The plaintiff, Wollongong Coal Ltd, is a public company listed on the Australian Stock Exchange. It owns and operates two underground coal mines in the Illawarra.
Until November 2013, Wollongong Coal and the defendant, NRE Resources Pty Ltd (a company incorporated in Australia), were members of the Gujarat Group. That group was, and still is, one of the largest independent coal producers in India.
The principal trading entity within the Gujarat Group is Gujarat NRE Coke Ltd, a company listed on both the Bombay Stock Exchange and the National Stock Exchange of India. Until November 2013, that company held, directly and indirectly, some 54 per cent of the shares in Wollongong Coal. At one stage, NRE Resources held some 8.95 per cent of the shares in Wollongong Coal.
Wollongong Coal has not been a member of the Gujarat Group since around November 2013.
Whilst Wollongong Coal and NRE Resources were members of the Gujarat Group, each had a loan account with the other. Significant sums of money were lent back and forth between the two companies.
The closing balance of that loan account as at 27 September 2013, as recorded in NRE Resources' General Ledger, showed an amount of $3,622,116.95 owed from NRE Resources to Wollongong Coal.
Wollongong Coal brings these proceedings to recover that amount from NRE Resources (together with interest).
The sole basis on which Wollongong Coal contends that this amount is owed to it by NRE Resources is the presumption created by s 1305 of the Corporations Act 2001 (Cth).
By reason of that section, a "book" kept by a company pursuant to a requirement of the Act is prima facie evidence of any matter stated or recorded in the book.
My conclusion is that, assuming s 1305 is enlivened, the evidence establishes that NRE Resources' General Ledger does not reflect the true state of affairs between it and Wollongong Coal and that the presumption created by s 1305 has been displaced.
The closing balance of $3,622,116.95 shown in NRE Resources' General Ledger is the product of numerous advances made from Wollongong Coal to NRE Resources and from NRE Resources to Wollongong Coal.
One of those advances was made by Wollongong Coal to NRE Resources on 6 December 2012 for the then Australian dollar equivalent of US$5 million (namely, $4,778,744.15).
That US$5 million was, in the circumstances I describe below, paid by Wollongong Coal into an account in the name of NRE Resources with The Mauritius Commercial Bank Ltd as partial security for an advance of US$25 million that Mauritius Bank was about to make to Wollongong Coal.
NRE Resources charged the US$5 million in favour of the Mauritius Bank. Wollongong Coal defaulted under the loan and, in September 2014, Mauritius Bank appropriated the US$5 million.
Thus, in substance, what has happened is that NRE Resources, using the US$5 million advanced to it by Wollongong Coal, has discharged Wollongong Coal's indebtedness to Mauritius Bank in that amount.
In effect, NRE Resources guaranteed that part of Wollongong Coal's obligations to Mauritius Bank and has, in that capacity, discharged part of that obligation.
Although NRE Resources' General Ledger records the US$5 million advanced from Wollongong Coal to NRE Resources, it does not record, or reflect the effect of the payment by NRE Resources of the same sum to Mauritius Bank in discharge of Wollongong Coal's obligations to that Bank.
For the reasons that follow, my conclusion is that the true state of affairs between the two companies must take account of the fact that NRE Resources has so discharged that part of Wollongong Coal's obligation to Mauritius Bank.
The result is that, rather than NRE Resources being indebted to Wollongong Coal in the amount recorded in its General Ledger, Wollongong Coal is indebted to NRE Resources in an amount that reflects the payment it made to the Mauritius Bank.
[3]
Background
At some time prior to 12 September 2012, Mauritius Bank made an offer to lend Wollongong Coal US$25 million. That offer was accepted by Wollongong Coal on 12 September 2012.
The purpose of the loan was stated in the offer to be "for capital expenditure in Wollongong Coal's mines".
Mauritius Bank required that the facility be secured by, amongst other things, a first ranking charge over the assets of Wollongong Coal (and those of another member of the Gujarat Group) and corporate guarantees from two members of the Gujarat Group.
Wollongong Coal's assets were charged to other lenders. It was not able to obtain the consent of those lenders to the granting of a first ranking charge to Mauritius Bank.
In those circumstances, Wollongong Coal proposed alternative security, namely, the provision by NRE Resources of a charge over a US$5 million deposit to be made with Mauritius Bank.
