Annuo Medical Technology Solutions Pty Ltd v Angel Loop Ltd [2024] QSC 256

SUPREME COURT OF QUEENSLAND CITATION: Annuo Medical Technology Solutions Pty Ltd v Angel Loop Ltd [2024] QSC 256 PARTIES: ANNUO MEDICAL TECHNOLOGY SOLUTIONS PTY LTD ACN 651 942 700 (first plaintiff) AND DR JENI WELLINGTON (second plaintiff) v ANGEL LOOP LTD, ANGEL LOOP NOMINEES LTD ACN 638 063 804 (first defendant) AND SIMON HORNE (second defendant) AND JOHN WHELAN (Third Defendant) AND JOHN WHELAN (CAR LICENSE 000336960 OF MAVEN CAPITAL LIMITED AFS LICENCE 418504, JOHN WHELAN AS AN “ENTITY”) (fourth defendant) AND AUSTRALIAN FINANCIAL COMPLAINTS AUTHORITY (AFCA) 38620494340 (fifth defendant) FILE NO: BS 11028/24 DIVISION: Trial PROCEEDING: Applications ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 29 October 2024 DELIVERED AT: Brisbane HEARING DATE: 17 October 2024 JUDGE: Freeburn J ORDERS: 1. Pursuant to rule 171 of the Uniform Civil Procedure Rules 1999, the statement of claim filed on 22 August 2024 is struck out. 2. The plaintiffs’ application for summary judgment filed on 15 October 2024 is dismissed. -- 1 of 21 -- 2 3. I will hear the parties on costs and further directions. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – STRIKING OUT – where the plaintiffs and first to fourth defendants entered discussions on arranging investments in the first plaintiff company – where a non-binding terms sheet was signed – where discussions fell apart – where the plaintiffs commenced proceedings that are dependent on the enforceability of the terms sheet – where the plaintiffs’ proceedings are also against the Australian Financial Complaints Authority, the fifth defendant, as that the fifth defendant refused to hear the plaintiffs’ complaints about the first to fourth defendants – whether the statement of claim should be struck out Uniform Civil Procedure Rules 1999 (Qld), r 292 Collins v Metro North Hospital and Health Service [2023] QSC 194, cited Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72, cited COUNSEL: By leave, J Wellington for the first plaintiff The second plaintiff appeared on her own behalf M K Stunden for the first to fourth defendants K Slack for the fifth defendant SOLICITORS: By leave, J Wellington for the first plaintiff The second plaintiff appeared on her own behalf Thomson Geer for the first to fourth defendants Beckett Lawyers for the fifth defendant Background [1] Dr Wellington, the second named plaintiff, is a medical practitioner and is the founder of Annuo Medical Technology Solutions Pty Ltd (Annuo), the first named plaintiff. Dr Wellington has developed a technology designed for doctor/patient interactions. She wished to develop the technology. Annuo is her start-up investment vehicle. [2] Dr Wellington, who is self-represented, formed a relationship with Angel Loop Nominees Pty Ltd. The objective was that Angel Loop would arrange investors to invest in Dr Wellington’s technology. [3] In March 2023 Annuo and Angel Loop Nominees Pty Ltd (Angel Loop) executed a Terms Sheet. That Terms Sheet was designed to record, at least in a preliminary way, the relationship between Annuo and Angel Loop. Angel Loop’s role was to, in effect, marshal investors who wished to invest in Annuo. [4] An amount of $294,000 has been paid to Annuo but the parties have fallen out. Dr Wellington complains that Angel Loop failed to pay money that investors paid to Angel Loop for investment in Annuo. Dr Wellington complained about Angel Loop’s conduct to the Australian Financial Complaints Authority (AFCA). The AFCA have -- 2 of 21 -- 3 refused to act. The result is that Dr Wellington sues the first four defendants, who are either Angel Loop or parties connected to that entity, and AFCA. The Applications [5] There are three applications before the court: (a) Annuo and Dr Wellington applies for summary judgment against the defendants;1 (b) the first to fourth defendants, that is the Angel Loop parties, apply to strike out the claim and statement of claim; and (c) AFCA also makes an application to strike out the claim and statement of claim as against AFCA. [6] The applications for summary judgment by Dr Wellington and Annuo are premature. No notices of intention to defend have been filed.2 Those notices are a precondition to any application for summary judgment under r 292 of the Uniform Civil Procedure Rules 1999 (Qld). In any event, it is appropriate to deal with the strike-out applications first. [7] At the core of the dispute is what Dr Wellington describes as breaches of contract by Angel Loop, although there are also claims of “misrepresentation, fraud, unconscionable conduct and other violations”. It is necessary to explain, in some detail, the interactions between the parties. Chronology [8] On 9 March 2023 Annuo and Angel Loop executed a document described as a Terms Sheet. The Terms Sheet had this introduction: Introductory Notes This Term Sheet summarises the principal terms of the investment into Annuo Medical Technology Solutions Pty Ltd ACN 651 942 700 (‘Company’) by some, or all of the following types of investors: • Members of Angel Loop either individually or through an entity (‘Lead Investor’); • Related bodies and individuals known to the Lead Investor (‘Other Investor/s’); • interested parties known to the Company (‘Additional Investor/s’); which have become aware of this investment opportunity and who, each individually and independently, have elected to pursue this investment opportunity under the terms laid out below. This is the only Term Sheet that represents the collective interest of Investors 1 Dr Wellington’s application filed on 15 October 2024 sought summary judgment and also “financial disclosure of information about a Defendants (sic) who owes money under a court order.” A further application filed by the plaintiffs sought to strike out various material filed by the defendants. She also filed by leave a further application for summary judgement and for injunctive relief. 