EVIDENCE - Jones v Dunkel - whether necessary witness - whether witness in one's 'camp' - [2020] NSWSC 204 - NSWSC 2020 case summary

Supreme Court of NSW|2020-02-26|Before: Rees J

r of Metal Storm Limited (in liquidation) (receivers and managers appointed) (No 2) [2019] NSWSC 1682 James Robert Coleman v Gai Hart-Hughes [2017] NSWSC 656 Johnston v McGrath (2008) 67 ACSR 169; [2008] NSWSC 639 Jones v Dunkel [1959] ALR 367; (1959) 32 ALJR 395; (1959) 101 CLR 298 Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 Marsden v Amalgamated Television Services Pty Limited [2001] NSWSC 510 Masters v Cameron [1954] HCA 72; 91 CLR 353 Moneymen Pty Ltd v Federal Commissioner of Taxation (1990) 91 ATC 4019; (1990) 97 ALR 265 Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539 National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 Noonan v Martin (1987) 10 NSWLR 402 Norman v Federal Commissioner of Taxation [1964] ALR 131; (1963) 109 CLR 9 NT Power Generation Pty Ltd v Trevor (2000) 23 WAR 482; [2000] WASC 254 Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 Payne v Parker [1976] 1 NSWLR 191 Queensland Phosphate Pty Limited v Korda (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269 Re ACN 096 281 542 Limited (in liq) [2018] VSC 425 Re Jay-O-Bees Pty Limited; Rosseau Pty Limited v Jay-O-Bees Pty Limited [2004] NSWSC 818; (2004) 50 ACSR 565 Re St Gregory's Armenian School Inc (2015) 109 ACSR 27; [2015] NSWSC 1465 Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134 Salomon v A Salomon & Co Ltd [1897] AC 22 Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 Shepherd v Federal Commissioner of Taxation [1966] ALR 969; (1965) 113 CLR 385 Swiss Bank Corporation v Lloyd's Bank Limited [1982] AC 584 Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24 Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 Troncone v Aliperti (1994) 6 BPR 13,291 Walker v Bradford Old Bank (1884) 12 QBD 511 William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 Texts Cited: P Young, C Croft and M Smith, On Equity (2009) Category: Principal judgment Parties: Stylequity Advisory (Australia) Pty Limited (Plaintiff) Schon Condon as liquidator of Azmac Pty Limited (First Defendant) Azmac Pty Limited (in liquidation) (Second Defendant) Representation: Counsel: Mr DS Weinberger (Plaintiff) Mr DC Eardley (Defendants)

Solicitors: Keypoint Law (Plaintiff) Gillis Delaney Lawyers (Defendants) File Number(s): 2019/326626

Judgment

HER HONOUR: This is an application by Stylequity Advisory (Australia) Pty Limited, a creditor of Azmac Pty Limited (in liquidation), seeking a declaration that it is a secured creditor of Azmac in the amount of $423,935.53, together with an order that the decision of the liquidator of Azmac, Schon Condon, to reject the plaintiff's proof of debt be reversed. The liquidator accepts that the plaintiff has a "security interest" in respect of invoices it rendered for services, but not in respect of invoices rendered by a former corporate entity - now deregistered - which the plaintiff says it is entitled to recover from Azmac by reason of an agreement reached between the former corporate entity, the plaintiff and Azmac in May 2013. Of the amount claimed by the plaintiff, $398,866.55 relates to invoices rendered by the former corporate entity and $25,068.98 relates to the plaintiff's own invoices.
Bruce Bryant is the sole director of the plaintiff. Mr Bryant and Mr Condon were both cross-examined although no issues of credit arose on this application. Clearly, there is no love lost between them. Mr Bryant appeared a reasonable man. Mr Condon appeared a very firm-minded man.

facts

It is necessary to understand the people involved in six different companies at about the time of the agreement in May 2013: 1. Azmac was incorporated in 1992. Peter Fusarelli and Brian Wilkin were directors. Azmac owned industrial land in Alstonville in northern New South Wales with a warehouse, office and sheds. The National Australia Bank Ltd had registered mortgages over the land. Azmac is now in liquidation and Mr Condon is the liquidator. 2. Macaz Pty Ltd was incorporated in 1991. Mr Fusarelli and Mr Wilkin were also directors of this company. Macaz owned plant and equipment which was used on Azmac's land to process macadamia nuts. The people involved in the agreement referred to Azmac and Macaz together as the "Macaz Group". Macaz is now in liquidation and Mr Condon is also the liquidator of this company. 3. Stylequity Holdings Pty Ltd was incorporated in 2011. Mr Bryant and John Barraclough were directors. The registered office and place of business was Mr Barraclough's address in Sydney. After the agreement, this company was re-named Agri-Growth Holdings Pty Ltd and de-registered in 2014. 4. Stylequity Advisory Pty Ltd was also incorporated in 2011. Mr Bryant and Mr Barraclough were also directors of this company and the registered office and place of business was, again, Mr Barraclough's address in Sydney. The company was wholly owned by Stylequity Holdings. The people involved in the agreement referred to Stylequity Holdings and Stylequity Advisory together as "Stylequity". After the agreement, this company was re-named Agri-Growth Advisory Pty Ltd and de-registered in 2014. 5. The plaintiff was incorporated in February 2013, shortly before the agreement is said to have been struck. It was Mr Bryant's new company to be used after an 'amicable split' with Mr Barraclough. 6. Barraclough & Co Consulting Pty Limited was also incorporated in February 2013 and was Mr Barraclough's new company to be used after the 'amicable split'.
In about June 2011, Stylequity Advisory and Stylequity Holdings began providing business advisory services to Azmac and Macaz. In evidence are eight invoices issued by Stylequity Advisory to Macaz from July 2012 to January 2013 totalling $635,096.52. Each invoice directed that payment made to the bank account of Stylequity Holdings. Date Invoice No. Amount incl. GST 3 July 2012 48 $61,600 49 $61,600 50 $96,250 54 $47,080 23 August 2012 56 $38,500 58 $249,216.52 2 November 2012 62 $57,750 21 January 2013 67 $23,100 Total $635,096.52

Mr Bryant deposed that each of these invoices was issued by Stylequity Advisory to the Macaz Group on or about the date the invoice bears and in respect of business advisory services provided by Stylequity Advisory to the Macaz Group as particularised in the invoices. In cross-examination, Mr Bryant said that either he or Mr Barraclough prepared the invoices. Mr Bryant said that Mr Barraclough and he performed all the work recorded in the invoices and the amounts were agreed with the directors of Azmac and Macaz for the work that needed to be done. Mr Bryant was asked if there were any supporting documents for the invoices such as timesheets and he said, "We were never asked to submit timesheets, but we kept a record in Excel and I think Barraclough has all the original documents … because he kept all the original documents … of the old Stylequity business".
In December 2012, Mr Bryant considered that his relationship with Mr Barraclough began to deteriorate. He wanted to bring his business relationship with Mr Barraclough to an end. No legal advice was obtained as to how to unravel their interests in Stylequity Advisory and Stylequity Holdings but they engaged a corporate mediator to assist them to work out the mechanics of parting ways. Mr Bryant and Mr Barraclough spoke several times over the phone and in person and, at one such meeting at the companies' offices in Sydney, Mr Bryant suggested they make the split official on 23 January 2013, to which Mr Barraclough expressed agreement. Mr Barraclough suggested that they split outstanding client fees 50/50, to which Mr Bryant agreed. As Mr Bryant understood it, the agreement reached was that the partnership had ended and they would evenly split the assets and liabilities of Stylequity Advisory and Stylequity Holdings between them. The assets of the companies included the debts owed by clients of the companies for work done, including monies owed by Macaz.
As much is confirmed by emails between Mr Bryant and Mr Barraclough on 12 February 2013, entitled "Bruce Bryant and John Barraclough amicable split", suggesting that they finalise their split by 31 March 2013 with outstanding fees to that date to be split 50/50 and re-invoiced under new entities in those proportions. On 19 February 2013, Mr Bryant incorporated his new corporate entity, being the plaintiff. On 26 February 2013, Mr Barraclough incorporated his new corporate entity, Barraclough & Co Consulting. Further emails ensued between Mr Bryant and Mr Barraclough endeavouring to reach agreement on the terms of their separation, including with the assistance of the mediator. The emails referred to the need to have Macaz pay down its debt in accordance with its cash flow in order to minimise their risk. Further, Mr Bryant explained in cross-examination: … when we split … it was agreed that John [Barraclough] would keep the original documentations for our split of business partnership because he had an office and I didn't.

