Commonwealth Bank v MacDonald
[2000] NSWSC 791
•10 August 2000
CITATION: Commonwealth Bank -v- MacDonald [2000] NSWSC 791 CURRENT JURISDICTION: Equity Division
Commercial ListFILE NUMBER(S): SC 50053/00; 50055/00 HEARING DATE(S): 14.7.00, 20.7.00 JUDGMENT DATE: 10 August 2000 PARTIES :
Commonwealth Bank of Australia -v- Ian Harley MacDonald & Helen Elizabeth MacDonaldJUDGMENT OF: Hunter J
COUNSEL : Plaintiff: R G Forster SC & R S Hollo
First and Second Defendants: M J WattsSOLICITORS: Plaintiff: Abbott Tout
Second Defendant: Searle & AssociatesCATCHWORDS: Practice and procedure - default judgment - variation of judgment - enforcement of covenant for vacant possession - appropriateness of writ for possession of company title unit - s 19 Supreme Court Act 1970 - Pt 42 r 4 Supreme Court Rules - whether right of occupation of company title unit vested in registered holder of shares over trustee in bankruptcy of registered holder's estate - s 58 Bankruptcy Act 1966 (Cth) - whether right of occupation vested in registered holder over chargee of shares. LEGISLATION CITED: Bankruptcy Act 1966 (Cth)
Contracts Review Act 1980 (NSW)
Conveyancing Act 1919 (NSW)
Supreme Court Act 1970 (NSW)CASES CITED: Brimaud -v- Honeysett Instant Print Pty Ltd (Unreported 19 September 1998)
Danzey and Others -v- Nevada Pty Ltd (Unreported 22 May 1997)
Douglass -v- Gillman (1990) 19 NSWLR 570
Garcia -v- National Australia Bank Ltd (1998) 194 CLR 395
Yerkey -v- Jones (1939) 63 CLR 649DECISION: Default judgments for possession to be varied by discharge and further orders for delivery of possession of subject premises and otherwise by orders in accordance with prior default judgments. Plaintiff to bring in short minutes of orders to give effect to reasons for judgment.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LISTHUNTER J
THURSDAY 10 AUGUST 2000
50053/00 COMMONWEALTH BANK OF AUSTRALIA LIMITED -V- IAN HARLEY MACDONALD & ELIZABETH HELEN MACDONALD
50055/00 COMMONWEALTH BANK OF AUSTRALIA LIMITED -V- IAN HARLEY MACDONALD & ELIZABETH HELEN MACDONALD
REASONS FOR JUDGMENT
1 In these proceedings nobody disputes that the plaintiff lent the first defendant a considerable sum of money several years ago, nor that repayment of those moneys was secured by several equitable charges, nor that a substantial sum of money remains unpaid. Yet, in proceedings instituted in 1997, the plaintiff finds itself unable to enforce its security in order to facilitate satisfaction, at least in part, of the outstanding indebtedness.
2 In order to gain some insight into this situation it is useful to trace the history of the proceedings between the parties.
3 On 19 August 1997 the plaintiff brought proceedings in the Common law division by way of default statement of claim (the 97 proceedings) seeking enforcement of two equitable charges, each dated 26 November 1990, by which, in one, the first defendant (MacDonald) charged in favour of the plaintiff (the bank) shares known as group A shares held by him in the capital of 82-84 Bower Street Pty Limited (the corporation), and in another, MacDonald and the second defendant (Elizabeth MacDonald), charged the shares known as group D shares held by them in the corporation.
4 There is no dispute that under the articles of association of the corporation the holder of group A shares had the right of occupancy of flat 1 in a building situated in 82-84 Bower Street, Manly, while the holders of group D shares had the right of occupancy of flat 4. Those flats are residential flats and are used by MacDonald and Elizabeth MacDonald as their residence in circumstances which are dealt with later in these reasons.
5 At the time of these proceedings it is not disputed that they have remained in occupation of those flats and that nothing has been paid to the plaintiff under the facilities in respect of which the equitable charges have been given; in the case of facilities known as commercial loans, since 11 September 1996, and, in the case of another facility known as the home loan, since 15 May 1997. Until 14 July 2000 MacDonald had made, virtually, no attempt to take any part in these proceedings, nor in related proceedings brought by the bank against the defendants in the Common law division by default statement of claim filed 13 January 1999 (the 99 proceedings).
6 The relief sought in the 97 proceedings was as follows:7 On 16 February 1998 the bank obtained judgment by default to take effect on 20 February 1998, in the following terms:
“27. The Bank claims:
(a) An order that the Defendants give the Bank possession of Flats 1 and 4, 82-84 Bower Street, Manly in the State of New South Wales 2095, being Flats 1 and 4 in the whole of the land comprised in Lot 5 in Deposited Plan 8075.
(b) An order that the Bank have leave to issue a Writ of Possession forthwith in respect of Flats 1 and 4, 82-84 Bower Street Manly in the State of New South Wales 2095, being Flats 1 and 4 in the whole of the land comprised in Lot 5 in Deposited Plan 8075.”
…
“Judgment:
1. That the First and Second Defendants and each of
them give the Plaintiff possession of the land described in the Schedule.
2. The Plaintiff have leave to issue a writ of possession
forthwith in respect of the land described in the Schedule.
3. That the First and Second defendants be jointly and severally liable to pay the Plaintiff’s costs of $1,832.00
SCHEDULE
The whole of the land comprised in Flats 1 and 4 of Lot 5 in Deposited Plan 8075 and commonly known as Flats 1 and 4, 82-84 Bower Street, Manly, New South Wales 2095.
This judgment takes effect on 20 February 1998.”
