In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447

In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447 - NSWSC 2017 case summary — Zoe

Judgment

GLEESON JA: Application is made by Beechworth Land Estates Pty Ltd (administrators appointed) (Beechworth) by originating process filed 14 September 2017 for declaratory relief that Beechworth and the defendant, B.A.D. Nominees (NSW) Pty Ltd (Nominees), have entered into a contract on the terms of communications dated 26 July 2017 and 2 August 2017 (par 2). The subject matter of the alleged contract concerns the transfer by Beechworth as mortgagee in possession to Nominees of nine lots of land situated at Beechworth, Victoria in reduction of the amount of Nominees' claim against Beechworth in the amount of $1,000,000. A declaration is also sought that Beechworth is authorised to sell the nine lots to Nominees (par 3).
In response to the originating process, two solicitors filed a notice of appearance on behalf of Nominees - one by Mr Geoffrey F Cohen of Mylora Law, on the instructions of Mr Brian Arthur Dean, the sole director of Nominees; the other by Mr Leonardus Smits, on the instructions of Peter Shah Mahommed, relying upon a Power of Attorney executed by Mr Dean on behalf of Nominees in favour of Mr Mahommed and Mr Smits on 9 May 2016: Reg BK 4732 No 617.
The separate dispute between Mr Dean and Mr Mahommed as to the validity of the Power of Attorney is the subject of interlocutory applications filed on 29 September 2017 by Mr Dean and Mr Mahommed. Those interlocutory processes each include challenges to Mr Smits' and Mr Cohen's purported retainer on behalf of Nominees.
On the hearing of the originating process on 23 October 2017, I made the following orders, declarations and notations by consent: 1. The Court, pursuant to r 2.13 of the Supreme Court (Corporations) Rules, orders that Brian Dean, Leonardus Smits and Peter Shah Mahommed be joined as parties to these proceedings. 2. The Court makes declarations in terms of paragraphs 2 and 3 of the originating process filed on 14 September 2017. 3. The Court notes that Mr Mahommed and Mr Smits without prejudice to their contentions, and otherwise without admissions on the part of those parties, ratify and adopt the contract referred to in paragraph 2 of the originating process. 4. The Court reserves the parties' costs incurred up to and including 23 October 2017. 5. The Court notes the further agreement recorded in paragraphs 1 and 5 of Annexure A hereto and makes orders in terms of paragraphs 2-4 thereto, namely: Without prejudice and without admissions, Messrs Mahommed, Smits and Dean agree as follows: 1. As to the subject lots upon registration of the transfers of title to the defendant: (a) as to Lots 48 and 49, the defendant shall hold title to these lots upon condition it shall not alienate, encumber or otherwise deal with those lots pending final determination of the interlocutory applications filed on 29 September 2017; (b) as to the remainder of the lots (other than Lots 48 and 49), the defendant shall be at liberty to deal with them as it sees fit; (c) Mr Dean and Mr Cohen may execute any transfers from the plaintiff. 2. Mr Mahommed shall serve any further affidavits in support of his interlocutory application by 21 November 2017. 3. Mr Dean shall serve any further affidavits in support of his interlocutory application and in reply to Mr Mahommed's affidavits by 21 December 2017. 4. Liberty to apply to Justice Black for allocation of a hearing date for the interlocutory applications in the new Law Term. 5. Note the agreement of the plaintiff, Mr Mahommed, Mr Dean and Mr Smits to execute all necessary documents and to do all things necessary to give full force and effect to terms of settlement and the agreement noted herein.
I indicated at that time that I would provide reasons in due course. These are my reasons for making those orders, declarations and notations.

