Personal liability for suspension costs dodged

Choosing to suspend activities undertaken by a specialist contractor can create risks of the personal liability kind for administrators, as three FTI Consulting operatives discovered shortly after being appointed to Savannah Nickel Mines Pty Ltd (Savannah) in December last year.

“The plaintiffs do not dispute that the amounts claimed in respect of suspension costs by the defendant, including the rise and fall component, are payable by the Company, but deny that they are personally liable for those costs.” Gary Cobby SC.

Initially intending to maintain operations for a period sufficient to allow for a deed proponent to emerge, the administrators agreed to pay underground mining contractor Barminco certain sums to keep Savannah’s sulphide ore coming to the surface.

But the trio ran into problems when Craig Earnshaw, vice president legal and commercial for the contract mining division of Barminco parent Perenti Global sought payment of an invoice issued for services provided in November, prior to the administrators’ appointment.

According to the September 27 judgment of Gary Cobby SC of the Supreme Court of West Australia, in response to Earnshaw’s request FTI senior managing director Daniel Woodhouse said the administrators wouldn’t authorise payment of the invoice because it was a pre-appointment debt.

Perhaps reasoning that the administrators had little leverage given they wanted to keep the mine open to preserve its value, Earnshaw advised that in the event the November invoice wasn’t paid Barminco would issue Savannah with a show cause notice and, assuming it remained unpaid when the notice period expired, would cease operations with immediate effect and terminate the Underground Mining Services Agreement (UMSA) in place.

At the same time the administrators were in discussions with secured creditor and off take customer Trafigura.

As is disclosed in Daniel Woodhouse, Hayden White Kathryn Warwick as administrators of Savannah Nickel Mines Pty Ltd (Administrators Appointed) (ACN 103 729 282) -v- Barminco Limited (ACN 109 439 894) [2024] WASC 354 in the first days of the appointment Woodhouse told Earnshaw that Trafigura was supportive of the administrators’ decision to keep the mine operating.

Then on January 8, 2024 Woodhouse told Earnshaw that the administrators would suspend mining activities.

Earnshaw confirmed that Barminco would immediately cease work at the site “but pointed out that there might be certain limited services that the plaintiff might wish the defendant to continue to provide”.

These services invariably incurred costs, described as suspension costs and rise and fall rates associated with transitioning a mining operation to care and maintenance and Barminco was of the view that the administrators were personally liable to pay them, whereas Woodhouse, White and Warwick insisted that they were Savannah’s obligations.

Once the dispute found its way into the court it represented a significant impediment in respect of the administrators’ recommendation of any DoCA and that uncertainty has swirled around the administration until last week when the court delivered judgment in favour of the FTI trio’s application for declarations that they weren’t personally liable, just in time for creditors to vote on the DoCA proposal today.

The November invoice dispute was settled prior to the hearing but it was up to the judge to make the call on the suspension costs and rise and fall rates.

“The plaintiffs do not dispute that the amounts claimed in respect of suspension costs by the defendant, including the rise and fall component, are payable by the Company, but deny that they are personally liable for those costs, the judge said.

“Had I been satisfied that the plaintiffs were liable pursuant to s 443A(1) to pay the amount claimed in respect of the suspension costs, I would have found that the amount claimed in respect of rise and fall formed part of the debt incurred by the plaintiffs for the services said to have been rendered, as the rise and fall mechanism formed part of the agreed pricing for the mining services under the UMSA.

“As the defendant has not been successful in the claim for the suspension costs, the rise and fall component of the claimed debt fails for the same reason.”