Background

On 14 December 2010 Griffin Energy Group Pty Limited (Griffin), by its administrators, entered into a share sale agreement (SSA) with Lanco Resources Australia Limited (Lanco), by which Griffin would sell shares in two companies which operated and owned a coal mine near Collie in Western Australia.

The essential terms of the SSA were that:

• the purchase price under the SSA was $490 million (less employee entitlements);
• part of the purchase price was to be paid by a deferred consideration payment of $250 million (Deferred Consideration);
• $100 million of the $250 million was due two years after the completion date under the SSA with the remaining $150 million due four years after the completion date under the SSA;
• letters of credit were to be provided by Lanco for, in aggregate, the full amount of the Deferred Consideration (Letters of Credit); and
• the completion date under the SSA was 28 February 2011 (Completion Date).

Two further clauses in the SSA later became relevant, they were:

(g) if the date on or by which any act must be done under this document is not a Business Day, the act must be done on or by the next Business Day ...

[Business Day means] a day which is not a Saturday, Sunday or bank or public holiday in Perth, Western Australia.

The Letters of Credit had a number of important terms, the key one being that presentation of the Letters of Credit were to be accompanied by a declaration from Griffin stating that the amount claimed under the Letters of Credit was due and payable.

Lanco paid the $100 million due two years after the Completion Date. The remaining $150 million which was due four years after the Completion Date was ultimately due on either Saturday, 28 February 2015 or Sunday, 1 March 2015.

Payment date

As the $150 million was due on a Saturday or Sunday, the terms of the SSA meant that the next business day which the payment was due to be made on was Monday, 2 March 2015. However, that date was a public holiday in Western Australia. Therefore the next business day on which payment of the $150 million to Griffin was to be made was actually Tuesday, 3 March 2015.

The Letters of Credit included a definition of business day as:

Business Day: Any day (other than a Saturday or a Sunday) on which banks are open for general business in Singapore and Australia.

In considering that definition the Court of Appeal had regard to the International Standby Procedures ISP98, which contains private rules of practice (Rules) which are intended to apply to standby letters of credit. The Rules included the following:

where the date for presentation is not a business day, presentation made on the first following business day will be considered timely.

Each of the Letters of Credit was expressed to expire on Sunday, 1 March 2015.

Date issue and proceedings

As a result of the public holiday in Western Australia on 1 March 2015 the issue became whether there was a debt which was due and payable which was claimable by Griffin and whether or not the time for making a claim under the Letters of Credit had expired.

Griffin applied to the Supreme Court of NSW seeking declarations that:

• presentation of each letter of credit on or before 1.30pm Singapore time on Tuesday, 3 March 2015 was timely presentation; and
• under the SSA, the $150 million deferred consideration payment fell due and payable by Lanco on 28 February 2015 and remained due and payable every day after 28 February 2015 until paid.

At first instance Hammerschlag J held, in refusing the declarations sought by Griffin, that by 3 March 2015, the date on which Griffin was first able to provide the declaration that the $150 million was due and payable under the SSA, the Letters of Credit had expired.

Appeal decision

Griffin appealed the first instance decision of Hammerschlag J.

The New South Wales Court of Appeal first considered whether the amount payable by Griffin was due and payable.

The next Business Day, having regard to the definition of that term in [the SSA] is Tuesday 3 March 2015. The sum of $150 million, instead of being payable on 28 February 2015 or 1 March 2015, is now payable on 3 March 2015.

Prior to 3 March 2015, Griffin has no legal entitlement to maintain an action against Lanco to recover the sum of $150 million.

…

It may be arguable that the sum of $150 million becomes due on 28 February 2015 or 1 March 2015. But it is not due and payable until 3 March 2015.

The second issue considered was whether that part of the Rules referred to above applied to the definition of “Business Day” in the Letters of Credit. The Court noted that it was not necessary for banks to be open everywhere in Australia. The Court said that:

An objective observer who is asked whether banks “in substance are open for business in Australia” on a day which is a public holiday in one State only would be very likely to answer “Yes”.

Accordingly, the Court of Appeal dismissed the appeal by Griffin, noting that the Letters of Credit each expired on 2 March 2015.

As the Letters of Credit expired on 2 March 2015, Griffin could not properly make a demand pursuant to the terms of the Letters of Credit as the $150 million that it was to receive was not due and payable under the terms of the SSA until 3 March 2015.

Lavan Legal comment

A careful approach to drafting of financial instruments and documents should be adopted by the parties (or their solicitors) to those documents, including:

• consideration of the time frames for compliance with various milestones under the financial instruments; and
• ensuring there is adequate time under any financial instruments for the beneficiaries of those instruments to present them.