By Originating Process filed on 19 July 2023, Messrs Sprowles and Hogan in their capacity as liquidators of Mikcon Group Australia Pty Ltd (in liq) ("Company") and the Company seek a range of orders against the Defendants, including Mr Michael Conneely, two companies associated with him, Mikcon Pty Ltd ("Mikcon") and Mikcon Plant Hire Pty Ltd ("MPH") (together, "Mikcon Group Companies"), Ms Marie Conneely and several third parties. Messrs Sprowles and Hogan were appointed as joint and several voluntary administrators of the Company on 9 February 2021, were subsequently appointed as deed administrators under a Deed of Company Arrangement dated 21 May 2021 ("DOCA"); and, on termination of the DOCA, were appointed as joint and several liquidators of the Company from 21 November 2022.
Broadly, the Plaintiffs seek judgment in the amount of $1,061,538.52 against Mr Conneely, an amount by way of interest as against Mr Conneely and the Mikcon Group Companies, a declaration that Mr Conneely's interest in a specified property ("Castle Hill Property") is charged to secure the payment of those amounts, and orders appointing Mr Sprowles as trustee for the sale of the Castle Hill Property and addressing the process in respect of a sale. Paragraph 10 of the Originating Process also seeks a direction as to the manner in which the sale proceeds of the Castle Hill Property should be distributed, but the Plaintiffs did not seek to have that matter determined at the hearing, where several of the third party Defendants seek to make submissions as to that issue, whether before or after any sale of the Castle Hill Property.
The First Defendant, Mr Conneely, was the sole director of the Company, Mikcon and MPH and was the sole shareholder in the Company, a shareholder in Mikcon and the sole shareholder in MPH. The Fourth Defendant, Ms Conneely, is a joint tenant of the Castle Hill Property with Mr Conneely. The Fifth Defendant, the Commonwealth Bank of Australia, has a first ranking mortgage on title of the Castle Hill Property and the Seventh Defendant (Porter Finance Australia Pty Ltd) ("Porter") has registered a caveat on title of the Castle Hill Property.
None of the Defendants appeared at the hearing. I am satisfied that the Defendants have been served and the Court should proceed to a hearing. Rule 29.7 of the Uniform Civil Procedure Rules 2005 (NSW) applies where a trial is called on and a party is absent, and provides that the Court may proceed with the trial generally or so far as it concerns any claim for relief in the proceedings, or may adjourn the trial. It is, of course, fundamental that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole (1944) 68 CLR 571 at 589; [1944] HCA 5. However, that right is a right to an opportunity to be heard, and not a right to frustrate the hearing of proceedings by not attending them, although the Court should have regard to the extent of any hardship to the party against whom an order is sought from proceeding in its absence and to any considerations of urgency: Smirski v Macander [2010] NSWSC 929 at [34]; NSW Trustee & Guardian v Gregory [2012] NSWSC 681 at [22]; Matta v Matta [2015] NSWSC 963 ("Matta v Matta") at [7]. These proceedings have been on foot for a considerable time; there is a real cost to the Company's creditors of their continuance and to claimants on Mr Conneely's interest in the Castle Hill Property in a continuing delay of the sale of the property; and the Defendants have been given notice of the hearing and an opportunity to appear. In these circumstances, I am satisfied that it is proper to proceed to a hearing, notwithstanding that, relevantly, Mr Conneely, the Mikcon Group Companies and Mrs Conneely have not appeared. I also recognise that several third party Defendants have identified claims against the proceeds of a sale of the Castle Hill Property which will not be determined by this application and they will have the opportunity to be heard in respect of them.
[3]
Affidavit evidence and background facts
The Plaintiffs read the affidavit dated 19 July 2023 of Mr Sprowles, which refers to his and Mr Hogan's initial appointment as joint and several voluntary administrators of the Company and subsequently as deed administrator under the DOCA. Mr Sprowles also there refers to the circumstances in which the DOCA was terminated and the Plaintiffs claimed amounts as against Mr Conneely and the Mikcon Group Companies pursuant to the DOCA and a Deed of Guarantee & Indemnity also dated 21 May 2021 ("Guarantee & Indemnity"). By his second affidavit dated 30 October 2023, Mr Sprowles refers to dealings in respect of the Castle Hill Property, including the lodgement of a caveat on title of that property; to the DOCA and Guarantee & Indemnity, and to the position in respect of Porter's claim. It is not necessary to determine any question as to any claim by Porter in order to determine the relief presently sought in this aspect of the proceedings, where the parties' entitlements on a distribution of any proceeds of sale of the Castle Hill Properly has properly been deferred. By a third affidavit dated 14 November 2024, Mr Sprowles elaborated on the execution of the DOCA, Guarantee & Indemnity and a Deed of Deferral which was executed at the same time. By his affidavit dated 14 November 2024, Mr Hogan also addressed the execution of those documents.
