Federal Court of Australia
Joiner (Liquidator), in the matter of CuDeco Limited (Receivers and Managers Appointed) (in liq) [2020] FCA 1661
ORDERS
DATE OF ORDER: |
THE COURT NOTES THAT:
The following definitions apply in these declarations and orders:
A. 'Mining Leases' means: Mining Lease 90177; Mining Lease 90188; and Mining Lease 90219.
B. 'Exploration Permit' means: Exploration Permit Mineral 18054.
C. 'Environmental Authorities' mean: Environmental Authority EPMLOO887913; Environmental Authority EPSX00645113; and Environmental Authority EPSX01691613.
D. 'Receivers' means: Ian Francis, Michael Ryan and Kelly-Anne Trenfield in their capacity as Receivers and Managers of CuDeco Limited.
E. 'Liquidators' means: the plaintiff.
THE COURT DECLARES THAT:
1. At all material times since 5 July 2019 CuDeco Limited's interest in each of the Mining Leases, Exploration Permit and Environmental Authorities is and has been subject to the control of the Receivers to the exclusion of the Liquidators.
THE COURT ORDERS THAT:
2. The Liquidators are justified in proceeding on the basis that:
(a) the Receivers have at all material times since 5 July 2019 been responsible for and entitled to make all decisions relating to the responses by CuDeco Limited to the environmental protection orders issued to CuDeco Limited by the Department of Environment and Science (Qld) and relating to the manner in which the Mining Leases, Exploration Permit and Environmental Authorities the subject of their control have been maintained; and
(b) during that period the Liquidators were not responsible for nor entitled to make such decisions or influence the Receivers in the making of those decisions.
3. There be liberty to apply as to any renewed application for relief with respect to the operation of s 545 of the Corporations Act 2001 (Cth).
4. The application is otherwise dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
[1] | |
[7] | |
[10] | |
The appointment of the Receivers and the terms of the security | [13] |
[21] | |
[22] | |
[24] | |
[25] | |
[27] | |
[40] | |
[41] | |
[50] | |
[52] | |
[56] | |
[58] | |
The absence of a role for the Liquidators with respect to environmental obligations | [63] |
The uncertainty, the disclaimers and the contractual indemnity | [77] |
The departments were informed of these proceedings but did not participate | [84] |
[91] | |
[91] | |
First category of relief: CuDeco's interests subject to control of the Receivers | [101] |
Second category of relief: 'Related person' and 'executive officer' | [113] |
[113] | |
[127] | |
[169] | |
[171] | |
[189] |
REASONS FOR JUDGMENT
BANKS-SMITH J:
1 CuDeco Limited (CuDeco) holds a 100% interest in and operates the Rocklands open cut copper mine near Mt Isa in Queensland. There is substantial infrastructure associated with the mine, including a processing plant and tailings dam. The mine has been under a care and maintenance regime for some time.
2 CuDeco is currently in liquidation. The joint liquidators (Liquidators) are the plaintiff in these proceedings. Receivers and managers (Receivers) have been appointed to all of CuDeco's assets and undertaking by a secured creditor. CuDeco is therefore the subject of concurrent appointments of liquidators and receivers and managers.
3 Because of the nature of its operations, and like many mining companies, CuDeco is exposed to risks and liabilities relating to environmental management under certain state legislation, including by way of environmental rehabilitation costs and any associated potential civil and criminal liability.
4 The Liquidators contend that since the Receivers were appointed, the Receivers have maintained control of CuDeco's assets, including the mine site. The Liquidators (who were formerly appointed as administrators) do not have such control or access to the property of CuDeco. Nor do they have any available funds at their disposal. However, the terms of the state legislation are such that arguments arise as to the potential for the Liquidators to incur personal liability relating to CuDeco's environmental risks and obligations.
5 The Liquidators seek relief by way of broad-ranging directions and declarations. They assert such relief is required so that they may proceed with the liquidation with some comfort that they are protected from personal liability, or so that they can otherwise consider their options. Those options include, I assume, resignation from their appointment.
6 Separately, the Liquidators are continuing investigations into matters such as insolvent trading claims against particular directors and alternate directors of CuDeco, unfair preference claims against creditors and other uncommercial transactions. Acknowledging that inquiries are continuing, the quantum of claims that may be pursued for the benefit of priority and ordinary unsecured creditors is said to be approximately $16.6 million. The Liquidators have incurred outstanding remuneration and costs in the approximate amount of $1.15 million (in the course of the administration and liquidation). Therefore, the Liquidators assert that whether there might be any return to the ordinary creditors if proceedings are successfully pursued depends to some extent upon whether the Liquidators may have personal liability under the environmental legislation in sums that would deplete or diminish the amounts that might otherwise be available for distribution.
7 The Liquidators rely on four affidavits. The first is an affidavit of one of the Liquidators, Mr Jeremy Nipps, filed 4 August 2020. The second is an affidavit of Mr Nipps filed in a separate matter on 28 August 2020 (WAD 140 of 2020) which has since been discontinued. Orders were made that permitted the Liquidators to rely on that affidavit in the present case. The 28 August 2020 affidavit in turn relevantly cross-refers to certain paragraphs ([54]-[58]) of an affidavit filed by one of the Receivers, Mr Ian Francis, on 12 June 2020 in a separate action (WAD 138 of 2020). That proceeding has since been discontinued, although it had been anticipated that evidence in that action could be relied upon by the Liquidators in this action. I will refer to those identified paragraphs of the Francis affidavit as if they were reproduced by Mr Nipps, rather than only cross-referenced, in his 28 August 2020 affidavit.
8 The third and fourth affidavits relied on in this proceeding were affirmed by Mr Stuart Lewin of Mills Oakley lawyers, filed 4 September 2020 and 13 October 2020. Mr Lewin acts for the Liquidators.
9 It is appropriate to note at this point that there were three separate proceedings instituted by third parties (including WAD 138 of 2020 and WAD 140 of 2020) seeking to set aside disclaimer notices issued by the Liquidators relating to the CuDeco mine site assets. Separate proceedings were also instituted by the Receivers at one point. All proceedings apart from the present application have been resolved by the parties. The parties to the other proceedings were all aware of this application but did not seek to be heard in relation to it.
10 It is of some concern that there has been no contradictor in this action. As appears below, both the Queensland Department of Environment and Science (DES) and the Queensland Department of Natural Resources, Mining and Energy (DNRME) took an adverse position in correspondence with the Liquidators as to their potential liability but despite being served with the relevant court documents as interested parties, they chose not to participate. The Liquidators did not seek to join the departments as parties. However, I am satisfied that the Liquidators have informed interested parties of the proceedings.
11 As I was concerned as to the absence of a contradictor, I also directed the Liquidators to serve ASIC with the relevant papers and invited it to provide written submissions. ASIC did not provide submissions or seek to be heard.
12 The absence of a contradictor should not, however, deprive the Liquidators of the opportunity to seek the aid of the Court. Interested parties have been informed. It is not appropriate to expect the Liquidators, who are without funds, to fund a third party contradictor. Whilst it is undesirable to proceed without a contradictor, having regard to the significance of the questions raised in the context of the conduct and finalisation of the liquidation, I consider it appropriate to determine the application regardless: Lewis and Templeton and Warehouse Sales Pty Ltd (in liq) v LG Electronics Australia Pty Ltd (No 2) [2016] VSC 63; (2016) 48 VR 450 at [55]-[61]; and Re Dalma No 1 Pty Ltd [2013] NSWSC 1335 at [8]-[9].
The appointment of the Receivers and the terms of the security
13 The Receivers (Ms Kelly-Anne Trenfield, Mr Francis and Mr Michael Ryan of FTI Consulting) were appointed by secured creditor China Tonghai Financial Limited (CTFL) as joint and several receivers and managers of CuDeco under a deed of appointment dated 1 July 2019 (Deed of Appointment). CTFL's interests as secured creditor under a range of instruments were subsequently assigned but no issue arises in these proceedings from the assignment. The role of the Receivers is not affected by the assignment and I will continue to refer to CTFL when describing the parties to the securities.
14 Clause 2.1 of the Deed of Appointment provides that the Receivers are appointed:
jointly and severally to be the receivers and managers of the Charged Property with all the powers capable of being conferred upon a receiver and manager by virtue of the Securities and by any other law or means.
15 'Charged property' is defined as all of the rights and property charged or mortgaged by any one or more of the 'Securities'. 'Securities' is defined to mean a general security agreement dated on or about 10 July 2017 given by CuDeco in favour of CTFL (GSA), together with a specific security agreement given by CuDeco in favour of CTFL that relates to identified bank accounts.
16 Turning relevantly to the GSA, CuDeco as Grantor agreed to charge the 'Collateral' to secure payment of the 'Secured Money'. 'Collateral' is defined as:
the Personal Property and Other Property:
(a) of whatever kind and wherever situated
(b) whether the Grantor is the beneficial owner or holds as trustee of a trust
(c) whether the Grantor holds it jointly or with one or more other persons (whether in partnership or not and whether named in this agreement or not)
17 'Personal property' is defined by the GSA to mean:
all of the Grantor's present and after-acquired personal property (as defined in the PPSA [Personal Property Securities Act 2009 (Cth)] and to which the PPSA applies) and all present and after-acquired personal property (as defined in the PPSA and to which the PPSA applies) in which the Granter has rights, including but not limited to the personal property specified in Item 2 of the Schedule
[Item 2 was blank in the version attached to Mr Nipps' affidavit]
18 'Other Property' is defined by the GSA to mean:
all the Grantor's present and after-acquired rights and interests in land and any other property, rights and interests that is not Personal Property
19 I have included these excerpts from the Deed of Appointment and GSA because they indicate that the Receivers were appointed over all of CuDeco's property, rights and interests.
20 The Deed of Appointment also anticipates the potential for liability on the part of the Receivers relating to CuDeco's statutory environmental standards or obligations, as it provides that certain liabilities or loss arising from such environmental laws incurred by the Receivers during the receivership form part of the expenses of the receivership.
The appointment of the Liquidators
21 On 5 July 2019 Mr Mathew Joiner and Mr Nipps of Cor Cordis (the plaintiff) were appointed administrators by resolution of the CuDeco directors pursuant to s 436A(1) of the Corporations Act 2001 (Cth). After an unsuccessful process to secure a deed of company arrangement (the details of which are not presently relevant), the administrators transitioned to become the liquidators of CuDeco under s 446A(1)(b) of the Corporations Act on 30 April 2020.
22 CuDeco's assets are primarily comprised of three mining leases (also referred to in some communications as the mining tenements): Mining Lease 90177; Mining Lease 90188; and Mining Lease 90219 (Mining Leases). It also holds Exploration Permit Mineral 18054 (Exploration Permit) and three environmental authorities: Environmental Authority EPMLOO887913; Environmental Authority EPSX00645113; and Environmental Authority EPSX01691613 (Environmental Authorities).
23 Infrastructure on site includes a processing plant, power generation facility and tailings dam. There is also plant and equipment. A financial assurance in favour of the State of Queensland is in place.
24 The Liquidators have brought this application because of the risk of personal liability under the Environmental Protection Act 1994 (Qld) (EPA) and the Mineral Resources Act 1989 (Qld) (MRA). The EPA is administered by the DES. The MRA is administered by the DNRME.
25 Expressed generally, Chapter 7 of the EPA provides for environmental management, including duties to limit environmental harm and contamination, the conduct of environmental audits and investigations and the issue of an environmental protection order (EPO) and clean-up notice. The Liquidators have identified particular provisions that they assert provide the potential to impose personal liability on them including by way of pecuniary penalties and even imprisonment.
26 The provisions to which they refer can be grouped as relating to related person EPOs; direction notices; contamination incidents and clean-up notices; and offences and associated costs.
