Commonwealth of Australia v Leigh
[2008] FCA 1513
•10 October 2008
FEDERAL COURT OF AUSTRALIA
Commonwealth of Australia v Leigh [2008] FCA 1513
SECURITIES – grant of funds to purchase property – grant conditional on use of the property for certain purposes and secured by a charge – condition breached – charge secures repayment of the grant – costs and expenses incurred in enforcing the obligation to repay are also secured upon the property – Aboriginal and Torres Strait Islander Commission Amendment Act 2005 (Cth) Schedule 1
Aboriginal and Torres Strait Islander Commission Act 1989 (Cth) ss 20, 21A,
Aboriginal and Torres Strait Islander Commission Amendment Act 2005 (Cth) Schedule 1
Acts Interpretation Act 1901 (Cth) s15COMMONWEALTH OF AUSTRALIA v DAVID LEIGH AS LIQUIDATOR OF DURAHWRA TRAINING & DEVELOPMENT ABORIGINAL CORPORATION (IN LIQUIDATION); DAVID LEIGH AS LIQUIDATOR OF DURAHWRA TRAINING & DEVELOPMENT ABORIGINAL CORPORATION (IN LIQUIDATION); COMMONWEALTH OF AUSTRALIA
QUD 342 OF 2007
DOWSETT J
10 OCTOBER 2008
BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD 342 OF 2007
BETWEEN:
COMMONWEALTH OF AUSTRALIA
ApplicantDAVID LEIGH AS LIQUIDATOR OF DURAHWRA TRAINING & DEVELOPMENT ABORIGINAL CORPORATION (IN LIQUIDATION)
Cross-ClaimantAND:
DAVID LEIGH AS LIQUIDATOR OF DURAHWRA TRAINING & DEVELOPMENT ABORIGINAL CORPORATION (IN LIQUIDATION)
RespondentCOMMONWEALTH OF AUSTRALIA
Cross-Respondent
JUDGE:
DOWSETT J
DATE:
10 OCTOBER 2008
PLACE:
BRISBANE
REASONS FOR JUDGMENT
In or about May 1997 the Aboriginal and Torres Strait Islander Commission (“ATSIC”) provided $364,000 (the “Grant”) to Bundjalung Training and Development Aboriginal Corporation to enable it to purchase real property situated at 76 Heber Street, Grafton in the state of New South Wales (the “Property”). On 24 October 1997 that Corporation changed its name to Durahwra Training and Development Aboriginal Corporation (“Durahwra”). The Grant was made pursuant to the provisions of the Aboriginal and Torres Strait Islander Commission Act 1989 (Cth) (the “ATSIC Act”). On or about 22 March 2005 ATSIC was abolished by the Aboriginal and Torres Strait Islander Commission Amendment Act 2005 (Cth) (the “Abolition Act”). This was effected by repealing Part 2 of the ATSIC Act. Part 2 included ss 20 and 21A. Relevant transitional provisions were contained in Schedule 1 Part 3 (the “Schedule”) to the Abolition Act. Relevantly, Items 199 and 201 replaced ss 20 and 21A of the ATSIC Act, effectively placing the applicant (the “Commonwealth”) in the position previously occupied by ATSIC in connection with the Grant.
The respondent (the “Liquidator”) was appointed liquidator of Durahwra on 10 May 2005. These proceedings arise in that liquidation. Durahwra was previously the second respondent. On 28 February 2008 the Commonwealth discontinued the proceedings as against it. I am not sure that the Liquidator is the proper respondent, but no point has been taken in that regard.
The purpose of the Grant appears from a letter dated 1 April 1997 from ATSIC to the Chairperson of the Bundjalung Training and Development Aboriginal Corporation. The second paragraph of that letter was as follows:
On behalf of the Commission I am pleased to offer Bundjalung Training and Development Aboriginal Corporation a grant of $364,000 (“the grant”) for the following project:
Purpose of Grant: Purchase and upgrade building to be used as an Enterprise Development Centre.
Project Objectives: Establishment of Enterprise Development Centre to encourage the development of Aboriginal businesses.
The letter continued:
Should you accept this offer you are agreeing to:
1.Use the grant for the purposes approved and meet the project objectives as set out above.
2.Follow the approved budget as set out in Attachment A.
3.Comply with the Standard Terms and Conditions Relating to Grants as set out in Attachment B.
4.Comply with any Supplementary Terms and Conditions as set out in Attachment C.
5.Comply with any Special Conditions as set out in Attachment D.
