Lithium WA Investments Pty Ltd v Robert Michael Kirman and Robert Conry Brauer as joint and several administrators of Alita Resources Ltd (Receivers and Managers Appointed) (Administrators Appointed) [No 2]
[2021] WASC 63
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: LITHIUM WA INVESTMENTS PTY LTD -v- ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED) [No 2] [2021] WASC 63
CORAM: HILL J
HEARD: 19 FEBRUARY 2021
DELIVERED : 22 FEBRUARY 2021
PUBLISHED : 18 MARCH 2021
FILE NO/S: COR 158 of 2020
BETWEEN: LITHIUM WA INVESTMENTS PTY LTD
Plaintiff
AND
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of ALITA RESOURCES LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
First Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of LITHCO NO 2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Second Defendants
ROBERT MICHAEL KIRMAN and ROBERT CONRY BRAUER as joint and several administrators of TAWANA RESOURCES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATORS APPOINTED)
Third Defendants
AUSTROID CORPORATION
Interested Party
Catchwords:
Corporations - Insolvency - Deeds of Company Arrangement - Proper construction of undertaking given by second plaintiff to court
Corporations - Insolvency - Deeds of Company Arrangement - Application to discharge interlocutory injunction - Balance of convenience
Corporations - Insolvency - Deeds of Company Arrangement - Scope of undertaking required in support of interlocutory injunction until trial
Legislation:
Corporations Act 2001 (Cth), s 447A
Result:
Second plaintiff to pay $270,369 and certain other amounts to first to third defendants and $506,360 to fourth defendant pursuant to undertaking dated 6 January 2021
Application to discharge injunction refused
Trial dates of 12 to 16 April 2021 vacated and trial listed for 22 to 26 March 2021
Application to vary undertaking allowed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr K de Kerloy & Mr P Keeves |
| First Defendants | : | Mr W C J Zappia & Mr A Poncini |
| Second Defendants | : | Mr W C J Zappia & Mr A Poncini |
| Third Defendants | : | Mr W C J Zappia & Mr A Poncini |
| Interested Party | : | Mr P R Edgar |
Solicitors:
| Plaintiff | : | Herbert Smith Freehills |
| First Defendants | : | Clayton Utz |
| Second Defendants | : | Clayton Utz |
| Third Defendants | : | Clayton Utz |
| Interested Party | : | Lavan |
Case(s) referred to in decision(s):
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249
Clairs Keeley (a firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479
D'Alessandro & D'Angelo v Cooper (Unreported, WASC, Library No 960334C, 21 June 1996)
Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420
Huntingdale Village Pty Ltd (Receivers and Managers Appointed) v Corrs Chambers Westgarth [2018] WASCA 90
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112
Metropolitan Petar v Mitreski [2003] NSWSC 1007
Mighty River International Ltd v Mineral Resources Ltd [2010] WASCA 44
Patrick Stevedores v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1
RD Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389; (1988) 80 ALR 134
Welldog v Prox Pty Ltd [2017] WASCA 62
HILL J:
(This judgment was delivered extemporaneously on 22 February 2021 and has been edited from the transcript).
On 3 January 2021, the plaintiff's interlocutory application, which was filed on 31 December 2020, came on before me for hearing on an urgent basis. The plaintiff, who was then represented by Tottle Partners, sought orders to restrain the second and third defendants from effectuating a deed of company arrangement in respect of Lithco No 2 Pty Ltd (Lithco) and Tawana Resources Pty Ltd (Tawana). For the purposes of these reasons, I will refer to that as the subsidiary DOCA.
The proponent of the subsidiary DOCA is Austroid Corporation (Austroid), the fourth defendant. Unless an order had been made by the court on that date, the subsidiary DOCA would have effectuated on 4 January 2021. After hearing from the parties, I ordered that, subject to the undertaking as to damages filed by both the first plaintiff and Galaxy Resources Ltd (Galaxy Resources) on 2 January 2021, the second and third defendants be restrained from effectuating the subsidiary DOCA until 4.00 pm on 5 January 2021.
On 5 January 2021, orders were made by consent extending the operation of this order until 5.00 pm on 6 January 2021. When the matter came back before me on the afternoon of 6 January 2021, competing minutes were filed by both the plaintiff and the fourth defendant. The difference between them related to whether expert evidence would be required for the hearing of the originating process and when the matter could be ready for trial.
Notably, at that time, all parties agreed that orders should be made extending the injunction granted on 3 January 2021, and the terms on which that extension should be granted. Accordingly, on that date, orders were made in the following terms. Order 2 stated:
Subject to orders 3 and 4 below, order 1 of the orders made by the Honourable Justice Hill on 3 January 2021 be amended to provide that the second and third defendants be restrained from effectuating the Subsidiary DOCA (as that term is defined in the originating process) until 4.00pm on 14 January 2021 or further order of this Honourable court.