'Related person' EPOs and cost recovery notices
27 Chapter 7, Part 5 of the EPA provides for the issue by the administering authority of an EPO. In practice it appears that EPOs are issued by a delegate of the chief executive of the DES.
28 Relevantly, s 358 of the EPA provides that the administering authority may issue an EPO to a person to secure compliance with certain requirements or conditions or duties relating to the environment. Section 360 provides for the form of such a notice. For example, it must set out the requirements said to be required of the recipient in order to comply with its duties and obligations. A recipient of an EPO must not contravene such notice, wilfully or otherwise. It is an offence if it does so: s 361.
29 In 2016 the EPO provisions of the EPA were amended by operation of the Environmental Protection (Chain of Responsibility) Amendment Act 2016 (Qld) (CoR Act). The CoR Act inserted new powers in Part 5 of the EPA to enable the administering authority to issue EPOs to a 'related person' of a company.
30 The term 'related person' is defined in s 363AB of the EPA as follows:
363AB Who is a related person of a company
(1) A person is a 'related person' of a company if -
(a) the person is a holding company of the company; or
(b) the person owns land on which the company carries out, or has carried out, a relevant activity other than a resource activity; or
(c) the person -
(i) is an associated entity of the company; and
(ii) owns land on which the company carries out, or has carried out, a relevant activity that is a resource activity; or
(d) the administering authority decides under this section the person has a relevant connection with the company.
(2) The administering authority may decide a person has a relevant connection with a company if satisfied -
(a) the person is capable of significantly benefiting financially, or has significantly benefited financially, from the carrying out of a relevant activity by the company; or
(b) the person is, or has been at any time during the previous 2 years, in a position to influence the company's conduct in relation to the way in which, or extent to which, the company complies with its obligations under this Act.
(3) A reference in subsection (2) (b) to a person being in a position to influence a company's conduct includes a person being in that position -
(a) whether alone or jointly with an associated entity of the company; and
(b) whether by giving a direction or approval, by making funding available or in another way.
(4) In deciding for subsection (2) whether a person has a relevant connection with a company (the 'first company'), the matters an administering authority may consider include the following -
(a) the extent of the person's control of the first company;
(b) whether the person is an executive officer of -
(i) the first company; or
(ii) a holding company or other company with a financial interest in the first company;
(c) the extent of the person's financial interest in the first company;
(d) the extent to which a legally recognisable structure or arrangement makes or has made it possible for the person to receive a financial benefit from the carrying out of a relevant activity by the first company, including (but not limited to) a structure or arrangement under which -
(i) the person is not entitled to require a financial benefit; but
(ii) it is possible for the person to receive a financial benefit because of a decision by someone else or the exercise of a discretion by someone else;
(e) any agreements or other transactions the person enters into with a company mentioned in paragraph (b) (i) or (ii);
(f) the extent to which dealings between the person and a company mentioned in paragraph (b) (i) or (ii) are -
(i) at arm's length; or
(ii) on an independent, commercial footing; or
(iii) for the purpose of providing professional advice; or
(iv) for the purpose of providing finance, including the taking of a security;
(g) the extent of the person's compliance with a requirement under section 451 for information relevant to the making of a decision under this section.
(5) The matters mentioned in subsection (4) may be considered as at the time the administering authority is making the decision under subsection (2) or as at an earlier time relevant to the decision.
(6) In deciding for subsection (2) whether a person, other than an associated entity of a company, has a relevant connection with the company, it is irrelevant if the person -
(a) is capable of significantly benefiting financially, or has significantly benefited financially -
(i) under an agreement or obligation relating to native title, Aboriginal cultural heritage or Torres Strait Islander cultural heritage; or
(ii) under a conduct and compensation agreement, or from compensation paid or payable, under resource legislation; or
(iii) under a make good agreement for a water bore under the Water Act 2000; or
(b) is or has been in a position to influence the company's conduct because of an agreement or obligation mentioned in paragraph (a).
(7) In making a decision under this section, the administering authority must have regard to any relevant guidelines in force under section 548A.
(8) In this section -
'control' has the meaning given by the Corporations Act, section 50AA.
'financial benefit', received by a person, includes profit, income, revenue, a dividend, a distribution, money's worth, an advantage, priority or preference, whether direct or indirect, that is received, obtained, preferred on or enjoyed by the person.
'owner', of land, does not include a person mentioned in schedule 4, definition owner, paragraph 1(d) to (f).
31 Section 363ABA provides:
363ABA Decision whether to issue an order
In deciding whether to issue an environmental protection order to a related person of a company under section 363AC or 363AD, the administering authority -
(a) must have regard to any relevant guidelines in force under section 548A; and
(b) may consider whether the related person took all reasonable steps, having regard to the extent to which the person was in a position to influence the company's conduct, to ensure the company -
(i) complied with its obligations under this Act; and
(ii) made adequate provision to fund the rehabilitation and restoration of the land because of environmental harm from a relevant activity carried out by the company.
32 Relevantly, the power to issue an EPO to a related person is found in s 363AC. Section 363AC provides that when issuing an EPO to a company, the administering authority may also issue an EPO to a related person. Section 363AD provides that the administering authority may issue an EPO to a related person of a 'high risk company', whether or not an EPO is being issued, or has been issued, to the high risk company (the Liquidators do not rely on s 363AD).
33 The references in s 363AB(7) and s 363ABA(a) above to 'guidelines' are important. The EPA relevantly provides (s 548A) that the chief executive of the department may make guidelines about how the administering authority decides under s 363AB whether a person is a 'related person', and provides that a guideline takes effect when it is 'approved by regulation'.
34 Regulation 187 of the Environmental Protection Regulation 2019 (Qld) identifies a guideline that has been approved. That guideline is called 'Issuing "chain of responsibility" environmental protection orders under chapter 7, part 5, division 2 of the Environmental Protection Act 1994' (Guidelines).
35 The following extract from the Guidelines is informative:
The intent of this guideline and the chain of responsibility provisions in the EP Act are to expand the powers of the Department of Environment and Science (the department) to ensure that companies and their related parties bear the cost of managing and rehabilitating sites and prevent leaving the Queensland taxpayers with costly environmental clean-up bills.
These new powers do not restrict or change the existing ability of the department to issue an EPO to a person identified in section 358 of the EP Act. Rather, they expand the department's powers, allowing the department to issue an EPO to 'related persons,' being holding companies, certain landholders and persons with a 'relevant connection' to a company that is carrying out the relevant activity. This will include persons that have the capacity to influence the extent of the company's environmental compliance or persons capable of significantly benefitting financially from the relevant activities of the company.
The objectives of the [CoR Act] amendments are to:
• facilitate enhanced environmental protection for sites operated by companies in financial difficulty; and
• avoid the State bearing the costs for managing and rehabilitating sites in financial difficulty. [citing explanatory notes to the relevant Bill]
In addition to covering the statutory content requirements, this guideline has been developed to:
• assist and guide the department's decisions regarding whether to issue [CoR Act] EPOs; and
• achieve consistency and transparency in the administration of [CoR Act].
The department must have regard to this guideline in deciding who is a related person (because of a relevant connection with a company) and in deciding whether to issue a [CoR Act] EPO to a related person of a company.
(footnotes omitted)
36 Section 363AG and s 363AI provide to the effect that if an administering authority issues an EPO to a 'related person', then it may also issue a 'cost recovery notice' relating to costs or expenses incurred by the authority in taking the action referred to in the order or monitoring compliance, and may require the recipient to pay the amount claimed. If the amount is not paid, it is recoverable as a debt from the recipient.
37 Therefore, viewing the operation of those provisions generally, a person who is a related person within the meaning of s 363AB of the EPA may be the recipient of an EPO and so may have obligations imposed upon them and, if the administering authority takes action, the related person may also be the recipient of a cost recovery notice.
38 The Liquidators assert that they potentially fall within the meaning of 'related person' in s 363AB(1)(d) of the EPA and so are exposed to potential liability. They seek a direction or declaration to the effect that they are not a 'related person'. The Liquidators assert, having regard to the only matters that might be relevant under the provisions, that they do not have a 'relevant connection' to CuDeco because:
(a) they are not in a position to influence CuDeco's conduct in relation to the way in which it complies with its obligations under the EPA (s 363AB(2)(b));
(b) they are not in a position to benefit financially from the carrying out of any relevant activity by CuDeco (s 363AB(2)(a));
(c) they do not have control of CuDeco (s 363AB(4)(a));
(d) they are not executive officers of CuDeco (s 363AB(4)(b)); and
(e) to the extent there have been any 'dealings' between them and CuDeco they have been limited to dealings in performance of their statutory duties as Liquidators (s 363AB(4)(f)).
39 There is an important matter to note. The Liquidators' apprehension as to liability under a related party EPO or cost recovery notice is linked explicitly to whether or not they are a 'related person' within the meaning of s 363AB. However, it is for the administering authority, the decision-maker, to decide whether a person is a 'related person'. It is not a question only of statutory construction or a question that might be resolved by findings of fact by this Court. The task of the decision-maker is to ensure they are 'satisfied' as to that matter, having regard to, amongst other things, the Guidelines. I will return to this issue.
40 Section 363A provides for a direction notice to be issued with respect to a contravention of specific provisions of the EPA (for example, s 426 - carrying out work without an authority; s 440 - wilfully causing a nuisance). If an authorised person is satisfied that a person is contravening a prescribed provision then under s 363B a direction notice may issue. Section 363E provides that it is an offence to fail to comply with a direction notice.
Contamination incidents, clean-up notices, cost recovery notices and liability of 'executive officers'
41 The Liquidators also refer to potential exposure under Part 5B and Part 5C of the EPA which deal with contamination incidents, clean-up notices, cost recovery notices and the liability of an 'executive officer' as a 'prescribed person' for the purpose of a contamination incident.
42 Section 363F defines a contamination incident to include, for example, an incident involving contamination of the environment that the administering authority is satisfied has caused or is likely to cause serious or material environmental harm.
43 The administering authority may then issue a clean-up notice 'to a person whom [it] reasonably believes to be a prescribed person', requiring it to take action such as rehabilitation and restoration action (s 363H(1)).
44 In the case of a clean-up notice issued to a company, if the company fails to comply with a notice then a prescribed person includes, relevantly, an 'executive officer' (s 363G(c)(ii)).
45 It is an offence for a recipient to fail to comply with a clean-up notice, and the penalty may include penalty units or imprisonment (s 363I).
46 Section 363M (in Part 5C) provides that where there is a contamination incident and a cost recovery notice is issued to a corporation in relation to the incident but the amount is not paid, then an 'executive officer' of the corporation is a 'prescribed person', and a cost recovery notice may be issued to a person who the administering authority reasonably believes to be a prescribed person, requiring payment of a claimed amount (s 363N(1)(c)).
47 Therefore, it can be seen that the Liquidators' apprehension as to potential liability relating to contamination incidents rests on the risk that they may fall within the definition of 'executive officer' and so the administering authority may reasonably believe them to be a 'prescribed person' and so liable to be issued with a cost recovery notice under s 363N.
48 An 'executive officer' of a corporation is defined in the Schedule 4 dictionary of the EPA to mean:
(a) if the corporation is the Commonwealth or a State - a chief executive of a department of government or a person who is concerned with, or takes part in, the management of a department of government, whatever the person's position is called; or
(b) if the corporation is a local government -
(i) the chief executive officer of the local government; or
(ii) a person who is concerned with, or takes part in, the local government's management, whatever the person's position is called; or
(c) if paragraphs (a) and (b) do not apply - a person who is -
(i) a member of the governing body of the corporation; or
(ii) concerned with, or takes part in, the corporation's management;
whatever the person's position is called and whether or not the person is a director of the corporation.
