Bunnings Group Ltd v Hanson Construction Materials Pty Ltd
[2017] WASC 132
•18 MAY 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BUNNINGS GROUP LTD -v- HANSON CONSTRUCTION MATERIALS PTY LTD & ANOR [2017] WASC 132
CORAM: CHANEY J
HEARD: 22 DECEMBER 2016
DELIVERED : 18 MAY 2017
FILE NO/S: CIV 2287 of 2016
BETWEEN: BUNNINGS GROUP LTD
Plaintiff
AND
HANSON CONSTRUCTION MATERIALS PTY LTD
First DefendantCAPITAL WORKS CONSTRUCTIONS PTY LTD (IN LIQ)
Second Defendant
Catchwords:
Real property - Caveats - Unregistered charge - Priority of competing unregistered charges - Whether order of registration determines priority - Postponing conduct - Creator of charge - Operation of charge
Legislation:
Transfer of Land Act 1893 (WA)
Result:
Application for declaration dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr A J N Aristei
First Defendant : Mr C C K Ko
Second Defendant : No appearance
Solicitors:
Plaintiff: Carlo Primerano & Associates
First Defendant : Trinix Lawyers
Second Defendant : HWL Ebsworth Lawyers
Case(s) referred to in judgment(s):
Black v Garnock (2007) 237 ALR 1
Butler v Fairclough (1917) 23 CLR 78
Elderly Citizens Homes of SA v Balnaves (1998) 72 SASR 210
Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326
Hopkinson v Rolt (1861) 9 HL Cas 514
J&H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265
Palmer v Carey [1928] AC 703
R&I Bank v Cash Resources Pty Ltd (1993) 11 WAR 536
Re Charge Card Services Ltd [1987] Ch 150
Rice v Rice (1854) 2 Drew 73; (1854) 61 ER 646
Sibbles v Highfern Pty Ltd (1987) 164 CLR 214
CHANEY J: The plaintiff (Bunnings) and the first defendant (Hanson) are each in the business of supplying building materials. Each of them supplied materials to the second defendant (Capital Works) prior to Capital Works' liquidation by means of a creditors' voluntary winding up on 12 June 2015. The supply of goods by each of Bunnings and Hanson was made pursuant to the terms set out in credit applications which, in each case, contained a charge granted by Capital Works over any land then or subsequently held by Capital Works to secure repayment of monies owing by Capital Works in respect of the supply of building materials. Some years later, each of Bunnings and Hanson lodged a caveat on the basis of their respective charge over three properties owned by Capital Works. The eventual sale of those properties by the liquidator of Capital Works realised, after payment out of a first mortgage and the liquidator's expenses, an amount which was insufficient to meet the whole of Capital Works' liabilities to either Bunnings or Hanson. The question which arises in these proceedings is, as between Bunnings and Hanson, whose interest in the proceeds should take priority.
Background facts
Capital Works applied for credit with Hanson by a credit application dated 16 June 2010. The credit application contained terms and conditions upon which the credit was granted, which included a charge in the following terms:
As security for payment to Hanson of all monies payable by the customer, the customer charges in favour of Hanson all of the customer's interests in freehold and leasehold property both current and later acquired. The customer irrevocably appoints each officer as its attorney to do all things necessary to create and register each such charge.
The date of acceptance of the application is not revealed on the face of the application document, nor was it specified in the statement of agreed facts upon which the matter was dealt with. In a statement of agreed issues filed by the parties following the hearing, the plaintiff conceded that 'the respective dates when the competing interests were created, shall be determined by the dates of their execution as a binding agreement'. That concession is of no assistance in relation to the Hanson charge since no date of execution by Hanson is apparent from the document. It is apparent, however, from the trading history of Capital Works with Hanson (document AD 14) that the first date of supply was 10 July 2010. It can be inferred that acceptance by Hanson of Capital Works' application occurred sometime prior to 10 July 2010.
