Commonwealth Bank of Australia v MacDonald

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG J Wednesday 21 June 2000

3531/99 - COMMONWEALTH BANK OF AUSTRALIA v MACDONALD

1 HIS HONOUR: The underlying facts in this case are quite straight forward. 2 The defendants occupy two flats at 82-84 Bower Street Manly. Those flats are built on land being Lot 5 in DP 8075. 3 The registered proprietor of Lot 5 in DP 8075 is an arm of the Roman Catholic Church. The Church granted a lease over that property to 82-84 Bower Street Pty Ltd (the "Company"). The Company is thus in possession as lessee of the block of flats, two of which are occupied by the defendants. 4 Article 1C of the Company's Constitution provides as follows: "1C (a) The shares of the company shall be held by the members of the company in groups of shares consisting respectively of the following:" [There is then a description of five groups of shares designated A to E against which various share numbers are inscribed] "(b) The holding of the said group of shares will entitle the holder thereof to the right to occupy one of the units and/or the garage in the property known as 82-84 Bower Street and hereinafter specified as available for a holder of such group of shares for such time as he is the holder of such group of shares." 5 Paragraph (c) of the article then specifies that the holders of Groups A and D shall respectively have entitlements to Flats 1 and 4. 6 Paragraph (d) provides for conditions affecting the rights of occupancy similar to by-laws in Strata Title schemes of covenants in leases. 7 The first defendant is now bankrupt. He at all material times practised as a solicitor. The second defendant is the wife of the first defendant. Before his bankruptcy the first defendant owned all the shares in Group A giving him the right to occupy Flat 1. The shares in Group D are held under five separate share certificates of 11,140 shares each. Three of those certificates are in the name of the first defendant and two in the name of the second defendant. Accordingly, if one aggregates the holdings of the first defendant with the holdings of the second defendant, they hold the contractual right to occupy Flat 4. Not only did they exercise that right but they have converted Flats 1 and 4 so as to form a single dwelling unit. 8 The first defendant gave various equitable charges to the plaintiff Bank. The second defendant also signed, virtually as guarantor, some equitable charges over her property. I am told that there are proceedings in Court at the moment challenging the second defendant's obligations under those equitable charges based on the type of allegation that succeeded in Garcia v National Australia Bank Ltd (1998) 194 CLR 395. 9 The equitable charges, which are Exhibits PX02 to PX05, are in virtually identical form. There seems no doubt at all that pursuant to section D of those charges, the moneys secured have become payable. 10 Pursuant to the equitable charges, both the first and second defendant executed blank share transfers in favour of the Bank. The equitable charges purport to confer on the Bank various rights to complete these transfers. I merely state this: it is not necessary to go into it in any detail. 11 The plaintiff obtained an order in the Common Law Division requiring the first defendant to give the plaintiff possession of Lot 5 in DP 8075 "commonly known as Flats 1 and 4 82-84 Bower Street Manly". Although this form of order escapes some of the problems with orders for possession of company type home unit schemes, it is still poorly expressed because Flats 1 and 4 do not constitute the whole of the land in Lot 5 of that deposited plan. 12 The present summons, which was filed on 12 August 1999 and amended on 7 December 1999 seeks orders under s 66G(1) of the Conveyancing Act 1919 to appoint a trustee for sale either of the shares in the Company held by both defendants, or alternatively, a sale of their right to occupy Flats 1 and 4. 13 As far as counsels' research has gone, there is no precedent for an order under s 66G in relation to shares in a home unit company. There are indeed even more basic problems with respect to the plaintiff's application than that. These were fully recognised by counsel for the plaintiff Bank, Mr R G Forster SC and Mr R S Hollo and were further highlighted in the submissions of Mr M J Watts who appeared for the second defendant. The first defendant did not actually appear, but correspondence from his Trustee in Bankruptcy shows that a keen eye is being kept on the proceedings. 14 Section 66G(1) of the Conveyancing Act 1919 is in the following terms: "Where any property (other than chattels) is held in co-ownership the Court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees ... to be held by them on the statutory trust for sale..." 15 I do not have to be concerned with the words in parenthesis as what does not fall within s 66G so far as property is concerned, falls under s 36A which is the corresponding power as to chattels. 16 "Co-ownership" is defined in s 66F(1) as "Ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common". "Property" is defined in s 7 as "includes real and personal property, and any estate or interest in any property real or personal, and any debts, and any thing in action, and any other right or interest." 17 The plaintiff puts its case in two alternate ways:

(a) that the relevant property is the shares, that is, the combined holding of the five share certificates of Group D shares; or

(b) that the property is the right to occupy Flats 1and 4.

Counsel then recognised that there are two steps to succeeding on each alternative basis, namely:

(1) to demonstrate that the first defendant would have been entitled to an order under s 66G had he applied before bankruptcy; and

(2) that the rights of the first defendant have now passed to the plaintiff Bank by virtue of the equitable charges.

However, as an additional submission the Bank says that in any event it is an incumbrancer within the meaning of s 66F(1). That section provides that the word "co-owner" has a corresponding meaning with co-ownership "and includes an incumbrancer of the interest of a joint tenant or tenant in common." "Incumbrancer" is held to mean a person to whom a charge is given; see Penny Nominees Pty Ltd v Fountain (No 3) (1990) 5 BPR 11,284 and Australia & New Zealand Banking Group v Scott (1993) 6 BPR 13,217. 18 The second defendant says that the plaintiff's claim must fail because:

(1) what is being considered here is not "property" within the meaning of s 66G;

(2) the holders of the shares are not co-owners within the meaning of s 66F;

(3) in any event the Bank is not entitled to make the application; or

(4) the Court in its discretion should refuse to make an order even if all other matters are established. 19 The most logical way of approaching this problem is to deal with those four defences in turn. 20 (1) "Property". It has been held that the word "property" "is the most comprehensive of all the terms which can be used, in as much as it is indicative and descriptive of every possible interest which the party can have": per Lord Langdale MR in Jones v Skinner (1835) 5 LJ Ch 87, 90, approved by Isaacs ACJ in Commissioner of Stamp Duties (Queensland) v Donaldson (1927) 39 CLR 539, 550. The wide definition of the word "property" in the Conveyancing Act 1919 reinforces this approach. 21 However, in Ex parte Coote (1948) 49 SR (NSW) 179, 184, Jordan CJ, when giving the judgment of the Full Court considering a definition of "property" in the NSW Stamp Duties Act 1920 (viz "'Property' includes real and personal property and any estate or interest in any property real or personal, and any debt, and any thing in action, and any other right or interest") said at 184: "A right or interest, to come within the present definition, must, I think, be of a proprietary nature."

