4666/03 THE J ARON CORPORATION AND THE GOLDMAN SACHS GROUP, INC V NEWMONT YANDAL OPERATIONS PTY LTD & ORS
JUDGMENT
1 HIS HONOUR: These reasons for judgment relate to an interlocutory application by the plaintiffs for orders for the determination of separate questions under Part 31 of the Supreme Court Rules. When the plaintiffs applied for leave to file in court a further amended interlocutory process to articulate, more precisely, the questions for separate determination, senior counsel for the first and fourth defendants objected, on the ground that the plaintiffs had no standing to seek the determination of those questions. I dealt with the matter on the pleadings and upon submissions, without going into evidence. Having reached the conclusion that the objections raised by the first and fourth defendants were correct, I made orders denying the plaintiffs' application for leave to amend their amended interlocutory process, and I dismissed the amended interlocutory process insofar as it sought separate determination of questions under Part 31. After hearing submissions with respect to costs, I decided to make no order for costs, with the intention that (except to the extent that the third defendants may have a right of recoupment out of corporate assets) each party would bear its own costs of the hearing. I reserved my reasons for judgment and I now deliver them.
2 It is not appropriate to make findings of fact in the circumstances, but it is necessary to provide some background so that the point that I have determined may be understood. My summary of facts is taken from the amended statement of claim, which I have assumed to be correct, to the extent necessary to resolve the matters before me.
3 The first defendant ("Newmont Yandal") is the parent in a group of companies which conduct goldmining operations in Western Australia. The second defendant ("Clynton Court") and fourth defendants (12 listed companies) are subsidiaries of Newmont Yandal. Newmont Yandal, then called Great Central Mines Limited, was acquired by Normandy Mining Limited in 2000, and in about April 2002 the Newmont Mining group, the ultimate holding company of which is a United States company, acquired all of the shares in Normandy Mining. Newmont Yandal is now owned by the Newmont Mining group through Newmont Australia Limited.
4 In 1998 the plaintiffs entered into a master agreement and derivatives contracts known as hedge contracts with Newmont Yandal, under which the plaintiffs agreed to buy and Newmont Yandal agreed to deliver specified quantities of gold at specified future times. Newmont Yandal entered into similar agreements with other hedge counterparties in 1997 and 1998. Under the terms of the master hedging agreement between Newmont Yandal and the plaintiffs, the plaintiffs were entitled to designate an early termination date in the event that a material change occurred, and if they did so, a certain amount would become due and payable.
5 In about April 1998 Newmont Yandal issued interest-bearing notes in the sum of US$300 million. In March 2002 a wholly-owned subsidiary of Newmont Mining, referred to in the pleading as "Bondco", offered to purchase all of the outstanding notes for cash. Some of the noteholders accepted, and by 26 June 2003 Bondco had received tenders from noteholders representing 83% of the aggregate principal amount of the notes not already owned by it.
6 Valuations were prepared, and negotiations were conducted, with a view to Newmont Mining making offers to the creditors of Newmont Yandal including the plaintiffs, during 2002 and up to May 2003. On 20 May 2003 the plaintiffs purported to terminate their master hedging agreement by designating an early termination date, and then they claimed a termination amount due to them of US$57,381,911. On 28 May 2003 Bondco made a formal offer to acquire all the outstanding hedge contracts entered into between Newmont Yandal and its counterparties. This offer was accepted by all of the hedge counterparties except the plaintiffs.
7 On 3 July 2003 the directors of Newmont Yandal and the second and fourth defendants adopted resolutions, to the effect that the companies were insolvent or were likely to become insolvent at some future time, and for the appointment of the third defendants as voluntary administrators under s 436A of the Corporations Act. On 29 August 2003, at a meeting purportedly convened under s 439A, the creditors of Newmont Yandal and the second and fourth defendants purportedly resolved to execute deeds of company arrangement with Newmont Australia Limited.
8 Deeds of company arrangement were executed by those companies on 8 September 2003, and the third defendants purported to become deed administrators. Under those instruments Clynton Court became an administration company for the purposes of the deeds. Employees and trade creditors were to receive 100 cents in the dollar, the plaintiffs would receive US$22.9 million out of their claim to over US$57 million, and all other creditors (if any) would receive no less than they would have received in a liquidation if the mine assets had been sold for US$150 million.
