MATTER : Westgem Investments Pty Ltd (Receivers and Managers Appointed) (Administrator Appointed)

SARACEN PROJECT MANAGEMENT PTY LTD AS TRUSTEE FOR THE SARACEN PROJECT MANAGEMENT TRUST

SARACEN PROJECT MANAGEMENT PTY LTD AS TRUSTEE OF THE SARACEN PROJECT MANAGEMENT TRUST

WESTGEM INVESTMENTS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (ADMINISTRATOR APPOINTED)

Corporations - Plaintiffs allege charge ineffective to charge property of company in administration - Application for leave under s 440D Corporations Act 2001 (Cth) to proceed with counterclaim for rectification and alleging an estoppel and subrogation to another charge

Practice and procedure - Application to strike out rectification, estoppel and subrogation pleas - Considerations relevant to each plea

Rules of the Supreme Court 1971(WA), O 20 r 19(1)(a)

Application to strike out paragraphs of the defence and counterclaim dismissed

First Defendant by Counterclaim : McKenzie Moncrieff Lawyers

Second Defendant by Counterclaim : McKenzie Moncrieff Lawyers

Alpha Wealth Financial Services Pty ltd v Frankland River Olive Company Ltd [2008] WASCA 119; 66 ACSR 594

Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365

Attard v James Legal Pty Ltd [2010] NSWCA 311; 80 ACSR 585

Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221

BBC Hardware Ltd v GT Homes Pty Ltd [1996] QSC 273; [1997] 2 Qd R 123; (1996) 15 ACLC 431

Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2009] FCA 131

Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1

Bofinger v Kingsway Group Limited [2009] HCA 44; (2009) 239 CLR 269

Boscawen v Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328; [1995] 4 All ER 769

Burston Finance Ltd v Steirway Ltd [1974] 1 WLR 1648

Butler v Rice [1910] 2 Ch 277

Cheltenham & Gloucester Plc v Appleyard [2004] EWCA Civ 291

Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in liq) [1973] HCA 50; (1973) 131 CLR 605

Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329

Commonwealth of Australia v Verwayen (1990) 170 CLR 394

FCT v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592

Ford Motor Company of Australia Ltd v Jefferson Ford Pty Ltd [2007] FCA 870

Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203; (1994) 12 ACLC 1063

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1

Ghana Commercial Bank v Chandiram [1960] AC 732

Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101

Highland v Exception Holdings Pty Ltd (in liq) [2006] NSWCA 318; 60 ACSR 223

International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151

JF Keir Pty Ltd v Priority Management Systems Pty Ltd (admin appd) [2007] NSWSC 748

JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (1987) 12 ACLR 1

JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (No 2) (1987) 13 ACLR 37

Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Staples M, Library No 6414, 25 August 1986)

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181

Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336

National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548

Nunn v Wily [2001] NSWSC 317

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Re Capital General Corporation Ltd [2000] VSC 570; (2001) 19 ACLC 848

Reseda v St Vincent's Hospital [1998] 2 VR 70

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550; 113 ALR 128; 10 ACSR 373

Victoria University of Technology v Wilson [2004] VSC 33

Wallabah Pty Ltd v Navillo Pty Ltd (1997) 23 ACSR 444; 15 ACLC 396

Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1

1 By an agreement made on 23 April 2008, Bank of Western Australia Ltd and BOS International (Australia) Ltd (BOS International) agreed to provide financial accommodation to Westgem Investments Pty Ltd (Westgem) in connection with a project to develop land located in the Perth CBD and known as Raine Square (I will refer to Bank of Western Australia Ltd and BOS International together as the Financiers). Contemporaneously with the execution of the facility agreement, Westgem and BOSI Security Ltd (BOSI) made a deed entitled, 'Fixed and floating charge (all assets)' (Charge) and Westgem granted a mortgage to BOSI (BOSI was appointed security trustee for the purpose of the various arrangements by which the Financiers provided the financial accommodation and Westgem and associated entities and persons provided security).

(a) On 11 November 2008, Westgem granted a further mortgage to BOSI.

(b) The facility agreement was amended and restated by an agreement dated 22 September 2010 (the Restated Facility Agreement).

(c) Westgem granted a third mortgage to BOSI (I will refer to the three mortgages granted by Westgem collectively as the Mortgages).

(d) On 11 January 2011, BOSI appointed the first defendants (the Receivers) as receivers and managers of Westgem pursuant to the Charge.

(e) On the same day, the first plaintiff, Mr Saraceni, appointed an administrator (the Administrator) to Westgem. Mr Saraceni is the sole director of Westgem. He is also a director of the second plaintiff (Saracen).

(f) On 21 January 2011, BOSI appointed the Receivers as receivers and managers of the property the subject of the Mortgages.

(g) The Receivers commenced proceedings (the Receivers' Proceedings) against Mr Saraceni and Saracen seeking orders that Saracen pay into a nominated bank account held with one of the Financiers an amount that was paid by Westgem to Saracen shortly prior to the appointment of the Receivers.

(h) The Administrator applied for and was granted an extension of the statutory period within which the second meeting of the creditors of Westgem must be held under s 439A of the Corporations Act 2001 (Cth) (the Act) (the Administrator's Proceedings).

3 Mr Saraceni and Saracen contend in the Receivers' Proceedings that the Charge was ineffective to charge any of the assets of Westgem and that the appointment of the Receivers was invalid. In these proceedings, they seek declarations to that effect under s 418A and s 447B of the Act. They also seek other orders and declarations regarding the effect of the Charge and the Mortgages on the property of Westgem.

4 Two interlocutory applications have been made. First, the defendants seek an order under s 440D of the Act for leave to proceed with a counterclaim against Westgem. Second, the plaintiffs seek to strike out a number of paragraphs of the defence and counterclaim that has been filed and served. It will be apparent from the coincidence of the applications that the defendants commenced their counterclaim prior to seeking leave under s 440D of the Act.

(a) leave nunc pro tunc under s 440D should be granted to the defendants to maintain their counterclaim against Westgem;

(b) the application to strike out parts of the defence and counterclaim should be dismissed.

6 Clause 3.1 of the Charge provides that Westgem as chargor charges the 'Secured Property' to BOSI as security trustee to secure the payment of the 'Secured Money'. The term 'Secured Property' is not expressly defined in the Charge. However, cl 1.3 of the Charge provides that terms and expressions defined in the facility agreement apply in the Charge. The term 'Secured Property' is defined in the Restated Facility Agreement to mean:

any asset of a Transaction Party mortgaged, charged or otherwise secured in favour of the Security Trustee or any other Finance Party by way of a Security as security for the Secured Money or any of the Borrowers or any other Transaction Parties' obligations arising under any Transaction Document.

