New Hope Corporation Ltd v Northern Energy Corporation Ltd (administrators appointed)

[2019] NSWSC 879

Supreme Court

New South Wales

Medium Neutral Citation:	New Hope Corporation Ltd v Northern Energy Corporation Ltd (administrators appointed) [2019] NSWSC 879
Hearing dates:	17-20 June 2019
Decision date:	12 July 2019
Jurisdiction:	Equity - Commercial List
Before:	Stevenson J
Decision:	On the proper construction of the Deed of Cross Guarantee, the plaintiffs do not guarantee the obligations of the first to eighteenth defendants
Catchwords:	CONTRACTS – construction – whether parties to a Deed of Cross Guarantee guaranteed the obligations of entities named in Part 1(3) of the Schedule to the Deed   CONTRACTS – rectification – whether the Deed should be rectified by deleting the names of the entities named in Part 1(3) of the Schedule to the Deed – whether clear and convincing evidence of a common intention inconsistent with the words used in the Deed
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 Kelly v R (2004) 218 CLR 216; [2004] HCA 12 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 Newey v Westpac Banking Corporation [2014] NSWCA 319 Pukallus v Cameron (1982) 180 CLR 447; [1982] HCA 63 Red Hill Iron Ltd v API Management Pty Ltd [2012] WASC 323 Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart (2019) 366 ALR 635; [2019] HCA 13 Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 SMA Solar Technology AG v Beyond Building Systems Pty Ltd (No 5) [2012] FCA 1483 Vincent Nominees Pty Ltd v Western Australian Planning Commission (2012) 187 LGERA 303; [2012] WASC 28
Category:	Principal judgment
Parties:	New Hope Corporation Limited (First Plaintiff) Acland Pastoral Co. Pty Ltd (Second Plaintiff) Andrew Wright Holdings Pty Ltd (Third Plaintiff) Arkdale Pty Ltd (Fourth Plaintiff) Jeebropilly Collieries Pty Ltd (Fifth Plaintiff) New Acland Coal Pty Ltd (Sixth Plaintiff) New Lenton Coal Pty Ltd (Seventh Plaintiff) New Oakleigh Coal Pty Ltd (Eighth Plaintiff) Queensland Bulk Handling Pty Ltd (Ninth Plaintiff) Northern Energy Corporation Limited (administrators appointed) (First Defendant) Colton Coal Pty Ltd (administrators appointed) (Second Defendant) eCOALogical Fuels Pty Ltd (Third Defendant) Elimatta Pastoral Pty Ltd (Fourth Defendant) Hueridge Pty Ltd (Fifth Defendant) Krestlake Pty Ltd (Sixth Defendant) Lenton Management and Marketing Pty Ltd (Seventh Defendant) Mattvale Pty Ltd (Eighth Defendant) New Hope Coal Marketing Pty Ltd (Ninth Defendant) New Hope Collieries Pty Ltd (Tenth Defendant) New Hope Energy Pty Ltd (Eleventh Defendant) New Hope Exploration Pty Ltd (Twelfth Defendant) New Hope Water Pty Ltd (Thirteenth Defendant) Taroom Coal Pty Ltd (Fourteenth Defendant) Tetard Holdings Pty Ltd (Fifteenth Defendant) Tivoli Collieries Pty Ltd (Sixteenth Defendant) Uniford Pty Ltd (Seventeenth Defendant) Yamala Coal Pty Ltd (Eighteenth Defendant) Wiggins Island Coal Export Terminal Pty Ltd (Nineteenth Defendant)
Representation:	Counsel: N C Hutley SC with J C Giles SC, F T Roughley, G W Keesing and A L Oakes (Plaintiffs) A G Bell SC with M L Rose (First and Second Defendants) R C A Higgins SC with J Hutton (Nineteenth Defendant)   Solicitors: Gilbert & Tobin (Plaintiffs) Johnson Winter & Slattery (First and Second Defendants) Clayton Utz (Third to Eighteenth Defendants) Ashurst (Nineteenth Defendant)
File Number(s):	SC 2019/35120

Judgment

1. Certain companies, including public and large proprietary companies that are wholly-owned subsidiaries within a corporate group, may in some circumstances be relieved of their individual statutory reporting obligations under the Corporations Act 2001 (Cth). In those circumstances, the ultimate holding company in the group must instead issue consolidated financial statements.

2. In 2012, the instrument making such relief available was an order issued by the Australian Securities and Investments Commission under s 341 of the Corporations Act called “ASIC Class Order 98/1418” (the “Class Order”).

3. A condition specified in the Class Order for such relief was that members of the group cross guarantee each other’s debts in a Deed of Cross Guarantee which is in exactly the same terms as ASIC Pro Forma 24.

4. Such Deeds of Cross Guarantee were required to be lodged with ASIC, together with a certificate of a specified kind. Both documents were publicly available.

5. On 31 July 2012 the first plaintiff, New Hope Corporation Ltd, a public company listed on the Australian Securities Exchange, and eight of its wholly-owned subsidiaries (the second to ninth plaintiffs), entered into such a Deed of Cross Guarantee (the “Deed”).

