Gandel Metals Pty Ltd, in the matter of Centennial Mining Limited (Subject to Deed of Company Arrangement) v Centennial Mining Limited

ORDERS VID 688 of 2019 IN THE MATTER OF CENTENNIAL MINING LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT (ACN 149 308 921) BETWEEN: GANDEL METALS PTY LTD (ACN 102 347 955) Plaintiff

AND: CENTENNIAL MINING LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 149 308 921) First Defendant

MALDON RESOURCES PTY LTD (ACN 090 458 665) Second Defendant

RICHARD SCOTT TUCKER Third Defendant

V C OLDFIELD INVESTMENTS PTY LIMITED ACN 149 465 805 AS TRUSTEE FOR THE OLDFIELD FAMILY TRUST NO. 3 Interested Party

JUDGE: MIDDLETON J DATE OF ORDER: 15 May 2020

1. The parties confer and within 7 days provide to the Court an agreed minute of order (including as to costs or any other directions), or if no agreement, a short submission by each party as to the appropriate minute of order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MIDDLETON J: 1 This proceeding concerns a dispute between the Applicant, Gandel Metals Pty Ltd ('Gandel') and the Respondent, Centennial Mining Limited (subject to Deed of Company Arrangement) ('Centennial') as to a whether Gandel is entitled to the benefit of certain securities equivalent to those of a creditor ('Squadron') whose debt it had refinanced, under the equitable doctrine of subrogation. Consequently, Gandel sought a declaration, alternatively an order determining, that Gandel is entitled by way of subrogation to the benefit of the mining mortgage granted by Centennial to Squadron and formerly registered on the Victorian Mining Register as number F90010146. 2 The dispute arose in the circumstances summarised below. It will be necessary in due course to refer to some further facts in more detail. 3 Most of the facts of this matter and the applicable law are not the subject of dispute. Whilst Ian Gandel (the Director and Company Secretary of Gandel) was cross-examined, nothing in his cross-examination affected the evidentiary conclusions I have reached based upon the written evidence. Mr Gandel's credit was not impugned, and he gave reliable evidence relating to the relevant events. In any event, it was not in dispute that the documentation placed in evidence before the Court could be relied upon to determine the controversy between the parties.

