Beaudesert Metal Fabricators Pty Ltd & Anor v Beaudesert Shire Railway Support Group Incorporated [2005] QSC 17

SUPREME COURT OF QUEENSLAND CITATION: Beaudesert Metal Fabricators Pty Ltd & anor v Beaudesert Shire Railway Support Group Incorporated [2005] QSC 017 PARTIES: BEAUDESERT METAL FABRICATORS PTY LTD and SABSPAN PTY LTD (applicants) v BEAUDESERT SHIRE RAILWAY SUPPORT GROUP INCORPORATED (respondent) FILE NO/S: BS 9627 of 2004 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court of Queensland DELIVERED ON: 16 February 2005 DELIVERED AT: Brisbane HEARING DATE: 16, 25 November 2004 JUDGE: Atkinson J ORDER: The respondent is ordered to deliver up possession to the applicants of the secured property referred to in the bill of sale granted by the respondent and registered in the Office of Fair Trading on 2 March 2004. CATCHWORDS: MORTGAGES – CHATTEL SECURITIES – BILLS OF SALE-RIGHTS AND LIABILITIES OF PARTIES – COVENANTS – where covenant to insure secured property – where mortgagor defaulted – where applicants were creditors and had been appointed attorneys for all other creditors – whether creditors required to sign bill of sale to take the benefit of it EQUITY – GENERAL PRINCIPLES – PENALTY – RELIEF AGAINST PENALTIES AND FORFEITURE – where breach cannot be rectified – whether respondent entitled to relief against forfeiture Corporations Act 2001 (Cth), s 439A Bills of Sale and Other Instruments Act 1955 (Qld), s 20(2) Property Law Act 1974 (Qld), s 95 -- 1 of 8 -- 2 Archard v Coulsting (1843) 6 Man & G 75, cited Brett v Cumberland (1619) 1 Roll Rep 63, cited Campbell v Pye [1954] 54 SR (NSW) 308, cited Chambers v Randall [1923] 1 Ch 149, cited Clement v Henley (1643) 2 Roll Ab Faits (F) 2, cited Elliston v Reacher [1908] 2 Ch 665, cited Ex parte Dalgety Farmers Limited [1987] 2 Qd R 481, cited Formby v Barker [1903] 2 Ch 539, cited Gray v Pearson (1870) 5 LR CP 568, cited Harmer v Armstrong [1934] Ch 65, cited Legione v Hateley (1983) 152 CLR 406, cited May v Belleville [1905] 2 Ch 605, cited Melksham v Archerfield Airport Corp [2004] QSC 164, cited R v Houghton – le – Spring (1819) 2 B & Ald 375, cited Re A & K Holdings Pty Ltd [1964] VR 257, cited Shiloh Spinners Ltd v Harding [1973] AC 691, cited Toler v Slater (1867) LR 3 QB 42, cited Webb v Spicer (1849) 13 QB 894, cited Wetherell v Langston (1847) 1 Ex 634, cited COUNSEL: S D Anderson for the applicants B D O’Donnell QC for the respondent SOLICITORS: Jeff Thomas for the applicants Lewis Lawyers for the respondent [1] The applicants, Beaudesert Metal Fabricators Pty Ltd (“Beaudesert Metal Fabricators”) and Sabspan Pty Ltd (trading as Snows Engineering Mechanical Repairs) (“Sabspan”) applied to the Court for an order that the respondent, Beaudesert Shire Railway Support Group Incorporated (“Beaudesert Rail”), deliver possession to the applicants of the security property referred to in a bill of sale granted by the respondent to the applicants and others (the “bill of sale”). The reason for seeking the order was that Beaudesert Rail had failed to comply with the covenants in the bill of sale. [2] There was no real dispute that the respondent had failed to comply with its covenant to insure the trust property. The questions in dispute were whether the applicants had standing, as creditors or as the attorneys of other creditors, to enforce the bill of sale; and, if so, whether Beaudesert Rail was entitled to relief against forfeiture. The bill of sale [3] The bill of sale in favour of the admitted creditors of Beaudesert Rail was a condition of deed of company arrangement dated 5 November 2003 (“deed of company arrangement”).1 In his report to creditors on 6 October 2003, Lachlan McIntosh, as Administrator of Beaudesert Rail, referred to the request by creditors 1 Clause 7 of the Deed of Company Arrangement provided that it was contingent upon the entry into funding arrangements including at cl 7.5: “The execution of a third mortgage from the Incorporated Association to the Admitted Creditors as defined in clause 1 for their pre-administration Residuary Claims to be secured over the assets referred to in Annexures C and D attached to this Deed”. -- 2 of 8 -- 3 for a bill of sale and noted that the terms of a bill of sale were likely to include, inter alia: “Creditors are to individually execute the Bill of Sale