BBC Hardware Limited v G T Homes Pty Ltd [1996] QSC 273 [1997] 2 Qd R 123

o o IN THE SUPREME COURT OF QUEENSLAND Writ No. 1498 of 1996 [BBC Hardware Ltd v. G.T. Homes PIL] BETWEEN: BBC HARDWARE LIMITED (ACN 000003 378) Plaintiff AND: G THOMES PTY LTD (ACN 009 687 530) First Defendant AND: ROBERT JAMES TRASK and GIOV ANNA SONJA TRASK Second Defendants REASONS FOR JUDGMENT - mOMAS J Delivered: 17 December 1996 CATCHWORDS: Corporations - Equitable charge by supplier over land of company and its directors - company going in administration before judgment - whether leave to proceed should be granted - nature of charge - whether lodgment of caveat and commencement of proceedings amount to exercise of power in relation to property (under s.441B(I)(e» - Foxcraft (1994) 15 ACSR 203 distinguished - different factors operating in ,grant of leave in favour of secured creditor - Corporations Law ss. 440B, ." 440D, 440J, 441B. Counsel: Solicitors: Mr A. Lyons for the Plaintiff Mr A.W. Carlton-Smith for the First Defendant Mr J.D. Cronin for the Second Defendant Bennett & Philp for the Plaintiff Halletts for the Defendants , ' . ur ose of research and pnvd"., ~}.\Ij ".:' This judgment IS to be copied for tt~e P P blication in any other way VII,thout onlv It is not to be resoid or used or, repu r permission. . -- 1 of 11 -- o o o ~--~--------~~- -171296 at&slm (Thomas J) HIS HONOUR: This is an action by a supplier of hardware against a building company and its directors who provided 9uarantees with respect to the cost of goods supplied to the building company. The present application seeks that the defence of all defendants be struck out and that judgment be entered for the plaintiff. It also seeks the appointment of statutory trustees for the sale of certain properties which are said to be the subject of charges created by the defendants over 10 properties owned by them to secure the price of goods to be 20 supplied by the plaintiff. A preliminary point has been taken on behalf of the defendants to the effect that leave to proceed is necessary before this Court can entertain the application. The need for this arises 30 from the fact that on 4 December 1996, the day before the deadline of the last order made by Mr Justice Lee, the company went into administration. The company in administration is represented today and a request has been made for further delay, namely until the end of the administration. 40 The special endorsement in the writ includes a claim for the price of goods in the sum of approximately $250,000. There is also a claim for the enforcement of charges created in favour of the plaintiff. 50 A defence and counterclaim was provided. The only relevant defence to the claim for supply of goods, which related to goods supplied between September 1995 and January 1996, was 2 60 ORDER -- 2 of 11 -- C) o '171296 at&slm (Thomas J) the claim that there had been overcharging on the part of the 1 plaintiff between March 1990 and an undisclosed month in 1995. There was also a counterclaim in which damages were claimed for defamation. Not surprisingly, the plaintiff sought particulars of the overcharging. These have never been 10 forthcoming, notwithstanding multiple orders for such particulars. Successive orders were made by Justice Byrne on 15 August 1996, Justice Mackenzie on 26 September 1996 and Justice Lee on 11 November 1996. On that last occasion His Honour granted what I regard as a final opportunity to provide 20 such particulars on or before 5 December 1996. As I have said, the day before that deadline the company went into administration. Plainly the claims for defamation are a ~ counterclaim only and canAoperate by way of equitable set-off or as a defence to any part of the claim. 30 (~) It seems reasonable to infer that the defendants were stalling \~./ and that their financial situation, and no doubt other factors, have induced them to seek the appointment of an (J administrator. However, the question is whether that 40 circumstance should be allowed to frustrate the position of the plaintiff which, as I see it, was on the brink of an entitlement to obtain judgment. If this were simply the case of an unsecured creditor about to obtain judgment, the position would be entirely different. However, it seems to meso that the essential claim of the plaintiff is as a secured credi tor, namel y , as an equi table chargee, and that it has taken certain steps towards the realisation of particular properties. This action is a vehicle for that realisation. 60 3 ORDER -- 3 of 11 -- ·171296 at&slm (Thomas J) The charges in question arise under the fairly familiar terms of a supplier's agreement. Such charges were obtained both from the defendant company and the defendant directors. Each defendant, in the relevant document, committed itself himself or herself to the following: "The applicant hereby charges with the due payment of those moneys all of the applicant's interest in real property, both present and future, and the applicant consents to the company lodging a caveat or caveats noting its interests hereunder." Such a charge has been recognised in many cases as creating a recognisable equitable interest. It was described in Clark v. 10 Raymor Brisbane Pty Ltd (No 2) [1982] QdR 790, 795 as an 20 equi table general charge securing a contingent debt under a () guarantee and as capable of