The Plaintiffs also read affidavits of service dated 26 November 2024 of Mr Vitanza and Mr Karle which dealt, inter alia, with substituted service of documents in respect of the proceedings on Ms Conneely, in accordance with orders for substituted service previously made by the Court.
Turning now to the background facts, there is limited dispute as to those facts, at least so far as the dealings between the Plaintiffs, Mr Conneely and the Mikcon Group Companies are concerned. I have here drawn on the Plaintiffs' Statement of Claim ("SOC") and the Defence filed by Mr Conneely and the Mikcon Group Companies', the Plaintiffs' chronology and the chronological bundle of documents that was tendered by the Plaintiffs at the hearing.
As I noted above, on 9 February 2021, Messrs Sprowles and Hogan were appointed as the joint and several voluntary administrators of the Company under s 436A of the Act (SOC [9], admitted Defence [9]). At an adjourned second meeting of the Company's creditors held on 30 April 2021, the Company's resolved that the Company execute the DOCA (SOC [10], admitted Defence [10]; Ex P1, 47).
The Company, Messrs Sprowles and Hogan, Mr Conneely and the Mikcon Group Companies executed the DOCA on 21 May 2021 (SOC [11]-[12], largely admitted Defence [11]-[12]; Ex P1, 65ff) which relevantly provided that Messrs Sprowles and Hogan were appointed as joint and several deed administrators of the DOCA (cl 2.2); it was a condition precedent to the DOCA that a Deed of Deferral (as defined) and the Guarantee & Indemnity were executed to the satisfaction of Messrs Sprowles and Hogan as deed administrators of the DOCA (cl 2.6); and the Deed Fund (as defined in the DOCA) included a Director Contribution (as defined), being $120,000 to be paid by Mr Conneely within 7 days of the execution date of the DOCA and the Mikcon Group Contributions (as defined), being $2,070,000 payable by the Mikcon Group Companies to the deed administrators by instalments over an extended period (cll 4.1-4.2). Clause 4.2 of the DOCA, although headed "time for payment", is expressed in terms that imposed an obligation (necessarily on Mr Conneely) to pay the Director Contribution by the specified time and (necessarily on the Mikcon Group Companies) to pay the Mikcon Group Contributions by the specified instalments. The DOCA in turn provided that, if the "Deed Proponents" (being Mr Conneely and the Mikcon Group Companies, jointly and severally) failed to meet three consecutive Mikcon Group Contributions, then the deed administrators may convene a meeting of the Company's creditors where the creditors may resolve to vary the DOCA, terminate the DOCA, terminate the DOCA and wind up the Company appointing the deed administrators as liquidators of the Company, enforce the terms of the DOCA, or approve any other proposal permitted under the Act (cl 7.1).
The DOCA also provided that, on the Execution Date (as defined), the control and stewardship of the Company reverted to Mr Conneely (cl 8.1). By cl 8.3 of the DOCA, Mr Conneely covenanted and agreed to, relevantly, provide the deed administrators with the Company's monthly management accounts on the first day of each calendar month; ensure all tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) were made on time and provide copies of the documents comprising those tax lodgements to the liquidators (as deed administrators of the DOCA) within 48 hours of the lodgement of those documents; and provide a three-way financial forecast for the Company for the next financial year within 45 days of the conclusion of the previous financial year. By cl 8.4 of the DOCA, if the Company failed to lodge two tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) on time; and/or pay any amounts referred to in two tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) on time, then the deed administrators were required to convene a meeting of the Company's creditors, at which creditors may resolve to vary the DOCA, terminate the DOCA, terminate the DOCA and wind up the Company appointing the deed administrators as liquidators of the Company, enforce the terms of the DOCA or approve any other proposal permitted under the Act. By cl 10.1 of the DOCA, the deed administrators were entitled to be indemnified by the Company, and from its assets, and out of the Deed Fund for, inter alia, all actions, suits, proceedings, accounts, claims and demands arising during the period of the administration.
