Mineralogy Pty Ltd v BGP Geoexplorer Pte Ltd [2017] QCA 275

SUPREME COURT OF QUEENSLAND

CITATION: Mineralogy Pty Ltd v BGP Geoexplorer Pte Ltd [2017] QCA 275

PARTIES: MINERALOGY PTY LTD ACN 010 582 680 (appellant) v BGP GEOEXPLORER PTE LTD (respondent)

FILE NO/S: Appeal No 11186 of 2017 / SC No 3482 of 2016

DIVISION: Court of Appeal

PROCEEDING: Application for Stay of Execution

ORIGINATING COURT: Supreme Court at Brisbane – [2017] QSC 219 (Jackson J)

DELIVERED ON: 13 November 2017

DELIVERED AT: Brisbane

HEARING DATE: 10 November 2017

JUDGE: Fraser JA

ORDERS: 1. Upon the undertaking by the respondent and its solicitors that all monies recovered from the appellant pursuant to the orders of Jackson J on 9 October 2017 in BS 3482/16 will be held on trust in an interest bearing account in an Australian Bank pending further order of the court, the application for a stay is dismissed. / 2. Appellant pay the respondent’s cost of the application.

CATCHWORDS: PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – STAYING PROCEEDINGS – where the respondent obtained judgment against the applicant in the amount of US$17,629,673.68 in the Supreme Court – where the applicant applies for a stay pending the determination of its appeal of a judgment given against it – where the applicant argues that if it pays the judgment debt to the respondent and is successful in its appeal, the inevitable consequential orders that the respondent repay the appellant may prove to be ineffective – where the respondent offered an undertaking that if the application for a stay were refused any amount paid by the applicant to the respondent would be paid into and kept in an Australian bank account until the determination of the appeal – whether the stay should be granted / Cook’s Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd [2008] 2 Qd R 453; [2008] QCA 322, followed / Mineralogy Pty Ltd v BGP Geoexplorer Pte Ltd [2017] QSC 219, related

COUNSEL: T Bradley QC, with E Robinson, for the appellant / T Pincus for the respondent

SOLICITORS: Alexander Law for the appellant / GRT Lawyers for the respondent

FRASER JA: The appellant applies for a stay pending the determination of its appeal against a judgment that it pay the respondent US$17,629,673.68.

The appellant is the parent company of a company formerly known as Palmer Petroleum Pty Ltd (“Palmer Petroleum”). Palmer Petroleum held petroleum prospecting licences under the laws of Papua New Guinea in areas under the sea in the Gulf of Papua. The appellant held all the shares in Palmer Petroleum and Mr Palmer was one of two directors of the appellant and either the sole director or one of two directors of Palmer Petroleum. On 28 July 2010 the respondent and Palmer Petroleum entered into a contract under which the respondent agreed to conduct three dimensional seismic surveys of the licence areas under the sea. The appellant irrevocably and unconditionally guaranteed to the respondent that Palmer Petroleum would duly perform all of its obligations in the contract. Palmer Petroleum failed to pay invoices issued to it by the respondent under the contract and it was subsequently ordered to be wound up after failing to comply with a statutory demand for the debt.

The appellant commenced proceedings against the respondent claiming that it was not liable under the guarantee. The respondent defended the claim and counterclaimed. After a trial the judgment against which the appellant has now appealed was given upon the respondent’s counterclaim.

The appellant argues that it has a fairly arguable appeal. The respondent argues that the appellant’s prospects of success are so poor as to militate against a stay of execution of the judgment. The only grounds in the appellant’s notice of appeal upon which the appellant relies in this application to show that it has a fairly arguable appeal are grounds (e)-(g):

“(e) The learned trial judge erred in failing to make findings that the Respondent engaged in conduct which amounted to breaches or anticipatory breaches of the principal contract.

The learned trial judge erred in deciding that there was no principle to the effect that a breach or anticipatory breach of the principal contract by the creditor discharges the surety unless the breach is unsubstantial and not prejudicial to the surety.

