Chartbrook Limited v Persimmon Homes Limited

Counsel for the Defendants: P J Jopling QC with E A Gisonda

Solicitor for the First Defendant: Corrs Chambers Westgarth

Solicitor for the Second, Third and Fourth Defendants: Norton Rose Fulbright Australia

ORDERS VID 527 of 2016 IN THE MATTER OF ARRIUM LIMITED (ADMINISTRATORS APPOINTED) BETWEEN: MARK FRANCIS XAVIER MENTHA, CASSANDRA MATHEWS, MARTIN MADDEN AND BRYAN WEBSTER IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF ARRIUM LIMITED (ADMINISTRATORS APPOINTED) First Plaintiffs

ARRIUM LIMITED (ADMINISTRATORS APPOINTED) (AND OTHERS NAMED IN THE SCHEDULE) Second Plaintiffs

AND: GSO CAPITAL PARTNERS LP (AND OTHERS NAMED IN THE SCHEDULE) First Defendant

JUDGE: DAVIES J DATE OF ORDER: 15 NOVEMBER 2016

1. The parties are directed to provide a minute of orders giving effect to these reasons. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 Arrium Limited (administrators appointed) ("Arrium") is the parent company of the Arrium Group of Companies ("Arrium Group"), which includes Arrium Finance Pty Ltd (administrators appointed) ("Arrium Finance") and Arrium Iron Ore Holdings Pty Ltd (administrators appointed) ("Arrium Iron Ore"). GSO Capital Partners LP ("GSO") is part of the Blackstone Group and is in the business of managing investment funds that have a focus on debt investment. The other parties to the proceeding (together "the BNY Parties") are BTA Institutional Services Australia Limited, BNY Trust Company of Australia Limited ("BNY Australia") and BNY Trust Company of Canada ("BNY Canada"). 2 In late 2015, GSO started examining the possibility of investing money in Arrium to allow Arrium to achieve a recapitalisation. In early 2016, GSO formulated an initial proposal for Arrium, which involved a debt forgiveness by certain of its lenders, a restructure and a capital raising and, in order to give time to allow that plan to be achieved, an emergency facility. 3 In February 2016, the parties entered into arrangements to work towards the proposed recapitalisation plan for the Arrium Group and to provide Arrium with access to temporary funding, if required, whilst the proposed recapitalisation was progressed. The key elements of the recapitalisation plan were set out in a Recapitalisation Deed between Arrium and GSO dated 22 February 2016 ("Recapitalisation Deed") and four associated term sheets. At around the same time, Arrium Finance and Arrium Iron Ore (together "the Arrium Borrowers") and Arrium as the parent entered into a US$140 million syndicated secured loan facility with the BNY Parties and certain other participants affiliated with GSO ("Interim Facility"). The terms of the Interim Facility were recorded in, and evidenced by, the following documents: (a) an Interim Facility Agreement ("Interim Facility Agreement") between Arrium, the Arrium Borrowers, the BNY Parties and certain other participants affiliated with GSO; (b) a Security Trust Deed ("Security Trust Deed") between Arrium Finance and the BNY Parties; (c) two Pledge and Security agreements ("Pledge and Security Agreements") between various Arrium Group companies conducting the business known as the "Moly-Cop" business ("the Moly-Cop Security Grantors") and the BNY Parties; and (d) two Accession Deeds ("Accession Deeds") between the Moly-Cop Security Grantors and the BNY Parties. 4 The Arrium Borrowers utilised the Interim Facility and drew down US$100 million in two tranches. The recapitalisation did not, however, proceed as it was conditional on Arrium's existing debt holders approving the redemption or repayment of their existing debt at less than par, using the funding that would become available if the recapitalisation went ahead, ("the Debt Compromise"). The Debt Compromise was formally rejected by the existing debt holders on 1 April 2016 and on 2 April 2016, Arrium notified GSO of the rejection. 5 On 7 April 2016, Arrium and 93 of its subsidiaries, including the Arrium Borrowers, were placed into voluntary administration. The appointment of administrators was an "Event of Default" under the Interim Facility Agreement, triggering the BNY Parties' right to immediate payment of the amounts owing under the Interim Facility.

Summary of Issues 6 The Arrium Borrowers repaid the US$100 million of interim funding but the parties are in dispute over other amounts that GSO and the BNY Parties claim to be entitled to be paid under the terms of the Recapitalisation Deed and the Interim Facility Agreement, and are also in dispute over the extent of the liabilities secured by the Pledge and Security Agreements. The liabilities in dispute relate to a "Work Fee" of approximately US$9 million and certain costs and expenses falling into the following categories: (a) "Category A": being the costs and expenses of the BNY Parties in relation to the negotiation and preparation of the "Transaction Documents" which the Arrium Borrowers were conditionally liable to pay under cl 24.1(b) of the Interim Funding Agreement; (b) "Category B": being costs and expenses of the BNY Parties in relation to an "Event of Default" or "Potential Event of Default" specified in cl 20.1 of the Interim Facility Agreement. The parties are only in dispute over two items, namely an amount of $440,000 invoiced by McKinsey & Company, and an amount of $600,000 invoiced by Deloitte; (c) "Category C": being other costs and expenses payable by Arrium to GSO under the Recapitalisation Deed. 7 In issue is: (a) whether Arrium is liable to pay a "Work Fee" of approximately US$9 million to GSO under the Recapitalisation Deed; (b) whether the work fee (if payable) and the "Category C" costs and expenses are secured obligations under Art II of the Pledge and Security Agreements, or recoverable under an indemnity clause in those agreements; (c) whether the condition for the payment of the "Category A" costs and expenses under cl 24.1(b) of the Interim Facility Agreement was met; (d) if not, whether the "Category A" costs and expenses are nonetheless independently recoverable by GSO and the BNY Parties under an indemnity clause in the Pledge and Security Agreements; (e) whether the two disputed expenses in "Category B" were incurred by the BNY Parties in relation to an "Event of Default" or "Potential Event of Default" specified in cl 20.1 of the Interim Facility Agreement. 8 The plaintiffs have sought directions pursuant to s 447D(1) of the Corporations Act 2001 (Cth) and declarations to the effect that Arrium is not obliged to pay the Work Fee at all and that none of the amounts payable by Arrium to GSO under the Recapitalisation Deed (including the Work Fee if payable) are secured obligations or indemnified liabilities under the Pledge and Security Agreements. 9 GSO and the BNY Parties have cross-claimed for the amounts they claim that the Arrium parties are liable for under the Recapitalisation Deed and Interim Facility Agreement, and seek a declaration that such amounts are all secured by the terms of the Pledge and Security Agreements.

The Key Documents 10 Before turning to the issues for determination, it is useful to provide an overview of the key documents.