On 21 May 2021, the Company, Messrs Hogan and Sprowles, Mr Conneely and the Mikcon Group Companies also executed the Guarantee & Indemnity (SOC [13]-[14], admitted Defence [13]-[14]; Ex P1, 90) which relevantly provided (cl 2.1) that Mr Conneely and the Mikcon Group Companies (jointly and severally) guaranteed in favour of Messrs Hogan and Sprowles (as 'Beneficiary' under the Guarantee & Indemnity) the due and punctual performance of all obligations of the Mikcon Group Companies to the liquidators, including the payment of money; all moneys due and payable from time to time or to become due and payable from time to time, to Messrs Hogan and Sprowles by the Mikcon Group Companies with regard to or in connection with the DOCA; and all other moneys which the Mikcon Group Companies either alone, jointly, severally, or jointly and severally with any other person, now or from time to time is, or becomes actually or contingently liable to pay to Messrs Hogan and Sprowles with regard to or in connection with the DOCA; and the due and punctual observance and performance by the Mikcon Group Companies of all its other liabilities, obligations and agreements (whether monetary or non-monetary, present or future, actual or contingent) to Messrs Hogan and Sprowles pursuant to or in connection with the DOCA. Clause 2.2 of the Guarantee & Indemnity in turn provided that, if the Mikcon Group Companies defaulted on the due and punctual payment of any money referred to in cl 2.1(a) of the Guarantee & Indemnity, Mr Conneely and the Mikcon Group Companies must pay that money to or as directed by Messrs Hogan and Sprowles immediately on demand. Clause 2.6 of the Guarantee & Indemnity provided that, if the DOCA was terminated (other than by the effectuation of its terms), Mr Conneely acknowledged and agreed to immediately pay to Messrs Hogan and Sprowles any and all amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA as if the DOCA had survived and not been terminated, to form part of the assets recovered in any subsequent winding up of the Company, and that clause was expressed to survive termination of the DOCA and the Guarantee & Indemnity.
By cl 3.1 of the Guarantee & Indemnity, as security for Mr Conneely's and the Mikcon Group Companies' obligations under the DOCA and the Guarantee & Indemnity (including the payment of the 'Secured Monies' as defined in the Guarantee & Indemnity), Mr Connelly irrevocably charged and mortgaged in favour of Messrs Hogan and Sprowles all of his right, title and interest in the Castle Hill Property. By cl 8.1 of the Guarantee & Indemnity, Mr Conneely and the Mikcon Group Companies as Guarantors must pay interest on each amount due and payable but not paid under the Guarantee & Indemnity on the day on which it falls due at a rate of 1.5% per calendar month calculated from the due date and accruing monthly therefrom until the date of payment.
There is no dispute (SOC [15]-[16], Defence [15]-[16]) that, between 4 June 2021 and 11 November 2022, the Mikcon Group Companies paid an amount constituting Mikcon Group Contributions (as defined) totalling $1,008,461.48 and, on or about 28 May 2021, Mr Conneely paid the Director Contribution (as defined) in the sum of $120,000. It is also common ground that the Company subsequently failed (SOC [17]-[19]; Defence [17]-[19]) to pay on time the amounts referred to in two Business Activity Statements for the quarters ending September 2021 and December 2021 and breached the DOCA in other respects. However, Mr Conneely and the Mikcon Group Companies deny that the Mikcon Group Companies were obliged to pay any amount into the Deed Fund or to Messrs Hogan and Sprowles under the DOCA (Defence [12], [19]).
