Gas Sensing Technology Corporation v ProX Pty Ltd - [2019] WASC 10

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   GAS SENSING TECHNOLOGY CORPORATION -v- PROX PTY LTD [2019] WASC 10
CORAM:   KENNETH MARTIN J
HEARD:   27 SEPTEMBER 2018 AND THE PARTIES' FURTHER WRITTEN SUBMISSIONS OF 3 & 5 OCTOBER 2018
DELIVERED          :   17 JANUARY 2019
FILE NO/S:   CIV 2859 of 2016
BETWEEN:   GAS SENSING TECHNOLOGY CORPORATION
Second Plaintiff
AND
PROX PTY LTD
Third Defendant

Catchwords:

Practice and procedure - Interlocutory injunction - Undertaking - Monies in one side's lawyers' trust account - Rival claims - De facto interpleader - USA parent company with other co-plaintiff- Secured lender - Restraint on security enforcement sought by injunction - Inglis v Commonwealth Trading Bank security given - Interim undertakings from respondent undertakings accepted before hearing of contested interlocutory injunction hearings - Interlocutory injunction refused - Claim to money made by former plaintiff (in liquidation) - Claim by interlocutory injunction respondent to monies in trust account as Inglis security - Claim by USA parent on Quistclose trust - Interpleader stance by lawyers holding funds

Legislation:

Corporations Act 2001 (Cth)
Personal Property Securities Act 2009 (Cth)
Rules of the Supreme Court 1971 (WA)

Result:

Tripartite claims to funds resolved

Category: B

Representation:

Counsel:

Second Plaintiff	:	Mr M A MacLennan
Third Defendant	:	Mr W C Zappia
Intervenor	:	Dr R A Collins

Solicitors:

Second Plaintiff	:	Bennett + Co
Third Defendant	:	HWL Ebsworth Lawyers
Intervenor	:	Allens Linklaters

Case(s) referred to in decision(s):

Barclays Bank Pty Ltd v Quistclose Investments Pty Ltd [1970] AC 567
Barnes v Addy (1874) LR 9 Ch App 244
Coolbrew Pty Ltd v Westpac Banking Corporation [2015] NSWCA 135
Duncan (as Trustee for the Bankrupt Estate of Garrett) v National Australia Bank Ltd [2006] SASC 239; (2006) 95 SASR 208
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326; (2014) 49 VR 86
Halvanon Insurance Co Ltd v Central Reinsurance Corp [1988] 1 WLR 1122
Hughes v Pluton Resources Ltd (recs and mgrs apptd) (in liq) [2017] WASCA 213; (2017) 52 WAR 456
Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161
Thomson Australian Holdings Pty Ltd v The Trade Practices Commission [1981] HCA 48; 148 CLR 150
Twinsectra Ltd v Yardley [2002] 2 AC 164
Welldog Pty Ltd v ProX Pty Ltd [2017] WASCA 62
Westpac Banking Corporation v Bell Group (in liquidation) [No 3] [2012] WASCA 117; (2012) 44 WAR 1

KENNETH MARTIN J:

Introduction

There is presently over AUD$2.5 million held in a local trust account of Australian lawyers Squire Patton Boggs (SPB). The funds are and have always been held under the name of the Australian proprietary corporation Welldog Pty Ltd (Welldog). The money now falls under a heavy tripartite dispute as to its rightful recipient.
First, there is a claim to the money advanced via the liquidators of Welldog Pty Ltd (in liq) ACN 147 697 845 which entered receivership, and administration on 20 March 2017 then liquidation on 5 May 2017. But the money is also claimed by two further rivals.
I should note at the outset that SPB does not raise any claim to the funds. SPB has told the court it will abide whatever decision the court makes about the ownership of the money it still holds.
The second claimant to the money is Welldog's Wyoming, USA, domiciled parent corporation, Gas Sensing Technology Corporation (GSTC). GSTC is the sole surviving plaintiff in The Second Action, as I will explain.
SPB were formerly GSTC's lawyers of record (during 2016 - 2017) in civil litigation brought by Welldog, where Welldog was either the plaintiff or a co-plaintiff in two civil actions case managed in my CMC List within this court namely, CIV 2667 of 2016 (First Action) and CIV 2859 of 2016 (Second Action). However, SPB ceased to act for Welldog and Gas Sensing Technology Corporation some time in mid‑2017, after Welldog entered administration, receivership and finally, liquidation.
In October 2016, GSTC had raised funds by a convertible note issued in the USA on terms. The money was raised by GSTC from the entity known as Shell Technology Ventures LLC (Shell Ventures) of Houston, Texas. Thereafter, almost AUD$2 million was remitted to the Western Australian SPB trust account where it was held under the name of Welldog. At the time Welldog and its USA parent were effectively acting in harmony, under a common control. The need for a rigorous differentiation as between the property of the USA parent and its Australian subsidiary corporation would not have presented as significant at that time. Things would change later in that area.
Welldog is now controlled largely by its 2017 appointed liquidators, Messrs Jones, Michael, Rushton and Colwell of the financial advisory firm Ferrier Hodgson. As mentioned, receivers and managers have also been appointed by one of Welldog's secured creditors, ProX Pty Ltd (ProX) (the third and only remaining defendant in the second action, CIV 2859 of 2016).
Presently, GSTC argues, in effect, that the purpose for which it raised funds in 2016 from USA company Shell Ventures, then brought about a remission of those funds to its corporate subsidiary's lawyers' trust account, has ultimately failed. (The money in the SPB trust account was held under the name of Welldog Pty Ltd). GSTC now submits that, given a failure of the originating purpose for which the funds were raised and paid over for the benefit of its Australian subsidiary, that the SPB held funds should consequently be assessed as being held on trust for it and, so it argues, should be paid over to it accordingly as, in effect, the equitable owner of the money in trust.
The third claimant to the SPB money is the remaining defendant of 17 original defendants, in the Second Action, namely, the corporation ProX Pty Ltd. It was ProX who appointed receivers and managers to Welldog under its securities, on 20 March 2017. ProX claims the SPB funds for itself on a twofold, alternative basis.
ProX pursues orders that the SPB trust monies should be paid over to it, or to the receivers and managers it has appointed - first, on the basis the SPB monies are 'caught' by one of its registered securities, a security known as the 'General Security Agreement' (GSA). Welldog had granted this GSA over all of its present and after acquired property to secure the repayment of loans made to it by ProX to Welldog of, all up, some US$4 million - by three promissory notes (Promissory Notes 1, 2 and 3).
ProX first claims the SPB money on the basis that it is 'caught' by its security, namely the GSA. But ProX alternatively submits that the Welldog funds were originally paid into the SPB trust account for the purpose of Welldog providing some further security for the benefit of ProX. ProX alleges this was extra security for it given by Welldog in a context of the interlocutory injunctive relief then being sought against ProX at the commencement of the present litigation which was begun by Welldog and GSTC - as co‑plaintiffs in October 2016 in the Second Action.
The second basis upon which ProX argues that it is entitled to the SPB money is that the SPB funds were effectively provided by Welldog's undertaking to the court and to itself and for its benefit, as further security within that litigation. That was in circumstances where an interlocutory injunction was then being sought to stop ProX exercising its GSA security rights against Welldog.
Local litigation began around the last quarter of 2016 in this court. Welldog (and GSTC) were then repeatedly (across two civil actions in this court) pursuing interlocutory injunctive relief to inhibit ProX enforcing its securities against Welldog's property (ie, under ProX's charges, including, significantly, under the GSA) that it then held.
ProX submits by its second (alternative) argument that the funds that came to be held in SPB's trust account ought to be evaluated as having been provided for it on behalf of Welldog from October 2016 and then at all times thereafter - as further security for ProX in those restraint application circumstances. The SPB funds were necessarily paid into the SPB trust account on behalf of Welldog as a necessary 'price' it paid, in effect, of pursuing its interlocutory injunction and thereby inhibiting ProX from exercising its rights under the GSA. In October 2016, Welldog was pursuing interlocutory injunctive relief against ProX (or the equivalent by way of an enforceable undertaking given by ProX to the court in lieu of a court ordered injunction to inhibit ProX from resorting to its securities against Welldog, on a temporary basis -until a trial was held). This was to meet a well known injunction 'price' principle as was explained some years ago now by Menzies J concerning interlocutory injunctions made against the holders of mortgage securities, Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161. A so-called Inglis principle has been followed many times since. It was, as I will explain later in the reasons, applied and explained by the Full Court of South Australia in Duncan (as Trustee for the Bankrupt Estate of Garrett) v National Australia Bank Ltd [2006] SASC 239; (2006) 95 SASR 208 and in circumstances there which ProX argues are directly apposite to the present and, therefore, strongly support its claim over the SPB funds.
Invoking Duncan, albeit the present is a scenario of funds being held in only one side's (former) Australian lawyers' trust account (rather than of funds paid into court, or of funds paid into a joint account under the names of the rival claimant parties' lawyers), ProX argues that, as a result, it has, since October 2016, held and still holds an equitable charge over the SPB funds. ProX asserts in consequence an equitable right to cause this court to order the SPB monies to be paid over to it - to be used to discharge a part of the still unmet indebtedness currently due to it by Welldog.
ProX has appointed receivers and managers to enforce its GSA security in an ongoing effort to recover that Welldog debt. But on the evidence ProX's current unrepaid debt exposure position of ProX to Welldog still presents as significant in late 2018.
So, as mentioned, the first claimant to the SPB funds is Welldog Pty Ltd, now acting at the behest of its liquidators. Welldog is no longer a party to the Second Action. But with my leave it was heard by counsel as to the claim it advances over the SPB funds. Subsequently, I have made Welldog a formal intervenor upon the present application. ProX had applied in November 2018 at a time after the September 2018 hearing - for Welldog to be made an extra defendant in the action. That application stands deferred, pending my decision about the fate of SPB funds the subject of these reasons.
Welldog's liquidators (through counsel) submit the SPB funds were made available to it by its parent, GSTC, in October 2016 as what was then a share purchase subscription - for GSTC to take up even more equity in its wholly owned subsidiary, Welldog.
The Welldog liquidators say that the briefest scrutiny of the consolidated accounts that were prepared for both these related corporations at October 2016 clearly shows by way of the observed internal accounting treatment - that the SPB funds were always Welldog's money beneficially. (But GSTC now says that that accounting treatment was erroneous).
Welldog by its liquidators submits that upon the historical dismissal (by me) of Welldog's application(s) for interlocutory injunctive relief sought against ProX once, at 13 December 2016 and then again, subsequently, by me rejecting a further interlocutory injunction application made by Welldog and by GSTC on 3 March 2017, that the Inglis security principle no longer applied to the SPB held funds. That further security for ProX purpose was redundant, it is said, once the successive interlocutory injunctions were refused.
There was never an interlocutory injunction granted restraining ProX until a trial, given my December 2016 and March 2017 refusals of Welldog's applications for interlocutory injunctions that would extend until a trial against ProX. Hence, the monies from December 2016 or at least March 2017 were, from then, Welldog's full and unencumbered property held by SPB. Consequently, the SPB funds should be available for all of Welldog's creditors.
That outcome, say Welldog's liquidators, must be the case, unless the funds are otherwise assessed to be the subject of ProX's GSA security -under ProX's first argument.
Hence, it may now hopefully be appreciated that there are, effectively, the three rival claimants for the SPB funds - all seeking orders directing payment of the SPB funds to them.

Procedural history

The first application for the SPB trust funds was initially made in 2017 by GSTC (the Present Application), made through its newly appointed lawyers of record, Bennett + Co (who had replaced SPB on the record for GSTC in the Second Action).
However, the ongoing liquidation of Welldog and the gradual whittling away of two former plaintiffs and 16 former defendants from out of the Second Action (leaving now only GSTC as the sole plaintiff to pursue ProX as sole defendant in CIV 2859 of 2016) then unfolded slowly across 2017 - 2018. This delayed the hearing of the Present Application towards the SPB funds with the rival claims to the funds then emerging, from ProX and Welldog (by its liquidators).
Welldog (in liq) is now legally represented by Allens Linklaters (Allens). On 15 November 2018, I granted leave for counsel of Welldog's liquidators to participate as an intervenor in the hearing upon the Present Application. Participants involved in the Second Action were in agreement about that. Welldog Pty Ltd (in liq) as an 'Intervenor' will be bound by the outcome of the determination of all issues on the Present Application.
The three claimants to the SPB monies all seek from me a final determination upon the Present Application concerning the SPB funds and upon the cross‑applications by the rival claimants to the funds.
The Present Application, therefore, has evolved over time. Ultimately, it has proceeded akin to a de facto Rules of the Supreme Court 1971 (WA) (RSC) O 17 interpleader evaluation directed towards evaluating finally the three rival claims to the funds still held by SPB.

