FEDERAL COURT OF AUSTRALIA

McCabe, in the matter of McCabe his capacity as deed administrator of Comlek Group Pty Ltd [2023] FCA 1415

ORDERS

DEFINED TERMS:

Act – Corporations Act 2001 (Cth)

Comlek Companies – the companies listed in Schedule 1 to these orders

Deed Administrators’ Costs – has the meaning given to the term in the DOCA

Deed Fund – has the meaning given to the term in the DOCA

DOCA – the deed of company arrangement entered into by the Comlek Companies on 9 February 2023

IPS – the Insolvency Practice Schedule being Schedule 2 of the Act

OA – the originating application in this proceeding dated 1 November 2023

THE COURT ORDERS THAT:

1.    Pursuant to s 90-15 of the IPS, on the proper construction of the DOCA, the plaintiffs are justified in applying the Deed Fund to the Deed Administrators’ Costs in accordance with the terms of the DOCA.

2.    The costs of these proceedings be paid in priority as part of the Deed Administrators’ Costs in accordance with clause 12.2 of the DOCA.

3.    Within two days of these orders, the plaintiffs are to notify the creditors of the Comlek Companies by sending a copy of these orders to each creditor by way of email and by posting these orders on the plaintiffs’ website.

4.    Any interested person given prior notice of the OA has a period of 3 business days from the date these orders to apply to amend or vary the orders, such application to be made on 48 hours’ notice to the plaintiffs.

5.    Any creditor of the Comlek Companies, or other interested person, not given prior notice of the OA, may apply to the Court to amend or vary these orders on 48 hours’ notice to the plaintiffs.

6.    The plaintiffs are at liberty to approach the Court in this proceeding for further orders pursuant to s 90-15 of the IPS to apply the Deed Fund to the Deed Administrators’ Costs after giving reasonable notice to all interested persons, including the creditors of the Comlek Companies.

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

SCHEDULE 1

Comlek Companies

REASONS FOR JUDGMENT

CHEESEMAN J

INTRODUCTION

1    By originating process dated 1 November 2023, the plaintiffs, Andrew McCabe and Joseph Hayes, the Deed Administrators, seek an order of the Court pursuant to s 90-15 of Schedule 2 (the IPS) of the Corporations Act 2001 (Cth) in the nature of judicial advice relating to the construction of a Deed of Company Arrangement (DOCA) dated 9 February 2023 and related relief. The DOCA concerns the administration of 20 companies in the Comlek group of companies (the Comlek Companies).

2    This application was made ex parte but on notice. The plaintiffs gave notice to all creditors of the Comlek Companies by circular on 18 October 2023 and called for creditors to provide any objections. The plaintiffs also gave notice to the Australian Securities and Investments Commission (ASIC). None of those notified sought to be heard on the application. The plaintiffs agreed that if the Court was inclined to grant relief that it would be appropriate to reserve a right to interested persons on notice of the application to apply within a short period to apply to amend or vary the orders made. In the event that it transpires that any interested person was not on notice of this application, the plaintiffs agree that it is appropriate to confirm the right of such persons to apply on notice to seek to amend or vary the orders.

EVIDENCE

3    The plaintiffs rely on the affidavit of Andrew McCabe dated 1 November 2023, exhibit AM-1 to that affidavit, and the affidavit of Hannah Kate Griffiths, solicitor, dated 10 November 2023. They also rely on various affidavits of service filed on 9 November 2023 evidencing service upon the companies listed in Schedule 1 of the originating process, as well as service upon ASIC. The affidavits of service read on the application are listed in Exhibit 1 on the application.

BACKGROUND

4    The following summary of the background relevant to the present application is derived from Mr McCabe’s affidavit and the Administrators’ second report to creditors dated 11 January 2023.

5    Prior to execution of the DOCA, the Comlek Companies were in voluntary administration pursuant to s 436A of the Act. The plaintiffs, the now Deed Administrators, were appointed by the directors as joint and several Administrators of each of the Comlek Companies on 5 December 2022.

6    The Comlek Companies the subject of the DOCA provided engineering and contracting services to a wide range of industries in Queensland, nationally and internationally.

7    As at the appointment of the Administrators, the Comlek Companies had over 140 employees and were generating over $35 million in revenue. The Administrators continued to trade the Comlek Companies after their appointment.

8    The directors resolved to wind up the Comlek Companies under s 436A of the Act shortly after the Commissioner of State Revenue in Queensland issued Default Assessment Notices to the Comlek Companies in an aggregate amount of approximately $9.4 million (including interest and penalties), relating to allegedly outstanding payroll tax liabilities from between 2010 to 2022. The Default Assessments were issued on 26 September 2022. The Administrators reported that each of the Comlek Companies is jointly and severally liable for the debt due to the Commissioner as a result of the grouping provision in the governing legislation. In November 2022, the Comlek Companies attempted to negotiate a potential repayment proposal with the Commissioner, but an acceptable repayment proposal could not be agreed and the Comlek Companies entered into voluntary administration. The Administrators note in their second report to creditors that the directors dispute the quantum of the claim by the Commissioner and intended to lodge an objection.

