Ashton v Pope

'Prima facie case' 3 It is useful to briefly collect the principles as to the threshold level of satisfaction required to demonstrate a prima facie case. In short, the requirement does not call for a substantial inquiry and it is satisfied if, on the material before the Court, inferences are open which, if translated into findings of fact, would support all or any of the relief claimed. The threshold for demonstrating a prima facie case is not high. It requires the demonstration of an 'arguable case', noting that this requirement is to be met at the outset of the action, without the advantage of discovery and other procedural aids to the making out of a case. See generally Ho v Akai Pty Limited (in liq) [2006] FCAFC 159; (2006) 247 FCR 205 at [10], [12], [37], [43] (Finn, Weinberg and Rares JJ); Humane Society International Inc v Kyodo Senpaku Kaisha Ltd [2006] FCAFC 116; (2006) 154 FCR 425 at [3] (Black CJ and Finkelstein J); and Israel Discount Bank Limited v ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) [2019] FCAFC 90 at [48] (Yates, Beach and Moshinsky JJ).

The nature of the proceedings 4 The following summary adopts the summary prepared by Clayton Utz, the solicitors for Mr Ashton. I also note that Mr Ashton relies upon two affidavits of Tessa Trend, a solicitor at Clayton Utz. It is to be recalled that at this stage none of the contentions as to Dr Pope's conduct have been tested or formally addressed in this Court. 5 The proceeding relates to the management and insolvency of an Australian incorporated company known as Welldog Pty Ltd. Welldog is now in liquidation. It previously had receivers appointed to it. 6 Dr Pope has been a director of Welldog since December 2010, and the second respondent, Gregory Quinn, has been a director and the secretary since September 2016. Mr Quinn was also financial controller from June 2016 to (at least) March 2017. Separately, I note that Mr Quinn has been personally served with the originating application in this proceeding and is formally represented by solicitors on the record, who appeared by way of courtesy at today's hearing but did not seek to be heard. 7 Dr Pope is also chief executive officer, president, and a director of Gas Sensing Technology Corporation (GSTC). GSTC is the ultimate parent of Welldog. 8 The allegations made against the respondents arise from the same factual background, including the insolvency of Welldog, which are the subject of other proceedings commenced by GSTC in the Supreme Court of Western Australia: (a) GSTC v ProX Pty Ltd (ACN 094 930 480) (CIV 2859 of 2016); and (b) GSTC v ProX Pty Ltd, Simon Ashton, John Mactaggart, Jontra Holdings Pty Ltd (ACN 090 723 783), Associated Construction Equipment Pty Ltd (ACN 009 949 464), Brisbane Angels Nominees Pty Ltd (ACN 122 839 294) and Graeme Linklater (CIV 1876 of 2022). 9 Mr Ashton alleges in this proceeding that the respondents breached their respective statutory and equitable duties owed to Welldog, specifically s 180, s 181, s 182 and s 183 of the Corporations Act 2001 (Cth), and cognate fiduciary duties. The breaches are said to arise from the respondents' involvement in causing payments to be made by Welldog to GSTC, rather than paying its outstanding creditors, including ProX, and so contributing to Welldog's financial decline and ultimate insolvency; or, alternatively, preventing ProX and other creditors from being repaid their debts by the receiver. It is contended that the payments were also made contrary to the terms of a General Security Agreement dated 1 August 2016 between Welldog and ProX (GSA). 10 The payments that form the basis of the allegations in this proceeding also form part of a counterclaim filed by ProX in CIV 2859 of 2016. It appears that GSTC intends to seek to have CIV 2859 of 2016 consolidated with CIV 1876 of 2022. 11 Mr Ashton acknowledges that the causes of action sought to be advanced in this proceeding are of the nature that might ordinarily be advanced by the company itself or, alternatively, a shareholder or other interested party in the name of the company by way of a statutory derivative action. However, it is contended that Mr Ashton is entitled to commence these proceedings under a Deed of Settlement and Release dated 25 April 2019, which assigned to Mr Ashton all claims that either Welldog or its liquidators may have against the respondents. 12 Mr Ashton contends that Welldog suffered losses by reason of the respondents' conduct, and he seeks damages, or alternatively, equitable compensation, in an amount sufficient to compensate for those losses. 13 Mr Ashton contends there is a sufficient basis on the material available at this early stage of the proceeding for the Court to find a prima facie case that: (a) Dr Pope caused payments to be made by Welldog to GSTC, of which he was also chief executive officer, president, and a director; (b) those payments were made in lieu of paying Welldog's outstanding creditors, including ProX, and contrary to the terms of the GSA; (c) had the payments not been made, Welldog would have been able to repay its debts to ProX, thereby avoiding or limiting the financial decline and ultimate insolvency of Welldog or, alternatively, allowing ProX and, to an extent other creditors, to have been repaid their debts by the receiver; and (d) therefore, Dr Pope breached his statutory and equitable duties owed to Welldog as director, or alternatively, was involved in or knowingly concerned in the breaches of those duties by Mr Quinn; and (e) Mr Ashton is entitled to bring these proceedings pursuant to the terms of the Deed.

