Commonwealth Bank of Australia v Australian Securities & Investments Commission
[2003] VSC 39
•6 March 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 8763 of 2002
| IN THE MATTER of sections 1341(3) and 601AH(2) of the Corporations Act 2001 | |
| and | |
| IN THE MATTER of TANDOVA PTY LTD | |
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff |
| v | |
| AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION | Defendant |
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JUDGE: | Hansen J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14 February 2003 | |
DATE OF JUDGMENT: | 6 March 2003 | |
CASE MAY BE CITED AS: | Commonwealth Bank of Australia v Australian Securities & Investments Commission | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 39 | |
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Corporations – Moneys from sale of land – Registered proprietors both deregistered – Mortgage – Half net proceeds paid to unclaimed moneys account – Claim by mortgagee – Refused by ASIC – Appeal – Corporations Act 2001 s 1341.
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APPEARANCES: | Counsel | Solicitor |
| For the Plaintiff | Mr J Tsalanidis | G S Ray |
| No appearance by the Defendant |
HIS HONOUR:
This is an appeal by the Commonwealth Bank of Australia ("CBA") against a decision of the Australian Securities and Investments Commission ("ASIC") to refuse a claim for an amount of $104,943.04 in an unclaimed money account. The claim was made under s 1341(2) of the Corporations Act 2001. That section provides that if a person claims to be entitled to money paid into an unclaimed money account under s 1339(2) and ASIC is satisfied that the person is entitled to the money, ASIC must pay the money to the person out of that account. Section 1341(3) provides that a person dissatisfied with ASIC's decision may appeal to the Court which may confirm, disallow or vary the decision of ASIC. The appeal is brought under that provision.
ASIC is the defendant, and the originating process and the affidavits in support were served upon it. Rather than attend the hearing, ASIC provided a letter to the CBA, dated 29 January 2003, intending that it be provided to the Court, which it was. The letter suggested that the fastest way to expedite the matter would be to reinstate the companies Demetian Pty Ltd ("Demetian") and Tandova Pty Ltd ("Tandova') and appoint a liquidator to each. It is ASIC policy, where a claim exceeds a certain amount (usually $5,000), to advise an applicant to reinstate the company. The letter stated that the CBA's application "has been previously rejected as due to a series of events, it had not been able to prove to ASIC's satisfaction that the money should be paid to it. However, if the Court is satisfied that the monies in question should be paid to the [CBA], then ASIC will abide by the decision of the Court." Having regard to the facts and circumstances of the case, it is not surprising that ASIC took this approach.
The affidavits and exhibits filed in support of the application include a range of evidence, some hearsay, and expressions of ASIC’s view from time to time. As ASIC did not attend the hearing, no deponent was cross-examined. I accept the evidence relied on by the CBA. There is nothing about the evidence which suggests that it should not be accepted. It is not improbable. It provides an account which is a probable explanation of what happened.
The CBA's involvement commenced when it agreed to provide financial accommodation to the H&J Group of companies in 1990. One of those companies was Demetian. The security for the financial accommodation included a mortgage over a property at 3 Heath Avenue, Oakleigh. Demetian offered that property as security in its application for finance.
On 19 June 1989 Demetian and Tandova were registered as proprietors, as tenants in common in equal shares, of the property at 3 Heath Avenue, Oakleigh, being the land described in certificate of title volume 4815 folio 912. On the same date a mortgage granted by Demetian and Tandova to AGC (Industrial) Ltd ("AGC") was registered on the title as a first mortgage. The CBA finance was to be used to pay out the AGC loan.
On 12 July 1990 the CBA settled the refinancing with AGC. In return for a cheque for $232,238.99, AGC provided the duplicate certificate of title to the property, the duplicate mortgage and a discharge of the mortgage.
On or about 8 August 1990 the bank officer who had attended the settlement sent the security documents to the Branch Lending Support division, with the exception of the above documents relating to the land received from AGC. His belief is that he retained those documents because the Branch was awaiting an executed transfer of land from Tandova of its interest in the property to Demetian.
The CBA prepared a mortgage of the property in its favour. As the mortgage was drawn, the mortgagors were described as Demetian and Tandova and the estate or interest mortgaged was the estate in fee simple. There were sealing clauses for execution by Demetian and Tandova respectively. However, the mortgage was only executed by Demetian. Tandova's name as mortgagor on the first page was deleted, as was Tandova’s execution clause, the deletions being effected by lining out and initialling. As altered, the mortgage was of the entire fee simple estate. Attached to the mortgage, and dated 8 August 1990, was a page executed by three companies in the H&J Group who were described as "the Debtor" in the mortgage. This manner of execution of the mortgage is consistent with the settlement officer's belief that Tandova was to transfer its interest in the property to Demetian.
It is apparent that the security documents concerning the Heath Avenue property sat in the bank's file, and that the bank did not obtain the transfer from Tandova to Demetian. Time passed. The CBA mortgage was not registered and nor was the AGC discharge. Of course, having paid out the AGC mortgage, the CBA was entitled to be subrogated to it.
In September 1990 Demetian's registration as a company was cancelled under s 459 of the Companies (Victoria) Code.
