Phoenix Vision Coal v Southern Cross Exploration; Phoenix Vision v Southern Cross Exploration Nl
[2012] NSWSC 461
•10 April 2012
Supreme Court
New South Wales
Medium Neutral Citation: Phoenix Vision Coal v Southern Cross Exploration; Phoenix Vision v Southern Cross Exploration NL [2012] NSWSC 461 Hearing dates: 10/04/2012 Decision date: 10 April 2012 Jurisdiction: Equity Division Before: McDougall J Decision: Plaintiff succeeds; cross claim dismissed; defendant to pay plaintiffs costs
Catchwords: EQUITY - interest - priorities - whether cross-defendant had any equitable interest capable of recognition - whether cross- defendant's equitable interest (if any) should be postponed to the equitable interest of the cross-claimant - whether cross-claimant had any equitable interest because of "nemo dat" principle.
COSTS - whether costs should be assessed on the indemnity basis.Legislation Cited: Mining Act 1992 (NSW)
Real Property Act 1900 (NSW)Cases Cited: Heid Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326
J and H Just (Holdings) Pty Ltd v The Bank of New South Wales (1971) 125 CLR 546
Lapin v Abigail (1930) 44 CLR 166
Latec Investments Pty Ltd v Hotel Terrigal Pty Ltd (in Liq) (1965) 113 CLR 265Category: Procedural and other rulings Parties: 2011/403317
Phoenix Vision Coal Pty Ltd (ACN 143 652 859) (Plaintiff)
Southern Cross Exploration (ACN 000 716 012) (Defendant)
2011/402391
Phoenix Vision Coal Pty Ltd (ACN 143 652 859) (Plaintiff)
Southern Cross Exploration NL (ACN 000 716 012) (Defendant)Representation: Counsel:
N Obrart (Plaintiff)
J Bagnall (Solicitor) (Defendant)
Solicitors:
Keith & Hurst & Associates (Plaintiff)
John Bagnall (Defendant)
File Number(s): 2011/403317 and 2011/402391
Judgment - ex tempore (revised 11 april 2012)
HIS HONOUR: The cross-claimant (Southern Cross) and the cross-defendant (Phoenix Vision) each claim an equitable interest in an authority, EL 7115 (the authority), issued pursuant to the Mining Act 1992 (NSW). The essential question for decision is which of those interests should prevail.
Factual background
Prior to recent administrative events, of which it will be necessary to say more later in these reasons, the "holder" of the authority was, or were, Mr Forner and Mr Gordon. It is the case for Phoenix Vision that in early May 2010, its then two directors, Messrs Armstrong and Grego, had a conversation with Mr Forner concerning the authority. Mr Forner offered them two thirds of the exploration licence for a stipulated consideration. Mr Grego replied by proposing that the licence should be transferred to a company to be incorporated; that he and Mr Armstrong should hold two thirds of the shares in that company; and Messrs Forner and Gordon between them should hold the remaining one third of the shares. According to Mr Grego, Mr Forner agreed to that, and they then produced a document to record that particular agreement.
That document is brief, but regrettably obscure. It is said to have been made on 3 May 2010 between Mr Forner on the one hand and Newco Pty Limited and/or Messrs Armstrong and Grego on the other. Its operative parts read as follows:
1.For the consideration of $50,000 Newco Pty Limited will acquire two
thirds of the exploration licence (EL7115).
2.Newco Pty Limited shall pay a weekly fee of $2000 payable four
weekly in advance.
The document is signed by Mr Forner and, against the words "Newco Pty Limited", by Messrs Armstrong and Grego.
At the foot of the document Mr Forner acknowledged receipt of the sum of $58,000. By inference, that was the consideration of $50,000 stated (and discussed) and the first four weeks' fees in advance.
Phoenix Vision was incorporated on 13 May 2010. Thereafter, on 24 May 2010, it issued 20 fully paid ordinary shares to Mr Gordon and 20 fully paid ordinary shares to application company known as Carlzo Pty Limited. It is common ground, I think, and in any event I find, that Carlzo Pty Limited is a company associated with Mr Forner. On the same date, Phoenix Vision issued 80 fully paid ordinary shares to a company with a similar name associated with, and presumably controlled by, Messrs Armstrong and Grego.
The transfer of the authority
The parties took steps to arrange for the transfer of authority from Messrs Forner and Gordon to Phoenix Vision. A Mr Robert Harrison, through the company Mining Title Services Pty Limited, was retained to do that. There is in evidence a formal letter of appointment of him as agent, by Phoenix Vision, and another formal letter of appointment of him as agent, purportedly on behalf of Messrs Forner and Gordon. The latter document is signed only by Mr Forner, but he purported to do so as agent for Mr Gordon as well as in his own right.
