New South Wales Supreme Court CITATION : Proactive Managment & Ors v Over Fifty Funds & Ors [2007] NSWSC 802 HEARING DATE(S) : 19/07/07, 20/07/07 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 19 July 2007 DECISION : Leave to proceed granted. CATCHWORDS : CORPORATIONS - Winding up - Leave to proceed - Specific performance of contracts for sale of land sought against company in liquidation as vendor - Whether equitable interests created that bind the liquidator - Applicable principles LEGISLATION CITED : Corporations Act 2001 (Cth) Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254 Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373 Hewlett Packard Australia Pty Ltd v Siltek Holdings Pty Ltd [2005] NSWSC 672 Ogilvie Grant v East (1983) 7 ACLR 669 Hewett v Court (1982 1983) 149 CLR 639 Armidale Dumaresq Council v M & P (North Coast) Pty Ltd & Anor [2005] 64 NSWLR 1 Affinity Health Ltd v Chief Commissioner of State Revenue 2005 ATC 4637 Brown v Heffer (1967) 116 CLR 344 Legione v Hateley (1982-1983) 152 CLR 406 CASES CITED : Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 Stern v McArthur (1988) 165 CLR 489 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 Re Henderson's Caveat [1998] 1 Qd R 632 Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486 Buildev Developments Pty Ltd v PicSales Pty Ltd [2003] 11 BPR 21,445 Baden Pacific Ltd v Portreeve Pty Ltd (1988) 14 ACLR 677 Proactive Management Specialists Pty Ltd - First Plaintiff Larvine Pty Ltd - Second Plaintiff Ricvale Holdings Pty Ltd - Third Plaintiff Galewood Pty Ltd - Fourth Plaintiff Konstan (Administration) Pty Ltd - Fifth Plaintiff PARTIES : Tony Rallis - Sixth Plaintiff Nickie Rallis - Seventh Plaintiff Simon Konstantinidis - Eighth Plaintiff Vicki Konstantinidis - Ninth Plaintiff Over Fifty Funds Capital Ltd - First Defendant Blueprint Property Developments Pty Ltd - Second Defendant Over 50s Mutual Friendly Society Ltd - Third Defendant FILE NUMBER(S) : SC 1581/07 COUNSEL : Mr D H Murr SC/ Mr M Condon - Plaintiffs Mr B Coles QC/ Mr M J Dawson/ Mr S Ipp - 1st & 3rd Defendants P S Pinto & Co Solicitors - Plaintiffs SOLICITORS : TressCox Lawyers - 1st & 3rd Defendants Dowling Solicitor & Attorney (Mr J Dowling) - 2nd Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J THURSDAY 19 JULY 2007 1581/07 PROACTIVE MANAGEMENT SPECIALISTS PTY LTD & ORS v OVER FIFTY FUNDS CAPITAL LTD & ORS EX TEMPORE JUDGMENT 1 The second defendant, Blueprint Property Developments Pty Ltd, was wound up by court order on 24 May 2007. 2 An application is made by the plaintiffs, Proactive Management Specialists Pty Ltd and eight other purchasers of residential units from Blueprint, for an order, pursuant to the Corporations Act 2001 (Cth), s 471B, that they be given leave to proceed against Blueprint. 3 The proceedings were commenced earlier this year and an order was made that they be expedited. 4 The statement of claim was served on Blueprint in April 2007. Notification of the winding up was not received by the plaintiffs until this week. 5 The statement of claim seeks an order for specific performance of the agreements for sale of the residential units. The pleading alleges that between July 2002 and September 2006, the plaintiffs entered into contracts to purchase lots that are particularised in the pleading. Deposits were paid and were released by all the plaintiffs. On 26 September 2006, it is alleged that the plaintiffs, represented by one of them, Blueprint, the first defendant, Over Fifty Funds Capital Ltd and the third defendant, Over 50s Mutual Friendly Society Ltd, entered into an agreement pursuant to which, in return for receiving $100,000, Over Fifty and Over 50s, respectively the second and first registered mortgagees, agreed to honour the existing contracts to which I have referred. The plaintiffs would settle the existing contracts quickly and, if possible, within seven days and the eighth plaintiff, Simon Konstantinidis, would be offered the first opportunity to buy two more units selected by him off the plan for the same price that they were first offered to the market by Blueprint. It is of that agreement that specific performance is sought. 6 Pursuant to the agreement, it is alleged that the plaintiffs readied themselves for settlement, which was scheduled to occur on 29 September 2006 and then on 4 October 2006. 7 The liquidator submits that the effect of allowing these proceedings to continue would be to pay out in full certain creditors of the company, with disadvantage to creditors generally and with dissipation of part of the asset pool. 8 The point is made that, normally, money claims should be dealt with by the liquidator. The legislation gives a dissatisfied lodger of a rejected proof of debt the opportunity to test the matter before the court. As I have said, the submission is that an order for specific performance would have the effect of converting an unsecured claim of the plaintiffs into full recovery and thus, be preferential. 