Queensland Coal Pty Ltd v Arco Resources Ltd & Ors

IN THE SUPREME COURT

OF QUEENSLAND No. 7486 of 1997

Brisbane

[Queensland Coal Pty Ltd v Arco Resources Ltd & Ors]

BETWEEN:
  QUEENSLAND COAL PTY LTD
  Plaintiff

AND:
ARCO RESOURCES LIMITED
First Defendant

AND:
ARCO COAL AUSTRALIA INC
Second Defendant

AND:
ATLANTIC RICHFIELD COMPANY INC
Third Defendant

AND:
J.P MORGAN SECURITIES INC
Fourth Defendant

AND:
GOLDMAN SACHS & CO (a firm)
Fifth Defendant

CATCHWORDS: CONTRACT - Trial of separate issues as to whether confidentiality agreement breached specific circumstances.
PRACTICE - Jurisdiction - Service of notices in lieu of writs in U.S.A - Supreme Court Rules O.11 r.1(2)

Counsel: H. Fraser Q.C. with P. Collinson for the plaintiff.

D. Jackson Q.C. with T. Sullivan for the first, second and third defendants.
P. Keane Q.C. with P Freeburn for the fourth and fifth defendants.

Solicitors: Allen Allen Hemsley for the plaintiff.

Corrs Chambers Westgarth for the first, second and third defendants.
Minter Ellison for the fourth and fifth defendants.

Hearing date: 24 October 1997

23 March 1998

REASONS FOR JUDGMENT - MOYNIHAN J.

Judgment delivered 20 October, 1998

These reasons dispose of two matters. The first is a trial between the plaintiff and the first and second defendants pursuant to Order 39 Rule 12 of separate issues arising out of confidentiality clauses in joint venture agreements. Secondly there are applications by the third, and by the fourth and fifth defendants to set aside service on them in the United States of notices in lieu of the writ in the action.
The plaintiff's action is brought to enforce confidentiality provisions in two separate joint venture agreements bearing on the development and operation of coal mines in the central Queensland coalfields. The agreements are conveniently referred to as the Blair Athol agreement and the Clermont agreement. The plaintiff, the first and second defendants and others are parties to the Blair Athol agreement while the plaintiff, the first defendant (but not the second defendant) and others are parties to the Clermont agreement. Since it is accepted that for the purposes of the matters with which I am dealing that there is no difference of substance between the relevant provisions of the agreements or the circumstances in which they are to be considered it is convenient to confine consideration to the terms of the Blair Athol agreement, indeed the proceedings were conducted on that basis.
The first defendant is a company incorporated in Queensland and is a wholly owned subsidiary of the second. The second defendant is a company incorporated in the United States and at all material times was registered as a foreign corporation pursuant to the Corporations Law. It is a wholly owned subsidiary of the third defendant which is a company incorporated in the United States but is not registered or otherwise have a presence in Australia. The fourth defendant is a company incorporated in and carrying on business in the United States and the fifth defendant is a firm carrying on business in that country. Neither the fourth nor fifth defendant has any relevant presence in Australia. None of the third, fourth or fifth defendants are parties to either joint venture agreement.
The third defendant has announced its intention to dispose of its world-wide coal interests including the first and second defendants' interests in the Blair Athol and Clermont agreements. The fourth and fifth defendants are financial advisers retained by the third defendant in respect of its doing so. The options for achieving the third defendant's purpose include a public floatation of shares in the United States or Australia.
Each of the joint venture agreements contains a confidentiality clause and the plaintiff brings this action to enforce those clauses founded on actual or apprehended breach of the confidentiality provisions in the event of a float, and on equitable obligations of confidence extending to the third, fourth and fifth defendants consequent on the first and second defendants providing them with information caught by the confidentiality provisions. The issue of inducing a breach of the joint venture agreements is also raised in the material.
The issues for determination pursuant to Order 39 Rule 12 are:-
1.Whether any disclosure in a registration statement by a venturer or related corporation of information required in a registration statement made or filed pursuant to the Securities Act 1933 (United States) in connection with an offer or allotment of shares would be a disclosure required pursuant to necessarily applicable legislation within the meaning of clause 18.1(b) of the Blair Athol joint venture agreement.
2.Whether any disclosure in a prospectus by a venturer or related corporation of information required in a prospectus in Australia would be a disclosure required pursuant to necessarily applicable legislation (being the Corporations Law) or pursuant to the rules of a recognised stock exchange (being the ASX listing rules) in connection with an offer of allotment of shares within the meaning of clause 18.1(b) of the Blair Athol agreement.

