Galacoast Pty Ltd v McLeod[2008] QSC 103

SUPREME COURT OF QUEENSLAND

[1] SKOIEN AJ:  This is an application by the applicants (“G & K”) to review the decision of the first respondent (“the Registrar”) that $186,147.50, being money held by the District Court of Queensland (the “money”) in file No 544 of 2007, in the Southport Registry be paid out to the second respondent (“Artworld”).  G & K are said to be aggrieved by the decision because the money is their property, being commission payable to them pursuant to a completed contract for services which was paid into court from the trust account held by G as required by s 389(b) of the Property Agents and Motor Dealers Act 2000 (“PAMDA”).

[2] The grounds of the application are that the making of the decision was an improper exercise of the power conferred by the enactment under which it was purported to be made, that the decision involved an error of law and that the decision was induced or affected by misrepresentation.

[3] G & K were the duly appointed joint agents (under an executed Form 22a of PAMDA dated 20 May, 2007) of Artworld to sell its real estate property.  On 1 July 2007 G & K brought about the sale of the property, Artworld and the purchaser, Smith, that day executing the contact of sale.  The deposit ($337,500) was paid into G’s trust account.

[4] The total commission payable to G & K was $186,000 as calculated under Part 7 of the Form 22a.

[5] The Artworld/Smith sale was completed on 30 August 2007.  On that day G & K received a facsimile from Artworld’s solicitor instructing them not to release $188,876 (sic) “being your commission, GST and outlays” saying that it was a sum under dispute between Artworld and Smith, instructing them to continue to hold that money and citing (wrongly) s 12(4) of the Trust Accounts Act 1973.  The operative legislative provisions were PAMDA, s 387 (notice of dispute), s 388(a)(ii) (dispute litigation) and s 389(b) (payment into court mandated).

[6] On 28 September 2007 Artworld took action in the Supreme Court against Smith and G seeking a declaration that Artworld was beneficially entitled to the deposit and an order that G pay a sum of money into court.  G paid the money (the commission of $186,147.50) into court.  The parties then agreed that an action in the District Court was the appropriate course.  That action was commenced and the money was paid into the District Court pursuant to s 389(b) of PAMDA by consent orders dated 1 November 2007 and 24 January 2008.  The Artworld/Smith dispute, I am told, “appears to be resolved”.

[7] On 22 April 2008 Artworld appointed an administrator under Part 5.3A of the Corporations Act 2001 (Cth).  On that day the administrator wrote to the solicitors for G & K, in part saying:

“Please be advised that pursuant to s 437D of the Corporations Act 2001, I am seizing the funds paid into Court with the consent of the registrar of the District Court at Southport.

I request that your client cease further action in this matter (and any associated legal action against the company) pursuant to s 440D of the Corporations Act 2001. Please note that as I will be seizing the funds (which will form part of the distributable assets of the company), I will not provide my consent to the legal action continuing.

Finally, I recommend you lodge a proof of debt in the Administration (please see attached) for your client’s claim.

Should you have any queries, please liaise with the above contact.”

[8] Despite the mandatory provisions of r 561 of the Uniform Civil Procedure Rules about the payment out of money in court (service of application on all parties; statement of possible conflicting rights), which provisions were not followed, it seems that the Registrar paid out the money to the administrator on or about 6 May 2008.  I have not seen anything in writing constituting a formal request by the administrator or a formal acceptance by the Registrar leading to that action by the Registrar.  There is, however, a letter from the administrator to G & K’s solicitors of 6 May 2008 which is, materially:

“I confirm that on 22 April 2008, I notified the Registrar of the District Court at Southport (“the Registrar”) of my appointment as Administrator of the abovenamed company pursuant to Section 440G(1) of the Corporations Act 2001 (“the Act”).

I note your client’s objection to the release of funds which were previously paid into Court in relation to District Court Matter number 544/07 by the Registrar.

