Allen Taylor & Company Pty Ltd trading as Boral Timber & Ors v Norman Leslie Harrison - [2010] NSWSC 1021 - NSWSC 2010 case summary — Zoe

NSWNSWSC

Allen Taylor & Company Pty Ltd trading as Boral Timber & Ors v Norman Leslie Harrison

[2010] NSWSC 1021

Supreme Court of NSW|2010-09-08|Before: Slattery J, Hodgson J

View original source

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2010-09-08

Before

Slattery J, Hodgson J

Source

Original judgment source is linked above.

Judgment (67 paragraphs)

[1]

CITATION : Allen Taylor & Company Pty Ltd trading as Boral Timber & Ors v Norman Leslie Harrison [2010] NSWSC 1021 This decision has been amended. Please see the end of the judgment for a list of the amendments.

[2]

HEARING DATE(S) : 8 September 2010 JUDGMENT OF : Slattery J at 1

[3]

The plaintiffs have leave to file in Court the Amended Summons dated 7 September 2010. 2. The operation of caveat number AE482747 be extended until further order. 3. The operation of caveat number AE482743 be extended until further order. 4. The plaintiffs' costs of and incidental to the hearing of 8 and 9 September 2010 be reserved to abide by the final result of these proceedings. 5. Liberty to restore on 2 day's written notice before Slattery. DECISION : 6. These Orders be entered forthwith. The Court notes: 1. The agreement of the parties to expedite the District Court proceedings as set out in the minute annexed to this Order. 2 That the parties: 2.1 will in good faith and use their best endeavours to agree the proper deductions and adjustments on completion of the sale of the property the subject of Orders 1 and 2; and 2.2 if such agreement can be reached, the plaintiffs will provide a withdrawal of the caveats in Orders 1 and 2 in return for a bank cheque made payable to the Supreme Court of New South Wales. 3. The Defendant's intention to apply to the Court for the release of $55000 to pay his costs to date of the District Court proceedings.

[29]

15 In my view the plaintiffs have a strong argument that the words of charge in the first sentence of clause 9 apply to all of the obligations described in clauses 1, 2 and 5 of the guarantee. I reach this view for two main reasons. Firstly, the Court of Appeal of the Supreme Court of Queensland has recently considered the first two sentences in clause 2 (c) in the agreement and confirmed in Allen's Asphalt Pty Ltd v SPM Group Pty Ltd [2010] 1 Qd R 202 at [46]-[52], that the charging provision in clause 2(c) creates an immediate equitable charge in respect of a series of obligations created by clauses 2(a) and 2(b). Although Allen's Asphalt Pty Ltd v SPM Group Pty Ltd is concerned with the agreement rather than the guarantee, the charging clause in each is identical. The problem is the same here as it was in Allen's Asphalt, construing the precise obligations that are the subject of the charge in the first sentence of clause 9 and clause 2(c). The Court of Appeal in Allen's Asphalt Pty Ltd v SPM Group Pty Ltd relevantly said: "[46] The contentions put forward by the appellant's counsel were as follows. Clause 2(c) contains a two-step process. The first step is an agreement by the customer "to charge all their equitable interest in freehold or leasehold property". The second step sets out the mechanism for doing so, namely, delivery of a properly executed Memorandum of Mortgage within seven days of demand. The heading under which the charging clause appears is "Overdue Accounts", not "Overdue Amounts", such as, for example, interest and costs. At best, the equitable charge consequently attaches to "Overdue Accounts", not interests and costs. For the latter to be included in the charge "an equitable mortgage would be necessary", but an equitable mortgage has not arisen as no demand to execute a Memorandum of Mortgage has been made. Consideration [47] The appellant's contentions do less than justice to equitable principles and the language of the agreement. In accordance with what is known as the doctrine in Walsh v Lonsdale (1882) 21 Ch D 9 , an agreement for consideration to execute a mortgage or charge over certain property when required creates an equitable mortgage or charge. The applicable equitable principle or maxim is that "equity looks on that as done which ought to be done." Whether those words create a charge over the appellant's land depends on determining the intention of the parties. That intention is to be determined objectively by reference to to "what a reasonable person would have understood [the words] to mean". And to ascertain that "normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction". Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. It is appropriate also to refer to the following often quoted observations of Romer J in Cradock v Scottish Provident Institution (1893) 69 LT 380, at 382:

[30]

