Plaintiffs Seek Equitable Ownership Interests

McMillan v Coolah Home Base Pty Ltd (No 4) [2022] NSWSC 584 (13 May 2022)

The defendants bought a caravan park with long-term cabin sites subject to company title.  The plaintiffs claim equitable ownership interests in the sites which they occupy at the Park.  The Court, in determining whether the plaintiffs are entitled to equitable ownership interests, assessed the administrator's fulfillment of their duty of care. 

Facts:

Ms. Kelly is a retired chartered accountant.  In 1997, following her husband’s death, she purchased a motorhome and began to travel around Australia.  Around this time, she joined an organisation called the Campervan and Motorhome Club of Australia (“CMCA”).  It was through this organisation that she later met Mr. Booker who is a retired businessman, having been the owner of various motels, service stations, and truck stops during his working life.  In early 2012 Ms. Kelly came across the Park, which was then known as the Cunningham, or Coolah, Caravan Park. 

She and Mr Booker ("the Directors") decided to buy it and turn it into the home base.  The Park was laid out with sites available for rental to travelers and longer-term residents.  Council approval was required for this purpose, and the approval distinguished between two different types of sites.  On the first type of rental site, occupation was only permitted for a continuous period of not more than twenty-eight days at a time.  On the other type of site, continuous occupation was permitted. 

CHB was incorporated for the purpose of purchasing the Park on 22 February 2012.  HBS was incorporated two days later.  The purchase was financed in part with a loan from the Commonwealth Bank of Australia (“CBA”) in the amount of $225,000.  Ms. Kelly and Mr. Booker contributed the remaining $165,000.  The CBA loan was secured by a mortgage over the Park, supported by personal guarantees provided by Ms. Kelly and Mr. Booker and a mortgage over other property owned by them.

CHB’s constitution established a company title land-holding arrangement.  Ms. Kelly and Mr. Booker were the directors upon incorporation, and at all times thereafter.  CHB settled on the purchase of the Park and became the registered proprietor on 27 April 2012.  All of the Park's income and expenses went through HBS, which was a separate company belonging to her and Mr. Booker. 

By 2016, disputes had arisen between some of the plaintiffs, on the one hand, and Ms. Kelly and Mr. Booker, on the other, concerning the management of the park and the affairs of CHB.  The plaintiffs in the proceedings, who were two of the present plaintiffs, sought access to documents of CHB.   Ms. Kelly and Mr. Booker put CHB into voluntary administration. The administrators were Ronald John Dean-Willcocks and Cameron Hamish Gray. 

The statutory administration resulted in the approval by CHB’s creditors of a deed of company arrangement prepared by Ms. Kelly and Mr. Booker (“Kelly-Booker DOCA”).  The creditors consisted of Ms. Kelly, Mr. Booker, and professional advisers to CHB.  The Kelly-Booker DOCA provided for the sale of the Park to Coolah Tourist Park Pty Limited (“CTP”), another company belonging to Ms. Kelly and Mr. Booker.  Control of CHB (now a shell) reverted to Ms. Kelly and Mr. Booker, as its directors, following the sale of the Park to CTP. 

CTP, as the new owner, is now operating the Park. The plaintiffs continue to occupy, or rent out, their cabins, but refuse to accept the validity of the transfer.  The plaintiffs claim equitable ownership interests in the sites which they occupy at the Park.  They allege that when purchasing their shares in CHB, they were promised interest in the sites themselves.  They contend that they are entitled to relief by way of specific performance or equitable (proprietary) estoppel and that this relief is available against CTP (if they fail in their application to have the transfer of the Park to CTP rescinded

Issues:

I. Whether or not the purchase contracts included interests in land.

II. Whether or not the administrators owe a common law duty of care to shareholders.

II. Whether or not the administrators are negligent in the discharge of their duties.

Applicable law:

Australian Consumer Law s 18 - provides that an action on a cause of action to recover a penalty or forfeiture, or sum by way of penalty or forfeiture, recoverable by virtue of an enactment, is not maintainable if brought after the expiration of a limitation period of two years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims.

Australian Consumer Law s 21 - provides that an action on the further cause of action for conversion or detention or on the cause of action to recover the proceeds of sale is not maintainable if brought after the expiration of a limitation period of six years running from the date when the first cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims.

Australian Consumer Law s 50 - provides that if a retirement village that is in existence at the commencement of this section does not, on that commencement, have any village rules, rules may be made for the village in the same way as village rules may be amended under section 51.

