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[2013] FCA 349
Federal Court of Australia
2013-04-18
Mr J, Mr P, Griffiths J
Original judgment source is linked above.
Division: GENERAL DIVISION
Category: Catchwords
Counsel for the Plaintiffs: Mr R Newlinds SC and Mr J Baird
Solicitor for the Plaintiffs: Allsop Glover
Counsel for the First and Second Defendants Mr I Jackman SC and Dr C Mantziaris
Solicitor for the First and Second Defendants: Minter Ellison
Counsel for the Third Defendant: Mr P Jammy
Solicitor for the Third Defendant: HBL Ebsworth
Counsel for the Fourth Defendant: Mr J Smith
Solicitor for the Fourth Defendant: McCullough Robertson
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 363 of 2013
In the matter of Bonython Metals Group Pty Ltd (In liq) (ACN 141 257 294) BETWEEN: WENTWORTH METALS GROUP PTY LIMITED (ACN 139 532 719)
AND: DAVID LEIGH AND MICHAEL OWEN (IN THEIR CAPACITY AS OFFICIAL LIQUIDATORS OF BONYTHON METALS GROUP PTY LIMITED (IN LIQUIDATION) ACN 141 257 294
BONYTHON METALS GROUP PTY LIMITED (IN LIQUIDATION) ACN 141 257 294
JUDGE: GRIFFITHS J DATE OF ORDER: 18 APRIL 2013 WHERE MADE: SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 363 of 2013
In the matter of Bonython Metals Group Pty Ltd (In liq) ) (ACN 141 257 294) BETWEEN: WENTWORTH METALS GROUP PTY LIMITED ACN 139 532 719
AND: DAVID LEIGH AND MICHAEL OWEN (IN THEIR CAPACITY AS OFFICIAL LIQUIDATORS OF BONYTHON METALS GROUP PTY LIMITED (IN LIQUIDATION) ACN 141 257 294
BONYTHON METALS GROUP PTY LIMITED (IN LIQUIDATION) ACN 141 257 294
JUDGE: GRIFFITHS J DATE: 18 APRIL 2013 PLACE: SYDNEY
REASONS FOR JUDGMENT 1 By an amended originating process (AOP) filed on 28 March 2013, the plaintiffs apply for interlocutory injunctive relief to restrain the first and second defendants from proceeding with an offer to sell the second defendant's interest in a joint venture project to the third defendant. The first, second, third and fourth defendants all oppose the plaintiffs' interlocutory application. 2 The substantive proceedings are brought by the plaintiffs under s 1321 of the Corporations Act 2001 (Cth) (the Act) seeking to "appeal" the Liquidators' decision made on 8 February 2013 (as varied on 15 February 2013) to accept an offer from the fourth defendant (Pure Metals) (the Pure Metals offer) to purchase the second defendant's (BMG) joint venture interest in a mining tenement near Broken Hill known as the "Hawsons Iron Project" (the HIP). 3 Rule 14.1 of the Federal Court (Corporations) Rules 2000 (the Corporations Rules) relevantly requires that the originating process for such an appeal state the act, omission or decision complained of and the grounds on which the complaint is based. Sub-rule 14.1(2) also requires that any originating process (or interlocutory process) must be filed within 21 days after the date of the act, omission or decision appealed against (or such further time as allowed by the Court). 4 The following two decisions of Liquidators are specified in the AOP as being the subject of appeal: (a) acceptance of the Pure Metals offer upon the terms contained in the letter of offer dated 8 February 2013, as varied on 15 February 2013; and (b) the decision to make or cause to be made an offer by BMG to the third defendant on 19 February 2013 upon the same terms as the Pure Metals offer in accordance with pre-emptive rights enjoyed by the third defendant. 5 The two challenged decisions are related. 6 The plaintiffs also seek leave to appeal out of time in circumstances where the proceedings were commenced outside the 21 day time period specified by rule 14.1(2) of the Corporations Rules.
Background 7 The first plaintiff, Wentworth Metals Group Pty Limited (WMG) is a company wholly owned by the second plaintiffs (Mr John Hillam and Ms Sarabol Teeranukul). The second plaintiffs collectively hold 64 per cent of the issued shares in BMG. Ample Source International Limited (ASI) holds 25 per cent of the shares in BMG and the remaining 11 per cent is held by other minority shareholders. As will emerge below, WMG is an unsuccessful bidder in a sales process conducted by the Liquidators in respect of BMG's interest in HIP. 8 BMG was placed in liquidation by order of the Court made on 27 February 2012 (see Ample Source International Limited v Bonython Metals Group Pty Limited: In the matter of Bonython Metals Group Pty Limited (No 7) [2012] FCA 137 per Robertson J). The first defendants were appointed joint and several official liquidators of BMG. The Court-ordered liquidation occurred after contested proceedings brought by ASI on the grounds that the conduct of the affairs of BMG was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, ASI (see Ample Source International Limited v Bonython Metals Group Pty Limited: In the matter of Bonython Metals Group Pty Limited (No 6) [2011] FCA 1484; (2011) 285 ALR 488 per Robertson J: an appeal against his Honour's judgment was dismissed-see Hillam v Ample Source International Ltd (No 2) (2012) 202 FCR 336). Robertson J found that ASI was oppressed in its membership of BMG by the group of interests associated with Mr Hillam. Robertson J also made various adverse credit findings concerning Mr Hillam and found that he had breached his duty as a director in several respects. The first defendants were appointed Liquidators of BMG on 27 February 2012, although the winding up was initially stayed until 3 May 2012. 9 The Liquidators accept that BMG's interest in the HIP is its major asset. BMG has a 40 per cent interest in the HIP under an agreement dated 15 April 2010 between BMG and the third defendant, Carpentaria Exploration Ltd (CAP) (the Joint Venture Agreement). CAP holds the other 60 per cent interest in the HIP under the Joint Venture Agreement. 10 Under clause 13.4 of the Joint Venture Agreement the joint venturers have rights of pre-emption in the event that the other joint venturer wishes to sell its joint venture interest in the HIP. Another important and relevant provision in the Joint Venture Agreement is clause 13.7 which provides that a sale of a joint venture interest (as defined therein) is not effective unless and until the assignee executes and delivers a form of assumption deed approved by the joint venturers (which approval must not be unreasonably withheld) under which the assignee agrees to assume the assignor's obligations under the Joint Venture Agreement. 11 In their written outline of submissions, the plaintiffs describe their fundamental criticism of the Liquidators' decision to accept Pure Metals' offer "is that it was made in circumstances where the Liquidators could not have reasonably have been satisfied that the offer from Pure Metals represented the best price reasonably obtainable for the asset being sold". 12 It is now convenient to outline the sale process conducted by the Liquidators leading up to the making of the challenged decisions, as well as some relevant subsequent events.
