Supreme Court of WA|2011-08-11|Before: Mr J, Beech J

PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188 (11 August 2011)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188

BETWEEN : PERDAMAN CHEMICALS & FERTILISERS PTY LTD

Practice and procedure - Freezing orders - Application for freezing order or ancillary order restraining execution of specified species of charge or security without notice to plaintiff - Whether plaintiff has good arguable case - Whether there is a danger of execution of a relevant charge or security - Whether that would lead to a danger of an unsatisfied judgment - Whether discretion should be exercised to grant the injunction - No new principles

First Defendant : Mr J H Karkar QC & Mr B D Luscombe

Second Defendant : Mr J H Karkar QC & Mr B D Luscombe

Third Defendant : Mr J H Karkar QC & Mr B D Luscombe

Fourth Defendant : Mr J H Karkar QC & Mr B D Luscombe

Fifth Defendant : Mr J H Karkar QC & Mr B D Luscombe

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57

BGC Contracting Pty Ltd v WA Construction Hire Pty Ltd [2010] WASC 25

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380

Errigal Ltd v Equatorial Mining Ltd [2006] NSWSC 953

Glenwood Management Group Pty Ltd v Mayo [1991] VicRp 45; [1991] 2 VR 49

Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612

KGL Health Pty Ltd v Mechtler [2007] FCA 1410

Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [1998] HCA 30; (1998) 195 CLR 1

Perth Mint v Mickelberg (No 2) [1985] WAR 117

Plaintiff M168/10 v The Commonwealth [2011] HCA 25

Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110

1 The plaintiff (Perdaman) applies for a freezing order or interlocutory injunction against the first defendant (Griffin). In substance, Perdaman seeks an order restraining Griffin from entering into a charge that secures obligations:

(a) under a facility agreement for US$800 million made between Griffin's sole shareholder and that company's sole shareholder, as borrowers, and their financiers; or

(b) under a negative pledge deed entered into by Griffin pursuant to the facility agreement, by which Griffin guaranteed the obligations of the borrowers under the facility agreement;

without first giving ten prior business days' written notice to Perdaman.

2 The funds advanced under the facility agreement were used primarily to fund the acquisition of the shares in Griffin.

3 Perdaman contends that if Griffin enters into any such charge or security there will be a danger that Griffin would have no or insufficient assets to satisfy a judgment in favour of Perdaman for a significant sum that might be given in this action if Perdaman is successful. Perdaman also contends that the grant of such security would be a breach of its rights under an agreement between it and Griffin.

4 The action is founded on a coal supply agreement dated 21 December 2010 between Perdaman as buyer and Griffin as seller. It is convenient to begin by summarising the relevant provisions of that agreement, before outlining the evidence. Next, I will state the legal principles relevant to an application for a freezing order. Those principles reveal that the major issues in this application are:

(2) Is there a danger that a prospective judgment in favour of Perdaman will be wholly or partly unsatisfied because Griffin's assets are disposed of or dealt with by the grant of a charge of the kind already referred to?

(3) What adverse consequences for Griffin will be caused by the grant of the injunction?

(4) What other matters are relevant to the exercise of the court's discretion whether to grant the injunction?

5 For the reasons that follow, I would not grant the injunction sought by Perdaman.

6 By cl 1.1, the Coal Supply Agreement (CSA) has a term of 25 years, or as extended.

7 By cl 2.1(a), the parties agree to cooperate and work together in order to meet their specific obligations, and to use reasonable endeavours to keep each other informed of all relevant issues associated with performance of their respective obligations.

8 By cl 16.6, in certain circumstances and in the event of breaches by Griffin of a stipulated character, Perdaman is given the right to step in to Griffin's operations to take over management and control so that delivery of coal to Perdaman can be restored and maintained. See cl 16.6(d)(ii), cl 16.6(e)(ii) and cl 16.6(f) (the step-in provisions). Clause 16.6(f) provides that the parties agree to use reasonable endeavours to give effect to Perdaman's step-in right, including in negotiations and documentation with financiers, Perdaman acknowledging that its interests and rights in this regard will rank after those of Griffin's financiers. (There maybe a question of construction about how this sits with cl 3.2 and cl 3.3 of the intercreditor deed. It is not necessary or appropriate to resolve that on this application.)

9 Clause 18 provides that, subject to par (b), each party will only be liable for direct and foreseeable loss incurred by any other party as a result of its default under the agreement. It further provides that in no event will any party have any liability for any Consequential Loss (as defined) suffered by the other party.

10 Clause 20.4(a) affects the rights of a party to mortgage or charge its interest under the CSA. It provides that that may occur without the other party's consent only if:

(i) the mortgage or charge is created solely with respect to the borrowing party's financing arrangements for the Project (for Perdaman) or the Griffin Mine (for Griffin); and

(ii) if Griffin mortgages or charges its interest, the mortgagee/chargee, Griffin and Perdaman execute an intercreditor deed, substantially in the form in sch 6.

11 By cl 20.4(b), each party agreed to negotiate an intercreditor deed under cl 20.4(a)(ii) in a timely manner when requested to do so by the other party.

