Plaintiff v Defendant

1 This proceeding was commenced by writ on 25 February 2010 by Melbourne Property Group Pty Ltd ("MPG") against 32 defendants. The claims made against those defendants are in respect of moneys lent by MPG to them, being companies apparently established to develop particular properties, and individuals who were directors and guarantors of the debts of those companies. The claims arise from several loan agreements culminating in a loan agreement dated 31 July 2009 ("Consolidated Loan Agreement").

2 The proceeding has given rise to a great many interlocutory steps. There were two counterclaims. But the application with which I am concerned is confined to MPG seeking orders for the payment out of moneys paid into Court pursuant to s 77(3) of the Transfer of Land Act 1958 (TLA) and s 69 of the Trustee Act 1958.

3 The application is made by Summons filed 29 April 2013 and seeks the payment out of funds in Court to MPG in reliance upon a charging clause in the Consolidated Loan Agreement. The summons also purports to seek summary judgment against three corporate defendants pursuant to Rule 22.02 of the Supreme Court (General Civil Procedure) Rules 2005. However, in light of the fact that two of the companies concerned have been deregistered, the summary judgment application was not pursued.

4 The Consolidated Loan Agreement contains (and the earlier Loan agreements that preceded it each contain) a charging clause, under which MPG claims an equitable interest in many properties, but relevantly to this application, three particular properties. The proprietors of these three properties defaulted in their obligations under registered mortgages, those mortgagees sold the properties and paid the balance of the proceeds of sale, after payment of the costs of sale and the discharge of the mortgage debts, into Court under s 77 (3)(d) of the TLA.

5 The application is made in respect to three sums of money which have been paid into court totalling $308,095 ("the funds in court"):

(a) In respect of Funds in Court account number 73473 - the sum of $87,139.05 paid into court on 7 April 2010, being the balance of proceeds from the sale of the property situate and known as 47 Rayner Street, Altona, Victoria (the land in Certificate of Title Volume 6210 Folio 858), formerly owned by 47 Rayner Street Pty Ltd (the 13th defendant) ("Rayner Street");

(b) In respect of Funds in Court account number 75222 -the sum of $212,505.91 paid into court on 10 November 2011, being the balance of proceeds from the sale of the properties situate at and known as units 1 & 3, 16 Bradley Street, Newport, Victoria (the land in Certificates of Title Volume 11179 Folio 606 and Volume 11179 Folio 608, respectively), formerly owned by 16 Bradley Street Pty Ltd (the 8th defendant) ("Bradley Street");

(c) In respect of Funds in Court account number 74430 - the sum of $8,450.04 paid into court on 21 January 2011, being the balance of proceeds from the sale of the property situate at and known as Unit 2, 28 Thorpe Street, Newport, Victoria, (the land in Certificate of Title Volume 1113 Folio 289) formerly owned by 28 Thorpe Street Pty Ltd (the 10th defendant) ("Thorpe Street").

6 The application is supported by the affidavits of-

7 The affidavit of Christine Cheryl Lim deposes to service of the summons and the supporting affidavit of Mr Brandi on all the defendants, the plaintiffs by the two counterclaims and the former caveators of the three properties. There was no appearance by any defendant in answer to the Summons.

8 The further amended Statement of Claim filed 21 June 2012 pleads the several loan agreements leading up to the Consolidated Loan Agreement, as follows.

9 First Loan: By a loan agreement dated 11 July 2007 between MPG, of the one part, and SC Australia Pty Ltd (SC Australia), Cobbanah Pty Ltd (Cobbanah) and Socrates Michanicos (Michanicos), of the other part, MPG lent to SC Australia, Cobbanah and Michanicos the sum of $200,000.00 on terms that included that the loan would be repaid by 11 January 2008, or such other date agreed upon in writing by the parties. The First Loan included a charging clause which, in substance, provided that each of the borrowers charged any land or assets which they or their related parties may from time to time own with repayment of the loan, interest and other monies from time to time owing.

10 The First Loan was supported by a guarantee dated 11 July 2007 pursuant to which each of SC Australia, Cobbanah and Michanicos jointly and severally guaranteed to MPG the due performance and observance by each of other of them of the obligations pursuant to that First Loan.

