Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

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

Statutory demand - Whether genuine dispute about the amount of the debt - Whether creditor obliged to account for the sale of shares held as security in quantifying the debt - Whether any claim by the debtor was an offsetting claim

Corporations Act 2001 (Cth), s 459H(3)

Apex Minerals NL v Ashley [2013] WASCA 176

Bradley v Carritt [1903] UKHL 1; [1903] AC 253

Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5

Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25

Langton v Waite (1868) LR 6 Eq 165

Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249

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

2 MURPHY JA: I agree that the appeal should be dismissed.

3 The background and the relevant terms of the Varied Funding Agreement (VFA) between the appellant (the Company) and the respondent (the Investor) have been set out by Corboy J and need not be repeated here.

4 In its written submissions filed as part of the appellant's case, the appellant contended, relevantly:[1]

The Appellant contends that upon a proper construction of the Varied Funding Agreement, upon a sale of the Collateral Shares part of its obligation to pay was thereby discharged (to the extent of the receipts received by the Respondent from the sale of the Collateral Shares).

Accordingly, there arose a substantial discrepancy between the amount claimed in the Statutory Demand and the true amount of the Debt.

5 The Company was obliged to pay the Outstanding Paid Amount (OPA) for each convertible security (including any interest) pursuant to cl 13(b) of the VFA.

6 The OPA is defined in cl 1.1 of the VFA to mean, in effect, the amounts paid by the Investor for a convertible security, plus the relevant premium attached to it, less:

(a) the repayment of 'Repayment Amounts' under cl 5.1;

(b) conversion of the OPA of the convertible security into shares under cl 5.2; and

(c) 'any other amounts that have been repaid by the Company to the Investor in respect of' the convertible security.

7 It is common ground that there was no repayment of Repayment Amounts under cl 5.1, or conversion of the convertible security under cl 5.2, and that accordingly the deductions referred to in pars (a) and (b) of the definition of OPA had no application.

8 The Company's contention was that it was at least arguable, on the proper construction of the VFA, that the sale proceeds of any sale by the Investor of Collateral Shares constitutes 'other amounts that have been

repaid by the Company to the Investor' within the meaning of par (c) of the definition of OPA. In my view, the contention is not arguable for the following reasons.

9 First, there is no foothold in the language of par (c) of the definition of the OPA to support that contention. An 'amount' which is 'repaid by the Company to the Investor' would not, in ordinary parlance, be an amount derived from the sale of shares by the Investor which the Company did not authorise and in which the Company neither participated nor gave any direction as to the payment of the proceeds of sale.

10 Secondly, read in the context of the VFA as a whole, such a construction of par (c) of the definition of the OPA is unsustainable. There are express provisions dealing with the acquisition of Collateral Shares by the Investor during the currency of the VFA: 5.3(a) and (b). They require a 'Collateralisation Notice' and the payment by the Investor of an amount calculated by reference to the 'Collateralisation Price'. The 'Collateralisation Price' is itself defined in some detail in relation to, inter alia, the volume average weighted price of relevant shares on the relevant Stock Exchange. The purchase sum is paid by the Investor to the Company, but cl 5.3 makes no provision for the amount so paid to reduce the OPA. Rather, any funds received by the Company from the Investor are to be used by the Company for its general corporate and working capital purposes: cl 10.18. Moreover, a feature of the definition of the OPA is that whilst it refers to deductions by reference to cls 5.1 and 5.2 in pars (a) and (b) of the definition respectively, it omits any reference to cl 5.3.

11 Where the parties have agreed that Collateral Shares may be purchased in accordance with cls 5.3(a) and 5.3(b), but the purchase price does not reduce the OPA, the parties could not, objectively, have intended by par (c) of the definition of the OPA that any sale of Collateral Shares by the Investor, without first acquiring the shares in accordance with cls 5.3(a) and 5.3(b), should reduce the OPA.

12 Also, whilst the Collateral Shares are described as 'security' (cl 3.3(b)(i)), they are not security in the conventional sense of assets owned by a borrower used to secure a borrowing. They are shares in the Company itself, issued to the Investor under cl 3.3, effectively at the start of the funding arrangement. In broad terms, they are shares which, at the election of the Investor, may be used by the Investor to offset (via a 'Collateral Share Offset') the Company's obligation to repay money by the issue of 'Repayment Shares' under cl 5.1, and to offset the conversion shares which become issuable by the Company under cl 5.2 if the Investor requires the OPA for a convertible security to be converted into shares. Collateral Shares are not, however, intended to be returned to, or redeemable by, the Company upon repayment of the OPA, or otherwise. That is so even where the Company elects to buy back the outstanding balance of a convertible security by paying an amount equal to the OPA under cl 5.1(g). Rather, if there are any Collateral Shares in the possession of the Investor at the end of the VFA (upon expiry or termination), or 30 days after 'full repayment' of the convertible securities, the Investor is to pay within two business days thereafter, a sum of money representing the then number of Collateral Shares multiplied by the Collateralisation Price. That payment is made by the Investor 'in full and final settlement of the Investor's liabilities in connection with' those outstanding Collateral Shares: cl 5.3(c).