Order 3 was in the following terms:
Subject to order 4, Galaxy Resources Limited provide an interim undertaking about payment of the:
(a)first to third defendant's (“the Deed Administrators”) reasonable expenses in relation to their role as deed administrators, including legal costs incurred by the Deed Administrators in relation to these proceedings during such period as the injunction ordered by the Honourable Justice Hill on 3 January 2021 or any extension thereof persists; and
(b)the fourth defendant's reasonable expenses incurred in relation to the preservation of the assets of Alita Resources Ltd, Lithco No 2 Pty Ltd and Tawana Resources Pty Ltd during such period as the injunction ordered by the Honourable Justice Hill on 3 January 2021 or any extension thereof persists provided that, in the event the Deeds of Company Arrangement in relation to the aforementioned companies are not terminated as the plaintiff seeks in these proceedings any amount so paid to the fourth defendant shall be repaid by the fourth defendant to Galaxy Resources Ltd,
which will be effective until such time that the terms of the undertaking as to damages in order 4 can be agreed between the parties and filed in the proceedings, or failing agreement, 5.00 pm on 14 January 2021.
Order 4 required the parties to confer about the undertaking proffered by Galaxy Resources and the plaintiff about payment of the first to third defendant's reasonable expenses likely to be incurred before the completion of the trial in this matter, and the fourth defendant's reasonable expenses incurred in relation to the preservation of the assets of the companies before the completion of the trial.
If the parties were unable to agree about these matters, the order provided that the matter be relisted for further directions on 14 January 2021, for directions to be made as to the undertaking as to damages and about the payment of costs and expenses likely to be incurred before completion of the trial of this action.
An undertaking was given to the court by Galaxy Resources in a document filed on 6 January 2021. By this document, Galaxy Resources undertook that it would make the payments set out in orders 3(a) and (b) of the orders of that date, until a replacement undertaking was filed or 5.00 pm on 14 January 2021. This undertaking has been extended by orders made by consent on several occasions, and then by the court on 20 February 2021. On the current orders of the court, this undertaking will expire at 5.00 pm today.
The parties have conferred but have been unable to agree about first, what matters or costs are covered by the undertaking; second, the quantum of the amounts covered by the undertaking; and third, when and what process should apply to payments required to be made in respect of any such costs.
Both the plaintiff and the fourth defendant seek to vary the current orders. The plaintiff seeks to narrow the terms of the undertaking in the event its construction of the undertaking is not accepted by the court. The fourth defendant seeks orders for the discharge of the injunction on the basis of its contention that the balance of convenience no longer supports the continuation of the injunction.
The parties have filed significant numbers of affidavits and submissions in support of the position they advanced at the hearing before me. Specifically, the plaintiff relied on an affidavit of Peter Richard Keeves filed 10 February 2021. The first to third defendants relied upon two affidavits of Robert Michael Kirman filed on 10 February 2021, as well as three affidavits sworn by their solicitors, namely an affidavit of Alistair Ronald Fleming filed 12 February 2021 and two affidavits of Adriano Poncini filed 15 February 2021. The fourth defendant relied on two affidavits of Mike F Que filed 29 January 2021 and 15 February 2021, two affidavits of Richard Scott Tucker filed 29 January 2021 and 15 February 2021, and two affidavits of their solicitor, Zachary Sharp, filed 11 February 2021 and 15 February 2021.
Procedural history
The current issues between the parties arise primarily as a result of comments made by the then solicitor for the plaintiffs at the hearing before me on 3 January 2021.
During the course of the hearing, counsel for the first to third defendants submitted that if the injunction were granted, the Deed Administrators would need to obtain funding to continue with the administration. Counsel specifically referred to the costs of the administration as extending to the costs and expenses of these proceedings.
An issue was also raised during the hearing about the costs that would be incurred in respect of the tenements of the relevant companies the subject of both the subsidiary DOCA and the DOCA concerning Alita Resources Limited (Alita Resources). Counsel for the plaintiffs proposed that Galaxy Resources fund the fourth defendant to do the 'necessary' work in respect of the tenements prior to trial and judgment in this matter, because it was in the interests of all parties that the tenements be preserved and maintained.[1]
[1] ts 7 (3 January 2021).
This offer was made as a consequence of the evidence filed by the fourth defendant in opposition to the application for an injunction. This affidavit, which was before the court on 3 January 2021, referred to the forfeiture applications that had been filed in respect of a number of the tenements,[2] and work that needed to be done in respect of two exploration tenements.[3] Further, it referred to a proposed exploration plan for the next two years, which entailed exploration and resource drilling at a cost in excess of $2 million.[4] The plan that was annexed to the affidavit did not contain any timetable or further information concerning these costs, but simply stated that on recommencement of exploration activities, the company planned to undertake a significant exploration and resource definition drilling program.[5]
[2] Affidavit of Zachary Sharp filed 3 January 2021 [7], 'ZS 1'.
