Roberts v Investwell Pty Ltd (in liq)

[2012] NSWCA 134

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Roberts v Investwell Pty Ltd (In liq) [2012] NSWCA 134

Hearing dates:

5 March 2012

Decision date:

25 May 2012

Before:

Bathurst CJ at [1]; Beazley JA at [37]; Tobias AJA at [38]

Decision:

1. Appeal dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:

CORPORATIONS - Winding up - Payment to director when company insolvent - "Unfair preference" - ss 588FA, 588FC, 588FE, 588FF Corporations Act 2001 (Cth) - Whether payment in respect of secured debt - Effect of agreement to grant director security - Whether equitable charge.

STATUTORY INTERPETATION - Words and phrases - Corporations Act 2001 - "Charge".

Legislation Cited:

Corporations Act 2001 (CTH) s 9, s294 s588D, s 588FA, s 588FC, s 588FE, s 588FF, Pt 5.3A, Ch2K

Cases Cited:

Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (In liquidation) [2000] HCA 25; (2000) 202 CLR 588
Cinema Plus Limited v Australia & New Zealand Banking Group Limited [2000] NSWCA 195; (2000) 49 NSWLR 513
Investment and Merchant Finance Corporation Ltd v Kirkwood Estates Ltd (1974) 5 ALR 191
National Provincial and Union Bank of England v Charnley [1924] 1 KB 431
Penny Nominees Pty Limited v Fountain (NSWSC, unreported, 2 May 1989)
Philpott v NZI Bank Limited (1989) 1 NZConvC 95-025
Pico Holdings Inc v Wave Vistas Pty Limited [2005] HCA 13; (2005) 79 ALJR 825
Re Bank of Credit and Commerce International SA (In Liquidation) (No 8) [1998] AC 214
Re Charge Card Services Ltd (No. 2) [1987] Ch 150
Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584

Texts Cited:

Butt, Land Law, 6th ed (2010) Thomson Reuters
Gough, Company Charges, 2nd ed (1996) Butterworths

Category:

Principal judgment

Parties:

Daryl Leon Roberts (Appellant)
Investwell Pty Ltd (in Liquidation) (First Respondent)
Peter Paul Krejci (Second Respondent)
James Patrick Normoyle (Third Respondent)
Anne-Maree Elizabeth Huxley (Fourth Respondent)

Representation:

Counsel
H N Newton (Appellant)
C Harris SC (First and Second Respondents)
J P Rivett (Third and Fourth Respondents)
Solicitors
ClarkeKann Lawyers (Appellant)
Colin Biggers & Paisley (First and Second Respondents)
The Affordable Legal Company Pty Ltd (Third and Fourth Respondents)

File Number(s):

2009/290079

 Decision under appeal 

Citation:

Investwell Pty Ltd (in liquidation) v Daryl Leon Roberts [2011] NSWSC 783

Date of Decision:

2011-06-28 00:00:00

Before:

Hammerschlag J

File Number(s):

2009/290079

Judgment

1. BATHURST CJ: The appellant appeals from orders of Hammerschlag J made on 29 June 2011 in which his Honour declared that the payment made by the first respondent ("the company") to the appellant ("Mr Roberts") on 12 March 2003 in the sum of $164,306.83 was a voidable transaction and ordered, under s 588FF(1)(a) of the Corporations Act 2001 (Cth) ("the Act"), that Mr Roberts pay that sum to the company. The primary judge also ordered that Mr Roberts pay interest to the company in the sum of $41,076 and that he pay the company's costs of the proceedings up to 14 October 2009 on an ordinary basis and thereafter on an indemnity basis but excluding the cost of preparation of the Court Books: Investwell Pty Limited (In liq) v Roberts [2011] NSWSC 784.

Background to the proceedings

1. The factual background to these proceedings is not in dispute. So far as relevant it may be summarised as follows.

1. Mr Roberts was one of the directors and a shareholder in the company. On 21 June 2001 the company purchased land at Maroubra with a view to developing it by the erection of five home units. The purchase price was funded by a combination of its own funds, monies advanced by prospective purchasers of the units and monies borrowed from Holiday Coast Credit Union.

