Aquila Steel P/L v Amci (IO) P/L & Anor; BD Coal P/L & Anor v Amci (BC) & Ors [2008] HCATrans 249 (18 June 2008)

Last Updated: 1 July 2008

[2008] HCATrans 249

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B6 of 2008

B e t w e e n -

AQUILA STEEL PTY LTD

Applicant

and

AMCI (IO) PTY LTD

First Respondent

WESTIRON PTY LTD

Second Respondent

Office of the Registry
Brisbane No B7 of 2008

B e t w e e n -

BD COAL PTY LTD

First Applicant

AQUILA RESOURCES LIMITED

Second Applicant

and

AMCI (BC) PTY LTD

First Respondent

BELCOAL PTY LTD

Second Respondent

AMCI HOLDINGS AUSTRALIA PTY LTD

Third Respondent

RIO DOCE AUSTRALIA

Fourth Respondent

CVRD INTERNATIONAL SA

Fifth Respondent

Applications for special leave to appeal

KIRBY J
HEYDON J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON WEDNESDAY, 18 JUNE 2008, AT 10.21 AM

Copyright in the High Court of Australia

__________________

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR B. DHARMANANDA, for the applicant in each matter. (instructed by Mallesons Stephen Jaques)

MR W. SOFRONOFF, QC, (Solicitor-General of the State of Queensland): May it please the Court, I appear with my learned friends, MR A.M. POMERENKE and MR S.B. HOOPER, for the respondents in each matter. (instructed by Allens Arthur Robinson)

KIRBY J: Yes, Mr Jackson. It is convenient to take these two matters together?

MR JACKSON: Yes, your Honour. The applications are in relevant respects identical. Could I use the application book for B6? That is the first of the two matters. Your Honours, as we would see it, there are two principles, albeit somewhat related issues on the application. The first is, is it simply a contract case not meriting the grant of special leave, and, secondly, does it have sufficient prospects of success? I use the singular “it”, there are, of course, the two cases. Your Honours, could I deal with those matters in that order. The two cases are, of course, contract cases. They relate, however, to very significant Western Australian iron ore deposits and Queensland coal deposits. Your Honours will see that referred to in the application book commencing at page 195 at the bottom of the page, paragraph 5 and going over to paragraph 6 on the next page.

KIRBY J: Mr Jackson, I should have said at the beginning – and I interrupt you and you will get a little bit more time for this interruption – there is before us an affidavit of Mr Alan Murray, a legal practitioner, which is sworn in proceeding and it is in the file of B7 at page 193 and following. It attempts to give certain background information. Are you intending to read that document for us?

MR JACKSON: Yes, your Honour.

KIRBY J: Is there any objection, Solicitor, to the Court’s reading that document?

MR SOFRONOFF: No, your Honour.

KIRBY J: Yes. We read the affidavit of Mr Alan Murray, solicitor, sworn 13 February 2008 at page 193 of B7. I am sorry to have interrupted you.

MR JACKSON: I will again say a similar affidavit is the one I was just referring to in this matter. May I take it, your Honours, that we have similar leaves, your Honour?

KIRBY J: Yes, we have read it.

MR JACKSON: As your Honours will see - - -

KIRBY J: I have not read it twice, but I have read it once.

MR JACKSON: Your Honour, B6 relates to the iron ore, B7 the coal. Your Honours would have seen at page 195 of B6, paragraph 5 and paragraph 6 dealing with the extent of the interest in question. Your Honours, could we also say that the need for provisions dealing with change and control of joint venturers to operate in conjunction with related party provisions is something which is well recognised. We have given some references at page 76 in footnote 30 and at page 75 you will see quoted an extract from one of those in paragraph 27 on page 75 going through to page 76.

To put it shortly, in this case the reasons of the courts below have given primacy to a related party provision and, in our submission, there is no reason why provisions relating both to related parties and also to change of control of joint venturers do not have cumulative effect. If we are correct, we have been deprived of very significant rights. Your Honours, may I go on to elaborate upon that in relation to the correctness of the judgments below or the arguable correctness in the judgments in the court below.

