Re Bulong Nickel Pty Ltd

[2002] WASC 126

BULONG NICKEL PTY LTD [2002] WASC 126

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2002] WASC 126
Published:	27/05/2002
Case No:	COR:110/2002	Heard:	16 & 17 MAY 2002
Coram:	EM HEENAN J	Delivered:	17/05/02
No of pages:	32	Judgment Part:	1 of 1
Result:	Orders authorising meetings of creditors to be held, Orders to convene proposed meetings of creditors and to approve explanatory , statement but reserving to ASIC liberty to object to or oppose the scheme in , the light of events at the meetings of creditors
Category:	B
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Parties:	BULONG NICKEL PTY LTD (ACN 000 807 036) AUSTRALIAN SECURITIES INVESTMENTS COMMISSION
Catchwords:	Corporations Scheme of arrangement Application for meetings of creditors as part of a general reconstruction of group companies Factors for consideration Foreign creditors Debenture containing provision for non­exclusive jurisdiction of Courts of the State of New York Choice of the law of the State of New York as the governing law of contract Potential application of s 411 of the Corporations Act to schemes of arrangement in respect of contracts governed by a foreign law Significance of uncertainty of effect of proposed scheme on whether to convene meetings of creditors
Legislation:	Corporations Act 2001, s 411
Case References:	Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1 Akai Pty Ltd v The People's Insurance Company Ltd (1996) 188 CLR 418 ASC v Marlborough Goldmines Ltd (1993) 177 CLR 485 Augustus v Permanent Trustee Company (Canberra) Ltd (1971) 144 CLR 245 Barcelo v Electrolytic Zinc Co of Australasia (1932) 48 CLR 391 BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VR 725 Bonython v Commonwealth of Australia [1951] AC 201 Carl Zeiss Stifftung v Rayner & Keeler Ltd (No 2) [1967] AC 853 Contractors Ltd v MTE Control Gear Ltd [1964] SASR 47 FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 Green v Australian Industrial Investments Ltd (1989) 90 ALR 500 Hunt v BP Exploration Co (Libya) Ltd (1979) 144 CLR 565 Isles v Daily Mail Newspapers Ltd (1912) 14 CLR 193 John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 Kay's Leasing Corporation Pty Ltd v Fletcher (1964) 116 CLR 124 London & South American Investment Trust Ltd v British Tobacco Co (Aust) Ltd [1927] 1 Ch 107 McClelland v Trustees Executor & Agency Co Ltd (1936) 55 CLR 483 Mynott v Barnard (1939) 62 CLR 68 Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 Re Bond Corporation Holdings Ltd (1991) 5 WAR 143 Re Brian Cassidy (1984) 9 ACLR 140 Re Chevron (Sydney) Ltd [1963] VR 249 Re Crusader Ltd (1995) 17 ACSR 336 Re Dorman, Long & Co Ltd [1934] 1 Ch 635 Re Egnia Pty Ltd (In Liq) (1991) 7 WAR 322 Re Empire Mining Co [1890] 44 Ch D 402 Re English, Scottish & Australian Chartered Bank [1893] 3 Ch 385 Re ETRADE Australia Ltd (1999) 30 ACSR 516 Re International Harvester Co of Australia Pty Ltd [1953] VLR 669 Re Jax Marine Pty Ltd and the Companies Act 1961 [1967] 1 NSWR 145 Re Linter Textiles Corporation Ltd [1991] 2 VR 561 Re Norfolk Island & Byron Bay Whaling Co (1969) 90 WN (Pt I) (NSW) 351 Re Sonodyne International Ltd (1994) 15 ACSR 494 The South Melbourne Club Ltd (1983) 1 ACLC 1063 Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581 Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34 Re ACM Gold Ltd 34 FCR 530 Re Garner Motors Ltd (1937) 1 All ER 671

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : BULONG NICKEL PTY LTD [2002] WASC 126 CORAM : EM HEENAN J HEARD : 16 & 17 MAY 2002 DELIVERED : 17 MAY 2002 PUBLISHED : 27 MAY 2002 FILE NO/S : COR 110 of 2002 MATTER : Section 411 of the Corporations Act

AND

BULONG OPERATIONS PTY LTD
(ACN 008 930 881)

BETWEEN : BULONG NICKEL PTY LTD (ACN 000 807 036)

Applicants

Catchwords:

Corporations - Scheme of arrangement - Application for meetings of creditors as part of a general reconstruction of group companies - Factors for consideration - Foreign creditors - Debenture containing provision for non­exclusive jurisdiction of Courts of the State of New York - Choice of the law of the State of New York as the governing law of contract - Potential application of s 411 of the Corporations Act to schemes of arrangement in respect of contracts governed by a foreign law - Significance of uncertainty of effect of proposed scheme on whether to convene meetings of creditors

(Page 2)

Legislation:

Corporations Act 2001, s 411

Result:

Orders authorising meetings of creditors to be held

Orders to convene proposed meetings of creditors and to approve explanatory statement but reserving to ASIC liberty to object to or oppose the scheme in the light of events at the meetings of creditors

Category: B

Representation:

Counsel:

Applicants : Mr S Penglis

For ASIC by leave : Mr P N Harley

Solicitors:

Applicants : Freehills

: Australian Securities & Investment Commission

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

Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1
Akai Pty Ltd v The People's Insurance Company Ltd (1996) 188 CLR 418
ASC v Marlborough Goldmines Ltd (1993) 177 CLR 485
Augustus v Permanent Trustee Company (Canberra) Ltd (1971) 144 CLR 245
Barcelo v Electrolytic Zinc Co of Australasia (1932) 48 CLR 391
BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VR 725
Bonython v Commonwealth of Australia [1951] AC 201
Carl Zeiss Stifftung v Rayner & Keeler Ltd (No 2) [1967] AC 853
Contractors Ltd v MTE Control Gear Ltd [1964] SASR 47
FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69


(Page 3)

Green v Australian Industrial Investments Ltd (1989) 90 ALR 500
Hunt v BP Exploration Co (Libya) Ltd (1979) 144 CLR 565
Isles v Daily Mail Newspapers Ltd (1912) 14 CLR 193
John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503
Kay's Leasing Corporation Pty Ltd v Fletcher (1964) 116 CLR 124
London & South American Investment Trust Ltd v British Tobacco Co (Aust) Ltd [1927] 1 Ch 107
McClelland v Trustees Executor & Agency Co Ltd (1936) 55 CLR 483
Mynott v Barnard (1939) 62 CLR 68
Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213
Re Bond Corporation Holdings Ltd (1991) 5 WAR 143
Re Brian Cassidy (1984) 9 ACLR 140
Re Chevron (Sydney) Ltd [1963] VR 249
Re Crusader Ltd (1995) 17 ACSR 336
Re Dorman, Long & Co Ltd [1934] 1 Ch 635
Re Egnia Pty Ltd (In Liq) (1991) 7 WAR 322
Re Empire Mining Co [1890] 44 Ch D 402
Re English, Scottish & Australian Chartered Bank [1893] 3 Ch 385
Re ETRADE Australia Ltd (1999) 30 ACSR 516
Re International Harvester Co of Australia Pty Ltd [1953] VLR 669
Re Jax Marine Pty Ltd and the Companies Act 1961 [1967] 1 NSWR 145
Re Linter Textiles Corporation Ltd [1991] 2 VR 561
Re Norfolk Island & Byron Bay Whaling Co (1969) 90 WN (Pt I) (NSW) 351
Re Sonodyne International Ltd (1994) 15 ACSR 494
The South Melbourne Club Ltd (1983) 1 ACLC 1063
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538
Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581

Case(s) also cited:

Mobil Oil Australia Ltd v Guina Developments Pty Ltd [1996] 2 VR 34
Re ACM Gold Ltd 34 FCR 530
Re Garner Motors Ltd (1937) 1 All ER 671

(Page 4)

1 EM HEENAN J: Two corporations, Bulong Operations Pty Ltd (Bulong Operations) and Bulong Nickel Pty Ltd (Bulong Nickel) have made application to the Court for orders under s 411 of the Corporations Act 2001 to convene meetings of certain creditors of the two companies to consider, and if thought fit, to agree to a scheme of arrangement which the companies propose (the scheme).