attaching to property in land. No () defence or facts have been presented or offered by the defendants challenging the validity of the charge. There is only the unsubstantiated allegation of overcharge in relation 30 to the plaintiff's entitlement. The submissions made on behalf of the first defendant and the second defendants rely, essentially, upon sections 440B, 440D and 440J of the Corporations Law. It was submitted that the 40 charge depends upon substantiation of the debt. On the material before me the debt is substantiated and subject to the question of leave I would be prepared to strike out the defence and grant judgment in the amount that I regard 50 to be proved. Section 440B requires leave before enforcement of a charge on the property of a company, once administration has commenced. However s. 441 B avoids this requirement in certain circumstances. 4 60 ORDER -- 4 of 11 -- I " (J '7129~ at&slm (Thomas J) "441B(1) [Charge enforced before administration] This 'section applies if, before the beginning of the administration of company, a chargee, receiver or other person: (a) entered into possession, or assumed control, of property of the company; or (b) entered into an agreement to sell such property; or (c) made arrangements for such property to be offered for sale by public auction; or (d) publicly invited tenders for the purchase of such 10 property; or (e) exercised any other power in relation to such property; for the purpose of enforcing a charge on that property. 441B(2) [Chargee etc may enforce charge] Nothing in section 437C or 440B prevents the chargee, recei ver or other person from enforcing the charge in relation to that property. 20 441B(3) [Sec 437D] Section 437D does not apply in relation to a transaction or dealing that affects that property and is entered into: (a) in the exercise of a power of the chargee as chargee; or (b) in the performance or exercise of a function or power of the receiver or other person; as the case may be." If the plaintiff satisfies any of the requirements of section 441B(1) it is not inhibited by the requirement for leave which 30 o is set out in section 440B. The point comes down to whether o before the beginning of the administration of the company the plaintiff "exercised any other power' in relation to such property" within the meaning of s.441B(1)(e). The material before me shows that pursuant to the right to do so conferred by the clause which I have earlier quoted, the plaintiff lodged caveats on each of the three properties that it seeks eventually to have sold. One of those properties is owned by the company and the others by the guarantors. Furthermore, by the commencement of this action and by the making of the claims which will lead to the enforcement of the 40 50 5 60 ORDER -- 5 of 11 -- o o () 171295 at&slm (Thomas J) charge, which as I see it is the only way in which the -plaintiff can exercise its equitable charge, the plaintiff has ~lready commenced to exercise its powers in relation to those properties. The remedies of an equitable chargee, unless a particular contract grants -specific additional powers, consist simply of judicial sale and the appointment of a receiver. An incidental quality of the equitable charge is that such a property, once a charge subject to that charge. Wh i t e [ 1 9 7 7 ] VR 5 61 , exists upon it, can be Avco Financial Services 563. The remedies of sold only Lind ted v. sale and appointment of a receiver can be gained only through the Court. Upon default a chargee has the right to apply to the Court for an order for sale. That is what the chargee did in 10 20 this instance. Such an order is made as of right and is not 30 regarded as a matter of discretion. Default is proved in the present case. The applicant exercised powers in relation to the properties in question by CJ lodging caveats and bringing the n~cessary legal proceedings 40 before the administration commenced. Statutory provisions exist throughout Australia to permit ~ales to be made either when there is a trust or where there are equitable charges. One such relevant provision is section 50 99 of the Property Law Act. I consider that the plaintiff has succeeded in bringing itself wi thin section 441 B (1 ) (e) . Accordingly, leave under section 6 60 ORDER -- 6 of 11 -- .' ' o o (~) 171296 at&slm (Thomas J) 440B is not required. ~eave under section 440D, however, is necessary. provides that during the administration of a proceeding in a Court against the company or in That section company a relation to any of its property cannot be begun or proceeded with except with the administrator's written consent or with the leave of the Court. 10 The criteria upon which a Court will grant such leave have not been authoritatively spelt out. It seems to me that very 20 different considerations apply according to whether the plaintiff is a secured creditor or an unsecured creditor. The observations made in Foxcraft (1944) 15 ACSR 203 are, I think, essentially relevant to the case of an application by an unsecured creditor. In such instances, subject to fairly 30 familiar cases of damages for personal injuries, especially when insurance is involved, it would be uncommon for leave to be granted. That is because such leave would tend to interfere with the orderly disposition and control of () unsecured credi tors, all of whom are expected to prove in the 40 one administration. Conversely when the applicant is a secured creditor, the rights of the applicant generally stand outside those that have to be administered with respect to the unsecured creditors. I was referred to two English decisions which support the prospects of a secured creditor being permitted to continue Ii tigation, notwithstanding a supervening administration. (Re: Atlantic Computer Systems PLC [1992] Ch 505, 542 and 50 7 60 ORDER -- 7 of 11 -- p • , (j \.