49 Therefore, the question raised by the Liquidators is whether they fall within that part of the definition in (c)(ii). This involves an assessment of whether or not they are 'concerned with, or take part in' the management of CuDeco. They do not contend they might fall within any other part of the definition.
Potential liability under other provisions
50 Moving to provisions outside Chapter 7, the Liquidators refer to s 493 of the EPA. This section falls within Chapter 10 ('Legal Proceedings'), and provides:
493 Executive officers must ensure corporation complies with Act
(1) The executive officers of a corporation must ensure that the corporation complies with this Act.
(2) If a corporation commits an offence against a provision of this Act, each of the executive officers of the corporation also commits an offence, namely, the offence of failing to ensure the corporation complies with this Act.
Penalty -
Maximum penalty - the penalty for the contravention of the provision by an individual.
(3) Evidence that the corporation committed an offence against this Act is evidence that each of the executive officers committed the offence of failing to ensure that the corporation complies with this Act.
(4) However, it is a defence for an executive officer to prove -
(a) if the officer was in a position to influence the conduct of the corporation in relation to the offence - the officer took all reasonable steps to ensure the corporation complied with the provision; or
(b) the officer was not in a position to influence the conduct of the corporation in relation to the offence.
51 Further, the Liquidators refer to potential criminal liability and costs consequences that might flow under s 501, s 502, s 502A and s 503, also within Chapter 10 of the EPA. Liability under these provisions is premised on there being a finding by a court that a defendant has contravened the EPA by committing an offence. Where an offence has been established and there has been a finding of environmental harm, then s 501 provides that the defendant may be compelled to reimburse the administering authority for its costs and expenses in taking action to rehabilitate or minimise such harm. Section 502 empowers a court to make certain orders where it has found a defendant liable for committing particular offences: if the defendant does not comply with such orders and the administering authority is compelled to undertake work, the defendant may be liable for the costs of such work under s 502A. Section 503 may require a defendant to reimburse the prosecution for the costs of any investigation.
52 The Liquidators consider that the risk of any potential liability under the MRA is not high, but the prospect arises from the scope of the term 'executive officer'.
53 Section 412A of the MRA provides that an 'executive officer' commits an offence if the company commits an offence against an 'executive liability provision' and the officer did not take all reasonable steps to ensure the company did not engage in the conduct constituting the offence. In full, it provides:
412A Liability of executive officer - particular offences omitted by company
(1) An executive officer of a company commits an offence if -
(a) the company commits an offence against an executive liability provision; and
(b) the officer did not take all reasonable steps to ensure the company did not engage in the conduct constituting the offence.
Penalty -
Maximum penalty - the penalty for a contravention of the executive liability provision by an individual.
(2) In deciding whether things done or omitted to be done by the executive officer constitute reasonable steps for subsection (1) (b), a court must have regard to -
(a) whether the officer knew, or ought reasonably to have known, of the company's conduct constituting the offence against the executive liability provision; and
(b) whether the officer was in a position to influence the company's conduct in relation to the offence against the executive liability provision; and
(c) any other relevant matter.
(3) The executive officer may be proceeded against for, and convicted of, an offence against subsection (1) whether or not the company has been proceeded against for, or convicted of, the offence against the executive liability provision.
(4) This section does not affect any of the following -
(a) the liability of the company for the offence against the executive liability provision;
(b) the liability, under section 412B, of the executive officer for the offence against section 404D (1);
(c) the liability, under the Criminal Code, chapter 2, of any person, whether or not the person is an executive officer of the company, for the offence against the executive liability provision.
(5) In this section -
'executive liability provision' means any of the following provisions -
• section 402 (1)
• section 403 (1)
• section 404D (1).
'executive officer', of a company, means a person who is concerned with, or takes part in, the management of the company, whether or not the person is a director or the person's position is given the name of executive officer.
54 The executive liability provision to which the Liquidators draw attention is s 402(1). That section provides for certain offences with respect to unauthorised mining. Relevantly it provides that a person shall not employ or suffer a person to enter upon land for exploration or mining unless the person has relevant authorisation. It also provides that a person shall not carry on mining operations or remove minerals or ore from land without due authorisation under the MRA. As the Liquidators are not in control of the relevant land, they say they cannot be sure what the position is with respect to access to the site by others. However, the Liquidators have not pointed to any evidence that questions whether CuDeco has had in place appropriate authorisations. The Liquidators accept that the risk of liability on their part with respect to any such offence is likely low.
55 However, the Liquidators submit that they may be liable for criminal offences under the MRA if they fall within the definition of 'executive officer' in s 412A(5).
The relief sought by the Liquidators - four categories
56 At this point it is appropriate to set out the terms of the relief sought by the Liquidators. They seek declarations to the following effect, or directions that the Liquidators are justified in proceeding on the following basis:
1. that at all time since 5 July 2019 to the date of these Orders, the Company's interest in each of the [Mining Leases], [Exploration Permit] and [Environmental Authorities] is and has been subject to the control of Ian Francis, Michael Ryan and Kelly-Anne Trenfield in their capacities as Receivers and Managers of the Company, to the exclusion of the Liquidators;
2. that, at all time since 5 July 2019, the Liquidators are not and have not been:
(a) 'executive officers' of the Company within the meaning of s 412A of the [MRA] or schedule 4 of the [EPA]; or
(b) 'related persons' of the Company within the meaning of s 363AB of the EPA;
3. that, at all time since 5 July 2019, the Liquidators (or in their former capacity as administrators of the Company) are not and have not been in a position to influence the conduct of the Company; and
4. that to the extent the Liquidators would otherwise be liable to pay any amounts as a result of the operation of the EPA and MRA:
(a) those amounts are 'expenses' within the meaning of s 545 of the Act; and
(b) the Liquidators are not liable to pay those amounts unless there is sufficient available property within the meaning of s 545 of the Act.
[or alternatively to 4]
4. that to the extent the Liquidators would otherwise be liable to pay any amounts as a result of the operation of ss 18, 361, 361I, 363A, 363AA, 363AB, 363AC, 363AG, 363AI, 363E, 363F, 363G, 363H, 363M, 363N, 493, 501, 502, 502A, 503 and Schedule 4 of the EPA and ss 402 and 412 of the MRA:
(a) those amounts are 'expenses' within the meaning of s 545 of the Act; and
(b) the Liquidators are not liable to pay those amounts unless there is sufficient available property within the meaning of s 545 of the Act.
57 It may be seen from the relief sought that the Liquidators seek very broad ranging relief designed to protect them from any criminal and civil liability. In order to assess whether there is any justification for such relief it is appropriate to turn to the evidence as to the current known status of environmental risk relating to the Rocklands mine.
The evidence as to risk relied upon by the Liquidators
58 The Liquidators' concerns as to the risk of personal liability is to be viewed against the backdrop of the following matters (sourced from Mr Nipps' affidavits and attachments, including the matters raised by Mr Francis in the extracts to which Mr Nipps has referred):
(a) on 16 March 2018 the DES sent a letter to CuDeco that confirmed an estimate of rehabilitation costs of approximately $12.7 million. That estimate was repeated in correspondence between the DES and CuDeco dated 13 March 2019 by way of a 'Notice of Decision on Amount and Form of Financial Assurance';
(b) on 3 September 2018 the DES issued CuDeco with an Environmental Evaluation Notice (EEN) under the EPA, requiring it to commission an environmental investigation. This followed a compliance visit to the site in September 2017 by authorised DES officers during which it was observed that there was ponding of water outside the tailings storage facility (TSF) that was likely attributable to mining activities related to the construction or use of the TSF;
(c) on 5 December 2018 a delegate of the chief executive of the DES issued an EPO (EPO STAT 1328) to CuDeco requiring it to ensure that all necessary actions would be taken to prevent the unlawful release of contaminated water from the TSF and requiring it to take steps such as ensuring there were qualified staff in place to manage compliance, adequate site security and regular reporting to the DES;
(d) on 11 October 2019 the DES wrote to CuDeco, referring to the EEN, and informing it that the DES had determined that CuDeco had failed to comply with the EEN. It stated that it had determined to issue two EPOs and that the EEN was no longer in force;
(e) on the same date the DES issued a second EPO (EPO STAT 1417) to CuDeco which indicated that some contaminants had been identified in water outside the TSF containment and required (amongst other things) the engagement of suitably qualified persons to develop a water balance model for the TSF and design a strategy to prevent the migration of uncontained water; with strategies to be designed and implemented by March 2020 with further reporting by October 2020;
(f) also on the same date the DES issued a third EPO (EPO STAT 1418) to CuDeco which required ongoing monitoring of uncontained water and a program to conduct hydrological modelling for a projected period of 20 years, with reporting to the DES and the provision of an investigative report by 28 February 2020;
(g) in response to EPO STAT 1417 CuDeco (by the Receivers) retained a third party expert (Australian Groundwater and Environmental Consultants (AGE)) to develop a water balance model associated with the TSF (later reporting as to effectiveness was not yet due at the time of the Francis affidavit);
(h) in response to EPO STAT 1418 CuDeco retained AGE to prepare reports on the status of environmental protection at the Rocklands site, and reports provided by that third party indicate that there will be a need for ongoing rehabilitative efforts and maintenance of measures that have been implemented to ensure ongoing compliance with EPO STAT 1418, but as at 12 June 2020 reporting requirements to the DES had been fulfilled;
(i) in October 2019 the Receivers retained Synnot Wilkinson Pty Ltd to prepare reports with respect to the TSF and storage of other materials. Those reports outline rectification works that are required. For the TSF the cost of associated works is estimated to be in the range of $7 million and $14 million;
(j) on 19 November 2019 the Receivers received a letter of warning from the DES regarding specified areas of non-compliance. The Receivers implemented steps to address those issues. On 20 November AARC Environmental Solutions (AARC) wrote to the DES on behalf of the Receivers;
(k) on 3 December 2019 AARC wrote to the DES outlining the status of water management on the site and said that work was still required for compliance;
(l) on 26 February 2020 another inspection was undertaken by the DES, and areas of concern were identified including as to a torn process pond liner and erosion: the Receivers indicated that they would engage a third party to complete erosion works; and
(m) some 51 fortnightly reports were provided by AARC to the DES up to June 2020.
59 I should add that there is no suggestion that the financial assurance sum required by the DES has not been met by CuDeco or the Receivers through their funding.
60 Further, whilst it is apparent that there will be ongoing rehabilitation and maintenance works relating to the Rocklands mine site, it is apparent that the Receivers have been dealing with the DES regularly about such matters. There has been a steady flow of communication and the appointment of third party experts by the Receivers to address particular matters raised by the relevant EPOs. I accept that there remains a risk of exposure on the part of CuDeco, and so potentially others, to liability under the relevant environmental legislation relating to the EPOs. However, it is important to bear in mind that there is no evidence before me in this matter of the current status of any risk.
61 In particular, there is no evidence of any current threat by the DES that EPOs might issue directly to the Receivers or Liquidators as related parties. There is no evidence that the DES has incurred expenditure which it might seek to recover from the Liquidators by way of cost recovery notices. There is no evidence that any cost recovery notices have been issued. There is no evidence that the DES or DNRME is seeking to prosecute any person for an offence with respect to the Rocklands mine site. There is no evidence that any of the provisions that might be the subject of a directions notice have been contravened or that any direction notice has issued.
62 On the evidence as presently known, the Liquidators are seeking broad protection against hypothetical and generalised risk, including liability for offences. At most, if one were to attempt to descend into detail of the risk, it might be said that there is some risk with respect to the obligations the subject of the EPOs that have already issued to CuDeco, although the question of who might bear that risk remains moot. The respective roles of the Liquidators and Receivers are clearly central to that question, and it is appropriate to turn now to that issue.
