Native Bond Pty Ltd v Cant
[2015] VSC 203
•13 May 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2015 00421
| NATIVE BOND PTY LTD (Controller Appointed) (ACN 006 589 055) | First Plaintiff |
| N. SEVDALIS PTY LTD (ACN 006 606 506) (Controller Appointed) | Second Plaintiff |
| v | |
| ANTHONY ROBERT CANT | First Defendant |
| SIMON PATRICK NELSON | Second Defendant |
| GULF COUNTRY INVESTMENTS PTY LTD (ACN 149 485 478) | Third Defendant |
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JUDGE: | Efthim AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 March 2015 |
DATE OF JUDGMENT: | 13 May 2015 |
CASE MAY BE CITED AS: | Native Bond Pty Ltd v Cant and ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 203 |
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CORPORATIONS — Appointment of receivers and managers — Validity of the appointment — Corporations Act 2001 (Cth) s 418A.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J L Evans | Madgwicks Lawyers |
| For the First and Second Defendants | Mr R White | White Cleland Pty Ltd |
| For the Third Defendant | Mr P Fary | Advisory Legal Solutions Pty Ltd |
HIS HONOUR:
The plaintiffs, Native Bond Pty Ltd (Controller Appointed) ACN 006 589 055 and N. Sevdalis Pty Ltd ACN 006 606 506 (Controller Appointed), make application pursuant to s 418A of the Corporations Act 2001 (Cth) (‘the Act’) for orders declaring that the appointment of the first defendant, Anthony Robert Cant and the second defendant, Simon Patrick Nelson (‘the receivers’) as receivers and managers of the whole of the assets and undertakings of the first and second plaintiffs by the third defendant, Gulf Country Investments Pty Ltd ACN 149 485 478 (‘Gulf’) were invalid. They also seek declarations that as at 28 May 2014, and at the date of judgment, there was and is no debt owed by the plaintiffs to the third defendant.
The plaintiffs rely on two affidavits sworn by Nicholas Sevdalis, the sole director of the plaintiffs, on 2 February 2015 and 10 March 2015. The plaintiffs also served a notice to produce on the third defendant, calling upon the third defendant to produce all minute books of the third defendant kept pursuant to the requirement of s 251A of the Act. The third defendant informed the Court that there were no such documents in existence.
The third defendant filed two affidavits which were sworn by its director, David Arthur Graer, on 27 February 2015 and 24 March 2015, but does not rely on those affidavits and they were not read into evidence. The plaintiffs therefore advised the Court that Mr Graer was not required for cross‑examination. Exhibit DAG-2 to the affidavit of David Graer sworn 27 February 2015 was tendered into evidence with the consent of the plaintiffs. That exhibit is a Management Agreement between Hakel Investments Pty Ltd (one of Mr Graer’s companies) and Kim Jennings, a director of the third defendant, whereby Mr Graer agreed to manage the loans provided by the third defendant. Also tendered into evidence was exhibit DAG-8 to the affidavit of Mr Graer sworn on 24 March 2015, which is a company search of Hakel Investments Pty Ltd.
Background
The plaintiffs and Mr Sevdalis entered into two loan agreements with the third defendant. It is only the second loan which is relevant to this proceeding.
On 23 November 2011, the plaintiffs and Mr Sevdalis entered into the Second Loan Agreement with the third defendant for the amount of $1,221,518.15. That loan was arranged so that they could pay out money borrowed by a company called Optima Funding Pty Ltd in December 2008. On the same day, the plaintiffs also executed a deed and floating charge in favour of the third defendant. Nine caveats have been lodged over various properties owned by the plaintiffs and Mr Sevdalis by the third defendant asserting rights under the second loan agreement. Part of that loan has been repaid and the plaintiffs agree that there is a debt owing under the loan.
The plaintiffs have instructed their lawyers, Madgwicks Lawyers, to challenge the amounts which are said to be payable by the plaintiffs in respect of the second loan.
