National Australia Bank v Redside Pty Ltd
[2023] VSC 145
•23 March 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2023 01117
IN THE MATTER of REDSIDE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 095 945 743)
BETWEEN:
| NATIONAL AUSTRALIA BANK LIMITED (ABN 12 004 044 937) | Plaintiff |
| v | |
| REDSIDE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ACN 095 945 743) IN ITS OWN CAPACITY AND IN ITS CAPACITY AS TRUSTEE FOR THE ZENELDIN INVESTMENT TRUST | Defendant |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 March 2023 |
DATE OF JUDGMENT: | 23 March 2023 |
DATE OF PUBLICATION OF REASONS: | 29 March 2023 |
CASE MAY BE CITED AS: | National Australia Bank v Redside Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2023] VSC 145 |
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CORPORATIONS – Corporations Act 2001 (Cth) - Section 418A – Where doubt as to validity of appointment of receivers where no express power under mortgage and where charge granted by lessee of Crown Land was not the subject of prior consent by the Minister contrary to s 137AD of the Land Act 1958 (Vic) - Charge held to be enforceable and appointment of receiver valid - Action Scaffolding & Rigging Pty Ltd v Citadel Financial Corporation Pty Ltd (2019) 135 ACSR 372, Jones, Weaver & Saker as receivers and managers of Narrogin Beef Producers Pty Ltd (Receivers and Managers Appointed) (No 2) [2010] WASC 365.
STATUTORY ILLEGALITY – Effect of illegality on validity of charge – Charge enforceable -
Gnych v Polish Club Ltd (2015) 255 CLR 414.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | C T Möller SC | Norton Rose Fulbright Australia |
HIS HONOUR:
Introduction
On 23 March 2023, I made orders validating the appointment by the plaintiff (‘NAB’) of receivers over the assets and undertaking of the defendant (‘Redside’). These are the reasons for making the orders.
Redside operates a restaurant in Port Melbourne, from premises located on Crown land under a lease granted by the (then) Department of Infrastructure (now the Department of Energy, Environment and Climate Action). Redside is a customer of NAB. Its borrowings from NAB are secured by (1) a mortgage over its leasehold interest in the land and (2) a charge over all its property and undertaking (ie, including its interest in the lease). Redside is in default of its facility with NAB and, on 20 March 2023, NAB appointed receivers and managers (‘receivers’) to Redside and its assets.
The appointment, however, is complicated by two matters:
(a) First, although the mortgage entitles NAB to take possession of the leased premises and to sell the term of the lease, it does not contain an express power for NAB to appoint a receiver to take those steps.
(b) Second, although NAB could appoint a receiver under its charge, Victorian legislation provides that a lessee of Crown land ‘shall not transfer or assign his interest under the lease or sub-let or encumber the land without first obtaining the written consent of the Minister’.[1] Although the Minister consented to Redside’s mortgage of the lease, it appears that no consent was obtained for the charge.
[1]Land Act 1958 (Vic) s 137AD.
Before appointing the receivers, NAB obtained confirmation that the lessor (ie, the Department of Energy, Environment and Climate Action) and the Port Philip City Council (the local council delegated as the Crown land administrator of the premises) that they had no objection to the appointment. Nonetheless, out of an abundance of caution, NAB brought this application, seeking orders that the appointment of the receivers was valid; alternatively, orders appointing the receivers to Redside and its assets.
The proceeding was commenced by originating process filed on 22 March 2023, supported by affidavit made on 21 March 2023 by NAB’s solicitor, Jenna Scott, of Norton Rose Fulbright Australia (‘NRFA’).
The originating process was served on Redside, its solicitors, its sole director (Mr Zeneldin), the Department of Energy, Environment and Climate Action, and Port Phillip City Council and copies of NAB’s outline of submissions were provided to those parties in advance of the hearing. None sought to be heard on the hearing of this application.
Factual background
The premises and the securities
Redside holds a lease over restaurant premises at 3 Station Pier, 9 Waterfront Place, Port Melbourne. It leased the land under a lease dated 1 March 2001, which was varied by a deed of variation made on 29 March 2006 (‘the lease’).
