Australian Securities & Investments Commission, In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968 (No 9) v Carey [2006] FCA 1242
[2]
CORPORATIONS - freezing orders affecting property of members of corporate property group - liberty to third parties to apply - option to purchase valuable land - held by member of corporate group as assignee from another member of corporate group - assigned option subject to freezing order - assignor company subject to fixed charge over 'land' and other property classes - assignment of option without notice to chargee - receivers appointed to assignor company under charge - application to vary freezing orders to enable receivers to assert and exercise rights to option held by assignee company - whether appropriate to determine substantive rights as an incident of protective proceedings under s 1323 of Corporations Act 2001 (Cth) - urgency - option due to expire within five weeks of hearing - unresolved question as to validity of option against Responsible Entity for syndicate of investors in relation to land - whether appropriate to make declaration as to whether charge over option fixed or floating at creation - discovery of documents - whether discovery should be ordered in favour of assignee company - relevance to commercial context of charge - relevance to construction of charge - whether charge fixed or floating - criteria for characterisation - case of urgency - no useful purpose served by discovery - discovery oppressive in circumstances of urgency - declaration made - charge fixed - freezing orders varied
Corporations Act 2001 (Cth) s 1323
Federal Court of Australia Act 1976 (Cth)
Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 3) (2006) 57 ACSR 307 cited
Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120 cited
London and South Western Railway Co v Gomm (1882) 20 Ch D 562 cited
In re Yorkshire Woolcombers Association [1903] 3 Ch 284 cited
United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 44 CLR 673 cited
Illingworth v Houldsworth [1904] AC 355 cited
Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 cited
Re Spectrum Plus Limited [2005] 2 AC 680 cited
Waters v Widdows [1984] VR 503 cited
Deputy Commissioner of Taxation v LAI Corporation Pty Ltd (Receivers and Managers Appointed) [1987] WAR 15 cited
Boambee Bay Pty Ltd (In liq) v Equus Financial Services Ltd (1991) 6 ACSR 532 cited
Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880 cited
[3]
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v NORMAN PHILLIP CAREY, GRAEME JOHN RUNDLE, CEDRIC RICHARD PALMER BECK, JOHN NORMAN DIXON, RICHSTAR ENTERPRISES PTY LTD ACN 099 071 968, WESTPOINT REALTY PTY LTD 050 218 954, BOWESCO PTY LTD ACN 008 915 357, REDCHIME PTY LTD ACN 117 947 805, KEYPOINT DEVELOPMENTS PTY LTD ACN 115 507 232, SILKCHIME PTY LTD ACN 066 849 429 AND ROLD CORPORATION PTY LTD ACN 009 358 276
WAD 83 OF 2006
[4]
WESTERN AUSTRALIA DISTRICT REGISTRY WAD 83 OF 2006
[5]
IN THE MATTER OF RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
WESTPOINT REALTY PTY LTD (ACN 050 218 954)
BOWESCO PTY LTD (ACN 008 915 357)
REDCHIME PTY LTD (ACN 117 947 805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
[6]
JUDGE: FRENCH J
DATE OF ORDER: 15 SEPTEMBER 2006
[7]
ON THE MOTION OF THE RECEIVERS AND MANAGERS OF THE PROPERTY OF WESTPOINT CORPORATION PTY LTD APPOINTED BY PERPETUAL NOMINEES LTD AS CUSTODIAN OF THE ING MORTGAGE POOL FOR ING FUNDS MANAGEMENT LTD ABN 21 003 002 800 AS THE RESPONSIBLE ENTITY OF THE ING MORTGAGE POOL (ING) OVER THE PROPERTY OF WESTPOINT CORPORATION PTY LTD AND OVER THE SEVENTH DEFENDANT IN RESPECT OF AN OPTION TO PURCHASE LAND
[8]
The orders made on 30 June 2006 in respect of the seventh defendant be varied to include the following paragraph 4A:
'Shall not prevent Mark Korda, Oren Zohar and David Winterbottom (the "Option Receivers") from exercising all rights, powers, privileges, benefits, discretions and authorities conferred upon them (either jointly or severally) by:
(a) a Deed of Charge granted by Westpoint Corporation Pty Ltd (Receivers and Managers Appointed) (In liquidation) in favour of Perpetual Nominees Limited as Custodian of The ING Mortgage Pool for ING Funds Management Limited ABN 21 003 002 800 as the Responsible Entity of The ING Mortgage Pool ("ING"), dated 28 September 2005, registered with the Plaintiff and having charge number 1298375;
(b) a Deed of Appointment of Receiver made 19 July 2006 between ING and the Option Receivers; and
(c) section 420 of the Corporations Act 2001.'
IT IS HEREBY DECLARED THAT the seventh defendant holds the subject matter assigned by the Deed of Assignment of Option dated 7 October 2005 subject to a fixed charge in favour of Perpetual Nominees Ltd as custodian of The ING Mortgage Pool for ING Funds Management Ltd as the Responsible Entity of The ING Mortgage Pool granted by Westpoint Corporation Pty Ltd (Receivers and Managers Appointed) (In Liquidation) and dated 28 September 2005.
The costs of the motion are reserved.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
[9]
IN THE MATTER OF RICHSTAR ENTERPRISES PTY LTD (ACN 099 071 968)
WESTPOINT REALTY PTY LTD (ACN 050 218 954)
BOWESCO PTY LTD (ACN 008 915 357)
REDCHIME PTY LTD (ACN 117 947 805)
KEYPOINT DEVELOPMENTS PTY LTD (ACN 115 507 232)
BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
[10]
REASONS FOR JUDGMENT ON MOTIONS TO ALLOW
DEALINGS ON OPTION TO PURCHASE WARNBRO LAND
Introduction
1 On 20 April 2006 orders were made under s 1323 of the Corporations Act 2001 (Cth) (the Act) and s 23 of the Federal Court of Australia Act 1976 (Cth) restraining Bowesco Pty Ltd (Bowesco) from disposing of or dealing with its assets pending investigations being carried out by the Australian Securities and Investments Commission into matters relating to Bowesco and other companies associated with the Westpoint Property and Finance Group - Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 3) (2006) 57 ACSR 307.
2 On 30 June 2006 the orders were varied. The substantive freezing order in respect of Bowesco's property is in the following terms:
'Bowesco, by itself, its servants, agents and employees, is restrained until 20 October 2006 or further order, from removing, or causing or permitting to be removed from any State of Australia and from Australia, or selling, charging, mortgaging or otherwise dealing with or disposing of or causing or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of its assets (the "Bowesco Property"), whether held legally or beneficially by it.'
At the time of the orders of 20 April and 30 June 2006 John Patrick Cronin and Shaun Robert Fraser had been appointed as receivers under a Deed of Charge granted by Bowesco in favour of Suncorp-Metway Ltd dated 8 October 2004. While receivers were appointed to the property of other Westpoint companies and officers on 20 April 2006 pursuant to s 1323, no such appointment was sought or made in respect of Bowesco because of the prior appointment of the Suncorp-Metway receivers.
