Bellevarde Constructions Pty Ltd v Cosmas Pty Ltd

The issues

1. The Builder's case is that it is clear beyond argument that: 1. clause 27 of the contract has the effect of creating an equitable charge over the property in its favour; 2. the charge has been enlivened and now operates as security for the amount due under the 23 December 2015 judgment; 3. it is now entitled ("as of right") to an order for judicial sale.
2. The question of whether the charge has been enlivened raises two issues.
3. The first issue is whether, on the proper construction of cl 27 and the contract as a whole, the charge in cl 27 arose as and when monies became due by the Owner to the Builder under the contract (as the Builder contends) or only on a final ascertainment of the amount due from the Owner to the Builder, taking into account any claim the Owner may have against the Builder under the contract (as the Owner contends).
4. The second issue is whether, assuming that the contract was terminated on 15 September 2015, the King Street property remains charged in favour of the Builder so as to comprise security for its judgment of 23 December 2015.
5. As to the question of judicial sale, the issues are: 1. whether, assuming that the cl 27 charge is effective to provide the Builder with a charge over the property as security for its judgment, the court has a discretion not to order judicial sale; and 2. in particular, whether any of the following provides a basis to decline an order for judicial sale: 1. claims made by the Owner in its cross-claim; or 2. the Builder's current financial position.
6. Neither party sought a declaration as to any of these matters, nor to have them determined as separate questions under Uniform Civil Procedure Rules 2005 (NSW) r 28.2. The issues arose in the exchange of submissions between the parties.

The proper construction of cl 27

1. I have concluded, for the reasons I set out below concerning the question of judicial sale, that I should not enter summary judgment in favour of the Builder. In those circumstances, and as neither counsel suggested I should determine the construction question as a separate question, it is not appropriate for me to express any view about it.
2. It suffices to assume, for the purpose of this application, that the charge operates as security for the judgment the Builder obtained on 23 December 2015 and that, notwithstanding the Owner's purported termination of the contract, the Builder remains entitled to the benefit of the charge.

Assuming the charge in cl 27 operates as security for the judgment, is the Builder entitled to an order for judicial sale?

1. To succeed on summary judgment for judicial sale, the Builder must demonstrate that it is clear beyond argument either that: 1. it is entitled to such a remedy as of right (which is the Builder's primary position); or 2. assuming the court has a discretion as to whether to grant such relief , it is clear beyond argument that the discretion should be exercised in its favour.
2. Or, to adopt the language more usually used in these cases, that it is "obviously untenable" and "manifestly groundless" for the Owner to contend otherwise (see the familiar observations of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129)

Judicial sale as of right?