2 As required by subsection 411(2), notice of the hearing and of the proposed scheme has been given to the Australian Securities and Investments Corporation (ASIC). ASIC does not oppose the making of orders to allow the meetings of creditors to be convened, nor at this stage has it raised any objections to the proposed scheme. However, for reasons which will appear, ASIC has submitted that, if orders to hold meetings of creditors are made, then it desires to reserve its position over whether or not the scheme should finally be approved until after those meetings have been held and it can be ascertained what significance, if any, should be given to the role and effect at those meetings of one of the principal creditors, namely, Barclays Bank Plc. The mere making of an order to convene meetings of creditors on the present application will not prevent ASIC, or any other person who may be interested, from making submissions in opposition to or in support of the approval of the scheme by the Court should the meeting approve the resolutions – Re Linter Textiles Corporation Ltd [1991] 2 VR 561. Nor will the approval of the Court to order that meetings of creditors be convened necessarily mean that, if the meetings approve the resolutions, the scheme will necessarily be approved. Any final Court approval must await the outcome of the meetings at which issues of significance might yet emerge.

3 The origin and the nature of the powers exercised by a court under s 411 are well established. The section provides a mechanism by which a compromise or arrangement proposed between the corporation and its members, or any class of them, or the corporation itself and its creditors or any class of them may be submitted for approval by the members or creditors, as the case may be. If a sufficient majority (the statutory majority) of the creditors or class members concerned so approves, the compromise or arrangement may be approved by the Court and become binding on the corporation, and all creditors and members concerned even upon any minority which dissents. The statutory majority necessary for the approval by the meetings, in the case of a compromise or arrangement between the company and its creditors, or a class of creditors, is a majority in number of the creditors present and voting, either in person or by proxy being a majority whose debts against the company amount in the

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aggregate to at least 75 per cent of the total amount of the debts of the creditors present and voting in person or by proxy in that class (s 411(4)).

4 The scheme proposed in this case is to alter, by deferring and rearranging, the rights of certain secured creditors of the company and, in the process, to give priority to certain proposed other creditors in respect of advances which will be made, and continued as a result of the implementation of the scheme. As such, it comes within the accepted definition of a compromise or arrangement: Re International Harvester Co of Australia Pty Ltd [1953] VLR 669; ASC v Marlborough Goldmines Ltd (1993) 177 CLR 485. It satisfies the purposes of this and preceding legislation as described by Street J in Re Norfolk Island & Byron Bay Whaling Co (1969) 90 WN (Pt I) (NSW) 351. At this preliminary stage where the Court is called upon to consider whether or not meetings of creditors should be convened to vote on the proposed scheme, the function of the court is to examine the terms of the scheme in order to determine whether or not they comply with the statutory requirements; to be satisfied that proper notice will be given to the creditors or members affected; to see that the explanatory memorandum required by s 411(3) of the Act contains an adequate explanation of the scheme being proposed and the information which will be needed by creditors to consider it sufficiently; and, to consider whether there are other reasons apparent which would prevent the approval of the scheme by the Court in the event that the resolutions for its proposal were passed by a necessary majority of creditors or members at the meetings held – FT Eastment & Sons Pty Ltd v Metal Roof Decking Supplies Pty Ltd (1977) 3 ACLR 69 at 72. In considering whether or not the proposed scheme meets the requirements of the section, it is necessary for the Court also to be satisfied that the scheme does not, directly or indirectly, effect some other result or consequence which could only be achieved by complying with differing requirements of the Corporations Act or other legislation. Examples of alterations to a company structure or affairs which could not be authorised under the s 411 procedure include an application for the reduction of capital – Re ETRADE Australia Ltd (1999) 30 ACSR 516; 13 ACLC 695; or for the direct conversion of a limited company to a no liability company ASC v Marlborough Goldmines Ltd (1993) 177 CLR 485; or provisions which would have the effect of compelling creditors to become shareholders of a company in a manner which would require them to accept shares offered in consideration for compulsory redemption of the debt – Re Empire Mining Co [1890] 44 Ch D 402 at 410; Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 223 and Re Crusader Ltd (1995) 17 ACSR 336.
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5 Furthermore, the Court must be satisfied that it has jurisdiction to grant approval of the proposed compromise or scheme of arrangement if approved by the requisite majority of creditors or shareholders: Isles v Daily Mail Newspapers Ltd (1912) 14 CLR 193 at 196; and this also entails the Court being satisfied that the resolutions are passed by the statutory majority at a meeting or meetings duly convened and held: Re Dorman, Long & Co Ltd [1934] 1 Ch 635 at 655 and Re Chevron (Sydney) Ltd [1963] VR 249 at 251.

6 The proposed compromise or scheme of arrangement should be one that fully informed sensible business people may consider to be commercially reasonable as being for the benefit of the members/creditors: Re English, Scottish & Australian Chartered Bank [1893] 3 Ch 385 at 409 and Re Chevron (Sydney) Ltd (supra). Consequently, there must be a reasonable prospect of the company remaining solvent after the implementation of the scheme: The South Melbourne Club Ltd (1983) 1 ACLC 1063 and Re Sonodyne International Ltd (1994) 15 ACSR 494. For this reason, it has been regarded as contrary to public policy to approve a scheme if there has been some spectacular and inadequately explained failure of a company which calls for a thorough investigation by a liquidator: Re Brian Cassidy (1984) 9 ACLR 140 at 142 or where the proposed scheme is offensive to commercial morality – Re Egnia Pty Ltd(In Liq) (1991) 7 WAR 322. With these principles in mind, I turn to a consideration of the applications now before the Court.

7 By an Indenture dated 17 December 1998 (the "Indenture"), Bulong Operations issued "12½ per cent Senior Secured Notes" due on 15 December 2008 in the total amount of $US185,000,000. As their name implies, the secured notes were to bear interest at 12½ per cent per annum. This is payable semi annually in arrears on 15 June and 15 December of each year commencing 15 June 1999. The obligations of Bulong Operations under the notes are secured by a fixed and floating charge over all the assets of the company, a mortgage over all the company's and the guarantor's interests in certain mining tenements; by a mortgage in respect of all shares of capital stock of the subsidiary guarantor or any other subsidiary thereafter owned or established by the company or the guarantor; by a security interest in all insurance maintained by the company and the guarantor; by a mortgage over collateral accounts; by a mortgage granted by the parent company in respect of all shares of capital stock in Bulong Operations and any intercompany debt; by a mortgage granted by the parent company in respect of what is known as the Bulong Sale Agreement and any

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intercompany debt between the parent, Bulong Operations, or the guarantor; and by a fixed charge granted by a company, Resolute Ltd, over its interest in certain contracts in respect of the Bulong project. All these securities are referred to in the Indenture collectively as being the "Collateral".