The plaintiffs defaulted on their obligations under the second loan agreement by failing to pay the principal sum by 23 February 2012. On or about 10 December 2013, the plaintiffs received a Notice of Default signed by Mr Graer, which stated that the loan had been assigned from the third defendant to Downtown Visuals Pty Ltd (‘Downtown’) on 21 March 2013. On 28 May 2014, Mr Graer signed a Notice of Appointment to act and Messrs Cant and Nelson were appointed receivers.
The Plaintiffs’ Grounds of Challenge
Section 418A of the Act 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 the 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 plaintiffs must show that there is doubt on specific grounds about the validity of the purported receivers’ appointment. Once that is established, the burden of proof then shifts to the defendants to demonstrate that the purported receivers’ appointment was a valid appointment.[1]
[1]See Kasofsky v Kreegers [1937] 4 All ER 374.
The plaintiffs raise three grounds on which it says the appointment was invalid. The plaintiffs submit that:
(a) the third defendant’s rights under the Deed of Charge and the Loan Agreement have been completely assigned in equity and law to Downtown by the execution of the Deed of Assignment dated 21 March 2013, before the purported appointment of the receivers on 28 May 2014, and the appointment of the receivers by Mr Graer was therefore invalid;
(b) if the third defendant had the right to appoint a receiver under the Deed of Charge as at 28 May 2014, the signing of the Notice of Appointment was not an effective exercise of the third defendant’s powers of appointment, as David Graer’s signature did not constitute a valid act of the third defendant;
(c) if the third defendant did have a right to appoint a receiver under the Deed of Charge at 21 May 2014, it acted in bad faith in exercising those rights, as it did not have the authority or approval of Downtown to exercise the power to appoint a receiver over the assets of the first and second plaintiffs.
The effect of the assignment
The third defendant concedes that its rights under the Deed of Charge were assigned to Downtown either by the terms of the Deed of Assignment or by implication.
The rights under the loan were legal rights. Two separate rights arise in relation to the Deed of Charge:
- the rights with respect to the charge property are equitable in nature; and
- the other rights under the deed of charge, which are legal choses in action, including the right under clause 19(a) to appoint a receiver to the property of the chargees.
The plaintiffs submit that by s 134 of the Property Law Act 1958 (Vic) a notice of assignment of debt is effective in law to pass all legal and other remedies for the debt in addition to the legal right to the debt. They say an express notice of assignment of the debt was given and the notice alone is sufficient to pass with it, in law, the right to appoint a receiver under the Deed of Charge.
Section 134 of the Property Law Act 1958 (Vic) provides:
Legal assignments of things in action
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, shall be and shall be deemed to have been effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice –
(a) the legal right to such a debt or thing in action;
(b) all legal and other remedies for the same; and
(c)the power to give a good discharge for the same without the concurrence of the assignor:
…
According to the plaintiffs, clause 5 of the Loan Agreement created an obligation on the plaintiffs to sign the Deed of Charge:
5.To further secure the Principal Sum the said Borrower Companies N.SEVDALIS PTY LTD and the NATIVE BOND PTY LTD hereby gives consent to the Lender to lodge a charge both fixed and floating over the assets both real and person of the said Borrower Companies shall sign all necessary documents to enable the Charges to be registered with ASIC.
The plaintiffs submit that the Notice of Default dated 10 December 2013 gave express notice in writing of the assignment of debt and also the assignment of the rights under the Loan Agreement. Therefore, the right to appoint a receiver under clause 19 of the charge has been assigned absolutely in law to Downtown and the third defendant did not have the power, in its name, to appoint receivers over the assets of the first and second plaintiffs.
Clause 19(a), under which the receiver was appointed, provides:
19. Appointment of receiver
(a) Power to appoint
On the occurrence of an event of default:
(i)The mortgagee (without the mortgagee being deemed or being liable as a mortgagee in possession) may by instrument in writing appoint a person (or two or more persons acting jointly and severally) to be receiver of the mortgaged property and/or the income from it;
(ii)The provisions of any statute dealing with receivers will be varied and extended as provided in this clause;
(iii)The mortgagee will have power from time to time to revoke any such appointment and to appoint another receiver;
(iv)A receiver will be the agent of the mortgagor unless otherwise specified in his appointment; and
(v)The mortgagor will be solely responsible for the receiver’s acts, defaults and omissions and the receiver will not in any circumstances be liable to the mortgagor for any act or default and without any consent or other authority on the part of the mortgagor and the receivership provisions of this charge apply to the receiver and to the receivership and management.