7 Put shortly, the plaintiffs' argument is that the Charge is ineffective to charge any property of Westgem as it contains no definition of Secured Property. That defect is not overcome by reading cl 3.1 of the Charge with the definition of Secured Property in the Restated Facility Agreement as there was no asset of Westgem that had been mortgaged, charged or otherwise secured in favour of BOSI at the time that the Charge was purportedly granted. Accordingly, the appointment of the Receivers to the assets and undertaking of Westgem was invalid as their was no property charged.

8 So far as is relevant, the plaintiffs allege by their statement of claim that:

(a) on a proper construction of the Restated Facility Agreement and the Charge, there was no property that came within the definition of Secured Property so that the Charge was ineffective to charge any property of Westgem;

(b) notice of the Charge had not been lodged with the Australian Securities and Investments Commission (ASIC) as the Restated Facility Agreement was not lodged so that any charge created by the Charge was void as against the Administrator: see s 263 of the Act;

(c) the notice of the Charge lodged with ASIC did not contain an adequate description of the property for the purpose of s 263 of the Act so that the notice was deemed not to have been lodged with the result that any charge created by the Charge was void against the Administrator;

(d) the purported appointment of the Receivers was not a valid or effective appointment over any of the property of Westgem;

(e) the Mortgages were only granted over certain land; they did not affect any other property held by Westgem;

(f) the Mortgages did not create a charge over the whole, or substantially the whole, of the property of Westgem for the purpose of s 441A of the Act and the purported appointment of the Receivers as receivers and managers of Westgem under the Mortgages, after the appointment of the Administrator, was not a valid or effective appointment over any property of Westgem.

9 The statement of claim identifies various assets said to be held by Westgem and which are alleged not to have been affected by any of the securities relied upon by the defendants. The assets include a counterclaim made in proceedings commenced by Salta Constructions Pty Ltd (the Salta Constructions Proceedings) for 'amounts to a value of approximately $150,000,000 and further damages the extent of which are yet to be identified'. The remaining assets that are said to be held by Westgem and to be unaffected by any charge granted to BOSI comprise the benefit of various contracts.

10 The defendants allege by their defence that, properly construed, the Charge was effective to charge all of the assets and undertaking of Westgem; alternatively, that it was effective to create a fixed charge over certain assets. Those allegations rely on construing the Charge without regard to the definition of Secured Property in the Restated Facility Agreement.

11 The defendants then plead in the alternative that if the term 'Secured Property' as used in the Charge is to be construed by reference to the definition of that term appearing in the Restated Facility Agreement or the Charge operates only as a fixed charge over certain assets:

(a) on or about 29 November 2004, Westgem granted a charge over all of its assets and undertaking to St George Bank Ltd (the St George Charge);

(b) the amount secured by the St George Charge was paid out by the Financiers and the St George Charge was assigned to BOSI;

(c) by reason of the payment of the amount secured by the St George Charge or by the assignment of the charge, all of the property of Westgem was charged as security for payment of the Secured Money within the meaning of the term 'Secured Property' as defined by the Restated Facility Agreement;

(d) BOSI Security did not intend to discharge and would not have discharged the St George Charge if the Charge was, or is held to be, invalid;

(e) the Financiers paid the amounts secured by the St George Charge on the basis that the Charge was effective to charge the assets and undertaking of Westgem;

(f) BOSI Security, for and on behalf of the Financiers, is entitled to be subrogated to the St George Charge.

12 Those allegations are contained in pars 23 to 27 and 65 to 68 of the defence and counterclaim. I shall refer to the allegations as the subrogation plea.

13 The defendants' counterclaim is similarly pleaded on the assumption that the Charge does not secure any of the assets or undertaking of Westgem or that it operates only as a fixed charge over certain items of property. It is alleged that:

(a) The common intention of the parties to the Charge and Mr Saraceni was that Westgem would provide a fixed and floating charge over all of its assets and undertaking to secure the financial accommodation to be provided by the Financiers. Further, the parties and Mr Saraceni considered that the Charge gave effect to that commonly held intention. Consequently, the Charge should be rectified so that the words 'Secured Property' are defined to mean 'all the assets and undertaking of the Chargor'. I will refer to those allegations as the rectification plea.

(b) The plaintiffs are estopped from denying that the Charge takes effect as a fixed and floating charge over all of the assets and undertaking of Westgem. The estoppel is alleged to be founded on a mutual assumption that the financial accommodation provided by the Financiers would be secured by such a charge and the detriment that would be suffered by BOSI and through it, the Financiers, if the plaintiffs were permitted to depart or resile from that assumption. I will refer to those allegations as the estoppel plea.

14 As Young J observed in Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203; (1994) 12 ACLC 1063, the provisions of pt 5.3A of the Act provide for a 'complete freeze' of proceedings against the company during an administration so that the administrator 'can have time to assess the situation, and the company's creditors have an opportunity to work out the net position and adopt an attitude under s 439C which will be in their common interest' (ACSR 204; ACLC 1065) and see also Re Capital General Corporation Ltd [2000] VSC 570; (2001) 19 ACLC 848. It is clear from the scheme of the Act relating to administrations that ordinarily an administration should not be disrupted, and the administrator should not be distracted, by legal proceedings.

15 In JF Keir Pty Ltd v Priority Management Systems Pty Ltd (admin apptd) [2007] NSWSC 748, Rein AJ (as his Honour then was) identified by reference to decided cases a number of factors relevant to the exercise of the discretion conferred by s 440D (see at [8]). In Attard v James Legal Pty Ltd [2010] NSWCA 311; 80 ACSR 585, Tobias JA endorsed and added to that list of factors (at [146] - [147]). I do not propose to reproduce their Honours' summaries. It is sufficient for the purpose of this application to note that the factors they listed:

(a) assist in identifying whether it will be inimical to the statutory purpose of voluntary administration, the functions to be performed by an administrator and the interests of creditors in the effective administration of the corporation to permit proceedings to be maintained;

(b) include whether 'the claim has a solid foundation and gives rise to a serious dispute' (Attard [146], reference being made to Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550; 113 ALR 128; 10 ACSR 373) and what funds the company has available to defend the litigation (Attard [147], referring to Wallabah Pty Ltd v Navillo Pty Ltd (1997) 23 ACSR 444; 15 ACLC 396).

16 It is also relevant to note that an application for leave by a secured creditor stands on a different footing to an application by an unsecured creditor: see BBC Hardware Ltd v GT Homes Pty Ltd [1996] QSC 273; [1997] 2 Qd R 123; (1996) 15 ACLC 431.

