Kipoi Holdings Mauritius Ltd v Kirman
[2021] WASCA 194
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: KIPOI HOLDINGS MAURITIUS LIMITED -v- KIRMAN and BAUER as joint and several administrators of TIGER RESOURCES LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) [2021] WASCA 194
CORAM: BUSS P
MITCHELL JA
HEARD: 8 AND 10 NOVEMBER 2021
DELIVERED : 10 NOVEMBER 2021
PUBLISHED : 15 NOVEMBER 2021
FILE NO/S: CACV 106 of 2021
BETWEEN: KIPOI HOLDINGS MAURITIUS LIMITED
Appellant
AND
ROBERT MICHAEL KIRMAN as joint and several administrators of TIGER RESOURCES LIMITED ACN 077 110 304 (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
ROBERT CONRY BAUER as joint and several administrators of TIGER RESOURCES LIMITED ACN 077 110 304 (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
First Respondents
YINGKOU YANGZHOU TRADE CO LTD
Second Respondent
JINJI RESOURCES FINANCE PTY LTD
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: MASTER SANDERSON
Citation: ROBERT MICHAEL KIRMAN as joint and several administrators of TIGER RESOURCES LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) -v- YINGKOU YANGZHOU TRADE CO LTD [No 2] [2021] WASC 354
File Number : COR 69 of 2021
Catchwords:
Appeal - Practice and procedure - Application for stay of primary orders pending determination of appeal - Turns on own facts
Corporations - Deeds of company arrangement - Power of the court to vary a deed of company arrangement where to do so is necessary to preserve the effective exercise of its appellate jurisdiction
Legislation:
Corporations Act 2001 (Cth), s 444GA, s 445A, s 447A
Result:
Application for stay granted, subject to conditions
Application for variation of deed of company arrangement granted
Category: B
Representation:
Counsel:
| Appellant | : | J J Hutton and P A Walker |
| First Respondents | : | J K Taylor SC and P Edgar |
| Second Respondent | : | S J Maiden QC, J G Abberton and N J Wallwork |
| Third Respondent | : | S J Maiden QC, J G Abberton and N J Wallwork |
Solicitors:
| Appellant | : | Clayton Utz |
| First Respondents | : | Norton Rose Fulbright Australia |
| Second Respondent | : | Lavan |
| Third Respondent | : | Lavan |
Case(s) referred to in decision(s):
Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd [No 2] [2018] FCA 1003
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Ardrey v The State of Western Australia [No 2] [2017] WASCA 41; (2017) 55 WAR 1
Barboutis v The Kart Centre Pty Ltd [2019] WASCA 184
Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [2018] WASCA 88
Easterday v The State of Western Australia [2005] WASCA 105; (2005) 30 WAR 122
Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Jebb v Superior Lawns Pty Ltd [2018] WASCA 123
Kipoi Holdings Mauritius Ltd v Tiger Resources Ltd (Subject to a Deed of Company Arrangement) [2021] WASCA 186
Re CCS Equipment Pty Ltd [2019] WASC 431
Re Ceres Agricultural Co Pty Ltd [2020] FCA 4
Re Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1914
Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168
REASONS OF THE COURT:
At the conclusion of the hearing of the appellant's application for a stay of the primary decision pending determination of this appeal, and the first respondents' application for orders under s 447A of the Corporations Act 2001 (Cth), we made the orders set out at [65] below. We said that we would publish our reasons for making those orders later. These are our reasons for making those orders.
Background
The first respondents (Deed Administrators) are the deed administrators of a deed of company arrangement for Tiger Resources Ltd (Subject to Deed of Company Arrangement) (Tiger) dated 19 February 2021 (Tiger DOCA). The second respondent (YYT) is the proponent of the Tiger DOCA. The appellant (Kipoi) is a secured creditor of Tiger. Kipoi also has a beneficial interest in shares of Tiger. Kipoi opposes the implementation of the Tiger DOCA. The third respondent (Jinji) is also beneficially entitled to Tiger shares and is, or at least claims to be, the majority secured lender of the Tiger group of companies. Jinji is a company associated with YYT.
Much of the background to the current dispute is set out in this court's reasons in Kipoi Holdings Mauritius Ltd v Tiger Resources Ltd (Subject to Deed of Company Arrangement).[1] That decision concerned an appeal against orders dismissing Kipoi's application to set aside the Tiger DOCA. The appeal was dismissed. The present appeal is against orders made for the purposes of implementing the Tiger DOCA.
[1] Kipoi Holdings Mauritius Ltd v Tiger Resources Ltd (Subject to a Deed of Company Arrangement) [2021] WASCA 186 (DOCA Decision).
