Macintosh v Turner Corporation Ltd (In liq)
[1995] FCA 602
•11 AUGUST 1995
CATCHWORDS
CORPORATIONS - liquidation - charges - assignment of contractual rights prohibited by agreement - distinction between prohibition of assignment of accrued benefits to third parties and charge over moneys actually received pursuant to contract - whether floating charge covers assets acquired after charge converted into fixed charge.
CORPORATIONS - liquidation - Corporations Law does not affect secured creditor's proprietary interest.
Corporations Law, ss 479(3)
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85.
Ferrier v Bottomer (1972) 126 CLR 597.
Mineral & Chemical Traders Pty Ltd v T. Tymczyszyn Pty Ltd (in liq.) (1994) 15 ACSR 398.
Re Rex Developments Pty Ltd (in liq.) (1994) 13 ACSR 485.
Ayerst v C. & K. (Construction) Ltd [1976] AC 167.
IN THE MATTER OF TURNER CORPORATION LIMITED (IN LIQ.): MACINTOSH v TURNER CORPORATION LIMITED (IN LIQ.)
NG 3090 of 1994
Sackville J.
Sydney
11 August, 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3090 of 1994
GENERAL DIVISION )
IN THE MATTER OF TURNER CORPORATION LIMITED (IN LIQUIDATION)
(A.C.N. 001 120 278)
ALEXANDER ROBERT MACKAY MACINTOSH
Applicant
TURNER CORPORATION LIMITED (IN LIQUIDATION)
First Respondent
STATE BANK OF NEW SOUTH WALES LIMITED
(A.C.N. 003 963 228)
Second Respondent
PROGARD FIRE PROTECTION CO PTY LIMITED
(A.C.N. 001 367 148)
Third Respondent
CORAM: SACKVILLE J.
PLACE: SYDNEY
DATE: 11 AUGUST, 1995
MINUTES OF ORDER
THE COURT DIRECTS THAT:
The applicant is justified in paying to the State Bank of New South Wales the balance of the sum of $1,525,000 together with interest thereon, now standing to the credit of an account in the name of the first respondent in account No. 000 156 629 60 with the said Bank, after payment of his proper costs and fees and the expenses of this Application.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 3090 of 1994
GENERAL DIVISION )
IN THE MATTER OF TURNER CORPORATION LIMITED (IN LIQUIDATION)
(A.C.N. 001 120 278)
ALEXANDER ROBERT MACKAY MACINTOSH
Applicant
TURNER CORPORATION LIMITED (IN LIQUIDATION)
First Respondent
STATE BANK OF NEW SOUTH WALES LIMITED
(A.C.N. 003 963 228)
Second Respondent
PROGARD FIRE PROTECTION CO PTY LIMITED
(A.C.N. 001 367 148)
Third Respondent
Coram: Sackville J.
Place: Sydney
Date: 11 August, 1995
REASONS FOR JUDGMENT
The Proceedings
This is an application by a liquidator, pursuant to s.479(3) of the Corporations Law, seeking directions. The liquidator seeks directions as to whether he is justified in paying to the State Bank of New South Wales ("the Bank") the sum of $1,525,000 received and held by him in circumstances to be recounted. The directions sought contemplate that the payment would include interest earned on the sum, but allow for payment of the liquidator's proper costs and fees.
The application, which was filed on 14 December 1994, named
Turner Corporation Ltd (In Liq.) ("Turner") and the Bank as respondents. The Bank appeared, through Mr Russell of counsel, to support the making of the directions sought by the liquidator. Progard Fire Protection Co Pty Ltd ("Progard"), a creditor of Turner, was also joined as a respondent. Leave was granted to Mr Morrissey, an officer of Progard, to represent that company on the application. Mr Morrissey argued that the Court should not make the directions sought by the liquidator.