[4]

Background

On 14 July 2014, Vangory Holdings Pty Ltd (Vangory Holdings) appointed Mr Neil Robert Cussen and Mr Ezio Senatore as administrators of Beechworth pursuant to Corporations Act 2001 (Cth), s 436C. Disputes arose as to the validity of those appointments.
Subsequently, Mr Cussen and Mr Senatore were appointed agents of Beechworth as mortgagee in possession of 28 lots at Beechworth by certain individuals (described as the interested parties), pursuant to a deed of authority dated on or about 6 November 2014. They were also appointed as court-appointed receivers of certain of the company's assets (being the 28 lots at Beechworth) by order of the Supreme Court made on 18 December 2014.
In separate proceedings, Robb J determined that the administrators were validly appointed to Beechworth: In the matters of Beechworth Land Estates Pty Ltd (Admin Apt) and Griffith Estates Pty Ltd (Admin Apt) (No 2) [2015] NSWSC 336.
Orders have been made in those separate proceedings pursuant to Corporations Act, s 447A that Pt 5.3A of the Corporations Act is to operate in relation to Beechworth in a manner which has the effect of extending the convening period for the adjourned second meeting of creditors of Beechworth. The latest extension, made on 18 October 2017, has the effect of extending the convening period until 28 February 2018. The effect of these orders is that they have provided the administrators with further time to realise the company's assets without the additional complication and cost of competing enforcement claims by creditors claiming security over common collateral.
Nominees lodged a proof of debt with the administrators of Beechworth for an amount of $807,903.04 claimed to be owing under a deed of loan dated 1 February 2013 between Nominees, as trustee for the Dean Super Fund (as Lender) and Beechworth (as Borrower). The proof stated that Nominees held security in respect of that debt described as a "General Security Agreement" dated 1 February 2013, which was registered in the Personal Property Securities Register on 13 May 2013. (A search of the PPSR discloses that Nominees' security interest in respect of Beechworth's property is first ranking.)
On 9 May 2016, Mr Smits sent a letter to the administrators of Beechworth notifying them that as from 5 May 2016, Mr Peter Shah Mahommed and Mr Smits were appointed as duly authorised representatives of Nominees under the "BLE Loan Security Agreement" dated 1 February 2013. Attached to that letter was a copy of a Power of Attorney executed by Mr Dean (on behalf of Nominees) in favour of Mr Smits and Mr Mahommed. The Power of Attorney is expressed to be irrevocable for the period commencing on 5 May 2016 until 9 May 2019 and made in support of a vested interest to exercise all powers exercisable by Nominees in respect of the BLE Loan Securities described in the Schedule to the Power of Attorney.
On or about 9 June 2016, the administrators' solicitor received a letter from Mr Cohen on behalf of Nominees and its sole director, Mr Dean, disputing the purported authority asserted by Mr Smits and Mr Mahommed on behalf of Nominees.
On 10 August 2016, Nominees and Maitland Finance and Acquisition Pty Ltd (Maitland) entered into a deed pursuant to which Nominees (as assignor) agreed to assign to Maitland (as assignee) the debt in the amount of $807,903.04 owing by Beechworth to Nominees under the deed of loan dated 1 February 2013.
By letter dated 13 June 2017 from the administrators to Mr Tim Orlizki, solicitor, Beechworth made an offer to Nominees and Maitland to make an in specie distribution to Nominees by transferring title to certain of the remaining Beechworth lots (identified as lots 16, 17, 18, 30, 47, 48, 49, 73 and 74) of which it was mortgagee in possession. A copy of that letter was also sent to Mr Dean, Mr Cohen, Mr Smits and Mr Mahommed.
On 14 June 2017, Mr Smits sent a letter to the administrators purporting to accept, on behalf of Nominees, the offer contained in the administrators' letter of 13 June 2017.
Later on the same day, Mr Cussen, one of the administrators, received an email from Mr Orlizki in which he indicated that neither Mr Smits nor Mr Mahommed had any authority to act for Maitland and that as he understood the position, neither Mr Smits nor Mr Mahommed had any authority to act for Nominees.
