Minister Administering the Mining Act 1978 (WA) v McKern & Ors

[2010] HCATrans 327

[2010] HCATrans 327

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M96 of 2010

B e t w e e n -

THE MINISTER ADMINISTERING THE MINING ACT 1978 (WA)

Applicant

and

ROBYN BEVERLY McKERN AND COLIN McINTOSH NICOL AND SAMUEL CHARLES DAVIES (IN THEIR CAPACITIES AS LIQUIDATORS OF CENTAUR MINING AND EXPLORATION LTD (ABN 23 004 805 145) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) AND CENTAUR NICKEL PTY LTD (ABN 77 079 092 194) (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)

Respondents

Application for special leave to appeal

FRENCH CJ
BELL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 DECEMBER 2010, AT 11.43 AM

Copyright in the High Court of Australia

__________________

MR R.M. MITCHELL, SC:   May it please the Court, with my learned friend, MR E.M. HEENAN, I appear for the applicant.  (instructed by State Solicitor for Western Australia)

MR N.J. O’BRYAN, SC:   If the Court pleases, I appear with MR H.N.G. AUSTIN for the respondent.  (instructed by Norton Rose Australia)

FRENCH CJ:   Yes, Mr Mitchell.

MR MITCHELL:   Your Honour, we rely on our written submissions.  In oral submissions can I firstly identify the relevant provisions and then go to the critical passages of the judgments of the courts below and then indicate our argument.  The provisions are found in the applicant’s bundle of materials.  The critical provisions of the Corporations Act are behind tab 1. The payments with which we are concerned in fact occurred prior to the enactment of these provisions. The transitional provisions in section 1400 of the Corporations Act provide for these sections to govern the current dispute. The most critical provision is section 588FA(1) which provides that:

A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive form the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company –

There is then a provision in subsection (3), which I need not take your Honours to in any detail, providing for the application of the net reduction to what might be called a running account.

FRENCH CJ:   The parties are ad idem, are they, as to the embodiment in this provision of the ultimate effect doctrine?

MR MITCHELL:   They were not before the Court of Appeal.  We certainly say that the Court of Appeal correctly decided that matter.  As to the respondent’s position I think we can only wait and see.

FRENCH CJ:   What do you say?

MR MITCHELL:   We say that that is a correct construction of the provision that it does embody that doctrine.

FRENCH CJ:   Is your debate really about its application?

MR MITCHELL:   Yes.

FRENCH CJ:   Does that go to the question of whether it merits the grant of special leave.

MR MITCHELL:   It is no doubt relevant to it, but its application involves its application to payments made under a lease by an insolvent company, a situation which one would say is not uncommon.  It will, of course, be for ‑ ‑ ‑

FRENCH CJ:   The effect for which you are contending is the avoidance of forfeiture of the tenements, is that right?

MR MITCHELL:   Both the avoidance of forfeiture of the tenements and the loss by the Minister of his right to refuse consent to assignment of the tenements in the eventual winding‑up of the company unless the royalty and rent conditions have been complied with.  We say that when one goes to the provisions of the Mining Act, which are behind tab 2, one sees the nature of the interest is a statutory lease, the term of which is provided for by section 78, being a “term of 21 years” with a 21‑year option.  The covenants and conditions of that lease are contained in section 82(1), in particular, paragraph (a) to “pay the rents and royalties due”, paragraph (d), not to assign without the Minister’s consent, and:

(g)be liable to have the lease forfeited if he is in breach of any of the covenants or conditions of the lease –

The rights which are granted by the lease are contained in section 85 of the Act, including to “work and mine the land”, “remove from the land any minerals” and subsection (2), to acquire property in “minerals lawfully mined from the land” and subsection (3) providing for those rights of occupation for mining purposes to be exclusive and a capacity in section 97 of that Act for the Minister, by notice published in the Gazette, to declare a lease to be forfeited.  Under the regulations a provision was made for payment of royalties by reference to minerals produced from a tenement in the previous quarter and provision was made for payment of rent – it describes being annually in advance, payable within 30 days of that period.

