Mighty River International Ltd v Mineral Resources Ltd
[2017] WASCA 72
•12 APRIL 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: MIGHTY RIVER INTERNATIONAL LTD -v- MINERAL RESOURCES LTD [2017] WASCA 72
CORAM: MURPHY JA
HEARD: 11 APRIL 2017
DELIVERED : 12 APRIL 2017
FILE NO/S: CACV 31 of 2017
BETWEEN: MIGHTY RIVER INTERNATIONAL LTD
Appellant
AND
MINERAL RESOURCES LTD
First RespondentMESA MINERALS LTD (subject to Deed of Company Arrangement)
Second RespondentBRYAN HUGHES as deed administrator of MESA MINERALS LTD (subject to Deed of Company Arrangement)
First Third RespondentDANIEL BREDENKAMP as deed administrator of MESA MINERALS LTD (subject to Deed of Company Arrangement)
Second Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :MASTER SANDERSON
Citation :MIGHTY RIVER INTERNATIONAL LTD -v- HUGHES & BREDENKAMP [2017] WASC 69
File No :COR 247 of 2016, COR 13 of 2017
Catchwords:
Practice and procedure - Security for costs application - Urgent application under the Corporations Act - Commonality of matters in two proceedings relating to a Deed of Company Arrangement - Resident outside of jurisdiction - No assets in Australia - Public importance - No material delay - Appeal will not be stifled - Security previously ordered in primary proceedings - Appeal has reasonable prospects of success
Legislation:
Corporations Act 2001 (Cth), s 436A, s 439A, s 444A(4)(b), s 444E, s 445C, s 445D, s 445F, s 445G, s 1335(1)
Rules of the Supreme Court 1971 (WA), O 25 r 1, O 66 r 2(d)
Supreme Court (Court of Appeal) Rules 2005 (WA), r 3(1), r 44(1)
Result:
Application granted
Category: B
Representation:
Counsel:
Appellant: Mr P J Hannan
First Respondent : Mr S Penglis
Second Respondent : No appearance
First Third Respondent : No appearance
Second Third Respondent : No appearance
Solicitors:
Appellant: Nova Legal
First Respondent : Bennett + Co
Second Respondent : Clayton Utz
First Third Respondent : Clayton Utz
Second Third Respondent : Clayton Utz
Case(s) referred to in judgment(s):
Alfaro v Brokesova [2013] WASCA 38
Brundsza v Robbie & Co [No 2] [1952] HCA 49; (1952) 88 CLR 171
Duckworth v Commonwealth Bank of Australia [2013] WASCA 249
Frigger v Kitay [2016] WASCA 173
Furber v Stacey [2005] NSWCA 242
George 218 Pty Ltd v Bank of Queensland [2016] WASCA 56
Kidd v The State of Western Australia [2014] WASC 99 (S)
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Mighty River International Ltd v Hughes & Bredenkamp [2017] WASC 69
Statham v Shephard (No 2) (1974) 23 FLR 244
MURPHY JA:
Introduction
On 11 April 2017, I heard an urgent application by the first respondent (Mineral Resources) for security for costs in this appeal against a decision of Master Sanderson in Mighty River International Ltd v Hughes & Bredenkamp[1] (primary decision). The appellant (Mighty River) opposed the application. The second respondent (Mesa) is the subject of a deed of company arrangement (DOCA). The deed administrators are the third respondents (Administrators or, as context requires, Mr Hughes and Mr Bredenkamp). Mineral Resources and Mighty River are shareholders of Mesa and were in dispute before the learned master as to, amongst other things, the validity of the DOCA.
[1] Mighty River International Ltd v Hughes & Bredenkamp [2017] WASC 69.
The proceedings before the master comprised two company matters - COR 247 of 2016 and COR 13 of 2017. In both matters, the parties overlapped to a considerable degree. In COR 247 of 2016, Mighty River was the plaintiff, and the defendants were Mesa and the Administrators. In COR 13 of 2017, Mineral Resources was the plaintiff, and the defendants were Mesa, Mr Hughes and Mr Bredenkamp, and Mighty River. Both matters were heard together, and the master produced one set of reasons in the form of the primary decision on 16 March 2017. Master Sanderson's orders were made on 22 March 2017.
Mighty River has appealed the master's orders in relation to both matters. Appeal CACV 30 of 2017 is against the orders made in COR 247 of 2016, and appeal CACV 31 of 2017 is against the orders made in COR 13 of 2017. Both appeals are scheduled to be heard together, on an urgent basis, on 19 April 2017. The security for costs application by Mineral Resources, dated 30 March 2017, is in appeal CACV 31 of 2017. (Mineral Resources is not a party to appeal CACV 30 of 2017.)
