DBL Space Pty Ltd v Clynder Pty Ltd [2022] QSC 193

HENRY J: The plaintiff in a claim before this Court relating to its performance of a construction contract is seeking interlocutory injunctive relief for the recovery of its plant and equipment held by the defendant. In its claim, the plaintiff claims over $4 million for works done and materials supplied for the construction of a building, Wilson Villa at Lizard Island. Alternative orders are sought, including delivery up of certain goods.

The plaintiff says the value of construction work performed was over $8 million, but it has only been paid about $4.5 million. The defendant took completion of construction out of the plaintiff's hands because of an alleged breach of contract for failing to proceed with due expedition without delay. The plaintiff has since been refused site access and thus denied possession or use of its plant and equipment, which it had at the site. The present application in the proceeding relates to the fate of that plant and equipment pending disposition of the proceeding.

The defendant's pleaded case involves a denial of liability. It pleads it completed the works and the superintendent cost certificate indicated the costs thereof, some $3.1 million, are greater than what would have been paid to the plaintiff for the completion, some $1.6 million, so that the resulting debt said to be owing via its counterclaim is about $1.2 million.

The defendant pleads it was entitled to complete the works to the exclusion of the plaintiff with the plaintiff's plant and equipment, per a condition in clause 44.5 of the contract. Moreover, it relies upon clause 44.6 of the contract. That clause contemplates a procedure by which, after a superintendent certifies the cost incurred by the defendant in completing the work, and if the quantum of that debt is not satisfied, the defendant may retain the plant and equipment until it is satisfied. If, after reasonable notice, the debt remains unpaid. Clause 44.6 empowers the defendant to sell the plant and equipment to satisfy the debt.

Subsequent to the initiation of this claim, the defendant appears to have obtained a superintendent's certificate and, on the basis of the alleged debt thereby identified, given notice under clause 44.6, indicating it regards reasonable notice for compliance as 28 days, after which it says it will sell the property. Of course, the sequence of events in the litigation cannot logically deny the existence of contractual entitlements, but that this is a relatively recent development arising in circumstances where a much more substantial overarching dispute was already underway in this Court is a reminder that the arguable contractual entitlement to sell up the plant and equipment does not fall for consideration in isolation and that a much broader dispute, bearing upon whether there truly exists any debt at all owed by the plaintiff to the defendant, is in play.

It is common ground that there is a serious issue to be tried, subject to a qualification advanced by the defendant, to which I will return. This leaves the balance of convenience as the determinative issue. Taking a normal approach to weighing balance of convenience, there is much in favour of granting the application so that the plant and equipment should be returned to the company on the giving of undertakings by the plaintiff company and its sole director, Mr Linder, not to sell, further encumber or diminish the value of the property, excluding any diminution of value in consequence of its normal use in the course of the plaintiff's business.

The property is valuable in its own right and in its value to the plaintiff's business. It is difficult for the plaintiff to replace it in a timely and cost-effective way. The property is presently stored in the open at Lizard Island, susceptible to the corrosive effects of salty air and the risks inherent in storm and potentially cyclone damage that are ever-present in the tropics. The property will clearly deteriorate in value if left there, and all the more so if the machinery is left idle. In contrast, if returned to the plaintiff it is likely to be used, maintained and stored in a way which will preserve or at least best preserve its value.

The defendant, who was threatening to sell the property, proffers no assurances regarding the safeguarding of the property's value if I am to restrain it from selling and it is to remain in its possession. Against that background, one option raised in the defendant's argument - that it would not sell the plant and equipment but that it should be paid the amount of its ongoing storage cost - is unattractive.

Approaching the application in the normal way, the only concerning aspect of intervening to prevent the property's sale and leaving it safeguarded in the plaintiff's possession pending trial is that the property may decline in value so that the worth of the contractual safeguard, which clause 44.6 provides the defendant, may be diminished if, in the event the defendant wins the trial, it is then sold and returns less than it would have sold for now. It is inherently implausible that diminution of value, though, would be of a monetary scale remotely close to exceeding the financial capacity of the company of Mr Linder to bridge the difference.

It is true that if the plaintiff does lose, it may well be liable for a substantially greater amount overall, so that it is not entirely clear on the evidence before me that the plaintiff would definitely have the resources to meet the total potential liability alleged against it. However, my concern is not with securing the entire potential exposure to financial loss alleged by the defendant in its counterclaim. The contract provided no such broad-reaching security protections. My concern is to ensure that in meeting the balance of convenience I do not jeopardise that extent of security provided by clause 44.6. Undertakings are proffered to preserve the protection. Mr Linder's worth satisfies me that the potential diminution in value of the plant and equipment can be readily bridged by the resources of the plaintiff or Mr Linder, should the occasion arise for them to have to do so.