1. By April 2002 it was apparent that there was a shortfall in funding to complete the project. Consequently, Mr Roberts and his two fellow shareholders and the company entered into a Directors & Shareholders Agreement ("the Agreement") whereby Mr Roberts agreed to use his best endeavours to provide such further funds and security for the project as he may in his absolute discretion be able to raise or provide on the company's behalf from time to time. The relevant provisions of the Agreement are set out later in this judgment.

1. The sale of three of the units was completed on 25 February 2003 and a fourth on 26 February 2003.

1. On 12 March 2003 the company settled the sale of the remaining unit for a purchase price of $409,000, from which it discharged the outstanding balance owed to Holiday Coast Credit Union and paid the balance, namely, $164,306.83 to Mr Roberts. It is common ground between the parties that Mr Roberts was a creditor of the company in at least that amount and it is also now common ground that the company was insolvent at the time that payment was made.

1. An order for the winding-up of the company was made on 12 March 2007 and the company and the liquidator thereafter brought proceedings against Mr Roberts claiming that the amount paid to him was a voidable transaction and seeking its repayment.

1. Although a number of issues were agitated before the primary judge, the only issue raised by Mr Roberts on this appeal was his contention that at the time the payment was made it was a payment in respect of a secured debt and did not constitute an unfair preference and therefore was not a voidable transaction.

The relevant provisions of the Agreement

1. The following provisions of the Agreement are relevant to the determination of the issue raised on the appeal:

"BACKGROUND:

...

B.Investwell is the Trustee under a Declaration of Trust dated 26 April 2001 ('Trust'). As Trustee, Investwell has purchased land situated at 1 Midway Drive, Maroubra being the whole of the land in Folio Identifier 395/36813 ('Land') and has entered into various agreements and arrangements for the construction of strata title residential units on the land in accordance with the terms of the Trust ('Development Project').

...

D.The Development Project required a higher level of funding and supporting security than the Directors originally anticipated. Investwell has not been able to borrow the additional funding required in its own right. Normoyle and Huxley were also unable to contribute any further funds or to provide any further security for the Development Project.

E.Roberts has agreed to use his best endeavours to provide such further funds and security to the Development Project as he may at his absolute discretion be able to raise or to provide on Investwell's behalf from time to time.

...

G.Investwell and the Directors have agreed that it is fair and reasonable to enter into this Deed to afford Roberts a higher level of protection until the funds he has provided have been repaid and the security he has provided has been discharged or is no longer at risk.

...

OPERATIVE PART:

...

3.Investwell acknowledges its existing debt to Roberts for the funds he has already contributed to the Development Project or paid to or on behalf of Investwell but has not yet received a reimbursement. The parties agree that Annexure 'A' to this Deed accurately shows the amount owing to Roberts as at the date shown in this Annexure.

4.Subject to clause 8 of this Deed Investwell must repay to Roberts on demand the outstanding amount detailed in Annexure 'A'. Investwell must also repay to Roberts on demand all other amounts that Roberts pays or directs to be paid to or on behalf of or at Investwell's direction for the Development Project, from time to time after the date shown in Annexure 'A' to this Deed.

5.Subject to Clause 8 Investwell must also pay to Roberts on demand interest on Robert's Funds calculated at the rate of 25% per annum from the date each of these amounts was provided or paid for the Development Project until the date each amount is repaid (inclusive of both dates) to Roberts or at his direction. Where applicable this will include an obligation to pay interest on any unpaid interest owed by Investwell to Roberts.

...

7.The parties agree that apart from any amounts applied under clause 6, all other and further funds or consideration provided or paid to Investwell or at its direction by the Beneficiaries or any other income, funds or other amounts received by Investwell in connection with the Development Project, must be immediately paid or applied without the need for a demand, in the following order to repay or reduce the amounts outstanding (as the case may be):

I.to repay the Loan Contract and discharge the Registered Mortgage;

II.to repay any outstanding amounts due under the Building Contract;

III.to repay Robert's Funds.

