In the matter of Todae Solar Pty Ltd

Case •

[2020] NSWSC 1890

•

21 December 2020

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of Todae Solar Pty Ltd [2020] NSWSC 1890
Hearing dates: 10 December 2020
Date of orders: 10 December 2020
Decision date: 21 December 2020
Jurisdiction:Equity - Corporations List
Before: Black J
Decision:

Leave granted to commence proceedings under s 444E of the Act, and order for delivery up of equipment.

Catchwords:

CORPORATIONS – Voluntary administration – Deed of company arrangement – Leave to commence proceedings against company subject to deed of company arrangement in relation to its property – Where Plaintiff’s property in possession of company – Whether Plaintiff’s title to property established -Whether to order delivery of property where uniquely manufactured in accordance with contractual specifications.

Legislation Cited:

- Corporations Act 2001 (Cth), s 444E

Cases Cited:

- GE Capital Asset Services and Trading Asia Pacific Pty Ltd v Rocks Excavations and Plant Hire Pty Ltd [2003] NSWSC 99

- Henaford Pty Ltd v Strathfield Group Ltd (2009) 72 ACSR 240; [2009] NSWSC 539

- Mehan v Arrium Ltd (formerly Onesteel Ltd) [2016] NSWSC 1680

Category:Principal judgment
Parties: Blue Op Partner Trust atf Blue OP Partner Trust, Eric Alpha Operator Corporation 1 Pty Ltd atf Eric Alpha Operator Trust 1, Eric Alpha Operator Corporation 2 Pty Ltd atf Eric Alpha Operator Trust 2, Eric Alpha Operator Corporation 3 Pty Ltd atf Eric Alpha Operator Trust 3, Eric Alpha Operator Corporation 4 Pty Ltd atf Eric Alpha Operator Trust 4, trading as the Ausgrid Operator Partnership (Plaintiff)
Todae Solar Pty Ltd (subject to deed of company arrangement (First Defendant)
Kerden Haulage Pty Ltd (Second Defendant)
Representation:

Counsel:
Mr A W Smith (Plaintiff)

Solicitors:
King & Wood Mallesons (Plaintiff)
File Number(s): 2020/266560

Judgment

Background

  1. By Originating Process filed on 14 September 2020, the Plaintiff, several entities trading as the Ausgrid Operator Partnership (“Ausgrid”) sought relief against Todae Solar Pty Ltd (subject to deed of company arrangement) (“TSPL”) and Kerden Haulage Pty Ltd (“Kerden”). By way of background, Ausgrid is an electricity network operator and TSPL operated a business specialising in the supply of commercial solar and ground mounted solar power systems to businesses which required specialised installations. TSPL filed a submitting appearance in the proceedings and, shortly before the hearing, Ausgrid reached agreement with Kerden. It was nonetheless necessary for Ausgrid to lead evidence and make submissions on the merits, in order to establish that the Court could make the orders sought, which are now not opposed by the parties to the proceedings.

  2. First, Ausgrid seeks an order under s 444E of the Corporations Act 2001 (Cth) that it be granted leave to continue the proceedings as against TSPL. Second, it seeks an order under s 93 of the Civil Procedure Act 2005 (NSW) that, subject to an agreed payment to be made by Ausgrid to Kerden, Kerden deliver certain equipment (“Ausgrid Equipment”) to it. That section relevantly provides that, in proceedings for the detention of goods, the Court may give judgment for the delivery of those goods to a plaintiff. These proceedings are, as a matter of substance, proceedings for the detention of goods held in storage by Kerden which Ausgrid claims are owned by it. I made orders in Chambers on the day of the hearing and these are my reasons for doing so.

Evidence led in the proceedings

  1. Ausgrid relied on the affidavit dated 10 September 2020 of Mr William Close, who is a Project Director, Strategic Property with Ausgrid. Mr Close referred to a contract dated 27 June 2018 between Ausgrid and TSPL headed “One Off Supply of PV Panels with Installation Contract” (“TSPL Contract”). The TSPL Contract broadly provided for TSPL to supply, deliver and install solar panels at 27 different locations around greater Sydney, New South Wales, with each location being defined as a “Separable Portion” under that contract, and for Ausgrid to make payment to TSPL at specified milestones under that contract.