1. As to the first point, it is by no means clear on the authorities that the Builder is entitled, as of right, to an order for judicial sale.
2. There is certainly authority for the proposition that an equitable chargee is entitled to an order for judicial sale, and that no question of discretion arises.
3. That authority appears to be born of the following statement, made in exactly the same terms in each edition of Sykes (now Sykes and Walker), The Law of Securities, (1st ed (1962) at 132, 2nd ed (1973) at 159, 3rd ed (1978) at 162-163, 4th ed (1986) at 195 and 5th ed (1993) at 198, Lawbook Co.): "The remedies of an equitable chargee, unless contract adds others, are judicial sale [Matthews v Goodday (1861) 31 LJ Ch 282; Tennant v Trenchard (1869) LR 4 Ch 537] and the appointment of a receiver. Both remedies are gained only through the court [Melbourne Tramways Trust v Melbourne Tramways & Omnibus Co Limited (1887) 13 VLR 487 at 490]. The chargee on default has the right to apply to the court for an order for sale. Such order is of right and not regarded as a matter of discretion".
4. In no edition of the work is any authority cited for the proposition that an equitable chargee is entitled, as of right, to an order for sale.
5. Nonetheless, in United Builders Pty Ltd v Mutual Acceptance Ltd (1979) 4 ACLR 176 at 179 Demack, Sheahan and Kneipp JJ accepted the proposition in Sykes as correctly stating the law.
6. In BBC Hardware Ltd v GT Homes Pty Ltd [1997] 2 Qd R, Thomas J said (albeit without reference to Sykes, or to authority) at 126: "The remedies of sale and appointment of a receiver can be gained only through the Court. Upon default a chargee has the right to apply to the Court for an order for sale. That is what the chargee did in this instance. Such an order is made as of right and is not regarded as a matter of discretion."
7. In Sood v Christianos [2008] NSWSC 1087, Brereton J said at [16]: "…judicial sale is the standard remedy of an equitable chargee. Upon default, an equitable chargee is entitled as of right to an order for sale; this is not regarded as a matter of discretion. Sykes and Walker [The Law of Securities, (5th ed 1993 Lawbook Co.)] say as much (at 198): 'The chargee on default has the right to apply to the court for an order for sale. Such order is of right and not regarded as a matter of discretion'."
8. In Wenkart v Pantzer [2013] FCAFC 81, Dowsett, McKerracher and Foster JJ at [225] adopted as correct the passage from Sykes.
9. But there is also authority that the court retains a discretion to withhold relief.
10. In King Investment Solutions Pty Ltd v Hussain [2005] NSWSC 1076 Campbell J (as his Honour then was) said at [81] that "an order for judicial sale is the standard way of enforcing an equitable charge" but also said at [119]: "The point, for present purposes, is not that the discretion to order a sale will necessarily be exercised in the twenty-first century in the same way as it was in the nineteenth. Rather, one point is that there is a discretion to be exercised, and without factual material by reference to which the discretion can be exercised, which includes at least the value of the property and the amount owing on the security of it, the exercise of the discretion itself is likely to miscarry. Another point is that the courts have exercised considerable caution in the making of orders for sale."
11. More recently in Australia and New Zealand Banking Group Pty Ltd v Donnelly [2012] NSWSC 1615, Garling J cited the observations of Brereton J in Sood v Christianos and continued: "27. The reference to Sykes and Walker in this extract is to Edward Sykes and Sally Walker, The Law of Securities, 5th ed (1993) Law Book Co. An examination of the text book does not suggest that the learned authors have cited any authorities to support the statements which Brereton J has extracted. It seems to me that the context for the remarks of Brereton J was that a judicial sale at the suit of an equitable chargee is a standard remedy rather than a last resort remedy, in accordance with remarks to the effect that an order for judicial sale is a remedy which was to be only applied as "a last resort" see Yarrangah Pty Limited v National Australia Bank Limited [1999] NSWSC 97 [(1999) 9 BPR 17,061] at [27] per Young J (as his Honour then was). 28. It seems to me that Brereton J took a great deal of care to emphasise that where a default exists, an order for judicial sale is a standard remedy available to an equitable chargee. I do not with respect take Brereton J's statement that an equitable chargee is entitled to have a Court make an order for judicial sale, to be an automatic entitlement to the relief regardless of any submissions which the Court may receive as to whether it is appropriate to make such an order. 29. So, it seems to me that in order to obtain an order for judicial sale, an equitable chargee does not have to demonstrate what, if any, other steps have been taken to enforce the charge. Nor does an equitable chargee have to prove any special or exceptional entitlement to the order. It is sufficient that the equitable chargee can show that the charge exists and is enforceable and that default has occurred. That said, it seems to me that before a Court makes an order for judicial sale, it is and must be entitled to have regard to the position of those who will be affected adversely by the making of the order. 30. I find it difficult to accept that a Court would grant an equitable remedy where the remedy itself would become an instrument of injustice. Although an equitable chargee may have an entitlement upon default to seek an order for judicial sale, the Court retains a discretion to determine whether, in all the circumstances, such an order ought to be made. To the extent that ANZ contended that Brereton J's judgment expressed some other principle which had the effect of removing all discretion from the Court as to whether it would make such an order, and that the order would in effect automatically be made in every case, I reject that submission. That is not how I understand the principle to which his Honour refers."
12. It is not appropriate for me, on an application for summary judgment, to seek to resolve these lines of authority. It suffices to say that it is by no means clear to me that the Builder is entitled, as of right, to an order for sale.
13. As Mr Miller SC, who appeared with Mr Macfarlane for the Owner pointed out, so much seemed to have been accepted by Mr Ashhurst SC, who appeared with Mr Corbett for the Builder, in his reply submissions, when he stated, referring to Garling J's observations in ANZ v Donnelly: "The [Builder] does not suggest that the Court must make an order for judicial sale, merely that upon demonstrating that it is an equitable charge and there has been a default, that judicial sale is the remedy to which it is entitled without the need to demonstrate more… To the extent it is discretionary, the onus falls to the chargor to satisfy the court that the order should not be made…".

Discretion to order judicial sale

1. As to the second point, it is also not appropriate for me, on a summary judgment application, to attempt to review and come to a conclusion as to all of the factors potentially relevant to any exercise of discretion called for.
2. Those factors include the fact that the Owner has a cross-claim which will not be resolved until the final hearing.
3. As Mr Miller accepted, the Owner is not entitled to set off that claim against the 23 December 2015 judgment itself (which provides a "new foundation and origin for the debt" beyond the contract, which is now merged in the judgment: see Williams v Calivil Park Holstein Pty Ltd [2009] NSWSC 389 at [38]).
4. However, the fact that the Owner claims to have a claim for damages against the Builder which arises under the contract is a matter relevant to whether the court exercises any discretion it might have concerning judicial sale.
5. Further, the Owner's equity in the property is substantial. Such security as the builder has over the property arising from cl 27 is unlikely to be eroded between now and the hearing. It could protect that interest by lodging a caveat. That is also a matter potentially relevant to discretion: see [35] above.
6. The Owner also contends that there is reason to believe that the Builder's financial position is such that there can be no confidence that it would be able to repay all or any of the funds realised on a sale of the property, were the sale to proceed and yet the cross-claim be successful. This aspect of the matter has not been developed as Mr Ashhurst has not had time to adduce evidence in response to that recently served on behalf of the Owner.
7. On the other hand, as Mr Ashhurst said, the Builder is currently being held out of the money due under the judgment.
8. It is by no means obvious how these matters should be weighed up. It is certainly not appropriate that I seek to do on so an application for summary judgment.
9. The application for summary judgment is dismissed with costs.

Amendments 12 April 2016 - Paragraph numbers amended DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 April 2016