within 60 days of [Beaudesert Rail] entering into a Deed. If a creditor does not execute it within this time frame then they are not a party to the Bill of Sale”. [4] A second meeting of creditors was held on 15 October 2003 pursuant to s 439A of the Corporations Act 2001 at which the deed of company arrangement was accepted by the creditors. With regard to the bill of sale, Mr McIntosh told the meeting that he would like the meeting to nominate two creditors to represent the others as their attorneys. The applicants were appointed by the meeting. Mr McIntosh told the creditors that he would not circulate the bill of sale but that they had 60 days to sign it at Beaudesert Rail. He told the creditors that those who did not sign it within 60 days, “would not be part of the Bill of Sale”. The bill of sale was signed by Mr McIntosh. [5] On 22 December 2003, Mr McIntosh informed the creditors that a copy of the bill of sale would be kept at the premises of Beaudesert Rail and at his office. He expected it to be available to be signed by creditors in the first week of January 2004. He reiterated that creditors would have 60 days to sign the bill of sale and said that “it must be signed by 8 March 2003 [sic]”. If they did not, he said, they would not be entitled to the security provided by the bill of sale. [6] The bill of sale was in fact executed by only a few of the creditors: Transmart Pty Ltd on 28 January 2004; Boonah Shire Council on 19 February 2004; Grant Engineering on 1 March 2004; and The Village Smith on 16 April 2004. It was also executed by the Beaudesert Shire Council. [7] However, the bill of sale was stamped on 26 February 2004 and then registered in the Office of Fair Trading on 2 March 2004. Under the bill of sale, Beaudesert Rail charged all its interest in the “Mortgaged Property” (as defined) as security for the due and punctual payment of the monies. The charge created was to be a second fixed charge on the “Fixed Charge Property” and a second floating charge on the “Floating Charge Property”, as defined in the bill of sale. [8] The parties were said to be Beaudesert Rail and the mortgagee. “Mortgagee” was defined in the bill of sale as “the Creditors listed in the Agreement” including the assigns and the executors, administrators or successors of each person so named. The “agreement” was defined in the bill of sale to mean the deed of company arrangement. A “creditor” was defined in the deed of company arrangement to mean any person who had a claim against Beaudesert Rail. “Unsecured creditor” was defined to mean any admitted creditor other than a secured creditor. An “admitted creditor” meant a person who had an admitted claim and an “admitted claim” meant a claim that was admitted by the administrator in accordance with clause 8 and which was then included in the admitted claims list. The identity of creditors referred to as “mortgagee” in the bill of sale was found, therefore, in the “admitted claims list”. These were the “creditors listed in the agreement” and are therefore the parties who can sue on the deed.2 2 Harmer v Armstrong [1934] Ch 65 at 86; [1933] All ER Rep 778 at 784. -- 3 of 8 -- 4 [9] The creditors listed in the admitted claims list was very similar to the list of creditors set out in the execution pages of the bill of sale. Significantly for these purposes Beaudesert Metal Fabricators and Sabspan, by its trading name, Snows Engineering and Mechanical Repairs, were listed in the admitted claims list. They were also listed as creditors in the execution pages of the bill of sale. [10] By clause 28.1 of the bill of sale, Sabspan and Beaudesert Metal Fabricators were appointed jointly as the attorney of all the creditors who signed the bill of sale to: (a) do anything which the mortgagee has power to do under or in connection with the security; (b) sign any release document in relation to the bill of sale; (c) sign any variations and/or amendments to the bill of sale; (d) sign any renewal documents that may be required from time to time; and (e) sign any other documents reasonably required to be executed in accordance with the bill of sale. Not all creditors signed the bill of sale, but the applicants were undoubtedly appointed the attorney of all those who did. [11] The argument about the applicants’ lack of standing arose from the fact