Bradnam's Windows and Doors Pty Ltd v Offermans [2011] QCA 106 [2011] 2 Qd R 408

SUPREME COURT OF QUEENSLAND CITATION: Bradnam’s Windows and Doors Pty Ltd v Offermans [2011] QCA 106 PARTIES: BRADNAM’S WINDOWS AND DOORS PTY LTD ACN 010 409 819 (applicant) v DENNIS JOHN OFFERMANS (respondent) FILE NO/S: Appeal No 10360 of 2010 DC No 1 of 2010 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: District Court at Townsville DELIVERED ON: 20 May 2011 DELIVERED AT: Brisbane HEARING DATE: 28 March 2011 JUDGES: Muir JA, Margaret Wilson AJA, Martin J Separate reasons for judgment of each member of the Court, each concurring as to the orders made ORDERS: 1. The application for leave to appeal be granted. 2. The appeal be allowed. 3. Those parts of paragraph 2 of the order made on 30 August 2010 in the proceedings striking out paragraphs 4, 26, 27 and 33 of the applicant’s defence be set aside. 4. The costs of the application and of the appeal be the parties’ costs in the cause. CATCHWORDS: CORPORATIONS – CHARGES, DEBENTURES AND OTHER BORROWINGS – CHARGES – VALIDITY – OF CHARGES IN FAVOUR OF CERTAIN PERSONS – where the applicant entered into an agreement with a Company and agreed to extend credit to that Company in connection with the supply of goods to that Company – where the respondent was appointed administrator of the Company – where the Company paid the applicant $80,870.82 in satisfaction of debts due and owing – where the statement of claim alleged that the applicant was an unsecured creditor of the Company and that the payments having been made during “the relation- back period” were recoverable as unfair preferences within -- 1 of 10 -- 2 the meaning of s 588FA of the Corporations Act 2001 (Cth) – where applicant alleged that payments by the Company were in respect of goods supplied by the applicant to the Company – where applicant alleged it was a secured creditor of the Company – where the primary judge found that the charge created by the credit agreement did not meet the requirements of s 262 and s 263 of the Corporations Act 2001 (Cth) – where primary judge consequently found the charge to be void against the respondent liquidator – whether the primary judge‟s interlocutory order striking out the subject pleadings should be set aside – whether the pleadings disclose a cause of action or valid defence – whether the subject charge is a security against the real property and personal property of the Company Corporations Act 2001 (Cth), s 262, s 263, s 266, s 280, s 281, s 588FA, s 588FC Boambee Bay Pty Ltd (in liq) v Equus Financial Services Ltd (1991) 26 NSWLR 284, cited Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404, cited Miller v Deputy Commissioner of Taxation (1997) 26 ACSR 533; [1997] NSWCA 205, cited Pioneer Construction Materials Pty Ltd v Schoch & Ors [2007] QDC 143, considered Tolcher v Capital Finance Australia Ltd (2006) 60 ACSR 584; [2006] FCA 1804, cited United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; [1980] HCA 43, cited Walsh v Natra Pty Ltd (2000) 1 VR 523; [2000] VSCA 60, considered Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Peters [2010] 2 Qd R 475; [2009] QCA 180, considered Windsor v Sydney Medical Service Co-operative Ltd (No 2) [2009] FCA 704, cited COUNSEL: M K Stunden for the applicant M D Martin for the respondent SOLICITORS: Dibbs Barker for the applicant Connolly Suthers Lawyers for the respondent [1] Muir JA: Introduction The applicant defendant applies for leave to appeal pursuant to s 118(3) of the District Court of Queensland Act 1967 against an order of a judge of the District Court made on 30 August 2010 striking out part of the applicant‟s defence and giving leave to re-plead. [2] The applicant is a manufacturer and supplier of windows and doors. It entered into an agreement with Eckerbuilt Pty Ltd (“the Company”) in March 2007 entitled -- 2 of 10 -- 3 “Application for Credit Facilities” under which it agreed to extend credit to the Company in connection with the supply of goods to the Company. [3] The credit agreement relevantly provided in clauses E and F: “E. The Applicant hereby charges in your favour all of its estate and interest in any real and personal property that it owns at present and in the future with due payment to you of all monies that may become payable to you by virtue of this application arising from you providing credit to IT prior to or after the date hereof and hereby appoints as its duly constituted attorney your company secretary from time to time to execute in its name and as its act and deed, any real property mortgage, bill of sale or consent to any caveat you may chose to lodge against real property that it may own in any Land Titles Office in any State or Territory of Australia, even though it may not have defaulted in carrying out its obligations hereinunder. F. The Applicant hereby charges in your favour all monies due and payable to IT under any head-contract held by IT in respect of which IT purchases goods from you and hereby agrees that you will be entitled to all rights, powers and remedies conferred upon sub-contractors under any legislation in any State or Territory in Australia as if all monies due and owing by IT to you were monies due and owing under a sub-contract.” [4] The respondent was appointed administrator of the Company on 7 January 2009 and its liquidator on 10 February 2009. Between 30 July 2008 and 28 October 2008, the Company paid the applicant $80,870.82 in satisfaction of debts due and owing by the Company to the applicant. The statement of claim alleges, in effect, that when the payments were made the applicant was an unsecured creditor of the Company and that the payments, having