The Gateway at Ryde Pty Ltd v Ryde Ex-Services Memorial & Community Club Ltd [2015] NSWCA 184 | Case summary

Judgment (6 paragraphs)

[1]

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[2]

Judgment

MEAGHER JA: The applicant (Gateway) seeks leave under s 444E(3) of the Corporations Act 2001 (Cth) to begin and proceed with an appeal from the decision of the primary judge (Lindsay J) in Re Ryde Ex-Services Memorial & Community Club Limited (Administrator appointed) [2015] NSWSC 226. That leave is required because on 16 March 2015, the day before that judgment was delivered, the respondent Club entered into a Deed of Company Arrangement (Deed). That Deed provides for the establishment and distribution of a Deed Fund amongst the Club's creditors in respect of debts or claims arising before 21 January 2015. It is accepted that Gateway was a creditor of the Club and as such was a "person bound by the deed" within s 444E(1). The basis on which this was accepted to be the position was not explored in argument. As will be seen, however, Gateway had by 5 May 2015 lodged three proofs of debt under the Deed in respect of claims of indebtedness said to arise before that date.

The application for leave to proceed

It is not contended by the Club that the grounds of appeal do not raise a serious question as to the correctness of the primary judge's decision. Nor is it, or could it be, contended that the claim propounded by the appeal was able to be pursued and resolved by the proof of debt procedure in Div 6 of Pt 5.6 of the Corporations Act which, by cl 8 of the Deed, applies to the proof and acceptance of claims made under it.
Gateway's asserted interest in the validity of the disputed resolution is described in par 26 of the affidavit of Douglas Raftesath of 21 May 2015 which was read in support of the application for leave: I am informed by [Danny] Au-Yeung and verily believe that [Gateway] considers that it has a binding agreement with [the Club] which arises out of the tender process and draft heads of agreement, and which is contingent only on there being a valid resolution in the terms of the disputed resolution passed on 23 November 2014. I am further informed by [Danny] Au-Yeung and verily believe that, subject to the determination of the validity of that disputed resolution, [Gateway] intends to take all necessary steps to enforce its binding agreement with [the Club].
In oral argument in response to a request from the Court that it do so, Gateway formulated its claim that there was such a "binding agreement" in two ways. First, it was said that there was an agreement made around 14 December 2014 between Gateway and the Club for the purchase by Gateway of the non-core property in accordance with the terms of the then current draft heads of agreement. Performance of that agreement was subject to a valid resolution identifying that property as provided by s 41J(1). Secondly, it was said that Gateway had the benefit of a conventional estoppel which, by late November 2014, prevented the Club from denying the existence of such an agreement. On about 26 November 2014 and in reliance upon that convention, Gateway paid $500,000 into a bank account of the Club. That payment was said to have been made "pursuant to the terms of the invitation to tender, given that [Gateway] had been informed that it was the preferred tenderer" (Affidavit Douglas Raftesath, 21 May 2015, par 9).
The Club opposes the grant of leave principally on the basis that Gateway's claim that there is a binding agreement, or that it has the benefit of a conventional estoppel, has not been established on a sufficiently arguable basis to justify a grant of leave.
Gateway's underlying claim as propounded in support of its application for leave has not been formulated in any draft pleading or in any more detail than is summarised above. If it was formulated and made the subject of a separate application for leave to proceed against the Club, the Court would have to be satisfied that it has some substance and gives rise to a sufficiently serious dispute to justify a grant of leave. For the Court to be so satisfied, it is not necessary that there be evidence establishing each of the elements of the cause of action, especially if there is not likely to be any real dispute as to a particular matter or it is likely that evidence might easily be led to address it. See Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556; Meehan v Stockmans Australian Café (Holdings) Pty Ltd (1996) 22 ACSR 123 at 125; Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd; Chief Commissioner of State Revenue v CCT Motorway Company Nominees Pty Ltd [2014] NSWCA 42 at [39]-[42].
The question for the Court is whether leave should be granted to enable Gateway to proceed with its appeal so that, if it is successful in the appeal and obtains a further grant of leave, it may then proceed to enforce its alleged agreement with the Club. There would be no utility in granting leave to prosecute the appeal unless the Court is satisfied that there is a sufficiently serious question to be tried in relation to the underlying claim which Gateway propounds.
It was made clear in argument that the agreement contended for by Gateway was not that there was a tender process contract which required that the Club follow a particular course of conduct when inviting, considering and responding to the tenders: cf Commissioner of Main Roads v Highway Construction Pty Ltd [2001] WASCA 158. Gateway contends for an agreement for the purchase by it of the "non-core property". That agreement was said to arise out of the tender process, draft heads of agreement and conversations in November and December 2014 between Danny Au-Yeung, a director of Meissen Properties, and Mr Browne, the chief executive of the Club.
In argument Gateway placed specific reliance on five documents. They were the invitation to tender; the joint venturers' tender dated 15 May 2014; the Club's letter dated 3 June 2014, advising that they were the preferred tenderer; a sales advice signed on behalf of the joint venturers and dated 5 June 2014; and an unsigned version of draft heads of agreement bearing the date 28 November 2014. As will become apparent, these documents do not purport to record any binding agreement or reveal any obvious basis on which it might be contended that Gateway has or arguably has a binding agreement or the benefit of a conventional estoppel.
