Keon Pty Ltd as trustee for Keon Trust v Goldfields Equipment Pty Ltd (in Liquidation)
[2020] WASC 61
•28 FEBRUARY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: KEON PTY LTD as trustee for KEON TRUST -v- GOLDFIELDS EQUIPMENT PTY LTD (IN LIQUIDATION) [2020] WASC 61
CORAM: CURTHOYS J
HEARD: 29 APRIL 2019
DELIVERED : 28 FEBRUARY 2020
FILE NO/S: CIV 2774 of 2018
BETWEEN: KEON PTY LTD as trustee for KEON TRUST
Plaintiff
AND
GOLDFIELDS EQUIPMENT PTY LTD (IN LIQUIDATION)
Defendant
Catchwords:
Charges - Uncertainty - Incomplete
Legislation:
Personal Properties Securities Act 2009 (Cth)
Result:
Action dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr G D Cobby SC |
| Defendant | : | Mr J E Scovell |
Solicitors:
| Plaintiff | : | Davies & Co Lawyers |
| Defendant | : | Mendelawitz Morton Commercial Lawyers |
Case(s) referred to in decision(s):
Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98
In re Brightlife [2000] 1 Ch 200
Masters v Cameron (1954) 91 CLR 353
CURTHOYS J:
Introduction
On or about 11 July 2018, Goldfields was placed into voluntary administration.
On or about 15 August 2018, Goldfields entered liquidation.
By deed dated 28 July 2014 between Goldfields Equipment Pty Ltd and Keon Pty Ltd as trustee for the Keon Trust:
(a)Goldfield acknowledged that it had borrowed $325,284.17 from Keon;
(b)Keon agreed to provide those funds as a loan 'with an associated floating mortgage over all business assets';
(c)the parties agreed that a convertible note would be issued in favour of Keon in the form of Annexure A to the Deed.
The principal issues are:
(a)the interpretation of the phrase 'with an associated floating mortgage over all business assets'; and
(b)if there is a valid floating charge, whether Keon has complied with the provisions of the Personal Properties Securities Act 2009 (Cth) (PPSA).
Keon accepted that if the Court does not find that the Deed creates an equitable charge then the matter comes to an end at that point (ts 2 29.4.19). I have concluded that no valid floating charge was created by reason of uncertainty and it is unnecessary to deal with the second issue.
The relief sought by Keon
Keon seeks the following relief:
1.1a declaration that by the instrument styled 'Loan Funding and Convertible Note' made between Keon and Goldfields dated 28 July 2014 Goldfields granted an equitable charge over the whole of its present and after acquired property to secure the payment of $325,284.17 together with interest thereon at the National Australia Bank reference rate as from 1 July 2015 until payment; and
1.2a declaration that Keon has a perfected security interest in all the property of Goldfields enforceable against third parties pursuant to the PPSA arising out of the Defendant's execution of the 'Loan Funding and Convertible Note' and the registration of that interest in the Personal Properties Securities Register.
The evidence
Keon relies the affidavit of Richard Peter Ladyman affirmed 10 October 2018. That affidavit exhibited the Deed and a number of company searches.
Goldfields did not file evidence in these proceedings.
The terms of the Deed
The terms of the Deed are as follows:
THIS DEED is made on 28th of July 2014
BETWEEN
GOLDFIELDS EQUIPMENT PTY LTD (ACN 131184 677) of 1 William Street, West Kalgoorlie Western Australia
('Goldfields')
AND
KEON PTY LTD AS TRUSTEE FOR THE KEON TRUST (ABN 46 076 435 601) of First Floor, 160 Stirling Highway, Nedlands Western Australia
('Keon')
INTRODUCTION:
A.Richard Ladyman is the Chairman of Goldfields
B.Goldfields has borrowed, to date, a total of $325,284.17 from Keon. This amount is made up as follows:
28/07/2014 $56,000.00
29/07/2014 $20,000.00
23/08/2014 $36,996.88
26/08/2014 $11,000.00
27/08/2014 $5,000.00
31/08/2014 $196,287.29
C.Keon has agreed to provide these funds as a loan with an associated floating mortgage over all business assets.
D.The Parties have agreed that a convertible note will be issued in favour of Keon (see Annexure A). The convertible note is convertible for shares in Goldfields for the amount owing to Keon. The convertible note is convertible at Keon's discretion in accordance with terms and conditions of this Deed.
