China First Pty Ltd & Anor v Mount Isa Mines Limited & Ors

In this decision, the Court of Appeal provided valuable guidance on the appropriate test to apply when an application is made to set aside orders in another proceeding on the basis that the applicant should have been joined as a party to that proceeding. The test is whether the court had been invited to make, or had proposed to make, orders that would have directly affected the rights or liabilities of the applicant.

Fraser and Gotterson and McMurdo JJA

14 December 2018

The MIM proceeding

On 24 July 2017, Mount Isa Mines Ltd ("MIM") filed an originating application in the Supreme Court, which named as respondents Queensland Nickel Sales Pty Ltd ("QNS"), QNI Resources Pty Ltd ("QNR") and QNI Metals Pty Ltd ("QNM") ("the MIM proceeding"). [4]. The originating application concerned No 2 Wharf at the Port of Townsville, over which MIM held a longterm lease. [7]. In 1994 MIM granted a licence to Queensland Nickel Pty Ltd ("QNI") permitting it to use the licensed area for the purposes of berthing vessels and the unloading or loading of nickel ore and refined product. [7]. The licence agreement was terminated in 2015. [6]. Certain equipment remained on the land. [7].

The originating application sought, inter alia, a declaration to the effect that if the respondents did not within 35 days remove the equipment from the wharf, MIM might lawfully remove it and sell it, and apply the proceeds of sale to defray, first, the costs of removal and sale and, second, its costs of the proceeding, with any surplus to be paid to the respondents. [8]. It also sought damages for trespass to land and costs. [8]. On 20 November 2017, orders were made in the MIM proceeding by a judge of the Trial Division. [5]. Those orders included a declaration that MIM might lawfully cause the equipment to be dismantled, removed from its current location and delivered to the first respondent’s premises, an order that the respondents pay MIM damages, and an order that the first respondent accept delivery of the equipment in certain circumstances. [10].

The C-W proceeding

On 13 January 2016, China First Pty Ltd ("China First"), QNI, QNM and QNR entered into an agreement pursuant to which QNI, QNM and QNR each granted a fixed and floating charge over all of its property to secure the payment of monies owed by it from time to time to China First. [11]. On the same date, Waratah Coal Pty Ltd ("Waratah Coal"), QNI, QNM and QNR entered into an agreement pursuant to which QNI, QNM and QNR each granted a fixed floating charge over all of its property to secure the payment of monies owed by it from time to time to Waratah Coal. [12].

After the orders described above were made in the MIM proceeding, China First and Waratah Coal filed an originating application in the Supreme Court, naming as respondents MIM, QNS, QNR and QNM ("the C-W proceeding"). [3]. By the originating application China First and Waratah Coal, who were not parties to the MIM proceeding, sought orders setting aside some of the orders made in the MIM proceeding, and orders that they be joined as respondents to that proceeding. [6]. It was common ground between the parties that, consistently with the decision of the High Court in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, the test for whether China First and Waratah Coal ought to have been joined turned upon whether, in the MIM proceeding, the court had been invited to make, or had proposed to make, orders that would have directly affected the rights or liabilities of either company. [15].

China First and Waratah Coal contended that they should have been joined as parties in the MIM proceeding. [14]. They submitted that the fact that they were not joined entitled them as of right to have the orders set aside. [14]. Brown J dismissed the originating application on the basis that the rights and liabilities of China First and Waratah Coal were not directly affected by the orders made in the MIM proceeding. [2], [24]. China First and Waratah Coal appealed. [2].

Court of Appeal

Gotterson JA (with whom Fraser and McMurdo JJA agreed) provided detailed guidance on the adoption and application of the "direct effect" test in Australia. [44]-[60]. His Honour then said:

"These cases reveal a systematic approach taken by courts to the determination of whether orders made or sought have had, or if made, will have, a direct effect on a legal right or liability. That approach has involved an identification of the specific legal right or liability said to have been affected or liable to be affected, and an assessment of its legal characteristics. Next, the court has inquired into whether the right or liability itself has been affected, or is liable to be affected. Typically, the inquiry has sought to establish whether there is an effect on the existence of the right or liability or on its legal characteristics; or whether there is an effect on the legal environment in which the right might be exercised or the liability discharged, such as would impact upon its exercise or discharge from a legal perspective. An effect of either kind has been regarded by courts as a direct effect on the right or liability for the purposes of the test." [60].

China First and Waratah Coal argued that their rights under two clauses of their respective charges were directly affected by the orders made in the MIM proceeding. [61]-[62]. The first provision provided that the chargor may not, without the prior consent of the chargee, dispose of, part with possession of, or create or permit to exist an interest in, or otherwise deal with, any of the charged property. The second provided that the chargor must maintain the secured property in a good state of repair and in good working order and condition, and must ensure that no material alteration is made to the secured property.

Gotterson JA held that the orders made in the MIM proceeding did not impact upon the existence of these obligations or their legal characteristics. [63]. His Honour further noted that the orders did not affect the legal environment in a way which impacted upon the enforcement of the obligations by the chargee. [64]. Finally, his Honour noted that if the chargor had failed to discharge any of the above obligations, the orders made did not affect rights conferred by the charge in the event of default or the way in which the chargee might exercise them or seek enforcement of them by way of curial process. [65].

For those reasons, his Honour concluded that the orders made did not directly affect the chargor's obligations or the remedial rights that China First or Waratah Coal may have, as chargee, in the event of a failure by the chargor to perform them. [66]. His Honour also dismissed a number of possible adverse financial consequences on the basis that they were not "direct effects" for the purposes of the test. [67]–[69].

In the result, the appeal was dismissed. [71].

M J Hafeez-Baig