Additional factual background

During mid to late 2016, both GSTC and Welldog were commonly managed by their Wyoming USA based director, Dr Jonathon Pope.
At that time, Dr Pope and the corporations he managed were in heavy dispute with Mr Simon Ashton. Mr Ashton had for a time been a board member of GSTC, the USA parent of Welldog.
Mr Ashton's Australian company, ProX, under commercial bill arrangements that were entered in previous years, had over time loaned some US$4 million to Welldog - under three separate Promissory Notes which it held.
Roughly a half of the US$4 million principal loan amount (due under Notes 2 and 3) was falling due for repayment by Welldog to ProX in the last quarter of 2016, ie, at 31 October 2016. The other US$2 million, loaned under Promissory Note 1 was due to be repaid by Welldog in July 2017, absent any default by Welldog which would allow ProX to call for an earlier repayment of the loaned principal sum. Interest was regularly falling due on each of the three loans.
In September 2016, various allegations and cross‑allegations were being exchanged between Mr Pope (for Welldog) and Mr Ashton (for ProX) through their legal representatives, over the circumstances in which ProX was then pressing for a full repayment of all loan sums, and over ProX's entitlements to enforce the securities it held against Welldog's valuable assets in Australia.
ProX had obtained further security from Welldog. This was the legal consideration for ProX being granted extensions of time to the initial duration of its loans to Welldog. Variation arrangements had the effect of seeing ProX achieve greater security, elevating ProX's initial status from being a non‑recourse creditor, secured against only some of Welldog's fixed property assets in Australia, to becoming a full recourse creditor, afforded by a greater security (charge) known as the GSA, attaching to both the presently held but, as well, all the after acquired property of Welldog.

Litigation in the Supreme Court of Western Australia – Welldog v ProX

First Action (CIV 2667 of 2016) and Second Action (CIV 2859 of 2016)

In the Supreme Court of Western Australia, there were two relevant civil actions initiated by Welldog against ProX in 2016. Both actions at base concerned the loans made by ProX to Welldog which were then secured by ProX's security held against Welldog under the GSA. The GSA afforded ProX a right to appoint receivers and managers - in the event of any default by Welldog against the terms of its loan arrangements.
The First Action, CIV 2667 of 2017 was begun by Welldog in September 2016. It came to be case managed by me in the CMC list immediately upon its commencement.
On 23 September 2016, I granted limited ex parte interim interlocutory injunctive orders at the behest of Welldog. Those orders restrained ProX from enforcing its securities against it on a short term basis - in respect of a series of alleged defaults by Welldog under its security arrangements with ProX.
In that First Action, the existence of the ProX loans and the validity of the securities held as between Welldog and ProX was accepted by Welldog. What was in dispute in the First Action, in effect, was whether all the necessary underlying circumstances had arisen, so as to entitle ProX to enforce its security rights, including under the GSA. That was strongly disputed by Welldog. Hence, the first dispute arose out of Welldog's alleged 'defaults', an issue that was heavily in dispute from Welldog's perspective.
As at September 2016, approximately US$2 million loaned under two of the three commercial bills (Promissory Notes 2 and 3) as held by ProX, was shortly to fall due for full repayment, ie, at the end of October 2016.
A further (present) action (Second Action), was begun under a generally indorsed writ, of 27 October 2016 (the Writ). In this second litigation both Welldog and its parent, GSTC, were first and second plaintiffs. But the second action included a third plaintiff, the related USA entity, 'The Blue Sky Group'.
SPB Australia had acted for all plaintiffs at that time in both civil actions.
On commencement of the Second Action, CIV 2859 of 2016, the three plaintiffs were pursuing 17 defendants, including Mr Ashton personally as the first defendant and with the corporation he controlled, ProX, as third defendant.
The Second Action was also commenced, as I will explain, in urgent circumstances. On 27 October 2016 an urgent chambers application was listed made returnable before Beech J.
Welldog and GSTC were seeking urgent interim injunctive relief again restraining ProX from enforcing its securities against Welldog. This was on a basis of subsequent alleged defaults of Welldog alleged to have taken place after the defaults underlying the First Action and the subject of its injunctive relief.
Since 1 September 2016, ProX was alleging that Welldog had either not met the loan interest repayments due under its (three) loans, or had conducted itself in other respects characterised as Welldog defaults. Security enforcement under the GSA was again being threatened by ProX against Welldog.
Given the SPB fund claim arguments that now arise, it is necessary for me at a point later in these reasons to set out at some length all of the procedural history surrounding Welldog's failed interlocutory injunction applications in both actions as made and determined (mostly by me). Those events bear heavily on the present controversy with regard to the rival claims to the SPB funds of all three parties.

For completeness, I record at the outset that the affidavit and written submission materials as were read and relied on upon the Present Application, reached almost Olympian dimensions - to the extent that I have needed to collect and reference them in a separate schedule to these reasons. In that same schedule I have also identified the participants' multiple tranches of written submissions as exchanged between the respective lawyers for the participants over their clients' rival claims to the SPB trust funds.

Conclusions

At the end, however, as I attempt to explain by the following reasons, I reach these conclusions:
(a)that GSTC's trust arguments asserting beneficial ownership over the SPB funds, are ill founded;
(b)that as between the residual claimants, namely, between Welldog Pty Ltd (in liq) and ProX Pty Ltd, that ProX's claim to its holding of an equitable charge over the SPB funds based on an application in its favour of the so-called Inglis principle, is not made out;
(c)that after 13 December 2016 any arrangements reached as between ProX and Welldog concerning the funds that continued to be held in the SPB trust account were the outcome of a purely consensual agreement or arrangement reached between those parties. That was a private consensual transaction. It was not a court ordered or court sponsored transaction. Consequently, it was a transaction that, to the extent that Welldog thereby gave security to ProX, was exposed to the regime of the Personal Property Securities Act 2009 (Cth) (PPSA);
(d)however, ProX's alternate claim to holding security over the SPB funds, by reason of them being attached under the GSA, as Welldog's after acquired property, is established - provided the GSA is itself a valid security vis-à-vis Welldog;
(e)given that in this action Welldog, by its liquidators, had discontinued all civil claims against ProX (as well as against all other defendants, on 31 July 2018), the present litigation (Second Action) is pursued only by GSTC against ProX. The residue of the Second Action, as currently framed, does not, absent Welldog being a party, provide a viable environment for any issue as to the validity of the GSA (as between Welldog and ProX) to be determined by this court and particularly so -because GSTC as the only remaining plaintiff was never a contracting party to the GSA;
(f)Welldog (by its liquidators) ought be allowed, if it chooses, a further short period to institute a court challenge against the validity of the GSA somewhere it chooses, either in this court, such as by a counterclaim made in this action (if Welldog ever becomes a defendant), or in another court;
(g)otherwise the SPB funds should be ordered to be paid over to ProX - by reason of its rights over the funds as secured property under ProX's GSA security.
If the GSA is a valid security, then by its terms the SPB account funds were rendered the subject of the GSA as a PPSA registered security - as Welldog's after acquired property. The GSA attached to Welldog's interest in the SPB funds either in October 2016, when the funds were first received into the SPB account, or as from 13 December 2016 - when I then refused Welldog's first application at what was a contested hearing for an interlocutory injunction against ProX sought to extend to a trial. On 3 March 2017, I refused a further interlocutory injunction application made by Welldog against ProX. I did, however, then grant a short term 14‑day restraint, in effect, as a stay against ProX, to afford Welldog the opportunity to provide a further US$2 million (approximately) as greater security, or to appeal my refusal of that interlocutory injunction.
Obviously, if the GSA is eventually held to be an invalid security by a relevant court at a future time, then Welldog Pty Ltd (in liq) then would be, at that time lawfully entitled to the funds in the SPB trust account -where they are still held under Welldog's name.

More procedural history concerning the First Action

On 23 September 2016, SPB, acting for Welldog, filed an originating summons (Originating Summons) commencing the First Action, CIV 2667 of 2016, in this court against ProX as defendant.
Welldog's Originating Summons sought declarations to the effect that:
(a)[the] Notice of Default, dated 1 September 2016, issued by the defendant [ie, ProX] to the plaintiff … is of no force or effect;
(b)no default subsists under the Transaction Documents, as that term is defined in the General Security Agreement [ie, the GSA] dated 1 August 2016 between the plaintiff and the defendant; and
(c)the defendant cannot rely on the Notice of Default or the alleged Event of Default recited in the Notice of Default for the purpose of exercising any rights it may have under the Transaction Documents.
The same day, SPB, for Welldog, filed a chamber summons seeking urgent ex parte injunction relief pursuant to O 52 r 1.
Welldog was then seeking to urgently restrain ProX against it taking any steps, or from exercising any rights under or arising from a 'Notice of Default dated 1 September 2016' (Default Notice) issued to Welldog, 'including but not limited to any rights under clause 11 made by the General Security Agreement [GSA]'. Welldog's application was supported by a long (confidential) affidavit of Dr John Michael Pope, sworn 17 September 2016 in support of Welldog's application for urgent injunctive relief.
Dr Pope's affidavit included his attachment JP1, an ASIC current and historical corporations search for Welldog showing that it was a proprietary limited company registered in Queensland with its registered office in Adelaide Street, Brisbane. Welldog's two current directors were identified as Dr John Michael Pope (who gave his residential address of Laramie, Wyoming, in the United States) and a Mr Graeme Michael Linklater of an address in Wavell Heights, Queensland.
Mr Linklater was also identified as the current secretary of Welldog, he having been appointed on 7 March 2013.
The ASIC search showed Welldog's current share structure consisted of 1,000 ordinary issued shares (of $1 each), with all those shares being beneficially held by GSTC of Industry Drive, Laramie, Wyoming, in the United States.
Attachment JP5 to Dr Pope's affidavit displayed a copy of a Notice of Default of 1 September 2016 issued by ProX to Welldog's Brisbane address by registered mail.
The Default Notice identified its three secured Promissory Notes. They were identified respectively as Notes 1, 2 and 3. Note 1 concerned an advance from ProX to Welldog as borrower in the amount of US$2 million. Secured Promissory Notes 2 and 3 identified further advances to Welldog of US$1 million each.
ProX's loan advances to Welldog made under those three secured Notes were then explained to have been varied. That was by an extension document of 14 July 2016.
Clause 1.3 of the Default Notice noted that ProX's securities for these three Notes included:
(b)[The] Fixed Charge granted by the Borrower in favour of the Lender at or around the date of the Notes over specified equipment (including the downhole Raman system, surface Raman system and surface manifold/choke assembly); and
(c)the General Security Agreement dated 1 August 2016 granted by the Borrower in favour of the Lender over all of the Borrower's present and after-acquired Property (GSA).
ProX's Default Notice to Welldog continued on to identify certain financial information concerning Welldog's and GSTC's profit and loss accounts, balance sheets and projected cash flow budgeting as produced under Australian accounting standards in the case of Welldog, but by United States accounting standards for GSTC. All these financial documents were collectively referred to as 'the Financials'.
Clause 1.5 of the Default Notice as issued by ProX contended for a default by Welldog against its obligations in respect of those Financials on the basis:
[T]he Borrower has failed to provide the Lender with the Australian Financials and US Financials for the months of June and July 2016.
It was the 1 September 2016 Default Notice that ProX contended for a relevant default event committed by Welldog, under all three Promissory Notes and under the security (cl 1.6) held by ProX.
By reason of that alleged 'event of default' the rate of interest accruing and payable under the Promissory Notes was increased to higher interest rates, as specified under cl 4.4 of each of the three Notes.
Furthermore, it was now said by ProX that by cl 12.2 of the three Notes that all underpaid principal amounts accrued interest and other amounts owing under the Notes (collectively called the 'Secured Monies') would, at the option of the lender (ie, ProX), be immediately due, payable and collectable by the lender.
Other default issues alleged concerned 'books' not being kept by Welldog in accordance with proper accounting standards, or not being made available for inspection and copying or a not up to date provision of requested financial information were also complained of by ProX. ProX contended such events to be 'insolvency events' (as defined under the three Promissory Notes as well as in the GSA) of Welldog.
By the same Default Notice, ProX also said it was giving notice to Welldog that all its Secured Monies were due, payable and collectable under all three Promissory Notes - by reason of default event(s) at the earlier of either 31 October 2016, or at the date of ProX's future service of an 'acceleration notice'.
The Default Notice issued by ProX had been signed by Mr Ashton, as the company's director.
Attachment JP11 to Dr Pope's affidavit disclosed that SPB, on behalf of Welldog, challenged the ProX issued Default Notice under emailed correspondence of 9 September 2016. The SPB communication culminated:
Please let us know if you have any questions regarding these responses. As these responses are in compliance with your requests, we consider the Notice of Default to be of no further force and effect and there to be no Event of Default under the Notes.
By a communication of 9 September 2016 from HWL Ebsworth (HWL), as local Australian lawyers then acting for ProX, SPB were advised that their contention that there had been no event of default under the three Promissory Notes as held by ProX in respect of its loans of US$4 million to Welldog was 'not accepted by the Lender' (par 5 of Mr Stevens' email). The HWL communication continued:
All of the Lender's rights are hereby reserved, including the right to demand immediate repayment of all amounts owing under the Notes.
On 16 September 2016, SPB was advised by Mr Stevens' email (for ProX):
I am instructed to give you 48 hours' notice of my client's intention to exercise its rights under the Notes and associated security.