Background Facts
The facts were not in dispute. On 8 March 1989 Turner, as "the Builder", and Austotel Pty Ltd ("Austotel"), as "the Proprietor", entered into a Building Works Contract ("the Contract") relating to a project known as the Rest Hotel Development at Milsons Point. Under the Contract Turner agreed to renovate an existing 2-storey brick building and to construct a 15-storey hotel with 3 basement carpark levels. Clause 1.04 of the Contract provided as follows:
"Neither the Proprietor nor the Builder shall assign this Agreement without the written consent of the other. Consent to assignment shall not be unreasonably withheld."
The Contract included a provision (cl.13.01) requiring the parties to submit any difference or dispute arising under or in connection with the Contract to arbitration.
By an Equitable Mortgage and Fixed and Floating Charge ("the Charge") dated 30 April 1990, Turner charged the whole of its
undertaking and assets in favour of the Bank to secure repayment of certain moneys due or to become due to the Bank by Turner. The consent of Austotel was not obtained to the execution of the Charge.
The Charge included the following provisions:
"NOW THIS DEED WITNESSES that in pursuance of the said agreement and in consideration of the premises the Mortgagor
HEREBY CHARGES ASSIGNS AND TRANSFERS ALL AND SINGULAR its undertaking and all its assets whatsoever and wheresoever both present and future held by the Mortgagor in its own right and as trustee of any trust (including without limitation all the Mortgagor's right title and interest in and to the Charged Property...).
(all of which undertaking and assets are hereinafter referred to as the "mortgaged premises") with the repayment to the Bank of [certain moneys].
...
AND IT IS HEREBY AGREED AND DECLARED as follows:
23.THAT the charge hereby created shall operate in the following manner:-
23.1 as a FIXED CHARGE over:-
(a)all real and leasehold property and engines machinery plant books of account vouchers and other documents relating in any way to the business transactions of the Mortgagor; and
(b)all shares securities negotiable or otherwise and documents evidencing title and bond and store warrants and the goods mentioned therein at any time deposited with the Bank by the Mortgagor; and
(c)the Charged Property, and
23.2as a FLOATING CHARGE only as regards all other assets hereby charged
but so that the Mortgagor shall not be at liberty
to dispose of or otherwise deal with its book debts or to create any mortgage or charge in priority to or pari passu with this security except with the consent in writing of the Bank.
23.3The charge hereby created as a floating charge shall immediately preceding the occurrence of any event of default under this Deed operate as a FIXED CHARGE over the mortgaged premises to which the floating charge provisions in the previous sub-clause relate.
...
25.THAT at any time after the moneys hereby secured become payable this security shall immediately become enforceable and the Bank may without any demand or notice:-
...
(ii)appoint in writing any person to be a receiver or receiver and Manager of the mortgaged premises...".
In 1991 Turner and Austotel each gave a number of notices of dispute under the Contract. Turner commenced an action in the Supreme Court of New South Wales claiming damages in excess of $12 million against Austotel. This action was stayed by the Supreme Court, pursuant to s.53 of the Commercial Arbitration Act 1984 (NSW). Austotel filed a cross claim seeking $1.6 million in damages, over and above a sum of $1.16 million which had been deducted from payments due to Turner.
After a hearing lasting some 40 days, the arbitrators made an interim award on 12 November 1993. The arbitrators awarded Turner $100,741, together with interest, in full settlement of all claims by either party against the other. This amount comprised an award on Turner's claim of $2,302,741, less an award
in favour of Austotel on its cross-claim of $2,219,952, together with interest on the difference between these two amounts.
On 30 November 1993 the Bank appointed Mr M. Madden to be the receiver of all the assets and undertakings of Turner. It was common ground that the receiver was appointed pursuant to cl.25(ii) of the Charge, following default by Turner in meeting payments due to the Bank. It was also common ground that the floating charge created by the Charge crystallised on 30 November 1993, the date of appointment of the receiver.
On 10 December 1993, Turner sought leave to appeal to the Supreme Court of New South Wales from the interim award of the arbitrators on a number of issues dealt with on the award. On 2 June 1994, Cole J. of the Supreme Court granted leave to Turner to appeal on the number of specified questions of law: Turner Corporation (In Provisional Liquidation) v Austotel Pty Ltd, 2 June 1994, unreported. His Honour allowed the appeal on the issues of law and remitted the award to the arbitrators for reconsideration by them in the light of and in conformity with his Honour's reasons for judgment.