The invitation to tender contemplates that there be no binding agreement between the successful tenderer and the Club until the signing of heads of agreement at which point "contracts will be immediately binding". It also contains a statement that no "legal or other obligations will arise between a [responding tenderer] and the Club unless and until formal documentation has been signed". The joint venturers' letter dated 15 May 2014 enclosed a "conforming tender". The Club's letter dated 3 June 2014 noted that the joint venturers had been sent a draft "Sales Advice" and a draft heads of agreement which the Club "proposes to enter into with the successful tenderer once the terms are agreed and finalised". The signed Sales Advice dated 5 June 2014 identifies the purchaser as Meissen Properties and Thakral Capital and is signed on behalf of those companies. It does not purport to record or evidence any agreement.
The unsigned heads of agreement referred to by Gateway is dated 28 November 2014, five days after the general meeting. It identifies the "non-core property" by reference to an attached plan and proposes a transaction involving the exchange by the parties of a "call and put option deed", presumably with a contract for sale attached. It further proposes that the terms of that option and contract "are to be agreed between the Vendor and the Purchaser so that the Call and Put Option can be signed and exchanged as soon as practicable after the EGM if the resolution is passed and the Land is declared 'non-core'". Some of the clauses in that draft are underlined and include what are described as "Vendor's comments". It provides for the signing of the heads of agreement by a director of the Club. Mr Browne was secretary of the Club, but was not a director.
On 26 November 2014 Gateway transferred $500,000 to a bank account nominated by the Club. As is noted above, that payment was made "pursuant to the terms of the invitation to tender". Those terms provided for the payment to be made "with the tender submission". They also provided that the "Winning tenderer's Deposit" was to be released to the Club.
The evidence does not address at all the substance or effect of any discussions between Gateway and the Club in the period after 28 November 2014 and before 14 December 2014, by which time it is said a binding but informal agreement had been made. Nor is reference made to those discussions or their effect in any subsequent correspondence between the parties or their solicitors. To the extent that an agreement is referred to, it is not in the terms of that propounded on this application.
The voluntary administrator was appointed to the Club on 21 January 2015. On 16 February 2015 he submitted a Report to Creditors under s 439A(4). That Report referred to the negotiations with Gateway for redevelopment of the Club's premises (at pp 8-9): The club house building is beyond its useful economic life and so was in the process of making plans to redevelop the site [sic]. The Club had been negotiating with Meissen Property IB Pty Ltd (as part of a joint-venture with Thakral Capital Australia Pty Ltd) and was in the process of preparing a draft heads of agreement with a joint-venture entity known as [Gateway]. During November 2014 the club received $500,000 from Gateway following a member meeting held on 23 November 2014. That payment was made pursuant to the draft terms of that agreement and was banked in the Club's general fund and not isolated as trust monies. This payment reduced the Commonwealth Bank of Australia … debt secured by its general security agreement. My understanding is that Gateway had expected the funds would be held in trust. As a consequence Gateway has currently lodged a claim against the club for a total of $724,734 which includes costs incurred to date and the cash payment of $500.000.
In that Report, when discussing the options available to the Club's creditors, the administrator proposed a deed of company arrangement involving the sale or development of the Club's land. In doing so, he noted (at p 21): The Club has substantial real estate holdings and has already explored in great detail the possibility of a development of the site. The Club may also consider the sale of its real estate in whole or in part and has been pursuing that objective. I have noted above that the Club received $500,000 from The Gateway at Ryde Pty Limited in respect of a proposed development with a draft heads of agreement prepared. The proposed DOCA terms will provide for that or any other development to be pursued as part of the process to restore the Club's viability and pay its creditors.
The deed of company arrangement which that Report proposed involved the creation of the Deed Fund through a "range of alternative strategies" expressed to include the sale of any Club assets to a third party or the entry into an agreement for the development of the Club's real estate.
At the meeting of creditors held on 26 February 2015 those present, including representatives of Gateway, voted unanimously for the Club to enter into the Deed. The Deed was executed on 16 March 2015. Subsequently, the administrator commenced negotiations with a third party to raise the Deed Fund.