6. The Deed, and a certificate signed by Ms Natasha Chalk dated 31 July 2012 (the “Certificate”), were lodged with ASIC on 14 August 2012.

7. By the Deed, New Hope and the second to ninth plaintiffs guaranteed each other’s obligations. The second to ninth plaintiffs were named in Part 1(2) of the Schedule to the Deed. I will refer to them as the “Part 1(2) Entities”.

8. The Deed also named, in Part 1(3) of the Schedule, 25 other subsidiaries of New Hope. All but one of these subsidiaries were wholly-owned; the remaining one was 90% owned. I will refer to these companies the “Part 1(3) Entities”. The Part 1(3) Entities were not parties to the Deed.

9. Several of the Part 1(3) Entities have been deregistered. The remaining eighteen are the first to eighteenth defendants.

10. Only the first and second defendants, Northern Energy Corporation Ltd (“NEC”) and Colton Coal Pty Ltd participated in the hearing before me. Both companies were placed into administration on 17 October 2018.

11. By an order made on 19 February 2019, NEC was appointed to represent the interests of creditors of any of the Part 1(2) and Part 1(3) Entities.

12. The third to eighteenth defendants were excused from attending the hearing on the basis of their agreement to submit to such orders as the Court thinks fit, save as to costs.

13. The nineteenth defendant, Wiggins Island Coal Export Terminal Pty Ltd, is the largest creditor of NEC and Colton Coal.

14. Wiggins contends it has unsecured claims against NEC in the order of $3.6 million and against Colton Coal in the order of $128.7 million. It apprehends that NEC and Colton Coal may not have the means to meet these claims, which may be irrecoverable unless it is able to look to New Hope and the Part 1(2) Entities as guarantors of NEC and Colton Coal. Wiggins claims to have such an entitlement under the Deed.

15. In those circumstances, New Hope and the Part 1(2) Entities seek:

1. declaratory relief to the effect that, on the proper construction of the Deed, they have not guaranteed to pay the debts of NEC, Colton Coal or any other of the Part 1(3) Entities; and

2. alternatively, an order rectifying the Deed by deleting the Part 1(3) Entities from the Schedule to the Deed.

Decision

16. On the proper construction of the Deed, New Hope and the Part 1(2) Entities have not guaranteed the obligations of the Part 1(3) Entities.

17. The question of rectification therefore does not arise.

The Deed

18. The opening words of the Deed recite:

“This Deed of Cross Guarantee is made on 31 July 2012 between:

(1)   The Group Entities (which are listed in Part 1 of the Schedule);

(2)   The Trustee (which is named in Part 2 of the Schedule [New Hope]); and

(3)   The Alterative Trustee (which is named in Part 3 of the Schedule [New Acland Coal Pty Ltd: one of the Part 1(2) Entities]) (if applicable),

for the purpose of the Group Entities (except those indicated in Part 1 of the Schedule as being ineligible) obtaining the benefit of the Class Order and witnesses as follows: …”.

19. Clause 2 is headed “Operation of deed” and provides:

“2.1   This Deed of Cross Guarantee will be of no force and effect until the Holding Entity has submitted an original of this Deed of Cross Guarantee for lodgement at ASIC together with an original of a Certificate relating to this Deed.”

20. The Cross Guarantee is contained in cl 3 of the Deed which, relevantly, reads:

“3.1   …each Group Entity covenants with the Trustee for the benefit of each Creditor that the Group Entity guarantees to each Creditor payment in full of any Debt in accordance with this Deed of Cross Guarantee.

3.2   Each Group Entity agrees with the Trustee that this Deed of Cross Guarantee becomes enforceable in respect of the Debt of a Group Entity (‘the Group Entity’):

(a)   upon the winding up of the Group Entity…

(b)   in any other case – if six months after a resolution or order for the winding up of the Group Entity any Debt of a Creditor of the Group Entity has not been paid in full.”

21. There is also a Deed Poll in cl 6.1 as follows:

“As a separate covenant by way of Deed Poll each Group Entity agrees with each Creditor that the Group Entity will guarantee to each Creditor payment of any Debt due to the Creditor from any other Group Entity in accordance with this Deed of Cross Guarantee.”

22. “Group Entity” is defined to include “any one of the entities listed in Part 1 of the Schedule”. The full definition in cl 1.1 is:

“‘Group Entity’ means (until this Deed of Cross Guarantee ceases to apply to that entity by virtue of a disposal under clause 4.2 or until that entity is released from this Deed of Cross Guarantee by a Revocation Deed under clause 4.5):

(a)   any one of the entities listed in Part 1 of the Schedule; and

(b)   any entity joined to this Deed of Cross Guarantee by the execution of an Assumption Deed”.

23. “Debt” is defined to mean:

“…any debt or claim which is now or at any future time admissible to proof in the winding up of a Group Entity and no other claim”.

24. “Creditor” is defined to mean:

“…a person (whether now ascertained or ascertainable or not) who is not a Group Entity and to whom now or at any future time a Debt (whether now existing or not) is or may at any future time be or become payable”.