2 See Vantage Holdings Pty Ltd v JHC Developments Group Pty Ltd [2011] QSC 155. -- 3 of 21 -- 4 This Term Sheet is not a commitment to invest and is conditional on the completion of due diligence, legal review and provision of documentation that is satisfactory to the Lead Investor. This Term Sheet shall be governed in all respects by the laws of the State of Queensland. [emphasis added] [9] The parties to the Terms Sheet are described rather obliquely as Annuo Medical Technology Solutions Pty Ltd ACN 651 942 700 (“Company”), Jeni Wellington (“Founder/s”), Angel Loop Nominees Pty Ltd as nominee ACN 638 063 804 (“Lead Investor”), related bodies and individuals known to the Lead Investor (“Other Investor/s”) and interested parties known to the Company (“Additional Investor/s”). The term sheet was expressed to expire on the earlier of 31 March 2023 or the date that the Round Size (i.e. $300,000) has been committed by the investors. Investors were to be issued with shares at $43.6882 with a minimum investment of $25,000. [10] The parties agreed to use reasonable endeavours to meet the Investors Conditions within 30 business days following the execution of the Term Sheet. The Investors Conditions were defined as comprising four components, namely: (a) execution of a Subscription Agreement in a form acceptable to all parties; (b) require Annuo and its shareholders to enter into a Shareholders Agreement in a form acceptable to all parties; (c) require Annuo and its shareholders to approve a constitution in a form acceptable to all parties; and (d) require Dr Wellington to enter into a deed of assignment under which it assigns all intellectual property related to the business to Annuo. [11] It will be necessary to return to those four components. For convenience I will refer to those components as the Investor Conditions. [12] The investors’ obligations to subscribe for shares was subject to the written satisfaction or waiver by the Investors of each of the Subscription Agreement Conditions, namely: (a) capitalisation of all outstanding loans prior to investment; (b) a written acknowledgment from Annuo that none of the investment funds will be used to pay finder or third party success fees; (c) Annuo must use all reasonable endeavours to fulfil any outstanding obligations regarding the issue of shares or options to employees, contractors, advisors or third-parties prior to investment; (d) all employees whether employed, or engaged as a consultant, shall enter into an acceptable employment agreement containing appropriate confidentiality and intellectual property clauses; (e) Annuo shall establish (if it has not already done so) an employee share option plan, with ordinary shares equating to at least 10% of the post-money fully diluted capital of Annuo; (f) shall obtain the following insurance policies: -- 4 of 21 -- 5 (i) Directors & Officers policy that is at least $1,000,000; (ii) Key Person policy of $500,000 on [key people] (proceeds payable to Annuo); (g) there being no subsisting breach of any warranty given by Annuo under the Subscription Agreement as at the date of subscription. [13] Clause 14 of the Terms Sheet identified the key provisions that were to be included in the proposed shareholders agreement. One of the key provisions related to the right to appoint directors: The Shareholders Agreement will: (a) provide that: (i) Founders or their related shareholding entity may each appoint one director while they hold any number of Shares in the Company; (ii) the Lead Investor (with support of other Investors) may appoint one non- executive director while they hold at least 5% of the Shares; (iii) each other shareholder may appoint one director if they hold at least 20% of the shares and (iv) where a Lead Investor has not appointed a director, they may nominate a person to attend all meetings and proceedings of the board of directors of the Company ("Board") as an observer and to receive all papers provided to the Board; (b) provide that the board of the Company will be initially constituted as follows: • TBC - appointed by Jeni Wellington (Chairperson) • Jeni Wellington - appointed by Founder • TBC - appointed by Investor [14] There is something of a tension between clause 14(a) and 14(b). Under clause 14(b) the initial constitution of the Board was a chair appointed by Dr Wellington, Dr Wellington herself and a person appointed by Angel Loop. Thereafter, the ongoing right to appoint a director to the board was allocated to: (a) Dr Wellington whilst she held at least one share in Annuo; (b) Angel Loop if it held at least 5% of Annuo’s shares;3 (c) any other shareholder if they held at least 20% of the shares. [15] The tension here ultimately matured into one of the disputes between the parties. Of course, the objective of clause 14 was merely to identify those key provisions of the proposed shareholders agreement. [16] Importantly, clause 18 of the Terms Sheet, headed ‘Enforceability’ was as follows: Except for sections 16 (exclusivity), 17 (confidentiality), 18 (enforceability), 19 (costs) and 20 (governing law) which are legally binding on the parties, the terms in this Term Sheet express current intentions only, are not intended to be legally binding or to give rise 3 If Angel Loop had not appointed a director, they could nominate an observer. -- 5 of 21 -- 6 to legal rights or obligations and are subject to the negotiation and execution of definitive transaction documents. Nothing in this Term Sheet creates, or is intended to create, any fiduciary relationship or gives rise to any duty of care by any party to another. [emphasis added] [17] Only one investor was listed in the Schedule 1 list of investors – Angel Loop at 6867 shares for $300,007. Schedule 2 listed the shareholders including the 6867 investor shares at 4.76%. [18] Plainly, the Terms Sheet falls within the third category of case described by the High Court in the following passage in Masters v Cameron:4 Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract. [19] The Terms Sheet was, as it is commonly described, ‘subject to contract’. No party was legally bound at this point. In fact, as I understood Dr Wellington’s submissions, she took no issue with that characterisation of the Terms Sheet. She relied on what then happened. [20] Mr Pagendam-Turner, a principal of NetroWorx, was engaged by Angel Loop to perform the due diligence.5 On 11 March 2023 Mr Pagendam-Turner emailed Dr Wellington saying that “Looks like DD has passed.” Presumably the abbreviation ‘DD’ means due diligence. Then, in March and May 2023 Angel Loop sent Annuo a total of $294,999. [21] In late July 2023 various parties executed a shareholders deed, which appears to be a shareholders agreement – the second of the Investor Conditions. Annuo is described as ‘the Company’ and the shareholders are listed in Schedule 1 Part 2 as follows: Shareholder Name No. of shares held Percentage of shares held Dr Jeni Wellington 12,000,000 ordinary 116,851 seed preference [TBC] Kylie Malone 141,700 ordinary [TBC] 4 (1954) 91 CLR 353, 360. See the discussion of this topic by John Carter, Contract Law in Australia (J W Carter Publishing, 8 th ed, 2023), [5-05]. 