MSI (Holdings) Pty Ltd v Mainstreet International Group Ltd [2013] QCA 27 (26 February 2013)

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CITATION:	MSI (Holdings) Pty Ltd v Mainstreet International Group Ltd [2013] QCA 27
PARTIES:	MSI (HOLDINGS) PTY LTD (receiver appointed) (in liquidation) ACN 120 419 409 (appellant/applicant) v MAINSTREET INTERNATIONAL GROUP LIMITED ACN 102 747 124 (respondent)
FILE NO/S:	Appeal No 4605 of 2012 Appeal No 4663 of 2012 DC No 4986 of 2011
DIVISION:	Court of Appeal
PROCEEDING:	General Civil Appeal Application for Leave s 118 DCA (Civil)
ORIGINATING COURT:	District Court at Brisbane
DELIVERED ON:	26 February 2013
DELIVERED AT:	Brisbane
HEARING DATE:	9 October 2012
JUDGES:	White and Gotterson JJA and Applegarth J Separate reasons for judgment of each member of the Court, each concurring as to the orders made
ORDERS:	In Appeal No 4605 of 2012: 1. Allow appeal. 2. Set aside orders made on 26 April 2012. 3. Remit the application to set aside the default judgment in proceeding No 4986 of 2011 in the District Court at Brisbane to the District Court for further consideration and determination. In Application No 4663 of 2012: 1. Grant leave to appeal. 2. Allow appeal. 3. Set aside order made on 27 April 2012. In Appeal No 4605 of 2012 and Application No 4663 of 2012: 1. Order the respondent to pay the appellant/applicant’s costs of 26 and 27 April 2012 in the District Court proceeding on the standard basis. 2. Order the respondent to pay the appellant/applicant’s costs of the appeal and the application on the standard basis.
CATCHWORDS:	CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – PROCEEDINGS BY OR AGAINST THE COMPANY – LEAVE TO PROCEED – where the appellant sought to recover as a debt an overdue loan repayment, interest thereon and costs – where the appellant commenced proceedings without leave of the Supreme Court – whether leave of the Supreme Court was required in order for the appellant to commence proceedings for the recovery of a debt PROCEDURE – COSTS – APPEALS AS TO COSTS – MISTAKE OF LAW OR FACT – where the appellant filed an application for leave to appeal on 25 May 2012 – where s 118B of the District Court of Queensland Act commenced on 1 September 2012 – where section, if applicable to this application, would have required that leave to appeal the costs order be obtained from a District Court judge and not from this Court –whether the appellant had a right to appeal at that time which was duly exercised by filing the application Civil Proceedings (Transitional) Regulation 2012 (Qld), s 22 Corporations Act 2001 (Cth), s 471B, s 471C District Court of Queensland Act 1967 (Qld), s 118, s 118B Atkins v Mercantile Credits Ltd (1985) 10 ACLR 153, cited Gough’s Garages Ltd v Pugsley [1930] 1 KB 615, cited Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd [2001] NSWCA 93, cited New Imperial Pty Ltd (In Liquidation) v Beveridge (1995) 5 Tas R 246; [1995] TASSC 142, cited Re Leslie Homes (Aust) Pty Ltd (1984) 8 ACLR 1020, cited
COUNSEL:	P Looney for the appellant/applicant J P Rivett by direct brief for the respondent
SOLICITOR:	McInnes Wilson Lawyers for the appellant/applicant

[1] WHITE JA: I have read Gotterson JA’s reasons and agree with those reasons and the orders which his Honour proposes.

[2] GOTTERSON JA: On 8 December 2011 proceeding No 4986 of 2011 was commenced in the District Court at Brisbane in the name of MSI (Holdings) Pty Ltd (Receivers Appointed) (In Liquidation) ACN 120 419 409 (“MSI”), as plaintiff, against the defendant, Mainstreet International Group Ltd ACN 102 747 124 (“Mainstreet”). The proceeding was commenced on the instructions of Mr Peter Lucas. He and Mr Glenn Shannon had been appointed joint and several receivers of MSI on 25 January 2011.[1] In the proceeding, MSI sought to recover as a debt an overdue loan repayment of $312,455, interest thereon and costs.