8 The moneys raised by the notes were for the development of the Bulong Nickel project in the eastern goldfields region of this State. The obligations incurred by Bulong Operations under the notes and the accompanying securities are all guaranteed by Bulong Nickel. Bulong Nickel is a wholly owned subsidiary of Bulong Operations which, in turn, is a wholly owned subsidiary of Preston Nickel Holdings Pty Ltd (Preston Nickel Holdings). The Bulong Nickel project was purchased from Resolute Ltd (Resolute) and, under the arrangements for the sale of the project, Resolute had granted a charge over its interest in certain contracts in respect of the project. These had passed to the purchaser thus enabling that interest to constitute part of the security offered in support of the notes. Similarly, Preston Nickel Holdings, as parent of Bulong Operations, itself the parent of Bulong Nickel, was able to charge its shares in the subsidiary holding company as additional security for the notes. The relationships of these parties to each other is shown graphically in the diagram appearing below.
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9

Acquisition and financing of the Bulong project

10 This description of the background of the project is taken from cl 3 of the draft explanatory statement. The Bulong project is a nickel and cobalt mining project in Western Australia. Its assets are owned jointly by Bulong Operations and its direct wholly owned subsidiary, Bulong

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Nickel. Preston Nickel Holdings acquired Bulong Operations and Bulong Nickel from Resolute, an Australian mineral resources company listed on the Australian Stock Exchange, on 5 November 1998. Preston Nickel Holdings is a direct, wholly owned subsidiary of Preston Resources Ltd (Preston Resources), an Australian mineral resources company also listed on the Australian Stock Exchange. Under the sale agreement for the Bulong project dated 3 November 1998, Preston Nickel Holdings acquired all of the issued share capital in Bulong Operations and certain other assets owned by Resolute and its related companies relating to the Bulong project.

11 Barclays Bank Plc (Barclays) made available bridging finance to Preston Nickel Holdings to enable it to complete the acquisition of the Bulong project under a bridge facility agreement dated 5 November 1998. As part of the refinancing of that bridging finance, Bulong Operations issued $US185,000,000 aggregate principal amount of Initial Notes on 17 December 1998. These were exchanged for the Original Notes under a prospectus dated 16 June 1999 and, as already noted, mature on 15 December 2008. In addition to the finance raised through the issue of the original notes, the Bulong companies have borrowed funds for working capital purposes from Barclays. Barclays currently provides working capital facilities to the Bulong companies in an aggregate principal amount of $38,500,000. Barclays also holds a number of Original Notes. In addition, the Bulong companies and Barclays assumed the obligations of Resolute (in the case of the Bulong companies) and a number of hedge providers (in the case of Barclays) under a number of hedging contracts, as part of the original acquisition of the project. Those hedging contracts were principally related to currency hedging transactions but also included base metal hedging transactions. Despite past difficulties at various maturity dates in paying for currency hedging transactions, the Bulong companies had been permitted by Barclays to roll the hedging transactions forward and they all remain on foot. As at 28 February 2002, the currency hedging arrangements had a negative value on a mark to market basis of approximately $US124,852,000.

12 The Indenture of 17 December 1998 under which these notes were issued was between the following parties:

Bulong Operations, as note issuer,

Bulong Nickel, as subsidiary guarantor,

Preston Nickel Holdings, as mortgagor of its shares and other interests in the project, and

(Page 10)

Marine Midland Bank (now HSBC Bank USA), as trustee for the noteholders in the event of any default (unless and until replaced by a new trustee).

13 In order to appreciate the reasons which have prompted the proposed scheme of arrangement, it is necessary to examine both the present financial position of Bulong Operations and to place the details of the proposed scheme of arrangement in the perspective of a wider reconstruction of the rights of the parties associated with the Bulong Nickel project. As will be seen, the proposed scheme of arrangement is only one aspect of a more far reaching restructure of the overall mining project. This restructuring also involves, to a significant extent, the interests of Preston Nickel Holdings; major creditors of the project, the two companies and others, namely, Barclays Bank Plc and Barclays Bank Plc Australian branch; Marlborough Nickel Pty Ltd; HSBC Bank USA and Perpetual Trustee Co Ltd as security trustees. The roles of these other parties will be explained shortly.

14 HSBC Bank USA has been engaged by the Bulong companies to act as an exchange agent to assist in the transmission of voting materials and in the tabulation of votes relating to the scheme of arrangement. HSBC Bank USA is also the trustee under the original Indenture. The details of the procedure for the delivery of ballots, return of original notes and for electing whether or not to take shares in Bulong Operations is set out in cl 4 and following of the explanatory statement.

15 The Indenture deed of 17 November 1998 contains its own provisions for dealing with a variation of the rights of noteholders. There are certain rights of the company, the guarantor and the trustee to amend or supplement the Indenture and the securities without the consent of any note holder. These are set out in cl 9.1 of the Indenture and, essentially, relate to changes which are of an administrative or formal nature or which do not adversely affect noteholders. This power does not apply to the changes proposed by this scheme of arrangement. Under cl 9.2 there are more extensive powers for the amendment of the Indenture and the securities with the consent of a majority in aggregate of the principal amount of the securities then outstanding. However, this power will not enable the rights of any individual security holder to be affected without his consent in respect of changes which would reduce the principal amount of the securities, reduce the stated rate or extend the time for payment of interest, extend the maturity date for a security, release the guarantor or modify the terms for the due and punctual payment of principal and interest, or allow other changes which would adversely

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affect the interests of individual noteholders. It is obvious enough that this power could not be used to effect the changes proposed by this scheme of arrangement so as to bind any dissentient or non-consenting security holder, and hence the claimed need for the proposed scheme. On the other hand, however, if there were to be unanimous approval to the proposed changes, then the powers under cl 9.2 of the Indenture would be sufficient and there would be no need for approval of the scheme by the Court. It remains a possibility, however unlikely, that this may yet occur. It will be necessary to consider in more detail later in these reasons the potential effects of the contractual restrictions upon variation of noteholders' rights.

