Travis Royce Smith as trustee of the Smith Investment Trust v Sandalwood Properties Ltd

[2019] WASC 109

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   TRAVIS ROYCE SMITH as trustee of the SMITH INVESTMENT TRUST -v- SANDALWOOD PROPERTIES LTD [2019] WASC 109

CORAM:   VAUGHAN J

HEARD:   8 MARCH 2019

DELIVERED          :   5 APRIL 2019

FILE NO/S:   COR 37 of 2019

BETWEEN:   TRAVIS ROYCE SMITH

First Plaintiff

TRAVIS ROYCE SMITH as trustee of the SMITH INVESTMENT TRUST

Second Plaintiff

JAMIE ELIZABETH CATHCART

Third Plaintiff

AND

SANDALWOOD PROPERTIES LTD

First Defendant

QUINTIS LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

Second Defendant

QUINTIS FORESTRY LTD

Third Defendant

QUINTIS LEASING PTY LTD

ARWON FINANCE PTY LTD

MT ROMANCE HOLDINGS PTY LTD

MT ROMANCE AUSTRALIA PTY LTD

AUSTRALIAN SANDALWOOD OIL CO PTY LTD

Fourth Defendants

RICHARD SCOTT TUCKER

SCOTT DAVID HARRY LANGDON

JOHN ALLAN BUMBAK

Fifth Defendants

JASON PRESTON

SHAUN ROBERT FRASER

ROBERT CONRY BRAUER

Sixth Defendants

FIELDPARK PTY LTD

QUINTIS (AUSTRALIA) PTY LTD

Seventh Defendants

Catchwords:

Corporations law - Administration - Deed of company arrangement - Construction and application of s 444D(1) and (3) of Corporations Act 2001 (Cth) - Whether plaintiffs 'owners or lessors of property' with rights in relation to that property - Whether plaintiffs 'creditors' with contingent 'claims' in respect of possible future contractual breaches - Whether deferral rights contingent 'claims' or 'concerned' a claim - Whether purported extinguishment and release of deferral rights under deed of company arrangement bound plaintiffs

Legislation:

Corporations Act 2001 (Cth), s 444D

Result:

Declaratory relief granted

Category:    A

Representation:

Counsel:

First Plaintiff	:	A J Papamatheos & C Spencer
Second Plaintiff	:	A J Papamatheos & C Spencer
Third Plaintiff	:	A J Papamatheos & C Spencer
First Defendant	:	S K Dharmananda SC & F Maher
Second Defendant	:	P Edgar
Third Defendant	:	S K Dharmananda SC & F Maher
Fourth Defendants	:	S K Dharmananda SC & F Maher
Fifth Defendants	:	P Edgar
Sixth Defendants	:	No appearance
Seventh Defendants	:	S K Dharmananda SC & F Maher

Solicitors:

First Plaintiff	:	Tottle Partners
Second Plaintiff	:	Tottle Partners
Third Plaintiff	:	Tottle Partners
First Defendant	:	Allens
Second Defendant	:	Lavan
Third Defendant	:	Allens
Fourth Defendants	:	Allens
Fifth Defendants	:	Lavan
Sixth Defendants	:	No appearance
Seventh Defendants	:	Allens

Case(s) referred to in decision(s):

Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd (Subject to DOCA) (No 2) [2018] FCA 1003

Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270

Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95; (2015) 297 FLR 1

BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336

Bodger v Arch (1854) 10 Ex 333, 341; 156 ER 472

Brandrill Pty Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974; (2006) 24 ACLC 1179

Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24

Cannan v Wood (1837) 2 M & W 465, 469 - 470; 150 ER 840

Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607

Central Queensland Development Corporation Pty Ltd v Sunstruct Pty Ltd [2015] FCAFC 63; (2015) 231 FCR 17

City of Swan v Lehman Brothers Australia (Subject to DOCA) [2009] FCAFC 130; (2009) 179 FCR 243

Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455

Edwards v Attorney-General [2004] NSWCA 272; (2004) 60 NSWLR 557

Ex parte Llynvi Coal and Iron Co; Re Hide (1871) LR 7 Ch App 28

Federal Commissioner of Taxation v Gosstray [1986] VR 876

GM & AM Pearce and Co Pty Ltd v RGM Australia Pty Ltd (1997) [1998] 4 VR 888

Hardy v Fothergill (1888) 13 App Cas 351

Hawkins v Bank of China (1992) 26 NSWLR 562

Heesh v Baker [2008] NSWSC 711; (2008) 67 ACSR 192

Henaford Pty Ltd v Strathfield Group Ltd [2009] NSWSC 539; (2009) 72 ACSR 240

Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456

International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151

Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34

Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1567

Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509

McDonald v Deputy Commissioner of Taxation [2005] NSWSC 2; (2005) 187 FLR 461

Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 359 ALR 181

Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391

Re Ansett Ltd (Administrators Appointed) [2001] FCA 1806; (2001) 115 FCR 376

Re Motor Group Australia Pty Ltd [2005] FCA 985; (2005) 54 ACSR 389

Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith [2004] FCA 1155; (2004) 209 ALR 694

Re New Bounty Pty Ltd; Winpar Holdings Ltd v Baron Corporation Pty Ltd [2015] NSWSC 1060; (2015) 107 ACSR 504

Re New Tel Ltd (In Liq) [2004] FCA 1154; (2004) 210 ALR 270

Sons of Gwalia Ltd v Margaretic [2007] HCA 1; (2007) 231 CLR 160

The Airtourer Co-operarive Ltd v Millicer Aircraft Industries Pty Ltd (Subject to DOCA) [2004] FCA 393

Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd [2005] FCAFC 49; (2005) 218 ALR 1

Table of Contents

Overview

Factual background

The proceedings

The relevant statutory context

The statutory purpose of Part 5.3A and the meaning of 'creditor' and 'claim' in s 444D(1)

Disposition:  The plaintiffs' primary claim for a declaration

(1) Section 444D(3) does not apply to the plaintiffs

(2)      The plaintiffs are contingent creditors of SPL and Quintis in respect of claims for possible future contractual breach

(3) The deferral rights are not and do not concern a claim of a creditor within s 444D(1)

(4)      Conclusion on the plaintiffs' primary claim for a declaration

Disposition: The application for orders under s 447A

Conclusion and orders

VAUGHAN J:

Overview

1. Between 2014 and 2016 the plaintiffs made various investments in managed investment schemes (MISs) promoted by certain of the defendants.  The contractual arrangements for the MISs included Investment Management Agreements (IMAs) and Leases pursuant to which annual fees were payable by the plaintiffs.  However, the plaintiffs had rights under the IMAs and the Leases ‑ referred to by the parties as 'deferral rights' ‑ by which the plaintiffs could elect to satisfy the annual fees by means other than monetary payment.

2. In late June 2018 some of the defendants executed a deed of company arrangement (DOCA).  Among other things the DOCA purported to extinguish and release the deferral rights.

3. The plaintiffs contended that as a matter of law the DOCA was ineffective to extinguish and release the deferral rights. The plaintiffs raised a number of arguments in support of their position, all of which turned on the proper construction and application of s 444D of the Corporations Act 2001 (Cth). I have determined that one of those submissions is correct. For the reasons that follow the deferral rights were not, and did not concern, claims of the plaintiffs as creditors within s 444D(1). Accordingly, the purported extinguishment and release of the deferral rights does not bind the plaintiffs.

Factual background

1. The evidence in these proceedings was given by affidavit.  None of the deponents were required for cross-examination.  There were no material facts in dispute.  The factual account that follows is taken from the affidavits.

2. The first plaintiff, Mr Smith, is also the second plaintiff in his capacity as trustee of The Smith Investment Trust.  The third plaintiff, Ms Cathcart, is Mr Smith's wife.  Accordingly, the plaintiffs are related.  They became involved in the present dispute because of their investments in various MISs promoted by a group formerly known as the 'TFS group' but more recently known as the 'Quintis group'.  I will refer to the group as the 'Quintis group'.

3. Broadly, the MISs concerned sandalwood trees.  Investors, often referred to as growers, leased land from a Quintis group entity.  Another Quintis group entity was engaged to carry out management services to plant, tend and eventually harvest the sandalwood trees.  On harvest the growers would receive the proceeds of sale less certain expenses payable to various Quintis group entities.

4. The proceedings concerned MISs that were described as 'Sophisticated Investor Schemes' or 'Sophisticated Investment Offers'.  These were offered to high net worth and sophisticated investors between 2014 and 2016.  The Sophisticated Investor Schemes were promoted by the second defendant, Quintis Ltd (Subject to DOCA) (Quintis).  In each case land was leased to the grower by the first defendant, Sandalwood Properties Ltd (SPL), pursuant to Leases.  The plaintiffs, as investors and growers, were parties to various IMAs with, among others, Quintis as the 'investment manager'.  Another Quintis group entity, the third defendant Quintis Forestry Ltd (Quintis Forestry), was also a party to the IMAs.

5. The Sophisticated Investor Schemes differed from other MIS projects offered by the Quintis group as the growers (who were leasing a more substantial area) received a discount and obtained a right to take the sandalwood trees to oil.  This meant that they would sell the sandalwood oil as the end product after harvest rather than the less valuable sandalwood timber.

6. The costs payable by the growers under the Sophisticated Investor Schemes included:

   •an initial establishment fee payable to Quintis as the investment manager (payable under the IMA).  (The establishment fee was borrowed from the second named fourth defendant, Arwon Finance Pty Ltd.  Mr Smith is involved in separate proceedings defending a claim seeking to recover some of those loans);

   •an annual property management fee payable to Quintis as the investment manager (payable under the IMA).  This was payable in consideration of performing certain property management services, eg planning and co-ordinating all sandalwood plantation activities, maintenance and irrigation, record keeping and the management of all forestry, harvesting and oil extraction activities;

   •an annual lease fee (rent) payable to SPL as the lessor of the land on which the sandalwood trees were planted (payable under the Leases); and

   •various other performance fees, harvesting and processing costs, and costs of selling and marketing.  These were payable out of the growers' proceeds of sale under the IMAs.

7. The plaintiffs participated in a number of the Sophisticated Investor Schemes promoted by the Quintis group.  Mr Smith leased some 27 ha in the 2013 income year (12 ha personally and 15 ha in his capacity as trustee).  Those 2013 investments, and the instruments associated with them, are outside the present proceedings.  These proceedings concern investments made in the income years ended 30 June 2014, 30 June 2015 and 30 June 2016.

8. The plaintiffs' relevant MIS investments, and the respective Leases and IMAs, are summarised as follows:

Income year ended 30 June 2014		Lease	IMA
First plaintiff	4 hectares	TS-6	TS-6
Second plaintiff	30 hectares	AS-1	AS-1

Income year ended 30 June 2015		Lease	IMA
First plaintiff	31 hectares	TS-7	TS-7
Second plaintiff	19 hectares	AS-2	AS-2
Third plaintiff	2 hectares	AS-3	AS-3

Income year ended 30 June 2016		Lease	IMA
Second plaintiff	10 hectares	AS-4	TS-8

1. It will be necessary to refer to the terms of the Leases and the IMAs in a little more detail later on.  For now, however, it is important to note that the instruments provided the plaintiffs with what were referred to as 'deferral rights'.  While the precise legal terms differed slightly year by year, the practical economic effect of the deferral rights was the same throughout the various MISs.  In substance the plaintiffs were entitled by election to make certain arrangements for the payment of the annual property management fee and lease fee.