11 The Second Loan: By a loan agreement dated 10 December 2007 between MPG, of the one part, and SC Australia, Cobbanah and Michanicos, of the other part, MPG agreed to roll over the monies then owing under the First Loan, together with interest, and to advance a further sum. The terms of this loan agreement were that the loan would be repaid by 1 July 2008 and that the borrowers again charged any land or assets they or their related parties owned to secure repayment of the loan.

12 The Second Loan was supported by a guarantee dated 10 December 2007 by each of the borrowers in terms similar to the first guarantee.

13 Third Loan: By a loan agreement made 1 February 2008 between MPG, of the one part, and SC Australia and a number of specific property companies (the Quantum 8 Group Borrowers), MPG agreed to advance to the Quantum 8 Group Borrowers the sum of $1,000,000.00 by rolling over monies owing by SC Australia, Cobbanah and Michanicos under the First and Second Loans and advancing further sums to third parties related to the Quantum 8 Group Borrowers (Third Loan). This loan was repayable on or before 1 February 2009 and was also secured by a charge.

14 The Third Loan was supported by a guarantee dated 1 February 2008 under which each of the Quantum 8 Group Borrowers guaranteed to MPG the performance and observance by them of the obligations under the Third Loan.

15 Fourth Loan: By a loan agreement made on 1 March 2008 between MPG and the Quantum 8 Group Borrowers MPG agreed to advance the sum of $500,000.00 by certain payments. This loan was due to be repaid on or before 1 March 2009 and was also secured by a charge (Fourth Loan).

16 The Fourth Loan was supported by a guarantee dated 1 March 2008 under which each of the Quantum 8 Group Borrowers guaranteed to MPG the due performance of the Fourth Loan.

17 Consolidated Loan Agreement: On 31 July 2009 each of the First to Fourth Loan Agreements, together with further advances made under those agreements, were consolidated into one loan for the sum of $2,010,549.35. This Consolidated Loan Agreement was executed by each of Rayner Street, Bradley Street and Thorpe Street (collectively the companies). None of these companies had been borrowers under the earlier Loan Agreements.

18 Rayner Street became the registered proprietor of the land at 47 Rayner Street, Altona on 5 August 2008.[1] On 22 October 2009 a mortgage was registered in favour of Faubourg Sainte-Honore Pty Ltd in dealing no. AG829246V. On 25 February 2010, MPG lodged a caveat over the land based on the mortgage or charge arising under the Consolidated Loan Agreement.[2] On 15 March 2010 there was a transfer of the land by Faubourg Sainte-Honore Pty Ltd, as mortgagee, to Trevor Anthony Backman, Blaz Mrden, AABM Constructions Pty Ltd and New Beginning Developments Pty Ltd.

19 By letter dated 6 April 2010 sent by Morris Margolis to MPG's former solicitors, Kliger Partners, Mr Margolis advised that on behalf of Faubourg Sainte-Honore Pty Ltd that he had paid $87,139.05 to the Senior Master's Office.[3] The Senior Master's Office (Funds in Court) issued a certificate of receipt dated 7 April 2010 recording receipt of the amounts paid in to Court in account no. 73473 invested in the name of Rayner Street.

20 Bradley Street became the registered proprietor of the land at 16 Bradley Street, Newport on 19 November 2007.[4] The land was subdivided on 31 December 2009. The land comprised four units which were mortgaged to Westpac Banking Corporation (Westpac). On 25 February 2010 MPG lodged caveats over units 1 and 3 based on the mortgage or charge arising under the Consolidated Loan Agreement. Westpac as mortgagee sold units 1 and 3. Unit 1 was transferred on 4 October 2011 to Simon David Gallagher and Mandy Leigh Margaret Gallagher. Unit 3 was transferred on 6 October 2011 by Westpac to Annie Wai Yin Chan.

21 The sale of units 1 and 3 at 16 Bradley Street gave rise to a surplus after paying Westpac's debts of $216,276.81.[5]

22 The amount in fact paid into Court by Gadens on behalf of Westpac was $212,505.91. The discrepancy is not explained.

23 Thorpe Street became the registered proprietor of the land at 28 Thorpe Street, Newport on 13 March 2007.[6] The land was subdivided on 13 January 2009. Unit 2 of the land was mortgaged to the Bank of Queensland Ltd. On 25 February 2010 MPG lodged a caveat over units 2 based on the mortgage or charge arising under the Consolidated Loan Agreement. Unit 2 at 28 Thorpe Street was sold and transferred by the Bank of Queensland Ltd to Gina Oi-Lem Lee on 20 July 2010.[7] Surplus proceeds from the sale of the property in the sum of $8,450.04 were paid into Court in account no. 7522 in the name of 28 Thorpe Street.