My investigations, into the affairs of the company reveal that the aforementioned funds represent the proceeds arising from the sale of the company’s real property. I note that pursuant to Section 440G(2) of the Act, a court officer (in this case, the Registrar) cannot pay to any person other than the Administrator any proceeds relating to the sale of company property. Further, I note that the Registrar must pay the aforementioned funds to the Administrator pursuant to Section 440G(4) (b) of the Act.

Accordingly the Registrar’s consent is not required for the release of the aforementioned funds held by the Court and I confirm that I will not need to make an application under the Uniform Civil Procedure Rules for the recovery of same.

Finally, please note that the Registrar has since released the funds in question to me and I have receipted the funds accordingly.”

[9] Section 440G of the Corporations Act is relevantly:

“440G  Duties of court officer in relation to property of company

(1)This section applies where an officer of a court (in this section called the court officer), being:

(a)a sheriff; or

(b)the registrar or other appropriate officer of the court;

receives written notice of the fact that a company is under administration.

(2)During the administration, the court officer cannot:

(a)take action to sell property of the company under a process of execution; or

(b)pay to a person (other than the administrator):

(i)proceeds of selling property of the company (at any time) under a process of execution; or

(ii)money of the company seized (at any time) under a process of execution; or

(iii)money paid (at any time) to avoid seizure or sale of property of the company under a process of execution; or

(c)take action in relation to the attachment of a debt due to the company; or

(d)pay to a person (other than the administrator) money received because of the attachment of such a debt.

…

(4)The court officer must pay to the administrator all proceeds or money of a kind referred to in paragraph (2)(b) or (d) that:

(a)are in the court officer’s possession; or

(b)have been paid into the court and have not since been paid out.”

[10] The money in question was not money within paragraph (2)(b) because it was not proceeds of sale or money of the company seized “under a process of execution”.  It was money obtained simply from the sale of the company’s property, paid into court by consent of the parties.  In the absence of a relevant definition or of authority to the contrary, I take the view that “a process of execution” means money seized, or money obtained, on the sale of property under a judgment.  See Danny Morris & Anor v The Ship “Kiama” [1998] FCA 256.  Nor was it money within paragraph 2(d).  It had nothing to do with the attachment of a debt.

[11] Nor was the administrator entitled to demand the money under s 437D, as he originally maintained.  The section applies only in the circumstances laid down in sub-section (1) which is:

“437D  Only administrator can deal with company’s property

(1)  This section applies where:

(a)  a company under administration purports to enter into; or

(b)a person purports to enter into, on behalf of a company under administration;

a transaction or dealing affecting property of the company.”

Neither of those criteria have been shown to apply here and I find it hard to see how either could.

[12] No other justification for the ex parte handing over of the money to the administrator was argued before me.  I hold that the payment out of court was made under an error of law by the Registrar, an error induced by the administrator.

[13] A preliminary point was taken by counsel for Artworld, based on s 440D(1) of the Corporations Act which is:

“440DStay of proceedings

(1)During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except:

(a)with the administrator’s written consent; or

(b)with the leave of the Court and in accordance with such terms (if any) as the Court imposes.”

However it was not vigorously pressed.  After all, this proceeding is to determine whether the money is or is not the property of Artworld.  In any event the substantive points were argued.  No doubt all recognised that the substance would determine whether leave should be given.  In my view leave should be given, which I do now.

[14] A question arises whether the money should stay where it is in the administrator’s account (subject to the administrator’s present undertaking not to deal with it except on seven days notice), or whether it should go back into the District Court to await the resolution of that litigation, as G & K submit it should.  There are three reasons to opt for the latter course.

[15] First, the payment out of court at the request (“demand” might be the more accurate word) of the administrator, was completely unlawful and this court, on a judicial review, cannot permit that.  But as this argument was not really put to me, in deference to the arguments that were put, I will deal with them.

