AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd (No 3)
[2019] VSC 564
•22 August 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2017 01640
| AAD SERVICES PTY LTD (ACN 091 589 981) (In Liquidation) and DAVID RAJ VASUDEVAN and GIUSEPPE MICHELE RAMBALDI in their capacity as Joint and Several Liquidators of AAD SERVICES PTY LTD (ACN 091 589 981) (In Liquidation) | Plaintiffs |
| v | |
| ALD WHOLESALE PTY LTD (ACN 160 067 738) | First Defendant |
| BEJTULLA TAHIRI | Second Defendant |
| DANIEL PETER JURATOWITCH in his capacity as Trustee of the Bankrupt Estate of BETJULLA TAHIRI | Third Defendant |
| CARDBOARD COLLECTION SERVICE PTY LTD (ACN 612 071 968) | Fourth Defendant |
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JUDGE: | Lansdowne AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 August 2019 |
DATE OF JUDGMENT: | 22 August 2019 |
CASE MAY BE CITED AS: | AAD Services Pty Ltd (In liq) v ALD Wholesale Pty Ltd and Ors (No 3) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 564 |
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ASSIGNMENT – Document purporting to transfer interest of a party in judgment proceeds to a third party – Whether supported by consideration – Whether adverse inference can be drawn from failure to adduce evidence as to amount of consideration paid – Proper construction of the document – Whether document in substance conferred a security interest as opposing to effecting a transfer – Jones v Dunkel (1959) 101 CLR 298 considered – Personal Property Securities Act 2009 (Cth) s 12.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Excused | |
| For the First Defendant | No appearance | |
| For the Second and Fourth Defendants | Mr A. Silver | Madgwicks |
| For the Third Defendant | Mr B. Devanny | Dimos Lawyers |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Evidence............................................................................................................................................... 3
Issues and submissions..................................................................................................................... 5
Allegation of intent to defraud................................................................................................... 6
Whether Assignment supported by consideration.................................................................. 7
Submissions by Trustee...................................................................................................... 7
Submissions by Mr Tahiri Snr and CCS........................................................................... 8
Whether Assignment confers a security interest...................................................................... 8
Submissions by trustee....................................................................................................... 8
Submissions by Tahiri Snr and CCS................................................................................. 8
Discussion............................................................................................................................................ 9
Consideration................................................................................................................................ 9
PPSA.............................................................................................................................................. 11
Competing constructions of the Assignment................................................................ 12
My analysis......................................................................................................................... 13
Conclusion and orders.................................................................................................................... 16
HER HONOUR:
Introduction
These reasons arise from an interpleader in relation to competing claims for the balance of funds held in Court consequent on my determination of the principal competing applications for payment out, published as AAD Services Pty Ltd (in liq) v ALD Wholesale Pty Ltd and anor. (‘Principal Reasons’).[1] I set out the background to the principal competing claims in my Principal Reasons. I concluded in my Principal Reasons that the funds held in Court, in the sum of $59,000 (‘Funds’) were payable to Mr Bejtulla Tahiri (‘Mr Tahiri Snr’) who at that time was the Second Interested Party, now the second defendant. I held that the source of the Funds was a loan to him personally from the First Interested Party, now first defendant, ALD Wholesale Pty Ltd (‘ALD’), as opposed to a loan by ALD to the plaintiff company. On that basis I found against the claim by the plaintiff company through its liquidators. I also held that the loan to Mr Tahiri Snr was not impressed with a Quistclose trust, and as a consequence found against the claim by ALD.
[1][2018] VSC 585.