In the meantime, on 15 March 1994, Mr Madden had been appointed provisional liquidator of Turner, by an order of the Supreme Court of New South Wales.
By a summons filed on 24 June 1994, Turner sought leave to appeal to the New South Wales Court of Appeal against certain aspects
of Cole J's decision. Austotel also sought leave to appeal against portions of Cole J's decision unfavourable to it.
The Deed and the Payment
By a Deed of Settlement and Release ("the Deed") dated 30 August 1994 Turner and Austotel agreed to resolve their differences and disputes. Austotel agreed to pay and Turner agreed to accept the sum of $1,525,000 in settlement of a number of disputes identified in the Deed. The relevant terms of the Deed were as follows:
"RECITALS
A....
B.Disputes and differences between Austotel and Turner arose out of the Contract and the Works in connection with Turner's claims to be paid, inter alia, extra moneys for alleged breaches of implied terms of contract, breaches of the Trade Practices Act, variations, delay costs, acceleration costs, damages for conversion of bank guarantees, claims for unpaid progress certificates and to be granted extensions of time for practical completion of the Contract and Austotel's claims to be paid liquidated damages and damages for delay, defective work and materials and the cost to complete the Works ('disputes and differences').
C.The disputes and differences were referred ... for arbitration in accordance with the provisions of the Commercial Arbitration Act 1984.
D.On 12 November 1993 the Arbitrators delivered their interim award ('interim award') which awarded $100,741.03 to Turner together with interest at $32.06 per day for each day after 12 November 1993 until the date of the final award.
E.Turner applied for leave to appeal against the Arbitrators' interim award and on 2 June 1994 His Honour Mr Justice Cole in the Supreme Court of New South Wales gave judgment on Turner's application for leave to appeal and granted the
appeal in part and made orders to that effect on 10 June 1994 ('Supreme Court Orders').
F.In Court of Appeal proceedings CA40377 of 1994 and CA40376 of 1994 Turner and Austotel each applied to the Court of Appeal for leave to appeal against the Supreme court Orders made by His Honour Mr Justice Cole ('Court of Appeal applications').
G.It has been agreed that Austotel will return the performance bond and pay and Turner will accept $1,525,000 ('Agreed Sum') inclusive of all costs and interest in full and final settlement and satisfaction of:
(a)the disputes and differences;
(b)the interim award;
(c)the Supreme Court Orders; and
(d)the Court of Appeal applications.
Turner and Austotel will each bear their own costs of and incidental to the matters and things referred to in (a)-(d).
AGREEMENT
Turner covenants with Austotel that, as from the date of this deed, it will not pursue or continue claims against Austotel which it now has, has had or may in the future have against Austotel which arise out of, or under, or by reason of or are in any way connected with the:
(a)Contract or the execution of the Works;
(b)disputes and differences;
(c)interim award;
(d)Supreme Court Orders; or
(e)Court of Appeal applications.
This covenant may be pleaded in bar to any claims which Turner may bring against Austotel.
2.1Austotel covenants with Turner that, as from the date of this deed, it will not pursue or continue claims against Turner which it now has, has had or may in the future have against Turner which arise out of, or under, or by reason of or are in any way connected with the:
(a)Contract or the execution of the Works;
(b)disputes and differences;
(c)interim award;
(d)Supreme Court Orders; or
(e)Court of Appeal applications.
This covenant may be pleaded in bar to any claims which Austotel brings against Turner.
2.2Neither Austotel nor Turner may assign or transfer any right it may have to bring claims against Turner in connection with the Contract or the Works.
Turner will at its own cost immediately apply to a court of competent jurisdiction for orders which approve this settlement and authorise its provisional liquidator to execute this deed pursuant to section 477 of the Corporations Law. Austotel will, at its own cost, co-operate with Turner in connection with the application.
Turner must obtain and provide Austotel with a sealed copy of the orders referred to in the preceding paragraph within 2 calendar months of the 10th day of August 1994, failing which the terms of this deed will have no force or effect and all agreements and settlements herein contained will automatically lapse and be of no effect.