5 In February 2023 Mr Pagendam-Turner exchanged texts with Dr Wellington concerning the practicalities of the due diligence and the data room. Mr Pagendam-Turner’s role seems to be explained in a later email of 17 June 2023. -- 6 of 21 -- 7 Jennifer Gillespie 85,000 ordinary [TBC] Ya Ting Alice Chang 28,300 ordinary [TBC] Louise Elizabeth Randall 28,300 ordinary [TBC] Kaarin Smyth Pty Ltd 5,700 ordinary [TBC] Nerida Jodene Kelly 2,800 ordinary [TBC] [Angel Loop entity]6 [TBC] seed preference [TBC] Total TBC [TBC] [22] That table has been simplified. Nevertheless, even in its simplified form it can be seen that the deed has some elements that need to be added. That is also illustrated by the heading to the table which is as follows: “Shareholders and Directors [Note: to be updating (sic) following confirmation of cap table]”. The rather provisional language of the shareholders deed is also apparent from Schedule 2: Critical Business Matters which lists the matters requiring a special resolution of directors. One of those matters is described in this way: 7. Issuing Securities: Issue Securities (other than Excluded Issues): (Note to Angel Loop: we did not include “issuing securities for corporate transaction: issue of securities for the purpose of an IPO or consideration for an acquisition of assets or shares” as this general approval for security issuances should incorporate this). [emphasis added] [23] The shareholders deed makes provision for the appointment and removal of directors. Clause 3.2(a) of the shareholders deed provides that, in effect, Dr Wellington was entitled to appoint one director.7 Clause 3.2(b) provides as follows: [Angel Loop] may appoint one Director at any time by written notice to the Company if it holds at least 5% of the total shares on the Company (Investor Director). [24] The fact that Angel Loop’s name appears in brackets, and the reference to ‘Angel Loop entity in the table above, suggests that the parties contemplated that Angel Loop may nominate another entity in its place. The issue was not the subject of submissions, but it seems likely that the Shareholders Deed falls into the first category discussed in Masters v Cameron (quoted above). [25] Clause 3.7(a) provides that: Angel Loop may (while it has the right to appoint a Director under clause 3.2(b) but does not have a director appointed) appoint, remove and replace one representative (Board Observer) to attend, as a non-voting observer, each meeting of the Board, whether such meeting is conducted in person or by teleconference or videoconference. [26] There is an odd conflict between the Terms Sheet and the Shareholders Deed. Clause 12(e) of the Terms Sheet provided that Annuo was to establish, if it had not already done so, an employee share option plan of at least 10% of Annuo’s capital. Under 6 The bold type appears in the original. 7 Clause 3.2(a). The deed actually refers to the “Founder Entity” and so provides that, even if Dr Wellington’s shares were held by another entity, she was still entitled to appoint a director. -- 7 of 21 -- 8 the Shareholders Deed the Board was to implement an employee incentive plan to issue securities to directors, employees and contractors up to a maximum amount of 10% of Annuo’s capital. Given that the Term Sheet explicitly provided that it expressed current intentions only and was not intended to be legally binding or to give rise to legal rights or obligations, the provisions of the Shareholders Deed must be taken to be effective. To further complicate matters, during the course of argument Dr Wellington contended that she had established an employee share option plan in July 2021. [27] Relations seemed to have soured in July 2023. On 11 July 2023 Dr Wellington wrote to Angel Loop. Dr Wellington stated that the purpose of her letter was to explain some differences between the Terms Sheet and the final transaction documents that had been prepared, in light of the investment amount ($294,000). Dr Wellington then stated: In keeping with the agreed terms of investment: 1. Angel Loop will not have the right to appoint a director to the board as it does not hold greater than 5% of the total shares in Annuo. a. A board appointment right will only be triggered for shareholders that hold greater than 20% of the total shares in Annuo. 2. Angel Loop will not have the right to appoint an observer to the board in any circumstances. 3. Annuo’s existing Shareholders Agreement sets out (in clause 9.1) that Annuo may issue shares under an ESOP [i.e. Employee Share Option Plan] up to a maximum of 15% of the fully diluted share capital… [28] Two days later Dr Wellington sent to Angel Loop an email entitled ‘Investment round Closed’. She said that: The transaction documents in keeping with this agreement that have been provided alongside this letter are: 1. the Subscription Agreement; 2. the Shareholders Deed; 3. the Constitution; and 4. a Capitalisation Table, (the Transaction Documents) To complete Angel Loop’s investment, please arrange for Angel Loop to sign the Subscription Agreement and Shareholders Deed by: 5pm on 17 th July 2023 and we will provide you with Angel Loop’s share certificates promptly thereafter. [29] On the following day, 14 July 2023, a representative of Angel Loop, Mr Simon Horne, sent Dr Wellington one or more rather frantic text messages: -- 8 of 21 -- 9 Jeni pick up the phone! Jeni pick up the phone. We had a firm term sheet outlining our agreement to invest. Why jeni why call me Jeni call me or we will demand the full $295k returned immediately and take necessary action! I’m sorry, very stressed week, still your biggest fan. I’m not going to do anything till we talk. [30] Whilst the sequence is not entirely clear, on the evening of 14 July 2023 Dr Wellington sent an email to Mr Horne as follows: Thank you for your emails. I am responding in writing after receiving the email in which have advised you will be seeking to take your $295,000 back if I do not answer your call. • I do not appreciate the threats or being bullied. • These are the terms you set and agreed to. • The letter prepared and the cap table are reflective of these terms. Firstly, Section 12(e) states: the Company shall establish (if it has not already done so) an employee share option plan, with ordinary shares equating to at least 10% of the Post-money fully diluted capital of the Company. • Annuo already has an ESOP of 15%, fully diluted prior to Angel Loop investment standing at 13.3% of the fully diluted table. Angel Loop has not invested $400,000 as outlined in section 