In the matter of C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises... [2012] NSWSC 676 | Case summary

Judgment (4 paragraphs)

[1]

Jackson v Richards [2005] NSWSC 630 James Thane Pty Limited v Conrad International Hotels Corp [1999] QCA 516 Jinhong Design & Construction Pty Ltd v Yi Nuo Xu [2012] NSWSC 523 Lake v Crawford (No 2) [2010] NSWSC 419 McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218 McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534 McKensey v Hewitt [2004] NSWSC 636 Moseley v Cressey's Co (1865) LR 1 Eq 405 National Commercial Banking Corporation of Australia Limited v Cheung (1983) 1 ACLC 1326 NEC Information Systems Australia Pty Limited v Linton (Unreported, NSW Supreme Court, 17 April 1985, Wood J) Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344 Official Trustee v D'Jamirze (1999) 48 NSWLR 416 Paul Ernest Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455 PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 Perpetual Nominees Limited v Taouk & Anor [2009] NSWSC 605 Print National Pty Limited v Helps [2007] NSWSC 1050 Re Commonwealth Bank of Australia [20091 NSWSC 81 Rodick v Gandell (1852) 1 De GM & G 763 Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27 Scottish Amicable Life Assurance Society v Reg Austin Insurance Pty Limited (1995) 9 ACLR 909 at 923 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Spencer v Commonwealth of Australia (2010) 241 CLR 118 Stephens v Debney (1959) 60 SR (NSW) 468 Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196 Texts Cited: J Phillips and J O'Donovan, The Modern Contract of Guarantee (2010, 2nd ed) P W Young, C Croft and M L Smith, On Equity (2009) Category: Interlocutory applications Parties: Giovanni (John) Gazzana (Applicant/Respondent) Antonio (Tony) Gazzana (Applicant/Respondent) Nadalan Enterprises Pty Ltd (Respondent/Applicant) Representation: Counsel: B Pluznyk (Applicants/Respondents) R Quickenden (Respondent/Applicant) Solicitors: G P Legal (Applicants/Respondents) Felicio Law Firm (Respondent/Applicant) File Number(s): 12/058509

WE, the said Antonio F Gazzana and Giovanni B Gazzana (Director's name) (Director's name) Company Directors, in consideration of the Creditor granting credit to : Nature Springs PTY LTD. HEREBY JOINTLY AND SEVERALLY guarantee the Creditor the due payment of all debts to be paid by the said: Nature Springs PTY LTD. AND IT IS AGREED that this Guarantee shall be a continuing guarantee for credit to: Nature Springs PTY LTD. AND IT IS FURTHER AGREED that the property at [Calga] is offered for security as guarantee for credit to: Nature Springs PTY LTD. DATED this 4/9/2008 day of September 2008 SIGNED by the said A F Gazzana and (Director's name) (Director's name) Antonio F Gazzana (Director) (Director) A C Redford (Witness) (Witness) 42The form was signed only by Tony (whose signature was purportedly witnessed by Alan). The space for the signature of the second director (John) was left blank. 43On the following page, section (C) provided for default of the company directors and business premises. Section (D) required three trade references to be completed. There was also a section marked "For Office Use Only", which was completed in handwriting by Alan, included a limit of "$50,000", and was signed and dated 10 September 2008. 44I say above that the document was "purportedly" witnessed by Alan because Alan's account (supported in substance by his daughter) was that the form was given by him to Tony at the meeting on 4 September 2008 (they say in John's presence) and then taken away by Tony, who later returned it completed. (Alan denied that Tony returned it that same day.) If so, Alan cannot actually have witnessed the appendage by Tony of his signature on the document, though Alan seems to have signed the document in the capacity as witness. (Though a minor point, it may support Tony's account that he signed the form then and there rather than taking it away and returning it, as signed later.)

Stamp Duty 45The Credit Application was lodged for stamping on 18 December 2011 and seems to have been assessed on the basis that it secured an amount of $101,000. (Mr Pluznyk submitted that this supports the proposition that the real amount of the Nadalan Enterprises claim is $101,000 (or $111,000) and not the $250,000 claimed in the District Court at Gosford. Mr Quickenden objected to any such submission on the basis that the lodgement documents were admitted on a limited basis. 46I place no weight on the time (or amount) for which the application was stamped, as going to whether that involved any admission as to the quantum of the debt then claimed by Nadalan Enterprises (which was the import of Mr Quickenden's objection to this evidence). However, I did raise the question as to whether the document needed to be up-stamped if it were to be relied upon as giving rise to an equitable charge to secure monies in excess of $101,000 (namely, the $255,000 now claimed in the District Court proceedings). 47Mr Quickenden denied that there was any such liability but proffered (and I accepted) an undertaking from his client that if there is a liability to up-stamp the Credit Application document (which it is contended constitutes an equitable charge over the monies presently held in Court and secures the debt presently claimed in the District Court proceedings), Nadalan Enterprises will submit the document to the Commissioner for up-stamping. 48In this regard I note that s 211 of the Duties Act 1997 (NSW) concerns the effect of failing to pay duty on a mortgage: Consequences of non-payment of duty A mortgage on which duty is required by this Chapter to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid. (my emphasis) 49For the purposes of s 211 (and Ch 7 of the Duties Act), a mortgage is defined by s 205: What is a mortgage? For the purposes of this Chapter, an instrument is a "mortgage" if it is: (a) a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date, or (c) a security by way of a transfer or conveyance of any property in New South Wales that is held in trust to be sold or otherwise converted into money, redeemable before such a sale or conversation either by express stipulation or otherwise, except where the transfer or conveyance is made for the benefit of creditors who accept the transfer or conveyance in full satisfaction of debts owed to them, or (d) an instrument that, on the deposit of documents of title to property in New South Wales or instruments creating a charge on property in New South Wales, becomes a mortgage or evidence the terms of a mortgage. [Note: (b) is omitted in the legislation] 50Section 304 deals with the question whether an instrument evidencing a dutiable transaction can be admitted into evidence. 51The effect of s 211, therefore, is that if duty has only been paid for a mortgage sum less than the sum Nadalan Enterprises now claims is secured by the mortgage, the mortgage will be enforceable only to the extent of the lesser sum upon which duty has been paid. (Evidence of compliance with the undertaking proffered by Nadalan Enterprises through Mr Quickenden would be required in this regard.) 52With respect to a document on which no duty, or an inadequate amount of duty had been paid, McDougall J held in Boral Recycling Pty Ltd v Wake [2009] NSWSC 712, in the context of an application for the extension of a caveat, in which it was necessary to establish that when lodged there was a caveatable interest, (at [12]) that: Not having been stamped, the consequences prescribed by s 211 must follow. A mortgage that is required to be stamped is enforceable only to the extent of the amount secured by it on which duty has been paid. In this case, no duty having been paid, the relevant amount, for the purposes of s 211(1) is zero. (my emphasis) 53There is some dispute in the authorities as to whether allowing the matter to stand down so as to pay the appropriate duty on the instrument would have any effect for the purposes of a determination of the existence at the relevant time of a proprietary interest (Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344, Boral Recycling, McKensey v Hewitt [2004] NSWSC 636; Arnautovic t/as Jirsch Sutherland & Co v Cvitanovic (as trustee of the Bankrupt Estate of Adrian Lawrence Rosee) [2011] FCA 809). The question arises before me only in the context that (until up-stamped) the Credit Application would at most seem to be enforceable as a charge only to the amount of $101,000. 54In Jirsch, Katzmann J referred to Boral Recycling, before considering a number of cases which held that, under the Stamp Duties Act 1920 (NSW), the effect of subsequent stamping was retrospective and the instrument was valid ab initio (Electricity Meter Manufacturing Co v Manufacturers' Products Pty Ltd (1930) 30 SR (NSW) 422; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; Official Trustee v D'Jamirze (1999) 48 NSWLR 416). Her Honour noted that Hodgson CJ in Eq, as his Honour then was, had said (at 426-527 in D'Jamirze) that: Plainly, this means that an unstamped instrument is not of absolutely no effect until stamped... Until stamped, an instrument has whatever effect is consistent with the proposition that, if stamped, it be fully effective ab initio. To put this another way, Shepherd must mean that an instrument is effective from the start, conditionally upon being stamped before relied on in court, or alternatively, from the start carries the potentiality of being so effective. 55Where the dispute has arisen in the context of caveats, the question is relevant in that if no enforceable interest arises until the claimed interest is enforceable, then retrospective stamping or registration does not mean there was a caveatable interest when lodged (ACN 075 911 410 Pty Ltd (t/as Acuity Funding) v Almaty Pty Ltd [2011] NSWSC 333 at [18]). 56Katzmann J (referring there to CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384) noted the predecessor to s 211 under the previous legislation (then being s 84(4)), which was considered in McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218, and concluded (at [52]-[53]) that: Section 211 does not use the word "unless". This might point to a deliberate legislative intention to overcome the interpretation given to s 29. But the language is not clear. It certainly does not exclude the possibility of "retroactive operation". And the inconvenience of the alternative interpretation to which Heydon J referred in McCallum remains. The Explanatory Note on the Duties Bill is silent on the question. And there is nothing in the second reading speech that throws any light on it. The Minister delivering the second reading speech, the Hon RJ Debus MP, said that the main purpose of the legislation was to replace the Stamp Duties Act with "simple, clear and equitable legislation drafted in contemporary language and modern style": Hansard, Legislative Assembly, 12 November 1997, p 1612. He said nothing about the question of enforceability of unstamped mortgages. Whatever the reason for the change in the statutory language concerning the unenforceability of mortgages, I very much doubt that the change from "unenforceable unless it has been stamped" to "unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid" was intended to have the effect that the mortgage was only enforceable from the time of stamping and not retrospectively from the time of execution, contrary to the previous authorities. In the light of the authorities, if the effect were to prevent a mortgage from operating ab initio one might have expected either the substitution of "unless" with "until" or some express statement to the effect that the stamping only operated prospectively. I am therefore inclined to follow the approach in McCallum and to hold that s 211 operates retrospectively to make the charge enforceable from the time it was executed. 57On both views of s 211, a later stamping has at least prospective effect. If, in the present case, a greater debt is claimed to be secured by the Credit Application than that upon which duty has been paid (being a sum greater than that shown on the face of the instrument stamped), then Nadalan Enterprises is liable (on its undertaking) to pay the difference between the duty paid and the duty which would be payable on a mortgage securing the greater sum. This would have the prospective effect that the entire mortgage debt is the enforceable at least from the date of payment of the difference in duty. (Until up-stamped, any equitable charge would be enforceable only to the amount so stamped - a matter that may well be of significance in the District Court proceedings.)