9    The DOCA was executed following the second meetings of creditors of the Comlek Companies at which resolutions were passed to enter the DOCA in accordance with a proposal made by a group of eight directors of the Comlek Companies (the Directors’ DOCA Proposal). I will refer to the group of eight directors as the Proponents as they are referred to in the DOCA. The Directors’ DOCA Proposal was one of two DOCA proposals before the meetings. The other, which is not presently relevant, was received from a key competitor of the Comlek Group. The Administrators recommended that creditors vote in favour of a resolution to enter into a DOCA based on the Directors’ DOCA Proposal.

10    The resolutions in favour of the Directors’ DOCA Proposal were passed as a result of a vote in favour of the resolution to execute the DOCA being cast by Mr McCabe in his capacity as chairperson of the meetings. The necessity for a casting vote arose because the resolution was passed by a majority of creditors in number but not by a majority of creditors in value. The critical difference being that the Commissioner, the major creditor in value in each Comlek Company, voted against the resolution.

11    That the Commissioner voted against the Directors DOCA Proposal no doubt reflects that the effect of the DOCA was to cordon the assets of the Comlek Group and return the management and operation of the Comlek Companies to the directors while preserving a defined amount to apply to the payment of Comlek Companies’ debts in compromised sums, which debts would thereafter be extinguished. The DOCA allocates the funds available for unsecured creditors 60/40 between the Commissioner (60) and all admitted participating creditors, other than the Commissioner (40). The disparity between the total amount claimed by the Commissioner and that claimed by all other unsecured creditors resulted in the estimated return (cents/$) being significantly less for the Commissioner compared to other creditors. The Administrators were on notice that if the Directors’ DOCA Proposal was approved and executed that the Commissioner may apply to the Court to review the exercise of the Chairperson’s casting vote in favour of the Directors’ DOCA, and or to have the Directors’ DOCA set aside under section 445D of the Act. The Commissioner’s concerns were directed to fairness given the differential treatment of unsecured creditors and to the alleged use of Part 5.3A of the Act by the directors for an improper purpose.

12    Mr McCabe’s reasons for casting his vote as Chairperson in favour of the Directors’ DOCA Proposal are recorded in the minutes of the second meetings of the creditors as follows (as written):

- On the one hand, the largest creditor in the administrations, being [The Commissioner] with a debt of $9.4M, has voted against the Directors’ DOCA Proposal on grounds of (a) fairness with the differential treatment of the DOCA Proposal, and (b) the alleged use of part 5.3A of the Act by the directors for improper purpose;

- Further, the [Commissioner] has put the Administrators on notice that if the Directors’ DOCA is approved and executed, the Commissioner of State Revenue may apply to the Court to review the exercise of my casting vote in favour of the Directors’ DOCA, and further or alternatively to have the Directors’ DOCA set aside under section 445D of the Act;

- While on the other hand, the majority of creditors, including a number of employees seeking to retain employment, have voted in favour of the Directors’ DOCA;

- On balance of the special proxies received prior to the meeting and in consideration of the [Commissioner’s] views on public interest and the potential court application, careful consideration has been given to exercising the casting vote on the resolution;

- While we acknowledge that the [Commissioner] is the largest creditor, the underlying benefits to creditors (and employees) of the DOCA Proposal also needs to be considered; and

- As detailed in our Report, the benefits of the DOCA Proposal include:

- The continued employment of ~140 employees, preserving employee entitlements, mitigating potential payments by the Department of Employment and Workplace Relations, through the FEG Scheme, to pay up to $1.8M;

- Providing for the progress and completion of current contracts, with the retention of knowledge and intellectual property of the Comlek Management Team and staff to complete contracts, mitigating the potential for liquidated damages claims and set-off claims against the debtors ledger;

- Intercompany loans will not be participating creditors, reducing creditor claims in the DOCA;

- Providing creditors with a financially better return than the mid-point range of the estimated liquidation scenario; and

- Providing a more certain and timelier outcome compared to a liquidation scenario.

After careful consideration in the interest of creditors, which may be different to matters of public interest, the Chairperson, in his capacity as Voluntary Administrator and Chairperson of today’s meeting, provided his opinion that it would in furtherance of the objectives of Part 5.3A of the Corporations Act 2001 (Cth) to exercise his casting vote to accept the Directors’ DOCA Proposal because it maintains the employment of the Companies’ employees, maximises the chances of the Companies continuing in existence and results in a better return for the Companies’ creditors than an immediate winding up of the Companies.

13    As a result, partly of its genesis, and partly by reason of its terms, the DOCA is the subject of some controversy separate to the discrete issue in relation to payment of the Deed Administrators’ costs raised in this application. That controversy is the subject of another proceeding presently pending in this Court: proceeding no. QUD 99 of 2023. The Commissioner has instituted a proceeding in the Queensland Registry against multiple respondents, including the Deed Administrators who are named as individual respondents and the individual Comlek Companies (the Queensland Proceeding). The Queensland Proceeding is listed for final hearing commencing on 22 April 2024 on a 7 day estimate with a listing for 9 days of hearing.

14    As was foreshadowed at the time of the second meeting of creditors, in the Queensland Proceeding, the Commissioner claims, inter alia, that the Deed Administrators erred in casting the tie-breaking vote in favour of the resolution to execute the DOCA at the second meetings of creditors of the Comlek Companies. The Commissioner seeks to have the DOCA terminated and the Comlek Companies wound up. Without going to the details of the Commissioner’s claims in the Queensland Proceeding, it suffices to observe that the attack made on the DOCA raises issues of public interest and commercial morality in relation to the circumstances in which Mr McCabe exercised the decisive vote and the terms in which the DOCA is framed. Given that the present application is made ex parte on notice and that the Queensland Proceeding is pending, I do not propose to canvas the broader allegations made in respect of the DOCA in considering the present application. My reason for setting out the background in relation to the Queensland Proceeding, is to give context to the significance I have attached to the fact that the Commissioner is on notice of this application, but has not sought to be heard, in circumstances where the Commissioner is seeking to have the whole DOCA terminated in any event, this application is something of a side wind.