By letter dated 25 May 2022, Messrs Hogan and Sprowles issued a notice ("Notice") requiring that existing breaches of the terms of the DOCA be rectified by 30 May 2022; those breaches were not remedied; on 1 November 2022, Messrs Hogan and Sprowles convened a meeting of the Company's creditors to be held on 21 November 2022, pursuant to cll 7.1 and/or 8.4 of the DOCA; and, at that meeting, a resolution was passed on the casting vote of Messrs Hogan and Sprowles to terminate the DOCA and they were appointed as liquidators of the Company (SOC [20]-[29]; partly admitted Defence [20]-[29]; Ex P1, 118, 139ff, 174ff). As at that date, the unpaid balance of the Mikcon Group Contributions to be paid under the DOCA was $1,061,538.52 ("Outstanding Balance") (SOC [30]; admitted Defence [30] but denying that the Mikcon Group Companies were obliged to pay that amount).
[4]
Claim against Mr Conneely under cl 2.6 of the Guarantee & Indemnity
The Plaintiffs plead (SOC [31]-[32]) that, by cl 2.6 of the Guarantee & Indemnity, following the termination of the DOCA on 21 November 2022, Mr Conneely became, and continues to be, liable to pay the Outstanding Balance and all other amounts payable under the DOCA to Messrs Hogan and Sprowles and has not paid that amount.
The Plaintiffs seek judgment in the amount of $1,061,538.52 against Mr Conneely, on the basis that this is the amount that was due but not paid by Mikcon Group Companies under the DOCA. Mr Jameson, who appears for the Plaintiffs, submits that:
"Mr Conneely agreed that, if the DOCA terminated, he would pay to the Liquidators (then in their capacity as deed administrators) all amounts which the Mikcon group of companies were otherwise obliged to pay under the DOCA as if the DOCA has survived and not been terminated, to form part of the assets in any subsequent winding up, pursuant to cl 2.6 of [the Guarantee & Indemnity]."
Mr Jameson also submits that:
"Clause 2.6 [of the DOCA] is a standalone obligation of Mr Conneely personally; if the DOCA terminated, he agreed to pay to the Liquidators all amounts under the DOCA, as if the DOCA survived, to form the assets of the Company in any subsequent winding up."
As I noted above, although Mr Conneely and the Mikcon Group Companies did not appear at the hearing, their Defence denies that any amount was payable by them to the Deed Fund or to Messrs Hogan and Sprowles under the DOCA. Mr Jameson responds that:
"The argument is unexplained, but taken at its highest, it appears to amount to a contention that: (a) there was no obligation under the DOCA for the Mikcon Group [Companies] to pay monies to the Liquidators (as deed administrators) to comprise the [D]eed [F]und; (b) such that there were no "amounts which the Mikcon Group [Companies] were otherwise obliged to pay under the DOCA" for the purpose of cl 2.6 of the Guarantee; in which case (c) Mr Conneely is not obliged to pay any such amount to the Liquidators in these proceedings.
The contention proceeds on a flawed and uncommercial construction of the DOCA. The obligation upon the Mikcon Group [Companies] to pay the Mikcon Group Contributions is supplied by cll 4.1, 4.2 and the definition of "Mikcon Group Contributions". Those clauses read together plainly oblige the Mikcon Group to make those contributions. In addition, over $1 million of those contributions were paid during the course of the DOCA.
It follows that had the DOCA survived, the Mikcon Group [Companies] would have been obliged to pay the Mikcon Group Contributions in weekly instalments until they were paid in full, such that Mr Conneely is now liable to pay the full remaining balance (being the Claimed Sum) under cl 2.6 of the Guarantee to be applied by the Liquidators in the winding up."
I recognise that cl 4.1 of the DOCA contemplated that the Deed Fund "shall comprise", inter alia, the Director Contribution and the Mikcon Group Contributions (as defined) and contemplated the payment of those amounts. I am satisfied that there was an obligation to make payment to the Deed Fund, at least under cl 4.2 of the DOCA to which I have referred above. Although that clause was headed "Time for payment", it used mandatory language ("shall") in respect of the payment of the Director Contribution, necessarily by Mr Conneely, and the Mikcon Group Contribution (as defined), necessarily by the Mikcon Group Companies. That conclusion is reinforced, reading the DOCA and the Guarantee & Indemnity together, by the fact that cl 2.6 of the Guarantee & Indemnity provides for Mr Conneely to pay Messrs Hogan and Sprowles the amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA if the DOCA had survived and not been terminated. That clause plainly proceeds on the basis that there was an obligation on the Mikcon Group Companies to pay those amount under the DOCA. This conclusion is sufficient to support the first order sought by the Plaintiffs against Mr Conneely, namely judgment in the sum of $1,061,538.52 where there is no apparent dispute as to the quantification of that amount.
