Elks v Melgear Pty Ltd & Ors [2023] QSC 150

SUPREME COURT OF QUEENSLAND CITATION: Elks v Melgear Pty Ltd & Ors [2023] QSC 150 PARTIES: ALEXANDER JASON ELKS (applicant) v MELGEAR PTY LTD ACN 056 330 646 (first respondent) DARRYL EDWARD KIRK AND MATTHEW LESLIE JOINER IN THEIR CAPACITY AS RECEIVERS FOR MRV METALS PTY LTD ACN 610 100 402 (IN LIQUIDATION) (RECEIVERS APPOINTED) (second respondents) PHILIP ANTHONY FEITELSON (third respondent) FILE NO: BS No 12986 of 2021 DIVISION: Trial Division PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 14 July 2023 DELIVERED AT: Brisbane HEARING DATE: 17 April 2023, 18 April 2023, 20 April 2023 JUDGE: Cooper J ORDER: 1. The originating application is dismissed. 2. I will hear from the parties as to the form of the direction to the Receivers referred to in these reasons and to any other orders the parties consider necessary to give effect to these reasons, as well as to costs. CATCHWORDS: CORPORATIONS – RECEIVERS, CONTROLLERS AND MANAGERS – PRIORITY OF DEBTS – GENERALLY – where Moreton Resources Ltd, MRV Metals Pty Ltd (as guarantor), First Samuel Ltd (as debenture holder and as security trustee) and others including the applicant and the third respondent entered a secured debenture deed – where Moreton Resources Ltd and MRV Metals Pty Ltd granted a security interest in secured property to First Samuel Ltd as security for the payment of all outstanding monies owed to the debenture holders – where First Samuel Ltd held that security on trust for the benefit of all debenture holders but later gave notice of its resignation – where liquidators were appointed to Moreton Resources Ltd and MRV Metals Pty Ltd – where the -- 1 of 36 -- 2 third respondent, acting on behalf of First Samuel Ltd, appointed the second respondents as receivers – where the third respondent purported to exercise power as majority beneficiary under the deed to act in the name of the security trustee – where the third respondent appointed the first respondent as security trustee – where the receivers sold MRV Metals Pty Ltd’s interest in a silver mine which formed part of the secured property – where the proceeds of the sale of the silver mine remain with the receivers – whether the secured debentures held by First Samuel Ltd were paid out and replaced by unsecured debt – whether a subsequent agreement altered the priority of creditors of Moreton Resources Ltd and MRV Metals Pty Ltd – whether an assignment of the debt owed to First Samuel Ltd was effective to assign the indebtedness of MRV Metals Pty Ltd and the benefit of the security provided under the secured debenture deed to the applicant – whether the first respondent was validly appointed as security trustee – whether the first respondent should be removed as security trustee Corporations Act 2001 (Cth), s 9, s 283AA, s 283DA, s 708 Property Law Act 1974 (Qld), s 99 Trusts Act 1973 (Qld), s 80(1), s 82(2) Australian Securities and Investments Commission v Letten (No 17) (2011) 286 ALR 346, cited Ayoub v Euphoric Pty Ltd (2004) 12 BPR 22,735, cited Cuzeno RVM Pty Ltd v Overton Investments Pty Ltd (2002) 10 BPR 19,425, cited Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471, cited JPD as Guardian v DMS as Trustee [2022] QSC 181, cited Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641, cited Manzi v Smith (1975) 132 CLR 671, cited Miller v Cameron (1936) 54 CLR 572, cited Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 339, related Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, cited MRV Metals Pty Ltd v Chief Executive, Department of Environment and Science (No 2) [2021] QLC 14, related Nolan v Collie (2003) 7 VR 287, cited Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27, cited Re Beddoe [1893] 1 Ch 547, cited Re Clark’s Refrigerated Transport Pty Ltd (in liq) [1982] VR 989, cited Re Russian Petroleum and Liquid Fuel Company Ltd [1907] 2 Ch 540, cited Re Universal Distributors Co Ltd (in liq) (1933) 48 CLR 171, cited -- 2 of 36 -- 3 Re W Tasker & Sons Ltd [1905] 2 Ch 587, cited Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358, cited Ryan v Textile Clothing and Footwear Union [1996] 2 VR 235, cited SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132, cited Stewart v Atco Controls Pty Ltd (2014) 252 CLR 307, cited COUNSEL: A J H Morris KC, with C M Thwaites, for the applicant G A Thompson KC with A G Psaltis for the respondents SOLICITORS: Irish Bentley Lawyers for the applicant Colin Biggers & Paisley for the respondents Background [1] This proceeding concerns secured debts owed by Moreton Resources Ltd, a mining company formerly listed on the ASX, and its subsidiary MRV Metals Pty Ltd. [2] The terms governing the security for those debts were set out in a Secured Debenture Deed dated 24 May 2017 between Moreton Resources, MRV (as guarantor of the obligations owed by Moreton Resources to debenture holders), First Samuel Ltd (as a debenture holder and as security trustee) and other holders of debentures issued by Moreton Resources in accordance with that deed, including the applicant (Mr Elks) and the third respondent (Mr Feitelson). Moreton Resources and MRV granted a security interest in the secured property to First Samuel as security for the payment of all outstanding monies owed to the debenture holders. First Samuel held that security on trust for the benefit of all debenture holders under a Security Trust Deed also dated 24 May 2017. [3] On 15 July 2020, liquidators were appointed to Moreton Resources and MRV. [4] On 25 September 2020, Mr Feitelson and A & J Consultancy Pty Ltd (another debenture holder and a company controlled by Mr Feitelson’s wife), acting on behalf of First Samuel, appointed the second respondents (Receivers). In making that appointment, Mr Feitelson purported to exercise powers as majority beneficiary under the Security Trust Deed to act in the name of the security trustee. [5] At about the same time, First Samuel gave notice of its resignation as security trustee under the Security Trust Deed and called upon Mr Feitelson to appoint a replacement trustee. In response Mr Feitelson appointed the first respondent (Melgear) as security trustee. [6] Following their appointment, the Receivers sold MRV’s interests in a silver mine near Texas in South-West Queensland which formed part of the secured property. The proceeds of that sale remain in the hands of the Receivers. [7] Mr Elks seeks declaratory and other relief concerning: (a) the distribution of the monies held by the Receivers following the mine sale; and -- 3 of 36 -- 4 (b) the position of Melgear as security trustee. [8] Central to Mr Elks’ claim for relief is his contention that he took an assignment of secured debts owed to First Samuel by Moreton Resources and guaranteed by MRV. That assignment occurred in two stages. In the first stage, First Samuel assigned specified debts to MRL Moreton Resources Pty Ltd (MRL Moreton), a company controlled by Mr Elks, by loan assignment deed dated 5 July 2021. In the second stage, MRL Moreton assigned those debts to Mr Elks by loan assignment deed dated 10 July 2021. The respondents dispute Mr Elks’ contention on the basis that debentures held by First Samuel under the Secured Debenture Deed were paid out with the proceeds raised by Moreton Resources through the issue of unsecured notes, such that the debts assigned by First Samuel were not secured debts. [9] Mr Elks’ next contention is that an agreement dated 27 February 2020 (February 2020 Agreement) granted him priority over and above the other debenture holders for all debts owed to him by Moreton Resources and MRV, including assigned debts. The respondents dispute that contention on the basis that, on the proper construction of the February 2020 Agreement: (a) its operation is limited to debts owed to Mr Elks at the time that agreement was entered into, together with associated amounts which might accrue on those existing debts; and (b) it only binds the parties in respect of proceeds realised from two assets specified in that agreement and does not extend to the proceeds from the sale of the silver mine. [10] Mr Elks also challenges the validity of the appointment of Melgear as security trustee and seeks orders appointing a replacement security trustee. Issues [11] Mr Elks’ application raises the following issues: (a) first, whether the secured debentures held by First Samuel were paid out and replaced by unsecured debt; (b) secondly, whether the February 2020 Agreement altered the priority of creditors of Moreton Resources and MRV in the manner contended for by Mr Elks; (c) thirdly, whether the assignment of the debt owed to First Samuel in July 2021, was effective to assign the indebtedness of MRV and the benefit of the security provided under the Secured Debenture Deed to Mr Elks; (d) fourthly, whether Melgear was validly appointed as security trustee under the Security Trustee; (e) fifthly, if Melgear is found to have been validly appointed, whether there is any other basis upon which Melgear should be removed as security trustee. -- 4 of 36 -- 5 Were the secured debentures replaced by unsecured debt? Issue of debentures under the Secured Debenture Deed [12] Each debenture holder identified in Schedule 1 of the Secured Debenture Deed was entitled to be issued a prescribed number of debentures.1 The term “Debenture” was defined to mean:2 “a debenture issued by [Moreton Resources] to the Debentureholder on the terms of this document.” [13] The debentures had an issue price of $1.00 which was to be paid in full on the date the debentures were issued to the debenture holders.3 All debentures were to rank equally.4 [14] Upon the issue of debentures to a debenture holder, Moreton Resources was required to issue a debenture certificate in the form attached as Appendix A to the Secured Debenture Deed.5 That form set out the certificate number, the name and address of the debenture holder and the face value of the debentures.6 It also contained the following statement: “THIS IS TO CERTIFY that the Debentureholder is the holder of the debentures with a Face Value of [$...] subject to the terms and conditions of the Debenture Deed dated on or about 24 May 2017.” [15] Moreton Resources was required to pay interest on the face value of the debentures up to the date of redemption at a rate of 10% per annum.7 [16] Moreton Resources was required to redeem the debentures by repaying to the debenture holders the face value of the debentures (to the extent it had not repaid or prepaid that amount) and all other “Outstanding Moneys” then due and payable on or before the Repayment Date, that being 24 May 2019, two years from the date of the Secured Debenture Deed.8 The term “Outstanding Moneys” was defined to mean:9 “all outstanding debts and monetary liabilities of [Moreton Resources] to a Debenture holder under or in relation to this document and includes the Face Value (to the extent not repaid or prepaid by [Moreton Resources]) and any interest payable thereon to the extent outstanding.” [17] As already noted, each of Moreton Resources (as the issuer of the debentures) and MRV (as guarantor of Moreton Resources obligation to repay all Outstanding 1 Secured Debenture Deed, cl 1.1 (definition of “Debenture holder’s Debentures”), cll 2.1 to 2.3 and Schedule 1. 2 Secured Debenture Deed, cl 1.1 (definition of “Debenture”). 3 Secured Debenture Deed, cl 2.4. 4 Secured Debenture Deed, cl 2.5. 5 Secured Debenture Deed, cl 2.6. 6 The face value was equal to the issue price for the debentures: Secured Debenture Deed cl 1.1 (definition of “Face Value”). 7 Secured Debenture Deed, cl 1.1 (definition of “Interest Rate”) and cl 3.1. 8 Secured Debenture Deed, cl 1.1 (definition of “Repayment Date”) and cl 4.1. 