On 30 August 2010, an application by Capital Works to Bunnings for credit was made by Capital Works and accepted by Bunnings. That credit agreement contained a clause which stated:
To secure repayment of all Monies the Applicant charges as beneficial owner and as trustee of any trust in favour of Bunnings all the Applicant's right, title and interest in land held now or in the future wherever located. The Applicant acknowledges that Bunnings may register a caveat over the Applicant's land in respect of the charge. The Applicant agrees that immediately upon request by Bunnings, the Applicant will execute and give to Bunnings a mortgage in registrable form in favour of Bunnings over the Applicant's land and by reason of this agreement to give a mortgage in favour of Bunnings the Applicant acknowledges that Bunnings is an equitable mortgagee in respect of the Applicant's land.
'Monies' was defined to include all monies now or in the future actually or contingently owing by Capital Works on any account.
After Capital Works failed to meet its trading terms on several occasions, and after various alterations in the credit limit extended by Bunnings to Capital Works, Bunnings lodged a caveat over three properties owned by Capital Works on 23 April 2014. The three properties had been acquired by Capital Works in August and September 2013.
Hanson lodged a caveat pursuant to the charge contained in the credit application over the same three properties owned by Capital Works on 2 April 2015.
On 7 May 2015, Mr J M Tracy and Mr G P Doran of Deloitte Touche Tohmatsu were appointed administrators of Capital Works. On 12 June 2015, those gentlemen were appointed joint and several liquidators of Capital Works. By the time of the appointment of the administrators of Capital Works, a number of caveats in addition to those lodged by Bunnings and Hanson had been lodged by other creditors. Many of those creditors lodged caveats over all three properties, although there were some differences in the encumbrances notified against each title which are of no particular significance to the matters in issue in these proceedings. Although given notice of these proceedings, none of those other creditors sought to be heard.
Following the resolution for the voluntary winding up of Capital Works, the liquidator convened a meeting of caveat holders on 22 July 2015. At that meeting, the liquidator expressed his view that it would be in the best interests of all creditors of Capital Works for existing contracts for sale of the three properties the subject of the caveats to be completed, and to that end requested the caveators to withdraw or discharge their caveats against the properties. At that meeting, the liquidator advised the caveators that any surplus funds from the sale of the properties would be held on trust and distributed in priority to the caveat holder who first registered its caveat (provided they had a valid equitable interest in the properties) and to the extent that there was any surplus funds available after payment to the first caveat holder, then the remaining monies would be paid to the second in time caveat holder, and so forth, until the surplus funds had been fully applied. It is the conferral of priority by reference to the order in which caveats were lodged that is challenged by Hanson in these proceedings.
The caveators subsequently withdrew their caveats from the properties in response to the liquidators' request, which enabled the properties to be sold on 17 December 2015.
After discharge of a mortgage to the National Australia Bank, and the liquidators' costs and expenses, the net proceeds of sale of the properties as at 17 September 2015 was the sum of $37,808.48, which sum was retained in the liquidators' solicitor's trust account from 17 September 2015 until 7 November 2016. On 7 November 2016, the balance held in the liquidators' solicitor's trust account was paid into court pursuant to case management directions made in this action on 5 September 2016. The liquidators gave notice that they would abide the decision of the court in these proceedings and took no further part.
Bunnings had earlier lodged a proof of debt with the liquidator of Capital Works for the sum of $56,186.60. The amount owing to Hanson is $54,647.34.
Apart from the surplus funds received after sale of the three properties, there are no other funds available for distribution by the liquidator to either Bunnings or Hanson or other creditors. It follows that the surplus funds will be available only to partially discharge the debt to whichever charge is to take priority.
The procedural history of the application
Because of the small amount involved, the parties were, appropriately, desirous of having the court determine their dispute with a minimum of cost. The issue as to priority was said by the parties to be a matter of significance to them (justifying the expense of these proceedings) because of the frequency with which the issue of priority arises in relation to what are commonplace provisions in credit agreements.
