Winau Aust Pty Ltd v LCC Property Development Pty Ltd

1. [1]

   By Notice of Motion dated 17 December 2021, the first, second and fourth plaintiffs (applicants) seek orders that the appearance and defence filed by W Advisers on behalf of the first defendant, LCC Property Development Pty Ltd (LCC), should be struck out. W Advisers take their instructions from Mr Bradd Morelli, who is acting as receiver and manager of LCC. The essential issue is whether Mr Morelli was properly appointed as receiver and manager of LCC.

2. [2]

   The Applicants rely on two affidavits of Mr Dominic Lim affirmed on 16 December 2021 and 9 March 2022 and an affidavit of Ms Li Min, solicitor, affirmed on 16 June 2022. LCC relies on two affidavits of Mr Allen Hsu affirmed 25 February 2022 and 30 May 2022 and an affidavit of Mr Mark Wilson, solicitor, affirmed on 4 May 2022. None of the witnesses were cross-examined.

3. [3]

   Mr Hsu is a director of Aquamore Credit Equity Pty Ltd (Aquamore) which is the company which appointed Mr Morelli receiver and manager of LCC. Mr Hsu gave evidence that (a) Aquamore and its related entities including MF Capital Pty Ltd (MF Capital) and Gold Coast Cash Loans Pty Ltd (GCC) conduct a commercial credit and finance business; (b) MF Capital was the holding company of GCC, and (c) at the time of all the transactions described below he was the key decision-maker regarding the lending and enforcement activities of these entities. When entering into the transactions described below, MF Capital and GCC were each acting as the trustee of a trust, but nothing was said to turn on this for the purposes of this interlocutory application.

4. [4]

   The issue as to whether Mr Morelli was properly appointed as receiver and manager of LCC needs to be determined now, on an interlocutory application, because if the Applicants are correct, the defence which has been filed by LCC would not be properly verified by the person with authority to act on behalf of LCC. The Applicants do not contend that LCC cannot defend the substantive allegations made against it at trial, should it wish to do so, but rather that Mr Morelli has no role to carry out in any such defence. It is clearly important that there be no issue at trial as to whether the defence filed on behalf of LCC is properly before the court.

Background

1. [5]

   On 24 February 2017, MF Capital as Financier entered into a facility agreement with LCC as Borrower and a number of persons as guarantors, providing for a loan facility of $600,000 by MF Capital to LCC (Facility Agreement). The guarantors are Mr Scott Chan, who was then the sole director of LCC, Silver Base Group Holdings Pty Ltd (SBGH), Silver Base Holdings Pty Ltd (SBH) and Chan Property Investment Holdings Pty Ltd (CPIH).

2. [6]

   Relevant provisions of the Facility Agreement are as follows:

3. [7]

   Relevant definitions of capitalised terms in the above provisions are set out in cl 1.1 as follows:

4. [8]

   Also, on 24 February 2017, LCC and the corporate guarantors entered into a number of securities (Securities) in favour of MF Capital, comprising:

5. [9]

   Also, on 24 February 2017, MF Capital, as assignor, and GCC, as assignee, entered into a Deed of Assignment (First Assignment Deed). The recitals to the First Assignment Deed state:

6. [10]

   The operative provisions of the First Assignment Deed are cll 2 and 3 which provide as follows:

7. [11]

   The expression “Securities” is defined to mean each of the Securities referred to in [8] above together with the guarantee contained in the Facility Agreement, and “Settlement Sum” and “Settlement Date” are defined as follows:

8. [12]

   The assignment under cl 3.1 is expressed to become operative on payment being made of the Settlement Sum. Clause 2.3 required MF Capital to give a notice (required by cl 9 to be in writing) specifying the amount of the Settlement Sum at the Settlement Date but it appears that no such notice was given. It is not in dispute that the Settlement Sum as at 24 February 2017 was $618,000 assuming the advance of $600,000 made on that day was made under the Facility Agreement, comprising the amount of the advance plus the establishment fee of $18,000 payable under cl 17.1(a).