FACTUAL BACKGROUND 4 Centennial is a publicly listed company that owns the A1 gold mine near Bendigo, Victoria. Maldon Resources Pty Ltd ('Maldon') is a wholly owned subsidiary of Centennial. It owns assets that are complementary to the mine. 5 In or about April 2015, Squadron agreed to loan up to $2 million to Centennial (the 'Squadron Loan'). The Squadron Loan was documented as a convertible note agreement executed on or about 12 May 2015 (the 'Convertible Note Agreement'), and was secured by a general security deed dated 25 June 2014 (the 'GSD'). Under the GSD, Centennial granted Squadron a mortgage over Centennial's mining tenement (the 'Squadron Mortgage'). 6 Centennial's shareholders approved the entry into the Convertible Note Agreement, the GSD and the Squadron Mortgage. 7 Centennial and Squadron also executed a supplementary agreement on or about 12 May 2015, which provided for an additional $500,000 to be raised in addition to the $2 million as set out in the Convertible Note Agreement. 8 The GSD, which includes the Squadron Mortgage, defines the 'Secured Money' as 'all money that [Centennial] is or at any time may become actually or contingently liable to pay to or for the account of the Secured Party or a Noteholder (whether alone or with another person) for any reason under or in connection with a Finance Document'. 9 The Noteholders, of which there were 15, are listed in Schedule 1 to the GSD. The first one is Squadron, and there are 14 smaller noteholders. The noteholders appointed Squadron as the representative holder. Clause 13.16 of the GSD establishes a security trust such that the representative holder, Squadron, holds the security rights on trust for itself and the other noteholders. 10 On 30 June 2015, Squadron registered the Squadron Mortgage on the register of mining tenements kept under the Mining Resources (Sustainable Development) Act 1990 (Vic) (the 'Register'). 11 The Squadron Loan was originally due to be repaid by 25 June 2018. On two occasions before 25 June 2018, Centennial asked Gandel to refinance the Squadron Loan. On each occasion, Gandel agreed to do so, provided that it received a transfer of Squadron's rights under the GSD or was otherwise given security on the same terms enjoyed by Squadron. From at least 20 June 2018, Gandel was aware that shareholder approval or a waiver from the ASX would be required in order for Gandel to obtain security. 12 As to the first occasion, Mr Gandel said in his written evidence that on or about 21 November 2017, Mr Dale Rogers, Centennial's managing director, approached Mr Gandel by telephone with a request that Gandel consider providing funding to Centennial to pay out the Squadron Loan. Mr Gandel's evidence is consistent with that of Mr Dennis Wilkins, Company Secretary for Centennial and Maldon. In his written evidence, Mr Wilkins recalled a conference call which took place on 21 November 2017 between the directors of Centennial, being Messrs Rogers, Anthony Gray and James Cullen, and Mr Wilkins: During the conference call Mr Rogers said words to the effect that Mr Gandel was keen to paper a deal so he could sit quietly with $2.5 million on call by way of a short term loan that would then roll into replacement convertible notes on the same terms and conditions as Squadron held, subject to shareholder approval. 13 Mr Wilkins, in his written evidence, said that on 26 November 2017 he received an email from Mr Rogers with a copy of a letter sent by Gandel to Centennial on 24 November 2017 which set out the terms upon which Gandel was prepared to advance a sum of $2 million to Centennial ('First Offer Letter'). The First Offer Letter indicated Gandel was prepared to advance the loan to repay the Squadron Loan on the condition that Gandel would receive security on the same terms as Squadron enjoyed, or that Squadron would transfer its security to Centennial. Centennial considered the impact of the conditions in the First Offer Letter and sought to clarify the availability of funds. Centennial engaged in further negotiations with Gandel on the conditions of the proposed loan and re-drafts of the First Offer Letter. Mr Wilkins said he recalled receiving a subsequent email from Mr Rogers in which he had re-drafted the language of the conditions in the First Offer Letter in a way that would be acceptable to Centennial. Mr Wilkins deposed that he had been provided with and reviewed a re-draft of the First Offer Letter which was dated 27 November 2017 ('Further Offer Letter') and that the language in the Further Offer Letter corresponded with his recollection of Mr Rogers' re-drafting of the First Offer Letter. 14 The Further Offer Letter, which was from Mr Gandel to Mr Rogers, stated that Gandel was prepared to provide funds to payout the Squadron Loan on the condition that, among other things, immediately upon receipt of the advance money, Centennial: (2) … will take steps to ensure that [Gandel] is placed in the same position as Squadron either by: (a) Squadron transferring the Convertible Notes and General Security Deed and Mining Mortgage to [Gandel]; or (b) Centennial issuing Convertible Notes to [Gandel] and providing security on the same terms and conditions as is presently enjoyed by Squadron. (3) Should Shareholder approval be required Centennial will, as soon as practicable, call a general meeting of Shareholders to approve either 2(a) or (b) above. If Shareholder approval is not granted money advanced by [Gandel] to Centennial will be repayable within 5 business days after the date of the general meeting. [Gandel] will advance a further $500,000 on and subject to similar terms to facilitate the repayment of Monies Payable in respect of those Convertible Notes not held by Squadron should those amounts similarly become due and payable. Alternatively, subject to Centennial's unconditional consent and Squadron's agreement, GM will acquire 57,142,858 Convertible Notes from Squadron at their face value. 15 Counsel for the Applicant submitted that in the circumstances outlined above, in November 2017, having approached Gandel and asked it to take out the Squadron Loan, Centennial was negotiating on the basis that it would provide Gandel with security, which was either the Squadron security or equivalent to the Squadron security. 16 As to the second occasion on which Centennial approached Gandel in relation to the Squadron Loan, Mr Gandel said in his written evidence that: On or about 15 June 2018, Rogers approached me to ascertain whether [Gandel] would be prepared to advance the funds to payout the Squadron Loan. I reiterated that [Gandel] would only advance the funds if Centennial provided [Gandel] with a transfer of Squadron's security or Centennial gave [Gandel] security on the same terms as enjoyed by Squadron. 17 On 15 June 2018, Mr Rogers sent Mr Gandel an email in which he wrote: Following on from our discussions, we have drafted short term loan agreement documents for review. The structure is as discussed previously in that the short term loan converts into a Convertible Note following Shareholder approval. In the unlikely event that shareholder approval is not forthcoming it is repayable. The terms are much the same as the existing Notes. … … The security will be first ranking over the [mining tenements] at A1, Union Hill, Nuggetty and the mill. We have not included the Walhalla lease, the [exploration licences] we will be obliged to relinquish later this year etc. I thought I would email these and follow up with a call. 18 On 18 June 2018, Mr Rogers sent Mr Gandel another email in which Mr Rogers described differences between the terms and conditions of the existing convertible notes and the proposed convertible notes. Then in an email to Mr Gandel on 20 June 2018, Mr Rogers described a conversation he had with Mr Bob Tolliday, Gandel's Chief Financial Officer: I spoke to Bob yesterday about the draft loan agreements we emailed earlier this week and he mentioned concerns around security. I'm emailing to outline where we have got to with respect to Security and our thinking around funding, for your consideration. The security offered in those drafts is a negative pledge. That's because the existing security arrangements prohibit other charges and new charges may well require shareholder approval. However, the existing convertible note agreement has an assignment clause. We asked our lawyers to provide advice on the option of another entity stepping into [Squadron's] position as the [sic] both the major and representative noteholder … . Their advice earlier today was that can be done and the existing security assigned under the legislation without the need for shareholder approval. This alternative would provide you with the security [Squadron] presently have until [Gandel] approves any replacement Notes. 19 Centennial did not pursue the refinance with Gandel in June 2018. Instead, it obtained an extension of time to repay the Squadron Loan to 10 August 2018. 20 Mr Gandel said in his written evidence that: Again, I did not hear from Centennial or Rogers about the loan until the day before the Squadron Notes, which had already been extended to August 10 was due to be paid. I was given to understand during a conversation with Rogers that this was because Squadron had agreed to extend the repayment term for the Squadron Loan ... . On 9 August 2018, the day before the Squadron Loan was to be repaid in full, Rogers approached me via telephone and asked that I urgently reconsider having [Gandel] provide funding to satisfy the Squadron Loan as Centennial had been unsuccessful in securing a loan from alternative sources. In response I told Rogers that [Gandel] would be prepared to provide funds to pay out the Squadron Loan in full but only on the basis that GM was afforded the same security as enjoyed by Squadron. Rogers, on behalf of Centennial, agreed to these terms. … I agreed that [Gandel] would provide the [Gandel] Loan on the basis and with the understanding [Gandel] would obtain the benefit of the security provided to Squadron or security just as good as that. Had I not believed that, I would not have agreed that [Gandel] should provide the [Gandel] Loan. 21 The parties agreed that, owing to the urgency of the situation, Gandel would advance the necessary funds prior to any agreement being documented. 22 On 10 August 2018: (1) Mr Gray emailed Mr Gandel with a 'Binding Term Sheet' setting out the terms and conditions upon which Centennial would borrow the amount of $2,171,272.14 from Gandel or an associated entity. The Binding Term Sheet did not refer to security, although it did provide that: Before of by the Repayment Date, the Company and Lender agree to discuss and negotiate in good faith an amendment to this Binding Terms Sheet or a separate agreement allowing the conversion of the Loan and any accrued interest not yet paid by the Company … into securities in the Company … . Such conversion will be subject to any shareholder approvals that the Company must obtain under the ASX Listing Rules … . (2) Mr Gandel approved a draft email to be sent by Centennial to Squadron which said: Absent a timely response from Squadron and in the interests of finalising the Convertible Notes, a payment of $2,171,271.64 has been made into your nominated bank account this morning. The remittance advice is attached. The funds were paid under duress and we reserve our rights in relation to all of the funds paid. I note the amount paid is in excess of the sum nominated by Luca below and as such we ask Squadron return it to our account immediately. The Company requires every amount of cash available to it at the moment. Please proceed to release of any and all securities held over Centennial Mining Ltd and its subsidiaries. (3) Maldon made a series of transactions to 14 payees, which are contained in an ANZ bank statement. Twelve of the 14 payees almost directly matched the 14 Noteholders listed in Schedule 1 of the GSD (excluding Squadron). Counsel for the Applicant submitted that Maldon paid Centennial's debts for Centennial in consideration for a reduction of Maldon's loan account in circumstances where Maldon was a debtor of Centennial. Counsel for the Applicant invited the Court to draw an inference from the ANZ bank statement coupled with an ASX release dated 17 October 2018, which I refer to in more detail below, namely that on 10 August 2018, Centennial, through its subsidiary Maldon, using its own cash reserves as recorded in the ASX release, paid out all of the Noteholders save for Squadron. (4) Gandel, through an associated company by the name of Octagonal Resources Proprietary Limited ('Octagonal'), being Centennial's largest shareholder, paid $2,171,271.64 to Squadron, in full satisfaction of Centennial's outstanding liability under the Squadron Loan. 23 From August 2018, Centennial and Squadron were preparing documentation necessary to remove Squadron's security interests registered on the Personal Property Securities Register (the 'PPSR'). 24 On 17 August 2018, Centennial provided revised draft loan terms to Gandel which granted Gandel a first ranking general security agreement over the assets of Centennial. 25 On 14 September 2018, Centennial and Squadron entered into a Deed of Release whereby Squadron agreed to release all of its securities as against Centennial, subject to certain conditions. 26 Between 10 August 2019 and 25 September 2018, Centennial and Squadron corresponded regarding the release of Squadron's securities. 27 On 26 September 2018, Squadron's security interests were removed from the PPSR. 28 On 17 October 2018, Centennial published an ASX release: In the final days leading up to 10 August 2018 the Company sourced funding (circa $2.1) from Centennial's largest Shareholder Octagonal Resources Pty Ltd and its related entities (Octagonal) thereby enabling the Company to avoid the risk of the Representative Noteholder enforcing security. By accessing an unsecured loan and utilising existing cash reserves the Notes were paid out, in full, on 10 August 2018 (Refer Company Announcement dated 15 August 2018). The importance of this support at a critical time cannot be underplayed as the outcome for all stakeholders would have been vastly different if Octagonal had not provided that backstop. Following repayment of the Notes, the Company sourced additional short term loans, intended to be on a secured basis, from employees and suppliers to a total of $1.5m, in addition to the loan sourced from Octagonal. The majority of the parties have agreed to negotiation of these loans and loan sourced from Octagonal will, subject to shareholder approval, be converted into new secured Convertible Notes, at a 10% premium to the Rights Issue Price. It is anticipated that the meeting to approve the issue of the new Convertible Notes and the terms of the 5:2 Rights Issue (refer Company Announcement 15 August 2018) will be held as soon as practicable. Further details will be provided when matters have been finalised. (Emphasis added) 29 On 25 October 2018, Price Sierakowski (on behalf of Centennial) lodged a 'Termination of Interest' form seeking to remove the Squadron Mortgage from the Register. However the Register was not at that time updated to reflect such removal. 30 On 26 October 2018, Gandel and Centennial entered into a new document titled 'Binding Term Sheet' (BTS). Relevantly, the terms of the BTS provided that: (1) the 'Use of Proceeds' from the Gandel loan was for the '[r]repayment of convertible notes due to [Squadron] and payable on 10 August 2018'; and (2) the Gandel loan was repayable '6 months from 10 August 2018', ie by 10 February 2019. 31 The BTS also provided that: (1) prior to repayment, the parties were to convert the Gandel loan into convertible notes issued by Centennial. The BTS included Annexure A (which was not legally binding, but 'set out in contemplation of a potential Conversion Agreement between the Lender and the Company, converting the Loan to securities in the Company' and provided that the 'Lender acknowledges that execution of the Converting Loan Agreement is conditional on obtaining the relevant shareholder approvals') which set out the terms of the proposed convertible notes, including security arrangements where: The Company will grant to the Holders a first ranking general security agreement over all the assets of the Company together with a first ranking mortgage over all the assets of the Company together with a first ranking mortgage over all the tenements of the Company pursuant to the terms of the General Security Deed and Mining Mortgage and other additional security documentation to be entered into once all necessary shareholder approvals have been obtained … . (2) '[t]he Company and the Lender have discussed the terms of the Conversion Agreement and anticipate that the Conversion Agreement will contain the Terms set out in Annexure A. Such conversion will be subject to any shareholder approvals that the Company must obtain under the ASX Listing Rules or the Corporations Act 2001 (Cth)'. Under the ASX Listing Rules, Centennial was prevented from granting an interest to a party related to a substantial shareholder without the approval of its other shareholders. I should note that Octagonal sold assets to Centennial in June 2015 which resulted in Octagonal obtaining a shareholding in Centennial of approximately 13%. 32 The BTS was never given effect to. 33 On 31 October 2019, Centennial published an ASX release, which stated the following: Centennial has entered into an unsecured short term loan with a related entity of the Company's largest shareholder, Octagonal Resources Pty Ltd …, for the loan of approximately $2.1m provided to assist the Company to redeem the Notes on 10 August 2018 … . … The loan is repayable in February 2019. By or before the repayment date, the Company and Octagonal intend to negotiate an agreement to convert the loan into convertible notes, subject to obtaining the necessary shareholder approvals. The Company will also seek shareholder approval to provide Octagonal with first ranking security in common with the additional lenders. … … The Company is now proceeding with negotiating the terms of the convertible note and formal security agreements … . 34 Centennial did not proceed to enter into the convertible note agreement (including the contemplated security arrangements). In his written evidence, Mr Gandel said that on a number of occasions after Gandel advanced the loan to Centennial, Gandel made repeated requests of Centennial via email communications to provide a signed General Security Agreement to make good on Centennial's obligations under the BTS. Mr Gandel also said that Gandel explored a number of options with Centennial to obtain security, including refinancing via a capital raising, calling an annual or extraordinary general meeting and obtaining a waiver of Listing Rules 7 and 10 from the ASX. 35 A draft convertible note agreement was discussed in November 2018 and Centennial obtained confirmation of a conditional waiver from the ASX of Listing Rule 10.1. In the context of those matters, Mr Wilkins, in his written evidence, said that Centennial continued to represent to Gandel that it would grant the contemplated security. 36 On 21 March 2019, Centennial and Maldon entered voluntary administration. As at that date, security documents had not been executed and Gandel had not been entered on the Register as the holder of a security interest in respect of the relevant tenement. 37 On 26 March 2019, Gandel's solicitors, HWL Ebsworth, conducted a search of the Register, which indicated that Squadron's mortgage in respect of the relevant tenement remained registered. 38 Gandel lodged a proof of debt in Centennial's administrations which stated that Gandel claimed to be a secured creditor by way of subrogation to Squadron's securities. Mr Gandel repeated that claim at the first meeting of Centennial's creditors. 39 On 9 April 2019, Centennial's administrators sought documents to support Gandel's subrogation claim. 40 On 11 April 2019, HWL Ebsworth responded, and sought to lodge a caveat on the Register to protect Gandel's interest. 41 On 12 April 2019, the Department of State Development, Business and Innovation (the 'Department') updated the Register to reflect the Deed of Release executed by Squadron on 14 September 2018, and wrote to Gandel's solicitors to tell them of the Department's earlier mistake in not updating the Register in October 2018. 42 On 15 April 2019, the Administrators' solicitors, Lavan Legal, wrote to HWL Ebsworth and stated that the administrators did not believe it was open for Gandel to claim equitable subrogation in relation to Squadron's registered mortgage. 43 On 10 May 2019, the administrators released a report to creditors. The report stated that: [Gandel] has alleged that it holds equitable security by way of subrogation to the rights of [Squadron]… . The Administrators' preliminary view is that [Gandel] does not hold valid security over Centennial and accordingly ranks as an unsecured creditor for the amounts … .