THE APPLICATION UNDER S 90-15 OF THE IPS

15    The impetus for the present application arises from what the Deed Administrators contend may be an anomaly relating to payment of the Deed Administrators’ Costs (as defined in the DOCA) arising from the wording of cl 12.2 of the DOCA, which is addressed to the order of priority in applying the Deed Fund (as defined in the DOCA). The Deed Administrators submit that depending on the proper construction of the DOCA, cl 12.2 of the DOCA if construed in accordance with its literal terms may give rise to an absurdity or inconsistency having regard to the whole of the DOCA, the relevant surrounding circumstances, and the objective intention of the parties to the DOCA. The issue has been raised by the Deed Administrators themselves. No other interested party has agitated the issue.

16    The plaintiffs invoke the Court’s broad power under s 90-15 of the IPS to seek confirmation that they are justified in applying the Deed Fund in a way that is consistent with what they submit is the objectively manifested legal meaning of the DOCA understood in its factual and legal context. In considering whether to exercise the broad power under s 90-15 of the IPS, the plaintiffs ask the Court to ascertain the legal meaning of cl 12.2 of the DOCA in accordance with what was previously described in the authorities as the common law doctrine of rectification by construction. I note that the label “rectification by construction” is eschewed in more recent authorities to avoid confusion with the equitable doctrine of rectification. In this application the plaintiffs do not rely on the equitable doctrine of rectification.

17    Mr McCabe deposes to the Deed Administrators presently holding just over $2.3 million in trust comprising the Deed Fund. However, only a small component of that sum is derived from cash at bank that was available prior to entry into the DOCA, (the Comlek Companies’ Funds as defined in the DOCA). The preponderance of available funds held by the Deed Administrators is derived from the Contribution Sum (as defined in the DOCA) paid by way of contribution as required by the DOCA.

18    The Deed Administrators seek judicial advice that they are justified and acting reasonably in accessing the Deed Fund as a whole to meet their costs, including their costs in defending the Queensland Proceeding. Specifically, they seek to have the Court confirm that, on a proper construction of the DOCA, they would be justified in having recourse to the whole of the Deed Fund as required in that manner notwithstanding the reference to the Deed Administrators’ Costs being paid “from the Comlek Companies Funds” in cl 12.2(b) of the DOCA, which is addressed to the order of priority in which the Deed Fund is to be applied by the Deed Administrators.

19    The Deed Administrators’ evidence is that if their costs cannot be met from the Deed Fund, they will no longer be able to take an active role in the Queensland Proceeding or otherwise prosecute the objectives of the DOCA, giving rise to the prospect of the Comlek Companies being wound up, which, in the view of the Deed Administrators is not in the best interests of the Comlek Companies and would severely prejudice creditors. As already mentioned, the allegations made in the Queensland Proceeding in respect of the Deed Administrators’ conduct are in relation to serious matters that, if established, have the capacity to impact the Deed Administrators’ professional standing.

20    There is a degree of urgency because the Deed Administrators remain subject to timetable orders in the Queensland Proceeding and require certainty as to their position with respect for funding so that the Queensland Proceeding can be appropriately prepared by their legal representatives.

21    For completeness, I note that the plaintiffs brought an earlier application pursuant to s 90-15 of the IPS in relation to this DOCA. That application was directed to obtaining judicial advice that the Deed Administrators were justified and otherwise acting reasonably in not distributing the Deed Fund to creditors pending determination of the Queensland Proceeding: McCabe, in the matter of Andrew McCabe and Joseph Hayes in their capacity as joint and several deed administrators of companies listed in Schedule 1 [2023] FCA 1042 (Halley J).

APPLICABLE PRINCIPLES

Relief under s 90-15 IPS

22    The Court may make such orders as it thinks fit in relation to the external administration of a company: s 90-15(1) of the IPS. A company is taken to be under external administration if a deed of company arrangement has been entered into in relation to the company: s 5-15 of the IPS. The plaintiffs have standing to apply for relief under s 90-15 of the IPS as officers of the company: s 90-20(1)(d) of the IPS and s 9 of the Act.

23    It is well recognised that s 90-15(1) of the IPS confers a very broad power on the Court to resolve issues arising in relation to the administration of the company: see for example One T Development Pty Ltd v Kreji in his capacity as liquidator of ENA Development Pty Ltd [2023] NSWCA 120 at [33] to [34] per the Court (Ward P, Leeming and Mitchelmore JJA); Kelly, in the matter of Halifax Investment Services Pty Ltd (in liquidation) (No 8) [2020] FCA 533; 144 ACSR 292 at [51] (Gleeson J). The Court’s power is to be exercised in a way that is consistent with the object of Part 5.3A of the Act, as encapsulated in s 435A of the Act and the object of the IPS, as stated in s 1-1 of the IPS.

