[2008] HCA 57
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424[2004] HCA 28
Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549[1987] HCA 15
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99[2009] HCA 44
Chan v Cresdon Pty Ltd (1989) 168 CLR 242[1989] HCA 63
Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319[1991] HCA 28
CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121
Federal Commissioner of Taxation v Taylor (1929) 42 CLR 80[2004] HCA 12
Kuru v State of New South Wales (2008) 236 CLR 1[2008] HCA 26
Maunsell v Olins [1975] AC 373
Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285[2008] HCA 48
Rava v Logan Wines [2007] NSWCA 62
Re Media, Entertainment and Arts Alliance
Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379
[1993] HCA 40
Rinehart v Hancock Prospecting Pty Ltd
Rinehart v Rinehart [2019] HCA 13
[2016] HCA 47
Teele v Federal Commissioner of Taxation (1940) 63 CLR 201
Judgment (19 paragraphs)
[1]
d ed, 1933)
Category: Principal judgment
Parties: WICET Proceedings:
Wiggins Island Coal Export Terminal Pty Ltd (Appellant)
New Hope Corporation Limited (First Respondent)
Acland Pastoral Co. Pty Ltd (Second Respondent)
Andrew Wright Holdings Pty Ltd (Third Respondent)
Arkdale Pty Ltd (Fourth Respondent)
Jeebropilly Collieries Pty Ltd (Fifth Respondent)
New Acland Coal Pty Ltd (Sixth Respondent)
New Lenton Coal Pty Ltd (Seventh Respondent)
New Oakleigh Coal Pty Ltd (Eighth Respondent)
Queensland Bulk Handling Pty Ltd (Ninth Respondent)
Northern Energy Corporation Limited (in liquidation) (Tenth Respondent)
Colton Coal Pty Ltd (in liquidation) (Eleventh Respondent)
[2]
NEC and Colton Coal Proceedings:
Northern Energy Corporation Limited (in liquidation) (First Appellant)
Colton Coal Pty Ltd (in liquidation) (Second Appellant)
New Hope Corporation Limited (First Respondent)
Acland Pastoral Co. Pty Ltd (Second Respondent)
Andrew Wright Holdings Pty Ltd (Third Respondent)
Arkdale Pty Ltd (Fourth Respondent)
Jeebropilly Collieries Pty Ltd (Fifth Respondent)
New Acland Coal Pty Ltd (Sixth Respondent)
New Lenton Coal Pty Ltd (Seventh Respondent)
New Oakleigh Coal Pty Ltd (Eighth Respondent)
Queensland Bulk Handling Pty Ltd (Ninth Respondent)
Wiggins Island Coal Export Terminal Pty Ltd (Tenth Respondent)
eCOALogical Fuels Pty Ltd (Eleventh Respondent)
Elimatta Pastoral Pty Ltd (Twelfth Respondent)
Hueridge Pty Ltd (Thirteenth Respondent)
Krestlake Pty Ltd (Fourteenth Respondent)
Lenton Management and Marketing Pty Ltd (Fifteenth Respondent)
Mattvale Pty Ltd (Sixteenth Respondent)
New Hope Coal Marketing Pty Ltd (Seventeenth Respondent)
New Hope Collieries Pty Ltd (Eighteenth Respondent)
New Hope Energy Pty Ltd (Nineteenth Respondent)
New Hope Exploration Pty Ltd (Twentieth Respondent)
New Hope Water Pty Ltd (Twenty-first Respondent)
Taroom Coal Pty Ltd (Twenty-second Respondent)
Tetard Holdings Pty Ltd (Twenty-third Respondent)
Tivoli Collieries Pty Ltd (Twenty-fourth Respondent)
Uniford Pty Ltd (Twenty-fifth Respondent)
Yamala Coal Pty Ltd (Twenty-sixth Respondent)
Representation: Counsel:
RCA Higgins SC / J Hutton / B Lim (WICET)
NJ Young QC / M Rose (NEC and Colton Coal)
N Hutley SC / F Roughley (First to Ninth Respondents)
[3]
Solicitors:
Ashurst (WICET)
Johnson Winter & Slattery (NEC and Colton Coal)
Gilbert + Tobin (First to Ninth Respondents)
File Number(s): 2019/259457 (WICET); 2019/263368 (NEC and Colton Coal)
Publication restriction: Nil
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity
Citation: [2019] NSWSC 879; [2019] NSWSC 952
Date of Decision: 12 July 2019
Before: Stevenson J
File Number(s): 2019/35120
[4]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
[5]
Judgment
BELL ACJ: I have had the considerable benefit of reading the careful analysis set out in the judgment of Payne JA and I agree with his Honour's reasons and proposed orders.
At one level, the appellants' argument is disarmingly simple. They say that the entities listed in Part 1(3) of the Schedule are Group Entities because they meet the definition set out in cl 1.1 of the Deed of Cross Guarantee (the Deed) as their names appear in Part 1 of the Schedule which has as a sub-heading "Parties to this Deed of Cross Guarantee" and the Deed is said to be "made" between "[t]he Group Entities which are listed in Part 1 of the Schedule" (of which they are one) and the Trustee.
As such, it is said that they have the benefit of the covenant contained in cl 3.1 of the Deed, namely that each Group Entity covenants with the Trustee "for the benefit of each Creditor that the Group Entity guarantees to each Creditor payment in full of any Debt in accordance with this Deed of Cross Guarantee".
Moreover, they say that, if those entities did not fall within the definition of "Group Entity", the definition of that term would need to be modified in numerous clauses of the Deed so that instead of referring to "Group Entity" it would need to refer to "Group Entity other than those parties listed in the Schedule which are under Pt 1(3)".
But the initial attraction of this argument begins to break down when one considers and appreciates that, although referred to in the Schedule as Parties, the entities in Part 1(3) of the Schedule including Northern Energy Corporation Limited (in liquidation) and Colton Coal Pty Ltd (in liquidation) did not execute the Deed, which is what one would expect parties to a formal written document to do. It is difficult to see how or what those entities did to "make" the Deed, and counsel for the appellants were unable to provide any satisfactory answer to this question.
The Deed, moreover, to obtain the benefit of ASIC Class Order 98/1418, was required to take the precise form (subject to very limited exceptions) of ASIC Form 24 which contemplated that the Deed would be executed by all of the entitles listed in the Schedule to the Deed, as may be seen in [34] and [109] of Payne JA's judgment.
Moreover, if the entities referred to in Part 1(3) of the Schedule were in truth parties who made the Deed, it would not be correct to say that the Deed, at least as concerned them, was one of Cross Guarantee because they did not covenant to guarantee the debts of the other parties. This would have the consequence that the Deed was asymmetric in that whilst some parties to it cross-guaranteed each other's obligations, not all parties to it did. This would entail construing the Deed in a way that cannot have been contemplated when its purpose which is intimately associated with ASIC Class Order 98/1418 is borne in mind.
[6]
Grounds of appeal
There were two notices of appeal reflecting the separate commercial interests of WICET, on the one hand, and NEC and Colton Coal on the other. In the way the case was ultimately conducted, however, there was a near complete overlap in the written and oral submissions made by the appellants. Sensibly, the oral submissions in this Court were divided between Mr Young QC, who appeared with Mr Rose for NEC and Colton Coal, and Dr Higgins SC, who appeared with Mr Hutton and Mr Lim for WICET, such that there was no repetition or overlap.
The four grounds advanced on appeal may be summarised as follows:
1. The primary judge erred in finding that, on the proper construction of the Deed:
1. none of the first to ninth respondents guaranteed the debts of any of the entities named in Part 1(3) of the of the Schedule to the Deed (Judgment dated 12 July 2019 ("Judgment") at [16], [60], [61]; Judgment dated 26 July 2019 at [4], [31]); or
2. none of the entities named in Part 1(3) of the Schedule to the Deed was a "Group Entity" within the meaning of the Deed (Judgment at [36]-[60], [64]-[92]).
1. The primary judge erred in finding that, on the proper construction of the Deed, a "Group Entity" must be a party to the Deed and have executed the Deed (Judgment at [36]-[60]).
2. The primary judge erred in failing to find that the first to ninth respondents' construction required rectification by construction and should not be accepted because some or all of the preconditions for rectification by construction were not satisfied.
3. The primary judge erred in finding that, if the construction advanced by the appellants was correct, the Deed has never been of any force or effect, because a Certificate addressed to the entities named in Part 1(3) of the Schedule to the Deed had never been lodged with ASIC (Judgment at [104]).
The first to ninth respondents, for whom Mr Hutley SC appeared with Ms Roughley, relied upon a notice of contention. In summary those grounds were:
1. The operative provisions of the Deed do not extend to the debts of non-parties. Even if the definition of "Group Entity" in cl 1.1 includes any entity named in the Schedule (whether or not a party) as the appellants contend, cll 3 and 6 operate only to guarantee the Debts of parties to the Deed. Entities named in Part 1(3) of the Deed are not parties to the Deed and their debts have not been guaranteed by the first to ninth respondents pursuant to cl 3 or cl 6.