Circumstances in which credit application signed 58Tony's evidence is that the credit application form was given to him at the end of a 12 hour shift working at Nadalan Enterprises and that he completed and signed it on the spot. There is a dispute between the Redfords on the one hand and the Gazzanas on the other as to whether John was present at the meeting in which the credit application form was given to Tony. (Both the Redfords are adamant that John was present at the meeting but they differ as to the time of day when the meeting took place and as to how the men were seated at the table during that discussion.) It seems Kimberley herself was not part of the meeting as such, but was in and out of the room. 59John denies any knowledge of the credit application form or guarantee contained therein and denies that he authorised his brother to sign the form on his behalf. John's affidavit of 17 April 2012 at [8] deposes that "I never signed the credit application" and at [9] that "I was not present when Tony signed it". John further says that he was not aware that Tony was going to sign it and first became aware when the proceedings were commenced in the District Court. 60The evidence of Tony in relation to the signing of the credit application is replete with inconsistencies (he says he signed the form at the end of a 12 hour shift but the evidence, ultimately conceded, was that he did not commence work with Nadalan Enterprises until 2009); he denied having given a personal guarantee (though the form expressly provides for one and, elsewhere in his cross examination, he conceded he had given a guarantee); he said at one stage that the form had been signed in 2009 not 2008 and backdated (but there is nothing to suggest why the form would have been backdated and, since Alan's signature bears a 2008 date, if it were the case that the form had been backdated this would have required both he and Tony to have participated in that). It is difficult to accept Tony's evidence that the document was signed at the end of a 12 hour shift or that it was signed in 2009 and backdated (though the supply of bottles may not have commenced until some time after 2008). Tony argued (in the witness box) that there would be no reason to sign a credit application some 12 months to 2 years in advance of when they were going to be able to set up their own business. However, there is no evidence as to the set-up time then contemplated for any Gazzana brothers' business independent of the previous soft-drink distributor (other than Tony's assertions). 61Alan's evidence, however, itself also contains inconsistencies - there was no compelling explanation as to why the tanker would remain registered in Nature Spring's name if Nadalan Enterprises was the owner (and such an arrangement might well have come as a surprise to the financier had it known that was the case); nor is there any compelling explanation as to why monthly invoices for the rental of the tanker would be issued in the sum of $2,006.69 if the actual rental was $4,550. I was taken to no documentation to show that Nadalan Enterprises had treated the tanker as an asset in its books or that it had recorded the rental liability as a liability in the higher amount. 62Kimberley (who was adamant that she could remember verbatim the conversations referred to in her affidavit but was unable to recall other matters related to the conversations and who had a tendency to retract or qualify answers - such as the time when the document was returned signed by Tony and when she looked at it and filed it - suggesting that her recollection was not as precise as she wished to suggest) gave evidence that Tony and John had said in her presence that Tony would sign the credit application on behalf of his brother but, if so, there seems no reason why she would have later felt the need to point this out to Alan as she says she did (and the evidence that she did so was inconsistent with Alan's own evidence as to when he first learnt that the document had not been signed by John). 63Kimberley said that she was aware at about the time (i.e. around September 2008) that John's signature was not on the document and that she drew this to her father's attention. Q. In fact, there was no discussion in relation to John not signing that particular part? A. I would have had a conversation with my father. He was the one that did the trade references on it. Q. He told you it was all right for John not to sign it? A. Yeah. Q. Did you raise it with your father that John hadn't signed it? A. Yes. Q. You did? A. Yes I did. If you look at it, he hasn't signed it. I would have asked. Q. Did you tell Alan that it wasn't signed? A. Yes. Q. What is he say? A. If you read the account from, it says-- Q. No I'm asking you what did he say? A. Yeah, John hasn't signed it. Tony signed it on his behalf. Q. He said those words? A. Yes. Q. That's what he said to you? A. (Nodded) To the best that I can recall. Q. To the best of your recollection he may not have said that at all. ... A. He may or may not have. I don't remember. 64Alan's affidavit (as adverted to above) deposed to him not being aware of this until much later. At [14] Alan said "I assumed it had been signed by both directors. I didn't look at it at the time". Q. You expected that application to be signed by both John and Tony? A. Normally that's the case, yes. Q. Did you look to see if it was signed by both of them? A. No. Q. It was so obvious that it wasn't signed by both of them, wasn't it? A. Well I was only concerned with the credit check. [I note this is an example of the witness giving an explanation not answering the question which characterised much of John and Tony's evidence and was the subject of criticism by Mr Quickenden in relation to that evidence] ... Q. While making those [credit] inquiries you just didn't bother to check to see whether John Gazzana signed it? A. I didn't bother to check because both of them had assured me that they were going to give a guarantee. [an answer seemingly inconsistent with the first answer noted above] 65Alan's shared assumption that the document had been signed by both John and Tony is inconsistent with Kimberley having drawn it to Alan's attention at the time (and her evidence that Alan said that was all right because Tony was signing for John). Alan deposes at [28] that at no time during the meetings with Tony/John did John and Tony inform him that John had not signed the credit application form. (On Kimberley's evidence that would not have been necessary as she had already drawn it to his attention.) (Moreover, if what Nadalan Enterprises seeks to draw from the assertion that neither Tony nor John had pointed out that John had not signed the document was some form of acknowledgement by John that he was bound by it, far more would be required as to what was said and in what context it was said for any such conclusion to be drawn.) 66Kimberley also said: Q. You didn't contact John Gazzana to get him to sign that part, did you? A. No, he contacted me before and said Tony would fill it in and bring it back so, no, I didn't contact him afterwards for Tony to sign it. 67There was no reference to any such conversation in her affidavit and this evidence had the impression of being an explanation offered on the spot in the face of the apparent inconsistency in her evidence on this point. 68A further inconsistency is that Alan verified the Statement of Claim in the District Court proceedings in which it is alleged that a $100,000 credit limit was agreed on 4 September 2008. At T 106/7, Alan confirmed that the affidavit attached to that statement of claim verified that there was an agreement on 4 September that there would be a credit account up to a maximum of $100,000 per month, but then accepted that the credit application was approved for only half that amount: Q. The credit application is an application for $100,000 a month, but only $50,000 a month was approved. That was approved not on 4 September? A. Well, technically you are right. The application was for $100,000 that they put in, yes. Q. Your swear in your affidavit, which was annexed to the statement of claim, that $100,000 a month was approved, and that is incorrect? A. It is, I had approved $50,000 to myself. My thinking was that if they paid the account, if it was good, that they'd have the $100,000. (my emphasis) 69On the document (consistent with Alan's evidence as to the steps he took for credit/trade reference checks) the credit application was not accepted until some time after 4 September 2008. Hence, on normal principles of offer and acceptance, the contract would not have come into existence until 10 September 2008 at the earliest (and arguably not until acceptance of the offer was communicated or goods were supplied under the contract if that be taken as an implied acceptance of the offer).
Outstanding amounts? 70As adverted to earlier, tendered in evidence by Mr Pluznyk (and admitted over Mr Quickenden's objection) were some handwritten notes by Kimberley, on the face of which there is no reference to any invoices being outstanding for a period in 2008. One of these notes suggested that the amount outstanding as at November 2011 was around $78,000 plus the "payout figure". Kimberley explained in the witness box what she had understood by a "pay-out" figure at the time the note was written. Later, she confirmed that: A. Okay. Pay-out figure is the balance of the figures on the tanker, so that's if you were to confirm, that's the pay-out figure, I have to call the bank and see the amount that's left owing. That's the pay-out figure. The balance also owing on any of the rental. ... A. There is still owing. It says without pay out figure on tanker. So anything relating to tanker is not there. There is still stuff still missing. I don't - that's what that means. It's not a final figure. ... A. Okay. So yes, without pay out figure from the Bank of Queensland on the tanker, the repayments, yes, and any of rentals owing on the tanker. Anything to do with tanker. (my emphasis) 71Tony says these were notes made when he asked Kimberley what was outstanding and that they were given to him (something that of itself would not seem implausible). Kimberley denies this and says she would not have given handwritten notes to Tony. At T 92, when Tony was asked how he came to have the handwritten notes by Kimberley in his possession (they being attached to his most recent affidavit on 25 May 2012), his response was: A. Well occasionally I would go to the office and receive the invoices from their company. I told her up to that stage exactly how much did our company owe Nadalan Enterprises. She did write down every detail. She put everything in order, which we both agreed. 72Tony maintained that he was 100% sure of that and responded testily (when it was put to him that he had taken the documents from the offices of Nadalan Enterprises knowing that nobody knew he had taken them) "Don't be stupid. His daughter gave them to me. How would I get in their drawers?". 73I have already indicated that I cannot place any real weight on these notes, as it is not apparent that they represented anything more than working papers (of a kind Kimberley maintains she regularly made in the course of her work at Nadalan Enterprises, for her own purposes, to check what was owing). No doubt the significance of the notes may emerge when there is more evidence of the manner in which Kimberley carried out her role in the office and a comparison can be made with other such documents. 74In any event, what the notes suggest, at most, is that when Kimberley (for her own purposes, as she says on her evidence) prepared these notes, she either did not understand there to be any arrangement for rental at the increased figure or did not appreciate that this amount should be included in these calculations. A payout figure on the hire purchase agreement itself would presumably not involve more than the residual value (however that might be calculated by the financier) and any arrears under that agreement. It is hard to see how a financier would have a basis to seek a pay-out figure at a higher rental amount than specified in the agreement. Kimberley's explanation of what she meant by "payout figure" in this regard was not to my mind convincing if what was suggested was that there was a "payout figure" as such that was over and above what was provided for in the hire purchase agreement. 75Kimberley appeared to concede that a calculation of any more moneys owing to Nadalan Enterprises in relation to the rental of the tanker could have been calculated (although she said it may have taken a while). She agreed that (assuming the increased rental figure of around $5,000) it would be a simple matter of taking away the sum of $2,006.69 from the increased rental figure and multiplying it by an amount of months, but did not accept that the only reason why the payout figure was blank in her notes was because it meant contacting the bank and obtaining a payout figure from the bank.
