Saraceni v Mentha [No 2]
[2012] WASC 336
•18 SEPTEMBER 2012
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: SARACENI -v- MENTHA [No 2] [2012] WASC 336
CORAM: CORBOY J
HEARD: 4 - 8 JULY 2011
DELIVERED : 18 SEPTEMBER 2012
FILE NO/S: COR 22 of 2011
MATTER :Westgem Investments Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed)
BETWEEN: LUKE SARACENI
First Plaintiff
SARACEN PROJECT MANAGEMENT PTY LTD AS TRUSTEE FOR THE SARACEN PROJECT MANAGEMENT TRUST
Second PlaintiffAND
MARK FRANCIS XAVIER MENTHA
CLIFFORD STUART ROCKE
First DefendantsBOSI SECURITY SERVICES LTD
Second Defendant(BY ORIGINAL ACTION)
BOSI SECURITY SERVICES LTD
Plaintiff by CounterclaimAND
LUKE SARACENI
First Defendant by CounterclaimSARACEN PROJECT MANAGEMENT PTY LTD AS TRUSTEE OF THE SARACEN PROJECT MANAGEMENT TRUST
Second Defendant by CounterclaimWESTGEM INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)
Third Defendant by Counterclaim(BY COUNTERCLAIM)
Catchwords:
Contract - Construction of deed - Whether deed charged all of the assets and undertaking of a party to the deed - Application of the principle in Fitzgerald v Masters
Equity - Rectification - Whether deed could be rectified where the parties were mistaken as to the effect of the deed - Whether deed should be rectified to create a charge over all of the chargor's assets where the chargor was in administration - Whether chargee had misled ASIC and Office of State Revenue over circumstances relevant to the payment of stamp duty - Whether chargee had unclean hands - Whether the court should refuse to rectify deed for unclean hands
Equity - Subrogation - Whether defendants were entitled to be subrogated to the securities granted to another financier - Whether assignee of securities had unclean hands
Equity - Estoppel - Whether the plaintiffs estopped from denying that deed created a fixed and floating charge over all of the assets and undertaking of party to the deed - Whether parties estopped where they have made an assumption about the effect of their agreement - Whether plaintiffs party to the alleged estoppel
Legislation:
Corporations Act 2001 (Cth), Pt 2K.2
Stamp Act 1921 (WA)
Result:
Declarations to be made that deed charged all of the assets and undertaking of Westgem Investments Pty Ltd and that the charge was not void as against the administrator
Category: B
Representation:
Original Action
Counsel:
First Plaintiff : Mr J T Gleeson SC &
Mr M L Bennett
Second Plaintiff : Mr J T Gleeson SC &
Mr M L Bennett
First Defendants : Mr P W Collinson SC,
Ms K F Banks-Smith & Ms E Dias
Second Defendant : Mr P N Collinson SC,
Ms K F Banks-Smith & Ms E Dias
Solicitors:
First Plaintiff : Jackson McDonald
Second Plaintiff : Jackson McDonald
First Defendants : King & Wood Mallesons
Second Defendant : King & Wood Mallesons
Counterclaim
Counsel:
Plaintiff by Counterclaim : Mr P W Collinson SC,
Ms K F Banks-Smith & Ms E Dias
First Defendant by Counterclaim : Mr J T Gleeson SC &
Mr M L Bennett
Second Defendant by Counterclaim : Mr J T Gleeson SC &
Mr M L Bennett
Third Defendant by Counterclaim : Mr D A Pratt
Solicitors:
Plaintiff by Counterclaim : King & Wood Mallesons
First Defendant by Counterclaim : Jackson McDonald
Second Defendant by Counterclaim : Jackson McDonald
Third Defendant by Counterclaim : Jackson McDonald
Case(s) referred to in judgment(s):
Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1982] QB 84
Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365
Ayerst v C & K (Construction) Ltd [1976] AC 167
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; 39 WAR 1
Bofinger v Kingsway Group Ltd [2009] HCA 44; 239 CLR 269
Campbell Finance Pty Ltd v Vivstan Packaging (Aust) Pty Ltd (in liq) [1998] 2 VR 340
Challenger Managed Investments Pty Ltd v Direct Money Corporation Pty Ltd [2003] NSWSC 1072; 12 BPR 22,257
Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101
Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291
CMG Equity Investments Pty Ltd v ANZ Banking Group Ltd [2008] FCA 455; 65 ACSR 650
Cochrane v Cochrane (1985) 3 NSWLR 403
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337
Coghlan v SH Lock (Aust) Ltd (1985) 4 NSWLR 158
Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in liq) (1973) 131 CLR 605
Comptroller of Stamps (Vic) v Associated Broadcasting Services Ltd (1987) 87 ATC 4401
Con‑Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226
Crosbie; Re Media World Communications Ltd v Naidoo [2005] FCA 51; 216 ALR 105
Dewhirst v Edwards [1983] 1 NSWLR 34
Discount & Finance Ltd v Gehrig's New South Wales Wines Ltd (1940) 40 SR (NSW) 598
Dow Securities Pty Ltd v Manufacturing Investments Ltd [1981] 5 ACLR 501
Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175
Exception Holdings Pty Ltd v Albarran (No 2) [2005] NSWSC 981
Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; 220 CLR 592
Fitzgerald v Masters (1956) 95 CLR 420
Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52
Frontier Petroleum NL v Anzoil NL (Unreported, Supreme Court WA, Anderson J, No 1293 of 1997, 4 June 1997)
Ghana Commercial Bank v Chandiram [1960] AC 732
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Grundt v Great Boulder Pty Gold Mines Ltd [1937] HCA 58
Hewlett Packard Australia Pty Ltd v GE Capital Finance Pty Ltd (2003) 135 FCR 206
In re Yolland, Husson & Birkett Ltd, Leicester v Yolland, Husson & Birkett Ltd [1908] 1 Ch 152
Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; 1 All ER 98
JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liquidation) (1987) 12 ACLR 1; (1987) 13 ACLR 77
Kenneth Allison Ltd v AE Limehouse & Co [1992] 2 AC 105
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 201 CLR 181
ManderPty Ltd v Clements [2005] WASCA 67; 30 WAR 46
McCann v Switzerland Australia Ltd [2000] HCA 65; 203 CLR 579
McCourt v Cranston [2012] WASCA 60
Meyers v Casey [1913] HCA 50; 17 CLR 90
Mincode Pty Ltd v Isa Pty Ltd (1996) 17 WAR 245
Morris v Woodings (1997) 25 ACSR 636
National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; 44 ACSR 296; 21 ACLC 4101
National Provincial and Union Bank of England v Charnley [1924] 1 KB 431
North Circular Properties Ltd v Internal Systems Organisation Ltd (Unreported, High Court of England and Wales, Chancery Division, Donald Rattee QC, 29 October 1984)
Nunn v Wily [2001] NSWSC 317; 10 BPR 18,983
Orakpo v Manson Investments Ltd [1978] AC 95
Porter v Associated Securities Ltd (1976) 1 BPR 9279
Public Trustee of Queensland v Fortress Credit Corporation [2010] HCA 29; 241 CLR 286
Public Trustee of Queensland v Octaviar Ltd (subject to a deed of company arrangement) (receivers and managers appointed) (ACN 107 863 436) [2009] QSC 37; 69 ACSR 621
Re A Caveat; Ex parte Canowie Pastoral Co Ltd [1931] SASR 502
Re Anglo-Oriental Carpet Manufacturing Company [1903] 1 Ch 914
Re Nye (CL) Ltd [1971] 1 Ch 442
Re Oriental Inland Steam Navigation Co; Ex parte Scinde Railway Co (1874) LR 9 Ch App 557
Re Paul & Gray Ltd (1932) 32 SR (NSW) 386; 49 WN (NSW) 164
Sanwa Australian Finance Ltd v Ground‑Breakers Pty Ltd (in liq) [1991] 2 Qd R 456
Saraceni v Mentha [2011] WASC 94
Sons of Gwalia Ltd v Margaretic; ING Investment Management LLC v Margaretic [2007] HCA 1; 231 CLR 160
Sumampow v Mercator Property Consultants Pty Ltd [2005] WASCA 64
Thompson v Palmer (1933) 49 CLR 507
Tipperary Developments Pty Ltd v Western Australia [2009] WASCA 126; 38 WAR 488
Victorian Housing Estates Ltd v Ashpurton Estates Ltd [1983] Ch 110
Waste Recycling and Processing Corporation v Global Renewables Eastern Creek Pty Ltd [2009] NSWSC 453
Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1
Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157
Wilde v Australian Trade Equipment Co Pty Ltd (1981) 145 CLR 590
Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522
CORBOY J:
The proceedings, the issues and the result
The ultimate point at issue in this action was whether the first defendants (the Receivers) were validly appointed by the second defendant (BOSI Security) as receivers and managers of the property of Westgem Investments Pty Ltd (Westgem) pursuant to a deed entitled, 'Fixed and floating charge (all assets)' (the Deed) and mortgages granted by Westgem. The plaintiffs challenged the appointments on various grounds that are briefly summarised in this part of the reasons, together with the defendants' response.
There was a subsidiary issue concerning the construction of the Deed if the Receivers were validly appointed: did the Deed charge all of the assets and undertaking of Westgem or did it only create a fixed charge over certain assets? There was also an issue over whether any charge created by the Deed was void as against an administrator (the Administrator) who has been appointed to Westgem.
I have concluded that the Receivers were validly appointed to all of the assets and undertaking of Westgem pursuant to a charge created by the Deed. I have also found that the charge is valid as against the Administrator.
The plaintiffs' primary allegations
Westgem was the registered proprietor of land located in the Perth CBD known as Raine Square. In April 2008, it entered into a facility agreement (the Facility Agreement) with Bank of Western Australia Ltd (BankWest), BOS International (Australia) Ltd (BOSI) (together, the Financiers) and others by which the Financiers agreed to provide finance to enable Westgem to complete a project to redevelop the land (exhibit 1/1).
Contemporaneously with the execution of the Facility Agreement:
(a)Westgem and BOSI Security (formerly known as BWA Custodians Ltd) made the Deed (exhibit 1/2).
(b)Westgem granted BOSI Security a mortgage (the First Mortgage) over the land comprising the Raine Square site (exhibit 1/3). The mortgage was expressed to secure a principal sum of $327 million.
(c)BOSI Security, the Financiers, Westgem and others made a deed (the Security Trust Deed) by which the Financiers appointed BOSI Security as security trustee for the purpose of the 'Transaction Documents'. The term 'Transaction Documents' was defined by the Facility Agreement to mean, among other things, the Facility Agreement and the 'Security Documents'.
