Langdon v Tradelink Pty Ltd
[2024] VSC 113
•15 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2024 01088
| PAMELA LANGDON | Plaintiff |
| -v- | |
| STEEL HOUSE FRAMES AUSTRALIA PTY LTD (068 321 121) | First defendant |
| STODDART (VICTORIA) PTY LTD (060 855 478) | Second defendant |
| TRADELINK PTY LTD (000 003 832) | Third defendant |
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JUDGE: | Gray J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 March 2024 |
DATE OF JUDGMENT: | 15 March 2024 |
CASE MAY BE CITED AS: | Langdon v Tradelink Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 113 |
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CAVEATS – Application for removal of caveat over property of spouse of director of company in administration where spouse had given guarantee of company’s debts and charge in support of guarantee – Lodgement of caveat after commencement of administration – Lodgement did not breach prohibition on enforcement of guarantee in Corporations Act 2001 (Cth) s 440J(1) – Transfer of Land Act 1958 s 90(3) – Prima facie case of interest justifying maintenance of caveat - Balance of convenience favouring maintenance of caveat.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C E Shaw KC with M Tennant | Snowton Saje |
| For the Third Defendant | C G Juebner KC | Holman Webb Lawyers |
| Proceeding discontinued by consent as against the First and Second Defendants |
HIS HONOUR:
The Corporations Act 2001 (Cth) (Corporations Act) provides that during the administration of a company, a guarantee of a liability of the company cannot be enforced as against a spouse or relative of a director. Where a director’s spouse has given such a guarantee, supported by a charge, is the chargee prohibited from lodging a caveat over charged property owned by the spouse while the administration of the company is on foot?
Facts
The plaintiff is the sole registered proprietor of a property in Lake Wendouree, Victoria (Property).
She seeks orders under s 90(3) of the Transfer of Land Act 1958 (TLA) for the removal of a caveat lodged by the third defendant (Tradelink) on 29 January 2024 over the Property (Caveat).
This case relates to the administration of a company of which the plaintiff’s husband, Shane Langdon, is sole director. Mr Langdon’s company is Langdon Building Pty Ltd (ACN 115 409 437) (administrators appointed) (Company).
The Company was incorporated in 2005. Mr Langdon became its sole director in February 2007. The Company is a builder of homes. It has a significant number of projects on foot.
On 28 November 2012, the Company applied for a credit account with the company now known as Tradelink, which I am satisfied led to an agreement for supply of building materials on terms of credit by Tradelink as ‘Supplier’ to the Company as ‘Customer’. The application and agreement included a ‘Guarantee and Indemnity and Charge’ (Guarantee) signed by the plaintiff.
On 29 January 2024, voluntary administrators were appointed to the Company.
Shortly after the appointment of administrators, and also on 29 January 2024, Tradelink lodged the Caveat.
The grounds of claim recorded in the Register for lodgement of the Caveat are Tradelink’s interest as chargee under the agreement dated 28 November 2012.
By the Guarantee, amongst other things, the plaintiff as ‘Guarantor’ agreed ‘To pay the Supplier without any demand … all monies which are now or may from time to time hereafter be owing or remain unpaid by the Customer to the Supplier on all accounts whatsoever…’.
The Guarantee contained a number of other clauses. One of them provided that the plaintiff as Guarantor ‘To better secure the payment of all monies which the Guarantor may become liable to pay to the Supplier hereunder … charges all of its interest in real property both present and future and wheresoever situated with the amount of the Guarantor’s indebtedness to the Supplier’, and appointed the Supplier as attorney to execute various documents including consents to any caveats the Supplier ‘may wish to lodge against any dealings in the real property of the Guarantor in any Titles Office…’. The clause also provided ‘Each Guarantor undertakes to not object to the lodging of any such caveat or take any steps to remove any such caveat’.
The plaintiff did not dispute that she is bound by the Guarantee, or that the charge granted in it applies to the Property.
After an initial meeting of the Company’s creditors, on 26 February 2024 the administrators issued a report to creditors in anticipation of a second meeting of creditors scheduled for 4 March 2024 (Report). In the Report, the administrators recommended that creditors vote in favour of a deed of company arrangement (DOCA) proposed by Mr Langdon.
