Bowesco Pty Ltd v Westpoint Management Ltd [No 2] - [2014] WASC 207

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BOWESCO PTY LTD -v- WESTPOINT MANAGEMENT LTD [No 2] [2014] WASC 207

CORAM: CHANEY J

HEARD: 29 & 30 APRIL 2014

DELIVERED : 12 JUNE 2014

FILE NO/S: CIV 2092 of 2012

BETWEEN: BOWESCO PTY LTD
Plaintiff
AND
WESTPOINT MANAGEMENT LTD
Defendant

Catchwords:

Guarantor - Whether right to subrogation arises - Money advanced to principal debtor to complete development on secured property - Funds used to pay unsecured debtors

Legislation:

Nil

Result:

The plaintiff's claim is dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr A Metaxas
Defendant: Mr J C Vaughan SC

Solicitors:

Plaintiff: Metaxas & Hager
Defendant: Clayton Utz

Cases referred to in judgment:

Barnes v Addy (1874) LR 9 Ch App 244
Bell Group Ltd (In Liq) v Westpac Banking Corporation [No 9] [2008] WASC 239 (2008) 39 WAR 1
Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269
Dalma No 1 Pty Ltd (in liquidation) (ACN 111 772 260); Application of Bruce Gleeson and David Shannon in their Capacity as Joint and Several Liquidators of Dalma No 1 Pty Ltd (in liquidation) [2013] NSWSC 1335; (2013) 279 FLR 80
Equity Executors & Agency Co Ltd v New Zealand Loan & Mercantile Agency Co Ltd (1940) VLR 201
Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Ulster Bank Ltd v Lambe [1966] NI 161

CHANEY J: In 2005, Suncorp ‑ Metway Ltd (Suncorp), which carried on businesses as bank, agreed to lend a company, Lanepoint Enterprises Pty Ltd (Lanepoint) funds to purchase and develop land at 61 Great Eastern Highway and 2, 4 and 6 Armadale Road, Rivervale (Lanepoint Property). The loan was secured by a mortgage, a fixed and floating charge over the assets and undertaking of Lanepoint, and a guarantee by the plaintiff, Bowesco Pty Ltd (Bowesco). Shortly afterwards, in May 2005, the defendant, Westpoint Management Ltd (Westpoint Management), in its capacity of responsible authority for the Westpoint Income Fund, agreed to provide financial accommodation to Lanepoint to a maximum of $4 million for the development of the Lanepoint Property (Development). Westpoint Management's advances to Lanepoint were to be secured by a second ranking charge over Lanepoint's assets.
The development proceeded, and both Suncorp and Westpoint Management advanced funds in accordance with their respective loan agreements.
In October 2005, the Australian Securities and Investments Commission (ASIC) placed an interim stop order on the Westpoint Income Fund preventing it from raising funds. That order prevented Westpoint Management from providing further funds to Lanepoint. In January 2006, Bowesco agreed to advance funds to Lanepoint to enable it to complete the Development. $550,000 was advanced pursuant to that agreement. In February 2006, provisional liquidators were appointed to Westpoint Management, and in March 2006, Suncorp appointed receivers to Lanepoint.
Eventually, the Development was completed and Lanepoint's debt to Suncorp was paid out. Surplus funds from the sale of the units comprising the Development were paid by Lanepoint's…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] WASC 207
Decision Date: 12 JUNE 2014

CaseChat Overview and Summary

Bowesco Pty Ltd sought a declaration that it was entitled to subrogation against Westpoint Management Ltd. The parties had entered into a development agreement in relation to a property, whereby Bowesco advanced funds to Westpoint to complete the development of the property. The funds were secured by a mortgage over the property. However, some of the funds were used to pay off other, unsecured creditors. Westpoint subsequently defaulted on its obligations under the mortgage. Bowesco claimed that it was entitled to subrogation, which would allow it to step into the shoes of the secured creditor and claim directly against Westpoint. The court had to determine whether Bowesco's right to subrogation arose in these circumstances.

The court found that Bowesco was not entitled to subrogation. The court held that subrogation would only arise if the guarantor had paid off the principal debtor's debt and the debt was secured. In this case, Bowesco had advanced funds to Westpoint for the purpose of completing the development of the property, but some of the funds were used to pay off unsecured creditors. The court held that this meant that Bowesco had not paid off the principal debtor's debt, and therefore, its right to subrogation did not arise. The court also found that the funds used to pay off unsecured creditors were not part of the debt that was secured by the mortgage over the property. Therefore, Bowesco was not entitled to subrogation in relation to those funds.

The court dismissed Bowesco's claim for a declaration that it was entitled to subrogation. The court held that Bowesco was not entitled to subrogation because it had not paid off the principal debtor's debt and the debt was not secured. The court also held that Bowesco was not entitled to subrogation in relation to the funds used to pay off unsecured creditors because those funds were not part of the debt that was secured by the mortgage over the property.

No further orders were made by the court.

Orders