2. The Certificate requirements were not satisfied for the entities named in Part 1(3) of the Schedule to the Deed. If the definition of "Group Entity" in cl 1.1 includes any entity named in the Schedule (whether or not a party) as the appellants contend, the first to ninth respondents have not guaranteed the obligations of the entities named in Part 1(3) of the Schedule to the Deed because:
1. pursuant to cl 2.1, the Deed was of no force and effect until "the Holding Entity has submitted an original of this Deed of Cross Guarantee for lodgement at ASIC together with an original of a Certificate relating to this Deed";
2. pursuant to cl 1.1, the Certificate was required to be "addressed to each Group Entity or proposed Group Entity covered by the Deed";
3. the Certificate submitted for lodgement at ASIC together with the original of the Deed of Cross Guarantee was not addressed to the entities named in Part 1(3) of the Schedule to the Deed; and
4. as a consequence, either:
1. the Deed never had any force or effect whatsoever; or
2. the act of identification by the Certificate lodged with ASIC determined whose debts are "covered" by the Deed, and that coverage did not extend to any of the entities named in Part 1(3) of the Schedule to the Deed.
1. If "party" and "parties" in the Deed includes any person named in the Schedule to the Deed as the appellants contend, the first to ninth respondents have not guaranteed the obligations of the entities named in Part 1(3) of the Schedule to the Deed because:
1. pursuant to cl 2.1, the Deed was of no force and effect until "the Holding Entity has submitted an original of this Deed of Cross Guarantee for lodgement at ASIC together with an original of a Certificate relating to this Deed";
2. pursuant to cl 1.1, the Certificate was required to include statements "in relation to the execution of the Deed by each party to it that is a company";
3. the Certificate of Ms Chalk did not include any statements in relation to the entities named in Part 1(3) of the Schedule to the Deed;
4. as a consequence, the Deed never had any force or effect whatsoever.
[7]
The Deed
The opening words of the Deed recite:
"This Deed of Cross Guarantee is made on 31 July 2012 between:
(1) The Group Entities (which are listed in Part 1 of the Schedule);
(2) The Trustee (which is named in Part 2 of the Schedule [New Hope]); and
(3) The Alternative Trustee (which is named in Part 3 of the Schedule [New Acland Coal Pty Ltd, one of the Part 1(2) Entities]) (if applicable),
for the purpose of the Group Entities (except those indicated in Part 1 of the Schedule as being ineligible) obtaining the benefit of the Class Order and witnesses as follows: …"
Clause 2 is headed "Operation of deed" and provides:
"2.1 This Deed of Cross Guarantee will be of no force and effect until the Holding Entity has submitted an original of this Deed of Cross Guarantee for lodgement at ASIC together with an original of a Certificate relating to this Deed."
The Cross Guarantee is contained in cl 3 of the Deed which, relevantly, provides:
"3.1 … each Group Entity covenants with the Trustee for the benefit of each Creditor that the Group Entity guarantees to each Creditor payment in full of any Debt in accordance with this Deed of Cross Guarantee.
3.2 Each Group Entity agrees with the Trustee that this Deed of Cross Guarantee becomes enforceable in respect of the Debt of a Group Entity ('the Group Entity'):
(a) upon the winding up of the Group Entity …
(b) in any other case - if six months after a resolution or order for the winding up of the Group Entity any Debt of a Creditor of the Group Entity has not been paid in full."
There is also a Deed Poll in cl 6.1 as follows:
"As a separate covenant by way of Deed Poll each Group Entity agrees with each Creditor that the Group Entity will guarantee to each Creditor payment of any Debt due to the Creditor from any other Group Entity in accordance with this Deed of Cross Guarantee."
"Group Entity" is defined in cl 1.1 as:
"'Group Entity' means (until this Deed of Cross Guarantee ceases to apply to that entity by virtue of a disposal under clause 4.2 or until that entity is released from this Deed of Cross Guarantee by a Revocation Deed under clause 4.5):
(a) any one of the entities listed in Part 1 of the Schedule; and
(b) any entity joined to this Deed of Cross Guarantee by the execution of an Assumption Deed".
"Debt" is defined to mean:
"… any debt or claim which is now or at any future time admissible to proof in the winding up of a Group Entity and no other claim".
[8]
Relevant principles of construction
The principles of construction were uncontroversial on the appeal. All parties pointed to the restatement of the guiding principles by the High Court in Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13; 366 ALR 635 at [44] (Kiefel CJ, Gageler, Nettle, and Gordon JJ):
"It is well established that a commercial contract should be construed by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract [Electricity Generation Corporation v Woodside Energy Ltd; Woodside Energy Ltd v Electricity Generation Corporation (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ)]."
All parties accepted as applicable the principle that where the Court is called upon, as here, to interpret a contract replete with defined terms, the definitions should not be considered in isolation but by reading the words of the definition into the operative text: see Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 at [103] per McHugh J. Whilst acknowledging that McHugh J was addressing the principles of statutory construction, each party accepted that this passage applied to contractual construction. McHugh J in Kelly at [103] said:
"… once it is clear that the definition applies, the better - I think the only proper - course is to read the words of the definition into the substantive enactment and then construe the substantive enactment - in its extended or confined sense - in its context and bearing in mind its purpose and the mischief that it was designed to overcome. To construe the definition before its text has been inserted into the fabric of the substantive enactment invites error as to the meaning of the substantive enactment."
The appellants submitted that the Court's task in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Departure from the ordinary meaning of the words used may be permitted only "so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument": Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36 per Gibbs J.
There was a limited debate about the importance of the presumption against redundancy. In XL Insurance Co SE v BNY Trust Company of Australia Ltd [2019] NSWCA 215 at [72]-[73], Gleeson JA expressed the presumption as a rule subject to specific exceptions. In HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 at [154], Leeming JA applied the rule, referring in passing to Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 274 per Lord Hoffmann. In Teele v Federal Commissioner of Taxation (1940) 63 CLR 201 at 207; [1940] HCA 3, Dixon J referred to the weakness of arguments of construction founded upon redundancy in the sense of "tautology".
[9]
Consideration
The central issue in this appeal is whether the guarantees given in the Deed by New Hope and the entities in Part 1(2) of the Schedule, which executed the Deed, extend to cover the liabilities of the entities named in Part 1(3), which did not execute the Deed. More particularly, the question is whether the entities named in Part 1(3) of the Schedule are "Group Entities" such that the "Debts" they owe to their "Creditors" are the subject of the Cross Guarantee covenant given in cl 3.1 of the Deed and the Deed Poll covenant given in cl 6.1 of the Deed.
I have concluded that the language used by the parties, the surrounding circumstances and the purposes and objects to be secured by the Deed lead to the conclusion that on the true construction of the Deed, the Debts guaranteed under the Deed are only those of an entity which is a "party" to the Deed which, on its true construction, means a party that has executed the Deed. On its true construction, the Deed contains three requirements before the Debts of the entity are guaranteed, being the naming of an entity in a Schedule to the Deed, the execution by that entity of the Deed and the inclusion of that entity in a Certificate addressed to the entity as required by the Deed.
[10]
Opening words of the Deed
The opening words of the Deed are set out at [25] above. An important starting point in ascertaining the true construction of the Deed is the announcement, in the opening words of the Deed, that it is a Cross Guarantee "made … between" the "Group Entities (which are listed in Part 1 of the Schedule)".
The appellants submitted that the opening reference to a "Cross Guarantee … made … between" should be read as embracing both "Group Entities" which have executed the Deed and "Group Entities" which have not. It was submitted that the latter group derive benefits under the Deed because it creates a legal relationship between them and the Group Entities which have executed the Deed, that is, their Debts have been guaranteed by the Group Entities which have executed the Deed.
The appellants submitted that the expression "Cross Guarantee" in the title and opening words of the Deed does not result in an inconsistency or absurdity. Whilst the expression "Cross Guarantee" assumes a degree of mutuality or reciprocity it remains apt to describe an instrument as a "Cross Guarantee" notwithstanding that most of the entities whose Debts were said to be guaranteed did not themselves give any guarantees.
The appellants submitted that the words "made … between" in this context provide a form of legal metaphor and are not to be given a narrow meaning. It was submitted that the words used can be reconciled with the subsequent reference to the entities referred to in Part 1(3) by reading the phrase "made … between" not as a reference to the nexus between persons who had executed and become bound by the Deed but as including persons who were not bound by the Deed but in respect of whom the guarantees in the Deed applied. It was submitted that the Deed results in obligations and benefits passing between the entities referred to in Part 1(3) and the first to ninth respondents even though the Deed is not binding on, or enforceable by, the former.
The expression "Cross Guarantee", in my view, assumes a degree of mutuality or reciprocity between the participants identified in the Deed. The Deed is a "Deed of Cross Guarantee". The appellants' construction has the effect that the Deed should be understood as only a Deed of partial cross guarantee. It is an unpromising start to the appellants' preferred construction that an instrument which is self-described as a "Cross Guarantee" has the effect that most of the entities whose Debts were said to be guaranteed did not themselves give any "cross" guarantees.