Recapitalisation Deed 11 The Recapitalisation Deed was entered into on 22 February 2016 by Arrium and GSO and is to be construed in accordance with the laws of New South Wales (cl 26). 12 The Recapitalisation Deed set out the terms and conditions on which the parties agreed to work together in order to progress the recapitalisation of Arrium and its subsidiaries, and to seek agreement with respect to certain debt holders in order to implement the recapitalisation (Recital B). 13 "Recapitalisation" was defined relevantly as follows in cl 1.1: Recapitalisation the recapitalisation of the Group in a manner consistent in all material respects with the Term Sheets taken as a whole, involving, among other things: 1 certain GSO Affiliates providing the Senior Facility to the Group in the amount of USD665 million; 2 certain members of the Group entering into a Working Capital Facility of A$500 million or GSO and/or certain GSO Affiliates making available a working capital line of the USD equivalent of A$500 million; 3 the proceeds (net of expenses and restructuring costs) of the debt and equity funding referred to in paragraphs 1 and 6 of this definition being used to repay or redeem, at less than par value, the Compromise Debt; 4 the remainder of the Compromise Debt being extinguished or otherwise retired in full; 5 … 6 … 14 The key features of the proposed recapitalisation were set out in the Term Sheets (cl 2(a)). 15 Clause 2(b) contained the parties' acknowledgement of conditions that needed to be satisfied for the recapitalisation to proceed and cl 2(c) contained the parties' agreement to work together in good faith to pursue the recapitalisation. Clauses 2(b) and (c) provided: 2 Recapitalisation (a) …. (b) The parties acknowledge that there will be a number of conditions which will need to be satisfied in order for the Recapitalisation to proceed. Such conditions include: (1) procuring the Debt Compromise as set out in clause 4; (2) agreeing and finalising the Recapitalisation Documents; and (3) (A) completion of due diligence in relation to the business and operations of the Group to GSO's satisfaction and (B) final investment committee approval of GSO of the Recapitalisation (GSO Condition). (c) The parties agree to work together in good faith to pursue the Recapitalisation, including by: (1) complying with their obligations in clauses 3 (Outstanding Due Diligence), 4 (Debt Compromise) and 9 (Finalisation and entry into Recapitalisation Documents); and (2) attending weekly update meetings at which: (A) the parties will address and seek to close off issues arising in relation to GSO's outstanding due diligence and the finalisation of the Recapitalisation Documents; and (B) GSO will confirm whether it and/or the relevant GSO Affiliates continue to be willing to enter into the Recapitalisation Documents. 16 "GSO Condition" was a defined term and given the meaning in cl 2(b) (cl 1.1). 17 Clause 4 required the parties to work together to seek the debt holders' agreement on the Debt Compromise. 18 Clause 9 required the parties to work together to finalise and enter the agreements implementing the recapitalisation "by 5.00 pm on the day prior to the End Date". The "End Date" was defined relevantly as 5 April 2016 (cl 1.1). Clause 9(b) provided that: By no later than 5.00pm on the day prior to the End Date, GSO must confirm to [Arrium] whether or not the GSO Condition has been fulfilled. 19 Clause 10.1(a) set out the "Work Fee" that Arrium was liable to pay GSO if the "Recapitalisation Implementation Agreement" was signed by 11.59pm on the End Date. Clauses 10.1(b) and (c) set out the "Work Fee" that Arrium was liable to pay GSO if the "Recapitalisation Implementation Agreement" was not signed as follows: 10.1 Work Fee … (b) (Work Fee if Recapitalisation Implementation Agreement not signed) Subject to clause 10.1(c), if the Recapitalisation Implementation Agreement has not been signed, [Arrium] will be liable to pay a fee to GSO and/or the GSO Affiliates as notified by GSO in the specified amount set out below (Work Fee) on the day which is no later than five Business Days after the date of the earliest to occur of the following events: (1) … (2) (No lender support) [Arrium] notifies GSO in writing that it has become aware that such number of Compromise Debt Holders object to the Debt Compromise … such that [Arrium] has determined in good faith that it is not reasonably likely that the Debt Compromise will be achieved before 11.59 pm on the End Date in which case the specified amount of the Work Fee will be an amount equal to A$10 million multiplied by A/B where: A … B … and, upon payment of such amount [Arrium] shall cease to have any further obligations to pay a Work Fee under this deed and the deed shall terminate; and (3) … If the Work Fee is paid, GSO cannot, and must not, make any Claim (including under clause 14 or otherwise) which relates to the event that gave rise to the right to be paid the Work Fee if that event is one of the events referred to in clauses 10.1(b)(1), 10.1(b)(2) or 10.1(b)(3)(B). For the avoidance of doubt, if one of those events occur, the Company shall have no obligation to sign any Recapitalisation Documents. (c) (No Work Fee - GSO fault) Despite any other provision in this deed, GSO and/or the GSO Affiliates is/are not entitled to a payment under this clause 10.1 if: (1) (Material breach by GSO) [Arrium] terminates this deed under clause 19.1(b)(4); (2) (GSO not satisfied with DD) this deed is terminated under clause 3.2(b) or GSO does not give [Arrium] the confirmation under clauses 9(b) by the time specified therein; or (3) (GSO declines to sign RIA) except in circumstances where clause 10.1(b) applies, and provided [Arrium] has complied with its obligations under clause 9, GSO is not ready, willing and able to sign the Recapitalisation Implementation Agreement which is in a form and substance consistent with the RIA Term Sheet and this deed in all material respects by 11:59pm on the End Date. 20 The "Recapitalisation Implementation Agreement" was defined as the "full form recapitalisation implementation agreement substantially reflecting the terms of the RIA Term Sheet": cl 1.1. 21 Clause 13.1 contained the parties' acknowledgement that GSO had incurred, and would continue to incur, significant costs and expenses as part of the recapitalisation work. Clause 13.2 provided for Arrium to reimburse GSO for its out-of-pocket expenses as follows: 13.2 Reimbursement of costs and expenses (a) … (b) Subject to clause 13.2(c) … [Arrium] will pay to GSO an amount equal to the reasonable out of pocket expenses of GSO, and the reasonable third party accounting, tax and legal advisory expenses … incurred by GSO… in connection with: (1) the negotiation, development and implementation of the Recapitalisation, including its due diligence investigations into [Arrium]; (2) its negotiation of an agreeable structure for the Recapitalisation with [Arrium]; (3) its negotiation and drafting of this deed and the Recapitalisation Documents; and (4) all reasonable incidental professional advice in connection with the Recapitalisation, (Cost Reimbursement) (c) GSO: (1) represents and warrants that it has provided to [Arrium] its best estimate of the Cost Reimbursement for the period from the date of this deed until the End Date which [Arrium] acknowledged and agreed to - that number is A$3 million (exclusive of GST); and (2) must provide to [Arrium], prior to entry into the Recapitalisation Implementation Agreement, its best estimate of the Cost Reimbursement from entry into the Recapitalisation Implementation Agreement until Completion, (each a Phased Estimate). [Arrium] shall not be obliged to pay GSO for any Cost Reimbursement to the extent that the Cost Reimbursement amount exceeds the Phased Estimate amounts agreed to between [Arrium] and GSO (each acting reasonably). If GSO considers that any Phased Estimate amount agreed with [Arrium] is not sufficient to cover GSO's costs and expenses referred to in clause 13.2(b) above, then GSO may seek [Arrium's] consent to increase the Phased Estimate, such consent not to be unreasonably withheld… 22 Clause 19 provided for the termination of the agreement. Clause 19.1 relevantly provided: 19.1 Termination … (b) This deed may be terminated with immediate effect by notice in writing by either party if: (1) … (2) … (3) by 5.00pm on the day before the End Date, GSO has not confirmed to [Arrium] in writing that the GSO Condition has been satisfied; … 23 Clause 21 provided for how notice must be given and when it is received. The clause relevantly provided: 21.1 Form of Notice A notice or other communication to a party under this deed (Notice) must be: (a) in writing and in English; and (b) addressed to that party in accordance with the details nominated in Schedule 1 (or any alternative details nominated to the sending party by Notice). 21.2 How Notice must be given and when Notice is received (a) A Notice must be given by one of the methods set out in the table below. …. Method of giving Notice When Notice is regarded as given and received By hand to the nominated address When delivered to the nominated address By pre-paid post to the nominated address At 9.00am on the second Business Day after the date of posting By fax to the nominated fax number At the time indicated by the sending party's transmission equipment as the time that the fax was sent in its entirety. However, if the recipient party informs the sending party within four hours after that time that the fax transmission was illegible or incomplete, then the Notice will not be regarded as given or received. When calculating this 4 hour period, only time within a business hours period is to be included. By email to the nominated email address the first to occur of: 1 the sender receiving an automated message confirming delivery; or 2 two hours after the time sent (as recorded on the device from which the email was sent) provided that the sender does not receive an automated message that the email has not been delivered.

