Perdaman Chemicals and Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [No 3] - [2011] WASCA 203

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: PERDAMAN CHEMICALS AND FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [No 3] [2011] WASCA 203

CORAM: MARTIN CJ
NEWNES JA
MURPHY JA

HEARD: 19 SEPTEMBER 2011

DELIVERED : 29 SEPTEMBER 2011

FILE NO/S: CACV 94 of 2011

BETWEEN: PERDAMAN CHEMICALS AND FERTILISERS PTY LTD
Appellant
AND
THE GRIFFIN COAL MINING COMPANY PTY LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :BEECH J
Citation  :PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188
File No  :CIV 1925 of 2011

Catchwords:

Practice and procedure - Freezing order - Interlocutory injunction - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 52A

Result:

Leave to appeal granted
Appeal allowed

Category: B

Representation:

Counsel:

Appellant: Mr A Myers QC & Mr M L Bennett
Respondent: Mr B W Walker SC & Mr B D Luscombe

Solicitors:

Appellant: Bennett & Co
Respondent: Clifford Chance

Case(s) referred to in judgment(s):

Butt v M'Donald (1896) 7 QLJ 68
House v The King [1936] HCA 40; (1936) 55 CLR 499
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Swiss Bank Corporation v Lloyds Bank Ltd [1979] 1 Ch 548

MARTIN CJ:

Introduction

The applicant, Perdaman Chemicals and Fertilisers Pty Ltd (Perdaman), applies for leave to appeal from the decision of the primary judge refusing to grant an interlocutory injunction restraining the respondent, The Griffin Coal Mining Company Pty Ltd (Griffin), from entering into any charge, pledge or other security as may be required by its sole shareholder, Lanco Resources Australia Pty Ltd, or by ICICI Bank Ltd (ICICI), Singapore branch, without first giving ten prior business days notice in writing to Perdaman through its solicitors.
Directions were made referring the question of the grant of leave to appeal to be heard with the appeal and further directing that the appeal be heard as a matter of urgency. Because of the nature of the interlocutory relief sought, it is desirable for the decision of this court to be published as soon as possible. To facilitate that objective, my reasons will be provided in a rather shorter form than is customary. Rather than set out the background to the contentious issues agitated by the parties before us, it is sufficient to rely upon the description of those issues provided by the primary judge: Perdaman Chemicals and Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188. His narrative of the factual circumstances which give rise to those issues should be read with these reasons.

Decision of the primary judge

The primary judge noted that Perdaman relied upon the specific jurisdiction of the court to grant orders which are ancillary to freezing orders, within the specific provisions of O 52A of the Rules of the Supreme Court 1971 (WA) and, in the alternative, upon the court's general jurisdiction to grant interlocutory injunctive relief: Perdaman [151] ‑ [152]. He also noted that Perdaman relied upon two alleged breaches of the Coal Supply Agreement (CSA) by Griffin as the basis for the injunctive relief sought, which he characterised as the 'CSA Securities Breach' and the 'Due Diligence Breach': Perdaman [155] ‑ [156]. He concluded that Perdaman had established a good arguable case in respect of each breach, and that Perdaman had a prospective good arguable case for substantial damages arising from such breaches which was capable of sustaining the injunctive relief sought: Perdaman [168], [178] and [191]. He also concluded that Perdaman had established that cl 2.3 of the Negative Pledge Deed gave rise to a danger that Griffin would execute a charge in favour of ICICI, which in turn created a danger that any judgment in favour of Perdaman might be unsatisfied: Perdaman [193].
However, on the balance of convenience, the primary judge concluded that the prospect of Perdaman obtaining the grant of an injunction restraining Griffin from providing security as required by cl 2.3 of the Negative Pledge Deed was so slight as to be insufficient to justify the prejudice which he concluded Griffin would suffer if it was required to give written notice to Perdaman 10 business days prior to the grant of any such security: Perdaman [210] ‑ [229]. For that reason, he dismissed Perdaman's application under both of heads of jurisdiction invoked by Perdaman. Perdaman appeals against that aspect of the primary judge's decision.
By its notice of contention, Griffin asserts the decision of the primary judge should be upheld in any event because he erred in concluding that Perdaman had made out a good arguable case for either the CSA Securities Breach, or the Due Diligence Breach, and further erred by concluding that Perdaman had made out a good arguable prospective case for substantial damages flowing from those breaches and that there was a risk that the grant of security by Griffin might result in Perdaman's claim going unsatisfied. Because the issues raised by Griffin's notice of contention are logically anterior to the issues raised by Perdaman's appeal, it is appropriate to deal first with those issues.