12 Clause 24 is central to the dispute in this action. It provides for conditions for the agreement.

13 By cl 24.1(a), the CSA (with specified exceptions) is conditional on:

(ii) execution of an intercreditor deed in the form of sch 6, a deed of charge in the form of sch 7 and a mortgage of mining licence in the form of sch 8,

occurring on or before the Condition Precedent Date. The 'Condition Precedent Date' is defined to mean 30 June 2011, unless extended in accordance with cl 24.1(b).

14 Clause 24.1(b) records that Perdaman requires six months from when Griffin exits administration to allow Perdaman to achieve Financial Close. Because Griffin's administration ended on 28 February 2011, cl 24.1(b) operates to mean the Condition Precedent Date is 28 August 2011.

15 'Financial Close' is defined to mean the date at which project financing of the funding required for the Project has been provided on terms acceptable to Perdaman, and all conditions precedent to such funding have been satisfied and initial funds have been drawn down by Perdaman.

16 'Project' means the plant and related infrastructure and activities by Perdaman on its site (124 ha, to be located within the Shotts Industrial Park in Collie) related to the production of urea and downstream processing of coal or by-products obtained from coal, including, but not limited to, carbon dioxide.

17 Clause 24.1(a)(ii) refers to the intercreditor deed in sch 6, the deed of charge in sch 7 and the mortgage of mining tenement in sch 8.

18 The intercreditor deed in sch 6 is between Griffin, Perdaman and the trustee (the Security Trustee) of the security held by Griffin's financier. The deed regulates priorities between Perdaman's security under the CSA (created by the deed of charge in sch 7 and mortgage in sch 8) and the Security Trustee's security. In broad terms, the effect is to give priority to Perdaman's step-in rights under cl 16 of the CSA, and otherwise to give priority to the Security Trustee's rights; see cl 3.2 and cl 3.3 of the intercreditor deed.

19 By the deed of charge in sch 7, Griffin would charge its present and future property in favour of Perdaman to secure Griffin's performance of obligations under the step-in provisions of the CSA.

20 Clause 2.2 of the deed of charge sets out the parties' intentions about the priority of the charge. It provides that in respect of Griffin's undertaking, assets and rights relating to the operation of the Griffin mine necessary to meet Griffin's coal delivery obligations under the CSA, the charge takes priority over all other encumbrances of Griffin other than a Finance Security (as defined) or other encumbrances mandatorily preferred by law. 'Finance Security' is defined to have the meaning given to that term in the intercreditor deed. In that latter deed, Finance Security is defined to mean the security interests (of the Security Trustee) described in sch 1. Schedule 1 appears as follows:

[Registered Fixed and Floating Charge in favour of [insert] over all the assets and undertaking of Griffin.
Registered Mortgage of land granted by Griffin in favour of [insert].
[insert].] (original emphasis)

21 By the mortgage of mining licences in sch 8, Griffin would mortgage various mining tenements in favour of Perdaman to secure Griffin's obligations under the step-in provisions of the CSA. The mortgage is collateral to the deed of charge: cl 2.2.

22 I will refer to the deed of charge and the mortgage of mining licences as the CSA Securities.

(i) use reasonable endeavours to satisfy the condition precedent set out in cl 24.1(a)(i) by the Condition Precedent Date; and

(ii) report to Griffin in a specified manner after events material to satisfying the condition precedent;

(b) Griffin must cooperate and use all reasonable endeavours to assist Perdaman with any due diligence obligations relating to achieving Financial Close; and

(c) the parties must use reasonable endeavours to satisfy the condition precedent in cl 24.1(a)(ii) by the Condition Precedent Date.

24 The nub of Perdaman's contract claim in this action is that Griffin has breached cl 24.2(b) and cl 24.2(c).

25 Clause 24.3 provides that if the condition precedent in cl 24.1 has not been waived or satisfied by the Condition Precedent Date, then either party may, while the condition precedent remains unsatisfied and not waived, terminate the agreement immediately.

(a) If an event occurs which indicates or is likely to indicate that [Perdaman] will be unable to reach Financial Close by the Condition Precedent Date, [Perdaman] must inform [Griffin], within 1 week of such event occurring, of the details and likely impact of such event on [Perdaman] reaching Financial Close.

(b) As soon as reasonably practicable and in any event by no later than 2 weeks after [Griffin] is informed of an event referred to in paragraph (a), [Perdaman] and [Griffin] must meet to discuss such event and the possible steps and actions which can be taken by [Perdaman] and [Griffin] to mitigate the effect of such event on [Perdaman] reaching Financial Close.

24.6 Financing for the Seller

To the extent requested by [Griffin], [Perdaman] agrees to use reasonable endeavours to assist [Griffin] in obtaining finance necessary to fund the expenditure required by [Griffin] to enable it to meet its delivery obligations under this Agreement. However, nothing in this clause will oblige [Perdaman] to expend any sum of money to assist [Griffin] to obtain the necessary finance.