9 Secured Debenture Deed, cl 1.1 (definition of “Outstanding Moneys”). -- 5 of 36 -- 6 Moneys to the debenture holders) granted a security interest in its Secured Property to First Samuel as security trustee.10 [18] On or about 26 May 2017, Moreton Resources issued debentures to debenture holders (and beneficiaries under the Security Trust Deed) with the following face values. (a) $3,000,000.00 to First Samuel, recorded in debenture certificate A00001; (b) $1,312,500.00 to Mr Feitelson, recorded in debenture certificate A00002; (c) $750,000.00 to Mr Elks, recorded in debenture certificate A00003; (d) $187,500.00 to A & J Consultancy, recorded in debenture certificate A00004. [19] Moreton Resources issued further debentures to First Samuel: (a) on 21 November 2017, with a face value of $1,500,000.00, recorded in debenture certificate A00005; (b) on 12 June 2018, with a face value of $300,000.00, recorded in debenture certificate A00006. [20] As a result, by about June 2018, First Samuel was owed $4,800,000.00 secured under the Secured Debenture Deed. Unsecured notes issued to First Samuel [21] On 27 June 2018, Moreton Resources entered into a further agreement with First Samuel titled “Unsecured note deed” (2018 Unsecured Note Deed). Mr Elks executed the 2018 Unsecured Note Deed as a director of Moreton Resources. [22] By that document, Moreton Resources agreed to issue, and First Samuel agreed to apply to be issued, 1,200,000 notes with each note having an issue price of $1.00 which was to be fully paid upon application.11 Moreton Resources was required to issue a certificate for the notes in the form of Appendix A to the 2018 Unsecured Note Deed.12 That form set out the certificate number, the name and address of the note holder and the face value of the notes. It also contained the following statement: “THIS IS TO CERTIFY that the Noteholder is the holder of the Notes with a Face Value of [insert] subject to the terms and conditions of the Note Deed dated on or about [insert] 2018.” [23] Moreton Resources was required to pay interest on the face value of the notes up to the date of redemption at a rate of 10% per annum.13 [24] Moreton Resources was required to redeem the notes by repaying to First Samuel the face value of the notes (to the extent it had not repaid or prepaid that amount) and all other “Outstanding Moneys” then due and payable on or before the Repayment Date, that being three months after the first issue of notes under the 2018 Unsecured Note Deed.14 The term “Outstanding Moneys” was defined to mean:15 10 Secured Debenture Deed, cl 10.2. 11 2018 Unsecured Note Deed, cl 1.1 (definitions of “Issue Price” and “Notes”), cl 2.1 and cl 2.3. 12 2018 Unsecured Note Deed, cl 1.1 (definition of “Note Certificate”) and cl 2.4. 13 2018 Unsecured Note Deed, cl 1.1 (definition of “Interest Rate”) and cl 3(a). 14 2018 Unsecured Note Deed, cl 1.1 (definition of “Repayment Date”) and cl 4.1. 15 2018 Unsecured Note Deed, cl 1.1 (definition of “Outstanding Moneys”). -- 6 of 36 -- 7 “all outstanding debts and monetary liabilities of [Moreton Resources] to [First Samuel] under or in relation to this document and includes the Face Value (to the extent not repaid or prepaid by [Moreton Resources]) and any interest payable thereon to the extent outstanding.” [25] Three important points should be noted about the 2018 Unsecured Note Deed. First, the 2018 Unsecured Note Deed made no reference to the Secured Debenture Deed. Second, Moreton Resources did not grant security in respect of its repayment obligation under the 2018 Unsecured Notes Deed. Third, MRV was not a party to the 2018 Unsecured Note Deed and did not guarantee Moreton Resources’ repayment obligation under it. [26] On 29 June 2018, First Samuel advanced $1,200,000.00 to Moreton Resources upon issue of 1,200,000 notes under the 2018 Unsecured Note Deed. [27] In about November 2018, Moreton Resources and First Samuel executed a deed of variation (2018 Deed of Variation) which varied the 2018 Unsecured Note Deed to: (a) increase the number of notes to be issued to 2,700,000; (b) change the Repayment Date to 1 April 2019. [28] On 8 November 2018, First Samuel advanced $1,500,000.00 to Moreton Resources upon issue of a further 1,500,000 notes under the 2018 Unsecured Note Deed (as varied by the 2018 Deed of Variation). Restructure of the debt owed to First Samuel [29] By December 2018, Moreton Resources owed a total of $7,500,000.00 to First Samuel, comprising: (a) $4,800,000.00 under the Secured Debenture Deed, repayable by 24 May 2019; and (b) $2,700,000.00 under the 2018 Unsecured Note Deed, repayable by 1 April 2019. [30] On 28 January 2019, Mr Elks sent an email on behalf of Moreton Resources to a solicitor, David Mitchell of Talbot Sayer, which relevantly stated:16 “I was wondering if you could please draft for me loan documents between Moreton Resources Limited and First Samuel. This will be a debt restructure following on from the debentures we had and the unsecured loan agreement. Can we please have the following documents drafted – $2,500,000 unsecured loan, the 18 th of February 2019, and payable by 17th February 2021. $4,500,000 unsecured loan, commencing the 30 th of April 2019, and payable by the 29th of April 2022 16 Emphasis in original. -- 7 of 36 -- 8 $1,500,000 unsecured loan, commencing the 30 th of April 2019, and payable by the 30th November 2021 Please draft each of these with the following in mind as these are designed to roll over the existing debts and also meet some date parameter and fund outcomes for the lender. But the theory is The Company seek to agree terms with First Samuel whom are owed $7,500,000 in principle [sic] only as all quarterly loan payments have been made, and restructure that debt including an additional $1,000,000 in the following terms. TERM: AS PER ABOVE MAKE UP AMMOUNT [sic]: $8,500,000.00 INTEREST: 12%pa …” [31] That email also set out a basis upon which First Samuel would be entitled to convert up to $2,000,000.00 of the debt into equity. [32] On 4 February 2019, Mr Elks sent a further email to Mr Mitchell which explained the proposed restructure in the following terms:17 “The outstanding on [First Samuel] are as follows – First Samuel - $2,700,000.00 due and payable upon the 1st of April 2019. First Samuel - $3,000,000 debenture payment due on 31st April 2019. First Samuel - $300,000 debenture payment due (loan around June 2018) First Samuel - $1,500,000 increase in debenture So what we will need to do is the following – $2,500,00 unsecured loan, the 18th of February 2019, and payable by 17th February 2021 (we will only draw down $1,000,000 of this as at the 18th February and then this facility will be totally drawn down as the other $1,500,000 will go toward the [First Samuel] debt of $2,700,000. Hence we will now have a $2,500,000 facility payable on 17 th Feb 2021. (We still have owing on the 31st of March $1,200,000). On that basis lets [sic] have the next $1,500,00 unsecured loan, commencing the 1st of April 2019, and payable by the 30 th November 2021 which will offset the final $1,200,000 outstanding on the above and technically therefore [First Samuel] will also owe us $300,000 from this facility but we will not totally draw yet. 17 Emphasis in original. -- 8 of 36 -- 9 $4,500,000 unsecured loan, commencing the 30 th April 2019, and payable by the 29th of April 2022 will then be used to offset the total debenture debt of $4,800,000 of which we will use this total facility to offset and then the remaining $300k of the 1st of April facility to close out the total debt. Hence our new facilities will total $8,500,000 and that should work. …” [33] Later the same day, Mr Mitchell sent Mr Elks a draft unsecured note deed reflecting the terms discussed by Mr Elks. Mr Elks forwarded that draft unsecured note deed to Kalman Salgo and John Haley, two other directors of Moreton Resources, with the following explanation: “Please see attached document that I have asked Talbot Sayer to draft for us. … Essentially this will cure the total debt from [First Samuel], into this new agreement, but also give us $1,000,000 on the 18 th of February 2019. We will not draw any other funds, the other funds will simply cross pay the outstanding debts with [First Samuel]. (you will [sic] that explained in an email below to Talbot Sayer from me) …” [34] On 5 February 2019, Mr Elks sent a further email to Mr Salgo and Mr Haley which attached another copy of the draft unsecured note deed as well as a board paper containing a circular resolution by which Mr Elks sought the other directors’ approval to, among other things, enter into a funding agreement with First Samuel as a matter of urgency upon the terms set out in the board paper. Those terms reflected the instructions Mr Elks had previously provided to Mr Mitchell and the form of the draft unsecured note deed which Mr Mitchell had prepared. [35] By about 13 February 2019, Moreton Resources and First Samuel had executed an agreement titled “Unsecured note deed” (2019 Unsecured Note Deed) which was substantially in the form of the draft provided to Mr Elks by Mr Mitchell on 4 February 2019. Mr Elks executed the 2019 Unsecured Note Deed as a director of Moreton Resources. [36] By that document, Moreton Resources agreed to issue, and First Samuel agreed to apply to be issued: (a) 2,500,00 notes on 18 February 2019, or another date agreed between the parties; (b) 1,500,000 notes on 1 April 2019, or another date agreed between the parties; (c) 4,500,000 notes on 30 April 2019, or another date agreed between the parties, with each note having an issue price of $1.00 which was to be fully paid upon application.18 18 2019 Unsecured Note Deed, cl 1.1 (definitions of “Issue Price” and “Notes”), cl 2.1 and cl 2.2. -- 9 of 36 -- 10 [37] Moreton Resources was required to issue a certificate for the notes in the form of Appendix A to the 2019 Unsecured Note Deed.19 That form set out the certificate number, the name and address of the note holder and the face value of the notes. It also contained the following statement: “THIS IS TO CERTIFY that the Noteholder is the holder of the Notes with a Face Value of [insert] subject to the terms and conditions of the Note Deed dated on or about [insert] 2018.” [38] Moreton Resources was required to pay interest on the face value of the notes up to the date of redemption at a rate of 12% per annum.20 Subject to the approval of shareholders of Moreton Resources, First Samuel was also entitled on or before the first anniversary of the 2019 Unsecured Note Deed to elect to convert notes with an aggregate face value of up to $2,000,000 into shares in the company.21 [39] Moreton Resources was required to redeem the notes progressively by repaying to First Samuel the face value of the notes and all other “Outstanding Moneys” then due and payable at various dates,22 with the aggregate value of the outstanding notes to be reduced to: (a) $6,000,000 as at 17 February 2021 (reflecting repayment of the 2,500,000 notes to be issued on 18 February 2019); (b) $4,500,000 as at 30 November 2021 (reflecting repayment of the 1,500,000 notes to be issued on 1 April 2019); (c) Nil as at 29 April 2022 (reflecting repayment of the 4,500,000 notes to be issued on 30 April 2019. [40] The term “Outstanding Moneys” was defined in the 2019 Unsecured Note Deed to mean:23 “all outstanding debts and monetary liabilities of [Moreton Resources] to [First Samuel] under or in relation to this document and includes the Face Value (to the extent not repaid or prepaid by [Moreton Resources]) and any interest payable thereon to the extent outstanding.” [41] As was the case with the 2018 Unsecured Note Deed, Moreton Resources did not grant security in respect of its obligation to pay all Outstanding Moneys under the 2019 Unsecured Notes Deed. MRV was not a party to the agreement and did not guarantee Moreton Resources’ repayment obligation under it. [42] On 14 February 2019, Moreton Resources made an announcement to the ASX which contained the following statement: “As the market is aware First Samuel Limited has been a long-time supporter of Moreton Resources Limited and as such, continuing its already 3 years journey with the Company, [First Samuel] has agreed 19 2019 Unsecured Note Deed, cl 1.1 (definition of “Note Certificate”) and cl 2.4. 20 2019 Unsecured Note Deed, cl 1.1 (definition of “Interest Rate”) and cl 3.1(a). 21 2019 Unsecured Note Deed, cl 4.2. 22 2019 Unsecured Note Deed, cl 3.2 and 3.3. 