As noted in this court's earlier decision, Tiger is a registered Australian company which was listed on the Australian Securities Exchange in 1997. It is a holding company for nine controlled subsidiaries incorporated in jurisdictions other than Australia (Tiger Group). These jurisdictions include the Democratic Republic of the Congo (the Congo). One of Tiger's subsidiaries, Societe d'exploitation de Kipoi SA (SEK), was in the Congo and operated a copper mine, which was the only income producing asset of the Tiger Group (SEK copper mine).[2]
Provisions of the Tiger DOCA
[2] DOCA Decision [4].
In broad terms, the Tiger DOCA required YYT, as a 'Condition Precedent', to make payments towards administration expenses and to a fund established under a Creditors' Trust Deed (cl 9.1.1 - cl 9.1.3). Those payments were made and had the effect of extinguishing claims of unsecured creditors against Tiger.
Another Condition Precedent was the procurement of the 'Section 444GA Approval' (cl 9.1.4(b)). This means approval of a relevant court for the Deed Administrators to transfer the Tiger Shares to YYT for nil consideration pursuant to s 444GA(1)(b) of the Corporations Act (cl 1.1). The 'Tiger Shares' are defined to be all of the issued shares in Tiger (cl 1.1).
Section 444GA of the Corporations Act provides:
(1)The administrator of a deed of company arrangement may transfer shares in the company if the administrator has obtained:
(a)the written consent of the owner of the shares; or
(b)the leave of the Court.
(2)A person is not entitled to oppose an application for leave under subsection (1) unless the person is:
(a)a member of the company; or
(b)a creditor of the company; or
(c)any other interested person; or
(d)ASIC.
(3)The Court may only give leave under subsection (1) if it is satisfied that the transfer would not unfairly prejudice the interests of members of the company.
Another Condition Precedent is that there is 'no regulatory intervention that restrains, prohibits or otherwise impedes or impacts the proposed transfer of the Tiger Shares to' YYT (cl 9.1.5).
Clause 9.2 of the Tiger DOCA defines the 'Completion Date' to be the date on which each of the steps in cl 9.1 have been completed.
Clause 9.5 of the Tiger DOCA provides:
If any or all of the Conditions Precedent in clause 9.1 are not satisfied by 31 December 2021, the Deed Administrators may:
9.5.1 by notice to Creditors and the Proponent immediately terminate the Deed; or
9.5.2 call a meeting of Creditors to consider varying or terminating this Deed.
Clause 10 of the Tiger DOCA provides for the Deed Administrators to effect a transfer of all issued shares in Tiger to YYT on the 'Effectuation Date', following satisfaction of the Conditions Precedent identified in cl 9.1 of the Tiger DOCA on the Completion Date. Under cl 10.1 of the Tiger DOCA:
On the effectuation date, being 3 Business Days after the Completion Date (or such other date as the Deed Administrators and [YYT] may agree in writing) (Effectuation Date), the following shall occur:
10.1.1 the Deed Administrators must effect a transfer of the Tiger Shares to [YYT] (or any one or more of its nominee, to the extent permitted by the Section 444GA Approval), including by lodging any necessary documentation with ASIC;
10.1.2 control of Tiger will revert to its Directors and the Deed Administrators will not have any obligation or responsibility for the affairs of Tiger, including the ongoing trading of Tiger's Business; and
10.1.3 this Deed will terminate; and
10.1.4 the Deed Administrators must lodge a written notice with ASIC in the following form:
Tiger Resources Limited (ACN 077110 304) (Subject to Deed of Company Arrangement)
We, Robert Kirman and Robert Conry Brauer of McGrathNicol, deed administrators of the deed of company arrangement executed by [Tiger] hereby certify that the deed has been wholly effectuated by the circumstances set out in the deed and terminated on [insert date].
Grant of leave to transfer the Tiger Shares to YYT
The Deed Administrators sought leave to transfer the Tiger Shares to YYT as contemplated by the Tiger DOCA. The application for leave was supported by YYT and Jinji and opposed by Kipoi. On 28 October 2021, the master made orders giving the Deed Administrators leave to transfer the Tiger Shares from members of Tiger to YYT or its nominee on the Effectuation Date. The master had previously, on 20 October 2021, published written reasons as to why orders to that effect should be made.
The master identified the critical issue for his determination as whether the Tiger Shares had no residual value so that the transfer of the Tiger Shares to YYT could not prejudice the present shareholders.[3] The master noted that opinion evidence had been adduced from a number of valuers and liquidators as to the value of Tiger's assets and the realisable value of those assets in a liquidation scenario.[4]
[3] Primary decision [4].
[4] Primary decision [5].
