Crofts v Multisport Concepts Pty Ltd (in liq) [2019] QCA 26

SUPREME COURT OF QUEENSLAND CITATION: Crofts v Multisport Concepts Pty Ltd (in liq) [2019] QCA 26 PARTIES: GEORGE ANDREW CROFTS (appellant) v MULTISPORT CONCEPTS PTY LTD (IN LIQUIDATION) ACN 147 092 073 (respondent) FILE NO/S: Appeal No 9946 of 2018 DC No 59 of 2017 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: District Court at Brisbane – Unreported, 17 August 2018 (Koppenol DCJ) DELIVERED ON: 22 February 2019 DELIVERED AT: Brisbane HEARING DATE: 18 February 2019 JUDGES: Fraser and Gotterson JJA and Burns J ORDERS: 1. Appeal dismissed. 2. The appellant is to pay the respondent’s costs of the appeal on the standard basis. CATCHWORDS: DEEDS – COVENANTS – GENERALLY – where the appellant entered into a deed of covenant and assurance for the purpose of complying with licensing requirements of the Queensland Building Services Authority – where clause 2 of that deed provided that in the event the respondent is wound up the appellant would, on written demand by the respondent, pay the Defined Amount to the respondent – where the Defined Amount is defined to mean the amount as stated in an independent review report – where the appellant contends that the second sentence in the definition of Defined Amount acts as a qualification so that the Defined Amount should instead be calculated according to the true financial position of the respondent – whether the learned primary judge erred in construing the deed PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL – SETTING ASIDE – where the respondent sought summary judgment against the appellant for payment of the Defined Amount following the winding up of the respondent – where appellant contended -- 1 of 5 -- 2 a trial was necessary to determine the Defined Amount under the Deed – whether the learned primary judge erred in finding there was no triable issue COUNSEL: A I O’Brien for the appellant M A Taylor for the respondent SOLICITORS: Small Myers Hughes Lawyers for the appellant Dentons Australia Pty Ltd for the respondent [1] FRASER JA: I agree with the reasons for judgment of Gotterson JA and the orders proposed by his Honour. [2] GOTTERSON JA: The appellant, George Andrew Crofts, executed a Deed of Covenant and Assurance dated 15 December 2011 (“the Deed”).1 He did so as Covenantor. The others parties to the deed are Multisport Concepts Pty Ltd, as Licensee, and The Queensland Building Services Authority (“the Authority”), now known as the Queensland Building and Construction Commission. The Deed is in a form approved under the Queensland Building Services Authority Act 1991 (“the Act”), namely, Form 6-Version 4. [3] Clause 2(a)(i) of the Deed provides that if the winding up of the Licensee begins under the Corporations Law, the Covenantor shall, upon a written demand by the Licensee, pay the Defined Amount to the Licensee. A winding up of Multisport Concepts Pty Ltd began on 2 November 2015 whereupon liquidators were appointed for it. The winding up was initiated by the appellant who was then a director of it. [4] On 12 February 2016, the liquidators, on behalf of Multisport Concepts Pty Ltd (in liquidation), made a demand in writing upon the appellant that he, as Covenantor, pay to the company the amount of $170,000 by 4 pm on 26 February 2016.2 The demand asserted that the amount that was payable to the company under clause 2(a)(i) as the “Defined Amount”, was $170,000. No part of the amount demanded was paid. [5] Multisport Concepts Pty Ltd (in liquidation) is the respondent to this appeal. On 11 January 2017, it commenced proceedings in the District Court at Brisbane by way of claim and statement of claim against the appellant.3 It duly applied for summary judgment.4 The application was heard on 17 August 2018. At the conclusion of the hearing and after the delivery of short reasons, judgment was given in the respondent’s favour in the sum of $193,613.99, being the sum of $170,000 together with interest thereon of $23,613.99 from 27 February 2016. The appellant was ordered to pay the respondent’s costs of the application on the standard basis.5 [6] On 14 September 2018, the appellant filed a notice of appeal in this Court against the judgment.6 Provisions of the Deed and evidence before the applications judge [7] The Deed recites that the Licensee is a licensee under, or an applicant for, a licence under the Act which authorises it to carry out or supervise specified building work; 1 AB47-60. 2 AB66-67. 3 AB9-10. 