In order to accommodate the parties' desire to minimise costs, a registrar of the court directed that the plaintiff file and serve a statement of claim, but the matter otherwise be tried without further pleadings and that the parties should confer in order to prepare a statement of issues in dispute, or alternatively a statement of agreed facts and documents, and the matter be referred to a judge in chambers to list a special appointment.
The parties adopted the latter course, and a statement of agreed facts and documents was filed by the plaintiff's solicitors. The matter was then listed for a special appointment. The parties filed submissions in advance of the special appointment. Those submissions revealed that the parties wished to agitate a range of issues more factually complex than the legal question as to whether priority of charges turns either on the date of creation of the charge or on the date of registration of a caveat in respect of the charge. At the conclusion of the hearing, I directed the parties to file a statement of the issues which they seek to have determined in the proceedings. In compliance with that direction, the parties identified nine issues for determination. Whether those issues are capable of resolution in the context of the summary way in which the parties sought to have the matter dealt with is a matter I will discuss in the context of dealing with the issues as identified by the parties.
Matters not in issue
It was common ground between the parties that their respective priority rights to an interest in the caveated properties were converted, upon sale of those properties, to claims against the net proceeds from the sales.
Issues identified by the parties
In their agreed statement of issues filed at the conclusion of the hearing, the parties identified the following nine issues:
1.Is priority between competing equitable interests, by way of equitable charges, based upon the registration date of the caveats or the dates of the creation of those equitable interests?
2.Is section 53(2) of the Transfer of Land Act 1893 (WA) relevant in determining the priority of competing caveats and their underlying equitable interests?
3.Are any of the following factors relevant in assessing the relative merits and equities of the competing equitable interests of Bunnings and Hanson:
i)Is Hanson's contended delay in lodging a caveat sufficient to postpone the priority of its equitable interest which the time of its creation would otherwise give?
ii)Is the customary or common practice of whether a caveat should have been lodged immediately upon the creation of the equitable interest a relevant factor in determining whether a failure or delay to lodge a caveat would be postponing conduct and, if so, how is it applied in the determination of the priorities dispute between Bunnings and Hanson?
iii)Is proof that a title search was undertaken by the subsequent equity holder prior to the creation of its equitable interest a sufficient enquiry for the purposes of assessing the better equity?
iv)Has there been any prejudicial detriment to Bunnings caused by Hanson's contended delay in lodging its caveat and, if so, is this relevant?
v)Has there been any prejudicial detriment to other caveators caused by Hanson's contended delay in lodging its caveat and, if so, is this relevant?
vi)Does the contention that Hanson had reason to suspect the insolvency of the Second Defendant at the time when its caveat was lodged have any relevance in assessing the merits of Hanson's equitable interest and, if so, what effect does this have in the determination of the priority dispute between Bunnings and Hanson?
4.Has there been any postponing conduct on the part of Hanson?
5.Is the case of Sibbles v Highfern Pty Ltd (1987) 164 CLR 214 and the distinction between the existence and the operation of a charge relevant in the context of determining priority between their competing equitable interests?
6.Are the dates when the respective debts were incurred to Bunnings and Hanson relevant in determining priority between their competing equitable interests?
7.Are the rules concerning 'tacking' advances relevant to the determination of the priority dispute between Bunnings and Hanson and, if so, to what extent?
8.Is actual or constructive notice of the subsequent equitable interest relevant to the determination of the priority dispute between Bunnings and Hanson and, if so, to what extent?
9.Are the objections or alternatively criticisms of the affidavit evidence filed in these proceedings relevant to a determination of the priorities dispute between Bunnings and Hanson and, if so, to what extent?
Couching issues in the form of open questions about whether some factor is 'relevant' presents a risk of distracting the court from the task of adjudication of the particular controversy between these parties on the facts as presented. On their face the questions posed would appear to invite an answer 'yes' or 'no'. Answers in those terms would not resolve the dispute underlying the litigation. I propose to deal with the matters referred to in the statement of agreed issues in the course of my examination of the relevant facts and principles governing the dispute between these parties.