The master found that each of the expert witnesses was highly qualified and it was not possible to choose between the experts based on their experience and expertise.[5] Each of the experts approached their task in a highly professional manner.[6] Each readily acknowledged their limitations, including that the liquidation experts were quick to accept that they did not have valuation experience, and the valuation experts accepted they were not experts in the liquidation process.[7] The master observed:[8]
In this case, there were a large number of variables which could effect the realisable value of the asset. After giving careful consideration to all of the written reports and having heard all of the evidence, there was very little to choose between the experts. There were one or two points which persuaded me the evidence supporting the [Deed Administrators'] position was to be preferred. But in reaching that conclusion, I acknowledge the position was very finely balanced.
[5] Primary decision [7].
[6] Primary decision [7].
[7] Primary decision [8].
[8] Primary decision [12].
The master then turned to set out the opinions expressed by the various expert witnesses. Jason Hughes, a valuer called by the Deed Administrators, expressed the view that the Tiger Shares had nil residual value.[9] Campbell Jaski, a valuer called by Kipoi, expressed the view that the Tiger Shares had a residual value in the region of $61 million.[10] Matthew Donnelly, a liquidator called by YYT, expressed the opinion that the Tiger Shares had no residual value in the event of a liquidation.[11] Dermott McVeigh, a liquidator called by Kipoi, concluded that the preferred residual value of the Tiger Shares was $33.3 million - $35.2 million.[12]
[9] Primary decision [15].
[10] Primary decision [23].
[11] Primary decision [25].
[12] Primary decision [27].
After setting out the relevant passages of the expert reports, the master concluded:[13]
In my view, the evidence of Mr Donnelly is to be accepted and accordingly, I have concluded the shares have nil value. I do not need to repeat all that I have said about the evidence. In the end, I found Mr Donnelly's analysis of the value and the process to be most convincing. In reaching that conclusion there are two factors which I regard of particular importance.
[13] Primary decision [40].
The first factor to which the master referred concerned the fact that the SEK copper mine was in care and maintenance and being funded by YYT and Jinji. The master found that there was a real risk that funding would be withdrawn and YYT would bypass the liquidation process by appointing receivers to Tiger's assets if the Tiger DOCA were terminated. The master considered an offer by a director of Kipoi to fund care and maintenance costs to be of little value.[14]
[14] Primary decision [41] - [44].
The second factor to which the master referred concerned the difficulties of undertaking a liquidation process in the Congo, and the complexity which would result from Tiger's corporate structure of interlocking subsidiaries. The master said that it was 'not hard to see the matter could degenerate into a logistical nightmare', and that 'renders the prospect of substantial recovery problematic'.[15]
[15] Primary decision [45].
The master then said:[16]
In my view, Mr Donnelly's report best deals with these two factors and is to be preferred to the evidence advanced by [Kipoi].
For these reasons, I have determined that orders sought by the [Deed Administrators] ought be made.
[16] Primary decision [46] - [47].
The master also noted objections which had been taken to certain evidence, including an objection by Kipoi to the evidence of Mr Donnelly. The master noted that the objection concerned allegedly inappropriate contact which Mr Donnelly had with the solicitors for YYT and Jinji during the preparation of a joint expert report. The master said that, after Mr Donnelly was cross-examined in a voir dire, counsel maintained the objection only to the extent that the evidence of Mr Donnelly was to be treated with caution. A similar approach had been taken in relation to an objection by YYT and Jinji to the evidence of Mr Jaski. The master concluded his reasons by observing:[17]
By the time closing submissions were reached, neither counsel appeared to press the issue. However, for the sake of completeness, I should make it clear that I accepted the evidence of both Mr Donnelly and Mr Jaski without qualification. There was nothing which emerged in cross‑examination that, in my view, would cast any doubt on the evidence of either witness.
The appeal to this court and the stay application
[17] Primary decision [48].
On 3 November 2021, Kipoi filed an appeal notice appealing against the master's orders. On the same day, Kipoi filed an application in the appeal seeking a stay of the master's orders pending the determination of the appeal, and an urgent appeal order. The application proposed a timetable which would see the appeal ready for hearing sometime after 6 December 2021.
Kipoi's evidence
The application in an appeal is supported by an affidavit of a director of Kipoi, Claude Holton, sworn on 3 November 2021 (Holton Affidavit).
Mr Holton deposes that, on 20 July 2021, the Deed Administrators filed an undertaking in the primary proceedings to provide 5 Business Days' notice to Kipoi of an intention to sign a share transfer form relating to shares in Tiger.[18] On 29 October 2021, the Deed Administrators gave notice of their intention to transfer shares on or after 8 November 2021.[19]
[18] Holton Affidavit, par 8 and annexure CH3 (page 195).
[19] Holton Affidavit, par 11 and annexure CH5 (page 241).
Mr Holton's affidavit identifies the following draft grounds of appeal:[20]
[20] Holton Affidavit, par 21.
