New South Wales Supreme Court CITATION : John Lawrence Meyers v John Frederick Lord & Anor [2006] NSWSC 1451 HEARING DATE(S) : 07/12/06 JUDGMENT DATE : 7 December 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 12/07/2006 DECISION : See paras 27-31 of judgment. CATCHWORDS : MORTGAGES – Mortgages and charges generally – Remedies of chargee – Power of sale – Mode of exercise of power – Injunctions to restrain sale – Application by plaintiff to restrain first defendant from exercising power of sale pursuant to charge – First defendant was deed administrator under deed of company arrangement – Deed of company arrangement provided for sale of a company's business and for the purchaser to grant a charge over its assets to secure payment of creditors under deed – First defendant took possession of charged assets – Whether charge secured any moneys – Challenge to mode of sale – No payment into Court – Whether damages an adequate remedy – Balance of convenience – Application for injunction refused. LEGISLATION CITED : Corporations Act 2001 (Cth) Industrial Relations Act 1996 (NSW) Harvey v McWatters (1948) 49 NSWSC 173 CASES CITED : Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161 Parist Holdings v Perpetual Nominees Limited [2006] NSWSC 599 John Lawrence Meyers PARTIES : v John Frederick Lord & Anor FILE NUMBER(S) : SC 6188/06 Plaintiff: L Tyndall COUNSEL : Defendants: E Muston Liquidator: R Khoury SOLICITORS : Plaintiff: Gibson Howlin Lawyers Defendants: Turks Legal IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Thursday, 7 December 2006 6188/06 John Lawrence Meyers v John Frederick Lord & Anor JUDGMENT 1 HIS HONOUR: This is an application to restrain the first defendant, Mr Lord, from taking any further step to exercise a power of sale over the business and assets of the second defendant, SEPA Waste Water Treatment Pty Ltd (In Liquidation) (ACN 106 788 380) ("new SEPA"). Mr Lord claims to be entitled to sell the assets of new SEPA pursuant to a charge dated 26 March 2004 given by that company to him. 2 On 2 October 2003, Mr Lord was appointed administrator of a company called SEPA Waste Water Treatment Pty Ltd (ACN 502 096 529) ("old SEPA"). On 13 November 2003, Mr John Meyers, Mrs Margaret Meyers and Mrs Mary Minshull executed a Deed of Company Arrangement. The effect of the Deed was that new SEPA agreed to purchase the business of old SEPA. New SEPA agreed to make payment in full to the unsecured creditors of old SEPA in the amount of $440,243. The Deed of Company Arrangement records that the payment of unsecured creditors was to be guaranteed by a fixed and floating charge over the assets of new SEPA. Mr Lord was appointed as deed administrator. 3 The Deed of Charge provided that the secured moneys included all moneys, whether owing pursuant to the Deed of Company Arrangement or the agreement for the sale and purchase of the business of old SEPA, which might at any time be owing after payment by new SEPA to Mr Lord. It also provided "without limiting the generality of the foregoing, such monies shall include the administrator's costs and expenses as provided for in clause 12.2 of DOCA ... capped at $80,000 plus GST plus out of pocket expenses and the debts due to the unsecured creditors of [(old SEPA)]." 4 Mr Roger Minshull lodged a proof of debt with Mr Lord. Initially his proof was substantially rejected. 5 On 21 September 2004, Mr Lord certified that the Deed of Company Arrangement had been wholly effectuated. In October 2004, he deposed that the only task remaining for him on the Deed of Company Arrangement was to execute a discharge of the charge. However, various proceedings were instituted by Mr Minshull. 6 On 1 February 2005, Barrett J held, in substance, that the claims of participating creditors had not been determined and that the events which, under the Deed, would lead to its being terminated, had not occurred (ACN 002 596 509 Pty Ltd v Minshull (2005) 53 ACSR 598). Consequently, on 21 March 2005, a declaration was made under s 447A of the Corporations Act 2001 (Cth) that the Deed of Company Arrangement be deemed to include additional provisions. One such provision required the administrator to invite proofs of debt and required him to deal with such proofs as if the company had gone into liquidation and he was the liquidator. Another provision was in the following terms: " The purchaser agrees to make payment to Mr Roger Minshull under the terms of the Deed. The agreed debt to him as an unsecured creditor plus any unpaid termination leave entitled to him but excluded any liability for fraud, redundancy or any claim under s 106 the Industrial Relations Act. " 7 Mr Lord was joined as a party to