Your Honours, the applications turn on the relationship between the provisions of the joint venture agreement which your Honours will see commences at page 80 and is relevantly at page 83. Your Honours will see that one of the provisions there referred to is at page 101. It deals in clause 14.5 with what is described as, “a Change in Control” and your Honours will see that clause 14.5(a) provides that if there is a change in control of a participant:

the remaining Participants . . . have an option to purchase the Venture Interest of the Participant that is subject to the Change in Control –

at a price fixed by an independent expert and within a certain time. The participants at the relevant times were the applicant and the second respondent, Westiron, and the ownership at that point can be seen in the diagram which should be inserted in the books, your Honours, at pages 231 and 232. If I could go to Step 1 of those diagrams, your Honours will see the diagram has really two sides. The left-hand side is B6. The right-hand side is B7.

You will see in the middle a company outlined in a heavier blue, “AMCI Holdings” and if one follows the chain down from that to the company in light blue at the bottom on the left-hand side, you will see a reference to the “Joint Venture”. Immediately above that is the company “Westiron” which was one of the two joint venturers. It was a subsidiary of the company immediately above it, “WA Resources”. That company was a subsidiary of the company in darker blue called “Holdings” and that company itself was a subsidiary of the companies at the two levels above it.

Your Honours, the company Holdings in darker blue was the company which in operational terms controlled the respondents, the iron and coal joint ventures. You will see that at page 71 of the application book, footnote 13. The role of that company, Holdings, was reflected in the definition of the term “Change in Control” which your Honours will see in clause 1.1 at page 84.

CRENNAN J: How does paragraph (e) of that clause operate in relation to these facts?

MR JACKSON: Your Honour, it did not apply, to put it shortly, because there was not a change in control at a relevant point with respect to the Holdings company or the Cantonese which controlled it. Your Honours will see in Step 4 in the diagram that the last of the four steps was to take the Holdings company out of the group altogether, but if one looks at paragraph (e), which said something was not of the definition of “Change in Control” at page 84, which said that something was not a Change in Control, that event did not matter. It had nothing to do with the case really. It is simply demonstrating how that company got out of it.

The point we would seek to make about the definition of “Change in Control” is this, that your Honours will see it says it “occurs for the purposes of clause 14.5”. It has not other purpose. That is the provision to which I took your Honours earlier. It looks at the three types of control of a participant specified in paragraphs (a), (b) and (c) “as at the Commencement Date”, your Honours will see in the opening words of the provision, and the Commencement Date is the date of execution of the agreement. That is 14 February 2005. It applies if subsequently to that date a person acquired – “a person” your Honours will see - one of the characteristics in (a), (b) and (c).

Now, your Honours, the two exceptions in (d) and (e); (d) applies if there is a stock market listed company. Paragraph (e), however, one of its construction functions is that it does emphasise the significance of a continued relationship at least between AMCI Holdings and the joint venture participant and its presence, together with the other terms of the definition, is strongly against the notion expressed by Justice Jerrard with which the President agreed at page 48, paragraph [17], the last few lines of that paragraph, saying the clause did not operate because “The ultimate holding company remained the same”.

Your Honours, the difficulty with that is that there would seem to be little purpose in having a provision like (e) if the circumstances were such that the provisions would not be satisfied otherwise if the ultimate holding company remained the same. Your Honours, I should just say this, the definition of “Change in Control” in the opening words looks to “a person”, that is any person. Each of the paragraphs (a), (b) and (c) refers not just to the participant but to a holding company of it and paragraph (e) accepts that changes in control may occur at various levels in the chain. Your Honours, that was one of the reasons relied on by two members of the Court of Appeal. The principal reason relied on was that clauses 14.2 and 14.5 operated independently and that, your Honours, was the principal basis on which the case was decided against us.