1. The Master erred in law in Judgment at [5] and [40] in treating Mr Donnelly as giving an opinion as to the value of Tiger's shares and in finding that Mr Donnelly's purported opinion should be accepted, such a finding not being open on the evidence.
Particulars
i. The only experts who purported to have expertise that enabled them to express an opinion as to the value of Tiger's shares were Messrs Jaski and Hughes; Mr Donnelly is a liquidator and disclaimed any valuation expertise in cross-examination.
ii. Mr Donnelly's opinion as to the value of Tiger's shares was not open on the evidence because:
a. Mr Donnelly disclaimed any valuation expertise in cross-examination;
b. Mr Donnelly deferred to the opinions of the expert valuers on all valuation matters in cross-examination: and
c. Mr Donnelly's valuation depended on an idiosyncratic choice of the appropriate copper price in respect of which the assumptions were not established by evidence, and which Mr Donnelly did not attempt to defend in cross-examination.
2. The Master erred in law by failing to give any or adequate reasons in respect of the following central issues in dispute:
a. whether a comparable transactions method or discounted cash flow (DCF) method should be used for valuing the Kipoi Copper Project;
b. whether the preferable date for copper spot price inputs into a comparable transactions method of valuation was 30 July 2021 or 31 March 2021;
c. whether it was preferable to use the copper price forecast arrived at by [Kipoi]'s expert valuer (Mr Jaski) or that of the [Deed Administrators] (Mr Hughes) in a DCF valuation method;
d. what distressed asset discount rate (or liquidation discount rate) should be applied (if any); and
e. whether Tiger's shares were shown to have no more than nil value having regard to a. to d. above.
3. The Master erred in fact in Judgment at [48] by finding that Mr Donnelly's credit was not affected by his contact with the solicitors for YYT and Jinji during the preparation of a joint expert report.
Particulars
During the expert conclave Mr Donnelly asked the solicitors acting for YYT and Jinji whether he should make a concession about a matter of pure expert opinion (the appropriate liquidation discount rate) and indicated the extent to which it would affect YYT's position in the litigation, and Mr Donnelly accepted in cross-examination that he intended to take the solicitor's comments into account in deciding whether to make the concession. The Master should have found that this necessarily affected his credit on the issue of the appropriate liquidation discount rate.
Mr Holton deposes that he has been informed by Kipoi's solicitor and believes that the appeal is unlikely to be heard and determined by 8 November 2021, and that:[21]
if all of the shares in [Tiger] are transferred before the appeal is heard and determined, then there is a risk that the subject matter of the litigation will disappear, and also that - if [Kipoi] is successful in the appeal - real difficulties would be encountered in giving practical effect to that appellate decision.
[21] Holton Affidavit, par 25.
Mr Holton also deposes that, if the appeal is not able to be heard and determined before 31 December 2021:[22]
[Kipoi] would undertake, solely for the purposes of allowing the expiry date of the DOCA to be extended in the event that these appeal proceedings cannot be heard and determined before 31 December 2021, to vote in favour of any resolution extending the DOCA.
[22] Holton Affidavit, par 29.
Mr Holton deposes that Kipoi is prepared to provide an undertaking as to damages in the usual form as a condition of the grant of a stay, 'and to provide reasonable security for that undertaking'.[23]
[23] Holton Affidavit, par 31.
On 3 November 2021, Kipoi filed an undertaking in the usual terms, although it did not indicate what security it proposed to provide for the performance of that undertaking.
Deed Administrators' evidence
An affidavit of Robert Kirman, one of the Deed Administrators, sworn 5 November 2021 (Kirman Affidavit) deposes that, absent a stay or injunction, all of the Conditions Precedent under the Tiger DOCA will be satisfied so that transfer of the Tiger Shares to YYT or its nominee could be made on or after 8 November 2021.[24]
[24] Kirman Affidavit, par 9 - 38.
Mr Kirman also estimates the additional costs which the Deed Administrators would incur to be approximately $92,500 if an injunction were granted preventing the transfer of the Tiger Shares for 3 months.[25] The additional costs would be approximately $122,000 if such an injunction were to be granted for 6 months.[26]
[25] Kirman Affidavit, par 40.
[26] Kirman Affidavit, par 41.
Mr Kirman also deposes that the secured debt owed by Tiger as at 3 November 2021 is approximately US$118 million. Interest on the secured debt is accruing at approximately US$28,000 per day (which is approximately US$2.5 million over 3 months and US$5 million over 6 months).[27]
YYT's and Jinji's evidence
[27] Kirman Affidavit, par 42 - 46.
