FEDERAL COURT OF AUSTRALIA
First Solar (Australia) Pty Ltd, in the matter of Lyon Infrastructure Investments Pty Ltd v Lyon Infrastructure Investments Pty Ltd [2018] FCA 1666
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to s 23 of the Federal Court of Australia Act 1976 (Cth), the proceeding against the second and third defendants be stayed pending the outcome of the arbitration between the plaintiff and the first defendant.
2. The plaintiff pay the second and third defendants’ costs of the amended interlocutory process filed on 23 March 2018.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MARKOVIC J:
1 By amended originating process filed on 21 December 2017 (Amended Originating Process) the plaintiff, First Solar (Australia) Pty Ltd (First Solar) seeks, on the one hand, relief as against Lyon Infrastructure Investments Pty Ltd (Lyon) and, on the other, relief as against Lyon Infrastructure Investments 1 Pty Ltd (Lyon 1) and Lyon Solar Pty Ltd (Lyon Solar). It is the relief sought against Lyon 1 and Lyon Solar that is at the heart of the application presently before the Court for determination.
2 Relevantly, First Solar seeks: declarations that Lyon 1 and Lyon Solar hold the assets of Lyon, secured in favour of First Solar, on trust or as bailee for First Solar and that Lyon 1 and Lyon Solar have no right, title or interest in those assets; an order that a receiver be appointed to Lyon 1 and Lyon Solar; damages for breach of trust or, in the alternative, an account of profits; an order that Lyon 1 and Lyon Solar deliver up the assets to First Solar or, in the alternative, to Lyon; and damages for inducing Lyon’s breach of contract.
3 By amended interlocutory process filed on 23 March 2018 (Amended Interlocutory Process) Lyon, Lyon 1 and Lyon Solar seek orders that, pursuant to s 8 of the Commercial Arbitration Act 2010 (NSW) (CA Act) and/or s 23 of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and/or the implied jurisdiction of the Court, the parties be referred to arbitration in respect of the matters which are the subject of arbitration under cl 5 of the deed of variation dated 19 May 2016 (Deed of Variation) and that the proceeding be stayed pending the determination of the arbitration.
4 Despite the terms of the orders sought in the Amended Interlocutory Process, at the hearing no submissions were made in support of the first order sought, namely that Lyon 1 and Lyon Solar be referred to arbitration in respect of the matters which are the subject of arbitration under cl 5 of the Deed of Variation. Rather, the argument before me was entirely focused on the latter relief, being the application for a stay of the proceeding as against Lyon 1 and Lyon Solar pursuant to s 23 of the FCA Act. Given events that have occurred which are described below, no relief was sought in relation to Lyon. Lyon 1 and Lyon Solar are not party to the Deed of Variation, and thus they did not seek relief under s 8 of the CA Act.
background
The relationship between the parties
5 On 14 November 2014 First Solar and Lyon entered into the following agreements:
(1) an exclusivity agreement (Exclusivity Agreement) which:
(a) set out the terms on which Lyon would support First Solar’s involvement in the 26MWdc Cook Shire solar project at the northern most fringe of the national electricity grid as the exclusive supplier of solar PV modules;
(b) provided that, pursuant to the purpose of developing a relationship in connection with the project and Lyon’s solar PV project pipeline, First Solar would loan money to Lyon allowing it to incur development costs in relation to the 26MWdc Cook Shire solar project;
(2) a promissory note which set out the terms on which Lyon agreed to repay the sum of $280,000 (Loan) advanced to it by First Solar (Loan Agreement). Relevantly, the Loan was to be repaid in two instalments with the second instalment due on 30 June 2015 or such other date as agreed between First Solar and Lyon and interest was to be charged at 15% per annum, capitalised annually; and
(3) a general security deed (GS Deed) which:
(a) provided for the grant by Lyon of a security interest to First Solar in the “Project Assets” and a charge over “Other Property”;
(b) defined “Secured Property” as “the Project Assets and Other Property and includes any part of it”;
(c) defined “Project Assets” as:
… all of [Lyon’s] present and after-acquired personal property relating to the Projects to which the PPSA applies, and all of [Lyon’s] present and future rights in relation to any personal property relating to the Projects which the PPSA applies, which includes (without limitation) any shares owned by [Lyon] in LISPVO914 Pty Ltd ACN 602 008 837.
(d) defined “Projects” as those listed in schedule 3 being Cook Shire I 26MWdc solar PV, Cook Shire II 25MWdc solar PV and Cook Shire III 75MW wind project all located in Cook Shire, far north Queensland and Fujinomiya 25MWdc solar PV located in Shizuoka Prefecture, Japan;
(e) defined “Other Property” as “all of [Lyon’s] present and future property, assets and undertaking wherever situated, but excluding any Project Assets”;
(f) defined “Secured Money” as “the money payable by [Lyon] to First Solar under the Loan Agreement” and “Secured Obligations” as “any obligation of [Lyon] to First Solar pursuant to the Exclusivity Agreement or the Loan Agreement”;
(g) set out in cl 3.1 representations and warranties made by Lyon to First Solar including that it:
(i) is properly registered and incorporated as a corporation and validly exists in its jurisdiction of incorporation;
(ii) has given full disclosure of all information relating to it, its assets, the GS Deed, the Loan Agreement and anything in connection with them which is material to an assessment of the nature and amount of risk undertaken by First Solar in entering into and performing the Security and Loan Agreement; and
(iii) it is the sole legal and beneficial owner of the Secured Property and it will be the sole legal and beneficial owner of any property or asset it acquires as Secured Property;
(h) provided in cl 3.2 that Lyon repeats each representation and warranty included in cl 3.1 “with reference to the facts and circumstances at the time on each day while any Secured Money exists”;
(i) provided in cl 4.2 that:
Except as required under any Permitted Security Interest or where First Solar has first consented in writing, such consent not to be unreasonably withheld, [Lyon] must not agree or attempt to assign or otherwise dispose or part with possession of, lease, licence or otherwise deal with, any of the Secured Property.
(j) provided in cl 5.1 that a default occurs if there is a “Default” or “Event of Default” in the Loan Agreement or the GS Deed; Lyon fails to pay the Secured Money payable by it at the times specified in the Loan Agreement; Lyon breaches any term of the Loan Agreement, the Exclusivity Agreement or the GS Deed; or an Insolvency Event occurs with respect to Lyon; and
(k) set out in cll 5.2 to 5.6 the consequences of a default and the rights which accrue to First Solar upon a default.
6 On 5 December 2014 First Solar’s security interest was registered under the Personal Property Securities Act 2009 (Cth) (PPSA).
7 On 19 May 2016 First Solar and Lyon entered into the Deed of Variation which:
(1) replaced the Exclusivity Agreement. In doing so, the Deed of Variation provided, among other things, that:
(a) First Solar was required to sell and Lyon to purchase First Solar PV modules as specified therein for delivery within not less than 16 weeks and not more than 25 weeks after order placement;
(b) Lyon was required to pay US$7.15m (Supply Price) for the supply of the modules in (a) above in accordance with First Solar’s standard module supply agreement terms and conditions (MSA);
(c) Lyon was required to place an order as soon as possible and, in any event, by 31 August 2017; and
(d) in the event that an order was not placed or Lyon did not pay all or part of the Supply Price or any instalments as required by the MSA, the Supply Price would immediately become a debt due and payable by Lyon to First Solar in exchange for delivery within not less than 16 weeks and not more than 25 weeks after the applicable event (i.e. failure to place an order or to make a payment as required by the MSA) (Take or Pay Clause);
(2) varied the terms of the Loan Agreement so that the repayment date of the Loan and accrued interest was extended to the earlier of:
(a) equity financial close of the resized first stage of the Cook Shire Project;
(b) 31 August 2016;
(c) financial close of the corporate-level investment into Lyon (or other such similar funding/financing); and
(d) the date on which Lyon breaches the terms of this Deed,
at which point the entire Loan plus interest accrued to date becomes immediately payable by Lyon to First Solar.
