FEDERAL COURT OF AUSTRALIA

Otto Energy (Tanzania) Pty Ltd v Swala Energy Ltd (No 2) [2017] FCA 1180

ORDERS

THE COURT ORDERS THAT:

1.    Swala Oil and Gas (Tanzania) Public Limited Company (Registered Number 115280066) (judgment debtor) pay to Otto Energy (Tanzania) Pty Ltd (ACN 112 541 741) (judgment creditor) US$800,000.

2.    The costs of the judgment creditor from 31 August 2017 to the date of this order as agreed or taxed be paid by the judgment debtor to the judgment creditor.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCKERRACHER J:

INTRODUCTION

1    By interlocutory application, Otto Energy (Tanzania) Pty Ltd seeks an order that the second respondent, Swala Oil and Gas (Tanzania) Public Limited Company Registered Number 115280066 (SOGT) pay Otto USD$800,000 and the costs of Otto up to the date of this order as agreed or taxed (the application for judgment).

2    Otto relies on the affidavit of Mr Matthew Allen, the Managing Director and Chief Executive Officer (CEO) of Otto, sworn on 4 September 2017 and a further affidavit of Mr Allen sworn on 12 September 2017, practically identical in terms rectifying one or two minor technical errors in the first affidavit.

3    In addition, Otto tenders an email from the third respondent, Mr David Mestres Ridge, CEO and Managing Director of SOGT, to Mr Allen attaching copies of the application for judgment and the first affidavit of Mr Allen sent on Monday, 4 September 2017 at 4.20 pm. Service is not an issue as SOGT was represented by Ms KM McNally.

BACKGROUND

4    On 9 May 2016, Otto commenced this proceeding against several parties. On 27 May 2016, Otto received communication from a firm of solicitors, stating amongst other things that they were currently assisting SOGT with respect to the matter and had been provided with a copy of the originating application and statement of claim. They indicated that they were instructed not to accept service. It was stated that SOGT would not be submitting to the Western Australian jurisdiction.

5    SOGT, as I indicated in Otto Energy (Tanzania) Pty Ltd v Swala Energy Ltd [2016] FCA 1266 (Otto No 1), is a Tanzanian company, on which I gave leave for service for reasons there stated. On 31 October 2016, Otto effected service. At no time has SOGT filed or served any notice of address for service, nor has it served any defence. Service having been effected and jurisdiction not being challenged within any required or reasonable time, Otto contends that by reason of r 16.07(2) of the Federal Court Rules 2011 (Cth) (FCR), SOGT is taken to have admitted all of the allegations in Otto’s statement of claim, including the allegations that Mr Mestres Ridge was at all material times the Managing Director and CEO of SOGT.

6    Rule 16.07 FCR relevantly provides as follows:

16.07    Admissions, denials and deemed admissions

(1)    A party pleading to an allegation of fact in another party’s pleading must specifically admit or deny every allegation of fact in the pleading.

(2)    Allegations that are not specifically denied are taken to be admitted.

…

THE EVIDENCE

7    Mr Allen swears that on 24 and 25 May 2017, Otto and SOGT participated in a mediation in London, England, conducted by Mr Christopher Newmark of Spenser Underhill Newmark LLP pursuant to the mediation rules of the International Chamber of Commerce involving, amongst other things, Otto’s claims against SOGT in these proceedings. The mediation was attended by Mr Mestres Ridge, Mr Yohana Mgamga and Mr Ezekiel Kihali for and on behalf of SOGT and Mr Matthew Warner, Mr Nicholas Brown, Mr Phillip Murray, Mr Anthony Young QC and Mr Allen on behalf of Otto.

8    At the mediation, Otto and SOGT agreed to settle those claims against SOGT in these proceedings on the terms of the Settlement Agreement. No issue has been taken by SOGT that the Settlement Agreement was made in London, rather than in Australia, nor was any issue taken as to the service out of the jurisdiction.