Aiping Wei, an employee of YYT and its related company CGM Lishi Mining SARL (CGM), swore an affidavit on 5 November 2021 (Wei Affidavit). He deposes that, between 3 July 2021 and 29 September 2021, CGM made payments of about US$9 million to SEK, a related company SASE Mining SARL or their creditors, and continues to provide ongoing funding for the purposes of ensuring that the SEK copper mine remains viable. He also attaches earlier affidavits sworn in the primary proceedings describing previous funding by CGM for that purpose.
An affidavit of Dandan Dou, the Deputy General Manager of SEK, sworn 5 November 2021 (Dou Affidavit) deposes that the US$9 million payments referred to in the previous paragraph were made and used to fund the ongoing care and maintenance costs of the SEK copper mine.[28] He also deposes that the mine remains under care and maintenance and continues to incur costs associated with maintaining the state of repair of the mine site and SEK's related property, plant and equipment.[29] Funding contributions from CGM and related entities have allowed SEK to maintain and preserve the value of the SEK copper mine, including by allowing SEK to pay its skeleton workforce and other care and maintenance costs.[30] He estimates that SEK requires funding of about US$4 million to cover its essential operational costs for October, November and December 2021.[31] He says that SEK does not, absent external funding contributions, have sufficient working capital to fund services required to maintain and preserve the value of the SEK copper mine.[32]
[28] Dou Affidavit, par 8 - 9.
[29] Dou Affidavit, par 13.
[30] Dou Affidavit, par 15.
[31] Dou Affidavit, par 16 - 17.
[32] Dou Affidavit, par 19.
Annexure 'DD-3' to the Dou Affidavit is an estimation of the care and maintenance costs of the SEK copper mine in October, November and December 2021. The estimated costs are approximately US$1.5 million per month.
An affidavit of Zachary Sharp, a solicitor for YYT and Jinji, sworn on 5 November 2021 attaches correspondence between solicitors for Kipoi and solicitors for YYT and Jinji, as well as a transcript extract from the previous appeal hearing.
General principles
The general principles in relation to a stay pending the determination of the appeal are as follows:[33]
1.The successful litigant is ordinarily entitled to enforce a judgment pending the determination of any appeal.
2.It is for the applicant for a stay to move the court to a favourable exercise of its discretion. Under s 15(3) of the Civil Judgments Enforcement Act 2004 (WA), this court may only make a suspension order if there are 'special circumstances' that justify doing so and in an application for a stay under the Supreme Court (Court of Appeal) Rules 2005 (WA) this is also a usual requirement.
3.The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation or whether a refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal. This may shortly be described as requiring the court to consider whether the right of appeal will be rendered nugatory if a stay is not granted.
4.If it can be demonstrated that the right of appeal will be rendered nugatory if a stay is not granted, the stay will generally still be refused unless it can be established that the appeal has ultimately reasonable prospects of success.
5.Finally, a stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted.
[33] Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9]; Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168 [22].
Risk that the appeal may be rendered nugatory
We do not accept Kipoi's submission that the subject matter of the appeal will be destroyed if a stay of the master's orders is not granted. If the outcome of the appeal was ultimately that leave to transfer the Tiger Shares to YYT were to be refused, and the transfer had already occurred, then the court could make a consequential restitutionary order requiring YYT to transfer the shares back to the present shareholders.[34]
[34] As to the power to make a restitutionary order restoring what a party has lost through an erroneous judgment, see Easterday v The State of Western Australia [2005] WASCA 105; (2005) 30 WAR 122[22] ‑ [44], applied in Ardrey v The State of Western Australia [No 2] [2017] WASCA 41; (2017) 55 WAR 1.
However, there is a real risk that, if the shares are transferred before the determination of the appeal, practical difficulties could arise in respect of relief which could be granted in the event that the appeal was successful. There may, in the meantime, have been dealings in the shares which impact the capacity of the court to order their transfer back to the current shareholders, or changes in Tiger's constitution or share capital which may dilute the value of the shares. There may also be practical difficulties in the administration of Tiger's affairs if the Tiger DOCA is terminated on the basis that the deed has been implemented, and the transfer of shares is subsequently reversed by an order of the court. To adopt that language of Black J in Re Nexus Energy Ltd (subject to deed of company arrangement),[35] 'there is a significant possibility that, to put it colloquially, once the shares were transferred, it would be at least difficult to unscramble the egg'.
[35] Re Nexus Energy Ltd (subject to deed of company arrangement) [2014] NSWSC 1914 [9].
We are therefore satisfied that, if a stay is not granted, there is a significant risk that the appeal will be rendered 'nugatory' in the sense explained above.
Whether the appeal has reasonable prospects of succeeding
We are also satisfied that the appeal has a reasonable prospect of succeeding in the relevant sense. There are at least aspects of the grounds of appeal which, at this provisional stage, appear to us to be at least reasonably arguable.