(d)Westgem and others entered into various agreements identified in schedule 4 to the Facility Agreement and defined in that agreement as the 'Security Documents'. The Deed and the First Mortgage were among the agreements listed in schedule 4 (I will refer to the Facility Agreement, the Deed, the First Mortgage and the other agreements listed in schedule 4 as the Initial Financing Documents).
Westgem granted BOSI Security further mortgages on 11 November 2008 (exhibit 1/14) and 22 September 2010 (exhibit 1/22) (together with the First Mortgage, the Mortgages). Further, Westgem, the Financiers, BOSI Security and others entered into a deed of amendment and restatement of the Facility Agreement on 22 September 2010 (exhibit 1/21). Clause 3 of the deed provided that the parties accepted, agreed and acknowledged that the Facility Agreement was amended and restated in the manner set out in an annexure to the deed. The annexure contained the agreement in its amended and restated form (the Restated Facility Agreement).
On 11 January 2011, the Financiers appointed the Receiver as receivers and managers of the property of Westgem. The appointment was stated to have been made pursuant to the Deed.
On the same day, Mr Saraceni appointed the Administrator to Westgem. Mr Saraceni is the sole director of Westgem and is also a director of the second plaintiff (Saracen).
BOSI Security appointed the Receivers as receivers and managers of the property the subject of the Mortgages on 21 January 2011.
The plaintiffs alleged in these proceedings that:
(a)the Deed, on its proper construction, was ineffective to charge any of the assets of Westgem so that the appointment of the Receivers was invalid;
(b)the charge is and was void against the Administrator by reason of s 266 of the Corporations Act 2001 (Cth) (CA) as a notice in respect of the charge was not lodged under s 263;
(c)the Mortgages did not secure the whole or substantially the whole of the property of Westgem within the meaning and for the purpose of s 441A CA so that the appointment of the Receivers as receivers and managers under the Mortgages was not a valid or effective appointment for the purpose of Pt 5.3A, div 7 CA.
The plaintiffs sought declarations to that effect under s 418A and s 447B CA.
It was agreed prior to trial that the hearing of the declarations sought in relation to the effect of the Mortgages and associated issues would be deferred. Consequently, the issues litigated at trial focussed on the Deed, the validity of the appointment of the Receivers pursuant to the Deed and whether any charge created by the Deed was valid as against the Administrator.
The construction issue
Clause 3.1 of the Deed provided that 'the Chargor charges the Secured Property to the Security Trustee to secure the payment of the Secured Money'. Westgem was the Chargor; BOSI Security was the Security Trustee for the purpose of the Deed pursuant to the Security Trust Deed.
The Deed contained no definition of the terms 'Secured Money' and 'Secured Property'. However, cl 1.3 provided that 'terms and expressions defined in the Facility Agreement apply in this document unless that term or expression is defined in this document or the context indicates otherwise'. The terms 'Secured Money' and 'Secured Property' were terms that were defined by cl 1.2 of the Facility Agreement.
Clause 1.1(107) of the Facility Agreement defined 'Secured Property' to mean 'any asset of a Transaction Party mortgaged, charged or otherwise secured in favour of the Security Trustee or any other Finance Party by way of a Security as security for the Secured Money or any of the Borrower's or any other Transaction Party's other obligations arising under any Transaction Document'. The plaintiffs contended that the Facility Agreement definition was imported into the Deed by cross‑reference under cl 1.3. They further contended that the definition of Secured Property referred to assets mortgaged, charged or otherwise secured at the time that the Facility Agreement and the Deed were made and that there were no assets of a 'Transaction Party' that had been secured in favour of BOSI Security at that time. Accordingly, the Deed did not charge any of the assets or the undertaking of Westgem and the appointment of the Receivers was ineffective and invalid.
The defendants contended that the definition of 'Secured Property' contained in the Facility Agreement was not incorporated into the Deed by cross‑reference. Rather, the term Secured Property meant, on a proper construction of the Deed, all of the assets and undertaking of Westgem. Alternatively, the Deed created a fixed charge over certain assets that were specified in the Deed.
Rectification
The defendants counterclaimed, in the alternative, that the Deed should be rectified to incorporate a definition of Secured Property: '"Secured Property" means all of the assets and undertaking of the Chargor'. The claim rested on allegations made in par 61 of the defence and counterclaim that:
The parties to the [Deed] and Saraceni and by reason of the matters in paragraphs 8 to 19:
(a)had, at all material times, including at the time of execution of the [Deed], the common intention that Westgem would provide a fixed and floating charge over all of its assets and undertaking ('Common Intention as to Charge'); and
(b)considered that the [Deed] reflected the Common Intention as to Charge.
The plaintiffs admitted those allegations (which I will refer to as the 'common intention plea'). However, they contended that an instrument could not be rectified where the parties were mistaken about the meaning or effect of words that they had deliberately chosen to record their agreement (plaintiffs' written outline of submissions, par 2.2). Alternatively, the plaintiffs alleged that an order rectifying the Deed should not be made as:
(a) Westgem was in administration so that rectification of the Deed would advance the position of BOSI Security and the Financiers at the expense of the other creditors of Westgem: see JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (in liquidation) (1987) 12 ACLR 1; on appeal (1987) 13 ACLR 77.
(b)BOSI Security, the Financiers and their solicitors had engaged in conduct that disentitled BOSI Security to relief in equity. The allegations of unclean hands were complex. They primarily concerned the circumstances surrounding the stamping of the Deed, the First Mortgage and a mortgage granted by Mr Saraceni and Hossean Pourzand (together, the Collaterally Stamped Documents).
Estoppel
The defendants further alleged by counterclaim that the plaintiffs and Westgem were estopped from denying that the Deed took effect as a fixed and floating charge over all of the assets and undertaking of Westgem; alternatively, that they were estopped from denying that particular provisions of the Deed operated as a fixed charge over all of the benefits of any contract to which Westgem was a party, including what was referred to in the pleadings as the 'Salta Building Contracts'.
The plaintiffs contended that any assumption made by BOSI Security concerned the effect of the Deed as executed. As such, the assumption was a 'self-induced' error and was not about a matter of fact.
The allegation that the plaintiffs were estopped from denying that the Deed created a fixed charge over the benefit of contracts to which Westgem was a party relied on statements made in a letter dated 6 April 2010 written by BOSI Security to Mr Saraceni in his capacity as the director of Westgem but containing undertakings given by Westgem, Mr Saraceni and others (exhibit 1/17) and a deed made between BOSI Security, BankWest, Westgem and Probuild Constructions (Aust) Pty Ltd (the Builder's Side Deed; exhibit 1/20). The plaintiffs contended that there was no clear statement of fact made in those documents that could found an estoppel in the terms alleged by the defendants.
Finally, the plaintiffs contended that no effect should be given to the estoppels asserted by the defendants as Westgem was in administration. Other creditors would be prejudiced in the administration if Westgem was estopped from denying that the Deed created a charge over its assets and undertaking.
The St George Assignment Securities and the St George Assignment Deed
St George Bank Ltd (St George) had advanced funds to Westgem prior to the offer by the Financiers to provide financial accommodation. The purpose of the advances was to assist with the acquisition and development of the Raine Square site. The advances were secured by, among other things, a charge (the St George Charge) (exhibit 1/26) and two mortgages (exhibits 1/27 and 1/28) granted by Westgem to St George (the St George Charge and the mortgages are referred to together as the St George Assignment Securities).
The letter of offer by which the Financiers offered to provide financial accommodation that was accepted by Westgem stated that the financing proposal was for the 'refinancing and subsequent development of the site located at Raine Square' (exhibit 1/72). The attached term sheet described the purposes for the proposed facilities as including, 'to assist in refinancing St George Bank Ltd (debt of $24,000,000)'.
On 30 April 2008, BankWest, BOSI Security, St George, Westgem and various entities and natural persons associated with Westgem, including Mr Saraceni, made a deed of assignment (the St George Assignment Deed) by which St George assigned to BOSI Security, among other things, its interest in and title to the St George Assignment Securities and 'all moneys up to the Limit that are owing and payable to St George under the [St George] Assignment Securities' (the St George Debt) (exhibit 1/31). The Limit was defined as $49.36 million. The consideration for the assignment was the payment by BankWest 'for and on behalf of' the Financiers of the 'Price'. The 'Price' was defined to mean, 'a sum to be agreed between [BankWest] and St George' being 'the amount owing (whether actually or subject to the occurrence of any contingency) by [Westgem] to St George under the Assignment Securities as at the Assignment Date' (cl 1.1). Westgem and entities and persons associated with Westgem, including Mr Saraceni, warranted to BankWest and BOSI Security that the amount payable under the St George Assignment Securities was equal to the Price (cl 3).
Clause 7 of the St George Assignment Deed concerned stamp duty. The parties to the deed agreed and acknowledged by cl 7.1 that the St George Assignment Securities certified that they were collaterally stamped to secure $140.35 million and that they were stamped primary to secure $1.22 million. Clause 7.2 was entitled, 'utilisation of stamp duty'. The effect of the clause was to provide for an assignment of the stamp duty that had been paid by St George on the St George Assignment Securities to the extent that they secured an amount equal to the 'Limit'. Further, St George agreed to deliver to the Western Australian Office of State Revenue (the OSR) other securities that it held and which had been granted by Westgem and others associated with Westgem to St George and which St George was to retain following the assignment (referred to in the St George Assignment Deed as the 'St George Securities') so that (cl 7.2(a)(ii)):
…it can effect the separation of the aggregate amount of mortgage duty that is certified as having been paid on the Assignment Securities and the St George Securities in order to enable OSR to separate that mortgage duty so that:
(A)the Assignment Securities are stamped on a primary basis to secure the Limit; and
(B)the St George Securities are stamped on a primary basis to secure $92,210,000.
The unclean hands allegations
The plaintiffs made a number of allegations in their reply and defence to counterclaim concerning the St George Assignment Deed, the repayment of the St George Debt and the stamping of the Collaterally Stamped Documents. Those matters were alleged in support of their contention that BOSI Security was not entitled to relief in equity (rectification of the Deed). The plaintiffs summarised their unclean hands defence in closing as resting on 'three separate but cumulative propositions' (plaintiffs' closing written submissions, pars 31 ‑ 37). Broadly, they alleged that:
(a)the Financiers converted to their own use Westgem's money to pay the St George Debt, alternatively Westgem's money was used to pay the debt with the result that the debt was discharged and the Collaterally Stamped Documents, including the Deed, were presented for stamping on a basis that did not reflect the true effect of the transaction with St George;
(b)a misleading statement regarding the stamping of the Deed had been made in the form (the Form 350 Notice) lodged with ASIC under s 265(4) and (5) CA certifying compliance with the stamp duty laws applying to the 'charge' that had been notified by BOSI Security (exhibit 1/11); and
(c)material matters were not disclosed to the OSR and ASIC when the Deed was presented for stamping and during the registration process.