Mineral Resources (by its application dated 30 March 2017 as amended on 11 April 2017) sought orders, amongst other things, that Mighty River give security for costs in the sum of $75,000, pursuant to s 1335(1) of the Corporations Act 2001 (Cth), r 44(1) of the Supreme Court (Court of Appeal) Rules 2005 (WA), and the inherent jurisdiction of the court.
On 12 April 2017, I ordered security in the sum of $50,000 and said I would provide written reasons. These are my reasons.
Primary proceedings
Mighty River's claim - COR 247 of 2016
In these proceedings, Mighty River sought orders to the effect that:
(1)Pursuant to s 444E(3)(c) of the Corporations Act, leave be given to proceed against Mesa.
(2)A declaration that the DOCA entered into by Mesa and the Administrators on or about 3 November 2016 is of no force or effect.
(3)An order terminating, alternatively setting aside the DOCA.
(4)An order that the resolution passed by the creditors at the second creditors meeting of Mesa held on 20 October 2016 be set aside.
(5)An order that Mesa be wound up.
(6)An order that the Administrators be removed as deed administrators, administrators or liquidators (as the case may be) of Mesa.
The second, third and fourth orders were sought effectively on two bases. The first basis alleged that the DOCA was a 'Holding' DOCA arrangement which contained no concrete provision for the future of the company and for the benefit of its creditors, and was merely entered into to allow the Administrators to develop proposals for the sale of assets, without seeking an order from the court to extend the time for convening a second creditors' meeting under s 439A of the Corporations Act. The second challenged the conduct of the Administrators and alleged, amongst other things, that the administrators were not, or were not seen to be, independent or impartial, and that their conduct gave rise to a reasonable apprehension of bias.[2]
Mineral Resources' claim - COR 13 of 2017
[2] Primary decision [4], [18], [23] - [24], [28].
In COR 13 of 2017, Mineral Resources alleged that if there were any defects in the DOCA, they should be cured under s 445G(2) and s 445G(3) of the Corporations Act, or the DOCA should be varied to the extent necessary under s 445G(4).[3]
[3] Primary decision [97].
Background facts
The master made, in effect, the following findings of fact.
Mineral Resources held just under 60% of the issued capital of Mesa, and Mighty River held just over 13.5% of the issued capital of Mesa.
Mesa's directors included Mr Goulds. Mr Goulds is also a company secretary of Mineral Resources.
Mesa's key assets comprise:
(a)a 50% joint venture interest in two manganese projects, with the other joint venture partner being Auvex Resources Ltd (Auvex), which is a subsidiary of Mineral Resources;
(b)certain mining tenements and a mining lease called the Boodarie Lease; and
(c)an interest in a facility agreement with the Pilbara Port Authority in respect of a berth at Utah Point, known as Lot 7.
Mesa's creditors include Mighty River, in the sum of just under $69,000.
In March 2016, Mighty River inspected certain documents held by Mesa pursuant to orders it had obtained in the Federal Court under s 247A of the Corporations Act. The orders were applied for and obtained in a context in which Mighty River sought to ascertain whether Mesa may have any claims against its directors, which might in turn lead to claims against Mineral Resources. After inspection, which was completed on 1 April 2016, Mighty River contended that the documents provided for inspection were, in effect, incomplete. It intended to relist the matter for further orders concerning proper compliance, but it never did apply to relist the matter.
On 19 April 2016, Mr Goulds contacted and met with Mr Hughes. There followed certain email correspondence. These communications led to a decision that Mesa would obtain a valuation of its mining interests from PCF Capital Partners (PCF). There followed meetings between the Administrators, Mesa and PCF.
On 13 July 2016, Mr Hughes and Mr Bredenkamp were appointed as administrators of Mesa by the directors of Mesa pursuant to s 436A of the Corporations Act. On 15 July 2016, the Administrators completed and executed a 'declaration of independence and relevant relationships and indemnities'.
On 18 July 2016, the Administrators caused certain advertisements to be placed in the press inviting expressions of interest for the acquisition of Mesa's assets.
On 25 July 2016, the first meeting of creditors was held. The Administrators indicated that they had only just begun their investigations, that they were not in a position to make recommendations, and that it was likely that they would recommend a Holding DOCA at the second meeting of creditors.
Between 1 and 8 August 2016, Mighty River queried why a Holding DOCA would be preferable to liquidation.
On 10 August 2016, the Administrators issued their report to creditors under s 439A of the Corporations Act. In the executive summary, the Administrators said:[4]
The Administrators' opinion on each of the options available to creditors for the future of the company is that:
1.It is not in the interests of creditors that the administration end.