9. [13]

   The evidence establishes that the following steps were taken to implement the transactions contemplated by the above documents:

10. [14]

    It is not immediately apparent why Mr Hsu arranged for MF Capital to enter into facility documents with MF Capital as lender followed by the provision of the funds for the full amount of the advance under the facility to the borrower by GCC and then for MF Capital to purport to assign the benefit of all its rights under the facility to GCC, all on the same day. Mr Hsu gave evidence that after MFC Capital had entered into the transaction documents, “a business decision was made by me with the approval of the directors of both MF Capital and [GCC] to assign the Loan to [GCC]”. It would obviously have been much simpler if the entity nominated as Financier under the facility had been changed from MF Capital to GCC (in which event the present issue would not have arisen). The explanation for why that was not done may well be, as suggested by counsel for LCC, that this would have delayed the provision of the loan to LCC which appears to have needed the funds urgently, as the documentation (including supporting declarations from the guarantors that they had received legal advice) would need to have been redone. Ultimately nothing turns on this for present purposes.

11. [15]

    LCC failed to pay the principal (and interest) owing on the due date under the Facility Agreement (being 24 August 2017). In October 2017 Mr Hsu agreed with Mr Chan to extend the repayment date to 24 November 2017 but no repayment was received by that date (or subsequently).

12. [16]

    On 14 February 2018, Mr Hustler (the solicitor at Independent Legal acting for MF Capital), sent a letter to LCC on behalf of MF Capital stating that the amount outstanding under the Facility Agreement was $928,613.31 and that, if payment was not made within five days of the date of the letter, MF Capital would commence recovery action for the amount owing plus interest and costs. I note the letter made no reference to the assignment to GCC under the First Assignment Deed and, consistently with the fact that notice in writing of the assignment under s 12 of the Conveyancing Act 1919 (NSW) had not yet been given to LCC, MF Capital remained the person entitled at law to the benefit of the rights of the Financier under the Facility Agreement and associated Securities. Following the letter, further discussions occurred between, amongst others, Mr Chan on behalf of LCC and Mr Hsu on behalf of MF Capital, but no payment of any amount owing was made by LCC.

13. [17]

    On 11 December 2018, a second deed of assignment was entered into by GCC as assignor and Aquamore as assignee (Second Assignment Deed).

14. [18]

    The recitals to the Second Assignment Deed are as follows:

15. [19]

    Clause 3 of the Second Assignment Deed is in substantially the same terms as the corresponding clause of the First Assignment Deed and under it GCC assigned to Aquamore “its right, title and interest in the Securities, the debt secured by or payable under the Securities and the benefit of all [GCC’s] rights, powers and entitlements under the Securities in consideration of [Aquamore] paying the Settlement Sum”. The expression Securities has the same meaning as in the First Assignment Deed and “Settlement Sum” is defined to mean the sum of $300,000. This amount was paid by Aquamore to GCC on 11 December 2018.

16. [20]

    On 4 March 2019, MF Capital, GCC and Aquamore entered into a deed entitled “Assignment Confirmation Deed” (Assignment Confirmation Deed) which made some amendments to deal with what was referred to as an administrative error in the description of the Corporate Guarantors in the First Assignment Deed and the Second Assignment Deed.

17. [21]

    The Assignment Confirmation Deed provides as follows:

18. [22]

    On 5 March 2019, Aquamore gave written notice of the assignments under both the First Assignment Deed and the Second Assignment Deed to LCC and each of the Guarantors (Mr Chan, SBGH, SBH and CPIH). It is not in dispute that each of these notices were in a form which complies with s 12 of the Conveyancing Act 1919 (NSW).

