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Halvorson v Birkenhead Super Pty Limited atf Birkenhead Superannuation Benefits Fund QCA 211
SUPREME COURT OF QUEENSLAND
Halvorson & Anor v Birkenhead Super Pty Limited atf Birkenhead Superannuation Benefits Fund  QCA 211
PETER ALLAN HALVORSON
TERESA JEAN HALVORSON
BIRKENHEAD SUPER PTY LIMITED
ACN 001 796 407 ATF BIRKENHEAD SUPERANNUATION BENEFITS FUND
Appeal No 5196 of 2021
DC No 3706 of 2018
Court of Appeal
General Civil Appeal
District Court at Brisbane – Unreported, 9 April 2021 (Rinaudo DCJ)
1 October 2021
6 September 2021
McMurdo and Mullins JJA and Bowskill SJA
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL – SUMMARY JUDGMENT FOR PLAINTIFF OR APPLICANT – where summary judgment was given in favour of the plaintiff for the whole of its claim at first instance – whether the preconditions to the exercise of the discretion to deal with the matter summarily were present
Corporations Act 2001 (Cth), s 254K
Uniform Civil Procedure Rules 1999 (Qld), r 292
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337;  HCA 24, cited
Heesh v Baker (2008) 67 ACSR 192;  NSWSC 711, cited
Kandelka Management Pty Ltd v Pisces Group Ltd (2009) 76 ACSR 113;  FCA 1379, cited
C Wilson for the appellants
C D Coulson for the respondent
O'Shea & Partners Lawyers for the appellants
Hall Lawyers for the respondent
- McMURDO JA: I agree with Bowskill SJA.
- MULLINS JA: I agree with Bowskill SJA.
- BOWSKILL SJA: This is an appeal from a decision made on 9 April 2021 by a judge of the District Court, giving summary judgment for the respondent (the plaintiff in the proceedings below) against the appellants (the defendants in the proceedings below) for the whole of the respondent’s claim. In my view, for the following reasons, this was not an appropriate matter to be dealt with summarily under r 292 of the Uniform Civil Procedure Rules 1999 (Qld). Accordingly, the orders made on 9 April 2021 ought to be set aside, and the proceeding remitted to the District Court for determination on the merits.
- In early 2017 the appellants devised a plan to develop their residential land at Ferny Hills, by converting the land to a community titles scheme and selling lots in the scheme. For this purpose, they incorporated a company, Owarra Pty Ltd, of which they became the directors.
- The appellants and Owarra entered into a Development Agreement dated 21 March 2017. Under the Development Agreement, Owarra agreed, at its cost, to develop 11 lots on the appellants’ land, which included carrying out all the building work, marketing and selling each lot and securing finance to complete the project. Owarra was required to issue tax invoices to the appellants for all development costs and project management fees. On the sale of each lot, they agreed that “nett settlement proceeds after payment of Mortgagee payout, Owarra Tax Invoices and Third Party” [although it is not clear what “Third Party” was a reference to] would be retained by the appellants “as consideration for allowing Owarra to develop the property”.
- The appellants were assisted by Mr Laidlaw, a finance broker, to raise funds for the Owarra project. In addition to substantial loan funds obtained from Assured Management Ltd, secured by mortgage, Mr Laidlaw negotiated with the respondent (and presumably others) to invest in the project by subscribing for a partly paid share (said to be a redeemable preference share) issued by Owarra. The arrangement was somewhat presciently referred to as a “manufactured equity product” (MEP) agreement.
- On 19 April 2017, each of the appellants (as “Owner”), Owarra and the respondent (referred to as Birkenhead) entered into an agreement called the MEP Payment Agreement. The MEP Payment Agreement was executed as a deed.
- The recitals to the MEP Payment Agreement record the following:
“A. Birkenhead has entered into Manufactured Equity Product (MEP) Agreement with Owarra.
B. Owarra has issued Birkenhead 1 E Class Special Share partly paid to $131,000.00.
C. Owarra acknowledges receipt of payment in the sum of $131,000.00 from Birkenhead.
D. Birkenhead acknowledges perusing Development Agreement between Owarra and Owner dated April 2017.
E. Birkenhead, Owarra and Owner agree that Owner will arrange payment to Birkenhead the sum of $186,500.00 from settlement proceeds for sale of proposed Lot 2 for the Owarra Project at 32 Owarra Avenue West, Ferny Hills (Lot 2).”