Interim Facility Agreement 24 This agreement was entered into on 22 February 2016 by Arrium, the Arrium Borrowers, the BNY Parties and certain other participants affiliated with GSO and is governed by the laws of New South Wales. 25 The agreement was a syndicated secured loan facility in which the "participants" agreed to provide the Arrium Borrowers with a term facility up to a maximum of US$140 million while the proposed recapitalisation was progressed. 26 Clause 5 of the agreement limited the purpose for which the proceeds of each drawing could be used. Clause 11 imposed a liability to pay interest on any drawing, and under cl 13 any outstanding principle and interest was repayable on the termination date. Under clause 20.1(f) it was an Event of Default if an administrator was appointed to any of the Arrium parties, and under cl 20.3 the amount owing could be declared immediately due and payable following an Event of Default. 27 Under cl 24.1 the Arrium Borrowers were obliged to pay, on demand, various costs and expenses of each of the BNY Parties and the participants. Clause 24.1(b) and (c) relevantly provided: 24.1 Generally The borrowers must on demand pay: … (b) all costs and expenses (including legal fees) of each Indemnified Party in relation to the negotiation, preparation, execution, delivery, stamping, registration and completion of any Transaction Document, subject to such costs having been approved in writing by the Parent prior to being incurred and to any caps required by the Parent as a condition of that approval; and (c) all costs and expenses (including, without limitation, any legal costs and expenses, on a solicitor and own client or full indemnity basis, whichever is greater, and any fees of consultants): (i) of any Indemnified Party relating to or in connection with an Event of Default or Potential Event of Default; or …. 28 "Transaction Document" was defined in cl 1.1 to mean, relevantly: Transaction Document means each of: … (h) the Security Trust Deed; (i) each Security Document; (j) each STD Accession Deed (Obligor); (k) each STD Accession Deed (Beneficiary); (l) a document that the Borrowers and the Agent agree is a Transaction Document; and (m) a document or agreement entered into or provided under or in connection with, or for the purpose of amending or novating, any of the above. 29 By cl 26, the Arrium Borrowers indemnified each of the BNY Parties and the participants for any loss in respect of an actual or potential Event of Default. Under cl 34.5(a)(iv) each indemnity in the Pledge and Security Agreements constituted a separate and independent obligation of the party giving the indemnity from its other obligations under the Transaction Documents. 30 Clause 27.2 provided for interest to accrue on each unpaid amount that was due and payable by the Arrium Borrowers in respect of any Transaction Document.

Security Trust Deed 31 This deed was entered into on 22 February 2016 by Arrium Finance, and the BNY Parties and is governed by the laws of New South Wales. 32 Under cl 2.1 BNY Australia and BNY Canada each declared that they held certain assets on trust. The beneficiaries of these trusts included each of the creditors under the Interim Facility Agreement, GSO and each of the BNY Parties. 33 Under cl 2.4 each "Security Provider" was obliged to pay the "Secured Money" due and payable by it in accordance with the "Finance Documents" and each other obligation under which the "Secured Money" was payable. Clause 2.4(a) provided: Payment of Secured Money Each Security Provider must pay the Secured Money due and payable by it in accordance with the Finance Documents and each other obligation under which the Secured Money is payable. 34 "Finance Document" was defined in cl 1.1 relevantly to mean: Finance Document 1 this deed; 2 each Security; 3 the IFA; 4 the Group Guarantee; 5 any other document defined in a Security as a 'Finance Document'; 6 any other document which is a Security Trust Document; 7 each Accession Deed; 8 each other document which is agreed in writing by the relevant Security Trustee (acting on the instructions of all the Beneficiaries) and the Company to be a Finance Document; and 9 and any document or agreement entered into or provided under or in connection with, or for the purpose of amending, assigning, or novating, any of the above. (italics added for emphasis) 35 "Secured Money" was defined in cl 1.1 relevantly to mean: Secured Money the Recapitalisation Liabilities and all debts and monetary liabilities of the Obligors to any of the Beneficiaries under, or in relation to, any Finance Document in each case and in any capacity, irrespective of whether the relevant debts or liabilities: …. 36 "Recapitalisation Liabilities" was defined in cl 1.1 relevantly to mean: Recapitalisation Liabilities any 'Debt Commitment Fee' or 'Break Fee' (however defined), payable by an Obligor to a Recapitalisation Beneficiary under, the RIA (being the fees that are described as the 'Debt Commitment Fee' and 'Break Fee' in the term sheet for the RIA agreed between GSO and [Arrium] on or about the date of this deed). 37 "Obligor" was defined in cl 1.1 to mean: Obligor 1 [Arrium Finance]; 2 [Arrium]; 3 each Guarantor; and 4 any other person who becomes a party to this deed by executing an Accession Deed (Security Provider) in the capacity of an Security Provider'. 38 "RIA" was defined in cl 1.1 to mean: RIA the recapitalisation implementation agreement to be entered into between one or more Affiliates of GSO and [Arrium] (whether with or without others), as contemplated by the Recapitalisation Deed. 39 Also defined in cl 1.1 was: Recapitalisation Deed the recapitalisation deed dated on or about the date of this deed between [Arrium] and GSO. Security Provider a person who has granted a Security. Security at any time, each of the following which has been granted at that time: 1 any Security Interest entered into by or granted by a Security Provider in favour of a Security Trustee (as trustee under this deed) or the benefit of which a Security Trustee acquires after the date of this deed as security for the payment of any of the Secured Money; 2 the Initial Security; 3 any Collateral Security; and 4 any other document which the relevant Security Trustee (acting on the instructions of all the Beneficiaries) and the Company agree at any time, now or in the future, is a Security for the purposes of this deed.

Pledge and Security Agreements 40 The two Pledge and Security Agreements were executed on 29 February 2016, being a pledge and security agreement between Molycop Steel Inc, Altasteel Limited, Moly-Cop Canada and Maple Leaf Metals (a partnership) as grantors of security and BNY Canada ("the Canadian Pledge"), and a pledge and security agreement between Onesteel Group (US Holdings) Inc and Moly-Cop USA LLC as grantors of security, and BNY Australia ("the New York Pledge"). The documents are in substantially similar terms, save that one is to be construed in accordance with the law of New York and the other is to be construed in accordance with the law of the Province of Alberta and the Federal Laws of Canada, where applicable. 41 The grant of security interest was provided for in Article II of each Pledge. 42 Article II of the New York Pledge relevantly provided: Grant of Security Interest Each of the Grantors hereby pledges, assigns and grants to the Security Trustee, on behalf of and for the benefit of the Secured Parties, a security interest in all of such Grantor's right, title and interest, whether now owned or hereafter acquired or arising, in and to the Collateral to secure the prompt and complete payment and performance of the Secured Obligations…. 43 Article II of the Canada Pledge was substantially in the same terms. Clause 2.1 relevantly provided: Grant of Security Interest Security Interest. Each of the Grantors hereby pledges, assigns and grants to the Security Trustee, on behalf of and for the benefit of the Secured Parties, a continuing security interest ('the Security Interest') in all of such Grantor's right, title and interest, whether now owned or hereafter acquired or arising, in and to the Collateral to secure the prompt and complete payment and performance of Grantor's Secured Obligations…. 44 Clause 1.1 of both pledges provided that: Terms Defined in the Security Trust Deed. All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Security Trust Deed. 45 Under the New York Pledge cl 1.6 defined the following terms: "Secured Obligations" means the "Secured Money" under, and as defined in, the Security Trust Deed. "Secured Party" means each "Beneficiary" under, and as defined in, the Security Trust Deed. 46 Under the Canadian Pledge cl 1.6 defined the following terms: "Secured Obligations" means, with respect to each Grantor, the "Secured Money" of such Grantor owing to the Secured Parties under, and as defined in, the Security Trust Deed. "Secured Party" means each "Beneficiary" under, and as defined in, the Security Trust Deed. 47 GSO accepted that the substance of the definition of "Secured Obligations" under the Canadian Pledge was the same as in the New York Pledge. 48 Further in each pledge, the Grantors gave an indemnity under clause 8.17 as follows: 8.17. Indemnity. Each Grantor hereby agrees, jointly with the other Grantors and severally, to indemnify, reimburse and hold harmless the Security Trustee and the Secured Parties, and their respective successors, assigns, directors, agents and employees (each an "Indemnitee" and collectively, the "Indemnitees"), from and against any and all liabilities, obligations, damages, injuries, penalties, claims, demands, suits, costs, and expenses of any kind and nature (including, without limitation, all expenses of litigation or preparation therefor whether or not the Security Trustee or any Secured Party is a party thereto) imposed on, incurred by or asserted against the Indemnitees, in any way relating to or arising out of this Security Agreement or any other Finance Document, or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent and other defects, whether or not discoverable by the Security Trustee or the Secured Parties or any Grantor, and any claim for patent, trademark or copyright infringement). … 49 Each pledge also contained a "Conflicts" clause (cl 8.21 of the New York Pledge and cl 8.24 of the Canadian Pledge): Conflicts. Notwithstanding anything to the contrary contained herein, this Security Agreement is granted subject to the covenants, conditions, limitations and other provisions contained in the Security Trust Deed; provided, that in the event of any conflict or discrepancy between the terms of this Security Agreement, on the one hand, and the Security Trust Deed, on the other, the Security Trust Deed shall control…

Accession Deeds 50 There are two Accession Deeds (Security Provider) dated 29 February 2016 and governed by the law of New South Wales. Each of the Accession Deeds had the effect of making the "Security Grantors" a party to and bound by the Security Trust Deed as an "Obligor" and a "Security Provider". These expressions were given the same meaning as defined in the Security Trust Deed.