However, even if a ground of appeal is made out, it is difficult to form any reliable view, at this stage, of the prospects of the appeal ultimately succeeding. Even if one of the grounds were to be made out, it would be necessary for this court to reach its own conclusion on the large volume of evidence adduced before the primary court or to remit the question of whether or not leave to transfer shares should be granted. It seems inevitable that the respondents will file notices of contention. Even if one or more of the grounds were to be established, the ultimate outcome of the application under s 444GA is difficult to predict with any certainty at this stage, given the limited opportunity which we have had to consider the large volume of evidence adduced in support of the stay.
Balance of convenience
There are competing considerations in relation to the balance of convenience. As noted above, if a stay is not granted there is a prospect of the appeal being rendered nugatory and there is a risk of diminution or loss of what is, on the appellant's case, its valuable interest in the Tiger shares.
Risk of termination of Tiger DOCA prior to share transfer
On the other hand, there is a risk of the appeal being rendered nugatory if a stay is granted and the court is unable to determine the appeal by the end of the year.
Clause 9.5 of the Tiger DOCA provides for the termination of the Deed if the Conditions Precedent are not satisfied by 31 December 2021. All parties appear to be proceeding on the basis that the grant of a stay will lead to the termination of the Deed if the appeal is not determined by that date, unless the Deed is varied. This would seem to be the case, on the basis that an injunction by this court restraining the transfer of the Tiger Shares to YYT (or a stay having that effect) would constitute a 'regulatory intervention that restrains … the proposed transfer of the Tiger Shares to' YYT, for the purposes of cl 9.1.5 of the Tiger DOCA. If an injunction or stay preventing the lawful transfer of Tiger shares under the Tiger DOCA remains in force on 31 December 2021, then it would be the case that the 'Conditions Precedent in clause 9.1 are not satisfied by 31 December 2021' within the meaning of cl 9.5 of the Tiger DOCA.
The court will be in a position to accommodate a hearing of the appeal in mid-December 2021, and urgent appeal orders have been made providing for that to occur. However, it is not possible to be certain at this stage whether the court will be in a position to decide the appeal by the end of that month.
Assuming the Deed Administrators would call a meeting of Creditors to consider varying or terminating the Deed, there is no guarantee that a quorum of creditors would attend and vote in favour of such a resolution.[36] The statement of Mr Holton referred to at [26] above is of no value, as it is merely a statement of a current intention to give an undertaking in the future and, at least as proceedings have been conducted to date, it is the Security Trustee rather than the individual secured creditors who are able to vote at a creditors' meeting. Even if a further creditors' meeting were convened with a required quorum, there would still be potential for disputes to arise as to the conduct of that meeting and the validity of any resulting resolution.
[36] Senior counsel for the Deed Administrators advised the court, without demur from any other party, that there is a former officer of Tiger who remains entitled to vote at a creditors' meeting, and that his attendance in addition to the Security Trustee, would be required in order to constitute a quorum under cl 75 ‑ cl 105 of the Insolvency Practice Rules (Corporations) 2016 (Cth): see appeal ts 13.
Further, there is an ongoing dispute between Kipoi and Jinji as to the effectiveness of the debt transfer to Jinji and Jinji's consequent authority to instruct the Security Trustee. That dispute might have some potential impact on Jinji's capacity to instruct the Security Trustee as to attendance and voting at a creditors' meeting (for example if it were determined against Jinji or if interim injunctive relief restraining Jinji from issuing instructions were sought and obtained).
While there may be arguments as to the operation of the Tiger DOCA in these circumstances, there does appear to us to be some prospect of the Tiger DOCA being terminated without a transfer of the Tiger Shares to YYT if a stay is granted and the appeal is unable to be determined by the end of the year. The resulting prejudice to YYT would count strongly against the grant of a stay. The transfer of the Tiger Shares represents the commercial benefit which YYT obtains from the investment which YYT has made in the payment of amounts required by the Tiger DOCA. As this court noted in the DOCA Decision, those payments comprised $1.15 million in respect of the Available Trust Property and $820,000 in respect of the Fees Fund.[37] The value of that expenditure, as well as the commercial benefits which YYT hoped to obtain from the share transfer, would be lost if the Tiger DOCA were terminated without the Tiger Shares being transferred to YYT.
Variation order under s 447A of the Corporations Act
[37] DOCA Decision [158] - [160].
However, the potential prejudice to YYT noted above can be alleviated by an order under s 447A of the Corporations Act varying cl 9.5 of the Tiger DOCA.