6.Enter into a Purposes Agreement as set out in Attachment E, if required.
7.Accept that this Offer does not imply any commitment for further grants from ATSIC, and that you will not enter into any financial or other contractual obligations or commitments in anticipation of any further funding.
The offer was accepted.
Clause 4.1 of Attachment B (the “Standard Terms”) provided:
The Grantee will not use the Assets for any purpose other than that contained in the Letter of Offer as the Approved Project.
Clause 1.1(m) of the Standard Terms provided:
“Asset” means any item of real or personal property purchased or constructed with Grant Funds; “Disposal” of an Asset means the transfer, assignment, leasing or sub-leasing mortgage or giving of security over an Asset.
Pursuant to cl 4.5 of the Standard Terms a grantee could only dispose of real property if it had obtained the prior written approval of ATSIC.
Attachment E (the “Purposes Agreement”) was executed on 12 May 1997. Clause 1 of the Purposes Agreement provided:
[ATSIC] agrees to fund the purchase of the Property in consideration of which the Grantee agrees and undertakes that the Grantee will:
(a)Use the Property for the designated use only and will not change or cause or allow to be changed the designated use without the prior written consent of [ATSIC].
(b)Place the title documents to the Property in the custody of [ATSIC] within 30 days of the signing of this Deed, or Settlement, whichever is the later.
(c)Do things and acts and sign all documents which may be necessary to give full force and effect of the terms and intent of this Deed.
(d)Not dispose of, sell or otherwise transfer, lease, sublease, mortgage, encumber or otherwise part with possession of the Property without the prior written consent of [ATSIC].
Pursuant to Recital 2 the designated use was “as an Enterprise Development Centre for the benefit of Aboriginal people”. Clauses 2 and 3 of the Purposes Agreement provided:
2.For better securing its obligations under this Deed, the Grantee hereby charges in favour of [ATSIC] all its estate or interest, legal or equitable, in the property.
3.The Grantee agrees to perform and observe and in all respects comply with the provisions of the Act applicable to the Property which on its part are to be performed and observed and the Act shall be and is hereby deemed and incorporated in and shall form part of this Deed in so far as it is applicable.
In or about August 1997 ATSIC lodged a caveat with the New South Wales Department of Lands, claiming an equitable charge over the Property.
Section 20 of the ATSIC Act provided:
(1)[ATSIC] may give written notice to a person or body to whom a grant has been made under this Part stating that [ATSIC] is satisfied that the person or body has failed to fulfil a term or condition of the grant.
(2)A person or body who is given notice under subsection (1) is liable to pay to [ATSIC] an amount equal to:
(a)the amount of the grant; or
(b)so much of the grant as [ATSIC] specifies in the notice.
(3)…
(4)…
(5)This section does not affect the availability to [ATSIC] of any legal or equitable remedy for a failure to fulfil a term or condition of a grant or loan made by [ATSIC] under this Part.
Clause 9.4.3 of the Standard Terms provided:
Where [ATSIC] is satisfied that a grantee has failed to fulfil a term or condition of the grant, [ATSIC] may give written notice under Section 20 of the Act. A body to whom a notice is given is liable to pay [ATSIC] an amount of the grant or so much of the grant as [ATSIC] specifies in the notice.
Item 199 of the Schedule relevantly provides:
(1)If, before ATSIC abolition day, [ATSIC] had made a grant to a person or body under Part 2 of the ATSIC Act (other than a grant that is, on ATSIC abolition day, declared to be a class A exempted asset or a class B exempted asset) on particular terms and conditions:
(a)the Commonwealth is treated, on and after that day, as if it had made the grant on the same terms and conditions; and
(b)if the Minister is satisfied that the person or body has failed to fulfil such a term or condition—the Minister may, on behalf of the Commonwealth, give notice to the person or body receiving the grant that the Minister is so satisfied; and
(c)if [ATSIC] had, before ATSIC abolition day, given a notice under section 20 of the ATSIC Act to the effect that [ATSIC] was satisfied that the person or body receiving the grant had failed to fulfil a term or condition of the grant—that notice has effect, on and after that day, as if it had been given by the Minister under paragraph (b).
(2)A person or body to whom a notice is given, or treated as having been given, by the Commonwealth under subitem (1) is liable to pay to the Commonwealth, immediately, an amount equal to:
(a)the amount of the grant; or
(b)so much of the amount of the grant as was specified in the notice.
…
(12)This item does not affect the availability to the Commonwealth, to Indigenous Business Australia or to the Indigenous Land Corporation, of any legal or equitable remedy for a failure to fulfil a term or condition of a grant or loan that was made by [ATSIC] before ATSIC abolition day under Part 2 of the ATSIC Act.
