Plaintiffs v Defendants

Supreme Court of Victoria|2005-03-10|Before: DODDS-STREETON, J.

PRACTICE AND PROCEDURE - Application to stay or strike out claims - Whether plaintiffs' claims should be stayed pursuant to Rule 23.02 of the Supreme Court Rules as hopeless or untenable - Implied terms - Estoppel by convention - Whether plaintiffs' indemnity claims admissible to proof under the defendant companies' deeds of company arrangement and set-off against defendants' entitlement to apportionment under Workers Compensation legislation - Anshun claims - Trade Practices Act claims - held claims not hopeless or unarguable - Whether pleading of particular claims embarrassing.

2 By summonses filed 10 December 2004 the defendants seek to strike out the plaintiffs' statements of claim in each proceeding pursuant to Rule 23.02 of the Supreme Court (General Civil Procedure) Rules 1996 ("Supreme Court Rules"). Alternatively, they seek a permanent stay of many of the plaintiffs' claims pursuant to Rule 23.01 of the Supreme Court Rules, on the grounds that they are untenable at law, misconceived, barred by operation of the defendants' deeds of company arrangement, or seek specific performance in circumstances where it is impossible. The defendants also contend that the pleading of aspects of particular claims is embarrassing, frivolous or confusing, and that some paragraphs should be struck out on that basis.

3 As set out in detail below, the plaintiff companies, broadly speaking, are companies within the Rio mining group. The defendant companies are companies within the Pasminco mining group, which went into voluntary administration on 19 September 2001, and which subsequently executed deeds of company arrangement on 4 October 2001. Many companies in the Rio and Pasminco groups have undergone several changes of name. In order to avoid confusion, in these Reasons, I usually refer to each relevant company by a single name, although that may not be the name it bore consistently throughout the transactions and events. The various transactions and conduct relevant to the plaintiffs' present claims involved multiple entities within both groups, and occurred over a period of almost two decades.

4 The plaintiffs in each proceeding seek declarations that the defendants are not entitled to commence or maintain proceedings against the plaintiffs for apportionment of liability for certain workers compensation claims before the New South Wales Workers Compensation Commission ("the Commission") pursuant to New South Wales Workers Compensation legislation, and are not entitled to seek contribution from the plaintiffs in relation to such claims.

5 Proceeding 7061 of 2004 ("the Zinc proceeding") relates to the ZC Mine situated in Broken Hill, which Hamersley, a Rio company, sold to Pasminco Broken Hill in May 1988. Proceeding 7062 of 2004 ("the NBH proceeding") relates to the North Mine situated at Broken Hill, which Forest (then a Rio company) sold to Pasminco Australia in May 1988. In each case, prior to the sale, the relevant Rio company was the "employer" of the workers at the mine, within terms of the Workers' Compensation Act 1926 NSW ("the 1926 Act") or the Workers Compensation Act 1987 NSW ("the 1987 Act") which successively applied to workers compensation claims. The Acts provided for the liability of an employer to pay workers compensation. They also provided for the situation where an employee has worked successively for different employers and suffers an impairment due to injuries sustained during the different periods of employment. That is, a situation where the incapacity or impairment for which the employee may claim compensation "straddles" periods of employment by different employers. The Acts confer jurisdiction on a relevant authority (now the Commission) to apportion liability between two or more employers, each of whose employment has contributed to an employee's impairment or incapacity.

6 In the present case, following the sale of the ZC Mine and North Mine to companies within the Pasminco group in May 1988, the Rio companies ceased to own the mines or to be employers of the employees working at the mines. Ownership of the mines passed to defendant companies and they, or related Pasminco companies, became the employers of the transferred workers. In some cases, mine employees sustained an injury which related to both the period of their employment by one or more of the plaintiff Rio companies and to their subsequent period of employment by one or more of the defendant Pasminco companies. That is, such employees' claims "straddled" their period of Rio employment and their period of Pasminco employment.

7 It is not, apparently, disputed that from 1988 until 2001, one or more of the Pasminco defendants managed and met the workers compensation claims of employees at the mines, including such "straddle" claims. The Pasminco defendants conducted the litigation and defended or settled the claims, or paid any awards or judgments. They did not advise or consult the former Rio employers. Further, they did not seek any apportionment or contribution from the former Rio employers, which, in the case of straddle claims, they were prima facie entitled to do. The Pasminco defendants also handled and met workers' compensation claims which related only to employment by a Rio company ("pure Rio claims") and claims which related only to employment by Pasminco companies ("pure Pasminco claims"). Pure Rio claims and pure Pasminco claims are not the subject of the present dispute.

8 In September 2001, the companies in the Pasminco Group went into voluntary administration pursuant to Part 5.3A of the Corporations Act. On 4 October 2002 they executed deeds of company arrangement ("DOCAs").

9 In October and November 2003, in contrast to their longstanding conduct of meeting straddle claims without recourse to former Rio employers, the Pasminco defendants threatened to seek apportionment orders in the Commission against Rio companies for weekly compensation payments in relation to claims which related to an injury that had occurred both before and after June 1988, and which was the subject of a judgment, award or settlement prior to 19 September 2001 ("pre-administration straddle claims").

10 By letter dated 11 December 2003, the plaintiffs unsuccessfully sought undertakings from Messrs McCluskey and Spark, as deed administrators, that they would not bring apportionment proceedings against the plaintiffs in the Commission. Because the defendants were subject to DOCAs, the plaintiffs sought leave pursuant to s.440E of the Corporations Act to bring proceedings.

11 The plaintiffs, as deed creditors, applied in the Supreme Court of New South Wales for leave pursuant to s.440E of the Corporations Act to commence proceedings for declaratory relief which would, in effect, prevent the defendants from claiming contribution or seeking apportionment in relation to pre-administration straddle claims. The plaintiffs contended that the defendants were not entitled to apportionment or contribution on a number of different grounds.

12 Before Austin J, the plaintiffs submitted that certain transaction documents, including the ZC Mine Sale Deed, the 1992 deed and the North Mine Sale Agreement, referred to in detail below, each contained express or implied covenants not to seek apportionment and an agreement as to apportionment which excluded apportionment under the 1987 Act. They further submitted that the defendants' conduct in dealing with workers compensation claims from 1988 to 2002 evidenced an agreement not to seek apportionment, and gave rise to an estoppel. They also relied upon limitation of actions legislation.

13 Austin J on 27 April 2004 granted leave to the plaintiffs to commence proceedings for the declaratory relief in the Supreme Court of Victoria or the Federal Court.

14 The plaintiffs, by writ and statement of claim filed 15 July 2004 in each proceeding in this Court, sought declarations that the defendants are not entitled to seek apportionment or contribution in relation to pre-administration straddle claims, on various bases.

15 By summons filed 3 November in each proceeding, the plaintiffs sought, and, by order made 19 November 2004, were granted, leave pursuant to s.444E of the Corporations Act and Rule 9.11 of the Supreme Court Rules to amend the writs and statements of claim in order to add Pasminco Limited (subject to deed of company arrangement) as a sixth defendant and to add Rio Tinto Limited ("Rio Tinto") and North Limited ("North") as plaintiffs.

16 The plaintiffs, in accordance with the order made 19 November 2004, filed and served amended statements of claim on 10 December 2004, which added the additional parties. The defendants, in the course of correspondence, objected to the amended statements of claim on a number of grounds. Following further correspondence between the solicitors for the parties, the plaintiffs filed and served draft further amended statements of claim, in order to address the defendants' complaints. The draft further amended statements of claim did not dispose of the defendants' objections. For convenience, the draft further amended statements of claim were the basis of argument at the hearing of the present strike out applications.