So one colloquially can refer to rent being payable in advance and royalties being payable in arrears but that description can, in my submission, disguise the true nature of the transaction.  The company holds a valuable property interest entitling it to occupy the land for mining purposes and acquire the minerals from the land which produce the company’s cash flow.  In both cases of royalties and rent the continuation of that right is contingent upon certain payments being made but it is not, in my submission, critical as to whether those payments are defined within the conditions of the lease as being either in respect of a past payment or a future act.

We say the trial judge correctly applied the principles in the application book at page 23 where his Honour refers in paragraphs 49 and 50, which I shall not read for your Honours, to the consequences of the payment of royalties and we would say the inferred purpose for which those payments were made.

BELL J:   Accepting that the royalties were paid in relation to all that had been extracted in each instance what is wrong with the analysis that one finds at application book 47, paragraph 29 in the reasons of Justice Nettle?

MR MITCHELL:   Firstly, it is inconsistent with the decision in Airservices itself where if the Court held that it was not critical that payments were made in relation to past services provided - I can take your Honours to the passage but I think it follows from that decision – so that what is critical are two things.  Firstly, the business purpose of the payment, whether the – one can say that an objective purpose was to secure the provision either of the services or in this case secure the asset.  Secondly, the ultimate question which his Honour the trial judge identified at the top of page 23, there must:

ultimately result in a decrease in the nett value of the assets –

Now, looked at from the perspective of the Minister, the Minister is in no better position than he would have been in a winding‑up at the time the payment was made because if the company had been placed in liquidation the principal asset of the company would have been the tenement.  Somebody would have wanted to have sold that.

BELL J:   Was there some evidence about this and some findings made concerning that view of the matter?

MR MITCHELL:   Yes.  I think the critical findings are summarised by the trial judge at paragraph 52 of his judgment.  Indeed, there was evidence that the receivers, as it turned out, had sold the tenements for some $65 or $66 million - perhaps I should the say the mines of which the tenements form part.  One sees that finding at page 5, paragraph 2 of the judgment of the trial judge.

BELL J:   Is this one of those controversial findings – this is at paragraph 52 – where the primary judge found:

The Minister has established that it is likely that the mining tenements could not be sold and transferred without any outstanding royalties being paid.

MR MITCHELL:   Yes.

BELL J:   There is some controversy between the parties about the adequacy of the findings on some of these issues.

MR MITCHELL:   It is a finding of the trial judge which we rely on which has not been set aside and which we say there was evidence before him to support in the form of evidence of departmental officers as to the ordinary practice in this case as well as evidence as to what in fact occurred when the receivers came to sell tenements and with some debate between the Department and the receivers the Minister had required to be put in for the failure to pay royalties to be made good before he consented to that transfer.  Whoever sells the tenements does not really matter but the Minister holds that capacity to withhold consent until the breach of conditions as to payment of royalties is remedied.

We say by reference to Airservices Australia at page 501 of 185 CLR at footnote (51) that the “time of payment” is the time that one looks to.  There are other decisions of lower courts to similar effect but that would seem to be the controlling principle, at least as it was for the Bankruptcy Act and we say as it is for the current provisions. 

From the perspective of the creditors, they are better off than if the mining leases were forfeited where of course the company would have lost its only asset and even if there was not forfeiture the amount of the payment increased the value of the tenements correspondingly by reason of the fact that it had reduced the amount that would need to be paid to the Minister.  So we say the Court of Appeal, to some extent, mischaracterised the nature of the interest that was held under the Mining Act and the significance of the provision for payment of royalties.  The cases to which the court referred ‑ ‑ ‑

BELL J:   Just so I understand, the mischaracterisation was the failure to have regard to the provisions of the Mining Act in relation to the transfer of the tenement and the ability to withhold consent?

MR MITCHELL:   As well as the fact of forfeiture.

BELL J:   Yes, all right.

MR MITCHELL:   In paying rent one was not getting a new right, one was satisfying a condition of the lease necessary for the continuance of the right to occupy the land.  We say that royalties were of the same character.  We say that the matter does involve the application of a provision of a national Act in a situation which is unlikely to be uncommon.  My learned friend refers to very few cases which he has been able to locate in which leases have been dealt with in this manner but we would infer that that perhaps is a result of the application in Discovery Books. 

