Land Enviro Corp Pty Ltd (In Liq) v HTT Huntley Heritage Pty Ltd

The property the subject of the charge

1. The expression "Company Property" is defined in the Charge to mean all the property interest and rights presently or in the future held by the company, including all material owned by the company from time-to-time wheresoever situated. The Charge was expressed in cl 5 to be fixed on certain property and otherwise floating on any other company property.
2. The Charge was expressed to become a fixed charge on an event of default which is defined to include the company being placed into liquidation: cl 7, cl 18(f). Thus at the latest the Charge crystallised on 17 December 2014.
3. The expression "property interest and rights" in the definition of "Company Property" is wide enough to include both physical or corporeal property and choses in action. The definition also expressly includes property interest and rights in the future held by LEC.
4. In the present case the Charge would seem to cover the causes of action which LEC had against the respondent. I do not think the fact that the causes of action under the Trade Practices Act are incapable of assignment (National Mutual Property Services (Aust) Pty Ltd v Citibank Savings Ltd (No 4) (1995) 132 ALR 514; Pritchard v Racecage (1997) 72 FCR 203) leads to the conclusion that such causes of action were incapable of being charged to secure an indebtedness, as it is not necessary for the chargee, as distinct from the chargor, to demonstrate that it suffered loss and damage as a result of the contraventions.
5. Further, even if (as in the present case), an action brought to enforce the causes of action was dismissed but was the subject of an appeal, the assignment or charge of those causes of action would entitle the assignee or chargee to appeal to set aside such a judgment. Although a bare right of appeal is not capable of assignment, a right of appeal which is ancillary to an interest in a debt or cause of action for damages which would come into existence if the appeal was successful, means the right of appeal was capable of assignment together with the cause of action which would produce the judgment debt: Krishell Pty Ltd v Nilant (2006) 32 WAR 540; [2006] WASCA 223 at [39]-[44] per Wheeler JA; at [64]-[65] per McClure JA (as her Honour then was); see also Buss JA (as his Honour then was) at [108]-[110]; Baker v Sheridan (2005) 4 ABC (NS) 67; [2005] NSWCA 408 at [28]-[29] per Mason P.
6. As was pointed out in those cases, this conclusion is not inconsistent with anything said by the majority of the High Court in Cummings v Claremont Petroleum NL (1996) 185 CLR 124; [1995] HCA 19. In that case the majority of the Court concluded that a right to appeal against a monetary judgment in an action against a bankrupt, was not property of the bankrupt and on that account not vested in the trustee in bankruptcy. The majority explained the position in the following terms (at 133): "A right to appeal may be a substantive right, but it is another question whether such a right has the character of property. Some rights created by statute can constitute property, but a right to appeal does not have the character of property merely because it is the creature of statute. A chose in action may be the property of the person entitled to enforce it, but a liability to satisfy a judgment enforcing a chose in action is not property of the person against whom the judgment is entered. A liability is not property of the person liable. Nor is a right to appeal against a money judgment property of the judgment debtor" (Footnotes omitted).
7. The majority expressly distinguished the situation of an appeal relating to a claim by a bankrupt for money or property that would vest on recovery in the trustee, explaining (at 134): "If the postulated appeal relates to property that became vested in the trustee on the bankruptcy, or if the postulated appeal relates to a claim by the bankrupt for money or property that would be vested on recovery in the trustee, the right to appeal is vested in the trustee …"
8. In the present case, unlike the situation in Cummings v Claremont supra, a right to appeal if it existed was ancillary to the chose in action which would come into existence if the appeal was successful.
9. Nor does it matter that the chose in action did not exist at the time of crystallisation of the Charge, namely when LEC was placed into liquidation. The Charge was expressed to cover all property interest and rights presently or in the future held by the company. It is not limited to property interest and rights held at the time of crystallisation: see Ferrier v Bottomer (1972) 126 CLR 597; [1972] HCA 11 at 607.
10. In these circumstances, if LEC had an existing right of appeal, it would be subject to the Charge as ancillary to the chose in action being the claim against the respondents. However, the more difficult question is whether the right to make an application under UCPR 36.16 is in the same position. UCPR 36.16, relevantly, is in the following terms: "(1) The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order. (2) The court may set aside or vary a judgment or order after it has been entered if: (a) … (b) it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order."
11. The rule confers a discretionary power on the Court to set aside a judgment of the nature of that entered in the circumstances of the present case. The party against whom the judgment was entered would be entitled to bring a motion to have it set aside, and have the Court consider whether to exercise its discretion. However, that does not seem to me to amount to a thing of value being a property interest or right (to use the words of the Charge) capable of being charged that is made available as security for the payment of the debt: Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 595-596 (Buckley LJ) approved at 613 (Lord Wilberforce); National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449-450; Re Charge Card Services Ltd [1987] Ch 150 at 176. Further, unlike a right of appeal, the right to bring such an application does not seem to me to be capable of being described as ancillary to the underlying chose in action such as being capable of being assigned or charged with the underlying chose.
