy Inc during six (6) months from the date of the extraordinary general meeting;
(f)subject to full acceptance by the general meeting of this proposal, each of the following companies will be offered an assignment or option to acquire the same number of newly issued shares (2 million) in the capital of the Company in the same aggregate that subscription of €3 million and under the same terms as mentioned above under (a) to (e):
Petro Ventures International Ltd
IND Energy Inc
This offer will be valid for ninety (90) days after the date of the extraordinary general meeting. PVSA will commit not to alter the status of the Company by issuing further equity or entering into a farm‑out or sales process in relation to the interest in the concessions held by the company.
4.Proposal to revoke the resolution of the general meeting of the Company, adopted in its extraordinary general meeting dated 10 January 2014, to issue 2 million New Shares in the capital of the Company to PVSA for an aggregate subscription price of €3 million.
The EGM was held in Amsterdam on 31 January 2014, at which the following votes were cast in person or by proxy:
(a)Albert Muaddi, on behalf of IND voted in favour of the resolution;
(b)Scott Langdon, on behalf of PVIL voted against the resolution;
(c)the EGM was then closed by the Chairman.
On the afternoon of 2 February 2014 (Amsterdam time), Mr Langdon by email of his Dutch counsel communicated a re‑consideration of his earlier vote and that he now supported the resolution.
In his further affidavit of 3 February 2014, Mr Langdon, on behalf of himself and his co‑administrator, refers to the decision of the Enterprise Chamber of the Court of Appeal in Amsterdam in the inquiry proceedings given on 30 January 2014 - which has already been described. He then refers to the EGM of PVE held in Amsterdam on 31 January 2014 to consider the PVSA funding proposal for PVE. He deposes that he attended at that EGM via teleconference and requested an adjournment in order to consider the position of the administrators of the company with respect to the PVSA funding proposal, and to take further legal advice from his Dutch and Australian lawyers. However, the adjournment was refused and because of insufficient opportunity to consider the proposal and take advice, Mr Langdon voted against the PVSA funding proposal on behalf of PVIL. Nevertheless, he deposes PVE allowed Mr Langdon, on 2 February 2014, to confirm or alter the administrators' vote.
A further request to extend the period until 3 February 2014 was then made by Mr Langdon, but refused. In those circumstances on Sunday, 2 February 2014, before the expiration of the extended deadline, the administrators instructed their Dutch lawyers to write to PVE and IND confirming that the administrators agreed to vote in favour of the PVSA funding proposal and accept the IND offer.
Mr Langdon in his affidavit of 3 February 2014 has deposed that he voted on behalf of PVIL in favour of the PVSA funding proposal in view of the following considerations:
(a)on the legal advice received from the Dutch lawyers during the course of 1 and 2 February 2014 and the inquiry proceedings, he formed the view that there were limited alternate options available to PVIL in relation to the proposed fundraising activities at the PVE level. His views and the legal advice which he received (privilege over which he did not waive) in this regard changed between the date when the inquiry proceedings decision was delivered on 30 January 2014 and 2 February 2014;
(b)he was uncertain as to Gemini's position to continue funding the administrators;
(c)the PVSA funding proposal and the IND offer were available for a very finite period;
(d)the comments made by the Enterprise Chamber in the inquiry proceedings decision in relation to the relationships and associations between IND, IND CS, PVE and PVSA. The Enterprise Chamber noted those concerns and expressed the view that it did not consider those relationships to be impermissible;
(e)Mr Langdon's view in relation to the likely course of the administration of the company, and the prospects of any restructure, in light of the inquiry proceedings decision. Although the PVSA funding proposal provides the company with a 90 day option to acquire shares in PVE, Mr Langdon considered that a restructure of the company was then less likely and that it was therefore more likely the company would be placed in liquidation;
(f)the benefit to the company's creditors in having IND withdraw its claim against the company under the guarantee that PVIL provided to IND (that is, a reduction in the size of the company's creditor pool) as per the terms of the IND offer; and
(g)in all of the circumstances, and having regard to the developments that have taken place since the delivery of the inquiry proceedings decision on 30 January 2014, Mr Langdon considered it to be in the best interests of PVIL's creditors to vote in favour of the PVSA funding proposal and to thereby accept the IND offer.
Mr Langdon also deposed on 3 February 2014 that he understood that Gemini was currently considering its position in relation to the funding of the administrators for the future. He further contended that in light of the decision by the administrators to vote in favour of the PVSA funding proposal and, accordingly, to accept the IND offer in accordance with the terms of the PVSA funding proposal, IND was no longer a creditor of PVIL. Consequently, he contended there was then no longer any creditor of PVIL objecting to the appointment of himself and Mr Rocke as the administrators of PVIL, or seeking, or able to seek, their removal.
