Liquidators in the ongoing Queensland Nickel Pty Ltd (In Liquidation) litigation fail to recover $102 million but are successful in their uncommercial transaction claims

In Parbery & Ors v QNI Metals Pty Ltd & Ors[1] the Court held, amongst other things, that:

• payments totalling $102 million from the bank account of Queensland Nickel Pty Ltd (In Liquidation) (QNI) to Mineralogy Pty Ltd (Mineralogy) were not recoverable by the liquidators of QNI as they were disbursements of the funds of QNI Metals Pty Ltd (Metals) and QNI Resources Pty Ltd (Resources); and
• two sets of transactions QNI entered into with China First Pty Ltd (China First) and Waratah Coal Pty Ltd (Waratah Coal) respectively were uncommercial transactions.

The Mineralogy payments

Metals and Resources were joint venture companies who own the Yabulu nickel refinery and conduct the Queensland Nickel Joint Venture pursuant to a joint venture agreement (the JVA). Clive Palmer purchased the joint venture companies in July 2009 and ultimately owns QNI, Metals, Resources and Mineralogy.

Pursuant to the JVA, QNI is responsible for the management of the joint venture and the Yabulu nickel refinery, including conducting bank accounts in QNI’s name. The JVA is a carefully drafted and detailed agreement that regulates all aspects of the relationships between the joint venture companies and the managers.

QNI made payments to Mineralogy totalling $102,884,346.26. The payments comprised:

• various payments made by QNI to Mineralogy;
• amounts paid by QNI for professional legal fees and disbursements incurred by Mineralogy in litigation conducted by it; and
• payments made to Mr Palmer or third parties recorded in the books and records of QNI as debts owing by Mineralogy.

The Court held that on the basis of the terms of the JVA, QNI was the general manager of the joint venture and its relationship with Resources and Metals, and the conduct of the business of the refinery, was a contractual relationship of agency.

Given the common ownership of Mineralogy, QNI, Resources and Metals, the Court also found that Mineralogy knew that Metals and Resources were the owners of the joint venture property and that QNI was the operator of the joint venture business on their behalf. Accordingly, the Court held that the payments were made by QNI but ultimately were disbursement of funds which were owned by Resources and Metals.

Therefore, the liquidators of QNI could not recover the payments totalling $102 million for the benefit of the creditors of QNI.

The China First transaction

The China First transaction involved a share subscription agreement and charge.

QNI, Metals and Resources entered into the share subscription agreement with China First whereby QNI “on its behalf as part of the Queensland Nickel Joint Venture” agreed to subscribe for two billion shares in China First for $135 million and Metals and Resources were jointly and severally liable with QNI for the payment of the subscription share price.

Under the charge, each of QNI, Resources and Metals is a chargor and each chargor charges its interest in all its property with repayment of the secured money. Under the charge, the secured money of $135 million would become immediately payable at China First’s option if an “Insolvency Event” occurred.  The appointment of a voluntary administrator constituted an “Insolvency Event”.

The Court held that:

• given that the parties to the transaction were related and would have been aware of the imminent appointment of administrators to QNI; and
• as the value of the shares the subject of the share subscription agreement were never expertly valued; amongst other reasons,

a reasonable person in QNI’s circumstances would not have entered into the China First transaction.

Accordingly, the transaction was an uncommercial transaction and no defence was made out.

The Waratah Coal transaction

The Waratah Coal transaction involves a security deed, a fixed and floating charge and a release agreement.

Under the security deed, Waratah agreed that it would make the two exploration permits available as security (or part security) for credit or facilities provided by creditors of the QN Group. A fixed and floating charge was entered into by QNI, Metals and Resources in favour of Waratah Coal for amounts for which Waratah Coal may become liable under the security deed. The maximum prospective liability was specified as US$100 million together with interest and costs.

Under the release agreement, QNI, Metals and Resources and Waratah Coal forgave all loans of all companies or entities ultimately owned by Clive Palmer now or in the past and Clive Palmer and Related Parties up to the date of execution of the agreement.

The Court held, amongst other things, that:

• given that QNI entered into the transaction without trying to procure finance by using the two exploration permits as security;
• QNI was imminently entering administration;
• the offer to use the two exploration permits as security was not practically likely (due to external circumstances known to all parties that would render the permits insufficient security for the needs of QNI);

a reasonable person in QNI’s circumstances would not have entered into the Waratah Coal transaction.

Accordingly, the transaction was an uncommercial transaction and no defence was made out.

The proceedings continue

As a result of a settlement within the proceedings, the liquidators of QNI did not press to have the share subscription agreement within the China First Transaction set aside. They did seek an order that China First not seek to recover any payments from QNI under the share subscription agreement (as reflecting the settlement). However, if the share subscription agreement is not set aside, QNI would be left with two billion shares in China First without an obligation to pay for the said shares. China First was not heard on this matter, so the Court has given the parties the opportunity to make further submissions, in due course.

Key takeaways

• Where an agreement has been clearly drafted, the Court will rely on that agreement over background circumstances that indicate a different position.
• The Court will consider the common ownership of parties to a purported uncommercial transaction to be a relevant factor, particularly in circumstances where one of the companies enters into voluntary administration mere days after the transaction.

Authored by:

Scott Couper, Partner
Rachel Zagorskis, Associate