The absence of a role for the Liquidators with respect to environmental obligations
63 Mr Nipps states in his affidavit evidence that the Receivers, having been appointed over all of CuDeco's present and after-acquired property, continued to operate the business in a limited capacity under care and preservation, while they explored opportunities to maximise the value of CuDeco's assets through a recapitalisation or restructure of the company or a sale of its assets.
64 He states that given the scope of the appointment of the Receivers, the Liquidators have no possession, control or influence over CuDeco's assets, including those used in its mining operations at the Rocklands mine, and have had no involvement in the care and maintenance of that site.
65 The Receivers did not wish to be heard on this application. As appears from the correspondence below, the Receivers accept (and assert) that they have control over the assets and undertaking of CuDeco, including the Mining Leases, Exploration Permit and Environmental Authorities, to the exclusion of the Liquidators.
66 Nothing in the evidence before me indicates that the Liquidators, as a matter of fact, have had any opportunity to assert or take control of any aspect of the Rocklands mine operations.
67 Having regard to their potential risk or jeopardy, the Liquidators communicated with both the DNRME and the DES in an effort to obtain some comfort as to any prospective liability and the manner in which it might be limited. The following is not a complete record but constitutes the pertinent correspondence. References in the communications to 'MLs' are references to the Mining Leases. Reference to an 'EP' is a reference to the Exploration Permit. References to 'EAs' are references to the Environmental Authorities.
68 On 6 May 2020 the Liquidators sent a letter to DNRME, which stated in part:
As you are aware, Kelly-Anne Trenfield, Ian Francis and Michael Ryan of FTI Consulting were appointed as Joint and Several Receivers and Managers of the Company (Receivers and Managers) on 1 July 2019, prior to the appointment of Mr Jeremy Nipps and myself as Voluntary Administrators of the Company on 5 July 2019. Since the date of their appointment, the Receivers and Managers have been, and remain, in control of all of the Company's assets, including its mining leases and the Rocklands mine site, which has been under care and maintenance since August 2018. The Liquidators do not have any control over the Rocklands site nor any involvement with, nor influence over, the care and maintenance of that site.
…
Would you please confirm in writing that the Liquidators will not be held responsible or financially accountable for any existing or future environmental issues associated with the Rocklands mine sit [sic] as a result of the delay in disclaiming the Company's interest in the environmental authority and mining leases?
69 On 8 May 2020 the Liquidators received a letter from DNRME in response which stated in part:
Based on the information available to the department, the basis on which the Liquidators assert that the Receivers and Managers have been, and remain, in control of the MLs and EA held by CuDeco Limited is unclear. The Deed of Appointment provided to the department refers to two security agreements perfected under the Personal Property Securities Act 2009 (Cwlth) [sic] (the PPS Act). It is noted in this regard that mining leases are not considered by the department to be personal property for the purposes of the PPS Act (See section 3C of the Mineral Resources Act 1989).
With the above in mind, it is the department's view that:
• CuDeco Limited, as the holder of the MLs, is responsible for complying with the conditions of the MLs; and
• The Liquidators are responsible for taking appropriate steps to ensure the conditions of the MLs and related obligations are complied with.
On the information available, the department is unable to make any further comment on the Liquidators' responsibility or financial accountability for any existing or future environmental issues associated with the MLs resulting from any delay in disclaiming the MLs.
Finally, the department considers that the views expressed with respect to the MLs also apply to EAs. However, should the Liquidators require any information in relation to the EAs, it would be appropriate for the Liquidators to consult with the Department of Environment and Science, as the administering authority of the Environmental Protection Act 1994.
70 Also on 8 May 2020 the DNRME sent a letter to the Receivers which relevantly stated:
I can confirm it is the Department's view that the MLs and the EA are not personal property for the purposes of the security interests registered by Sunny Chance Investment Limited in the Personal Properties Securities Register. Therefore, the appointment of the Managers and Receivers do not extend to these licences under the Personal Property Securities Act 2009 (Cth).
It is also the view of the department that the obligation to comply with conditions of the MLs and EA are those of the holder as stated on the documents, CuDeco Limited. Following the appointment of the Liquidator of CuDeco Limited, the department is of the view the appointed Liquidator is responsible/or ensuring compliance to the conditions of these approvals, and other relevant statutory instruments, as required.
71 Also on 8 May 2020 the Liquidators sent an email to the Receivers which relevantly stated:
We received correspondence from the department this afternoon which indicates that the Company's mining leases are not considered by the department to be personal property for the purposes of the PPSA, pursuant to section 3C of the Mineral Resources Act (1989) … and are therefore not subject to your appointment as Receivers and Managers …
The Department advised that:
• The Company, as holder of the Mining Leases, is responsible for complying with the conditions of the Mining Leases; and
• The Liquidators are responsible for taking appropriate steps to ensure the conditions of the MLs and relates obligations are complied with.
…
As you would appreciate, this puts the Liquidators in the untenable situation where they have all of the obligations associated with the mining tenure but no control over the Rocklands site, nor any involvement with the care and maintenance of that site. The Liquidation is also without funds and the Liquidators are not in a position to obtain insurance cover for environmental risk.
We have, until now, refrained from disclaiming the mining leases as we did not wish to interfere with your attempts to realise the Company's assets.
We are currently seeking independent legal advice, however, wish to put you on notice that if our advice indicates that the Liquidators bear the responsibility for, and the risk associated with the Mining Leases, we will have no alternative but to disclaim these assets immediately unless the Liquidators' responsibilities and exposure can be accommodated.
72 On 11 May 2020 the Receivers wrote to the Liquidators, stating:
We have received the correspondence from DNRME referred to in your email which sets out their position.
We are presently taking legal advice on the issue urgently and have another call with DNRME and DES at 2pm this afternoon.
As you know, we have been adhering to the Mining Lease and environmental obligations throughout our appointment and continue to do so in conjunction with the departments whilst we remain on site. We also continue to hold insurance for the risk.
We request you refrain from disclaiming until we are able to provide an update on our position. We anticipate we will be able to do so by close of business tomorrow.
73 On or about 15 May 2020 the Liquidators sent a letter to DNRME which relevantly stated as follows:
We note that it is the view of the [DNRME] that:
• the Company, as holder of the MLs, is responsible for complying with the conditions of the MLs;
• the Liquidators are responsible for taking appropriate steps to ensure the conditions of the MLs and related obligations are complied with; and
• as the MLs are not considered by the Department to be personal property for the purposes of the Personal Property Securities Act 2009 (Cth) (PPSA) pursuant to section 3C of the Mineral Resources Act 1989, the Department is unclear as to the basis on which the Liquidators assert that the Receivers and Managers have been, and remain, in control of the Company's MLs and EA.
As advised in our letter dated 8 May 2020, Kelly-Anne Trenfield, Ian Francis and Michael Ryan of FTI Consulting were appointed as Joint and Several Receivers and Managers of the Company (Receivers) on 1 July 2019 and since the date of their appointment, have been, and remain, in control of all of the Company's assets, including its MLs and EA and the Rocklands mine site (Rocklands). The Receivers have been responsible for the care and maintenance of Rocklands, which they have undertaken utilising funding provided by their appointor, China Tonghai International Financial Limited (formerly Quam Limited) (Secured Creditor).
Please find enclosed the following documents which have been provided by the Secured Creditor as evidence of its security interest in the Company's assets:
• Secured Term Loan Facility Agreement dated 10 July 2017
• General Security Agreement (GSA) dated 10 July 2017
• Secured Term Loan Facility Agreement dated 27 March 2018
• Specific Security Agreement - Bank Account dated 30 April 2018
• Priority Deed dated 25 May 2018
• Featherweight Deed dated 25 May 2018
• Priority Deed dated 14 June 2018
The GSA provided by the Company to the Secured Creditor defines the Secured Creditor's Security Interest as follows:
a. In relation to any Personal Property has the same meaning as in the PPSA
b. In relation to Other Property means any security for the payment of money or performance of obligations including a mortgage, charge, lien pledge, trust or Power.
'Other Property' is defined as all the Grantor's present and after-acquired rights and interests in land and any other properly, rights and interests that is not Personal Property.
The Collateral covered by the Security Interest is defined to mean all Personal Property and Other Property.
Whilst the GSA does not specifically refer to the Company's EA and MLs, these are clearly captured under the definition of Other Property because they comprise property of the Company which is not subject to the PPSA.
The Priority Deed dated 14 June 2018 specifically refers the Mining Tenement mortgage made, or to be made between the Secured Creditor and the Company.
Our searches confirm that the Secured Creditor has registered mortgages over all three (3) MLs and the EA, copies enclosed.
We consider, based on the security documentation available to us, that the Receivers are validly appointed over the Company's property including the MLs and EA and for the following reasons, took and remain in possession and control of the Company's MLs and EA. It is not possible for both the Receivers and the Liquidators to be in possession and control of the Company's MLs and EA at the same time.
Following their appointment, the Receivers engaged independent experts to undertake a technical and financial review of the mining operations at Rocklands and conducted a comprehensive marketing campaign seeking expressions of interest from local and international parties in relation to a potential recapitalisation or restructure of the Company, or a sale of its assets. …
We also note that the EA issued on 17 May 2019 required an additional financial assurance of $1.1m be paid to the Department and that the Receivers paid this additional assurance. We understand that the Receivers and the Department executed a Deed of Surety wherein the Department confirmed that the Receivers were validly appointed as Receivers of the Company's MLs and EA for the purposes of the paying the increased financial assurance.
…
On the basis of the information provided above, we seek the Department's confirmation that the Receivers rather than the Liquidators, are the executive officers responsible for the Company's mining tenements or, if the Department will not concede this issue, that the Liquidators' financial exposure, if any, is limited to the net proceeds from the sale of the Company's Rocklands assets that may come into the hands of the Liquidators. If the Department is unable or unwilling to provide such confirmation within seven (7) days of the date of this letter, the Liquidators will be left with no other alternative but to disclaim the Company's MLs and EA and seek declaratory orders from the Court on the basis that orders for costs will also be sought.
74 Also on 15 May 2020 the Receivers sent a letter to the DNRME in response to their letter of 8 May 2020, which relevantly stated:
In relation to the appointment of the Receivers:
(a) The appointment was made by CTIFL under the powers conferred on CTIFL pursuant to a security document described as general security agreement (GSA) given by CuDeco Limited (Company) and under the powers conferred on CTIFL by law.
(b) The GSA gave to CTIFL a security interest over all of the property and assets of the Company, including the MLs and EAs.
(c) The appointment of the Receivers was in respect of all of the property and assets of the Company including the MLs and EAs.
(d) In addition, the mining tenement mortgage in favour of CTIFL is security for the performance of the obligations of the Company under the GSA.
(e) CTIFL has assigned its debt, the GSA and the mining tenement mortgage to Sunny Chance Investment Limited (Sunny Chance).
(f) The Receivers continue to be appointed in respect of the securities assigned to Sunny Chance.
In relation to the appointment of the Liquidator to the Company:
(a) The liquidation does not terminate or curtail the appointment of the Receivers.
(b) The Receivers continue to have the power to deal with the assets charged by the securities and to exercise the powers conferred by the securities and by law, which includes the power to dispose of the assets and to carry on the Company's business incidentally to the disposal of the assets.
(c) The Receivers are not required to obtain the consent of the liquidators to exercise their powers in respect of the MLs and EAs.
75 On 22 May 2020 the DNRME sent a letter to the Liquidators which relevantly stated:
…
The Department is not in a position to advise whether the Receivers rather than the Liquidators are the executive officers responsible for the Company's mining tenements. The Liquidators are best placed to make any determination in this regard, in the context of the Liquidators' obligations and powers with respect to the Company.