17 In this matter, the Administrator neither opposed nor consented to the defendants' application for leave to maintain their counterclaim. However, his written submissions identified various matters that suggested that leave ought not to be granted:

(a) In his view, there was an issue as to whether the counterclaim for rectification involved a serious question to be tried.

(b) Unsecured creditors might be prejudiced if rectification was granted as BOSI and the Financiers would be assisted to improve their position relative to the 'vested rights' of other creditors.

(c) He had effectively exhausted his funding. Consequently, he was not in a position to actively participate in the proceedings but he was 'reluctant to simply abrogate his role'.

(d) The question of rectification could be deferred until after the court had ruled on the proper construction of the Charge.

18 Those submissions are further considered in what follows. However, it is relevant to note that in the Administrator's Proceedings, the Administrator deposed to the following matters in an affidavit made in support of his application to extend the time within which to hold the second creditors meeting:

(a) He had reviewed the Charge following his appointment and had 'identified potential flaws in the drafting of the Charge'. The effect of those 'flaws' might be that the Charge was unenforceable or invalid or void as against him or alternatively, that the Charge only operated in relation to certain assets so that the appointment of the Receivers under the Charge or the Mortgages was invalid or effective only in relation to a 'narrow set of assets' (par 14 of the affidavit of Bryan Kevin Hughes, sworn 3 February 2011).

(b) He had caused his solicitors to write to the solicitors for the Receivers requesting that the Receivers make an application under s 418A of the Act. The Receivers' solicitors had responded that the Receivers did not intend to make such an application (par 15 of the Administrator's affidavit).

(c) He had been informed by Mr Saraceni that one or more of various companies of which Mr Saraceni was a director, and which were creditors of Westgem, intended to make an application under s 418A of the Act for the purpose of determining the validity of the Charge and the appointment of the Receivers and for ascertaining whether the Charge was void as against the Administrator (par 18 of the Administrator's affidavit).

(d) He was not in a position to determine which assets of Westgem were available to its unsecured creditors until the matters identified by Mr Saraceni had been resolved. He also could not provide a meaningful report to the creditors to satisfy the requirements of s 439A(4) of the Act for that reason (par 19 of the Administrator's affidavit).

(e) He was unable to complete the investigations that he was required to undertake 'due to the uncertainty about which assets of Westgem, if any, are properly subject to the Charge under which the Receivers had purportedly been appointed'. Further, he could not make a meaningful recommendation to creditors for that reason (I assume that the Administrator's reference to a recommendation to creditors is to be understood as a reference to the statement containing his opinion that is to be provided under s 439A(4)(b)).

(f) In the circumstances, he considered that the preferred course of action was to grant an extension of time for the meeting of creditors required by s 439A of the Act to enable any of the entities associated with Mr Saraceni to bring the application that he had foreshadowed to determine the efficacy of the Charge and the validity of the appointment of the Receivers.

19 The Administrator's evidence in the Administration Proceedings confirms what is obvious from the subject matter of these proceedings: the effect of the Charge and the Mortgages on the property of Westgem and the validity of the appointment of the Receivers is critical to the present and future affairs of Westgem. At issue is who controls what assets of the company and what assets are available to the unsecured creditors of Westgem. Plainly, that issue is fundamental to the administration of Westgem. It is in the best interests of the company as a whole (including its creditors) and in my view, it is necessary for the proper conduct of the administration that the issue be finally determined as soon as conveniently possible. That is consistent with the view expressed by the Administrator through his solicitors in correspondence with the Receivers' solicitors (see attachment 'CFM-1' to the affidavit of Christopher Francis McLeod sworn 14 March 2011).

20 That conclusion is reinforced by considering the nature of the assets and undertaking of Westgem. The project to develop the Raine Square site has not been completed. The Receivers have assumed control over the project and the question of the validity of their appointment has an immediate and significant commercial consequence: who controls completion of the project, the Receivers or the Administrator? Further, the Salta Constructions Proceedings are presently in a hiatus as the solicitors on the record for Westgem are unable to obtain instructions. The amounts claimed in those proceedings are substantial.

21 The plaintiffs seek orders under s 418A and s 447B of the Act. Section 418A permits a corporation or any of its creditors to apply to the court for declaratory orders where there is doubt about whether a person was validly appointed as receiver of property or whether a person who has entered into possession or assumed control of property of the corporation, did so validly under the terms of a charge on that property.

22 Section 447B of the Act permits the court to make such orders as it thinks necessary to protect a creditor's interests while a company is under administration.

23 The orders sought by the plaintiffs include declarations that the Receivers were not validly appointed as receivers and managers of any property of Westgem and were not validly in possession or control of any of the company's property under the terms of the Charge or the Mortgages. The terms of those declarations and the invocation of the court's powers under s 418A and s 447B of the Act make it clear that the ultimate issue in these proceedings is whether any of the securities granted or purportedly granted by Westgem to BOSI effectively secure any of its assets and undertaking. If so, the powers conferred on the Administrator under s 437A of the Act do not apply to the property concerned; if not, the property is subject to the Administrator's powers.

24 Consequently, these proceedings are intended to resolve the question identified earlier: who controls what assets of Westgem and what assets are available to be dealt with in the company's administration for the benefit of its unsecured creditors.

25 The plaintiffs contended that the application for leave ought to be refused or alternatively, deferred until the issues raised by their statement of claim are determined. As previously noted, the Administrator queried whether leave ought to be granted for the defendants to proceed with the rectification plea. I do not consider that either of those submissions should be acceded to by the court as, in my view:

(a) it is in the interests of Westgem and its creditors and the efficient conduct of the administration that all issues relating to the control of the company's property be finally determined as soon as conveniently possible;

(b) for the reasons that follow, I am satisfied that there is a serious question to be determined on the defendants' rectification plea and that the court should consider that question (and the other issues arising from the defence and counterclaim);

(c) the proposal to defer some issues pending determination of a preliminary issue on the proper construction of the Charge is not, in all the circumstances, the most efficient and economical management of this case.

26 I consider that those matters outweigh the difficulties that the Administrator may encounter in participating in the proceedings due to a lack of funds. As I have indicated, the issues raised in the proceedings are fundamental to the administration of Westgem. It is not in the interests of the company or its creditors for the resolution of those issues to be fragmented nor is such an approach consistent with the principles of case management or what is required to do justice as between the parties.