that neither Beaudesert Metal Fabricators nor Sabspan themselves actually executed the bill of sale. The applicants submitted that execution was not necessary. They relied on the statement of the law found in Norton on Deeds3 which says that although execution of a deed is necessary to bind the grantor, a party who takes the benefit of a deed is bound by it although he or she did not execute it.4 Such a non-executing party can sue on covenants contained in the deed.5 [12] Clause 49 of the bill of sale provided that the mortgagor acknowledged that it had executed and delivered the bill of sale as a deed on the date of signing with the intention of being immediately bound. Although it was a deed inter partes and not a deed poll, the mortgagor was immediately bound, upon signing it, to the benefit of the mortgagee parties whose signature was not required for them to sue on the covenants contained in the deed so long as they were parties to the deed. Contrary to the respondent’s submissions, execution by the mortgagees was not a condition precedent to their ability to enforce the covenant. [13] The cases referred to by the respondent demonstrate the kind of case where execution might be a condition precedent. In Wilkinson Anglo v Californian Gold Mining Co6 for example the relevant statute provided that a certificate of shareholding could only be delivered to a subscriber who had executed a deed of settlement. The execution of the deed was therefore a condition precedent to the entitlement to receive such a certificate. 3 Norton R F A Treatise on Deeds (2nd ed) 1928 at pp 26-27. 4 Brett v Cumberland (1619) 1 Roll Rep 63, (1619) 3 Bulst 163, (1619) Cro Jac 521, 79 ER 446; R v Houghton – le – Spring (1819) 2 B & Ald 375, 106 ER 403; Webb v Spicer (1849) 13 QB 894; Formby v Barker [1903] 2 Ch 539 at 549; May v Belleville [1905] 2 Ch 605; Elliston v Reacher [1908] 2 Ch 665 at 673; Chambers v Randall [1923] 1 Ch 149. 5 Clement v Henley (1643) 2 Roll Ab Faits (F) 2; Archard v Coulsting (1843) 6 Man & G 75 at 78, 134 ER 815; Wetherell v Langston (1847) 1 Ex 634 at 643-644; 154 ER 269 at 273-274. 6 (1852) 18 QB 728; 118 ER 275. -- 4 of 8 -- 5 [14] This was not a deed which set up reciprocal rights and obligations as does a lease, for example,7 where a demise for a term is given by the lessor in return for various covenants by the lessee; but a bill of sale which imposed covenants upon the mortgagor for the benefit of the mortgagee as defined. The mortgagor had the benefit of the scheme of arrangement and the bill of sale was provided as a benefit and comfort to the creditors. [15] In those circumstances, the mortgagor, Beaudesert Rail, became bound by the covenants in the bill of sale as soon as it executed the bill of sale. Covenants could then be enforced by the other parties to the deed even though they had not executed it so long as they were parties to it.8 [16] Further, section 20(2) of the Bills of Sale and Other Instruments Act 1955 (“the Bills of Sale Act”) provides that every instrument, when registered under the Bills of Sale Act, has the effect of and is taken to be a deed properly executed by the parties. “Executed” is defined in s 6 of the Act to mean “in relation to any instrument, signed by the borrower or the borrower’s solicitor or agent and, in appropriate cases, signed by the lender or the borrower or his or her solicitor or agent and by the lender or the lender’s solicitor or agent”. “Borrower” is defined to mean a person who gives a security interest to a lender and, if it is a corporation, its permitted assigns. For these purposes the deed administrator was the appropriate person to sign on behalf of the borrower and he did so. [17] Prior to amendment of the Bills of Sale Act in 1999 by the Bills of Sale and Other Securities Amendment Act 1999 (the “Amendment Act”), s 10(1) of the Bills of Sale Act required every bill of sale presented for registration to be executed in duplicate.9 This requirement was omitted by s 6 of the Amendment Act so now all that remains in the statute with regard to execution is s 20(2) which provides that upon registration, a bill of sale is taken to be a deed properly executed by the parties. [18] In those circumstances the parties whose interests are secured by the bill of sale are taken to have executed it, even though the statement