25. The Schedule to the Deed was in the following form:

“SCHEDULE

Parties to this Deed of Cross Guarantee

PART 1 – GROUP ENTITIES

(1)   Holding Entity:

New Hope Corporation Limited…

(2)   Group Entities (other than the Holding Entity) which are as at the date of execution of the Deed eligible for the benefit of the Class Order:

[Second to ninth plaintiffs]

(3)   Group Entities (other than the Holding Entity) which are as at the date of execution of the Deed ineligible for the benefit of the Class Order:

[The first to eighteenth defendants, including NEC and Colton Coal together with six other former wholly-owned subsidiaries of New Hope which have now been deregistered]”.

26. As the parenthetical words in the definition of “Group Entity” foreshadow, the Deed can cease to apply to a Group Entity if the Group Entity is disposed of pursuant to cl 4.2 or released under cl 4.5. I will return to those provisions below.

27. The Holding Entity can cause controlled entities to be joined as further Group Entities by execution of an Assumption Deed under cl 5.1 of the Deed, in which event cl 5.3 provides:

“Any further Group Entity so added by an Assumption Deed will be taken to have assumed liability under this Deed…as if that Group Entity had executed this Deed of Cross Guarantee.”

28. Finally, “Wholly-owned Entities” is defined to mean:

“‘Wholly-owned Entities’ collectively mean companies and foreign companies:

(a)   all of which are controlled by the Holding Entity;

(b)   no member of any of which is a person other than the Holding Entity, another one of the Wholly-owned Entities, a nominee for the Holding Entity or a nominee for another one of the Wholly-owned Entities; and

(c)   all of which are parties to the Deed of Cross Guarantee,

except that, when used in reference to a ‘Group Entity sold’, ‘Wholly-owned-Entities’ collectively mean companies and foreign companies:

(a)   all of which are controlled by the Group Entity sold;

(b)   no member of any of which is a person other than the Group Entity sold, another one of the Wholly-owned Entities, a nominee for the Group Entity sold or a nominee for another one of the Wholly-owned Entities; and

(c)   all of which are parties to the Deed of Cross Guarantee.”

Principles concerning construction

29. The relevant principles were recently restated by the High Court of Australia in Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart (2019) 366 ALR 635; [2019] HCA 13 at [44] (Kiefel CJ, Gageler, Nettle, and Gordon JJ):

“It is well established that a commercial contract should be construed by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract [Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ)].”

30. Further, where the Court is called upon, as here, to interpret a contract replete with defined terms, the definitions should not be considered in isolation but by reading the words of the definition into the operative text: see Kelly v R (2004) 218 CLR 216; [2004] HCA 12 at [103] (McHugh J) regarding statutory construction, but applied to contractual construction in Vincent Nominees Pty Ltd v Western Australian Planning Commission (2012) 187 LGERA 303; [2012] WASC 28 at [25] (Beech J); Red Hill Iron Ltd v API Management Pty Ltd [2012] WASC 323 at [127] (Beech J).

The proper construction of the Deed

31. As I have mentioned, the matter that divides the parties is whether the guarantees given in the Deed by New Hope and the Part 1(2) Entities extend to the Part 1(3) Entities.

32. More particularly, the question is whether the Part 1(3) Entities are “Group Entities” (see [22]) such that the “Debts” (see [23]) they owe to their “Creditors” (see [24]) are the subject of the Cross Guarantee covenant given in cl 3.1 of the Deed (see [20]) and the Deed Poll covenant given in cl 6.1 of the Deed (see [21]).

33. Of course, only New Hope and the Part 1(2) Entities gave those covenants; as only they are parties to the Deed.

34. Although the arguments before me ranged wider, my conclusion is that the question can be answered by reference to the text of the Deed, with matters of context proving confirmatory, rather than determinative, of the correct construction.

35. I have set out the opening words of the Deed at [18] above.

36. Thus, the Deed announced, in its opening words, that it was “made…between” the “Group Entities” which “are listed in Part 1 of the Schedule”.

37. The Deed could only be “made…between” its parties.

38. Thus the reference in the opening words of the Deed to the “Group Entities” “which are listed in Part 1 of the Schedule” could not be a reference to all of the entities named in Part 1 of the Schedule. It could only be a reference to those entities in Part 1 of the Schedule that are parties to the Deed; that is, leaving aside New Hope itself, the Part 1(2) Entities. The reference could not be to the Part 1(3) Entities because those entities are not parties to the Deed, and therefore could not be “Group Entities” with whom the Deed “is made”.

39. Thus, at this point in the Deed, the words “which are listed in Part 1 of the Schedule” cannot simply mean “which are named” in Part 1 of the Schedule.

40. In the chaussette (per Perram J in SMA Solar Technology AG v Beyond Building Systems Pty Ltd (No 5) [2012] FCA 1483 at [79]) to the opening words of the Deed, it is stated that the Deed “is made”:

“…for the purpose of the Group Entities (except those indicated in Part 1 of the Schedule as being ineligible) obtaining the benefit of the Class Order”.

41. These “Group Entities” must be the same “Group Entities” as are referred to the Deed’s opening words, namely those with whom the Deed is “made”. The parties cannot have intended that “Group Entities” have a different meaning when used seven lines apart in what is in effect the one sentence.