(3) varied the GS Deed including by:
(a) changing the definition of “Secured Money” to mean money payable by Lyon to First Solar under either or both the Loan Agreement and the Deed of Variation;
(b) changing the definition of “Secured Obligations” to mean any obligation of Lyon to First Solar pursuant to either or both of the Loan Agreement and the Deed of Variation; and
(c) amending the list of projects to those set out in schedule 3 of that deed which were:
(4) provided in cl 5, titled “Dispute resolution”, that:
(a) If a dispute between the parties arises, the parties must meet or engage in a teleconference on at least two occasions in an effort to settle the dispute.
(b) If after complying with clause 5(a) the parties do not resolve the dispute within 30 days, either Party may refer the dispute for resolution by final and binding arbitration in Sydney in accordance with the rules of the Australian Disputes Centre current at the time that the dispute is referred to arbitration (ADC Rules). The arbitration will be conducted by a single arbitrator appointed in accordance with ADC Rules. The cost of the arbitrator shall be shared equally by the Parties.
8 Lyon 1 was registered as a company on 29 July 2016 and Lyon Solar was registered as a company on 28 November 2016. Lyon 1 owns a 75% share in Lyon Solar.
Subsequent events
9 On 6 December 2016 the Australian Securities and Investments Commission (ASIC) published a notice of proposed deregistration under s 601AB(1) or (1A) of the Corporations Act 2001 (Cth) (Act) in relation to Lyon. On 6 February 2017 Lyon was deregistered.
10 On 13 July 2017 First Solar demanded payment of the Loan from Lyon.
11 On 2 August 2017 Squire Patton Boggs, the solicitors at the time for First Solar, among other things, demanded payment of the Loan; put Lyon’s directors on notice of First Solar’s intention to apply for reinstatement of Lyon; and sought an account of the Project Assets.
12 On 21 September 2017 First Solar commenced this proceeding seeking orders pursuant to s 601AH(2) of the Act that ASIC reinstate Lyon’s registration and pursuant to s 461 and ss 601AH(3)(b) and (d) of the Act that Lyon be wound up immediately following reinstatement and that Simon Cathro be appointed as its liquidator.
13 On 28 September 2017, in response to the originating application and the affidavit in support sworn by Kent Draper on 21 September 2017, Clayton Utz, at the time the solicitors for the former directors of Lyon and now the solicitors for Lyon, Lyon 1 and Lyon Solar, informed Squire Patton Boggs, among other things, that:
2. In that regard, we note the following:
(a) Lyon was deregistered by the Australian Securities and Investments Commission (ASIC) because company review fees were not paid by the due date.
(b) Our clients undertook a restructure of the Lyon Group business, which resulted in (amongst other things) the registration of Lyon Infrastructure Investments 1 Pty Ltd (Lyon 1). In the course of the restructure certain administrative issues, including payment of the review fees, were overlooked.
(c) The non-payment of review fees was inadvertent and our clients regret that it occurred. However, the deregistration of Lyon was undertaken by the ASIC with no input from, or knowledge of, our clients. As such, it was not deliberate nor done with an improper purpose. We return to this point below.
(d) In particular, the directors of Lyon have not sought to avoid any liability to your client. They accept that Lyon is party to certain agreements with First Solar. The relevant disagreement is whether a liability arises in the first place and the existence of offsetting claims by Lyon against your client.
3. Our clients’ intention is for Lyon to be reinstated. As explained above, there was no intention to cause or permit Lyon to be deregistered, and it is therefore the proper course for Lyon to be reinstated. We specifically note, that our clients intend upon reinstatement of the company that:
(a) it will remain bound by its contractual obligations; and
(b) the assets received by Lyon 1 from Lyon which were the subject of your client's security will be held by Lyon 1 on that basis such that they will be available to satisfy any debt owing by Lyon to your client.
…
14 On 18 October 2017 the Court ordered, among other things, that ASIC reinstate Lyon’s registration.
15 On 19 October 2017 First Solar amended its originating process to seek an order that Lyon 1 be joined as a defendant and to include the relief referred to in [2] above in addition to interim orders against Lyon 1 restraining it from disposing of or otherwise dealing with Lyon’s assets secured in favour of First Solar and requiring it to inform First Solar of the location and identity of those assets.
16 On 31 October 2017 Squire Patton Boggs served a notice in accordance with cl 2.1 of the GS Deed confirming that the Secured Property extended to Other Property as defined in the GS Deed and sought details of and access to Lyon’s records in relation to the Other Property.
17 On 6 November 2017 Lyon, through its solicitors, gave notice of a dispute and that it was referring the dispute for resolution by final and binding arbitration in accordance with cl 5 of the Deed of Variation.
18 On 24 November 2017 First Solar lodged an interlocutory application seeking orders that Lyon and Lyon 1 be restrained from dealing with or disposing of Lyon’s assets secured in favour of First Solar; that they inform its solicitors of the whereabouts of those assets, make them available for inspection and deposit title documents for the Secured Property with First Solar’s solicitors; and that they provide specified information in relation to any of those assets which have been sold or otherwise dealt with since November 2014.
19 On the same date the Court made orders by consent (November Orders) including that:
1. Subject to further order, the proceedings between the plaintiff and first defendant be stayed pending the determination of an arbitration between them.
2. Order 1 above does not preclude either the Plaintiff or the first defendant from bringing an application for interim measures of protection.
3. Unless otherwise notified by the plaintiff, the defendants file and serve an application for orders staying the proceedings against the second defendant in the form of Annexure A to this Order by 7 December 2017, such application to be made returnable for case management hearing on 21 December 2017 at 9.30 am.
4. On the plaintiff providing the usual undertaking as to damages and on the basis of the confirmation given by the plaintiff in paragraph 2 of the email dated 24 November 2017 from Squire Patton Boggs (a copy of which is attached to this order), the first and second defendants, by themselves, their servants and agents, be restrained from:
4.1 selling, transferring, alienating, mortgaging, charging, encumbering, disposing, parting with possession of, or otherwise dealing with the Secured Property (as that term is defined in the General Security Deed entered into by the plaintiff and the first defendant as Grantor in November 2014 (GSD) and varied by the Deed of Variation between the plaintiff and first defendant, copies of which are found at pgs 67 and 85 of exhibit KPD-1) (Secured Property), or any part thereof; and
4.2 causing or permitting the amount presently owing to any third party and secured over the Secured Property, or any part thereof, to increase.
5. The first and second defendants shall inform the plaintiff’s solicitors in writing of the whereabouts and identity of the Secured Property by 30 November 2017.
6. The first and second defendants shall make the Secured Property available for inspection by the plaintiff or its representatives by 30 November 2017.
7. The first and second defendants shall deposit with the plaintiff’s solicitors the Title Documents (as that term is defined in the GSD) in relation to the Secured Property by 30 November 2017.
