Goldus Pty Ltd (Subject to a Deed of Company Arrangement) v Cummins (No 4)
[2021] FCA 1095
•10 September 2021
FEDERAL COURT OF AUSTRALIA
Goldus Pty Ltd (Subject to a Deed of Company Arrangement) v Cummins (No 4) [2021] FCA 1095
File number: NSD 461 of 2020 Judgment of: COLVIN J Date of judgment: 10 September 2021 Catchwords: CORPORATIONS - application for declarations that mining tenements held by plaintiff not subject of security interest in favour of fourth defendant - application for declarations that fourth defendant not taken valid control or possession of tenements - where fourth defendant and plaintiff entered into joint venture agreement to carry out exploration and mining for alluvial minerals on mining tenements - where plaintiff and fourth defendant entered into deed of cross security - whether mining tenements property of the joint venture - whether defaults by plaintiff under the joint venture agreement - whether party in default under joint venture agreement able to take action against another defaulting party - whether fourth defendant entitled to enforce security under deed of cross security on basis of default by plaintiff - whether controllers and receivers validly appointed
CORPORATIONS - cross-claim for declarations that appointments of controller, receivers and managers valid and fourth defendant entitled to mining tenements or interest in them
EQUITY - application by cross-claimants for transfer of shares in company - where cross-claimants claim that default by company in failing to pay funds created 'locked box' in respect of company's assets - where cross-defendants used funds to acquire shares in company instead of paying into bank account in accordance with security deed requirements - whether control event occurred and triggered locked box provisions - whether cross-claimants entitled to trace proprietary interest into acquired shares - consideration of tracing principles
Legislation: Corporations Act 2001 (Cth) ss 418A, 444D, 444G, 444GA
Mining Act 1971 (SA) s 83
Personal Property Securities Act 2009 (Cth)
Cases cited: Action Scaffolding & Rigging Pty Limited (in liq) v Citadel Financial Corporation Pty Ltd, in the matter of Action Scaffolding & Rigging Pty Limited (in liq) [2019] FCA 327
Alesco Corporation Limited v Te Maari [2015] NSWSC 469
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101
Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99
Black v S Freedman & Co (1910) 12 CLR 105
Boscawen v Bajwa [1995] 4 All ER 769; [1996] 1 WLR 328
Brady v Stapleton (1952) 88 CLR 322
Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) [2020] NSWCA 117; (2020) 102 NSWLR 537
City of Swan v Lehman Brothers Australia Ltd [2009] FCAFC 130; (2009) FCR 243
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640
Evans v European Bank Ltd [2004] NSWCA 82; (2004) 61 NSWLR 75
Finesky Holdings Pty Ltd v Minister for Transport for Western Australia [2002] WASCA 206; (2002) 26 WAR 368
Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Goldus Pty Ltd v Australian Mining Pty Ltd [2015] SASC 32
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Receivers and Managers Appointed) [2018] WASCA 163; (2018) 53 WAR 325
Heperu Pty Ltd v Belle [2009] NSWCA 252; (2009) 76 NSWLR 230
Hewett v Court (1983) 149 CLR 638
Kadam v MiiResorts Group 1 Pty Ltd (No 5) [2018] FCA 1086
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636
Parker v The Queen (1997) 186 CLR 494
Re Antqip Hire Pty Ltd (subject to deed of company arrangement) (in liq) [2020] NSWSC 487
Re Diplock [1948] Ch 465
Re Global Finance Group Pty Ltd (in liq) [2002] WASC 63; (2002) 26 WAR 385
Re Hallett's Estate (1879) 13 Ch D 696
Re Oatway; Hertslet v Oatway [1903] 2 Ch 356
Reed Constructions Australia Ltd v DM Fabrications Pty Ltd [2007] NSWSC 1190
RnD Funding Pty Limited v Goldus Pty Limited (Subject to a Deed of Company Arrangement) [2021] FCA 1096
Selvaratnam v St George - A Division of Westpac Banking Corporation (No 2) [2021] FCA 486
Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536
Sze Tu v Lowe [2014] NSWCA 462; (2014) 89 NSWLR 317
Toksoz v Westpac Banking Corporation [2012] NSWCA 199
Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 346 Date of hearing: 27-29 January 2021 & 19 April 2021 Counsel for the Plaintiff: Mr S Carragher (27-29 January 2021)
The Plaintiff did not appear (19 April 2021)Solicitor for the Plaintiff: WRP Legal & Advisory (27-29 January 2021) Counsel for the First and Second Defendants: The First and Second Defendants filed submitting notices save as to costs Counsel for the Third, Fourth and Fifth Defendants: Mr DL Cook SC Solicitor for the Third, Fourth and Fifth Defendants: MathasLaw Counsel for the Cross‑Claimants: Mr DL Cook SC Solicitor for the Cross‑Claimants: MathasLaw Counsel for the Cross‑Defendants: The Cross-Defendants did not appear ORDERS
NSD 461 of 2020 BETWEEN: GOLDUS PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT (ACN 076 662 149)
Plaintiff
AND: ANDREW JOHN CUMMINS
First Defendant
PETER PAUL KREJCI
Second Defendant
JOE NAKAT ALSO KNOWN AS JOSEPH NAKAT
Third Defendant
AUSTRALIAN MINING PTY LTD (ACN 000 184 985)
Fourth DefendantRND FUNDING PTY LIMITED (ACN 612 200 183)
Fifth DefendantAND BETWEEN: RND FUNDING PTY LIMITED (ACN 612 200 183)
First Cross-Claimant
AUSTRALIAN MINING PTY LTD (ACN 000 184 985)
Second Cross-ClaimantAND: GOLDUS PTY LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)
First Cross-Defendant
RONCANE PTY LIMITED
Second Cross-DefendantSYNERGY METALS GROUP PTY LIMITED
Third Cross-Defendant
ORDER MADE BY:
COLVIN J
DATE OF ORDER:
10 SEPTEMBER 2021
THE COURT DECLARES THAT:
1.The Deed of Cross Security entered into between the plaintiff and the fourth defendant does not create a security interest in or charge over the mining tenements held by Goldus described in the Schedule to these orders (Tenements).
2.The purported appointment of the first and second defendants as receivers and managers of the Tenements has no force or effect.
3.The purported exercise by the fourth defendant of power to take possession of and control over the Tenements is of no force and effect.
4.The purported appointment of the third defendant as a controller of the Tenements has no force or effect.
THE COURT ORDERS THAT:
5.There be liberty to the plaintiff to apply within 30 days of the date of these orders for such further relief which the plaintiff claims to be appropriate in order to give effect to these reasons by filing a minute of those proposed orders.
6.Within 30 days of the date of these orders, the fourth and fifth defendants do bring in a minute of any orders that they seeks on the cross-claim to give effect to these reasons.
7.There be liberty to each of the parties to apply within 30 days of the date of these orders for any orders as to the costs of these proceedings by filing a minute of the proposed orders as to costs together with an outline of submissions of no more than 5 pages and any affidavit in support of those proposed costs orders.
8.If any minute of orders is filed then the matter be listed for a case management hearing.
Note:
Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Schedule
Mining Tenements means Mining Leases: ML5337, ML5471, ML5485, ML5486, ML5546, ML5550, ML5759, ML5886, and MLP Miscellaneous Purpose Lease: MPL28 and Exploration Licence: EL5896 issued by the Department for Energy and Mining of South Australia.
REASONS FOR JUDGMENT
COLVIN J:
RnD Funding Pty Limited (RnD Funding) (an entity controlled by Mr Joseph Nakat) has been taking steps to seek to recover $1,670,000 plus interest, fees and charges advanced to Australian Tailings Group Pty Ltd (ATG) (an entity controlled by Mr John Hillam). At the time of the advances, Australian Mining Pty Ltd (Australian Mining) (another entity then controlled by Mr Hillam) agreed to be a joint obligor with ATG under the terms of a General Security Deed provided as security for the facility agreements between RnD Funding and ATG. The agreement of Australian Mining as joint obligor was recorded in instruments described as deeds of accession. Issues have arisen as to the nature and extent of the rights and interests of Australian Mining that may be relied upon by RnD Funding in seeking to recover the advances made to ATG by pursuing its security rights under the General Security Deed against Australian Mining as a joint obligor.
Australian Mining is in a mining joint venture with Goldus Pty Ltd (Goldus) (an entity that came to be controlled by Mr Hillam in 2019). The venture is over land the subject of certain mining tenements in the vicinity of Teetulpa in the Flinders Ranges in South Australia. The eight mining tenements over the land the subject of the venture are held by Goldus. There are two other mining tenements owned by Goldus.
RnD Funding claims to have appointed a controller and receivers over the assets of Australian Mining. For various reasons, those assets are said to include the eight tenements registered in the name of Goldus or at least an interest in those tenements. The receivers of Australian Mining claim to have appointed receivers over the assets of Goldus.
There is a separate and alternative claim by Australian Mining to the effect that it is the sole venturer in the mining venture in Teetulpa because Goldus relinquished its participating interest under the terms of a deed of company arrangement. The claim by Australian Mining is advanced at the instigation of individuals claiming to have been appointed as receivers and managers of Australian Mining.
RnD Funding also claims that funds that were received by Australian Mining and were the subject of RnD Funding's security were paid through Prop Fest Pty Ltd (Prop Fest) (another company controlled by Mr Hillam) to Roncane Pty Ltd (Roncane) (yet another entity controlled by Mr Hillam). It says the funds were used by Roncane to purchase all of the shares in Goldus. RnD Funding says that it can trace those funds into the shares in Goldus which are held on constructive trust or are subject to a security interest in favour of RnD Funding.
RnD Funding also has a separate claim to certain mining equipment located on the land the subject of the tenements held by Goldus (Equipment) which it says is the subject of a security interest in favour of RnD Funding. The Equipment is held by either Goldus or Synergy Metals Group Pty Ltd (Synergy Metals) (another entity controlled by Mr Hillam).
Therefore, the subject matter of the present disputes between the parties is the tenements, the mining venture in Teetulpa, the shares in Goldus and the Equipment. Goldus disputes the claims to the tenements, the interest in the mining venture and the shares. Goldus and Synergy Metals dispute the claims to the Equipment.
Goldus is the plaintiff in the present proceedings. It claims relief under s 418A of the Corporations Act 2001 (Cth) to the effect that the tenements are not the subject of a security interest in favour of Australian Mining and that Australian Mining has not taken valid control or possession of the tenements. It brings those proceedings against those individuals said to have been appointed as receivers and managers of Australian Mining, Mr Nakat (who claims to have been appointed as a controller of the tenements and other property), Australian Mining and RnD Funding as defendants. It should be noted that the declaratory relief sought does not extend to a challenge to the appointments as controller and receivers generally. Rather, the relief sought is confined to those appointments to the extent that they purport to relate to the tenements. Nevertheless, in certain respects, the contentions advanced by Goldus challenged the appointments as a whole.