in Norton on Deeds, and the cases which support that statement, show that it is not necessary for the creditors who have the benefit of a bill of sale which has been registered to execute it. It follows that the applicants are creditors who can take advantage of the bill of sale notwithstanding the statements by the deed administrators that those who wished to benefit from it would have to sign it. [19] They may also sue as the appointed attorneys of those who signed the bill of sale. As they have the same interest as those creditors, there is no bar to the applicants bringing the action in their own names.10 They are not suing as bare agents11 but as persons whose rights as creditors have been affected and who represent others whose rights have been similarly affected. Covenant to insure [20] Clause 19 of the bill of sale dealt with insurance. It obliged Beaudesert Rail, inter alia, to insure the mortgaged property. Such a provision is hardly unusual in a bill 7 See Toler v Slater (1867) LR 3 QB 42. 8 Re A & K Holdings Pty Ltd [1964] VR 257. 9 cf Ex parte Dalgety Farmers Limited [1987] 2 Qd R 481. 10 cf Campbell v Pye (1954) 54 SR (NSW) 308. 11 cf Gray v Pearson (1870) 5 LRCP 568 at 574. -- 5 of 8 -- 6 of sale. Indeed Schedule 6 of the Bills of Sale Act refers to the meaning implied in every bill of sale, pursuant to s 41 of the Act, of the words “the borrower will insure” which is a duty on the borrower to immediately insure, and keep insured, the property the subject of the bill of sale against loss or damage by fire. In cl 19.1 of the bill of sale, the duty to insure extended well beyond a duty to insure against loss or damage by fire. [21] By letter dated 6 May 2004, the applicants requested certificates of currency of all insurance policies in relation to the secured property. Receiving no reply, the request was repeated by letter of 20 May 2004 which requested a response by 24 May 2004 or the secured monies would become due and payable immediately. [22] On 21 May 2004, Beaudesert Rail responded by saying that because neither Sabspan nor Beaudesert Metal Fabricators had executed the bill of sale, they had no interest at law to make the request for certificates of insurance. On 25 May 2004, the applicants repeated their request, setting out their rights under the bill of sale and that the existence of insurance over the secured property had a material effect on the protection afforded by the bill of sale. [23] In fact, it was revealed in evidence filed in this application that insurance taken out by Beaudesert Rail lapsed on 31 May 2004 and was not reinstated until 28 September 2004. Further evidence then showed a failure to insure some of the secured property prior to 31 May 2004. A Certificate of Currency was provided to the applicants on 13 October 2004 showing that the period of insurance dated from 28 September 2004. The insurer was not advised of the interest of the mortgagee until 22 October 2004 and the creditors’ interest was not noted on any certificate of currency until 15 November 2004. This default in keeping the secured property insured prima facie entitles the creditors to take possession of the mortgaged property pursuant to cll 21 and 26 of the bill of sale. [24] On 7 October 2004, the applicants gave notice certifying events of default including the failure to insure and to provide certificates of currency of insurance and that a judgment entered against Beaudesert Rail by Ringwood (Group) Pty Ltd (“Ringwood”) remained unsatisfied. The applicants demanded immediate payment of the secured moneys and possession of the secured property. The applicants have standing both as creditors and as duly appointed attorneys to enforce the provisions of the bill of sale. Relief from forfeiture [25] The respondent seeks relief against the consequences of its defaults in the general equitable jurisdiction of relief against forfeiture or pursuant to s 95(3) of the Property Law Act 1974 which provides: “The mortgagor, in any proceedings brought to enforce the rights of the mortgagee or brought by the mortgagor, may – (a) upon undertaking to the court to perform any such covenant or obligation; and (b) upon tender or payment into court of such instalment; apply to the court for relief from the consequences of such default, and the court may grant or refuse relief (whether by staying -- 6 of 8 -- 7 proceedings brought by the mortgagee or otherwise) as the court, having regard to the conduct of the parties and to all other circumstances, thinks fit, and in the case of relief may grant it on such terms (if any) as to payment of any reasonable expenses of the mortgagee and as to the costs or otherwise as the court in the circumstances thinks fit.” [26] A problem immediately arises in that Beaudesert Rail cannot perform the covenant of which it has been in breach, ie failing to insure the property at least from 31 May until 28 September 2004. Insurance is not able to be obtained on a period which has passed. The failure to pay a judgment debt of $297.20 to Ringwood is in a different category and could be rectified and was on 8 October 2004. It is not necessary to refer to that breach again. [27] It is said that there is an explanation for the failure to insure, that it was “an innocent administrative oversight”. Yet the failure to insure occurred after the applicants asked to see certificates of currency for all insurance policies. If the insurance was allowed to lapse in spite of attention being specifically brought to the requirement, then it can hardly be characterised as a mere administrative oversight. The assertion that Beaudesert Rail had public liability insurance and insurance over one motor vehicle does not detract from the seriousness of the failure to insure the secured property. The more detailed explanation given by an affidavit by Mr Kassulke filed on 18 November 2004 makes no reference to the requests by the creditors to view the certificates of currency of insurance and suggests the reasons why insurance was not maintained was some questioning as to whether it was required by the bill of sale, the answer to which should have been obvious, and the resignation of certain office bearers. None of these reasons are adequate to excuse a failure to insure secured property. [28] It is also submitted that if the applicants are successful in their claim for possession of the assets it will have dire consequences for Beaudesert Rail. However Beaudesert Rail is not currently operating any rail services because of structural damage caused by fire to a rail bridge in August 2004. Beaudesert Rail has no funds to repair the bridge itself and there is no timetable for the repair of the bridge and the recommencement of rail services. [29] It is also said by the chairman of the respondent, David Kassulke, that as there have been no claims against Beaudesert Rail during the uninsured period, he does not believe that Beaudesert Rail has any contingent liabilities outstanding relating to that period. In a later affidavit, Mr Kassulke expanded that statement by saying that there was no loss or damage to any of the assets of Beaudesert Rail secured by the bill of sale during the uninsured period. However, that does not dispose of the question of potential claims relating to the uninsured period. Indeed the material before the court shows what must in any event be obvious, ie that the operation of steam locomotives is hazardous and the secured property was liable to damage and loss which must be guarded against by appropriate insurance. The failure to insure was serious. [30] The capacity to remedy any default is a requirement of relief against forfeiture pursuant to s 95(3) of the Property Law Act. As this cannot be done, the court will necessarily refuse relief under the statute. Assuming the court retains equitable -- 7 of 8 -- 8 jurisdiction to grant relief against forfeiture when the default can not be remedied,12 such relief should not be granted for the reasons set out above.13 The breach was serious and, to the extent to which it was inadvertent, demonstrates unacceptable ineptitude in protecting the secured property in the respondent’s possession. The applicants are entitled to the relief sought in the application. Orders [31] The respondent is ordered to deliver up possession to the applicants of the secured property referred to in the bill of sale granted by the respondent and registered in the Office of Fair Trading on 2 March 2004. 12 See Shiloh Spinners Ltd v Harding [1973] AC 691 at 723-724; [1973] 1 All Er 90; Melksham v Archerfield Airport Corp [2004] QSC 164. 13 cf Legione v Hateley (1983) 152 CLR 406 at 449. -- 8 of 8 --