Hislop v Paltar Petroleum Limited

Federal Court of Australia|2017-09-12|Before: Farrell J, Gleeson J, Foster J, Markovic J

Leave be granted for the evidence of Michael Caetano to be taken by video link from an external site in Denver Colorado in the United States of America suitable to the Court at a time convenient to the Court and the parties in the proceeding set down for hearing before Farrell J on 18 and 20 September 2017 pursuant to ss 47A to 47F of the Federal Court of Australia Act 1976 (Cth).
Liberty be granted to either party to apply on 24 hours' notice to seek any further directions to facilitate the giving of evidence in accordance with Order 1 herein.
Paragraphs 2, 3 and 4 of the interlocutory application dated 6 September 2017 be dismissed.
The defendants are to pay the plaintiff's costs of paragraphs 2, 3 and 4 of the interlocutory application.
Paragraph 1 of the interlocutory application dated 6 September 2017 be dismissed.
The defendants to pay the plaintiff's costs of the application made in paragraph 1 of the interlocutory application dated 6 September 2017.
Grant leave to the plaintiff to file electronically an interlocutory process dated 12 September 2017, such interlocutory process to be made returnable instanter.
Grant leave to issue a subpoena to Dentons Australia Pty Ltd.
The subpoena referred to in Order 8 to be served on Dentons Australia Pty Ltd by 5.30 pm today and the time for service is abridged accordingly.
The subpoena referred to in Order 8 to be made returnable at 2.15 pm on 15 September 2017 before Gleeson J.
Any application to set aside the subpoena referred to in Order 8 and affidavits in support of that application to be filed and served by 4.00 pm on 13 September 2017. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Procedural History 8 As I have already observed, this proceeding was commenced on an urgent basis. The matter first came before the commercial and corporations duty judge on 11 August 2017 on an ex parte basis. Relevantly, the Court made an order that: Upon the plaintiff by his counsel giving to the Court the usual undertaking as to damages which undertaking is hereby noted and upon the solicitor for the plaintiff undertaking to pay any further applicable filing fees THE COURT: … 5. ORDERS that up to and including Tuesday 15 August 2017, the defendants by themselves, their servants or agents and in any way howsoever be restrained from in any way taking or participating in any steps to: (a) Enforce or give effect to the (or the proposed) Settlement Agreement and Release of All Claims (between the first defendant and Nation Energy (Australia) Pty Ltd (Nation Australia); (b) Enforce or give effect to any of the (or the proposed) Surrender Agreements (between the first defendant and Nation Australia); and/or (c) Exploit any of the Earning Agreements by granting any right, title or interest in any of the Earning Agreements to any other person and/or otherwise deal in any way with any right, title or interest in any of the Earning Agreements. 9 The originating process and the interlocutory process filed by Mr Hislop were next returnable for hearing at 10.15 am on 15 August 2017 before the then commercial and corporations duty judge, Farrell J. On that day the Court, among other things, made orders setting the matter down for hearing on 5 September 2017 and for the parties to file and serve their evidence, outlines of submissions and lists of authorities. 10 On 15 August 2017 the Court also, upon Mr Hislop giving the usual undertaking as to damages, extended the Injunction up to and including Wednesday, 6 September 2017. The following exchange took place between Farrell J and counsel in relation to the extension of the Injunction by reference to draft short minutes provided by senior counsel for Mr Hislop: Her Honour: … So, Mr Baran, where is your area of dispute with this document? Mr Baran: I've just seen it, your Honour. The only real area of dispute is in a few places. Firstly, all of this obviously must be on the basis that it is a without prejudice ground right to make an application to discharge or vary an injunction that's - as long as that's pretty clear. Mr Leopold: That's accepted, your Honour. 11 On 5 September 2017 the proceeding came before me in my capacity as commercial and corporations duty judge for case management. The parties had earlier been informed that the trial judge would be unavailable to hear the matter on 5 September 2017. Accordingly, the hearing was adjourned to commence on 18 September 2017. An order was also made extending the Injunction up to and including 4.00 pm on 20 September 2017 and, as I have already observed, an order was made to allow the defendants to file an interlocutory application for, among other things, variation or discharge of the Injunction.

Dissolution of the injunction 12 The defendants submitted that the Injunction should be dissolved for two reasons: first, because Mr Hislop made material non-disclosures at the ex parte hearing; and, secondly, because the Injunction should in any event be dissolved on the materials now before the Court.

Delay 13 Before turning to those grounds I will address Mr Hislop's submission that the application to discharge the Injunction should be rejected because of the defendants' delay. 14 In my opinion, delay is not of itself a reason for the Court not to entertain the application. However, it is a relevant factor to be taken into account in determining the application, particularly in considering the second basis upon which it is said the Injunction should be discharged. 15 There has been delay on the part of the defendants in bringing this application. While Dentons filed a notice of acting on behalf of the defendants on 23 August 2017, it is clear from the evidence before me that those solicitors had acted for the defendants, or some of them, prior to that date. The defendants were represented, at least by counsel, from 15 August 2017. On that date counsel appearing for the defendants consented to an extension of the Injunction until 6 September 2017, the day after the date initially fixed for hearing, without prejudice to his clients' rights to bring an application to vary or discharge the Injunction. Notwithstanding that, no such application was again foreshadowed until the date initially fixed for hearing. 16 The parties were informed of the need to adjourn the hearing date on 4 September 2017. It was only following that adjournment, which deferred the hearing for two weeks, that the defendants made this application. Their conduct in doing so might be described as opportunistic. That said, although the proceeding had been on foot for a relatively short time, in the context of the proceeding as a whole, the defendants' failure to make the application until after the date initially fixed for hearing, without any explanation save that there were other matters to which attention needed to be given in accordance with the Court's timetable, is a factor that can be taken into account on this application.