24 MPG's claim to the moneys in court arises pursuant to the Consolidated Loan Agreement. It is alleged,[8] and proved,[9] that the plaintiff and each of 47 Rayner Street, 16 Bradley Street and 28 Thorpe Street executed the Consolidated Loan Agreement. The loans the subject of that Agreement totalled $2,010,549.35.

25 The Consolidated Loan Agreement is between the Plaintiff as the lender and a number of parties which are both borrowers and guarantors. Relevant to this application, each of Rayner Street, Bradley Street and Thorpe Street are named as borrowers under the Consolidated Loan Agreement and are also guarantors (clause 4.2).

26 It was submitted by Counsel for MPG that the proper characterisation of the transaction effected by the Consolidated Loan Agreement is that extensions of time had been granted for repayment of the loans effected pursuant to the first four loan agreements. Having regard to the fact that no new funds were advanced to the companies under the Consolidated Loan Agreement, the question is whether the Consolidated Loan Agreement binds the companies?

27 The relevant consideration which makes the Consolidated Loan Agreement binding on the companies is the extension of time, or forbearance to sue, for repayment of the advances made pursuant to the first four loan agreements. That consideration moved from the promisee (the lender, MPG). No consideration needed to move to the promisor (the companies): Pico Holdings Inc v Wave Vistas Pty Ltd.[10]

28 The loans the subject of the Consolidated Loan Agreement are comprised of advances by MPG, or by related entities at its direction, to the parties to the agreements, and monies due to entities related to MPG in respect of accounting fees. Between MPG and SC Australia, and in other proceedings there are disputes about the efficacy of the debts due to other entities being rolled over as part of the loan moneys due under the Consolidated Loan Agreement. For the purposes of this application, however, MPG sought to rely solely on the advance of funds where there had been an actual payment of monies. These advances total $1,198,135.87 and comprise:

(a) $200,000 paid under the first loan agreement. The payment was made by PDJ Crew Pty Ltd on behalf of MPG to SC Australia Pty Ltd;[11]

(b) $566,434.92 paid under the third loan agreement. The payment was made by Mr Brandi's wife on behalf of MPG and was paid to Access Wealth International Pty Ltd by direction of the borrowers;[12]

(c) $134,500 paid under the fourth loan agreement. The payment was made out of the Brandi Account (as that term is defined in paragraph 25(a) of Mr Brandi's affidavit) on behalf of MPG to Romawi Street Pty Ltd;[13]

(d) $165,500 paid under the fourth loan agreement. The payment was made out of the Brandi Account (as that term is defined in paragraph 25(a) of Mr Brandi's affidavit) on behalf of MPG to Access Wealth International Pty Ltd;[14]

(e) $131,700.95 paid under the fourth loan agreement. The payment was made out of the Brandi Account (as that term is defined in paragraph 25(a) of Mr Brandi's affidavit) on behalf of MPG to Access Wealth International Pty Ltd.[15]

29 There is nothing novel in a lender making payments under a loan agreement by direction of the borrower to a third party: Sheahan v Carrier Air Conditioning Pty Ltd.[16]

30 Given that the application by MPG was unopposed, Counsel for MPG properly drew my attention to some possible difficulties in the prosecution of the claims for payment out of the monies in Court against the companies. The first is proof of the execution of the Consolidated Loan Agreement by Rayner Street.

31 Mr Brandi deposes[17] to the fact that the Consolidated Loan Agreement was signed on behalf of Rayner Street by Ms Christine Charalambous.[18] The execution clause in the Loan Agreement above Ms Charalambous' name states that she signs as an "Authorised Officer/Sole Director/Secretary/Director".

32 The ASIC search of Rayner Street shows that Ms Charalambous was a director of the company from 11 January 2008 to 9 February 2009 and from 7 February 2011 to 11 July 2011. Ms Charalambous was also the company Secretary in the period 11 January 2008 to 9 February 2009. It appears from that search that one Christine Michanicos was also a director of the company and her date and place of birth, and address, are the same as Christine Charalambous. It is a reasonable inference that they are one and the same person.