[11]
The definition of "Group Entity"
The definition of "Group Entity" is set out at [29] above.
The appellants submitted that every word in a contract should be given effect, and no part treated as creating surplusage, unless it is impossible to reconcile all of the provisions or explain their presence. Apparent inconsistency between provisions should be resolved "if at all possible, on the basis that one provision qualifies the other and, hence, that both have meaning and effect": Re Media, Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386; [1993] HCA 40 (Mason CJ, Brennan, Dawson, Toohey, Gaudron and McHugh JJ).
The appellants submitted that the ordinary meaning and effect of the Deed is that the obligations of NEC and Colton Coal have been guaranteed by the first to ninth respondents because NEC and Colton Coal are "listed" in Part 1(3) of the Schedule.
It was submitted that a "Group Entity" simply refers to any one of the entities "listed" in Part 1 of the Schedule and there is no exclusion from that definition of the entities named in Part 1(3) of the Schedule. Nor, it was submitted, does the definition of "Group Entity" make execution of the Deed a criterion of membership of the relevant class. It was submitted that the Group Entities which have signed the Deed (that is, the first to ninth respondents) have guaranteed the Debts of all "Group Entities", whether or not these are listed Group Entities that have executed the Deed.
There is a tension at the heart of this case between, on the one hand, the appellants' construction of "Group Entity" in cl 1.1 of the Deed as meaning simply all of the entities listed in Part 1 of the Schedule and, on the other, the construction preferred by the primary judge that a "Group Entity" in cl 1.1 of the Deed means those entities listed in Part 1 of the Schedule which have executed the Deed.
I have concluded that there are several features of the definition that indicate that limb (a) of the definition of "Group Entity" picks up only the entities listed in Part 1 of the Schedule which have executed the Deed.
First, limb (a) of the definition refers to "entities listed in Part 1 of the Schedule". That Schedule is headed "Parties to this Deed of Cross Guarantee", which provides some limited support for the conclusion that a reference in cl 1.1 to the Schedule is objectively intended to be a reference to the "Parties" to the Deed identified in the Schedule. The text of the Schedule when it speaks of "as at the date of execution" provides some further limited textual support for the conclusion that "Group Entities" must be parties to the Deed. The more likely construction is that the "date of execution" of the Deed, in context, means the date the particular entity concerned executed the Deed.
[12]
Clauses 4.2 and 4.5
I have already addressed, in part, difficulties for the appellants' preferred construction based on cll 4.2 and 4.5 of the Deed. The importance of those clauses to the conclusion I prefer warrants some additional explanation.
A starting point for consideration of these clauses is the language of cl 4.5. That clause operates on the basis that "parties" to the Deed are those which have executed the Deed. Those parties are identified as "Group Entities". It is only Group Entities (understood as being "parties" who have executed the Deed) who may revoke the Deed. Importantly "all" Group Entities are required to execute a Revocation Deed by cl 4.5. That language is inconsistent with the term "Group Entity" including an entity which has not executed the Deed.
Clause 4.5 confers a power of revocation upon Group Entities "which are from time to time parties to this Deed". The word "revoke" is directed to those persons who are capable, as a matter of law, of revoking the Deed; that is entities which have executed the Deed and thereby granted rights and assumed obligations under it.
An important indication that the appellants' construction is not correct is that cl 4.5 does not provide a mechanism by which a Group Entity which has executed the Deed can revoke its guarantee in respect of the Debt of an entity referred to in Part 1(3) of the Schedule which has not executed the Deed. The notice requirement in cl 4.5(b) is that "each" Group Entity must give notice to its creditors of the Revocation Deed. The carefully calibrated scheme of the Deed of Cross Guarantee reduces to incoherence at this point if the appellants' construction is correct. A Group Entity the subject of the clause can only be an entity which has executed the Deed. The requirement that "each" Group Entity give notice to its Creditors of the Revocation Deed, if the appellants' construction be correct, would not impose an obligation upon the entities which have executed the Deed to notify the creditors of the entities listed in Part 1(3) of the Schedule who, on the appellants' construction, were objectively intended to benefit from the promises made in the Deed.
If the appellants' fall-back position is correct, and (in context) "Group Entity" when appearing in cl 4.5(b) means all entities listed in the Schedule, whether or not they have executed the Deed, the primary judge was correct to conclude that such an entity could veto the revocation by failing to give notice to its Creditors of the Revocation Deed. I do not accept that such a veto power may be put to one side as unlikely as the entities in the Schedule were wholly owned at the time the Deed was entered into. A company, even if wholly owned at the time the Deed was executed, may subsequently become subject to control from outside the group in myriad circumstances. [1] The primary judge was correct to conclude that a reasonable businessperson would regard the appellants' construction, which granted veto power to entities which had not executed the Deed and which had no obligations under it as highly unlikely.
[13]
Redundancy
I have given careful consideration to the appellants' submission that the construction I prefer gives rise to redundancy due to the naming of 25 entities in Part 1(3) of the Schedule. I have concluded, however, although the appellants correctly submit that there is a presumption of construction against redundancy, in the present case the presumption has little role to play. The identification of entities in Part 1(3) of the Schedule which have not executed the Deed were potential objects of the guarantee whose presence has no practical effect because circumstances have not arisen in which those entities have undertaken obligations or obtained rights under the Deed. It is not a case where operative provisions of the Deed must be given a different meaning to accommodate the naming of those entities.
This conclusion may be tested by reference to an entity named in Part 1(2) of the Schedule which (for whatever reason) did not execute the Deed. On the construction I prefer, that entity's Debts would not be guaranteed by the Deed. Although named in Part 1(2) of the Schedule, the entity has not executed the Deed and would not be covered by the Deed and the subject of a Certificate. The principle of redundancy would have little or no role to play in addressing that entity. The Deed would not be "made" by that entity.
[14]
The Certificate
Quite apart from the issues raised by the notice of contention, support for the construction I prefer is provided by the Certificate provisions. The condition precedent in cl 2.1 of the Deed read with the definition of "Certificate" in cl 1.1 requires that, before the Deed can have any force and effect, a Certificate addressed to each Group Entity or proposed Group Entity must have been lodged with ASIC together with an original of the Deed.
A Certificate must be addressed to each Group Entity and proposed Group Entity which is "covered by" the Deed. I have concluded that in context the primary judge was correct to conclude that the more natural meaning of an entity "covered by" the Deed is an entity entitled to the benefit of the Deed or the Assumption Deed; much as a person "covered by" an insurance policy is the person benefited by the policy (the insured), or a person "covered by" a guarantee is the person benefited by the guarantee (the person whose debts are guaranteed).
The appellants' alternative construction, that to be "covered by" the Deed the entity must be a "beneficiary of the ASIC Class Order relief", finds no support in the text of the Deed. To the extent that context is relevant, as I will explain below, that context tends strongly against a conclusion that an entity which has not executed the Deed is "covered by" the Deed. The other construction advanced by the appellants that "covered by" the Deed simply means listed in the Schedule to the Deed is inconsistent with the content of the Certificate which includes a certification in relation to the execution of the Deed "by each party to it that is a company". Dr Higgins' submission, that "party" here means executing party, is correct. As I have explained I am unable to agree, however, that "party" when used elsewhere in the Deed has any different meaning.
The Certificate requirement is consistent with the construction I prefer that the Deed was "made between" the "Parties to this Deed of Cross Guarantee" being those entities named in the Schedule to the Deed which have executed the Deed. Lodgement at ASIC of a "Certificate" is a condition precedent to the operation of the Deed. The Certificate must be addressed to each Group Entity and proposed Group Entity. The Certificate provision is consistent with my conclusion that only parties which have executed the Deed are contemplated to be a "Group Entity" within the meaning of the Deed.
[15]
Relevant context
The construction I prefer is also consistent with the relevant context in which the Deed was made. As explained at the outset, the Deed was made for the purposes of relief from certain provisions of the Corporations Act. Both parties urged this statutory context as being relevant.
The effect of the Class Order relief obtained by the parties which executed the Deed was that they were not obliged to file separate financial statements but rather could, together with the other parties which had executed the Deed, file consolidated financial statements. The material filed with ASIC comprised a self-described "Deed of Cross Guarantee" and an accompanying Certificate. The combined "document" has a single ASIC document identification number.
Both sides relied upon the fact that the form of the Deed was dictated by ASIC. I have concluded that this is a matter which broadly favours the first to ninth respondents' construction. It is correct, as all parties accepted, that the ASIC pro forma document assumes that all entities named in the Schedule will execute the Deed. So much is made clear in the Editorial Note to ASIC Pro Forma 24 at paragraph 12 under the heading "Common problems identified by ASIC - Completion of Part 1 of the Schedule". It is there stated that "Details of entities which are wholly-owned entities of the holding entity of the closed group but which are not party to the deed should not be inserted under this clause or any item in Part 1 of the Schedule". That passage emphasises the importance to the efficacy of the regulatory scheme of the identification of "parties" who must execute the Deed and of the Certificate which must identify the parties "covered by" the Deed.