27 The plaintiffs raised the question of whether there would be a proper contradictor to the defendants' allegations given that they are not a party to the Charge and have sought relief under the Act as a creditor of Westgem. In Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd [2009] FCA 131, Finkelstein J gave the parties leave to maintain proceedings against a company that was in liquidation notwithstanding that the liquidator had no funds to conduct a defence. In relation to the claims made by Beconwood Securities against the company, his Honour observed that 'in any event, ANZ's defence of the claim against it will require it to put arguments that [the company] would rely on if it were defending the claim' [10]. The same observation can be made in this matter. The defendants' claims against Westgem are intimately connected with the claims made and relief sought by the plaintiffs. There is no doubt that the plaintiffs will contest the defendants' claims. That is confirmed by the plaintiffs' application to strike out much of the defence and counterclaim. It is also relevant that Mr Saraceni is the sole director of Westgem, was responsible for appointing the Administrator and has so far, provided him with his funding.

28 I also note that one of claims that was sought to be prosecuted against the company in liquidation in Beconwood Securities was a claim for rectification of a facility agreement. In that regard, Finkelstein J observed at [7] that:

Perhaps, on one view, Beconwood could make good its claims against ANZ without rectification (under common law or statute) of the facility agreement. But Beconwood does not want to put all its eggs in one basket. And, in my view, it would be unjust for the court to require it do so.

29 Again, those comments are relevant to this matter.

The approach taken to the plaintiffs' application

30 In Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1, Martin CJ stated, in the context of an interlocutory application to strike out paragraphs of a statement of claim (at [2]):

Before dealing with this specific application, I would observe that both I and the other members of this Court are firmly of the view that interlocutory disputes of this kind must be actively discouraged. In many cases, interlocutory disputes, particularly disputes relating to pleading issues, consume very substantial amounts of time and expense on the part of both the parties and the Court. In many cases, the time and expense involved in the consideration and resolution of the interlocutory dispute is entirely disproportionate to its significance to the just and effective resolution of the case as a whole by mediation or trial. For this reason, this Court will use the existing powers available under the Rules of the Supreme Court 1971 (WA) ('the Rules') and if necessary amend the Rules to actively discourage disputes of this kind. In very general terms, interlocutory disputes of this kind will only be entertained by the Court if the time and expense involved in their resolution is proportionate to the significance of the dispute to the just and effective resolution of the case. This principle is, in my view, already inherent in the provisions of the Rules when read as a whole, including in particular O 1 r 4A and r 4B, O 29 and O 29A.

31 It is significant that those observations were made by the Chief Justice on a matter of practice and procedure and that they were expressed to be the views of the Court.

32 Independently of the requirements of efficient case management and the proper allocation of judicial resources, the principles identified by Master Staples in Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Staples M, Library No 6414, 25 August 1986) continue to operate in an application to strike out a claim. In particular:

(a) it is only in cases where it can be seen from the outset that, however the facts be found, there is no basis for the legal conclusion contended for by the claimant that the pleading should be struck out; and

(b) a court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie.

33 It is inherent in those propositions that an interlocutory application to strike out a pleading is not an appropriate procedure for determining an unsettled question of law or for deciding how a discretion to grant final relief might be exercised, even on well established principles, unless there can be no doubt as to the outcome.

34 Ordinarily, I would not have been inclined to entertain the plaintiffs' application to strike out the defence and counterclaim having regard to the issues raised by the application and the matters to which I have just referred. However, I have proceeded to fully consider the application because of the present status of Westgem. The defendants require leave to proceed with their counterclaim. The merit of the counterclaim is a factor to be considered in determining whether to grant leave. Obviously, an assertion that a pleaded claim fails to disclose a reasonable cause of action must be considered in an application for leave to proceed with the claim under s 440D of the Act.

35 The plaintiffs contend that the paragraphs pleading the subrogation plea should be struck out as:

(a) the plea is embarrassing 'in that BOSI cannot be subrogated to rights under a charge that BOSI itself discharged' (par 19 of the plaintiffs' submissions dated 17 March 2011);

(b) the St George Charge did not fall within the definition of Secured Property in the Restated Facility Agreement as:

(i) the St George Charge after assignment did not secure payment of Secured Money as defined in the Restated Facility Agreement;

(ii) at the time that the Restated Facility Agreement was entered into the St George Charge did not charge property in favour of BOSI;

(iii) the St George Charge was discharged by BOSI immediately upon being assigned to BOSI;

(iv) the St George Charge could not be 'Security' as defined in the Restated Facility Agreement as it was not created or entered into as security for any 'Secured Money' as defined by the Restated Facility Agreement;

(c) the deed of assignment by which the St George Charge was purportedly assigned to BOSI was merely an agreement to agree.

36 In Bofinger v Kingsway Group Limited [2009] HCA 44; (2009) 239 CLR 269 the High Court emphatically dispelled any notion that first, the 'doctrinal basis for equitable subrogation' was unsettled in Australian law (a reference to the observation of Santow JA in Highland v Exception Holdings Pty Ltd (in liq) [2006] NSWCA 318; 60 ACSR 223 [94]) and second, that subrogation was an 'equitable remedy to reverse or prevent unjust enrichment which is not based upon any agreement or common intention of the party enriched and the party deprived' (see the judgment of Lord Hoffmann in Banque Financière de la Cité v Parc (Battersea) Ltd [1998] UKHL 7; [1999] 1 AC 221 at 231).

37 The English view of subrogation now reflects what was said, for example, by Lord Steyn in Banque Financière that unjust enrichment is 'an independent source of rights and obligations' which 'ranks next to contract and tort as part of the law of obligations' (227). However, in Australian law subrogation as a remedy remains firmly rooted in equity's concern with unconscientious conduct. So in Bofinger, the High Court contrasted the present position in English law with the statement of Millett LJ in Boscawen v Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328, 335; [1995] EWCA Civ 15; [1995] 4 All ER 769 made before Banque Financière that, '[t]he equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the propriety interest claimed by the plaintiff' (at 777).

38 The following matters concerning the remedy of subrogation are relevant, in my view, to this application.

39 First, a third party who is not a volunteer and who pays a debt so that the debtor's obligations are discharged and the creditor's corresponding rights are extinguished may be subrogated to such rights as the creditor possessed against the debtor notwithstanding the discharge and extinguishment. Mitchell and Watterson describe the remedy as operating through a legal fiction, 'as though the creditor's rights were not extinguished by the payment, but were transferred to the claimant so that he could enforce them for his own benefit' and that 'by this means the claimant is given new rights which replicate the creditor's extinguished rights': Subrogation Law & Practice (2007) at [1.05]. That legal fiction was said in Ghana Commercial Bank v Chandiram [1960] AC 732 to give effect to the presumed intention of the third party and the creditor: '[i]t is not open to doubt that where a third party pays off a mortgage he is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for his own benefit' (745). In a passage that was referred to with approval in Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2004) at [9-075], Lord Hoffmann said in Banque Financière at 236 that:

When judges say that the charge is 'kept alive' for the benefit of the plaintiff, what they mean is that his legal relations with a defendant who would otherwise be unjustly enriched are regulated as if the benefit of the charge had been assigned to him. It does not by any means follow that the plaintiff must for all purposes be treated as an actual assignee of the benefit of the charge and, in particular, that he would be so treated in relation to someone who would not be unjustly enriched. (original emphasis)

40 And see generally, Subrogation Law & Practice at [3.10] and following.

41 Consequently, it is difficult to understand as a general proposition the plaintiffs' submission that the defendants' subrogation plea ought to be struck out as the St George Charge had been discharged by BOSI. It is precisely for that reason that BOSI claims to be entitled to be subrogated to the St George Charge and that the legal relations between it and Westgem should be regulated as if the charge subsisted between them.

