between the majority and a minority participant in a mining joint venture
Source
Original judgment source is linked above.
Catchwords
EQUITY – EQUITABLE REMEDIES – INJUNCTIONS – INTERLOCUTORYINJUNCTIONS – RELEVANT CONSIDERATIONS – wherethere is a disputebetween the majority and a minority participant in a mining joint venture– where the plaintiff contendsthe defendant has failed to pay cash callsissued to it under the joint venture agreement, the purpose of which is toprovide fundsfor operating expenditure, and seeks to enforce its rights underthe joint venture agreement and an associated deed of cross chargein respect ofthe default – where the defendant counterclaims, alleging some of the cashcall notices are invalid and thatthe plaintiff has breached both the jointventure agreement and the associated sales agency agreement, principally byfailing tosell the budgeted tonnages of coal produced by the mine, causing thedefendant loss and damage, being the amount by which sale proceedshave declined– where the defendant seeks an interlocutory injunction restraining the
plaintiff from taking any further action
in relation to default notices issued
in relation to the cash calls, and from enforcing its rights under the cross
charge, until
trial – whether the defendant has established a prima facie
case – whether the balance of convenience supports the interlocutory
relief claimed – consideration of relevant factors including that this is
the second application for interlocutory relief by
the defendant, that the
defendant seeks to restrain the exercise of rights under the deed of cross
charge in the absence of any offer
of payment into court of the amount of the
unpaid cash calls and whether the proffered undertaking as to damages is of real
value
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39
(1981)
148 CLR 170
AECI Australia Pty Ltd v Convey [2020] QSC
207
Australian Broadcasting Corporation v O’Neill [2006] HCA 46
(2006) 227 CLR
57
Bajramovic v Calubaquib (2015) 71 MVR 15
[2015] NSWCA
139
Brimstome Resources Ltd v Empire Resources Ltd [2018] WASC
185
Brimstone Resources Ltd v Empire Resources Ltd [2018] WASCA
107
Commonwealth Bank of Australia v MLD Financial Services &
Management Pty Ltd [2015] NSWSC 1476
Inglis v Commonwealth Trading
Bank of Australia (1972) 126 CLR 161
Welldog Pty Ltd v Prox Pty Ltd
[2017] WASCA 62
Judgment (58 paragraphs)
[1]
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - RELEVANT CONSIDERATIONS - where there is a dispute between the majority and a minority participant in a mining joint venture - where the plaintiff contends the defendant has failed to pay cash calls issued to it under the joint venture agreement, the purpose of which is to provide funds for operating expenditure, and seeks to enforce its rights under the joint venture agreement and an associated deed of cross charge in respect of the default - where the defendant counterclaims, alleging some of the cash call notices are invalid and that the plaintiff has breached both the joint venture agreement and the associated sales agency agreement, principally by failing to sell the budgeted tonnages of coal produced by the mine, causing the defendant loss and damage, being the amount by which sale proceeds have declined - where the defendant seeks an interlocutory injunction restraining the plaintiff from taking any further action in relation to default notices issued in relation to the cash calls, and from enforcing its rights under the cross charge, until trial - whether the defendant has established a prima facie case - whether the balance of convenience supports the interlocutory relief claimed - consideration of relevant factors including that this is the second application for interlocutory relief by the defendant, that the defendant seeks to restrain the exercise of rights under the deed of cross charge in the absence of any offer of payment into court of the amount of the unpaid cash calls and whether the proffered undertaking as to damages is of real value
J Peden QC and J Hughes for the defendant/applicant
[12]
S Doyle QC, M Jones and M J Hafeez-Baig for the plaintiff/respondent
[13]
[1] The plaintiff (which I will refer to, as the parties do, as Glencore), the defendant (ICRA) and the third party, Sumisho Coal Australia Pty Ltd, are participants in an unincorporated joint venture in relation to a coal mine near Rolleston in Queensland.
[2] This decision deals with an application for interlocutory injunctive relief filed by ICRA on 2 October 2020. In order to deal with this application, it is necessary to understand the background to the dispute and the proceedings to date.
[3] The conduct of the joint venture is relevantly regulated by a joint venture agreement, the currently applicable version of which was restated in 8 March 2017,[1] a sales agency agreement[2] and a deed of cross charge.[3]
[4] The joint venture has been operating since 2004. Glencore, ICRA and Sumisho have been involved since the beginning. There was, however, a change in ownership of ICRA in February 2019, when it was acquired by Winfield Energy Pty Ltd from ITOCHU Minerals & Energy of Australia Pty Ltd.
[5] The interests of the parties in the joint venture and its assets are Glencore, 75%, ICRA, 12.5% and Sumisho, 12.5%.
[6] Glencore is also the Manager under the joint venture agreement, with responsibility to manage, supervise and conduct the operations of the mine, and having the functions and duties set out in cl 8 of the joint venture agreement. Under cl 5.1 of the joint venture agreement, each joint venturer owns and has the right to take in kind and to dispose separately of its individual share of the coal produced from the mine. However, under the sales agency agreement, Glencore is appointed by each of ICRA and Sumisho as its sole and exclusive agent for the sale of all its Rolleston coal during the term of the agreement.