24    Powers of the kind contained in s 90-15 are intended to facilitate the performance of an external administrator’s functions and accordingly should be interpreted widely to give effect to that intention where it is advantageous to the administration. It is expected that the administrator will make full and fair disclosure of all relevant facts and circumstances when seeking an order in the nature of judicial advice: Hill, in the matter of Autocare Services Pty Ltd (administrators appointed) [2021] FCA 167 at [43] (Farrell J).

25    The “prevailing principle” to be applied in circumstances where liquidators and administrators request a judicial direction in respect of a business or commercial decision, is that the decision must give rise to an issue requiring the exercise of legal judgment. An issue of this kind includes one of substance or procedure or of power, propriety or reasonableness of the decision: Re Ansett Australia Ltd (No 3) [2002] FCA 90; 115 FCR 409 at [65] (Goldberg J); Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; 267 FLR 27 at [7] to [9] (Black J).

26    Further, the power extends to the determination of substantive rights, provided any necessary and proper parties have been given an opportunity to be heard and/or joined: see One T Development at [35]. See also Australian Securities and Investments Commission v Jones [2023] WASCA 130 at [306] to [307] (Buss P, Mitchell and Beech JJA).

Principles relating to the ascertainment of legal meaning

27    The principles regarding proper construction of commercial contracts are well established. The plaintiffs relied on the recent summary of the applicable principles by Williams J in Re Peak Invest Pty Ltd [2022] NSWSC 1288 at [68] to [75]. After setting out the general principles as to construction, her Honour observed that where a literal meaning may contain an absurdity or inconsistency and the objective intention is self-evident, the Court may construe the document to displace the absurd or inconsistent literal meaning with a legal meaning:

75    Where the Court is satisfied to a high level of conviction that the literal meaning of the contractual words contains an absurdity or inconsistency and it is self-evident what the objective intention is taken to have been, ordinary processes of contractual construction operate so that the absurd literal meaning is displaced by a legal meaning. … In recent cases, the Court of Appeal has stated that there is much to be said for the view that a “clear mistake” (as opposed to absurdity or inconsistency) is sufficient to engage the first limb. However, the Court of Appeal has not yet found it necessary to determine whether a clear mistake falling short of absurdity or inconsistency will suffice: see James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311.

28    In Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 (at 426-427) Dixon CJ and Fullager J said:

There is a superficial difficulty in cl. 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.

29    In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2019] NSWCA 11; 99 NSWLR 317 Leeming JA (Payne, White JJA agreeing to Leeming JA’s observations) described the common law method of discerning the legal meaning in such circumstances as follows:

6    At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction. This is old law. Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66–67; 10 ER 811 at 822:

“Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes — without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.”

7    Examples may be found in linguistic errors, such as inconsistent being read as “consistent” in Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, or conceptual errors, such as lessor being read as “lessee” in McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd (2008) 73 NSWLR 53; [2008] NSWSC 542. The language of a contract is not read like a computer program, such that any slip is fatal.

8    Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]–[119], approving National Australia Bank Ltd v Clowes (2013) 8 BFRA 600; [2013] NSWCA 179, where it was stated at [34]:

“[34] … Where both those elements are present … ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning.”

9    Likewise, in the United Kingdom, the court must be satisfied both as to the mistake and the nature of the correction: Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429 at [21] (Lord Neuberger); Arnold v Britton [2015] AC 1619; [2015] UKSC 36 at [78] (Lord Hodge).

10    The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters at 426–427, it must be clearly necessary in order to avoid absurdity or inconsistency. As this court said in Miwa Pty Ltd v Siantan Properties Pte Ltd (2011) 15 BPR 29,545; [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]. Courts which are asked to delete, insert or rewrite part of a contract because of what is said to be an obvious error should bear steadily in mind that imperfections and infelicities and ambiguities in contractual language commonly reflect the give and take of negotiations, or the parties’ appreciation that some obscurities are incapable of resolution. As Lord Hoffmann explained, the court does not readily accept that people have made mistakes in formal documents: Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23].

30    His Honour then addressed the equitable doctrine of rectification. As already mentioned, the plaintiffs do not rely on equitable rectification in this case. It is nonetheless useful to include Leeming JA’s conclusion as to the conceptual distinction between the doctrines at law and in equity (at [15]):

15    The doctrines at law and in equity remain conceptually distinct, as French CJ noted in Simic at [18] and [20], and as Kiefel J stated at [48], doubting a suggestion in Chartbrook that consistency of approach was warranted between rectification and construction. Conceptually, there is a world of difference. The requirements of ex facie absurdity or inconsistency and clarity as to what the parties must be taken to have intended ensure that rectification by construction remains an aspect of determining the objectively manifested legal meaning of contractual words, and accommodates the truth that sometimes, even in a formal legal document, the parties will make mistakes which are nonetheless readily identified and corrected. On the other hand, rectification in equity turns on the discrepancy between the written instrument and a separately proven contrary common intention, which was intended to have been incorporated into the instrument, such that it is unconscientious for a party to insist on performance in accordance with the written instrument. Rectification in equity is a departure — albeit one which is narrowly circumscribed by the insistence on cogent proof — from the objective theory of contract.