RnD Funding and Australian Mining cross-claim for relief to the effect that the appointments of the controller and the receivers and managers are valid and that Australian Mining is entitled to the tenements or an interest in them. They also claim orders requiring Roncane to transfer the shares in Goldus to RnD Funding. Finally, they claim orders that the Equipment is subject to a security interest in favour of RnD Funding and seek orders for delivery up to RnD Funding of the Equipment.
Separate hearing of the claims concerning the tenements and the shares in Goldus
All claims were listed for hearing in January 2021. When the hearing commenced it emerged that not all issues could be determined in the time available. With the encouragement of the parties, orders were made to the effect that the hearing would proceed on all claims except the issues in relation to the Equipment. The cross-claim as to the Equipment was to be heard at a later time. It was hoped that the claims other than the Equipment claims might be concluded within the allocated dates. In the result, the case for Goldus was opened, there was a short form opening for the defendants/cross-claimants, the evidence was concluded and, subject to certain limited matters, closing submissions were received for the defendants/cross-claimants.
The hearing was then adjourned until April 2021 on the basis that certain matters relating to a tracing claim would be addressed by further submissions and the hearing that had been commenced in January would then be completed and would be followed by the hearing of the cross‑claims to the Equipment.
In the course of the January hearing dates, an amendment was allowed to the pleading as to the claim by Goldus that added paragraph 45(aa) and particulars to that claim. The amendment was made provisionally, subject to a final ruling after the conclusion of the hearing as to whether the amendment would be allowed having regard to any prejudice demonstrated by the defendants during the course of the hearing.
Upon the resumed hearing, Goldus sought an adjournment which was refused. Counsel appearing was only briefed to seek an adjournment. When the adjournment was refused, counsel withdrew and the matter proceeded without representation for Goldus or for the additional cross-defendants. There was no further evidence and only brief further submissions for the defendants and cross-claimants. Therefore, no closing submissions were advanced for Goldus.
The hearing of the claims as to the Equipment was then conducted. It was conducted on the basis, acknowledged in oral submissions, that the evidence in the first part of the proceeding was evidence in the cross-claim as to the Equipment although no formal order was made to that effect. Submissions and further evidence were received for the cross-claimants. No further evidence was received for the defendants to the cross-claim concerning the equipment. The cross-claim as to the Equipment is the subject of separate reasons to be delivered at the same time as these reasons: RnD Funding Pty Limited v Goldus Pty Limited (Subject to a Deed of Company Arrangement) [2021] FCA 1096.
These reasons concern (a) the claim by Goldus to relief under s 418A of the Corporations Act concerning the alleged security interests in the tenements; (b) those aspects of the cross-claim that raise related issues and seek alternative relief as to the claimed security interests in the tenements; and (c) the claim to the shares in Goldus based upon tracing principles in equity.
The affirmative case for Goldus on its claim was opened and it is only the issues as opened that need to be addressed. However, the case for Goldus was opened on the basis that the factual issues raised by the cross-claim were not addressed and that the matters alleged by the cross-claimants to support their cross-claim were not conceded (see para 7 of the written opening submissions for Goldus). Therefore, to the extent necessary to support the cross-claims, those matters must be established by Australian Mining and RnD Funding as cross-claimants. Otherwise, the issues to be determined are those that were addressed orally. For that reason I do not deal with the full extent of the many alternative formulations expressed in the pleadings. In particular, I do not deal with affirmative assertions by Goldus in its cross-claim that were not the subject of written or oral submissions by way of opening. It was for Goldus to open all the issues. There was no claim that it was entitled to advance a case in reply.
I also confine my consideration of the cross-claim to those aspects that were maintained in submissions.
The Teetulpa Venture and the Tenements
In 2007, Goldus Pty Ltd formed an unincorporated joint venture with another entity to carry out exploration and mining for gold, silver and other alluvial minerals on eight mining tenements (Tenements). In 2012, Australian Mining acquired the participating interest of the other venturer and part of the participating interest of Goldus to become the holder of a 51% participating interest. Goldus retained a 49% participating interest.
The joint venture was described by the parties as the Teetulpa Alluvial Joint Venture (Teetulpa Venture). Goldus and Australian Mining recorded the ongoing terms of the Teetulpa Venture in a joint venture agreement (JVA) that amended and restated the agreed terms for the venture. In the JVA, the parties described the purpose and scope of the venture as being to explore for and mine alluvial minerals on the Tenements to a depth of no more than 15 metres (Alluvial Zone).
At all material times Goldus was, and is, the registered holder of the Tenements. It is also the holder of a miscellaneous purpose lease (being MPL28) and an exploration licence (being EL5896) over land in the same area. However, those tenements are not subject to the terms of the Teetulpa Venture. For convenience, I will refer to all the tenements as the Ten Tenements and reserve the use of the term Tenements to refer to the eight tenements the subject of the JVA.
Chronology of events
Broadly speaking, the overall chronology of events is not contentious. In addition to the findings I have made concerning the Teetulpa Venture, I make the following findings as to those events, principally based upon the admissions in the pleadings:
(1)In 2012, Goldus and Australian Mining entered into the JVA for the Teetulpa Venture which was to be confined to mining and exploration on the Alluvial Zone of the Tenements.
(2)At that time, Goldus was the manager of the Teetulpa Venture under the terms of the JVA.
(3)Goldus and Australian Mining also entered into a Deed of Cross Security as required by the terms of the JVA (Deed of Cross Security). The extent of the security conferred by the Deed of Cross Security is contentious and will be considered in due course.
(4)At some time before 13 March 2013, Australian Mining became the manager of the Teetulpa Venture under the terms of the JVA.
(5)In 2014, the sole shareholder in Australian Mining proposed to sell its shareholding to Teetulpa Metals Pty Ltd (Teetulpa Metals) on terms that were to be guaranteed by ATG. Goldus claimed that it had pre-emptive rights and brought an action for breach of contract against Australian Mining. The claim was unsuccessful: Goldus Pty Ltd v Australian Mining Pty Ltd [2015] SASC 32. The transaction proceeded and Teetulpa Metals (a company controlled by Mr Hillam) became the sole shareholder in Australian Mining.
(6)On 19 August 2015, Mr John Hillam became a director of Australian Mining. Since then, the actions of Mr Hillam have loomed large in the affairs of the Teetulpa Venture.
(7)In October 2017, administrators were appointed to Goldus and there were extensive negotiations as between the administrators and Mr Hillam as to the terms of a deed of company arrangement for Goldus.
(8)In late December 2017, ATG entered into a facility agreement (First Facility Agreement) with RnD Funding.
(9)At the time of entering into the First Facility Agreement, ATG granted security over all of its assets to RnD Funding for the performance of its obligations under any agreement entered into by ATG with RnD Funding including, without limitation, the First Facility Agreement (General Security Deed).
(10)On 27 December 2017, RnD Funding advanced $320,000 to ATG under the terms of the First Facility Agreement.
(11)On 10 May 2018, RnD Funding and ATG entered into a further facility agreement (Second Facility Agreement) for the purpose of providing funds that were to be used to make payments into a fund to be established under the terms of a proposed deed of company arrangement (DoCA) concerning Goldus and also to undertake exploration and mining.
(12)Also on 10 May 2018, Australian Mining and Teetulpa Metals executed a deed of accession in favour of RnD Funding (Deed of Accession) pursuant to which Australian Mining and Teetulpa Metals each agreed to comply with the provisions of the General Security Deed fully and in the same manner as if it were an obligor as from the date of the General Security Deed.
(13)The following day, on 11 May 2018, Mr John Hillam and various Hillam Entities, including Australian Mining, entered into the DoCA pursuant to which payments were to be made by the Hillam Entities into a fund (Fund) and also control of Goldus was to pass to an entity nominated by Mr Hillam or if that could not occur then the Ten Tenements were to be transferred to Mr Hillam's nominee.
(14)On 25 June 2018, this Court gave leave under s 444GA of the Corporations Act for the administrator to transfer all of the shares in Goldus to Roncane, the nominated entity of Mr Hillam, on the basis of an undertaking by the deed administrator that the shares would not be transferred until the required amounts had been paid into the Fund by the Hillam Entities.
(15)Between 17 April 2018 and 8 October 2018, RnD Funding advanced $1,350,000 under the Second Facility Agreement (noting that some amounts were advanced before the parties entered into the Second Facility Agreement but were nevertheless subject to its terms).
(16)On 8 October 2018 a further deed of accession was executed by Australian Mining and other entities (Further Deed of Accession) pursuant to which Australian Mining agreed to become a party to the General Security Deed as an obligor (as defined in the General Security Deed).
(17)On 15 October 2018, the principal then outstanding under the First Facility Agreement was due for payment by ATG to RnD Funding and no payment was then made or has since been made by ATG of the outstanding principal.
(18)On or about 10 October 2019, all of the shares in Goldus were transferred to Roncane.
(19)Under the terms of the General Facility Deed, ATG was obliged to cause Goldus to enter into a deed of accession but that did not occur.
(20)On 22 October 2019, Mr Nakat signed a notice on behalf of RnD Funding that was issued to Australian Mining stating that RnD Funding was exercising powers under the General Security Deed and assuming control of the property of Australian Mining secured by the General Security Deed.
(21)On 23 October 2019, a notice of appointment of RnD Funding as a controller in respect of Australian Mining with effect from 22 October 2019 was lodged with the Australian Securities and Investments Commission.
(22)On 25 October 2019, Mr Nakat on behalf of Australian Mining (controller appointed) issued a notice to Goldus stating that Goldus was in default under the terms of the JVA and Goldus was required to remedy that default within 30 days (JVA Default Notice).
(23)On 31 October 2019, Goldus gave a written notice to Australian Mining claiming that Australian Mining was in default under the JVA (Goldus Default Notice).
(24)On 25 November 2019, Mr Nakat on behalf of Australian Mining (controller appointed) issued a notice to Goldus stating that an event of default had occurred under the Deed of Cross Security and also stating that Australian Mining 'has given notice to Goldus that Goldus is prohibited from dealing in any tenements held by Goldus and executing any documents' (Cross Security Default Notice).
(25)On 12 March 2020, RnD Funding executed a deed of appointment stating that Mr Cummins and Mr Krejci were appointed as receivers and managers of Australian Mining under the Deed of Accession.
(26)On 12 March 2020, Mr Cummins and Mr Krejci executed a deed of appointment on behalf of Australian Mining which stated that they were appointed as receivers and managers of Goldus.