3 Variations to the Bowesco orders are now sought. They relate to an Option held by Bowesco and purportedly assigned to it by Westpoint Corporation Pty Ltd (Westpoint Corporation) in respect of land occupied by the Warnbro Fair Shopping Centre and land adjacent to it.
4 In August 1999 Westpoint Management Pty Ltd (Westpoint Management) was the Responsible Entity for the Warnbro Fair Syndicate and was registered proprietor of:
'(a) Land known as the Warnbro Fair Shopping Centre (being Lot 909 on Diagram 94372 being the whole of the land comprised in Certificate of Title Volume 2121 Folio 890); and
(b) Land known as the Stage 2 Land (being Lot 913 on Diagram 94372 being the whole of the land comprised in Certificate of Title Volume 2121 Folio 888).'
By an agreement dated 31 August 1999 between Westpoint Management and Westpoint Corporation, Westpoint Management granted an Option to Westpoint Corporation to purchase the land. A number of amendments to the Option Agreement were made by agreement between Westpoint Management and Westpoint Corporation between 2001 and 2005.
5 On 28 September 2005 Westpoint Corporation granted a fixed and floating charge over all of its present and future undertaking and property and assets to Perpetual Nominees Ltd as custodian of The ING Mortgage Pool for ING Funds Management Ltd, as the Responsible Entity of The ING Mortgage Pool. For ease of reference Perpetual Nominees in this capacity shall be referred to as ING and the charge as the ING Charge. The ING Charge was registered on 13 October 2005.
6 By a Deed dated 7 October 2005 between Westpoint Management, Westpoint Corporation and Bowesco, entitled a 'Deed of Assignment of Option', Westpoint Corporation assigned the Option to Bowesco. ING was not given notice of and did not consent to the assignment of the Option.
7 On 24 January 2006 Messrs Oren Zohar, David Winterbottom and Mark Korda of KordaMentha Accountants were appointed by ING, under the ING Charge, as joint and several receivers to the property of Westpoint Corporation. They were also specifically appointed, on 19 July 2006, as receivers of the Option held by Bowesco. They are referred to, for present purposes, as the 'Option Receivers'.
8 The Option Receivers, filed a motion filed in these proceedings on 16 August 2006 pursuant to liberty to apply which was granted to third parties who might be affected by the freezing orders made on 20 April and 30 June 2006, applied to vary the orders made on 30 June 2006 to include a paragraph 4A such that those orders:
'Shall not prevent Mark Korda, Oren Zohar and David Winterbottom (the "Option Receivers") from exercising all rights, powers, privileges, benefits, discretions and authorities conferred upon them (either jointly or severally) by:
(a) a Deed of Charge granted by Westpoint Corporation Pty Ltd (Receivers and Managers Appointed) (In Liquidation) in favour of Perpetual Nominees Limited as Custodian of The ING Mortgage Pool for ING Funds Management Limited ABN 21 003 002 800 as the Responsible Entity of The ING Mortgage Pool ("ING"), dated 28 September 2005, registered with the Plaintiff and having charge number 1298375;
(b) a Deed of Appointment of Receiver made 19 July 2006 between ING and the Option Receivers; and
(c) section 420 of the Corporations Act 2001.'
9 Bowesco on the other hand seeks an order, set out in a Minute, in the following terms:
'1. The order made on 30 June 2006 restraining the Seventh Defendant from dealing with the option assigned to the Seventh Defendant by Westpoint Corporation Pty Ltd by deed of assignment dated 7 October 2006 be discharged.
2. The Plaintiff pay the Seventh Defendant's costs in relation to this application and the hearing in relation to the making of the preservation order referred to in order 1.'
10 For reasons which I now publish, I am of the view that the freezing order should be varied as proposed by the Option Receivers and a declaration made in their favour that the Option was subject to the fixed charge component of the ING Charge at its creation.
The evidence
11 The Option Receivers relied upon the affidavits of Oren Zohar sworn 16 August and 7 and 11 September 2006. Bowesco relied upon the affidavits of Norman Carey sworn 8 September 2006 and 13 September 2006. Mr Carey's principal affidavit contained much material that was hearsay and conclusionary. However these proceedings have a degree of urgency about them as it appears that the Option, if still valid, will expire on or about 20 October 2006. The qualification 'if still valid' refers to an issue that may arise between ING and Elderslie Property Ltd, which has succeeded Westpoint Management as the Responsible Entity for the Warnbro Fair Syndicate.
12 Bowesco's counsel submitted that part of its case in opposition to the argument that ING has any interest in the Option was that the ING Charge, so far as it affected the Option, was a floating charge. Bowesco contended that the assignment of the Option was part of the ordinary course of Westpoint Corporation's business and that the Option, as an asset of Bowesco, was not the subject of the fixed part of the charge. That is to say, the assignment by Westpoint Corporation of the Option to Bowesco was not in breach of the ING Charge and Bowesco was not affected by any equity in favour of ING. Alternatively, if the Option were subject to the fixed charge, ING had waived its rights in relation to a dealing with the Option. Counsel submitted that in order to properly advance its contention, Bowesco needed access to a range of documents, in particular documents which had been seized by the Australia Securities and Investments Commission (ASIC), going to the nature of the Westpoint Group business, the course of negotiations prior to the grant of the charge and the post charge course of business which would inform the construction of the charge and support the contention that it was a floating charge so far as it affected the Option. The post charge dealings were also directed to an alleged waiver by ING of rights in relation to business dealings with property nominally covered by the charge which waiver, was said to extend to the assignment of the Option .
13 I heard argument on the merits of the motions and adjourned the matter part heard on the basis that further argument could be advanced going to the necessity for the proposed discovery or production of documents on subpoena. Bowesco was given leave to file any further affidavit upon which it might wish to rely by close of business on Wednesday, 13 September 2006. A supplementary affidavit sworn by Mr Carey was filed on 13 September 2006. The matter came back for argument yesterday, Thursday, 14 September 2006, and judgment was reserved until today. In the course of argument on both days questions arose about the extent to which the variation orders sought would resolve disputes about the ownership of the assigned Option. Incidental to those questions was the concern whether it is appropriate for the Court in proceedings relating to the implementation of orders made under s 1323 to determine substantive disputes as to property rights affected by such orders. These questions are considered below.