33 Thus at the time of the execution of the Consolidated Loan Agreement Ms Charalambous was neither a director nor secretary of Rayner Street. Mr Michanicos was, however, the sole director of Rayner Street at the time of execution of the Consolidated Loan Agreement. He signed that Agreement on behalf of a number of other borrowers, but not Rayner Street.

34 Rayner Street had previously appeared and was represented by Messrs Goldsmiths, Barristers & Solicitors. They filed a defence and counterclaim to the statement of claim indorsed on the Writ on 12 April 2010. In that defence execution of the Consolidated Loan Agreement was admitted, but it was claimed to be void ab initio on various grounds, including duress and unconscionability. [19]

35 Nevertheless, MPG submitted that there were reasons to conclude that Ms Charalambous was at the time of execution of the Agreement a de facto director of Rayner Street.

36 Section 9 of the Corporations Act 2001 defines a "director" as including:

Unless the contrary intention appears, a person who is not validly appointed as a director if:

(i) They acted in the position of a director.

37 Persons who assume a position of director though not validly appointed (de facto director) may also attract the duties and liabilities attached to that office.[20] MPG submitted that a de facto director includes a person who purports to resign as director but who continues to act as a director: Williams v Bearing Traders Pty Ltd[21] and a person who is removed as a director but who continues to act as a director: Resource Equities Ltd v Garrett.[22]

38 The facts, as limited as they are, are capable of giving rise to the inference that Ms Charalambous was continuing to act in the position of a director when she purported to sign on behalf of Rayner Street. The company was a single purpose property holding company in a group of companies involved in the development of property. The sole director at the time of the signing of the Agreement was also a signatory, albeit on behalf of other companies.

39 The sole director at the time (Mr Michanicos), who signed on behalf of other borrowers, may also be taken, in the circumstances of her prior and subsequent directorship, and the nature of the company as a single purpose property holding company, to have held her out as an authorised agent for the purpose of executing the Consolidated Loan Agreement so as to attract the assumptions in ss 128 and 129 of the Corporations Act.

40 Section 53 (1) (a) of the Property Law Act 1958 provides, so far as relevant, that "no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law".

41 In my view, Ms Charalambous falls within the extended definition of director in section 9 of the Corporations Act, and therefore that the requirements of section 53(1)(a) of the Property Law Act have been met in relation to execution by 47 Rayner Street of the Consolidated Loan Agreement. Further, and in any event, there is some evidence of Ms Charalambous being held out as having authority as agent of the company so as to enable MPG to make the assumptions in s 129(3) of the Corporations Act. Thus, having regard to the original pleading, her position as a de facto director and the operation of the assumption, I am satisfied that Rayner Street duly executed the Consolidated Loan Agreement.

42 The second matter properly raised by Counsel for MPG relates to ASIC's letter dated 8 May 2013 from the Australian Securities and Investments Commission (ASIC) to Altus Lawyers.[23] ASIC had been served with the summons and supporting affidavit of Mr Brandi. It responded that the proceedings against Rayner Street and Thorpe Street abated as a result of their deregistration, and that their property vested in either ASIC or the Commonwealth of Australia, but subject to liabilities including security interests or other claims on the property. In relation to the orders sought for payment out of the moneys in Court, ASIC stated that it neither consents to nor opposes the application, that it did not propose to appear at the hearing and that it would merely abide the decision of the Court.

43 Section 601AD(2) is relevant to the present application and provides that:

On deregistration, all the company's property (other than any property held by the company on trust) vests in ASIC. If company property is vested in a liquidator (other than any company property vested in a liquidator on trust) immediately before deregistration, that property vests in ASIC. This subsection extends to property situated outside this jurisdiction.

44 Section 601AD(3) provides that:

Under subsection (1A) or (2), the Commonwealth or ASIC takes only the same property rights that the company itself held. If the company held particular property subject to a security or other interest or claim, the Commonwealth or ASIC takes the property subject to that interest or claim.

45 In the present case, if the relevant property was subject to the MPG's charge, by operation of section 601AD(3) of the Corporations Act, the Commonwealth or ASIC takes subject to that charge.