It seems that the relevant Government Department, which is now known as the Department of Trade and Investment (the Department), had some query as to the transaction. Documents from the Department records suggest that there were some concerns in relation to the transfer. However, on 4 February 2011, officers of the Department reported that everything appeared to be in order and, on 9 June 2011, that there was no objection to the transfer.
Thereafter, Phoenix Vision was notified of the Minister's approval of the transfer, and the process contemplated by the Mining Act moved forward until it was rudely interrupted by the development to which I will now refer.
Southern Cross becomes involved
In August and September 2011, Southern Cross negotiated with, in particular, Mr Forner in relation to the authority. Southern Cross wished to "farm in" to the authority: that is to say, to acquire what would become ultimately a 65 per cent interest in the authority by performance of certain conditions as to payment and the like. Those discussions were formalised in a written agreement made on 21 October 2011, signed by each of Messrs Forner and Gordon and signed likewise, on behalf of Southern Cross.
The agreement recited that Messrs Forner and Gordon held, or were entitled to hold, 100 per cent of the authority, and that they were the lawful holders of that authority and authorised to deal with it. It made no reference to their prior dealings with Phoenix Vision or Messrs and Armstrong and Grego.
The caveat
On 24 October 2011, Southern Cross caused a caveat to be lodged, pursuant to s 124 of the Mining Act. By virtue of s 124(2), that caveat would remain in force for three months unless earlier withdrawn. Whilst in force, it prevented the registration of a transfer of an authority except pursuant to an order of this Court, (s 124(3)). Once the caveat lapsed, the transfer (in this case) to which it related must be registered unless this Court orders otherwise (s 124(4)).
The knowledge that Southern Cross had
Southern Cross claims that it entered into the agreement of 21 October 2011 without any notice of the apparent prior interest (if such it be) of Phoenix Vision. Mr Ganke, a director of Southern Cross, swore that one of his then colleagues "carried out an on-line investigation" of the authority and obtained certain information. That information included copies of something known as a TAS Map. Nothing on the screen print apparently made by Mr Adamson of his on line investigation made any reference to the transfer from Messrs Forner and Gordon to Phoenix Vision, which was then lodged and under consideration.
It does not appear that Southern Cross undertook any other search. Certainly, it did not cause any formal search to be made. The undisputed evidence was that anyone who wished to do so could, on payment of $150, obtain a title dealing inquiry or details of licence search from the Department, within seven days. There is such a search in existence, dated 18 October 2011. It discloses quite clearly that there is a "Transfer (Pending Approval)". It was common ground that this was a reference to the transfer that was then held by the Department, from Messrs Forner and Gordon to Phoenix Vision.
I add that a search, or more accurately title dealing inquiry, put into evidence by Southern Cross, dated 24 October 2011, showed not only the lodging of its caveat but also that there was a "Pending Transfer". It was again common ground that this was the transfer from Messrs Forner and Gordon to Phoenix Vision.
Further, the submissions for Southern Cross referred to matters in the evidence which suggested that, if a request for transfer had been "entered into TAS Map", it would "then become a matter of public record." That is rather interesting, because there is no doubt that the request for transfer from Messrs Forner and Gordon to Phoenix Vision had been lodged for registration. If it had been entered into TAS, it should have shown up in the on-line inquiry apparently made by Mr Adamson.
There is no explanation as to this apparent discrepancy. Mr Adamson was not called, although he was available to give evidence if required.
Further, Mr Ganke agreed that it would have been prudent, in considering whether to acquire an interest in the authority, to obtain a copy of the last annual report lodged by, or on behalf of, Messrs Forner and Gordon as a condition of the authority. Had Southern Cross done so, it would have discovered, from the form of annual report last lodged, that among other things the ownership of the authority was "changed and transferred to Phoenix Vision on 17/06". Mr Ganke gave no satisfactory reason as why such an obviously prudent step had not been taken in this case.
Before I leave the questions of knowledge, actual or imputed, on the part of Southern Cross, I should note that Mr Ganke put into evidence a bundle of documents that, he said, he had obtained from Mr Grego. That bundle of documents included the search as at 18 October 2011, showing among other things, the "Transfer (Pending Approval)" to which I have referred. It included (also according to Mr Ganke) a copy of the title dealing inquiry dated 24 October 2011 to which I have referred. That title dealing inquiry, on any view, was a document obtained by Southern Cross.