12. However, there remains the question whether cl 19 of the Deed of Charge authorised Mr Mateljan, as assignee of Mr and Mrs Zdrilic's rights under the Charge, to cause LEC to bring the proceedings. Clause 19 provides as follows: "19. How Zdrilic may enforce this charge If an Event of Default happens, Zdrilic may immediately, or later if it wishes, enforce this charge by doing any one or more of the following in any way it considers appropriate: (a) entering into, seizing, taking possession of, managing or using the Company Property; and (b) exercising any one or more of the powers that a receiver may exercise under section 420 of the Corporations Law."
13. Mr Mateljan has asserted and it is not disputed, that he has entered into possession of the whole of the company property having appointed himself a controller. For present purposes it is immaterial whether his status is that of a controller within the meaning of that expression in the Corporations Act 2001 (Cth), or whether he is a mortgagee in possession. On either view of the matter, he has entered into and taken possession of and is managing or using the Company Property within the meaning of cl 19(a). Further, the Deed of Charge entitles the chargee to exercise the powers in s 420 of the Corporations Law (the provisions were not relevantly different to those in s 420 of the Corporations Act).
14. These provisions include a power in the receiver to bring proceedings in the name of the company: s 420(2)(k). The provision does not seem to be limited to proceedings in respect of property which at the time of the appointment fell within the definition of Company Property, but would extend to taking proceedings with the object of getting property to which the receiver was entitled.
15. The Deed effectively empowers the mortgagee to bring proceedings in the name of the company for the purpose of enforcing the charge. I was initially attracted to the argument that the power could only be exercised to cover choses in action which existed at the time the mortgagee went into possession. However, on further reflection I do not consider that to be the case, the charges being over the Company Property either presently held or held in the future. As I indicated earlier, in these circumstances, it is not limited to property interests and rights held at the time of crystallisation: see [21] above. It follows that the provisions in s 420(2)(k) could be used to bring the proceedings to seek to reinstate the appeal as a step to getting property to which LEC was entitled.
16. I do not think the fact that LEC is in liquidation affects the position. The mortgagee as a secured creditor, stands outside the liquidation and remains entitled to enforce his security: Strong v Carlyle Press [1893] 1 Ch 268 at 274, 276. The power of the mortgagee, conferred by the Deed, to bring proceedings in the name of the company is not affected by the liquidation. His power in that regard is effectively analogous to that of a receiver after liquidation has occurred. Although he is entitled to bring the proceedings in the name of the company, he is not doing so as the company's agent and may be personally liable for any losses incurred: Gough's Garages Ltd v Pugsley [1930] 1 KB 615 at 621, 625-626; Re Yates; National Mutual Life Association v Catco Development Pty Ltd (1989) 88 ALR 583 at 586-588; Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354; [1943] HCA 4 at 382; Re Leslie Homes Ltd (1984) 8 ACLR 1020 at 1022-1023; Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153 at 159-160 per Hope JA, Glass and Samuels JJA agreeing.
17. For the reasons given by Emmett AJA in pars [49]-[55] of his Honour's judgment, I agree that Mr Mateljan was not acting as a receiver of LEC but rather exercising his rights as mortgagee in possession. I also agree with what is said by his Honour on the question of the prospects of success in the appeal, discretion and security for costs.
18. MEAGHER JA: I have had the benefit of reading in draft the judgments of the Chief Justice and Emmett AJA. I agree with the Chief Justice and accordingly with the orders that Emmett AJA proposes.
19. EMMETT AJA: The Court has before it two applications. The first was made by Notice of Motion filed on 23 August 2016 (the Reinstatement Application). The second was made by Notice of Motion filed on 25 January 2017 (the Security Application). Both applications have been made in appeal proceedings brought in the Court (the Appeal) in the name of Land Enviro Corp Pty Ltd (the Company). By the Appeal, the Company appeals from orders made by a judge of the Equity Division (the primary judge) on 27 April 2012 (the 2012 Orders). By the 2012 Orders, the primary judge dismissed proceedings (the Equity Proceedings) brought by the Company against several defendants including HTT Huntley Heritage Pty Ltd (HTT), Mr Robert Renshall and Devubo Pty Ltd (the Respondents).
20. On 22 June 2015, the Registrar of the Court made an order (the Dismissal Order) that the Appeal be dismissed pursuant to r 13.6 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). UCPR 13.6 relevantly provides that, if there is no attendance by or on behalf of an appellant at a hearing of which the appellant has had due notice, the court may adjourn the hearing to another date and direct that notice of the adjournment be served on the appellant advising that the proceedings may be dismissed if there is no attendance by or on behalf of the appellant at the adjourned hearing. If the appellant has been given such notice and there is no attendance by or on behalf of the appellant at the adjourned hearing, the court may dismiss the proceedings.
21. By the Reinstatement Application, which has been brought under UCPR 36.16, the Company asks, relevantly, that the Dismissal Order be set aside. UCPR 36.16(2)(b) relevantly provides that the Court may set aside an order if it has been made in the absence of a party, whether or not the absent party had notice of the relevant hearing.
22. In addition, the Company seeks the grant of leave for Mr Sam Zdrilic to appear for it in the proceedings. UCPR 7.1(2) relevantly provides that a company within the meaning of the Corporations Act 2001 (Cth) may commence and carry on proceedings in any court by a solicitor or by a director of the company. Without the leave of the Court, the Company may not continue to prosecute the reinstatement application or, if the application is successful, the appeal unless it instructs a solicitor. The Court has granted leave to Mr Zdrilic to appear on behalf of the Company in connection with the hearing of the two applications presently before the Court. However, the Court has made no determination as to whether, if the Dismissal Order were to be set aside, leave would be granted for Mr Zdrilic to continue to appear for the Company in the Appeal.