The CSA Securities Breach

Griffin contends that the primary judge should have concluded that Perdaman had failed to establish a good arguable case for breach of the obligation to use reasonable endeavours to execute the CSA Securities being, in particular, the deed of charge and the mortgage of the mining tenement in the forms set out in sch 7 and 8 of the CSA respectively. Griffin relies principally upon the fact that cl 24.1 of the CSA provides that the condition (somewhat inaccurately described by cl 24 as a condition precedent) upon which performance of the substantive obligations imposed by the CSA depends only specifies that the CSA securities had to be executed on or before the 'Condition Precedent Date' being, in the circumstances in which Griffin emerged from administration, 28 August 2011, and the fact that cl 24.2(c) only obliges the parties to use reasonable endeavours to satisfy the condition by executing the CSA securities by that date. Griffin contends that these express provisions of the CSA exclude any argument that Griffin was obliged to execute the CSA securities any earlier than 28 August 2011. In addition, Griffin draws attention to the fact that whatever was the position before the primary judge, there is now evidence before the court to the effect that it executed the CSA securities not later than 26 August 2011 (GAB 7, 237).
Griffin's contentions should be rejected. The express obligation to use reasonable endeavours to execute the CSA securities not later than the Condition Precedent Date does not preclude, and is not necessarily inconsistent with, an arguable obligation to execute the securities earlier than that date. Perdaman contends that such an obligation arguably arises either on the proper construction of the agreement as a whole, or by reason of the term implied by law to the effect that each party to the CSA will do all things necessary on their part to enable the other party to have the benefit of their agreement: Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 [36]; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 ‑ 608; Butt v M'Donald (1896) 7 QLJ 68, 70 ‑ 71. Perdaman points in particular to Griffin's express obligation to cooperate and use all reasonable endeavours to assist it with any due diligence obligations related to achieving 'Financial Close' (ie project financing for Perdaman's plant), and draws attention to the correspondence in evidence in which Perdaman advised Griffin that its prospective financiers required that they be shown the executed CSA securities as a part of the due diligence to be carried out prior to the approval of finance.
Having regard to that evidence, it is clearly arguable that Griffin's failure to execute the CSA securities until some months later, and very shortly prior to the Condition Precedent Date, constituted a breach of either the express provision to use reasonable endeavours to cooperate with Perdaman in fulfilling its due diligence obligations or the term implied by law in all contracts.
In addition, Perdaman points to the correspondence in evidence in which Griffin asserted that it was unable to execute the CSA securities without the prior approval of its financier. Perdaman contends that these assertions were false as, at the time they were made, Griffin had not entered into the Negative Pledge Deed. Perdaman wishes to contend at trial that the provision of false assertions as a justification for failure to exercise the CSA securities when requested constitutes a breach of the CSA. That contention is arguable.
In addition, Perdaman wishes to contend at trial that Griffin's execution of the negative pledge under which it placed execution of the CSA securities beyond its unilateral power (at least without placing itself in breach of the Negative Pledge Agreement) itself constituted a breach of its obligation to use reasonable endeavours to execute the CSA securities. That contention is also arguable. Whether or not any of these arguments are made good at trial will, of course, depend upon findings of fact made by reference to the entirety of the evidence adduced, and the resolution of issues with respect to the construction and effect of the CSA determined in that context.
Finally, in relation to Griffin's reliance upon the evidence to the effect that it had executed the CSA securities not later than 26 August 2011, it is sufficient to note that the evidence presently available on that subject is somewhat inconclusive, and gives rise to contentious issues as to whether Griffin had in fact satisfied the obligations imposed upon it by the CSA, having regard to its apparent refusal to deliver the CSA securities to Perdaman prior to the Condition Precedent Date.
For these various reasons, the primary judge was correct to conclude that Perdaman had made out a good arguable case for the breach which he characterised as the CSA Securities Breach.
The cause of action for the alleged CSA Securities Breach provides a sufficient basis for Perdaman's claim for an interlocutory injunction. Accordingly, it is not strictly necessary to resolve Griffin's contention in respect of the other cause of action upon which Perdaman relies, namely the Due Diligence Breach, but I will briefly address Griffin's contentions in that regard for the sake of completeness.