On 17 April 2015 Gateway wrote to the administrator. After referring to "recent discussions concerning a meeting … to discuss the various matters relating to the Club" that letter outlined what Gateway asserted was its "contractual position with the Club": We have legal advice pending to support our view that the Club is contractually bound to hold a general meeting at which a resolution is put to members for a declaration that the Club land referred to in the aforementioned tender is "non-core" and at which the resolution is voted upon in accordance with the Club's constitution. We contend that if the general meeting on 23 November 2014 had been properly held, the Heads of Agreement and the formal contract of sale would have been executed and exchanged. It is our opinion that the Club has breached its contractual obligations to Gateway by failing to ensure that the meeting on 23 November 2014 was properly held. As a result of this breach, Gateway has suffered a significant loss and has incurred substantial legal fees as a defendant in the aforementioned Supreme Court action. Gateway reserves its rights in relation to this breach by the Club. We wish to advise you that if you, as administrator, decide to sell the land which is subject to the above mentioned tender or if you take any action that results in the loss of opportunity to Gateway then we reserve our rights to commence legal proceedings to seek damages for breach of contract by the Club. Furthermore, if you, as administrator, decide to sell the land to another party and that sale results in a sale price higher than that contained in our tender and accepted by the Club, we will claim the difference between the two sale prices, as a starting point when calculating the damages due to us for breach of contract.
This letter (which was signed by Mr Au-Yeung) alleges an agreement concerning the Club's obligations in relation to the conduct of the tender process. Significantly, it is said that had the general meeting "been properly held" the heads of agreement and contract of sale "would have been executed and exchanged". It is not suggested that there was any existing agreement for sale between the Club and Gateway or that, with the benefit of a valid resolution, the Club was bound to execute and exchange those formal documents. Nor is it suggested that any future sale of the Club's land by the administrator would involve a breach of any agreement between Gateway and the Club.
On 5 May 2015 Gateway lodged a proof of debt in support of a claim under the Deed to an amount of $30 million which was described as being for: Damages on account of the potential losses suffered by Gateway through the Club's failure to proceed with the sale of the relevant part of the Club land to Gateway due to the way the Club convened its extraordinary general meeting of 23 November 2014.
That claim to damages is consistent with the contractual position being as contended for by Gateway in its letter of 17 April 2015 and as described in [25]. It does not depend, for its success, on the decision of the primary judge being reversed. On the contrary, it is made on the basis that the general meeting held on 23 November 2014 did not proceed in accordance with the Club's constitution.
The claims of Gateway referred to in the Report to Creditors, as extracted at [20], were made by two proofs of debt, each lodged on 30 January 2015. The first was for $500,030 described as "monies held in trust by Ryde X, pending exchange of contract". The second was for $224,704 described as being expenses incurred by Gateway either on behalf of the Club, subsequent to Gateway being confirmed as the preferred tenderer, or for itself before and after its having been nominated as preferred tenderer. The claim for the repayment of the deposit was the subject of later correspondence between Gateway's solicitors, Meridian Lawyers, and solicitors acting for the administrator. By their letter dated 11 May 2015, Meridian Lawyers maintained that the $500,030 was "to be held on trust by the Club, pending completion of a purchase of land owned by the Club". That letter reserved Gateway's position in relation to the Club's "failure to re-pay to it the $500,000 in trust monies".
In these circumstances I am not satisfied that there is a serious question to be tried in relation to the underlying claim which Gateway currently propounds in support of its application for leave to proceed with its appeal.
First, there is no formulation or explanation, either in correspondence between the parties or in submissions made to this Court, of the basis on which there is an agreement or conventional estoppel as alleged, having regard to the terms of the invitation to tender and the fact that no heads of agreement was signed nor a Call and Put Option Deed exchanged. Although reference was made in argument to discussions between Mr Au-Yeung and Mr Browne, the substance and effect of those conversations has not been revealed. Nor was attention directed to whether Mr Browne could have had authority to bind the Club to any such agreement or arrangement.
Secondly, the fact that $500,000 was paid before any heads of agreement was executed or any option contract exchanged was consistent with the position continuing to be, as stated in the invitation to tender, that no legal or other obligations would arise before the signing of heads of agreement.
Thirdly, notwithstanding that the Report to Creditors and Deed proposed the creation of the Deed Fund by the sale of the Club's land to any third party or the entry into a development agreement with any third party, Gateway voted in favour of the Deed and has not thereafter asserted that the Club was not free to pursue any such sale or development with a party other than it. Furthermore, when it became apparent that the administrator was pursuing negotiations with other parties, Gateway alleged a different agreement which does not depend, for its performance, on the validity of the resolution which is the subject of the judgment below. Gateway has also lodged a proof of debt claiming damages for breach of that different agreement.
Finally, Gateway's claim, made in January 2015, to be entitled to repayment of the deposit of $500,000 is not consistent with there being a binding and continuing agreement for the purchase by it of the "non-core property", as is now asserted.
That being the position with reference to the underlying claim propounded in this application, I am not persuaded that there is any utility in granting leave to Gateway to proceed with its appeal.
The order of the Court is that Gateway's notice of motion filed on 21 May 2015 for leave to proceed is dismissed with costs.

The Gateway at Ryde Pty Ltd v Ryde Ex-Services Memorial & Community Club Ltd

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Judgment (6 paragraphs)

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