BETWEEN : MARTIN BRUCE JONES AS LIQUIDATOR OF AND AGENT FOR THE RAVENSWOOD RESORT PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (In Liq) (ACN 067 679 694)

Caveat - Application to extend operation of caveat - Claim by liquidator to set aside prior transactions - Whether this gives rise to a caveatable interest in the subject land - Issues concerning balance of convenience

Transfer of Land Act 1893 (WA) s 138C(2)

Corporations Act 2001 (Cth) s 459C(2), s 588FB, s 588FC, s 588FE

Australian Mutual Providence Society v Geo Meyers & Co Ltd [1931] HCA 31; (1931) 47 CLR 65

Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561

Kitay as Liquidator of Allstate Mining Machinery Hire & Sales Pty Ltd v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716

Re Sartoris Estate (1892) 1 Ch 11

Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407

American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396

Australian Guarantee Corporation Ltd v Registrar of Titles (1992) 7 ACSR 501

Australian Mutual Provident Society v Geo Myers & Co Ltd (in Liq); sub nom AMP Society v Public Curator of Queensland (ALR) [1931] HCA 31; (1931) 47 CLR 65

Halse v Embling & Anor, unreported; FCt SCt of WA; Library No 970734; 22 December 1997

Keith Smith East West Transport Pty Ltd (in Liq) v Australian Taxation Office (2002) ACSR 501

Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] VicRp 47; [1994] 1 VR 672

1 HASLUCK J: This is an application by the first respondent, Rustic Haven, to set aside or vary an order previously made extending the operation of a caveat lodged by the applicant as liquidator of Ravenswood Pty Ltd, over lands in the name of Rustic Haven. It appears from the various affidavits before me that the application comes about in this way.

2 Prior to July 2001 the Ravenswood Sanctuary Joint Venture had been responsible for a land development project near Pinjarra known as Ravenswood Sanctuary Development. It is apparent from a Joint Venture Deed dated 2 October 1996 and a Deed of Variation dated 2 October 1996 that Ravenswood became the owner of 25 per cent of the joint venture.

3 Ravenswood's share in the joint venture arose out of its contribution of the so-called "super block" being Murray Locations 13 and 14. Clause 2(3)(b) of the Joint Venture Deed provided that Ravenswood was to retain "the full legal and beneficial ownership of the land throughout the term of this joint venture" but that all profits were to be divided according to each participant's individual share.

4 From July 2001 the arrangement was that Ravenswood was the registered proprietor of the super block and RRCM, its wholly owned subsidiary, managed the development work. In mid 1991 RRCM borrowed $1 million from the Commonwealth Bank of Australia (the "CBA"). The CBA took a mortgage over the super block, and in following years the facility was increased to $8 million. Security for the advances included also an equitable mortgage or floating charge affecting all of the assets of Ravenswood.

5 Clause 9.4 of the floating charge made provision for the appointment of a receiver in the event of default. The receiver was to be "the agent of the mortgagor" and had power pursuant to clause 9.4(c)(vi) to sell the mortgaged property and to transfer all or any part of the same "in the name of and on behalf of the mortgagor."

6 It seems that Rustic Haven commenced to take an interest in the project when it became clear in mid 2001 that a capital injection was required in order to continue the project. Arrangements were made for Rustic Haven to purchase 70 per cent of the project and to buy or procure purchasers for the developed land of the project to the value of $12 million at a 40 per cent discount rate.

7 The proposal was documented by way of a Deed of Reconstruction dated 12 October 2001 and a Deed of Revocation dated 21 October 2001. By cl 4 of the former, the reconstruction was conditional upon the approval of the Foreign Investment Review Board being obtained within three months.

8 Between 14 September 2001 and 29 July 2002 RRCM received payments totalling approximately $3.5 million from Rustic Haven. Arrangements were made for various pieces of land to be transferred to Rustic Haven, although there is some ambiguity as to the nature and identity of the agreement relied upon in that regard. In due course certain transfers of land to be held in escrow were executed by or on behalf of Ravenswood in favour of Rustic Haven.