2.It is not in the interests of creditors that the company be wound up at the upcoming meeting as the use of a Recapitalisation DOCA may deliver an improved outcome to creditors (ie. it is premature for the company to be wound up at this stage).
3.It is in creditors' interests to vote in favour of the executing of the proposed Recapitalisation DOCA as it:
•does not exclude the possibility of winding up the company in the future if that is ultimately determined to be in creditors' interests; and
•allows the Administrators to work to facilitate a restructure and/or recapitalisation of the company which may provide a more beneficial outcome for stakeholders than the immediate winding up of the company.
[4] Primary decision [78].
Between 12 and 15 August 2016, Mighty River complained, in effect, that the Administrators had not investigated possible claims against Mesa's directors. Mighty River said that there was 'no sensible rationale' for continuing the proposed sale process until the potential claims had been investigated.
On 16 August 2016, Mighty River also said that the Administrators ought to apply to the court to extend the convening period for the second creditors' meeting, rather than hold the second creditors' meeting and enter into the Holding DOCA.
On 17 August 2016, the second meeting of creditors was held. The Administrators tabled their report dated 10 August 2016. Some limited attention was given to a potential action against the directors of Mesa and against Mineral Resources. The meeting was adjourned for up to 45 days.
On 20 October 2016, the second meeting of creditors was reconvened. The Holding DOCA was proposed, and was adopted by the meeting.
On 3 November 2016, the DOCA was executed.
Mesa's deed of company arrangement
The DOCA contained recitals to the effect that:
A.The Administrators were appointed to Mesa pursuant to s 436A of the Act on 13 July 2016.
B.At a second meeting of creditors on 20 October 2016, the creditors of Mesa resolved that Mesa execute a deed of company arrangement substantially in the same terms as the DOCA, and that the Administrators be appointed administrators of the DOCA.
C.The objective of the DOCA is 'to provide sufficient time for the Administrators to conduct further investigations into [Mesa's] property and affairs, and to explore the possibility of a restructure or recapitalisation of [Mesa] to determine the likely outcomes to creditors and form an opinion as to whether a deed of company arrangement or liquidation is in the best interests of creditors of [Mesa]'.
D.The Administrators have consented to their appointment as administrators of the DOCA.
The 'Commencement Date' is defined, in effect, as 3 November 2016. The 'Term' is defined as the period from the Commencement Date to the 'Termination Date'. The 'Termination Date' is the date on which the DOCA terminates, whether under cl 18.1, cl 18.2 or otherwise.
By cl 3, the Administrators (referred to in the DOCA as Deed Administrators) accepted the appointment as deed administrators and agreed to act as administrators during the Term or until, inter alia, they were removed from office in accordance with the DOCA or under the Act.
By cl 5.1, the Administrators are given the responsibility for the day to day management, control, supervision and administration of Mesa's business and affairs and the implementation of the DOCA.
By cl 5.2, the Administrators retain sole power and control over the assets of Mesa.
By cl 6, the directors of Mesa may only exercise the powers vested in them by the DOCA or delegated to them in writing by the Administrators.
Clause 4 provides that the Administrators are the agents of Mesa in carrying out their functions and duties under the DOCA, and cl 7, in broad terms, excludes personal liability on the part of the Administrators.
Clause 8 provides:
8.Property available for distribution
Subject to any variation of this deed, there will be no property of the Company available for distribution to Creditors under this deed.
Clause 9 provides:
9.Purpose
9.1Investigation of Company's claims
The Deed Administrators are to investigate any claims that they are aware the Company may have against any third parties, and obtain legal advice in relation to such claims where appropriate.
9.2Reconstruction of the Company
The Deed Administrators are to seek Proposals to reconstruct the Company with a view to reaching a position where the Company's securities may be re‑quoted for trading on the ASX, including Proposals for the partial or full sale of the Company's assets. The time for submission of Proposals to the Deed Administrators is not to extend beyond the Termination Date.
9.3Consideration of Proposals
Before any Proposal may be accepted, the Deed Administrators must convene a further meeting of Creditors and put the Proposal (including the Deed Administrators' recommendations in relation to same) to the meeting, together with the key terms of any further deed of company arrangement (or proposed variation to this deed), creditors' trust deed or other mechanism designed to give effect to the Proposal.