- It is not clear whether or not the MEP Payment Agreement is the same thing as, or a separate agreement from, the “Manufactured Equity Product (MEP) Agreement” referred to in recital A. Counsel for both parties said they were not aware of any other agreement and proceeded on the assumption they were one and the same. There was no other agreement in evidence in the court below. However, I am left in some doubt about this, because it seems unusual for an agreement to recite the existence of itself; the MEP Agreement referred to is apparently one between Birkenhead and Owarra (not the appellants, Birkenhead and Owarra); and presumably there was an agreement entered into relating to the payment of $131,000 by Birkenhead to Owarra for the 1 E Class Special Share (which is not the subject of the MEP Payment Agreement). However, this is but one of a number of unusual features of the contractual arrangements in this matter.
- Clause 2 of the MEP Payment Agreement provided as follows:
“2. DISTRIBUTION OF SETTLEMENT PROCEEDS OF LOT 2
2.1 Owner covenants with Birkenhead and Owarra that the sum of $186,500.00 will be paid out of the settlement proceeds for sale of Lot 2 immediately and first before balance of settlement proceeds are disbursed.
2.2 Payment of the $186,500 will be made electronically to:
[bank account details]
Name: Birkenhead Super Pty Ltd
2.2 Failure to effect payment within seven (7) days of settlement will result in ten percent [10%] per annum interest on the amount outstanding becoming due and payable when payment is affected.
2.3 Birkenhead agrees with Owarra that the 1 E Class Special Share will be cancelled in exchange for Birkenhead receiving payment in the sum of ONE HUNDRED AND EIGHTY SIX THOUSAND FIVE HUNDRED DOLLARS ($186,500.00).”
- There was no direct evidence of the acquisition of the share referred to in recital B. However, the parties (and, as discussed below, the subsequently appointed liquidator of Owarra) seem to have proceeded on the accepted basis that the full price of the share was $413,500.00. As Owarra’s Constitution was not in evidence, it is not clear what rights or restrictions attached to the share.
- On 25 May 2017, one of the appellants, Mr Halvorson, sent an email to Mr Klanberck, a director of the respondent, referring to a building delay and saying: “I understand from Ian that due to this delay (outside of our control) a $5k adjustment to your return be offered and adjustment of current paperwork to reflect this”. Mr Klanberck responded saying “Thank you for the $5K adjustment”. This was relied upon as a variation to the MEP Payment Agreement.
- The development was eventually completed. The community titles scheme was registered in May 2018 and, relevantly, lot 2 was sold in August 2018 for $469,000. After payment of the mortgagee (Assured Management Limited) and other disbursements, an amount of $31,828.73 was left to be paid to the appellants.
- No payment was made to the respondent, and the special share was not cancelled.
- Owarra went into liquidation on 19 November 2018. Subsequently, the liquidator made a demand on the respondent to pay to Owarra the sum of $282,000, said to be the balance price of the 1 E Class Special Share (roughly, the full price of $413,500, less the partly paid amount of $131,000). That claim was settled in June 2020 on the basis of a payment of $30,000 by the respondent to the company.
- The respondent brought proceedings against the appellants in the District Court, seeking to recover the money it says is owed to it under the MEP Payment Agreement ($186,500 plus the variation to add $5,000). At the hearing of the summary judgment application from which this appeal has been brought, the respondent sought, and was granted, leave to amend its claim to include the $30,000 paid to the liquidator. The appellants denied the respondent had any entitlement to be paid under the MEP Payment Agreement, in essence, because it was an implied term of that agreement that the respondent would only be paid if there were surplus funds after payment to the mortgagee and, in any event, on the basis that until the special share was fully paid it would be unlawful for Owarra to redeem the share.
- The latter argument arises from s 254K of the Corporations Act 2001 (Cth), which provides:
“254K Other requirements about redemption
A company may only redeem redeemable preference shares:
- (a)if the shares are fully paid-up; and
- (b)out of profits or the proceeds of a new issue of shares made for the purpose of the redemption.”
- The respondent brought an application for summary judgment in respect of its claim. The appellants cross-applied for summary dismissal of the respondent’s claim – principally on the basis that the MEP Payment Agreement was unlawful because it contravenes s 254K of the Corporations Act, and is therefore unenforceable. Both applications were heard on 27 October 2020. For the reasons given on 9 April 2021, the appellants’ application was dismissed, and the respondent’s application was allowed, with summary judgment being entered for the respondent in the sum of $221,500 (the whole of the respondent’s (plaintiff’s) claim, including as amended to include the $30,000 paid to the liquidator) plus interest and indemnity costs.