The Due Diligence Breach

Griffin contends that the primary judge erred in finding that Perdaman had established a good arguable case for the Due Diligence Breach because Perdaman had not offered any evidence to establish that what was said by or on behalf of Griffin during the course of the mine inspection on 10 May 2011 was false. There are two reasons why this contention must be rejected.
First, it is not necessary for Perdaman to establish that false statements were made during the course of the inspection of the mine in order to make good a cause of action based upon breach of Griffin's obligation to 'cooperate and use all reasonable endeavours to assist [Perdaman] with any due diligence obligations related to achieving Financial Close'. For example, it is at least arguable that a statement by Griffin to Perdaman's prospective financiers to the effect that Griffin did not intend to honour its obligations under the CSA would be a breach of the obligations imposed upon Griffin by the CSA to assist to fulfil its due diligence obligations with a view to obtaining financial closure, even if that statement was true. To take another example, if Perdaman established at trial that Griffin made statements to its prospective financiers for the purpose of discouraging the provision of project finance to Perdaman, it is at least arguable that a breach of the obligations imposed upon Griffin by cl 24.2 of the CSA, or the term imposed by law, would be established, without more. This is essentially what Perdaman alleges, and some evidence has been adduced to support those allegations. Whether or not those allegations are made good is a matter for trial.
Second, on the evidence before the primary judge there was a dispute as to precisely what was said by Griffin's representatives during the course of the mine inspection on 10 May 2011. As the primary judge held, factual issues as to precisely what was said during the course of the inspection, and as to whether or not what was said truly and accurately reflected the position of the mine and the capacity of Griffin to supply coal from the mine, are matters for trial and are not matters apt for determination on an interlocutory basis.
For these reasons, Griffin's contention that the trial judge erred in finding that Perdaman had established a good arguable case for the Due Diligence Breach must also be rejected.

Loss and damage

Griffin contends that the primary judge erred by concluding that the prospect that Perdaman might suffer substantial loss and damage if the urea project were lost as a consequence of Griffin's breaches of the CSA was a sufficient basis for the grant of relief ancillary to a freezing order, and in concluding that the execution by Griffin of a charge in favour of ICICI to secure the financing facility would create a danger that a prospective judgment in favour of Perdaman would be unsatisfied. Griffin contends that there was and is no evidence that the project has been lost as a consequence of its breaches, and further asserts that it could not be concluded that the execution of a charge in favour of ICICI creates a danger that any prospective judgment will be unsatisfied. Both aspects of these contentions must be rejected.
Dealing firstly with Griffin's contention with respect to the alleged failure to establish loss and damage, the primary judge observed that as at the time of the hearing before him, the CSA remained on foot and the time for satisfaction of the conditions precedent had not yet arrived: Perdaman [188]. However, he accepted that the prospect that the project might be lost as a consequence of Griffin's alleged breaches of the CSA, with the consequence that Perdaman would suffer loss and damage equal to the value of the project, provided a sufficient basis for the grant of relief ancillary to a freezing order, noting in particular that O 52A r 5(b) authorises the grant of a freezing order in respect of a prospective cause of action: Perdaman [191]. That process of reasoning is, with respect, entirely correct.
By the time Griffin's appeal came on for hearing, the Condition Precedent Date had passed. Financial Close, as defined in the CSA, had not by then occurred, and it was unclear whether or not the CSA securities had been executed as required by cl 24.1 of the CSA. Nevertheless, on any view, at least one of the conditions which had to be satisfied by that date had not been satisfied, and the court was told that Griffin gave notice of termination shortly thereafter. Perdaman contests the validity of that notice, on the basis that the failure to satisfy the condition relating to Financial Close was the consequence of Perdaman's breaches of the CSA. Litigation has not yet been commenced by either party for the purpose of resolving those contentions, but such litigation seems likely. Accordingly, although by the time of the hearing of this appeal there seemed a greater prospect that the urea project had been lost, it was by no means clear that that was the case. Perdaman's prospective claim for substantial damages in the event that it establishes that the urea project has in fact been lost as a consequence of Griffin's alleged breaches of the CSA provides a sufficient basis for the grant of the relief sought.
The second aspect of Griffin's contention is that Perdaman has failed to establish that the grant of security to ICICI by Griffin would create a danger that a prospective judgment in favour of Perdaman would go unsatisfied in whole or in part. However, if Griffin's obligation to grant security to ICICI pursuant to cl 2.3 of the Negative Pledge Deed is triggered by, for example, the grant of a first registered charge to secure a borrowing by any of the 'Obligors' referred to in that clause, Griffin would be obliged by cl 2.3 to grant a first registered charge to ICICI to secure the entire amount of the finance facility, which is an amount of up to $US800 million. The amount of that security needs to be viewed in light of the fact that Lanco paid $US700 million for the entire issued share capital in Griffin. Viewed in that context, there is every reason to think that the grant of a first registered charge in an amount which exceeds the value of Griffin's share capital would create an appreciable danger that any judgment in favour of Perdaman would go unsatisfied.
For these reasons, Griffin's various contentions to the effect that the decision of the primary judge should be upheld irrespective of the outcome of Perdaman's appeal must be rejected. It is therefore appropriate to now turn to the issues raised by Perdaman's appeal.