23 2019 Unsecured Note Deed, cl 1.1 (definition of “Outstanding Moneys”). -- 10 of 36 -- 11 to a total restructuring of their debt totalling $7,500,000 into a new facility which is broken into three tranches. …” [43] On the same day, Joe Flinn of First Samuel sent an email to Mr Elks addressing the process for the drawdown of the first tranche of funding under the 2019 Unsecured Note Deed. That process, which accorded with Mr Elks’ instructions to Mr Mitchell in the email extracted at [32] above, was said to involve: (a) Moreton Resources providing First Samuel with notice of its intention to redeem the second tranche of notes issued under the 2018 Unsecured Note Deed with a value of $1,500,000; (b) Moreton Resources paying outstanding interest on that existing tranche of notes up to the redemption date to JP Morgan (First Samuel’s security custodian); (c) First Samuel advising JP Morgan that it was rolling the $1,500,000 owed under that existing tranche of notes into the new facility under the 2019 Unsecured Note Deed and adding a further $1,000,000; (d) First Samuel would transfer the additional $1,000,000 to Moreton Resources’ bank account; (e) Moreton Resources would issue a certificate for $2,500,000 of the new notes under the 2019 Unsecured Note Deed to JP Morgan. [44] On 15 February 2019, in response to Mr Flinn’s email, Mr Elks wrote to Mr Flinn advising that Moreton Resources wished to pay down in full the debentures with a face value of $1,500,000 issued to First Samuel on 21 November 2017 and recorded on debenture certificate A00005. This proposed redemption of debentures differed from the process referred to in Mr Flinn’s email and in the instructions Mr Elks had previously provided to Mr Mitchell which was that all of the debentures issued to First Samuel would be paid out with the funds obtained from the third tranche of notes to be issued under the 2019 Unsecured Note Deed. [45] Later that day, Craig Fraser of First Samuel sent an email to Mr Elks confirming that First Samuel had transferred $1,000,000 to Moreton Resources’ bank account. He requested confirmation from Mr Elks of receipt of those funds and asked that, following receipt, Mr Elks arrange for a Note Certificate for the amount of $2,500,000 be issued under the 2019 Unsecured Note Deed to JP Morgan as custodian for First Samuel. [46] Mr Elks responded to Mr Fraser’s email on 20 February 2019 and confirmed that Moreton Resources: (a) had received the $1,000,000 into its bank account; (b) had paid the debentures with a value of $1,500,000 recorded in debenture certificate A005 and paid the interest payable on those debentures; (c) would be arranging the certificate for the new $2,500,000 tranche under the 2019 Unsecured Note Deed. [47] The previous day, Mr Elks had executed Note Certificate A011 which identified the note holder as JP Morgan Nominees Australia Limited as custodian for First Samuel. For reasons not explained in the evidence, that certificate recorded the “Face Value of Debenture” as being $2,500,000. That reference to “debenture” was not consistent -- 11 of 36 -- 12 with the form of the certificate provided for in Appendix A of the 2019 Unsecured Note Deed. Whatever the explanation for that discrepancy might be, the certificate stated: “THIS IS TO CERTIFY that the Noteholder is the holder of the Notes with a Face Value of $2,500,000 subject to the terms and conditions of the Note Deed dated on or about 17 February 2019.” [48] On 3 March 2019, Mr Elks sent an email to Gary Harradine, Brent van Staden and Phillip Bryant,24 attaching a copy of the 2019 Unsecured Note Deed. In his email, Mr Elks stated: “Please see attached final loan agreement with First Samuel Limited. This will replace the current Secured Debenture’s [sic] that are in place, once the new loans take effect and essentially buy out the existing debentures, then all loans for the Company are totally unsecured and the Company has no security over any assets except for the ATO …” [49] On 20 March 2019, Mr Elks sent an email to the finance manager and the chief executive officer of Moreton Resources. That email attached the Secured Debenture Deed and the 2019 Unsecured Not Deed, among other documents, and addressed the finance arrangements with First Samuel by stating: “… We are rolling off the debenture deed and moving into the loan agreement however there is some planning and work we need to do, to make sure we are keeping sight of our month to month process and payment dates. FYI, the excel spread sheet is our current obligations against the Debenture Deed, however we need to now start to cross reference the date of funding etc, and roll off the old agreement and onto the new agreement. This will be done by a letter saying we are paying out the old one, followed by a letter to [First Samuel] outlining we want to draw down the next segment of loans to pay off the historic debenture.” [50] On 29 March 2019, Mr Elks sent an email to Mr Flinn advising him of Moreton Resources’ intention to pay down the $2,700,000 owed to First Samuel pursuant to the notes issued under the 2018 Unsecured Note Deed. In that email, Mr Elks stated: “Whilst I am aware you have the background to this, just for completeness please be advised that – Moreton Resources Limited’s finance Department today will notify JP Morgan that we will be making a total payment of both short term loan facilities on Monday the 1st of April 2019. That will be the $2,700,00 principle [sic] and associated interest. From a [First Samuel] point of view, is there anything further we need to do, to cure this arrangement other than the notification that finance will send to JP Morgan today … 24 Both Mr Harradine and Mr Bryant were appointed as directors of Moreton Resources in April 2019. -- 12 of 36 -- 13 We also acknowledge that under the current arrange [sic], we will also need to top of [sic] the facility at months end to cover the final debentures also.” [51] Mr Elks also sent a letter dated 29 March 2019 to Mr Flinn which stated: “I am writing to advise that Moreton Resources Limited wishes to draw down further upon the current $8,500,000 loan facility between First Samuel Limited and Moreton Resources Limited. We are seeking to use the funds to payout the short-term unsecured loan of $1,200,000 which was funded upon the 29/06/2018. Further to this, we would also like to close out the other amount of $1,500,000 which we drew down upon the 08/11/2018. To facilitate this including interest, we are seeking to draw down a total of $2,849,917.81 from the new loan facility to close out those prior facilities and hence we are seeking your approval for this outcome. In total the new facility will have now draw [sic] down a total of $5,349,917.81 with the remaining $3,150,082.19 to be utalised [sic] at the 30th of April to close out the prior debenture agreements with the Company, which will then leave the total and only loan agreement between the parties as $8,500,000 facility, being paid monthly on principle [sic] and interest basis. I hope this is in keeping with our agreement and if this is approved, we would like to undertake the transfer date upon the 1 st of April 2019, be it an exchange of letters between First Samuel Limited, Moreton Resources Limited and JPMorgan.” [52] In response, Mr Fraser sent an email to Mr Elks on 29 March 2019, acknowledging his confirmation of Moreton Resources’ intention to redeem the two unsecured loans of $1,200,000 and $1,500,000 and to draw down a total of $2,849,918 under the new loan facility. He also requested that a note certificate for $2,849,918 be issued to JP Morgan as custodian for First Samuel. [53] Mr Elks then signed Note Certificate A015, which was dated 29 March 2019, and certified that JP Morgan as custodian for First Samuel was the holder of notes with a face value of $2,849,918. As with Note Certificate A011 (see [47] above) the form of Note Certificate A015 did not accord exactly with Appendix A of the 2019 Unsecured Not Deed. In particular, the certificate described the notes as being held “subject to the terms and conditions of the Note Deed on or about 01 April 2019.” No further note deed was entered into on or about 1 April 2019. In the circumstances in which First Samuel advanced the further sum of $2,849,918 to Moreton Resources, the references to the “Note Deed” on Note Certificate A015 must be a reference to the 2019 Unsecured Note Deed. [54] At about this time, Moreton Resources prepared an excel spreadsheet bearing the title “Debt agreement schedule with First Samuel” which recorded the effect of the drawdowns under the 2019 Unsecured Note Deed which had been made on about 18 -- 13 of 36 -- 14 February 2019 and 1 April 2019 and the further drawdown which was to be made on about 30 April 2019. That spreadsheet included the following: “New loan Position - $8.5 million draw down facility with interest rate of 12% Date Amount Purpose of the fund 18/02/2019 $1,000,000.00 18/02/2019 $1,500,000.00 rollover for Debenture C as above 1/04/2019 $1,290,739.73 refinance for loan 1 including the interest charges 1/04/2019 $1,559,178.08 refinance for loan 2 including the interest charges 30/04/2019 $3,150,082.19 rollover for Debenture A and B as above, but there will be a shortfall of $149.917.81 [sic].” [55] That spreadsheet identified: (a) “Debenture A” as the debentures with a face value of $3,000,000 issued to First Samuel on 26 May 2017 (see [18](a) above); (b) “Debenture B” as the debentures with a face value of $300,000 issued to First Samuel on 11 June 2018 (see [19](b) above); (c) “Debenture C” as the debentures with a face value of $1,500,000 issued to First Samuel on 21 November 2017 (see [19](a) above) and stated that these debentures and been “paid off”. That is consistent with the position set out in Mr Elks’ email of 20 February 2019 (see [46] above); (d) “Loan 1” as the notes with a face value of $1,200,000 issued to First Samuel on 29 June 2018 under the 2018 Unsecured Note Deed (see [26] above); (e) “Loan 2” as the notes with a face value of $1,500,000 issued to First Samuel on 8 November 2018 under the 2018 Unsecured Note Deed as amended by the 2018 Deed of Variation (see [28] above). [56] The spreadsheet indicated, consistently with Mr Elks’ letter dated 29 March 2019 (see [51] above), that Moreton Resources would make a final drawdown under the 2019 Unsecured Note Deed on 30 April 2019 to redeem the outstanding debentures with a combined face value of $3,300,000. However, because the company had drawn down an amount of $149,917.81 to pay interest on the notes issued under 2018 Unsecured Note Deed in addition to the face value of those notes, there was a shortfall between the amount required to redeem the outstanding debentures and the remaining amount available to be drawn down. [57] To address this shortfall, and to permit Moreton Resources to make interest payments on the outstanding debentures and advances drawn down under the 2019 Unsecured -- 14 of 36 -- 15 Note Deed, on 29 April 2019, Moreton Resources and First Samuel executed a deed of variation (2019 Deed of Variation). This varied the 2019 Unsecured Note Deed by changing the number of notes to be issued to First Samuel on 30 April 2019 from 4,500,000 (see [36](c) above) to 5,500,000 “plus a number of Notes with a Face Value equal to an amount which [First Samuel], in its absolute discretion, agrees in writing is necessary to discharge interest payable by [Moreton Resources] to [First Samuel] at the date of issue”. The effect of this change was that First Samuel agreed to provide further funding of at least $1,000,000 to Moreton Resources. [58] On 29 April 2019, Mr Elks signed Note Certificate A016 recording the issue of notes with a face value of $4,300,000 to JP Morgan as custodian for First Samuel subject to the terms and conditions of the 2019 Unsecured Note Deed as amended by the 2019 Deed of Variation. The amount of $4,300,000 drawn down on 29 April 2019 was the total additional advance of $1,000,000 (which First Samuel paid to Moreton Resources’ bank account) plus the $3,300,000 required to redeem the outstanding debentures. [59] Moreton Resources and First Samuel subsequently entered into a second deed of variation of the 2019 Unsecured Note Deed on or about 28 May 2019, by which Moreton Resources issued further notes with a face value of $1,000,000. The issue of those notes was recorded in Note Certificate A017. [60] The end result of the restructuring of the debt Moreton Resources owed to First Samuel is that First Samuel advanced a total of $10,649,917.81 under the 2019 Unsecured Note Deed (as amended from time to time), comprising: (a) $2,500,000 on or about 15 February 2019, of which the amount of $1,500,000 was referred to in the contemporary communications as being used to pay down the debentures recorded in Debenture Certificate A00005 issued under the Secured Debenture Deed (see [42] to [46] above); (b) $2,849,917.81 on or about 29 March 2019, all of which was referred to in the contemporary communications as being used to pay down two tranches of notes issued in June 2018 and November 2018 under the 2018 Unsecured Note Deed (see [50] to [52] above); (c) $4,300,000 on or about 29 April 2019, of which the amount of $3,300,000 was referred to in the contemporaneous communications as being used to pay down the debentures recorded in Debenture Certificate A00001 and A00006 issued under the Secured Debenture Deed (see [54] to [58] above); and (d) $1,000,000 on or about 28 May 2019. [61] The effect of these transactions was described in the internal accounts of Moreton Resources. [62] The General Ledger (Detail) identified the outstanding balance owed to First Samuel under two separate loans. The first, described as “First Samuel Debenture Loan” was recorded as having an outstanding balance of $4,800,000 at 30 June 2018. That is consistent with the face value of the debentures issued to First Samuel under the Secured Debenture Deed as recorded in debenture certificates A00001, A00005 and A00006. The