Work fee 51 The parties are in dispute over whether a Work Fee of A$9,090,909 is payable under cl 10.1(b)(2) of the Recapitalisation Deed. The dispute arises because the GSO condition (as defined in cl 2(b)(3)) was not fulfilled, the recapitalisation of the Arrium Group did not proceed and the Recapitalisation Implementation Agreement was not signed, thus triggering cl 10.1(b) of the Recapitalisation Deed. Under that clause, Arrium became liable to pay a Work Fee to GSO if the Recapitalisation Implementation Agreement was not signed. Clause 10.1(b) was expressed to be subject to cl 10.1(c) which provided that "despite any other provision in [the Recapitalisation Deed]" GSO was not entitled to a payment under cl 10.1 if GSO did not give Arrium "the confirmation under clauses 9(b) by the time specified therein". Clause 9(b) specified that GSO "must confirm" to Arrium by no later than 5.00 pm on 4 April 2016 (being the date prior to the "End Date") "whether or not the GSO Condition had been fulfilled". It was not in dispute that GSO had not given Arrium written confirmation by 5.00 pm on 4 April 2016 that the GSO Condition had not been fulfilled. 52 Arrium contended that the work fee is not payable because GSO did not give Arrium the confirmation required under cl 9(b). GSO submitted that it was not required to comply with clause 9(b), which meant that clause 10.1(c)(2) was not engaged and, alternatively, if GSO was required to comply with cl 9(b), GSO did comply with cl 9(b) during a phone call on 2 April 2016 between Mr Whitman, the Head of the London office for GSO, Mr Roberts, the CEO of Arrium, and Mr Edwards of Lazard Financial Management, Arrium's adviser at the time, and also by its letter to Arrium on 5 April 2016.

The construction question 53 It was contended by GSO that cl 9(b), on its proper construction, never became operative for the following four reasons: (a) first, the GSO condition was premised on the continuing existence or possibility of the recapitalisation and once notice was given by the existing debt holders on 1 April 2016 formally rejecting the Debt Compromise there could be no recapitalisation, and therefore no GSO Condition capable of being fulfilled. In consequence, it was submitted, the operative effect of cl 9(b) came to an end and GSO was no longer required to confirm whether or not the GSO condition had been fulfilled; (b) secondly, once written notice was given that the Debt Compromise would not be achieved, cl 9(b) was rendered otiose as the investment committee could not make a decision to approve the recapitalisation in the absence of the Debt Compromise being achieved or being capable of being achieved; (c) thirdly, under cl 10.1(b)(2) of the Recapitalisation Deed the Work Fee became payable within five business days once written notice was given that the Debt Compromise would not be achieved, and, upon payment being made, the Recapitalisation Deed terminated. Thus, it was said, in the ordinary course of events, the Work Fee could be paid and the Recapitalisation Deed could be terminated before the deadline arrived for GSO to confirm whether the GSO condition had been fulfilled and clause 9(b) would have no work to do. It was submitted that the ability for Arrium to make its argument only arises because written notice was given on 2 April 2016, which meant that the deadline for GSO giving confirmation about the GSO Condition fell within the five business day period within which the Work Fee was to be paid. It was submitted that it defied business common sense to suggest that had Arrium given written notice about the Debt Compromise four business days earlier the issue would not even have arisen, but because the notice was given as late as it was, GSO must now face the disentitling effects of cl 10.1(c)(2) for which Arrium has contended; (d) fourthly, the words "subject to clause 10.1(c)" at the start of cl 10.1(b) still had work to do because from 5.00 pm on the day prior to the End Date until 11.59 pm on the End Date, it was possible for written notice to be given that the Debt Compromise would not be achieved. Thus, it was said, if written notice that the Debt Compromise would not be achieved was given during this 31 hour period, but GSO had not confirmed whether or not the GSO condition had been fulfilled, then the words "subject to clause 10.1(c)" would be engaged and the Work Fee would not be payable. 54 Arrium submitted that cl 9(b) should be construed and given effect to on its plain terms, and required GSO to confirm by 5.00 pm on 4 April 2016 whether or not the GSO condition had been fulfilled, as a prerequisite for the payment of the Work Fee. 55 The parties were not in dispute about the principles that govern the construction of clauses in commercial contracts. Those principles were recently summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[51] as follows: (a) the rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose; (b) in determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract; (c) if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning; (d) recourse to events, circumstances and things external to the contract may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating"; (e) the court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". 56 Applying these principles, GSO's construction is to be preferred. 57 The Recapitalisation Deed must be read as a whole and, read as a whole, it is reasonably clear that clause 10.1(c) is directed at the circumstance where the Recapitalisation Implementation Agreement has not been signed by reason of "fault" on the part of GSO, namely: (a) material breach of the deed by GSO (cl 10.1(c)(1)); (b) GSO not being ready, willing and able to sign the Recapitalisation Implementation Agreement (cl 10.1(c)(3)); or (c) the deed being terminated because: (i) GSO determined as a result of its due diligence investigations that it did not wish to proceed with the recapitalisation (cl 10.1(c)(2) and cl 3.2(b)); or (ii) GSO not giving confirmation by the required time that its two conditions had been fulfilled: namely, completion of the due diligence to its satisfaction and approval of the recapitalisation by the final investment committee (cl 10.1(c)(2) and cl 2(b)(3)). 58 Clause 10.1(c)(2) picks up the requirement on GSO in relation to the finalisation and entry into the recapitalisation documents as provided for in cl 9 of the Recapitalisation Deed. The need for the confirmation that the GSO condition was fulfilled or not fulfilled arises in that context because the GSO conditions that GSO required to be satisfied were within its particular control - namely, completion of the due diligence in relation to the business and operations of the Arrium Group to GSO's satisfaction, and final investment committee approval of GSO of the recapitalisation of Arrium consistently with the term sheets. Clause 9 is concerned with the obligations of the parties with respect to finalising and entering into the recapitalisation documents. Under cl 9(a), the parties were obliged to work together to finalise and agree on the full terms of the Recapitalisation Documents by 5.00 pm on 4 April 2016. Under cl 9(c), if confirmation of the fulfilment of the GSO Condition was given by 5.00 pm on 4 April 2016 as prescribed, the parties were obliged to enter into the Recapitalisation Implementation Agreement by no later than 11.59pm on 5 April 2016. I accept as correct GSO's submission that the obligations on the parties under cl 9 were premised on the continuing existence or possibility of the recapitalisation and were only engaged if the other conditions for the recapitalisation to proceed were still capable of satisfaction. As procuring the Debt Compromise was a condition for the recapitalisation to proceed (cl 2(b)(1)) and the Debt Compromise was not procured, the obligations of the parties with respect to finalisation of the recapitalisation documents did not arise and GSO's obligation under cl 9(b) became otiose. 59 Clause 10.1, considered as a whole, also supports this construction. It was plainly within the contemplation of the parties that the recapitalisation might not proceed because the Debt Compromise being a condition for the recapitalisation to proceed, would not be procured. Specific provision was made in that eventuality under cl 10.1(b)(2) for a Work Fee of A$10 million to be payable to GSO no later than five business days after Arrium provided notification to GSO that the Debt Compromise would not be achieved. Clause 10.1(b) also provided for a work fee of A$10 million to be payable to GSO where the non-entry into the Recapitalisation Implementation Agreement was due to Arrium - namely, Arrium accepting a competing proposal (cl 10.1(b)(1) and cl 19.1(b)(1)) or GSO terminating the deed because of material breach by Arrium (cl 10.1(3)(A)) or Arrium not being ready, willing and able to sign the Recapitalisation Implementation Agreement (cl 10.1(3)(B)). 60 GSO's construction gives the Recapitalisation Deed a commercially sensible construction which Arrium's construction does not. It was plainly intended that GSO would be entitled to be paid a Work Fee, unless the non-signing of the Recapitalisation Implementation Agreement was due to "fault" on its part, and the other provisions of the Recapitalisation Deed do not support a construction that GSO was to be disentitled from payment of a Work Fee under clause 10.1 because it failed to provide confirmation that its condition had not been fulfilled, when the investment committee could not make a decision to approve the recapitalisation in the absence of the Debt Compromise being achieved. The Recapitalisation Deed is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience": Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7; (2014) 251 CLR 640 at [35] citing Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530. In this regard, the construction is open on a contextual reading of cl 9(b) that the clause only applied if the recapitalisation was capable of proceeding. On that construction, GSO was not required to provide confirmation to Arrium whether or not the GSO condition had been fulfilled once Arrium had notified GSO that the Debt Compromise would not be achieved and so, cl 10.1(c)(2) was not engaged. Such a construction is also consistent with the commercial purpose and objects of the transaction, and gives a harmonious operation to the deed as a whole.