The agreement

In February and March 2013, Mr Bryant spoke with Mr Fusarelli and Mr Wilkin on a number of occasions in relation to the proposed split. Mr Bryant told them that he would continue to work with them through his new company but Mr Barraclough and he would share the old debt, which would need to be repaid. Mr Bryant told Mr Fusarelli and Mr Wilkin that he and Mr Barraclough proposed to close their existing companies down as soon as they could. Mr Bryant believed that Macaz was unlikely to be able to pay the whole of the debt owed to Stylequity Advisory immediately and so would have to agree to the debt being transferred to the new companies.
On 15 March 2013, Mr Bryant sent an email to Mr Wilkin, Mr Fusarelli and Mr Barraclough entitled "Could you all please return this email - agreed" (the Email). Mr Bryant proposed a four-way agreement. The Email noted, by way of background, that Mr Barraclough and Mr Bryant had been engaged by the Macaz Group to "turn the business around" and invoices totalling some $670,000 were "at risk to support the Macaz Group through a turbulent time". A payment plan was proposed: • It has been agreed that all fees from 1 January 2013 and backlog fees will be billed out of [Bryant] and [Barraclough] entities. … • [Bryant] backlog fees (circa $291K after half of $88K discount to Macaz group) to be paid 6 equal payments of $15K to be paid from 1 April 2013 to 31 October 2013, with agreement that the first payment may need to be delayed until May 2013, with 6 equal payments to be made in the period from April 2013 to September 2013, and each year thereafter. The outstanding balance to be addressed each year thereafter ongoing (including a 6% CSSRPS interest rate per annum on outstanding 30 June 2014 balance ongoing built in as discussed and so forth). It is time we took our security over the outstanding debt: third ranking over the land and buildings, second ranking after the NAB on long-term contracts (sales and growers), and second ranking behind NAB on the Plant and Equipment. The cost for this to be paid by Macaz group. The balance $201K to be converted to CSSRPS based on the whole restructure. Once converted the CSSRPS are to be paid on the above basis ongoing until fully cleared.
A like-worded proposal was put in respect of Mr Barraclough's "backlog fees". The Email continued: • [Wilkin] to take security over our outstanding debt: third ranking over the land and buildings, second ranking after the NAB on long-term contracts (sales and growers), and second ranking behind NAB on the Plant and Equipment. The cost for this to be paid by Macaz group. Mr Bryant understood at the time he sent the Email that Mr Fusarelli and Mr Wilkin had already agreed to the new companies billing the Macaz Group for "backlog fees", by which Mr Bryant was referring to amounts outstanding at the time of the separation. Mr Bryant said that he would not have proceeded with the 'amicable split' in the same way if he had thought that Macaz did not agree to transfer half of the outstanding debt to the plaintiff.
In cross-examination, Mr Bryant agreed that he sent the Email because he wished to bring his business arrangements with Mr Barraclough to a conclusion, deal with backlog fees and also because Mr Fusarelli and Mr Wilkin wanted to achieve an ongoing arrangement with their companies. He agreed that there was no formal agreement with Mr Barraclough to transfer the debt from Stylequity Advisory to the plaintiff, "but it was something that Barraclough and I had discussed. … By doing this email with the others, we thought this was the right way forward". Mr Bryant agreed that there was no formal resolution of Stylequity Advisory nor any minutes of meeting recording a resolution to transfer debt owed to Stylequity Advisory to the plaintiff, "but, verbally, we discussed it and agreed upon it as two directors". Mr Bryant agreed that Stylequity Advisory did not issue a notice of assignment of the debts: No, but we had discussed it with - this email was predicated on a discussion with Barraclough and [the two] directors of Azmac and Macaz, so I would never have written this email without actually discussing this with them.
On 15 and 22 March 2013, Mr Fusarelli and Mr Wilkin separately replied that they each agreed.
On 17 May 2013, Stylequity Advisory issued a credit note to Macaz of $13,359.98, reducing the amount owing. The plaintiff issued Invoice No 5 to Macaz for $284,118.27 for "work performed prior to 1 January 2013 Per agreeded [sic] email dated 22 March 2013". Invoice No 5 directed that the monies be paid to Mr Bryant's bank account. Further, the invoice noted the following payment terms: Backlog fees to be paid 6 equal payments of $15K to be paid from 1 April 2013 to 31 October 2013, with agreement that the first payment may need to be delayed until May 2013, with 6 equal payments to be made in the period from April 2013 to September 2013, and each year thereafter.
When asked why Invoice No 5 did not specify or particularise the work performed before 1 January 2013, Mr Bryant replied: Because it related to a whole lot of past invoices out of the old entity, which we, John [Barraclough] and myself, because we were separating, had agreed with the directors of Azmac and Macaz, they were comfortable to receive an invoice like this. … Otherwise, I would have been more particular.
On 24 May 2013, the plaintiff sent a letter to Mr Fusarelli and Mr Wilkin as directors of Macaz Group entitled: Agreement between Stylequity Advisory (Australia) Pty Ltd [Stylequity] and the Macaz group: Macaz Pty Ltd and Azmac Pty Ltd [Macaz], for the payment of outstanding fees for business advisory services provided by Stylequity to the Macaz group for the period up to 31 December 2012 1. Overview Macaz has agreed that they owe Stylequity a backlog of fees of AUD 284,118.27 including GST for services provided up to 31 December 2012. 2. Objective For Macaz to pay the outstanding fees due to Stylequity per the agreed email by all parties dated on 22 March 2013 and per this agreement.
The letter set out various commercial terms including: Client Macaz … and Azmac … (Macaz) Service provider Stylequity Advisory (Australia) Pty Ltd … (Stylequity) Scope of assignment N/A as mandated scope have been delivered for the outstanding fees. The following fees per Invoice 5 dated 17 May 2013, will be paid to Stylequity or its nominee by Macaz: Fees • AUD 258,289.34 plus GST (AUD 284,118.27 including GST): plus • a 6% per interest rate per annum on the outstanding balance as of 30 June 2014, and each year ongoing until the total balance including interest has been paid in full. Terms of payment Fees Backlog fees to be paid as 6 equal payments of AUD 15,000 from 1 April 2013 to 31 October 2013, with agreement that the first payment may need to be delayed until May 2013, with 6 equal payments to be made in the period from April 2013 to September 2013, and each year thereafter until the total balance plus interest is paid in full. Additional specific terms • Security to be provided to Stylequity on the total outstanding debt as follows: third ranking over the land and buildings after the NAB or new funder and John Boardman [another shareholder] or second ranking if John Boardman no longer has security, second ranking after the NAB or new funder on long-term contracts (sales and growers), and second ranking behind NAB or new funder on the Plant and Equipment. The cost for this to be paid by Macaz group.

When asked what Mr Bryant intended to convey by the word "security", Mr Bryant replied: To take what I understand the normal way of taking security over the plant and equipment and the land and buildings of the group as required, I think, in this case, it was referring to the property, what I can recall.
The letter invited Macaz and Azmac to sign the document if they were in agreement with these terms and, on 16 July 2013, Mr Fusarelli signed the document on behalf of Macaz and Azmac. Another document in the same terms was also executed in respect of future work, and the liquidator accepts that this document created a charge in favour of the plaintiff in respect of work done thereafter. The letters as signed were referred to by those involved as a "mandate".
A similarly-worded letter agreement or "mandate" was signed between Barraclough & Co Pty Limited and Macaz.
Mr Bryant continued to provide advisory services to Macaz and render further invoices totalling some $20,000. In November 2015, Greg Woods was appointed as a director of Azmac, as was Mr Barraclough.