On the provision of a sealed copy of the orders referred to in the preceding paragraph, Austotel and Turner will apply to the Court of Appeal to seek leave to discontinue the Court of Appeal applications and seek by consent an order that there be no order for costs in the Court of Appeal applications. Meantime Austotel and Turner will co-operate to adjourn the Court of Appeal applications each bearing their own costs of so doing, to 17 October 1994, or as soon thereafter as possible.
In consideration of the releases granted under clause 1 and subject to full satisfaction of and compliance with clauses 3, 4 and 5 hereof Austotel will within 24 hours of the delivery of the sealed copy of the orders referred to in clause 4, pay Turner the Agreed Sum and will return the performance bond to Turner.
..."
Although there was initially some dispute about the matter, there was evidence that Turner provided Austotel with a sealed copy of the orders, as required by paragraph 4 of the Deed. I find that Turner did comply with the requirements of paragraph 4 of the Deed.
On 5 September 1994 Tamberlin J. heard several applications in this Court relating to Turner. These included an application by the provisional liquidator, under s.477(2A) of the Corporations Law, for the Court's approval for Turner to enter the Deed. Progard was joined as a respondent to this application, but neither supported nor opposed the application. Tamberlin J. also heard an application by the Bank, under s.459P of the Corporations Law, for the winding up of Turner and the appointment of Mr Alexander Macintosh as liquidator.
His Honour, in a reported judgment delivered on 14 September 1994, held that, having regard to the results of the Supreme Court litigation and the risks inherent in the litigation, he should approve the deed: State Bank of New South Wales Ltd v Turner Corporation Ltd (Provisional Liquidator Appointed) (1994) 14 ACSR 480. Accordingly, his Honour ordered that the provisional liquidator be authorised, on behalf of Turner, to enter into the Deed. His Honour also ordered that Turner be wound up and that Mr Macintosh be appointed as liquidator.
Following approval of the Deed, Austotel paid the sum of $1,525,000 to the liquidator, and those moneys were deposited to the credit of an interest bearing account.
The Bank's Argument
The argument put by Mr Russell on behalf of the Bank, and adopted by the liquidator, was straightforward. Mr Russell commenced by accepting the proposition that cl.1.04 of the Contract, which prohibited either party assigning "this agreement" without the consent of the other, rendered ineffective not only any purported assignment of the right to future performance of the Contract but also the right to accrued benefits under the Contract.
So much follows from the decision of the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. In that case, which also involved a building contract, a clause provided that one party "shall not without the written consent of the contractor assign this contract". Lord Browne-Wilkinson, with whose judgment all members of the House agreed, recognised that the effect of a prohibition on assignment depends upon its precise terms. In relation to the particular clause, his Lordship said this (at 106):
"These possibilities of confusion (and many others which could be postulated) persuade me that parties who have specifically contracted to prohibit the assignment of the contract cannot have intended to draw a distinction between the right to performance of the contract and the right to the fruits of the contract. In my view, they cannot have contemplated a position in which the right to future performance and the right to benefits accrued under the contract should become vested in two separate people. I say again that that result could have been achieved by careful and intricate drafting, spelling out the parties' intentions if they had them. But in the
absence of such a clearly expressed intention, it would be wrong to attribute such a perverse intention to the parties. In my judgment, clause 17 clearly prohibits the assignment of any benefit of or under the contract."
Lord Browne-Wilkinson also held (at 107-109) that a purported assignment of a cause of action under the contract, in breach of the prohibition, was ineffective to vest the cause of action in the assignee.
Mr Russell accepted that cl.1.04 rendered the Charge ineffective, insofar as it purported to grant a charge over benefits accrued under the Contract. However, he pointed out that in the present case the Bank did not seek to enforce the Charge against the right to benefits accrued under the Contract, as was the position in Linden Gardens. Rather the Bank sought to enforce the Charge against moneys that had actually been received by Turner, in the form of a payment to the liquidator pursuant to the Deed. These moneys, once received by Turner, constituted an asset of Turner and were subject to the Charge, which was expressed to apply to "all assets whatsoever and wheresoever both present and future held by [Turner] in its own right".