Capital Structure of Bulong Operations

16 The financial statements of Bulong Operations of 30 June 2001 show that 109,240,571 fully paid ordinary shares have been issued to a paid up value of $87,446,000. In addition, a further 43,638,754 fully paid shares have been issued to a value of $43,639,000 for loans from Preston Nickel Holdings which have been converted to equity. This brings the issued shares to 152,879,325 which have been paid up or credited as paid up in the amount of $131,085,000. The latest balance sheet, as at 30 June 2001, shows the consolidated position for Bulong Operations Pty Ltd and its subsidiaries as follows:

Current assets $ 28,472,000

Non-current assets $110,424,000

Total assets $138,896,000

Current liabilities $745,649,000

Non-current liabilities $ 3,542,000

Total liabilities $749,171,000

Net liabilities ($610,295,000)

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Equity:

Contributed equity $131,085,000

Reserve $ 6,750,000

Accumulated losses ($748,130,000)

Total deficiency of equity ($610,295,000)

17 It is immediately apparent that there is a substantial excess of current liabilities over current assets as well as a total deficiency of liabilities over assets. The major current liabilities are:

Interest-bearing liabilities $470,979,000

Forward contract liabilities $243,616,000

18 The interest-bearing liabilities (in Australian dollars) are as follows:

Accrued interest – notes $ 67,908,000

Bank loans $ 40,894,000

Notes $362,177,000

Subtotal $470,979,000

The Forward contract liabilities of $243,616,000 are comprised by a forward nickel contract liability of $308,000 and a forward currency contract liability of $243,308,000 making a total of $243,616,000. These are secured by the assets of Marlborough Nickel Pty Ltd, a wholly owned subsidiary of Preston Resources Ltd.

19 The balance sheet also shows that there is already accrued interest of some $67.908 million due on the notes so that Bulong Operations is, therefore, in default. A temporary moratorium has been agreed with the principal noteholders and Barclays Bank Plc. However, if the company is to continue in operation for medium or long term, a major reorganisation of its financial affairs, the security arrangements for its debts and of its shareholdings has been considered to be necessary. At present a variety of facilities have been provided by Barclays Bank Plc for working capital and hedging cover. I am informed that, under the security arrangements for the notes, existing noteholders and Barclays Bank Plc rank equally and have similar securities for their debts and advances.

20 The major features of the proposed restructure are that:

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(a) the existing noteholders will exchange their notes for new secured notes to be issued, known as Tier 1 and Tier 2 notes respectively which, generally speaking, will defer the repayment of the principal due under the notes until the year 2012 and will make the payment of interest on the notes until then contingent on adequate cash flow from the Bulong project in the case of Tier 1 notes. Tier 2 notes will also defer the repayment of principal until 2012 but will make both the repayment of principal and interest due contingent on adequate cash flow. Both sets of notes will have their securities subordinated to new securities which are to be issued to Barclays Bank Plc in respect of new working capital and hedging facilities.

(b) Further, 95 per cent of the shares issued in Bulong Operations are to be offered by Preston Nickel Holdings to the existing noteholders for their acceptance in addition to the new Tier 1 and Tier 2 notes. Those noteholders who accept the offer of shares, will in addition to receiving Tier 1 and Tier 2 notes, become shareholders in the project potentially to the extent of 95 per cent in aggregate. However, noteholders participating in the scheme will not become shareholders unless they are willing – see s 231A.

(c) Bulong Nickel will be released from its guarantee.

(d) Marlborough Nickel Pty Ltd will be released from its security.

(e) The bank loans for working capital, other purposes and hedging cover from Barclays Bank Plc will be reorganised and new working capital and hedging facilities will be provided on securities which will take priority over the securities for the Tier 1 and Tier 2 noteholders.

21 The charts which follow below set out the corporate organisation of the Bulong companies at present and the new structure if the proposals, including the scheme of arrangement, now under consideration are implemented. If implemented, Barclays will hold approximately 49.9 per cent of the shares in Bulong Operations and the Noteholders (other than Barclays) who received Bulong Operations shares will hold approximately 45.1 per cent of the shares in Bulong Operations pro rata to their holding of Tier 1 and Tier 2 notes.



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Existing Corporate Structure

22

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Proposed Corporate Structure if the Schemes of Arrangement are Implemented

23

24 Because the disposal by Preston Nickel Holdings of 95 per cent of its shareholding in Bulong Operations amounts to a sale by Preston Resources Ltd of its major asset, it is necessary, under the rules of the Australian Stock Exchange, for Preston Resources Ltd to obtain the approval of its shareholders in general meeting for that transaction. A meeting to approve that transaction is part of the overall restructure. The details of this composite restructure plan are contained in the Bulong Senior Debt Restructuring Co-ordination Deed of 11 April 2002 between the parties affected including Bulong Operations, Bulong Nickel, Preston Nickel Holdings, Preston Resources and Marlborough Nickel Pty Ltd, Barclays Bank Plc and the trustees for the noteholders and other creditors.

25 Plainly, the question of whether or not the overall restructure, and in particular the scheme of arrangement concerning the senior secured notes, is in the interests of those affected, will involve commercial assessments about the future viability, profitability and rate of return from the Bulong

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Nickel operation. No doubt, persons, including the noteholders, who will be asked to consider such decisions will need to assess the likely effect of the restructure and the scheme of arrangement in comparison with such other alternatives as there may be. Those other possibilities might involve delay in designing and implementing some other form of restructure, or involve a receivership, scheme of arrangement or even liquidation of the operating companies. Another potential alternative may well be the sale of the entire Bulong Nickel operation.

Provision of Financial Information

26 As indicated, the comparative advantages of the proposed scheme will depend largely upon an assessment of the future economic performance of the Bulong Nickel operation in its restructured form. To allow such an assessment to be undertaken by the noteholders, the explanatory statement contains detailed information and assessments concerning the actual, and anticipated financial performance of the project if the restructure is approved. This information is to be found in the explanatory statement and the annexures and includes:

(a) The PPB report – a report prepared by PPB Consulting Services Pty Ltd addressing the question of whether the applicants will be able to meet their ongoing financial obligations to secured and unsecured creditors after the schemes are implemented up to 30 June 2003.

(b) The NCG report – a report prepared by National Consulting Group (WA) Pty Ltd which considers the reasonableness of the financial projections prepared by the Bulong companies for the financial years ending 30 June 2002 and 30 June 2003.

(c) BDA report – a report prepared by Behre Dolbear Australia Pty Ltd which examines the technical assumptions underlying the financial projections prepared by the Bulong companies for the financial years ending 30 June 2002 and 30 June 2003.

(d) The AME report – a report prepared by AME Consulting Pty Ltd which analyses the market and price outlook for nickel and cobalt for the period covering the financial years ending 30 June 2002 and 30 June 2003.

(e) Currency report – a report prepared by Access Economics Pty Ltd in October 2001 which makes foreign exchange

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rate forecasts in relation to the Australian dollar, including forecasts for the financial years ending 30 June 2002 and 30 June 2003.

27 As already mentioned, ASIC has not offered any criticisms or objections to the content of the explanatory statement and annexures and, having examined the documents, I consider that the explanatory statement sets out the prescribed information and other information that is material to the making of the decision by a creditor concerned within the meaning of that requirement under s 411(3) of the Act.