The land is Crown land. The lessor was the Secretary to the Victorian Department of Infrastructure (as it was then known), which is now the Department of Energy, Environment and Climate Action (DEECA). Since October 2019, the Port Phillip City Council has been delegated the role of Crown Land Administrator for the premises.
The securities
Redside has a facility with NAB that is secured by (amongst other things):
(a) a mortgage dated 19 April 2008 over Redside’s leasehold interest in the premises; and
(b) a charge dated 28 March 2008 over all Redside’s present and future property and undertaking.
The charge is a fixed charge over Redside’s present and future estate, right, title and interest in licenses and leases (clause 1.4(b)). It permits NAB to appoint a receiver if Redside is in default (clause 13.1(c)). NAB may appoint a receiver to all or any part of Redside’s property or income (clause 14.2(a)).
The mortgage contemplates the appointment of a receiver to Redside or its property. Clause 1.11 contains a definition of ‘Receiver’, while clause 3.00 provides that the moneys secured by the mortgage include payments made, losses suffered, or liability incurred ‘by a receiver’. Curiously and problematically, however, the mortgage does not contain the power to appoint a receiver. The closest it comes is clause 29.1, which provides that, in the event of default (and after 24 hours have passed since the service of a demand), NAB may exercise ‘the power of sale and all other powers conferred on a mortgagee by the Property Law Act 1958, Transfer of Land Act 1958 or any other Act, the power of sale including a power to sell the Term or any unexpired residue thereof …’.
Section 101(1)(c) of the Property Law Act 1958 (Vic) confers on a mortgagee the power to appoint a receiver ‘of the income of the mortgaged property, or any part thereof …’.[2] The power is also available to a mortgagee of Torrens land: s 102.[3] The difficulty with the statutory power, however, is that it is narrow: it allows a receiver to be appointed only to the income of the mortgaged property, not to the property itself.[4]
[2]Prior to 1860, a mortgagee could not appoint a receiver out of court unless its mortgage conferred such a power. Absent such power, any receiver that the mortgagee appointed was its agent, and attracted the liabilities of a mortgagee in possession. Lord Cranworth’s Act 1860 implied a statutory power into mortgage deeds to appoint a receiver of rents and profits from land. The was enlarged by s 19 of the Conveyancing and Law of Property Act 1881 (UK) and later s 101 of the Law of Property Act 1925 (UK). Similar provisions appear in the general property law statutes of all States in Australia.
[3]‘Power to appoint receiver in the case of mortgage under the Transfer of Land Act 1958
The provisions of subsection (1) of the last preceding section so far as they relate to the power to appoint a receiver shall apply to a mortgage under the Transfer of Land Act 1958 and in applying such provisions the expression mortgage deed shall be construed as including an instrument of mortgage under the said Act.’: Property Law Act 1958 (Vic) s 102.
[4]In that regard, the power can be compared with that contained in a standard mortgage debenture (such as in NAB’s charge in this case) or a residential or commercial mortgage – which typically empower the mortgagee to appoint receivers to take possession of the secured assets and sell them.
The absence of a power to appoint a receiver under the mortgage provides the first practical complexity in this case.
The Land Act 1958 (Vic)
The second complexity arises because Redside’s lease is over Crown land.
Section 137AD of the Land Act 1958 (Vic) (‘the Land Act’) provides that the lessee of a lease of Crown land ‘shall not transfer or assign his interest under the lease or sub-let or encumber the land without first obtaining the written consent of the Minister’.
In this case, the Minister’s consent to the mortgage was obtained in 2008. Like the mortgage, that consent contemplated that NAB might appoint a receiver: clause 3.5 provides that ‘the lessor will not determine the lease or reduce its term on the basis that [NAB] appoints a receiver or a receiver and manager of the mortgagor’. A further consent from the Minister was obtained on 26 June 2012. It also contemplates NAB might appoint a receiver: clause 3.6 is in identical terms to clause 3.5 of the earlier consent.
That said, both consents are silent as to whether Redside could grant a charge over the lease. Further, there does not appear to be any separate consent by which the Minister consented to the charge that Redside gave to NAB.