By mid 1991 Terence Lorimer Breasley, a Senior Manager of the CBA's Oakleigh branch, was concerned with the overdrawn state of the H&J Group accounts. In September 1991 he inspected the bank's security documents and saw that those concerning the Heath Avenue property included the unregistered mortgage. He was surprised to see that Tandova had not executed the mortgage. There was no supporting document to explain why the bank would have accepted a security limited to a one half interest, and there was written confirmation from Demetian's director, John Grezos, of the bank's belief that it held a mortgage over the entire land. Breasley met with Grezos to clarify the position on 30 September 1991. Grezos advised that Demetian had bought Tandova's share of the land and that contracts of sale had been exchanged, but no transfer had been brought into existence due to stamp duty implications and the possibility of a future sale of the property at which time Demetian and Tandova would execute a transfer. Grezos undertook to rectify the matter immediately by providing a transfer from Tandova to Demetian in registrable form. The bank could then perfect its security. Grezos never provided the transfer.
In August 1992 Tandova was deregistered as a company under s 574 of the Corporations Law.
In February 1993 the bank's file for the H&J Group was passed to Neil Gatta, a Credit Manager in the asset recovery section of lending control. He read the file and noted that only Demetian had executed the mortgage. He sought advice from the bank's legal department as to whether he should seek to register the mortgage as it was and whether the bank could sell the land as a partial mortgagee. He was advised that it could do so. He gave instructions for the registration of the discharge of the AGC mortgage and the CBA mortgage. That task was overseen by Linda Wilson, a Branch Securities officer. She received the security documents on or about 15 April 1993 with a request that the mortgage be registered. A conveyancing clerk took the documents to the Titles Office and returned with them. The clerk advised that a Titles Office examiner had suggested an amendment which was pencilled on the mortgage. The suggestion was to add the following words to the description of the estate or interest being mortgaged, namely: "As to one equal undivided half part or share as tenant in common." That suggested that if the amendment were made the mortgage could be registered. Wilson spoke to Gatta who, believing the bank would have obtained an authority to complete, and in view of some urgency, instructed Wilson to proceed to effect registration on that basis. Wilson did so, and on 18 May 1993 the mortgage (duly amended as to the estate or interest mortgaged) was registered on title along with the AGC discharge. The CBA mortgage was thus on title as a first mortgage.
Upon there being a possible sale of the Heath Avenue property, Gatta wrote to the Australian Securities Commission ("ASC") on 15 June 1993, stating that the bank held security over a half share of the property, the other half share being owned by Tandova, which had been dissolved and the assets of which were vested in the ASC. He sought the ASC's consent to a sale. That consent was given. Gatta then gave instructions to serve statutory demands under the mortgage. Demands were issued in November 1993.
Gatta's involvement with the file ceased towards the end of 1993. He was never aware of any agreement whereby Tandova was to transfer its interest in the land to Demetian, or of any undertaking by Grezos to provide the transfer. When he directed that the mortgage be registered, it was his understanding that the CBA was somehow saddled with a mortgage over a half interest.
The CBA did not pursue the matter of a sale with vigour. There was some correspondence between the CBA and the ASC in 1994. In July 1994 the CBA's solicitor asked whether the ASC would agree to a joint sale. In November 1994 the ASC said that it would.
On 27 March 1995 the ASC wrote to the CBA. It advised the CBA that Tandova had been deregistered on the application of a director who had stated that the company had no assets. The ASC had sought to ascertain how that was consistent with Tandova's continuing registration on the title. In response to an enquiry, Steven Dossis, Tandova's former accountant, had advised the ASC that Tandova had no interest in the property, having transferred its interest to Demetian as a result of the termination of a joint venture agreement. The ASC said that, given this advice, if Tandova's interest in the property (as shown on the certificate of title) is sold, the proceeds would be paid to the ASC's Unclaimed Moneys account. If the property was able to be transferred to Demetian the proceeds would accrue to the bank as mortgagee.
On 6 December 1995 the ASC wrote to the CBA's solicitor advising that, despite searches, a transfer by Tandova to Demetian had not been recovered.
Then, on or about 29 May 1996, the ASC sent the CBA a faxed copy of an agreement between Demetian and Tandova dated 9 July 1990. Under the agreement, Tandova agreed to transfer its interest in the property to Demetian, and Demetian agreed to repay the AGC advance, to obtain a discharge of it, and to indemnify Tandova and the former directors of Tandova in respect of the AGC advance and associated security. The agreement was structured as a sale of Tandova's interest in the property, for which purpose Table A of the Transfer of Land Act was applicable.
In October 1996 the CBA requested the ASC to complete the agreement by providing a transfer from Tandova to Demetian. The ASC declined to do so on the ground that, each company having been deregistered, it would require the ASC to transfer property to itself.
Then, in November 1997 the CBA and the ASC agreed to a joint sale of the property and to bear the costs equally. The letter setting out the terms provided that the net proceeds be divided equally. This was consistent with the ASC's previously expressed attitude. The property was sold by public auction in April 1998 for $238,500. Following settlement, an equal division of the net balance of the proceeds produced $104,943.04. The CBA and the ASC each received that amount, and the ASC placed the share it received in an unclaimed moneys account.