19. [23]

    On or around 3 May 2019, Aquamore and Mr Morelli entered into a deed entitled “Deed of Appointment of Receiver and Manager” under which Aquamore appointed Mr Morelli as receiver and manager of LCC (and also SBGH, SBH and CPIH) and the secured property under each Security (Deed of Appointment). As at the time of execution of the Deed of Appointment, no payment had been made by LCC (or any of the Guarantors) to MF Capital, GCC or Aquamore of any of the moneys owing under the Facility Agreement.

Submissions

1. [24]

   The applicants submitted that Mr Morelli’s appointment as receiver and manager in relation to the property of LCC is not valid. This rested on two propositions. The first is that no advance of $600,000 was made by MF Capital to LCC under the Facility Agreement. The Applicants do not dispute that $600,000 was paid to LCC on 24 February 2017 (by payment to the LJ Hooker account nominated by LCC). Rather, it was submitted that the payment of this amount by GCC could not be an advance under the Facility Agreement because GCC was not a party to it. It was submitted that on the proper construction of the Facility Agreement it was MF Capital which was to provide the $600,000 advance to LCC and vicarious performance of that obligation was not possible: Davies v Collins [1945] 1 All ER 247.

2. [25]

   Second, the Applicants submitted that even if there was an advance by MF Capital under the Facility Agreement, there was no assignment of the debt (and associated Securities) under the First Assignment Deed because a condition precedent to the assignment under cl 3.1 of that Deed was the payment of the Settlement Sum and that did not occur because first, a notice was not given under cl 2.3 specifying the Settlement Sum and second, there was no payment to MF Capital of the amount of the Settlement Sum which was $618,000 not $600,000.

3. [26]

   LCC opposed the relief sought on the basis that Mr Morelli was validly appointed as receiver and manager for essentially the following reasons:

   1. (1)

      On 24 February 2017, MF Capital directed GCC to make available the “facility” under the Facility Agreement, being an advance of cash of $600,000 to LCC.

   2. (2)

      On 24 February 2017, by the General Security Deed, LCC granted a security interest in its property to MF Capital to secure its obligation to repay the advance made to it under the Facility Agreement.

   3. (3)

      On 24 February 2017, MF Capital assigned in equity its rights under the Facility Agreement and the Securities to GCC, which then assigned its rights under the Facility Agreement and the Securities to Aquamore on 11 December 2018. Each assignment was perfected on 5 March 2019, when LCC was given written notice of the assignment pursuant to s 12 of the Conveyancing Act 1919 (NSW): Bateman v Hunt [1904] 2 KB 530.

   4. (4)

      Aquamore, as assignee at law of MF Capital’s rights to repayment of the debt under the Facility Agreement and the Securities could lawfully appoint, and did lawfully appoint, a receiver and manager to LCC’s property in the event of LCC’s non-payment of the amount advanced to it under the Facility Agreement.

Consideration

1. [27]

   It is convenient to approach the matter by addressing the following key issues:

   1. (1)

      Did MF Capital advance $600,000 to LCC pursuant to the Facility Agreement when GCC paid that amount to LCC on 24 February 2017.

   2. (2)

      Did MF Capital become indebted to GCC for $600,000 on the making of that payment by GCC to LCC?

   3. (3)

      Did MF Capital assign the benefit of the debt outstanding under the Facility Agreement and the associated Securities to GCC under the First Assignment Deed?

   4. (4)

      Did GCC assign the benefit of that debt and associated Securities to Aquamore under the Second Assignment Deed?

   5. (5)

      Did Aquamore validly appoint Mr Morelli as receiver and manager of the property of LCC under the Deed of Appointment?

2. [28]

   The applicants contended that MF Capital did not make an advance of $600,000 to LCC under the Facility Agreement for essentially two reasons. First, it was said that the Facility Agreement does not permit vicarious performance by MF Capital of its obligation under cl 2.1 to make available the facility in a fully drawn cash advance to LCC so that MF Capital did not make an advance to LCC when the payment of $600,000 was made by GCC to LCC. Second, it was said that LCC did not give a drawdown notice in writing as required by cl 4.1 which contains a mandatory requirement in order for an advance to be made under the Facility Agreement.

