Lifestyle Earls Court Pty Ltd (in liq) & ors v Mentone Mansions Pty Ltd [2006] VSC 2

What the court decided

The plaintiffs were Lifestyle Earls Court Pty Ltd (Earls Court) and Lifestyle Kensington Place Pty Ltd (Kensington Place), both in liquidation, with their liquidator, Clyde Peter White [1]. On 30 March 2000 each company sold land to Mentone Mansions Pty Ltd (Mentone) [2]. The plaintiffs sought declarations under section 588FE(3) that both sales were voidable as insolvent and uncommercial transactions, and payment of an amount fairly representing Mentone's benefits [3]–[4].

It was common ground that Earls Court, Kensington Place and Lifestyle Sovereign Place Pty Ltd (Sovereign Place), all subsidiaries of LPI Holdings Pty Ltd (LPI), owned the land of a single 54 lot development in Wantirna South [8]. LPI contracted on 24 November 1999 to sell the shares in the three companies [21]. Those contracts were replaced in March 2000 by three land sale contracts with Mentone [27]. A special condition in each contract made it collateral to the other two and excused settlement unless the others settled at or about the same time [28]–[31]. Sovereign Place, whose sale was not challenged, was not a party to the proceeding [31].

Not satisfied that the plaintiffs' valuer was to be preferred, Mandie J adopted the valuations of Mentone's valuer, on which Mentone underpaid for each plaintiff company's land but overpaid for the whole development, by an excess he put at $484,170, or $234,170 counting site works [51]. He inferred that the Sovereign Place price was set "well above its true value" to discharge the heavier debts secured on that land [52].

His Honour held that, for the purposes of section 588FB, each plaintiff company was in commercial reality party to one transaction between Mentone and all three companies, constituted by the three contracts [57]. As the history of events showed, the contracts were entered into as one transaction and were expressly interdependent, so treating the two impugned contracts separately would be artificial [57]. Mentone having paid more than the three properties' true value, it could not be, nor was it, contended that a transaction so constituted was uncommercial, so the claims failed on that primary ground [58].

In the alternative, if the sales were separate transactions, he held neither uncommercial under section 588FB in the circumstances of this case, not being satisfied that a reasonable person in each company's circumstances would not have entered into it [59]–[60]. Each company benefited from the discharge of its own secured debts and of Sovereign Place's [61]. Both plaintiff companies belonged to an unregistered managed investment scheme of 54 companies; any shortfall in their consideration was matched by a payment to that group's secured creditors, so the scheme creditors as a whole were not disadvantaged [61]. A later direction treating those creditors as creditors of one company confirmed that approach in the peculiar circumstances of the case [37], [61]. He had refused Mentone leave at trial to plead a pooling defence, as not reasonably arguable [38]. Taking account of the Sovereign Place price, Mentone received no unreasonable or unfair benefit [62].

His Honour then made findings "on the assumption (and without so deciding)" that the plaintiff companies were insolvent at the time of, or made insolvent by, the sales [64]. On that assumption, he found the elements of the defence in section 588FG(2): Mentone gave valuable consideration and became a party in good faith, without reasonable grounds, on its own part or a reasonable person's, for suspecting either company was or would become insolvent [64]. The originating process was dismissed with costs, including reserved costs [65].

Why it matters

The case shows a court treating a company's sale as part of a wider transaction for the purposes of section 588FB [57]. It is a single judge's finding on those facts, not a rule for related sales. The alternative ground assumed the primary ground wrong [59], and the findings on the statutory defence were made on an assumed, undecided insolvency [64]. Readers need to check the current text of the Act.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.