[3] Affidavit of Zachary Sharp filed 3 January 2021 [15].
[4] Affidavit of Zachary Sharp filed 3 January 2021 [15.2], [15.3].
[5] Affidavit of Zachary Sharp filed 3 January 2021 'ZS 6', p 81.
The matter has been listed for a 5 day trial currently commencing on 12 April 2021. This date was listed taking into account a number of matters including both the issues raised by the plaintiff in its statement of issues, the necessity for the parties to file expert evidence, as well as the availability of counsel for the defendants.
Issues to be determined
The issues that require determination as part of the present application are first, the proper construction of the undertaking given to the court by Galaxy Resources on 6 January 2021; second, whether the existing injunction should be discharged; and third, if the injunction is to continue, what additional undertakings, if any, should be required from the plaintiffs or any of them until trial.
Position of the administrators
The administrators seek orders that the undertaking to be provided by the plaintiff and Galaxy Resources be not less than $2,222,018.70.[6] This amount comprises the actual and anticipated legal costs in respect of these proceedings, and the approximate costs of the deed administrators until the estimated date of delivery of judgment. As I understand it, at present, this date is estimated to be 30 June 2021.[7]
[6] First to Third Defendant's Outline of Submissions dated 4 February 2021 [24].
[7] ts 130 (19 February 2021).
The administrators contend that the injunction sought and obtained by the plaintiff has exposed the administrators to costs and expenses they would not have otherwise incurred including first, the legal costs and expenses of these proceedings, second, care and maintenance costs in respect of the companies, and third, interest charges under the loan facility agreement.[8]
[8] First to Third Defendant's Outline of Submissions dated 4 February 2021 [11].
On this basis, they submit it is appropriate for the undertaking to continue in its present terms. The evidence before me is that the first to third defendants estimate that their legal costs of the proceedings, including the costs of both junior counsel and Queen's Counsel (from Victoria), will be in the range of $1.24 million to $1.59 million (inclusive of GST);[9] the costs of the deed administrators of these proceedings will be between $544,670.50 and $713,966;[10] the care and maintenance costs will be approximately $50,000; and there will be interest charges of approximately $5,000 a month on the loan facility agreement.
[9] Affidavit of Alistair Ronald Fleming filed 12 February 2021 [24].
[10] Second Affidavit of Robert Kirman filed 10 February 2021 [12]
Counsel for the administrators submitted that these costs and expenses extend beyond the risk profile assumed by the parties to the subsidiary DOCA and will cause the debt position of the subsidiary companies to increase as a result of the necessity to obtain funding to meet the identified costs and expenses.[11]
[11] First to Third Defendant's Outline of Submissions dated 4 February 2021 [12].
The administrators contend that these matters cannot be remedied by payment in respect of the usual undertaking as to costs, or an order for security for costs, because neither of these matters would fully compensate the deed administrators of the companies for the costs and expenses incurred, and they would not address the existing and ongoing need for funding.[12]
[12] First to Third Defendant's Outline of Submissions dated 4 February 2021 [15].
The administrators submitted that on a proper construction of the undertaking, the 'reasonable costs' comprise their actual costs including their actual costs of the proceedings.
The administrators adduced evidence of correspondence they had received from the solicitors for the fourth defendant in relation to the funding of these proceedings.[13] Relevantly, this letter states that:
(a)under the terms of the loan facility agreement between the fourth defendant and the deed administrators, funding is provided at the discretion of the fourth defendant on an 'approved purpose' basis;
(b)at this stage, the fourth defendant has not agreed to provide funding; and
(c)until the issue of the undertaking has been resolved, the deed administrator should proceed on the basis that the fourth defendant will not agree to provide any further funding.
[13] Affidavit of Robert Kirman filed 10 February 2021 [22], 'RMK 4'.
Fourth Defendant's submissions
The fourth defendant's primary submission was that the injunction should be discharged, as the balance of convenience no longer favoured its continuation. In the alternative, the fourth defendant sought orders that the continuation of the injunction be subject to the plaintiffs paying almost $8 million to the fourth defendant.
In support of its primary submission, counsel for the fourth defendant noted that the primary detriment identified by the plaintiffs at the hearing on 3 January 2021 was the entry into the loan agreement which would occur on effectuation of the subsidiary DOCA. Counsel who appeared for the plaintiff on that occasion emphasised that fees of $6.4 million were payable on entry and exit of this loan agreement. Counsel for the fourth defendant submitted that the cost to the companies of the continuation of the injunction until the estimated date of judgment of 30 June 2021, were $10 million. These costs significantly outweigh the costs to these same companies of entry into the loan agreement, and as such, he submitted, the balance of convenience did not support the continuation of the injunction. If the plaintiff succeeded, these costs would not be covered by the undertaking as to damages and would, as a result, be borne through it by the companies through an increase in the secured debt. Any increase in the secure debt would be detrimental to the interests of the shareholders of Alita, as it would erode any remaining value in their shares.