[7] Under cl 11.2 of the joint venture agreement, all costs, expenses and charges incurred pursuant to the operations of the mine are to be borne and paid for by the joint venturers in proportion to their respective individual shares as at the date incurred, and any receipts, payments or credits arising in the course of the operations are to be credited to the joint venturers in the same proportions as at the date received.
[14]
(a) by paragraph 1, an order that Glencore pay to ICRA, within two days of receipt of any sale proceeds, all sums held by Glencore on trust for ICRA under the sales agency agreement; and by paragraph 2, an order for provision of daily bank statements;
[15]
(b) by paragraph 3, a declaration that the two cash call notices dated 10 July 2020 and the cash call notice dated 31 July 2020 are not valid notices for called sums in accordance with cl 11.3 of the joint venture agreement (the paragraph 3 issue);
[16]
(c) by paragraph 4, an injunction restraining Glencore from taking any step under the joint venture agreement in reliance on either the non-payment of the called sums claimed in those notices or the default notice issued by Glencore to ICRA on 10 August 2020; and from taking any step to prevent or exclude ICRA from attending and exercising its voting rights at any meeting of the Management Committee;
[17]
(d) by paragraphs 5 and 6, injunctions restraining Glencore from preventing, restricting or hindering ICRA from taking and disposing of its share of coal; and restraining Glencore from selling ICRA's share of the coal produced.
[18]
[16] That application was heard and determined by Flanagan J on 21 August 2020. Glencore accepted there was a serious question to be tried, as to whether the challenged cash call notices were or were not valid and as to whether the sales agency agreement had been terminated for repudiation. Undertakings offered by Glencore at that time, to operate until a trial of the paragraph 3 issue, made it unnecessary to deal with paragraphs 2, 3 and 4 of the application. Flanagan J otherwise dismissed ICRA's application, finding that the balance of convenience favoured refusal of the injunctive relief sought.
[17] The reasons given by Flanagan J included that: the effect of paragraph 1, if granted, would be to defeat Glencore's fixed charge over the sale proceeds under the deed of cross charge, amounting in effect to final relief; the effect of the order, coupled with the qualified undertaking given by ICRA (to pay "proper" cash calls) would be to impose the financial burden of operating the joint venture on Glencore and Sumisho, in circumstances where it was not clear ICRA would pay future call sums; in relation to paragraphs 5 and 6, the other joint venture participant, Sumisho, was not a party and had not been given an opportunity to be heard; in any event, if those orders were to be made, it was not apparent how ICRA proposed to go about removing the coal and selling it; it was not accepted on the material before the court that Glencore had engaged in conduct as alleged by ICRA of deliberately refusing to sell coal to buyers recommended by ICRA, to ensure ICRA had less proceeds by way of coal sales, and at the same time increasing cash calls; and there was a real concern as to the worth of ICRA's undertaking as to damages.
[18] The orders made on 21 August 2020 included an order for the separate hearing of the paragraph 3 issue (concerning the validity of the two cash call notices issued on 10 July 2020 and the one issued on 31 July 2020), and directions for steps to be taken in advance of that hearing. The orders recorded undertakings given by Glencore, until 4pm on 30 October 2020 (or the earlier hearing of the paragraph 3 issue) which included: to continue to operate as agent for the sale of coal under the sales agency agreement; to hold the proceeds of sale of ICRA's share in a bank account and, if requested by ICRA, apply the whole or part as a credit against the sums claimed as cash calls; not to take any step to enforce its charge over the sums held in the proceeds account in relation to the amounts the subject of the cash calls of 10 and 31 July 2020; and, in relation to the default in paying those cash calls, not to seek to enforce the performance of the obligation to transfer ICRA's interest in consequence of an election under cl 17.7(a)(ii) of the joint venture agreement until the trial of the paragraph 3 issue.
[19]
"The loss and damage suffered by ICRA as a result of Glencore's breaches is the difference between the value of ICRA's Rolleston Coal that Glencore ought to have sold in accordance with the Rolleston Joint Venture budget and the value of ICRA's Rolleston Coal in fact sold by Glencore..."
[20]
[21] According to the evidence of Mr Canavan, the (now) sole director of ICRA, on the basis of the pleaded case of a failure to make budgeted sales in the period January to July 2020, the amount of the reduction in revenue, for ICRA, is $10.9 million.[5] Counsel for ICRA flagged a proposed amendment to the counterclaim, to extend the time period beyond July 2020.
