Federal Court of Australia

Blackbird First Mortgage Corporation Pty Ltd v Jacobs [2025] FCAFC 136

ORDERS

THE COURT ORDERS THAT:

1.    To the extent necessary, the appellant have leave to withdraw the concession recorded at para [48] of the primary judge’s reasons for decision to raise ground 1 in the notice of appeal.

2.    The appeal be dismissed.

3.    The appellant pay the fifth respondent’s costs of the appeal, including any reserved costs, to be taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FEUTRILL AND LONGBOTTOM JJ:

Introduction

1    Specialised Welding Australia Pty Ltd (Receivers and Managers Appointed) or the Company was a company in administration under Pt 5.3A of the Corporations Act 2001 (Cth). The Company executed a deed of company arrangement or DOCA in accordance with s 444B of the Act. Section 444D(1) of the Act provided that the DOCA bound all creditors of the Company, so far as concerns claims arising on or before the day specified in the deed. Here, that day was 7 November 2022. Section 444G provided that the Company was also bound by the DOCA. Section 444H provided that the DOCA released the Company from a debt so far as the deed provided for the release and the creditor was bound by the deed. Section 444D(2) provided that a secured creditor bound by the DOCA was not prevented from dealing with the security interest except insofar as the DOCA so provided in relation to a secured creditor who voted in favour of the resolution of creditors resulting in execution of the DOCA. The issues in this appeal concern the extent to which claims the fifth respondent or Mr Grono, as a secured creditor of the Company who voted in favour of the resolution for execution of the DOCA, were released and the extent to which his security interest became permanently unenforceable by operation of the terms of the DOCA and ss 444D, 444G and 444H of the Act.

2    As of 7 November 2022, Mr Grono had made advances to the Company under a loan agreement made on 19 October 2022 (Loan Agreement). The debt owed under the Loan Agreement was secured by security interests granted under the Loan Agreement and a general security agreement also made on 19 October 2022 (General Security Agreement). The creditors of the Company, including Mr Grono, voted in favour of the Company executing the DOCA. After the DOCA was executed on 19 June 2023 Mr Grono made additional advances to the Company. On 26 September 2023 the Company and Mr Grono made a further agreement, executed as a deed, by which the Loan Agreement was varied (Deed of Variation). The additional advances were evidently made under the Loan Agreement, as varied by the Deed of Variation. The Company did not repay the outstanding balance of the additional advances and, as a consequence, Mr Grono appointed receivers and managers to property of the Company under the provisions of the General Security Agreement (Grono receivers). The appellant or Blackbird is a secured creditor of the Company that has also appointed receivers (Blackbird receivers).

3    In the proceeding before the primary judge Blackbird unsuccessfully challenged the appointment of the Grono receivers on the grounds that:

(a)    cl 4 of the DOCA and s 444D(1) and s 444D(2) operated to extinguish the security interests granted under the Loan Agreement and General Security Agreement because Mr Grono had voted in favour of the resolution to approve the DOCA; or

(b)    the additional advances fell within the meaning of Claims and were released by operation of the DOCA and s 444D(1) and s 444H of the Act, because the additional advances were taken to have been made on 16 August 2022 under the terms of the Loan Agreement, as varied by the Deed of Variation, alternatively, because the obligation to repay the ‘Debt’ arose out of cl 3 of the Loan Agreement and that obligation included a contingent liability to repay the additional advances as they fell within the meaning of ‘Further Moneys’ and that, in turn, fell within the meaning of ‘Debt’ in the Loan Agreement as at 7 November 2022.

4    The primary judge heard Blackbird’s application for declaratory and other relief as an urgent duty matter. Her Honour made orders dismissing the application and delivered judgment and ex temporaneous reasons five days after the hearing. Her Honour set out the applicable legal principles at PJ [41]-[42] and [50]-[51] in terms in which no party has disputed. In the application of those principles the primary judge concluded that cl 4 of the DOCA did not have the effect of extinguishing the security interest created under the General Security Agreement with respect to claims falling outside the meaning of ‘Claims’ in the DOCA and ‘claims arising on or before the specified day’ in s 444D(1) of the Act: PJ [47]-[48]. The primary judge also concluded, in substance, that on the proper construction of the Loan Agreement, as varied by the Deed of Variation, it did not create a fiction that the agreement to advance the additional money came into existence before 7 November 2022 and, therefore, that claim was not released by operation of the DOCA and s 444D(1) and s 444H of the Act. Further, her Honour concluded that the obligation to repay the additional money was not a contingent claim or liability in existence on or before 7 November 2022 because Mr Grono was under no obligation under the terms of the Loan Agreement to make further advances to the Company and, in substance, the obligation to repay the additional advances arose independently out of the terms of the Deed of Variation which was a new agreement made after 7 November 2022: PJ [53]-[64]. Blackbird appeals from the primary judge’s orders on two grounds.

5    By ground 1 of the notice of appeal Blackbird contends that the primary judge’s conclusion at PJ [47] concerning the operation of cl 4 of the DOCA was erroneous. It contends that the primary judge should have found that the combined effect of cl 4 of the DOCA and s 444D(2) of the Act was that, irrespective of whether or not the liabilities secured by those security interests were released by the DOCA, Mr Grono was permanently prevented from enforcing, realising or otherwise dealing with any security interest created under the Loan Agreement or the General Security Agreement. The resolution of this ground turns on the proper construction of cl 4 of the DOCA and ss 444D, 444G and 444H of the Act.

6    By ground 2 of the notice of appeal Blackbird contends that the primary judge’s conclusion at PJ [53]-[63] to the effect that Mr Grono’s claims for repayment of the additional advances were not released by operation of the DOCA and s 444D(1) and s 444H of the Act was also erroneous. In substance, Blackbird contends that the primary judge was wrong in failing to accept each of the arguments, summarised in para 3(b), it had advanced in support of the relief it sought on its application. The resolution of this ground turns on the proper construction of cl 3 of the Deed of Variation and cl 3 of the Loan Agreement and the meaning of Claims in the DOCA and ‘claims arising on or before the day specified’ in s 444D(1) of the Act.

7    As will be explained later, largely for the reasons given by her Honour (albeit in compact terms) at PJ [47]-[48] and PJ [53]-[64], the primary judge’s conclusions were correct. Accordingly, we would dismiss the appeal with costs.

Preliminary matter

8    When addressing Blackbird’s contentions regarding the proper construction of cl 4 of the DOCA, the primary judge said:

48    Blackbird accepted that if the money had been advanced pursuant to a newly drawn contract and not by way of variation to an older contract, then the legal obligation to repay the money would have arisen after the Relevant Date and the security interest could and would operate in respect of it. Blackbird accepted more generally that the General Security [Agreement] could attach to legal obligations coming into existence after the Relevant Date, and that the security interest is preserved for the purpose of enforcing present claims or debts.

9    That observation formed part of her Honour’s reasons for concluding that cl 4 did not have the effect of extinguishing Mr Grono’s security interest expressed at PJ [47] because, in substance, Blackbird had accepted that claims under new agreements coming into existence after 7 November 2022 could be secured by the security interest granted under the General Security Agreement. Therefore, the security interest could not have been extinguished insofar as it secured the performance of new obligations. By ground 1 of the notice of appeal, Blackbird now contends, in effect, that irrespective of whether or not the legal obligation to repay a new advance of money arose under the Loan Agreement, as varied by the Deed of Variation, or a new and separate loan agreement, on the proper construction of cl 4 of the DOCA, because Mr Grono had voted in favour of the resolution that the Company execute the DOCA, the security interest granted under the General Security Agreement was permanently extinguished and, therefore, that security interest was not capable of securing repayment of any new advance of money.

10    Mr Grono opposes Blackbird raising the first ground of appeal on the basis that it is inconsistent with the ‘concession’ recorded at PJ [48]. Blackbird evidently accepts that the concession was made and seeks leave to withdraw it in the appeal. Both Blackbird and Mr Grono rely on Dovuro Pty Ltd v Wilkins [2003] HCA 51; 215 CLR 317 in support of submissions in favour and against withdrawal of the concession.

11    In Dovuro mixed views were expressed on the question of whether the appellant in that appeal (Dovuro) was permitted to withdraw a concession it had made before the trial judge to the effect that it owed the respondent a duty of care in connection with the tort of negligence. In separate reasons, each of Gleeson CJ, McHugh J and Kirby J expressed the view Dovuro should not be so permitted. In joint reasons Gummow and Hayne JJ and in separate reasons Callinan J said it was not necessary to decide that question to resolve that appeal. Justice Heydon agreed with Gummow and Hayne JJ and Callinan J.

12    Mr Grono relies on the brief separate reasons of each of Gleeson CJ and McHugh J to submit that Blackbird should not be permitted to withdraw the concession because it was well made and, in the interest of finality, Blackbird should not be permitted to raise the issue, in effect, for the first time on appeal when this Court, as an intermediate appellate court, has not had the advantage of the primary judge’s consideration of the issue. Blackbird, in substance, relies on the applicable principles set out in the reasons of Kirby J and joint reasons of Hayne and Callinan JJ to submit that the issue the subject of the concession is a pure question of law and that it is in the interests of justice that it be permitted to raise the point in the appeal because there is no relevant prejudice to Mr Grono as the question can be decided without the need for further evidence on the facts as found by the primary judge.

13    As reflected in the reasons of Kirby J and joint reasons of Hayne and Callinan JJ, the principles applicable to granting a party leave to withdraw a concession on appeal are well established and the same or substantially the same as the principles that apply to granting leave to raise a new point for the first time in an appeal. In short, it is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial, but, in some cases, when a question of law is raised for the first time it is expedient in the interests of justice that the question should be argued and decided in an appeal: Dovuro at [151]. For example, if all of the facts of relevance to the issue have been adduced and the question is a pure question of law or legal construction, the interests of justice may require that a party be permitted to withdraw a concession and to make a submission on a point of law or construction abandoned below: Dovuro at [89]. In considering if it is expedient in the interests of justice to allow the point to be raised in the appeal, relevant considerations include: the merits of the point; any explanation for failing to raise it or abandoning it before the primary judge; prejudice to the respondent in allowing the point to be raised; the consequences for the appellant if not permitted to raise the point; and the integrity of the appellate process: VAAC v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 74; 129 FCR 168 at [23]-[27] (North, Merkel and Weinberg JJ).

14    In Blackbird’s written submissions it identifies the concession to which the primary judge referred at page 30 lines 17 to 33 of the transcript of the hearing before the primary judge. In its oral submissions, Blackbird identifies the concession at page 26 lines 17 to 33 of the transcript. Mr Grono made no submissions about the manner in which or place in the transcript at which any concession was to be found. In our view, in neither of the passages of the transcript to which Blackbird referred is there a clear concession of the kind recorded in the primary judge’s reasons and, otherwise, we have not been able to identify any passage(s) in the transcript where the concession was made. Nonetheless, as no party to the appeal contends that concession was not made, we proceed on the basis that it was made in the terms recorded in the primary judge’s reasons but there is no explanation, through the transcript or otherwise, of the context in which that concession was made or the nature or extent of any qualifications to it.