second, described as “Loan First Samuel” was recorded as having an outstanding balance at 30 June 2018 of $1,200,000. That is consistent with the face -- 15 of 36 -- 16 value of the notes issued to First Samuel on or about 29 June 2018 under the 2018 Unsecured Note Deed. [63] By 30 June 2019, the balance shown in the General Ledger (Detail) as owing under: (a) the First Samuel Debenture Loan had reduced to nil; (b) the Loan First Samuel was $10,449,917.81 (reflecting the aggregate advances of $10,649,917.81 under the 2019 Unsecured Note Deed less principal repayments of $200,000 made as required by the terms of that agreement). [64] Moreton Resources’ balance sheet recorded the same position: (a) as at 30 June 2018: $4,800,000 owed under the First Samuel Debenture Loan and $1,200,000 owed under the Loan First Samuel; (b) as at 30 June 2019: $10,449,917.81 owed under the Loan First Samuel with no liability recorded in respect of the First Samuel Debenture Loan. [65] Consistently with these internal accounting records, the audited accounts of Moreton Resources included in the company’s annual report for the year ended 30 June 2019:25 (a) showed in note 18:26 (i) the amount owed to non-related parties under “Debentures – secured” reducing from $4,800,000 at 30 June 2018, that being the face value of the debentures issued to First Samuel under the Secured Debenture Deed, to nil at 30 June 2019; (ii) the amount owed to non-related parties under “Short-term loans – unsecured” increasing from $1,200,000, that being the face value of the notes issued on or about 29 June 2018 under the 2018 Unsecured Note Deed, to $10,651,575 at 30 June 2019; (b) included the following explanation of those changes in note 18(d): “The loan from [First Samuel] was restructured in February 2019; which included transferring $4,800,000 in Debentures to Short-term loans. In terms of the restructured debt facility, interest is payable under commercial terms at 12% … At [First Samuel’s] election, they may seek to convert up to $2,000,000 of the debt to equity, …, subject to shareholder vote and acceptance, at any stage within the first 12 months of the new agreement.” [66] The changes in the finance facilities were also identified in the Directors’ report included in the annual report, which stated: “During the year ended 30 June 2019 the company: … • Obtained additional short-term funding from [First Samuel] of $4,449,918 (facility limit increased to $10,449,918) and 25 That annual report was signed by Mr Bryant as Managing Director on 9 October 2019, after Mr Elks had ceased acting as a director of Moreton Resources. 26 The same change is also shown in note 34 to the audited accounts which includes a table showing the changes in liabilities arising from financing activities. -- 16 of 36 -- 17 negotiated an extension of the repayment of interest and principle [sic] from 30 September 2018 to 1 April 2019. The facility was fully drawn down. In addition to the funding, First Samuel transferred $4,800,000 from Debentures to Unsecured Notes.” [67] Records prepared by First Samuel treated the restructuring of the debt facilities it provided to Moreton Resources in the same way as the company’s internal and audited accounts. Based upon those records, First Samuel issued a certificate to the auditors of Moreton Resources, signed by Mr Flinn as CEO, which stated: “The below details relating to the amounts payable agree with my records at 30 June 2019, with the following exceptions (if any): Unsecured Notes: A$ 10,449,918 Interest accrued: A$ 201,657 Interest rate: 12% per annum, paid quarterly Term: Multiple – 2 years, at call Security Nil, unsecured” Mr Elks’ evidence as to the character of the advances by First Samuel in 2019 [68] Mr Elks did not address the 2019 Unsecured Note Deed in his first affidavit filed at the commencement of the proceeding, referring only to the Secured Debenture Deed and Security Trust Deed, the February 2020 Agreement, and the subsequent assignment of First Samuel’s rights.27 [69] He addressed the contention that the debentures were repaid in a subsequent affidavit,28 in which he stated: (a) Moreton Resources never paid back the $4,800,000 owed to First Samuel under the Secured Debenture Deed, or the interest payable on the debentures;29 (b) the reconciliation of payments to and from the bank accounts of Moreton Resources did not show payments of $4,800,000 out of the company’s bank accounts to redeem the debentures;30 (c) from his review of the records of Moreton Resources, no documents were sent to the auditors of Moreton Resources to show that First Samuel gave up its rights under the Secured Debenture Deed;31 (d) he was involved in negotiations with First Samuel concerning the Secured Debenture Deed and, to his knowledge, there was no agreement reached with First Samuel to the effect that the $4,800,000 owed under the Secured Debenture Deed would be transferred to short-term loans so as to affect the rights of First Samuel under the Secured Debenture Deed;32 27 Affidavit of Alexander Jason Elks filed 10 November 2021 (Court documents 7 and 8), [8] to [16]. 28 Affidavit of Alexander Jason Elks filed 24 November 2021 (Court documents 10 and 11). 29 Ibid, [8]. 30 Ibid, [13] to [14] and [18]. 31 Ibid, [15]. 32 Ibid, [20](a) to (c). -- 17 of 36 -- 18 (e) if such a transaction had been agreed it would have been announced on the ASX and no such announcement has been made.33 [70] I do not accept Mr Elks’ evidence about those matters. [71] I accept the respondents’ submission that payment may be made by means of book entries where the parties agree, either expressly or by inference, to that course.34 The communications which occurred prior to the various drawdowns of the facility provided under the 2019 Unsecured Note Deed are sufficient to infer that Moreton Resources and First Samuel agreed that part of those funds would be used to redeem the debentures without actual transfers of currency from First Samuel to Moreton Resources (being advances under the 2019 Unsecured Note Deed) and then back from Moreton Resources to First Samuel (being the redemption of the debentures under the Secured Debenture Deed).35 [72] Mr Elks’ assertion that no documents were sent to the auditors of Moreton Resources showing that First Samuel gave up its rights under the Secured Debenture Deed takes no account of the content of the excel spreadsheet referred to in [54] to [56] above, which Mr Elks deposed was sent to the company’s auditors.36 It is also inconsistent with the audit certificate provided by First Samuel (see [67] above).37 Likewise, the contention that there was no announcement to the ASX ignores the announcement filed on 14 February 2019 concerning the restructuring of Moreton Resources’ debt to First Samuel into a new facility (see [42] above) and the statements made in the annual report for the year ended 30 June 2019 that the company had transferred $4,800,000 in debentures into unsecured notes (see [66] above). I prefer the evidence contained in those contemporaneous records to that given by Mr Elks in his affidavit. [73] As to the effect of the advances under the 2019 Unsecured Note Deed on First Samuel’s security position, Mr Elks gave evidence in cross-examination that all advances made to Moreton Resources were covered by the security granted under the Secured Debenture Deed. He stated that this was achieved by using the same definition of “Outstanding Moneys” in each of the Secured Debenture Deed, the 2018 Unsecured Note Deed and the 2019 Unsecured Note Deed.38 33 Ibid, [22](b). 34 Re York Street Mezzanine Pty Ltd (in liq) (2007) 162 FCR 358, 366 [26] citing Manzi v Smith (1975) 132 CLR 671, 674 and Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471. 35 I do not consider that cl 5.1 of the Secured Debenture Deed, which provides that Moreton Resources was required to make payments in Australian currency to the account specified by First Samuel, precludes me from inferring such agreement. The effect of the inferred agreement is that First Samuel waived its right to insist on payment in compliance with the requirements of cl 5.1. In those circumstances, payment by book entry pursuant to the inferred agreement, without complying with the requirements of cl 5.1, does not render Moreton Resources’ payment against the debenture debt ineffective. 36 Affidavit of Alexander Jason Elks filed 24 November 2021 (Court documents 10 and 11), [15]. See also Transcript 1-13:46 to 1-14:10. 37 In the Applicant’s final submissions at [24], Mr Elks also referred to evidence given by Mr Cash from First Samuel that he had not located any document by which First Samuel waived or surrendered the security granted under the Secured Debenture Deed (Transcript 2-17:18-19). The questions which precede the answer Mr Elks relies upon make it clear that Mr Cash gave that answer based on an assumption that the court finds the advances under the 2019 Unsecured Note Deed remained covered by the security provided under the Secured Debenture Deed. That evidence does not assist Mr Elks where the underlying assumption has not been made out. 38 Transcript 1-15:3-27; 1-16:4-18; 1-17:25-28; 1-20:17-45. -- 18 of 36 -- 19 [74] While the form of words used to define “Outstanding Moneys” is the same in the three different agreements referred to by Mr Elks,39 each definition must be read in the context of the agreement in which it appears. The reference in the definition to “outstanding debts and monetary liabilities of [Moreton Resources] …, under or in relation to this document”: (a) in the Secured Debenture Deed, is a reference to amounts owed under or in relation to the Secured Debenture Deed; (b) in the 2018 Unsecured Note Deed, is a reference to amounts owed under or in relation to the 2018 Unsecured Note Deed; (c) in the 2019 Unsecured Note Deed, is a reference to amounts owed under or in relation to the 2019 Unsecured Note Deed. [75] I do not accept that the use of the same form of words to define “Outstanding Moneys” would be understood by a reasonable businessperson to mean that advances made under the 2019 Unsecured Note Deed fall within the definition of “Outstanding Moneys” for the purposes of the Secured Debenture Deed. That is particularly so where the 2019 Unsecured Note Deed: (a) made no reference to the Secured Debenture Deed or the obligations Moreton Resources owed under it; (b) made no reference to security for the performance of Moreton Resources’ obligations under that later agreement; (c) did not include MRV as a party to that later agreement. [76] Nor do I accept the argument advanced in submissions for Mr Elks40 that the advances made under the 2019 Unsecured Note Deed were covered by the debenture security because those advances were made: (a) “in relation to” the Secured Debenture Deed, within the meaning of the definition of “Outstanding Moneys” in that agreement; and (b) “in connection with” a Transaction Document, within the meaning of the definition of “Secured Money” in the Security Trust Deed, noting the words “in any capacity” which form part of that definition.41 [77] That submission rested on a contention that the advances under the 2019 Unsecured Note Deed were made as part of a strategy, which on Mr Elks’ case was unsuccessful,42 to enable Moreton Resources to redeem the debentures issued under the Secured Debenture Deed. That is, the advances should be considered a debt or liability of Moreton Resources “in relation to” or “in connection with” the Secured Debenture Deed because those advances were intended to be used to redeem debentures issued under that document. 39 See above at [16], [24] and [40]. 40 Applicant’s final submissions, [21]. 