My chambers on 23 September 2016 – _Interim injunction sought in the First Action

What I have just related is background to the urgent ex parte application I heard in chambers on the afternoon of 23 September 2016. That was Welldog's application for urgent injunctive relief.
The application, as required by this court's practice directions, was accompanied by an undertaking as to damages. It was given by Dr Pope on behalf of Welldog and recited, inter alia:
I am properly authorised by the plaintiff and on behalf of the plaintiff undertake to the court that the plaintiff will pay to the party restrained or affected by the restraints imposed by this interlocutory injunction such compensation as the court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the court or in accordance with such directions as the court may make and to be paid in such manner as the court may direct.
Welldog's 23 September 2016 ex parte injunction application was supported by a written outline of submissions and a further affidavit from an SPB lawyer. A chain of correspondence passing back and forth between Welldog and ProX's Australian lawyers was attached ‑ exchanging assertions and counter assertions regarding Welldog's alleged default(s) and the (disputed) rights of ProX to exercise rights under its Default Notice of 1 September 2016 to Welldog.
Following an ex parte hearing on 23 September 2016, I then issued an interim injunction, but of very short duration against ProX, lasting only until 4.00 pm, six days later.
Order 2 of the ex parte orders that day was in terms:
2.Upon the Undertaking of the plaintiff as to damages filed herewith, it is ordered that the defendant, whether by itself, its officers, servants, agents or otherwise be hereby restrained and an injunction is hereby granted restraining it until 4.00 pm on Thursday, 29 September 2016, or until further order, and taking any step, or any further step, to exercise any rights under or arising from a Notice of Default, dated 1 September 2016, issued by the defendant to the plaintiff including, but not limited to any rights under clause 11 of the General Security Agreement dated 1 August 2016 made between the plaintiff and the defendant.
Some ancillary orders were also made that day - including as to the confidentiality of certain passages which were sealed within the affidavit of Dr Pope. I also granted liberty to all parties to apply on 48 hours' notice.
ProX duly filed a memorandum of appearance in that First Action (court document 12) through local lawyers, HWL.

29 September 2016 – Interim injunction in First Action consensually extended to trial

On 29 September 2016 (the day any interim injunctive order of 23 September was due to expire) the defendant, ProX, by HWL, submitted a (written) memorandum of consent orders proposed as between the two parties - who had obviously been conferring through their respective lawyers.
The terms of the consent orders as then agreed between Welldog and ProX would extend the duration of order 2 of the orders of 23 September until a trial, or until further order, with liberty to apply on three business days' notice (see court document 11).
Consequently, the injunction position at 29 September 2016 became one of an extended pre‑trial injunction against ProX - inhibiting it, in effect, until the result of a trial (or further order) against acting further upon its Default Notice of 1 September 2016 (ie, as regards those alleged defaults only - but not, of course, any subsequent Welldog defaults under its lending arrangements with ProX. That was a true interlocutory injunction granted to Welldog because its duration was now operative until the result of a trial (or further order of the court).

Subsequent events in the First Action

On 27 October 2016, Welldog, through SPB, filed an amended originating summons (Amended Originating Summons) in the First Action - now seeking a wider declaration, to cover another 'Notice of Default dated 6 October 2016' issued by ProX (Default Notice 2). Welldog sought to challenge ProX's further notice, again on the expressed basis that no default ever subsisted under the 'transaction documents'. ProX had sent an 'acceleration notice' under the cover email of 21 October 2016 for the purpose of exercising its rights under its 'transaction documents'.
The Schedule to Welldog's Amended Originating Summons of 27 October 2016 now identified ProX's three Promissory Notes with their amounts and repayment dates. It also identified the extension and variation agreement for all three Notes of July 2016.
The July 2016 agreement, subject to conditions, had provided for an extension to the maturity dates for Notes 2 and 3 (in the amounts of US$1 million each and otherwise repayable on 14 July 2015 in the case of Note 3, or at 14 July 2016 in the case of Note 2) to the common extended maturity dates (on Notes 2 and 3) of 31 October 2016, noting:
The purpose of the Extension Agreement was to enable GSTC a further (relatively short) period within which to raise funds sufficient to repay the PROX debt.
At the time of the Amended Originating Summons filed by Welldog on 27 October 2016 in the First Action, it will be appreciated that the extended maturity dates for Promissory Notes 2 and 3 (for loans of US$1 million x 2) to be repaid to ProX, was then only four days off (ie, at 31 October 2016).
A Schedule under items (e) and (f) of the Amended Originating Summons identified the securities of ProX as:
(e).General Security Agreement made by WELLDOG and PROX and dated 1 August 2016 under which WELLDOG grants to PROX a PPSA Security Interest over all PPSA Personal Property and a fixed charge over all Other Property ('GSA').
(f).Fixed charge granted by WELLDOG in favour of PROX at or about the date of the Notes over specified equipment (including the downhole Raman system, surface Raman system and surface manifold/choke assembly) (Fixed Charge).
Also on 27 October 2016 a statement of claim was filed in the First Action. It essentially sought declaratory relief for Welldog concerning (by then) the two ProX issued Default Notices of 1 September and 6 October 2016 - as to those Default Notices being of 'no force or effect'. Relief was also claimed under the prayer in respect of the 'transaction documents' to the effect that no default subsisted 'under the GSA'.
Declaratory relief was also sought to the effect ProX could not rely upon either Default Notice or alleged 'events of default' or a threatened 'acceleration notice' or its emails dated 21 October 2016 'for the purpose of exercising any rights it may have under the Transaction Documents'.
Shortly, I can turn to the Second Action. But before that I should record that the First Action, having sat on the court's inactive cases list for a period of 6 months - by my orders of 5 June 2018, was duly dismissed for want of prosecution on 5 December 2018, under RSC O 4A r 28.
ProX had at a point in the First Action filed a chamber summons in that action seeking an RSC O 14 defendant's summary judgment against Welldog on debt amounts ProX claimed as then due to it by Welldog - under ProX's pleaded counterclaim against ProX of 10 February 2017.
Paragraph K of ProX's prayer for relief in the counterclaim had basically sought a repayment against Welldog of the US dollar amounts due plus interest under its respective Promissory Notes.
ProX also sought further relief, relevantly to the present dispute over the SPB funds:
K.The funds currently held in the Statutory Trust Account of Squire Patton Boggs in CIV 2859 of 2016 [Second Action] be paid to the Defendant in partial satisfaction of Order A to J above.
ProX's application for summary judgment on its counterclaim had been supported by Mr Ashton's affidavit in support of that application filed on 10 February 2017 (court document 25).
A minute of orders filed by ProX in relation to its claim for summary judgment on its counterclaim sought similar relief as regards the funds in the SPB trust account 'in CIV 2859 of 2016 [Second Action]'.
On 16 February 2017, at a chambers hearing, I issued directions for the setting down of a contested hearing of ProX's application for summary judgment. I listed the application for a half-day hearing on 7 April 2017.
However, on 6 April 2017, counsel attended on both actions. In the First Action I was told that Welldog had entered voluntary administration on 20 March 2017. Consequently, ProX's summary judgment application against Welldog upon its counterclaim was stayed by s 440D of the Corporations Act 2001 (Cth) (Corporations Act). ProX now required leave of the court to advance further. That day I adjourned both actions to 17 May 2017, with liberty to apply.
By consent orders of 15 May 2017 as were subsequently made, the First Action was adjourned to a date to be fixed.
However, the First Action progressed no further, other than to be placed on the court's inactive cases list before being dismissed for want of prosecution in December 2018.
The procedural history underlying the First Action, between Welldog and ProX displays these parties' full familiarity with the Australian scenarios of interim and then interlocutory injunctive relief. Such relief had been sought and obtained and extended to trial on the application of Welldog. That had required Welldog's undertaking as to damages, given by Dr Pope on behalf of Welldog.

The interlocutory injunctive relief I granted against ProX on 23 September 2016 against it acting upon its Default Notice of 1 September 2016, as matters stand, was not varied or discharged until that action was ended.
I can now turn to CIV 2859 of 2016, the Second Action relevantly begun in this court.

Procedural history for the Second Action

The Second Action was begun on 27 October 2016 - which, as already seen, was a day of intensive filing activity across both actions by SPB, then acting for both Welldog and its USA parent plaintiff, GSTC.
The Second Action was commenced by a writ of summons (the Writ), but it had displayed only a general endorsement of claim (General Endorsement).
Welldog was first plaintiff. The second plaintiff was GSTC. The third plaintiff was the entity 'The Blue Sky Group' (as representative of the shareholders of the second plaintiff). There were 17 named defendants, including Mr Simon Ashton (as first defendant) and ProX (as third defendant).
The General Endorsement to the Writ by these plaintiffs sought expansive relief against all defendants. Relevantly, it sought declarations that 'transaction documents' - as listed under the endorsement, at par B of the 'Plaintiffs' Claims', including all three Promissory Notes, the extension and variation (agreement) for the three Notes of July 2016 extending the maturity dates of Notes 2 and 3 to 31 October 2016 (the Transaction Documents) - were all 'void and unenforceable'.
At 27 October 2016, the principal loan monies under Promissory Note 1 in the amount of US$2 million, would fall due for repayment from Welldog to ProX at 14 July 2017, unless a repayment was accelerated by reason of a notice given by ProX upon a default by Welldog.
But principal sums under Promissory Notes 2 and 3, after extension, were then due for repayment in only four days' time - post the commencement of this Second Action, ie, at 31 October 2016 (unless, of course, the Transaction Documents were otherwise assessed as 'void and unenforceable').
Even so, Welldog had manifestly been enriched by its receipt of US$4 million in loan funds from ProX. That being so, Welldog would be hard pressed to avoid, at minimum, a restitutionary obligation at some point to repay ProX in due course - irrespective of the underlying position for ProX as a GSA secured creditor, or not.
Relief was also being claimed by the plaintiffs in the Second Action to the effect that the GSA as entered by Welldog and ProX of 1 August 2016 (and under which Welldog granted ProX a PPSA security interest over all PPSA personal property and a fixed charge over all other property), was equally 'void and unenforceable'.
The Writ in the Second Action had been accompanied by a chamber summons filed the same day (court document 3) urgently seeking an interlocutory injunction and (by par 2) that:
PROX, whether by itself, its officers, servants, agents or otherwise, be hereby restrained and an injunction is hereby granted restraining it until further order of this Honourable Court from taking any step, or any further step, to exercise any rights arising under the Transaction Documents specified in the schedule to this order, including but not limited to any rights under:
(a)clauses 5.2(a), 5.2(b), 5.3 and 11 of the GSA;
(b)clause 12.2 of the Notes; and
(c)clause 8.1 of the fixed charge.
That urgent chambers application request was (properly) accompanied by the required usual interlocutory undertaking from the plaintiffs as to damages. Again this was given by Dr Pope on behalf of all plaintiffs: see court document 4 - also filed 27 October 2016.
By the (usual) undertaking, Dr Pope then undertook for all three plaintiffs in terms:
[O]n behalf of the plaintiffs undertake to the court that the plaintiffs will pay to the party restrained or affected by the restraints imposed by this interlocutory injunction, such compensation as the court may in its discretion consider in the circumstances to be just, such compensation to be assessed by the court or in accordance with such directions as the court may make and to be paid in such manner as the court may direct.
The second page of the undertaking was signed by Dr Pope in the various capacities as director on behalf of Welldog, as the President and Chief Executive Officer of GSTC and, as well, on behalf of 'The Blue Sky Group' by Dr Pope as 'President and Chief Executive Officer'.
SPB contemporaneously filed a memorandum of conferral in support of the injunction application on 27 October 2016 (court document 5). This revealed that the basis for the plaintiffs' urgent application ostensibly stemmed from concerns regarding the defendants' lawyers' email of 26 October 2016, to which had been attached another default notice (Default Notice 3) asserting unmet Welldog payments under the three Promissory Notes. The urgent hearing was sought from the court before midnight on Thursday, 27 October 2016.
Accompanying that interlocutory injunction application was a certificate of urgency by SPB's counsel (Ms K J Levy) with 26 pages of the 'Plaintiffs' Outline of Submissions Re: The Plaintiffs' Chamber Summons or Application for Interlocutory Injunction Pursuant to O 52 r 1 of the Rules of the Supreme Court dated 27 October 2016'.
The extent of those written submissions indicated the injunction application had been in preparation for at least some period prior to 27 October 2016.