46 Clause 7 of the Consolidated Loan Agreement is as follows:

Charge

To better secure the Loan the Borrowers and Guarantors hereby charge any land or assets which the Borrowers and Guarantors or their related parties may from time to time own and if required to do so by the Lender shall at the cost of the Borrowers give to the Lender, Caveats and Registered Mortgages in the favour of the Lender over the said land or over any other land owned by the Borrowers and any associated costs to secure the Loan Amount. The Borrowers and Guarantors agree to assist the Lender in obtaining any First Mortgagee's or other encumbrance consent to enable any mortgage to be registered on Title including all the Lender's legal costs (on a solicitor - own client indemnity basis) in relation to and incidental to the lodging and removal or withdrawal of any charge by the Lender on such land. Collateral security also applies to any and all additional security.

Further, the Borrower and Guarantors acknowledge the Lender may place an ASIC Debenture Charge by way of an executed Form 312 over the Borrowers. The Borrowers and Guarantors acknowledge that the Maximum Prospective Liability under the Debenture Charge shall equate to the Loan Amount multiplied by 1.5% to secure the Loan Amount and any associated costs.

Upon the Loan Amount being repaid in full, the Lender shall provide a Release of Charge over the Borrowers to register with the Australian Securities and Investments Commissions (ASIC).

The Transfer of Land Act

47 Section 77 of the TLA provides the source of the power of sale of a mortgagee of land under the TLA and regulates the disposition of the purchase money received by the mortgagee from the sale.

48 Section 77(3) provides, so far as presently relevant, that the purchase money shall be applied -

(a) First, in payment of all costs charges and expenses properly incurred incidental to the sale and consequent on such default;

(b) Secondly, in payment of the moneys which are due or owing on the mortgage or charge;

(c) thirdly, in payment of moneys owing under or in respect of subsequent mortgages and charges in the order of their respective priorities;

(d) fourthly, in payment of the residue (if any) to the mortgagor or into the Supreme Court under the provisions so far as they are applicable of section sixty-nine of the Trustee Act 1958 and the rules referred to therein...for the benefit of the parties who are or become entitled to the residue of the deposited money.

49 Section 69 (1) of the Trustee Act 1958 provides that -

Trustees or the majority of trustees having in their hands or under their control money or securities subject to a trust may pay the same into court; and the same shall, subject to rules of court, be dealt with according to the orders of the Court.

50 There is a good deal of authority, some of it venerable, that on the sale of the mortgaged property under the Torrens system, the mortgagee holds the surplus on trust for the subsequent unregistered mortgagees or chargees and that irrespective of how the moneys were actually applied the beneficiaries could follow the moneys and uphold an equitable interest in them: Beeby v Official Assignee of Pickering and Pickering;[24] Re Morrison; Bennell v Smith;[25] Hope v Hope;[26] Ex parte Australian Co-operative Development Society Limited;[27]

51 However, as Robson J points out in Re S&D International (In Liq) (R & M App),[28] Hope v Hope[29] is not authority, as Dr Robinson supposes[30] for his assertion that s 77(3)(c) refers to unregistered mortgages as well as registered mortgages. Hope v Hope is authority for the proposition that the second unregistered mortgagee has an equitable charge over the surplus moneys from the sale that is not defeated by the statutory provision that the first mortgagee pay the surplus to the registered proprietor.

52 In Re S&D International (In Liq) (R & M App),[31] Robson J reviewed the authorities referred to above, and many others, relating to s 77 of the TLA, and co-ordinate provisions in Torrens legislation in other States of Australia and in New Zealand, and concluded, in summary, that:[32]

(a) there is no authority that suggests the reference to 'subsequent mortgages and charges' in s 77(3)(c) is limited to registered mortgages;

(b) the authorities establish that irrespective of the true construction of s 77(3)(c), the interests of unregistered mortgagees and chargees are recognised and any surplus should be distributed according to their priority otherwise established at law. There is no suggestion in any of the authorities that s 77(3) should be applied literally in disregard of recognised equitable interests.