Standing to bring the Reinstatement Application

1. A preliminary question that arises in connection with the Reinstatement Application is whether it has been properly brought. The Respondents dispute that the Reinstatement Application has been brought properly in the name, and on behalf of, the Company in circumstances where the Company is in liquidation and its liquidator declined to make an application to reinstate the Appeal.
2. The Reinstatement Application was made in the name of the Company by Mr John Mateljan. Mr Mateljan claims to be entitled to do so by reason of a deed of assignment dated 26 July 2016 (the Assignment Deed). By the Assignment Deed, Mr Paul Leroy, the trustee of the bankrupt estates of Mr Sam Zdrilic and Mrs Amy Zdrilic (Mr & Mrs Zdrilic), assigned to Mr Mateljan the right, title and interest of Mr & Mrs Zdrilic in a debt of $2 million owing by the Company to Mr & Mrs Zdrilic (the Debt) and the right, title and interest of Mr & Mrs Zdrilic in a deed of fixed and floating charge dated 19 June 1998 (the Charge).
3. By a deed dated 12 August 2016, Mr Mateljan also purported to appoint himself as "controller of the property" of the Company. It is relevant, as will appear below, that he did not purport to appoint himself as a receiver. Whether that purported appointment of Mr Mateljan as controller had any juridical effect is not of present relevance.
4. By cl 3 of the Charge, the Company charged "the company property" to Mr & Mrs Zdrilic as security for the payment of all money and the performance of all other obligations owed to Mr & Mrs Zdrilic by the Company under or in connection with any agreement secured by the Charge. The term "company property" is defined in cl 1 of the Charge as meaning: "All the property, interest and rights presently or in the future held by the Company including all material owned by the Company from time to time wheresoever situated." The Charge operates as a fixed charge on certain company property identified in cl 5 and as a floating charge on all other company property.
5. Under cl 2 of the Charge, "an agreement secured by [the] Charge" is any agreement with, or commitment to, Mr & Mrs Zdrilic that the Company has entered into, or that the Company enters into in the future, and which the Company agrees to be secured by the charge. It appears to be common ground that the Debt arose under an agreement secured by the Charge within the meaning of that provision.
6. By cl 4 of the Charge, the Company promised Mr & Mrs Zdrilic that it would not breach the Charge or an agreement secured by the Charge and that, if it did so, Mr & Mrs Zdrilic might enforce the Charge by taking possession of and selling the Company property and exercising the other rights that it has when such a breach happened. Clause 18 of the Charge relevantly provided that the breach by the Company of a term of an agreement secured by the Charge or the appointment of a liquidator to the Company was an event of default. Clause 19 of the Charge relevantly provided that, if an event of default happened, Mr & Mrs Zdrilic might immediately, or later if they wish, enforce the Charge by doing any one or more of the following in any way they considered appropriate:

• enter into, seize, take possession of, manage or use the company property; and
• exercise any one or more of the powers that a receiver may exercise under s 420 of the Corporations Law. Clause 19 also provided that Mr & Mrs Zdrilic may take such other enforcement action as the general law allows. Finally, it provided that the Charge secured any costs incurred by Mr & Mrs Zdrilic and any loss suffered in taking any action to enforce the Charge.

1. Several discrete issues arise in relation to the question of whether the Reinstatement Application has been properly brought by Mr Mateljan on behalf of the Company. They are as follows: (a) whether the right on the part of the Company to make an application under UCPR 36.16 for the setting aside of the Dismissal Order constitutes "company property" for the purposes of the Charge; (b) whether Mr & Mrs Zdrilic would have been entitled, under cl 19 of the Charge, to exercise any right on the part of the Company to make such an application to this Court; (c) whether that entitlement was assigned to Mr Mateljan by the Assignment Deed. It is convenient to deal with those questions separately.