15    We also observe that Blackbird’s written submissions before the primary judge included a submission to the effect that, on the proper construction of cl 4 of the DOCA and by force of s 444D(1) and s 444D(2) of the Act, as Mr Grono had voted in favour of the Company executing the DOCA, he was not able to rely on the security interests created under the Loan Agreement and General Security Agreement, in effect, for any purpose. Further, the security interests were not resuscitated by making the Deed of Variation. Mr Grono’s written and oral submissions before the primary judge addressed Blackbird’s submissions on that matter.

16    Applying the relevant principles, we would permit Blackbird to raise the point in the appeal for the following reasons.

(1)    Although, for reasons given later, ground 1 of the notice of appeal should be dismissed, there is sufficient merit in the contention to warrant raising the point in the appeal.

(2)    While there is no explanation for the concession, there is a degree of ambiguity about the exact nature of the concession, given that it was inconsistent with Blackbird’s written submissions, which it evidently maintained, and with Mr Grono addressing the point in both his written and oral submissions before the primary judge.

(3)    The point is purely a question of law that can be determined on the findings of fact made by the primary judge and without the need for any further evidence.

(4)    There is no relevant prejudice to Mr Grono and he accepts there would be none if the point were raised in the appeal.

(5)    The prejudice to Blackbird if it is not permitted to raise the point is self-evident and connected to the merits of the point.

(6)    Finality and the integrity of the appellate process is not absolute and must yield, in an appropriate case, to the other considerations to which reference has been made in the administration of justice.

17    It follows that, to the extent necessary, we would grant Blackbird leave to withdraw the concession to raise ground 1 of the notice of appeal in the appeal.

Part 5.3A of the Act

18    Part 5.3A of the Act makes provision for the administration of a company’s affairs with a view to executing a deed of company arrangement, or winding up the company, or ending the administration and the company continuing to carry on its business. The object of Pt 5.3A is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or if that is not possible, results in a better return for the company’s creditors and members than would result from an immediate winding up of the company: s 435A.

19    The company, a liquidator or a secured creditor may appoint an administrator of the company: ss 436A, 436B, 436C. An administrator has certain powers and duties relating to conducting the company’s business and investigating its affairs and must convene two meetings of the creditors of the company within relatively short timeframes: s 436E, s 439A. At the second meeting of creditors, the creditors may resolve that: (1) the company execute a deed of company arrangement; (2) the administration should end; or (3) the company be wound up: s 439C.

Effect, variation and termination of a deed of company arrangement

20    Where the creditors resolve that the company execute a deed of company arrangement, that deed must be prepared and executed and, in the meantime, creditors are not permitted to act inconsistently with it: ss 444A, 444B, 444C. Relevantly, ss 444D, 444G and 444H provide:

444D    Effect of deed on creditors

(1)    A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).

(2)    Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security interest, except so far as:

(a)    the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or

(b)    the Court orders under subsection 444F(2).

…

…

444G    Effect of deed on company, officers and members

A deed of company arrangement also binds:

(a)    the company; and

(b)    its officers and members; and

(c)    the deed’s administrator.

…

444H    Extent of release of company’s debts

A deed of company arrangement releases the company from a debt only in so far as:

(a)    the deed provides for the release; and

(b)    the creditor concerned is bound by the deed.

Claims binding on creditors under the DOCA

21    The primary judge summarised the effect of s 444D(1) and meaning of ‘Claim’ in the DOCA at PJ [41]-[44]. Her Honour accepted the summary of the statutory context of Pt 5.3A of Vaughan J in Smith v Sandalwood Properties Ltd [2019] WASC 109; 344 FLR 278 at [68]-[85]. Her Honour also adopted the following summary of the operation of s 444D(1) of Vaughan J (at [91]) taken from Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; 240 CLR 509 at [50], [52]-[55] (French CJ, Gummow, Hayne and Kiefel JJ), [71] (Heydon J).

(1)    It is s 444D(1) alone that makes a DOCA binding on creditors.

(2)    Section 444D(1) identifies who is to be bound by the DOCA (all creditors) but then proceeds to limit the extent to which those creditors are bound (so far as concerns identified claims).

(3)    Creditors are bound so far as concerns claims against the company that arose before a specified date. Creditors cannot be bound by operation of a DOCA beyond the limit stated in s 444D(1).

(4)    In the application of s 444D(1) effect must be given to the words ‘so far as concerns claims arising on or before the day specified in the deed’. Although ‘elastic’ words of connection, in the context of s 444D(1), they have a narrow meaning.

22    In his Honour’s summary of the statutory context of Pt 5.3A in Sandalwood Properties Vaughan J also explained a number of other principles that the primary judge expressly (PJ [42]) or implicitly (PJ [41]) adopted. The following principles drawn from that summary are relevant to the issues raised in this appeal.

(1)    A company is released from a debt only so far as the deed of company arrangement provides and the creditor concerned is bound by the deed: s 444H. As a deed of company arrangement binds all creditors but only so far as concerns claims arising on or before the day specified, to the extent that a deed purports to address claims beyond those covered by s 444D(1) it is ineffective to bind creditors: Sandalwood Properties at [73].

(2)    The creditors for the purposes of Pt 5.3A are those which would have been creditors of the company had the company gone into liquidation and the relevant date for the purposes of s 553(1) of the Act had been the day specified in the deed of company arrangement. Thus, the claims arising to which reference is made in s 444D(1) are those debts or claims which would be provable against the company in a winding up. Put another way, the claims that fall within s 444D(1) are coextensive with those that could fall under s 553(1): Sandalwood Properties at [76].

(3)    Section 553(1) of the Act provides:

Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.

(4)    There is an obvious congruence between the phrases ‘claims the circumstances giving rise to which occurred before the relevant date’ in s 553(1) and ‘claims arising on or before the day specified’ in the deed of company arrangement in s 444D(1). The difference in terminology does not result in any difference in substance. Nor is anything to be derived from the use of ‘debts’ and ‘claims’ in s 553(1) compared to the reference only to ‘claims’ in s 444D(1). It is accepted that the word ‘claims’ is used as a single expression to cover what s 553(1) divides into debts and claims in the context of a winding up: Sandalwood Properties at [76].

(5)    The words of s 553(1) indicate an intention to define provable claims widely. That is consistent with a basic aim of insolvency laws; namely, to deal comprehensively with all claims against a company so that its affairs can be fully wound up or so that it can resume trading: Sandalwood Properties at [79].

(6)    The purpose of a deed of company arrangement is to resolve once and for all the financial position of the company as it stood on the day specified in the deed, in order to allow the company a fresh start for the future. A fresh start or clean slate object is also readily identifiable as a purpose of a deed of company arrangement that is implicit in the statutory scheme in Pt 5.3A: Sandalwood Properties at [80], [82].

(7)    To better facilitate a fresh start for an insolvent company which pursues external administration through Pt 5.3A it is necessary that the terms ‘creditor’ and ‘claim’ be understood to be broad in their ambit: Sandalwood Properties at [81].

(8)    Since Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24 it has been accepted that the expression ‘claims arising before the day specified in the deed’ in s 444D(1) extends to future or contingent claims or debts. The object of Pt 5.3A and the purpose of a deed of company arrangement would be frustrated if claims did not extend to future and contingent claims. A future or contingent creditor is not a ‘creditor’ in the narrow sense in that they are not a person to whom a debt is due and payable. A future or contingent creditor is a person who will, or might in some circumstances, become a creditor in that narrow sense: Sandalwood Properties at [83]-[85].

23    After making certain observations about the width of the definition of ‘Claim’ in the DOCA, the primary judge said that she would construe the definition of a claim to conform with the concept of a claim in s 444D and s 553 of the Act: PJ [43]-[44]. The effect of the primary judge’s reasoning is that the expression ‘Claim’ in the DOCA was treated as having the same meaning as ‘claims’ in s 444D(1) and ‘debt’ and ‘claim’ in s 553(1) of the Act. Further, 7 November 2022 was the specified day for the purposes of s 444D(1).

24    No party to the appeal contends that the primary judge’s identification of the applicable principles or construction of ‘Claim’ in the DOCA was incorrect. Otherwise, as there is no reason to doubt the correctness of the primary judge’s approach, we adopt the same construction of ‘Claim’ in the DOCA for the purposes of the appeal.

Principles applicable to the identification of contingent claims

25    The primary judge summarised the principles applicable to the determination of whether a claim is a ‘contingent claim’ and provable in the winding up or administration of a company at PJ [50]-[51]. Again, no party in the appeal contends that her Honour’s explanation of the principles was erroneous and, otherwise, we regard it as an accurate summary of the principles to be derived from the authorities. Nonetheless, for the purposes of this appeal it is useful to restate and explain the relevant principles as they apply to the issues in the appeal.

26    The primary judge’s summary reflects, in distilled form, the comprehensive survey of the authorities undertaken by Vaughan J in Sandalwood Properties at [118]-[179]. Amongst other things, his Honour observed that a future debt is to be contrasted with a present debt or claim and is to be distinguished from a contingent debt. A future debt is one which will become owing at a future time if the present state of affairs continues until that future time; at that future time, the debt or claim will be a present debt or claim. A contingent debt or claim is one in respect of which there is an existing obligation and out of that obligation a liability will arise on the occurrence of a future event, whether that future event be an event that must happen or only an event that may happen. ‘There is thus a distinction between a future claim and a contingent claim. Both are founded on a pre-existing legal obligation as at the relevant date. However, a future claim will crystallise into a monetary liability at a future date whereas a contingent claim may or may not, depending on the contingency, crystallise into a monetary liability at a future date’: Sandalwood Properties at [118]-[121]. Relevantly, a contingent claim may arise from obligations under an existing contract where there is an existing obligation to pay money on the occurrence of a future event whether that future event must happen or only may happen: Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; 120 CLR 455 at 459 (Kitto J).

27    The question of whether a contingent claim arises before the day specified in the DOCA requires a consideration of the nature of the contractual obligation and whether, at the relevant day, ‘the posited substantive liability had its genesis in the making of the contract’ or ‘carries with it the seed’ of the eventual claim. Put another way, ‘whether particular circumstances have given rise to a claim requires identification of the elements of the substantive obligation which the claim represents and an assessment of whether those circumstances reveal the existence of a basal fact necessary to bring that substantive obligation into being’ at the relevant day: Sandalwood Properties at [134]-[136], [165], Re One.Tel Limited; Ex parte Walker [2007] NSWSC 1478; 215 FLR 428 at [19]-[22] (Barrett J), Larkden Pty Ltd v Lloyd Energy Systems Pty Ltd [2011] NSWSC 1567 at [55]-[58] (Hammerschlag J).