13 The scheme of cl 5.3 is that the Investor is obliged to pay, at the Collateralisation Price, for the Collateral Shares that were issued to it at the outset, insofar as it otherwise does not elect to apply them in satisfaction of the Company's repayment obligations under cl 5.1, or the Investor's conversion rights under cl 5.2. In the absence of a permissible Collateral Share Offset, the Investor might, arguably, be in breach of contract, and be restrained from disposing of Collateral Shares without first acquiring them under cls 5.3(a) and 5.3(b), or be liable for damages for breach of contract. Such a sale, if it were in breach of contract, would diminish the number of Collateral Shares and thereby reduce the amount which the Investor would otherwise be liable to pay the Company within two business days of the events described in cl 5.3(c). However, cl 5.3 is plainly inconsistent with an argument that the parties agreed, by par (c) of the definition of OPA, that any sale of the Collateral Shares by the Investor should reduce the OPA payable by the Company.

14 The Company also placed reliance in this court on cl 3.3(b)(ii) of the VFA. It appeared to argue that the sale of Collateral Shares involved the satisfaction of an 'ongoing undischarged obligation to pay', with the result that either under par (c) of the definition of OPA, or otherwise under the VFA, the OPA was reduced by the amount of the sale proceeds.[2] However, such a submission is contrary to the unchallenged evidence, led by the Company, in the primary court. There, the evidence of the Company's company secretary was:[3]

Under cl 3.3(b) the [Investor] ... could only dispose of Collateral Shares in a manner permitted by that clause, namely to 'satisfy any undischarged obligation of the Company referred to in subclause 3.3(b)(i)' or 'as expressly set out in clauses 5.1, 5.2 and 5.3 and as otherwise permitted'.

At the time of the [sale] transactions referred to ... there were no 'undischarged obligations' of [the Company] and no notices had been given to [the Company] pursuant to clauses 5.1, 5.2 or 5.3 such as to permit [the Investor] to dispose of any of the Collateral Shares ...

Accordingly [the Company] asserts that [the Investor] disposed of some of the Collateral Shares when it was not entitled to do so in breach of the Varied Funding Agreement. As a result, [the Company was] entitled to a set off against the Alleged Debt for the value of the Collateral Shares disposed of as well as any loss or damage suffered by [the Company] as a consequence of the wrongful disposal which at this time cannot be quantified. (emphasis added)

15 Accordingly, the Company's position in the primary court was that there was no 'undischarged obligation' pursuant to which the Collateral Shares were sold for the purposes of cl 3.3(b)(ii) of the VFA. Also, it was not contended in this court that the Company had any right to a setoff in the manner described by the Company's secretary in her affidavit in support of the application to set aside the statutory demand.

16 On the morning of the appeal the appellant filed a Minute of Proposed Supplementary Submissions, the terms of which included relevantly:

• where a mortgagee disposes of collateral shares, the mortgagee is obliged to account to the mortgagor for the proceeds of sale;
• this is an application of the principle that equity will not tolerate a clog on redemption or a fetter on redemption.

17 The Company submitted that the first proposition was supported by reference to Langton v Wait.[4] The second proposition was said to be supported by Bradley v Carritt;[5] and Kreglinger v New Patagonia Meat and Cold Storage Company Ltd.[6] In essence, the appellant's contentions appeared to be encapsulated in the oral submission that the 'proper

construction [of the VFA is] informed by the jurisprudence' referred to in the appellant's minute.[7]

18 The respondent did not contend that it was prejudiced by the very late notice of these proposed submissions, and leave was granted to the appellant to rely on them.

19 The new submissions do not assist the appellant. First, the case of Langton v Waite involved a pledge, not a mortgage. It was a case where the pledgor sued for an account of profits and consequential relief on the unauthorised sale of the pledged property, after it had repaid the relevant debt in full. Secondly, the Company made no, or at least no serious, attempt to demonstrate that on the proper construction of the VFA, the issue of Collateral Shares constituted either a pledge or a mortgage (the respective meanings of which are discussed in Palgo Holdings Pty Ltd v Gowans).[8]

20 Thirdly, and in any event, it is apparent from cls 5.1, 5.2 and 5.3 of the VFA that there was never a right in the Company to redeem the Collateral Shares, and the VFA did not operate as a pledge or a mortgage of the Collateral Shares.

21 Accordingly, the Company has not shown that there is a genuine dispute as to the debt arising from a genuine dispute as to the proper construction or application of the VFA, as it contends. The Company has not contended that it has an offsetting claim as a result of the anterior sale of some of the Collateral Shares prior to the relevant event of default.

22 I agree with Corboy J's observations at [49] - [51] as to the question of leave and the relevant principles. Even if leave to appeal were not required, for the foregoing reasons I would dismiss the appeal.

23 Range Resources Ltd is an oil and gas exploration and development company. It is listed on the Australian Stock Exchange and on the Alternative Investment Market in London. Lind Asset Management LLC

is incorporated in Delaware and provides investment funding to publicly listed companies.

