BETWEEN : SOUTHERN WINE CORPORATION LTD (IN LIQ)

Practice and procedure - Application to amend statement of claim - Turns on own facts

First Industry Corporation v Goh [2003] WASC 216

Hewett v Court [1983] HCA 7; (1983) 149 CLR 639

Perpetual Trustees WA Ltd v Kelly (1993) 8 WAR 480

Re Charge Card Services Ltd [1987] 1 Ch 150

Re Cunningham; Hawker Siddeley Building Supplies Pty Ltd v Hanson [1965] WAR 115

Bruce v Odhams Press Ltd [1936] 1 KB 697

Kimberly Downs Pty Ltd v Western Australia, unreported; SCt of WA; Library No 6414; 24 July 1986

Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405

Peruvian Guano Co Ltd v Bockwoldt (1883) 23 Ch D 225

Re McCutcheon [1941] VicLawRp 40; [1941] VLR 174

Taylor v Freeway Mutual Pty Ltd (1978) 22 ALR 281

Waitomo Wools (NZ) Ltd v Nelsons (NZ) [1974] 1 NZLR 484

1 MASTER SANDERSON: This application began life as an application by the defendants to strike out the plaintiff's statement of claim. Subsequent to submissions in support of that application being filed, but prior to the hearing, the plaintiff filed a minute of proposed amended statement of claim. The plaintiff then filed submissions supporting the minute and opposing the strike-out application. The defendants responded by filing additional submissions in support of the strike-out application - they were not satisfied that the proposed amendments cured their complaints. The matter was argued on the basis that the defendants were objecting to the plaintiff amending the statement of claim in terms of the minute.

2 The facts as pleaded in the statement of claim can be summarised in this way. Between 15 December 1998 and 21 July 2003, the plaintiff was the responsible entity of a registered managed investment scheme known as SWC Managed Investment Scheme ("the Scheme"). The object of the Scheme was and is the growing of wine grapes upon land owned by a third party. The various parcels of land upon which the grapes are grown is known collectively as the Preston Vale Vineyard.

3 Pursuant to the Scheme, and in its capacity as the responsible entity, the plaintiff entered into a series of separate agreements known as the Licence and Management Agreements ("the Licence Agreement") with each investor in the Scheme. The Licence Agreement provided for payment of the plaintiff for its services as manager. It is pleaded that the plaintiff's fee for managing the Scheme for each financial year commencing with the financial year ending 30 June 2003 would be paid from the gross income generated from the areas managed by the plaintiff for that year. It is further pleaded that, in the event that the gross income generated from these areas for any financial year was insufficient to pay the fee for that year, the plaintiff was entitled to deduct the fee from the gross income generated by the area in any subsequent financial year or years: see pars 7(d) and (e). By par 7(f), it is pleaded that the plaintiff was entitled to elect at its absolute discretion to delegate or subcontract all or any of the duties and obligations to be performed by it under the Scheme.

4 In or about December of 1998, the plaintiff executed a deed styled the SWC MIS Constitution ("the Constitution"). Against that background, the plaintiff pleads pars 9 through to 13. It is these paragraphs about which the defendants complain. Because of their importance, I will quote them in full (the marking-up has been omitted):

"9. There were express terms of the Constitution, in effect, that:

(a) the Constitution had the effect of a deed under seal made between each Investor and the responsible entity of the Scheme.

(b) the responsible entity was entitled to be paid all such fees as provided for in the Licence and Management Agreements in relation to the proper performance of its duties with respect to the Scheme from:

(i) contributions of money or money's worth to the Scheme;

(ii) money that formed part of the scheme property under the Corporations Act;

(iii) money borrowed or raised by the responsible entity for the purposes of the Scheme;

(iv) property acquired, directly or indirectly, with the proceeds, contributions or money pleaded in subparagraphs (i) to (iii); and

(v) income and property derived, directly and indirectly, from contributions, money or property pleaded in subparagraphs (i) to (iv),

(collectively 'the Scheme Property'.)

10. By an agreement in writing made between the plaintiff and the second defendant dated 30 October 2002 the plaintiff delegated alternatively subcontracted to the second defendant the plaintiff's obligation to manage those Licensed Areas in respect of which the Growers had appointed the plaintiff pursuant to the term pleaded in subparagraph 7(f), and the second defendant carried out that obligation.

11. By reason of the matters pleaded in paragraphs 7(f) and 10, the plaintiff was entitled to receive the fees pleaded in subparagraph 7(c) for the year ending 30 June 2003.