Annexure A stated:
Annexure A
Secured Convertible Note
Goldfields Equipment Pty Ltd (ACN 131184 677)
This is to certify that Keon Pty Ltd As Trustee for the Keon Trust is the holder of a Secured Convertible Note issued by Goldfields Equipment Pty Ltd.
The Note is issued upon and subject to the conditions set out over.
Dated: 2 September 2014
Executed by ...
CONDITIONS
DEFINITIONS
'Company' means Goldfields Equipment Pty Ltd ACN 131184 677.
'Conversion' means the satisfaction of the Note by the issue of Ordinary Shares in accordance with these Conditions and 'convert' has the corresponding meaning.
'Holder' means Keon Pty Ltd as Trustee for The Kean Trust.
'Note' means a secured convertible note issued by the Company on the terms set out in this Certificate.
'Ordinary shares' means fully paid ordinary shares in the capital of the Company, and if ordinary shares in the capital of the Company are subdivided or consolidated, includes ordinary shares of other denominations which may exist following such subdivision or consolidation:
'Principal Amount' means the sum of $325,284.17.
'Rate' means 0% between 28 July 2014 and 30 June 2015. Thereafter means the National Australia Bank Reference Rate from time to time.
'Redemption' means the satisfaction of the Note by payment in cash of the Principal amount together with accrued interest thereon to the date of such payment and 'redeem' has a corresponding meaning.
INTEREST
Interest shall accrue on the Principal Amount at the Rate calculated on an annual basis for the period from the date of this Note until Redemption or Conversion of the Note and payable monthly in arrears.
CONVERSION AND REDEMPTION
At any time, the Holder may give not less than twenty five (25) Business Days' notice to the Company requiring the company to satisfy the Principal Amount.
The Company may at any time redeem this Note.
This Note may only be converted at the Holders discretion.
If Conversion is required to be effected under these Conditions then on Conversion the Company shall allot to the Holder that number of Ordinary Shares as is derived by the following formula:
IS = Principal Amount Remaining
_____________________x IC
CV
Where:
'IS' means the number of Ordinary Shares to be issued on Conversion; and
'IC' means the number of Ordinary Shares of the Company issued by the Company immediately before Conversion occurs.
'CV' means the company valuation of the Goldfields as agreed by all officeholders in the most recent board meeting. As a reference point, the agreed valuation at the board meeting held on 27 March 2015 was $1,000,000.
Any fraction arising under the above formula shall be ignored.
The allotment of Ordinary Shares pursuant to these Conditions share be accepted by the Holder in full satisfaction of the liability of the Company for the Principal Amount in respect of the Note.
Ordinary Shares allotted to the Holder pursuant to these Conditions shall rank pari passu in all respects with other Ordinary Shares on issue at the date of allotment save that they shall participate in the aggregate dividends declared by the Company.in respect of the financial year of the Company during which they are allotted only to the extent of one twelfth of such aggregate dividends for every whole calendar month intervening between the date of such allotment and the end of that financial year.
ADJUSTMENTS
The Note share not entitled the Holder to participate in any issues of shares, convertible obligations, share options, bonus issues, warrants to subscribe for equity capital, or other obligations or rights having an element of equity, which during the currency of the Note are offered to the holders of Ordinary Shares.
DEFAULT
If:
(a)the Company defaults in the performance or observance of, or compliance with, any material provisions of this Note which is incapable of remedy or which, if capable of remedy, is not remedied within twenty (20) Business Days of the Company receiving written notice of its occurrence from the Holder:
(b)the Company is unable to pay its debts as they fall due, ceases on its business;
(c)a distress, attachment, execution or other legal process is levied, enforced or sued out on or against the assets of the Company and is not discharged or a Court application made for the same to be stayed within thirty (30) Business Days;
(d)any order is made or resolution passed for the dissolution of the Company ( except for the purposes of reconstruction, amalgamation or reorganisation while solvent),
then the Holder may by notice in writing to the Company declare this Note to have become due and payable within twenty (20) days.
The Note must not be transferred by the Holder unless it receives the prior written consent of the Company to any proposed transfer. The Company may withhold such consent in its absolute discretion and without giving any reason therefore, any transfer of the Note without the prior written consent of the Company shall be no force or effect.
CHARGE
Within 7 days of issuing this Note the Company shall execute the Charge and use reasonable endeavours to register the Charge within 45 days of executing the Charge.
GENERAL
Interest shall cease to accrue on the Note from the date upon which Conversion or Redemption is affected.