9    The Settlement Agreement, relevantly to arguments that have been raised in this hearing, was in these terms:

…

Settlement Agreement

Date [25 May] 2017

Parties

Otto Energy (Tanzania) Pty Ltd ACN 112 541 741 of 32 Delhi Street, West Perth, Western Australia (Otto)

Swala Oil and Gas (Tanzania) PLC Registered Number 115280066 of 2nd Floor Oyster Plaza, Oysterbay, Haile Selassie Road, Dar es Salaam, Tanzania (SOGT)

Background

A.    On 10 May 2016 [sic], Otto commenced the Proceeding against, among others, SOGT and the Directors.

B.    On 13 January 2017, the Directors filed a Defence in the Proceeding.

C.    On 9 May 2017, the Directors made an offer to compromise Otto's Claims against them in the Proceeding.

D.    Otto and SOGT have agreed to enter into this Settlement Agreement to settle Otto's Claims in the Proceeding against all Respondents.

Agreed terms

1.    Definitions and interpretation

1.1.    Definitions

In this Agreement:

Agreement means this agreement including the background;

Claim includes all causes of action, debts and claims at law or in equity or arising under Australian statute;

Directors means David Mestres Ridge, Neil Taylor, Kenneth Russell and Peter Grant;

Joint Account means the joint account referred to in the joint operating agreement between Otto, Swala and Tata Petrodyne Limited in respect of the Pangani area in the United Republic of Tanzania;

Proceeding means proceeding number WAD175/2016 in the Federal Court of Australia;

Respondents means SOGT, the Directors, Swala, Ernest Massawe, Mohammed lshtiaq and Frank Moxon;

Settlement Sum means US$800,000; and

Swala means Swala Energy Limited (subject to Deed of Company Arrangement).

1.2.    Interpretation

In this Agreement, unless the context requires otherwise:

(a)    the singular includes the plural and vice versa;

(b)    the headings are used for convenience only and do not affect the interpretation of this Agreement;

(c)    a reference to a document includes the document as modified from time to time and any document replacing it; and

(d)    wherever "include" or any form of that word is used, it must be construed as if it were followed by "(without being limited to)".

2.    Settlement

SOGT must pay the Settlement Sum to Otto by no later than 5pm (AWST) on 31 August 2017. The Settlement Sum is to be paid by electronic funds transfer into Otto's nominated bank account or by bank cheque delivered to K&L Gates, Otto's solicitors. The Settlement Sum is to be paid in full and final settlement of the Claims in the Proceeding and any Claim that Otto has or may have in respect of the Joint Account.

3.    Default

If SOGT does not pay to Otto all of the Settlement Sum in accordance with clause 2 of this Agreement, Otto will be entitled to rely upon and tender this Agreement as evidence of SOGT's agreement to submit to the jurisdiction of the Federal Court of Australia and consent to judgment (and Otto may obtain judgment by consent) for the proportion of the Settlement Sum that remains unpaid, plus interest and costs. Any such consent judgment is an admission of liability under this Agreement only and does not constitute an admission in respect of any Claim in the Proceeding.

4.    Covenant not to sue

Upon payment by SOGT to Otto of all of the Settlement Sum, Otto shall not commence or maintain against any party to the Proceeding any Claim now made by Otto in the Proceeding or in respect of the Joint Account.

…

7.    Public announcements or statements

The parties agree to issue a joint statement in the form attached at Annexure A, and not to make any other public announcement or statement in respect of this Agreement unless agreed.

8.    Taxation clause

Otto will indemnify SOGT in respect of any tax that SOGT is obliged to pay and pays in the United Republic of Tanzania in respect of the payment of the Settlement Sum by SOGT to Otto.

…

10.4.    Costs

Each party must pay its own legal costs of and incidental to the preparation and completion of this Agreement.

10.5.    Governing law and jurisdiction

(a)    This Agreement is governed by and must be construed in accordance with the laws in force in Western Australia.

(b)    The parties submit to the exclusive jurisdiction of the courts of that State and the Commonwealth of Australia in respect of all matters arising out of or relating to this Agreement, its performance or subject matter.

…

Attachment A

JOINT STATEMENT OF OTTO ENERGY LIMITED AND SWALA OIL AND GAS (TANZANIA) PLC

Otto Energy Limited ("Otto") and Swala Oil & Gas (Tanzania) plc ("Swala") are pleased to advise that they have entered into a settlement in respect of their claims and counterclaims concerning the Pangani Licence, onshore Tanzania, including the claims made before the Federal Court of Australia ('the Proceeding"). Under the settlement, Swala shall pay Otto the net sum of US$800,000 on or before 31st August 2017. Upon receipt of such payments the Proceeding, including against current and former directors of both Swala and Swala Energy Limited (subject to Deed of Company Arrangement) will be discontinued.