Introduction 44 As already indicated, Gandel seeks a declaration, or alternatively an order, to the effect that it is subrogated to the rights formerly held by Squadron under a mortgage. 45 There was general agreement between the parties as to the relevant legal principles governing the equitable doctrine of subrogation. 46 A synthesis of a number of previous authorities concerning the equitable doctrine of subrogation is to be found in the judgments of Rees J in In the matter of Harmon International Holdings Pty Ltd [2019] NSWSC 413 ('Harmon') at [41]-[42], and Gleeson JA in Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 3174 ('Aged Care Services'), at [49]-[59]. For the purposes of this proceeding, it is convenient to set out the legal principles governing the application of the law of subrogation in Australia, and which are relevant to the resolution of this proceeding. 47 The principle of subrogation has been applied for centuries (Tyler, Young and Croft, Fisher and Lightwood's Law of Mortgage (3rd Australian ed, 2014) ('Fisher & Lightwood') at [42.18]). There is no all-embracing theory or statement of when subrogation will be permitted. The equity arises from the conduct of the parties on well-settled principles and in defined circumstances which make is unconscionable for the defendant to deny the plaintiff's right (Re Dalma No 1 Pty Ltd (in liq) (2013) 279 FLR 80, [24] (per Brereton J)). 48 In Harmon, Rees J said at [41]: Subrogation is an equitable doctrine by which rights are transferred from one person to another by operation of law with the consequence that persons owing obligations are ordered to tender performance to a person other than the one originally entitled. 49 The doctrine finds 'one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he has advanced, and for one reason or another, he does not receive the promised security' (Cheltenham & Gloucester plc v Appleyard [2004] All ER (D) 280 (Mar) ('Cheltenham & Gloucester') at [25] (Neuberger LJ, with whom Lord Phillips MR and Kennedy LJ agreed) quoting Walton J in Burston Finance Limited v Speirway Limited [1974] 1 WLR 1648 ('Burston') at 738; see also Fisher & Lightwood [42.19]). 50 Reasons for the incoming lender not to have received the security bargained for (and which cause equity to intervene) include the fact that the borrowing was outside the power of the borrower (Re Cork and Youghall Railway Co (1860) LR 4 Ch App 748 ('Cork'); see Aged Care Services at184 [59]). 51 In that situation, equity operates for the same reason as it does where subrogation provides security to a surety who has satisfied the principal debtor's liability 'because it would be unconscientious for the debtor to recover back the securities from the creditor while the debtor was obliged to indemnify the surety' (citation omitted) (Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 ('Bofinger') at [8] (per Gummow, Hayne, Heydon, Kiefel and Bell JJ)). Equity regards the 'conscience of the mortgagor [to be] affected so as to cause the mortgage to be kept alive' (Cochrane v Cochrane (1985) 3 NSWLR 403 ('Cochrane') at 405 (per Kearney J)).