53 In greater detail, he derived the following conclusions:[33]

(a) Section 77 of the TLA does not abrogate the rights of mortgagees and chargees under equitable mortgages and charges - it merely postpones them to those mortgagees and chargees under registered mortgages and charges;

(b) The reference to subsequent mortgages and charges in s 77(3)(c) of the TLA includes unregistered mortgages and charges;

(c) A mortgagee under a mortgage, whether it is a general law mortgage or a registered mortgage under the TLA, holds the surplus from the sale of the mortgaged land on trust for the mortgagor and the subsequent encumbrancers; [34]

(d) The provisions in s 77(3) of the TLA do not alter the order of priorities otherwise established by law;

(e) The payment of the surplus from a sale by a registered mortgagee to the mortgagor under s77(3)(d), or otherwise, does not free the surplus from all equities otherwise recognised at law. In equity, the equitable charge on the land is converted to a charge on the proceeds;

(f) The first mortgagee who sells the mortgaged property is obliged, if asked, to account to the mortgagor and the subsequent mortgagees in respect of his claims under the mortgage in respect of principal, interest and costs;

(g) The mortgagee must account as at the date that he receives the proceeds from the sale of the mortgaged property;

(h) The mortgage of the first mortgagee who sells the mortgaged property for an amount sufficient to meet his claim for principal, interest and costs is discharged upon the sale at the date of settlement of the sale;

(i) Likewise, any subsequent mortgage is discharged if sufficient proceeds are received to meet the subsequent mortgage at the mortgagee's sale. The mortgagor is not responsible for interest to the subsequent mortgagee if the first mortgagee fails to account to the subsequent mortgagee as it should. The subsequent mortgagee is treated as having the moneys owed to it under its security held on trust for it by the first mortgagee as and from the receipt by the first mortgage of the proceeds of sale;

(j) The mortgagee who accounts is only obliged to do so once and that is when his mortgage is discharged at settlement;

(k) If there is any doubt on the entitlement, priority or quantum of the subsequent encumbrances, the mortgagee should put aside the trust moneys in an interest bearing account until the entitlements have been determined or alternatively, pay the money into court.

54 In Residential Housing Corporation Pty Ltd v Esber[35] Campbell JA of the New South Wales Court of Appeal disagreed with Robson J's view that the reference to subsequent mortgages and charges in s 77(3)© of the TLA includes unregistered mortgages and charges. It was concluded that the equivalent NSW provision, s 58(3) of the Real Property Act 1900, does not authorise the payment out of subsequent unregistered mortgages.

55 Despite this holding, it was also held that the mortgagee who holds surplus proceeds of the sale of mortgaged property is under a fiduciary obligation to account to all subsequent interest holders, including unregistered mortgagees.[36]

56 In Bofinger Kingsway Group, [37] the High Court approved the holding in Bank of New South Wales v Adams[38] that s 58(3) of the NSW Real Property Act is to be read in a manner consistent with the equitable duty of the first mortgagee to account to puisne mortgagees, including those claiming equitable interests, as trustee for any surplus.

57 In the result, in this case where the moneys have been paid into Court by the selling mortgagees, and where there are no competing registered interests in the several parcels of land, if it is established that MPG has an equitable charge to secure repayment of its loan moneys due under the Consolidated Loan Agreement, then it is entitled to the funds in court because the equitable charge on the land is converted to a charge on the proceeds.

58 A charge is described in Fisher and Lightwood's Law of Mortgage[39] as follows:

A charge is a security whereby real or personal property is appropriated for the discharge of a debt or other obligation, but which does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right of possession, but only a right of realisation by judicial process in case of non-payment of the debt.[40]

59 An ordinary charge may be created by a charge or a direction in an instrument, whereby real or personal property is expressly or constructively made liable or specifically appropriated to the discharge of a debt.[41] No special form is required to create a charge.[42]

60 The following further propositions relating to an equitable charge are noted: [43]

(a) An equitable charge is created when property is expressly or constructively made liable to discharge a debt or some other obligation and the charge confers on the chargee a right of realisation by judicial process, such as an order for sale: Swiss Bank Corp v Lloyds Bank Ltd;[44] Re. Cosslett (Contractors) Ltd;[45]

(b) It has been held that an agreement that a person may place a caveat on another's title may constitute a charge;[46]

(c) It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability;[47]

(d) An equitable charge is to be distinguished from a purely contractual arrangement giving rise to no proprietary right;[48]

(e) Whether a particular set of circumstances gives rise to an equitable charge will depend on the intention of the parties, ascertained objectively from the language used by the parties in the instrument in the light of surrounding circumstances: Swiss Bank Corp v Lloyds Bank Ltd;[49]

(f) There is no required form an equitable charge should take. However, the instrument must indicate the parties' intention that the relevant property should constitute a security: AVCO Financial Services Ltd v White.[50]

61 In AVCO Financial Services v White[51] this Court was called to determine whether a written loan agreement to fund the purchase of a property created an equitable charge over the property of the borrower. The agreement included the following clause:

As further security for the payment of the loan and interest I agree ... to charge (as beneficial owner) all freehold and leasehold interest in the land which I may now have or during the currency of the loan may acquire ...