An important matter arising from the context is that the appellants' construction would have the consequence that the consolidated financial statements which were the commercial outcome sought to be achieved by the parties executing the Deed would or may be misleading, as the primary judge found at [116]. This is because the ASIC Class Order requires the consolidated financial statements to include "adequate provision in relation to the liabilities of any parties to the Deed of Cross Guarantee". If "parties" to the Deed of Cross Guarantee means "executing" parties, as I have found it does, but the Deed provided that "non-executing" parties' "Debts" were guaranteed, the ASIC Class Order relief scheme would become incoherent. ASIC's requirement for consolidated financial statements to include "adequate provision in relation to the liabilities of any parties to the Deed of Cross Guarantee" would necessarily be inadequate. Any consolidated financial statements prepared on the basis of ASIC guidance would (as in this case) be potentially misleading if any other entity was named in a Deed but did not execute that Deed.
[16]
Notice of contention - Condition precedent and the Certificate
Given the conclusion I have reached about construction it is unnecessary to address the issues raised by the notice of contention. I have considered whether in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] I should do so and have concluded that I should not. I have also taken into account the remarks of the plurality in Boensch v Pascoe [2019] HCA 49 at [7]-[8] in declining to do so.
Any obiter expressions by this Court about the efficacy of a central plank of the ASIC Class Order regime (including the extent to which "substantial compliance" with the Certificate provisions is permissible) would potentially have far reaching consequences for ASIC and numerous recipients of Class Order relief who are not parties to this litigation in circumstances where it is unnecessary to address those conclusions.
[17]
Conclusion
Commercial contracts are to be construed by reference to what a reasonable businessperson would have understood the text to mean having regard to the language of the instrument, its context and purpose: Rinehart at [44]; Simic at [79]. Other principles of construction are aids in that process, including the principles applicable to contracts of guarantee (Ankar at 561; Andar at [17]; Bofinger at [53]), and the principle that the text of a definition is to be construed by reading it into the operative provisions rather than in isolation (Kelly at [103]; CSR Limited at [164]).
Application of these principles leads to the construction adopted by the primary judge. On the appellants' construction, a "Group Entity" means different things, including within the same clause in the Deed. Sometimes it means "Group Entities who executed the Deed", other times it means "Group Entities who have executed the Deed and remain parties to it", other times it means "Group Entities whether or not a party". This conclusion requires an improbable construction of the text. Such a conclusion is not supported by the relevant context.
The primary judge was correct at [16] to conclude that "[o]n the proper construction of the Deed, New Hope and the Part 1(2) Entities [i.e. the first to ninth respondents to the appeals] have not guaranteed the obligations of the Part 1(3) Entities". The appeal should be dismissed.
[18]
Proposed orders
For the foregoing reasons I propose the following orders:
1. In the WICET proceedings 2019/259457:
1. appeal dismissed;
2. appellant to pay the costs of the first to ninth respondents.
1. In the NEC and Colton Coal proceedings 2019/263368:
1. appeal dismissed;
2. appellants to pay the costs of the first to ninth respondents.
[19]
Endnote
The outcome in relation to entities which have not executed the Deed in the case of a disposal of a "Group Entity" (assuming the appellants' construction) provides no different answer as this too requires the "Group Entity" sold to lodge notice with ASIC by cll 4.2(a) and 4.2(b) thereby providing an effective veto.
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Decision last updated: 20 December 2019
Parties
Applicant/Plaintiff:
Wiggins Island Coal Export Terminal Pty Ltd
Respondent/Defendant:
New Hope Corporation Ltd; Northern Energy Corporation Ltd
Wiggins Island Coal Export Terminal Pty Ltd v New Hope Corporation Ltd;... [2019] NSWCA 316 | Case summary | Zoe
In his judgment, Payne JA has noted various canons of construction called in aid by the parties. These did not always point in the one direction. As Kirby J noted in Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285 at [14], [2008] HCA 48, "it is not unusual for such principles and canons to 'jostle' for acceptance in a given case". This was such a case and it is well to remember the observations of Lord Reid in Maunsell v Olins [1975] AC 373 at 382, cited with approval by McHugh J in Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319 at 347, [1991] HCA 28, that:
"[R]ules of construction… are not rules in the ordinary sense of having some binding force. They are our servants, not our masters. They are aids to construction, presumption or pointers. Not infrequently one 'rule' points in one direction, another in a different direction. In each case we must look at all relevant circumstances and decide as a matter of judgment what weight to attach to any particular 'rule'."
In the same vein, Lewison and Hughes in The Interpretation of Contracts in Australia (2012, Thomson Reuters) state at 281 that "where they [the canons of construction] point in different directions the court must select those which will produce a reasonable and just result".
As I have indicated above, looking at all the relevant circumstances and for the reasons given by Payne JA, the appeals should be dismissed with costs.
MACFARLAN JA: I agree with Payne JA.
PAYNE JA: On 12 July 2019, Stevenson J in the Commercial List published reasons for his Honour's conclusion that the first to ninth respondents had not guaranteed the obligations of, inter alia, two of the present appellants, Northern Energy Corporation Limited (in liquidation) ("NEC") and Colton Coal Pty Ltd (in liquidation) ("Colton Coal"), in a Deed of Cross Guarantee made on 31 July 2012 ("the Deed"): [2019] NSWSC 879. The remaining appellant, Wiggins Island Coal Export Terminal Pty Ltd ("WICET"), is the largest creditor of NEC and Colton Coal. On 26 July 2019, his Honour made orders to give effect to his decision: [2019] NSWSC 952.
The Deed was made in circumstances where public and large proprietary companies, including wholly-owned subsidiaries within a corporate group, may in some circumstances be relieved of their individual statutory financial reporting obligations under the Corporations Act 2001 (Cth). In those circumstances, the Holding Entity in the group must instead issue consolidated financial statements.
In 2012, the instrument making such relief available was an order issued by the Australian Securities and Investments Commission ("ASIC") under s 341 of the Corporations Act entitled "ASIC Class Order 98/1418" (the "Class Order").
A condition specified in the Class Order for a company seeking such relief was that members of the group obtaining the relief cross guarantee each other's debts in a "Deed of Cross Guarantee" which is in exactly the same terms as ASIC Pro Forma 24.
Such "Deeds of Cross Guarantee" were required to be lodged with ASIC, together with a "Certificate" of a specified kind. Both documents were then made publicly available by ASIC in the records relating to each entity which is the subject of a Certificate.
On 31 July 2012, the first respondent, New Hope Corporation Limited ("New Hope"), a public company listed on the Australian Securities Exchange, and eight of its wholly-owned subsidiaries (the second to ninth respondents), entered into a Deed of Cross Guarantee (the "Deed"). The Deed, and a certificate signed by a Ms Natasha Chalk dated 31 July 2012 (the "Certificate"), were lodged with ASIC on 14 August 2012.
By the Deed, the first to ninth respondents guaranteed each other's obligations. The first respondent was the Holding Entity responsible for preparing consolidated financial statements. The second to ninth respondents were named in Part 1(2) of the Schedule to the Deed. The Deed also named, in Part 1(3) of the Schedule to the Deed, 25 other subsidiaries of the first respondent which did not execute the Deed. By the time of the hearing before the primary judge several of the entities named in Part 1(3) of the Schedule had been deregistered.
The first and second appellants, NEC and Colton Coal, were named in Part 1(3) of the Schedule and participated in the hearing before the primary judge. Both companies were placed into administration on 17 October 2018. By an order made on 19 February 2019, NEC was appointed to represent the interests of creditors of any of the entities named in Part 1(2) and Part 1(3) of the Schedule.
WICET is the largest creditor of NEC and Colton Coal and was the nineteenth defendant in the proceedings before the primary judge. WICET's case was that it has unsecured claims against NEC in the order of $3.6 million and against Colton Coal in the order of $128.7 million. WICET's apprehension is that NEC and Colton Coal do not have the means to meet these claims, which may be irrecoverable unless it is able to look to New Hope and the entities named in Part 1(2) of the Schedule as guarantors of NEC's and Colton Coal's debts.
The primary judge held that on the true construction of the Deed, the guarantees given in the Deed by New Hope and the entities named in Part 1(2) of the Schedule to the Deed did not extend to the liabilities of the entities named in Part 1(3) of the Schedule to the Deed which had not executed the Deed.
"Creditor" is defined to mean:
"… a person (whether now ascertained or ascertainable or not) who is not a Group Entity and to whom now or at any future time a Debt (whether now existing or not) is or may at any future time be or become payable".