24 Lind advanced funds to Range Resources pursuant to an agreement referred to as the Varied Funding Agreement (VFA). An event of default occurred under the agreement and Lind declared that all 'outstanding obligations' of Range Resources were immediately due and payable.

25 Lind served a demand on Range Resources under s 459E of the Corporations Act 2001 (Cth). Range Resources applied to set aside the demand on various grounds, including that there was a genuine dispute about the debt the subject of the demand (s 459H(3) of the Corporations Act). Master Sanderson dismissed the application: Range Resources Ltd v Lind Asset Management LLC [2015] WASC 238.

26 Range Resources appeals from that decision. It alleges that Lind sold shares in Range Resources that had been issued and delivered as security for the advances made under the VFA and that there was a genuine dispute about the amount of the debt claimed as Lind had failed to allow a credit for the sale proceeds in making its demand under s 459E.

27 In my view, the master was correct to hold that there was no genuine dispute about the amount of the debt the subject of the demand. Any claim by Range Resources in relation to the sale of the shares could only be an offsetting claim for the purpose of s 459H(1) and s 459H(3) of the Corporations Act. However, Range Resources did not contend that it had an offsetting claim and it did not seek to establish that the admitted total less any offsetting claim total was less than the statutory minimum.

28 Accordingly, I would refuse leave to appeal and dismiss the appeal for the reasons that follow.

29 The VFA recited that Lind (referred to in the agreement as the Investor) had agreed to invest $US15 million in Range Resources (referred to in the agreement as the Company) and Range Resources had agreed to issue convertible securities to Lind on the terms of the agreement. The investment by Lind was in the form of a series of advances, with Range Resources issuing convertible securities in consideration for the advances. In particular, cl 2.1(a) of the VFA provided that:

(a) on the Execution Date or such later date as may be determined in accordance with the provisions of this Agreement (the First Closing Date):

(A) advance to the Company ... subject to any set-off in this Agreement, in immediately available funds, US$5,000,000 (First Closing); and

(B) commit to pay the First Monthly Advances to the Company, subject to any set-off in this Agreement, in immediately available funds at each First Funding Date in accordance with the Funding Schedule and the terms of Schedule 1; and

(ii) the Company shall issue ... to the Investor an uncertificated convertible security with a Cumulative Face Value on that date of US$7,250,000 on the terms set out in this Agreement (the First Convertible Security), in consideration of the Investor's advances for the First Convertible Security referred to in clause 2.1(a)(i).

30 Clause 2.1(c) provided for Lind to advance a further $US5 million by monthly payments and for Range Resources to issue a further uncertificated convertible security with a face value of $US1.625 million (the Second Convertible Security).

31 Clause 3.3 of the agreement concerned Collateral Shares. The term Collateral Shares was defined to mean 'the 38,000,000 ASX listed shares issued to the Investor or its nominee in accordance with cl 3.3' (cl 1.1). Range Resources was required by cl 3.3(a) to issue and electronically deliver 38 million shares at First Closing in consideration for Lind entering into the VFA and agreeing to purchase the First Convertible Security and the Second Convertible Security. It was not in issue that Range Resources fulfilled that obligation.

32 Clause 3.3(b) further provided that Lind could deal with the Collateral Shares:

(i) shall constitute security for the obligations owed to the Investor by the Company under this Agreement, including any obligation to issue Repayment Shares, issue Conversion Shares, issue Buy-Back Conversion Shares or any obligation to pay any monetary amount under this Agreement; and

(ii) may be sold, assigned, mortgaged or otherwise dealt with by the Investor, to satisfy any undischarged obligation of the Company referred to in sub-clause 3.3(b)(i); and

(iii) may be dealt with as expressly set out in clauses 5.1, 5.2 and 5.3 and as otherwise permitted.

33 Clause 5 of the VFA concerned repayment and conversion of the convertible securities issued by Range Resources. Clause 5.1(a) required Range Resources to pay the Cumulative Face Value of each Convertible Security in separate monthly instalments equal to the Repayment Amount, subject to the provisions of cl 5.1 - cl 5.5 and cl 6. The Repayment Amount was defined by cl 1.1 to be a fixed monthly instalment amount.

34 Clause 5.1(c) provided that payment of the Repayment Amount was to be by way of Repayment Shares subject to Range Resources electing to pay a part of the Repayment Amount in cash. The term Repayment Shares was defined to mean fully paid ordinary shares in Range Resources or a depository interest representing a share listed or to be listed on the AIM Market of the London Stock Exchange issued by way of repayment of the relevant Convertible Security.

35 Clause 5.1(n) required Lind to provide Range Resources with a notice of the Repayment Price applicable to the Repayment Amount on or prior to each repayment date for a Convertible Security. The notice was to set out:

(a) the manner in which the Repayment Price was calculated by Lind (the price was to be calculated by reference to the volume weighted average price of shares in Range Resources or the depository interest representing a share listed or to be listed on the AIM Market);

(b) the number of Repayment Shares to be issued by Range Resources for the Repayment Amount; and

(c) the amount of Collateral Share Offset elected by Lind in respect of the Repayment Shares.