  2. Recital C to the TSPL Contract recorded that TSPL had agreed to supply, deliver and install Equipment (as defined) in accordance with the TSPL Contract. By cl 2.2(g), TSPL warranted that Ausgrid would receive good and clear title to, relevantly, the Equipment and all other materials, plant, equipment and other items incorporated therein or supplied by TSPL under the Contract. The term “Equipment” was in turn defined as goods to be supplied or supplied by TSPL pursuant to the Specification, and the term “Specification” was defined by reference to requirements as to the Equipment set out in Annexure Part I to the TSPL Contract. Clause 4.1 provided that specified provisions of the TSPL Contract applied separately to each “Separable Portion” (as defined) of the TSPL Contract.

  3. Clause 29A of the TSPL Contract provided that ownership of the Equipment (as defined) and all other equipment supplied under the TSPL Contract would transfer to Ausgrid, free of any security interest, at specified times. The first specified time was the time provided under cl 37.3 which provided for the time at which Ausgrid was obliged to pay for equipment listed in item 32 to the TSPL Contract. That clause also required TSPL, notwithstanding that ownership of any item had passed to Ausgrid, to ensure that the item was properly stored, labelled the property of Ausgrid and adequately protected and insured. Documents produced by TSPL under notice to produce at the hearing support an inference that items referable to Ausgrid were at least identifiable as referable to Ausgrid for the purposes of that clause. Item 32 in turn provided that payment claims may be made under cl 37.3 of the TSPL Contract in respect of Panels, Inverter Stations and Mounts as described in Appendix 1. Part A identified Separable Portions referable to particular site addresses. The specification in turn provided for TSPL to design and construct grid-connected solar photovoltaic generators at the site for each Separable Portion and set out inclusions and exclusions in the project scope. Part J specified amounts to be paid in respect of supply of equipment in relation to particular sites.

  4. Mr Close also referred to the schedule of payments to be made by Ausgrid under the TSPL Contract and to the role of the “Superintendent” specified in that contract and exhibited a spreadsheet which detailed payments made by Ausgrid to TSPL under that contract in respect of several “Separable Portions” of the contract. Mr Close also referred to the suspension of TSPL’s work under the TSPL Contract on 16 July 2019, following a safety issue involving TSPL, and to Ausgrid’s subsequent termination of the TSPL Contract by notice given on 21 August 2019. The termination letter dated 21 August 2019 required delivery of materials, equipment and other things intended for WUC (as defined in the TSPL Contract) were not stored on site.

  5. Mr Close also refers to the subsequent appointment of administrators to TSPL, to his contact with the administrators in respect of solar panels as to which Ausgrid claimed ownership which were stored with TSPL and to subsequent communications with Kerden in respect of its claim to storage fees, which has now been resolved by agreement between Ausgrid and Kerden. By an email dated 2 July 2020 from Mr Close to Kerden, following a conversation on that date, Mr Close sought confirmation that TSPL had a large number of solar panels stored in Kerden’s warehouse; that TSPL was then in arrears for storage costs of approximately $800,000; and that a large number of the panels stored were Ausgrid’s and had been stored there by TSPL for approximately two years, and sought further information in respect of those panels.

  6. A further affidavit dated 2 November 2020 of Mr Close summarised the equipment which Ausgrid had paid for but not received from TSPL, which it contended may be in storage with Kerden. He also referred to further correspondence in respect of that equipment and identified a range of invoices issued by TSPL which contained references to that equipment, in a manner which variously identified it as equipment in respect of the “Ausgrid project” or as “Ausgrid Stock”.

  7. Ausgrid also relied on an affidavit dated 24 September 2020 of its solicitor, Mr Watson, of which several paragraphs were read. Mr Watson there referred to correspondence with solicitors acting for each of Kerden and the deed administrators. A second affidavit dated 2 November 2020 of Mr Watson addressed the production of documents and notice to produce, which were relied on to establish that equipment owned by Ausgrid was held by TSPL. A third affidavit dated 8 December 2020 of Mr Watson referred to a proof of debt lodged by Ausgrid with the deed administrators of TSPL on 8 December 2020. The proof of debt claimed the amount of $1,765,440.62, made up of an amount of $381,582 referable to the collection by TSPL of “STC credits” on behalf of Ausgrid under the Small Scale Renewable Energy Scheme administered by the Australian Government and additional amounts claimed in respect of alleged breaches of the TSPL Contract by TSPL. That proof of debt is significant because, as Mr Smith pointed out, the value of equipment recovered by Ausgrid would be an offset against the amount it claimed in the deed administration, benefiting other creditors by increasing their potential recovery against the deed fund. By email dated 8 December 2020, Mr Close also advised the deed administrators that, should the matters raised in these proceedings be resolved in Ausgrid’s favour, Ausgrid would prepare an amended proof of debt to reflect that offset.