2. For example, cl 4.3 of the 2014 IMAs provides:

   For the years in which the Investor elects to defer the payment of the Property Management Fee by returning the completed invoice to the Investment Manager, the obligation to pay the Property Management Fee for the deferred years will be satisfied by the retention by the Investment Manager or its Affiliates of the applicable percentage of Gross Proceeds of Sale as set out in Item 7 of Schedule 1 (payable as a fee to the Investment Manager).

3. Clause 1.8 of the 2014 Leases provides:

   (a)The Investor may prepay in the first year the Rent for the duration of the Term.  The Investor acknowledges and agrees that any prepayment paid in accordance with this clause is subject to adjustment depending on the duration of this Agreement.

   (b)     Subject to (a) above, if the Investor makes the election to defer as set out in Section 4.3 of the Investment Management Agreement, the Rent will be deferred on the same basis.

   (c)If paragraphs (a) and (b) above do not apply, the Investor must pay the Rent for each year by 31 December. For the avoidance of doubt, the Investor must pay the Rent for year 1 by 31 December 2015.

4. Accordingly, for the 2014 IMAs and Leases the exercise of the deferral right resulted in the obligation to pay that year's property management fee and rent being satisfied by Quintis and SPL retaining a percentage of the gross proceeds of sale from the eventual forest produce.

5. Clause 6.1(b) and cl 6.2 of the 2015 IMAs provide:

   6.1(b)Property Management Fee

   (i)In consideration of the Property Management Services being performed in accordance with this Agreement, the Investor shall pay the Property Management Fee to TFS by 31 December of each year in accordance with Item 5 of Schedule 1. For the avoidance of doubt, to the extent that the Investor does not elect the Annual Deferred Investment Option in clause 6.2, for the year ending 30 June 2017, the Property Management Fee must be paid by 31 December 2016.

   (ii)Upon payment of the Property Management Fee, the Investor will acquire an additional direct percentage interest in the Gross Proceeds of Sale (less deductions and allowances as set out in this Agreement), in accordance with the table set out in Item 6 of Schedule 1. [The Investor commenced with an 80% interest in the Gross Proceeds of Sale: cl 6.1(a)(ii)].

   6.2Annual Deferred Investment Option

   For the years in which the Investor elects to defer the payment of the Property Management Fee:

   (a)the Investor shall have no obligation to pay the Property Management Fee for that year and shall not be entitled to any further interest in the Gross Proceeds of Sale in relation to that year, as set out in Item 6 of Schedule 1; and

   (b)in accordance with clause 1.8(b) of the 2015 Lease Agreement, Rent payable under the 2015 Lease Agreement will be deferred on the same basis.

6. The schedule then provides for a percentage of the gross proceeds of sale from the eventual forest produce to which Quintis will remain entitled if the investor elects to defer the payment of the property management fee.  If, however, there is no deferral election and payment is made of property management fee for the year, an additional interest in the gross proceeds of sale accrues to the investor.

7. The 2015 Leases, conformably with cl 6.2 of the 2015 IMAs, provided by cl 1.8:

   (a)The Investor may prepay in the first year the Rent for the duration of the Term.  The Investor acknowledges and agrees that any prepayment paid in accordance with this clause is subject to adjustment depending on the duration of this Agreement.

   (b)Subject to (a) above, if the Investor elects the Annual Deferred Investment Option (as defined in the Investment Management Agreement), the Rent will be deferred on the same basis.

   (c)If paragraphs (a) and (b) above do not apply, the Investor must pay the Rent for each year by 31 December. For the avoidance of doubt, if paragraphs (a) and (b) above do not apply, the Investor must pay the Rent for year 1 by 31 December 2016.

8. Accordingly, while the 2014 instruments saw exercise of the deferral right resulting in the Quintis group entity obtaining an amount out of the gross proceeds of sale at the expense of the investor grower, deferral under the 2015 instruments resulted in the investor grower forgoing the opportunity to obtain a further interest in the eventual gross proceeds of sale.  Under the 2014 agreements the plaintiffs were entitled to 100% of the gross proceeds of sale.  However, that was reduced by a specified percentage for years in which the investor elected to defer payment of the property management fee.  The initial entitlement under the 2015 agreements was to 80% of the gross proceeds of sale.  That was increased where the plaintiffs effected cash payment of the annual property management fee.

9. The deferral mechanisms in the 2016 IMA and the 2016 Lease were in like terms to those in the 2015 IMAs and the 2015 Leases respectively.  For that reason I will not set out the relevant provisions within the 2016 IMA (see cl 6.1(b) and cl 6.2) and the 2016 Lease (see cl 1.8).

10. Mr Smith's evidence was that each year the deferral right was exercised for both the annual property management fee and the annual lease fee.  Mr Smith also estimated the future financial consequences if he (both personally and as trustee) was not permitted to defer the annual property management fee and the annual lease fee for the remainder of the term of the investments (the last expiring in 2031).  This was said to be $2.028 million for the 2014 investments, $3.7745 million for the 2015 investments and $840,000 for the 2016 investments.  Mr Smith said that he was not in a position to pay the annual amounts reflected in those totals.

11. On 20 January 2018 Quintis and SPL, as well as other entities within the wider Quintis group, went into voluntary administration.  The fifth defendants, Messrs Tucker, Langdon and Bumbak of KordaMentha, were appointed as voluntary administrators.

12. Subsequently, on 23 January 2018, receivers and managers were appointed in relation to certain assets of the Quintis group.  The persons appointed as receivers and managers, Messrs Preston, Fraser and Brauer of McGrathNicol, are the sixth defendants in these proceedings.

13. The plaintiffs, as growers, were treated as contingent creditors by the voluntary administrators.  In that capacity they were sent numerous circulars and reports.

14. Mr Smith submitted proofs of debt in the voluntary administrations of Quintis and SPL.  However, the proofs were not in respect of the deferral rights or the rights as a grower generally.  The proof of debt in relation to Quintis was in respect of travel agency services a company associated with Mr Smith provided to Quintis.  The proof of debt for SPL was in relation to a right to sell back trees to SPL at certain values.  This concerned the 2013 and 2014 investments.

15. One of the receivers and managers, Mr Fraser, wrote to Mr Smith and Ms Cathcart by letters dated 26 March 2018.  The letters requested that the plaintiffs agree to pay at least 50% of the annual property management fee and the annual lease fee quarterly in advance.  The point was made that in circumstances where the Quintis group was in external administration the receivers and managers were not in a position to continue funding property management services by continuing to allow investors to exercise deferral rights.  A similar letter was again sent on or about 16 April 2018.  The plaintiffs did not respond to the letters or agree to the proposed reduced deferral rights.

16. By letter dated 3 May 2018 the receivers and managers, for Quintis, informed the plaintiffs that with immediate effect Quintis would cease to provide property management services under the IMAs (as were required to maintain and irrigate the plantation).

1. Separately the letter went on to state:

   … there is a requirement under your Leases that you continue to manage, cultivate and work your land in a proper and skilful manner, and according to generally accepted silvicultural methods, so as to maintain the land for the purposes of long term commercial silviculture.

   …

   In the event that a Landlord considers that you have failed to comply with any of your obligations under one or more of the Leases, including in respect of your obligation to manage, cultivate and work your land, the relevant Landlord may issue you with a notice of default specifying the default and requiring you to remedy the default within the time required by the relevant Landlord.  If you do not remedy the default within the time and in the manner required by the relevant Landlord, the Landlord may in due course exercise its right to terminate the Lease by notice in writing to you, in which case ownership of the trees will revert to the relevant Landlord.

2. On 8 June 2018 it was resolved that Quintis and other members of the Quintis group execute a DOCA.  At the creditors' meeting where it was resolved that the deed be executed, Mr Smith was admitted to proof for voting purposes in an amount of $1.  However, based on the voluntary administrators' records, it appears that the plaintiffs did not attend the meeting (either in person or by proxy).

3. The DOCA was executed on 29 June 2018.  The fifth defendants were appointed as the deed administrators.  A single deed was executed by Quintis, SPL, Quintis Forestry and other relevant members of the Quintis group (who were described as the 'Quintis Pooled Entities').  It is convenient to refer to the deed of company arrangement as the 'QPE DOCA'.  A number of other parties to the QPE DOCA were joined as defendants to the proceedings.[1]  I understood that they were joined insofar as the plaintiffs sought orders varying the terms of the QPE DOCA.

   [1] For example, Quintis Leasing Pty Ltd, Arwon Finance Pty Ltd, Mount Romance Holdings Pty Ltd, Mount Romance Australia Pty Ltd and Australian Sandalwood Oil Co Pty Ltd.

4. The QPE DOCA provided for a release by cl 8.1.  That provides:

   Subject to clauses 2, 8.3 and 9.1 each Creditor agrees that on the occurrence of Completion in accordance with clause 6, its Claims (other than any Excluded Claim) are extinguished and released.

5. Clauses 2, 8.3 and 9.1 are presently immaterial.  Nor is it necessary to consider the exclusion provided as to Excluded Claims.  As defined 'Completion' referred to steps specified in cl 6.1 of the QPE DOCA (although the steps are actually found in cl 6.2).  The deed administrators' evidence established that Completion had occurred.  Accordingly, the release provided for in cl 8.1 of the QPE DOCA has taken effect.

6. The terms 'Creditor' and 'Claim' are defined as follows:

   Creditor means any person who would have been entitled to prove in a winding up of a Quintis Pooled Entity, if the Quintis Pooled Entities had been wound up and the winding up was taken to have commenced on the Appointment Date [ie 20 January 2018].

   Claim means a debt owing by, or a claim against, a Quintis Pooled Entity (whether present or future, certain or contingent, ascertained or sounding only in damages), irrespective of whether the debt or claim arose by virtue of contract, at law (including by statute), in equity or otherwise, being a debt or claim the circumstances giving rise to which occurred on or before the Appointment Date and which would be admissible to proof against the Quintis Pooled Entity had that entity been wound up and the winding up was taken to have commenced on the Appointment Date, including:

   (a)Priority Employee Claims;

   (b)a debt arising from a failure by a Quintis Pooled Entity to pay a Superannuation Contribution; or

   (c)a debt arising by way of a Superannuation Guarantee Charge.

7. Clause 12.2 of the QPE DOCA deals with SIO investors.  The SIO investors are those growers who, like the plaintiffs, had an investment in one of the Sophisticated Investor Schemes.  Clause 12.2 provides in part:

   (a)All Claims of an SIO Investor against a Quintis Pooled Entity (including, without limitation, any deferral rights, put options or rights to purchase land) are extinguished and released in accordance with clause 8.