8. The first and the second defendants shall inform the plaintiff’s solicitors by 30 November 2017:
8.1 whether any part of the Secured Property has been sold, alienated, transferred, charged, encumbered, disposed of, part with possession of or otherwise dealt with since November 2014; and
(a) if so:
(i) how the said part was sold, alienated, transferred, charged, encumbered, disposed of or otherwise dealt with;
(ii) when that occurred; and
(iii) what has become of the said part or the proceeds thereof; and
8.2 of the identity of the entity or entities having possession, custody or control of the Secured Property, or any of part thereof, or the proceeds of sale of the Secured Property, or any part thereof.
…
20 By letter dated 30 November 2017 from Clayton Utz to Squire Patton Boggs, which was expressed to be provided in compliance with the November Orders, among other things, Lyon and Lyon 1 informed First Solar:
(1) of the identity and whereabouts of the Secured Property and, in particular, that the Cook 21, Helenvale, Coen, Cape, Dragon, Kingfisher, Rooster I & II and Churchie I & II projects were held by Lyon 1 and that the Cook Shire 1 project had been sold with the sale proceeds having “largely been reinvested into the Kingfisher project, which forms part of the Secured Property, or otherwise used for general operating costs of Lyon 1”; and
(2) that, with the exception of the Cook Shire 1 project, the Secured Property had not been sold, alienated, transferred, charged, encumbered, disposed of, parted with possession or otherwise dealt with and that Lyon 1 had possession, custody or control of the Secured Property.
21 By letter dated 12 December 2017 (December 2017 Letter) Clayton Utz informed Squire Patton Boggs, among other things, that:
(1) by way of clarification, the Kingfisher, Helenvale and Coen projects were held by Lyon Solar, a subsidiary of Lyon 1;
(2) their client would abide by the November Orders and ensure that the Kingfisher, Helenvale and Coen projects were not dealt with and were otherwise treated in accordance with Order 4 thereof (Interim Restraining Order);
(3) their client was agreeable to appropriate consent orders to reflect the assurance at (2) above should First Solar consider it necessary; and
(4) the Cook Shire 1 project had been sold in October 2015.
22 On 8 December 2017, by consent, Order 3 of the November Orders was vacated and Lyon and Lyon 1 were granted leave to file an application for a stay of the proceeding against Lyon 1, that application was filed and, save for the later addition of Lyon Solar, sought the same orders as the Amended Interlocutory Process now before me for determination.
23 On 18 December 2017 Squire Patton Boggs responded to the December 2017 Letter (see at [21] above) expressing their client’s concern about a number of matters. The letter is lengthy and I do not propose to set it out in full but note that it included the following:
Orders dated 24 November 2017
The Secured Property
1 The Orders made on 24 November 2017 (the Orders) provide for, inter alia, a stay of the Proceedings as against Lyon and an interlocutory injunction against Lyon and Lyon 1 with respect to dealings with the Secured Property (as defined in Order 4.1 of the Orders).
2 Those orders were agreed on the basis of (1) your clients' repeated representations that Lyon 1 was in possession of all of the Secured Property; and (2) Lyon 1's representations that it would stand in the shoes of Lyon. …
3 Despite your repeated representations to the contrary, your letter of 12 December 2017 now seeks to "clarify" that Lyon 1 is not in possession of all of the Secured Property and that a new entity, Lyon Solar Pty Ltd (Lyon Solar), holds some of the relevant projects. With respect, on no view can the information contained in your letter of 12 December 2017 be properly described as a "clarification"; it is a wholesale change to the position which had previously been conveyed.
…
5 Your letter of 12 December 2017 was the first indication provided to our client that the Secured Property is not held solely by Lyon 1. Our client is understandably concerned to ensure that the balance of the Secured Property remains in the hands of Lyon 1 as previously represented. Please confirm by return that the Secured Property is not held by any entity other than Lyon 1 or Lyon Solar (whether in part or in whole).
…
Your clients' conduct
12 We have written to you on a number of previous occasions regarding our client's concerns with respect to your client's dealings with the Secured Property and their conduct in relation to the Proceedings. In light of your client's recent incorrect representations as to the whereabouts of the Secured Property, we write to again convey our client's concern as to the attitude presently being displayed by your clients and their conduct to date. That conduct includes:
12.1 In 2015, a default under the [GS Deed] occurred when the Cook Shire 1 Project was sold without obtaining First Solar's consent, despite clause 4.1 of the [GS Deed] explicitly requiring Lyon to obtain First Solar's consent prior to the sale of any part of the Secured Property. It is only two years later, after express orders were made by the Court, that limited details of the sale of the Cook Shire 1 Project have been provided to First Solar.
…
12.3 On 31 August 2016, your client failed to repay the Loan Amount by the due date for repayment.
12.4 Throughout 2016 and 2017 First Solar regularly addressed the repayment of the Loan Amount in correspondence with Lyon. Lyon did not deny that repayment of the Loan Amount was due to First Solar.
12.5 On 6 February 2017 your clients allowed Lyon to become deregistered, without informing First Solar, in breach of clauses 3.1, 3.2 and 4.1 of the Security Deed.
12.6 On 13 July 2017, First Solar sought repayment of the Loan Amount from Lyon.
12.7 It was not until your letter of 6 November 2017, after substantial correspondence between the parties and 4 months after First Solar issued a demand for the repayment of the Loan Amount, that Lyon notified First Solar that it disputed the Loan Amount was due. The dispute raised has not been substantiated by evidence. Furthermore, Lyon has not explained why it has not adhered to the terms of the [GS Deed] and it has made no attempt to rectify the breaches under the [GS Deed].
…
Going forward
18 Your clients have now filed an application for a stay of the Proceedings against Lyon 1. Lyon 1 is not a party to the Deed of Variation and, as such, our client does not agree that the claim against Lyon 1 should be stayed and referred to arbitration. Furthermore, given the conduct of your clients, as set out in paragraphs 7 to 16 above, it is not appropriate for First Solar to agree to a stay against Lyon 1 in circumstances where Lyon 1 admits to the mishandling of the Secured Property. Our client wishes to reserve the right to seek damages against Lyon 1 and to ensure its security is not prejudiced.
…
20 Paragraph 4 of your letter of 12 December 2017 seeks to reassure our client that Lyon Solar will ensure that the Secured Property is not transferred or dealt with and will otherwise comply with the Orders. This letter sets out several reasons why First Solar cannot be expected to accept these reassurances in correspondence only, particularly given the inaccurate information provided by your clients which has led to the present situation. To provide the necessary legal substances to the reassurances, First Solar requires your clients agreement to the following:
20.1 The attached draft consent orders. First Solar intends to seek orders in a similar form at the hearing on Thursday.
20.2 A commercial agreement between First Solar, Lyon 1 and Lyon Solar, which will provide for Lyon 1 and Lyon Solar to “step into the shoes” of Lyon. A draft commercial agreement will be provided shortly for your clients’ review.
(original emphasis)
24 On 21 December 2017 the Court made orders (December Orders) including granting leave to First Solar to join Lyon Solar to the proceeding by the filing of the Amended Originating Process and for Lyon and Lyon 1 to inform First Solar’s solicitors by 22 December 2017 when the Secured Property was transferred by Lyon to Lyon 1 and Lyon Solar and what consideration was received by Lyon in respect of those transfers.
