Facts

The Plaintiff provided security under its building contract with the Defendant, part of which was a bank guarantee entitling the Defendant to deduct retention monies. On certification of practical completion, the Defendant’s entitlement to security reduced to 50% and it had to release security.

The Defendant provided the Bank with a fixed and floating charge over its assets including the security. The Plaintiff, the Defendant and the Bank executed a deed entitling the bank to security provided by the Plaintiff.

The Plaintiff obtained an injunction restraining the Defendant from calling on the bank guarantee.

Practical completion was reached. The Plaintiff obtained an adjudication under the Building & Construction Security of Payments Act.

The Defendant was placed into liquidation, and the Plaintiff submitted the adjudication amount as a proof of debt.

The liquidators report stated it was unclear if a surplus was available to the Plaintiff after paying debt to the Bank. There was no evidence that the Bank was a creditor of the Defendant.

The Plaintiff sought leave to continue proceedings against the Defendant in liquidation and to amend its summons.

The purpose of s 500 of the Corporations Act prohibition is to avoid a multiplicity of proceedings when the appropriate procedure is to lodge a proof of debt in the liquidation.

Onus is on the claimant to show its claim has a serious foundation and gives rise to a serious dispute. Relevant factors include:

• Degree of recollection of Corporations Act and issues involved;
• Prospects that a proof of debt will be rejected; and
• Stage of proceedings: [28].

Outcome

The relief sought by the Plaintiff was not capable of being dealt with by the proof of debt procedure. It was self evident it would be refused and involved a serious issue to be tried: [30].

Leave for the plaintiff to continue the proceedings was granted. No step to enforce the judgment is to be taken without the Court’s leave.

Relevant paragraphs of Ford

[26.070], [26.071], [27.080], [27.126], [27.440], [27.450], [27.590]

Facts

The Plaintiffs sought a declaration that FEAP, the First Defendant, was the lessee of the Third, Fourth and Fifth plaintiffs’ land and had repudiated or otherwise breached essential terms of the leases granted by these plaintiffs.  The Plaintiffs also sought a direction that they would be justified in accepting the First Defendant’s repudiation and terminating or forfeiting the leases.

Since oral evidence was contradictory, the court relied on written agreements to identify the lessee of Tasmanian Plantation. The court justified this reliance on written documents on the grounds that it was satisfied that:

• the written agreements were not a sham;
• the agreements were not executed by the parties in error; and
• there had been no agreement that the Third Plaintiff would cease to be a lessee

It was held that the Fourth Plaintiff had leased land to the Third Plaintiff who subsequently sublet the land to the First Defendant. There was no evidence of the Fifth Defendant’s lessee.

The First Defendant did not indicate it would not perform its lease obligations.

The First Defendant claimed it had a right of set-off against the rent. It made this claim on the basis of a letter provided by Third Plaintiff, which enabled the First Defendant to meet its ASIC regulations regarding funding. The Third Plaintiff agreed to provide funding as requested. The agreement was terminable with one month’s notice. The First Defendant requested the funds.

The First Defendant’s consideration was continuing to trade: [37].

The ability to terminate the agreement without ASIC approval did not invalidate it. The Third Plaintiff was thus indebted to the First Defendant.

It is possible in equity to set off a cross demand against rent. However the equity must impeach the title to the legal demand, i.e. go to the very foundation of the landlord’s claim: [42].

Impeachment existed as the transactions were so closely related they could be seen as one. The letter enabled the First Defendant to meet its financial obligations including paying rent: [45].

A contract can exclude set-off by clear terms or implication: [46].

The lease provided rent was to be paid without any deductions whatsoever. “Deduction” does not include a set-off conferred by operation of the law: [48].

Outcome

The First Defendant has the right to set-off the amount due under the letter against the rent owed to the Third Plaintiff.

If incorrect about set-off, common law principles of termination for repudiation apply to leases. Mere non-payment of rent is rarely sufficient to found repudiation as it does not convey to the reasonable person the intent to disavow the lease: [51].

The lessor must establish that the lessee is wholly and finally disabled from performing the contract. In this case, there was no evidence of this.

If requested, the Court would declare that the Third Plaintiff is lessee of the Fourth Plaintiff’s land which was sublet to First Defendant.

There was no repudiation but the Court will direct that receivers are justified in causing the Third Plaintiff to exercise any right under leases based on First Defendant’s failure to pay rent.

Relevant paragraphs of Ford

[27.182]

Facts

Mr Furnari, who had control of Main Roads Group (the Company) prior to it entering into liquidation, applied for a review of the decision of a Registrar with respect to a costs order made against him in favour of the liquidator pursuant to s 35A of the Federal Court of Australia Act 1976 (Cth).