4 AB17-18. 5 AB8. 6 AB1-3. -- 2 of 5 -- 3 that as a condition of the renewal or grant of a licence, the Licensee must comply with the Queensland Building Services Board’s policy “Financial Requirements for Licensing” in relation to, among other things, “a prescribed level or amount of net tangible assets”; and that the Authority is responsible for compliance by licensees with the policy.7 [8] Significantly, the Deed also recites that the Covenantor has requested the Licensee to apply for a licence or to comply with its licence so as to enable continuance thereof; that the Licensee has agreed to do so;8 and that the Deed is entered into to give effect to that agreement and also “for the purpose of enabling the Licensee to comply with the Financial Requirements for Licensing”.9 [9] I have already referred to the terms of clause 2(a). It requires payment of the Defined Amount. That term is defined in clause 1.1 of the Deed to mean: “… the amount determined pursuant to the Financial Requirements for Licensing, as being the amount assured by the Covenantor to the Licensee by Deed of Covenant and Assurance, as stated in the Independent Review Report or Audit Report provided to the Authority from time to time. The amount is the difference between the Net Tangible Assets held by the Licensee and the Net Tangible Assets required for the Licensee’s Allowable Annual Turnover.” [10] Evidence adduced by the respondent before the applications judge proved that on about 16 November 2013, Mr AM Esler, chartered accountant, produced an Independent Review Report of the affairs of Multisport Concepts Pty Ltd.10 The report was in the Approved Form 1-Version 6. That form was Attachment 1 to the “Financial Requirements for Licensing” policy document.11 [11] The report was addressed to the Authority. Multisport Concepts Pty Ltd duly submitted it to the Authority. It contained statements by Mr Esler that he was appropriately qualified to complete an Independent Review Report; that he had performed a review of financial information of the company against “the financial criteria set out below”; and that he had applied all relevant Australian Accounting and Auditing Standards. [12] Under the heading “Financial Information”, Mr Esler provided amounts for the Allowable Annual Turnover, the Net Tangible Assets and the current assets to current liabilities ratio for the company. The method for calculation of the ratio was set out in a Calculation Sheet that formed part of the Approved Form 1-Version 6. Importantly, under this heading, Mr Esler stated that the “Defined Amount” was $170,000. [13] In opposing the application, the appellant relied upon an affidavit sworn by him on 12 August 2018 to which were exhibited the financial statements for Multisport Concepts Pty Ltd for the year ended 30 June 2013. The appellant contended that, on the basis of figures in those statements, the Net Tangible Assets had been understated in the report by Mr Esler. The understatement had led to an error in the calculation of the Defined Amount by him. According to the appellant, the correct calculation was $108,817.12 7 Recitals A, B, C and D. 8 Recital E. 9 Recital F. 10 Affidavit MA Owen sworn 17 July 2018 paragraph 10, Exhibit “MAO-5”; AB61-65. 11 AB116-118. 12 Affidavit of GA Crofts sworn 12 August 2018 paragraph 23; AB70-71. -- 3 of 5 -- 4 [14] This affidavit informed a submission to the applications judge that summary judgment for $170,000 should be refused and that the matter should proceed to trial for a judicial determination of the correct Defined Amount. The reasons of the applications judge [15] The applications judge considered that, upon the correct interpretation of the definition of the term, the Defined Amount was the amount stated to be the Defined Amount in the Independent Review Report provided to the Authority by the Licensee from time to time. The final sentence in the definition of the term did not offer a vehicle for a legal challenge to the amount so stated. The appellant had no real prospects of defending the claim and, therefore, there was no need for a trial.13 The grounds of appeal [16] The central issue in this appeal concerns the interpretation of the term “Defined Amount”. The appellant contends that the interpretation adopted by the applications judge is wrong and that it was therefore wrong for his Honour to have concluded that there was no triable issue. Submissions [17] Appellant’s submissions: The appellant concedes that had the definition consisted