Obnova Concrete NSW Pty Ltd v Windlock Pty Ltd; Ayoub v Obnova Concrete Pty Ltd

Supreme Court of NSW|2015-02-10|Before: Stevenson J

Solicitors: Pope & Spinks Solicitors (Cross Claimant) Watson Mangioni Lawyers Pty Ltd (Second Cross Defendant) Hansons Lawyers (Third Cross Defendant) File Number(s): SC 2013/294229

Introduction

The only matter remaining for consideration in these proceedings is a Cross Summons filed on 29 October 2013 by Mr Michael Ayoub in which Mr Ayoub seeks relief against Obnova Concrete Pty Ltd (in liquidation) ("Obnova") and Windlock Pty Ltd ("Windlock").
The claim made by the plaintiff, Obnova Concrete NSW Pty Ltd (in liquidation), against Windlock, Obnova and Mr Ayoub, was stayed when the plaintiff went into liquidation.
I was informed by Mr Johnson, who appeared for Obnova, that the Court has made an order under s 471B of the Corporations Act 2001 (Cth) the effect of which was to grant Mr Ayoub leave to proceed with his Cross Summons against Obnova.
The Cross Summons also names the plaintiff, Obnova Concrete NSW Pty Ltd (in liquidation), as a cross defendant. However, Mr Ayoub seeks no relief against that company.
The Cross Summons also seeks declaratory and other relief concerning Prestige Precast Pty Ltd. However, that company is not a party to the proceedings and has had no opportunity to be heard concerning Mr Ayoub's claims. It is common ground that, in those circumstances, I should make no orders which may affect that company.

Mr Ayoub's claims

Mr Ayoub seeks the following relief (omitting that sought in respect of Prestige Precast): 1. "Declaration that some [sic] items constituting plants [sic] and equipment at 32-34 Doyle Avenue, Unanderra prior to [Windlock] taking occupation as mortgagee in possession is owned by [Mr Ayoub]"; 2. "Declaration that [Mr Ayoub] is creditor in the estate of [Obnova] in the sum $75,781.78…"; 3. "Declaration that as mortgagee in possession [Windlock] is custodian of all plants [sic] and equipment currently on site at 32-34 Doyle Avenue, Unanderra"; 4. "Order that on upon the Court making the within order (as the Court sees fit) [Mr Ayoub] be afforded access and reasonable time to remove all of his possession [sic] currently on 32-34 Doyle Avenue, site [sic]"; 5. "Order that the Liquidator of [Obnova] take all steps as may be required to register [Mr Ayoub] as creditor of [Obnova] in the sum of $75,781.78 plus interest and costs."
Although Ms Haddad, who appeared for Mr Ayoub, in her written submissions stated that Mr Ayoub sought damages "as an alternative for the value of the assets assigned to him", no such claim is made in the Cross Summons.

Doyle Avenue

The Doyle Avenue property referred to in the prayers for relief was at all relevant times owned by V & M Davidovic Pty Ltd ("V&M"), a company evidently related in some way to Obnova.
On 23 November 2009 Windlock advanced $6.5 million to V&M and took a mortgage over the Doyle Avenue property as security. In separate proceedings, on 23 July 2012, Windlock obtained judgment against V&M for possession of the Doyle Avenue property. Windlock took possession of the property on 12 September 2013, and remains in possession.

Background

Mr Ayoub's claims arise from the following circumstances.
By a Deed of Acknowledgment of Debt and Assignment ("the Deed") dated 12 October 2011, Mr Ayoub agreed with Obnova to pay an amount of $75,781.78 owed by Obnova to Cleary Bros (Bombo) Pty Ltd (defined in the Deed as the "Obnova Debt").
The Deed provided: "3. Ayoub shall pay to Cleary Bros the Total Debt [which included the Obnova Debt]. 4. Obnova hereby agrees to pay to Ayoub the Obnova Debt plus interest at the rate of 9 per cent by the Due date [30 June 2013]… 6. So as to secure the interest of Ayoub, Obnova…hereby transfer[s] and assign[s] to Ayoub absolutely all of [its] right, title and interest in [its] plant, equipment, finished product and [its] debt; which assignment is accepted by the [sic] Ayoub (the "Assignment"). 7. Ayoub, by his execution hereof hereby accepts the Assignment and the parties hereto agree that the Assignment shall be deemed for all purposes to have been affected [sic] as at the date hereof. 8. If Obnova repays the Obnova Debt plus interest (at the rate of 9 per cent) to Ayoub on or before the Due Date, Ayoub shall release Obnova from any liability in respect of or associated with the Obnova Debt."
The Deed did not specify what "plant, equipment, finished product" and "debt" was the subject of the "assignment" referred to in the Deed.
Mr Ayoub gave evidence that a colleague, a Mr Stephen Dilento, made a list of such plant, equipment and finished product. That list, however, is not in evidence, nor is there any evidence that anyone on behalf of Obnova agreed it to be accurate.
Mr Ayoub said that Messrs Boris and Mick Davidovic, who were in some way associated with Obnova, showed him around the Doyle Avenue property at or around the time the Deed was executed and said something to the effect that all the plant, equipment and finished product then on site was to be the subject of the "assignment".
It is common ground, and the evidence in any event establishes, that by 5 March 2012 Mr Ayoub paid Cleary Bros $74,283 (an amount slightly lower than the "Obnova Debt") and that, on that day, Cleary Bros confirmed that Obnova's obligations to it "have now been satisfied in full".
Mr Ayoub also asserts that some of his own goods were, at some point in time, located at the Doyle Avenue property.

