NYOL DOCA
26 The NYOL DOCA commenced on 8 September 2003, upon the execution of each DOCA by all parties (clause 3.1). The parties are NYOL, Newmont Australia and the Deed Administrators/Voluntary Administrators.
27 "Claim" is defined in clause 1.1 to include a claim against NYOL based in tort and sounding only in damages, the circumstances giving rise to which occurred before 3 July 2003 and which would be admissible to proof against NYOL in a winding up. Brandrill's claim for damages against NYOL is a "Claim" within this definition. It therefore is a "Participating Creditor Claim", and consequently Brandrill is a "Deed Creditor" and a "Participating Creditor". Brandrill is bound by the DOCA (clause 10.1), and is precluded from pursuing the Claim (clause 10.2).
28 Brandrill's damages claim is an "Assumed Claim" as defined, because it is a Claim, liability for which is to be assumed by Clynton Court pursuant to the Principal Deed, and also by virtue of the express provisions of clause 11.3. Clause 13 obliges NYOL to execute the Assumption Deed and states that each person bound by the NYOL DOCA (including Brandrill) consents to the "novation" of liability in respect of Assumed Claims pursuant to the Assumption Deed, and releases and discharges NYOL from liability in respect of Assumed Claims.
29 Clause 12 provides for the sequence of events on the Commencement Date. It says that after Clynton Court has assumed liability in respect of the Assumed Claims, the NYOL DOCA terminates.
30 There are provisions for the discharge of Claims and releases, in clauses 14 and 15 of the NYOL DOCA, very similar to the equivalent clauses (clauses 15 and 16) in the Principal DOCA. It is not clear to me how those clauses operate in conjunction with the provisions about assumption of liability. If it is correct that Brandrill's damages claim is a Claim and an Assumed Claim for the purposes of the NYOL DOCA, there are some provisions purporting to cause that Claim to be assumed by Clynton Court, while some other provisions purport to terminate, discharge and release it.
31 I need not resolve that problem here. It is sufficient for present purposes to proceed on the basis that, one way or another, the combined effect of the Deeds is to extinguish Brandrill's damages claim. That is the effect that gives rise to difficulty with respect to NYOL's right of indemnity against its insurers.
32 Clause 23.4 provides:
" 23.4 Proceeds of insurance or reinsurance
Notwithstanding any other provisions of this Deed, the proceeds of contracts of insurance or reinsurance received by [NYOL] will be applied by [NYOL] in the manner that they would be applied under section 562 or 562A of the [Corporations] Act if [NYOL] were being wound up."
33 Arguably, this clause has the same defect as clauses 27.4 and 27.5 of the Principal DOCA. Assuming that the DOCAs have extinguished Brandrill's claim for damages, NYOL's insured loss has arguably been eliminated and its insurers no longer have any liability to indemnify it.
The proposed orders and draft Deed of Rectification
34 The orders proposed in the cross-claim are directed to the position of creditors of an NYOL Group company whose claims are or may be protected by insurance indemnifying that company. The intention underlying the proposed orders is to put those creditors in no worse position than they would have been in liquidation. In a liquidation they would have the benefit of s 562.
35 The proposed orders are to be made under s 447A(1), by reference to a draft Deed of Rectification, which is Schedule 2 to the cross-claim. Section 447A(1) states:
"The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company."
36 The pivotal idea in the Deed of Rectification is said to be that it creates a new class of claim ("Conditional Claim") and a new class of creditor ("Conditional Creditor"). A Conditional Creditor converts into a Participating Creditor in the circumstances described below. The new class of claim consists of claims in respect of an Insured Liability, being a liability which at 8 September 2003 was or may have been an insured risk under any insurance policy effected by or on behalf of NYOL or any other NYOL Group company (see NYOL's written submissions dated 2 November 2005, para 21).
37 Under the proposed orders and Deed of Rectification, the new class of claim is treated differently from other classes of claim in the following ways (see written submissions, para 22):
(a) initially the Conditional Creditor is not a Participating Creditor, does not release or discharge the NYOL Group companies from liability, is free to pursue the Conditional Claim by litigation or otherwise, and is entitled (if successful in its claim) to the proceeds of any relevant insurance policy in a way similar to the operation of s 562 in the case of a liquidation;
(b) then there is a critical date, the Determination Date, being the earliest of:
(i) the date on which the insurer pays all amounts which it assumes liability for or agrees to pay or is found by a court to be liable to pay;
(ii) the date on which the Conditional Creditor or the relevant NYOL Group company exhausts all reasonably available remedies against the insurer; or
(iii) the date on which the insurer is found by a court to be not liable to pay under the relevant insurance policy;
(c) after the Determination Date, the Conditional Creditor (if it has not been paid in full from the insurance proceeds) becomes a Participating Creditor, releases and discharges its Conditional Claim, and is subject to the moratorium, bars and other restrictions applicable to all other Deed Creditors; and it is entitled to prove for the shortfall with the other Participating Creditors in accordance with the terms of the principal DOCA.