Position of ASIC

28 The full details of the proposed restructure and the scheme of arrangement is contained in the draft explanatory statement which has been submitted with the application. This has been examined by ASIC and while counsel for ASIC has indicated that his client wishes to reserve its position about whether or not the proposed scheme of arrangements should be approved until after the meeting has been held, there is no objection by ASIC to the terms of the draft explanatory statement and annexures. Initially, ASIC had informed the Court that it did not wish to appear to make submissions in relation to the first hearing of the application for orders for meetings of creditors to be held. This was because ASIC considered that it would not be in a position to advise the Court properly until it had had an opportunity to observe the entire scheme process. However, following the filing of an amended draft explanatory statement and further documents, ASIC informed the Court, by letter dated 16 May 2002 (exhibit 2) and by the appearance of its counsel that, subject to one reservation, it had no objection to the terms of the proposed schemes, the further revised draft explanatory statement and annexures or the minute of proposed orders. The reservation was in relation to whether or not it would be necessary for the Court to take into account the extrinsic interests of a particular creditor or creditors in the class of creditors voting to approve the scheme, if and when the Court is exercising the discretion under subsection 411(6) of the Act to approve the scheme. That the Court may, where appropriate, take into account the extrinsic interests of a particular creditor or creditors was recognised in Re Chevron (Sydney) Ltd [1963] VR 249; Re Crusader Ltd [1996] 1 QDR 117; Re Jax Marine Pty Ltd and the Companies Act 1961 [1967] 1 NSWR 145 and Re Bond Corporation Holdings Ltd (1991) 5 WAR 143.

29 This position by ASIC is prompted by its appreciation that Barclays Bank Plc, and its associates ("Barclays") have interests extrinsic to the

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schemes as set out in the scheme documentation. Specifically, the treatment of Barclays' existing and proposed working capital and hedge facilities under the scheme disclosed in the further revised explanatory statement supports this view. Consequently, ASIC proposes to consider the voting result at the creditors' meetings for the scheme (and other relevant matters) when determining whether to raise Barclays' extrinsic interests in a more formal way at any hearings for the approval of schemes under subsection 411(6). As a result of ASIC's concerns, the terms of the proposed orders have been amended to include provision for the separate recording of votes by creditors at the meetings to consider the approval of the proposed scheme. In view of the priority which the scheme of arrangement, if approved, would accord to the Barclays' secured debts, I consider the position of ASIC to be quite appropriate. The significance, if any, of the votes of Barclays at the scheme meetings will need to be considered if and when the Court is called upon to give final approval to the proposed scheme.

30 The notification from ASIC to the Court specifically provides that the letter is not a "statement in writing" referred to in subsection 411(17) of the Corporations Act. However, by its counsel, ASIC had intimated that there is nothing in the scheme which would constitute a takeover or, otherwise, suggest the application of ch 6 of the Act.

The Indenture of 17 December 1998, and the identification of the various noteholders

31 The form of the notes (securities) is prescribed by the Indenture of 17 December 1998 (cl 2) which contains provision for original issued securities to be replaced by "Exchange Securities". Bulong Operations is obliged to maintain an office or agency in New York where securities may be presented for registration of transfer or for exchange. The registrar is obliged to keep a register of the securities and of their transfer or exchange, and the company is to keep a similar register in Australia. There is also provision for the securities to be listed on the Luxembourg Stock Exchange and, so long as this remained possible, the company was obliged to maintain a paying agent in Luxembourg.

32 The initial registrar and paying agent was the trustee, Marine Midland Bank. This body has since changed its name and is now the HSBC Bank Inc, a banking corporation organised under the laws of the State of New York, and remains the present trustee. The trustee is obliged to preserve, in as current form as is reasonably practical, the most recent list available of the names and addresses of security holders. It is, of

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course, possible that individual noteholders being the latest holders, or persons entitled to a transfer of particular notes may not be registered. Inevitably, this means that there is some uncertainty about the ability to identify all holders or beneficial owners of notes at any particular time as all that can be done is to communicate with the persons recorded on the latest version of the security registers. This may well mean that if there is a low proportion of security holders voting at the proposed meetings of creditors, that could be due to problems in notifying the persons directly interested in the individual notes. If and to the extent that there is a low proportion of security holders voting at the scheme meetings, that may need to be addressed at the time of any application for final approval of the schemes by this Court. The trustee is a party to the co-ordination deed and is fully informed of the proposed restructure and the scheme of arrangement and should, therefore, communicate with all known registered holders.

33 The Court has been informed by counsel for the applicants that the notes are no longer listed on the Luxembourg Stock Exchange. According to the materials before the Court, apart from Barclays Bank Plc which holds approximately 40.4 per cent of the notes, the registered holders are mainly entities which are located in the United States of America. Meetings with the holders of notes are generally convened in New York.

34 The scheme meetings are to be held in Perth and noteholders may attend and vote in person or by proxy. Proxy forms are attached to the explanatory statement. The explanatory statement and accompanying materials are to be sent to all registered holders of original notes and there is a solicitation period for voting on the scheme of arrangement of thirty days. The scheme meetings are scheduled to occur three business days after the voting deadline.

35 The applicants have given consideration to whether or not the proposed modifications of the rights of the noteholders could be implemented under the laws of the United States of America. Presumably, this possibility was prompted by the choice of law provisions in the Indenture which prescribe that the laws of the State of New York shall apply. It will be necessary to give more consideration to this choice of law provision later. The materials accompanying the explanatory statement, include an opinion provided by Professor Elizabeth Warren, a professor of law at Harvard University Law School, Cambridge, Massuchusetts, who is a specialist in United States bankruptcy and commercial law. For reasons which are set out in that opinion, Professor

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Warren has advised that it is very unlikely that Bulong Operations or Bulong Nickel would be permitted to attempt to reorganise under the bankruptcy laws of the United States. Her opinion is that neither company would qualify as a debtor under the constraints imposed by 11U.S.C. par 109(a) and that even if the companies were somehow deemed to qualify for a United States bankruptcy proceeding, a United States court would be likely to abstain from hearing the case leaving any reorganization effort to be filed and administered in the companies' home countries. Accordingly, the prospects of successfully seeking a reconstruction or reorganization in the courts in the State of New York are considered by the applicants to be remote.

Jurisdiction - Supreme Court of Western Australia

36 There can be no doubt of the jurisdiction of the Supreme Court of Western Australia to consider and determine applications under the Corporations Act 2001, including applications under s 411 in respect of corporations to which the Act applies. The Corporations Act 2001 is Commonwealth legislation replacing the former national scheme to govern corporate regulation under which each of the States, relying on s 51(xxxvii) of the Constitution, referred its powers with respect to corporations, corporate regulation and financial products and services to the Commonwealth which then employed those referred powers and its other legislative powers under ss 51 and 122 of the Constitution. By virtue of s 1337B(2) of the Corporations Act jurisdiction is conferred on the Supreme Court of each state with respect to similar matters arising under the corporations legislation. This enables the Court to exercise civil jurisdiction under the Corporations Act in respect of any Australian corporation even if it was incorporated or has been wound up in another Australian jurisdiction – Acton Engineering Pty Ltd v Campbell (1991) 31 FCR 1. The incorporation of the two Bulong companies within Australia, their ownership of mining tenements within this State, and the conduct of its mining operations here are also each factors which are sufficient to confer jurisdiction over the companies under the Act - Carl Zeiss Stifftung v Rayner & Keeler Ltd (No 2) [1967] AC 853 at 919 and 972. Generally speaking, the rights of shareholders and creditors are governed by the law of the place of incorporation although sometimes, and perhaps more often with creditors, that will depend on what is the proper law of the contract rather than what is the law of the place of incorporation – London & South American Investment Trust Ltd v British Tobacco Co (Aust) Ltd [1927] 1 Ch 107, at least for those shareholders or creditors who are outside of the jurisdiction.