The factual question 61 In the event that I am wrong on the construction, I also accept GSO's alternate argument that if GSO was required to comply with cl 9(b), the evidence established that the relevant confirmation was provided orally on 2 April 2016. 62 The debt holders constituted participants under certain syndicated facility agreements and bilateral lenders, each represented by their agent, the National Australia Bank, and the Arrium noteholders represented by Morgan Lewis. 63 On 1 April 2016, Morgan Lewis wrote to Arrium on behalf of the noteholders advising that the GSO proposal was unanimously rejected by them. The letter relevantly stated: The noteholders confirm that this rejection of the GSO proposal is given for the purposes of in reference to clause 4(a) and clause 10.1(b)(2) of the Recapitalisation Deed. As such, Arrium ought to immediately inform GSO of this rejection as contemplated by clause 10.1(b)(2) of the Recapitalisation Deed… 64 Also on 1 April 2016, the National Australia Bank wrote to Arrium on behalf of the lenders giving notice that the lenders objected to and were not able to agree to the Debt Compromise and "unequivocally reject[ed] the arrangement contemplated by the GSO Recapitalisation Deed and any debt compromise proposed to Lenders to give effect to that arrangement". 65 On 2 April 2016, Ms James from Arrium sent an email to Mr Whitman from GSO and copied in Mr Roberts (the CEO of Arrium) and Mr Edwards (an adviser to Arrium from Lazard Financial Management) attaching the letter from Morgan Lewis and the letter from National Australia Bank. When he received the email, Mr Whitman was at an airport in Miami, and was just about to fly to London. Upon his arrival in London on 2 April 2016, Mr Whitman had a telephone conversation with Mr Roberts and Mr Edwards. 66 The evidence was that during the telephone conversation Mr Whitman said words to the following effect: I have read the rejection letters. From our perspective, the deal is dead. The recapitalisation proposal cannot be achieved. So there's no point in us pursuing that any further. We might look at potentially acquiring from Arrium some of the Moly-Cop business. 67 Mr Edwards and Mr Roberts both said words to the effect that: We agree. We now need to sort out Arrium's short-term liquidity problems. Arrium needs some money. We are wondering whether GSO would be prepared to provide further funding by purchasing receivables. 68 That conversation was sufficient to constitute oral confirmation that the GSO condition had not been, and would not be, fulfilled. If confirmation was required to be provided in writing (see clause 21), such confirmation was contained in a letter from Mr Whitman to Arrium on 5 April 2016. In the letter, Mr Whitman said, among other things: On 1 April 2016 the Company notified GSO by email that the Compromise Debt Holders had rejected the proposed Debt Compromise, and as a result it became indisputable that a Debt Compromise could not be achieved before 11:59pm on the End Date. … As a result of that email, on 1 April 2016 it became apparent that the Recapitalisation cannot proceed, that the conditions in clause 2(b) of the Recapitalisation Deed would not be satisfied and there would be no purpose in the parties further pursuing the steps contemplated in clause 9 of the Recapitalisation Deed. 69 The letter was one day late, if confirmation was required to be provided in writing. GSO submitted that the breach of the requirement that such confirmation be made in writing was a matter of triviality and the de minimus principle ought to apply to that breach: Shipton Anderson & Co v Weil Brothers & Co [1912] 1 KB 574. I agree. Written confirmation under cl 9(b) of the Recapitalisation Deed would have achieved nothing. Arrium had been told by GSO that the recapitalisation proposal could not be achieved and Arrium knew prior to the "End Date" that the GSO condition had not been, and would not be fulfilled. Accordingly the breach was a triviality, a matter of little moment and of a trifling and negligible nature: Margaronis Navigation Agency Ltd v Henrry W Peabody & Co of London Ltd [1965] 2 QB 430 at 444.

Conclusion 70 Accordingly I find that Arrium is liable to pay the Work Fee of A$9,090,909 to GSO.

Whether the work fee and the Category C costs and expenses are secured by the Pledge and Security Agreements? 71 GSO contended that the Work Fee and the Category C costs and expenses payable by Arrium to GSO under the Recapitalisation Deed are secured by Article II and/or recoverable by GSO under clause 8.17 of the Pledge and Security Agreements. Arrium accepts that it is liable to pay the Category C costs and expenses up to the capped amount of A$3 million under the terms of the Recapitalisation Deed but contends that those costs and expenses, and also the Work Fee (if payable), are not secured liabilities under the Pledge and Security Agreements. In the alternative, Arrium contends that if the Category C costs and expenses are secured, the secured amount is limited to A$3 million. GSO in turn contended that the secured amount is not subject to the cap of A$3 million.