Although the charge contains a power to appoint a receiver ‘to all or any part of Redside’s property or income’ (which would include its leasehold interest in the restaurant premises), the question arises as to whether the absence of Ministerial consent precludes NAB from using its power under the charge to appoint a receiver to that interest.
Redside’s default: first and second default notices
Because of the effects of the COVID-19 pandemic on its business, in around April 2020, NAB provided Redside with hardship assistance, resulting in a payment deferral on its facility. On 2 December 2020, the assistance was extended so that Redside was not required to resume payments until April 2021. Between December 2020 and June 2021, NAB corresponded with Redside’s director, Mr Zeneldin, his financial advisor and his accountant, about Redside’s ability to service the facility.
On 22 June 2021, NAB sent a notice of default to Redside for moneys owing under the facility. The default was not remedied.
On 3 May 2022, NAB’s solicitors, NRFA, sent a second default notice to Redside for moneys owing under the facility. That default was not remedied either.
On 7 June 2022, NRFA wrote to Redside, stating:
As you are aware, Redside continues to be in default under the terms of the facilities and you are in default of the terms of your personal guarantee. NAB have not received an acceptable offer from Redside or you to settle this matter. Nor has it received any indication that you intend to take steps to sell the security property. In the interests of transparency, NAB now has little choice but to carefully consider its options, which may include appointing receivers or taking other steps to collect the amounts due to it.
We encourage you to seek independent legal advice in respect of the expired notices of demand and this letter.
Please contact us on or before 21 June 2022 to advise what steps, if any, have been taken for the security property to be sold or if there is anything further Redside wishes to put to NAB to consider, failing which NAB reserves its rights to take such further steps as it sees fit without further notice to you.
On 21 June 2022, Mr Zeneldin wrote to NRFA and, among other things, provided an appraisal of the business dated 21 June 2022.
On 4 July 2022, NRFA wrote to Mr Zeneldin, stating:
We refer to the market appraisal prepared by Mr Jamal Dabab of Link Melbourne provided with your email of 21 June 2022.
NAB does not consent to any sale of the business on the basis of Mr Dabab’s appraisal or a sale on any basis (for an amount less than the amount owing) that is not approved by it in writing.
We reiterate that Redside continues to be in default under the terms of the facilities and that you are in default of the terms of your personal guarantee and we again encourage you to seek independent legal advice in respect of the expired notices of demand dated 3 May 2022 and 16 May 2022.
NAB reserves its rights to take such further steps as it sees fit in relation to the amounts owing to it.
On 11 July 2022, Redside’s lawyers, Baker Jones Lawyers (‘Baker Jones’), wrote to NRFA, stating:
We refer to your letters to our client’s director dated 4 July 2022.
Our client has not been able to raise sufficient funds to respond to the bank’s offer regarding the facility and accepts that it now needs to take steps to sell the business for the best possible price.
We are instructed that our client has had preliminary discussions with Link Business Brokers regarding that firm’s views on the likely value of the business if it were to be sold. Our client agrees that the assessment made by Mr Dabab of Link is not a proper valuation of the business.
Irrespective of Mr Dabab’s appraisal, our client consider[s] that Link would be a suitable business broker to be retained to assist our client in selling the business. Kindly let us know whether the bank consents [to] Link being engaged on this basis by return email at your earliest convenience. Our client is reluctant to incur a liability to pay commission if another selling agent needs to be engaged.
Correspondence with the Crown
On 27 October 2022, NRFA wrote to the Department of Environment, Land, Water and Planning and Port Phillip City Council, giving notice that NAB intended to exercise its rights under the mortgage and the charge and was considering its options, including to appoint a receiver. As to that appointment, the letter stated:
Appointing a receiver
10.While the Mortgage contemplates the appointment of a receiver, the instrument does not contain an express power for NAB to appoint a receiver to the leasehold interest. It appears that the omission was unintentional.
11. The Charge does allow NAB to appoint a receiver. However, the Minster did not expressly consent to the grant of the Charge, which consent may have been required by section 137AD of the Land Act 1958 (Vic). It may be that the Minister’s consent was implied, or should be taken to be implied, or that there are other arguments that support NAB’s power to appoint a receiver. It may also be that the Minister is prepared to consent now to the Charge.