As will be seen, if, as the parties appear to have anticipated, the resolution of this dispute is seen as providing a simple rule or set of rules that will resolve all questions of priorities between unregistered charges to be immediately resolved, that anticipation was misplaced. That is because it will always be necessary to examine the relevant facts of each case to determine questions of priority.
Issues 1, 2, 5 and 6
The question raised as issue 1, namely whether priority of the competing interests turns either upon the registration date of the caveats or the date of the creation of the interests, assumes that none of the factors referred to in the later issues, such as the relative merits of the competing interests, the existence of postponing conduct, questions of timing of operation of the charges and questions of notice, have no effect on priority. Issue 1 can only be sensibly addressed on the assumption that there are no factors affecting priority other than either the timing of the creation of the interest or the timing of registration of a caveat in relation to the interest. I will deal with the question on that assumption.
Where there is competition between unregistered equitable interests in land, the general rule is that, if the equities are in all other respects equal, priority in time of creation is considered to give the better equity: see Rice v Rice (1854) 2 Drew 73, 78; (1854) 61 ER 646, 648; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, 333 (Gibbs CJ). Where, however, the merits of the equities are unequal, for example where the conduct on the part of the holder of the earlier interest has led the other to acquire his interest on the supposition that the earlier interest did not exist, the general rule may be displaced and priority accorded to the later interest: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, 276; Heid v Reliance Finance Corp (333).
On the assumption that the equities are otherwise equal in this case, the interest created first in time will take priority. That is so regardless of whether, or when, a caveat is lodged to protect that interest (unless a delay in lodgment is relevant to the question of disentitling conduct by the prior equity holder).
Caveats are dealt with by pt V of the Transfer of Land Act 1893 (WA) (TLA). Section 137(1) of the TLA permits a person claiming an unregistered interest in land, including a charge under any unregistered instrument document or writing, to lodge a caveat 'in an approved form forbidding the registration of any person as transferee or proprietor of and of any instrument affecting such estate or interest …'. By s 138, the registrar is required to notify the proprietor of the land that a caveat has been lodged, and the proprietor may apply to the Supreme Court to require the caveator to show cause why the caveat should not be removed. By s 138B, the registered proprietor may require the registrar to serve a caveator with notice to the effect that, unless the caveator, within 21 days, obtains an order of the Supreme Court extending the operation of the caveat, the caveat will lapse. The court may, on such an application, make an order extending the operation of the caveat if the court concludes that the caveator's claim has, or may have, substance, but otherwise must dismiss the application. The effect of a caveat, whilst it remains in force, is to require the registrar not to enter any change in proprietorship of the land or any other instrument transferring or otherwise dealing with the estate or interest in respect of which the caveat is lodged: s 139 TLA.
It is well recognised that the effect of those provisions is not to enlarge or add to the existing proprietary rights of a caveator upon which the caveat is founded, but to protect those rights if they exist: Butler v Fairclough (1917) 23 CLR 78, 84 (Griffith CJ).
In its submissions, the plaintiff refers to the 'perception in Western Australia that priority is based upon the date of lodgment of a caveat' and submits that that perception stems from s 53 of the TLA. If that perception exists, and is based on s 53 of the TLA, then it is misconceived.
Section 53 of the TLA provides:
(1)The Registrar shall register an instrument presented for registration in the order, and from the time, of its presentation.
(2)Instruments purporting to affect the same estate or interest have priority as between each other according to the time of registration and not according to the date of the instrument, notwithstanding any actual or constructive notice.
