Ostabridge Pty. Ltd. (In Liquidation)(Receiver & Manager Appointed) v. Stafford & Ors. [2001] NSWCA 335

Ostabridge Pty. Ltd. (In Liquidation)(Receiver & Manager Appointed) v. Stafford & Ors. [2001] NSWCA 335 - NSWCA 2001 case summary — Zoe

[23]

"Event of Insolvency" means any of the following events: (a) (corporation) in the case of a corporation: (i) (wound up) the corporation is wound up or dissolved or an application is made to a court for that order; (ii) (resolution to wind up) a meeting is convened, or a resolution is passed, for the corporation to be wound up or dissolved or for the appointment of an administrator, or notice of any such meeting or resolution is given; (iii) (liquidator or administrator appointed) a liquidator, provisional liquidator, trustee or administrator is appointed in respect of the corporation or its assets or an application is made to a court for an order seeking any such appointment; (iv) (scheme of arrangement) the corporation: (A) except if approved by the Bank, resolves to enter into, or enters into, a scheme of arrangement, a deed of company arrangement or composition with its creditors or an assignment for their benefit; (B) proposes or is subject to a moratorium of its debts; or (C) takes proceedings or actions similar to those mentioned in this paragraph as a result of which the corporation's assets are, or are proposed to be, submitted to the control of its creditors; (v) (protection from creditors) the corporation seeks, or is granted, protection from its creditors under any legislation; (vi) (insolvent) the corporation: (A) is unable to pay its debts as and when they become due and payable; or (B) is, or is deemed to be, insolvent within the meaning of any applicable law; (vii) (statement that insolvent) the corporation or a director (as that term is defined in section 60 of the Corporations Law) of the corporation states that the corporation cannot pay its debts as and when they become due and payable; (viii) (attachment, distress) any attachment, distress, execution or other process is made or levied against any asset of the corporation; or (ix) (cease business) the corporation ceases to carry on business; or (b) (natural person) in the case of a natural person, the person: (i) (dies) dies; (ii) (incapable) becomes, or is declared to be, mentally or physically incapable of managing his or her affairs; (iii) (cannot pay debts) is unable to pay all his or her debts as and when they become due and payable; or (iv) (scheme of arrangement) attempts to enter into, or convenes any meeting for the purpose of entering into, an arrangement, assignment or composition with his or her creditors.

[86]

5.2 The Assignee must forthwith pay on demand to the Bank any amount certified by the Bank to be the sum payable under clause 5.1. 13 It appears that the obligations of the sureties and debtors under cls.3 and 4 of the deed were complied with by 10th November 1993, and the assignment to Ostabridge contemplated by cl.3.2.2 of the deed was effected by a deed of assignment in the same form as provided in Schedule 2 of the deed of release, such deed of assignment being executed on behalf of Ostabridge by Wayne Stafford and Joseph Yeung. 14 Subsequently, Ostabridge gave notice to the Staffords of the assignment, and commenced proceedings against them claiming $2,141,080.94 plus interest from 21st November 1995. The Staffords defended the proceedings on a number of grounds of which the following are still relevant: 1. They denied that they owed a debt to Westpac in the first place. 2. They claimed that the amount of the debt had been reduced by about $1.7 million paid to Westpac on or about 10th November 1995. 3. They claimed that Ostabridge was bound by Westpac's covenant not to take further steps in relation to the debt contained in cl.5.1.3 of the deed of release. 4. They claimed that Ostabridge's claim was statute-barred. 15 Rolfe J found that, at least prior to any reduction of the debt which may have occurred on or about 10th November 1995, no less than $2,141.080.94 had been owing by Stafford Quarries to Westpac, and he noted that the Staffords admitted that they guaranteed the obligations of Stafford Quarries to Westpac. Accordingly, the first basis of defence was rejected. There have been no attempts in this appeal to rely on that basis of defence. 16 In the event, Rolfe J did not deal with the question of whether this debt was reduced by some or all of the amounts paid to Westpac on or about 10th November 1995: it is now common ground that, if the appeal is upheld, this Court should permit both parties to make further submissions on this question. 17 Rolfe J upheld the third matter of defence, to which I have referred. As regards the fourth, Ostabridge conceded that the debt would be statute-barred unless it had been confirmed by the Staffords on 3rd November 1995 (when the deed of release was entered into) or 10th November 1995 (when the obligations under the deed were completed); and Rolfe J found that there had been no such confirmation. Accordingly, he found in favour of the Staffords on this basis also.