Perdaman's appeal - the balance of convenience

As I have noted, the primary judge held that Perdaman had established good arguable causes of action in respect of each of the CSA Securities Breach, and the Due Diligence Breach, and that its prospective claim for damages in the event that the urea project was lost as a consequence of those breaches was sufficient to found an order ancillary to a freezing order, and that there was a danger that any judgment in favour of Perdaman would go unsatisfied in the event that Griffin granted a charge in favour of ICICI pursuant to cl 2.3 of the Negative Pledge Deed. However, notwithstanding these conclusions, the primary judge rejected Perdaman's claim for interlocutory injunctive relief on the basis that he did not consider that there was a sufficient prospect that Perdaman would ever succeed in obtaining an injunction restraining Griffin from entering into a transaction which would result in the grant of security to justify an order requiring Griffin to give advance notice of such a transaction.
Perdaman contends that the primary judge erred in arriving at this conclusion in two respects. First, it asserts that any assessment of Perdaman's prospects of obtaining an injunction restraining Griffin from entering into a particular transaction of which it had given notice was necessarily speculative and hypothetical and was not therefore an appropriate basis for rejecting relief that would only go so far as to require Perdaman to be given notice of such a transaction. Second, it is asserted that the primary judge formed an erroneous view of the construction and effect of cl 2.3 of the Negative Pledge Deed which in turn caused him to err in his assessment of the circumstances in which Griffin might be obliged to grant security in favour of ICICI so as to secure the facility which was granted to finance the purchase of all its shares. As will be seen, these contentions are interrelated.
The primary judge correctly observed that as the effect of the interlocutory relief sought by Perdaman was only to require Griffin to give 10 business days notice of any transaction falling within the scope of the order sought, the prejudice likely to be suffered by Griffin as a consequence of the grant of relief would be limited. The primary judge identified prejudice of two kinds. First, there was the prejudice which Griffin might suffer in having to face a further application for an injunction to restrain the transaction of which it gave notice: Perdaman [206]. However, as the primary judge also noted, whether or not that prospect is properly regarded as prejudice of a kind that mitigates against the grant of the relief sought by Perdaman depends upon whether it can be concluded that such an application would have no real prospect of success. In that event, the expense and inconvenience suffered by Griffin in resisting such an application could be regarded as prejudice. However, if it could not be concluded that such an application would have no real prospect of success, the bringing of the application could not be regarded as a form of prejudice to Griffin, but rather is to be regarded as Perdaman's exercise of the opportunity provided by the provision of notice - namely, the opportunity to consider whether it wishes to restrain a transaction of which notice has been given and, if so, to put its case in that regard before the court.