The Department's expectation is that, to the extent that the Liquidators may lawfully do so, the Liquidators will take all reasonable steps to ensure that the conditions of the MLs and requirements of the MRA are complied with by the Company. It is a matter for the Liquidators to determine their powers and obligations in this regard.
…
76 Also on 22 May 2020 the DES sent a letter to the Liquidators which relevantly stated:
The Department would like to clarify that it considers both Cor Cordis and FTI Consulting as the Liquidator and Receiver/Manager for CuDeco Limited respectively, are considered executive officers in accordance with the Environmental Protection Act 1994 (the Act).
Consequently, the Department considers that both Cor Cordis and FTI Consulting are jointly responsible for ensuring compliance with any environmental authority (EA) issued to Cudeco Limited and any other statutory documents issued by the Department to Cudeco Limited under the Act.
The uncertainty, the disclaimers and the contractual indemnity
77 The responses from the DNRME and the DES of 22 May 2020 understandably left the Liquidators in a position where, despite the disclosed position of the Receivers, there remained uncertainty as to the position that the departments might take as to liability on the part of the Liquidators. The Liquidators therefore considered that the appropriate course at that time was to disclaim CuDeco's interest in the Mining Leases, the Exploration Permit and the Environmental Authorities. Another reason the Liquidators cited for such a course was that it had not been possible to negotiate an indemnity in the Liquidators' favour from the Receivers.
78 As mentioned in the introductory summary, on 29 May 2020 the Liquidators issued disclaimer notices under s 568A of the Corporations Act disclaiming CuDeco's interest in the Mining Leases, the Exploration Permit and the Environmental Authorities, various items of plant and equipment left at the Rocklands mine site and certain ancillary agreements relating to native title interests.
79 It is not necessary to canvas in any detail the circumstances relating to the disclaimers (and revised disclaimers that were issued), save to note that following the service of the disclaimer notices, three parties who asserted that they were affected by the disclaimers instituted proceedings in this Court to have the disclaimers set aside. Originally it was intended that those applications be heard at the same time as this application.
80 However, following preparation for the hearings, the Liquidators received some comfort as to exposure for environmental liabilities. It was disclosed that an asset sale agreement has been entered into between the Receivers and a third party for the sale of CuDeco's assets and as part of that sale process, and pursuant to an amended asset sale agreement (AASA), the acquirer has provided certain indemnities relating to exposure to environmental liabilities in favour of the Liquidators. Because of that development (or at least partly because of it) the disclaimers were set aside by consent and the applications to set aside the disclaimers were discontinued. The anticipated completion date under the AASA is in early December 2020. It is necessary to be somewhat circumspect about the sale process under the AASA because evidence relating to it remains subject to confidentiality orders made by me under s 37AF and s 37AG(1)(a) of the Federal Court of Australia Act 1976 (Cth) and r 2.32 of the Federal Court Rules 2011 (Cth).
81 However, it is not possible to consider the question of the need for any relief without addressing the indemnity. Details of the indemnity have been disclosed to the Court, in particular by the affidavits of Mr Lewin. Mr Lewin stated that 'the indemnity was on terms which the Liquidators considered to provide an acceptable degree of protection against certain liabilities they may otherwise have been exposed to if the [disclaimers] were set aside'.
82 The indemnities granted by the purchaser extend to the Receivers and the Liquidators and indemnify them for any liability for loss suffered by any of them in respect of any environmental liabilities of CuDeco (including with respect to environmental clean-up remediation, rehabilitation and reclamation), whether the facts giving rise to the liability arose prior to 1 October 2020 and whether it arises before or after completion of the AASA.
83 Therefore, assuming completion of the AASA, the broad ranging indemnity provides, as Mr Lewin expressed it, acceptable protection to the Liquidators. This is of particular relevance to the application under s 545 of the Corporations Act. The question arises more generally as to whether any other relief is accordingly justified. The Liquidators pursue the relevant directions and declarations on the basis that it would be preferable to have no liability rather than rely on an indemnity. I accept that the Liquidators acting responsibly may seek to defend any claim made against them rather than seeking to rely solely on an indemnity. They also assert such directions or declarations may assist in defending any criminal liability in circumstances where in theory there remains a risk of imprisonment. Therefore, I will consider the direction and declarations otherwise sought by the Liquidators despite the development by way of the grant of the indemnity under the AASA.
The departments were informed of these proceedings but did not participate
84 The content of the communications from the DNRME and DES outlined above suggested that they may wish to be heard in order to defend their positions as to the potential liability of the Liquidators.
85 Mills Oakley, the solicitors for the Liquidators, arranged for service of the relevant papers on the DNRME and the DES. The solicitors informed representatives of those departments of the date and time of the case management hearing and the final hearing. Copies of the submissions and proposed amended originating application were also provided (on 24 September 2020).
86 As to the DNRME's position, Mr Benjamin Johns of the DNRME wrote to Mills Oakley on 27 August 2020 stating:
While the Department of Natural Resources, Mines and Energy does not inten[d] to be heard in the proceedings, we do maintain an interest in the outcome of these proceedings.
It would be appreciated if you were able to continue to keep us updated on the progress of the proceedings and any further orders made by the court.
87 As to the DES's position, on 7 August 2020 Mr Gus Gonzo of the DES acknowledged receipt of certain documents.
88 On 8 October 2020 Ms Amy Green, a lawyer at Mills Oakley, spoke with Mr Caeli Lovell, a lawyer at the DES, concerning the conduct of this proceeding. Ms Green subsequently sent a follow up email to Mr Lovell which stated, relevantly:
In relation to your query regarding the jurisdiction of the Federal Court to hear a matter which involves state based legislation (i.e. the Environmental Protection Act 1994 (Qld) (EPA)), we draw your attention to our clients' originating process (a copy of which was served on the DES on 4 August 2020) (OP). The OP seeks directions pursuant to the provisions of the Corporations Act 2001 (Cth), the Insolvency Practice Schedule and section 21 of the Federal Court Act 1976 (Cth). As you know, the Federal Court is empowered to make orders and directions under that legislation. We confirm that no order or direction is sought by our clients under any state legislation.
We note that on 7 August 2020 we provided Gus Gonzo of your office with the orders of the Honourable Justice Banks-Smith dated 6 August 2020 made in the Directions Proceeding (please see correspondence attached). Pursuant to those orders, any interested party referred to in the OP (which relevantly, includes the DES) that wishes to be heard in the Directions Proceeding was to file and serve any affidavit material upon which they intend to rely by 27 August 2020 and file and serve any submissions upon which they wish to rely by 1 October 2020. The dates for the interested parties to file submissions in the Directions Proceeding was subsequently extended to 6 October 2020.
89 Mr Lovell in reply said:
I appreciate your response to my enquiry about the basis on which your clients are seeking directions from the Federal Court, and clarification that no order or direction is being sought under any state legislation.
Please note that my enquiry today was not intended to serve as an indication that the Department intends to take an active role in the proceeding. The litigation unit in which I work does not have instructions to act or take any steps in this matter, and you should continue to communicate with Gus Gonzo as noted in your email.
90 It is therefore apparent that both departments elected to have no role in the proceedings, albeit that they were on notice that central to the Liquidators' case were issues of construction and interpretation of parts of the EPA and MRA. It is somewhat disappointing that they chose not to participate, in light of the positions they propounded in the May 2020 correspondence.
91 The Liquidators seek that the Court make directions or declarations pursuant to s 90-20(1)(a) and (d) and s 90-15(1) of Schedule 2 (Insolvency Practice Schedule (Corporations)) to the Corporations Act (IPS), which provides for the making of 'orders', and pursuant to s 21 of the Federal Court of Australia Act, which provides for the making of declarations.
92 Section 90-15 of the IPS relevantly provides:
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
…
(2) The Court may exercise the power under subsection (1):
(a) on its own initiative, during proceedings before the Court; or
(b) on application under section 90- 20.
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
(a) an order determining any question arising in the external administration of the company; …
93 The terms of this provision are broader than its two partial predecessor provisions, being s 479(3) and s 511(1)(a) of the Corporations Act. This feature of s 90-15(1) of the IPS has been the subject of some consideration. In Re Hawden Property Group Pty Ltd (in liq) [2018] NSWSC 481, Gleeson JA observed that 'The ambit of s 90-15 has not yet been fully considered in the authorities' (at [7]).
94 His Honour went on to observe that the power granted to the Court under s 90-15 is wider than under s 479(3) and accommodates the determination of substantive rights, stating:
[8] In Walley (as administrators of Poles & Underground Pty Ltd (admins apptd) and Icon Plant Pty Ltd (admins apptd)) [2017] FCA 486 at [41], Gleeson J remarked that the question of whether to exercise the power in s 90-15 was 'to be answered by reference to the principles applied to the exercise of the discretions previously contained in ss 479(3) and 511 of the Act'. That may be accepted insofar as the external administrator seek the directions of the Court, but the power under s 90-15 to 'make such orders as it thinks fit in relation to the external administration of a company' (s 90-15(1)) including 'an order determining any question arising in the external administration of a company' (s 90-15(3)(a)), is wider and accommodates the determination of substantive rights. Of course, the Court would not do so without affording potentially affected parties an opportunity to be heard: Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2007] FCA 1443 at [49]-[51] (French J, referring to Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (rec and mgr apptd) (1994) 49 FCR 334 at 352; 121 ALR 626 at 643 (Northrop J)); Re Willmott Forests Ltd (recs and mgrs apptd) (in liq) (No 2) (2012) 88 ACSR 18; [2012] VSC 125 at [45]-[46] (Davies J); Re ICS Real Estate Pty Ltd (in liq) [2014] NSWSC 479 at [25] (Brereton J).
95 This Court has held that s 90-15 provides the jurisdiction and power to make declarations. In Ross v Manpak Holdings Pty Ltd, in the matter of Manpak Holdings Pty Ltd [2018] FCA 1548, McKerracher J observed:
[9] There is no jurisdictional impediment which would prevent the Court making the orders sought. Under s 90-15(1) of the Insolvency Practice Schedule, the Court has the jurisdiction and power to make orders 'as it thinks fit' in relation to the external administration of a company, encompassing the declarations sought in the plaintiffs' application … .
96 In Ross, the declarations related to the realisation by deed administrators of trust assets and included a declaration that the sale proceeds formed part of the fund for distribution under the deed of company arrangement.
97 In Re Polat Enterprises Pty Ltd (in liq) [2020] VSC 485 (Hetyey AsJ) the Court observed that s 90-15 is 'broad in its scope and contemplates not only the exercise of judicial discretion but also the determination of substantive rights' (at [31]). The Court made declarations 'pursuant to sections 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations)'. The declarations included declarations to the effect that certain resolutions and share transfers were invalid and ineffective.
98 Although the power conferred by s 90-15 is broader than that conferred by its predecessor provisions, courts have nonetheless been guided by the matters relevant to the exercise of the predecessor provisions: Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [41] (Gleeson J). These notions include that the power should be exercised where it is just and beneficial to do so: Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444 at [64] (Gleeson J). Whilst a court generally refrains from making directions relating to a liquidator's or administrator's business or commercial decisions, it may give directions relating to issues such as a legal issue of substance or procedure, or an issue of power, propriety or reasonableness: Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409 at [44] (Goldberg J).
99 Therefore, in exercising powers under s 90-15 the court will be guided by similar principles to those that governed the exercise of powers under former s 479(3) and s 511 of the Corporations Act, although the relief that the court may grant under s 90-15 appears broader and extends to the making of declarations where appropriate.
100 As well as relying on s 90-15, the Liquidators rely upon the power contained in s 21 of the Federal Court of Australia Act for the granting of declaratory relief. This is a broad and unfettered discretionary power: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 99.