25 On 22 December 2017, pursuant to Order 4 of the December Orders, Clayton Utz informed Squire Patton Boggs that Lyon had transferred the Secured Property to Lyon Solar on 27 January 2017 and that neither Lyon nor Lyon 1 had received any consideration for the transfer.
26 On 11 January 2018 Clayton Utz informed Squire Patton Boggs, among other things, that:
(1) in light of concerns raised by Squire Patton Boggs (set out at [23] above) and in good faith, Lyon 1 had arranged for Lyon Solar to execute an assignment deed effecting the transfer of the ownership of all Secured Property that it holds to Lyon 1 (Assignment Deed);
(2) the assignment did not include a “Kingfisher” project because the Kingfisher project held by Lyon Solar (Kingfisher Stage 2) was “distinct from the Kingfisher project the subject of the [GS Deed] and Deed of Variation, which is held by Lyon 1”;
(3) the Kingfisher project the subject of the GS Deed is held by Lyon 1;
(4) as a result of the Assignment Deed and the clarification in respect of the Kingfisher project, the whole of the Secured Property is held by Lyon 1 and is subject to the November Orders; and
(5) the Secured Property held by Lyon 1, other than the Secured Property the subject of the Assignment Deed, was transferred to it by Lyon on 27 January 2017 for nil consideration.
the Disputes which have arisen between the parties
As between First Solar and Lyon
27 In the Amended Originating Process First Solar seeks an order that Lyon be wound up. First Solar also makes other claims against Lyon based on the events which have occurred. It contends that the estimated value of its claims against Lyon are as follows:
(1) repayment of the Loan pursuant to the Loan Agreement and Deed of Variation which, together with interest, amounts to approximately $500,000;
(2) damages pursuant to the Take or Pay Clause which have been assessed on a preliminary basis at $3.25m in view of Lyon’s failure to place an order;
(3) damages consequential upon Lyon transferring its assets to Lyon 1; and
(4) interest.
28 Lyon disputes that it has any liability to First Solar and asserts that it has an offsetting claim against First Solar based on alleged misleading or deceptive conduct by First Solar pursuant to s 18 of the Australian Consumer Law being Sch 2 to the Consumer and Competition Act 2010 (Cth). The nature of the alleged offsetting claim is described by Anna Joy Trevor, a solicitor in the employ of Clayton Utz, in her affidavit sworn on 29 January 2018 as follows:
12. The commercial relationship between Lyon and First Solar embodied in the Agreements was entered into on the basis that:
(a) First Solar would make a financial contribution of working capital to Lyon;
(b) in return, Lyon would endeavour to use solar panels supplied by First Solar for each of its solar projects; and
(c) First Solar would ensure that its solar panels were competitive in the Australian renewable energy market, in terms of their price, performance, and the terms on which they were supplied (the Price Warranty).
13. In reliance on the Price Warranty, Lyon prepared the preliminary design and applications for the "Cape York", "Kingfisher", "Riverland" and "Nowingi" solar projects then under development by the Lyon group on the basis that each project would use solar panels supplied by First Solar.
14. In particular, in respect of the Kingfisher project, Lyon commenced development of a 20MWdc solar project near Roxby Downs, connecting into an 11kV line. The project was designed on the basis that panels supplied by First Solar would be used.
15. In June 2016, Lyon submitted a funding application to the Australian Renewable Energy Agency (ARENA) for the Kingfisher project, as part of the competitive, Large Scale Solar Grant funding project.
…
17. The Levelised Cost of Energy (LCOE) was the primary basis of assessment by ARENA in respect of the funding applications. The Kingfisher project was designed around the use of First Solar panels, and as such the panel price included in Lyon's application was based on First Solar's panel price and LCOE, being $133.32/MWh.
18. Following submission of the application to ARENA (including the panel price) it became known to Lyon through (amongst other sources) information received from EPC contractor, Downer Utilities, and advisor, Advisian WorleyParsons, that First Solar was using two prices in the market. Namely, First Solar used on the one hand, a panel price that was market competitive, and on the other hand, a higher panel price that it used specifically for submissions to ARENA, a government agency providing funding for renewable energy projects.
19. Lyon was unsuccessful in obtaining an ARENA funding grant for the Kingfisher project.
20. It is Lyon's position that:
(a) First Solar's dual pricing system, referred to above, caused Lyon to be unsuccessful in obtaining an ARENA funding grant, as it caused the LCOE contained in Lyon's funding application (which was based on First Solar's non-competitive price) to be higher than that of the successful parties;
(b) by using the dual prices referred to above without disclosing this fact to Lyon, First Solar was in breach of the Price Warranty, and further, engaged in misleading or deceptive conduct in trade (sic) commerce, within the meaning of section 18 of the Australian Consumer Law;
(c) First Solar's breach of the Price Warranty and/or misleading or deceptive conduct caused Lyon to suffer loss, including the potential to receive ARENA funding and lost opportunity to pursue and receive profits from the Kingfisher project.
21. By an email dated 11 January 2017 from Mr O'Day to Ewan Norton-Smith of First Solar, Lyon asked First Solar to explain why it was offering its solar panels to Lyon at prices significantly above the price that it was offering to other developers in the Australian market
…
23. This issue instigated a meeting on 7 February 2017, between Mr Green and Mr O'Day of Lyon, and Jack Curtis and Ewan Norton Smith of First Solar. At the meeting on 7 February 2017 it was agreed (the Oral Agreement) that:
(a) the written documentation entered into between the parties to date did not accurately reflect the objective commercial intentions of the parties as to the agreement that they had made;
(b) Lyon and First Solar would amend the terms of the written documentation in order to properly reflect what had always been the intentions of the parties forming the basis and terms of their commercial relationship;
(c) in respect of their commercial relationship going forwards, it was agreed that:
(i) Lyon would endeavour to use First Solar panels for each of its projects;
(ii) First Solar would ensure that its solar panels were priced such that Lyon would not suffer an economic detriment by reason of using First Solar's panels as against panels supplied by other market competitors; and
(iii) Lyon's agreement to use First Solar panels was conditioned on it being the case, following a technical analysis, that the use of First Solar's panels in Lyon projects did not cause an economic detriment to Lyon.
24. In accordance with the Oral Agreement, the Lyon group sought to utilise First Solar panels for its solar projects (and designed those projects accordingly), including in respect of:
(a) Nowingi project: during February 2017 and March 2017 Lyon engaged with First Solar with respect to the supply of First Solar panels for this 251MWac project;
(b) Riverland project: The development application for this 330MWac project used site layout drawings based on the use of First Solar panels. In particular, Lyon instructed its contractor, Downer, to prepare design documents using First Solar panels. The drawings, yield studies and site layouts were prepared by Downer on that basis and submitted by Lyon to the South Australian government in July 2017 as part of a development application for the project; and
(c) Cape York: Lyon undertook extensive analysis, together with its technical advisors, with the objective of supporting the use of First Solar panels for its Cape York project. This analysis included detailed price comparisons between First Solar panels and alternative suppliers.
25. During the course of 2017, Lyon and its technical advisors, Advisian WorleyParsons and RINA Consulting (a consultant firm engaged by Lyon specifically to provide independent sold panel yield advice to Lyon) undertook extensive technical analysis.
26. Following the technical analysis undertaken in respect of the above projects:
(a) it became apparent to Lyon and its advisors that the use of First Solar panels on the basis offered by First Solar would cause an economic detriment to Lyon's projects, compared to if the projects were developed using panels from other suppliers; and
(b) in breach of the Oral Agreement, in a meeting on 2 August 2017 between Lyon and Mr Steve Jackson of First Solar, First Solar confirmed that it would not match the pricing and efficiency of competitor solar panel suppliers in the Australian market.