12. Whatever the position, NAB wants to ensure that it is transparent about how it deals with Redside and to co-operate with the Crown.
13. In that spirit, NAB seeks to understand whether the Minister (or the Council, as the case may be) has any objection or basis to oppose NAB’s appointment of a receiver to Redside, including to the interest under the Lease.
14. As we have said, NAB has formed the view that such an appointment (ie, across all of Redside’s assets, allowing for a “going concern” sale) will likely produce the best outcome for all stakeholders.
15. In effecting any “going concern” sale NAB will comply with its obligations as a mortgagee, including its obligations under the provisions of the Lease.
16. NAB has also considered making an application to Court about the appointment of receivers. But its preferred course is first to explore other options, including obtaining an understanding of the Minister’s and the Council’s position about a receivership.
On 16 February 2023, Russell Kennedy Lawyers, solicitors for the Council and the Department, responded to NRFA, stating:
We are instructed to confirm that Council does not object to the appointment of receivers in the circumstances described in your letter to Council dated 27 October 2022.
We are further instructed that DEECA (Department of Energy, Environment and Climate Action, formerly DELWP) has confirmed to Council that DEECA:
•does not have any formal response or requirements with respect to the matters raised in your letter of 27 October 2022; and
•is happy for Council to deal with NRF and any receiver that may be appointed (with correspondence to be provided to DEECA for its file in due course).
Council reserves its right to impose conditions in relation to any assignment of the lease (should an assignment be proposed in due course), including the payment of legal costs…”
Further default by Redside and correspondence with NAB
On 2 March 2023, NAB sent a third and final notice of default to Redside.
Also on 2 March 2023, NRFA wrote to Baker Jones, explaining that NAB had decided to issue a further notice of default and that, if the amount owing was not paid, NAB would take steps to appoint receivers to Redside, including to its interest under the lease. The letter also foreshadowed this application, stating (amongst other things):
Given the effluxion of time, and in fairness to your client, NAB has determined to reissue a further notice of default and demand for payment under the Facility Agreement and notice pursuant to section 76 of the Transfer of Land Act 1958 (Cth) (Notice).
For your attention, we enclose the Notice which was served directly on Redside as borrower under the Facility and on Mr Zeneldin as guarantor under the Guarantee on 2 March 2023.
In the event that your clients do not pay the Amount Owing in accordance with the terms of the Notice, we are instructed that NAB will immediately take steps to appoint receivers to Redside and its assets, including to the interest under the Lease. In addition, as outlined above, out of an abundance of caution, NAB will concurrently file an application with the Court seeking orders confirming the validity of the receivers’ appointment under section 418[A] of the Corporations Act 2001 (Cth).
Baker Jones responded on 9 March 2023, explaining that Redside:
(a) had advertised the business for sale; and
(b) intended to submit a proposal to NAB upon the close of the expression of interest period on 31 March 2023.
On 12 March 2023, the third default notice had expired, without the defaults having been remedied.
On 17 March 2023, NRFA replied to Baker Jones, stating:
By your letter, we are now aware that your clients are attempting to sell the business and we note that the advertisement for sale was listed on or around 7 March 2023, 5 days after we issued the further default notices and our correspondence to you in relation to them. Before the business was put on the market, no information was provided to us (or NAB directly) regarding the proposed sale and expected return.
Your clients’ sales advertisement indicates revenue being achieved of $18,000 per week. Despite the represented revenue of the business, for approximately 34 months your clients have failed to even attempt to meet their liabilities to NAB under the Facility (and guarantee), in part or in full. This is so despite the business trading throughout that period (except potentially during any forced government lockdowns).
In the circumstances, our client is unable to have confidence in a sales process conducted by your clients now proceeding. Given your clients’ failure to service the debt under the Facility with NAB, our client is also unable to have confidence that the value of the security will be preserved in the interim period prior to sale. Accordingly, we are now instructed to proceed to appoint receivers and managers ...