38 In my opinion this is a coherent and comprehensive scheme for addressing the problem that has been exposed. I have reviewed the drafting of the Schedules to the Deed of Rectification with a view to satisfying myself that they reflect the scheme that I have just outlined. I am satisfied that they do. I have not attempted to review or assess the drafting as such. That is a matter for which the applicants must take responsibility.
39 There are four principal orders proposed, rectifying respectively the Principal DOCA, the Secondary DOCAs, the Assumption Deed and the Deed of Release. In each case the text of the rectification effected by the order is identified by reference to the relevant schedule of the Deed of Rectification. That seems to me an appropriate method of achieving precision.
40 The cross-claim provides two alternative forms of order for the rectification of the DOCAs. The first form, while it is said to be made pursuant to s 447A(1), is an order that the DOCA be rectified in accordance with and upon the terms specified in the relevant schedule to the Deed of Rectification. The second form, an alternative to the first, is an order under s 447A(1) that Part 5.3A is to operate in relation to a company (specifying the company to which the particular DOCA relates) as if the deed of company arrangement given effect to pursuant to s 444A and executed pursuant to s 444B was constituted by the DOCA dated 8 September 2003 between the stated parties, as rectified in accordance with and upon the terms of the relevant schedule to the Deed of Rectification.
41 In my opinion the second alternative form of order is to be preferred, because it is faithful to the wording of s 447A(1), which is the source of the power to make the order. The court is authorised by that subsection to make an order as to how Part 5.3A is to operate in relation to a particular company. It is desirable, in my opinion, to adopt a form of words that transparently indicates that the court is doing what the subsection authorises.
42 The two proposed orders rectifying the DOCAs are expressed to take effect when the Deed of Rectification is executed by all the parties to it. There is a requirement, within 7 days of execution, for NYOL to notify Other Participating Creditors (as defined) by giving them a notice of the kind contemplated by s 450B(a) (the notice which a deed administrator must give to each creditor when a deed of company arrangement is executed). The order requires NYOL to cause the notice to be published in a national newspaper, and to lodge a copy of the Deed of Rectification and a copy of the orders with ASIC. Those requirements seem to me to be appropriate.
43 The draft Deed of Rectification is between Newmont Australia, Clynton Court, each NYOL Group company, and Messrs Mentha and Korda in their capacity as former voluntary administrators and as deed administrators of Clynton Court and the NYOL Group companies. After recitals and definitions, the draft Deed contains acknowledgements by the parties as to their intention to preserve creditors' rights with respect to insurance policies of NYOL Group companies, at the time of the execution of the DOCAs, the Assumption Deed in the Deed of Release. Then the proposed Deed provides that the respective instruments are each rectified, and that the parties agree to the corrections in the respective schedules, with effect from 8 September 2003.
The court's power to make the proposed orders
44 The cross-claim contemplates, as I have explained, that the parties to all of the instruments to be rectified will execute a Deed of Rectification, declaring their true intention and stating their agreement that the instruments be "rectified" in specified ways. One might ask why it is necessary for the court to make any order at all, if the parties have reached such an agreement.
45 Part of the answer to that question lies in the parties' wish for their agreed "rectification" to be effected as from 8 September 2003. An agreement inter partes to alter the effect of their prior agreement is a variation, rather than a rectification, of what they have previously agreed. In the absence of a court order for rectification, it cannot operate to correct the mistake retrospectively. This problem could be addressed by the court exercising its general equitable jurisdiction to rectify the instruments. In my view the evidence clearly shows that the parties were in agreement as to what they wished to achieve, namely arrangements in which creditors would not be in a worse position than in a liquidation, but by common mistake in the drafting of the deeds, their intention was not properly effectuated. There is therefore jurisdiction to rectify the instruments (generally as to equity's jurisdiction to rectify, see Meagher, Gummow & Lehane's Equity Doctrines & Remedies, 4th ed, 2002, Ch 26). That jurisdiction may be sufficient for the rectification of the Assumption Deed and the Deed of Release, though since they are supplementary to the DOCAs, which make provision for them to be executed, they are also amenable to any statutory jurisdiction which allows the court to rectify the DOCAs.