Thus, on 13 November 2012, Mauritius Bank's lawyers recorded:
"The [Mauritius Bank] is presently considering [Wollongong Coal's] proposal whereby the disbursement under the proposed [US$25 million] facility will nevertheless be made. [Wollongong Coal] will procure an [sic] USD 5 m cash collateral deposit and charge (in favour of [Mauritius Bank]) from a non-Group Australian entity as Security, an independent strap-on promoter guarantee issued under Australian Law (and covering the Promoter's Australian assets as such)."
That email was sent to, amongst other people, Mr P R Kannan.
Mr Kannan was the "Group CFO" of the Gujarat Group and was described in an "Investor Presentation" made by Wollongong Coal in June 2012 as being part of Wollongong Coal's "Highly Experienced Management Team".
On 13 November 2012, Mr Kannan wrote to Mr Arun Jagatramka, a director of NRE Resources, stating that he was confident of getting consent from Wollongong Coal's secured creditors (so as to enable Wollongong Coal to give Mauritius Bank a first charge over its assets) within the next two to three months and:
"…as such request NRE Resources…to provide cash collateral of USD 5 mn and also the corporate guarantees as required".
That is what happened.
On 28 November 2012, Wollongong Coal and Mauritius Bank executed a "Secured Term Loan Facility Agreement".
NRE Resources was not a party to the Facility Agreement.
However, the Facility Agreement provided that it was a condition precedent to the drawdown that, amongst other things, NRE Resources execute a "Deposit Account Charge Agreement" and an "Escrow Mandate Letter".
NRE Resources did so.
On 28 November 2012, it executed an Escrow Mandate Letter which:
1. recited that NRE Resources had opened a deposit account with Mauritius Bank with an initial deposit of US$5 million; and
2. provided that, in substance, Mauritius Bank could appropriate the US$5 million in that account if Wollongong Coal made default under the Facility Agreement.
On 30 November 2012, NRE Resources executed a Deposit Account Charge Agreement pursuant to which it charged the US$5 million in that account in favour of Mauritius Bank.
On 29 November 2012, NRE Resources executed a further document in favour of Mauritius Bank in which it "irrevocably and unconditionally" guaranteed to "pay on demand" as "the principal obligor" any amount "due and payable" to Mauritius by, amongst others, Wollongong Coal under the 28 November 2012 Finance Agreement.
The parties referred to this document as the "Guarantee". In the Guarantee, NRE Resources was described as the "Guarantor" and Wollongong Coal was described as the "Borrower". Wollongong Coal did not, however, execute the document.
Mauritius Bank has made no demand on NRE Resources under the Guarantee. Wollongong Coal nonetheless contends it to be relevant for reasons which I will explain below.
The deposit of US$5 million was made to Mauritius Bank on 6 December 2012. The source of the funds was a transfer made by Wollongong Coal of US$5 million from an account it maintained with the State Bank of India.
As I have stated, as between Wollongong Coal and NRE Resources this was treated as a loan by Wollongong Coal to NRE Resources, and was so recorded in NRE Resources' General Ledger.
In the General Ledger, immediately prior to that advance, Wollongong Coal was indebted to NRE Resources in the sum of $4,334,000.
The effect of the advance made by Wollongong Coal to NRE Resources was to repay that debt and leave the General Ledger showing a relatively small amount ($424,744.15) owing by NRE Resources to Wollongong Coal.
Later advances by NRE Resources to Wollongong Coal, and vice versa, led to the account balance as at 27 September 2013 of $3,622,116.95 (stated to be owing from NRE Resources to Wollongong Coal).
It is a curiosity in this case that the US$5 million that NRE Resources charged in favour of Mauritius Bank as part security for the loan made by Mauritius Bank to Wollongong Coal represented the proceeds of a loan by Wollongong Coal to NRE Resources.
However, once those funds were advanced, they were the property of NRE Resources. Wollongong Coal made no submission to the contrary. In any event, for the most part, the advance represented repayment by Wollongong Coal to NRE Resources of its then indebtedness.
On 29 September 2014, Mauritius Bank exercised its right under the Escrow Mandate Letter and Deposit Account Charge Agreement to appropriate the US$5 million.
There was no suggestion before me that Mauritius Bank was not entitled to take this step.
[4]
Consideration
In the circumstances I have described, my conclusion is that NRE Resources has acted as surety or guarantor and has, from its own assets (being the US$5 million loan to it by Wollongong Coal) discharged that debt.
