Waco Kwikform Limited v Jabbour [2010] NSWSC 1379 (15 November 2010)

Last Updated: 30 November 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Waco Kwikform Limited v Jabbour [2010] NSWSC 1379


JURISDICTION:
Equity

FILE NUMBER(S):
2010/366384

HEARING DATE(S):
15 November 2010

JUDGMENT DATE:
15 November 2010

EX TEMPORE DATE:
15 November 2010

PARTIES:
Plaintiff: Waco Kwikform Limited
Defendant: Simon Jabbour

JUDGMENT OF:
White J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff: L Young
Defendant: T Bland

SOLICITORS:
Plaintiff: HWL Ebsworth Lawyers
Defendant: Betty Naim Emprise Legal & Corporate Advisory


CATCHWORDS:
REAL PROPERTY – application to extend caveat under Real Property Act 1900, s 74K – where caveat claimed equitable interest pursuant to charge securing obligations under guarantee and indemnity – whether caveatable interest exists –balance of convenience – where summons does not include claim for final relief – whether bar to extension of caveat
CORPORATIONS – where debtor company in voluntary administration – whether leave required under Corporations Act 2001 (Cth), s 440J to bring caveat extension proceedings – whether proceedings step in enforcement of guarantee of liability of debtor company – whether application to extend caveat “in relation to” guarantee – whether leave to be granted retrospectively – relevant considerations – whether any debt secured by the charge – serious question to be tried that debtor company owes debt to plaintiff subject to guarantee and secured by charge

LEGISLATION CITED:
Real Property Act 1900 (NSW)
Corporations Act 2001 (Cth)


CASES CITED:
Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114
Coates Hire Operations Pty Ltd v McNaughton [2006] NSWSC 841
National Australia Bank v King [2003] NSWSC 525
Wallabah Pty Ltd v Navillo Pty Ltd (1997) 23 ACSR 444
Epple v Wilson [1972] VicRp 50; [1972] VR 440
Davies v Uratoriu (1995) 6 BPR 13,917
Terry v O'Connell [2010] NSWSC 255
Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937
Wu v Dardaneliotou [2008] NSWSC 1319

TEXTS CITED:


DECISION:
1. Upon the plaintiff by its counsel giving the usual undertaking as to damages and also undertaking that within 21 days it will file a further amended summons claiming final relief, order that the operation of caveat AF660156F, lodged over the properties described in folio identifiers 60/35982 and 81/6/5701 and known as 33 Cullens Road, Punchbowl and 60 Rossmore Avenue, Punchbowl respectively, be extended until further order.
2. This order may be entered forthwith.
3. Make no order as to the costs of the parties attending on 10 November 2010 and subject to that order, order that the costs of the application to extend the caveat be the plaintiff’s costs in the proceedings.
4.Exhibits may be returned after 28 days.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE’S LIST


WHITE J

Monday, 15 November 2010


2010/366384 Waco Kwikform Limited v Simon Jabbour

JUDGMENT

1 HIS HONOUR: This is an application under s 74K of the Real Property Act 1900 (NSW) for an order to extend the operation of a caveat.

2 The caveat was lodged by the plaintiff on or about 26 July 2010 on two parcels of land of which the defendant is the registered proprietor, or is the registered proprietor in common with others.

3 The interest claimed by the plaintiff in the caveat is described as:

“An equitable interest as Chargee to the extent of the interest held by [the defendant], pursuant to the Instrument and Facts set out below".

4 The instrument and facts referred to in the caveat by which the interest as chargee is said to arise is that on 14 October 2008 the defendant entered into a guarantee and indemnity with the plaintiff, and that in reliance upon the guarantee and indemnity the plaintiff supplied goods and services to or for a business conducted by Jabbcorp Pty Ltd (formally Jabbour Construction Management Pty Ltd) to a value as at 20 July 2010 of $28,714.90.

5 The instrument of guarantee and indemnity signed by the defendant on 14 October 2008 provided:

“I/We unconditionally and irrevocably guarantee payment to WACO KWIKFORM LTD (‘WACO KWIKFORM’) of all moneys now or at any time hereinafter due, owing or incurred by the DEBTOR to Waco Kwikform. I/We shall pay to Waco Kwikform any moneys due under this guarantee on demand.