Authority 76At least by 2011, it seems there were issues as to the financial position of Nature Springs, culminating in steps taken by the registered mortgagee to exercise its rights of sale in relation to the property. Tony accepts that he was resisting the exercise by the mortgagee of its power of sale (though not that he behaved improperly in so doing). 77In the context of the forced sale, possession of the water tanker was given to Alan (whether for safe-keeping, for convenience, for settlement of Nature Springs' debts or because Nadalan Enterprises is the true owner thereof, is not clear). In due course the Gazzana brothers signed an authority for the distribution of the proceeds of sale and provided that to the mortgagee's solicitors. 78Annexure E to Alan's affidavit is a copy of a document headed "Authority", signed by each of John and Tony, dated 25 January 2012 (the date of the mortgagee sale). On its face, this is a direction to the mortgagee and its solicitors authorising them as to the manner in which to pay the surplus proceeds of sale of the Calga property. The second of the payments listed in the Authority is "as to the sum of $111,606.25" to Nadalan Enterprises. (Tony in the witness box was at pains to emphasise that this sum reflected the addition of the sum borrowed in relation to the tanker, plus the (unpaid) hire purchase instalments and the amount he says was attributable to the supply by Nadalan Enterprises of bottles - around $15,000. Alan's position was that the sum represented a compromise of the debt owing which was well in excess of that.) 79Relevantly, the Authority includes the notation "(a) Nadalan Enterprises Pty Ltd currently holds a charge over the vehicle, repayment of the loan is to be contingent with release of the charge". The vehicle to which reference is made in that notation is not identified but there is no suggestion that there was any other vehicle than the tanker which was part of the disputed arrangements between Nadalan Enterprises and Nature Springs. 80Alan (at [24]), in a paragraph which was only provisionally read in the first instance (on the basis that there was a query as to whether it breached without prejudice privilege) deposed to a conversation in about November 2011 when he says there was an agreement to settle the debt for an amount of $111,600.26, provided that Nature Springs also agreed to supply spring water to Nadalan Enterprises at rate of 0.010 cents per litre up to $200,000. (In the witness box Tony seemed to understand the questions on this topic as going to a suggestion that water would be provided free of charge altogether, which is not what I had understood the conversation as deposed to in Alan's affidavit on its face to mean. Hence it seemed to me that there was some confusion on this aspect and the weight that should be attached to Tony's evidence on this issue was affected by that confusion.) 81In any event, what both Tony and Alan seem to accept is that at around the time of the sale there was discussion (if not a final agreement) that Nature Springs would pay an amount of $111,600.26 to settle whatever were (or were contended to be) its outstanding debts to Nadalan Enterprises (with or without an arrangement for provision of spring water in addition). As I noted, Tony appeared to be arguing his case in the witness box in his answers on this issue. Nevertheless, the particularity of the figure in the Authority (ending in a sum of 26c) certainly suggests that it was reached by reference at least in part to instalments of $2,006.69 rather than the rounded up $4,550 figure. However, it is difficult to draw any final conclusion as to the composition of the total sum and, in any event, a willingness to accept payment of a lesser sum in satisfaction of a debt would not amount to an admission that the debt itself was no more than that lower amount. 82No reliance is placed on this Authority (at least in the present application though the same cannot necessarily be said for the District Court proceedings) as recording or reflecting an agreement for payment of the sum noted in the Authority (Mr Quickenden noting that his client was not a party to the execution of the Authority). However, reliance is placed by Nadalan Enterprises on this document itself giving rise to an equitable lien over the funds in Court (a claim which I consider in due course below). 83As to the reference in the Authority to a "charge" over the vehicle, it is by no means clear what was intended thereby. Nadalan Enterprises asserts ownership of the vehicle, not a charge over the vehicle. It might well be the case that the bank providing funds for its acquisition had a charge of some kind under the hire purchase arrangements. If the notation suggests that the release of the charge was to benefit Nature Springs (or the Gazzana brothers) then presumably it would be consistent with them at that stage having an understanding (whether or not that be correct) that the vehicle remained in their ownership but had been secured in some fashion for the debt owing under the hire purchase arrangements. 84John's evidence was that he played no part in the discussions as to what happened to the tanker at or around the time of the mortgagee sale because he was living with his sister at the time. He suggested that Tony and Alan might have reached an agreement for the tanker to be taken in settlement of Nature Springs' debts. Tony suggested that it was in order to remove the vehicle from the property in advance of the forced sale. 85Whatever the actual arrangements in relation to the removal of the tanker to Alan's property, the Authority seems to me clearly to impose a condition on the payment directions referable to the release of a security interest (or claim) in respect of the tanker. If so, then it cannot be described as an unconditional direction to pay out the proceeds in question.
Caveat/Sale of Property 86A caveat was lodged by Nadalan Enterprises on 5 December 2011 claiming an equitable interest in the land arising out of a charge over the land by the registered proprietor, that interest said to be arising from the Credit Application. 87The sale of the property by the mortgagee in possession occurred on 25 January 2012. (Mr Quickenden places weight on the apparent resistance by one or both of the Gazzana brothers to the mortgagee sale (as evidenced by the narrations contained in the bill of costs of the mortgagee's solicitors - Exhibit A) as going to their credit on the present application. I consider this later.)
District Court proceedings 88District Court proceedings were commenced by Statement of Claim filed on 5 March 2012. A copy of that pleading was in evidence. Nadalan Enterprises claims the sum of $255,255.24. (Although Nature Springs is joined as a party, it is currently deregistered. The claim cannot be pursued against it without an application for re-registration of the company and hence that part of the claim at least at present would seem to be liable to be struck out.) 89The claim is described as a claim in debt, contract, guarantee and loan agreement for purchase of a truck (the water tanker to which reference has been made above). Breach of contract is alleged against Nature Springs by the failure to pay invoiced amounts totalling $105,260.26. The claim against the Gazzana brothers is for breach of an agreement (pleaded as a term of the credit agreement) that they guarantee the cost of "purchases" recorded in [6] of the pleading. The tanker rental invoices are included in that amount. (It seems now to be conceded by Alan that these could not be described as "purchases".) 90Further or in the alternative, there is an allegation that in about July 2009 Nadalan Enterprises agreed to lend Nature Springs moneys to further its spring water business and a further loan of $6,340 (in breach of which it is said that the defendants have not repaid any of the loan moneys). 91Still further (and also expressed to be in the alternative) there are two additional agreements alleged - the first, between the parties for the rental of the water tanker (purchased by Nadalan Enterprises for the sum of $80,000) at a sum of $4,550 per month and for the payment of registration insurance repair and maintenance costs for 4 years (for which Nadalan Enterprises claims the sum of $143,654.98 being $2,992.81 x 48); and the second being an agreement for the payment of $111,600.26 from the proceeds of sale of the Calga property and the provision of spring water to meet the balance of the debt of $200,000 (based on a rate of 0.010 cents per litre). Credibility of witnesses 92Before turning to the legal issues, I make the following observations as to the respective witnesses. 93Tony had a tendency to be confrontational with the cross-examiner and argumentative in the witness box; John and Alan, while less so, were nevertheless also argumentative at times. Both John and Tony had a tendency to proffer explanations for matters rather than addressing the particular questions put to them and displayed some circularity and inconsistency in their evidence. Nevertheless, criticism could also be levelled (though, again, to a lesser extent) of Alan in that regard. 94My impression was that, on John's part, the circularity in some of his evidence was due to his anxiety to impress upon the Court his denial of anything to do with the signing or authorisation of the Credit Application or any arrangement with the tanker (and hence he tended not to focus on the precise question) rather than attempting to avoid the questions put to him. 95By way of example of John's attitude in the witness box, I note that at T 16, when Mr Quickenden pressing witness as to a question earlier asked as to his understanding of a particular document, there was the following exchange: Q. Mr Gazzana, I'm not asking you the question whether you have seen that document before, I'm not asking you that question, do you understand that? A. What are you asking? Q. That's not your business? A. To a point it is my business. 96To be fair to John, it seems to me difficult to suggest that it is not relevant for the witness to know what question he or she is being asked and expected to answer. However, it indicates an assertive attitude evident in other answers, such as: Q. The record will show? A. It doesn't matter about the record. I'm telling you how it is. 97What seems more relevant to note in relation to John's evidence was that he had a tendency to conflate questions and his answers were circular in content at times. 98As to his tendency to answer the question he thought he was asked and not the question itself, or added to an answer with a justification of his own, there are a number of examples (with the relevant answers italicised below) - for example, from T 17: Q. That's Tony's writing, isn't it? A. Well it is not my writing, no. ... Q. Can you listen to the question? A. Yes, I'm listening. You asked if that was my writing [which I interpose to note was not the question], I said no. You said, "Is that Tony's writing?" I said, "Yes." Q. That's Tony's writing? A. Yes, as far as I know. Q. Do you think there is a doubt that it is Tony's writing, do you? A. Well I'm saying that it looks like his writing, yes. ... Q. That's Tony's signature, is it not? A. Yeah, that's his signature, but there is no signature of mine there. Q. Did I ask you that? A. No, but I'm telling you that. ... Q. Do you recognise that as Mr Redford's writing? A. That looks like his writing, yes. Q. You have known Mr Redford for many years, haven't you? A. Not as long as my brother has. Q. Do you understand I wasn't asking you how long your brother had known him, I was asking how long you knew him? A. I answered the question. Q. No, you didn't? A. I said not as long as my brother knew him. Q. Did I ask you how long your brother had known him? A. I don't know how long my brother has known him. 99As to the circularity or inconsistency of his answers (and a tendency on John's part to speculate as to what did or did not happen): Q. That was Tony's province, wasn't it? A. Well he was the one doing the deals with him. Not me. Q. Sorry, I haven't finished. You gave Tony authority to deal with the tanker on behalf of your company, didn't you? A. I didn't give him any authority on the tanker, because like I said before, I had no idea what was happening with it. As far as I knew, we owned it. That was probably a dealing that him and my brother, Mr Redford and my brother, had going together. 100As to Tony, he had a tendency to make broad assertions and denials from which he was then forced to withdraw. So, for example, his denial of knowledge as to the alleged personal guarantee (that he seemed to bolster by the assertion that he had never given one before, although he accepted that he had had previous knowledge of other charges and agreed that he had been involved in negotiations for the fixed and floating charge given to the financiers on behalf of the company). He also seemed ready to level allegations as to dishonesty against Alan (in which he seems to have been prepared to be complicit): Q. Listen to this question if you didn't hear the last one. The tax invoices include amounts of money paid by Nadalan to your company? A. That's right. Q. For springwater? A. No, not only for springwater it was for labour. He said make it under springwater to replace labour because it's a benefit to his company to treat it as a tax deduction. He has got no proof of finish product of springwater. Your client has got no proof of finished product. Q. So those documents-- A. Yes. Q. Are false? A. That's right. Q. And you wrote them? A. That's right. Q. And you say that it was at Mr Redford's suggestion? A. That's right. Q. I put it to you it was at your own suggestion? A. You put that, but he is a very pushy person and beggars didn't have a choice. We were employed by him, so you do what the boss requests. 