8.Roberts may make a demand on Investwell and/or either or both of Normoyle & Huxley for the repayment of any amount of Robert's Funds still outstanding after the registration of the strata plan for the Development Project. Following a demand by Roberts under this clause, Investwell must immediately apply any moneys, income, funds or credit available to Investwell (regardless of whether any such amounts arise from the Development Project) to pay the amount demanded by Roberts.

...

18.The parties also irrevocably direct any solicitor or licensed conveyancer that may be holding or controlling funds on behalf of Investwell from time to time, to pay any such funds in accordance with any directions given by Roberts from time to time.

...

21.The parties agree that if requested by Roberts at any time Investwell must at its own expense immediately grant to Roberts a mortgage over the Land, an equitable mortgage or charge over Investwell's assets and undertakings, and/or such other security as Roberts may consider necessary. Any such securities must be in a form acceptable to Robert's legal advisers."

1. Annexure 'A' to the Agreement stated that the total amount of "Robert's Funds" outstanding as at 16 April 2002 was $228,544.05.

The reasoning of the primary judge

1. In the proceedings before the primary judge, Mr Roberts, who was unrepresented at that time, contended that by virtue of cl 21 of the Agreement he had security over the monies he received, was thus not an unsecured creditor and consequently received no preference. His Honour rejected this contention. In his judgment he made the following remarks ([31]):

"The security argument can be briefly disposed of. Clause 21 of the agreement provides for security to be given by the company to Mr Roberts if requested by Mr Roberts at any time. The evidence established that Mr Roberts at no time requested any such security. Absent such a demand the company was not obliged to give it. The moneys owed to him by the company were therefore unsecured at all times."

1. The primary judge elaborated on these reasons in a judgment given by him on 27 September 2011 in which he granted Mr Roberts a stay of the orders originally made pending the determination of this appeal. In that judgment, he accepted ([31]) that where money has been advanced under a specifically enforceable agreement to grant a mortgage an equitable mortgage is created. He indicated that the central question to his mind was whether on the proper construction of the Agreement, the parties intended that the security concerned would be immediately conferred even without a request.

1. The primary judge described cl 21 of the Agreement as giving Mr Roberts the option of requesting one or more forms of security, both specified and unspecified and at any time. He stated ([34]) that this was inimical to the conclusion that the parties intended that any particular security would be immediately operable. The primary judge then reviewed various authorities which he said supported his conclusions, but ultimately came to the view that the contrary position contended by Mr Roberts was arguable.

1. His Honour also noted an alternative argument raised by Mr Roberts that cl 21 of the Agreement constituted a charge within the meaning of s 9 of the Act and, therefore, conferred security within the meaning of s 588FA. He stated he had significant doubts as to the correctness of this proposition but accepted it was arguable.

The legislative scheme

1. To understand the submissions of the parties it is necessary to set out the legislative scheme, as it then stood, under which the claim is made.

1. Section 9 of the Act contains the following definitions which are relevant to the proceedings:

"charge means a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise.

...

transaction, in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation):

(a)a conveyance, transfer or other disposition by the body of property of the body; and

(b)a charge created by the body on property of the body; and

(c)a guarantee given by the body; and

(d)a payment made by the body; and

(e)an obligation incurred by the body; and

(f)a release or waiver by the body; and

(g)a loan to the body;

and includes such a transaction that has been completed or given effect to, or that has terminated.

...

unsecured, in relation to a debt, has in Part 5.7B a meaning affected by section 588D."

Section 588D provides that a secured debt becomes an unsecured debt for the purpose of Pt 5.7B of the Act to the extent the creditor proves for the debt as an unsecured creditor.