On 19 June 2017, Mr Cohen sent a letter to the administrators reiterating Mr Dean's position that neither Mr Smits nor Mr Mahommed had any authority to act for Nominees or Mr Dean.
On or about 26 July 2017, Mr Cohen, purportedly on behalf of Nominees, sent a letter to the solicitor for the administrators offering to accept the transfer of nine lots by Beechworth (as mortgagee in possession) to Nominees (or its nominee) in reduction of Nominees' claim against Beechworth in the amount of $1,000,000. It is appropriate to set out the terms of that offer in full: 1. Lots 16, 17, 18, 30, 47, 48, 49, 73 and 74. ("Subject Lots") are transferred by the Company (as mortgagee-in-possession) to BAD or its nominee in reduction of the amount of BAD's claim against the Company in the amount of $1,000,000.00 ("Amount"). 2. If a distribution is likely in a winding-up of the Company, BAD (or its assignee, as the case may be) may prove in the liquidation for the difference between the Amount and the quantum of the BAD claim against the Company, as adjudicated by the Liquidators of the Company. 3. The Administrators may take immediate steps to sell the balance of the lots (namely lots 28, 29, 54, 60, 68, 69, 70, 76 and 77 ("Remaining Lots") at their discretion. 4. So as not to saturate the market BAD and its nominee will not take any steps to sell the Subject Lots before 31 October 2017 or such earlier date from advice from the Administrators that the Remaining Lots have been sold. 5. BAD will consent to the Administrators' ultimate appointment as Liquidators and will procure the agreement of any valid nominee to consent to the Administrators' ultimate appointment as Liquidators. 6. The rights of BAD to maintain its claim to the balance of the BAD debt, its claim in relation to the BAD security interest and the priority of that security interest as against the Administrators' statutory and other rights of indemnity in respect of their remuneration and expenses are preserved. 7. This offer may be accepted subject to a condition that the Administrators obtain orders of the Supreme Court under section 447A of the Corporations Act, or directions under section 447D of the Corporations Act, prior to completion. 8. This offer is open for acceptance until 4pm, 3 August 2017 unless withdrawn earlier on 2 business days' notice.
On 2 August 2017, Mr Mattiussi, on instructions from the administrators, sent an email to Mr Cohen accepting Nominees' offer subject to and on condition that: … the administrators and the company obtain appropriate relief from the Court that (amongst other things) finally determines: (i) the validity of Mr Smits' letter dated 14 June 2017 (copy attached); (ii) that the Offer was validly made on behalf of BAD Nominees (NSW) Pty Ltd; and (iii) that the Administrators and the company are otherwise able to sell/transfer the lots without breaking any legal obligation (including any contract and the terms of any security) and give such title to the lots as the Offer contemplates. On that basis, we are instructed to prepare the necessary Court application, which will be filed and served on you (amongst others) in due course.
On 14 September 2017, Beechworth filed an originating process seeking declaratory relief in the following terms: 2. A declaration that the Plaintiff and the Defendant have entered into a contract on the terms of the communications dated 26 July 2017 and 2 August 2017 (copies of which are at pages of 315-317 of Exhibit NRC-1 to the Affidavit of Neil Robert Cussen sworn on 14 September 2017). 3. A declaration that the Plaintiff is authorised to sell the properties identified in Schedule A hereto to the Defendant.
Schedule A to the originating process contained the following description of the subject properties: Plan Lot Folio Address 616587E 16 11449/456 17 Braunthal Avenue, Beechworth 616587E 17 11449/457 19 Braunthal Avenue, Beechworth 616587E 18 11449/458 21 Braunthal Avenue, Beechworth 616587E 30 11449/484 28 Hayes Drive, Beechworth 616587E 47 11449/465 29 Hayes Drive, Beechworth 616587E 48 11449/466 27 Hayes Drive, Beechworth 616587E 49 11449/467 25 Hayes Drive, Beechworth 611593M 73 11655/777 Mossgrove Way, Beechworth 611593M 74 11655/778 Mossgrove Way, Beechworth

