Enviren Constructions Pty Ltd (in liquidation) v Browning [2015] QDC 269

DISTRICT COURT OF QUEENSLAND CITATION: ACN 149 351 413 Pty Ltd ACN 149 351 413 (in liquidation) (formerly known as Enviren Constructions Pty Ltd v Browning [2015] QDC 269 PARTIES: ACN 149 351 413 PTY LTD ACN 149 351 413 (IN LIQUIDATION) (FORMERLY KNOWN AS ENVIREN CONSTRUCTIONS PTY LTD ACN 149 351 413) (plaintiff/applicant/cross-respondent) v RUSSELL JOHN BROWNING (defendant/respondent/cross-applicant) FILE NO: DC No 2573 of 2015 ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 6 November 2015 DELIVERED AT: Brisbane HEARING DATE: 12 October 2015 JUDGE: Rafter SC DCJ ORDERS: 1. The plaintiff’s application for summary judgment is granted. 2. Judgment that the defendant pay the plaintiff $400,000 and interest of $11,901.37. 3. The defendant’s application for security for costs is dismissed. 4. The defendant pay the plaintiff’s costs of the applications and the proceeding. CATCHWORDS: CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES – application for summary judgment - where the plaintiff contends that the deed of covenant and assurance precluded the defendant from varying the burden of any covenant or obligation under the deed – where the defendant contends that nothing within the terms of the deed prevented the plaintiff company from forbearing to sue or indemnify the defendant – where the defendant contends that the plaintiff’s claim could not be sustained as the plaintiff had agreed to forbear from suing the defendant in accordance with a share sale agreement – whether the share sale agreement varied the burden of any covenant or obligation under the deed - -- 1 of 8 -- 2 whether the defendant has any real prospects of successfully defending the plaintiff’s claim Queensland Building and Construction Commission Act 1991 (Qld), s 31 (2) (c), s 35, s 108D Civil Proceedings Act 2011 (Qld), s 58 (3) Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 1999 (Qld), r 292, r 670 Agar v Hyde (2000) 201 CLR 552 Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232 COUNSEL: C M Hall (solicitor) for the plaintiff. D A Skennar for the defendant. SOLICITORS: Broadley Rees Hogan for the plaintiff. Morgan Conley for the defendant. Introduction [1] On 29 June 2015 the plaintiff commenced proceedings against the defendant for $400,000 for monies due and owing pursuant to the terms of a Deed of Covenant and Assurance (“Deed”) entered into on or about 19 December 2012. [2] On 25 September 2015 the plaintiff filed an application for summary judgment. [3] On 6 October 2015 the defendant filed an application that the plaintiff give security for the defendant’s costs pursuant to r 670 Uniform Civil Procedure Rules 1999 (Qld) and s 1335 Corporations Act 2001 (Cth). Background [4] The plaintiff was, until 28 April 2014, the holder of a builder licence issued by the Queensland Building and Construction Commission (QBCC), formerly the Queensland Building Services Authority (QBSA).1 [5] The defendant was a director of the plaintiff company from the date of its incorporation on 16 February 2011 until he resigned on 1 July 2013.2 [6] By virtue of s 31(2) (c) Queensland Building and Construction Commission Act 1991 (Qld) (the Act) a company is entitled to a contractor’s licence if the QBCC, formerly the QBSA, is satisfied, inter alia that the applicant satisfies the relevant financial requirements stated in the board’s policies. 1 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015, exhibit RDB-1 at p 8. 2 Affidavit of Russell John Browning filed 6 October 2015 at para 2; affidavit of Craig Mitchell Hall filed 3 September 2015, exhibit CMH-2. -- 2 of 8 -- 3 [7] The financial requirements of the QBSA are set out in a document titled “Financial Requirements for Licensing” which was effective from 1 October 2012.3 The financial requirements stipulated at clause 2.4 that applicants and licensees have sufficient Net Tangible Assets required for the level of allowable annual turnover as set out in Table 1. In circumstances where an entity does not have sufficient Net Tangible Assets in its own right, the financial requirements state that an independent review report or audit report could be provided, and the applicant or licensee could rely upon a Deed from a related entity.4 [8] On or about 19 December 2012 the plaintiff, the defendant and the QBSA entered into a Deed in Approved Form 6 – Version 5.5 The parties to the Deed were the plaintiff (then named Enviren Constructions Pty Ltd) as “Licensee”, the defendant as “Covenantor” and the QBSA as “The Authority”. [9] By clause 2(a) of the Deed the defendant agreed that if the winding up of the plaintiff began under the “Corporations Law”, he would, upon