The competing claims
Broadly speaking, the dispute between the parties concerns the nature and extent of the security (particularly whether it extends to the Ten Tenements) and the validity of the various notices that were given in reliance upon the alleged security interests (particularly whether they effected the valid appointment of the controller and receivers). Part of that dispute concerns whether the defaults occurred as alleged or whether, in any event, Goldus was in default under the JVA in respects that could be relied upon by Australian Mining as a basis for enforcing its security under the Deed of Cross Security. There is also the issue raised by cross‑claim concerning the circumstances of the transfer of the shares in Goldus to Roncane.
The claim by Goldus
Goldus claims declaratory relief to the following effect:
(1)the Deed of Cross Security did not create a security interest in or charge over the Ten Tenements in favour of Australian Mining;
(2)Mr Cummins and Mr Krejci have not been validly appointed as receivers and managers of the Ten Tenements;
(3)Mr Nakat has not been validly appointed as a controller of the Ten Tenements;
(4)RnD Funding has not been validly appointed as a controller of Australian Mining; and
(5)Australian Mining has not validly taken possession or control of the Ten Tenements.
The substance of the claim by Goldus is that it is only Goldus that has an interest in the Ten Tenements and that despite the events which have occurred, including any default by Australian Mining under the JVA or the terms of the DOCA, the interest of Goldus in the Ten Tenements remains unencumbered. The claim by Goldus was characterised in oral opening submissions as a challenge to the appointment of receivers and managers as well as a controller to Goldus. It appears to be principally a challenge to the extent of those appointments on the basis that they do not include the Ten Tenements. The claim to the declaration that RnD Funding had not been appointed as a controller of Australian Mining was abandoned by Goldus in opening.
The claim by Goldus was said to have two main elements. First, a claim based on the proper construction of the key transactional documents. Second, a claim concerning the defaults and notices to the effect that the necessary defaults had not occurred and the notices were not valid.
The approach to be adopted where a party disputes the validity of the appointment of a controller or receiver under s 418A of the Corporations Act is to consider whether the plaintiff has demonstrated doubt and, if that is so, then to consider whether the parties supporting the appointment have demonstrated its validity: see the position adopted in Action Scaffolding & Rigging Pty Limited (in liq) v Citadel Financial Corporation Pty Ltd, in the matter of Action Scaffolding & Rigging Pty Limited (in liq) [2019] FCA 327 at [4]‑[7] (Gleeson J) relied upon by Goldus and not disputed by the defendants.
The defence and cross‑claims
The defendants to the claim by Goldus are Mr Cummins, Mr Krejci, Mr Nakat, Australian Mining and RnD Funding. In addition, as has been mentioned, there is a cross‑claim. It was advanced by RnD Funding and Australian Mining. They sought alternative declaratory relief concerning the validity of the appointment of the receivers and managers to Australian Mining and as to the consequences that flowed from the exercise of alleged security rights in the Ten Tenements. Australian Mining also claimed that there should be orders to give effect to its claim that the rights and interest of Goldus in the Joint Venture had passed to Australian Mining under the terms of the DoCA.
In the alternative to the claims to the Ten Tenements, RnD Funding advanced a tracing based claim to the shares in Goldus. It alleged that upon default by ATG under the facility agreements with RnD Funding, ATG was required to pay all monies that it received into a specific bank account for the benefit of RnD Funding (established in accordance with the requirements of the General Security Deed). It was claimed that, unknown to RnD Funding, ATG had received substantial funds by way of GST refunds and instead of those monies being dealt with in accordance with the security interest under the General Security Deed they had been provided by ATG through Prop Fest and applied to acquire the shares in Goldus in the name of Roncane without any consideration being provided by Roncane. RnD Funding said that the knowledge of Mr Hillam and the lack of consideration meant that it was entitled to trace those funds into the shares.
Finally, RnD Funding also made claims to the Equipment which it said had been owned by ATG and had been purportedly disposed of by ATG contrary to the terms of negative pledge provisions in the General Security Deed. It was claimed that a purported sale of the Equipment to Synergy Metals occurred with knowledge of the negative pledge provisions, and was void. The Equipment was said to be located on the land the subject of the Tenements and in the control of Goldus or Synergy Metals and orders were sought to recover the property from Synergy Metals or Goldus. As has been noted, those claims were the subject of a separate hearing and are not addressed in these reasons.
In summary, the relief sought on the cross‑claim (excluding the relief relating to the Equipment) was as follows:
(1)A declaration that the rights of Goldus under the Teetulpa Venture had passed to Australian Mining.
(2)Orders to give effect to the transfer of the interest of Goldus in the Teetulpa Venture to Australian Mining.
(3)A declaration that Goldus holds its rights in the Ten Tenements as bare trustee for Australian Mining, alternatively such part of those rights as are required to undertake the Teetulpa Venture to mine alluvial gold to no more than 15 metres below the surface.
(4)Orders to transfer to Australian Mining the interest held by Goldus as bare trustee.
(5)A declaration that the shares in Goldus are held by Roncane on constructive trust for RnD Funding, alternatively are subject to a security interest in favour of RnD Funding.
(6)Orders to require the transfer of the shares in Goldus by Roncane to RnD Funding.
The defence of the cross-claims
As to those aspects of the cross-claim that concern the alleged security interests, they were defended by Goldus maintaining the matters raised in its claim. As has been observed, the main factual chronology as to those matters was not in dispute. Otherwise, as has also been observed, Goldus did not concede matters relied upon in support of the cross-claim.
The tracing claim was answered by Goldus making contentions to the following effect:
(1)at the time that the monies were used to purchase the shares there was no default under the First Facility Agreement or the Second Facility Agreement and, as a result, no security interest prevented the monies being provided through Prop Fest to purchase the shares in Goldus;
(2)Prop Fest advanced the monies to Roncane by way of loan and the agreement to repay the monies meant that Roncane received those monies bona fide and for value;
(3)the amounts that were paid by Prop Fest to the administrators of Goldus were not paid to acquire the shares but rather were paid under the terms of the DoCA into the Fund in circumstances where the consideration received by the Hillam Entities under the terms of the DoCA were not confined to the transfer of the shares to a nominated entity; and
(4)any claim in equity to the shares in Goldus was not a proprietary claim to the shares but, at its highest, was a claim to an equitable lien (described in submissions as a charge) over the shares in the amount of money that could be traced from ATG into the shares held by Roncane.
For Goldus it was submitted that further matters may be advanced to deal with the tracing based claim but in the result it ceased to be legally represented and those foreshadowed submissions were never provided.
Issues for determination
Broadly speaking there are three matters for consideration (a) the competing claims concerning the alleged security interest in the Tenements and the validity of the appointment of the controller and receivers (including the claim by the defendants based on the DoCA); (b) the alleged defaults by Goldus under the JVA; and (c) the tracing claim to the shares. As has been mentioned, the claims to the Equipment were heard separately.
As to (a), the following issues arise for determination concerning the alleged security interest in the Tenements and the validity of the appointment of the controller and the receivers:
(1)Are the Tenements (or an interest in them) property of the Teetulpa Venture?
(2)Did the Deed of Cross Security provide security in favour of Australian Mining to assets of Goldus that were not assets of the Teetulpa Venture?
(3)Is the power to appoint a receiver under the Deed of Cross Security limited to the interest of the defaulting party in the assets of the Teetulpa Venture?
(4)If no to Issues (1), (2) or (3), is any provision purporting to create an interest in the Tenements void because the consent of the Minister was not obtained under the Mining Act 1971 (SA)?
(5)Assuming that there had been defaults by Goldus under the JVA as alleged by the defendants, have the notice requirements under the terms of the JVA and Deed of Cross Security been met?
(6)Can a party who is in default under the JVA take action against another defaulting party?
(7)Was Australian Mining in default at the time that it purported to take action to appoint receivers?
(8)If no to Issue (6) and yes to Issue (7), is Australian Mining prevented from taking action to enforce the Deed of Cross Security based upon general law principles?
(9)Was any property interest in the Tenements transferred to Australian Mining under the terms of the DoCA?
(10)If yes to Issue (9), was any such transfer void because the consent of the Minister was not obtained under the Mining Act?
(11)Was the consent of Goldus required before there could be any security interest created by Australian Mining in favour of RnD Funding?
(12)Is any receivership of Goldus by reason of default under the Deed of Cross Security confined to securing defaults under the JVA?
As to (b), the following further questions concerning the alleged default by Goldus arise even if the above questions are determined adversely to the claims by Goldus:
(13)Was Goldus in default under the JVA in the manner alleged under the JVA Default Notice?
(14)If no to Issue (13), was Goldus otherwise in default under the JVA Default Notice? Resolution of this issue requires a determination as to whether an amendment to the claim by Goldus should be allowed to raise the default the subject of paragraph 44(aa) of the claim.
(15)On the basis of the answers to Issues (1) to (14), what if any declaratory relief should be granted?
As to (c), the tracing based claim, the following further issues arise:
(16)What is the precise nature of the tracing based claim to the shares in Goldus held by Roncane?
(17)What are the relevant principles to be applied in determining the tracing based claim?
(18)Was there a Control Event under the terms of the General Security Deed at the time of payment of monies by ATG to Prop Fest?
(19)Is the claim by RnD Funding to the funds in ATG's bank account a proper proprietary foundation for the tracing based claim?
(20)Are the Goldus shares held by Roncane the tracing proceeds of the funds in ATG's bank account?
(21)If the tracing based claim is upheld are the shares in Goldus held on constructive trust for RnD Funding or is the interest of RnD Funding confined to a charge over the shares?
The evidence
Detailed affidavit material was received into evidence. The principal affidavits were provided by Mr Hillam and Mr Nakat. They were both cross-examined on their affidavits. In the result, the factual issues in dispute that are necessary to resolve in order to determine the competing claims are of relatively narrow compass. Those matters concern the context for the DoCA, the alleged defaults by Goldus that are relied upon by Australian Mining (through the receivers) and certain of the facts relied upon to support the tracing based claim. However, as has already been observed, much of the case turns upon the proper characterisation of events that were not in dispute and the application of legal principles to those events.
General principles as to the construction of commercial instruments
Many of the issues for determination concern the proper construction of the commercial instruments referred to in the above chronology of events. The principles to be applied in construing the terms of commercial instruments are well established. It is necessary to ask what a reasonable businessperson would have understood the terms to mean. Consideration must be given to the language used, the surrounding circumstances known to them and the commercial purposes or objects secured by their contract and they must be given a businesslike interpretation: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]; and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]‑[52].
The task should be approached on the basis that the parties intended to produce a result that makes commercial sense given the evident commercial object: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 at [17]. However, care must be taken to ensure that it is the evident commercial object that is being given effect recognising that minds may differ as to the commerciality of a particular outcome: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [43]. There is a difference between resolving an ambiguity in language so as to avoid a construction which is commercially unreasonable or plainly inconsistent with the evident commercial object of the instrument and choosing between alternatives on the basis of a sense of commercial fairness. The task of the Court is to construe the words used not to remake the commercial bargain. Therefore, reasoning by reference to commerciality has its limits and must conform to any contrary intention expressed in the instrument: Mount Bruce at [51].