9.4Deed Administrators' powers and duties with respect to Proposals
Without limiting the generality of clause 5, the Deed Administrators have the power to:
(a)negotiate with any interested parties in relation to any Proposal, grant exclusivity and enter into formal arrangements for the realisation of the Company's assets and undertakings in whole or in part, and/or restructure and recapitalisation that is in the Deed Administrators' opinion, in the interest of Creditors as a whole, subject to the approval of Creditors;
(b)investigate possible recovery actions which may be brought by the Deed Administrators or by the Company's liquidators in the event that the Company goes into liquidation;
(c)call for, investigate (including the power to seek further information from Creditors), determine, compromise or otherwise deal with any Claim;
(d)provide information to Creditors and third parties as the Deed Administrators see fit;
(e)appoint and remove Directors and officers of the Company;
(f)do anything that is incidental to the exercise of any power or the performance of any duties set out in this deed; and
(g)do anything else that is necessary or convenient for the purpose of exercising their powers or performing their duties under this deed.
Clause 10, in general terms, provides for a moratorium in favour of Mesa in the period 3 November 2016 to the Termination Date, whereby creditors cannot claim against Mesa.
Clause 15 provides:
15.Reporting
The Deed Administrators will:
(a)on at least a bi‑monthly basis, prepare and provide reports to Creditors which will provide an update on the progress of the investigations and recapitalisation process.
(b)by no later than the Sunset Date, prepare and provide to Creditors a report to the Company's creditors (Report) outlining:
(i)the results of the Deed Administrators' investigations into possible recovery actions available to a liquidator of the Company (should the Company be subsequently placed into liquidation);
(ii)a summary of any Proposals received by the Deed Administrators; and
(iii)if the Deed Administrators consider a Proposal is likely to result in a better return to creditors than either a liquidation of the Company or the acceptance of any other Proposal (Recommended Proposal), then the Deed Administrators are to provide full details of the Recommended Proposal (including the likely return to creditors under the Recommended Proposal);
(c)within 5 Business Days of issuing the Report, to convene a meeting of creditors pursuant to section 445F of the Act to determine whether:
(i)this deed should be varied so as to accommodate the Recommended Proposal (or any other Proposal); or
(ii)this deed should be terminated and the Company placed into liquidation. (emphasis added)
The 'Sunset Date' is defined as 3 May 2017.
Clause 16.1 provides that the Administrators 'may' convene a meeting of creditors from time to time in accordance with s 445F of the Act. It also provides that they 'must' convene such a meeting when required to do so under s 445F(1)(b).
By cl 18.1, the DOCA is to continue in operation until it is terminated by a court order under s 445D of the Act; by a resolution of creditors at a meeting convened under s 445F of the Act in accordance with cl 16; or by the happening of events which by the terms of the DOCA automatically terminate the DOCA without recourse to the court or to a meeting of creditors.
By cl 18.2, if the Administrators determine that it is no longer practicable or desirable to carry on the business of Mesa or to implement the DOCA, the Administrators:
(a)may cease to carry on the business of Mesa, except so far as is necessary for the beneficial winding up of Mesa;
(b)must summon a meeting of creditors for the purpose of passing a resolution under s 445C(b) of the Act; and
(c)must forward to each creditor within a specified period an up‑to‑date report about the position of Mesa, accompanied by financial statements and certain other information.
The master's reasons in the primary decision
The master referred to the legislative framework. The master made a number of findings as to Mr Hughes' veracity as a witness, and to the effect that there was no basis for Mighty River's allegations of apprehended bias.[5] It is unnecessary to set these out in any detail as these findings are not challenged in the appeal.
[5] Primary decision [81] - [93].
Relevantly for present purposes, the master addressed, and dismissed, two arguments advanced by Mighty River concerning the validity of the DOCA. The first argument concerned the question of whether a Holding DOCA of this kind may be a DOCA within the meaning of div 10 of pt 5.3A of the Act. By its second argument, Mighty River alleged, in effect, that the DOCA in this case also failed to specify the 'property of the company … that is to be available to pay creditors' claims', and thereby failed to comply with s 444A(4)(b) of the Act.
As to the first argument, the master referred to Mighty River's submissions as follows:[6]
Mighty River then says the reason the purported Holding DOCA is inconsistent with the purposes identified in s 435A and elsewhere within the part is that it does not maximise the chances of the company continuing in existence nor does it result in a better return to creditors than would result from immediate winding up. Rather, the Holding DOCA was intended to do nothing more than preserve the status quo so that the administrator could carry out further investigations and formulate some future proposal which may or may not improve the prospects of the company's business surviving or a better return to creditors. Everything that can be done under a Holding DOCA could equally be done in an extended convening period.
Boiled down to its essentials, the submission is this. There is power in the Act for the court to extend the convening period of a meeting. A Holding DOCA which simply subverts the role of the court and extends the convening period by other means must necessarily fail because it does not comply with the terms of the Act. It does nothing more than circumvent the obvious intent of the legislature.