Rebuttable presumption as to intention 52 In Harmon, Rees J at [41] described one of the recognised situations founding subrogation as: 'where a lender makes an unsecured loan which pays out a secured creditor. In this case, the lender may be subrogated to the secured rights. Equity makes the rebuttable presumption that the security is to be kept alive for the lender's benefit'. 53 In Australia, the formulation of the principle most often cited, and upon which Gandel relies, is that of Lord Jenkins in delivering the advice of the Privy Council in Ghana Commercial Bank v Chandiram [1960] AC 732 ('Chandiram'), at 745 (see eg Aged Care Services at [52]-[54] (per Gleeson JA, with whom Meagher and Leeming JJA agreed); Cochrane at 405 (per Kearney J)): It is not open to doubt that, where a third party pays off a mortgage, he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit: see Butler v Rice ([1910] 2 Ch at pp 282, 283). (Emphasis added) Parkinson, ed., The Principles of Equity (2nd ed., Lawbook Co., 2003) at [1501], [1502]. One of the recognised situations founding subrogation is where a lender makes an unsecured loan which pays out a secured creditor. In this case, the lender may be subrogated to the secured rights. Equity makes the rebuttable presumption that the security is to be kept alive for the lender's benefit. 54 Chandiram remains good law (Harmon at [42] (Rees J)). 55 In Harmon at [42], Rees J adopted the proposition from Parkinson, ed., The Principles of Equity (2nd ed., Lawbook Co., 2003) at [1514] (citations omitted): Sometimes it is said that this form of subrogation is only attracted if the whole circumstances of the lending transaction make it clear that the parties intended the lender to have security for the loan. However, the better view may be that a lender will be subrogated to security rights of a paid-out creditor unless the circumstances of the transaction indicate a contrary intention. In effect, the defendant bears the burden of rebutting the doctrines [sic] application. 56 In Cheltenham & Gloucester Neuberger LJ at [40] (quoted with approval in Highland v Exception Holdings Pty Ltd (In Liq) (2006) 60 ACSR 223 at [106] (per Santow JA, with whom Hodgson JA agreed)) said as to intention (citations omitted): … the absence of a common intention on the part of the borrower and the lender that the lender should have security is by no means fatal to a lender's subsequent claim for subrogation. However, the intention of the parties to the arrangement which is said to give rise to a claim for subrogation may be "highly relevant". It would seem that the intention of the lender is particularly important. 57 Counsel for the Applicant submitted that the Court's role is not to inquire into the actual intention of the parties at the time of the advance of funds by the third party to the debtor. It was submitted, rather, that the Court is confronted with a presumption that at the time of the advance, because the advance was made for the purpose of paying off a secured debt, the incoming lender would retain the benefit of the security unless it was replaced, or there was some agreement to the contrary. 58 Then, as to the principle that the defendant bears the burden of rebutting the doctrine's application, Bryson J in Challenger Managed Investments Ltd v Direct Money Corporation Pty Ltd [2003] NSWSC 1072 ('Challenger') at [46] referred to the commonly cited decision of Cochrane, which refers to Chandiram and said: … I accept that in accordance with this principle, it must be shown that the circumstances are such as to displace a presumption in the case of a third person. This principle is based on equity's concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected, so as to cause the mortgage to be kept alive. This is illustrated by the text book examples first, of a third party not being entitled to a right by way of subrogation, where he simply lends money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. 59 At [48]-[49] Bryson J said: An explanation in terms of the intention or the presumed intention of the payer on the basis on which a person who pays off an existing mortgage is entitled to be subrogated to the position and the rights of the mortgagee who has been paid does not give the law a basis which is clear or can be readily understood. The reference to the intention or presumed intention of the payer may introduce an element which is not necessary for an understanding of subrogation but is unfortunately distracting, particularly where the intention is presumed or, it might be said, fictitious. It will be seen that in the first paragraph in the passage from Cochrane v Cochrane which I have set out Kearney J referred to Ghana Commercial Bank v Chandiram in which the Privy Council stated the rule in terms of presumed intention, but in the second paragraph Kearney J explained the principle in terms of the position in conscience of the mortgagor, to which the intention of the payer that he should or should not have security, if he had any intention about it, is relevant but not necessarily conclusive. … References to the intention of the payer fail to express anything which is central to the doctrine of subrogation. It sometimes happens that the person to whom a presumed intention to keep a mortgage alive is imputed has actually acted to bring about its discharge; that is so in the present case. The essence of the doctrine is elsewhere than in an intention or presumed intention of the payer to rely on the mortgage which was paid off. Intention may be significant where it is for some reason clear that the payer did not intend to be secured at all; otherwise it appears to me to be unfortunate that it should have a part in a statement of the doctrine. 60 Counsel for the Applicant submitted that Bryson J's statement of the law in Challenger was significant for two reasons. First, it reiterated the point that the Court is not charged with looking at the actual intention of the parties, except insofar as the actual intention might rebut the presumption. Secondly, it did not matter that the incoming mortgagee might have participated in a transaction that involved the legal release of the outgoing mortgagee, because in many of these cases, that is precisely what the transaction contemplated. It was submitted that one cannot put their own security on, in many cases, unless the outgoing mortgagee takes its mortgage off. 61 At [58], Bryson J said that Mr Sirtes, counsel for one of the parties, namely the defrauded owners of the property 'also submitted that (as is quite correct) it was not the intention of the plaintiffs that they should be secured by the first mortgage or by subrogation to rights under it'. Counsel for the Applicant contended that that is the case here. It was submitted that there is no allegation that Gandel advanced funds to Centennial with an express understanding that it would take Squadron's rights. Gandel entered into the transaction with the expectation that Centennial would give it either Squadron's rights or something equivalent to them. 62 Justice Bryson went on to say at [58] that: (The intention that they should have security is spoken of in the authorities as presumed intention, and may not be a real requirement; but in the present case there is no doubt on the facts that the plaintiffs had an actual intention to that effect.) Mr Sirtes contended, correctly, that the plaintiffs had no actual intention to keep the registered first mortgage alive; quite the contrary they went to some lengths to have it discharged, and they did not choose to take an assignment of it. The terms of the security which the plaintiffs intended to have differed very markedly from the terms of the Residential Housing Cor mortgage. 63 At [49], Bryson J said '[h]owever the essential element that the plaintiffs paid money to discharge a mortgage over the Friels' property, and the further element, if it be essential, that the plaintiffs intended to take security for their payment, are present here'. 64 Counsel for the Applicant invited the Court to draw parallels between the facts of these proceedings and those in Challenger, in which the Court went on to award subrogation. In Challenger a fraud had been perpetrated such that somebody had, by fraud, obtained duplicate certificates of title to someone else's property, and then obtained a mortgage advance on the security of that property to pay out the existing mortgage. Then, the surplus was taken by a third party, and the plaintiffs were the incoming lenders, and the fifth defendant was the outgoing mortgagee. One of the things that the plaintiffs claimed was that the outgoing mortgagee's mortgage was held for the benefit of the lender, who had been defrauded by landing on the fraudulent documents. The incoming lender did not know of the fraud, but it intended the relevant transaction to be the same as any other residential mortgage refinance. It advanced money for the purpose of discharging the outgoing mortgagee's debt. It intended to take its own mortgage. As events transpired it did not get to take its own mortgage because the fraud was uncovered in the meantime, and it sought to be subrogated to the outgoing mortgagee's rights. It never had a specific intention to take the outgoing mortgagee's rights. Its intention was to come in and obtain its own mortgage. Counsel for the Applicant submitted that so it is here; Gandel advanced funds to Centennial, and paid out the existing secured creditor intending to obtain its own security. It was submitted that although it was the case that Gandel had negotiated on a basis that contemplated that it might take an assignment, that was not the only way it could obtain the security, and in any event, that is irrelevant. Gandel negotiated to provide the advance to Centennial early in the afternoon of 10 August 2018 on the basis that it would come in and get security, and then it did not get that security, which is what enlivens the remedy of subrogation. That is, it acts on the conscience of the borrower because the borrower has taken the payment from the incoming lender and used it to discharge a security over its own property; and it would be unconscionable of the borrower to turn around, in circumstances where the incoming lender advanced payment on a presumed or an actual basis that it would get security, and deny the lender's entitlement to that security. 65 Having regard to the principles I have set out, it is to be noted that the Applicant submitted that at the time that Gandel advanced the loan to Centennial, equity presumes, because the advance was to be used to pay off a secured debt, that the security would be maintained until such time as it is replaced. 66 I turn now to the Applicant's claim.

