Spencer v Hutson[2007] QCA 178

SUPREME COURT OF QUEENSLAND

[1] WILLIAMS JA:  I have had the advantage of reading the reasons for judgment of Keane JA and there is nothing I wish to add thereto.  I agree with what he has said therein and with the orders he has proposed.

[2] JERRARD JA:  I have read the judgment of Keane JA in this matter and agree with the orders and reasons proposed therein.

[3] KEANE JA:  On 19 May 2006, the learned primary judge, on an application for summary judgment, ordered that the second plaintiff, Neolido Holdings Pty Ltd (Receivers and Managers Appointed) (In Liquidation) ("Holdings"), recover the sum of $55,000 from the third and fourth defendants ("Mr Spencer and Ms Perovich").  His Honour otherwise ordered that Holdings' application for summary judgment against Mr Spencer and Ms Perovich for a further sum of $82,500 paid by Holdings to Mr Spencer and Ms Perovich be dismissed on the condition that Mr Spencer and Ms Perovich pay $82,500 into court, or provide alternative security to that value, within 30 days. 

[4] On 22 December 2006, approximately six months after the expiration of the 28 days prescribed for the commencement of an appeal against this decision, Mr Spencer and Ms Perovich applied for an extension of time to appeal against the orders of 19 May 2006. 

[5] Holdings opposes the grant of an extension of time on the ground that the interests of justice do not require the grant of the extension of time sought by Mr Spencer and Ms Perovich. 

[6] In order to discuss the merits of the application for an extension of time to appeal in a meaningful way, it is necessary to set out some of the detail of the history of the proceedings between the parties.

Background

[7] Mr Spencer and Ms Perovich were the sole directors of Holdings as at 26 June 2003.  At that time, it entered into an agreement, described as a consultancy services agreement, with the first defendant, Mango Boulevard Pty Ltd ("Mango"), and the second defendant, Kinsella Heights Developments Pty Ltd ("Kinsella").  Holdings agreed to provide services "when and as required" by Mango in relation to the acquisition and development of land in the Pine Rivers Shire.  In return, Kinsella and Mango agreed to pay fees to Holdings in accordance with cl 6 and cl 7 respectively of the consultancy services agreement.

[8] Clause 7.1 of the consultancy services agreement is the provision of particular relevance.  It provided:

"7.1Mango … shall pay to [Holdings] a Monthly Development Management Fee of $25,000.00 (plus GST) monthly in advance for each month or part thereof commencing from the date of this Agreement to:

(a)the date of settlement of the Contract; or

(b)the date on which the Preliminary Approval authorising the Material Change of Use of the Property is granted;

whichever is last to occur."

[9] On 5 June 2005, Mr Spencer and Ms Perovich entered into a deed with Holdings ("the assignment deed") which purported to assign to Mr Spencer and Ms Perovich, inter alia, "the balance of money payable under clause 7.1 of the [consultancy services agreement]".  The terms of the assignment deed were as follows:

"Recitals

A.On 26th June 2003 the Assignor, Mango Boulevard Pty Ltd ACN 101 544 601 and Kinsella Heights Developments Pty Ltd entered into a Consultancy Services Agreement ('CSA') for the management of a project being the acquisition and development of the 600 acre property known as Benson's Farm at Mango Hill

B.The services required of the Assignor as consultant under the CSA, particularly the balance due pursuant to clause 7.1, will be delivered through and earned by the personal exertion of Silvana Perovich and Richard William Spencer the directors ('Directors' ) of the Assignor

C.The Assignees and the Directors have provided security and funding for the support of the Assignor by inter alia entering into guarantees and assignments by way of security of certain valuable and negotiable bank and corporate guarantees provided to them by BMD Holdings Pty Ltd ACN 010 093 348

D.To reflect the division and nature of the services to be further provided under the CSA as outlined in Recital B and in consideration of the provision of the security and funding as outlined in Recital C the parties have agreed that the Assignee take the benefit of an assignment from the Assignor of particular considerations under the CSA

E.In turn the Assignee has agreed to make certain of their resulting rights arising under the CSA conditionally available to support the Assignor

Operative part

1.Assignment

In consideration of the matters and considerations outlined in    Recitals B and C above the Assignor assigns to the Assignee:

(i)the balance of money payable under clause 7.1 of the CSA; and

(ii)by way of security all of the Assignor's right title and interest in and to the money payable under clause 6 of the CSA.