On 15 May 2000 the CBA applied to ASIC under s 1341 for payment of the amount retained by ASIC. In October 2001 ASIC wrote refusing the application. ASIC stated that it was not satisfied that the bank was entitled to the money because the equitable mortgage over the whole of the land ceased to exist upon registration of the legal mortgage and the bank had waived or compromised its rights in entering into the November 1997 sale agreement. While being of this view, ASIC took no step to inform the former directors of Tandova of the position. As a result, the money, which on the evidence Tandova would disclaim entitlement to, remains in the unclaimed moneys account.
It sufficiently appears, by direct evidence and inference, that the CBA required a mortgage over the fee simple estate in the property. The deletion of Tandova from the mortgage accords with the fact that by the time the mortgage was to be executed Demetian and Tandova had entered into an agreement for the acquisition by Demetian of Tandova's interest in the land. It is reasonable to infer that the bank employees then handling the file were aware of this and awaited the transfer, but it was not provided, despite a subsequent request in 1991. It is also reasonable to infer that the necessity for the transfer was overlooked. Grezos provides an explanation; that being the avoidance of stamp duty. That explanation is not improbable. Tandova's former accountant provides advice which supports this inference. In addition, it may have seemed to the directors of Demetian and Tandova that it was not critical to provide a transfer, as the 9 July 1990 agreement could be regarded, in substance, as achieving the same thing. Of course, the bank was not rigorous in its interests. Gatta was responsible for the registration of the mortgage, in its amended form, but he was not aware of the true situation. His ignorance was not the bank's ignorance, in the sense that the bank, as a corporate entity, must be taken to know that which its other officers knew and which a proper examination of the file would surely have disclosed. Nevertheless, it remains the fact that Gatta did not know that Tandova was to transfer its half interest to Demetian. The bank never intended to relinquish or release its right to Tandova's half interest. It never conveyed any advice to that effect to Demetian or Tandova, and neither Demetian nor Tandova requested that the bank's mortgage be limited to a one half interest.
I do not accept that, in what occurred subsequently (or even up to that time), the CBA acted in a way which constituted a waiver of its right to assert as against Demetian and Tandova that it was entitled to the Tandova half share in the property, or an estoppel that would prevent it from obtaining a half share. Nor do I accept that the arrangements for the sale in November 1997 constituted a surrender of the right to its entitlement to that half share. What happened is that the matter moved in fits and starts over several years with the bank seeking to achieve a recovery under its security, but without going to the extent of procuring the reregistration of Demetian and Tandova and establishing its rights in liquidation against them or their liquidator. It is a somewhat confusing story, and one that, on both sides, moved at what seems to have been an acceptable, if modest, pace. ASIC did not approach the matter as a party/party opponent. Ultimately, ASIC required that if there were to be a sale it must be on terms that one half of the net proceeds be paid to ASIC. What was the CBA to do, faced with this requirement? A sale of the whole fee simple was preferable to an attempted sale of a one half share or interest in the property. I consider that in these circumstances it is not reasonable to conclude that in agreeing to the November terms of sale the CBA compromised, or gave up, its right to the Tandova share or interest for which it had been pressing. In my view, the bank's right and entitlement to a security over the fee simple estate, and in turn to the proceeds of sale, was never waived, abandoned or compromised, and no estoppel arose in that respect by reason of any words or conduct of the bank.
It is undoubtedly true that it is often preferable for a claimant under s 1341 to procure the reregistration of a company, and to press its right against the liquidator.[1] This has the advantage of avoiding ASIC being placed in the position of a liquidator, with the responsibilities of a liquidator in relation to the distribution of the estate of a company. However, reregistration is not an invariable requirement. Section 1341 provides a convenient and simple procedure which, in particular circumstances, may satisfactorily and appropriately be invoked without reregistration.[2]
[1]See Caratti v NCSC (1984) 2 ACLC 790.
[2]See Re Producers' Oilwell Supplies Ltd [1943] VLR 141.
In the circumstances of this case I do not consider that the appeal should be dismissed in order for the process of reregistration to be pursued. It is clear enough having regard to the facts which have been uncovered, in particular the agreement between Demetian and Tandova, the director’s statement that Tandova held no assets, the advice of Tandova's accountant, and the long passage of time without any claim by Tandova, that if Tandova wished to pursue a claim for its share of the land it would have done so by now. If I were to refuse the appeal on the basis that the CBA should have proceeded by way of reregistration of Demetian and Tandova, and dealt with the liquidator, the overwhelming probability is that the money would simply remain in the unclaimed money account and in time pass to consolidated revenue. That is, of course, unless the CBA did pursue the process of reregistration. One could only hazard a guess at the extra costs occasioned by the reregistration process and as to the amount of the half share that might remain after allowing for such costs. However that may be, I am of the view that the matter is able to be dealt with satisfactorily and appropriately by way of the present appeal.
The appeal is allowed. The decision of ASIC is set aside, and I order that ASIC pay the sum of $104,943.04 in the unclaimed moneys account to the plaintiff.
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