I/We unconditionally and irrevocably indemnify Waco Kwikform against any loss Waco Kwikform may suffer as a result of the failure of the DEBTOR, for any reason whatever, to pay Waco Kwikform any moneys due to it. I/We as principal debtor/s shall pay to Waco Kwikform on demand a sum equal to the amount of any such loss.

This Guarantee and indemnity is a continuing security and will not be affected in the event of death, incapacity, administration, bankruptcy or insolvency of the Debtor. I/We waive any right I/We may have of first requiring Waco Kwikform to proceed against or claim payment from the DEBTOR.

I/We hereby charge with payment of the moneys and the compliance with all obligations secured by this Guarantee and Indemnity all beneficial interests (freehold or leasehold) in land and personal property held now or in the future by me/us. I/we agree that if demand is made upon me/us by Waco Kwikform, I/we will immediately execute a mortgage or other instruments of security, or consent to a caveat, as required by Waco Kwikform and in the event that I/we fail to do so within a reasonable time of being so requested, then I/we hereby irrevocably and by way of security appoint any director or officer of Waco Kwikform to be my/our true and lawful attorney to execute and register such instruments.

This Guarantee and indemnity is given by me/us in consideration for Waco Kwikform having agreed to supply (or as the case may be having agreed to continue to supply) certain goods to the DEBTOR and to grant (or as the case may be having agreed to continue to grant) credit facilities to the DEBTOR.

For the purposes of this Guarantee and Indemnity, ‘the DEBTOR’ means the company or business whose name and details appear at the top of this form.”

6 The reference to the "Debtor" was to the company then called Jabbour Construction Management Pty Ltd and now called Jabbcorp Pty Ltd.

7 Voluntary administrators were appointed to that company on 5 October 2010.

8 On 26 October 2010 the plaintiff received a lapsing notice in respect of a caveat.

9 The questions on the present application are:

1. Did the plaintiff require leave under s 440J of the Corporations Act 2001 (Cth) to bring this proceeding?

2. If so, can leave be given retrospectively?

3. If so, should retrospective leave be given to the plaintiff to bring the proceeding?

4. Is any debt secured by the guarantee and indemnity?

5. Does the charge in the guarantee and indemnity create an interest in the land or only in the proceeds of sale of land?

6. Is it a reason not to extend the caveat that the plaintiff has not requested the defendant to execute a mortgage or other instrument of charge and has not sought the defendant's permission to lodge a caveat?

7. Does the balance of convenience favour extending the caveat?

10 Dealing with the first issue, s 440J provides:

“440J Administration not to trigger liability of director or relative under guarantee of company’s liability

(1) During the administration of a company:

(a) a guarantee of a liability of the company cannot be enforced, as against:

(i) a director of the company who is a natural person; or

(ii) a spouse or relative of such a director; and

(b) without limiting paragraph (a), a proceeding in relation to such a guarantee cannot be begun against such a director, spouse or relative;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.

(2) While subsection (1) prevents a person (the creditor) from:

(a) enforcing as against another person (the guarantor) a guarantee of a liability of a company; or

(b) beginning a proceeding against another person (the guarantor) in relation to such a guarantee;

section 1323 applies in relation to the creditor and the guarantor as if:

(c) a civil proceeding against the guarantor had begun under this Act; and

(d) the creditor were the only person of a kind referred to in that section as an aggrieved person.

Note: Under section 1323 the Court can make a range of orders to ensure that a person can meet the person’s liabilities.

(3) The effect that section 1323 has because of a particular application of subsection (2) is additional to, and does not prejudice, the effect the section otherwise has.

(4) In this section:

guarantee, in relation to a liability of a company, includes a relevant agreement (as defined in section 9) because of which a person other than the company has incurred, or may incur, whether jointly with the company or otherwise, a liability in respect of the liability of the company.

liability means a debt, liability or other obligation.”

11 In my view, the application for an order to extend the operation of the caveat is not a step by way of enforcement of the defendant's guarantee of the liability of the company in administration. If the order is made it will preserve the status quo but will not, by itself, result in enforcement of the charge. Nor is it a step to enforce the guarantee such as would be taken if proceedings were brought to sue the defendant for a debt on the guarantee, or if a demand were made for payment of the debt.

12 Nonetheless, leave to bring the proceeding was required pursuant to s 440J(1)(b). The present is a proceeding "in relation to" a guarantee of a liability of the company in administration given by its director. The words "in relation to" are wide. They are satisfied by the existence of a relationship or connection between the guarantee and the proceeding. As the charge secures the liability of the defendant under the guarantee, and as the proceeding is brought to seek to preserve the charge against possible loss of priority, the proceeding has a relationship to the guarantee such as to attract paragraph 440J(1)(b).