[22] ICRA has not paid any of the cash calls issued since the 10 July 2020 notices. As at 26 October 2020, ICRA had failed to pay a total of $33.26 million in called sums on the date they were due. A further sum of $10.21 million became due and payable on 2 November 2020. Glencore, in its capacity as joint venturer, paid the $33.26 million on ICRA's behalf, under cl 17.4 of the joint venture agreement. Glencore has also applied ICRA's share of the sale proceeds received towards the debt owing to Glencore (an amount of $18.84 million). Taking into account the amount that became due on 2 November 2020, there is still about $24 million owed by ICRA to Glencore for cash calls.[6]
[23] The evidence of Mr Canavan is that ICRA's ongoing ability to pay cash calls made by Glencore pursuant to the joint venture agreement is dependent on the sale, and the receipt of the sale proceeds, of ICRA's individual share of the coal generated through the joint venture.[7]
[24] Default notices have been issued by Glencore in relation to the unpaid cash call notices.
[25] Apart from the challenge to the validity of the two cash call notices issued on 10 July and the one issued on 31 July 2020, there is no challenge by ICRA to the validity of subsequent notices issued.
[26] On 2 October 2020 ICRA filed a further application for an injunction, which is the application presently before me. This application seeks:
[21]
(a) by paragraph 1, an injunction restraining Glencore from taking any further steps in exercise of eight notices of default delivered under the joint venture agreement in August and September 2020;
[22]
(b) by paragraph 2, an injunction restraining Glencore from issuing any further notices of default "by reason only of the Defendant not paying amounts claimed by the Plaintiff in Cash Call Notices issued by the Plaintiff to the Defendant under the Joint Venture Agreement";
[23]
(c) alternatively to 1 and 2, orders in similar terms to the undertakings given and recorded in the order of 21 August 2020 - save that:
[24]
(i) the orders sought are to operate "until further order of the Court" - that is, effectively, until trial;
[25]
(ii) the orders are not limited to the three cash call notices the subject of the trial and associated default notices, but extend to any cash call notices issued from time to time, and any future default by ICRA in paying the amounts the subject of any cash call notices; and
[26]
(iii) as clarified by counsel for ICRA at the hearing, the orders sought are to restrain Glencore from taking any step to enforce its charge over the "charged property" as defined in the deed of cross charge, not limited to the amount of sale proceeds held in the "proceeds account" referred to in the undertakings.
[27]
[27] The application is opposed. In respect of the three cash call notices the subject of the trial, in which judgment is reserved, it does not seem there is any need for further restraint, for example until judgment is delivered, as the sums payable (including interest) have now been paid. But I will hear further from the parties as to this, if necessary.
[28] The relevant legal principles which apply on an application for an interlocutory injunction are not controversial. They were considered by the High Court in Australian Broadcasting Corporation v O'Neill[2006] HCA 46; (2006) 227 CLR 57 at [65]- [72] in the reasons of Gummow and Hayne JJ, with whom Gleeson CJ and Crennan J (at [19]) agreed. The principles were helpfully summarised by Bond J in AECI Australia Pty Ltd v Convey[2020] QSC 207 at [13]- [18], which I gratefully adopt.
[29] The first inquiry is whether the applicant has shown that it has a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the applicant will be held entitled to the relief it seeks. For this purpose, the applicant does not have to show that it will probably succeed at trial; it is sufficient that the applicant shows a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.
[30] The second inquiry is whether the balance of convenience supports the relief claimed - that is, whether the inconvenience or injury which the applicant would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the respondent would suffer if an injunction were granted. The adequacy of an award of damages and the question of the sufficiency of the usual undertaking are to be considered as part of the totality of the balance of convenience question.
[28]
"6. ICRA says that Glencore has been stockpiling coal and not selling it, for whatever (presently unclear) reason, but then continuing to make cash calls against ICRA (in an irregular fashion and not in accordance with the JV Agreement obligations). Glencore has ignored buyers which have been introduced by ICRA to Glencore, and has refused to report about its own marketing efforts, such that ICRA is unable to make informed decisions or understand its financial position. The consequence of this conduct has been to starve ICRA out of the Rolleston JV.
[29]
ICRA applies for relief to preserve its interest in the Rolleston JV pending trial.
There are two parts to the relief ICRA seeks in this proceeding.
First, in respect of the Sales Agency Agreement, ICRA contends that it has validly terminated the Sales Agency Agreement pursuant to which Glencore was appointed as agent to sell ICRA's share of Rolleston Coal. A consequence of termination of that agreement is that ICRA is free to sell its own share of Rolleston Coal as it sees fit (and generate revenue to consolidate its financial position). Glencore does not accept the termination and asserts a right to continue to sell ICRA's coal (which would amount to conversion if ICRA is correct at trial).
The final relief sought by ICRA in relation to this aspect of its claim is a declaration that the Sales Agency Agreement has been validly terminated. The interlocutory relief sought by orders 5 and 6 of the Application facilitates the sale by ICRA of its share of Rolleston Coal pending trial or further order, in circumstances where ICRA contends that Glencore has refused to sell coal to buyers identified by ICRA.