   (b)Other than with respect to the extinguishment and release of Claims in accordance with this Deed, the Investment Contracts of any SIO Investor as they exist at the Commencement Date shall remain in force, provided that the SIO Investor continues to perform its obligations under the Investment Contracts. (emphasis added)

8. Accordingly, the QPE DOCA purports by cl 8.1 and cl 12.2(a) to provide for the release and extinguishment of the deferral rights under the plaintiffs' 2014, 2015 and 2016 IMAs and Leases.

9. At the hearing before me there was some confusion as to whether the QPE DOCA had the effect that there was no continuing obligation to provide future management services.  Counsel for the plaintiffs thought that was the position advanced by SPL and the other Quintis group defendants.[2]  Prima facie that was inconsistent with the terms of cl 12.2 of the QPE DOCA.  The IMAs remained in force; all that was extinguished and released were certain claims (which could, depending on the circumstances, include certain claims in relation to the IMAs.)  Senior counsel for the Quintis group defendants[3] confirmed, however, that there was no suggestion that there was not an obligation to provide services.  That was why notices had been issued with respect to payment for the services.  It was said that, upon payment, services would be delivered.[4]

   [2] ts 84.

   [3] This is how the first, third, fourth and seventh defendants described themselves.

   [4] ts 85.

10. The QPE DOCA contemplated SIO investors, by agreement rather than by operation of law through the binding effect of the deed, entering into novation deeds to replace Quintis as the investment manager under the IMAs (QPE DOCA cl 12.2(d) and cl 12.4).  The form of proposed novation deed also contemplated amendment of the IMAs so that the novating SIO investor enjoyed an entitlement to defer up to 50% of the annual property management fee and the annual lease fee (QPE DOCA cl 12.2(d), Sch 7 cl 3.1 ‑ as to the 2014, 2015 and 2016 IMAs).

11. Where an SIO investor did not participate by novation cl 12.4(c) of the QPE DOCA addressed the position in this manner:

    In respect of any SIO Investor … who does not execute the Novation Deed (SIO) … and deliver a copy of its executed counterpart to the Deed Proponents within the period specified … :

    (i)the rights of Quintis Limited under the Investment Contracts of that SIO Investor … will be held on trust by Quintis Limited for NewCo in accordance with clause 19.2; and

    (ii)NewCo will be entitled (but not obliged) to perform Quintis Limited's obligations thereunder in accordance with clause 19.2,

    provided those Investment Contracts continue to be performed by the SIO Investor …

12. On about 5 July 2018 the plaintiffs received a letter from the receivers and managers requesting that they enter into deeds of amendment and novation in the form prescribed by the QPE DOCA.  The plaintiffs did not do so.

13. The 5 July 2018 letter otherwise:

    •reminded the plaintiffs that maintenance had ceased in relation to their investments;

    •suggested that under the QPE DOCA any claim the plaintiffs may have in relation to the deferral provisions would be compromised;

    •informed the plaintiffs that they continued to have ongoing obligations to manage, cultivate and work the leased areas; and

    •stated that in the event the plantations were not maintained it could be expected that the landlord would take steps to terminate the Leases.

14. The implicit threat in the letter was made express by another 5 July 2018 letter sent by the receivers and managers.  That letter was sent on behalf of Quintis and SPL as lessor under the Leases.  The letter asserted that there had been a breach of the Leases in failing to manage, cultivate or work the trees on the leased areas since 3 May 2018.  Specific matters were noted such as overgrown grass, lack of irrigation, the need to perform pruning work and lack of termite treatment and vine and fig leaf beetle control works.  Demand was made for confirmation that the defaults would be remedied.  Otherwise SPL's rights were reserved.

15. The evidence does not disclose what response, if any, was made by the plaintiffs.  Nor do the plaintiffs describe what steps, if any, were taken to remedy the alleged defaults.

16. A series of formal default notices were issued by SPL, as lessor, on 19 October 2018.  The alleged breaches of the Leases concerned failure to manage, cultivate and work the leased areas in a proper and skilful manner according to generally accepted silvicultural methods.  Again, the evidence does not disclose what response and steps followed those default notices.

17. The QPE DOCA also contemplated completion of a scheme of arrangement.  On 30 October 2018 the scheme was completed.  The QPE DOCA had been earlier effectuated for the Quintis pooled entities with the exception of Quintis itself (which remains subject to the QPE DOCA).  Among other things the scheme and the QPE DOCA saw the recapitalisation of the Quintis group and the transfer by Quintis of its shareholdings in its subsidiaries to a newly incorporated entity, Quintis (Australia) Pty Ltd, the second named seventh defendant.

18. Quintis' rights, but not its obligations, under the various IMAs were transferred to recapitalised Quintis entities.  As contemplated by the QPE DOCA, SIO investors were provided with an opportunity to enter into a deed of novation and amendment whereby Fieldpark Pty Ltd, the first named seventh defendant, was substituted for Quintis as the investment manager.  Where that occurred the SIO investor's deferral right became limited to up to 50% of the annual property management fee and the annual lease fee.

19. Most of the SIO investors have novated their IMAs and agreed to the new deferral arrangement.  By percentage terms those who have agreed to the new arrangements are 81% of the 2014 investors, 89% of the 2015 investors and 89% of the 2016 investors.  Based on the total number of investors I infer that, excluding the plaintiffs, only one other 2014 investor has not accepted the new arrangements.  For the 2015 and 2016 IMAs there are one and five such investors respectively.  I am unable to identify the size of the other investors' investment by comparison to the plaintiffs' investments.

20. On 7 December 2018 the plaintiffs received invoices for annual lease fees in relation to the various investments.  Accompanying correspondence suggested that the deferral right was no longer available to the plaintiffs.  The invoices were not paid and further correspondence ensued.  Default notices based on non-payment were issued on 1 February 2019.  They threatened termination if the rent was not paid within either 15 business days or 1 month (depending on the particular Lease). 

The proceedings

1. On 7 February 2019 solicitors for the plaintiffs wrote to solicitors acting for the Quintis group defendants. It was suggested that the deferral rights were not a claim of a creditor susceptible to extinguishment and release - or indeed any alteration - pursuant to s 444D(1) of the Corporations Act 2001 (Cth). Thus it was said that the 'purported' extinguishment and release of the deferral rights under the QPE DOCA was of no effect.

2. Subsequently, the plaintiffs took formal steps by way of electing to exercise the deferral rights.  While those steps were taken after the commencement of proceedings no point is taken as to timing.  Quite properly, having regard to the form of the initial declaration as sought in the proceedings, the Quintis group defendants dealt with the question raised by the proceedings at the level of principle rather than whether the necessary election had been effected timeously.

3. These proceedings were commenced on 15 February 2019.

4. The plaintiffs sought an interim injunction to restrain the termination or purported termination of the IMAs and the Leases.  On arrangements being made for an urgent final hearing on 8 March 2019 the Quintis group defendants provided an undertaking to the court not to issue any notices terminating the Leases for non-payment of rent.  Accordingly, it was not necessary to determine the application for the interim injunction.

5. The plaintiffs amended their originating process on 21 February 2019.  By the amended originating process the plaintiffs seek:

   (1)First, a declaration that the QPE DOCA did not extinguish or release the plaintiffs' deferral rights under the IMAs and the Leases (par 1).

   (2)Second, orders pursuant to s 447A(1) of the Corporations Act 2001 (Cth), in various alternate forms, crafted to provide for the continuation of the plaintiffs' deferral rights under the IMAs and the Leases (par 2 to par 4).

   (3)Third, a declaration that the default notices dated 19 October 2018 and 1 February 2019 are of no force or effect (par 5).

   (4)Fourth, permanent injunctions restraining the termination of the IMAs and the Leases in reliance on the default notices or any other alleged breach which is inconsistent with the deferral rights (par 6).

6. The proposed s 447A orders take three forms. First, an order varying the QPE DOCA to make specific provision to the effect that the plaintiffs' deferral rights are not extinguished or released (par 2). Second, an order that pt 5.3A take effect as if the Part contained a specific provision that the plaintiffs are not creditors in relation to the deferral rights (par 3). Third, an order that pt 5.3A operate so that the QPE DOCA does not extinguish or release the plaintiffs' deferral rights under the IMAs and the Leases (par 4).

7. In oral submissions counsel for the plaintiffs clarified that, despite it appearing that the s 447A orders might be sought on a stand‑alone basis so as to modify the purported effect of the QPE DOCA, those forms of relief were only sought in an ancillary way to support the primary claim for a declaration.[5] The s 447A orders were not sought if the plaintiffs were unsuccessful in their claim for a declaration that the QPE DOCA did not extinguish or release the plaintiffs' deferral rights under the IMAs and the Leases.[6]

   [5] ts 61.  See also ts 63.

   [6] ts 61.

8. On their primary claim for a declaration the plaintiffs made three material submissions in support of a contention that cl 8.1 and cl 12.2 of the QPE DOCA could not, as a matter of law, be effective to extinguish and release their deferral rights under the IMAs and the Leases.  They were:

   (1)The plaintiffs were not relevantly 'creditors' of Quintis (as the investment manager under the IMA) or SPL (as the lessor under the Leases) and thus were not bound by the QPE DOCA.

   (2)The deferral rights did not concern a claim of a creditor arising on or before 20 January 2018 meaning that, even if the plaintiffs were creditors of Quintis and SPL, the plaintiffs were not bound by the QPE DOCA in relation to the deferral rights.

   (3)The deferral rights were a right that the plaintiffs had as an owner or lessor in relation to property within the meaning and for the purpose of s 441D(3) of the Corporations Act 2001 (Cth) which meant that s 444D(1) did not affect the deferral rights and the plaintiffs were not bound by the QPE DOCA in relation to the deferral rights.

9. The third contention was first advanced in the plaintiffs' written submissions-in-reply.  Nevertheless, it assumed primary importance in counsel for the plaintiffs' oral address.  For that reason, after addressing the necessary statutory context and some authorities, I will dispose of the third submission at the outset.

10. The Quintis group defendants joined issue with the plaintiffs on all of their contentions.  I will address their submissions in answer when I turn to consider the plaintiffs' arguments.  Separately, however, the Quintis group defendants contended that any declaratory relief should be denied on discretionary grounds.  It was said that there had been unreasonable delay on the part of the plaintiffs.

11. Quintis and the deed administrators were separately represented. Quite properly they did not seek to be heard on the primary claim for declaratory relief. They appeared, however, because prior to the hearing the plaintiffs' proposed orders under s 447A were framed as if those orders were sought on a stand-alone basis even if the plaintiffs failed in their claim for declaratory relief as to the deferral rights. When, at the hearing, counsel for the plaintiffs clarified that the s 447A orders were only sought in an ancillary way to support the primary claim, counsel for Quintis and the deed administrators informed me that they would abide the decision of the court.[7]

    [7] ts 81.

12. The claim for declaratory relief in par 5 of the amended originating process was only raised obliquely (if at all) at the oral hearing.  There was, in any case, no significant argument advanced by the plaintiffs as to the invalidity of the 19 October 2018 default notices.  The validity or otherwise of those default notices is not dependant on the purported effect of cl 8.1 and cl 12.2 of the QPE DOCA on the deferral rights in the IMAs and the Leases.  In the circumstances I am not in a position to address the validity of the 19 October 2018 default notices and will say nothing more on that matter.