…
Underlying all of these arguments was a claim by Mighty River that the liquidation process would in no way disadvantage creditors and would hasten realisation of the assets. In my view, there is nothing in the evidence to support that conclusion. If liquidators were now appointed, they would presumably follow precisely the same route to realising the assets of Mesa as the deed administrators. The one difference would be the value of the listed shell would be destroyed. It is hard to see any advantage to anyone from immediate liquidation.
[6] Primary decision [99] - [100], [111].
The master also referred to the arguments advanced by Mineral Resources in opposition to Mighty River's first argument:[7]
The Administrators and Mineral Resources answer that argument in two ways. First, they refer to the objects of the Act found in s 435A. Second, they say that there is nothing in the terms of the Act which prohibits a Holding DOCA. It is in all respects compliant with the provisions of the Act and any criticism is misguided. As counsel for Mineral Resources put it, there are two gateways. The first gateway is the use of the court approved extension to the convening period. The second is the use of a Holding DOCA. The decision of the Administrators as to which gateway to access is a commercial decision for them which is always subject to review by the court and the setting aside of the Holding DOCA.
[7] Primary decision [101].
The master observed:[8]
If indeed there are two gateways, it must be acknowledged they produce significantly different results. Perhaps the most significant difference is if an administrator decides to apply to the court for an extension of the convening period, it is up to the administrator to lead evidence which will justify the extension being granted. A party who opposes the grant of extension has the right to be heard but does not carry any onus. The court in determining the application will act to protect the interests of the creditors. If a Holding DOCA is agreed upon, then it is up to a disgruntled creditor to make an application to set aside the Holding DOCA. That means the onus is on the creditor. Small creditors who may be disgruntled would not care to go to the trouble and expense of challenging the validity of a Holding DOCA, whereas they may well seek to be heard on an administrator's application. In other words, the use of a Holding DOCA could disadvantage shareholders, particularly small shareholders.
[8] Primary decision [102].
The master concluded:[9]
On balance, I am satisfied the use of the Holding DOCA is a valid exercise of power. I accept the submission there are two gateways and Mr Hughes has chosen one. It is an exercise of professional judgment and there is nothing to suggest that in this case his judgment miscarried. Nor am I satisfied the Holding DOCA itself is invalid. I accept both arguments put by counsel for Mineral Resources and the Administrators. It will always be a question of professional judgment on the part of the administrator as to which of the two gateways are accessed. In this case I am not satisfied Mr Hughes has taken the wrong path.
There are two additional reasons why I would be reluctant to set aside this Holding DOCA. First, the aim of pt 5.3A is to maximise returns to all interested parties. The Part clearly anticipates a limited role for the court. It allows the directors to make a decision to appoint administrators and it allows creditors to make decisions as to how or whether the company should be restructured. There seems to be nothing inherently wrong with the creditors meeting as a whole resolving to enter into a Holding DOCA. It is consistent with the intents and purposes of the Act.
Further, it is clear from Mr Hughes' evidence Holding DOCAs are in widespread use. If that is so (and there is no reason to doubt what Mr Hughes says), it would be a bold step to rule that such Holding DOCAs are impermissible. It would have a profound effect on insolvency practice. It is often said that decisions in Commonwealth legislation must show a degree of conformity to allow for consistent outcomes. Those views generally relate to decisions of judges at first instance conforming with decisions in other jurisdictions; they certainly require a judge at first instance in one state to follow a decision of an intermediate court of appeal in another state. But I think the principle can be taken further. If national insolvency practice sanctions Holding DOCAs and their use is widespread, then the uncertainty created by a first instance decision ruling against their validity could create significant problems. This is one of those situations where if Holding DOCAs are found not to be consistent with the Act, then it is a matter which should be determined at least by an intermediate court of appeal.
[9] Primary decision [113] - [115].
In relation to Mighty River's second argument, the master referred to various terms of the DOCA.[10] He then referred to the parties' submissions, and, in effect, accepted the submissions advanced by Mineral Resources. The master said in this regard:[11]
It is Mighty River's position the proper statutory construction of s 444A(4)(b) requires there be some property of the company available to pay creditors' claims. Counsel pointed to the requirement that the instrument 'must' state the property of the company. If it does not do so if nothing is available for distribution, then the requirements of the section are not satisfied and there is no proper Holding DOCA in place. Mineral Resources and the Administrators answer that claim in two ways. First, they point to the fact that although the subsection requires the property be specified, if that property is nil and that is so specified, the requirements of the subsection are met. They point to the fact at present it is unclear how the assets will be realised and what value might be obtained for any sale. So at present to say the assets available for distribution are nil is accurate and satisfies the requirements of the section.