The sales process conducted by the Liquidators 13 The main steps taken in the sales process were described in detail by one of the Liquidators, Mr Leigh. The plaintiffs place particular emphasis on some of those steps in support of their interlocutory application. The main steps, taken chronologically, may be summarised as follows: 3 to 30 September 2012: the Liquidators advertised the asset for sale in Minesonline.com at a total cost of $3,000; 27 September 2012: the Liquidators rejected an unconditional offer of $2 million by Australia China Metal Corporation Pty Ltd (ACMC); 22 October 2012: the Liquidators started negotiations with CAP for a draft assumption deed; 29 October 2012: the Liquidators sent to eleven formal Phase 1 bidders and WMG the Phase 1 process letter outlining the sale process, identifying key dates and reserving the Liquidators' rights in various respects; 22 November 2012: Phase 1 bidders and WMG were notified of the extension of key dates and also that the assumption deed was not finalised; 28 November 2012 to 6 December 2012: the second plaintiffs queried the Liquidators' sale process and requested that the Phase 1 lodgement date and sale process be deferred. The Liquidators refused to do so; 30 November 2012: Phase 1 closed, with offers formally lodged by ASI ($5 million), ACMC ($2 million) and Discrete Solutions ($2.1 million). These bidders became the Phase 2 bidders. 5 December 2012: the Phase 2 bidders were sent the Phase 2 process letter, which outlined the sale process and key dates and explained CAP's right of pre-emption. A draft assumption deed was annexed; 10 December 2012: Meridien was formally included as a Phase 2 bidder; 11 to 12 December 2012: agreement was reached between BMG, ASI and the Hillam interests that the latter could participate as bidders for the Joint Venture interest. The Phase 2 process letter was sent to the Hillam interests; 14 December 2012: the Liquidators extended the date for lodgement of final offers to 19 December 2012. Both ASI and WMG were advised accordingly; 19 December 2012: final offers closed, with bids lodged by ASI, WMG, Discrete Solutions and Meridien (collectively, the Final Bidders). WMG's offer was said to be for $13 million, the cash component of which was described as being between $6-$7.5 million with the balance made up of non-cash components; 31 January 2013: the Liquidators sent a circular to creditors reporting on the sale process and the failure to resolve the assumption deed with CAP. The Liquidators advised that from 8 February 2013 they would proceed to evaluate offers. They also sought from bidders $75,000 litigation funding to resolve both the "CAP called sums" and assumption deed issues. The "CAP called sums" issue related to a dispute between CAP and the Liquidators concerning whether BMG was liable to pay CAP under the Joint Venture Agreement for "called sums" in the amount of approximately $3.852 million incurred by CAP in conducting the joint venture; 4 February 2013: Meridien withdrew from the sale process. Discrete Solutions made an unconditional offer; 5 to 6 February 2013: the Liquidators sent to Discrete Solutions, WMG and ASI a final notice attaching CAP's version of the draft assumption deed, CAP's stated position and the Liquidators' request for litigation funding. The final notice stated in clause 4.2 that the Liquidators were open to negotiating with the individual bidders an acceptable form of deed of assumption; 6 February 2013: Mr Hillam wrote to the Liquidators, seeking amendments to the draft assumption deed and requiring undertakings from CAP that it not apply for additional mineral exploration licences in the HIP area; 6 to 7 February 2013: offers were received from Discrete Solutions and ASI; 7 February 2013: the Liquidators decided not to accept WMG's offer but did not communicate that decision to WMG at that time. The Liquidators asked Discrete Solutions and Pure Metals (an entity related to ASI) for their highest and best offers by 3pm on 8 February 2013; 8 February 2013: Discrete Solutions withdrew its offer. Pure Metals lodged a final offer in the amount of $3.25 million, which was accepted by the Liquidators and the Pure Metals Agreement was executed; 15 February 2013: Pure Metals varied its original letter of offer dated 8 February 2013; 19 February 2013: pursuant to clause 13.4 of the Joint Venture Agreement the Liquidators caused BMG to make an offer to CAP on the same terms as Pure Metals' varied letter of offer dated 15 February 2013. Under clause 13.4, CAP had 45 days to decide whether to accept or reject the offer to purchase BMG's joint venture interest on the same terms as Pure Metals' offer; 21 and 26 February 2013: CAP made ASX announcements concerning the offer made to it on 19 February 2013, at which time WMG first became aware of the relevant matters; 1 March 2013: WMG was informed for the first time by the Liquidators that it was not the successful bidder for BMG's joint venture interest in the HIP; 27 March 2013: CAP made an ASX Announcement that it had signed a "conditional binding Terms Sheet" with Pure Metals providing for a new joint venture for the HIP. The ASX Announcement stated that, subject to Federal Court approval concerning the sale of the BMG joint venture interest to Pure Metals and other conditions: (a) Pure Metals would purchase the 40 per cent joint venture interest of BMG in the HIP; and (b) CAP would waive its pre-emptive right to acquire BMG's interest in the HIP in favour of Pure Metals and would maintain its 60 per cent joint venture interest in the HIP. Further terms included that Pure Metals would fund $5 million towards the cost of a Bankable Feasibility Study and would reimburse CAP $3.8 million for past expenditure on the HIP (subject to an audit); and 3 April 2013: a creditors' meeting of BMG was held and: (i) the creditors passed a resolution under s 477(2B) of the Act approving the agreement entered into on 8 February 2013 with Pure Metals; (ii) for voting purposes, the creditors of BMG were admitted for a total of $4,382,829.99 (there not yet being any adjudication on proofs of debt); and (iii) the claim of the "Blue Rose Joint Venture" in the amount of $25 million was admitted to vote as a contingent debt for $1. 14 The resolutions were passed on a poll with seven creditors (representing a total value of approximately $4 million) voting in favour and three creditors (representing a total value of approximately $250,000) voting against. All three creditors voting against the resolutions were persons or entities associated with Mr Hillam.