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Choice of Law Provisions

37 The Indenture deed of 17 December 1998 contains provisions dealing with the law agreed upon by the parties to apply. These are contained in cl 12.18 of the deed which deals with governing law, submission to jurisdiction, venue and waiver of jury trial. The material parts of those clauses, but with some abbreviation, are as follows:

"12.18 Governing law; submission to jurisdiction; venue, waiver of jury trial

(a) This indenture and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of New York. Any legal action or proceeding with respect to this indenture may be brought in the courts of the State of New York sitting in the borough of Manhattan or of the United States of the Southern District of New York and, by execution and delivery of this Indenture, each of the company, the Subsidiary Guarantor and Holdings hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each of the Company, the Subsidiary Guarantor and Holdings further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail …


Nothing herein shall affect the right of the Trustee or any Securityholder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the company, the Subsidiary Guarantor and Holdings in any jurisdiction.

(b) Each of the Company, the Subsidiary Guarantor and Holdings hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Indenture, the securities or any of the security documents brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or

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proceeding brought in any such court has been brought in an inconvenient forum.

(c) Each of the parties to this Indenture hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Indenture, the securities or any of the security documents or the transactions contemplated hereby or thereby."

38 Counsel for the applicants submitted, and I accept, that this constitutes a covenant between the parties conferring non-exclusive jurisdiction over matters arising under the Indenture on the courts of the United States situated in the State of New York. It does not purport to restrict commencement or prosecution of proceedings instituted in other courts, whether in the United States or elsewhere and specifically contemplates that proceedings in such other jurisdictions may occur (subclause (a)). A non-exclusive choice of jurisdiction clause contemplates that litigation concerning the contract may occur in places outside the original jurisdiction and this may occur notwithstanding that the law which governs the contract may be that of a different jurisdiction – Contractors Ltd v MTE Control Gear Ltd [1964] SASR 47 and Green v Australian Industrial Investments Ltd (1989) 90 ALR 500 – a case which subsequently received some criticism but only in relation to the weight that should be attributed to the existence of such a clause in a stay application based on the principle of forum non conveniens – Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 at 566.

39 However, it is entirely open to the parties to a contract to select which system of law should apply to its interpretation. A provision such as cl 12.18(a) to the effect that the Indenture should be governed by the law of the State of New York will, generally, be efficacious, even if the association with New York is slight or non-existent – BHP Petroleum Pty Ltd v Oil Basins Ltd [1985] VR 725 per Murray J at 747 – 748. This case also recognises that there may occasionally be factors present which will lead a court to refuse to allow a choice of law by the parties to operate such as the operation of some fiscal or policy provision of the law which would otherwise apply.

40 The issues arising from the parties' choice of the law of the State of New York to govern this Indenture, as raised in argument on this occasion, therefore relate to the question of whether or not the rights conferred by the consensual acts of the parties between themselves as set

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out in the Indenture can be varied so as to bind a dissentient or non-consenting noteholder in the manner proposed by this scheme of arrangement by virtue of the powers conferred on the court by s 411 of the Act. The wider question of whether a s 411 scheme of arrangement can bind the rights of parties to such a contract at all was not raised in the submissions but it may still be lurking in the background and demand attention at the time of any application for final approval after scheme meetings of creditors have been held. It was submitted for the applicants that any rights of action by noteholders on the original Indenture may be preserved notwithstanding approval of this scheme by the Australian court under s 411 – reliance for that proposition is placed on the passage in Re Linter Textiles Corporation Ltd [1991] 2 VR 561 at 565 but I do not consider that such a conclusion can be drawn from that passage or the circumstances which were there being addressed. In that case, Marks J expressly noted that the particular rights which some of the creditors wished to preserve in that case, would not in any event be affected by the scheme. As a consequence I consider that that authority cannot be relied upon to support the proposition advanced.

41 The question of the effect of any approval of a scheme of arrangement under s 411 upon dissentient or non-consenting noteholders who might wish to insist upon adherence to the choice of the law of the State of New York as governing this Indenture remains open. It is addressed in part by the explanatory statement.

42 In par 10.5 of the explanatory statement it is said that, for the purposes of Australian law, the terms of the original Indenture will be taken to be amended in accordance with the terms of the scheme of arrangement, if passed by the requisite majority of noteholders and approved by the court. The statement asserts that this will be so even for those noteholders who do not vote in favour of the scheme and who refuse to participate by returning their original notes. For such non-consenting noteholders it is said that they will not be able to enforce their rights under the original Indenture in an Australian court in a manner which is inconsistent with the terms of the scheme. By contrast, the explanatory memorandum asserts that under New York law the position will be different and that under New York law, any changes made to the terms of the original Indenture will only be recognized as being valid amendments to those documents if those amendments are permitted by the terms of the original Indenture itself. Consequently, the explanatory statement asserts that if the schemes are agreed to by the requisite majority and are approved by this Court, only consequent amendments to the terms of the original Indenture which need majority consent will, for New York law

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purposes, be taken to be effected. However, all amendments of the original Indenture effected by the schemes of arrangement which require unanimous approval, will only be effective for New York law purposes against those original noteholders who return their original notes. These assertions are repeated, in substance, in pars 19.1, 19.15 and 19.16 of the explanatory statement. Paragraphs 19.5 and 19.16 include the following passages:

"The Indenture and or Notes are governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. The Australian Security Documents are governed by, and construed in accordance with, the laws of the Australian Capital Territory.

…

Since all of the operating assets of Bulong Operations are outside the United States, any judgment obtained in the United States against Bulong Operations, including judgments against Bulong Operations with respect to the payment of principal, Note Interest, interest, redemption price and any purchase price with respect to the Notes, may not be collectable within the United States.

Bulong Operations had been informed by its Australian counsel, Freehills, that in such counsel's opinion, the laws of Western Australia and the federal laws of the Commonwealth of Australia applicable therein permit an action to be brought in a court of competent jurisdiction in a state or territory of Australia on the final and conclusive judgment in personam of a New York court, respecting an enforcement of the Indenture and the Notes, that is not impeachable as void or voidable under the laws of the State of New York, is not directly or indirectly for the payment of taxes or other charges of a like nature or expropriation or a fine or other penalty and was not obtained by fraud and the enforcement thereof would not be inconsistent with the public policy. Furthermore, Bulong Operations has been advised by such counsel that they do not know any reason under present laws of Western Australia and the federal laws of the Commonwealth of Australia applicable therein for avoiding enforcement of such judgment of a New York Court under the

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Indenture or the Notes based on a reasonable interpretation of public policy.

…

The Bulong companies have been advised by its Australian legal counsel, Freehills, that there is doubt as to the enforceability, in original actions in Australian courts, of liabilities predicated solely on the USA federal securities laws as to the enforceability, in Australian courts, of judgments of the US courts obtained in actions predicated on the civil liability provisions of the US federal securities laws."

43 I take these passages to mean, and to inform the noteholders, that any variations to the Indenture of 17 December 1998 effectuated by the proposed scheme of arrangement, if approved by the order of this Court, may not be effectual outside Australia to bind the original noteholders who may have declined to return their notes and participate in the scheme. The passages also inform noteholders that for such non-participating noteholders, it may be possible to sue on the original (unamended) Indenture in the United States (or possibly in some other jurisdictions but not including Australia) in order to enforce the original terms of the Indenture despite any approval of this scheme. The passages also indicate that a judgment given in such proceedings, whether in the United States or in some other jurisdiction outside Australia upholding liabilities on the unamended Indenture, would appear to be enforceable in Australia but that there may be a number of practical difficulties in effecting service and other formalities necessary for the enforcement of such a judgment. In short, the explanatory statement discloses that there is scope for original noteholders who do not participate in the scheme to enforce in courts of the United States or in other jurisdictions outside Australia, their rights under the original Indenture despite the effects of approval of the scheme in this country under s 411 if that ever occurs.