17 The 1926 Act and the 1987 Act successively governed workers compensation in New South Wales. The 1926 Act provided that the State Compensation Board of New South Wales could grant a licence to an employer to undertake himself the liabilities for workers compensation, for which he was otherwise obliged to carry insurance pursuant to s.18(1) of the 1926 Act. That is, an employer could, where licensed, become a "self-insurer" for the purposes of liability for workers compensation.

(b) a permanent impairment suffered by a worker as referred to in Division 4 of Part 3, or

results from more than one injury to the worker, liability to pay compensation under the Act is to be apportioned in such manner as the Commission determines.

19 Where a worker has worked for several employers successively, those employers are all "on risk" in relation to a workers compensation claim, pursuant to the applicable legislation. The employee can bring a claim against any one of the employers, and that employer may then bring claims for apportionment against the other employers under the legislation. Further, the employer can also bring a claim for contribution against the other employers under general law.

20 The entitlement of an employer to seek apportionment from the other employers is qualified by s.22(3), which provides:

"(3) Liability to pay compensation under this Act is not to be apportioned by the Commission if the parties to whom the liability relates have agreed on the apportionment."

21 Section 22 provides that liability to pay workers compensation may be apportioned under s.22 even if the liability has been discharged.

22 The defendants in each proceeding are the same parties. In both the Zinc and NBH proceedings, the first defendant, Pasminco Australia Limited ("Pasminco Australia"), the second defendant, Pasminco Broken Hill Mine Pty Limited ("Pasminco Broken Hill"), and the third defendant, Pasminco Cockle Creek Smelter Pty Ltd ("Pasminco Cockle Creek") were wholly-owned subsidiaries of the sixth defendant, Pasminco Limited. Pasminco Australia, Pasminco Broken Hill and Pasminco Cockle Creek were all arguably, at various times, employers of workers who had previously been employed by one or more of the plaintiff companies. (As discussed below, the status of Pasminco Broken Hill as an employer is "academic" or debatable. Further, the plaintiffs do not concede that Pasminco Cockle Creek was an employer, as the defendants allege). Pasminco Australia, Pasminco Broken Hill and Pasminco Cockle Creek are the only Pasminco companies which could, on any view, have an entitlement under the Acts as an employer to seek apportionment or contribution for liability for workers compensation from a Rio Company.

23 The fourth defendant, Mr Peter McCluskey and the fifth defendant, Mr John Spark are partners of the firm Ferrier Hodgson, who were, on 19 September 2001, appointed as voluntary administrators to the Pasminco companies. On 4 October 2002, the first, second, third and sixth defendants entered DOCAs, under which Messrs McCluskey and Spark were appointed deed administrators. On 17 April 2003, the sixth defendant entered a further DOCA ("the 17 April 2003 Pasminco deed").

24 In the Zinc proceeding the plaintiffs are Zinc Corporation Ltd ("Zinc") and Hamersley Resources Ltd ("Hamersley"), Rio and North. The plaintiffs belong to the Rio group. Prior to August 1986, Zinc carried on the business of silver, lead and zinc mining at the ZC mine at Broken Hill. It was a licensed self-insured employer under the 1926 Act. In August 1986, Zinc sold assets, including the ZC Mine, to its related company, Hamersley, which then became an employer of the ZC Mine employees within the meaning of the 1926 Act and subsequently, of the 1987 Act. It was also a licensed self-insurer. Hamersley, by a deed of policy dated 20 August 1986, agreed to indemnify Zinc against employees' claims.

25 In 1988 the Pasminco Group was established. The Pasminco group was created as the result of a joint venture between the existing Rio and North groups, which both transferred assets to companies in the new Pasminco group.

26 On 24 May 1988, Hamersley, by deed dated 24 May 1988 ("the ZC Mine Sale Deed") sold the assets of the business, including the ZC Mine, to Pasminco Broken Hill. Pursuant to the ZC Mine Sale Deed, Pasminco Australia agreed to assume Hamersley's "liabilities" as at completion. The ZC Mine Sale Deed defined "liability" as:

" ... any liability as at completion of the Vendor for the long service leave, holiday pay, sick pay and other entitlements of the Transferred Employees and liability of the Vendor under an agreement relating to the purchase of plant or equipment not delivered as at completion."

27 Clause 2.1 provided that, subject to the Deed, the Vendor agrees to sell and the purchaser agrees to purchase on completion, all of the assets, and the purchaser agrees to assume all of the payment by the purchaser to the vendor of the consideration.

28 Clause 2.2 provided the "consideration" shall be the sum calculated as set out in clause 3, and the value as at 31 May 1988 of the trading stock and store stock of the vendor on hand at that date, minus an amount equal to the liabilities.

29 "Completion Date" was defined in clause 4 as, broadly, the first business day after specified consents were obtained, or such later date as the parties agreed. Clause 4.3 provided that the consideration was to be paid to the vendor on Completion Date.

"The parties shall consult prior to the completion as to whether to transfer the employment of all or some of the Employees from the Vendor or to the Purchaser. If it is agreed to transfer the employment of all or some of the Employees, the Purchaser and the Vendor shall make such arrangements concerning the Transferred Employees as they consider to be appropriate."

31 The consideration payable by Pasminco Broken Hill to Hamersley under the ZC Mine Sale Deed was reduced by $50,509,191, being an adjustment to reflect the value of the workers compensation claims of Hamersley employees "transferred" to Pasminco Broken Hill.

32 Although Pasminco Broken Hill became the owner of the ZC Mine in May 1988 and assumed the liabilities, as defined, of Hamersley (which in turn had previously indemnified Zinc) another Pasminco company, Pasminco Australia (now Zinifex Australia Pty Ltd) became the employer of the transferred employees at a date agreed to be 23 December 1988. Pasminco Australia was a licensed self-insurer under the 1987 Act. It would seem that Pasminco Broken Hill did not become an employer under the legislation (or at most, was an employer for a very short time). Employees were apparently "transferred" directly from Hamersley to Pasminco Australia. Pasminco Australia, unlike Pasminco Broken Hill, had not executed any agreement or deed with Hamersley or Zinc. It had not assumed any of their liabilities.

33 On 22 July 1992, Zinc, Hamersley, Pasminco Broken Hill and Pasminco Australia entered a deed ("the 1992 deed") pursuant to which Pasminco Australia agreed to indemnify Zinc and Hamersley against workers' compensation claims by its former employees. Pasminco Australia agreed to meet all such claims and had agreed with WorkCover that the estimated value of outstanding claims against Zinc, Hamersley and Pasminco Australia would not exceed $39 million.

34 The 1992 deed, by recital K, states that on 24 May 1988 Hamersley sold the ZC Mine to Pasminco Broken Hill, but on 23 December 1988 the Hamersley employees became employees of Pasminco Australia. Recital L states "on 23 December 1988 Hamersley ceased to undertake pursuant to its authority under the 1987 Act the liability to pay compensation in accordance with the 1987 Act or at common law to the workers". Recital M states "It was acknowledged that Hamersley might after 23rd December 1988 become liable to pay compensation under the 1928 Act or under the 1987 Act or at common law to workers ......on account of injury sustained by or occasioned to any such worker while in the employment of Hamersley until 23 December 1988 and to workers while in the employment of Zinc until 29 August 1986 pursuant to the deed of policy referred to in Recital 1."

35 Recital N states that Pasminco Australia had become a self-insured employer.

"In the light of the various changes of ownership of the mine and the transfer of employees from Zinc to Hamersley to Pasminco Australia and the desire of Zinc and Hamersley to relieve themselves of their obligations to meet and handle claims in respect of former employees, Pasminco Australia has agreed to indemnify Hamersley in respect of its matters referred to in Recital M and to indemnify Zinc in respect of liability to its employees referred to in Recital F on the terms and conditions specified in this Deed."