The second argument is that to focus on cl 8 alone is a mistake. Rather, the Holding DOCA has to be read as a whole. When that is done, it is clear the property that will be available is what is realised from the sale of the assets. At present that property cannot be precisely defined, but it is clear there will be some property and the way that it is distributed will depend upon the outcome of the sale process. So read in the overall, the Holding DOCA does in fact satisfy the requirements of the subsection.
[10] Primary decision [104] - [107].
[11] Primary decision [108] - [109].
The master ultimately concluded:[12]
For these reasons, I would dismiss Mighty River's claim in COR 247 of 2016. On Mineral Resource's claim in COR 13 [of 2017] it is not necessary to make any orders. On publication of these reasons I will hear the parties as to the precise form of orders and as to costs.
[12] Primary decision [117].
The master's orders
The matters were listed for final orders on 22 March 2017. In Mineral Resources' claim in COR 13 of 2017, Mineral Resources sought a declaration to the effect that, pursuant to s 445G(2), the DOCA dated 3 November 2016 was not void. That order was opposed by Mighty River.[13]
[13] See affidavit of Mr Raffaele Carmine Di Ranzo's, 3 April 2017, annexure RCD 2, pages 46 ‑ 55, 68 ‑ 74.
The master made orders on 22 March 2017.
In the proceedings commenced by Mineral Resources, COR 13 of 2017, the master made a declaration to the effect sought by Mineral Resources.
In relation to Mighty River's claim in COR 247 of 2016, the master ordered that the action be dismissed.
Mighty River's grounds of appeal
Mighty River's grounds of appeal against the order in COR 13 of 2017 are to the following effect:
1.The master erred in failing to give any or adequate reasons for the declaration which he made pursuant to s 445G(2) of the Act.
2.In the alternative to ground 1, the master erred in making the declaration in circumstances where that declaration was inconsistent with his reasons to the effect that no orders were required in COR 13 of 2017.
3.In the alternative to grounds 1 and 2, the master erred in making the declaration in circumstances where the Holding DOCA:
(a)does not fulfil the mandatory requirements of s 44A(4)(b) in circumstances where there was no property available for distribution under the terms of the Holding DOCA;
(b)circumvents the requirement under s 439A(6) for the Administrator to make an application to extend the convening period; and
(c)is not consistent with the objects of pt 5.3A as set out in s 435A in circumstances where the Holding DOCA does not maximise the chance of the business continuing or otherwise produce any return to creditors.
4.The master ought to have dismissed Mineral Resources' originating process in COR 13 of 2017.
The security for costs application
In support of its application, Mineral Resources relied on an affidavit dated 30 March 2017 sworn by Ms Templeton, solicitor. Ms Templeton's evidence, based on certain searches and other specified matters, is to the following effect:
(a)Mighty River is a company registered in the British Virgin Islands;
(b)Mighty River has no real property registered in its name in Australia;
(c)Mighty River owns shares in Mesa, but Mesa is in administration and the trading of Mesa's shares has been suspended;
(d)Mighty River was ordered in the primary court to give security for costs in the sum of $160,000.
Ms Templeton also estimated Mineral Resources' costs of the appeal to be in the order of $80,000 to $105,000. That estimate was based on Ms Templeton's own experience and on information provided by Mr Ebbs, the managing principal of the solicitors for Mineral Resources, that senior counsels' fees would be in the order of $30,000 to $35,000 (excluding GST), junior counsels' fees would be in the order of $15,000 to $25,000 (excluding GST) and solicitors' fees would be in the order of $35,000 to $45,000. Ms Templeton estimated that both appeals are likely to be heard within a day, but are likely to take more than half a day.
Ms Templeton did not annex a draft itemised bill of costs with reference to scale items.
Mighty River relied on an affidavit sworn by Mr Di Renzo, solicitor, dated 3 April 2017. By that affidavit, Mr Di Renzo annexed a copy of the primary decision, a copy of the transcript of proceedings before the master on 22 March 2017, and copies of the master's orders.
Mighty River also relied on an affidavit of Mr Di Renzo dated 30 March 2017, previously sworn in support of certain interim orders, including an order for an urgent appeal. That affidavit largely outlined the background to the relevant proceedings. Mighty River also relied on the appellant's case and the respondents' cases in both appeals.
