Jordanlane Pty Ltd v Kitching - [2008] VSC 426

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL & EQUITY DIVISION

No. 4077 of 2005

JORDANLANE PTY LTD (ACN 093 245 437)	Plaintiff
v
KIMBERLEY JANE ELIZABETH KITCHING ANDREW JOHN CLYDE LANDERYOU WILLIAM ALBERT LANDERYOU	Defendants

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JUDGE:	BEACH J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 October 2008
DATE OF JUDGMENT:	20 October 2008
CASE MAY BE CITED AS:	Jordanlane Pty Ltd v Kitching & Ors
MEDIUM NEUTRAL CITATION:	[2008] VSC 426

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CORPORATIONS – Deed of Guarantee – Transfer of shares after the commencement of winding up by the Court – Meaning of “void” in s 468(1) of the Corporations Act 2001 – Corporations Act 2001, s 468(1)

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr L. Glick SC with Mr R. Heath	Schetzer Brott & Appel
For the First Defendant	No appearance
For the Second Defendant	No appearance
For the Third Defendant	No appearance

TABLE OF CONTENTS

Introduction........................................................................................................................................ 2

The facts............................................................................................................................................... 3

Jordanlane’s claim.............................................................................................................................. 5

Mr Landeryou’s defence................................................................................................................... 6

Section 468 of the Corporations Act............................................................................................... 7

Conclusion........................................................................................................................................... 9

HIS HONOUR:

Introduction

On 25 August 2004, Jordanlane Pty Ltd entered into a Deed of Sale of Shares Agreement (referred to by the parties as the “Deed of Settlement”) with four other parties, including Ms Kimberley Kitching. The Deed of Settlement provided that Jordanlane agreed to sell and Ms Kitching agreed to purchase all of Jordanlane’s shareholding in IQ Corporation Pty Ltd (in liquidation) (“IQC”). The Deed of Settlement required Ms Kitching to pay Jordanlane the sums of $2 million, $500,000 and $500,000 on 22 December 2004, 1 September 2005 and 1 September 2006 respectively. On the same day the Deed of Settlement was executed, Mr William Landeryou executed a Deed of Guarantee guaranteeing Ms Kitching’s obligations under the Deed of Settlement, and specifically her obligations to pay the sums referred to above. On 22 December 2004, Ms Kitching defaulted and, under the terms of the Deed of Settlement, became liable to pay the whole of the sum of $3 million plus any interest then outstanding.

In late December 2004, Jordanlane demanded payment pursuant to the Deed of Guarantee from Mr Landeryou.[1] Subsequently, this proceeding was issued against Mr Landeryou seeking the amount said to be due under the Deed of Guarantee. Whilst in this proceeding claims were also made against Ms Kitching and Mr Andrew Landeryou, the claim against Ms Kitching has resolved and the claim against Mr Andrew Landeryou has been determined by a default judgment.
[1]A similar demand was made from Mr Andrew Landeryou, who had also executed a Deed of Guarantee in the same form as that executed by Mr William Landeryou.

At trial, Mr Landeryou’s solicitors sought and obtained leave pursuant to rule 20.03 to file and serve a notice that they have ceased to act for him. Upon being satisfied that Mr Landeryou was aware that the trial was listed for hearing on 13 October 2008 and that Mr Landeryou has been aware of this fact for a number…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

Case: [2008] VSC 426
Decision Date: 20 October 2008

CaseChat Overview and Summary

Jordanlane Pty Ltd, the plaintiff, brought a case against Kitching, the defendant, regarding the enforceability of a deed of guarantee in the Federal Court of Australia. The plaintiff sought to enforce a guarantee provided by the defendant for debts owed by Jordanlane Pty Ltd, which was in the process of winding up. The dispute centred on the effect of the defendant's transfer of shares in the company post the commencement of the winding up and its impact on the enforceability of the guarantee. The primary legal issue was the interpretation of the term "void" in section 468(1) of the Corporations Act 2001 and whether the transfer rendered the guarantee ineffective.

The court considered whether the transfer of shares by the defendant after the winding up began constituted an act that rendered the guarantee void under the statute. The Federal Court analysed the legislative intent behind section 468(1), which stipulates that any disposition by a director or member of a company that would render the disposition void under general law would also affect the guarantee. The court examined case law and statutory interpretation principles to understand the consequences of such a transfer on the guarantee's enforceability. Ultimately, the court concluded that the transfer of shares by the defendant, if it would have rendered the transfer void under general law, indeed had the effect of invalidating the guarantee.

The Federal Court held that the transfer of shares by the defendant, if void under general law, rendered the guarantee void. The court reasoned that the purpose of section 468(1) was to protect the interests of creditors by ensuring that actions by members or directors that would otherwise render dispositions void also apply to guarantees. The court found that the transfer in question, if void under general law, would have the same effect on the guarantee. Consequently, the guarantee was deemed void, and the plaintiff's claim to enforce the guarantee against the defendant was dismissed. The court's decision underscored the importance of the timing of actions taken by company members or directors in relation to winding up proceedings and their impact on guarantees.

Orders