Prima facie case 14 Ms Trend provided evidence of relevant factual matters in her first affidavit. Ms Trend deposes to her experience as a litigation lawyer since 2013. Ms Trend explained that Clayton Utz act for ProX and Mr Ashton in the Supreme Court proceedings. She has considered relevantly the amended defence and counterclaim filed in CIV 2859 of 2016 (prepared by ProX's former solicitors). The counterclaim is said to centre around payments made by Welldog to GSTC during the period 1 August 2016 to March 2017. Ms Trend attaches a copy of the amended defence and counterclaim to her affidavit. She deposes to the fact that those payments form the basis for the allegations made against the respondents in this proceeding. Ms Trend also attaches a copy of the GSA and the Deed. Ms Trend confirms the particulars of Mr Ashton's case are those set out in the originating application and the concise statement filed in this proceeding. 15 I have had regard to the documents to which Ms Trend refers, and am satisfied that there are inferences open on the basis of the matters pleaded and the documents before the Court which, if translated into findings of fact, would support the relief claimed. The matters suggest a genuine controversy that justifies the use of the Court's processes. 16 In all the circumstances, I am satisfied the applicants have a prima facie case for the relief claimed in the proceeding for the purpose of r 10.43(4)(c).

Jurisdiction 17 Section 1337B of the Corporations Act confers on this Court jurisdiction in relation to civil matters arising under the Corporations Act. 18 Mr Ashton makes claims in this proceeding that arise under the Corporations Act, relevantly being for: (a) declarations pursuant to s 1317E of the Corporations Act that the respondents breached their duties as directors or officers of Welldog under s 180, s 181, s 182 and s 183 of the Corporations Act, or in the alternative, were involved in or knowingly concerned in the breaches of those duties by the other respondent pursuant to s 79 of the Corporations Act; and (b) compensation orders pursuant to s 1317H of the Corporations Act, to compensate the applicant for loss and damage suffered by Welldog by reason of the conduct of the respondents. 19 For completeness, the power to grant the declarations sought is contained in s 21 and s 23 of the Federal Court of Australia Act 1976 (Cth) and s 1317E of the Corporations Act, and the power to grant compensatory damages is (as noted) contained in s 1317H of the Corporations Act. 20 The power to grant equitable relief arises as part of the Court's equitable jurisdiction established by s 5 of the Federal Court Act and its accrued jurisdiction. The same factual matrix is relied upon. The Court therefore has jurisdiction to hear both the federal and non-federal parts of the matter: Westpac Banking Corporation v Paterson [1999] FCA 1609; (1999) 95 FCR 59 at [15]-[16] (Branson, Sackville and Kiefel JJ); National Australia Bank Limited v Nautilus Insurance Pte Ltd (No 2) [2019] FCA 1543 at [81] (Allsop CJ); Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511 at [135] (Gummow and Hayne JJ); Fencott v Muller (O'Connors Winebar case) (1983) 152 CLR 570 at 603 (Mason, Murphy, Brennan and Deane JJ); and Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 482 (Stephen, Mason, Aickin and Wilson JJ). 21 Therefore, on the basis of the materials currently before me it is apparent that the Corporations Act is properly invoked with respect to Mr Ashton's claims, and I am satisfied that the question of jurisdiction for the purpose of r 10.43(4)(a) is satisfied.

