Range Resources Ltd v Lind Asset Management LLC - [2015] WASC 238

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION: RANGE RESOURCES LTD -v- LIND ASSET MANAGEMENT LLC [2015] WASC 238

CORAM: MASTER SANDERSON

HEARD: 5 JUNE 2015

DELIVERED : 2 JULY 2015

FILE NO/S: COR 47 of 2015

BETWEEN: RANGE RESOURCES LTD
Plaintiff
AND
LIND ASSET MANAGEMENT LLC
Defendant

Catchwords:

Corporations law - Application to set aside statutory demand - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr M L Bennett
Defendant: Mr D R Sulan

Solicitors:

Plaintiff: Bennett + Co
Defendant: Squire Patton Boggs

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

Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2003] WASCA 94
John Shearer Ltd v Gehl Company (1995) 18 ACSR 780
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749
Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396

MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The application is made under s 459G of the Corporations Act 2001 (Cth). It falls to be determined under s 459H(1)(a). That is to say the plaintiff asserts there is a genuine dispute as to the demand. It is not put against the defendant by the plaintiff that there is some form of off‑setting claim.
The application was supported by an affidavit of Sara Clare Kelly sworn 9 March 2015. The plaintiff also relied upon an affidavit of Michael John Morgan Nas sworn 4 May 2015. The defendant relied upon an affidavit of Arlene Brownstein sworn 19 May 2015. This affidavit had not been filed in conformity with the programming directions and counsel for the plaintiff took objection to its being admitted into evidence. After hearing argument I was satisfied the prejudice to the plaintiff was not so great as to warrant refusing to allow the defendant to rely upon the affidavit. The affidavit dealt with matters which were particularly within the knowledge of the defendant and which responded to matters raised by the plaintiff. Counsel for the plaintiff further maintained the document contained hearsay and was inadmissible on an application such as the present. It is a vexed question as to whether or not an application to set aside a statutory demand is an interlocutory or final hearing and accordingly whether hearsay evidence is admissible. The authorities in this jurisdiction suggest the hearing is final and accordingly hearsay material is not admissible. That is the approach I have adopted in this case.
What I did not allow into evidence was a further affidavit tendered by counsel for the defendant. As I understand it counsel wished to prove certain matters by reference to the corporations law of Delaware in the United States the jurisdiction in which the defendant was registered. In my view it was prejudicial to the plaintiff to allow that affidavit into evidence. The defendant was well aware the authority of the person signing the statutory demand was an issue between the parties. If the defendant intended to rely upon the law of a foreign jurisdiction to establish the authority then it was up to the defendant to prove the law in that jurisdiction. That should have been done in an affidavit filed in conformity with the programming directions. In my view it was unfair to the plaintiff to allow an affidavit dealing with that issue to be tendered on the morning of the hearing. Accordingly leave to rely on the affidavit was refused.
In his written submissions counsel for the plaintiff set out the arrangements between the plaintiff and the defendant which led to the issuing of the demand. Counsel has in my view provided a fair summary of the relevant facts. The summary is drawn from the various affidavits which have been filed particularly the affidavit of Ms Kelly. Counsel for the defendant did not take any objection to the recitation of the facts by the plaintiff. Accordingly the summary of facts which follows is largely drawn from the plaintiff's submissions.
The plaintiff is an oil and gas exploration and development company with its principal oil and gas projects located in Trinidad. It is listed on the Australian Stock Exchange (ASX) and is also listed on the Alternative Investment Market in London.
The defendant is a provider of investment funding to small and mid‑cap publicly listed companies. As a USA company the defendant is unsurprisingly incorporated in Delaware. It is registered to trade in New York. The defendant has a relationship with another entity styled The Lind Partners, LLC. The relationship between this entity and the defendant was the subject of considerable debate and I will deal further with this issue below.
In or about July 2014 the plaintiff, Range Resources Ltd (Range), entered into a Terms Sheet with another entity - the Australian Special Opportunity Fund LP. This agreement was signed by 'The Lind Partners, LLC' and is referred to by the plaintiff as the First Terms Sheet. During this period The Lind Partners, LLC or persons associated with it were conducting due diligence on Range (First Negotiation Period).