9 I pause here to note that Simon Andrew Reid and Norman Mel Ashton were appointed receivers and managers of Ravenswood on 5 November 2001 by the Commonwealth Bank of Australia, pursuant to the floating charge mentioned earlier. Notwithstanding the escrow arrangements, the receivers and managers executed further transfers, although it is a matter of controversy as to whether they were acting on behalf of Ravenswood or on behalf of the CBA in doing so.

10 I note in passing that the escrow arrangements were apparently made with an eye to the requirements of the Foreign Investment Review Board ("FIRB"). It is another matter of controversy between the parties as to whether the conditions governing the proposed reconstruction were actually fulfilled. The objective was for all assets and liabilities to be assumed by Ravenswood and its subsidiary RRCM to the intent that Rustic Haven would have a 70 per cent shareholding in Ravenswood.

11 I note also that 33 lots were transferred to Rustic Haven pursuant to transfers executed by the receivers. These lots (being formerly part of the super block) were described as the first tranche land and the second tranche land. These lots are affected by the subject caveat and it will therefore be convenient to call them the "subject lots".

12 Certain of the lots remaining within the super block were called the third land tranche and the fourth land tranche. An issue arose as to whether the monies paid by Rustic Haven gave rise to a purchaser's lien in respect of this land.

13 There is also a related issue as to whether the subject lots were transferred to Rustic Haven by Ravenswood not simply in exchange for the consideration mentioned in the transfers, but, rather, pursuant to arrangements made with the CBA (by its receivers) whereby Rustic Haven would admit the CBA's prior claim as mortgagee to any proceeds from the sale of the third and fourth tranche land.

14 On 23 June 2003 the Supreme Court of Western Australia ordered that Ravenswood be wound up and appointed the applicant, Martin Bruce Jones, as liquidator. Shortly afterwards, on 30 September 2003, Rustic Haven commenced proceedings in the Supreme Court (CIV 2212/2003) seeking a declaration that it is entitled to a purchaser's lien in respect of certain land being the balance of the so-called "super block". Ravenswood is defending the Rustic Haven proceedings.

15 On 20 January 2004 the applicant as liquidator lodged Caveat I768498 over the lands previously transferred to Rustic Haven, forbidding the registration of any instrument affecting the estate absolutely. The estate or interest being claimed is described in this way: that the transfer of land to the registered proprietor is voidable pursuant to s 588FE of the Corporations Act 2001 (Cth) and is liable to be set aside pursuant to s 588FF of the Corporations Act. I will look at the details of this claim later.

16 The Registrar of Titles issued a notice pursuant to s 138B of the Transfer of Land Act 1893 (WA) advising the liquidator that the caveat would lapse unless he obtained an order extending the operation of the caveat.

17 This led to the applicant commencing these proceedings (CIV1437/2004). On 5 April 2004 Justice Heenan made an order that the subject caveat be extended until further order. The parties were to have liberty to apply to set aside the order. However, it was not until 17 June 2005, some 14 months later, that steps were taken by Rustic Haven to have the order set aside.

18 The liquidator then managed to obtain litigation funding. On 28 September 2005 the plaintiff instituted action CIV 2153 of 2005 in the Supreme Court, seeking a declaration that the plaintiff has a caveatable interest in the relevant land and the re-transfer of that land to Ravenswood.

19 The liquidator pleads in the statement of claim that at all material times Ravenswood was insolvent. On 5 June 2003 the receivers executed transfers that the subject lots were registered in the name of Rustic Haven. The latter did not provide any consideration for the transfers with the result that this was an uncommercial transaction. An order is sought that the subject lots be transferred back to Ravenswood.

20 By its Minute of Re-amended Defence dated 21 October 2005 Rustic Haven does not admit that Ravenswood is insolvent as alleged. Rustic Haven pleads further that the CBA by its receivers transferred the subject lots to Rustic Haven in compromise of a disputed claim with the defendant that certain lands including the subject lots formed part of the CBA's security and that Rustic Haven had an equitable interest in other lands. I will henceforth refer to these matters as "the CBA/RH compromise" and "the CBA/RH disputed claim". In the premises, Rustic Haven denies that the transfer of the subject lots to Rustic Haven can be set aside as an uncommercial transaction.