101Also: Q. Mr Gazzana, you were very familiar with financial transactions such as personal guarantees, weren't you? A. That's right. Q. And you have been familiar with personal guarantees for many many years, haven't you? A. Not really, because it was the first one we ever, I ever signed. And we always honoured our words we always pay our commitments, paid who we were dealing with. Q. Are you saying the first personal guarantee you ever signed-- A. Apart from banks. Q. Sorry I haven't finished. The first personal guarantee you ever signed was the one that Mr Redford gave you? A. Apart from banks or private lending, yes. Q. So before Mr Redford asked you to sign a person guarantee you had already done that with other financial transactions? A. Only with banks or private lending. Q. It doesn't matter who with. You had already done it by the time Mr Redford asked you to do it, hadn't you? A. Like I said with banks or private lending. No other manufacturing company ever made me do personal guarantees. Q. So you were fully aware that you were personally guaranteeing the debts of your company when you signed the guarantee for Mr Redford, weren't you? A. We always honoured our commitments. We always paid everyone. [Pausing there, Tony's insistence that they had always honoured commitments and always paid everyone, suggests that what he is more likely to have said to Alan during the discussions was a similar promise and not that he would put his property up as security for any proffered guarantee] Q. You personally guaranteed your company's debts to Nadalan, didn't you? A. Me myself, yes. 102Tony also seemed not to listen carefully to questions put to him. For example: Q. You didn't have your own equipment to make bottles, did you, in 2008? A. Well, there's about 10 packaging companies that do make bottles so Mr Redford is not the only one. We thought by exchanging business you buy water we buy bottles. Q. Do you remember the question? A. Yes. Q. What was the question? A. You're saying that I needed bottles and I'm saying your client is not the only one that makes bottles in this planet. Q. That wasn't the question. The question was you didn't have your own facilities to make bottles in 2008? A. No. 103Tony's evidence was criticised by Mr Quickenden as "prolix, confused and unresponsive", adopting the words of White J in Jackson v Richards [2005] NSWSC 630 at [12]). I accept that (when recalled for further cross-examination on the second day) Tony's evidence became increasingly confused. In general, my impression of the manner in which Tony gave evidence was that he was inclined to make broad assertions without much thought to what he was being asked (and that not much weight should be placed on his 'off-the-top of his head' assertions). 104I suspect that the manner in which both Tony and John answered questions put to them may have been due to their level of education and in part to impatience on their part. Nevertheless, it was difficult to place much reliance on their recollection of events due to the inconsistencies in their evidence and the vagueness of some of their stated recollections. 105However, Alan, in turn, did not always limit himself to answering the questions put to him, also from time to time giving an explanation for his conduct and, as did the Gazzanas, engaging in a speech in answer to questions. There were inconsistencies in his evidence and I similarly found his evidence to be not particularly reliable. 106As to Mr Ian Gilbert, (who gave evidence for Nadalan Enterprises and is Kimberley's future father-in-law) I found his evidence to be even less helpful than that of the Gazzana brothers and Alan. It is apparent that there is little love lost between Mr Gilbert and Tony. Mr Gilbert made clear that he has an ongoing (separate dispute) with the Gazzana brothers as to moneys that he says they promised he would be paid. He was confrontational and argumentative in cross-examination; and his evidence was general in content. See, for example, at T 168: Q. Can I just stop you there. Are you saying that they [John and Tony] both spoke at the same time using exactly the same words? A. Don't be stupid. Of course they are not going to speak at the same time. Q. Well then, at some stage either John or Tony was talking to you by himself? A. Okay. Okay. I spoke to John. I spoke to Tony. Tony answered, John backed him up. Q. What did Tony say to you? A. He said he would pay me on a regular basis every 14 days. John agreed to it. Q. When you say John agreed to it, what words did he use? A. He said that he would agree to paying the money. I am not going to say word for word. I can't remember that. Q. You can't remember-- A. Listen, don't put words into my mouth. Don't try and change things. I know on the day I spoke to the two of them. I had concerns about getting paid. As it turns out, I had good concerns for it. They didn't pay me. And of course here we are today for another reason. and, later, went so far as to accuse the cross-examiner of dishonesty: "You put what you like. The fact is you are lying. They are lying." 107Kimberley, in contrast, gave her evidence timidly and almost invariably with a questioning inflection (that conveyed the impression, whether or not justified, that there was some doubt or hesitation as to the answers she was giving). With some of her evidence, it was not clear whether she was in fact giving evidence as to what she recalled happening or as to what she assumed would have happened (see, for example, the evidence as to what was done by her in relation to the filing of the completed Credit Application at T 136ff). 108Mr Quickenden pointed to the contradictions between the evidence of Tony and John such as, for example, their evidence as to whether John had told Tony to sell the tanker; as to whether John knew of any business transactions with Nadalan Enterprises; and as to how long the brothers had known Alan. Mr Quickenden noted that John had agreed with much of Alan's recollection of conversations other than in relation to the personal guarantee. 109I accept that there were contradictions and inconsistencies that permeated much of the evidence (but it seems to me that neither side is immune from criticism in relation to this issue). 110Mr Quickenden further submitted that the account that Alan had given was wholly plausible and that the account the Gazzanas had given was wholly implausible. Leaving aside the advocate's flourish, what is being suggested is that it made sense that Nature Springs, facing the need to find an alternative means of income in light of the forthcoming cessation of its existing distribution arrangements, would have engaged in a conversation with Nadalan Enterprises as to the possibility of the two companies doing business with each other and that even the most inexperienced businessman (who already has a system of credit requiring the provision of security in the form of personal guarantees and charges over property) would require such an arrangement. 111I have no difficulty accepting that it would have made sense for Nature Springs to seek to explore other business opportunities (and Tony himself accepted that there had been consideration given to setting up a business of their own); similarly, that it would not be surprising for Alan to require the Gazzanas, if they were seeking to buy plastic products from Nadalan Enterprises, to require that the company enter into a credit agreement of the kind for which the company's standard documents provided. What that does not establish, however, is that in the present case what was in fact put in place was an arrangement that bound John to the giving of a personal guarantee in the absence of his signature on the critical document. 112An equally plausible explanation for events would be that Alan provided the form to Tony (whether or not in John's presence) and that he simply failed to check whether John had separately committed to the giving of the guarantee by signing the form (whether or not John had verbally promised to do so is not relevant when looking to see if he is in fact bound by a document not signed by him though it might give rise to other claims against him). 113As to the evidence that Tony and John were at the meeting together on 4 September 2008 and that John said Tony would sign the credit application on his behalf, this seems inconsistent with the occasions on which John did separately sign business documents (such as the Authority and the security granted to the mortgagee itself) and at least some of the evidence from Kimberley emerged for the first time in cross examination in seeming justification for her conduct or lack thereof. 114The other evidence that was said by Mr Quickenden to give an insight into the credit of Tony was exhibit A in these proceedings (said to be testimony to improper efforts by Tony to try and stop the mortgagee from selling the Calga property). Tony seemed to acknowledge that he had done what he could to resist the sale (though he did not admit to harassment or intimidation in this regard). In the bill of costs rendered by the mortgagee's solicitor, I was taken to the following entries (having made it clear that I did not consider it appropriate for it to be suggested that I read through the document as a whole without any indication as to the entries on which reliance was sought to be placed for this submission):
at p 33, a reference to an attendance in conference with C Cameron "Instructing as to visit to his home by AF Gazzana who made several allegations and threats. Requesting he and his witness make separate statements. He advising as to past dishonoured cheques and supplying copies of cheques and statements. 45 minutes";
at p 53, an entry to "Perusing email letter from Ray White...considering action" and later on that page an entry reading "Letter to the solicitor...breach of undertakings";
at p 72, an entry reading "Telephone call with senior counsel...advising". 115Ultimately, whether or not Tony behaved in an inappropriate or intimidatory fashion vis a vis the mortgagee seems to me to be a different issue from that as to whether his account of the conversations in question should be believed. 116As to Exhibit A, Mr Pluznyk submitted that it was tendered solely for the purpose of the Gazzanas' claim for damages, noting that a total of $4,268.30 related to costs that the mortgagee's solicitor had deducted as a result of Nadalan Enterprises' equitable claim on these monies. It was submitted that if there were found to be no such equitable claim then this amount should be repaid to John and Tony (half each) because, were it not for Nadalan Enterprises' actions, there would be another $4,000 to be paid into Court. (I pause here to note that there does not seem to me any basis on which I could require the repayment by the mortgagee of such moneys, it not having taken part in the hearing of the application before me and it being a question, presumably, as to whether the mortgage document indemnified the mortgagee for costs of enforcement of the mortgage.) As to whether any claim could be made against Nadalan Enterprises for those moneys, that is not the subject of the present application - which is simply for payment out of moneys claimed by the Gazzana brothers and to which it is said there is no claim by Nadalan Enterprises that would preclude such a payment out. Legal Principles 117Section 58(3) of the Real Property Act provides for the manner in which proceeds of a mortgagee sale are to be disbursed: (3) The purchase money to arise from the sale of any such land, estate, or interest, shall be applied, first, in payment of the expenses occasioned by such sale; secondly, in payment of the moneys which may then be due or owing to the mortgagee, chargee or covenant chargee; thirdly, in payment of subsequent mortgages, charges or covenant charges (if any) in the order of their priority; and the surplus (if any) shall be paid to the mortgagor, charger or covenant charger, as the case may be. 118Mr Pluznyk thus contends (and it is not disputed) that each of the applicants, as owner (with his brother) as a tenant in common in equal shares is prima facie entitled to half the surplus funds presently held in Court (subject to any interest ranking third in the list of priorities provided in s 58(3) of the Act). He further contends (and this is disputed) that Nadalan Enterprises does not fall within any of the categories in s 58(3) because it does not hold a mortgage and does not hold a charge within the definition of charge in s 3(1) of the Act (that being "Any charge on land created for the purpose of securing the payment of an annuity, rent-charge or sum of money other than a debt" (my emphasis) or covenant charge). It is noted by Mr Pluznyk that Nadalan Enterprises' claim in the District Court proceedings is a claim in debt. 119Mr Quickenden submits that s 58(3) does not operate to defeat a claim for an equitable charge over property. I agree. I accept that it is not necessary for a competing claimant to moneys held in Court to establish that its interest falls within the list of priorities in s 58(3). That subsection fixes the order of priority as between persons falling within the section. Here, what is relevant is that there is another claimant to the funds held in Court claiming an equitable interest in those funds, which it is said precludes payment of the moneys out on the present applications. In any event, Mr Quickenden points out (and I agree) that the definition of mortgage in the Act would encompass an equitable charge of the kind presently claimed. 120The present applications for the payment out of Court are made under Rule 55.11 of the Uniform Civil Procedure Rules. What an applicant seeking payment of money out of Court under Rule 55.11 must establish has been considered by Slattery J in a number of cases. In Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27 (considering the procedure for dealing with surplus funds that had similarly been paid into Court by a mortgagee) his Honour noted (at [12]) that what the procedure provided for under Part 55 rules 8-11 requires (before payment out) is simply "that there be a motion filed for directions, which then provides a platform for the court's analysis of the competing priorities, followed by payment out" (my emphasis). 121His Honour there restated the requirements of proof in the ordinary case under Rule 55.11, where a party seeks payment out of court, that his Honour had earlier identified in Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661 from [8]: An applicant under UCPR r 55.11 must establish three matters to justify an order for the payment of money out of court. The first is to identify the person who is primarily entitled to any funds paid into court and the basis of that entitlement. It is fundamental that the person be identified from the best evidence available, so that the court can be sure that the person has been given appropriate notice of the application and can if necessary contest it. The second matter that needs to be proved by a claimant is that he or she is not merely an unsecured creditor against the person primarily entitled to the fund but is a person who has an beneficial interest in the very fund that has been paid into court. The same evidence that demonstrates a person's primary entitlement to the funds in court often establishes this second matter. Thirdly, it is necessary for an applicant to identify the other potential claimants to the fund in court and to prove that those persons were notified of its claim. Those persons may consent to the claim. Alternatively, the applicant may prove that those persons either do not have valid claims against the fund or that their claims do not have priority over the applicant's claims. The court requires strict proof as to who has the entitlement to the funds in court. There is a heavy burden placed on a party seeking payment of money out of court under Trustee Act s 98 and UCPR r 55.11. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in court have been properly notified. Otherwise there is a risk of incorrect payments being made. (my emphasis) 122As to the position where another potential claimant (once notified), does not consent to the payment out (as is the case here), Slattery J accepted that it was for the applicant then to prove that the claimant did not have a valid claim against the fund. His Honour emphasised that strict proof would be required, having regard to the Court's concern as to the risk of incorrect payments being made. Similarly, in ANZ v Maunder [2009] NSWSC 1356 at [8], Slattery J had referred to the situation where there were established to be "no competing claimants to the funds which would prevent payment out to the applicant" (my emphasis). 123Mr Quickenden accepts that what the Gazzana brothers must prove on the present application is that there is no valid claim by Nadalan Enterprises to the funds but submits that, for this purpose, the Court should not make any final determination of the claim made by Nadalan Enterprises. He seeks to draw a distinction between proof that there is no "valid claim" and proof that there is no claim at all. It was contended in this regard that the present application "sought to usurp the function of the District Court" by dealing with Nadalan Enterprises' claim in answer to the present Notices of Motion (rather than in the District Court proceedings). Mr Quickenden was concerned to place on record Nadalan Enterprises' position in this regard, namely that it was concerned to ensure that the moneys paid into Court not be disbursed to persons that it says owe it money and that it had been "ambushed" by these notices of motion. It was said that the Gazzana brothers had brought the present applications to try to defeat Nadalan Enterprises' claim to the moneys. 124Mr Quickenden noted that Nadalan Enterprises (through Alan's undertaking to this effect in his affidavit at [31]) had undertaken to pursue the proceedings in the District Court promptly and it was submitted that what this Court was being required to do was to determine (over the opposition of Nadalan Enterprises) the very issues that were to come before the District Court in due course on its proceedings). 125Leaving aside the (no doubt understandable) aggravation thus expressed by Nadalan Enterprises at the prospect that a sum of money to which it has laid claim should be released to the Gazzana brothers, this submission seemed to be to the effect that the Gazzana brothers were seeking to obtain a forensic advantage in invoking the very processes that the Rules provide in order to deal with competing claimants to funds held in this Court. I was not satisfied that there was any improper conduct in that regard. 126The nub of Mr Quickenden's submission as to the ultimate issue to be determined in these proceedings seems, with respect, to equate the concept of a "valid claim" with that of an "arguable claim". He submits that if I am persuaded that there is an arguable case by Nadalan Enterprises on its claim (noting that it does not bear the onus on the payment out applications) then the Gazzana brothers will have failed to establish what is required to obtain an order for the payment of funds out of Court and that it is not then necessary for there to be a final determination of the claim by Nadalan Enterprises (and that this should be left for determination in the District Court in the ordinary course). 127Rule 55 uses the terminology of a "valid claim". In other parts of the Rules (see for example Rule 13.4(1)(b)), different language is used when describing the foundation for relief (in that there is reference to there being no "reasonable cause of action" or (in Rule 13.1), in the context of an application for summary judgment, to there being no defence to the claim. It seems to me that some meaning must be given to the difference in formulation in Rule 55, which refers to a "valid" claim. Had what was there contemplated been that the payment out should depend on whether there was "no arguable claim" or "no reasonably arguable claim", then there is no reason why that formulation could not have been adopted in the Rules. (In a different context, Hammerschlag J, in Simmons v Perpetual Trustee, recently noted the difference in formulation between the two parts of Rule 13 and, in obiter, expressed the view that a reasonable cause of action was one giving rise to real issues requiring resolution by the court (such that proceedings need not be hopeless or bound to fail in order to be struck out as disclosing no reasonable cause of action, adopting the approach in Spencer v Commonwealth of Australia (2010) 241 CLR 118).) The concept of no "valid claim" seems to me to require consideration of the validity of the claim, not simply whether it is or is not arguable or reasonably arguable. 128In my view, what Rule 55.11 requires is a consideration of whether there are other competing claims and, if there are, then as Slattery J pointed out in Ruth Chong, it is a matter for the Court to determine their validity and the competing priorities between any valid claims. Thus, I do not accept that the present enquiry necessarily stops at the point at which an arguable claim has been established though it may, depending on the issue, be necessary or appropriate to defer a final determination of the validity of that claim to another forum. If the evidence before the Court is such that the validity of the claim can be determined on the very payment out application, then the statutory mandate for the just, quick and cheap resolution of the real issues in dispute would support the conclusion that a final determination as to that claim should then be made. I consider below the practical import of this in the context of the existing District Court proceedings (in which, I note, at this stage no defence has yet been filed so that the matter is at an early stage). 129What Mr Pluznyk contends is that he is entitled on the present applications to seek to prove that there is no claim by Nadalan Enterprises to a beneficial interest in the fund (and hence no "valid" claim) and that, if he does so, for there to be an order for payment out of the moneys. (i) Have the Gazzana brothers established what is required for payment out of the funds? 130Turning then to the three matters required to be proved by the Gazzana brothers on their respective applications for payment out of the funds in Court, the first two (that they have identified the person primarily entitled to the fund and the basis of that entitlement; and that they have a beneficial interest in the fund) seem to be met. The applicants have established a prima facie entitlement to the surplus funds (being the former registered proprietors of the Calga property) and that they have a beneficial interest in the funds. 131In Re Commonwealth Bank of Australia [20091 NSWSC 81, Young CJ in Eq (as his Honour then was) held (referring to s 58 of the Real Property Act and the analysis of Myers J in Stephens v Debney (1959) 60 SR (NSW) 468) that where there is a surplus on the sale by a mortgagee of property held under joint tenancy the surplus is held as joint tenants (and that this was the status of the surplus fund there held in Court). The fund in Court in this case represents the interest of the Gazzana brothers in the property as tenants in common in equal shares. Hence, the separate applications for payment out of half of the fund to each of the brothers. 132Nadalan Enterprises (not surprisingly, having regard to the interest claimed in the caveat over the property) has been identified as the only other potential claimant to the funds. (In Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679, Young J (as his Honour then was), his Honour observed that if the Court cannot be satisfied that all other possible claimants have been notified then ordinarily the matters will be referred for the making of appropriate enquiries. There is no need for such a course in this case for the reasons set out below.) 133In ANZ v Maunder, Slattery J noted that a common source of identification of potential claimants is the certificate of title. If reference to the certificate of title is made in this case, there were three other caveators at the time of the sale of the property. By affidavit sworn 21 February 2012, the solicitor for the plaintiff (i.e. the mortgagee) deposed to the payment out of the claims of the first and fourth caveators and that the second caveators ceased to claim an interest in the property after 23 December 2011, leaving only the third caveator (Nadalan Enterprises) claiming an interest in the property. 134As to the position of Nadalan Enterprises, in Avco his Honour applied Beeby v Official Assignee of Pickering and Pickering [1953] NZLR 832 and Hope v Hope [1977] 1 NZLR 582, holding that if a person has an equitable charge over the land and that land is sold by a mortgagee then the equitable charge attaches to the fund that is produced as a result of there being a surplus on the sale. Thus, if Nadalan Enterprises held an equitable charge over the land, that will now attach to the proceeds of sale. 135As to whether the applicants have established that Nadalan Enterprises does not have a valid claim to a beneficial interest in the fund, the claims made by Nadalan Enterprises against each of John and Tony rest on three separate bases:
first, that the signing of the Credit Application gave rise to an equitable charge over the property (and hence over the surplus funds into which the property has since been converted);
second, that there was an oral guarantee that gives rise to such an interest ; and
third, that the Authority signed in January this year amounted to the appropriation of a specific fund out of which debts owing to it were to be paid (and hence gave rise to an equitable lien on the fund). 136I consider each in turn. (a) Credit Application 137Although the argument as to the effect of the credit application is the same for both John and Tony, there is an initial complication in relation to the claim maintained by Nadalan Enterprises on an equitable charge arising from the Credit Application in relation to John as it is not disputed the document was not signed personally by him. Authority to sign? 138First, I note that there seems to be no issue raised as to whether the signature of Tony indicated that he was bound not just in his capacity as a director but also in his personal capacity (although in his evidence Tony at one stage seemed to deny that he knew he had thereby given a personal guarantee). Had such an issue arisen, it would be determined having reference to all of the circumstances surrounding the execution of the document and having regard to its terms (see Scottish Amicable Life Assurance Society v Reg Austin Insurance Pty Limited (1995) 9 ACLR 909 and 923; Clark Equipment Credit Australia Limited v Kiyose Holdings Pty Limited (1989) 21 NSWLR 160 at 172; and Print National Pty Limited v Helps [2007] NSWSC 1050). 139In Scottish Amicable Life, McHugh JA (as his Honour then was) considered that where there was an issue concerning the capacity in which a person signed a commercial document that issue must be considered in light of the construction of the document in its commercial setting and in accordance with the surrounding circumstances known to the parties. 140In Clark Equipment, Giles J (as his Honour then was), having considered the discussion in National Commercial Banking Corporation of Australia Limited v Cheung (1983) 1 ACLC 1326; NEC Information Systems Australia Pty Limited v Linton (Unreported, NSW Supreme Court, 17 April 1985, Wood J) and Scottish Amicable) concluded (at 174), that the proper approach was to inquire whether there was an objective intention that the signatory be personally bound to the contract, having regard to the construction of the document as a whole and the surrounding circumstances. Giles J went on to say (at 175) that the requisite intention to be ascertained was: ...not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound. 141Here, Tony signed the Credit Application in a space marked "Director". On an application made by a company that qualification might well indicate that the intention of the signatory was only to sign in the capacity as director. However, there seems to be no doubt that, objectively construed, Tony signed the Credit Application both in his capacity as director of the company and personally as a guarantor of the company's obligations, having regard to the content of the document and, in particular, the words appearing under the heading Section (B). (Whether Tony appreciated that that was the case, or what that would entail - an issue raised on the submissions made by Mr Pluznyk as to Trade Practices Act or other defences - is a different issue.) 142As to John, however, the position is less clear. The claim by Nadalan Enterprises against John (at least on this first basis) rests on the document having been signed by Tony with John's authority. There is nothing on the face of the document to suggest that, when signing it, Tony was doing so as agent for or with the authority of the other named director. (Mr Pluznyk notes, for example, that there is no statement that Tony was signing for and on behalf of John.) The mere fact that the document contains reference to John's details as a co-director is not enough in this regard. That would be consistent with Tony being authorised to give no more than John's assent as director to the assumption by the company of the obligations under that document. 143It is submitted by Mr Quickenden that the evidence establishes that Tony generally acted for John permitting an inference of agency sufficient to bind John (and that Tony did so specifically in relation to this guarantee). 