Disputed resolution of reconstruction of PVIL/PVE
When this hearing resumed on 4 February 2014 the first appearances were that the change in position by the administrators of PVIL in deciding afterwards to support the resolutions for the refinancing of PVE/PVIL which had been proposed at the EGM of 31 January 2014 meant that these proposals had been, or were in the course of being, implemented. It was then expected that that would put an end to the immediate financial crisis for PVE and, more significantly for present prospects, show that the administrators had ceased any alignment with Gemini and were acting, and could be expected to continue to act, independently.
One consequence of this development, as already noticed, was that the first and second defendants contended that, by reason of the assumed resolution of the refinancing arrangements for PVIL/PVE, IND was no longer a creditor of PVIL and, consequently, had no standing to persist in seeking the relief claimed in these proceedings. The basis for this contention by the first and second defendants was that, by reason of the supposed resolution having been reached, PVIL had exchanged debt for equity in PVE and had entered into a 'standstill' agreement in relation to its other indebtedness or securities such that there was no longer any debt presently due and owing by PVE to IND and no consequent liability by PVIL under its guarantee to IND of PVE's indebtedness.
There is very little evidence to support that contention by the first and second defendants. Its force depended entirely upon the terms of the letters of offer and resolutions proposed for consideration at the EGM of PVE held on 31 January 2014. I do not consider that that evidence supports that contention. That conclusion is drawn from the terms of the correspondence and the proposed resolution and for further reasons. The further reasons are that prior to 31 January 2014 the amount of indebtedness due by PVIL/PVE to IND stood at some amount in excess of US$65 million. The value of the equity to be invested by IND in PVE was, at the most, €3 million with the option of taking up a further €3 million worth of shares within 90 days. By no means would investments in that aggregate discharge the whole of the indebtedness due by PVIL to the plaintiff. Secondly, the 'standstill' proposal, on the correspondence and documents in evidence, suggests no more than IND's readiness to withhold any further immediate attempts to enforce its securities over the PVE shares and its readiness to forego the accrual of any further interest due to it by PVE/PVIL under its existing debts for a short specified period. This does not suggest any relinquishment of the debt but rather points to its continuation: see also Re Glendale Land Development Ltd (in liq) (1982) 7 ACLR 171, 176 and Re Australian Co‑Operative Foods Ltd (2001) 38 ACSR 71. Furthermore, by later correspondence dated 6 February 2014 the plaintiff notified PVE and PVIL that they were then indebted to IND in a total amount of US$81,917,215 for which immediate payment was thereby demanded.
However, at the hearing on 4 February 2014 the plaintiff contended that the resolution involving the restructuring and recapitalisation of PVE had not been achieved and was no longer on offer by IND. The position of the plaintiff at that point was described by senior counsel for the first and second defendants as a 'pirouette', implying a dramatic reversal or turn in position from a willingness and a demand for PVIL to join in the restructure to a refusal to accept PVIL's readiness to participate in the proposed structure on the grounds that it was too late to do so. And also, that PVIL's and PVSA's financial support for the restructure had been withdrawn.
In view of the controversy over whether or not a binding solution for the restructuring of PVE/PVIL had been reached as a result of the EGM of 31 January 2014 or subsequently, on 4 February I adjourned these proceedings yet again to allow both the plaintiff and the defendants to put on further evidence dealing with those issues.
By affidavits filed dealing with these very recent developments, the plaintiff contended that its support for the proposed financial restructure had only been available for acceptance until 17 January or, possibly, to the EGM of PVE on 31 January 2014 but had not been accepted by PVIL by either date. The plaintiff contended that the notification by Mr Langdon on behalf of the administrators conveyed by his Dutch solicitors on 2 February 2014 had come too late, did not result in any agreement for the restructure and could not, under applicable Dutch law, be regarded as a vote for approval of the restructuring proposal which had been taken at the EGM on 31 January.
An affidavit of Mr V R Vroom, sworn 6 February 2014, has been filed by the plaintiff. Mr Vroom is an attorney at law in Amsterdam, and by virtue of the facts related in that affidavit, is a person whom I accept is qualified to express an opinion based on Dutch law about the nature and consequences of the resolutions passed at the PVE EGM of 31 January 2014. PVIL and the administrators objected to the admissibility of this affidavit on the grounds that Mr Vroom should not be accepted as an expert to give evidence about Dutch law as he was and is an attorney for IND. I do not consider that this makes his evidence inadmissible and I admit Mr Vroom's affidavit.