been made during “the relation-back period”, were recoverable as unfair preferences within the meaning of s 588FA of the Corporations Act 2001 (“the Act”). [5] In its defence, the applicant alleged that: (a) all the relevant payments by the Company to the applicant were in respect of goods supplied by the applicant to the Company in its ordinary course of business; (b) the applicant was a secured creditor of the Company by virtue of Clause F of the credit agreement; and (c) each of the payments was equal to the value of goods delivered to the Company by the applicant and made pursuant to the credit agreement to discharge liability of the Company to the applicant. The applicant admitted that the relation-back period commenced on 7 July 2008 and ended on 7 January 2009. [6] Although the defence referred only to Clause F, at first instance the parties‟ submissions referred to Clauses E and F. For present purposes, it is sufficient to refer to any charge created by the credit agreement as “the charge”. The reasons of the primary judge [7] The relevant findings of the primary judge may be summarised as follows. Sections 262 and 263 of the Act require the lodgement of a notice of charge and a copy of the -- 3 of 10 -- 4 instrument creating the charge within 45 days of the creation of a charge over the property of a Company. These requirements were not met in relation to the charge created by the credit agreement. Section 266 of the Act makes certain charges void against a liquidator or an administrator “unless a notice in respect of the charge was lodged” as provided in the section. The primary judge concluded that the consequence of non-compliance with ss 262 and 263 was that “the characterisation of the „charge‟ is altered by statute in s 266 and is therefore void against the [respondent liquidator]: see Pioneer Construction Materials Pty Ltd v Schoch & Ors.1" The relevant provisions of the Act [8] In order to consider the correctness of these reasons and the arguments advanced in respect of them by the parties, it is desirable to set out the relevant provisions of the Act. “Part 2K.2—Registration 262 Charges required to be registered (1) Subject to this section, the provisions of this Chapter relating to the giving of notice in relation to, the registration of, and the priorities of, charges apply in relation to the following charges (whether legal or equitable) on property of a company and do not apply in relation to any other charges: (a) a floating charge on the whole or a part of the property, business or undertaking of the company; … (d) a charge on a personal chattel, including a personal chattel that is unascertained or is to be acquired in the future, but not including a ship registered in an official register kept under an Australian law relating to title to ships; (e) a charge on goodwill, on a patent or licence under a patent, on a trade mark or service mark or a licence to use a trade mark or service mark, on a copyright or a licence under a copyright or on a registered design or a licence to use a registered design; (f) a charge on a book debt; … (7) For the purposes of this section, a charge is taken to be a charge on property of a kind to which a particular paragraph of subsection (1) applies even though the instrument of charge also charges other property of the company including other property that is of a kind to which none of the paragraphs of that subsection applies. (8) The provisions of this Chapter mentioned in subsection (1) do not apply in relation to a charge on land. … 1 [2007] QDC 143 at [14]-[15]. -- 4 of 10 -- 5 (11) A charge on property of a company is not invalid merely because of the failure to lodge with ASIC, or give to the company or another person, a notice or other document that is required by this Part to be so lodged or given. 263 Lodgment of notice of charge and copy of instrument (1) Where a company creates a charge, the company must ensure that there is lodged, within 45 days after the creation of the charge: (a) a notice in the prescribed form setting out the following particulars: … 266 Certain charges void against liquidator or administrator (1) Where: (a) an order is made, or a resolution is passed, for the winding up of a company; or (b) an administrator of a company is appointed under section 436A,436B or 436C; or (ba) a company executes a deed of company arrangement; a registrable charge on property of the company is void as a security on that property as against the liquidator, the administrator of the company, or the deed‟s administrator, as the case may be, unless: (c) a notice in respect of the charge was lodged under section 263 or 264, as the case requires: (i) within the relevant period; or (ii) at least 6 months before the critical day; or … 280 General priority rules in relation to registered charges (1) A registered charge on property of a company has priority over: (a) a subsequent registered charge on the property, unless the subsequent registered charge was created before the creation of the prior registered charge and the chargee in relation to the subsequent registered charge proves that the chargee in relation to the prior registered charge had notice of the subsequent registered charge at the time when the prior registered charge was created; and (b) an unregistered charge on the property created before the creation of the registered charge, unless the chargee in relation to the unregistered charge proves that the chargee in relation to the registered charge had notice of the unregistered charge at the time when the registered charge was created; and -- 5 of 10 -- 6 (c) an unregistered charge on the property created after the creation of the registered charge. (2) A registered charge on property of a company is postponed to: (a) a subsequent registered charge on the property, where the subsequent registered charge was created before the creation of the prior registered charge and the chargee in relation to the subsequent registered charge proves that the chargee in relation to the prior registered charge had notice of the subsequent registered charge at the time when the prior registered charge was created; and (b) an unregistered charge on the property created before the creation of the registered charge, where the chargee in relation to the unregistered charge proves that the chargee in relation to the registered charge had notice of the unregistered charge at the time when the registered charge was created. 