Between August 2014 and 29 September 2014 Range and persons associated with The Lind Partners, LLC conducted negotiations in relation to a formal funding agreement (Second Negotiation Period). During that time Range entered into a further Terms Sheet (in September 2014) with 'The Lind Partners, LLC as general partner of the Australian Special Opportunity Fund, LP' (Second Term Sheet). Shortly thereafter on 30 September 2014 Range and the defendant entered into the Initial Funding Agreement.
Between 1 October 2014 and 15 October 2014 the defendant negotiated a variation to the Initial Funding Agreement (Third Negotiation Period). By a deed of variation executed on 15 November 2014 (the Deed of Variation), Range and the defendant entered into the Varied Funding Agreement that is the subject of the statutory demand.
The Varied Funding Agreement is a complex and unusual document. In his written submissions counsel for the plaintiff set out a number of features of the Varied Funding Agreement which he maintained were relevant. They were:
14.1The Defendant agreed to advance to Range up to US$15,000,000 available for 24 months from September 2014 and to be paid to Range is [sic] several tranches. The Tranche 1 funding of US$10,000,000 was payable US$5,000,000 on completion, with the remaining US$5,000,000 to be drawn down over the course of 10 months. A tranche 2 advance of US$5,000,000 was also available in monthly drawdowns from April 2015.
14.2Range received US$4,800,000 in mid-October 2014, after deducting US$200,000 for non-refundable 'commitment fees';
14.3In exchange Range issued to the Defendant the First Convertible Security, having a Cumulative Face Value of US$7,250,000. This amount includes the US$4,800,000 received by Range, the $200,000 commitment fees and a 'Face Value Premium' of US$2,250,000 by virtue of the definition of 'Outstanding Paid Amount' read together with 'Cumulative Face Value';
14.4The amount of the First Convertible Security was to be repaid monthly, subject to certain terms. By clause 5.1(c), the repayments were to be made in Range shares, with Range having an election to make cash payments. Range also had the option of utilising a 'buy‑back' right under clause 5.1(g) to repay the value of the First Convertible Security within a certain timeframe, in which case Range would be entitled to a US$350,000 discount.
14.5As security for the transaction, Range agreed to (and did) issue to the Defendant 38,000,000 shares in Range on 15 October 2015 (being the Collateral Shares). By clause 18.5, the Collateral Shares were expressly to be held as security for the performance of Range's obligations, and were only to be dealt with by the Defendant in specific circumstances set out in the Varied Funding Agreement.
14.6On 15 November 2014, Range made the first 'Monthly Repayment' of US$562,000 by way of the issue of 58,440,891 Range shares to the Defendant.
14.7On 20 and 21 November 2014, Range drew down a further US$500,000 and received US$450,000 after deductions of US$50,000 for non‑refundable 'commitment fees'.
14.8Clause 13(a) made provision for the Defendant to 'declare, by notice to [Range] all outstanding obligations of [Range] under the Transaction Documents, to be immediately due and payable in immediately available funds...' in the instance that 'an Event of Default' occurred. Clause 13(b) specified that if such a notice was issued by the Defendant, Range was to pay to the Investor the 'Outstanding Paid Amount for each Convertible Security' together with interest as described in clause 13(e). That clause prescribed a rate of interest in accordance with the s101of the Civil Procedure Act 2005 (NSW), being a rate 6% above the rate published by the Reserve Bank.
14.9A letter dated 10 January 2015 sent by Squire Patton Boggs to Range states that '[Range] has committed an Event of Default under clause 12.1(g) of the Funding Agreement as [Range's] shares have been suspended from trading on the ASX Official List and/or aim for more than five (5) Trading Days in a 12 month period following the Execution Date'.
14.10Clause 18.13 provided that the parties were to comply with 'all applicable Laws in all material respects'.
14.11Clause 16.7(f) set out the requests for the parties to provide notices to each other. (footnotes omitted)
It is not in dispute that by 7 January 2015 the plaintiff's shares had been suspended for more than five days in a 12 month period. That was acknowledged by the plaintiff in its ASX announcements. That was what provoked the letter from Squire Patton Boggs referred to in par 14.9 above.
It is convenient at this point to set out the 'Description of the Debt' found in the schedule to the statutory demand. It is in the following terms:
Money due and payable pursuant to a demand dated 9 January 2015 (Demand Notice) in which the Creditor demanded repayment of all outstanding obligations by the company to the Creditor.