28    A consequence of administration may be that the company repudiates or breaches a pre-administration contract resulting in termination of that contract and a corresponding right to damages that forms part of a creditor’s claim against the company that arises on or before the specified day. However, administration need not result in the termination of a pre-administration contract. Under a pre-administration contract that survives administration a creditor may have continuing obligations that must be performed while, at the same time, the company may have been released from its contingent liability for future non-performance of its obligations under that contract: see, e.g., the discussion of the effect of administration on pre-administration contractual obligations post-administration in Sandalwood Properties at [148]-[154], [166], [173]-[177].

29    A creditor that finds itself in a commercially disadvantageous position with respect to a pre-administration contract as a consequence of the binding effect of a deed of company arrangement on that creditor is not without remedy. The Court may terminate the operation of a deed of company arrangement upon the application of a creditor where the deed or a provision of it would be oppressive or unfairly prejudicial to, or unfairly discriminatory against one or more creditors or contrary to the interests of the creditors as a whole: s 445D(1)(f). Further, even after termination of a deed by operation of its terms, a creditor may apply to the Court for relief under s 447A of the Act or ss 90-15, 75-41 and 75-42 of Sch 2 of the Act, Insolvency Practice Schedule (Corporations), to set aside the resolution approving execution of the deed of company arrangement and (or) for other orders addressing the effect of the deed on the creditors: Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95; 297 FLR 1 at [193] (Newnes and Murphy JJA). Therefore, that a deed of company arrangement would operate harshly against a particular creditor by releasing the company from future or contingent liabilities under a continuing pre-administration contract is not a sound reason for not giving full effect to the terms of the deed and s 444D(1) and s 444H of the Act: Sandalwood Properties at [175]-[177].

Ground 1: Was the ‘security interest’ rendered permanently unenforceable by the DOCA?

Clause 4 of the DOCA

30    Clause 4 of the DOCA was addressed to Secured Creditors. As already mentioned, Mr Grono was a Secured Creditor and the Company had granted him security interests in property of the Company under the Loan Agreement and General Security Agreement.

31    Clause 2.3 and cl 11 of the Loan Agreement made provision for the Company to provide certain securities to Mr Grono. The principal securities were the General Security Agreement and a PPSA Security Interest in respect of PPSA Personal Property registered under the Personal Property Securities Act 2009 (Cth). In cl 11.3 the Company charged its real property and PPSA Personal Property with repayment of the Debt.

32    In cl 2.1 of the General Security Agreement the Company granted Mr Grono a PPSA Security Interest over all PPSA Personal Property and a fixed charge over all Other Property to secure repayment of the Secured Money under any Transaction Document. Secured Money was defined to mean ‘all money that each Transaction Party (whether alone or with another person) is or at any time may become actually or contingently liable to pay to or for the account of the Secured Party (whether alone or with another person) for any reason under or in connection with a Transaction Document’. ‘Transaction Document’ was defined in such a way as to include the General Security Agreement and the Loan Agreement and ‘any new loan agreement entered into between the Grantor and the Secured Party at any time and from time to time in replacement or substitution of the [Loan Agreement], each as extended, assigned, novated or varied from time to time’. It follows that the meanings of Secured Money and Transaction Document were sufficiently wide to capture the additional advances Mr Grono made to the Company as ‘Secured Money’ and to capture the Loan Agreement, as varied by the Deed of Variation, as a ‘Transaction Document’.

33    Clause 4 of the DOCA provided:

4.    Secured Creditors

(a)    Subject to:

(i)    any Court order pursuant to section 444F(2) of the Corporations Act; or

(ii)    the provisions below,

nothing in this deed:

(iii)    shall bind a Secured Creditor; or

(iv)    shall restrict in any manner whatsoever any right that a Secured Creditor has to lawfully enforce, realise or otherwise deal with its security interest over all or any part of the property of the Company at any time, including during the course of this deed,

to the extent permitted by section 444D(2) of the Corporations Act and except where the Secured Creditor votes in favour of the resolution to approve this deed.

(b)    For the avoidance of doubt, a Secured Creditor will not be entitled to participate in any distributions from the Creditors’ Trust and unless specified in this deed such Secured Creditor’s Claim shall not be affected by this deed.

34    ‘Secured Creditor’ was defined to mean a Creditor that holds a valid and enforceable Security Interest in respect of the Company. ‘Security Interest’ was defined in such a manner as to include the security interests granted in the Loan Agreement and the General Security Agreement in respect of personal property, as registered on the Personal Property Securities Register, and in respect of other property.

The primary judge’s construction of clause 4

35    As already mentioned, before the primary judge Blackbird submitted that cl 4 of the DOCA operated to extinguish the security interests granted under the Loan Agreement and the General Security Agreement. As to that submission, the primary judge said:

47    … On its terms, clause 4 [operated to extinguish the security interest granted under the General Security Agreement] in relation to claims that are affected by the DOCA, but not claims that are not affected by the DOCA. And so it remains necessary to identify whether Mr Grono has a claim that is not affected by the DOCA.

36    The effect of the primary judge’s reasons is that her Honour was of the view that cl 4 of the DOCA operated to prevent Mr Grono, as a Secured Creditor who had voted in favour of the resolution to approve the DOCA, from enforcing, realising or otherwise dealing with the security interest granted under the General Security Agreement only to the extent that security interest secured liabilities that fell within the meaning of ‘Claim’ in the DOCA.

Summary of the parties’ contentions in the appeal

37    Blackbird submits that the primary judge erroneously construed cl 4 as a provision that affected ‘Claims’ (personal rights) as opposed to ‘Security Interests’ (property rights). Blackbird submits that the manifest objective intention of cl 4 of the DOCA was that a Secured Creditor who voted in favour of the resolution that the Company execute the DOCA would be restrained from enforcing, realising or otherwise dealing with its security interest over all or any part of the property of the Company at any time including after Effectuation (termination) of the DOCA. Blackbird submits that construction is derived from s 444D(2) of the Act, the legislative object of Pt 5.3A to provide a company with a ‘fresh start’ or ‘clean slate’ and that Completion of the DOCA was subject to conditions that included that all Secured Creditors voted in favour of the resolution to execute the DOCA or released their security and that Secured Creditors removed their PPSA registrations. Blackbird submits that, as a consequence, cl 4 of the DOCA must be understood to permanently extinguish the ‘security interest’ the Company granted in the Loan Agreement and General Security Agreement.

38    Mr Grono submits, in effect, that the primary judge was correct to conclude that the DOCA was not binding on him with respect to claims falling outside the meaning of ‘Claim’ in the DOCA and claims in s 444D(1) of the Act. Therefore, to the extent that his security interest secures liabilities that are not ‘claims’ within the meaning of s 444D(1) or ‘Claims’ within the meaning of the DOCA, Mr Grono is not bound by cl 4(a) and may realise or otherwise deal with the security interest.

The proper construction and effect of clause 4 of the DOCA

Principles applicable to the construction of a deed of company arrangement

39    The parties were largely in agreement as to the principles applicable to the construction of a deed of company arrangement. These principles were recently set out and summarised in Goldus Pty Ltd (subject to deed of company arrangement) v Australian Mining Pty Ltd (receivers and managers appointed) [2023] FCAFC 27; 16 ARLR 571 at [79]-[88] (Beach, Derrington and Halley JJ).

40    In short, a deed of company arrangement is not simply a commercial contract because it derives its force and effect from Pt 5.3A of the Act and, in particular s 444D and s 444G. It operates as a form of statutory instrument. As the deed is binding on all creditors, the context in which the deed is to be construed is more limited than the context that may apply to the construction of an ordinary commercial contract. Relevantly, the context is that derived from the text of the deed, documents or transactions incorporated by reference into the deed, other objective matters of context known to anyone interested in the affairs of the company and the object of Pt 5.3A as set out in s 435A. Otherwise, well-established principles of contractual interpretation apply. Relevantly, the text is to be given an objective construction by giving proper effect to the text, context, subject matter and purpose of its provisions. The meaning of the terms of a commercial contract is to be determined by what a reasonable business-person would have understood those terms to mean. Also, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience. It is to be construed in context, considering its terms as a whole, giving consistent meaning to all of its terms and avoiding apparent inconsistency. Further, words may be supplied, omitted or corrected in a written contract, as a matter of contractual interpretation, where it is clearly necessary in order to avoid absurdity or inconsistency.

Context: sections 444D, 444G and 444H, ‘secured creditor’ and ‘security interests’

41    Clause 4 of the DOCA must be construed in a context in which all creditors (including Secured Creditors) were bound by the terms of the DOCA so far as concerns claims arising before 7 November 2022: s 444D(1). The Company and the deed administrators were also bound by the DOCA: s 444G. The DOCA released the Company from a debt (claim) only insofar as the DOCA provided for that release and the creditor was bound by the DOCA: s 444H. Further, subject to s 444F(2) (which is not presently relevant), the binding nature of the DOCA did not prevent a secured creditor from realising or otherwise dealing with the security interest, except so far as the DOCA provided in relation to a secured creditor who voted in favour of the resolution of creditors because of which the Company executed the DOCA: s 444D(2).

42    Section 9 of the Act defines ‘secured creditor’ of a corporation to mean ‘a creditor of the corporation, if the debt owing to the creditor is secured by a security interest’. The term ‘security interest’ is defined to mean a PPSA security interest or a charge, lien or pledge. The term ‘PPSA security interest’ is defined, relevantly, to mean a security interest within the meaning of the Personal Property Securities Act and to which that Act applies. The term ‘charge’ is defined to mean a charge created in any way and includes a mortgage and an agreement to give or execute a charge or a mortgage, whether on demand or otherwise. None of the terms ‘mortgage’, ‘pledge’, ‘lien’ or ‘charge’ is otherwise defined and may be assumed to have the ordinary meaning of those words.

43    In general, a security is created where a person (creditor) to whom an obligation is owed by another (debtor) by statute or contract, in addition to a personal promise of the debtor to discharge the obligation, obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor’s obligation to the creditor: Bristol Airport plc v Powdrill (Paramount Airways case) [1990] Ch 744 at 760 (Browne-Wilkinson VC); see, also, Sykes EI and Walker S, The Law of Securities (5th ed, Lawbook Co, 1993) p 3. The term ‘security interest’ is defined in s 12 of the Personal Property Securities Act in a similar manner with respect to personal (not real) property. Broadly, it means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property): s 12(1). A ‘security agreement’ means (a) an agreement or act by which a security interest is created, arises or provided for; or (b) writing evidencing such an agreement or act: s 10. A security agreement is effective according to its terms and, amongst other things, may provide for security interests in after-acquired property and for future advances: s 18(1) and s 18(4).