Beech J in chambers on 27 October 2016 – Second Action

The plaintiffs' urgent injunction application was returned urgently before Beech J in chambers, on 27 October 2017.
The Associate's Record for that hearing notes that Ms Levy, instructed by SPB, appeared for all three plaintiffs. No appearance had then been entered by any defendants at that early point. Nevertheless, Mr M Holler, of counsel, is noted as having attended on instructions, for ProX (then the named third defendant).
The orders issued that day essentially reflected terms of the plaintiffs' claimed relief as regards the abovementioned clauses of the GSA, the Promissory Notes and the fixed charge.
Order 2, however, could be seen to proceed on the basis of the court, in effect, then receiving and accepting an undertaking by counsel (Mr Holler) on behalf of ProX (ie, in lieu, in effect, of the court granting any interim injunction then against ProX). The undertaking was that ProX would:
[W]hether by itself, its officers, servants, agents or otherwise, not, without giving three business days' written notice, to take any step, or any further step, to exercise any rights arising under the Transaction Documents specified in the schedule to the order.
The plaintiffs' application was otherwise adjourned over to 3 November 2016 at 9.15 am to chambers. Liberty to apply was granted and the costs of the application were reserved.
That Second Action duly entered in my CMC list. I then became case manager of the Second Action and scheduled to hear the adjourned application on 3 November 2016.
At the first return of the plaintiffs' urgent application on 27 October 2016, pursuing their injunctive relief against ProX, substantive argument was essentially deferred then consensually in the short term and on an interim basis. By the receipt by the court of a (sensibly) volunteered (in all the urgent circumstances) interim undertaking, ProX undertook not to enforce its rights under its Transaction Documents -without first giving Welldog three business days' written notice of that intention. But ProX's then volunteered interim undertaking had been expressed, naturally enough, as being contingent upon ProX receiving the usual undertaking (ie, as already seen given to the court in the usual terms for the plaintiffs by Dr Pope) from the plaintiffs as to damages, to which I have referred.
The transcript of proceedings for 27 October 2016 records the application came before Beech J at about 3.08 pm.
At that time, Mr Holler, counsel for the third defendant (ProX) is recorded to have then said:
We're in substantial agreement, your Honour, as to what ought to happen. There's just some minor disagreement about the wording. What the third defendant is proposing - if your Honour has a copy of the chamber summons. Essentially, the third defendant proposes giving an undertaking without first giving three business days' prior notice.
Counsel's observation led Beech J to interrogate (ts 3):
So are you proposing that the defendant give an undertaking or that an injunction be issued against the defendant? The defendant is undertaking - is that right - not to do things without first giving three business days' notice.
HOLLER, MR: Yes, that's the gist of it, your Honour.
Effectively, then, what was the urgent application hearing of 27 October 2016, was resolved by the undertaking from ProX given through its counsel to the court and which was then accepted by the court at that time on a short term basis.
What transpired was, effectively, a typical interim short term holding arrangement, agreed between the parties' lawyers until the substantive injunction application arguments could be brought on for a full inter partes argument hearing.
Nevertheless, the effect of ProX's proffered undertaking, as it was received by the court, was for all intents and purposes as effectual and enforceable as if an interim injunction had issued at that time by the court as against ProX in such terms: see Thomson Australian Holdings Pty Ltd v The Trade Practices Commission [1981] HCA 48; 148 CLR 150, 164 - 165 (Gibbs CJ, Stephen, Mason & Wilson JJ).
Clearly, the parties through their respective solicitors and counsel were seen to be in a dialogue over what was to happen, as would be expected of them. Orders had issued on that basis.
Hence, it came to pass that the plaintiffs' adjourned interlocutory injunction application became listed for a further directions hearing before me at 9.15 am on 3 November 2016 (a sensible case management arrangement - given my previous exposure to essentially the same parties from the First Action). Events that day are pivotal to the arguments over the SPB funds as being the subject of an equitable charge by ProX, as so-called extra Inglis security.

My chambers on 3 November 2016 – Both Actions

Both actions were listed before me in chambers for directions this day.
In the First Action, I issued some programming orders addressing ProX's future filing of a defence and counterclaim and for Welldog's filing of a reply and defence to that counterclaim. Otherwise, I adjourned the First Action to a further directions hearing at the special appointment I then fixed for Tuesday, 13 December 2016 ‑ in both actions. I ordered that both actions were to be case managed together. The injunction I had earlier granted remained in force.
The transcript for 3 November 2016 indicates Ms Levy appeared for all plaintiffs in the Second Action. Mr Holler, of counsel, again appeared for ProX in both actions.
At ts 17, I had asked Ms Levy about my September 2016 interlocutory injunction granted in the First Action which, as seen, had been consensually continued to trial, noting that there had been a looming repayment date on the Promissory Notes 2 and 3 at the end of October (2016) - in the aggregate amount of around US$2 million plus some interest. She responded:
LEVY, MS: That's one of the issues in this injunction application. Those monies are sitting in the Squire Patton Boggs trust account, and you'll see in the orders that we're seeking in 2859 that those monies are expressly dealt with. My friend and I have an argument over one small aspect of the order at 4(a), but the substance of the order, that the monies stay in that trust account, that isn't in dispute.
In response to a further question I posed about the US$1 million x 2 Welldog indebtedness in respect of Promissory Notes 2 and 3, Ms Levy related the following information on behalf of the plaintiffs/applicants, under this exchange (see ts 18 - 19):
LEVY, MS:   The total between them plus the interest payments comes to US$1.8 million in change and, and that's the precise amount that was transferred across to the trust account in advance of the due date.
KENNETH MARTIN J:   ... And those monies in trust under paragraph 4(a) of your minute - so that's under Note 2 and Note 3?
LEVY, MS:   Yes, but it's - one of the interest obligations is also under Note 1. That was a payment that arose on 28 October that wasn't referred to in the previous proceedings as it was in the subject of those ones.
…
LEVY, MS:   So it's the principal payment on Notes 2 and 3, together with interest payments on Notes 1, 2 and 3. As your Honour may recall, the principal on Note 1 isn't yet due until July next year.
KENNETH MARTIN J:   Quite. All right. The normal Inglis v Commonwealth Trading Bank scenario in terms of challenges against debts secured by instruments such as mortgages or Promissory Notes is that the money is paid into court, unless agreed otherwise. Now it's not a great arrangement to pay it into court because you don't get interest on it.
LEVY, MS:   And under the trust arrangements, the money can be held in a controlled moneys account, which does earn interest, and if the plaintiff's case is found to be right in the end, that …
KENNETH MARTIN J:   So this - this is a - the statutory trust account of Squire Patton Boggs is an interest bearing - interest bearing trust account?
LEVY, MS:   The - at the moment it's in the non-interest bearing part of the statutory trust account, and - and I'm sure my friend won't have any difficulty with this. It's proposed that over the next week - a few days to a week, that it be moved into a - a single bank account held with the Commonwealth Bank at 150 St George's Terrace. It's called a controlled moneys account under the Legal Profession Act.   It is interest bearing, trust statements are required to be issued and it's subject to some very strict statutory supervision and controls.
KENNETH MARTIN J:   ... Well, that sounds sensible. I understand.
LEVY, MS:   Now, the issue between my friend and I - the only issue in relation to the orders in 2859 is that my friend is seeking that order 4(a) be made not just an undertaking by the plaintiffs but an undertaking by the partners of Squire Patton Boggs.
I asked whether there were any other issues and was told by Ms Levy:
No. The orders are otherwise agreed, your Honour.
(Below, I will soon refer to the precise terms of the submitted minute of proposed orders for directions that day which was largely agreed subject to one reservation and issue as regards SPB and the funds held.)
Next relevantly, I made the following observation to counsel for ProX:
So you want a one-day - I'm looking at order 3. You want a one-day hearing not earlier than 1 December. So, Mr Holler, the - undertaking from ProX … which is currently given in lieu of an injunction can be extended on these terms, subject to sorting out the Squire Patton Boggs issue?
HOLLER, MR:   Yes, that's - that's the idea, so that we focus on getting the interlocutory dispute heard and determined as quickly as possible, but no, I do want to just make it plain though, the point of having liberty to apply on three business days' notice is in case there is an external insolvency event under the documents which changes the basis on which this undertaking has been extended … The intention is to have this dispute resolved as quickly as possible.
KENNETH MARTIN J:   Well, the interlocutory injunction application.
HOLLER, MR:   Yes. Yes exactly.
KENNETH MARTIN J:   The - the underlying dispute looks massive in its dimensions, if it - one runs the full …
HOLLER, MR:   That - well, that's why initially we were considering are we going to follow with the interlocutory skirmish, but given the expansion of the underlying dispute, we've decided we should have the interlocutory skirmish.
I duly listed the plaintiffs' interlocutory injunction application for a one-day hearing before me at 10.15 am on Tuesday, 13 December 2016.
As regards 'the Squire Patton Boggs issue' concerning the funds now held, Mr Holler now explained (ts 21):
The difference of opinion has been exactly as your Honour identified on the Inglis principle. We wanted the money to be paid into court or into a joint trust account between the two solicitors, the idea of that being that the price for the excuse not to pay the $2 million on time is that the money is secured.
Hence, in what were then the unresolved circumstances regarding SPB, a proposed further order concerning SPB was being sought by Mr Holler for ProX - as a then additional order 4A, to be added to the otherwise agreed terms of the parties' as submitted minute of orders (and which, as now seen, was otherwise controversial between them at the time).
Having heard counsel for ProX, I flagged to Ms Levy over the as requested order 4A, my concern over a possible future scenario where:
[T]he instructions of the solicitors get terminated and then basically they're faced with a conflict scenario and conflicting instructions in relation to the money. It's - it's a hypothetical extreme scenario but it's - it's happened, I guess, in the past, so that's the intent underlying it (ts 23).
This exchange followed:
KENNETH MARTIN: [T]his is a matter where the Inglis rule would I think almost certainly apply.
LEVY, MS: Indeed, your Honour, and what it was paid into was to be able to demonstrate to the court that this is not about the plaintiffs - or Welldog being unable to pay the money. This is Welldog demonstrating - providing clear evidence that it has the capacity to pay, and it's to counter any argument that we anticipate my friends will raise that the purpose of the injunction is to somehow delay the payment because of the looming insolvency. So the monies were paid into the trust account to make it …
Having addressed the position of SPB holding funds under what was to be a recrafted order 4A (and which ultimately became my order 5), I observed to counsel for ProX:
Your undertaking, which is effectively an extension of the undertaking accepted by Beech J, as articulated under 4(b), should be an undertaking until the hearing of the matter on 13 December 2016 or until further order (ts 28).
Order 3, which I then issued, was in the following terms:
The plaintiff's application dated 27 October 2016 for an interlocutory injunction extending until trial is listed for a one-day hearing at 10.15 am on Tuesday, 13 December 2016.
Order 4 was in the following terms (which followed the precise terms of the parties' otherwise uncontroversial agreed minute as provided to the court for that hearing, save for the new preface):
Upon the undertakings listed below and Order 5 below, the matter be otherwise adjourned to 10.15 am on Tuesday, 13 December 2016
(a)The plaintiffs' undertaking that unless otherwise ordered by the court or as agreed between the first plaintiff, Welldog, and the third defendant, ProX, they will not use the US$1,833,333 in funds currently deposited in the Statutory Trust Account of Squire Patton Boggs (AU) for a purpose other than as security for payment of sums claimed as outstanding under the Notes made by the first plaintiff, Welldog, in favour of the third defendant, ProX.
(b)The undertaking of the third defendant, ProX, whether by itself, its officers, servants, agents or otherwise, not to take any step, or any further step, to exercise any rights under the Transaction Document specified in the schedule to this order, including but not limited to any rights under:
i clauses 5.2(a), 5.2(b), 5.3 and 11 of the GSA;
ii clause 12.2 of the Notes; and
iiiclause 8.1 of the Fixed Charge.
My order 5 (formerly the as proposed order 4A) dealt with the then contentious position of SPB. It issued in the terms below. As the preface to earlier order 4 shows, order 5 was effectively then made to be collaterally applicable to the otherwise agreed mutual cross undertakings as were then uncontroversially offered by the parties and which I that day accepted from them:
The solicitors for the plaintiff, Squire Patton Boggs (AU), unless and until otherwise ordered by this court, or as agreed between the first plaintiff, Welldog, and the third defendant, ProX, are hereby ordered not to use or allow to be used the US$1,833,333 in funds currently deposited in the Statutory Trust Account of Squire Patton Boggs (AU) for a purpose other than as security for payment of sums outstanding under the Notes made by the first plaintiff, Welldog, in favour of the third defendant, ProX.