144In James Thane Pty Limited v Conrad International Hotels Corp [1999] QCA 516 at [60] where there was an issue as to whether a document had been signed by one party as agent for another, said: There, [referring to Clark Equipment] as is the more usual situation, the qualification was found at the end of the contract where it was executed. That is not the case here; Conrad's signature when executing the contract is not qualified. The only reference in this contract to Conrad being the agent of Jupiters is in the recital of the parties. But, in my view, the problem is to be resolved by application of the principle derived from the authorities referred to above. One must determine the intention of the parties objectively having regard to the nature of the contract, the terms of the contract (including the qualification in the recitals), and the surrounding circumstances. Further, in my view, where a party signs a contract without qualification in the execution clause it would be natural for any other party to assume that the party so signing was contractually bound unless the contrary was made clear beyond doubt. (my emphasis). 145In Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067 at [9] Finkelstein J considered a submission that it was not permissible for a person to affix one signature to a contract and have that signature operate in two capacities, one as agent for a principal and another to assume personal responsibility. His Honour requested that submissions saying that: ... I see no reason in principle why this could not occur. All that is necessary is that the capacity or capacities in which the person is placing his signature on a contract be clear. If it is clear that he intends to sign the contract in two or more capacities, there is no reason why that intention should not be given effect. 146Insofar as there is no written authority empowering Tony to sign on behalf of John, Mr Quickenden submits that the absence of a written authority cannot be used in equity to overcome the agency, since equity will not let s 23C of the Conveyancing Act, 1919 enable an unconscionable outcome. In that regard, I do not base my conclusion on this issue on the absence of a written authorisation (rather, I am not satisfied on the evidence that there was any express oral authorisation nor that I should draw the inference that Tony was authorised to sign the Credit Application on John's behalf as a personal guarantor). 147I place no weight on the denial of authority made by John. It is clearly in his interest to deny the giving of any such authority. Similarly, I treat with caution Tony's evidence in that regard, although there was a plausible basis proffered by him as to why he would not have involved John in decisions relating to the business: Q. So far as the affairs of the company were concerned in 2008 you would also discuss the company's affairs with John, would you not? A. Not most of the time, because I took all the worries and the responsibilities, and I was worried about John because John had a history of falling ill. So yes, there was a lot of things I kept - I didn't want John to worry about certain bills like we had $300,000 taxes to be paid in 2008 and I did pay the $300,000 taxes. John wasn't fully aware of the tax debt so I paid it. John wasn't of everything because John has a history of mental breakdowns so I never wanted my brother to be worried about certain debt levels. Q. So you would do things on behalf of John? A. That's right. 148Tony accepted that he would "do things on behalf of John". However, that does not go far enough in my view to support an inference that either generally or in this particular instance Tony was authorised to, and did, sign the Credit Application on John's personal behalf (as opposed to acting on his behalf to commit the company thereto). 149What the evidence supports is an inference that John authorised (expressly or impliedly) Tony to sign documents for, and make commitments on behalf of, the company. Therefore, I would have little difficulty concluding that Tony was authorised to bind John as a director to matters where the consent of both directors was required. However, I do not consider the evidence establishes that Tony was authorised to commit John to arrangements binding him personally. There is nothing on the face of the Credit Application to suggest this and I consider it relevant that the instance where John was made personally bound to matters involving the Calga property (namely the mortgage to C&L Cameron) was one where he signed the document himself (and was separately advised). 150Nor do I accept that the evidence establishes that John (assuming he was at the September 2008 meeting, as to which there is a clear dispute) gave Tony an oral authority to sign the Credit Application on his behalf. Had he done so (as Kimberley suggests) then there would have been no reason for her to draw her father's attention to the fact that he had not signed the document (as she says she did). 151There is in my view a clear distinction between John making or agreeing to a statement by Tony (as it is said he did on a number of occasions) that they (or he) would meet the company's debts (or even referring to the existence of equity in the Calga property) and John authorising Tony to sign a document committing John to personal liability as guarantor. 152As I have indicated above, there were inconsistencies in the evidence on both sides. I found none of the witnesses to be particularly compelling. That leaves me to place the most weight on the contemporaneous records (such as they were) and that shows clearly that the Credit Application was not signed by John. I am not satisfied that he expressly or impliedly authorised Tony to sign it on his behalf (or that the document, objectively construed, indicates an intention by Tony to do so). 153Alan (and Kimberley) may have thought that when Tony signed it he was doing so on John's behalf and it may even be that John (assuming for present purposes that he was at the September 2008 meeting) represented that he would sign a document guaranteeing the company's debts. However, he did not do so and I am not satisfied that Tony did so on his behalf. (While there might be other consequences that follow if John represented that he would give a guarantee or provide a security and did not do so, those have not been raised as supporting a finding that there is presently an equitable charge over the funds held in Court.) 154Therefore, insofar as Nadalan Enterprises relies on the Credit Application as giving rise to an equitable charge over John's interest in the property, I am not satisfied that the evidence supports such a conclusion. I find that Nadalan Enterprises has no valid claim to an equitable charge over John's share of the surplus proceeds at least insofar as this claim is based on the signing by Tony of the Credit Application. Does Credit Application create an equitable charge? 155As to the effect of the Credit Application, it is submitted by Mr Quickenden (and I agree) that it operates to create an equitable charge. 156In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 594-595 Buckley LJ said: An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee or in other words evidences a contract to do so: see Fisher and Lightwood's Law of Mortgage, 9th ed (1977), p 13. An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: see Fisher and Lightwood, p 14. ... whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred. If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor. 157Mr Quickenden submits that there is no need for precise wording or form for the creation of an equitable charge, the fundamental question being the intention of the parties and the identification of the property to be charged (citing Boral Bricks Pty Ltd v Davey & Ors [2010] QSC 131; Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34; Jackson v Richards and referring generally to On Equity, Young, Croft & Smith (2009 edition), and that the Credit Application satisfies these principles. I agree. On its face, the signed Credit Application operates to create an equitable charge over the interests held by Tony in the Calga property (and now his share of the proceeds of sale). 158Mr Pluznyk, however, submits that there are a number of defences available to Tony (and also to John, though, in light of the above, it is not necessary for him to rely on these matters vis a vis John's application) in relation to the enforceability of the charge itself. 159First, it is submitted that the applicants did not intend to give a charge notwithstanding the words used in the document. Reliance is placed in this regard in what was said in laconis v Lazar [2007] NSWSC 1103 by Young J as his Honour then was. At [24], his Honour said: The probabilities would be that if the facts show that there is a pro forma document and a person of limited commercial experience has signed it without evidence being proffered by the lender that the clause has been properly explained to the person who is said to have given the charge by or on behalf of the person providing the financial benefit, that the court may very well come to the conclusion that the former person never intended to give a charge notwithstanding the words used in the document. 160In that regard, Mr Quickenden submits that the guarantee was part of a commercial transaction and that it should be presumed that the guarantors knew what they were signing but that in any event (consistent with his submissions as to the meaning of "valid claim" in the context of an application under Rule 55.11) it is not for this Court to determine the validity of the written guarantee on the present applications; rather that what the applicants must do is to prove that the claim on the written guarantee is not a valid claim to the monies paid into Court. 161I accept that there may be a basis for Tony at trial to establish that there was no intention by him to give a charge over his interest in the Calga property (as opposed, say, to the personal guarantee), though it appears that he has had some experience in the giving of guarantees and in the giving security over his property in the past. The Credit Application was a pro forma document and there is no suggestion that it was explained to Tony. While he has had experience in the running of the spring water distribution business and had experience of guaranteeing a mortgage over the property at least in relation to the C&L Cameron mortgage (although he denied any experience in granting a charge in favour of a private lender), it seems that Tony has had limited education (leaving school at a young age). 162However, I am not in a position finally to rule on the defences that might be raised to the claim based on the Credit Application, they having not been pleaded yet in the District Court proceedings and it not being apparent what evidence Nadalan Enterprises would adduce in response to such a defence. That difficulty attends the various other bases on which Mr Pluznyk contends that the Credit Application does not give rise to an interest that would preclude payment out of the moneys held in the Court. 163For example, it is contended by Mr Pluznyk that the guarantee (and hence any charge) covered only trading debts (in relation to the supply of plastic bottles) and not, for example, amounts owing on the financing of the tanker, whether those amounts be for rental or otherwise to meet the hire purchase obligations of Nadalan Enterprises). I note that Mahoney JA, in Trade Credits Limited v Burns [1979] 1 NSLR 630 at 634, said: In determining the operation of a guarantee, it is necessary to determine precisely what is the obligation the performance of which is guaranteed. That obligation may be one which is simple and definite, e.g., the payment of a sum certain on a fixed date. But it may also be one the content of which may change from time to time. There may be a guarantee of "whatever may be owing" from a course of dealing: Wood v. Priestner. Where a creditor proposes from time to time to supply the principal debtor with goods on credit, the guarantor may guarantee the indebtedness flowing ultimately from such a course of dealing: Matthews Thompson and Co. Ltd. v. Everson. The contract the performance of which is guaranteed may, by its terms, permit the variation of what is to be done to perform it, and the content of that which is guaranteed will vary accordingly: Trade Indemnity Co. Ltd. v. Workington Harbour and Dock Board. 164Nevertheless, the form of the guarantee did contain a reference to "all debts", so there is scope for it potentially to apply to debts owing on the tanker arrangement as well as the supply of bottles. That will be a question of construction in due course for the District Court to determine. 165It is further contended by Mr Pluznyk that the form of the Credit Application constituted conduct by Nadalan Enterprises that was misleading or deceptive or likely to mislead or deceive within the meaning of s 52 of the Trade Practices Act 1974. (Again I note that the District Court proceedings have not yet reached the point of a defence being filed, so that it is not possible on the material before me to ascertain precisely what may be pleaded in this regard. However, as I understand it, the contention is that the form of the Credit Application amounted to some kind of representation that the document set out no more than the terms and conditions of sale or that the guarantee related only to debts in relation to the supply of goods.) 166It is also submitted that Nadalan Enterprises has engaged in conduct that was, in all the circumstances, unconscionable, within the meaning of s 51AC of the said Act. In this regard, it is submitted that: there was material inequality in bargaining power between the parties to the contract; the applicants had a limited educational background; the physical form of the Credit Application was misleading; the applicants did not have independent legal advice; the provisions of the Credit Application and their practical effect were not accurately explained (or at all); and the applicants did not understand the provision as to security and its effect; the Credit Application was placed before Tony when he was exhausted after working a long shift at work; Nadalan Enterprises did not advise the applicants to obtain independent legal advice; and that Nadalan Enterprises was indifferent as to whether the applicants understood the meaning and effect of the agreement or had obtained independent legal advice. Insofar as reference was made by Mr Pluznyk to the power of the Court under s 87 of the Act to declare the whole of a contract void ab initio, it seems to be suggested that such relief would be sought by the applicants to any claim based on the Credit Application. 