[3] A timely Notice of Intention to Defend was not filed on behalf of Mainstreet. A default judgment was entered against it on 12 December 2011 for an amount of $347,291.27 which comprised the debt, interest to the date of judgment of $33,976.27, and $860 costs. On 13 February 2012, Mainstreet filed an application in the District Court seeking orders that the default judgment be set aside and that MSI pay its costs of the application. The grounds for the application, as stated in it, were that “the amount in question is totally in dispute and (Mainstreet) was never aware or served with any Statement of Claim”.[2]

[4] The application was heard by a judge on 26 April 2012. At the hearing, a submission was made by counsel on behalf of Mainstreet that the proceeding itself was invalid because, as his Honour summarised, it was a proceeding “purporting to be brought by a receiver without authority from the Supreme Court pursuant to section 471B of the Corporations Act”.[3] The learned judge accepted the submission and that day made an order striking out the proceeding.[4] His Honour reserved costs. On the following day, 27 April, he ordered that MSI pay Mainstreet’s costs of the proceeding on the standard basis (Mainstreet having sought costs on an indemnity basis).[5] Separate formal orders dated 26 and 27 April respectively were filed and sealed.[6]

[5] On 24 May 2012, MSI filed a Notice of Appeal (No 4605 of 2012) in this Court, by which it appealed against the final order striking out the proceeding made on 26 April. The appeal was instituted pursuant to s 118(2) of the District Court of Queensland Act 1967. On the following day, 25 May, MSI filed an Application (No 4663 of 2012) in this Court for leave to appeal against the costs order made on 27 April. This application was made pursuant to s 118(3) of the District Court of Queensland Act.

[7] MSI’s ground of appeal is that the learned judge erred in holding that the proceeding was invalid. This ground contends that leave of the Supreme Court was not necessary either to bring or to proceed with the proceeding. The ground raises issues with respect to the meaning and application of both ss 471B and 471C of the Corporations Act 2001 (Cth).

[8] Before turning to them, I shall summarise the factual circumstances to which the application of those provisions falls for consideration.

[9] On 21 July 2010, and prior to the receivership and liquidation, MSI executed a Deed of Charge (“the Deed”) creating a fixed and floating charge in favour of Kevin Isles and Diane Isles in their capacity as trustees for the Wardell Corporation Superannuation Fund (“Wardell”). MSI and Wardell were identified for the Deed as Chargor and Chargee respectively.

[10] Execution of the Deed on behalf of MSI was effected by its sole director and secretary, Mr Gregory Hannan, who is also a director of Mainstreet. The charge was duly registered with the Australian Securities and Investment Corporation on 23 July 2010.[7] A Deed of Variation, the terms of which are not material for present purposes, was also executed by Mr Hannan on behalf of MSI on 12 October 2010.[8]

[11] The charge secured the repayment of moneys which were advanced under a Loan Agreement dated 20 July 2010 entered into by Wardell and MSI. Wardell novated its interests in the Deed and the Loan Agreement to a then related company, Central Coast Projects Pty Ltd (“Central Coast”) on 12 November 2010.[9] Thereupon, Central Coast became Chargee.

[12] MSI made default under the Loan Agreement and the Deed. Messrs Lucas and Shannon were appointed receivers of MSI by a deed which they and Central Coast executed on 25 January 2011.[10]

[13] Clause 16.1 of the Deed conferred power and authority on a receiver appointed under it in the following terms:

“Every Receiver will have, subject to any limitation or restrictions set out in the deed or other instrument under which the Receiver is appointed:

(a) power in the name and on behalf of and at the Chargor’s cost to do or omit to do anything which the Chargor or an absolute owner could do or have done relating to the Charged Property;

(b) (with the Chargee’s consent) all the powers conferred by law on Chargees in possession as those powers are varied and extended and applicable to the Chargee under this document;

(c) All rights and powers conferred by law or under statute (including the Corporations Act) on receivers or receivers and managers; and

(d) All the rights, powers, remedies, discretions and privileges available to or conferred on the Chargee anywhere under this document (other than the power to appoint Receivers).”[11]

[14] Amongst the powers conferred on the Chargee, to which clause 16.1.(d) refers, are those set out in clause 15.1 of the Deed. The powers in that clause are exercisable by the Chargee after an Event of Default has occurred. The following powers in clause 15.1 are of immediate relevance:

(n) pursue debtors and do all things which the Chargee thinks necessary to recover or protect any of the Charged Property;

(o) take proceedings at law or in equity in the Chargor’s name or otherwise which the Chargee considers necessary relating to this document or the Charged Property,...”[12]

[15] The expression “Charged Property” is comprehensively defined in clause 1.1 of the Deed to mean:

“... all of the undertaking and property, assets and rights of the Chargor (whether present or future or situated within or outside Australia) including the goodwill of the Chargor’s business or businesses and the uncalled and called but unpaid capital (including premiums) on the Chargor’s shares.”[13]

Under clause 4.1, the Charged Property was charged in favour of the Chargee as security for payment of the Secured Money which included indebtedness under the Loan Agreement.