The first ground: alleged material non-disclosure 17 The principles to be applied in determining whether there was a material non-disclosure were not in dispute. 18 In Thomas A Edison Limited v Bullock (1912) 15 CLR 679 Isaacs J held at 681-682: … [I]t is an entirely new case, and essentially different from that presented to my learned brother. He was not afforded the opportunity of considering the real circumstances, and of exercising his discretion upon them. The law in such a case is well established. There is a primary precept governing the administration of justice, that no man is to be condemned unheard; and therefore, as a general rule, no order should be made to the prejudice of a party unless he has the opportunity of being heard in defence. But instances occur where justice could not be done unless the subject matter of the suit were preserved, and, if that is in danger of destruction by one party, or if irremediable or serious damage be imminent, the other may come to the Court, and ask for its interposition even in the absence of his opponent, on the ground that delay would involve greater injustice than instant action. But, when he does so, and the Court is asked to disregard the usual requirement of hearing the other side, the party moving incurs a most serious responsibility. Dalglish v. Jarvie, a case of high authority, establishes that it is the duty of a party asking for an injunction ex parte to bring under the notice of the Court all facts material to the determination of his right to that injunction, and it is no excuse for him to say he was not aware of their importance. Uberrima fides is required, and the party inducing the Court to act in the absence of the other party, fails in his obligation unless he supplies the place of the absent party to the extent of bringing forward all the material facts which that party would presumably have brought forward in his defence to that application. Unless that is done, the implied condition upon which the Court acts in forming its judgment is unfulfilled and the order so obtained must almost invariably fall. (footnotes omitted) 19 In Aristocrat Technologies Australia Pty Ltd v Allam (2016) 327 ALR 595; [2016] HCA 3, in considering an application to set aside or stay the execution of a writ for the levy of property and stay of a certificate of taxation, Gageler J said at [15]: It is an elementary principle of our ordinarily adversarial system of justice that full and fair disclosure must be made by any person who seeks an order from a court ex parte, with the result that failure to make such disclosure is ordinarily sufficient to warrant discharge of such order as might be made. The principle is not confined to particular types of interlocutory orders. Its rationale lies in the importance to the administration of justice of the courts and the public being able to have confidence that an order will not be made in the absence of a person whose rights are immediately to be affected by that order unless the court making the order has first been informed by the applicant of all facts known to the applicant which that absent person could be expected to have sought to place before the court had the application for the order been contested. (footnotes omitted) 20 I was also referred to Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53, where Basten JA reviewed the authorities concerning the duty of candour or disclosure to the court. At [67]-[68] his Honour referred to the discussion in the English Court of Appeal in Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350, dealing with questions of non-disclosure in obtaining a Mareva injunction, noting at [68] that: To similar effect, Balcombe LJ stated: The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two-fold purpose. It will deprive the wrongdoer of an advantage improperly obtained …. But it also serves as a deterrent to ensure that persons who make ex parte applications realise that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty. Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice. It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained …. 21 At [69] Basten JA observed that the statements in relation to injunctive relief were not apposite in the case before him. However, his Honour further noted the need "to measure the penal or deterrent effect of setting aside an ex parte order against the possible injustice in the circumstances of the particular case". 22 The defendants submitted that at the ex parte hearing on 11 August 2017 Mr Hislop failed to discharge the "most serious responsibility" that he assumed, having elected to apply for the Injunction ex parte. The defendants submitted that the Court: (1) was not informed of the following facts which were material to the determination of the application for the Injunction: (a) the terms or substance of cl 7.3(a) of the Earning Agreements; (b) the terms or substance of cll 2(b) and 3(a) of the Settlement Agreement referred to in the Injunction; and (c) the fact that: (i) in its quarterly report for the quarter ended 31 December 2016 filed with the Securities Exchange Commission in the USA (SEC Report), Nation Wyoming stated that it did not have sufficient funds to acquire and develop any opportunities, including the opportunity presented by the third amended and restated agreement with Paltar; and (ii) Mr Hislop certified the truth of the SEC Report; and (2) was not referred to Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164 (Huang) at [85]-[87] or the cases referred to therein. 23 The question for the Court was whether any of the matters that the defendants submitted were not disclosed were material to the Injunction. I was of the opinion that they were not. My reasons are set out below.