First category of relief: CuDeco's interests subject to control of the Receivers
101 The Liquidators seek a direction or declaration that since their appointment on 5 July 2019 CuDeco's interest in the Mining Leases, Exploration Permit and Environmental Authorities have been subject to the control of the Receivers to the exclusion of the Liquidators.
102 I consider it appropriate to make a declaration to that effect under s 90-15 of the IPS for a number of reasons, but subject to certain qualifications.
103 The first qualification is that such a declaration is premised on an assumption that the Receivers were validly appointed. No person has taken any issue or raised any question as to any default on the part of CuDeco under the relevant securities, the validity of the Receivers' appointment or the validity of the assignment of the securities.
104 The second qualification is that such declaration is premised on the assumption that there are no matters that affect the validity of the underlying securities pursuant to which the Receivers were appointed. Again, no person has come forward to challenge such matters. However, in circumstances where the declaration has the capacity to affect the interests of each of the secured creditor, the Receivers, the Liquidators and potentially others and where there has been no contradictor, it is important to set out the assumptions upon which relief is granted.
105 Third, this matter was heard on 14 October 2020. Supplementary written submissions were filed as a result of various matters that arose out of the hearing. There were also communications with ASIC after the hearing. There is some urgency in resolving this application. I have proceeded on the basis that there have been no relevant events that have affected the positions of the Liquidators or the Receivers since the dates of the affidavit evidence upon which the Liquidators have expressly relied. Leaving aside the indemnity, nor have I taken into account the terms of the AASA insofar as they may have some effect on the allocation of risk as between the Receivers and the purchaser.
106 Taking into account those qualifications, I am persuaded that it is appropriate to grant relief for the following reasons.
107 First, it is apparent from the terms of the GSA and the Deed of Appointment that the Receivers were appointed over all of CuDeco's property and interests, including its interest in the Mining Leases, Exploration Permit and Environmental Authorities. Those interests are covered by the definition of 'Collateral' in the GSA as set out above. It follows that there is no subsisting role for the Liquidators with respect to those particular secured assets for as long as they remain assets of CuDeco subject to the control of the Receivers.
108 Second, this position is supported and unchallenged by the Receivers who have expressly asserted that they have control over the assets and undertaking of CuDeco. In particular, the letter from the Receivers to the DNRME of 15 May 2020 clearly and correctly recites both the position that is apparent on the face of the GSA as to security over the assets, and the fact that it is the Receivers and not the Liquidators who continue to have the power to deal with the charged assets.
109 Third, the Receivers have also accepted and asserted that they have taken steps to adhere to environmental obligations in conjunction with the relevant departments during the period of their appointment, and that prospect was anticipated by the Deed of Appointment. The circumstances that are set out at [59], [64] and [74] above indicate the involvement of the Receivers (and not the Liquidators) in communications with the departments relating to expert advice, the relevant EPOs and CuDeco's environmental obligations.
110 Fourth, the claim by the DNRME in its letters of 8 May 2020 to the Liquidators and Receivers respectively to the effect that the Mining Leases and Environmental Authorities are not the subject of the security under which the Receivers were appointed is not supported at law. It might be that having received and reviewed the relevant securities the DNRME's understanding of the position has changed. But there is no evidence to that effect and the DNRME has not explained its position in these proceedings. This contention on the part of the DNRME justifies consideration of the issue by the Court at the Liquidators' request.
111 Fifth, the position of the DNRME and DES as set out in their respective correspondence to the Liquidators of 22 May 2020 is such that there remains a controversy, at least with respect to those parties, as to whether it is the Receivers or Liquidators who have and remain in control of CuDeco's interests in the Mining Leases and Environmental Authorities. It is important that such controversy be resolved, including with respect to the Exploration Permit, so that (at least) the Liquidators, Receivers, secured creditor and any funder of the Receivers have some comfort as to their respective positions.
112 It is appropriate that there be a declaration to the effect sought by the Liquidators in proposed order 1 of the relief sought (see [56] above). It is not necessary to consider whether alternatively a declaration should be made under s 21 of the Federal Court of Australia Act.
Second category of relief: 'Related person' and 'executive officer'
113 The Liquidators' apprehension as to liability under a related party EPO or cost recovery notice is linked to whether or not they are a 'related person' within the meaning of s 363AB. As is apparent from proposed order 2, the Liquidators seek a direction or declaration to the effect that they are not a 'related person'. The Liquidators assert, having regard to the only matters that might be relevant under the provisions of the EPA, that they do not have a 'relevant connection' to CuDeco (s 363AB(1)(d)) because:
(a) they are not in a position to influence CuDeco's conduct in relation to the way in which it complies with its obligations under the EPA (s 363AB(2)(b));
(b) they are not in a position to benefit financially from the carrying out of any relevant activity by CuDeco (s 363AB (2)(a));
(c) they do not have control of CuDeco (s 363AB(4)(a));
(d) they are not executive officers of CuDeco (s 363AB(4)(b)); and
(e) to the extent there have been any 'dealings' between them and CuDeco they have been limited to dealings in performance of their statutory duties as Liquidators (s 363AB(4)(f)).
114 The difficulty for the Liquidators in seeking the relief as framed is that it is for the administering authority to decide whether a person has a relevant connection with the company. 'Administering authority' is relevantly defined in the Schedule 4 dictionary to mean the chief executive of the DES.
115 Therefore, whether or not a person has a relevant connection and so is a related person is not a question only of statutory construction or a question that might be resolved by findings of fact by this Court. The Court cannot direct the decision-maker as to the outcome of the task they are to undertake in assessing whether there is a relevant connection. The task of the decision-maker is to ensure they are 'satisfied' that a person has a relevant connection, having regard to the matters set out in s 363AB(2) - s 363AB(8), including the Guidelines.
116 A decision that a person is a related person in relation to the issuing of an EPO under s 363AB (and a decision under s 363AC, s 363AD, s 363AI) is subject to a review and appeal process provided for in Chapter 11 of the EPA.
117 Having regard to the manner in which s 363AB directs that the administering authority is the decision-maker, I do not consider it appropriate for this Court to make a direction or declaration as to whether or not the Liquidators have a relevant connection and so are related persons for the purpose of s 363AB of the EPA.
118 However, that does not mean the Liquidators must proceed without any guidance on the point.
119 First, the decision-maker must have regard to the Guidelines. The Liquidators in supplementary submissions suggested that the Guidelines were of little value in that the only obligation imposed on the administering authority was to have 'regard' to them. This submission understates the role of such mandatory guidelines or directions. A decision-maker is obliged to engage in an active intellectual process with matters requiring their genuine consideration: Tickner v Chapman (1995) 57 FCR 451 at 462; Minister for Immigration and Multicultural Affairs v Jia [2001] HCA 17; (2001) 205 CLR 507 at [105]; and authorities collected in Bat Advocacy NSW Inc v Minister for Environment Protection, Heritage and the Arts [2011] FCAFC 59 at [44]-[45].
120 In this case the Guidelines might provide some level of comfort to liquidators generally, and in the context of a concurrent appointment.
121 For example, the Guidelines include the following statements:
(1) being a related person does not of itself trigger the issue of a related party EPO. Culpability of the related person must be established prior to a related person receiving an EPO;
(2) the DES will only consider issuing an EPO to a related person where a company has avoided, or attempted to avoid, its environmental obligations and the related person has participated in this conduct;
(3) the DES will consider the nature of the relationship and all the available evidence, including evidence that suggests a person does not have a relevant connection to the company;
(4) the DES must give consideration to any evidence relevant to the decision including information produced by a potentially related person;
(5) the fact that there is evidence to support a connection based on a single matter does not necessarily mean that the DES will determine that a connection for the purpose of s 363AB(1)(d) exists;
(6) generally, the more matters to support a connection, the more likely that the DES will determine that a relevant connection exists;
(7) what is reasonable for one related person will arise from the context of their specific role, powers, responsibilities or other relationship to the company and may differ greatly from the steps which would be reasonable for another related person; and
(8) the nature of an insolvency practitioner's relationship with a company in external administration will mean that the practitioner may be found to be culpable for harm resulting from acts or omissions during their involvement with the company (including acts or omissions which result in harm due to the pre-existing conditions of the land). However, given the nature of their relationship with the company an insolvency practitioner will not be considered culpable for pre-existing harm, and as a result, will not be issued with a related person EPO for rehabilitation of pre-existing harm.
122 The Guidelines also include the following useful examples:
(1) A company has entered external administration. A regulated dam has not been appropriately maintained resulting in dam failure and subsequent environmental harm. The company's human resources executive was not in a position to make decisions in relation to maintenance of the regulated dam. In this circumstance, the human resources executive would not be regarded as having a relevant connection on the basis of position to influence as they were not in a position to influence the environmental actions of the company which resulted in dam failure.
(2) An external administrator has assumed responsibility for a site. After assuming responsibility for the site, the external administrator becomes aware of an incident that is causing, or at risk of causing, environmental harm. In this instance, the reasonable steps expected of the external administrator need to be considered in light of the external administrator's requirements and powers under the Corporations Act, the terms of the external administrator's appointment, and the external administrator's powers and their obligations under the EPA.
123 These extracts and examples indicate that in the case of concurrent appointments, the decision-maker will be obliged to consider (at minimum) the relationship relevantly between receivers, liquidators and the company, the terms of the appointment of the receivers, the respective specific roles, powers and responsibilities of the receivers and the liquidators during the relevant time and any relevant evidence that the liquidators seek to produce to the DES.
124 Second, whilst I am not prepared to make the direction or declaration sought about 'related person', having regard to the declaration referred to at [112] above, it seems to me that specific directions may also be made as to how the Liquidators might proceed in the present circumstances. Such directions fall within the scope of the broader declaration but address more particularly aspects of the liquidation about which the Liquidators have expressed concern.
125 In the circumstances described, I also consider it appropriate to make directions that the Liquidators are justified in proceeding on the basis that:
(a) the Receivers have at all material times since 5 July 2019 been responsible for and entitled to make all decisions relating to the responses by CuDeco to the EPOs issued to CuDeco by the DES and relating to the manner in which the property and interests by way of the Mining Leases, Exploration Permit and Environmental Authorities the subject of their control have been maintained; and
(b) during that period the Liquidators were not responsible for nor entitled to make such decisions or influence the Receivers in the making of those decisions.
126 I do not consider it appropriate to make directions that address the fact-dependant matters referred to at [113(b)] and [113(e)] above on the basis of only the current evidence before me. For reasons set out below, it is not appropriate to make a direction as to the matter referred to at [113(d)].
127 The Liquidators also seek a direction or declaration to the effect that they are not 'executive officers' within the meaning of the definition in Schedule 4 of the EPA or s 412A of the MRA.
128 There is authority to the effect that a liquidator is an 'executive officer' within the meaning of the EPA: Linc Energy Ltd (in Liq) v Chief Executive, Department of Environment and Heritage Protection [2017] QSC 53; (2017) 2 Qd R 720. As the Liquidators seek to distinguish its application, it requires careful consideration.
129 Linc Energy operated a pilot underground gasification project at Chinchilla in Queensland. In April 2016 administrators were appointed to Linc Energy. In May 2016 the respondent department issued an EPO to Linc Energy in respect of certain mining assets. Later that month the administrators transitioned to being liquidators of Linc Energy. The applicant liquidators then disclaimed the assets the subject of the EPO. The applicants and the respondent were in dispute as to whether the disclaimer had the effect of discharging Linc Energy from future compliance with any obligations under the EPO. The primary judge concluded that the disclaimer did not have that effect.
130 A second question in the proceedings then arose as to whether the applicant liquidators might be personally liable to ensure that Linc Energy complied with its obligations under the EPO. Relevantly, the case concerned the meaning of 'executive officer' under the Schedule 4 dictionary of the EPA for the purpose of s 493 and did not consider the potential direct liability of the applicants as 'related persons'.