5 of the term sheet which states: the Investors agree to subscribe for fully paid Investor Shares in the capital of the Company up to the amounts listed in the table at Schedule 1. • Today, in your earlier email you advised the $19999 is in your account – and it has not been paid to Annuo. • Prior to this Annuo received $244,000 and $50,000 as SAFE which will not convert until Annuo raised over $1.5M in a round • No further funds have been received from Angel Loop. Finally the mathematics in Schedule 2 is wrong for the following reasons; • ESOP – presumed to be 10% (when the ESOP is already established at 15% in July 2021) • The total does not equal 100% as listed: • 81.92% + 0.97% + 0.58% + 0.19% + 0.19% + 0.04% + 0.02% + 10% + 6.25% = 100.16% -- 9 of 21 -- 10 The Cap table properly reflects the fully diluted shares. • At the CORRECT share price given your reduced investment, Angel Loop investment of $244,000 is 3.85% • At your FIXED price, given the reduced investment, Angel Loop investment of $244,000 is 4.27%. [emphasis in the original] [31] And then, on 17 July 2023, the Managing Director of Angel Loop, Mr John Whelan sent an email to Dr Wellington saying this: Jeni and Simon Over the weekend and today, I’ve reviewed with Simon the document links that you sent in this email. The delay in supply and substantive changes in these documents does cause us concern as they are at odds with the Terms Sheet and Capitalization Table that was agreed with you in March. At this point of the proceedings, we will not hold up the Capital Raising process and will commit the balance of the Funds that we undertook to raise. However, the agreed Terms Sheet was also supplied to Uniquest and to the Female Founds Fund. We would recommend discussing the Subscription Agreement and the revised Cap Table with those prospective investors prior to the execution of all Documents. The reason for this is that we are aware of other instances where those “Co-Investors” have not proceeded when the Subscription Agreement differs to the Terms Sheet. If those investors are happy to proceed, we will complete the execution of the documents forthwith. We recommend that you review carefully the Terms Sheet as many of the Terms have not been met and advised to Angel Loop Nominees Pty Ltd, the trustee for Angel Loop Charitable Trust. Please advise when you have been able to discuss with the other investors… [32] There was then a meeting, and the result was an email from Dr Wellington to Mr Whelan and Mr Horne: Good morning John & Simon, While your previous email indicated an intention to pay the full amount you committed to investing, we have not received that money within the agreed timeframe or as of today. In the call you initiated this morning at 9.20am you stated that you would complete the legal documents. Additionally, the call included the following points: - There is no term sheet with Uniquest. - Any future investment with Uniquest or any other investor in the future is independent of the term sheet with Angel Loop. - The female founders fund is a non-equity grant, we applied for which provides 3:1 matched funding. We can seek funding from whoever we would determine to be a good investor for Annuo. - You raised the matter of our board having one director with an acknowledgement that as a shareholder without a board position (in keeping with the terms) the matter is not a legal matter under the current terms. - I advised you of our incoming advisory board. -- 10 of 21 -- 11 You stated the documents will be completed by you this morning. Please complete the documents and the matter will be filed with ASIC and share certificate to Angel Loop will be provided. [33] Then, on 27 July 2023, two other representatives of Angel Loop,8 Ms Linda Ginger and Mr Chris Booth, sent an email to Dr Wellington in these terms: Hi Jeni, Thanks for your reply on Linkedin. We were saddened and initially shocked to hear that you were so affected by the in-person meeting, though we do appreciate your position under the circumstances. On the part of Chris Booth, he extends his apologies that you felt uncomfortable in the meeting and feels terrible. He feels that he was respectful – at least was trying to remain so – and stated facts as we knew them at that point in time. There was key information revealed to us in the meeting that tipped a different slant on the whole matter. Apart from the original signed Term Sheet, Annuo’s latter electronic documents of last week were all that was brought to the attention of myself and Chris before the meeting. We were not aware of any signed documentation from 5th June. We trust that you can appreciate this and hope that you’ll reconsider how you feel from Wednesday’s engagement. Immediately after our meeting, we consulted confidentially with Carrie Hillyard, as an independent third party, and the general actions were to meet with Simon and consult with John Whelan (Managing Director and hence primary signatory of Angel Loop Nominees Pty Ltd, the contracting party with Annuo). As you’ve now requested that all further engagement be in writing – and given that Chris and myself were acting in a non-official capacity as regards to Angel Loop and associated parties – we must now pass responsibility for all further correspondence to Angel Loop Nominees Pty Ltd and its Managing Director, Mr John Whelan. We thank you for meeting with us this week, trust that matter can be amicably resolved with John and rest at your disposal for any further, personal correspondence. [34] Dr Wellington, then, on 1 August 2023, sent a very long email to the Angel Loop representatives. The email is in the form of notes and so is not easily extracted. In summary, the issues raised at the meeting, and noted in the email, seem to fall into these categories: (a) Dr Wellington disputed adjustments to the share price made by Angel Loop; (b) Dr Wellington complained about the final amount that Angel Loop had not paid; she said that Angel Loop had committed to invest $400,000 (under the Terms Sheet) and that varying amounts had been advised as to be paid but none had materialised – beyond the $294,000; (c) Mr Booth alleged that Dr Wellington had “changed the terms” which seems to refer to an alleged increase in the Employee Share Option Plan from 10% to 15%; (d) Mr Booth had alleged that Dr Wellington had made a $50,000 investment in order to dilute the Angel Loop investment; 8 Although, as can be seen, they say, they were acting “in a non-official capacity as regards to Angel Loop and associated parties”. -- 11 of 21 -- 12 (e) Angel