36 The term Collateral Share Offset was defined to mean:

(a) the offset of Collateral Shares with Repayment Shares issuable to Lind on a Repayment in accordance with cl 5.1; or

(b) the offset of Collateral Shares with Conversion Shares issuable to Lind on a Conversion in accordance with cl 5.2.

37 Clause 5.1(o) provided that where Lind gave a notice under cl 5.1(n) 'that it will elect for a Collateral Share Offset in respect of a payment of Repayment Shares on a Repayment Date, all right, title and interest in the Collateral Shares, on an unconditional and unrestricted basis, shall pass to [Lind] on that Repayment Date' (emphasis added). The clause further provided that:

(a) the offset constituted a discharge of the security represented by that number of Collateral Shares and a full and final settlement of Lind's liabilities in connection with that number of Collateral Shares (cl 5.1(o)(ii));

(b) the offset of Collateral Shares would reduce the number of Repayment Shares required to be issued by Range Resources on the Repayment Date by a corresponding number (cl 5.1(o)(iv)).

38 Clause 3.3(b)(iii) also permitted Lind to deal with the Collateral Shares according to the provisions of cl 5.2 and cl 5.3. Clause 5.2 enabled Lind to 'convert the Outstanding Paid Amount of each Convertible Security into Shares' on giving notice (a Conversion Notice). Range Resources was required to 'effect a Conversion of the relevant Convertible Security or the part thereof specified ... in [the] Conversion Notice' by issuing and delivering shares or depository interests representing shares. Lind was required to specify in the Conversion Notice the amount of the Outstanding Paid Amount that was to be converted to shares and the number of Collateral Shares that it designated as the Collateral Share Offset in respect of the amount to be converted (an offset of Collateral Shares operated to reduce the number of shares that Range Resources was required to deliver pursuant to the Conversion Notice (cl 5.2(f)(iii)). As in cl 5.1, cl 5.2(f)(ii)(A) provided that any offset constituted a discharge of the security represented by the number of Collateral Shares and was in settlement of the liabilities of Lind in connection with the shares.

39 The term 'Outstanding Paid Amount' was defined to mean:

Outstanding Paid Amount for a Convertible Security means the Paid Amount which has been paid by the Investor to the Company and actually received by the Company ... plus the Face Value Premium for that Convertible Security less:

(a) repayment of Repayment Amounts for that Convertible Security (including whether by Repayment Shares, the offset of Collateral Shares or by Repayment Amounts paid in cash) under cl 5.1; and

(b) conversion of that Convertible Security of any Conversion Amounts into Conversion Shares (including by the offset of Collateral Shares) under cl 5.2; and

(c) any other amounts that have been repaid by the Company to the Investor in respect of the Convertible Security.

40 Clause 5.3 enabled Lind to elect to acquire all right, title and interest in some or all of the Collateral Shares by issuing a notice (a Collateralisation Election Notice). Clause 5.3(b) provided that Lind was required, on giving a Collateralisation Election Notice, to 'advance in cleared funds' to Range Resources an amount determined by multiplying the number of Collateral Shares that was the subject of the election by the Collateralisation Price (determined by reference to the trading price of Range Resources' shares).

41 Clause 12 of the VFA concerned events of default. Clause 12.1(g) specified that it was an event of default if trading in Range Resources' shares was suspended for more than five trading days in a rolling 12 month period. Clause 13 provided that Lind could declare that all outstanding obligations by Range Resources, including the immediate repayment of any Outstanding Paid Amount, be immediately due and payable if an event of default occurred.

42 It was not in issue that an event of default had occurred under cl 12.1(g) and that Lind was entitled to declare, and had declared, that all outstanding obligations by Range Resources under the VFA were immediately due and payable. It was apparent that the demand that was subsequently served on Range Resources was, in effect, for the Outstanding Paid Amount.

The alleged disposal by Lind of Collateral Shares

43 An affidavit in support of the application to set aside the statutory demand was made by Sara Clare Kelly, the company secretary of Range Resources. Ms Kelly alleged, by reference to a transaction statement issued by the share registry provider for Range Resources, that Lind had sold Collateral Shares in the period 11 to 17 November 2014. The total number of Collateral Shares allegedly sold was 7,822,100 shares.

44 Ms Kelly further alleged that there were no undischarged obligations of Range Resources and no notices had been given pursuant to cl 5.1, cl 5.2 or cl 5.3 of the VFA during the time when the shares were sold by Lind. There was no objection to Ms Kelly's affidavit and Lind did not dispute the allegations that she made concerning the sale of Collateral Shares.

45 Range Resources applied to set aside the statutory demand on eight grounds. Those grounds included that Lind had breached the VFA by disposing of Collateral Shares and that it had failed to account for the proceeds of sale in specifying the amount of the debt the subject of its demand.

46 The master held that it was not necessary to reach a concluded view on the meaning and effect of cl 5.1 - cl 5.3 of the VFA. Rather:

[i]f 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 offsetting 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 offsetting 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 [32].