Art II of the Pledge and Security Agreements 72 Whether the Work Fee (if payable) and the Category C amounts are secured by Article II of the Pledge and Security Agreements depends ultimately upon whether the Recapitalisation Deed is a "Finance Document" as defined in the Security Trust Deed. 73 "Finance Document" is not defined in those agreements, but pursuant to clause 1.1, the term "Finance Document" has the meaning assigned to it in the Security Trust Deed. For the purposes of Article II of the Pledge and Security Agreements, "Secured Obligations" under that Article mean "the Secured Money" as defined in the Security Trust Deed. 74 "Secured Money" is defined in the Security Trust Deed to mean, amongst other things: The Recapitalisation Liabilities and all debts and monetary liabilities of the Obligors [ie, Arrium] to any of the Beneficiaries [ie, GSO] under, or in relation to, any Finance Document … 75 "Finance Document" is defined in the Security Trust Deed and means, relevantly: (a) the Security Trust Deed; (b) each of the Pledge and Security Agreements; (c) the Interim Facility Agreement; (d) the Accession Deeds; and (e) "any document or agreement entered into or provided under or in connection with, or for the purpose of amending, assigning or novating any of the above": (definition of Finance Document, item 9). 76 GSO contended that the Recapitalisation Deed is a Finance Document because, whilst it is not specifically listed in the definition, it was an agreement "entered into in connection with" the Security Trust Deed, the Interim Facility Agreement and/or the Pledge and Security Agreements and accordingly comes within item 9 of the definition. If the Recapitalisation Deed is a Finance Document, the Work Fee and the other amounts payable under the Recapitalisation Deed are "Secured Money" (under the Security Trust Deed) and therefore a Secured Obligation (under Article II of the two Pledge and Security Agreements). 77 GSO put the following submissions in support of its contention: (a) first, it was said, it was undisputed that the Interim Facility was provided by GSO to Arrium to provide the Arrium Group with access to temporary funding, if required, while the proposed recapitalisation was progressed; (b) secondly, the plaintiffs in their Amended Statement of Claim defined the Interim Facility Agreement, the Recapitalisation Deed, the Security Trust Deed and the two Pledge and Security Agreements together as "the Recapitalisation Documents". It was submitted that there was an inherent inconsistency in the position of the Arrium parties arguing on the one hand that the documents were all so connected that they ought to be interpreted as a suite, and on the other hand arguing that the words "in connection with" did not include the Recapitalisation Deed; (c) thirdly, the connection between the Recapitalisation Deed with the Interim Facility Agreement was readily apparent from the terms of the Interim Facility Agreement. In particular: (i) "Deal Fees" were defined in the Interim Facility Agreement to mean any fees payable by an Obligor to GSO as contemplated in the Recapitalisation Deed, excluding any "Break Fee" payable under the Recapitalisation Implementation Agreement. In turn, the borrowers were required to use the proceeds of each drawing under the Interim Facility Agreement to pay, amongst other things, the Work Fee: cl 6.2(e); (ii) the "Termination Date" of the Interim Facility Agreement depended, in part, on the outcome of the recapitalisation plan. If the required majority of the debt holders did not agree in writing to be bound to a recapitalisation (which had the meaning given to it in the Recapitalisation Deed) by 30 September 2016, the Termination Date was 31 October 2016. If, however, the debt holders agreed to be bound to a recapitalisation by 30 September 2016, the Termination Date was extended to 15 December 2016; (d) fourthly, the connection between the Recapitalisation Deed with the Interim Facility Agreement was also readily apparent from the terms of the Recapitalisation Deed. Reference was made to cl 5.1 which contained an exclusivity period during which Arrium could not "initiate discussions with a third party with a view to obtaining any expression of interest, offer proposal in relation to a Competing Proposal" (cl 5.1). Clause 5.1 also provided that nothing in the exclusivity arrangements prevented Arrium after the End Date from replacing or refinancing the Interim Facility "provided that the aggregated principal amount of any replacement facility is an amount no greater than the aggregate principal amount of the Interim Facility plus any transaction costs incurred including in connection with the Recapitalisation". (e) fifthly, it was said there was an obvious connection between the Security Trust Deed and the Recapitalisation Implementation Agreement - giving as an example that under the Security Trust Deed, GSO was a "recapitalisation beneficiary" and as a recapitalisation beneficiary GSO was entitled under clause 7.2(b) to exercise any right to give demands for payments of amounts due and payable and other notices under, and in accordance with, the Recapitalisation Implementation Agreement, and receive amounts it would otherwise be entitled to receive under other provisions of the Recapitalisation Implementation Agreement. Another example given was that the Recapitalisation Implementation Agreement had to be agreed in a form and in substance consistent with the term sheets as provided for in the Recapitalisation Deed (cl 9). Further, the timely mechanism for execution of the Recapitalisation Implementation Agreement was also provided for in the Recapitalisation Deed (cl 9). Thus, it was submitted, it followed that any connection between the Security Trust Deed and the Recapitalisation Implementation Agreement necessarily involved a connection between the Security Trust Deed and the Recapitalisation Deed. (f) sixthly, it was submitted that it was of contextual importance that the parties did not choose expressly to exclude the Recapitalisation Deed as a Finance Document and did not choose expressly to exclude liabilities arising under the Recapitalisation Deed and the definition of "Secured Money", even though other amounts were expressly excluded in that definition. (g) seventhly, it was said that there was an important reason as to why the parties expressly limited the "Recapitalisation Liabilities" to the "Debt Commitment Fee" and the "Break Fee" under the Recapitalisation Implementation Agreement and why the parties expressly referred to the "Recapitalisation Liabilities" in the definition of "Secured Money", namely that the Recapitalisation Implementation Agreement was not yet in existence and was still to be negotiated, which meant there may well have been other debts and monetary liabilities payable under that agreement, in addition to a Commitment Fee and a Break Fee. It was submitted that by defining the Recapitalisation Liabilities in this way, the parties were expressly including monetary liabilities about which they knew, and excluding other potential monetary liabilities about which they did not know. 78 It is undoubted that the contractual arrangements were interrelated but it does not follow that the Recapitalisation Deed, thus, was "an agreement entered into in connection with" the funding and security documents listed in items 1-8 of the definition of "Finance Document" in cl 1.1 of the Security Trust Deed and, thus, within the terms of item 9 of that definition. As the authorities demonstrate, the phrase "in connection with" has no precise meaning. Whilst the phrase denotes some link, or association or relationship between two things or subject matters, its meaning and scope is taken from the context in which the phrase is used: Elkateb v Lawindi (1997) 42 NSWLR 396 at 402; Ffrench v Sestili (2007) 98 SASR 28 at [54]; JP Morgan Australia Limited v Consolidated Minerals Pty Ltd [2011] NSWCA 3 at [48]. 79 There are a number of contextual reasons for concluding that item 9 does not embrace the Recapitalisation Deed. 80 First, where the phrase is used in the context of a defined term and the construction of that defined term is at issue, the term being defined is a relevant contextual factor in determining whether there is the requisite connection within the sense of the defined term: Chartbrook Limited v Persimmon Homes Limited [2009] UKHL 38; 1 AC 1101 at [17]; Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156; (2015) 89 NSWLR 431 at [86]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [121]; Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368 at [159]. The term being defined here is "Finance Document" and in ordinary meaning, the documents expressly identified in items 1-8 are apt to be described as finance documents. The expression "in connection with" in item 9 must be considered in that context and the connection to focus on is the association or link which the document or agreement in question has with the particular documents identified as "Finance Documents" which would designate the document as a "Finance Document" for the purposes of the Interim Facility Agreement, and not a connection more broadly. In other words, item 9 on its proper construction only captures those documents that could be said to be incidental to, or concerned with, the provision of the interim funding. 81 Secondly, it is relevant that the Recapitalisation Deed was not listed as a Finance Document, albeit part of the suite of integrated contractual arrangements which the parties entered into at the time, and consistently with the omission of the Recapitalisation Deed from the definition of "Finance Document", the definition of "Secured Money" in the Security Trust Deed makes no mention of any debts or monetary liabilities owed to GSO by Arrium under the Recapitalisation Deed. The expression "Secured Money" is defined in the Security Trust Deed to mean the "Recapitalisation Liabilities and all debts and monetary liabilities of the Obligors to any of the Beneficiaries under or in relation to any Finance Document". "Recapitalisation Liabilities" is also a defined term and means any "Debt Commitment Fee" or "Break Fee" payable under the Recapitalisation Implementation Agreement to be entered into as contemplated by the Recapitalisation Deed. Tellingly against GSO's construction, the definition also omits mention of any debts or monetary liabilities owed to GSO by Arrium under the Recapitalisation Deed. GSO's argument that it is contextually important that the Recapitalisation Deed was not expressly excluded as a Finance Document and liabilities under that deed were not expressly excluded in the definition of "Secured Monies" is a boot straps argument that has no force, having regard to the other contextual matters to which reference has been made 82 Thirdly, it strains the language of the definition of "Finance Document" to give the construction that the Recapitalisation Deed "was entered into in connection with" the other mentioned documents. Rather, the object and purpose of the Recapitalisation Deed was to set out the rights and obligations of GSO and Arrium in relation to working together to progress the recapitalisation and achieve the approval of the debt holders to the Debt Compromise, whereas the funding arrangements were as between other parties and implemented so as to give the Arrium Group access to emergency funds, if required, whilst the parties determined whether the recapitalisation proposal would proceed. 83 On a contextual analysis, I consider that the expression "in connection with" as used in item 9 of the definition of "Finance Document" in cl 1.1 of the Security Trust Deed captured only those documents that could be said to be incidental to, or concerned with, the provision of the interim funding, and did not extend to include the Recapitalisation Deed. The other arguments advanced on behalf of GSO do not compel any different construction. The contextual matters to which reference has been made militate against a construction that would constitute the Recapitalisation Deed as a Finance Document for the purposes of Article II of the Pledge and Security agreements.

Conclusion on Art II of the Pledge and Security Agreements 84 As I have concluded that the Recapitalisation Deed was not a "Finance Document" as that expression is defined for the purposes of the Pledge and Security Agreements, it follows that neither the Work Fee nor any other amounts payable under the Recapitalisation Deed (ie the Category C amounts) were "Secured Obligations" under Art II of the Pledge and Security Agreements. 85 In reaching my view on the proper construction of item 9 of the definition of "Finance Document" and whether the Recapitalisation Deed is a Finance Document as defined, I have not had regard to additional evidence upon which Arrium relied on the constructional question, being certain emails between the solicitors for the parties in the lead up to the execution of the documents. Those emails evidence that the understanding of the respective solicitors for the parties involved in the drafting of the documents was that the Work Fee and other amounts payable under the Recapitalisation Deed were not to be secured. Those emails were admitted into evidence without objection and to the extent that they formed part of the external context which may be admissible to construe item 9, they confirm the construction which I have concluded.