3. [29]

   As to the first matter, vicarious performance is a means by which a party to a contract performs its own obligations under the contract, and does not alter the contracting parties. As Lord Greene said in Davies v Collins [1945] 1 All ER 247, an authority relied on by the applicants, at 250:

4. [30]

   In that case, which concerned a contract to clean a military uniform, it was held that vicarious performance was not authorised. However, the circumstances of that case (where it could be inferred from the subject matter of the contract that it was to be performed personally) are materially different from the situation of a loan here and the reasoning is clearly distinguishable. It is beyond doubt that an obligation to advance money under a loan agreement can be vicariously performed and, absent some contrary provision in the loan agreement, vicarious performance by the lender will be authorised.

5. [31]

   In North v Brown [2012] EWCA Civ 223, A (Mr Brown) had entered into an agreement with B (Mrs Clothier, the grandmother of his wife) to make advances by way of loan to B on terms that if B died before the loan was repaid, her estate would have an obligation to repay the loan. A arranged for the advances to be made to B by a company which he and his wife controlled. After B’s death, B’s estate contended that the contract did not permit vicarious performance so that the estate was not bound to repay the loan. The Court of Appeal held that A had made the loans to B by vicarious performance, and therefore A could recover the amount of the loan from B’s estate. Lewison LJ (with whom Burnton and Kay LJJ agreed) said at [6]:

6. [32]

   In my view, as LCC submitted, there is nothing in the Facility Agreement which precludes vicarious performance of MF Capital’s obligation to make an advance of $600,000 to LCC. First, there is no express term which requires personal performance by MF Capital. Clause 2.1(a) merely states that MF Capital “agrees to make available to the borrower the facility, in a fully drawn cash advance …”, and does not specify that it must be MF Capital which does so. Indeed, it would be surprising if it did. Second, while cl 3.1 states that MF Capital “may fund the Advance once it has received all of the documents and information specified in Part A of Schedule 1 in a form and substance satisfactory to it …”, this is not a statement that MF Capital must personally make the advance to the Borrower. Third, cl 18.2 is relevant because by permitting MF Capital to “novate or otherwise deal with its rights and obligations without the consent of LCC”, it clearly indicates that LCC did not regard the personal performance of MF Capital’s obligations to be essential.

7. [33]

   As to the second matter, the requirement of cl 4.1 for the Drawdown Notice to be provided in writing two business days before the proposed Drawdown Date was not satisfied. However, it is clear from the terms of cl 3 and cl 4 of the Facility Agreement that this requirement was for the sole benefit of MF Capital and was capable of being, and was, waived by it: Lauvan Pty Ltd v Bega [2018] NSWSC 154; 330 FLR 1 at [206]-[210].

8. [34]

   It is not in dispute that GCC paid the amount of $600,000 on 24 February 2017 to an account nominated by Mr Chan on behalf of LCC by his email of that day. Given that the transaction record for the debit to GCC’s account with the Commonwealth Bank describes the payment as a “Loan to LCC” and the terms of the First Assignment Deed, it is to be inferred that the payment could only be referable to the Facility Agreement (there being no other agreement for a loan to LCC to which it could be referable). It follows that MF Capital made an advance of $600,000 to LCC on that date pursuant to the Facility Agreement by vicarious performance.

9. [35]

   The next question which arises is the nature of the obligation, if any, which arose as between MF Capital and GCC in respect of the advance to LCC. The payment by GCC to the nominated account of LCC was made by Mr Hsu who gave uncontested evidence that he was the key decision-maker regarding lending and enforcement activities by all group entities, including MF Capital, GCC and Aquamore. It may be inferred that Mr Hsu, acting on behalf of MF Capital, effectively directed GCC to make the payment to LCC on behalf of MF Capital in order to satisfy MF Capital’s obligation to make the Advance to LCC. This is because the transaction entry for the payment characterised it as a loan to LCC and Mr Hsu knew that the payment needed to be characterised in this way in order to create the debt which was to be assigned by MF Capital to GCC and thereby enable the First Assignment Deed to come into effect. Money paid at the direction or request of another, either express or implied, is recoverable by the payer from that person as a debt: Barclay v Gooch (1797) 2 Esp. 571; 170 ER 459; Wilson v Cox [1925] VLR 586; 31 ALR 436; Johnson v Royal Mail Steam Packet Co (1867) LR 3 CP 38.