The more relevant provisions of the Blair Athol Agreement and its effect are as follows.

"Information means information required to be kept confidential pursuant to clause 18.1 of the Agreement".

"Interest means the rights and obligations of a Venturer under this Agreement and the Management Agreement and all its interest and share from time to time, as a tenant in common, in the Venture Assets" .

"The Venture Assets means the Mining Titles, the Project Facilities and all other property of whatever kind now held or hereafter created or acquired by or on behalf of the Venturers for the purposes of the Project including coal produced but does not include coal delivered to any Venturer."

"Venturer's BAC Shareholding means the shares in the capital of BAC held from time to time by a Venturer".

BAC is Blair Athol Coal Pty. Ltd. a company incorporated in Queensland. A "Venturer's Percentage Interest" effectively means its rights and obligations under the Joint Venture and the associated Management Agreement together with its interests as a tenant in common in the Venture Assets which are defined to include mining titles and project facilities; see clauses 1 and 3 of the agreement in particular. It remains to mention that a "Venturer's Shareholding" is commensurate with its proportional interest in the venture.

Clause 12 of the Blair Athol agreement is to the effect that no Venturer can sell, assign, transfer, et cetera its interest in the Agreement or its Venturer's Share Holding save to a third party from which it has obtained "a bona fide offer to purchase". Before selling however the venturer must first offer its Interests and Shareholding to the continuing Venturers in accordance with specified procedures the details of which it is unnecessary to canvass for present purposes. Clause 12 goes on to provide that no venturer may assign the whole or any part of its interest without concurrently assigning to the same assignee the same proportion of the venturer's BAC shareholding. No Venturer may assign any of its shareholding other than concurrently with and to the same assignee as it assigns its interest to and then in the same proportion as its shareholding which is being assigned.
Clause 12 also provides as to the terms on which a Venturer may sell to a related corporation: the related corporation must covenant to be bound by the Joint Venture and associated agreements. It must also agree to reassign its Interest and BAC Shareholding to the Venturer if it ceases to be a related corporation.
The linking of "Interest" and "Shareholding" and the provision for a pre-emptive right in remaining Venturers are governing concepts of the Joint Venture Agreement which does not provide for the sale of shares or securities in a Venturer other than is outlined earlier. The issues for determination in respect of the confidentiality provisions take their place in the context of the scheme just outlined.
Although the statement of issues for determination specifies clause 18.1(b) it is useful to set out the confidentiality provision in full.
18.1Unless otherwise agreed by the Venturers, all information obtained in relation to the Venture shall be kept confidential and shall not be disclosed by the Venturers otherwise than to each other or:
(a)to their, or their respective Related Corporations' directors, officers, employees and auditors;
(b)if and to the extent required pursuant to any necessarily applicable legislation or other legal requirement or pursuant to the rules or regulations of a recognised stock exchange applicable to the Venturer so disclosing or to a Related Corporation of that Venturer;
(c)if and to the extent that it may in the opinion of the disclosing Venturer be necessary or desirable to disclose to any government or competent authority in connection with applications for approvals authorities and consents in relation hereto;

(d)to a recognised financial institution in connection with any finance arranged or sought to be arranged for purposes directly related to the Project;
(e)to bona fide potential purchasers, transferees or assignees of a Venturer's Percentage Interest or part thereof;
(f)to independent consultants and contractors of any Venturer whose duties in relation to the Venture reasonably require such disclosure;
(g)to the extent that the Venturer who is about to disclose it obtains such information independent of the Venture;
(h)to the extent that at the time of the proposed disclosure it is information in the public domain;

provided however that:

(i)any disclosure pursuant to Clauses 18.1(e) or 18.1(f) shall only be made subject to the person to whom disclosure is made covenanting and agreeing with the other Venturers in a form to their reasonable satisfaction and enforceable by any of them that the relevant information shall not be disclosed to any other person whomsoever for any purposes whatsoever (but this proviso shall not apply to any bona fide disclosure by a Venturer to its independent legal advisers in relation to matters relative to this Agreement); and
(ii)in the case of a disclosure pursuant to Clause 18.1(a) the disclosing Venturer shall ensure that the relevant Related Corporation does not do or omit to do anything which, if it were a Party, would constitute a breach of this Clause 18.1; and
(iii)any disclosure pursuant to Clause 18.1(d) or 18.1(e) shall only be made for the purposes of satisfying such institution or potential purchaser, transferee or assignee as to the value and commercial viability of the Venture and the Project.

