Investwell Pty Ltd (In Liquidation) v Daryl Leon Roberts
[2011] NSWSC 1152
•27 September 2011
Supreme Court
New South Wales
Medium Neutral Citation: Investwell Pty Ltd (In Liquidation) v Daryl Leon Roberts [2011] NSWSC 1152 Hearing dates: 8 September 2011 Decision date: 27 September 2011 Jurisdiction: Equity Division - Corporations List Before: Hammerschlag J Decision: Upon condition that the defendant undertakes to the Court to prosecute his appeal diligently and with all due expedition, stay ordered until determination of the appeal or until further order
Catchwords: CORPORATIONS - ss 588FA(1)(b) and (2) of the Corporations Act 2001 (Cth) - application for stay pending appeal against finding that the defendant (the proposed appellant) received an unfair preference by way of payment of an unsecured debt when the company was insolvent - sole ground of proposed appeal is that s 588FA did not apply because the payment was secured by equitable mortgage because there was an agreement between the company and the defendant that the company would give him a mortgage over its land upon request, even though there had been no request - PRACTICE AND PROCEDURE - requirements for a stay - whether there are arguable grounds of appeal - consideration of whether the agreement relied on gave rise to an equitable mortgage without the request - consideration of whether if the stay were refused the appellant would be deprived of the means of prosecuting the appeal - upon condition that the defendant undertakes to the Court to prosecute his appeal diligently and with all due expedition, stay ordered until determination of the appeal or until further order Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Investwell Pty Ltd (in liq) v Daryl Leon Roberts [2011] NSWSC 783
Investwell Pty Ltd (in liq) v Daryl Leon Roberts [2011] NSWSC 784
Pico Holdings Inc v Wave Vistas (2005) ALJR 825
Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190, 246 (CA)
Kilmartin v Monk (2005) 5 NZ ConvC 194,122
Penny Nominees Pty Ltd v Fountain (unreported) NSWSC, 2 May 1989
Canadian Imperial Bank v Rehnby (1992) R.P.R (2d) 93
Penny Nominees Pty Ltd v Fountain (No 2) (unreported) NSWSC, 12 February 1990
Dighton v Withers (1862) 31 Beav 423Texts Cited: Peter Butt, Land Law, 6th Ed
Edward Lawson Griffin Tyler, P.W Young, William Richard Fisher, Clyde E Croft, Fisher & Lightwood's Law of Mortgage, 2nded (2005)
Halsbury's Laws of England (1980) 4th Ed p 204Category: Procedural and other rulings Parties: Investwell Pty Ltd (In Liquidation) - Plaintiff
Daryl Leon Roberts -Defendant
James Patrick Normoyle - First Respondent
Anne-Maree Elizabeth Huxley - Second RespondentRepresentation: Counsel:
C.M. Harris SC - Plaintiff
N. Newton - Defendant/Applicant
J. Rivett - First and Second Respondents
Solicitors:
Colin Biggers & Paisley - Plaintiff
Clarke Kann Lawyers - Defendant
The Affordable Legal Company Pty Ltd - First and Second Respondents
File Number(s): 2009/290079
Judgment
BACKGROUND
HIS HONOUR: This is an application for a stay of orders made on 29 June 2011 against the defendant, Mr Roberts, consequent upon a finding that a payment of $164,306.83 made by the first plaintiff company to him on 12 March 2003 was an unfair preference under s 588FA(1)(a) of the Corporations Act 2001 (Cth) ("the Act").
The principal judgment was delivered ex tempore on 28 June 2011; see Investwell Pty Ltd (in liq) v Daryl Leon Roberts [2011] NSWSC 783 ("the first judgment"). Terms defined in the first judgment will have the same meaning in this judgment.
Mr Roberts was unrepresented at the hearing.
On 29 June 2011 orders were made for the payment by Mr Roberts to the company of $164,386.83 plus interest of $41,076.
As par 30 of the first judgment records, Mr Roberts put in issue only two matters. Firstly, he disputed that the company was insolvent at the relevant time. Secondly, he contended that the Roberts' payment was not of an unsecured debt because cl 21 of the agreement conferred security upon him for its payment.
Clause 21 is in the following terms:
The parties agree that if requested by Roberts at any time Investwell must at its own expense immediately grant to Roberts a mortgage over the Land, an equitable mortgage or charge over Investwell's assets and undertakings, and/or such other security as Roberts may consider necessary. Any such securities must be in a form acceptable to Roberts' legal advisers.