Clause 7.3(a) of the Earning Agreements 24 There are six Earning Agreements that were entered into on or about 31 May 2016 between Paltar and Nation Australia. In summary, among other things, those agreements govern the obligations of Paltar as operator of certain exploration permits held by it in whole or in part pursuant to the Petroleum Act 2009 (NT) and the obligations of Nation Australia in relation to funding of those exploration permits. The agreements relevantly provide: (1) at cll 5.1 and 5.3: 5.1 Agreed Permit Work Programs and Budgets (a) The Work Program and Budget detailing the Operations to be performed in respect of the Permit for the fourth and fifth Permit Years is attached as Schedule 2. … 5.3 Funding of Work Program Expenses (a) Nation agrees to contribute 100% of the actual Work Program Expenses. (b) Nation must pay all Work Program Expenses as follows: (i) As soon as practicable after Nation has such funds conveniently available, Nation will deliver to Paltar the full amount of the Work Program and Budget costs actually incurred for the third Permit Year, together with the Work Program and Budget costs estimated for the fourth Permit Year, as shown in Schedule 2; … (2) at cll 7.1 and 7.3: 7.1 Default and Notice Nation will be in default under this Agreement if it fails to contribute any portion of the Work Program Expenses when due under clause 5.3(b). Paltar shall promptly provide Nation written notice of such default. … 7.3 Remedies (a) If the Nation default relates to a failure to pay the Work Program Expenses actually incurred for the third Permit Year or to contribute the Work Program Expenses for the fourth or fifth Permit Years, and if Nation fails to remedy such default within 30 days following Paltar's notice, then Nation, upon the written request of Paltar, shall surrender its entire interest in this Agreement to Paltar, free of all encumbrances arising by, through or under Nation, and shall execute a written surrender instrument in such form as reasonably may be requested by Paltar. As a result of such surrender, Nation shall have no right ever to receive any interest whatsoever in the Permit or Paltar Blocks and no right ever to recover any amounts it previously expended or contributed, whether under this Agreement, in quantum meruit, or under any other legal or equitable principle. … 25 The defendants submitted that the fact that, by cl 7.3(a), Nation Australia was contractually obliged to surrender its interests in the Earning Agreements to Paltar upon a default that had not been remedied should have been disclosed to the Court. They submitted that that contractual obligation explained the approval by Nation Australia of the surrender agreements the subject of the Injunction. The defendants further submitted that the approval by Nation Australia of the surrender agreements in compliance with its contractual obligation is inconsistent with the assertions made to the Court on 11 August 2017 that, in approving them, the defendants engaged in asset stripping. The defendants also contended that Mr Hislop should have disclosed that this contractual obligation had existed since 31 May 2016, such that the defendants could not be said to have acted urgently in approving the surrender agreements. 26 Mr Hislop submitted that, while the Court was not referred in terms to cl 7.3(a) of the Earning Agreements, it was clearly enough put that the Nation Australia directors wrongfully "conceded" the default specified in the default notice with the consequence that Nation Australia "[gave] away all its rights" under the Earning Agreements. Mr Hislop submitted that it was disclosed that the default notice was stated to "expire" on 9 August and that it is an obvious and inherent consequence of a default notice that, upon its expiration, forfeiture of rights would follow from a failure to comply. Mr Hislop further submitted that the case he proposed to advance on behalf of Nation Australia was that the default notice was invalid. 27 The question for me was whether the existence and effect of cl 7.3(a), relevantly providing as it did that Nation Australia was required to surrender its entire interest in the Earning Agreements upon receipt of a default notice, a failure to remedy the default specified therein and a written request from Paltar, was a material fact that should have been disclosed on the ex parte application for the Injunction. The answer to this question was finely balanced but, in my view, the terms of cl 7.3(a) were not material and the Court did not need to be taken to them expressly. This was particularly so in circumstances where, in any event, the Court was made aware of the effect of cl 7.3(a). 28 It is clear from the submissions made by Mr Hislop on 11 August 2017 that the Court was informed of the following matters: (1) Mr Hislop is a minority shareholder in Nation Wyoming, the parent company of Nation Australia; (2) Mr Hislop considered that Nation Australia had an equitable fraud perpetrated upon it by a "wave of attacks" commencing in April 2017, with the most recent event being on the Friday before the making of the application, and that the majority had attempted to strip away from Nation Australia the only real assets it had, being its interests in the Earning Agreements which correspond with certain exploration permits; (3) the exploration permits were held by Paltar and another company, Sweetpea, both of which entered into the Earning Agreements with Nation Australia "in 2015 or 2016". Pursuant to those agreements Nation Australia had the right in certain circumstances to be given a production licence in relation to the oil and gas exploration permits and, while the agreements also imposed obligations on Nation Australia to meet various expenses relating to the exploitation of the permits, the production licence, if granted, was potentially very lucrative; (4) the role of each of the parties to the originating application; (5) the threat to be alleviated by the Injunction was that the interests and rights in the Earning Agreements, which were purportedly about to be stripped away from Nation Australia on or sometime after 4 August 2017, could be dealt with such that a third party could acquire those rights and Nation Australia would be shut out forever from getting them back. Mr Hislop said that if he got leave to sue in Nation Australia's name then the company was entitled to have what had occurred rescinded because it was vitiated by fraud; (6) the four alleged "attacks" by Paltar: (a) first, the stacking of the board of Nation Wyoming with four associates of Mr Bruner, who controls Paltar, in April 2017; (b) secondly, the stacking of the board of Nation Australia in June 2017 by removing three directors, including Mr Hislop, and appointing Messrs Madzej and Caetano, close associates of Mr Bruner; (c) thirdly, Paltar's service of a notice of default under the Earning Agreements on Nation Australia, which Mr Hislop alleges was prima facie invalid, in July. Mr Hislop outlined his arguments in support of his claim that the notice of default was invalid; and (d) fourthly, the calling of a meeting of the directors of Nation Wyoming on 4 August 2017 to which "everybody came prepared, ready to strip the assets away". The directors had six draft surrender agreements by which Nation Australia would concede the defaults and a Settlement Agreement under which Nation Australia would give away all of its rights. Nation Wyoming passed resolutions to the effect that it should proceed to have Nation Australia in effect concede the default notice, give up all of its rights and enter into the agreements; and (7) thereafter, Mr Hislop did not know what occurred, whether there was a purported meeting of Nation Australia and whether Nation Australia had agreed to act in the manner that its parent company had already resolved to act, which would result in it giving up all of its rights and being stripped of the only assets it had. 29 The submissions made to the Court on 11 August 2017 outlined the nature of the Earning Agreements. They disclosed the existence of the default notice, the dispute as to its validity and the allegation that the acceptance of the default notice and entry into the surrender agreements and the Settlement Agreement would result in a stripping away of Nation Australia's assets. It was at least implicit in what the Court was told that the default notice would, if the default were not remedied, result in a termination or, as was the case here, loss of rights. The fact that a clause expressly required a surrender and that the terms of that clause were not brought to the attention of the Court does not, in my view, lead to the conclusion that there was a material non-disclosure. 30 The critical issue in the Proposed Claim, as disclosed to the Court on 11 August 2017, is the validity and treatment of the default notice by the directors of Nation Australia. Clause 7.3(a) is said to be a possible answer to the allegations that were made about the conduct in surrendering the Earning Agreements. However, it does no more than state what Nation Australia was required to do in the face of receipt of a default notice and a failure to remedy the default notified. That requirement does not answer the allegation that the directors acted contrary to their duties by, in effect, accepting the default notice at face value. 31 The defendants also attempted to make something of the fact that the Earning Agreements were dated 31 May 2016. They submitted that this should have been disclosed to the Court because it points against them having acted urgently in approving the surrender agreements. That the Earning Agreements had been on foot since 31 May 2016 cannot be said to be material to the Injunction. The events on which Mr Hislop relied commenced in April 2017 and continued until early August 2017.