[5]
Claim for interest under the Guarantee & Indemnity
The Plaintiffs also plead (SOC [34]) that Mr Conneely and the Mikcon Group Companies are jointly liable to pay interest on the Outstanding Balance to Messrs Hogan and Sprowles, pursuant to cl 8.1 of the Guarantee & Indemnity. The Plaintiffs quantify that claim as $390,043.53 (to be updated up to the date of judgment) for the period 21 November 2022 to 5 December 2024.
Mr Jameson submits:
"The Claimed Sum was payable "immediately" upon termination of the DOCA on 21 November 2022, by reason of cl 2.6. It follows that interest accrued monthly at 1.5% per month from 21 November 2022."
Ordinarily, the termination of a contract such as the DOCA would discharge the parties to that contract, relevantly the Mikcon Group Companies, from obligations of future performance under it, and Messrs Hogan and Sprowles rightly do not contend that cl 2.6 of the DOCA alters that ordinary position in respect of future payments of contributions by the Mikcon Group Companies. However, I accept that the effect of cl 2.6 of the Guarantee & Indemnity was that, if the DOCA was terminated, Mr Conneely was immediately obliged to pay to Messrs Hogan and Sprowles the amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA as if it had survived and had not been terminated, and that supports an obligation on his part to pay interest on the amount due under cl 8.1 of the Guarantee & Indemnity.
On balance, I also accept Mr Jameson's submission that the effect of cl 8.1 of the Guarantee & Indemnity is to impose an obligation to pay interest on all of the guarantors (including the Mikcon Group Companies) in respect of any amount due and payable by any of them under Guarantee, where that clause does not limit the obligation to pay interest by a guarantor to an amount unpaid by that guarantor. In these circumstances, notwithstanding that the Mikcon Group Companies likely did not have any obligation to any amount by way of principal to Messrs Hogan and Sprowles, following the termination of the DOCA, they are liable under cl 8.1 of the Guarantee & Indemnity for the payment of interest on the amount which was due and payable, but was not paid, by Mr Conneely under cl 2.6 of the DOCA.
I also accept that the provision for interest at the rate specified in cl 8.2 of the Guarantee & Indemnity excludes the interest rate which would otherwise be applicable under s 100 of the Civil Procedure Act 2005 (NSW) ("CPA"), by reason of s 100(3)(b) of the CPA: Chu v Haddad [2014] NSWSC 1720. The order sought by the Plaintiffs against Mr Conneely and the Mikcon Group Companies should therefore be made, subject to a recalculation of that interest to the date of judgment.
[6]
Effect of the charge under cl 3 of the Guarantee & Indemnity
The Plaintiffs plead (SOC [35]-[36]) that the charge granted by Mr Conneely of his interest in the Castle Hill Property, pursuant to cl 3 of the Guarantee & Indemnity, secures the payment of, relevantly, the amount claimed against Mr Conneely and interest and seek orders that, pursuant to s 66G of the Conveyancing Act 1919 (NSW) ("Conveyancing Act"), Mr Sprowles be appointed as trustee for the sale of the Castle Hill Property. Mr Jameson submits that:
"Mr Conneely granted a charge over his right, title and interest in the Castle Hill Property under cl 3.1 of the Guarantee. Mr Conneely acknowledged, by cl 3.3, that the charge was a caveatable interest and consented to the lodgement of a caveat by the Liquidators. That caveat was lodged on 21 May 2021 (being the same day the DOCA and Guarantee were executed). The Liquidators seek to enforce that charge, and to do so require that trustees be appointed under s 66G [of the Conveyancing Act]."
Clause 3 of the Guarantee & Indemnity provided that the charge was granted as security for Mr Conneely's obligations under the DOCA, which include the amount payable under cl 2.6 of the DOCA and interest payable by him under cl 8.2 of the DOCA. I am satisfied that the declaration sought by the Plaintiffs in that regard should be made.