The second form of prejudice identified by the primary judge was the prospect that, in the event that Perdaman moved for an injunction to restrain a particular transaction as a consequence of notice being given, Griffin might be obliged to disclose commercially sensitive material in the course of those proceedings: Perdaman [207]. However, it should be observed that any prejudice suffered by Griffin in this regard is now mitigated by Perdaman's proffered undertaking to the effect that it would use information provided in any notice given by Griffin pursuant to the interlocutory relief it sought only for the purpose of determining whether or not to bring an application for further injunctive relief and if so, for the purpose of prosecuting an application for such relief (WAB 32). It could also be expected that any prejudice to be suffered by Griffin with respect to the disclosure of confidential commercial information could be mitigated by confidentiality orders of the kind customarily made by the court when issues of this kind arise.
It follows that the prejudice which the primary judge identified might be suffered by Griffin in the event that the interlocutory relief sought was granted was of a very limited kind, and depended to a significant extent upon the conclusion that any application which Perdaman might make after being given notice of a proposed transaction would have no significant prospect of success. If that conclusion could not be drawn, then not only did part of the prejudice to Griffin disappear, but, plainly, the prejudice of possible disclosure of commercially sensitive material would be an insufficient basis to deny Perdaman the opportunity to bring an application to the court so as to prevent Griffin granting security which could render Perdaman's claims for substantial damages futile.
It follows that the process of reasoning adopted by the primary judge, by which he used his assessment of Perdaman's prospect of obtaining an injunction to restrain a transaction of which notice was given pursuant to the relief Perdaman presently sought, would only be appropriate if it could be concluded that Perdaman had no appreciable prospect of obtaining such relief in any conceivable circumstance. This is, effectively, what the primary judge concluded.
The primary judge arrived at this conclusion because of his view of the construction and effect of cl 2.3 of the Negative Pledge Deed, and his view of the circumstances in which Griffin might be obliged to grant security pursuant to its terms. Because that provision is critical to the outcome of the appeal, it is appropriate to set out its terms:
Each Obligor shall (and each Obligor shall ensure that each member of the Group will) grant equal ranking Security for the benefit of the Finance Parties as security for all amounts outstanding under the Finance Documents on substantially the same terms and in all respects in form and substance acceptable to the Agent (in its discretion) as any Security (Proposed Security) granted in connection with any Financial Indebtedness provided to or for the benefit of any Obligor or member of the Group (Proposed Financing) and be subject to an Intercreditor Agreement in form and substance acceptable to the Agent (in its discretion). For the avoidance of doubt, all such Security must rank equally in terms of priority and payment. (original emphasis) (GAB 6, 132)
Obviously in order to make sense of the clause it is necessary to identify the parties to whom it refers. The class 'Obligor' is not closed, and can be extended to include subsidiaries of Obligors by the operation of cl 12 of the Negative Pledge Deed, but it includes Griffin. The expression 'Group' is defined to include each Obligor and all their subsidiaries. The Finance Parties are essentially ICICI and the banks on whose behalf ICICI was acting for the purposes of providing the facility. ICICI is the 'Agent'.
The primary judge expressed his view of the clause in these terms:
The substance of this clause is that:
(a)it is contemplated that Griffin may raise further finance, from other parties, for which security would be expected to be required;
(b)in that event, each Obligor, including Griffin, is required to grant security to ICICI, to secure the Obligor's obligations under the Finance Agreement; and
(c)ICICI's security is to rank equally with the security granted for the further finance [113].
The primary judge applied this view of the construction and effect of cl 2.3 in the process of reasoning which was critical to the disposition of the application before him, and which is set out in the following portion of his reasons:
Clause 2.3 is engaged in circumstances when Griffin is raising new funds to develop and fund the mine, and the new financier requires security for the proposed loan. When cl 2.3 is engaged, the Negative Pledge Deed entitles ICICI to require Griffin to provide to it (and the Finance Parties) security ranking equally with the security proposed to be given to the new financiers. An injunction restraining execution of an ICICI Charge pursuant to cl 2.3 would require Griffin either to not provide security to the proposed new financier, or to breach its obligations to ICICI. Such a breach would be an event of default under the Facility Agreement, entitling ICICI and the Finance Parties to call up the loan. Griffin is a guarantor of the loan.
It can thus be confidently inferred that a grant of an injunction to restrain execution of an ICICI Charge under cl 2.3 would, at the least, be very likely to adversely affect, to a substantial degree, the prospect of Griffin obtaining funds from any new financier.
Such an injunction would prevent or substantially inhibit Griffin from conducting its business and undertaking necessary expansion and development.
To my mind, these considerations would overwhelm any matters mitigating in favour of making substantive freezing orders restraining execution under cl 2.3 of an ICICI Charge, including the consequential danger of a prospective judgment in favour of Perdaman being unsatisfied. I cannot see any reasonable or sufficient prospect of a substantive freezing order being made if Perdaman sought that order after notice was given pursuant to the injunction sought in this application.