31    In HDI Global Specialty SE v Wonkana No 3 Pty Ltd [2020] NSWCA 296; 104 NSWLR 634 at [48] to [53] Meagher JA and Ball J held:

48    It is an ordinary feature of human communication that what a person means may be obvious even though what they write or say, taken literally, is nonsense, or means the opposite. Contracts are not an ordinary mode of human communication, and courts do not “readily accept” that mistakes have been made in the drafting of a formal document: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at 1114; [2009] UKHL 38 at [23] (Lord Hoffmann). But contracts are nevertheless to be read on the basis that their drafters will on occasion fail to express correctly what they intend to say. The “correction” of mistakes by interpretation is therefore an aspect of “the single task of interpreting the agreement … in order to get as close as possible to the meaning which the parties intended”: KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336 at 1351 (Carnwath LJ); Chartbrook at [23].

49    As the exercise is one of construction, the “meaning which the parties intended” can only be ascertained objectively, in accordance with the principles summarised earlier in these reasons. Construing a written agreement in accordance with those principles may reveal that its literal meaning is quite different from the meaning it was intended to bear. The latter is to prevail. As Lord St Leonards observed in Wilson v Wilson (1854) 10 ER 811 at 823; 5 HL Cas 40 at 70, construing an indemnity in favour of John Wilson for the debts of “John”, in a separation agreement between John and Mary Wilson:

“Then has the Court a power to rectify the error without doing any violence to the words? because I entirely reject any intention of putting violence upon words. We are bound as a Court of Justice to put a rational construction upon words, and to give to every word its proper sense. I do not think that I am breaking in upon any rule in advising your Lordships to consider ‘John’ as erroneously inserted, as it clearly appears by the context to have been, instead of ‘Mary,’ and by so considering it to make that part compatible with the rest, and thus give effect to what was the clear intention of the parties.”

50    The application of this principle is ordinarily dependent on the satisfaction of two criteria: that the literal meaning of the language of the agreement is absurd; and that it is clear what the parties' objective intention “is to be taken to have been”: Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [8]. Substantially the same approach has been adopted in England: see Brightman LJ's formulation of the two conditions in East v Pantiles, and the qualifications subject to which those conditions are to be understood, as explained in KPMG v Network Rail and summarised in Chartbrook at [22]-[24]; and the discussion in Mainteck Services Pty Ltd v Stein Heurtey SA (2015) 89 NSWLR 633; [2014] NSWCA 184 at [119]-[120] (Leeming JA). Three points should be made about the criteria which must be satisfied.

51    First, “absurdity or inconsistency” may not strictly be required: cf Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53 (Dixon CJ and Fullagar J). The reasons of the plurality in Fitzgerald v Masters made no reference to such a requirement, treating the problem simply as one of the discernment of the parties' intention from the whole of the agreement, while earlier authorities referred only to the presence of a “palpable” or “obvious” mistake: Bache v Proctor (1780) 99 ER 247; 1 Dougl 384 (Buller J); Wilson v Wilson at ER 822, 823 (Lord St Leonards). There is accordingly much to be said for the modern English position, which requires a “clear” mistake: Pink Floyd Music Ltd v EMI Records Ltd [2011] 1 WLR 770; [2010] EWCA Civ 1429 at [21] (Lord Neuberger MR, Laws and Carnwath LJJ agreeing on that point). In any event, if absurdity is required, “something opposed to reason” will suffice: Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [13] (Basten JA, McColl and Campbell JJA agreeing).

52    Secondly, satisfaction of the first criterion follows from satisfaction of the second. Where it is clear that the literal meaning of contractual language is inconsistent with the parties' objective intention discerned from the agreement as a whole, there is a clear mistake, and likely also absurdity in the relevant sense. What the first criterion reflects is that a court will not lightly conclude that “imperfections and infelicities and ambiguities” in the language of an agreement reflect a mistake, rather than the give and take of commercial negotiation: Seymour Whyte at [10], citing Chartbrook at [23].

53    Finally, the application of those criteria should not obscure the fact that the question remains one of the ascertainment of the parties' objective intention through the application of ordinary principles of construction. That is not to say that the two criteria need not be satisfied. It is rather to emphasise that they are merely steps involved in reasoning to a conclusion that by one word or phrase the parties meant something else.

32    Generally, the rules that apply to the interpretation of deeds are the same as apply to the interpretation of contracts: see Herzfeld P and Prince T, Interpretation (2nd ed, Thomson Reuters, 2020) at [30.50] and the authorities cited therein.

33    Although the plaintiffs approached this application on the basis that the DOCA was a species of deed, I note that in MYT Engineering Pty Ltd v Mulcon Pty Ltd [1999] HCA 24; 195 CLR 636, the plurality found that a DOCA executed under the provisions of the Act is not a deed per se, attracting the formalities in terms of method of execution, but rather as a special statutory instrument, described by Kirby J in summarising the plurality’s reasoning, as something sui generis (see Kirby J at [40], in minority).

34    With this in mind, I adopt and apply the statement of the relevant principles of interpretation articulated by Lee J in Matheson Property Group Pty Ltd (Trustee) v Virgin Australia Holdings Limited [2022] FCA 1243; 165 ACSR 550 at [25].

25    There was no dispute before me at the hearing as to relevant principles. The DOCA is a form of instrument which owes its existence to statute and it is necessary to focus upon the terms of the instrument itself to determine its proper construction. But such a textual focus must not be undertaken acontextually; nor must it occur without regard to the evident purpose of the arrangements recorded in the DOCA, …

CONSIDERATION

Is s 90-15 of the IPS engaged?