The Court should construe commercial instruments fairly and broadly without being too astute or subtle in finding defects: Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 at 109‑110. Commercial instruments should be interpreted in a practical and realistic way, not by adopting an overly theoretical approach: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 at [22], [81], [197].
Documents that form part of a suite of commercial instruments should be construed together: Zhu v Treasurer of the State of New South Wales [2004] HCA 56; (2004) 218 CLR 530 at [82].
Recitals can be used to construe the operative provisions: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [379]‑[390] (Campbell JA, Allsop P and Giles JA agreeing).
Save for the interpretation of the DoCA, the parties focussed their attention upon the language of the instruments and their context within the other instruments rather than any claim concerning the resolution of ambiguity by reference to relevant surrounding circumstances. The extent to which there might be regard to surrounding circumstances in construing the terms of a public instrument such as a deed of company arrangement is considered below when dealing with the competing contentions as to the meaning of the DoCA.
Issue (1): Are the Tenements (or an interest in them) property of the Teetulpa Venture?
The JVA required Australian Mining to contribute up to $1,000,000 to cover the costs of establishing alluvial mining operations in the Designated Area (it being agreed that $400,000 had already been contributed). For present purposes, the Designated Area equates to the Alluvial Zone. The JVA also specified the percentage interests of Goldus and Australian Mining in the Teetulpa Venture.
The purpose and scope of the Teetulpa Venture is specified in cl 4.3 of the JVA. It states:
The Joint Venture is constituted for the purposes of accessing the Tenements and carrying out exploration and Mining Operations on the Designated Area for alluvial gold, silver and all other alluvial minerals as may be considered by the Joint Venturers convenient to include in its exploration and mining programmes (Alluvial Mineral Rights).
It may be noted that the purpose and scope of the Teetulpa Venture is expressed in terms of 'accessing the Tenements' not in terms of owning and exploiting the Tenements, or any other language that might suggest that the venturers were acquiring the Tenements or any interest in them for the purposes of the Teetulpa Venture. Further, there is no provision in the JVA by which Goldus is required to contribute the Tenements or any interest in the Tenements to the Teetulpa Venture or transfer some interest in the Tenements to the Teetulpa Venture.
Before turning to the terms of the JVA that concern the property of the Teetulpa Venture there is one further matter to be noted. As has been observed, the JVA was a restatement of the terms of a joint venture that was originally established in 2007 between Goldus and another entity. If the venture had been established on the basis that the Tenements or an interest in the Tenements was to form part of the Teetulpa Venture then you would expect that position to be reflected in the terms of the JVA given that it was restating the terms of a venture that had already been established. Yet, the recitals to the JVA begin with the statement 'Goldus is the registered holder of the Tenements'. An unqualified statement in those terms is consistent with the observations that have already been made as to the scope of the Teetulpa Venture when it came to acquiring an interest of some kind in the Tenements. If indeed an interest in the Tenements had been acquired by the Teetulpa Venture then you would expect the terms of the recital to have been qualified to reflect that position by the time of the restatement in the JVA.
As to the operative terms of the JVA, the JVA defined Joint Venture Assets to mean property:
… acquired or leased for the purposes of conducting the Joint Venture Activities … or by the Manager on behalf of the Joint Venturers and owned by the Joint Venturers as tenants in common or held under lease by the Joint Venturers (as the case may be) in accordance with their respective Participating Interests including the Designated Area.
The Tenements had been acquired by Goldus well before the Teetulpa Venture. There is no evidence to the effect that they were acquired or leased for the purpose of conducting the activities of the Joint Venture.
In that context, cl 4.11 of the JVA provides:
The parties acknowledge that the Joint Venture is the holder of the Alluvial Mineral Rights and that Goldus is the sole holder of all rights conferred by the Tenements other than the Alluvial Mineral Rights (Basement Mineral Rights).
The terms of cl 4.11 then deal with the priorities that apply when it comes to access to the Tenements for the purpose of exercising the Alluvial Mineral Rights. In particular, the clause specifies that in exercising the Basement Mineral Rights during a priority period of four years, Goldus could not undertake Mining Operations that may interfere with the Alluvial Mineral Rights without the consent of the venturers in the Teetulpa Venture. A provision to that effect assumes that Goldus retained the right to undertake mining operations as to the Basement Mineral Rights. As stated in cl 4.11, those rights were all of the rights other than the Alluvial Mineral Rights. The source of that entitlement could only come from Goldus retaining its ownership of the Tenements. Certainly there was no provision in the JVA that conferred the Basement Mineral Rights on Goldus.
By reason that the Basement Mineral Rights are defined as 'all rights conferred by the Tenements other than the Alluvial Mineral Rights' and the Alluvial Mineral Rights are not ownership rights, the language used indicates that Goldus retains all ownership rights of the Tenements and thereby all other rights to undertake exploration and mining as conferred by the Tenements. This conclusion is further supported by the terms of cl 4.11(b)(iv) by which Goldus agrees 'not to Dispose of the Basement Mineral Rights' during the priority period unless the buyer agrees to be bound by the JVA. Expressed in those terms, cl 4.11(b)(iv) assumes that it is Goldus that retains the rights to dispose of the Basement Mineral Rights without the consent of Australian Mining. If, as is contended by Australian Mining and RnD Funding, Goldus had transferred the Tenements or an interest in the Tenements to the extent of the Alluvial Mineral Rights to Australian Mining then it would not need the protection of a clause expressed in the terms of cl 4.11(b)(iv).
If indeed the Tenements had become Joint Venture Assets then Goldus would need the agreement of the venturers in the Teetulpa Venture in order to undertake any activities on the Tenements. The same would be the case if the Joint Venture Assets were confined to an interest in the Alluvial Zone being the way the case was put for Australian Mining and RnD Funding in oral submissions. The consequence would be that there could be no exploration or mining without the consent of the venturers because it would interfere with the Alluvial Zone. However, there is no term of the JVA dealing with such consent or the circumstances in which Goldus might be allowed to undertake exploration or mining. The absence of any such provision supports the conclusion that the rights conferred upon the venturers to the Tenements were contractual.
For Australian Mining and RnD Funding reliance was placed upon the final part of the definition of 'Joint Venture Assets' in the JVA. The whole of definition (to which reference has already been made) is expressed in the following terms:
Joint Venture Assets means property, present and future, real and personal, held, developed, constructed acquired or leased for the purposes of conducting the Joint Venture Activities by the Joint Venturers or by the Manager on behalf of the Joint Venturers and owned by the Joint Venturers as tenants in common or held under lease by the Joint Venturers (as the case may be) in accordance with their respective Participating Interests including the Designated Area.
The submission for Australian Mining and RnD Funding focussed upon the final words, namely 'including the Designated Area'. The term 'Designated Area' was defined to mean, relevantly for present purposes, 'the whole of the Alluvial Zone within the area enclosed by the external boundaries of the Tenements'. Therefore, the final words of the definition of Joint Venture Assets were not directed to the Tenements themselves, but rather the area in respect of which the Teetulpa Venture was to operate.
The fact that the Joint Venture Assets were defined in a manner that included any property that was held, developed, constructed, acquired or leased for the purposes of the venture including the Alluvial Zone did not mean that the Tenements became such assets. The reference to Designated Area was simply the means by which to identify the extent to which assets that related to an area of land (and the space below that area of land that formed part of the Alluvial Zone) may fall within the Teetulpa Venture. It did not mean that every asset, such as the Tenements, that related to the Designated Area became an asset of the venture.
Further, the use of the term 'Designated Area' would be a very clumsy way to describe an asset of the Teetulpa Venture, particularly one as important and obvious as the Tenements. If indeed they were to be included in the 'Joint Venture Assets' then you would expect the term Tenements to be included in the definition.
Clause 6.13 of the JVA is expressed in the following terms:
The Manager shall do all things necessary including (without limitation) expending money to maintain all Tenements and other like interests in good standing.
An obligation expressed in those terms does not assume that the Tenements are Joint Venture Assets. It is obviously in the interests of the venturers that the Tenements be kept in good standing. However, the acceptance of an obligation to undertake those steps necessary to keep the Tenements in good standing may also form part of the contractual consideration provided to obtain the authority to undertake Joint Venture Activities on the Tenements.
A similar conclusion applies concerning the significance of cl 20.1 of the JVA which requires the Joint Venturers to comply with 'all obligations under any statute or the Tenements relating to the protection of the environment' and to bear all costs of doing so. The fact that the JVA imposes such an obligation is consistent with each of the competing positions. Significantly it is confined to environmental obligations 'which are applicable to Joint Venture Activities'. It is a reasonable and commercial arrangement for parties conducting a joint venture on the basis that it enjoys a contractual right to explore and mine in the Alluvial Zone to be expected to have a contractual obligation to meet the environmental responsibilities associated with the exercise of those rights. Indeed, the expression of such a responsibility would not be required if the Teetulpa Venture acquired the Tenements or an interest in them. In such circumstances, it may be expected that the relevant responsibilities would fall on the holder of the Tenements or the interest in them.
There are rights conferred by the JVA for caveats to be lodged by each party 'to protect its interest under [the JVA]' (cl 21.10) and to register the JVA against the Tenements (cl 21.11). No reliance was placed upon these provisions by the parties. However, their existence tends to suggest that the Tenements were not being transferred to the participants in the Teetulpa Venture nor was any form of interest that might be registered.
For all those reasons, the asset that the Teetulpa Venture had was a contractual right to exploit the Alluvial Zone for alluvial minerals. It was conferred by the agreement of Goldus as a party to the JVA. The Tenements themselves remained the property of Goldus and the venturers acquired no interest in the Tenements beyond the contractual rights conferred by the JVA.
Therefore, under the terms of the JVA, Goldus retained ownership of the Tenements and created contractual rights in favour of Australian Mining, being the Alluvial Mineral Rights.
The JVA contemplated the forfeiture of the interest of a joint venturer by a process of deemed withdrawal in circumstances of default. There was a detailed provision as to how that may occur in cl 11 of the JVA. It dealt with the transfer of the participating interest of the 'Defaulter' to the 'Non-Defaulter'. Therefore, inherent in the terms of the joint venture that were confirmed by the JVA was the prospect that Goldus may cease to have a participating interest in the Teetulpa Venture. However, the transfer of the participating interest would not terminate the provisions of the JVA. In particular, it would not terminate the provisions by which Goldus conferred contractual rights in favour of the participants in the joint venture to access and undertake exploration and mining in the Alluvial Zone. Those provisions would continue to take effect even if Goldus no longer had a participating interest by operation of cl 11. The absence of any provision dealing with an interest in the Tenements in the event of forfeiture of the participating interest of Goldus is consistent with the construction already outlined. Therefore, if the participating interest of Goldus was forfeited, the ownership of the Tenements and any interest in them remained with Goldus.