However, if there was an equitable assignment and not a legal assignment, then the appointment of the receiver could be signed by the third defendant and the appointment would be valid. Meagher, Gummow and Lehane JJ, when considering the effect of equitable assignment of legal property,[2] said:
Where what is assigned is legal property, and the assignment is merely equitable, then whether the assignment is absolute or not the assignor remains a necessary party to an action to enforce the interest assigned, the assignee is entitled to require him to be joined, or to sue his name… The equitable assignor of the legal chose in action can, on receiving an offer of indemnity against costs, be required to permit the assignee to sue in the assignor’s name… The assignor is a necessary party, because the defendant (debtor or fundholder) should be protected against claims by the assignor and by others, particularly bona fide purchasers for value without notice, claiming under him.
[2]Meagher, Gummow and Lehane JJ, Equity: Doctrines and Remedies (Butterworths, 3rd ed, 1992) 208.
The issue before the Court is to determine whether there has been express notice. If there is express notice, then the legal rights have been assigned. The expression ‘express notice’ was considered by the High Court in Consolidated Trust Co Ltd v Naylor,[3] where Dixon and Evatt JJ stated:
The object of the requirement made by the words ‘of which express notice in writing shall have been given’ is, we think, correctly stated in Warren’s Choses in Action (1899), at pp. 177, 178. ‘The term “express notice” is doubtless employed by way of opposition to notice arising by implication or operation of law, and to what was known in equity as constructive notice. It means a notice which indicates an express intention – a direct and definite statement of a thing, as distinguished from supplying materials from which the existence of such a thing may be inferred.’ The purpose is to make essential actual notice that the debt has been assigned. ‘One of the objects of the giving of notice to the debtor is that he shall “know with certainty” in whom the legal right to sue him is vested’ (McIntosh v Shashoua),[4] per Evatt J. The purpose does not extend to giving the debtor particulars of the assignment. The assignment must be by writing but, if it is in writing, then notice to the debtor is necessary only to acquaint him with the fact that the debt is payable to the assignee and the statute requires that he shall be expressly notified. But, neither in its exact terms, nor according to its general intent, does the provision appear to make it essential that the notice should contain an express statement that the assignment is a written one.
[3](1936) 55 CLR 423 at 438-9.
[4](1931) 46 CLR 494 at 515.
The plaintiffs submit that one gives express notice by giving clear notice to the fact that the debt has been assigned and then all the other remedies flow with it. The Notice of Default provides ‘by Deed of Assignment dated 21 March 2013 the loan was assigned to Downtown Visuals’. It also provides:
AND FURTHER TAKE NOTICE that if you fail to comply with this Notice by paying the above amount within 14 days after service of this Notice, legal proceedings will be instituted against you without further notice and the Lender will proceed to obtain judgement against you personally and thereafter take possession of the properties listed above and secured by the Loan Agreement and if necessary pursuant to Clause 7 of the said Loan Agreement sell up the said properties to recover the total amount owing and costs.
The third defendant submits that the Notice of Default is not an express notice in writing of the rights under the charge. It is not the usual form of notice that one would expect to see in respect of an assignment. Such a notice would state ‘Take notice that I have assigned these rights to Y’. The Notice of Default does not pass to Downtown the rights under the Deed of Charge, because they are created in the Deed of Charge and they are not rights created by the Loan Agreement. It is further submitted that even if it is accepted that clause 5 of the Loan Agreement itself creates an interest in the charge property, the rights under the Deed of Charge do not pass to Downtown.