44    The Registrar of Personal Property Securities must establish and maintain a register known as the Personal Property Securities Register containing certain data: s 147, s 148. A person can apply to register a financing statement with respect to a security interest and, subject to certain conditions, the Registrar must register the financing statement: s 150. A financing statement contains certain data including the secured party, grantor and collateral (personal property to which a security interest is attached and includes personal property described by the registration): s 10, s 153(1). Registration of a security interest affects priorities between secured parties: Pt 2.6. Further, subject to certain exceptions, without registration, a security interest is ineffective against a company in administration or liquidation: s 267 and s 588FL, s 588FM of the Act.

45    A secured creditor of a company has a proprietary right (that is, a right of action against the property of the company the subject of the security interest) and a personal right of action against the company for repayment of the debt. Personal claims are the subject of s 444D(1). Generally speaking, personal claims are released and discharged by operation of s 444D(1) and s 444H and replaced with, in effect, proof in collective proceedings against a deed fund. Claims against property in which a company has an interest are the subject of s 444D(2). Section 444D(2) reflects the longstanding principle in insolvency law that secured creditors are not required (but may on certain terms) participate in the relevant statutory scheme. Consequently, a secured creditor who has not voted in favour of the resolution that the company execute the deed of company arrangement is treated or deemed as having debts (despite release or discharge of personal claims) for the purpose of enabling that secured creditor to continue to exercise property rights. The right of action against the property of the company is, however, only exercisable where there exists a payment obligation of the company for the satisfaction of which the right may be exercised. ‘Section 444D(2) is not a provision which interferes with property rights. It is concerned with the preservation of property rights.’: Australian Gypsum Industries at [239]. Where a secured creditor has voted in favour of the deed and the deed provides that such a secured creditor is prevented from realising or dealing with the security interest, the property right otherwise preserved by s 444D(2) is not able to be exercised. However, that does not mean that the security agreement by which the security interest was granted is extinguished or otherwise does not operate or have effect according to its terms.

46    Nonetheless, the release of personal claims and inability to enforce a security interest with respect to such claims resulting from the terms of a deed of company arrangement and ss 444D(1), 444D(2) and 444H of the Act may have an effect on the secured creditor’s right to enforce the security interest. In general, upon releasing the debt secured, the security for the debt is also released. In that circumstance, the debtor may take such steps as are necessary to obtain a formal release where one is necessary: Tyler ELG, Young PW AO QC and Croft CE, Fisher and Lightwood’s Law of Mortgage (3rd Australian ed, LexisNexis, 2013) at [34.1]-[34.5]; The Law of Securities at pp 10-11, 67. In the case of personal property, there is a mechanism for requiring the secured party, in substance, to register an amended financing statement recording that no collateral (property) described in the registration secures any obligation owed to the secured party: Pt 5.6 of the Personal Property Securities Act. It follows that, subject to the terms of the security agreement, where by operation of the terms of a deed of company arrangement and ss 444D(1), 444D(2) and 444H, a company is released from a debt secured by a security interest, the effect of releasing the debt may also be to release the security interest. However, a release from the debt may not release the security interest if other liabilities falling outside the scope of the deed of company arrangement and claims for the purposes of s 444D(1) remain subject to the security agreement and security interest.

Context: the DOCA as a whole

47    Subject to the right of the Proponent to waive the conditions, Completion of the DOCA was conditional upon all Secured Creditors either providing written consent to release their Security Interest or voting in favour of the resolution approving the DOCA and Secured Creditors which had a PPSA registration removing that registration: cl 9.1, cl 1.1 (definitions, Completion, Conditions, Security Interest). Further, subject to the theoretical possibility of a Secured Creditor becoming a Non-Participating Creditor (agreeing not to participate in a distribution from the Trust Fund) and the Proponent waiving the applicable conditions for Completion, it is evident from the definitions of ‘Available Property’, ‘Admitted Claims’, ‘Claims’, ‘Creditor’, ‘Participating Creditor’, ‘Non-Participating Creditor’, ‘Trust Deed’ and ‘Trust Fund’ in cl 1.1 of the DOCA and cll 2.4, 3, 4, 5, 6 and 11(b) that all Creditors, except for the Proponent and associates of the Proponent, including all Secured Creditors, were intended to be Participating Creditors.

48    Clause 2.4 expressed the object of the DOCA in terms that reflected the object of Pt 5.3A.

2.4    Object of this deed and Trust Deed

The object of this deed and the Trust Deed is that, on the terms set out in this deed and the Trust Deed:

(a)    the deed will have the effect of:

(i)    maximising the chances of the Company continuing in existence; and

(ii)    ensuring that the creditors of the Company are no worse off than what they would be in a liquidation;

(b)    on Effectuation:

(i)    Participating Creditors are to obtain entitlements under the Trust Deed in substitution for their Claims against the Company and their entitlements under this deed prior to that time;

(ii)    the Claims of all Participating Creditors will be released and discharged in consideration of their participation in the Trust in accordance with clause 3.4 of this deed and the Terms of the Trust Deed; and

(iii)    the Claims of Non-participating Creditors against the Company will be dealt with in accordance with clause 6;

(c)    the Trustees under the Trust Deed are to have the powers, duties and obligations in relation to the Trust Fund and the Trust Creditors which are set out in the Trust Deed.

49    ‘Effectuation’ was defined to mean the effectuation of the deed in accordance with cl 19.4 of the DOCA: cl 1.1. In substance, the DOCA terminated 24 hours after Completion. ‘Completion’ occurred when the conditions in cl 9.1 were satisfied.

50    Clause 3 and cl 6 of the DOCA dealt with the subject matter of s 444D(1) and s 444H of the Act. Clause 3.1 provided that the deed bound, in accordance with and subject to s 444D of the Act, all Creditors of the Company. Clause 3.2, subject to cl 4 and cl 5, placed restrictions on the steps a Creditor could take in respect of or in connection with Claims during the Deed Period. Clause 3.3 provided that the property that would be available to pay the Admitted Claims was the Available Property.

51    Clause 3.4 provided that, subject to cl 4 and cl 5, all Participating Creditors having a Claim must accept their entitlements under the deed and the Trust Deed in full satisfaction and complete discharge of all Claims which they had, or claim to have had, against the Company as at the Relevant Date. On Effectuation the Company was released from the Claims of Participating Creditors, the Claims of Participating Creditors were extinguished as against the Company and converted into an entitlement to claim against the Trust Fund in accordance with the terms of the Trust Deed. The Participating Creditors were entitled to lodge a proof of debt with the Trustees and were to accept their right to prove in full satisfaction and complete discharge of all Claims which they had or claimed to have had against the Company.

52    Clause 3.5 made provision for Participating Creditors to execute any necessary documents to give effect to the releases provided by or referred to in cl 3.4. Clause 3.6 provided that, subject to cl 4 and cl 5 and s 444D of the Act, the DOCA could be pleaded by the Company, the Administrators and the Trustees against the Participating Creditors as an absolute bar and defence to any legal proceedings brought or made at any time in respect of any Claim by the Participating Creditors.

53    Clause 5 dealt with the subject matter of s 444D(3) of the Act (owners of property in possession of the company).

54    Clause 6 provided that the Claims of the Non-participating Creditors survived the DOCA and Effectuation, but Non-participating Creditors were not entitled to prove in respect of their Claims or participate in the distribution of Available Property.

55    The Available Property, which was to constitute the Trust Fund on and from Completion, was to be distributed by the Trustees to pay the Admitted Claims following the Effectuation of the deed and in accordance with the terms of the Trust Deed. ‘Available Property’ was defined to mean the assets that were listed in cl 11(b) of the DOCA. These assets were described in such a way as to include property of the Company in which a Secured Creditor was likely to have a Security Interest. Clauses 13-15 contained provisions dealing with the establishment and distribution of the Trust Fund, the Company providing the Trustees with assistance, and the Administrators and the Trustees admitting, rejecting and paying Claims. The Trust Deed also addressed these matters including the priority of distributions by which Secured Creditors had priority for payment of their Admitted Claims in full ahead of all other Creditors: cl 3.1(a) of the Trust Deed.

56    It follows that an objective purpose of the DOCA was to ensure that property of the Company in which Secured Creditors had a Security Interest formed part of the Trust Fund and all Secured Creditors would be Participating Creditors with their Claims against the Company extinguished in exchange for an entitlement to participate in distributions from the Trust Fund in priority to other Creditors. That is a firm indication that an objective purpose of the applicable conditions to Completion was to prevent Secured Creditors from enforcing security interests against property of the Company, which purpose was to be achieved either by the Secured Creditors releasing the Security Interest or as a consequence of the Secured Creditor voting in favour of the resolution to approve the DOCA and the operation of s 444D(1) and s 444D(2) of the Act.

The meaning of clause 4 in context

57    There were two limbs of cl 4 of the DOCA. Clause 4(a) which dealt with preservation of the rights of Secured Creditors to realise and deal with Security Interests in terms more-or-less consistent with and reflecting s 444D(2) of the Act and cl 4(b) which precluded Secured Creditors from participating with other Creditors in distributions from the Trust Fund. (Although cl 4(b) refers to the ‘Creditors’ Trust’ it is clearly intended to be a reference to the ‘Trust Fund’ as the expression ‘Creditors’ Trust’ is not defined and the only trust relating to creditors addressed in the DOCA is the Trust Fund.) The effect of cl 4(a) and cl 4(b), where a Secured Creditor had not voted in favour of the resolution to approve the DOCA, was that the Secured Creditor had the right to enforce, realise or otherwise deal with its security interest over the property of the Company. However, that Secured Creditor had no entitlement to participate in distributions from the Trust Fund and that Secured Creditor’s Claim was not affected by the DOCA.

58    Notwithstanding the literal meaning of the text, having regard to the objective purpose of the DOCA, it is evident that cl 4 was really intended to operate in circumstances in which all Secured Creditors had either released their Security Interest or voted in favour of the resolution to approve the DOCA and all Secured Creditors were Participating Creditors. In that context, the reference to ‘Secured Creditor’ in cl 4(b) must be understood to mean ‘Secured Creditor (that is a Non-Participating Creditor)’ so as to give that clause a meaning consistent with the balance of the DOCA. Put another way, cl 4(b) should not be understood as applying to a Secured Creditor who was unable to enforce its Security Interest because, for example, that Secured Creditor had released its Security Interest and removed its PPSA registration and who, otherwise, fell within the meaning of Participating Creditor.