He cited McCaughey v Commissioner of Stamp Duties (1945) 46 SR (NSW) 192, 206. However he went on to hold that compensation payable under particular regulations for war damage to property was sufficiently analogous to the interest of a person who is one of several possible objects of a discretionary trust to constitute an "interest" within the meaning of the definition in the Stamp Duties Act. Davidson and KW Street JJ concurred. 22 In McCaughey's case at p 206, the Full Court consisting of Jordan CJ, Halse Rogers and Roper JJ said that the definition of property in the Stamp Duties Act means that "'Property' is to be taken to include not only cases in which a person owns property (real or personal) in the sense of the totality of the interests in such property but also where he owns property in the sense of part only of the interest in such property; and further, that 'property' includes not only tangible things, but debts, choses in action, and any other types of right or interest of a proprietary nature". 23 One gets the same flavour through many of the revenue cases. Thus in Commissioner of Stamp Duties v Yeend (1929) 43 CLR 235, the right to carry on the franchise of supplying refreshments at a race course was held not to be property for the purposes of the Stamp Duties Act (p 245). 24 In 2 Day FM Australia Pty Ltd v Commissioner of Stamp Duties (1989) 89 ATC 4,840, Sully J said at p 4,844 that the authorities indicated to him that the general words in the definition of "property" in the Stamp Duties Act had to be read down to refer only to proprietary rights and interests, but even reading the words down in that way a broadcasting licence was "property" within the definition. 25 However, in Bailey v The Uniting Church in Australia Property Trust (Qld) [1984] 1 Qd R 42, 58, McPherson J, giving the leading judgment of the Queensland Full Court, said that one needs to distinguish the revenue cases, for outside these the word "property" is an extremely wide word. The Court there held that the right to elect five councillors to a college council was a right of property akin to an advowson (p 60). 26 When one turns to s 66G itself, one can see that the legislature has used the word "property" in a wide sense. The section refers to "any property", and chattels would have been included had they not been expressly excluded. It seems to me that any right which is capable of being held in co-ownership and capable of being vested in trustees is property within the meaning of s 66G. 27 So far as shares generally are concerned, they are now accepted to be property under almost any definition; see eg Colonial Bank v Whinney (1886) 11 App Cas 426. See also Wilson v Commissioner of Probate Duties (Vic) (1978) 8 ATR 799, affirmed by the Victorian Full Court in Commissioner of Probate Duties v Wilson [1979] VR 592. 28 Accordingly, I must treat the shares in the Company as "property" within the meaning of s 66G. 29 I turn now to consider the right of occupation. 30 A right of occupation is not equivalent to a lease and is a contractual rather than a proprietary right if one has to distinguish between those two categories as one does in the case of an ejectment action; see Tittman v Traill (1957) 74 WN (NSW) 285, 287; HH Halls Ltd v Lepouris (1964) 65 SR (NSW) 181. 31 However, the articles of the Company's Constitution do amount to a contract between the Company and its members, and may, in the appropriate case, be policed by the Court: Magill v Santina Pty Ltd [1983] 1 NSWLR 517. That such an arrangement gives to the shareholder some proprietary right appears to flow from cases such as Jenkins v Harbour View Courts Ltd [1966] NZLR 1. However this is not a right which is assignable. 32 Accordingly, in my view, should it become necessary so to decide, a right to occupancy can be property within s 66G of the Conveyancing Act 1919. 33 (2) Co-Ownership. The more divisive question between the parties is whether what has happened in the instant case means that the first and second defendants hold the shares or the right to occupation as co-owners. 34 Co-owners must, by definition either be joint tenants or tenants-in- common. The defendants are obviously not joint tenants. The question is thus do the defendants hold the shares as tenants-in-common? 35 At first blush they do not. With a tenancy in common, each co-owner holds some interest in the whole of the property. On the facts in the instant case the second defendant holds a distinct 40% interest and has no interest in the first defendant's 60% and vice versa. 36 To constitute a tenancy in common, there must be an equal right to possession of every part and parcel of the subject matter of the tenancy; joint possession is not essential, unity of the right of possession being all that is required: see Mitra's Co-Ownership and Partition 7th ed (Eastern Law House, Calcutta, 1994) p 10 and Biswanath v Rabija (1930) 33 CWN 46. Unity of possession means that each co-owner is as of right as much entitled to possession of any part of the property as the others; see eg Blackstone's Commentaries II, 182. 37 In his article "Co-Ownership under Victorian Land Law" in (1961) 3 MULR 137, 138, de Mendes da Costa said: "Whatever the method of co-ownership, one feature true of all, is that each co-owner, whether he be a joint tenant or a tenant in common, is entitled, concurrently with the other co-owners, to possession of the whole of the land, although he has no exclusive right to possession of any part. It is this right to possession of the entirety of the land, a right which exists irrespective of agreement with, or the permission of the other co-owners, and which, at common law cannot arbitrarily be determined by order of the court ... that is the essential characteristic of all forms of co-ownership: without it there is several, that is separate, and not concurrent ownership...". 38 The italics are mine and point out the part of the statement that must be focussed on in the present debate. The proposition in italics is said to be justified by the decision in Moisley v Mahony [1950] VLR 318. 39 In that case, Mrs Mahony was a tenant in common of a property in Toorak which included a disputed flat. Under the War Emergency Legislation, upon a flat becoming vacant a protected person under the Act could requisition it unless it was the intention of the owners to occupy it themselves. The magistrate held that the intention of one co-owner to occupy the flat was insufficient. However on appeal, Dean J held that as Mrs Mahony was a legal tenant in common "she required no permission from her co-owners to enter and occupy the land, and she was entitled to enter without making any arrangement with them" (p 320). 40 The 8th edition of Helmore's Personal Property (NSW) (Law Book Company, Sydney, 1979) p 56 says: "Personal estate may be owned not only in severalty, that is to say, by single persons, but also jointly, or in common, by two or more persons. Joint ownership and ownership in common of personal estate differ from one another in like manner as joint tenancy and tenancy in common of real estate, and are in general subject to the same rules as joint tenancy and tenancy in common."