[16] Second, G & K have not expressly told me that they accept the undertaking.  Indeed no undertaking has been given in open Court.  Third, the District Court action takes the form of a claim by G & K against Artworld for the money ($186,147.50) for breach of the contract of employment.  There is a defence that G & K itself breached the contract and a very substantial counter-claim is made against them for damages for negligence or breach of contract or under s 82 of the Trade Practices Act 1974 (Cth).  Thus whether Artworld owes any, and what, money to G & K is very much up in the air.

[17] It cannot be confidently predicted whether the administrator will raise the provisions of s 440D of the Corporations Act to block the District Court action by G & K for the commission.  Despite his letter of 22/4/08 (see par [7]), and assuming the counterclaim to be genuine I would expect the administrator to want to pursue it.  If that is so, it is hard to imagine him not consenting to the action proceeding as a whole and harder to imagine the Court declining to give leave, if that is necessary.

Whose money is it?

[18] The argument for Artworld is that at all material times the money remained its property, which was the basic reason why the administrator claimed it and obtained it.  G & K maintain that the money has at all material times been theirs.

[19] Form 22a contains these two relevant clauses:

“2.1The Client agrees to pay the Agent commission as specified in the Appointment if a Contract of Sale of the Property is entered into with a buyer, whether within the Term or after the Term, where the Relevant Person is the effective cause of the sale within the Term, provided that:

(1)the Contract of Sale of the Property is completed; or

…

  3.1The Client:

(1)authorises the Agent, and

(2)authorises and directs the deposit holder or any other person to whom any deposit is paid under a Contract of Sale, to pay to the Agent any commission to which the Agent is entitled immediately upon:

(a)the entitlement to commission arising; and

(b)production of the Appointment and this Schedule or a copy of them.”

[20] That clause is meaningless unless it is read:

“3.1The Client:

(1)authorises the Agent, and

(2)authorises and directs the deposit holder or any other person to whom any deposit is paid under a Contract of Sale,

to pay to the Agent any commission to which the Agent is entitled immediately upon:

(a)the entitlement to commission arising; and

(b)production of the Appointment and this Schedule or a copy of them.”

Thus the authority of the agent, left hanging in the air as printed in Form 22a, when read as I say it should has something on which to operate.

[21] Thus immediately on the completion of the sale (30/08/07) G & K became, under cl 2.1, entitled to the commission, that is, the money.  But although Artworld, under cl 3.1, had authorised and directed G immediately to pay the commission to G & K, there is no evidence before me that G had actually done so; that is paid G & K the money, as beneficial owners, in law.  The money was still in G’s trust account or, more accurately, was the subject of a chose in action between G and its trust account bankers.  G, in any event (and presumably by cheque), paid the money into court.  But under the terms of cl 3.1, G & K had become on 30/8/07, if not owners at law of the money, the equitable owners of it, or of the chose in action.  Unilaterally G could pay the money to G & K.  They retain that equitable interest.

Did G & K have a lien or charge over the deposit for the money?

[22] It was submitted by counsel for G & K that if G & K did not own the money upon the completion of the contract, they had a lien at common law over it.

[23] The immediate difficulty I see with this proposition is the fact that in general a lien is a possessory security.  In Hammonds v Barclay (1802), 2 East, 227 Grose J described a common law lien as a right in one man to retain that which is in his possession, belonging to another, till certain demands of him, the person in possession, are satisfied.  Sometimes it is implied by law but of course it may be granted by contract.

[24] I was referred to the decision of Moynihan J in Tibmor Pty Ltd v Nashlyn Pty Ltd [1989] 1 Qd R 610, as authority for the proposition that an agent/stakeholder who held the deposit money was entitled to a lien on that money for its commission.  However he seems simply to accept that proposition, there having been no argument to the contrary.  Whether G & K are stakeholders under the contract seems probable, but not beyond doubt.