[7]
Appointment of trustee for sale under s 66G of the Conveyancing Act
The Plaintiffs in turn seek the following orders under s 66G of the Conveyancing Act in respect of the sale of the Castle Hill Property. Section 66G(1) and (3) of the Conveyancing Act relevantly provide that:
"(1) Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition. …
(3)(a) Where the entirety of the property is vested at law in co-owners the court may appoint a trust corporation either alone or with one or two individuals (whether or not being co-owners), or two or more individuals, not exceeding four (whether or not including one or more of the co-owners), to be trustees of the property on either of such statutory trusts.
(b) On such appointment the property shall, subject to the provisions of section 78 of the Trustee Act 1925, vest in the trustees."
The term "co-owner" is defined in s 66F of the Conveyancing Act as follows:
"Co-ownership means ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common; and co-owner has a corresponding meaning and includes an incumbrancer of the interest of a joint tenant or tenant in common."
Mr Jameson submits and I accept that the reference to "incumbrancer" here is to be read as "incumbrancee": Boyd v Thorn (2017) 96 NSWLR 390 at [20] and that Messrs Hogan and Sprowles are co-owners of the Castle Hill Property by reason of their charge over Mr Conneely's interest in the Castle Hill Property. Mr Conneely and the Mikcon Group Companies did not raise any contrary contention in their Defence.
Mr Jameson recognises that the Court has a discretion whether to order a sale under s 66G of the Conveyancing Act, but rightly notes that the grounds on which a Court will ordinarily refuse to make such an order are limited: Forgeard v Shanahan (1994) 35 NSWLR 206 at 213-4; Matsen v Matsen [2008] NSWSC 135 at [57]; National Australia Bank Ltd v Pasupati [2011] NSWSC 540 at [20]. He refers to Callahan v O'Neill [2002] NSWSC 877 at [8]-[9], where Young CJ in Eq observed that:
"It is fairly clear that, as a general rule, any co-owner holding at least 50% of a parcel of real property is entitled almost as of right to an order for partition or sale under s 66G of the Conveyancing Act. It is only in situations where it would, under settled principles, be inequitable to permit such an application, including cases where there has been a contract not to make an application that the order may be refused. This appears from cases such as Ngatoa v Ford (1990) 19 NSWLR 72 and Williams v Legg (1993) 29 NSWLR 687.
Accordingly, the forensic onus is on a defendant to show why the order which the plaintiff seeks should be refused."
In Matta v Matta at [9], I observed that:
"An order under s66G of the Conveyancing Act is discretionary, at least in a sense, and the Courts have not identified any comprehensive listing of the matters to be taken into account. However, the Court may decline such an order, for example, if there is a proprietary right or other contractual or fiduciary obligation which would be inconsistent with an order for sale: Macnamara and the Conveyancing Act (1961) 78 WN (NSW) 1068. In Tory v Tory [2007] NSWSC 1078 at [42], White J referred to the authorities and noted that an order under that section "is almost as of right unless on settled principles it would be inequitable to allow the application", although also observing that the application could be refused if there were inconsistent rights of the kinds I have noted above. In Joseph v Agrey [2011] NSWSC 1601, White J similarly expressed the view that it would only be in exceptional circumstances that co-owners were not entitled to such an order. I reviewed the relevant authorities at some length in Pascoe v Dyason [2011] NSWSC 1217 at [5]ff, where I referred to the purpose of the section, as providing a mechanism for terminating co-ownership, where the co-owners could not agree how the co-ownership should be determined, and to the fact that the grounds on which the court would ordinarily refuse to make such an order are limited. In Forrest v Nix [2012] NSWSC 493 at [44], Ball J similarly noted that the general principle was that a co-owner was entitled to an order under s 66G of the Conveyancing Act almost as of right. The relevant authorities have again been reviewed, comprehensively and to similar effect, by Hallen AsJ, as his Honour then was, in NSW Trustee & Guardian v Gregory [above]."
Mr Jameson in turn submits that:
"There is no reason why the order under s 66G should not be made here. The Guarantee provides the Liquidators with a charge which gives rise to co-ownership under s 66F. The failure by Mr Conneely, the grantor of the charge, to pay the Claimed Sum under the Guarantee, and the failure by [the Mikcon Group Companies] to pay interest under the Guarantee, has resulted in the Liquidators having the right to enforce the charge. There is no promise in the Guarantee (or any other document) by the Liquidators not to enforce it or seek s 66G relief."