There has been no suggestion that the Property is, or was, a class A or class B exempted asset.
Since late in June 2007 the Property has been unoccupied. See para 13 of the statement of claim and para 13 of the defence and cross-claim. On 20 November 2007 Ms Kari Ahmer (an officer authorized to act on behalf of the Commonwealth) wrote to the solicitors for the Liquidator as follows:
Durawhra [sic] is in breach of the grant conditions for various reasons including but not limited to the fact that the property is no longer used as an Indigenous enterprise development centre. Indeed, the property has not been used for any purpose and has been vacant since in or about June or July 2007. That is contrary to clause 1(a) of the Purpose Agreement entered into between ATSIC and Durawhra [sic] on 12 May 1997.
I hereby give Durawhra [sic], and your client liquidator as its official representative, notice pursuant to sub-item 2 of item 199 of schedule 1 of the [Abolition Act] that a term or condition of the grant has been breached by Durawhra [sic] and, as a consequence, Durawhra [sic] is liable to pay to the Commonwealth, immediately, the amount of the grant.
The Commonwealth claims that Durahwra is presently indebted to it in the amount of the grant ($364,000) which debt is, pursuant to cl 2 of the Purposes Agreement, secured by a charge over the Property (the “cl 2 charge”). It also claims to be entitled, pursuant to Item 201 of the Schedule, to a charge securing payment of its costs and expenses incurred in enforcing Durahwra’s liability. The Liquidator disputes the Commonwealth’s entitlement to any such charge. Notwithstanding his admission that the Property has been unoccupied since late June 2007, the Liquidator denies any breach of the “designated use” clause. In paras 15 and 16 of the statement of claim, the Commonwealth pleads that on 20 November 2007 Ms Ahmer gave a notice pursuant to Item 199 of the Schedule, apparently relying on Ms Ahmer’s letter of that date. Paragraphs 15 and 16 of the defence and cross-claim are as follows:
15.Subject to the Minister having arrived at the alleged state of satisfaction properly and in accordance with law, and subject to the Breach Notice having been properly given, the [Liquidator] admit paragraph 15.
16.The [Liquidator admits] the Minister (by his delegate) purported to give a notice to Durahwra in the terms pleaded in paragraph 16, and otherwise [does] not admit any allegation of Paragraph 16.
A notice pursuant to Item 199 is a condition precedent to Durahwra’s liability to repay the grant. Order 11 r 6 of the Federal Court Rules provides:
Conditions precedent
(1)It shall not in any pleading be necessary to make a general allegation of fulfilment of a condition precedent to a right of action.
(2)Any party wishing to deny the fulfilment of any such condition precedent shall plead such denial.
The Liquidator has not denied that an effective notice was given. He has merely sought to put the Commonwealth to proof. Order 11 r 6 does not permit such a plea. In any event Ms Ahmer has sworn in her affidavit filed on 7 August 2008 that her inquiries revealed that the Property had been vacant since June or July 2007. Such information was a sufficient basis for the satisfaction contemplated by Item 199. No other issue has been raised as to the form or validity of the notice.
In para 17 of the statement of claim, the Commonwealth pleads that the amount of the grant has not been repaid. In para 17 of the defence and cross-claim the Liquidator admits that allegation. However para 18 is as follows:
The [Liquidator denies] that the relief sought by the applicant is relief to which it is entitled on the matters pleaded.
Particulars
(a)The Purposes Agreement provided a charge over the Property for the purpose of securing the obligations of Durahwra set out in the Purposes Agreement. Those obligations were complied with, and the charge was spent, when an Enterprise Development Centre was established and operating on the property.
(b)Alternatively to (a), the charge does not create or entail a right in the [Commonwealth] to enter, posses, sell or otherwise deal with the land, or to compel Durahwra or its lawful successor the [Liquidator] to do so. If (which is not admitted) the charge is of any force and effect at all, it creates no right in the Commonwealth other than to prevent those dealings referred to in subparagraph (1)(d) of the Purposes Agreement.
(c)Further, the giving of a Breach Notice (assuming it to be valid and properly given) creates a debt to the Commonwealth which debt is unsecured. It is not secured by the charge and does not create any priority or security for the payment of the debt as against any other creditors of Durahwra. The charge purports to secure the performance of obligations, not the payment of moneys pursuant to a separate debt.
