4666/03 THE J ARON CORPORATION & ANOR V NEWMONT YANDAL OPERATIONS PTY LTD
2407/04 THE J ARON CORPORATION & ANOR V NEWMONT YANDAL OPERATIONS PTY LTD
JUDGMENT
1 HIS HONOUR: The plaintiffs claim to be creditors of the first defendant under contracts known as hedge contracts, under which they agreed to buy, and the first defendant agreed to deliver, specified quantities of gold at specified future times. The first defendant and 12 of its subsidiary companies have entered into deeds of company arrangement under which the third defendants purport to act as deed administrators.
2 The plaintiffs have commenced a proceeding, No 4666 of 2003, in which they contend that the first defendant's deed of company arrangement is invalid or ineffective, or should be set aside. Relief is claimed, first, on the ground that the various deeds of company arrangement constitute an abuse of Part 5.3A of the Corporations Act and a breach of the directors' fiduciary duties; second, on the ground that the third defendants are not independent and should be removed under s 449B; third, on the ground that the third defendants as voluntary administrators failed to discharge their duty to make proper investigations into the business, affairs and financial circumstances of the first defendant and its subsidiaries, and therefore the deeds should be terminated under s 445D; and fourth, on the ground that the third defendants conducted the meeting of creditors of the first defendant in a manner that was oppressive, discriminatory and prejudicial to the plaintiffs, so that, again, the deeds should be terminated under s 445D, or the purported resolutions of the creditors should be set aside under s 600A(2).
3 Fifth, the plaintiffs rely on a "formal defect" in relation to certain of the deeds of company arrangement. They claim that the third defendants, who chaired the meeting of creditors which authorised execution of the deeds of company arrangement, held proxies for each company in the first defendant's group, in respect of inter-company indebtedness. They say that there was a single motion put to the meeting, approving the execution of the first defendant's deed of company arrangement by all of the companies, and that the third defendant abstained from voting in respect of the inter-company indebtedness of the subsidiaries. They say that, in respect of nine of the subsidiaries, no resolution for the execution of a deed of company arrangement could have been passed because, in the absence of the third defendants voting in respect of inter-company indebtedness, no votes at all were cast by the separate creditors of those nine companies. Therefore, they say, no valid deeds of company arrangement were entered into by those nine subsidiaries. The plaintiffs then point to clauses 3.1 and 3.2 of the first defendant's deed, which say that the deed would automatically terminate on 22 September 2003 if the subsidiaries' deeds were not executed by that time. The plaintiffs' contention is that, since no valid deeds were executed by nine of the subsidiaries, the first defendant's deed has come to an end under those clauses.
4 The plaintiffs believe that the defendants can have no answer to the "formal defect" ground. Whereas the prosecution of the other four grounds will involve a substantial hearing and much contested evidence, the plaintiffs say that the establishment of the "formal defect" ground will involve the proof of minimal facts, some of which are admitted or uncontested. They seek to find a procedurally acceptable way of having the "formal defect" ground determined separately and in advance of everything else.
5 The defendants deny that the first defendant's deed is invalid or ineffective on the "formal defect" ground. They argue that the external creditors of other group companies have become creditors of the nine subsidiaries by virtue of deeds of cross-guarantee, under which each company in the group has guaranteed payment of the debts of each other group company. They say that even if the deed is invalid or ineffective, the court may and should cure the defect by making orders under s 445G(3), s 1322 or s 447A. Their contention is that the making of orders under one of these sections would involve discretionary considerations making it inappropriate to deal with the "formal defect" ground until the whole of the evidence in the proceeding was heard. But the plaintiffs respond that if the "formal defect" ground is correct, the court has no jurisdiction under those provisions to grant any form of relief.
6 In March 2004 the plaintiffs made an application, under Part 31 of the Supreme Court Rules, for orders for the determination of separate questions relating to the "formal defect" ground, and the absence of jurisdiction to make curative orders. In reasons for judgment delivered by me on 12 March 2004, I rejected that application. I identified several problems. First, the "formal defect" ground relies upon the proper construction of certain contractual provisions. The plaintiffs are not parties to any of the deeds of company arrangement. Therefore they had no legal or equitable rights to be determined by the answers to the separate questions. The fact that the plaintiffs were bound by the first defendant's deed, if it was a valid and operative deed of the Part 5.3A, did not give them any other rights than the specific statutory rights conferred by the Corporations Act. Secondly, it would be inappropriate to make determinations as to the proper construction of the first defendant's deed of company arrangement unless all parties to the deed were parties to the proceeding. Thirdly, if the separate questions were answered in the manner advocated by the plaintiffs, there would still be complex questions to resolve concerning the proper orders to be made, given that the deeds of company arrangement had been substantially performed and distributions had been made to employees and trade creditors. Fourthly, to the extent that the plaintiffs asserted a contravention of a provision of Part 5.3A, they might be entitled to some relief under s 445G, but that section requires the court to exercise a discretion, which in turn requires the court to understand all relevant facts and circumstances. Similarly, broad-based discretionary considerations arise under s 1322 and s 447A. It would be generally inappropriate to use Part 31 as a vehicle for the exercise of wide, fact-based judicial discretions.