Mr Furnari claimed legal professional privilege over documents produced by Mr Simmonds, an examinee summoned by the liquidator under s 596B of the Corporations Act 2001 (Cth). He was successful only to a limited extent and only after significant delay on his part in complying with procedural steps.

At first instance, a costs order was made against Mr Furnari such that he was to pay 60% of the liquidator’s costs of the privilege dispute.

Outcome

On review, it was found that Mr Furnari’s intervention in the examination of Mr Simmonds was, in effect, litigation between Mr Furnari and the liquidator before a judicial officer with power to resolve the dispute: [18]. On that basis, the ordinary costs rules should apply: [19].

His Honour relied upon the one decision that he could find on point, being Re Lutscher; Ex parte Waddell (1877) LR 6 Ch D 32 in which the Court of Appeal in dicta found that during the examination of a bankrupt, litigation could arise between the trustee and the examinee and the usual costs orders would apply: [20].

The review was made on the facts of this particular case: Mr Furnari had caused delay and costs to be incurred ([22]), the hearing took longer because Mr Furnari did not provide a detailed outline of his claim for privilege ([23]), and the liquidator had been substantially successful ([24]).

The decision may also be of limited use in relation to His Honour’s review of case law regarding awarding costs to examinees ([11], [15]-[16]) and costs for liquidators where examinees fail to attend ([13]-[14]), although these were not relevant to the decision made in this case.

Relevant paragraphs of Ford

[3.330], [27.170.1]

Facts

The decision concerned an application by unit-holders in a trust fund for declarations regarding the interpretation of the trust deed. The fund was a registered managed investment scheme and was therefore regulated by the Corporations Act 2001 (Cth). The relevant clauses dealt with redemption of units.

Outcome

Section 601GA of the Act provides, inter alia, that if members are to have the right to withdraw from the fund when it is illiquid, the mechanisms for doing so must be specified in the Constitution (that is, the trust deed). No such mechanism was set out in the trust deed. Therefore, the rights to withdraw that were specified in the trust deed could only be exercised when the trust was liquid (s 601GA(4)).

The plaintiffs argued that s 601KA(3) merely suspended the right to redeem until the fund was liquid. The Court disagreed, stating that the trust deed did not allow for redemption of units other than on the dates specified in the relevant clause (clause 20.4; see [41]-[42]). Further on this point, s 601KA(4) provides that a registered scheme is liquid if its liquid assets account for at least 80% of the value of the scheme property. However, it would be impractical to calculate this on a daily basis without a daily valuation of the entirety of the scheme property. It would not, therefore, be possible to know on what day redemption should occur aside from the dates specified in the trust deed.

In obiter the Court stated that while it was not necessary to determine in this case, it appeared that as a matter of principle the constitution of a managed investment scheme should be interpreted in accordance with the general principles of construction of articles of association of a company though the surrounding circumstances might be more limited than in the case of commercial contracts: [36]-[37]. Nonetheless, comments throughout the later part of the judgment show consideration of this interpretative method but note that no different result would occur: for example, [40] and [43].

Relevant paragraphs of Ford

[22.505], [22.507]

Facts

This matter included two proceedings with the same applicant but two different respondents. In each, a statutory demand had been served by the relevant respondent on the applicant on 21 September 2010.

In each proceeding, there was a preliminary question as to whether the affidavit filed with each originating application (the affidavit) supported the application, as required by s 459G(3)(a) of the Corporations Act: at [3].

The affidavit asserted the deponent's belief that there was a genuine dispute as to the amount of the debt in relation to each statutory demand: at [27]. This belief was said to be on the basis of reasons set out in the affidavit.

Mullins J referred to the authorities, particularly Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, 459 (Graywinter), and noted that the Court would not have jurisdiction to set aside the statutory demand if the affidavit purported to comply with s 459G(3)(a) of the Corporations Act merely stated that there was a genuine dispute as to the debt – it was necessary for the affidavit to disclose facts to support that assertion: at [29]–[30].

Her Honour found that the affidavit "sufficiently asserted the matters that relate[d] to" one ground of dispute such that it satisfied s 459G(3)(a) of the Corporations Act by virtue of the test in Graywinter: at [34]. In order to make that finding, her Honour relied on an inference drawn from exhibits and assertions in the affidavit that the deponent had the authority to make the assertions he made, even though he did not give explicit evidence of that authority.

Her Honour found that the affidavit did not satisfy s 459G(3)(a) of the Corporations Act in relation to the other ground on which the affidavit asserted that there was a genuine dispute as to the debt, as there was no evidence to the terms of the agreement asserted in that regard: at [35].

