AMCI Investments P/L v Rio Doce Australia P/L

SUPREME COURT OF QUEENSLAND

CITATION: AMCI Investments P/L v Rio Doce Australia P/L [2008] QCA 387

PARTIES: AMCI INVESTMENTS PTY LTD ACN 112 315 661 (applicant/appellant) v RIO DOCE AUSTRALIA PTY LTD ACN 112 797 403 (respondent)

FILE NO/S: Appeal No 8359 of 2008 / SC No 7915 of 2008

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 4 December 2008

DELIVERED AT: Brisbane

HEARING DATE: 11 September 2008

JUDGES: McMurdo P, Mackenzie AJA and Cullinane J / Separate reasons for judgment of each member of the Court, each concurring as to the order made

ORDER: Appeal dismissed with costs to be assessed

CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – contract for the sale of approximately half the companies in a company group together with certain assets and liabilities – vendor to have access to documents and personnel of the companies sold under the contract after completion for "any actual or threatened legal or administrative proceedings or inquiry by any Governmental Agency" – relevance of other terms of the contract – circumstances under which commercial parties would expect to access documents and personnel of companies sold – whether the words "by any Governmental Agency" qualified "legal or administrative proceeding" as well as "inquiry" / Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation (1953) 88 CLR 23; [1953] HCA 52, considered / Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36, applied / Browne v Commissioner of Taxation (1998) 82 FCR 1, considered / Chalmers Leask Underwriting Agencies v Mayne Nickless Ltd (1983) 155 CLR 279; [1983] HCA 20, considered / Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, applied / McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65, applied / Norco Co-operative Ltd v Parmalat Australia Ltd & Ors [2006] QSC 038, applied / Parmalat Australia Ltd v Norco Co-operative Ltd [2006] QCA 118, applied / Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, applied / Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17, applied / Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56, applied

COUNSEL: J D McKenna SC, with A M Pomerenke, for the applicant/appellant / R W Gotterson QC, with C A Wilkins, for the respondent

SOLICITORS: Freehills for the applicant/appellant / Blake Dawson acting as Town Agent for Baker & McKenzie for the respondent

1. McMURDO P: These are my reasons for dismissing the appeal.

The background to this appeal

2. Before 2007, the appellant, AMCI Investments Pty Ltd ("AMCI Investments"), was at the head of a corporate group of about 45 companies involved, directly or indirectly, in coal mining ventures in Queensland and New South Wales. On 24 February 2007, AMCI Investments entered into a moderately complex share sale agreement with the respondent, Rio Doce Australia Pty Ltd ("RDA"). In essence, the agreement restructured the group by dividing it into two parts. AMCI Investments retained control of some companies in its group¹ together with particular assets and liabilities. The remainder of its group companies² were divested through a sale of AMCI Investments' shares to RDA.³ Another company, Companhia Vale do Rio Doce, guaranteed RDA's obligations under the agreement. At the centre of this appeal is the construction of cl 11.2 of the agreement.

3. On 9 July 2008, RDA and others commenced proceedings against AMCI Investments and another, alleging that the agreement had been induced by misleading or deceptive conduct concerning certain contracts for the supply of coal, and other matters.

4. On 12 August 2008, AMCI Investments wrote to RDA seeking access to and the ability to copy documents and records which it had handed over to RDA under cl 9.5(c) of the agreement. AMCI Investments contended that it was entitled to this under cl 11.2(b) of that agreement. RDA refused to accede to AMCI Investments' request, disputing AMCI Investments' construction of cl 11.2(b).

5. On 15 August 2008 AMCI Investments applied to a judge of the Trial Division of this Court for a declaration in terms of what it claimed was the proper construction of cl 11.2. The judge dismissed AMCI Investments' application with costs, preferring the construction of cl 11.2 advanced by RDA. AMCI Investments appeals from that decision.

The relevant terms of the agreement

6. The terms of the agreement primarily relied on by the parties in their submissions in this appeal are as follows.

7. Under cl 6, AMCI Investments warrants that each of the warranties⁴ is materially correct. Clause 6.5(a) provides:

"6.5****Conditions of payment and Claims for breach

Despite any other provision of this Agreement each of the following applies in respect of this Agreement.