At the meeting of creditors on 4 March 2024, the Company’s creditors resolved to accept Mr Langdon’s DOCA proposal. The DOCA proposal includes an initial cash contribution of $500,000 and a deferred cash contribution of $200,000 payable within six months.
Issues
The plaintiff seeks an order removing the Caveat over the Property from the Register pursuant to s 90(3) of the TLA.
The principles that apply to such an application are well settled. There is a two-stage test.[1] The two stages for determining the application for removal of the Caveat are:
(a)First, the caveator must establish that there is prima facie case — in the sense that the case has a sufficient likelihood of success to justify the maintenance of the caveat — that he or she has the estate or interest which he or she claims in the land in question.[2]
(b)Secondly, the caveator must establish that the balance of convenience favours the maintenance of the caveat.[3]
[1]AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235, [25] (AE Brighton).
[2]AE Brighton [25](a), citing Piroshenko v Grojsman [2010] VSC 240; (2010) 27 VR 489, 491 [7], 494 [21]–[22]; [2010] VSC 240 (‘Piroshenko’), cited with approval in 63 Buckley Street Pty Ltd v Keeron Nominees Pty Ltd [2011] VSCA 289, [11]; Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126, [35]–[36] (‘Carbon Black’); Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172, [36]–[38].
[3]AE Brighton [25](b), citing Piroshenko [7].
Here, the parties were agreed that the resolution of the first stage of this test turned on the question of whether Tradelink lodged the Caveat contrary to the prohibition in s 440J(1) of the Corporations Act. If the Caveat was lodged in breach of that provision, Tradelink accepted that it would follow that I would order the removal of the Caveat under s 90(3) of the TLA, subject to the grant of a brief stay Tradelink foreshadowed it would seek. Tradelink has made no application under s 440J(1) in relation to the lodgement of the Caveat.
In the event that I were to be satisfied that the lodging of the Caveat did not breach the prohibition in s 440J(1), the parties had opposing positions on the application of the second limb of the test.
The proceeding before me, therefore, raises the following issues for resolution:
(a) Did Tradelink lodge the Caveat in breach of the prohibition in s 440J(1) of the Corporations Act?
(b) If not, has Tradelink established that the balance of convenience favours the maintenance of the Caveat?
Consideration
First issue – did Tradelink lodge the Caveat in breach of s 440J(1)?
As to the first stage in the test for removal of a caveat under s 90(3) of the TLA, I am satisfied that there is at least a prima facie case that Tradelink has an interest in the Property as chargee under the 2012 agreement.
However, as Tradelink acknowledged, if the lodgement of the Caveat was prohibited by s 440J(1)(a), and in the absence of any application for leave, I would order removal of the Caveat. In this sense, I took Tradelink to be conceding that if the lodging of the Caveat breached s 440J, there was no prima facie case justifying maintenance of the Caveat for the purposes of the first stage in the test. The question of breach of s 440J(1)(b) does not arise, because Tradelink has not commenced a proceeding.
So, was the lodgement of the Caveat in breach of the prohibition in s 440J(1)(a)?
The plaintiff relied on Re Behan, in which Hill J made comments which I regard as persuasive obiter dicta characterising the prohibition in s 440J as extending to steps taken prior to the commencement of a proceeding to enforce a guarantee, such as the making of a demand under the guarantee.[4] So much may be accepted.
[4]Re Behan; Ex parte Pioneer Concrete (Qld) Pty Ltd (1995) 17 ACSR 725, 728.
The determination of the issue of whether lodgement of the Caveat was in breach of s 440J(1)(a) turns on the proper interpretation of s 440J and a proper understanding of the nature of a caveat lodged under the TLA.
The principles of statutory interpretation are well known. The statutory interpretation process must begin and end with the text used.[5] Where the words of a provision are clear, unambiguous, and can be intelligibly applied to the subject matter, the provision must be given its ordinary and grammatical meaning — in such cases, Parliament’s intention has been expressed ‘with unambiguous clarity in the language used’.[6] The text must be interpreted in its context, and context should be considered at first instance, rather than at a later stage when ambiguity might arise.[7] The context includes the purpose Parliament intended to achieve, as discerned from the legislation itself, and relevant extrinsic material.[8] The legislative context includes the statute as a whole, with an assumption that Parliament intends interrelated provisions to operate coherently, giving effect to ‘harmonious goals’.[9]
[5]R v A2 [2019] HCA 35; (2019) 269 CLR 507, [32]; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27, [47]; Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503, [39] (Consolidated Media Holdings); Thiess v Collector of Customs [2014] HCA 12; (2014) 250 CLR 664, [22]; Treasurer of Victoria v Tabcorp Holdings Ltd [2014] VSCA 143, [99]–[102] (Tabcorp).
