Gujarat NRE Coke Limited v Coeclerici Asia

Legal principles 21 The Court's power to grant a stay pending the hearing and determination of an appeal derives from s 29 of the Federal Court of Australia Act (Cth). The principles governing the exercise of the Court's discretion are uncontroversial. They may be summarised as follows: (1) The starting point is that the successful party is entitled to the fruits of the judgment; (2) The onus is on the applicant to demonstrate a proper basis for a stay that will be fair to all parties; it is not enough to simply file a notice of appeal; (3) The applicant need not establish special or exceptional circumstances; (4) The Court must weigh all relevant considerations, including the competing rights of the parties and the balance of convenience; (5) The Court will not generally speculate about the applicant's prospects of success in the appeal but may make a preliminary assessment as to whether there is an arguable case on the appeal and the strength of the parties' respective cases will be relevant; (6) Where there is a risk that the applicant will dispose of assets if a stay is granted, a stay may be refused; and (7) Where there is a risk that absent a stay the appeal will be rendered nugatory, that will weigh heavily in the applicant's favour. An appeal will be rendered nugatory where there is a real prospect that a successful appellant will not be able to be restored to its former position if the judgment against it is executed or where there is no reasonable prospect of recovering moneys paid pursuant to the judgment: Federal Commissioner of Taxation v Myer Emporium Ltd (1986) 160 CLR 220 at 222-3 per Dawson J. See, for example, Alexander v Cambridge Credit Corp Ltd (1985) 2 NSWLR 685 at 693-695; Dunlop v Fishburn (2011) 284 ALR 482 at [17]. 22 A stay may be granted conditionally or unconditionally. In an appropriate case, where funds are available, the court may require the appellant to pay the whole or part of the judgment debt to the respondent (Andrews v John Fairfax & Sons [1979] 2 NSWLR 184) or into court (Wealthsure Pty Limited v Selig [2013] FCA 628).

The issues on the appeal 23 The issues raised by the appeal are these: (1) Did the primary judge err in concluding that the applicants had not been afforded a reasonable opportunity to present their case before the arbitral tribunal? (2) Did the judgment of the High Court of Justice give rise to an issue estoppel which precluded the applicants from arguing in the enforcement proceeding that they had been denied a reasonable opportunity to present their case before the tribunal? (3) Did the primary judge err in appointing receivers?

The argument on the stay application 24 The applicants sought a stay of the enforcement of all the orders of the primary judge pending final determination of the appeal. In the alternative, they sought an extension of the stay of the orders relating to the appointment of receivers (orders 4, 5 and 6), which are due to expire tonight. They submitted that a stay should be granted because: (a) They had an arguable case on the appeal; (b) A freezing order is in place over shares held by companies under the control of Gujarat Coke, the value of which is likely to exceed AUD92,000,000; (c) They have offered to extend the freezing orders to cover Coeclerici's costs on the appeal; (d) There is a risk that Coeclerici will not be able to repay the judgment debt if the appeal succeeds; (e) The appointment of receivers will amount to an event of default under Gujarat Coke's Facility Agreement with Axis Bank Limited and the adverse consequences flowing from that may be irremediable; and (f) If the shares are sold by the receivers it may not be possible to repurchase them if the appeal is successful. 25 The stay is strenuously resisted. Coeclerici submits that there is nothing on the face of the primary judge's reasons to suggest appealable error in relation to any of the four grounds of appeal now being pursued. It contends that the applicants are simply recalcitrant debtors who, in effect, are just stalling for time.