The settlement has been reached on commercial grounds and does not represent an admission of liability by either party.

…

10    On 13 January 2017, the current and former directors of SOGT (the third, fifth, sixth and seventh respondents in these proceedings) filed a defence, as noted in this Settlement Agreement.

11    In short, the machinery provisions were that:

(a)    by cl 2, SOGT must pay the Settlement Sum to Otto by no later than 5.00 pm (AWST) on 31 August 2017. It was to be paid by electronic funds transfer into Otto’s nominated bank account or by bank cheque, delivered to K&L Gates, Otto’s solicitors. The Settlement Sum was to be paid in full and final settlement of the claims in the proceeding and any claim that Otto has or may have had in respect of the Joint Account;

(b)    by the default clause, cl 3, it was provided:

If SOGT does not pay to Otto all of the Settlement Sum in accordance with clause 2 of this Agreement, Otto will be entitled to rely upon and tender this Agreement as evidence of SOGT’s agreement to submit to the jurisdiction of the Federal Court of Australia and consent to judgment (and Otto may obtain judgment by consent) of the proportion of the Settlement Sum that remains unpaid, plus interest and costs. Any such consent judgment is an admission of liability under this Agreement only and does not constitute an admission in respect of any Claim in the Proceeding.

(c)    the making of the payment was to be the subject of the public announcement attached to the Settlement Agreement;

(d)    by cl 10.4, each party bore its own costs of and incidental to the preparation and completion of the Settlement Agreement; and

(e)    by cl 10.5, the Agreement was governed by and must be construed in accordance with the laws in force in Western Australia with the parties submitting to the exclusive jurisdiction of the courts of that State and the Commonwealth of Australia in respect of all matters arising out of and related to the Settlement Agreement, its performance or subject matter.

12    SOGT, on the evidence of Otto, has failed to comply with the terms of the Settlement Agreement. The Settlement Sum referred to in the Settlement Agreement has not been paid before 31 August 2017 or at any other time. Accordingly, on 4 September 2017, Otto filed the application for judgment.

THE RELEVANT PRINCIPLES

13    The Court has jurisdiction and power to make the orders sought by reason of s 22 of the Federal Court of Australia Act 1976 (Cth) (FCA), which provides as follows:

22    Determination of matter completely and finally

The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him or her in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided.

14    That the Court has such power is apparent from decisions such as Darling Downs Investments Pty Ltd v Ellwood (1988) 18 FCR 510 per Pincus and Einfeld JJ (at 521-526); We Two Pty Ltd v Shorrock (No 2) (2005) 220 ALR 749 per Finkelstein J (at [15]-[16]); Needlework Warehouse Pty Ltd v Chansonette Pty Ltd (2005) 226 ALR 252 per Lindgren J; AG Cowley Holdings Pty Ltd v Central City Pty Ltd (2010) 183 FCR 102 per Barker J (at [20]-[21], [27] and [46]-[48]); ACT Cross Country Club Inc v Cundy [2010] FCA 782 per Perram J (at [42]); Bird v McComb (No 4) [2012] FCA 270 per Collier J (at [22]-[26]); and Swift Seat Australia Pty Ltd v The Harrington Global Corporation Pty Ltd [2013] FCA 43 per Gordon J.

SOGT’S SUBMISSIONS

15    SOGT, which has now appeared for the first time through Ms McNally, submits that it is inappropriate for Otto to bring its application to enforce the Settlement Agreement within the same proceeding and contends that a separate proceeding should have been issued.

16    In my view, this is not so according to the following authorities: Darling Downs per Pincus and Einfeld JJ (at 526); We Two per Finkelstein J (at [17]-[19]); Needlework Warehouse per Lindgren J; AG Cowley Holdings per Barker J (at [47]-[48]); ACT Cross Country per Perram J (at [42]); and Bird v McComb per Collier J (at [26]).

17    SOGT and Ms McNally’s appearance at the interlocutory application hearing was something of a surprise, given that it has played no part in the proceeding until this time. No adjournment was sought. At no time has there been a challenge to the orders for service out or jurisdiction, notwithstanding the existence of the arbitration clause for dispute resolution of the Varied Sell-Down Agreement (as discussed in Otto No 1).