The second and third of those matters were a reflection of the first matter. The plaintiffs alleged that the solicitors for BOSI Security and the Financiers had misled the OSR and ASIC by failing to disclose that Westgem, not the Financiers, had paid the St George Debt with the result that the Collaterally Stamped Documents could not be collaterally stamped under the relevant provisions of the Stamp Act 1921 (WA) and ought not to have been presented for stamping on that basis.
Stamping of the Collaterally Stamped Documents
Section 91B of the Stamp Act concerns the collateral stamping of mortgages. As the terms of the St George Assignment Deed made plain, a purpose (the plaintiffs contended, the only purpose) of the assignment of the St George Assignment Securities was to enable some of the Initial Financing Documents to be collaterally stamped pursuant to that section. It was common ground that collateral stamping required the same advance to be secured by both the primary security instrument that had been first stamped (the St George Charge) and the collateral instrument (the Deed).
The plaintiffs contended that, contrary to what was recorded in the St George Assignment Deed, the St George Debt was not assigned to BOSI Security in consideration for payment of the 'price' for the debt. Rather, a payment was made to St George using Westgem's money. The effect of the payment was to discharge the debt. Consequently, the St George Assignment Securities did not secure the payment of any money owed by Westgem to BOSI Security as assignee and the Collaterally Stamped Documents could not and should not have been presented for collateral stamping on that basis.
The plaintiffs contended that the Financiers and their solicitors, who attended to the stamping of the Collaterally Stamped Documents, misled the OSR in presenting the documents for collateral stamping by not informing the Office that Westgem had paid out the St George Debt so that the St George Assignment Securities and the Collaterally Stamped Documents did not secure the same advance. ASIC was misled over whether the Deed had been stamped in compliance with the relevant stamp duty laws.
The defendants denied that Westgem's money was used to pay out the St George Debt. They contended that the Financiers acquired the debt and the St George Assignment Securities using their money, that the assigned debt had not been discharged when the Collaterally Stamped Documents had been presented for stamping and that the Deed had been properly stamped as collateral to the St George Assignment Securities.
Subrogation
The St George Charge charged the assets and undertaking of Westgem. It was voluntarily discharged. The date on which it was discharged was contentious. However, it was discharged either on 30 April 2008 or 8 May 2008; that is, either shortly before or after a notice of the 'charge' said to have been created by the Deed was lodged under s 263(1) CA (see exhibit 1/8 and the Form 3).
The defendants alleged that:
(a)the Financiers paid the amount secured by the St George Charge (that is, the St George Debt - the 'Price' under the St George Assignment Deed) on or about 30 April 2008;
(b)the property secured by the St George Charge was charged or otherwise secured in favour of BOSI Security, for and on behalf of the Financiers, on payment of the amount secured by the St George Charge or by reason of the St George Assignment Deed;
(c)the St George Charge was discharged in the belief that the Deed was effective to create a charge over all of the assets and undertaking of Westgem;
(d)BOSI Security was entitled to be subrogated to the St George Charge if the Deed was ineffective to secure all of the assets and undertaking of Westgem as the Financiers had not received the security for which they had bargained and which it was intended that they would receive.
The defendants relied on the security created by the St George Charge as a further source of a right to have appointed the Receivers to all of the assets and undertaking of Westgem. They also contended that the assets charged by the St George Charge constituted Secured Property within the meaning given to that term by the Facility Agreement. Consequently, the assets and undertaking of Westgem were charged by the Deed if the term Secured Property, when used in the Deed, was defined by the Facility Agreement.
The plaintiffs contended that BOSI Security was not entitled to be subrogated to the St George Charge, primarily on the ground that the St George Charge had been assigned to BOSI Security and voluntarily discharged following the assignment.
Registration of the 'charge'
Section 266 CA provides that a registrable charge on property of a company is void as a security on that property as against an administrator appointed to the company unless, among other things, a notice in respect of the charge was lodged under s 263 within the 'relevant period' or at least six months before the 'critical day'. The plaintiffs submitted that if, contrary to their primary contention, the Deed created a charge over any of the assets of Westgem, notice of the charge was not validly lodged under s 263. That contention, and the defendants' arguments to the contrary, raised a number of issues concerning the meaning and application of Pt 2K.2 CA. Briefly, those issues concerned:
(a)Whether the Facility Agreement ought to have been lodged with the notice required by s 263(1) (only the Deed was lodged). Section 263(1)(c) requires the instrument(s) creating or evidencing the charge to be lodged with the notice required by s 263(1)(a). The plaintiffs contended that the Facility Agreement was such an instrument because it contained a number of defined terms that were imported by cross-reference into the Deed.
(b)Whether the notice lodged under s 263(1)(a) (the Form 309 Notice) contained a sufficient description of the property to be charged.
(c)The effect of the certificate issued by ASIC pursuant to s 272(3) - was the certificate conclusive evidence that all of the requirements as to registration had been satisfied, including any requirement imposed by s 263(1)(c)?
(d)Whether the time for lodging the notice required by s 263(1)(a) should be extended if it was found that a notice had not been lodged as required. That question arose in two ways: first, should time be extended if a notice was taken not to have been lodged because the Facility Agreement was an instrument that ought to have been lodged (see s 263(5) and second, was a fresh notice required if the Deed was rectified and if so, should time be extended for that purpose?
The role of the Administrator
The defendants' claims for rectification of the Deed and subrogation to the St George Charge were pursued by counterclaim for declaratory relief. Similarly, the defendants sought declarations holding Westgem and the plaintiffs to the assumption concerning the effect of the Deed that they contended formed the conventional basis for the contractual and other dealings relating to the facilities made available by the Financiers. Westgem was made a party to the counterclaim with leave granted to the defendants under s 440D CA: Saraceni v Mentha [2011] WASC 94.
The Administrator filed a defence to the counterclaim in which he indicated that he would abide by the decision of the court. However, he made submissions at trial on the effect of his appointment on the issues to be determined. His submissions were primarily concerned with the effect that the relief sought by the defendants would have on the position of the creditors of Westgem apart from the Financiers. He also made submissions that were similar to those put by the plaintiffs concerning the registration of any charge found to have been created by the Deed.
Result
I have found that the Deed on its proper construction charged all of the assets and undertaking of Westgem and consequently, the Receivers were validly appointed pursuant to the Deed. The notice required by s 263 CA was lodged within the time specified by s 266.
Those findings are sufficient to dispose of the substance of the matters in dispute between the parties. However, I have made the following further findings should the Deed not to be construed in the way that I have held:
(a)the Deed could be rectified notwithstanding that Westgem was in administration and the court should exercise its discretion to grant the remedy;
(b)Westgem and Mr Saraceni (but not Saracen) were estopped from denying that the Deed created a fixed and floating charge over all of its assets and undertaking;
(c)BOSI Security was not entitled to be subrogated to the St George Charge if the Deed could not or should not be rectified;
(d)it was not necessary for the Facility Agreement to be lodged under s 263(1)(c) CA and the requirements of Part 2K.2 CA regarding registration of the charge had been satisfied, alternatively time for lodging a notice should be extended;
(e)the Deed is not void as against the Administrator.
The Initial Financing Documents
The offers to provide financial accommodation
The first offer made by the Financiers to Westgem to provide financial accommodation in connection with the Raine Square project was by letter dated 29 June 2007 (exhibit 1/70). The offer was expressed to have been made to Westgem in its own right and as trustee for:
(a)Mr Pourzand and Jenny Maria Pourzand as trustee for the Helen Trust; and
(b)PakWest Pty Ltd as trustee for Newport Securities Pty Ltd in its capacity as trustee for the PakWest trust and Oakcure Pty Ltd as trustee for the Parry trust.
The offer was stated to be in relation to the refinancing and subsequent development of the Raine Square site. The amount of the proposed facility was $327 million.
The letter enclosed a proposed term sheet. It was stated in the letter that:
The Term Sheets are a summary of the main terms and conditions of the proposed financing for the Project under each of the Facilities. The final terms and conditions for the Facilities will be included in, and subject to, formal financing documents, which will be prepared on behalf of BankWest and BOSI by their lawyers and provided to you in due course, and will comprise a facility agreement (or agreements), the security documents described in the Term Sheets and any other documents required by BankWest and BOSI.
The term sheet stated that:
(a)Accommodation would be provided in the form of three facilities ‑ a multi-option facility incorporating a cash advance of $316 million and a bank guarantee capped at $10 million and to be payable in two tranches; a stand‑by letter of credit/financial guarantee (stand‑by facility) of $8.2 million and an overdraft (GST float) facility of $3 million.
(b)The purpose of the facility was to assist in refinancing a debt of $60 million owed to St George and to meet the development costs of the Raine Square project and capitalised interest, Westgem's requirements under the heads of agreement between Westgem as lessor and BankWest as lessee (it was proposed that BankWest would lease space in an office tower to be constructed as part of the re-development of the site) and ongoing GST obligations arising out of the project.
(c)The term of the multi-option facility was to 31 December 2009; the stand-by letter of credit/financial guarantee was to be in place until 12 months after the 'lease commencement date'; and the overdraft (GST float) facility was to be on demand.
(d)Security was to be provided in the form and substance satisfactory to the bank and was to include:
1.First Ranking Registered Mortgage provided by [Westgem] over Raine Square … ('secured property').
2.First Ranking Registered Fixed and Floating Charge provided by [Westgem] over all the assets and undertakings of [Westgem].
A revised offer to provide financial accommodation was made by letter dated 14 August 2007 (exhibit 1/71). There were no material differences between the revised offer and the offer made by the letter dated 29 June 2007.
A third and final offer of financial accommodation was made to Westgem by letter dated 18 March 2008 (exhibit 1/72). That offer was accepted.
The term sheet enclosed with the letter provided (so far as the proposed terms differed from those contained in the term sheet accompanying the letter of offer of 29 June 2007) that:
(a)There were to be two borrowers ‑ 'borrower one' was to be Westgem as trustee for Hossean Pourzand and Jenny Maria Pourzand as trustees for the Helen Trust and 'borrower two' was to be Westgem as trustee for Hossean Pourzand and Jenny Maria Pourzand as trustees for the Helen Trust and PakWest as trustee for Newport Securities in its capacity as trustee for the PakWest trust and Oakcure as trustee for the Parry trust.