The learned trial judge erred in failing to find that:

there had been breaches and/or anticipatory breaches of the principal contract by the Respondent that were not unsubstantial and were prejudicial to the Applicant; and

by reason thereof the Appellant was discharged from any liability as guarantor.”

As those grounds indicate, the trial judge did not decide whether or not the respondent had committed any breach of its contract with Palmer Petroleum. The trial judge instead held that there was no legal principle that a guarantee in the form of the appellant’s guarantee is discharged by the debtor (Palmer Petroleum) waiving or agreeing to release the creditor (the respondent) from substantial or anticipatory breaches by affirming the contract, instead of terminating it in reliance upon the breaches.

In this application, the only breach upon which the appellant relies was an alleged failure to adhere to estimated start dates and estimated time to survey completion in relation to a particular vessel expressed in a preliminary schedule in the contract:

“(1) Three-streamer BGP Explorer

Estimated start date: Middle November 2010

Estimated completed survey 1000 Square km in 96 days”.

The contract was subsequently amended to set a new start date and estimated time to survey completion in relation to that vessel, and also by adding another vessel to the original two vessels and by changing the estimated start date and time to survey completion for the second of the three vessels. The appellant argued at trial that those amendments discharged the guarantee. The trial judge rejected that argument, holding that the appellant consented to the amendments by a provision in the guarantee that it “and undertakings hereunder shall be unconditional and irrevocable, and without prejudice to the generality to the foregoing we shall not be released or discharged from our liability hereunder by … any alteration to, addition to or deletion from the Contract or the scope of the work to be performed under the Contract …”. The appellant’s notice of appeal challenges that conclusion but, as I have indicated, it does not rely upon that challenge for present purposes.

The appellant argues that before that amendment occurred there had been such delay in the completion of the survey by the first vessel as to amount to an anticipatory breach of the principal contract by the respondent, and this discharged the appellant’s future liability under the guarantee. The appellant acknowledges that the trial judge was correct in describing the stated start dates and time to survey completion as “estimated”. That seems to provide a difficulty for the appellant’s argument before me – I do not know if this point was taken at the trial – that the failures to meet the estimated start date and completion period were breaches of a term made essential by a standard form provision that time is of the essence. The respondent foreshadowed that it would file a notice of contention in support of its argument that it had not been guilty of any breach of contract. It is not appropriate to form any view upon that factual question in this application, in which the record of the trial is not before me and the parties necessarily have had only a limited opportunity to develop arguments about the facts.

Success on this issue requires the appellant to persuade the Court of Appeal of the legal proposition in appeal ground (f). The trial judge gave detailed reasons for rejecting that proposition.¹ The appellant submitted that the Court of Appeal would be asked to develop the law by establishing a principle that a guarantor is discharged from future liability under a guarantee in this form by a creditor’s repudiation of a contract, even where the debtor does not terminate the contract but instead affirms it. The appellant did not develop an argument challenging any particular aspect of the trial judge’s analysis but refers to conflicting opinions expressed in text books cited by the trial judge; O'Donovan and Phillips, in The Modern Law of Guarantee,² suggest that there is merit in such an approach whereas Andrews and Millett, in The Law of Guarantees,³ suggest that if the debtor affirms the contract in such a case the guarantor ought to remain liable.

Upon the limited research I have conducted the trial judge’s reasons for preferring the latter view seem very persuasive, but it is not necessary to form any view upon this issue. If it is assumed in the appellant’s favour that it has a fairly arguable appeal, and even if it were thought that it has even better prospects of success, its application for a stay pending appeal should in any event be refused.

In Cook’s Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd⁴ Keane JA (as his Honour then was), with whose reasons McMurdo P and White AJA agreed, explained that, although it is not necessary for an applicant for a stay pending appeal to show “special or exceptional circumstances” warranting the grant of a stay as had been held in some earlier decisions, it is necessary for the applicant to demonstrate a sufficient basis “to outweigh the considerations that the judgements of the Trial Division should not be treated as merely provisional, and that a successful party in litigation is entitled to the fruits of its judgment”. Keane JA continued that “courts should not be disposed to delay the enforcement of court orders” and “[t]he fundamental justification for staying judicial orders pending appeal is to ensure that the orders which might ultimately be made by the courts are fully effective”.

