Cennzeal Pty Ltd v Dawson Property Ventures Pty Ltd

1. [1]

   The background to these proceedings is that, in October 2010, a joint venture was formed for the purchase and development of properties in Bellbird and Dubbo New South Wales (“the Bellbird and Dubbo Projects”), of which Dawson Properties (Ventures) Pty Ltd (“DV”), Dawson Properties Pty Ltd, Mr Jeffrey Dawson (“Mr Dawson”) and First Debenture Limited (“FDL”) were parties. For present purposes, DV, Dawson Properties Pty Ltd and Mr Dawson can be treated collectively and described as “Dawson”. There were two trust deeds pertaining to the Bellbird and Dubbo Projects, which I shall refer to as the “Trust Deeds” and there was also an agreement described as a Project Management Agreement (“PMA”) entered into by Dawson, FDL and another company, 1Group Pty Ltd.

2. [2]

   Cennzeal Pty Ltd (“Cennzeal”), relying on two documents, one dated 14 July 2014 (“the July Deed”) and one dated 15 August 2014 (“the August Deed”), asserts that it is the assignee of FDL’s rights against Dawson. Mr Leonardus Smits (“Mr Smits”) is or was, as at July 2014, a director and shareholder in Cennzeal.

3. [3]

   FDL was placed in liquidation in September 2015 and was deregistered on 10 December 2017: see Exhibit A2, Tab 28, p 437.

4. [4]

   Cennzeal claims that Dawson, in connection with the joint venture, acted against the interests of FDL in breach of Dawson’s fiduciary obligations, and that the transfer of property and issue of new units by Dawson should be declared null and void. Originally, Mr Smits himself, as an assignee under another purported assignment (see Exhibit C), was the Second Plaintiff and FDL was the Third Plaintiff but Mr Smits was declared bankrupt on 20 January 2016 and the Official Trustee in Bankruptcy, by letter of 29 September 2016, elected to discontinue the proceedings. Further, the liquidator of FDL did not wish to maintain the proceedings on behalf of FDL. In these proceedings, Mr Smits, who is no longer a bankrupt, acts as solicitor for Cennzeal and appeared for Cennzeal at the hearing before me. Mr D. Cook SC, with Mr B. Green, appeared for Dawson.

5. [5]

   On 20 September 2017, Sackar J ordered that there be a separate determination of the following questions:

6. [6]

   Those questions were themselves part of a wider set of questions that it was agreed should be determined as separate questions. Pursuant to an order made on 9 March 2018, a document was filed, entitled “Agreed Statement of Consequences of Determination of the Separate Question”, setting out the wider questions of which the current questions, set out in [5] above, form a part and the agreed consequences of the determination of those questions.

7. [7]

   The July Deed is found as Annexure G to the Affidavit of Mr Peter Mahommed of 25 January 2017. The August Deed is Annexure H to that Affidavit: see Exhibit A2, Tabs 21 and 22.

8. [8]

   The August Deed seems to proceed on the basis that the July Deed was not effective. It is also more comprehensive than the July Deed.

9. [9]

   A number of issues were identified by Mr Cook in his Outline of Submissions received before the hearing but the issues advanced at the hearing on behalf of Dawson in respect of both Deeds were:

   1. (1)

      That FDL is not shown to have executed the Deeds (“the Authority Point”);

   2. (2)

      That the assignment is precluded by the terms of both Trust Deeds (“the Prohibition Point”);

   3. (3)

      That the Deeds, as a matter of construction, did not assign the rights which Cennzeal asserts in the Further Amended Statement of Claim (“FASTOCL”) (“the Construction Point”); and

   4. (4)

      That the Deeds assign a bare right of action and should be struck down on public policy grounds (“the Bare Right of Action Point”).

10. [10]

    Mr Cook contended, and Mr Smits did not assert otherwise, that acceptance of any one of these arguments would mean that Cennzeal cannot succeed, and that the separate questions should be determined adversely to Cennzeal.

11. [11]

    I shall in the balance of these reasons focus on the August Deed unless specifically noted otherwise.

The Authority Point

1. [12]

   The Constitution of FDL (“the FDL Constitution”) is found at Exhibit A1 (Tab 12, p 166). It contains, relevantly, the following clauses:

2. [13]

   The July and August Deeds contain the signature of Mr James Photios (“Mr Photios”) on the line where the signature or seal of FDL is required. Mr Photios’s signature is witnessed by Mr Richard Licardy (“Mr Licardy”). Mr Photios, it is agreed, was not a director of FDL at the time (although he later became a director). There is no evidence that Mr Photios was appointed as an executive director of FDL, a position recognised in the FDL Constitution. He does not state in his signature the capacity in which he purports to sign on behalf of FDL. There is no power of attorney from FDL appointing Mr Photios as agent of FDL and no resolution of FDL passed authorising him to execute documents on behalf of FDL. No seal of FDL is affixed to the July and August Deeds. Nor is there any resolution of FDL authorising the assignment of its rights to Cennzeal. Mr Licardy was at the time a director of FDL (see Exhibit A2, Tab 28, p 443); however, he did not sign in that capacity, but rather as a witness to Mr Photios’s signature.