44 An example of how a judgment of a foreign court arising from litigation in that other jurisdiction, can be registered and enforced in an Australian state is provided by Hunt v BP Exploration Co (Libya) Ltd (1979) 144 CLR 565. This is an indication of how a noteholder, who declines to exchange his original notes and participate in the scheme, may resort to the courts of the State of New York or elsewhere, obtain a judgment and seek to enforce this within Australia in the present situation.

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45 I consider that it is necessary that these matters should be brought to the attention of the noteholders in the explanatory statement. I also consider that there remains uncertainty over whether or not approval under s 411 of the proposed scheme of arrangement in this country would bind non-participating noteholders who sought to enforce their original rights in a United States court, or who sought to enforce a judgment obtained in a court of the United States or another jurisdiction outside of Australia, within Australia. As mentioned earlier, the capacity of a s 411 approved scheme to bind even consenting creditors under a contract such as this has not been directly addressed so far. This uncertainty is not because the parliament of the Commonwealth has any lack of power to enact a law which would have the effect of varying contractual rights entered into between an Australian company and parties outside Australia, or because of any lack of jurisdiction in this Court to give effect to such a law but, rather, because of the deliberate choice of the parties that the Indenture and the rights and obligations of the parties thereunder shall be construed in accordance with and be governed by the law of the State of New York. The question is whether or not a law of Australia such as s 411 of the Corporations Act should be taken to apply to modify the rights of the parties notwithstanding that choice. This reduces to a consideration whether or not a law such as s 411 is to be regarded as extending to such a contract. On this subject, the learned authors of "Australian Private International Law" 3rd edition (1991) Law Book Co Ltd Professor Sykes and Dr M C Pryles have written (at page 617):

"Discharge of the contractual obligation is governed by the proper law and it follows that a discharge in accordance with the proper law is effective while a discharge under some other law is not effective. This principle has been applied to all methods of discharge including discharge by impossibility of performance: Jacobs v Credit Lyonnais (1884) 12 QBD 589 CA; discharge by performance: Anderson v Equitable Assurance Society (1926) 134 L.T. 557 CA, and partial or total discharge by moratoria-type legislation: Merwan Pastoral Co v Moolpa Pastoral Co (1933) 48 CLR 565; McLelland v Trustees Executors & Agency Co (1936) 55 CLR 483 and Barcelo v Electrolytic Zinc Co (Australasia) Ltd (1932) 48 CLR 391. There is however an exception to the rule. Irrespective of the proper law a discharge under the lex fori will be valid in certain circumstances. One instance is where a statute of the forum which modifies the contractual obligations extends to the case. For example if a statute of the forum reduces interest on loans

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payable by local residents and expressly or implicitly applies whether or not the proper law is the lex fori then it will be given effect by the courts of the forum (though not by other courts – Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581 especially at 600 and see Pryles 'The Applicability of Statutes to Multi State Transactions' (1972) 46 ALJ 629."

46 I consider, with respect, that these expressions of view are in accord with recent authority. In John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503, a case dealing with choice of law rules for Tort among the jurisdictions within the Australian federation, and therefore not directly addressing this issue, it was nevertheless said in the joint judgment of Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ at 519:

"In cases which have some "foreign" element and concern the law of contract, or concern questions of status, it has long been accepted that the courts should identify and apply the law which governs the issue or issues that fall for decision. Thus, in cases concerning contracts, the courts seek to identify the proper law of the contract and, in cases concerning questions of status, they seek to identify the relevant governing law. The process of choice of law has, therefore, been well understood and accepted in these areas."

47 This view is not limited to Australia. In the 13th edition of Dicey and Morris on the Conflict of Laws (2000) Sweet and Maxwell the learned authors say at pars 1-048 and 1-049:

"If a statute is expressed in general terms without any self-limiting provisions, courts are sometimes willing to read such provisions into it under the guise of interpreting the statute. This is true whether the statute forms part of the court's own law or of foreign law. This was one reason (not the only one) why the Privy Council, sitting on an appeal from the New Zealand Court of Appeal, held that a New Zealand borrower could not take advantage of a Victorian statute which purported to reduce the rate of interest on certain mortgages - Mount Albert Borough Council v Australian Life Assurance Society Ltd [1938] AC 224 at 236 - 239 and 243. It was one reason why an English court held that the general words in section 2 of the Marriage Act 1949 applied only to marriages between parties domiciled in England - Pugh v Pugh [1951] P 482. It was also

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one reason why the New York Court of Appeals held that an Ontario statute exonerating the driver of a car from liability for personal injuries to a gratuitous passenger did not apply to a motor accident in Ontario when the parties were New Yorkers; the statute, it was thought, was intended to protect Ontario drivers and their insurance companies, not New York ones - Babcock v Jackson 12 NY 2d 473. This method of implying self-limiting provisions in statutes is very far from being new …

Overriding Statutes

Statues of the fifth class are those which must be applied regardless of the normal rules of the conflict of laws, because the statute says so. Since all the examples of overriding statutes to be discussed below are taken from the law on contract, it should be pointed out at the outset of the discussion that, according to standard doctrine in the conflict of laws, a statute does not normally apply to a contract unless it forms part of the governing law of the contract, or unless (being a statute in force in the forum) it is procedural …".

48 In the case of Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581, the High Court was required to determine whether or not a loan by a New South Wales company to a New Zealand local authority under a contract where it was decided that the proper law of the obligation was that of New Zealand, was affected by a New South Wales statute which granted a moratorium on loans and a reduction in interest. It was held by a majority, Dixon, Evatt and McTiernan JJ (Gavan Duffy CJ and Starke J dissenting) that the New South Wales statute did not apply to the local authority's obligation. In a passage (at pages 600 – 601) which has since become well known and often cited, Dixon J said, on the question of whether or not the New South Wales statute should be applied to the loan contract:

"The case is one for applying what I believe to be the well-settled rule of construction. The rule is that an enactment describing acts, matters or things in general words, so that, if restrained by no consideration lying outside its expressed meaning, its intended application would be universal, this to be read as confined to what, according to the rules of international law administered or recognized in our Courts, it is within the province of our law to affect or control. The rule is one of construction only and it may have little or no place where some

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other restriction is supplied by the context or subject matter. But, in the absence of any countervailing consideration, the principle is, I think, that general words should not be understood as extending to cases which, according to the rules of private international law administered in our Courts, are governed by foreign law. As the present statute deals with the discharge pro tanto of obligations, it ought to be understood as confined to those obligations which arise under the law of New South Wales."