27. With reference to the above facts, Lyon contends that:
(a) by making the Price Warranty in circumstances where First Solar in fact had a dual pricing system for the purposes of ARENA funding grants, First Solar engaged in misleading or deceptive conduct in trade or commerce within the meaning of section 18 of the Australian Consumer Law, and Lyon, or alternatively the Lyon group of companies, has, through acting in reliance on the Price Warranty, suffered loss; and
(b) Lyon, or alternatively the Lyon group of companies, have further suffered loss caused by First Solar's breach of the Oral Agreement identified above, for the reason that:
(i) each of the Nowingi, Riverland and Cape York projects were based on detailed site layout plans which were developed specifically so that First Solar panels could be used;
(ii) because of the difference in size between First Solar panels and the alternate suppliers' panels (polycrystalline), those layouts cannot be used for other panel suppliers and the projects needed to be redesigned;
(c) it has claims against First Solar exceeding the quantum of the debt alleged by First Solar to be owed to it; and
(d) the claims are in the order of $4 million.
29 First Solar denies Lyon’s claims and agrees that those claims are matters for determination at arbitration.
30 As set out at [19] above, the November Orders include an order that the proceeding between First Solar and Lyon be stayed pending the determination of an arbitration between them.
As between First Solar and Lyon 1 and Lyon Solar
31 In the Amended Originating Application First Solar seeks the relief summarised at [2] above against Lyon 1 and Lyon Solar.
32 In her affidavit sworn on 9 March 2018, Shaan Louise Palmer, the solicitor for First Solar, sets out the following under the heading “Claims against Lyon 1 and Lyon Solar”:
25 It is alleged by First Solar that it has thus far not been able to enforce its rights under the [GS Deed] or ensure the security of the assets the subject of its security because Lyon, Lyon 1, Lyon Solar and/or the Directors:
25.1 caused Lyon to become de-registered in February 2017;
25.2 transferred the Secured Property (or property which could have become Secured Property) to Lyon 1;
25.3 subsequent to the hearing on 24 November 2017 and the orders made at that time, confirmed that part of the Secured Property had actually been transferred to Lyon Solar;
25.4 sold the Cook Project in or about October 2015, without first obtaining the prior consent of First Solar and dispersed the proceeds of the sale;
25.5 purported to have part of the Secured Property in the possession of Lyon Solar re-assigned to Lyon 1; and
25.6 have not fully complied with the [November Orders].
33 Ms Palmer sets out further details of those allegations in her affidavit. She concludes that:
53 Despite the [November Orders] and the [December Orders] there remains uncertainty as to the identity of the Secured Property, and in particular:
53.1 whether Kingfisher stage 2 is part of the Secured Property;
53.2 whether Lyon and Lyon 1 have complied with the [November Orders];
53.3 what has happened with respect to the proceeds of sale of the Cook Project;
53.4 whether Lyon Solar should be required to produce information in the terms of the [November Orders], on the basis that it appears to hold (or held) part of the Secured Property.
54 Lyon 1 and Lyon Solar are not parties to the Arbitration Agreement and Lyon 1’s promise to “stand in the shoes” of Lyon has been made only in correspondence. There are no written agreements between First Solar, Lyon 1 and Lyon Solar providing First Solar the right to enforce its security interest against Lyon 1 and/or Lyon Solar.
55 In the event First Solar is successful in the arbitration it will be entitled to enforce its security against Lyon only. First Solar should not have to wait until the conclusion of the arbitration to ensure its security interest is protected, particularly when Lyon divested itself of the Secured Property. First Solar’s security interest is registered under the PPSA in respect of Lyon only and not in respect of Lyon 1 and Lyon Solar, the entities now in possession of the Secured Property.
56 I am informed by Mr Masternak, and believe, that First Solar proposes to bring proceedings against Lyon 1 and Lyon Solar seeking, inter alia, declaratory relief as to whether the assets they purportedly hold constitute part of the Secured Property under the [GS Deed].
34 According to Lyon 1 and Lyon Solar, the relief sought by First Solar in the Amended Originating Process will only arise if First Solar succeeds in its claim against Lyon and Lyon is unsuccessful in its claim against First Solar. This is said to be because the relief sought against Lyon is essentially aimed at securing the debt which First Solar contends is owed by Lyon and, if there is no debt or it is entirely set off by Lyon’s claim, there will, in turn, be no basis for the relief sought against Lyon 1 and Lyon Solar.
the parties’ submission
35 Lyon 1 and Lyon Solar submitted that while the relief sought against Lyon is for it to be wound up, rather than for it to repay a debt, by agreeing that the proceeding be stayed and that the disputes between First Solar and Lyon be referred to arbitration, First Solar concedes that its winding up application is contingent upon a finding in that arbitration concerning the net debt position as between First Solar and Lyon.
36 Lyon 1 and Lyon Solar further submitted that the relief sought against them in the Amended Originating Process could be categorised as:
relief that is aimed at finally securing, for the benefit of First Solar, the Secured Property (Asset Relief); and
relief seeking damages or an account (Damages Relief).
37 Lyon 1 and Lyon Solar contended that the claim for relief against them could not be determined until the determination of the arbitration between First Solar and Lyon because:
first, the Asset Relief is essentially aimed at securing the debt which First Solar contends is owed by Lyon. If there is no debt, or it is entirely set off by Lyon’s claim against First Solar, there will be no basis for the Asset Relief. The net debt position as between First Solar and Lyon will only be known after determination of the claims between them by arbitration;
secondly, the Damages Relief depends on whether First Solar succeeds in its arbitrable claims against Lyon and whether Lyon succeeds in its claims against First Solar. They said that if First Solar fails to establish its entitlement to the debt, any damages payable by Lyon 1 and Lyon Solar will be nominal because First Solar will have suffered no material loss by reason of the alleged breaches of contract;
thirdly, if the proceeding against Lyon 1 and Lyon Solar is not stayed, they will seek to rely upon Lyon’s claims against First Solar as a reason why relief should not be granted to First Solar. Given that Lyon’s claims against First Solar are to be arbitrated, Lyon 1 and Lyon Solar contended that, if the matter proceeds against them, two potential outcomes may follow:
given that Lyon’s claims against First Solar are arbitrable, by the operation of s 8 of the CA Act, the Court is precluded from hearing those claims. But if the proceeding against Lyon 1 and Lyon Solar nonetheless proceeds, this will have the effect of depriving Lyon 1 and Lyon Solar of a defence to First Solar’s claims;
alternatively, if the Court permits Lyon 1 and Lyon Solar to raise Lyon’s claims against First Solar in defence of the proceeding against them, the same issues will fall to be determined in this proceeding and the arbitration, with the associated waste of the parties’ resources and the risk of inconsistent findings in this proceeding and the arbitration.
38 Lyon 1 and Lyon Solar submitted that it was not legally or practically possible for First Solar’s claim against Lyon 1 and Lyon Solar to be determined in advance of the arbitration. They further submitted that First Solar would not be prejudiced by reason of a stay until determination of the arbitration because it is protected by the Interim Restraining Order and each party will remain entitled to seek urgent interlocutory relief from the Court.