[92]

CLAUSE 5.1.3 20 Rolfe J held that the rights assigned to Ostabridge were subject to equities binding Westpac, including the covenant not to take any further steps to enforce the relevant guarantees. In so holding, Rolfe J referred to Redman v. The Permanent Trustee of NSW Ltd. (1916) 22 CLR 84 at 91-2; The Southern British National Trust Ltd. (In Liquidation) v. Pither (1937) 57 CLR 89 at 108; National Executors & Trustees Co. of Tasmania Ltd. v. Hurburg [1959] TasSR 25; Re Harry Simpson & Co. Pty. Ltd. [1964-5] NSWR 603; and Provident Finance Corporation Pty. Ltd. [1978] VR 312. 21 Ostabridge had contended that this would rob the assignment of effect, because the covenant not to take further steps was not in terms limited to those guarantors who were parties to the deed, and guarantors who were not parties to the deed could take advantage of the deed under s.36C of the Conveyancing Act. Rolfe J held that, on its true construction, cl.5.1.3 was for the benefit only of the parties to the deed, as suggested by the circumstance that the provision was in the form of a covenant to take no further steps rather than in the form of a release; and Rolfe J referred to Concrete Constructions Pty. Ltd. v. GIO of NSW (1966) 85 WN(NSW) 104. 22 Before this Court, Mr. Hughes QC for Ostabridge submitted that the deed of release disclosed an intention that the assignment could not be subject to equities created by Westpac's covenant to take no further steps. 23 His primary argument was that Westpac's covenant not to take further steps was by cl.5.1 made subject to and conditional upon compliance by the sureties and the debtors on time with cls.2, 3 and 4: that is, the covenant would not take effect unless and until cl.3.2.2, among other clauses, had been complied with, that is unless and until Ostabridge had completed the purchase of the debt in question from Westpac for $10,000.00. Since Westpac's covenant to take no further steps did not take effect until this had happened, the assignment must have been effected before Westpac became bound by its covenant to take no further steps, and thus the assignment could not itself have been subject to and affected by that covenant. 24 Mr. Hughes submitted that this was confirmed by other aspects of the deed of release and the assignment. Ostabridge was paying a substantial amount in this settlement, so it is reasonable to construe the instruments so as to give substantial rights to Ostabridge. Clause 5.1.3, in its terms, only protected the respondents against action by the Westpac itself, and indeed only against "further steps", meaning steps additional to the proceedings already brought by Westpac against the respondents. Finally, cl.2.3 of the deed of assignment contained a warranty by Westpac that it had title to the debts being assigned "free of any encumbrances"; and that indicated that what was assigned was not encumbered by Westpac's covenant to take no further steps. 25 It is to be noted that the deed of assignment was executed on behalf of Ostabridge by one of the Staffords and by Mr. Yeung; and it seems an inevitable inference that Ostabridge was, at the time of these transactions, under the control of at least some of the parties to the deed of release other than Westpac. It might be inferred from that circumstance that it was not the subjective intention of those parties that Ostabridge be able subsequently to sue those parties. However, as submitted by Mr. Hughes, the effect of the documents has to be worked out having regard to the terms of the document, construed where necessary in the light of the factual matrix in which the documents were created; and Ostabridge was then, and certainly is now, a separate legal entity whose rights must be considered separately. At one stage, there was a suggestion in discussions with the Court that, if the construction contended for by the respondents was correct, the transactions would have involved the use of Ostabridge's money to gain a disproportionate benefit for persons having fiduciary duties towards Ostabridge; but it seems clear, and I believe it was accepted, that a submission along those lines could only be advanced if such a contention had been made at the first instance hearing, and if an opportunity had been given to the respondents to deal with it factually, if necessary. 26 In my opinion, there is considerable force in Mr. Hughes' submission concerning the dependence of Westpac's covenant to take no further steps upon compliance, apparently prior compliance, with the requirement that an assignment to Ostabridge take place. However, as pointed out by Mr. Coles QC for the respondents, Westpac's obligation to effect such an assignment is itself, in cl.6 of the deed of release, likewise made conditional upon performance of the respondents' obligations under cls.2, 3 and 4. Mr. Coles also submitted that the other parties to the deed of release became fully entitled to the benefit of Westpac's covenants in both cl.5 and cl.6 of the deed once they had done everything which on their part was to be done, to the extent of tendering or causing to be tendered to Westpac the consent orders required by cl.2, the money required by cl.3, the assignment required by cl.3.2.2, the matters required by cl.3.3, and the releases required by cl.4.3. At that stage, Westpac could not avoid its obligations under cl.5 by failing on its part to execute the assignment referred to in cl.3.2.2 and cl.6. On this approach, what was contemplated was a settlement in which the mutual obligations on both sides would be discharged simultaneously. On that basis, Mr. Coles submitted, there was nothing incongruous or inappropriate in treating the assignment required of the Bank by cl.6 being subject to the equities created by the covenant to take no further steps in cl.5.1.3. 27 On the whole, although the matter is not free from doubt, I prefer the view put forward by Mr. Coles. If Mr. Hughes' approach was correct, cl.5.1.3 would be pure surplusage, because it would arise only after Westpac no longer had any interest in the guarantees or mortgages or further securities which it could enforce, and thus would not in any event be able to take any further steps to enforce them. On the other hand, the assignment of the debts to Ostabridge, even if they could not be enforced against the other parties to the deed, would have some utility in giving to Ostabridge remedies against the principal debtors and against other guarantors, including those described in the deed of release as co-sureties (apart from Ostabridge itself): cf Deanplan v. Mahmoud [1992] 3 AllER 945 at 959-60. I accept Mr. Coles' submission that Wespac's warranty that its title was free from encumbrances is correctly understood as relating to encumbrances of the nature of charges to third parties rather than restraints against taking steps against other parties to these very transactions, contained in the documentation of the transactions themselves. 28 Accordingly, in my opinion, Rolfe J's decision on this aspect of the matter was correct.