The appellant argues that, if it pays the judgment debt to the respondent and is successful in its appeal, the inevitable consequential orders that the respondent repay the appellant may prove to be wholly or at least partly ineffective. It relies upon two grounds for that conclusion.

First, the evidence reveals these matters:

The respondent is incorporated in Singapore and is not registered in Australia.

The respondent has no assets or operations in Australia.

The most recent publicly available financial statements of the respondent, for the year ended 31 December 2015, show that: the respondent incurred a net loss exceeding US$5 million; as at 31 December 2005 the respondent’s total liabilities exceeded its total assets by an amount exceeding US$117 million; in that year the respondent had current liabilities of nearly US$153 million owed to related companies and was dependent on its intermediate holding company for support to enable it to operate as a going concern; the respondent’s immediate holding company is incorporated in the British Virgin Islands; and its intermediate and ultimate holding companies are incorporated in the Peoples Republic of China.

Draft financial statements for the year ended 31 December 2016 exhibited to an affidavit filed by the respondent paint a similar picture, with the respondent’s current liabilities exceeding its total assets by about US$112 million. There is a note in those statements that “a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern”.

A director of the Singaporean solicitors for the respondent affirmed that he had been instructed by a director of the respondent and believed that: it was extremely unlikely that its intermediate holding company would require the respondent’s liability to be discharged in full or to any extent that would imperil the continued operation of the respondent; the companies in the respondent’s group were to be considered as State owned enterprises by the Peoples Republic of China under the ultimate shareholder; it was common for holding companies to provide financial support to subsidiaries in China; the respondent has had a substantial, varying liability to the intermediate holding company for about seven years: the business of marine seismic acquisition performed by the respondent was considered to be important; and there was no reason to believe that its holding company would cause it to cease to exist in the foreseeable future.

Notwithstanding that evidence, for the purposes of this application the respondent’s financial position is such as to reveal a risk that if the appeal succeeds and the Court orders the respondent to repay money paid by the appellant pursuant to the judgment, that order may prove to be ineffective.

Secondly, the appellant contends that orders ultimately made in its favour on appeal might not be fully effective because of potential obstacles in enforcing an Australian judgment in Singapore. Upon the evidence before me, that process would require the appellant to obtain a judgment in Australia against the respondent for the repayment of money and thereafter satisfy a court in Singapore that it would be “just and convenient” to enforce the Australian judgment in that country. I accept that this might add some unwanted delay and cost to the enforcement of any money judgment on appeal in the appellant’s favour.

However, both of the grounds upon which the appellant relies as justifying a stay fall away in light of the respondent’s offer to undertake that if the application for a stay is refused any amount paid by the appellant to the respondent will be paid into and kept in an Australian bank account until the determination of the appeal. The appellant does not seek to contradict the respondent’s submission that an appropriate form of undertaking to that effect obviated any risk that any order ultimately made in favour of the appellant might be ineffective. Subject to the formulation of an order incorporating an appropriate undertaking, I accept the respondent’s submission.

The appellant refers to the fact that the respondent has served a creditor’s statutory demand for payment of the judgment debt. I do not understand the appellant to argue that the prospect that the appellant may be wound up if the appellant fails to comply with the demand is a sufficient basis for a stay. It is not. Although Mr Palmer, the sole director and the secretary of the appellant, swore an affidavit, he did not depose and there is no evidence that the appellant is unable to pay the full amount of the judgment debt and any interest and costs that are payable. This point was mentioned during the course of the hearing and the appellant made no submission to the contrary. Given that absence of evidence, the undertaking offered by the respondent, and the absence of any evidence of any other material disadvantage the appellant might suffer by the absence of a stay, the proper conclusion is that the appellant will not suffer any significant prejudice by being required to fulfil its existing legal obligation to pay the judgment debt pending the determination of the appeal. I would add that in the circumstance of this case, any prospect that the appellant might be wound up for non-payment of the judgment debt in any event would not be a sufficient ground for staying the judgment, for much the same reasons as were given for the similar conclusion in Cook’s Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd at [18].