Is there an arguable case on the appeal? 26 To succeed on the appeal the applicants will have to demonstrate that they were denied a reasonable opportunity to be heard by the arbitral tribunal and that the decision of the High Court of Justice did not give rise to an issue estoppel. Success on one of these issues will not be enough. 27 It would not be appropriate for me in the context of a stay application to deal with the arguments at any great length. It is sufficient for me to observe that it could not be said that the applicants have a strong case. 28 Dealing with the first issue, it is trite to observe that the rules of natural justice are variable. What amounts to a reasonable opportunity to be heard will depend on the circumstances of the case. 29 In this case the relevant circumstances include the fact (as the primary judge observed) that this was an international commercial arbitration where efficiency, expedition and a minimum of formality are required. The circumstances also include the weakness of the argument the applicants wanted to agitate. The argument was emphatically rejected in the High Court of Justice. So far as I can tell it was never developed or supported in the proceeding before the primary judge. The weakness of the argument is exposed most eloquently in Coeclerici's submissions below. It is not necessary for me to repeat those submissions here. It is enough to refer to one of them. Coeclerici submitted that the applicants' argument that the Payment Agreement contained an implied term that payment is conditional upon Reserve Bank approval is "inconsistent with the express and unqualified provision that payments shall be made on specified due dates". Undoubtedly it is. Under the law that governed the interpretation of the Payment Agreement it is "impossible to imply in a contract any term or condition inconsistent with its express provisions, or with the intention of the parties as gathered from those provisions": Tamplin (FA) Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 at 442. In those circumstances, it is difficult to see why the primary judge was wrong to conclude that the applicants had had a reasonable opportunity to put their case before the arbitrators. The applicants' claim that they had been denied natural justice was based only on the hearing rule. They never contended that the tribunal had approached the matter with a closed mind so that its award was infected by apprehended bias. 30 As for the question of issue estoppel, the applicants relied on a judgment of the English Court of Appeal in Svenska Petroleum Exploration v Government of Republic of Lithuania [2007] QB 886 ("Svenska") in which a failure to challenge a Danish arbitration award before the Danish courts was held not to preclude a challenge to its recognition and enforcement in England on any of the grounds set out in s 103(2) of the Arbitration Act 1996 (the English equivalent of s 8 of the IAA). The applicants submitted that there was no binding authority on the question whether a decision of a foreign court in respect of a foreign arbitral award under its legislation creates an issue estoppel for the purposes of enforcement proceedings under the IAA. 31 Coeclerici referred to IMC Aviation Solutions Pty Ltd v Altain Khude LLC (2011) 282 ALR 717; [2011] VSCA 248 at [26] in which Warren CJ (who dissented in the result) held that the IAA contains nothing to suggest that it was intended to exclude the application of ordinary principles of estoppel. This is not exactly binding authority. Svenska is arguably distinguishable as it concerns what, in effect, is an Anshun estoppel, not an issue estoppel, and, as Coeclerici submitted, there may be good reason to distinguish the two. 32 The primary judge observed that "issue estoppel is capable of application when the issue has been determined in a prior judgment of a foreign court", referring to Armacel Pty Ltd v Smurfit Stone Container Corp (2008) 248 ALR 573; [2008] FCA 592 ("Armacel") at [56]-[82]. The applicants did not submit that Armacel was wrong. They submitted, however, that the issues were different in the High Court of Justice. Whilst it is true that the English Act provides for challenges to an award for "serious irregularity" and that expression is not used in the IAA, the argument that there had been a serious irregularity was the same as the argument before the primary judge. Judge Mackie QC found that there had been no serious irregularity because, "[g]iven what the parties had agreed in the Payment Agreement, the Tribunal gave them a reasonable opportunity of putting their case and adopted a suitable procedure": Gurajat v Coeclerici at [23]. I do not discount it altogether but I doubt that there is any merit in the challenge to the primary judge's conclusion that issue estoppel applies. 33 In any case, however, the primary judge observed (at [103]) (in a passage not apparently impugned by the notice of appeal) that even if there were no issue estoppel "it would generally be inappropriate for this Court, being the enforcement court of a Convention country, to reach a different conclusion on the same question as that reached by the court of the seat of the arbitration. It would be a rare case where such an outcome would be considered appropriate". 34 The third issue on the appeal relates to the decision to appoint receivers. The error identified in the notice of appeal is that the primary judge erred in granting equitable relief by appointing receivers without first requiring Coeclerici to exhaust its legal remedies, including by making a charging order under s 126 of the Civil Procedure Act 2005 (NSW). Section 126 provides for a three-month moratorium on the commencement of proceedings to take the benefit of the charge. 35 It was common ground and it is undeniable that the Court had the power to make a charging order. Indeed, Coeclerici asked for one and only asked that receivers be appointed in the alternative. The applicants submitted that an order appointing receivers should not be made unless other legal remedies would be inadequate, citing Hall v Foster [2012] NSWSC 974 per Ball J. There is, however, authority to which the primary judge referred (at [110]) for the proposition that it is not necessary to establish that legal remedies are inadequate before appointing a receiver. 36 The applicants accepted that the decision to appoint receivers was a discretionary decision and was therefore only amenable to appeal on the principles set out in House v The King (1936) 55 CLR 499. When pressed to identify the error that caused the primary judge's discretion to miscarry, counsel submitted that it was a failure to consider whether a charging order was inadequate. I would not say that the point is unarguable, but I doubt it has much to commend it in the light of the primary judge's observation at [109] (which I did not understand to be challenged) that a charging order would require further steps to be taken under the supervision of the Court if the relevant shares were to be sold in order to satisfy the judgment. His Honour said that the appointment of receivers would be more convenient and less costly. It is to be remembered that the statutory test for the appointment of a receiver is whether it is "just or convenient to do so" (Federal Court of Australia Act 1976 (Cth), s 57(1)).