At p 59 the learned authors say: "Owners in common of personal estate, like tenants in common of real estate, have merely unity of possession: the interest of one may be larger or smaller than that of the other ...".

They then point out that: "There can be no ownership in common law of a chose in action."

They are speaking of choses of action in the technical sense of a debt or something which must be the subject of an action in order to recover it. Tenancy in common in equity of such a chose of action is, however, possible. They then go on to say at the same page: "In the absence of special agreement giving one joint owner or owner in common of a chattel a right of exclusive possession, neither is entitled to proceed against the other from being deprived of possession by him, each one having an equal right to the possession of the chattel."

This is not to say that there cannot be conversion by a co-owner because "Neither party, however, is entitled to exclusive possession, and if one of the two does an act which can only be justified by the right to exclusive possession, then he converts"; per Devlin J in Baker v Barclay's Bank Ltd [1955] 1 WLR 822, 827. 41 During argument, I suggested that the law as to ships might assist resolution of the present case. Having now reread the cases I am not really sure that it does assist, but I will briefly examine the main decisions. A ship is as much personal property as any other chattel. This is now confirmed by s 29(2) of the Shipping Registration Act 1981 (Cth). Under s 11 of that Act (which re-enacts the previous law) a ship is divided into 64 shares. The cases hold that as between themselves, the holders of the shares are tenants in common; see eg R v Collector of Customs at Liverpool (1813) M & S 224; 105 ER 366; Green v Briggs (1848) 6 Hare 395, 408; 67 ER 1219, 1225. 42 At common law, any co-owner can sue for conversion of a ship. The only way in which a defendant can take advantage of the fact that not all co-owners have sued is by way of a plea in abatement. So Hale CJ said in Blackborough v Graves (1673) 1 Modern 102; 86 ER 765: "If a tenant in common bring a personal action without his fellow joining in the suit, the defendant ought to take advantage of it in abatement; but if he plead not guilty it shall be good; but then the plaintiff shall recover damages only for a moiety. So if a tenant in common seal a lease of ejectment, he shall recover but a moiety."