21 The liquidator is conscious that in the proceedings before me (CIV1437/2004), in order to resist the application to set aside the extension of caveat order previously made, the liquidator must establish that there is a serious question to be tried on the issue of whether there is a caveatable interest in the land. The liquidator must also show, on the balance of convenience, that it would be better to maintain the status quo by extending the caveat until the trial of the action.

22 The liquidator's primary submission is that the subject transfers should be characterised as uncommercial transactions and are therefore voidable. It is said that a transfer in such circumstances gives rise to a caveatable interest: Kitay as Liquidator of Allstate Mining Machinery Hire & Sales Pty Ltd v Strathfield Holdings Pty Ltd (1998) 27 ACSR 716.

23 In essence, for the transfers to be voidable pursuant to s 588FE of the Corporations Act, the liquidator must show that as from October 2001, when the first of the transfers occurred, Ravenswood was insolvent. In this regard, the liquidator relies on presumed insolvency under s 588E(4) of the Act and also upon the prima facie evidence of insolvency referred to in the applicant's affidavits sworn 5 April 2004 and 19 July 2005. In par 16 of the latter he says that it is clear Ravenswood was insolvent as at 5 June 2003 (being the date of the receivers' transfers) as he was appointed liquidator on 23 June 2003.

24 The liquidator submits that the test specified in s 588FB of the Act is satisfied in that the transfers to Rustic Haven were effected at a price which was of the order of 60 per cent of the valuation price of the subject land and, having regard to the fact that the transactions were to provide funding to Ravenswood, were at a price less than the cost to Ravenswood of developing the land. It is said that in such circumstances, having regard to the matters specified in s 588FB(a) to (d), no reasonable person in Ravenswood's circumstances would have entered into the transactions which resulted in the transfers. It is said also that the transfers occurred within the 2 year period contemplated by s 588FE(2).

25 According to the liquidator, Rustic Haven bears the onus of explaining how payments to a third party, namely, RRCM, could possibly constitute consideration for the transfer of property by the registered proprietor to Rustic Haven. It is said that the onus has not been discharged. All of this gives rise to a serious question to be tried. It is said that the balance of convenience favours the continuation of the caveat.

26 Rustic Haven submitted that the production of further evidentiary materials throwing a different light on the situation provides a basis for setting aside the orders for extension previously made. It is said that eight letters passing between the solicitors for the Commonwealth Bank and its receivers and managers and the solicitors for Rustic Haven can be characterised as new material. The letters show why and upon what basis the receivers and managers executed the transfers now sought to be set aside by the liquidator as insolvent uncommercial transactions; that is, the transfers were executed to give effect to the CBA/RH compromise. The receivers were not acting at the behest of Ravenswood, but at the behest of CBA.

27 I pause here to observe that both counsel seemed to assume, having regard to the reasoning in Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561, that an ex parte order made previously could not be varied or set aside unless new material was brought before the Court. To my mind, the reasoning in question does not apply to the circumstances of the present case in which the previous order made provision for Rustic Haven to apply for relief. It follows that, pursuant to s 138C(2) of the Transfer of Land Act 1893 (WA), I must be satisfied by Ravenswood as caveator that its claim has substance, in the sense that there is a serious issue to be tried and the balance of convenience favours such a course, before the caveat is further extended.

28 Rustic Haven submitted further that the cornerstone of s 588FB, s 588FC and s 588FE is that the transaction must be that "of the company". The transactions by which Rustic Haven obtained title to the caveated land were transfers executed by the Bank appointed receivers and managers and therefore cannot be characterised as transactions of the company. The reasoning of the High Court in Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 189 CLR 407 indicates that a person appointed as receiver and manager is concerned not for the benefit of the company but for the benefit of the mortgagee bank to realise the relevant security.

29 Rustic Haven submitted that on the evidence set out in the eight letters now before the Court, the liquidator will not be able to establish that the transfers were transactions of Ravenswood. This means that the liquidator will not be able to set aside those transactions under s 588FE of the Corporations Act. Rustic Haven submitted also that the reconstruction of the joint venture was never carried into effect with the result that Ravenswood remained a member of the joint venture, and the subject transfers therefore cannot be characterised as a transaction of the company.