Second, in respect of the JV Agreement, Glencore has issued default notices (in consequence of unpaid cash calls) and asserts consequential rights to preclude ICRA from forthcoming management committee meetings (the next one is on Monday 24 August). ICRA challenges the cash call notices and default notices as invalid and seeks to have the status quo (before the issue of the invalid notices) maintained until trial. If not restrained, Glencore may withhold from ICRA the sale proceeds of ICRA's individual share of Rolleston Coal, the other joint venturers may acquire ICRA's interest in the Rolleston JV, and ICRA's voting rights are suspended. Effectively, ICRA would be forced out of the joint venture. ICRA maintains that ought not be permitted on the basis of invalid notices and Glencore's breaches of the Sales Agency Agreement.
There is a prima facie case against Glencore in respect of both parts of ICRA's claim.
The balance of convenience strongly favours the grant of relief. On the one hand, the potential consequences for ICRA if relief is not granted are severe. It is also submitted that damages will not be an adequate remedy. On the other hand, Glencore will suffer no appreciable loss if the relief is granted. Glencore is well-secured to recover any amounts found to be owing to it and ICRA has more than sufficient assets to answer any damages claim if it is ultimately found that ICRA is not entitled to the relief it seeks."
[30]
[35] Before Flanagan J, as before me, counsel for ICRA described the core of ICRA's complaint as the alleged failure to make coal sales. There is an immediately apparent resemblance between the case put before Flanagan J, and the case now put before me (see paragraphs 8-15 of ICRA's written submissions dated 2 November 2020). What has changed since 21 August 2020 is that Sumisho has been served; a defence and counterclaim have been filed; the trial of the paragraph 3 issue (the validity of the three challenged cash call notices) has been heard; further cash calls have been issued, but not paid by ICRA; and further default notices have been issued. But the substance of ICRA's complaint - that Glencore is not selling enough coal, which affects ICRA's ability to pay cash calls - has not changed. As discussed below, there has also been no change to the position in so far as the worth of ICRA's undertaking as to damages is concerned. ICRA does not identify any material change of circumstance, or suggest it has discovered new material that could not have been put before Flanagan J. I accept the submission that the absence of changed circumstances is a strong factor weighing against the grant of any further discretionary interlocutory relief. Although I do not proceed on the basis that this is a complete answer to ICRA's application.
[36] As to whether ICRA has established a prima facie case for the relief which it seeks, Glencore accepts, for the purposes of the present application, that there is a serious question to be tried as to whether, arguably in breach of the joint venture agreement or the sales agency agreement, Glencore has failed to make some sales of coal (but not to the extent asserted by ICRA). This is on the basis of an acceptance that the forecast budgeted production and sales set out in the Sales Plan provided to the joint venturers in late September 2019 were not achieved.[11]
[37] The limits of Glencore's concession, and the difficulties it says ICRA has with its case, are set out in paragraph 33 of Glencore's written submissions, as follows:
[31]
"(a) the forecast budgeted production and sales figures are those prepared in September 2019, considered at the JV meeting in November 2019 and for the period commencing 1 January 2020;
[32]
(b) the Plaintiff nowhere warrants that the forecasts in them will be achieved. They are what they profess to be: forecasts. The function of the Sales Plan is not the same as the function of the expenditure budget which the Plaintiff provides to joint venturers for the purpose of seeking joint venturers' authority on costs expenditure. There is no legal foundation for a claim that seeks to recover on the basis of departure from that budgeted sales target; and
[33]
(c) it is not possible to overlook the impact of COVID-19 on the world, including on suppliers and users of coal. The Plaintiff's evidence demonstrates that this impact was very significant, particularly for the Rolleston mine given the characteristics of Rolleston coal and its exposure to spot markets for coal sales. Yet to assert a breach represented by a failure to achieve budgeted sales does just that. So too does the suggestion that other compounding difficulties faced by Australian suppliers of coal (not just Rolleston) during 2020 can be ignored."
[34]
[38] However, it is not agreed that there is any serious question to be tried - or prima facie case - as to the other breaches of either the sales agency agreement or the joint venture agreement which are alleged by ICRA, such that it could be concluded that, if the evidence remains as it is, there is a sufficient probability that ICRA will be held entitled to the relief that it seeks.
[39] I accept that submission, because it is not apparent on what basis the alleged breaches in other respects - which involve allegations of failure to hold meetings, provide certain reports and information, or enable inspection of records [and which are disputed] - are said to impeach the entitlement of Glencore to make cash calls, or call into question the obligation of the joint venturers to pay the cash called, to enable the joint venture to operate.
[40] Even in relation to the one respect in which there is agreement that there is a serious question to be tried, Glencore submits that it is not presently pleaded by ICRA how any such breach by it of the sales agency agreement, or the joint venture agreement [in the sense of failing to sell the budgeted quantity of coal] caused (or will cause) ICRA's failure to pay otherwise unchallenged cash calls; impeaches Glencore's entitlement to recover the unpaid cash calls; nor any pleading of a set off of the damages claimed by ICRA for breach of contract, against the amounts owing to Glencore for cash calls. Even if a set-off had been pleaded, Glencore emphasises that the amount of any damages - assuming in favour of ICRA that it could succeed in establishing the breach it contends for - is swamped by the unpaid amount of the unpaid cash calls.