Gandel's clAIM 67 Gandel contended that when it paid out the Squadron Loan on 10 August 2018, it discharged Centennial's indebtedness to Squadron and was subrogated to Squadron's security rights, including the Squadron Mortgage over the relevant tenement. 68 It was submitted that before the Squadron Loan became due and payable on 10 August 2018, Centennial was in dire financial difficulties. Failing Centennial's ability to repay Squadron, Squadron would have been entitled to enforce its security and take possession of Centennial's entire undertaking and without a refinance Centennial would not have been able to pay its debts as and when they fell due. In that context, Gandel agreed to refinance the largest part of the convertible notes that had been issued by Centennial on one day's notice, subject to the satisfaction of certain conditions. That is, Centennial had asked Gandel to refinance the notes twice before, and Gandel had agreed on the same condition, which condition was that Gandel would obtain the same or equivalent security for its advance that Squadron had had. It was submitted that Mr Rogers subsequently agreed to procure that security in exchange for Gandel's agreement to pay the debt. Given the urgency, the funds were agreed to be advanced without any prior documentation, and were subsequently advanced on the actual mutual intention of both Centennial and Gandel that Centennial would take the necessary steps to provide Gandel with the security for which it had agreed to advance the funds. The negotiations that followed were no more than Gandel's attempt to obtain that for which it had already agreed. 69 According to Gandel, the issue was that Centennial could not simply enter into the security that it had told Gandel it would give because it needed the authorisation of its shareholders to do so, although this is not fatal to Gandel's claim. It was submitted that the equitable remedy of subrogation looks at the presumed intent of the lender at the time of the advance, that is, the intent that motivated the advance from which the debtor benefitted. It matters not that the intent later fails; the later failure of that intent is the thing which gives rise to the availability of the remedy of subrogation, and the authorities contemplate that subrogation is available where that failure is due to the fact that the borrowing party did not have the power to give the security that it had agreed to give (Cork; see Aged Care Services at184 [59]). 70 The First to Fifth Respondents denied that Gandel took those rights by way of subrogation, and the interested party which has been given leave to intervene in the proceeding, V C Oldfield Investments Pty Ltd ('V C Oldfield'), claims to hold a first ranking security over the tenement. 71 V C Oldfield contended that there are five reasons why the Court should not find that Gandel was subrogated to Squadron's security rights. The first of those reasons was that there was no understanding as to the entitlement to security for the advance. 72 The remainder of these reasons is structured around dealing with each of the First to Fifth Respondents' and V C Oldfield's five bases of rebuttal to the presumption that Gandel intended that the Squadron Mortgage shall be kept alive for its own benefit.

FIRST BASIS OF REBUTTAL: GANDEL DID NOT PAY OUT THE SQUADRON MORTGAGE IN FULL 73 As I have already indicated, the total value of convertible notes issued by Centennial appears to be have been $2.5 million. 74 The First to Fifth Respondents and Oldfield submitted that Gandel was not entitled to be awarded subrogation on the basis that it had not provided evidence that it fully discharged the loans which underpinned the Squadron Mortgage. 75 The evidence provided indicated that Gandel paid out the amounts owing under the convertible notes held by Squadron and not the convertible notes held by the other Noteholders (ie payment of $2,171,271.64 on 10 August 2018). The parties agreed that Gandel did not pay out the total amount secured by the Squadron Mortgage. As at 10 August 2018, the amount secured by the GSD and Squadron Mortgage exceeded $2.5 million. The payment by Gandel of $2,171,271.64 on 10 August 2018 was to pay out the Squadron debt. As I have already indicated, it appears that the Noteholders were instead separately paid out by Centennial's wholly owned subsidiary, Maldon. 76 In the circumstances, it was submitted that there can be no subrogation unless the whole of the secured debt has been repaid by the payer (J D Heydon, M J Leeming and P G Turney, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed., LexisNexis, 2015) at 9-075; Austin v Royal (1999) 47 NSWLR 27 at [20] ('Austin'); Halsbury's Laws of Australia, [185-525]). 77 In this regard, I note that the authorities cited in support of this proposition do not say that the remedy of subrogation is not available to a third party lender unless the whole of the secured debt has been repaid by the payer. On these authorities, all that is required is that the whole of the debt must be paid for the remedy of subrogation to be available. 78 Focusing on the need for the whole of the debt to be repaid, V C Oldfield went on to say that whilst guarantors can, in certain circumstances, subrogate into a proportion of the security that represents their payment (for example, where the surety only guaranteed part of the debt and paid that part) (see State Bank of New South Wales v Geeport Developments Pty Ltd (1991) 5 BPR 11,947 ('State Bank of NSW'), at 11,953 (Cohen J); Equity Trustees Executors and Agency Co Ltd v New Zealand Loan & Mercantile Agency Co Ltd [1940] VLR 201 at 207), the same does not apply to an incoming lender who has paid only part of another secured lender's debt. 79 Gandel contended that Austin deals with an entirely different species of subrogation to that relied upon by Gandel, namely guarantor subrogation (ie where one guarantor pays off the debt, it is subrogated to the rights of the other guarantors). At [19]-[21], Cole AJA (with whom Meagher JA and Handley JA agreed) explained the reason why the underlying basis for guarantor subrogation is not invoked in circumstances where part only of the guaranteed debt is satisfied. 80 In support of the contention that part payment of a debt by an incoming lender is not a bar to the remedy of subrogation, Gandel relied on the analysis of Cohen J in State Bank of NSW at 11,952-11,9523 where his Honour said: The difficulties which arise here however are whether the part payment produced any rights of subrogation on a proportionate basis and whether, in the event of the whole of the debt being paid, the plaintiff's rights under its deeds of escrow will prevail. … … In Patten v Bond (1889) 60 LT 583 the plaintiffs advanced £600 to pay off part of a mortgage of £1000. It was held by Kay J that the mortgage would not be discharged even though the balance of the debt was paid. He pointed out that it was an equitable doctrine that the person who pays, though there is no written agreement, has a right to have the mortgage kept alive for his benefit. The payment of £600 was a discharge of the mortgage to that extent, as regards the mortgagee, but it was not a discharge as between the mortgagor and the person who paid that amount of money. In effect there was a pro rata subrogation. That principle was applied in Chetwynd v Allen [1899] 1 Ch 353 where half of the mortgage debt was paid and it was held that there was no release of the prior charge but that it continue to the extent of the payment made in favour of the person so paying it. That principle was also accepted by Walton J in Burston Finance Ltd v Speirway Ltd (in liq) [1974] 1 WLR 1648 where it was said at 1652 that where one person advances money on the understanding that he is to have certain security and he does not receive that security, he is nevertheless subrogated to the rights of any security already held for which his money was used to obtain a discharge. It was said that "in such a case he is nevertheless to be subrogated to the rights of any other person who at the relevant time had any security over the same property and whose debts have been discharged, in whole or in part, by the money so provided by him, but of course only to the extent to which his money has, in fact, discharged their claims". In those circumstances it seems to me that there is authority which supports the claim of Loc-tex that it has a right to subrogation which arises from its payment of part of the debt of Geeport and Rosechurch to the extent of that payment. This is contrary to the view expressed by the learned authors of Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 2nd ed, para 913 where it is stated that it appears clear that there can be no subrogation, in general, unless the whole of the secured debt has been paid off. Authority for that is said to be Wilkins v Gibson (1901) 38 SE 374. On the other hand at para 944 the learned authors, when dealing with a surety's right of subrogation, say that it appears that subrogation pro tanto in this sense will still be available where the balance of the debt has been paid by a third party with some real interest in doing so. Again, authority for this is said to be Wilkins v Gibson and two other American decisions. In my opinion the authorities I have referred to above, and in particular the most recent one of 1974, seem to make it clear that there will be a subrogation of a proportionate part of the security. It may well be that the right to exercise that subrogation may not come into existence until the whole of the debt has been paid, whether by the principal debtor or another person so that the right until then remains dormant. This however seems more a matter of enforcement rather than a question of the rights which exist. (Emphasis added) 81 Counsel for the Applicant also pointed to a 2015 Australian Law Journal article by the Hon W M C Gummow AC and JGH Stumbles titled Faulty Refinancing: Subrogation, Torrens and the PPSA (2015) 89 ALJ 565, in which the authors wrote at 566 (footnotes omitted): What if the new lender has provided funds sufficient to pay off only part of the indebtedness on the existing mortgage? In Chetwynd v Allen [1899] 1 Ch 353, it was held, apparently without argument to the contrary, that there may be subrogation to the extent of the partial payment. However, in State Bank of New South Wales v Geeport Developments Pty Ltd (1991) 5 BPR 11,947 at 11,953-4, Cohen J, after hearing argument on the point said: [T]he authorities … seem to make it clear that there will be a subrogation of a proportionate part of the security. It may well be that the right to exercise that subrogation may not come into existence until the whole of the debt has been paid, whether by the principal debtor or another person so that the right until then remains dormant. This however seems more of a matter of enforcement rather than a question of the rights which exist. 82 In my view, in accordance with authority and equitable principle, there can be subrogation of a proportionate part of the security, and in the circumstances of this proceeding, Gandel is entitled to subrogation of a proportionate part of the security in respect of the amount it paid. This first basis of rebuttal fails.