The clause reflects the provisions of the joint venture agreement, the salient features of which were adverted to earlier. As a general comment the clause is restrictive of disclosure and prescriptive as to the exceptions. Put shortly then, clause 18 exerts control over disclosure which reflects the terms of the agreement. For example it does not permit disclosure in respect of a share sale. Clause 18.1(e) only permits it to "bona fide potential purchases (et cetera) of a Venturers Percentage Interest or part thereof". Clause 18.1 (e) is noteworthy, in that it is referable to the clause 12 pre-emption mechanisms which make no provision for the sale of shares.
A public flotation of shares in the United States would attract the application of the Securities Act 1933 (United States) and associated rules and regulations. The floatation would be effected by the third defendant forming a United States subsidiary to hold its coal assets. It would then transfer the stock of each of its coal mining subsidiaries to the new corporation, including the shares by which control of the first and second defendants is affected. A statement would then be filed with the United States Securities and Exchange Commission for registration. Unless a registration statement is filed and registered, it is unlawful to use interstate communications and commerce for the purpose of making the offer.
It was accepted that for present purposes a registration statement would involve the disclosure of information caught by clause 18 unless the exception provided for by clause 18.1(b) applied. It will be recalled that sub-clause permits disclosure to the extent required by any "necessarily applicable..legislation or other legal requirement or pursuant to the rules or regulations of a recognised stock exchange...".
To my mind "necessarily" connotes unavoidability or indispensability of the application of legislation on other legal requirements. Clause 18.1(b) is absolute in that it does not qualify or juxtapose necessity by linking it with other considerations; for example expedience or convenience so as to provide a "margin of discretion" (c.f. Secretary of State for Defence v. Guardian Newspapers)[1]. Clause 18.1(b) may thus be contrasted with sub-clause 1(c) which uses a test of "necessary or desirable". The use of "desirable" introduces a subjective consideration, an element of flexibility, which is absent, when necessity alone is the test. The test of stark necessity is a strict one reinforced by the limitation "if and to the extent required" in clause 18.1(b); see Secretary of State etc¹ per Lord Fraser of Tullybelton (dissenting) at 359.
[1]Secretary of State for Defence v. Guardian Newspapers (1985) 1 A.C. 339 per Lord Diplock at 350.
I do not think that the Securities Act 1933 (US) is "necessarily applicable legislation" in terms of clause 18.1 (b). The Act by its terms does not mandate disclosure but rather says that activity which is part of making a share offer is unlawful without filing a registration statement. Hence, compliance would then involve the disclosure of information caught by clause 18.1(b). Perhaps more significantly it is the third defendant's deliberate choice to pursue a public offer which engages the Act so bringing about the disclosure leaving one to wonder as to the point of the use of "only to the extent required" by "necessarily applicable legislation" if the confidentiality provisions could be avoided in this way.
This may be contrasted with situations in which clause 18.1(b) would doubtless operate. Without being exhaustive, these include compliance by subpoena or the requirements of legislation such as the Income Tax Assessment Act 1936 (Commonwealth), the Sales Tax Assessment Act 1992 (Commonwealth) or the Trade Practices Act 1975 (Commonwealth) compelling the provision of information for revenue or regulatory purposes. The application and engagement of such provisions is independent of the party.
The effect of clause 18.1(b) undoubtedly is to restrict commercial activity but that is because the parties to the Joint Venture Agreement agreed to it; no doubt they considered it on balance to be to their commercial advantage.
Issue 1 is therefore determined by saying that a disclosure in a registration statement by a venturer or related corporation, or information required in a registration statement made or filed pursuant to the United States Securities Act 1933 in connection with an offer or allotment of shares would not be a disclosure required pursuant to necessarily applicable legislation within the meaning of clause 18.1 (b) of the Blair Athol joint venture agreement. 19 By a parity of reasoning the same consequence follows in respect of the Corporations Law. The plaintiff however accepts the words "necessarily applicable" in clause 18.1(b) did not qualify the reference to "rules or regulations of a recognised stock exchange". It was suggested this reflected a concern that a venture might arguably avoid the application of the sub-clause by de-listing its securities. It is however unnecessary to determine this issue. The ASX listing rules require that a prospectus must be issued and lodged with the Australian Securities Commission as a pre-condition to listing (Rule 1.1, Condition 3). As I have already said the supply of confidential information for that purpose is not within the exception provided by clause 18.1(b).
I turn to the third and the fourth and fifth defendants' applications to set aside service of the notice in lieu of the writ. It will be recalled that the third defendant owns the second but is incorporated in the United States and is not registered or otherwise have a presence here while the fourth and fifth defendants are United States entities with no relevant presence here. Moreover, none of the third, fourth and fifth defendants is party to a Joint Venture Agreement.
The plaintiff claims that the third, fourth and fifth defendants are bound by equitable obligations of confidence restricting the use of confidential information to the circumstances of the exception provided for by the confidentiality clauses, and also relies on the tort of inducing breaches of the confidentiality provisions. Thus the relief claimed by the plaintiff is a declaration that each of the joint venture agreements prohibit the first and second defendant (the Blair Athol agreement) and the first defendants (the Clermont Agreement) from disclosing information in breach of the confidentiality provisions and injunctions restraining the first, second and third defendant from impermissible disclosure of joint venture agreement information requiring the first and second defendants (and related companies) to ensure the third defendant acted in accordance with the confidentiality provisions and restraining the fourth and fifth defendants from disclosing confidential information other than to the first, second and third defendants.
It is deposed that the plaintiff fears that the defendants will disclose confidential information in circumstances not permitted by the clauses, given the third defendant's intention to dispose of its interest and its retention of the fourth and fifth defendants to advise in respect of that. In my view, bearing in mind that there is not yet a statement of claim and making the necessary assumptions, the material makes out a basis for the plaintiff's claim sufficient for present purposes. The ultimate outcome is of course another issue.
The court's jurisdiction in respect of the third, fourth and fifth defendants depends upon the plaintiff satisfying the requirements of one of the sub-rules of Order 11 Rule 1(2).
The provisions which arise for consideration are:
(g)the proceeding is to enforce, rescind, dissolve, rectify, annul or otherwise affect, or to recover damages or other relief in relation to the breach of, a contract that-