13. The plaintiffs' argument as to whether the 1 February 2019 default notices are invalid depends on whether they are successful in their primary claim for declaratory relief.  In substance the argument is that the notices are invalid because they fail to recognise the plaintiffs' deferral rights and the plaintiffs cannot be in default in any case because they have exercised their deferral rights (meaning that no annual property management fees or annual lease fees are due and payable).  In that sense the argument - and the proposed further declaration in par 5 of the amended originating process - adds nothing to the declaration in par 1 when coupled with appropriate injunctive relief of the kind sought in par 6 of the amended originating process.  There is no identifiable practical utility that would justify a declaration in terms of par 5 in addition to relief of the type sought in pars 1 and 6.

14. On that basis, in the exercise of discretion, I would not entertain making a declaration in the terms of par 5 limited to the 1 February 2019 default notices.

The relevant statutory context

1. For reasons that will become apparent the proceedings turn on the proper construction and application of s 444D of the Corporations Act 2001 (Cth). The questions that arise must, however, be considered in the statutory context of pt 5.3A as a whole.

2. There have been numerous detailed expositions of the statutory scheme provided by pt 5.3A.[8] There is nothing new I can add to those recitations. Rather than re-cast what has been synthesised by others I will mention the critical provisions for the construction task I must undertake. In so doing the relevant provisions - in particular s 444D(1) and (3) - must be construed in the context of pt 5.3A as a whole. In relation to that wider context I rely generally on the more detailed expositions of the statutory scheme to which I have already made reference and otherwise note as follows.

   [8] See eg Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24, 28 - 32; Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 [20] - [37]; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95; (2015) 297 FLR 1 [33] - [45], [61], [174] - [186], [189] - [195]; Mighty River International Ltd v Hughes [2018] HCA 38; (2018) 359 ALR 181 [8] - [14].

3. The concept of a DOCA was introduced to the then Corporations Law on 23 June 1993 by the Corporate Law Reform Act 1992 (Cth). That Act effected a series of reforms recommended by the Australian Law Reform Commission in its General Insolvency Inquiry. Relevantly, it inserted the predecessor of pt 5.3A of the Corporations Act 2001 (Cth) entitled 'Administration of a Company's Affairs with a View to Executing a Deed of Company Arrangement'.

1. Part 5.3A was intended to provide an alternative - and, from the perspective of the company, its business, creditors and members, a better alternative - to immediate winding-up. That is apparent from the object of pt 5.3A as specified in s 435A, especially s 435A(a). The Part seeks to provide for the affairs of an insolvent company to be administered in a way that maximises the chances of the company continuing in existence. The aim is to facilitate 'rehabilitation … wherever possible' by developing a deed of company arrangement under which 'the company might be restored to financial health'.[9]

   [9] Explanatory Memorandum to the Corporate Law Reform Bill 1992 (Cth) [5], [444].  See also at [21] - [22], [448] - [449].

2. A construction of the provisions of pt 5.3A which will best achieve the object of the Part as expressed in s 435A is to be preferred to other interpretations.[10]

   [10] Acts Interpretation Act 1901 (Cth), s 15AA.

3. Part 5.3A provides for a form of external administration. It commences with the appointment of an administrator and, following reports to and meetings of creditors, may conclude with a DOCA. Where a company is under administration it is for the creditors to resolve that the company execute a DOCA in terms specified in the resolution. With minor exceptions the Act and relevant regulations are silent about the nature and content of the arrangement between the company and its creditors that may be made by and expressed in a DOCA.[11]  The terms of any DOCA are quintessentially a matter for the creditors as a whole exercising their own commercial judgment.  There are a wide variety of different possible DOCAs; the hallmark is flexibility.[12]  In that respect the word 'arrangement' encompasses many forms of compromise[13] and may encompass many forms of arrangement falling short of compromise.[14]

   [11] Lehman Bros Holdings Inc v City of Swan [37].

   [12] Mighty River International Ltd v Hughes [7], [36], [45].

   [13] Lehman Bros Holdings Inc v City of Swan [39].

   [14] Mighty River International Ltd v Hughes [77].

4. For present purposes material provisions within pt 5.3A are:

   •Various moratorium provisions operate during the administration of a company (div 6 and div 7).  These include provisions dealing with the exercise of rights of an owner or lessor of property used or occupied by, or in the possession of, the company (eg s 440B, s 4441F, s 4441G, s 441H).

   •The administrator convenes a meeting of the company's creditors - often referred to as the 'decision meeting' (s 439A).  At that meeting the creditors may resolve, among other things, that the company execute a DOCA(s 439C(a)).

   •Any DOCA is to specify certain matters (s 444A(4)).  This includes the extent to which the company is to be released from its debts (s 444A(4)(d)) and the day on or before which claims must have arisen if they are to be admissible under the deed (s 444A(4)(i)).

   •Persons who will be bound by the DOCA must not, before its execution, do anything inconsistent with it (s 444C).

   •A DOCA binds all creditors of the company so far as concerns claims arising on or before the day specified in the deed (to be not later than the date the administration began) (s 444D(1)). The reference to a date by which claims must have arisen echoes the terms of s 444A(4)(i) (dealing with admissibility under the DOCA) to which s 444D(1) refers. As will be seen, however, s 444D(1) may not prevent a secured creditor doing certain things (s 444D(2)). Nor, in the absence of certain things, does it affect rights that an owner or lessor of property has in relation to property (s 444D(3)).

   •A DOCA also binds the company, its officers and members, and the deed's administrator (s 444G).

   •Certain moratorium provisions apply in relation to persons bound by the DOCA (s 444E).

   •The court may limit the rights of a secured creditor or owner or lessor (s 444F).  By s 444F(4) the court may order the owner or lessor of property that is used or occupied by, or is in the possession of, the company not to take possession of the property or otherwise recover it.  The circumstances in which such an order may be made are provided for by s 444F(5).

   •Section 444H deals with releases.  It provides:

   A deed of company arrangement releases the company from a debt only in so far as: 

   (a)the deed provides for the release; and

   (b)the creditor concerned is bound by the deed.

5. The court may make orders terminating a DOCA in certain circumstances (s 445D).  So too the court may cancel a variation to a DOCA (s 445B).  The court may also, by order, declare a DOCA to be void or not void on a specified ground (s 445G).  In these respects a DOCA is subject to the supervision of the court.

6. Termination of a DOCA does not affect the previous operation of the deed (s 445H). However, following termination the persons initially bound by the deed, by force of s 444D(1) or s 444G, cease to be bound as to their future conduct, rights and liabilities.[15]

   [15] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [195].

7. The plaintiffs sought to rely on s 447A. While s 447A has been described as a 'plenary' power[16] it is not without limits.[17] Section 447A(1) provides:

   The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

   [16] Cawthorn v Keira Constructions Pty Ltd (1994) 33 NSWLR 607, 611. Cf BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336 [181], [191].

   [17] Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 [20]. For example, the exercise of power under s 447A must be consistent with the object of Part 5.3A as found in s 435A: Re Ansett Ltd (Administrators Appointed) [2001] FCA 1806; (2001) 115 FCR 376 [51] - [52]; BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [186] - [189], [194], [207]. The order must also have a nexus with how pt 5.3A is to operate in relation to a particular company: Re New Tel Ltd (In Liq) [2004] FCA 1154; (2004) 210 ALR 270 [7]. See also Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456 [66], City of Swan v Lehman Brothers Australia (Subject to DOCA)[2009] FCAFC 130; (2009) 179 FCR 243 [150] - [160] and BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [191] ‑ [194].

8. It is unnecessary for the proper disposition of these proceedings to describe the many and varied uses to which s 447A has been employed. It is now well established that s 447A empowers the court to make orders amending, varying or rectifying a DOCA.[18]  The section can be used to make an order with future effect in respect of past matters or events.[19] Moreover, the termination of the administration is not, of itself, necessarily a barrier to orders under s 447A.[20]  Accordingly, there are cases in which a DOCA has been amended even after it has been carried into effect and terminated.[21] In considering the exercise of the power under s 447A for this purpose it is relevant to consider whether the order is sought to vary rights and obligations as opposed to validating actions taken in reliance on the deed.[22]

   [18] See eg Adelaide Brighton Cement Ltd v Concrete Supply Pty Ltd (Subject to DOCA) (No 2) [2018] FCA 1003 [11] - [16] (and the numerous authorities cited in that passage).

   [19] Australasian Memory Pty Ltd v Brien [26].

   [20] Australasian Memory Pty Ltd v Brien [26], [28] - [32].

   [21] See eg Brandrill Pty Ltd v Newmont Yandal Operations Pty Ltd [2006] NSWSC 974; (2006) 24 ACLC 1179 [47] - [54].

   [22] Re New Bounty Pty Ltd; Winpar Holdings Ltd v Baron Corporation Pty Ltd [2015] NSWSC 1060; (2015) 107 ACSR 504 [224].

The statutory purpose of Part 5.3A and the meaning of 'creditor' and 'claim' in s 444D(1)

1. A company is released from a debt only so far as the DOCA provides and 'the creditor concerned is bound by the deed' (s 444H).  A DOCA binds 'all creditors' but only 'so far as concerns claims arising on or before the day' specified for the purpose of s 444A(4)(i) (s 444D(1)). To the extent that a DOCA purports to address claims beyond those covered by s 444D(1) the DOCA is ineffective to bind creditors.

2. Accordingly, the terms 'creditor' and 'claim' are critical in determining the extent to which a DOCA may release a company from a debt. And the extent to which a DOCA may release a company from a debt is, in turn, critical to maximising the chances of the company continuing in existence. Financial rehabilitation will often be dependent on extinguishing existing debts and claims. Part 5.3A assumes that this is the case.[23]

   [23] Mighty River International Ltd v Hughes [6].

3. The object of pt 5.3A has thus proven important in ascribing meaning to the terms 'creditor' and 'claim' in s 444D(1) (and more generally in pt 5.3A). It is necessary to identify who will be bound by the deed (as creditors) and in what respect those creditors will be bound.

4. It is well established that the term 'creditors' in s 444D(1) includes all creditors of the company for the time being rather than just those creditors with debts or claims for amounts becoming due and payable prior to the administration.[24] The 'creditors' for the purposes of pt 5.3A are those who would have been the creditors of the company had the company gone into liquidation and the relevant date for the purposes of s 553(1) of the Corporations Act2001 (Cth) been the day specified in the DOCA[25] (usually the date of appointment of the administrators). Thus the 'claims' arising as referred to in s 444D(1) are those debts or claims which would be provable against the company in a winding‑up[26] (noting, however, the different temporal requirement in s 444D(1) that the claims must have arisen on or before the day specified in the deed). Put alternatively, the claims that fall within s 444D(1) are coextensive with those that could fall under s 553(1).[27]

   [24] Brash Holdings Ltd v Katile Pty Ltd (33).