A Deed of Charge and a loan agreement are two different documents with separate terms and obligations. For there to be express notice of the Deed of Charge, there must be an express intention to assign the charge, rather than an inference that the charge has been assigned. True, the Loan Agreement refers to the charge, but there has not been express notice that the charge has been assigned. The Notice of Default is not sufficient to pass with it the legal remedies which are incidents of the deed of charge, including the right to appoint a receiver. The plaintiffs therefore fail on this ground.
The appointment of the receivers
The notices of appointment of the receivers were signed by David Graer pursuant to s 127(1) of the Act. Mr Graer was one of two directors of the third defendant at the time the Notice of Appointment was signed. Section 127 of the Act provides:
(1)A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c)for a proprietary company that has a sole director who is also the sole company secretary – that director.
As the third defendant has two directors, it has not complied with s 127(1) of the Act and therefore the plaintiffs submit that the appointment has not been properly made.
The third defendant initially relied on s 126 of the Act to demonstrate that the Notice of Appointment was properly signed. Section 126 of the Act provides:
(1)A company’s power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company. The power may be exercised without using a common seal.
(2)This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.
The third defendant submits that just because the appointment includes a reference to s 127 of the Act, its validity does not stand or fall on whether s 127 of the Act is satisfied. The critical question is whether Mr Graer was expressly authorised to sign the appointment on behalf of the third defendant.
Clause 19(a)(i) of the Deed of Charge requires that a receiver may be appointed by an instrument in writing.
Clause 31(a) of the Deed of Charge provides that notices given under this charge must be in writing; signed by the party giving the notice or its authorised representative; and addressed to the notice address of the person to whom it is to be given.
The plaintiffs submit that the document titled Notice of Appointment of Receivers and Managers was not a notice but an instrument. Here, it was the instrument that was given to the receivers. Notice has to be given of the appointment to the plaintiffs, but what was given was an instrument and therefore the appointment is not valid.
In my view, the document that was provided to the plaintiffs is a written notice. The document is clearly headed ‘Notice of Appointment’ and is addressed to the company to which the receiver has been appointed. I note that in clause 1(w), ‘Notice’ is defined to mean a written notice, consent, approval, direction, order or other communication. The document which was received by the plaintiffs gives notice that a receiver was appointed. No issue has been raised that the notice was not received by the receiver.
The real issue relating to this ground raised by the defendants is whether Mr Graer was authorised on behalf of the third defendant to sign the Notice of Appointment. Clause 1(b) of the charge defines ‘authorised representative’ as follows:
(b) Authorised representative means:
In respect of a party which is a corporation:
(i)A company secretary or director or any officer of the corporation whose title or office includes the words manager or director; or
(ii)A person acting with the title or in the office of manager or director; and,
in respect of each party, a solicitor of that party or a person nominated by notice to the other party as an authorised representative;
The third defendant submits that Mr Graer was an authorised representative within the meaning of clause 1(b)(i) of the Deed of Change and the formalities for the appointment of the charge have been satisfied. Mr Graer may be an authorised representative, but it does not say in the Deed of Charge that the authorised representative can sign the Notice of Appointment.
Exhibit DAG‑2 to the affidavit of David Graer sworn 27 February 2015 is an agreement made between David Arthur Graer, Hakel Investments Pty Ltd (a company of which Mr Graer is the sole director) and Kim Douglas Jennings (now a director of the third defendant), with the third defendant on 15 September 2011, well prior to the relevant events leading to the appointment of the receiver. Under the agreement, Mr Graer and Hakel Investments Pty Ltd and no other person or entity are to provide services in relation to money invested by the third defendant including managing any default and enforcement of any security. That, in my view, would include the appointment of a receiver. The plaintiffs therefore submit that there is actual authority that has been provided for in s 126 of the Act.
Section 126 of the Act relates to a company’s power to make, vary, ratify or discharge a contract. The question then becomes, is a Deed of Charge a contract for the purposes of s 126 of the Act?