SECOND BASIS OF REBUTTAL: THE SQUADRON MORTGAGE WAS NOT INTENDED TO BE 'Kept alive' 83 V C Oldfield submitted that the circumstances show both Centennial and Gandel intended the Squadron Mortgage would not be 'kept alive', such as to satisfy the 'contrary appears' test in the statement of principle set out in Chandiram, which I referred to earlier. Those circumstances are: (1) the contemporaneous correspondence evidencing an intention of Centennial and Gandel that the payments to Squadron by Gandel were in consideration of the discharge of any and all securities over Centennial (which included the Squadron Mortgage); (2) that the securities including the Squadron Mortgage were in fact discharged; (3) that Gandel negotiated term sheets which set out the terms of the loan that discharged the Squadron Loan including the future provision of fresh security over the Centennial mining tenements to Gandel; (4) that Gandel was aware of: (a) the discharge of the securities; (b) the requirement that to make good on Centennial's promise to provide replacement security to Gandel, shareholder approval would be required; and (c) Centennial considered that, until such security was provided, the loan was unsecured, as evidenced by the reference to the loan advanced by Gandel to Centennial as an 'unsecured loan' in the ASX releases dated 17 October 2018 and 31 October 2018, which I referred to earlier. 84 I am not persuaded, for the following reasons, that the aggregation of the circumstances outlined above is sufficient to rebut the presumption that a third party which pays off a mortgage intends the mortgage should be kept alive for its own benefit. 85 Several cases have considered the expression 'kept alive': see Banque Financière de la Cite v Parc (Battersea) Ltd [1998] 1 All ER 737 ('Banque Financière') at 749 (per Lord Hoffmann); Aged Care Services at [54] (per Gleeson JA, with whom Meagher and Leeming JJA agreed); Chandiram at 871 (per Jenkins LJ); Cochrane at 405 (per Kearney J); Boscawen v Bajwa; Abbey National plc v Boscawen [1995] 4 All ER 768 ('Boscawen') at 781 (per Millett LJ, with whom Waite and Stuart-Smith LJJ agreed). The expression, as used in Chandiram at 871 and cited in Cochrane at 405, means in this context that the legal relations between the incoming lender and the debtor are regulated as if the benefit of the security had been assigned to the incoming lender (Banque Financière at 749 (per Lord Hoffmann); Aged Care Services at [54]). 86 V C Oldfield relied on the first instance decision of Aged Care Services v Macedonian Aged Care and Accommodation Ltd [2012] NSWSC 531 at [83], in which McDougall J concluded that the destruction of the security (by registration of discharge of mortgage) meant that there was nothing to which the payer could be subrogated. Whilst the appellant disputed this finding (see Aged Care Services at [38]-[39]), the Court of Appeal did not overturn that finding of McDougall J in dismissing the appeal. Counsel for the Applicant challenged the applicability of McDougall J's decision to the current proceedings. It was submitted that that case concerned a Torrens title mortgage; given that the Torrens system is one of title by registration, and not registration of title, any role that equity had to play was removed by explicit operation of statute. For this reason, the Applicants submitted that Aged Care Services was not instructive on the expression 'kept alive'. 87 The mere fact of discharge of a debt by a third party lender, without more, is not sufficient to evidence an intention that a security should not be kept alive. As I have already referred to, in Challenger, the Court awarded subrogation in circumstances where 'the person to whom a presumed intention to keep a mortgage alive is imputed has actually acted to bring about its discharge' (at [49]). This is because the equity does not depend upon the continued existence of that security (see Boscawen at 782, in which Millett LJ said '[t]he discharge of the creditor's security at law is certainly not a bar to subrogation in equity; it is rather a precondition'). 88 The First to Fifth Respondents referred in their submissions (which submissions were adopted by V C Oldfield) to the following statement in Huizhong Investment Group Pty Ltd v Westpac Banking Corporation Ltd and Ors [2019] NSWSC 524 at [107] (per Lindsay J): It is not enough, in the setting of these proceedings, that the plaintiff "intended that the mortgage be kept alive" for its own benefit, as it hoped. At its highest, the Privy Council's statement of principle contemplates a rebuttable presumption (as to intention) at play in a field of operation governed by equitable principles. All the circumstances of the particular case must be consulted in accordance with those principles. The plaintiff's intention is a material, but not a determinative, consideration. (Emphasis added) 89 All but two of the circumstances which V C Oldfield referred to concern the fact of the discharge of the Squadron Loan (and other securities). I do not consider that the need for shareholder approval and the ASX releases (see subparagraphs 83(4)(b)-(c) above) support the finding that the parties intended that the Squadron Mortgage would not be 'kept alive'. For the Court to reach a view as to the intentions of the parties, the complete factual matrix surrounding the advance made by Gandel to Centennial, which comprises a number of communications between the parties, must be taken into account. 90 The First to Fifth Respondents submitted that, similar to the Supreme Court of New South Wales' findings in IIB Global NV & Anor v Scott Darren Pascoe & Ors [2011] NSWSC 1136 ('IIB Global NV'), this Court should find that the presumption that a third party which pays off a mortgage intends the mortgage should be kept alive for its own benefit is rebutted in the present circumstances. In IBB Global NV, Black J held at [24]: … it is likely that such a claim would fail because the presumption that a third party which pays off a mortgage intends the mortgage should be kept alive for its own benefit would be rebutted in the present facts. The evidence before me establishes that, when IIB Global paid off the indebtedness to PTAL secured by the mortgage held by PTAL, it intended that mortgage be discharged rather than maintained for its own benefit. A letter dated 28 April 2008 from solicitors acting for Mr Arthur Dyason, Mr Dyason and IIB Global to solicitors acting for PTAL stated that an amount had been transferred to PTAL in payment of the amounts due under the mortgage and requested those solicitors to forward the certificate of title and a discharge of the mortgage. That letter plainly contemplated that the effect of the transaction would be that the mortgage would be discharged rather than that it would be retained for the benefit of IIB Global. A discharge of mortgage was executed by PTAL on 9 May 2008. A caveat dated 21 October 2008 was subsequently lodged by IIB Global that referred, not to an interest by way of subrogation to PTAL's mortgage, but instead to an oral agreement with the registered proprietors to provide a mortgage to IIB Global. I could not, in these circumstances, find that IIB Global has established the third basis for extension of the Caveat. 91 However, with respect, it is not immediately apparent why his Honour found in IIB Global NV that the letter dated 28 April 2008 'plainly contemplated that the effect of the transaction would be that the mortgage would be discharged rather than that it would be retained for the benefit of IIB Global'. 92 In any event, there is no inconsistency in the case of the keeping the mortgage alive whilst Gandel was negotiating for another transaction. 93 For these reasons, I reject the second basis of rebuttal.