In its written submissions, Mighty River referred to a number of the general principles and submitted, in effect, that:
(a)the discretion to order security for costs should be exercised having regard to all the relevant circumstances of the case and an order made in the exercise of the power to order security is to serve the interests of justice;
(b)the mere fact that Mighty River is resident outside the jurisdiction does not necessarily result in an order for security being made;
(c)where a party is resident outside of the jurisdiction but has no assets within the jurisdiction, that will ordinarily be a factor weighing heavily in favour of an order for security for costs;
(d)the appeal raises questions of public interest which may be taken into account, including in commercial cases;
(e)the interests of Mineral Resources in CACV 31 of 2017 are, in substance, the same or similar with the interests of the respondents in CACV 30 of 2017, and that was also true of the primary proceedings;
(f)the commonality of matters requires significant attempts to avoid duplication of effort;
(g)there is no explanation as to why Mineral Resources could not use the same counsel as the respondents in CACV 30 of 2017;
(h)security may be refused where an aspect of the appellant's case in the court below is not the subject of specific consideration in the judgment under appeal, and this observation applies in particular to grounds 1 and 2 of the appeal herein;
(i)Mighty River's prospects of success in both appeals are very good, and there is no appeal against any finding of fact; and
(j)the timing of the application may be relevant and the proximity of the date for the hearing of the appeal tends against an order for security.
In relation to the matters in pars (e), (f) and (g) of the preceding paragraph, counsel for Mighty River referred to authorities which discussed the principles by which the court may award only one set of costs against defendants with identical interests in an action. Counsel for Mighty River said that, unlike in the proceedings in the primary court, in the appeals there would be no allegation of misconduct by the Administrators, and that accordingly there would be no conflict of interest which prevented Mineral Resources and the Administrators being jointly represented by senior counsel in both appeals. Particular reference was made to Statham v Shephard (No 2).[14]
[14] Statham v Shephard (No 2) (1974) 23 FLR 244, 246 ‑ 247. Reference was also made to Furber v Stacey [2005] NSWCA 242 [76] and Kidd v The State of Western Australia [2014] WASC 99 (S) [19] ‑ [30], with reference to O 66 r 2(d) of the Rules of the Supreme Court 1971 (WA).
Counsel for Mighty River also accepted that the threshold requirement under s 1335(1) of the Corporations Act had been satisfied; that there had been no delay in making the application; and that there was no suggestion that an order for security would stifle the appeal.[15]
[15] ts 4, 15.
In relation to the question of joint representation, counsel for Mineral Resources contended that the alleged conflict had not 'evaporated' and there remained the prospect that the Administrators may still sue Mineral Resources.[16]
[16] ts 23.
Disposition
As was observed in George 218 Pty Ltd v Bank of Queensland Ltd:[17]
In relation to the application brought against the corporate guarantors, s 1335(1) of the Corporations Act provides:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
The relevant principles are discussed in cases such as Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd [No 2] and Wise Energy Group Company Ltd v Rocke.Also, for the purposes of determining whether there is a reason to believe that a corporation 'will be unable to pay' the costs of the respondent, regard is had both to the assets which may be immediately realised for that purpose, together with those which could be realised in sufficient time to enable the applicant to comply with a costs order in the usual terms: Sugarloaf Hill Nominees Pty Ltd v Rewards Projects Ltd; Professional Vending Services Pty Ltd v Christou and Acohs Pty Ltd v Ucorp Pty Ltd. (footnotes omitted)
[17] George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 56 [39] ‑ [40].
Also, this court observed in Frigger v Kitay:[18]
Part 5 r 44(1) of the Supreme Court (Court of Appeal) Rules 2005 (WA) (Court of Appeal Rules) provides that a party may apply for an 'interim order'. An 'interim order' is defined in pt 1 r 3(1) to include an order that an appellant provide security for a respondent's costs. An order made in the exercise of the power to order security is an order made to serve the interests of justice. The power to order security is unfettered but must be exercised judicially. 'Special circumstances' do not have to be shown, and this court's discretion is not subject to O 25 r 1 of the Rules of the Supreme Court 1971 (WA). Order 25 r 1 applies to applications for security for costs at first instance and provides, in effect, that no order shall be made merely on account of the poverty of the plaintiff, or the likely inability of the plaintiff to meet an adverse costs order. Further, the old common law rule that natural persons, however poor they were, would not be ordered to give security, historically had no application in the case of appeals, given that the appellant had already had the benefit of a decision by a court of justice.
Ultimately, each case will turn on its own circumstances, and it is not possible to set out an exhaustive list of the relevant considerations. Nevertheless, the relevant factors to be taken into account will ordinarily include whether the appellant is likely to be able to satisfy an order for costs if the appeal is unsuccessful; the appellant's prospects of success on the appeal; the fact that the appellant has already lost at first instance on the merits, that being a circumstance which favours the exercise of discretion in favour of an order for security for costs in an appeal; whether the appellant would be shut out of the appeal if security were ordered; and whether there has been any delay in the filing of the application for security for costs. An appellant's non-compliance with an earlier relevant costs order in favour of the respondent, at least to the extent that the non-compliance is not adequately explained, is also a relevant consideration. (footnotes omitted)
[18] Frigger v Kitay [2016] WASCA 173 [50] - [51].