The Land is defined in recital B to be land situated at 1 Midway Drive, Maroubra, being the whole of the land in Folio identifier 395/36813.
At no time did Mr Roberts make a request for the company to grant any security.
Mr Roberts cross-claimed against Mr Normoyle and Ms Huxley on the indemnity contained in cl 22 of the agreement.
Clause 22 is in the following terms:
Normoyle and Huxley agree to jointly and severally indemnify Roberts against any claim, action, damage, loss, liability, cost (including legal costs on an indemnity basis), expense or payment that Roberts suffers or incurs following any failure of Investwell to pay all or part of Roberts' Funds or to comply with any of its other obligations under this Deed or any failure of Normoyle or Huxley to comply with any of their respective obligations under this Deed. Normoyle and Huxley also agree to charge any real property they may own now or in the future to secure any amounts they owe to Roberts from time to time.
The sole defence which Mr Normoyle and Ms Huxley proposed to raise was that there was to be implied into the indemnity in cl 22 a term that Mr Roberts would take all reasonable steps to defend any claim against him by any person, which might add to the Roberts' funds (as defined in the Agreement) or which might otherwise add to the amount payable to Mr Roberts by Mr Normoyle and Ms Huxley pursuant to the indemnity, and that in breach of the implied term, Mr Roberts failed to take all reasonable steps to defend the claim against him by the plaintiffs because he failed to prosecute a defence available to him under s 588FA(3) of the Act ("the running account defence").
They accepted, however, that even if the running account defence had been successful, it would have left a balance owing to Mr Roberts under the indemnity of $45,807. The orders of 29 June 2011 included an order that they pay this amount to Mr Roberts.
Upon Mr Roberts' undertaking to prosecute the balance of his claim against them, the order requiring Mr Roberts to make payment to the company in excess of $45,807 was stayed until the balance of his claim against Mr Normoyle and Ms Huxley was heard, or until further order.
On 22 July 2011 orders for costs were made; see Investwell Pty Ltd (in liq) v Daryl Leon Roberts [2011] NSWSC 784.
The hearing of Mr Roberts' cross-claim took place on 8 September 2011. On this occasion, Mr Roberts was represented by Mr N Newton of counsel. Mr Normoyle and Ms Huxley were represented by Mr J Rivett of counsel.
After some debate between bench and bar, Mr Rivett correctly accepted that his clients had no defence to Mr Roberts' claim on the indemnity.
Having taken instructions, Mr Rivett informed the Court that no reasons were required for the orders against his clients which inevitably had to follow. Subsequently, orders were made declaring that Mr Normoyle and Ms Huxley are required to indemnify Mr Roberts for all money payable by him to the company pursuant to the orders of 29 June 2011 and are obliged to pay that amount to him plus the indemnity costs of and relating to the proceedings by Mr Roberts against Mr Normoyle and Ms Huxley.
Immediately after the capitulation by Mr Normoyle and Ms Huxley, counsel for Mr Roberts indicated that Mr Roberts intended to appeal the finding of his liability to the liquidator on the sole ground that as at the date of the Roberts' payment, the company's debt to him was not an unsecured debt within the meaning of s 588FA(1)(b) of the Act (and correspondingly was a secured debt because cl 21 of the agreement conferred upon him an equitable mortgage over the company's land under s 588FA(2)).
He moved for a stay of the judgment against Mr Roberts pending an appeal.
Counsel for the liquidator and the company was not present at the time and the matter was stood down to enable the liquidator to arrange for counsel. Mr Harris SC, who had appeared at the first hearing, then appeared.
Counsel for Mr Roberts then sought and was granted leave to file a motion seeking an extension of the stay which I had ordered on 29 June 2011. An affidavit in support by Mr Roberts sworn 6 September 2011 was filed.
Counsel for the liquidator indicated opposition to the stay.
Directions were made for the service of any evidence by the liquidator and for brief written submissions. I stood the matter over to 26 September 2011 for final argument, and ordered that the stay earlier ordered be continued until then.
Written submissions were duly received.
Mr Roberts has now filed a Notice of Appeal.
SHOULD A STAY BE ORDERED
The grant of a stay is a discretionary matter, the starting point being that ordinarily a successful party is entitled to the fruits of his, her or its litigation victory.
Each case must, of course, be determined on its own circumstances.
Two factors pertinent to the exercise of the discretion in the present case are whether Mr Roberts has identified arguable grounds of appeal and whether if the stay were to be refused he would be deprived of the means of prosecuting his appeal.