2. Financial Support Covenant

2.1The Assignee covenants that it will enter into any assignment by way of security or other document that may be reasonably required by the Assignor to secure all or any part of the money payable under clause 6 of the Consultancy Agreement for the benefit of the creditors of the Assignor.

2.2In the event that the Assignor is 'externally administered' as defined in the Corporations Act 2001 then the financial support covenant pursuant to paragraph 2.1 of these presents will lapse and be of no effect unless the contrary is confirmed by deed poll by the Assignee within ninety (90) days of the appointment of the external administrator to the Assignor.

2.3Should the financial support covenant pursuant to paragraph 2.1 of these presents not be confirmed as aforesaid then the assignment made pursuant to paragraph 1(ii) of these presents will be deemed to be an assignment of all of the Assignor's right title and interest in and to the money payable under clause 6 of the CSA and not one by way of security only."

[10] Between 7 June 2005 and 22 November 2005, Mr Spencer and Ms Perovich issued invoices to Mango for consultancy fees to which they claimed to be entitled by reason of the assignment deed.  They received $137,500 from Mango.

[11] Holdings had previously executed two registered charges in favour of Perpetual Nominees Pty Ltd ("Perpetual").  By cl 4.3 of each of these instruments, a floating charge was created over "all of [Holdings'] property … rights and other assets whether owned at present or acquired in the future".  The floating charge crystallised as a fixed charge upon certain events.  By cl 15.2, Holdings promised Perpetual that Holdings would not assign any part of the property covered by the fixed charge. 

[12] On 22 March 2005, Perpetual made a statutory demand for the repayment of a debt upon Holdings which failed to comply with the demand.  This was said by Holdings to be an event which caused the floating charge to crystallise so as to make the charge a fixed charge upon Holdings' rights under cl 7 of the consultancy services agreement no later than 14 April 2005.  On Holdings' behalf, there were said to be other crystallising events, but they need not be considered here:  there is no challenge to the finding of the learned primary judge that Perpetual's security crystallised on or prior to 5 June 2005. 

[13] Perpetual appointed the first plaintiffs as receivers and managers of Holdings on 8 June 2005.  On 25 November 2005, Holdings was ordered to be wound up on an application by the Australian Securities and Investments Commission.

[14] On 30 November 2005, the receivers of Holdings were paid $27,500 in consultancy fees by Mango.

[15] On 30 January 2006, the receivers of Holdings and Holdings commenced proceedings against Mr Spencer and Ms Perovich for the recovery of the moneys paid to them by Mango.

[16] Mr Spencer and Ms Perovich resisted the plaintiffs' claim for summary judgment on the basis that, by virtue of the assignment deed, they became entitled to all payments made by Mango pursuant to cl 7.1 of the consultancy services agreement after 5 June 2005. 

The decision of the learned primary judge

[17] The amount of $55,000 for which judgment was given on 19 May 2006 related to sums paid to Mr Spencer and Ms Perovich pursuant to invoices dated 7 June 2005 (for services said to have been rendered between 23 April 2005 and 22 May 2005) and 21 July 2005 (for consultancy services between 23 May 2005 and 22 June 2005).

[18] The learned primary judge held that the assignment deed of 5 June was executed in breach of Perpetual's rights under the mortgage debenture.  On the basis that, as between all the parties to the action, the ultimate beneficial title to the money was in Perpetual, his Honour ordered that Perpetual be added as a plaintiff in the action.  It is to be emphasised, however, that his Honour gave judgment for the recovery of the money in favour of Holdings on the basis that, as between Holdings and Mr Spencer and Ms Perovich, Holdings was entitled to payment of the money.

[19] The learned primary judge concluded that the only amounts caught by the assignment deed were the amounts which were payable but unpaid at the date of the deed of assignment, ie for the two months prior to 5 June 2005.  The learned primary judge concluded, however, that Mr Spencer and Ms Perovich received the payments knowing that the payments to them were made in breach of the mortgage debenture and contrary to the rights of Perpetual thereunder.  His Honour held that Mr Spencer and Ms Perovich had no right to "retain that money as against [Holdings] nor as against Perpetual".  It is tolerably clear that his Honour was of the view that the diversion of the $55,000 to them by means of the assignment deed was in breach of their duties as directors of Holdings; no submission was made that his Honour did not proceed on this basis.  Mr Spencer and Ms Perovich seek to argue, however, that his Honour erred in holding that the diversion of the $55,000 to them involved a breach of their duties as directors of Holdings.  I will return to this argument in due course.