Clauses 2(b) and 3(a) of the settlement agreement 32 The Settlement Agreement and Release of All Claims (Settlement Agreement) is between Nation Wyoming, Nation Australia, Paltar and Officer Petroleum Ltd (Officer), a wholly owned subsidiary of Paltar. Clauses 2(b) and 3(a) respectively provide: 2. Terms of Settlement Agreement; Execution of Settlement Agreement; and Consideration. … … (b) Debt-for-Equity Exchange. Paltar hereby agrees to accept, on behalf of itself and its subsidiary Officer, newly-issued shares of common stock of [Nation Wyoming] in exchange for the cancelation of certain debts owed to Paltar and/or Officer, and the settlement of certain damages incurred by Paltar and/or Officer, described more particularly as follows: (I) the settlement of damages by conversion of the EP 468 Impairment (US$5,797,476.00) at a conversion rate of $0.05 per share into 115,949,520 shares of common stock of [Nation Wyoming] fully paid issued to Paltar; (II) the cancelation of debt by conversion of the EP 468 Expenses (US$1,029,955.53) at a conversion rate of $0.05 per share into 20,599,110 shares of common stock of [Nation Wyoming] fully paid issued to Paltar; (III) the cancelation of debt by conversion of the Work Permit Expenses (US$5,195,325.96) at a conversion rate of $0.05 per share into 103,906,540 shares of common stock of [Nation Wyoming] fully paid issued to Paltar; and (IV) the cancelation of debt by conversion of the amounts owed to Paltar under the Promissory Note (US$19,368,913.78) at a conversion rate of $0.05 per share into 387,378,275 shares of common stock fully paid of [Nation Wyoming] issued to Paltar. The monies owed above are as of March 31, 2017; such amounts and the related share amounts will be adjusted to account for the changes in amounts owed by Nation Australia to Paltar and Officer for the time period after March 31, 2017 through and including the date of issuance of the shares to Paltar. Subject to adjustment as set forth in the previous sentence, [Nation Wyoming] will issue to Paltar a total number of 627,833,445 shares of common stock fully paid pursuant to this subsection 2(b). The share amounts calculated above have been rounded down to the nearest whole share, as necessary. As soon as practicable following the execution of this Settlement Agreement by the Parties, [Nation Wyoming] shall take all necessary further actions to issue the shares to Paltar set forth in this subsection 2(b). … 3. Waiver and Release of Agreements. Except as may be set forth herein: (a) The Paltar Group hereby waives all rights and fully and completely releases [Nation Wyoming] and Nation Australia from any claims or obligations, known or unknown, present or future, arising under the Earning Agreements herein defined and the same shall be deemed of no further force or effect; and … 33 The defendants submitted that the Court was not informed of any of the benefits accruing to Nation Australia under the Settlement Agreement, which were substantial, and to which Nation Australia was not entitled under cl 7.3(a) of the Earning Agreements. The defendants contended that those benefits explained why it was in the commercial interests of Nation Australia to enter into the Settlement Agreement. 34 In relation to cl 2(b) Mr Hislop submitted that: (1) there was no benefit from the surrender. Clause 2(b) provided for a debt-for-equity swap whereby Paltar exchanged certain debts owed to it for the issue of "common stock" in Nation Wyoming and the "settlement of certain damages incurred by Paltar"; (2) the amounts referred to in cl 2(b)(I) and (II) did not relate to Paltar but to its related entity, Officer. Those amounts were the subject of a notice of default served by Officer, which is not the subject of any challenge in the Proposed Claim, and thus could not be material; (3) the amount referred to in cl 2(b)(III) is the amount included in the default notice. Mr Hislop submitted that the case he seeks to advance on behalf of Nation Australia is that there was no such debt owing because the funds were not "conveniently available" within the meaning of cl 5.3(b) of the Earning Agreements, a point that was made to the Court on 11 August 2017; and (4) that the amount at cl 2(b)(IV) related to a promissory note that could not have been called on until 31 May 2019. 35 Mr Hislop submitted that the case he seeks to advance is that there was an "asset stripping" exercise perpetrated against Nation Australia, as a result of which it lost the only real assets that it had through equitable fraud. Mr Hislop contended that the fact that the agreement which ultimately effected that stripping of assets did so in a way that purported to "cancel" and "release" damages or debt, which Mr Hislop explicitly said were not owed in fact and in law, was not material. Mr Hislop contended that the real complaint was that Nation Australia lost valuable assets and that it was not to the point that debt was extinguished. 36 The question of release of amounts said to be owing to Officer could not be material to the Injunction. As was submitted by Mr Hislop, and as it seemed was accepted by the defendants in their oral submissions, the notice of default issued by Officer is not in dispute in the Proposed Claim. It therefore could not be said that it was material to disclose that there had been an issue of equity to Paltar in Nation Wyoming in exchange for the amount said to be owing to Officer under its notice of default. 37 The balance of the debts which were cancelled under cl 2(b) were not, in my opinion, material to the Injunction. Those amounts, being the amount included in the default notice and the amount owing under the promissory note, were cancelled or not pursued as damages in exchange for an issue of equity to Paltar in Nation Wyoming. It was difficult to see how this arrangement was material to the Injunction. Further, I accepted Mr Hislop's submission that there was an argument that those amounts were not owing such that any cancellation and release of them could not be material. 38 As Mr Hislop submitted, the question of what is material to disclose on an application for an ex parte interlocutory injunction must focus on those facts that are material to whether or not the injunction should be granted. The form of injunction that was sought and granted focused on the assets that it was alleged had been stripped away, namely, the rights under the Earning Agreements that had purportedly been surrendered pursuant to cl 2(a) of the Settlement Agreement. Viewed in that way, and having regard to the matters referred to above, cll 2(b) and 3 of the Settlement Agreement were not, in my opinion, material to the application for the Injunction. Nor were those clauses material to what was proposed to be achieved by that application, namely, to preserve the valuable assets and, with those assets, the contingent debt that Nation Australia would owe at some time in the future.