12. The gross income generated from the Licensed Areas managed by the plaintiff for the financial year ending 30 June 2003 was insufficient to pay the fees due to the Plaintiff for that year, there being a shortfall of approximately $1,600,000.

13. By reason of the matters pleaded in paragraph 7(e), 10, 11 and 12 above, the plaintiff has a lien alternatively an equitable charge over the gross income of the Licensed Areas for the financial year ending 30 June 2004 and each financial year thereafter until the sum of $2,239.650 is paid to the plaintiff."

5 The defendants' real complaint is as to par 13. It is said that the material facts pleaded by the plaintiff cannot support the existence of a lien or an equitable charge over the gross income of the licensed areas for the financial year ending 30 June 2004 and into the future. On the basis that such a plea is not open, the defendants say amendment should not be permitted to the statement of claim.

6 In its earlier manifestation, the statement of claim (in what was then par 9) referred only to a lien. It is clear that the plaintiff now places more emphasis on the plea that there exists an equitable charge rather than the plea of a lien. It is convenient to deal with that issue first.

7 There was no real dispute between the parties as to the nature of an equitable charge. The plaintiff relied upon the decision of Hale J in Re Cunningham; Hawker Siddeley Building Supplies Pty Ltd v Hanson [1965] WAR 115. His Honour defined an equitable charge in this way (at 117):

"It appears to me that an agreement between a debtor and a creditor that the debt shall be paid out of a specific fund coming to the debtor creates an equitable charge on that fund by way of security, and has no further effect unless the agreement is that the debt shall be payable thus and not otherwise."

8 For their part, the defendants relied upon what was said by Millet J in Re Charge Card Services Ltd [1987] 1 Ch 150. His Honour said (at 176):

"Thus the essence of an equitable charge is that, without any conveyance or assignment to the chargee, specific property of the chargor is expressly or constructively appropriated to or made answerable for the payment of a debt, and the chargee is given the right to resort to the property for the purpose of having it realised and applied in or towards payment of the debt. The availability of equitable remedies has the effect of giving the chargee a proprietary interest by way of security in the property charged."

9 Both parties were also prepared to accept that the creation of a charge requires only that there be an intention to make property available for the payment of a debt and that the property must be definite and ascertainable. In support of this proposition, both parties referred to First Industry Corporation v Goh [2003] WASC 216.

10 It was the defendants' submission that there was no apparent intention on the part of the defendants either on a reading of the Constitution or the Licence Agreement to establish an equitable charge over the Scheme property. On the contrary, it was said that it was clear the plaintiff intended that the plaintiff give up its contractual right to management fees under both the Constitution and the Licence Agreement in consideration of the defendants providing the vineyard services in 2002.

11 It is the defendants' position that, on the pleaded material facts, there was no intention to create an equitable charge. Reference was made to the Licence Agreement. Clause 4.3 of that agreement is in the following terms:

"Other than provided for in Clause 12.4, the Licence Fees as provided for in Clause 4.2 must be paid from the Participating Growers' Gross Project Income prior to the payment to the Responsible Entity of Management Fees and each Year the Gross Project Income is sufficient to pay the Licence Fee. If the Participating Growers' Gross Project Income in any Year is not sufficient to pay the Licence Fees for all Growers for that Year, such Licence Fees may be deducted from Participating Growers' Gross Project Income in any subsequent Year or Years and the Responsible Entity may provide funding for any shortfall from the Responsible Entity's own resources, borrow such funds secured against the future Participating Growers' Gross Project Income or require Growers by notice in writing, subject to approval in general meeting pursuant to Clause 12.6, to make such additional contributions to SWC MIS Property as are required to make up any shortfall. The Responsible Entity may recover the reasonable costs of borrowings from SWC MIS Property."

12 On behalf of the defendants, it was submitted that cl 4.3 sets out a scheme of contractual rights, but does not appropriate any fund or property. Further, it was said that the provision does not affect or bind the defendants as debtors.

13 Clause 1.1 of the Licence Agreement defines "Management Fees" as "fees payable by the Growers from SWC MIS Property to the Responsible Entity for the management and maintenance services in relation to the Growers' area in accordance with Clause 12 of this Agreement". This, it is said, is remuneration.