42 Second, a third party such as BOSI cannot claim subrogation if it has already obtained from the debtor all of the security that it bargained for: Cheltenham & Gloucester Plc v Appleyard [2004] EWCA Civ 291. However, a distinction has been drawn between the third party receiving valid security that subsequently becomes void (for example, a charge that becomes void through lack of registration within the prescribed statutory period) and the third party receiving security that is void from the outset: Highland [63]. In Burston Finance Ltd v Speirway Ltd [1974] 1 WLR 1648 Walton J said (1652):

What is the basis of the doctrine of subrogation? It is simply that, where A's money is used to pay off the claim of B, who is a secured creditor, A is entitled to be regarded in equity as having had an assignment to him of B's rights as a secured creditor. ... It finds one of its chief uses in the situation where one person advances money on the understanding that he is to have certain security for the money he has advanced, and, for one reason or another, he does not receive the promised security. In such a case he is nevertheless to be subrogated to the rights of any person who at the relevant time had any security over the same property and whose debts have been discharged, in whole or in part, by the money so provided by him...

43 Consequently, in Cheltenham & Gloucester, Neuberger LJ at [35] and [36] described as a classic case of subrogation a lender who anticipated receiving security that might not have been forthcoming and who sought to be subrogated to another security as a consequence. In Boscawen, Millett LJ rejected a submission that it was necessary for a third party claiming to be subrogated to securities to prove that it intended to obtain the benefit of the securities concerned by subrogation. His Lordship noted that in Butler v Rice [1910] 2 Ch 277 it was held to be immaterial to the claimant's entitlement to subrogation that the debtor had not requested the claimant to make the payment and did not know of the transaction. He continued (781):

In cases such as Butler v Rice and Ghana Commercial Bank v Chandiram ..., where the claimant paid the creditor direct and intended to discharge his security, the court took the claimant's intention to have been to keep the original security alive for his own benefit save insofar as it was replaced by an effective security in favour of himself. (emphasis added)

44 Third, questions may arise as to how a statutory regime for the registration of securities impacts upon the exercise of security rights by subrogation. Although it was not clear from their submissions, it may be that it was this that the plaintiffs had in mind when they contended that the subrogation plea should be struck out as the St George Charge had been discharged. According to Mitchell and Watterson, the 'legal fiction' entailed in subrogation actually involves the acquisition of new rights in equity: see Subrogation Law and Practice at 8.07 and following. They contend that subrogation to a creditor's security interest involves the recognition of a 'new and independent equitable security interest which prima facie replicates the creditor's old interest': at 8.12. Further, the new security interest arises by operation of law and is, therefore, not required to be registered where the interest is in the nature of a charge over a company's assets: at 8.135 and see s 262(2)(a) of the Act.

45 This analysis raises a number of issues, starting with an exploration of the extent to which it reflects the acceptance in English law of unjust enrichment as an independent source of obligation, including obligations of a proprietary kind. It should, however, be noted that Mitchell and Watterson see the passage from Lord Hoffmann's judgment in Banque Financière reproduced earlier and referred to with approval in Meagher, Gummow and Lehane's Equity Doctrines and Remedies as the genesis of the notion that a new security interest is created in equity by the remedy of subrogation: see, for example, Subrogation Law & Practice at 7.139. In any event, the ultimate issue would be whether s 262(1) of the Act applies where a third party asserts a 'right' to have its legal relationship with a debtor company regulated on the basis that it holds, through subrogation, a charge over some or all of the company's assets and if it does, whether the subrogated charge arises by operation of law so that it is excluded from the statutory regime for registration. That issue, and any associated question, was not directly raised or argued before me.

46 I am satisfied that, subject to the other matters raised by the plaintiffs, the defendants' subrogation plea should not be struck out. It is arguable as a matter of law and raises issues that ought to be determined by a trial and not by a summary procedure. To the extent that the issue might be raised, I am not satisfied that the subrogation plea must fail because of s 262 of the Act.

47 As to the balance of the plaintiffs' submissions concerning the subrogation plea:

(a) The submissions raise questions concerning the proper construction of the St George Charge, the Restated Facility Agreement and the Charge. In my view, an application to strike out a pleading under O 20 r 19(1)(a) Rules of the Supreme Court 1971, on which no evidence can be adduced, will rarely be an appropriate procedure for determining a contested question of construction having regard to what has been said by the High Court in cases such as Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165.

(b) The definition of 'Secured Money' in the Restated Facility Agreement is wide. It includes money payable or owing to the Financiers or BOSI under any assignment or other disposition by any person in favour of, among others, BOSI and irrespective of whether the assignment or other disposition took place before or after delivery of the Restated Facility Agreement (cl 1.1(122)).

(c) The submission that the St George Charge did not fall within the definition of Secured Property at the time that the Restated Facility Agreement was made is based on the effect of the discharge of the charge. That submission raises three questions:

(i) The effect of the discharge of the St George Charge if it is found that the Charge is ineffective. That question has already been considered in these reasons and in my view, it is reasonably arguable that the property charged by the St George Charge is property that falls within the definition of Secured Property notwithstanding the discharge of the charge.

(ii) The proper construction of the definition of the term 'Secured Property': does the term only apply to property that was charged or otherwise secured at the time that the Restated Facility Agreement was executed? An interpretation of the term that confined the operation of the Charge to property in existence and independently secured at the time of the Restated Facility Agreement was made would be odd commercially and plainly, inconsistent with cl 4 of the Charge. Arguably, the definition of Secured Property overcomes the problem of an assignment of future property at common law by capturing property that is the subject of a separate conveyance in the future: see WJ Gough, Company Charges (2nd ed, 1996) at 40. Equity will, of course, recognise an assignment of future property and in this case, the Charge is expressly stated to be both fixed and floating.

(iii) Was BOSI subrogated to the St George Charge at the time that the Restated Facility Agreement was executed in any event given that the its claim to the remedy is predicated on the Charge being ineffective, both at the time that the agreement was made and subsequently? That issue was not directly raised and argued in the application.

