Langbein v Mottershead Investments Pty Ltd

Introduction 1 By a further amended notice of appeal dated 3 December 2020, the appellant (Mr Langbein) appeals against the judgment of the Federal Circuit Court made on 2 July 2019 and subsequent orders, including orders in relation to costs. The primary judgment is reported as Mottershead Investments Pty Ltd v Aircraft Support Industries Engineering Pty Ltd (in liq) [2019] FCCA 1375. 2 The primary judge's orders include that Mr Langbein pay Mottershead Investments Pty Ltd (MI), the first respondent to the appeal, the sum of $209,000 within 14 days plus interest. The reasons for judgment explain that debt as arising from breach of a warranty (also referred to as a promise) by Mr Langbein to cause Aircraft Support Industries Engineering Pty Ltd (ASI) to pay a debt owed to SV Partners Advisory (NSW) Pty Ltd (SVP), the second respondent to the appeal, which debt and warranty were then assigned to MI. 3 Mr Langbein's criticism of the primary judgment is limited to two grounds, namely (1) that his warranty was not assigned to MI, and (2) it was, in any event, not supported by consideration. The other grounds of appeal in the amended notice of appeal were not pressed. 4 MI contends that the assignment was effective, and even if it was not effective any defect in it has now been cured by a further deed dated 8 December 2020 (i.e., three days before the hearing of the appeal) rendering it clear beyond argument that the claim against Mr Langbein was the subject of assignment. MI sought to conditionally tender the deed on the appeal, the condition being the appeal otherwise being upheld on the basis that the primary judge erred in holding that the warranty was assigned. Mr Langbein opposed the tender. MI also says that the release of Mr Mottershead from contractual constraints so that he would be available to perform certain accounting work for SVP was adequate consideration, as found by the primary judge, even though no further work was in fact performed. 5 MI also raises several points in a notice of contention, the substance of which is that MI should also have succeeded on a s 18 misleading and deceptive conduct claim under the Australian Consumer Law (ACL) before the primary judge, but which the primary judge dismissed. 6 I have reached the conclusions that the warranty was supported by consideration and that it was assigned by SVP to MI, and that the appeal should accordingly be dismissed. My reasons for these conclusions follow. It is therefore not necessary to consider the conditional tender of the 8 December 2020 deed or the issues in relation to the ACL claim arising from the notice of contention.

Background 7 Mr Langbein was at relevant times the managing director and ultimate shareholder of ASI. ASI was the first respondent at first instance, however it was wound up on 29 June 2018 and MI did not seek leave to proceed against it. 8 Between 2015 and 2017, SVP provided accounting services to ASI. Between 8 January 2016 and 7 June 2017, SVP rendered 17 invoices totalling $244,189.30 in relation to which ASI partly paid the first and none of the balance. 9 SVP was the corporate expression of an accounting practice of which Mr Mottershead was an employee, a director and an indirect shareholder through MI. He was the person at SVP with direct responsibility for providing services to ASI (and to Mr Langbein personally). 10 ASI did not itself conduct any business with, or earn any income from, unrelated third parties. To the extent it incurred liabilities to unrelated third parties, it was placed in funds to meet those liabilities by related companies at the direction of Mr Langbein. 11 In 2017, Mr Mottershead wished to sever his relationship with SVP and conduct business himself through MI. ASI's debt to SVP was an impediment to that objective in that SVP required the debt to be paid (either by MI or Mr Mottershead) as a condition of Mr Mottershead's departure (if he wished to be released from a contractual restraint on performing business advisory and forensic accounting services for ASI). 12 Mr Mottershead is the sole shareholder and director of MI. MI held shares in SVP and, after Mr Mottershead severed his relationship with SVP, became the entity through which he conducts business. 13 On 7 July 2017, Mr Mottershead executed a number of documents including a Deed of Separation to give effect to his departure from SVP and on the same day paid the face value of the unpaid ASI invoices to SVP (and other amounts). MI's case at first instance was that he did so because of assurances given by Mr Langbein that ASI would meet its obligations. 14 On 27 April 2018, SVP assigned "all of its right title and interest in and to the debts and other choses in action" to MI. MI sued Mr Langbein both in relation to that assignment and for misleading and deceptive conduct. As indicated, at first instance it succeeded on the first and failed on the second. 15 The primary judge (at [84]) found that the promise, or warranty, that was made by Mr Langbein to SVP was that he would put ASI, or any company in the group, in a position to pay the ASI debt, and cause payment to be made. MI was successful in its claim for breach of that warranty as assigned to it.