[20] As to the amounts that were paid to Mr Spencer and Ms Perovich by Mango after the date of the assignment deed, his Honour thought that it might be arguable that those moneys were paid to them for purposes collateral to the consultancy services agreement.  It was for this reason that, on 19 May 2006, his Honour made the conditional order dismissing Holdings' application for summary judgment in relation to these moneys.  This conditional order is not relevant to the proposed appeal.  Indeed, it seems to have been overtaken by subsequent events.

Subsequent events

[21] On 17 August 2006, the then solicitors for Mr Spencer and Ms Perovich advised Holdings' solicitors of their intention to appeal against the decision of the learned primary judge and to seek an extension of time in order to do so.  The then solicitors for Mr Spencer and Ms Perovich also intimated that they intended to seek a stay of execution of the orders of 19 May 2006.  These applications would be made, it was said, no later than 22 August 2006. 

[22] Holdings' solicitors responded with an invitation to Mr Spencer and Ms Perovich to bring the foreshadowed stay application at the same time as a further application by Holdings, which had been set down for hearing on 22 September 2006. 

[23] Mr Spencer and Ms Perovich did not make any of the applications which their solicitors had foreshadowed.  Why that was so is not explained by them.  An affidavit by Ms Perovich filed in support of the application suggests that Ms Perovich and Mr Spencer had been led to believe that the time for bringing an appeal did not begin to run until the order had been signed by the Registrar.  But that says nothing of the situation at, and after, 17 August 2006.  It is clear that they and their lawyers were aware that the time for an appeal had expired by late August 2006.  In the absence of any explanation as to why the foreshadowed applications were not brought, it is difficult to resist the conclusion that Mr Spencer and Ms Perovich made a deliberate decision not to proceed with the applications. 

[24] On 22 September 2006, the learned primary judge ordered the payment out of court to Holdings of the moneys totalling $225,000 paid into court by Mango on 26 April 2006, 20 June 2006, 24 July 2006 and 23 August 2006.  These payments had been made into court by Mango pursuant to an order made by Dutney J on 19 April 2006.  On 22 September 2006, the learned primary judge declared that any moneys which may become owing to Holdings pursuant to cl 7.1 of the consultancy services agreement are payable to Holdings.  There has been no appeal against any of these orders.  It should also be noted that Mr Spencer and Ms Perovich were legally represented on 22 September 2006, and in subsequent related proceedings in the Supreme Court on 13 October 2006.  Subsequently, they became self-represented litigants; but the circumstances in which this occurred are not explained at all in Ms Perovich's affidavit.  It is not open to this Court to conclude that they "became self-represented" for reasons other than their own choice.

[25] On 20 September 2006, bankruptcy notices were issued by Holdings to Mr Spencer and Ms Perovich in respect of the sum of $55,000 for which judgment had been given on 19 May 2006.  Holdings was unable to serve the bankruptcy notices upon Mr Spencer and Ms Perovich.  Holdings incurred expense in the sum of $10,800 up to 22 December 2006 in relation to the bankruptcy notice which was served upon Mr Spencer and Ms Perovich pursuant to orders for substituted service made by the Federal Magistrates Court.  Thereafter, Holdings incurred further expense in the sum of $14,000 successfully resisting attempts by Mr Spencer and Ms Perovich to set aside the bankruptcy notices.

 Extension of time

[26] I turn now to discuss the merits of the application for an extension of time.  The first point to be made here concerns the distinctly unsatisfactory explanation for the delay which has attended the making of this application.

[27] There is some, albeit perfunctory, explanation for the delay in filing an appeal before 17 August 2006.  Importantly, however, there is no explanation at all for the delay which occurred thereafter when, having regard to the terms of their solicitors' communication of 17 August 2006, it is clear Mr Spencer and Ms Perovich must have been aware of the expiration of the appeal period:  they do not suggest that they did not give their solicitors instructions in relation to their letter of 17 August 2006.  For Mr Spencer and Ms Perovich, to say that they were "self-represented litigants" at some time after 13 October 2006 does not explain their failure to take more promptly the steps which they, in fact, took in December 2006.  Ms Perovich's affidavit glaringly omits any explanation as to why they ceased to be represented and any mention of the proceedings on 22 September 2006 and 13 October 2006 in which she and Mr Spencer were still represented by their former solicitors.

