MGC Properties Pty Ltd v Tang
[2009] QSC 322
•6/10/2009
SUPREME COURT OF QUEENSLAND
CITATION: MGC Properties Pty Ltd v Tang [2009] QSC 322 PARTIES: MGC PROPERTIES PTY LTD (ACN 109 247 878) (applicant)
v
LLOYD LOK ING TANG(respondent) FILE NO: BS6441/09 PARTIES: Q.L.D. GROUP PTY LTD (applicant)
v
LLOYD LOK ING TANG(respondent) FILE NO: BS6443/09 PARTIES: CANN ROAD DEVELOPMENTS PTY LTD (applicant)
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LLOYD LOK ING TANG(respondent) FILE NO: BS6444/09 PARTIES: HAVEN ROAD DEVELOPMENTS PTY LTD (applicant)
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LLOYD LOK ING TANG(respondent) FILE NO: BS6445/09 PARTIES: MGC HOLDINGS PTY LTD (applicant)
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LLOYD LOK ING TANG(respondent) FILE NO: BS6446/09 PARTIES: Q.L.D. DEVELOPMENTS PTY LTD (applicant)
v
LLOYD LOK ING TANG(respondent) FILE NO: BS6447/09 DIVISION: Trial Division PROCEEDING: Applications ORIGINATING
COURT:Supreme Court, Brisbane DELIVERED ON: 6 October 2009 DELIVERED AT: Supreme Court, Brisbane HEARING DATE: 16 July 2009 JUDGE: Douglas J ORDER: Applications dismissed. CATCHWORDS: CORPORATIONS – WINDING UP – WINDING UP IN
INSOLVENCY – STATUTORY DEMANDS –
APPLICATION TO SET ASIDE DEMANDS – where the
respondent has issued statutory demands against six different
companies – where the applicants have applied to set the
statutory demands aside – whether there is a genuine dispute
about the existence of the debt or some other reason.Corporations Act 2001 (Cth) s 459J(1)(b) Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd
(2008) 19 VR 358, 389 at [93] distinguishedSR Lumb for the applicants COUNSEL: AJH Morris QC and VG Brennan for the respondents SOLICITORS: Bain Gasteen for the applicants
Londy Lawyers for the respondents
Douglas J: Dr Lloyd Lok Ing Tang has issued statutory demands against six different companies. Those companies have applied to set the statutory demands aside. The demands are each in the same form, for the same amount and rely upon the same agreements. Each application asserts that there is a genuine dispute about the existence of the debt and argues that there is some other reason for setting aside the demands. The demands are said to relate to the applicants’ liability under indemnities granted to secure the obligations of two principal debtors, George Anthony Cheihk and Collingwood Park Developments Pty Ltd (“CPD”) to Dr Tang.
The demands rely upon three deeds, a deed of guarantee and indemnity dated 19 September 2006, a deed of settlement dated 19 September 2006 and a deed of variation dated 19 November 2008.
The applicants argue that on the proper construction of cll. 1.5 and 5.1 of the deed of guarantee and indemnity the amounts the subject of the demands are not due and owing. They also argue that Dr Tang is not entitled to payment of those amounts by reason of cl. 4.2 of a priority and subordination deed also dated 19 November 2008.
Background facts
The applicants are named as guarantors under the guarantee and indemnity deed where Dr Tang is identified as the beneficiary and Mr Cheihk and CPD are named as the debtors. The relevant passages of the various agreements and the background facts, which were not in dispute, were identified usefully in the applicant’s written submissions.
Guarantee and Indemnity Deed
The relevant clauses in the guarantee and indemnity deed included cl. 1.5 which provided:
“If the Debtor defaults in the due and punctual performance of any of the Debtor’s Obligations, the Guarantor unconditionally indemnifies the Beneficiary against all consequential loss which the Beneficiary may suffer, and shall pay the amount of any such loss on demand to or as directed by the Beneficiary.”
Clause 5.1 provided:
“For the consideration mentioned in clause 2.1, the Guarantor unconditionally indemnifies the Beneficiary against any loss which the Beneficiary may suffer or Claim against it because:
(a) the Debtor’s Obligations are unenforceable in whole or in part; or
(b) the Guaranteed Moneys, in whole or in part, are not recoverable from the Debtor or having been recovered are repaid and restored.”
“Debtor’s Obligations” was defined to mean:
“the Obligations of the Debtor to pay the Guaranteed Moneys and all its other Obligations to the Beneficiary (present or future, actual or contingent) under or in connection with the Transaction Documents any agreement, Security Interest, Guarantee or instrument.”