10. [36]

    This conclusion makes commercial sense because logically, Mr Hsu could not have intended that GCC would pay $600,000 to LCC (without any right of indemnity or reimbursement from MF Capital) and then have in addition an obligation to pay the Settlement Sum ($618,000) for the assignment of the very debt arising from the payment of the amount of $600,000.

11. [37]

    Clause 3.1 of the First Assignment Deed was an agreement by MF Capital to assign to GCC the debt of $618,000 owing by LCC and the associated Securities. GCC was required to pay the “Settlement Sum” to MF Capital on 24 February 2017, or such other date as notified by MF Capital under cl 10.7. No such notice was given so that the Settlement Sum was due on 27 February 2017.

12. [38]

    The Settlement Sum was the amount of $618,000 being the advance of $600,000 plus the establishment fee of $18,000 owing under cl 17.1 of the Facility Agreement.

13. [39]

    Clause 2.3 of the First Assignment Deed required MF Capital to give written notice to GCC of the Settlement Sum which did not occur.

14. [40]

    The applicants contended that no assignment occurred under the First Assignment Deed for two reasons. First, it was said that cl 2.3 contained a mandatory requirement which, because it was not satisfied, has the consequence that no assignment occurred. Second, it was contended that the Settlement Sum was not paid, or was not paid in full, by GCC so that cl 3.1 of the First Assignment Deed did not operate.

15. [41]

    LCC submitted that cl 2.3 was not a condition precedent to the operation of the assignment under cl 3.1, but merely a term the non-performance of which would result in a breach capable of being remedied by nominal damages but this would not invalidate the assignment. LCC also submitted that the Settlement Sum was paid by a set-off because Mr Hsu’s evidence was that he understood that the Settlement Sum at the time of the Advance being made on 24 February 2017 was fixed at $600,000. It was then said that in accordance with established principles of set-off, two mutual debts for the same amount (MF Capital’s debt to GCC of $600,000 by way of indemnity and GCC’s debt to MF Capital for $600,000 for the Settlement Sum) were set-off thereby constituting payment of each: In Re Harmony and Montague Tin and Copper Mining Company (1873) LR 8 Ch App 407; Federal Commissioner of Taxation v Steeves Agnew and Co (Victoria) Pty Ltd (1951) 82 CLR 408; [1951] HCA 26; Re Application of Keith Bray Pty Ltd (1991) 23 NSWLR 430. LCC’s fallback position was that the Assignment Confirmation Deed has the result that MF Capital would now be estopped, under the principle of conventional estoppel, from contending otherwise.

16. [42]

    I accept that it may be inferred that GCC’s obligation to pay MF Capital $618,000 as the Settlement Sum on 24 February 2017 was reduced to $18,000 by a set-off against MF Capital’s debt to GCC of $600,000 in respect of the advance. However, I am not satisfied that the evidence on this interlocutory application is sufficient to establish a set-off on 24 February 2017 which would discharge the full amount of the Settlement Sum despite Mr Hsu’s apparent misunderstanding.

17. [43]

    That is not the end of the matter because MF Capital, GCC and Aquamore all proceeded on the basis that there was an assignment of the debt under the Facility Agreement and associated Securities first by MF Capital to GCC on 24 February 2017 and then by GCC to Aquamore on 11 December 2018. This is clearly stated in the background (or recitals) to the Assignment Confirmation Deed. Indeed, the entire premise of the Assignment Confirmation Deed, to which MF Capital, GCC and Aquamore were all parties, was that each assignment had occurred, otherwise the “corrections” made by the operative provisions would have been pointless. That would only be correct if the Settlement Sum under the First Assignment Deed had been paid (or that MF Capital had accepted that it had been paid which reflects Mr Hsu’s misunderstanding as to the amount of the Settlement Sum mentioned earlier) in full.