written demand, pay the “Defined Amount” to the Licensee. [10] The term “Defined Amount” is defined in clause 1.1: “‘Defined Amount’ means 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.” [11] On 18 January 2013 the plaintiff’s accountants provided the QBSA with an independent review report stating that the “Defined Amount” was $400,000.6 [12] The defendant originally held 60 ordinary shares in the plaintiff as trustee for the R J Browning Trust.7 The then directors of the plaintiff were the defendant and his former business partner, Matthew Cameron Brown.8 A company operated by Mr Brown, Blissful Earth Pty Ltd as trustee for the Blissful Earth Trust, also held 60 ordinary shares in the plaintiff.9 [13] In late 2012 the plaintiff began experiencing financial difficulties.10 In about June 2013 the defendant was approached by Andrew Pearce who was interested in acquiring the Enviren business.11 On 1 July 2013 a Share Sale Agreement was entered into whereby the shares were sold to Enviren Investments Pty Ltd ACN 144 3 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015, exhibit RDB-1 at pp 25-92. 4 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015, exhibit RDB-1 at p 40. 5 Affidavit of David Michael Stimpson filed on 25 September 2015, exhibit DMS-1 at pp 9-21; Statement of Claim filed on 29 June 2015 at para 2 and further amended defence filed on 8 October 2015 at para 2. 6 Affidavit of David Michael Stimpson filed on 25 September 2015, exhibit DMS-1 at pp 30-36. 7 Affidavit of Russell John Browning filed on 6 October 2015 at para 6. 8 Affidavit of Russell John Browning filed on 6 October 2015 at paras 2-3. 9 Affidavit of Russell John Browning filed on 6 October 2015 at para 7. 10 Affidavit of Russell John Browning filed on 6 October 2015 at para 9. 11 Affidavit of Russell John Browning filed on 6 October 2015 at para 12. -- 3 of 8 -- 4 648 519.12 The price payable for the shares was $120.13 The agreement stated that the plaintiff owed the defendant and Mr Brown in excess of $500,000 on account of unpaid wages, employee entitlements and loans made to the plaintiff between February 2011 and June 2013. [14] The Share Sale Agreement (which, by clause 1, defined the “Company” as the plaintiff in its former name) contained the following terms which the defendant now relies upon: “2.5 Forbearance (a) Brown and Browning each agree to forever forbear from enforcing any Claims they have or may have against the Company, whether present or in the future, for unpaid wages, employee entitlements or loans made to the Company up to the amount of $500,000; (b) The Company agrees to forever forbear from enforcing all Claims it has or may have against Brown and/or Browning, whether present or in the future. (c) This Agreement may be pleaded in bar to any actions, Claims or demands and as a complete defence to the continuance or commencement of any proceedings in respect of any of the matters for which a forbearance has been granted pursuant to this Agreement. 2.6 Indemnity (a) The Buyer and the Company shall indemnify, and keep indemnified, Brown and Browning and each of the Sellers against any and all Claims against them arising as a result of their involvement, either directly or indirectly, with the Company as office holder, shareholder, employee, agent or any other capacity whatsoever.” [15] On 18 March 2015 the Supreme Court of Queensland ordered that the plaintiff be wound up.14 [16] On 14 May 2015 the solicitors for the liquidator of the plaintiff wrote to the defendant demanding payment of $400,000 owing pursuant to clause 2(e) of the Deed.15 The contentions of the parties [17] Mr Hall, who appeared for the plaintiff, relied in particular on clauses 2, 3 and 4 of the Deed. By clause 2(c) the defendant agreed “not to assign or vary the burden of any covenant or obligation (present or contingent) existing upon it under this Deed”. By clause 3(c) the plaintiff agreed that “it will not consent to the Covenantor assigning 12 Affidavit of Russell John Browning filed on 6 October 2015, exhibit RJB-2. 13 Clause 2.2 of the Share Sale Agreement. 14 Statement of claim filed on 29 June 2015 at para 6; further amended defence filed on 8 October 2015 at para 6. 