Perpetual Nominees Limited v Rytelle Pty Ltd (No. 2)
[2012] VSC 440
•24 September 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6858 of 2009
| PERPETUAL NOMINEES LIMITED (ACN 000 733 700) | Plaintiff |
| v | |
| RYTELLE PTY LTD (RECEIVERS & MANAGERS APPOINTED) & ORS (ACCORDING TO SCHEDULE ATTACHED) | Defendants |
AND BETWEEN:
| RYTELLE PTY LTD (RECEIVERS & MANAGERS APPOINTED) & ORS (ACCORDING TO SCHEDULE ATTACHED) | Plaintiffs by Counterclaim |
| v | |
| PERPETUAL NOMINEES LIMITED (ACN 000 733 700) & ANOR (ACCORDING TO SCHEDULE ATTACHED) | Defendants by Counterclaim |
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JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 11 September 2012 | |
DATE OF JUDGMENT: | 24 September 2012 | |
CASE MAY BE CITED AS: | Perpetual Nominees Limited v Rytelle Pty Ltd & Anor (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 440 | |
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PRACTICE AND PROCEDURE – Interlocutory injunction – Whether serious issue to be tried in relation to intention to defraud creditors, Property Law Act1974 (Qld), s 228, Marcolongo v Chen & Anor (2011) 242 CLR 546.
PRACTICE AND PROCEDURE – Interlocutory injunction – Balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff / First Defendant by Counterclaim | Mr R. Moore | HWL Ebsworth |
| For the Defendants / Plaintiffs by Counterclaim | Mr P. Bick QC and Mr B. Gibson | Slater & Gordon |
| For the Second Defendant by Counterclaim | Mr P.H. Morrison QC and Mr S.R. Senathirajah | Hall & Wilcox (as town agents for McCullough Robertson) |
| For Wellington Capital Ltd | Mr W.T. Houghton QC and Mr J.D.S. Barber | Ashurst |
| For Asset Resolution Ltd | Mr M. Stewart SC | Maddocks Lawyers |
HIS HONOUR:
Introduction
Perpetual Nominees Limited (“Perpetual”) commenced this proceeding against Rytelle Pty Ltd (Receivers and Managers appointed), the Forest Resort Operations Pty Ltd, Joan Pamela Walsh and James William Walsh as guarantors (“the Guarantors”) of financial accommodation provided to the Forest Resort Pty Ltd and the Forest Resort Hotel Pty Ltd as borrowers (“the Borrowers”) by Perpetual (“the Claim”). Perpetual acted as agent for Wellington Investment Management Limited (“Wellington IM”). No claim is made against the Borrowers.
The Guarantors and the Borrowers (“Plaintiffs by Counterclaim”) have made a counterclaim against Perpetual and Wellington IM (“the Defendants by Counterclaim”). The counterclaim pleads causes of action for breach of contract and misleading or deceptive conduct by Wellington IM associated with the provision of financial accommodation by Wellington IM.[1]
[1]Perpetual acted as agent for Wellington IM and as Custodian of the scheme property pursuant to a Custody Agreement.
Wellington IM is now in liquidation. It was the Responsible Entity of the Premium Income Fund (“The Fund”) at the relevant times.[2] The Responsible Entity of the Fund changed from time to time as follows:
(a)Until 29 March 2008, MFS Investment Management Limited (“MFS Investment”) was the Responsible Entity of the Fund.
(b)On 29 March 2008 MFS Investment changed its name to Octaviar Investment Management Limited.
(c)On or about 13 June 2008 Octaviar Investment Management Limited changed its name to Wellington IM.
(d)On 15 October 2008 Wellington Capital Limited (“Wellington Capital”), a new entity, became the responsible entity of the Fund. It holds an Australian Financial Services licence and manages the Fund pursuant to that licence.
[2]The Premium Income Fund was first known as the MFS Premium Income Fund and from 29 March 2008, as Octaviar Premium Income Fund until 9 June 2008.
Accordingly, the Responsible Entity of the Fund remained the same until 15 October 2008. All that took place was a series of name changes. At the time of the provision of financial accommodation to the Borrowers, the Responsible Entity was called MFS Investment.
The present counterclaim against Perpetual and Wellington IM essentially pleads various claims for breach of contract and misleading or deceptive conduct. In summary it is asserted that Wellington IM, as lender, failed to provide further finance in breach of its contractual obligations. It also pleads the falsity of various representations made by Wellington IM to the Borrowers relating to the ability of Wellington IM to provide ongoing funding to the Borrowers. Perpetual and Wellington IM deny the allegations.
The proposed transaction
On 5 September 2012, two business days before the commencement of the trial, Wellington Capital, the new Responsible Entity of the Fund, announced that it had entered into a transaction with Asset Resolution Limited (“ARL”) to transfer $90.75 million of assets from the Fund to ARL. These assets include 60% of the debt the subject of this proceeding as well as the security over that debt and account for about (so it was alleged) 90% of the total assets of the Fund (“the Transaction”).