Clause 8.17 of the Pledge and Security Agreements 86 GSO also submitted that the indemnity in clause 8.17 of each of the Pledge and Security Agreements was engaged with respect to the work fee and other amounts payable under the Recapitalisation Deed by reason that the integers that must be satisfied before the indemnity was engaged were satisfied. 87 It was submitted that (a) GSO was expressly defined as a "Secured Party", meaning that the indemnity expressly reimburses GSO and holds it harmless (definition of "Secured Parties" clause 1.6, "recapitalisation beneficiary") and, as a Secured Party, GSO is indemnified and held harmless from and against: any and all liabilities, obligations, damages, injuries, penalties, claims, demands, suits, costs and expenses of any kind and nature … imposed on, incurred by or asserted against [GSO] (b) if GSO succeeded in establishing that the Work Fee is payable under the Recapitalisation Deed, it will have incurred damages to that effect, with "damages" meaning the pecuniary compensation that the law awards to a person for the injury sustained by reason of the default of another in breach of contract: F&K Jabbour v Custodian of Israeli Absentee Property [1954] 1 WLR 139 at 143 and 144; (c) separately, the non-payment of the Work Fee constituted damage or injury incurred by GSO because money that it ought to have received has not been received; (d) further, it was submitted, such damage or injury relates to, or arises out of "any other finance document, or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby…". 88 It was also submitted that cl 8.17 is engaged because the Recapitalisation Deed is a "Finance Document" being "any other document executed in connection with a Finance Document". If this argument was not accepted, it was submitted that cl 8.17 extended the reach of the indemnity beyond "Finance Documents" as the clause also applies to "any other document … in any other way connected with the administration of the transactions contemplated hereby or thereby". It was submitted that the Security Trust Deed and Interim Facility Agreement both contemplate the Recapitalisation Implementation Agreement, which is a transaction that cannot come into existence other than pursuant to the work done under the Recapitalisation Deed. Accordingly, the argument went, the Recapitalisation Deed is a document that is in "any other way connected with" the administration of the Recapitalisation Implementation Agreement, which, in turn, is a transaction contemplated by the Finance Documents. 89 The proper construction of clause 8.17 of the New York Pledge requires the application of the law of New York. The content of the law of New York was proved by the evidence of John Sherwood Martin, a former District Judge in the Southern District of New York, and included the following propositions: (a) The fundament precept of contract interpretation is that agreements are construed in accord with the parties' intent. This intent is determined by reference to the language of their agreements. A written agreement that is complete, clear and unambiguous on its face must therefore be enforced according to the plain meaning of its terms. (b) When interpreting a contract, a court must consider the entire contract and choose the interpretation of the disputed provisions which best accords with the sense of the remainder of the contract. (c) The same rules of construction that apply to other contractual provisions generally apply to contractual indemnity provisions. (d) Indemnification clauses are to be read carefully. When a party is under no legal duty to indemnify, indemnity contracts must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed. (e) The phrase "in any way relating to or arising out of" generally denotes a broad scope. In the context of indemnity, the words "arising out of" are also commonly used and generally understood to indicate a broad intent to indemnify. But they must be read in the particular context in which they appear and will not create a right to indemnity where the contractual language indicates the parties intended a different result. 90 The Canadian Pledge is governed by the laws of the Province of Alberta and the Federal Laws of Canada. However no evidence was led before the Court with respect to Alberta or Canadian law and in the absence of that expert evidence, it is presumed that such law is the same as Australian law: Ship "Sam Hawk" v Reiter Petroleum Inc. [2016] FCAFC 26 at [186], [263]. 91 The parties were not in dispute concerning the applicable principles under Australian law for the construction of an indemnity clause. They were distilled in the written closing submissions on behalf of GSO as follows: Relevant Australian principles of interpretation include the following: (a) The duty of a court in construing a written contract is to endeavour to discover the intention of the parties from its words and this requires consideration of the whole of the agreement between them: Westfield Management Limited v AMP Capital Property Nominees Limited (2012) 247 CLR 129 at [27]. (b) The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35]. (c) Equally so, the construction of an indemnity is to be determined by what a reasonable person in the position of the parties would have understood them to mean, which requires consideration not only of the text of the documents, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. (d) If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [48]. 92 The parties were in agreement that Australian law did not substantially differ from that of the law of New York and in approaching the question of the proper construction of clause 8.17 in each of the Pledge and Security Agreements, essentially the same construction principles were to be applied. 93 It is accepted that GSO is a "Secured Party" for the purposes of cl 8.17. However, I do not accept that the clause secures the Work Fee and other amounts payable under the Recapitalisation Deed: ie, the Category C costs and expenses. 94 First, I have already rejected the argument that the definition of "Finance Document" in cl 1.1 of the Security Trust Deed includes the Recapitalisation Deed. 95 Secondly, for substantially the same reasons also, the Recapitalisation Document is not "any other document executed in connection" with the Pledge and Security Agreements or "in any other way connected with the administration of the transactions contemplated" thereby. The reference to the "transactions contemplated hereby or thereby" relate to the Security Trust Deed and the other Finance Documents (as that expression is defined). It is the transactions pursuant to, or under, those agreements which are covered by the indemnity under cl 8.17. 96 Thirdly, it strains the language of the general indemnity clause to assert that the Work Fee is a "liability … imposed on, incurred by or asserted against" GSO. The fee owing is not a liability imposed on or incurred by an indemnittee but an asset of the indemnittee. 97 A fourth contextual matter against GSO's construction is that it is not harmonious with cl 13.2 of the Recapitalisation Deed, which imposed a cap of A$3 million on the costs and expenses that Arrium must reimburse GSO. On GSO's argument, GSO, as a Secured Party, would be entitled to be indemnified by the Moly-Cop Security Grantors under cl 8.17 for all of its costs and expenses, not just up to the cap of A$3 million, even though Arrium's liability to GSO in respect of such costs and expenses under cl 13.2 would be subject to the cap of A$3 million. Arrium's construction does not give rise to that anomaly and is to be preferred.

Conclusion on clause 8.17 of the Pledge and Security Agreements 98 Accordingly, I find that neither the Work Fee nor any other amounts payable under the Recapitalisation Deed (ie the Category C costs and expenses) are secured by cl 8.17 of the Pledge and Security Agreements.

Whether interest is payable on the work fee? 99 In argument, GSO also contended that it was entitled to interest on the work fee under clause 27.2 of the Interim Facility Agreement because the Recapitalisation Deed is a "Transaction Document". Clause 27.2 provided: Default Interest Interest accrues on each unpaid amount that is due and payable by the Borrowers under or in respect of any Transaction Document (including interest payable under clause 27) ... 100 "Transaction Document" is defined in cl 1.1 of the Interim Facility Agreement and similarly to "Finance Document" in cl 1.1 of the Security Trust Deed makes express reference to the Interim Facility Agreement, the Security Trust Deed, the two Pledge and Security Agreements and the two Accession Deeds. Likewise, there is no express reference to the Recapitalisation Deed. However, there is the provision: A document or agreement entered into or provided under or in connection with or for the purpose of amending or novating any of the above. 101 For the same reasons as the Recapitalisation Deed is not a "Finance Document" as defined, the Recapitalisation Deed does not come within the definition of "Transaction Document". Moreover, the Work Fee is not due and payable by Arrium which is not one of the "Borrowers" as defined, the "borrowers" being Arrium Finance and Arrium Iron Ore: definition of "Borrowers" and "Original Borrowers" cl 1.1 of the Interim Facility Agreement. Clause 27.2 is accordingly not engaged with respect to the Work Fee payable by Arrium under the Recapitalisation Deed.