The nature of these proceedings, the alternative dispositions and their utility
14 The motions relating to the variation of the orders of 30 June 2006 as against Bowesco arise as an incident of these proceedings which were brought by the ASIC for the appointment of receivers and for freezing and asset disclosure orders in relation to a number of companies and individuals associated with the Westpoint Group, of which Bowesco is one. It seems that both the Option Receivers and Bowesco seek a variation of orders which affect Bowesco's capacity to deal with the Option as a property of Bowesco. Underlying this however, is the Option Receivers' substantive position that, in effect, Bowesco holds the Option with notice of ING's ownership of it and thereby presumably as constructive trustee of it for ING. The real argument raised between the two parties is about the effective ownership of the Option and whether, in equity, it belongs to ING or to Bowesco.
15 The substantive question arises as an incident of the implementation of the orders made pursuant to s 1323 of the Act . Those orders were made as a protective measure with respect to assets held by companies in the Westpoint Group pending the outcome of ongoing ASIC investigations into the affairs of the Group. In the ordinary course it is undesirable and potentially confusing to decide substantive property disputes as an incident of the implementation and application of such orders.
16 In this case there is a degree of urgency about the realisation of such benefits as the Option may yield. It may potentially provide access to a very valuable property. It is in nobody's interests that, if valid, it should be allowed to expire pending resolution of a dispute about its ownership. Arising out of that concern, I was prepared to hear argument on the substantive question as well as the desirability of dealing with it as an incident of these proceedings as against requiring the parties to commence separate proceedings. Incidental to these arguments was Bowesco's contention that no substantive determination should be made without it having had an opportunity to obtain the production of documents by way of discovery or subpoena so that it could mount arguments relevant to the construction of the charge based on the factual matrix in which it was created. In particular, Bowesco wished to advance an argument that the assignment to it of the Option was part of the long-standing ordinary course of business of Westpoint Corporation in choosing special purpose vehicles from within the Westpoint Group to implement specific property development projects. The Option Receivers on the other hand maintained that the production of documents was neither necessary nor appropriate in order to properly construe the ING Charge. They pointed out that there are some 3,000 boxes of documents which have been seized by ASIC and which it would be necessary to consider in order to respond to the discovery sought. In the circumstances, that would be oppressive.
17 Another aspect of the debate ventilated yesterday was that, even if Bowesco were to succeed in its contention that the Option was not the subject of the fixed charge component of the ING Charge, there would still be questions between the liquidators of Westpoint Corporation and Bowesco as to whether the assignment of the Option was an uncommercial transaction.
18 A further complication is that Mr Simon Reid and Mr Andrew Beech were appointed as liquidators of Westpoint Management on 11 April 2006. They would therefore appear to have assumed its responsibilities as Responsible Entity for the Warnbro Fair Syndicate. On 4 August 2006 the members of the Warnbro Fair Syndicate voted to replace Westpoint Management (effectively, the liquidators) with Elderslie Property Ltd (Elderslie) as Responsible Entity. Mr Zohar's supplementary affidavit of 7 September 2006 confirms, by reference to an ASIC search, that Elderslie has been the Responsible Entity since 9 August 2006. According to Mr Zohar, Elderslie has been taking steps to sell the land the subject of the Option in a way that is inconsistent with the regime under the Option Agreement and detrimental to the Option Receivers' efforts to realise the benefit of the Option.
19 In a circular letter dated 30 August 2006 to persons who had expressed interest in acquiring the Warnbro Fair Shopping Centre, Elderslie stated that it had:
'(a) with effect from 9 August 2006 replaced Westpoint Management as Responsible Entity of the Warnbro Fair Syndicate;
(b) negotiated with the Lender who appointed KordaMentha as receiver and manager to terminate the appointment of KordaMentha with effect from 25 August 2006.'
According to Elderslie the result was that it had become the owner of the centre and that KordaMentha was no longer in a position to sell it. Elderslie said in the circular letter that it was committed to selling the centre and looking to settle the sale as soon as practicably possible. The letter made no reference to the Option.
20 It is apparent from these matters that if the Court were to determine and make a declaration, as an incident of these proceedings, that the Option was not subject to the fixed component of the ING Charge, issues would remain as between Bowesco and the Westpoint Corporation liquidators about the validity of the assignment of the Option. Over and above that, there would appear to be a question between Elderslie and Bowesco about the validity of the Option. If a declaration were to be made that the Option were subject to the fixed component of the ING Charge, then an outstanding question could still arise between the Option Receivers and Elderslie about the validity of the Option. That of course might be resolved commercially. It is also necessary to bear in mind that Elderslie is not a party to the present proceedings.
21 In the meantime the Option Receivers say that they have negotiated with a third party (the Nominee) at arms length so that if the freezing orders are varied as proposed, the Nominee can take and exercise the Option. Mr Zohar's supplementary affidavit of 7 September 2006 says that the details and status of this negotiated arrangement are confidential and commercially sensitive. They were not further disclosed in the affidavit. He said that the Nominee would not be in a position to exercise the Option and complete the purchase of the property until the freezing orders had been varied. Mr Zohar said that the Nominee wishes to exercise the Option immediately. Subject to Elderslie's compliance with the terms of the Option Agreement he anticipated that settlement of the sale of the property would take place 30 days after the exercise of the Option. Funds would then be available to pay the investors and creditors of the Warnbro Fair Syndicate. Any delay in the determination of the application would delay that distribution. Mr Zohar also said that he believed that any delay in exercising the Option would prejudice the position of the Option Receivers and/or the Nominee for the following reasons:
(a) The Nominee has already completed its due diligence and inquiries in relation to the property and calculated its price accordingly. On that basis the Nominee wishes to have settlement of the sale of the property as soon as possible. Any delay would increase the prospects of a material change in circumstances; and
(b) The steps being taken by Elderslie to sell the property independently of the Option are in direct conflict with the rights of the Option Receivers and the Nominee under the Option Agreement.
22 Mr Norman Carey who swore affidavits in support of Bowesco's position in these proceedings asserted that there are a number of alternative ways in which Bowesco could facilitate the development or alternatively obtain potentially long term benefits. It could undertake the property development in its own right by entering into a 'turn key' design and construction contract backed by a financier. Alternatively, he said, there are a number of property developers who would be interested in participating in the development and effectively undertaking the role originally envisaged for Westpoint Corporation. Given the existing income stream from the established shopping centre and the prospective income from the stage 2 development, there would be a number of financiers and investors who would be interested in providing development finance.
23 Mr Carey claimed, that from his experience as a property developer, he knew that the development of the property as he outlined it was the most appropriate way to achieve the maximum benefit for Bowesco from its right to exercise the Option. This included the opportunity to deliver to Bowesco a long term interest in the Warnbro Fair Shopping Centre and the stage 2 development on the adjacent vacant land. A long term interest of that type, given Bowesco's investment strategy, would be of significantly greater value than a mere sale of the Option for cash.