3. [14]

   In these circumstances, Dawson claims that the July and August Deeds are not shown to have been authorised by FDL and that they are ineffective documents.

4. [15]

   Given the complete absence of any execution of the July and August Deeds by any director of FDL and of any resolution of FDL authorising either assignment, Mr Smits at the hearing put Cennzeal’s case as being that FDL had authorised Mr Photios to execute the Deeds on two grounds, the first being that, by virtue of clause 23.4 of the FDL Constitution, FDL could appoint Mr Photios as its agent to execute the July and August Deeds. The answer to that, however, is:

5. [16]

   In relation to [15(d)] above, as the documents were produced by the liquidator of FDL, the Court can, in the absence of any evidence to the contrary, be satisfied that the minutes are authentic. I do not accept Mr Smits’ contention that the rule in Jones v Dunkel and Another (1959) 101 CLR 298 has any application here or that Dawson should have called Mr Michael Unicomb (“Mr Unicomb”), a former secretary of FDL. Mr Unicomb could not be considered to be in Dawson’s “camp”: see Manly Council v Byrne and Anor [2004] NSWCA 123. The Plaintiffs plead the assignment of rights and, therefore, in accordance with the general rule reflected in the maxim “ei incumbit probatio qui dicit, non quo negat” (“he who avers must prove”), had the onus of establishing that the deeds of assignment were effective: see paragraph 1(b) of the FASTOCL, which was denied in Dawson’s Further Amended Defence 1(b): see The Glendarroch [1894] P 226 at p 234 per Lopes LJ and at p 231 per Lord Esher MR and see also, in relation to authorities to sign, Rowe v B & R Nominees Pty Ltd [1964] VR 477 per Gillard J at p 481.40 and McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) (1904) 1 CLR 243 at 276 per Griffiths J (for the Court).

6. [17]

   Mr Smits’ second argument was that FDL has represented to Cennzeal that Mr Photios was authorised to execute the July and August Deeds on behalf of FDL.

7. [18]

   In connection with the second argument, Mr Smits drew attention to s 129(3) of the Corporations Act 2001 (Cth), which is in the following terms:

8. [19]

   He also made reference to the rule in Turquand's Case, often referred to as the "indoor management rule": see The Royal British Bank v. Turquand (1856) 6 El & Bl 327; 119 ER 886. That rule was described by the High Court in Northside Developments Pty Ltd v Registrar-General and Others (1990) 170 CLR 146 at pp 154 – 155 per Mason CJ as being:

9. [20]

   Mr Smits’ arguments might be applicable to a case against FDL that it had represented to Cennzeal that Mr Photios had authority to execute documents but do not assist Cennzeal in establishing that FDL had in fact authorised Mr Photios to execute an assignment. Cennzeal might have a claim against FDL in such circumstances but it cannot use that as a basis for a claim to resist Dawson’s claim that the assignment was ineffective. It is the company that is precluded from “denying against an outsider that things were in order”: see Ford, Austin and Ramsay’s Principles of Corporations Law (Austin and Ramsay, LexisNexis Butterworths, 16th ed, 2015) at [13.160]. In any event, Mr Photios’ evidence (see Exhibit A1, Tab 11, p 81 at paragraph 18) was that he and Mr Licardy informed Mr Smits (then a director of Cennzeal) that the proposed assignment would have to be put to other members of the FDL Board. Thus, even if it were relevant, Cennzeal could not assert that it believed Mr Photios was authorised to execute documents on behalf of FDL.

10. [21]

    There was a suggestion by Cennzeal that, by joining in these proceedings as a Plaintiff prior to its deregistration, FDL had ratified the assignments. Mr Cook objected to any consideration of such a contention given that ratification was not pleaded by Cennzeal, either by way of Statement of Claim or Reply. The separate question posed does refer to the question of ratification, so I do not think Dawson can rely on the lack of pleading. However, no evidence was led explaining how FDL came to be named as a Plaintiff or that FDL had, at a meeting of directors, authorised the commencement of proceedings in its name.

11. [22]

    It follows that it has not been established that Mr Photios was authorised to execute the July and August Deeds on behalf of FDL and, hence, it has not been established by Cennzeal that the July and August Deeds were effective assignments of any property.

12. [23]

    The conclusion which I have come to on the Authority point leads to a conclusion adverse to Cennzeal on the separate questions. Strictly, therefore, it is not necessary to consider the other points raised. I shall, however, express my opinion on these points as well.