A caveat is not an 'instrument' for the purposes of s 53. 'Instrument' is defined in s 4 in the following terms:
instrument includes -
(a)a document for the conveyance, assignment, transfer, lease, sublease, mortgage or charge of freehold land; and
(b)a document creating an easement, profit à prendre or restrictive covenant; and
(c)a carbon right form, carbon covenant form or tree plantation agreement; and
(d)a document for -
(i)the transfer, mortgage or charge of a carbon right, carbon covenant, plantation interest or profit à prendre or for any other dealing in relation to a carbon right, carbon covenant, plantation interest or profit à prendre; or
(ii)the extension of a carbon right, carbon covenant or plantation interest; or
(iii)the variation of a carbon covenant or tree plantation agreement; or
(iv)the surrender of a carbon right, carbon covenant or plantation interest;
and
(e)a document lodged with a plan or diagram under Part IVA for the purpose of creating an easement or restrictive covenant under that Part; and
(f)any other document for a dealing in relation to Crown land.
The documents containing the charges upon which each of Hanson and Bunnings rely in this case are the agreements, the terms of which are found in credit applications. Those documents are not instruments capable of being presented for registration. The lodgement of a caveat based on a credit agreement does not register the credit agreement or the charge within it as an encumbrance to the title. It simply serves as notice to the registrar so as to prevent the registrar accepting dealings on the land that might defeat the unregistered interest of the caveator without the caveator having notice of the proposed dealing. The caveat is not an instrument as defined in s 4.
Counsel for Bunnings made the somewhat tentative submission that the application for credit may constitute a memorandum lodged under s 54 of the TLA by reason of its annexure to the statutory declarations filed to support the caveats and thus can be considered an 'instrument' for the purposes of s 53. Section 54(2) permits a person to lodge with the registrar 'a memorandum in an approved form'. Counsel for Bunnings readily acknowledged that the finance applications were not memoranda in any approved form. Section 54 has no application to the present case.
It follows that the priority as between the interests of Bunnings and Hanson are not determined by the date of registration of their respective caveats. Unless there are circumstances which displace the general rule that priority in time of creation gives the better equity, then that rule applies.
Some reliance was placed by Bunnings on the passages of the judgment of Callinan J in Black v Garnock (2007) 237 ALR 1 [75], [76], [78], [80] ‑ [81], where his Honour disagreed with Barwick CJ in J&H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546. In J&H Just (Holdings) Barwick CJ said that the purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor, although it may operate to give such notice, and that a loss of priority by failure to lodge a caveat is unwarranted by general principles or by any statutory provision and would be subversive to the 'well recognised ability of parties to create or maintain equitable interests' in land. Justice Callinan's disagreement with Barwick CJ must be read in the context of the issue in Black & Garnock which turned on the effect of the lodgement of a writ of execution under s 105(1) of the Real Property Act 1900 (NSW). The other members of the majority in that case gave separate reasons and made no observations in relation to Barwick CJ's observations in J&H Just (Holdings). Gleeson CJ, in dissent, specifically referred, with apparent approval, to Barwick CJ's observation as to the purpose of a caveat. The other dissenting judge, Crennan J, did not consider it necessary to deal with the failure by the purchasers in that case to lodge a caveat. Callinan J made it clear that in making the observations that he did, he was not speaking about a contest between two holders of competing equitable interests neither of whom had availed himself of the statutory means of protection of the interest, being the lodgement of a caveat [81]. In my view, nothing in his comments can be taken as concluding that priority should be afforded to an equitable interest the subject of a caveat over another equitable interest also the subject of a caveat simply by reason of earlier lodgement of one of the caveats. As with the case where neither interest holder lodges a caveat, their respective entitlements will fall to be adjusted according to ordinary equitable and proprietary principles.
The conclusion that I have reached as to issue 1 begs the question as to when the equitable interests of Bunnings and Hanson were 'created'. Subject to what I take to be various alternative agreements raised by Bunnings, this issue was argued on the basis that the respective interests of each was created upon acceptance of the credit application containing the charging clause. The properties which are said to have been the subject of the charges were not acquired by Capital Works until August and September 2013. In Re Charge Card Services Ltd [1987] Ch 150 [176], Millett J, considering the definition of a charge and after referring to a passage in Palmer v Carey [1928] AC 703, 706, continued:
Similar definitions of equitable charge are to be found in National Provincial and Union Bank of England v Charnely [1924] 1 K.B. 431. It is sufficient to cite the language of Atkin L.J., at p 449:
It is not necessary to give a formal definition of a charge, but I think there can be no doubt that where in a transaction for value both parties evince an intention that property, existing or future, shall be made available as security for the payment of a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available by an order of the court.