THIRD BASIS OF REBUTTAL: THE SQUADRON MORTGAGE WAS NOT IN FACT, 'Kept alive' 94 Relatedly to the second basis of rebuttal, V C Oldfield submitted that the securities held by Squadron were discharged, which was a fact known to Gandel, and on that basis, the Squadron Mortgage was not in fact kept alive. 95 As I have said in these reasons, the equity of the payer to have the mortgage rights 'kept alive' does not depend on the continued existence of the security. 96 For the reasons I have said in respect of the second basis of rebuttal, I reject the third basis of rebuttal.

FOURTH BASIS OF REBUTTAL: NO UNDERSTANDING THAT GANDEL WAS TO HAVE SECURITY FOR ITS ADVANCE 97 V C Oldfield submitted that the contemporaneous documentary evidence shows that, at the point in time the advance by Gandel was made and in its aftermath, there was no 'understanding' (see Cheltenham & Gloucester at [25] (Neuberger LJ, with whom Lord Phillips MR and Kennedy LJ agreed) quoting Walton J in Burston at 738) whether bilateral as between Gandel and Centennial, or unilateral on Gandel's part, that Gandel was to have security for its advance. 98 V C Oldfield's submissions rest on documents which it said showed that the advance was in fact, and was intended to be, an unsecured loan made to allow time for Centennial to negotiate a separate arrangement under which Gandel would hold convertible notes and security, in a manner similar to the arrangement Squadron had. That is, V C Oldfield sought to distinguish such an advance from an advance made on the basis that the payer 'is to receive' or 'should have' security of some specific nature.

No understanding as to entitlement to security for advance 99 V C Oldfield contended that Gandel was aware that: (1) Unless Centennial had immediate access to additional funds, it was under immediate threat of Squadron enforcing its security with the consequence that the investment in which Gandel's related entity, Octagonal, had 13% of the shareholding in Centennial would be placed in jeopardy, if not rendered completely worthless. (2) This concern prompted Gandel to provide 'short-term' (see ASX release dated 31 October 2018 which I referred to earlier) assistance to Centennial, in the form of an unsecured advance of funds. (3) By reason of the 13% shareholding of Octagonal, it was beyond the capacity of Centennial to grant security to Gandel. This was because rule 10.1 of the ASX Listing Rules, which were binding on Centennial, required that any entity or related entity which had a substantial (ie more than 10%) holding in the entity could not acquire 'a substantial asset from' that entity. That is, Gandel could not obtain security from Centennial because of rule 10.1 unless it first obtained approval from the shareholders in a general meeting. This knowledge is apparent from communications from Centennial to Gandel. 100 V C Oldfield submitted that Gandel had intended to negotiate a transaction entirely different from that between Centennial and Squadron whereby, subject to shareholder approval, Gandel would be given an interest as a convertible noteholder which would entitle it to convert its debt to equity, and thus increase its already substantial shareholding in Centennial. It was submitted that the intention of Gandel was to become a more substantial shareholder rather than a secured creditor. This it could only do with shareholder approval. This is apparent from the BTS negotiated between Gandel and Centennial (which I referred to earlier), which was sent to Mr Gandel on 10 August 2018 and which did not refer to security. The further draft sent on 17 August 2018 was sent under an email from Mr Rogers which stated 'not legally binding' and Annexure A, being the 'Conversion Agreement Terms', said: The parties agree that the terms set out in this Annexure A are not legally binding but are set out in contemplation of a potential Conversion Agreement between the Lender and the Company, converting the Loan to securities in the Company. The Lender acknowledges that execution of a Converting Loan Agreement is … conditional on obtaining the relevant shareholder approvals. 101 As to the different transaction that V C Oldfield contended was contemplated by Gandel, it submitted that: (1) Squadron would, in due course, discharge its security; and (2) Gandel would negotiate a conversion agreement supported by fresh, but different, security granted by Centennial, which V C Oldfield submitted was contemplated by Annexure A of the BTS. 102 V C Oldfield submitted that a number of events following the advance by Gandel confirm that there was no understanding that, when the advance was made, it would be secured. At best, it was submitted that there was an understanding that there would be future negotiations around a conversion agreement and whether the advance would be secured and on what terms. 103 First, V C Oldfield said Gandel was aware that Squadron did not discharge its security upon receipt of the $2,171,271.64. As I have already indicated, the discharge did not occur until 26 September 2018. The registration of Squadron's security under the Mineral Resources (Sustainable Development) Act 1990 (Vic) was not discharged until 25 October 2018 and on the following day, 26 October 2018, Gandel signed the BTS with Centennial on terms different to the terms Centennial previously had with Squadron. In particular, under the Conversion Agreement Terms the loan was for a short term, it had high rates of interest and establishment fees. 104 Prior to entering into the BTS on 26 October 2018, Gandel, by Mr Tolliday and Mr Gandel, had exchanged with Centennial a draft of an announcement to be made to the Australian Stock Exchange. The ASX release was approved by Mr Gandel on behalf of Gandel. The ASX release, to which I referred earlier, is dated 17 October 2018. 105 It was submitted that it is significant that the ASX release dated 17 October 2018 was approved by Mr Gandel and referred to the funds advanced by Gandel of approximately $2.1 million as 'an unsecured loan'. Similarly, the ASX release dated 31 October 2018, which is reproduced in part above, referred to that advance as 'an unsecured short-term loan'. In his email of 26 September 2018 approving the 17 October ASX release, Mr Gandel stated '[w]e need to prepare the group for the security that will be asked'. 106 The words 'an unsecured loan', V C Oldfield contended, would not have been used if Gandel and Centennial had contemplated that the loan provided by Gandel on 10 August 2018 should already be secured or that the Squadron security should be 'kept alive'. It was submitted that whilst a level of security was contemplated, this intended security was only referred to in the proposed terms of the Conversion Agreement. This proposed security was conditional on shareholder approval of the Conversion Agreement Terms, and therefore could not have been contemplated at the time of the loan. This, it was submitted, was consistent with the ASX releases referring to it as an unsecured loan. 107 Turning to the legal principles concerning intention, I find the statement of Bryson J in Challenger at [48]-[49], to be persuasive. However, in my view, although the intention of the parties to a transaction is not conclusive, it is nevertheless relevant to the Court's assessment of whether the conscience of the borrower is so affected so as to cause the mortgage to be kept alive. The Court's role is to consider the circumstances in which the advance was made by Gandel to Centennial, to the extent those circumstances are capable of illuminating the intention of the parties. With the evidence I have before me, which I outlined earlier, I find that at the time Gandel advanced funds to Centennial, both parties intended that Gandel would be provided with security, although what exactly that security would comprise, and the terms on which it would be provided were to be negotiated at a later time. I find this to be the case even though the provision of any security would have been subject to shareholder approval (in the absence of a waiver granted by the ASX in respect of ASX Listing Rule 10.1, which was in fact granted, albeit conditionally). I explain my reasons below. 108 On the three occasions Centennial approached Gandel for a loan to repay the Squadron Loan, Gandel consistently stated that it was prepared to advance the loan on the condition that Gandel would receive security on the same terms as Squadron enjoyed, or that Squadron would transfer its security to Centennial. On 9 August 2018, being the day before the Squadron Loan became due and payable, Centennial urgently sought funds from Gandel in circumstances where the value of shares belonging to Gandel's related entity, Octagonal, was left vulnerable in the event Centennial could not repay the Squadron Loan. I accept that this may have been a motivating factor in Gandel advancing funds to Centennial. However, Gandel's position as to the terms on which it would loan the funds remained unchanged. It follows that Centennial accepted Gandel's advance on those terms. I accept that the loan, until any security had been negotiated and approved, was unsecured. However, that it was unsecured until such time as it could become secured is not inconsistent with an intention by the parties that the security be kept alive for the benefit of the lender. In the time in which Gandel had to rescue Centennial (and its interests in Octagonal) from the imminent threat that Squadron would exercise its security over Centennial's assets, there was no opportunity afforded for the parties to formalise any agreement. It is these circumstances which I consider have affected the conscience of the borrower so as to cause the Squadron Mortgage to have been kept alive. For reasons which I have already explained, the discharge of the Squadron Loan by reason of the loan advanced by Gandel does not lead to the conclusion that the mortgage was not kept alive. Rather, it is a necessary step in claiming the equitable remedy of subrogation. 109 For the reasons I have provided, I reject this basis of rebuttal.