(b)The total limit of the multi option facility remained at $316 million. However, the cash advance was to be split between BankWest ($152 million) and BOSI ($154 million). BankWest was to be responsible for providing the bank guarantee capped at $10 million.
(c)BOSI was to provide the stand‑by letter of credit in an amount of $8.2 million and BankWest was to provide the overdraft (GST float) facility with a limit of $3 million.
The purpose of the facility was stated to be the same as that identified in the initial term sheet except for one non-material alteration. Similarly, the security to be provided remained the same as that which had been specified in the initial term sheet. In particular, a first ranking registered mortgage was to be granted over Raine Square, with the Raine Square site described as 'secured property', and Westgem was to provide a first ranking registered fixed and floating charge over its assets and undertaking.
The drafting of the Facility Agreement and the Charge
Mr Pazin is a partner in the firm of solicitors, Norton Rose (formerly known as Deacons; it is convenient to continue to refer to the firm as Deacons as that accords with the documents that were tendered). His firm acted for the Financiers and BOSI Security in preparing the Initial Financing Documents. The firm also attended to lodging the Form 309 Notice and other notices lodged with ASIC and to stamping the Collaterally Stamped Documents.
Mr Pazin was instructed by BOSI in relation to the proposed financing for Westgem by an undated letter that attached a copy of the first letter of offer made by the Financiers to Westgem (exhibit 1/70). The instruction letter advised that Westgem's contact was Mr Mark Clohessy of Security Capital Corporation Pty Ltd (Security Capital).
Mr Clohessy is a director of Security Capital. BankWest and Security Capital entered into an agency agreement in May 1998 (exhibit 1/68) by which BankWest appointed Security Capital as its agent for the purpose of submitting applications for loans. It was not in issue that Security Capital was to be paid a fee of $250,000 by BankWest for introducing Westgem to the Financiers (witness statement of Stephen John Nagle, exhibit 2, par 14C; the fee is referred to in the final letter of offer to Westgem dated 18 March 2008).
Mr Pazin provided a draft of the Facility Agreement to Mr Clohessy, with a copy to Mr Saraceni, as an attachment to an email sent on 20 March 2008 (exhibit 1/127). The email from Mr Pazin noted that he was unsure as to who had been engaged by Mr Saraceni to review the agreement 'from a legal perspective'. Consequently, he had sent the draft to Mr Clohessy.
Westgem did not subsequently engage solicitors to act on its behalf in relation to the preparation of the Initial Financing Documents and Mr Clohessy remained its point of contact for settling the documents. Contemporaneous emails indicated that Mr Clohessy critically reviewed the drafts prepared by Deacons and that he did so having regard to the interests of Westgem and Mr Saraceni.
Mr Pazin noted in his 20 March email the 'main departures' from a previous version of the agreement (not in evidence). The departures identified in the email are not material. The email concluded:
You should note that, given the turn around that was available to me, I've had to generate the revised document in a very tight time frame. While the document is faithful to the revised terms and conditions, I will continue to vet it at my end to ensure that no further revisions need to be made (and to also check for minor typos and formatting errors).
I will circulate the guarantees and ideally the mortgage and charge later this afternoon. A completion agenda (incorporating a CP [conditions precedent] checklist) will be available 1st thing next week. It's worth bearing in mind that there will be a lot of ancillaries that will need to be provided in order for us to get to completion (board resolutions, verification certificates etc, as well as the various CPs).
The accompanying draft facility agreement incorporated a definition of Secured Property. The expression was defined in the same terms reproduced earlier from the agreement as executed.
Mr Pazin sent a further email to Mr Clohessy, with a copy to Mr Saraceni, later during the afternoon of 20 March 2008 (exhibit 1/128). The email attached copies of 'the following security documents':
(a)limited guarantee and indemnity from Mr Saraceni;
(b)limited guarantee and indemnity from Mr and Ms Pourzand;
(c)'all assets charge to be given by Westgem'; and
(d)'mortgage over the Raine Square site'.
Mr Pazin stated in his email that:
As with the facility agreement, and in the interests of time, I am sending these documents to you at the same time as the banks and they remain subject to their comments.
I will send the balance of the securities through early next week. Those consist of the other guarantees, the share mortgage, the set‑off deeds, the side deed to the lease heads and (while not a security document) the ISDA schedule for the swap.
Again, given the time frame, I've turned these around in fairly short order (they hadn't been revisited since late last year, given that our focus has been on the tripartite, building contract and other issues) and I will continue to vet them for typos, formatting items and any other issues.
The intended charging clause (cl 3.1) in the draft deed of charge attached to Mr Pazin's email was in the same terms as the corresponding clause in the Deed as executed: 'the Chargor charges the Secured Property to the Security Trustee to secure the payment of the Secured Money'. The draft charge contained no definition of 'Secured Property' but cl 1.3 provided that terms and expressions defined in the facility agreement applied unless the term or expression was defined in the charge document or the context otherwise indicated.
Mr Clohessy provided comments on the draft facility agreement by email sent on 10 April 2008 (exhibit 1/151). He stated that there appeared to be inconsistencies between the draft agreement and the term sheet and that his 'main concern' was 'the use of the term secured property rather than mortgaged property and the implications for things such as negative pledges'. However, the marked-up draft facility agreement attached to Mr Clohessy's email retained the same definition of Secured Property as appeared in the draft that had been provided by Mr Pazin (see exhibit 1/151 at TB 7-119). The term sheet accompanying the final letter of offer had referred to the mortgage to be granted over the Raine Square land as 'secured property' and it was apparent that Mr Clohessy's comment was directed to the use of the term Secured Property in the draft agreement to refer to more than a mortgage over the Raine Square site.
Further drafts of the facility agreement were exchanged. However, the definition of Secured Property remained unchanged from the draft that was first provided to Mr Clohessy.
Deacons sent an email to Mr Saraceni on 21 April 2008 attaching what were stated to be the final versions of the facility agreement and a suite of related documents (exhibit 1/172). The documents included what was described in the email as 'a first ranking fixed and floating charge to be given in favour of the Security Trustee [BOSI Security] by the Borrower [Westgem] over all of its assets and undertaking'. There were no material changes to that document from the draft deed that had been previously provided to Mr Clohessy and Mr Saraceni on 20 March. (see exhibit 1/172 at TB 9-52).
The Initial Financing Documents were executed on 23 April 2008.
The stamping of the Collaterally Stamped Documents
Section 91B of the Stamp Act
Section 91B(1) provides that mortgage duty is not imposed in relation to the part of the amount secured by a collateral mortgage that is secured by:
(a)a mortgage or security instrument that is stamped under the Stamp Act or a corresponding Act;
(b)a mortgage package that has been stamped under s 91A or a corresponding Act.
The term 'mortgage' includes an instrument that is a security by way of charge over property (s 82 Stamp Act). The amount secured by a mortgage is the amount equal to the sum of the advances actually secured by it and recoverable under the terms of the mortgage (s 89(1)). The term 'advance' is defined by s 83: an '"advance" is the provision or obtaining of funds by way of financial accommodation by a loan or a bill facility …'. The term 'loan' is defined by s 84.
The operation of s 91B and the provisions of the Stamp Act that it replaced have been the subject of two revenue rulings issued by the OSR: ruling SD 11, published in October 1991, and SD 34.0, published in October 2006 (the rulings were annexed to the witness statement of Michael Alan Frampton, exhibit 6). The purpose of ruling SD 34.0 was to clarify the application of s 91B to situations where a new mortgage (the substitute mortgage) replaced a primary mortgage that had been duly stamped under the Stamp Act. A primary mortgage was taken to be a mortgage that had not been discharged before the substitute mortgage took effect. The material part of the ruling stated that, 'where a primary mortgage is substituted by another mortgage, the substitute mortgage can be stamped as a collateral mortgage under s 91B of the Stamp Act provided it secures the same advance as the primary mortgage'.
Mr Frampton is a partner of Norton Rose. He assisted Mr Pazin in arranging for the Collaterally Stamped Documents to be stamped and in discussions with the solicitors for St George over the assignment of the St George Assignment Securities. He stated that he understood that, at the time that the Collaterally Stamped Documents were presented for stamping, the OSR would stamp new securities collateral to assigned securities if the new securities secured the same debt: 'if a security over a debt had been stamped and a fresh security was entered into which secured the same debt, then the OSR in stamping the new securities would take into account the duty already paid and stamp the fresh securities as collateral to the assigned securities' (Frampton, par 6).
The plaintiffs did not contest Mr Frampton's understanding; indeed, it formed the basis for their 'unclean hands defence'.
The proposal for collateral stamping
The first and second offers by the Financiers to provide financial accommodation to Westgem were made in mid‑2007. However, the documents necessary for the proposed finance had not been prepared by early 2008 and negotiations were continuing at that time between the Financiers and Mr Clohessy over matters such as the fees to be paid by Westgem. An issue in the negotiations was the extent to which, if at all, the terms and conditions contained in the terms sheet attached to the second letter of offer dated 14 August 2007 could be revised.
Mr Clohessy sent an email to Mr La Marca and Mr Leber of BankWest on 13 March 2008 in which he stated that he was still completing his review of the 'facility letter' prior to execution by Mr Saraceni (exhibit 1/118). The third and final facility letter was dated 18 March 2008. Accordingly, I infer that the document to which Mr Clohessy referred in his email was a draft of that letter.
The email stated that two 'minor' issues had arisen. The second of those issues concerned a fee of $80,000 per annum that was proposed to be charged by BOSI Security as security trustee. Mr Clohessy complained that the fee had not been discussed and that it was inappropriate for it to be introduced 'at this late stage'.
On the following day, Mr Leber sent an email to Mr Clohessy concerning, among other things, 'assignment of securities' and 'progressive stamping' (exhibit 1/119). Mr Leber stated in relation to the first of those matters that:
Approx. $80k may be saved through assignment of St George Bank's securities to the HBOSA. Appreciated if you can mobilise St George Bank. Deacons will prepare the Deed of Assignment. Please confirm your desire to proceed with Assignment as it may have timing considerations.
Mr Leber sent a further email on the same day to Mr La Marca in which he stated that Mr Clohessy had been requested to discuss an assignment of the securities held by St George (exhibit 1/120). Mr Leber noted that, 'subject to appropriateness, this could result in a saving of approx. $90k'. The email also explained the progressive stamping proposal:
We also confirmed that Deacons will progressively stamp the Security up until 30 June 2008. On 1 July, stamp duty on mortgages in Western Australia will be abolished. This process has the potential to save the Borrower approx. $400k (as opposed to stamping $327 million up‑front).