(i)was made in Queensland; or

(ii)was made by 1 or more parties carrying on business or residing in Queensland; or

(iii)was made by or through an agent carrying on business or residing in Queensland on behalf of a principal carrying on business or residing outside Queensland; or

(iv)is governed by the law of Queensland.

(p)the proceeding is properly brought in Queensland against a person and another person outside Queensland is a necessary or proper party to the proceeding.

I think that there are difficulties in justifying the joinder in reliance on Order 11 Rule 1(2)(p). This is not least because the joint venture agreements are separate and distinct contractual arrangements with the second defendant - a party to the Blair Athol agreement but not to the Clermont agreement - so that the relief does not arise in respect of the same transaction or series of transactions in terms of Order 3 Rules 1 and 5, thus giving rise to an issue of whether the present proceedings satisfy the requirement of sub-rule (p) that the proceeding is properly bought in Queensland.
Service of the notices would seem to be justified by sub-rule (g). The joint venture agreements contain provisions that they are governed by the law of Queensland. It may be inferred that the agreement was made in Queensland and it was made by one or more parties carrying on business or residing in Queensland. I should have thought the contract is governed by the law of Queensland.

It is not necessary for the purposes of Order 11 Rule 1(2)(g) that the proceedings be between the parties to the contract as distinct from the relief being sought in relation to the breach of a contract that satisfies those requirements[2]. That is from the perspective of the practical as well as legal effects[3].
[2]South Adelaide Football Inc. v. Fitzroy Football Club (1988) 49 SASR 380 at 382-383; Tana v. Baxter (1985-86) 160 CLR 572 at 580; Nominal Defendant v. Motor Vehicle Insurance Trust of WA (1983) 3 NSWLR 309 at 314.
[3] Tana v. Baxter, supra 3; BP Exploration Co. Libya (Ltd) v.Hunt (1976) 1 WLR 788 at 795.
In the circumstances it seems to me appropriate to refuse the applications by the third and by the fourth and fifth defendants to set aside service of notice of the writ, to set aside their conditional appearances and direct that they appear unconditionally by a date to be specified.
The outcome of the matters dealt with is therefore as follows:-
1.It is determined that any disclosure in a registration statement by a Venturer or related corporation of information required in a registration statement made or filed pursuant to the Securities Act 1933 (United States) in connection with an offer or allotment of shares would not be a disclosure required pursuant to necessarily applicable legislation within the meaning of clause 18.1(b) of the Blair Athol Joint Venture Agreement.
2.It is determined that any disclosure in a prospectus by a Venturer or related corporation of information required in a prospectus in Australia would not be a disclosure required pursuant to necessarily applicable legislation (being the Corporations Law). It is unnecessary to make a determination with respect to the rules of a recognised stock exchange (A.S.X. listing rules).

3.The applications by the third and by the fourth and fifth defendants to set aside service of notice of the writ in this action are dismissed, their conditional appearances are set aside and it is directed that they appear unconditionally by a date to be specified.

[1998] QSC 222

20 October 1998