24.7 Financing

(a) The Parties acknowledge that the Plant and the Griffin Mine will be funded by project finance from [Perdaman's] Financiers (in the case of the Plant) and [Griffin's] financiers (in the case of the Griffin Mine). Each Party will co-operate to satisfy all reasonable requirements of the financiers of either Party. Each Party acknowledges and agrees that either Party, and their Affiliates, may finance all or part of their interest in the Griffin Mine (in the case of [Griffin]) or the Plant (in the case of [Perdaman]) and agrees that either Party may finance all or part of their interest in the Griffin Mine (in the case of [Griffin]) or the Plant (in the case of [Perdaman]) on a limited recourse or non-recourse basis.

(b) The Parties also acknowledge that where all or part of the Plant or Griffin Mine is financed, then the Parties will enter into a tripartite deed which will:

(i) in the case of the Plant, be in the form attached at Schedule 5 to this Agreement; and

(ii) in the case of the Griffin Mine, in a form reasonably required by [Griffin's] financiers.

28 The second defendant, Lanco Infratech Limited (Lanco India), is a major infrastructure developer in India. The fifth defendant, Mr Agarwal, is the chief operating officer (business development) of Lanco India. He is also a director of Griffin.

29 The third defendant, Lanco Resources Australia Pty Ltd (Lanco Australia), was incorporated on 13 December 2010. Mr Agarwal is a director of Lanco Australia.

30 Since 28 February 2011, Lanco Australia has been the sole shareholder of Griffin.

31 All the shares in Lanco Australia are owned by Lanco Resources International Pte Ltd (Lanco Singapore). The shares in Lanco Singapore are owned by Lanco India. For brevity, I will refer to these companies as 'Lanco', unless there is a need to be more specific.

32 The fourth defendant, Mr Conley, is chief executive officer of Griffin.

33 The parties filed and relied upon a substantial body of evidence on this application. Mr Walewski is a director of Perdaman. He has sworn eight affidavits, seven of which are relied upon in this application. The last of those was sworn after my decision was reserved. Perdaman seeks leave to rely on it in answer to objections made by the defendants. I deal with that question in sch A to these reasons. The parties used the shorthand 'Walewski 2' to refer to the second affidavit sworn by him and so on. I will do the same. Perdaman also relies on four affidavits of Mr Dalitso Banda, a solicitor acting for Perdaman. Again, the last of these was sworn after the hearing and leave is sought to rely on it in response to an evidentiary objection.

34 Mr Amarendran is an officer of Lanco India. He has sworn three affidavits on which the defendants rely. The defendants also rely on three affidavits of Mr Nathan Landis, one of their solicitors.

35 The defendants handed up a schedule of paragraphs of affidavits relied on by Perdaman to which they took objection. Regrettably, there was no conferral prior to the hearing of the application. Senior counsel agreed that the objections should be the subject of conferral during the lunch break. At the conclusion of the hearing, counsel proposed that written submissions be exchanged in relation to the objections after I reserved my decision. I resolve the objections in the manner and for the reasons in sch A to these reasons.

36 What follows is an outline of what is revealed by the affidavits. Naturally, it does not involve any final findings of fact. Further, an application of this nature is not an occasion to resolve any disputes about the facts.

37 On 15 December 2010, Lanco India issued a press release announcing that through its subsidiary, Lanco Australia, it had agreed to acquire 100% of the shares in Griffin: Walewski 1 (202).

38 There is evidence that, before the acquisition of the shares in Griffin, the Lanco group conducted an extensive due diligence of about two years duration: Banda 2, ann DB 10. There is also evidence that, by the time the Lanco group had agreed to acquire the shares in Griffin, it was aware of the terms of the CSA: Banda 2, ann DB 9 and DB 12.

39 On 21 December 2010, Perdaman and Griffin entered into the CSA.

40 On 9 February 2011, Lanco Australia and Lanco Singapore entered into a Syndicated Facility Agreement (Facility Agreement). The Lanco entities were the borrowers under the Facility Agreement. The agreement was entered into with ICICI Bank Limited, Singapore branch (ICICI) in various capacities including original lender, mandated lead arranger, and agent; and with the Bank of New York Mellon, London branch as security agent for the lenders. In substance, the primary purpose of the Facility Agreement was to provide funds to Lanco Australia for it to acquire the shares in Griffin and another company, Carpenter Mine Management Pty Ltd (CMM). In the Facility Agreement, those two companies are referred to as 'the Targets'.

41 By cl 3.1, funds borrowed under the facility were to be applied only towards Lanco Australia's acquisition of the shares in Griffin and CMM, the ancillary costs of that acquisition, and

equity infusion (whether direct or indirect) in [Griffin and CMM] to be utilised by [Griffin and CMM] towards: (a) meeting their working capital requirements, (b) meeting their capital expenditure requirements, or (c) scheduled repayment of their existing indebtedness. (cl 3.1(b) of the Facility Agreement, confidential annexure A to Amarendran 1)

42 Perdaman's submissions emphasised that loan funds to be provided by the Lanco entities to Griffin were by way of equity infusion, not loan to Griffin. Further, Perdaman emphasised that the substantial bulk of the loan funds were required for the costs of the acquisition itself.