Gillard J summarised the essence of an equitable charge in the following terms:[52]

An equitable charge for a debt is a security whereby only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security. The remedy of the holder of the security on default in payment of the debt was to apply to a court of equity to have the property sold and the proceeds paid into court.[53]

62 In relation to the document before him, Gillard J pointed to the phrase "as further security for a payment of the loan" and held that the words "clearly indicate the nature or the purpose of the paragraph" and the parties' intention to create an equitable charge.[54]

63 In McMillan v Dunoon[55] Gillard J considered whether the terms of a loan agreement gave rise to an equitable charge. The defendant relied on a clause in the loan agreement which provided "it is a precondition of the loan advanced that the borrower provide the lender with security particularised in Item 7 ...". Item 7 envisaged that a charge would be executed. A deed in this form was never executed. Gillard J stated:

[T]he issue comes down to whether the Court can fairly gather from the words of the agreement an intention by the parties that the property referred to in the agreement was to be charged with payment of the debt. In other words, did it constitute a security?[56]

64 As the defendant had a contractual right to specific performance of the obligation requiring the execution of the deed creating the equitable charge, Gillard J, relying on the equitable principle that equity looks on that as done which ought to be done,[57] held that the agreement gave rise to a charge. The defendant was able to rely upon clear words which evidenced the parties' intention to create a charge.

65 So it is in this case. Despite the awkward language of the Charge clause (see above at paragraph 46), it is clear that the parties intended to create a charge. The language

"To better secure the Loan the Borrowers and Guarantors hereby charge any land or assets which the Borrowers and Guarantors or their related parties may from time to time own"

are the words showing a clear intention to give a present charge and not an agreement in the future to give a charge.

66 The clause, however, goes on to identify future acts that the borrower agrees will be performed:

"and if required to do so by the Lender shall at the cost of the Borrowers give to the Lender, Caveats and Registered Mortgages in the favour of the Lender over the said land or over any other land owned by the Borrowers and any associated costs to secure the Loan Amount. The Borrowers and Guarantors agree to assist the Lender in obtaining any First Mortgagee's or other encumbrance consent to enable any mortgage to be registered on Title including all the Lender's legal costs (on a solicitor - own client indemnity basis) in relation to and incidental to the lodging and removal or withdrawal of any charge by the Lender on such land."

67 Thus there is both a present charge and an agreement for consideration to give a mortgage in registrable form in the future if the lender requires it.

68 In either case, on the authorities to which I have referred, there is a charge on the land owned by the company at the time which is converted to a charge on the fund.

69 As all the persons who might have had a claim have been given notice of the application, there are no competing claims to the funds in Court and MPG is entitled to the orders it seeks for payment out of Court of those moneys.

BRANDI FINANCIAL SERVICES PTY LTD (ACN 125 865 349)

BRANDI FINANCIAL SERVICES PTY LTD (ACN 125 865 349)

[1] Exhibit CL-65 to the affidavit of Christine Lim sworn 20 May 2013.

[2] There had been an earlier caveat as well.

[3] Exhibit PK-02 to the affidavit of Phillip James Kotsanis sworn 21 May 2013.

[4] Exhibit CL-51 to Ms Lim's affidavit.

[5] Exhibit PK-03 to the affidavit of Mr Kotsanis being a letter from Gadens Lawyers to various parties, including the then solicitors for MPG.

[6] Exhibit CL-62 to Ms Lim's affidavit.

[7] Exhibit CL-63 to Ms Lim's affidavit.

[8] Paragraph 42(f) Further Amended Statement of Claim filed 21 June 2012.

[9] Exhibit "DB-1" to affidavit of David Brandi sworn 23 April 2013.

[10] [2005] HCA 13; (2005) 214 ALR 392 per Gleeson CJ and McHugh, Gummow, Hayne JJ at [61]-[66].

[11] Paragraph 11 of Mr Brandi's affidavit.