Where does the balance of convenience lie? 37 In my opinion, the balance of convenience is against the grant of a stay in the terms sought. 38 For the reasons set out above, weight must be given to the respondent's success in the court below: Re Middle Harbour Investments Ltd (In Liq) (unreported, NSW Court of Appeal, 15 December 1976, at 2 per Mahoney JA). 39 I appreciate that the freezing order provides security over the shares held by the applicants in Gujarat NRE Coking Coal Limited ("GNCCL") (an Australian company), but that is only one consideration. 40 The proposition that the appointment of receivers could cause irremediable prejudice must be rejected. As Coeclerici pointed out, regardless of the appointment of receivers there have already been events of default under the Facility Agreement. First, Gujarat Coke is a guarantor of the agreement. It is an event of default if a guarantor is unable or admits inability to pay its debts as they fall due (cl 24.6). Second, it is an event of default if there is a change of control (cl 24.11). Change of control is defined to mean, amongst other things, that Gujarat Coke and/or its subsidiaries (directly or indirectly) cease to own, legally and beneficially, at least 51 per cent of the share capital in GNCCL. Evidence tendered by Coeclerici on the stay application shows that another company - Jindal Steel & Power Group - now owns 52 per cent of the shares in GNCCL. The evidence suggests that the deal was done at around the time or just before the primary judge pronounced his orders. Third, there is an event of default if the ordinary shares of GNCCL cease to be listed on the Australian Stock Exchange ("ASX") or are suspended from trading for more than ten consecutive days. On 28 June 2013 the ASX suspended GNCCL from trading and the suspension has not been lifted. It appears that the suspension was imposed at the company's request. 41 There is no evidence of an intention on the part of any of the companies affected by the appointment of the receivers to buy back any shares that may be sold. 42 Above all, there is no evidence that the applicants cannot pay the judgment debt in its entirety and there is no dispute that they owe Coeclerici at least the balance of the USD8,000,000. On the contrary, the company's Statement of Unaudited Financial Results for the quarter ended 30 June 2013 shows that its revenue from operations net of excise duty was the equivalent of AUD51,900,000. Its annual report for 2011-2012 lists its then current assets at the equivalent of approximately AUD360,000,000 and its total assets about twice that amount. As the primary judge noted, it claims to be the largest independent producer of metallurgical coke in India. It exports to a number of countries around the world. Mr Jagatramka, who, it will be recalled, is the guarantor of the original debt and a party to the Payment Agreement, did not testify that he, himself, did not have (or could not raise) the money to pay it. 43 The appointment of receivers can be thwarted by payment. As the Reserve Bank approval will expire by 31 October 2013, it is prudent to ensure that the monies are transferred as soon as possible. 44 The risk that Coeclerici may not be able to repay the judgment debt is removed entirely by requiring that the money be paid into Court. That is the course Coeclerici proposed and I will make an order to that effect.

Conclusion 45 Despite the short time until the appeal is to be heard and notwithstanding the existence of the freezing orders, I am not persuaded that it would be fair to grant a stay of all the orders pending final determination of the appeal. I will, however, stay the orders relating to the appointment of receivers for two more weeks conditional upon the payment into court of the judgment debt. I do so to give the applicants one final chance to pay before the receivers move in. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.