39 First Solar submitted that “the unattractive proposition” advanced by Lyon 1 and Lyon Solar is that, despite their possessing between them the Secured Property in breach of Lyon’s covenants, they are nonetheless entitled to a stay of proceedings which would immunise them from the consequences of that conduct.
40 First Solar contended that neither Lyon 1 nor Lyon Solar informed it of their acquisition of the Secured Property. First Solar further submitted that Lyon 1 facilitated Lyon’s breach of, among others, cl 4.2(d) of the GS Deed, and since then, both Lyon 1 and Lyon Solar have treated the Secured Property charged in favour of First Solar as if it were their own. First Solar also referred to events which occurred in relation to the Secured Property and their disclosure by the solicitors for Lyon, Lyon 1 and Lyon Solar as set out at [20]-[26] above.
41 First Solar submitted that, while Lyon 1 and Lyon Solar properly concede that the basis for the orders they seek is s 23 of the FCA Act, the authorities on which they rely do not squarely engage with the central issue in the case namely, whether a stay should be ordered in favour of parties who have not bargained for an arbitration and who have arguably committed civil wrongs at the expense of the moving party. First Solar submitted that the principles applicable in circumstances where a party to a criminal proceeding seeks to stay related civil proceedings are equally applicable to this case.
42 First Solar further submitted that Lyon breached the GS Deed by no later than October 2015, when it sold the Cook Shire 1 project in breach of cl 4.2 of the GS Deed. First Solar said that this breach predated the accrual of the causes of action asserted by Lyon. First Solar contended that equally that position arose because of breaches of non-financial covenants in the GS Deed and that, regardless of whether Lyon owed money to First Solar or vice versa, the consequence of those breaches was to make the security interest immediately enforceable.
43 First Solar submitted that Lyon 1 and Lyon Solar did not cite any authority for the proposition that they can derivatively rely upon Lyon’s rights against First Solar as a reason why relief should not be granted to it. First Solar further submitted that, in any event, the short point is that Lyon has breached the GS Deed and the Deed of Variation in ways that are not amenable to a defence by way of set off. It contended that once Lyon breached the GS Deed, for example, by purportedly assigning the Secured Property in breach of cl 4.2, First Solar’s security was crystallised and its rights over the Secured Property were superior to the rights of possession that Lyon, Lyon 1 and Lyon Solar otherwise had. First Solar said that the starting point is that the Secured Property should be returned to it or the entity with which it contracted, Lyon, an order sought by First Solar in the proceeding.
44 First Solar further submitted that it is likely that the effect of the stay sought by Lyon 1 and Lyon Solar would be to extend an unlawful detention of assets to the benefit of parties who have no right to them and who have not paid any compensation to the party who has indisputable rights of possession of those assets. First Solar said that the balance of account between Lyon and it is irrelevant to this question and that there can be no risk of inconsistent findings being made in the arbitration and in the current proceeding to that extent because the subject matter of each is different.
45 First Solar pointed out that it seeks declaratory relief to the effect that Lyon 1 and Lyon Solar hold the Secured Property on trust or as bailee for First Solar. It contended that a consequence of those parties being trustees or bailees is that they are obliged to replace the trust property and return the bailed goods. First Solar said that it seeks such relief now because it should not have to await the outcome of a second Court proceeding, running only after the arbitration, before realising against the Secured Property.
46 First Solar submitted that delay in this case cannot be met simply by an award of interest. It further submitted that it is clear that elements of the Secured Property are not permanent and that the present injunctions do not give complete protection to First Solar. It also submitted that it is inevitable that there will be a dispute about the identity of the Secured Property as is evident from the parties’ respective contentions concerning the Kingfisher project and that, consistent with that position, Lyon 1 presumably contends that the interim orders made as part of the November Orders do not comprehend Kingfisher Stage 2.
47 First Solar contended that implicit in its claim for declaratory relief is the identification of the Secured Property which is a matter that First Solar wishes to have determined now. First Solar said that it does not wish for the benefits of any award against Lyon, which presumably has no assets, to be temporarily sterilised while it has to engage in litigation with the trustees and bailees of the Secured Property about the identity and location of the Secured Property.
48 First Solar said that the documents made available for inspection by Lyon 1 and Lyon Solar were incomplete. In those circumstances it submitted that it was entitled to obtain documents pursuant to the GS Deed as Lyon 1/Lyon Solar’s agent, inspect the projects and otherwise secure the assets to its benefit. First Solar conceded that such relief is not presently sought in the Amended Originating Process, but said it would seek leave to amend and that the pendency of such a claim makes it inappropriate to restrain the existing proceeding.
49 Finally, First Solar accepted that it has claims against Lyon 1 which, if prosecuted, would raise the spectre of inconsistent findings in the arbitration and in any curial proceedings and that it was correct to observe, as Lyon 1 and Lyon Solar do, that some of the damages arising from Lyon 1 inducing Lyon’s breach of contract would fall away if Lyon owed no money to First Solar. It also noted that, to the extent that Lyon 1 says that it is equally liable to First Solar as Lyon, its liability on that basis will be determined by the arbitration. However, First Solar submitted that the other relief it seeks is not caught by the same considerations and that, for the reasons submitted, the Asset Relief is not subject to the same considerations because Lyon 1 and Lyon Solar are not entitled to the assets and their continued retention is prejudicial to First Solar.
legal principles
50 The parties were agreed that the source of the Court’s power to grant the stay sought by Lyon 1 and Lyon Solar is s 23 of the FCA Act which gives the Court power in relation to matters in which it has jurisdiction to make orders of such kinds, including interlocutory orders, as the Court thinks appropriate.
51 As observed by Lee J in CPB Contractors Pty Limited v Celsus Pty Ltd (formerly known as SA Health Partnership Nominees Pty Ltd) (2017) 353 ALR 84; [2017] FCA 1620 (CPB Contractors) at [51] “the Court’s power to order a stay of proceedings is an incident of its general power to control its own proceedings and it is plain that an order for a stay as sought, if otherwise appropriate, can be made pursuant to s 23” referring to Groves v Commissioner of Taxation [2011] FCA 222 at [22] (per Logan J). Contrary to First Solar’s submissions, the principles which govern whether a civil proceeding should be stayed pending the determination of a related criminal proceeding is not applicable to this application.
52 The principles which govern this application were recently summarised in Hancock Prospecting Pty Ltd v Rinehart (2017) 350 ALR 658; [2017] FCAFC 170 (Hancock) at [332]-[334] where a Full Court of this Court (Allsop CJ, Besanko and O’Callaghan JJ) said the following about the Court’s power to order a stay in circumstances where a proceeding includes matters that are not capable of being referred to arbitration:
332 At [160]-[163] of her Honour’s reasons, the primary judge concluded that the Court had a general power to control its own proceedings which extended to ordering a stay of its own proceedings. Her Honour referred to Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193 at 203; 71 ALR 125 at 136 (per French J, who had referred to Bowen CJ in Hughes Motor Services Pty Ltd v Wang Computers Pty Ltd (1978) 35 FLR 346 at 351, who in turn had referred to the Full Court in Grollo Darwin Management Pty Ltd v Victor Plaster Products Pty Ltd (1978) 19 ALR 621; 33 FLR 170, and to Toohey J in Muller v Fencott (1981) 37 ALR 310 at 315; 53 FLR 184 at 189) and to Recyclers of Australia Pty Ltd v Hettinga Equipment Inc (2000) 100 FCR 420; 175 ALR 725; [2000] FCA 547 (Recyclers).