[16] The debt which MSI sought to recover in the District Court proceedings is claimed to be owing pursuant to an oral agreement between it and Mainstreet made in about July 2010. MSI’s Statement of Claim alleges that a series of advances were made by it to Mainstreet pursuant to this agreement between 22 July 2010 and 29 October 2010, totalling $314,935, of which only $2,480 was repaid.[14] Just as clearly, Mr Lucas, as receiver, would have had power pursuant to the terms of the Deed to commence proceedings in MSI’s name to recover such a debt by virtue of the combined operation of clauses 16.1(d) and 15.1(n) and (o) thereof.

[17] MSI was placed in liquidation by a winding-up order made by the Supreme Court of Victoria on 20 April 2011.[15] The liquidation had continued on foot at all relevant times. Notwithstanding the liquidation, the power under clause 16.1.(d) continued to be exercisable by the receiver.[16]

[18] Part 5.4B of the Corporations Act applies to winding-up in insolvency or by the Court. Division 1A thereof (sections 471-471C) deals with the effect of winding-up orders. Provisions in that Division which are relevant for present purposes are these:

An order for winding up a company operates in favour of all the creditors and contributories of the company as if it had been made on the joint application of all the creditors and contributories.

While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:

(a) a proceeding in a court against the company or in relation to property of the company; or

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

Nothing in section 471A or 471B affects a secured creditor’s right to realise or otherwise deal with the security interest.”

[19] It may be seen that s 471B prohibits the commencement or continuation of legal proceedings in the circumstances which it addresses, except with the leave of the Court. It is common ground that no leave of the Supreme Court has been obtained for the commencement or continuation of the District Court proceeding.

[20] However, by virtue of s 471C, the prohibition in s 471B does not affect the right to realise or otherwise deal with a security interest of a secured creditor. In oral argument, MSI’s submissions centred upon the operation of s 471C. If on the proper construction of that section, the commencement and continuation of the District Court proceeding was done in exercise of a right to which it applies, then the prohibition in s 471B could not have operated in respect of the proceeding with the consequence that leave under that section would not have been a necessary prerequisite to commencing or continuing the proceeding. In view of that, I propose to consider first s 471C.

[21] Section 471C is concerned with the right of a secured creditor with respect to a security interest. The expression “secured creditor” is defined by s 51E of the Corporations Act [17] to mean:

“a creditor of the corporation, if the debt owing to the creditor is secured by a security interest”.

The expression “security interest” is defined in s 51A [18] to have a meaning which includes a charge, lien or pledge. According to the definition in the Dictionary in s 9 of the Corporations Act, the word “charge” means “a charge created in any way and includes a mortgage ...”.

[22] Plainly, the charge created by the Deed in favour of the Chargor was a security interest as defined. Just as plainly, at the time of commencement of the District Court proceeding, Central Coast, as Chargor under the Deed, was a secured creditor of MSI: there was a debt owed by MSI to Central Coast under the Loan Agreement which was secured by the charge.

[23] In my view, the commencement and continuation of the District Court proceeding is apt to be characterised as a realisation of Central Coast’s security interest for the purposes of s 471C. Any debt owed by Mainstreet to MSI was Charged Property for the purposes of the Deed. As such, clause 15.1 conferred power on Central Coast, as secured creditor to take proceedings in MSI’s name to recover the debt. A co-ordinate power was exercisable under clause 16.1(d) by a receiver appointed by Central Coast which, when exercised by the receiver, was exercised solely for the purpose of realising Charged Property to which Central Coast, as secured creditor, was entitled as security.

[24] This characterisation finds support in the following observations of McLelland J, as his Honour then was, in Re Leslie Homes (Aust) Pty Ltd:[19]

“However, the power of the lender to appoint a receiver of the property of the company and the power of the receiver so appointed to sell and transfer that property as agent of the company, are both powers ancillary to the exercise by the lender of its proprietary rights over the company’s property created by the deed of charge ...”.