42. In my opinion, the parenthetical exception of entities “indicated in Part 1 of the Schedule as being ineligible” does no more than contemplate the possibility that Group Entities with whom the Deed “is made”, that is who are parties to the Deed, may not qualify for the benefit of the Class Order.

43. “Group Entity” is defined in cl 1.1 to mean, with a parenthetical qualification to which I will return:

1. “any one of the entities listed in Part 1 of the Schedule”; and

2. “any entity joined to [the Deed] by execution of an Assumption Deed”.

44. Debate before me focussed on the expression “any one of the entities listed in Part 1 of the Schedule”; the vital question being whether those words mean any one of the entities “named” in Part 1 of the Schedule.

45. In my opinion, the answer to this question is “no”.

46. The words in the definition of “Group Entity” direct attention to Part 1 of the Schedule.

47. The question is, what entities are there “listed” for the purposes of the definition?

48. As I have set out at [25], the Schedule is headed “Parties to this Deed of Cross Guarantee”.

49. Pausing at that point, an indication is there given that the entities “listed” in the Schedule were intended to be “parties” to the Deed.

50. Part 1(1) of the Schedule identifies that the “Holding Entity” is New Hope.

51. Each of Parts 1(2) and (3) refer to “Group Entities”, but qualifies that reference by the words “which are as at the date of execution of the Deed” either eligible (in the case of the Part 1(2) Entities) or ineligible (in the case of the Part 1(3) Entities) for the benefit of the Class Order.

52. There follows, after a colon (“:”), in each of Parts 1(2) and (3), the names of entities in the New Hope group: the second to ninth plaintiffs, each of which was then eligible for the benefit of the Class Order, in Part 1(2); and the first to eighteenth defendants, none of which was so eligible, in Part 1(3).

53. In my opinion, Mr Hutley SC, who appeared for this part of the case with Ms Roughley for the plaintiffs, was correct to submit that the natural reading of the words “which are as at the date of execution of the Deed” is that they refer to the “date of execution” by the Group Entities in question; that is those then named in Part 1(2). The words thus qualify the expression “Group Entities” earlier in the same line and denote a characteristic of those Group Entities; those that have executed the Deed.

54. It is true, as Dr Higgins SC, who appeared with Mr Hutton for Wiggins, pointed out, that the language uses the passive voice; it does not say “as at the date they executed the Deed” or “as at the date each of them executed the Deed”. The use of such language would have made things clearer.

55. The alternative is to read words “as at the date of execution of the Deed” are no more than a statement about the Deed itself, namely its date of execution. That was Dr Higgins’ submission. But that would involve reading “as at the date of execution of the Deed” as if it simply said “as at the date of the Deed” or “as at the date hereof” and would pay no account to the use by the parties of the word “execution”. I do not think the words should be read this way.

56. It follows that unless the entity named in Parts 1(2) or 1(3) of the Schedule executed the Deed, it was not a Group Entity for the purpose of the chapeaux to those Parts of the Schedule, and was thus not “listed” for the purpose of the definition of “Group Entity”.

57. Thus, all of the entities named, those in Part 1(2) of the Schedule are Group Entities for this purpose because they executed the Deed.

58. On the other hand, none of the entities named in Part 1(3) of the Schedule is a Group Entity for this purpose, as none of them executed the Deed.

59. To put that another way, the form and structure of the Schedule reveals that the parties’ intention was that for an entity to be “listed” in Part 1 of the Schedule for the purposes of the definition of “Group Entity”, that entity had to conform to the requirements of the Schedule. Conformity to the requirements of the Schedule necessitated more than merely being named in the Schedule; it required being a party to the Deed, consistently with the heading to the Schedule (“Parties to this Deed of Cross Guarantee”).

44. As the Part 1(3) Entities did not execute the Deed, it follows that they:

1. are not “listed” in Part 1 the Schedule for the purposes of the opening words of the Deed nor the definition of “Group Entity” in cl 1.1;

2. are therefore not Group Entities for the purpose of the Deed; and

3. do not have the benefit of the Cross Guarantee in cl 3.1 of the Deed nor the Deed Poll in cl 6.1.

61. That conclusion has the admittedly curious consequence that there is no evident reason for the Part 1(3) Entities to be named in the Schedule at all.

62. But even more curious consequences would follow were that conclusion to be incorrect, and were the correct conclusion to be that the Part 1(3) Entities were Group Entities, notwithstanding not being parties to the Deed.

Consequences if the Part 1(3) Entities are Group Entities

63. A powerful factor pointing against the conclusion that the parties intended that the Part 1(3) Entities be Group Entities for the purpose of the Deed (which I will refer to as the “Wiggins Construction”) is the very curious consequences that would follow if they were.

64. On the Wiggins Construction, “Group Entity” would sometimes mean all of the entities referred to in Part 1 of the Schedule, while at other times mean only some of them, and would, on some occasions, denote different entities within the one clause.

Clause 3.1

65. An example is cl 3.1; the clause creating the Cross Guarantee. I have set out the text of cl 3.1 at [20] above. The wording of cl 3.1 includes the defined terms “Creditor” and “Debt”. The defined term “Creditor” also incorporates the defined term “Debt”.