[25] In Nickelby Pty Ltd v Holden (1993) BC9402375 Young J referred to the difficulty of finding the existence of a lien in a case such as this.  He said:

“It is difficult to see the force of the submissions made by senior counsel for the plaintiff, that in a practical sense a real estate agent who holds money in his trust account has a security to be paid his commission.  There can be no lien in those circumstances over what is in the trust account, and a trust account means what it says, that the agent holds the money on trust for the client, and I find it a baffling proposition that an estate agent would instruct its counsel to say that there was any practical security that it had over the fund.”

Her Honour Wilson J in Active Property Marketing Services v Joelco Pty Ltd [2007] QSC 167 at par [23] seems to be doubtful on the point:

“Even if there can be a lien over moneys in a trust account …”

[26] Bowstead on Agency¸15th ed, p 258 puts it thus:

“Goods and chattels.  In principle, a lien operates over goods and chattels only, including those choses in action which are represented by documents, often called securities, which can themselves be treated as goods and chattels – for example, insurance policies, share certificates, bills of exchange.  It is sometimes said that the lien extends to funds or money held: thus in connection with bankers it has been said that ‘All moneys paid into a bank are subject to a lien’ and the auctioneer’s lien has been said to be over the goods and their proceeds.  It is however difficult to see how a lien can be exercised over money, which will normally be the actual property of the holder subject to a legal or equitable obligation to account for it.  It seems that reference to a lien over money should in many cases be explained as references to the agent’s right to set-off and counterclaim when sued by the principal for the money.  In the case of an auctioneer it may also refer to the auctioneer’s right to sue for the price; or to the rule that the third party may not, to the extent of the auctioneer’s lien, set off against the auctioneer claims which he has against the vendor.”

[27] So there is a question about the possibility of a lien over money rather than over property in respect of which some work has been carried out by the claimant.  G & K say “We have a lien over the money because it is the fee for our services”.  The concept of a lien, not over property to secure the sum due, but over the sum itself is difficult to fathom.  That the thing can be security for the thing itself does not seem correct to me, in the absence of authority.  I note that in Campbell v Smith (1887) 13 VLR 439, the lien was held to be over a cheque which the plaintiffs held in possession, that is, over a piece of property.

[28] Is there some equitable lien?  That class of lien is still open, as the authors of Sykes and Walker, The Law of Securities, 5th ed, say at p 199.  It arises purely from implication of law, ibid.  None of the examples listed by the authors assist G & K here.  It should be noted that in Hewett & Ors v Court and Anor (1983) 149 CLR 639, to which I was referred (criticised by those authors) the majority of the High Court accepts that there was an equitable lien over a pre-fabricated house, holding that it was a case of a contract for work and labour over a piece of property.

[29] I have not been able to locate in any of the authorities to which I have referred, or in Sykes and Walker, or in 28 Halsbury’s Laws of England, 4th ed, title LIEN, any authority for the submission that G & K acquired a lien over the money when it was in the trust account of G, or a subsequent time.

[30] The learned authors of Land Contracts in Queensland 2004 Franklin Press, after reviewing the cases, say this:

“Thus it seems in Queensland, in any case, upon notification by the parties of a dispute, the agent assumes the role of a statutory stake-holder, neither as agent for the seller nor the buyer.  In doing this the agent must hold the deposit with the continuing limitation of being unable to invest the stake for personal benefit as at common law, but with the right of a lien for commission presumed.”

[31] That cannot be the case here.  First, it deals with the consequences of a dispute between vendor and purchaser and the position of the agent as between them, not as against all the world or, here, against the vendor.  Second, it deals with the existence of a lien being security for a sum (the commission) over a larger sum (the deposit).  Here it is a case of the effect of the trust on which the commission money is held (cl 2.1; 3.1 particularly) together with the effect of the provisions of PAMDA.

Conclusion

[32] The unlawful payment out of the money should be corrected.  Further, the money was and is, in equity, the property of G & K.  I order that Artworld pay the money, with any accretions, into the Southport District Court Registry in action number 544 of 2007.  I will hear submissions on costs.