It follows the plaintiff should have its relief subject to consideration of the qualification advanced by the defendant, to which I now turn. That qualification is said to be that clause 44.6 confers a right of such legal significance as to confine at the threshold the approach which ought otherwise be taken to balance of convenience. The defendant submits the making of the proposed orders would destroy its rights under the possessory security interest confided in the defendant under the terms of clause 44.6. It likens the contractual rights conferred upon the defendant as being in the nature of a common law pledge.

The defendant submits that like a common law possessory lien, a common law pledge depends generally for its very existence upon continuing retention of possession by the pledgee of the asset in question. The defendant submits the proposed order should only be made in exchange for the creation of an equivalent security in lieu by the plaintiff. Such a security, it is said, might be achieved, for example, by a payment by the plaintiff into Court of the acknowledged current value of the plant and equipment as an alternative form of continuing security for the defendant's contractual counterclaim against the plaintiff.

The defendant's submissions place reliance upon Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161 including the following passages by Walsh J at 164 to 165:

"A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court...

In my opinion, the authorities which I have been able to examine establish that for the purposes of the application of the general rule, to which I have referred, nothing short of actual payment is regarded as sufficient to extinguish a mortgage debt. If the debt has not been actually paid, the Court will not, at any rate as a general rule, interfere to deprive the mortgagee of the benefit of his security, except upon terms that an equivalent safeguard is provided to him, by means of the plaintiff bringing in an amount sufficient to meet what is claimed by the mortgagee to be due."

Inglis was, of course, concerned with a mortgage. There, on the one hand, the bank wanted to exercise its mortgagee's power of sale and, on the other hand, the mortgagor real property owners were suing the bank for breaches of contract, defamation, fraud and conspiracy.

I was also referred to Solomon-Innis & Innis v Carter-Lannstrom & Carter-Lannstrom [2017] QSC 49. As with Inglis, that again, was a dispute between a lender and borrower. The loan debt was allegedly secured by a mortgage. The interlocutory application there was to restrain the exercise of the mortgagee's power of sale. The applicant offered no undertaking as to damages. Ann Lyons J granted the injunctions, but required payment pending trial, by the applicant, of a commercial rate of interest on the loan balance outstanding. In reasoning to that result, her Honour referred to Inglis and the exception it contemplated, of an alternative equivalent security being provided. She also referred in that context to Clarke v Japan Machines (Australia) Pty Ltd (No 2) [1984] 1 Qd R 421, and Hillston Grove Vineyards Ltd v Lushvale P/L [2000] QSC 001. But they too were cases where the security was in the nature of a mortgage.

I respectfully distinguish the mortgage cases, to which I was referred, from the present case. The contractual right which clause 44 raises is submitted by the defendant to be in the nature of a pledge, and by the plaintiff to be in the nature of a contractual lien. The argument that it is a pledge, effectively seeks to draw upon the special right attributable to a pledge, to draw by parity of reasoning upon the principle discussed in the mortgage cases and the special right arising from the execution of a mortgage.

In defining "pledge", Stroud's Judicial Dictionary of Words and Phrases Ninth Edition, volume 3, cites this definition:

"The contract of a pledge is a bailment, or delivery, of goods and chattels by one man to another to be held as a security, for the payment of a debt or performance of some engagement, and upon the express or implied understanding that the thing deposited is to be restored to the owner, as soon as the debt is discharged or the engagement has been fulfilled."

I was referred in the course of argument to Fisher & Lightwood's Law of Mortgage, Second Australian Edition at 1.11, and more particularly, to its reference to the High Court's consideration of the definition of "pledge" in Palgo Holdings Pty Ltd v Gowans [2005] HCA 28; (2005) 221 CLR 249. In that case the plurality at 257, 258 observed:

"Commentators and the courts have long recognised that pawn or pledge is "a bailment of personal property, as a security for some debt or engagement". They have identified such a transaction as distinct and different from mortgage where "the whole legal title passes conditionally to the mortgagee". This distinction was sometimes expressed in terms of the difference between the "special property" of the pledgee and the "general property" which remained in the pledgor. The "special property" of the pledgee was described as the right to detain the goods for the pledgee's security and "is in truth no property at all". That "special property" depends upon delivery of possession, whereas in the case of a mortgage of personal property the right of property passes by the conveyance and possession is not essential to create or support the title.