SEC Report 39 The defendants relied on the fact that Mr Hislop, a member of the board of directors and the chief financial officer of Nation Wyoming who had as of 15 March 2016 resumed on an interim basis the duties of president and chief executive officer, certified the SEC Report on 14 February 2017, including the following statement under the heading "Future Financings": As of December 31, 2016, we had cash of $393,434. We currently do not have sufficient funds to acquire and develop any opportunities, including the opportunity presented by the third amended and restated agreement with Paltar Petroleum. 40 The defendants submitted that the Court was informed that Nation Australia was incorporated by Nation Wyoming for the purpose of funding the works and expenses to exploit the relevant exploration permits and that Nation Australia had no substantial assets. The defendants further submitted that, in those circumstances, the fact that Nation Wyoming declared that it had insufficient funds to pay for the works and expenses to exploit the exploration permits was material because not only was Nation Australia without funds but it could not obtain funds from its parent. Hence, the defendants contended that if Nation Australia had the Settlement Agreement and the surrender agreements rescinded, as it proposed to the Court on 11 August 2017, then it would return to a position in which it would be liable to fund the works and expenses to exploit the exploration permits but be incapable of doing so. The defendants further contended that this would not be in Nation Australia's best interests, a relevant consideration under s 237(2)(c) of the Corporations Act. 41 Clause 5.3(b)(i) of the Earning Agreements requires Nation Australia to pay all work program expenses "[a]s soon as practicable after [it] has such funds conveniently available", at which time it must deliver to Paltar the full amount of the Work Program and Budget costs incurred for the third Permit Year and those estimated for the fourth Permit Year. Mr Hislop pointed out that in paragraph 11 of the affidavit affirmed on 12 August 2017 by Carmen (Tony) Lotito, the executive vice president of Paltar, Mr Lotito deposed, among other things, that Nation Australia had no funds or other realisable assets to make any payments under the Earning Agreements going forward and that it had no source of funds available to it for those payments. That being so, it is difficult to see how Nation Australia would return to a position in which it would be liable to fund works and expenses to exploit the exploration permits. But more fundamental is Mr Hislop's submission, which I accepted, that Nation Wyoming may not be the only source of funds for Nation Australia but only one possible source. In those circumstances, the SEC Report and the statement that Nation Wyoming did not currently have sufficient funds to acquire and develop, among other things, the third amended and restated agreement with Paltar cannot be said to be material.