[41] As a matter of pleading, I accept that the point made by Glencore is correct. But for present purposes I will deal with ICRA's application on the basis that there is at least a prima facie case in so far as the allegation of breach of the sales agency agreement and/or the joint venture agreement, on the basis of a failure to make the budgeted sales of coal, is concerned; and that if established, ICRA may be entitled to set off any damages it recovers against the unpaid cash calls.
[42] However, on the material presently before the court, I am not persuaded ICRA's case in this respect is particularly strong. The points made at paragraphs 33(a) and (b) of Glencore's submissions are compelling, involving construction of the contractual arrangements between the parties. The point made at paragraph 33(c) also appears compelling, having regard to the affidavit evidence of Mr Segal as well as the report of Mr Hain - although that would remain a matter to be determined upon a detailed consideration of the evidence at trial.
[35]
"The benefit of having a security for a debt would be greatly diminished if the fact that a debtor has raised claims for damages against the mortgagee were allowed to prevent any enforcement of the security until after the litigation of those claims had been completed.
[36]
... the fact that such claims have been brought provides no valid reason for the granting of an injunction to restrain, until they have been determined, the exercise by a mortgagee of the remedies given to him by the mortgage."
[37]
[49] This general rule has been applied in the context of a payment due from one mining joint venturer to another, which is secured by a mortgage: Brimstome Resources Ltd v Empire Resources Ltd[2018] WASC 185 at [96]- [98]; Brimstone Resources Ltd v Empire Resources Ltd[2018] WASCA 107 at [56]. It has also been applied in the context of an interlocutory injunction seeking to restrain the exercise of rights under a deed of charge: Welldog Pty Ltd v Prox Pty Ltd[2017] WASCA 62 at [45].
[50] Counsel for ICRA submits the general rule does not apply in this case, seeking to distinguish Inglis on the basis that here, ICRA submits, there is a "direct causal connection" between ICRA's inability to pay the secured debt (the called sums) and the (alleged) wrongful conduct of Glencore, which it says amounts to breach of the sales agency agreement and/or the joint venture agreement. In this regard, and indeed more generally in support of its application, ICRA relies upon the principle that a contracting party will not, in normal circumstances, be permitted to take advantage of a situation brought about by its own wrong.[18]
[51] I reject that as a basis upon which to distinguish Inglis. It flies in the face of the rationale for the principle. ICRA's complaints are independent of the entry into the contractual arrangements between the parties, including the deed of cross charge. The complaints arise from subsequent, more recent conduct of Glencore, as Manager, which ICRA contends (although does not yet plead) has impeded its ability to observe the terms of the contractual arrangements. ICRA's complaints cannot be said to impeach Glencore's interest in the charged property, under the deed of cross charge. Absent such impeachment, as a matter of principle, the general rule in applies.
[4] It is not controversial that ICRA has given notice of termination under cl 10.2(f) of the sales agency agreement, as a result of which the sales agency agreement will come to an end 12 months after the notice, in July 2021.
[10] The submissions of both the defendant/applicant and the plaintiff/respondent, dated 21 August 2020, and a copy of the transcript of Flanagan J's judgment given on 21 August 2020, will be marked exhibit 1.
[12] Affidavit affirmed 27 October 2020, filed by leave on 2 November 2020, in particular at [38]-[48], [60]-[62].
[47]
[13] CFI 45, for example at [29]-[41], [42], [44], [46] and [50].
[48]
[14] See the analysis in [36] of Glencore's written submissions, dated 2 November 2020.
[49]
[17] See also Clarke v Japan Machines (Australia) Pty Ltd (No 2)[1984] 1 Qd R 421 and Clairview Developments Pty Ltd v Law Mortgages Gold Coast Pty Ltd[2007] QCA 141; [2007] 2 Qd R 501 at [6]- [8] per McMurdo P, [35]-[43] per Jerrard JA and at [48] and [53] per Helman J.
[50]
[18] Referring, among others, to Hope Island Resort Holdings Pty Ltd v Jefferson Properties (Qld) Pty Ltd[2005] QCA 315 and Sharjade Pty Ltd v The Commonwealth of Australia[2009] NSWCA 373.
[51]
[19] See, by analogy, Commonwealth Bank of Australia v MLD Financial Services & Management Pty Ltd[2015] NSWSC 1476 at [18], [38]-[39] per Davies J.
[22]Cambridge Credit Corporation Ltd v Surfers' Paradise Forests Ltd[1977] Qd R 261 at 264; Donnelly v Amalgamated Television Services Pty Ltd(1998) 45 NSWLR 570 at 575.
[54]
[24] Blankfield (CFI 10) at [23]; and Blankfield (CFI 62) at [8]-[11].