Caveats and PPSR registration

On 30 January 2014, Barraclough & Co Pty Limited lodged a caveat over Azmac's land citing its caveatable interest as an equitable interest pursuant to a mandate for repayment of debts, and providing details of the letter agreement referred to at [19].
On 3 February 2014, Mr Bryant sent an email to Messrs Fusarelli, Wilkin, Barraclough and Woods. Mr Bryant sought confirmation that Macaz and Azmac consented to caveats being lodged on land and buildings, plant and equipment. Mr Bryant noted that his company had the right to do so under its contract with Macaz and Azmac and asked whether there was any issue with him doing so, noting that Mr Barraclough and Mr Woods "have taken up their rights to do so". Mr Fusarelli replied the next day, "I have no problem with this". On 6 February 2014, Mr Bryant completed a statutory declaration in support of lodgement of a caveat over Azmac's land in favour of the plaintiff. The caveatable interest was said to arise from the agreement dated 24 May 2013 between the plaintiff, Azmac and Macaz, being an agreement for work performed.
On 7 March 2014, the plaintiff received what proved to be the last payment in respect of invoices rendered to the Macaz Group. On 4 April 2014, the plaintiff registered a security interest on the Personal Property Securities Register (PPSR) in respect of Macaz and Azmac.
Stylequity Advisory changed its name to become Agri-Growth Advisory Pty Limited and Stylequity Holdings changed its name to become Agri-Growth Holdings Pty Limited. In July 2014, Stylequity Advisory and Stylequity Holdings were deregistered. Mr Bryant explained that although he and Mr Barraclough had planned to use these corporate entities as investment vehicles for agri-investment, this did not eventuate.

Appointment of liquidator and proof of debt

In December 2016, Mr Condon was appointed as administrator of Macaz and, in February 2017, as administrator of Azmac. In March 2017, Macaz was placed into a creditor's voluntary liquidation with Mr Condon appointed as liquidator. In May 2017, Azmac was placed into liquidation and Mr Condon was appointed liquidator.
On 8 March 2017, Mr Bryant signed a formal proof of debt addressed to Azmac on behalf of the plaintiff seeking the sum of $373,021.24, said to be a secured creditor debt against Azmac and Macaz. The proof of debt referred to evidence attached to an email of 8 March 2017 which is not in evidence.

Sale of land and plant and equipment

Mr Barraclough and others incorporated a company, Australian Macadamias Pty Limited, which entered into a licence agreement with the liquidator to continue to operate the business on Azmac's land using Macaz's plant and equipment. In September 2017, Mr Condon entered into contracts with Australian Macadamias to sell Azmac's land for $800,000 and Macaz's plant and equipment for $950,000. Various delays were experienced in completing these contracts. The National Australia Bank issued enforcement notices for some $800,000 it was owed.
In about mid 2018, Mr Condon deposed that he began communicating with secured creditors of Macaz and Azmac about their willingness to release their security interests or withdraw their caveats on Azmac's land to facilitate the completion of the sale of the plant and equipment and land. On 19 July 2018, Mr Condon wrote one such letter to Mr Bryant advising that there would be a shortfall in paying out the National Australia Bank and consequently Macaz and Azmac "are unable to discharge your security on completion of the sale". The liquidator asked if the plaintiff would discharge its security interest on the PPSR and withdraw its caveat so as not to interfere with completion of the sale. Attached to Mr Condon's letter was a spreadsheet setting out the proposed payments to be made on completion of the sale to secured creditors including the plaintiff and Barraclough & Co Consulting. The amount proposed to be paid to Mr Barraclough's company was substantially more than what was proposed to be paid to Mr Bryant's company. Mr Condon shed some light on why this was so in cross-examination: … Mr Barraclough had been the primary contact from the original entity that we had dealt with and he indicated at the time that his security took priority, this [spreadsheet] was produced to indicate a potential proposed, if you prefer, distribution of funds and that should anyone, in particular, Mr Bryant, be of the opinion that conclusion is incorrect, then it was the opportunity to advance information or evidence to contradict my expectations.
It is apparent that Mr Bryant's relationship with Mr Barraclough remained difficult and Mr Bryant was clearly concerned that his interest as a creditor should be treated in an even-handed way with fellow creditor, Mr Barraclough. On 23 July 2018, the plaintiff's accountant wrote to Mr Condon with various queries about the proposed distribution of the proceeds of sale, including as to why a greater portion of the proceeds of sales appeared 'earmarked' for Mr Barraclough's company. I am advised by Bruce that his caveatable interest is likely to have arisen at the same time as the Barraclough caveatable interest as both of these arose from the same debt owed by Azmac and Macaz to the former Stylequity corporate entity, in which both Bruce and John Barraclough were involved. The liquidator responded, "The security to Barraclough & Co Pty Limited was created on 30 January 2014". The plaintiff relies upon the liquidator's attitude to Mr Barraclough's caveat as an effective acceptance that the plaintiff's caveat also gave rise to security over Azmac's land as the underlying caveatable interest was relevantly the same.
Further correspondence ensued between the plaintiff's accountants and solicitors and those of the liquidator. It is clear from the number of emails sent by those acting for the plaintiff that Mr Bryant was far from satisfied as to how the liquidator was proposing to distribute any surplus from the sale and sought information and documents in respect of the other creditors referred to in the proposed payout schedule.

Undertaking

On 16 August 2018, the liquidator proposed that, in order to complete the sale and avoid the National Australia Bank appointing a receiver, the plaintiff should provide the necessary discharges and withdrawals to enable settlement to occur and, in return, the liquidator would ensure that the surplus, after paying the bank, would be applied in the following way: (a) in payment of his expenses and remuneration shown in the schedules (which relate to the costs of realising and preserving the security, to date); and (b) the resultant balance to be paid to this firm's trust account and held there pending the Court's determination of an application for directions (judicial advice) as to whom he is to pay the funds, and in what order of priority.
This was not accepted by the plaintiff. On 21 August 2018, the liquidator suggested that, if the plaintiff withdrew its caveat and PPSR charge, then, following completion of the sale and repayment of the bank, … the balance of the funds available on completion be paid into our trust account until agreement or determination is reached in relation to the entitlement to those funds as between the Liquidator, [the plaintiff] and Barraclough & Co Pty Limited. To this the plaintiff finally agreed. On 19 September 2018, the sale completed and $541,385.65 was held in the trust account of the liquidator's solicitor after paying the bank and GST on the sale.
In October 2018, the plaintiff sought payment of its debt from the liquidator, then amounting to $420,091.76. The liquidator's solicitor replied that, as previously indicated, Mr Condon would be seeking directions from the Court as to the appropriate way in which to apply the funds held in the trust account. The liquidator's expenses and remuneration were being calculated and once this was done, Mr Condon would be applying to the Court for a direction as to whether he was justified in paying a particular amount in respect of his expenses and remuneration.
The liquidator then sought documents from the plaintiff in respect of its secured claim. Mr Bryant provided the liquidator with an explanation of the agreement as already described in this judgment and the liquidator sought copies of the original invoices underlying Invoice No 5. On 23 November 2018, Mr Bryant provided the liquidator with the underlying invoices, the documents evidencing the agreement together with a spreadsheet setting out the various invoices rendered and payments made by Macaz and Azmac to the plaintiff. In cross-examination, Mr Bryant was asked why he did not request a copy of the spreadsheet supporting the invoices from Mr Barraclough to provide to the liquidator as well. Mr Bryant said it never occurred to him to get that information, "At the time I didn't think it was necessary. I didn't even think about it".
Having reviewed the documents provided by Mr Bryant, on 17 December 2018 the liquidator advised that he did not believe that Macaz or Azmac granted a charge over real property nor granted a security interest capable of registration on the PPSR. Accordingly, the liquidator saw the plaintiff as an unsecured creditor. Nor had there been a valid assignment at law of the debt from Stylequity Advisory to the plaintiff such that the letter agreement was considered to be a 'fee for no service' arrangement. Nor did the liquidator accept that the letter agreement was capable of securing the debt as the agreement was said to start on 1 January 2013 whilst the plaintiff was not incorporated until 19 February 2013. The liquidator accepted that the plaintiff was a secured creditor for $17,860.06 by reason of the letter agreement in respect of future work.
Further correspondence ensued between the solicitors for the plaintiff and those for Mr Condon in respect of the plaintiff's solicitor progress in preparing to bring these proceedings and the liquidator's attitude to such proceedings.
On 24 May 2019, Mr Condon's solicitor advised that, whilst Mr Condon had initially considered an application to the Court for directions, he had ultimately decided not to proceed in this fashion. Instead, on 12 April 2019, Mr Condon's solicitors had paid $60,669.54 of the monies in their trust account to their firm and the balance of $548,112.94 to Mr Condon's trust account. Further, We are instructed that our client has drawn the sum of $100,000 in relation to expenses and, in accordance with the resolutions of creditors, in respect of remuneration. The balance of Mr Condon's trust account was now $448,112.94.
This was a startling revelation to the plaintiff, who was incensed. After a meeting and correspondence, on 23 August 2019, the plaintiff issued an information request to the liquidator in respect of the payments made from the trust monies. The plaintiff also sought the liquidator's written undertaking that he would preserve the monies in his trust account until the matter is determined by the Court or otherwise agreed. The liquidator declined to give this undertaking saying that the manner of distribution of the fund would be the subject of an application for directions. Further, the approach of the Court in those circumstances was said to be that the costs of the parties to the application for directions would be borne by fund; thus, the liquidator expected to seek recourse to those funds to meet his expenses associated with the forthcoming application to the Court. (At the conclusion of the hearing before me, Mr Condon was asked to, and gave, an undertaking not to disperse these monies until this judgment is delivered.)