The debt the subject of the Demand Notice arose pursuant to a Funding Agreement (as amended) dated 15 October 2014 between the company and Lind Asset Management LLC (Agreement), and as a result of an event of default occurring under clause 12.1(g) of the Funding Agreement on 17 December 2014 which entitled the Creditor (under clause 13(a)(i) of the Agreement) to declare, by notice to the company effective immediately that all outstanding obligations of the company under the Agreement were immediately due and payable.
The amount of the Debt includes the cumulative face value of the Convertible Security (issued to the Creditor under the Agreement) of US$7,187,500 plus interest payable in accordance with clause 13(e) of the Agreement of US$1,673.80 per day (compounding monthly) since 17 December 2014 up to the date of the Demand Notice of US$38,497.30.
In his submissions counsel for the defendant identified eight issues which he said could be distilled from the plaintiff's evidence and outline of argument. Counsel for the plaintiff accepted the issues were properly identified. Counsel for the plaintiff also accepted the eighth and final issue which was a claim the statutory demand was issued for an improper purpose had no support in the evidence. It was not pursued.
Turning then to the issues as identified by the defendant, the first issue was that the statutory demand was signed by Mr Easton as the managing director of The Lind Partners, LLC as the manager of Lind Asset Management LLC (Lind). The way in which counsel for the plaintiff developed this issue was as follows. The statutory demand has been signed by Mr Easton as 'Managing Director' of 'Corporation: The Lind Partners, LLC as Manager of [the Defendant]'. The searches conducted by the plaintiff do not disclose any relationship between the defendant and The Lind Partners, LLC. The Deed of Variation appears on its face to have been executed by Mr Easton as 'Managing Director' of the defendant itself.
Counsel further pointed out an individual director of an Australian company will usually have no authority to act on behalf of the company and this extends to the issuing of a statutory demand: see Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2003] WASCA 94. The question of whether an individual has authority to issue a statutory demand is a question of fact. The phrase 'by or on behalf of the creditor' in the Corporations Act requires the establishment of some representative capacity or agency relationship. The plaintiff further submitted that if it was contended that as an aspect of Delaware law the statutory demand could be signed by Mr Easton the relevant law is a question of fact which has not been proved by the defendant.
In answer to the plaintiff's submissions the defendant maintained the evidence was such it could not seriously be doubted that Mr Easton held the relevant authority. Mr Easton authorised the first monthly repayment calculation to be issued. He confirmed that monies were advanced to the plaintiff in accordance with the Funding Agreement. He was the contact point for the plaintiff in respect of its formal notification to the defendant under cl 5.1(d) of the Varied Funding Agreement. He was 'the person who' on behalf of the creditor had dealings with the debtor company that gave rise to the debt (to quote the affidavit in support of the statutory demand). Finally he was a nominated address for service for the defendant in the Varied Funding Agreement.
Further it was alleged the plaintiff had acknowledged the authority of The Lind Partners, LLC. Counsel referred to three matters. First, the plaintiff's release to the ASX on 30 September 2014. It was in the following terms:
Range is pleased to announce it has signed a loan agreement for up to US$15 million in medium‑term financing with Lind Asset Management, LLC, a New York‑based institutional investor managed by the Lind Partners, LLC (together, 'Lind').
Second, the plaintiff's email correspondence annexed to Ms Kelly's affidavit is with individuals with email addresses '@thelindpartners.com' and with the signatures indicating they are from 'The Lind Partners, LLC'. Third, the plaintiff provided formal notification to The Lind Partners, LLC under cl 5.1(d) of the Varied Funding Agreement.
Counsel then referred to the affidavit of Ms Brownstein. Ms Brownstein says she is the Chief Operating Officer of the defendant and the Chief Operating Officer of The Lind Partners, LLC. She annexes to her affidavit two agreements. The first is what she describes as 'the current version of the operating agreement for [Lind Asset Management]'. She says the effect of the 'operating agreement' is that The Lind Partners, LLC will operate as 'the manager' of the defendant and accordingly has authority to bind the defendant. The second document she describes as 'the current version of the Operating Agreement for Lind Partners'. She says that Mr Jeffrey Lind Easton is the manager of The Lind Partners, LLC and has authority to bind The Lind Partners, LLC.
Being examples of United States drafting each agreement is very difficult to follow. Each probably does say what Ms Brownstein says - I offer no concluded view on that issue. But there is a difficulty. Each document is signed by Mr Easton and Mr Easton alone. Whether or not in the circumstances either or both of the agreements is effective is I think open to question. Moreover the signature of Mr Easton which appears on the first agreement is different to the signature which appears at the foot of the second agreement. There is no explanation as to why that is so.