Rule 10.42 22 I am also satisfied that the proceeding is of a kind in which an originating application may be served out of the jurisdiction listed in r 10.42. Mr Ashton submits that the proceeding falls within items 1, 13, 15 and 20 of the items listed in r 10.42. I need not consider them in great detail, and I respectfully adopt and accept Mr Ashton's submissions in this regard. I am satisfied that the proceeding falls within item 1 because it concerns causes of action which arose in Australia. The duties owed by the respondents as directors and officers of Welldog arise as a matter of Australian statutory and general law, and the conduct in question relates to the transferring of monies by Welldog, an Australian company, to its overseas parent. The proceeding is also within items 13 and 15 because of the causes of action arising, and the relief sought, under the Corporations Act. Accordingly, I need not determine whether the proceeding also falls under item 20, but there is force in Mr Ashton's submission that it does. Mr Ashton says such a result follows because Dr Pope is a proper party to an action that has already been served within Australia on Mr Quinn: by way of analogy see Advanced Energy Resources Pty Ltd v Bremer Lloyd Marine Logistics GmbH & Co KG [2017] FCA 1487. 23 I am satisfied that the question of jurisdiction for the purpose of r 10.43(4)(b) is satisfied.

Matters raised on behalf of Dr Pope 24 GSTC is represented by HFW Australia with respect to the Supreme Court proceedings. HFW has requested and received copies of all the relevant documents filed in this proceeding to date. HFW, by correspondence to the respective solicitors in the proceeding but provided to the Court by one of Ms Trend's affidavits, has indicated that it does not have instructions to act for Dr Pope personally. However, it asserts a number of matters which I now turn to address, having regard to the residual discretion as to whether to grant leave (referred to in Humane Society International Inc v Kyodo Senpaku Kaisha Ltd at [3]). 25 First, HFW comments on the ex parte and expedited nature of the first case management hearing (conducted by me on 10 November 2022). It is standard practice that applications such as these are first returned on an ex parte basis. Further, the first case management hearing was listed not on an expedited date requested by Clayton Utz, but in accordance with the Court's usual Corporations List procedures. In any event, HFW had notice of today's hearing date and was provided with copies of all documents. 26 Second, and contrary to an assumption that HFW may have made, I gave no indication at the first case management hearing of whether or not leave would be granted (the interlocutory application had not in fact been filed as at that date - the issues were addressed in substance for the first time before me today). 27 Third, contrary to HFW's suggestion, there is nothing unusual in a proceeding of this nature being commenced in this Court. Indeed, disputes of this nature relating to insolvent companies are frequently commenced in this Court. I note HFW's suggestion that it could have been commenced in the Supreme Court by way of counterclaim in the pre-existing proceedings. How that might occur is not clear to me in circumstances where neither Dr Pope or Mr Quinn are parties to those proceedings, but even if through a procedural mechanism such a course could be achieved, that does not direct any finding by me that Mr Ashton has acted inappropriately by commencing proceedings in this Court. 28 Fourth, and in a similar vein to the third point, I also take into account the submission made on behalf of Mr Ashton that the Supreme Court proceedings involve some complexities that do not apply to the proceeding in this Court. There is nothing inappropriate in Mr Ashton having regard to that element of the Supreme Court proceedings and weighing it in the balance in deciding to commence proceedings in this Court. Whether or not this proceeding becomes the subject of any transfer application remains to be seen, and that speculative question does not weigh against the exercise of my discretion on today's application.

Method of service 29 As noted, the evidence indicates that Dr Pope is based in Wyoming in the United States of America. The United States of America is a contracting party to the Hague Convention. 30 Mr Ashton submits that if leave is granted, he proposes to serve the various documents on Dr Pope by making an application in compliance with the Hague Convention to a registrar of the Court pursuant to r 10.64. That application will be accompanied by a draft request for service addressed to the Central Authority in the United States of America, the Office of International Judicial Assistance, together with copies of the documents for service, a summary of those documents and the undertaking required by r 10.64(3). 31 Assuming the registrar is satisfied that the application and its accompanying documents comply with r 10.64, it is expected that the registrar will sign the request and forward the necessary documents to the Office of International Judicial Assistance. Service will be affected by personal service by ABC Legal Services, which has been contracted to execute requests for service of judicial and extrajudicial documents by the Office of International Judicial Assistance. These matters are supported by the first affidavit of Ms Trend.

Determination 32 Having regard to all of the above matters, I am satisfied that Mr Ashton has provided the evidence as required to comply with r 10.43(3). I am also satisfied as to the matters required under r 10.43(4). There is no other reason why there should not be a grant of leave under r 10.43(1). 33 There will be orders as sought by Mr Ashton in his minute of proposed orders accordingly. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Banks-Smith.