66. When one reads into cl 3.1 the text of those definitions, adopting parentheses “[ ]” and “{ }” to indicate where the definitions of “Creditor” and “Debt”, respectively, have been incorporated and avoiding confusing repetition as indicated in italics, the result is that the clause reads:

“…each Group Entity covenants with the Trustee for the benefit of each [person…who is not a Group Entity and to whom…a {debt…admissible…in the winding of a Group Entity}…become[s] payable] that the Group Entity guarantees to each [such person] payment in full of [any such debt] in accordance with this Deed…”. (Underlined emphasis of Group Entity added.)

67. The “Group Entity” first and last referred to, that is the Group Entity covenanting to guarantee, can only be New Hope and the Part 1(2) Entities, as only they are parties to the Deed.

68. But, on the Wiggins Construction, the “Group Entity” third referred to, that in the winding up of which a debt is admissible, is any of the entities named in Part 1 of the Schedule, including the Part 1(3) Entities.

69. The Wiggins Construction thus results in “Group Entity” having different meanings within cl 3.1.

Clause 6.1

70. On the Wiggins Construction, a similar result would occur in relation to cl 6.1; the Deed Poll.

71. The expanded version of cl 6.1, incorporating the definitions of “Creditor” and “Debt”, is:

“As a separate covenant by way of Deed Poll, each Group Entity agrees with each [person…who is not a Group Entity and to whom…a {debt…admissible…in the winding up of a Group Entity}…become[s] payable] that the Group Entity will guarantee to [each such person] payment of any [such debt] due to [such person] from any other Group Entity in accordance with this Deed…”. (Underlined emphasis of Group Entity added.)

72. Again, “Group Entity” first and fourth referred to can only be New Hope and the Part 1(2) Entities as only they agree to give this guarantee.

73. But, on the Wiggins Construction, “Group Entity” third and fifth referred to is any of the entities named in Part 1 of the Schedule, including the Part 1(3) Entities.

74. The parties could not have intended the Deed to operate this way.

75. The Deed makes provision for entities to cease to be, and to become, Group Entities. The parenthetical words at the outset of the definition of Group Entity (see [22]) acknowledge the possibility that the Deed might cease to apply to an entity by reason of disposal under cl 4.2 or release under cl 4.5.

76. And sub-cl (b) of the definition of “Group Entity” acknowledges the possibility that an entity might be joined to the Deed by reason of the execution by New Hope of an “Assumption Deed” under cl 5 of the Deed.

77. I will deal with each of these clauses in turn.

Clause 4.2

78. Clause 4.2, again using italics to simplify matters, relevantly provides:

“If:

(a)   a liquidator [or another external controller]…is appointed to…a Group Entity…and that Group Entity…disposes…of all issues shares in [that] Group Entity [called in the clause “the Group Entity sold”]…; or

(b)    a mortgagee...of shares owned by a Group Entity…in another Group Entity…disposes…of all issued shares in [that] Group Entity…; or

(c)   the Group Entity…owning shares in a Group Entity…disposes…of all issued shares in [that] Group Entity…,

then …

(d)   this Deed…shall cease to apply to the Group Entity sold and to any Group Entity which is a Wholly-owned Entity of the Group Entity sold; and

(e)   the Group Entity sold and every Group Entity which is a Wholly-owned Entity of the Group Entity sold will be released from all liability under this Deed…; and

(f)   each other Group Entity will be released from all liability whatever under this Deed…in respect of any Debt of the Group Entity sold or in respect of any Debt of a Group Entity which is Wholly-owned Entity of the Group Entity sold…”.

79. These provisions assume that all Group Entities have liabilities under the Deed. Otherwise there would be no need for the release in cll 4.2(d) to (f). And the release in cll 4.2(e) and (f) is not from “any” liability but from “all” liability under the Deed.

80. Further, as “Wholly-owned Entity”, in this context, is defined to mean (a) an entity controlled by the “Group Entity sold” and (b) which is a party to the Deed (see [28] above), the Wiggins Construction would have a very curious result.

81. If, as the Wiggins Construction posits, the Part 1(3) Entities are Group Entities then, if the shares in a Part 1(3) Entity were disposed of under cll 4.2(a), (b) or (c):

1. the releases in cll 4.2(e) and (f) would operate in regard to the Part 1(3) Entity itself because, on this hypothesis, it is a Group Entity; but

2. the releases would not operate in respect of any entity controlled by the Part 1(3) Entity disposed of because none of the controlled entities of the Part 1(3) Entities are parties to the Deed.

82. Again, it is unlikely that the parties intended this result.

Clause 4.5

83. Clause 4.5 relevantly provides:

“The Group Entities which are from time to time parties to this Deed…may revoke this Deed…in respect of any Group Entity or all Group Entities by executing a Revocation Deed the effect of which will be condition upon:

(a)   [New Hope] lodging an original of that Revocation Deed with ASIC; and

(b)   each Group Entity giving a notice to its Creditors of the Revocation Deed by public advertisement…”.

84. Were the Wiggins Construction correct, cl 4.5(b) would also operate very curiously.

85. The Part 1(3) Entities are not parties to the Deed and therefore could not participate in its revocation under cl 4.5.