[5]

When the matter was before the Court on 16 October 2017, Mr Darvall, counsel for Mr Dean, indicated that his client consented to the declaratory relief sought by Beechworth. On that occasion, Mr Smits, solicitor for Mr Mahommed, appeared via telephone and sought and obtained an adjournment of the originating process for one week. Directions were made for the filing and service of written submissions with a view to hearing the originating process on 23 October 2017. In written submissions dated 18 October 2017, Mr Smits, indicated Mr Mahommed's "qualified" opposition to the relief sought by Beechworth.
At the hearing on 23 October 2017, Mr Condon SC, counsel for Beechworth, indicated that, having regard to the evidence which Mr Smits had notified he intended to read in opposition to Beechworth's application (which traversed the validity of the Power of Attorney), it was not feasible for Beechworth to proceed with its originating process prior to the resolution of that issue which was the subject of the interlocutory processes filed on 29 September 2017. After I raised with the parties a possible way in which the originating process might be able to be dealt with in advance of the interlocutory processes, the proceedings were adjourned for a short time to enable the parties to discuss a possible resolution of the originating process.
Ultimately, Beechworth, Mr Dean, Mr Mahommed and Mr Smits reached an agreement which enabled the disposition of the originating process in advance of the determination of the interlocutory processes concerning the validity of the Power of Attorney. That agreement also obviated the need for present purposes to determine the respective challenges to the retainer of Mr Cohen and Mr Smits. All persons claiming authority to act on behalf of Nominees have consented to the proposed orders, declarations and notations.
No issue arises as to the requirement of a proper contradictor. It is sufficient that a person has an interest opposed to the interest of the plaintiff who seeks a declaration, whether or not the plaintiff's interest is in fact opposed by the contentions made by the other party: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378; [2012] FCAFC 56 at [30]-[32]. Mr Mahommed answers that description of a contradictor.
Having considered the affidavit evidence of Mr Cussen, one of the administrators of Beechworth, I was satisfied that the Court should, in its discretion, grant the declaratory relief sought by Beechworth.
Two matters should be mentioned in relation to the declaration sought in par 2 of the originating process. First, (assuming the Power of Attorney was valid and had not been revoked), it is unnecessary to determine whether the appointment of the attorneys was a non-exclusive appointment and did not preclude Nominees from dealing with its own property through its sole director, Mr Dean: Re Craven's Estate (1937) 1 Ch 423 at 428-430. This is because the attorneys have now ratified and adopted the contract referred to in par 2 of the originating process. Ratification can be by a duly authorised agent: Suncorp Finance & Insurance Corp v Milano Assicurazioni Spt [1993] 2 Lloyd's Rep 225 at 234-5 (Waller J). If it is subsequently determined that the Power of Attorney is invalid, then that the purported ratification by the attorneys will be of no legal effect will not affect the authority of the sole director of Nominees to bind that company to the contract with Beechworth.
Second, it has been said that "[o]n ratification, and not before, the agreement is as a general rule deemed by fiction to have been made by his antecedent authority to the person actually making it": Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1 at 19; [1925] HCA 47 (Isaacs J). It was not suggested by any party that the operation of the doctrine of ratification would give rise to any injustice or oppression in the present case (assuming the Power of Attorney was valid and had not been revoked, and otherwise revealed the principal's (Nominees') intention to relinquish some or all of its capacity to exercise authority on its own account in relation to the BLE Securities).
The result is that Nominees is undoubtedly bound by the contract referred to in par 2 of the originating process, irrespective of the outcome of the dispute between Mr Dean and Messrs Mahommed and Smits concerning the validity of the Power of Attorney.
As to the declaration sought in par 3 of the originating process, Mr Condon SC submitted, and I accept, that it is appropriate that such a declaration be made in circumstances where there is an unresolved dispute between Mr Dean (as the sole director of Nominees) and Messrs Mahommed and Smits concerning the validity of the Power of Attorney. The subject matter of the second declaration concerns a dispute that is real and not a theoretical one: Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297; [1972] HCA 19.
For these reasons, I made the orders, declarations and notations set out at [4] above.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (6 paragraphs)

Legislation Cited (1)

Cases Cited (7)