Conveyancing Act 1919, s 66G - provides that where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.

Corporations Act 2001 (Cth) s 179 - defines both director and officer . Officer includes, as well as directors and secretaries, and some other people who manage the corporation or its property (such as receivers and liquidators).

180 - provides that a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)  were a director or officer of a corporation in the corporation's circumstances; and

(b)  occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Corporations Act 2001 (Cth) s 442C - provides that the administrator of a company under administration or of a deed of company arrangement must not dispose of:

(a)  property of the company that is subject to a security interest; or

(b)  property (other than PPSA retention of title property) that is used or occupied by, or is in the possession of, the company but of which someone else is the owner or lessor.

Insolvency Practice Rules (Corporations) 2016 (Cth), rr 75-140, 75-225 - provides that the administrator must provide a report in support of the opinions reached. 

Insolvency Practice Schedule (Corporations), s 90-15 - gives the Court a wide power of supervision over the external administration of companies, comparable to the power of supervision which this Court has over the administration of the trust

Limitation Act 1969, s 15 - provides that an action on a cause of action for an account founded on liability at law to account is not maintainable in respect of any matter if brought after the expiration of a limitation period of six years running from the date on which the matter arises.

Residential (Land Lease) Communities Act 2013 - provides that a home located on a residential site is not, for any purpose, to be regarded as a fixture, regardless of the manner in which it is attached to the land. 

Retirement Villages Act 1999 - proceeds on the basis that the relationship between a resident in a retirement village and an owner and operator of the village is governed by what is called a “Village Contract”. 

Uniform Civil Procedure Rules 2005, Pt 54 -  provides that 'officer' includes, as well as directors and secretaries, some other people who manage the corporation or its property (such as receivers and liquidators).pr

Ferella v Official Trustee in Bankruptcy [2015] NSWCA 411 - provides that a co-owner is usually entitled to such an order virtually as of right.

Analysis:

In their statement of claim, the plaintiffs identified CHB’s misleading or deceptive conduct as arising from the same representations on which it relied for its proprietary estoppel claim, namely representations that the plaintiffs would receive interests in land as well as shares in CHB.   The case for the plaintiffs might have been put on the basis that they were told, and believed, that the purchases would give them rights over their sites which were equivalent to “real estate security”.  However, the pleaded representations that the plaintiffs would receive an interest in land along with a shareholding did not arise from the purchase agreements or the promotional materials.

The administrator’s role is mainly to advise the creditors.  The focus is on the future of the company, rather than on the process by which the administrator has been appointed.  The statutory procedure gives the creditors of a company in administration control over the company’s future and relegates the shareholders.  There is nothing that the administrator can do about this; the administrator’s tasks are confined to advising the creditors on what decision they make, and keeping the company going until the decision is made.  Any duty of care imposed on the administrator cannot operate outside this statutory straightjacket.

The creditors’ claims may have been to some extent overstated, but there was no opposition from any other creditor, so the overstatement would not have made any difference.  It was not alleged that the Administrators had been negligent in admitting the Directors as creditors for the amounts claimed.

Although the formal financial statements contained no profit and loss account for CHB, Ms. Kelly did at the 2015 AGM provide a budget showing a breakdown of site fee expenditure. At the 2016 AGM, she provided CHB Trading figures for the year extracted from the accounts of HBS. Ms. Kelly reported at the AGMs that the funds raised for CHB from the sales were used for two purposes. One was to fund the development and refurbishment works at the Park. The other was to reduce the debt from the initial purchase. This was consistent with the figures in the balance sheets, which showed increasing issued capital from the “sale” of shares and a decreasing figure for financial liabilities.

Conclusion:

The plaintiffs’ claims to equitable proprietary interests in their sites fail as well as their claims as shareholders to have the transfer of the Park to CTP rescinded. Their monetary claims against the Kelly-Booker parties also fail as against the Administrators.

Some actions by the Directors were oppressive and the conduct of CHB’s affairs has generally also been oppressive, but none of the relief against oppression expressly claimed in the statement of claim is appropriate.

The Court in its order adjourned the proceedings to 9:30 am on 1 June 2022 or such other time as may be arranged.  The parties are to confer on the form of orders to be made to give effect to this judgment and to deal with costs, and, no later than 24 hours before the adjourned hearing, submit proposed orders for this purpose.