Company property

1. As I have indicated, "company property" includes "all the property interest and rights" held by the Company. The Respondents contend that that phrase should be understood as meaning "all the property interest and all the property rights" held by the Company. That is to say, the Respondents point to the absence of a comma between the words "property" and "interest" as signifying that the word "property" was intended to operate as an adjective qualifying both "interest" and "rights".
2. The question is whether the right conferred by UCPR 36.16 to apply to a court to set aside an order made by the court is something that is capable of being entered into, seized, taken possession of, managed or used. The reference in cl 19(a) of the Charge to the right to "enter into, seize, take possession of, manage or use" Company property may suggest that the phrase "company property" was intended to refer only to property of a nature that is capable of being entered into, being seized, being taken possession of, being managed or being used. That language may tend to suggest that "company property" consists of corporeal property rather than incorporeal property. Thus, it is arguable that it is not possible to enter into, seize, take possession of, manage or use a right under UCPR 36.16 to apply to a court to have an order set aside.
3. While incorporeal rights are clearly capable of constituting property, in the broad sense in which that term is normally used, there is clearly a distinction to be drawn between corporeal property and incorporeal property. Nevertheless, the preferable view of the construction of the definition of "company property" is that it encompasses anything that is of value to the Company. There is good reason to construe the term as including rights held by the Company that are not properly characterised as corporeal property. That conclusion is supported by the terms of cl 19(b), which authorise the exercise of any one or more of the powers that a receiver may exercise under s 420 of the Corporations Law. Section 420 of the Corporations Law is in relevantly the same terms as s 420 of the Corporations Act 2001 (Cth).
4. Under s 420(1) of the Corporations Act, a receiver of property of a corporation has power to do all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed. Under s 420(2), in addition to any powers conferred by the instrument under which a receiver is appointed, the receiver of property of a corporation has power, for the purpose of attaining the objectives for which the receiver was appointed, to do any of the things specified in ss 420(2)(a) to 420(2)(w). Clearly enough, the reference to s 420 in cl 19(b) must be understood as a shorthand mechanism for giving to Mr & Mrs Zdrilic each of the powers conferred on a receiver by s 420 as if Mr & Mrs Zdrilic were receivers of property of the Company.
5. The powers enumerated in s 420(2) clearly go beyond powers that could only be exercised in relation to corporeal property. Under s 420(2)(k), a receiver of property of a corporation has power, relevantly, to bring or defend any proceedings in the name of and on behalf of the corporation. Apart from the power to bring or defend proceedings, a receiver is also given the following powers: (k) to execute any document or do any other act or thing in the name of and on behalf of the corporation; (m) to draw, accept, make and indorse a bill of exchange or promissory note; (n) to use a seal of the corporation; (p) to appoint a solicitor, accountant or other professionally qualified person to assist the receiver; (q) to appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person; (r) where a debt or liability is owed to the corporation, to prove the debt or liability in a bankruptcy, insolvency or winding up; (u) to make or defend an application for the winding up of the corporation; (w) to refer to arbitration any question affecting the corporation.
6. Those specific powers, in addition to the power to do all things necessary or convenient to be done for, or in connection with, or as incidental to the attainment of the objectives for which a receiver is appointed, coupled with the definition of "property" in s 9 of the Corporations Act, indicate that the powers are not limited to "property rights" but extend to "things in action". The term "property" is defined in s 9 of the Corporations Act as including any legal or equitable estate or interest in real or personal property of any description and includes "a thing in action". A right to apply under UCPR 36.16 for an order to be set aside is fairly characterised as "a thing in action".
7. For example, the Company might have a right to apply to have set aside an order dismissing a claim by the Company against another party that had been entered as a result of fraud. The right to have such an order set aside, so as to enable the Company to prosecute its claim, may well be very valuable from the point of view of a creditor of the Company. It would be a curious result if such a right could not properly be characterised as "company property" within the meaning of the definition in the Charge so as to be exercisable by a receiver. It follows that the right conferred by UCPR 36.16 is property of the Company for the purposes of the Charge.