1. Division 2 of Pt 5.7B of the Act deals with transactions which are voidable on liquidation of the company. The following provisions are relevant:

"588FAUnfair preferences

(1)A transaction is an unfair preference given by a company to a creditor of the company if, and only if:

(a)the company and the creditor are parties to the transaction (even if someone else is also a party); and

(b)the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;

even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

(2)For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security.

...

588FCInsolvent transactions

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and:

(a)any of the following happens at a time when the company is insolvent:

(i)the transaction is entered into; or

...

588FEVoidable transactions

(1)Where a company is being wound up, a transaction of the company that was entered into on or after 23 June 1993 may be voidable because of any one or more of the following subsections.

...

(4)The transaction is voidable if:

(a)it is an insolvent transaction of the company; and

(b)a related entity of the company is a party to it; and

(c)it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.

...

588FFCourts may make orders about voidable transactions

(1)Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;"

1. Thus, in the present case the Court had power to make the order which was made if it was established that the transaction gave a preference within the meaning of s 588FA, the company was insolvent at the time (s 588FC(a)(i)) and that it was entered into within four years ending on the relation-back day by Mr Roberts who, as a director, was a related entity of the company. The only matter in issue was whether the transaction constituted a preference.

The submissions of the parties

1. Mr Roberts relied on cll 18 and 21 of the Agreement in support of his contention that the debt was secured. He submitted that the provisions in question fell within the description of an equitable charge given by Atkin LJ in National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450 as the provisions in question gave him a right to have the property referred to in those paragraphs made available to him as and from the time of execution of the Agreement. It was not contended the charge was a floating charge.

1. In this regard Mr Roberts relied in particular on the fact that the definition of "charge" in s 9 of the Act included an agreement to give a charge or mortgage whether on demand or otherwise. Mr Roberts also contended that even without the inclusive part of the definition of "charge" in the Act, the Agreement created an equitable charge, as it was a contract evidenced in writing for valuable consideration to execute, when required, a legal mortgage. He submitted that had the company gone into liquidation prior to selling the land, still owing him money, he would have been entitled to stand outside the liquidation and enforce his rights against the liquidator with respect to the land the subject of the charge. He submitted that if he wished to enforce the charge he had a right to apply to the Court for an order for the sale of the charged property. He submitted that the fact that he was paid from the proceeds of the sale of the land rather than as a result of him exercising his right to a judicial sale did not change the fact that the payment was of a secured debt, it being contemporaneous with the sale of the land and being made from the proceeds of its sale.

1. Orally, counsel for the appellant submitted that the effect of cl 21 was, first, that the company, if requested by Mr Roberts at any time, had to immediately grant Mr Roberts a mortgage over the land, that being a reference to a legal mortgage. He stated that implicit in that was that he had an equitable mortgage automatically. He submitted that Mr Roberts also had an equitable mortgage or charge over the whole of the company's assets or undertakings, including the land. It was also submitted on the hearing of the appeal that cl 18 gave Mr Roberts the right to direct the proceeds of the sale of the land or any part thereof, to be paid to himself and thus gave him an equitable charge over such proceeds.

1. The company submitted that an agreement to give a mortgage only operates as an equitable mortgage if it is capable of specific performance and that where a borrower has only agreed to give a mortgage or charge if requested, no security arises, even in equity, until the request has been made. It pointed out that the operation of cl 21 depended on the choice of security made by the appellant and that until a request and a choice had been made, the company was under no obligation to provide a security to him and would not know what security to provide. It also pointed to the fact that the security must be in a form acceptable to Mr Roberts' legal advisers and that cl 21 did not specify the amount of the indebtedness to be secured. It submitted that it followed that specific performance of the obligations contained in cl 21 could not have been ordered and, therefore, that no equitable mortgage or charge arose. So far as the statutory definition of "charge" was concerned, it submitted that the extended definition in the Act was inserted into the legislation for the purpose of construing the registration provisions in s 294 of the Act and in those circumstances it submitted the definition did not assist Mr Roberts.