47 Range Resources alleged that the master erred in dismissing its application as:

[T]he Appellant provided unanswered evidence before the Learned Master that the Respondent had traded shares in the Appellant lodged with the Respondent as Collateral Shares (which shares on a proper construction of the Varied Funding Agreement were collateral security for the repayment of the amount advanced pursuant to the Varied Funding Agreement), without accounting to the Appellant for the sums thereby received or otherwise reducing the amount of the debt the subject of the Statutory Demand to take account of the receipt of such funds (ground 1).

48 It was further alleged that the master ought to have held that:

[T]he Appellant had established a genuine dispute as to the amount of the debt ... by reason of establishing that the Respondent had dealt in the Collateral Shares without disclosing to the Appellant the amount of receipts thereby obtained by the Respondent or otherwise giving credit for such receipts as against the amount the subject of the Statutory Demand (ground 2).

The error alleged in proposed ground of appeal 2 is a consequence of the error pleaded in proposed ground 1. Accordingly, I have not treated the grounds of appeal as raising separate errors to be independently considered.

Leave to appeal and the relevant principles

49 The parties made submissions on whether it was necessary for Range Resources to be granted leave to appeal and if so, the test for leave that ought to be applied. It was said that there was a conflict in the authorities on the question of whether a decision to refuse to set aside a statutory demand was interlocutory or final. However, there are decisions of this court which have proceeded on the basis that leave is required to appeal from such a decision: see, for example, Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 and Apex Minerals NL v Ashley [2013] WASCA 176.

50 The test to be applied in determining whether leave to appeal should be granted is well established: see Central City v Montevento Holdings [3]. Lind made submissions regarding the application of that test to the circumstances of this appeal. However, in my view it is not necessary to consider whether leave is required and the issues raised by those submissions in light of the conclusion that I have reached that the master did not err in law as alleged by Range Resources.

51 The principles relevant to an application to set aside a statutory demand are mostly settled: see Central City v Montevento Holdings [9] - [17]. There was no issue raised by the parties about the formulation of the principles to be applied in this appeal.

52 Range Resources contended in its written submissions that:

(a) on a proper construction of the VFA, Lind held the Collateral Shares as collateral for the repayment of the amount advanced pursuant to the VFA;

(b) Lind had dealt with the Collateral Shares 'in a manner not contemplated' by the VFA;

(c) 'as a matter of law, [Lind] was obliged to give credit to [Range Resources] in making a demand pursuant to the Varied Funding Agreement for payment of the amount alleged to be due for the receipts obtained by [Lind] from dealing in the Collateral Shares'; and

(d) by Lind failing to disclose the details of its dealings, Range Resources had shown a genuine dispute as to the amount of the debt claimed and there was no basis for the court to vary the amount of the statutory demand (appellant's submissions, par 4).

53 Two points should be noted about those submissions. First, Range Resources alleged in the application that Lind had dealt with the Collateral Shares in breach of the VFA. Lind emphasised that matter in the appeal as it suggested that Range Resources could only maintain a common law claim for damages - a claim that would only constitute an offsetting claim for the purpose of s 459H of the Corporations Act. It would seem that the submission by Range Resources that Lind had dealt with the Collateral Shares in a manner that was not contemplated by the VFA was an allegation of breach. However, counsel for Range Resources was equivocal in his response to questions on whether the share sales did constitute a breach of the agreement.

54 Second, it was apparent from the balance of its written submissions that Range Resources contended that Lind was obliged by the terms of the VFA to give a credit for funds received from the sale of Collateral Shares. It was submitted that, on a proper construction of the VFA, Range Resources' obligation to repay the advances made by Lind was discharged to the extent of the amounts received from the sale of Collateral Shares (appellant's submissions, par 26). However, the particular terms of the VFA that had the effect of 'discharging' Range Resources' obligation to repay advances on a sale of Collateral Shares were not expressly identified.

55 Range Resources served a list of additional authorities immediately prior to the hearing of the appeal. It was contended in supplementary written submissions that the authorities supported two propositions: first, that a mortgagee was obliged to account to the mortgagor for the proceeds of sale where it disposed of collateral security and second, the obligation to account was an instance of the doctrine that equity will not tolerate a clog or fetter on the redemption of mortgaged property.

56 As has been noted, Range Resources did not seek to establish that it had an offsetting claim for the purpose of s 459H of the Corporations Act. Accordingly, the references in its submissions to an obligation to account were not to the legal or equitable remedy of an account. Rather, Range Resources relied solely on an argument that the effect of the sale of the Collateral Shares was to reduce the debt owed to Lind (at least when a demand was made for repayment of the debt) and that there was, therefore, a genuine dispute about the amount of the debt claimed as Lind had failed to allow a credit for the proceeds of the share sales in making its demand under s 459E.

57 That approach shaped how Range Resources defined the issue to be determined in the appeal: 'whether upon the event of default Lind could issue a statutory demand for 100% of the debt without calling into and taking into account the proceeds that it had received from the disposition of collateral securities' (appeal ts 4). It was submitted that there were two reasons why that question was to be answered in the negative.