The point of principle does not depend upon the statutory character of the provisions of the Mining Act, rather the effect of those provisions.  In any event, one finds in the other States mining legislation which in all States provide for a right to forfeit for breach of conditions, including non‑payment of royalties and which in New South Wales, Tasmania, Victoria and the Northern Territory provide for a capacity to withhold consent.  We say there are equivalent provisions in other jurisdictions which we have referred to in a footnote to our written submissions. 

For those reasons, we say the matter does raise a matter of sufficient general importance to warrant the grant of special leave to appeal.  Unless there is anything further, those are my submissions.

FRENCH CJ:   Encapsulating it without in any sense minimising it, there is no question of the construction of 588FA, which is in issue from your side of the Bar table.  Rather, it is a question of its application to a class of payment which raises a set of circumstances that are likely to arise not only in Western Australia but in other places?

MR MITCHELL: Yes, with two qualifications, your Honour. One is that there will be a question of construction as to when the setting aside and proving for debt is taken to have occurred under section 588FA. Also, we accept that inevitably this Court is going to have to look at what it thinks that position means and applying it to these factual circumstances although we do not challenge the approach taken by the Victorian court to that question of construction.

FRENCH CJ:   Thank you, Mr Mitchell.  Yes, Mr O’Bryan.

MR O’BRYAN:   Your Honour, in answer to your Honour’s earlier question, neither do we since we were successful below and we are content with our success below in respect of the royalties, but as your Honours know we did put a wider proposition to the Court of Appeal which was not accepted and so, for the purposes of this application, we rest content with the conclusion that on no view of FA, whether a strict literal view, whether reading the words “if and only if” are what we contended below they mean – obviously mean, we submitted - on no view could the royalty payment satisfy the tests in 588FA as it stands and on no view, we submitted, could they satisfy the Airservices tests either if they are to be overlaid over FA in the way in which the Court of Appeal concluded they should be.  So the royalty payments we submitted below and we submit here, your Honours, on no possible view could satisfy those tests. 

Your Honours, like all preference cases this dispute is of course very fact specific and for that reason alone we submit it does not give rise to any question of general importance and it is not adequate to elevate it, we submit, to a question of general importance to gesture airily in the direction of all of the Mining Acts of the various States and Territories because they do not contain any magic in them either insofar as all they do is create interests in the relevant tenements of a very orthodox nature. 

There is no difference between a mining lease and any other lease of land for this purpose in connection with questions of preference.  The genus in respect of which the question of general importance is submitted by our learned friends to arise is really all leases and the payments are all payments in respect of all leases whether they be rents or royalties or premiums, as was the case in the Re Discovery Books Case or anything else referable to the terms of the lease.

There is nothing, we submit, magical in the mining context of this case and nothing in that area of discourse which would, of itself, give rise to any question of general importance.  All preference cases will depend upon the particular facts and circumstances of the particular payments which necessarily have to be addressed individually in order to decide whether one applies FA in a strict, literal and narrow sense or whether one overlays the broader conceptions arising from Airservices to the individual payments and that is exactly what happened below and would necessarily would need to happen again if leave were granted in this case.

Furthermore, your Honours, this case, we submit, has no prospects of success before this Court because in respect of the royalties, the only issue here today, this case is about as plain vanilla avoidable preference case as could conceivably be imagined.  The factual circumstances are adequately exposed in the judgment of Justice Mandie, which your Honours will find on pages 51 and following of the application book.

If I could just remind your Honours, there is a summary in his Honour’s judgment commencing at page 50 of the application book of the payments which were impugned.  There were 13 of them in total and the big ticket items are the payments towards the bottom end of page 50, the nearly $200,000 payment in early February 2001 of royalties, the largest of them, the $774,000 payment a couple of days later in February 2001 - royalties again, and the last one on that page, $235,000 on 20 February.  So approximately 1.2 million of the approximately 1.6 million which was impugned, all paid within a couple of weeks in February 2001 and all in respect of royalties.