Issue (2): Did the Deed of Cross Security provide security in favour of Australian Mining to assets of Goldus that were not assets of the Teetulpa Venture?
Even though the Joint Venture Assets do not include the Tenements, it is still possible that the Deed of Cross Security conferred a security interest over all of the assets held by the venturers, relevantly Goldus. Therefore, it is necessary to consider the extent of the assets in respect of which security interests were created by the Deed of Cross Security.
The Deed of Cross Security was required in order to satisfy the terms of cl 5.1(a) of the JVA. It provided that:
Each Joint Venturer must at its own cost:
(a)execute and deliver to the other Joint Venturer a Cross Charge at the time of executing this document in order to secure the payment by each Joint Venturer of any amount due by that Joint Venturer under this Agreement;
The term 'Cross Charge' was defined in the JVA to mean the 'deed of cross security referred to in clause 5.1, the form of which is set out in Annexure A'. The version of the JVA produced in evidence did not include an annexure. However, there was in evidence a Deed of Cross Security which recited that it is the deed of Cross Charge required by the JVA. In the absence of evidence to the contrary it may be inferred that it was expressed in the terms contemplated by the parties at the time that they entered into the JVA. That was the common position of the parties.
Therefore, the Deed of Cross Security is an instrument that is to be construed in the context of the JVA, particularly the language used in cl 5.1(a) which created the obligation to enter into the Deed of Cross Security. Further, it is to be noted that the Deed of Cross Security provides expressly in cl 24.11 that if the Deed of Cross Security is inconsistent with the JVA then the JVA prevails to the extent of the inconsistency.
The charging provision in the Deed of Cross Security is to be found in cl 2.1. It provides that each party 'as beneficial owner' grants to the other 'a security interest … over all PPS Property; and … a fixed charge over all Non-PPS Property'.
PPS Property is defined as 'all … property constituted by the Joint Venture Assets'. Non‑PPS Property is defined as 'all … property constituted by the Joint Venture Assets … that is not PPS Property'.
The definitions provision also states that terms used in the Deed of Cross Security that are not defined in that document but are defined in the JVA will have the meaning given to those terms in the JVA: cl 1.2. The definition of the term 'Joint Venture Assets' in the JVA has already been considered. It does not include the Tenements.
Therefore, the main charging provision in the Deed of Cross Security does not create a security interest in favour of Australian Mining in the Tenements.
For Australian Mining and RnD Funding, reliance was placed upon the terms of cl 2.2 of the Deed of Cross Security which deals with priorities and states:
The Security Interest created by this document is intended to take effect as a first ranking security subject only to those Permitted Security Interests created, attempted to be created or permitted to exist by a Party in relation to its Secured Property.
It was submitted that the definition of Security Interest indicated that the security created by the Deed of Cross Security extended to all property of the parties to the deed. The term was defined in two parts. The first part stated that in relation to PPS Property, the term had the same meaning as in the Personal Property Securities Act 2009 (Cth). The second part stated that in relation to other property, the term:
… means any security for the payment of money or performance of obligations including any security or preferential interest or arrangement of any kind, or any other right of or arrangement with any creditor to have its claims satisfied prior to other creditors with, or from the Proceeds of, any asset including, without limitation, retention of title other than in the ordinary course of business and any deposit of money by way of security.
The defendants focussed upon the words 'any security for the payment of money'. Reading the terms of the definition of Security Interest into cl 2.2 it was submitted that there was an implicit recognition that the 'Security Interest created by this document' is any security which can be created. The submission should not be accepted. The opening words do no more than refer to the security created elsewhere in the Deed. The language used in cl 2.2 does not create that security. It takes the security as having been created elsewhere and describes the priority to be afforded to that security. The use of the general term 'Security Interest' in that context is not a sufficient basis upon which to found a conclusion that the parties intended to create a general security over all property of the parties.
In addition, it appeared to be submitted that the use of the defined term 'Secured Property' was significant. In effect, the claim by the defendants was that a necessary implication from the form of cl 2.2 was that the Deed of Cross Security was intended to create a 'Security Interest' in relation to 'Secured Property' as that term was defined in the Deed.
However, that is not the manner in which cl 2.2 is expressed. It is dealing with priorities. The term Secured Property is used to describe the extent of the type of property in respect of which the priority is afforded. The security created by the Deed of Cross Security (as expressed in cl 2.1) ranks first subject only to permitted securities in relation to the 'Secured Property' of a party. The fact that the extent of the securities which are to be afforded priority are defined broadly is a weak linguistic foundation on which to expand the scope of the security created by the Deed of Cross Security despite the terms of cl 2.1.
The significance of the defined term 'Secured Property' for the extent of the power to appoint a receiver under the Deed of Cross Security is addressed as part of Issue (3) below. However, at this point the contention advanced for Australian Mining and RnD Funding is that the Security Interest that is said to take a first ranking security is, by implication, broadly defined because the securities that may take priority are broadly defined. Assuming for present purposes that the defined term for Secured Property is broader (as to which, see below), the fact that the definition is expressed more broadly does not lead to the conclusion that it is the scope of the definition of Secured Property and not the scope of cl 2.1 that determines the extent of the charging provision. It is quite possible for the charging provision to be given precedence. Indeed, not to read the Deed of Cross Security in that way would be to ignore the charging provision and interpret the instrument as creating a wider Security Interest than that described in the only provision that expresses the nature and extent of the grant of security.
Further, the definitions of 'Security Interest' and 'Secured Property' are not operative provisions. Definitional provisions only apply to the extent that they are given operative effect by the terms of the relevant instrument. Even then they only operate 'unless the context otherwise requires'. Given the terms of cl 2.1, the context otherwise requires in the present case. The language of the definition of 'Security Interest' and 'Secured Property' takes effect subject to the clear terms of the operative provision as to the extent of the charge, namely the charging provision in cl 2.1.
For those reasons, there would need to be compelling reasons based upon the definition of the term 'Secured Property' and the use of that term to reach a conclusion that the Deed of Cross Security granted a security interest that was broader than that described in cl 2.1. The opening words of cl 2.2 do not suggest that they are themselves creating the relevant security interest. Rather, they point to the creation of that interest elsewhere in the instrument. As has been noted, the charging provision is to be found in cl 2.1.
Therefore, subject to an issue (addressed below in dealing with Issue (3)) as to whether the power to appoint a receiver is broader than the charging provision (or the terms of that provision suggest a different answer as to the scope of the security interest created by the Deed of Cross Security), the Deed of Cross Security does not create a security interest in favour of Australian Mining over assets of Goldus that were not assets of the Teetulpa Venture, particularly the Tenements.
It was submitted for the defendants that the explanation for the form of the charging provision was that the Deed of Cross Security had been updated to deal with the introduction of the Personal Property Securities Act at about that time. That submission must be rejected given that cl 2.1 is the charging provision under the instrument and, as has been noted, the definitions of PPS Property and Non-PPS Property used in that clause are not generic but rather refer to the 'Joint Venture Assets'. The use of that language manifests terminology tailored to the particular circumstances. The evident purpose of referring to the Joint Venture Assets was to confine the scope of the security to assets that relate to the joint venture rather than to encompass all assets of the Teetulpa Venturers.
Once that explanation is rejected, the position is that, on the argument advanced for the defendants, the language of cl 2.1 serves no purpose. So much was accepted by counsel in the course of opening. It is most unlikely that the parties included a provision in the Deed of Cross Security as the only provision that adopted the language of a charging clause on the basis that it would serve no purpose and would be overtaken in some way by the form of the general definition of Security Interest.
Finally, reliance was placed by the defendants upon the terms in which cl 6 of the Deed of Cross Security is expressed. It is concerned with the way in which the security rights conferred by the Deed of Cross Security may be enforced. It is expressed in the following terms:
If an Event of Default has occurred and is continuing, the Non-Defaulting Party may take action (in its own name) under this document to enforce a Security Interest created under this document and exercise the powers in this document in respect of all indebtedness and Other Obligations owing to it by the Defaulting Party after it gives notice to each other Party (but without the need for the consent or agreement of any other Party).
It may be noted that cl 6 refers to steps being taken to enforce a Security Interest. The definition of that term uses language that is consistent with a construction of the Deed of Cross Security that gives operative effect to cl 2.1 as the charging provision. It is not expressed in terms that suggest any particular scope to a security interest. Rather, as cl 6 makes clear, the action that can be taken is to 'enforce a Security Interest created under this document'. For reasons that have been given that security interest is confined to the Joint Venture Assets and does not include the Tenements.
Issue (3): Is the power to appoint a receiver under the Deed of Cross Security limited to the interest of the defaulting party in the assets of the Teetulpa Venture?
It was submitted for Goldus that where there had been an Event of Default then the power conferred by cl 7.1 of the Deed of Cross Security to appoint a receiver was limited to the interest of the Defaulting Party in property that formed part of the Teetulpa Venture. So, if Goldus defaulted under the JVA, the power to appoint a receiver was confined to the interest of Goldus in the property of the Teetulpa Venture.
For the defendants it was submitted that whatever the position in relation to cl 2.1 and cl 2.2, the parties had agreed that upon an Event of Default, a receiver could be appointed over the whole of the assets of the Party to the Deed of Cross Security that was in default.
Clause 7.1 of the Deed of Cross Security provides:
A party entitled under clause 6 to take action to enforce this document may at any time after it becomes entitled to enforce this document … appoint a Receiver of all or part of a Defaulting Party's Secured Property …
The first point to note is that cl 7 is expressed to apply where a party is entitled under cl 6 to take action. As has been explained cl 6 is confined to action to enforce the security interest created by the Deed of Cross Security. Therefore, the opening words confine the circumstances in which a receiver may be appointed. This is an entirely commercial and consistent approach. It ensures that the receiver is able to be appointed to the extent of the security created by the Deed of Cross Security and no more. It would be most unusual if an instrument of security confined the assets that were the subject of the security but conferred a right to appoint a receiver over all property of the party (including property not the subject of the security created by the instrument).