The decision in Huang 42 The defendants submitted that at [85]-[87] of Huang Barrett AJA observed that an application under s 237 of the Corporations Act is solely a matter of internal governance and domestic concern of the relevant company and that, generally speaking, unrelated third parties who the applicant wishes to see the company sue are not necessary parties. The defendants contended that this was plainly material to whether the Court should grant the Injunction because if, as the first to fourth defendants contend, they are unnecessary parties then there was no serious question to be tried between Mr Hislop and those defendants. 43 In Huang the New South Wales Court of Appeal had before it an appeal from a decision to dismiss a summons brought pursuant to s 237 of the Corporations Act. At [85]-[87] Barrett AJA said: 85 A person with standing under s 236(1) may file a s 237 leave application which merely names the company itself as respondent and identifies the case that the person wishes the company to pursue against some unrelated third party. A recent example of such a case is Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480. Because the reason for the application is usually the unwillingness of the company to bring the proceeding in question, the likelihood is that the company will oppose the application. In such a case, the debate is solely on an issue of internal governance and domestic concern: whether the company should sue the third party and whether the applicant, who otherwise lacks the ability to put the company into motion, has established a statutory entitlement to act on the company's behalf in that respect. The only persons legitimately interested in that debate are the applicant and the company. 86 When a s 237 application is framed and advanced in the way just described, the only parties to the controversy before the court are the applicant and the company. It follows that an order granting leave under s 237 in such a case is an order that finally disposes of the rights of those parties regarding the relevant subject matter, being the question whether the applicant should be permitted to bring the particular action on the company's behalf. 87 Generally speaking, the unrelated third party that the s 237 applicant wishes to see the company sue is not a necessary party to the s 237 application: see Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 51 ACSR 245; 186 FLR 104; [2004] NSWSC 973 (leave to appeal refused by this Court on 20 May 2005); Roach v Winnote Pty Ltd; Leslie (2006) 227 ALR 758; 57 ACSR 138; [2006] NSWSC 231; O'Meara v FWV Stanke Holdings Pty Ltd [2007] SASC 286. But if, as in McEvoy v Caplan, the application for leave is brought in existing proceedings and the applicant actively involves the third party in the application, that issue is preempted or sidestepped by the applicant's own decision to proceed in that particular way: see, for example Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 at [9]-[15]. 44 In my opinion the passages from Huang set out above were not material to the application for the Injunction and no criticism should be made of Mr Hislop for not bringing the judgment to the Court's attention. In coming to that view I should not be taken to have determined whether the first to fourth defendants are necessary parties. That is a matter that should be determined by the trial judge hearing the substantive application. 45 Section 236(1) of the Corporations Act sets out those persons who may bring proceedings on behalf of a company or intervene in any proceeding to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings or for a particular step in those proceedings. They are a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate, or an officer or former officer of the company. In each case the person must be acting with leave granted under s 237. 46 At [85] Barrett AJA noted that a person with standing under s 236(1) may file a s 237 leave application "which merely names the company itself as respondent and identifies the case that the person wishes the company to pursue against some unrelated third party". His Honour recognised that, because an application is usually made as a consequence of the unwillingness of the company to bring a proceeding, the likelihood is that the company will oppose the application and that, in such a case, the debate relates solely to an issue of internal governance and domestic concern, namely, whether the company should sue the third party and whether the applicant has established a statutory entitlement to act on the company's behalf in that respect. His Honour further noted at [86] that, when a s 237 application is framed in that way, the only parties to the controversy before the court are the applicant and the company and at [87] that "[g]enerally speaking, the unrelated third party that the s 237 applicant wishes to see the company sue is not a necessary party to the s 237 application" referring to the decision, among others, in Carpenter v Pioneer Park Pty Ltd (in liq) (2004) 51 ACSR 245; [2004] NSWSC 973 (Carpenter). Barrett AJA concluded at [87] that if "the application for leave is brought in existing proceedings and the applicant actively involves the third party in the application, that issue is preempted or sidestepped by the applicant's own decision to proceed in that particular way", referring by way of example to Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 at [9]-[15] (Chahwan). 47 The application made by Mr Hislop is not of the same nature as that referred to by Barrett AJA at [85]. It is not one in which the person with standing under s 236(1) files an application "which merely names the company itself as respondent and identifies the case that the person wishes the company to pursue against some unrelated third party". 48 In Carpenter Barrett J considered an application by Australia and New Zealand Banking Group Ltd (ANZ) for an order that it be joined as a party to the proceeding or be given leave to intervene. The proceeding in question was an application by Mr Carpenter for an order that he have leave to commence proceedings on behalf of Pioneer Park Pty Ltd against either or both of ANZ and PricewaterhouseCoopers. Barrett J refused ANZ's application. At [16] his Honour referred to Pt 2F.1A of the Corporations Act, which includes ss 236 and 237, and said that that Part was "concerned with the domestic process by which a company makes decisions relevant to initiation and continuation of legal proceedings". His Honour also noted that the statutory provisions in Pt 2F.1A: enable anyone with a particular form of "insider" status described in s 236(1)(a) to seek the court's assistance in taking over the role of the normal decision makers in relation to a particular proceeding. The court's function is essentially a screening function. It must assess against specified criteria the litigation proposal the applicant has in mind for the company. If that proposal is found by the court to meet the criteria, it must grant leave enabling the applicant to pursue it for the company. 49 In Chahwan, Mr Chahwan, by the filing of a notice of motion in an existing proceeding, sought an order under s 237 of the Corporations Act for leave to bring the proceeding on behalf of the company, Bycoon Pty Ltd, to the extent that it involved claims by that company against Euphoric Pty Ltd. At [9] Barrett J noted a submission made on behalf of Mr Chahwan that "the question of a grant of leave under s.237 is a matter of domestic concern within the company concerned (here, Bycoon), involving a decision as to whether the company should, under the auspices of the applicant for leave … be allowed to cause the company to bring proceedings that the normal decision makers within the company are unlikely to cause it to institute". His Honour continued: In ordinary circumstances, the persons properly interested in such an application are those I have called "the normal decision makers" being, in addition to the applicant, those who are within the categories qualified to apply for leave under s.237. 50 In Syndicate Mortgage Solutions Pty Ltd v Khaled El-Sayed [2010] NSWSC 348 Brereton J referred to Chahwan, noting at [4]: … To summarise what his Honour said; in ordinary circumstances, the persons properly interested in an application such as the present one are the normal decision-makers of the corporation, typically (in addition to the applicant) those who are within the categories qualified to apply for leave under s 237, and apparently not the prospective defendant in the substantive proceedings. However, this is not a hard and fast rule, and from time to time prospective defendants have been heard in opposition to s 237 applications. That has more commonly been so when the proceedings were already advanced when the need for leave was recognised, or because of other factors affecting the constitution of the proceedings. It would go too far to say that the prospective substantive defendant should never be heard on a s 237 application. … 51 There is no hard and fast rule about the proper parties to an application under s 237. So much is recognised in the authorities set out above. While most commonly the parties to such an application are the person or persons entitled to bring the application pursuant to s 236(1) of the Corporations Act and the company in whose name the prospective proceedings are sought to be brought, it has been recognised that prospective defendants have been heard in opposition to s 237 applications. It has also been recognised that "the persons properly interested" in an application under s 237 are the "normal decision-makers of the corporation" who are usually, in addition to the applicant, those who are within s 236(1) and thus qualified to apply for leave under s 237. Each of the first to fourth defendants are so qualified. 52 It is also relevant to note here that, because Mr Hislop sought the injunction under r 7.35(4) of the Federal Court Rules 2011 (Cth), the first to fourth defendants needed to be joined as parties in order for the Court to grant a freezing order against them under that rule.