The qualification mentioned earlier is the assumption that cl 2.3 is genuinely engaged, and not used in a colourable way. However, that qualification does not support the grant of the injunction presently sought. There is no basis in the evidence to anticipate that Griffin would use cl 2.3 in a colourable way, as a device to contrive a reason to give a charge to ICICI and the Finance Parties. Apart from anything else, there is no evidence that Griffin or the Lanco companies want or intend to give ICICI and the Finance Parties more than the security to which they are entitled.
For these reasons, I would not grant the injunction sought under O 52A [215 ]‑ [220].
Critical to this process of reasoning is the assertion that cl 2.3 is engaged in circumstances when Griffin is raising new funds to develop and fund the mine. Although the primary judge does not expressly assert that this is the only circumstance in which cl 2.3 is engaged, the process of reasoning he elucidated is only consistent with that view. That is because it depends upon the hypothesis that the court considering any application by Perdaman for an injunction would be confronted with Griffin's contention that the grant of such an injunction would prevent it obtaining funds to develop the mine, with the result that the balance of convenience would overwhelmingly favour the denial of relief.
That view of the reasoning process is reinforced by the primary judge's reference to cl 2.3 being 'genuinely engaged and not used in a colourable way'. In that context, the primary judge observed that:
[T]here is no evidence that Griffin or the Lanco companies want or intend to give ICICI and the Finance Parties more than the security to which they are entitled. [219]
However, this observation does not, with respect, take proper account of the full scope and potential effect of cl 2.13. ICICI and the Finance Parties are entitled, by cl 2.3 of the Negative Pledge Deed, to the grant of security from Griffin in respect of the entire amount of the finance facility ($US800 million) equivalent in substance and form to the security granted by any Obligor or its subsidiaries to secure any amount advanced, and for any purpose.
The conclusion of the primary judge to the effect that there was no reasonable prospect that Perdaman would succeed in obtaining an injunction to restrain the grant by Griffin of security in favour of ICICI in respect of the finance facility granted to fund the purchase of the shares in Griffin in large part assumes that the only circumstance in which Griffin's obligation to grant such a security would arise is the circumstance in which Griffin is seeking new funds to develop and fund the mine. That hypothesis is not justified, as Griffin's obligation to grant security to ICICI could arise in a myriad range of circumstances, including the undertaking of a secured borrowing by Griffin for any purpose. It cannot be concluded that in all of those myriad circumstances Perdaman would necessarily fail to obtain an injunction to restrain Griffin from granting such a security. For example, under the CSA, Griffin is obliged to grant a charge to secure $50 in respect of the assets described as the 'Featherweight Properties'. It is at least arguable that the grant of that security would trigger Griffin's obligation to grant a charge after all its assets to secure the entire amount of the financing facility provided through ICICI.
To take some other examples, if Griffin or one of its subsidiaries granted a charge in favour of a bank to secure an overdraft facility, or an advance to provide working capital, or to secure a hire purchase or other credit arrangement relating to the provision of a truck or an excavator, it is strongly arguable that Griffin's obligation under cl 2.3 of the Negative Pledge Deed to grant security over all its assets in respect of the ICICI financing facility would be triggered.
The effect of cl 2.3 is, at least arguably, that any borrowing by Griffin or any of its subsidiaries on a secured basis would result in the grant of a charge over the whole of its assets to the extent of $US800 million in favour of ICICI and the Finance Parties. Accordingly, the grant of security to secure even a relatively modest borrowing could effectively put the whole of its assets out of the reach of unsecured creditors. In these circumstances, a court at the 'second stage' could properly consider the extent of the proposed borrowing the subject of the proposed security and consider, objectively, the nature and extent of any prejudice to Griffin in not having access to the proposed borrowing the subject of the proposed security. That would be so even if the proposed secured borrowing could not be regarded as 'colourable'.
In any of these circumstances, it is quite possible that Perdaman could succeed in obtaining an injunction to restrain Griffin from granting a charge over all its property and assets to ICICI to secure up to $US800 million, given the effect which the grant of such a charge would have upon Perdaman's prospects of successfully recovering any damages it might be awarded in the proceedings which it has brought against Griffin. I put that prospect no higher than a possibility because, of course, the prospects of Perdaman obtaining such relief would depend critically upon all the circumstances of the transaction, which cannot now be predicted, and might also depend upon the extent of the knowledge of ICICI at the time of entry into the Negative Pledge Deed of the obligations undertaken by Griffin pursuant to the CSA: see, for example, Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548, 571 - 572.
For these reasons, the primary judge was wrong to conclude that the balance of convenience favoured the denial of the relief sought by Perdaman. Because his error was as to the proper construction and effect of cl 2.3 of the Negative Pledge Deed, and as to the circumstances in which that clause might oblige Griffin to grant security to ICICI, it is an