(a)(Notice of Claims) [AMCI Investments] is not liable to make any payment (whether by way of damages or otherwise) for any breach of any Warranty unless a Warranty Claim is made in writing by [RDA] (setting out full details including details of the fact, circumstance or matter giving rise to the breach, the nature of the breach and [RDA's] calculation of the loss suffered) as soon as reasonably practicable after [RDA] becomes aware of the fact, circumstance or matter on which the Warranty Claim is based and, in any event, on or before the date which is two years after the FRC Completion Date.

…

6.9 Dealing with Warranty breach after Completion

If [RDA] becomes aware after Completion of any fact, circumstance or matter which constitutes or could (whether alone or with any other possible fact, circumstance or matter) constitute a breach of any Warranty, including a Third Party Claim, [RDA] must do each of the following:

(a)as soon as possible, give [AMCI Investments] full details including details (including material documents) of the fact, circumstance or matter giving rise to the breach (or possible breach), the nature of the breach and, to the extent possible, [RDA's] calculation of the loss suffered or likely to be suffered;

(b)not make, and procure that no member of the [RDA] Group makes, any admission of Liability, agreement or compromise with any person in relation to any such fact, circumstance or matter without first consulting with and obtaining the approval of [AMCI Investments].

(c)in respect of a breach (or possible breach) other than a Third Party Claim, take, and procure that each member of the [RDA] Group takes, reasonable steps to mitigate any loss which may give rise to a Liability of [AMCI Investments] under any Warranty;

(d)in respect of Third Party Claims, provided that [AMCI Investments] acknowledges its liability to [RDA] for breach of the relevant Warranty should the Third Party Claim be successful:

(i)give, and procure that each member of the [RDA] Group gives, to [AMCI Investments] (at [AMCI Investments'] cost and expense and with the right to select its own counsel) joint conduct and control of all action taken by the [RDA] Group to defend that Third Party Claim (unless the Claim is covered by insurance, in which case, the defence may be conducted by the insurer);

(ii)at [AMCI Investments'] expense, give and procure that each member of the [RDA] Group gives, all assistance that [AMCI Investments] may reasonably require in relation to any action taken or proposed to be taken by [AMCI Investments] to defend a Third Party Claim, including by giving [AMCI Investments] and its Representatives reasonable access to:

(A)the personnel and premises of the [RDA] Group; and

(B)relevant chattels, accounts, documents and records within the possession, custody or power of the [RDA] Group,

to enable [AMCI Investments] and its Representatives to examine the personnel, premises, chattels, accounts, documents and records and to take copies or photographs of them; and

(iii)at [AMCI Investments'] expense, take, and procure that each member of the [RDA] Group takes reasonable steps to mitigate any loss arising in connection with the Third Party Claim, and all action in good faith and with due diligence as [AMCI Investments] may request to avoid, remedy or mitigate any loss arising in connection with the Third Party Claim, including legal proceedings and disputing, defending, appealing or compromising any Third Party Claim and any adjudication of it."

8. Clause 7 of the agreement deals with AMCI Investments' obligations prior to the completion date and relevantly provides:

"7.4****Access

Subject to clause 7.5, prior to Completion, [AMCI Investments] must give [RDA] and its Representatives during normal business hours, reasonable access to:

(a)any premises from which the business of the Company Group is conducted for the purpose of viewing the manner in which the business is conducted, accompanied by a Representative of [AMCI Investments]; and

(b)all books of account, books, records, contracts, commitments and property of or relating to the Company Group as [RDA] may reasonably request.

7.5****Conditions of Access

[RDA] may only exercise its right of access under clause 7.4 if:

(a)[RDA] has provided [AMCI Investments] with reasonable prior notice of the access that [RDA] requires (including the identity of the Representatives who are to exercise that right of access on behalf of [RDA]);

(b)the access will not, in the reasonable opinion of [AMCI Investments], interfere with the conduct of the business of the Company Group; and

(c)[RDA] agrees to comply with [AMCI Investments'] reasonable requirements and directions in relation to that access.

Any exercise of the right of access under clause 7.4 by [RDA] or any of its representatives is at the risk of [RDA]."