As Keon noted in its submissions there is nothing to indicate that the Deed was prepared by lawyers.
Australian Goldfields NL (in liq) v North Australian Diamonds NL
In Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98 the Court of Appeal considered the authorities relating to uncertainty. Buss JA stated:
[138] As Callaway JA noted in lpex Software Services Pty Ltd v Hosking [2000] VSCA 239 [25], contractual uncertainty may exist in the form of incompleteness or irremediable obscurity or the illusory nature either of a promise which one party seeks to enforce or of a counter-promise of the other party which is said to constitute valuable consideration.
[139] In Thorby v Goldberg [1964] HCA 41 ; (1964) 112 CLR 597, Menzies J cited with approval the following passage from the dissenting judgment of Sugerman J in the Full Court of the Supreme Court of New South Wales:
It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention (607).
[140] The omission of a term from a contract will not render the contract incomplete or uncertain and therefore void unless the term is essential. In Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 [29], Ipp J (Pidgeon J agreeing) referred with approval to the following observations of Lloyd LJ (Stocker & O'Connor LJJ agreeing) in Pagnan SPA v Feed Products Ltd [1987] 2 Lloyds Rep 601:
It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by 'essential' one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by 'essential' one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is autologous. If by 'essential' one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, 'the masters of their contractual fate'. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called 'heads of agreement' (619).
[141] Lord Wright's statement in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, that a court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects' has been referred to and applied by Australina courts on numerous occasions (514). The statement is not to be understood as limited to documents drawn by business people for themselves and without legal assistance. See Australina Broadcasting Commission v Australasian Performing Right Assn Ltd [1973] HCA 36; (1973) 129 CLR 99, 109-110 (Gibbs J).
[142] The mere existence of an ambiguity in a contractual provision does not make the contract void for uncertainty. See Upper Hunter County District Council v AustraUan Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, where Barwick CJ said:
But a contract of which there can be more than one possible meaning or which when construed can produce its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 512) ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd in Ouston [1941] AC 251) is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved (436-437).
[143] In Hammond v Vam Ltd [l972] 2 NSWLR 16, Sugerman P (Holmes & Mason JJA agreeing) noted that a court is always reluctant to decide that a contractual provision is void for uncertainty if a reasonable meaning can be ascribed to it. His Honour added that a court's duty is 'to put a fair meaning upon it, unless this is utterly impossible' (18). See also Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571, 578 (Gibbs CJ).
[144] Ipp J emphasised in Anaconda Nickel [32], that the number of arguments that may be raised by the parties as to the proper construction of a contractual provision is usually irrelevant to whether the provision is void for uncertainty.
At [9] McLure JA stated:
The remaining grounds rely on the first limb of the uncertainty doctrine, that of incompleteness. On that subject, two questions arise in no particular order. First, is the contract incomplete in the way contended for. The answer to that question is to be arrived at by applying accepted canons of contractual construction to the identification of the express and implied (in fact and law) terms of the contract. The second question is whether any proven omission constitutes an essential term of the contract. What is essential is a question of fact to be determined by reference to the nature, object and purpose of the intended contract order to determine what the parties regard, or would ordinarily be expected to regard, as matters to be covered by their contract: Anaconda Nickel (111).
Void for uncertainty?
Although the parties approached the issues in a different order the first question that arises is whether any equitable charge created by the Deed is void for uncertainty.
Goldfields submitted that any alleged equitable charge arising under the Deed is too uncertain to be enforceable (Goldfields' submissions paragraph 25).
Goldfields further submitted:
26.The Court was asked to consider a not dissimilar set of facts in In the matter of Swan Services Pty Limited (in liquidation) [2016] NSWSC 1724. The facts of that case are helpfully summarised at [246] to [248] of the judgment:
[246]A loan agreement dated 16 April 2003 between Swan Services and Ms Swan (Ex JS-I) ('2003 Loan Agreement') relevantly provided that:
1.[Swan Services] requires bridging finance for the purposes of continuing its business operations. [Ms Swan] has agreed to assist [Swan Services] from time to time and in accordance with the financial means of [Swan Services] up to the limit of $1,500,000 ( one and a half million dollars).
2.[Swan Services] agrees to repay [Ms Swan] initially by the payment of $10,000 per month from the commencement date of this agreement being 16 April 2003. The initial amount of the loan is $360,000.
3.[Ms Swan] as security for such loan, will acquire a fixed and floating charge over the assets of the company and the shares of the company which is to be registered immediately following the transfer of the initial funds.