59    Turning to cl 4(a), in the context of the object of the DOCA and Pt 5.3A of the Act, it can be accepted that, where a Secured Creditor had voted in favour of the resolution to approve the DOCA, then subpara 4(a)(iii) and subpara 4(a)(iv) were intended to have the opposite effect to that which applied where a Secured Creditor had not voted in favour. It can also be accepted that where a Secured Creditor voted in favour of the resolution, the opposing effect was intended to bring cl 4(a) within the terms of s 444D(2)(a) such that the DOCA operated to prevent the Secured Creditor from realising or otherwise dealing with its security interest as provided for in cl 4(a). However, to give opposing effect to cl 4(a) it is necessary to take into account the whole text of the clause. The converse of the whole text, with all necessary modifications, was as follows:

(a)    Subject to:

(i)    any Court order pursuant to section 444F(2) of the Corporations Act; or

(ii)    the provisions below,

where a Secured Creditor votes in favour of the resolution to approve this deed, this deed:

(iii)    shall bind the Secured Creditor; and

(iv)    shall restrict in any manner whatsoever any right that Secured Creditor has to lawfully enforce, realise or otherwise deal with its security interest over all or any part of the property of the Company at any time including during the course of this deed,

to the extent permitted by section 444D(2) of the Corporations Act.

(The italicised text indicates changes made to the text to give it opposing operation for a Secured Creditor that voted in favour of the resolution to approve the DOCA. Underlining has been added for emphasis.)

60    To the extent that cl 4(a) purported to prevent a Secured Creditor from realising or otherwise dealing with its Security Interest it was only binding on the Secured Creditor ‘so far as concerns claims arising on or before’ 7 November 2022: s 444D(1). That is, so far as concerns Claims as defined or described in the DOCA. Thus, negation of the qualification in s 444D(2) cannot operate to expand the binding effect of cl 4(a) of the DOCA beyond the limit described in s 444D(1). In particular, negation cannot prevent a Secured Creditor from realising or dealing with its security interest in respect of claims that are outside the scope of ‘claims arising on or before the day specified’ for the purposes of s 444D(1) or Claims as defined or described in the DOCA. Therefore, to give full effect to the opposing operation of cl 4(a) and, in particular, the words ‘to the extent permitted by s 444D(2)’ requires that cl 4(a) operated to restrict a Secured Creditor who voted in favour of the resolution to approve the DOCA from enforcing, realising or otherwise dealing with its security interest ‘at any time’ so far as the relevant liability secured was a Claim within the meaning of the DOCA. However, even if the opposing operation of cl 4(a) were construed as broadly as Blackbird contends, the ultimate effect of the clause and DOCA would be the same because a Secured Creditor would not be bound by cl 4(a) with respect to claims that were not ‘claims arising on or before’ 7 November 2022 within the meaning of s 444(1) of the Act.

61    Otherwise, in accordance with ordinary principles relating to security interests, the binding effect of a release of Claims in accordance with the terms of the DOCA and s 444D(1) and s 444H of the Act could operate to extinguish a Security Interest of a Secured Creditor if, as a consequence of the release, there were no remaining personal obligations of the Company secured by the Security Interest. In that event, the Company, as grantor, may be able to call upon the Secured Creditor, as secured party, to take some action to restore the property of the Company to an unencumbered state and, in the case of PPSA collateral, lodge an amending financial statement to remove a PPSA registration. However, any security agreement must operate according to the terms of that agreement. Therefore, a security interest could survive the release of claims (including contingent claims) arising on or before a given date if the security is intended also to secure performance of new obligations that come into existence after that date in the future. For example, a security agreement may provide for future advances: s 18(4) of the Personal Property Securities Act; and a security interest may be granted to secure present and future debts: e.g., Cinema Plus (Administrators Appointed) v Australia and New Zealand Banking Group Ltd [2000] NSWCA 195; 49 NSWLR 513 at [144] (Giles JA).

62    No doubt the intended effect of the DOCA was to provide the Company with a clean slate and fresh start and it was intended that Security Interests in existence at the Relevant Date would be rendered unenforceable against the property of the Company. But, a security agreement that created a security interest in property of the Company that secured the performance of obligations or liabilities of the Company that were not Claims within the meaning of the DOCA would fall outside the operation of cl 4(a) of the DOCA and s 444D(1) and s 444D(2) of the Act. A Secured Creditor who refused to release such a security interest or remove a PPSR registration in respect of such a security interest would not stand in the way of giving effect to the object of Pt 5.3A or the purpose of the DOCA. The Proponent could choose to waive any applicable Condition of Completion and permit the Security Interest and PPSR registration to inure after Completion and Effectuation of the DOCA if the effect of the security agreement by which the Security Interest was created was to secure the performance of future obligations or liabilities falling outside the meaning of ‘Claim’ in the DOCA and claims in s 444D(1) of the Act. Such a waiver would not adversely affect the operation of the DOCA or subvert the object of Pt 5.3A.

63    It follows that the words ‘at any time’ in cl 4(a) could not operate to prevent a Secured Creditor from realising or dealing with a Security Interest to the extent that it secured performance of obligations that were not the subject of claims falling within the scope of ‘Claims’ under the DOCA and ‘claims’ in s 444D(1) of the Act. Thus, there was no error in the primary judge’s conclusion at PJ [47].

64    In this case, the Proponent chose to waive the condition that Mr Grono remove his PPSA registration. Further, as already mentioned, the additional advances fell within the meaning of Secured Moneys in the General Security Agreement. Accordingly, the real question is whether the Deed of Variation brought into existence a new obligation secured by the General Security Agreement or it was the crystallising of a contingent obligation that existed as at 7 November 2022.

Ground 2: Were advances of money after 7 November 2022 released by the DOCA?

Primary judge’s reasons on contingent claims

65    As already mentioned, after the DOCA was executed, Mr Grono and the Company made the Deed of Variation. Clause 3 was the only provision that made any amendment to the terms of the Loan Agreement and provided:

Variation of Loan Agreement

(a)    The Parties acknowledge and hereby agree that, with effect from the Effective Date, the Principal Sum contained in the Reference Schedule at page 22 of the Loan Agreement is varied by inserting the words "Plus an additional advance of funds which is the equivalent in value to one hundred thousand US dollars (USD$ 100,000) the exchange rate calculated as at the Effective Date)".

(b)    Except as varied or amended in this Deed, the Parties confirm that the terms and conditions of the Loan Agreement and its corresponding General Security Agreement are otherwise unaffected and continue in full force and effect.

66    ‘Effective Date’ was defined to mean ‘the date the last of the Parties executes this Deed’: cl 1. That was 26 September 2023 (the only date on the deed on the execution page).

67    Clause 2.1 of the Loan Agreement provided:

2.1    Facility

In consideration of the Lender forbearing to make immediate demand for repayment of the Principal Sum advanced by the Lender to the Borrower on the Advance Date, the Lender relying on the representations and warranties made by the Borrower set out in this Agreement, will make available to the Borrower the Facility in accordance with the terms of this Agreement.

68    ‘Principal Sum’ was defined to mean the amount specified in the Reference Schedule and such other amount agreed to between the parties from time to time: cl 1.1. The Reference Schedule described the Principal Sum as ‘One hundred thousand dollars ($100,000)’. Although the Loan Agreement was last executed on 19 October 2022, the ‘Advance Date’ was defined to mean 16 August 2022. Therefore, the Loan Agreement operated retrospectively with respect to the advance of the Principal Sum evidently made on 16 August 2022.

69    Before the primary judge, and again in the appeal, Blackbird submitted that the effect of the amendment to the definition of Principal Sum was that the total of the amounts of AUD100,000 and USD100,000 described in the Reference Schedule, as amended, was taken to have been advanced by Mr Grono, as Lender, to the Company, as Borrower, on the Advance Date (16 August 2022). As the total of the amended amount of the Principal Sum was taken to have been ‘owing’ on 7 November 2022, the amount fell within the meaning of Claim in the DOCA and Mr Grono’s claim to repayment of the additional advance was extinguished under the terms of the DOCA because that claim was taken to have arisen on or before 7 November 2022. The primary judge rejected that submission and reasoned:

54    The variation to the Loan Agreement occurred in actual fact in September 2023. That is, the date upon which Mr Grono and the Company formed the intention to be legally bound in relation to new rights and obligations that had not previously existed in relation to the relevant debt, each exchanging promises in consideration for the other. Mr Grono then, and only then, promising to advance the money giving rise to the relevant debt in consideration for the Company then, and only then, promising to both repay, and to provide the Company’s assets as security for the repayment obligation.

55    The mere circumstance that the Loan Agreement was made or recorded by way of the variation to an instrument bearing the earlier date does not create a [fiction] that the agreement to advance the money giving rise to the relevant debt came into existence on the date of the Loan Agreement, or that it ever existed at any time prior to the Relevant Date. That is reinforced by the terms of the Deed of Variation itself. On its terms, it creates obligations coming into existence on and from the Effective Date, namely 26 September 2023. It speaks prospectively, not retrospectively.

…

62    I have considered arguments advanced by Blackbird to the extent that the relevant debt was one that was created by way of a variation to a written instrument first created at an earlier time, and its acknowledgement that Mr Grono would have been protected had he secured a debt that was recorded in a new and different instrument. It is difficult to see how the objectives of Pt 5.3A could be promoted by drawing such a fine distinction. That is especially so when Pt 5.3A requires that a secured creditor be in a position to make a choice based on facts and circumstance that are knowable at the time, or at least predictable. Here the knowable and predictable facts and circumstances were that Mr Grono had performed all of his obligations under the Loan Agreement on its terms as presently then in force between the parties and he had claims against the Company for breach. It was those claims that were extinguished by the DOCA.

70    Before the primary judge, and again in the appeal, Blackbird also submitted that Mr Grono’s claim to repayment of the additional advance was a contingent liability that arose under cl 3 of the Loan Agreement (unamended by the Deed of Variation) at 7 November 2022. That clause was in the following terms.

3.1    Repayment Date

The Borrower must, unless required under another provision of this Agreement to repay the Debt at an earlier date, repay the balance outstanding of the Debt to the Lender on the Repayment Date.

3.2    On demand

(a)    The Lender may (at its election) demand, with not less than two (2) months’ Notice, repayment in full of the outstanding balance Debt from the Borrower, and the Borrower must repay the Debt in full to the Lender on or before the last day of the two (2) months’ Notice period.

(b)    If an Event of Default occurs under this Agreement, the Lender may demand immediate repayment of the outstanding balance Debt from the Borrower, and the Borrower must immediately repay the Debt in full to the Lender.