Loop contended there should be three directors, including one appointed by Angel Loop; (f) Until the meeting on 19 July 2023 Angel Loop did not know of the execution of the shareholders deed by both parties. [35] On 5 September 2023 Dr Wellington received an email from Mr Whelan.9 Mr Whelan said this: Thanks Jeni for all the information that you provided. We understand that this Annuo Capital Raise is a stressful situation and appreciate your input. At the outset, I wish to impress upon you that Angel Loop Nominees Pty Ltd – of which I am Managing Director – aggregates Angel Investor funds. We implement the investment of the individual investors, through the Angel Loop Charitable Trust and as trustee for those investors, through that structure. On that basis, we can only implement investment on the terms to which those individuals have been informed and have agreed. The simple fact that the terms presented in the Transaction Documents of mid-July differ in important ways from those agreed by each individual investor (i.e. in the signed March Term Sheet) precludes me from executing them. Our quick “without prejudice” response to you – as Angel Loop Nominees on behalf of individual investors – is that regardless of the correspondence and aftertalk, your company accepted investment funds based on a term sheet and the terms of that acceptance need to be honoured. Moving forward, if you wish to go down a full legal path, we see this would distract you from your business, cost considerable funds and limit your ability to provide warranties to future investors. This is your choice. We aggregate Angel Investor funds. Managing execution of the transaction – and entrepreneurs expectations therein – is our core business. In our experience going down a complex legal pathway that may lead to entrepreneurs arguing with investors over clearly mutually agreed term sheet terms is not a wise decision for entrepreneurs. We understand your recount of meetings might indicate frustration at the situation. We can assure you that there was miscommunication and misunderstanding on multiple fronts, as evidenced by the message from Linda Ginger and Chris Booth, after your meeting with them. To counter misunderstandings experienced, we stand ready to engage on the translation of the Terms Sheet into mutually acceptable Transaction Documents (including Shareholders Agreement, Share Subscription Agreement, Constitution, Capitalisation Table, etc) and a mutually acceptable form of governance for overseeing Annuo to the heights we believe it can be taken. I trust that you can appreciate our position, thank you for your patience in this matter and look forward to engaging constructively with you in resolving the situation. [36] On the same day, 5 September 2023, Dr Wellington responded: Thank you for your email. 9 The email notes that it was prepared on 7 August 2023 but by mistake was not sent at that time. -- 12 of 21 -- 13 I would like caution any further reference to the use of the words “frustration” and “stress”. They are in contravention of the law that govern sexual discrimination. And while it is good to see you, on behalf of Angel Loop Nominees Pty Ltd, coming forward in terms of a collaborative approach to resolution of next steps, there are matters in my previous correspondence that remain unanswered. Foremost in these matters is transparency in accounting for the funds raised (who and how much) and the disbursement of the funds. Secondary to this are the documents you have referenced as being “draft”. I am waiting on copies of these from you. Next steps: 1. Full financial disclosure in relation to the funds 2. Copies of documents to substantiate prior remarks 3. A clear and detailed proposal from Angel Loop Nominees Pty Ltd or the legal representative acting for the investor as to what is proposed as resolution. Once these have been received and I have had time to review these, I will be able clear response (sic) as to our next steps. [37] On 11 September 2023 Mr Whelan responded in some detail. The letter is labelled ‘private and confidential’ and ‘without prejudice’ but it formed part of the evidence without objection from any party. In any event, the letter is really a part of the chain of correspondence referred to by both parties. In substance that correspondence comprises claim and counterclaim rather than offer and counter-offer. [38] In summary, Mr Whelan’s letter puts these arguments: (a) Angel Loop’s role was to aggregate investments from private investors who decided to invest; (b) Angel Loop was insisting that Dr Wellington “provide Transaction Documents for execution that faithfully implement the provisions of the agreed Terms Sheet under which our investors have submitted their investment”; (c) Angel Loop had not in fact collected $525,000 from investors – that was merely the total of the registered interest in the investment – investors were free to modify or cancel their interest; (d) Angel Loop had received only the $294,999, which has been paid, and a further $19,999 which was being withheld pending resolution of the present dispute; (e) Angel Loop ‘deems’ the shareholders deed signed by Mr Horne on 5 June 202310 as a draft; (f) Dr Wellington should provide the transaction documents11 for execution, and that those transaction documents should faithfully implement the provisions of 10 Mr Whelan uses the date 6 June 2023, but it is assumed he intends to refer to the shareholders deed of 5 June 2023. Oddly, Mr Whelan does not say what Mr Horne says about the shareholders deed or the circumstances of its execution. 