On 20 March 2023 (8:19am), Baker Jones replied to NRFA, stating:
We are instructed to request that the bank allow our client to attempt to sell the business itself. Our client contends that this is likely to result in a far better sale price being obtained than a sale conducted by a receiver, and would also avoid the considerable costs of such a receivership.
As secured creditor, the bank retains the ability to veto any sale proposal, so there is no risk to your client in assenting to this request.
At 4:36pm, NRFA responded to Baker Jones, stating:
Thank you for the provision of the additional information in your letter. Our client does not agree with the contentions of your client.
After careful consideration, and in the circumstances previously explained, our client has determined to proceed with the appointment of receivers to your client. A Notice of Appointment will be served on your offices shortly.
Appointment of receivers to Redside
On 21 March 2023, NAB appointed George Georges and Sarah Emily Seeckts as receivers and managers of Redside, under the charge. Notwithstanding the appointment, because of the doubt as to the validity of the appointment, at the time of the hearing of this application, the receivers had not taken any steps to act on the appointment or take possession of Redside’s assets.
NAB’s application
Against that factual background, NAB brought this application seeking:
(a) an order under s 418A of the Corporations Act 2001, or alternatively a declaration, that Mr Georges and Ms Seeckts were validly appointed as receivers and managers of Redside’s property;
(b) alternatively, an order pursuant to s 37 of the Supreme Court Act 1986 (Vic) (‘the Supreme Court Act’) that Mr Georges and Ms Seeckts be appointed receivers and managers of Redside.
Relevant provisions and principles
Corporations Act, s 418A
Section 418A of the Corporations Act allows the Court to make an order declaring whether a receiver has been validly appointed. It provides:
(1) Where there is doubt, on a specific ground, about:
(a)whether a purported appointment of a person, after 23 June 1993, as receiver of property of a corporation is valid; or
(b)whether a person who has entered into possession, or assumed control, of property of a corporation after 23 June 1993 did so validly under the terms of a security interest in that property;
the person, the corporation or any of the corporation’s creditors may apply to the Court for an order under subsection (2).
(2)On an application, the Court may make an order declaring whether or not:
(a) the purported appointment was valid; or
(b)the person entered into possession, or assumed control, validly under the terms of the security interest;
as the case may be, on the ground specified in the application or on some other ground.
The section’s purpose is to permit the Court to resolve any doubt, on a specific ground, as to the validity of the appointment of a receiver or the assumption of control by another controller. In Action Scaffolding & Rigging Pty Ltd (in liq) v Citadel Financial Corporation Pty Ltd, Gleeson J explained:[5]
“Doubt” is not defined in the Act. It is an ordinary English word, defined relevantly by the Macquarie Dictionary (Online) as follows:
— noun 5. undecidedness of opinion or belief; a feeling of uncertainty.
6. distrust; suspicion.
7. a state of affairs such as to occasion uncertainty.
[5](2019) 135 ACSR 372, [6].
Most cases to have considered s 418A have concerned challenges to a secured creditor’s appointment of receivers to, or entry into possession of, a company’s assets. The authorities confirm that, in such cases, the plaintiff is required to establish doubt on one or more specific grounds about the validity of the appointment or entry into possession and once established, the burden of proof shifts to the secured creditor to demonstrate the validity of its conduct.[6]
[6]Action Scaffolding & Rigging Pty Ltd (in liq) v Citadel Financial Corporation Pty Ltd (2019) 135 ACSR 372, [7]; Ozkar Pty Ltd v Ed’s Foods Pty Ltd [2022] VSC 207, [49]-[50] (Sloss J).
But the provision is also available to a receiver or creditor to apply for orders confirming the validity of the appointment. Thus, sub-s (1) grants them standing to apply for an order under the section. Further, that was the intention of the Harmer Committee in recommending that the section be introduced.[7]
[7]‘The Committee recommends that a corporation, a creditor of the corporation or receiver or other person enforcing a charge be able to apply for a determination of the validity of the appointment of a receiver or any entry into possession’: Australian Law Reform Commission, General Insolvency Inquiry (Report No 45, December1988) vol 1, [203].