   [25] Brash Holdings Ltd v Katile Pty Ltd (33), (34), (36); Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd(1996) 70 FCR 34, 39 - 40; GM & AM Pearce and Co Pty Ltd v RGM Australia Pty Ltd (1997) [1998] 4 VR 888, 893 - 894; International Air Transport Association v Ansett Australia Holdings Ltd[2008] HCA 3; (2008) 234 CLR 151 [42]; City of Swan v Lehman Brothers Australia Ltd [32] - [33], [79], [87], [135]; Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [66].

   [26] Brash Holdings Ltd v Katile Pty Ltd (34), (36); International Air Transport Association v Ansett Australia Holdings Ltd [42]; City of Swan v Lehman Brothers Australia Ltd [135]; Lehman Bros Holdings Inc v City of Swan [38]; Central Queensland Development Corporation Pty Ltd v Sunstruct Pty Ltd [2015] FCAFC 63; (2015) 231 FCR 17 [63] (noting also that the same applies to the expression 'claims must have arisen' in s 444A(4)(i)); Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [68] - [69].

   [27] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [68]; BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [131]. See also the reference to 'relationship of identity' between claims in s 444D(1) and claims in s 553: [132].

5. Section 553(1) provides:

   Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.

6. There is an obvious congruence between the phrases 'claims the circumstances giving rise to which occurred before the relevant date' (from s 553(1)) and 'claims arising on or before the day specified' in the DOCA (from s 444D(1)). The difference in terminology does not result in any difference in substance.[28] Nor is anything to be derived from s 553(1)'s use of 'debts' and 'claims' compared to s 444D(1)'s reference only to 'claims'. It is accepted that the word 'claims' is used as a single expression to cover what s 553 divides into debts and claims in the context of a winding-up.[29]

   [28] BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [131].

   [29] Brash Holdings Ltd v Katile Pty Ltd (34).

7. The words of s 553 indicate an intention to define provable claims widely.  That is consistent with one of the basic aims of insolvency laws - being to deal comprehensively with all claims against a company so that its affairs can be fully wound up or so that it can resume trading.[30]  As the majority in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd explained:

   Generally speaking, the modern law of bankruptcy serves three purposes.  The first is to ensure that the assets of the bankrupt are distributed rateably amongst creditors; the second is to ensure that one creditor does not obtain an undue advantage over others; and the third is to bring about the discharge of the debtor from future liability for the debtor's existing debts, so that the debtor may start afresh.[31]  (emphasis added)

   [30] Sons of Gwalia Ltd v Margaretic[2007] HCA 1; (2007) 231 CLR 160 [172].

   [31] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [211].

8. In adopting, for pt 5.3A (and s 444D(1) in particular), the conception of 'creditor' and 'claim' that prevails in winding-up, the courts have relied on the object of pt 5.3A. For example, in Brash Holdings Ltd v Katile Pty Ltd the Full Court preferred the submission that:

   … the purpose of [a] deed of company arrangement [is] to resolve, once and for all, the financial position of the company as it stood on the day specified in the deed, in order to allow the company a fresh start for the future.[32]  (emphasis added)

   [32] Brash Holdings Ltd v Katile Pty Ltd (28).

9. To better facilitate a fresh start for an insolvent company which pursues external administration through pt 5.3A it is necessary that the terms 'creditor' and 'claim' be understood as being broad in their ambit. That conclusion is consonant with the legislative ancestry of the language employed in s 444D(1). As Finkelstein J explained in Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith, the accepted understanding of the term 'claim' - a critical concept for a DOCA (see s 444D(1)) - has its genesis in bankruptcy law.[33]  Echoing the Full Court in Brash Holdings Ltd v Katile Pty Ltd Finkelstein J noted:

   ... the evident purpose of bankruptcy ... is to permit all creditors to share in the distribution of the assets of the bankrupt and to leave the debtor thereafter free from the liability of previous obligations.[34]

   [33] Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith [2004] FCA 1155; (2004) 209 ALR 694 [7] (see generally at [7] - [16]).

   [34] Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith [9]. See also Ex parte Llynvi Coal and Iron Co; Re Hide(1871) LR 7 Ch App 28, 31 - 32, 33; Hardy v Fothergill(1888) 13 App Cas 351, 355 - 356, 366 - 367.

10. A 'fresh start' or 'clean slate' object is also readily identifiable as a purpose of a deed of company arrangement pursuant to pt 5.3A. That purpose is implicit in the statutory scheme of pt 5.3A.[35]

    [35] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [218] - [221], [238].

11. Since Brash Holdings Ltd v Katile Pty Ltd it has been accepted that s 444D(1)'s formulation of 'claims arising on or before the d ay specified in the deed' comprehends future or contingent debts or claims.[36] That is a result of the terms of s 553(1) and the acceptance that claims within s 444D(1) can extend to any debt or claim that would be provable in a winding-up.[37]  It follows that future and contingent creditors may be bound by a DOCA as concerns such future or contingent claims.

    [36] Brash Holdings Ltd v Katile Pty Ltd (28), (34), (36).  See also Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (40), Lehman Bros Holdings Inc v City of Swan [38], [51].

    [37] Lehman Bros Holdings Inc v City of Swan [38].

12. I will defer examination of the concepts of future or contingent creditors until I address the plaintiffs' first contention (that they are not 'creditors').  Plainly, however, a future or contingent creditor is not a 'creditor' in the narrow sense of the term, ie they are not a person to whom a debt is due and payable. A future or contingent creditor is a person who will, or might in some circumstances, become a creditor in that narrow sense. The distinction serves to emphasise that an extended meaning of 'creditor' is employed in pt 5.3A and s 444D(1).

13. It is unremarkable that, on its proper construction, the 'claims arising on or before' the day specified in a DOCA may include future and contingent claims. The object of pt 5.3A, and the purpose of a DOCA, would be frustrated if this were not so. To restore an insolvent company to financial health, and maximise its chances of continuing in existence, it is necessary that the company may be relieved from existing obligations which may mature into monetary liabilities post‑DOCA.

14. In the authorities there is an unresolved question as to whether a claim in relation to possible future breaches of an agreement is a 'claim' arising within s 444D(1).[38]

    [38] In Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd it was unnecessary to resolve the point: [79].

15. The Full Court of the Supreme Court of Victoria in Brash Holdings Ltd v Katile Pty Ltd noted the issue - in the context of a possible future breach of a lease covenant - but did not determine it.[39]  However, in Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd the Full Court of the Federal Court suggested in an obiter dictum that such a right was not a contingent claim but rather a mere expectancy and therefore not provable under s 553.[40]  In Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith Finkelstein J did not apply the Full Court's dictum from Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd.[41]

    [39] Brash Holdings Ltd v Katile Pty Ltd (35 - 36).

    [40] Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (43 - 44).

    [41] Re National Express Group Australia (Swanston Trams) Pty Ltd; Thiess Infraco (Swanston) Pty Ltd v Smith [16].

16. In support of their contention that they were not relevantly creditors of Quintis or SPL the plaintiffs urged me to accept and apply the obiter dictum in Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd.  Senior counsel for the Quintis group defendants referred me to BE Australia WD Pty Ltd (Subject to DOCA) v Sutton as providing substantial reasons for resisting the plaintiffs' contentions that they were not contingent creditors.  There Campbell JA, with McColl JA agreeing, considered that the obiter dictum in Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd was contrary to other decisions that he was obliged to follow.  His Honour considered that a right to sue for damages for future breach of a covenant to keep leased premises in repair gave rise to a contingent claim.[42]

    [42] BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [201]. See also at [107].

17. It will be necessary to come to a conclusion on this issue when I address the plaintiffs' contention that they were not creditors of Quintis or SPL within the meaning and for the purpose of s 444D(1).

Disposition:  The plaintiffs' primary claim for a declaration

1. These proceedings concern the proper construction and application of s 444D of the Corporations Act 2001 (Cth). Accordingly, it is appropriate at this juncture to set out the terms of s 444D in full:

   444DEffect of deed on creditors

   (1)A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).

   (2)Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security interest, except so far as: 

   (a)the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or

   (b)the Court orders under subsection 444F(2).

(3)Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as: 

(a)the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed; or

(b)the Court orders under subsection 444F(4).

1. In Lehman Bros Holdings Inc v City of Swan French CJ, Gummow, Hayne and Kiefel JJ made a number of observations as to the operation of s 444D(1):

   (1)It is s 444D(1) alone that makes a DOCA binding on creditors ([52]).

   (2)Section 444D(1) identifies who is to be bound by the DOCA (all creditors) but then proceeds to limit the extent to which those creditors are bound (so far as concerns identified claims) ([50]).

   (3)Creditors are bound so far as concerns claims against the company that arose before a specified date [52]. Creditors cannot be bound by operation of a DOCA beyond the limit stated in s 444D(1) ([53]).

   (4)In the application of s 444D(1) effect must be given to the words 'so far as concerns claims arising on or before the day specified in the deed' ([55]). (In a separate judgment Heydon J referred to the words 'so far as concerns' in s 444D(1) as being 'elastic' words of connection but suggested that they bore a narrow meaning in the context of s 444D(1) ([71])).

2. Accordingly, as Buss JA (as his Honour then was) summarised in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd:

   s 444D(1) is a general provision which applies to and binds all creditors of the company, but the deed of company arrangement will not be effective under s 444D(1) to bind all creditors if and to the extent that the deed concerns claims which are outside the limit prescribed by s 444D(1).[43]

   [43] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [65].

3. The plaintiffs challenged the application of s 444D(1) at both levels. First, they contended that they were not creditors of the relevant Quintis group companies at all. Second, they contended that, even if creditors, their deferral rights under the IMAs and the Leases were not and did not concern claims arising on or before 20 January 2018 (being the date specified in the QPE DOCA). For good measure, assuming lack of success on the earlier submissions, in a third contention the plaintiffs relied on s 444D(3). In that connection counsel for the plaintiffs sought to make something of the fact that in Brash Holdings Ltd v Katile Pty Ltd the Full Court had left entirely open the question of the extent to which the effect of s 444D(1) is limited by s 444D(3).[44]

   [44] Brash Holdings Ltd v Katile Pty Ltd (35); ts 45.

4. It is convenient to deal at the outset with the plaintiffs' third contention.

5. Section 444D(3) does not apply to the plaintiffs

6. In introducing the argument as to s 444D(3) counsel for the plaintiffs submitted that a DOCA may not be used to expropriate or destroy property rights without anything short of consent.[45] That goes too far. It is plain that certain debts and claims may be released by operation of s 444H and that may occur even though the creditor concerned did not vote in favour of the resolution that the company execute the DOCA. In any case s 444D(3) does not preserve property rights at large. Attention must be paid to the statutory language of s 444D(3). What it leaves unaffected by s 444D(1) are rights in relation to property that are enjoyed by an 'owner or lessor' of property.

   [45] ts 46.  See also ts 53.

7. Counsel for the plaintiffs then commenced the argument as to s 444D(3) by submitting that the provision 'cut down' the operation of[46] - and therefore was controlling of and overrode - s 444D(1). That may be accepted up to a point. However, it only does so as to 'rights that an owner or lessor of property has in relation to that property'.

   [46] Borrowing the phrase of Buss JA (as his Honour then was) in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [83].