The appellant argues that, in lieu of the undertaking offered by the respondent, the Court should grant a stay upon Mr Palmer and Palmer Leisure Australia Pty Ltd (“Palmer Leisure”) supplying to the Registrar registered first mortgages securing the immediate repayment of the judgment debt over unencumbered real property, the total value of which exceeds the amount of the judgment debt. The proposed securities are as follows:

A registered first mortgage over Palmer Sea Reef Golf Course, of which Mr Palmer is the registered owner, in favour of the Registrar to satisfy up to $14,750,000 of the judgment debt. A practising registered valuer deposed that his market valuation of the Palmer Sea Reef Golf Course of $14,750,000 remained current, subject to the terms of the original valuation.

A registered first mortgage by Palmer Leisure (a company of which Mr Palmer is the sole director and shareholder) over lots it owns in the Downing Street Community Titles Scheme (all of which are unencumbered, save for one lot valued at $270,000, over which there is a mortgage registered in favour of a bank). The same valuer deposes that his market valuation of the gross realisation of the lots excluding the mortgaged lot is $11,140,000.

On the basis of those valuations, the total value of the land offered as security is $25,890,000 as against the judgment debt, the Australian dollar equivalent of which is currently in the order of $23 million.

The parties made competing submissions about the benefit to the respondent of receiving payment of the judgment upon the undertaking it offered as against the benefit of registered first mortgages over the land offered by Palmer and Palmer Leisure if the application for a stay were granted. The respondent argues that the relative disadvantages to it of the security offered by Mr Palmer and Palmer Leisure, as opposed to payment of the judgment debt, are threefold: the evidence reveals the distinct possibility that other companies might hold equitable interests in either or both of the properties over which the securities are offered; evidence of complex and long running disputes in which Mr Palmer and companies associated with him are involved suggest the possibility that Palmer Leisure ultimately may be wound up, in which event a liquidator might contend that the mortgage of its property should be set aside as a voidable preference to a creditor of that company; and, particularly in circumstances where the respondent has not had the opportunity of investigating the valuations of the properties, there must be a risk that by the time of any forced sale of those properties, the net amounts would be insufficient to fund the payment of the judgment debt together with interest accruing on it.

As the appellant submits in relation to the first point, the prospect that others hold equitable interests in the land over which the mortgages are offered may be met by the indefeasibility attracted to a registered first mortgage. As to the second point, as the appellant submits, it is not possible upon the evidence to say that a possible preference claim is more likely to succeed in relation to the grant of a mortgage than in relation to a payment of money in satisfaction of the judgment debt; but given that the uncertainty in the position is attributable to the appellant’s omission to disclose details of its financial position the respondent should not be required to accept a potentially inadequate form of security for its judgment in lieu of proceeding to enforce it without delay. The third point made by the respondent should be accepted despite the appellant’s reliance upon the absence of any challenge to its valuation evidence. The respondent should not be required to bear the risks that, if the appeal fails and the respondent is required to rely upon the mortgages, forced sales of the land may not be concluded within a reasonable time after the determination of the appeal and they may not realise enough net proceeds to cover the whole of the then outstanding principal and interest thereon.

The submissions made by the appellant upon those topics in any event could not overcome the effect of the undertaking offered by the respondent that there is no real risk that a successful appeal by the appellant will be wholly or partly ineffective. The mere circumstance that it would be more convenient for the appellant to defer compliance with the judgment against it upon the provision of security for future compliance is an insufficient basis to justify delay in the enforcement of the judgment. There is nothing to outweigh the consideration identified in Cook’s Construction Pty Ltd v Stork Food Systems Australasia Pty Ltd that judgments of the Trial Division should not be treated as merely provisional.

Upon the respondent giving an undertaking to the court in the terms offered at the hearing, the application for a stay should be refused. I will hear counsel as to the appropriate form of order to give effect to these reasons and as to costs and any directions required to expedite the hearing of the appeal.

Footnotes

1. [2017] QSC 219 at [58] – [73]. ↩

2. At 7.300. ↩

3. 7th Ed 392-392 [9017]. ↩

4. [2008] 2 Qd R 453 at 455. ↩