Right of Mr & Mrs Zdrilic to make the Reinstatement Application

1. The Respondents contend that, insofar as Mr Mateljan, as assignee of the rights and powers of Mr & Mrs Zdrilic, was purporting to take possession of the property of the Company and to act, with respect to that property, as an agent of the Company, he was acting as a receiver and not as a mortgagee in possession. Therefore, the Respondents contend, s 418 was engaged and he was prohibited by s 418(1)(a) from exercising any power under s 420 of taking possession or control of the right to make an application under UCPR 36.16 in relation to the Dismissal Order.
2. Section 418 relevantly provides that a person is not qualified to be appointed, and must not act, as a receiver of property of a corporation if the person is a secured party in relation to any property of the corporation or if the person is not a registered liquidator. Clearly enough, Mr Mateljan is now a secured party in relation to property of the Company. Further, he is not a registered liquidator. He is therefore not eligible to be appointed as a receiver. While, as I have said, he purported to appoint himself "controller" of the Company's property, he did not purport to appoint himself as a receiver.
3. It may be that, by reason of his exercising the powers conferred by the Charge, Mr Mateljan has become a "controller" in relation to the property of the Company within the meaning of the Corporations Act. A "controller" in relation to property of a corporation includes anyone who, whether or not as agent for the corporation, is in possession, or has control, of that property for the purpose of enforcing a security interest. As a controller, Mr Mateljan would be subject to s 419 of the Corporations Act, which relevantly provides that any receiver or any other authorised person, who, whether as agent for the corporation concerned or not, enters into possession or assumes control of any property of a corporation for the purpose of enforcing any security interest, is liable for debts incurred by that person in the course of the receivership, possession or control for services rendered, goods purchased or property hired, leased, used or occupied. The Respondents assert that the right on the part of the Company to make an application under UCPR 36.16 in relation to the Dismissal Order is not capable of being exercised by a mortgagee. They accept that a power under s 420 that is capable of exercise by a mortgagee in possession and may be exercised by the mortgagee for and on his, her or its own behalf. However, the Respondents contend, a mortgagee may not exercise a power to act for and on behalf of a company, such as, relevantly, the power under s 420(2)(k).
4. A mortgagee who enters into possession of the property of a company that is the subject of a mortgage or charge becomes the manager of the mortgaged or charged property, [1] is in direct control of the property and is directly liable to account to the company, or any other owner of the equity of redemption, in relation to the management of the property. [2] For example, where a mortgagee enters into possession of a business, the mortgagee stands in the place of the mortgagor as regards its powers. The mortgagee is therefore accountable to the mortgagor, or any other owner of the equity of redemption, for everything that the mortgagee has either received or might have received or ought to have received, while acting properly. [3] As such, a mortgagee in possession acts in a personal capacity and the mortgagee is personally liable on any contracts that the mortgagee enters into with a third party. [4] It follows that a mortgagee who enters into possession of property of a company does not act as agent of the relevant company. [5]
5. On the other hand, a privately appointed receiver of a company will normally be the agent of the company. Thus, cl 21 of the Charge relevantly provides that, unless otherwise prevented by law, any receiver appointed will be the Company's agent and the Company will be responsible for the receiver's acts and omissions. The purpose and effect of holding that the receiver is the agent of the mortgagor company is to relieve the mortgagee from the liabilities that the law casts upon a mortgagee who enters into possession and to place upon the mortgagor company liability for the acts and defaults of the receiver. [6] Accordingly, in dealings with third parties, the acts of the receiver are binding on the company. [7] That is to say, the acts of a receiver done in exercise of the powers conferred on the receiver are acts done by an agent of the company, whatever may be the incidents of the duties owed by the receiver.
6. A receiver can continue to exercise powers in the name of the company even after the making of a winding up order. The powers of a receiver, as agent of the company, to commence or continue proceedings in the name of the company for the enforcement of choses in action belonging to the company remain unaffected by the winding up order. [8] However, the company will no longer be liable for debts that may be incurred by the receiver. [9]
7. The Respondents contend that the principles outlined demonstrate that, unlike a receiver, a mortgagee in possession does not act for or on behalf of the mortgagor but, rather, acts in his, her or its own capacity. Most of the powers given to receivers by s 420 of the Corporations Act are capable of exercise by a mortgagee in possession directly in, by and under the name of the mortgagor. It therefore follows that it is open for a company, by a mortgage or deed of charge, such as the Charge, to grant to a mortgagee or chargee power to exercise those powers personally, or through an agent, without appointing a receiver.
8. However, the Respondents contend the position is different with respect to the power conferred by s 420(2)(k) to execute any document, bring or defend any proceedings or do any other act or thing "in the name of and on behalf of the corporation". The Respondents contend that that power is exercisable only by an agent of the corporation, since it is a power to do acts and things, including bringing or defending proceedings, in the name of and on behalf of the corporation, that have the effect of binding the corporation. Thus, the outcome of such proceedings would be binding on the company and the principles concerning finality of litigation will apply to such proceedings. [10] The Respondents' contention appears to be that a mortgagee in possession would not be acting as the agent of the corporation and the corporation would not be bound by the outcome.
9. Thus, the Respondents contend, the effect of Mr Mateljan taking possession as mortgagee in possession is that he was and is acting for and on his own behalf. As such, they argue, it is not open to him to exercise a power conferred by s 420(2)(k) to make an application under UCPR 36.16 "in the name of and on behalf of" the Company. No such power was conferred, or capable of being conferred, by the Charge for the reasons argued above. Therefore, the Respondents say, no power to make such an application was assumed by Mr Mateljan when he took possession of the property that is the subject of the Charge. Further, when Mr Mateljan purported to bring the present application under UCPR 36.16, he was no longer purporting to act on his own behalf but as agent of the Company. He was therefore acting as a receiver and not as a mortgagee in possession, something he is precluded from doing by the operation of s 418 of the Corporations Act.
10. If it is accepted that the right to make an application under UCPR 36.16 constitutes "company property" for the purposes of the Charge, such that the right can be exercised by a mortgagee or chargee, it must follow that the right was capable of being exercised by Mr & Mrs Zdrilic. As chargees under the Charge, they were given by cl 19(b) the power to bring any proceedings or do any other act or thing in the name or on behalf of the Company. That must encompass the making of an application under UCPR 36.16 in relation to the Dismissal Order.