9 There was a principal deed, for Newmont Yandal, and secondary deeds for each of the subsidiaries. The parties to the principal deed were Newmont Australia Limited, Clynton Court as administration company, the third defendants as voluntary administrators and as deed administrators, Newmont Yandal, and the 12 subsidiary companies that are the fourth defendants. The parties to each secondary deed were Newmont Australia, the third defendants as voluntary administrators and as deed administrators, and the relevant subsidiary company. Each of the deeds contained a provision (clause 3.1) to the effect that the deed was conditional on the execution of the principal deed and each secondary deed by each person named as a party to it, and a provision (clause 3.2) that if, as a result of clause 3.1, the deed had not come into full force and effect by 5pm on 22 September 2003, it would automatically terminate.
10 By their amended statement of claim, the plaintiffs claim relief on several grounds. First, they contend that the resolutions to enter into the deeds of company arrangement constitute an abuse of Part 5.3A and a breach of the directors' fiduciary duties. They say that there was no reasonable basis for an opinion to be formed that on 3 July 2003 Newmont Yandal was insolvent or likely to become insolvent. They claim that the directors did not genuinely or in good faith form an opinion to that effect, instead acting for the sole or dominant purpose of facilitating the removal of the plaintiffs as a creditor at less than the termination amount due to them under the master hedging agreement.
11 The plaintiffs claim, on this ground, declarations that the resolutions, the instruments of appointment of the voluntary administrators, and the deeds of company arrangement, are void ab initio or voidable, either on the basis of abuse of Part 5.3A, or on the basis that they resulted from breaches of fiduciary duty by the directors.
12 Secondly, the plaintiffs contend that the third defendants, while purporting to act as voluntary administrators, were not independent of Newmont Yandal in various ways and did not discharge their duty to act, and be manifestly seen to act, impartially as between creditors. They claim an order under s 449B that the third defendants be removed as voluntary administrators and that a fit and proper person be appointed as voluntary administrator or liquidator of Newmont Yandal and its subsidiaries.
13 Thirdly, the plaintiffs contend that the third defendants as voluntary administrators failed to discharge their duty properly to investigate the business and affairs and financial circumstances of the Newmont Yandal group, and to form reasonable opinions with respect to the interests of creditors. They claim an order under s 445D terminating the deeds of company arrangement.
14 Fourthly, the plaintiffs say that the third defendants conducted the meeting on 29 August 2003 in a manner that was oppressive, discriminatory and prejudicial to them in various ways, for example by admitting votes by related creditors and failing to adjourn the meeting. They claim an order under s 445D terminating the deeds of company arrangement, and an order under s 600A(2) that the purported resolutions of the creditors be set aside.
15 Fifthly, the plaintiffs rely upon a "formal defect" in relation to the deeds of company arrangement. Their contention is that the third defendants, who chaired the meeting of creditors which took place on 29 August 2003, held proxies for each company in the Newmont Yandal group in respect of all inter-company indebtedness. They say that there was a single motion put to the meeting, that the Newmont Yandal companies execute the Newmont deed of company arrangement and that the third defendants be appointed administrators of the deed. The third defendants abstained from voting in respect of the inter-company indebtedness of the subsidiaries. According to the plaintiffs, the effect of putting the proposal as a single resolution without any voting in respect of inter-company indebtedness was that no resolution was passed by nine of the Newmont Yandal group companies. They say this is because, the third defendants not having cast votes in respect of inter-company indebtedness, there were no votes at all on the motion by the separate creditors of each of those companies.
16 The first four grounds for relief are what might be called, without lessening the gravity of the claims, typical complaints raised by creditors who wish to challenge a deed of company arrangement (see, for example, Bovis Lend Lease v Wily (2003) 47 ACSR 351), invoking ss 445D, 449B, 600A and perhaps also ss 447C and 445G. To the extent that the plaintiffs rely on those statutory provisions, they have the standing to do so as a creditor by virtue of the terms of the provisions themselves.