[6]Tabcorp [2], [6].
[7]CIC Insurance Ltd v Bankstown Football Club Limited (1997) 187 CLR 384, [14] (CIC).
[8]Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355, [69] (Project Blue Sky); CIC, [88]; Consolidated Media Holdings [39].
[9]Project Blue Sky [69]–[70].
Section 440J of the Corporations Act relevantly provides:
(1)During the administration of a company:
(a)a guarantee of a liability of the company cannot be enforced, as against:
(i)a director of the company who is a natural person; or
(ii)a spouse or relative of such a director; and
(b)without limiting paragraph (a), a proceeding in relation to such a guarantee cannot be begun against such a director, spouse or relative;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
…
(4)In this section:
guarantee, in relation to a liability of a company, includes a relevant agreement … because of which a person other than the company has incurred, or may incur … a liability in respect of the liability of the company.
It is also important to note the heading of s 440J. Since 2011, there have been changes to the use that may be made of section headings in interpreting sections of Commonwealth Acts. The changes applied to existing Acts as well as future ones. Section headings are now regarded as part of the Act.[10]
[10]Acts Interpretation Act 1901 (Cth) s 13(3) previously excluded section headings from forming part of an Act. The Acts Interpretation Amendment Act 2011 (Cth) amended s 13, with the result that all material from and including the first section of an Act is now part of the Act.
The heading of s 440J is ‘Administration not to trigger liability of director or relative under guarantee of company's liability’.
According to the research of the parties and my own research, it does not appear that the first issue has been considered in any decided case.
However, the parties drew my attention to Waco Kwikform.[11] In that case, an application was made to extend the operation of a caveat under s 74K of the Real Property Act 1900 (NSW) in response to a lapsing notice served on the caveator, and the caveator sought and obtained retrospective leave to have done so pursuant to s 440J(1) of the Corporations Act. Like the present case, there was a guarantee and charge in support of a credit agreement for a company. The guarantor was the sole director of the company. The chargee lodged the caveat one day before the company went into administration. The guarantor gave a statutory notice that would trigger the lapse of the caveat absent a proceeding to extend it being commenced by the caveator.
[11]Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379.
One of the issues considered by White J was whether the application for an order to extend the operation of the caveat was prohibited by s 440J(1)(a) or (b) of the Corporations Act, so as to require a grant of leave. White J decided that the application was not prohibited by s 440J(1)(a), but was by s 440J(1)(b).
At first glance this may appear incongruous, because paragraph (b) begins with the words, ‘without limiting paragraph (a), …’. Such words appearing in a provision are often an indication of legislative intention that the matters that follow the words are a subset of the matters addressed in the preceding provision. However, it is possible that facts may arise that do not conform to this pattern. Waco Kwikform was such a case.
In deciding that the application to extend the caveat was not prohibited by s 440J(1)(a), White J said:
In my view, the application for an order to extend the operation of the caveat is not a step by way of enforcement of the defendant’s guarantee of the liability of the company in administration. If the order is made it will preserve the status quo but will not, by itself, result in enforcement of the charge. Nor is it a step to enforce the guarantee such as would be taken if proceedings were brought to sue the defendant for a debt on the guarantee, or if a demand were made for payment of the debt.[12]
[12]Waco Kwikform [11].
However, White J considered that s 440J(1)(b) was engaged and that the caveator was obliged to seek leave to bring the proceeding to maintain the caveat. His Honour explained that:
Nonetheless, leave to bring the proceeding was required pursuant to s 440J(1)(b). The present is a proceeding ‘in relation to’ a guarantee of a liability of the company in administration given by its director. The words ‘in relation to’ are wide. They are satisfied by the existence of a relationship or connection between the guarantee and the proceeding. As the charge secures the liability of the defendant under the guarantee, and as the proceeding is brought to seek to preserve the charge against possible loss of priority, the proceeding has a relationship to the guarantee such as to attract paragraph 440J(1)(b).[13]
[13]Waco Kwikform [12].