Prospects of the Proposed Appeal
Mr Roberts intends to challenge the finding of no security solely on the ground that as at the date of the Roberts payment cl 21 of the agreement conferred upon him an equitable mortgage of the company's land, despite the absence of any request.
In para 31 of the first judgment, I held that because no request under cl 21 of the agreement for any security had been made by Mr Roberts at any time, there was no obligation on the company to give any and Mr Roberts' debt remained unsecured at all times.
It is well settled that where money has been advanced under a specifically enforceable agreement to grant a mortgage, an equitable mortgage is created; see Pico Holdings Inc v Wave Vistas (2005) ALJR 825 at 837; Peter Butt, Land Law 6 th Ed at [18.13]. Mr Roberts will contend that he had such an agreement.
The central question is whether on the proper construction of the agreement the parties intended that the security concerned would be immediately conferred even without a request. If they did not, then there will be no specifically enforceable agreement until the request is made.
The holding in para 31 of the first judgment could equally have been expressed in terms that on the proper construction of cl 21 of the agreement, the parties did not, without a request, intend that the company would with immediate effect confer any security on Mr Roberts. Consequently, without a request for a mortgage over the company's land, there was no specifically enforceable agreement by the company to grant it to him.
Clause 21 of the agreement gives Mr Roberts the option of requesting one or more forms of security, both specified and unspecified, and at any time, that is, at different times. This is inimical to the conclusion that the parties intended that any particular security would be immediately operable.
By the same token, giving cl 21 of the agreement the effect contended for by Mr Roberts would have the consequence that each of the named securities was intended to be immediately conferred. This would render the request otiose.
No doubt each case must be considered on the specific terms of the agreement between the parties. There are, however, instances in the authorities where consideration has been given to whether an equitable mortgage arises immediately where the agreement concerned provides for a mortgage to be given on demand or request.
In Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190, 246 (CA), Sir Robin Cooke presiding over the New Zealand Court of Appeal (with whom Casey J and Bisson J agreed) considered a provision in Banking Terms that "The Customer will, immediately on request, provide the Bank with such alternative or additional security for the obligations of the Customer as the Bank may require". His Honour concluded that no obligation to provide the additional security would arise until there had been a request and requirement by the bank pursuant to the terms of the clause, and until then the customer was free to deal with any of his or her properties without obligation in respect of them to the bank and no charge by way of security, legal or equitable, nor any other interest in them was created in favour of the bank.
Even clearer is Kilmartin v Monk (2005) 5 NZ ConvC 194,122 where Rodney Hansen J considered a Deed which provided that "The borrower shall upon written request by the lender, execute a second mortgage over 64 Routley Drive, Glen Eden (CT80B/435) to secure the debt advanced by the lender". At para 10, his Honour held as follows:
An equitable mortgage of land confers on the mortgagee an equitable interest that will support a caveat. An equitable mortgage may be created by an agreement to mortgage but a security agreement in which the debtor merely agrees to grant a mortgage if requested to do so by the creditor will not by itself create an equitable mortgage. In order for an equitable mortgage to come into existence, an effective request to grant a mortgage over the property must be made by the creditor: Philpott v NZI Bank Ltd (1989) 1 NZ ConvC 190,246 (CA)
To the same effect is Penny Nominees Pty Ltd v Fountain (unreported) NSWSC, 2 May 1989, in which Young J (later CJ in Eq and then JA) said at p 3:
If a person promises to give a mortgage and the promisee has given valuable consideration for such promise, then an equitable mortgage exists from that moment in time and if necessary the court will decree specific performance of that agreement; see eg Lamont v Osborn [1902] 28 VLR 434 and Re Dixon (1922) 39 WN (NSW) 89. If, however, the agreement is subject to a condition then it would not seem to me that any specifically enforceable obligation to give a mortgage arises until the condition is satisfied. Accordingly, if one has an agreement with X, if so required by Y, by notice in writing from Y, shall execute a mortgage, no specifically enforceable interest arises until Y makes that demand. This view is supported by the decision of Ward J in Investment and Merchant Finance Corp Ltd v Kirkwood Estates Ltd (1975) 5 ALR 191, 195. On this basis the second defendant would only have an interest in the land as from the date of demand; namely, 17 July 1986. Accordingly, as at the date of the caveat the second defendant would not have an estate or interest in the land, so that the claim made in the caveat does not have substance and were it not for the matter I will mention in a moment, the court will have to obey the statutory command in s74K(2) to dismiss the present application.