24 Mr Carey asserted that the mere sale of the Warnbro Option as proposed by Mr Zohar would result in the least possible benefit flowing to the Warnbro Option holder. The real value of the Option lay in the opportunity it provided to develop and maintain a long term interest in the developed property. Mr Carey asserted that the sale of the Warnbro Option in the manner proposed by Mr Zohar would result in substantial prejudice being suffered by Bowesco. If it were ultimately found by the Court that Bowesco were entitled to the Warnbro Option, the prejudice would not be ameliorated by the sale of the Option for cash given that the proposed sale was not the most effective way to exercise and fulfil the rights granted.
25 Mr Carey's evidence on this point reflected a somewhat speculative and optimistic view of what Bowesco could do if it exercised the Option. Given the current travails of the Westpoint Group generally and of Mr Carey in particular, common sense suggests that the prospects of finding major finance for a development in which Bowesco would have any role to play would not be great.
26 The evidence relating to the commercial imperatives behind an early resolution of the dispute about the Option rights and the comparative benefits to be obtained through sale of the Option by the Option Receivers on the one hand, and its exercise by Bowesco on the other, does not inform the construction of the charge. That evidence however highlights the urgency of a resolution of this matter and, to that extent, informs the procedure which should be followed for its resolution including the question whether discovery should be ordered and the proceedings further adjourned.
27 The orders made on 20 April 2006 and 30 June 2006 in relation to the property of Bowesco were freezing orders. The substantive question in this case goes to the scope of the property affected by those orders. If the Option is in truth subject to the ING fixed charge, then the Option Receivers should not be hampered in their ability to enforce the charge disposing of the Option. The Option Receivers, in the course of their submissions, proposed that the Court should make a declaration, if it so found, that the Option was subject to the fixed charge component of the ING Charge. If such a finding were made in favour of the Option Receivers, then it would determine the question of the entitlement to the Option rights as between the Option Receivers and Bowesco. Any wider dispute between the Option Receivers and Elderslie would have to be resolved in separate proceedings or by some form of commercial negotiation. On the other hand if the Court were of the opinion that the Option was not subject to the fixed component of the ING Charge, a number of matters would remain to be resolved going to its ownership. In that event, a declaration would not be desirable.
28 In my opinion, I should proceed to consider the Option Receivers' contention that the Option is subject to the fixed charge and decide whether I can resolve that question without directing interlocutory discovery and/or production of documents under subpoena as is sought by Bowesco. If I decide adversely to Bowesco on that procedural question, then I will determine whether or not the declaration sought by the Option Receivers should be made. If I decide in favour of Bowesco in relation to that question, then two courses are open:
The matter is further adjourned and orders made for an expedited trial of the issue in these proceedings or the commencement of separate proceedings in relation to the charge and the assignment.
The Option be dealt with in order to protect the position of all parties by the appointment of a receiver to the Option under s 1323 empowered to assign it to the Option Receivers on a proviso that the proceeds are to be held pending resolution of the entitlement to them.
The question of validity of the Option as between the Option Receivers and Elderslie would have to be resolved between them.
The Option Agreement
29 The Option Agreement was dated 31 August 1999 and made between Westpoint Management and Westpoint Corporation. It recited that Westpoint Management had entered into agreements to become the registered proprietor and owner in fee simple of the property defined as Lots 913 and 909 on Diagram 94372 with two certificates of title, volume 2121 folio 888 and volume 2121 folio 890. The Option fee was the sum of $100. The purchase price of the property, which was to be payable upon the exercise of the Option, was to be calculated according to a formula set out in cl 6 of the Option Agreement. The purchase price was to be the greater of :
'(i) The sum calculated in accordance with the formula in clause 6(b)(i) and
(ii) The sum determined in accordance with clause 6(b)(ii).'
The formula was (PP = [BR + PR + VR + I] - Q) /PY. In that formula 'PP' meant Purchase Price. 'BR" meant rent payable by tenants of the property for the month in which the Relevant Date fell multiplied by 12. 'PR' meant any percentage or turnover rent paid or payable by a tenant for the 12 months ending on the last day of the month preceding the month in which the Relevant Date fell. 'VR' meant the annual market rent of any part of the property which was lettable but vacant at the relevant date. 'I' meant the total of all other income collected for the 12 months ending on the last day of the month preceding that in which the Relevant Date fell. The various sources of that income were then set out. 'PY' meant the passing yield referred to on page 3 of the Prospectus lodged on 25 August 1999 with ASIC by Westpoint Management to raise $9,660,000 to allow its participation in the purchase of the property. The effective purchase price was varied downwards by amendments made to the Option between 2001 and 2005.
The ING Charge
30 The ING Charge was dated 28 September 2005 and was made between ING and Westpoint Corporation. The quantum of the Secured Money was not defined by the Charge.
31 The nature of the Charge was set out in cl 4.1, which provides:
'Nature of Charge
This document constitutes:
(a) a fixed charge over any interest of the Chargor in any present or future:
(i) land;
(ii) goods, plant and equipment (other than stock in trade);
(iii) marketable security or unit in a unit trust;
(iv) goodwill attaching to any property or business;
(v) Licence;
(vi) uncalled and called but unpaid capital of the Chargor and premiums on capital of the Chargor;
(vii) books of account and other documents, records and software relating to the Chargor's business and activities;
(viii) Title Document to any property;
(ix) intellectual property rights, including all patents, copyrights, trade and service marks, business names, designs, trade secrets and confidential information whether registered or not and any rights relating to any of them;
(x) Encumbrance over any property;
(xi) right relating to any Compensation Event;
(xii) benefit of any contract to which the Chargor is a party, including any insurance policy; and
(xiii) Charged Debt, proceeds of any Charged Debt and money from time to time standing to the credit of the Deposit Account; and
(b) a floating charge over the balance of the Secured Property.'
The Priority Deed
32 On 28 September 2005 ING also entered into a Priority Deed with Treasury Custodians Pty Ltd, St George Bank Pty Ltd, Perpetual Trustee Australia Ltd, Bowesco and Westpoint Corporation. The Priority Deed related, inter alia, to Lender Securities which were defined in cl 1.1 to mean:
'(a) Each registered mortgage over the Land given by the Security Provider to the Lender;
(b) Each registered fixed and floating charge in favour of the Lender from the Security Provider over the whole of its assets and undertaking; and
(c) any other present or future Security granted by the Security Provider to the Lender relating to the property referred to above.'
The 'Security Provider' was defined as Westpoint Corporation. The Lender was ING. The securities referred to in the Deed included the Lender's security. The fifth financier's security referred to securities held by Bowesco from Westpoint Corporation.
33 In cl 2.1 of the Priority Deed the parties agreed that the securities, to the extent that they affected the same property, would rank at law and in equity in the following order of priority:
'(a) first, the Lender Security to the extent of all amounts the payment of which is secured by the Lender Securities, up to a maximum of $46,200,000 plus:
(i) interest…;
(ii) all accrued but unpaid costs and expenses…;
(iii) all Taxes and registration and other fees….'