71    ‘Debt’ was defined to include the ‘Principal Sum’ and ‘any Further Moneys’: cl 1.1(a) and cl 1.1(c). ‘Further Moneys’ was defined to mean all moneys, amongst other things:

(a)    at any time owing to the Lender or payable by the Borrower to the Lender either alone or on joint or partnership account under the provisions of any agreement, including (without limitation) this Agreement;

…

(c)    at any time owing or payable to the Lender by the Borrower either alone or on joint or partnership account or on any other account whether as principal debtor, surety or otherwise or in any other manner;

…

72    ‘Repayment Date’ was defined to mean the date for repayment of the Debt as specified in the Reference Schedule: cl 1.1. The Reference Schedule described the Repayment Date as: ‘Subject to clauses 3.2 and 9.2, the Debt must be repaid in full by 5.00pm (AWST) on the date which is two (2) months after demand from the Lender’.

73    Clause 3.2(b) and cl 9.2 made provision for an immediate demand for repayment if there was an Event of Default. ‘Event of Default’ was defined to mean ‘an event described in clause 8, which gives rise to a default by the Borrower under the Agreement’. The reference to ‘clause 8’ was an obvious error and should be understood as a reference to ‘clause 9’ because it was cl 9, not cl 8, that dealt with events of default under the Loan Agreement. Clause 9.1 described each Event of Default. The appointment of an administrator and (or) execution of a deed of company arrangement fell within the description of an Event of Default in cl 9.1.

74    Before the primary judge Blackbird submitted that the additional advances Mr Grono made after 7 November 2022 fell within the description of paras (a) and (c) of the definition of ‘Further Moneys’. Therefore, the additional advances fell within the meaning of ‘Debt’ and the liability to repay the ‘Debt’ existed on or before 7 November 2022. The amount of the ‘Debt’ was subject to Mr Grono making further advances of money to the Company in the future which was an event that, as at 7 November 2022, may or may not have taken place. Therefore, the obligation to repay the component of the Debt comprised of Further Moneys was a contingent liability on 7 November 2022.

75    The primary judge was not persuaded by Blackbird’s submissions. Her Honour concluded that the additional advances were not contingent liabilities on or before 7 November 2022 because the source of the obligation to repay the additional advances was the Deed of Variation and not the Loan Agreement and reasoned:

53    As at 7 November 2022 there existed no varied Loan Agreement. The Loan Agreement existing at that time was exhausted in the sense that the Company had no contractual right to any further loan money and Mr Grono had no contractual obligation to advance it. It was, as counsel for Mr Grono correctly submitted, an exhausted facility.

…

56    At the time of voting on the DOCA the relevant facts and circumstances were that the Company had no contractual right to demand the advance of any money under the Loan Agreement as it then existed, unvaried. The Deed of Variation was necessary for that to occur. Expressed another way, the money giving rise to the relevant debt was advanced not pursuant to the Loan Agreement as in contractual force between the parties immediately prior to the Relevant Date, but in accordance with the terms of a varied Loan Agreement that did not in fact exist until it was entered into after the Relevant Date.

57    Accordingly, I conclude that the entering into the Deed of Variation was not a contingency that triggered any obligation previously existing under the Loan Agreement in its original form. To adopt words from the authorities, in its original form the Loan Agreement did not supply the “source” or “seed” of the obligation to pay the relevant debt. That obligation was first created by the Deed of Variation. Nothing in that construction is inconsistent with the DOCA construed in accordance with the Corporations Act, nor inconsistent with the Corporations Act itself.

…

63    It is not correct to describe the possibility of a variation to that Loan Agreement made at a later time as a contingent claim existing at an earlier time. As at the Relevant Date, there was no claim to be repaid against the relevant debt in accordance with the definition of “claim” under the DOCA, whether contingent or otherwise.

64    Accordingly, I conclude that the claim that formed the foundation of the appointment of the Grono [receivers] was not affected by the DOCA nor by the creditors’ trust established under it. It follows that Blackbird’s amended interlocutory application must be dismissed.

Summary of the parties’ contentions in the appeal

76    Blackbird contends that the primary judge misconstrued the Deed of Variation and that the effect of the Loan Agreement, as varied, was that the additional advances of money made after 7 November 2022 fell within the meaning of ‘Claims’ in the DOCA and claims in s 444D(1) of the Act. Blackbird relies on essentially the same arguments as those the primary judge rejected. Further, or alternatively, Blackbird contends that the primary judge failed to correctly apply the legal principles concerning contingent liabilities resulting in her Honour failing to identify the obligation to repay the Debt in cl 3.1 and cl 3.2 of the Loan Agreement, as at 7 November 2022, as the ‘basal fact’ or genesis, source or seed of the Company’s obligation to repay the additional money advanced as a result of the Deed of Variation. Again, Blackbird largely relies on the same arguments that the primary judge rejected concerning cl 3 of the Loan Agreement and the definitions of Debt, Principal Sum and Further Moneys. Relevantly, Blackbird submits that the contingency or future event that may or may not have happened for the purposes of the obligation to repay under cl 3 of the Loan Agreement was a future advance of money including money that would become owing or payable under another ‘agreement’. Blackbird also submits that the absence of any obligation on the part of Mr Grono to make an advance under the Loan Agreement is not relevant and it simply means that the contingent liability and claim had negligible value when assessed at the date Mr Grono submitted his proof of debt.

77    Mr Grono submits, in substance, that the primary judge’s reasoning was correct (PJ [53]-[63]). In the absence of a present obligation on the part of Mr Grono to make a future advance to the Company under the Loan Agreement, there was no contingent liability to pay any further debt in the future. The bare obligation to make payment of the outstanding balance of the Debt after a notice of demand was given under cl 3.1 or cl 3.2 was not a contingent liability to pay any amount arising out of an obligation existing under the Loan Agreement as at 7 November 2022 other than an obligation to pay the outstanding balance of the amount of money then owing.

Was there an error in the primary judge’s construction of the Deed of Variation?

78    When a contract is amended by further agreement there are two contracts. The original agreement and the variation agreement: Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; 201 CLR 520 at [22]-[24] (Gleeson CJ, Gaudron, McHugh and Hayne JJ). It may also be accepted that parties to a contract can agree that its terms are to operate retrospectively and confer rights and impose obligations in respect of events that have already taken place by the date the parties actually make the contract and enter into a legal relationship: e.g., Edwards v Australian Securities and Investments Commission [2009] NSWCA 424; 235 FLR 207 at [79] (Macfarlan JA, Campbell JA and Spigelman CJ agreeing). We also accept that, as a matter of legal principle and freedom of contract, as between the parties to a contract, they may agree that an event that takes place after the contract is made is to be treated or taken for the purposes of the contract to have been an event that occurred before the date the parties actually made the contract.

79    It follows that, as a matter of legal principle, the Company and Mr Grono could have made an agreement after 7 November 2022 that purported to treat advances of money made after that date as if the advances had been made before and were ‘owing’ at that date. But, an agreement between the Company and Mr Grono made after the Company executed the DOCA could not affect the operation and binding nature of that deed on the creditors of the Company. Thus, the relevant question is whether a ‘claim’ in respect of an advance made after 7 November 2022 was a ‘claim arising on or before’ that date for the purposes of s 444D(1). That question can only be answered by reference to the state of affairs as they existed on 7 November 2022.

80    Therefore, whatever view is taken of the proper construction of the Deed of Variation or Loan Agreement, as varied, only the Loan Agreement in its original form as in existence at 7 November 2022 is relevant to determining the extent to which Mr Grono was bound by the DOCA in respect of claims arising on or before 7 November 2022 under the Loan Agreement. An agreement made after 7 November 2022 to the effect that there was a liability to pay an amount (present, future or contingent) on or before 7 November 2022 cannot, as the primary judge observed, create a fiction that there was a ‘Claim’ for the purposes of the DOCA or ‘claim’ for the purposes of s 444D(1) if there was not, in fact, such a liability in existence on or before 7 November 2022. Therefore, even if her Honour misconstrued the Loan Agreement, as varied, that error could not have affected the outcome of the proceeding before the primary judge. In any event, for the reasons that follow, the primary judge did not misconstrue the Loan Agreement, as varied.

81    Clause 3(a) was the only provision of the Deed of Variation that amended or varied any term of the Loan Agreement and that amendment was limited to the description of Principal Sum in the Reference Schedule. That amendment was acknowledged and agreed to have effect from 26 September 2023. Therefore, the Deed of Variation was not directed to or objectively intended to retrospectively effect the parties’ rights and obligations under the Loan Agreement at the Advance Date (16 August 2022), the date of execution (19 October 2022), the date of appointment of the Administrators (7 November 2022) or the date of execution of the DOCA (18 June 2023).

82    In cl 3(b) the parties also confirmed that, except as varied or amended by the Deed of Variation, the terms and conditions of the Loan Agreement were otherwise unaffected and continued in full force and effect. That clause must be read in a context in which the Company was in administration, there was an existing amount owing to Mr Grono under the Loan Agreement for which he could demand repayment, and, subject to Effectuation, the claim for the amount owing as at 7 November 2022, would be released by operation of the DOCA. But for the Deed of Variation, after Effectuation under the DOCA, in effect, there would not have been any continuing rights or obligations of the parties under the Loan Agreement. Therefore, cl 3(b) and the context of the Deed of Variation is further support for prospective not retrospective operation of the amendments to the Loan Agreement, as varied.

83    As a consequence of the amendment to the description of ‘Principal Sum’, cl 2.1 of the Loan Agreement was amended to be in the following terms on and from 26 September 2023. The text in italics is inserted from the definitions in the original Loan Agreement. The text in bold and italics is inserted from the definitions as amended by the Deed of Variation.

In consideration of the Lender forbearing to make immediate demand for repayment of the Principal Sum, $100,000 plus an additional advance of funds which is the equivalent in value to one hundred thousand US dollars (USD$100,000) the exchange rate calculated as at [26 September 2023] and such other amount agreed to between the parties from time to time, advanced by the Lender to the Borrower on the Advance Date, 16 August 2022 or such other date as agreed between the parties from time to time, the Lender relying on the representations and warranties made by the Borrower set out in this Agreement, will make available to the Borrower the Facility in accordance with the terms of this Agreement.

84    Similarly inserting the applicable text from the definitions in original form and as amended, cl 2.4 was amended to be in the following terms on and from 26 September 2023.

The Borrower must draw down the Principal Sum, $100,000 plus an additional advance of funds which is the equivalent in value to one hundred thousand US dollars (USD$100,000) the exchange rate calculated as at [26 September 2023] and such other amount agreed to between the parties from time to time, on the Advance Date, 16 August 2022 or such other date as agreed between the parties from time to time, or as soon as reasonably practicable thereafter.

85    As is evident from the text of original terms, cl 2.1 and cl 2.4 always contemplated that there could be further amounts advanced as ‘agreed to between the parties from time to time’ and, self-evidently, these further amounts would not have been advanced or drawn down on 16 August 2022. Therefore, the additional text added to the definition of Principal Sum by the Deed of Variation did not create any significant additional ambiguity or incongruity to that which was present in the clauses in their original form.