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 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.
It is clear therefore that a charge may only become operative and enforceable against specific property at some time in the future. The equity in the form of the right to have the property available to satisfy debts arises at the time that the charge is granted. Any subsequent grant of the same right to another party must necessarily be subject to the prior grant, since the chargor is not able to pass an interest in the property greater than the interest which he or she possesses.
Where, as in this case, the charge is granted over future acquired property, clearly there can be no enforcement of the legal right in relation to later acquired property until that property is acquired and is capable of being dealt with by the chargor. But it is upon completion of the agreement containing the charge that the creditor has a present legal right to have future acquired property made available to satisfy the creditor's debts.
The same considerations apply in relation to the necessity, in the case of the charges with which we are concerned in this case, that there must be some debt owed by Capital Works to Bunnings or Hanson respectively, before the charge is operative. Similarly, the fact that the charge may cease to become operative from time to time when the balance due on Capital Works' running account falls to zero, does not mean that the chargee does not continue to have a right as against the chargor's property in relation to future indebtedness. When further credit is then incurred, the charge becomes operative again. It is not, however, a new charge: see Sibbles v Highfern Pty Ltd (1987) 164 CLR 214 , 221 ‑ 223.
Issues 3, 4 and 9
To understand how issues 3 and 4 arise in this case, it is necessary to have regard to the affidavits filed by each of Bunnings and Hanson. Bunnings relied upon an affidavit of Geoffery Lawrence Godden sworn 28 November 2016. Mr Godden is the collections manager employed by Bunnings. Mr Godden was not cross‑examined on his affidavit, and there was no challenge to his evidence. He deposed to the fact that after the trading account with Capital Works was opened by Bunnings on 31 August 2010 with an initial credit limit of $10,000, that credit limit was subsequently increased from time to time reaching a maximum in September 2013 of $150,000. It was subsequently reduced in November 2013 to $135,000 as a result of a director of Capital Works opening two new commercial credit accounts with Bunnings for other entities. By January 2014, Capital Works had exceeded its credit limit. It was subsequently brought within its limit but because of subsequent non‑compliance with trading terms, Mr Godden made the decision to arrange for caveats to be lodged against any property owned by Capital Works. The caveats over the three properties were accordingly lodged on 23 April 2014.
Prior to lodging the caveats, Mr Godden caused title searches of Capital Works' properties to be undertaken. Those searches revealed that no other suppliers of goods had lodged any caveat against the properties. Mr Godden said that at the time of lodgement of the caveats, neither he, nor so far as his inquiries revealed, any other person within Bunnings' credit department, knew of Hanson's caveat until correspondence was received from Deloitte Touche Tohmatsu in July 2015. At the time of Mr Godden's search, all three properties were encumbered with a mortgage to the National Australia Bank. There is no suggestion in the evidence that Mr Godden made any enquiry to ascertain the amount of Capital Works' debt to the National Australia Bank and thus the extent of Capital Works' equity in the properties that might be available to meeting Bunnings' debt.
In early July 2014, a director of Capital Works approached Bunnings to reopen the trading account which had been placed on hold from 22 April 2014. After certain inquiries were made, Mr Godden advised the director, Mr Coffee, that the account would be reopened, but it was a condition of reopening the account that the Bunnings caveat would remain in place. Mr Godden said that Bunnings would not have reopened the trading account if it did not believe that it was 'the first in time business creditor with a security against the properties owned by Capital Works'. He said that if another caveat, such as Hanson's caveat, had already been lodged against the properties prior to 26 August 2014, when the account was reopened, Bunnings would not have reopened Capital Works' trading account at all.