Liquidators' reasons for rejecting WMG's offer and accepting Pure Metals' offer 15 Mr Leigh swore an affidavit in which he described his reasons for rejecting WMG's offer and accepting that of Pure Metals. In summary, those reasons were as follows: (a) after considering Mr Hillam's email dated 6 February 2013, in which Mr Hillam required certain amendments to the draft deed of assignment and assumption, Mr Leigh formed the view that WMG was not prepared to enter into a deed in the form submitted by CAP; (b) by 7 February 2013, the Liquidators had not received any offer of funding in response to the Circular dated 31 January 2013 which had been sent inter alia to the Hillam interests. Mr Leigh was not prepared to proceed on the basis of an alternative form of deed of assignment and assumption as required by Mr Hillam in the absence of funding to litigate the issues with CAP; (c) Mr Leigh preferred an offer which would produce an immediate cash realisation for BMG so as to allow the Liquidators to continue to investigate the affairs of BMG and to realise all of its assets. WMG's offer did not meet this requirement because its cash component involved payments over a period of 120 days. Nor did Mr Leigh have confidence in WMG's ability to fund the cash component because: WMG would receive BMG's joint venture interest on completion, after paying only 25 per cent of the cash component; the value of the cash component was uncertain; and the Liquidators had required bidders to provide evidence that they had the necessary finance to complete the transaction and, as at 7 February 2013, the only available evidence of WMG's capacity was a memorandum from ATG which confirmed that no funding was presently available but that the second plaintiffs had directed ATG to undertake and raise an amount of no less than $15 million. ATG merely stated that it "would be able to consider" supporting WMG in its bid for an amount of between $6 to $7.5 million in cash; (a) WMG did not provide evidence of the value of the shares component in its non-cash component, thus Mr Leigh was unable properly to assess the value of that proposed consideration; (b) the adverse findings made previously by the Court against Mr Hillam in terms of his credit and breaches of duty as a director; (c) the WMG offer: required an application to be made to the Court for directions; required a dividend of 100 cents in the dollar be paid to final admitted unsecure creditors other than entities associated with Mr Hillam and also required a 100 cents in the dollar distribution to creditors associated with Mr Hillam but failed to address various matters, including the requirement for the Liquidators to invite and adjudicate on proofs of debt, any subsequent legal proceedings arising from the Liquidators' adjudication and a claim of $25 million by the Blue Rose Joint Venture which impacted upon the adequacy of WMG's offer; required a distribution to shareholders, but failed to address the matters described above as well as the effect of a fixed and floating charge on the ability of the second plaintiffs to receive any distribution as shareholders; and would have required an end to the winding up of BMG by a distribution to creditors and to shareholders but failed to address the Liquidators' duties; and (g) the WMG offer was assessed as not being in a form that was capable of being put to CAP in accordance with the requirements of clause 13.4 of the Joint Venture Agreement. 16 Mr Leigh also gave evidence that, in exercising his commercial judgment, he decided on 8 February 2013 to accept the Pure Metals offer and enter into the Pure Metals Agreement for the following reasons: (a) the Pure Metals offer provided an immediate realisation of cash to BMG in the amount of $3.25 million, payable in full on completion of the offer; (b) the offer was in a form capable of being made to CAP in accordance with the requirements of clause 13.4 of the Joint Venture Agreement; (c) the cash realisation would allow the Liquidators to continue their conduct of the winding up, including the investigation of certain specified matters and the realisation of all of BMG's assets; (d) Pure Metals complied with the Liquidators' stated requirements that evidence be provided of the availability of necessary finance to complete the transaction; (e) there would be a substantial benefit to creditors and members of BMG in the indemnities and releases provided by Pure Metals; (f) Pure Metals would be liable to indemnify BMG and the Liquidators in the event that CAP claimed against BMG or lodged a proof of debt for obligations arising under the Joint Venture Agreement, including an amount exceeding $3.8 million in respect of the "CAP called sums", thereby effectively eliminating a risk that there might otherwise be no return to shareholders; and (g) BMG would have the benefit of a secured guarantee from Silvergate Pty Ltd (Silvergate) in support of the indemnities given by Pure Metals, thereby again reducing the risk that there might be no return to shareholders. 17 As will be seen below, the plaintiffs challenge the correctness of many aspects of that reasoning.
Summary of relevant legal principles 18 There is substantial (but not complete) agreement between the parties as to the relevant legal principles governing the determination of the plaintiffs' interlocutory application. It is convenient to deal with those principles under two broad headings, namely: (a) the nature and scope of an "appeal" under s 1321 of the Act; and (b) the principles guiding interlocutory injunctive relief.