After the publication of the Principal Reasons but before orders were made for payment out, Mr Tahiri Snr became bankrupt. A sequestration order was made against him, and his wife, on 19 October 2018. As set out in reasons published 25 February 2019 as AAD Services Pty Ltd (in liq) v ALD Wholesale Pty Ltd and ors (No 2) (‘Costs Reasons’)[2] regrettably the Court was not informed of that circumstance until after a hearing had been held in relation to disputed costs issues. The trustee in bankruptcy for Mr Tahiri Snr was joined as the third defendant at a subsequent directions hearing on 20 February 2019. Orders were made to give effect to the Principal Reasons and Costs Reasons on 25 March 2019. On that day, Mr Tahiri Snr contended that he had assigned his interest in the proceeds of the judgment (to the extent of $40,000) to Cardboard Collection Service Pty Ltd (‘CCS’) by a deed of assignment dated 4 May 2018 (‘Assignment’). The orders made on 25 March 2019 allowed for the third defendant to challenge this contention, provided such challenge was not made pursuant to the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’). Mr Tahiri Snr conceded that for practical purposes the balance of the Funds should be paid out to his trustee in bankruptcy, the third defendant (‘Trustee’). As a consequence, the orders made 25 March 2019 provided for preservation in a new account to be created in the Office of Funds in Court of $40,000 of the Funds, and payment out of the balance to the Trustee.
[2][2019] VSC 99.
The Trustee subsequently confirmed that he did challenge the assertion that the interest of Mr Tahiri Snr in the proceeds of the judgment (to the extent of $40,000) had been assigned to CCS on grounds other than those available under the Bankruptcy Act. Orders were made by consent on 15 May 2019 for the preparation of the consequent interpleader as between the Trustee on the one hand, and Mr Tahiri Snr and CCS on the other. Those orders contained in Other Matters a recital of the issues in the interpleader as identified by the parties in the following terms:
1.The Court is informed that the remaining issue in the proceedings is an interpleader between the defendants about the remaining amount held in Common Fund No. 1 in the name of this proceeding (‘Interpleader’).
2. The issues in the Interpleader involve:
a.whether or not the assignment dated 4 May 2018 from the second defendant to the fourth defendant (a copy of which is Exhibit 1 of 25 March 2019) is supported by consideration in order to make it a valid assignment in equity; and
b.if yes, is the assignment an unperfected security interest that vests in the grantor (being the second defendant), pursuant to section 267 or 267A of the Personal Property Securities Act 2009.
For the reasons that I now give, I conclude that the Assignment is supported by consideration and is not in substance a conferral of a security interest which on the bankruptcy of Mr Tahiri Snr would vest in his Trustee. It follows that CCS is entitled to the whole of the remaining $40,000 and any accrued interest, less a sum for taxation liability.
Evidence
The starting point is the Assignment itself. The parties disagree as to its proper construction. The relevant terms are those in clauses 1-4 inclusive. They provide as follows:
I Benny full name Betjula Tahiri of (address) hereby:
1.Grant, convey, transfer and assign to Cardboard Collections Services Pty Ltd ACN 612 071 968 (CCS) my title and interest to any proceeds from any settlement, judgment or verdict arising from the Supreme Court matter titled “In the matter of AAD Services Pty Ltd (ACN 091 589 981) SCI 2017/ 1640 (Dispute) on the following conditions.
2.The assignment above is on the basis that CCS pay my legal fees capped at $40,000 associated with:
a.Firstly the Dispute and thereafter; and
b.Any other legal maters [sic] that I have with Madgwicks lawyers (except for the Anthony Chimonis matter).
3. If:
a.judgment is not made in my favor [sic] I acknowledge that I will personally be liable to CCS for the moneys paid by it;
b.Judgment is made in my favor [sic] but for less than $40,000 then I acknowledge that I will be personally liable for the shortfall between the amount awarded to me and what CCS has given me.
c.Judgment is made for an amount greater than $40,000 then I will be entitled to keep all surplus amounts once CCS has been paid.
d. At the time of judgment I have spent less than $40,000 and
i.Judgment is awarded for an amount of $40,000or [sic] more then CCS will be still be [sic] entitled to take from the judgment the amount of $40,000 and the surpass [sic] will then be given to me; or
ii.Judgment is awarded for an amount less than $40,000 but more than what I have spent then CCS will be allowed to keep the difference between what has been spent and the judgment amount.
4. I acknowledge that:
a.Nothing in this Agreement makes CCS liable to the other side for any judgment against me;
b.Nothing in this Agreement is designed to give CCS an interest in the subject matter of the Dispute or make them a party to the Dispute.
c.I will have full control over the dispute and that CCS does not have the right to instruct my lawyers in any circumstances whatsoever in relation to the Dispute.
d.I have the full right to settle the Dispute by way of agreement but my obligations to repay CCS shall be as stated in clause 3.