58 First, the term Outstanding Paid Amount was defined to mean the amount advanced plus premium less, among other things, 'any other amounts that have been repaid by the Company to the Investor' (par (c) of the definition of Outstanding Paid Amount). A disposition of Collateral Shares, other than pursuant to cl 5.1 - cl 5.3, constituted a repayment by Range Resources to Lind within the meaning of the term Outstanding Paid Amount.

59 Second, it was contended that a mortgagee could not act inconsistently by both taking the benefit of a disposition of its collateral security and demanding repayment of 100% of the secured debt.

60 Those propositions were said to be interrelated - the second proposition 'informing' the proper construction of the VFA. Presumably, what was meant by that submission was that, on its proper construction, the VFA created some relationship between the parties or vested some interest in the Collateral Shares in Range Resources, an incident of which was that a disposition of the Collateral Shares by Lind effected a reduction in the indebtedness of Range Resources.

Dealings in the Collateral Shares and the Outstanding Paid Amount

61 Clause 3.3(b) of the VFA permitted dealings with the Collateral Shares under cl 5.1 - cl 5.3 or to satisfy any undischarged obligation of Range Resources. A dealing with the Collateral Shares under cl 5.1 - cl 5.3 could not directly reduce the indebtedness of Range Resources; that is, directly reduce the Outstanding Paid Amount.

62 Clause 5.1 of the VFA provided a mechanism by which Collateral Shares could be used for the payment of monthly instalments by Range Resources. However, the wording of the clause is significant. The Repayment Amount could be paid in Repayment Shares and/or cash. The Collateral Shares were not Repayment Shares. Lind could elect to 'offset' the number of Repayment Shares to be delivered by Range Resources with Collateral Shares. However, an offsetting of Collateral Shares was expressly stated to be in payment of the Repayment Shares and not in payment of a monthly instalment.

63 Those arrangements were consistent with the terms of cl 5.1(o)(ii). As has been noted, that clause had a twofold effect. First, the clause provided that an offset constituted a discharge of the security represented by the Collateral Shares (rather than a discharge of an equivalent amount of the Outstanding Paid Amount). Second, the offset was in satisfaction of Lind's liabilities in connection with the Collateral Shares (and not in satisfaction of Range Resources' liabilities to Lind).

64 The reference to the liabilities of Lind in connection with the Collateral Shares was apparently a reference to cl 5.3(c). That clause provided that:

Notwithstanding any other provision of this Agreement, to the extent that any Collateral Shares remain in the possession of the Investor or its nominee at the earlier of:

(i) at the expiry of the Applicable Term;

(ii) the termination of this Agreement under cls 13, 14, or 16.14; or

(iii) 30 calendar days after the date on which full repayment of the Convertible Security occurs,

on the basis that they have not been the subject of a Collateral Share Offset or a Collateralisation Election (Outstanding Collateral Shares), the Investor must, within two (2) Business Days after the last date of the circumstance referred to in cl 5.3(c)(i), cl 5.3(c)(ii), or cl 5.3(c)(iii) as applicable, pay the Company in immediately available funds in lieu of returning the Outstanding Collateral Shares (and as discharge of the security represented by those Outstanding Collateral Shares and in full and final settlement of the Investor's liabilities in connection with those Outstanding Collateral Shares) an amount equal to the number of Outstanding Collateral Shares multiplied by the Collateralisation Price.

65 A Collateral Share Offset undertaken as part of a conversion under cl 5.2 would also not directly reduce the amount owed by Range Resources to Lind. The debt owed by Range Resources would be reduced by the amount specified in the Conversion Notice (defined in the VFA as the Conversion Amount) on the conversion being 'effected'. A Collateral Share Offset would merely reduce the number of shares required to be issued and delivered by Range Resources in effecting the conversion. Again, cl 5.2(f)(ii)(A) was to the same effect as cl 5.1(o)(ii).

66 The definition of Outstanding Paid Amount did not refer to an acquisition of Collateral Shares pursuant to cl 5.3. That clause required Lind to 'advance' funds to Range Resources in payment for the shares. Accordingly, the acquisition of Collateral Shares through a Collateralisation Election Notice would not reduce the amount owed by Range Resources to Lind. Rather, Lind was required to pay for the shares that it acquired.

67 Clauses 5.1 to 5.3 reflected the recited purpose of the VFA - to provide investment funding to Range Resources. The clauses facilitated the conversion of debt to equity. The Collateral Shares constituted a pool of shares issued in Range Resources and delivered at the commencement of the agreement that provided both security and a ready means of enabling debt to be converted. Obviously, the extent to which the shares provided security diminished as they were used as offsets or acquired under cl 5.3. The effect of cl 5.3(c) was that Range Resources could never redeem the Collateral Shares. Lind was obliged to pay for the Collateral Shares within two business days if the VFA was terminated for any reason, including a default by Range Resources.

68 In my view, the sale of Collateral Shares by Lind could not arguably constitute a repayment within the meaning and for the purpose of par (c) of the definition of Outstanding Paid Amount. The receipt of the proceeds from a sale of the shares by Lind to a third party could not be characterised as an amount that had been 'repaid by the Company to the Investor in respect of [a] Convertible Security'. It would distort the meaning of the expression 'repaid by the Company to the Investor' and overlook the effect of the words 'in respect of the Convertible Security' to construe par (c) in that way.