The substance of the Transaction is as follows:
(a)ARL acquired the assets of the Fund in return for the unitholders of the Fund receiving (by way of distribution in specific from Wellington Capital) shares in ARL (collectively 100% of the shares in that company);
(b)ARL (and associated entities) will take steps to recover the debts and distribute the profits to its shareholders, being the unitholders of the Fund.
By summons filed 10 September 2012, the Plaintiffs by Counterclaim made application for the joinder of Wellington Capital and ARL and for injunctive relief against these parties.
Joinder
As indicated at the conclusion of argument I do not propose to join Wellington Capital or ARL as parties to the proceeding. Other than perhaps in relation to the granting of injunctive relief they are not necessary parties. No cause of action is pleaded against them and the issues the subject of the present hearing do not directly concern them. For various reasons, however, they do need to be bound by the decision of the Court in this matter.
In relation to Wellington Capital, it has given an undertaking to be bound by the decision of the Court in this proceeding. Nothing has changed since that undertaking was given.
In relation to ARL, it has given a similar undertaking and accordingly it is not necessary for ARL to be a party to the proceeding.
Interlocutory injunction
I do not propose to grant any injunctive relief. There is so far as the Plaintiffs by Counterclaim are concerned no serious issue to be tried and in my opinion the balance of convenience favours Wellington Capital and ARL. Given the nature of the application, there are difficulties in making findings of fact on incomplete and untested evidence and I do not propose to venture into the area of disputed facts in any great detail.
Serious question to be tried
It was submitted by the Plaintiffs by Counterclaim that there is a serious issue as to whether the Transaction was entered into with the intention of defrauding creditors and in particular (presumably) the Plaintiffs by Counterclaim. Various matters were referred to from which I was invited to draw reasonable inferences in relation to such an intention.
In my opinion, none of the matters referred to, whether individually or collectively, established that there is indeed such a serious issue to be tried.
Section 228 of the Property Law Act 1974 (Qld) is in the following terms:
“228 Voluntary conveyances to defraud creditors voidable
(1) Subject to this section, every alienation of property, made whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person prejudiced by the alienation of property.
(2) This section does not affect the law of bankruptcy for the time being in force.
(3) This section does not extend to any estate or interest in property conveyed for valuable consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors.”
The following relevant principles are not in dispute and are supported by high authority –
(a)The phrase “intent to defraud” includes an intent to delay or hinder.[3]
(b)Although “intention” is critical, it is not necessary to establish that the debtor had a sole (or predominant) purpose or even a purpose of causing loss.[4]
(c)An inference of intent to defraud is more likely to be drawn where a disposition diminishes a fund otherwise available for the payment of debts to such an extent that debts cannot be paid and some creditors remain unpaid.[5]
(d)It is not necessary that all creditors be affected. It is sufficient if one or some creditors are adversely affected. Further, creditors may include future creditors.[6]
[3]Marcolongo v Chen & Anor (2011) 242 CLR 546 (“Marcolongo”); Barton v Deputy Commissioner of Taxation (1974) 131 CLR 370, 325.
[4]Marcolongo (2011) 242 CLR 546, [32].
[5]PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515; Peldan v Anderson (2006) 227 CLR 471, [43].
[6]Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 267 CLR 278, 290-291.
Mr P. Bick QC, who appeared with Mr B. Gibson for the Plaintiffs by Counterclaim, submitted that there was sufficient evidence from which the necessary inferences can be drawn to the effect that there was a serious question as to whether the Transaction was entered into with the intention of defrauding creditors. A number of matters were relied on. They were essentially as follows:
(a)the timing of the Transaction;
(b)the inherent nature of the Transaction and in particular that the Transaction did not provide any benefit to unitholders or indeed Wellington Capital itself and in fact was disadvantageous to creditors of the Fund to the extent that the transaction involved a diminution in the assets of the Fund;[7] and
(c)other inconsistencies, credit and related matters.
[7]Although the Fund received consideration by way of the issue of all of the shares in ARL, the shares were immediately distributed in specie to unitholders.
In relation to timing, it was submitted on behalf of Wellington Capital that the timing of the Transaction was indeed coincidental. Mr W.T. Houghton QC, who appeared with Mr J.D.S. Barber for Wellington Capital, submitted that negotiations had been on foot for a substantial period of time in relation to the very matters forming the basis of the Transaction. I accept the evidence in relation to the negotiations leading up to the Transaction as deposed to by Jennifer Joan Hutson in her affidavit sworn 11 September 2012 (“the Hutson affidavit”).
In relation to the second point, again I am compelled to accept the uncontradicted evidence of Ms Hutson in relation to the desirability and commercial reasons behind the Transaction. Ms Hutson was not cross-examined in relation to the desirability of the Transaction and it is not the function of the Court to challenge the commercial decisions of directors of Wellington Capital. That is not to say that there are not strange aspects of the Transaction. However, this is an insufficient basis on which to infer an intention to defraud creditors or hinder or delay claims by creditors. The onus is a high onus, even on an interlocutory application, and in my opinion it has not been discharged.