The sole company officer of CCS is Mr Adem Tahiri (‘Mr Tahiri Jnr’), who is the son of Mr Tahiri Snr. Mr Tahiri Jnr became the director and secretary of CCS on 17 April 2018. According to the company search in evidence, Mr Tahiri Snr was formerly the sole shareholder but transferred the shareholding to Dilara Zekiri on 8 September 2016.[3] In his affidavit Mr Tahiri Jnr deposes that ‘the shares are held in my sister’s name’ although ‘the Company is owned by my sister’s father in law’.[4] There is no further evidence to illuminate what this might mean, and Mr Tahiri Jnr was not cross-examined. There is no evidence as to what assets, if any, CCS has or had as at the date of the Assignment from which consideration might have been sourced.
[3]Exhibit AT-1 to affidavit of Adem Tahiri, affirmed 6 June 2019.
[4]Affidavit of Adem Tahiri, affirmed 6 June 2019, [3].
Mr Tahiri Jnr further deposes that ‘In or around April/May 2018, my father came to me and asked if CCS could lend him money in order for him to pay for legal fees and an ongoing matter in Court’.[5] He deposes that he was advised by others not to loan his father the money, but ‘instead buy the cause of action from him as a litigation funder’.[6] He then goes on to recount that he looked for documents on the internet under certain headings and compiled the Assignment from various terms he cut and paste from the internet, from websites that he does not identify.[7]
[5]Ibid [4].
[6]Ibid [5].
[7]Ibid [6]-[8].
Objection is taken by the Trustee to Mr Tahiri Jnr’s evidence as to what he was told on the grounds of hearsay and as to what he then did on the grounds of inadmissible lay opinion. I agree that these portions of the affidavit are not admissible, although in the following respect for different reasons. If the intent of the evidence as to what Mr Tahiri Jnr was advised is to show that the Assignment was intended to be the purchase of the cause of action, it is inadmissible primarily because the Assignment is to be construed objectively, not having regard to the parties’ subjective intentions. I agree with the submission by the Trustee that the evidence as to what Mr Tahiri Jnr then did is inadmissible as lay opinion if intended to support the construction of the Assignment.
The Trustee does not take any objection to the evidence of Mr Tahiri Jnr that his father asked him for a loan, presumably because it supports the construction of the Assignment that the Trustee advances. I do not consider it necessary, however, to have regard to external evidence to clarify the meaning of the document and so in accordance with usual principles will construe the Assignment on its terms alone.[8]
[8]A helpful summary of the principles of construction is contained in the joint judgment in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, [46]-[53] (French CJ, Nettle and Gordon JJ).
The final paragraph of the affidavit of Mr Tahiri Jnr states: ‘I am currently working out how much money CCS has given my father and I will provide a further Affidavit on this issue once the information has been collated’.[9] Mr Tahiri Jnr did not file any further affidavit, and there is no other evidence from any party on the interpleader.
[9]Affidavit of Adem Tahiri, affirmed 6 June 2019, [10].
Issues and submissions
A preliminary issue at the hearing was whether the Trustee should be permitted to contend that the assignment was ineffective by virtue of s 172 of the Property Law Act 1958 (Vic) (‘PLA’). That section provides as follows:
172 Voluntary conveyances to defraud creditors
(1)Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.
(2)This section shall not affect the operation of a disentailing assurance, or the law of bankruptcy or insolvency for the time being in force.
(3)This section shall not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors.
Mr Tahiri Snr and CCS contended that the Trustee should not be permitted to pursue this contention for the following reasons. First, the issue was not flagged in the orders of 15 May 2019. Next, it was first raised in the submissions of the Trustee, and so after the close of evidence. Mr Tahiri Snr and CCS contended that early notice was essential because the allegation is a serious one, being an allegation of fraud, and the Trustee objected in his submissions to further evidence. I gave oral reasons for accepting those submissions. What follows under the next heading are those reasons, transcribed and revised. I have retained the present tense and form of reference to the defendants utilised in my oral reasons. I then set out a summary of the parties’ submissions on the remaining issues.