(a) The nature and scope of an "appeal" under s 1321 of the Act 19 Section 1321 of the Act is in the following terms: 1321 Appeals from decisions of receivers, liquidators etc. (1) A person aggrieved by any act, omission or decision of: (a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or (b) a receiver, or a receiver and manager, of property of a corporation; or (c) an administrator of a company; or (ca) an administrator of a deed of company arrangement executed by a company; or (d) a liquidator or provisional liquidator of a company; may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit. (2) Paragraph (1)(b) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation. Note Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 576-10 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006. 20 The nature and scope of the "appeal" created by s 1321 is not explicitly set out in the provision. The parties are agreed that it is in the nature of a de novo appeal. The first and second defendants draw attention to what is described as a "small divergence" in judicial views regarding the standard of review under s 1321 of the Act. Bathurst CJ described the courts' power under s 1321 in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) (2011) 81 NSWLR 690 at [73] in the following terms: … The power of a court under s 1321 and its predecessors to review a discretionary decision of a liquidator has generally been said to be confined to circumstances where the liquidator was acting unreasonably or in bad faith: Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 230-231; UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 at 696; (1996) 21 ACSR 251 at 281; Re Burnells Pty Ltd (In liq) [1979] Qd R 440 at 441; Re Tyndall (1977) 17 ALR 182 at 185; Re Jay-O-Bees Pty Ltd (in liq) (2004) 50 ACSR 565 ; [2004] NSWSC 818 at [46]. However, it has been suggested that the power extends to circumstances where the liquidator has made an error of law, taken into account irrelevant matters or failed to take into account relevant matters: Re Equity Funds of Australia (In liq) (1976) 2 ACLR 238 at 239. 21 The courts have generally been reluctant to interfere with decisions of liquidators where, as here, their actions attract the benefit of the business judgment rule under s 180(2) of the Act. As Street J stated in a frequently quoted passage in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207 at 232: When the court is required to pronounce upon the commercial prudence of a transaction, it enters upon a slippery and uncertain field. Apart from the lawyer's disclaimer of expert qualifications in matters of business prudence, the very process of litigation and the necessary limitations upon the scope of admissible evidence, restrict the available material to far less than is necessary for the making of a commercial decision. 22 The plaintiffs place particular reliance on what appears to be a broader approach to the scope of an "appeal" under s 1321 taken by French J (as he then was) in ASIC v Forrestview Nominees Pty Ltd (Receivers and Managers Appointed) [2006] FCA 1530. After noting that an "appeal" under s 1321(b) of the Act is not an exercise of the appellate jurisdiction of the Court, but involves the exercise of original jurisdiction, French J made the following observations at [42] to [45] which, despite their length, should be set out in full: The appeal process has been described in an analogous but not identical context as "originating proceedings which the Court hears de novo" - Tanning Research Industries Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 at 339 (Brennan and Dawson JJ). The context in that case was an appeal against rejection by a liquidator of a proof of debt. It was applied to the characterisation of the proceedings in that case and has been applied to like proceedings under s 1321 involving an appeal against an administrator's rejection of a proof of debt: In The Matter of Federation Health Ltd (Administrator Appointed) [2006] FCA 314 at [32] - [36] (Young J), citing also Re North Sydney District Rugby League Football Club (2000) 34 ACSR 630 at 631 [3] (Bryson J) and Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230 at [29] - [33] (Young CJ). See also Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 in which Templeman J said (at 772): 'I understand a hearing de novo in this context to be one in which the parties are not bound by the evidence at the previous hearing, but may supplement it as they think fit ... But despite the admission of further evidence, the onus remains with the party who challenges the decision.' Where an appeal is brought against a discretionary or evaluative decision of receivers and managers, and particular decisions involving qualitative judgment, the scope for curial intervention is necessarily confined. In the case of a court appointed receiver and manager, Street J in Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 said (at 383): 'The receiver and manager is appointed as an officer of the Court to undertake in that capacity the management of the business of the company as well, of course, as undertaking the care of the company's assets. To the extent to which he makes decisions from time to time, they are in effect made under the authority of the Court itself, and they are subject to review and control by the Court should a proper case be made out requiring such intervention. Whilst this Court does, therefore, have an ultimate control over the day-to-day actions of a receiver and manager, it is a control which is not in my view to be too freely exercised. If, of course, there can be shown to be some defect in the manner in which the receiver and manager is conducting his duties - a defect arising out of some want of good faith or out of some erroneous approach in law or in principle - then that is clearly a ground on which the Court would entertain an application by one of the interested parties for appropriate directions or some other form of remedial order. Where, however, the challenge made is that there has been an absence of prudence and wisdom in the receiver's decisions, a far heavier onus rests upon the party who seeks to challenge the decision in question. The Court will not concern itself with minor and ordinary decisions that he may have made: it must be shown that there is a decision of real significance in the affairs of the company and as to which there are real and substantial grounds for questioning its correctness before the Court will embark upon an investigation of what, if any, directions ought to be given.' Those observations were repeated by his Honour in Re Mineral Securities Australia Ltd (In Liq) [1973] 2 NSWLR 207 at 231, a case involving a challenge to a decision of a liquidator. To the extent that those observations related to court appointed receivers and managers, they apply with greater force to receivers and manages privately appointed with extensive powers under a company charge. In Re JAY-O-BEES Pty Ltd (in liq) (2004) 50 ACSR 565 Campbell J said (at [46]): 'The appeal to the court from a liquidator's rejection of a proof of debt arises under s 1321 Corporations Act 2001 (Cth). That section is one which enables appeals to the court to be made in relation to manner of acts, omissions or decisions of a liquidator. The role which the court takes on the appeal is affected significantly by the nature of the act, omission or decision which is being appealed against. Where the appeal is against a discretionary decision by a liquidator, or against a decision involving matters of business judgment, the court will reverse the liquidator's decision only when it is satisfied that he was acting unreasonably or in bad faith.' His Honour went on at [47] to distinguish the approach taken on an appeal from a liquidator's rejection of a proof of debt, a distinction which I respectfully accept. I would not set the threshold required under s 1321 in respect of the discretionary decisions of private receivers and managers so high that it is necessary to show that there has been something akin to unreasonableness in the sense necessary to vitiate the exercise of a statutory power under administrative law. It is sufficient to say that at the very least the person bringing an appeal under s 1321 in these circumstances must demonstrate that the decision is informed by some error of law or significant factual error or is otherwise so unreasonable, in the circumstances, that it should not be allowed to stand. The content of those somewhat ambulatory considerations will be informed by the significance of the decision to the affairs of the company. 23 In Saward v J&A Saward Developments Pty Limited (Receivers Appointed) [2012] FCA 404, Bromberg J, after referring to French J's views in Forrestview Nominees, referred at [17] to other authorities which express a narrower view of the courts' capacity to intervene under s 1321 (including Re Equity Funds of Australia (in liq) (1976) 2 ACLR 238 at 239 per Bowen CJ and see also the observations of Finkelstein J in Bacnet Pty Ltd v Lift Capital Partners Pty Ltd (in liq) (2010) 183 FCR 384 at [168]). Bromberg J dealt with the divergence of authorities by saying that, without deciding the matter, his Honour was inclined to agree with the "more expansive formulation of French J". Although adopting an approach which was more favourable to the plaintiffs in that case, his Honour ultimately declined to grant the interlocutory relief sought. 24 Justice French's approach has the attraction of injecting a degree of flexibility in the standard of review, the context of which is informed by a variety of matters, including the nature of the act or omission being appealed against, its significance to the affairs of the company, and the extent to which business judgment is involved. It might also be noted that his Honour's observations set out in the final paragraph of the extracts above were directed expressly to the threshold required under s 1321 concerning discretionary decisions of private receivers and managers, as opposed to Court-appointed liquidators as is the case here. In any event, like Bromberg J in Sawaard, I will apply French J's approach here, without deciding which ultimately is the correct view concerning the standard to be applied.