35    In this application the plaintiffs seek judicial advice as to a legal issue arising as to the proper construction of a DOCA. The task of construing the meaning of the terms of a deed or contract is inherently legal and I accept that it is appropriate to provide judicial advice pursuant to s 90-15 of the IPS.

Relevant provisions of the DOCA

36    Following the second meetings of creditors on 19 January 2023, the DOCA was executed by the parties on 9 February 2023. In accordance with s 444A(3) of the Act, the DOCA was prepared by the Administrators: Recital F, DOCA. The DOCA provides that no rule of construction applies to the disadvantage of a party because that party was responsible for the preparation of the Deed or any part of it: cl 1.2(o).

37    The parties to the DOCA are:

(1)    the Comlek Companies;

(2)    the Proponents; and

(3)    the Deed Administrators.

38    The following terms are relevantly defined in the DOCA:

Comlek Companies’ Funds means cash at bank which includes:

(a)    the pre-appointment cash at bank in all accounts of the Comlek Companies held by the Administrators; and

(b)    any cash at bank recovered by the Administrators between the Appointment Date and the Commencement Date of the Deed.

Contribution Sum means $2,300,000.00

39    Deed Administrators’ Costs is expansively defined and extends inter alia to:

(a)    all costs, expenses, liabilities and other obligations whether present or future and whether, or not, presently due and payable incurred by the Deed Administrators in their capacity of Deed Administrators of the Comlek Companies between the Commencement Date and the Termination Date;

(b)    any amount owed to the Deed Administrators for remuneration and that of the Deed Administrators’ partners, employees, agents and sub-contract labour in respect of the administration of the Deed between the Commencement Date and the Termination Date;

(c)    all legal costs and disbursements (on a solicitor and own client basis) incurred by or on behalf of the Deed Administrators with respect to or in connection with:

(i)    …

(ii)    …

(iii)    any Court application or proceeding made or instituted by or against the Deed Administrators in respect of any matter concerning the administration of the Deed,

which costs, expenses, disbursements, remuneration and liabilities are not satisfied by the Commencement Date;

(d)    all costs, expenses, liabilities and obligations, including all legal costs, expenses and disbursements (on a solicitor and own client basis), in connection with or in relation to the implementation, administration and enforcement of this Deed;

(e)    all legal costs, expenses and disbursements (on a solicitor and own client basis), in connection with or in relation to any Court application or proceeding instituted by the Deed Administrators or any other party in respect of any matter concerning the administration or the enforcement of this Deed, the transactions referred to and any other document referred to in this Deed;

(f)    all other costs, liabilities, expenses and remuneration of the Deed Administrators in their capacity as Deed Administrators of this deed, whether for the Deed Administrators personally or on behalf of the Comlek Companies, incurred or accruing in the course of or in connection with implementation, administration and enforcement of this Deed and not otherwise covered by sub-paragraphs (d) and (e) above;

(g)    any amount payable by the Deed Administrators for or in respect of GST relating to any matter under or arising out of this Deed, including (without limitation) any of the matters referred to in paragraphs (a) to (f) of this definition, and whether or not the Deed Administrators are liable for such GST or reimburse to any other party GST paid or payable by that other party.

40    Deed Fund is defined to be the Contribution Sum and Comlek Companies’ Funds. Whereas the Directors’ DOCA Proposal provided for a cash contribution of $2.3 million being made as one component of establishing the Deed Fund, it did not expressly state by whom that contribution was to be made: cl 7. In the DOCA itself the payment obligation is imposed on the Comlek Companies, not the Proponents: cl 9. The Comlek Companies were required to pay the Contribution Sum within 45 days of the Commencement Date.

41    On 27 March 2023, the Deed Administrators received the sum of $2,300,000 representing the Contribution Sum pursuant to the terms of the DOCA. As noted, this forms part of the Deed Fund. The evidence does not disclose whether this contribution was made by the Deed Proponents or by the Comlek Companies.

42    The DOCA expressly provides that unless the subject or context otherwise requires a construction that would promote the purpose or object underlying the DOCA (whether or not stated in the DOCA) is to be preferred to a construction that would not promote that purpose or object: cl 1.2(k).

43    The stated “purpose and objectives” of the DOCA are provided in cl 2 (as written):

The purpose and objectives underlying this Deed are to provide for the Business, property and affairs of the Comlek Companies to be administered in a way that:

(a)    provides for a better and more timely return to Participating Creditors than would result from an immediate winding up of the Comlek Companies;

(b)    provides for the Excluded Creditors not to prove for a dividend as unsecured creditors of the Comlek Companies and thereby increase the anticipated dividend to the Participating Creditors;

(c)    provides for the Deed Administrators to pay the Deed Fund to Participating Creditors, and towards the Deed Administrators’ Costs and the Administrators’ Costs in accordance with the terms of this Deed;

(d)    reverts the management and control of the Comlek Companies to the relevant director(s) on the Commencement Date;

(e)    concludes the administration of the Comlek Companies and this Deed as soon as practicable; and

(g)    preserves the ongoing employment of the Continuing Employees.

44    Other clauses of the DOCA which are relevant on this application are as follows.

11.    DEED FUND

11.1    Creation of the Deed Fund

(a)    The Deed Fund is to be comprised of the Contribution Sum and Comlek Companies’ Funds.