Following my ruling on the allegation of intent to defraud, the Trustee no longer sought to cross examine Mr Tahiri Jnr, who was then excused.
Allegation of intent to defraud
On the application of the second and fourth defendants, I accept the submission that the scope of the issues in the particular circumstances of this case should not be enlarged to include an allegation of intent to defraud. I do so for these reasons.
This is not a pleading case and so, as Mr Silver correctly puts, there needs to be a degree of realistic flexibility as to what the issues are. However, the parties have sought to address that themselves by submitting consent minutes on 15 May 2019 which identify the issues. That being the case, it seems to me it was incumbent on the third defendant if it wished to enlarge those issues or change them, to give early notification of that to the second and fourth defendants.
The third defendant submits that the issue only arose on consideration of the affidavit of Adem Tahiri. I make no comment as to whether or not that affidavit was a sufficient basis for now raising the issue. I do observe, however, that some of the factors relied upon by the third defendant in his submissions on intent to defraud, being the timing of the Assignment and the absence of any other proceeding in which costs were being incurred as at the date of the Assignment, could have been the subject of evidence put on by the third defendant in response to the evidence relied upon by the second and fourth defendants. That would then have allowed the second and fourth defendants to adduce evidence in reply if required. In other words, evidence from the third defendant of these matters would have had the effect of both earlier notification that the issue was to be raised, and an opportunity to the second and fourth defendants to adduce that evidence within the existing timetable.
As it was, the only notification was in the third defendant’s submissions. It would not have been impossible for the second and fourth defendants to identify from those submissions that there was an additional issue and to seek to adduce some evidence in relation to it. They did not do so, but I think on balance the obligation was on the third defendant rather than on the second and fourth defendants to ensure this matter was dealt with in a proper way.
There was a final opportunity to alert the second and fourth defendants that this issue was sought to be raised when notification was given that Mr Tahiri was to be cross‑examined. Matters going to s 172 could have been identified as topics for cross examination. However, I accept that topics for cross examination would not ordinarily be identified, and in any event the horse had bolted by that stage. As I have described in these reasons, the opportunity for raising this issue in a proper way had already occurred.
For those reasons, I will not allow that issue to be advanced by the third defendant, the Trustee.
Whether Assignment supported by consideration
Submissions by Trustee
The Trustee submits that the Assignment is only valid if supported by consideration; that the onus is on Mr Tahiri Snr and CCS to prove that consideration; and that they have failed to do so in the absence of evidence as to what, if any, CCS paid for Mr Tahiri Snr’s legal costs.
Submissions by Mr Tahiri Snr and CCS
Mr Tahiri Snr and CCS do not disagree that consideration is required for the Assignment to be effective, but submit that the Assignment records consideration on its face, and this is sufficient. They distinguish the establishment of consideration (which they say is shown on the face of the document) from proof of a total failure of consideration. If the latter is what the Trustee seeks to assert, then, so they submit, the onus is on the Trustee to establish it, and that has not been done.
Whether Assignment confers a security interest
Submissions by Trustee
The Trustee asserts that on its proper construction, the Assignment creates a security interest in the judgment proceeds, to secure the obligation of Mr Tahiri Snr to repay monies paid by CCS for his legal costs. On this construction, the Assignment falls within s 12 of the Personal Property Securities Act 2009 (Cth) (‘PPSA’). The security interest thus created was not perfected by registration or otherwise by the time of the sequestration order against Mr Tahiri Snr, and accordingly, pursuant to s 267 of the PPSA, the interest it conferred on CCS in the judgment proceeds vested in Mr Tahiri Snr immediately prior to his bankruptcy, and so now in the Trustee. Alternatively, if the interest in the judgment proceeds attached to the Funds after the bankruptcy, but the security interest was nevertheless unperfected at that time, the interest in the Funds nevertheless vested in Mr Tahiri Snr, and so now the Trustee, pursuant to s 267A of the PPSA.
Submissions by Tahiri Snr and CCS
Mr Tahiri Snr and CCS submit that on its proper construction the Assignment did not create a security interest within the meaning of s 12 of the PPSA, and so the balance of that Act does not apply. They do not dispute the Trustee’s analysis of the effect of s 267 or in the alternative s 267A if on its true construction the Assignment did create a security interest within the meaning of s 12.