In my view the affidavit of Ms Brownstein can be put to one side. I am not satisfied it is of sufficient probative value to play any part in the determination of this application.
In my view there can be no doubt of Mr Easton's authority in this case. I need not repeat the submissions made by the defendant and set out above. At all material times the plaintiff dealt with Mr Easton and it is clear from the correspondence, and the way the parties entered into the Varied Funding Agreement, Mr Easton was the point of contact and at all material times acted for and on behalf of the defendant. This is an entirely different case from the Horizon Star case. In that case there were two directors of Carina Holdings Pty Ltd. In the affidavit in support of the statutory demand one director had said she was authorised to make the affidavit on the creditor's behalf. In fact no meeting had ever taken place. In fact there was a disagreement between the directors and it was clear if a meeting had taken place no authority to issue the demand would have been given by the deadlocked board.
This is an entirely different position. The Horizon Star case concerned a small deadlocked company. Here the parties were engaged in a significant commercial enterprise where negotiations had taken place over a lengthy period of time and resulted in a detailed agreement. In my view it is disingenuous to suggest the plaintiff is unsure of Mr Easton's authority and call into question his capacity to sign the statutory demand.
The second issue is interlinked with the first. It relates to the affidavit in support of the statutory demand being affirmed by Mr Easton. Effectively what is said is a repeat of what is said concerning the signing of the statutory demand itself - Mr Easton was not authorised, or not properly authorised, to swear the affidavit in support of the application. The plaintiff makes the point the verification of the statutory demand by affidavit is a matter of substance.
Largely for the reasons given above I am satisfied Mr Easton had authority to sign the affidavit. The purpose of the affidavit in support is for someone with knowledge of the debt to give sworn evidence that 'the subject of the demand exists, is due and payable and therefore there is an absence of a genuine dispute': see Assaf F, Statutory Demands and Winding Up in Insolvency (2nd ed) [3.29]. As Mr Easton was the person intimately involved in this transaction it is he who should properly have signed the affidavit. For instance, if Ms Brownstein had signed the affidavit there may have been some doubt as to whether or not she was sufficiently connected with the transaction to be able to verify a genuine belief there was no dispute as to the amount demanded. There is no substance in the plaintiff's complaints.
The third issue relates to the date of the letter of demand. The statutory demand refers to a letter of demand dated 9 January 2015. In fact the letter of demand was 10 January 2015. Whether that error was typographical or some oversight on the part of those preparing the demand is of no real consequence. The plaintiff could have been in no doubt as to which document was being referred to in the schedule to the statutory demand. In my view there is no substance in the plaintiff's complaint.
The fourth issue relates to the fact the letter of demand of 10 January 2015 was sent by the defendant's solicitors rather than the defendant itself. The plaintiff says cl 13(a)(i) is relied upon by the defendant in the statutory demand. The clause permits the investor, ie the defendant, to declare by notice to the company, ie the plaintiff, that monies are due and payable. The plaintiff says as the defendant did not give notice to the plaintiff the default provision has not been activated and there is a genuine dispute as to whether or not the amount demanded is payable.
In support of its submissions the plaintiff relied upon Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396. It was submitted that case is authority for the proposition that notices must be given in strict compliance with the requirements of the underlying contract. It was said this notice does not comply with the requirements of the contract and is therefore ineffective. With respect the Westgold Resources decision is of far narrower import than suggested by counsel for the plaintiff. The case concerned the exercise of an option over shares where a specific form of notice was contained in the schedule to the agreement. That is not this case. It is the case that where no specific form is specified in the relevant agreement the party must use words which unambiguously convey an intention to exercise its rights: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. That is what was done in this case. Accordingly there can be no doubt as to the effectiveness of the notice.