11 This refers to the documents required by the Investor Conditions. -- 13 of 21 -- 14 the “agreed Terms Sheet” which the investors have accepted as the basis for their investment; (g) Dr Wellington focuses on clause 14(a) of the Terms Sheet which provides that the Lead Investor may appoint a non-executive director whilst the Lead Investor holds at least 5% of Annuo’s capital; instead attention should be drawn to clause 14(b) which provides that the board will be initially constituted by three directors, one of whom is to be appointed by the Investor; (h) The transaction documents should record Angel Loop’s share subscription of $314,998 in return for 720,985 shares – that is at a share price of $0.4369,12 about 1/100th of the share price referred to in the Terms Sheet. [39] The correspondence continued into November 2023 with Dr Wellington and Mr Whelan still unable to agree on the documentation, particularly as to share pricing and directorship. Angel Loop pointed out that the assignment of all intellectual property and directors’ and officers’ insurance was still outstanding. Mr Whelan also sought ‘updated due diligence’. The Status of the Terms Sheet [40] There is more than a little irony in the stance of both parties. Both complained that the other had departed from the agreed Terms Sheet. However, the Terms Sheet was expressly agreed by them to be: (a) not a commitment to invest; (b) conditional on the provision of documentation that is satisfactory to Angel Loop; (c) a statement of current intentions only; (d) not intended to be legally binding or to give rise to legal rights or obligations; and (e) subject to the negotiation and execution of definitive transaction documents. [41] The Terms Sheet was non-binding. [42] The shareholders deed is in a different category. As explained, in the correspondence, Angel Loop contended that the document was a draft, although that contention was put without any direct evidence from Mr Horne, who executed it on behalf of Angel Loop. In any event, there is, at the least, a reasonable argument that the shareholders deed was binding. This is a strike-out application, the court should assume that Dr Wellington is likely to succeed on that contested issue. [43] Nevertheless, the shareholders deed does not require Angel Loop to commit to any sum or to the purchase of any specific number of shares. The Principles 12 There is reference to a “1:100” split. -- 14 of 21 -- 15 [44] As counsel for Angel Loop explained, the power to strike out pursuant to rule 171 of the UCPR was summarised by Sullivan J in Collins v Metro North Hospital and Health Service:13 (a) the power to strike out is to be exercised only in clear cases; (b) allegations must be articulated with care with sufficient and relevant facts so that there is no confusion in the issues raised for trial or in the scope of the case which the defendants must meet, including the pleading of facts which meet the requirements of the alleged causes of action; (c) while the power to strike out should only be used sparingly, the Court will not shrink from striking out a pleading (including a claim) which is defective because it does not disclose a reasonable cause of action, has a tendency to prejudice or delay a fair trial, contains allegations which are unnecessary, scandalous, vexatious or embarrassing or which is otherwise an abuse of the process of the Court; (d) the purpose of pleadings is to inform the opposite party of the case it has to meet and to permit, in a responsive pleading, the issues to be narrowed. Furthermore, the defendant cannot be expected to intuit what the plaintiff intends to convey in its pleadings by its own understanding of the facts and circumstances giving rise to the litigation; (e) a self-represented litigant should not be permitted to disregard rules and to conduct litigation in a manner which is unjust to other parties and contrary to the interests of justice; (f) litigation is not a learning experience. The courts do not permit litigants, even unrepresented litigants, to prosecute claims which cannot proceed fairly to the other parties; (g) a plaintiff’s disinclination to have legal representation does not licence it to proceed unconstrained by the rules to which adversarial litigation is conducted. [45] Having regard to the principles, the statement of claim does not disclose a proper cause of action against any of the defendants. It is necessary to explain the reasoning that results in that conclusion. The Contractual Claims [46] The statement of claim is not an easy read. [47] The first claim is what appears to be a contract claim. Under a heading ‘Obligations under the Terms Sheet’ Dr Wellington14 alleges that:15 The Terms Sheet required [Angel Loop] to collect investment funds from third party investors and transfer these funds to Annuo within 21 days of completing due diligence or by 30 March 2023. [48] There are three problems. The first is that the Terms Sheet does not actually require that. Clause 5 is the closest. It provides: Subject to the completion of due diligence to the Investors’ satisfaction, the Investors agree to subscribe for fully paid Investor Shares…up to the amounts listed in the table at Schedule 1. [emphasis added] 13 [2023] QSC 194, [14]-[19] (footnotes deleted). 14 I refer to these as Dr Wellington’s claims, but of course if the Terms Sheet were binding it would be Annuo who had a contractual claim. I put aside for the moment the precise parties who were entitled to make claims, and the entities against who those claims could be made. 15 Statement of claim, [7]. -- 15 of 21 -- 16 [49] Thus, all that clause 5 does is to express a maximum commitment. The table at Schedule 1 merely specifies that maximum, namely that Angel Loop is to be allocated 6867 Investor Shares for a subscription amount of $300,007. [50] The second is that, contrary to Dr Wellington’s pleading, nothing in the Terms Sheet requires that Angel Loop pass on to Annuo any investment funds that it receives. [51] The third is that the Terms Sheet was non-binding. [52] Dr Wellington’s other related complaint is that there were unilateral changes to the share price that Angel Loop was willing to pay.16 That would only be a valid contractual claim if the price specified in the Terms Sheet was binding on either party. [53] At different points Dr Wellington’s statement of claim speaks of a debt being owed – presumably owed by Angel Loop to Annuo.17 There is no contract discernible in the pleading or in the documents that Dr Wellington exhibits. It follows that there is no proper pleading of a contract or a debt. [54] In paragraphs 32 and 33 Dr Wellington alleges that, by an email of 11 September 2023 Angel Loop collected money from 38 investors and the money has not been accounted for. However, the email does not say that. In that email Mr Whelan expressly says that whilst 59 investors registered their interest in investing in Annuo, 27 investors did not proceed from the stage of registering an interest to the execution of placement instructions. And so, there is no factual basis for the claim. In any event, there is no promise by which Angel Loop was required to pass on funds received by investors. [55] Dr Wellington claims that Angel Loop had a duty to account and an obligation to give full and frank disclosure.18 Such an obligation would only arise if there were a contractual duty, or trust obligation, or some other duty owed by Angel Loop to account to Annuo for any amounts received. Other Claims [56] In paragraphs 34-36 of the statement of claim Dr Wellington alleges that Angel Loop “deliberately sabotaged” Annuo’s attempts to obtain replacement funding. That claim is not part of any known cause of action. The same applies to the allegations that there was a use of connections to ‘coerce’, and a ‘taunting’ of Dr Wellington and/or her company. [57] Paragraphs 48 to 53 of the statement of claim appear under a heading “Persistent Unlawful Dealing of the securities of Annuo by [Angel Loop]”. The legal basis of the claim is difficult to understand. The allegations are based on an invoice for $1042 issued by Liquidise Ltd to Angel Loop, and then a complaint by Annuo about Liquidise, and a demand by Annuo to “cease the unlawful dealing of Annuo securities”. The claim ends with Annuo and Dr Wellington being concerned that Angel Loop and its directors have continued to collect money from the public for Annuo securities. 