(d) The argument that the deed assigning the St George Charge to BOSI contained no more than an agreement to agree was based on those provisions of the deed that recorded that:

(i) the consideration for the assignment was the 'Price';

(ii) the Price was the amount referred to in item 5 of the schedule to the deed;

(iii) the Price was a sum to be agreed between the Facility Agent (one of the Financiers) and St George (item 5 of the Schedule).

48 However, it is to be noted that the deed defined the term 'Price' to mean 'the amount referred to in item 5 of the Schedule being the amount owing ... by [Westgem] to St George under the Assignment Securities as at the Assignment Date'. Clearly, the definition and item 5 were intended to accommodate the fact that the precise pay out figure for the St George facilities would only be calculated and known on the 'Assignment Date'. Paragraph 65 of the defence and counterclaim pleads that on 30 April 2008, the Financiers paid all amounts secured by the St George Charge.

49 In my view, the submissions made by the plaintiffs concerning the definition of Secured Property and the St George Charge do not establish that the defendants' defence and counterclaim disclose no reasonable defence or cause of action having regard to the matters referred to above. I also consider that it is reasonably arguable that the deed of assignment did not contain an agreement to agree and that the deed was fully executed by the payment alleged to have been by the Financiers on 30 April 2008.

50 The plaintiffs apply to strike out the rectification plea on two grounds:

(a) The defendants have failed to 'plead or particularise what conduct by Westgem established proof that it had [the intention that it would provide a fixed and floating charge over all its assets and undertaking]' (par 6 of the plaintiffs' submissions dated 17 March 2011). There were two parts to that submission: first, the plaintiffs had pleaded matters that did not form part of the 'objective factual matrix' and second, the defendants pleaded steps taken by BOSI or its solicitors rather than matters relevant to Westgem's intention.

(b) The defendants cannot maintain the rectification plea having regard to the principle identified by Kennedy J in JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (1987) 12 ACLR 1, affirmed on appeal in JJ Leonard Properties Pty Ltd v Leonard (WA) Pty Ltd (No 2) (1987) 13 ACLR 37. The Administrator also referred to the decisions in JJ Leonard Properties to suggest that there was an issue over whether the rectification plea involved a serious question to be tried.

51 As to the first of the grounds relied upon by the plaintiffs, the common intention to be established for rectification is a subjective (or actual) intention so that all of the objective and subjective evidence must be considered: P W Young, C Croft and M L Smith, 'On Equity' (2009) at [11.360], citing Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603. Consequently, none of the allegations made by the defendants and forming part of the rectification plea are susceptible to being struck out merely on the ground that they concern the subjective intention of BOSI and/or Westgem.

52 The rectification plea relies on the matters alleged in pars 8 to 19 of the defence. Those paragraphs plead:

(a) communications from BOS International relating to a proposal to provide financial accommodation to Westgem that referred to a first ranking, registered fixed and floating charge to be provided over all of the assets and undertaking of Westgem (pars 8 and 9);

(b) an offer made by letter dated 18 March 2008 from BOS International to provide finance for the Raine Square development on the basis that a first ranking, registered fixed and floating charge would be provided by Westgem over all its assets and undertaking (par 10);

(c) acceptance of that offer on or about 27 March 2008 (par 11);

(d) the exchange of a draft of the Charge describing the Charge as a 'fixed and floating charge (all assets)' (pars 12 and 13);

(d) a resolution by Westgem on or about 22 April 2008 that it would enter into a first ranking fixed and floating charge over all of its assets and undertaking in favour of BOSI Security and the provision of a verification certificate to that effect (par 14);

(e) provision of notices of delegation by various trusts associated with Westgem, directing Westgem to grant a fixed and floating charge over all of its assets and undertaking (par 15);

(f) provision of drawdown notices by Westgem requesting a drawdown from the Financiers of funds to be made available under the facility agreements and which stated that all representations and warranties in the agreements remained true - there being a representation by Westgem in cl 14.1(6) of the Restated Facility Agreement that each security document, including a first ranking fixed and floating charge given by Westgem in favour of BOSI Security over all its assets and undertaking as described in sch 4 to the agreement, was an effective security;

(g) agreements that were made by Westgem and acknowledgements that it gave in April and September 2010 that a fixed charge had been created over amounts that it had received and that it had granted security to BOSI Security by way of various security documents including the Charge (pars 18 and 19).

53 The plaintiffs submitted that those paragraphs ought to be struck out as they did not plead matters relevant to ascertaining the intentions of Westgem at the time of execution of the Charge, did not allege any steps taken by Westgem and referred to events that occurred after the Charge was executed by the parties.

54 In my view, those submissions misconceive the basis upon which the parties' intentions are to be ascertained for the purpose of a rectification claim. The following propositions taken from the reasons delivered by Tobias JA and Campbell JA in Ryledar indicate the relevance of the matters pleaded by the defendants to a claim for rectification:

(a) The purpose of rectification is to rectify an instrument so that it conforms with the true agreement or intention of the parties where the instrument, through a common mistake, fails to express that agreement or intention accurately. It is not necessary that there be an antecedent concluded agreement; all that is necessary is a common intention held by the parties at the time of execution of the instrument in question: Tobias JA at [124] - [125] (citing Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 and Mahoney AP in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329) and Campbell JA at [259]. Consequently, the search is for the parties' intentions prior to and at the time of execution of the instrument and whether what was recorded gave effect to their common intention.

(b) The parties' intentions refer to 'that which is subjectively foreseen and intended to be effected by the document': Tobias JA at [126] (quoting from the judgment of Mahoney AP in Carlenka). Consequently, rectification will be available where the parties are mistaken as to the effect of words that have been deliberately chosen and adopted in drafting the instrument: Tobias JA at [128] - [134].

(c) There is an ongoing debate about whether it is necessary for there to be an 'outward expression of accord' before rectification can be granted: Campbell JA at [273]. In his Honour's view (at [281]):

when the fundamental requirement for granting rectification is a continuing common intention of the parties, it is of more assistance to concentrate on what is needed before an intention of the parties to a negotiation counts as a common intention. In my view, when that intention relates to the terms upon which they will contract with each other, it is still necessary for them to know enough of each other's intentions for it to be said that there is a common intention. They might come to know of each other's intentions in this way through those intentions being directly stated, or they might come to know of them through the various other means by which one person's intention can become known to another person ... what matters for present purposes is that for a negotiating party to perform actions or say words from which the other party can gather his or her intention is itself a form of communication. Negotiation of any contract takes place in a context in which various facts are known or assumed by the negotiating parties. Sometimes, for example, if a contract is negotiated in a context where there are well understood business practices and conventions, and nothing is said about those practices and conventions not applying, it can be legitimate to conclude that both parties to the contract intended to act in accordance with those practices and conventions, even if they did not expressly communicate to each other that they intended to act in accordance with those practices and conventions. (original emphasis)

(d) Evidence of the parties' conduct after the instrument was made is relevant to the extent that it casts light on their acts and intentions at the time of execution of the instrument: Tobias JA at [184] and see also Anfrank Nominees Pty Ltd v Connell (1989) 1 ACSR 365, 388 (Kennedy J).