43 The defendants submit that Griffin benefits, in a commercial sense, from the Facility Agreement in that the funds were obtained to meet its working capital and capital expenditure requirements. The defendants also refer to the evidence of Mr Amarendran (Amarendran 1 [22]), that substantial funds had been advanced to meet the working capital and capital expenditure needs of Griffin.

44 The conditions precedent included execution of various security instruments: see cl 4(d) of pt I of sch 2. None of these required security from Griffin (although one involved security over the shares in Griffin).

45 By cl 23.16, each borrower was required to ensure that the conditions subsequent listed in pt III of sch 2 were satisfied within the specified time limit. Condition 2(g) in pt III is that no later than 90 days from the first utilisation of the facility, a negative lien of each of Griffin and CMM in favour of the security agent in a form and substance satisfactory to ICICI and the security agent be executed, delivered and perfected, including evidence of shareholder approval and lodgement of documents as required under s 260B of the Corporations Act 2001 (Cth). By cl 24.2(a), a breach of any term of cl 23, thus including cl 23.16, is an event of default.

46 A number of the undertakings by the Borrowers in the Facility Agreement required them to procure that Griffin and CMM not engage in particular conduct or ensure certain outcomes: see, for example, cl 23.5, cl 23.6, cl 23.7, cl 23.10 and cl 23.12.

47 Also on 9 February 2011, Lanco Australia granted a charge over all of its present and future assets to a maximum prospective liability of $2.4 billion in favour of the Bank of New York Mellon, London branch. That charge was granted to secure the obligations of Lanco Australia under the Facility Agreement.

28 February 2011: Lanco's acquisition of Griffin

48 On 28 February 2011, Lanco Australia acquired the shares in Griffin. There were a number of steps involved in that process. In summary, Griffin's administration ended; a deed of company arrangement was entered and finalised; and the shares in Griffin were acquired.

49 By letter of 28 February 2011, Lanco Australia wrote to Griffin and to CMM (annexure D to Landis 2). The letter referred to the acquisition of shares on that day and stated that Lanco Australia, Lanco Singapore and Lanco India had arranged for funding from ICICI as lead syndicate arranger, and had executed the Facility Agreement on 9 February 2011. The letter attached a copy of the Facility Agreement, with what was described as 'a notice to [Griffin and CMM] to adhere by all the Covenants/Undertakings/Representations and Warranties and other obligations whatever' agreed by Lanco Australia and Lanco Singapore on their own behalf and on behalf of Griffin and CMM. The letter requested that a copy be signed and acknowledged. Griffin signed to acknowledge receipt of the letter.

50 Perdaman submits that the signing of this letter by Griffin is indicative of a tendency, on Griffin's part, to act at the behest and direction of its Lanco parents. I will say more about that when I discuss the question of the danger of an unsatisfied judgment. Further, Perdaman submits that the signing of this letter did not create any legal obligations on the part of Griffin. Griffin did not suggest in submissions that the signing of the letter imposed obligations on Griffin in favour of ICICI.

Communications before Lanco's acquisition of Griffin

51 As the defendants emphasised in their submissions, even before Lanco Australia's acquisition of Griffin, there was email correspondence between Perdaman, Lanco India and Societe Generale (Soc-Gen). Soc-Gen was Perdaman's financial advisor for the Project and was proposed to be one of the lead lenders to the project.

52 In December 2010 and January 2011, Perdaman passed on to Griffin questions from Perdaman's proposed financier's coal consultant, Behre Dolbear Australia (BDA), about what was proposed for the Griffin coal mine: Amarendran 2 (25 - 28).

53 By email of 11 February 2011, Mr Krust of Soc-Gen asked Mr Vikas Rambal, a director of Perdaman, to ask Lanco what he described as 'a few quite important questions' coming from the proposed lenders and from the coal consultant (BDA). The questions related to how Lanco proposed to manage the mines, whether there were plans to improve mine management and productivity, and how developed their plans were about those matters. The email suggested that the lenders and their consultants believed there was considerable scope for improving the productivity of the mines and wanted the comfort of knowing about Lanco's plans to capture that potential. The email foreshadowed that BDA would want to talk to Lanco.

54 The same day, Mr Rambal forwarded Mr Krust's email to Mr Agarwal at Lanco, saying that it had become urgent for Perdaman's lenders to know the Lanco view rather than the Griffin view.

55 Mr Agarwal caused an information pack on Lanco to be sent to Mr Rambal on 16 February 2011. After that, Mr Rambal reiterated the questions, saying that the information requested did not appear to have been in the information pack. In response, Mr Agarwal said that after completion of the acquisition of Griffin, Lanco would put together a 100 day transitional plan, suggesting that information relevant to the questions would only take shape during that process. Accordingly, he said that he would not be in a position to comment in the meantime: Amarendran 2 (29 - 39).