Thus, there are cases where receivers themselves have sought orders confirming the validity of their appointment. For instance, in Jones, Weaver and Saker as receivers and managers of Narrogin Beef Producers Pty Ltd (recs and mgrs apptd) v Narrogin Beef Producers Pty Ltd (recs and mgrs apptd) (No 2), where the company’s directors had contended the receivers’ appointment was invalid because of a conflict of interest, it was the receivers who sought (and obtained) orders confirming the appoint was valid.[8]
[8][2010] WASC 365 (‘Re Narrogin Beef Producers Pty Ltd (No 2)’).
Even so, s 418A does not give the Court a general discretion to declare an appointment valid and otherwise to make an order for appointment because it is just and convenient. The Court must be satisfied that the doubt should be resolved in a way which confirms the validity of the appointment. As Le Miere J explained in Re Narrogin Beef Producers Pty Ltd (No 2) (at [10]):
An application under s 418A is not an application for an enquiry whether the purported appointment of a receiver was valid. An application may only be made in circumstances where there is a doubt, on a specified ground, about the purported appointment. The order which the court may make is an order declaring whether or not the purported appointment was valid on the specified ground or on some other ground.
Appointment of a receiver by the Court
Under s 37 of the Supreme Court Act 1986, the Court may, by order, whether interlocutory or final, appoint a receiver ‘in any case in which it appears to the court to be just and convenient so to do’. Rule 39.02 of the Supreme Court (General Civil Procedure) Rules 2015 provides that the Court may also appoint a receiver at any stage of a proceeding.
The words ‘just or convenient’ mean ‘where it is practicable, and the interests of justice require it’.[9] The Court’s power to appoint a receiver is construed broadly and must be exercised with a view to all the circumstances of the case.[10] The power includes the power to appoint a receiver and manager.[11]
[9]Edwards & Co v Picard [1909] 2 KB 903 at 907 per Fletcher Moulton LJ (dissenting, but not on this point).
[10]Porter v Australian Prudential Regulation Authority (2010) 184 FCR 382 at [27].
[11]Australian Industry Development Corp v Co-op Farmers & Graziers Direct Meat Supply Ltd [1978] VR 633.
The Court will appoint a receiver at the suit of a secured creditor whose security has become enforceable, whether or not a statutory power (eg, under a property law statute) is available and notwithstanding that a security document contains express provision for the appointment of a receiver. Accordingly, an appointment will be made on default of the payment of principal or interest or on the occurrence or non-occurrence of any other event that renders the security enforceable. A receiver may also be appointed in aid of a private appointment where the private appointee’s powers are uncertain.
Applying the principles
Corporations Act, s 418A
In this case, the doubt concerning the receivers’ appointment arises because they were appointed under the charge but, unlike the mortgage, it appears that the Minister’s consent to the charge was not sought or obtained.
Arguably, the consents (obtained in 2008 and 2012) to the mortgage could be said to extend to the charge as well as the mortgage. The consents contemplate that NAB might appoint receivers and, absent a power of appointment in the mortgage, such an appointment could only be made under some other instrument (such as the charge). Further, the charge does not encumber the lease any more than the mortgage does. The difficulty with that argument, however, is that each consent defines ‘mortgage of lease’ as the mortgage of lease to which the consent is attached and there is nothing in either consent to suggest it contemplated the existence of a charge.
That said, it is far from clear that the absence of Ministerial consent alters the effectiveness of the charge. NAB notes that the wording of the prohibition under s 137AD of the Land Act is on transferring or assigning the interest under the lease or sub-letting or encumbering the land without first obtaining the Minister’s written consent. NAB argues that the charge does not ‘transfer or assign’ Redside’s interest under the lease,[12] or ‘sub-let or encumber the land’. NAB submits that any encumbrance under the charge is of Redside’s leasehold interest in the land, not the land itself.
[12]If the receivers were to seek to sell transfer or assign the lease (for instance, as part of a sale of Redside’s business as a going concern), consent would be required.
It is of some significance that:
(a) the Council does not object to NAB’s appointment of receivers; and
(b) DEECA has confirmed that it ‘does not have any formal response or requirements’ about the matters raised by NRFA concerning the proposed appointment of receivers and ‘is happy for Council to deal with [NRFA] and any receiver that may be appointed (with correspondence to be provided to DEECA for its file in due course)’.