13 There is no requirement in that paragraph that the proceeding be a proceeding in relation to the enforcement of the guarantee.

14 The second question is whether leave may be granted retrospectively. It is clear that retrospective leave (or leave granted nunc pro tunc) can be given (Emanuele v Australian Securities Commission [1997] HCA 20; (1997) 188 CLR 114; Coates Hire Operations Pty Ltd v McNaughton [2006] NSWSC 841 at [14]).

15 The third issue is whether leave should be given. In National Australia Bank v King [2003] NSWSC 525, Barrett J held (at [17]) that the administrators are entitled to be heard on a question as to whether leave should be given pursuant to s 440J to a plaintiff seeking to proceed to enforce a guarantee lest the grant of such leave have an adverse impact on the due and ordinary conduct of the administration, or on the furthering of the purpose of a voluntary administration of enabling the company to be administered in a way that maximises the chance that the company or as much of its business as possible will continue in existence, or, if that is not possible, to obtain a better return for creditors than would result from an immediate winding-up.

16 The administrators have been advised of these proceedings and have had the opportunity to be heard. They do not wish to be heard.

17 In an email sent by from the administrators this morning they advise that the court documents sent to them by facsimile by the solicitors for the plaintiff on Friday do not concern them, as the company was not listed as a defendant and the plaintiff has not lodged a claim in the administration.

18 I was referred to the list of considerations itemised by Olney J in Wallabah Pty Ltd v Navillo Pty Ltd (1997) 23 ACSR 444 at 446-447 as relevant to the exercise of the court's discretion whether to give leave. As his Honour expressly recognised, the list was relevant only to the case before his Honour. There the applicant had been given a charge by the company and a guarantee by its directors. It sought leave to obtain judgment against the company and the director, for which leave was required by both s 440D and s 440J.

19 The circumstances in the present case are very different and nothing is to be gained by identifying the points of similarity and difference in the seven items listed by his Honour relevant to the exercise of the court's discretion in that case.

20 The critical matters in the present case are as follows:

21 First, the plaintiff may be materially damaged if leave is refused. If leave is refused the caveat will lapse. The plaintiff would be at risk of losing priority to a third party who might acquire a registered interest in the land of the defendant which is subject to the charge.

22 Secondly, the grant of retrospective leave to bring the proceeding for extension of the caveat would not be counter to the principal legislative policy underlying s 440J as succinctly described by Barrett J in Coates Hire Operations Pty Ltd v McNaughton (at [8]) as follows:

“[8] The legislative intention, clearly enough, was to remove any inhibition that directors might be thought to face in considering dispassionately the question whether voluntary administration should be imposed, being an inhibition arising from an apprehension that, if they appointed an administrator, they might be subjected to attempts to enforce personal guarantees given by them in respect of the company’s obligations.”

23 Thirdly, the extension of the caveat is not a step of enforcement of the charge or the guarantee. It is no more than the preservation of the status quo which existed before commencement of the administration.

24 It is also a step which is within the policy evidenced by s 440J(2).

25 Fourthly, as noted above, the administrators do not suggest that the grant of retrospective leave would interfere with the due and orderly progress of the administration.

26 It appears from the administrator's report to creditors of 1 November 2010 that a deed of company arrangement has been proposed, a term of which is that the defendant, who is the sole director of the company, is to contribute up to $150,000 for the benefit of the creditors.

27 The defendant has filed an affidavit in these proceedings of 9 November 2010. He does not say in that affidavit that the continued existence of the caveat would prevent his raising the funds that he would need to contribute if the proposal for the deed of company arrangement is accepted at the second meeting of creditors.

28 In any event, even if the caveat did have that effect, it does not seem to me that it is part of the policy underlying s 440J that a creditor entitled to the benefit of a guarantee secured by a charge should be forced to lose such priority as the charge might have by being displaced in favour of a later registered mortgage if that were something necessary to be done to implement a proposal for a deed of company arrangement.