Paragraph 19 is as follows:
Further or alternatively, the [Liquidator] avers that the charge was a floating charge void against the [Liquidator] as liquidator.
The Liquidator also cross-claims, seeking to establish his entitlement to sell the Property and apply the proceeds in paying his own costs (presumably including remuneration) and the debts owed to unsecured creditors, including the Commonwealth. I understand that the Commonwealth and the Liquidator have agreed as to sale of the Property. Ownership of the proceeds remains in dispute, the Liquidator asserting that the Commonwealth is not a secured creditor. I assume that the parties have agreed that the proceeds of sale are, or will be, charged in favour of the Commonwealth upon the same terms as those of any charge upon the Property at the time of sale.
Before considering the Commonwealth’s entitlements under the cl 2 charge it is convenient to consider ss 20 and 21A of the ATSIC Act and Items 199 and 201 of the Abolition Act. Section 20 is set out above. Pursuant to s 20(2), upon receipt of an appropriate notice under s 20(1), Durahwra was obliged to repay the grant. Section 21A relevantly provided:
Commission’s interest in land
(1)Any liability or obligation of an individual, a body corporate or an unincorporated body to the Commission arising:
(a)under the terms and conditions of a grant or loan referred to in subsection 14(2); or
(b)under section 20 or 21;
is taken to be an interest of [ATSIC] in the land to which it relates.
(2)The land is charged with the payment of all costs and expenses incurred by [ATSIC] in respect of its enforcement of the liability or obligation.
(3)…
(4)...
Thus, to the extent of Durahwra’s liability, ATSIC had an “interest” in the Property. Further, the Property was charged with any costs and expenses incurred by ATSIC in enforcing that liability.
Item 201 of the Schedule relevantly provides:
(1)Any liability of an individual, a body corporate or an unincorporated body to the Commission (other than a liability arising under subitem (2) or (3)) arising:
(a)under the terms and conditions of a grant or loan referred to in subsection 14(2) of the ATSIC Act; or
(b)under section 20 or 21 of the ATSIC Act in relation to such a grant or loan;
is taken, on and after ATSIC abolition day, to be an interest of the Commonwealth in the land to which it relates.
…
(5)The land is charged with a payment of all costs and expenses incurred by the Commission, the Commonwealth, Indigenous Business Australia or the Indigenous Land Corporation in respect of its enforcement of the liability.
…
It follows that to the extent of Durahwra’s liability, the Commonwealth now has an interest in the Property. Again, the costs and expenses of enforcing that liability, are also charged against the Property.
The word “interest” was not defined in s21A and is not defined in Item 201. I infer that in each case the intention was to charge the land to which any liability to ATSIC or the Commonwealth “related” with the discharge of that liability. That the land is expressly charged with payment of the costs and expenses of enforcing a relevant liability supports this conclusion. Section 21A did not, and Item 201 does not, offer any indication as to the circumstances in which a relevant liability will be “related” to land. However I conclude that where a grant has been made for the purpose of acquisition and development of land, the requirement of “relationship” will be satisfied.
It seems to follow that the Commonwealth’s entitlement to repayment of the Grant and to recover any costs and expenses of enforcement is secured upon the Property pursuant to Item 201. However the Commonwealth relies on Item 201 only for recovery of its costs and expenses. It relies on the cl 2 charge as security for repayment of the Grant. It is therefore necessary to determine the relevant obligations which are secured by that charge.
The Liquidator’s first submission is that the cl 2 charge secures only the establishment and commencement of operation of a relevant enterprise development centre and does not secure repayment to the Commonwealth of the amount of the Grant. It is true that the Purposes Agreement did not, itself, mention any such repayment. However, pursuant to cl 3 Durahwra was obliged to perform and observe provisions of the ATSIC Act which were “applicable to the Property”. At the time of execution of the Purposes Agreement the ATSIC Act obliged Durahwra to comply with any notice under s 20 by repaying the grant to ATSIC. That section made no reference to the Property or any stipulated part thereof. However, as I have demonstrated, s 21A charged the Property, which had been acquired using Grant moneys, with repayment of the Grant. In that sense, ss 20 and 21A were applicable to the Property. Durahwra’s obligation to comply with s 20 was therefore secured by the cl 2 charge.
However the Commonwealth cannot rely on ss 20 and 21A for present purposes. It must rely on Items 199 and 201 which were enacted after execution of the Purposes Agreement and as part of the Abolition Act. Although it may not matter, I point out that these Items commenced on 24 March 2005, prior to the Liquidator’s appointment.