This placed, as a first priority as against other intra-group securities, the securities held by Perpetual Nominees including the ING Charge.
The Loan Agreement
34 A Loan Agreement also dated 28 September 2005 was entered into between ING, Westpoint Corporation, Vannin Pty Ltd, Huntingdale Village Pty Ltd, Silkchime Pty Ltd and Warwick Entertainment Centre Pty Ltd.
35 ING was referred to in the document as the 'Lender'. The borrowers were the other parties just mentioned. They were set out in Schedule 1 of the Loan Agreement. Clause 9.4 of the Loan Agreement provided, inter alia:
'The Borrower must ensure that each Transaction Party
…
(c) Disposals: does not dispose of any of its assets, either in a single transaction or in a series of transactions whether related or not and whether voluntary or involuntary except disposals:
(i) made with the prior consent of the Lender; or
(ii) made for market value in the ordinary course of its ordinary trading business.'
36 The Loan Agreement itself was preceded by a letter dated 8 September 2005 to the directors of Westpoint Corporation from brokers called the Treasury Group of Companies (the Treasury Group). It was Mr Carey's evidence that Westpoint Corporation had developed a relationship with the Treasury Group. The Treasury Group had negotiated a number of significant finance facilities for companies within the Westpoint Group. He stated his belief the Treasury Group had begun to understand the business model and approach taken by the Westpoint Group of Companies and, more particularly, by Westpoint Corporation and that it began to understand 'the financial needs of the Westpoint Group'.
37 According to Mr Carey, in the months leading up to September 2005, negotiations took place between Westpoint Corporation and the Treasury Group with a view to the Treasury Group 'sourcing' a substantial finance facility for Westpoint Corporation. These negotiations were principally undertaken by Mr Graeme Rundle, the chief financial officer of Westpoint Corporation and the Westpoint Group. Under the management structure of the Group Mr Rundle reported to Mr Carey. Given the significance of the facility being negotiated with the Treasury Group Mr Carey was personally involved with the 'senior decisions' in relation to that facility.
38 Mr Carey referred to the letter dated 8 September 2005 whereby, he said, the Treasury Group:
'… made a formal offer of a loan facility of $45,294,000 with the purpose of refinancing existing lenders and providing an ongoing "sell down" or, further, working capital for Westpoint Corporation.'
Under the facility Westpoint Corporation and a number of Westpoint Group of Companies were to provide real property security as the initial security under a Perpetual Facility Agreement. The lender under the Perpetual Facility Agreement was to be ING.
39 The letter of offer of 8 September 2005 was exhibited to Mr Carey's affidavit. It identified the lender as ING and the borrowers as Westpoint Corporation, Vannin, Huntingdale Village, Silkchime and Warwick Entertainment Centre. The loan amount was specified as $45,294,000 but not exceeding 70% of the value of the real estate security. The loan term was three years. The purpose of the loan was stated to be 'to refinance existing Lenders and provide a sell down facility'.
40 Under the heading 'Security' the letter stated:
'You acknowledge that the loan will be secured by the following transaction documents. Settlement of the loan is conditional upon this security being provided in form and substance satisfactory to the Lender.'
Under the heading 'Registered First Mortgage Over Properties at ….', there was a list of properties. Under the heading 'Joint and Several Guarantees of …', four companies were listed including Westpoint Management. Mr Carey was also listed as a joint and several guarantor. Under the heading 'First Ranking Debenture Charges of the Assets and Undertaking ….', there appeared a list of companies including Westpoint Corporation and Westpoint Management. The further securities listed included a Deed of Priority between the first and second mortgagees and a Deed of Cross Collateralisation between all borrowers and guarantors within the facility. In submissions made on behalf of Bowesco reliance was placed upon the specific list of first mortgage securities to support the proposition that the ING Charge as subsequently entered into as part of the loan transaction was not intended to be fixed as to the Option.
41 In my opinion the letter of 8 September 2005 was overtaken by the terms of the Loan Agreement and the charge which were plainly intended, along with the Priority Deed, to be the documents defining the relationships between the parties. The letter does not govern the construction of the charge nor the scope of its application in matters relevant to this proceeding.
Negotiations and post transaction dealings in relation to the Perpetual Facility
42 According to Mr Carey he was informed by Mr Rundle and believed:
[11]
Counsel for the Applicant: Mr S Owen Conway QC and Mr N Gvozdin
[12]
Solicitor for the Applicant: Australian Government Solicitor
[13]
Solicitor for the Respondent: Hammond Worthington
Counsel for the Option Receivers: Mr JA Thomson
Solicitor for the Option Receivers: Corrs Chambers Westgarth
Date of Hearing: 14 September 2006
[14]
Date of Judgment: 15 September 2006
Parties
Applicant/Plaintiff:
Australian Securities & Investments Commission, In the Matter of Richstar Enterprises Pty Ltd ACN 099 071 968 (No 9)
The negotiations with the Treasury Group were undertaken on the basis that the finance facility to be provided through them was to consolidate and refinance Westpoint Group's property loans and to release an amount of the facility for use by Westpoint Corporation's working capital.
In undertaking the negotiations all parties understood that the Westpoint Group had a number of finance facilities in relation to the properties and development projects held at that time. The proposed facilities would enable a significant proportion of the borrowings to be consolidated under one facility.
The negotiations with the Treasury Group also proceeded on the basis that once established the facility would allow the Westpoint Group to sell completed properties held for sale (as opposed to projects under development) which were then, if sold for the amount of their valuation or a greater amount, to be sold and the proceeds paid to reduce the amount of the facility. If newly completed project stock became available those properties would be included as replacement security under the facility in order to support future draw downs.
The negotiation with Treasury Group and subsequently with officers from Perpetual and ING focused nearly entirely on the consolidation and refinancing of the Westpoint Group's property assets. Treasury Group, ING and Perpetual were said to have shown very little or no interest in any other assets or activity of Westpoint Corporation or of the Westpoint Group other than the real property assets.
There was no suggestion during the negotiations that the security provided would operate over Westpoint Corporation's assets or the Westpoint Group's assets other than property assets. That is, according to Mr Carey's evidence of what Mr Rundle told him, there was no suggestion or discussion in relation to any options held by, or the benefits of any contracts, to which Westpoint Corporation or the Westpoint companies would be entitled. There was no suggestion that the lender would in any way participate in the every day business activities of Westpoint Corporation or would require Westpoint Corporation to obtain its written approval before undertaking dealings. The facility was to assist Westpoint Corporation undertake its usual course of business and not interfere with that course of activity.
It was understood by all parties that any rights held by Perpetual under the Perpetual Facility Agreement would only be acted on if there were a default in the mortgages which would be given by the relevant Westpoint Group companies which held property to be included under the Perpetual Facility Agreement.