281 General priority rule in relation to unregistered charges An unregistered charge on property of a company has priority over: (a) a registered charge on the property that was created after the creation of the unregistered charge and does not have priority over the unregistered charge under subsection 280(1); and (b) another unregistered charge on the property created after the first-mentioned unregistered charge. … Part 5.7—Winding up bodies other than companies … Part 5.7B—Recovering property or compensation for the benefit of creditors of insolvent company … Division 2—Voidable transactions 588FA Unfair preferences (1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. -- 6 of 10 -- 7 (2) For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security. (3) Where: (a) a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and (b) in the course of the relationship, the level of the company‟s net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship; then: (c) subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and (d) the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference. … 588FC Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or … 588FE Voidable transaction (1) If a company is being wound up: (a) a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and … (2) The transaction is voidable if: -- 7 of 10 -- 8 (a) it is an insolvent transaction of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it: (i) during the 6 months ending on the relation-back day; (ii) after that day but on or before the day when the winding up began.” Consideration [9] Section 266(1) does not purport to make a registrable but unregistered charge on property void as against the company. Relevantly, it expressly makes such “charge void as a security on that property as against the liquidator”. The continuing validity of such a charge is implicitly acknowledged by s 262(11) and probably also by ss 280 and 281. Counsel for the applicant accepted that s 266 would render the charge void as a security over the Company‟s property as against the liquidator should the applicant seek to rely on the charge as against the liquidator. He submitted, however, that the applicant was not doing and had not done that: it had merely obtained payment by the Company of debts secured by the charge before the commencement of the winding up. [10] In Pioneer Construction Materials Pty Ltd v Schoch & Ors,2 on which counsel for the respondent also relied on appeal, McGill DCJ held that a chargee under an unregistered charge, in generally similar terms to the subject charge, was void as against the liquidator by operation of s 266.3 His Honour, however, was dealing with a situation in which the relevant debts were unpaid at the date of the winding up order and the issues for determination on this appeal did not arise. [11] On a literal construction, s 588FA would not seem to apply to the subject transactions as, subject to the exception provided for in sub-section (2), sub-section (1)(b) applies only to a transaction which results in a receipt by the creditor “in respect of an unsecured debt that the company owes to the creditor”. [12] In s 588FA the words “unsecured debt(s)” identify the type of debt “that the company owes to the creditor” to which the section relates, and it is arguable that the words “unsecured debt” should not be construed as meaning “a debt not secured by a security which is void as against the liquidator, the administrator of the company, or the deed‟s administrator” as the case may be. Section 588FA is concerned with a transaction between the company and creditor concerning a debt owed by the company to the creditor. It does not specifically advert to the operation of s 266(1). [13] Moreover, section 588FA(1)(b) is contained in Division 2 of part 5.7B of the Act dealing with voidable transactions whereas s 266 is to be found in Chapter 2K of the Act dealing with registration of charges and, as has been seen, nothing in Chapter 2K renders void an unregistered charge or renders a debt secured by the charge “an unsecured debt”. [14] Counsel for the respondent contended that these difficulties in construction were overcome by what he submitted was the invariable principle applied in determining 2 [2007] QDC 143. 