Hence, a contested hearing of the plaintiffs' application for a substantive interlocutory injunction against ProX sought to extend in duration to a trial was then listed for a contested hearing before me at a special appointment hearing I fixed for 13 December 2016 - ie, for the substantive contested interlocutory arguments upon the application for the interlocutory restraint against ProX extending up to a trial.
What is now more significant concerning the 27 October and 3 November 2016 events as discussed is that, as regards injunctive orders, the parties' positions in the Second Action before both Beech J on 27 October and then before me on 3 November 2016, saw the court only dealing on an interim basis with Welldog's urgent application for interlocutory injunctive relief against ProX enforcing its securities against it. The interim approach was necessary on those occasions because ProX, as the party sought to be restrained, had not then been afforded a sufficient opportunity to prepare responsive materials to resist the plaintiffs' application for interlocutory injunctive relief against it as was substantively being sought.
Consequently, ProX, through counsel, offered the court its volunteered interim undertakings first, before Beech J, and then as extended, as counsel again appeared before me. ProX's undertakings were then accepted by the court, in effect, in lieu of the court granting interim injunctive orders against ProX at that time. What transpired was a common and sensible practice by defendants faced with an urgent injunction application who need time to provide a considered response and do not wish the court to formally order against them. There is little about the undertaking that was unusual - save only perhaps, that the SPB monies were not to be held at court, or held in a joint trust account in the name of the respective lawyers. That unusual feature of SBB as the plaintiff's lawyers of record unilaterally holding the money was sought to be balanced by order 5.
Nevertheless, it is clear overall that at 3 November 2016 the order 4(a) recorded undertaking as to the SPB trust funds was conceived as between these parties. It was offered, in effect, in lieu of a payment into court, or a payment into a joint trust account arrangement by Welldog - to accord with well undertood Inglis security principles, in a context of a wider pending pursuit of an interlocutory injunction by Welldog against ProX that extended up until a full trial could be heard.
The context for the mutually given order 4(b) cross undertaking as offered by ProX not to enforce its securities until then, was also interim - pending then, a full inter partes contested interlocutory hearing then fixed for 13 December 2016 - where ProX clearly had foreshadowed it would be strongly opposing the wider interlocutory injunctive relief sought to the plaintiffs extending up to trial - as was sought by Welldog under the chamber summons it filed contemporaneously with its Writ on 27 October 2016.
The orthodox usual undertaking as to the respondents' damages as is almost invariably required of a plaintiff seeking to restrain a defendant on an interlocutory basis until trial was, as seen, given by these plaintiffs. It was noted as received from all plaintiffs at this time. Significantly, and in contrast to that, however, the express terms of the order 4(a) cross-undertaking as crafted then under the interim consensus that day by the parties' legal representatives - to address at a step removed from paying the funds into court - saw Welldog (who was seeking to restrain any pre‑trial enforcement of securities held by ProX against its assets) then providing security to ProX of something extra, akin to Inglis security. That extra security from the moving party for interlocutory injunctive relief was appreciated to be required as against a mortgagee or secured lender, in effect, as the extra 'price' for obtaining the equitable restraint from a court against the secured lender against their rights otherwise to enforce their security rights, pending a trial. Here, the interim position about this extra security was, effectively, fully agreed as between these parties by the cross‑undertakings as seen under par 4(a) and (b) of their agreed minute - lasting until a full argument of the contested interlocutory hearing could be heard, at 13 December 2016. This regime of cross‑undertakings was what the parties had worked up between themselves and was what they offered to, and what was then accepted by the court on a clearly interim basis.
The orders as regards SPB under what became my order 5 were collateral to the agreed order 4. Order 5 essentially resolved the only controversial issue as at 3 November 2016 and concerning a potential future conflict for SPB should those lawyers, holding in their trust account the order 4(a) money, if SPB ever received in future some conflicting instructions in future about the funds from their (multiple) clients. Given what subsequently occurred by the appointment of an administrator, receivers and then the liquidation of Welldog, there was some fortuitous prescience underlying the order 5. Nevertheless, order 5 was a minor collateral augmentation to strengthen the order 4(a) undertaking as given by the plaintiffs - in circumstances where these funds were not to be held by the court or in a joint account.
The key to understanding what occurred on 3 November 2016 is to appreciate the clearly contested injunctive argument context looming for 13 December 2016. Events unfolded on 3 November 2016 on a wholly interim basis, in the face of an impending future inter partes contest over any grant of a substantive interlocutory injunction against ProX - lasting until a trial. That looming contested hearing was to be conducted on the further foreshadowed affidavit materials that ProX indicated it would file - in readiness for a strong interlocutory contest at the 13 December 2016 hearing.
Hence, what came to be received as the cross‑undertaking of the plaintiffs under order 4(a) on 3 November 2016 was then offered, in effect, as a proxy for Inglis v Commonwealth Trading Bank further security by the plaintiffs. An idea, that SPB would unilaterally hold the funds in trust, was effectively conceived as between the parties and their lawyers - under the terms of their otherwise uncontroversial minute submitted on 3 November 2016: see court document 11, par 4(a). The parties' otherwise agreed minute can be seen as in identical terms to order 4(a) of the court's ultimate orders.
The analysis of the terms of the 3 November 2016 agreed order 4(a) reveals that although the order 4(a) undertaking of the plaintiffs (not to use those SPB held funds in trust) was given by all three plaintiffs, it displayed an expressly stipulated exception - which is most significant.
This exception provided for future circumstances, where if it was ever agreed as between 'the first plaintiff, Welldog, and the third defendant, ProX'. That terminology addressing only Welldog and not all the plaintiffs in the Second Action, is revealing.
The express terms of the parties' agreed par 4(a) undertaking arrangements, objectively assessed, said that only one of the action's three plaintiffs, namely, Welldog, might agree in the future with ProX to vary the par 4(a) arrangements. Of the three plaintiffs, such a power was afforded only to Welldog.
On my analysis, that feature by itself confirms that only Welldog was to control these funds on the plaintiffs' side of this action. That arrangement featuring only Welldog is wholly consistent with the way in which the same funds came to be recorded in the October 2016 financial accounts of both GSTC and Welldog - namely, as Welldog's own funds and not as the funds of its parent, GSTC.
Internally, the parent/subsidiary funds ownership issue as a distinction at that time (3 November 2016) as between GSTC and its 100% owned and controlled Australian subsidiary corporation may have been seen as relatively inconsequential at the time, given a common control of both corporations through Dr Pope. However, for the purposes of the present proceedings, what presents as a clear nomination of Welldog to solely deal with these funds under the par 4(a) order is, in the end, a vital one.
The express terms of order 4(a) of the 3 November 2016 orders and cross‑undertakings addressed the SPB funds in trust as extra security -afforded to cover the amount of Welldog's debt to ProX under Promissory Notes 2 and 3. This was Welldog's debt, not GSTC's debt. The SPB funds cannot be viably assessed as the property of GSTC. GSTC was not the debtor vis‑à‑vis ProX. Here, the only relevant debtor to ProX, Welldog, controlled these order 4(a) funds, which -apart from their possible future exposure to ProX under the exchanged cross‑undertakings regime as regards the pursuit of an interlocutory injunction - were its funds. Welldog was, in effect, granted by the order 4(a) undertaking an equitable charge over the funds to ProX in exchange for the cross-undertaking of ProX under order 4(b), to not take steps to enforce its security against Welldog - pending the hearing of a looming future contested interlocutory injunction application.
A further point of significance emerging from the 3 November 2016 orders and cross‑undertakings at that time was that the respective cross‑undertakings under orders 4(a) and (b) were very clearly, only ever interim in character and duration. They were clearly expressed to be finite in their respective temporal durations - ie, until the outcome of the inter partes interlocutory injunction contested hearing then listed as a special appointment for 13 December 2016. As seen, the preface to the cross‑undertakings under orders 4(a) and (b) rendered that feature explicit.
As events subsequently transpired, there was heard a contested interlocutory injunction hearing on 13 December 2016 between the parties. At the end that day, I refused Welldog's application seeking an injunction extending until trial - which Welldog had pressed for on its chamber summons for interlocutory injunctive relief of 27 October 2016.
I now turn to discuss that December 2016 hearing at some greater length.