Mr Leber sent another email on 14 March 2008 to Mr Clohessy in which he stated that he had confirmed that Deacons had been instructed, subject to Mr Clohessy's final approval, to consider an assignment of securities and progressive stamping to reduce Westgem's stamp duty liability (exhibit 1/122).
Mr Clohessy replied to Mr Leber's email later that afternoon (exhibit 1/123). He advised that he would discuss the proposal to assign the securities held by St George 'first thing' the following Monday. An email was sent by Mr Clohessy to Mr McMillan of St George on 19 March stating that, 'we would like to take an assignment of the existing debt, do you anticipate this to be an issue?'
Mr Pazin sent an email to Mr Clohessy on 1 April 2008 advising that Deacons had not heard from St George regarding the assignment of its securities (exhibit 1/134). Mr Clohessy replied to Mr Pazin's email on the same day advising that Ms Casale of Minter Ellison had been instructed by St George to act in relation to an assignment of its securities (exhibit 1/136). On the following day, Ms Windsor of Deacons sent an email to Ms Casale, copied to Mr Clohessy, confirming that Ms Casale had been instructed by St George to prepare a deed of assignment and 'ancillary transfer documents' (exhibit 1/137). Ms Windsor's email also confirmed that she had been advised that:
(a)the securities to be assigned by St George to BankWest/BOSI were stamped to secure $120 million and that $1.2 million of that amount was 'prime duty' and the rest was collateral;
(b)St George was willing to assign the prime duty and up to $48 million of the collateral duty to BankWest and BOSI;
(c)Ms Casale would provide Ms Windsor with copies of the stamp duty imprints on two mortgages (J644474 and J105446) and a charge (I108704) granted by Westgem to St George so that Ms Windsor could confirm 'our ability to assign the benefit of this duty with our tax partner'.
Ms Casale confirmed those matters (with minor variations) by email sent on 7 April 2008 to Ms Windsor and copied to Mr Clohessy (exhibit 1/142). Ms Casale also attached to her email several documents that confirmed details relating to the stamp duty that had been paid on the securities proposed to be assigned by St George. Her firm subsequently prepared the St George Assignment Deed.
Mr Frampton's dealings with the OSR
An issue that arose out of the proposal for collateral stamping concerned the 'splitting of duty': whether the OSR would permit the duty that had been paid by St George to be split between the St George Assignment Securities and the 'St George Securities' (the securities to be retained by St George). Mr Frampton spoke to Ms Koziniec, a senior technical specialist from the OSR, some time in early April about that issue. He understood from her advice that the OSR would accept duty being split where certain securities could be seen to attach to specific loans. He was advised that the OSR would require all original stamped documents to be presented for that purpose (Frampton, pars 9 ‑ 10).
Mr Frampton spoke to another technical specialist, Ms Berkeley‑Hill, at the OSR about the proposed transaction in mid‑April 2008. He advised her that (Frampton, par 13):
(a)St George would assign the debt owed to it by Westgem and the relevant securities to BankWest;
(b)BankWest would pay the face value of the debt as consideration for the assignment;
(c)it was intended to execute new BankWest securities which would then also secure the assigned St George debt; and
(d)additional borrowings would be made and BankWest wished to up stamp all of the securities, including the assigned St George securities, to cover those additional borrowings.
Mr Frampton arranged with Ms Berkeley‑Hill for the documents that required stamping to be delivered directly to her once they had been executed. He was subsequently advised that the assignment of the St George Assignment Securities had been completed on 30 April 2008. A letter addressed to Ms Berkeley‑Hill was sent by Deacons the following day (exhibit 1/38). The letter described Deacons as acting for BankWest, 'the assignee of a portion of securities previously held by St George Bank'. The letter referred to the St George Assignment Deed and advised that the original of the deed had been lodged for stamping as part of a bundle.
The letter continued:
As discussed, a portion of the mortgage duty (amounting to $43,498,994.31) is to be transferred from the existing securities, which will continue to be held by St George Bank, to the securities assigned to BankWest. We have enclosed the security documents for this purpose.
The letter then described the contents of three bundles of security documents lodged with the OSR. The first bundle comprised 'existing securities upstamped to $140,350,000 and to be reduced to $96,851,005.69'. It was to be inferred that the bundle contained the security documents that St George Bank retained following the assignment of the St George Assignment Securities.
The second bundle of security documents comprised 'existing securities upstamped to $140,350,000 and to be reduced to $43,498,994.31'. The bundle contained the St George Charge and mortgage J105446 (being one of the mortgages assigned under the St George Assignment Deed). The letter requested that the St George Charge be treated as the primary instrument.
The third bundle comprised 'new securities to be stamped collateral to the existing securities ultimately stamped to $43,498,994.31'. The bundle contained the Collaterally Stamped Documents - the First Mortgage, a mortgage granted by Mr Saraceni and Mr Pourzand over shares (the Share Mortgage) and the Deed (which was described in Deacons' letters as a 'fixed and floating charge dated 23 April 2008 given by Westgem Investments Pty Ltd'). The letter concluded by confirming that the OSR would transfer the duty from the documents listed in the first bundle to the documents contained in the second bundle and requested that the documents comprising the second bundle be upstamped by $19,001,005.69 so that the total amount secured by those instruments was $62,500,000 and that the securities listed as comprising the third bundle (the Collaterally Stamped Documents) be stamped collateral to the securities comprising the second bundle.
It was common ground that the OSR acceded to the requests made by Deacons in their letter of 1 May 2008.
Settlement of the financing and assignment transactions
The Initial Financing Documents were executed on 23 April 2008. However, the St George Assignment Deed was not executed until 30 April. There was a settlement of the assignment transaction on that day at which a bank cheque drawn against BankWest in the sum of $43,498,994.31 was delivered to St George. Other payments were also made on that day.
The payment to St George and the other payments that were made on 30 April 2008 were referred to in a drawdown notice prepared by BankWest and executed by Mr Saraceni for Westgem on the morning of 30 April (the Drawdown Notice). The plaintiffs contended that it was as a consequence of the Drawdown Notice being issued and delivered to the Financiers prior to the settlement with St George that Westgem's money (money drawn down by Westgem pursuant to the Drawdown Notice under the facilities made available by the Facility Agreement) was used to pay St George at settlement.
The proper construction of the Deed
The defendants' contentions
The defendants contended (defendants' closing submissions, par 15) that the definition of Secured Property in the Facility Agreement was not incorporated into the Deed by cross‑reference as:
(a)the context in which the expression Secured Property was used in the Deed indicated otherwise (the qualification to cl 1.3); and
(b)a reasonable person would not construe the Facility Agreement definition as having been intended to apply considering the language that was used by the parties, the commercial circumstances which the Facility Agreement and the Deed addressed and the objects that those agreements were intended to secure.
The defendants further contended that, having regard to the wording of the Deed, the circumstances in which the Deed was made to the knowledge of the parties and the commercial purpose of the Deed:
(a)The term Secured Property when used in the Deed meant, 'all assets and undertaking of Westgem' (par 26).
(b)alternatively, cl 4(1) of the Deed was to be read in conjunction with cl 3.1 so that the Secured Property for the purpose of the latter clause encompassed, at least, the categories of property enumerated in cl 4(1) (par 36). Clause 4.1 provided that the Deed constituted a fixed charge over a number of categories of property that were expressly identified in the clause.
(c)Alternatively, cl 4(1) created a fixed charge over the categories of property enumerated in the clause regardless of the import of cl 3.1 (par 37).
Relevant principles
Construing instruments containing a 'mistake'
The first of the possible meanings of the Deed for which the defendants contended involved, in effect, supplying words to the Deed to, on defendants' case, avoid absurdity or inconsistency (defendants' closing submissions, pars 13, 19, 20 and 25(b)). There is a helpful and contemporaneous discussion of the extent to which a court may 'correct' by construction a 'mistake' or inconsistency in an instrument in K Lewison & D Hughes, The Interpretation of Contracts in Australia (2012) (Lewison & Hughes). The relevant principle is expressed by Lewison & Hughes as follows: 'as part of the process of construction the court has power to correct obvious mistakes in the written expression of the intention of the parties' (at [9.01]).
It is obviously important to distinguish between the process by which errors of expression may be accommodated in construing an instrument and the basis upon which equity 'reforms [an] instrument in which the parties have mistakenly expressed their agreement' by rectification: R Meagher, D Heydon & M Leeming (ed), Meagher Gummow & Lehane's Equity: Doctrines and Remedies (4th ed, 2002) [26‑010].
In Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913; 1 All ER 98, 115, Lord Hoffmann explained that:
The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA and Salen Rederierna AB v Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201:
'… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.' (emphasis added)
That passage from Lord Hoffmann's judgment, and the observation by Lord Diplock cited by his Lordship, were referred to with evident approval by the plurality in Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 201 CLR 181 [43]. Dixon CJ and Fullagar J noted in Fitzgerald v Masters (1956) 95 CLR 420 to the same effect that 'words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency' (426).
Lord Hoffmann's judgment in Investors' Compensation Scheme is also referred to in the chapter on rectification in Equity: Doctrines and Remedies at [26-010], where it is noted that: 'the need for rectification will thus arrive when the court can discern from the document itself and the surrounding evidence that "something has gone wrong" which cannot be cured by construction: Investors' Compensation Scheme … '. The question that arises is, when can the error be cured by construction?
Lewison & Hughes cite from the judgment in North Circular Properties Ltd v Internal Systems Organisation Ltd (Unreported, High Court of England and Wales, Chancery Division, Donald Rattee QC, 29 October 1984), to explain the difference between construing an instrument to accommodate a mistake in expression (where the language used has 'gone wrong') and rectifying an instrument (where 'something has gone wrong' that cannot be cured by construction) (at [9.01]):
Such a process of correction of obvious drafting errors in the process of construction is of course distinct from the equitable doctrine of rectification. The former can only be adopted where the fact that a mistake has been made and the nature of the mistake can be ascertained with certainty from a consideration of the relevant instrument in the context of objective circumstances surrounding its execution. Rectification, on the other hand will be appropriate in many other cases where the existence and nature of the mistake are apparent only from extrinsic evidence of the actual intention of the parties.