[28] The prescribed time limits for appeals serve the important purpose of bringing finality to litigation.  They are not lightly to be ignored.[1]  An applicant for an extension of the time for bringing an appeal must show that there is good reason for the court to relieve that party of the consequences of the expiration of the prescribed period for bringing an appeal.  A demonstration that there is a good reason to extend time will usually involve an explanation for that party's delay.[2]

[29] As I have said, in this case, the Court may fairly conclude that the delay after 22 August was deliberate, reflecting a decision not to pursue the foreshadowed appeal.  The interests of justice will favour granting an opportunity to avoid the consequences of a deliberate decision by a party to litigation only in exceptional cases.[3]  In this case, Mr Spencer and Ms Perovich do not demonstrate a sufficiently strong claim to an extension of time to outweigh the absence of a good explanation for the delay consequent upon their decision not to pursue the appeal as foreshadowed in August 2006.

[30] This is not a case, for example, where the party with the benefit of the judgment has not acted on the faith of it, and to its prejudice, by reason of the delay.  Mr Spencer and Ms Perovich intimated an intention to seek to appeal and to seek a stay of the judgment, but failed to follow through on that intimation.  In thereafter pursuing bankruptcy proceedings and incurring expense in that regard, and in the absence of any attempt to stay that judgment, Holdings acted to its prejudice on the faith of the judgment now sought to be challenged.  The amount expended by Holdings in this regard, some $24,000, is, as Mr Sullivan of Counsel who appeared for Holdings observed, a substantial sum in a case where the amount in dispute is $55,000. 

[31] In the circumstances recounted thus far, an extension of time to allow an appeal would only be granted where it was demonstrably necessary to prevent a substantial injustice.  There are a number of reasons why this is not such a case.

[32] There is, as I have mentioned, no appeal in relation to the orders of 22 September 2006.  As Mr Bradley of Counsel, who appeared for Mango, observed, the presently foreshadowed appeal could succeed only on a basis inconsistent with the judgment of 22 September 2006.  It would be unjust to expose Mango to the possibility that the quittance of its obligation to Holdings under that order and the interpleader order of Dutney J could now be called into question. 

[33] In any event, it is far from clear that Mr Spencer and Ms Perovich have suffered any injustice.  The arguments which Mr Spencer and Ms Perovich would seek to agitate on appeal do not give rise to a serious concern that an injustice has occurred.  I turn now to a brief consideration of the merits of those arguments in order to show that the order of 19 May 2006 does not involve any substantial injustice to Mr Spencer and Ms Perovich.

Merits of the proposed appeal

[34] Mr Spencer and Ms Perovich have argued in their written submissions that there was a novation of the consultancy services agreement so that they displaced Holdings as Mango's consultant.  It is clear that this contention is without substance: neither Mango nor Kinsella were a party to the deed of assignment.  Further, they contended that the learned primary judge misconstrued the scope of the assignment of Holdings' rights in reading the assignment as confined to the moneys payable to Holdings by Mango as at 5 June 2005.  This contention is less than compelling:  the assignment was not of the complex abstract "right" to render services and receive payment in consequence; but of "the balance of money payable", a clear reference to a "balance" then unpaid but payable because it has been earned.  In any event, the correctness of the judgment in relation to the debt of $55,000 does not turn on this contention. 

[35] As I mentioned earlier, the principal argument advanced on behalf of Mr Spencer and Ms Perovich is that the learned primary judge erred in concluding that they were obliged to repay Holdings moneys diverted by them in breach of their duty as its directors.  This argument was ably advanced on behalf of Mr Spencer and Ms Perovich by Mr Nase of Counsel, who appeared on their behalf at the hearing.  This argument was put by Mr Nase on two bases.  First, he argued that Holdings had no entitlement to receive the moneys from Mango because the beneficial entitlement to the moneys was in Perpetual, which was not originally a party to the proceedings.  Mr Nase also made the related point that the receivers for Holdings had no right as such to receive the moneys payable by Mango.  Of course, the learned primary judge did not give judgment in favour of the receivers of Holdings: he gave judgment in favour of Holdings. 

[36] The second basis for Mr Nase's argument was that the assignment deed was, at least arguably, executed in the best interests of Holdings and in exchange for valuable consideration.  In this regard, he made the points that Mr Spencer and Ms Perovich alone have provided consultancy services, and that the assignment was given in consideration of "security and funding provided to [Holdings]" by Mr Spencer and Ms Perovich and the performance by them of the consultancy services required of Holdings.  As to the first of these points, there is no suggestion in any of the material that the duties required of Holdings under the consultancy services agreement would ever be actually performed by anyone other than Mr Spencer and Ms Perovich from the inception of that agreement.  The consideration that the relevant services were actually performed by Mr Spencer and Ms Perovich is, therefore, entirely irrelevant to the question whether the subsequent diversion of moneys agreed to be paid to Holdings was in its best interests. 