Chambers on 13 December 2016 – The first contested interlocutory injunction

As will be seen, during the course of this hearing, I accepted a fresh undertaking from ProX in relation to how it would from then conduct itself as regards it not enforcing its securities against Welldog. But this was not the same interim undertaking given by ProX as had been accepted by Beech J and then extended further by me under order 4(b), on 3 November 2016. At 13 December 2016 the interlocutory contested position had moved on considerably, as I will explain.
For reasons still not really apparent, it will also be seen that although I refused Welldog's application for an interlocutory injunction until a trial that day, nevertheless, the US$1,833,833 then remained in the SPB account, beyond 13 December 2016.
But that inertia with the SPB funds, on my assessment, was not attributable to the cross‑undertakings under my orders 4(a) and (b), as accepted on 3 November 2016. Those mutual cross‑undertakings had clearly lapsed at 13 December 2016 - when Welldog's contested application pressing for an interlocutory injunction extending until a trial was heard and ultimately refused by me.
Nor, on my analysis, does my collateral order 5 of 3 November 2016 (concerning SPB) which I was asked to make by ProX on 3 November bear upon the issue. As a matter of interpretation, I consider that order 5 correlatively lapsed at the expiry of the respective cross‑undertakings under order 4 of the 3 November 2016 orders on 13 December 2017. That is, of course, unless the parties, as between themselves, agreed to something new after 13 December 2016 as regards those SPB funds.
At the commencement of the contested interlocutory injunction hearing on 13 December 2016, there was no minute of agreement submitted as between these parties. Ms Levy again appeared that day for the three plaintiffs. She advised that she was moving for the interlocutory injunction (ie, to trial) in terms of the plaintiffs' chamber summons of 27 October 2016. This was opposed by ProX.
Mr Holler, of counsel, again appeared on behalf of ProX and now for its managing director, Mr Ashton, as first defendant, as well as the related fifth defendant, Kinabalau Pty Ltd.
Mr Holler openly advised the court that ProX was seeking to proceed to enforce its securities against Welldog. That stance of ProX accordingly was the operative threat, which Welldog then sought to restrain - until a full trial of the action could be held and determined in the Second Action.
As regards the status of the 3 November 2016 order 4 (mutual) undertakings given by ProX, it became very clear that ProX's then undertaking was no longer offered: see ts 76 of 13 December 2016. That led to the following exchange with counsel for ProX:
Well, at the moment, in the second action, I'm dealing with the argument of the plaintiff that I should extend the terms of the injunction in the face of the withdrawal of the undertaking not to take any steps.
HOLLER, MR: Yes, I see. Well, we may be able to modify that withdrawal to make it less clinical.
Eventually on that day the question emerged over whether ProX would still be prepared, even at this later point, (to use the terminology of ProX's counsel, Mr Holler) to allow Welldog to 'start with a clean slate', as from 13 December 2016. But Mr Holler then added (ts 76):
[ProX] wouldn't want to be subject to any restrictions because things will change from day to day and month to month in terms of payments that are due so when those things occur …
So, shortly prior to the lunch break at the hearing on 13 December 2016, Mr Holler for ProX was suggesting that ProX might be prepared to (freshly) undertake to refrain from then acting on all prior alleged Welldog defaults - but that ProX would not want to be hampered in terms of future defaults of Welldog: see ts 77. But ProX's then proposed offer by counsel was then firmly rejected on instructions by Ms Levy for the plaintiffs at this time.
At resumption after the lunch break, counsel for ProX now announced formally his client was prepared to openly offer what was another (ie, fresh) undertaking in terms (ts 80):
HOLLER, MR: So, until further order, the third defendant undertakes to not issue an acceleration notice or appoint a receiver [for] any alleged defaults occurring prior to 13 December 2016 under the Transaction Documents and then there be liberty to apply on five business days' notice. And that's all I've discussed with my friend.
Mr Holler added:
So what wasn't expressed but is to be implied is that if that - this has worked out, then I apprehend that the injunction application won't be pressed and the matter will then need to be programmed on for trial as quickly as possible and including mediation on the way. But we would want the money that's in court -
(There was then, of course, no money at all in court. The relevant money as referred to was held in the SPB trust account. Nevertheless, the intended reference to the SPB funds was clear enough) -
to stay in court until our counterclaim and summary judgment on the application counterclaim is heard because if we're successful on that, we will ask, of course, for an order that the money be paid out to the third defendant.
The plaintiffs still firmly rejected that new proposal. They were not prepared to accept such new undertaking arrangements, as Ms Levy firmly relayed to me at the time. At ts 83 there was discussion about the monies in the (SPB) trust account - as reflecting amounts due under Promissory Notes 2 and 3 as between the parties, although their positions had narrowed: see ts 117.
But there was still then no agreement. So in the end, I needed to resolve the contested interlocutory injunction application that was being pressed.
At the end of the contested hearing in the late afternoon that day, I delivered my ex tempore reasons, ultimately refusing Welldog's interlocutory injunction application.
At ts 127, I said this:
The relief that I granted effectively as a holding mechanism and without much controversy on 3 November involved mutual undertakings, which are set out in paragraph 4 subparas (a) and (b) and 5 of the orders I made that day. I also programmed this matter and the other action 2667 to be case managed together and set the matter down for a substantive argument by an exchange of materials to be heard today at 10.15, as indeed it has.
I added:
The nub of the contest arises because the defendants have effectively indicated that they withdraw the undertaking which had been given and received by the court as reflected under paragraph 4(b) on 3 November (ts 128).
The position of the defendants essentially indicated that that undertaking would be withdrawn, although the moneys in the court pursuant to paragraph 5 as indicated in those orders by reference to solicitors' trust account remain in that trust account (ts 129).
At ts 136, I stated that I would decline the plenary interlocutory injunctive relief that Welldog had sought and pressed for under par 2 of its chamber summons. I said:
I reach this position, taking account and accepting the undertaking that has been proffered by ProX in the more limited terms that I have identified. That is a countervailing consideration. Had it not been for that undertaking, I might have been inclined to intrude to some lesser extent as regards an acceleration clause, but it seems to me the undertaking that has been offered by ProX takes off the table, relevantly, everything that has happened before today.
Effectively then, the only threat and jeopardy faced by Welldog as the 100% subsidiary of GSTC is if it does something further in terms of a default by way of failing to meet an interest payment or failing to meet an instalment of principal or some other default under the security documentation which happens subsequently to now and it seems to me that bearing that in mind, the undertaking that's offered takes off the table much of the past conduct that has given rise to the plaintiff's concern.
I concluded those reasons in these terms:
In short, if the plaintiff keeps its nose clean and meets its obligations in respect of Promissory Note number 1 by reference to interest and principal, then it seems to me that the basic threat that it fears today is not really, a tangible threat. What might happen in the future, I'm not prepared to predict other than that I have taken the past off the table as a threat in terms of the execution of security documentation. So on that basis, subject to accepting the undertaking that is offered in the terms I've identified by the third defendant, I dismiss the balance of the application.
So it transpired that on 13 December 2016, what had only been interim cross‑undertaking arrangements as the subject of my orders of 3 November 2017, particularly under my orders 4 and 5, were all essentially overtaken. They were then at an end.
Between these parties, however, it seems reasonably clear that after 13 December and enduring up to at least 3 March 2017, they reached or acquiesced in some private arrangements perfected as between themselves over the continued holding of the initial sum with SPB. In fact, they co-operated further to the extent that some extra money was paid into the SPB trust account - to reflect amounts claimed by ProX as being due by Welldog to ProX and allowing for partial repayments of principal or the like, in respect of a claimed Welldog indebtedness under Promissory Notes 2 and 3, plus interest under Promissory Note 1. But the amount of the US$2 million falling due under Promissory Note 1 at maturity was not included as that loan amount only fell due for repayment in July 2017 - unless, of course, it was accelerated by a further default by Welldog.

GSTC presently seeks to contend that such internal accounting treatment at the time was essentially an internal error made by its Chief Financial Officer (CFO), or by other minor organisational employees at the time.
GSTC points to an internal practice of these corporations having a practice of conflating, in effect, each other from time to time, especially by Dr Pope. That is advanced as contributing to what was, GST argues, an erroneous mistreatment made in the consolidated 2016 accounts of the funds at the time - on a basis that Dr Pope had loosely used the term 'Welldog' to refer to the GSTC group from time to time.
It was also argued for GSTC that Dr Pope's apparent early 2017 approval of these consolidated accounts for 2016 containing what is now argued to be a misclassification of the trust funds as an investment is explained as erroneous and not conclusive - given the evident purpose of the raised funds at the time as between GSTC and Shell Ventures - which it is said Welldog knew.
Consequently, it is put by GSTC that the SPB funds ought presently be assessed by the court as being held by SPB for the benefit of GSTC - given a failure of the purpose for which the funds were originally provided, namely, as Inglis security for ProX. That security was to support the obtaining of an interlocutory injunction extending across a period to trial, and so allowing the substantive disputes pending against ProX to be ventilated by the plaintiffs in the Second Action, in the Supreme Court of Western Australia by being determined. But that purpose, it is put, was wholly frustrated, either by a failure at the first attempt to obtain an interlocutory injunction on 13 December 2016, or at least at the failed second attempt on 3 March 2017, so it is put.
However, I am unable to accept any of these 'trust' claims to the SPB funds advanced by GSTC. On my assessment, the GSTC and Welldog corporate accounts found appended to the affidavit of Mr Jonathon Rex Shepherd sworn 16 June 2017 at JRS1, do correctly reflect the underlying legal transactions under which:
(a)Shell Ventures loaned to GSTC US$2 million, under a convertible note of 25 October 2016;
(b)GSTC paid over US$1,833,333 of that loaned amount for the use of its Australian subsidiary, Welldog (the financial accounts showing this investment as an increase in the current assets of GSTC under a 'Welldog Pty Ltd Investment' and also correlatively, as an increase in equity by GSTC held in the form of 'capital stock common' in Welldog's books); and
(c)funds representing the US$1,833,333 in their Australian dollar equivalent amount were then paid into the Australian office SPB trust account under the name of Welldog, on or about 27 October 2016 - the then Australian equivalent amount being AUD$2,387,129.32.
The 2016 consolidated GSTC/Welldog accounts clearly show for October 2016 as regards GSTC that its loans (ie, liabilities) in the category of 'convertible notes - short term' increased by the amount of US$2 million. Correlatively, GSTC's current assets in the form of 'Welldog Pty Ltd Investment', had increased by the amount of US$1,833,333.
Correspondingly, the October 2016 accounts show Welldog's 'capital stock common' had increased by the amount of AUD$2,386,220 - a broadly equivalent dollar exchange outcome - and with Welldog's current assets in the form of 'legal retainers' now having increased by AUD$2,421,348.
In summary then, the financial accounts for both GSTC and Welldog prepared around the time unquestionably display that monies caused to be raised by GSTC in the USA were, in effect, subscribed by it as further capital in Welldog. The funds ultimately became the legal property of its Australian subsidiary, Welldog. The scope for an inadvertent error about such precise dealings is smaller.
Confirming the essentially accepted accounting position was the evidence of Mr Trenton Thornock, the CFO of both GSTC and Welldog, prepared around at the relevant time in 2016. Under an exchange of emails at this time, Mr Thornock confirms that the US$2 million funds received from Shell Ventures should be recorded in the respective books of GSTC and Welldog - on a basis of a subscription for equity by GSTC in the Australian subsidiary.
By Mr Thornock's email of 26 October 2016, he relates in relation to the amount of US$1,833,333 as transferred to GSTC by Shell Ventures, that:
The cash posted to escrow now belongs to WDPL [ie, Welldog] as GSTC has directed the note proceeds to WDPL's use in the litigation and to secure WDPL's debt. If you think the accounting should look differently, please advise. The substance remains that GSTC has contributed the amount in equity to its subsidiary, WDPL, to secure it against attack.
That evidence is clear and compelling. Nor has it been rescinded by Mr Thornock as the CFO of GSTC, who should be in the best position to say on this issue, over Dr Pope.
Another of Welldog's directors, Mr Gregory Quinn, at that time had offered a technical observation about these accounting entries. But substantively, Mr Quinn was also then of the view that the monies would belong to Welldog, immediately prior to their transfer to the trust account, because the funds had been received by Welldog from GSTC as additional paid up capital.
Albeit presently seeking to resile from that earlier position, the affidavits sworn by Dr Jonathon Pope at 26 October 2016 and 7 December 2016 were to the same effect - namely, that Welldog raised the funds placed into its solicitors' trust account for the (present pending) litigation.
Upon the Present Application, both ProX and Welldog (through its liquidators) are critical of Dr Pope's attempted volte‑face, under his 5 September 2018 affidavit - by seeking to contend for error in the accounting treatment of these funds, and now asserting he had not authorised a recording of the funds received by GSTC from Shell Ventures in such terms. I conclude that there is substance in all these criticisms of Dr Pope.
Under written submissions of 21 September 2018 (pars 61 - 72) ProX is particularly critical of Dr Pope's efforts on behalf of GSTC, to distance itself from Mr Thornock's contemporaneous accounting treatment of the funds as CFO of both GSTC and Welldog at the time. ProX points out that the records prepared by Thornock were then approved by both boards. They had also been provided at the time (in 2017) to an insolvency expert for a purpose of preparing a report to the court supporting the solvency of Welldog - in other proceedings before the court - in particular, for the interlocutory injunction application I heard on 3 March 2017.
It is strongly contended, that Dr Pope's recent attempt at an explanation cannot be accepted, in light of Mr Thornock's position. I agree. The fact is that Mr Thornock has not provided any affidavit evidence to support the more recent and convenient assertions about an erroneous accounting treatment, as now articulated by Dr Pope.
Under written submissions of 5 October 2018 Welldog, by its liquidators, also contends that the contemporaneous accounting records and financial records are wholly inconsistent with GSTC's contention to the effect that the SPB funds became the subject of a 'Quistclose' like trust forming GSTC. It was pointed out with some emphasis that there was a complete absence of any requirement that the US$1,833,333 should be placed into a new or separate account, or then, of any prohibition against a mixing of those funds with other Welldog funds. Attention is also drawn to cl 3 of the GSTC/Shell Ventures Side Letter as earlier referred to, pointing out that provision was for a payment into the SPB account 'or an interest bearing account'. Consequently, it is put that there is nothing in the terms of the Side Letter, or by necessary implication, precluding a payment to a general interest bearing bank account for these funds, or the mixing of those funds with other funds of Welldog. That, according to Welldog's liquidators, is a factor of negative significance against any detection of a trust favouring GSTC as contended. Again there is, I accept, substance in those observations put against GSTC's position.
The SPB trust account statement which is annexure LSD-11 to Lucas Si De Tan's affidavit of 26 September 2018 shows the funds were placed into the SPB trust account, under the name of Welldog. Subsequently, they were mixed with more funds received from SPB (US) from Welldog. That later payment of AUD$119,854.30 was paid in by Welldog, not GSTC, (see Mr Graeme Slattery's affidavit sworn 3 August 2018, par 4).
Finally, Welldog, through its liquidators, points out (correctly again, I conclude) that even if the notion of a Quistclose like trust might be accepted, the relevant party with an entitlement to recover the funds, would be Shell Ventures - not GSTC.
In the end, the arguments by Welldog (by its liquidators) and by ProX, put against GSTC's contentions, must be accepted as being overwhelming.
I was left far from persuaded, that the accounting treatments used in the consolidated accounts for these funds and as confirmed under Mr Thornock's evidence as CFO of both entities, was in error. On my assessment, GSTC's explanation via Dr Pope emerges too conveniently and far too late. It manifests as a 'weak' effort to rationalise what is otherwise a rather obvious, but now clearly unwelcome, position for GSTC, concerning the SPB funds provided legally and beneficially in October 2016 to its Australian subsidiary. Whatever problems that conduct in 2016 may later create for GSTC in its relationship with Shell Ventures (if any) are not to the point in this court. They can be litigated out, if necessary, as between GSTC and Shell Ventures.
That the SPB held funds were first received as the beneficially owned property of Welldog is, on my assessment, doubly reinforced, as I have said earlier, by the terms of order 4(a) of the mutual orders and cross‑undertakings I issued, essentially by consent, on 3 November 2016. As seen therein, the sole plaintiff party (of three) as was then designated to otherwise deal with the funds by way of a variation, by future agreement with ProX, was Welldog, not GSTC. And it was Welldog that had received all the loan funds from ProX, not GSTC.
The fallback trust argument of GSTC is, I find, incapable of being sensibly rationalised with how these funds were treated as between GSTC and Welldog at relevant times.
And there was no internal error about that treatment, I find.