The declaration sought that "some" plant and equipment at Doyle Avenue is "owned" by Mr Ayoub

So far as concerns the declaration set out at 6 above, there are a number of difficulties.
The first is that no plant or equipment is identified: 1. as being present at Doyle Avenue on the date of the Deed (12 October 2011); 2. as being present at Doyle Avenue "prior to" Windlock taking possession; 3. as being present at Doyle Avenue on the date Windlock took possession (12 September 2013); 4. as being "owned" by Mr Ayoub at any of these times; 5. or at all.
Most critically, assuming in Mr Ayoub's favour that the effect of the Deed is that Mr Ayoub became the "owner" of any plant and equipment formerly owned by Obnova, such ownership must have arisen on the date of the Deed: 12 October 2011. There is, however, no evidence before me that any plant and equipment owned by Obnova on 12 October 2011, and then present at the Doyle Avenue property, was still present at the Doyle Avenue property "prior to" or when Windlock took possession of the Doyle Avenue property.
Second, even if there were such evidence, I see no utility in making a declaration that "some" of those items are "owned" by Mr Ayoub. The making of such a declaration would not resolve, and would leave for later consideration and perhaps disputation (presumably in separate proceedings), which items, precisely, were owned by Mr Ayoub.
There is also no evidence before me that any property owned by Mr Ayoub himself (that is, other than property "assigned" to him by Obnova) was on the Doyle Avenue property "prior to" or at the time Windlock took possession.
Mr Ayoub gave evidence of a conversation he had in or about May 2013 with Mr Mick Davidovic as follows: "In or about May 2013 I was overseas. When I return [sic] I realised that the Goods had been removed from the Nolan Street property. I had a conversation with Mick Davidovic to the following effect: [Mr Ayoub]: 'Where are my goods and stock'? [Mr Davidovic]: 'I had to comply with the DA and the terms of the lease and do some renovation to the site'. [Mr Ayoub]: 'So what did you do with my goods?' [Mr Davidovic]: 'I took [them] to [the] Doyle Avenue site and I will return them as soon as I complete the renovation'."
However, as Mr Ayoub did not adduce any evidence of the capacity in which Mr Mick Davidovic made these statements, I admitted that material as evidence only of the fact that the conversation took place and not as evidence of the truth of what was said.
In any event, there is no evidence that, at the time Windlock took possession of Doyle Avenue several months later, any of Mr Ayoub's property was still present.
Ms Haddad, who appeared for Mr Ayoub, submitted, in closing written submissions, that Mr Ayoub's claim for a declaration that he owned "some" items at the Doyle Avenue property should be seen in the context of the relief sought by the plaintiff, Obnova Concrete NSW Pty Ltd (in liquidation), in the Amended Summons.
Part of that relief was a declaration that the plaintiff was the owner of "all chattels…which are listed under the heading 'OCNSW' in the list which was prepared pursuant to orders made on 03/10/2013 and which list was served on the defendants on 09/10/2013". Ms Haddad submitted that "the 'some items' Mr Ayoub refers to in Clause 1 of the relief claimed in the cross summons, is referring to some of the chattels on the list referred to in the Amended Summons" being "equivalent to the Obnova debt".
I am afraid that I cannot see how this takes the matter any further. The fact remains that Mr Ayoub does not identify which items he owned.
Further, the combined operation of cll 6, 7 and 8 of the Deed is to provide for an assignment from Obnova to Ayoub of the plant, equipment, finished product and debt referred to subject to a reassignment to Obnova in the event that the Obnova Debt was paid by the due date.
The effect of these clauses was to create a charge. The term "charge" is broadly defined in s 9 of the Corporations Act as "a charge created in any way", including a "mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise". I accept Mr Johnson's submission that the arrangement outlined in the Deed was akin to an old system mortgage, defined as follows: "A mortgage is a conveyance of land under the general law or an assignment of chattels by the mortgagor to the mortgagee as security for discharge of some obligation, such as payment of interest and principal of a loan. The conveyance is subject to a proviso for re-conveyance if the obligation is performed." (R P Austin and I M Ramsay, Ford's Principles of Corporations Law, (14th ed 2010, LexisNexis Butterworths) at [19.810]). The arrangement outlined in cll 6, 7 and 8 of the Deed clearly falls within this definition.
Further, the charge created by the Deed was one that required registration under Pt 2K.2 of the Corporations Act, the applicable law on 12 October 2011 when the Deed was signed (since repealed by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) effective as at 30 January 2012). The terms of the arrangement outlined at clause 6 of the Deed, which provide for the assignment of all of Obnova's "right, title and interest in their plant and equipment, finished product and debts", fall at least within the meaning of "a charge on a book debt" under s 262(1)(f) and possibly also "a charge on a personal chattel" under s 262(1)(d) of the Corporations Act. As there is no evidence that the charge created by the Deed was registered, it is void against the liquidator of Obnova: s 266(1) of the Corporations Act.