Factual findings not in contention 16 The following findings of fact by the primary judge are not in contention. 17 There were two relevant meetings on 25 May 2017. 18 The first meeting was attended by Mr Mottershead and Mr Psalti. Mr Psalti was formerly the general manager of ASI and the third respondent at third instance. MI discontinued its claim against Mr Psalti during the hearing at first instance. 19 During the first meeting, the ASI debt to SVP was discussed and compromised at $220,000 (as reflected in subsequent documents). The performance of future accounting work for ASI was also discussed. 20 The second meeting was initially attended by Mr Mottershead, Mr Langbein and Mr Toda (who provided legal services to ASI and Mr Langbein). Mr Psalti joined the meeting after it had started. 21 During the second meeting: (1) Mr Mottershead asked if his services would be required after he left SVP and commenced his own business and was told by Mr Langbein that they would be; and (2) Mr Langbein assured Mr Mottershead that ASI would pay the debt owing to SVP in circumstances where Mr Langbein knew that Mr Mottershead intended to buy that debt as part of his departure from SVP. 22 In fact, Mr Langbein had no intention of using Mr Mottershead's services and did not disclose that to Mr Mottershead. 23 In making those findings, his Honour rejected Mr Langbein's evidence and focused on this passage of evidence given by Mr Toda: HIS HONOUR : Carry on? --- Mr Mottershead said, 'I'm due some fees. As you know they've been outstanding for some time. I'm in the process of leaving SV - SV Partners. I have to come to some arrangement with you because I'm buying the debt from SV Partners and I need an assurance before I do so from you that my fees will be paid, because I am intending to fund that purchase and I need some sort of assurance it all will be paid. Not necessarily a lump sum, but some arrangement needs to be made to give me some comfort so I can proceed.' That's sort of the best I can recollect from what he said. MR COTMAN: Do you recall what Mr Langbein said to that? --- Sure. Mr Langbein said, 'Yes, of course.' Sorry, at that stage Ross was, from memory, still part of the team so he said, 'I appreciate that very much and, yes, we can organise - come to an arrangement for the payment of your fees.' Yes. Now, do you recall any conversation on that occasion about the future performance of work by Mr Mottershead? --- One of the things Ross [Mottershead] said, which I will try and do in direct speech, was obviously, 'It would mean - it would be important to me to have ongoing work from you as part of this arrangement.' And Mr Langbein said, 'Yes, of course. You know, we appreciate what you've done and you're still part of the team.' 24 The parties corresponded by email after the meeting, which included a proposal by ASI on 8 June 2017 that the debt be paid in 10 monthly instalments of $22,000 to commence in July 2017. Mr Langbein accepted in cross-examination that, in fact, no such payment was going to be made.