The Prohibition Point

1. [24]

   Clause 30.1 of the Trust Deeds is in the following terms (see Exhibit A1, Tabs 18-19):

2. [25]

   I also set out clause 30.9 of the Trust Deeds as it was relied on by Mr Smits:

3. [26]

   In my view, Clause 30.1 is clear in its terms. It prohibits any party to the Trust Deeds from assigning its interest without prior written approval of the other parties and no such approval was obtained or sought. Unit holders are made parties to the Trust Deeds by the combined effect of the declarations made by them when applying for units: see Exhibit A1, Tab 18, p 355 (which, it was accepted, FDL must have signed) and clause 7.9 of the Trust Deeds which states:

4. [27]

   Mr Smits contended that:

5. [28]

   I am unable to accept Mr Smits’ contention that clause 30.9 is inconsistent with clause 30.1. Clause 30.9 merely acknowledges that rights held outside the Trust Deeds are not affected by the terms of those Deeds.

6. [29]

   In Hall v Busst (supra), the High Court held (per Dixon CJ, Fullagar and Menzies JJ) that the principles applicable to a condition against alienation of land are applicable to a contractual restraint on alienation as well. In that case, the contract entered into a few days after the contract for the sale of land contained a condition that the purchaser would not transfer, assign or lease the land previously transferred without obtaining the prior approval of the vendor.

7. [30]

   Mr Cook submitted that the precise impact of Hall v Busst (supra) is difficult to determine, and in Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396, Campbell JA spent a deal of effort at [193] – [315] examining Hall v Busst and summarising the cases following that decision. I note that the Court of Appeal in Reuthlinger v MacDonald (20 October 1976, unreported) approved the analysis of Hall v Busst (supra) by Needham J in Reuthlinger v MacDonald and Others; MacDonald and Others v Reuthlinger [1976] 1 NSWLR 88 at 97-101, and I therefore proceed for present purposes on the basis that:

   1. (1)

      Restraints on alienation of interests in land may be void as against public policy, even if imposed by contract rather than as part of the conveyance of land or as encumbrance on land.

   2. (2)

      Restraints which relate to property, other than real estate or interests in land, may also be struck down.

   3. (3)

      A restraint imposed for the protection of a valid collateral object is not invalid: see p 101D of Reuthlinger v MacDonald and Others; MacDonald and Others v Reuthlinger [1976] 1 NSWLR 88 and see also p 100 thereof, where Needham J gave examples of restrictions on alienation which are valid; and see Moraitis Fresh Packaging (NSW) Pty Ltd v Fresh Express (Australia) Pty Ltd [2008] NSWCA 327 at [79] – [81], per Giles JA and [143] – [144] per Hodgson JA.

   4. (4)

      The restriction on alienation is an issue of public policy, and there may be competing issues of public policy, such as that a party who agrees to a contractual restriction should be held to his agreement. The nature of the property concerned may be significant as well: see Moraitis (supra) at [79] per Giles JA and at [143] per Hodgson JA.

8. [31]

   Into this crowded space comes another line of authority, the most authoritative of which is Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. In the matter of Idoport Pty Ltd ACN 075 318 106; In the matter of Idoport Pty Ltd (In Liq) (Receivers Appointed) [2012] NSWSC 524, Ball J helpfully summarised, at [47] – [48], the state of authorities as follows:

9. [32]

   Interesting questions arise about the intersection of Hall v Busst and Linden Gardens (supra) (see The Assignment of Contractual Rights (Tolhurst, Hart Publishing, 2nd ed, 2016) at [6.83]) but I do not need to attempt the task of answering those questions because, in my view, it was not inappropriate for the Trust Deeds to require that unit holders were not permitted to assign their interest without the prior approval of other unit holders. This is because the holding was in the context of what was, effectively, a joint venture and it was intended that FDL would provide certain services (see Recital G) and a debt that FDL owed to Dawson was to be satisfied out of the net proceeds of the development.

10. [33]

    In my view, clause 30.1 is a valid clause and effective to prevent FDL assigning its rights to a third party without the consent of the other unit holders.

11. [34]

    As Mr Smits pointed out, the PMA does not contain a similar provision to clause 30.1 of the Trusts Deeds. FDL was not precluded from assigning its rights under the PMA to Cennzeal. The question, however, is did it do so as a matter of construction of the July and August Deeds, i.e. assuming (contrary to my conclusion above) that FDL did effectively assign its rights. This leads to the third issue.