8. Accordingly, attention must be directed to the phrase 'owner or lessor of property' and identification of the rights that such a person has in relation to the relevant property.

9. That was not the next step in the argument for the plaintiffs.  Instead reference was made to the definition of 'property' in s 9.  The definition refers to any legal or equitable estate or interest in real or personal property and includes a thing in action.  Counsel for the plaintiffs argued that the deferral rights were an incorporeal right of property or thing in action within s 9 and thus property.  Accordingly, on counsel's argument, the plaintiffs were owners of property and the deferral rights were rights as owner in relation to that property.

10. Additional so-called 'property' held by the plaintiffs was identified as to the Leases and the 2014 IMAs.  As to the Leases the plaintiffs hold a leasehold interest in the land the subject of the Leases; the Leases also expressly provide that, absent termination, the sandalwood trees are the property of the plaintiffs as investors (cl 1.21).  In the 2014 IMAs there is also a call option whereby, on termination for certain reasons, the plaintiffs as investors have a right to require the property the subject of the leased plaintiff to be sold to them (cl 5.3(d)).

11. I do not accept that s 444D(3) is to be applied in the way counsel for the plaintiffs suggests. In applying s 444D(3) it is incorrect to fasten on some interest which arguably meets the s 9 definition of 'property' and then contend that, as concerns the identified owner of that property, s 444D(1) does not affect rights in relation to that property (or, on the plaintiffs' argument, those property rights themselves). A simple illustration suffices to demonstrate the fallacy in the reasoning. A debt is property within the s 9 definition. The creditor is the person who owns the debt. But it cannot be thought that the rights of the creditor (as owner of the property constituted in the debt) in relation to the debt are unaffected by s 444D(1) due to the operation of s 444D(3). That would deprive s 444D(1) of meaningful operation and thwart fulfilment of the object of pt 5.3A as evinced in s 435A. Section 444D(3) cannot be analysed in the simple and mechanistic manner as suggested by counsel for the plaintiffs.

12. The error might be said to arise from including a debt or claim as relevant 'property'.  The s 9 definition only applies 'unless the contrary intention appears'.  That said, the applicability of the s 9 definition of property was a key plank in the argument presented by counsel for the plaintiffs.  And once it is accepted, as it must be, that the contrary intention appears and the definition is inapplicable, it becomes necessary to determine what 'property' is being referred to.  That, as I have earlier suggested, directs attention to the totality of the term 'owner or lessor of property' and identification of that person's rights in relation to the relevant property.

13. While to this point I have approached the application of s 444D(3) as a matter of principle, it is also the case that the plaintiffs' contention is inconsistent with authority. In Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd[47] it was contended that a right to future rent was a right in relation to leased property with the result that s 444D(3) limited the generality of s 444D(1). Branson J rejected that contention stating:

    … the construction of s 444D(3) for which the applicant contends is too wide. Although s 9 … defines 'property' to include a 'thing in action', the context in which the term is used in s 444D(3) suggests a narrower meaning. In my view a right in relation to leasehold property within the meaning of s 444D(3) is a right touching on the property itself such as the right of re-entry. It may be that it would also extend to the right to distrain for rent. I accept the submission made on behalf of the respondent that the rights in relation to property referred to in s 444D(3) are the same rights as those referred to in s 444F(4) and (5). This narrow use of the term 'property of the company' is, in my view, also reflected in ss 440F and 440G …[48]

    [47] Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391. This was the first instance decision to Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd.

    [48] Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (397).  The passage is approved in Henaford Pty Ltd v Strathfield Group Ltd [2009] NSWSC 539; (2009) 72 ACSR 240 [21] - [23].

14. I agree with and adopt her Honour's observations. Necessarily this means that, contrary to the plaintiffs' contention, the s 9 definition of 'property' is inapplicable for the purposes of s 444D(3). The meaning to be given to 'owner or lessor of property' and identification of the relevant rights in relation to that property which are unaffected by s 444D(1) must instead be considered in the context of pt 5.3A as a whole paying due regard to the object as stated in s 435A.

15. The relevant context includes s 444F(4), which is referred to in s 444D(3). Section 444F(4) deals with limiting the rights of an owner or lessor in relation to certain property. It provides:

    The Court may order the owner or lessor of property that is used or occupied by, or is in the possession of, the company not to take possession of the property or otherwise recover it.  (emphasis added)

16. By reason of s 444F(5) an order under s 444F(4) may only be made if the court is satisfied that:

    (a)for the owner or lessor to take possession of the property or otherwise recover it would have a material adverse effect on achieving the purposes of the deed; and

    (b)having regard to: 

    (i)the terms of the deed; and

    (ii)the terms of the order; and

(iii)any other relevant matter;

the interests of the owner or lessor will be adequately protected.

1. When s 444D(3) is read with s 444F(4) and (5) it is obvious that the reference to 'property' in s 444D(3) is not to property at large as defined in s 9. Rather, it is property of which another is 'owner or lessor' that 'is used or occupied by, or is in the possession of, the company'. It is dealing with property, either personal or real property, which is used by the company in its operations; for example, plant and equipment, machinery or leased premises. Predominantly it will be physical property; but it must be property of a character such that an owner or lessor may take possession or otherwise recover the property. The relevant rights which are unaffected by s 444D(1) due to the operation of s 444D(3) are extra-curial rights such as a right to re-take or recover possession of the owner's or lessor's property that is used or occupied by or is in the possession of the company.

2. Section 444D(3) should also be read in the context of various pt 5.3A provisions dealing with the rights of owners or lessors of property while a company is under administration.

3. In administration there are moratorium provisions providing for certain restrictions on the exercise of property rights of lessors and owners of property used or occupied by, or in the possession of, the company (s 440B).  There is an exception where recovery of the property began before the administration (s 441F).  However, by s 441H the court may limit the exception given to the moratorium. The statutory language in the provisions consistently refers to property used or occupied by, or in the possession of, the company.  There is also consistent reference to enforcement of a right, as owner or lessor, to 'take possession of' or 'otherwise recover' the property (see s 440B(3) items 3(b) and 4(b), s 441F(1) and s 441H(1)(a)).

4. There is no reason to suppose that the owner or lessor of property in s 444D(3) is any different to the owner or lessor of property in s 440B, s 441F and s 441H. In each case the reference is to the owner or lessor of property used or occupied by, or in the possession of, the company. In the case of s 444D(3) that is confirmed by s 444F(4) and (5).

5. The plaintiffs did not suggest that they were the owners or lessors of property used or occupied by, or in the possession of, the company. With the exception of the sandalwood trees - which are not used or occupied by, or in the possession of, SPL as landlord under the Lease ‑ no relevant property was identified. There was nothing that the plaintiffs may take possession of or otherwise recover. Nor did the plaintiffs identify any relevant rights in relation to the property that was referred to. For those reasons s 444D(3) does not apply. The plaintiffs' third contention must be rejected.

6. The plaintiffs are contingent creditors of SPL and Quintis in respect of claims for possible future contractual breach

7. The plaintiffs' first contention was that they were not bound by the QPE DOCA as they were not creditors of SPL or Quintis. In answer to that the Quintis group defendants pointed to the various obligations assumed by SPL and Quintis under the IMAs and the Leases. The Quintis group defendants said that the nature of the obligations meant that the plaintiffs were future contingent creditors of the companies and thus 'creditors' within s 444D(1) given the accepted meaning of the term.

8. It was common ground that Quintis and SPL had a number of ongoing contractual obligations to the plaintiffs under the IMAs and the Leases.

9. The nature of the obligations under the IMAs may be demonstrated by the 2014 IMAs.  Among other things Quintis, as investment manager under the IMAs, had an ongoing obligation to provide 'Performance Management Services' for the benefit of the plaintiffs (cl 1.3)[49].  These include (by cl 1.3(b)):[50]

   •planning, organising, coordinating and executing or supervising all activities necessary or desirable to assure proper land protection;

   •planning, organising, coordinating and executing or supervising all other property maintenance activities;

   •maintaining regular surveillance;

   •managing competing vegetation;

   •maintaining timely records of all harvest and forest management activities; and

   •managing all forestry harvesting and oil extraction activities.

   [49] As to the 2015 IMA and the 2016 IMA see cl 3.

   [50] As to the 2015 IMA and the 2016 IMA see cl 3(b).  While expressed in slightly different terms the 2015 IMA and the 2016 IMA contemplates the same sort of activities by way of Property Management Services.

10. By cl 4.1(a) of the 2014 IMAs the plaintiffs, as investor, agreed to pay the annual property management fee to Quintis, as investment manager, in consideration of Quintis performing the Property Management Services.  However, as has been seen, a deferral right was provided by cl 4.3.  (The relevant deferral provisions for the 2015 and 2016 IMAs are described in pars 16 to 17 above).

11. With the Leases, SPL (as lessor) covenanted that the plaintiffs (as investor lessee) would possess and enjoy the leased areas without any interruption or disturbance from the lessor (cl 1.27).  The plaintiffs were to pay rent (cl 1.7) and the Leases specifically noted that they were granted in consideration of the payment of the rent (cl 1.3).  But, as has been seen, a deferral right was granted by cl 1.8 of the Leases (pars 14, 18 and 20 above).

12. Senior counsel for the Quintis group defendants submitted that a right to sue for damages for any breach of an existing obligation was a claim for the purposes of s 553(1) and therefore s 444D(1). That was said to be the case even if the obligation had not been breached at the relevant date (although it was pointed out that here the breach was inevitable and had in fact transpired as to the IMAs.) The claim was said to be a 'future, contingent claim'. The claim was said to be a future claim as it would not arise until the future breach. The claim was said to be a contingent claim as it was dependant on a contingency, namely, the future breach of an existing contractual obligation.

13. There is a terminology issue with the Quintis group defendants' characterisation of the claim as a 'future, contingent claim'.

14. A future debt or claim is to be contrasted with a present debt or claim.  Thus a future debt is one which will become owing at a future time if the present state of affairs continues until then.[51]  For example, it will include future rent, instalments which will become due and payable and annuities.  By contrast it has been said that 'a contingent creditor, like an elephant, is rather easier to recognise than define'.[52]  Nevertheless the authorities accept that a contingent claim is one that is sourced in an existing obligation out of which, on the happening of a contingency which may or may not occur, there will be present liability to pay.[53]  For example it has been said:

    A contingent creditor is a person to whom a corporation owes an existing obligation out of which a liability on its part to pay a sum of money will arise in a future event, whether that event be one which must happen or only an event which may happen.[54]

    [51] Heesh v Baker [2008] NSWSC 711; (2008) 67 ACSR 192 [49].

    [52] Federal Commissioner of Taxation v Gosstray [1986] VR 876, 878.

    [53] Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455, 459, 461. By reason of various observations in Sons of Gwalia Ltd v Margaretic those observations remain good law for the purposes of s 553(1) and s 44D(1): BE Australia WD Pty Ltd (Subject to DOCA) v Sutton [90], [200] - [201].

    [54] Edwards v Attorney-General [2004] NSWCA 272; (2004) 60 NSWLR 557 [59].