37 Recital F states that "Zinc might, after 29 August 1986, become liable to pay compensation under the 1926 Act or at common law to workers ... by reason of ... injury sustained ... while in the employment of Zinc until the 29th day of August 1986".

"In addition to this and in pursuance of the indemnity, Pasminco Australia has agreed to deal with and meet all claims from employees of Zinc and Hamersley referred to above and for this purpose Pasminco Australia has agreed [to provide a bank guarantee for liabilities]."

"Pasminco Australia and Pasminco Broken Hill as part of the Pasminco Limited Group are contemplating a corporate restructure which if it proceeds will result in Pasminco Broken Hill employing the employees at the mine. It is proposed by Pasminco Australia and Pasminco Broken Hill and agreed by Zinc and Hamersley that if the corporate restructure proceeds then subject to certain conditions precedent PAL will have the right to substitute Pasminco Broken Hill for Pasminco Australia under this Deed."

"It is agreed by Zinc and Hamersley that if Pasminco Australia and Hamersley proceed with the corporate restructure contemplated in Recital S resulting in Broken Hill becoming the employer of the employees at the mine, then Pasminco Australia will have the right to substitute Pasminco Broken Hill for Pasminco Australia as if the references to Pasminco Australia in Clauses 1 to 8 of the Deed were references to Broken Hill."

41 Under the 1992 deed, Pasminco Australia expressly undertook to indemnify both Zinc and Hamersley for their liabilities to pay workers compensation. The plaintiffs contend that such an indemnity necessarily constitutes an agreement by Pasminco Australia not to seek apportionment or to seek only a "nil" apportionment. They argue that the parties have therefore "agreed on apportionment" within the meaning of s.22 of the 1987 Act. Pursuant to s.22 of the 1987 Act, an agreement to apportion excludes apportionment by the Commission.

42 The defendants contend that from 1 January 1989, Pasminco Cockle Creek became the employer of the transferred workers. They argue that the 1992 deed, in rendering Pasminco Australia (the employer, but not the owner, of the ZC Mine) liable to indemnify Zinc and Hamersley, expressly contemplated that ownership of the Zinc Mine and employment of the workers did not coincide. Further, the defendants argue that the 1992 deed also contemplated that a corporate restructure might occur (in which Pasminco Broken Hill would become the employer) and provided that, in that event, Pasminco Broken Hill might assume Pasminco Australia's liability to indemnify the Rio companies.

43 In December 1988, Pasminco Group and Rio Group companies executed a merger agreement dated 22 December 1988 between Pasminco Ltd, North Broken Hill Peko Limited, Ballarat Papermills Pty Ltd NBH Limited and Australian Mining and Smelting Limited ("the merger agreement").

"... Where any corporation within the CRA Group Post Completion or any corporation within the North Group post completion ... has guaranteed or may at any time after the date of this Agreement otherwise become liable directly or indirectly in any way whatsoever in respect of the performance by a corporation within the Pasminco Group Post Completion of any obligation (whether arising before or after completion) under any agreement, law statute (whether now in force or not or otherwise howsoever ...

the parties shall use their best endeavours to procure that ... the relevant corporation is whenever possible unconditionally released ...

[Pasminco Ltd] shall indemnify the relevant corporation against all claims, demands, actions, proceedings, suits, liabilities (whether actual, contingent or prospective) losses, damages, costs and expenses ... which may be made or brought ... incurred or suffered or payable by the relevant corporation ... ".

45 By a deed of cross-guarantee dated 24 April 1997 executed by companies in the Pasminco group (including the defendants) and a trustee for creditors, each Pasminco group company covenanted with the trustee, for the benefit of each creditor, to guarantee to the creditor the "payment in full of any debt".

46 "Debt" was defined as "any debt or claim which is now or at any future time admissible to proof in the winding up of a Group Company ... "

47 "Creditor" was defined as "a person 9wh now ascertained or ascertainable nor not) other than a Group Company to whom now or at any future time a Debt (whether now existing or not) is or may at any future time be or become payable".

48 Clause 3.2 of the deed of cross-guarantee provided "each group company agrees with the Trustee that this deed of cross-guarantee becomes enforceable in respect of the Debt of a Group Company (the Group Company):

(a) Upon the winding up of the Group Company under s.459A or paragraph 461(a) or (h) or (j) of the Corporations Law or as a creditor's voluntary winding up under Part 5.5 Division 3 of the Corporations Law;

(b) in any other case - if six months after a resolution or order for the winding up of the Group Company any Debt of a Creditor of the Group Company has not been paid in full."

49 In September 2001, voluntary administrators were appointed to the companies in the Pasminco group. The Pasminco companies, on 4 October 2002, executed DOCAs in identical terms.

50 Clause 1.1 of the DOCAs defined the following relevant terms:

"Claim means a debt payable by, or claim against, the Company (based in contract, tort, statute or otherwise, present or future, certain or contingent, ascertained or sounding only in damages), being a debt or claim the circumstances giving rise to which occurred on or before the Appointment Date that would be admissible to proof against the Company in accordance with Division 6 of Part 5.6 of the [Corporations] Act if the Company were to be wound up, as reduced under clause 24.

'Deed Creditor' means any person who has a claim, except Newco.

'Deed Period' means the period commencing on the Commencement Date and ending on the Termination Date."

51 Clause 7.1 of the DOCAs provides, in effect, that the deed binds all "deed creditors".

52 Clause 27 of the DOCA provided for the handling and admission of claims. It states:

"Subject to clause 11.5, the rules governing the proof and admission of and dealing with Claims will be the rules prescribed by the Act and the Regulations for proof of debts or claims on a winding up of a company."

53 One effect of the above terms and definitions was to incorporate into the DOCAs the provisions of the Corporations Act governing admission to proof of debts and claims, including s.553, which defines debts and claims provable on winding up, and s.553C which provides for mutual credit and set-off.

Deed of Revocation and Deed of Cross Assumption of Claims

54 Following their execution of DOCAs on 21 October 2002, various Pasminco companies, including the defendants, executed a deed of revocation to revoke the deed of cross-guarantee, which was deemed inappropriate for an anticipated corporate restructure. As the DOCAs did not terminate when anticipated, and the proposed restructure did not occur within the contemplated time frame, deeds of cross-assumption of claims were executed by the Pasminco companies on 23 October 2003 in order to restore, in substance, the position which applied under the deed of cross-guarantee.

55 The North proceeding substantially "mirrors" the Zinc proceeding, although there was no equivalent to the 1992 deed. It gives rise to substantially identical claims.

56 The first plaintiff is NBH Ltd ("NBH") which is part of the Rio group. The third plaintiff, Rio Tinto Limited ("Rio Tinto") is the parent company of the Rio group and the fourth plaintiff, North Limited ("North") is also a member of the Rio group. The second plaintiff, Gunns Forest Products Limited ("Forest") was, until about May 2001, a company within the Rio group.

57 Prior to July 1984, NBH carried on the business of silver, lead and zinc mining at the North Mine, Broken Hill. It was an employer within terms of the 1926 Act.

58 In about July 1984, NBH sold assets, including the North Mine, to Forest. The mines' employees were "transferred" to Forest.

59 In or about May 1988, NBH, by deed dated May 1988 ("the North Mine Sale Agreement") sold the business, including the North Mine, to Pasminco Australia.

60 Pursuant to the North Mine Sale Agreement, Pasminco Australia agreed to offer to employ the vendor's employees from 28 June 1988 ("the Effective Date") and to assume responsibility for all Forest's liability for workmen's compensation claims, provided that proper contribution in respect of such was agreed to be made to it by Forest.