86. But, for example, if New Hope and the Part 1(2) Entities, being parties to the Deed, decided to revoke the Deed altogether, that is in respect of “all Group Entities”, the Part 1(3) Entities could nonetheless prevent such revocation taking effect by refusing to give the notice called for by cl 4.5(b).

87. Clause 4.5 provides that any revocation is conditional upon, amongst other things, Group Entities giving such a notice. On the Wiggins Construction the Part 1(3) Entities could, by withholding the giving of such notice, stymie the revocation process.

88. The parties could not have intended this consequence.

89. An issue also arose as to the role played by the words “which are from time to time parties to this Deed of Cross Guarantee” in this clause.

90. Dr Higgins submitted that the words bespeak a recognition by the parties that some Group Entities may not be parties to the Deed.

91. I do not accept that submission.

92. Rather, I think that Mr Hutley was correct to submit that the words:

1. do no more than recognise that Group Entities might come and go, by being removed from the operation of the Deed by cl 4 or by becoming Group Entities by reason of an Assumption Deed under cl 5;

2. make clear that cl 4.5 applies to those entities which are Group Entities at the relevant time; and

3. should be read as having the same effect as if the words used were simply “from time to time”.

The Certificate point

93. As I have set out at [19], cl 2.1 of the Deed is headed “Operation of deed” and provides:

“This Deed…will be of no force and effect until [New Hope] has submitted an original of this Deed…for lodgement at ASIC together with an original of a Certificate relating to this Deed.”

94. Clause 5.2 provides, similarly to cl 2.1, that an Assumption Deed will be of no force and effect unless lodged at ASIC “together with an original of a Certificate relating to that Deed”.

95. “Certificate”, in relation to the Deed or an Assumption Deed, is defined to mean:

“…one or more certificates in writing addressed to each Group Entity or proposed Group Entity covered by the Deed…”.

96. The definition of “Certificate” then sets out a number of matters that a Certificate must contain, including a statement that the Deed or Assumption Deed:

1. is, with specified and minor exceptions, in “exactly the same terms” as the relevant ASIC Pro Forma;

2. appears to be executed in accordance with s 127 of the Corporations Act; and

3. is, in the opinion of a lawyer holding a practising certificate, duly executed by each party to it that is not a company.

97. The definition of “Certificate” requires that it be addressed to each Group Entity “covered” by the Deed or the Assumption Deed as the case may be.

98. Dr Higgins submitted that cl 2.1 and the definition of “Certificate” are directed to the integrity and regularity of execution and that an entity “covered” by the Deed, or an Assumption Deed, was simply an entity that executed the document in question.

99. I do not accept that submission.

100. The very fact that the definition of “Certificate” requires that it include statements relevant to the “execution” of the Deed or Assumption Deed, suggests the parties must have intended “covered” to mean something different than “executed”.

101. The more natural meaning of an entity “covered”, in this context, is the entity entitled to the benefit of the Deed or the Assumption Deed; much as a person “covered” by an insurance policy is the person benefited by the policy (the insured), or a person “covered” by a guarantee is the person benefited by the guarantee (the person whose debts are guaranteed).

102. The Certificate signed by Ms Chalk and lodged with ASIC is addressed to New Hope, the Part 1(2) Entities and ASIC. It is not addressed to the Part 1(3) Entities. That is no doubt because, on New Hope’s construction of the Deed, only it and the Part 1(2) Entities are “covered” by the Deed.

103. On the Wiggins Construction of the Deed, the Part 1(3) Entities have the benefit of the Cross Guarantee in cl 3.1 and the Deed Poll in cl 6.1, and are therefore also “covered” by the Deed.

104. If the Wiggins Construction is correct, it must follow that the Deed has never been of any force or effect because a Certificate addressed to the Part 1(3) Entities has never been lodged with ASIC.

105. That dramatic consequence points strongly to the conclusion that the Wiggins Construction is not correct.

106. These matters all point to the conclusion that the Part 1(3) Entities are not Group Entities.

Context

107. The context in which the Deed was created is confirmatory, in my opinion, that the parties to the Deed did not intend it to confer a benefit on the Part 1(3) Entities.

108. It is common ground that, in construing the Deed, regard may be had to any document referred in its text: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] (French CJ, Nettle and Gordon JJ).

109. One such document is the Class Order. Indeed, the Deed has its genesis in the Class Order. As I have mentioned, in the opening words of the Deed, the Deed’s purpose is stated to be to enable Group Entities to obtain the benefit of the Class Order.

110. The source of power to make Class Orders is in s 341 of the Corporations Act which, at the relevant time, gave ASIC power to make an order relieving companies, such as New Hope and its wholly-owned subsidiaries, from all or specified requirements of Pt 2M.2 (concerning financial records), Pt 2M.3 (concerning financial reporting) and Pt 2M.4 (concerning the appointment of auditors) of the Corporations Act.

111. The terms of the Class Order reveal, as Mr Hutley submitted, that the price ASIC insisted a company like New Hope pay in order to obtain the benefit of a Class Order was very precise reporting as to the financial position of it and its wholly-owned subsidiaries.

112. In their opening submissions, the plaintiffs summarised the effect of the Class Order in terms that Dr Higgins and Mr Hutton accepted was “broadly correct”. What follows is drawn in large part from those submissions.