If this primary position was not accepted by the court, the fourth defendant contended that the costs covered by the undertaking should be clarified. Specifically, because of the position adopted by the plaintiff, counsel for the fourth defendant submitted that the companies should not be exposed to the risk of relying on a 'conditional and limited general undertaking as to damages'.[14] Rather, the costs which are currently being borne by the fourth defendant and the companies should be borne by the plaintiff and Galaxy in order to preserve the commercial parameters of the subsidiary DOCA.
[14] Fourth defendant's responsive submissions filed 16 February 2021 [16].
Plaintiff's submissions
In relation to the costs sought by the first to third defendants, the plaintiff submitted that solvent plaintiffs have never been required to pay to defendants in advance the defendants' anticipated costs of defending claims against them. The plaintiff contended that this would have a 'chilling if not stifling' impact on the pursuit of legitimate claims.[15]
[15] Plaintiff's Submissions in relation to Deed Administrators Undertaking filed 10 February 2021 [3].
Counsel for the plaintiff submitted that the undertaking given by counsel for the plaintiff at the hearing on 3 January had to be construed in the context in which it arose during the course of that hearing. In the plaintiff's submission, there were two matters that underlay the undertaking proffered by Galaxy Resources. First, it was offered because the deed administrators might not be able to obtain funding for their costs under the existing loan agreement; and second, it was for an amount equivalent to the reasonable holding costs that would be incurred in the preservation of the tenements until the final hearing could occur.
The plaintiff contended that because the deed administrators had sought and obtained funding from the fourth defendant, the rationale for the need for Galaxy Resources to provide funding to the administrators had disappeared. Counsel for the plaintiff acknowledged that 'on a strict reading of the undertaking' it extended to the payment of legal costs,[16] but that the undertaking needed to be construed in the context in which it was made.
[16] Plaintiff's Submissions in relation to Deed Administrators Undertaking filed 10 February 2021 [22].
In the alternative, counsel for the plaintiffs contended that any undertaking only extended to the amount that the first to third defendants might recover on a taxation of costs.
In respect of the undertaking in respect of the fourth defendant, the plaintiff submitted that the difference between the parties was whether Galaxy Resources was obliged to pay their reasonable expenses incurred in relation to the preservation of assets or to preserve the status quo of the external administration of the Alita group.
Counsel for the plaintiff submitted that limiting the costs to be paid by Galaxy Resources to the costs associated with the preservation of the assets did not mean that the fourth defendant would be unable to seek its costs of the external administration if the plaintiffs were ultimately unsuccessful in the proceedings. In addition, counsel contended that the court should balance the price of the interlocutory injunction against the right of the plaintiff to commence and continue with these proceedings.
The plaintiff has accepted that certain costs were the subject of the undertaking. It accepted that these costs included:
(a)direct costs of between $87,689 and $98,829.50 per month;
(b)wages and on-costs billed by Liatim Mining for care and maintenance in the order of $57,197 per month;
(c)insurance;
(d)minimum expenditure requirements on the tenements of an amount of $339,474.09 until 30 June 2021;
(e)legal fees for the work on the tenements; and
(f)the receivers' fees incurred in respect of the care and maintenance of the tenements, which it estimated at $30,000 per month.
The plaintiff estimated that the total of these costs was $1,649,913.71 or an amount between approximately $230,000 and $286,000 per month.
Legal principles
Many of the legal principles that govern this application were not in dispute between the parties. First, in relation to the undertaking as to damages, it was not in dispute that the usual undertaking as to damages is the price that must be paid for the granting of an interim injunction. As was noted by Barwick CJ in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd:[17]
Damages recoverable under a general undertaking as to damages are those damages which are referable to the action of the party who seeks the injunction, rather than the action of the court in deciding to grant it.
[17] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249, 310.
A defendant is not entitled to recover damages for losses suffered as a result of the commencement of litigation rather than the interlocutory order, as the only liability of an unsuccessful plaintiff is to pay costs. The losses that are recoverable are those losses which are the natural consequence of the granting of the injunction of which the party who obtained the judgment had notice.[18]
[18] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd, 312 ‑ 313 (Gibbs J)
Second, the court has an overriding discretion as to the terms and conditions, if any, that should be imposed on the grant or continuation of an interlocutory injunction. This discretion must be exercised by having regard to the facts and circumstances of the particular case. These matters are directed towards the objective of doing justice between the parties.[19] The purpose of an interlocutory injunction is to preserve the status quo until the hearing of the action. In this regard, the status quo is the situation that exists immediately prior to the commencement of the proceedings.