61 In contrast to the sale of the ZC Mine, the parties did not execute a deed of indemnity equivalent to the 1992 deed. The merger agreement, the deed of cross-guarantee, the DOCAs, the deed of cross-assumption of claims and the deed of revocation relevant to the Zinc proceeding are, however, also relevant to the North proceeding.

62 As in the Zinc proceeding, from mid June 1988 until March 2002, the Pasminco defendants met and handled all workers compensation claims by former employees of NBH or Forest arising from their employment at the North Mine.

63 As in the Zinc proceeding, the plaintiffs allege that the Pasminco defendants conducted the litigation, entered settlements and made payments pursuant to judgments and awards made after contested hearings, including those requiring continuing payments. The Pasminco defendants did not seek apportionment or contribution from the Rio companies. They did not consult NBH or Forest or seek their instructions. NBH and Forest were not separately represented in relation to "straddle claims".

64 As in the Zinc proceeding, the claims in dispute in the North proceeding are post-administration straddle claims.

65 Due to the substantial overlap of issues, unless expressly stated, in these reasons references to the Zinc proceeding usually include a reference to the North proceeding. I do not consider the North proceeding separately in relation to the strike out claims.

66 The principles applicable to strike out are not disputed. The applicant seeking to strike out a claim bears the burden of establishing that it does not give rise to a cause of action, is legally untenable or not sustainable in fact. The Court should exercise its power under Rule 23.01 only where the impugned claim is clearly unarguable or it is clear on the pleadings or from extrinsic evidence that the claim is unsustainable in fact or in law. In Dey v Victoria Railway Commissioners Dixon J stated: [1]

"A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process."

67 As such, only a claim which is "obviously unsustainable"[2] or "so obviously untenable that it cannot possibly succeed",[3] or "so manifestly faulty that it does not admit of argument"[4] or has fundamental flaws which are "plain and obvious",[5] or are "clear beyond all doubt"[6] should be stayed. Save in exceptional circumstances, a party should be afforded the opportunity to have the validity of its case tested through the ordinary processes of litigation.

68 The plaintiffs, in their written submissions, contended that:

"[A defendant] is not to be deprived by means of a summary procedure, of the opportunity of litigating his case in the ordinary way before the ordinary tribunal if there is any chance that he may be able to provide evidence, which, if accepted, will have the result that the plaintiff's claim will be defeated in whole or in part, or that the defendant will establish a right to some set-off against the plaintiff's claim or to recover some amount from the plaintiff".[7] Also, delaying a decision on the legal question until trial may mean that facts which emerge at trial make the question easier to resolve. See McKay v Essex Area Health Authority.[8]

Importantly, the application for a summary determination based on the contention that the pleadings do not disclose a cause of action must not be treated as though it was the preliminary trial of the question of law raised by the application: Lonrho Plc v Fayed;[9] Hongkong Bank of Australia Ltd v BPTC Ltd (in liq).[10]

A proceeding that raises a real question of fact or law for determination cannot be said to be frivolous and vexatious: Munnings v Australian Government Solicitor.[11]

Before a proceeding is dismissed, it must be shown that however the facts are found, there is no legal basis for the conclusion contended for by the plaintiff: Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (in liq).[12] Further, a court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be decided that a cause of action will lie: ibid, referring to Hospitals Contribution Fund of Australia v Hunt."[13]

69 The validity of the above principles was not disputed.

70 The principal grounds on which the plaintiffs contend that the defendants are not entitled to commence or maintain apportionment proceedings or contribution claims are as follows:

(a) the ZC mine sale deed, by which Hamersley sold the ZC Mine business to Pasminco Broken Hill, contains express or implied indemnities and covenants not to seek apportionment or contribution;

(b) the 1992 deed, by which the first defendant and Pasminco Broken Hill gave certain indemnities to Zinc Corporation and Hamersley, contains express or implied indemnities and covenants not to seek apportionment or contribution;

(c) there are express and implied terms in the ZC mine sale deed by which the parties have agreed on apportionment and which therefore exclude apportionment under the Workers' Compensation Act 1987 (NSW) s.22(3);

(d) there are express and implied terms in the 1992 deed by which the parties have agreed on apportionment and which therefore exclude apportionment under the 1987 Act (s.22(3));

(e) the defendants' conduct in dealing with the workers' compensation claims from 1988 to 2003 evidences an agreement not to seek apportionment or contribution;

(f) the defendants' conduct in dealing with the workers' compensation claims from 1988 to 2003 gives rise to estoppels against them asserting a right to apportionment or contribution;

(g) sections 14(1)(d), and 63 of the Limitation Act 1969 (NSW) operate to preclude any application for apportionment and s.26 of the Act precludes any action for contribution or the Pasminco defendants are precluded from seeking apportionment or contribution by reason of laches or abandonment; and

(h) the defendants are not entitled to contribution otherwise than by seeking apportionment pursuant to s.22 of the 1987 Act, which they are precluded from doing for the reasons set out above.

72 In the case of the North proceeding the plaintiffs make the same claims as set out above, save that there is no claim based on the 1992 deed.

73 Further, in both proceedings, the plaintiffs claim that under the merger agreement, Pasminco Ltd was obliged to procure the release of Rio companies from liablity for contribution or apportionment and to indemnify them in respect of such liability for pre-administration straddle claims.

74 The plaintiffs further claim that under the deed of cross-guarantee, all companies in the Pasminco group cross-guaranteed each others' liabilities. Companies such as Pasminco Cockle Creek, which never entered an agreement with any Rio company, thus became liable for the indemnity for Rio workers compensation liabilities given by other Pasminco companies pursuant to the mine sale deeds, the 1992 deed and the merger agreement. The plaintiffs contend that if the Rio companies' indemnity claims are admissible to proof under the DOCAs (which they do not concede) then those claims will be automatically set off against the Pasminco companies' claims to apportionment or contribution pursuant to the regime of s.553C of the Corporations Act, which is incorporated into the DOCAs.

75 The plaintiffs also seek specific performance of Pasminco Limited's covenant to procure release by the Pasminco companies of the Rio companies' liability, given under the merger agreement.

76 The plaintiffs also claim that the defendants' conduct (in failing to disclose the change of employer from Pasminco Australia to Pasminco Cockle Creek (if it occurred) and the fact that the defendants would rely on that change of employer to seek contribution or apportionment from the Rio companies) was misleading and deceptive within terms of the Trade Practices Act 1974 (Cth).

77 The defendants seek to strike out the following claims:

the estoppel by convention claims (Zinc statement of claim paragraphs 24, 25, 25A, 36 and 44, North statement of claim paragraphs 20, 21, 21A, 31 and 39), as untenable at law;
the allegations of implied terms (Zinc statement of claim paragraphs 35 and 43, North statement of claim paragraphs 30 and 38), as untenable at law;
the indemnity claims (Zinc statement of claim paragraphs 34 and 42, North statement of claim paragraphs 29 and 37), as barred by operation of the DOCAs;
the claims against the administrators personally (Zinc statement of claim paragraphs 36 and 44, North statement of claim paragraphs 31 and 39), as misconceived on the basis that the administrators are not bringing or threatening to bring the apportionment claims in their own names;
the Anshun estoppel claims (Zinc statement of claim paragraphs 47 and 48, North statement of claim paragraphs 41 and 42), as untenable at law;
the claim for specific performance of the merger agreement (Zinc statement of claim paragraph 481, North statement of claim paragraph 42I), on the basis that performance is impossible;
the merger agreement and set-off claims (Zinc statement of claim paragraphs 48Q, 48R, 48U, 48V, 48W and 48X, North statement of claim paragraphs 42Q, 42R, 42U, 42V, 42W and 42X), as untenable at law;
the Trades Practices Act claims (Zinc statement of claim paragraphs 48Y to 48AB, North statement of claim paragraphs 42Y to 42AB), as both untenable at law and as an abuse of process of the court."