[12] Paragraphs 16(a) and 17 of Mr Brandi's affidavit.

[13] Paragraph 24(a) and 25 of Mr Brandi's affidavit.

[14] Paragraph 24(b) and 26 of Mr Brandi's affidavit.

[15] Paragraph 24(c) and 27 of Mr Brandi's affidavit.

[16] (1997) 189 CLR 407 at 437 per Dawson, Gaudron and Gummow JJ, albeit in a different context.

[17] Paragraph 31 of Mr Brandi's affidavit.

[18] Exhibit "DB-22" to Mr Brandi's affidavit.

[19] See paragraph 2 of the defence, pleading to paragraph 31 of the statement of claim indorsed on the Writ.

[20] Corporate Affairs Commission v Drysdale [1978] HCA 52; (1978) 141 CLR 236;

[21] (2008) 69 ACSR 334; [2008] NSWSC 1358.

[22] [2009] NSWSC 1385 at [301].

[23] Exhibit "CL-46" to Ms Lim's affidavit),

[24] [1953] NZLR 832.

[25] [1962] Tas R 337.

[26] [1977] 1 NZLR 582.

[27] [1978] Qd R 395.

[28] [2009] VSC 225 at [115]

[29] [1977] 1 NZLR 582.

[30] Transfer of Land in Victoria (1979) at 320.

[31] [2009] VSC 225 at [115].

[32] ` [2009] VSC 225 at [160].

[33] [2009] VSC 225 at [159], omitting the references to authority.

[34] As to which now also see Bofinger Kingsway Group [2009] HCA 44; (2009) 239 CLR 269 at [50] where the obligation is described as a fiduciary obligation to account rather than a full blown trust.

[35] (2011) 80 NSWLR 69; [2011] NSWCA 25, at [80] - [99] per Campbell JA, MacFarlane JA agreeing.

[36] (2011) 80 NSWLR 69; [2011] NSWCA 25, at [167] - [169] per Campbell JA, MacFarlane JA agreeing

[37] [2009] HCA 44; (2009) 239 CLR 269 at [35].

[38] [1982] 2 NSWLR 659.

[39] Tyler, Young and Croft, 2nd Aust. ed., Lexus Nexus Butterworths, 2005.

[41] Fisher and Lightwood's Law of Mortgage, Tyler, Young and Croft, Second Australian Edition at p 49 [2.3].

[43] See generally Porter v Bonarrigo, [2009] VSC 500 per Vickery J.

[44] [1982] AC 584 at 594-5 per Buckley LJ, CA.

[45] [1998] Ch 495 per Millett LJ, CA at 508. See also, National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 440 per Bankes LJ.

[46] Murphy v Wright (1992) 5 BPR 11,734; (1992) NSW ConvR 55-652; BC9203050; Esanda Finance Corp Ltd v Leserv (No 4) Pty Ltd (unreported, SC(QLD), Dowsett J, 1290/91, 9 June 1992) (affirmed Esanda Finance Corp Ltd v Leserv (No 4) Pty Ltd (unreported, CA(QLD), Pincus, McPherson and White JJ, 130/92, 6 November 1992, BC9202155)); Troncone v Aliperti (1994) 6 BPR 13,291; (1994) NSW ConvR 55-703.

[47] Re. Cosslett (Contractors) Ltd, [1998] Ch 495 per Millett LJ

1. [48] See, for example, Taylor v Freeway Mutual Pty Ltd (1978) 22 ALR 281 (where the court found merely a contractual arrangement).

[49] [1982] AC 584 at 595-6 per Buckley LJ, CA.

[50] [1977] VicRp 62; [1977] VR 561 at 564.

[51] [1977] VicRp 62; [1977] VR 561.

[53] Citing Matthews v Gooday (1861) 31 LJ Ch 282; Tennant v Trenchard (1869) LR 4 Ch App 537 at p.542; Melbourne Tramways Trust v Melbourne Tramways and Omnibus Co [1887] VicLawRp 96; (1887) 13 VLR 487.

[54] [1977] VicRp 62; [1977] VR 561 at 564.

[55] [2005] VSC 440 per Gillard J; op cit Porter v Bonarrigo, [2009] VSC 500 per Vickery J at [72].

[56] [2005] VSC 440 [30].

[57] The doctrine of Walsh v Lonsdale [1882] 21 Ch D 9.