It is settled that the power in s 447A of the Corporations Act extends to varying a deed of company arrangement as an alternative to a deed administrator seeking a variation by a creditors' resolution under s 445A of that Act, including by varying its termination date.[38] Ordinarily, that power would be exercised in the first instance by the General Division of this court. However, this court has the power to make orders in the exercise of powers which are ordinarily conferred on the General Division of this court where doing so is necessary to preserve the effective exercise of its appellate jurisdiction.[39]
[38] Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd [No 2] [2018] FCA 1003 [12] - [13], applied by Vaughan J in Re CCS Equipment Pty Ltd [2019] WASC 431 and Griffiths J in Re Ceres Agricultural Co Pty Ltd [2020] FCA 4.
[39] Complete Hire and Sales Pty Ltd v Terra Firma Constructions Pty Ltd [2018] WASCA 88 [4] - [9]; Jebb v Superior Lawns Pty Ltd [2018] WASCA 123 [58] - [68] and Barboutis v The Kart Centre Pty Ltd [2019] WASCA 184 [10].
In the present case, there is a risk that the appeal will be rendered nugatory if a stay is refused and the Tiger Shares are transferred before the appeal is determined. However, there is also a risk of the appeal being rendered nugatory if a stay is granted and the Tiger DOCA is terminated under cl 9.5 if the appeal is unable to be determined before 31 December 2021 (in which case the appeal becomes otiose). These risks can be ameliorated by granting a stay and at the same time making an order under s 447A of the Corporations Act that cl 9.5 of the Tiger DOCA be varied by deleting '31 December 2021' and substituting 'the earlier of 7 days after the Court of Appeal delivers judgment in the Appeal and 31 January 2022'. This seems to us to be an order which is necessary to preserve the effective exercise of the court’s jurisdiction in this appeal. At the invitation of the court, the Deed Administrators applied for such a variation of the Tiger DOCA.
There did not appear to us to be any significant discretionary factors which counted against the making of such an order under s 447A of the Corporations Act.[40] There would not appear to be any prejudice to creditors, and the variation would avoid the commercial purpose of the Tiger DOCA being frustrated by the current litigation if the appeal is dismissed. The creditors, represented by the Security Trustee, who would have a significant interest in voting on a resolution to vary the Tiger DOCA under s 445A are Kipoi and Jinji, both of whom indicated their support for the proposed variation. Making the order avoids the difficulty and expense which may be associated with convening a creditors' meeting and any litigation which may seek to challenge steps taken at the meeting. The variation is simple. The interests of any creditors of Tiger who are not parties to the appeal can be protected by an order giving those parties liberty to apply to vary or discharge the variation order.
Prejudice to the respondents arising from costs of delay
[40] As to the relevant discretionary considerations, see Adelaide Brighton Cement [13] - [14].
Even if the term of the Tiger DOCA is extended to after the determination of this appeal, the evidence indicates that the SEK copper mine is likely to remain in care and maintenance until the completion of the transaction provided for in the Tiger DOCA. While matters are on hold, as the stay prevents completion of the transaction provided for in the Tiger DOCA, care and maintenance costs running into the millions of dollars will be incurred and require funding by YYT, Jinji or associated companies. Interest will continue to accrue on the secured debt. The additional administration costs referred to in the Kirman Affidavit will be incurred. The increased costs and liabilities which on the evidence seem likely to be incurred by YYT, Tiger, SEK and the Administrators during a hiatus caused by a stay pending determination of the appeal counts against the grant of a stay.
However, this risk can be ameliorated by an undertaking in appropriate terms. The undertaking should be backed by appropriate security, given that Kipoi is a foreign company with no assets in Australia other than its equitable interest in Tiger shares. In view of the likelihood that expenditure will be made or liabilities incurred by Tiger, SEK, Jinji and CGM during a hiatus created by a stay, it is appropriate to require an undertaking to be made in favour of any person or entity (not limited to the parties to the appeal) who is restrained or affected by the stay. Kipoi filed such an undertaking to the court on 8 November 2021.
Appropriate quantum of security
The parties were agreed on the principles to be applied in determining the quantum of security for Kipoi's undertaking. The amount of security for the undertaking should be the amount which, at this stage, appears to be a reasonable estimate of the loss that would be sustained by persons or entities by reason of the grant of the stay. The damages payable under the undertaking must be confined to the loss which is the natural consequence of the stay under the circumstances of which the party obtaining the stay had notice.[41]
[41] See Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249, 311 - 312.
All parties were agreed that the security to be provided by Kipoi should cover $92,500 in respect of additional remuneration and costs of the Deed Administrators.