69 That would be so regardless of whether the VFA permitted a sale of Collateral Shares in circumstances other than in satisfaction of the undischarged obligations of Range Resources. However, in my view such a sale would be, at most, in breach of the VFA and I do not consider that the parties could have intended that an unauthorised sale of Collateral Shares would constitute a repayment in respect of a Convertible Security. The VFA contained comprehensive provisions for dealings with the Collateral Shares that defined the extent to which Lind could permissibly deal with the shares.

70 Counsel for Range Resources suggested that the position might be otherwise because of the width of cl 3.3(b)(ii), coupled with the use of a possibly permissive 'may' in cl 3.3(b)(iii) (the Collateral Shares 'may be dealt with as expressly set out in clauses 5.1, 5.2 and 5.3 and as otherwise permitted'). However, I consider that it is apparent from the wording of cl 3.3, read with the provisions cl 5.1 - cl 5.3, that Lind was to hold and deal with the Collateral Shares only on the terms provided by the VFA.

71 The wording of cl 5.1(o) and cl 5.3 suggested that Range Resources retained some interest in the Collateral Shares prior to any dealing with the shares by Lind. The nature of that interest, if any, is unclear - especially in light of the provisions of cl 5.3(c). However, an unfettered right to deal in the shares would be inconsistent with any interest that Range Resources might have retained or with any equity that it might have possessed in relation to the shares. Moreover, the parties could not have intended that Lind could dispose of the Collateral Shares to third parties other than as permitted by cl 3.3(b)(ii) given the benefits to Range Resources of Lind dealing with the shares under cl 5.1 - cl 5.3. The effect of cl 5.1 and cl 5.2 was that a Collateral Share Offset operated to reduce the number of Repayment Shares or Conversion Shares that Range Resources was required to issue and deliver. The effect of cl 5.3 was that Lind was required to 'advance' funds to Range Resources on a Collateralisation Election. Most significantly, cl 5.3(c) required Lind to pay for whatever Collateral Shares it held on termination or completion of the agreement. Range Resources would be denied the significant benefits conferred by cl 5.1 - cl 5.3 if the VFA was construed in such a way as to permit Lind to sell Collateral Shares to third parties if, and whenever, it chose.

The share sales and the demand made by Lind

72 Counsel for Range Resources submitted that it did not matter whether the alleged disposition of the Collateral Shares was in breach of the VFA:

We put it in, perhaps, the alternative and for the purpose of the present proceedings it's not necessary that Range identify whether the sale was in breach or pursuant to the agreement. What Range identifies is the fact of a sale of something that's unmistakeably a security interest by the mortgagee for which no value has been attributed. And that's a circumstances where Range says you can't then demand 100 per cent of the debt when you've received a payment from the security (appeal ts 10).

73 As has been noted, that submission rested on two propositions: first, 'where a mortgagee disposes of collateral shares, the mortgagee is obliged to account to the mortgagor for the proceeds of sale' and second, 'this is an application of the principle that equity will not tolerate a clog on redemption' (appellant's supplementary written submission). The decision of Sir Richard Malins VC in Langton v Waite (1868) LR 6 Eq 165 was cited as authority for the first proposition and Bradley v Carritt [1903] UKHL 1; [1903] AC 253 and Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25 were said to illustrate the second.

74 The plaintiff in Langton v Waite pledged stock to a firm of stockbrokers as security for a loan. The brokers sold the stock during the term of the loan and purchased other stock at a lesser price for delivery to the plaintiff on repayment of the loan. The plaintiff's bill in equity prayed that an account be taken of the money realised by the sale, with the plaintiff claiming that he was entitled to the profit derived by the defendants. The bill was filed after the plaintiff had repaid the loan and the defendants had transferred the stock that had been purchased at a profit to the plaintiff.

75 Malins VC rejected an argument that the defendants were entitled to sell the stock according to broking practice and the terms of the pledge contract:

[I]n the absence of express contract, the pawnee of property cannot sell it until the debt for which it is pledged becomes payable, and, if he does so, the owner has a right to charge the pawnee with the price he gets for the property, if he finds it to his interest to do so' (170).

76 In a passage relied on by Range Resources, the Vice Chancellor concluded:

I am therefore of opinion that the Defendants had no right to sell the stock pledged to them, and that, having done so, they must be charged as between themselves and the Plaintiff with the amount which was produced by the sale. ... The result is, that there must be a declaration that the Defendants were not entitled to sell the ... stock which was deposited with them; and there must be an account taken of what was produced by the sale (173).