“Guaranteed Moneys” was defined to mean:
“(a) all present or future indebtedness of the Debtor to the
Beneficiary either alone or in conjunction with any other
person on any account whatever under the Transaction
Documents;(b) any loss or Claim suffered by the Beneficiary arising out of or in connection with a breach by the Debtor of any Obligation of the Debtor under the Transaction Documents; (c) any interest awarded against the Debtor or payable by the Debtor in respect of any such Claim.”
“Transaction Documents” was defined to mean:
“(a)
the deed styled ‘Terms of Settlement’ between the parties hereto and the Debtor, entered into at the same date as this Agreement (the ‘Terms of Settlement’).
(b)
the documents referred to as ‘Tang Securities’ referred to in the Terms of Settlement, given in favour of the Beneficiary as security for the Guaranteed Moneys, and entered onto (sic) at the same time as this Agreement,; and
(c)
the ‘Put and Call Options’ referred to in the Terms of Settlement and entered onto (sic) at the same time as this Agreement.”
The Settlement Deed
The settlement deed was entered into between, among others, Dr Tang, Mr Cheihk, CPD and the applicants. In broad terms, under the settlement deed the parties agreed to the settlement of proceedings commenced by Dr Tang against various parties including Mr Cheihk, CPD and the applicants on the basis, inter alia, that Mr Cheihk and CPD pay to Dr Tang six instalments totalling $5.2 million (with security and guarantees for payment of the same to be provided) and that Dr Tang transfer 200 shares in CPD and 200 units in the Collingwood Park Unit Trust (“the trust”) to certain parties.
Under the settlement deed, the fifth instalment of $720,000.00 was due on or before 31 July 2008 and the sixth instalment of $620,000.00 was due on or before 31 January 2009.
The Deed of Variation
The deed of variation was entered into between, among others, Dr Tang, Mr Cheihk, CPD and the applicants. The deed of variation varied terms of the settlement deed. Pursuant to the deed of variation Dr Tang agreed to vary the date for payment of the fifth instalment in consideration for which Mr Cheihk and CPD agreed to:
(a) pay the fifth instalment on the “payment date” being
the date on which the signed counterparts of the deed of
variation were exchanged;(b) pay interest from 31 July 2008 until 8 November 2008 in the sum of $56,757.26;
(c) pay interest from between 8 November 2008 and the payment date at a rate of $567.57 per day;
(d) pay the amount of Dr Tang’s reasonable legal costs incurred up to 30 October 2008 associated with the failure to pay the fifth instalment in the amount to be invoiced by Londy Lawyers to Dr Tang (not exceeding $15,000.00 including GST).
Further, by cl. 1.6 of the deed of variation, the 45 day “period of grace” referred to in cl. 4 of the settlement deed was stated not to apply to the sixth instalment of $620,000.00 which was due to be paid on 31 January 2009 and if not paid by that date the default interest specified in cl. 4.2 of the settlement deed would accrue. The deed of variation also provided for the execution of the priority deed. Recital F to the deed of variation provided:
“CPD proposes to fund the payment of the firth instalment by way of a further advance from Capital Finance Australia Limited (‘CFAL’). For this purpose, CFAL requires the parties hereto to execute a Priority and Subordination Deed in the form attached (‘Priority and Subordination Deed’).”
Clause 1.8 of the deed of variation provided:
“[Dr Tang] will sign the Priority and Subordination Deed and provide an executed copy thereof to the Cheihk Parties on the payment date, upon payment of the amounts referred to in clauses 1.1, 1.2 and 1.3 hereof.”
The Priority and Subordination Deed
The parties to the priority deed were CPD's financier Capital Finance Australia Limited (“CFAL”), Dr Tang (named as the “Subsequent Mortgagee”), CPD (as trustee for the trust (named as the “Mortgagor”) and various parties identified as the “Guarantor” including the applicants (the applicants were signatories to the Deed although not named in Item 1). By the priority deed, CFAL and Dr Tang agreed to regulate the priorities between CFAL’s securities and Dr Tang’s securities. Clause 4.2 of the priority deed provided:
“At all times prior to the discharge of CFAL’s Securities, the Subsequent Mortgagee must not without the prior written consent of CFAL:
(a) accept or request payment of any amount due in respect of the Subsequent Mortgagee’s Securities (Subsequent Mortgagee’s Debt) from any person;
(b) sue for or take action to recover payment of the Subsequent Mortgagee’s Debt;
(c) seek to exercise any right of set off against the Mortgagor;
(d) commence or join with any person in commencing any liquidation or bankruptcy proceedings in respect of the Subsequent Mortgagee’s Debt against any person; or
(e) seek to exercise any option or right to accelerate the Subsequent Mortgagee’s Debt.”