[37] While it may be that an assignment of company property in favour of directors of the company will not always be susceptible of avoidance by reason of the directors' breach of the fiduciary prohibition on self-interested dealing with the company's assets, there is no reason in this case to doubt that the circumstances of the directors' receipt of the $55,000 were such as to give rise to a clear obligation on their part to account to Holdings for the benefit intercepted by them in accordance with their fiduciary obligations as directors of Holdings.

[38] In an affidavit by Ms Perovich filed on 16 May 2006, Ms Perovich swore that the assignment deed was made "for good consideration, namely the contribution of loan funds by" Mr Spencer and Ms Perovich.  The various "contributions" of loan funds are then described.  Some of these "contributions", such as those recited in Recital C of the assignment deed, are, on the view most favourable to Ms Perovich, past consideration, and therefore not binding consideration.[4]

[39] A number of other "contributions" involved payments of moneys after the date of the assignment deed which are said to be for the benefit of a subsidiary of Holdings.  How these payments are said to have enured to the benefit of Holdings rather than, for example, solely to creditors of the relevant subsidiary is not explained in Ms Perovich's affidavit.  Other payments were said to have been made for the benefit of Holdings itself.  More importantly, however, in no case was it suggested that Mr Spencer and Ms Perovich accepted a binding obligation to make any of these contributions in return for Holdings' agreement to the assignment deed.  It cannot be said that any of the payments described by Ms Perovich were "quid pro quo" for Holdings' execution of the assignment deed.  To adopt the language of the High Court in Australian Woollen Mills Pty Ltd v The Commonwealth,[5] there was no suggestion of "a promise offered in consideration of the doing of an act, as a price which is to be paid for the doing of an act" which might sustain Ms Perovich's assertion that the assignment deed was made for good consideration.

[40] Of course, since the assignment deed was a deed, consideration was not necessary to make it contractually binding.  The argument about consideration was advanced on behalf of Mr Spencer and Ms Perovich as an element of the broader contention that it was arguable that, in good faith, they perceived it to be in Holdings' best interests that it give up its entitlement to moneys which were presently payable to it. 

[41] The first difficulty with this argument is that it can hardly have been in the best interests of Holdings to procure the execution of an assignment which would constitute a breach of cl 15.2 of the registered charges given by Holdings in favour of Perpetual.

[42] The second difficulty is that the evidence does not show any legal or factual nexus between the execution of the assignment deed and the making of the "contributions" to which Ms Perovich's affidavit refers.  As in Re W & M Roith Ltd[6] to which this case is analogous, and, indeed, a fortiori in this respect, Mr Spencer and Ms Perovich cannot rely upon the assignment deed procured by them at Holdings' expense where there is no evidence to suggest that the "contributions" which they later made would not have been made in any event to protect their own interests.  Indeed, the affidavit sworn by Ms Perovich in support of the application for an extension of time tends to confirm that the assignment deed was executed to protect the directors' financial position.  Ms Perovich said:

"In March 2005 ASIC expressed interest in the solvency of [Neolido].  As a result, we commenced preparation of a Solvency Report for Neolido.

     By June 2005 we had completed the Solvency Report for Neolido and realised that we were the major supporters of Neolido and did not have any repayment/security from Neolido." 

[43] In the absence of any evidence that the assignment deed was necessary in order to induce Mr Spencer and Ms Perovich to make the "contributions" to which Ms Perovich refers in her affidavit, and that they accepted a legal obligation to do so, the position, in terms of the rights and duties of Mr Spencer and Ms Perovich and Holdings, is simply that the directors have diverted to themselves moneys payable to the company.  That is a position which could not be considered to be in the best interests of Holdings.   

Conclusion and orders

[44] In my opinion, there is no reason why the interests of justice could be said to require that Mr Spencer and Ms Perovich should be excused from the consequences of their failure to appeal against the orders of 19 May 2006 so as to enable their appeal to be entertained.  I would refuse the application for an extension of time within which to appeal.

[45] I would order that Mr Spencer and Ms Perovich pay Holdings' costs of the application.