The respondents also sought an allowance for what were, in essence, the holding costs associated with the delay in effecting the transfer of shares to YYT. To the end of January 2022, these were estimated to be:
(1)AUD$5,659,252 in respect of care and maintenance costs incurred at the SEK copper mine;[42] and
(2)AUD$3,231,246.96 in respect of interest accruing by Tiger on the secured debt.[43]
[42] Comprising US$1,123,278.97 for 8 - 30 November 2021 (calculated at US$51,058.14 per day in accordance with annexure DD-3 to the Dou Affidavit), plus US$1,531,744 for 1 - 31 December 2021 (in accordance with annexure DD-3 to the Dou Affidavit); plus $1,531,744 for 1 - 31 January 2022 (being the average monthly calculation in accordance with annexure DD-3 to the Dou Affidavit) converted to AUD (x 1.3517) in accordance with the current RBA exchange rate.
[43] Being interest at the daily rate of US$28,123.60 (being the rate indicated in par 44 of the Kirman Affidavit) for 85 days (being 8 - 30 November 2021, 1 - 31 December 2021, and 1 - 31 January 2022) converted to AUD (x 1.3517) in accordance with the current RBA exchange rate.
In our view, these are reasonable estimates of the holding costs associated with what is at least reasonably claimed by the respondents to be a hiatus to be caused by the delay in the transaction provided for in the Tiger DOCA.
In opposition to an allowance being made for these amounts, Kipoi contended that the costs may be incurred in any event and pointed to what it contended were some discrepancies in the estimates. In our view, these matters will properly arise for consideration if the security is called upon in the event that the appeal is ultimately unsuccessful. Those questions do not arise for determination at this stage. In making allowances for the provision of security for these amounts, the court is not, and is not to be taken to be, determining whether costs of the kind described above will be recoverable, or the quantum of damages recoverable, in any proceedings for enforcement of the undertaking which may be commenced at some later time. That later time will be the occasion for determining whether any claimed damages were actually caused by the stay and the quantum of any damages so caused.
At this stage it appears to us that the amount noted at [56] above and the respondents' calculations noted at [57] above are a reasonable estimate of the kind of loss which is a natural consequence of the stay as they are known to all parties at this time.
The respondents also sought an allowance for the payments made by YYT under the Tiger DOCA, which would be thrown away if the Tiger DOCA were terminated as a consequence of the stay. We do not accept that it is appropriate to make such an allowance in the security required. The order varying cl 9.5 of the Tiger DOCA is designed to prevent termination by the effluxion of time if the stay prevents the Conditions Precedent in cl 9.1 from being satisfied by 31 December 2021. There is no evidence of any other risk to the completion of the transaction provided for in the Tiger DOCA, resulting from delay in the completion of that transaction, that is a natural consequence of the stay.
In our view, it was appropriate to require Kipoi to secure its undertaking to the court by payment into court of AUD$8,983,000 (being the rounded up total of the sums referred to at [56] - [57] above).
There is no evidence that Kipoi lacks the capacity to provide security in this amount, so that the requirement to provide the security would stultify the appeal. In any event, even if Kipoi were unable to raise those funds, it could still proceed with the appeal and seek a restitutionary transfer of shares to which it is beneficially entitled if the ultimate outcome is a refusal of the application for leave to transfer the Tiger Shares to YYT under the DOCA.
Orders
On balance, we were satisfied that it was in the interests of justice to grant a stay pending the determination of this appeal, on Kipoi's secured undertaking, and also to make an order varying cl 9.5 of the Tiger DOCA in the manner described at [51] above.
Having regard to the above matters, we were satisfied that the interests of justice were most appropriately served by making the following orders:
1. Upon [Kipoi's] undertaking to the court filed 8 November 2021, the [primary orders] be stayed until the earlier of 7 days after the Court of Appeal delivers judgment in the Appeal, 31 January 2022, or further order.
2. By 4.00 pm AWST on 17 November 2021, by way of security for [Kipoi's] undertaking to the court filed 8 November 2021, [Kipoi] pay into the court the sum of AUD$8,983,000.
3. If [Kipoi] fails to comply with Order 2, Order 1 is set aside.
4. If [Kipoi] complies with Order 2, then on and from 22 November 2021:
(a) Pursuant to section 447A of the [Corporations Act], Part 5.3A of the [Corporations Act] is to operate in relation to [Tiger] as if section 445A of the Act provided that the [Tiger DOCA] may be varied by an order of the Court.
(b) Pursuant to section 445A of the [Corporations Act] as so varied and applied to [Tiger], the [Tiger DOCA] be amended by amending the first and second lines of clause 9.5 of the [Tiger DOCA] to read:
If any or all of the Conditions Precedent in clause 9.1 are not satisfied by the earlier of 7 days after the Court of Appeal delivers judgment in the Appeal and 31 January 2022, the Deed Administrators may:
We also made ancillary orders, including that any creditor of Tiger affected by these orders have liberty to apply on 3 Business Days' notice.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
JB
Associate to the Honourable Justice Mitchell
15 NOVEMBER 2021
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