Rejection of proof

On 2 October 2019, the liquidator issued a notice of rejection of the plaintiff's proof of debt on the basis that the liquidator had not been provided with sufficient documentation establishing that there had been a valid assignment at law or in equity of the rights and debts from Stylequity Advisory to the plaintiff against Macaz and Azmac. Further, the liquidator had not been provided with evidence that any consideration was given by the plaintiff to Stylequity Advisory for the assignment of debt and, as such, it was said there had not been a valid assignment in equity. Nor did the liquidator accept that there was any security against Azmac or Macaz in respect of the alleged debt. The letter agreement was executed on 16 July 2013 but the PPSR registration was made on 4 April 2014 and thus not within the required timeframe. Nor did the letter agreement create a caveatable interest in Azmac's property but, if it did, it was said to rank behind the National Australia Bank and the liquidator's expenses and remuneration which was said to have priority in accordance with 'salvage principles'. On 18 October 2019, the plaintiff commenced these proceedings.
Mr Condon deposed that he has not received satisfactory evidence as to the plaintiff's entitlement to recover the debt which the Macaz Group may have owed to Stylequity Advisory. One consideration exercising Mr Condon's mind was that he had not received any evidence that the plaintiff or Stylequity Advisory performed any work for the Macaz Group or, if those companies did perform work, he was unable to estimate the fair and reasonable amount payable for the work. However, in cross-examination Mr Condon agreed that he accepted that the plaintiff was a secured creditor for invoices rendered after the letter agreement and accepted those invoices on face value. Mr Condon also accepted that he did not ask the plaintiff to provide any supporting documents, calculations or spreadsheets for the invoices.

appeal against rejection of proof of debt

An appeal to the Court challenging the decision of a liquidator with respect to a proof of debt was previously brought under section 1321 of the Corporations Act 2001 (Cth), now repealed, and, as explained by Gleeson JA in Hill v Esplanade Wollongong Pty Limited (subject to a deed of company arrangement) [2018] NSWSC 478, appeals are now made under section 90-15 of Schedule 2 Insolvency Practice Schedule (Corporations), Corporations Act: at [21]. The case law in respect of the earlier provision is, however, of continuing relevance: Re ACN 096 281 542 Limited (in liq) [2018] VSC 425 per Randall AsJ at [6]; El-Saafin v Franek (No 3) [2019] VSC 155 per Lyons J at [63]; see, for example, Hill v Esplanade Wollongong Pty Limited.
An appeal against a liquidator's rejection of a proof of debt is a hearing de novo and thus the Court may make its decision on evidence that was not before the liquidator: Tanning Research Laboratories Inc v O'Brien [1990] HCA 8; (1990) 169 CLR 332 at 340-1 per Brennan and Dawson JJ. As their Honours explained, when the liquidator is called upon to consider a proof of debt, the relevant consideration is whether the alleged debt is a "true liability of the company" or "is not legally enforceable" (at 339, 341) but, on an appeal, at 341: (emphasis added) The liquidator may defend [the company's] assets against the creditor's claim on any ground on which the company may have defended the claim had it been sued by the creditor. … The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it.
As further explained in Tanning Research Laboratories v O'Brien at 339-341, in determining whether the debt is "a true liability of the company enforceable against it", ordinarily the general law applies including statutes of limitation and equitable principles. There are some exceptions, however, where the liability, though enforceable against the company, is founded merely on some act or omission on the part of the company which unjustly prejudices the interests of the creditors or contributories in the assets available for distribution. For example, there may be a judgment debt against the company but there is some good reason why there ought not be such a judgment; the circumstances may tend to show that the judgment was obtained by collusion or an absurd compromise. In such circumstances, the liquidator is armed with grounds for rejecting the proof of debt additional to grounds available under the general law: at 340. Likewise, on an appeal, the liquidator is entitled to rely on this special defence which allows him, for example, to go behind a judgment in order to ascertain the true liability of the company: at 341. There is no suggestion that any of these additional grounds arise here.
Nor is the creditor, on such an appeal, strictly confined to each allegation and proposition by which it originally sought to advance the proof of debt, "As long as the claim remains the original claim, some change in the explanation of the way in which it is said to be a true liability of the company enforceable against it is permitted": Johnston v McGrath (2008) 67 ACSR 169; [2008] NSWSC 639 at [26] per Barrett J citing Re Jay-O-Bees Pty Limited; Rosseau Pty Limited v Jay-O-Bees Pty Limited [2004] NSWSC 818; (2004) 50 ACSR 565 per Campbell J; Re St Gregory's Armenian School Inc (2015) 109 ACSR 27; [2015] NSWSC 1465 per Black J at [34]-[35].

'secured creditor'

Section 51E of the Corporations Act provides that a "secured creditor" of a corporation means a creditor whose debt is secured by a "security interest". Section 51A of the Corporations Act provides: security interest means: (a) a PPSA security interest; or (b) a charge, lien or pledge. Section 51 of the Corporations Act defines "PPSA security interest" as a security interest within the meaning of the Personal Property Securities Act 2009 (Cth) and to which that Act applies. Section 9 of the Corporations Act defines "charge" as "a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise". The plaintiff contends that it has a "security interest" under both limbs of the definition in section 51A.
Whether the plaintiff is a secured creditor of Azmac in the amount claimed turns upon the following issues: 1. Was there an enforceable agreement between Stylequity Advisory, the Macaz Group and the plaintiff that monies owed by Macaz to Stylequity Advisory would instead be paid to the plaintiff and that repayment of those monies would be secured over Azmac's land? 2. Was any such agreement sufficiently performed so that the plaintiff, in fact, had a security interest in Azmac's land when the company went into external administration?

Evidentiary matters

Two evidentiary matters were also raised by Mr Condon and I will address these first.

Jones v Dunkel

Only Mr Bryant gave evidence in support of the plaintiff's appeal against the liquidator's rejection of its proof of debt. As no other director or party to the agreement was called, Mr Condon invited the Court to draw an inference that their evidence would have not assisted the plaintiff: Jones v Dunkel [1959] ALR 367; (1959) 32 ALJR 395; (1959) 101 CLR 298 at 320.
In what follows, I have drawn heavily on Levine J's elegant summary of the principles in Marsden v Amalgamated Television Services Pty Limited [2001] NSWSC 510 at [92] and following. The rule in Jones v Dunkel is that the unexplained failure by a party to give evidence, call witnesses or tender documents may in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The rule does not permit the Court to infer that the uncalled evidence would have been damaging, nor to fill gaps in the evidence: Cubillo v Commonwealth of Australia (No 2) (2000) 174 ALR 97; [2000] FCA 1084. If the failure to call the evidence is explained, the inference cannot be drawn. In Ta Lee Investment Pty Limited v Antonios (2019) 19 BPR 39153; [2019] NSWCA 24, it was sufficient explanation that the plaintiff no longer spoke to the missing witness: at [118], [137] per Bathurst CJ, Beazley P and Macfarlan JA. The witness may be "hostile": Payne v Parker [1976] 1 NSWLR 191 at 202 per Glass JA. It may be the case that the witness would not be expected to co-operate by way of prior consultation or providing a proof of evidence, and a party is not obliged to call a witness 'blind' in order to avoid the inference being drawn against them: Fabre v Arenales (1992) MVR 303; (1992) 27 NSWLR 437 at 449-450 per Mahoney JA.
Before drawing the inference, the missing witness must be a person who it would be natural for one party to call; the witness might be regarded as "in the camp" of one party or "a witness likely to be friendly to the interests of the party": Payne v Parker at 201-202 per Glass JA; Ghazal v Government Insurance of New South Wales (1992) 29 NSWLR 336 at 343 per Kirby P with Mahoney and Clarke JJA agreeing. If the witness is equally available to both parties, the condition for drawing the inference usually stands unsatisfied: Payne v Parker at 202.
Nor is it necessary for a party to call an unnecessary witness: Apand Pty Limited v The Kettle Chip Co (1994) 52 FCR 474 at 490. In that case, the persons responsible for the choice of packaging were not called as witnesses but their superiors gave evidence of the decision they made and their reasons for doing so. In those circumstances, the Court (Lockhart, Gummow and Lee JJ) held that the principle in Jones v Dunkel was not of assistance.
Insofar as I am asked to draw a Jones v Dunkel inference by reason of Mr Bryant's failure to call Mr Barraclough, I have two difficulties in so doing. The first is that it is reasonably apparent from the documentary material, as well as Mr Bryant's affidavit, that he and Mr Barraclough are not friends. Their business relationship ended some years ago; Mr Bryant is suspicious of Mr Barraclough's subsequent purchase of the assets of the Macaz Group and both have been tussling with the liquidator for priority in the repayment of their debts. I do not think it can be said that Mr Barraclough is in the plaintiff's "camp". Indeed, as Mr Barraclough has been Mr Condon's point of contact in respect of these debts, one might equally ask why the liquidator did not call Mr Barraclough. It seems to me that this witness was equally available to both parties.
Further, it is not clear to me why it was necessary for the plaintiff to call Mr Barraclough. The plaintiff's evidence comprises the evidence of Mr Bryant supplemented with a healthy dose of contemporaneous documents. Thus, I am not prepared to draw the inference in respect of the plaintiff's failure to call Mr Barraclough as a witness.
So far as Mr Fusarelli and Mr Wilkin are concerned, whilst there is no suggestion that there has been a falling out between Mr Bryant and these gentlemen, nor can they necessarily be regarded as "in the camp" of the plaintiff. They were directors of two companies which went into liquidation owing substantial sums of money including to the plaintiff. It is not self-evident why either of them are witnesses "likely to be friendly" to the interests of the plaintiff. And, for reasons already stated in respect of Mr Barraclough, it was not necessary to call them as witnesses either. Thus, I am not prepared to draw the inference in respect of the plaintiff's failure to call Mr Fusarelli and Mr Wilkin.

Business records

Mr Condon submitted that the plaintiff failed to prove the provenance of the invoices underlying Invoice No 5. Mr Condon submitted that these invoices did not prove that the services were actually performed or that a there was a chose in action that Styequity Advisory could assign to the plaintiff; the documents don't simply prove themselves: National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539 followed in Australian Securities Investments Commission v Rich (2005) 216 ALR 320; [2005] NSWSC 417 per Austin J at [116]-[119] and [152]. It was suggested that the amounts charged were self-evidently excessive. Further, Mr Condon submitted that it was unclear which entity was actually issuing the invoices, and noted that the invoices directed that payments were to be made to Stylequity Holdings rather than Stylequity Advisory.
As to the suggestion that the amounts charged in the invoices was excessive, the plaintiff submitted that one could take comfort from the fact that Macaz didn't appear to think so as it did not challenge the invoices at the time and the directors of that company were in the best position to know if the amount charged were excessive. Further, the invoices stated, "Issued by: Stylequity Advisory Pty Ltd" and there was nothing unclear about that.
Given the liquidator's submissions in respect of these invoices, it is curious that his counsel did not object to the tender of these documents at the hearing. That said, section 48(1)(e)(i) of the Evidence Act 1995 (NSW) provides: 48 Proof of contents of documents (1) A party may adduce evidence of the contents of a document in question by tendering the document in question or by any one or more of the following methods … (e) tendering a document that: (i) forms part of the records of or kept by a business (whether or not the business is still in existence) …
As Austin J observed in ASIC v Rich, the party tendering a document must establish authenticity, which cannot be achieved solely by drawing inferences from the face of the document where there is no other evidence to indicate provenance: at [117]. Here, there is ample other evidence, summarised at [5], to indicate provenance. His Honour also noted that it is important not to set the bar too high for the authentication of documents as, if too much is demanded, the authentication requirement will fight against the policy underlying the "business records" provisions of the Evidence Act: at [121]. See likewise Aqua-Marine Marketing Pty Ltd v Pacific Reef Fisheries (Aust) Pty Ltd (No 4) (2011) 194 FCR 479; [2011] FCA 578 per Collier J at [14].
The evidence at [5] satisfies the requirements of section 48(1)(e)(i) and thus the underlying invoices are admissible as evidence of the contents of the invoices. Nor do I think Mr Condon's submission can be advanced when it was not squarely put to Mr Bryant in cross-examination that the invoices were false. As a matter of fairness, such a serious allegation ought to have been put so that he could answer it: Browne v Dunn (1893) 6 R 67.
It was certainly suggested to Mr Bryant in cross-examination that the underlying invoices were excessive. However, the first time this suggestion was made by Mr Condon, as far as I can see, was in his affidavit sworn on 20 December 2019, that is, seven years after the invoices were rendered. Importantly, Mr Condon did not 'flag' this as a concern when he wrote to the plaintiff on 17 December 2018 and 2 October 2019 setting out the reasons why he did not accept that the plaintiff was a secured creditor. It was perhaps unfair in those circumstances to suggest to Mr Bryant in cross-examination that he had been less than forthcoming with documents to support the underlying invoices. Nor is there any suggestion in the contemporaneous records that Mr Fusarelli or Mr Wilkin cavilled with the amounts being charged by Stylequity Advisory for its services, or that they were confused with the invoices. The invoices are clear on their face.

Was there an agreement?

The plaintiff submitted that the question for determination was whether the parties intended to bind themselves to a contract. That is to be determined objectively from the "outward manifestations" of the parties' intentions: Electricity Generation Corporation v Woodside Energy Ltd (2014) 306 ALR 25; [2014] HCA 7; (2014) 251 CLR 640 at [35]; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59]-[61]; Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 428. It is relevant to consider the commercial context and surrounding circumstances of the parties' dealings: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548. Regard may be had to subsequent conduct of parties to determine whether, at an earlier juncture, the parties intended to enter into a binding agreement: Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 at [118] (per Beazley P). The plaintiff submitted that the Email contained the terms of a final and binding agreement between the parties. The Email evinced a clear and consistent intention that there would be a binding agreement upon acceptance of the offer set out in the Email. The Email was not expressed to be subject to further agreement. There is no ambiguity in its language. No aspect of the parties conduct thereafter supported any contrary conclusion.
The plaintiff submitted that there was thereby an equitable assignment of the debt, a novation of the underlying debt or simply an agreement between Stylequity Advisory, Stylequity Holdings, Barraclough & Co, the plaintiff, Azmac and Macaz pursuant to which Azmac and Macaz became responsible to pay 50% of the outstanding debt to the plaintiff. As to equitable assignment, the plaintiff submitted that, "All that is required for an equitable assignment is a manifestation by the assignor of an intention to transfer the chose in action to the assignees in a manner binding upon himself": Shepherd v Federal Commissioner of Taxation [1966] ALR 969; (1965) 113 CLR 385 at 397 per Kitto J. No particular form of words is required: an equitable assignment may be oral or a course of dealing: Brown, Shipley and Co v Kough (1885) 29 Ch D 848 at 854; P Young, C Croft and M Smith, On Equity (2009) at [10.190]. Here, there was a plain manifestation by Stylequity Advisory of an intention to transfer the debt to the plaintiff in a manner binding upon Stylequity Advisory. A debt can be assigned in equity without consideration: Shepherd at 396-397; Norman v Federal Commissioner of Taxation [1964] ALR 131; (1963) 109 CLR 9 at 32 per Windeyer J. In any case, the issue of consideration affects rights as between assignor and assignee; the absence of valuable consideration does not justify a debtor refusing to recognise the plaintiff's interest in the debt: Walker v Bradford Old Bank (1884) 12 QBD 511 at 515; P Young, C Croft, M Smith On Equity, (2009) at [10.300].
The plaintiff noted that, where the equitable assignment is of a legal chose in action, proceedings must be commenced in the name of the assignor or the assignor may be joined as a defendant: Deputy Commissioner of Taxation v Bluebottle UK Ltd [2006] NSWCA 360; (2006) 68 NSWLR 558 at 566. However, failure to join the assignor as a party to the proceeding does not render it a nullity as this requirement is one of practice or procedure, which a Court can waive should it consider joinder of the assignor unnecessary: Alma Hill Constructions Pty Ltd (ACN 064 077 292) v Onal [2007] VSC 86 at [14] and [38]. Although Mr Condon did not take this point, for completeness, I consider that joinder of Stylequity Advisory - a company which has been deregistered for six years - is unnecessary.
Mr Condon submitted that the suggested Email agreement was between the individuals and not their corporate entities, which are separate legal entitles from the directors and shareholders: Salomon v A Salomon & Co Ltd [1897] AC 22. Further, whilst Mr Fusarelli and Mr Wilkin accepted the agreement, Mr Barraclough did not respond. Mr Condon submitted that this was merely an agreement to agree and not legally binding in law, relying on Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 per Allsop P at [14] (being a passage which considers a different subject, being the construction of documents). Mr Condon submitted that it was compelling that the Email was not reduced to a precise deed or contract to transfer, assign or novate rights and obligations.
As to the letter agreement, Mr Condon submitted that the document concerned transactions that occurred before the plaintiff was incorporated. There was said to be no clarity as to the form of security that would be given by Azmac or Macaz, nor which entity would provide the security. Nor was it clear that Azmac and Macaz were jointly and severally liable for the backlog fees. As it was Macaz that owed backlog fees, it was submitted that the contra proferentem rule dictated that the letter agreement be construed narrowly as against the plaintiff. It was further submitted that it was clear that the person who drafted the letter agreement did not wish to specify that Azmac was to provide security. The basis of this last submission is unclear and, with respect, ought not to have been made. Mr Condon submitted that correspondence between parties who did not give evidence other than Mr Bryant should be treated with caution and construed contra proferentem. I am not entirely sure what contra proferentem has to do with the issue before the Court which is whether there was a legally enforceable agreement between the parties, not what that agreement meant.
As to equitable assignment, Mr Condon agreed that an equitable assignment required the clear intention of the assignor to transfer the chose in action to the assignee: William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462; Comptroller of Stamps (Victoria) v Howard-Smith [1936] HCA 12; (1936) 54 CLR 614 at 623-4; Norman; Shepherd; Noonan v Martin (1987) 10 NSWLR 402; NT Power Generation Pty Ltd v Trevor (2000) 23 WAR 482; [2000] WASC 254. It was said that clear intention as between the assignor and assignee was absent here. As to novation, Mr Condon relied on Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 at 320 per Powell J: Reduced to its simplest form, a novation is merely a contract between three parties, the obligee, the original obligor and the substituted obligor, the effect of which contract is that in consideration of the obligee releasing the original obligor from his obligation, the substitute obligor promises the obligee that he will assume responsibility for the performance of the obligation.
Mr Condon submitted that novation provides a framework for transferring contractual obligations whereas assignment only permits the transfer of contractual rights: Moneymen Pty Ltd v Federal Commissioner of Taxation (1990) 91 ATC 4019; (1990) 97 ALR 265 at 278 (this may not have been the authority that counsel had in mind). It was submitted that there was no evidence that would satisfy the Court that a novation had occurred as consent is an essential element and there was no evidence of consent from any party. Mr Condon submitted that the plaintiff had to prove an agreement between Azmac, Macaz, Stylequity Advisory and the plaintiff such that Azmac and Macaz were released from their contractual obligations, the contract rescinded, and that their contractual obligation were transferred to a new party which had consented to the transfer and to remain liable to Stylequity Advisory and ultimately the plaintiff pursuant to a new agreement.
As to Mr Condon's submission that any agreement was with the individuals and not the plaintiff and Stylequity Advisory, the plaintiff submitted that the question as to who were the parties to a contract was a "simple question as to who, objectively considered, were intended to be the parties to the contract": Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd (2007) 243 ALR 472; [2007] FCAFC 194 at [22] (per Finn, Rares and Besanko JJ). Post-contractual conduct can be considered in determining the question: Dennis Pethybridge v Stedikas Holdings Pty Ltd [2007] NSWCA 154 at [59] (per Campbell JA). Mr Bryant and Mr Barraclough were Stylequity Advisory's directors and had the authority to bind Stylequity Advisory. Mr Bryant was the sole director of the plaintiff and so had authority to bind it. Mr Fusarelli and Mr Wilkin would have objectively known that Mr Bryant and Mr Barraclough were contracting in their personal capacity and as directors of the plaintiff, Stylequity Advisory and Stylequity Holdings. Stylequity Advisory was the entity through which Mr Bryant and Mr Barraclough carried on business and to whom the "backlog fees" were owed to. As regards the plaintiff, the Email stated that "backlog fees will be billed out of [Bryant] and [Barraclough] entities". Mr Fusarelli and Mr Wilkin agreed to this term.
It was also said that the fact that the plaintiff was not incorporated when the services were provided was not to the point: the agreement when read as a whole, including the Email which are incorporated by reference, plainly evidenced a true liability of Azmac enforceable against it. Nor does it matter that the letter agreement did not specifically state that Azmac would provide security. The clause stated that security would be given "over the land and building" and Azmac was the only party in the Macaz Group who owned the land and building. The language was therefore plain to the reasonable reader.

Consideration

The question whether there was a contract entered into between the parties is essentially a question of fact: Ta Lee Investment at [153]. As Bathurst CJ observed in Pavlovic v Universal Music Australia Pty Limited [2015] NSWCA 313 at [15]: It is well established that the question of whether the parties intended to bind themselves to a contract is to be determined objectively, having regard to the intention disclosed by the language the parties have employed: Masters v Cameron [1954] HCA 72; 91 CLR 353 at 362. In cases such as the present, which do not depend on the construction of a single document, what is involved is the objective determination of the question from the communications between the parties in their context and the parties' dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550. As was said by Mahoney JA and McHugh JA in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, that includes consideration of what the parties said or wrote (at 334, 337). For example, the contract in Ta Lee Investment was established by evidence of telephone conversations, handing over casino chips and cheques, further conversations, handwritten notes, emails with missing attachments, a deed with no annexures, payment of cash and handing over keys. It was found that there was a binding contract to purchase land, and this conclusion was upheld on appeal.
Post-contractual conduct is admissible on the question of whether a contract was formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]-[26]. Post-contractual conduct is an aid to finding what the terms of the contract were: Lym International Pty Limited v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 at [125]-[126] per Campbell JA which whom Basten JA and Sackar J agreed. Subsequent conduct may also indicate what was important or essential to the transaction and indicate the parties' contractual intention: Queensland Phosphate Pty Limited v Korda (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269 at [37].
There are six pieces of evidence that indicate that Stylequity Advisory, the plaintiff, Barraclough & Co, Macaz and Azmac entered into a binding contract: two are pre-contractual and four are post-contractual. The first piece of evidence is the affidavit and oral evidence of Mr Bryant of discussions between himself and Mr Barraclough in January and February 2013 to end their business relationship followed by further discussions with Mr Fusarelli and Mr Wilkin. I have no reason to doubt Mr Bryant's evidence that he spoke to Mr Barraclough and they agreed that they would split the monies owed by Macaz to Stylequity Advisory 50/50 as part of their "amicable split". That they so agreed is confirmed by the email of 12 February 2013, referred to at [7], and their subsequent conduct consistent with having entered into such an agreement. Both promptly proceeded to incorporate new companies, participate in the Email exchange with Mr Fusarelli and Mr Wilkin, separately render an invoice to Macaz consistently with the contents of the Email and separately enter into a letter agreement with the Macaz Group in essentially the same terms as the Email.
On the basis of this evidence, I find that, before the Email was sent by Mr Bryant on 15 March 2013, he had already agreed with Mr Barraclough to split the outstanding invoices issued by Stylequity Advisory to Macaz and arranged for those invoices to be paid to their new corporate entities. They were both also keen to have the invoices paid as the amount outstanding was large and, given their dealings with the Macaz Group, it appears that Mr Bryant and Mr Barraclough were aware of cash flow limitations which impaired Macaz's ability to pay the invoices immediately.
Further, I accept Mr Bryant's evidence that, before he sent the Email, he spoke to Mr Fusarelli and Mr Wilkin about what was proposed and understood that they agree with the proposal. Mr Bryant told them that he would continue to work with them through his new company and he and Mr Barraclough wanted to close down the existing companies as soon as possible. The fact that such discussions had already taken place is corroborated by the content of the Email itself.
The second piece of evidence is the Email itself and the reply emails from Mr Fusarelli and Mr Wilkin. The terms of the Email, set out at [9]-[10], proposed that backlog fees would be billed by Mr Bryant's new company and repaid over time with interest, with security to be provided over the assets of the Macaz Group for repayment. There were certainly incentives to Macaz to accept this offer as Mr Bryant offered a discount of $88,000 on the portion of Stylequity Advisory's outstanding invoices which would be paid to his new company, together with an instalment plan and the ability to further delay payment. Without such an agreement, Stylequity Advisory would have been entitled to demand repayment of the invoices immediately, and it is readily apparent that Macaz was in no position to pay. Mr Fusarelli and Mr Wilkin promptly agreed. In doing so, they also agreed that it was time to provide security for the outstanding debt over the land and buildings (which was owned by Azmac) and the plant and equipment (which was owned by Macaz). The parties to the Email agreement could have been in no doubt about which company in the Macaz Group was to provide which form of security over which asset. Nor do I accept the defendant's submission that the Email comprised an 'agreement to agree' and I accept the plaintiff's submissions in this regard.
The context in which the Email was sent indicates that Mr Bryant sent the Email in his capacity as both a director of Stylequity Advisory and also of his new company, the plaintiff. Further, Mr Bryant sent the Email with the authority of Mr Barraclough, in his capacity as a director of Stylequity Advisory and also Barraclough & Co Consulting. As much would have been readily apparent to the recipients of the Email.
The same context indicates that the Email was sent to Mr Fusarelli and Mr Wilkin in their capacity as directors of Macaz and Azmac: the subject matter of the Email was devoted to issues concerning those companies. It was clear from Mr Bryant's Email that Mr Fusarelli and Mr Wilkin were being asked, in their capacity as directors of Macaz and Azmac, to acknowledge that they agreed with the terms contained in the Email. There can be no doubt that they had authority to agree on behalf of the companies of which they were directors, and that they did so without hesitation. Mr Condon's submission that the Email was sent to, and the reply was sent by, Mr Fusarelli and Mr Wilkin in their capacity as natural persons rather than directors of Azmac and Macaz, has an air of artificiality to it. Whilst a corporation is an abstract concept, it is not without voice. A corporation make statements through its officers or authorised representatives: In the matter of Metal Storm Limited (in liquidation) (receivers and managers appointed) (No 2) [2019] NSWSC 1682 at [30]. An "officer" of a corporation is defined in section 9 of the Corporations Act as a director or secretary or a person who makes or participates in making decisions that affect the whole or a substantial part of the business of the corporation. Mr Fusarelli and Mr Wilkin were just such officers.
It is not to the point that Mr Barraclough did not also send an email in reply saying that he agreed; it was not necessary for him to do so as he had already agreed with Mr Bryant as to the proposal which was put forward in the Email with his authority. Any doubt on this score is removed by the plaintiff and Barraclough & Co subsequently entering into separate letter agreements with the Macaz Group which confirmed the Email.
The third piece of evidence - being the first piece of post-contractual conduct - is Invoice No 5 which was consistent with what it was proposed in the Email would happen if the proposal was accepted, and repeated the payment terms in the Email itself. There is no evidence that the Macaz Group objected to this invoice and it appears that some payments, at least, were made in respect of it. Mr Barraclough issued a similar invoice.
The fourth piece of evidence is the letter agreement, which repeated the new payment arrangements and also the agreement to provide security for the outstanding debt over land and buildings, plant and equipment. The letter agreement was signed by Mr Fusarelli as director of both Macaz and Azmac. It was not suggested by Mr Condon that Mr Fusarelli signed the document in his personal capacity.
The fifth piece of evidence is an email from Mr Bryant, referred to at [22], seeking the consent of the Macaz Group to lodging a caveat on Azmac's land, to which Mr Fusarelli promptly replied, "I have no problem with this". The final piece of evidence is the caveat itself, which sat undisturbed for more than two years before Azmac was placed in liquidation.
Thus I find that there was a contract between Stylequity Australia, the Macaz Group and the plaintiff that a specified portion of the monies owed by Macaz to Stylequity Advisory would instead be paid to the plaintiff and that repayment of those monies would be secured over Azmac's land. I do not consider that there is anything compelling about the fact that the Email was not formalised in a deed or contract. It would certainly have been better if that had happened, but no one appears to have availed themselves of the expertise of those qualified to draft such documents with the result that the contract is evidenced by imperfect documentation, which has caused its own problems. But the absence of a deed or a contract does not mean that there was no binding agreement.
The fact that the agreement obliged the Macaz Group to pay the plaintiff various instalments at various dates in respect of invoices rendered by Stylequity Advisory before the plaintiff was incorporated seems to me, with respect, to be irrelevant. That is how the parties had agreed to proceed. There was nothing illegal about that. The Macaz Group received good consideration for agreeing to this arrangement in the form of a discount and a delayed payment plan. Many contracts concern assets or loans which first came into existence before the parties to the contract. The fact that the letter agreement was said to commence on 1 January 2013 - being a date before the plaintiff was incorporated - does not somehow invalidate the agreement when, as a matter of fact, the agreement was not entered into until July 2013, being months after the plaintiff was incorporated. Nor do I think it much matters whether Azmac and Macaz were jointly and severally liable for the backlog fees; the question is whether Azmac agreed to provide security for the unpaid invoices over its land and it is clear that it agreed to do so.
As to whether there was an equitable assignment by Stylequity Advisory of its chose in action against Macaz to the plaintiff, the law is as submitted by the plaintiff at [62], with which I did not understand Mr Condon to disagree (see [66]). The point of disagreement was whether, on the evidence, the Court would be satisfied that Stylequity Advisory clearly intended to transfer the chose in action to the plaintiff. For the reasons set out at [73] to [82], I find that Stylequity Advisory clearly intended to do so. In short, I accept Mr Bryant's evidence that he spoke to Mr Barraclough - they being the only two directors of Stylequity Advisory - and agreed that 50% of outstanding invoices issued to Macaz would be paid to the plaintiff as part of their "amicable split", as confirmed by the email of 12 February 2013, their subsequent conduct in both incorporating new corporate entities to whom their respective share of the invoices would be paid, participating in an email exchange with Mr Fusarelli and Mr Wilkin to garner their agreement to the new arrangement, and subsequently issuing invoices, entering into letter agreements and lodging caveats consistent only with having assigned Stylequity Advisory's interest in the chose in action to their respective companies.
Equally, the evidence is sufficient to establish novation. It is not correct to say, as Mr Condon submitted, that there was "no evidence of any consent from any party"; for the reasons given at [73] to [82], the evidence supports a finding that all relevant parties consented to the new arrangement.
When a contract is assigned or novated, however, the assignee or new obligee "steps into the shoes" of the assignor or original obligee. That is not strictly what happened here. New terms were also agreed for the arrangements between the parties going forward: Macaz's outstanding debt was discounted and it was given additional time to pay but interest would be charged and security would be given. Whether the chose of action was assigned in equity or novated is not of great moment; in either case, the plaintiff was entitled to pursue the debt on the re-negotiated terms as to how and when the debt would be paid, in what amount, and with the prospect of enforcing security if the debt was not repaid.