86    Clause 1.2(b) of the Deed of Variation provided that unless the context requires otherwise words denoting the singular number include the plural. Therefore, as ‘Advance Date’ was defined as the ‘date’ specified in the Reference Schedule (16 August 2022) ‘or such other date as agreed between the parties from time to time’. Accordingly, the reference to Advance Date may be construed in context to mean Advance Dates as multiple dates could be agreed between the parties from time to time for advances of other amounts as contemplated by the description of Principal Sum. Therefore, the ambiguity or incongruity in cl 2.1 and cl 2.4 of the Loan Agreement was able to be resolved in a way that Principal Sum meant $100,000 advanced by the Lender to the Borrower on 16 August 2022 and such other amount agreed between the parties from time to time advanced by the Lender to the Borrower on such date as agreed between the parties from time to time. There is no evident commercial rationale for an alternate construction deeming all contemplated advances to have been made on a single date in defiance of reality.

87    Construing the provisions of the Loan Agreement, as varied, in accordance with the well-established principles of contractual interpretation referred to earlier in these reasons (in context, considering the terms as a whole, giving consistent meaning and avoiding inconsistency and incongruity) a reasonable business-person would understand cl 2.1, as amended, to have meant: ‘In consideration of the Lender forbearing to make immediate demand for repayment of the AUD100,000 advanced by the Lender to the Borrower on 16 August 2022, plus forbearing to make immediate demand for an additional advance equivalent to USD100,000 (at the exchange rate on 26 September 2023) advanced by the Lender to the Borrower on such date agreed between the parties, and forbearing to make immediate demand for repayment of such other amount agreed to from time to time advanced by the Lender to the Borrower on such date agreed to from time to time, the Lender will make available to the Borrower the Facility in accordance with the terms of this Agreement.’ Likewise, as regards cl 2.4, a reasonable business-person would understand that the Borrower’s obligation to draw down on the components of the Principal Sum other than the AUD100,000 was not 16 August 2022 or as soon as reasonably practicable thereafter, but ‘as soon as reasonably practicable’ after the date the parties agreed the additional amount was to be advanced by the Lender to the Borrower. That is, 26 September 2023 with respect to the advance equivalent to the value of USD100,000.

88    These constructions of cl 2.1 and cl 2.4 are consistent with the prospective operation of the amendments and the intention that the terms of the Loan Agreement would continue otherwise unaffected by the amendments.

89    Further, aside from the express agreement that the meaning of Principal Sum was amended with effect from 26 September 2023, it would be commercial nonsense for the full amount of the Principal Sum, as amended, to be taken to have been advanced on 16 August 2022 when part of that full amount was the value in Australian dollars of USD100,000 calculated by reference to the exchange rate on 26 September 2023. That is, the full amount of the Principal Sum, as amended, could not have been calculated or known on 16 August 2022 or at any other time before 26 September 2023.

90    A reasonable business-person would not have understood the amendment to the description of Principal Sum to have had retrospective effect and that the Principal Sum was to be taken on and from 16 August 2022 to have been AUD100,000 plus the value in Australian dollars of the value of USD100,000 calculated by reference to the exchange rate on 26 September 2023. A reasonable business-person would understand the Loan Agreement to have been amended by the Deed of Variation on and with prospective effect from 26 September 2023 and that Principal Sum had the amended meaning on and from that date. Consequently, the meaning of Debt was also amended on and from 26 September 2023 by reason of the amended meaning of Principal Sum. There was no error in the primary judge’s construction of the Loan Agreement, as varied, in her Honour’s reasons at PJ [54]-[55], [62].

Was there error in the application of the legal principles concerning contingent liabilities?

91    In the context of loans, at common law, where no time for repayment of the loan is specified, or where the loan is stated to be payable ‘on demand’, an immediate debt by which the money is repayable immediately is created without the creditor first making a demand for repayment. However, a loan repayable ‘on demand’ is to be distinguished from a loan that is repayable only on condition that a demand is first made. In the latter, but not the former case, the making of a demand is a condition precedent to liability to repay and the cause of action in debt does not arise until the demand has been made: Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 at [36]-[37] (Murphy JA, Buss JA agreeing). Also, in the latter case, the debt may be described as contingent in the sense that although the money is owed it is not presently payable and will not become immediately (presently) payable until a demand is made. That is, the debt may be ‘owing’ but not yet ‘due’ or ‘payable’. The debt becoming ‘due’ or ‘payable’ when a demand for repayment is made: see, e.g., Re Elgar Heights Pty Ltd [No 1] [1985] VR 657 at 663-666, 668-669 (Ormiston J); Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; 53 NSWLR 213 at [26]-[29] (Palmer J); Marriott Industries Pty Ltd v Mercantile Credits Limited; Maesbury Plumbers Pty Ltd (intervener) 160 LSJS 288 at 293 (King CJ); Main Camp Tea Tree Oil Ltd v Australian Rural Group Ltd [2002] NSWSC 219 at [17] (Barrett J). In any event, once a loan has become immediately (presently) payable, there is nothing contingent about the debtor’s liability to repay the loan to the creditor. In that circumstance, it is a present debt not a contingent debt.

92    The effect of cll 2.1, 3.1 and 3.2 of the Loan Agreement was to make a demand for repayment a condition precedent to the Company’s liability to repay the Principal Sum. The effect of cl 3.1 and cl 3.2 was also to make a demand for repayment a condition precedent to the Company’s liability to repay other money falling within the meaning of Debt. Therefore, as at 7 November 2022, the Debt was an amount of money that was ascertainable and then presently owing, but the liability to repay that amount was deferred and was contingent upon a future event; namely, a demand for payment of the amount owing. The primary mechanism for crystallising an obligation to repay was to make a demand in accordance with the description of Repayment Date and cl 3.1 or to make a demand for repayment in accordance with cl 3.2(a). Each of these provisions was to the same effect; namely, the amount owing would become payable two months after the demand was made. Under cl 3.2(b) the amount owing could become immediately payable upon demand if there were an Event of Default. Consistently with cl 3.2(b), cl 9.2(a) provides that if an Event of Default occurs ‘the Debt shall, at the option of the Lender, immediately become due and payable upon the Lender making a written demand upon the Borrower’.

93    The appointment of the Administrators on 7 November 2022 and (or) execution of the DOCA would have been an Event of Default within the meaning of cl 9.1 of the Loan Agreement. However, there was no evidence before the primary judge or in the appeal as to whether Mr Grono made a demand for immediate payment of the Debt at any time after 7 November 2022. For the purpose of the appeal, it may be accepted that the Company’s liability to repay the Debt, as at 7 November 2022, was contingent upon Mr Grono making a demand for payment. Thus, the amount of the Debt, the sum of money owing as at 7 November 2022, was an existing circumstance out of which a future liability to pay the then ascertainable amount of the Debt may have arisen in the future. Therefore, the total amount owing under the Loan Agreement on 7 November 2022 was a claim within the meaning of s 444D(1).

94    An advance of money in the future is an amount that would become ‘owing’ in the future when the money is advanced in the future. Such a future advance could be an amount that would fall within the meaning of Further Moneys in the Loan Agreement and could be an amount that would become subject to the obligation to repay the Debt subject to a demand under cl 3.1 or cl 3.2 of the Loan Agreement. While such a future advance could be described as an event that, as at 7 November 2022, may or may not happen, the amount owing and obligation to repay that amount as a consequence of that event (the future advance) was not an event that could be described as having its ‘seed’ or ‘genesis’ or ‘basal fact’ in a term of the Loan Agreement. As the primary judge correctly observed, there was no term of the Loan Agreement by which Mr Grono was obliged to make any future advances to the Company that could then have become ‘owing’ and subject to the liability to repay on a demand under cl 3.1 or cl 3.2. The relevant future event was a future mutual agreement between Mr Grono and the Company pursuant to which Mr Grono would advance further money to the Company. That future event was independent from any term or obligation of the Loan Agreement.

95    It follows that merely because a future advance of further money pursuant to a future agreement could fall within the meaning of Further Moneys and Debt and become subject to the repayment obligation in the Loan Agreement in the future is not to the point. As at 7 November 2022, the terms upon which any future advance may have been made by mutual agreement were subject to further and future agreement between the parties, including the terms upon which repayment of any future advance would be made. Mr Grono and the Company could have agreed that a demand was not a precondition to repayment of the future advance and it was immediately repayable, they could have agreed that it be repaid in instalments, they could have agreed that it be repayable on demand with a shorter or longer notice period than for which cl 3 of the Loan Agreement provided, they could have agreed that the terms of the Loan Agreement would apply to repayment or they could have agreed any number of other alternative repayment terms. Thus, as at 7 November 2022, any future further advance made on future mutually agreed terms was not a contingent claim within the meaning of s 444D(1) even if, once made, such an advance would fall within the description of Principal Sum, or Further Moneys or Debt and become subject to the operation of cl 3.1 and cl 3.2 of the Loan Agreement.

96    In this case, the additional advances made under the Loan Agreement, as amended by the Deed of Variation, was merely the mechanism by which Mr Grono and the Company chose to give effect to their mutual agreement that Mr Grono would make further advances of money to the Company. Relevantly, the seed or source of the obligation to repay the additional advances was the Deed of Variation. That is, the basal fact giving rise to the obligation to repay the further advances was the agreement to make further advances reflected in the terms of the Deed of Variation, not the original terms of the Loan Agreement.

97    The primary judge was correct to conclude that any obligation of Mr Grono to make advances of money under the Loan Agreement as at 7 November 2022 was exhausted and any liability to repay advances of money that may have been made in the future, otherwise falling within the description of Further Moneys under the Loan Agreement, were not contingent liabilities or contingent claims for the purposes of the meaning of ‘Claims’ in the DOCA or ‘claims’ in s 444D(1) of the Act as at 7 November 2022. There was no error in the primary judge’s reasons at PJ [53], [56]-[57] and [63]-[64].

Disposition

98    For the foregoing reasons, we would dismiss the appeal and order Blackbird to pay Mr Grono’s costs of the appeal.

Associate:

Dated:    6 October 2025

REASONS FOR JUDGMENT

VANDONGEN J:

99    I am indebted to Feutrill and Longbottom JJ for their summary of the background to this matter and for their comprehensive description of the statutory provisions and principles relevant to the proper determination of this appeal. I agree, for the reasons given by their Honours, that Blackbird should be granted leave to withdraw its concession and to argue ground 1, and that ground 2 should be dismissed. I also agree that the appeal should be dismissed and that Blackbird should pay the fifth respondent’s costs of the appeal.

100    However, I wish to separately express my reasons for reaching the conclusion that ground 1 should be dismissed. In so doing I will adopt the terms used by their Honours in their joint reasons.

Ground 1 – The DOCA permanently prevented Mr Grono from enforcing, realising or otherwise dealing with his security interest

101    Blackbird argues that the DOCA permanently prevented Mr Grono from enforcing, realising or otherwise dealing with the security interests created under the Loan Agreement or the General Security Deed, irrespective of whether the claims secured by those interests were affected by the DOCA. The principal focus of that argument is on cl 4 of the DOCA, which is in the following terms:

4.    Secured Creditors

(a)    Subject to:

(i)    any Court order pursuant to section 444F(2) of the Corporations Act; or

(ii)    the provisions below,

nothing in this deed:

(iii)    shall bind a Secured Creditor; or

(iv)    shall restrict in any manner whatsoever any right that a Secured Creditor has to lawfully enforce, realise or otherwise deal with its security interest over all or any part of the property of the Company at any time, including during the course of this deed,

to the extent permitted by section 444D(2) of the Corporations Act and except where the Secured Creditor votes in favour of the resolution to approve this deed.

(b)    For the avoidance of doubt, a Secured Creditor will not be entitled to participate in any distributions from the Creditors’ Trust and unless specified in this deed such Secured Creditor’s Claim shall not be affected by this deed.

102    Blackbird submits that if a Secured Creditor voted in favour of the resolution to approve the DOCA then, by force of cl 4(a), properly construed, that creditor’s security interest would be thereby rendered permanently unenforceable. The purpose of that submission is plain. Blackbird’s ultimate contention is that Mr Grono did not have the power to appoint the Grono receivers because cl 4(a) rendered his security interest permanently unenforceable when he came to exercise that power.

103    In my view, Blackbird’s construction of cl 4 cannot be accepted.

104    I gratefully adopt the summary of the principles that are applicable to the construction of a deed of company arrangement, which have been set out in the joint reasons of Feutrill and Longbottom JJ at [39]-[40]. I also adopt, without unnecessarily repeating, their Honours’ assemblage of the relevant statutory context in which cl 4 falls to be construed: at [41]-[46].

105    Before explaining why I do not accept Blackbird’s construction of cl 4 of the DOCA, I should say that I do not consider it necessary to resolve the many difficult questions of construction that are thrown up by what I consider to be a poorly drafted deed. This is because most of those issues are not determinative of Blackbird’s contentions.

106    Consideration of Blackbird’s arguments must begin with s 444D of the Corporations Act 2001 (Cth), which is in the following terms:

Effect of deed on creditors

(1)    A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).

(2)    Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security interest, except so far as:

(a)    the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or

(b)    the Court orders under subsection 444F(2).

(3)    Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as:

(a)    the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed; or

(b)    the Court orders under subsection 444F(4).

(3A)    Subsection (3) does not apply in relation to an owner or lessor of PPSA retention of title property of the company.

Note: Subsection (2) applies in relation to an owner or lessor of PPSA retention of title property of the company. Such an owner or lessor is a secured creditor of the company (see section 51F (meaning of PPSA retention of title property)).

(4)    Section 231 does not prevent a creditor of the company from becoming a member of the company as a result of the deed requiring the creditor to accept an offer of shares in the company.

107    There is no question that s 444D(1) applies to the secured creditors of a company, and therefore that it applied to Mr Grono: Australian Gypsum Industries Pty Ltd v Dalesun Holdings Pty Ltd [2015] WASCA 95 at [204] (Murphy and Newnes JJA). However, s 444D(1) does not, of its own force and effect, prevent a secured creditor from realising or otherwise dealing with a security interest in relation to a company’s property. Subject to the exceptions provided for in ss 444D(2)(a) and 444D(2)(b), a secured creditor’s rights against the property of a company to satisfy claims that would otherwise only be enforceable through the operation of the deed of company arrangement, are preserved by s 444D(2): Australian Gypsum at [226] (Murphy and Newnes JJA). In that context, s 444D(2) is only concerned with preserving a secured creditor’s rights in respect of the claims that are referred to in s 444D(1), namely, claims ‘arising on or before the day specified in the deed’.

108    The exception in s 444D(2)(b), which recognises that there may be circumstances in which curial interference with the exercise of property rights under a security interest may be warranted, is not relevant for present purposes and may therefore be passed over. However, s 444D(2)(a) is of some significance here. Where it applies, s 444D(2)(a) provides for an exception to the protection that is otherwise granted to a secured creditor by s 444D(2). That exception operates ‘so far as … the deed [of company administration] so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed’ (emphasis added). Accordingly, before s 444D(2)(a) will have effect,

(a)    the relevant secured creditor must have voted in favour of the resolution of creditors because of which the company executed the deed of company administration; and

(b)    the deed of company administration must ‘so provide’ in relation to that secured creditor.

109    The phrase ‘except so far as the deed so provides’ in s 444D(2)(a) means that whether the exception in that provision will have effect in a particular case will depend on what is actually provided for in the relevant deed of company administration. In that way, and when read in the context of s 444D(1), the phrase should be understood as meaning ‘except so far as the deed provides that a secured creditor is prevented from realising or otherwise dealing with the secured interest, so far as concerns claims arising on or before the day specified in the deed’.

110    Accordingly, Blackbird’s contention must be that in circumstances in which Mr Grono voted in favour of the DOCA, not only does cl 4(a) ‘so provide’ in relation to claims arising on or before 7 November 2022 (for the purposes of s 444D(2)(a)), but that cl 4(a) of the DOCA also permanently ‘restricts’ Mr Grono from enforcing, realising or otherwise dealing with his security interest over all or any part of the Company’s property in relation to claims arising after 7 November 2022. In that way, Blackbird contends that, on its proper construction, cl 4(a) has a much greater reach when compared to ss 444D(1) and 444D(2) of the Corporations Act, because it permanently restricts the rights of the Company’s Secured Creditors to enforce their security interests for all time, including after Effectuation.

111    At the heart of Blackbird’s contention is the idea that upon a Secured Creditor voting in favour of the resolution to approve the DOCA, the rights of that Secured Creditor fell to be determined by giving opposing effect to cl 4(a). In other words, and applying it to the circumstances of this case, Blackbird submits that when Mr Grono voted in favour of the DOCA, cl 4(a)(iii) somehow transformed itself into a provision which, by its own force and effect, bound him to the terms of the DOCA. Similarly, by force and effect only of cl 4(a)(iv), Mr Grono was then also permanently restricted from enforcing, realising or otherwise dealing with his security interest ‘at any time’.

112    However, this is not how cl 4(a) operates.

113    In my view, cl 4(a) is in the nature of an interpretative clause. Its sole purpose is to make it expressly clear that none of the other clauses of the DOCA should be understood or construed as having the effect that:

(a)    a Secured Creditor is bound by any of those clauses (cl 4(a)(iii)); or

(b)    the rights of a Secured Creditor to enforce a secured interest are in any way restricted (cl 4(a)(iv)),

to the extent permitted by s 444D(2) and except where the Secured Creditor votes in favour of the resolution to approve the DOCA.

114    If a Secured Creditor does vote in favour of the DOCA then cl 4(a) simply falls away, leaving the balance of the provisions of the DOCA operating with full force and effect according to their terms, unaffected by any limitation previously placed on them by that clause. In those circumstances, and where, but for cl 4(a), those provisions would otherwise have been binding on a Secured Creditor, they would then become binding on such creditors. In this way, for example, by voting in favour of the DOCA a Secured Creditor would then become ‘bound’ by the releases provided for in cl 3.4 of the DOCA and its claims would then be extinguished accordingly. In that regard, I note that both parties have always proceeded on the basis that when Mr Grono voted in favour of the DOCA, he thereby released the Company from his Claims, and his Claims were then extinguished.

115    When understood in this way, unless a Secured Creditor votes in favour of the DOCA, cl 4(a) also operates to nullify the restricting effect that any of the other provisions in the DOCA may otherwise have on the rights of the Secured Creditor to enforce a secured interest. Accordingly, when Mr Grono voted in favour of the DOCA, the question of whether, and if so, the extent to which, he was restricted from exercising his rights under his security interest would not be answered by reference to the opposite effect of cl 4(a), but by considering the effect of any other provisions in the DOCA.

116    At the hearing of the appeal, senior counsel for Blackbird frankly accepted that there are no other provisions in the DOCA that in any way restricted Mr Grono’s rights to lawfully enforce, realise or otherwise deal with his security interest over all or any part of the property of the Company at any time, including during the course of the DOCA. Certainly, there are no provisions in the DOCA that permanently restricted Mr Grono’s right to enforce his security interests after Effectuation or in respect of any future debts that were not extinguished by the DOCA. Paragraph (g) of the definition of ‘Condition’ in the DOCA, which required that for Effectuation all of the Secured Creditors had to either provide written consent to release their security interests or vote in favour of the resolution approving the DOCA, does not alter that conclusion. There is no suggestion that Mr Grono provided written consent to release his security interests.

117    It follows that Blackbird’s contentions cannot be accepted. Contrary to those contentions, the DOCA did not have the effect of permanently restraining Mr Grono from exercising his rights under his security interests.

118    To the extent that it was submitted that this conclusion is contrary to the objective intention of the DOCA, that submission must be rejected. As Murphy and Newnes JJA said in Australian Gypsum at [226]-[228]:

Section 444D(2) provides that subsection (1) of s 444D ‘does not prevent’ a secured creditor from realising or otherwise dealing with its security (subject to the exceptions in subsections (a) and (b) of s 444D(2)) in respect of its provable claims. The language of ‘does not prevent’ in this context connotes the preservation of existing rights against the property of the company to satisfy claims at the specified date which would otherwise only be enforceable through the operation of the deed of company arrangement to which statutory effect is given under s 444D(1).

The realisation of (or otherwise dealing with) a security involves exercising a right of action against the property of the company. The right to take action against the property of the company is, however, only exercisable where there exists a payment obligation of the company for the satisfaction of which the right may be exercised.

Insofar as a secured creditor has a claim against the company which is provable under the deed of company arrangement, but which is also capable of being satisfied by recourse to the security instead, the secured creditor is entitled to ‘stand outside’ the deed and realise (or otherwise deal with) the security under s 444D(2).

(emphasis added)

119    In the absence of anything in the DOCA that ‘so provided’ in relation to Mr Grono and his right to realise or otherwise deal with his security interest, Mr Grono was ‘entitled to “stand outside” the deed and realise (or otherwise deal with) the security under s 444D(2)’. He was certainly entitled to realise or otherwise deal with his security interest in respect of the amount of USD100,000 that was advanced in accordance with the Deed of Variation.

120    For these reasons I would dismiss ground 1.

Associate:

Dated:    6 October 2025