55 The allegations made in pars 8 to 19 of the defence are, in my view, material to a claim for rectification and sufficiently plead and particularise such a claim:

(a) The communications allegedly made between BOS International and Westgem and the offer of finance and its acceptance are plainly relevant to the intentions of the Financiers and BOSI Security and the communication of those intentions to Westgem. Those matters will also be relevant to Westgem's intentions given the basis upon which it is alleged that BOS International offered to provide finance for the Raine Square development project and the acceptance of that offer by Westgem. The company's intentions are also alleged to be reflected in the resolution allegedly made on 22 April 2008 and the notices of delegation.

(b) Conduct subsequent to execution of the Restated Facility Agreement and the Charge is relevant to the extent that it discloses the parties' intentions at the time that those instruments were made.

56 No doubt those matters will fall to be considered at trial in the context of all of the circumstances surrounding the provision of financial accommodation by the Financiers to Westgem, including the contemporaneous execution of the facility agreement and the Charge, the purpose of the facility and the amount of financial accommodation provided by the Financiers.

57 As to the second of the matters relied on by the plaintiffs in their application to strike out the rectification plea, in JJ Leonard Properties a deed was plainly intended to create a charge but failed to do so as it omitted a charging clause. The mistake was discovered after the chargor company was placed in liquidation. Kennedy J at first instance declined to rectify the deed stating that (12 ACLR at 6 - 7):

The difficulty which I perceive in the present case relates to the exercise of my discretion to grant rectification. The accepted rule is that rectification will not be decreed if to do so would prejudice any bona fide purchaser for value who has acquired an interest in the property dealt with in the instrument sought to be rectified ... An analogous situation appears to arise here.

At the commencement of winding up, unsecured creditors acquire an interest in the property of the company. At that time, 'the undertaking and assets of the company passed under the control of the liquidator, whose duty it was to convert them into money, and out of the proceeds to pay the creditors existing at that date. The assets have been said to be impressed in the hands of the liquidator with a statutory trust in favour of the creditors': Re Anglo Oriental Carpet Manufacturing Co [1903] 1 Ch 914 at 918 per Buckley J ...

In the present case, the unsecured shareholders acquired an interest in the assets of the company, upon which it is now sought to impose a charge by means of rectification of the deed. If rectification were granted, on the evidence before me, their probable entitlement in distribution would reduce from just in excess of 40 cents in the dollar to zero. I am not persuaded that it would be right to assist the plaintiff to improve its position as against those creditors by granting the relief claimed.

58 An appeal from the decision of Kennedy J was dismissed. Burt CJ held (13 ACLR at 78) that rectifying the deed would defeat such rights as the unsecured creditors had obtained in the property of the chargor upon the commencement of the winding up and so would offend against the 'clearly rooted principle of company law' referred to by Menzies J in Commercial Banking Co of Sydney Ltd v George Hudson Pty Ltd (in liq) [1973] HCA 50; (1973) 131 CLR 605, 613: once liquidation had commenced, one creditor should not be assisted by the court to improve its position as against other creditors. Consequently, an order rectifying the deed would prejudice the rights of the unsecured creditors in that it would displace the 'vested' right that they had obtained at the commencement of the winding up that, subject to statutory provisions relating to preferential payments, the property of the company is to be applied in satisfaction of its liabilities equally.

59 The defendants contended that four questions arise when the decisions in JJ Leonard Properties are considered in the circumstances of this matter:

(a) whether Kennedy J was correct in drawing an analogy between the position of a bona fide purchaser for value and the position of the unsecured creditors of a company in liquidation;

(b) the relevance of the observations of Menzies J in CBC v George Hudson;

(c) the extent to which the reasoning in the decisions in JJ Leonard applies where the putative chargor is a company in administration rather than liquidation; and

(d) whether the court might exercise its discretion in equity to rectify the Charge in any event.

60 In my view, each of those questions properly arises for further consideration in the circumstances of this matter and they demonstrate that the defendants' rectification plea is reasonably arguable. It is not necessary to canvass the detail of the parties' respective arguments on each of the questions identified by the defendants; that can be deferred until trial. It is sufficient to note the following matters for the purpose of the plaintiffs' application:

(a) Relief in JJ Leonard Properties was denied on discretionary grounds. It would be exceptional for a court to strike out a pleading that disclosed a reasonably arguable case for a remedy in equity on the ground that relief would be denied in the exercise of the court's discretion. Contrary to the plaintiffs' submissions, the decisions do not establish that the rights of creditors where a company is in liquidation 'prevent' the exercise of the court's discretion. The decisions do not establish a rule but rather illustrate equity's concern with the position of third parties when granting relief and the possible impact of the statutory regime for winding up insolvent companies.

(b) In FCT v Linter Textiles Australia Ltd (in liq) [2005] HCA 20; (2005) 220 CLR 592, the plurality approved a statement appearing in the seventh edition of Ford & Austin's Principles of Corporation Law on the effect of a winding-up order on the property of the company (see at [54]). It was stated that an insolvent company holds its property beneficially but subject to the statutory scheme of liquidation so that unsecured creditors had a right to have the fund of assets protected and properly administered. That interest, although not an interest in specific assets, will be protected against third persons so that, 'for example, a holder of an unregistered registrable charge who asks the court to extend the time for registration or a person who seeks rectification of an instrument of charge which could prejudice unsecured creditors will not ordinarily succeed if the company is in liquidation or on the verge of liquidation' (emphasis added). The reservation in that passage emerges more clearly from the comments of Austin J in Nunn v Wily [2001] NSWSC 317 [123] - [133], where his Honour briefly reviewed what was said by Kennedy J and the Full Court in JJ Leonard Properties and concluded, '[s]uffice it to say that, in the present case, I am not persuaded that either of the grounds emerging from the JJ Leonard Properties case would be obstacles to rectification, if it were otherwise necessary and appropriate to grant such relief.' It will be necessary to consider all of the circumstances relevant to the rectification plea to determine whether the Charge ought to be rectified if the requirements for a suit for rectification are otherwise made out.