131 In relation to subparagraph (c)(ii) of the definition of 'executive officer', the applicants contended that they were not concerned with and did not take part in the company's management, as their powers were derived from their office for the purpose of winding up the affairs of the company and they were not managing an ongoing undertaking or business. The applicants therefore submitted that a narrow construction of s 493 should be adopted, whereby a liquidator appointed with identified powers does not fall within the ambit of 'executive officer'. The applicants made three arguments in support of that submission.
132 First, the applicants submitted that the change of status of the company upon winding up limits the scope of liquidators' powers in a way that supports the narrow construction. The Court did not accept this argument, stating that 'the limit on the exercise of a liquidators' power to the purpose of winding up the affairs and distributing property of a company does not relieve the company from its obligations': at [166].
133 Second, the applicants argued that given that s 493 contains conferral of criminal liability, the provision should be strictly construed. His Honour rejected this argument, explaining that in construing remedial legislation, the rule that a penal statute is to be strictly construed is a rule of last resort: at [167]. In so explaining, it is apparent that his Honour did not consider that resort to such a rule was necessary.
134 Third, the applicants argued that liquidators are not executive officers because a company in liquidation is not a going concern, citing Re Home & Colonial Insurance Company Ltd [1930] 1 Ch 102 at 126. The Court distinguished the context of that case and said that 'cases in other contexts generally would support the conclusion that a liquidator is in a general sense an executive officer': at [168].
135 The respondent opposed the applicant's narrow construction of 'executive officer'. The respondent argued that the applicants, as liquidators, fell within the definition of 'executive officer' for the purpose of s 493. The respondent also relied on three arguments.
136 First, it said that the role of a liquidator involves managing the affairs of a company as a question of both fact and law. The Court rejected this argument, stating that the construction of s 493 does not turn on what the liquidators have done as a question of fact: at [169]. That is, whether or not liquidators are executive officers for the purpose of s 493 does not turn on the capacities of the liquidators as a matter of fact.
137 Second, the respondent argued that the purpose of the EPA is best achieved by not excluding liquidators from the meaning of executive officer, citing s 14A of the Acts Interpretation Act 1954 (Qld) (which provides that in the interpretation of a provision of an Act, the interpretation that will best achieve the purpose of the Act is to be preferred to any other interpretation). The Court appeared to accept that argument, stating that '[i]f the narrow construction were accepted there would be no-one with a personal statutory obligation to ensure that the obligations of the company under the EPA were met during the liquidation': at [170].
138 Third, the respondent argued that admissible extrinsic materials favour the inclusion of liquidators within the meaning of executive officer. The respondent referred to the Explanatory Note to the Bill for the EPA and a departmental guideline. The Court doubted that reference to the extrinsic materials assisted in the construction of s 493: at [172].
139 The Court rejected the applicants' narrow construction of s 493, holding that liquidators are captured by the definition of executive officers in s 493 for four reasons.
140 First, the Court held that there is no support in the text of s 493 for the exclusion of liquidators from the definition of executive officers. Second, there is no support in the EPA generally or other relevant materials for the exclusion of liquidators from the definition. Third, exclusion of liquidators does not best achieve the purpose of s 493, nor the EPA objects provision, and nor the EPA's public purpose. Fourth, including liquidators within the meaning of executive officers would not produce an absurd result or otherwise cause legal difficulty.
141 The decision was the subject of an appeal. The liquidators successfully argued on appeal that the disclaimer had taken effect to terminate obligations under the EPO. However, the validity of the finding that the liquidators were executive officers was not considered on appeal. Rather, it was assumed to be correct: see Longley v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32; (2018) 3 Qd R 459 at [126] (McMurdo JA), [148] (Bond J).
142 In the present case, the Liquidators argue that as a matter of fact they do not fall within the definition of executive officers.
143 The Liquidators seek to distinguish Linc Energy, pointing to the concurrent appointment of the Receivers and the fact that it is the Receivers who are managing the assets of the company, a factual scenario not present in Linc Energy where no receivers were appointed. In particular, they refer to the decision of Ormiston J in Corporate Affairs Commission (Vic) v Bracht [1989] VR 821 and of the High Court in Australian Securities and Investments Commission v King [2020] HCA 4.
144 In Bracht, Ormiston J considered the provisions of the then Companies (Victorian) Code. Mr Bracht was alleged to have contravened s 227 which provided that a person who was an insolvent under administration could not be a director or promoter of, or be in any way (whether directly or indirectly) concerned in or take part in the management of a corporation without the leave of the Court. His Honour held that to 'take part in' the management of a corporation connoted the 'active participation of a … person in the management of a corporation': at 831. Such participation had to be 'real and direct', but did not have to amount to 'ultimate control': at 831. The concept of 'management' comprehends (at 830):
…activities which involve policy and decision-making, related to the business affairs of a corporation, affecting the corporation as a whole or a substantial part of that corporation, to the extent that the consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs.
145 The decision in Bracht was important in terms of its influence on subsequent amendments to companies legislation. This influence is traced by Nettle and Gordon JJ in ASIC v King at [112]-[123].
146 In ASIC v King the High Court confirmed that if the group senior executive has the requisite capacity to affect significantly the subsidiary's financial standing, then that senior executive is an 'officer' of the subsidiary company within the meaning of s 9 of the Corporations Act.
147 Mr King was CEO of MFS Ltd, which at the time was the ASX-listed parent company of the MFS Group (later called Octaviar), a funds management group with a market capitalisation of $3 billion and a number of managed investment schemes, including one known as the Premium Income Fund (PIF). In 2007, MFSIM (an entity that was a member of the group) arranged a $200 million loan facility with the Royal Bank of Scotland in its capacity as the responsible entity of the PIF. A question arose as to the use of the loan funds that were provided to MFSIM for the benefit of the PIF. MFSIM made a payment of $130 million to the group's treasury company, MFS Administration, and the money was used by MFS Administration to meet a debt due by it in circumstances where there was no evident promise of repayment or security for that advance.
148 Mr King had ceased to be a director of MFSIM more than six months prior to the transaction.
149 ASIC commenced enforcement proceedings against Mr King alleging that he was nonetheless an 'officer' of MFSIM and had breached his duties under s 601FD(1) of the Corporations Act. ASIC alleged that Mr King had breached those duties by (amongst other things) not acting honestly and failing to take steps that a reasonable person would take in his position to ensure MFSIM as responsible entity for the PIF complied with the PIF constitution.
150 'Officer' is broadly defined in s 9 of the Corporations Act as follows:
'officer' of a corporation means:
(a) a director or secretary of the corporation; or
(b) a person:
(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation's financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation)
(c) a receiver, or receiver and manager, of the property of the corporation; or
(d) an administrator of the corporation; or
(e) an administrator of a deed of company arrangement executed by the corporation; or
(f) a liquidator of the corporation; or
(g) a trustee or other person administering a compromise or arrangement made between the corporation and someone else.
Note: Section 201B contains rules about who is a director of a corporation.
151 ASIC argued that Mr King was liable under s 601FD of the Corporations Act as an 'officer' of MFSIM in that he was a person who had the capacity to affect significantly MFSIM's financial standing (s 9 paragraph (b)(ii) of the definition) because he was the CEO and an executive director of MFS Ltd with overall responsibility for MFSIM as a member of the MFS Group; and because Mr White, the deputy CEO of MFS Ltd and an executive director of MFSIM, had reported directly and frequently to Mr King in the performance of Mr White's role in MFSIM, and customarily acted in accordance with Mr King's instructions and wishes in that role (at [9]-[10]).
152 Mr King argued that to be an 'officer' of a corporation he needed to be appointed in some formal office within MFSIM, whether as a director or senior executive.
153 The High Court unanimously disagreed with Mr King. The majority concluded that 'it would be an extraordinary state of affairs if those who actually determine the course of a company's financial affairs could avoid responsibility for their conduct by the simple expedient of deliberately eschewing any formal designation of their responsibilities': at [46].
154 The High Court held that officers of a corporation are not defined through whether or not they hold an 'office' but instead s 9 is functional in character as it is concerned with the stipulated quality of a person's actions or capacity and their effects. Section 9 of the Corporations Act thereby requires consideration of the role the person played in the corporation, not their official title.
155 The High Court emphasised the importance of the principle that if individuals have the capacity to affect significantly the financial standing of a company then they can be an 'officer' of a corporation.
156 The High Court also referred to the significance of management. In the context of whether the approach to the meaning of 'officer' may lead to the unintended consequence of capturing those who are on any view unrelated to the management of the company, the High Court stated (at [40]):
Section 179(2) of the [Corporation] Act notes that s 9 defines both 'director' and 'officer' and states that '[o]fficer includes, as well as directors and secretaries, some other people who manage the corporation or its property (such as receivers and liquidators)'. Section 179(2) confirms that the definition of 'officer' in s 9 is intended to capture those managing the corporation or its property, as distinct from those who are able to affect the corporation by the exercise of rights as a counterparty to a transaction involving the corporation. Thus, para (b)(ii) 'does not refer to a person who has [the relevant] capacity as a third party but is not involved in the management of the corporation's affairs'.
157 Bracht was not referred to in Linc Energy and the Linc Energy decisions pre-date ASIC v King. The Liquidators in the present matter rely on those decisions as authority for the proposition that despite the fact that the Liquidators held the statutory role of liquidators and were also officers of CuDeco, the question of whether or not they are executive officers within the meaning of paragraph (c)(ii) of the Schedule 4 definition is to be resolved as a question of fact, focusing on their limited role in circumstances where there is a concurrent receivership, and having regard to the concept of management as discussed in Bracht.
158 It can be accepted that the focus of Jackson J in Linc Energy was on the powers and statutory obligations of a liquidator rather than the quality of the conduct of the Linc Energy liquidators in their particular role. However, viewed properly, Jackson J's approach was consistent with the search for content rather than title, as is indicated by his Honour's assessment of the statutory powers held by a liquidator. As there was no question in that case of those powers being tempered by a concurrent appointment of receivers, it was sufficient to assume the capacity to exercise all of the relevant powers and obligations of a liquidator appointed under statute. There is also a distinction in this case with the factual scenario addressed in Bracht and ASIC v King, although the principles are applicable. In both of those cases the question before the respective Courts related to the role of a person who did not hold an official position with the relevant companies.
159 The Schedule 4 (c)(ii) definition of executive officer expressly states that it does not matter whether or not the person holds the office of director. Clearly the fact that such office is held is not of itself determinative of the question, but nor can the role of the Liquidators in that capacity be ignored.
160 Liquidators are officers of a company: s 9 of the Corporations Act. They also hold a named office in a corporation for which the Corporations Act prescribes certain duties and powers. Whilst the Liquidators urge an interpretation of 'executive officer' by reference only to the facts of the relationship between them, the Receivers and CuDeco, they occupy a particular position that carries with it powers relevant to the management of the company (noting the directors have no management powers upon liquidation of the company). Liquidators are in fact bound by the legislation to make certain decisions and do certain acts for and on behalf of the company. They are to use their own discretion in the management of the affairs and property of the company and the distribution of its property (s 477(6)). The role of the Liquidators in this case is not to be assessed in a vacuum, devoid of the content of that role that arises from their position as liquidators.
161 Even having regard to the limitations on the decision-making and management capacity of the Liquidators in light of the concurrent role of the Receivers, I am of the view that 'executive officer' for the purpose of Schedule 4 of the EPA and s 412A(5) of the MRA is to be understood broadly so as to include the Liquidators in this case.