[19] Welldog v Prox Pty Ltd [2017] WASCA 62 [37].
Third, the undertaking the subject of the dispute between the parties has been given to the court and not to the parties. It is a voluntary undertaking which is given as part of the price for obtaining the relief sought. As a consequence, the parties have no right to sue directly on the undertaking. However, the court has the power to 'make good the harm' in accordance with the specific terms of the undertaking.[20]
[20] Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd, 318 (Stephen J).
Fourth, in relation to the specific undertaking given by Galaxy Resources, the undertaking was provided as part of orders which were made by consent. Orders which are made by consent are to be construed in accordance with the usual principles of the construction of a commercial contract.[21] These principles were recently summarised by the Court of Appeal in JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] in the following terms:[22]
[21] Mighty River International Ltd v Mineral Resources Ltd [2010] WASCA 44 [66] - [68].
[22] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112 [67] ‑ [72].
Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure. In that regard the general principles that apply in construing a commercial contract are well-established:
1.The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract) and purpose.
2.In determining the meaning of the terms of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purposes or objects to be secured by the contract.
3.The court approaches the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result-one which makes commercial sense. (This has been said to require that the construction to be placed on the relevant provision be consistent with the commercial object of the agreement.) Thus a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
4.Ordinarily the process of construction is possible by reference to the contract alone.
5.However, sometimes recourse to external events, circumstances or things is necessary; for example, to identify the commercial purpose or objects of the contract (by reference to the genesis of the transaction, the background, the context and the market in which the parties are operating) or to determine the proper construction where there is a constructional choice due to ambiguity.
The first of these principles illustrates the danger in construing a contractual provision selectively. An instrument must be construed as a whole. A construction that makes the various parts of an instrument harmonious is preferable. If possible, each part of an instrument should be construed so as to have some operation. Preference will be given to a construction supplying a congruent operation to the various components of the contract as a whole.
Identification of the purposes or objects intended to be secured by a commercial contract will usually be inferred from the express or implied terms of the contractual instrument and any admissible evidence as to the surrounding circumstances. Often it will be apparent from a consideration of the contractual provisions read as a whole. In any case the purpose and object of a transaction is ascertained objectively by considering what a reasonable observer, in the situation of the parties, would conclude was the purpose and object. Thus the purpose or object of contractual provisions is revealed by their text and structure. It should be derived from what the contract says and not from any assumption about the desired or desirable reach of the operation of the relevant provisions. However, extrinsic evidence may assist where the task is facilitated by an understanding of the genesis of the transaction, its background, the context and the market in which the parties are operating.
In acknowledging the accepted wisdom that a commercial contract must be construed so as to avoid it making commercial nonsense or working commercial inconvenience it must also be kept in mind that reasonable minds might differ on business common sense. Nevertheless it is accepted that:
[I]f the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate' …
Where constructional choice is available it is important to consider what a reasonable business person reading the relevant clause or agreement would understand it to mean. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purposes and objects to be achieved by it.
A contract should be construed practically so as to give better effect to its commercial purpose. The law seeks to uphold commercial contractual obligations and the expectations that derive from them. The court should not adopt a narrow or pedantic approach to construction, particularly in the case of commercial arrangements. (citations omitted)
The court can include, omit or correct words in an agreement, where it is clearly necessary in order to avoid absurdity or inconsistency.[23]
[23] Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426 ‑ 427 (Dixon CJ and Fullagar J).
Fifth, the court has power to vary an undertaking even if it is the result of a binding contract between the parties.[24]
[24] RD Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389, 392; (1988) 80 ALR 134, 138.
Finally, in considering the balance of convenience as part of the consideration of whether an injunction should continue or should be discharged, it is relevant to consider whether the injunction will materially injure the interests of third parties who will be impacted by the injunction.[25]
[25] Patrick Stevedores v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1 [65].
Disposition
Construction of the undertaking to the first to third defendants
The consent orders and the undertaking that was provided by Galaxy Resources need to be construed by reference to the text, context and purpose of the undertaking. Much of the focus of the plaintiff's submissions was on the context in which then counsel for the plaintiff proffered an oral undertaking at the hearing on 3 January 2021. However, that is not the undertaking on which the first and third defendants are seeking for the court to 'make good the harm'. The undertaking that is the subject of the dispute between the parties is the written undertaking provided to the court by Galaxy Resources on 6 January 2021, as contemplated by my orders of that same date.
In my view, the relevant context for the written undertaking is the following. First, an undertaking by Galaxy Resources was required as a condition for the continuation of an injunction restraining the effectuation of the subsidiary DOCA. Second, a consequence of the granting of the injunction was that the administration would continue until judgment in these proceedings, and the administrators would require continued funding. Third, interim funding was, at that stage, being provided by Austroid, the fourth defendant.
It is in this context that the text of the undertaking is to be construed. The undertaking in respect of the first to third defendants states that Galaxy Resources would pay the 'reasonable' expenses of the administrators. These expenses are expressly stated to extend to the costs of these proceedings.
Under the undertaking, Galaxy Resources did not agree or undertake to provide a complete indemnity to the first to third defendants for all of their costs. The payment of costs was conditioned on the costs being 'reasonable'.
In my view, on a proper construction of the written undertaking dated 6 January 2021, the undertaking does not require Galaxy Resources to indemnify the first to third defendants for their costs of these proceedings. However, the written undertaking given by Galaxy Resources was not conditioned on the first to third defendants being unable to obtain funding for their costs. In my view, it is not necessary for these words to be inserted into the undertaking in order to avoid absurdity or inconsistency. The words chosen by the parties require Galaxy Resources to pay the reasonable costs of the administrators.
I turn then to the question of what are the administrators' reasonable expenses, including the costs of these proceedings.
As an alternative, the plaintiff submitted that the reasonable costs of the administrators are the estimated tax costs for the first to third defendants. I do not accept this submission. As Martin CJ stated in Huntingdale Village Pty Ltd (Receivers and Managers Appointed) v Corrs Chambers Westgarth,[26] citing with approval the observations of Anderson J in D'Alessandro & D'Angelo v Cooper:[27]
Scales of costs do not specify what is reasonably payable in respect of the services rendered but set a statutory cap on the amount that can be recovered.
[26] Huntingdale Village Pty Ltd (Receivers and Managers Appointed) v Corrs Chambers Westgarth [2018] WASCA 90 [87].
[27] D'Alessandro & D'Angelo v Cooper (Unreported, WASC, Library No 960334C, 21 June 1996), 11.
Adopting a broad brush approach and having reviewed the affidavit evidence that has been filed by the first to third defendants, in my opinion, the reasonable costs payable to the first to third defendants under the undertaking as at the date of the notice of demand that was issued by their solicitors, are $270,369. This comprises:
(a)approximately 70% of the costs of Clayton Utz of $230,000;
(b)70% of the costs of junior counsel, which is $15,470;
(c)approximately 50% of the cost of senior counsel at $5,000. In respect of senior counsel, this estimate is on the basis that there is no detail provided as to what work has been done by senior counsel or why the rates charged by senior counsel are reasonable in all of the circumstances;
(d)$15,000 for the administrators' costs of care and maintenance; and
(e)interest on the loan facility agreement of $4,899.
This amount is based on the demand that has been issued by the solicitors for the first to third defendants and does not include the costs up until today's date. These costs will need to be separately agreed or determined.
The first to third defendants also sought an amount for their fees in conducting and managing the litigation. As deed administrators, the first to third defendants are entitled to be paid reasonable fees and reimbursed for their out of pocket expenses, once the fees are approved by a creditors' committee, creditors or a court. There is no evidence before me that these fees have been approved by any of these means. Accordingly, I have made no allowance for their fees.
Undertaking in respect of the Fourth Defendant
The relevant context for the construction of the undertaking in respect of the fourth defendant is as follows: first, prior to the grant of the interim injunction, the fourth defendant disclosed that applications for forfeiture had been made in respect of the tenements; second, work needed to be done on the tenements prior to the trial in this matter and delivery of judgment; and third, it was in the interests of all parties that the tenements be preserved.
In that context, Galaxy Resources undertook to pay to the fourth defendant its reasonable expenses incurred in relation to the preservation of the assets of Alita Resources, Lithco and Tawana. Galaxy Resources did not agree or undertake to pay all of the costs that would be incurred as a consequence of the injunction being granted, nor all of the costs incurred by the fourth defendant in respect of the tenements or the assets of these companies.
For this reason, I do not accept that Galaxy Resources is required to pay to the fourth defendant under the undertaking proffered to the court, the costs which are described in the affidavit evidence before me as 'costs thrown away'. In my view, these costs are not costs incurred in relation to the preservation of the assets but arise as a consequence of the injunction having been granted. It may well be that these costs may be recoverable under the general undertaking as to damages, in the event that the plaintiff is not successful in these proceedings. However, that is not the issue before me today.
On the evidence before me, I consider that under the existing undertaking, Galaxy Resources is required to pay to the fourth defendant the costs associated with the preservation of the assets. These comprise the wages of the employees required to maintain the tenements, the minimum tenement expenditure commitment, insurances, lightning protection, and other costs associated with the preservation of the tenements including legal costs. However, I do not accept that the amount set out in the plaintiff's submissions at [46], or in the updated schedule that was provided to me at the hearing, are an accurate summary of these costs.
In assessing these amounts, I have considered the evidence filed by the fourth defendant.
Specifically, I have taken into account the remuneration report of Mr Tucker (Report).[28] In the Report, Mr Tucker gives evidence as to the direct costs of care and maintenance as well as the wages and costs that were being incurred on care and maintenance prior to the granting of the injunction. In my view, this evidence is the best evidence available to me as to the costs of the preservation of the tenements.
[28] Affidavit of Richard Tucker filed 29 January 2021 'RST-9'.
In relation to the fees of the receiver, there is very limited information before me on which I could assess what comprises 'reasonable fees'. The fourth defendant referred me to the amounts charged by the previous receivers of $1,466,856. However, there is no further information before me as to what work was undertaken by the receivers and how this was calculated.
The evidence of Mr Tucker is that the estimated fees of $354,000 per month include not only care and maintenance but also exploration work and supervision of the drilling program. No further breakdown of this estimate is provided.
I have taken into account the actual fees charged for December 2020, prior to the commencement of these proceedings and before the DOCA could have effectuated, which were fees of $104,000. I accept that these fees included the Christmas period and that an appropriate allowance should be made for that. In my view, taking into account all of the evidence before me, I consider that an appropriate amount for the receivers for care and maintenance and preservation of the assets is an amount of $150,000 per month.
On the evidence before me, I consider that the costs that are covered by the existing undertaking given by Galaxy Resources to the fourth defendant are as follows:
(a)direct costs of care and maintenance: $201,272 (which includes the actual costs for January and the estimated costs until the end of February);
(b)wages and personnel costs: $114,394 (on the basis that these costs are $57,197.72 per month);
(c)insurance: at cost;
(d)lightning protection plan: at cost;
(e)expenditure on the tenements: at cost in accordance with the exploration plan which is annexure MFQ-20 to the affidavit of Mike F Que filed 29 January 2021, as well as the actual costs of rent and rates for the tenements;
(f)HopgoodGanim fees: at cost; and
(g)receivers fees: $300,000 (on the basis of $150,000 per month).
Application to discharge injunction
An application to set aside, vary or discharge an interlocutory injunction, as a general rule, is founded on a change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application.[29]
[29] Metropolitan Petar v Mitreski [2003] NSWSC 1007 [13]; Clairs Keeley (a firm) v Treacy [2004] WASCA 277; (2004) 29 WAR 479.
In oral submissions, the fourth defendant relied on the following matters as constituting the changed circumstances. First, since the time of the original hearing, the receivers have been able to undertake an estimate of the costs that will be incurred as a result of the injunction until the estimated date of delivery of judgment, which was not possible to undertake prior to the hearing before me on 3 January 2021. Second, the plaintiffs have filed an expert report which valued the tenements at $76 million to $100 million. If this valuation is correct, there is residual value in the shares of Alita Resources and any increase in the company's secured debt will diminish the equity of shareholders. In the fourth defendant's submission, the interests of both the companies and the shareholders of Alita Resources need to be taken into account in the assessment of the balance of convenience.
In relation to these matters, I accept that the first matter is a material change in circumstance since the injunction was granted. Given the urgent timeframe in which the application was brought on before me, I accept that there was insufficient time for the fourth defendant to put on this evidence before me. For that reason, I accept it is appropriate to consider the justice of continuing the injunction.
In respect of the second matter, I do not accept that this is a material change of circumstance. The expert report is a report filed by the plaintiffs for the purpose of the final hearing. It is not clear that the defendants accept that this report accurately values the assets of the companies, and it appears to me that the value of the tenements will be a critical issue to be determined at trial.
The critical underlying facts on which the injunction was granted on 3 January 2021 were first, entry into the loan agreement exposed the companies to an obligation to pay $6.4 million in fees, which it would not otherwise be liable for, and second, that if the subsidiary DoCA effectuated, control of the tenements would pass to Tawana and Lithco, who could sell the mine or otherwise enter into agreements in respect of these tenements.
The fourth defendant adduced evidence from Mr Tucker, one of the receivers of the companies, as to the costs that have been incurred from 4 December 2020 until 24 January 2021 and an estimate of the likely costs that will be incurred until 30 June 2021,[30] which the fourth defendant has assumed is the estimated date of delivery of judgment. The Report prepared by Mr Tucker states that it has been prepared on the basis that the fourth defendant and Liatim had proposed that a significant package of works on site would commence immediately and that if these works were undertaken, the receivers and managers will need to oversee and review these works.[31] I note that the Report does not distinguish between the costs that are incurred because of care and maintenance and the costs that will be incurred if the works proposed by the fourth defendant and Liatim are undertaken.