333 In Recyclers, Merkel J said at [65]-[66]:
65 In the event that a proceeding includes matters that are not capable of being referred to arbitration, but the determination of which is dependent upon the determination of the matters required to be submitted to arbitration, a court may, in the exercise of its discretion, stay the whole proceeding: see Tanning Research at 216 per Brennan and Dawson JJ. A court may also exercise a discretion to impose terms that the arbitration of the arbitrable claims not proceed prior to the determination of the non-arbitrable claims where the arbitrable claims are seen to be subsidiary to or significantly less substantial than, but overlapping with, the non-arbitrable claims: see Hi-Fert at 167-8, cf Dodwell & Co (Aust) Pty Ltd v Moss Security Ltd (FCA, Wilcox J, No 130 of 1990, 11 April 1990, unreported, BC9003222). The discretion may also be exercised to stay the proceeding where the non-arbitrable claims are the ancillary claims.
66 The broad discretion arises as part of the exercise of a court's general power to control its own proceedings. The basis for the discretion is that the spectre of two separate proceedings — one curial, one arbitral — proceeding in different places with the risk of inconsistent findings on largely overlapping facts, is undesirable: see Dodwell & Co per Wilcox J at [5] and [7], Hi-Fert at 167-8 and McConnell Dowell Smith East Asia Pty Ltd v State Electricity Commission (Vic) (VSC, Beach J, No 5035 of 1996, 24 November 1998, unreported).
334 These principles were not the subject of debate on appeal. They appear basal and correct.
53 One of the issues to be determined by the Full Court in Hancock was whether any of the parties to the proceeding, that were not party to any arbitration agreement, should nonetheless be referred to arbitration because they claim “through or under” entities who are party to the relevant deed or arbitration agreement for the purpose of the word “party” in s 2(1) of the CA Act. The nature of the dispute between the parties as articulated in the statement of claim filed by the applicants and which underpinned the issues to be determined on appeal was described by the Full Court at [2]-[3]. It concerned allegations by the applicants that Mrs Rinehart, following the death of her father, controlled all of the entities in what was called “the Hancock Group”. It was argued that, in breach of Mrs Rinehart’s duties as a fiduciary and trustee, she used her position with the knowing assistance of Hancock Prospecting Pty Ltd (HPPL), a company in which Mrs Rinehart held shares and also a respondent, to remove valuable assets from one company in which she had no financial interest, to HPPL and to “renege upon and circumvent” an agreement reached in 1988 about the ownership of the Hancock Group which resulted in Mrs Rinehart having a greater ownership than contemplated by the agreement. The statement of claim also made claims about deeds entered into by one or both of the applicants and various respondents which contained, among other things, arbitration agreements. The applicants alleged that the execution of these deeds was procured by misconduct of one sort or another by Mrs Rinehart or HPPL.
54 In relation to the issue identified to in the preceding paragraph, at [336] the Full Court said:
We have decided that there should be a stay of the proceeding under s 8(1) of the CA Act as to all of the claims, except for the actual claims against the third party companies. The dispute between the applicants and the HPPL and other parties to the arbitration agreements as to whether the applicants can claim relief against the third party companies is within the arbitration agreements. That means that the only claims not within the stay to be granted under s 8(1) of the CA Act are the actual claims against the third party companies. If both the arbitration and the legal proceedings with respect to these claims proceed at the same time, then there is a risk of inconsistent findings and the incurring of unnecessary expense. The claims which will proceed to arbitration are fairly described as the principal claims, and, in the exercise of the Court's general power to control its own proceedings, in the interests of justice and to avoid unnecessary expense, the actual claims against the third party companies should be stayed to permit the arbitration to proceed first.
55 In CPB Contractors at [111], in considering whether to grant a stay of proceedings pursuant to s 23 of the FCA Act in circumstances where, as here, some of the claims made by the parties were subject to arbitration agreements, Lee J identified the following matters which his Honour said received most emphasis during the course of submissions in support of the application for a stay being that:
(a) the claims made by the Builder against the State are ancillary to matters the subject of Project Co’s stay;
(b) the arbitrator’s award will be determinative or largely determinative of the claims made in the proceeding against the State;
(c) there would inevitably be potential savings in time or cost should a stay be ordered, removing duplication for parties, experts and legal advisers;
(d) it is only a temporary stay of a monetary claim and accordingly there is no real prejudice to the Builder.
56 At [115] Lee J noted that one factor that was not given special prominence in the parties’ written submissions but which was of some real significance was the requirement for the Court to have regard to the overarching purpose mandated by s 37M(1) of the FCA Act when exercising its power, including its discretionary power, to grant a stay.
57 At [121] his Honour observed that the matters relied upon by the State, see [55] above, reflected the matters which the authorities indicate the Court should consider in determining whether or not to stay a proceeding, including:
(a) whether the non-arbitral matters are ancillary to the matters the subject of the mandatory stay (see Recyclers at [65]-[66] and Hancock at [333]-[335]); and
(b) whether the arbitral matters will be determinative of the matters before the Court (Recyclers at [65]).
consideration
58 In order to determine whether the stay sought should be granted, it is first necessary to consider the nature of the dispute between First Solar on the one hand and Lyon 1 and Lyon Solar on the other and whether that dispute is ancillary to or dependent on the matters to be arbitrated by First Solar and Lyon.
59 The dispute between First Solar and Lyon 1 and Lyon Solar as reflected in the relief sought in the Amended Originating Process concerns:
first, the question of whether certain assets transferred to Lyon 1 and Lyon Solar were subject to the GS Deed and thus are held on trust or as bailee by Lyon 1 and Lyon Solar for Lyon;
secondly, and related to the first issue, to the extent that Lyon 1 and Lyon Solar hold assets that do not belong to them because they are subject to the GS Deed, whether, those assets should be returned to Lyon or First Solar; and
thirdly, a claim for damages or an account of profits for breach of trust and/or a claim for damages for inducing Lyon’s breach of contract.
60 First Solar alleges that it has a right to the Secured Property not only because of an alleged monetary default under the Loan Agreement but because of alleged subsisting non-monetary defaults under the GS Deed which it says give it an immediate right to enforce the GS Deed.
61 When considered in the context of the dealings between the parties, as it must be in my opinion, the relief that First Solar seeks is contingent on the determination of rights between it and Lyon. My reasons for arriving at that conclusion follow.
62 To the extent that First Solar seeks to enforce the GS Deed because there has been a monetary default as a result of alleged failure to pay the Loan or any amount payable under the Loan Agreement, that is a matter in dispute between First Solar and Lyon and the subject of arbitration between the parties. That arbitration will also determine Lyon’s set off claim. The relief which seeks to secure and call for the delivery up of the Secured Property in the possession of Lyon 1 and Lyon Solar to recover an amount owing by Lyon necessarily follows and is ancillary to the determination of the issues in dispute in the arbitration.
63 First Solar asserts an immediate right to enforce the GS Deed because of a non-monetary default relying on a breach by Lyon of either cl 4.2 of the GS Deed by reason of the sale of the Cook Shire 1 project; by Lyon’s assignment of the Secured Property to Lyon 1 and/or Lyon Solar; and a breach of other specified clauses of the GS Deed. Whether those breaches have occurred and, if they have, their consequences depends on construction of the agreements between First Solar and Lyon and the subsequent events which have occurred concerning those parties. Any dispute that arises in relation to First Solar’s asserted entitlement to enforce the GS Deed for a non-monetary default would need to be determined pursuant to the arbitration agreement in cl 5 of the Deed of Variation.