(b) Summary of legal principles guiding interlocutory injunctive relief 25 Perhaps not unexpectedly, the parties are generally agreed on the relevant principles applying to the grant of interlocutory injunctive relief, which can be summarised along the following lines: (a) the plaintiff carries the onus of establishing 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 the plaintiff will be held to be entitled to relief. This does not mean that the plaintiff must show that it is more probable than not that it will ultimately succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. As to the strength of that "probability", it is not inappropriate to use the phrase "serious question" (see Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at [65]-[72] (Gummow and Hayne JJ, Gleeson CJ and Crennan J agreeing at [19]); (a) whether the inconvenience or injury which the plaintiff would be likely to suffer if an interlocutory injunction were refused outweighs or is outweighed by the injury which the defendant or third parties would suffer if the injunction were granted (O'Neill at [65]); and (c) discretionary considerations may also arise, including the adequacy of any undertaking as to damages provided by the plaintiff (see, for example, Donnelly v Amalgamated Television Services Pty Ltd (1998) 45 NSWLR 570 at 575), as well as the interests of third parties which, in a case such as present, includes the interests of the general body of creditors and shareholders (see Hausmann v Smith [2006] NSWSC 682 at [17] per Barrett J). Incidentally, the first and second defendants place heavy reliance on Barrett J's judgment in that case because they say that factually it is "on all fours" with the circumstances here. I will return to Hausmann below.
Consideration 26 It is convenient to deal with the plaintiffs' interlocutory application under the following three broad headings: (a) Is there a serious issue to be tried? (b) Where does the balance of convenience lie? (c) Other relevant discretionary matters.
(a) Is there a serious issue to be tried? 27 There are several points to be made at the outset. First, the Liquidators' conduct in carrying out the sale of BMG's joint venture interest in the HIP involved the exercise of powers conferred by ss 477(1)(a) and 477(2)(c) and (m) of the Act. As the first and second defendants submit, these statutory powers are very broad. They permit liquidators to sell and dispose of a company's property "in any manner" and to "do all such other things as are necessary for winding up the affairs of the company…". The relevant powers involve wide discretion and, by their nature, require the exercise of considerable business or commercial judgment. 28 The point is well illustrated by Bromberg J's decision in Saward. Saward also involved an attempt to restrain the sale of various properties which were to be auctioned by receivers. The plaintiffs argued there that the receivers were acting unreasonably in the sense identified by French J in Forestville Nominees. It was argued that the proposed auctions were in the nature of a "fire sale" and emphasis was also placed on the receivers' decision to sell various farm properties in circumstances where funds from the sale of other properties were likely to be sufficient to meet outstanding debts. In declining to grant interlocutory injunctive relief, Bromberg J stated at [21] that it was not for the Court to determine what was the best method of sale. His Honour found that the plaintiffs carried the onus of demonstrating a prima facie case of unreasonableness "of such depth that it is likely that at trial the intended conduct will be halted". His Honour said that this required the plaintiffs to demonstrate that the receivers' decision to adopt the proposed manner of sale on the recommendation of a local real estate agent (Mr Russell) was unreasonable. His Honour said at [21]: In a field involving a high level of speculation, opinions will differ and the adoption of one expert opinion in preference to another could rarely be described as unreasonable. There is no evidence before me upon which I could be satisfied, even on a serious question basis, that Mr Russell's opinion is unreasonable, let alone that its adoption by the receivers could be so described. 29 Secondly, parts of the plaintiffs' argument and evidence seem to assume that the Liquidators are under a legal duty to achieve "the best possible price" for the relevant asset (as required by s 420A of the Act). Any such assumption is misconceived. In exercising their powers under the relevant provisions of s 477 of the Act, the Liquidators are subject to some relevant duties, including duties of skill and care and duties owed by a fiduciary to the company, its creditors and its contributories. But they are not "controllers" of the company and s 420A has no application to them. Although Mr Newlinds SC ( who appeared with Mr Baird for the plaintiffs) acknowledged this to be the case in oral argument, many of the plaintiffs' criticisms of the sales process were directed at what is said to be a failure to obtain the best possible price. 30 Thirdly, adopting the broader formulation of French J for the purposes of this interlocutory application, it is important in my view not to lose sight of the standard of conduct expected of liquidators, particularly where matters of commercial or business judgment are involved. As Barrett J observed in Hausmann at [14], this consideration adds "a further dimension" to the matter. Allied with this consideration is the general appropriateness of judicial self-restraint in conducting "an appeal" under s 1321 of the Act. As Brereton J recently observed in In the matter of St Gregory's Armenian School (in liq) [2012] NSWSC 1215 at [33]; In evaluating the conduct of a liquidator, it is important to remember that a liquidator is required to make practical commercial judgments. Much of a liquidator's decision-making involves the application of business acumen. That a decision is not fully reasoned or supported by the fullest investigation does not mean that it should be second-guessed by the Court. 