43 Plainly enough, this evidence has two vices. First it is hearsay. Mr Carey is recounting what he says Mr Rundle told him. Secondly, it is entirely conclusionary. However, I take it as setting out the findings which Mr Carey would seek in support of his contention that the Option was not subject to the fixed component of the ING Charge.
44 Mr Carey also gave evidence of the course of business followed under the Perpetual Facility Agreement. That has no relevance to the construction of the charge. It does appear to be relied upon by Bowesco however, as indicative of a waiver of ING's rights on the assumption that there was a fixed charge. There was no basis for the suggestion that such waiver, if there were one, was supported by any consideration. In any event, it was a waiver which, as the Option Receivers pointed out, had only just over a week to operate, that being the time between the date of the charge and the date of the assignment. In my opinion, the waiver argument had no substance.
The Deed of Assignment
45 The Deed of Assignment of the Option was dated 7 October 2005. The parties to it were Westpoint Corporation as the Responsible Entity of the Warnbro Fair Syndicate, Bowesco as assignee and Westpoint Management.
46 Under the Deed, Westpoint Corporation assigned to Bowesco absolutely (cl 2.1):
'(i) the Option; and
(ii) any and all of its benefits/rights under the Option Agreement; and
(iii) any other right, title or interest it has in the property.'
In consideration of the assignment Bowesco acknowledged and agreed to pay Westpoint Corporation $100 and assume all of its assignor's obligations under the Option Agreement and the terms and conditions contained and referred to in the contract which was annexed to the Option Agreement.
The date of creation of the assignment
47 The Deed of Assignment of the Option was dated 7 October 2005. Mr Carey said that the Westpoint Corporation business plan in relation to the Warnbro Fair Shopping Centre and stage 2 had as an element the assignment of the Option to a 'single special purpose vehicle for undertaking the development'. That special purpose vehicle would exercise the Option and pay the consideration contemplated under the Option Agreement. By the time the Option was exercised, Westpoint Corporation would have identified a major discount retailer who would be prepared to take up the principal lease which would be leased once the stage 2 land was developed. The special purpose vehicle would then arrange finance for the construction of the stage 2 development. This would be leveraged against income from the existing Warnbro Fair Shopping Centre and from the rental to be achieved from the major discount retailer taking up the anchor tenancy in the stage 2 development. If it were possible to do so the development vehicle would seek to finance the development by agreeing with the major discount retailer some form of financial securitisation backed by that retailer.
48 Prior to, or during the course of finalising the financial arrangements, the development vehicle would enter into contracts with Westpoint Corporation for the management of the overall project development, Westpoint Management for its management and Westpoint Constructions in relation to the construction works. It would also enter into arrangements with Westpoint Realty in relation to the provision of realty services to the project vehicle including initial lease agreements between tenants for the stage 2 property and further, for long term services for property and asset management. The development vehicle would hold an ongoing interest in the Warnbro Fair Shopping Centre and the stage 2 retail development.
49 Mr Carey said that, during 2004, Westpoint Corporation sought to identify a major discount retailer. The retailer known as 'Big W' 'emerged as that tenant and/or partner to anchor the proposed development'. Mr Carey's recollection was that Big W issued a letter of offer giving notice that it would, subject to other terms and conditions being agreed, take up the anchor tenancy. The lease document to be entered into between Big W and the special purpose vehicle had been prepared and was in final form including settling the rent to be paid.
50 Mr Carey said he made the decision on behalf of Westpoint Corporation that the Warnbro Fair Option should be assigned to Bowesco. That is to say he identified Bowesco as a development vehicle and, accordingly, the vehicle to whom the Option should be assigned in readiness for undertaking the business plan identified therein. He said there was nothing unusual in that decision. Bowesco was what he described as a 'non-Westpoint Corporation related party' and under accounting standards to be introduced in 2006 any fee profits earned by the Westpoint Group of Companies for providing services to the development could be accounted for as they were earned rather than after the project was completed as required if the development is undertaken by a related party. This, he said, represented a significant advantage to a group requiring consistent earnings to be shown on its profit and loss account.
51 It may be noted at once that there is nothing about Bowesco that marks it out as a project development vehicle. Indeed, Bowesco, as Mr Carey's affidavit showed, is the trustee of the Dyson Family Trust, whose beneficiaries are Mr Carey's two children.
52 Mr Carey also said in his affidavit that he was informed by the director of Bowesco, Ms Carey-Hazell, who is his sister, that Bowesco wishes to exercise the Warnbro Option and purchase the Warnbro Fair Shopping Centre and the stage 2 land. To the extent that this suggests that Ms Carey-Hazell exercised some independent judgment in her capacity as the director of Bowesco, I would not accept it on the basis of Mr Carey's evidence. It is quite apparent that Mr Carey has operated as the effective controller of companies within the Westpoint Group. The suggestion, implicit in paragraph 44 of his affidavit, that his sister has informed him of Bowesco's wish to proceed with the development, as though that were some independent judgment, is inherently implausible and not accepted. I do not accept that Mr Carey had decided as early as 2004 that Bowesco would be the vehicle for the Warnbro Fair Option. I do not accept that it would have made any difference if he had.
53 In paragraph 52 of his affidavit Mr Carey stated his belief that there would be documents in the books and records of Westpoint Group which would evidence, inter alia:
'whether it had been agreed or understood that Bowesco was to be the special purpose vehicle for undertaking the Warnbro Shopping Centre and Stage 2 development and when that agreement and understanding had been concluded or reached.'
I do not believe that that issue, which goes to intra-group dealings and as to which I do not accept Mr Carey's evidence in any event, has any bearing on the construction of the ING Charge.
54 In his further supplementary affidavit of 11 September 2006 Mr Zohar noted that the Bowesco submissions are based on the premise that the Deed of Assignment was created on 7 October 2005. He referred to evidence from an IT specialist in the employ of KordaMentha that the programmatic content of the Deed of Assignment in the computer system of Westpoint Corporation shows that the assignment document was created on 19 January 2006 and last saved on to the computer system on 24 January 2006. There were also some four documents on the computer image, each identified as a 'seven day plan of action'. They were dated 15 December 2005 in the case of the first two documents and 13 January 2006 and 17 January 2006 in relation to the third and fourth documents. Item 11.7 included in each action plan referred to the Warnbro Fair Syndicate and under the heading 'Action' there appeared the words 'assignment of option agreement (draft with NC for approval)'. This suggests that the assignment of the Option may have been backdated.
55 On the question of possible backdating, Mr Carey said in his second affidavit that on the limited documents available to him he could not recollect why the Deed of Assignment was dated 7 October 2005. He claimed that given his decision to assign the Option to Bowesco in 2004, a date in that year should have been specified. He said that, in executing the Deed of Assignment, he did not intend to mislead any party in relation to the assignment. The decision had already been made in 2004 to assign the Option. This was pursuant to Westpoint Corporation's business plan originally devised in 1999 in relation to the development of the stage 2 land. Counsel for Bowesco made reference to a prospectus for the Warnbro Fair Syndicate which was published in 1999 in which reference was made to plans for stage 2. Mr Carey said that Bowesco accepted the Option because, at the relevant time, he was seeking to identify long term investments to be held by Bowesco. The development of stage 2 would provide such a benefit to that company.