17 The alleged "formal defect" raises issues of a different character. It is said to lead to the consequences that, as no resolutions were validly passed for the execution of secondary deeds of company arrangement by the nine subsidiaries, their subsequent execution of deeds cannot have been effective under Part 5.3A, and consequently the conditions stipulated in clause 3.1 of the principal and secondary deeds cannot have been satisfied, and therefore both the secondary deeds and the principal deed automatically terminated on 22 September 2003.
18 The parties estimate that a full final hearing, if there is contested expert evidence, will be a hearing of several weeks' duration. At a directions hearing on 24 February 2004, the plaintiffs' solicitor asserted that if his clients' contention on the "formal defect" was correct, it would be possible to dispose of the proceeding on that basis without a full hearing. He proposed, with that objective in mind, that some questions be formulated for separate determination under Part 31 of the Supreme Court Rules. It was contemplated that those questions would be questions of law or construction, not involving determination of contested facts or the exercise of judicial discretion. It was also contemplated that the questions would extend to whether the Court had jurisdiction, as a matter of law, to cure any such defect under s 1322 or s 447A.
19 The questions subsequently prepared by the plaintiffs for the purposes of an order for separate determination under Part 31 were to the following effect:
1. Did the meeting of creditors on 29 August 2003 in respect of the nine subsidiaries resolve that each company execute a secondary deed of company arrangement specified in the resolution?
2. If the answer to question 1 be "no", was the secondary deed of company arrangement into which each of those nine companies purported to enter on 8 September 2003, a deed of company arrangement with respect to each such company to which Part 5.3A Division 10 of the Corporations Act applied?
3. If the answer to question 2 be "no", did the principal deed of company arrangement into which Newmont Yandal entered on 8 September 2003 terminate on 22 September 2003 pursuant to clause 3.2 thereof?
4. If the answer to question 2 be "no", does the Court have jurisdiction under s 447A, s 445G or s 1322 to make an order, or grant any other form of relief, which would have the effect of making the secondary deed of company arrangement into which each such company purported to enter a deed of company arrangement with respect to each such company to which Part 5.3A Division 10 applied with effect on and from 8 September 2003?
20 Questions 1 and 2 in the plaintiffs' draft questions deal, respectively, with a question the fact (namely whether there were resolutions by each of the nine subsidiaries companies to execute, in each case, a deed of company arrangement), and a question of law (namely, whether under the Corporations Act those companies have, by their execution of instruments on 8 September 2003, entered into the deeds of company arrangement for the purposes of Part 5.3A, if there were no resolutions validly passed by them). Question 3 turns attention to the effect of invalidity of the secondary deeds on the principal deed, as a matter of construction of clause 3.2 of the latter. The answer to question 3 is a crucial step in the plaintiffs' argument that the principal deed is inoperative and therefore not binding on them. It is, however, an answer that depends upon the construction of a contract rather than the application of the Corporations Act.
21 At the hearing on 9 March 2004 the defendants opposed the plaintiffs' application for leave to file a further amended interlocutory process seeking an order for the separate determination of these questions, on the ground that the plaintiffs have no right to have the questions determined. Their submission was that the plaintiffs are not a party to any of the deeds, and therefore they cannot rely on provisions of the principal deed such as clause 3.2 to obtain a determination that the deed has automatically been terminated. Their sole status is as a creditor of Newmont Yandal, and their sole rights are the statutory rights conferred upon a creditor under Part 5.3A - in particular, the right to make an application under s 445G for an order declaring the relevant deed of company arrangement to be void. Avoidance of a deed of company arrangement under s 445G does not affect its previous operation, having regard to s 445H, and so the plaintiffs are not in a position to obtain relief rendering the deed void ab initio. Further, the Court is required by s 445G(3) to address discretionary considerations of a kind which render an application for relief under s 445G unsuitable for determination by separate question under Part 31. Finally, the answer to the separate questions would not finally resolve the proceeding, even if the answers were as contended for by the plaintiffs.
22 The plaintiffs' response is to say that as a creditor of Newmont Yandal, they are very significantly affected by the purported operation of the principal deed, which purports to their claim from over US$57 million to under US$23 million. That gives them a sufficient interest to have a question determined which goes to the validity and effectiveness of the principal deed. The plaintiffs say there is great utility in having the issues identified by the proposed separate questions decided by the Court, in circumstances where the resolution of the proceeding on a final basis will involve a hearing of substantial length, cost and complexity. They also contend that because the principal deed is inoperative, they have the contractual right as creditor to recover the full debt that they claim, and they are entitled to vindicate that right by the determination of separate questions.