NRE Resources relies upon conventional principles to submit, correctly in my opinion, that it has an implied right to be indemnified by Wollongong Coal for having, at Wollongong Coal's request, and for no consideration, discharged Wollongong Coal's indebtedness to Mauritius Bank: Israel v Foreshore Properties Pty Ltd (in liq) (1980) 30 ALR 631 at 636 (Aickin J) (Gibbs, Stephen, Murphy and Wilson JJ concurring); McColl's Wholesale Pty Ltd v State Bank of New South Wales [1984] 3 NSWLR 365 at 376 (Powell J); Re Debtor [1937] Ch 156; Anson v Anson [1953] 1 QB 636.
In Friend v Brooker (2009) 239 CLR 129 at [55] the plurality stated:
"The surety who discharges the principal obligation is regarded as having paid money to the use of the principal debtor and may recover indemnity by means of an action against the principal debtor for money paid. The principal debtor must indemnify and save harmless the guarantor. Such is the tenderness of equity for the surety that the surety may obtain an order directing the principal debtor to pay to the creditor a definite sum of money that has become payable, even though the creditor has made no demand for payment." [Footnotes omitted]
That is what has happened here.
Alternatively, NRE Resources has a claim for restitution against Wollongong Coal for the benefit that Wollongong Coal has received at NRE Resources' expense.
In Hill v Hill [2005] NSWSC 863 at [47] Campbell J stated:
"It is well-established that any guarantor has a right of indemnity from the principal debtor - but that does not impact on the relationship between Peter and his mother, because the principal debtor is Paris Hill Pty Limited. As well, though, there is a well recognised species of money paid by the plaintiff for the use of the defendant which can arise when, amongst other things, A requests B to provide a guarantee to C, pursuant to which B is later required to pay. In that situation there is a common money count for money paid by B to the use of A which entitles B to recover the amount paid from A: Mason & Carter, Restitution Law in Australia, para [111]."
Wollongong Coal advanced a number of defences to NRE Resources' claim.
In my opinion, there is no substance to any of them.
First, Wollongong Coal contended that it had made no request of NRE Resources to provide security for its indebtedness. I do not agree. The request was made on Wollongong Coal's behalf by Mr Kannan in the circumstances I have set out at [22] to [29] above.
I see no reason to doubt that Mr Kannan was authorised by Wollongong Coal to make this request.
Second, Wollongong Coal contended that, by reason of the provisions in the Guarantee, NRE Resources should be seen as a primary debtor, alongside Wollongong Coal, and should not be seen as having acted as surety or guarantor for Wollongong Coal's indebtedness to Mauritius Bank. Thus, it was contended, NRE Resources' only entitlement was for contribution, not indemnity.
Even if the Guarantee should be characterised as an indemnity, NRE Resources would be still be entitled to indemnity from Wollongong Coal for the amount it paid: see Courtney & Phillips, The Modern Contract of Guarantee (3rd English ed, 2016) at [12-023-12-025]; O'Donovan & Phillip, The Modern Contract of Guarantee (looseleaf online, Thomson Reuters) at [12.350].
In any event, I do not accept that the Guarantee should be construed as an indemnity. Under that document, NRE Resources' obligation is to pay Mauritius Bank, on demand, any amount "that becomes due and payable" by, relevantly, Wollongong Coal to the Bank. Although the Guarantee states that NRE Resources is to pay any such amount "as the principal obligor", the substance of the matter is that the nature of NRE Resources' obligations to the Bank were subsidiary to those of Wollongong Coal. Wollongong Coal was the borrower. It - not NRE Resources - received the US$25 million advance. NRE Resources agreed to act as surety for that advance.
Even if it could be concluded, because of the terms of the Guarantee, that NRE Resources and Wollongong Coal were co-obligors, and even if NRE Resources and Wollongong Coal should be seen as, formally, joint debtors (which I do not accept), the equity of what has occurred compels the conclusion that Wollongong Coal indemnify NRE Resources (see, generally, Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 at 119-120, 127-128 and 134 (Bryson J)).
Next, Wollongong Coal contends that NRE Resources received a benefit from the transaction because, although it did not receive direct consideration from Wollongong Coal for the payment that it made to Mauritius Bank, "it stood to receive significant benefit from assuring that [Wollongong Coal] was provided with funds", "particularly when the operations of the Group are considered."