"Certificate" is defined to mean:
"'Certificate' in relation to a Deed of Cross Guarantee or an Assumption Deed, means one or more certificates in writing addressed to each Group Entity or proposed Group Entity covered by the Deed, the Trustee named in Part 2 of Schedule and any Alternative Trustee named in Part 3 of the Schedule and to ASIC which together include statements to the following effect: …"
Clauses 4.2 and 4.5 provide:
"4.2 If:
(a) a liquidator, receiver, receiver and manager, controller, or scheme manager or administrator of a company under administration or of a deed of company arrangement is appointed to or to the property of the Group Entity or each of the Group Entities owning shares in a Group Entity (the "Group Entity sold") and that Group Entity or those Group Entities disposes (or dispose) of all issued shares in the Group Entity sold and the Group Entity sold lodges notice of that disposal with ASIC (including details of any Group Entity which is a Wholly-owned Entity of the Group Entity sold); or
(b) a mortgagee or mortgagees (other than a Group Entity or an Associate of any Group Entity) of shares owned by a Group Entity or by Group Entities in another Group Entity (the "Group Entity sold") disposes (or dispose) of all issued shares in the Group Entity sold and the Group Entity sold lodges notice of that disposal with ASIC (including details of any Group Entity which is a Wholly-owned Entity of the Group Entity sold); or
(c) the Group Entity or Group Entities owning shares in a Group Entity (the "Group Entity sold") disposes (or dispose) of all issued shares in the Group Entity sold and:
(i) the directors of the Holding Entity upon disposal certify in writing that the disposal is a bona fide sale and that the consideration for the sale is fair and reasonable; and
(ii) a copy of that certificate is lodged by the Holding Entity, and by the Group Entity sold, with ASIC; and
(iii) the Group Entity sold lodges notice of that disposal with ASIC (including details of any Group Entity which is a Wholly-owned Entity of the Group Entity sold),
then provided that the disposal is not to an Associate of any Group Entity:
(d) this Deed of Cross Guarantee shall cease to apply to the Group Entity sold and to any Group Entity which is a Wholly-owned Entity of the Group Entity sold; and
(e) the Group Entity sold and every Group Entity which is a Wholly-owned Entity of the Group Entity sold will be released from all liability under this Deed of Cross Guarantee including liability:
(i) arising or accruing prior to or after such disposal; or
(ii) due to this Deed of Cross Guarantee becoming enforceable prior to or after such disposal against the Group Entity sold or against a Group Entity which is a Wholly-owned Entity of the Group Entity sold; and
(f) each other Group Entity will be released from all liability whatever under this Deed of Cross Guarantee in respect of any Debt of the Group Entity sold or in respect of any Debt of a Group Entity which is a Wholly-owned Entity of the Group Entity sold including liability:
(i) in respect of any Debt arising or accruing before or after such disposal; or
(ii) due to this Deed of Cross Guarantee becoming enforceable before or after such disposal against the Group Entity or any Group Entity which is a Wholly-owned Entity of the Group Entity sold; and
(g) the trust constituted by this Deed shall be revoked in respect of the covenants made pursuant to this Deed of Cross Guarantee:
(i) by the Group Entity sold; and
(ii) by any Group Entity which is a Wholly-owned Entity of the Group Entity sold.
…
4.5 The Group Entities which are from time to time parties to this Deed of Cross Guarantee may revoke this Deed of Cross Guarantee in respect of any Group Entity or all Group Entities by all executing a Revocation Deed the effect of which will be conditional upon:
(a) the Holding Entity lodging an original of that Revocation Deed with ASIC; and
(b) each Group Entity giving notice to its Creditors of the Revocation Deed by public advertisement (which may be a joint advertisement by two or more Group Entities) made at any time before or within one month after the date on which the original of the Revocation Deed is lodged with ASIC in a daily newspaper circulating in each state and territory in which any Creditor of the Group Entity is located; and
(c) there being no winding up as mentioned in paragraph 3.2(a) of any Group Entity being either:
(i) a winding up within six months after the original of the Revocation Deed is lodged with ASIC; or
(ii) a winding up the commencement of which occurs within six months after the original of the Revocation Deed is lodged with ASIC,
and upon satisfaction of those conditions:
(d) any Group Entity in respect of which this Deed of Cross Guarantee is revoked by that Revocation Deed (the "Group Entity released") will be released from all liability whatever under this Deed of Cross Guarantee including liability:
(i) arising or accruing before or after:
(A) execution of the Revocation Deed; or
(B) those conditions being satisfied; or
(ii) due to this Deed of Cross Guarantee becoming enforceable against the Group Entity released before or after:
(A) execution of the Revocation Deed; or
(B) those conditions being satisfied; and
(e) each other Group Entity will be released from all liability under this Deed of Cross Guarantee in respect of any Debt of the Group Entity released including liability:
(i) in respect of any Debt arising or accruing before or after:
(A) execution of the Revocation Deed; or
(B) those conditions being satisfied; or
(ii) due to this Deed of Cross Guarantee becoming enforceable against the Group Entity before or after:
(A) execution of the Revocation Deed; or
(B) those conditions being satisfied; and
(f) the trust constituted by this Deed of Cross Guarantee shall be revoked in respect of the covenants of each Group Entity released."
The Schedule to the Deed was in the following form:
"SCHEDULE
Parties to this Deed of Cross Guarantee
PART 1 - GROUP ENTITIES
(1) Holding Entity:
New Hope Corporation Limited ACN 010 653 844
(2) Group Entities (other than the Holding Entity) which are as at the date of execution of the Deed eligible for the benefit of the Class Order:
Acland Pastoral Co. Pty Ltd ACN 009 888 395
Andrew Wright Holdings Pty Limited ACN 009 684 093
Arkdale Pty Ltd ACN 118 299 522
Jeebropilly Collieries Pty Ltd ACN 010 319 954
New Acland Coal Pty Ltd ACN 081 022 380
New Lenton Coal Pty Ltd ACN 095 390 079
New Oakleigh Coal Pty Ltd ACN 055 151 196
Queensland Bulk Handling Pty Ltd ACN 010 284 509
(3) Group Entities (other than the Holding Entity) which are as at the date of execution of the Deed ineligible for the benefit of the Class Order:
Colton Coal Pty Ltd ACN 140 768 636
eCOALogical Fuels Pty Ltd ACN 142 881 525
Elimatta Pastoral Pty Ltd ACN 157 981 747
Estwood Pty Ltd ACN 150 622 110
Fowler's Engineering Ply Ltd ACN 009 720 914
Hueridge Pty Ltd ACN 138 128 542
Krestlake Pty Ltd ACN 147 645 314
Lenton Management & Marketing Pty Ltd ACN 149 524 809
Mattvale Pty Ltd ACN 147 961 475
New Hope Coal Marketing Pty Ltd ACN 136 073 722
New Hope Collieries Pty Ltd ACN 009 669 747
New Hope Energy Pty Ltd ACN 127 222 557
New Hope Exploration Pty Ltd ACN 060 579 624
New Hope Services Pty Ltd ACN 141 243 709
New Hope Superannuation Pty Ltd ACN 065 022 102
New Hope Water Pty Ltd ACN 128 857 134
New Saraji Coal Pty Ltd ACN 127 222 842
Northern Energy Corporation Limited ACN 081 244 395
Seven Mile Coal Pty Ltd ACN 085 636 602
Taroom Coal Proprietary Limited ACN 079 251 442
Tetard Holdings Pty Ltd ACN 010 152 262
Tivoli Coal (Hawaii) Pty Ltd ACN 068 458 882
Tivoli Collieries Pty Ltd ACN 009 664 135
Uniford Pty Ltd ACN 142 881 552
Yamala Coal Pty Ltd ACN 140 766 847
PART 2 - TRUSTEE
Trustee:
New Hope Corporation Limited ACN 010 653 844
PART 3 - ALTERNATIVE TRUSTEE
Alternative trustee:
New Acland Coal Pty Ltd ACN 081 022 380
EXECUTED AS A DEED"
As the parenthetical words in the definition of "Group Entity" foreshadow, the Deed can cease to apply to a Group Entity if the Group Entity is disposed of pursuant to cl 4.2 or released under cl 4.5.
The Holding Entity can cause controlled entities to be joined as further Group Entities by execution of an Assumption Deed under cl 5.1 of the Deed, in which event cl 5.3 provides:
"Any further Group Entity so added by an Assumption Deed will be taken to have assumed liability under this Deed of Cross Guarantee as if that Group Entity had executed this Deed of Cross Guarantee."
Finally, "Wholly-owned Entities" is defined to mean:
"'Wholly-owned Entities' collectively mean companies and foreign companies:
(a) all of which are controlled by the Holding Entity;
(b) no member of any of which is a person other than the Holding Entity, another one of the Wholly-owned Entities, a nominee for the Holding Entity or a nominee for another one of the Wholly-owned Entities; and
(c) all of which are parties to the Deed of Cross Guarantee,
except that, when used in reference to a "Group Entity sold",
'Wholly-owned-Entities' collectively mean companies and foreign companies:
(a) all of which are controlled by the Group Entity sold;
(b) no member of any of which is a person other than the Group Entity sold, another one of the Wholly-owned Entities, a nominee for the Group Entity sold or a nominee for another one of the Wholly-owned Entities; and
(c) all of which are parties to the Deed of Cross Guarantee."