'To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property there referred to should constitute a security'. [48] Clause 2(c) contains an agreement by the appellant to charge all its "equitable interest in freehold or leasehold property". It commences with the words "The Customer agrees to charge" and it identifies the property to be charged. There is no good reason for qualifying the first sentence of cl 2(c) by reference to the second sentence. That sentence provides the respondent with the means of obtaining a Memorandum of Mortgage with express enforcement provisions should the respondent deem such further protection necessary or desirable. It is unlikely, in my view, that the contractual intention behind cl 2(c) was that the respondent be denied the protection of a charge after supplying goods until such time as a Memorandum of Mortgage was demanded or entered into. That would tend to ensure, contrary to the appellants interests, that the respondent would call for the execution of a Memorandum of Mortgage immediately in the event of default or even before that. The charging provision is extremely broad in its ambit but that is not an impediment to its validity or enforceability. [49] Clause 2(a) provides for interest to accrue on unpaid monies at a specified rate. Under cl 2(b) the appellant agrees to pay all expenses incurred by the respondent "in connection with recovery of amounts overdue". Clause 2(c), the last of the three sub-clauses in cl 2, contains an agreement by the appellant to charge its freehold and leasehold property. Clause 2(c) also provides for the Memorandum of Mortgage to include a covenant "providing that interest may be charged on all outstanding monies at rates set from time to time by s 94 of the Supreme Court Act 1970 (NSW), and otherwise in accordance with Memorandum 0860000 …". Those words, perhaps, assist the argument that no charge is created until execution of the Memorandum of Mortgage, as it seems curious that the Memorandum of Mortgage would provide for an interest rate different from that in cl 2(a).[50] I do not consider, however, that the stipulation of two interest rates provides much assistance to the appellant. However cl 2(c) is construed, the agreement provides for two interest rates. The cl 2(a) rate applies until the mortgage takes effect and there is nothing untoward in the charge created by cl 2(c) securing payment of interest which accrued at the cl 2(a) rate prior to the grant of the mortgage.[51] Clause 2(c) does not identify expressly what is secured by the charge. But consideration of the agreement as a whole, which is both desirable and necessary, does not leave one in any doubt on the point. The agreement deals with only one category of payment by the appellant in addition to the category provided for in each of cll 2(a) and 2(b): payment for goods purchased by it. It is inconceivable that a reasonable person with the background knowledge of the parties would conclude that the charge agreed to be given by cl 2(c) did not secure the payment of the outstanding balance of the appellant's account. It is scarcely less conceivable that such a person would not understand the charge to be in respect of the cll 2(a) and 2(b) monies also. There could be no sensible commercial purpose for differentiating between the categories of obligation when considering the provision of security.

[41]

23 No amendment to the caveat is required nor is it necessary to substitute a new caveat without this error. As Justice Santow pointed out in Windella at [27], the mandatory language of Real Property Act s 74L makes such a substitution unnecessary. 24 Were it necessary to decide the question, and because of the application of Real Property Act s74L it is not, I would also be prepared to make an order amending the caveat under the power conferred by Real Property Act, s 74K which allows the Court if it satisfied that the "caveator's claim may have substance" to make an order extending "the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or make such other orders as it thinks fit…" by substituting the name of the plaintiff for that of Homebush Bay Timber in each caveat: see for example Cini v Pets Paradise Franschising (SA) Pty Ltd (2008) 102 SASR 177 at [39] Bleby J and Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630. 25 In my view Palmer J's decision in Ron Medich Properties Pty Ltd v McGuirk [2010] NSWSC 552 relied upon as the foundation of the defendant's contention that amendment using Real Property Act s 74K(2) is not possible in these circumstances, is distinguishable. In Ron Medich Properties, Palmer J declined an application to extend a caveat claiming "an equitable interest pursuant to a constructive trust", where the facts relied on were the "use of the caveator's funds to acquire an interest in the property" and where the caveator's real claim was as mortgagee through the operation of the equitable doctrine of subrogation. In Ron Medich Properties there was no application to amend the caveat under Real Property Act s74K(2). Also as Justice Palmer observed, a person not the registered proprietor, reading the caveat, would have no idea of the nature and extent of the interest actually claimed: Ron Medich Properties Pty Ltd v McGuirk [2010] NSWSC 552 at [8] and see Leros Pty Limited v Terara Pty Limited (1992) 174 CLR 407. In my view, the error in this case is so minor and its solution so obvious that it could not be said that that kind of problem arises.

[55]

32 Against this conclusion, Mr Allen deploys on behalf of Mr Harrison the decision of Hammerschlag J in Andrews v Wilcox [2008] NSWSC 280 in which he submits a contrary conclusion was reached. It is true that in Andrews v Wilcox [2008] NSWSC 280 Hammerschlag J ordered the withdrawal from the title of registered proprietor joint tenants (Mr and Mrs Wilcox), of a caveat lodged on behalf of a chargee (Ms Andrews) who had a charge against the interests of only one of them (Mr Wilcox). In Andrews v Wilcox the other joint tenant Mrs Wilcox had not been served and did not appear. But in Andrews v Wilcox Hammerschlag J found, at [21], that the caveat was unsustainable because it prohibited dealings by the other joint tenant, Mrs Wilcox, and at [25], "The caveat on its face extends and is recorded as extending, to affecting a dealing by Mrs Wilcox with her interest". This was the effect of the Andrews v Wilcox caveat because it merely claimed an "equitable mortgage" in the property without obviously limiting the claim to the interests of one joint tenant. 33 The distinguishing factor here is that each caveator/chargee, Oberon and Allen Taylor and Co did not make the same error as was made by Ms Andrews in Andrews v Wilcox. The plaintiffs made clear by the form of drafting of these two caveats that they did not seeks to prohibit Mrs Harrison dealing with her interest in the Blakehurst property. The claim is limited to Mr Harrison's interest. Mr Gor also made clear in submissions that the plaintiffs did not wish to do anything to impede Mrs Harrison receiving her half share of the net proceeds of sale of the Blakehurst property. 34 The limitation of Oberon's and Allen Taylor & Co's claimed interest in their caveats to the interests of the one joint tenant, Mr Harrison is important. A co-owner (whether joint tenant or tenant in common) may grant an interest over or encumber his or her own interest in the land; and, the other co-owner must submit to the grant or encumbrance, unless it improperly interferes with that co-owner's rights to the land, including the right to possession: Hedley v Roberts [1977] VR 282, at 288 and Butt, Land Law, 6th Edition, Law Book Co, [1448]. Where a caveat on its face interferes with the right of the other co-owner to deal with the land and where it has not been demonstrated that the other co-owner consents to the continuation of the caveat, then the caveat cannot stand: Andrews v Wilcox [2008] NSWSC 280 at [28]. In my view a clear attempt has been made to avoid that problem here and the caveat is not defective on that ground. Conclusions and Orders