56 In his affidavit of 29 March 2006 Mr Zohar exhibited a copy of a letter from the Perron Group to Westpoint Corporation dated 23 December 2005 in which the Group offered to purchase the Option from Westpoint Corporation for $1 million. Although $100 option assignment fees had featured in previous Westpoint Group dealings, the actual value of the Option, given the timing of the assignment and the creation of the charge, casts a significant cloud over its legitimacy.
Whether the ING Charge was a fixed or floating charge with respect to the Option
57 The terms of the ING Charge are explicit. It constitutes a fixed charge over, inter alia, any interest of the Westpoint Corporation in:
'(i) land;
…
(x) Encumbrances over any property;
(xii) benefit of any contract to which the Chargor is a party, including any insurance policy;'
58 An option to purchase land gives to its grantee an equitable interest in the land - Barba v Gas & Fuel Corporation of Victoria (1976) 136 CLR 120 at 137 (Gibbs J, Stephen and Jacob JJ agreeing). Gibbs J quoted Jessel MR in London and South Western Railway Co v Gomm (1882) 20 Ch D 562 at 581:
'The right to call for a conveyance of the land is an equitable interest or equitable estate. In the ordinary case of a contract for purchase there is no doubt about this, and an option for repurchase is not different in its nature. A person exercising the option has to do two things, he has to give notice of his intention to purchase, and to pay the purchase-money; but as far as the man who is liable to convey is concerned, his estate or interest is taken away from him without his consent, and the right to take it away being vested in another, the covenant giving the option must give that other an interest in the land.'
On its face therefore the ING Charge applies, as a fixed charge, to the Option as an interest in land.
59 Bowesco submitted that the designation of a charge as a fixed charge is not conclusive of the question whether it is fixed or floating. It referred to the decision of Romer LJ in Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 in which it was said that a charge is a floating charge if:
it is a charge on a class of assets of a company present and future;
that charge is one which in the ordinary course of the business of the company would be charged from time to time; and
by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way so far as concerns the particular class of assets.
60 In United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673, Mason J (with whom Barwick CJ, Gibbs and Wilson JJ agreed) referred to In re Yorkshire Woolcombers Association and noted its affirmation on appeal by the House of Lords in Illingworth v Houldsworth [1904] AC 355. His Honour cited Lord Macnaghten in the latter case who said (at 358):
'A specific charge, I think, is one that without more fastens on ascertained and definite property or property capable of being ascertained and defined; a floating charge, on the other hand, is ambulatory and shifting in its nature, hovering over and so to speak floating with the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp.'
61 In the United Builders' case, two companies carried on a business in partnership. One of the companies charged all of its right, title and interest in the partnership in favour of the other in order to secure a loan made for extraneous purposes. The company later borrowed other moneys from another lender and gave as security a debenture mortgage which created a floating charge. In the winding up of the debtor company a question arose concerning the priority of the two securities. The majority held, with Stephen J dissenting, that the charge over the debtor's interest in the partnership was a fixed not a floating charge. In the course of his judgment Mason J said (at 686):
'If the subject of the present charge was the property and undertaking of [the debtor company] there would be no doubt that the charge was of the floating variety. Otherwise [the debtor company] would be unable to dispose of its assets in the ordinary course of its business and [the creditor company] would not have the benefit of a charge on future assets.
But the problem here is that the property over which the charge has been given is not the undertaking, or any part of the general assets, of [the debtor company] but its interest in the partnership.'
His Honour went on to hold that what the charge did was to confer an entitlement in the holder on dissolution of the partnership in relation to the partner's share of the partnership assets. As may be seen, the point upon which the decision turned in that case was to do with the nature of an interest in a partnership rather than the point with which the Court is concerned in the present case. It is perhaps a matter of some significance that the ING Charge is not expressed to be, in its fixed component, a charge over the whole of the undertaking of Westpoint Corporation. The fact that the application of the fixed charge is expressed distributively over specifically identified categories of property, supports the construction that the intention was to create a charge of the kind that it is expressed to be.
62 Counsel for Bowesco also referred to recent decisions of the Privy Council and the House of Lords. In Agnew v Commissioner of Inland Revenue [2001] 2 AC 710, the Privy Council, on appeal from the Court of Appeal of New Zealand, was concerned with the character of a charge over book debts. At 725 their Lordships said:
'The question is not merely one of construction. In deciding whether a charge is a fixed charge or a floating charge, the court is engaged in a two-stage process. At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or a floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of categorisation. This is a matter of law. It does not depend on the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it.'
63 In Re Spectrum Plus Limited [2005] 2 AC 680 the House of Lords considered the characterisation of a charge over book debts. Lord Hope acknowledged at [54] that there are a number of ways to ensure that a charge over book debts is fixed. He referred to Professor Sarah Worthington's article An 'Unsatisfactory Area of the Law' - Fixed and Floating Charges Yet Again, (2004) 1 International Corporate Rescue, 175 at 182. Lord Hope set out ways to fix a charge over book debts. They were to:
' … prevent all dealings with the book debts so they are preserved for the benefit of the chargee's security. … Another is to prevent all dealings with the book debts other than their collection, and to require the proceeds when collected to be paid to the chargee in reduction of the chargor's outstanding debt…. A third is to prevent all dealings with the debts other than their collection, and to require the collected proceeds to be paid into an account with the chargee bank. … A fourth is to prevent all dealings with the debts other than their collection and to require the collected proceeds to be paid into a separate account with a third party bank.'
64 Lord Scott said (at [111]):
'In my opinion, the essential characteristic of a floating charge, the characteristic that distinguishes it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime the chargor is left free to use the charged asset and to remove it from the security.'
65 At [138] Lord Walker referred to what he called '… the essential difference between a fixed charge and a floating charge'. He said:
'Under a fixed charge the assets charged as security are permanently appropriated to the payment of the sum charged, in such a way as to give the chargee a proprietary interest in the assets. So long as the charge remains unredeemed, the assets can be released from the charge only with the active concurrence of the chargee. The chargee may have good commercial reasons for agreeing to a partial release. If for instance a bank has a fixed charge over a large area of land which is being developed in phases as a housing estate (another example of a fixed charge on what might be regarded as trading stock) it might be short-sighted of the bank not to agree to take only a fraction of the proceeds of sale of houses in the first phase, so enabling the remainder of the development to be funded. But under a fixed charge that will be a matter for the chargee to decide for itself.'