16 Statement of claim, [20]-[27]. 17 See, for example, Ibid [46]-[47]. 18 Ibid [38]-[43]. -- 16 of 21 -- 17 [58] None of that comprises a recognised cause of action. Misrepresentation and Fraud [59] It is basic to any plea of fraud or misrepresentation that the plaintiff properly identifies: (a) the precise representation; (b) the plaintiff’s reliance on that representation; (c) that the representation was untrue; (d) the defendant’s knowledge of or reckless indifference to the lack of truth; (e) damage caused by the plaintiff’s reliance on the representation. [60] In this case, the problems start at the first of those five elements. In paragraph 55 of the statement of claim the fraud or misrepresentation claim made by Dr Wellington is that Angel Loop, through Mr Whelan and Mr Horne, “knowingly misrepresented their intentions and financial capacity during the negotiation and execution of the Terms Sheet and Shareholders Agreement”. The pleading does not identify what Mr Whelan and Mr Horne said about “their intentions” or what they said about their “financial capacity”. In fact, the “intentions” of Mr Whelan and Mr Horne and what they may or may not have said about Angel Loop’s “financial capacity” does not appear anywhere in the pleading. Indeed, Angel Loop’s financial capacity appears to be irrelevant given that that company’s role was to collect investment sums from investors. [61] Paragraph 56 of the statement of claim then lists a number of letters and emails and alleges that Angel Loop did not provide financial disclosure or confirmation of the debt for the sale of the shares. [62] Paragraph 58 alleges that the misrepresentations were material and that they induced Annuo to enter into “multiple agreements”. Possibly that is an attempt at a plea of reliance, but it lacks any proper detail. Then, the statement speaks of an unidentified demand that Dr Wellington leave her then full-time employment and run the Annuo business fulltime. However, how all these aspects are connected is something of a mystery. Suffice it to say that the strict requirements to properly plead fraud have not been met. Unconscionable Conduct & Australian Consumer Law [63] Dr Wellington’s allegation of unconscionable conduct raises more questions than it answers. It is unclear whether Dr Wellington relies on unconscionable conduct in contract negotiation as a basis to set aside a contract. Probably not, because Dr Wellington’s real complaint is that Angel Loop did not follow-through with the contractual arrangement envisaged by the Terms Sheet. [64] That means the likelihood is that she seeks relief for unconscionable conduct prohibited by statute. The particular legislation is not identified. Often that legislation is consumer protection legislation and so there may be threshold issues – that are not explained in the pleading. -- 17 of 21 -- 18 [65] Again, it is difficult to identify the precise allegation. The core seems to be that Angel Loop “exploited Annuo’s reliance on their representations, including delaying payments and altering investment terms in a manner that was oppressive and beyond acceptable business behaviour”. And so, the claim here: (a) relies on the representations discussed above; (b) assumes that debts were due; (c) assumes that the parties were bound by the Terms Sheet; (d) assumes that there was no entitlement to negotiate terms other than those in the Terms Sheet; (e) requires the court to act as the arbiter of what is acceptable business behaviour. [66] Again, the plea is inadequate. Menacing Emails and Sabotage and Harassment [67] Paragraphs 64 to 66 detail various conduct said to be menacing, taunting, sabotage and harassment. The legal basis for the claims is not clear and the emails and letters as I have explained them do not appear to involve actionable conduct.19 Miscellaneous Claims Against Defendants 1-4 [68] Dr Wellington alleges that: (a) Mr Horne made a misrepresentation to the Queensland Government regarding Angel Loop’s ‘AFSL’ status; (b) Mr Whelan made a falsely claimed registered charity trust status for Angel Loop; (c) Another individual involved was a ‘disqualified individual’. [69] None of those allegations have any relevance to Dr Wellington’s claim. [70] It follows that the statement of claim does not disclose a cause of action against Angel Loop. [71] The claims against the other defendants also have no legal basis. The Terms Sheet, if it were binding, could only bind the parties to it. There is no stated legal basis for the officers of Angel Loop having assumed some personal legal responsibility. In any event, the third and fourth defendants appear to be the same person. And there is no legal basis for the joinder of Angel Loop Ltd as a defendant. And, finally, there is no legal basis for Dr Wellington’s personal claims. If any party had a claim based on the transaction recorded in the Terms Sheet, it was only Annuo. Claim Against AFCA [72] AFCA operates a complaints resolution scheme for consumers and small businesses that have a complaint about a financial firm. AFCA is not a regulator and is not a government organisation. Its principal focus is to assist the parties to arrive at an 19 The chronology above does not purport to be a complete chronology. -- 18 of 21 -- 19 agreement on their dispute – presumably similar to mediation - although it can decide an appropriate outcome. [73] The AFCA complaint resolution scheme rules set out the complaint processes: A.4.1 The Complainant must be an Eligible Person who is neither an Excluded Complainant nor represented by an Excluded Paid Representative. A.4.2 A complaint must be about a Financial Firm that is an AFCA Member at the time that