18    Ms McNally, for SOGT, indicated that she could hand up a notice of acting, but it had not been filed at this stage (or since) because she did not want to give away any rights of SOGT to dispute jurisdiction. However, Ms McNally indicated that any application for a stay based on the arbitration clause might be overtaken by events given the acceptance of jurisdiction in the Settlement Agreement. In my view this is so.

19    Ms McNally also submitted that if her client wanted to make an application to stay the application for judgment, it would be required to be brought by a separate proceeding by virtue of r 28.43 FCR which provides as follows:

28.43    Application for stay of arbitration

(1)    A party to an arbitration agreement who wants an order under section 7 of the International Arbitration Act to stay the whole or part of a proceeding must file an originating application, in accordance with Form 51.

(2)    The originating application must be accompanied by:

(a)    a copy of the arbitration agreement; and

(b)    an affidavit stating the material facts on which the claim for relief is based.

20    As indicated, in my view, the authorities make clear that the present application for judgment by virtue of a settlement agreement between the parties may be pursued within the same proceeding. It was clear by virtue of the content of the Settlement Agreement that there would be no challenge to jurisdiction.

21    I intend to proceed on the basis that there is no challenge before me and there has not been any challenge within any reasonable period, let alone any period under the Rules. Nor has any r 28.43 challenge been issued so far as I am aware.

By consent?

22    As to the form and content of the application for judgment, there is a further challenge as to whether Otto now seeks no more than that to which SOGT agreed under the Settlement Agreement, including judgment ‘by consent’ in the event that it failed to pay the Settlement Sum by 31 August 2017, which it has failed to do.

23    Otto says it is important that the judgment order should reflect that it is given with SOGT’s consent, which is the effect, it says, of the terms within the Settlement Agreement. The importance, it says, is because Otto apprehends that the enforceability of the judgment in Tanzania will be affected by the circumstances that ultimately SOGT first submitted willingly to the jurisdiction under the Settlement Agreement and secondly, consented to the judgment being given against it. While this may be correct, there is no evidence on this point and I note that the application for judgment itself does not seek that the orders sought should be ‘by consent’. Secondly, it does not reflect the reality to record SOGT was consenting to the judgment when it was represented and opposed the orders. Otto’s answer to that is that it cannot withdraw the consent given under the Settlement Agreement. No application was made to have the Settlement Agreement declared invalid; and no objection to admissibility of the Settlement Agreement or the evidence about the circumstances in which the Settlement Agreement was reached was raised. That is all so, which affects the entitlement to judgment, but I consider, not judgment ‘by consent’.

Other arguments

24    SOGT further argues that the effect of s 22 FCA is that if the parties agree to settle on a deed with a result that it is the end of the proceeding, then enforcement can be within the same proceeding and it is unnecessary to issue fresh proceedings. However, in a circumstance such as the present, where there are different parties and only Otto, SOGT and its current and former directors are released, but not until payment, then the position is unclear because, on the terms of the present interlocutory application, the judgment against SOGT would not release the directors. On its face, it would keep alive the claims against the directors and the other respondents. In my view, if the directors are entitled to be released, they may so contend at some future date if necessary. Ms McNally represents only SOGT.

25    SOGT also contends that, in relation to costs, there is a further difficulty because, under the Settlement Agreement, each of the parties was to bear its own costs, whereas the application seeks costs.

26    There is a further difficulty, SOGT says, with the indemnity clause under the Settlement Agreement by which Otto will indemnify SOGT regarding any tax levied in Tanzania as well as resignation from committees of creditors.

27    On the authorities cited (at [14]), I am not persuaded that any of these three matters preclude judgment with costs being given for Otto. The judgment accords with what is given by SOGT in the Settlement Agreement.

Indemnity costs?

28    In its submissions, Otto noted that there is authority for an entitlement to indemnity costs on such an application. I note that indemnity costs were not sought in their application, nor did Otto orally press an argument for indemnity costs at the hearing. Undoubtedly, in some circumstances such an award may be appropriate. I do not consider special circumstances have been shown in this situation for a departure from the usual position. Costs should be payable to Otto from the settlement date of 31 August 2017 because it has been necessary to bring the application for judgment due to default under the Settlement Agreement.

CONCLUSION

29    SOGT submitted to jurisdiction and agreed to pay the sum of USD$800,000 to Otto in settlement of the claim. It has failed to do so. Otto is entitled to the relief it seeks and I make orders in terms of the interlocutory application.

Associate:

Dated:    4 October 2017

SCHEDULE OF PARTIES