Discussion
Consideration
I accept the submission of Mr Tahiri Snr and CCS that the Assignment on its face records that it is supported by consideration, being the payment by CCS to a maximum of $40,000 of certain legal fees of Mr Tahiri Snr. The legal fees in question are not limited to those incurred in this proceeding. For that reason I do not accept the submission by the Trustee that no consideration is shown because as at the date of the Assignment no further fees were likely to be incurred in this proceeding, given that the substantive hearing had concluded. In any event, some further fees may have been expected on delivery of the judgment and the making of orders.
The Assignment does not fix the exact amount to be paid, other than by a maximum, and indeed contemplates that an amount less than $40,000 may be required of CCS (sub-paragraph 3(d)(ii)). It contemplates that the value of what CCS acquires from the proceeds of judgment may be nil (sub-paragraph 3(a)), or less than $40,000 (sub-paragraphs 3(b) and (d)(ii)), and potentially less than what it has paid for the legal fees of Mr Tahiri Snr (sub-paragraph 3(d)(ii)).
There is no evidence as to how much CCS in fact paid, if anything, and it would presumably have been within the power of Mr Tahiri Snr or CCS to adduce that evidence. It may also have been within the power of the Trustee to obtain relevant evidence on that point, by compulsory process or by cross examination of Mr Tahiri Jnr. None of the parties did adduce any such evidence.
In the course of argument I questioned whether I could infer from the phrasing of paragraph 10 of the Mr Tahiri Jnr’s affidavit that something was paid. On reflection, I accept the submission of the Trustee that no such inference should be drawn.
The Trustee submits that the Court should draw a Jones v Dunkel[10] inference, in the absence of evidence adduced by Mr Tahiri Snr or CCS as to the amount paid, that none was paid. In relation to that proposition, I accept that consideration for the purported assignment of Mr Tahiri Snr’s interest in the proceeds of judgment was squarely in issue, according to the identification of the issues by the parties themselves. I also consider that it might reasonably have been expected that the parties supporting the Assignment, Mr Tahiri Snr and CCS, would adduce evidence as to the amount in fact paid if whether any consideration in fact flowed was in issue. Indeed, Mr Tahiri Jnr flagged that he proposed to give evidence as to the amount paid. He has given no explanation as to why he has not done so, but nor was he required in cross examination to answer that question.
[10](1959) 101 CLR 298.
The inference, if available and at its highest, would be that the evidence not given i.e. evidence as to the amount paid would not assist the case of Mr Tahiri Snr and CCS. This is different to an inference that that evidence would have been unfavourable to their case, and in any event the inference cannot fill an evidentiary gap in the Trustee’s case.[11] In other words, it is important to identify with precision what position is being advanced by the competing parties, what evidence is adduced in support of those positions, and who bears the onus on those positions.
[11]Jones v Dunkel (1959) 101 CLR 298 per Kitto J 308 and Menzies J 312.
I accept the distinction drawn by counsel for Mr Tahiri Snr and CCS between whether the Assignment is supported by consideration (which was identified by the parties as in issue), and a potential further issue as to whether that consideration totally failed. I do not consider that the issue of total failure of consideration was squarely raised by the parties in their proposed consent orders which were subsequently adopted in the Court’s orders of 15 May 2019, or arises from any subsequently adduced evidence, let alone competing evidence on the point. There is simply no evidence on the point one way or another.
Mr Tahiri Snr and CCS bear the onus of showing consideration, and rely on the face of the Assignment to do so. In the absence of evidence to the contrary, the case of Mr Tahiri Snr and CCS, that the Assignment was supported by consideration, is sufficiently established by the terms of the document itself. If the Trustee wished to contend that that consideration totally failed, or was illusory, then the onus was on the Trustee to establish that. The Trustee has adduced no evidence to support that proposition and has not sought to cross examine Mr Tahiri Jnr to that end, or at all. There is no evidence to show that the consideration recorded as required in the Assignment did not in fact pass.
I conclude that the Assignment is not void or ineffective by reason of lack of consideration.