23 In my opinion the assumed facts reveal two alternative possibilities, in terms of legal analysis, if there is any substance at all to the plaintiffs' case. Either, by virtue of what has happened, there is no deed of company arrangement and Part 5.3A of the Corporations Act has no application whatever, or deeds of company arrangement have been executed to which Part for 5.3A applies, but those deeds are arguably defective in ways that entitle the plaintiffs to relief. It is unnecessary for me to decide, for the purposes of the present application, which legal analysis should be adopted. Either way, the plaintiffs' application for orders for the determination of separate questions ought, in my opinion, to fail.
24 If there is no deed of company arrangement for the purposes of Part 5.3A, then the plaintiffs are a creditor of Newmont Yandal for whatever amount they are entitled to claim under the master hedging agreement. They are entitled to take proceedings for recovery of their debt. They are not entitled, as a creditor of Newmont Yandal, to seek a determination with respect to the construction of a deed (the principal deed) to which they are not party.
25 The plaintiffs' application is made under Part 31 of the Supreme Court Rules. Part 31 rule 1 says that "question" includes any question or issue in any proceedings, whether of fact or law or partly of fact and partly of law. Rule 2 authorises the Court to make an order for the decision of any question separately from any other question. The power to make an order under rule 2 is clearly discretionary. Here there are several grounds for exercising the discretion against making an order for separate determination.
26 First, the plaintiffs seek by an order for separate determination of questions to establish, among other things, the correct construction and effect of clause 3.2. The determination of a separate question concerning the meaning of a contractual provision is analogous to making a declaration of right to the same effect. To do so assumes that the party seeking the determination has at stake some relevant right. In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, Gummow and Hayne JJ emphasised that if an interlocutory injunction is sought in a Judicature system court, it is necessary to identify the legal or equitable rights which are to be determined at trial. The position is no different where relief is sought by way of declaration of right, or by determination under Part 31. It is necessary for the plaintiffs to identify the legal or equitable right which they seek to have determined by separate question. In my opinion the plaintiffs, not being party to the deed the meaning of which they seek to establish, have no relevant right to a determination of the meaning of the instrument, assuming (as I do in this part of my analysis) that Part 5.3A is inapplicable.
27 Secondly, even if the plaintiffs as a non-party to the principal deed had some right to ascertain the proper construction of the instrument, it would be inappropriate to make a determination of that question in the proceeding as presently constituted. A decision under Part 31, like a declaration of right, is a final determination of the question, having binding effect on the parties to the proceeding. One of the parties to the principal deed, Newmont Australia, is not party to the present proceeding. Moreover, if the right which entitles the plaintiffs to a determination of the question of construction were a right they possessed as creditor, it would be necessary to ensure that other creditors, possessing the same right, were properly parties to the determination. As a matter of discretion, the Court ought not to make a determination in the absence of such parties.
28 Thirdly, if the first two difficulties could be overcome, it would remain inappropriate, in my opinion, to proceed by the determination of the proposed separate questions. Commercial courts have frequently articulated concern, in recent times, that the determination of separate questions has the potential to add to rather than reduce the cost, time and inefficiency of finally resolving the dispute between the parties. A good example of this concern is found in the judgment Rolf J in ABB Engineering Constructions Pty Ltd v Freight Rail Corporation [1999] NSWSC 1037, which I had occasion to consider and apply in Hathway v Kavanagh (2002) 43 ACSR 497. Most significantly for present purposes, there is no agreement amongst the parties to the proceeding as to the effect of determining the proposed separate questions. On the contrary, counsel for the defendants submitted that the determination of the proposed separate questions would be merely a theoretical exercise. I was informed from the bar table that the deeds of company arrangement have now been fully performed. That means that employees and trade creditors have been paid, amongst other things. Hence, even if it were established that, because of the formal defects alleged by the plaintiffs, the principal deed came to an end before it was performed, there would still be complex questions to resolve concerning the proper orders to make in light of subsequent performance of the deed. The gain that one hopes to achieve by the determination of separate questions, namely that the determination then leads to judgment, perhaps on an agreed basis, would not be present in this case.