No understanding as to advance paying out Squadron Mortgage in full 110 Oldfield submitted that from no later than November 2017, there was not, and could not have been, any 'common intention' between Gandel and Centennial that the payment of $2,171,271.64 would or could be sufficient for the security held by Squadron, including the mortgage of the mining tenement, to be kept alive for the benefit of Gandel. 111 At all times, the amount secured by the Squadron security was at least $2.5 million, made up of both the amount advanced by Squadron, but also by the other Noteholders, as listed in Schedule 1 of Squadron's GSD. 112 Mr Wilkins, as the Company Secretary of Centennial, stated in his evidence that he was present during a conference call during which Mr Rogers said words to the effect that: Mr Gandel was keen to paper a deal so he could sit quietly in the background with $2.5 million on call by way of a short-term loan that would then roll into replaceable convertible notes on the same terms and conditions as Squadron held, subject to shareholder approval. 113 In an earlier offer for finance from Gandel dated 27 November 2017, Gandel acknowledged the existence of the Noteholder debts: [Gandel] will advance a further $500,000 on and subject to similar terms to facilitate the repayment of Moneys Payable in respect of those Convertible Notes not held by Squadron should these amounts similarly become due and payable. 114 V C Oldfield submitted that it was apparent, therefore, that Gandel knew no later than 27 November 2017 that the terms of the GSD and Squadron Mortgage secured not only the $2 million advanced by Squadron, but also an additional $500,000 advanced by the third party Noteholders. It follows that Gandel knew in August 2018 that it could not 'pay off' or procure the discharge of the security held by Squadron merely by paying the Squadron debt of $2,171,271.64. 115 Accordingly, it was submitted that the payment on 10 August 2018 by Gandel to Squadron could not, alone, be sufficient to discharge the security held by Squadron Resources, therefore that security could not be 'kept alive' for its benefit. 116 For the reasons I have provided in respect of the first basis of rebuttal, I reject this basis of rebuttal.

FIFTH BASIS OF REBUTTAL: GANDEL CANNOT RECEIVE MORE SECURITY THAN IT BARGAINED FOR 117 Subrogation cannot be invoked to put a lender in a better position than that in which he would have been if he had obtained all the rights for which he bargained (Cheltenham & Gloucester at [41] (per Neuberger LJ, with whom Lord Phillips MR and Kennedy LJ agreed), referring to Banque Financière; Re Wrexham Mold and Connah's Quay Railway Company [1899] Ch D 440, 447 (Lindley MR)). 118 This is cohesive with the general principle that, in the auxiliary jurisdiction of equity, equity follows the law. In the auxiliary jurisdiction, relief will not be given to enlarge an equitable right beyond the failed legal right which equity seeks to protect. 119 V C Oldfield submitted that Gandel could not have obtained security from Centennial in the form to which is now seeks to be subrogated. It was submitted that the only way that Gandel could have obtained security from Centennial was with shareholder approval as required by ASX listing rule 10.1. A waiver of compliance with that rule was sought by Centennial's lawyers in a letter dated 21 February 2019 in which Centennial's lawyers wrote: As such, Octagonal Resources and its associates have currently advanced on an unsecured basis circa $2.6 million in total. The loans provided by Octagonal Resources and its associates could not be secured as shareholder approval pursuant to ASX Listing Rule 10.1 was required. 120 Despite the fact that waiver was granted on 7 March 2019 by the ASX, it was subject to a number of conditions. One such condition was expressed to be: Including that the security provides that in the event it is exercised, neither the security holder or any of its associates, are entitled to acquire the assets of the Company without the Company first complying with any applicable listing rules … . 121 V C Oldfield contended that Centennial was unable to satisfy that condition on and from the date of that ASX approval in that it was unwilling to grant the security without the further agreement of Gandel to advance a further $1 million by way of 'bridging funding' and in that regard, Centennial stated to Gandel: 'Absent access to additional finance (by early this week?) it is highly likely the directors will place the Company into voluntary administration'. 122 V C Oldfield submitted that the insight into the then-state of Centennial is highly significant. Centennial was plainly insolvent and was unable (and unwilling) to grant the security to Gandel unless it had further significant financial support from Gandel. That support was not forthcoming and the security could not, therefore, be provided. 123 It was submitted that, in the circumstances, if the relief sought by Gandel were granted, it would place Gandel in a position better than it bargained for; Gandel had bargained for the opportunity to seek to negotiate, subject to shareholder approval, favourable terms for future security and convertible notes. Centennial could only agree to this if Gandel agreed to meet its need for short-term finance and alleviate its insolvency. Gandel declined to do so. On that basis, V C Oldfield submitted that Gandel got that which it bargained for, namely the preservation of Centennial free from the threat of enforcement by Squadron and the opportunity to continue to negotiate with Centennial. This opportunity was only available if Centennial remained solvent and continued to trade. 124 I reject the fourth basis of rebuttal because, as I have already said in these reasons, Gandel bargained for security. In the circumstances of this proceeding, there is no inconsistency with keeping the security alive in favour of Gandel until something else may have replaced it upon further negotiation between the relevant parties. In any event, Centennial could not grant security. That Centennial could not grant that security, because it was outside of its power to do so without permission of the shareholders or a waiver by the ASX is a reason why the remedy of subrogation could be enlivened (Cork; see Aged Care Services at184 [59]).

CONCLUSION 125 In my view, Gandel is entitled to an order determining that it is entitled by way of subrogation to the benefit of the Squadron Mortgage. However, as Gandel did not pay the whole of the mortgage amount, equity is flexible in its operation to allow a pro-rata subrogation to be made to reflect the payment by Gandel as was the approach adopted by Cohen J in State Bank of NSW. 126 I will order that the parties confer and within 7 days provide to the Court an agreed minute of order (including as to costs or any other directions), or if no agreement, a short submission by each party as to the appropriate minute of order. I certify that the preceding one hundred and twenty-six (126) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.