(c) That conclusion is reinforced by the fact that Westgem is in administration not liquidation. In Foxcroft, Young J observed that:

There is, however, quite a big difference between a company in administration and a company in liquidation. A company in administration is seeking to continue to trade and it is, in accordance with s 435A, seeking to maximise the chance of it remaining in business. A company in liquidation is one where the liquidator is seeking not to trade but to realise the company's assets as soon as possible for the best price, in order to be able to distribute the net available funds to the creditors and in some circumstances, the members. (15 ACSR at 204)

That difference is reflected in many aspects of the statutory regimes for voluntary administration and liquidation. Significantly, the nature or content of rights and obligations created and imposed by contracts entered into by a company prior to entering into administration are not altered on an administrator being appointed. The administrator takes those rights and obligations as s/he finds them: see International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 [94].

(d) It follows from what has already been said that, in my view, it is arguable whether the unsecured creditors of Westgem are to be equated with third parties whose rights have intervened since the Charge was made merely because the company has been placed in administration. Whether there are third parties whose interests ought to be considered in the exercise of any discretion to rectify the Charge is also a matter that involves a factual inquiry that can only be undertaken at trial.

(e) Similarly, an application to extend the period for registration of a charge pursuant to s 266(4) of the Act or to rectify the register under s 274 involves the exercise of a discretion - whether it is 'just and equitable' or 'just and expedient' to grant relief. It is not appropriate to consider whether the discretion would be exercised on those grounds on an application under O 20 r 19(1)(a). What is just and equitable or expedient must be determined by reference to all of the circumstances as found on the evidence relevant to the application for relief under the Act.

61 In my view, those matters are sufficient to establish that the defendants' rectification plea is reasonably arguable notwithstanding each of the decisions in JJ Leonard Properties.

62 The estoppel plea is also based on the matters pleaded in pars 8 to 19 of the defence and counterclaim. The plaintiffs made a number of submissions as to why the estoppel plea ought to be struck out:

(a) Their submissions concerning the rectification plea were repeated. It was contended that the matters alleged were not sufficient to plead an estoppel. In particular, the matters alleged in pars 8 to 15 occurred prior to the execution of the Charge and were not 'matters that go to the adoption by the parties as to the conventional basis of their relationship'. Further, the matters pleaded in pars 17 to 19 and 64 did not allege any conduct by the parties 'in respect of the assumption'. There was also a suggestion in the submissions that all that the parties intended was whatever was recorded in their various agreements, including the Charge.

(b) The estoppel plea had not been pleaded by reference to 'the analytical framework for estoppel to be found in some recent judgments in the High Court of which the reasons for judgment of Deane J in Commonwealth of Australia v Verwayen (1990) 170 CLR 394 is an exemplar' (par 27, plaintiffs' submissions dated 17 March 2011; the submission reproduced an observation by Jessup J in Ford Motor Company of Australia Ltd v Jefferson Ford Pty Ltd [2007] FCA 870 [12]).

(c) It was 'questionable whether an estoppel by convention in Australia has survived the High Court's decision in [Verwayen]', reference being made to Reseda v St Vincent's Hospital [1998] 2 VR 70 and Victoria University of Technology v Wilson [2004] VSC 33 (par 1, plaintiffs' supplementary submissions dated 21 March 2011).

(d) The reasoning in JJ Leonard Properties also applied to the estoppel plea.

63 The estoppel alleged by the defendants is an estoppel by convention. The elements of such an estoppel were considered by the Court of Appeal in Alpha Wealth Financial Services Pty ltd v Frankland River Olive Company Ltd [2008] WASCA 119; 66 ACSR 594. Pullin JA and Buss JA each cited with approval what was said by Finn J in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd [2003] FCA 50; (2003) 128 FCR 1 about the requirements for an estoppel by convention (Finn J substantially adopted what was said by the New Zealand Court of Appeal in National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548). And see also Ryledar at [200] (Tobias JA).

64 By reference to elements identified by Finn J, pars 8 to 19 contain allegations that are relevant to the formation, manifestation and adoption of the pleaded assumption; the knowledge of each party that the other had accepted the assumption as being true for the purpose of the financing and their acceptance of the assumption as affecting the legal relations between them. Allegations concerning what occurred prior to execution of the Charge are self-evidently relevant to each of those matters.

65 The allegations made in pars 8 to 19 are also relevant to reliance and detrimental departure from the assumption. Paragraph 64 of the defence and counterclaim then pleads the remaining elements of an estoppel by convention as identified by Finn J - that BOSI would suffer a detriment if Westgem was permitted to depart or resile from the pleaded assumption and that it would be unconscionable to allow such a departure (query whether an express plea that departure from the assumption would be unconscionable is strictly required).

66 As to the plaintiffs' submissions concerning the present state of the law on estoppel by convention:

(a) What was said by Mason CJ and Deane J in Verwayen about a 'single overarching doctrine' or a 'general doctrine of estoppel by conduct' was expressly left open in Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101. As Alpha Wealth Financial Services and numerous other Supreme Court authorities in this and other jurisdictions indicate, the distinction between an estoppel by convention and other forms of estoppel continues to be drawn. There was nothing expressed in the judgments in Alpha Wealth Financial Services to suggest that a judge at first instance should be encouraged to depart from the categorisation of different forms of estoppel at common law and in equity: and see the observations of Owen J in Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1 [3456]. I note that Reseda was decided before Giumelli. The observation of Nettle J in Victoria University of Technology v Wilson at [94] which was the source of the plaintiffs' submission is, with respect, curious as the decision was delivered after Giumelli. However, I also note that no reference was made to Giumelli in the decision. In any event, in my view the decision provides no basis for a judge at first instance in this jurisdiction to flirt with the concept that there is a single doctrine of estoppel and to explore the consequences of such a notion.

(b) Further, I do not take the comments of Mason CJ and Deane J in Verwayen to suggest that a single doctrine of estoppel would deprive a party of the right to assert an estoppel where the facts would have supported an estoppel by convention at common law according to a prior taxonomy of the doctrine: and see Bell [3457].

(c) The fact that the defendants' estoppel plea accords with the elements of an estoppel by convention identified by Finn J in GEC Marconi Systems and accepted by the Court of Appeal in Alpha Wealth Financial Services is sufficient to dispose of any argument that the plea does not conform to the present state of the law on estoppel (and the plea is also consistent with the analysis of Tobias JA in Ryledar). Moreover, the comments of Jessup J in Ford Motor Company v Jefferson Ford appear to reflect the particular pleading in that case which suffered from obvious defects.

67 Finally, for the reasons given earlier, I do not consider that the estoppel plea should be struck out on the reasoning in either of the decisions in JJ Leonard Properties.