[93]

CONFIRMATION 29 The issue here turns on s.54(2)(a) of the Limitation Act, which is in the following terms: 54(2) For the purposes of this section: (a) a person confirms a cause of action if, but only if, the person: (i) acknowledges, to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, or (ii) makes, to a person having (either solely or with other persons) the cause of action, a payment in respect of the right or title of the person to whom the payment is made, 30 Before Rolfe J, Ostabridge sought to rely as being confirmation on payments of $170,000.00 made under cl.3.1 and $25,000.00 made under c.3.3.1. However, as held by Rolfe J, the payment of $170,000.00 was in respect of the Kerstanne debt, which is a different debt from that the subject of these proceedings; and it was not proved that $25,000.00 had in fact been paid pursuant to cl.3.3.1 (there were other ways of satisfying cl.3.3). No challenge is made to those findings of Rolfe J. 31 Rolfe J held that neither the deed of release nor the terms of settlement executed pursuant to those terms amounted to a confirmation, because those terms of settlement would take effect only on the satisfaction of certain conditions, which were not in fact satisfied; and Rolfe J referred to Bucknell v. The Commercial Banking Co. of Sydney Ltd. (1937) 58 CLR 155 at 163-4. 32 Mr. Hughes submitted that the consent orders, signed on behalf of the parties to the deed including the Staffords, were in terms an unconditional acknowledgement of Westpac's cause of action on the relevant guarantees. He submitted that recital D in the deed of release was not a present denial of that cause of action but a recital of past denials, which were erased by the terms of the deed and the consent order. He submitted that the fact of agreement to a contractual regime of payment of a sum less than the consent order did not invest the consent order with any conditional quality. Finally, he submitted that, fairly construed, the whole transaction amounted to an acknowledgement of liability to Westpac, upon which Ostabridge could now rely. 33 Mr. Coles submitted that, although it was no longer necessary to find an implied promise to discharge the liability or debt acknowledged, nevertheless it was still necessary, if an acknowledgement was conditional, that the condition be fulfilled: Bucknell at 163-4, Hepburn v. McDonnell (1918) 25 CLR 199 at 207-210. In this case, any acknowledgement made by the consent orders was conditional on certain events not happening, and those events did happen. Furthermore, Mr. Coles submitted, the consent orders had to be evaluated in the light of the whole transaction; and in that light, they acknowledged no greater liability than that which was in fact discharged: cf. Surrendra Overseas Ltd. v. Government of Sri Lanka [1977] 2 AllER 481. The recital of a past dispute did not suggest that the dispute was no longer agitated, but rather that it was being resolved by the compromise agreement being entered into. 34 Mr. Hughes in reply submitted that the acknowledgement should not be construed narrowly or pedantically: see Stage Club Ltd. v. Millers Hotels Pty. Ltd. (1981) 150 CLR 535 at 561. He submitted that the transaction being entered into involved both a stick and a carrot. The stick was the admission of liability contained in the consent orders, which Westpac needed to ensure that, if the scheme foundered, it could obtain final judgment for the amount claimed on the strength of the consent orders. The carrot was the opportunity to the guarantors to discharge their liability by a lesser payment. The mutual intent was that, if the scheme should fall apart, Westpac should be entitled to file the consent orders; and they could be a vehicle for final judgment only if they amounted to an unconditional acknowledgement of indebtedness. The fact that they were to be used only in certain circumstances did not make them conditional. 35 I accept Mr. Hughes' submission that, if the scheme fell apart, the consent orders would then amount to an unconditional acknowledgement of indebtedness in the full sum claimed by Westpac, so as to justify entry of judgment. However, in my opinion that would be because a condition attaching to the acknowledgement would have been satisfied. I think the better view of the acknowledgement contained in the transaction is that the recital of past denials should fairly be read as asserting a dispute continuing up to the time of the arrangement, which dispute was being resolved by the compromise agreement itself; and that the liability acknowledged by the compromise agreement was precisely that provided by the agreement itself, and no more. That is, the liability acknowledged was a liability to perform obligations, and, if such obligations were not performed, to admit and be subject to judgment for the full amount claimed. In fact, the liability provided by the agreement was fully performed, and in my opinion that left no further acknowledgement of liability outstanding. 36 In my opinion, the situation is analogous to that in Surrendra, where the defendant had admitted a claim of the plaintiff subject to a set-off, and had paid the admitted balance. Kerr J in the Queens Bench Division held that there was no acknowledgement over and above that of the liability which the defendant had discharged. 37 I accept that where an acknowledgement is of a liability of indefinite extent or of a debt less than that which a plaintiff presently claims, this may relevantly be an acknowledgement of "the cause of action, the right or title" then relied on by that plaintiff. However, where the acknowledgement is of some precise liability or amount which is fully and precisely discharged, I do not think it can be regarded as an acknowledgement of some greater liability or amount. 38 For those reasons, in my opinion Rolfe J was correct on this aspect also.

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