78 The defendants conceded that under the mine sale deeds and the 1992 deed the relevant Pasminco companies incurred a "derivative obligation in the nature of an indemnity".

79 They argue that if such indemnity is a claim admissible under the DOCAs, the relevant Rio plaintiffs (as creditors bound by the DOCAs) are precluded from maintaining proceedings in relation to the indemnity claims against the Pasminco companies during the operation of the DOCAs.

80 Further, the defendants contend that an admissible claim is ordinarily released upon termination of a deed of company arrangement. The DOCA of Pasminco Australia, (now Zinifex Australia Ltd) which gave an indemnity under the 1992 deed, has been terminated. The Rio plaintiffs' contingent claims under that indemnity were thereby released.

81 The defendants, in short, argue that the plaintiffs' indemnity claims based on the mine sale deeds (and in the case of Zinc, the 1992 deed) cannot possibly succeed, because any such indemnity must be proved for under the DOCAs, and is either already released (in the case of Pasminco Australia) or will be released upon the termination of the other Pasminco defendants' DOCAs.

82 The plaintiffs did not concede that the claims to indemnity were contingent at the relevant date (the appointment of the voluntary administrators) and thus admissible to proof under the DOCAs. Mr Sheahan pointed out that no apportionment claim had been commenced or threatened at the relevant date, and no Pasminco company was in default under any of the relevant transaction documents giving rise to Rio's indemnity claims.

83 The plaintiffs argued that if the relevant claims were admissible, the defendants' argument depends upon a truncated or selective view of the operation of the DOCAs. Mr Sheahan, senior counsel for the plaintiffs, submitted that if the indemnity claims were claims admissible to proof under clause 7 of the DOCAs, the set-off provisions of s.553C of the Corporations Act, which were incorporated, would operate automatically to set them off against the defendants' entitlement to apportionment.

84 The plaintiffs argued that under the High Court's expansive construction of set-off in Gye v McIntyre[14] the plaintiffs' indemnity and the defendants' entitlement to seek apportionment or contribution constituted "mutual dealings ... which involve rights and obligations whether absolute or contingent of such a nature that afterwards in the events that happen they mature or develop into pecuniary demands capable of set-off".[15] On that view, as the plaintiffs' indemnity and the defendants' entitlement to apportionment were co-extensive, and of an identical amount, set-off operated automatically upon the appointment of the administrators to exhaust each claim.

85 The position of Pasminco Cockle Creek was especially relevant in this context, as it was at no stage party to an agreement with any plaintiff company. The plaintiffs contended that by the combined effect of a number of different deeds and agreements, all Pasminco group companies guaranteed each others' liabilities to creditors (including liability under any indemnity given to a Rio company for its liability for workers compensation). Therefore, pursuant to the DOCAs (incorporating admission to proof and set-off provisions of s.553C of the Corporations Act) any entitlement of a Pasminco company to claim contribution or apportionment from any Rio company for workers compensation liability would be set-off against the Rio company's contingent claim against the Pasminco company. If the relevant Pasminco company had not given a direct indemnity, it would still be liable as the guarantor of such an indemnity given by any other Pasminco company, pursuant to the deed of cross-guarantee.

86 On that basis, if Pasminco Cockle Creek were liable to pay workers compensation as the employer of a worker with a straddle claim, its entitlement to seek apportionment from that worker's former Rio employer would be commensurate with its liability under the cross-guarantee.

87 The defendants contended that the plaintiffs' set-off claims were untenable. Mr Santamaria, senior counsel for the defendants, contended that the indemnity given by Pasminco Ltd under the 1988 merger agreement did not, on a proper construction, cover the liability of the plaintiff companies to pay workers compensation. In any event, the liability of Pasminco Ltd under the merger agreement and liability of other Pasminco companies under the ZC mine sale deed (and, where applicable, the 1992 deed) to indemnify Rio companies, could not be attributed to Pasminco Cockle Creek for the purposes of set-off, because the deed of cross-guarantee (on which the liability of each Pasminco company for indemnities given by the others depends) lacked mutuality with Rio company claims, in the sense requisite for s.553C of the Corporations Act.

88 Mr Santamaria submitted that the liability of the Pasminco companies for each other's indemnities arose not by their dealings with the Rio creditors, but by the deed of cross-guarantee, to which the Rio companies were not parties. The liabilities under the cross-guarantee were thus not transactions or mutual dealings such as would naturally end in a debt or a money claim. Moreover, the deed of cross-guarantee was expressed to be enforceable on winding up, which had not occurred. Mr Santamaria argued that the deed of cross-guarantee never became operative. He submitted that the incorporation of the Corporations Act scheme for admission to proof of claims on winding up into the DOCAs was not effective to deem a winding up for the purposes of giving effect to the deed of cross-guarantee. The deed of cross-guarantee was an unrelated antecedent transaction and had no operation in administration.

89 The defendants also argued that it was not possible to rely on the deed of cross-assumption of claims, which itself assumes the deed of cross-guarantee to be inoperative, and could not have a retrospective impact on the deed of cross-guarantee, as it was entered into after the "relevant date". The plaintiffs' claim to set-off based on the deeds of cross-assumption of claims was thus equally flawed.

90 The plaintiffs submitted, first, that the "direct" indemnities given by Pasminco Australia and Pasminco Broken Hill under the sale deeds and 1992 deed are clearly mutual with, and capable of set-off against, their own entitlement to apportionment, (if the two claims are "claims" within the meaning of the DOCAs).

91 The plaintiffs also argued that equitable set-off, on the better view, applies to claims which are contingent at the relevant date. Further, under the DOCAs, the claims admissible to proof by virtue of s.553C would include those of a guarantor of the company's debts. The relevant creditor (in this case the Rio companies) would be bound by the deed, even if no claim had been made under the guarantee at the relevant date.

92 As to whether set-off is available in relation to Pasminco Cockle Creek's alleged liability pursuant to the deed of cross-guarantee for the indemnities given in various transactions by other Pasminco defendants, the plaintiffs say that, although difficult and complex, the claim is not hopeless. First, the claim is "mutual" with the relevant Rio companies' liability for apportionment or contribution, because both claims relate to the same entitlement to apportionment and the commensurate indemnity obligation. The fact that Pasminco Cockle Creek was the indemnifier of an original indemnifier and thus liable "on a different level" did not exclude mutuality.

93 In Hiley v Peoples Prudential Assurance Co Ltd ("Hiley")[16] the claim of a holder of a life insurance policy for damages for repudiation of the insolvent life insurance company's obligation under the policy was held to be set off against the policy holder's debt, secured by a mortgage, to the insurance company. The mortgage had been transferred to a third party, but reacquired by the insolvent company after the date of winding up. The High Court majority held that set-off was nevertheless available, because, at the date of winding up, the company had an entitlement to redeem the mortgage. Its claim did not depend on a new and independent transaction.