Mr Grego replied to this aspect (among others) of Mr Ganke's evidence. He says that his recollection was that when he met Mr Ganke, he gave him yet another search (made on 17 June 2010), and that in return Mr Ganke gave him the search of 18 October 2011. That, Mr Grego says, was his recollection of how the latter document came into his possession.
Mr Ganke was challenged on his evidence that he got the certificate from Mr Grego. Mr Grego was not challenged on his evidence that in fact he got it from Mr Ganke. In the circumstances, if it matters, I prefer, and accept, the evidence of Mr Grego on this point.
Performance of the agreement of 21 October
There is no doubt that Southern Cross has performed, or purported to perform, the agreement of 21 October 2011. Shares have been transferred to Messrs Forner and Gordon (or associated companies). Since these proceedings commenced, the position in respect of those shares has been protected by an escrow agreement. It is not necessary to go to the terms of that agreement.
Procedural history; the current position
This matter came before the Court during the vacation. Presumably, the proceedings were initiated because Phoenix Vision sought an order (pursuant to s 124(4) of the Mining Act) that the transfer to it be registered. In the event, an interlocutory regime was agreed upon, whereby, among other things, the Court ordered that the Director General of the Department be restrained until further order from registering the transfer in question.
That order was necessary because the transfer would lapse three months after it had been lodged, pursuant to s 124(3). There is no provision in the Mining Act, equivalent to s 74K of the Real Property Act 1900 (NSW) for extensions of caveats. Thus, the caveat would lapse, by force of s 124(3), after 24 January 2012.
The matter came back before the Court, on 31 January 2012. The parties acknowledged that if something were not done to permit registration of the transfer, it would not be possible for anyone to undertake necessary work to ensure preservation of the benefits of the authority. The authority was for two years, expiring on 26 March 2012. Apparently, certain work needed to be done to facilitate renewal. That could not be done whilst the status of the transfer was held in limbo.
Accordingly, on 31 January 2012, the Court dissolved the injunction to which I have referred, "with the intent that the Director General be permitted forthwith to register" the transfer to Phoenix Vision. There was a rider, which in my view was probably unnecessary, that the caveat should "no longer have effect to prevent such registration". That order was made on the basis of the following undertaking given by Phoenix Vision:
If the defendant is successful in the final proceedings or would have been successful but for order 1 above the Plaintiff undertakes to do all things necessary to put the defendant in the position it would have been in if order 1 herein had not been made, including (but not limited to):
(i)assigning to the defendant any interest the Plaintiff acquired in EL 7115 that it would not have acquired but for order 1 herein; or
(ii)paying the defendant reasonable compensation for any loss that the defendant suffers which it would not have suffered if order 1 had not been made today.
It is clear that the effect of the undertaking either was, or included, that the question of priorities was to be resolved by reference to considerations applicable prior to registration, and that the fact of registration (and, hence, of confirmation of the legal interest in Phoenix Vision) should not impinge on that deliberation.
The only matter now remaining for that decision is the cross-claim brought by Southern Cross against Phoenix Vision. That cross-claim makes some thirty-two prayers for relief. Many of those are incompetent, in that they require things to be done by, or clearly have an impact on the rights and obligations of, people who are not parties to the proceedings. In the circumstances, I propose to focus on the essential debate between Southern Cross as cross-claim and Phoenix Vision as cross-defendant.
The real issue
As I have indicated, the ultimate question between those parties is: Who has the better equity?
The competing submissions
Mr Bagnall, who appeared for Southern Cross, submitted that his client had the better equity. There were essentially three bases for that submission. The first was that Phoenix Vision either had no interest, or no interest capable of recognition, by reference to relevant provisions of the Mining Act. The second was that any interest that Phoenix Vision did have was defective because of certain formal problems said to afflict the applications for approval and transfer. The third was that any equitable interest that Phoenix Vision did have should be postponed to the equitable interest of Southern Cross.
Ms Obrart of counsel, who appeared for Phoenix Vision, submitted that her client did have an equitable interest and that Southern Cross did not. Southern Cross did not, she submitted, because of the "nemo dat" principle. Alternatively, Ms Obrart submitted, if there were competing interests then it was a question of competition between equitable interests, and her client's, being first in time, should prevail. She submitted that there was no postponing conduct and in any event that Southern Cross had failed to protect its position.
Does Phoenix Vision have an equitable interest?
I start with the question of whether, leaving aside registration and its consequences (as I should do, by reason of the undertaking), Phoenix Vision has demonstrated that it has an enforceable or cognisable interest.