Notwithstanding the assistance provided by that passage, it is difficult to express the distinction between construction and rectification more definitively than by reference to the essential difference in the task undertaken by the court in each instance. The court rectifies an instrument so that it conforms to the parties' prior agreement or common intention, including what they agreed or intended would be the effect of their agreement (as to which, see the reasons that follow on rectification of the Deed). The instrument is 'reformed' so that it accurately records what was actually agreed or intended by the parties. The court, on the other hand, construes an instrument that records the parties' agreement or intentions. Consequently, mistakes are 'corrected' to give effect to what parties objectively intended by the actual record of their agreement.
The distinction between correcting the language that has been used when construing an instrument and rectifying the instrument is reflected in two further principles of construction identified by Lewison & Hughes:
(a)'The mistake to be corrected must be a mistake in expression. It may be a mistake in spelling or grammar; a mistake in the naming of persons referred to; the omission of words or the inclusion of words; or the use of the wrong words' (at [9.02]). Lewison & Hughes referred to another judgment by Lord Hoffmann in discussing this principle – Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 in which his Lordship observed that (at [25]):
[T]here is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and it should be clear what a reasonable person would have understood the parties to have meant. (emphasis added)
Accordingly, the principle is not confined to 'overcoming only minor verbal infelicities' provided that the mistake that has been made is clear from the parties' objectively determined intentions.
(b)'The court will not by the process of construction correct a mistake as to the legal effect of a written contract. However, such a mistake may be corrected by rectification' (at [9.03]). This principle is the corollary of the previous principle; both principles necessarily reflect the task being undertaken by the court.
Ambiguity
The defendants' submissions concerning the construction of the Deed were organised around the observation made by Gleeson CJ in McCann v Switzerland Australia Ltd [2000] HCA 65; 203 CLR 579 and cited by the plurality in Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522: 'interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure' (McCann [22]; Wilkie [15]). That passage was noted by the High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 [5]. However, the High Court's reasons in Jireh confirmed that courts at first instance and intermediate appellant courts were bound to follow what was said by Mason J in Codelfa Constructions Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; 149 CLR 337 to the effect that evidence of the circumstances surrounding the making of a contract or of the purpose or object of the transaction is only admissible where the contract was ambiguous or susceptible of more than one meaning.
In McCourt v Cranston [2012] WASCA 60, Pullin JA (with whom Newnes JA agreed) observed in relation to the High Court's comments in Jireh that (at [23] ‑ [24]):
In view of the pronouncements in Jireh, when an issue arises about the proper construction of a contract and there is evidence of surrounding circumstances known to the parties or evidence of the purpose or object of the transaction, that evidence will not be admissible unless the court determines that the contract is:
(a)'ambiguous'; or
(b)'susceptible of more than one meaning'.
Usually, the meaning of 'ambiguous' is taken to include 'open to various interpretations': see Macquarie Dictionary, but by using the phrase 'ambiguous or susceptible of more than one meaning' perhaps Mason J wished to emphasise that not only a contract open to more than one meaning would allow in evidence of surrounding circumstances but also one where the contract is merely 'difficult to understand'. Once evidence of surrounding circumstances is allowed in, the restrictions on such evidence are clear. Evidence of subjective opinions are not admissible, nor is evidence of negotiations; the surrounding circumstances have to be objective facts and they have to be known to both parties.
The parties' contentions in this matter confirmed that the Deed was 'open to various interpretations'. In my view, evidence of the 'commercial circumstances which the document addresses and the objects which it was intended to achieve' was admissible in construing the Deed consistent with the principles stated by Mason J in Codelfa and reaffirmed by the High Court in Jireh.
The meaning of Secured Property
The defendants' submissions in more detail
The defendants developed their submissions on the proper construction of the Deed by reference to three matters:
(a)the context in which the Deed was made;
(b)the 'objective factual matrix';
(c)the text of the Deed and the Facility Agreement.
As to the first of those matters, the defendants submitted that the only asset of Westgem 'mortgaged, charged or otherwise secured' as at the date of execution of the Facility Agreement was the land secured by the First Mortgage so that the effect of importing the Facility Agreement definition of Secured Property into cl 4(1) of the Deed would be to render the remaining 17 categories of assets listed in that clause otiose. Further, it 'flouts business commonsense' for the parties to have intended to create two forms of security ‑ a charge and the First Mortgage ‑ in respect of the same and only asset and other clauses in the Deed would be stripped of their meaning or effect if the definition of Secured Property was transposed from the Facility Agreement to the Deed (for example, cl 8.2 and cll 11.1(3) ‑ (4)) (defendants' closing submissions, pars 19 ‑ 21).
The matters identified by the defendants as constituting the 'objective factual matrix' included (defendants' closing submissions, par 29):
(a)The purpose and amount of the financial accommodation to be provided by the Financiers.
(b)The statements made in the letters of offer that security was to be given by Westgem in a form and substance satisfactory to the Financiers and the stipulation in the term sheets that the security was to include a first ranking registered fixed and floating charge over all the assets and undertaking of Westgem.
(c)Correspondence exchanged between the parties in which the draft Deed was described as a first ranking fixed and floating charge over all of Westgem's assets and undertaking.
(d)A verification certificate signed by Mr Saraceni in which he certified, in his capacity as a director of Westgem, that various documents had been considered and resolutions passed at a meeting of the 'board' of Westgem (exhibit 1/78). The documents considered at the meeting included a 'first ranking fixed and floating charge to be given by [Westgem] in favour of [BOSI Security] over all of the Company's assets and undertaking'. The resolutions included a resolution that it was in Westgem's best interest and for its benefit to enter into each of the documents considered at the meeting. It was further resolved that 'the terms of the Documents be approved by the Company and be executed by the Company or on its behalf by any one or more directors, or attorney, as applicable, substantially in the form of the latest draft copies provided to the Company or its relevant officer(s) at the date of this resolution but with such changes, whether material or not as any director executing or attesting the same approves (as conclusively evidenced by the director's or attorney's signature on that Document)'. At the same time, notices of delegation and direction were given to Westgem by Newport and PakWest and the Helen Trustee directing Westgem to grant in favour of BOSI Secuity a real property mortgage and a 'fixed and floating charge over all of the assets and undertaking of Westgem' (exhibits 1/74 and 1/75). Mr Saraceni signed those notices in his capacity as a director of Westgem and PakWest.
(e)The fact that Westgem had previously charged all of its assets to St George to assist in the acquisition and development of the Raine Square site. One purpose of the facilities to be made available by the Financiers was to refinance the debt secured by that charge. Another purpose was to fund completion of the Raine Square project.
(f)The inference that the parties were sophisticated commercial parties experienced in financing and property development.
As to the text of the Facility Agreement and the Deed, the defendants submitted that:
(a)It was apparent from the provisions of the Facility Agreement that the defined term Secured Property was specific to the agreement and was intended to be a 'generic description encompassing "any assets" secured under "any Transaction Document"' ‑ see, for example, cl 14.1(6), cl 14.1(24), cl 14.1(25), cl 14.1(26), cl 14.2(1)(a), cl 15.6(3), cl 15.7 and cl 15.20 (defendants' closing submissions, par 22).
(b)It was also apparent that, where relevant, each of the Initial Financing Documents, including the Deed, was intended to incorporate an independent meaning for the term 'Secured Property' that was specific to the document. So, for example, the First Mortgage used the term Secured Property and incorporated a definition of that term, as did the Share Mortgage (part of exhibit 1/72, cl 1.1(28) at TB 9 - 202) (pars 22 ‑ 25).
(c)Clause 4(1) of the Deed referred to a fixed charge over the present and future interest of Westgem in an expansive list of assets. Clause 4(2) referred to a floating charge over the balance of the Secured Property and any part of the Secured Property that was not otherwise effectively charged by way of a fixed charged under cl 4(1). A reasonable person reading cl 4 would have understood that the parties intended that the Deed would charge all of Westgem's property (par 27).
(d)Schedule 4 to the Facility Agreement, entitled 'Security Documents', referred to a first ranking fixed and floating charge given in favour of BOSI Security by Westgem over all of its assets.
(e)Various provisions of the Deed were consistent with an interpretation that the term Secured Property, when used in the Deed, referred to all of the assets and undertaking of Westgem.
Underpinning the defendants' submissions was the proposition that the plaintiffs' contention that no property was secured by the Deed, as the term Secured Property had no meaning, was unreasonable as it would produce an absurd result that would defeat the commercial purpose of the Deed.
The plaintiffs' contentions
The plaintiffs' contention that the parties intended to transpose the defined term Secured Property from the Facility Agreement to the Deed rested primarily on the effect of cl 1.3 and the absence of any definition for the term in the Deed. However, there were other aspects of the drafting of the Deed and the remaining Initial Financing Documents that were said to support the plaintiffs' contention:
(a)The Deed and the other Initial Financing Documents adopted the common drafting convention of capitalising the first letter of each word forming a defined term.
(b)As would be expected in professionally drawn and complex documents, the parties used defined terms extensively in the Deed, the Facility Agreement and the other agreements forming the Initial Financing Documents.
(c)There were four capitalised terms in cl 3.1. Two of those terms (Chargor and Security Trustee) were defined in that part of the Deed that identified the parties. The remaining terms – Secured Property and Secured Money – were identified as being defined terms by the use of capitalised first letters, were defined by the Facility Agreement and were fundamental to the charging provision of cl 3.1. Further, it was clear that the term Secured Money when used in the Deed was to be interpreted according to its Facility Agreement definition. That followed from the comprehensive wording of the definition and the terms and purpose of the Deed.
(d)The Deed imported a number of other definitions from the Facility Agreement.
Did the parties intend to incorporate the Facility Agreement definition?
The commercial circumstances surrounding the making of the Deed, as known to the parties, was clear from the evidence. They were largely identified in the summary of the defendants' contentions (I accept that the matters referred to in par 29 of the defendants' closing submissions were known to each party except for the matter submitted in par 29(c), that Westgem was to conduct a single undertaking, the Raine Square project, entirely funded by the facility; apart from the reference in the Deed to 'undertaking', I could find no evidence that, in fact, the Raine Square project was the only undertaking of Westgem). A condition of the Financiers' offer to provide financial accommodation, as accepted, was that Westgem would grant a fixed and floating charge over all of its assets and undertaking. The parties did not depart from that condition during negotiations over the documents to give effect to the agreed term sheet. Drafts of the Deed were supplied with emails indicating that the document was intended to provide for a first ranking fixed and floating charge over all of the assets and undertaking of Westgem. The financial accommodation to be made available by the Financiers was substantial and was to be used to 'refinance' the advances that had been made by St George and to fund completion of a large commercial property development. It would have been extraordinary if the Financiers had not sought whatever security was available to secure the facilities that they were to provide. The list of securities contained in schedule 4 to the Facility Agreement confirmed that this was, indeed, their approach. The list included a fixed and floating charge to be granted by Westgem over all of its assets and undertaking.
