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IMDM (Townsville) Pty Ltd v City Pacific Limited

 

[2009] QSC 445

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

IMDM (Townsville) Pty Ltd v City Pacific Limited [2009] QSC 445

PARTIES:

IMDM (TOWNSVILLE) PTY LTD
ACN 131 418 472
Plaintiff

v

CITY PACIFIC LIMITED
ACN 079 453 955
Defendant

FILE NO/S:

3223/09

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland

DELIVERED ON:

23 December 2009

DELIVERED AT:

Brisbane 

HEARING DATE:

10 December 2009

JUDGE:

A Lyons J

ORDER:

  1. Pursuant to s 471B of the Corporations Act 2001 (Cth), that leave is granted to proceed with and continue this litigation against City Pacific Limited (in Liquidation) on the following conditions:
    1. that no judgment be enforced against the liquidator or company without prior leave of the Court; and
    2. that no costs orders be enforced against the liquidator or company without the prior leave of the Court.
  2. Pursuant to rule 69(1)(b) of the Uniform Civil Procedure Rules 1999 (Qld), Trilogy Funds Management Limited as Responsible Entity for the First Pacific Mortgage Fund (formerly known as the City pacific First Mortgage Fund ARSN 088 139 477) is named as the Second Defendant and is included as a party to the proceeding herein.
  3. Pursuant to rule 377(1) of the Uniform Civil procedure Rules 1999 (Qld), leave be granted for the amendment of the originating process herein.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where written agreement to develop ship terminal – where by a further series of agreements the defendant City Pacific Limited (CPL) joined the joint venture – where an arrangement was made that all parties to the existing agreement agreed to release one of the parties to the original agreement – whether the defendant was substituted on the same terms

Corporations Act 2001 (Cth) ss 471, 601,
Uniform Civil Procedure Rules 1999 (Qld) rr 69, 375, 377

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] 129 CLR 99
Helvetic Investments v Knight (1982) 9 ACLR 773
Nommack (No 100) v FAI Insurances Pty Ltd (in liquidation) (2003) NSWSC 359
Re Coastal Constructions Pty Ltd (1994) ASCR 329
Sharp v McGiveny [1951] VLR 143
Vagrand Pty Ltd (in liquidation) v Fielding (1993) 10 ACSR 373

COUNSEL:

I Erskine for the applicant

P Davis SC with M Bland for the respondent

SOLICITORS:

WPS Law for the applicant

Minter Ellison for the respondent

A LYONS J:

  1. In 2006 a number of parties entered into a series of agreements to develop an ocean liner terminal in Townsville. Subsequently, by a further series of agreements the defendant City Pacific Limited (CPL) joined the joint venture by an arrangement whereby all the parties to the existing agreement agreed to release TBWC Developments Pty Ltd one of the parties to the original agreement and essentially substitute CPL on the same terms.
  1. Subsequent to that ‘novation’ by another agreement dated 5 June 2008 entitled ‘Agreement for Sale and Novation of Rights, Future Development Area-Townsville Ocean Terminal,’ CPL then sought to novate its rights and obligations to the plaintiff IMDM (Townsville) Pty Ltd. 
  1. On 26 March 2009 the plaintiff filed a claim and statement of claim against the defendant claiming breach of contract.
  1. The defendant, (CPL), was up until 20 July 2009, the responsible entity trustee and manager of a managed investment scheme now known as Pacific First Mortgage Fund (formerly the City Pacific First Mortgage Fund). Section 601 FC (2) of the Corporations Act provides that a responsible entity of a managed investment scheme holds scheme property on trust fro the members.
  1. The defendant filed a notice of intention to defend and defence on 24 April 2009. The plaintiff filed a reply on 3 June 2009. 
  1. On 20 July 2009, Trilogy Funds Management Limited (Trilogy) replaced the defendant as the responsible entity trustee and manager of the Pacific First Mortgage Fund. On 28 August 2009, liquidators were appointed to the defendant.
  1. On 11 November 2009 the plaintiff filed an application seeking orders that;

a)pursuant to r 69(1)(b) of the UCPR, Trilogy, as responsible entity for the Pacific First Mortgage Fund, be named as the second defendant and be included as a party to the proceedings. 

b)pursuant to r 377(1) or alternatively r 375(1) that leave be granted for the amendment.

  1. That application for joinder came before the court on 4 December 2009 but was adjourned to allow service on the liquidator of the application for leave to proceed.
  1. On 8 December 2009 an amended application was filed seeking orders:

a)Pursuant to s 471(b) of the Corporations Act 2001 leave be granted to proceed with and continue the litigation against CPL on conditions;

  1. that no judgment be enforced against the liquidator or company without the prior leave of the Court; and
  1. that no costs orders be enforced against the liquidator or company without prior leave of the Court.