Section 160(1) of the Mining Act requires that any interest in an authority be created by writing:
160 Interest in authority to be created by instrument in writing
(1) A legal or equitable interest in an authority may not be created or disposed of except by instrument in writing.
Mr Bagnall submitted that there was no such instrument in writing. First, he submitted, the document of 3 May 2010, was not in terms an agreement made between Messrs Forner and Armstrong and Phoenix Vision. He submitted that it was at best an agreement between Mr Forner and a company to be incorporated.
Secondly, Mr Bagnall submitted, the agreement in writing did not reflect what Mr Grego had said was the relevant conversation.
Thirdly, Mr Bagnall submitted, if some agreement could be spelled of the piece of paper on which Phoenix Vision relied, there was no consideration for any promise to transfer the licence.
It is I think reasonably well settled that an agreement may be made with a company to come into existence if it is possible to see that there are contracting parties who will hold the benefit of the contract on trust for that entity. In the present case, it was clearly contemplated that there would be a company incorporated, and that it would become the holder of the interest or of a part of the interest. Messrs Armstrong and Grego were nominated in effect as representatives of that company, and they signed on behalf of it.
Further, when that company was incorporated, it performed (and thereby adopted or ratified) the agreement on its part, by issuing the shares for which the agreement called.
As I have said, the written document is not without difficulty. It might have been helpful if the parties had given a little more consideration to converting what Mr Grego said were the discussions into writing. It might have been helpful, too, if Mr Forner had indicated that he was agreeing both on his own behalf and as agent or representative of Mr Gordon. That latter point is to an extent overcome because it is apparent that Mr Gordon has received the promised issue of shares, and does not appear to have complained.
There is also a discrepancy between the written agreement and the antecedent oral agreement. The former (written) refers to the acquisition of two-thirds of the authority, whereas the latter (oral) ultimately contemplated the transfer of the whole of the authority. The agreement that was actually performed was in substance, the oral agreement. I say that because the parties set about transferring the whole of the authority to "Newco", not just two-thirds; and "Newco" issued share holdings so that the underlying beneficial interests should reflect the two-thirds/one-third division that had been agreed orally.
Nonetheless, I think, it is appropriate to regard the written document of 3 May 2010, in conjunction with what can clearly be seen as ratification of it by Phoenix Vision, Mr Forner and Mr Gordon (through the issue and acceptance of shares) as constituting a sufficient record of the agreement. To the extent that it matters, what is thus recorded is apparently consistent with the application that the parties made, through Mr Harrison, for approval and registration of the transfer. It is to be noted that the authority given by Messrs Forner and (purportedly) Gordon to Mr Harrison were dated 20 May 2010: between the apparent making of the agreement and the undoubted issue of shares.
In those circumstances, I conclude, there is sufficient evidence of a written agreement to satisfy the requirements of s 160.
The parties did not address in detail on the consequences of any non-compliance with s 160, and thus it is not necessary for me to deal with that question.
Mr Bagnall submitted further, as I have noted, that there was a problem with consideration. That submission appeared to contemplate that it was necessary that consideration should flow to the promisors: in this case Messrs Forner and Gordon. I do not agree. The relevant proposition is that for a simple agreement not under seal, consideration for a promise must flow from the promisee. It need not flow to the promisors. It may flow to one, or indeed neither, of them. What is required, in exchange for the promise of the promisors, is some countervailing act or promise on the part of the promisee - some act of real rather than nominal detriment, for example - which in law is regarded as supporting the promise of the promisors.
There is no doubt, in this case, that if Phoenix Vision were, or became, a party to the agreement of 3 May 2010, it gave consideration by issuing shares and accepting liability for the payment that were made, and that will fall to be made in the future.
As to the relevant formalities: Mr Bagnall submitted that the documents submitted with the Department were defective in various ways. That may be so; but it seems to me that the real judge of that is the Department. Since the Minister ultimately decided to give his approval to the transfer and since the Department decided ultimately to register it, that seems to me to overcome whatever problem there may have been. In any event, such problems as there may have been relate to the implementation of the agreement, and could not strike down any equitable interest created by the agreement.
I shall deal with the third question - postponement - a little later on.
I turn to the submissions for the Phoenix Vision. I think that reliance on the "nemo dat" principle was misplaced. At the relevant time (21 October 2011) Messrs Forner and Gordon remained the legal holders of the authority, because they were still registered as such. They were thus in a position, on the face of the register, to deal with that legal entitlement. If they did so, they would create an equitable interest in it. If they had created an earlier equitable interest in it, then there would be (as here) a competition between the equitable interests so created. It would be a different matter if, as at 21 October 2011, the agreement of 3 May 2010, as ratified, had been "completed" by registration of the transfer.