41 “Secured Money” being defined to mean “all money and amounts (in any currency) that a Security Provider is or may become liable at any time (presently, prospectively or contingently, whether alone or not and in any capacity) to pay to or for the account of the Security Trustee or a Beneficiary (whether alone or not and in any capacity) under or in connection with a Transaction Document.” The term “Transaction Document” being defined to mean the Secured Debenture Deed or the Security Trust Deed. 42 Transcript 1-29:33 to 1-30:13; 1-32:41 to 1-33:17. -- 19 of 36 -- 20 [78] I am satisfied that the commercial purpose of the 2019 Unsecured Note Deed was for the advances made under that agreement to be used to redeem the debentures issued to First Samuel under the Secured Debenture Deed and for those debentures to be replaced by notes issued in accordance with the 2019 Unsecured Note Deed. Contrary to Mr Elks’ evidence, there is nothing in the material to suggest that this purpose was in any way conditioned upon the revenue earned from sales from the mine being sufficient to permit Moreton Resources to also redeem the debentures issued to Mr Elks, Mr Feitelson and A & J Consultancy. [79] I am further satisfied, based on the matters I have set out above concerning the debt restructure, that Moreton Resources used advances made under the 2019 Unsecured Note Deed to redeem the debentures issued to First Samuel. [80] As a matter of law, the effect of the redemption of the debentures issued to First Samuel is that: (a) Moreton Resources performed the repayment obligation it owed to First Samuel under cl 4.1 of the Secured Debenture Deed. At that point, the debentures issued to First Samuel were spent. Nothing was due under or in respect of them;43 (b) performance on the part of Moreton Resources meant that MRV was no longer liable to First Samuel under the guarantee and indemnity given in cl 9 of the Secured Debenture Deed in respect of the debenture debt. That is, Moreton Resources no longer owed any “Guaranteed Obligations” to First Samuel in its capacity as debenture holder within the meaning of cl 9.1 of the Secured Debenture Deed.44 [81] The terms of cll 9.3(d) or 9.5 of the Secured Debenture Deed do not alter this analysis. Clause 9.3(d) provides that the guarantee extends to “the present and future scope of the Guaranteed Obligations.” Clause 9.5 provides that the guarantee covers the Guaranteed Obligations under the Secured Debenture Deed “as amended, varied or replaced” either with or without the consent of MRV as guarantor. Neither of those clauses operates to make Moreton Resources’ repayment obligation under the 2019 Unsecured Note Deed a “Guaranteed Obligation” owed to First Samuel under the Secured Debenture Deed. Nothing in the material suggests that the 2019 Unsecured Note Deed was intended to replace the Secured Debenture Deed as a source of MRV’s obligations as guarantor. The absence of MRV as a party to the 2019 Unsecured Note Deed points to the opposite conclusion, as does the absence of any reference in the 2019 Unsecured Note Deed to the Secured Debenture Deed or to security for Moreton Resources’ repayment obligation. [82] I cannot accept that a reasonable businessperson would have understood the definition of “Outstanding Moneys” in the Secured Debenture Deed to mean that unsecured advances would, by reason of having been made with the intention of enabling Moreton Resources to redeem debentures issued under the Secured Debenture Deed, be a debt or liability of Moreton Resources “in relation to” the Secured Debenture 43 Re W Tasker & Sons Ltd [1905] 2 Ch 587, 602; Re Russian Petroleum and Liquid Fuel Company Ltd [1907] 2 Ch 540, 553. 44 MRV continued to owe obligations to First Samuel under cl 9 of the Secured Debenture Deed in its capacity as security trustee acting on behalf of the remaining debenture holders. Those obligations also ceased when First Samuel resigned from its position as security trustee in 2020 (see [5] above). -- 20 of 36 -- 21 Deed such that those unsecured advances would nevertheless be covered by the debenture security. If that construction is accepted then First Samuel’s security position would not be affected by the redemption of the debentures for which security was provided and their replacement by notes issued without security. Such a result would, in my view, make commercial nonsense.45 [83] In the same way, it would make commercial nonsense to construe the definition of “Secured Money” in the Security Trust Deed as meaning that unsecured advances would be, by reason of those advances being made with the intention of enabling Moreton Resources to redeem debentures issued under the Secured Debenture Deed, an amount Moreton Resources or MRV is liable to pay to First Samuel “in connection with” the Secured Debenture Deed or the Security Trust Deed such that those unsecured advances would nevertheless be covered by the debenture security. [84] I do not accept Mr Elks’ proposed construction of either definition. It follows that the advances made under the 2019 Unsecured Note Deed were not covered by the security provided under the Secured Debenture Deed. Conduct subsequent to the debt restructure transactions [85] The respondents made submissions about conduct which occurred after the debt restructure transactions as evidencing a clear intention by First Samuel and Moreton Resources to treat those transactions as having the result that First Samuel became an unsecured creditor.46 Having regard to statements doubting whether resort may be had to subsequent conduct as an aid to construction of a contract,47 I have not considered that conduct in reaching my conclusion on the construction of the definitions in the Secured Debenture Deed or the Security Trust Deed upon which Mr Elks’ argument was based. Conclusion on the first issue [86] I am satisfied that the advances made under the 2019 Unsecured Note Deed were used to redeem the debentures issued to First Samuel under the Secured Debenture Deed. Those advances were not covered by the security granted by MRV under the Secured Debenture Deed in circumstances where the effect of the redemption of the debentures was that Moreton Resources performed the repayment obligation it owed to First Samuel as debenture holder under the Secured Debenture Deed, and MRV was no longer liable to First Samuel as debenture holder under the guarantee and indemnity given in that agreement. Construction of the February 2020 Agreement [87] Mr Elks submitted that the effect of the February 2020 Agreement was to alter the priority of payments under clause 8.3 of the Security Trust Deed. Relevantly, cl 8.3(d) provides that the Secured Money received by the Security Trustee would be paid to each beneficiary of the security trust (that is each debenture holder) rateably in accordance with its “Proportionate Exposure”.48 Mr Elks’ submitted that, on the 45 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 117 [51]. 46 Respondents’ outline of closing submissions, [137]-[152]. 47 Ryan v Textile Clothing and Footwear Union [1996] 2 VR 235, 237-238, 261-262. 48 “Proportionate Exposure” is defined to mean, for a beneficiary at any time, “the proportion which the Face Value of all the Debentures it holds bears to all Debentures on issue”. -- 21 of 36 -- 22 proper construction of the February 2020 Agreement, he is entitled to payment of all debts owed to him by Moreton Resources, including debts assigned to him, in priority to payment of the full debenture debt owed to Mr Feitelson. [88] I accept Mr Elks’ submission that the February 2020 Agreement was effective to bind all parties to it and thereby alter their respective distribution entitlements under cl 8.3(d) of the Security Trust Deed. However, whether the agreement operates to alter the parties’ distribution entitlements in the manner for which Mr Elks contends requires consideration of the language used in the February 2020 Agreement, the circumstances surrounding the parties’ entry into that agreement and the commercial purposes or objects to be secured by it.49 Events preceding the parties’ entry into the February 2020 Agreement [89] From about November 2019, Mr Elks sent correspondence to Moreton Resources inquiring as to when the company would pay outstanding monies owed to him. In that correspondence he stated that he needed to consider appointing a receiver to recoup those funds. [90] On 1 December 2019, Mr Elks sent an email to Mr Bryant attaching a letter (incorrectly dated 10 December 2019) which contained an itemised account of the amounts he claimed to be owed by Moreton Resources and amounts he had received from the company. The letter stated the final position at that time to be as follows:50 “… all of the personal claims, receipts and payments on behalf of the company and wages claims are totally cured between us, which only leave [sic] $750,000 owing under the existing terms of the debenture agreement and interest also owing under the existing debenture agreement as at 20th November 2019 at $23,835.62, the actual difference being in favour of MRV for paying $755.74 of the interest to bring the amount down to the total outlined to currently owing $773,079.88.” [91] On 14 January 2020, Mr Elks caused his solicitors to send a letter to Moreton Resources setting out his claim for repayment of the debenture debt and interest and proposing a meeting to attempt to reach a resolution. Mr Bryant responded by email to Mr Elks the same day and confirmed that when Moreton Resources received funds from “the ATO matter”, monies owed to Mr Elks would be paid in the first instance. [92] Mr Elks and Mr Bryant continued to exchange emails in the period from 15 January 2023 to 23 January 2023. In the course of those email exchanges, Mr Elks sought Moreton Resources’ agreement that the debt owed to him would be the first substantial payment made by the company upon receipt of the funds referred to by Mr Bryant. Mr Bryant confirmed that he had received the agreement of First Samuel and Mr Feitelson that whatever funds were received, the first loan to be paid out in full would be the loan from Mr Elks. 49 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116-117 [46]-[52]; Cuzeno RVM Pty Ltd v Overton Investments Pty Ltd (2002) 10 BPR 19,425 [55] (upheld on appeal on this point: Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 [41]-[45]. 50 Emphasis in original. -- 22 of 36 -- 23 [93] Despite that indication, agreement was not reached on the terms of repayment to Mr Elks. In those circumstances, Mr Elks sent an email to Mr Bryant on 6 February 2020 informing him that if agreement could not be reached he would proceed to issue a statutory demand to Moreton Resources to recover the monies he was owed. [94] On the morning of 10 February 2020, Mr Elks took part in a teleconference with representatives of Moreton Resources, representatives of First Samuel and Mr Feitelson. [95] Immediately prior to that teleconference, Mr Elks sent an email to Brett Garland, then chairman of Moreton Resources, and others including Mr Feitelson in which he set out the points upon which he sought the other parties’ agreement as follows: “A) Debenture continues in current form, with a simple addendum letter signed by all parties B) Amount of $550,000 payable from any incoming funds within 7 days but prior to 10 April 2020 C) Interest continues to be payable on 20th of Each month (10%pa) D) As at 20 March 2020, principle [sic] payments of the $223,079.88, are made by way of $18,589.99 over a total of 12 payments, with equal monthly payments. E) Any additional funds, in addition to the first incoming funds from DES or AAT, the first 10% of the remaining matters be it DES, AAT, Asset divestment or other funding source will go to [Mr Elks] to bring down remaining debt. F) [First Samuel] is agreed to join as an equal secured creditor, provided there is agreement that [Mr Elks] and [Mr Feitelson] are first and full beneficiaries of any funds from administration, receivership or liquidation assets. …” [96] The outcome of that teleconference was recorded in an email sent later in the afternoon on 10 February 2020 by Wayne Penning, a director of Moreton Resources to Mr Elks, Mr Feitelson, Mr Garland and others. That email stated:51 “… I understand the landed position regarding the Variation to the Elks Loan is as follows: A. Debenture held by Elks continues in current form, with a simple Deed of Variation (prepared by [First Samuel’s] lawyers) signed by all parties to reflect the following; B. Repayment of $750,000 (together with accrued interest) is to be paid (as a priority) from Proceeds: i. received by MRV Metals from the Queensland Government in resect [sic] of it [sic] claim against the Department of Environment & Science – DES – Financial Assurance matter in respect of its refund of bond litigation claim (DES Claim); or 51 Emphasis in original. -- 23 of 36 -- 24 ii. received by MRV from the Australian Government in respect of it [sic] claims against INNOVATION AND SCIENCE AUSTRALIA in respect of its research and development refund claims (R&D Claim); or iii. from the sale of any asset of MRV; iv. of any capital raising undertaken by MRV (other than for ongoing work capital purposes and other than equity funding provided by First Samuel or Tony Feitelson (or their nominees); v. of debt financing undertaken by MRV (other than that provided by First Samuel or Tony Feitelson (or their nominees). C. If the DES Claim and the R&D Claim are ultimately unsuccessful, then the balance of the Elks Debt (together with accrued interest) will be due and payable; D. Elks Debt is repayable on the above revised terms including a waiver in respect of any previous letters of demand or claim of breach by MRV; E. MRV agrees that it will not discharge the debt (in whole or in part) owed to First Samuel Lender or Tony Feitelson Lender unless and until the Elks debt has been fully discharged (save in the event of an administration, receivership or winding-up liquidation of assets) F. [First Samuel] is to join as an equal secured creditor, on the basis that Elks and Tony Feitelson are first ranking and full beneficiaries, with priority in respect of the distribution of proceeds to secured creditors from funds from administration, receivership or winding-up liquidation of assets).” [97] On 11 February 2020, Mr Elks responded to Mr Penning’s email proposing some minor amendments to the matters recorded by Mr Penning. Mr Elks also referred to a smaller outstanding debt of $23,079.88 and stated: “The $23,079.88 … was an addition loan to the Company which in the main has been paid, however I had called in that debt in Sept 2019. If Phil [Bryant] can please correspond as to how and when that will be paid out, to close out all issues except for the specific debenture then that will tidy everything up to everyone’s satisfaction.” [98] Mr Elks then delivered a statutory demand and supporting affidavit to Moreton Resources on 17 February 2020. That demand claimed $783,833.61, comprising: (a) $750,000 under the Secured Debenture Deed; (b) $23,079.88 being the additional loan dated 11 April 2019; (c) $6,442.33 being interest for February 2020; (d) $4,311.40 being legal costs payable under the Secured Debenture Deed. -- 24 of 36 -- 25 [99] On 18 February 2020, solicitors acting for First Samuel prepared a draft deed of forbearance by which it was proposed that Mr Elks would forbear from enforcing rights he may have in relation to enforcement of the debt owed to him until such time as the DES Claim and the R&D Claim were decided against Moreton Resources and the company would receive no funds from those claims. [100] Mr Elks provided comments on that draft deed of forbearance by email to Mr Bryant, Mr Garland, Mr Feitelson and others on 24 February 2020. Ultimately, Mr Elks did not agree to sign the deed of forbearance. Instead, later on 24 February 2020, he provided a draft of what became the February 2020 Agreement. In the email providing that draft document, Mr Elks stated: “This is what I would suggest covers all the issues – • Tony [Feitelson] has agreement that binds all parties as to how the debenture will transact • I have stated the basis of the Stat demand being held over for the next 2.5 months.” [101] On 26 February 2020, Mr Elks sent an email to Mr Bryant stating: “Please let everyone know the basis of this document was to have agreement Tony [Feitelson] would get the additional money first he puts in now. That was the purpose of it being written up and that was the basis for Tony agreeing to put the money in.” [102] Mr Elks then sent a further email to Mr Bryant later on 26 February 2020, in which he stated: “The fact I am withdrawing the stat demand allows the company to continue, that alone would indicate the intention to allow this to play out or I simply would not remove the stat demand. I cant [sic] negate the rights under the debenture as it has obligations on [First Samuel] and [Moreton Resources] and I don’t want to interfere with those.” … “I think this is the best you are going to get on this agenda, which again is an effort to give Tony [Feitelson] some priority over putting additional money in.” [103] On 27 February 2020, Mr Feitelson proposed some further wording to the draft agreement which would see him receiving first priority for the additional amount of $205,000 he was proposing to provide to Moreton Resources regardless of the outcome of the DES claim or the R&D claim. Mr Elks changed the wording, but not the substance, of Mr Feitelson’s proposed alteration and provided the version of the proposed agreement which was ultimately executed by Moreton Resources, MRV, First Samuel, Mr Elks, Mr Feitelson and A & J Consultancy. Terms of the February 2020 Agreement [104] The February 2020 Agreement provides as follows: -- 25 of 36 -- 26 “In accordance with the existing secured debenture deed, security deed and security trust deed the parties to those deeds, have agreed with the Company, Moreton Resources Limited (and subsidiaries) that upon the return of funds, to the Company by way of either DES claim or the R&D claim (each or both, a Funding Event) will return the funds against the debenture, in the following sequenced order: 1. Secured creditor Tony Feitelson, will receive up to the first $205,000 from such funds received to be paid down from the secured debenture, in return for an additional agreed funding position of $15,000 per week, commencing in the week 24 February 2020, and concluding in 13 weeks post equal weekly installments of $15,000.00, adding up to the $205,0000 or a lesser amount should this not be required, which will become the new amount payable as first priority; followed by, 2. Secured creditor Alexander Jason Elks, will receive the next available $750,000 plus associated outstanding interest and debts owing to cure his total debts; followed by, 3. And finally, subject to pre-existing legal priorities, the Company will seek to cure all final debts owed to all other parties to the debenture deed as first priority prior to other debts be it historic or future. And − In return, Alexander Jason Elks withdraws the statutory demand already lodged on 17 February 2020 − All parties also agree that for the period up to an [sic] including the 26th of April 2020, the parties will allow the agreed funding arrangements to continue with the intent of allowing the Company to gain the relevant decisions from the actions afoot. At that time, all parties will with best endeavours seek to continue the arrangement provided there is a genuine belief or basis that a favorable decision is imminent, and those discussion [sic] will commence no later than mid April 2020. If it is apparent at any time, that the Company is not going to gain a favorable outcome or other issues arise that threaten the rights of the Debenture holders, the right to enforce the debenture are [sic] still live and enforceable and the parties in the Debenture agreement agree to the above allocation (1), (2) and (3), with Tony Feitelson being the first allocated up to $205,000, in return for additional funding which is subject to this agreement. By way of definition: DES Claim means the claim by the Company or its Related Bodies Corporate against the Queensland Government Department of Environment and Science for refund of a bond, reference number EPA -- 26 of 36 -- 27 414-18 including any judgement, payment due as a result of the judgement or settlement of the matter. R&D Claim means the claim by the Company or its Related Bodies Corporate against the Australian Government in respect of claims against Innovation and Science Australia with claim reference number 2016/0604 including any judgement, payment due as a result of the judgement or settlement of the matter.” Construction of the February 2020 Agreement [105] I do not accept Mr Elks’ submission that, on its proper construction, the reference to his “total debts” in numbered paragraph 2 of the February 2020 Agreement includes debts assigned to him by First Samuel after the parties entered into the February 2020 Agreement. [106] The closing address for Mr Elks made it clear that he did not rely on the equitable doctrine of tacking, by which unsecured debt assigned to a secured creditor is elevated to the same priority as the pre-existing secured debt.52 As I understood the closing address, Mr Elks’ case is limited to an argument that the benefit of the security granted under the Secured Debenture Deed continued to apply to advances made under the 2019 Unsecured Note Deed which were ultimately assigned to Mr Elks.53 [107] I note that Mr Elks’ final written submissions stated that the priority afforded to Mr Elks under the February 2020 Agreement “is not limited to secured debentures”.54 Having regard to the clarification of the scope of Mr Elks’ case in the closing address, I do not understand this to be a submission that the February 2020 Agreement gave priority to unsecured debts assigned to Mr Elks. It was, as I understand it, a submission that the priority under the February 2020 Agreement extended to advances made under the 2019 Unsecured Note Deed because those amounts were subject to the security granted by MRV under the Secured Debenture Deed on the basis that those amounts were: (a) outstanding debts “in relation to” the Secured Debenture Deed for the purposes of the definition of “Outstanding Moneys” in that document; or (b) money that MRV was liable to pay “in connection with” the Secured Debenture Deed or the Security Trust Deed for the purposes of the definition of “Secured Money” in the Security Trust Deed. [108] As already explained in addressing the first issue, I have not accepted Mr Elks’ construction of those definitions and have concluded that advances made to Moreton Resources under the 2019 Unsecured Note Deed were not covered by the security which MRV granted under the Secured Debenture Deed. Having regard to the scope of Mr Elks’ case just referred to, that conclusion is also sufficient to defeat his argument as to the effect of the February 2020 Agreement on the priority of payments under the Security Trust Deed. 52 This was said in response to detailed written submissions by the respondents as to the principles governing the doctrine of tacking, and the application of those principles to the circumstances of this case. See the respondents’ outline of closing submissions, [168]-[253]. 53 Transcript 3-2:12-44. 54 Applicant’s final submissions, [14]. -- 27 of 36 -- 28 [109] Even if I had not reached that conclusion on the first issue, I am not persuaded that, on its proper construction, the February 2020 Agreement alters the priority of payments to the extent submitted by Mr Elks. [110] Having regard to the terms of the February 2020 Agreement, and the circumstances in which it was executed, I accept the respondents’ submission that the commercial purpose or object of that agreement was to ensure that Moreton Resources would be able to continue operating for a sufficient period to enable it to obtain the expected proceeds from the DES Claim and the R&D Claim. That object was to be secured by: (a) Mr Feitelson’s agreement to continue funding Moreton Resources; and (b) Mr Elks’ agreement to withdraw his statutory demand. [111] In that context, it seems to me that a reasonable businessperson would have understood the terms of the February 2020 Agreement to mean that the priority of payments would be altered to the extent necessary to secure that commercial purpose. In Mr Feitelson’s case, that would mean granting him first priority for repayment of the debt owed to him under the Secured Debenture Deed up to the amount of the further funding he proposed to provide to Moreton Resources. In Mr Elks’ case, that would mean providing him priority for the debts the subject of his statutory demand (see [98] above) plus any further interest or costs which accrued in respect of those debts prior to payment. [112] In circumstances where, when Mr Elks entered into the February 2020 Agreement, it was not within his contemplation that he would take an assignment of a debt Moreton Resources owed to another party,55 I am not persuaded that a reasonable businessperson would have understood the terms of the agreement to mean that Mr Elks would obtain priority of payment for debts subsequently assigned to him. That is consistent with the position that, in the ordinary case, an “all monies” clause will not be understood to secure any debt which may be assigned by a third person to the secured creditor.56 There is no clear indication in language used in the February 2020 Agreement of an intention to grant priority to Mr Elks’ assigned debts over the rights of other secured creditors.57 [113] Nor would a reasonable businessperson have understood the terms of the February 2020 Agreement to mean that Mr Feitelson and A & J Consulting had agreed to dilute the value of their own security by conferring priority upon Mr Elks for payment of debts subsequently assigned to him. I cannot see anything in the language of the agreement, the circumstances in which it was entered into or the commercial purpose it was intended to achieve which would justify such a construction. [114] As to the scope of the funds which fall within the operation of the February 2020 Agreement, I accept the respondents’ submission that those funds are limited to amounts recovered by Moreton Resources from the DES Claim or the R&D Claim. Mr Elks’ pleaded case seemed to accept this,58 however his final written submissions 55 Transcript 1-73:41 to 1-74:7. 