The term 'Secured Property' is extensively defined. Within the list are 'PPS Property and Non‑PPS Property'. For reasons already given, those terms are confined to property of the Teetulpa Venture and they do not include the Tenements. However, the definition goes on to include (cl 1.1.25):
in relation to a Grantor, interest at any time in everything in relation to which the Grantor has a sufficient right or interest to be able to grant a Security Interest, including:
1.1.25.1its Participating Interest, including its Participating Interest share of the Tenements and all other Joint Venture Assets;
1.1.25.2its Participating Interest share of Products produced by the Joint Venture;
1.1.25.3its right and interest in all agreements and other documents made by the Joint Venturers for the purpose of the Joint Venture, including all its rights and interest in all contracts for the sale of its Products produced by the Joint Venture and any proceeds of sale of those Products;
1.1.25.4its Participating Interest share of all present and future proceeds of insurance taken out under the Joint Venture Agreement; and
1.1.25.5its Participating Interest share of moneys held by the Manager for and on behalf of the Joint Venture and all claims and entitlements for money or other property to be paid or transferred to the Joint Venture.
The term 'Grantor' is defined to mean 'a Party to the extent that it grants a Security Interest under this document'. Plainly, it includes Goldus.
There is perhaps a degree of ambiguity in the language of the definition of Secured Property when considered in the context of the other provisions of the Deed of Cross Security. The definition begins by referring to PPS Property and Non-PPS Property, being the property the subject of the security clause (cl 2.1). As has been noted, that property is confined to joint venture property and does not extend to the Tenements. It may be thought that given the terms of the security clause that would be the limit of the definition, but it is not. The definition goes on to refer in the most general terms to 'everything in relation to which the Grantor has a sufficient right or interest to be able to grant a Security Interest' (and then provides a list of rights or interest included in that general language).
The immediate matter to note is that the 'including' list is confined to categories of rights and interests that are described by reference to the Participating Interest in the Teetulpa Venture. The term Participating Interest is thereby incorporated from the JVA and, as may be expected, is defined in terms that are confined to the Teetulpa Venture. Therefore, the inclusive list is quite narrow given the general opening words.
Also, the general language follows on from the reference to the property that is the subject of the security clause.
In the context of the security clause and the 'including' list, the appropriate construction of the general words is that they are ensuring that the deed provisions apply not only to the assets of the Teetulpa Venture but also the interest of Goldus and Australian Mining in the venture and minerals produced by the activities of the venture. It is appropriate for the ambiguity or tension in the language of the definition to be resolved by limiting its scope by reference to the charging provision. As has been observed, it is most unlikely that commercial parties would state clearly the limit of the charging provision but then provide for certain provisions, such as the right to appoint a receiver, to be exercised in respect of property not described in the charging provision.
Therefore, the Deed of Cross Security did not confer a right upon Australian Mining to appoint a receiver to the Tenements in the event of default by Goldus.
Issue (4): Is any provision purporting to create an interest in the Tenements void because the consent of the Minister was not obtained under the Mining Act 1971 (SA)?
At the time of entry into the JVA and the Deed of Cross Security, s 83 of the Mining Act provided that:
A lease or licence, or an interest in a lease or licence, under this Act shall not be assigned, transferred, mortgaged, sublet, or made the subject of any trust or other dealing, whether directly or indirectly, without the consent in writing of the Minister, and any such transaction entered into without that consent shall be void.
Save to note the further legal argument raised by Goldus, given the conclusions reached as to Issues (1), (2) and (3) it is not necessary to consider the application of s 83 to the present circumstances. However, I do observe that for reasons given by Ipp J (Pidgeon J agreeing) in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 at [102]‑[105], an agreement of the present kind gives rise to a contractual right to enter, not a proprietary interest. A provision of the kind expressed in s 83 is concerned with agreements that transfer proprietary interests.
Otherwise, provisions such as s 83 may lead to the conclusion contended for by Goldus: see the consideration of different provisions, albeit in a similar legislative context, in Finesky Holdings Pty Ltd v Minister for Transport for Western Australia [2002] WASCA 206; (2002) 26 WAR 368 at [34]‑[48] (Steytler J, Wallwork and Parker JJ agreeing). All would depend upon construction of the relevant provisions in the Mining Act. In that regard, I note that the legal foundation for the submission by Goldus was not developed and the position adopted by the defendants was to the effect that such issues might be addressed if and when relief was to be granted in respect of an interest in the Tenements. For reasons that have been given as to Issues (1), (2) and (3) there is no entitlement to such relief on the part of the defendants and therefore no need for the matters raised by Issue (4) to be addressed.
Issue (5): Assuming that there had been defaults by Goldus under the JVA as alleged by the defendants, have the notice requirements under the terms of the JVA and Deed of Cross Security been met?
For Goldus, submissions were advanced as to the requirements that must be met before there would be an Event of Default for the purposes of the Deed of Cross Security that may then lead to the exercise of rights to the security created by the Deed of Cross Security. The propositions advanced are considered below.
The submissions rely upon the terms of cl 6 of the Deed of Cross Security. For convenience of reference it is reproduced below:
If an Event of Default has occurred and is continuing, the Non-Defaulting Party may take action (in its own name) under this document to enforce a Security Interest created under this document and exercise the powers in this document in respect of all indebtedness and Other Obligations owing to it by the Defaulting Party after it gives notice to each other Party (but without the need for the consent or agreement of any other Party).
First, does the Deed of Cross Security only secure monetary defaults?
Goldus claimed that the Deed of Cross Security only secured monetary defaults under the JVA.
The term 'Event of Default' as used in cl 6 of the Deed of Cross Security is one of the terms that are defined by referring to the definition in the JVA. Within the JVA, the term 'Event of Default' is defined in cl 11.1 which defines the circumstances in which a Joint Venturer may forfeit its participating interest. It states:
A Joint Venturer is a 'Defaulter' [if] it defaults in the performance of any of its obligations under this Agreement ('Event of Default'), and such default continues for a period of thirty days after the Manager or (where the defaulting Joint Venturer is the Manager) another Joint Venturer shall have given written notice to the defaulting Joint Venturer specifying the default and (where such default is remediable) requiring its remedy, and requiring the payment of a reasonable sum to cover the costs of issuing the said notice, then the Defaulter shall be deemed to have withdrawn from the Joint Venturer and it shall transfer its Participating Interest in the Joint Venture to the non‑defaulting Joint Venturer or Joint Venturers (as the case may be) ('Non‑Defaulter') …
Clause 11.2 then deals with those instances where the default 'comprises the non payment of Contributions or other monies due to the Joint Venture'. It may be inferred from the terms of that provision that the Event of Default as defined in cl 11.1 is not confined to monetary default.
Further, there are provisions of the terms of the Deed of Cross Security that are consistent with an intention that it secures non-monetary defaults. They include the following:
(1)the Deed of Cross Security recites that under the terms of the JVA each party must perform 'certain obligations' and that the deed is to 'secure the performance of those obligations'. The use of such language is generic and is not confined to monetary obligations;
(2)for reasons that have been given, the definition of Event of Default in the JVA (as applied to the Deed of Cross Security) is not confined to monetary defaults; and
(3)the Deed of Cross Security has provisions that apply to 'the Defaulting Party's Indebtedness' and to 'the Defaulting Party's Other Obligations' in circumstances where the term 'Other Obligations' means 'in relation to a Party, all its covenants, agreements, obligation (other than the obligation to pay Indebtedness) and liabilities arising under from or in connection with' the JVA.
However, as has been noted, cl 5.1(a), in imposing the obligation to execute a Cross Charge, states that it is to be executed and delivered 'in order to secure the payment … of any amount due … under [the JVA]'. Further, it should be observed that cl 9.2 of the Deed of Cross Security provides that the powers, rights and discretions of an enforcing party under the deed 'are in addition to all other powers, rights and discretions conferred on it by law and subject always to the Joint Venture Agreement'.
For Goldus, it was submitted that the combination of the language used in cl 5.1 of the JVA and the adoption in the Deed of Cross Security of the definition of Event of Default in JVA meant that the only default secured by the Deed of Cross Security was a monetary default. It was submitted that the rights conferred by cl 6 of the Deed of Cross Security should be read down to avoid inconsistency by reason of cl 24.11 which provides that the JVA prevails to the extent of any inconsistency.
For the defendants it was submitted that there was significance to be given to the fact that the terms of the Deed of Cross Security were annexed to the JVA. It was also submitted that there would be commercial circumstances in which non-monetary defaults would be significant. It submitted that if Goldus as the holder of the Tenements was to refuse access then there were good commercial reasons why the security might allow Australian Mining to appoint a receiver and be able to enter the property.
There is merit in each of the competing submissions. The following matters appear to bear upon the proper construction.
First, if indeed it was intended to confine the Deed of Cross Security to monetary defaults then you may expect that the Deed of Cross Security would have been expressed in those terms (especially given the fact that it contains various terms specific to the circumstances of the venture, notably the terms as to the extent of the charging provision to which reference has already been made). This supports the submission by Australian Mining and RnD Funding.
Secondly, if there was a concern about non-monetary defaults then the principal concern of Australian Mining would be an ability to secure access to the Tenements. Yet, for reasons that have been given, the Deed of Cross Security provided no security interest over the Tenements. Further, the Deed of Cross Security does not confer rights of a kind that suggest that they were to be exercised in a manner that might remedy non-monetary defaults. This supports the position of Goldus.
Thirdly, the provisions of the Deed of Cross Security concerning the application of monies received in exercise of the security refer to payment to meet 'Indebtedness' or to satisfy rights of indemnity: cl 13. There is no provision allowing for such monies to be applied to meet damages for non-monetary default. The term 'Indebtedness' is defined to mean 'in relation to a Party, any amount (including interest) that is owing by that Party (whether alone or with any other person) to another Party' under the Deed of Cross Security, the JVA and 'any right to contribution or indemnity arising under general law or under statute in connection with any liability incurred by that Party'. These provisions support the construction contended for by Goldus.
Fourthly, the terms of cl 6 of the Deed of Cross Security provide that if an Event of Default occurs then the Security Interest created by the Deed may be enforced 'in respect of all Indebtedness and Other Obligations owing … by the Defaulting Party'. There are two aspects to this clause. First, it applies the definition of Event of Default which, for reasons that have already been given, is adopted from the JVA where it is used to include non‑monetary defaults. Second, it refers to enforcement in respect of Indebtedness and Other Obligations. Other Obligations is defined to mean:
in relation to a Party, all its covenants, agreements, obligations (other than the obligation to pay Indebtedness) and liabilities arising under, from or in connection with the Agreement.
The word 'Agreement' is not defined. The defined term 'Joint Venture Agreement' refers to the JVA. The term 'this document' is used throughout to refer to the Deed of Cross Security. There are very many provisions of the Deed of Cross Security that use the term 'Joint Venture Agreement'. It may be that the occasional references to 'Agreement' reflect the use of a template. The fact that they do not use the defined term 'Joint Venture Agreement' despite its otherwise consistent use in the rest of the Deed of Cross Security (especially in all its key provisions) suggests that close attention was not paid to the provisions that use the term 'Agreement'.
The term 'Agreement' appears in cl 2.5 of the Deed of Cross Security which deals with variations 'under the Agreement or this document'. However, it is used to express confirmation as to the Indebtedness, not Other Obligations. These matters appear to be equivocal.