Further evaluations - Key events

ProX v Welldog (by its liquidators)

On 3 November 2016, undertakings and orders were issued essentially under a consent minute as submitted by the parties, save only for what became order 5 of those orders, where there had been a minor, correlative controversy over SPB's position as a unilateral holder of the money.
As seen now, order 5 was made that day to resolve that relatively minor controversy towards circumstances where the funds were not to be held in a joint trust account. The court had been told that the partners of SPB (Perth) would not then provide a voluntary undertaking to the court about these funds - as had been requested by ProX. That issue was the only real controversy that day. It became the subject of my order 5 - in what otherwise were agreed orders and undertakings between those then parties to the Second Action.
On 27 October 2016, the amount of AUD$2,387,129.32 had been paid into the SPB trust account (Mr Graeme Slattery's affidavit sworn 3 August 2018, par 4(a)).
The plaintiffs' undertaking recorded under order 4(a) of the orders of 3 November 2016, addressed the same amount (as US$1,833,333) in funds deposited in the statutory trust account of SPB.
The SPB amount approached the amount of principal amounts claimed as due on Promissory Notes 2 and 3 by Welldog to ProX, together with some further interest claimed as due on all three Promissory Notes at that time: see ts 18 of 3 November 2016.
The preface to order 4 of the orders and the recorded mutual undertakings of 3 November 2016 needs also to be remembered. Orders 4 and 5 as regards the then exchanged cross‑undertakings to the court were clearly interim in character, given the prevailing circumstances of urgency and a lack of any sufficient opportunity for ProX to file answering affidavit materials at that time in the interlocutory contest that then was pending.
The preface to order 4 displays a limiting temporal context, with the plaintiffs' as contested interlocutory injunction application being otherwise adjourned to be heard on Tuesday, 13 December 2016.
On 13 December 2016 I heard the plaintiffs' still contested application seeking interlocutory injunctive relief until trial, that day. At the end, I dismissed the plaintiffs' application that day. At that hearing a fresh undertaking was offered by ProX - not to issue an 'acceleration notice' or appoint a receiver in respect of any alleged defaults occurring prior to 13 December 2016 under its relevant Transaction Documents (which included the GSA). The new (unilateral) undertaking of ProX then had removed relevant threats at that time. It is not correct, however, to suggest that this new ProX undertaking was given in lieu of, or as a replacement for, the former interim mutual undertaking that ProX gave by order 4(b) of its 3 November 2016 undertaking.
The end position at 13 December 2016 was that, absent any live threat from ProX to enforce its securities based on Welldog's conduct up to that day, the substantive interlocutory injunction to a trial as sought by the plaintiffs' chamber summons of 27 October 2016, was dismissed.
Had parties turned their minds to the precise issue on 13 December 2016, then order 5 of the 3 November 2016 orders (and conditioned by the preface to order 4) might then have been explicitly addressed and expressly discharged, as regards SPB. That omission, however, in the end, is not the point. Order 5 had lapsed once order 4 itself lapsed, at 13 December 2016.
The end position at a dismissal of the plaintiffs' first contested application for interlocutory injunctive relief on 13 December 2016, was essentially that there was no live threat from ProX to injunct between that time and to a trial. That arose from ProX's fresh unilateral undertaking made and duly received by the court that day - which effectively 'wiped the slate clean' as regards Welldog's prior defaults. At that time the fresh undertaking from ProX removed any live threat of ProX having recourse to its securities and Transaction Documents based past possible default events to then.
However, the position at 13 December 2016 remained clear that any future defaults by Welldog in respect of loan repayment obligations would provide a fresh basis for the taking of enforcement action by ProX. However, there was no live threat of such a step being taken by ProX at 13 December 2016.
Consequently, the undertaking given by the plaintiffs under order 4(a) of the mutual cross‑undertaking as accepted on 3 November 2016, were at an end at 13 December 2016.
I repeat that by its terms order 4(a) explicitly empowered only Welldog of the three (then) plaintiffs to reach a contrary agreement with ProX about a use of those funds in trust for another purpose. That authority position is also inconsistent with a submission by ProX that Welldog had lost or had surrendered an entitlement or interest over those funds as from 3 November 2016. It had not.
The SPB funds were not paid into a joint solicitors' trust account, as seen in some other case authority scenarios. The funds were unilaterally held in the trust account of SPB and under the name of Welldog. That may be contrasted to the facts of the South Australian Full Court decision of Duncan, where it was concluded that the funds paid into court representing amounts of interest claimed as due by NAB had been paid as interest absolutely, and not as an amount equivalent to disputed interest due to NAB.
Whilst, by analogy to Duncan, it may be accepted here that ProX at 3 November 2016 had acquired an equitable charge over the US$1,833,333 as held in the SPB trust account, that position changed. Things moved on and altered at 13 December 2016.
But Welldog and ProX as between themselves, perhaps as a matter of convenience - had left the funds lying in the SPB account. Indeed, on 13 January 2017, those funds were augmented by a further sum of AUD$119,854.30 then transferred into that account by Welldog (Mr Graeme Slattery's affidavit sworn 3 August 2018, par 4(b)).
But as far as the court was concerned, post 13 December 2016, nothing would have prevented Welldog from directing SPB to transfer or redirect those funds to wherever Welldog may have then instructed as regards its funds. Order 5 was then stale. It might have been formally discharged, if any application had been made to expressly clarify that order 5 position.
Matters effectively then lay dormant in the Second Action until 28 February 2017. That day the three plaintiffs filed parts A and B of a long awaited statement of claim (SOC part A and SOC part B, respectively) in the Second Action.
At that time, the Second Action came to be discontinued against the sixth to fifteenth defendants (see SOC part A, page 2, note 4).
On 3 March 2017, the three plaintiffs filed another chamber summons, once again seeking interlocutory injunctive relief restraining ProX (court document 85).
The application again came on for an urgent hearing before me that day. This was under circumstances where ProX had recently given notice to Welldog that in consequence of an alleged insolvency event after 13 December 2016, that the principal amount (ie, US$2 million) which was the subject of its Promissory Note 1 (which otherwise fell due for repayment on 14 July 2017), was claimed by ProX as now due and payable. ProX was threatening to have recourse to its GSA security if that accelerated amount was not immediately paid to it.
In effect, therefore, ProX was threatening at 3 March 2017 to appoint receivers and managers under the GSA security, held under its Transaction Documents.
But on 3 March 2017, the plaintiffs' further application for interlocutory injunctive relief against ProX extending to trial was essentially rejected, on a basis that the security for the extra amount of US$2 million, the subject of Promissory Note 1, was not on this occasion offered by Welldog. That deficiency in the end proved fatal to that further application for an interlocutory injunction extending to trial.
I did then also grant a short 14‑day period of restraint until 17 March 2017, effectively as a stay, so as to allow Welldog either to raise that extra US$2 million amount, so as to provide Inglis security or, alternatively, to pursue an appeal against my refusal of the more substantive interlocutory injunctive relief it had sought.
Consequently, I only granted a temporary injunction restraining ProX from taking any steps to enforce rights under its security documents until 4.00 pm on 17 March 2017. I said that if Welldog gave security for the amounts falling due under Note 1 (ie, in effect, US$2 million) then injunctive relief would be granted extending until trial or further order.
Welldog duly pursued an appeal against that decision, urgently heard by the Court of Appeal on Friday, 17 March 2017 - with the court delivering its decision dismissing Welldog's appeal on Monday, 20 March 2017 (see Welldog Pty Ltd v ProX Pty Ltd [2017] WASCA 62 [19] - [21]).
On 20 March 2017 not only did the Court of Appeal dismiss Welldog's appeal, two important further events unfolded. First, Welldog by its directors resolved to voluntarily appoint administrators that day. Second, on that same day ProX appointed receivers and managers to Welldog under its Transaction Documents securities (specifically under the GSA).
Several weeks later, on 5 May 2017, Welldog's creditors resolved it should enter liquidation.

I observe that neither within my orders of 3 March 2017, nor in anything ordered by the Court of Appeal had expressly addressed the SPB funds in trust, the subject of the order 4(a) undertaking of 3 November 2016. It is apparent, however, that at the time the second interlocutory injunction application was heard by me on 3 March 2017, that counsel for both Welldog and ProX had assumed (erroneously) that those SPB funds were either monies paid into court, or that the 3 November 2016 orders still secured those funds effectively to the advantage of ProX as Inglis security. That position, be it consensually reached as between those parties, or mistakenly assumed by reference to the outcome of 13 December 2016, was of no consequence, as regards the court. I render that observation specifically, in light of the terms of s 8(1)(c) of the PPSA and its phrase 'created, arises or is provided for by operation of the general law'.
As now seen in Dura, the Victorian Court of Appeal had considered s 8(1)(c) as being applicable to negate an alleged existence of a 'security interest' in the hands of the party who was, in that context of a pending appeal against an adverse court decision, the beneficiary of funds held in a joint solicitors' trust account paid to abide the result of the appeal. Consequently, in Dura, s 267(2) of the PPSA was assessed not to apply - since the respondent's interest in the fund was not an 'interest … provided for by a transaction'.
But the facts of the Present Application present as almost the opposite of the Dura facts, as regards the SPB held funds post 13 December 2016. The interest of ProX in those funds post 13 December 2016, as security for the benefit of ProX, if at all, was the result of a consensual transaction between ProX and Welldog. This was not something attributable to the processes of a court under the operation of the general law - for the purposes of s 8(1)(c) of the PPSA.
As seen, after 20 March 2017 the three plaintiffs' Second Action effectively meandered, without much real progress. The eventual liquidation of Welldog, of course, carried stay consequences under s 500(1) of the Corporations Act.