Also, in Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd,[19] it was observed that:
Where a party resident out of the jurisdiction has no assets within the jurisdiction, that will usually be a factor weighing heavily in favour of an order for security. In PS Chellaram & Co Ltd v China Ocean Shipping Co, McHugh J said:
… the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction (323).
[19] Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 [59]. See also Alfaro v Brokesova [2013] WASCA 38 [11].
Further, when an order for security for costs is made, the amount of security to be provided must be related to the costs likely to incurred by the respondent on the appeal, but the court does not endeavour to give a complete and certain indemnity to the respondent.[20]
[20] Brundsza v Robbie & Co [No 2] [1952] HCA 49; (1952) 88 CLR 171, 175; Duckworth v Commonwealth Bank of Australia [2013] WASCA 249 [12].
Having regard to all the circumstances of this case, it appeared to me to be in the interests of justice to order security. The following matters were, in my view, particularly pertinent. First, the appellant is a resident outside of the jurisdiction. Secondly, I inferred, based on Ms Templeton's uncontradicted evidence, that Mighty River has no assets of substantial value in Australia, and that there is a real risk that if Mineral Resources succeeded in resisting the appeal, its costs would not be paid in the event of a costs order in its favour. Thirdly, I accepted that the appeal raises an issue of public importance in relation to the question of 'holding' deeds of company arrangement, but I did not give that matter substantial weight in the particular circumstances of this case, where, in the broad, this is a dispute between two commercial parties. Fourthly, although the hearing of the appeal is imminent, that is a consequence of an urgent appeal order and there has been no material delay on the part of Mineral Resources in making this application. Fifthly, Mighty River accepted that there was no suggestion that the appeal would be stifled if an order for security were made.[21] Also, it was evident that security had been ordered in the primary proceedings (in COR 247 of 2016) without stifling the prosecution of those proceedings.
[21] ts 15.
I also accepted that the appeal has reasonable prospects of success in the relevant sense in this context, and that grounds 1 and 2 at least arguably raised matters not specifically addressed by the master. However, these considerations did not, in the overall context of this matter, provide, in my opinion, a sufficient basis to tilt the scales in favour of Mighty River.
I also accepted that there would be a significant overlap of the issues in the two appeals, that the appeals are being heard together, that the issues raised in both appeals appeared to relate only to questions of law, and that Mighty River does not seek to revisit in the appeals the allegations of 'apprehended bias' made against the administrators in the primary proceedings. However, Mineral Resources presently has a declaration as to the validity of the DOCA, which it had sought in proceedings COR 13 of 2017. Mighty River in this appeal seeks to set aside that declaratory order. Mineral Resources must meet the appeal brought by Mighty River against it. Also, Mineral Resources is not a party to the other appeal, CACV 30 of 2017. It has different solicitors from those retained by the respondents in the other appeal. Also, this is not a case where, on the evidence, it appeared that in fact there was an arrangement (tacit or express) between the respondents in the two appeals to the effect that one party would principally be responsible for (as it were) taking the running in resisting the appellant's arguments.
Further, the authorities referred to by counsel for Mighty River in [60] above appear to concern costs decisions in relation to parties within the same proceedings, rather than with respect to parties across different proceedings. Nevertheless, given the necessarily truncated debate on these questions in the present context, I was prepared to accept, for present purposes, that there is the prospect that, if Mighty River ultimately failed in the appeals, it might have grounds to argue that there should only be one set of costs allowed against it, at least in relation to senior counsel's fees. However, the contingency that such a costs order might be made in the disposition of the appeals if Mighty River failed in the appeals, is more appropriately reflected in quantum rather than treated as a basis for not ordering security. In that regard, it is also to be recalled that any money paid into court which is not ultimately applied to a costs order will be returned to Mighty River and, as the appeals will be heard next week, it is likely that, in all the circumstances, the period of time in which the money is in court is likely to be of relatively short duration.
For these reasons, I was satisfied that security should be ordered.
The assessment of quantum was not assisted by Mineral Resources' failure to prepare a draft bill or estimate with reference to scale items. I took into account that the appeal raised questions of law and did not involve any disputed matters of fact. I also took into account that the arguments on the appeal would largely be a rehearsal of the arguments advanced in the primary proceedings, and that the issues would be fresh in the minds of the parties' lawyers, having regard to the recency of the primary decision and the primary proceedings. I also took into account, without attributing great weight to it, the contingency referred to in [70]. Having regard to all the circumstances of this particular case, I concluded that a reasonable figure for security for costs would be $50,000.
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