94 Dixon J acknowledged that if the liquidator were regarded as having acquired a new right to the mortgage not subsisting on winding up, there would be no valid entitlement to set off.[17] He stated:

"...the general rule does not require that at the moment when the winding up commences there shall be two enforceable debts, a debt provable in the liquidation and a debt enforceable by the liquidator against the creditor claiming to prove. It is enough that at the commencement of the winding up mutual dealings exist which involve rights and obligations whether absolute or contingent, of such a nature that afterwards, in the events that happen they mature or develop into pecuniary demands capable of set off. If the end contemplated by the transactions is a claim sounding in money so that ... it is commensurate with the cross-demand, no more is required than that at the commencement of winding up, liabilities shall have been contracted by the company and the other party respectively from which cross money claims accrue during the course of the winding up."[18]

95 Dixon J considered that, in Hiley, all the company's rights in relation to the mortgage were "referrable to rights subsisting at the time when the winding up began" rather than arising from a "new and independent transaction".[19]

96 In Gye v McIntyre[20] the High Court, in a unanimous judgment, acknowledged that "'dealings' commonly do not, of themselves, as distinct from their outcome, represent 'credits' or 'debts' susceptible of direct set-off. That being so, s.86 necessarily speaks of a set-off of what is due 'in respect of those mutual dealings'. (Emphasis added)."[21]

97 The High Court also acknowledged that "the word 'dealings' is used in a non-technical sense in s.86. The word is one of very wide scope which embraces far more than a legally binding contract or 'deal'."[22]

98 The High Court stated that it was "established by authority that the words of s.86 of the Bankruptcy Act should be generously construed"[23] in pursuit of the objectives "both to give a more extended right of set off and to ensure that the intended scope of such provisions was not frustrated by a narrow or technical approach to what constitutes 'credits' or 'debts'."[24]

99 Secondly, the plaintiffs contended that the deed of cross-guarantee, although not executed by any Rio company, was nevertheless a "dealing" which involved the Rio companies, because they were (as creditors) the beneficiaries of the trust of the promise made by the trustee under the deed. The substance, rather than technicalities, was to be regarded in this context. The notion of mutuality imports the requirement of reciprocity, rather than correspondence, and that requirement was satisfied.

100 Dixon J observed in Hiley that set off depends upon the beneficial interest, not the "dry legal right", so that "a set-off will be allowed between a debt owing by C to a liquidating company and a debt owing by it to B, if B as a creditor holds the chose in action as bare trustee for C."[25]

101 In Gye v McIntyre, the High Court considered that there would be "mutual dealings giving rise to mutual claims - that is to say, commensurable claims between them in their aim and interests ... notwithstanding that other parties may have been involved in the dealings, that either the creditor or the bankrupt may have been involved in the dealings in more than one capacity or that those dealings also give rise to different claims between other parties or between the same parties in different beneficial interests. The critical matters for the purposes of s.86 are that there had been dealings in which the creditor and the bankrupt were both involved and that those dealings gave rise to mutual claims between them in the relevant sense."[26]

102 Their Honours made clear that "commensurability" in this context means that the credits, debts or claims must ultimately sound in money. They need not be identical or the same. The word "mutual" conveys the notion of reciprocity rather than that of correspondence.[27]

103 As to whether the deed of cross-guarantee was operative upon execution of the DOCAs (as distinct from winding up), the plaintiffs, in reliance on GM and AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd ("GM & AM Pearce"),[28] argued that when s.553C was incorporated into a DOCA, it should have the same operation as it would on winding up. That objective would be defeated if the deed of cross-guarantee were not deemed effective upon the "relevant date" under the DOCAs, being the date of appointment of the voluntary administrators.

104 Similarly, the plaintiffs contended that in so far as the deed of cross-guarantee provides for payment on winding up, on incorporation of s.553C into a DOCA, the relevant creditors should be those who would have been creditors had the company gone into winding up on the relevant date.

105 In GM & AM Pearce the Appeal Division of the Supreme Court of Victoria held that when the provisions of s.553C of the Corporations Law applied to a deed of company arrangement (which it did, unless clause 8 of Schedule 8A of the Corporations Regulations was excluded by the deed), set-off operated automatically. There was no basis on which to distinguish between the position in corporate liquidation or under a deed of company arrangement, and the position in bankruptcy as analysed in Gye v McIntyre.

106 In Brash Holdings Ltd (administrator appointed) and ors v Katile Pty Ltd ("Katile")[29] Brooking, J.D. Phillips JJA and Hansen AJA rejected the contention that "creditors" in s.444D(1) of the Corporations Law should be confined to those creditors having claims due and payable on or before the day specified in the deed.[30]

107 Rather, their Honours considered that the expression "creditors" included "all of the creditors for the time being of the company".[31] Such creditors, in turn, indicated "those who were the creditors of the company in winding up".[32]

"Once it is decided ... that the expression 'all creditors' in s.44D(1) should not be confined to those having claims for money sums due and payable on or before the day specified in the deed, we see no alternative but to treat the creditors of the company for the purposes of Part 5.3A as those who would have been creditors had the company gone into liquidation and the relevant date for the purposes of s.553 been the day specified in the deed."[33]

109 They rejected the view that creditors with claims falling due and payable after the day specified on the deed should be excluded. Rather, it was necessary only that circumstances giving rise to the debts or claims occurred before the relevant date, so that the claim existed at that date. If it did, the relevant creditor was bound by the deed, although the claim was not yet due and payable.

110 In the present case, the defendants contend that until winding up, there are no circumstances giving rise to a claim under the deed of cross-guarantee. That is a different question from those determined in GM & AM Pearce and Katile.

111 It is nevertheless, in my opinion, arguable that the principles recognised in the authorities discussed above may extend to render admissible under the DOCAs (and susceptible to set-off against entitlement to apportionment) the various claims alleged by the plaintiffs, including a claim arising under the deed of cross-guarantee which, in terms, becomes enforceable only upon winding up.

112 It is not necessary or indeed appropriate in the context of a strike out application to assess the strength of the arguments. It is sufficient to conclude, as I do, that the plaintiffs' claims are not unarguable, or would be, after full ventilation and development, doomed to fail.

113 The plaintiffs allege that under clause 16(a) of the merger agreement, Pasminco Limited is obliged to procure the release, by each Pasminco company, of any liability of a Rio plaintiff to pay apportionment or contribution.

114 The plaintiffs seek specific performance of the obligation to procure release in clause 16(a).

115 Further, the plaintiffs allege that Pasminco Limited's indemnity under clause 16(b) of the merger agreement extends to any liability of the Rio companies to pay apportionment or contribution for workers compensation, and that the liability for the indemnity was assumed by all Pasminco companies under the deed of cross-guarantee. It is therefore set-off under the DOCAs against any Pasminco company's entitlement to apportionment from any Rio company.

116 The defendants argue that the terms of the merger agreement do not apply to obligations arising under workers compensation legislation.

117 The defendants further contend that the claims based on the merger agreement should be stayed, as specific performance of the obligation to procure release is impossible, and the court will not order a futility.

118 In that context, they rely upon the undisputed fact that the Pasminco companies are all subject to DOCAs, save for Pasminco Australia (now called Zinifex Australia Limited). The DOCA of Pasminco Australia has now terminated. The companies subject to DOCAs are effectively controlled by the deed administrators, whose duties would preclude them from directing the releases. Zinifex Australia Limited was not within the defendants' control. Mr Santamaria contended that "the Pasminco companies would never be ordered to procure the releases because the giving of the releases is not wholly within their power".

119 Mr Sheahan submitted, and I accept, that it is at least arguable that the mere fact that Pasminco Limited could no longer, as the parent company, compel Zinifex Australia Limited (or the other Pasminco companies) to give releases, did not mean that it might not have the ability to procure the releases by some other means. Any associated difficulty would go to the exercise of discretion. In answer to the defendants' contention that the court would not order the insolvent companies to give releases, as that would constitute a disposition of corporate assets in breach of the deed administrators' duty, Mr Sheahan submitted that the Pasminco subsidiaries had, under the DOCA's, already transferred their property to Pasminco Limited (including their rights to apportionment, for which Pasminco Limited had agreed to procure a release).

120 In reliance on Ralstron v South Greta Colliery Co[34] and Cathedral Place Pty Ltd v Hyatt of Australia,[35] the plaintiffs argued that a tripartite equitable set-off may be available as between the relevant Rio former employer, Pasminco Cockle Creek, and Pasminco Limited, in such circumstances.