PPSA
The PPSA provides a regime for determining priority disputes arising from security interests in personal property. It applies to the Assignment if the interest created by the Assignment is a ‘security interest’ as defined. Section 12 of the PPSA relevantly defines a ‘security interest’ as follows:
12 Meaning of security interest
(1)A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).
(2)For example, a security interest includes an interest in personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation
...
(j) an assignment;
It can be seen that the key concept is that a ‘security interest’ is a secondary interest, in the sense that it secures payment or performance of a primary obligation. If in substance the transaction in question confers such an interest, then the precise form of the transaction or how it is styled is irrelevant. Thus as s 12(2)(j) identifies, a transaction styled as an ‘assignment’, i.e. a transfer of an interest, may in substance in fact create a security interest in the personal property concerned, rather than transferring it.
The parties disagree as to the substance of the Assignment. I elaborate their competing constructions as follows.
Competing constructions of the Assignment
The Trustee’s submission is that the purported assignment to CCS of Mr Tahiri Snr’s interest in the proceeds of judgment pursuant to paragraph 1 of the Assignment was in substance not a transfer at all, but the creation of a security interest in those proceeds. It is essential to this submission that that interest was to secure a primary obligation, which the Trustee identifies as being an obligation to repay legal fees paid by CCS on behalf of Mr Tahiri Snr. The Trustee relies on sub-paragraphs 3(a) and (b) as evidencing this obligation to repay.
In further support of his submission, the Trustee points to the inconsistency between the purported assignment in paragraph 1 of the Assignment, and the retention by Mr Tahiri Snr of his interest in the Funds (‘the subject matter of the Dispute’) in sub paragraph 4(b), and his retention of control of the proceeding in sub-paragraphs 4(c) and (d). The Trustee also points to the terms of sub-paragraph 3(c), which he submits essentially provides for an equity of redemption.
Mr Tahiri Snr and CCS dispute this characterisation of the Assignment. They submit that the Assignment was in substance the purchase by CCS of Mr Tahiri Snr’s interest in the proceeds of judgment (to take effect in different ways depending on the outcome of the proceeding) in return for payment by CCS of legal fees for Mr Tahiri Snr to a maximum of $40,000. On this characterisation, paragraph 3 of the Assignment provides for the adjustment of what has been purchased depending on the outcome of the proceeding, as opposed to being an acknowledgement of a primary obligation to repay a loan. Mr Tahiri Snr and CCS rely on analogy to adjustment of the purchase price of a business consequent on a stock inventory following sale.
On this analysis, sub-paragraph 3(a) of the Assignment provides for the circumstance of Mr Tahiri Snr being totally unsuccessful in the proceeding, in which case the subject matter of the purchase would have totally failed. Mr Tahiri Snr and CCS contend that the effect of the sub-paragraph is that Mr Tahiri Snr has a personal obligation in this circumstance to repay moneys advanced by CCS for his legal fees, as opposed to being an acknowledgement of a loan, the repayment of which is secured by the Assignment as a whole. Sub-paragraph 3(b) can be viewed in the same light on this analysis.
In further support of this analysis of sub-paragraph 3(a), Mr Tahiri Snr and CCS contend that Mr Tahiri Snr could not grant a security interest in an asset that he may not own. This submission is inconsistent with their submission that the judgment was in a sense declaratory – it declared that Mr Tahiri Snr was, and always had been, the beneficial owner of the Funds.
On the construction advanced by Mr Tahiri Snr and CCS, sub-paragraphs 3(c) and 3(d)(i) provide a cap of $40,000 on what is being purchased. Sub-paragraph 3(d) applies where the amount paid by CCS is less than $40,000 and sets out what CCS may retain depending on the amount awarded to Mr Tahiri Snr, which in the circumstances identified in paragraphs 3(d) would be a windfall.
To the extent that sub-paragraph 4(b) is inconsistent with this analysis based on paragraphs 1, 2 and 3, Mr Tahiri Snr and CCS submit those earlier paragraphs should be preferred.
My analysis
The Assignment is not an entirely internally consistent document. However, on balance I consider that the preferable construction is that which gives effect to the words of paragraph 1 i.e. an assignment in substance, as well as in style. This is the construction that gives it efficacy, and is most consistent with the organisation of the document itself, on the basis that it is the opening paragraph that sets out its primary intention.