Effect of the Assignment Deed

1. If it is accepted that Mr & Mrs Zdrilic had power on behalf of and in the name of the Company to make an application under UCPR 36.16 to set aside the Dismissal Order, there is no reason to doubt that that power was assigned to Mr Mateljan by the Assignment Deed. By the operation of s 58 of the Bankruptcy Act 1966 (Cth), the effect of the sequestration orders made in respect of the estates of Mr & Mrs Zdrilic was to vest in their respective trustees in bankruptcy all property and rights held by them under or by virtue of the Charge. Under s 58, where a debtor becomes a bankrupt, "the property of the bankrupt" vests forthwith in the trustee of the estate of the bankrupt. Under s 5, "the property of the bankrupt", in relation to a bankrupt, means the "property divisible among the bankrupt's creditors and any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt". The term "property" means real or personal property of every description and includes any estate, interest or profit vested or contingent arising out of or incidental to any such real or personal property. That must include the rights conferred by the Charge.
2. There is no reason to doubt that the right, title and interest of Mr & Mrs Zdrilic in and to the Debt and the Charge vested in the trustee of their bankrupt estates. Accordingly, the Assignment Deed was effective to transfer that right, title and interest to Mr Mateljan.

Power of attorney

1. Some mention was made of cl 24 of the Charge, whereby the Company appointed Mr & Mrs Zdrilic as its attorneys with power, relevantly, to do anything the Company should have done under the Charge, to do anything the attorney considers necessary or desirable in the exercise of Mr & Mrs Zdrilic's rights under the Charge and to do anything in connection with the Company that the Company could do. That provision does not confer standing on Mr & Mrs Zdrilic, or Mr Mateljan as assignee, to make an application under UCPR 36.16. The power conferred by cl 24 is limited to doing those things that are necessary to perfect or implement the exercise of powers conferred by the Charge. It does not confer a power to commence or prosecute proceedings beyond any power conferred by the other provisions in the Charge.

Prospects of Success of the Appeal

1. Ordinarily, both the question of reinstatement and the question of security for costs would require a consideration of the prospects of the Company's success in the Appeal. For the purposes of the argument to date, the Respondents have conceded that the Appeal is at least reasonably arguable. Mr Zdrilic has insisted that the Appeal has very strong prospects of success and that the reason for the plight in which the Company is now found and the plight of Mr & Mrs Zdrilic is the result of the matters about which complaint was made in the original proceedings before Stevenson J. Mr Zdrilic goes so far as to say that the Appeal will almost certainly succeed and has provided voluminous material in support of that contention. The Respondents have made no submissions on that topic, having conceded that the Appeal is reasonably arguable.
2. The principal questions in the proceedings at first instance were whether the Company, Mr & Mrs Zdrilic and Amy Holdings Pty Ltd (Amy Holdings), had rescinded, or were entitled to have set aside, an agreement entitled "Heads of Agreement" dated 13 May 2004 (the Heads of Agreement) and a deed entitled "Deed of Non Dilution and Merger" dated 27 August 2004 (the Non Dilution Deed). They also sought to have set aside orders made by consent on 6 September 2004 (the Consent Orders) dismissing earlier proceedings commenced in 2001 (the 2001 proceedings). The Company had brought the 2001 proceedings against the Respondents and other defendants. The Consent Orders were an embodiment of the Heads of Agreement and the Non Dilution Deed.
3. All of the surviving parties to the Heads of Agreement, the Non Dilution Deed and the 2001 proceedings were parties in the proceedings before Stevenson J. One of the questions was whether, assuming the plaintiffs in those proceedings were entitled to some or all of the other relief claimed, they were entitled to damages. The question of damages directed attention to the likely outcome of the 2001 proceedings, had they not been dismissed.
4. The plaintiffs in the Equity Proceedings claimed that, in reliance on a number of representations that were alleged to have been fraudulent, misleading or deceptive, they entered into the Heads of Agreement and the Non Dilution Deed and consented to the orders of 6 September 2004. Stevenson J concluded that the claims should fail. His Honour was not satisfied that the representations pleaded had induced the plaintiffs to enter into the Heads of Agreement or the Non Dilution Deed or to consent to the Consent Orders. Therefore, his Honour was not satisfied that they had rescinded or were entitled to rescind either of those instruments or were entitled to have the Consent Orders set aside.
5. The Amended Notice of Appeal filed on 22 August 2016 seeks to challenge most of the conclusions reached by the primary judge. The grounds of appeal relate to some 17 alleged representations and challenge many findings of fact made by the primary judge.
6. The first and second grounds of appeal assert that the primary judge erred in concluding that the plaintiffs were not induced to enter into the Heads of Agreement by the representations alleged. Thus, it is asserted that his Honour erred:

• in not taking into account or giving sufficient weight to certain evidence;
• by failing to take into account or have sufficient regard to surrounding circumstances;
• in relying on irrelevant evidence; and
• in failing to take into account or have sufficient regard to other findings.