77 It was submitted that the account to which the Vice Chancellor referred was 'an account at the time of demand' and that the decision illustrated the proposition that a creditor could not 'demand 100 per cent and then subsequently sue for an account' (appeal ts 16). However, there was no demand by the defendant creditors in Langton v Waite. Rather, the plaintiff filed his bill after the loan had been repaid. He sought to recover the amount that had been received by the defendants on the sale of the pledged shares. That required the plaintiff to return the shares that had been delivered to him (otherwise, he would have received both the proceeds from the sale of the pledged shares and the redelivered shares). Accordingly, the orders that were made were that an account be taken of what was produced by the sale; that the amount of the loan made to the plaintiff be deducted from the sum produced by the sale together with interest up to the date on which the loan was repayable; that the defendants pay the surplus to the plaintiff and the plaintiff re-transfer to the defendant the stock which he had received when he repaid the loan.

78 The plaintiff's remedy in Langton v Waite for the unauthorised sale of his pledged security was for an account to be taken of the sale, with consequential relief to give effect to the account. There is nothing in the decision to suggest that the debt owed to a pledgee (or mortgagee) is automatically reduced by the amount realised on an unauthorised disposition of the pledged security rather than that the wronged pledgee may have a right of action in law or an entitlement to an equitable remedy. Indeed, the law relating to unauthorised dealings in pledged security is to the contrary. An unauthorised dealing by the pledgee with pledged property does not revest the immediate right of possession in the pledgor and the pledgor cannot recover in trover or detinue. The pledgor's remedy is an action for breach of the contract of pledge in which it can only recover the damages actually sustained.

79 Range Resources submitted that the proposition that it sought to establish by reference to Langton v Waite reflected the doctrine that equity will not allow a clog on the equity of redemption. However, that submission could not be accepted, in my view, for the following reasons.

80 First, the contention apparently conflated pledge and mortgage (see Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249 [17] and Tyler ELG, Young PW and Croft CE, Fisher & Lightwood's Law of Mortgage (3rd Aust ed, 2014) 1.11 on the difference). The High Court explained in Palgo Holdings that time had not dulled the distinctions between pledge, lien and mortgage. The plurality quoted, with obvious approval, Professor Sir Roy Goode's view that, '[t]he three types of security are mutually exclusive and that it is not possible, for example, for the creditor to be both a pledgee and a mortgagee of the same asset at the same time' (Goode R, Commercial Law (3rd ed, 2004) 617 - 618).

81 Second, consistent with the origins and the nature of pledge, the pledgor's right to redeem the pledged property on payment of the secured debt is a legal right:

As there is no transfer of legal ownership to the pledgee and no forfeiture of the pledgor's rights by reason of default ipso facto, there is no need for equity to build up any special rules as to redemption. The only thing which will bar the right to redeem is sale by the pledgee.

(Sykes EI and Walker S, The Law of Securities (5th ed, 1993) 734).

82 Third, a clog or fetter on the equity of redemption is a stipulation for a collateral advantage, not forming part of the security, giving the mortgagee some advantage in addition to the security: Fisher & Lightwood's Law of Mortgage, 744. For example, the fetter in Kreglinger was a right of pre-emption in relation to the purchase of sheepskins. The fetter apparently suggested in this instance is a 'right' for Lind to sell Collateral Shares without bringing to account the sale proceeds by reducing the indebtedness of Range Resources, including reducing the Outstanding Paid Amount, when making demand for repayment. However, there is no stipulation to that effect in the VFA.

83 Fourth, the Collateral Shares cannot be redeemed on discharge of all of Range Resources' obligations under the VFA. Clause 5.3(c) provided that Lind was required to pay for the Collateral Shares held on termination or completion of the agreement. Accordingly, there is no equity in Range Resources to redeem the Collateral Shares that can be fettered by any of the provisions of the VFA.

84 Fifth, a right to redeem the secured property is an essential characteristic of both pledge and mortgage. It is not clear that Range Resources possesses any proprietary interest in the Collateral Shares. However, any interest that it might possess is not to be equated with the interest of a mortgagor and the VFA does not, in my view, involve a mortgage of the Collateral Shares.

85 In my view, on a proper construction of the VFA, a sale of Collateral Shares by Lind would not reduce the Outstanding Paid Amount or discharge any other indebtedness of Range Resources, except where the sale was for the purpose of satisfying an undischarged obligation. The sale of the Collateral Shares for some other purpose would constitute a breach of the VFA. Range Resources might also be entitled to an account and to consequential relief. A claim for damages for breach of the VFA or some other claim in equity would be an offsetting claim for the purpose of s 459H(1) and (3) of the Corporations Act. I do not consider that the authorities to which Range Resources referred in its supplementary submissions were relevant to the interpretation and application of the VFA or that they established, as an independent principle, that Lind was obliged to account for the sale of the Collateral Shares in quantifying the amount of the debt the subject of its demand.

86 Contrary to the submissions made by Range Resources, those conclusions do not produce an unjust result. The right to make an offsetting claim accommodates whatever claims Range Resources might possess in relation to the sale of the Collateral Shares.

[1] Appellant's written submissions, pars 26 and 27.

[3] Affidavit of Ms S Kelly sworn 9 March 2015.

[4] Langton v Waite (1868) LR 6 Eq 165, 173.

[5] Bradley v Carritt [1903] UKHL 1; [1903] AC 253, 261.

[6] Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1913] UKHL 1; [1914] AC 25, 35.

[8] Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249 [17] - [19].