Focusing on the royalties and the characteristics of those payments which gave rise to what we submit were clear and obvious preferences are the facts which are summarised in the brief chronology which Justice Mandie summarises in paragraphs 40 and following, page 51 of the application book.  You can see these dates there - 30 October, the first royalty payment in respect of the September extractions became payable. That was the $774,000 amount.  Paragraph 41, a month later:

the WA Director General for Mining sent a letter to Centaur Mining complaining about the failure to pay –

We are a month post the due date of the debt which of course is itself, as Justice Bell has identified, an ex post facto point.

FRENCH CJ:   I am sorry, what proposition is this chronology advancing in the context of this case?

MR O’BRYAN:   It is advancing the proposition, your Honour, that on no view could the royalties be other than preference payments, having regard to the circumstances in which these events occurred, the nature of the debts which were incurred, the forbearance which was shown by the Minister followed by the agreement to a payment by instalment program which is on all fours with Airservices – absolutely on all fours with Airservices, and especially, your Honour, in connection with that $774,000 payment and also the final payment, the one at the bottom of page 50, the ninth payment which was of course one of four instalments that had been agreed, as his Honour describes it, in the letters which had passed between Centaur and the Department, absolutely identical, we submit, to the instalment regime which this Court identified as a classic case of preference in Airservices.

There is thus, we submit, nothing in the facts of this case which could possibly cause the Court to consider these payments to be other than preferences in the classical sense and that is whether you apply Airservices and accept the proposition that it still has application over the top, as it were, of FA or one applies FA strictly.  If one applies FA strictly, the Minister’s case is absolutely dead in the water, we submit. 

Your Honours, turning to the other factual characteristics which our learned friend relies upon, your Honours have in the authorities and material which we have filed – so the respondent’s authorities and material – three important letters which are at tabs 6, 7 and 8 and which are contemporaneous with these events. 

The letter at tab 6 was signed by the Minister on 8 February 2001 and it is the letter where the Minister agreed to the instalment payments on 8 February, and as you will see from that letter, the Minister was very conscious of the fact that the instalment payment regime in respect of the more than $900,000 of royalty which was then outstanding was requested – the extension was requested in a context of threatened or near insolvency.  The Minister was very conscious of the fact that Centaur was under very severe cash flow pressure.  The next letter, less than a week later, five days later, on 13 February ‑ ‑ ‑

FRENCH CJ:   Is this material reflected in a finding at trial or otherwise?

MR O’BRYAN:   Yes, these are all maters ‑ ‑ ‑

FRENCH CJ:   All right.  I was just wondering why you were taking us to these letters?

MR O’BRYAN:   Only, your Honours, to indicate that the argument which is put about the supposed valuable consideration which was received by Centaur by reason of these payments, because of course the fulcrum about which this proposition concerning preference or no swings on the Minister’s case, is whether anything was received in exchange for these payments which were made and that which is asserted to have been received is a loss or postponement of a forfeiture which would ‑ ‑ ‑

FRENCH CJ:   Forfeiture averted is really the argument, is it not?

MR O’BRYAN:   Forfeiture aversion.

FRENCH CJ:   How does the timing affect that or whether the Minister had the view that they were likely to collapse?

MR O’BRYAN:   Because these letters - the ones that I was just about to take your Honours to – demonstrate that the Crown Solicitor himself had advised the Minister at the relevant time that there was no possibility of forfeiture by reason of the agreement that had been reached with Centaur in connection with these instalment payments.  That is exactly what the Minister or the departmental officer asked of the Crown Solicitor in the letter under tab 7.

In the letter under tab 8, the final document in that small bundle, your Honours, is a clear and categorical statement.  Your Honours will find it in the second paragraph of the letter from the Crown Solicitor saying, in our opinion you do not have a right to forfeit for the time being because you have agreed to enter into this instalment arrangement and you cannot do anything unless there is a breach of that arrangement, which there has not been.  There was not, and the Minister had himself been advised there was not.