error of a kind which justifies this court's intervention, notwithstanding the discretionary nature of the judgment which he made: see House v The King [1936] HCA 40; (1936) 55 CLR 499. Viewed from Perdaman's perspective, the denial of the relief it sought denies it any practical opportunity of moving the court to restrain the grant of very substantial security by Griffin over all its assets, which might have the consequence that Perdaman's claims against Griffin become futile. Viewed from Griffin's perspective, the grant of the relief sought would cause very limited interference with its activities and operations, merely requiring it to give notice to Perdaman of any transaction falling within the terms of the relief sought, on the basis of an undertaking that the information provided in the notice would be used only by Perdaman for the purposes of possible further injunctive proceedings. Accordingly, the balance of convenience strongly favours the grant of the relief sought by Perdaman. Leave to appeal should be granted and the appeal should be allowed. Submissions should be invited from the parties as to the precise form of relief appropriately granted to give effect to these conclusions.

NEWNES JA: I agree with Martin CJ.
MURPHY JA: I agree with the Chief Justice.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: PERDAMAN CHEMICALS AND FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [No 3] [2011] WASCA 203 (S)

CORAM: MARTIN CJ
NEWNES JA
MURPHY JA

HEARD: 19 SEPTEMBER 2011 & ON THE PAPERS

DELIVERED : 29 SEPTEMBER 2011

SUPPLEMENTARY
DECISION :12 DECEMBER 2011

FILE NO/S: CACV 94 of 2011

BETWEEN: PERDAMAN CHEMICALS AND FERTILISERS PTY LTD
Appellant
AND
THE GRIFFIN COAL MINING COMPANY PTY LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :BEECH J
Citation  :PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188
File No  :CIV 1925 of 2011

Catchwords:

Costs and final orders - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 66 r 1

Result:

Appellant's application regarding final relief refused
Costs in the cause

Category: B

Representation:

Counsel:

Appellant: Mr A Myers QC & Mr M L Bennett
Respondent: Mr B W Walker SC & Mr B D Luscombe

Solicitors:

Appellant: Bennett & Co
Respondent: Clifford Chance

Case(s) referred to in judgment(s):

O'Keefe Nominees Pty Ltd v BP Australia [No 2] (1995) 55 FCR 591
Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188
Perdaman Chemicals and Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [No 3] [2011] WASCA 203

JUDGMENT OF THE COURT: On 29 September 2011 the court published reasons for its decision to allow an appeal from the decision of the primary judge refusing to grant an interlocutory injunction restraining the respondent, The Griffin Coal Mining Company Pty Ltd (Griffin), from entering into any charge, pledge or other security as may be required by its sole shareholder, Lanco Resources Australia Pty Ltd (Lanco Australia), or by ICICI Bank Ltd (ICICI), Singapore branch, without first giving ten prior business days notice in writing to the plaintiff, Perdaman Chemicals and Fertilisers Pty Ltd (Perdaman): Perdaman Chemicals and Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [No 3] [2011] WASCA 203.
At the time our reasons were published, there was contention between the parties as to the adequacy of an undertaking proffered by Griffin in lieu of the injunctive relief which had been sought, and in relation to the costs of the appeal. The parties agreed that those issues could be determined by the court on the papers, and a timetable was established for the exchange of written submissions dealing with those contentious issues. These are our reasons for concluding that the undertaking proffered by Griffin provides adequate protection to Perdaman, and that the costs of the appeal should be in the cause.

The adequacy of Griffin's undertaking

Upon publication of our reasons for upholding the appeal, Perdaman proffered written undertakings as to damages secured by the deposit of $100,000 to be held by its solicitors as security for the undertaking. Griffin proffered an undertaking that it would not enter into any charge, pledge or other security to secure obligations pursuant to the Negative Pledge Deed without first giving 10 prior business days' written notice to Perdaman, unless the security given arose in certain specified circumstances (which are not contentious).
Perdaman asserts that the undertaking proffered by Griffin in lieu of the injunctive relief sought by Perdaman is inadequate, essentially because it is limited to the grant of security pursuant to the Negative Pledge Deed. Perdaman submits that Griffin should be restrained from entering into any charge, pledge or other security to secure obligations under the Facility Agreement or the Negative Pledge Deed, unless Griffin proffers an undertaking to that effect.
The finance facility the subject of the Facility Agreement and which is secured in part by the Negative Pledge Deed is referred to briefly in our reasons at [34], and more fully in the reasons of the primary judge: Perdaman Chemicals & Fertilisers Pty Ltd v The Griffin Coal Mining Company Pty Ltd [2011] WASC 188 [40] ‑ [46]. Griffin is not a party to the Facility Agreement. Lanco Australia and its sole shareholder are. The primary judge addressed the question of whether there was any obligation on the Lanco parties to the Facility Agreement to procure the grant of security by Griffin beyond that which is required by the Negative Pledge Deed. In that context he noted that 'Perdaman did not submit that the Facility Agreement required any more in this respect than what was contained in and required by the Negative Pledge Deed': reasons [197].
The trial judge went on to consider a submission by Perdaman to the effect that cl 2.16 of the Negative Pledge Deed created an additional obligation upon Griffin to execute a charge in favour of ICICI over and above that provided by the operation of cl 2.3 of that deed. The primary judge rejected that submission: reasons [202]. Perdaman appealed against that conclusion, repeating its submission based upon cl 2.16 of the Negative Pledge Deed and relying also upon Griffin's conduct as giving reasonable grounds for the apprehension that security might be granted in circumstances outside those referred to in cl 2.3 of the Negative Pledge Deed. No part of that ground of appeal advanced the proposition that Griffin had somehow become a party to, or subject to the obligations imposed by the Facility Agreement. In the result, it was not necessary to deal with this ground of appeal in our reasons because of our conclusion that the primary judge erred in his assessment of the prospects of Perdaman obtaining injunctive relief to restrain Griffin from granting security pursuant to the obligations imposed by the Negative Pledge Deed, and therefore is his assessment of the balance of convenience.
Perdaman advances a number of propositions in support of its contention that Griffin's obligation to give 10 days notice of the grant of security should extend to and include reference to the grant of security in respect of obligations arising under the Facility Agreement. Stripped to their essentials, two basic propositions are advanced.
First, Perdaman points to Griffin's obligation under (cl 3 of the Negative Pledge Deed to guarantee the punctual performance by each 'FA obligor' (obligor under the Facility Agreement) of the obligations under the Finance Documents, which include the Facility Agreement. However, as this guarantee is an obligation arising under the Negative Pledge Deed, it falls within the scope of the undertaking which has been proffered by Griffin.