Hanson relied on two affidavits from Mr Clive Anthony Sanders, Hanson's credit manager. The first of those affidavits, dated 9 December 2016, was the subject of objection by Bunnings, which objection is the subject of issue 9. Mr Sanders' evidence was that, based on his 25 years' experience in the industry and with Hanson, it is 'customary practice in the building and construction industry' that:
(i)suppliers require potential customers who seek goods on credit to complete a credit application;
(ii)the supplier will then review the credit worthiness of the potential customer;
(iii)a credit agreement will include a charging clause charging the customers interest in current and future property with amounts due under the credit agreement;
(iv)suppliers will not as a matter of course lodge caveats on properties of the customer as soon as the credit agreement is accepted or as soon as goods and services are supplied to the customer on credit;
(v)the supplier will only lodge a caveat over the property of the customer when or if the customer goes into default or there are specific concerns about the customer.
Mr Sanders deposed to a number of reasons why caveats are not immediately lodged pursuant to a charge when a credit application is accepted. They were, first, that lodgement of a caveat over property of a customer who is not in default is damaging to the relationship with the customer. Second, unnecessary costs are incurred by the supplier lodging a caveat, and possibly from time to time withdrawing the caveat to permit dealings on the land, where the customer is not in default.
Objection was taken to Mr Sanders' affidavit on the basis that he lacked qualifications to give evidence as to common practice within the industry.
Mr Sanders' evidence is admissible, at least to the extent that it explains why (regardless of whether it was following the general industry practice), Hanson did not lodge a caveat earlier than it did, which is an issue relevant to the issue of whether or not any conduct by Hanson disentitled it to priority of its charge. Because of the manner in which the matter was conducted, the objection to Mr Sanders' evidence appeared first in the plaintiff's submissions filed three days before the hearing. Neither party required the witnesses to be called for cross‑examination, so the extent of Mr Sanders' experience upon which he based his evidence could not be developed by elaboration of his evidence on the point. It is clear from the evidence of Mr Godden that, in relation to the lodging of a caveat, Bunnings followed precisely the practice explained by Mr Sanders in its dealings with Capital Works. In those circumstances, and in light of Mr Sanders' evidence that he has 25 years' experience in the industry, and given the cogency of the reasons which he explained for the industry practice, I would not reject his evidence on that issue.
Issues 3 and 4 find their basis in the decision in Rice v Rice where it was said:
In examining into the relative merits (or equities) of two parties having adverse equitable interests, the points to which the court must direct its attention are obviously these: the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the whole conduct of each party in respect thereto (648).
What circumstances will be 'relevant' to the assessment of merits in equities will depend upon the particular facts of any case, and I do not propose to specifically address the relevance of the six matters identified in issue 3. The critical question, in order to resolve the dispute between the present parties, is whether there was any postponing conduct on the part of Hanson which would have the effect of defeating its temporal priority. In my view, there was not.
The lodgement of a caveat is not necessary to create or enhance Hanson's interest in the properties. Hanson could not have lodged the caveats in respect to any of the three properties at the time the charge was created, since none of the properties were owned by Capital Works at that time. The same applied for Bunnings. The failure to lodge a caveat created a risk that in respect to the properties the subject of the caveat, there might be a transaction which had the effect of defeating Hanson's interest without notice to Hanson. It was a matter for Hanson, and by the same token for Bunnings, as to whether, and at what time, it chose to take steps to avoid that risk. It is apparent that, in choosing when to lodge a caveat, both Hanson and Bunnings adopted a usual industry practice.
Mr Godden's evidence as to inquiries made prior to the lodgement of the Bunnings caveat, and the reestablishment of the trading account, does not render Hanson's delay in lodgement of a caveat conduct which defeats its priority.