113. The Class Order entitles subsidiary entities of a company such as New Hope to be relieved from the requirement to prepare their own separate, audited financial statements if and on condition that they, and entities within the “closed group” of which they are a member, fulfil a number of conditions.

114. Those conditions include that:

1. the subsidiaries within the group obtaining the relief under the Class Order be parties to a Deed of Cross Guarantee which “is substantially in the form set out in ASIC Pro Forma 24”: see condition (f)(ii) and the definition of “Deed of Cross Guarantee” in the Class Order;

2. the Holding Entity, which is the entity controlling the subsidiaries and itself a party to the Deed of Cross Guarantee, prepare “Consolidated Financial Statements” that, in effect, treat the group comprising the subsidiaries and the Holding Entity as a single economic entity: see condition (e) and the definition of “Closed Group”, “Holding Entity” and “Wholly-owned Entities” in the Class Order;

3. there be contained, within prescribed documents, a statement as to whether there are reasonable grounds to believe that the Holding Entity, the subsidiaries obtaining the benefit of the Class Order, and any other entities that are party to the Deed of Cross Guarantee and controlled by the Holding Entity “will be able to meet any obligations or liabilities to which they are, or may become subject, by virtue of the Deed of Cross Guarantee”: see condition (j) and the definition of “Closed Group”, “Extended Closed Group” and “Wholly-owned Entities” in the Class Order;

4. a notice be lodged with ASIC containing a statement:

1. that the subsidiary has taken advantage of relief under the Class Order: see condition (k)(i) in the Class Order;

2. identifying the Holding Entity: see condition (k)(ii) in the Class Order; and

3. that the directors of the subsidiary annually reassess the advantages and disadvantages of the entity “remaining a party to the Deed of Cross Guarantee and taking advantage of the relief afforded by this order” and resolve either to continue to remain a party to the Deed or seek to revoke it: see condition (k)(iii) in the Class Order.

115. The Class Order also contains detailed requirements as to the contents of the consolidated financial statements that the Holding Entity must prepare, as well as the timing for lodgement of those statements.

116. It does so on terms that:

1. deal with the various possible scenarios that might arise, such as whether the Holding Entity is or is not a registered foreign entity: see condition (f) and (g) in the Class Order;

2. expressly require the Consolidated Financial Statements of the group include “adequate provision in relation to the liabilities of any parties to the Deed of Cross Guarantee which are not consolidated where it is probable that those liabilities will not be fully met by those parties”; that is, to disclose that there might an exposure of the consolidated group in respect of the debts of another entity which is a party to the Deed of Cross Guarantee but not a member of the consolidated group: see condition (h)(ii) in the Class Order; and

3. expressly require the notes to the Consolidated Financial Statements to contain details of:

1. the nature of the Deed of Cross Guarantee: see condition (i)(i) in the Class Order;

2. the parties to it (and whether they are members of the closed group whose accounts are being consolidated for other members of the Extended Closed Group): see condition (i)(ii) in the Class Order;

3. changes to the parties during the financial year, by way of an Assumption Deed, a Revocation Deed or a Notice of Disposal: see condition (i)(iii) in the Class Order;

4. changes to and reasons for a particular entity’s eligibility for Class Order relief: see condition (i)(iv) in the Class Order; and

5. if there is a discrepancy between the entities covered by the Consolidated Financial Statements and either the members of the Closed Group or the parties to the Deed, additional financial information that gives specific disclosure of the exposure and consequences of the Deed for the financial position and possible liabilities of other parties to it: see condition (i)(v)-(vi) in the Class Order.

117. As the plaintiffs submitted, in the event an entity takes advantage of Class Order relief, the premise of the Class Order and the reporting and disclosure consequences that follow are that the entity has no obligations in respect of that Deed, and the obligations of the parties to that Deed do not “cover” or extend to it, unless that entity is a party to the Deed.

118. I do not find these matters to be determinative of the proper construction of the Deed. For the reasons I have set out above, my conclusion is that the words in the Deed, which are of course drawn from ASIC Pro Forma 24, compel the conclusion that the parties did not intend that the Part 1(3) Entities have the benefit of or be “covered” by the Deed.

119. However, the matters I have set out concerning the Class Order scheme are, in my opinion, confirmatory of what I have concluded the Deed means.

Rectification

120. Having come to this conclusion, it is not necessary that I express any opinion as to the plaintiffs’ alternative case that the Deed should be rectified to delete the Part 1(3) Entities from the Schedule.

121. However, had it been necessary for me to decide the question, I would have refused rectification, substantially for the reasons advanced by Dr Higgins and Mr Hutton on behalf of Wiggins.

122. In my opinion, Dr Higgins was correct to submit that the plaintiffs have failed to prove, by clear and convincing evidence of the final intention of the parties, that the order for rectification sought should be made: Pukallus v Cameron (1982) 180 CLR 447 at 452; [1982] HCA 63 (Wilson J); Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [42] (Kiefel J, as her Honour then was); Newey v Westpac Banking Corporation [2014] NSWCA 319 at [170] (Gleeson JA, Basten and Meagher JJA agreeing).