of only the first sentence in it, then the Defined Amount would be the amount stated as being the Defined Amount in the Independent Review Report provided to the Authority by the Licensee from time to time. However, the appellant submits, the second sentence in the definition acts as a qualification upon the first with the consequence that the amount so stated may be displaced if it is shown not to be the true difference between the Net Tangible Assets held by the Licensee and the Net Tangible Assets required for the Licensee’s Allowable Annual Turnover. In a further elaboration to the submission, the appellant contends that the respective Net Tangible Asset amounts are to be calculated by adoption of figures for assets and liabilities contained in the Licensee’s financial statements from time to time. [18] Respondent’s submissions: The respondent submits that the Defined Amount is the amount which is stated to be the Defined Amount in the Independent Review Report provided to the authority by the Licensee from time to time. The concept of “Defined Amount” originates in the Financial Requirements for Licensing policy. Both the concept and the components employed in calculation of it are defined and described in the policy. The ascertainment of values for each of the Net Tangible Assets components requires the application of professional skill and of professional standards. These considerations inform the meaning of the second sentence in the definition of “Defined Amount”. This sentence does not qualify the sentence which precedes it, as the appellant argues it does. Significantly, it does not expose an amount stated in the Independent Review Report to be the Defined Amount to displacement by some other amount calculated independently of the Independent Review Report process. Discussion [19] To my mind, the first sentence of the definition of “Defined Amount” is unambiguous. It clearly defines such an amount by stipulating that it have two necessary attributes. The first is that it be determined by an appropriately qualified person pursuant to the 13 AB5 Tr2 ll4-21. -- 4 of 5 -- 5 Financial Requirements for Licensing policy. The second is that it be the amount which is stated as having been so determined by that person in the Independent Review Report provided by the Licensee to the Authority from time to time. [20] It is of contextual relevance for the interpretation of the second sentence in the definition that the terms “Net Tangible Assets” and “Allowable Annual Turnover” which feature in the sentence, are themselves defined in the policy and that the methodology for determining the Net Tangible Assets required for a Licensee’s Allowable Annual Turnover is prescribed by the policy. Thus, the appropriately qualified person must ascertain values for the components for the calculation of the Defined Amount in accordance with these definitions and that methodology. The exercise must be undertaken by applying relevant accounting and auditing standards. [21] Having regard to that context, it is, in my view, plain that the second sentence in the definition is referenced to the difference in Net Tangible Assets as ascertained by the appropriate qualified person in undertaking the Independent Review. With that meaning, the sentence aligns harmoniously with the first sentence in the definition. [22] I would reject the appellant’s suggested interpretation of the second sentence. It lacks contextual support. Moreover, it would lead to a situation where an amount stated in an Independent Review Report would be a provisional amount only and liable to be displaced by some unascertained amount. It is highly unlikely that such a situation was intended. All parties to the Deed would wish to know with certainty at all times what the dollar amount of the Defined Amount was. [23] For these reasons, I consider that the applications judge interpreted the definition correctly. It was appropriate for his Honour to have given summary judgment on the basis that the Defined Amount was $170,000. Disposition [24] As the grounds of appeal have not been established, this appeal must be dismissed. The appellant ought to pay the respondent’s costs of the appeal on the standard basis. Orders [25] I would propose the following orders: 1. Appeal dismissed. 2. The appellant is to pay the respondent’s costs of the appeal on the standard basis. [26] BURNS J: I agree with the reasons expressed by Gotterson JA as well as the orders proposed by his Honour. -- 5 of 5 --