- The judge at first instance described the arrangement between the parties as “a complicated arrangement for what was essentially an investment by the plaintiff in the development of the defendants land” (at ). In relation to s 254K of the Corporations Act, his Honour said:
“ The issue of s 254K of the Corporations Act is in my view not sufficient to defeat the plaintiff’s claim, whether it is ultimately determined that the share was to be redeemed or cancelled. Clearly the Plaintiff received the share in good faith, as security for repayment of the amount agreed to be repaid, having invested $131,000.00 as per the MEP Agreement.
 Section 254L says that contravention of ss 254J or 254K does not affect the validity of the redemption of shares or any contract or transaction connected with the redemption.”
- In relation to the MEP Payment Agreement itself, his Honour said:
“ It seems to me that the terms of the agreement are plain on their face. In exchange for the plaintiff agreeing to lend the defendant and/or Owarra the sum of $131,000.00, the defendants issued a redeemable preference share in Owarra to secure payment to the plaintiff of $186,500.00. Upon repayment of that sum the plaintiff would surrender the share for cancellation, ie, surrender the security of the share.”
- His Honour found that, having regard to clause 2.1 of the MEP Payment Agreement, “the obligation to pay Birkenhead was prior to any other amount which was to be paid from the sale proceeds, subject only to the sale price being sufficient to make that payment” (at ) and that there was “nothing in the agreements which would put Birkenhead on notice that it was to receive the moneys due and payable to it only after payment to a mortgagee” (at ).
- His Honour was also satisfied that there was an agreement between the parties in relation to the payment of $5,000 for the delay (at ) and that the respondent was also entitled to amend its claim to recover the $30,000 paid to the liquidator because “this is an amount which arises as a direct consequence of the defendants’ [appellants’] default under the agreement” (at ).
- His Honour was satisfied the appellants had no real prospect of successfully defending the respondent’s claim and that there was no need for a trial, and granted summary judgment accordingly.
- The appellants appeal from that decision, on the grounds that the judge at first instance:
- (a)erred in finding that the application of s 254K of the Corporations Act was not sufficient to defeat the plaintiff’s claim;
- (b)erred in finding that the terms of the MEP Agreement are “plain on their face”, when the terms and effect of that agreement are uncertain;
- (c)erred in finding that the plaintiff was entitled to recover an additional sum of $30,000 from the defendants, as a “direct consequence of the defendants’ default”, when no lawful basis for such liability existed;
- (d)erred in finding that the defendants had no real prospect of defending the plaintiff’s claim; and
- (e)erred in failing to give adequate reasons for the decision.
- The parties agreed that the judge at first instance correctly articulated the legal principles which apply to an application for summary judgment under r 292 of the Uniform Civil Procedure Rules 1999, by reference to this Court’s decision in Deputy Commissioner of Taxation v Salcedo  2 Qd R 232. His Honour was cognisant of the need to be satisfied the appellants (defendants) “ha[d] no real prospect of successfully defending all or a part of the plaintiff’s claim” and that “there is no need for a trial of the claim” and in those respects of the “high degree of certainty about the ultimate outcome of the proceeding” which is required before exercising the discretion to give judgment summarily.
- In my respectful view, neither of those preconditions to the appropriate exercise of the discretion were present in this case.
- First, in relation to the MEP Payment Agreement itself, I respectfully disagree with the conclusion that the “terms of the agreement are plain on their face”. The judge at first instance alludes to some of the ambiguities in his Honour’s reasons – describing the arrangement variously as either an investment or a loan; when describing it as a loan, referring to it as a loan to “the defendant and/or Owarra”; and referring to the issue of the share as security for the purported loan, in circumstances where there is no reference to this in the agreement itself. Indeed, there was no pleading by the respondent (plaintiff) of a loan, or the issue of the share as security for any loan (beyond a bare allegation that the appellants (defendants) “sought to borrow funds to progress the Owarra Project”); and there was an express pleading in the defence that “at no time did Owarra, or the defendants, borrow funds from the plaintiff”.
- There are other ambiguities as well, including: whether or not there was a separate “Manufactured Equity Product (MEP) Agreement”; the relationship, if any, between the Development Agreement (which the respondent, Birkenhead, acknowledges, in recital D, that it has perused) and the MEP Payment Agreement; what the rights and/or restrictions attaching to the E Class Special Share were; who held the obligation to pay the sum of $186,500 referred to in clause 2.1; the meaning of the phrase “balance of settlement proceeds” in clause 2.1; whether the obligation to pay under clause 2.1 arose in priority to the obligation to pay the mortgagee under the Development Agreement; the effect of the agreement in clause 2.3 that the share “will be cancelled” in exchange for the respondent (Birkenhead) receiving payment of $186,500; and how that is to be construed in light of s 254K of the Corporations Act.