[25] His Honour’s judgment was expressly approved by the Court of Appeal of New South Wales in Atkins v Mercantile Credits Ltd.[20] It was adopted by Wright J of the Supreme Court of Tasmania in New Imperial Pty Ltd (In Liquidation) v Beveridge,[21] a decision cited by Professor Ford as authority for the proposition that a secured creditor having security over debts owed to the company may sue for them without having to get the liquidator’s approval.[22] The earlier decision of Rigby J in Gough’s Garages Ltd v Pugsley[23] also supports that proposition.

[26] Counsel for Mainstreet sought to confine the operation of s 471C. In oral argument he said:

“ ... The point is that in order to rely upon that section my submission is that there must be an uncontested debt. There must be something which can be realised ...”.[24]

[27] The reference to an uncontested debt was, of course, to a debt subject to a charge in favour of a secured creditor. It was submitted that it is only when a debt is uncontested, that it is capable of being realised for the purposes of the section. No authority was cited for the submission. It is plainly wrong. Section 471C is concerned with a secured creditor’s right to realise or otherwise deal with the security interest. The security interest is the charge. Legal proceedings to recover a charged debt which, by the course of pleadings, require the making of a judicial determination of whether or not the debt exists are no less a process of realisation of the security interest than are legal proceedings in which the existence of the debt is not contested.

[28] No other argument was advanced for Mainstreet in respect of the scope or operation of s 471C.

[29] The view I take of the operation of s 471C makes it unnecessary to consider s 471B at any length. I propose not to consider it in detail. By taking this course, I do not mean to imply that, but for s 471C, s 471B would have operated here so as to have forestalled the commencement or continuation of the District Court proceeding without the leave of the Supreme Court.

[30] I note only that Mainstreet contended that the proceeding is within the scope of operation of s 471B because it is a proceeding by “a person ... in relation to property of the company”.[25] There is good reason to question whether the section applies with respect to a proceeding by the company itself to recover a debt owed to it. The answer to that question depends upon resolution of a number of interpretative issues which were not fully explored or debated in submissions. It is neither appropriate nor necessary to consider them now.

[31] For these reasons, I consider that the District Court proceeding was struck out on an erroneous basis. I would allow the appeal, set aside the order made on 26 April 2012 and remit the application to set aside the default judgment to the District Court at Brisbane for further consideration and determination.

[32] It follows from the disposition of the appeal that the costs order made on 27 April 2012 should also be set aside.

[33] I pause here to mention that in argument, the Court’s attention was drawn to the newly enacted s 118B of the District Court of Queensland Act which, if applicable to this application, would have required that leave to appeal the costs order be obtained from a District Court judge and not from this Court under s 118(3). Section 118B commenced on 1 September 2012. How it operates transitionally is regulated by the Civil Proceedings (Transitional) Regulation 2012, s 22 of which provides that s 118B does not apply if, immediately before commencement of it, a person having, under the pre-amended s 118, a right to appeal to this Court has started the appeal but it has not been determined. In my view, MSI had such a right to appeal which it exercised on 25 May 2012 by filing the Application. The right that MSI then had under s 118(3) was a right to appeal. Its character as a right to appeal was not diminished by reason of its being exercisable only with the leave of this Court. Section 118(3) therefore continues to govern this application.

[34] I would grant leave to appeal, allow the appeal and set aside the costs order made on 27 April 2012.

[35] I consider that Mainstreet should pay MSI’s costs of the proceedings in the District Court on 26 and 27 April 2012. It should also pay MSI’s costs of the appeal and the application. All costs ought to be paid on the standard basis.

3. Remit the application to set aside the default judgment in proceeding No 4986 of 2011 in the District Court at Brisbane to the District Court for further consideration and determination.

1. Order the respondent to pay the appellant/applicant’s costs of 26 and 27 April 2012 in the District Court proceeding on the standard basis.

2. Order the respondent to pay the appellant/applicant’s costs of the appeal and the application on the standard basis.

[37] APPLEGARTH J: I agree with the reasons of Gotterson JA and with the orders proposed by his Honour.

[16] Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd [2001] NSWCA 93 per Fitzgerald JA at [57] (Sheller JA and Ipp AJA concurring).

Supreme Court of Queensland - Court of Appeal

MSI (Holdings) Pty Ltd v Mainstreet International Group Ltd [2013] QCA 27 (26 February 2013)