Mullins J was then required to consider whether there was a genuine dispute as to the debts the subject of the statutory demands: at [4].

Her Honour outlined the evidence and then noted that the role of the court in determining an application to set aside a statutory demand is to determine whether there is a genuine dispute as to the debt, not to decide the dispute itself: at [53].

Outcome

Her Honour held that there was a genuine dispute (at [56]) as to each debt for a number of reasons, including the lack of correspondence between each invoice and its respective consultancy agreement and the applicant's denial as to the provision of services by the respondents (at [54]), and that, although the applicant's conduct was such that it "should not, in the normal course, be rewarded", the respondents had not made a clear case for payment of the debts (at [55]).

Relevant paragraphs of Ford

[27.062], [27.063], [27.066]

Facts

The decision concerns an application to prevent funds paid into a solicitors’ trust account by a company from being paid out to the second defendant. Ordinary principles were applied by the Court: the plaintiff must establish a serious question to be tried and the balance of convenience and balance of justice favour granting relief rather than withholding relief: [5].

The plaintiff held 26.6% of shares with an option to increase to 50%. The second defendant (the CEO and a director of the company) and his wife held 68% of the shares.

The plaintiff relied upon s 233(1)(c), (i) and (j) of the Corporations Act 2001 (Cth) and alleged breaches of directors’ duties (ss180, 181 and 182).

The company was in immediate need of the funds in the trust account. The second defendant also had an immediate need for a portion of the funds to complete a purchase of a property in the name of CFM with whom the company had a service agreement entirely unrelated to the purchase of the property. The payments were justified by the second defendant as being payments in advance, though the Court held that CFM was not entitled to such payments in advance: [30]. The Board of the company passed a resolution purporting to ratify the payment. The second defendant alleged that in bringing the application the plaintiff was attempting to take some form of commercial advantage of the second defendant’s situation, but no evidence was in support of this and on that basis the Court rejected this argument.

The second defendant’s need for funds was purely as a result of his own actions and was unrelated to the company’s business.

Outcome

The injunction was granted with the usual undertakings by the plaintiff.

Relevant paragraphs of Ford

[7.427], [10.071], [11.275], [11.450], [11.460], [11.490], [20.170], [27.094], [27.550]

Facts

The Administrators of certain managed investment schemes sought a direction from the Court pursuant to ss 447A and 447D of the Corporations Act 2001 (Cth) that they may properly and justifiably enter into, and give effect to, a deed facilitating the harvest of fruit crops associated with certain managed investment schemes (“the Crop Deed”): [1] and [6].

The defendants opposed the application to enter the Crop Deed: [5].

A possible dispute existed between the growers of the fruit and the defendants regarding the ownership of the fruit crop: [13].

Outcome

A direction allowing the Administrator to enter into the Crop Deed was made on the basis that it was reasonable and justified to do so [17] because:

• the harvest and sale of the fruit crop was unlikely if the Crop Deed was not entered into, in which case the crop would perish without commercial exploitation: [15], and

• the interests of the competing claimants are adequately protected by the proposal that the net balance of the proceeds of the fruit crop sale after meeting costs, if any, be held on trust pending determination as to entitlement: [16].

A further order was made under s 447A(1) indemnifying the Administrators against personal

liability for any debts incurred under the Crop Deed.

Such an order was appropriate as it permitted the Administrators to make the commercial decision of what is in the best interests of the company's creditors uninfluenced by concerns of personal liability: [21].

Finally, orders were also made which provided for a lien over the trust fund and for a transparent

mechanism for the distribution of the proceeds of the sale agreement, subject to certain conditions: [22] and [26].

Relevant paragraphs of Ford

[26.030] and [26.171]

Facts

For s 459C(2)(a) of the Corporations Act 2001 (Cth) to require the Court to presume that a company is insolvent as a result of its failure to comply with a statutory demand, the applicant ought to have filed an application for the winding up in insolvency of the company within three months of the company’s failure to comply with the statutory demand: [5].

The applicant filed such an application three months and one day from the date on which the respondent failed (as defined by s 459F) to comply with a statutory demand: [3].

Outcome

The Court should exercise its discretion under s 467(1)(c) of the Corporations Act 2001 (Cth) and grant the application in circumstances where:

• the application was filed only one day beyond the date by when the Court would have been required to presume the respondent’s insolvency,
• the respondent has not disputed the applicant’s claims, and
• it is clear that the respondent is, in fact, insolvent: [7].

Relevant paragraphs of Ford

[27.060], [27.094] and [27.110]