I accept that there is a doubt (which, as Gleeson J explained, means ‘a feeling of uncertainty’) about whether the absence of Ministerial consent to the charge impedes NAB’s ability to appoint receivers under it.
I do however see some real difficulty with resolving the doubt in favour of the validity of the appointment on the first basis argued, namely that the prohibition is not engaged because the charge does not encumber the land. Whilst the charge does not purport to encumber the Crown’s interest in the land, it would hardly be expected that the lessee would encumber an interest that it did not hold. In contrast, the charge does encumber the lessee’s interest in the lease which constitutes an interest in the land. In the context of a section which is dealing with the interest held by the lessee, whether by way of transfer, assignment or sub-lease, I cannot see how any sensible reading of the reference to ‘the land’ in the section would not be construed as a reference to the interest held by the lessee in the land, which interest is encumbered by the charge.
The second basis adverted to however, namely that the Land Act does not provide that an instrument granted in breach of the provision is void or a nullity is much more telling.
In Gnych v Polish Club Ltd, the High Court found a lease to be valid and enforceable even though the lessor had breached the Liquor Act 2007 (NSW) (‘Liquor Act’) by failing to grant approval for the grant of the lease from the relevant authority.[13] As the Court noted, in reasoning apposite to the present case, the Liquor Act proscribed the grant by the lessor, not that which was granted. The Liquor Act did not in terms proscribe the performance by the parties of the obligations created by the grant. The Court also noted that acceptance of the contention advanced in that case (by the lessor) would have had consequences for the innocent party, the lessee, which was not the party bound by the statutory provision, which is exactly the case here. The Land Act imposed a prohibition on the lessee/chargor not the NAB as charge. If the effect of the lessee’s failure to obtain consent was such that it invalidated the charge, this would be adverse to the chargee. Contractual arrangements freely entered into by parties would be sterilised in circumstances where the benefit of the sterilisation would fall to the party whose own breach of the statute would have the effect of causing detriment to the counterparty.
[13](2015) 255 CLR 414.
The Court noted that the likelihood of adverse consequences for an innocent party to a bargain is a relevant consideration which tends against the attribution of an intention to avoid the bargain to the legislature.[14]
[14]Ibid, 426.
A breach by a lessee of this provision in the Land Act is most unlikely to be without consequence. The lease here, as is standard, contained a covenant by the lessee to observe all relevant laws, the breach of which entitled the Crown as lessor to determine the lease and re-enter the premises in the event of a failure to observe that covenant. Thus, any prohibition on the part of the lessee to observe s 137AD of the Land Act conferred a right of re-entry on the part of the Crown. Any contravention of the Act therefore has consequences as it renders the lessee vulnerable to the forfeiture of its lease in the premises.
Thus, the failure of Redside to obtain the Minister’s consent to the charge as required by s 137AD of the Land Act does not invalidate or render the charge unenforceable. The charge contains a power to appoint a receiver. Any doubt raised by the absence of consent is therefore resolved in favour of the validity of the appointment.
Appointing receivers under the Supreme Court Act.
Given my conclusion as to the validity of the appointment of the receivers under the charge, it is not strictly necessary to consider NAB’s alternative application for an appointment under the Supreme Court Act but I shall do so briefly.
There is no doubt that Redside is in breach of its facility with NAB, and that NAB is entitled to enforce its securities. Even if there is some impediment to NAB appointing receivers under its charge, there is nothing to suggest any impediment to the enforcement of its mortgage. For instance, NAB would be entitled itself to take possession of the premises and sell them, as mortgagee in possession.
However, it is beneficial for experienced insolvency professionals such as Mr Georges and Ms Seeckts to be appointed as Redside’s receivers to effect that sale. Had I not been satisfied that the receivers had been validly appointed under the charge, I would have made orders appointing receivers under the Supreme Court Act.
Conclusion
For the above reasons, I make orders confirming the validity of NAB’s appointment of Mr Georges and Ms Seeckts as receivers.
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