FRENCH CJ:   I think this appears in Justice – I am more interested really in where it appears in the judgment and I think this appears at page 95 in paragraph 127 of Justice Mandie’s judgment.

MR O’BRYAN:   Yes, of Justice Mandie’s judgment, that is so.  It was also observed below ‑ ‑ ‑

FRENCH CJ:   That leads to the conclusion:

The Minister was looking to the partial payment of an old debt rather than the provision of continuing services.

That is your point, is it not?

MR O’BRYAN:   Yes, indeed.  Exactly so, your Honour.  It is also, we submit, your Honour, one of the reasons why – and this was put to the Court of Appeal but not resolved in its judgment – we took issue with the findings that our learned friend took you to of the trial judge in paragraph 52 on page 24 of the application book where his Honour sets out, seriatim, a series of findings under the rubric, what the Minister has established, but without any reference to the evidence, without any reference to these letters, for example, which were tendered at the trial and relied upon by us to demonstrate that as a matter of both fact and law, so far as the Minister was concerned, in February 2001 he did not have a power to forfeit and was not about to exercise such a power, having received clear advice from the Crown Solicitor that the power did not exist.

The only other element, your Honours, which is relied upon as a benefit said to have accrued by reason of the payments of these royalties is the fact that the Minister forbore from exercising some power to refuse to assign or transfer the leases.  That, we submit, was entirely speculative.  No evidence was called from the Minister at the trial.  Some evidence was called on behalf of various departmental officers, but as the decision of this Court in Hot Holdings v Creasy a few years ago made very clear, the Minister and the Department are two completely separate bodies.  The Minister in fact is a corporation sole under the Mining Act of Western Australia, so a completely separate juristic entity, apart from being a different person, of course.

FRENCH CJ:   The Department is not constituted a person, is it?

MR O’BRYAN:   No, no.  The Department is not, but the Minister is, a corporation sole.  But the only evidence was called from a few of the departmental officers whose squiggles can be seen on some of these letters.  No evidence was called by the Minister himself.  Complicating the matter as your Honours may recall – or certainly the Chief Justice may recall – there was an election in Western Australia – during the course of these events there were in fact two separate Ministers of Mines who had to give consideration to these matters.  Neither of them was called, nor any evidence as to what they were considering at the time.  There was a complete absence of evidence on these points.

So there was, in fact, no evidence at the trial, none whatsoever, that the Minister was contemplating forfeiture, that the Minister was contemplating or would have refused the transfer of these tenements and if we stand back from the immediate circumstances of these facts and ask ourselves just the plain, commonsense, commercial question – why would the Minister for Mines of WA seek to render worthless valuable mining tenements which a purchaser in the liquidation, let us assume, of Centaur wishes to buy simply on the basis that an insolvent company is unable or will not pay outstanding previous royalties? 

The proposition, we submit, as a matter of commercial commonsense is nonsensical.  The Minister, acting sensibly, would seek to maximise the revenue gain to the coffers of the Western Australia Government and it would do that by transferring those tenements to whoever would pay the highest price for them, irrespective of outstanding royalties.  The Minister, like all other creatures in the commercial universe, writes off bad debts when he cannot collect them.  So the proposition that he forbore from refusing to agree to a transfer of the tenements, we submit, not only was not on the facts proved below, as a matter of commercial commonsense, we submit, it makes none whatsoever.

So, your Honours, we submit in a nutshell, it does not matter whether one applies the strictly literal terms of FA as they stand, or Airservices. 

This case is absolutely on all fours with Airservices and it is easily reconcilable with Re Discovery Books along the same lines and, therefore, the supposed benefit which the Minister contends he gave in exchange for these ex post facto payments of royalties in the circumstances of these preferences was illusory and the unanimous decision of the Court of Appeal would undoubtedly, if leave were granted, be upheld by the Court and therefore the appeal has little, if any, prospects of success.

We have also made a submission in respect of costs, your Honours, which I am sure you are all conscious of.  We submit that if leave were granted, we should have the costs in any event below, having regard to the very narrow question of importance and the fact that it is focused really only upon the interests of the Minister for Mines for WA who, of all of the Ministers for Mines in the Commonwealth, probably has the greatest interest in having any question that might be thought to be of general importance in this case resolved, having regard to the huge interest of that State in mining enterprises.