9. Clause 9.5 concerns AMCI Investments' obligations on completion of the agreement. It relevantly provides:

"9.5****Obligations of [AMCI Investments] on Completion

On or before Completion [AMCI Investments] must:

…

(c)subject to clause 11.1 deliver to (or at the direction of) [RDA] the minute books, statutory books and registers, books of account, annual statements, corporate key number assigned by ASIC, trading and financial records, copies of Returns and other documents and papers, and any common seal, duplicate seal or official seal, of each Group Member, other than documents containing strategic or planning information relating to the Vendors, members of the AMCI Vendor Group other than the Company Group, and members of the FRC Group, other than the Note Holder;

…

9.6 Obligations of Purchaser on Completion

On or before Completion [RDA] must:

(a)pay or put the Company in funds to pay and procure that the Company Group repays all Inter Company Payables;

(b)deliver to [AMCI Investments] the duly executed counterparts of the instruments of transfer of the AMCI Shares referred to in clause 9.5(f); and

(c)do, execute and deliver all other acts and documents that this Agreement or any other Transaction Documents require [RDA] to do, execute or deliver at Completion."

10. The agreement seeks to keep some of AMCI Investments' contracts with third parties which are not strictly retained by it under the agreement within the control of the AMCI Investments group of companies. The agreement refers to these contracts as "Excluded Assets".⁵ Under cl 10, these contracts are to be novated in favour of AMCI Investments' nominee, where possible. Where this is not possible, the party to each contract is to hold the contract on trust for AMCI Investments' nominee for 12 months from the "Completion Date", when other provisions of cl 10.2 (which have no present relevance) are to come into effect.

11. The clause central to this appeal, cl 11, is headed "Access to Records" and is in these terms:

"11.1****Copies of records

[AMCI Investments] may take, and keep after Completion, copies of documents and records referred to in clause 9.5(c) relating to Taxes and Duties in connection with and Returns of, [AMCI Investments] and Group Members.

11.2 Access to records after Completion

Without limiting any other rights of [AMCI Investments] under any Transaction Document, from Completion [RDA] must allow [AMCI Investments] and their Representatives access to (and, in relation to documents, where reasonably necessary, to take copies of), and, if required by [RDA], in the company of a Representative of [RDA], during normal business hours on reasonable prior notice, [RDA Group] personnel and the documents and records delivered by [AMCI Investments] to [RDA] under clause 9.5(c) for the purpose of [AMCI Investments] and the Note Holder using those documents and records in connection with:

(a) the review of any Return, or responding or complying with any Tax or Duty Audit;

(b) any actual or threatened legal or administrative proceedings or inquiry by any Governmental Agency;

(c) the preparation or audit of any financial information or accounts which [AMCI Investments] are required to prepare pursuant to any applicable law; and

(d) any insurance claims made by any member of AMCI Vendor Group or the FRC Group in relation to the Company Group in respect of events occurring before Completion."

12. The term "Governmental Agency" is defined in the agreement as meaning "a government or a governmental, semi-governmental, or judicial entity or authority". It also includes a self-regulatory organisation established under statute or a stock exchange." ⁶

13. The terms "legal proceedings", "administrative proceedings" and "inquiry" are not defined in the agreement.

14. The term "Representatives" is defined⁷ as:

"in relation to a person, its:

(a)Officers, employees and agents;

(b)legal, accounting, financial, technical and other professional advisers and consultants, including industry consultants;

(c)financiers; and

(d)any other person acting on behalf of that person in relation to a transaction contemplated by the Transaction Documents."

15. The term "Purchaser Group" is defined⁸ as:

"[RDA] and its respective Related Bodies Corporate (including the Note Holder after FRC Completion and Group Members after Completion)."

16. Clause 12 is headed "Confidentiality". Clause 12.3 provides:

"12.3****Exceptions

A party may make any disclosures in relation to this Agreement as it thinks necessary to:

(a)its professional advisers, insurers, bankers, financial advisers and financiers, if those persons undertake to keep information disclosed confidential;

(b)comply with any applicable law or requirement of any Governmental Agency;

(c)any of its employees or employees of any member of the [AMCI Investments] Group, the FRC Vendor Group and the [RDA] Group to whom it is necessary to disclose the information if that employee undertakes to keep the information confidential; and

(d)any member of the [AMCI Investments] Group and the FRC Vendor Group."