7 In the course of my reasons for judgment I noted (at [24]), that if there were in fact no deed of company arrangement for the purposes of Part 5.3A, then the plaintiffs would be entitled to take proceedings for recovery of their debt, although they were not entitled to seek a determination of the proper construction of a deed to which they are not parties. After my judgment was delivered, the plaintiffs commenced a new proceeding against only the first defendant, No 2407 of 2004, by a summons seeking a declaration that the defendant is indebted to them under the hedge contracts and an order that the amount owing be referred to a Master or referee for inquiry and report. The summons was made returnable before me on 27 April 2004.
8 On that day counsel for the defendant informed me that, if the new proceeding were allowed to continue, his client would rely on the defendant's deed of company arrangement by way of defence, and would also file a cross-claim seeking to invoke s 1322 or s 447A to cover the possibility that there may be some defect in the deed needing to be cured under those provisions. The court would then be presented with issues identical with the issues raised under the "formal defect" ground in the earlier proceeding. He submitted that the new proceeding should be brought to an end and the plaintiffs should make the claim they make in the new proceeding by amending their statement of claim in the earlier proceeding. Counsel said that if necessary, his client would make an application for the new proceeding to be summarily dismissed or indefinitely stayed or, if the court was not prepared to dismissed or stay the new proceeding, for the joinder of the new and old proceedings in some appropriate fashion.
9 The plaintiffs contended that it would be premature to intervene in the new proceeding at this stage. Their counsel submitted that the defendant should put on its defence and any cross-claim, and then the court could see whether what counsel for the defendant anticipated had in fact come to pass. He told the court that the plaintiffs would submit that the statutory requirements for the exercise of jurisdiction under ss 447A and 1322 were not satisfied in this case.
10 Having regard to the preliminary submissions by counsel for the parties, I became concerned that if there were no intervention by the court, the new proceeding would evolve to a point where the questions of validity of the deed and validation under the curative statutory provisions would be raised, notwithstanding that these questions are already in issue in the old proceeding. It seemed to me that this would achieve nothing other than the incurring of unnecessary and substantial costs. I therefore suggested that I should give counsel for the plaintiffs the opportunity to provide some brief written submissions outlining the points of law which he would seek to invoke in the event that the defendant were file a cross-claim invoking ss 447A, 445G and 1322. Counsel for both parties concurred in this course. The purpose of receiving the submissions was not for me to take a final view as to the plaintiffs' prospects of success in the new proceeding, but to make an assessment whether there was sufficient substance in the plaintiffs' contentions that I should let them pursue the new proceeding in the manner proposed. In order to minimise costs, I decided not to notify the other parties to the old proceeding.
11 By written submissions provided to my associate on 11 May 2004, the plaintiffs have
· developed in some detail their argument designed to establish the invalidity of the principal deed of company arrangement, and sought to rebut any attempt to support the validity of the deed by reference to the deeds of cross-guarantee;
· submitted that s 1322 can have no application because there is no procedural irregularity, for the purposes of s 1322(2), and no contravention of the Act that is essentially of a procedural nature, for the purposes of s 1322(4);
· submitted that s 447A can have no application because nothing has happened which contravened Part 5.3A and therefore there is no occasion to make orders under s 447A;
· submitted that s 445G(3) can have no application because there is no contravention of a provision of Part 5.3A, and even if there were, the execution of nine deeds of company arrangement without approval resolutions cannot be regarded as "substantial compliance" with the relevant provisions of the Act.