123. As Dr Higgins submitted, there was at least a divergence of understanding between the persons involved in the entry into the Deed as to what entities were to be parties to it.

124. So far as concerns the board of New Hope, the evidence suggests that it intended that one of the Part 1(3) Entities, NEC, should be a party to the Deed and that one of the Part 1(2) Entities, Andrew Wright Holdings Pty Ltd, should not be a party to the Deed.

125. New Hope decided to enter the Deed on 18 April 2012 when its board resolved that:

“The recommendations contained in the briefing paper [concerning class order relief] were approved as tabled”.

126. That briefing paper was prepared by Mr Matthew Busch who was the Financial Controller and Secretary of New Hope.

127. The background to Mr Busch’s briefing paper was a letter dated 12 March 2012 sent to New Hope by its auditors, PricewaterhouseCoopers (PwC), setting out their proposed audit fees for the year ending 31 July 2012. PwC wrote:

“The statutory audit for the year ending 31 July 2012 covers the consolidated annual financial report for New Hope Corporation Limited and the special purpose statutory accounts of the following entities:

● Northern Energy Corporation Limited;

● New Acland Coal Pty Ltd;

● New Oakleigh Coal Pty Ltd;

● Jeebropilly Collieries Pty Ltd;

● Queensland Bulk Handling Pty Ltd;

● Acland Pastoral Company Pty Ltd;

● Arkdale Pty Ltd; and

● New Lenton Coal Pty Ltd”.

128. The first entity named by PwC was NEC; a Part 1(3) Entity. The remaining seven named entities were seven of the eight Part 1(2) Entities. PwC did not refer to the remaining Part 1(2) Entity: Andrew Wright Holdings.

129. PwC then set out two fee proposals, one assuming the named entities obtained Class Order relief and one assuming they did not. PwC’s proposed audit fees were $63,600 less assuming Class Order relief was obtained.

130. PwC’s 12 March 2012 letter was included in the board pack for the previous directors’ meeting on 19 March 2012.

131. Mr Busch’s briefing paper for the directors’ meeting of 18 April 2012 commenced:

“[New Hope] currently prepares audited special purpose financial statements for a number of group subsidiaries that meet the ASIC definition of a large reporting entity [sic]”.

132. Mr Busch’s reference to a “large reporting entity” was an error. Evidently, he intended to refer to a “large proprietary company”, being an entity in respect of whom a Class Order can be made.

133. Mr Busch’s briefing paper continued:

“It is common for entities to apply for and obtain Class Order Relief from preparing special purpose reports for group subsidiaries. The most onerous condition is that the parent entity (New Hope Corporation Limited) must enter into a Deed of Cross Guarantee with each of the subsidiaries for which the relief is sought.”

134. Mr Busch then referred to PwC’s 12 March 2012 letter and said:

“PWC have advised that audit fees for the 2012 financial year end would be reduced by $63,600 should New Hope obtain Class Order Relief for all 8 group subsidiaries that meet the definition of a reporting entity [sic].” (Emphasis added.)

135. Again, Mr Busch erroneously referred to “a reporting entity” when he evidently meant to refer to a “large proprietary company”.

136. The briefing paper continued:

“Under the Deed of Cross Guarantee each Group Entity is guaranteeing all debts of each party to the Deed. In the absence of such a Deed the corporate veil is not typically lifted by the courts and this serves to protect a shareholding parent entity (and other group companies) from such debts. The loss of the corporate veil would be most relevant in the event that a claim is brought against a subsidiary company and the claim is disputed by the Directors.”

137. Finally, under the heading “Recommendation”, Mr Busch’s briefing paper concluded:

“Subject to Directors being satisfied with the above risk assessment, management recommend that New Hope Corporation Limited and the 8 entities currently required to prepare special purpose financial reports enter into a Deed of Cross Guarantee and apply for Class Order Relief from preparing financial statements for the 2012 financial year.” (Emphasis added.)

138. That was the recommendation approved by the board of New Hope on 18 April 2012: see [125].

139. Mr Busch’s briefing paper did not identify by name the “8 entities” the subject of his recommendation. But they must have been the “8 group subsidiaries” that he recorded PwC as having identified: see [134].

140. Mr Giles SC, who appeared for the plaintiffs with Ms Keesing in relation to this aspect of the case, called as witnesses all the directors that participated in the board decision on 18 April 2012, with the exception of one director who has since died.

141. Unsurprisingly, none of those directors recalled what was discussed at the meeting about this matter although one, Mr Millner, said that it was “obvious” that the “8 entities” the board resolved should enter a Deed of Cross Guarantee were those named in PwC’s 12 March 2012 letter.

142. As those entities included one, NEC, that is now named in Part 1(3) of the Schedule of the Deed, and did not include another, Andrew Wright Holdings, that is now named in Part 1(2) of the Schedule, I would, had it been necessary to determine this question, have found it impossible to conclude that an order for rectification of the Deed by deletion of all the entities named in Part 1(3) of the Schedule was available.

Conclusion

143. I invite the parties to bring in short minutes to give effect to these reasons.

144. I will hear the parties as to costs.

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Decision last updated: 12 July 2019