Events after 20 March 2017

On 17 April 2018 the claim of the third plaintiff ('The Blue Sky Group') in the Second Act, by consent, was dismissed.
On 31 July 2018, I issued further consent orders to the effect Welldog's action as plaintiff in the Second Action was dismissed with no order as to costs. At the time, I issued programming orders concerning the evidence to be filed in relation to the SPB trust funds still held by SPB, as between the rival claims to that money by GSTC and ProX.
I also issued consent orders that day in respect of Welldog's liquidators filing and serving any affidavit evidence in relation to the release of those funds and for the parties generally, including the liquidators, to file and serve written submissions as regards the balance of those funds.
On 20 September 2018, pursuant to RSC O 23 r 2(1), GSTC then wholly discontinued its action against all the defendants in the action, save only for ProX.
Consequently, at a special appointment hearing convened before me on 27 September 2018, the only parties left in the Second Action were then GSTC as residual plaintiff and ProX as residual defendant.
Those two parties both claim the SPB funds. SPB said it makes no claim whatsoever to the funds. It agrees to be bound by whatever decision the court reaches concerning the fate of SPB funds.
At that September 2018 hearing, Welldog, through its liquidators' counsel, was heard (by leave) concerning the Welldog liquidators' foreshadowed arguments both opposing the claims of GSTC and ProX also that the funds be preserved for them, pending further liquidators' enquiries being undertaken.
There has been no amendment by GSTC to its statement of claim in the Second Action - particularly SOC part A, filed as long ago as 28 February 2017. Obviously, it needs updating.
But under par 228 of that statement of claim pleading, all plaintiffs had then sought, by reason of alleged misleading and deceptive conduct (under pars 217 - 220 of the pleading) relief:
(a)limiting ProX to recourse solely to 'collateral' for the payment of any notes; and
(b)setting aside the amendment agreement and the GSA and declaring that each was ineffective as and from the earlier of the date each agreement bears and the execution thereof (see par 228(a)(2)).
ProX has pointed out that GSTC was not a party to the Transaction Documents. The only relevant party was Welldog. But now, of course, Welldog is no longer a party to the Second Action ‑ which was discontinued on 31 July 2018, at the behest of its liquidators.
Hence, ProX now contends with some force that it must be accepted that there can no longer be any reasonable arguable basis in this action for any setting aside orders as regards the Transaction Documents to which GSTC was not a party.
ProX points out that Dr Pope, the Chief Executive Officer of GSTC, recently swore on that company's behalf, in the United States District Court for the District of Wyoming in civil action 18-CV-95-F, that:
[T]he only claims remaining for GSTC [after the discontinuance of Welldog's action in the Supreme Court of Western Australia] are the conversion of corporate opportunity claims against Simon Ashton which arise out of his directorship of GSTC.
(See Ms Mallika De Toni's affidavit affirmed 21 September 2018, par 102 - attachment MDT‑6.)
From that evidence of Dr Pope, GSTC's residual interest in the present Western Australia action might be distilled to it only seeking to recover the SPB funds for itself ‑ on a basis of the various arguments now heard (and rejected) on the Present Application. From what Dr Pope has sworn, GSTC is no longer, it would seem, actively at least, seeking, even if it could, to set aside the Transaction Documents (ie, including the GSA) absent Welldog's involvement. The absence of Welldog as a plaintiff or a party to the Second Action now seems to undermine this action's capability of affording any viable forum in which the validity of the GSA could potentially be determined to be invalidated.
This is significant. As will be recalled, I have rejected all arguments as regards ProX's entitlement to the SPB funds after 13 December 2016, arising by the force of any court order, in effect, as an equitable charge holder of Inglis security as from 3 November 2016. However, ProX also holds what is its (alternative) primary claim to the GSA attaching the SPB funds as Welldog's after acquired property and on which, unless the GSA is somehow invalidated, ProX must succeed.
The primary claim of ProX is simply that its GSA is a security interest granted to it on 1 August 2016 and that it extends over all of Welldog's current and after acquired assets.
Relevant to that primary claim of ProX, one of Welldog's relevant after acquired assets is the SPB funds as received and held under the name of Welldog, on 27 October 2016. At that time or, at the latest, at 13 December 2016, Welldog was fully entitled to those funds. Consequently, the funds would be 'caught' by the GSA - as after acquired assets of Welldog.
It is factually established on the present application that ProX's PPSA security interest under cl 2.1(a) of the GSA was perfected by a registration of the GSA at 2 August 2016 (see Ms Mallika De Toni's affidavit affirmed 31 August 2018, pages 5 - 6 - attachment MDT‑1).
Hence, ProX's security interest over the SPB funds as Welldog's after acquired property, was perfected by that PPSA registration. That event occurred well prior to Welldog entering into voluntary administration, on 20 March 2017.
The position on ProX's primary arguments based on the GSA as a registered PPSA security would appear to be obvious and is accepted, even under the submissions of Welldog's liquidators: see Intervenor's submission 14 September 2018, par 58. However, Welldog's liquidators still also suggest that the GSA itself may not be enforceable as against them - in which case the SPB funds should then be returned to Welldog - for the benefit of creditors.
I turn to that concluding controversy.

Concluding relief – ProX v Welldog (in liq)

As I have now explained, I am of the view that GSTC holds no present entitlement to the funds held in the SPB account. I conclude that although GSTC had facilitated from the USA a payment of those funds into SPB's account on Welldog's behalf, that from the time they were paid into SPB's account in Australia, that GSTC held no further legal or equitable interest in those funds.
That conclusion, of course, says nothing at all about GSTC's personal exposure or obligations to Shell Ventures, in the USA, by it causing the substantial component of the raised money to be received by GSTC's 100% Australian subsidiary, Welldog, via the SPB Australian trust account - for the purposes of a deployment in the present litigation.
But any 'up the line' arrangements made by GSTC are essentially irrelevant as regards the end positions of ProX and Welldog in Australia at the behest of its Australian liquidators and ProX's receivers and managers.
The position of ProX is that it has essentially succeeded on its primary (alternate) argument concerning the SPB funds, by reason of them being assessed as after acquired personal property and thus, under the reach of the GSA and with the GSA security interest of ProX being validly attached and perfected for the purposes of the PPSA. Hence, ProX establishes against GSTC and Welldog its secured right and entitlement over the SPB funds, via the GSA.
However, the position of Welldog through its liquidators is that they 'might' still seek to impugn the validity of the GSA for various reasons, including that the GSA was obtained as the fruits of an uncommercial transaction contrary to s 588FB of the Corporations Act, or that the GSA was granted by the directors of Welldog in breach of their duties to creditors, with it contended that Welldog was essentially insolvent as from 14 July 2016. The consequence, it is put, is that there may be a Barnes v Addy (1874) LR 9 Ch App 244 type 'knowing receipt' of trust property claim to be advanced as against ProX, applying the principles seen used in Westpac Banking Corporation v Bell Group (in liquidation) [No 3] [2012] WASCA 157; (2012) 44 WAR 1.
Consequently, it is put at par 80 of the written submissions by Welldog (by its liquidators) that:
If the Liquidators are successful in pursuing either of the Invalidity Claims (ie, the uncommercial transaction claim or the knowing receipt claim) and the security is invalidated then any payment out of the Trust Funds to ProX will likely be subject to a claim. If those Trust Funds have been dissipated by the time of any recovery proceedings then the unsecured creditors of Welldog will be prejudiced. In these circumstances the interests of justice require that the Trust Funds be transferred to a trust account held jointly by the liquidators' solicitors and ProX's solicitors pending determination of the Invalidity claims or, alternatively, that they remain in the trust account with Welldog being given notice of and an opportunity to be heard on any application to vary the orders in relation to the Trust Funds.
Rejecting that proposal, ProX contends, as I mentioned, that Welldog is no longer a party to the present action (Second Action) following the liquidators' plaintiff discontinuance consent orders of 31 July 2018 concerning Welldog. Hence, the likelihood of the remaining plaintiff, ie, GSTC, pursuing by itself final relief in this action whereby the GSA might be invalidated or set aside for misleading and deceptive conduct, is now said by ProX to be remote. I would accept that to be the case as things stand in the Second Action.
As regards what the liquidators of Welldog have submitted on its behalf concerning them possibly taking future invalidating proceedings (not yet commenced and with there being no certainty they would ever be commenced), ProX says that what is in concept, being sought by the liquidators, in effect, is a freezing order against it, from the Welldog liquidators - as regards the SPB funds.
On this hearing, little, if anything, has been put forward to me to suggest that if funds in the SPB account were ordered to be paid out to ProX, that the liquidators of Welldog then would stand at some future risk of not being able to pursue any of their foreshadowed actions against ProX, or against its directors - on a basis of a future favourable judgment being rendered inutile due to asset dissipation, or any other valid reason.
Hence, in the end, I am of the view that ProX has essentially succeeded on its primary claim argument based on its rights under the GSA. Nevertheless, the liquidators of Welldog should be given a relatively brief opportunity to review my reasons from a perspective of them either commencing GSA invalidity proceedings which they have foreshadowed as a possibility or, alternatively, taking some other affirmative step within these Second Action proceedings (such as by way of Welldog ((in liquidation)) now becoming a defendant and filing a counterclaim seeking that invalidating relief against the GSA). If no such steps are begun in the short term, then final orders should be made granting to ProX the relief it seeks on its primary GSA based claim to the SPB funds.
At the commencement of arguments between the parties on 27 September 2018 all parties had agreed then that the Second Action proceedings should be determined on a final basis - notwithstanding voluminous underlying affidavit materials relied upon on all sides and the fact that no deponent was being sought to be cross-examined on any affidavit. Consequently, I propose to issue orders favouring ProX in such terms once the parties have had a brief period, say, until 30 January 2019, to consider these reasons before final orders are made. I expect the parties by their legal representatives and the representatives of Welldog's liquidators to consider these reasons and to confer upon appropriate orders giving effect to them in that period.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate
17 JANUARY 2019

Schedule Affidavit and written submission materials as were read and relied upon
List of affidavits read for GSTC (second plaintiff)
Court Document Number	Description
20	First affidavit of Dr John Michael Pope sworn 26 October 2016
25	Second affidavit of Dr John Michael Pope sworn 7 December 2016
100	Third affidavit of Dr John Michel Pope sworn 2 March 2017
111	Second affidavit of Alexandra Zhu sworn 6 June 2017
123	Fourth affidavit of Dr John Michael Pope sworn 15 June 2017
125	Fifth affidavit of Dr John Michael Pope sworn 13 July 2017
135	First affidavit of Gregory Leo Quinn sworn 12 July 2017
200	Sixth affidavit of Dr John Michael Pope sworn 17 September 2018
207	Third affidavit of Alexandra Zhu sworn 26 September 2018
List of affidavits read for ProX (third defendant)
Court Document Number	Description
96	First affidavit of Trenton Thornock sworn 2 March 2017
109	First affidavit of Alexandra Zhu sworn 2 June 2017
115	Third affidavit of Simon John sworn 16 June 2017
116	First affidavit of Bryan Kevin Hughes sworn 16 June 2017
117	First affidavit of Geoffrey Wayne Stevens sworn 16 June 2017
118	First affidavit of Jonathan Rex Shepherd sworn 16 June 2017
187	Second affidavit of Bryan Kevin Hughes sworn 3 August 2018
188	Third affidavit of Graeme Michael Slattery sworn 3 August 2018
189	Fourth affidavit of Simon John Ashton affirmed 3 August 2018
194	First affidavit of Mallika De Toni affirmed 31 August 2018
198	First affidavit of Lucas Si De Tan sworn 14 September 2018
203	Second affidavit of Mallika De Toni affirmed 21 September 2018
List of affidavits read for Welldog by its liquidators (intervenor)
Court Document Number	Description
191	First affidavit of Martin Bruce Jones sworn 17 August 2018
198	First affidavit of Lucas Si De Tan sworn 14 September 2018
208	Second supplementary affidavit of Lucas Si De Tan sworn 26 September 2018
211	Third supplementary affidavit of Lucas Si De Tan sworn 28 September 2018
List of written submissions by GSTC (second plaintiff)
Court Document Number	Description
110	Outline of submissions in support of second plaintiff's application for orders in terms of second plaintiff's minute dated 17 May 2017 (filed 2 June 2017)
124	Submissions in reply to third defendant's submissions (filed 17 July 2017)
195	Further submissions in support of second plaintiff's application dated 17 May 2017 (filed 31 August 2018)
204	Submissions in response to the submissions of the liquidators of Welldog dated 14 September 2018 (filed 21 September 2018)
216	Responsive submissions after special appointment on 27 September 2018 (filed 5 October 2018)
List of written submissions by ProX (third defendant)
Court Document Number	Description
138	Submissions in opposition to second plaintiff's minute of proposed orders (filed 16 June 2017)
192	Submissions pursuant to orders made by the Honourable Justice Kenneth Martin on 30 July 2018 (filed 31 August 2018)
202	Responsive submissions pursuant to orders made by the Honourable Justice Kenneth Martin on 30 July 2018 (filed 21 September 2018)
213	Further submissions pursuant to orders made by the Honourable Justice Kenneth Martin on 27 September 2018 (filed 3 October 2018)
7	ProX also relied on the Outline of submissions re: the plaintiff's chamber summons for application for interlocutory injunction pursuant to RSC O 52 r 1 dated 27 August 2016 (filed 27 October 2016)
List of written submissions by Welldog by its liquidators (intervenor)
Court Document Number	Description
199	Welldog by its liquidators' submissions pursuant to orders made by the Honourable Justice Kenneth Martin on 30 July 2018 (filed 14 September 2018)
214	Welldog by its liquidators' submissions following special appointment on 27 September 2018 (filed 5 October 2018)