Fifthly, the JVA did have consequences for non-monetary defaults. In particular, as has been noted, they could lead to the forfeiture of the participating interest of a defaulting party: cl 11.1. Therefore, the commerciality of confining the Deed of Cross Security to monetary defaults is not to be approached on the basis that there would otherwise be no consequence under the JVA for a non-monetary default. The parties to the JVA would also be able to resort to common law remedies. This provides some support for the position of Goldus.
Sixthly, it was the provision of funds to undertake the exploration and mining activities that was fundamental. The principal obligation of the Teetulpa Venturers under the JVA was to fund the activities of the venture. It was then the responsibility of the manager to undertake the relevant activities. There are good commercial reasons why a party would seek to confine its liability in respect of a risky commercial venture such as mining for gold and other alluvial minerals to the interest of that party in the assets of the venture. The express terms of the agreement between the parties to the JVA as to the reason for the Deed of Cross Security was in order to secure the payment 'of any amount due' under the JVA. In those circumstances, there was a commerciality for the terms of the Deed of Cross Security to be confined to securing the payment of money due under the JVA.
Seventhly, it follows that to the extent that there is ambiguity it is not to be resolved by considering the commerciality or reasonableness of the alternatives. Both are commercially logical. In those circumstances, it is necessary to pay close regard to the language of cl 5.1(a) in the context of the JVA and the Deed of Cross Security.
Overall, the terminology used in the Deed of the Cross Security has provisions that suggest that it is confined to Indebtedness (monetary defaults) and other provisions that suggest it applies to Indebtedness and Other Obligations (monetary and non-monetary defaults).
Returning then to the language used in cl 5.1(a) which addresses the issue directly. It is to the effect that each Joint Venturer must execute and deliver a Cross Charge (in the terms annexed) 'in order to secure the payment … of any amount due'. For the defendants it may be said that if the Deed of Cross Security also secured non-monetary obligations then the terms of cl 5.1(a) are still satisfied. The obligation to execute and deliver the Cross Charge is not said to be required only in order to secure payment of amounts due. However, the terms of cl 5.1(a) express directly the purpose to be served by the Deed of Cross Security. They do so in terms that manifest the expressly the commercial purpose for the Deed of Cross Security. For reasons that have been given, there is support in the terms of the Deed of Cross Security for its terms to be confined to securing Indebtedness as defined, being monetary defaults.
The argument for the defendants depends largely upon the scope of the term 'Event of Default' as used in the JVA (and adopted by the Deed of Cross Security) and the terminology of cl 6. However, the adopted meaning of Event of Default must submit to the context within the Deed of Cross Security and the scope of the deed must be understood from considering all of its provisions. In that regard, close consideration must be paid to the provisions of cl 13.1 which deal with the application of the proceeds of resort to the security under the Deed of Cross Security. In particular, as to a receivership, they provide in cl 13.2:
Application by Secured party or Receiver
When the Secured Party or a Receiver receives money under or because of this document, and applies it in payment to the Secured Party of the Indebtedness, the Secured Party or the Receiver (as the case may be) may apply different parts of the money received to different parts of the Indebtedness, regardless of any appropriation by the Grantor, as the Secured Party or Receiver chooses.
There is no reference to applying the money to meet Other Obligations, particularly non‑monetary obligations.
On balance, giving effect to the terms of cl 5.1(a) of the JVA, the Deed of Cross Security only secures monetary defaults. A construction to that effect should be adopted to the extent that there is inconsistency in the Deed of Cross Security with cl 5.1(a) of the JVA (as required by cl 24.11 of the Deed of Cross Security) and to confine the enforcing party's powers, rights and discretions under the Deed on the basis that they are subject always to the JVA (as required by cl 9.2). It is supported by the aspects of the Deed of Cross Security that focus upon Indebtedness, recognising that there is some inconsistency in the provisions of the Deed in that regard.
Second, was a notice and continuing default of 30 days required before enforcement of the Deed of Cross Security?
It was also alleged by the defendants that by 10 September 2018 (being 4 months after entry into the Second Facility Agreement) there was also default under cl 6.4 of the Second Facility Agreement. Clause 6.4(a) provided that ATG:
must at [RnD Funding's] direction no earlier than 4 months from the date of this agreement proceed to sell gold and any other mineral of value it has mined whether in its processed form or mined but unprocessed, for full market value ('Sale Proceeds'). Thirty Percent (30%) of Sale Proceeds, will be used to repay Principal Outstanding.
There was no evidence of any such direction being given by RnD Funding or of any mining operations having commenced.
Clause 6.4(b) then provided that ATG:
can, in lieu of any obligation in clause 6.4(a) above, pay $200,000 per month to [RnD Funding] until the Maturity Date starting 4 months from the date of this agreement to reduce the Principal Outstanding. In the event that a Government Agency closes access roads required to get to and from [ATG] mining operations … the number of days of closure up to a cumulative total of 60 days can be added to the date of commencement for reducing the Principal Outstanding under this sub clause (b);
Under cl 6.5, all amounts not expressed to be payable on a specified date were 'payable by [ATG] on demand by [RnD Funding] on the Termination Date', being 31 October 2019 (or demand following an Event of Default).
The terms in which cl 6.4(b) are expressed indicate that if cl 6.4(a) is triggered then ATG had the option of paying $200,000 per month rather than an amount calculated in accordance with cl 6.4(a). Significantly, cl 6.4(b) is not expressed in terms that the amount of $200,000 would be payable in any event, that is irrespective of whether there were mining operations and a direction by RnD Funding. It did not create a separate obligation to pay. It created an alternative that was available to ATG if the requirements of cl 6 were met.
If there was reliance placed by RnD Funding upon a direction then an issue may have arisen as to whether the direction could be given even where mining operations had not commenced and whether that might trigger an obligation on the part of ATG to pay $200,000 per month if there were no Sale Proceeds that could be secured. However, no such question arises.
It may be noted that reference was made in submissions for RnD Funding to the terms of cl 10.1 of the Second Facility Agreement, by which ATG agreed to do all things necessary to comply with the DoCA and also not to seek to transfer any asset procured under the DoCA to any entity other than ATG (or a holding company or subsidiary of ATG). Therefore, on the evidence, ATG was under an obligation to cause the shares in Goldus which were to be procured by a Hillam Entity under the DoCA to be held by ATG or Australian Mining (there being no evidence of any subsidiary of ATG). However, those events were not pleaded as a relevant default.
Therefore, the claim by RnD Funding that as at 10 September 2018 there was a failure to pay monies due under the Second Facility Agreement should not be accepted.
Issue (19): Is the claim by RnD Funding to the funds in ATG's bank account a proper proprietary foundation for the tracing based claim?
The claim made by RnD Funding was based upon its security rights under the General Security Deed. It sought to characterise those rights as being ownership rights in respect of the secured property upon default by ATG but it claimed in the alternative that its interest as equitable chargee was a sufficient foundational property interest to be able to identify traceable proceeds as being the subject of its equitable charge.
As has been noted, if a Control Event occurs, then the permission for ATG to be able to use monies in its bank account in the ordinary course of its business comes to an end. All of the property of ATG is impressed with a fixed charge in favour of RnD Funding and must not be dealt with contrary to that security interest. It may be noted that we are not here concerned with the priorities afforded by the Personal Property Securities Act in respect of security interests attaching to circulating and non-circulating assets. Therefore, the rules described in that legislation are not relevant. Rather, we are concerned with general law principles as to the process of tracing the proceeds of proprietary interests.
The claim advanced by RnD Funding is that the 'locked box' provisions of the General Security Deed gave rise to the result that the money in the bank account of ATG was its property. It was submitted that, in equity, the money in the bank account was the property of RnD Funding and it could not be dealt with by ATG. Repeated submissions were made to the effect that the money in the bank account of ATG was the property of RnD Funding. Those submissions rest upon the operation of what was described in submissions as the locked box. Therefore, it is important to pay close attention to the provisions described by the defendants as giving rise to the locked box.
Under cl 2.5 of the General Security Deed, if a Control Event occurs then ATG is obliged to deposit into the 'Controlled Account' the proceeds received 'in respect of any book debt, insurance policy and/or third party claims or any other debts or other amounts now or in the future payable' to ATG. The Controlled Account is required to be established from the outset of the creation of the security and must have officers of RnD Funding as the signatories: cl 2.4. Funds may be disposed from the Controlled Account by RnD Funding without the consent of ATG. Finally, cl 2.5 states that a power created by the requirement to pay monies into the Controlled Account is not waived by any failure or delay in its exercise.
There was no compliance with these provisions after the default in the repayment of $320,000 to RnD Funding on 15 October 2018. However, RnD Funding continued to advance monies under the Second Facility Agreement and it was not until a year later that the events complained of took place. During the intervening period, it is apparent on the evidence that ATG continued to operate its own bank account without giving effect to the locked box.
There was no explanation provided by RnD Funding as to why it took no steps to insist upon compliance with cl 2.5.
The terms of the Controlled Account provisions do not purport to transfer title to funds in the Controlled Account to RnD Funding. They do not purport to create a trust for the benefit of RnD Funding upon an Event of Default. Rather, they impose obligations upon ATG to place monies in the Controlled Account and place limits upon what can be done by ATG with the money in that account. They also confer rights upon RnD Funding to take money from the Controlled Account without the consent of ATG.
In any event, what is certain is that there were no funds deposited into the Controlled Account and there were no steps by RnD Funding to secure compliance with the obligation on the part of ATG to do so.
There was no real effort to explain the basis for the claim that the funds in the bank account of ATG being amounts that were not deposited into the Controlled Account became the property of RnD Funding such that they might provide the basis for a tracing claim. There was also no claim that RnD Funding took any steps to enforce its security interest prior to the events which took place a year later whereby funds received by ATG were paid to Prop Fest and then to the deed administrators. The steps it took to enforce its security were taken months later.
Therefore, relevantly for present purposes, the effect of the Control Event in the form of the default is that it brought to an end the permission to expend funds in the ordinary course of the business of ATG and, on the evidence, brought into existence a fixed charge to the extent of the amount of $320,000. However, ATG continued to operate its own bank account.
It may be accepted that an equitable charge is a form of property right recognised in equity which may provide the foundation for a proprietary remedy: Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536 at 554 (Gummow J). In Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Receivers and Managers Appointed) [2018] WASCA 163; (2018) 53 WAR 325 the nature of the interest of the holder of a charge was summarised as follows (at [49]):
In general terms, the essence of an equitable charge is a proprietary interest granted by way of security, without any transfer of title (outright title as opposed to an equitable interest), or possession, to the chargee. Specific property of the chargor is expressly or constructively appropriated to, or made answerable for, the payment of a debt or other obligation. The chargee is given the right to resort to that property for the purposes of having it realised and applied in or towards the payment of the debt. Thus, the equitable chargee (unlike the beneficiary of a trust) has remedies against the property itself, and not against the holder of the property.