29 If the deed is effective under Part 5.3A (whether or not any formal defects exist), then the rights of the parties are governed by the provisions of that Part. The general operation of Part 5.3A when a deed of company arrangement is executed was described by the Full Federal Court in Emanuele v Australian Securities Commission (1995) 19 ACSR 1, at 14-15. What emerges is that when a deed of company arrangement of the kind described in Part 5.3A is executed, the rights of creditors and others bound by the deed are the rights conferred by the Part.
30 The principal deed purports to release Newmont Yandal from the debt claimed by the plaintiffs and to provide for payment of a lesser amount. Under s 444H those provisions are effective and bind the plaintiffs if the principal deed is a deed of company arrangement. It is obvious, therefore, that the plaintiffs have a strong interest in ascertaining the effect of the principal deed. But Part 5.3A does not give them any right, as creditors, to enforce the deed as a contract. They are bound by the deed under s 444H, but their rights in respect of it are only those rights which Part 5.3A confers. Specifically, they are the rights to make various applications, under provisions such as s 445D, 447C, 445G, 449B and 600A.
31 Section 445G(1) provides that, where there is doubt, on a specified ground, as to whether a deed of company arrangement was entered into in accordance with Part 5.3A or complies with that Part, a creditor of the company (inter alios) may apply to the Court for an order under the section. Section 445G(2) authorises the Court to make an order declaring a deed, or a provision of it to be void or not to be void, on the ground specified in the application or some other ground. Even if the reference to "some other ground" permits a question of construction of the deed to be raised under s 445G (and it is unnecessary for me to decide whether that is so), it is plain that the Court's power to make orders under the section is discretionary.
32 To the extent that a contravention of a provision of Part 5.3A is asserted, subsection 445G(3) requires the Court to be satisfied that the provision was substantially complied with and that no injustice would result for anyone bound by the deed if the contravention is disregarded. But even if that particular provision does not apply, and the Court is asked to make an order in the exercise of its more general discretion under subsection (2), it is plain enough that discretionary considerations are to be taken into account. Where the availability of an order depends on discretionary matters, and the exercise of discretion depends upon an understanding of all relevant facts and circumstances, it is unlikely to be appropriate (and is inappropriate in this case) to make an order for the determination of separate questions under Part 31.
33 Therefore I have decided that, whether the principal deed is or is not a deed of company arrangement to which Part 5.3A applies, an order should not be made for the determination, as separate questions under Part 31, of the questions identified by the plaintiffs.
34 On the question of costs, my decision at the hearing on 9 March 2004 was to make no order with respect to the costs of the application for determination of separate questions. The issues upon which the defendants succeeded were raised only at the last minute. When the matter was before the Court on 24 February 2004, it was not contended that the plaintiffs had no right to the determination of the separate questions, then in contemplation but not yet precisely articulated. Although, at the hearing on that day, the defendants initially resisted orders for the determination of separate questions on the ground that the issues raised by the plaintiffs would give rise to discretionary questions under ss 447A and 1322, it emerged during argument that the plaintiffs wished to contend that those sections on their proper construction were not available, and it appeared that their arguments on the construction of the sections could also be raised by way of separate questions. As I have said, I fixed the hearing of the separate questions for 9 March, on the basis that I would formally make an order for separate determination under Part 31 on that day, by which time the parties could have consulted on the drafting of the questions. The defendants did not object to my doing so.
35 The issues that were raised on 9 March were first adumbrated, and then only in broad terms, by the solicitors for the first and fourth defendants in their letter to the plaintiffs' solicitors dated 5 March 2004. In my opinion, if those issues had been ventilated at the hearing on 24 February, or in a more timely fashion before the hearing on 9 March, substantial costs may have been avoided. It is not appropriate, therefore, to order the plaintiffs to pay the first and fourth defendants' costs, or even to order that those costs be the first and fourth defendants' costs in the proceeding. The second and third defendants, who supported the submissions by the first and fourth defendants at the hearing on 9 March, are in no better position with respect to costs.