121 I am satisfied that the plaintiffs' contentions in relation to the merger agreement are not unarguable. The issues should be resolved at trial. The defendants have not established that the plaintiffs' claims based on the merger agreement should be stayed.

122 The defendants contend that a number of alleged terms[36] do not satisfy the test for implication. They argue that the relevant paragraphs should be struck out. The basis for implication is established by authorities, including B.P. Refinery Westernport Pty Ltd v Shire of Hastings ("B.P. Refinery")[37] and Codelfa Construction Pty Ltd v State Rail Authority ("Codelfa").[38]

123 In B.P. Refinery the majority stated that the relevant term

"must be reasonable and equitable necessary; it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; it must be so obvious that 'it goes without saying'; it must be capable of clear expression; it must not contradict any express term of the contract.[39]

124 Paragraph 14(c) of the Zinc draft further amended statement of claim pleads that it was a term of the ZC Mine Sale Deed that Pasminco Broken Hill would indemnify Hamersley for workers compensation liabilities of transferred employees. The term is said to be implied from the need to give business efficacy to the ZC mine sale deed.

125 Paragraph 34(a) pleads that it was a term of the ZC mine sale deed that Pasminco Broken Hill would not seek apportionment or that the apportionment should be nil.

126 Paragraph 35(b) pleads that it was a term of the 1992 deed that Pasminco Australia and Pasminco Broken Hill (and any other substituted employer) should not seek apportionment or that apportionment should be nil.

127 Paragraph 35(ba) pleads that it was a term of the 1992 deed that if Pasminco Australia ceased to be the employer, the substituted employer would be Pasminco Broken Hill.

128 Paragraphs 19(d) and 19(e) plead that under the 1992 deed, Pasminco Australia agreed to indemnify Zinc and Hamersley respectively for liability for relevant workers compensation claims of former employees.

129 The terms alleged in 35(a) and 35(ba) are said to be implied from the express terms of the assumption of liabilities in the ZC mine sale deed and the need to avoid a derogation from those terms, and from the term allegedly implied in paragraph 14(c).

130 The term alleged in paragraphs 35(b) and (ba) is alleged to be implied from, inter alia, express terms of the 1992 deed referred to in paragraph 19 (indemnities), the need to give business efficacy to the 1992 deed and the need to preserve the utility of the indemnities granted in the 1992 deed.

131 In paragraph 43, the terms alleged in paragraph 35 are repeated in relation to an alleged agreement not to seek contribution, said to be implied on like bases.

132 Mr Santamaria argued that it was not necessary to give business efficacy to the ZC mine sale agreement or the 1992 deed to imply terms that apportionment or contribution would not be sought. Rather, the plaintiffs were seeking retrospectively to impose additional obligations on the Pasminco companies.

133 Mr Sheahan pointed out that the defendants conceded that the express indemnities in the mine sale deeds and the 1992 deed gave rise to a "derivative liability in the nature of an indemnity". He argued that the implied terms aided and fulfilled the express term of that indemnity. Put another way, the impugned pleading was not so much implying a term as construing or stating the inevitable consequence of the express indemnity. In that context, he submitted that the implied terms "in truth do little more than given particular or precise legal content to the Delphic expression 'assumption of liability' ... ". On that basis, the assumption of liability and the indemnity were simply different ways of expressing the same obligation.

134 It is arguable that, on a proper construction, the express assumption of liabilities in the mine sale deeds, and the indemnity in the 1992 deed, are "radically inconsistent" with a claim for apportionment by the relevant Pasminco companies. The alleged implied term not to seek apportionment would, on that basis, be necessary to give business efficacy to the relevant agreements, on the B.P. Refinery tests.

135 Similarly, although Pasminco Cockle Creek did not assume any liability or give an indemnity under the sale deeds or the 1992 deed, the plaintiffs allege an implied term that, in essence, Pasminco Cockle Creek (if it became the succeeding employer) would assume the same obligations, or alternatively, that only Pasminco Broken Hill would succeed Pasminco Australia. Although, as the plaintiffs conceded, the case for that implied term is relatively weak, it is not, in my view, unarguable.

136 Mr Sheahan contended that the "factual matrix" is relevant to the implication of a term and that strike out applications were inherently inappropriate to consider this issue, as it was premature to draw conclusions at a stage when the relevance of the "factual matrix" could not be assessed.

137 Further, the plaintiffs argued that, on a proper analysis, the 1992 deed did not purport to deal exhaustively with a contemplated corporate restructure in which Pasminco Broken Hill was the only alternative employer. Rather, the 1992 deed conferred a circumscribed entitlement on Pasminco Australia to substitute another party.

138 I am not satisfied that the implication of the terms alleged by the plaintiffs is unarguable or legally untenable. The defendants' application to stay the relevant claims on that basis must therefore fail.

139 The plaintiffs allege[40] that Zinc and Hamersley, (on the other hand) and Pasminco Australia, Pasminco Broken Hill and Pasminco Cockle Creek, conducted their affairs on the assumed basis that one of the Pasminco entities would have the primary and direct liability and responsibility (to the exclusion of the plaintiffs) for payment of relevant workers compensation claims; and that that Pasminco company subsidiaries and related bodies would not seek apportionment, contribution or indemnity from the plaintiffs. Rather, the Pasminco companies would handle and meet the former employees' claims in the same way as they did for their own former employees.

140 The plaintiffs plead that this follows by reason of the matters alleged in paragraphs 9-11 and 13-23 of the Zinc pleading. (In substance, those matters are: the sale by Zinc to Hamersley; the ZC mine sale deed and its alleged indemnity to Hamersley; the transfer of employment to Pasminco Australia; the 1992 deed, (including its indemnity); Zinc's and Hamersley's authorisation of Pasminco Australia to act in respect of their compensation claims; and the fact that Pasminco Australia (alternatively, Pasminco Cockle Creek) handled and met all claims by former Hamersley and former Zinc employees, conducting defences, and making settlements and payment under judgments without reference to the Rio companies and without seeking contribution or apportionment.

141 The plaintiffs allege[41] that Zinc and Hamersley acted in reliance on the above assumed bases to their detriment, in that, inter alia, they refrained from involvement in handling the employees' claims, did not cross-claim against the Pasminco companies and did not make provision for such liability. Further, given the lapse of time and the consequent inability to locate witnesses or records, it would be inequitable and unconscionable for the Pasminco companies to resile from the "assumed bases".

142 In that context, the plaintiffs rely on the doctrine of estoppel by convention acknowledged by the High Court in Con Stan Industries of Australia Pty Ltd v Norwich Winterthur (Aust) Ltd ("Con Stan").[42] In that case, the High Court stated:

"Estoppel by convention is a form of estoppel not founded on a representation of fact made by a representee and acted on by a representee to his detriment but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying ... But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties been as the conventional basis of their relationship. ... In the absence of proof of customer there is no evidence that the parties adopted the alleged assumption.

Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of fact. The state of affairs relied on by Con Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact."[43]

143 Mr Santamaria argued that the plaintiffs' estoppel by convention plea was bad in law. He submitted that estoppel by convention can apply only where the conduct in question gives rise to an assumed convention inconsistent with the agreement. Conduct wholly explicable by an agreement could not erect a convention.

144 The defendants relied in that context on Santos v Delfie Petrolium Pty Ltd ("Santos"),[44] in which the Full Court of the Supreme Court of South Australia did not accept that the express terms of an agreement could never be overridden by a common mistake. The Court made clear that it considered that an estoppel could arise when there was a "conventional" dealing inconsistent with the contract.