Second, Griffin asserts that upon execution of the Negative Pledge Deed, Griffin became an 'obligor' pursuant to the Facility Agreement, and subject to the obligations imposed by that agreement. However, this argument was not put to the primary judge, is not the subject of a ground of appeal and was not raised during the hearing of the appeal (although reference was made to the proposition in written submissions filed by Perdaman after the hearing, in response to a different point). The proposition should not now be entertained, even assuming that Perdaman could somehow establish the dubious proposition that subsequent execution of the Negative Pledge Deed made Griffin a party to the Facility Agreement, and bound by its obligations.
In our view the undertaking proffered by Griffin is sufficient to provide Perdaman with adequate protection against the risk created by the obligations imposed upon Griffin under the Negative Pledge Deed, which was the basis upon which Perdaman sought interlocutory relief before the primary judge and on appeal.

The costs of the appeal

It is the usual practice to order that the costs of an application for an interlocutory injunction be costs in the cause - that is to say, borne by the ultimate loser of the substantive proceedings (O'Keefe Nominees Pty Ltd v BP Australia [No 2] (1995) 55 FCR 591). That is because the determination of the application does not involve the determination of substantive rights or obligations, but only the assessment of whether there is an arguable case for the relief sought, and where the balance of convenience lies. An application brought reasonably for the preservation of the status quo pending the final determination of the proceedings can usually be regarded as an incidental cost of those proceedings, properly borne by the ultimate loser. However, different considerations apply if the application is brought or opposed unreasonably, or in a manner which unreasonably inflates the costs of the application to the parties. This is not such a case.
Pursuant to this practice the primary judge ordered the costs of Perdaman's unsuccessful application to be in the cause. Neither party seeks to disturb that order. However, Perdaman seeks an order for its costs of the appeal, pursuant to the general principle that a successful party will generally recover its costs: see O 66 r 1, Rules of the Supreme Court 1971 (WA). Perdaman submits that the appeal should be seen as separate and distinct from its application for interlocutory relief made to the primary judge.
In our view Perdaman's appeal from the decision of the primary judge to refuse the interlocutory relief which it sought should be regarded as a component of that application for interlocutory relief. The appeal succeeded because we took a different view of the balance of convenience to that taken by the primary judge. The appeal was not caused or prolonged by any unreasonable conduct on the part of Griffin. The appeal did not determine the substantive rights and obligations of the parties, but merely addressed the arguability of the causes of action advanced by Perdaman, and where the balance of convenience lay. It remains to be seen whether Perdaman can establish the causes of action which it asserts. If it fails to establish those causes of action, it will follow that Griffin's freedom of action has been improperly restrained by the undertaking which it has proffered, and Perdaman may be liable on its undertaking as to damages. In these circumstances the proper order is that the costs of the appeal be in the cause.
Perdaman also submits that the costs of the appeal should be taxed without regard to the limit imposed by the relevant scale. It is not clear from the written submissions whether Perdaman seeks such an order irrespective of whether or not its application for costs is successful. But in any event, Perdaman's submission is unsupported by any information or material which would enable the court to assess whether the allowances provided in the scale are inadequate and the submission should therefore be rejected in any event.

Conclusion

For these reasons we consider that the undertaking proffered by Griffin is adequate, and in light of that undertaking, it is not appropriate to grant any interlocutory relief. We will order that the costs of the appeal be in the cause.