1. So far as cl 18 of the Agreement was concerned, the company submitted that as a matter of construction it merely empowered Mr Roberts to give directions to the solicitor or conveyancer as to the disposal of the funds, thus giving him total control over how the project was to be operated and how monies were to be dispersed and paid including to the builder or any other creditor.

1. The company finally contended that as the land the subject of the proposed security had been the subject of a strata subdivision and sold, the subject matter of the security had ceased to exist before the payment was made.

Consideration

Clause 21

1. It is trite law that a specifically enforceable agreement to grant a legal mortgage over property will constitute an equitable mortgage, the grantee acquiring an immediate proprietary interest in the property: Butt, Land Law, 6th ed (2010) Thomson Reuters, par [18.13] and the cases there cited; Gough, Company Charges, 2nd ed (1996) Butterworths, p 17. It has been frequently stated that it is the specific enforceability which creates the equitable mortgage. Thus in Pico Holdings Inc v Wave Vistas Pty Limited [2005] HCA 13; (2005) 79 ALJR 825 the High Court, in a joint judgment, stated the position in the following terms (at [68]):

"A binding promise for the delivery of a certificate of title by way of security is a contract to create an equitable mortgage and, if specifically enforceable, creates an interest in the relevant land. The respondents did not challenge these propositions. The promise to deliver the certificate of title in this case, being backed by consideration, which has been fully performed, and being clear, is specifically enforceable."

1. No particular form of words is required to create such an equitable mortgage as it is founded on a contract between the parties. The contract may be expressed or implied: see Gough supra at 17 and the cases cited therein. An equitable charge, by contrast, does not necessarily create an equitable mortgage. What, however, is necessary is that property of the chargor is appropriated to the chargee for payment of a debt and the chargee has a present right to have it made available for the payment of its debt. The availability of equitable remedies to enforce that right gives the chargee a proprietary interest by way of security in the property charged.

1. The distinction between an equitable mortgage and an equitable charge which is not in the nature of a mortgage was explained by Buckley LJ in Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 594-595 in the following terms:

"An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: see Fisher and Lightwood's Law of Mortgage, 9th ed. (1977), p. 13. An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: see Fisher and Lightwood, p. 14.

...

The essence of any transaction by way of mortgage is that a debtor confers upon his creditor a proprietary interest in property of the debtor, or undertakes in a binding manner to do so, by the realisation or appropriation of which the creditor can procure the discharge of the debtor's liability to him, and that the proprietary interest is redeemable, or the obligation to create it is defeasible, in the event of the debtor discharging his liability. If there has been no legal transfer of a proprietary interest but merely a binding undertaking to confer such an interest, that obligation, if specifically enforceable, will confer a proprietary interest in the subject matter in equity. The obligation will be specifically enforceable if it is an obligation for the breach of which damages would be an inadequate remedy. A contract to mortgage property, real or personal, will, normally at least, be specifically enforceable, for a mere claim to damages or repayment is obviously less valuable than a security in the event of the debtor's insolvency. If it is specifically enforceable, the obligation to confer the proprietary interest will give rise to an equitable charge upon the subject matter by way of mortgage.

It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred."

In relation to the second type of equitable charge, Buckley LJ cited with approval the dictum of Atkin LJ in National Provincial Bank v Charnley supra at 449-450 to the following effect:

".... I think there can be no doubt that where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the Court."

1. The statement of principles made by Buckley LJ was approved by the House of Lords on appeal [1982] AC 584 at 613. The dictum of Atkin LJ was approved in Re Charge Card Services Ltd (No. 2) [1987] Ch 150 at 176 (disapproved in Re Bank of Credit and Commerce International SA (In Liquidation) (No 8) [1998] AC 214 but not on this point); Re Bank of Credit and Commerce International SA (In Liquidation) (No 8) supra at 226; Cinema Plus Limited v Australia & New Zealand Banking Group Limited [2000] NSWCA 195; (2000) 49 NSWLR 513 at [40]-[44], [108]-[111]; Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (In liquidation) [2000] HCA 25; (2000) 202 CLR 588 at [6].