[29] Blankfield (CFI 10), at SMB5 (consolidated statement of financial position).
Parties
Applicant/Plaintiff:
Rolleston Coal Holdings Pty Ltd
Respondent/Defendant:
ICRA Rolleston Pty Ltd [2020] QSC 331
Cases Cited (7)
(1981) 148 CLR 170
(2006) 227 CLR 57
(2015) 71 MVR 15
(1972) 126 CLR 161
(2011) 217 FCR 238
(2014) 311 ALR 632
(1998) 45 NSWLR 570
[8] Clause 11.3 provides for a procedure by which the Manager will give to each joint venturer a notice setting out the current cash estimates for the next cash accounting period (a defined term, roughly half a month), showing the estimated cash disbursements the Manager will be required to make in that cash accounting period; the extent to which those disbursements will be satisfied by cash in hand and any expected cash receipts; and the cash amount each joint venturer is required to pay. There is an obligation to pay that cash amount within a short period of time, the obvious purpose of which is to ensure the Manager is kept in funds sufficient to pay the ongoing operating expenses which are incurred.
[9] Clause 17 of the joint venture agreement sets out the procedure which applies if a joint venturer fails to pay in full any called sum, 14 days after it was due. The Manager is required to give notice to the joint venturers of the default (cl 17.1(a)(v)) and then any one or more of the other joint venturers (in this context called the acquiring joint venturer) may give the defaulting joint venturer a default notice, requiring the default to be remedied within 60 days (cl 17.1(a)(vi)). Each acquiring joint venturer also has the right to pay, on behalf of the defaulting joint venturer, any part of the called sum which is owing; which then becomes a debt due and payable by the defaulting joint venturer to the acquiring joint venturer (cl 17.4).
[10] As recorded in cl 17.6, the joint venturers and the Manager are also parties to a deed of cross charge. In the deed of cross charge "secured debt" is defined to mean, in relation to a joint venturer, among other things, each called sum owing and unpaid by that joint venturer after it has fallen due, together with interest on the called sum. By cl 2.1, to secure the due and punctual payment of its secured debt, each joint venturer charges to each other joint venturer, among other things, its share of the coal and its share of the proceeds of coal sales. By cl 2.2(a) the charge is a fixed charge, as to the joint venturer's interest in the mining tenements, and other identified property, including the joint venturer's entitlement to sale proceeds, and a floating charge as regards all other property charged by the deed.
[11] Under the joint venture agreement, if the default has not been remedied by the end of the 60 days, the acquiring joint venturer may elect to either exercise any of its rights as chargee under the cross charge, or, by further notice, to purchase the individual interest of the defaulting joint venturer (cl 17.7(a)(i) and (ii)). The process in the case of an election to purchase is set out in clauses 17.8, 17.9 and 17.10.
[12] By cl 4.1 of the cross charge, the charge created by a joint venturer under the cross charge is enforceable at any time when any other joint venturer is entitled to make, or has made, the election referred to in cl 17.7 of the joint venture agreement.
[13] On 10 July 2020 Glencore issued two cash call notices to ICRA. On 31 July 2020 a further cash call notice was issued. ICRA did not pay the amounts called. At around this time, Glencore received, as agent under the sales agency agreement, proceeds from the sale of Rolleston coal, a portion of which was held on trust for ICRA. Glencore asserted an entitlement over ICRA's share of the sale proceeds, as security for the unpaid cash calls, under the deed of cross charge. ICRA disputed Glencore's entitlement to do so. ICRA also (both before and after these cash call notices were issued) purported to terminate the sales agency agreement, for breach, with immediate effect.
[14] On 11 August 2020 Glencore commenced the present proceedings against ICRA, seeking a declaration that it is entitled to hold the specified sums from the sale proceeds, for so long as ICRA fails to pay the cash calls; as well as declaratory relief in relation to steps taken by ICRA to terminate the sales agency agreement with immediate effect.[4]
[15] Two days later, on 13 August 2020, ICRA filed an application in this proceeding, seeking injunctive and other relief, namely:
[19] The hearing of the paragraph 3 issue proceeded before me on 28, 29 and 30 October 2020. Judgment is reserved. Sumisho, which has now been joined as a third party, did not seek to be heard in relation to the paragraph 3 issue and did not participate in the hearing of the present application either.