15. The essential feature of a contingent debt or claim is 'its source in some existing obligation or state of affairs that may or may not mature into a present debt'.[55]

    [55] McDonald v Deputy Commissioner of Taxation [2005] NSWSC 2; (2005) 187 FLR 461 [40] (approved in Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [73]).

16. An illustration is provided by a guarantee.  A claim under a guarantee is a contingent claim and the principal creditor is a contingent creditor of the guarantor.  At the time of the execution of the guarantee the guarantor undertakes a contingent liability; the contingencies normally including default on the part of the principal debtor and the making of demand by the guarantor.[56]

    [56] Hawkins v Bank of China (1992) 26 NSWLR 562, 568.

17. There is thus a distinction between a future claim and a contingent claim.  Both are founded on a pre-existing legal obligation as at the relevant date.  However, a future claim will crystallise into a monetary liability at a future date whereas a contingent claim may or may not, depending on the contingency, crystallise into a monetary liability at a future date.[57]

    [57] Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [72].

18. Accordingly, the posited claim ought to be considered in terms of whether it is a contingent claim rather than whether it is a future, contingent claim.

19. At this stage it becomes necessary to refer to a number of the authorities I was referred to in the parties' written and oral submissions.  In doing so care must be taken.  In many of the relevant passages it is not immediately obvious whether the court was addressing whether there was a 'contingent claim' (thus also dealing with the status question as to whether the claimant was a creditor) or whether the court was addressing the temporal question whether the claim or the circumstances giving rise to the claim had arisen or occurred before the relevant date (meaning that the claim was admissible and the claimant was bound by the DOCA as concerns that claim).  The parties' submissions, particularly those of the plaintiffs, also conflated the two questions.

20. In many cases, however, the reason a claimant is not a contingent creditor also provides the reason or part of the reasons why no claim against the company had arisen by the relevant date.  An example of that is provided by Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd.[58]

    [58] Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1567 [63], [68] - [69].

1. In fact proceedings were not commenced until 15 February 2019.  But prior to the proceedings the plaintiffs' solicitors set out the plaintiffs' position in the correspondence of 7 February 2019.  Accordingly the delay was in the order of two months.

2. I do not assess that delay of being of a magnitude where it is appropriate, as a matter of discretion, to refuse the declaratory relief sought.  I am not satisfied that the plaintiffs' claim for declaratory relief should be refused on the ground of delay.

3. In any case, as the Quintis group defendants' written submissions acknowledged, mere delay without more is insufficient reason to withhold the discretionary declaratory relief as sought.  It could not be said that there was relevant acquiescence on the part of the plaintiffs.  At no time have the plaintiffs treated the purported extinguishment and release of the deferral rights under the QPE DOCA as being effective.  Nor is there even conduct that is arguably to that effect.  The Quintis group defendants refer to Mr Smith's submission of a proof of debt but that occurred at the outset of the administration and well before the QPE DOCA was proposed with its purported extinguishment and release of the deferral rights.  Accordingly, it is necessary to consider whether there has been prejudice to the defendants or others.

4. As to prejudice, senior counsel for the Quintis group defendants made no oral submissions asserting prejudice.  The highest that the Quintis group defendants' written submissions puts the case is that during the period of alleged delay the QPE DOCA has been terminated in relation to all of the Quintis group subsidiaries and fully effectuated in relation to all of the Quintis pooled entities other than Quintis.  There is a lack of affidavit evidence on the part of the Quintis group defendants to suggest that this occurred in reliance on and induced by the plaintiffs not taking proceedings to establish - or otherwise suggesting - that the deferral rights had not been extinguished and released as a result of the operation of the QPE DOCA.  It cannot be said, on the affidavit evidence, that any delay on the part of the plaintiffs caused the defendants or others to reasonably act to their detriment in effectuating the QPE DOCA in reliance on the delay.

5. The Quintis group defendants have not established that there is a discretionary reason based on delay to deny the plaintiffs' declaratory relief substantially in the terms as sought.

6. I am otherwise satisfied that a declaration should be made.  There is a substantial dispute between the parties as to whether the QPE DOCA is effective to extinguish and release the plaintiffs' deferral rights under the 2014, 2015 and 2016 IMAs and Leases.  It is appropriate that the court make a declaration as to the continued existence of the deferral rights to determine and bring an end to that controversy.

7. I am also prepared to provide limited injunctive relief.  It is appropriate to restrain SPL from purporting to terminate the Leases in reliance on the 1 February 2019 default notices.  There has been no default insofar as the deferral rights remain available and those rights have been exercised.  However, the terms of the injunctive relief as sought are wider and go beyond what is necessary to finally dispose of the substantive dispute that is presently before me.  In the exercise of discretion I would not order injunctive relief that goes any further than preventing termination of the Leases in reliance on the default notices as issued.  Among other things that is the only termination that is presently threatened.

8. For the avoidance of doubt nothing in these reasons considers ‑ and therefore nothing in these reasons affects - any other right Quintis or SPL may have to terminate the IMAs or the Leases.

Disposition: The application for orders under s 447A

1. The proposed s 447A orders were only sought in an ancillary way to support the primary claim for a declaration; they were sought to buttress the declaration as to the proper effect of s 444D.

2. Counsel for the plaintiffs submitted that the s 447A orders would nevertheless have utility as they would apply to the world at large while the declaration would only bind the parties to the proceedings. It was also said that s 447A orders would make cl 8.1 and cl 12.2 of the QPE DOCA accurate in their proper application so far as those clauses do not concern the plaintiffs.

3. An order of the type in par 3 of the amended originating process may bind the world at large; it purports to modify the terms of s 444D in its application to SPL, Quintis and Quintis Forestry. But an order in those terms goes well beyond what is necessary. The plaintiffs' complaint is as to the purported extinguishment and release of the deferral rights under the QPE DOCA. If it were appropriate to make s 447A orders I would not be prepared to make orders in terms of par 3. At the most I would consider orders that varied the terms of the QPE DOCA so that the deed reflected what it actually achieves as a matter of law.

4. Otherwise the proposed s 447A orders impact on the terms of the QPE DOCA. The QPE DOCA only binds the companies, their creditors and certain others such as the companies' officers and members. In the context of cl 8.1 and cl 12.2 the terms of the QPE DOCA, in the way in which they are sought to be modified, are only relevant to the plaintiffs, SPL and Quintis (not the world at large). But, self-evidently, a declaration of the type I would make will bind those parties. In those circumstances I am unable to identify any practical utility in making s 447A orders of the nature of those proposed in pars 2 and 4 of the amended originating process.

5. Where there is an absence of any practical utility I am not satisfied that the making of s 447A orders is necessary to better fulfil the object of pt 5.3A as found in s 435A of the Corporations Act 2001 (Cth). The provision of declaratory relief is all that is required to quell the current controversy between the plaintiffs, SPL and Quintis. I will not make any of the proposed alternative s 447A orders as specified in the amended originating process.

6. The defendants advanced numerous other contentions as to why the proposed s 447A orders should not be made. It was said that the proposed orders were beyond power (eg it was said that the proposed orders were simply declaratory, or alternatively, sought to deem someone who is a creditor not to be a creditor). It was also said that the proposed orders ought not to be made as a matter of discretion (eg delay and the effectuation of the QPE DOCA as to the Quintis pooled entities other than Quintis).

7. My conclusion that the only versions of the s 447A orders which are potentially available lack practical utility mean that it is unnecessary to consider those further arguments against the making of the proposed s 447A orders.

Conclusion and orders

1. The plaintiffs advanced a number of contentions in support of their primary position that the QPE DOCA's apparent extinguishment and release of their various deferral rights in the IMAs and the Leases is ineffective as a matter of law. I have accepted one of those contentions and rejected the others. The plaintiffs' deferral rights under the 2014, 2015 and 2016 IMAs and Leases were not, and did not concern, claims of the plaintiffs as creditors within s 444D(1) of the Corporations Act 2001 (Cth). Accordingly, the purported extinguishment and release of the deferral rights by cl 8.1 and cl 12.2 of the QPE DOCA does not bind the plaintiffs.

2. It is appropriate that declaratory relief issue to give effect to that conclusion together with limited injunctive relief. However, the additional relief that the plaintiffs seek in the form of orders pursuant to s 447A of the Corporations Act 2001 (Cth) either goes too far or is without practical utility. I am not prepared to make any of the alternative proposed s 447A orders.

3. Subject to hearing from counsel as to the precise terms of the orders, I will make orders to the effect that:

   (1)The court declares that the deed of company arrangement dated 29 June 2018 executed by, among others, the first and second defendants was ineffective at law to extinguish and release the plaintiffs' rights to defer the payment of:

   (a)property management fees in accordance with the provisions of the various investment management agreements as specified in the Schedule [the Schedule should identify the various IMAs and the relevant provisions];

   (b)rent in accordance with the provisions of the various leases (Leases) as specified in the Schedule [the Schedule should identify the various Leases and the relevant provisions].

   (2)The first defendant, by itself and its officers, servants, agents or otherwise, is restrained from terminating the Leases in reliance on the default notices dated 1 February 2019 that are copied as attachment 'TS-25' to the affidavit of Travis Royce Smith sworn 15 February 2019 and filed herein.

   (3)The application is otherwise dismissed.

4. I will hear from the parties as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

EP
Research Associate/Orderly to Justice Vaughan

5 APRIL 2019

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION: SMITH -v- SANDALWOOD PROPERTIES LTD [2019] WASC 109 (S)

CORAM:   VAUGHAN J

HEARD:   5 APRIL 2019

DELIVERED          :   5 APRIL 2019

PUBLISHED           :   12 APRIL 2019

FILE NO/S:   COR 37 of 2019

BETWEEN:   TRAVIS ROYCE SMITH

First Plaintiff

TRAVIS ROYCE SMITH as trustee of the SMITH INVESTMENT TRUST

Second Plaintiff

JAMIE ELIZABETH CATHCART

Third Plaintiff

AND

SANDALWOOD PROPERTIES LTD

First Defendant

QUINTIS LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT)

Second Defendant

QUINTIS FORESTRY LTD

Third Defendant

QUINTIS LEASING PTY LTD

ARWON FINANCE PTY LTD

MT ROMANCE HOLDINGS PTY LTD

MT ROMANCE AUSTRALIA PTY LTD

AUSTRALIAN SANDALWOOD OIL CO PTY LTD

Fourth Defendants

RICHARD SCOTT TUCKER

SCOTT DAVID HARRY LANGDON

JOHN ALLAN BUMBAK

Fifth Defendants

JASON PRESTON

SHAUN ROBERT FRASER

ROBERT CONRY BRAUER

Sixth Defendants

FIELDPARK PTY LTD

QUINTIS (AUSTRALIA) PTY LTD

Seventh Defendants

Catchwords:

Costs – Application to lift the scale allowance under s 280(2)(b) Legal Profession Act 2008 (WA) - Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 scale item 11 - Whether the maximum amount allowable under the scale item is inadequate - Turns on own facts

Legislation:

Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 item 11
Legal Profession Act 2008 (WA), s 280

Result:

Costs orders made

Category:    B

Representation:

Counsel:

First Plaintiff	:	A J Papamatheos & C Spencer
Second Plaintiff	:	A J Papamatheos & C Spencer
Third Plaintiff	:	A J Papamatheos & C Spencer
First Defendant	:	F Maher
Second Defendant	:	P Edgar
Third Defendant	:	F Maher
Fourth Defendants	:	F Maher
Fifth Defendants	:	P Edgar
Sixth Defendants	:	No appearance
Seventh Defendants	:	F Maher

Solicitors:

First Plaintiff	:	Tottle Partners
Second Plaintiff	:	Tottle Partners
Third Plaintiff	:	Tottle Partners
First Defendant	:	Allens
Second Defendant	:	Lavan
Third Defendant	:	Allens
Fourth Defendants	:	Allens
Fifth Defendants	:	Lavan
Sixth Defendants	:	No appearance
Seventh Defendants	:	Allens

Case(s) referred to in decision(s):

Blatchford v Laine [2018] WASC 207 (S)

VAUGHAN J:

(These reasons were delivered orally. They have been edited to correct matters of grammar and infelicity of expression.)