56 Ayoub v Euphoric Pty Ltd (2004) 12 BPR 22,735 [41]; Re Clark’s Refrigerated Transport Pty Ltd (in liq) [1982] VR 989, 995-6. 57 Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641, 652. 58 Second Further Amended Points of Claim filed 9 August 2022 (Court document 48), paragraphs 9(a) and 15(a). -- 28 of 36 -- 29 contended that the February 2020 Agreement extended to the proceeds from the sale of any asset of MRV.59 [115] The language used in the chapeau to the February 2020 Agreement clearly states that the terms of the agreement would operate “upon the return of funds, to [Moreton Resources] by way of either [the] DES Claim or the R&D Claim.” In that event, Moreton Resources would be obliged to “return the funds against the debenture” in the revised sequence set out in the agreement. Having regard to the plain meaning of the words used, and the commercial purpose discussed above, the funds which Moreton Resources might be required to return against the debenture in accordance with the revised sequence set out in the agreement are funds recovered from a resolution of either the DES Claim or the R&D Claim. [116] As to the proceeds of the DES Claim, the material shows that prior to the settlement of the claim MRV had provided the sum of $3,965,719.80 as financial assurance in respect of environmental authority EPML04238116. The claim settled on the basis that the required amount of financial assurance would be reduced to $3,274,816 and the Land Court of Queensland made orders to that effect on 26 March 2021.60 Pursuant to those orders, MRV received a refund of $690,903.80 which was paid to the Receivers. I am satisfied that is the amount of funds recovered from the DES Claim. [117] As to the R&D Claim, on 31 May 2022 the solicitors for the liquidators of Moreton Resources wrote to the solicitors for the Receivers attaching an executed assignment deed dated 9 April 2021 between Moreton Resources, its liquidators and MRL Moreton. By that deed, Moreton Resources assigned the R&D Claim to MRL Moreton for the sum of $100,000. The solicitors for the liquidators stated that Moreton Resources did not retain the purchase price received under the assignment deed. Those funds were applied to the liquidators’ costs in satisfaction of their right to be indemnified out of the assets of Moreton Resources. In those circumstances, the assignment of the R&D Claim did not result in the return of any funds which would fall within the revised distribution sequence provided for in the February 2020 Agreement. Conclusion on the second issue [118] I find that, on the proper construction of the February 2020 Agreement, the sum of $690,903.80 received from the settlement of the DES Claim is to be distributed as follows: (a) first, payment of $205,000 to Mr Feitelson to redeem debentures issued to him under the Secured Debenture Deed having a face value equal to the amount of that payment; (b) secondly, payment of the balance of the settlement sum to Mr Elks to redeem debentures issued to him under the Secured Debenture Deed having a face value equal to the amount of that balance payment. 59 Applicant’s final submissions, [15]-[16]. 60 MRV Metals Pty Ltd v Chief Executive, Department of Environment and Science (No 2) [2021] QLC 14. -- 29 of 36 -- 30 The effectiveness of the assignment of the debt owed to First Samuel [119] Mr Elks accepted that if I were to decide the first issue against him then this third issue would not arise for determination.61 That concession was appropriate. I did not understand the respondents to argue that the assignments from First Samuel to MRL Moreton and then from MRL Moreton to Mr Elks were not effective to transfer to Mr Elks whatever rights First Samuel held in respect of the debt owed by Moreton Resources as at 5 July 2021. The question is whether the rights assigned by First Samuel included rights in respect of the security granted by MRV under the Secured Debenture Deed. I have decided that question against Mr Elks in determining the first issue. [120] For completeness, I do not accept the submission by Mr Elks that, even if (as I have found) First Samuel did not enjoy the benefit of debenture security in respect of advances made under the 2019 Unsecured Note Deed, the words “in any capacity” in the definition of “Secured Money” in cl 1.1 of the Security Trust Deed have the effect that Mr Elks enjoyed the benefit of the debenture security from the moment that the assignment was effected. 62 That submission overlooks the requirement that, in order to come within the definition of “Secured Money”, the debt the subject of the assignment must be one which Moreton Resources or MRV is liable to pay to Mr Elks “under or in connection with” the Secured Debenture Deed or the Security Trust Deed. I have already found that advances made under the 2019 Unsecured Note Deed are not an amount which Moreton Resources or MRV is liable to pay to First Samuel “in connection with” the Secured Debenture Deed or the Security Trust Deed (see [82] to [84] above). I can see no basis to conclude that this unsecured debt acquired a sufficient connection to the Secured Debenture Deed or the Security Trust Deed upon being assigned to Mr Elks. Mr Elks’ submissions did not point to any basis to reach such a conclusion. [121] Although the assignment of the debt owed by Moreton Resources under the 2019 Unsecured Note Deed from First Samuel to MRL Moreton, and then to Mr Elks, was effective, the debt which was assigned was not a debt owed by MRV as guarantor under the Secured Debenture Deed. That assignment did not have the effect of assigning the benefit of the debenture security. [122] On that basis, it is also unnecessary to consider Mr Elks’ alternative claim for rectification of the loan assignment deed dated 10 July 2021 between MRL Moreton and Mr Elks.63 Validity of the appointment of Melgear as Security Trustee [123] Mr Elks accepted64 that if he did not succeed on the first issue then he could not succeed on his application for declarations:65 61 Applicant’s final submissions, [25]. Transcript 3-4:36-39. 62 Applicant’s final submissions, [28]. It is not clear whether Mr Elks continued to advance that submission following the concession that if the first issue were decided against him the question of the effectiveness of the deeds of assignment to assign MRV’s indebtedness and the benefit of the debenture security did not arise for determination. 63 Further Amended Originating Application (Court document 47), paragraph 5; Applicant’s final submissions, [29]-[31]; Transcript 3-5:40 to 3-6:20. 64 Applicant’s final submissions, [33]. 65 Further Amended Originating Application (Court document 47), paragraph 6. -- 30 of 36 -- 31 (a) that he is the “Majority Beneficiary” under the Security Trust Deed; or (b) that the appointment of Melgear as Security Trustee, by Mr Feitelson acting as “Majority Beneficiary”, was invalid. [124] As I have decided the first issue against Mr Elks, I do not need to further consider this aspect of his application.66 Should Melgear be replaced as Security Trustee? [125] Mr Elks has sought the exercise of the court’s discretionary powers under ss 80(1) and 82(2)(a) of the Trusts Act 1973 (Qld) to: (a) replace Melgear as security trustee; and (b) making an order vesting the trust assets in a new trustee. [126] As Macrossan J observed in Re Whitehouse,67 there must be a proper justification for such relief, as the security trust is entitled to independence from unwarranted interference by the courts. The issue must turn upon a consideration whether the welfare of the beneficiaries is opposed to Melgear continuing in the position of security trustee.68 Melgear’s past conduct is a relevant factor, but the issue to be determined is whether the future welfare of the beneficiaries is opposed to Melgear continuing as security trustee.69 [127] The pleaded grounds for that relief may be grouped into the following broad categories: (a) Melgear’s conduct in approving payment by the Receivers of $1,660,029 to reimburse Mr Feitelson in his capacity as indemnity funder of the Receivers; (b) Melgear’s failure, in breach of s 283DA(b) of the Corporations Act 2001 (Cth), to act with reasonable diligence to ascertain whether Moreton Resources or MRV breached the terms of the Secured Debenture Deed or the Security Trust Deed; (c) Melgear’s failure to provide Mr Elks with notice of certain matters or to provide him with copies of documents required by cl 4.4(a) of the Security Trust Deed and consent orders made on 28 January 2022; (d) Melgear’s position of conflict, being a company under the sole control of one of the beneficiaries. 66 A minor qualification to Mr Elks’ concession set out in the Applicant’s final submissions at [34] makes no difference to this conclusion as, for reasons already addressed, I do not accept the that, even if (as I have found) First Samuel did not enjoy the benefit of debenture security in respect of advances made under the 2019 Unsecured Note Deed, the words “in any capacity” in the definition of “Secured Money” in cl 1.1 of the Security Trust Deed have the effect that Mr Elks enjoyed the benefit of the debenture security from the moment that the assignment was effected. In any event, senior counsel for Mr Elks accepted that argument could not be sustained in light of the operation of the Personal Properties Securities Act 2009 (Cth): see Transcript 3-23:39 to 3-24:21 responding to the Respondents’ outline of closing submissions at [246]-[252]. 67 [1982] Qd R 196, 200. 68 Miller v Cameron (1936) 54 CLR 572, 580-581. 69 JPD as Guardian v DMS as Trustee [2022] QSC 181, [29]. -- 31 of 36 -- 32 Reimbursement of funds to Mr Feitelson [128] Mr Elks’ submissions concerning the payment to reimburse Mr Feitelson must be considered in the context in which the Receivers were appointed and the proceeds of the mine sale were realised. [129] In the course of the liquidation of Moreton Resources and MRV, the liquidators proposed to sell the Texas mine to Jadar Silver Pty Ltd for $500,000. [130] Prior to the appointment of the Receivers, the liquidators commenced a proceeding under s 99 of the Property Law Act 1974 (Qld) to compel the sale of the mine to Jadar (Liquidators’ Proceeding). Initially that proceeding was brought against First Samuel (in its capacity as security trustee), Mr Feitelson and A & J Consultancy. Mr Feitelson contested the Liquidators’ Proceeding. [131] Shortly after having been served with that proceeding, acting as Majority Beneficiary under the Security Trust Deed, he exercised First Samuel’s power as security trustee to appoint the Receivers. The Receivers were joined to the Liquidators’ Proceeding and the liquidators challenged the validity of the appointment of the Receivers. [132] Mr Elks was aware of the Liquidators’ Proceeding but ultimately chose not to seek to be joined as a respondent. [133] On 25 September 2020, Mr Feitelson executed a deed of indemnity pursuant to which he advanced funds to the Receivers for their costs and expenses of the receivership of MRV. At the request of the Receivers, Mr Feitelson provided total funding of $1,660,029 under the deed of indemnity. [134] Ultimately, the Liquidators’ Proceeding was dismissed.70 [135] The Receivers undertook the task of selling the mine, entering into a sale contract with Thomson Resources on 3 March 2021 for a purchase price of $6.5 million. This purchase price was subsequently adjusted to reflect the refund to the Receivers of $690,903.80 in settlement of the DES claim and the inclusion of some further plant and equipment purchased by the Receivers after the sale contract was executed. The adjusted purchase price was $5,819,096.20. [136] After receipt of the proceeds of the sale of the mine, the Receivers wrote to Mr Elks on 4 February 2022 advising him of the Receivers’ intention to pay certain claims which ranked in priority to that of Melgear as security trustee. One of those priority claims was the Receivers’ lien for the costs and expenses of the receivership of MRV which included the funds advanced by Mr Feitelson under the deed of indemnity. Mr Elks objected to the intended payments. He asserted that he was the Majority Beneficiary under the Security Trust Deed and purported to direct the Receivers not to pay any moneys from the sale proceeds pending the outcome of this proceeding. The conclusions I have already reached on the first and third issues means that Mr Elks was not the Majority Beneficiary under the Security Trust Deed and the Receivers were not bound by his direction.71 70 Moreton Resources Ltd (in liq) & Ors v First Samuel Ltd & Ors [2020] QSC 339. 