46 Another part of the answer to the question is that a deed of company arrangement has a statutory effect, and orders of the court are needed to alter that statutory effect. Part 5.3A gives a deed of company arrangement special characteristics including the following:
· the deed binds all creditors of the company, as regards claims arising on or before the specified day (s 444D(1));
· the person bound by the deed cannot make an application to wind the company up, or bring or proceed with any proceeding against the company without the court's leave (s 444E);
· the deed binds the company's officers and members, as well as the company itself and the deed's administrator (s 444G);
· the deed releases the company from a debt if the deed provides for the release and the creditor is bound by the deed (s 444H).
47 An instrument inter partes could not achieve those outcomes by its own force. To the extent that the varied instrument needs to rely for its efficacy on any of those statutory effects, it is necessary that the variation become part of the deed of company arrangement for the purposes of the statute. A fortiori, if the intention is to rectify the instrument so that it is treated as if it was always in the rectified form. Those outcomes can only be achieved if the court makes an order having statutory effect. The only available provision for doing so is s 447A(1). The question is whether it is wide enough to permit the court to make the orders sought in the cross-claim, and if it is as a general matter, whether the orders may be made now, several years after the DOCAs were made and substantially performed, and after some of the DOCAs have been terminated.
48 The breadth of the court's power under s 447A(1) was confirmed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The particular question before the court in that case was whether s 447A(1) confers on the court the power to make an order altering the time fixed by s 439A within which the second meeting of creditors must be held. The High Court found that the section was wide enough to permit such an order to be made, and their Honours (Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ) made some more general observations about the scope of s 447A and the limitations inherent in it. They held that there was nothing on the face of s 447A suggesting that should be read down (at 279). They recognised that the scope of the section was limited by the words "how this Part is to operate", an expression looking to the future, not the past. But those words are satisfied if the order has effect only from the time of its making, although the order relates to past matters or events (at 282).
49 In the present case, orders can be made that Part 5.3A (which includes such provisions as ss 444D, 444E, 444G and 444H) is to operate in relation to Clynton Court and each of the NYOL Group companies as if the deed of company arrangement adopted on 8 September 2003 was the deed in rectified form. The order has the effect that hereafter, Part 5.3A is to be applied as if the DOCA was in the rectified form from the time of its execution.
50 It is now well established that orders of this kind, amounting to orders for the rectification or amendment of a deed of company arrangement, can be made under s 447A(1). A recent example of such an order may be found in Ansett Australia Ltd v Ansett Australia Ground Staff Superannuation Plan Pty Ltd [2002] VSC 114. In that case Warren J (as she then was) reviewed the authorities and concluded that they support the making of orders for the amendment of a deed of company arrangement. The foundation case is Mulvaney v Rob Wintulich (1995) 60 FCR 81, at 83 per Branson J. That case was decided before Australasian Memory, but Australasian Memory confirms the breadth of the power and reinforces the line of cases on amendments to deeds. I see no difference in principle, as regards the scope of the power, between an order amending a deed for the future, and an order having the effect of treating the deed as rectified from the time of its execution.
51 Counsel for the cross-claimants drew my attention to the question whether it is necessary, before making an order rectifying a deed of company arrangement, to make orders for the representation of the creditors affected by the deed. The issue was raised by Finkelstein J in Re Pasminco Ltd (Subject to Deed of Company Arrangement) (No 2) [2004] FCA 656. His Honour acknowledged that in earlier cases, orders for the amendment of a deed of company arrangement had been made without the creditors bound by the deed being before the court (including, I interpolate, the cases cited above). However, he said (at [19]) that he was not prepared to assume that an effective order could be made without the presence of the creditors.
52 It is not necessary for me to decide this issue in general terms. In the present case, the rectification of the Deeds will put all parties in the position that they were led to expect would be the position obtaining under the Deeds, when the issue was raised at the second creditors meetings (see below). The orders will have the effect of removing Brandrill (and, theoretically, any other creditor in the same position) from the class of Other Participating Creditors, except to the extent of any shortfall in the insurance recovery. To the extent that Brandrill's claim is satisfied from insurance proceeds, there will necessarily be a greater amount available from the NAL General Contribution for distribution to the remaining Other Participating Creditors. Consequently the rectification orders can only benefit other creditors. I am fortified in that conclusion by the fact that, having been given the opportunity to appear at the hearing of the cross-claim, J. Aron (the main Other Participating Creditor in terms of size of claim) chose not to do so.
53 In my opinion the facts that the DOCAs have been largely performed, and that some of them have been terminated, do not present obstacles to the making of orders under s 447A(1) in the present case. The orders will not adversely affect accrued rights of creditors, for the reason I have just given. NYOL's insurers are before the court as cross-defendants and do not oppose the orders. No other accrued third-party rights will be affected by the orders.