29 In my view leave should be given under s 440J(1) retrospectively to the plaintiff for its bringing of the proceeding.

30 The next issue is whether or not any debt is secured by the charge.

31 Three separate questions have arisen in this respect.

32 The guarantee and indemnity is contained on the second half of a page on the first half of which is an application by the company to open an account with the plaintiff. The first half of the page contains a statement to be made by the authorised officer of the company that opens the account that he or she acknowledges having read and understood documents called “the Terms and Conditions of Hire and Sale and the Terms and Conditions of supplying labour attached hereto". The Terms and Conditions of supplying labour include a term that the agreement it embodies comprises the entire agreement between the parties.

33 The debt claimed by the plaintiff to be the subject of its guarantee is a debt arising under a subcontract made on 2 February 2010 between the company and the plaintiff. In it the plaintiff is called the subcontractor. It agreed to supply various goods and services.

34 The defendant submits that any debt payable under that subcontract is not covered by his guarantee and indemnity of 14 October 2008.

35 As I understand the submission, it is that the guarantee and indemnity would apply only in respect of goods or labour supplied pursuant to the plaintiff's Terms and Conditions of Hire and Sale and Terms and Conditions of supplying labour.

36 I think the contrary is at least seriously arguable. The guarantee is said to be a guarantee of "all" moneys then or at any time thereafter due, owing or incurred by the company to the plaintiff. The reference to "all" moneys indicates that the debts the subject of the guarantee are not confined to debts arising under a particular contract or contracts that may have been entered into by the company with the plaintiff on 14 October 2008.

37 It is not necessary to make a final decision on this question, but it is at least seriously arguable that a debt owing by the company under the subcontract of 2 February 2010 is the subject of the guarantee and indemnity.

38 Secondly, it was also submitted for the defendant that:

“The caveat is further flawed in that it was lodged without the legal or equitable interest having arisen there being no judgment on part or all of the alleged claimed amount against Jabbcorp as at 15 July 2010. Therefore there was no activation of any part of the guarantee".

39 I do not accept that submission. The guarantee was not a guarantee only of a debt for which judgment was obtained against the company. Moreover, the guarantee contains a term whereby the defendant waived any right he might otherwise have of first requiring the plaintiff to proceed against or claim payments from the company.

40 Thirdly, it was said that the invoices rendered by the plaintiff claimed to give rise to the debt do not comply with clause 22.3 of the subcontract, in that they did not include signed statutory declarations and other documents required by that clause.

41 It does not appear that any objection was taken by the company to the form of invoices rendered. At least one such invoice was paid. In any event, it would not follow that because an invoice was deficient such that the company might be entitled to insist on further information before being required to pay the debt, no debt would have become owing if the work in question had been done.

42 Moreover, as counsel for the plaintiff submits, the subcontract has been terminated. The plaintiff has a right to payment under the subcontract pursuant to clause 27 of the subcontract, which does not appear to be dependent upon the defendant’s having rendered invoices which comply with clause 22.3.

43 I therefore conclude that there is at least a serious question to be tried that the company owes a debt to the plaintiff which is subject to the guarantee and indemnity and secured by the charge.

44 The next question is whether the charge created an interest in the land, or only in the proceeds of sale of the land.

45 There is no doubt that if a charge applies only to the proceeds of sale it will not confer a caveatable interest. (See for example Epple v Wilson [1972] VicRp 50; [1972] VR 440; Davies v Uratoriu (1995) 6 BPR 13,917; and Terry v O'Connell [2010] NSWSC 255.) However, the charge in this case is a charge of the defendant's beneficial interest in land, as well as his beneficial interest in personal property. It is not only a charge over proceeds of sale.

46 I do not accept the plaintiff's submission that no caveatable interest is created unless and until the plaintiff has requested the defendant to execute a mortgage or a further instrument of charge. The guarantee and indemnity included a promise by the defendant that if demand is made upon him to do so by the plaintiff he will immediately execute a mortgage or other instrument of security or give consent to a caveat as required by the plaintiff. The clause provided for the defendant to appoint the plaintiff as his attorney to execute and register such instruments.

47 However, the clause also stipulated that the defendant charged his land with payment of the moneys the subject of the guarantee. That was an immediate charge, albeit one that might crystallise only in the future upon a debt becoming due. Whenever the charge might be said first to arise, it arises prior to any requirement being made on the defendant to execute the further security.

48 Nor is it an answer to the enforceability of the charge that the plaintiff has not lodged a proof of debt with the administrators of the company. As I have said earlier, the instrument expressly waives any right the defendant might otherwise have had to require the plaintiff first to proceed against or claim payment from the company.