Absence of consideration 25 It is convenient to deal with Mr Langbein's second ground of appeal first. Mr Langbein submits that if he made the promise to MI or his promise to SVP was assigned to MI, then his promise is not enforceable for want of consideration. It will be recalled that the primary judge found that the availability of Mr Mottershead to undertake further work for ASI provided consideration for the warranty given by Mr Langbein, whether or not further work was in fact undertaken. Mr Langbein submits that in respect of his promise no consideration flowed from SVP, MI or Mr Mottershead. 26 Mr Langbein references the emails that passed between the parties after the meetings on 25 May 2017 in which he submits that there was no proposed obligation on Mr Mottershead or MI to do any further work for ASI or Mr Langbein and that Mr Mottershead rejected the proposal that he should be available to complete "unfinished tasks" on the basis that this could amount to "a bottomless pit of time". On that basis, Mr Langbein submits that there was no evidence upon which the primary judge could have properly found consideration flowed from SVP, MI or Mr Mottershead. 27 In fact, the email from Mr Mottershead in which he said that "we cannot be a bottomless pit of time to get [the incomplete work] finalised" also stated the following: As you may appreciate we have spent a very large amount of time to date, I have suggested to you that I am happy to give a further $10,000 of time without charge for you to use as needed. My view is this will exceed the time needed to complete 2014 and 2015 and if this be the case I am happy for any left over to assist with 2016. 28 That is a clear statement by Mr Mottershead of his availability to work. 29 In any event, as the quoted extract (at [23] above) from the transcript of the evidence of Mr Toda shows, Mr Mottershead's availability to continue to do work for ASI was acknowledged between the parties. The evidence established that in exchange for Mr Langbein's promise to cause ASI to pay SVP, SVP agreed to allow Mr Mottershead to do ASI's business advisory and forensic accounting work. That was confirmed in the notice of assignment dated 28 July 2017 that was sent by SVP to ASI which stated as follows: I would like to confirm that Mottershead Investments Pty Ltd has acquired the client contacts, WIP and debtors from SV Partners that have been serviced by Ross Mottershead. 30 It is not relevant, as the primary judge found, whether or not Mr Mottershead was in fact called upon to perform any work, or, for that matter, whether or not Mr Mottershead assumed any obligation to do so. SVP's agreement to make Mr Mottershead available by at least partially releasing him from his contractual restraint was adequate consideration. I refer to partial release because it was submitted that he was not released to do "bankruptcy, insolvency, restructuring and/or turnaround services" for ASI. Whether or not that is correct does not matter. 31 It also does not matter whether it was Mr Mottershead personally for himself or him through MI who was envisaged to do the work as both were released from constraints with SVP and were thereafter available to do the work. 32 In the circumstances, the second ground of appeal must fail.

The assignment of the promise 33 This ground of appeal challenges the primary judge's finding that Mr Langbein's promise to SVP was assigned to MI. 34 Mr Langbein refers to six items of evidence which, he submits, prove that his promise to SVP was not assigned to MI. He submits that because these items do not refer to his warranty and/or were not directed to him, the warranty could not have been assigned. 35 The way I see it, it is only one of the items that requires to be examined, and construed in its proper context, namely the written assignment dated 27 April 2018 concluded between SVP as assignor and MI as assignee. That is the assignment relied on by MI, so it is to that assignment that one must look in answering the question whether the warranty was assigned. Mr Langbein points out that in the amended statement of claim (at [4]) MI listed both the deed of separation between SVP, MI and Mr Mottershead and the written assignment in the particulars to the paragraph which alleges the assignment of the debt and the warranty. That, however, does not detract from the fact that if there is an assignment of the warranty it arises from the written assignment of 27 April 2018, and nothing in the deed of separation which was concluded some nine months earlier contradicts that. 36 Mr Langbein points out that the deed of assignment does not refer to his promise and limits, at cl 1, the property to be assigned from SVP to MI to tax invoices issued by SVP to ASI and, at cl 2, to "all agreements … negotiated with ASI …". He submits that the warranty does not arise from the tax invoices and is not an agreement negotiated with ASI. 37 The terms of the deed of assignment are relevantly as follows: 1. [SVP] (Assignor) confirms that it has absolutely assigned to [MI] (Assignee) all of its right title and interest in and to the debts and choses in action described in the Schedule to this Notice (Debts & Choses in Action). 