March 2011: Lanco provides information to be sent to Soc-Gen

56 By letter of 8 March 2011, Mr Krust of Soc-Gen wrote to Mr Rambal of Perdaman. The letter set out information that the proposed financiers and BDA required. Questions included what coal consultants had been involved in Lanco's acquisition of Griffin, Lanco's plans for the management of Griffin, what management would be used, and the operational plan for the mines. The letter stated that the proposed financiers had advised Soc-Gen that improvement to production costs was critical given that the mine had previously gone into administration. The letter stated that these matters were 'on the critical path for the financing' and that the financiers may not allow Perdaman to complete its financing unless Lanco agreed to discuss that information with BDA. The letter requested that Mr Rambal take up the matter with Lanco as a matter or urgency.

57 The same day, Mr Rambal sent an email to Mr Rao, chairman of Lanco India, attaching Soc-Gen's letter and asking that Mr Rao direct the questions appropriately: Amarendran 2 (42 - 45).

58 By email of 12 March 2011 to Mr Rambal, Mr Agarwal responded to the questions in Soc-Gen's letter. Mr Agarwal's response did not identify any radical or fundamental change that was proposed to the operations of the mine. It said that Lanco's long-term business view was that Griffin's basic structure was more than adequate. The day-to-day management would be undertaken by the current management team at Griffin. The email stated that existing plans and expansion programmes already shown to the due diligence team by existing management would not change substantially: Banda 2, ann DB 10.

59 The defendants emphasise that, in this chain of communication, Perdaman sought information from Lanco expressly on the basis that the information was required by Soc-Gen on behalf of the proposed financiers. As will be seen, Perdaman complains that in May 2011, Griffin's communications with the proposed financiers disrupted the due diligence process and were a breach of cl 24.2(b) of the CSA. Griffin denies this, and says that its communication with financiers in May 2011 must be viewed in the context of this earlier chain of communication.

60 In early April 2011, Perdaman and Griffin cooperated to arrange a visit by some of Perdaman's proposed financiers to the Griffin mine site. After the visit, Mr Watson from Perdaman wrote to Mr Conley of Griffin, thanking him and his teams for their assistance with the site visit. The email stated that it was important to demonstrate to the financiers the capacity of the Griffin mining operation in terms of both scale and expertise, and that this had been done very effectively. The email also foreshadowed a visit from the six banks that form the core commercial lending group for the other half of the proposed finance for Perdaman. That meeting was proposed for May 2011: Landis 2 (45).

61 On 18 April 2011, Griffin wrote to ICICI: Landis 2 (46). The letter, signed by Mr Agarwal:

(a) stated that under the terms of the Facility Agreement it was 'envisaged' that Griffin and CMM would not create any security or charge over its assets without ICICI's prior consent, and that those companies were required to furnish an undertaking to that effect;

(b) stated that under the CSA it was intended that Griffin would execute the CSA Securities and the intercreditor deed in sch 6 of the CSA;

(d) outlined the assets secured by the deed of charge and the mortgage;

(e) stated that execution of the deeds was a condition precedent of the CSA required to be complied with by 28 August 2011; and

(f) requested ICICI to issue 'no - objection' to execution of the deeds.

62 Perdaman submits that, as at 18 April 2011, Griffin was not obliged to seek ICICI's consent to execution of the CSA Securities, since Griffin was not a party to the Facility Agreement. I will outline Griffin's submissions in response when I deal with whether Perdaman has a good arguable case.

63 On 20 April 2011, ICICI rejected the request, saying, in effect, that execution of the CSA Securities would be prejudicial and would dilute the interest of the lenders under the Facility Agreement.

64 Perdaman submits that the speed of this response from ICICI suggests that these letters were a façade to create an appearance of compliance with cl 24 of the CSA. I do not accept that submission in the context of the present application. I am not persuaded that the timing of the response, viewed in the circumstances revealed by the evidence before me, provides any foundation for drawing the inference invited by Perdaman.

Early May 2011: events before the second due diligence inspection

65 In early May 2011, Mr Watson of Perdaman contacted Mr Conley of Griffin by email, requesting to arrange a tour for the commercial banks who were part of Perdaman's proposed financiers.

66 So far as the material before me reveals, there were no issues between Perdaman and Griffin about the CSA up to the beginning of May. On Perdaman's case, that changed dramatically with Griffin's letter of 5 May 2011, signed by Mr Agarwal (Landis 2 (51)). Because that letter is of central significance to Perdaman's case, I will set out its content in full.

Dear Sirs,

Coal Supply Agreement dated 21 December 2010 between Perdaman Chemicals and Fertilizers Pty Ltd and Griffin Coal (Administrators Appointed) (the 'CSA')

As you know, Griffin Coal was acquired by Lanco Resources Australia Pty Ltd from the administrators of Griffin group companies on 28 February 2011.

We wish to raise two matters with you concerning the CSA. We feel it is important to raise them with you now so that you (and your stakeholders) remain fully informed.

The first concerns the requirement that parties use reasonable endeavours to achieve execution on or prior to the CSA's 'Condition Precedent Date' of an intercreditor deed, a Deed of Charge, and a Mortgage of Mining Licence as contemplated in the CSA. The acquisition of Griffin Coal was agreed on terms prior to Lanco being provided with a copy of the final CSA (including the final terms of those three security documents). The acquisition was financed by ICICI Bank Limited, under the financing terms ICICI has certain rights as regards securities over Griffin Coal. Pursuant to our obligations under the CSA we have attempted to procure ICICI's consent to the grant of securities by Griffin Coal for the purposes of the CSA. ICICI has so far refused to grant that consent. We will however continue to endeavour to procure its consent and to bring about the execution of the CSA securities.