Costs as against the sixth defendants

1. Following the delivery of judgment this morning, I have heard submissions from the parties as to costs. 

2. It is convenient to deal with the costs issues separately as between the plaintiffs and the Quintis group defendants, on the one hand, and as between the plaintiffs and the second and fifth defendants, on the other hand. 

3. However, no party suggested that any costs order should be made as against the sixth defendants.  Accordingly, as to the sixth defendants, the order will be that there is no order as to costs.

Costs as between the plaintiffs and the Quintis group defendants

1. I turn, first, to costs as between the plaintiffs and the Quintis group defendants (ie the first, third, fourth and seventh defendants). 

2. Here there are two issues: 

   •first, whether or not the court should lift the scale allowance on taxation; and

   •second, whether or not the plaintiffs should have the whole of their costs on the originating process. 

3. In addition to the originating process, the plaintiffs made an application for an interlocutory injunction by a chamber summons dated 18 February 2019.  The costs on that chamber summons must be treated separately.  No party suggested that the plaintiffs should not have their costs on the chamber summons.  Accordingly, there will be an order that the first, third, fourth and seventh defendants pay the plaintiffs' costs on the chamber summons dated 19 February 2018. 

4. As to the two disputed matters, first, as already mentioned, the plaintiffs make an application to lift the scale allowance on taxation, that is, the plaintiffs make an application under s 280(2)(b) of the Legal Profession Act 2008 (WA). This is as to the costs of the originating process itself as opposed to the chamber summons for the interlocutory injunction.

5. The relevant item of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2018 is item 11.  That deals with originating motions and originating process. The scale allowance where counsel alone is briefed as distinct from senior counsel with or without a second counsel is $37,290. 

6. The allowance of $37,290 provides for:

   •two days preparation;

   •one day hearing; and

   •50 hours preparation of the case.

7. The hearing before me occupied slightly less than half a day. 

8. I examined the numerous authorities which have considered the application of s 280(2) in Blatchford v Laine [2018] WASC 207 (S). I distilled the relevant principles at pars 35 to 53. I will not repeat all of those. However, it is useful to note some matters.

9. At pars 40 to 41 I stated:

   Numerous cases have adopted the approach to s 280(2) first expressed by Martin CJ in Heartlink Ltd v Jones as Liquidator of HL Diagnostics Proprietary Limited (in liq).  There are two questions to be considered: 

   (1)First, is the maximum amount allowable under the scale item inadequate in the sense that there is a fairly arguable case that on taxation costs may properly be allowed in an amount greater than the limit imposed by the costs determination? 

   (2)Second, does the inadequacy of the costs allowable under the cost determination arise because of the unusual difficulty, complexity or importance of the matter?  (This requires that there be a causal connection between the unusual difficulty, complexity or importance of the matter and the inadequacy of the costs allowable under the relevant cost determination.) 

   The first enquiry does not necessitate that the court determine what amount should be allowed on taxation. That is a matter for the taxing officer, not the court. In considering an application under s 280(2) the question is only whether there is a 'fairly arguable' case that a greater amount should be allowed than that which is allowable under the relevant costs determination. (citations omitted)

10. At pars 43 to 45 I stated:

    … the court is in a position to form the opinions required under s 280(2) as matters of impression, rather than science or mathematics, when it has heard the matter and is familiar with the way in which the case was conducted and the issues were litigated. While the court may be assisted by evidence as to the time spent and fees charged, the questions are quintessentially matters of impression rather than of detailed evaluation, precision or science. In particular, the assessment of whether there is 'unusual difficulty, complexity or importance' is essentially a value judgment taking into account the court's experience of the usual run of civil cases.

    … as to the first question, a 'fairly arguable' case will not be established merely because a party has incurred greater costs than those allowable under the relevant costs determination. 

    However, depending on the case, it may be relevant that a party has applied significantly more resources for the various steps in the litigation than those contemplated under the relevant costs determination.  Viewed in the context of the difficulty, complexity or importance of the matter, that circumstance may sustain the conclusion that there is a fairly arguable case that those items and the costs allowable in respect of the matter is inadequate. (citations omitted)

11. There is no evidence before me as to the time spent and fees charged by the plaintiffs' legal representatives. 

12. It is, however, possible to gauge whether the scale item is inadequate by reference to the work product.  In this regard, I note the following:

    (1)The matter proceeded by originating process; there was no pleading.

    (2)The plaintiffs filed two substantive affidavits.  The first is 790 pages; but only 11 pages of that involved detailed drafted evidence.  The second affidavit is 52 pages.  Again, the bulk is attachments.  The drafted portion is only four pages. 

    (3)There were two directions hearings of relatively short duration. 

    (4)The plaintiffs filed two sets of submissions.  The initial submissions were 23 pages and the reply submissions were 16 pages.

    (5)The hearing itself, as I have already mentioned, was somewhat less than half a day. 

13. There were a number of materials that the plaintiffs had to respond to. But, in essence, those are taken into account in having regard to the extent of the reply submissions and the hearing. Indeed, doing so somewhat over-estimates the work that ought to be compensated for.  As will be seen in due course - when I address the costs position as between the plaintiffs and the second and fifth defendants - I am of the opinion that the plaintiffs should pay the second and fifth defendants' costs.  Some of the work done in the reply submissions involves responding to the second and fifth defendants' submissions. 

14. Viewing those materials, the conduct of the case as a whole, and firmly based on my knowledge of the way in which the case was conducted and the issues litigated, I consider that the plaintiffs have not satisfied the first limb of the test under s 280(2).

15. I am entitled to approach the question as one of impression rather than detailed evaluation, precision or science. My impression, based on my familiarity with the conduct of the case and the way in which the issues were litigated, is that the maximum allowance of $37,290 is not inadequate as it is not fairly arguable that the costs would, on a taxation without limits, tax out in an amount greater than the limit.  I am satisfied that the maximum amount allowed under the scale is adequate having regard to the work product and the issues that were litigated before me. 

16. In those circumstances, I would not make an order under s 280(2) of the Legal Profession Act 2008 (WA).

17. Otherwise there is a contest as to whether the Quintis group defendants ought to pay all of the plaintiffs' costs. 

18. The plaintiffs sought that they be compensated for all costs, saying that they were successful and costs should follow the event.  The Quintis group defendants say that in substance five issues were litigated, three on which they were successful, and that accordingly the plaintiffs should have only 50% of their costs. 

1. I am satisfied that the plaintiffs failed on a number of significant issues. The plaintiffs failed on whether or not they were creditors. The plaintiffs failed on the proper scope and application of s 444D(3) of the Corporations Act 2001 (Cth). Importantly, the plaintiffs failed on whether or not an order should be made under s 447A of the Corporations Act 2001 (Cth). There was no need for those issues to be litigated.

2. It is incumbent on all litigants in this court to confine their issues to those which ought to be litigated.  In my view, so far as the plaintiffs have been unsuccessful on those issues, that should be reflected in the costs order that is made.  However, 50% is too much of a discount. 

3. I accept that all of the affidavits were still required with respect to the issues on which the plaintiffs were successful.  In the exercise of discretion, having regard to the issues on which the plaintiffs were unsuccessful, I will only allow them 70% of their costs on the originating process. 

4. Accordingly, as between the plaintiffs and the Quintis group defendants (ie the first, third, fourth and seventh defendants), the order will be that the first, third, fourth and seventh defendants pay 70% of the plaintiffs' costs on the originating process. 

Costs as between the plaintiffs and the second and fifth defendants

1. I turn then to the question of costs as between the plaintiffs and the second and fifth defendants. 

2. The plaintiffs accept liability for costs to the second and fifth defendants to 19 February 2019, but say thereafter there should be no order as to costs.  The second and fifth defendants seek their costs of the proceedings in their entirety with a lifting of the scale. The second and fifth defendants also seek indemnity costs as to the chamber summons for the interlocutory injunction.  Separately, the Quintis group defendants say that all the defendants - including the second and fifth defendants - should pay the plaintiffs' costs. 

3. I reject the Quintis group defendants' position. The second and fifth defendants took a measured position in relation to the plaintiffs' application. The second and fifth defendants only appeared to answer the s 447A point. When at the hearing, in the interchange between bar and bench, it became apparent that the s 447A orders were not pursued on a standalone basis, counsel for the second and fifth defendants quite properly informed the court that the second and fifth defendants would abide the outcome. In those circumstances it is, in my view, not just that the second and fifth defendants should share in the Quintis group defendants' cost liability.

4. The events as I have just recounted are also relevant to the costs position as between the plaintiffs and the second and fifth defendants. 

5. Had the position advanced at the hearing been made obvious earlier, it is, in my view, likely that the second and fifth defendants would have abided from the outset. Little or no costs would have been incurred. In those circumstances, it is just that the plaintiffs be responsible for all of the second and fifth defendants' costs of the proceedings. I note also that the second and fifth defendants were, in fact, successful to the extent that they made submissions in opposition to the application. I have refused the plaintiffs' application for the s 447A orders.

6. However, I do not accept that the second and fifth defendants should have indemnity costs on the chamber summons for the interlocutory injunction.  There is, in my view, no such misconduct on the part of the plaintiffs as would warrant the court's award of indemnity costs.

7. Nor, as to the costs on the originating process, is it appropriate to make an order under s 280(2) lifting the scale allowance. Indeed, the second and fifth defendants' position as to lifting the scale under s 280(2) is less meritorious than that of the plaintiffs'. It is quite evident, based on the work involved, that the second and fifth defendants had less to do. In any case I am not satisfied in terms of the test that the maximum allowable under the scale item is inadequate in the sense that there is a fairly arguable case that on taxation costs may properly be allowed in an amount greater than $37,290.

8. Accordingly, as between the plaintiffs and the second and fifth defendants, I will order that the plaintiffs pay the second and fifth defendants' costs of the proceeding including their costs on the chamber summons for an interlocutory injunction dated 18 February 2019. 

Conclusion and orders

1. I will hear from counsel as to the orders required to give effect to these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

EP
Research Associate/Orderly to Justice Vaughan

12 APRIL 2019