The fifth issue concerns the alleged disposal of the collateral shares by the defendant. In pars 31 ‑ 34 of Ms Kelly's affidavit she asserts that the defendant disposed of the collateral shares otherwise than in accordance with the Varied Funding Agreement and failed to account for the proceeds of sale of the collateral shares in issuing a statutory demand.
The position in relation to these collateral shares is odd. The plaintiff says the collateral shares were held specifically as security for the performance of its obligations under the Varied Funding Agreement. It says the defendant had no general entitlement to deal with the shares and if it intended to deal with the shares at all in addition to other requirements set out in cl 5.1 ‑ cl 5.3 it was required to give prior notice to the plaintiff under cl 5.1, cl 5.2 or cl 5.3. The plaintiff says further that even if notice had been given there is no evidence to support the fact the defendant was entitled to dispose of the collateral shares under cl 5.1 ‑ cl 5.3.
Clause 5.1 ‑ cl 5.3 of the Varied Funding Agreement are extremely complicated and their proper interpretation is beyond the scope of these reasons. But it does appear it may have been open to the defendant to trade the collateral shares while continuing to hold these shares as collateral. That appears to be the effect of cl 3.3(b)(ii) of the Varied Funding Agreement. What also appears clear is that if the defendant was to trade in the plaintiff's shares then the number of shares held by the defendant could not drop below 38 million for five or more consecutive business days. It is the plaintiff's position that is what happened - on 11, 12, 13, 14 and 17 November 2014 the defendant held less than 38 million shares in the plaintiff.
In my view this does not give rise to a genuine dispute. If it was a breach of the Varied Funding Agreement (and I express no concluded view on that question) it was a matter which would sound in damages and would produce an off‑setting claim. As I indicated at the commencement of these reasons the plaintiff says there is a genuine dispute as to the amount of the debt. It has not raised any off‑setting claim. It is difficult to see how any loss it may have suffered could amount to a genuine dispute in relation to the debt demanded.
Counsel for the defendant also referred to cl 10.14 of the Varied Funding Agreement which provides a set‑off exclusion. He submitted that would mean there could be no claim raised by the plaintiff in answer to the demand.
About that submission two things should be said. First, although there has been some controversy over the correct position it now seems clear based upon the authority in John Shearer Ltd v Gehl Company (1995) 18 ACSR 780 (a decision of the Full Federal Court) that even when a no set‑off clause is contained in an agreement a court can have regard to whether a claim exists in determining whether there is an off‑setting claim. Second, the no off‑set clause relates to claims a party may have which would entitle it to reduce the amount payable under an agreement. In other words it does not speak to a genuine dispute claim. But here as I have indicated above it does not seem to me that if the plaintiff has any reason for complaint about the defendant's trading the collateral shares it gives rise to a genuine dispute as to the statutory demand. If it gives rise to an off‑setting claim no attempt has been made to quantify that claim.