The appellants submitted that the principle of construction that "a doubt as to the construction of a provision in [a contract of guarantee or indemnity] should be resolved in favour of the surety or indemnifier" is applicable only where there is, in fact, a relevant "doubt" on which the principle may operate. Whether there is such doubt is not answered simply by the identification of a constructional choice or the possibility of different available constructions. The principle "does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction": Rava v Logan Wines [2007] NSWCA 62 at [56] per Campbell JA. The appellants submitted that the principle is thus one of last resort, rather than a starting point. The High Court, in Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 did not describe the principle as the starting point for the constructional task. The appellants submitted that the application of ordinary principles, including the presumption against redundancy, lead to the construction for which the appellants contend.
The appellants submitted that there is a further, independent reason why the principle has no application in this case. The principle ought not to be applied where the guarantor drafted the guarantee or, equivalently, completed the variable parts of a pro forma contract. Spigelman CJ endorsed such an approach in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [16], [21]. Although the High Court upheld an appeal from Gardiner, this point was not in issue or the subject of comment: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57.
In the written submissions there was also a debate about the applicability of that part of the decision of Leeming JA, with whom White JA and I agreed, in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11 under the heading "rectification by construction". The primary judge did not refer to or invoke this principle. No doubt this was because the first to ninth respondents disavowed the existence of any mistake in the drafting of the Deed and did not call in aid the principle. The possibility of "rectification by construction", as explained by Leeming JA in Seymour Whyte Constructions, was also disavowed by the first to ninth respondents on the appeal. As the issue did not arise below and no reliance is placed on the issue here, it does not arise on the appeal and need not be further considered.
The appellants submitted that there is a recognised interpretive canon to the effect that a constructional choice may legitimately be informed by a concern to avoid "consequences which appear to be capricious, unreasonable, inconvenient or unjust": Australian Broadcasting Corporation v Australasian Performing Right Association Ltd at 109-110 per Gibbs J; Lord Justice Lewison and D Hughes, The Interpretation of Contracts in Australia (Thomson Reuters, 2012) at [7.16].
All parties to the appeal accepted that the surrounding circumstances, and the purposes and objects to be secured by the contract, needed to take into account the regulatory regime, in particular the ASIC Class Order (including the editorial note not itself forming part of the Class Order), ASIC Pro Forma 24 and ASIC Regulatory Guide 51.
Consideration of the fundamental requirements of a deed supports the conclusion I prefer. Norton, A Treatise on Deeds (Sweet and Maxwell, 1906) at 3 defines a deed as follows:
"A deed is a writing (i) on paper, vellum or parchment, (ii) sealed and (iii) delivered, whereby an interest, right or property passes, or an obligation binding on some person is created, or which is in affirmance of some act whereby an interest, right or property has passed."
Seddon on Deeds (Federation Press, 2015) at [1.3] states that whatever the definition of a deed, "[t]he formalities for execution and delivery probably should be included, as Norton does, so that a satisfactory definition covers both form and the legal purposes served by deeds". As Seddon notes at [1.3], the practical concern for those interested in the validity and operation of a deed "is to ensure that a deed is properly put together, executed and delivered in accordance with the combination of common law and legislative requirements" that apply.
Halsbury's Laws of England (Butterworth & Co, 2nd ed, 1933) vol 10 at 214 states:
"When a deed is expressed to be made between several parties or a deed poll to be made by more persons than one, and some or only of such parties or persons execute the same, it is not the deed of any person who has not executed it." (Citations omitted.)
The act of execution is fundamental to whether a written document using the language of being a deed can be described as a "deed" at all. The legislative requirements that apply to deeds support the conclusion. Section 38 of the Conveyancing Act 1919 (NSW) made signature and attestation obligatory whereas previously signature was not necessary at law unless, for example, in execution of a power requiring execution under hand and seal: GP Stuckey, The Conveyancing Act, 1919-1969 (Law Book Co, 2nd ed, 1970) at 88.
The formal requirements of a deed emphasise the important role played by the individual acts of execution in the making of a deed. Execution may occur before, or even on, the date of delivery of the deed, but it is distinct from delivery and conceptually distinct from the date of the deed. As Stuckey states in The Conveyancing Act, 1919-1969 at 89, before and after the enactment of that legislation, "Delivery as a deed always was, and still is essential to its validity". Stuckey continued: "A deed takes effect from its delivery, and not from its date; but delivery is presumed to have taken place on the day of its date" (citing Norton at 189 and Federal Commissioner of Taxation v Taylor (1929) 42 CLR 80 at 85; [1929] HCA 13).
The opening words of the Deed, which indicate that it is "made on 31 July 2012 between" certain entities, serve the purpose of identifying the date of delivery from which the Deed can take effect, subject to satisfaction of relevant conditions precedent. The date of the Deed indicates nothing about the date of each party's execution, save that execution can only have happened on any date before, or on, the date of the Deed. The better construction of the language "as at the date of execution" in the opening words of Part 1(2) and Part 1(3) is that it imposes a condition on eligibility for inclusion, or in other words describes a necessary characteristic of a Part 1(2) Group Entity, which conditions the naming of an entity in that part of the Schedule having any practical significance. The primary judge correctly reached this conclusion at [53].
The appellants' suggestion that the Deed was "made … between", relevantly non-parties identified in Part 1(3) of the Schedule, in my view, impermissibly strains the language used. The language of "made … between" in context is not a form of legal metaphor. The Deed could only be "made … between" parties which have executed the Deed.
This conclusion forms the starting point for the consideration of the Deed as a whole.
Secondly, limb (b) of the definition, which extends "Group Entity" to include "any entity joined to this Deed of Cross Guarantee", contemplates the joinder of a further Group Entity which, by cl 5.3 of the Deed, "will be taken to have assumed liability under this Deed of Cross Guarantee as if that Group Entity had executed this Deed of Cross Guarantee". This provides support for the conclusion that the first limb does not contemplate the extension of the term "Group Entity" to non-executing entities. This is because limb (b) contemplates that the Group can only be extended by the joinder of an entity which executes and agrees to be bound by the Deed. The more coherent construction of the definition is that limbs (a) and (b) both refer to "Group Entities" that are listed in the Schedule and which have executed the Deed or, to the extent that the entity joined later, that have assumed liability as if they had executed the Deed as a party from the beginning.
Thirdly, the words in parentheses, "(until this Deed of Cross Guarantee ceases to apply to that entity by virtue of a disposal under clause 4.2 or until that entity is released from this Deed of Cross Guarantee by a Revocation Deed under clause 4.5)", provide another indication that both categories of "Group Entities", that is those included by limb (a) and those included by limb (b), are objectively intended to be entities which have executed the Deed or entities which by virtue of cl 5.3 can be taken to have assumed liability as if they had executed the Deed of Cross Guarantee.
The primary judge correctly identified the text of these provisions as containing many indications that the assumption throughout the Deed is that all Group Entities are parties which have executed the Deed. As the primary judge pointed out, if the term "Group Entity" is construed to include entities which have not executed the Deed, then this leads to improbable and curious consequences in the event the parties wish to revoke the Deed or there is a disposal: Judgment at [81], [84]-[88].
The appellants' principal response to the matters identified by the primary judge about these issues is that "Group Entity" in cl 4.2 and cl 4.5 should be read to have a more limited meaning depending on the context in which it appears.
I have concluded that the appellants' preferred construction would give rise to real uncertainty. If a "Group Entity" includes entities which have not executed the Deed or which have not been joined as a party by means of execution of an Assumption Deed, inconsistency and incoherence into the operation of the Deed would be introduced.
When the definition of "Group Entity" is read into the operative text of the Deed, a reasonable businessperson would likely understand the definition of "Group Entity" to refer to parties to the Deed, in the sense of parties which have executed the Deed and agreed to be bound by it or entities which, by reason of an Assumption Deed and the operation of cl 5.3, are to be treated as if they were parties who have executed the Deed.
The reference in the opening words of the Deed to the "Group Entities (which are listed in Part 1 of the Schedule)" is not a reference to all of the entities listed in Part 1 of the Schedule. In context, it is a reference to those entities in Part 1 of the Schedule that have executed the Deed. As I have said, the Deed was not "made … between" the entities referred to in Part 1(3) of the Schedule who did not execute the Deed. As the primary judge correctly reasoned:
"[40] In the … opening words of the Deed, it is stated that the Deed "is made":
"…for the purpose of the Group Entities (except those indicated in Part 1 of the Schedule as being ineligible) obtaining the benefit of the Class Order".
[41] These "Group Entities" must be the same "Group Entities" as are referred to the Deed's opening words, namely those with whom the Deed is "made". The parties cannot have intended that "Group Entities" have a different meaning when used seven lines apart in what is in effect the one sentence.