I have read the Deed of Charge and in my view it is not a contract and therefore s 126 of the Act cannot apply. The third defendant submits that what is in issue here is the power to exercise rights under a contract and s 126 of the Act only expands upon existing rights at common law. It therefore submits that the proposition that a director of a company can do something on behalf of a company if he is actually authorised to do so would suffice, whether or not it came within s 126 of the Act.
The plaintiffs submit that Mr Jennings was not a director of the third defendant in 2011, so the fact that Mr Jennings is a party to the agreement really does not take the matter any further for the third defendant. I disagree with that submission. The agreement is clear between the current directors and the company at that time that David Graer and Hakel Investments Pty Ltd would provide services in relation to money invested by the third defendant.
The plaintiffs also submit that it is clear that what is being appointed by that agreement are services in relation to money invested by the third defendant, and the third defendant here is not investing any money. I do note that the third defendant has an interest in the loan, because under the terms of the deed of assignment, it is entitled to 4.5 per cent of the interest accruing under the loan, whereas Downtown receives 3.5 per cent of the interest. The interest rate under the loan was eight per cent per month (3.5 plus 4.5 per cent).
In my view, the agreement between Mr Graer, Hakel Investments Pty Ltd and Mr Douglas with Gulf Investments authorises Mr Graer to sign a Deed of Charge. Mr Graer did sign the appointment pursuant to s 127 of the Act, which he could not do. I accept the submission that it should make no difference, because Mr Graer had the authority to sign a Deed of Appointment of a receiver and such appointments relate to the enforcement of a security.
It should not matter that the deed was signed pursuant to s 127 of the Act, but if s 127 has the effect of making the appointment invalid, which I have said it does not, then s 1322 of the Act which relates to irregularities needs to be considered.
Section 1332 of the Act provides:
(1)In this section, unless the contrary intention appears:
(a)a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b)a reference to a procedural irregularity includes a reference to:
(i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii)a defect, irregularity or deficiency of notice or time.
(2)A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
…
(4)Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a)an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation;
(b)an order directing the rectification of any register kept by ASIC under this Act;
(c)an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;
and may make such consequential or ancillary orders as the Court thinks fit.
(5)An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.
(6)The Court must not make an order under the section unless it is satisfied:
(a)in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraphs is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b)in the case of an order referred to in paragraph (4)(c) – that the person subject to the civil liability concerned acted honestly; and
(c)in every case – that no substantial injustice has been or is likely to be caused to any person.
For s 1322(2) of the Act to apply, there must be a proceeding under the Act. The defendant submits that the execution of a document by a company cannot constitute a proceeding under this operations act. However, the third defendant submits that the giving of a notice of appointment is a proceeding under the Act because it is the exercise of a power by a director acting with authority, just as a resolution put at a meeting is a proceeding under the Act.
The appointment of a receiver in my view cannot be a proceeding under the Act. It is an appointment under a Deed of Charge. The receiver is regulated under the Act, but the appointment is not.
I note that the plaintiffs complained that there is no application before the Court in relation to s 1322 of the Act. Section 1322(2) states that a proceeding under the Act is not invalidated because of any procedural irregularity unless the Court is of the opinion the irregularity will cause substantial injustice. It is therefore not up to the defendant to bring a proceeding to invalidate. It would be up to the respondent.
However, s 1322(4) of the Act requires an application. Such an application should be made by the receiver, not the appointer of the charge. Unlike s 1322(1) of the Act, this section is very wide. There is no requirement that there be a proceeding under the Act. Pursuant to s 1322(6)(a)(i) of the Act, the appointment of the receiver must be procedural in nature and I am of the view that it is.
In relation to an application under s 1322(4) of the Act, if it was necessary, then the plaintiffs would have time to file further evidence. The third defendant stated that it would not adduce any further evidence if this issue remained.
Bad Faith
The plaintiffs have abandoned this ground because the third defendant no longer asserts it was acting as an agent for Downtown.
Conclusion
For the above reasons it is my view that the receivers have been validly appointed. As the receivers have been validly appointed, the declarations that a debt was not owed to the third defendant falls away. The plaintiffs are therefore not entitled to the relief they seek.
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