In the course of considering whether to grant leave for the commencement of the proceeding for extension of the operation of the caveat, White J identified the principal legislative policy behind s 440J as being the policy previously identified by Barrett J in Coates Hire,[14] that is, a policy of removing any inhibition that directors might have in commencing a voluntary administration.[15]
[14]Coates Hire Operations Pty Ltd v McNaughton [2006] NSWSC 841, [6] (Coates Hire).
[15]Waco Kwikform [22].
I agree that this is the principal purpose of s 440J.
His Honour also said the extension of the caveat was ‘not a step of enforcement of the charge or the guarantee. It is no more than the preservation of the status quo which existed before commencement of the administration’.[16] He also said:
… it does not seem to me that it is part of the policy underlying s 440J that a creditor entitled to the benefit of a guarantee secured by a charge should be forced to lose such priority as the charge might have by being displaced in favour of a later registered mortgage if that were something necessary to be done to implement a proposal for a deed of company arrangement.[17]
[16]Waco Kwikform [26].
[17]Waco Kwikform [28].
His Honour explained how an outcome of that kind might arise later in the judgment:
It may be the case that a third party would be entitled to lodge an instrument which, if registered, would confer priority on that person over the plaintiff. For example, if another person had taken a charge in similar form to that given by the defendant to the plaintiff, it may at least be arguable that such a chargee, perhaps acting as attorney of the defendant, would be entitled to execute and lodge for registration a mortgage in registrable form to secure any debt that might be the subject of any such instrument.[18]
[18]Ibid [55].
The plaintiff submitted that White J’s reasoning was directed to the application to extend the operation of a caveat that had been lodged before commencement of the company’s administration, and all his Honour’s references to maintenance of the status quo were references to a status quo in which the caveat had already been lodged. I agree. However, I draw from White J’s reasoning some support for the following principles. Extension of a caveat does not amount to enforcement of the charge or guarantee to which it relates, but rather relates to prioritisation of security interests. In my view, the same may be said of an initial lodgement of a caveat. Also, it does not seem to be part of the policy underlying s 440J that a secured creditor should not be permitted to maintain the priority of its security even if that were thought to be necessary or desirable to facilitate a deed of company arrangement.
In Boensch v Pascoe, the plurality of the High Court said ‘a caveat against dealings has long been conceived of as “a statutory injunction to keep the property in statu quo until the caveator’s title shall have been fully investigated”’.[19]
[19](2019) 268 CLR 593, [113], citing Collins v Featherstone (1889) 10 LR (NSW) Eq 192, 193 (Owen CJ). See also Barry v Heider (1914) 19 CLR 197, 221 (Isaacs J); Hall v Richards (1961) 108 CLR 84, 92 (Kitto J), Dixon CJ and Windeyer J agreeing at 86, 105; Eng Mee Yong v Letchumanan [1979] UKPC 13; [1980] AC 331 at 337–338, (Lord Diplock); Black v Garnock (2007) 230 CLR 438, 442–443 [8] (Gummow and Hayne JJ), 475 [104] (Crennan J).
A caveat lodged under s 89 of the TLA is a statutory injunction, in the sense that it prevents registration of new dealings with the relevant title on the Register, pending an application under s 90 or administrative action under s 89A.
Counsel for Tradelink submitted that it must be uncontroversial that lodgement of a caveat by Tradelink would have been permissible from the time the agreement and charge first applied to the Property, well before any suggestion could have been made that the Guarantee was being enforced. I accept this submission. It is consistent with the clauses of the Guarantee outlined above. As already noted, those clauses include consent by the plaintiff to a caveat being lodged from the outset.
Counsel for Tradelink submitted that the intervening event of the commencement of administration of the Company could not alter the fundamental character of the lodgement of a caveat. It remains a step that protects the chargee’s security interest from a loss of priority, but is not a step in enforcement of the Guarantee. I agree.