167There was limited exploration of those issues on the application before me. True it is, that there was evidence of the limited educational background of the applicants, and assertions by them as to their understanding or lack of understanding of the arrangements, as well as to the lack of independent advice at the time. By the same token, some of the matters relied upon by Mr Pluzynk could not be substantiated on the evidence before me (such as the document being signed after Tony finished a 12 hour shift at Nadalan Enterprises, when the evidence fairly clearly establishes (and it was later conceded) that Tony did not commence work for Nadalan Enterprises until 2009. 168The document in question was before me and I accept that I would therefore be in a position to draw conclusions in general as to the likelihood that it might mislead or confuse persons such as Tony/John as to what was thereby comprised. However, it is not appropriate for me to make any such finding in circumstances that this will no doubt form part of the evidence before the District Court in due course. 169I cannot be satisfied that there was before me the whole of the evidence that would ultimately be relevant to the making of factual findings on the issues that Mr Pluznyk has foreshadowed will be raised by way of defence to the claims made by Nadalan Enterprises on the agreement constituted by the Credit Application document (unconscionability, misleading and deceptive conduct and the like). Those matters should be dealt with in the District Court proceedings (once the allegations are properly pleaded and once Nadalan Enterprises has had a proper opportunity to respond thereto). 170Therefore, on Tony's application for payment out of his share of the proceeds of sale, I am not satisfied that it has been established at this stage that Nadalan Enterprises has no valid claim to an equitable charge over his share of the proceeds of sale based on the Credit Application. In so saying, I am not commenting on the strength or otherwise of Nadalan Enterprises' claim. Whether Nadalan Enterprises can ultimately establish such a claim (having regard to the defences foreshadowed by Tony) is a matter for determination in the District Court proceedings and it is not appropriate for me to make any further comment thereon. (b) Oral guarantee 171The second basis on which Nadalan Enterprises claims an equitable charge over the whole of the funds in Court is on the basis of an oral guarantee. 172Reference was made by Mr Quickenden to the analysis in J Phillips and J O'Donovan, The Modern Contract of Guarantee (from [3.300]) for the proposition that an oral guarantee is enforceable in NSW (the authors there referring, inter alia, to Di Bello v De Costi Seafoods (Holdings) Pty Ltd [2005] NSWCA 267; and Jinhong Design & Construction Pty Ltd v Yi Nuo Xu [2012] NSWSC 523). 173In Huntlee Pty Ltd v Sweetwater Action Group Inc [2011] NSWCA 378, the Court of Appeal noted that a guarantee (being essentially a binding promise by one person to (citing the definition in Donovan at [1.300] be answerable for the debt or obligation of another should the latter default) is not ordinarily self-executing but must be enforced by the creditor or obligee against the guarantor if the obligor defaults. Relevantly for this purpose, the authorities note that, unless the guarantor provides security, the guarantee is enforceable only as an unsecured promise. (In relation to the later conversations in which it is said, in general terms, that the Gazzana brothers confirmed their agreement to honour the company's debts, Mr Pluznyk submitted that there was no consideration for any promises orally given after the written agreement in 2008 (in circumstances where the first supplies of bottles were in 2011).) 174The existence of a valid claim by Nadalan Enterprises to the funds based on the giving of an oral guarantee depends on whether that guarantee amounted to more than an unsecured promise. In essence that depends on the evidence as to what was said in the conversation of 4 September 2008 on which Nadalan Enterprises relies (and whether the reference to security being provided over the property or to there being plenty of equity in the Calga property, to which Alan has deposed, was said in the context of a promise to guarantee the debts and over what debts any such promise was to operate). 175It was submitted by Mr Quickenden that an oral guarantee would give rise to an equitable charge if put in the form in which Alan gave evidence it was, namely that he was told that they had equity in the Calga property and that that would be a means for him to recover any debt is what he said in his affidavit. In this regard, the evidence by Alan of a promise to provide the Calga property as security for the guarantee (and, indeed, the evidence as to the promise to guarantee the debts) was based on his generalised recollection that one or other of the two brothers, in about August/September 2008, agreed when he said to them that he would need "a personal guarantee" for all debts and that the debts would need to be secured on the property at Peats Ridge. Subsequent statements to the effect that "we pay our debts" or "we will honour our debts" (whether or not, as Mr Pluznyk contends, they were unaccompanied by consideration) do not in my view suffice to amount to a guarantee let alone a promise to secure any such guarantee. 176There are at least two areas of uncertainty in relation to this. First, that conversation, on Alan's version, related to a request for the purchase of bottles. Therefore, any promised guarantee arising out of that conversation would arguably be limited to a guarantee of debts in relation to the supply of bottles. Secondly, there is doubt as to whether a statement to the effect 'fine, we have plenty of equity in the property' is to be understood as an agreement to provide security for the performance of obligations to guarantee the payment of debts by the company. 177Even more uncertain is what John himself did or did not say in relation to the guarantee (even assuming that the Redfords are correct and that he was at the meeting in September 2008). Alan's evidence is hardly conclusive in this regard (since he cannot remember who said what) and therefore there must be a real doubt as to the ability of Nadalan Enterprises to establish a claim to an equitable charge on the basis of this one conversation. 178However, the relevant question for present purposes is whether I can be satisfied to the requisite degree of proof, that there is no valid claim of this kind at all. I am unable so to conclude. It seems to me that there is a prospect, however slim that might presently seem to be, that Nadalan Enterprises will ultimately be able to persuade the Court (once all the evidence has been considered) that the parties' dealings including the giving by John of an oral guarantee together with a promise to secure the performance of the guarantee over his share of the Calga property. (c) Authority 179The third basis on which Nadalan Enterprises asserts its claim to a beneficial interest in the funds is that there has been an appropriation of a specific fund (the proceeds of sale for payment of the debts claimed to be owing to Nadalan Enterprises). 180An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it (Rodick v Gandell (1852) 1 De GM & G 763 at 777-8; Jackson v Richards). In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, Buckley LJ said (at 595): If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor. 181In Jackson at [19], White J noted that for such a charge to be created by an agreement to pay a debt out of a fund to come to the debtor the parties must have agreed that the debtor would keep the fund separate from his other assets (citing Moseley v Cressey's Co (1865) LR 1 Eq 405 at 490). In the present case, there is no doubt that there is a separate fund (that being the fund held in Court). 182The question whether the moneys in Court have been appropriated for payment of the debts (whatever they may be proved to be) of Nature Springs turns on the construction of the Authority document. 183The first point to note is that it does not purport to do more than direct the payment of a specified sum out of the proceeds of sale. Therefore, to the extent that the proceeds of sale form a specified fund (which they clearly did) out of which payment of a debt is appropriated, it is only the sum of $111,600.26 of that fund which would appear to be so charged. 184Second, there is an issue as to the effect of the notation contained at the foot of that document. On its face it appears to place a condition on the release of funds in accordance with the Authority (and the condition can only be construed as applying to the release of funds to Nadalan Enterprises). Assuming that there is such a condition (and on its face the notation seems to impose one), the question then arises as to whether a conditional appropriation, or an appropriation of a specific fund to the payment of a debt on which there is imposed a condition, can give rise to an equitable lien. (Further, if it does, there is a question as to whether this would be a lien over half of each brother's share of the proceeds or a lien over the whole of the proceeds but enforceable only to the amount stipulated.) 185It was submitted by Mr Quickenden (without reference to authorities) that the Authority would operate as an equitable charge or lien over the fund, even if the Authority properly construed does operate conditionally. Mr Pluznyk (also without reference to any authority on this particular point) submitted that the only time that an intention to charge the fund can be discerned is that time at which there is a 'release' of the charge and the return of the tanker to the Gazzana brothers). 186In relation to this issue, I note that in Jackson, White J drew a distinction between the position where there was an appropriation of a particular fund for payment of a debt (giving rise to an equitable lien over the fund) and an agreement as to the event upon which money was to be paid (which does not give rise to such a lien). The effect of the direction given in the Authority, when read with the notation, seems to me to bring the present case closer to that where there is an agreement as to the time at which or event upon which moneys are to be paid (though I accept that there is nothing on the face of the Authority that indicates that this was reached by way of agreement with Nadalan Enterprises). I do not consider there to be an unconditional appropriation of the fund for payment of the moneys in circumstances where there is a condition to be satisfied before payment out of the fund of those moneys (and the need for certainty as to the identification of the fund and its appropriation to the debt seem to me to point against the conclusion that a conditional appropriation can create a charge over the fund). 187In any event, even if a conditional appropriation were sufficient to create an equitable lien, here the very condition imposed by the Authority is disavowed by Nadalan Enterprises and therefore any appropriation of the fund must logically be rendered unworkable. Given the position of Nadalan Enterprises that there is no charge over the tanker that would be capable of release, and given that the Authority in its terms appears to provide that there was to be no payment out of the funds without such a release, the arrangement there contemplated cannot be brought to fruition. (Another way of testing this issue is to point to the incongruity of Nadalan Enterprises refusing to accept that the condition noted on the Authority can be fulfilled but at the same time maintaining that the funds are charged thereby - which, logically, would mean that the funds would potentially remain the subject of a perpetual charge.) 188Therefore, on the material before me, I am not satisfied that the Authority operates as an equitable lien over the funds now in Court (or that, if it does by means of the conditional appropriation of the funds, it is open to Nadalan Enterprises to assert the benefit of the equitable lien without accepting the condition to which it is made subject.) Conclusion as to (i) 189For the reasons set out above, I am of the view that, in light of the signed Credit Application, Tony is not in a position to establish at this stage that there is no valid claim by Nadalan Enterprises to a proprietary interest in his share of the proceeds of sale of the Calga property. While I find that John is not personally bound as a guarantor by the signing of the Credit Application, I am nevertheless left in some doubt as to whether, once all the evidence is before the District Court, Nadalan Enterprises might be able to establish a claim to an equitable charge over John's share of the fund based on an oral guarantee supported by an oral promise to secure the performance of that guarantee over the Calga property. While I have real doubts as to whether, on the evidence before me, Nadalan Enterprises would satisfy the onus of proof that it will in due course bear on that issue, for present purposes I am not satisfied that there is no possibility that a valid claim will be established of the kind asserted by it in relation to the alleged oral guarantee. (Had the matter turned solely on the Authority, I would have held that there was no valid claim to a proprietary interest in the funds based thereon.) (ii) Applications by Nadalan Enterprises 190In view of the decision I have reached as to the Gazzana brothers' applications, it is not strictly necessary to consider the applications made by Nadalan Enterprises for the moneys to be retained in Court and to restrain the applicants dealing with those moneys. However, for completeness I will briefly indicate what my findings would have been had the issue arisen for determination. 191Although the Amended Notice of Motion specifically invokes only Rule 25.14 of the Uniform Civil Procedure Rules, in the course of submissions the applications by Nadalan Enterprises to restrain the payment out of the moneys to the Gazzana brothers were identified as being based on Rules 25.3 and 25.15 as well as 25.14(b). Those Rules deal, respectively, with applications to preserve a fund in respect of which a proprietary interest is claimed and applications for freezing orders. 192There is a distinction between the two circumstances, as noted in A v C (No 1) [1981] 1 QB 956, by Robert Goff J, as his Lordship then was, and as recognised by Lloyd J in PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 and by Brereton J in Badman v Drake [2008] NSWSC 968. 