The reservation that I have is that the matter has come on fairly quickly and there has been little time to conduct an exhaustive search through the authorities to see whether the principle which I have relied on and which is supported by the decision of Ward J is not effected by other authorities. Accordingly, it seems to me that I would be justified, under the subsection, in extending the caveat until 12 May and giving liberty to any party to relist the matter on 12 May for further argument should that party, at its or his own risk as to costs, consider that further authority has come to light. (emphasis added)
According to the learned authors of Fisher & Lightwood's Law of Mortgage, 2 nd ed (2005), (of which Young JA is one) at p 346:
It is not an infrequent occurrence for banks to include a clause in a loan agreement that the borrower will execute a mortgage 'if so requested'. This will ordinarily be sufficient to create an equitable mortgage : Re Beetham; Ex parte Broderick (1886) 18 QBD 380 and 766; Rooker v Hoofstetter (1896) 26 SCR 41 (Can); Re Collins (1982) 140 DLR (3d) 755. However the mortgage will only come into being on the request for it being made: Penny Nominees Pty Ltd v Fountain (SC (NSW), Young J, 2 May 1989, unreported) and Canadian Imperial Bank of Commerce v Rehnby (1992) 22 RPC (2d) 93. (emphasis added)
Canadian Imperial Bank v Rehnby, which the learned authors cite (the correct citation being (1992) R.P.R (2d) 93), is to the same effect. It concerned a letter of undertaking whereby customers of the bank undertook and agreed, "on demand of the bank" to execute and deliver a legal mortgage over clearly identified property. Hunter J held that the letter of undertaking without more did not constitute or create an equitable charge. His Honour held that once the bank does make its demand, an equitable mortgage is created, along with an entitlement to a legal mortgage.
It is put that his Honour later retreated from the statement of principle he had made in Penny Nominees v Fountain Pty Ltd in Penny Nominees Pty Ltd v Fountain (No 2) (unreported) NSWSC, 12 February 1990 in which, at p 2, his Honour said:
I reviewed some of the authorities in an interlocutory judgment in this case on 2 May 1989. As I there remarked, one only gets an equitable interest in property at the time when a specifically enforceable obligation to give a mortgage over the particular property occurs. If one has a case of promising to mortgage a property when required and that property is in existence and specifically defined, then it may very well be that there is an equitable interest in the property as from the date of the promise to grant a mortgage . (emphasis added)
A number of things may be observed with respect to the passage relied on. Firstly, it was not to the effect that an equitable interest would arise, it did no more than leave open the possibility. Secondly, his Honour did not go on to identify the principle which would give rise to an immediately enforceable agreement without a request. Thirdly, his Honour did not identify the authorities which led to his reconsideration. Finally, and perhaps most importantly, the decision is not footnoted in Fisher & Lightwood either as qualifying the statement at p 346 referred to above or at all.
Counsel for Mr Roberts referred to the following passage in Halsbury's Laws of England (1980) 4 th Ed p 204 at [437]:
In equity a mortgage is created by a contract evidenced in writing for valuable consideration to execute, when required, a legal mortgage, or by a contract so evidenced and for valuable consideration that certain property is to stand as a security for a certain sum.
He also referred to Dighton v Withers (1862) 31 Beav 423, which is footnoted in the passage, a decision of Lord Romilly MR who held that an instrument promising to execute a legal mortgage whenever required by the promisee was an equitable mortgage. However, the case does not disclose whether the point presently under consideration was raised or considered.
Mr Roberts intends to support his contention by reference to s 9 of the Act which defines "charge" to mean "a charge created in any way and includes a mortgage and an agreement to give or execute a mortgage, whether on demand or otherwise ". (emphasis added)
The proposition is that if an instrument falls within the definition of charge in s 9 of the Act, it follows that it confers security within the meaning of s 588FA of the Act. I have significant doubts as to the correctness of this proposition.
Chapter 2K of the Act provides a code for the registration of registrable charges as defined. The definition of charge primarily affects the operation of Ch 2K of the Act and does not impact the question, which arises here, namely whether cl 21 of the agreement has the effect that the debt owed to Mr Roberts was not an unsecured debt for the purposes of s 588FA of the Act. Chapter 2K extends to agreements and arrangements beyond those which would be considered securities at common law or in equity.