49 I therefore conclude that the plaintiff's claim in its caveat has or may have substance.

50 The question is whether in the exercise of the discretion under s 74K(2) I should make the order extending the caveat.

51 The plaintiff offers the usual undertaking as to damages.

52 The title searches for the defendant's land show a second caveat having been lodged by Reece Pty Ltd.

53 The defendant through his counsel offers an undertaking to the court not to lodge any instrument for registration without first having given the plaintiff seven clear days’ notice of his intention to do so.

54 I do not consider that such an undertaking would provide similar protection of the plaintiff's position as does the charge.

55 It may be the case that a third party would be entitled to lodge an instrument which, if registered, would confer priority on that person over the plaintiff. For example, if another person had taken a charge in similar form to that given by the defendant to the plaintiff, it may at least be arguable that such a chargee, perhaps acting as attorney of the defendant, would be entitled to execute and lodge for registration a mortgage in registrable form to secure any debt that might be the subject of any such instrument.

56 It is simply not possible to say on the evidence what the possibilities might be.

57 It was submitted for the defendant that he is likely to need to subdivide some of the land and I understood counsel to submit that that may be a necessary course to pursue the deed of company arrangement.

58 A proposal of such a kind, which would not materially reduce the plaintiff’s security, should be capable of being implemented, whether or not the caveat is extended. If the plaintiff did not consent to the registration of a plan of subdivision, then, provided its position was protected, it is probable that an order would be made under s 74MA requiring withdrawal of the caveat on terms.

59 In my view, having regard to the undertaking as to damages which is proffered, the balance of convenience favours extension of the caveat.

60 Finally, the only substantial relief sought in the summons is for relief under s 440J of the Corporations Act and an order for the extension of the operation of a caveat. In Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937, Young CJ in Eq (as his Honour then was) said (at [22]):

“A caveat should only remain on the title pending the application by the person claiming the equitable or other interest to commence a suit for specific performance or otherwise to vindicate that equitable interest.”

61 In similar vein, in Wu v Dardaneliotou [2008] NSWSC 1319, Brereton J said (at [2]):

“... as I have said many times in the past, a Summons claiming an order extending operation of a caveat must include a claim for final relief.”

62 One can envisage cases where there may be no dispute about the interest claimed by the caveator and the caveator might have no need to seek any relief other than an order for extension of the caveat. In such case, I respectfully doubt whether it would be necessary for the summons to include a claim for final relief. But, in the present case, the defendant has made it clear that he contests the enforceability of the charge. The observations of Young CJ in Eq and Brereton J referred to above apply.

63 However, I accept the submission of counsel for the plaintiff that the failure to claim such final relief should not be a bar to the making of the order for extension of the caveat provided that the plaintiff undertakes to file a further amended summons seeking to “vindicate” the interest claimed in the caveat.

64 I understand that the plaintiff does proffer such an undertaking.

65 For these reasons, upon the plaintiff by its counsel giving the usual undertaking as to damages and also undertaking that within 21 days it will file a further amended summons claiming final relief, I order that the operation of caveat AF660156F, lodged over the properties described in folio identifiers 60/35982 and 81/6/5701 and known as 33 Cullens Road, Punchbowl and 60 Rossmore Avenue, Punchbowl respectively, be extended until further order.

66 This order may be entered forthwith.

[Counsel addressed on costs.]

67 In my view, the plaintiff has been substantially successful on the interlocutory application and, subject to one qualification, the appropriate order is that the costs of the application to extend the caveat be the plaintiff’s costs in the proceedings.

68 The qualification is that the plaintiff has succeeded on the amended summons filed today. Whilst it may well be that had the matter proceeded last Wednesday, 10 November 2010, the matter would have proceeded in the same way as it has done today, except by the plaintiff’s making an oral application for leave to amend and, whilst accepting that the occasion for the adjournment was, at least, principally so that the parties could pursue settlement negotiations, nonetheless, I think the fact that the amendment was needed, and the matter was adjourned, is sufficient reason to exclude from the costs order the costs of the attendance on 10 November 2010.

69 Accordingly, I make no order as to costs as to the parties’ attendance on 10 November 2010. But subject to that order, I order that the costs of the application for extension of the caveat be the plaintiff’s costs in the proceedings.

70 The exhibits may be returned after 28 days.

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LAST UPDATED:
29 November 2010