On the plaintiffs' construction, the Deed was ineffective to charge all of the assets and undertaking of Westgem. At most, it might have charged land that had already been secured by the First Mortgage. The difficulty that arose on the plaintiffs' construction was that the Facility Agreement definition of Secured Property referred to property that had been charged; the defined term could not be used to identify property that was to be charged by the charging clause in the Deed.
Those matters concerning the circumstances in which the Deed was made and the effect of the Deed on the plaintiffs' construction were not controversial. They clearly established that the construction of the Deed for which the plaintiffs contended would defeat the parties' intentions (objectively determined) regarding the object and purpose of the Deed. Plainly, on that construction 'something had gone wrong', either with the language of the Deed or with the way in which the parties' antecedent agreement (constituted by Westgem's acceptance of the third letter of offer and accompanying term sheet) and their admitted intentions (the common intention plea) had been recorded in the Deed.
I accept the defendants' submission that the definition of Secured Property in the Facility Agreement was intended to be specific to that agreement. The Facility Agreement did not, by its terms, mortgage, charge or otherwise secure any asset of a Transaction Party. Accordingly, the definition of Secured Property was concerned with the assets of Transaction Parties that had been pledged as security pursuant to other agreements ‑ agreements that secured the assets in favour of BOSI Security or another Finance Party 'by way of a Security as security for the Secured Money or the other obligations of Westgem or any other Transaction Party' (and see the definition of Security (cl 1.1(108)) and Security Interest (cl 1.1(111)). The Facility Agreement then dealt generically with whatever assets were described by the defined term - see, for example, cl 15.20 and the other clauses identified by the defendants in their closing submissions that were summarised earlier.
Consequently, as has already been noted, the defined term Secured Property could not be sensibly employed to describe the particular property that was to be secured by the terms of the document (in this respect, a distinction is drawn between an agreement creating a security over property that had to be identified for an effective grant of the security and other agreements forming part of the Initial Financing Documents, such as the Security Trust Deed, where the use of the term Secured Property had a generic purpose for which the Facility Agreement definition was apt). In particular, the defined term was meaningless when applied to the words Secured Property as used in the charging clause of the Deed. It follows, in my view, that the parties did not intend that the term Secured Property would carry the meaning defined by the Facility Agreement when used in a security document to identify the property to be secured by the document. Rather, it was intended that any security document would contain its own definition of the property to be secured. The Deed is to be construed in that context.
That conclusion makes explicit what was implied in the earlier comments on the effect of the plaintiffs' construction on the operation of the Deed. What was 'wrong' with the Deed concerned the way in which the property that was be charged was identified. The parties intended to create a charge; the question to be decided was whether, on a proper construction of the Deed, the property to be charged was identified with sufficient certainty that a legally binding and enforceable charge was created over that property. That question is answered by considering the Deed as a whole and not by merely focussing on the words 'Secured Property' as they appeared in cl 3.1.
The defendants provided further submissions in answer to the plaintiffs' supplementary submissions concerning the registration provisions of Pt 2K.2 CA. Those submissions emphasised the legislative policy said to underlie s 272(4) and its equivalent provisions in UK and Australian companies legislation preceding the CA. The purpose of s 272(4) was to ensure that the chargee was not deprived of the benefit of the charge because of a mistake on the part of a company (to whom the requirement in s 263(1) was addressed) in delivering the particulars of the charge or on the part of the registrar in entering the particulars in the Register: see, for example, National Provincial and Union Bank of England Ltd v Charnley [1924] 1 KB 431, 447 (Scrutton LJ). The certificate meant not just that the registrar 'has done his mechanical duties, but that that has been done which is required to be done by any person upon whom a duty is imposed by this act in order to get the benefit of the security, including the company itself' (In re Yolland, Husson & Birkett Ltd, Leicester v Yolland, Husson & Birkett Ltd [1908] 1 Ch 152, 158 ‑ 159; cited with approval in Wilde at 607). Consequently, the certificate enabled the company to furnish evidence that it had fulfilled its statutory duties.
It was further submitted that:
(a)The certificate given under s 272(3) was conclusive notwithstanding an error or omission in the particulars supplied even if other creditors might be misled as to the nature of the charge: Re Nye (CL) Ltd [1971] 1 Ch 442.
(b)Section 272(4) reflected changes to the statutory provisions relating to the conclusive effect of certificates first introduced into the various State Companies Codes in 1982. The equivalent provision under the Companies Act 1961 did not contain the proviso that appears in parenthesis in s 272(4). W J Gough, Company Charges (2nd ed, 1996) noted that the effect of the inclusion of the proviso was to reverse the previous case law that 'even where the date of a document of charge was misstated or the document was left undated and subsequently dated, in either case with the result that it was accepted for registration after the expiry of the time period for registration following the creation of the charge, the certificate subsequently issued was nonetheless conclusive that the charge had in effect been registered within the time period' (727). The effect of the change was that a chargee was required to have evidence of when the charge was executed and could not rely on a certificate issued under s 272(3) for that purpose. However, no other exceptions to the conclusive nature of the certificate were created and Wilde remained good law as to the conclusive nature of the certificate issued under s 272(3).
(c)Section 263(5) was intended to establish no more than that a notice that was otherwise compliant with s 263(1) was taken not to have been lodged under that section unless accompanied by the documents specified in s 263(1)(c). The position would be unclear but for s 263(5). The section clarified that ASIC was not required to enter the particulars of a charge in the Register if the notice contained all of the particulars required by s 263(1)(a) but was not accompanied by the instrument.
(d)The plaintiffs' interpretation of s 263(5) overlooked the effect of the words 'or is otherwise defective' in s 265(6). Those words indicated that ASIC was required to take the steps referred to in the section where, for example, the notice was defective because of non-compliance with the requirement to lodge an instrument under s 263(1)(c). That was also relevant to the effect of the certificate issued under s 272(3) - the certificate protected the chargee from a failure by ASIC to discharge the obligation imposed by s 265(6) with the result that an instrument that ought to have lodged had not been lodged. That was consistent with the purpose of the certificate - to provide conclusive evidence of compliance with the requirements as to registration except for the requirements for 'timely' registration (and see the Explanatory Memorandum in relation to the legislative changes made in 1982).
Should the Facility Agreement have been lodged?
The decision in Fortress Credit
The parties to the charge considered in Fortress Credit employed a similar drafting technique to that adopted by Westgem, BOSI Security and the Financiers in this instance. Fortress Credit provided a cash advance facility to Octaviar Castle Pty Ltd, a wholly owned subsidiary of Octaviar Ltd (Octaviar). Octaviar guaranteed the advance. The guarantee was secured by a fixed and floating charge given by Octaviar under a deed of charge. By the deed, Octaviar charged to Fortress Credit all of its present and future property 'as security for the due and punctual payment and satisfaction of the Secured Money'. The deed contained a definition of the term 'Secured Money' that referred to money, obligations and liabilities under or in relation to a 'Transaction Document'. The term 'Transaction Document' was not defined in the deed of charge. However, it was defined in the facility agreement made between Fortress Credit and Octaviar Castle. Further, the deed of charge provided that 'terms not otherwise defined in this Deed have the meaning given in the Facility Agreement'.
The indebtedness of Octaviar Castle was paid out in full in February 2008. However, a deed was made between Fortress, Octaviar and Octaviar Castle (referred to as the January 2008 deed) by which it was agreed that a document under which Octaviar guaranteed the indebtedness of another related entity was a 'Transaction Document' for the purpose of the facility agreement made between Fortress and Octaviar Castle. At issue in the appeal to the High Court was whether Octaviar had been obliged to lodge a notice under s 268(2) CA following the making of the January 2008 deed on the basis that the deed effected a variation to the charge granted by Octaviar of a kind to which the section referred.
It is to be noted that the facility agreement was not lodged with the deed of charge under s 263(1): see Public Trustee of Queensland v Octaviar Ltd (subject to a deed of company arrangement) (receivers and managers appointed) (ACN 107 863 436) [2009] QSC 37; 69 ACSR 621 [21]. It is also to be noted that the issue raised by the plaintiffs in this matter was raised at one point by Public Trustee in the Octaviar proceedings in relation to the registration of the original deed of charge. However, the point was abandoned on the basis that the Public Trustee accepted that the certificate issued under s 272(3) was conclusive on the question of compliance with the requirements of s 263(1)(c): see the decision of McMurdo J at first instance at [21].
The issue in the appeal in the High Court concerned the meaning of the expression 'terms of the charge' for the purpose of s 268(2) CA. However, the High Court commented generally on the system of registration under Ch 2K. It endorsed both the view expressed by Gibbs J in Wilde that the requirement for registration of a charge was intended to enable persons who were minded to deal with companies to be able, by searching the register, to find out whether the company had encumbered its property and also the view of the majority in Wilde that, in order to discover the terms and effect of the registered charge, it was necessary to look at the document creating the charge and not at the Register [29]. The registration provisions of the Act did not purport to create a perfect and complete register of all of the details of a registrable charge. It would, for example, be unsurprising that the property subject of the security might change from time to time where a charge was fixed and floating.
The High Court noted that there had been compliance with the requirement in s 263(1)(a)(iv) that a short description of the liability be provided in the notice lodged under s 263(1) - the description was provided by 'inclusion of the definitions of Secured Money and Facility Agreement, and the Charge itself, both annexed to the prescribed form' (297). Further, their Honours observed, in relation to the requirement that the instrument or instruments creating or evidencing the charge be lodged, that:
Paragraph (c) of s 263(1) requires that where a charge is created or evidenced by an instrument or instruments in writing, the originals or copies of such must also be lodged. So much was done in the present case by annexing a copy of the Charge to the prescribed form. Thus a person minded to search the register would be informed, by virtue of the definition of Secured Money and the existence of cl 1.2 of the Charge, of the need to look elsewhere to ascertain the precise nature and details of the liability or liabilities secured. That this would involve a step (locating the definition of Transaction Document in the Facility Agreement) preliminary to ascertaining whether there were any written agreements designating a document or documents as a Transaction Document was accepted by counsel for the Public Trustee to be immaterial to the resolution of this appeal. There is nothing objectionable to the policy of Ch 2K that notice of the January 2008 deed was not required to be lodged where the particulars lodged for registration adverted to the possibility of its existence. [32]
Conclusion
In my view, s 263(1)(c) did not require the Facility Agreement to be lodged with the Deed. The gist of the reasoning in Fortress Credit was that a document does not create or evidence a charge within the meaning of s 263(1)(c) merely because it contained a dictionary of definitions, some of which were incorporated by cross-reference into the document that actually created the charge.