proceedings started by Mr Minshull. In those proceedings he has also been sued by Mr Meyers, who has brought a cross-claim against him. 8 After the orders of 21 March 2005, Mr Minshull lodged further proofs on 10 January 2006. Mr Lord adjudicated on the proofs of debt. He allowed a claim for annual and long service leave including loading in the amount of $4,710.05. He also dealt with a claim made by Mr Minshull for payment in lieu of notice for the termination of Mr Minshull's employment with new SEPA in relation to this claim. Mr Lord said: " You have claimed an amount of $166,553.71 for Payment in Lieu of Notice representing 18 months salary less an amount of $11,407.79 for payments made by the Company and New Sepa under the Deed of Company Arrangement. The amount actually paid by the Company and New Sepa was $14,295.11. Accordingly, an amount of $2,887.32 is rejected for this part of your claim. " 9 Mr Meyers objects to the acceptance of Mr Minshull's claim for payment in lieu of notice representing eighteen months' salary, less amounts paid. He also says that such a claim is excluded as being a claim arising from claims made by Mr Minshull for redundancy, or a claim under s 106 of the Industrial Relations Act 1996 (NSW). Hence, he contends that the charge given by new SEPA to Mr Lord does not extend to the claimed liability to Mr Minshull which Mr Lord has admitted. In proceedings no. 3962 of 2004, Mr Meyers challenges the admission of that proof. 10 On 3 November 2006, an administrator was appointed to new SEPA. On 30 November 2006, the administrator was appointed as liquidator. These were events of default under the charge. 11 On 16 November 2006, Mr Lord took possession of the assets of new SEPA pursuant to his charge. On 30 November 2006, Mr Meyers' solicitors were advised that Mr Lord intended to sell the assets of new SEPA. Arrangements have been made for at least certain of the assets of new SEPA to be sold through Grays Online. The web site of that company records that that auction will start at 11am tomorrow, 8 December 2006, and end at 2pm on 12 December 2006. It advises that the equipment being sold can be inspected at the company's premises in Caringbah, New South Wales. The equipment advertised for sale consists of metalworking and general engineering equipment as well as some office furniture. 12 Mr Meyers claimed to be a secured creditor of new SEPA. He accepts that the charge in favour of Mr Lord has priority. No issue was raised by Mr Lord as to Mr Meyers' standing to bring the present application. Mr Meyers contends that Mr Lord's power of sale has not become exercisable and he contends that Mr Lord is purporting to exercise any power of sale improperly and in breach of his duty under s 420A of the Corporations Act. 13 Part of Mr Minshull's claim is for unpaid annual or long service leave of $4,710.50, or a higher amount indicated in Barrett J's judgment of $6,009.80. Mr Meyers has proffered security for that sum. As I understand it, he is prepared to pay that sum into Court as a condition of the injunctive relief sought. 14 Mr Lord says that the charge secures two categories of debt. One is for the amount of $169,726.44, being the amount of Mr Minshull's proof which Mr Lord has accepted. The other is a sum of $62,379.24. This represents legal fees incurred by Mr Lord in defending the proceedings brought against him by Mr Minshull and by Mr Meyers. Counsel for Mr Lord submits that even if there is a dispute that those sums are due and secured by the charge, nonetheless, before Mr Meyers is entitled to an injunction to restrain the exercise of the chargee's power of sale, Mr Meyers is required to pay into Court the amount claimed to be due. He also submits that payment into Court is a precondition to obtaining injunctive relief on the ground that the chargee is not exercising his power of sale properly (Harvey v McWatters (1948) 49 SR (NSW) 173; Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161; Parist Holdings v Perpetual Nominees Limited [2006] NSWSC 599). 15 If it can be seen from the mortgage instrument that a lesser amount is due than that claimed by the mortgagee, then it is not a precondition to the making of an injunction to restrain the mortgagee's exercise of its power of sale that the amount claimed by the mortgagee be paid into Court. Counsel for Mr Meyers submits that it can be seen from the terms of the Deed of Company Arrangement, the Deed of Charge, the modification of the Deed of Company Arrangement by the orders of 21 March 2005, the application to the New South Wales Industrial Relations Commission by Mr Minshull, the proof of debt of Mr Minshull, and Mr Lord's decision on that proof that no more than $4,710.05 is owing. 