Leave to proceed

  1. Leave under s 471(b) of the Corporations Act is required to commence or continue proceedings against a company in liquidation.  The material indicates that the liquidator does not oppose the application.  Whilst the Act does not proscribe the matters to be considered in granting leave, it is clear that the test to be satisfied is whether there is evidence which can be placed before the court which indicates the existence of a serious claim and a real dispute.[1]
  1. The factors were summarised in the decision of Nommack (No 100) v FAI Insurances Pty Ltd (in liquidation).[2]  Those factors, as summarised, include the amount and seriousness of the claim, the degree and complexity of the legal and factual issues involved, the stage the proceedings have reached, whether the liquidator is likely to or has rejected a proof of debt and whether an appeal to the court is inevitable.
  1. Some of the factors in favour of leave include the need to avoid the possibility of the re-litigation of matters that will necessarily be determined in one proceeding. Further factors include whether the court is likely to be called upon to make a ruling on the relevant issues regardless of the involvement of the liquidator. A factor in favour of leave includes a consideration as to whether the involvement of the liquidator would be limited in nature such that they were unlikely to play an active part.
  1. Factors that militate against leave being given were set out in Re Coastal Constructions Pty Ltd.[3]  If the causes of action are doomed to failure, it would seem that that would preclude against leave being granted.
  1. I consider that the pleadings and the affidavit of the plaintiff demonstrate there is a serious claim and a real dispute. There has been no delay in seeking leave and in issuing the proceedings. It is also clear that no prejudice will be suffered by the liquidator and there is no proof of debt lodged by the plaintiff in the liquidation. It is also likely that the court will be called upon to make a ruling on several issues in any event. In particular, there is a need for determinations on several issues, including whether there has been a breach by CPL of the novation agreement as alleged, whether damages flow from that breach and the liability of the fund in terms of a damages award. There is also clearly a prospect that there may be a re-litigation of the matters if the company is not included in the proceedings. The involvement of the liquidator would also appear to be limited in nature. I consider that leave should be given on the terms that no judgment be enforced, nor any costs be sought against the company or liquidator without the leave of the court. This prevents a creditor or potential creditor from being placed in an advantageous position over other creditors in the liquidation.

Joinder

  1. Turning to the issue of the joinder of Trilogy; the plaintiff seeks to join Trilogy as second defendant, essentially arguing that the agreement entered into by CPL was entered into in its capacity as responsible entity of the scheme and therefore Trilogy became liable for CPL’s obligations under that “Agreement for Sale and Novation” dated 5 June 2008.
  1. Rule 69 of the UCPR provides;

69 Including, substituting or removing party

a)The court may at any stage of a proceeding order that—

  1. a person who has been improperly or unnecessarily included as a party, or who has ceased to be an appropriate or necessary party, be removed from the proceeding; or
  1. any of the following persons be included as a party—
  1. a person whose presence before the court is necessary to enable the court to adjudicate effectually and completely on all matters in dispute in the proceeding;
  1. a person whose presence before the court would be desirable, just and convenient to enable the court to adjudicate effectually and completely on all matters in dispute connected with the proceeding.”
  1. Accordingly, an applicant for joinder must be able to identify a dispute with the party they seek to join and must also show a prima facie case.
  1. In this regard the plaintiff applicant places reliance on s 601FS(1) and s 601FT(1) of the Corporations Act 2001.

601FS(1) [Rights etc of former responsible entity transferred] If the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme becomes rights, obligations and liabilities of the new responsible entity.

601FT(1) [Documents to which former responsible entity a party] If the responsible entity of a registered scheme changes, a document:

(a)to which the former responsible entity is a party, in which a reference is made to the former responsible entity, or under which the former responsible entity has acquired or incurred a right, obligation or liability, or might have acquired or incurred a right, obligation or liability if it had remained the responsible entity; and

(b)that is capable of having effect after the change;

has effect as if the new responsible entity (and not the former responsible entity) were a party to it, were referred to in it or had or might have acquired or incurred the right, obligation or liability under it.”