The only point of distinction that I could discern between the notice considered in Fortress Credit and the notice lodged in this instance is that the Form 309 Notice erroneously described the property charged in an annexure - first, by reproducing the Facility Agreement definition; and second, even if the Facility Agreement definition was incorporated by cross-reference into the Deed, by stating that the definitions of Transaction Party, Finance Party, Security Trustee, Security, Secured Money, Borrower and Transaction Document were to be found in the 'charge' when, in fact, those terms were defined by the Facility Agreement. However, an error in the contents of the notice that was lodged cannot determine whether an instrument was required to be lodged under s 263(1)(c) as an instrument creating or evidencing the charge (an expression which, as the High Court made clear in Fortress Credit, draws its meaning from the purpose and effect of registration). Whether an instrument ought to have been lodged under the subsection must be determined by reference to the instrument itself.
In my view, the Facility Agreement did not 'create' or 'evidence' the charge on a proper construction of s 263(1)(c). The Deed both created the charge and evidenced its existence. As the decision in Fortress Credit indicated, an instrument is not required to be lodged under s 263(1)(c) merely because it may be necessary to have recourse to the instrument to appreciate the meaning and full effect of the instrument of charge.
The description of the property to be charged
Exhibit 12 was a certificate issued by ASIC under s 272(3) certifying that a notice in respect of a charge on the property of Westgem had been lodged on 5 May 2008 and particulars of the charge were entered in the Register in accordance with chapter 2K.2 CA. BOSI Security was recorded as the name of the chargee.
In my view, the certificate issued pursuant to s 272(3) was conclusive evidence of compliance with the requirement imposed by s 263(1)(a)(v). It is clear from the provisions of s 263(1)(a) and s 265 that the requirements imposed by the former section are 'requirements as to registration' within the meaning of s 272(4). Although Pt 2K.2 draws a distinction between registration and lodgement, s 272(4) refers to the 'requirements' as to registration and not just to registration. That reference is not to be confined to whatever requirements may be imposed on ASIC by s 265. Such an interpretation would be inconsistent with the policy and legislative history of s 272(4) (as to which, I accept the defendants' submissions). The process of registration is initiated by the requirement imposed by s 263(1). Further, the Register records certain particulars relating to the charge; that is, the focus of registration is the particulars of the charge. The particulars that must be entered on the Register are derived from the particulars that must be supplied in the notice. In effect, what is registered is what is provided by the notice. Registration is not to be effected unless at least certain particulars have been provided (see 265(6)). The provisions of s 263(1)(a) are, accordingly, requirements as to registration.
That conclusion is also consistent with the observations of the High Court in Fortress Credit notwithstanding that the effect of s 272(3) certificate was not discussed and is in keeping with Wilde.
Was the certificate conclusive evidence of compliance with the requirements of s 263(1)(c)?
It has been found that the requirements of s 263(1)(c) were satisfied by the Deed being lodged with the Form 309 Notice. Accordingly, it is not strictly necessary to determine this question but I will briefly express a view out of deference to the extensive submissions made by the parties. The comments that follow are by reference to the submissions that were summarised earlier:
(a)I consider that the effect of s 263(5) is as contended for by the plaintiffs. No notice is taken to have been lodged under s 263(1) unless the instrument(s) required by s 263(1)(c) has been lodged. Consequently, the 45‑day requirement contained in s 263(1) is not satisfied where the notice is not accompanied by the required instrument.
(b)Further, the deeming effect of s 263(5) applies to s 266(1)(c) - no notice is taken to have been lodged, including for the purpose of the notice required under s 266(1)(c). That section refers to a notice having been lodged 'under s 263'. The effect of s 263(5) is that no notice is taken to have been lodged 'under' s 263 unless the instrument(s) required by s 263(1)(c) has been lodged.
(c)ASIC is not required to take any step under s 265 where no notice is taken to have been lodged under s 263(5). Contrary to the defendants' submissions, the obligation under s 265(6) is in respect of provisional entries. ASIC has no power to make any entry in the Register, provisional or otherwise, where no notice has been lodged under s 263(1). The means by which the process of registration is initiated is taken to have not occurred.
(d)The words 'otherwise defective' in s 265(6) refers to the notice lodged under s 263(1)(a). It does not refer to a failure to comply with s 263(1)(c). Similarly, the words 'purporting to be a notice' in s 265(6) refer to a notice that does not contain all of the particulars required by s 263(1)(a).
I accept the plaintiffs' submissions that the construction for which they contended was consistent with the opening words of s 272(1) and (3) ‑ no particulars shall have been registered because no initiating notice shall be taken to have been lodged. Consequently, the effect of s 263(5) is that a certificate issued under s 272(4) cannot be conclusive evidence of compliance with the requirements of s 263(1)(c) and, in the circumstances of this matter, that a notice was lodged within the relevant period or the six‑month period under s 266(1).
The power to extend time
The defendants contended that if, contrary to their submissions, a further notice is required to be lodged under s 263(1)(a) CA consequent upon the Deed being rectified or because the Facility Agreement ought to have been lodged to comply with the requirements of s 263(1)(c), the court should exercise the discretion conferred by s 266(4) to extend the time for doing so. The defendants contended that the court retained the power to extend time notwithstanding the appointment of an administrator, reference being made to National Australia Bank Ltd v Davis & Waddell (Vic) Pty Ltd [2003] VSC 1; 44 ACSR 296; 21 ACLC 4101 and Sanwa Australian Finance Ltd v Ground‑Breakers Pty Ltd (in liq) [1991] 2 Qd R 456.
The plaintiffs did not dispute the court's jurisdiction to make an order under s 266(4). That approach accorded with the conclusion reached by the majority of the Full Court of the Federal Court in Hewlett Packard, despite the analysis of the legislative power to extend time undertaken by Allsop J (and definitively accepted by Whitlam J).
Should time be extended and should the Deed be rectified?
An extension of time if the Facility Agreement ought to have been lodged
In my view, time to lodge a notice should be extended if, contrary to the findings that have been made, an extension was required because the Facility Agreement ought to have been lodged with the notice:
(a)I accept that the failure to lodge the Facility Agreement was inadvertent in the sense that it was not deliberate. Deacons did not appreciate the need to lodge the Facility Agreement. That failure was, in my view, understandable in all of the circumstances.
(b)Any person who inspected the Register would have appreciated from the Deed that Westgem had granted a charge over at least some of its property ‑ in particular, the property identified in cl 4(1) of the Deed. It is likely that they would have appreciated that the parties had intended that all of the assets and undertaking of Westgem should be charged from the title of the document and the footer on each page. They would have also seen references to the Facility Agreement in the Deed and appreciated the need to make further enquiries had they wished to know more about the property charged and the liabilities secured.
(c)I accept that it would be just and equitable to extend time for the reasons submitted by the defendants. Further, an unsecured creditor making enquiries of Westgem after reviewing the Register would have been informed that all of the assets and undertaking of Westgem were secured by a charge granted to the Financiers, consistent with Westgem's admitted intentions and belief regarding the effect of the Deed (the common intention plea).
Rectification
The discretionary questions surrounding rectification of the Deed are more complex. However, in my view, rectification should be ordered notwithstanding the appointment of an administrator to Westgem for the reasons just given.
In my view, the extent to which the Deed requires rectification and what an unsecured creditor dealing with Westgem might have learnt by inspecting the Register are relevant to the issue of prejudice. Unlike in JJ Leonard Properties, a person inspecting the Register would have concluded that it was likely that Westgem had granted a charge over all or nearly all of its assets and undertaking from a review of the Deed in its unrectified form given the wording of cl 3 and cl 4(1). It is also likely that any unsecured creditor who inspected the Register and the Deed as lodged with ASIC would have dealt with Westgem in the expectation that all of its assets had been secured in favour of the Financiers.
Rectification of the Deed to clarify the property the subject of the floating charge would be akin to the rectification contemplated by Austin J in Nunn v Wily. Rectification on the assumption that the parties objectively intended that the Facility Agreement definition of Secured Property would be incorporated by cross-reference into the Deed or that the Deed simply failed to identify with the required certainty what property was to be charged is obviously more profound in its effect. However, the need for the rectification arises, if at all, out of a close analysis of the meaning and effect of the document that would most likely escape a person reviewing the Deed to ascertain if it charged the assets of Westgem prior to dealing with the company. As I have indicated, it is most likely that a person reviewing the Deed as lodged would conclude that it charged all of the assets of Westgem.
The conclusion that I have reached is reinforced by the observations made by Allsop J in Hewlett Packard about the difference between administration and liquidation and the absence of evidence in this matter concerning the likely fate of the administration of Westgem and the company's financial position. The fact that the liquidation of a company formerly in administration is deemed to commence on the date that the administrator was appointed cannot be 'decisive' of the issue; there would be no discretion to be exercised if that were the position. I recognise that rectification of the Deed would have a significant impact on the administration of Westgem. However, it would, in my view, be an inequitable outcome if the effect of the appointment of an administrator in all of the circumstances of this matter was to deny the Financiers the security that they were plainly intended to have over assets that were acquired with their funding. The reasons advanced by the defendants for why time should be extended to lodge a notice under s 263(1) also support the exercise of the discretion to grant rectification. The principle identified in George Hudson has particular significance in a winding up where competing claims by creditors are to be resolved by adjudication by the liquidator on the proofs of debt that have been submitted. The principle obviously remains relevant in an administration but its application must, as Allsop J recognised in Hewlett Packard, be tempered by the different statutory regime and objectives for each form of external administration.
An extension of time for lodging a fresh notice
The decision in JJ Leonard Properties is authority that a fresh notice would be required following rectification of a deed of charge. It was not clear from the judgments delivered whether the point raised by the defendants regarding the effect of rectification was taken in that case. The point would appear to turn not just on the effect of rectification but also on the meaning of the words 'where a company creates a charge' in s 263(1) CA. Those words might favour the submissions made by the defendants. It was also not clear from the decisions in JJ Leonard Properties whether any distinction may be drawn according to the extent to which the instrument was rectified. However, I do not consider that it is necessary to decide those issues as there is power to extend time if a fresh notice is required. I would grant that extension having found that the Deed ought to be rectified notwithstanding that Westgem is in administration. I would exercise that discretion for the same reasons that I concluded that rectification should be ordered.
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