66 Counsel for Bowesco relied upon the observation of Lord Walker that when a bank takes a charge there are normally at least three documents in play, the debenture creating the charge, the bank's facility letter offering a term loan or overdraft and the bank's general terms and conditions. Lord Walker would rule out the possibility that in some, probably rare cases, all these documents might have to be taken into account, in its proper commercial context, in determining whether a charge 'as created' was a fixed or floating charge.
67 Counsel also referred to Waters v Widdows [1984] VR 503, another case concerning a charge over book debts. Nicholson J, after citing re Yorkshire Woolcombers found an inescapable inference that it was intended that the chargor company in that case should continue to carry on its business in the ordinary way so far as its book debts and stock in trade were concerned.
68 In Deputy Commissioner of Taxation v LAI Corporation Pty Ltd (Receivers and Managers Appointed) [1987] WAR 15, the Full Court of the Supreme Court of Western Australia was concerned with the application of a statutory garnishee under the Sales Tax Assessment Act (No 1) 1930 (Cth) on a taxpayer's book debts and whether a pre-existing charge over those book debts was fixed or floating.
69 Burt CJ said (at 23):
'the nature of the security must depend upon the terms of the instrument creating it. … But the nature of the charge is not finally determined by what the parties call it. It depends upon the terms of the agreement. In this case it was central to the agreement that [the debtor company] should continue to carry on its business and, with the consent of the Bank which in my opinion was given, that it could in the ordinary course of its business receive its book debts and deal with the proceeds in carrying on that business. In that context I think that, notwithstanding the statement that the charge given over future book debts was "specific", it should be held that for so long as the Bank consented to [the debtor company] receiving its book debts and using the proceeds to carry on its business, the Bank's security over the book debts was a floating security. The debenture contains no assignment of the book debts. Had it done so, the case for holding that the charge was a fixed charge would, I think, be considerably stronger.'
70 In Boambee Bay Pty Ltd (In liq) v Equus Financial Services Ltd (1991) 6 ACSR 532, the Court of Appeal of New South Wales considered a charge over a company's 'right, title and interest in any property either held by [the company] at the date hereof or acquired by [the company] during the term of this Agreement'. Mahoney JA said, at 537, that the fact that the charge attached not merely to property then held by the company but also to property acquired by it during the term of the agreement did not lead to the conclusion that the clause did not impose an immediate charge upon property then held. Despite that he held that the charge created was a floating charge. This was on the basis that the nature of the business of the company was such that if the charge was an immediate and fixed charge on all assets, the carrying on of its business would be difficult if not impossible.
71 In Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880, Campbell J said (at [22]):
'The fundamental exercise which the Court is engaged in in deciding whether a charge is a fixed charge or a floating charge is a matter of the ascertainment of the intention of the parties. That intention can be ascertained both from the words which they used, and from surrounding circumstances known to both parties. In substance, what Mahoney JA decided in Boambee Bay Pty Ltd v Equus Financial Services Ltd … was that, even though the words creating the charge were ones which were well able to refer to a fixed charge, so far as concerned property already owned by the chargor at the date of the grant, the surrounding circumstances were such that that could not have been what the parties intended.'
72 It is noteworthy that most of the cases concerning the characterisation of company charges are concerned with their effects upon book debts. The drafter of the ING Charge was plainly alert to the difficulties which that class of property could create in characterisation of the charge. In cl 4.1 of the ING Charge, paragraph (a)(xiii) subjects 'Charged Debt' to the fixed charge. The term 'Charged Debt' is defined in cl 1.1 of the ING Charge as:
'any actual or contingent debt or other monetary obligation from time to time forming part of the Secured Property.'
There is however a specific provision in cl 4.2 for the collection of Charged Debts. The lender is required to permit the chargor to collect the Charged Debts. This is a matter of some significance as indicative of an intention to provide specifically for that class of Westpoint Corporation's property which it necessarily had to be able to deal with on an ongoing basis.
73 Clause 8 of the ING Charge prohibited Westpoint Corporation from transferring, leasing or otherwise disposing of or dealing with any part of the Secured Property for the time being subject to the fixed charge or to allow any person to acquire any interest, except a Permitted Encumbrance in any such secured property. The prohibition was subject to the qualification in cl 8.1(b) that:
'The chargor, subject to clause 8.1(c) may in the ordinary course of its ordinary trading business dispose of any estate or interest in that part of the secured property which is for the time being subject to the floating charge.'
The prohibition so far as it is applicable to the Option would prevent it from being transferred or otherwise disposed of or dealt with. It would not prevent its exercise. Such is not a dealing in the Option. It is the exercise of the rights conferred by it. So with land which is the subject of the charge, the development of the land itself would not be prohibited under cl 8. Its sale or further encumbering is a different matter. It follows, in my opinion, that the creation of a fixed charge over the Option was not inconsistent with the ordinary course of Westpoint's business. I do not accept Mr Carey's description that the procedure of finding a special purpose vehicle for land development in particular cases negatives that construction. That was not a necessary aspect of the conduct of its business. In order to raise very substantial funds late in 2005 when it faced a considerable need for refinancing, Westpoint Corporation chose to grant a fixed charge in terms which were distributed over specified classes of assets. An option to purchase land fell within those classes. The express provision in the charge for Charged Debts indicates an alertness on the part of the drafter to the difficulties associated with creating fixed charges over book debts. It indicates an intention, by way of contrast, that the charge in respect of interests in land was to be fixed. To the extent that external circumstances might have any bearing on the nature of the Option property and whether it falls within the class attracting a fixed charge, it is notable that there was an offer for $1 million to acquire the Option. The Option was assigned to Bowesco for $100. The Option is a valuable property. I do not accept that the parties to the ING Charge are to be taken as having contemplated that property in that class could be disposed of for what appears to have been a mere bagatelle 'in the course of business' within the Westpoint Property Group.
74 I am also satisfied that at all material times Bowesco, through its effective controller Mr Carey, had knowledge of the existence of the charge over the property of Westpoint Corporation. It took the Option subject to ING's interests.
75 In the light of the conclusions which generally speaking take Mr Carey's factual contentions at their highest, I do not consider that Bowesco's position would be advanced by the provision of the documents which it seeks. In the end, the scope and range of the documents and the litigation which their production contemplates, would be unreasonable having regard to the short life remaining in the Option. Nor do I consider that the alleged inconsistencies between the charge and the loan agreement and the letter of 8 September 2005 detract from the construction of the charge as a fixed charge in light of the considerations to which I have referred.
Conclusion
76 For the preceding reasons, in my opinion, I should accede to the motion by the Option Receivers and make a declaration that the charge at the time it was created applied to the Option as a fixed charge. That leaves open the question of the continuing validity of the Option which is an issue that may arise between ING and Elderslie. That is not a matter with which the Court can deal in the context of these proceedings.
I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.