1. The third ground asserts that his Honour erred by not finding that a particular representation was misleading or deceptive. Other grounds assert that the primary judge erred in allowing the defendants to rely upon affirmations as an answer to the claim to be entitled to rescind and in allowing the defendants to rely upon the impact of third party rights that were not pleaded.
2. In support of the Reinstatement Application, the Company relies upon three separate sets of submissions concerning the merits of the Appeal. The first purports to be "proof that Stevenson J erred in dismissing the claim". The second purports to be a sample of false statements made by Mr Renshall. The third purports to be "false statements by the Respondents' lawyers". No attempt is made to direct attention at specific grounds of appeal stated in the Amended Notice of Appeal.
3. In the circumstances, it is immensely difficult to form any useful judgment as to the likely prospects of success of the Appeal. It is certainly not possible to conclude that the Appeal has strong prospects of success. It is therefore necessary to decide the matter on the basis of the concession made by the Respondents that the Appeal is reasonably arguable.

Discretion

1. On the assumption that the Appeal is reasonably arguable and Mr Mateljan is entitled to bring the Reinstatement Application under UCPR 36.16 in the name and on behalf of the Company, it is necessary to consider the question of whether, in the exercise of the discretion conferred by UCPR 36.16, this Court should make the order sought. That question is very much tied up with the question of whether, if the order sought were made, security for the costs of the Appeal should be provided by or on behalf of the Company. Putting it another way, it may well be appropriate for the Court to impose terms on the making of an order under UCPR 36.16.
2. In addition, the Respondents point to other matters relevant to the exercise of discretion by the Court that, they say, leads to the conclusion that leave should be refused. First, they point to delay in bringing the Reinstatement Application. Secondly, they point to unremedied defaults on the part of the Company in complying with orders of the Court.

Delay

1. The 2012 Orders were made on 20 April 2012. The period for appeal expired on 27 July 2012. However, it was not until 8 November 2012 that the Company applied for an extension of time for filing a notice of appeal. While Allsop P originally dismissed that application on 21 February 2013, this Court set aside the decision of Allsop P on 4 March 2014, and extended the time for leave to appeal against the Respondents but not all the parties who were originally joined as parties to the Appeal. The Appeal was stood over by consent to 30 July 2014, pending application by the Company to the High Court for special leave to appeal in respect of the refusal of an extension of time for appeal in relation to those other parties. The matter was stood over again to 22 October 2014. On 15 August 2014, the High Court dismissed the Company's application for special leave to appeal.
2. On 27 August 2014, a direction was given that the Company file and serve submissions and red appeal books by 24 September 2014. That time was subsequently extended by consent to 20 October 2014. The direction was not complied with.
3. On 17 December 2014, an order was made that the Company be wound up. Subsequently, Mr Zdrilic appealed to the Full Court of the Federal Court of Australia challenging the winding up order in respect of the Company. That appeal was subsequently dismissed. On 27 May 2015, sequestration orders were made in respect of the estates of Mr Zdrilic and Mrs Zdrilic. Mr Leroy was appointed as trustee of their bankrupt estates.
4. On 3 June 2015, Mr Mateljan, who is Mr Zdrilic's brother-in-law, filed a notice of motion seeking to be substituted for the Company as appellant in the Appeal. While that motion was still on foot, the Registrar ordered that the Appeal be dismissed under UCPR 13.6. Notwithstanding that the Appeal had been dismissed, the Court dealt with Mr Mateljan's motion to be substituted as appellant. However, on 24 February 2016, that motion was dismissed with costs. [11]
5. On 16 May 2016, Mr & Mrs Zdrilic commenced proceedings in the Federal Court seeking an order that their trustee in bankruptcy, Mr Leroy, be compelled to assign their rights under the Charge to Mr Mateljan. When the Assignment Deed was executed on 26 July 2016, the proceedings against the trustee were dismissed by consent.
6. As indicated above, the Reinstatement Application was filed on 23 August 2016. On the first return before the Registrar, the issue of Mr Mateljan's standing was raised and the matter was referred to a judge for case management. On 21 December 2016, Meagher JA gave directions in relation to the question of standing and the filing of the Security Application, which was filed on 25 January 2017.
7. The Respondents contend that it must have been apparent to Mr & Mrs Zdrilic that the liquidator of the Company, having been appointed on 17 December 2014, had no interest in prosecuting the Appeal. Nevertheless, no steps were taken immediately to purport to exercise the rights given by the Charge to carry on the Appeal on behalf of the Company. Rather, Mr Zdrilic endeavoured to persuade the liquidator to prosecute the Appeal. After he was made bankrupt on 27 May 2015, Mr Zdrilic purported to appoint a receiver and manager to the Company, who purported to assign to Mr Mateljan all the relevant causes of action and rights of appeal. That was ineffective.
8. At all times during that period from 17 December 2014 to 27 May 2015, it would have been open to Mr & Mrs Zdrilic to exercise rights under the Charge to undertake the prosecution of the Appeal. The Respondents contend that the fact that they did not do so weighs heavily against the granting of the relief now sought in the name of the Company. Further, the Respondents assert, no satisfactory explanation has been put forward for the non-attendance that resulted in the Registrar's making the Dismissal Order. Therefore, they say, there is no reason to justify setting aside the Dismissal Order.
9. It is now more than five years since the decision that is the subject of the Appeal was given. It is more than two years since the Dismissal Order was made by the Registrar. The Respondents contend that the principles of finality dictate that any discretion be exercised against the Company.