145 Further, Lander J considered that the ratio of Con Stan did not restrict the assumed state of affairs to one of fact. Rather, the restriction to fact was obiter, so that the doctrine could apply to assumptions as to the private rights of the legal effect of particular agreements, as distinct from "assumptions as to general law".[45]

146 Lander J stated "it cannot be said that the law in Australia is settled. However, in my opinion, the weight of authority in this country is to the effect that an estoppel by convention can arise where two parties in an existing contractual relationship adopt a course of dealing inconsistent with the terms of their contract upon the common or mutual mistake or assumption that they are each complying with those terms. In those circumstances they are making assumptions as to their private legal rights and those assumptions will be recognised by the law."[46]

147 Estoppel by convention operates to enforce adherence to behaviour inconsistent with the express or implied terms of the contract. Inconsistency may arise in several ways. First, the conduct in question may be at odds with the express or implied terms of the contract. Secondly, the behaviour may be inconsistent with an interpretation of the terms of the contract. Thirdly, the behaviour may be inconsistent with the contract's silence on a particular issue. In the third-named case, inconsistency will only arise when the convention has been proved.

148 The determination of what part the defendant must play in the adoption of the assumption by the plaintiff in order for it to be unjust to permit it to depart from the assumption rests on a detailed examination of the conduct of the parties.

"There must be a mutuality such that all parties could understand that the other parties agreed that they would deal with each other in that manner".

150 Mr Santamaria further argued that estoppel by convention could not operate in relation to an assumption that another party would bear primary and direct liability, to the exclusion of the plaintiffs, for the workers compensation claims of former employees, because such an assumption was contrary to express statutory provisions.

151 Further, the defendants relied particularly on clause 5 of the 1992 deed, which provides that Pasminco Australia is to deal with claims the subject of indemnities under the 1992 deed as the agent of Zinc or Hamersley. They argued that the pleading did not establish that the alleged assumption had, in fact, been adopted by the parties as the conventional basis of their assumption. The 1992 deed made plain that payments of workers compensation by Pasminco Australia were made in capacity of agent of the principals. That, rather than the alleged assumed bases that the Pasminco companies would bear sole liability, explained the defendants' conduct in conducting the litigation without conferring or seeking apportionment.

152 Mr Sheahan submitted that the defendants' objection was based on a misconception of the plaintiffs' pleading. Rather than alleging that there was a shift in their liability to workers, the plaintiffs were alleging that the parties' relationship and conduct proceeded on the assumed basis that the Pasminco defendants would handle and pay the relevant claims, without seeking apportionment or contribution. Such an assumption did not, in itself, exclude the plaintiffs' statutory liability to their former employees and was not contrary to statute.

153 The assumed bases on which the plaintiffs rely may or may not be established to be the legal effect of terms of an agreement. It would appear arguable that if, on a proper construction, the legal effect of the agreement expressed in transaction documents is not as the plaintiffs contend, the parties nevertheless proceeded on the assumed basis that it was to that effect; and having relied on the common assumed bases of the relationship (which subsequently proved incorrect) to their detriment, it would be unconscionable for the defendants to depart from it.

154 It remains to be established by evidence whether the parties did adopt and rely on the assumed bases as alleged, but that is a matter for trial. It is not, in my view, a valid basis for impugning the pleading. In Con Stan, the High Court concluded that there was no evidence that the alleged assumption had in fact been adopted as the conventional basis of the relationship of the parties in that case. It does not follow that the plaintiffs' allegation of estoppel by convention in this case is untenable at law.

155 Further, although the defendants referred to an "agreement" which was inconsistent with the alleged assumed bases and which explained the conduct, that agreement was not identified with precision. It was not clear that it was the agreement not to seek apportionment alleged by the plaintiffs, an agreement arising from the totality of the transactions, or aspects of those transactions in isolation. The defendants referred to the 1992 deed in its "totality" but did not identify its effect. They relied, in particular, on the agency term in the 1992 deed. That term may explain the defendants' conduct of the litigation, but does not appear to explain the defendants' failure to seek apportionment or payment from their alleged Rio principals. In the ordinary course of agency, the principal would be the liable party. The transaction documents, and the possible agreements arising from them, are complex. There are a number of possible constructions.

156 I accept, in this context, the plaintiffs' contention that it is arguable that no particular aspect of the transaction documents, in isolation, explain all of the conduct over the entire relevant period by all of the defendants in the Zinc proceeding. Further, in the North proceeding, there was no equivalent to the 1992 deed. I am not satisfied that the bare terms of the transaction documents explain all of the conduct by all of the defendants at all times.

157 It follows that, in my opinion, the plaintiffs' estoppel by convention plea is not unarguable or so obviously untenable that it cannot possibly succeed. Accordingly, the defendants' application in relation to that plea must fail.

158 The plaintiffs[48] allege that the Pasminco companies and Messrs McCluskey and Spark are estopped from seeking apportionment or from asserting that the relevant Rio companies have direct or primary liability for the pre-administration straddle claims. The plaintiffs seek a declaration that the defendants, including Messrs McCluskey and Spark, are not entitled to seek, or be granted, apportionment or contribution in relation to the pre-administration straddle claims.

159 The defendants argue that the relevant paragraphs in each statement of claim are misconceived and unnecessary, as the administrators have no personal standing to seek apportionment or contribution. The claims against them should therefore be stayed.

160 The plaintiffs contend that until the administrators, as parties to the DOCAs, undertake to abide by the orders of the Court, they are proper parties to the proceeding. Under clause 10.1 of the DOCAs, the deed administrators' role is to retain control of the company until termination date, to the exclusion of its offices. Pursuant to clause 11.2(c), they have the power to bring or defend proceedings or to do anything else in the company's name, and on its behalf. By clause 10.2, the deed administrators are the agents of the company in exercising their power under the deed and "to the maximum extent permitted by law will not be personally liable for acts or omissions done or not done in that capacity".

161 A deed administrator exercises the company's powers as an agent and usually has an indemnity for liabilities reasonably and honestly incurred. Personal liability could result from an exercise of power in breach of duty. In the circumstances, I am not satisfied that the joinder of the deed administrators is misconceived.

162 The plaintiffs[49] allege that by reason of the matters alleged in paragraph 47A, the defendants are estopped by res judicata or issue estoppel from bringing any action against the Rio plaintiffs seeking apportionment or contribution in respect of pre-administration straddle claims. Alternatively, the plaintiffs claim that it would be unreasonable of the defendants to bring such actions.

163 In particular, the plaintiffs allege that any such apportionment order would be inconsistent with findings and orders already made by the Compensation Court.

164 Mr Santamaria made plain that the defendants do not seek to stay the "Anshun" claims as untenable, but seek that they be struck out as embarrassing.

165 In particular, the defendants in their written submissions contended:

"Paragraphs 47-48 of the Zinc statement of claim and paragraphs 41-42 of the North statement of claim, alleged that the defendants are estopped from seeking contribution or apportionment by reason of (following the heading to Part H) 'res judicata, issue estoppel and Anshun estoppel'. The pleading is embarrassing in several respects:

(a) certain judgments are identified in paragraph 47A, but, it is contended, all claims for contribution or apportionment in respect of Pre-Administration Straddle claims are barred;

(b) no indication is given in the relevant paragraphs of what might be the 'findings and orders relevant to the apportionment of liability' which may support any one of the estoppels pleaded;

(c) a priori, the fact that a judgment or order has been made on liability cannot, without more, ground any of the estoppels in so far as s.22A(3) of the 1987 Act provides that an order for apportionment can be made notwithstanding that the liability in respect of which apportionment is sought has been discharged;

(d) with respect to res judicata, no indication is given how any and, if so what, cause of action has merged into any judgment or order;

At a glance

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Judgment (243 paragraphs)

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Legislation Cited (4)

Cases Cited (19)