  1. The applicant submits that on the basis of those sections, Trilogy is deemed to have subsumed the “rights, obligations and liabilities” of its predecessor City Pacific Limited (CPL) and pursuant to s 601FT(1), is deemed to be a party to the contract sued upon.
  1. As previously indicated, the claim is one for damages for breach of contract. By the contract[4] the plaintiff agreed to purchase inter alia the whole of the defendants’ interests, rights and obligations in the Future Development Area (“FDA”) of the Townsville Ocean Terminal.  Those interests, rights and obligations reposed in the defendant, in turn, were derived from or enshrined in a series of separate contracts with others – including for example:
  • Development Agreement (clause 5)
  • Joint Venture Agreement (clause 6)
  • Council Development Agreement (clause 7)
  • Revised Harbour Agreement (clause 8)
  • Townsville Development Deed (clause 9)
  1. Clause 11.2 contained a clause requiring CPL to use its best endeavours to secure novation of those several agreements to the plaintiff, on terms no less favourable than those previously granted to CPL. The plaintiff contends that CPL breached those obligations causing loss and damage to be suffered by the plaintiff.
  1. It is clear that a plaintiff seeking to join a defendant need only show facts that justify the addition of the defendant. This can appear from the pleadings or otherwise and an applicant need only show a prima facie case.
  1. It is clear that the contract was entered into with CPL. The statement of claim alleges that CPL was at all material times, trustee manager and responsible entity for Pacific First Mortgage Fund, (the Fund). That allegation is admitted and it is clear that CPL is now in liquidation and has been since 28 August 2009. Since 20 July 2009 however, Trilogy is and remains the trustee manager and responsible entity for the Fund.
  1. The applicant plaintiff therefore submits that:
  1. s601FT effects a statutory novation giving rise to a statutory deemed contract between the plaintiff and Trilogy; and
  1. the liability incurred by CPL under or pursuant to the contract is, by virtue of s 601FS and s601FT, now a liability of Trilogy pursuant to the statutory deemed contract.
  1. The respondent however, argues that CPL operated both as a responsible entity and as developer in its own right and that CPL entered into the agreements in relation to the ocean liner terminal in its own capacity and not as a trustee or as a responsible entity of the scheme. The respondent also argues that it would have been against the constitution of the scheme to enter into the ocean liner terminal arrangements as responsible entity.
  1. The respondent relies on s 601GA of the Act which provides;

“601GA  Contents of the constitution

(1)The constitution of a registered scheme must make adequate provision for:

  1. the consideration that is to be paid to acquire an interest in the scheme; and
  1. the powers of the responsible entity in relation to making investments of, or otherwise dealing with, scheme property; and
  1. the method by which complaints made by members in relation to the scheme are to be dealt with; and
  1. winding up the scheme.

(2)If the responsible entity is to have any rights to be paid fees out of scheme property, or to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of its duties, those rights:

  1. must be specified in the scheme’s constitution; and
  1. must be available only in relation to the proper performance of those duties;

and any other agreement or arrangement has no effect to the extent that it purports to confer such a right.”

  1. The respondent’s argument is that by virtue of s 601FS, the obligations of CPL under the Agreement for Sale and Novation only became the obligations of Trilogy “if and only if the obligations of CPL under the Agreement for Sale and Novation were obligations ‘in relation to the scheme’”.
  1. It is correct that the Agreement is silent as to the capacity which CPL contracted with the plaintiff. CPL however acquired rights from the original joint venturers in its capacity as responsible entity of the scheme. The question is therefore, whether when it subsequently entered into the Agreement for Sale and Novation with the plaintiff it did so as the responsible entity of the scheme.
  1. Clause 6.10(f) stated that “City Pacific does not enter this document as trustee of any trusts”.
  1. However the contract refers to a number of contracts which were to be novated to the plaintiff, including those set out in paragraph [20]. In the Council Development Agreement (clause 7) clause 2.3.10.3 states “a party which is Trustee is bound both personally and in its capacity as a trustee”. The Revised Harbour Agreement (clause 8) states at 2.3.11.3 “a party which is Trustee is bound both personally and in its capacity as a trustee”. The Townsville Development Deed (clause 9) also states at clause 6.1 “a party which is Trustee is bound both personally and in its capacity as a trustee”.
  1. The respondent argues that the proper construction of these clauses is not “a party which happens to be a trustee binds any and all trusts of which that person is a trustee” but rather, it should be construed to mean “a party which is a party in its capacity as trustee.” In this regard, the respondent argues that the construction argued by the applicant would lead to absurd results and relies on the decision in Australian Broadcasting Commission v Australasian Performing Right Association Ltd[5] where Gibbs J in a dissenting decision stated that if the language of a written contract was open to two constructions then the construction to be preferred is one which avoids consequences which appear to be inconvenient or unjust.  He stated:

“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious or the most grammatically accurate’”

  1. However, the question as to the capacity of the contracting party is a question of construction which needs to be determined by reference to all the circumstances of the case. In Helvetic Investments v Knight[6] it was held that the identity of a contracting party is not determined by the form of execution, but rather the question is whether the writing, construed in its proper context, discloses an intention that the relevant person was bound.  Mahoney JA stated:

“In addition, the court is entitled to have regard to relevant surrounding circumstances. It is not necessary for present purposes to limit the boundaries of the relevant circumstances. It is sufficient to say that, in my opinion, the court may have regard to the fact that the deed of settlement provided that “this Deed of Settlement shall be known as and referred to as the John Knight Family Trust”; that (as the only evidence before the court indicates) the relevant shareholder in the company was shown to be the John Knight Family Trust; and that the guarantee was given in support of a loan to the company and, as the plaintiff required, as a guarantee by “the shareholders of the company”. If the use of the description be considered in the context of these facts, the proper conclusion is that it was used to indicate or identify as the person giving the guarantee the trustee of the trust.