(footnotes omitted)
It may be accepted too that a party who takes a transfer of property with notice of the existence of the charge, takes the transfer subject to that proprietary interest. However, that was not the claim by the defendants. Rather, they claimed that RnD Funding could trace a proprietary interest in the monies held in the locked box to the proprietary interest of Roncane as a shareholder in Goldus. The foundation for that claim is not established.
It was submitted for the defendants that the present case was akin to a case like Black v S Freedman & Co and for that reason there was no need to demonstrate that there was a breach of fiduciary duty by ATG. However, that submission rested on the proposition that the monies in the bank account of ATG were the property of RnD Funding that had been appropriated by Prop Fest. For reasons that have been given, that has not been established.
It follows that the claim by RnD Funding to the funds in ATG's bank account is not a proper proprietary foundation for the tracing based claim.
Issue (20): Are the Goldus shares held by Roncane the traceable proceeds of funds in ATG's bank account?
Assuming, contrary to my reasons as to Issue (19), that there is a proper proprietary foundation for the tracing based claim advanced by RnD Funding then the issue arises as to whether RnD Funding has demonstrated that the Goldus shares are the traceable proceeds of the property of RnD Funding, being the monies in the bank account of ATG.
I find that Mr Hillam was the controlling mind of ATG, Prop Fest and Roncane at the time that the amount of $520,000 was transferred to Prop Fest. It was Mr Hillam who arranged the payment to Prop Fest and by reason of the contemporaneous nature of the dealings it may be inferred that he did so for the purpose of securing the outcome of the issue of the shares to Roncane. He may also be taken to have known that ATG was in default and that the provisions of the General Security Deed that allowed payments to be made in the ordinary course of the business of ATG despite the charge had ceased to apply.
Mr Hillam was cross-examined about the circumstances in which payments were made that resulted in Roncane becoming the controlling shareholder in Goldus. It was put to him that the GST refunds received by ATG were the source of the funds that were used to make the final payment due under the DoCA and he was only able to complete the DoCA by reason of the receipt by ATG of those funds. Mr Hillam disagreed with that statement. He maintained that Roncane obtained the funds from monies it was owned and from money from other entities. He was then reminded of the claim made in the proceedings by Goldus that Roncane received the funds from Prop Fest. He accepted that was the case. However, he would not accept that Prop Fest received the monies from ATG.
As to the payments, Mr Hillam produced a bank statement for Prop Fest which recorded the following:
(1)two transfers into the account on 4 October 2019 in the amounts $20,000 and $500,000 with the note 'atg 2 prop fest'; and
(2)a payment out of the account on 8 October 2019 in the amount of $400,000 with the note 'GOLDUS DOCA'.
There were existing funds in the account of Prop Fest. However, I accept the submission that it should be inferred that the transfers into the account came from the account of ATG and that the payment out indicates that it was made to meet the obligation under the DoCA to make the second payment of $400,000.
At the time of payment into the account there was an amount of $68,976.44 standing to the credit of Prop Fest. After the payment out there was $67,713.44 standing to the credit of Prop Fest. Therefore, if there was to be consideration of tracing, the funds came into an account that was a mixed fund. Even assuming that the $520,000 that came into the account were funds that could be traced at the behest of RnD Funding (at least to the extent of the default in payment of $320,000), it is apparent that some part of the mixed fund could be applied by Prop Fest as it considered appropriate. Usually, the Court would presume that the party dealing with the mixed funds would draw out its own money first: Brady v Stapleton at 337‑338. However, for the defendants, that aspect was passed over on the basis that the amount that came from ATG is readily identifiable and the timing of the payments led to the conclusion that the $400,000 passed through the account. It is probably the case that where Prop Fest has no funds the more satisfactory remedy for RnD Funding would be applied such that the amount of $400,000 (at least to the extent of the interest of $320,000) could be traced into whatever property was obtained by the payment of that money: see Re Oatway; Hertslet v Oatway [1903] 2 Ch 356.
I find that the oral evidence of Mr Hillam which suggested that there may have been some source other than ATG of the funds that Prop Fest received to be unconvincing and contrary to the documents. His failure to acknowledge the obvious evidence from the bank records is another matter which reflects adversely on his credibility.
Mr Hillam was then cross-examined to the effect that he sought to keep confidential from Mr Nakat of RnD Funding the fact that the final payment was being made under the DoCA by which Goldus would obtain control of the Tenements. Mr Hillam denied that was the case and maintained that he would have no reason for doing so.
The terms of an SMS message sent on 16 October 2019 were then put to Mr Hillam. It read:
Joe N is harassing by ringing and writing to Duncan Powell. They do not have to reply and I will be doing so citing confidentiality.
Confidentially for your information only we have completed the Goldus DoCA and I am sole director now and sole shareholder although it is yet to appear on ASIC due to imaging delays.
…
The SMS was subsequently identified as having been sent by Mr Hillam. It appeared to have been accidentally sent to Mr Nakat. The reference to Mr Powell is a reference to one of the administrators of the DoCA.
When confronted with the SMS message, Mr Hillam initially said that he did not recall ever sending the SMS message. He accepted that he became the sole director of Goldus on 10 October 2019 when Roncane took a transfer of all the shares in Goldus. He denied that he kept matters from Mr Nakat.
I find that Mr Hillam took steps to complete the DoCA in circumstances where he sought to keep those steps confidential from Mr Nakat and RnD Funding. The timing of those events was significant because by the time of the SMS message, ATG was in default in repaying substantial amounts to RnD Funding. If RnD Funding had known that ATG was in receipt of substantial funds by way of GST refunds it would be likely to have sought to insist upon compliance with the provisions of the Second Facility Agreement which required the transfer of any assets procured under the DoCA to be transferred to an affiliate of ATG and for Goldus to enter into a deed of accession. By those provisions, RnD Funding could take steps to ensure that its security rights extended to include such assets.
Later in his evidence, Mr Hillam was asked whether he chose not to disclose to Mr Nakat the receipt of those GST refunds. Contrary to his earlier evidence he answered: 'I think that's correct, but I don't think I had to disclose them to him at all'.
Eventually, Mr Hillam gave evidence that he recalled that the text message had been sent to a Mr Liebeskind who was assisting him while he, Mr Hillam, was in hospital. He then questioned whether it was sent or whether it was the whole of the message. Eventually he seemed to accept that it was sent by him to Mr Liebeskind.
The whole course of this evidence by Mr Hillam was unsatisfactory. I accept the submission advanced by Australian Mining and RnD Funding that he identified the matters in the SMS as being unhelpful to his case. In that respect he was correct. The content of the SMS message indicated an attempt to keep the source of the funds that were used to make the payment under the DoCA confidential from Mr Nakat. The course of the evidence reflected adversely on the credibility of the account given by Mr Hillam. It was given evasively and in a manner that was unconvincing.
As to the independent evidence as to what occurred when the last payment was made under the DoCA, there was a payment out of the bank account of Prop Fest to the administrator of the DoCA. The funds did not come into the hands of Roncane. Rather, Prop Fest paid $400,000 to the administrator of the DoCA (being the second tranche required to make up the Fund). The payment of the second tranche was the final condition that needed to be met in order for the obligation of the administrator to transfer the shares in Goldus to an entity nominated by Mr Hillam to fall due for performance. It may be inferred that Mr Hillam nominated Roncane to be that entity.
There is no indication that Prop Fest gave valuable consideration for the receipt of the money or that it was anything other than a volunteer. By reason of Mr Hillam's control of Prop Fest, and his efforts to keep matters from Mr Nakat, inferences may be readily drawn to such effect in the absence of evidence from Mr Hillam to the contrary.
The obligation to pay the $400,000 was not Roncane's obligation. It was the obligation of the Hillam Entities which meant Mr Hillam personally and companies and persons associated with him. However, I conclude that the payment was made to secure benefits which included the issue of the shares to Roncane. I accept the submission that the fact that the payment secured other benefits, such as the releases recorded in the DoCA and the relinquishment by Australian Mining of its interest in the Teetulpa Venture did not mean that the shares were not the traceable proceeds of the $400,000.
The evidence of Mr Hillam was that Prop Fest agreed to lend the $400,000 to Roncane and the payment to the administrator was made by Prop Fest at the direction of Roncane. There is in evidence an instrument of loan that was executed as between Roncane and Prop Fest. It was suggested in submissions for RnD Funding that the existence of that loan should be ignored. The only evidence to support those arrangements is the evidence of Mr Hillam. For reasons I have given, I do not accept his evidence.
Therefore, I find that the $400,000 that came from ATG passed through the hands of Prop Fest and was paid to the administrators of the DoCA in order to procure for Roncane the benefit of the shareholding in Goldus. It follows that if I had reached a different conclusion concerning Issue (19), I would have upheld the tracing based claim.
Issue (21): If the tracing based claim is upheld are the shares in Goldus held on constructive trust for RnD Funding or is the interest of RnD Funding confined to a charge over the shares?
The parties did not provide detailed submissions as to the precise remedial consequences that would flow if the tracing based claim was upheld. If the claim had been established then I would have invited further submissions as to the precise terms of relief. In the result, for reasons I have given, the claim has not been made out. Therefore, it is not necessary to determine Issue (21).
Change in control provisions
For completeness I note that there was agitation about a matter that the defendants proposed to raise concerning the change in control of Goldus effected by the transfer of the shares in Goldus to Roncane. It was said that the transfer triggered a change in control of Goldus for the purposes of certain rights of pre-emption conferred the JVA. Goldus objected to a proposed amendment to raise such a claim. In the result, the claim was not pressed by the defendants.
Relief concerning the proper construction of the DoCA
In closing submissions, Australian Mining sought declaratory relief based on its case as to the proper interpretation of the terms of the DoCA to the effect that Goldus has no further right, interest or claim to a participating interest in the joint venture established by the JVA. As has been noted, it claimed that the participating interest of Goldus in the JVA has been relinquished and Australian Mining is the sole venturer and is entitled to the rights of the venture as against Goldus. For reasons that have been given, that claim has been upheld. Consistently with the approach I have indicated as to the declaratory relief sought by Australian Mining and RnD Funding, the liberty to apply for final declaratory relief should be taken to include that aspect.
Conclusion
As I have indicated, Goldus has succeeded in respect of aspects of its claim for declaratory relief. RnD Funding and Australian Mining have succeeded as to the proper construction of the DoCA. Provision will be made to allow the parties to apply for relief, including orders as to costs, to give effect to these reasons.
I certify that the preceding three hundred and forty-six (346) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.
Associate:
Dated: 10 September 2021
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