Priorities and postponement
In relation to priorities, the general principle, as was common ground, is that where the equities are equal, the first in time prevails. As Gibbs CJ said in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 at 333, where there are competing equitable interests, the task of the Court "is to determine where the better equity lies".
His Honour was quoting from the judgment of Kitto J, in Latec Investments Pty Ltd v Hotel Terrigal Pty Ltd(in Liq) (1965) 113 CLR 265 at 276. It is clear that his Honour thought that the proposition was there correctly stated. The quotation continued as follows:
"If the merits are equal, priority in time of creation is considered to give the better equity...but where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest."
Dixon J expressed similar views in Lapin v Abigail (1930) 44 CLR 166 at 204. His Honour there, in a passage quoted with approval by Barwick CJ (with whom McTiernan and Owen JJ agreed) in J and H Just (Holdings) Pty Ltd v The Bank of New South Wales (1971) 125 CLR 546 at 555, noted that there must be something tangible and direct which "can have the grave and strong effect" of taking away the priority of an earlier equity. Dixon J said:
The act or default of the prior equitable owner must be such as to make it inequitable between him and the subsequent equitable owner that he should retain his initial priority. This in effect means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity.
After setting those words out, Barwick CJ observed:
In my opinion the failure to lodge a protective caveat cannot properly be said necessarily to be such an actual default.
In the present case, if I accept that the search of 18 October 2011 was given by Mr Ganke to Mr Grego (and for the reasons stated, I do so) it provides a positive ground for finding that Southern Cross was aware that there was a pending transfer when it dealt with Messrs Forner and Gordon. In those circumstances, if Southern Cross failed to make the necessary inquiries, it took the risk that the pending transfer was one which might have made it impossible as a matter of law, for Messrs Forner and Gordon to agree as they did in the document of 21 October 2011.
But even if I were not to come to that view, I would still conclude that there is no relevant postponing conduct on the part of Phoenix Vision. Certainly, it did not lodge a caveat. But it had done something rather stronger than that. It had, through Mr Harrison, lodged for approval and registration a transfer of the authority to it. Once that was lodged, the fact that it was pending was noted on the public record. As the searches in evidence show, any search of the public record would have revealed the existence of such a pending transfer. On the alternative hypothesis, Southern Cross failed to carry out such a search. Such inquiries as it made through Mr Adamson did not amount to the making of a search, despite the conflation of the two in the submissions put for Southern Cross. Nor did Southern Cross take the prudent step of asking for the latest annual report (which would have told of the position precisely) nor explain why it did not do so.
In my view, because Phoenix Vision had acted promptly to lodge the transfer to it for approval and registration, it had acted promptly to protect the interest that it claimed. In my view, the failure to caveat (assuming there had been a "failure" as opposed, simply, to a decision not to do so) had no causal effect. The search of the register that could and should have been carried out would have revealed the pending transfer. Registration of lodgement of caveat would do no more than achieve the equivalent effect.
In my view, the conduct of Southern Cross, in failing to carry out obvious and prudent searches was the real cause of any ignorance that it may have had (and I repeat that I am not making a finding that it was in fact ignorant of the claim of Phoenix Vision) in any irrelevant way.
It follows that there is no postponing conduct, and nothing to upset the general rule of equitable priority.
Conclusion and orders
For those reasons, I conclude that the claim made by the Southern Cross in its cross-claim fails and that the cross-claim should be dismissed with costs. It follows, further, that if necessary the cross-defendant Phoenix Vision should be released from the undertaking given by it to the Court on 31 January 2012.
Costs
Phoenix Vision seeks an order that the costs that I have ordered to be payable should be assessed on the indemnity basis. I do not propose to make such an order. The submissions that were put reiterated, in one way or another, that the case for Southern Cross on the priorities question was hopeless. Whether or not that is so, that was only one part of the dispute. As was clear during the course of the hearing, the fundamental question on which Southern Cross relied was that Phoenix Vision had no interest at all, because there was no agreement, let alone an agreement in writing for the purposes of s 160 of the Mining Act. In my view that was not a trivial or a hopeless submission. On the contrary, it was a serious submission which required detailed consideration. That is enough to dispose of the application, and it is not necessary to turn to the argumentative correspondence on which reliance was also placed in support of the application for indemnity costs.
I will however, in addition to the orders that I have made so far, reserve liberty to the plaintiff to apply on seven days notice if so advised, in respect of the defendant's undertaking as to damages.
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Decision last updated: 21 May 2012
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