49 An earlier elaboration of these same principles is to be found also in the judgment of Dixon J in Barcelo v Electrolytic Zinc Co of Australasia (1932) 48 CLR 391 at 425 – 426. This approach has since been consistently followed. In McClelland v Trustees Executor & Agency Co Ltd (1936) 55 CLR 483, it was applied to exclude the enforcement of personal covenants applicable only in Victoria where a mortgage was executed over land in New South Wales and registered in a form prescribed by the Real Property Act of NSW, it being decided that the law of New South Wales was the proper law of the contract. In Mynott v Barnard (1939) 62 CLR 68 it was held that the Workers Compensation Act (1928) of Victoria was not applicable to a contract of employment entered into in Victoria and where the proper law of the contract was Victorian law, to the death of the worker in an accident on a building in New South Wales – see per Latham CJ at 79. In Kay's Leasing Corporation Pty Ltd v Fletcher (1964) 116 CLR 124, the High Court was addressing the question of whether hire purchase agreements which were governed by the law of Victoria, although entered into in New South Wales and the subject of litigation in that State, were affected by New South Wales legislation which rendered hire purchase agreements to which the NSW legislation applied void for contravention of certain provisions of the New South Wales Act. It was held that Victorian law applied, as the proper law of the contract, and that the agreements were enforceable. Kitto J said at 142 – 143:

"The New South Wales Act speaks of hire-purchase agreements in general terms. It does not specify in what way the generality of its language is to be reconciled with the geographical limitation to which the legislative power of the State Parliament is subject. … In the Supreme Court it was considered that the principle to be applied was that by which this Court determined cases such as Wanganui-Rangitikei Electric Power Board v. Australian Mutual Provident Society (supra). Such cases have dealt with legislation modifying or making void contractual

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rights and obligations of specified descriptions; but in each instance the modification or avoidance was enacted as an end in itself and not as a sanction for contravention of statutory requirements. It was held that in order to restrain the seeming universality of the relevant enactment it should be presumed that the intention was to affect only those rights and obligations the discharge of which was governed by the law of the enacting country according to the rules of private international law. The logical appropriateness of the presumption in a case of the kind can hardly be denied. But it was made clear, particularly in the judgment of Dixon J in the Wanganui-Rangitikei Case that the Court was applying a rule which was one of construction only, and that the context or subject matter of legislation might supply a different restriction upon the generality of the language."

50 The same approach was again taken to the law applying to the voluntary settlement of moveables in Augustus v Permanent Trustee Company (Canberra) Ltd (1971) 144 CLR 245 where Walsh J concluded at, page 259, that s 36 of the Conveyancing Act (1919-67) NSW applied to a deed of settlement made in the ACT, where it was clear that the proper law of the settlement was that of NSW, despite the absence of any territorial nexus either in the location of the property or in the place of the execution of the deed, by virtue of the choice of New South Wales law as the proper law of the settlement. The principle was also applied, although in a different setting, dealing with an application for stay of proceedings in Akai Pty Ltd v The People's Insurance Company Ltd (1996) 188 CLR 418. It seems that in this last case there was reason to override the contracting parties' express choice of law and of jurisdiction which had attempted to provide that an insurance policy should be governed by the laws of England and any dispute referred to the courts of England.

51 Bonython v Commonwealth of Australia [1951] AC 201 is a case which provides an example of an overseas creditor seeking to enforce the payment of a debenture issued by the government of Queensland which denominated the currency in "pounds Sterling", but after 1931, when the Australian pound had been devalued in relation to the English pound by 25 per cent. The creditor was unsuccessful, it being held that the law of Queensland was the governing law of the contract and determined the money of the account and the substance of the obligation.

52 These authorities show that there is substantial support for the view, contained in the explanatory statement and already mentioned above, to

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the effect that a scheme of arrangement, if approved by the statutory majority of noteholders, and eventually approved by this Court under s 411 of the Corporations Act may not bind noteholders who do not participate in the scheme and who might choose to enforce the terms of the original agreements by insisting on the application of the law of the State of New York, whether in courts in the State of New York, the United States or elsewhere outside Australia. They also raise the prospect that a s 411 may not apply to a contract such as this Indenture which provides that it is to be governed by the law of the State of New York. At present, it is unnecessary and inappropriate to express any concluded views on these issues because no person, with an interest to advance them, has yet had an opportunity to raise such questions in these proceedings. It remains possible that this may occur. For example, a noteholder or noteholders might appear and oppose the making of a final order after the creditors meetings have been held; or an application might be made for a stay; or an application might be made in the State of New York or elsewhere in an attempt to restrain the applicants from proceeding with this litigation. If any of those or other possible actions were taken, it would be necessary to address these issues directly in circumstances where argument would be addressed to the court on both sides of the contention. For the moment, therefore, it is enough to recognise these possibilities and note that only the possible limited effect of a scheme will be drawn to the attention of the noteholders by the explanatory memorandum.

53 The possibility that even if approved finally by this Court under s 411, this scheme of arrangement may not be binding on all noteholders is one which may affect the utility of the proposed scheme to a greater or less extent, depending upon the number of noteholder creditors who may be disposed to agree and who join in the implementation of the scheme. These are factors which I consider can and should be weighed by the noteholders or their representatives when voting at any scheme meetings. If s 411 does not apply to this Indenture at all, then that would seem to be fatal to the proposal and a reason to decline final approval regardless of the position taken by a majority of creditors.

54 This Court will defer the important issues of the extent to which s 411 of the Corporations Act 2001 can apply, if at all, to a contract determining the rights of foreign creditors which stipulates that the contract and the rights of the parties are to be determined by reference to a foreign system of law – in this case by the law of the State of New York. Doing this will allow parties who may have objections to the scheme on these grounds to raise those matters either at the scheme meetings of

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creditors or by application to this Court or perhaps, by other means. It will also provide an opportunity for the applicants, and also ASIC whose submissions on these issues would be very welcome, to address those questions at the application for final approval if, otherwise, the resolutions are approved by a statutory majority of scheme creditors. Not only should this allow these significant issues to be addressed by fuller argument than has yet been advanced in circumstances where the effect of the issues may be better realised and perhaps be contested, but the determination of the issues can take place in circumstances when it is known whether or not they are likely to be crucial. For example, if the scheme of arrangement is not supported by a statutory majority of creditors, then it will not be necessary to determine the question at all. Similarly, but at the other extreme, if the modifications to the noteholders' rights were to be approved by a unanimous resolution of noteholders, there may be no need for a scheme at all. Accordingly, submissions on these issues about the application of s 411 to this Indenture will be important matters to consider if and when there is an application for final approval of the proposed scheme.

55 During the progress of the application for orders to call meetings of creditors I indicated to counsel for the applicants that I considered that the materials which should go to the creditors and accompany the explanatory memorandum should include a copy of the original Indenture of 17 December 1998. That has since been added to the materials, together with a revision of the National Consulting Group report, by a letter from that company of 16 May 2002 and accompanying schedules. As previously noted, a revised version of the explanatory memorandum taking into account and implementing suggestions made to the applicants by ASIC has also been filed. As a consequence, the materials which should go to creditors should comprise the most recent comprehensive version of the papers and include the Indenture of 17 December 1998.

56 For these reasons, I consider that the Court should order meetings of creditors to be held, as proposed by the applicants, and approve the revised explanatory statement which is to accompany the notices of the meetings. The precise terms of the orders should follow the minute of proposed orders dated 17 May 2002 which were submitted at the conclusion of the hearing, and which I then approved when making orders that meetings be convened.