[30] Affidavit of Richard Scott Tucker filed 29 January 2021 [25], 'RST9'.
[31] Affidavit of Richard Scott Tucker filed 29 January 2021 'RST9', p 2.
The fourth defendant also adduced evidence from Mike F Que, a director of the fourth defendant. Mr Que's evidence was that he has considered the costs that would be incurred by the fourth defendant until 30 June 2021.[32] He estimated that the costs thrown away over this period were between approximately $5.8 million and $6.2 million.[33] I note that each of these categories of costs are costs which are incurred on a monthly basis.
[32] Affidavit of Mike F Que filed 29 January 2021.
[33] Affidavit of Mike F Que filed 29 January 2021 [41].
In assessing the balance of convenience, I take into account that there are monthly costs being incurred by the companies (Alita Resources, Tawana and Lithco), who are not parties to the proceedings. The undertaking as to damages provided by the first and second plaintiffs is in the usual form. It refers to an undertaking to pay compensation considered by the court in the circumstances to be just, to be paid to 'any party restrained or effected by the restraints imposed by the interlocutory order'. That is, the undertaking does not extend to the interests of third parties such as the companies or shareholders who are not parties to these proceedings.
In my opinion, while these matters are relevant to the balance of convenience, they do not at this stage outweigh the potential injustice that will be suffered by the plaintiffs if the injunction is not continued until trial. Unless this occurs, the plaintiffs will lose any ability that they have to have their originating process heard and determined. In circumstances where I consider that there is a question to be tried as to whether the subsidiary DOCA may be terminated, subject to the following comments, the balance of convenience continues to favour the continuation of the injunction.
Given that many of the costs identified by the fourth defendant are costs that accrue on a monthly basis, I remain of the view which I expressed at the conclusion of the hearing on 3 January 2021, that the underlying originating process requires urgent determination.
Subject to hearing from the parties as to whether there is any specific significant prejudice that they will suffer if the trial dates are brought forward, I am minded to bring the trial of this matter forward to commence on 22 March 2021.
Application to vary undertaking
Given it is my view that the injunction should continue, it is now appropriate to consider whether any additional undertaking, apart from the undertaking as to damages, should continue from today's date until the conclusion of these proceedings.
In my view, on the facts of this case, it is appropriate that an additional and specific undertaking is given by the plaintiffs in relation to specific costs of the defendants. In my view, in order to balance the interests of the third parties, in particular the companies and the shareholders of Alita Resources, the costs incurred by each of the defendants which are referable to the care and maintenance of the plaintiffs, should be paid by the plaintiffs. This will preserve the status quo that existed prior to the granting of the injunction – namely that the assets were on care and maintenance. Any additional costs that have been incurred over and above this are, in my view, a result of the commercial decisions that have been made by the fourth defendant and the receivers.
Specifically, in relation to the first and third defendants, I do not consider that the undertaking should continue in its present form. I accept that the context in which the undertaking was initially raised was in relation to a concern raised by the first to third defendants as to whether they had funding for the administration of the company over the additional period of time. While I accept it is unclear whether the administrators have funding to defend the proceedings, as a matter of principle, I do not consider that a party should be required to indemnify a defendant up front for their costs of defending proceedings commenced against them. If the plaintiffs do not succeed in their claims, the defendants are almost certain to be entitled to an order for costs. Consideration can be given at that stage as to whether there is a basis upon which special orders for costs should be made.
In relation to the undertaking in respect of the fourth defendant, I consider that this should continue in its present terms on the basis of the construction I have given to it.
For that reason, I consider that the injunction should continue until trial or further order upon the usual undertaking as to damages and an additional undertaking by the plaintiffs to pay:
(a)the first to third defendants' reasonable expenses incurred in relation to the care and maintenance of Alita Resources, Lithco and Tawana, which are estimated to be between $10,000 to $15,000 per month, and the interest payments under the loan facility agreement; and
(b)the fourth defendant's reasonable expenses incurred in relation to the preservation of the assets of Alita Resources, Lithco and Tawana, being:
i.the direct costs of care and maintenance at a monthly cost of $98,829.50 per month;
ii.wages and personnel costs of $57,197 per month;
iii.insurance at cost;
iv.lightning protection plan at cost;
v.expenditure on the tenements at cost in accordance with the exploration plan which is annexure MFQ-20 to the affidavit of Mike F Que filed 29 January 2021 and the actual costs of rent and rates for the tenements;
vi.the actual costs of the fees of HopgoodGanim; and
vii.the receivers' fees at an amount of $150,000 per month.
These payments will be subject to a condition that, in the event that the deeds of company arrangements are not terminated, any amounts paid by the plaintiff to the fourth defendant shall be repaid to the plaintiff.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
ME
Associate to the Honourable Justice Hill
18 MARCH 2021
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