[247]Ms Swan referred in her affidavit evidence to the circumstances in which the 2003 Loan Agreement was executed, and discussions as to the preparation of a formal charge document to be registered in relation to the loan agreement, which did not occur after stamp duty issues arose (JS2 [55] - [56], [58] - [61]).
[248]Notification of details of a charge (dated 16 April 2003) which attached the 2003 Loan Agreement was subsequently lodged with Australian Securities and Investments Commission ('ASIC') although no stamp duty had been paid upon it (Ex CC13, 824).
27.The liquidator challenged the validity of a later loan agreement and charge which were predicated on the indebtedness and security created by the 2003 Loan Agreement. The liquidator submitted that, on its proper construction, the 2003 Loan Agreement did not create a charge over the assets of Swan Services and that, as at 2 April 2013, Swan Services was either not indebted to Ms Swan pursuant to the 2003 Loan Agreement, or, if she was indebted to Swan Services, that indebtedness was unsecured.
28.The Court was therefore asked to consider whether the 2003 Loan Agreement was effective to create a charge over the assets of Swan Services, or contemplated the grant of a charge in the future and did not itself charge any property, or was uncertain.
29.Ultimately, the court held that the 2003 Loan Agreement was too uncertain to be enforceable. At [285], Black J held:
While I accept that the Court will do its best to seek to avoid a contract failing for uncertainty, it seems to me that the 2003 Loan Agreement, and any equitable charge derived from it, was too uncertain to be enforceable. As Ms Swan accepts, the 2003 Loan Agreement identifies the assets that were the subject of either a fixed or a floating charge, namely the assets of Swan Services, but does not identify which assets were subject to the fixed charge and which to the floating charge. The lack of attention to that question would not be surprising, if the parties contemplated that a more detailed charge would be executed and registered.
30.Similar to the position here, at best the parties intended for the detail to be included in the later document, which may partly justify the lack of detail in the Loan Funding and Convertible Note. However, of itself, the Loan Funding and Convertible Note fails to properly identify the assets the subject of the charge (even if Recital C was taken into account, the phrase 'business assets' does not adequately identify the relevant assets) and does not contain any of the material terms that the Charge, when executed, would contain.
31.By reason of the matters set out in paragraphs 25 to 30 above, the Defendant submits that, on the assumption that the Loan Funding and Convertible Note does gives rise to an equitable charge (something which the Defendant disputes), any equitable charge alleged to arise from the Loan Funding and Convertible Note is too uncertain to be enforceable.
32.Further, in relation to the accuracy of the recitals and the Loan Funding and Convertible Note generally, Recital B sets out the amounts that the Defendant 'has borrowed to date'. With the exception of the first date (which is the same as the date of the Loan Funding and Convertible Note), the other dates post-date the date of the Loan Funding and Convertible Note. This may raise a question as to when the Loan Funding and Convertible Note was actually executed (which may be on or around the date Annexure A was executed, being 2 September 2014 ).
In answer to Goldfields submissions that the Charge was void for uncertainty Keon submitted:
4.A contract is only uncertain if the court is unable to put any definite meaning on its terms: Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429, at 436; Meehan v Jones (1982) 149 CLR 571, at 578.
5.A court is obliged to ascribe a fair meaning to a contractual provision unless it is utterly impossible to do so: Australian Goldfields NL (in liq) v North Australian Diamonds NL (2009) 40 WAR 191, at [143].
6.Despite its defects in form, the Deed contains the essential terms of the loan made by Keon to Goldfields - it specifies the amount, the term (upon demand or the conversion of the convertible note or, in the event of default, 20 days after notice of demand), the interest rate payable and how that interest is to be calculated.
7.Keon submits that, on the proper construction of the document, the 'associated floating mortgage over all business assets' and the 'Charge' referred to in the instrument are one and the same, such that the 'Charge' Goldfields agreed to grant was a floating charge over all of its assets. That conclusion is to be drawn, in Keon's submission, from:
7.1the reference to the grant of a 'floating mortgage', a concept unknown to the law
7.2that mortgage being granted over 'all [of Goldfields'] business assets' consistent with a floating charge; and
7.3the reference to the Charge being registered within 45 days, consistent with the former s 263, Corporations Act 2001 (Cth).
Keon submitted that the alleged charge is a floating charge and not a fixed charge (ts 4 29.4.19). Therefore, the issue that arose in Swan as to which assets were subject to a fixed charge and which assets were subject to a floating charges does not arise.