Our learned friends in their submissions at paragraphs 7 to 11, which your Honours will find at page 217, discern four reasons from the main reasons for judgment of Justice Keane in the Court of Appeal. The first, your Honours, in paragraph 7 is that clauses 14.2 – and I appreciate I have not taken your Honours directly to that yet – and 14.5 address different situations. If I could take your Honours to the relevant terms, your Honours will see those at page 100 and 101. Clause 14.2 is at the bottom of page 100 and 14.5 I mentioned earlier is at page 101.

Now, your Honours, it is perfectly true in one sense clause 14.2(a), the relevant part of it, is a qualification to what is in 14.1. It gives an ability to transfer all or part of a venture interest to a related body corporate. Clause 14.5, on the other hand, is not dealing with transfers of joint venture interests at all. It is looking to control of the joint venturer. There is no reason why the two provisions cannot operate together. That takes one to the second - - -

KIRBY J: Mr Jackson, I take the point that you put, but the fact of the matter is this, by the time you get a matter to the High Court, as you would know better than anyone else, there will be arguments and Justice McHugh used to say that everything is susceptible to argument, but the fundamental fact is this is a commercial instrument, it has been given, on the face of the things, the construction which the judges below thought was the appropriate one laid down by authority for such instruments. They have searched for what they say as both the textual and commercial operation of the document, especially to protect the controlling interest falling into the hands of strangers, as they put it. What new wisdom in principle or doctrine is the High Court going to add to a case such as this? I mean, it is just a matter of applying the principles and coming to a view. Of course you can put up arguments, but it does not seem to be a matter of principle or doctrine.

MR JACKSON: Your Honour, I am about to demonstrate that the case is arguable, the lowest, and then no doubt sufficiently arguable, which I - - -

KIRBY J: Well, let that be accepted.

MR JACKSON: Yes, your Honour. Having said that, it comes in the end to a question that really in a sense is a question of principle to the Court and that is, in what circumstances the Court is prepared to deal with significant issues involving very significant sums of money and commercial activity and important activities for the nation when really what is sought is to try to overcome errors which are of great significance to the parties involved?

Now, the Court has a discretion in all these matters. It does not have to be a contract case which is going to determine a new issue of principle or a new approach. Having said that, this is a case, we would submit, of some importance, where it is possible to demonstrate that what has been done has to be to arrive at a conclusion which is, by far, not the better one in the circumstances that exist. I do not know that I can put it higher than that, but that is the argument we would seek to advance. The other things I would seek - - -

KIRBY J: What do you say about the suggestion that the decision reached by the courts below is more apt to a commercial reading of the instruments? Because I must admit that that was something that played on my mind as I read it. It seems as though the object, the overall object, is to prevent the companies falling into the hands of strangers and if that is the object, then that has not occurred on this occasion; economic strangers.

MR JACKSON: Your Honour, that really is to take a view of things which does not really start from the words of it and the concept that that is so is rather militated against by, for example, the provisions of the paragraph your Honour Justice Crennan referred to and the definition of “Change in Control”, because that really assumes in paragraph (e) that the Holdings group, which is, as your Honours will have seen, the group that was the active one, that Holdings was a company, the continued presence of which and subsidiaries of it, was of significance.

Now, what has happened, of course, if one follows through the four steps that are set out there, is that by – and I use the expression contrive the way of doing things – the original company that was the joint venturer has been moved out. The company that was the active party controlling it has been sold off to someone else. True it is that the ultimate controllers are the same, but the way in which the contract was framed was that the definition of “Change in Control” applied to clause 14.5 was to prevent contrivances and the prevention of contrivances really is one of the reasons that should be given commercial significance.

Your Honours, the other matters to which I refer deal with particular arguments relating to the correctness of the decision. Your Honours, I am happy to go on with those or to - - -

KIRBY J: You still have some time.