CFAL’s securities were defined as three registered mortgages and a fixed and floating charge. Dr Tang’s securities as subsequent mortgagee comprised a registered mortgage No. 709964238 and a fixed and floating charge No. 1357384.
The Mortgage
The mortgage No. 709964238 was entered into between CPD (as trustee) as mortgagor and Dr Tang as mortgagee. It secured “all money which [CPD] whether directly or indirectly or contingently or otherwise at any time from time to time is or becomes liable to pay to [Dr Tang].” The expressed consideration was Dr Tang, at the request of CPD, entering into the settlement deed to secure payment of various instalments payable under the settlement deed. Clause 1.1 provided that CPD would pay to Dr Tang the “Principal Sum” (being the various instalments payable under the settlement deed) in accordance with the terms of the settlement deed.
The Charge
The charge was entered into between CPD as chargor and Dr Tang as chargee. By the charge, CPD agreed to charge the “Charged Property” to Dr Tang upon the terms and conditions in the charge to secure payment of the “Moneys Secured”. The charged property comprised “All and singular the present and future property assets and undertaking of the Chargor”. “Moneys Secured” was defined to mean, inter alia:
“all debts and liabilities of the Chargor to the Chargee, arising under the Terms of Settlement irrespective of whether the debts or liabilities are:
(a) present or future, actual, prospective, contingent or otherwise, or
(b) of the Chargor alone or jointly with any other person, or
(c) any combination of the foregoing,
and whether the amount of the debts or liabilities is at any time
ascertained or unascertained…”
Clause 1.10 defined “Terms of Settlement” to mean a reference to the deed styled “Terms of Settlement” between, among others, Dr Tang and CPD entered into at the same date as the charge. It appears that the deed referred to is the settlement deed.
Genuine dispute
There were three separate arguments advanced for the applicants as to why there were genuine disputes requiring the statutory demands to be set aside.
“Consequential loss”
The first argument related to the terminology used in cl. 1.5 of the guarantee and indemnity deed by which the guarantor unconditionally indemnified the beneficiary against all “consequential loss” which the beneficiary may suffer. The argument was that cl. 1.3 provided that the guarantor unconditionally guaranteed to Dr Tang the due and punctual payment by Mr Cheihk and CPD of the guaranteed moneys and also the due and punctual performance by Mr Cheihk and CPD of the debtor’s obligations. Clause 1.4 provided that, if Mr Cheihk and CPD defaulted in the due and punctual payment of the guaranteed moneys, the guarantor should pay those moneys on demand as directed by the respondent. Accordingly the applicants submitted that “consequential loss” in that context meant everything beyond the normal measure of damages, such as profits, loss or expenses incurred through breach rather than simply the non-payment of the principal amount.
In developing that submission Mr Lumb for the applicants relied upon the decision of Nettle JA for the Victorian Court of Appeal in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd[1] where his Honour said:
“93. In my view, ordinary reasonable business persons would naturally conceive of ’consequential loss’ in contract as everything beyond the normal measure of damages, such as profits lost or expenses incurred through breach. Despite the construction which has been put on ‘consequential losses’ by cases such as Millar and Croudace, it would be unrealistic to suppose that the appellant and the respondent employed the expression ‘consequential loss’ in cl 8.9 of the agreement advisedly in that sense. It is more likely in this context that they intended the expression to have its ordinary and natural meaning. Accordingly, I would construe the expression ‘consequential loss’ in cl 8.9 as intended to have that meaning. Read in the light of the contract as a whole, and giving due weight to the context in which the clause appears, including the nature and object of the contract, I see no ambiguity which as a matter of principle would warrant a departure from that view. It follows as I see it that, although the judge’s approach in this case was in accordance with the English cases, it was not correct to construe ‘consequential loss’ as limited to the second rule in Hadley v Baxendale.”
[1] (2008) 19 VR 358, 389 at [93], footnote omitted.
One has, however, to read that passage and the decision in context. The use of the words “consequential loss” in the contract being considered by that Court was as part of an exemption clause which sought to protect a supplier of emission control systems and engineering services from accepting liability for liquidated damages or consequential loss. The contract provided for emission guarantees in cl. 7.1 and also set out what penalties should apply should the equipment provided not perform as guaranteed; see cl. 7.4. There was also an express clause in respect of liability for defects providing a warranty limited to liability for workmanship and materials only.
Mr Morris QC for Dr Tang argued, therefore, that that situation was quite different form this where an indemnity had been granted in circumstances where a debtor defaulted in the due and punctual performance of any of its obligations. In that context he submitted that the natural use of language when referring to “consequential loss” related to losses from such a default by a debtor. In his submission the context did not require any distinction between direct or indirect consequential losses such as such arose in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd but a construction of the use of the words in the context of the provision of an indemnity. He submitted there was no good reason to limit the losses indemnified to ancillary losses rather than the central loss applying from the default by the principal debtor.