54 In the Australasian Memory case the High Court expressly rejected a submission that s 447A does not apply unless there is a continuing administration or an extant deed of company arrangement (at 282). That reasoning has been applied to hold, for example, that s of 447A may be used to relieve the liquidator, in a creditors voluntary winding up that has arisen from a voluntary administration, from the requirement to convene and hold a meeting of members under s 508(1)(b) (Gibbons v LibertyOne Ltd (in liq) (2002) 41 ACSR 442), and to cure a lack of quorum of properly appointed directors at a meeting where a resolution is purportedly passed to appoint voluntary administrators (Re Wood Parsons Pty Ltd (in liq) (2002) 43 ACSR 257). The power is wide enough to permit orders having the effect of rectifying deeds of company arrangement that have been terminated.
Discretionary considerations
55 In my opinion, the cross-claimants have made out the case for the court to exercise its power in the manner proposed. The principal consideration bearing on the exercise of the court's discretion is that at the second creditors meetings, Newmont Mining's solicitor represented to the solicitor of Brandrill's insurers that creditors would not be worse off than they would be in a liquidation, after his attention was specifically drawn to the problem concerning insurance proceeds and s 562.
56 Leon Zwier, now the solicitor for NYOL, gave affidavit evidence in support of the cross-claim. He attended the second meetings of creditors on behalf of Newmont Mining Corporation and its subsidiary, Newmont Australia. He had the following conversation with Terry Clavey, a solicitor who attended the meetings on behalf of Brandrill's insurers (as reflected in the minutes of the meetings):
Mr Clavey: "Mr Zwier, you've said that the DOCA doesn't operate in a prejudicial way. In relation to Brandrill's claims made by its insurer which are subject to Supreme Court proceedings, in the event that the company is liquidated, Brandrill by its insurers will have a right to pursue Newmont's insurers directly. If the DOCA is passed, that right is lost and the claims made by the insurers are compromised for a lower amount. Would you concede that in that respect the DOCA operates prejudicially in relation to their interests and would you be prepared to amend the DOCA to accommodate that situation by excluding the Supreme Court action from the compromise?
Mr Zwier: "Can I just say this very briefly: the DOCA has got a guarantee about creditors not being worse off than what they would be in a liquidation, and that's contained within its terms. Secondly, we're drilling down into the kind of level of detail which I think I said to you before would be best dealt with by us off line rather than having every single creditor involved in it, but I can tell you that Newmont's commitment is that no creditor, including you, should be unfairly prejudiced by this proposal, and its proposal is lawful and proper. It is put into its DOCA that the liquidation proof rules apply so that the rights of set-off that would apply in a liquidation will apply equally here, and to the extent that there may be underlying insurance issues, we should look at it and deal with it off line. I think that's probably the better way to do it."
57 Mr Zwier gave evidence that shortly after the second meetings of creditors had approved the DOCA, he reviewed the proposed deeds in light of Mr Clavey's concerns. He added clauses 27.4 and 27.5 to the Principal DOCA and clause 23.4 to the secondary DOCAs.
58 Subsequently Mr Clavey's firm and Mr Zwier's firm engaged in correspondence in which Mr Clavey's firm expressed concern that Brandrill's claim in the Supreme Court of Western Australia might be prejudiced as a result of the DOCAs in the form in which they were entered into. The present proceeding was initiated and eventually Mr Zwier's firm and counsel prepared the cross-claim and draft Deed of Rectification.
59 In my opinion it is appropriate for the court to exercise its power with a view to giving effect to the intention that the relevant parties had when the proposed DOCAs were considered by creditors, and at all subsequent times.
60 I have considered whether it would be preferable for the Deed Administrators to seek a variation of the DOCAs by a resolution of creditors under s 445A. I think rectification by court order is preferable for two reasons. One is that the orders can have the effect that the instruments are to be read hereafter as if they were always in the rectified form. The other is that the issues for consideration are complex technical issues better dealt with by the court than in a general meeting of creditors, even allowing for the fact that most of the former creditors have by now been paid.
Conclusions
61 I shall make orders in terms of paragraphs 2, 4, 5 and 6 of the interlocutory process for the cross-claim. I shall direct the cross-claimants to prepare short minutes of orders replicating those paragraphs, and attaching a copy of the draft Deed of Rectification, so that I can formally make the orders in chambers.
62 The cross-claim seeks an order for costs. Counsel for the plaintiffs indicated at the hearing of the cross-claim that he wishes to have the opportunity to make submissions as to costs, especially given the likelihood that my decision on the cross-claim would bring to an end the proceeding as a whole. I shall fix a time to hear the submissions of the parties on costs.