71 On 16 November 2021, Brown J made orders in this proceeding which recorded an undertaking by the Receivers not to distribute any moneys from the sale of the assets of MRV to the Security Trustee (Melgear) until the hearing of the proceeding. Although Mr Elks referred to that undertaking in the -- 32 of 36 -- 33 [137] On 18 February 2022, the Receivers wrote to Melgear seeking approval to reimburse Mr Feitelson in the amount of the funds he had provided under the deed of indemnity. Melgear provided its approval on 21 February 2022 and the funded amount was reimbursed to Mr Feitelson that day. [138] The respondents made detailed submissions about the nature of the lien which arises when a person bears the costs of realising secured assets.72 These submissions were made in response to Mr Elks’ pleading that Mr Feitelson was obliged under cl 8.7(a) of the Security Trust Deed to pay the $1,660,029 he received as reimbursement for costs paid under the indemnity deed to the security trustee to be disbursed to secured creditors.73 That clause is engaged in circumstances where a beneficiary receives an amount in respect of any Secured Money otherwise than by distribution by the security trustee. It does not apply to the funds reimbursed to Mr Feitelson. Mr Feitelson did not receive those monies as a beneficiary under the Security Trust Deed. He received them pursuant to the lien which arose by operation of law, standing in the shoes of the Receivers pursuant to his right of subrogation under the deed of indemnity.74 That lien had a higher priority than Melgear’s claim to be paid as secured creditor (on behalf of the beneficiaries). In those circumstances, there was no obligation on Mr Feitelson to pay the reimbursed funds to Melgear under that clause. [139] In any event, I did not understand that aspect of Mr Elks’ pleaded case to be pressed in closing submissions. Instead, the thrust of Mr Elks’ complaint was that Melgear approved the reimbursement payment without verifying the reasonableness of the reimbursed sum, having regard to the professional fees and outlays of the Receivers and the work actually performed by them.75 [140] The work done by the Receivers and the costs incurred by them was the subject of evidence given by Mr Kirk and Mr Feitelson. The evidence included reports which the Receivers provided to Mr Feitelson to inform him of the work undertaken and the costs incurred by the Receivers in undertaking that work. The 12 reports provided between October 2020 and August 2021 provide what I consider to be an appropriately detailed explanation of the work performed, the time taken to perform that work, the fees charged and other costs incurred in progressing the receivership. [141] Mr Feitelson, who was the controlling mind of Melgear, gave evidence that he read, and carefully considered, each of the reports upon receiving them in order to ascertain whether he considered the remuneration and expenses incurred by the Receivers were reasonable. He undertook that assessment based upon his knowledge of the mine and environmental management issues which he was aware of from his time as a director of Moreton Resources. His evidence was that, having regard to the reports from the Receivers and his knowledge of MRV’s assets, he formed the view that the Second Further Amended Points of Claim (Court document 48) at paragraphs 29 and 30A(b), I did not understand there to be any allegation that payment by the Receivers was made in breach of that undertaking. 72 Re Universal Distributors Co Ltd (in liq) (1933) 48 CLR 171, 174 and other authorities addressed in Respondent’s outline of closing submissions at [277]-[312]. 73 Second Further Amended Points of Claim (Court document 48) at paragraphs 32, 32A and 33. 74 Stewart v Atco Controls Pty Ltd (2014) 252 CLR 307, 327 [50]. 75 Second Further Amended Points of Claim (Court document 48) at paragraph 33A; Applicant’s final submissions at [40]; Transcript 3-25:2-12. -- 33 of 36 -- 34 remuneration and expenses were reasonable, appropriate and necessary in the circumstances of the receivership. [142] Neither Mr Kirk nor Mr Feitelson were cross-examined on their evidence. In those circumstances, the respondents submitted that Mr Elks should be taken to accept the evidence of both Mr Kirk and Mr Feitelson and should not be permitted to address the court in terms which asks the court not to accept their evidence.76 In his closing address Mr Morris KC did not suggest to the contrary, submitting that Mr Elks did not challenge the factual accuracy of anything the witnesses swore to, but submitted that on the facts established by that evidence, Melgear had not discharged its responsibility to verify the reasonableness of the Receivers’ fees and costs. [143] I cannot accept that submission, having regard to the evidence of Mr Kirk and Mr Feitelson discussed above. Further, I accept the respondents’ submission by analogy with a trustee’s right of indemnity against trust assets that the relevant test in a situation such as this is a negative one: that is, indemnification should be allowed for fees and expenses that have not been shown to have been improperly incurred, relevantly in this case as being unreasonable or unnecessary.77 If Mr Elks wished to have this court act otherwise than in accordance with Mr Feitelson’s evidence that he carefully considered the fees and costs of the Receivers and formed the view those charges were reasonable then it was incumbent on him to identify matters upon which the court could conclude the fees and costs were unreasonable or unnecessary and to put those matters to Mr Feitelson in cross-examination. [144] Ultimately, I am not satisfied that Melgear’s conduct in approving the reimbursement of funds to Mr Feitelson indicates that Mr Elks’ future welfare as a beneficiary of the security trust is opposed to Melgear continuing as security trustee. Section 283DA(b) of the Corporations Act [145] Section 283DA(b) provides that a trustee of a trust deed entered into under s 283AA of the Corporations Act must exercise reasonable diligence to ascertain whether the borrower or any guarantor has committed any breach of the terms of the debentures or the provisions of the trust deed. [146] In order for the Security Trust Deed to be a trust deed entered into under s 283AA, Moreton Resources’ offer of debentures must be one that needed disclosure to investors under Chapter 6D of the Corporations Act, or did not need disclosure under that chapter because of either of two specific provisions: ss 708(14) which excludes the need for disclosure for debenture rollovers or 708A which addresses sale offers that do not need disclosure: see s 283AA(1)(a). [147] I accept the respondents’ submission that the Security Trust Deed was not a trust deed entered into under s 283AA.78 It did not need disclosure under Chapter 6D, but its exclusion from the requirement for disclosure did not arise under either of the two specific exclusions identified in s 283AA(1)(a). The exclusion from disclosure arises because the offer was made to individual persons: 76 SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132, [136]-[140]. 77 Nolan v Collie (2003) 7 VR 287, 306-8 [51] and [53] citing Re Beddoe [1893] 1 Ch 547; Australian Securities and Investments Commission v Letten (No 17) (2011) 286 ALR 346, 351-2 [14]-[15]. 78 Respondent’s outline of closing submissions at [322]-[325]. -- 34 of 36 -- 35 (a) First Samuel, which held an Australian financial services licence and for that reason was covered by the definition of “professional investor” in s 9: disclosure was excluded by s 708(11); (b) each of Mr Elks and Mr Feitelson subscribed for debentures in an amount exceeding $500,000: disclosure was excluded by s 708(8); (c) A & J Consultancy, where the personal offer did not breach the 20 investors ceiling or the $2 million ceiling: disclosure was excluded by s 708(1) read with ss 708(2)(a), 708(3) and 708(5)(a). [148] Mr Elks did not address this aspect of the respondents’ submissions. In those circumstances, I am satisfied that s 283DA(b) did not apply to Melgear in its role as trustee under the Security Trust Deed. [149] Even if s 283DA(b) did apply, having regard to the submissions made by the respondents about the various allegations of failing to exercise reasonable diligence,79 I would not have been satisfied that Melgear breached its obligations or that the matters raised by Mr Elks indicate that his future welfare as a beneficiary of the security trust is opposed to Melgear continuing as security trustee. Failure to provide notices and documents [150] Mr Elks complained that the lien in favour of Mr Feitelson for funding the costs and expenses of the Receivers was granted without notice to him. It is difficult to understand the nature of this complaint in circumstances where the funds advanced by Mr Feitelson, which led to the sale of the mine at a significantly higher price than had been proposed by the liquidators, improved the position of all secured creditors including Mr Elks. In any event, as already observed, the Receivers provided notice of that lien to Mr Elks on 4 February 2022 before the funds were reimbursed to Mr Feitelson. [151] As to the question of delivery of copies of documents, Mr Elks’ evidence went no further than listing documents provided to his solicitors and stating that he had not received any other documents. Mr Feitelson gave evidence that he: (a) caused the solicitors for Melgear to send copies of documents falling within the scope of consent orders made on 28 January 2022 to Mr Elks’ solicitors on a periodic basis; (b) is not aware of any other documents sent or received by Melgear which fall within the categories set out in that consent order. That evidence was not challenged in cross-examination. [152] I am not satisfied that Melgear has failed to provide copies of documents as required under clause 4.4(a) of the Security Trust Deed or the consent order. [153] These complaints do not demonstrate that Mr Elks’ future welfare as a beneficiary of the security trust is opposed to Melgear continuing as security trustee. 79 Respondent’s outline of closing submissions at [327]-[341]. -- 35 of 36 -- 36 Position of conflict [154] I accept the submission that Mr Feitelson’s control of Melgear, and his interest as a beneficiary under the security trust, places Melgear in a position of potential conflict. [155] First Samuel was in a similar position, however, as Mr Morris KC submitted in his closing address, all beneficiaries were content for First Samuel to act as trustee in that position.80 Mr Elks is not content for Melgear to continue acting in such a position. [156] Nevertheless, I am not ultimately persuaded that the potential for conflict indicates that Mr Elks’ future welfare as a beneficiary of the security trust is opposed to Melgear continuing as security trustee. [157] The Security Trust Deed provides that, save for certain matters requiring instructions from all beneficiaries, the security trustee must act on instructions from the Majority Beneficiary: cl 3.3. I have found that Mr Feitelson is the Majority Beneficiary under the security trust. Even if Melgear is replaced with an independent trustee, that new trustee will be subject to direction by Mr Feitelson. [158] The fact that the security trust is a fixed trust, where the entitlements of the beneficiaries are fixed by the terms of the Secured Debenture Deed, the Security Trust Deed and the February 2020 Agreement, is also relevant. As security trustee, Melgear is bound by the terms of those agreements. [159] In any event, Melgear does not presently hold the security trust assets, being the proceeds of the sale of the mine. Those funds are held by the Receivers. The respondents have submitted that there is no reason why the Receivers could not be directed to calculate the entitlements of the creditors of MRV and to pay funds to those creditors in accordance with their entitlements under the relevant agreements. Mr Feitelson notified Mr Elks in August 2021 that he had instructed Melgear to ask the Receivers to undertake the task of calculating the entitlements given that task had some legal and accounting complexity. Mr Elks did not raise any objection to that course. [160] I accept that it is appropriate to make such a direction. That direction would largely, if not entirely, remove any basis for concern on Mr Elks’ part about Melgear acting in a position of conflict as Melgear would not control the distribution of the trust assets. Conclusion [161] The originating application will be dismissed. [162] I will hear from the parties as to the form of the direction to the Receivers referred to in these reasons and to any other orders the parties consider necessary to give effect to these reasons, as well as to costs. 80 Transcript 3-25:25-38. -- 36 of 36 --