17. Clause 15 relevantly provides:

"**15.**Taxation

…

15.2****Control of Returns

(a)[AMCI Investments] will, at its own cost and expense, have the conduct and control of:

(i)the preparation and filing of all Returns of [AMCI Investments], both in its own right and as the head company of an [AMCI Investments] Consolidated Group, and Group Members for Tax Periods ending before the Completion Date (Pre-Completion Returns), and

(ii)the preparation and filing of all Returns of [AMCI Investments], both in its own right and as the head company of an [AMCI Investments] Consolidated Group, and Group Members for Tax Periods commencing before but ending after the Completion Date (Straddle Returns), to the extent such Straddle Returns relate to any income, profit or gain derived, or any act, matter, transaction or thing occurring, on or before the Completion Date,

and must:

(iii)provide copies of all Pre-Completion Returns filed after Completion (unless such copies are included in the Disclosure Material) and Straddle Returns to [RDA] for review:

(A)at least ten Business Days prior to filing; or

(B)if that is not practicable, as soon as practicable prior to filing; and

(C)consider in good faith any amendments to those Pre-Completion Returns and Straddle Returns which are proposed by [RDA] prior to the filing of such Returns.

…

15.3****Notice of Assessment or Audit

If any Taxation Authority issues an Assessment to or undertakes an Audit of [AMCI Investments] or any member of the [RDA] Group which relates to any Pre-Completion Return or Straddle Return or to any income, profit or gain derived, or any act, matter, transaction or thing occurring before Completion in relation to [AMCI Investments] or a Group Member, or any other matter or thing in respect of which [AMCI Investments] is or may become liable to make any payment pursuant to clause 14.3 (Indemnity Matters), then:

(a)in the case of an Assessment issued to or an Audit of a member of [RDA] Group, [RDA] must:

(i)promptly (and in any event within 30 days) give [AMCI Investments] notice of the Assessment or Audit (together with copies of all documents received from the Taxation Authority and full written details of the Assessment or Audit to the extent it relates to the Indemnity Matters);

(ii)provide [AMCI Investments] with any further or additional information relating to the Assessment or Audit (to the extent it relates to the Indemnity Matters) promptly as [RDA] becomes aware of it; and

(b)in the case of an Assessment issued to or an Audit of [AMCI Investments], promptly provide [AMCI Investments] with any information relating to the Assessment or Audit of which [RDA] becomes aware that is in addition to the information to which clause 11.2 refers."

18. Under sch 7, AMCI Investments' warranties to RDA included:

"Business Records

70.All material Business Records:

(a)have been maintained by each Group Member in accordance with proper accountancy and business practices and all Laws;

(b)are in the possession or under the custody or control of each Group Member; and

(c)contain information accurate in all material respects on all matters required to be dealt with in accordance with Australian Law and generally accepted accounting principles."

The issues

19. The learned primary judge correctly identified the short point in issue as whether the phrase, "by any Governmental Agency" in cl 11.2(b),⁹ qualifies the whole of the preceding words of sub-clause (b) or only the word "inquiry". His Honour concluded that the phrase qualified the whole of the preceding words in cl 11.2(b).

20. Mr McKenna SC, who appeared with Mr Pomerenke for AMCI Investments, contends that the primary judge erred in construing the phrase "by any Governmental Agency" as qualifying the expression "legal or administrative proceeding". He submits that cl 11.2(b) should be read in two parts: it allows AMCI Investments access to RDA's personnel, documents and records and to take copies of the documents for the purposes of "any actual or threatened (i) legal or administrative proceedings; or (ii) inquiry by any Governmental Agency".

21. In support of that construction, Mr McKenna emphasises the following matters. He argues that the immediate text and structure of cl 11.2 supports his construction, pointing out that cl 11.2(a) and cl 11.2(c), like cl 11.2(b), each contain the word "or" and each concern more than one discrete topic. While accepting that the absence of a comma before "or inquiry" in cl 11.2(b) does not assist his contention, Mr McKenna points out that the drafter of the agreement was not discriminating in the use of commas. He gives by way of example the nonsensical use of the comma in line 2 of cl 11.1 and the absence of a comma separating what he contends are plainly distinct concepts in cl 12.3(b).¹⁰ This haphazard use of commas in the agreement, he submits, means that nothing turns on the comma's absence in cl 11.2(b): cf Chalmers Leask Underwriting Agencies v Mayne Nickless Ltd.¹¹ He also contends that the definition in the agreement of the expression "Governmental Agency" and the use of "by" rather than "brought by" make clear that the words "Governmental Agency" are intended only to relate to "inquiry" because, when read in conjunction with their definitions, they cannot sensibly relate to "legal or administrative proceedings". He argues that whilst an inquiry could be held by a Governmental Agency as defined, "legal or administrative proceedings" are not held "by a government or a governmental, semi-governmental or judicial entity or authority … [or] a self-regulatory organisation established under statute or a stock exchange".¹²