  8. Ausgrid also tenders (Ex P1, 187-206), numerous invoices issued by TSPL which record claims, inter alia, for panels and inverters at particular sites.

  9. Ausgrid also relied on the administrator’s report to creditors dated 29 July 2020 (Ex P1, 218ff) which referred to the value of PPSA security interests identified by the administrators, which were referable to amounts advanced in respect of employee entitlements in the administration. The administrator’s report also identified inventory comprising solar panels and associated equipment held at several locations; noted storage charges claimed by the relevant storage locations; and also noted the existence of other claims over a large portion of the stock owned by TSPL and held in the warehouses. The report identified three parties holding AllPAP (All present and after-required property – no exceptions) security interests over TSPL’s assets and undertakings and noted the debt of one of those parties having been discharged. The amounts claimed by two other parties were discharged in the course of the deed administration. Other persons claiming PPSR interests over various items were also identified in the administrator’s report.

  10. A Deed of Company Arrangement (“DOCA”) between TSPL, the deed administrators and National Solar Energy Group Pty Ltd, in turn referred to the “Secured Creditors Amounts” (as defined) which were referable to the two remaining interests identified as secured creditors (“Secured Parties”) in the administrator’s report. Clause 2.9 of the DOCA provided for a deed of release from the relevant Secured Parties as a condition precedent to the DOCA; and cl 5.1 provided that the Deed Fund available to creditors included specified items, which did not include the equipment now claimed by Ausgrid. Clause 8.5 of the DOCA is a bar on actions by creditors during the Arrangement Period, as defined, which is subject to leave of the Court. Clause 14.1 in turn provided for TSPL to indemnify the voluntary administrators and the deed administrators against various claims, including any claim in relation to interests arising under the Personal Property Securities Act 2009 (Cth) including retention of title on stock.

  11. By letter dated 2 September 2020 the solicitors for Ausgrid wrote to the voluntary administrators of TSPL and to Kerden setting out the background to the contract between Ausgrid and TSPL and referring to the equipment claimed by Ausgrid which was then in storage at the warehouse facility controlled by Kerden. That letter sought confirmation that TSPL did not assert any ownership interest in that equipment and foreshadowed the commencement of these proceedings if that confirmation was not given. That letter identified the basis on which Ausgrid claimed ownership of the Ausgrid Equipment namely that:

“On various dates, pursuant to invoices rendered by [TSPL] and the terms of the Contract, Ausgrid made payment in respect of certain stages of WUC (as defined in the Contract). Those payments included amounts in discharge of liabilities representing consideration for certain equipment (including panels, inverters and mounts for a Separable Portion). By operation of clauses 29A and 37.3 of the Contract, upon payment of the relevant milestone amount, title in that equipment had passed to Ausgrid. …

At the date of termination, [TSPL] had not delivered a significant portion of the Ausgrid Equipment to Ausgrid, despite Ausgrid having paid for that Ausgrid Equipment and title having passed to Ausgrid.”

  1. By letter dated 4 September 2020, the solicitors acting for Kerden responded asserting a lien for storage charges over the relevant goods; noting that Kerden was not party to the contract between TSPL and Ausgrid and could not determine whether title to the relevant equipment had passed to Ausgrid; and indicated that Kerden would not be in a position to release the relevant equipment without the deed administrator’s consent or, presumably, when ordered by the Court to do so. By letter dated 4 September 2020, the solicitors acting for the deed administrators requested further information from Ausgrid’s solicitors as to the basis of its claim. By letter dated 7 September 2020, Ausgrid’s solicitors responded providing further information.

  2. By a further letter dated 11 September 2020, the solicitors for the deed administrators referred to discussions with representatives of Kerden that the equipment was not labelled as Ausgrid’s equipment and appears to be mixed in with other equipment owned by TSPL or other secured parties. Neither the deed administrators nor Kerden led evidence to establish that matter in response to this application and an inference to the contrary arises, as Ausgrid contends, from charges made by Kerden at various times for stocktakes and other work in respect of “Ausgrid Equipment” which necessarily implied that equipment falling within that category was capable of identification. The inference that the Ausgrid Equipment is separately held by Kerden, or is at least separately identifiable among the equipment held by Kerden, is more readily drawn where Kerden has consented to an order that it return that equipment to Ausgrid, on payment of an amount claimed for storage fees, which it could not do if it were not able to identify that equipment.