Although I would respectfully suggest that the authorities collected in this judgment provide solid support for the conclusion to which I came, the principal point which Mr Roberts proposes to promote has not been the subject of appellate authority in this jurisdiction. I do not think that it can fairly be said that the point is devoid of substance.
Although I have significant doubts as to the correctness of Mr Roberts' ancillary position with respect to s 9 of the Act, it likewise cannot fairly be said that it is devoid of substance.
A subsidiary question which is bound to arise in the appeal is whether the agreement is certain enough to be the subject of an order for specific performance.
In Penny Nominees Pty Ltd v Fountain (No 2) Young J said the following at p 3:
However, in the instant case the form of the agreement is one which does not specify the property, does not specify the form of the mortgage, does not specify the amount of the mortgage, does not specify the amount of the indebtedness and it seems to me that the number of possible variables are so great that, until the obligation was crystallised by a requirement, equity would be in no position to grant any order for specific performance to compel the mortgagor to grant a mortgage. Thus no equitable interest came into existence on the part of the second defendant until the requirement was made on 17 July 1986 and, accordingly, there was no equity which took prior in time to the equity of the plaintiff.
Whilst cl 21 identifies the property, it does not specify the form of the mortgage, the amount of the mortgage or the amount of the indebtedness. On the reasoning in Penny Nominees Pty Ltd v Fountain (No 2), there would not be sufficient certainty in cl 21 to create an equitable interest.
This question too may be considered appropriate for appellate consideration.
I mention that the submissions on behalf of the liquidator include one that the security described in cl 21 had disappeared because the Land (as defined) had been sold before the Roberts' payment. The strata plan for the Land was registered on 24 December 2002 when folio identifier 395/36813 was cancelled and replaced by folio identifiers 1 to 5/SP69068, each representing one townhouse. Townhouses 2 to 5 had been sold and settlement had occurred by the end of February 2003. Townhouse 1 was settled on 13 March 2003. Mr Roberts contends that he was paid out of the proceeds of the last sale. It is not necessary to consider the liquidator's prospects of success in this argument and I have left it out of account.
In these circumstances, I consider that Mr Roberts has identified arguable grounds for appeal. In addition, there is at least one issue of substance which might be the subject of a notice of contention.
Other Considerations
In an affidavit sworn 6 September 2011 Mr Roberts says that he does not have any assets of substance to satisfy the judgment amount. He says that unless the judgment is stayed, he would not be able to resist an application to make him bankrupt which would prevent him from pursuing his appeal. Although he provides no further information of what his assets are, he was not cross-examined on the issue.
The affidavit was sworn before the hearing on 8 September 2011 and accordingly takes no account of the fact that he now has judgment against Mr Normoyle and Ms Huxley for the full amount of his liability to the company, including indemnity costs.
However, on 26 September 2011 Mr Roberts provided an affidavit by his solicitor Kylee Anne Trevitt sworn 23 September 2011 in which she says, "As far as I am aware neither Normoyle or Huxley have the financial capacity to satisfy the judgment obtained by Roberts against each of them on 8 October 2011". She attaches to her affidavit copies of statutory declarations by each of them. This second hand material is of little, if any, probative value, but it was not objected to. In the case of Mr Normoyle, if accepted, his statutory declaration would indicate an inability to meet the judgment. The statutory declaration of Ms Huxley indicates that she has assets including loans owing to her which she states are probably unrecoverable but provides no details. However, she foreshadows that she is considering filing a petition for bankruptcy.
In my view, the prospects of Mr Roberts being made bankrupt whilst the appeal is pending are not high, particularly, because the appeal points are narrow, the proceedings are of a commercial nature and their determination affects the administration of a winding up, and if Mr Roberts prosecutes his appeal with alacrity, the Court of Appeal will undoubtedly deal with it speedily.
I do not consider that Mr Roberts could reasonably be expected to pursue Mr Normoyle and Ms Huxley to finality before the determination of the appeal.
It does not seem to me that the plaintiffs will be denied the fruits of their victory because it is unlikely that there will be any for enjoyment before the appeal is determined.
Furthermore, there is no indication that the liquidator has moved either speedily or at all to pursue Mr Roberts in respect of the amount of $45,807 which was not stayed.
CONCLUSION
The matter is finely balanced.
In all the circumstances, however, I have concluded that provided Mr Roberts undertakes to the Court to prosecute his appeal diligently and with all due expedition he should be given a stay until the appeal is determined, or until further order of the Court, and in that event, also to give liberty to apply on 48 hours notice.
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Decision last updated: 28 September 2011
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