It has also long been recognised that pawn and pledge must also be distinguished from lien. "One who has a lien has only a right of detaining the res until the money owing is paid: a lien disappears if possession is lost, and there is no right of sale". A lien is merely a personal right and cannot be taken in execution; a pledge creates an interest in the pledgee that can be seized in execution." (Citations omitted)

Critical to the quality of a pledge is an act of bailment of the property. In the present case, there was no act of bailment, no delivery up of the plant and equipment. It came into the defendant's possession because the plaintiff was denied access to and thus possession of it by the defendant. It follows the threshold quality relied upon by the defendant, which depends upon security of property from the outset, whether via an executed mortgage or delivery up as per a pledge, is not present in this case.

Any right the defendant has to plant and equipment is in the form of a contractual lien. It derives from circumstances occurring during the life of the contract which are themselves in dispute in the broader case in which the application is brought.

It is true that a special quality of a lien is that it derives from possession, and that quality is ordinarily lost when possession is lost. However, in the interlocutory relief proposed, in the context of a case where the very right to exercise the lien is in issue, the entitlement deriving from a contractual lien which would ordinarily be lost with loss of its possession can readily be preserved by the orders which are proposed.

It follows, taking the ordinary approach to weighing the balance of convenience, that the shift of possession from the defendant to the plaintiff will not have the effect of the defendant losing the contractual right of relief which clause 44.6 preserves, should the defendant prevail at trial. In that event, in light of the nature of the orders I propose to make confining the manner in which the plaintiff can deal with the property, the possession of the property could be restored to the defendant, for the purpose of the defendant exercising its right of sale under the clause.

The amended draft order before me contemplates orders made upon both the plaintiff and Mr Linder giving the usual undertaking as to damages, and also upon the plaintiff and Mr Linder undertaking to not sell or diminish the value of (excluding diminution in value in the consequence of normal use in the normal course of the plaintiff's business) or otherwise further encumber any of the plant and equipment listed in schedule A of this order until judgment or further order.

The proposed orders contemplated an order that the defendant would deliver the plant and equipment to the plaintiff at an identified time. A dispute arose as to what that would potentially mean. The plaintiff applicant's position is that it would require physical delivery to the plaintiff's place of business on the mainland. The defendant's understanding, and my own, had been that what was probably contemplated was in the manner of a delivery up, in the sense the property would be delivered up by the defendant permitting the plaintiff to take physical possession of the items where they are stored.

The contractual position appears to have been that, were there not a dispute and the contract regulated what occurred, the cost of transportation of the plant and equipment to Lizard Island and back again was a cost to be borne, under the contract at least, by the defendant. The plaintiff relies upon that aspect of the case to contend that, in this Court's interlocutory intervention, it ought go so far as to require the responsibility for transporting the property, from Lizard Island back to the mainland and the plaintiff's place of business, ought be borne by the defendant.

That might well be consistent with what had been contemplated by the contract, but it needs to be borne in mind that I am not presently assessing the merits of the case and my focus is upon orders which meet the balance of convenience without otherwise prejudicing the parties' future rights. In the event that the plaintiff prevails but has borne the cost of retrieving the plant and equipment, it seems to me its rights are more than adequately protected by what would occur in the normal course, namely that the cost of its retrieval of the items, pursuant to any order I may make, would feature in the financial quantum of the ultimate orders made at trial.

In addition to that consideration, there is much to be said for the party most motivated to preserve the plant and equipment, that is to say, the plaintiff, being the party who ought, at least pending the outcome of the trial, carry the cost of transportation of the items.

There remains, however, some lack of information presently before the Court about the precise location of all of the plant and equipment, making it impracticable to perfect final orders as to the detail of the transition of possession.

In its final amended form, the current draft order contemplates the parties returning before me, if agreement cannot be reached in the meantime, in order for argument to be heard as to the final form of order dealing with the transition of possession of the plant and equipment from the possession of the defendant to the plaintiff.

The draft order as amended also contemplates that costs ought be reserved. The plaintiff sought its costs as if following the event. I am against that course. Much is made about the lack of cooperation of the defendant in supporting the relief sought. Of course, it was always open to the defendant to elect to support the relief sought rather than pressing for what it contends is the preservation of its contractual right regarding the property. This heralds of course the point that the contractual right attending the very issue with which these reasons are concerned falls to be resolved as part of a broader dispute at trial. My reasons, for the purpose of this application, do not confer any indication either way as to who would ultimately prevail on that issue.

In my conclusion, the event on which the costs of this application will turn is the result of the claim and counterclaim. For that reason, costs should be reserved.

I order as per the amended draft order, signed by me and placed with the papers.