Category A expenses 102 These expenses relate to clause 24.1 of the Interim Facility Agreement. Arrium claims the Category A costs and expenses were not approved in writing prior to being incurred as mandated by clause 24.1(b) and there is accordingly no liability to pay them. Arrium nonetheless accepts that if those amounts are payable pursuant to cl 24.1 that they are secured liabilities under the Pledge and Security Agreements. GSO accepts that the approval was not obtained for those expenses as mandated by clause 24.1. Accordingly the amounts are not payable under the Interim Finance Agreement. GSO contends that the amounts, nonetheless, are still secured liabilities of the Moly-Cop Security Grantors by reason of cl 8.17 of the Pledge and Security Agreements. 103 GSO submitted that: (a) cl 8.17 was not limited to amounts that are due and payable under a Finance Document but instead the indemnity covers costs and expenses "in any way relating to or arising out of" any Finance Document; (b) GSO was not a party to the Interim Facility Agreement so that there is no reason for it to be bound by the "caps and limitations" imposed under that agreement; (c) in the conflicts provision (cl 8.21 of the New York pledge and cl 8.24 of the Canadian Pledge) it is expressly provided that the Pledge and Security Agreements are granted "subject to the covenants, limitations and other provisions contained in the Security Trust Deed" but there is no mention of the interim Facility Agreement; (d) the indemnity in the Pledge and Security Agreements is granted by the Moly-Cop Security Grantors whereas the indemnity in the Interim Facility Agreement is granted by different parties, namely the Arrium Finance and Arrium Iron Ore. 104 The starting point is that the Interim Facility Agreement and the Pledge and Security agreements should be construed with reference to each other: McVeigh v National Australia Bank Limited (2000) 278 ALR 429; [2000] FCA 187 at [29]-[30]. In McVeigh, Kenny J at [70] observed that with respect to agreements documenting a surety: [70] Whether or not the rule ordinarily only permits transactional documents to be read together when between the same parties, it plainly has a wider application in cases of the present kind, where a question arises as to the extent of an obligation assumed by a surety or a mortgagor under a guarantee or mortgage. That is a consequence, I think, of the accepted rules of construction in the field. For example, Moss & Marks, Rowlatt on Principal and Surety, 5th ed, (1999) says, at p 84: The question whether a given liability is covered by a given guarantee must not be considered merely with reference to the extent and incidents of the liability itself, which is imposed upon the principal. It is also necessary that the transaction as a whole out of which it springs should be such as was contemplated by the surety. Examples of the application of these propositions are given at pp 84-5. In construing the extent of an obligation assumed by a surety, courts routinely consider, as Rowlatt shows, the nature of the whole transaction. Where a surety executes a guarantee or like instrument contemporaneously with the execution of other instruments by other parties (as for example, a borrower and a lender) in relation to the same transaction, the several instruments may be read together, even though the parties are not the same, providing the instruments were known to the other parties and were executed contemporaneously to accomplish a common purpose. This passage aptly applies to the "Finance Documents" so designated by the definition of that expression in cl 1.1 the Security Trust Deed which included the Interim Facility Agreement, and the Pledge and Security Agreements as an integrated suite of documents entered into to accomplish a common purpose: viz, the provision of emergency interim funding for the Arrium Group if required whilst the recapitalisation plan was progressed. 105 It would be incongruous to construe cl 8.17 of the Pledge and Security Agreements in a way that meant that the general indemnity entitled the indemnified parties under those agreements to recover amounts from the Moly-Cop Security Grantors that were not payable by the Arrium Borrowers under the Interim Finance Agreement. On the other hand, it is open to construction that the indemnity only applies to those liabilities payable under the Interim Facility Agreement. A construction that gives harmonious operation to the documents as a whole is to be preferred. In this regard, the conflicts provision does not gainsay this conclusion but to the contrary reinforces that the parties intended the documents to have a harmonious operation. Accordingly I reject GSO's construction.

Category B 106 Arrium accepts that it is obliged to pay the Category B expenses, save for two invoices which are in dispute. In issue is whether these two invoices come within the terms of cl 24.1(c)(i), being costs and expenses of any indemnified party "relating to or in connection with an event of default or potential event of default". The events of default included an "Insolvency Event" (clause 20.1(f)) and "Insolvency Event" in turn was defined to include the appointment of an administrator. 107 The evidence concerning both invoices is contained in an affidavit of Mark Alexander Rutledge, the vice-president of GSO Capital Partners (UK) Limited, which is a subsidiary of GSO.

The McKinsey invoice 108 Mr Rutledge deposed that from around late February until about mid late March 2016, he and others at GSO were participating in discussion with Arrium's management team in relation to the proposed recapitalisation. From about late February 2016 Mr Rutledge became aware that Arrium was intending to request to draw down the amount of US$50 million under the Interim Facility Agreement. Mr Rutledge stated that he was concerned by the possibility that it would do so as he had understood that a draw down on the Interim Facility Agreement would only be required in the case of a financial emergency. He deposed that the prospect of a draw down on the Interim Facility Agreement made him concerned that an Event of Default might occur under the terms of the Interim Facility Agreement in due course. Mr Rutledge deposed that in late February 2016 he attended a meeting with representatives of GSO and Blackstone Group and it was agreed that Blackstone Group would engage a management consulting firm, McKinsey & Company to undertake work including in connection with the preservation of GSO's rights as a consequence of Potential Events of Default or Events of Default under the Interim Facility Agreement relating to the deteriorating liquidity position and entry into, or potential entry, of the Arrium Group into voluntary administration. McKinsey & Company was formally engaged by Blackstone Group on about 1 March 2016. 109 The retainer agreement with McKinsey & Company was exhibited to Mr Rutledge's affidavit. It cannot be discerned just from reading that retainer agreement (without some explanation to assist) that the work to be performed could be said to be related to "Events of Default" or "Possible Events of Default". 110 Arrium's lawyers sought further details concerning the McKinsey & Company retainer. In response a copy of the invoice rendered by McKinsey & Company to the Blackstone Group was provided. The invoice was for: …professional fees and associated out of pocket expenses and support services in connection with GSO's analysis of their security value under the Interim Facility Agreement. This work was undertaken from March 12 to March 22, 2016. 111 The invoice was attached to a covering letter that stated: Please find enclosed our invoice ... in the amount of [USD]$440,000 covering our professional fees, out of pocket expenses, and support services in connection with the GSO's assessment of Moly-cop. 112 Further evidence was not provided in support of this claim because of claims of confidentiality. I am nonetheless satisfied on the available evidence that the work done by McKinsey & Company can be said to be related to potential events of default. Mr Rutledge's evidence about the work done by McKinsey & Company was not challenged but, more particularly, his evidence finds some objective support in the work description in the invoice.

The Deloitte invoice 113 Mr Rutledge further deposed that GSO engaged (or instructed the engagement of) Deloitte Touche Tohmatsu to advise the Blackstone Group on finance and tax related matters in respect of the Arrium Group in connection with Potential Events of Default and/or Events of Default under the Interim Facility Agreement. In evidence also was Deloitte's letter of instruction, thanking Blackstone for asking Deloitte to assist GSO by performing the tasks set out in the letter: in connection with the proposed investment via debt and equity instruments into Arrium (the proposed transaction). As part of the Proposed Transaction you have asked us to perform financial due diligence on the Mining Consumables business (Moly-cop or the Target). 114 The letter further stated under the heading "Our engagement" You have asked us to: (a) Perform financial due diligence on the Target (the Due Diligence) and to provide you with a report that contains our findings from the Due Diligence. The Due Diligence is the Services. The Services we will perform are escribed in more detail in section 4 below ... The purpose of the Services is to assist GSO in connection with your enquiries in respect of the Proposed Transaction (the Purpose). The scope of our engagement is limited to the matters set out in this letter ... 115 Section 4 was headed "Scope of our work" and the scope was detailed as follows: We will perform the Due Diligence on the Target and its subsidiary companies (the Target Group)..... 116 In evidence also was Deloitte's invoice for AUD $600,000 but that invoice did not describe the work done. The Court was again told that further evidence was not provided in support of this claim because of claims of confidentiality. 117 The documentary evidence does not provide objective support for Mr Rutledge's assertion, and absent such documentary evidence, Mr Rutledge's assertion is an insecure foundation upon which to be satisfied that this fee comes within the terms of cl 24.1(c)(i). Accordingly, I do not accept that GSO has proven its entitlement to be paid that amount.

Orders 118 The parties are directed to provide a minute of orders giving effect to these reasons. I certify that the preceding one hundred and eighteen (118) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.

Federal Court of Australia District Registry: Victoria Division: General First Plaintiffs MARK FRANCIS XAVIER MENTHA, CASSANDRA ELYSIUM MATHEWS, MARTIN MADDEN AND BRYAN WEBSTER IN THEIR CAPACITIES AS JOINT AND SEVERAL ADMINISTRATORS OF ARRIUM LIMITED (ADMINISTRATORS APPOINTED) (ACN 004 410 833), ARRIUM FINANCE PTY LIMITED (ACN 093 954 940) (ADMINISTRATORS APPOINTED) and ARRIUM IRON ORE HOLDINGS PTY LIMITED (ACN 152 752 844) (ADMINISTRATORS APPOINTED) Second Plaintiffs ARRIUM LIMITED (ACN 004 410 833) ADMINISTRATORS APPOINTED)

ARRIUM FINANCE PTY LIMITED (ACN 093 954 940) (ADMINISTRATORS APPOINTED)

ARRIUM IRON ORE HOLDINGS PTY LIMITED (ACN 152 752 844) (ADMINISTRATORS APPOINTED)

First Defendant GSO CAPITAL PARTNERS LP Second Defendant BTA INSTITUTIONAL SERVICES AUSTRALIA LIMITED (ABN 48 002 916 396) Third Defendant BNY TRUST COMPANY OF AUSTRALIA LIMITED (ABN 49 050 294 052) Fourth Defendant BNY TRUST COMPANY OF CANADA