22. Mr McKenna emphasises that sensible limits are placed on the breadth of the phrase "legal or administrative proceedings" by the words in the introductory paragraph of cl 11.2. These require that AMCI Investments' access to RDA's personnel, documents and records be only for the purpose of AMCI Investments' use of them in connection with the matters listed in (a) to (d). AMCI Investments would have no right to have access to personnel, records or documents which did not concern it or companies in its group. The introductory paragraph of cl 11.2(b) also provides other sensible limitations.

Discussion and conclusion

30. Clause 11.2(b) is not in its terms a model of clear drafting. Its meaning is not immediately discernible from its terms. The reasons of the learned primary judge on the one hand, and the detailed submissions of Mr McKenna on the other, starkly demonstrate the persuasive contradictory arguments as to its meaning. I have concluded that the primary judge's construction of cl 11.2(b) should be preferred. This is why.

31. Although there are competing arguments, a reading of the terms of cl 11 itself tends to favour the primary judge's construction of cl 11.2(b). The use of the distinct clauses (a) to (d) and the absence of any comma in cl 11.2(b) suggest that the words "by any Governmental Agency" qualify the words "any actual or threatened legal or administrative proceedings or inquiry". This conclusion is not undermined by the apparently haphazard use of the comma in the second line of cl 11.1, almost certainly a simple typographical error. This construction is also consistent with the use of the comma in cl 11.2(a), which there makes clear that the clause refers to two related but separate concepts, the first being the review of any tax return²⁰ including a review by AMCI Investments, and the second being AMCI Investments' response or compliance with any tax or duty audit. The absence of a comma before "or inquiry" tends to suggest that "by any Governmental Agency" qualifies all the preceding words in cl 11.2(b).

32. The use of the word "by" rather than "brought by" in cl 11.2(b) is, perhaps, inelegant but the same can be said about many clauses in the agreement and, no doubt, many other commercial agreements. A touch of inelegance is not entirely surprising given the complexity of the arrangements in the agreement for the disposition of property and rights between the parties and their associated companies. In any case, as Mr Gotterson QC, who appeared with Mr C A Wilkins for RDA, point out in their written and oral submissions, expressions like "proceedings by the Commissioner" are frequently used in the judgments of learned and experienced judges: see, for example, Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation²¹ and Browne v Commissioner of Taxation.²² The use of the word "by" does not assist Mr McKenna's argument.

33. As Mr Gotterson submitted, the words "and the Note Holder" in the introductory paragraph to cl 11.2 do not suggest that the clause is so badly drafted as to be meaningless and confusing. Whilst the terms of cl 11.2(c) and cl 11.2(d) make clear that those clauses concern only AMCI Investments, cl 11.2(a) and cl 11.2(b) do not specifically refer in their terms to AMCI Investments. Clauses 11.2(a) and (b) are capable of applying to both AMCI Investments and the Note Holder whose role under the agreement means it could well be involved in a tax audit or Governmental Agency legal or administrative proceeding or inquiry. The reference in cl 11.2 to the Note Holder does not assist AMCI Investments' argument as to the construction of cl 11.2(b).

Footnotes

1. Listed in sch 2 to the agreement. ↩

2. Listed in sch 1 to the agreement. ↩

3. Clause 3 of the agreement. ↩

4. Listed in sch 7 to the agreement and, most relevantly, see item 70 set out at [18] of these reasons. ↩

5. Listed in sch 4 to the agreement. ↩

6. Clause 1.1 of the agreement. ↩

7. Clause 1.1 of the agreement. ↩

8. Clause 1.1 of the agreement. ↩

9. Set out at [11] of these reasons. ↩

10. Set out at [16] of these reasons. ↩

11. (1983) 155 CLR 279; [1983] HCA 20 at 285-286. ↩

12. The definition of "Governmental Agency" in cl 1.1 of the agreement. ↩

13. See the definition of "Purchaser Group" in cl 1.1, set out in [15] of these reasons. ↩

14. Set out at [7] of these reasons.