This view was generally adopted "for the convenience of suitors"; see Addison v Overend (1796) 6 Term Reports 766, 770; 101 ER 816, 818 and Bloxam v Hubbard (1804) 5 East 407, 420; 102 ER 1126, 1131. 43 This being the state of the law, any holder of a share in a British ship can bring an action at law for conversion and recover proportionately to his or her ownership of the ship. Accordingly there is unity of possession in a sufficient sense to warrant referring to the co-owners as tenants in common. Accordingly exploring this avenue does not really provide a solution to the current problem. 44 In Mik v Cargill 485 P (2d) 229 (Oklahoma) (1971) the Supreme Court of Oklahoma had to consider a partition suit brought by a co-owner of an overriding royalty interest in oil and gas leasehold. The plaintiff seems to have held a 25% interest in that overriding royalty. The Court held that a holder of an overriding royalty was not a tenant in common with the lessee, so there could be no partition. 45 In the course of the judgment given by Berry CJ on behalf of the Court, his Honour said: "A tenancy in common has been defined as a joint interest in which there is unity of possession, but separate and distinct titles. The relationship exists where property is held by several distinct titles by unity of possession, and is not an estate but a relation between persons, the only essential being a possessory right, as to which all are entitled to equal use and possession." 46 So far as the shares are concerned in the present case, there is no unity of possession. The first defendant has his shares, and the second defendant owns hers. 47 There is accordingly no tenancy in common in the shares. 48 Different considerations come into play when one is looking at the right to occupy. 49 It should first be noted that there is a construction problem as to what happens when one person does not own the whole of the group of shares. Mr Forster SC and Mr Hollo said that it would be an absurd construction of article 1C of the Company's Constitution to say that where there is not one owner, joint owners, or owners in common of a group of shares there is no right to occupy at all. Mr Watts did not argue to the contrary. I think this is the correct approach. The alternative is to say that the Company retains the rights of occupancy, but this would mean that it would generate income which would be part of the general property of the Company distributable amongst its shareholders, probably on a pari passu basis. If all the other shareholders were holding the whole of their shares in one lot, they would then, to use a common expression, be "double dipping". 50 The first and second defendants are currently occupying Flat 4 (and also Flat 1). There is no evidence of any agreement between them to do this but one must imply that there was an agreement. One must also imply that it was an agreement terminable at the will of either party on reasonable notice. 51 Is there then, unity of possession in respect of the right to occupy which would constitute a tenancy in common? 52 I have previously noted that if a person needs to get permission of his or her co-owners before being entitled to possession, there is not the unity of possession vested in the co-owners as proprietors sufficient to make them tenants in common. Such is the case with the two defendants in relation to the right to occupy. 53 Accordingly, whatever be the juristic nature of the right to occupy, the first and second defendants do not hold as tenants in common. Thus, no order under s 66G may be made. 54 (3) Proper Plaintiff. My reasons in section (2) make it unnecessary to proceed any further. However, out of deference to the arguments of counsel I will briefly discuss the matters argued under this and the next head. 55 Section 66G(1) empowers the Court "on the application of any one or more of the co-owners" to appoint trustees for the property. Mr Watts' point is that the Bank is not a co-owner. 56 Mr Forster SC first puts it that his client is entitled to step into the shoes of the first defendant by virtue of the equitable charge. He is thus a person who is an owner in equity. 57 In my view this is not sufficient. The definition of "co-ownership" which I have cited earlier means that one must be entitled to be in possession of the property. Some equitable owners will be in possession of property but not all of them will be. I do not consider that the mere fact that the Bank has rights which have crystallised under the equitable charge constitutes it an owner in possession even in equity. 58 Apart from this technical argument, Mr Watts notes that the person entitled to occupation is the holder of the shares. There are a series of cases which indicate that where a right is given to the holder of shares, the person who is registered as the holder has that right, not a person who is entitled to be a holder; see for instance Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 and Federal Commissioner of Taxation v Patcorp Investments Ltd (1976) 140 CLR 247, 294-5. I agree with this submission also. 59 The definition of "co-owner" includes an "incumbrancer". I previously held in Penny Nominees Pty Ltd v Fountain (No 3) (1990) 5 BPR 1l,284, 11,293 that this means the person to whom a charge is given. Bryson J came to the same view in ANZ Banking Group Ltd v Scott (1993) 6 BPR 13,217. 60 I do not need to deal with the other problem that was raised in Scott's case and that is whether a bank which takes a charge from both a husband and wife who together own all the shares is not an incumbrancer of part but is an incumbrancer of the whole. 61 (4) Result. As things have turned out, it is not necessary for me to consider whether I have any useful discretion which might be exercised in favour of the defendants. It is also unnecessary to consider whether Flat 1 can be part of the property passed to the trustees for sale because it is used in conjunction with Flat 4. 62 Although I have found against the plaintiff Bank, my decision is on the statutory cause of action contained in s 66G of the Conveyancing Act 1919. There may well be some in personam rights which the Bank can deploy in order to get the result it wishes to obtain. However, as there are at least two other pieces of litigation pending between the parties, probably the less I say about extraneous matters the better. 63 The result of these proceedings is that they must be dismissed with costs. The exhibits may be returned. ******************

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