Mr Russell argued, in the alternative, that in any event the sum of $1,525,000 was not an accrued benefit arising under the Contract, but rather was a benefit paid pursuant to the Deed. This was a separate transaction between the parties which superseded the Contract and reflected a compromise of disputes and differences arising out of the Contract, but which were not confined to the Contract. Thus even if cl.1.04 prevented the Charge applying to moneys received by Turner under the Contract, it did not prevent the Charge applying to moneys received under the Deed.
Acceptance of the Bank's Argument
In my opinion, Mr Russell's first argument is correct. The effect of the prohibition in cl.1.04 is to be determined as a matter of construction. That clause prohibited assignment of "this agreement". This language must be taken as a reference to the benefit of the agreement: Linden Gardens, at 102-103. The prohibition rendered the Charge ineffective, insofar as it purported to apply to Turner's right to performance of the Contract and its right to receive benefits accrued under the Contract. But once Austotel paid Turner an amount due under the Contract (assuming the payment in this case can be so characterised), the sum of money received by Turner simply constituted one of its assets. As a matter of construction, the provision that Turner should not "assign this agreement" could not prevent Turner effectively charging an asset constituted by moneys received as the result of the performance of the Contract.
It is one thing for a clause in the form of cl.1.04 to be read as prohibiting an assignment of accrued benefits under a building contract to a third party. In my opinion, it is quite another to construe a clause in this form as rendering ineffective a charge over moneys actually received pursuant to the building contract. As Lord Browne-Wilkinson points out in Linden Gardens
(at 104-105), the reason for including such a prohibition is that the contractor wishes to ensure that he or she deals only with the other contracting party in an area of activity "pregnant with disputes". There is no reason, in the absence of special language, to impute to the parties an intention that moneys actually received pursuant to the contract should not be capable of being assigned or otherwise dealt with in the ordinary way by the recipient.
Mr Morrissey did not contest that the Charge, on its proper construction, applied to the sum of $1,525,000 received by Turner, notwithstanding that payment of this sum was made after the Charge crystallised. I think that his concession was well founded. In Ferrier v Bottomer (1972) 126 CLR 597, the High Court held that a floating charge could cover assets acquired by the chargor after the conversion of the charge into a fixed charge. The question is simply one of construction. In Ferrier the company charged "all its real and personal property and assets and rights whatsoever and wheresoever situate both present and future [Queensland and New South Wales]". It was held that the charge applied to moneys received in Queensland after the date of crystallisation, in respect of debts owing to the company in Victoria and the Australian Capital Territory. As Menzies J. said (at 607):
"I find nothing in the deed which limits its operation to assets of the company in Queensland or New South Wales before or at the time the charge, in accordance with the terms of the deed, changed from a floating charge to a fixed charge. If it should so happen the company is found with assets in Queensland or New South Wales at any time whilst the trust deed
continued to operate, I find nothing in its terms to exclude those assets from the operation of the deed. I therefore reject the argument that assets must have been subject to a floating charge under the deed before they can be regarded as subject to a fixed charge, once the deed operated to impose such a charge. If a company borrows money and gives a charge in favour of the lenders, it is not, I think, for the Court to be astute to limit the operation of the deed creating the charge to reduce, in favour of the company, the security of the lenders. An assignment of future assets, such as this deed makes, does not, in the absence of clear language so providing, lose its efficacy as an assignment when the deed has the character of a fixed charge."
See also at 603, per Barwick C.J., with whom McTiernan J. agreed: Mineral & Chemical Traders Pty Ltd v T. Tymczyszyn Pty Ltd (in liq.) (1994) 15 ACSR 398 (SCt NSW/Santow J.), at 412-414.
The language of the Charge in the present case is broad. Turner charged "its undertaking and all its assets whatsoever and wheresoever both present and future". This language is apt to apply to moneys received by Turner after the date of crystallisation of the Charge. Since, as I have previously held, cl.1.04 did not render the Charge ineffective in its application to the sum of $1,525,000 received by the liquidator, the Charge applies to that sum.