That seems to me to be a correct approach to the construction of the words in their context as the loss covered is consequential upon the default of the debtor in the performance of its obligations. That must include, in my view, the loss suffered by non-payment of the guaranteed moneys.
“Unenforceable or not recoverable”
The second argument made by the applicants, in respect of cl. 5.1 of the guarantee and indemnity deed, was that its language only required the provision of an indemnity where the debtor’s obligations were unenforceable or not recoverable. The argument was that that indemnity only applied where Dr Tang was precluded under the general law or by statute from enforcing the obligations of Mr Cheihk and CPD or from recovering moneys paid by them. The submission was that the clause did not apply were there had been a mere failure by Mr Cheihk and CPD to pay the amounts payable by them under the settlement deed and the deed of variation.
That argument may draw some strength from the use of the word “unenforceable” but where cl. 5.1(b) also provides an indemnity where the guaranteed moneys are not recoverable from the debtor “or having been recovered are paid and restored” it seems clear to me that what is being referred to extends beyond an indemnity where the power to enforce an obligation is absent to one where there has been no practical recovery because of non-payment by the principal debtor.
In any event, however, Mr Morris QC pointed to the fact that the sums claimed were not recoverable from the debtor because of cl. 4.2 and the evidence that CFAL had not given its consent to his client taking proceedings against the principal debtor. Accordingly, he submitted, his clients were entitled to enforce the indemnity against the guarantors provided by cl. 5.1. That argument also seems to me to be correct.
Were the demands “in respect of” the subsequent mortgagee’s securities?
The next argument was whether the amounts were not payable by virtue of cl. 4.2 of the priority deed. As I have said CFAL has not provided its consent to Dr Tang to:
“(a) accept or request payment of any amounts due in respect of
the Subsequent Mortgagee’s Securities (Subsequent
Mortgagee’s Debt) from any person;(b)
sue for or take action to recover payments of the Subsequent Mortgagee’s Debt;
(c) seek to exercise any right of set off against the Mortgagor; (d)
commence or join with any person in commencing any liquidation or bankruptcy proceedings in respect of the Subsequent Mortgagee’s Debt against any person; or
(e)
seek to exercise any option or right to accelerate the Subsequent Mortgage’s Debt.”
The question that then arises is whether the request for payment made by Dr Tang was for an amount due “in respect of” the securities held by him as subsequent mortgagee.
Even though the words “in respect of” can have a very wide meaning it is difficult to see how they should extend to rights arising under the guarantee and indemnity deed. The subsequent mortgagee’s securities referred to in cl. 4.2 of the priority deed are defined simply by reference to a registered mortgage and a charge and the definition says nothing about the guarantees or indemnities provided in the deed of guarantee and indemnity. Clause 2.3(a)(iii) of the deed of variation also expressly preserves Dr Tang’s rights under the guarantee and indemnity notwithstanding his execution of the deed of priority and subordination.
Accordingly, the submission for Dr Tang was that the subordination and priority deed in cl. 4.2 did not affect his right to enforce the obligations pursuant to the guarantee and indemnity deed but only restrained him from accepting payment of any amount due in respect of the subsequent mortgagee’s securities, which did not include his guarantee and indemnity. Again that argument seems to me to be correct.
“Some other reason” ground
It was also submitted that I should set aside the demands exercising the broad discretion conferred by s 459J(1)(b) of the Corporations Act 2001 (Cth). That was argued on the basis that Dr Tang has sought to rely on the indemnity provisions of the guarantee and indemnity in an endeavour to avoid the operation of cl. 4.2 of the priority deed. It was also argued that service of the statutory demand on the six companies involved in this application demanding the same claimed debts would require them each to pay the respective amounts where the proper course should have been to issue claims against them to allow them to seek contribution or indemnity against other guarantors who are individuals.
On my interpretation of the operation of cl. 4.2 of the priority and subordination deed these demands do not constitute an attempt to avoid its operation but rather place reliance upon independent rights expressly preserved to Dr Tang. That the applicants may be obliged to seek contribution or indemnity in other proceedings against the other guarantors who are individuals does not seem to me to be a good reason to prevent the demands from proceeding. Even if the companies go into liquidation those are the sorts of claims that can be pursued by a liquidator.
Otherwise there was no dispute as to the amount of the debt claimed in each case.
Conclusion and orders
Accordingly I would dismiss the applications and shall hear the parties as to costs.
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