(b)    For the avoidance of doubt, all other assets of the Comlek Companies as at the Commencement Date will not form part of the Deed Fund, but will be available to the director(s) of the Comlek Companies in the ongoing trade of the Business of the Comlek Companies.

(c)    The Deed Fund is to be held by the Deed Administrators on trust for the benefit of the Deed Administrators and the Participating Creditors.

11.2    Deed Fund available for all Participating Creditors

Subject to clause 13.3 of this Deed, the Deed Fund will be:

(a)    available to pay the Administrators’ Costs;

(b)    available to pay the Deed Administrators’ Costs;

(c)    available for the benefit of claims of Employee Creditors;

(d)    available to pay a return to Participating Creditors in accordance with clause 12.2; and

(e)    distributed in accordance with clause 12 of this Deed.

45    I interpolate to note that cl 13.3, which relates the release and extinguishment of claims, is not presently relevant.

46    There is no obligation imposed on the Deed Administrators to separately account for the two component parts of the Deed Fund.

47    The clause which has given rise to the Deed Administrators’ application is cl 12.2:

12.    APPLICATION OF DEED FUND

…

12.2    Order of Priority

Subject to any statutory priorities, the Deed Fund will be applied by the Deed Administrators, when they see fit to do so, and whether as a single tranche of distributions or in multiple tranches, in the following priority:

(a)    first, in full payment of the Administrators’ Costs, from the Comlek Companies’ Funds;

(b)    second, in full payment of the Deed Administrators’ Costs, from the Comlek Companies’ Funds;

(c)    third, in payment of the Admitted Claims of the Employee Creditors, except for the accrued entitlements of Continuing Employees whose entitlements will be paid in the ordinary course of the Business of the relevant Comlek Companies; and

(d)    any balance to be distributed as follows:

(i)    60% to the Commissioner of State Revenue, Queensland in respect of its Admitted Claim; and

(ii)    40% to all Participating Creditors in respect of their Admitted Claims (other than the Commissioner of State Revenue, Queensland) on a pro rata, and pari passu, basis.

48    Also relevant is cl 16 which provides:

16.    ADMINISTRATORS’ AND DEED ADMINISTRATORS’ INDEMNITY

16.1    Nature of indemnity

In addition to any rights the Administrators have under the Act, the Administrators and the Deed Administrators are entitled to be indemnified out of the Deed Fund for:

(a)    The Administrators’ Costs;

(b)    The Deed Administrators’ Costs;

(b)    Any debt payable by, or claim against, them (based in contract, tort, statute or otherwise, present or future, certain or contingent, ascertained or sounding only in damages), which may be alleged against them arising from or in connection with:

(i)    the appointment of the Administrators; and or

(ii)    this Deed, including (without limitation) any conduct by them, or their partners, employees or consultants under or in connection with this Deed, other than any conduct constituting their individual or joint gross negligence or wilful misconduct.

16.2    Continuing Indemnity

The indemnity under clause 16.1 will take effect on and from the Commencement Date and be without limitation as to time and shall endure for the benefit of the Administrators’ and Deed Administrators’ legal personal representatives notwithstanding the removal of the Administrators or Deed Administrators’ and the appointment of a replacement deed administrator or the termination of this Deed for any reason.

16.3    Indemnity to be Affected or Prejudiced

The indemnity under clause 16.1 will not:

(a)    be affected, limited or prejudiced in any way by any irregularity, defect or invalidity in the appointment of the Administrators and Deed Administrators and shall extend to all actions, suits, proceedings, accounts, liabilities, claims and demands arising in any way out of any defect in the appointment of the Administrators, the approval and execution of this Deed or otherwise; or

(b)    affect or prejudice all or any rights that the Administrators may have against any other person to be indemnified against the costs, charges, expenses and liabilities incurred by the Administrators and Deed Administrators in, or incidental to, the exercise or performance of any of the powers or authorities conferred on the Administrators by this Deed or otherwise.

16.4    Administrators’ Lien

The Administrators and Deed Administrators have a lien over the Deed Fund to secure the Administrators’ and Deed Administrators’ Indemnity conferred by this clause 16.

16.5    Survival Clause

Clause 16 survives the termination of this Deed.

16.6     Misconduct

No person, including without limitation, the Administrators or Deed Administrators, shall be entitled to the indemnity set out in this clause 16 in respect of any liability arising out of any fraudulent, dishonest or negligent act or omission on their part.

Construction of the DOCA

49    The plaintiffs submit that on an objective assessment of the DOCA as a whole, and the circumstances leading to its implementation, it is clear that the parties intended that the Deed Administrators’ Costs be payable from the composite “Deed Fund” as defined in the DOCA, and not limited to the “Comlek Companies Funds”. The plaintiffs contend that intention is express, having regard to the following parts of the DOCA:

(1)    the express purpose provision in cl 2(c) providing for the use of the Deed Fund to pay Deed Administrators’ Costs (particularly when read with the interpretation provision in cl 1.2(k) giving primacy to a construction that would promote the purposes and objectives of the Deed);

(2)    the terms of cl 11.1(c) providing that the composite Deed Fund is to be held on trust, including for the benefit of the Deed Administrators;

(3)    the express provision in cl 11.2(b) that the composite Deed Fund will be “available to pay the Deed Administrators’ Costs”; and

(4)    the provision in cl 16.1(b) that the Deed Administrators are entitled to be indemnified out of the composite Deed Fund for the Deed Administrators’ Costs as well as the lien over that fund to secure the indemnity.

