Bowesco Pty Ltd (Receiver and Manager Appointed) v Zohar

REASONS FOR JUDGMENT Introduction 1 Until January 2006, Mr Norman Carey was the principal in control of Westpoint Corporation Pty Ltd ('Westpoint Corporation') and a number of other companies, known as the Westpoint group of companies. The major activity of this group of companies was property development. In January 2006, Perpetual Nominees Limited ('Perpetual'), acting pursuant to its powers under a fixed and floating charge executed by Westpoint Corporation in September 2005, appointed receivers and managers to the property of Westpoint Corporation which was subject to the charge. Subsequently, Perpetual appointed receivers and managers ('the option receivers') to take control of, and deal with, a specific item of property which Perpetual believed was the subject of the fixed charge, namely, an option giving Westpoint Corporation the right to purchase the land on which was located the Warnbro Fair Shopping Centre, a large suburban shopping centre near Perth, and the adjacent land ('the Option'). 2 By August 2006, the option receivers had commenced negotiations with a third party for the sale of the Option, which was due to expire on 20 October 2006. However, the applicant claimed that the option receivers had no right to sell the Option, on the grounds that the Option was not within the ambit of the fixed charge, and Westpoint Corporation had, in the ordinary course of its business, by a Deed dated 7 October 2005, assigned the Option to it. It said that it was, therefore, at liberty to exercise the Option for its own benefit. The consideration payable by the applicant for the assignment of the Option was $100. The applicant is the trustee of the Dyson Family Trust and the beneficiaries of the trust are the children of Mr Norman Carey. 3 The dispute was heard on an expedited basis, and on 15 September 2006, the trial judge made a declaration to the effect that the Option fell within the ambit of the fixed charge, and that the Option was held by the applicant, subject to that charge. 4 The applicant lodged its appeal against the trial judge's decision seven days late and now seeks leave to extend the time for filing and serving of the appeal, and, if necessary, leave to appeal; and, subject to leave being granted, to appeal against the decision of the trial judge. Directions were made that the application and, any consequent appeal, be heard at the same time. 5 For the reasons set out below, we are of the view that the application for the extension of time to appeal, and, to the extent necessary, leave to appeal, should be granted. The appeal should be dismissed. Background 6 In 1999, Westpoint Management Pty Ltd ('Westpoint Management'), also one of the Westpoint group of companies, was the responsible entity of the Warnbro Fair Syndicate, and the registered proprietor of the land on which the Warnbro Fair Shopping Centre was located, and also, of the land adjacent to the shopping centre. The adjacent land is known as the 'Stage 2 land'. 7 On 31 August 1999, Westpoint Management granted the Option to Westpoint Corporation to acquire the land on which the Warnbro Fair Shopping Centre is located and the Stage 2 land. After 1999, the two companies executed a number of deeds of amendment of the Option, the last being dated 1 October 2005. The expiry date of the Option was 20 October 2006. 8 On 28 September 2005, as part of a refinancing of its operations, Westpoint Corporation entered into a loan agreement, a fixed and floating charge and a priority deed, with Perpetual, as custodian of the ING Mortgage Pool for ING Funds Management Limited, as the responsible entity of the ING Mortgage Pool. Clause 4.1 of the fixed and floating charge ('the charge') provided: 'Nature of Charge This documentation 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.' 9 Clause 8 of the charge provided: '(a) The Chargor must not transfer lease or other wise dipose of or deal with any part of the Secured Property which is for the time being subject to the fixed charge or allow any person to acquire any interest (except a Permitted Encumbrance) in any such Secured Property. (b) 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 the subject to the floating charge.' 10 Clause 9.4 of the loan agreement relevantly provided: '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.' 11 By Deed dated 7 October 2005, but stamped 25 January 2006, between Westpoint Management and Westpoint Corporation and the applicant, Westpoint Corporation assigned the Option to the applicant. No notice of the assignment was given to Perpetual and Perpetual did not consent to the assignment of the Option. 12 On 24 January 2006, Messrs Oren Zohar, David Winterbottom and Mark Korda were appointed as receivers and managers to the property of Westpoint Corporation under the charge. 13 On 9 February 2006, Mr Simon Read and Mr Jeffrey Herbert of PPB were appointed provisional liquidators of Westpoint Management. On 11 April 2006, Mr Simon Read and Mr Andrew Birch were appointed liquidators of Westpoint Management. 14 On 20 April 2006, the trial judge made orders under s 1323 of the Corporations Act 2001 (Cth) ('the Corporations Act') and s 23 of the Federal Court of Australia Act 1976 (Cth), restraining the applicant from disposing of, or dealing with, its assets. These orders have been referred to in the proceedings below as 'freezing orders'. The orders were subsequently varied on 30 June 2006. The effect of the orders, as varied, was that the applicant was restrained until 20 October 2006, or further order, from dealing with, or disposing of, the Option. 15 On 20 April 2006, the trial judge also made orders for the appointment of receivers to the property of Mr Carey and three other persons associated with companies in the Westpoint group of companies, pursuant to s 1323 of the Corporations Act. The trial judge's reasons for decision are set out in Australian Securities and Investments Commission, In the Matter of Richstar Enterprises Pty Ltd (ACN 099 071 968) v Carey (No 3) [2006] FCA 433. 16 The orders made by the trial judge on 20 April 2006 were made on the application of the Australian Securities and Investments Commission ('ASIC') in proceeding WAD 83 of 2006. The companies in the Westpoint group had raised very substantial sums of money from investors which the companies had been unable to repay. ASIC applied to 'freeze' the assets of Mr Carey, other persons associated with the Westpoint group, and certain companies associated with Mr Carey, pending the completion of investigations it was carrying out as to whether Mr Carey and others had breached provisions of the Corporations Act and the ASIC Act. At the hearing, ASIC relied upon a number of affidavits sworn by ASIC investigators and other persons, including Mr Zohar, one of the receivers and managers of Westpoint Corporation, who had investigated the affairs of the Westpoint group of companies. They deposed to a number of transactions involving Mr Carey and the other Westpoint associated persons, in support of ASIC's claims that these persons may have engaged in serious misconduct in breach of the law. Mr Carey did not cross‑examine any of the witnesses and did not put on any affidavit evidence in response to the evidence relied upon by ASIC. 17 In his reasons for decision published on 20 April 2006, the trial judge said: '4 The evidence placed before the Court in support of the application was extensive and detailed and was not the subject of any substantial challenge. It is indicative of serious misconduct in the affairs of the companies and the very real possibility that there have been a number of contraventions of the Corporations Act and other laws by persons involved in the Group. Indeed there are aspects of the evidence suggestive of a ruthless disregard by the Westpoint Group's controllers of the interests of investors and other creditors in the way in which funds invested and assets of companies within the Group have been dealt with. Other aspects of the evidence, particularly emerging from examination of the former directors of the Mezzanine Companies, are indicative of a degree of carelessness and indifference on their part to their duties as directors. 5 It is not a necessary part of the Court's function at this stage to make a finding of any particular contravention or liability on the part of any person or company named as a defendant to the application. It is sufficient to say, for the reasons that follow, that I regard it as necessary and desirable, to protect the interests of investors and creditors of companies in the Group, that receivers be appointed to the property of each of the defendants, other than seventh defendant which already has receivers and managers appointed under an existing security, and that ancillary orders be made in aid of those primary orders. A freezing order will be made in relation to the seventh defendant.' 18 On 19 July 2006, the option receivers were appointed by Perpetual. The proceeding below 19 In order to facilitate the intended sale of the Option to the third party with whom the option receivers had been in negotiation, the option receivers applied, pursuant to the liberty to apply in proceeding WAD 83 of 2006, to vary the freezing orders made in respect of any dealings with the applicant's assets, to permit the option receivers to sell the Option. The applicant in turn sought an order discharging the freezing orders so as to permit it to exercise the Option for its own benefit. The applicant also sought orders for the giving of discovery and the issuing of subpoenas which, it said, were necessary for the fair trial of the question, of whether the applicant held the benefit of the Option in its own right, or on behalf of the option receivers subject to the charge. It argued that these orders were necessary because, in the course of carrying out its investigations, ASIC had taken possession of all of the Westpoint group's documents, and the applicant was not able to support its case by reference to documents. 20 The option receivers opposed the making of the discovery orders and the issuing of the subpoenas on the grounds that discovery and subpoenas were unnecessary and, in any event, there were some 3000 boxes of documents and that giving discovery would, in those circumstances, be oppressive.