-.-/" o j7t296 at&slm (Thomas J) Bristol Airports PLC v. Powdrill [1990] 1 Ch 744.) I do not think that the object of sections 437C to 440D is always to ensure a complete freeze during an administration in order to work out the net position although that may be a ", useful generalisation. However that may be, the orders which 10 I propose to make will serve to clarify the position in relation to administration in that the rights of a secured creditor will be recognised and quantified. In doing this I note that there is no challenge to the plaintiff's entitlement other than the unsubstantiated claim which the defendants have 20 had more than sufficient opportunity to present. I am therefore disposed to grant the necessary leave to proceed under section 440D of the Corporations Law. 30 I should also mention the submission of Mr Cronin for the second defendants to the effect that section 440J of the Corporations Law protects guarantors from further proceedings in a similar way to the way companies are protected when an (-') administration commences. The leave of the Court is necessary 40 "-.j before proceeding further against guarantors under that section. Mr Cronin pointed out by reference to the explanatory memorandum to the Corporations Law that this was thought desirable because "it is anticipated that the directors of companies who have personally guaranteed the 50 obligations of the company will be discouraged from appointing an administrator for the company if immediately upon the appointment that guarantee became enforceable". memorandum paragraph 529) 8 (Explanatory 60 ORDER -- 8 of 11 -- " (~ \71~9~ at&slm (Thomas J) No doubt, appreciation of this was a factor in the decision of Williams J in 'Stegbar v. Mayfield [1994] 13 ACSR 354. In that case His Honour held that before granting the necessary leave to proceed there would have to be a good reason for departing from the presumption underlying section 440J that the creditor ought not to be able to proceed against the guarantor. His Honour considered that before leave were granted it would, at least, be necessary to be satisfied that there would be no prejudice to any deed of company arrangement executed by the company. In the present case there has been no unfair prejudice or potential injustice suggested as a consequence of my finalisation of the position between these three immediate 10 20 o parties. It was submitted on behalf of the administrator that there has not yet been enough time to complete necessary investigations. However, no particular detriment or benefit was pointed to as a likely product of adjourning the matter until the end of the administration. In other words, there was no suggestion of any intention to attempt to demonstrate the falsity of the plaintiff's position nor was any overall contest between unsecured and secured creditor suggested. No defence was foreshadowed. Further costs of legal process would be made necessary by granting the adjournment and postponing authorisation of the sale to an undisclosed date. There is also the circumstance that if the plaintiff settles the account now rather than in six months' time the prospect of the plaintiff being fully paid is greater now than later as interest is continuing to 30 40 50 9 60 ORDER -- 9 of 11 -- " 1712Q6 at&slm (Thomas J) -4 t, ' accrue at 21 per cent. Furthermore, the postponement of the , accounting day would seem to be against the interest of the unsecured credi tors in that such interest would continue to run until the accounting day. I am therefore prepared to grant the necessary leave under 10 section 440J. It is unnecessary for me to say much more about the apparent merits of the case and the problems associated with the C] defence. It seems to me that the only potentially valid part 20 of the defences has been unable to be substantiated and that (-j both defences should be struck out. ,,-, This, however, does not dispose of the counterclaim for defamation and I shall expressly reserve the right of the 30 defendants to pursue that counterclaim and, if necessary, to replead that cause of action. ()~/ The defences having been struck out, I am prepared to grant (~') judgment for the plaintiff for the amount of $129,661.49 with 40 '-----/ interest of $34,070.53, between 1 November 1995 to date, against each defendant, with costs of the application and action including reserved costs, to be taxed. In relation to the appointment of statutory trustees I shall 50 order in terms of paragraphs 2, 3 and 4 of a previous Notice of Motion filed on 8 March 1996. It is declared that the counterclaim remains open for the defendants to pursue. 60 10 ORDER -- 10 of 11 -- ~\ C) · ~~'296 at&slm (Thomas J) I direct that the affidavit of Timothy John Rabbitt filed on I 21 March 1996 be sealed and marked to be opened only upon order of the Court. 1 1 10 20 30 40 50 60 ORDER -- 11 of 11 --