  3. The ultimate position taken by the deed administrators in that letter was that:

“Our clients do not make any comments in relation to the ownership of the Equipment. It is a matter for your client to establish it is the owner of the Equipment and the Equipment is identifiable at the warehouse of [Kerden].”

  1. As I noted above, TSPL filed a notice of submitting appearance, except as to costs, on 7 October 2020 and Kerden subsequently filed a qualified notice of submitting appearance on 8 December 2020, by which it indicated that:

“[Kerden] consents to the Court making an order for delivery up of the Ausgrid Equipment in the Proceeding under section 93(1)(a) of the Civil Procedure Act 2005 (NSW) upon payment of the sum of $64,000.00 (exclusive of GST) by the Plaintiff to [Kerden].”

Application for leave under s 444E of the Corporations Act

  1. As I noted above, Ausgrid seeks an order under s 444E of the Corporations Act that it be granted leave to continue the proceedings as against TSPL. That section provides that, while a company is the subject of a deed of company arrangement, a person cannot begin or proceed with a proceeding against the company in relation to any of its property except with the Court’s leave and in accordance with such terms as the Court imposes.

  2. Mr Smith accepts that the reference to “property of the company” in s 444E of the Act includes property that is in a company’s possession: s 444E(4)(b) and Henaford Pty Ltd v Strathfield Group Ltd (2009) 72 ACSR 240; [2009] NSWSC 539 at [20]. Mr Smith also accepts that Ausgrid bears the onus of satisfying the Court that the ordinary procedures established under the DOCA should be displaced by allowing proceedings to continue and that the applicable factors are similar to those which would be applied in determining whether to permit leave to proceed against a company in liquidation: Mehan v Arrium Ltd (formerly Onesteel Ltd) [2016] NSWSC 1680 at [14]. Mr Smith identifies relevant matters as including the strength of Ausgrid’s claim, the disadvantages to it if leave is not granted, the impact upon creditors and deed administrators of granting leave and whether a deed administrator is in a position to grant the leave sought in the proceedings. Mr Smith submits that factors supporting the grant of leave in this case include the fact that the deed administrators cannot grant the relief sought by Ausgrid.

  3. I am satisfied that leave should be granted for Ausgrid to continue the proceedings against TSPL. It seems to me that the factors that support the grant of leave include the fact that an order is sought for the delivery of property which could not be achieved by Ausgrid proving as a creditor under the DOCA; it is necessary to resolve the issues between Ausgrid and Kerden as well as the issues between Ausgrid and TSPL, and the issues with Kerden can only be resolved in proceedings and not by Ausgrid proving in the deed administration. There is no risk that the grant of leave will result in the deed administrator being drawn into several proceedings or incurring wasted costs, where it is not taking an active part in the proceedings; and a determination of the proceedings in Ausgrid’s favour is to the advantage of other creditors of TSPL so far as it will reduce Ausgrid’s claim against the deed fund and increase potential recoveries of other creditors against that fund. For these reasons, I grant leave to Ausgrid to continue these proceedings as against TSPL while TSPL is the subject of the DOCA.

Relief sought under s 93 of the Civil Procedure Act

  1. As I noted above, Ausgrid seeks an order under s 93 of the Civil Procedure Act that, subject to an agreed payment to be made by Ausgrid to Kerden, Kerden deliver certain assets to Ausgrid.

  2. Mr Smith points out that the purpose of the section is to allow a party to elect between damages or return of goods often in cases involving claims for detinue: GE Capital Asset Services and Trading Asia Pacific Pty Ltd v Rocks Excavations and Plant Hire Pty Ltd [2003] NSWSC 99 at [55]-[57]. Young CJ Eq there reviewed the history of the section which was then s 93 of the Supreme Court Act 1970 (NSW) which allowed a court of common law to make an order for specific return of the goods without the option of paying their value and observed that:

“... there is no difference in the tests that a common law judge applies under s 93 of the Supreme Court Act, 1970 to those an equity judge would apply if faced with an application for specific restitution of goods.

According to the early 19th century equity books, the jurisdiction exercised by Equity was based on the proposition that the Common Law contained imperfection as to its remedy and thus Equity would intervene ….