18. [44]

    An estoppel by deed arises when a deed contains a statement of specific fact which is made the basis of the transaction, and operates as between the parties to the deed and their privies to prevent the party making the statement from denying its truth in proceedings on the deed: K R Handley, Estoppel by Conduct and Election (2nd Ed, 2016, Sweet & Maxwell) at [7-002]-[7-003].

19. [45]

    In Carpenter v Buller (1841) 8 M & W 209, Parke B said at 212:

20. [46]

    In Greer v Kettle [1938] AC 156 Lord Maugham said at 170-171:

21. [47]

    In Labracon Pty Ltd v Cuturich [2013] NSWSC 97; 17 BPR 32,497, Lindsay J said at [105]:

22. [48]

    The Assignment Confirmation Deed varied the terms of each agreement for the assignment of the debt under the Facility Agreement and associated Securities contained in the First Assignment Deed and the Second Assignment Deed and as a result the terms of each of those agreements was embodied in two deeds: Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [22]-[25]. Hence, proceedings as between the assignor and assignee under each assignment transaction would necessarily be a proceeding founded in part on the Assignment Confirmation Deed to which each assignee and MF Capital was a party.

23. [49]

    The statement under “Background” in the Assignment Confirmation Deed that MF Capital “assigned all of its right, title and interest in the Loan & Security” to GCC under the First Assignment Deed was a clear and unambiguous statement of fact, including the fact that the consideration was paid. In so far as the statement is one of mixed fact and law, it is a statement of fact: K R Handley, Estoppel by Conduct and Election at [2-014]. It was a statement made to both GCC and Aquamore, and each of them is entitled to rely on it as against MF Capital in connection with the assignment transaction to which they are party. Hence, MF Capital would be precluded from denying as against either GCC or Aquamore that the consideration for the assignment under the First Assignment Deed had been paid in full with the consequence that on 4 March 2019 (at the latest) the assignment in favour of GCC took effect.

24. [50]

    Notice in writing of the assignment was given to the debtor, LCC, by Aquamore on 5 March 2019, the following day, with the consequence that the assignment in favour of GCC of the debt under the Facility Agreement and the associated Securities became effective at law on 5 March 2019: Bateman v Hunt [1904] 2 KB 530 at 538.

25. [51]

    Under the Second Assignment Deed GCC agreed to assign to Aquamore for a consideration of $300,000 the same property it agreed to acquire from MF Capital under the First Assignment Deed. The consideration of $300,000 was paid on 11 December 2018. Based on my conclusion above that the equitable assignment to GCC took effect, at the latest, on 4 March 2019, that was the date that the equitable assignment to Aquamore under the Second Assignment Deed took effect. This was perfected as a legal assignment on notice in writing being given to the debtor, LCC, on 5 March 2019: Bateman v Hunt [1904] 2 KB 530 at 538.

26. [52]

    On 14 February 2018 MF Capital gave notice to LCC that an event of default had occurred (being non-payment of the principal and interest owing under the Facility Agreement). It is not in dispute that this amount remained outstanding (and that LCC continued to be in default) at the time of execution of the Deed of Appointment.

27. [53]

    At the time Aquamore signed the Deed of Appointment on around 3 May 2019, it was the assignee at law of the debt owing under the Facility Agreement and was the chargee under the Securities, including the General Security Deed. Consequently, Aquamore had power to, and did, appoint Mr Morelli as receiver and manager of LCC under cl 9.1 of the General Security Deed.

Conclusion

1. [54]

   For the above reasons, the Notice of Motion is dismissed with costs.