15 Affidavit of Craig Mitchell Hall filed on 25 September 2015, exhibit CMH-1 at p 1. -- 4 of 8 -- 5 or varying the burden of any covenant or obligation (present or contingent) which it may bear under this Deed”. [18] Clause 4 provides as follows: “4. REVOCATION OR RELEASE 4.1 Prohibition This Deed may not be revoked or released (“revoked”) and is not capable of being so revoked except as expressly permitted by this Deed. 4.2 Revocation by satisfaction of the Financial Requirements for Licensing This Deed is revoked if the Authority gives written notice to the Licensee and the Covenantor that the Licensee has satisfied the Financial Requirements for Licensing in a manner other than reliance by it on this Deed and the benefit of the covenants contained in this Deed. 4.3 Alternatively, revocation is to be by further deed Revocation of this Deed, if it is not effected by notice by the Authority under subclause 4.2, may only be effected by a further deed by all of the parties to this Deed. 4.4 Otherwise ineffective Any revocation other than as permitted by this clause will be ineffective. 4.5 Continuing application of this Deed Even if this Deed has been validly revoked under this clause, that revocation will not apply to the Defined Amount insofar as it arises, accrues or becomes payable before such revocation.” [19] Mr Hall submitted that the Deed was a licensing condition pursuant to s 35 of the Act or, at the very least, was created under the statutory and regulatory framework of the Act and regulations.16 [20] Mr Hall submitted that the defined amount of $400,000 was established by the evidence from the senior license entitlement officer of the QBCC.17 Moreover, the independent review report sent to the QBSA by the plaintiff’s accountants on 18 January 2013 states that the defined amount is $400,000.18 16 Plaintiff’s written submissions at para 13. 17 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015 at para 5. 18 Affidavit of Craig Mitchell Hall filed on 25 September 2015, exhibit CMH-3 at p 35. -- 5 of 8 -- 6 [21] Ms Skennar, for the defendant, submitted that the plaintiff’s claim could not be sustained because of the terms of the Share Sale Agreement. She submitted that there was nothing in the Deed that prevented the plaintiff from forbearing to sue the defendant or indemnifying him against any claims it may have. She submitted that the defendant was entitled to set off the amount for which he was indemnified. [22] Ms Skennar submitted that clauses 2.5 and 2.6 of the Share Sale Agreement were given by the plaintiff in order to protect the defendant in relation to potential liabilities after ownership and control of the plaintiff passed to third parties.19 Ms Skennar accepted that the Deed precluded revocation and release other than as permitted by the terms of the Deed but submitted that it did not prevent the plaintiff from agreeing to forbear from making a claim or giving an indemnity in relation to a claim. [23] Ms Skennar submitted that the effect of the indemnity is that even if the plaintiff is entitled to recover against the defendant pursuant to the Deed, it owed the defendant the same amount because of the terms of the Share Sale Agreement.20 Alternatively, Ms Skennar submitted that the plaintiff represented to the defendant that it would not make any claims it may have against him and that he acted to his detriment in reliance on that representation by permitting control of the plaintiff to pass to a third party. In those circumstances she submitted that the plaintiff was estopped from relying upon the Deed.21 [24] Ms Skennar also submitted that the defined amount had not been correctly calculated. Her submissions were consistent with the further amended defence which pleads that the defined 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”. It was contended that the plaintiff only needed a defined amount of approximately $240,000 in order to meet its required allowable annual turnover.22 Consideration [25] Rule 292 Uniform Civil Procedure Rules 1999 provides: (1) A plaintiff may, at any time after a defendant files a notice of intention to defend, apply to the court under this part for judgment against the defendant. (2) If the court is satisfied that- (a) the defendant has no real prospect of successfully defending all or a part of the plaintiff’s claim; and (b) there is no need for a trial of the claim or the part of the claim; the court may give judgment for the plaintiff against the defendant for all or the part of the plaintiff’s claim and may make any other order the court considers appropriate. 19 Defendant’s written submissions at para 20. 20 Defendant’s written submissions at para 22. 21 Defendant’s written submissions at para 23. 