The principles concerning the consequences of a failure to lodge a caveat were helpfully explained by Debelle J in Elderly Citizens Homes of SA v Balnaves (1998) 72 SASR 210, 220 ‑ 227. After noting that, since J&H Just (Holdings), it is well established that a failure to lodge a caveat does not, standing alone, necessarily defeat a prior equity, and that the holder of an equitable interest cannot improve his priority by lodging a caveat (referring to Butler v Fairclough at 84), Debelle J said:
It is necessary to have regard to all the facts and to determine whether the failure by the holder of the prior equity to lodge a caveat has, in all the circumstances, conduced or contributed to a belief on the part of the holder of the subsequent equity that the prior equity did not exist. Ultimately, it must always be remembered that the task is to determine whether the conduct of the holder of the earlier interest has caused the creation of later interest and regard must be had to all relevant circumstances including the behaviour of the claimants (224).
Debelle J continued:
The principles to be applied were also examined by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd (at 339 ‑ 342). They concluded (at 342 ‑ 343):
1.It is preferable to avoid a reliance solely on the doctrine of estoppel and to accept a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances.
2.The question is whether, in fairness and in justice, the earlier interest should be postponed to the later interest.
3.In whatever form the relevant test be stated, the overriding question is "... whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made..." See Sykes, Law of Securities, 3rd ed, (1978) p336; see also Dixon v Muckleston (1872) LR 8 Ch App 155 at 160 and Latec Investments (at 276).
4.Thus, regard must be had to both negligence and estoppel.
5.Fairness and justice demand that the primary enquiry be concerned with those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the whole of that later interest will assume the non-existence of the earlier interest.
That principle was expressed in these terms (at 342):
"It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind - those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the whole of that later interest will assume the non-existence of the earlier interest" (225).
There is no evidence, that prior to the creation of the charge in favour of Bunnings in August 2010, Bunnings made any inquiry of Capital Works as to the existence of other credit arrangements or other charges granted by Capital Works over existing or future land holdings. It cannot be said that Hanson in any way led Bunnings to acquire its interest, which it did by accepting Capital Works' credit application in 2010. Bunnings carried out no title searches at that time, but in any event Capital Works did not own the three properties the subject of the caveat until 2013. Mr Godden's belief that the absence of any other caveats lodged by other suppliers of Capital Works, of itself, had the effect of giving Bunnings priority over any other unregistered charge was misconceived. That misconceived view cannot have the effect of depriving a prior interest holder of its priority.
Issues 7 and 8
These issues are said to arise as a result of a submission by Hanson that, in making advances by way of credit to Capital Works, it did not have actual notice of any prior security or credit advances by Bunnings so that the rule enunciated in Hopkinson v Rolt (1861) 9 HL Cas 514 is not invoked: see R&I Bank v Cash Resources Pty Ltd (1993) 11 WAR 536, 547. As I understand it, the plaintiff's response to that submission is that the rule in Hopkinson v Rolt is only applicable to the determination of priorities as between two competing registered mortgagees. It is not necessary to deal with that issue since there is no suggestion by Bunnings of any actual knowledge by Hanson of Bunnings' charge, or of any advances of credit by Bunnings, which might defeat any priority which Hanson would otherwise enjoy. Whether or not the rule in Hopkinson v Rolt has any application to unregistered interests in land therefore does not fall for consideration in this case.
Remedy
The plaintiff's writ and statement of claim seek a declaration that the equitable charge protected by Bunnings' caveat constituted an interest in the properties in priority to the equitable charge protected by Hanson's caveat. An order was also sought that monies directed to be paid into court by the second defendant (to abide this action) be paid out to the plaintiff. Because of the abbreviated procedure adopted by the parties in bringing this matter to hearing, there is no counterclaim by Hanson for any declaration as to its priority. By reason of the conclusions set out above, Bunnings is not entitled to the relief which it seeks. It follows that there should be an order that its claim be dismissed. Clearly, the money paid into court needs to be dealt with and I will hear the parties as to the appropriate mechanism by which that outcome can be achieved.
6
9
1