[20] In the meantime, on 9 September 2020 ICRA filed its defence to Glencore's claim, as well as a counterclaim. The defence pleads ICRA's case as to the invalidity of the cash call notices issued on 10 and 31 July 2020, as well as ICRA's case as to what it says was the valid termination of the sales agency agreement. The counterclaim pleads breach by Glencore of the sales agency agreement in a number of respects, including failure to sell the budgeted tonnages of coal for the period January 2020 to July 2020 (paragraphs 55-58) and breach by Glencore of the joint venture agreement in a number of respects, including failure to produce saleable coal in accordance with budgeted production during the period January 2020 to July 2020 (paragraph 76), as a consequence of both of which Glencore is said to have not acted reasonably and with fair dealing having regard to ICRA's interests in the joint venture and to have deprived ICRA of the substance of the contractual benefit bargained for (paragraph 77). ICRA pleads that Glencore's breaches of the sales agency agreement (as pleaded in paragraph 65, which refers back to paragraphs 55-58) and the joint venture agreement (as pleaded in paragraph 78, which refers back to paragraphs 76 and 77), have caused ICRA to suffer loss and damage (paragraph 79), particularised as:
[31] The two inquiries are related, not independent. The apparent strength of the parties' substantive cases is an important consideration to be weighed in the balance.[8]
[32] I accept also, as a rule of practice if not an absolute principle, that a second interlocutory application after a first interlocutory application has been refused "must be founded on a material change of circumstances, or the discovery of new material that could not reasonably have been put before the Court on the hearing of the original application"; although the overriding principle remains, that the court must do whatever the interests of justice require in the particular circumstances of the case.[9]
[33] As to this, Glencore submits ICRA has not identified any material change of circumstances since 21 August 2020, and points to no fact that is said to change the analysis Flanagan J undertook in dismissing the previous application. There has merely been a continuation of the same complaints. In contrast, ICRA submits that the present is "an entirely different injunction application", based on a failure to sell coal, whereas the first application before Flanagan J was based on repudiation of the sales agency agreement.
[34] A review of the written submissions relied upon before Flanagan J does not support ICRA's submissions in this regard.[10] I refer in particular to [6]-[13] of ICRA's written submissions dated 21 August 2020, in which it was said:
[43] In addition, I am not persuaded that there is a good argument, even if there be a prima facie case of breach by failing to sell the budgeted tonnage of coal, that there is a legally causative link between that failure, and ICRA's failure to pay the called sums. There is no direct link, in the joint venture agreement, between the receipt of sale proceeds and the obligation to pay called sums on a regular basis to fund the expenditure incurred in the operation of the mine. It seems that even on Mr Canavan's hypothetical analysis of figures, there would always have been a substantial shortfall between what he says was expected by way of revenue, based on the budgeted sales for this year, and the cash calls required to fund the operating expenses of the mine.[14] The evidence before the court shows that in 2019 and up to 30 April 2020 ICRA's share of sale proceeds exceeded cash calls made quite significantly (by $28.45 million in 2019; and by $6.56 million to 30 April 2020). By 30 June 2020 the sale proceeds were about $1.66 million less than cash calls, and that difference was even greater by the end of July 2020. But Glencore and Sumisho are in the same position, with their respective cash calls exceeding sale proceeds received this year by $115.3 million and $14.4 million, respectively.[15] The shortfall predicted in the period up to the end of January 2021 decreases again (in the case of ICRA, to about $4 million).[16] The joint venture participants take the good with the bad. But what ICRA seeks to achieve, by the present application, is to place all the risk onto another of the participants, Glencore, whilst not contributing its share of the cash for operating expenses, and depriving Glencore of its security interest.
[44] However, even assuming favourably to ICRA that a prima facie case has been shown, the balance of convenience clearly favours refusal of the injunctive relief sought.
[45] As I have said, the effect of the relief sought by ICRA is to require Glencore to fund ICRA's share of the cash required to fund the expenses incurred to operate the mine, until the trial of the dispute between them takes place - perhaps early next year, although February 2021, as proposed by ICRA, may be optimistic. ICRA would still retain the benefit of its interest as participant in the joint venture, and the benefit of any surplus of sale proceeds over cash required to fund the mining operations, but carry none of the burden of contributing its share of the operating costs of the joint venture or the risk associated with a decline in the market.
[46] In addition to its rights under the joint venture agreement, Glencore holds security in the form of a fixed charge over, among other things, ICRA's entitlement to sale proceeds. Glencore has the right, under the deed of cross charge, to hold the sale proceeds and, in due course, take the requisite action to enforce the charge, which would include appointing a receiver to the charged property. As clarified in the course of the hearing, by the current application ICRA seeks to restrain Glencore from taking any step to enforce its charge over the charged property as defined in the deed of cross charge.
[47] On this application, Glencore invokes the general rule, established in Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164-165 (per Walsh J) and 169 (per Barwick CJ, on appeal), that where a mortgagor seeks to prevent a mortgagee from exercising its rights as security holder, the mortgagor must either pay the mortgage debt, if this is not in dispute, or, if the amount is in dispute, pay the amount claimed by the mortgagee, into court.[17]
[48] The rationale for that rule is, as explained by Walsh J in Inglis at 165, that:
[52] ICRA does not otherwise contend that any of the established exceptions to the rule in Inglis apply here.[20]
[53] Inglis also answers another submission made by counsel for ICRA, on the basis that what is threatened in the circumstances of this case is its proprietary rights in the assets of the joint venture. A similar point was argued on behalf of the plaintiffs in Inglis. Walsh J observed, at 166, that "the proprietary rights as owners which the plaintiffs have are rights which are subject to and qualified by the rights over the property given to the defendant by the mortgage. If the defendant exercises the latter rights or threatens to do so that is not, as such, an act or a threatened act in contravention or infringement of the plaintiffs' proprietary rights".[21] The same point applies here, as a result of the cross charge.