[42] In my opinion, the parenthetical exception of entities "indicated in Part 1 of the Schedule as being ineligible" does no more than contemplate the possibility that Group Entities with whom the Deed "is made", that is who are parties to the Deed, may not qualify for the benefit of the Class Order."
Considering the Deed as a whole, the objective intention of the parties to the Deed was not to include non-members of the closed group and non-executing entities within the meaning of "Group Entity". There are too many inconsistencies and uncertainties introduced into the operation of the Deed by the appellants' construction. The appellants' response, that where confusion would be introduced by the construction they proffer, the provision be read down by reference to "executing" and "non-executing" categories of "Group Entities", would introduce a potential incoherence in the operation of the Deed. A reasonable businessperson would not lightly reach that result.
This is because there are numerous provisions within the Deed that presuppose that a "Group Entity" is an entity which is aware of, has executed, and has agreed to be bound by, and assume obligations under, the Deed. Those provisions include:
1. The opening words to the Deed which provide that "This Deed of Cross Guarantee is made … between … [t]he Group Entities";
2. Clause 3.1 which provides that "each Group Entity covenants with the Trustee … that the Group Entity guarantees to each Creditor payment in full of any Debt";
3. Clause 3.2 which provides that "Each Group Entity agrees with the Trustee that this Deed … becomes enforceable in respect of the Debt of a Group Entity";
4. Clause 3.3 which provides that "the Trustee and each Group Entity acknowledge that the Trustee holds the benefit of the covenants and commitments of each Group Entity made pursuant to this Deed upon trust for each Creditor";
5. Clause 4.2, which provides that, upon the satisfaction of certain specified preconditions:
1. "this Deed … shall cease to apply to the Group Entity sold and to any Group Entity which is a Wholly-owned Entity of the Group Entity sold" (cl 4.2(d));
2. those entities "will be released from all liability under this Deed" (cl 4.2(e));
3. "each other Group Entity will be released from all liability whatever under this Deed … in respect of any Debt of the Group Entity sold or in respect of any Debt of a Group Entity which is a Wholly-owned Entity of the Group Entity sold" (cl 4.2(f)); and
4. the trust constituted by this Deed shall be revoked in respect of the covenants made pursuant to this Deed of Cross Guarantee: (i) by the Group Entity sold; and (ii) by any Group Entity which is a Wholly-owned Entity of the Group Entity sold" (cl 4.2(g));
1. Clause 4.3(a) which provides that "A disposal under clause 4.2 may be effected even if … this Deed … has become enforceable in respect of a Group Entity";
2. Clause 4.4(b) which provides that "Any of the Group Entities" may upon payment of reasonable costs "require the Trustee to execute a Deed containing a release … of each other Group Entity";
3. Clause 4.5 which provides that "The Group Entities which are from time to time parties to this Deed … may revoke this Deed ... in respect of any Group Entity… by all executing a Revocation Deed" and that, upon certain conditions being satisfied:
1. "any Group Entity in respect of which this Deed of Cross Guarantee is revoked … will be released from all liability whatever under this Deed" (cl 4.5(d));
2. "each other Group Entity will be released from all liability under this Deed … in respect of any Debt of the Group Entity released" (cl 4.5(e)); and
3. the trust constituted by the Deed "shall be revoked in respect of the covenants of each Group Entity released" (cl 4.5(f));
1. Clause 4.6(a) which provides that a Revocation Deed under cl 4.5 may be executed even if the Deed "has become enforceable in respect of a Group Entity";
2. Clause 4.7 which provides that the Group Entities may upon payment of reasonable costs "require the Trustee to be a party to a Revocation Deed" containing releases by the Trustee in terms similar to cll 4.5(d) and 4.5(e);
3. Clause 5 which provides a mechanism for the execution of an Assumption Deed to "join a further Group Entity or further Group Entities to this Deed" (cl 5.1) and states that "Any further Group Entity so added by an Assumption Deed will be taken to have assumed liability under this Deed … as if that Group Entity had executed this Deed" (cl 5.3);
4. Clause 6.1 which provides that "As a separate covenant by way of Deed Poll each Group Entity agrees with each Creditor that the Group Entity will guarantee to each Creditor payment of any Debt due to the Creditor from any other Group Entity in accordance with this Deed";
5. Clause 7.1(a) which provides that the obligations of the Trustee include to act as bare Trustee "of the Covenants of each Group Entity contained in this Deed";
6. Clause 8.1 which provides that "Execution of this Deed … is not to bar any Group Entity from executing a Revocation Deed";
7. Clause 8.2 which provides that "each party" to the Deed "agrees to submit to the non-exclusive jurisdiction" of Courts of a State or Territory. The fact that the clause is incomplete here detracts from the force of the point but the significance of a submission to jurisdiction envisaged by the clause is another indication that a party to the Deed means an "executing" party;
8. Clauses 9.1, 9.2, 9.3, 9.4, 9.5, and 9.6 which each provide that "Each Group Entity agrees with the Trustee for the benefit of each Creditor" about various important matters. If the appellants' construction were correct the meaning of Group Entity within each of those clauses would be different - the covenants with the Trustee can only be given by executing Group Entities, in favour of a "Creditor", which is defined to exclude a Group Entity, which on the appellants' construction may or may not include a "non-executing" entity. The definition of "Debt", which is the critical subject matter of the covenants picked up by the definition of "Creditor", is a debt now or at any time admissible to proof in the winding up of a "Group Entity" which for this purpose, on the appellant's construction, includes a non-executing entity. A reasonable businessperson considering these clauses would regard this as an unlikely outcome;
9. Clause 10.1 which provides that "The Group Entities and the Trustee may by executing another deed vary this Deed".
I have concluded that the language of the operative clauses in the Deed is at odds with the appellants' construction of "Group Entity" which includes the entities named in Part 1 of the Schedule which have not executed the Deed. A reasonable businessperson would have understood "Group Entity" to mean a party named in the Schedule which had executed the Deed or which, by means of an Assumption Deed, was to be treated as if it had executed the Deed. All of the clauses I have referred to are drafted on the basis that a "Group Entity" is one which has assumed a liability under the Deed.
Additional support for the construction I prefer is contained in the text of the guarantees in the Deed which are contained in cll 3 and 6. The language of "each" is important in understanding both clauses. Both clauses provide that "[e]ach Group Entity" covenants/agrees to guarantee certain debts or claims of "a" or "any other" "Group Entity" "in accordance with this Deed of Cross Guarantee". Clause 3 provides:
"3.1 … each Group Entity covenants with the Trustee for the benefit of each Creditor that the Group Entity guarantees to each Creditor payment in full of any Debt in accordance with this Deed of Cross Guarantee.
3.2 Each Group Entity agrees with the Trustee that this Deed of Cross Guarantee becomes enforceable in respect of the Debt of a Group Entity …"
Similarly, cl 6.1 provides:
"6.1 As a separate covenant by way of Deed Poll each Group Entity agrees with each Creditor that the Group Entity will guarantee to each Creditor payment of any Debt due to the Creditor from any other Group Entity in accordance with this Deed of Cross Guarantee."
The appellants submitted that, in the context of cll 3.1 and 6.1, a reasonable businessperson reading the Deed would consider that an entity listed in Part 1(3) of the Schedule, which had not executed the Deed, would not be bound by it. I agree. It does not follow, however, that this conclusion provides any support for the appellants' construction of "Group Entity". In particular, I am not persuaded that the language "in accordance with this Deed of Cross Guarantee" provides support for the conclusion that the Deed contemplates two separate categories of "executing" and "non-executing" "Group Entity".
A reasonable person reading the whole of the Deed would conclude that the identity of the parties on whom benefits were conferred and obligations were imposed comprised the same group. Contrary to the appellants' submissions, there is inconsistency in taking the word "Debt" in those clauses as meaning any debt or claim which is now or in the future admissible to proof in the winding up of any Group Entity, being for this purpose all "Group Entities" as the appellants would have it, including the "non-executing" entities.
The language of cll 3 and 6 suggests that those clauses operate only to guarantee the "Debts" of entities which have executed the Deed, which in turn suggests that the benefits and obligations of the Deed of Cross Guarantee would be understood as applying only to the entities which have executed the Deed.
The consistent use of the term "Group Entity" to identify only the "executing" entities who had covenanted as well as to identify the entities whose "Debts" are guaranteed, is a further textual indication that this Deed requires a coincidence between the members of those two categories. This was the conclusion reached by the primary judge at [64].
The conclusion I prefer is consistent with the principle that the proper construction of a contract is to be determined objectively, "by reference to the language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract": Rinehart at [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ). The construction is reached by starting with the language used and the determination of its meaning according to what a reasonable person in the parties' position would have understood it to mean: Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [79] (Gageler, Nettle and Gordon JJ).
It is correct, as the appellants contended, that another construction to that I prefer is available. To the extent there is ambiguity as to the operation of these clauses, the principle in the case of a contract of guarantee, that ambiguous contractual provisions should be construed in favour of the surety, is relevant: Ankar Proprietary Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561; [1987] HCA 15.