2. Confirms that it has passed and transferred the legal right to such Debts & Choses in Action to the Assignee together with all legal and other remedies for the same and the power to give a good discharge for the same without the concurrence of the Assignor. … Schedule 1. The debts due to the Assignor arising from the issue of the following Tax Invoices issued by the Assignor to [ASI]: … [list of tax invoices] 2. All agreements, rights and entitlements relating directly or indirectly to such debts negotiated with [ASI] by Ross Philip Mottershead on behalf of the Assignor. 38 The text of the assignment, and in particular item 2 in the schedule, are wide enough to include a contractual promise made by Mr Langbein as the person who owned and controlled ASI to cause the debts to be paid. The debts are the debts reflected in the listed invoices. Also, it was Mr Mottershead (on behalf of SVP) who negotiated the warranty with Mr Langbein. Thus, the warranty is an agreement relating to the debts and it was negotiated by Mr Mottershead on behalf of the assignor (SVP). 39 Also, consideration needs to be given to the whole of the transaction and the surrounding circumstances known to the parties. As explained above, each of SVP and MI sought to achieve an outcome whereby there would be a complete parting of ways between them, any relationship with ASI going forward was to be in the hands of MI (as confirmed in the 28 July 2017 letter quoted above at [29]), and the recovery of ASI's debt would be MI's problem going forward. It must also be noted that MI paid SVP for ASI's debt to SVP. 40 It is also to be observed that it is impossible, as a matter of basic principle, to assign the benefit of a guarantee while retaining the benefit of the guarantee debt and thereby to convert the one debt owing by both principal debtor and guarantor to the one creditor into two debts, one owing by the principal debtor to the creditor and the other owing by the guarantor to the assignee: Hutchens v Deauville Investments Pty Ltd [1986] HCA 85; 68 ALR 367 at 373 per Gibbs CJ, Mason, Wilson, Brennan and Deane JJ citing International Leasing Corp Ltd v Aiken [1967] 2 NSWR 427 at 439 per Jacobs JA. There could thus not logically have been any intention not to assign the warranty. 41 It is inconceivable that, in those circumstances, SVP and MI intended that the debt would be assigned but that the possibility of recovery of that debt from Mr Langbein based on his warranty would not be. That does not, however, answer the question whether there was an objective expression of their positive intention to assign the warranty. 42 Mr Langbein refers to Property Builders Pty Ltd v Adelaide Bank Ltd [2011] NSWCA 266; 15 BPR 29,411 as authority for the proposition that assignment of the principal debt does not necessarily result in assignment of the guarantee. That much is uncontroversial. In that case the resolution of the creditor (assignor) which was relied on as effecting an assignment not only of the debt (which was an unpaid loan) but also of the guarantee was relevantly in these terms (see the judgment at [17]): … the following loan was accepted to be transferred to [the assignee] … 43 It is unsurprising that that wording confined as it was to the "loan" was not interpreted to include the assignment of the guarantee (see the judgment at [47]-[53]). However, in the present case, as I have shown, the wording is quite different and in my view is broad enough to include the warranty. 44 MI relied not only on a legal assignment but also an equitable assignment. The principal requirement for the validity of an equitable assignment is an intention to assign - 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 assignee in a manner binding upon the assignor: Shepherd v Commissioner of Taxation (Cth) [1965] HCA 70; 113 CLR 385 at 397 per Kitto J. In that regard, no particular form of words is necessary to create an equitable assignment: Cossill v Strangman [1963] NSWR 1695 at 1699 per Walsh J and AGC (Advances) Ltd v Commissioner of Taxation (Cth) [1975] HCA 7; 132 CLR 175 at 190 per Gibbs J (albeit in dissent). 45 The position was explained as follows by Blackburne J in Finlan v Eyton Morris Winfield (a firm) [2007] EWHC 914 (Ch); [2007] 4 All ER 143 at [33]: [T]here must be some outward expression by the assignor of his intention to make an immediate disposition of the subject matter of the assignment. It must be possible to identify some act on the assignor's part from which his intention then and there to divest himself - in favour of the assignee - of the right or interest to be assigned, on the terms which have been agreed, can be inferred. 46 See more generally, Heydon JD, Heydon on Contract (Lawbook Co, 2019) at 532 [13.310]. 47 In my view the act of assignment is clear - it is the written assignment that the assignor and assignee executed on 27 April 2018. Moreover, the intention that not only the debt of ASI but also Mr Langbein's promise that that debt would be paid were assigned is apparent from the wording and the context. 48 Those conclusions are further reinforced by the fact that SVP was joined as a respondent at first instance and in the appeal and did not contest the assignment. It filed a submitting appearance. 49 In the circumstances I am not satisfied that any error by the primary judge has been established. This ground of appeal must accordingly fail.

Conclusion 50 The appeal should accordingly be dismissed with costs. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Stewart.