Thus it was submitted on behalf of Wollongong Coal:
"The business purpose of [Wollongong Coal] was to provide coal to its parent company, [Gujarat NRE Coke Ltd]. [Wollongong Coal] was not permitted to provide coal to any other purchasers on the open market, and was required to sell all of the coal it produced to [Gujarat NRE Coke Ltd]. [Gujarat NRE Coke Ltd] had not been paying for the coal. Facilities such as this [Mauritius Bank] loan allowed [Wollongong Coal] to continue providing coal to [Gujarat NRE Coke Limited]. Ultimately [Wollongong Coal] obtained judgment against [Gujarat NRE Coke Ltd] for an amount in excess of US$55m relating to deliveries of coal.
In order to ensure the continued supply of coal by [Wollongong Coal], it was critical to [Gujarat NRE Coke Ltd] that sufficient funding was procured to allow production to continue, given that [Gujarat NRE Coke Ltd] itself could not (or would not) pay for the coal produced. Mr Jagatramka resolved this issue by causing [Wollongong Coal] to borrow moneys from [Mauritius Bank], and was only able to do so by causing [NRE Resources] to borrow $4.8m from [Wollongong Coal] to put up as security."
I see two answers to this submission.
The first is that the evidence did not establish these matters.
The second is that even if NRE Resources derived some indirect benefit, as a member of the Gujarat Group, by reason of the advance made by Mauritius Bank to Wollongong Coal, the fact remains that it received no consideration for providing the security that it gave pursuant to the Escrow Mandate Letter and the Deposit Account Charge Agreement.
Nor would the receipt by it of any such indirect benefit render it inequitable that it be indemnified by Wollongong Coal, in the circumstances that have occurred.
Next, Wollongong Coal contended that it would be unconscionable and inequitable to permit NRE Resources to recover from Wollongong Coal the amount that it had paid to Mauritius Bank on Wollongong Coal's behalf.
The basis for this contention was said to be:
"[Wollongong Coal] was forced to continue to supply coal to [Gujarat NRE Coke Ltd] despite the non-payment by [Gujarat NRE Coke Ltd] that had caused [Wollongong Coal] to be in dire financial circumstances. The controlling mind of [Gujarat NRE Coke Ltd] and [NRE Resources], Mr Jagatramka, contrived that [Gujarat NRE Coke Ltd] could continue to obtain coal from [Wollongong Coal] without the need to pay - which, as described above, also benefited [NRE Resources]."
I see no justification in the evidence for these contentions.
Further, I see nothing in the evidence to warrant a conclusion that it would be unconscionable to grant NRE Resources the relief it seeks.
Finally, Wollongong Coal relied upon cl 14 of the Guarantee which provides that NRE Resources, as "Guarantor" under that document, "will not exercise or otherwise enjoy the benefit of any right…to be indemnified by any Obligor" until such time as, in effect, Wollongong Coal had paid all amounts due to Mauritius Bank.
The short answer to this contention is that, as NRE Resources submitted, the terms of the Guarantee, and cl 14 in particular, are irrelevant to the claim that NRE Resources makes against Wollongong Coal.
The claim made against NRE Resources is based upon rights arising from the discharge of its obligations under the Escrow Mandate Letter and the Deposit Account Charge Agreement.
Mauritius Bank has made no demand on NRE Resources under the Guarantee. The payment of US$5 million made by NRE Resources to Mauritius Bank was not by reason of such obligations as it might have under the Guarantee.
In any event, the Guarantee is no longer in effect. That is because cl 16 of the Guarantee provides that it ceased to have effect six months after the Termination Date under the Facility Agreement; that is, in the events that have happened, on 7 June 2017.
Clause 16 does provide that the guarantee "shall continue to bind" NRE Resources if Mauritius Bank made a "claim or demand" on NRE Resources prior to the "Expiry Date".
There is in evidence a number of demands that Mauritius Bank made on NRE Resources under the Escrow Mandate Letter and the Deposit Account Charge Agreement (which demands ultimately led to Mauritius Bank appropriating the US$5 million). However, my attention has not been directed to any document which could properly be characterised as a demand by Mauritius Bank on NRE Resources under the Guarantee. In particular, I do not see any of Mauritius Bank's letters of 24 September, 29 September or 27 October 2014 as having this character.
[5]
Conclusion
NRE Resources is entitled to judgment against Wollongong Coal for the difference between the amount shown in its General Ledger as being owed by it to Wollongong Coal and the US$5 million it has paid Mauritius Bank in partial discharge of Wollongong Coal's indebtedness to that bank.
I invite the parties to confer and agree on the amount of that judgment (to take into account exchange rates and interest).
NRE Resources should have its costs of the proceedings.
[6]
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Decision last updated: 16 November 2017