64 First Solar also raises an issue in this application, albeit not by way of relief in the Amended Originating Application, about the identity of the Secured Property, and in particular whether Kingfisher Stage 2, which is in the possession of Lyon Solar, is the subject of the GS Deed as varied. The identity of the Secured Property must necessarily be a matter to be determined between First Solar and Lyon. Its resolution depends on, as a primary question, a determination of what constitutes the Secured Property for the purposes of the GS Deed as varied and then, as a secondary question, which entity currently holds that property.
65 First Solar submitted that if the issue of whether Kingfisher Stage 2 formed part of the Secured Property was arbitral then Lyon Solar, which is in possession of that project, should be a party to the arbitration. First Solar said that, if Lyon Solar is not a party to the arbitration, the ultimate determination of the issue would need to be resolved in two stages and, as a non-party, Lyon Solar would not be bound by any arbitral award. In the course of oral argument counsel for Lyon Solar indicated that instructions as to whether it would agree to be bound by any arbitral award concerning this issue would be sought and communicated to First Solar and the Court. This was done and, by email dated 19 March 2018, Clayton Utz informed the Court and the solicitors for First Solar that they were instructed to confirm, on behalf of each of Lyon 1 and Lyon Solar, that each of those companies:
… agrees that it will be bound by the outcome of the arbitration between the first defendant and the plaintiff to the proceeding, including as to any determination by the arbitral tribunal regarding the Kingfisher project held by the third defendant (Lyon Solar Pty Ltd) and whether this comprises part of the assets secured to the plaintiff. The defendants will not seek to re-litigate any matter the subject of a valid and enforceable determination by the arbitral tribunal.
… The defendants consider their agreement regarding this matter (as set out in this email) to constitute an undertaking to the Court not to make a contention in the proceeding that is inconsistent with the position set out above. However, if her Honour would like a formal written undertaking regarding these matters please advise us, and this can be provided.
66 Given the content of that email, I did not require a formal undertaking to be provided. It is clear that Lyon 1 and Lyon Solar have agreed to be bound by the outcome of the arbitration between Lyon and First Solar and critically that they will be bound by any determination about whether Kingfisher Stage 2 forms part of the Secured Property. That is a complete answer to the concern expressed by First Solar. The question of what constitutes the Secured Property and whether that includes Kingfisher Stage 2 is, as I have already said, a matter that needs to be resolved as between Lyon and First Solar and thus is a matter for arbitration. What flows from any arbitral award on that issue, which Lyon 1 and Lyon Solar have agreed to be bound by, is a matter for another day.
67 Ultimately First Solar’s rights to enforce its security by taking possession of the Secured Property, realising that property and, critically, retaining any proceeds will depend on an arbitral determination in its favour that Lyon is indebted to it for monies owing under the Loan Agreement or for which the payment is otherwise secured by the GS Deed. In that way, the relief sought by First Solar in the Amended Originating Process and indeed the further relief which it may seek as articulated by senior counsel appearing for First Solar is ancillary to the relief claimed in the arbitration.
68 Further, the overarching purpose of the civil practice and procedure provisions in the FCA Act as dictated by s 37M of that Act support the grant of the stay sought by Lyon 1 and Lyon Solar. The relief sought by First Solar is so closely intertwined with, and dependent on, the outcome of issues the subject of the arbitration that to permit the proceeding to continue in parallel to the arbitration would be contrary to the overarching purpose and the objectives in s 37M(2) of the FCA Act, including the efficient use of Court resources and the resolution of disputes in a cost efficient manner. That that is so is illustrated by several factors.
69 First, Lyon 1 and Lyon Solar have said that if a stay is not granted and First Solar is permitted to proceed with its claims against them, they will rely on the same matters by way of defence as Lyon will raise in the arbitration. That creates a real risk of inconsistent findings on the same issues as between the arbitral proceeding and this proceeding, a prospect which is contrary to the overarching purpose set out in s 37M of the FCA Act. I pause here to note that I am not persuaded by Lyon 1 and Lyon Solar’s submission that s 8 of the CA Act would preclude the Court from hearing those claims when raised by them by way of defence and thus deprive them of a defence. No authority was relied on to support that proposition and nothing in s 8 of the CA Act supports that proposition.
70 Secondly, the nature and extent to which First Solar will need to seek the relief currently sought in the Amended Originating Application will depend on the outcome of the arbitration.
71 Thirdly, First Solar has the benefit of the Interim Restraining Order which maintains the status quo in relation to the Secured Property which is currently in the possession of Lyon 1. Subject to the potential dispute about whether Kingfisher Stage 2 in the possession of Lyon Solar forms part of the Secured Property, on the evidence before me, any part of the Secured Property that had been assigned by Lyon to Lyon Solar has been re-assigned to Lyon 1.
72 In addition, in the December 2017 Letter, which was prior to the execution of the Assignment Deed referred to at [26] above, Lyon Solar, through its solicitors, said that it would abide by the November Orders and ensure that the Kingfisher, Helenvale and Coen projects were not dealt with and were otherwise treated in accordance with Interim Restraining Order. It also said that it would enter into appropriate consent orders to reflect that assurance. In their letter dated 18 December 2017 Squire Patton Boggs noted that their client could not be expected to accept such assurances given by way of correspondence and required Lyon 1 and Lyon Solar to agree to a “commercial agreement between First Solar, Lyon 1 and Lyon Solar, which [would] provide for Lyon 1 and Lyon Solar to ‘step into the shoes’ of Lyon”. Despite indicating that a draft commercial agreement would be provided shortly for Lyon 1 and Lyon Solar’s review, as at the date of the hearing, no such draft had been provided.
73 I have some sympathy for the sentiments expressed by First Solar that the events which have occurred (that is, the combination of the deregistration of Lyon and the transfer of assets which evidently formed part of the Secured Property to Lyon 1 and Lyon Solar without any notice being given to it) should preclude the Court from exercising its discretion in favour of Lyon 1 and Lyon Solar and granting a stay. However, on balance, taking into account the other factors which I have set out above, I consider that the proper exercise of discretion is to grant the stay sought by Lyon 1 and Lyon Solar.
costs
74 First Solar included in its written submissions a claim that Lyon and Lyon 1 pay its costs forthwith of, and incidental to, obtaining the order made on 18 October 2017 reinstating Lyon and the Interim Restraining Order. However, at the hearing the parties agreed that argument on that issue should be adjourned to another day.
75 Lyon 1 and Lyon Solar seek the costs of their application for a stay to be payable forthwith. They have been successful in their application and there is no reason why costs should not follow the event. However, I do not accept that those costs should be payable forthwith. Despite Lyon 1 and Lyon Solar’s submissions and what may have occurred in correspondence between the parties, the matters raised by First Solar in opposition to the application were clearly arguable and there was no conduct on its part that would warrant an order that costs be payable forthwith: see Stone v Melrose Cranes & Rigging Pty Ltd, in the matter of Cardinal Project Services Pty Ltd (in liq) [2016] FCA 1113 at [54]-[55].
conclusion
76 I will make an order that, pursuant to s 23 of the FCA Act, the proceeding be stayed against Lyon 1 and Lyon Solar pending the outcome of the arbitration between First Solar and Lyon and an order that First Solar pay Lyon 1’s and Lyon Solar’s costs of the application for a stay.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic. |