Was there a security interest in the land?

The plaintiff submitted that it held an equitable charge over Azmac's land and now holds an equitable charge over the proceeds of the sale of the land held in the liquidator's trust account. It was submitted that it is not necessary that any particular words of charge be used to create an equitable charge by an instrument; it is sufficient if the Court can objectively ascertain from the instruction that the property is to constitute a security: Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd [2000] NSWCA 195; (2000) 49 NSWLR 513 at [144] per Giles JA. In Roberts v Investwell Pty Ltd (in liq) (2012) 88 ACSR 689; [2012] NSWCA 134, Bathurst CJ stated at [26]: No particular form of words is required to create such an equitable mortgage as it is founded on a contract between the parties. The contract may be expressed or implied: see Gough, Company Charges, 2nd ed (1996) Butterworths, p 17. and the cases cited therein. An equitable charge, by contrast, does not necessarily create an equitable mortgage. What, however, is necessary is that property of the chargor is appropriated to the chargee for payment of a debt and the chargee has a present right to have it made available for the payment of its debt. The availability of equitable remedies to enforce that right gives the chargee a proprietary interest by way of security in the property charged.
The wording of the March 2013 emails was said to be sufficient, "It is time we took our security over our outstanding debt. Third ranking over the land and buildings …". The directors of Azmac agreed to the terms of this email. Further, the letter agreement provided, "Security to be provided to Stylequity on the total outstanding debt as follows: third ranking over the land and buildings after the NAB or new funder and John Boardman …" Azmac also agreed to the plaintiff lodging a caveat over the land. Where the parties to a contract have agreed that one party may lodge a caveat over the land of another party, that agreement carries with it by implication the grant of an interest in the land sufficient to support the caveat: Troncone v Aliperti (1994) 6 BPR 13,291. In any case, the liquidator accepted that the letter agreement was capable of granting a security interest, having determined that the plaintiff is entitled to a priority amount in respect of services provided after the letter agreement.
Mr Condon agreed that it is not necessary that any particular words are required to create an equitable charge by an instrument; it is sufficient if the Court could objectively ascertain from the instruction that the property is to constitute a security. Consideration ought be given as to whether there appears to be an intention on the part of the assignor to divest itself of a contractual right so it becomes the property of the assignee: Comptroller of Stamps (Victoria) v Howard-Smith at 619 to 622. It was submitted that this was not apparent on the evidence. Nor, it was submitted, was there any evidence to suggest that the caveat was lodged with the consent of Azmac. There was no discussion or record in respect of what a "third ranking" was; that other secured creditors consented to the proposed security; or how questions of priority and tacking to Azmac's property were addressed.
I have found that there was a contract between, relevantly, the Macaz Group and the plaintiff that monies owed by Macaz to Stylequity Advisory would instead be paid to the plaintiff and that repayment of the monies would be secured over Azmac's land. That is, the Macaz Group agreed to provide the security but did not necessarily, by the Email itself, grant an interest in Azmac's land. The nature of the interest in Azmac's land which the Macaz Group agreed to provide seems to me to bear the characteristics of an equitable charge. As Giles JA succinctly explained in Cinema Plus at [144]: A charge involves a proprietary interest held by way of security. It may arise in consequence of contractual rights, as in an equitable charge, but the objectively ascertained contractual intention must be to confer a proprietary interest as security for a present or future debt. Being proprietary, the charge must in its nature be assignable.
A more detailed explanation is given by Bathurst CJ (with whom Beazley JA and Tobias AJA agreed) in Roberts v Investwell. What is necessary for an equitable charge is "that property of the chargor is appropriated to the chargee for payment of a debt and the chargee has a present right to have it made available for the payment of its debt": at [26]. The Chief Justice adopted Buckley LJ's explanation in Swiss Bank Corporation v Lloyd's Bank Limited [1982] AC 584 at 594, being that an equitable charge is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale. Further, per Buckley LJ at 595: It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred.
The Chief Justice also adopted the description by Atkin LJ in National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450: … I think there can be no doubt that where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the Court.
In Roberts v Investwell, Bathurst CJ concluded at [29]: What is clear from the authorities is that for either an equitable mortgage or equitable charge to come into existence there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property.
Further, Bathurst CJ noted that an agreement to create a charge in favour of a creditor on request may not create an equitable charge as no immediate proprietary interest or right to recourse to a particular asset has been conferred on the creditor, but whether this is the case depends on a construction of the particular contractual provisions in question. At [31]: … If the provision on its true construction confers an immediate equitable interest in particular property, or grants an immediate right of recourse to present or future property, then the grantee will be secured to the extent of his or her interest in, or right to, the property. If it does not, the creditor will be unsecured. In that case, Bathurst CJ concluded that the contract in question did not confer an immediate right of recourse to property and thus there was no intention to grant an immediate equitable interest of charge.
As mentioned, the Email recorded an agreement by the Macaz Group to grant an equitable charge over Azmac's land and thus did not itself create an equitable charge. However, the matter does not end there. Not only did the Macaz Group agree to provide security, it proceeded to give that security when called upon by Mr Bryant to do so. As described at [22], Mr Bryant sought the consent of Macaz and Azmac to a caveat being lodged on Azmac's land, and suggested that the plaintiff had a right to do so under their agreement, to which Mr Fusarelli readily acceded. The plaintiff lodged a caveat over Azmac's land which sat undisturbed until the settlement of the sale of the land to Australian Macadamias. No one suggested in the interim that there was no caveatable interest to support the caveat. Mr Condon only sought the withdrawal of the caveat in order to complete the sale of the property so that the interests of the registered mortgagee could be discharged and then only on terms that the net proceeds of sale were paid into the liquidator's solicitor's trust account.
As Mahoney JA (with whom Priestly and Meagher JJA agreed) noted in Troncone v Aliperti at 13,292: A caveat cannot be entered against land unless the caveator has the relevant proprietary interest in the land [being] "a legal or equitable estate or interest in the land" … therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable the authority to be exercised. … it is not necessary to determine what is the precise nature of the interest in the land which, by this implied grant, was passed to the creditors. It is, in my opinion, sufficient to conclude that it was an interest which, within the Real Property Act 1900 would support the lodgement of the caveat. Troncone v Aliperti was followed in Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393 at [83] per Gleeson JA (with whom Meagher and Leeming JJA agreed) and James Robert Coleman v Gai Hart-Hughes [2017] NSWSC 656 at [39]-[40] per Darke J.
Thus, under the contract entered into between, relevantly, the plaintiff and Azmac, Azmac agreed to grant an equitable charge over its land to secure the repayment of Macaz's debt now owed to the plaintiff. Azmac performed its obligation under the contract and, by consenting to the lodgement of a caveat which identified this contractual obligation as the basis of the caveatable interest, granted the plaintiff an equitable charge over its land.
Such a charge falls within the definition of "charge" in section 9 of the Corporations Act, with the result that the plaintiff's debt is secured by a "security interest" within the meaning of section 51A and thus the plaintiff is a "secured creditor" of Azmac within the meaning of section 51E. In that event, the plaintiff's appeal against the decision of Mr Condon is well-founded. The liability referred to in the plaintiff's proof of debt is a true liability of Azmac enforceable against it.

ORDERS

For these reasons, I make the following orders: 1. Pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations), Schedule 2 to the Corporations Act 2001 (Cth), determine that the plaintiff is a secured creditor of the second defendant within the meaning of section 51E of the Corporations Act 2001 (Cth).
I will hear the parties as to costs, and await agreed short minutes as to the precise amount of the secured debt if the parties consider that it is necessary to record it in further orders.

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: 10 March 2020

EVIDENCE - Jones v Dunkel - whether necessary witness - whether witness in one's 'camp'

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