31 Fourthly, in the context of determining the plaintiffs' application for interlocutory injunctive relief it is of course unnecessary and inappropriate for me to express final views on the question whether the Liquidators acted reasonably or unreasonably. As Bromberg J observed in Saward, the plaintiffs carry the onus of establishing that there is a serious question to be tried that the Liquidators acted unreasonably in the sense described by French J or, alternatively, that their relevant decisions were otherwise arguably defective in a way which warrants judicial intervention as described in the authorities analysed above. 32 Fifthly, in considering whether or not there is a serious issue to be tried, it is appropriate to note that there was no dispute between the parties that BMG's joint venture interest in the HIP was its major asset. This is an important consideration in the context of a s 1321 appeal. As French J has observed, the significance of a challenged decision to the affairs of a company will inform the "somewhat ambulatory considerations" affecting the appeal standard. 33 The plaintiffs say that the Liquidators' decision to accept Pure Metals' offer was unreasonable or defective on various grounds, including in particular: (a) the Liquidators did not obtain any expert advice from qualified professionals as to the most appropriate sale process so as to "best realise" BMG's joint venture interest, nor did they have that interest valued; (b) the evidence led by ASI in the earlier winding up proceedings valued that interest as between $37.65 million and $40.82 million, with a preferred value of $40.82 million; (c) the advertising process carried out by the Liquidators was limited to the period 3 to 30 September 2012 and was confined to advertising only on Minesonline.com at a total cost of $3,000; (d) the sale process was made the subject of various allegedly inexplicable self-imposed time limitations; (e) by 30 November 2012, only three indicative offers had been received, each at a price far below the estimated values described above and also at a time when the terms of the CAP assumption deed had not been finalised; (f) particular emphasis was placed on alleged flaws in the Liquidators' reasons for rejecting the WMG offer on 7 February 2013, including allegedly taking into account irrelevant matters (such as the Liquidators' perception that it was their duty to realise all the assets of BMG even after all creditors had been paid a dividend of 100 cents in the dollar and then to continue to investigate the affairs of BMG); (g) alleged factual errors (including the erroneous belief that the WMG offer did not provide for WMG to negotiate the outstanding terms of the proposed deed of assumption with CAP at the earliest opportunity); (h) the Liquidators' expressed preference for an immediate cash offer "directly conflicted with their obligation to obtain the best price reasonably obtainable" for the BMG joint venture interest; (i) the alleged unreasonableness of the Liquidators' insistence upon the successful bidder having cash resources available to it at the time of making a final offer; and (j) some of the Liquidators' reasons were said to have been overtaken by subsequent events, such as the significance attached to the value of Pure Metals' indemnities in the amount of approximately $3.8 million, which was said to be now irrelevant in the light of the terms sheet announced on 27 March 2013. 34 For the following reasons, I find that the plaintiffs have not discharged their onus of establishing that there is a serious issue to be tried. 35 First, as indicated above, at times the plaintiffs' arguments proceeded on a false premise by emphasising an alleged duty of the Liquidators to obtain "the best possible price" for the sale of the joint venture interest. I respectfully agree with the reasons given by Barrett J in Hausmann as to why the duty imposed by s 420A of the Act has no application to liquidators. 36 Secondly, in circumstances where the Liquidators were using their commercial judgment and business acument in exercising their broad statutory powers relating to the sale, I do not believe that the plaintiffs have established a prima facie case that the Liquidators' conduct was unreasonable, even in the broader sense in which that term was used by French J in Forrestview Nominees, or otherwise defective. When proper allowance is made for the business judgment rule, I am not satisfied that the plaintiffs have established that it was unreasonable of the Liquidators to prefer the Pure Metals offer over that of WMG. On the contrary, it was plainly open to the Liquidators to hold that preference in circumstances where the Pure Metals offer provided a higher and certain amount of cash immediately and was made in circumstances where Pure Metals accepted CAP's version of the assumption deed and also provided indemnities. Further, the Pure Metals bid was based on credible offers of security and did not rely on share issues of uncertain value. 37 In my view, the sales process developed by the Liquidators necessarily drew upon considerable amounts of commercial or business judgment on their part, including on such matters as the extent of advertising, appropriate time limits for particular steps to be taken, what bids should contain and a requirement that bidders provide supporting evidence of financial worth etc. Similarly, Mr Leigh's stated reasons for rejecting WMG's offer and accepting Pure Metals' offer reflect the extent to which those decisions involve a business or commercial judgment. 