The Abolition Act is to be construed as part of the ATSIC Act which it amended. See Acts Interpretation Act 1901 (Cth), s 15. The Commonwealth will be entitled to the benefit of the cl 2 charge if either:
·cl 2 of the Purposes Agreement should be construed as referring to the ATSIC Act as amended from time to time rather than as it was at the date of that agreement; or
·Items 199 and 201 should be construed as extending the cl 2 charge to include obligations to the Commonwealth created by those items.
I need only address the second question. Clearly, the statutory intention underlying Item 199 was that the Commonwealth be treated as having made a grant on the same terms and conditions as ATSIC had done. Those terms and conditions included the benefit of the cl 2 charge securing repayment of the Grant, should Durahwra cease to use the property for the specified purpose. The other provisions of Items 199 and 201 were designed only to give effect to that, and other, rights effectively transferred from ATSIC to the Commonwealth. It follows that the cl 2 charge secures repayment of the Grant to the Commonwealth.
I turn to the Liquidator’s other submissions. He submits that the charge does not permit the Commonwealth to enter, possess, sell or otherwise deal with the Property, or compel Durahwra or the Liquidator to permit such conduct. However the Commonwealth presently seeks only declaratory relief. The availability of remedies designed to enforce any charge is of no immediate significance. The real thrust of the submission is that the charge only allows the Commonwealth to prevent dealings with the Property contrary to subcl (1)(d) of the Purposes Agreement by which Durahwra undertook not to dispose of the property without the prior written consent of ATSIC. There is no justification for such a narrow view. The Liquidator also submits that the charge does not extend to securing the payment of money. This submission assumes that an obligation to pay money cannot be an obligation for the purposes of cl 2 of the Purposes Agreement. I have previously given my reasons for rejecting that argument. Once the ambit of cl 3 is identified, the submission must fail. The Liquidator also submits that the Commonwealth’s debt is unsecured. That argument simply begs the question, which is whether the debt is secured by the cl 2 charge.
It is submitted that any charge is a floating charge, and that it had not crystallized at the time at which the Liquidator was appointed. I see no justification for the assertion that it is a floating charge. It is, on its face, a fixed charge. In view of the provisions of subcl (1)(d), there would have been no purpose in its being a floating charge.
Further matters were raised in the course of oral submissions. It is submitted that the Commonwealth (or perhaps ATSIC) had orally agreed to a change in permissible use of the Property so that an organization described as “Many Rivers Aboriginal Legal Service” (“Many Rivers”) could operate from it. In a letter dated 14 March 2007 the solicitors for the Liquidator asserted that such use was a continuation of use as an indigenous enterprise development centre. It is not clear to me that use for the purposes of a legal service is use as an indigenous enterprise development centre. However the point, as it emerged in oral submissions, is that because of the alleged consent, the Commonwealth could no longer demand repayment of the Grant in reliance upon failure to use the Property as an indigenous enterprise development centre. The precise meaning of the expression “indigenous enterprise development centre” is not immediately clear. However it may not be difficult to decide whether a particular use is, or is not, within its ambit. The Property has been vacant since late June in 2007. Obviously, it was not, at the time of the notice, being used for any purpose. In any event, as far as the evidence goes the alleged variation was limited to use by Many Rivers for its purposes. Even if the consent was to a total and permanent change of use, the Property is no longer being used for that purpose. It is more likely that any such consent merely permitted an extension of the permissible use so as to include use by Many Rivers for its purposes. Upon its ceasing so to use the Property, the permissible use was again that which was originally prescribed. The notice is valid.
These proceedings were commenced by application filed on 15 October 2007, prior to the notice given by Ms Ahmer. No point has been taken in connection with that matter.
There should be a declaration that prior to any sale, the Property was, pursuant to cl 2 of the Purposes Agreement, charged to secure repayment to the Commonwealth of the amount of the Grant. It may be that the declaration should extend to any proceeds of sale. The parties have not addressed that question. The Commonwealth also seeks a declaration that its costs and expenses in enforcing Durahwra’s obligation to repay the Grant be secured upon the Property pursuant to Item 201 of Schedule 1 to the Abolition Act. I will so declare. The cross-claim should be dismissed.
If the parties wish to make further submissions as to orders, costs or any other outstanding matters, they may do so.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate:
Dated: 10 October 2008
Counsel for the Applicant: Christopher Johnstone Solicitor for the Applicant: Minter Ellison Solicitor for the Respondent: Ian Cunliffe Legal Counsel
Date of Hearing: 1 September 2008 Date of Judgment: 10 October 2008
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