the complaint is submitted to AFCA (even if not an AFCA Member at the time of the events giving rise to the complaint). A.4.3 There are some additional requirements that must be met in order for AFCA to be able to consider a complaint. In summary: (a) The complaint must arise from a customer relationship or other circumstance that brings the complaint within AFCA’s jurisdiction. (b) There must be a sufficient connection with Australia. (c) Generally, there is a time limit within which the complaint must be submitted to AFCA… [74] For the purposes of AFCA’s jurisdiction, the complaint (other than a superannuation complaint) must arise from or relate to the provision of a Financial Service by the Financial Firm to the complainant.20 A person or firm provides a Financial Service if they deal in a financial product.21 [75] In this case Dr Wellington made a complaint to AFCA about Angel Loop. On 18 July 2024 AFCA made a decision that it lacked jurisdiction to deal with Dr Wellington’s complaint. Here it is plainly not the case that Angel Loop was dealing in a Financial Product. Angel Loop was, on behalf of its investors, deciding whether to invest in Annuo. Nothing in s 766C suggests that a shareholder who decides to subscribe to shares is providing a Financial Service. [76] Dr Wellington’s claims against AFCA are set out in paragraphs 73 to 94 of the statement of claim. Her first complaint is a challenge to AFCA’s findings that Angel Loop was acting in its own capacity as an investor, or as the nominee or trustee for its investors, and thus was not engaged in ‘dealing in a financial product’ as contemplated by s 766C of the Corporations Act 2001 (Cth). Dr Wellington alleges that was a misinterpretation of the legislation and was wrong. [77] I am unable to see even an arguable case that AFCA’s decision was wrong. And, even if the decision was wrong, there is no legal basis for Dr Wellington to challenge the decision. As counsel for AFCA pointed out, the AFCA’s decisions are not amenable to judicial review and are powers derived from contract, not statute.22 [78] Dr Wellington’s second complaint is accurately summarised by counsel for AFCA in this way: 20 Australian Financial Complaints Authority, Complaints Resolution Scheme Rules (1 July 2024) r B.2.1 (‘AFCA Rules’). For the definition of ‘Financial Service’ see Corporations Act 2001 (Cth) s 766A. 21 See Corporations Act 2001 (Cth) s 766C. 22 AgriWealth Capital Limited v Australian Financial Complaints Authority Limited [2023] FCAFC 118, [9]. -- 19 of 21 -- 20 [AFCA] engaged in unconscionable conduct on the basis that in making the Jurisdiction Decision AFCA failed “to adhere to the legal obligations required by the Corporations Act”, and to address issues and made its decision “based on misrepresentations of [Angel Loop’s] role” which “demonstrates a misuse of its powers” [79] That does not disclose a recognised legal cause of action. The reference to “unconscionable conduct” is not supported by any facts that are relevant to the concept. Even if AFCA were mistaken about the extent of its jurisdiction that hardly justifies the descriptor ‘unconscionable conduct’. And, the reference to ‘misrepresentations’ is vague and lacking in proper detail.23 [80] If there were a discretion to set aside AFCA’s decision on jurisdiction, and then remit the complaint back to AFCA, the exercise of the discretion would have no point. Dr Wellington has brought her complaint about the conduct of Angel Loop to the court. It would make no sense for her to both seek to litigate in court and to prosecute a complaint in AFCA. [81] I accept AFCA’s submissions on this point and AFCA’s further submission that, in any event, Dr Wellington’s claims are beyond the jurisdiction of AFCA.24 [82] It follows that there is no proper pleaded claim against AFCA. Leave to Replead [83] The defendants sought orders to the effect that Dr Wellington not be permitted leave to replead. There are a number of problems with that application. The first is that Dr Wellington has not sought leave to replead. She propounds her existing pleading. And so, the application is premature. Dr Wellington has not considered these reasons or whether she will seek leave to replead. Conceivably she may adopt any number of options including an appeal, or leave to replead, or she may seek legal advice. [84] The second problem is a related problem. The defendants ask the court to refuse leave to replead, but Dr Wellington has not been heard on that issue. That is for the reason already stated: she propounds her existing pleading. Restraint is required. The court should hesitate before ruling on leave to replead without affording Dr Wellington a proper opportunity to consider the problems with her pleading and to decide on her next steps. [85] The third problem, also related, is that the defendants have not formulated the order they propose. This issue is not trivial. In substance, what the defendants seek is an order that prevents Dr Wellington from repleading in circumstances where she has not sought leave to replead. However, the way the proposed order is framed it is likely to have the effect of an injunction that prevents Dr Wellington from re-formulating her claim and doing so without either hearing from her or seeing any proposed re- formulation. [86] It is certainly true that the grant of leave to replead generally recognises that it may be possible for the pleader to re-formulate the claim. Sometimes the prospect that the claim can be re-formulated in an acceptable way is obvious from the defective 23 The allegation does not identify who made the misrepresentation, to whom, the precise representation that was made, the falsity, the date, etc. 24 See AFCA Rules (supra), r C.1.2(e). -- 20 of 21 -- 21 pleading itself. But, in other cases, the wise course may be to see what is proposed by way of a new pleading. [87] The fourth problem is that an order refusing leave to replead effectively shuts out the plaintiff from proceeding with the claim. In some cases that may be appropriate. But caution is required. Even a hopeless claim might be re-modelled, or ‘new’ facts or documents may be uncovered. [88] The statement of claim should be struck out, but I decline to make any further order at this point. The Cross-Application [89] As explained at the outset, Dr Wellington applied for summary judgment herself. That application is premature. In any event, there is no viable cause of action disclosed by her statement of claim and so her application should be dismissed for those two reasons. -- 21 of 21 --