12 The defendant has also provided written submissions, dated 17 May 2004. It contends that
· the operation of the principal deed of company arrangement is not conditional upon the passing of valid resolutions, because under Part 5.3A a deed of company arrangement is valid and effective until it is set aside under the statutory provisions, even if it was executed without any prior valid resolution of creditors (drawing an analogy with the indoor management rule of company law);
· there were valid resolutions of the nine subsidiary companies, because, even though no votes were cast directly in respect of intercompany indebtedness, external creditors of group companies voted, and by virtue of the deeds of cross-guarantee those external creditors were creditors of each group company;
· the plaintiffs' contention, that s 447A has a limited operation, is inconsistent with the High Court's decision in Australasian Memory v Brien (2000) 200 CLR 270, and other cases;
· s 445G(3) is not limited to situations where there has been contravention of Part 5.3A, and applies to the present case because there is doubt as to whether the principal deed of company arrangement was entered into in accordance with, or complies with, Part 5.3A;
· s 1322(4)(a) would be available, if needed, because the execution of a deed of company arrangement is a "proceeding", and any failure to pass resolutions in relation to the nine subsidiaries would be a contravention of the Act because the execution of a deed of company arrangement presupposes a valid resolution of creditors.
13 The plaintiffs' and the defendant's written submissions are carefully constructed and well thought out positions, based partly on some legal issues that are both fundamentally important and contestable. Seems to me that the defendant's submissions demonstrate, even more vividly than the plaintiff's, that there is an arguable case for the plaintiffs' view that the principal deed is invalid and cannot be saved under the statutory curative provisions. To meet the plaintiffs' arguments, the defendant has found it necessary to penetrate some deep legal questions such as whether a deed of company arrangement executed under the Act is necessarily operative until set aside, even though what might be regarded as preconditions for its execution have not been satisfied. To meet the plaintiff's case that none of the curative provisions can apply, the defendant has thought it appropriate to make a liberal construction of those provisions, asserting for example that failure to secure a resolution of creditors for the execution of a deed constitutes a contravention of the Act, and arguing that the Australasian Memory case allows s 447A to have a curative application in respect of past events. The defendant may be right on every point, but it is not so manifestly right that there is no arguable case to the contrary.
14 I have decided this is not the occasion for the court to express any view as to the resolution of the legal questions between the parties, for two reasons. First, although I now have the benefit of careful and detailed submissions, there is at present no application before the court and therefore no crystallised issue for determination. All it has happened is that the plaintiffs have responded to my invitation to show me how they can make good their claim that the principal deed is invalid in a manner that cannot be cured under the statutory provisions. Since it seems to me there is an arguable case for the plaintiffs' stance, it would be wrong for the court, solely in the role of case manager of the dispute between the parties, to seek to persuade the plaintiff, informally, to discontinue the new proceeding and to run the issues solely in the old proceeding. Secondly, I am conscious of the fact that there are other parties who may be interested in the outcome of the issues addressed in submissions (specifically, the administrators and the subsidiary companies who are parties to the old proceeding), who have not yet been given the opportunity to address them.
15 If, as counsel for the plaintiffs originally contended, the pleadings in the new proceeding are allowed to evolve, it is possible that the issues of law raised in the parties' submissions will arise for determination in a fashion that does not require full hearing of all of the contested factual matters. For example, the court may regard it as appropriate to make a determination of some or all of these matters in the context of an application for summary dismissal of the defendant's cross-claim, once it is filed. Moreover, it is not obvious to me that an application for the determination of separate questions in the new proceeding would necessarily encounter all of the obstacles that defeated the application in the old proceeding.
16 The "formal defect" issue, and the availability of statutory curial provisions, will inevitably arise in the present proceeding. The same issue is raised in paragraphs 83-86 of the statement of claim in the old proceeding. The defendant says that, subject to its filing an appropriate interlocutory process, the court should dismiss the new proceeding, because of this substantial overlap. Since, however, the constitution of the new proceeding gives the plaintiffs a chance of having their formal defect argument determined prior to the final hearing of the old proceeding, the bringing of the new proceeding is not necessarily repetitious or futile.
17 Since the matter was last before me on 18 May 2004, counsel for the plaintiffs has (to the defendant's knowledge) written to my associate confirming a matter foreshadowed by him on 18 May. This is that the plaintiffs will seek leave to amend the statement of claim in the old proceeding by striking out paragraphs 83 to 86, evidently on the basis that the "formal defect" argument will be run only in the new proceeding. In light of this development, I think it would be premature to express any view as the likely outcome of an application for summary dismissal of the new proceeding, in the absence of an application and further argument.
18 As I see it, the next step is to make some directions for the filing of pleadings in the new proceeding, and then (as counsel for the plaintiffs suggested) to wait and see whether any applications are made. I shall reserve the costs of the hearings on 27 April and 18 May 2004, and of the preparation of the written submissions of the parties to the new proceeding. It seems highly probable that the effort of preparing them will not be wasted.