Shortly stated, Mr Vroom's opinion is that the offer made by PVSA to extend the validity of its earlier offer expired by 17 January 2014, which meant that PVIL's late change of position was not valid to comply with that offer. Mr Vroom also expressed the opinion, based on his attendance at the EGM of 31 January 2014, that at the time of the conclusion of that meeting, the resolution was not passed with the approval of PVIL and consequently, was not a valid shareholder's resolution of PVE.
At the time of expressing his opinion and swearing his affidavit, Mr Vroom was aware of the change of intention by the administrators in relation to their vote on the proposals to the PVE EGM, but this notwithstanding, he was of the opinion that, in the absence of a written vote in favour of the resolution by PVIL, the proposed issue of shares to PVSA could not proceed.
These events led to Mr Muaddi's affidavit of 6 February 2014. In short, Mr Muaddi's affidavit annexed correspondence showing that, despite the administrators change in position and support for the PVSA funding proposal, PVIL was refusing to sign a settlement deed with PVE or to implement the funding arrangements for PVE so that, by letter of 5 February 2014, PVSA notified PVE that it was not then willing to provide any further funding to PVE and had terminated all further discussions. It did, however, give notice to PVE and the PVIL administrators that as at 6 February 2014, the amount of the indebtedness which IND claimed from PVIL was US$81,917,215.07, and demanded payment of that amount by 10 February 2014.
This evoked further response from the administrators and a further affidavit of Mr Langdon of 6 February 2014. This affidavit, and its voluminous annexures, deals with the disputes and controversies which had occurred in relation to the acceptance by the administrators on behalf of PVIL of the PVSA funding proposal, and whether or not the administrators were prepared to sign the shareholder's resolution and other associated documentation necessary to give effect to the resolution and proposal. Without going into the intricacies of the positions adopted by the opposing parties, it is enough to say that as at 6 February 2014 the first defendants indicated, in unqualified fashion, that they were prepared to agree to and implement the PVSA funding proposal on behalf of PVIL.
That was the situation which existed when this matter came on for final hearing on 7 February 2014. It is the reason for me remarking, at the commencement of my ex tempore reasons that day, that at almost every time the court reconvened to deal with this matter evidence emerged showing very recent significant changes in the material circumstances.
As those ex tempore reasons show, I then considered that I should accept that IND was and remained a major creditor of PVIL, nothing having been shown to displace the clear evidence which had been present from the commencement of these proceedings to that effect. I also concluded that, in the light of this most recent evidence, the question whether or not there had been agreement on the restructuring of PVE or PVIL along the lines proposed at PVE's EGM of 31 January 2014 or subsequently must be open to doubt but that, whatever the resolution of that doubt might be, it was unmistakeably clear that the administrators were now fully committed to supporting and implementing such a resolution or restructuring of the affairs of PVE and would take whatever steps might be necessary to achieve that effect if it were possible to do so.
The change in position by the administrators evidenced by these very recent events also demonstrated that they were manifestly acting independently of Gemini, had new solicitors representing them and the company for the duration of the administration, and disclaimed any obligation to act in any way detrimental to PVIL by reason of cl 10 or cl 13 of the funding agreement with Gemini. In short, I considered that it was, by that point, quite obvious that the administrators were acting, and could be seen to be acting, entirely independently and impartially without any alliance with, or influence by, Gemini.
Therefore, it appeared to be unnecessary and potentially prejudicial to PVIL and its administration to remove the existing administrators and appoint new administrators with the attendant delay and expense that that would inevitably entail at what still remained a critical period for negotiations between the administrators, PVIL, PVE, the plaintiff and others. Furthermore, I also considered that there was no need to grant any relief of the kind sought by the plaintiff under s 447E of the Corporations Act.
Put another way, the developments which had occurred since 22 January 2014 and subsequently during the course of this extended hearing have led to: the severance of the alliance or association between the first and second defendants on the one hand and Gemini on the other; to the cessation of the retainer of Messrs Clayton Utz by the first and second defendants; and to the effective abandonment of reliance on provisions in the funding agreement which restricted, or which could be capable of restricting, the independence of the administrators. The very recent events reveal that the administrators are now in support of the restructuring proposal for PVE/PVIL originally propounded by the plaintiff and PVSA. Whether that will in its original or a modified form eventually be accomplished does not appear to me to bear closely on the question of whether or not the administrators should now be removed or controlled by orders of the type sought by the plaintiff under s 447E.
In short, I did not consider that it is necessary or conducive to the proper continuation of this administration to grant any of the relief sought by the plaintiff. This does not connote any major or tactical failure by the plaintiff in these proceedings. Rather, it reflects the recognition that many of the plaintiff's complaints and concerns have now been recognised and met, so dispensing with the need to grant the relief which it originally claimed.
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