1. What is clear from the authorities is that for either an equitable mortgage or equitable charge to come into existence there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property.

1. A number of cases have suggested that an agreement to create in favour of a creditor a mortgage or a charge on request does not create a mortgage or equitable charge because no immediate proprietary interest or right to recourse to a particular asset was conferred on the creditor: Investment and Merchant Finance Corporation Ltd v Kirkwood Estates Ltd (1974) 5 ALR 191 at 194-195; Philpott v NZI Bank Limited (1989) 1 NZConvC 95-025; Penny Nominees Pty Limited v Fountain (NSWSC, unreported, 2 May 1989). The rationale for these decisions was perhaps best explained by Cooke P in Philpott v NZ Bank Limited supra in the context of a clause which obliged the customer to give additional unidentified security to the bank on request:

"In Gower's Modern Company Law, 4th ed 108, it is suggested that in theory an individual may be able to create a floating charge over his or her property as it exists from time to time, though there are practical difficulties in the way of that course. Be that as it may, it does not seem to me that cl 7.01 is drawn in a way appropriate to conferring the kind of charge illustrated by Driver v Broad. It is simply a contractual provision - I accept that it is binding on the customer - whereby the customer on request by the Bank will provide such alternative or additional security as the Bank may require. Until that has occurred, that is to say until there has been a request and requirement, no property has been identified. Central to the scheme of the provision is that the parties are not agreeing to confer on the Bank any present interest in any particular property or portfolio of properties. That distinguishes the case of options and it also distinguishes the observations, on which some reliance has been placed for the respondent, of Buckley LJ in Swiss Bank Corporation v Lloyds Bank Limited [1982] 2 All ER 419 at p 426."

1. Whether or not these cases were correct in their application of the particular contractual provisions being considered by them, the question depends, in my view, on the construction of the clause in question. If the provision on its true construction confers an immediate equitable interest in particular property, or grants an immediate right of recourse to present or future property, then the grantee will be secured to the extent of his or her interest in, or right to, the property. If it does not, the creditor will be unsecured.

1. In the present case, cl 21, in my opinion, does not confer an immediate right of recourse to the property in the sense I have suggested. First, the obligation to grant the mortgage expressed to be upon request. Second, the proposed security is expressed as alternatives, the third alternative being security that Mr Roberts may consider necessary. Third, the form of security is not settled but is required to be in a form acceptable to the legal advisers to Mr Roberts. These matters taken cumulatively seem to me to lead to the conclusion that there was no intention to grant an immediate equitable interest of charge.

1. Nor do I think the extended definition of "charge" in the Act assists Mr Roberts. Whilst the extended definition may extend the ambit of the operation of Ch 2K of the Act, or for that matter the provisions dealing with company administration in Pt 5.3A or the avoidance provisions in Pt 5.7B, it does not seem to me that the definition is capable of conferring security where it otherwise does not exist. Put another way, if the agreement to grant a charge does not confer the immediate right to which I have referred, then the definition will not alter the position.

1. It follows that cl 21 did not operate to confer security on Mr Roberts.

Clause 18

1. It does not seem to me that cl 18 has the effect of conferring security on Mr Roberts. The parties had agreed, in cll 6 and 7 of the Agreement, on the manner in which funds secured for the development were to be dispersed. Clause 18 was designed, in my opinion, to give Mr Roberts control over such dispersal. Unlike cl 21 it was not intended to give Mr Roberts security if he required it.

Conclusion

1. It follows that at the time the payment was made Mr Roberts was an unsecured creditor and the payment to him constituted a preference. In these circumstances the appeal should be dismissed with costs. Accordingly, there is no need to address the company's submission that any security that may have existed ceased to do so once the land had been the subject of strata subdivision and sale.

1. BEAZLEY JA: I agree with Bathurst CJ.

1. TOBIAS AJA: I agree with the orders proposed by the Chief Justice for the reasons he has expressed.

**********

Decision last updated: 25 May 2012