Although, circumstantially speaking, the lodgement of the Caveat after commencement of administration might reasonably have been perceived by the plaintiff as being precipitated by the Company’s financial troubles and its administration, that does not mean that the lodgement of the Caveat amounted to a triggering or enforcement of the Guarantee. It was, rather, a statutory injunction against further dealings being registered on the Register so as to preserve whatever priority Tradelink’s security interest as chargee might have.
For these reasons, the first issue is resolved in favour of Tradelink. The lodgement of the Caveat was not in breach of s 440J(1) of the Corporations Act.
Second issue – has Tradelink demonstrated that the balance of convenience favours maintenance of the Caveat?
The plaintiff argued that the Caveat is adversely impacting her ability to access funds from a line of credit she has with the National Australia Bank (NAB) in order to assist with obtaining the funds necessary for the DOCA proposal.
In this regard, the plaintiff relied on her affidavit affirmed 6 March 2024. That affidavit contained the following paragraphs explaining the plaintiff’s understanding of the impact of the Caveat, and of another caveat since removed, on the prospects for the DOCA coming into effect, as follows:
19.I am informed by my husband and believe that:
a.a formal DOCA has not yet been executed;
b.there are a number of conditions precedent that need to be satisfied;
c.if the DOCA is not executed within 15 business days of 4 March 2024 the Company will automatically be placed in liquidation.
20.The Property is encumbered by a mortgage (“Mortgage”) to the [NAB].
21.The NAB is the Company’s major secured creditor.
22.I am aware from discussions with my husband and from the Report that NAB will not be bound by the terms of the proposed DOCA and as such, reaching agreement with NAB on how the Company’s existing secured debt will be dealt with, is also currently a condition precedent to completion of the proposed DOCA.
23.Under the Mortgage I have access to a line of credit. My husband has requested that I utilise that line of credit to assist to fund the contributions contemplated by the DOCA proposal. I am willing to do so and have informed my husband of that fact.
24.I am informed by my husband and believe that he has communicated to the NAB that I am wiling for the line of credit to be utilised to make funds available to fund the contributions contemplated by the DOCA proposal.
25.I am informed by my husband and believe that the … [caveats are] affecting the NAB’s willingness to grant further financial accommodation under the Mortgage.
In paragraph 56 of the plaintiff’s affidavit, she added:
The existence of the caveats is directly affecting my access to the facility secured by the NAB Mortgage on the Property, which in turn is jeopardising access to funds necessary to make the contributions to the proposed DOCA fund.
On the available evidence it is not clear to me that NAB will not consent to the DOCA or allow the use of funds needed for the DOCA. There is no correspondence from NAB in evidence, and the second hand hearsay of its position on these matters is of no real weight. Further, the plaintiff’s evidence does not explain what funds are available to her under her existing line of credit, and what further financial accommodation she requires.
I appreciate that the burden of proof in this proceeding rests on Tradelink. However, to the extent that the plaintiff attempted to prove that the Caveat is impacting her ability to obtain funds from NAB in a way that impedes the DOCA, I do not consider this to have been established.
On the other hand, I accept that Tradelink has established a real risk of prejudice if its Caveat is removed. It seems likely that the available equity in the Property may be diminished. It may be a secured creditor of the Company to some extent, by reason of a retention of title provision in its terms of trade with the Company, but its position as chargee of the Property is of more value. Without maintenance of registration of its Caveat, there is a real risk that its priority may be subordinated to a further registered encumbrance of some kind, or some other dealing in the Property.
In line with White J’s remarks in Waco Quickform, in my view the mere fact that there is a DOCA proposal and the removal of the Caveat might help bring it closer to coming into operation does not outweigh the entitlement Tradelink has to protect the priority to be accorded to its charge. Counsel for Tradelink submitted that I could not be satisfied on the evidence that if the Caveat was removed, the DOCA would necessarily proceed. There is force in this submission. There are other conditions precedent that may or may not be met. If the Caveat were removed, Tradelink could lose its priority in circumstances where there is a prospect that the DOCA might not proceed in any event. Counsel submitted that this weighs heavily against the plaintiff on the balance of convenience. I agree.
The second issue is resolved in favour of Tradelink.
Conclusion
The proceeding as against Tradelink will be dismissed.
I will hear the parties on the form of orders to be made.
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