The declaration and orders sought concerning Mr Ayoub's status as a creditor of Obnova Concrete

As to the declaration and order set out at 6 and (e) above, I see no utility in making either the declaration or order as sought. In her closing submissions, Ms Haddad accepted that this was so.
If Mr Ayoub claims that he is a creditor of Obnova, then he should lodge a proof of debt in the winding up.
Mr Johnson informed me that the liquidator has invited Mr Ayoub to lodge a proof of debt. I have no reason to doubt that any proof of debt lodged will be considered by the liquidator on its merits and dealt with in the usual way.
As I have mentioned, it is common ground before me that Mr Ayoub has established that by 5 March 2012 he discharged Obnova's obligations to Cleary Bros in the sum of $74,283.
In her closing submissions, Ms Haddad also submitted that "the relevant chattels do not form part of the estate that is under liquidation" and "would not be the subject of any lodgement of a proof of debt, as suggested by the liquidator". As best I could make out, Ms Haddad made this submission on the basis that only Mr Ayoub's personal property is or was at Doyle Avenue. The liquidator only made the submission that Mr Ayoub should lodge a proof of debt in response to Mr Ayoub's claim for declarations as to his status as a creditor of Obnova. As those declarations are now not pressed, the matter need not be taken any further.

The declaration sought that Windlock is a "custodian" of all plant and equipment currently at Doyle Avenue

Mr Ayoub seeks a declaration that, as mortgagee in possession, Windlock is "custodian" of all plant and equipment "currently on site" at Doyle Avenue.
I am not prepared to make this declaration for a number of reasons.
First, I do not accept that, as mortgagee in possession, Windlock is a "custodian" of whatever chattels are currently at Doyle Avenue.
I accept the submissions of Mr Chapple, who appeared for Windlock, that by taking possession of Doyle Avenue, Windlock became a voluntary bailee of any chattels on the property, and was thus obliged to exercise reasonable care in relation to the bailed goods (for example, see the cases discussed by Slattery J in Reef Health Pty Ltd v Vines [2014] NSWSC 70 at [70]-[72]).
Accordingly, I see no basis for making the declaration sought by Mr Ayoub.
There is, in any event, no suggestion by Mr Ayoub that Windlock has not exercised reasonable care in respect of the security of the Doyle Avenue site and such plant and equipment as from time to time has been at that site.
The evidence before me demonstrates that, as soon as Windlock took possession of the property, it arranged for 24 hour manned security to be placed at the property for two weeks and thereafter for an electronic security system to be installed. Windlock has also engaged a fencing contractor to secure the perimeters of the property.
Indeed, following his attendance at the site on 13 December 2013 (to which I refer further below) Mr Ayoub wrote to Windlock's solicitors noting that "your client [has] taken very good steps to protect the property by means of fencing and surveillance".

The order that Mr Ayoub be afforded access to Doyle Avenue to remove "his" possessions

I am not prepared to make this order for a number of reasons.
First, Mr Ayoub has not established on the evidence that any of "his possession[s]" are currently on the Doyle Avenue site.
Second, Windlock has already given Mr Ayoub an opportunity to attend at Doyle Avenue to identify and remove items which he claimed to be owned by him. Mr Ayoub attended the site on 13 December 2013, and removed some items (including three car bodies, a tipping bin, a forklift and some concrete posts and panels) and refused to take certain other items (including some scaffolding and filing cabinets) due to their state of disrepair. Although in cross-examination Mr Ayoub asserted that he had not been given unrestricted access to the property, he has not, in my opinion, established that this was his entitlement.
In any event, Mr Ayoub has not persuaded me that he has any basis upon which to assert a right to be "afforded access" to Doyle Avenue.

Conclusion

Mr Ayoub has, in my opinion, failed to establish a basis for any of the relief he seeks in the Cross Summons.
In my opinion the Cross Summons should be dismissed with costs.

Amendments 12 March 2015 - Typographical error in Judgment heading corrected 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: 12 March 2015

Personal Property Securities (Corporations and Other Amendments) Act 2010(Cth)

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