14 The same clause of the Licence Agreement, defines "Participating Growers' Gross Project Income" as "the sum of each Participating Grower's Gross Income". It defines "Gross Income" as "the gross income of the Grower's Project including Grower's proceeds from the sale of grapes, grape product and wine". All this, it was said, leads to the conclusion that the debtor is the grower. For a charge to arise, the intention must be manifest by the debtor. That is not the case here and so an equitable charge could not exist.

15 On behalf of the plaintiff, it is said that the terms of the Licence Agreement, in particular, cl 3.2 and cl 12.1(e), display the requisite intention to establish that a charge exists. On the plaintiff's case, it would appear to be asserted that there are, in fact, two charges - the first over the whole of the Scheme assets and the second over the income from each grape harvest: see par 8 of the plaintiff's outline of submissions filed 8 November 2004.

16 I am not satisfied that, on the facts of this case, there can be said to be arguably an equitable charge in favour of the plaintiff. It is necessary to take one step back and look at the arrangements between the plaintiff and the defendants. The plaintiff is to undertake certain work and it is to be paid for that work. There is no doubt about its contractual entitlement. If the Licence Agreement went no further, then the plaintiff would have a right against each grower. That right would be enforceable at law and the plaintiff could sue for the debts from the individual growers from time to time. But the Licence Agreement does go further. It, in effect, limits the rights of the plaintiff. The plaintiff can only claim payment from the Participating Growers' Gross Project Income as defined: cl 12(e). It is not clear from year-to-year what amount might constitute the Participating Growers' Gross Project Income. It might be nothing - the grapes might be destroyed by fire, for instance. There is then no certainty as to what the fund might be and there could hardly be any suggestion of an intention to create an equitable charge.

17 There is a further difficulty with this plea. Both parties agree that the first defendant is a trustee. It holds any money for the growers. The plaintiff, too, was a trustee. It now says that it is entitled to an equitable charge. That means that the charge is a security for a trustee's remuneration. As a general rule, no charge or lien exists as a matter of general law in respect of a trustee's remuneration. In Perpetual Trustees WA Ltd v Kelly (1993) 8 WAR 480, Anderson J put the position as follows (at 486):

"No charge or lien exists as a matter of general law in respect of trustee's remuneration. Indeed equity regards trusts as honorary and in the absence of any special provision for remuneration, the services of a trustee are expected to be provided gratuitously ... Of course there may be and usually are special provisions in the trust instrument providing for the trustee to be paid a commission or to be remunerated for his time and effort. Alternatively, there may be a special agreement between the trustee and the beneficiaries to the same effect and there may be legislation conferring upon the trustee a right to exact trustee's remuneration ... But this is not to say that the right to remuneration thus obtained or conferred is protected by a charge or lien, or otherwise gives rise to a proprietary interest in the fund. I think that any such security would have to be expressly conferred."

18 In this case, there is nothing which expressly confers such security. In my view, it is not arguable that such security exists.

19 That, then, leaves the question of whether there might be in existence a lien. It is clear that this is not a case where there can be a contractual lien. There is no contract between the plaintiff and the first defendant, nor between the plaintiff and the second defendant; or at least, none is pleaded. A contractual lien depends on possession. Possession is not alleged. So, there is no contractual lien possible. That leaves the prospect of there being an equitable lien.

20 An equitable lien has three characteristics. They are:

(a) there be a potential or actual indebtedness on the part of the party who is the owner of the property to the other party arising from the payment or promise of payment either of consideration in relation to the acquisition of the property or an expense incurred in relation to it;

(b) that property (or arguably property including that property) be specifically identified and appropriated to the performance of the contract; and

(c) that the relationship between the actual or potential indebtedness and the identified or appropriate property be such that the owner would be acting unconscientiously or unfairly if it were to dispose of the property to a stranger without the consent of the other party or without the actual or potential liability having been discharged.

21 These principles are taken from the High Court decision in Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 at 668. Both parties accepted that these were the applicable principles.

22 In this case, none of these matters is pleaded. In its submissions, the plaintiff says that they are pleaded. But they are not. Moreover, mere notice of the existence of a provision generating a lien against one party, even if such a provision existed (and here it does not), it does not enliven a lien against another party who has notice of it. If a lien exists here, it must be lien between the plaintiff and the growers. Assuming the defendants had knowledge of that lien, they would not be bound by its terms. The plea cannot succeed.

23 In my view, leave should not be given to amend the statement of claim in terms of the minute. I will allow the parties to make further submissions as to whether leave to replead ought be granted and as to costs.