3 At [15]. -- 8 of 10 -- 9 whether a preference existed. It was that s 588FA(1) was to be applied as at the date of the impugned transaction on the basis of a hypothetical winding up on that date. That proposition is inaccurate. [15] Section 588FA(1)(b) refers to the creditor receiving more from the company than it would receive “if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company.” (Emphasis added.) In Walsh v Natra Pty Ltd,4 Phillips JA (with whom Charles JA agreed) held that where a winding up had followed, it was a relevant winding up by virtue of s 588FE, and there was no reason why the liquidator could not rely on the probable return to the unsecured creditor in the actual winding up for the purpose of establishing the comparison required under s 588FA(1)(b).5 His Honour considered that the need to have regard to “other creditors” at the date of the impugned transaction did not lead to the need to consider any hypothetical winding up at that date.6 Callaway JA reached a similar conclusion.7 In Tolcher (as liquidator of Lloyd Scott Enterprises Pty Ltd) (in liq) v Capital Finance Australia Ltd8 Tamberlin J followed Walsh in this regard. This Court followed Walsh in Williams v Peters,9 but only on a quite limited point. It was not contended by either party in Williams that s 588FA(1) was to be applied by reference to a hypothetical winding up at the date of the impugned transaction. [16] In favour of the respondent‟s construction is the fact that, arguably at least, there would be deficiency in the operation of the Act if an unregistered charge was void as a security against a liquidator under s 266, but valid as a security for the purposes of s 588FA. Also the words “unsecured debt” must be construed in the context of a provision concerned with the setting aside by liquidators (although not exclusively) of unfair preferences. I do not propose to expand further on this question of construction as it was underdeveloped before the primary judge, addressed only in a rudimentary way on appeal, and may not be determinative of the true issues in dispute on a trial of the proceeding. [17] The statement of claim alleged that the applicant was an unsecured creditor without setting out the relevant material facts. The defence did contain more allegations of relevant material facts but, in argument, matters of potential relevance were not addressed. For example, although the defence alleged that the applicant “was secured by an equitable charge against the real property and the personal property of the Company”, the nature and/or extent of any such real property was not adverted to in evidence or in addresses. Not surprisingly, the matter was not mentioned in the primary judge‟s reasons. [18] A charge on a company‟s land is not required to be registered,10 but s 262 applies to a charge over both real property and one or more of the categories of property listed in paragraphs (a) to (j) inclusive of s 262(1). However, Boambee Bay Pty Ltd (in liq) v Equus Financial Services11 is authority for the proposition that a charge on land and other property described in s 262(1) does not fall within sub-section (1) in so far as it is a charge on land. 4 (2000) 1 VR 523. 5 At 533 [33]. 6 At 534 [34]. 7 At 542-543 [63]-[64]. 8 (2006) 60 ACSR 584 at 593 [40]. 9 [2010] 1 Qd R 475; [2009] QCA 180. 10 Corporations Act, s 262(8). 11 (1991) 26 NSWLR 284. -- 9 of 10 -- 10 [19] On an application to strike out part of a pleading as disclosing no cause of action or no valid defence, the applicant, at least as a general rule, must succeed or fail on the basis of the allegations in the pleadings. The defence, as has just been mentioned, raised the prospect of the charge being, in part, a security over real property. [20] There are also other matters, the determination of which may bear on the strike out application. It seems to have been assumed that the charge was a floating charge and that the relevant charging clause was Clause E. Clause F also created a charge by the Company over “all monies due and payable to it under any head-contract held by it in respect of which it purchases goods from [the applicant]”. The charges created by both Clauses E and F are prima facie fixed charges, but it may be that Clause E created a charge which was fixed in relation to some of the Company‟s property and floating over that property of the Company which, in the general scheme of things was to be sold, consumed or changed from time to time in the carrying on of its business in the normal way.12 Paragraph 27 of the defence specifically referred to Clause F which did not purport to charge real property but set out the text of Clause E. [21] It is necessary to decide what orders should be made to reflect the above reasons. The primary judge‟s order striking out the subject pleadings, being interlocutory in nature, does not give rise to an issue in estoppel.13 It is desirable, however, that the order under appeal be set aside lest it give rise to unnecessary arguments that the re- agitation of the issues ruled against by the primary judge constitute an abuse of process. The general importance of those issues justifies the grant of leave. [22] For the above reasons, I would grant leave to appeal, allow the appeal and order that those parts of paragraph 2 of the order made on 30 August 2010 striking out paragraphs 4, 26, 27 and 33 of the applicant‟s defence be set aside. [23] I would not disturb the costs order at first instance as the respondent remained substantially successful overall. [24] Having regard to the fact that the substantive issue between the parties remains undecided, and the fact the applicant‟s success on appeal arose out of matters not adverted to before the hearing of the appeal, I would order that the costs of the appeal be the parties‟ costs in the cause. [25] MARGARET WILSON AJA: I agree with the orders proposed by Muir JA, for the reasons given by his Honour. [26] MARTIN J: I agree, for the reasons given by Muir JA, with the orders he proposes. 12 Cf. United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673. 13 Windsor v Sydney Medical Service Co-operative Ltd (No 2) [2009] FCA 704; Miller v Deputy Commissioner of Taxation (1997) 26 ACSR 533 and Haines v Australian Broadcasting Corporation (1995) 43 NSWLR 404 at 414. -- 10 of 10 --