16 However, I accept that there is a dispute at least in relation to one of the categories of debt or claim advanced by Mr Lord, namely, the claim for legal fees. There is certainly evidence that legal fees have been incurred by him in defending his action as deed administrator. The contrary was not suggested. 17 Counsel for Mr Meyers referred to clause 4 of the Deed of Charge, which I have quoted earlier in these reasons. He submitted that either the legal costs incurred by Mr Lord were subject to the cap of $80,000 plus GST referred to in that clause, or that Mr Lord's liability for such legal costs was not a liability secured by the charge at all. However, it seems to me that the legal expenses incurred by Mr Lord represent expenses incurred by him as administrator of the Deed, as modified by the orders of 21 March 2005. At least prima facie, those expenses fall within the terms of clause 12.2 of the Deed of Company Arrangement. I also accept that the better construction of the relevant part of clause 4 of the Deed is that the cap on the administrator's costs and expenses is an amount of $80,000 plus GST, plus out of pocket expenses. 18 Both parties referred to the transcript of the meeting of creditors of 29 October 2003, in which the majority of creditors voted in favour of the proposed Deed of Company Arrangement. I shall assume, without deciding, that the evidence of what was said at that meeting is admissible for the purpose of construing the Deed. If that evidence is admissible for that purpose, it confirms that the cap of $80,000 applied only to Mr Lord's remuneration, and not to his out of pocket expenses. 19 It was also submitted that Mr Lord was not entitled to treat his legal expenses as being secured by the charge because it was said those expenses were brought about as a direct result of his failure to administer the Deed properly, particularly in relation to his revision of his adjudication of Mr Minshull's claim. 20 However, whatever may be the merits of that claim, they cannot be resolved on the present application. It may also be observed that the legal expenses which Mr Lord has incurred would not only be the expenses incurred in defending the claims now made by Mr Meyers, but also the expense of defending the claim to the opposite effect made upon him by Mr Minshull. 21 In my view, the principle in Harvey v McWatters does apply, at least in relation to this part of Mr Lord's claim. 22 It follows that it is not necessary to determine whether it is arguable that the charge secures the liability of new SEPA to Mr Minshull in the amount for which Mr Minshull's claim has been admitted by Mr Lord. 23 I also consider that the balance of convenience does not favour the grant of the injunction sought. If Mr Lord is not entitled to exercise his power of sale, then there is no reason to think that he will not be liable for any damages suffered by new SEPA as a consequence of his purporting to do so. Likewise, if he breaches his duty as chargee in the exercise of his power of sale, there is no reason to doubt that he will be personally liable for damages suffered as a result. There is no evidence that Mr Lord would not be able to pay any damages for which he might be found to be liable. 24 There is also the consideration that new SEPA is now in liquidation. Its assets will have to be realised either by the liquidator or by Mr Lord. Both are insolvency practitioners. I would not assume that the process of realising the company's assets would be significantly different if the liquidator were in charge of that task. 25 There is evidence that additional costs will be incurred if the auction is delayed. There is also some evidence that the company may incur an additional liability for rent if the auction is delayed. 26 Finally, although I do not put this as a matter that weighs significantly in the scales, although Mr Meyer has proffered the usual undertaking as to damages, there is no evidence as to his financial position and ability to satisfy that undertaking if it were called on. 27 For these reasons, I refuse the interlocutory orders claimed in the originating process. 28 I order that the costs of the interlocutory process be the defendants' costs in the proceedings. 29 I direct that in proceedings no. 6188 of 2006 the plaintiff file and serve a statement of claim by 12 January 2007. 30 I direct that the first defendant, and if the second defendant proposes to defend the claim, the second defendant, file and serve a defence by 25 January 2007. 31 I stand over the originating process to 29 January 2007 before the Corporations Judge. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.