9 Over Fifty and Over 50s point to the fact that one of the lots for which specific performance is claimed was the subject of a contract for sale for $1. It is alleged by the plaintiffs that, at the meeting of 26 September 2006, agreement was reached that that unit should be transferred at $100,000. Over Fifty and Over 50s submit that $100,000 is an undervalue and, there being no advantage to the company, the Corporations Act 2001 (Cth), s 468 would prevent an order for specific performance being made with respect to that unit. That being so, it is submitted that there is no basis for the court to order specific performance and, that being central to the agreement said to have been reached on 26 September 2006, I should exercise my discretion against granting leave to proceed against Blueprint. 10 While the power in the Corporations Act 2001 (Cth), s 468 applies to a wide variety of circumstances and makes it inappropriate to state binding rules for the application of the power, when exercising the discretion, the court may have regard to the effect of the disposition on unsecured creditors, whether the disposition would be a preference, whether the company could be sold as a going concern, whether there are any special circumstances and the overall effect of the dispositions (Tellsa Furniture Pty Ltd (in liq) v Glendave Nominees Pty Ltd (1987) 9 NSWLR 254). 11 The authorities with respect to leave to proceed draw a distinction between a money claim and a proprietary claim and, in particular, a proprietary claim in the nature of a claim for specific performance. 12 In Vagrand Pty Ltd (in liq) v Fielding (1993) 10 ACSR 373, a Full Court of the Federal Court delivered a judgment in which, at 376, they said: "Mr Coles' submission is critical to this case and of general importance. But we think it is wrong. It overstates the true position. It is true that, upon a winding up of a company, the appointed liquidator comes under an obligation to take control of the company's assets and realise them for the benefit of the creditors, after payment of all proper outgoings. But the liquidator takes the assets subject to such liabilities as then attach to them. If a particular asset is subject to a mortgage, the liquidator takes the asset subject to the mortgage. If an asset is held by the company in trust for somebody else, the liquidator is bound by the trust. In the same way, as Morling J pointed out, as a consequence of taking control of an asset, a liquidator may be faced with litigation". The court then cited with approval what had been said at first instance by Morling J: "…none of the cases to which I have referred preclude the granting of leave to an applicant who seeks a remedy other than a money judgment. Thus leave to proceed has been given to a plaintiff who seeks an order for specific performance ( Thames Plate Glass Co v Land and Sea Telegraph Construction Co (1871) LR 6 Ch App 643)…" 13 In Hewlett Packard Australia Pty Ltd v Siltek Holdings Pty Ltd [2005] NSWSC 672 at [6], Barrett J referred to Ogilvie-Grant v East (1983) 7 ACLR 669, a decision of McPherson J on considerations relevant to a decision whether to grant leave to proceed. Having referred to the general proposition that, unless there is some good reason to the contrary, claims against companies in liquidation should be pursued by means of a proof of debt under the system that permits appeal to the court against the liquidator's decision, Barrett J went on at [7] to distinguish the situation before him from a money claim: "In the present case, the claims of the plaintiff against SHL and SAP are of an essentially proprietary nature. This is something that has already been put to the liquidator of SAP. The plaintiff says, in effect, that certain property and rights ostensibly owned by SHL are in truth owned by the plaintiff. Claims of that nature go beyond the money-based concepts relevant to proofs of debts in a winding up. They entail an inquiry into the asset base available to the liquidator. There are accordingly features which take the case outside the province of the proof of debt system." 14 Reference was made to Hewett v Court (1982-1983) 149 CLR 639 at 665 where Deane J discussed the nature of the proprietary interest that might be said to arise with respect to an agreement for sale of land for valuable consideration. He said: "The suggested requirement that equity would grant specific performance of the contract is usually propounded as being derived from the principle that an agreement for valuable consideration for the present assignment of property operates to transfer the equitable estate in the property if equity would, in all the circumstances, grant specific performance of the agreement. In the statement of that principle however, the reference to specific performance must be understood as meaning not merely specific performance in the primary sense of the enforcing of an executory contract by compelling the execution of an assurance to complete it but also the protection by injunction or otherwise of rights acquired under a contract. So understood, the test of availability of specific performance of the contract to determine whether an equitable estate has passed amounts to little more than an assertion that equitable rights are commensurate with the protection which equity will afford them." References have been omitted from this passage. 