I do not think that the form of the execution of the document suggests that a different meaning should be given to the description of the guarantor. In the execution, both the name of the trust and of the trustee appears. There is nothing in that which leads to the conclusion that the person giving the guarantee was not the trustee but a non-existent person. The parties intended that a contractual obligation be created. It is not necessary to form a conclusion as to whether in fact they appreciated the legal distinctions between a trust as a legal person and Mr Knight as a legal person subject to trust obligations. It is sufficient that, as I think, their intention was that what was done by the execution of the guarantee would give the plaintiff a right of action against whatever in law was the person described by “the John Knight Family Trust”. And it is proper to invoke the maxim ut res magis valeat quam pereat in support of this: cf Kelner v Baxter (1866) LR 2 CP 174 at 185.

Where a contract is purportedly made by a non-existent person and is made by another on its behalf, the identity of the contracting party is not determined by the form of the execution: the question in the end is whether the writing, construed in its proper context, discloses an intention that the existing person was to be bound. This, I think, is the basis of what was said in Black v Smallwood, 117 CLR 52 supra, concerning Kelner v Baxter: see at pp 55–6. In Kelner v Baxter both parties knew and it was apparent from the terms of the document that the company in question did not exist, but it was clear that the parties intended an immediately operative contract to be made. In such circumstances the intention was inferred that the individuals acting on behalf of the non-existing company intended to be bound. Such a principle is, in my opinion, applicable in the present case.”

  1. Accordingly, in my view the applicant has identified a dispute with the party sought to be joined and a prima facie case has been shown. What is required in this regard was clearly set out in the decision of Sharp v McGiveny[7] where Sholl J held:

“I do not think that a plaintiff seeking to join a defendant in order to make an alternative claim against him need do more than show a prima facie case to justify the Court in holding that the plaintiff ought to have the opportunity of having all his alternative claims dealt with in proceedings returnable at the one time.  It is clear enough here that if the action proceeded against McGiveny and Banbury alone, the jury at the trial might hold that Banbury was not the driver, and in the event of a subsequent action against the insurance company on the ground that the real driver could not be identified the tribunal hearing that action might conceivably hold that Banbury was the driver.  The Court, I think, should be watchful to prevent the possibility of such results, and to ensure that all questions likely to be material as between the various parties should if possible be determined in one proceeding.  Considerations of justice, and also of avoiding unnecessary expense, seem to indicate that as a proper course.  I think the various affidavits made by the solicitor for the plaintiff to which I have been referred do indicate a prima facie case of compliance with the various provisions of sec 12.  They do indicate the very kind of questions which ought if possible to be determined in one proceeding.  I do not think the section is limited to the case of an identified driver who cannot be found; it extends to one whose identity cannot be established.”

  1. There should therefore be orders in terms of paragraphs 1, 3 and 4 of the amended application.
  1. Pursuant to s 471B of the Corporations Act 2001 (Cth), that leave is granted to proceed with and continue this litigation against City Pacific Limited (in Liquidation) on the following conditions:

a)that no judgment be enforced against the liquidator or company without prior leave of the Court; and

b)that no costs orders be enforced against the liquidator or company without the prior leave of the Court.

  1. Pursuant to rule 69(1)(b) of the Uniform Civil Procedure Rules 1999 (Qld), Trilogy Funds Management Limited as Responsible Entity for the First Pacific Mortgage Fund (formerly known as the City pacific First Mortgage Fund ARSN 088 139 477) is named as the Second Defendant and is included as a party to the proceeding herein.
  1. Pursuant to rule 377(1) of the Uniform Civil Procedure Rules 1999 (Qld), leave be granted for the amendment of the originating process herein.
  1. I will hear from counsel as to costs.

Footnotes

[1] Vagrand Pty Ltd (in liquidation) v Fielding (1993) 10 ACSR 373 at 380.

[2] (2003) NSWSC 359 at 221.

[3] (1994) ASCR 329 at 331.

[4] Affidavit of Finucan, Exhibit “A”.

[5] [1973] 129 CLR 99 at 109.

[6] (1982) 9 ACLR 773 at 777.

[7] [1951] VLR 143 at 145.

Close

Editorial Notes

  • Published Case Name:

    IMDM (Townsville) Pty Ltd v City Pacific Limited

  • Shortened Case Name:

    IMDM (Townsville) Pty Ltd v City Pacific Limited

  • MNC:

    [2009] QSC 445

  • Court:

    QSC

  • Judge(s):

    A Lyons J

  • Date:

    23 Dec 2009

Litigation History

No Litigation History

Appeal Status

No Status