Keon submitted that the terms of the Charge could be determined from the Deed and Annexure A, in particular the terms of the loans secured by the charge were adequately stated and set out in the document in that the principal amount was identified, there is provision for repayment in terms of redemption, there is provision for Keon to give notice requiring the repayment on not less than 25 days business days' notice.
Keon accepted that the Deed did not deal with when the Charge would crystallise upon the assets of Goldfields. To overcome this it relied upon a decision of Hoffman J (as he then was) in In re Brightlife [2000] 1 Ch 200.
Keon argued that Brightlife was authority for the proposition that the events of crystallisation are to be implied by law, namely (1) winding up, (2) appointment of a receiver, and (3) ceasing to carry on business (relying on a passage at page 212C).
The reference to those three events was part of a wider submission by counsel in Brightlife that 'those three events and only those three would cause crystallisation notwithstanding any agreement to the contrary'. Hoffman J rejected that submission (p 214H). His Honour held that 'for present purposes it was unnecessary to decide any questions about automatic crystallisation' (p 215F).
Analysis
I am conscious of the need to give meaning to a document if possible. Nevertheless one cannot stretch the words of a document to give meaning where none exist.
I do not accept that Brightlife is authority for the proposition advanced by Keon.
The terms of a charge are capable of considerable variation. The wider the possibilities the more difficult it is to imply terms. The fact that Keon relied upon a 2000 UK decision suggests that there is very limited authority to support the implication of such terms into a document purporting to be a charge. If there were recent authorities that support the implication of terms one would expect them to have been cited by Keon.
It is common ground that no documents, other than the Deed, were executed between the parties (ts 4, 29.4.19).
As Goldfields stated in its submissions:
18.The two relevant provisions of the Loan Funding and Convertible Note (accepting for a moment that a recital is a 'provision') are:
18.1Recital C provides that: 'Keon has agreed to provide these funds as a loan with an associated floating mortgage over all business assets'; and
18.2Under the heading 'Charge': 'Within 7 days of issuing this Note the Company shall execute the Charge and use reasonable endeavours to register the Charge within 45 days of executing the Charge'.
19.There is no definition of 'Charge' in the Loan Funding and Convertible Note.
Keon accepts that 'the Charge' is not defined in the Deed (ts 3, 29.4.19).
Keon's submissions as to the amount secured by the alleged charge and the other terms of the alleged charge rely on the terms of Annexure A (See Keon's submissions at 3.4 ‑ 3.6). Keon submitted that when one takes the document as a whole the reference to 'the Charge' in Annexure A is to be read as a reference to the associated floating mortgage over all the business assets (ts 3, 29.4.19).
In this context it is important to note that the language used in relation to the charge in Annexure A is that Goldfields 'shall execute the Charge and use reasonable endeavours to register the Charge within 45 days of executing the charge'.
Two features of this clause should be noted: first' the definite article is used 'the', secondly, 'Charge' is capitalised. It is apparent from this clause that a further document was contemplated by the parties, namely, a document to constitute 'the Charge'. One would expect such a document to be an annexed to the Deed in the same way that the convertible note is annexed to the Deed as Annexure A. No such document was annexed. The terms of the Charge are not set out.
The Deed is incomplete in that the Charge is not annexed or otherwise capable of being ascertained.
As Goldfields submitted it appears that the parties contemplated that a more detailed document constituting the charge would be provided.
It is important to note that there was no submission based on an agreement to agree the terms of the equitable charge (Masters v Cameron (1954) 91 CLR 353).
If a submission had been advanced that despite the use of the definite article and the capitalisation of 'the Charge', the term should be read as 'a charge' then the relief sought should have been in effect sought specific performance of an agreement to agree.
Keon's submissions proceeds on the basis that the terms are to be implied into the Deed. If 'the Charge' was to be read as 'a charge' the terms of and the terms to be implied would be implied into the charge pursuant to the Deed and not into the Deed.
I find that the Deed is incomplete and therefore uncertain.
Therefore, I am not prepared to make the declarations sought in the originating summons.
The plaintiff's should be dismissed.
Orders
The plaintiff's claim for declarations is dismissed.
I will hear from the parties as to costs. My provisional view is that the plaintiff should pay the defendant's costs to be taxed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MDM
Associate to the Honourable Justice Curthoys27 FEBRUARY 2020
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