I accept that submission, subject to the several matters raised by Mr Conneely and the Mikcon Group Companies in their Defence, which I will shortly address, and am reinforced in that view by the fact that an order under this section provides the most effective means to realise Mr Conneely's interest in the Castle Hill Property so as to meet proper third party claims against that interest.
I recognise that Mr Conneely and the Mikcon Group Companies respond to this claim (Defence [36]) that:
"This entitlement is denied for four reasons:
(a) there is no amount due under the DOCA by the [Mikcon Group Companies] for [Mr Conneely] to guarantee;
(b) the provisions of Division 6 in Part 4 of the Conveyancing Act 1919 do not permit the appointment of a single natural person as trustee for sale;
(c) even if (b) were not so the Court would not appoint a plaintiff as a trustee for sale by reason of the potential for a conflict of interest; and even if (a) to (c) were not to be considered;
(d) there is no utility in appointing trustees for sale where the purpose of the appointment is, as demonstrated by prayer 19(d) of the Originating Process, to pay the first and second plaintiffs a debt they claim to be owed when there are two prior encumbrancers, the CBA which is owed about $1.4M and Porters, which is owed about $2.8M, in circumstances where the market value of the Castle Hill Property is about $2.4M, and the Court would therefore not exercise its discretion to make orders under section 66G(1) of the Conveyancing Act."
I do not accept the first of those propositions. As I have found above, by cl 2.6 of the Guarantee & Indemnity, Mr Conneely assumed an obligation, which would not otherwise have existed, to pay the amount that would have been due by the Mikcon Group Companies as future contributions to the Deed Fund, had the DOCA not been terminated. The second proposition does not arise, because the Plaintiffs now seek an order for the appointment of Messrs Hogan and Sprowles, not a single natural person, as trustee for sale.
Mr Jameson refers to the suggested conflict of interest with reference to Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd (2006) 18 BPR 35,209 at [21], where Young CJ in Eq observed that:
"When deciding upon trustees for sale, where there is no consent, four factors usually need to be considered by the court. These are, in no particular order of importance; (1) The principle that the court tends to prefer the preference of the person with the greater interest in the land. … (2) The trustees should be independent and as free from conflict of interests as possible. … (3) The trustees, particularly where they have more active duties than merely to sell a piece of real estate, should have the appropriate skill, expertise and experience; and (4) The court should endeavour to get the best value for the parties' money and see that as between two equally alternative proposals the cheaper is preferred."
Mr Jameson submits that, here:
"… the risk of a conflict of interest or potential conflict of interest is low and would not dissuade the court from appointing the Liquidators as the trustees, for two key reasons. First, the Liquidators seek orders that the proceeds be paid into court (having regard to the deferral of prayer 10 of the OP until the sale has completed), noting the asserted interests of other parties to these proceedings. As such, the court will be able to control the distribution of those proceeds once the sale occurs. Second, even after any priority dispute has been heard (or if there is no priority dispute), the Liquidators are obligated by the Guarantee to apply any funds obtained following enforcement of the charge consistently with cl 2.6; that is, the funds are to form part of the assets in the liquidation of the Company, thus imposing upon the Liquidators their statutory obligations to distribute the proceeds in accordance with the Corporations Act…"
I am not persuaded that a real and sensible conflict of interest arises, where Messrs Hogan and Sprowles and all other claimants on the sale proceeds of the Castle Hill Property have a common interest in maximising the sale price and minimising the sale costs, and the net sale proceeds will be paid into Court so that the Court and not Messrs Hogan and Sprowles will determine completing claims to them.
I do not accept the fourth proposition, where neither the value of the property nor Porters' claim is established by evidence and it is in the interests of all claimants to sell the Castle Hill Property so that their respective claims to its proceeds may be adjudicated and met, to the extent the proceeds of sale of Mr Conneely's interest in that property are sufficient to do so.
For these reasons, I will make the orders sought by the Plaintiffs under s 66G of the Conveyancing Act and associated orders.
[8]
Orders
I direct the Plaintiffs to bring in short minutes of order to give effect to this judgment, including an updated interest calculation, by 18 December 2024 when the matter is next listed for directions, including in respect of the steps to be taken to determine the claims of the third party Defendants against the sale proceeds of Mr Conneely's interest in the Castle Hill Property.
[9]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 12 December 2024