193The purpose of an injunction of the former kind is to preserve a specific fund, which is the subject matter of the proceedings, not to prevent the dissipation of assets out of which a judgment debt might ultimately be met. As Brereton J noted in Badman, the basis of the distinction between the two types of case is that in the first the concern is that, absent a preservation order, the very subject matter of the proceedings might be dissipated before the hearing and equity would then have been invoked in vain (or, as was said in PCW, quoting Templeman LJ in an earlier case, "it is the concern of any court of equity to see that the stable door is locked before the horse has gone"). Whereas in the latter type of case (where the claim is not to a proprietary interest in a specific fund) the concern is as to abuse of the Court's process. (For the distinction between a claim for a Mareva injunction and an injunction in aid of a proprietary claim, Brereton J in Badman also referred to Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433, at [28] and McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, at [5]).) 194What must be established for such relief must, therefore, take into account the purpose for which the relief is sought. In this case of preservation of an asset over which a proprietary interest is claimed, one is looking to the identification of the specific fund and whether there is a serious question be tried as to the interest claimed in that fund (as well as to the adequacy of damages and the balance of convenience). In the case of an application for a freezing order, one looks to whether there is a reasonable apprehension of dissipation or removal of assets or use of the dispositive power so as to frustrate or abuse the process of the Court. 195Here, as Mr Pluznyk emphasised, Nadalan Enterprises has led no evidence that the applicants are intending to dispose of assets so as to frustrate the ability of the defendant later to enforce any judgment. Rather, Mr Quickenden has placed reliance on the lack of other assets from which to enforce any later judgment. Alan, in his affidavit has expressed his concern that if money is released to the applicants then any judgment obtained in the District Court will not be satisfied. The significance of this is that, to the extent that the relief sought is in the nature of a freezing order, Nadalan Enterprises has not established the foundation for such an order. (The position is different in relation to the injunction sought in aid of a claimed proprietary right, hence the need to differentiate clearly between the two applications.) 196In Cardile v LED Builders Pty Limited [1999] 1 HCA 18, the plurality said at [51] that the function of a Mareva injunction is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency". 197In TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196, Barrett J (as his Honour then was) said at [26]: A general law freezing order is warranted only if, in the words of Bryson J in Acquasun Pty Ltd v Coverdale Ram Pty Ltd [20001 NSWSC 1146, there has been "conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way". 198Similar statements are to be found in made in Perpetual Nominees Limited v Taouk & Anor [2009] NSWSC 605 per Hoeben J, as his Honour then was, citing Frigo v Culhaci (Unreported, NSWCA, 17 July 1998) and Finn v Carelli [2007] NSWSC 261 per Brereton J at [5]). (The Court's practice note in relation to such applications recognises that the grant of a freezing order is an extraordinary interim remedy - Supreme Court Practice Note General 14, at 5-6.) 199Therefore, the fact that (as Mr Quickenden submitted) there is no evidence that either applicant can meet any judgment other than from the funds paid into Court (leaving aside Tony's assertion in the witness box that there is plant and machinery worth some $500,000 available to the applicants), is not sufficient to warrant a freezing order. A lack of assets to meet a judgment is not the basis for the grant of a freezing order, as noted above. 200During the course of cross-examination of Tony, Mr Quickenden formally sought an undertaking from the applicants not to dispose of, deal with, or otherwise encumber the property to which Tony had referred in the witness box (namely the plant and equipment which he said had been acquired by he and his brother personally and which he asserted was worth half a million dollars) until after the determination of Nadalan Enterprises' claim in the District Court proceedings. No such undertaking was forthcoming. 201However, the refusal to provide an undertaking of that kind is also not sufficient to ground an application for a freezing order. In that regard, Mr Pluznyk points to what was said in Lake v Crawford (No 2) [2010] NSWSC 419 by Harrison J (reiterating that the jurisdiction to grant freezing orders is not intended to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution but, rather, is founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or judgment debtor from embarking on a course of conduct that would have the effect of defeating the Court's jurisdiction and noting that the fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process). What his Honour there emphasised was that in the case before him there was no dealing that had the characteristics of an attempt to avoid the reach of these proceedings such as the dissipation or disposal of assets or anything similar. At [24], his Honour said: Moreover, nothing arguably or apparently untoward, suspicious or surreptitious attends anything that the first defendant has done. To adopt the plaintiff's contention that the unanswered request for assurances and undertakings gives rise to an adverse inference against the defendants upon the basis of which this Court should act would be blatantly and inappropriately to reverse the onus of proof. The plaintiff's evidence has not reached the stage that requires the defendants to do anything more in an evidentiary sense than to remain silent. That is what they have done. (my emphasis) 202I am not satisfied that Nadalan Enterprises has established a basis for any freezing order to be made. Its application in that regard (as Mr Pluznyk noted) rests on no more that the impecuniosity of the Gazzana brothers and their refusal to provide an undertaking in relation to any encumbrance or dealing with equipment they claim to own. There is no evidence to show that there is a reasonable apprehension that any moneys released will be dissipated in a manner designed to frustrate the processes of the Court. 203The other basis on which the preservation orders were sought was in aid of the claim to a proprietary interest in the said moneys as a specific fund of moneys. Those moneys are the subject of a claimed equitable charge or lien by Nadalan Enterprises. That charge extends over the whole of the respective shares of the surplus (to the extent of the debts claimed to be secured by it). The lien, however, would arguably extend over only that part of the fund appropriated to meet the payment out (which is a lesser sum than the amount held in Court). 204Rule 25 (3) provides that in proceedings concerning the right of any party to a fund the Court may order that the fund be paid into Court or otherwise secured. Mr Quickenden emphasised that all that is sought by Nadalan Enterprises is for the moneys to remain in Court until the outcome of the District Court proceedings. He submitted that it was not in the interests of justice that Nadalan Enterprises be required to go to the expense of presenting without having those funds secured in court pending that outcome. With respect, that seems to me to beg the question somewhat. The risk that a judgment (obtained after the expense of proving one's case in a contested hearing) may later not be able to be satisfied out of the unsuccessful party's assets cannot be uncommon in litigation. The real question here is as to whether there is a serious question to be tried that Nadalan Enterprises has a proprietary interest in the funds held in Court and then whether the other prerequisites for injunctive relief in the form of a preservation order have been met. 205In Tony's case, I have concluded that there is a serious question to be tried as to the claimed equitable charge (when reaching the conclusion that I could not be satisfied that there was no valid claim to an equitable charge based on the Credit Application). In the case of John, there remains in my mind doubt as to whether (once all the evidence of the transactions between the parties is before the District Court) it will be found that John not only gave an oral guarantee for the debts of Nature Springs but also agreed to charge his share of the Calga property as security for those debts (or for his performance under the oral guarantee) so as to give rise to an equitable charge on the second of the bases contended for on this application. Though on the evidence before me this seems a weak claim, it cannot be said that there is not a question to be tried on that issue (and hence it cannot be said at this stage that there is no valid claim by Nadalan Enterprises to an equitable charge on this basis). 206As to the balance of convenience, other than the prejudice that Nadalan Enterprises might not be able later to enforce a judgment if the funds representing John's share were to be paid out of Court, there was little evidence of prejudice on either side (though the initial application was pressed by Mr Pluznyk on the basis of hardship, as I recall). (Obviously, if there is a concern as to the financial position of the Gazzana brothers then that weighs in favour of the grant of an injunction in aid of the claimed equitable charge, since otherwise the horse may have bolted, to adopt Templeman LJ's words.) 207In considering the balance of convenience in this context, I note the concern of the Court (on payment-out applications) to ensure that moneys are paid to the correct claimant. Hence the need for strict proof of matters such as identification of and notification to other potential claimants. Where the substantive disputes between the parties will fall to be determined in the District Court proceedings (which Nadalan Enterprises has undertaken expeditiously to prosecute), I consider that the balance lies in favour of the preservation of the funds in Court until there has been a final determination of the claims made by Nadalan Enterprises (and the Gazzana brothers' defences thereto). 208For those reasons, had I found otherwise in relation to the first issue, I would have granted the relief sought for the preservation of the funds in Court (as relief in aid of the proprietary interests claimed by Nadalan Enterprises) on the usual undertaking of Nadalan Enterprises as to damages, until the determination of the District Court proceedings or further order. Conclusion 209As summarised earlier, in relation to the application made by John for payment out of his half share of the proceeds of sale, while I am satisfied that Nadalan Enterprises has no valid claim to an equitable charge over John's share of those proceeds arising from the Credit Application (because I am not satisfied that Tony signed credit application on behalf of John or with the authority to commit John personally thereto), I cannot exclude the possibility that Nadalan Enterprises may establish its claim to such an interest based on the alleged oral guarantee in September 2008 for payment of debts that is said to have included an agreement to provide security over property to secure that guarantee. (As to the 2012 Authority signed by John, I consider that this was nor more than a conditional appropriation of the settlement proceeds as a fund out of which the specified sum could be made if a release of the charge over the tanker were to be provided. I am not satisfied that it gives rise to an equitable lien over John's share of proceeds, particularly where the condition to which payment of the debts out of that fund is made subject was not accepted by Nadalan Enterprises.) 210As to Tony's application, in light of the signed Credit Application I cannot be satisfied that Nadalan Enterprises has no valid claim to a beneficial interest in his share of the proceeds (subject to whatever defences Tony may be able to raise in due course to that claim, including defences as to the quantum of the debts claimed to be owing to Nadalan Enterprises). I am not in a position to make a final determination in relation to that claim and, where there are already proceedings on foot in the District Court to determine those issues, it is not appropriate for me to make any further comment thereon. 211The applications by John and Tony should therefore dismissed (though without prejudice to their ability to make further such applications once the District Court proceedings have been determined). 212As to the applications for preservation for the fund presently held in Court, had I found otherwise on the applications for payment out of the funds to John and/or Tony, I would not have been satisfied on the evidence that there should be a freezing order in respect of those funds. I would have considered that there was a basis to grant an injunction in aid of the claimed proprietary right to those funds at least in relation to the claim against Tony's share of the proceeds by reference to the Credit Application and, on balance, to the claim against John's share of the funds on the basis of the alleged oral guarantee (though that claim is relatively weak on the evidence presently before me). In that regard, I am conscious of the exhortation for strict proof of the matters required for payment out, lest there be an incorrect payment made of the funds in Court. Orders 213For the reasons set out above, I order as follows: (1)I dismiss the applications by each of John Gazzana and Tony Gazzana for payment out to each of a half share of the surplus proceeds of sale of their Calga property that are presently held in Court. (2)I dismiss the application for injunctive relief by Nadalan Enterprises in respect of the preservation of the funds in Court pending the determination of the District Court proceedings between the respective parties. 214I note that the dismissal of the applications by the Gazzana brothers is without prejudice to their ability (once the District Court proceedings have been determined) to seek orders for the payment out of any funds to which they are found in those proceedings to be entitled or to which Nadalan Enterprises does not establish a proprietary interest in those proceedings. 215I will hear any submissions as to costs.

In the matter of C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises Pty Ltd; AF Gazzana v Nadalan Enterprises Pty Ltd

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