38 Nor am I satisfied that the plaintiffs have established a serious issue to be tried in respect of their allegations that the relevant decisions were tainted by other defects, such as the taking into account of irrelevant considerations, alleged factual errors, misunderstanding WMG's bid and failing to provide WMG with an opportunity to address and overcome any shortcomings in its bid. 39 As to the alleged irrelevant considerations (i.e. WMG's failure to offer litigation funding in the amount of $75,000, the adverse findings in respect of Mr Hillam made by Robertson J, WMG's failure to address the Liquidators' obligation in respect of proofs of debts and the Liquidators' duty to realise all of the assets of BMG and investigate the affairs of BMG), I do not consider that any of those matters arguably constitute an irrelevant consideration, having regard to the breadth of the statutory powers being exercised by the Liquidators under s 477 of the Act. In my view, the matters complained of are matters which the Liquidators were entitled to take into account in exercising their broad discretions, necessarily involving considerable business judgment. For example, the Liquidators were plainly entitled to have regard to Robertson J's previous adverse findings concerning Mr Hillam as they affected the Liquidators' assessment of the reliability and creditworthiness of the WMG offer. 40 The plaintiffs also complain that various aspects of Mr Leigh's reasoning contain factual errors or were "incorrect" or "erroneous". For example, Mr Leigh's view that WMG was not prepared to enter into a deed of assumption in the form submitted by CAP is said to contain "factual errors". The plaintiffs contend that the WMG offer did in fact provide for WMG to negotiate the outstanding terms of the proposed deed of assumption with CAP at the earliest opportunity and also provided for a dividend of 100 cents in the dollar to final admitted unsecured creditors (excluding the Hillam interests). In my view these matters do not raise any serious issue to be tried. Having regard to the contents of Mr Hillam's email dated 6 February 2013 it was plainly open to Mr Leigh to conclude that WMG was not prepared to enter into a deed of assumption in the form submitted by CAP. As to the plaintiffs' criticisms of the soundness of Mr Leigh's assessment of that part of WMG's offer concerning distribution to shareholders and non-Hillam creditors, I do not consider that any arguable issue has been identified as to the reasons advanced by Mr Leigh for doubting WMG's assumptions concerning the available assets of BMG. 41 Nor am I satisfied that the plaintiffs have demonstrated any serious factual error in Mr Leigh's assessment of the individual elements of WMG's bid, let alone establish on a prima facie basis that any such error was causally relevant to the challenged decisions or warrants judicial intervention in a s 1321 appeal. 42 Other criticisms levelled by the plaintiffs, such as their claim that the Liquidators expressed preference for an immediate cash offer "directly conflicted with their obligation to obtain the best price reasonably obtainable", erroneously assume that s 420A of the Act applied to the Liquidators. 43 Similarly, the plaintiffs have not persuaded me that there is a serious issue to be tried in respect of their claims that Mr Leigh misunderstood the WMG bid. For example, they complain that the Liquidators misunderstood the value of WMG's bid. In my view, that allegation does not give rise to a serious issue to be tried having regard to the detailed reasons provided by Mr Leigh of his assessment of that bid and his reasons for preferring the bid by Pure Metals. 44 Other aspects of the plaintiffs' argument in support of their claim that their bid had been misunderstood are simply untenable. For example, they say that, properly construed, their bid did address the Liquidators' stated concern to obtain litigation funding in respect of the "CAP called sums" and outstanding issues relating to the deed of assumption. They draw attention to that part of WMG's offer dated 19 December 2012 which, by reference to an item described as "Liquidators' Costs", WMG offered "$25,000 payable to obtain Directions, payable by 7 January 2013, or within 24 hours of the Liquidators confirming they will seek Directions to accept this offer". In my opinion, there is no serious issue to be tried to the effect that that offer satisfied the Liquidators' request for litigation funding in the amount of $75,000 as outlined in the circular sent to creditors on 31 January 2013. 45 Finally, there is no serious issue to be tried to the effect that the Liquidators were under an obligation to continue to consult with WMG and provide it with multiple opportunities to address shortcomings in its bid. As the first and second defendants point out, these complaints have the flavour of a claim of procedural unfairness. In my view, no serious issue is presented having regard to the following matters: (a) all bidders, including WMG were notified of the steps to be taken under both Phase 1 and Phase 2 and the Liquidators reserved their rights to deal with any bidder in any manner they saw fit; (b) the Liquidators' decision to proceed with tight time frames was appropriate having regard to their business judgment and the overall context of fluid and rapid commercial negotiations; (c) there was no obligation on the Liquidators to obtain a valuation of the BMG joint venture interest and they were entitled to proceed by way of a competitive sale process; and (d) the plaintiffs could point to no legal source for any obligation by the Liquidators to engage in a continuing dialogue with WMG regarding their concerns with the adequacy of its bid. 46 Finally, and for completeness, I should indicate that the plaintiffs failed to satisfy me that there was any serious issue to be tried arising from Mr Leigh's detailed explanation as to why, in his commercial judgment, Pure Metals' offer was accepted. 47 For all these reasons, therefore, I find that the plaintiffs have failed to demonstrate a prima facie case of unreasonableness or defect affecting the relevant decisions as outlined by French J in Forrestview Nominees. I consider that, on the basis of the existing evidence, there is no serious issue to be tried which indicates that the plaintiffs have a sufficient likelihood of success at trial to warrant interlocutory injunctive relief.