Unremedied default

1. On 27 May 2012, the Company was ordered to pay HTT's costs in separate proceedings in the Supreme Court concerning the removal of a caveat involving issues that are unrelated to the Appeal. On 21 March 2013, HTT registered a judgment in the District Court of New South Wales against the Company in respect of the costs assessed pursuant to that order and obtained judgment in the sum of $138,019.63. On 11 April 2013, HTT served a statutory demand on the Company, which the Company failed to comply with. The judgment debt has not been paid.
2. On 24 February 2016, Mr Mateljan's application of 3 June 2015, by which he sought to be substituted as appellant in the Appeal, was dismissed and Mr Mateljan was ordered to pay the Respondents' costs. On 7 February 2017, the Respondents registered a judgment in the Local Court of New South Wales against Mr Mateljan for its assessed costs so ordered in the sum of $74,487.43. Mr Mateljan has not satisfied that order.
3. The Respondents contend that those failures are considerations relevant to the exercise of any discretion to grant an indulgence to the Company, acting through Mr Mateljan. They say that the Company and Mr Mateljan should not be heard on any application for relief, particularly relief involving the grant of an indulgence, in circumstances where they have failed to comply with orders by the Court that they pay costs to the Respondents.
4. Where a party is guilty of contempt of court, the party should not be heard on any application for relief beyond an application to set aside or vary an order or undertaking in respect of which the party is in contempt or an appeal designed to set aside or vary that order or undertaking. [12] At the very least, the Respondents say, it should be a term of any relief granted on the Reinstatement Application that the outstanding judgments for costs be paid forthwith.

Exercise of discretion

1. I do not consider that the delays described above are such as should require the refusal of the Reinstatement Application. While the delays are quite unsatisfactory, they can be explained by the efforts that have been made to formulate a basis upon which the Appeal might be prosecuted in circumstances where the liquidator of the Company declined to prosecute the Appeal. On the other hand, the delays, coupled with the unsatisfied orders for costs, require that, as a term of the reinstatement of the Appeal, by rescinding the Dismissal Order, the outstanding costs should be paid. The appropriate order would be that, if the outstanding costs orders are paid within 28 days, the Dismissal Order be set aside and that, if the costs are not so paid, the Reinstatement Application be dismissed.

Security for Costs

1. The considerations outlined above also lead inexorably to the conclusion that there should be security for the costs of the Appeal, if the Dismissal Order is set aside. Evidence before this Court indicates that party/party costs for an appeal hearing of between three and five days would be between $150,000 and $200,000. In the circumstances, security should be ordered in the sum of $175,000. The security might be provided in stages. The stages should be decided after directions have been given for the preparation of the Appeal.

Orders

1. In the light of conclusions set out above, the appropriate orders are as follows:
2. Order that the notice of motion filed on 23 August 2016 (the Reinstatement Application) and the notice of motion filed on 25 January 2017 (the Security Application) be dismissed.
3. Order that the appellant pay the respondents' costs of the Reinstatement Application and the Security Application.
4. Order that, upon evidence being produced to the Registrar's satisfaction that, no later than 28 days from the date of this order, the judgments against the appellant in the sums of $138,118.63 and $74,487.53 have been paid in full: 1. Orders 1 and 2 be set aside; 2. The order made by the Registrar on 22 June 2015 pursuant to r 13.6 of the Uniform Civil Procedure Rules 2005 (NSW) be set aside; 3. The parties' costs of the Reinstatement Application be their respective costs of the appeal; 4. The Reinstatement Application be otherwise dismissed; 5. Security for the respondents' costs of the appeal in the sum of $175,000 be provided by the appellant in such form and at such times as determined by the Registrar and, if security is not so provided, the appeal be dismissed with costs; 6. The appeal be listed before the Registrar for directions for the preparation of the appeal for hearing and for the provision of security; 7. the Security Application be otherwise dismissed; 8. the costs of the applicant on the Security Application be that party's costs of the appeal.

Endnotes

1. Kendle v Melsom (1998) 193 CLR 46; [1998] HCA 13 at 64.
2. Downsview Nominees Ltd v First City Corp [1993] AC 295.
3. Chaplin v Young (1864) 55 ER 395 at 398.
4. Re Burt, Boulton & Hayward [1895] 1 QB 276.
5. Gaskell v Gosling [1896] 1 QB 669 at 691-693.
6. Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 381-382.
7. Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407; [1997] HCA 37 at 419, 431-433.
8. Wiley v Commonwealth of Australia (1995) 18 ACSR 299 at 304 and Gough's Garages Ltd v Pugsley (1930) 1 KB 615 at 621.
9. Visbord at 382 and Wiley at 303.
10. Such as res judicata, issue estoppel and anshun estoppel.
11. See Mateljan v HTT Huntley Heritage Pty Ltd [2016] NSWCA 20.
12. Chamberlain Group Pty Ltd v Kids for Life Academy Pty Ltd [2015] NSWCA 241; (2015) 18 BPR 35,591 at [17]. 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: 22 August 2017