The sixth issue relates to the plaintiff's contention the sum demanded constitutes a penalty. Under cl 13(a) of the Varied Funding Agreement if an event of default occurs the defendant can issue a notice requiring repayment of all outstanding 'obligations' including the immediate repayment of any 'Outstanding Paid Amount'. The term 'Outstanding Paid Amount' is defined in the definition section to include the 'Face Value Premium'. The Face Value Premium is said to be $US2,250,000 for the First Convertible Security and $US1,125,000 for the Second Convertible Security. The plaintiff says this means the 'Outstanding Paid Amount' significantly exceeds the amount actually advanced by the defendant. By including the 'Face Value Premium' the 'Outstanding Paid Amount' represents a premium of almost 41% of the monies advanced.
This is one of the more curious clauses in this curious document. It would appear from the terms of the Varied Funding Agreement this 'Face Value Premium' would be payable in any circumstance - that is to say, even if the agreement had run its normal course and repayment had been made by the plaintiff pursuant to the terms of the agreement the Face Value Premium would still have been payable. In other words, payment of the 'Face Value Premium' did not only arise if there was a default under the agreement but it was part of the overall cost to the plaintiff of entering into the agreement with the defendant.
The essence of a penalty is a requirement to pay money stipulated in terrorem of the offending party. The essence of liquidated damages is a genuine covenanted pre‑estimate of damage. The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms of the inherent circumstances of each particular contract judged as of the time of the making of the contract not as at the time of the breach.
The consistent feature of cases where there is an allegation that a particular payment is a penalty is that the amount payable consequent on a default is higher than the amount payable if the terms of the contract are observed. The use of the word 'penalty' is apt. It is an obligation imposed consequent upon a breach. But that is not this case. As was submitted by counsel for the defendant the imposition of the Face Value Premium as a component of the outstanding amount has nothing to do with breach of the Varied Funding Agreement by the plaintiff. The Face Value Premium is simply part of the amount added to the principle of the debt by reason of the contractual terms. It is payable whether the plaintiff breached the Varied Funding Agreement or not. It may mean when the agreement is looked at as a whole the price paid for the loan is frightful. But that is not to the point. In my view it simply cannot be said there is a penalty because there is no additional burden consequent upon default.
The seventh and last issue raised by the plaintiff is an alleged non‑compliance by the defendant with certain provisions of the Corporations Act. This ground is rather more hinted at than explicitly stated. The plaintiff makes reference to s 1043A of the Corporations Act which is generally known as the insider trading provision. The plaintiff says during the First and Second Negotiation Periods the defendant had access to price sensitive information concerning the plaintiff which was not otherwise available to the market. The plaintiff says the defendant disposed of shares in the plaintiff during these periods and therefore the defendant 'may' have contravened the Corporations Act. There is a further allegation the defendant may have engaged in market manipulation contrary to s 1041A of the Corporations Act. The plaintiff says if either or both of these matters were established then the result may be the defendant would not be entitled to enforce its rights under the Varied Funding Agreement.
These allegations are very serious and as I have indicated they are more hinted at than explicitly raised. Ms Kelly's affidavit at par 28 refers to a discussion between a Mr Nicholas Beattie and Mr David Reike, both of the plaintiff, who had discussions in London in December 2014 as a consequence of which certain information appears to have been passed on to the defendant. Ms Kelly's evidence is hearsay upon hearsay. It is difficult to make sense of par 28 but even taken at its highest it could not amount to any admissible evidence to ground the serious allegations raised by the plaintiff. Further there is absolutely no evidence that whatever Mr Easton knew about the affairs of the plaintiff gave rise to trading in its shares. In summary the allegation is so lacking in specifics it can be put to one side.
In my view there is no basis upon which the statutory demand in this case should be set aside. Accordingly I would dismiss the application. The plaintiff ought pay the defendant's costs of the application including the reserved costs.