- As articulated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352:
“… [w]hen the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.”
- Here, the court below did not have evidence of the objective framework of facts within which the MEP Payment Agreement came into existence. In the absence of that, and in light of the competing arguments, it could not reasonably be concluded that the appellants had no real prospect of successfully defending the claim and a trial of the claim was necessary in order to properly construe the MEP Payment Agreement and determine the merits of the respondent’s (plaintiff’s) claim.
- That conclusion is only reinforced having regard to s 254K of the Corporations Act.
- Perhaps, at trial, the objective framework of facts would provide an answer to this, but on its face at least, the MEP Payment Agreement does appear to fall foul of s 254K. The agreement apparently reached between the parties was that the respondent would pay $131,000 to Owarra; Owarra would issue a partly-paid share to the respondent; upon the sale of lot 2, the respondent would be paid $186,500 (the amount of the original investment, plus a bonus of $55,500) from the settlement proceeds; and Owarra would then redeem the share and cancel it. Contrary to the express requirement under s 254K(a), the share would not be fully paid-up before being redeemed (and there was no suggestion otherwise of the payment being out of profits or the proceeds of a new share issue (s 254K(b)). Counsel for the respondent submitted the share could be cancelled in other ways, for example, forfeiture or by way of reduction of share capital under s 256B of the Corporations Act. But it is not apparent either of those could, or were intended to, apply.
- Section 254L(1) does provide that if a company redeems shares in contravention of s 254K, the contravention does not affect the validity of the redemption or of any contract or transaction connected with it, and the company is not guilty of an offence. However, importantly, under s 254L(2) any person who is involved in a company’s contravention of s 254K is exposed to a civil penalty (and, under s 254L(3), if the involvement is dishonest, the person commits a crime).
- In the present case, the share was not redeemed (and consequently cancelled). So the issue is not whether any redemption was valid as between the company and the shareholder (cf s 254L(1)). The issue is whether the agreement providing, as it purported to do, for the redemption of the partly paid share, contrary to the express prohibition in s 254K, is enforceable. The parties are presumed to have contracted on the basis of the law, including s 254K of the Corporations Act. They cannot be presumed to have assumed obligations which it is unlawful for one of them to fulfil.
- The ultimate determination of liability remains a question of construction of the agreement. However, in my respectful view, contrary to the conclusion of the judge below, s 254K could well be “sufficient to defeat the plaintiff’s claim”, depending on the findings made at trial.
- It follows from the matters already addressed that, in my view, the conclusions that the respondent was “clearly” entitled to recover the $5,000 the subject of an email exchange between one of the appellants and one director of the respondent, and that the $30,000 paid to the liquidator arose “as a direct consequence” of the appellants’ default under the MEP Payment Agreement, are also attended by doubt.
- I would allow the appeal, with costs; set aside the judgment given on 9 April 2021; dismiss the respondent’s (plaintiff’s) application for summary judgment; and remit the question of the costs of the applications heard on 27 October 2020 to the District Court.
Cf the documents at AB 283-288, which appear to relate to an earlier (March 2017) iteration of the arrangement, or a separate arrangement, relating to subscription for a share to which lot 6 would be allocated, with an accompanying occupation entitlement.
The price for the E class special share in respect of lot 6 (AB 288).
See paragraph 3(b) of the Further Amended Statement of Claim (AB 18-19).
See paragraph 3(c)(v) of the Second Amended Defence of the Defendants (AB 23).
Heesh v Baker (2008) 67 ACSR 192 at , referring to Federal Commissioner of Taxation v Coppleson (1981) 39 ALR 30 (at 36); see also Kandelka Management Pty Ltd v Pisces Group Ltd (2009) 76 ACSR 113 at .
Cf  of the Reasons, AB 12.
- Published Case Name:
Halvorson & Anor v Birkenhead Super Pty Limited atf Birkenhead Superannuation Benefits Fund
- Shortened Case Name:
Halvorson v Birkenhead Super Pty Limited atf Birkenhead Superannuation Benefits Fund
 QCA 211
McMurdo JA, Mullins JA, Bowskill SJA
01 Oct 2021