The Construction Point

1. [35]

   The July and August Deeds are not models of plain drafting. By the August Deed, FDL assigned:

2. [36]

   “Debts” are defined in the Recitals but by reference to a schedule. None of the debts in the schedule to the August Deed relate to the Bellbird and Dubbo Projects, but rather to “GHS” (which apparently stands for “Green Hills Security”) and “MUS” (which apparently stands for Michael Unicomb and Associates) as defined. There is no schedule of debts in the July Deeds. No connection has been established between GHS or MUS, on the one hand, and Dawson, or the Bellbird and Dubbo Projects, on the other. “Securities” are defined by reference to debtors nominated in the schedule so it can have no relevance to the present matter. This leaves, as the potential source of assigned rights, “Other Assets”.

3. [37]

   “Other Assets” are defined as:

4. [38]

   The schedule to the August Deed refers to the Bellbird and Dubbo properties.

5. [39]

   Cennzeal asserts that FDL did have such an interest and I think that it would only be possible to say that it did not if the Court could conclude that, by the time of the appointment, any beneficial interest had been lost. That is, however, yet to be determined.

6. [40]

   In relation to FDL’s rights under the PMA, it is entitled to a distribution of 50% of profits of the Bellbird and Dubbo Projects (this is not expressly stated and can only be derived from the Recitals and clause (f)), but only after all costs are deducted, the repayment by FDL of an unrelated debt and payment of interest and other costs to Dawson and another entity. That right to a distribution seems to me to be an interest “in respect of” the real estate, even though it is not an interest in the real estate itself. The words “in respect of” have been held to be words of the widest import: see McDowell v Baker (1979) 144 CLR 413 at 419 per Gibbs J.

7. [41]

   I have referred to the fact that the July Deed and the August Deed are not identical in terms. The July Deed has no schedule relating to “property” and no rights relating to the PMA or the Trust Deeds were, therefore, assigned by the July Deed by FDL to Cennzeal.

The Bare Right of Action Point

1. [42]

   Mr Cook contends that what was assigned by FDL to Cennzeal was “a bare right of action”, which, whether legal or equitable, cannot be assigned at law or in equity, referring to On Equity (Young, Croft and Smith, 2009) at [10.60].

2. [43]

   The rule against such assignments was considered in Trendtex Trading Corporation and Another v Credit Suisse [1982] AC 679 at 702-703 per Lord Roskill. There is discussion of Trendtex (supra) in Campbells Cash and Carry Pty Limited v Fostif Pty Limited (2006) 229 CLR 386. As the learned authors of On Equity (supra) point out at [10.60]:

3. [44]

   In Trendtex (supra), at 703, Lord Roskill said:

4. [45]

   It has been held that a party will not be found to have a genuine commercial interest for the purposes of the exception if the interest he obtains arises from the assignment itself: see Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr; Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd ) v Tim Barr Pty Ltd & Ors [2005] NSWCA 240 at [41], per Ipp JA (with whom Hodgson JA and Campbell AJA agreed) and National Mutual Property Services (Australia) Pty Ltd and Others v Citibank Savings Ltd and Others (1995) 132 ALR 514, at 540; see also Tolhurst (supra) at [6.62], p 203.

5. [46]

   No interest in Cennzeal, other than the assignment itself, has been identified. The second basis of exception identified in Trendtex (supra) is not, therefore, available to Cennzeal. In relation to the first basis identified by Lord Roskill, that is, in my view, made out. FDL had an interest in the property that was the subject of the Trust Deeds and the PMA.

6. [47]

   Even if it is true that Cennzeal put no money whatsoever into the Bellbird and Dubbo Projects or for the units, as Mr Cook contends, Dawson agreed to give FDL an interest in the Bellbird and Dubbo Projects as a means, thereby, to repay a debt to Dawson owed by FDL. By the PMA and Trust Deeds, FDL was entitled to an interest in the Dubbo and Bellbird Projects, i.e. 50% of the net profits of those Projects. If, as FDL claims, FDL was wrongfully deprived of its interest in the trusts then that “is a right of property” which FDL was entitled to pursue and to assign and the claims which it seeks to pursue would be rights ancillary to a right of property.

Conclusion

1. [48]

   It follows that, in my view, FDL has not shown to have executed the July and August Deeds and that, therefore, Cennzeal is not entitled to pursue any of the rights or interests of FDL by reason of those documents. Further, none of the rights of FDL which Cennzeal seeks to pursue were assigned by the July Deed, and no rights of FDL pursuant to the Trust Deeds were capable of assignment. Rights acquired by FDL pursuant to the PMA could be assigned, would not have been an assignment of a bare right of action, and would have been assigned if the August Deed had been effectively executed by FDL.

2. [49]

   I therefore answer the questions posed by the separate questions as follows:

3. [50]

   The agreed consequences of that determination are set out in paragraph 3.1 of the Agreed Statement of Consequences of Determination of the Separate Question and I propose to make orders in accordance therewith.