(b) Where does the balance of convenience lie? 48 Although it is strictly unnecessary for me to do so, having regard to my findings above that there is no serious issue to be tried, I also find for the following reasons that the balance of convenience lies not with the plaintiffs, but with the defendants. 49 The plaintiffs place particular reliance upon the fact that, as stated in CAP's ASX announcement dated 27 March 2013, CAP has agreed to waive its pre-emptive rights with the consequence that, according to the plaintiffs, there is no pressing reasons why there should not be a full hearing of the Liquidators' decisions in the normal course. That is because the plaintiffs say that BMG will suffer no loss or damage if its sale to Pure Metals is delayed pending a full appeal. 50 I have the following difficulties with the plaintiffs' position on the balance of convenience. 51 First, as noted above, CAP's agreement under the terms sheet to waive its pre-emptive rights is conditional. One of those conditions is to the effect that the plaintiffs' application for interlocutory relief be resolved in favour of the defendants prior to the deadline for the exercise of CAP's pre-emptive rights (19 April 2013) in a manner that enables the Pure Metals offer to be accepted by the Liquidators. If injunctive relief is granted, the terms sheet will have no effect and CAP will not have waived its pre-emptive rights. But, on that hypothesis, CAP would be prevented from exercising those rights. In my view, this would create considerable prejudice to CAP which, for reasons developed below, would not adequately be protected by the plaintiffs' proffered undertaking as to damages. 52 Secondly, CAP's executive chairman, Mr Stuart Sheard, gave evidence which was uncontested, that a delay of 3 months or more in progressing the HIP would have a serious detrimental effect in at least the following ways: (a) if CAP were to stop work on the preparation of an Environmental Impact Study which is presently required by the NSW government, the completion of the EIS could be delayed by a period of 12 to 18 months. Such a delay could occur because it is necessary for the purposes of the EIS to chart the environmental effects of the project over a number of seasons. If the EIS cannot be completed by November 2014, the HIP proponents would need to seek and obtain an extension of the EIS deadline, which extension is discretionary and, if favourably exercised, could attract more stringent requirements and possible further delays; (b) further adverse consequences could ensue if CAP does not have funds available to install monitoring bores to assess natural water supply to the project; (c) CAP has negotiated a three year access agreement with a relevant landowner which includes options to purchase and further delays could jeopardise that access agreement and related options to purchase and result in significant costs in CAP which were estimated to be approximately $750,000; and (d) significant delay could also jeopardise CAP's "first-mover" status which it has secured for rail transport and port space. 53 None of these matters was seriously contested by the plaintiffs. Nor did the plaintiffs dispute Mr Sheard's evidence, which I accept, that delays in the HIP arising from the liquidation of BMG have already had a significant financial impact on CAP and that any further delays exceeding 3 months would see the HIP devalued considerably and perhaps collapse altogether. These matters are relevant not only to CAP's prejudice, but also to BMG's shareholders and creditors, as well as Pure Metals. 54 Thirdly, CAP argued that these delays would cause it significant prejudice which would not be compensable by an award of damages because: (a) where the relevant agreements and obligations affecting CAP were subject to deadlines, there is no guarantee that new agreements or extensions of deadlines could be obtained if the HIP falters. The viability of the HIP project as a whole could be jeopardised. If the project entirely failed, the calculation of the loss of the entire revenue that would have been generated by it and of CAP's lost income as a result would be extremely difficult to estimate and could be well beyond the plaintiffs' means; (b) even if the difficulties of negotiating new agreements and extending deadlines could be achieved, it may be impossible to quantify the costs that these delays will have had on the commencement of production under the HIP. 55 Again, none of these contentions was seriously disputed by the plaintiffs and I accept them. 56 Fourthly, although the plaintiffs proffer the usual undertaking as to damages, I have real doubts about its sufficiency in circumstances where: (a) the plaintiffs failed to adduce satisfactory evidence to the Court to indicate that any of the plaintiffs or the related entity ATG have sufficient cash or property assets to support the proffered undertaking, particularly bearing in mind the substantial damages which could be due to CAP (and BMG and Pure Metals) if the HIP were to fall over; (b) the inadequacy of the plaintiffs' undertaking is further highlighted by the existence of a fixed and floating charge over all of the shares of the second plaintiffs in ATG and Olary Iron Pty Ltd and their rights to any dividend or corpus in BMG shares; and (c) the plaintiffs' reliance on the value of their interests in various exploration licences (as set out in various affidavits by Mr Hillam filed in support of the plaintiffs' interlocutory application) is diminished by matters such as the age of the valuations of those licences, the rejection in prior proceedings of the tender of some of those valuations and, more generally, the speculative nature of the valuation of exploration licences. 57 Fifthly, I consider that the defendants' exposure to damages which may not be adequately compensated far outweighs the plaintiffs' exposure to damages if relief is not granted. In my view, the position of the plaintiffs here is generally similar to that of the plaintiffs in Hausmann. With one qualification, I respectfully agree with the following observations of Barrett J there at [17]: The plaintiffs are creditors and shareholders. The rights they have are the rights of creditors and shareholders. They have no proprietary claim to the subject matter of the sale. If, in the fullness of time, it were to turn out that the defendants had, in or about the sale, done some legal wrong productive of loss, they would no doubt be held accountable and subjected to an order that they pay damages or equitable compensation or make amends in some other way so as to augment the estate under administration. Those remedies for the benefit of the general body of creditors (and, if relevant, shareholders) must be regarded as adequate remedies. There will be no undue burden upon either such body if matters are left to run their ordinary course in that way. 58 Mr Newlinds SC criticised that passage to the extent that Barrett J contemplated the possibility of a derivative action being brought under Part 2F.1A of the Act. He drew the Court's attention to the decision of the NSW Court of Appeal in Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661 at [124] per Tobias JA (with whom Beazley and Bell JJA agreed), where it was held that Part 2F.1A is not available where a company is in liquidation. 59 I note that different views have been expressed on that question (see the discussion in Ford's Principles of Corporations Law (15th ed, 2013) at [10.265]). Again, it is unnecessary for me to express a concluded view on that question because, even if Part 2F.1A is not available when a company is in liquidation, the Court has an inherent power in the course of the winding up of a company to permit proceedings to be taken in the name of the company at the instigation of a member or creditor (see, for example, Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 per McLelland J; Brightwell v RFB Holdings Pty Ltd (in liq) (2003) 44 ACSR 186; Chahwan at [124] and Ragless v IPA Holdings Pty Ltd (in liq) (2008) 65 ACSR 700 at [44] and [45] per Debelle J with whom Sulan and Vanstone JJ agreed). 60 Accordingly, for all those reasons, if the matter arose, I would consider the balance of convenience is heavily tilted against the plaintiffs.
(c) Other relevant discretionary matters 61 As noted above, the plaintiffs require leave under s 471B of the Act to proceed against BMG (because it is in liquidation). They also require an extension of time because the proceedings were not brought within the relevant 21 day limit. 62 In view of my finding that there is no serious issue to be tried, it is unnecessary to deal with the plaintiffs' application for leave in respect of either of those matters. It goes without saying, however, that the finding of no serious question to be tried would be sufficient of itself to deny the plaintiffs leave to commence the proceedings out of time. 63 For all these reasons, I consider that the application for interlocutory relief should be dismissed and the plaintiffs ordered to pay the defendants' costs. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Griffiths.
Wentworth Metals Group Pty Ltd
Leigh and Owen
(2011) 285 ALR 488
(2006) 227 CLR 57
(2010) 183 FCR 384
(1998) 45 NSWLR 570
(2012) 202 FCR 336
(2011) 81 NSWLR 690
(1977) 17 ALR 182
(1990) 169 CLR 332