15 There is a conflict in the authorities as to whether an equitable interest in land arises upon execution of an agreement for sale for value. I referred to that conflict in Armidale Dumaresq Council v M & P (North Coast) Pty Ltd & Anor [2005] NSWSC 628 and in Affinity Health Ltd v Chief Commissioner of State Revenue [2005] ATC 4637. 16 In Brown v Heffer (1967) 116 CLR 344 at 351, Windeyer J took the view that while a vendor was not at liberty to enter into any transaction inconsistent with an obligation to perform his contract with the purchaser, the purchaser's rights to have the vendor do nothing to his prejudice were enforceable in equity by injunction, but that did not create an equitable interest in the land. A similar view was expressed by the other members of the Court at 349-350. 17 In Legione v Hateley (1982-1983) 152 CLR 406 at 446, Mason and Deane JJ, having referred to Brown, said: "The competing view - one which has much to commend it – is that the purchaser's equitable interest under a contract for sale is commensurate, not with her ability to obtain specific performance in the strict or primary sense, but with her ability to protect her interest under the contract by injunction or otherwise ( Tailby v Official Receiver (1888) 13 App Cas 523 at pp 546-549; Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 at p 96; Hoysted v Federal Commissioner of Taxation (1920) 27 CLR 400 at p 423; Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at pp 396-399; Jordan, Chapters on Equity , 6th ed (1945), p 52, n(e)). If this view were to be adopted and applied, the respondent's inability to obtain specific performance in the primary sense would not entail the loss of her equitable interest. She would retain that interest so long as she was entitled to make out a case for relief against forfeiture." 18 Sir Frederick Jordan had said in Chapters on Equity that an agreement for valuable consideration for the assignment of property operated in equity to transfer the equitable title to the property to the promisee under the maxim that equity considered done that which ought to be done and that the principle was effective only in so far as the court of equity would grant specific performance of the agreement. His footnote was as follows: "Specific performance in this sense means not merely specific performance in the primary sense of the enforcing of an executory contract by compelling the execution of an assurance to complete it, but also the protection by injunction or otherwise of rights acquired under a contract which defines the rights of the parties." 19 That proposition was criticised by Meagher JA in Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654-655. His Honour pointed out that it could hardly be accurate, with regard to the transfer of purely equitable property, because if the entire beneficial interest went upon agreement, nothing remained in the vendor's hands even if no purchase money had been paid. That criticism was noted without comment by the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 334. 20 Nonetheless, the broader approach to the concept of specific performance was adopted by the High Court in KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 at 297, Stern v McArthur (1988) 165 CLR 489 at 522 and in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 253. 21 Thus it has been held that the holder of an option to purchase land has, prior to its exercise, a sufficient equitable interest to support a caveat (Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75, Re Henderson's Caveat [1998] 1 Qd R 632, Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486, Buildev Developments Pty Ltd v PicSales Pty Ltd [2003] 11 BPR 21,445). 22 And in Baden Pacific Ltd v Portreeve Pty Ltd (1988) 14 ACLR 677 at 681, Cohen J concluded that upon the execution of an agreement for the purchase of shares in a company, subject to a condition that the sale be approved in general meeting, the purchaser acquired an equitable interest in the shares. 23 There is, in my view, a sufficient argument that equitable interests in the lots were created upon entry into the contracts for sale of them to form a foundation for the plaintiffs' argument. 24 The argument with respect to the Corporations Act 2001 (Cth), s 468 may be advanced in defence of the statement of claim. I do not propose to prejudge the issue on the application for leave to proceed against the company in liquidation. The agreement for which specific performance is sought is not limited to lot 34, the subject of the original contract for sale at $1. There are other lots with respect to which there is no suggestion that the contracts for sale are at an undervalue. 25 In my view, the allegations in the statement of claim have sufficient foundation to place the matter within the category of case where the issue is not a money claim. It is at least arguable that the contracts for sale for valuable consideration gave rise to equitable entitlements to the lots that bind the liquidator and take the lots outside the asset pool available to him for realisation and distribution to the other creditors. It is appropriate for me to grant leave to proceed against Blueprint, and I do so. ********** 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.