22 Further amended defence filed on 8 October 2015 at para 5(c). -- 6 of 8 -- 7 [26] In Deputy Commissioner of Taxation v Salcedo23 McMurdo P said that summary judgment should only be given “in the clearest of cases”.24 Her Honour referred to the judgment of Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde25 where it was said: “Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”26 [27] In order to give the plaintiff summary judgment under r 292 the Court must be satisfied not only that the defendant has no real prospect of defending the claim, but that there is no need for a trial. [28] The stated aims of the financial requirements for licensing are:  to promote more financially viable businesses; and  to foster more professional business practices in the building industry.27 [29] The significance of the Deed is indicated by the fact that it contains a clear warning on the first page that the covenantor becomes responsible for the payment of what could be a significant amount of money in the event that a licensee, which is a company, is wound up. The first page of the Deed states that the covenantor must receive legal advice before signing it. The Deed in the present case contains a statement by the defendant’s solicitor to the effect that the contents and effect of the Deed had been explained to him.28 [30] In order for a company to obtain a contractor’s license it must satisfy the QBCC that it satisfies the relevant financial requirements set out in the policies of the board: s 31(2)(c) of the Act. The financial requirements for licensing effective from 1 October 2012 state: “This Queensland Building Services Board Policy constitutes the financial requirements for the Queensland Building Services Authority Act 1991 (“Act”). All Applicants for a licence and licensees undertaking building work in Queensland, other than Supervisors, MUST comply with this policy.”29 [31] Furthermore s 108D of the Act provides: 108D Contracting out prohibited (1) A person can not contract out of the provisions of this Act. [32] By clause 2(c) of the Deed the defendant agreed “…not to assign or vary the burden of any covenant or obligation (present or contingent) existing upon it under this 23 [2005] 2 Qd R 232. 24 [2005] 2 Qd R 232 at 233 para 3. 25 (2000) 201 CLR 552. 26 (2000) 201 CLR 552 at 575-576, para 57. Footnote reference deleted. 27 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015, exhibit RDB-1 at p 29. 28 Affidavit of David Michael Stimpson filed on 25 September 2015, exhibit DMS-1 at p 18. 29 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015, exhibit RDB-1 at p 29. -- 7 of 8 -- 8 Deed”. The plaintiff agreed by clause 3(c) that “it will not consent to the Covenantor assigning or varying the burden of any covenant or obligation (present or contingent) which it may bear under this Deed”. Moreover, clause 4.1 contained a prohibition against revocation or release except as expressly permitted by the Deed. [33] In my view, the forbearance and indemnity provisions contained in clauses 2.5 and 2.6 of the Share Sale Agreement are clear attempts to vary the defined burden of the Deed. In those circumstances the terms of the Deed must prevail and the defendant is liable under it. [34] Ms Skennar also submitted that the “Defined Amount” had not been correctly calculated. However, pursuant to the Deed the “Defined Amount” is the amount “…stated in the Independent Review Report or Audit Report provided to the Authority from time to time”. The definition also states that “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”. [35] The defined amount was calculated by the plaintiff’s accountant and sent to the QBSA on 18 January 2013.30 The senior licence entitlement officer at the QBCC stated in his affidavit that, at all material times from 15 February 2013, the defined amount pursuant to the Deed was $400,000.31 [36] In his affidavit filed on 6 October 2015 the defendant makes no reference to the Deed or the calculations in the Independent Review Report. At the hearing of the application on 12 October 2015 the defendant was given the opportunity to place additional evidence before the Court in relation to the defined amount. He elected not to do so. [37] In the circumstances, I am of the view that the defendant has no prospect of successfully defending the claim and that there is no need for a trial. Judgment should therefore be given in favour of the plaintiff in the sum of $400,000. Interest [38] The plaintiff claims interest from the date of the demand on 14 May 2015 until the date of judgment pursuant to s 58(3) Civil Proceedings Act 2011. Interest has been calculated at $11,901.37. The defendant’s application for security for costs [39] In view of my conclusion in relation to the plaintiff’s application for summary judgment, the defendant’s application for security for costs must be dismissed. Costs [40] The defendant must pay the costs of the application for summary judgment, the costs of the application for security for costs and the costs of the proceeding. 30 Affidavit of David Michael Stimpson filed 25 September 2015, exhibit DMS-1 at p 30. 31 Affidavit of Ryan Daniel Baker filed by leave on 12 October 2015 at para 5. -- 8 of 8 --