Should the Injunction otherwise be discharged? 53 The defendants submitted that the Injunction should be dissolved on the basis of the materials that were now before the Court. After referring to relevant authorities, the defendants submitted that in order to be entitled to the Injunction Mr Hislop had to prove that there was a serious question to be tried as to his entitlement to relief; that he was likely to suffer injury for which damages would not be an adequate remedy; and that the balance of convenience favoured the granting of the Injunction, relying on Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 at 68. 54 The defendants submitted that they accepted that there was a serious question to be tried as against Nation Australia, being whether Mr Hislop is entitled to a grant of leave under s 237 to bring the Proposed Claim. But they submitted that there was no serious question to be tried as to Mr Hislop's entitlement to relief in this proceeding as against the first to fourth defendants who, they said, were not necessary parties to the proceeding. The defendants submitted that none of first to fourth defendants had a legitimate interest in whether Mr Hislop established a statutory entitlement to bring the Proposed Claim. 55 The defendants submitted that there was no evidence that proved that Mr Hislop was likely to suffer any injury for which damages would not be an adequate remedy. They further submitted that Mr Hislop is a shareholder in Nation Wyoming, not Nation Australia, and that the only conceivable injury that Mr Hislop could suffer in the absence of the Injunction was a possible decrease in the value of his shares in Nation Wyoming by reason of a decrease in the value of that company's shares in Nation Australia. They contended that damages would be an adequate remedy for that injury. 56 The defendants submitted that the balance of convenience did not favour granting the Injunction because there was no evidence of any danger that a judgment or prospective judgment would be not be satisfied; because the Proposed Claim is not in Nation Australia's best interests; because Mr Hislop's case for final relief is weak because there is a perfectly plausible commercial rationale for Nation Australia entering into the surrender agreements and the Settlement Agreement; and because there is no satisfactory undertaking as to damages. 57 The defendants also submitted that, for so long as the Injunction was in place, there was no point in Paltar marketing an interest in the exploration permits to prospective financiers to obtain financing to fund their exploration; that the longer the Injunction remained in place the greater the risk that funding to exploit the exploration permits may not be obtained; and that a failure to make payments required under the exploration permits would result in their forfeiture to the Northern Territory Government. However, the defendants noted that it was not suggested that an exploration permit would be forfeited between the date of their application for dissolution of the Injunction and the trial date in the event that the Injunction was extended. The defendants submitted that this was not only a factor favouring the defendants on the balance of convenience but also a reason for there to be an adequate undertaking as to damages that may be relied upon. 58 When an order has been obtained ex parte, the party affected by it may apply for its discharge: see The Owners of the S.S. Kalibia v Wilson (1910) 11 CLR 689 at 694. In Farrell v Delaney (1952) 52 SR (NSW) 236 at 238 Street CJ said: It is, of course, trite law to say that an order made on an ex parte application may be reconsidered and reviewed, either by the judge who made the original order, or in some cases, by another judge with co-ordinate powers, but in all those instances the application to review is not an application merely to reconsider the correctness of the original decision on the materials then placed before the judge. The application rests in every case upon the production of further materials not before the judge who heard the ex parte application and which throw a new and different light upon the situation of the parties involved. … 59 Bearing these principles in mind and having considered the submissions made by the defendants, combined with the delay in bringing this application, I was not persuaded that the Injunction should be discharged on the material before the Court. 60 The defendants accepted that there was a serious question to be tried as against Nation Australia. I should briefly address the nature of the serious question to be tried as against the first to fourth defendants. The defendants submitted in the course of argument that the only serious question to be tried was that as between Mr Hislop and Nation Australia as to whether Mr Hislop is entitled to a grant of leave under s 237 to bring the Proposed Claim. However, in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583 Palmer J observed at [25] that: In order to ascertain whether there is a serious question to be tried for the purposes of s 237(2)(d), the court will not normally enter into the merits of the proposed derivative action to any great degree. The applicant has the same relatively low threshold to surmount as in the case of an application for an interlocutory injunction: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622; [1968] ALR 469 at 472. 61 Without determining the issue, the position of the first to fourth defendants as necessary or proper parties to the proceeding is addressed at [42] to [52] above. The serious question to be tried as against those defendants, without entering into the merits of the Proposed Claim to any great degree, is contiguous with the question to be tried in the Proposed Claim. That is, it is whether Nation Australia, if Mr Hislop is granted leave to bring the Proposed Claim on its behalf, is entitled to the relief sought in the Proposed Claim. On its face, the Proposed Claim appeared to disclose a serious question to be tried. 