This principle has been variously described as the "starting point" for the construction applicable to contractual indemnities and as a "settled principle governing the interpretation of contracts of guarantee": Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 at [17] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ); Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 256; [1989] HCA 63 (Mason CJ, Brennan, Deane and McHugh JJ). In Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 at [53] Gummow, Hayne, Heydon, Kiefel and Bell JJ stated:
"It is convenient to turn first to the terms of the appellants' guarantee given by deed on 14 March 2003 to the second mortgagee. The instrument is described on the cover sheet as a "Deed of Guarantee and Indemnity". The settled principle in Australia governing the interpretation of contracts of guarantee and indemnity has been stated by this Court in authorities the most recent of which is found in the joint reasons in Andar Transport Pty Ltd v Brambles Ltd [(2004) 217 CLR 424; [2004] HCA 28 at [17]-[23]]. The principle is that a doubt as to the construction of a provision in such a contract should be resolved in favour of the surety or indemnifier. It is implicit in this that the doubt may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application."
I do not think that the approach adopted by Spigelman CJ in Gardiner v Agricultural and Rural Finance Pty Ltd at [21] assists the appellants here. It is not accurate to describe the first to ninth respondents as having "drafted the indemnity" in a Deed following the form of the ASIC pro forma.
The width of the application of the guarantee, on the appellants' construction, fortifies the conclusion I have reached about the correct construction of the Deed.
The Schedule to the Deed itself states that the opening text of "made … between" the "Group Entities (which are listed in Part 1 of the Schedule)" refers only to parties to the Deed. The Schedule is headed "Parties to this Deed of Cross Guarantee". It is divided into three parts. Those three parts categorise the parties to the Deed as follows: Part 1 ("Group Entities"), Part 2 ("Trustee") and Part 3 ("Alternative Trustee"). When the title of the Deed ("Cross Guarantee"), its opening text ("made … between") and the heading to the Schedule ("Parties to this Deed of Cross Guarantee") are read together, the textual indications are consistent with the conclusion that, in order for an entity relevantly to be "listed in ... the Schedule" for the purposes of the opening words of the Deed and also for the purposes of the definition of "Group Entity" in cl 1.1 which uses the same language, the entity must have the characteristic of being an entity which has executed the Deed. The primary judge correctly identified as much at [48]-[49].
In relation to cl 4.2, it is true, as the appellants submitted, that cl 4.2(d) provides that one consequence of disposal is that the Deed shall cease to apply to the Group Entity sold and to any Group Entity which is a Wholly-owned Entity of the Group Entity sold. That is a matter which supports the primary judge's finding that all Group Entities, correctly understood, have obligations under the Deed.
The appellants' submission about cll 4.2(e) and 4.2(f) assumes the answer to the question of construction which is being tested. The assumption pressed is that sub-cl (e) is directed at those Group Entities which have bound themselves to give certain covenants and undertakings by virtue of their execution of the Deed, so that where such an Entity is sold that Entity and its Wholly-owned Entities will be released from all liability under the Deed. The fact that sub-cl (e) does not apply to entities listed in Part 1(3) of the Schedule leads, as the primary judge found, to anomalous results on the appellants' construction. Likewise, the appellants' submission that sub-cl (f) is directed to those remaining Group Entities that have assumed liabilities in respect of the Debts of the Group Entity which has been sold assumes the answer to the question of construction.
The better construction of cl 4.2 is that its provisions assume that all Group Entities have liabilities under the Deed. Otherwise there would be no need for the release in sub-cll (d) to (f). The releases in sub-cll (e) and (f) are from "all" liability under the Deed. The primary judge was correct to conclude that if, as the appellants contend, the entities referred to in Part 1(3) of the Schedule are Group Entities then, if the shares in such an entity were disposed of under sub-cll (a), (b) or (c):
1. the releases in sub-cll (e) and (f) would operate in regard to that entity itself because, on this hypothesis, it is a Group Entity; but
2. the releases would not operate in respect of any entity controlled by the entity disposed of because none of the controlled entities of entities referred to in Part 1(3) of the Schedule are parties to the Deed.
The definition of "Wholly-owned Entities" also poses difficulties for the appellants' construction. That definition requires that "Wholly-owned Entities" must meet the description of "all of which are parties to the Deed of Cross Guarantee". I do not accept as a commercially likely outcome a construction which treats the terms "party" and "parties" when used in the Deed as referring to both the Group Entities which have executed and become bound by the Deed as well as "non-executing" entities whose legal position is that each is "listed" in the Schedule to the Deed. A reasonable businessperson would not regard the conclusion that an entity referred to in Part 1(3) of the Schedule which has not executed the Deed was a "party" to the Deed as a likely commercial outcome.
I have concluded that a reasonable businessperson would regard the appellants' preferred construction as an unlikely commercial result.
That outcome would not be one that a reasonable businessperson would regard as likely. It would introduce potential incoherence in the operation of the Deed itself and in the regulatory scheme of which the Deed is a manifestation.
I also agree with the analysis of the primary judge at [113]-[118] that the relevant regulatory context supports the conclusion about construction I prefer. The ASIC Class Order entitles subsidiary entities of a company such as the first respondent to be relieved from the requirement to prepare their own separate, audited financial statements if and on the condition that they, and entities within the "closed group" of which they are a member, fulfil a number of conditions. Those conditions include that:
1. the subsidiaries within the group obtaining the relief under the Class Order be parties to a Deed of Cross Guarantee which "is substantially in the form set out in ASIC Pro Forma 24": see condition (f)(ii) and the definition of "Deed of Cross Guarantee" in the Class Order;
2. the Holding Entity, which is the entity controlling the subsidiaries and itself a party to the Deed of Cross Guarantee, prepare consolidated financial statements that, in effect, treat the group comprising the subsidiaries and the Holding Entity as a single economic entity: see condition (e) and the definition of "Closed Group", "Holding Entity" and "Wholly-owned Entities" in the Class Order;
3. there be contained, within prescribed documents, a statement as to whether there are reasonable grounds to believe that the Holding Entity, the subsidiaries obtaining the benefit of the Class Order, and any other entities that are party to the Deed of Cross Guarantee and controlled by the Holding Entity "will be able to meet any obligations or liabilities to which they are, or may become subject, by virtue of the Deed of Cross Guarantee": see condition (j) and the definitions of "Closed Group", "Extended Closed Group" and "Wholly-owned Entities" in the Class Order;
4. a notice be lodged with ASIC containing a statement:
1. that the subsidiary has taken advantage of relief under the Class Order: see condition (k)(i) in the Class Order;
2. identifying the Holding Entity: see condition (k)(ii) in the Class Order; and
3. that the directors of the subsidiary annually reassess the advantages and disadvantages of the entity "remaining a party to the Deed of Cross Guarantee and taking advantage of the relief afforded by this order" and resolve either to continue to remain a party to the Deed or seek to revoke it: see condition (k)(iii) in the Class Order.
The Class Order also contains detailed requirements as to the contents of the consolidated financial statements that the Holding Entity must prepare, as well as the timing for lodgement of those statements. It does so on terms that:
1. deal with the various possible scenarios that might arise, such as whether the Holding Entity is or is not a registered foreign entity: see conditions (f) and (g) in the Class Order;
2. expressly require the consolidated financial statements of the group to include "adequate provision in relation to the liabilities of any parties to the Deed of Cross Guarantee which are not consolidated where it is probable that those liabilities will not be fully met by those parties"; that is, to disclose that there might be an exposure of the consolidated group in respect of the debts of another entity which is a party to the Deed of Cross Guarantee but not a member of the consolidated group: see condition (h)(ii) in the Class Order; and
3. expressly require the notes to the consolidated financial statements to contain details of:
1. the nature of the Deed of Cross Guarantee: see condition (i)(i) in the Class Order;
2. the parties to it (and whether they are members of the closed group whose accounts are being consolidated for other members of the Extended Closed Group): see condition (i)(ii) in the Class Order;
3. changes to the parties during the financial year, by way of an Assumption Deed, a Revocation Deed or a Notice of Disposal: see condition (i)(iii) in the Class Order;
4. changes to and reasons for a particular entity's eligibility for Class Order relief: see condition (i)(iv) in the Class Order; and
5. if there is a discrepancy between the entities covered by the consolidated financial statements and either the members of the Closed Group or the parties to the Deed, additional financial information that gives specific disclosure of the exposure and consequences of the Deed for the financial position and possible liabilities of other parties to it: see conditions (i)(v)-(vi) in the Class Order.
In the event an entity takes advantage of Class Order relief, the premise of the Class Order and the reporting and disclosure consequences that follow are that the entity has no obligations in respect of that Deed, and the obligations of the parties to that Deed do not "cover" or extend to it, unless that entity is a party to the Deed.
It follows that the relevant context provides fairly strong support for the conclusion about construction I prefer, namely, that the parties did not intend that the entities named in Part 1(3) of the Schedule to the Deed have the benefit of or are "covered by" the Deed.