Further, the evidence suggests that it has not been uncommon for Wellington Capital to receive amounts from enforcement type proceedings and make consequential distributions to unitholders. The effect of this Transaction was no different. Wellington Capital as responsible entity of the Fund received all of the share capital in ARL and then distributed the shares in specie to unitholders. Whatever the merits of the Transaction, it is in substance no different to the receipt of funds from any enforcement type action and the subsequent distribution of such funds to unitholders. The position of creditors in each situation is exactly the same. Whether or not creditors are disadvantaged – even assuming that this fact alone is sufficient – depends on who they are, when the debts are payable and the resources of Wellington Capital.
Put another way, it is obvious that the effect of the transaction was to diminish the Fund to the extent that the Transaction involved a distribution in specie of the assets of the Fund to unitholders. However, the mere alienation of an asset or in this case diminution of the Fund is not of itself sufficient to warrant a finding that such diminution was done (or that there is a serious question as to whether it was done) in the circumstances with the intention of defrauding creditors. Much more is required.
If Wellington Capital simply sold the assets for a cash consideration and resolved to distribute the proceeds to unitholders creditors could ordinarily not complain. From the evidence, it is clear that the entire operation of the Fund is and has been conducted for the last few years on the basis that assets should be realised and any proceeds distributed to unitholders. There is no evidence to the effect that in undertaking this process creditors have in any way been prejudiced or not paid as and when their debts fall due.
Finally, on this point, I should say that there is no evidence as to the identity of creditors and the amount owing to creditors and the date by which creditors need to be paid. Usually the nature, extent and imminent payment to creditors forms the basis of the relevant factual matters from which inferences can be drawn. There is no evidence in this case. In particular, there is no evidence that any creditor has or will (or might) be affected by the Transaction or that payment to a creditor might be hindered or delayed and in some way affected by the Transaction. Further, it has not been demonstrated that the diminution in the value of the Fund had the critical consequence of the Fund not being able to pay all of its creditors as and when payment fell due, the critical basis that usually underpins any inference. The evidence is simply insufficient to even establish a serious question to be tried.
In relation to the third issue, I am of the opinion that although there are some inconsistencies and incorrect and inelegant statements made in various documents they are not sufficient in order to meet the high burden of establishing that there is indeed a serious question in relation to the suggested intention behind the transaction.
Having considered all of the evidence, I am not satisfied that the Plaintiffs by Counterclaim have established a sufficient likelihood of success so as to justify a reversal of the status quo pending the trial.[8]
[8]Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, [65].
Balance of convenience
In my opinion the balance of convenience favours Wellington Capital and ARL.
The evidence in this application suggests that the Transaction has been fully implemented. Accordingly, I agree with the submissions made by Leading Counsel for Wellington Capital and ARL to the effect that it would be extremely difficult if not impossible to undo the transaction. Further, I am reluctant to make any order that directly affects the rights of parties not before the Court.[9]
[9]News Limited and Ors v Australian Rugby Football League Limited & Ors (1996) 64 FCR 410.
So far as injunctive relief against ARL is concerned, accepting the difficulties associated with unwinding the transaction, in my opinion such relief is not warranted.
First, although the Plaintiffs by Counterclaim have proffered an undertaking as to damages I have serious reservations about the efficacy of such undertaking. There is no evidence before the Court as to the ability on the part of the Plaintiffs by counterclaim to satisfy any such undertaking. An unsecured indemnity in the circumstances is not desirable.
Further, and whatever the characterisation of the Transaction, the Plaintiffs by Counterclaim will, in the event that they are successful, still have a claim against the Fund. On the evidence before the Court, it is apparent that the Fund still has substantial assets against which any judgment could be levied, assuming of course that the Plaintiffs by Counterclaim get over the hurdle of establishing that Wellington IM is entitled to indemnity out of the Fund. Consequently, in my view, Wellington Capital and its unitholders will suffer a greater injury if the injunction is granted than the Plaintiffs by counterclaim may suffer if the injunction is refused.
Conclusion
In all of the circumstances and in the exercise of my discretion I do not consider it appropriate to grant injunctive relief. Accordingly the application made by the Plaintiffs by Counterclaim will be dismissed.
SCHEDULE OF PARTIES
| PERPETUAL NOMINEES LIMITED (ACN 000 733 700) | Plaintiff / First Defendant by Counterclaim |
| RYTELLE PTY LTD (ACN 105 101 639) | First Defendant / First Plaintiff by Counterclaim |
| THE FOREST RESORT OPERATIONS PTY LTD (ACN 100 823 201) | Second Defendant / Second Plaintiff by Counterclaim |
| JOAN PAMELA WALSH | Third Defendant / |
| JAMES WILLIAM WALSH | Fourth Defendant/ |
| WELLINGTON INVESTMENT MANAGEMENT LIMITED (ACN 101 634 146) | Second Defendant by Counterclaim |
| THE FOREST RESORT PTY LTD | Fifth Plaintiff by Counterclaim |
| THE FOREST RESORT HOTEL PTY LTD | Sixth Plaintiff by Counterclaim |
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