162 The text of the definition does not suggest any limit on the number of persons who may be executive officers at any particular time. There is no bar on concurrently appointed receivers and liquidators (and others) potentially falling within the definition at a given time.
163 Nor does the text impose a limitation such that in order to meet the definition of executive officer the person must have a management role that includes the capacity to manage decisions relating to particular obligations under the EPA. In other words, the fact that the Receivers may have control of the decision-making process for CuDeco with respect to the EPOs that have been issued does not deny the potential for the Liquidators, who still retain some management powers, to fall within the definition.
164 So much is confirmed by reference to, for example, the defence provided by s 493(4) of the EPA (and see also to similar effect s 412A of the MRA). Section 493(4) provides that it is a defence to the offence of failing to ensure that the corporation complies with the EPA for an executive officer to prove that, if they were in a position to influence the conduct of the corporation in relation to the offence then they took all reasonable steps to ensure the corporation complied, or that they were not in a position to influence the conduct of the corporation in relation to the offence. In particular the second limb of the defence anticipates a broad meaning of executive officer, with a defence available where decision-making on the part of the executive officer with respect to the environmental offence is circumscribed. A narrow interpretation of executive officer, premised on capturing only those with the ability to influence such conduct, would have the potential to deny any role for the statutory defence.
165 The fact that in this case the Liquidators retained a management and decision-making role which had the capacity to affect the corporation (as described in Bracht) is reflected in the decision made by the Liquidators to issue notices disclaiming the Mining Leases, Exploration Permit and Environmental Authorities. As noted in Linc Energy, the fact that the Liquidators are not running the operations of the company as a going concern is not decisive (and is in any event a common feature of liquidations). They continue to have other powers relating to CuDeco, and in particular with respect to its creditors (see [6] above).
166 In those circumstances, I decline to make the direction or declaration sought to the effect that the Liquidators are not 'executive officers' within the meaning of Schedule 4 of the EPA or s 412A of the MRA.
167 The potential for the Liquidators to prove a defence should any proceedings be issued under s 493 of the EPA remains. Similarly, in the unlikely event that any proceedings were to issue under s 412A of the MRA, the obligation remains under s 412A(2) of the MRA for the decision-maker to take into account whether the executive officer was in a position to influence the company's conduct with respect to the relevant offence.
168 The declaration and directions that I have indicated will be made (at [112] and [125] above) should assist the Liquidators in this regard.
Third category of relief: 'position of influence'
169 It will be appreciated that I have confined my analysis and the directions I have given to the specific scenario where certain EPOs have been issued to CuDeco and the management of the mine site has been under the control of the Receivers. I do not consider it helpful to speculate as to other EPOs or environmental issues that might arise during the period of the liquidation and potentially on different facts. Nor have I considered it appropriate to frame or grant any relief having regard to each and every provision of the EPA or MRA which may have the potential to lead to liability on the part of the Liquidators relating to unknown and unidentified facts. The power of the court to make directions or declarations is not to be seen as a vehicle by which a liquidator might continue in that role, relieved from all unknown and speculative liabilities and without regard to the particular conduct of the liquidator, particularly where, as in this case, there is no statement of agreed facts or circumstances.
170 Having regard to that approach, and having regard to the role of the Liquidators that I have described in the context of the meaning of 'executive officer', I decline to grant the broad and all-encompassing relief sought by the Liquidators to the effect that at all material times they have not been in a position to influence the conduct of CuDeco. However, the Liquidators have the benefit of the more specific and tailored directions referred to at [125] above.
Fourth category of relief: s 545 Corporations Act
171 Section 545 of the Corporations Act permits a liquidator to avoid incurring any expense in a liquidation unless there is sufficient property available to pay it. It provides:
545 Expenses of winding up where property insufficient
(1) Subject to this section, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property.
(2) The Court or ASIC may, on the application of a creditor or a contributory, direct a liquidator to incur a particular expense on condition that the creditor or contributory indemnifies the liquidator in respect of the recovery of the amount expended and, if the Court or ASIC so directs, gives such security to secure the amount of the indemnity as the Court or ASIC thinks reasonable.
(3) Nothing in this section is taken to relieve a liquidator of any obligation to lodge a document (including a report) with ASIC under any provision of this Act by reason only that he or she would be required to incur expense in order to perform that obligation.
172 The present case and two other cases - Linc Energy and EPA v Australian Sawmilling Company Pty Ltd (in liq) [2020] VSC 550 (Garde J) - highlight different approaches to the question of disclaimers and personal liability for a company's potential environmental obligations.
173 In Linc Energy disclaimers by the liquidators were not challenged. The Court of Appeal confirmed that a disclaimer has the effect of terminating any obligation to perform the requirements of an EPO. Therefore, the liquidators, although found to be executive officers, were not obliged to comply with the EPO. The operation of s 545 was not addressed.
174 In Australian Sawmilling disclaimers were set aside on the basis that the liquidators had access to an indemnity from a third party for environmental liabilities. The plaintiff, the Environmental Protection Authority of Victoria (Authority), during the course of the hearing also gave an undertaking to the Court that it would limit the liquidators' liability to the amount recovered by them under the indemnity. In a sense, the cost of the relevant liability was put on the indemnifying party. The Court declined to grant relief under s 545 of the Corporations Act.
175 In this case, as in Australian Sawmilling, there is an indemnity in place under the AASA to which the Liquidators may have recourse in the event of some future liability. However, the Liquidators continue to seek relief as to the operation of s 545.
176 It is useful to consider Australian Sawmilling more closely. A lessee operated a materials recycling business on land owned by TASCO, subsequently known as Australian Sawmilling. The land was TASCO's only asset and it became contaminated from industrial waste. Liquidators were appointed to TASCO. A related entity, Dongwha Australia, granted the liquidators an unlimited indemnity with respect to environmental liabilities. During the liquidation the Authority exercised its statutory powers under the Environmental Protection Act 1970 (Vic) to enter the land and remediate the contamination. The Authority was entitled to recover remediation costs from the occupier of the land. The day after the exercise of those statutory powers, the liquidators disclaimed the land, effectively terminating their obligation in respect of the land, including any potential obligation to pay the Authority's remediation costs. The Authority and the State of Victoria brought an application to set aside the disclaimer.
177 The Court addressed both the meaning of 'to incur any expense' and whether the indemnity from Dongwha Australia comprised 'sufficient property'. As to the first matter, Garde J collected the authorities as follows:
[130] In New Zealand Flax Investments Ltd v Federal Commissioner of Taxation, Dixon J said:
'Incurred' does not mean only defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened, or expected.
[131] In Coles Myer Finance Ltd v Commissioner of Taxation, Deane J held that in determining whether a loss or outgoing had been incurred, the critical question was whether the taxpayer as a practical matter was 'definitively committed' or 'completely subjected' to the obligation to make the payment in the future even though it has not come under 'an immediate obligation enforceable at law' to do so.
[132] The meaning of the term 'incurs' was considered by the New South Wales Court of Appeal in Hawkins v Bank of China. Gleeson CJ held that the word 'incurs' takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Kirby P held that the act of 'incurring' happens when the corporation acts so as to expose itself contractually to an obligation to make a future payment as a debt.
(footnotes omitted)
178 His Honour then addressed the nature of the engagement on the part of the TASCO liquidators to pay a sum at a future time, finding as follows:
[133] At the present time, clean up works on the subject land have commenced but are not complete. The total cost of the clean up works is yet to be established. The EPA is yet to make a demand of the liquidators in any amount. Nonetheless it can be said that the liquidators have incurred an expense albeit of uncertain amount, or at least will incur an expense when the EPA demands payment of the clean up costs.
179 His Honour also found that the liquidator's indemnity from Dongwha Australia in respect of those expenses was property for the purpose of paying such expenses. Therefore, the liquidators could be obliged to incur further expenses by way of the claim that would be made by the Authority for its clean-up costs as it would have access to the indemnity to meet those expenses.
180 The Court set aside the disclaimer. His Honour found that the Authority and the State would be prejudiced if the disclaimer were not set aside because the indemnity could not be called upon and they would have to bear the remediation costs for the land. Whilst Donghwa Australia would be prejudiced if the disclaimer were not set aside, it would be prejudiced in its capacity as indemnifier, and not as TASCO's creditor.
181 The Liquidators in the present case rely upon Garde J's reference at [133] of the reasons to future expenses that 'will' be incurred in submitting that a direction should be made to limit liability for all future expenses to the property available to them (which would include, consistent with Australian Sawmilling, the indemnity granted under the AASA).
182 There are a number of points to be made about the relief sought in this case.
183 First, the direction or declaration that is sought (see [56] above) is very broad and seeks to encompass in effect any costs whatsoever for which the Liquidators may be liable under the EPA or MRA. I do not consider it appropriate to make a broad ranging direction that seeks to capture costs that are currently unidentified, are not impending and are not anticipated. Whether or not the Liquidators will incur an obligation to pay money under the EPA or MRA is unknown, although it is possible. Whilst Garde J in Australian Sawmilling was prepared to consider costs to be incurred in the future to be expenses for the purpose of s 545, his Honour had the benefit of a statement of agreed facts and was concerned with a scenario where the Authority had in fact entered into possession of the contaminated land to remediate the contamination. The identified power was being exercised by the Authority. The nature of works being undertaken by the Authority was known. It was certain that the Authority was incurring costs that would be passed on to the liquidators. The only question was not whether there was any possibility that costs might be incurred, but rather their quantum. Here, the position is very different.
184 Second, the Liquidators seek to be relieved from the obligation to make a payment that they may be ordered by a Court in the future to make personally. For example, in the hypothetical world of their conviction for an offence (and noting the reference in the proposed order to s 502, s 502A and s 503 of the EPA) the relief as framed would purport to relieve them of the obligation to pay costs provided for by the EPA associated with such a conviction. The risk of such a scenario might be small but cannot be ignored.
185 Third, in light of the indemnity in the Liquidators' favour under the AASA there is a real question as to the current need for any direction under s 545 at all. The indemnity prima facie constitutes 'sufficient available property'.
186 Fourth, the risk of the Liquidators being liable for expenses would seem to be premised on findings that, despite the matters that have informed my decision to make the declaration and directions referred to at [112] and [125], the Liquidators are found by a decision-maker to be 'related persons' or are found to be 'executive officers'. If that were the case, it may well be that additional facts have been disclosed to the relevant decision-maker or court relating to the role of the Liquidators, being facts as to which this Court is currently unaware.
187 In those circumstances, I decline to make the direction or declaration requested with respect to s 545 (in either proposed form). Having said that, I accept the Liquidators' submission that s 545 should be available to them to protect against genuine and properly incurred expenses that might 'fall through the cracks', should such a scenario arise. I take this to mean liabilities that fall within the scope of incurred expenses for the purpose of s 545 and where, for whatever reason, the indemnity does not respond or there is no other available property. I acknowledge that, in contrast to the position of the Authority in Australian Sawmilling, neither the DES nor the DNRMA in this case has offered to limit any liability of the Liquidators by reference to sums available to them under the indemnity. In my view the Liquidators should be protected from personal liability that cannot be met by sufficient property, provided there is no other reason that s 545 would not extend to a particular incurred expense.
188 The Liquidators may renew their application for relief under s 545 if at some point the risk of personal liability is more clearly crystallised or is able to be properly and more particularly described by reference to specific provisions of the legislation under which it is said the liability arises, and by reference to identified expenses that arise by way of the operation of those provisions. There will be liberty to apply in that regard.
189 There will be a declaration and directions as foreshadowed at [112] and [125] of these reasons. I acknowledge that the Liquidators have not had the opportunity to address the specific wording of those directions. If they seek non-substantive editing for any particular reason, they may approach the Court through chambers.
I certify that the preceding one hundred and eighty-nine (189) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith. |
Associate:
