Receivers and administrators face off over meaning of "in respect of"

Woodhouse, in the matter of Panoramic Resources Limited [2024] FCA 449
What does the term “in respect of” mean in a security deed?

Overview

In this case, the Court considered an argument by the receivers and secured party of a company in voluntary administration that their security interest extended to over $21 million in funds held in the company’s bank account. They argued that the funds constituted “secured property” within the meaning of the security deed due to language such as “in respect of”, which they said made the deed broad enough to cover the funds in the accounts. The Court disagreed and found in favour of the administrators, concluding that phrases such as “in respect of”, although wide, did not expand the scope of the secured property beyond what was described in the deed.

Background

On 14 December 2023, Daniel Woodhouse, Hayden White and Kate Warwick of FTI were appointed administrators (the “Administrators”) of Panoramic Resources, PAN Transport and Savannah Nickel Mines. Savannah is a wholly-owned subsidiary of Panoramic and the owner and operator of the Savannah Mine, a nickel mining operation in the East Kimberley region of Western Australia. PAN Transport is a wholly-owned subsidiary of Savannah.

In 2021, the companies entered into a series of transactions with Trafigura Pte Ltd under which Trafigura made advances to Savannah that were essentially prepayments for nickel concentrates from the Savannah Mine. As of 11 March 2024, the amount outstanding to Trafigura was approximately $57 million.

The Panoramic parties also entered into a series of guarantees and security documents to secure their obligations to Trafigura. This included a specific security deed (the “Deed”) given by Panoramic over specified assets, including its shares in Savannah, intercompany loans provided by Panoramic to Savannah, and “any proceeds, money, dividends, distributions, return of capital, marketable securities or other property whatsoever now or in the future payable or otherwise distributable in respect of” the collateral.

The administrators were appointed in December 2023. A few months later, in March 2024, Trafigura appointed Thomas Birch and Jeremy Nipps of Cor Cordis as receivers and managers (the “Receivers”) of the assets subject to the Deed.

Trafigura and the Receivers claimed that Trafigura’s security interest under the Deed extended to the over $21 million held in Panoramic’s bank account, which was comprised mostly of the remaining proceeds of an equity raise that had not yet been advanced to Savannah. They argued that these funds constituted money payable “in respect of” Panoramic’s interest in Savannah’s shares or the intercompany loans used by Panoramic to advance the funds to Savannah, taking the position that Panoramic had formed an intention to advance the funds to Savannah in conducting the equity raise.

The Court’s Decision

The Court disagreed, finding that the funds in the account did not qualify as “secured property” under the Deed. At the heart of the construction question was the breadth to be given to the expression “payable or otherwise distributable in respect of” in the Deed.

The Court stated that it could not accept the Receivers’ construction of the security agreement and, “in particular, that the expression “in respect of” has the width that the receivers contend having regard to the purpose, object and context of the security agreement and the text of the applicable provisions.”

Among other things, the Court found:

• The parties’ intention is to be found in the text, informed by the nature of the specific property and the security interest in that property, the form of expression used to describe the nexus between the other property and the specific property and the commercial consequences that would flow from acceptance of Trafigura’s construction.

• “Secured property” in the Deed is comprised of a list of specific property in sub-paras (a) – (d) of the definition and a description in sub-paragraph (e) of various types of other property that is “in respect of” that specific property.

• Reasonable business-people would understand that the property secured under sub-para (e) is other property of a kind that is directly or indirectly connected by some rational link to the legal or beneficial ownership of one or more of the forms of specific property identified in sub-paragraphs (a) – (d).

• This is supported by the structure of the definition of secured property and the text of of sub-para (e) as a whole, which are also indicative of the other property being derived directly or indirectly from the legal or beneficial ownership of the specific property.

• The forms of other property described in sub-para (e) are all things that might be derived from contractual rights (benefits) of an agreement “relating to” shares in Savannah and any rights to acquire property from Savannah.

• Although the expressions “relating to” and “in respect of” are wide, their meaning is determined by the context in which they are used. In particular, the expression “in respect of” has a “very wide meaning” and “a chameleon-like quality” reflecting the context in which the expression is used. Nonetheless, the expression describes a nexus that will not exist “unless there be some discernible and rational link” between one matter and the other.

• The term “money payable or otherwise distributable” did not include funds paid by third parties into Panoramic’s bank account that were not connected to Panoramic’s rights under the Panoramic-Savannah loan agreement or its ownership of shares in Savannah. These funds were not connected to any rights of Panoramic as owner of shares in Savannah.

As a result, the Court was not persuaded that the funds held in Panoramic’s bank account were caught by the definition of “secured property” in the deed.

Conclusion

This decision is significant in its consideration of the term “in respect of” in the context of a specific security deed. Although this term has a “very wide meaning” and “a chameleon-like quality”, it is not unlimited - there must be some rational link between one matter and the other.

Judge: Feutrill J

Counsel for the Administrators: Paul Edgar SC of Quayside Chambers with Wayne Zappia of Francis Burt Chambers

Solicitor for the Plaintiffs: Gilbert + Tobin

Counsel for the Receivers: Jeremy Giles SC of 7 Wentworth Selborne with Michael Rose of 9 Wentworth Chambers

Solicitor for the Receivers: Ashurst Australia