The second matter is that since completion of the acquisition, we have commenced a review of our operations and customer arrangements. The review so far has raised serious concerns that our operations may not be financially sustainable in their present form. We may need to make changes to the business of Griffin Coal and its operations in order to make its operations sustainable. We believe it is not in either party's interest that there be a recurrence of the recent financial difficulties. In light of the close business relationship between us, we would like to give you more information about our operations and to discuss our future business plans.

We would like to meet with you to discuss these matters further.

Yours faithfully

[Signed]

For and on behalf of

The Griffin Coal Mining Company Pty Ltd

67 By letter of 9 May 2011 from Mr Walewski, Perdaman:

(b) said that the financiers inspection had been rearranged, at Griffin's request, from 11 May 2011 to 10 May 2011;

(c) asserted that at a meeting on 9 May 2011 in the Office of the Department of State Development, Mr Agarwal on behalf of Griffin had indicated to Mr Rambal of Perdaman that Griffin was only conditionally prepared to cooperate with the financiers inspection;

(d) stated that Perdaman required Griffin's cooperation with the inspection pursuant to cl 24.2(b), asserting that any failure by Griffin to allow the inspection to proceed or to attempt to impose a condition or otherwise disrupt the inspection would be a beach of that covenant; and

(e) stated that if it was Griffin's intention not to use all reasonable endeavours to assist Perdaman, a response to that effect should be given in writing by the following morning.

68 By letter of 10 May 2011, Mr Conley of Griffin responded to Perdaman's letter of 9 May 2011. In its letter, Griffin:

(a) asserted that it had cooperated and used all reasonable endeavours to assist Perdaman with due diligence required by the Perdaman's financiers for achieving Financial Close;

(b) referred to the meeting between Mr Agarwal and Mr Rambal at the Office of the Department of State Development, saying that at that meeting it had been agreed that:

(ii) Mr Rambal would brief the bankers on the contents of Griffin's letter of 5 May 2011, and send confirmation of that to Griffin by 9 May;

(iii) if no such written confirmation was received, Griffin would brief the bankers at the time of the mine visit; and

(iv) the parties would meet for further discussions in New Delhi on 14 May;

(c) asserted that after that meeting, Mr Rambal called Mr Agarwal at 5.00 pm on 9 May 2011 to say that the financiers visit was cancelled;

(d) stated that after that, at about 7.15 pm, Griffin received Perdaman's letter of 9 May 2011;

(e) stated that in line with Griffin's 'commitment to the relationship, sincere willingness and effort to extend our cooperation and doing [all reasonable endeavours] to assist Perdaman with respect to any due diligence', Griffin was prepared to facilitate the mine visit for the financiers without any condition; and

(f) said that Griffin assumed that Perdaman would already have briefed its financiers with respect to the letter of 5 May 2011 and sought confirmation of that.

69 Senior counsel for the defendants submits that the description in this letter of what occurred on 9 May 2011 is not contradicted in subsequent correspondence from Perdaman. That may be so, but there is no affidavit evidence about what occurred. The question of what occurred on 9 May 2011 is a matter for trial, not resolution on this application.

The second due diligence mine site inspection

70 On 10 May 2011, the second due diligence mine site inspection occurred. A number of people attended on behalf of Perdaman's proposed financiers.

71 What occurred on 10 May 2011 is the cornerstone of Perdaman's case that Griffin has breached cl 24.2(b) of the CSA: the obligation to use all reasonable endeavours to assist Perdaman with any due diligence obligations relating to achieving Financial Close.

72 The only affidavit evidence about what occurred at the mine site inspection is in Walewski 1 [18]. In his affidavit, Mr Walewski says that:

(a) at the financial inspection, Mr Amarendran, a representative of the Lanco group, addressed some of the proposed financiers, contrary to Mr Walewski's protest and warning;

(b) following protests from Mr Walewski, Mr Amarendran said that he would telephone his superiors; and

(c) shortly after that, Mr Amarendran spoke to some of the bankers and said 'words to the effect that there was issues with the mining operations that would create difficulties with supply under the [CSA]' and indicated that this would have a negative effect on supply.

73 In his affidavit of 11 July 2011, Mr Amarendran says that he does not accept Mr Walewski's account of these events as accurate: Amarendran 1 [33]. Mr Amarendran does not identify, in his affidavit, what is inaccurate or misleading in Mr Walewski's account, or put a different account of the events.

74 The defendants point to what is said in Perdaman's letter of 11 May 2011, signed by Mr Walewski, about what occurred at the mine site inspection. The letter states that Mr Amarendran had said 'words to the [effect] that [ICICI] had concerns about the grant of security documents and further that Griffin was reviewing its operations and customer arrangements': Landis 2 (61). As the defendants point out, what is said in the letter does not refer to the topic of supply under the CSA, as mentioned in Walewski 1 [18].

75 Senior counsel for the defendants invites the conclusion that what is in the letter of 11 May 2011 reflects what was said at the mine site inspection, and that Mr Walewski's evidence in Walewski 1 [18] is 'a lie': ts 109. I do not accept those submissions. In my view, an application of this character is not an occasion for resolution of an apparent inconsistency between what is said in an affidavit and what was said by the deponent in a letter close in time to the events in question. Still less is it an occasion for concluding that evidence given on oath is deliberately false.

76 On 11 May 2011, Mr Walewski wrote on behalf of Perdaman to Mr Conley on behalf of Griffin: Landis 2 (59 - 61). The letter referred to the meeting between Mr Agarwal and Mr Rambal at the Department of State Development on 9 May 2011, asserting that that meeting did not give rise to any modification or variation to the contractual arrangement between Perdaman and Griffin. The letter:

(a) acknowledged that Mr Agarwal had sought to stipulate that his letter of 5 May 2011 should be disclosed to the Perdaman financier inspection team;

(b) stated that Perdaman had determined that the letter had no contractual significance and, because its contents might adversely affect Perdaman achieving Financial Close, had resolved not to proceed as suggested by Mr Agarwal;

(c) stated that, consequently, Perdaman had written on 9 May 2011 requiring an assurance that inspection would occur without condition, which had been confirmed by Griffin's letter of 10 May 2011;

(d) stated that Griffin's conduct on 10 May during the second due diligence inspection was contrary to that undertaking and was a serious breach of cl 24.2(b) of the CSA;

(e) asserted that dealings between Perdaman and its bankers and financial advisers were matters for Perdaman, and that Griffin had no right to interfere in those dealings;

(f) asserted that in a telephone conversation before the inspection team arrived at the site, Mr Conley had confirmed to Mr Walewski that the inspection would proceed without condition, after having been told that Perdaman had not disclosed the letter of 5 May 2011; and

(g) asserted that it was the deliberate intention of Griffin and Lanco to disrupt the mine site inspection, and that they must have known that it would have potentially significant adverse effect on Perdaman achieving Financial Close.

77 On 16 May 2011, Mr Conley, for Griffin, responded to Mr Walewski's letters of 9 May and 11 May 2011: Landis 2 (62 - 63). Griffin's letter:

(a) asserted compliance, and an intention to continue to comply, with the obligations under cl 24.2(b);

(b) asserted cooperation in permitting mine site visits, including on 10 May 2011;

(c) stated that it was clear from the communications between the parties that the lack of condition of the visit was based on an assumption that the project finance team would be briefed on 'the situation between us';

(d) stated that Griffin was concerned to ensure that due diligence conducted on its premises be based on information that is accurate and not materially misleading; and

(e) stated that Griffin remained prepared to meet with and answer questions from Perdaman's financiers to assist their conduct of their due diligence.

78 By letter of 19 May 2011 (Landis 2 (64 - 65)), Perdaman:

(a) expressed concern about Griffin's conduct on 10 May 2011;

(b) asserted that that had had a significant and negative impact on the financier's due diligence;

(d) stated that Perdaman's financiers were intending to go to their credit committees for credit approval on 23 May 2011; and

(e) 'required' Griffin to execute the CSA Securities within 48 hours.

79 By letter dated 20 May 2011 (Landis 2 (66 - 67)), Perdaman responded to Griffin's letter of 16 May 2011. The letter:

(a) asserted that Griffin's conduct at the mine site inspection was inconsistent with its undertakings to facilitate the inspection without condition;

(b) asserted that, on 16 May 2011, Mr Conley had briefed Griffin's workers, saying that it was Griffin's and Lanco's intention to renegotiate the coal supply price and escalation terms in the CSA; and

(c) asserted that the letter of 5 May 2011 did not convey information, and requested an explicit statement of what was the information regarded by Griffin as material to Perdaman achieving Financial Close.

80 Perdaman submits that this request, which was repeated shortly thereafter by Perdaman, was never responded to by Griffin. The evidence before me sustains that submission.

81 By letter of 21 May 2011, Mr Agarwal, for and on behalf of Lanco Australia, referred to discussions that had occurred at the offices of ICICI on 18 and 19 May 2011, and requested ICICI to reconsider the request to issue a 'no - objection' to execution of the CSA Security documents.

82 By letter of 22 May 2011 (Landis 2 (69 - 70)), Mr Conley of Griffin replied to Perdaman's letters of 19 and 20 May. The letter:

(a) referred to the condition precedent in cl 24.1(a)(ii), the tripartite deed in sch 5 and the obligation to agree a further deed in cl 24.7(b);

(b) asserted a continuing intention to use all reasonable endeavours to assist Perdaman with its due diligence obligations relating to achieving Financial Close;

(c) said that Griffin and its parent were in communication with 'the financier of the Griffin Mine' in relation to fulfilling the obligation in cl 24.2(c);

(d) said that the financier had so far refused to consent to Griffin executing the documents;

(e) invited Perdaman and its bankers to meet 'our bankers' in Mumbai; and

(f) said that Perdaman's assertions about Mr Conley's statement to workers on 16 May 2011 were incorrect.