50    The plaintiffs submit that, when read as a whole, on a proper construction of the DOCA, the references to payments of Deed Administrators’ Costs at cl 12.2(b) from “the Comlek Companies Funds” does not prevent such costs being met out of the other component of the Deed Fund, being the Contribution Sum. Further, given cl 12 of the DOCA is addressing priorities, a common-sense interpretation would be that such costs are to be paid in the first instance from Comlek Companies’ Funds, as opposed to excluding such payment from the Contribution Sum.

51    In my view the construction for which the plaintiffs contend is correct. In addition to the submissions made by the plaintiffs in support of the construction for which they contend, I would add the following.

52    First, the relevant part of cl 12.2 is as follows (emphasis added):

12.2     Order of Priority

Subject to any statutory priorities, the Deed Fund will be applied by the Deed Administrators, when they see fit to do so, and whether as a single tranche of distributions or in multiple tranches, in the following priority:

(a) first, in full payment of the Administrators’ Costs, from the Comlek Companies’ Funds; …

(b)     second, in full payment of the Deed Administrators’ Costs, from the Comlek Companies’ Funds;

53    On its face, cl 12.2 is concerned with the manner in which the whole of the Deed Fund is to be applied and the order of priority. The focus in cll 12.2 (a) and (b) is on the “full payment” of first, the Administrators’ Costs and second, the Deed Administrators’ Costs. The use of a comma before the phrase “from the Comlek Companies’ Funds” in both subclauses is important. It serves to emphasise that as per the chapeau, the Deed Administrators may make payments from the Deed Fund “when they see fit to do so” whether as “a single tranche of distributions or in multiple tranches”. In the particular instance of the Administrators’ and Deed Administrators’ Costs, the Deed Administrators, if they choose to do so, are authorised under cl 12.2(a) and (b) to apply the Deed Fund to achieve full payment of those costs, from the Comlek Companies Funds. The inclusion of the phrase “, from the Comlek Companies’ Funds” serves to make clear that the Deed Administrators may utilise this source of payment immediately, that is before creation of the Deed Fund is completed by receipt of payment of the Contribution Sum. To read the cl 12.2(a) and (b) in this way is consistent with the relevant context having regard to the manner in which the Deed Fund is created under cl 11.1.

54    On execution of the DOCA, the Deed Administrators immediately have access to the first component of the Deed Fund, that is the Comlek Companies Funds, which were held in the form of cash at bank under the Administrator’s control or otherwise recovered by the Administrators between 5 December 2022 and the Commencement Date of the DOCA: definitions “Comlek Companies Funds”, “Deed Fund” and cl 11.1. The second component, the “Contribution Sum”, was only required to be paid within 45 days of the execution of the DOCA: cl 9. In the event of non-payment of the Contribution Sum the Administrators could take action to bring the DOCA to an end under cl 10.

55    As a priority clause, cl 12.2(a) and (b), makes plain that the Deed Administrators may, if they chose to do so, satisfy the whole of the Administrators Costs and their own costs from that part of the Deed Fund that is already in hand. They do not need to wait until receipt of the Contribution Sum. In the event that the Contribution Sum had not been paid, or the DOCA was otherwise terminated, for example, in accordance with the mechanism outlined in cl 10, payment of the Administrators’ Costs and the Deed Administrators’ Costs from the Comlek Companies Funds, took precedence over payments otherwise addressed in cl 12.2(c) and (d).

56    To read cl 12.2(b) in this way is consistent with the evident purpose of the clause, which is on its face addressed to the order of priority of payment and not as a limit on payment from a particular source. To read the cl 12.2(a) and (b) in this way is to give effect to the inclusion of a comma before the phrase “from the Comlek Companies Funds” in each of those subclauses. To read the clauses as imposing a limit on the source of payment requires the comma to be ignored.

57    This construction also sits harmoniously with the particular clauses of the DOCA identified by the plaintiffs in their submissions as summarised at paragraph 49 above.

58    I satisfied that on the proper construction of cl 12.2(b), the clause does not limit the recoupment of the Deed Administrators’ Costs to only that part of the Deed Fund comprised of the Comlek Companies’ Funds. Read in this way there is no inconsistency between cl 12.2(b) and the other clauses of the DOCA identified by the plaintiffs. Given the view I have reached on the proper construction of cl 12.2(b), it is not necessary to address the second part of the plaintiffs’ submissions which were predicated on there being absurdity or inconsistency arising on the literal reading of “from the Comlek Companies Funds” in cl 12.2(b) such that it is necessary to construe cl 12.2(b) to arrive at a legal meaning which is different to the literal reading.

59    It is therefore not necessary to engage with the issue as to whether a clear mistake falling short absurdity or inconsistency is sufficient for the literal meaning of the text to be displaced by a legal meaning where the objective intention of the parties is otherwise self-evident.

CONCLUSION

60    For these reasons, I will make orders substantially in the form sought by the plaintiffs.

61    As indicated earlier in these reasons, I consider it appropriate to make orders that enable interested persons to apply within a defined period to vary or amend the orders on the giving of notice. I note that the plaintiffs did not resist orders of this type. I will make separate orders in relation to interested persons who were on notice of the present application, and those who were not, the point of distinction being the time period within which leave to apply to vary the substantive orders I will make today must be exercised.

Associate:

Dated:    20 November 2023