[54] I accept the submission that the general rule in Inglis applies to this case, having regard to Glencore's security under of the deed of cross charge.
[55] There is no offer by ICRA to pay the outstanding cash calls into court, pending litigation of the broader dispute. On this basis, the application should be refused.
[56] In addition, I see no reason to reach a different view from that reached by Flanagan J as to the worth of ICRA's undertaking as to damages. The question is whether the court is satisfied the undertaking offered by the applicant has real value. The lack of worth of an undertaking is a powerful discretionary factor against the grant of an interlocutory injunction.[22] The circumstances have not changed since 21 August 2020.
[57] Before me, as before Flanagan J, ICRA relies upon an opinion expressed in August 2019 as to the value of its interest in the joint venture being $70 million.[23] As was the case before Flanagan J, other material before the court casts considerable doubt on that proposition, including that Glencore values ICRA's interest at zero,[24] and material which suggests as recently as 1 July 2020 ICRA proposed that Glencore buy its interest in the joint venture for $1.[25] There was a subsequent offer, on 20 July 2020, to sell ICRA's interest to Glencore in consideration for ICRA's parent company, Winfield, paying Glencore $5 million, and Glencore then making a deferred payment to Winfield, out of a profit share arrangement, of $11 million, as well as assuming the environmental bond and port guarantees.[26] Mr Hammond, a former director of ICRA, says that he did not regard that as a reflection of the true value of ICRA's interest in the mine; rather, a recognition that disputes between majority and minority joint venture partners are time consuming, a distraction for the core business of the joint venture and often result in a disappointing outcome for the minority partner.[27] But as counsel for Glencore submits, that is the very premise on which the court must proceed in considering if there is any true value in the undertaking proffered - that it would be called upon in the event of a disappointing outcome for, in this case, ICRA.
[58] Although ICRA submitted that it was an issue for me to determine whether the mine has a value, I do not consider that on the basis of the evidence, and on an interlocutory application of this kind, that can be done in any meaningful way. Having regard to the reasons given by Flanagan J (at p 7), by reference to Glencore's written submissions before his Honour (at paragraphs 19, 20, 23, 26(f) and 27), which reflects both the evidence and the arguments, before me, I also accept that there is a real concern as to the worth of the defendant's undertaking as to damages. None of the individuals who stand behind ICRA offer to provide any security for its undertaking. Even if ICRA's interest in the joint venture has a substantial value, there is no evidence of any ability to borrow money on the security of that or any other asset. ICRA's ability to pay cash calls depends, on its evidence, on the receipt of sale proceeds. If the undertaking had to be called on, it would similarly be necessary to rely on sale proceeds; and an additional difficulty with that is that there is also a charge, over the account into which ICRA's share of the sale proceeds are deposited, in favour of Macquarie Bank.[28]
[59] The onus is on ICRA, as applicant, to satisfy the court that its undertaking has real value. On the basis of an opinion expressed in August 2019 alone, in the face of the controverting material, I am not persuaded of that.
[60] On the other hand, the evidence shows that, in the event ICRA succeeds in establishing its present claim for damages against Glencore (putting to one side for the moment the fact that such damages seem to be overwhelmed by the amount of the unpaid cash calls), damages are an adequate remedy, which Glencore has the means to meet (not dependent upon the value of the mine).[29]
[61] ICRA submits that, in terms of weighing the injustice if the injunction is refused, the court should find that the greater injustice would be caused to ICRA, if the injunction were refused, because of the risk it faces of its interest in the joint venture being acquired, either under cl 17.7 of the joint venture agreement, or in exercise of the cross charge. But the fact is, that could only occur if ICRA persists in its failure to pay cash calls, the validity of which it does not challenge (and if the lengthy process contemplated by the contractual arrangements is followed). ICRA's position is that, on the strength of its allegations of breach of the sales agency agreement and/or the joint venture agreement, Glencore should have to fund its share of the expenses of running the mine, until after a trial of the main proceeding, and relinquish its security rights under the deed of cross charge. ICRA seeks, in effect, to buy time, or breathing space, until the coal market improves and it can again afford to fund its share of the joint venture. For the reasons given above, I am not persuaded, taking into account, among other things, the strength of ICRA's case, the security held by Glencore, the absence of any offer to pay the outstanding cash call amounts into court, and the lack of apparent value of the undertaking as to damages, that it is appropriate to grant the relief sought by ICRA.
[62] For those reasons, the application is dismissed.
[63] I will hear from the parties as to the form of any necessary or appropriate order, or undertakings, limited to the default notices issued in respect of the three cash call notices the subject of the separate trial in which judgment is reserved, and as to costs.