83 By letter of 23 May 2011 (Landis 2 (73 - 74)), Mr Walewski of Perdaman responded to that letter. By its letter, Perdaman:

(a) said that Griffin's letter of 22 May 2011 had failed to respond to Perdaman's request by letter of 20 May 2011 for identification of the 'information' regarded by Griffin as material to Perdaman achieving Financial Close, and sought a reply to that request by return;

(b) asserted that as a consequence of Griffin's and Lanco's 'intended' disruption of the mine site inspection, Perdaman's financiers were 'alarmed' that Lanco and Griffin intended not to honour the terms of the CSA;

(c) asked whether it was the intention of Lanco India and Griffin to comply with and give effect in all respects to the CSA;

(d) stated that that required, among other things, Griffin to execute the CSA Securities forwarded on 19 May 2011;

(e) referring to Griffin's letter of 22 May 2011, said that Perdaman did not know of any financiers to the Griffin mine, but only of a financier for Lanco India; and

(f) sought confirmation that no agreement had been made between Lanco India and Griffin that Griffin not execute the CSA Securities, and sought an undertaking that no such agreement would be made.

84 Griffin responded by letter of 24 May 2011: Walewski 2 (145 - 146). In this letter, Griffin:

(a) rejected Perdaman's assertions about the site visit and related matters;

(b) reasserted Griffin's intention to perform its obligations under cl 24.2(b) and cl 24.2(c) of the CSA;

(c) stated that Griffin's obligations under those clauses did not require it then to execute two of the five documents contemplated by cl 24 of the CSA;

(d) said that Perdaman was not entitled to require the undertaking sought in its letter of 23 May 2011 and declined to give the undertaking;

(e) noted that no Buyer Milestone report under cl 24 had been received;

(f) asserted that, to date, 'the relevant financier' had so far refused to consent to execution of the CSA Securities, and that Griffin was attending to steps required under cl 24.2(b) and cl 24.2(c), including meeting with its financiers; and

(g) reiterated the invitation in Griffin's letter of 22 May 2011 for Perdaman and its bankers to meet with 'our financiers' in Mumbai.

24 - 28 May 2011: Griffin seeks and obtains shareholder approval under s 260B

85 On 24 May 2011, ICICI wrote to Lanco Singapore: Landis 2 (75). The letter referred to the condition in the Facility Agreement requiring the creation of a negative lien, saying that that was required by that date. The letter also requested information as to the current operational and financial performance of the Griffin mines to enable ICICI to evaluate that against the base case business plan.

86 The same day, on 24 May 2011, Griffin issued a statement of material information in connection with a Notice of Meeting of its sole shareholder, Lanco Australia, to give approval under s 260B of the Corporations Act for Griffin to enter a Negative Pledge Deed incorporating a guarantee and indemnity (in favour of ICICI). Perdaman became aware of this in late June 2011, following company searches.

87 Material of that kind was lodged at ASIC in respect of both Lanco Australia and Griffin: Walewski 2 (159 - 174), (175 - 187).

88 The material reveals that Griffin sought a resolution of its sole member, Lanco Australia, to approve the giving of any financial assistance by Griffin in connection with the acquisition by Lanco Australia of the shares in Griffin, including by the entry into and performance of Griffin's obligations under a negative pledge deed incorporating a guarantee and indemnity.

89 Correspondingly, Lanco Australia sought the approval of its sole shareholder, Lanco Singapore, for the giving of any financial assistance by Griffin and CMM in connection with the acquisition by Lanco Australia of all the shares in Griffin and CMM, including the entry into and performance of obligations under the negative pledge deed incorporating a guarantee and indemnity.

90 Each notice of meeting was accompanied by a statement of material information. The statement of material information in relation to Griffin's request for a resolution by Lanco Australia included the following:

(a) on 28 February 2011, Lanco Australia acquired all the issued shares in Griffin [2.1];

(b) on 9 February 2011, Lanco Australia and Lanco Singapore entered into an agreement with ICICI, under which ICICI agreed to provide Lanco Australia and Lanco Singapore with financial facilities [3.1];

(c) Lanco Australia funded the acquisition of the shares in Griffin by using funds extended under the ICICI facility [3.5];

PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188 (11 August 2011)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (457 paragraphs)

PERDAMAN CHEMICALS & FERTILISERS PTY LTD -v- THE GRIFFIN COAL MINING COMPANY PTY LTD [2011] WASC 188 (11 August 2011)

28 February 2011: Lanco's acquisition of Griffin

Communications before Lanco's acquisition of Griffin

March 2011: Lanco provides information to be sent to Soc-Gen

Early May 2011: events before the second due diligence inspection

The second due diligence mine site inspection

24 - 28 May 2011: Griffin seeks and obtains shareholder approval under s 260B

Late May to mid-June 2011: further correspondence and the action is commenced

Late June to late July: further correspondence and this application is commenced

Legislation Cited (1)

Cases Cited (4)