It must be remembered that, at this time, it was a matter of jurisdiction that the remedy at law be imperfect. …

However, latter day cases have shown that Equity gives relief in a wider set of circumstances than merely unique chattels and that the touchstone for relief is whether damages are an adequate remedy. The leading modern Australian authorities are Aristoc Industries Pty Ltd v RA Wenham (Builders) Pty Ltd [1965] NSWR 581, 587-590 and Doulton Potteries Ltd v Bronotte [1971] 1 NSWLR 591. In the latter case at 597 Hope J said, with reference to the list of cases in the 3rd ed vol 38 p803 of Halsbury's Laws of England (because England has changed the law there is no corresponding section in the 4th edition):

"Many of these cases deal with chattels which had a very peculiar or sentimental value which obviously could not be adequately reflected in a monetary award, and it has been submitted that the jurisdiction of the Equity Court is limited to this class of case. I do not think that the jurisdiction is so limited … ".

His Honour referred to Aristoc which concerned seats in a theatre, North v Great Northern Railway Co (1860) 2 Giff 64; 66 ER 28 (railway wagons) and Dougan v Ley (1946) 71 CLR 142 (a taxi cab plate).

In Avard v Harrison (M H McLelland J, 1 December 1986) [1986] ASC 55-525, a finance company repossessed the plaintiff's bull-dozer even though he had paid the final instalment. The Judge ordered specific restitution of the bull-dozer, (a) because the bull-dozer had a custom made cutter bar which would take considerable time to remanufacture and fit to another bull-dozer; and (b) because the valuation of the bull-dozer at the time of its seizure by the finance company would present very substantial difficulties. It was therefore a considerable injustice to Mr Avard to leave him to a remedy in damages and there should thus be an order for specific restitution.

In Adventure Film Productions Ltd v Tully Times 14 October 1982, an order was made in respect of a film that the defendant said he held in protective custody because it would take an immense amount of time and money to remake the film. Again in Howard E Perry & Co Ltd v British Railways Board [1980] 1 WLR 1375, at a time of great shortage of steel, an order was made that a parcel of steel which normally would not be classed as a special chattel be delivered up. The former case at least shows that the consideration as to whether the remedy at law is sufficient is not restricted to the nature of the chattel involved.”

  1. Mr Smith also draws attention to s 9 of the Storage Liens Act 1935 (NSW) which relevantly provides that where, as here, a storer claims a lien, a person claiming an interest or right of possession in the goods may pay the amount necessary to satisfy that lien and, where that occurs:

“The Storer shall deliver the goods to the person making the payment if he or she is the person entitled to the possession of the goods on payment of the Storer’s charges thereon, otherwise the Storer shall retain possession of the goods according to the terms of the contract of deposit.”

  1. Mr Smith submits, and it does not appear to be contested, that Ausgrid paid for the Ausgrid Equipment; that, under the terms of the TSPL Contract, title to the Ausgrid Equipment passed to it on payment of the invoices; and that the Court should be satisfied that the Ausgrid Equipment had unique value to it such that orders for delivery up are appropriate. I am satisfied that the evidence to which I have referred above is sufficient to establish that title in the Ausgrid Equipment referable to the TSPL Contract, and now held by Kerden, passed to Ausgrid in respect of each Separable Portion of the contract when the relevant payments were made and that TSPL also warranted to Ausgrid that Ausgrid obtained clear title to that equipment. Here, TSPL does not itself assert a claim to ownership of the Ausgrid Equipment, as distinct from putting Ausgrid to proof of its ownership of that equipment; no other creditor has asserted a claim to the Ausgrid Equipment; and Kerden no longer asserts a lien over that equipment. I am also satisfied that damages would not be an adequate remedy for Ausgrid where the equipment is of particular value to it so far as it was manufactured in accordance with the relevant contractual specifications.

  2. I note, for completeness, that the orders sought will determine the rights to the Ausgrid Equipment only as between Ausgrid, TSPL and Kerden. Ausgrid does not now press any wider claim for declaratory relief as to its ownership of the Ausgrid Equipment, where no third parties have been joined to these proceedings. So far as third parties may have claims against the Ausgrid Equipment, including as secured creditors or otherwise, the orders for delivery up that will be made do not extinguish those claims.

  3. For these reasons, I made orders in Chambers on 10 December 2020 granting leave to Ausgrid to commence and continue the proceedings as against TSPL under s 444E of the Act, and the order for delivery up of the Ausgrid Equipment that was sought, on terms that the agreed amounts be paid by Ausgrid to Kerden, and that there be no order as to the costs of the proceedings.

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Decision last updated: 29 December 2020

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