30 The liquidator says in reply that in order to resolve the controversy between the parties the Court must determine a series of disputed issues of fact and it is not appropriate for this to be done in caveat proceedings. The liquidator says further that there is no merit in the argument principally relied upon by Rustic Haven in that the legal ownership of a company's property is not disturbed by the appointment of a receiver and manager. No property vests in a receiver and manager upon appointment: Re Sartoris Estate (1892) 1 Ch 11 at 14; Australian Mutual Providence Society v Geo Meyers & Co Ltd [1931] HCA 31; (1931) 47 CLR 65 at 82. Moreover, according to cl 9.4 of the relevant floating charge, the receiver is said to be "the agent of the mortgagor"; that is, Ravenswood.

31 The liquidator said that Ravenswood was the registered proprietor of the relevant land prior to the registration of the subject transfers. The formal documents identify Ravenswood as the transferor, and the receivers and managers executed the same in the name of Ravenswood. There is therefore no substance in the plea that Ravenswood was not a party to the transfers, and thereby not a party to the relevant transaction. Sheahan's case (supra) can be distinguished as it was concerned with the application of the proceeds of the sale of the property subject to the security. There is a distinction between those acts where the receiver acts as agent for the mortgagor, and those where the receiver is dealing with the proceeds of sale of the security assets, and there is no need to act as agent.

32 The relevant transfers were executed on 5 June 2003 and lodged for registration on 17 December 2003. As at 5 June 2003, Ravenswood was to be presumed to be insolvent, as receivers and managers had been appointed to the company: see s 459C(2) of the Corporations Act. Moreover, the Supreme Court found on 23 June 2003 that Ravenswood was insolvent, and followed the course of appointing the liquidator.

33 The liquidator submitted further that it is unnecessary at this stage of the proceedings for Ravenswood to do more than show that it has an arguable case that the company was insolvent at the relevant time. The financial statements for the joint venture show a continuing deterioration in the company's net equity. Coupled with the facts that the joint venture's sole asset was the property development and that, for whatever reason, Rustic Haven was paying less than the development costs to acquire title to all the subdivided lots, in the liquidator's submission, there is a strong argument that the joint venture was insolvent at all material times.

34 I have given careful consideration to the competing submissions. However, in proceeding to a conclusion, I must begin by giving proper weight to the fact that Ravenswood was the registered proprietor of the subject lots. Clause 2(3)(b) of the Joint Venture Deed provided that legal and beneficial ownership was vested in Ravenswood throughout. Accordingly, prima facie, the subject transfers must be regarded as a transaction "of the company".

35 The matter principally raised in opposition to such a view are the letters evidencing the CBA/RH compromise which might be taken to suggest that the receivers were acting essentially under instruction from the CBA and therefore cannot be said to have executed the transfers on behalf of Ravenswood. However, to my mind, reasoning of that kind is outweighed by the clear precept in cl 9.4 of the floating charge that a receiver is to be regarded as the agent of the company, namely Ravenswood.

36 I am conscious that such a clause did not prove to be decisive in the circumstances of Sheahan's case. However, I am of the view that Sheahan's case can be distinguished on the basis contended for by Ravenswood, along the lines described in earlier discussions.

37 It follows from all of this that the subject transfers can arguably be regarded as a transaction of the company. There is a controversy on the affidavit evidence before me as to whether Ravenswood was insolvent at the relevant time and as to whether the transaction can be set aside on the various bases contended for by the liquidator, including the contention that the transfers were an uncommercial transaction. To my mind, as indicated by the decided cases, it is not appropriate for such a controversy to be resolved on the basis of affidavit evidence.

38 The transfers were executed after the appointment of receivers and shortly before the appointment of a liquidator. In these circumstances, and having regard to the other evidentiary materials concerning insolvency relied on by the applicant, I consider that there is sufficient evidence before me to give rise to a serious issue to be tried that Ravenswood was insolvent. Kitay's case shows that if the relevant transactions are to be set aside, Ravenswood can be said to have a caveatable interest in the land. The balance of convenience requires that the caveat be extended until the issues between the parties are resolved pursuant to the legal proceedings mentioned earlier. This is necessary in order to preserve the status quo.

39 I will hear from the parties as to the form of the orders required to carry this ruling into effect.