On this construction, the Assignment provides for the purchase by CCS of the interest (to a cap of $40,000) of Mr Tahiri Snr in the proceeds of judgment, i.e. the Funds, interest and costs, with provision for various possible outcomes, some of which may require supplementation by payment by Mr Tahiri Snr to CCS in addition to what is received from the judgment. It follows that I do not accept the submission of the Trustee that in substance the Assignment confers a security interest in Mr Tahiri Snr’s interest in the proceeds of judgment, which would vest in the Trustee following his bankruptcy.
The competing construction advanced by the Trustee requires that the security interest granted by the Assignment secures the performance or payment of an obligation. The relevant obligation is said by the Trustee to be an obligation to repay a loan for payment of legal fees. The Assignment does not, however, acknowledge or recite any such obligation in clear terms. Nor does it include the usual aspects of a loan secured by the granting of an interest in property, such as terms as to time of repayment of the loan, terms as to the payment of interest, or provision for enforcement of the security on default in repayment.
There is, as the Trustee identifies, express reference to an obligation to repay in sub-paragraphs 3(a) and (b), and an implied obligation to repay in sub-paragraph 3(c). However, I consider that these references are explicable on the basis advanced by Mr Tahiri Snr and CCS, i.e. as reciting what is to occur on various outcome scenarios. This construction is supported by sub-paragraph 3(d), which stipulates what is to occur on two specific outcome scenarios where Mr Tahiri Snr is successful, i.e. CCS has paid less than $40,000 for his legal fees; and the judgment in his favour is $40,000 or more, or less than $40,000. In the absence of a clear expression of a loan and obligation to repay secured by the Assignment, I do not consider the references to repayment in sub-paragraphs 3(a) and (b) to be sufficient to support the construction of loan and security advanced by the Trustee.
I then turn to the question of inconsistency between a construction of the Assignment as a purchase of Mr Tahiri Snr’s interest in the proceeds of judgment, which is the plain thrust of paragraph 1, and the contents of paragraph 4. I accept the submission by Mr Tahiri Snr and CCS that there is no necessary inconsistency between transfer of Mr Tahiri Snr’s interest in the proceeds of judgment and his retention of control over the proceeding, and liability as a party in the proceeding, as provided for by sub-paragraphs 4(c), (d) and (a) respectively. If control over the proceeding is to be retained, then retention of liability as a party would seem to be the necessary converse. Retention of control of the proceeding might be thought to make the interest assigned less certain and possibly less valuable, but that is a matter going to the merit of the transaction, not its nature. Subparagraph 3(d) provides for a windfall gain to CCS in certain circumstances which might be thought to offset this in any event.
The only aspect of paragraph 4 which raises real doubt is the first limb of sub-paragraph (b). The denial of the conferral of an interest in ‘the subject matter of the Dispute’ appears to be directly inconsistent with the transfer of the ‘proceeds of any settlement, judgment or verdict’ purportedly made by paragraph 1. Counsel for Mr Tahiri Snr and CCS submits that the objective intention of paragraph 4 read as a whole is to provide that CCS is not brought into the litigation. I accept this submission. In addition to being in accordance with sub-paragraphs 4(a), (c) and (d), that construction accords with the second limb of sub-paragraph 4(b) (‘or make them a party to the Dispute’). I consider that the first limb of sub-paragraph 4(b) should also be read in that light. This is the preferred construction that reads the Assignment as a whole, and gives it commercial efficacy.
As I conclude that the Assignment is in substance a transfer of the interest of Mr Tahiri Snr in the proceeds of judgment on certain conditions rather than the conferral of a security interest in those proceeds, it is not necessary to consider the Trustee’s submissions as to the effect of s 267 or s 267A of the PPSA.
Conclusion and orders
I will order payment out to CCS of the amount now held in the new account created in the Office of Funds in Court, subject to the retention of an amount for any taxation liability. I invite the parties to consider the question of costs of this application, in an endeavour to agree, particularly having regard to the diminishing return of further disputation given the small amount in issue. If necessary, I will hear them further.
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