We, of course, have only the preferential payments to claim and submit that the costs orders below should not be disturbed and that we should have the costs in any event of an appeal if leave is granted.  If the Court pleases.

FRENCH CJ:   Thank you, Mr O’Bryan.  Yes, Mr Mitchell.

MR MITCHELL:   Your Honour, if I can address four points in reply.  Firstly, as to the ninth payment, the subject of the letters to which the Court was taken, what those payments show is that there had been a “time to pay” arrangement entered into.  While that arrangement was adhered to the mining tenement was not at risk of forfeiture.  That, in our submission, underlies that a purpose of the payment was to avoid that circumstance arising.

In relation to concepts of intention, purpose and effect, we say that the debate between the parties as it has emerged in these proceedings does call attention to what was said in Airservices behind tab 2 of the respondent’s materials where, at page 501 of 185 CLR, their Honours at the bottom paragraph refer to the absence – or intention not being a factor, then go over on the top of page 502 to address issues of purpose which must mean objective purpose and then to identify an ultimate question at about point 5 of page 502:

To have the effect of giving the creditor a preference . . . the payment must ultimately result in a decrease in the net value of the assets that are available to meet the competing demands of the other creditors.

We say that interplay of purpose and effect is something which this case will give the Court an opportunity to examine.

BELL J:   For my part, I have some difficulty seeing how you counter the argument of commercial reality in terms of your prime contention as to the significance, in terms of the asset’s position, of the Minister’s capacity to not agree to a transfer of the lease or something of that character.  How do you respond to Mr O’Bryan’s point about sheer commercial realities in the context, Mr Mitchell?

MR MITCHELL:   Well, the sheer commercial reality in the context where one has an asset that is sold for $66 million is that somebody is going to pay those royalties as a matter of practicality, rather than simply allow the tenement to stay with the liquidator ‑ ‑ ‑

BELL J:   So the Minister is going to allow the tenement to sit there?

MR MITCHELL:   The Minister will require, and the evidence was, as a matter of practice, generally did require ‑ ‑ ‑

BELL J:   Where was that evidence, I am sorry?

MR MITCHELL:   I do not know that it is – it certainly led to the conclusion at paragraph 52 that the Minister was likely to – I do not know that it is set out expressly in the judgment.  We do not say that it depends upon attempting to guess what the Minister, or a particular minister, would have done in the event, which never occurred, that he had been presented with the decision, but we say that the purpose of the payment was both to avoid forfeiture and enable – or had the effect of enabling transfer, which is what one looks to.

Your Honours, we say that if one does adopt the literal construction which was taken by the respondents below which, while they say they do not rely on it for the purposes of this application, I apprehend the tenor of my learned friend’s submissions they have not abandoned for all time that that does not mean that the appeal would fail.  We would say that looked at from the perspective of the Minister, as I indicated in principal submissions, one can still say that the Minister was no better off and, indeed, Justice Mandie in the majority in the Court of Appeal, at paragraph 125, himself recognised that the matter was not without its difficulties.

So we say that one cannot - or the Court should not accept that the Minister’s case as to royalties was doomed to fail.  As to costs, we say it is a commercial matter, a substantial amount of money involved.  There is no reason why the ordinary rule as to costs ought not apply.  If it please the Court, those are our submissions.

FRENCH CJ:   Thanks, Mr Mitchell.

This application for special leave turns upon the application of section 588FA of the Corporations Act 2001 to the characterisation, as unfair preferences, of royalty payments made by a mining company to the Minister of Mines in Western Australia pursuant to the Mining Act 1978 (WA). The case involving, as it does, in our opinion, the contested application of section 588FA to a particular class of payments is not a suitable vehicle for the grant of special leave. Moreover, we are not satisfied that the correctness of the result in the Court of Appeal is attended with sufficient doubt to warrant the grant of leave. Special leave will be refused with costs.

AT 12.20 PM THE MATTER WAS CONCLUDED