Progard's Argument
Mr Morrissey argued that, as the Charge could not validly apply to the fruits of the Contract, it could not apply to an asset derived from the Contract. Thus the Charge did not apply to the sum of $1,525,000 received by the liquidator. For this submission Mr Morrissey relied primarily on Re Rex Developments
Pty Ltd (in liq.) (1994) 13 ACSR 485, a decision of the Full Court of the Supreme Court of the Australian Capital Territory.
In that case a floating charge was created over the present and future property and assets of a company. The floating charge was to be "convert[ed] into a fixed charge" upon appointment of a liquidator. However, a memorandum released from the charge "all book debts now or in the future owing to the chargor". A liquidator was appointed to the company, with effect from 8 May 1987. The directors of the company received cheques after 8 May 1987 in respect of book debts due to the company on that date. The majority (Miles C.J. and Gallop J.) held that any book debt existing at 8 May 1987 was not subject to the charge, which was converted to a fixed charge on that date. The only property subject to the converted fixed charge was that which was subject to the floating charge on 8 May 1987. Higgins J. dissented in what Santow J. has described as a "cogently reasoned" judgment: Mineral & Chemical Traders, at 413.
Re Rex Developments Pty Ltd is distinguishable from the present case. It involves construction of the memorandum releasing present and future book debts from the charge. The majority interpreted the parties' intention as being that, if the book debts were not subject to the floating charge at the time it converted to a fixed charge, extinguishment of the book debts by payment thereafter did not result in the payment becoming part of the charged property to which the fixed charge attached: see at 489, per Miles C.J. In the present case, the prohibition contained in cl.1.04 does not, in my opinion, evince an intention that payments made under the Contract to Turner could not be the subject of a charge created by that company.
Mr Morrissey put a second argument. He contended that, after the appointment of a liquidator, Turner's assets were held by the liquidator for the benefit of creditors generally. He took comfort from the proposition, adopted by the House of Lords, that the property of a company upon winding up ceases to belong beneficially to the company, but is held for the purpose of being dealt with in accordance with the statutory scheme governing the winding up: Ayerst v C. & K. (Construction) Ltd [1976] AC 167, at 179-180, per Lord Diplock. As I followed the argument, Mr Morrissey suggested that the statutory scheme overrode the interest of a chargee in the company's assets. But company property which has been validly charged with the payment of particular debts does not form part of the general assets available to satisfy the claims of unsecured creditors. Whether a specific asset is within the scope of a charge is a question of construction: J. O'Donovan, The Law of Company Liquidation (3rd ed, 1987), 327.
In Mineral & Chemical Traders, Santow J. considered an argument that, on liquidation of a company, beneficial ownership in the company's assets passes to the liquidator, whose interest prevails over that of any chargee. Santow J. rejected the argument, holding that the statutory scheme for the realisation and distribution of the company's assets does not operate to divest the company of its property. His Honour pointed out (at 417) that there is Australian authority supporting the proposition that liquidation does not deprive a company of beneficial ownership of the property, although the liquidator's control must be exercised in accordance with the statutory scheme. His Honour also held that nothing in the Corporations Law has the effect that liquidation affects a secured creditor's ownership interest in assets subject to the security.
Conclusion
For these reasons a direction should be given in the form substantially sought by the liquidator. I do not think it necessary to consider other arguments put on behalf of the Bank. The parties have indicated that, whatever the outcome, they wish to have an opportunity to argue the question of costs. I shall provide that opportunity.
I certify that this and the preceding 16 pages are a true copy of the Reasons for Judgment of the Honourable Justice Sackville.
Associate:
Dated: 11 August, 1995
Heard:3 August, 1995
Place: Sydney
Decision:11 August, 1995
Appearances: Mr P.A. Somerset of P.A. Somerset & Co, Solicitors, appeared for the applicant.
Mr D. Russell, instructed by P.W. Kearns, Solicitor, appeared for the second respondent.
Mr M. Morrissey appeared for the third respondent.
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