MR JACKSON: Thank you, your Honour. What I was going to say was as far as the principal reason was concerned, namely, that the clauses 14.2 and 14.5 operate independently, we would say several things about them. First of all, there is no reason why the two provisions cannot operate together. The view expressed in our learned friend’s submissions and really part of what I have said already, that the presence of clause 14.2(a)(i)(B) on page 101 indicates that clause 14.2 is self-contained, is not correct. That clause is looking to the time after the transfer of a venture interest and requires that there be some continued relationship. It does not make that body a participant.

The third reason, your Honours, that is referred to – and this is in paragraph 10 of the respondent’s submissions, page 218 – is that two other provisions of clause 14, namely, clauses 14.3 and 14.6, also deal with transfers of venture interests and do not have in them the words “subject to clause 14.5”. It is suggested that clause 14.2 should be treated similarly. The fact of the matter, your Honours, is that there is not a valid comparison. Those two provisions, 14.3 first, is speaking about transfer with or without consent, 14.6 is speaking of cases where the other participants have rejected an offer and, as we submit, there is no valid comparison with 14.2.

The fourth point, your Honours, is – and our learned friends refer to this, as did the Court of Appeal, in paragraph 11 at page 218 – that clause 14.2 uses the expression may transfer “as a matter of right”. Certainly that is saying there is a matter of right. But that is, your Honours, not dealing with clause 14.5, but rather to insulate the provision from the strictures of 14.1, 14.3, and 14.6, all of which deal with transfers. Clause 14.5 deals with Change in Control.

Your Honours, another point relied on by our learned friends – this is paragraph 19 at page 221 – is that no Change in Control occurred after the new company had become a participant. Your Honours, our response is set out in paragraphs 9 and 10 of our written submissions at page 227 and our contention is that to do that, to adopt that view, simply ignores the words in the definition of “Change in control” of the words “as at the Commencement Date”. Your Honours, those are our submissions.

KIRBY J: Thank you, Mr Jackson. The Court will take a short adjournment to consider the course it will take in this application.

AT 10.42 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.43 AM:

KIRBY J: In these matters Justice Crennan will give the reasons and pronounce the orders of the Court.

CRENNAN J: In each of these matters, two joint venturers entered into relevantly identical joint venture agreements as participants in equal shares (the participants). Each of the joint venture agreements contained provisions regulating the transfer by a participant of its interest to another. By clause 14.2, a participant was permitted, as a matter of right, to transfer all or any of its interest directly to a related body corporate. By clause 4.5, if there were a change in control of a participant, an option to purchase the interest of that participant would be exercisable by the remaining participants.

The second respondent in each matter, being a participant in the respective joint ventures, transferred its joint venture interest to another entity, the first respondent in each matter which, at the time of the transfer, was a wholly owned subsidiary of the holding company of the transferor. The first and second respondents in each matter sought declarations that they were entitled under clause 4.2 of the joint venture agreements to effect the transfer of joint venture interests and that the transfer had resulted in no change in control of the first respondents within the meaning of clause 14.5 of the joint venture agreements.

The Court of Appeal of the Supreme Court of Queensland, President McMurdo and Justices Jerrard and Keane, dismissed an appeal from the decision of Justice Muir granting both declarations on the ground that the transferor and transferee in each matter were related bodies corporate and that there had been no relevant change in control of the first respondents in each case because the ultimate holding company remained the same.

The applicants seek to argue in this Court that the Court of Appeal misconstrued the joint venture agreements and contend that each of them has acquired an option to purchase the interest of the respective other participant in each of the joint venture agreements by the operation of clause 14.5.

While there are some differences in approach to the questions of construction, we are not satisfied that there is any error of principle demonstrated in the conclusions reached by the Court of Appeal in these matters. Accordingly, the applications do not give rise to a question suitable to a grant of special leave.

In each matter, special leave to appeal is refused with costs.

KIRBY J: Such is the order of the Court. I should have thanked you, Solicitor, for the written submissions which were of assistance to the Court in considering the matter.

AT 10.45 AM THE MATTER WAS CONCLUDED