62 As to whether damages would be an adequate remedy, the defendants' submissions focused on Mr Hislop and the damage that he might personally suffer. But to do so takes too narrow an approach. As submitted by Mr Hislop, the Injunction was sought and granted to preserve the subject matter of the Proposed Claim for the benefit of Nation Australia pending the resolution of this proceeding. 63 The final issue was whether the balance of convenience favoured the granting of the Injunction. The defendants submitted that there were a number of reasons why the balance of convenience did not weigh in favour of granting the Injunction. Having considered each of those reasons, for the reasons that follow, I formed the view that the balance of convenience favoured the granting or extension of the Injunction. 64 The danger that existed was not in relation to whether a judgment in this proceeding would not be satisfied but whether a judgment in the Proposed Claim may be left unsatisfied or whether a prospective judgment on the Proposed Claim might be frustrated. There was evidence that: (a) on 29 June 2017 Mr Caetano sent an email to Mr Lotito, copied to Cam McTavish and headed "Fortem/Paltar agreement" in which he said: Hi Tony, I would like to introduce you to Cam McTavish who is Fortem's legal counsel. As discussed, Cam is preparing the agreement between Fortem and Paltar. Can you please provide or do an email introduction to Paltar's counsel. Thanks (b) on 29 June 2017 Mr McTavish sent an email to Messrs Caetano and Lotito in which he said: Hello Tony, My contact information is below. Can you send me your contact information as we'll need to gather some information on Paltar in connection with the agreement. Thanks. (c) on 30 June 2017 Mr Lotito sent an email to Kym Livesley, a partner at Dentons, Sydney, and Mr McTavish, copied to Messrs Causbrook and Caetano and Nick Tropea in which he said, among other things: Kym and Cam Let me introduce you both (via E-mail ) to Fortem Resosources (sic) Inc's Attorney Cam McTavish of Clark Wilson Vancouver BC Canada Cam will be preparing an initial Draft of the Paltar/Fortem Agreement for Paltar's and your review and Comment. Nick Tropea, Paltar's Secretary , is the best source for information regarding Paltar. … (d) Nation Wyoming sought and, on 11 July 2017, the date after the default notice was issued, was provided with a valuation of "EP136 Contingent Resources (C2)", one of the explorations permits the subject of the Earnings Agreements. An "Economic Summary Projection" attached to the valuation, which was provided by Sigma3, referred to: Paltar-Fortem Australia 50/50 JV Grand Total 502 wells Discount Rate: 10.00 As of: 07/01/2017 (e) on 16 July 2017 Mr Livesley sent an email to Mr Causbrook, copied to Belinda Nisbett, in which he said: Dear Darrel I have now had the opportunity of digesting Cam McTavish's email from last week. Much is required to be done. On all sides. Lets (sic) discuss early this week about the questions Cam has raised, responsibility of who is doing what etc … 65 This evidence suggests that there were active discussions between Paltar and Fortem Resources Inc (Fortem) about a proposed agreement between those companies, I would infer in relation to at least some of the exploration permits in the Northern Territory that are the subject of the Earning Agreements. Mr Caetano is, among other things, the chief executive officer of Nation Australia and of Fortem. His evidence in his affidavit sworn on 2 September 2017 that he was "aware that Fortem has no interest at this time in entering into any negotiations with Paltar in relation to any rights or interests under the Earnings Agreements", given its temporal nature, did little to address the risk that a prospective judgment would be left unsatisfied or be frustrated. 66 As to whether the Proposed Claim is in Nation Australia's bests interests and its relative strength, I refer to [40] to [41] above. I was not persuaded that the Proposed Claim is not in Nation Australia's best interests, nor that it was so weak that the balance of convenience weighed in favour of discharging the Injunction. 67 The final matter raised by the defendants was the adequacy of the undertaking as to damages. The delay in making the application weighed heavily against the Court making an order that Mr Hislop provide security for the undertaking given the late stage at which it was sought. Leaving that matter to one side, Mr Hislop resides in the United Kingdom. His only asset in the jurisdiction is a loan made by him to Paltar which is recorded as a liability in Paltar's balance sheet as of February 2017 in the amount of $1,938,300.59. A secured promissory note dated 25 November 2014 from Paltar in favour of Mr Hislop records that Paltar promised to pay Mr Hislop USD669,418.67 and interest on 31 May 2015 and "to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%) per annum … from the date hereof until this Note is fully paid or otherwise satisfied". That debt, owing as it is by Paltar to Mr Hislop, seemed sufficient to support any undertaking as to damages and to make the giving of additional security unnecessary. Insofar as the second to fifth defendants are concerned there was no evidence of the damage they may suffer by reason of the Injunction other than costs of the proceeding.

conclusion 68 For those reasons I dismissed the interlocutory process and ordered the defendants to pay Mr Hislop's costs. I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.

SCHEDULE OF PARTIES NSD 1383 of 2017 Defendants Fourth Defendant: DARREL CAUSBROOK Fifth Defendant: NATION ENERGY (AUSTRALIA) PTY LTD

Petroleum Act 2009(NT)

Corporations Act 2001(Cth)s 236, 237

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (17)