8 I assume that para 2 was struck from the terms of the default judgment by reason of the fact that on 27 February 1998 a writ of possession issued pursuant to leave granted to the bank by order of 2 February 1998.
9 On 19 March 1998 Elizabeth MacDonald moved to have the default judgment set aside and any writ of execution stayed, as against her. That motion was dismissed on 7 July 1998 by Master Malpass. Elizabeth MacDonald had relied upon two grounds, namely, failure to be served with the originating process and that she had an arguable defence to the bank’s case based on grounds of unconscionability and under the Contracts Review Act 1980.
10 Elizabeth MacDonald appealed against that decision. That appeal was heard before Sperling J, who, in his reasons published on 15 October 1998, remitted the matter to the Master for re-determination, there having been handed down the decision of the High Court in Garcia -v- National Australia Bank (1998) 194 CLR 395, on 6 August 1998, which, inter alia, reaffirmed the principles expressed by Dixon J in Yerkey -v- Jones (1939) 63 CLR 649: principles which had not been considered in the application before Master Malpass.
11 In the meantime the Court had granted a stay of execution under the default judgment. Neither party appears to have done anything to re-agitate the 97 proceedings until 10 December 1999, some fourteen months later, when the bank requested the Registrar to relist the matter. The Registrar caused the matter to be relisted for 15 February 2000.
12 In that intervening period the bank instituted the 99 proceedings and brought proceedings in the Equity Division (the 66G proceedings) which was the subject of a judgment of Young J of 21 June 2000 (the 66G judgment). In the 99 proceedings the bank sought to enforce equitable charges, each dated 4 December 1990: one given by MacDonald under which he further charged the group A shares and another given by MacDonald and Elizabeth MacDonald by which they further charged the group D shares in favour of the bank.
13 The relief sought in the 99 proceedings was as follows:14 Default judgment was obtained by the bank against MacDonald in the 99 proceedings in the following terms:
“(i) An order that the Defendants give the Bank possession of Flats 1 and 4, 82-84 Bower Street, Manly in the Sate of New South Wales 2095, being Flats 1 and 4 in the whole of the land comprised in Lot 5 in Deposited Plan 8075.
(ii) An order that the Bank have leave to issue a Writ of
Possession forthwith in respect of Flats 1 and 4, 82-84 Bower Street, Manly in the State of New South Wales 2095, being Flats 1 and 4 in the whole of the land comprised in Lot 5 in Deposited Plan 8075;
(iii) Judgment against the First and Second Defendants jointly and severally in the sum of $412,071.85;
(iv) (a) contractual interest from 1 October
1998; alternatively
(b) interest from 1 October 1998 at the rates from time to time prescribed under Section 94 of the Supreme Court Act 1970 (NSW) on the month for which judgment is entered pursuant to sub paragraph (iii) above…”
“Judgment:
1. The First Defendant gives the Plaintiff possession of
the land described in the Schedule.
2. The First Defendant pays to the Plaintiff the sum of
$412,071.85$435,555.69.
3. The First Defendant
be liable topay the Plaintiff’s
costs of $1,844.00
The judgment takes effect on 3 August 1999”
15 In addition to obtaining default judgment the bank moved by notice dated 4 August 1999 for summary judgment against Elizabeth MacDonald seeking relief in terms similar to the judgment obtained by default against MacDonald. That motion came on for hearing before Master Harrison on 21 February 2000 and by her judgment of 6 March 2000 the motion was dismissed.
16 Presumably, the bank had elected to pursue an application for summary judgment in the 99 proceedings rather than re-agitate the 97 proceedings for re-determination in accordance with the judgment of Sperling J.
17 Following upon the dismissal of the bank’s application for summary judgment in the 99 proceedings, the bank moved in the 97 proceedings and the 99 proceedings by notice dated 21 April 2000 to have the two proceedings entered into the Commercial List and, in the case of the 97 proceedings, seeking an order that the hearing date of 1 May 2000 for the re-determination of Elizabeth MacDonald's application be vacated and the default judgment as against her be set aside.
18 Pursuant to those motions each matter was transferred to the Commercial List on 28 April 2000, and, in the case of the 97 proceedings, the following further order by consent was made:
“Orders that the judgment entered against the Second Defendant on 20 February, 1998 in proceedings 12414 of 1997 be set aside.”
19 During the course of hearing the bank’s applications on that day, I indicated that I did not propose to accede to the bank’s application to have the hearing date of the 66G proceedings vacated.
20 On 28 April 2000, by consent, several other directions were given in the 97 and 99 proceedings aimed at having those proceedings heard together and making provision for the filing of statements of evidence to bring the matters to a state ready for hearing.
21 On 5 May 2000 in response to those orders the registry informed the parties that the matters were re-listed for 20 June 2000 and mistakenly informed the parties that each of the 97 proceedings and the 99 proceedings had been given the Commercial List number of 50053/00, whereas the true position was that the 97 proceedings were re-listed as 50053/00 and the 99 proceedings had been assigned the Commercial List number of 50055/00.
22 As a consequence of that information, the bank moved by a notice dated 20 June 2000 in matter number 50053/00 in the belief that it was moving in both sets of proceedings. When I brought this matter to the attention of both parties during the course of the hearing of the motion on 20 July 2000, I granted leave to the bank to amend its notice of motion to be one made in the 97 proceedings and the 99 proceedings.
23 The 66G proceedings were brought by the bank by summons filed on 12 August 1999 seeking appointment of a trustee for sale, either of the shares in the corporation held by MacDonald and Elizabeth MacDonald, or, alternatively, for sale of their rights to occupy Flats 1 and 4.
24 At the time of the 66G judgment on 21 June 2000 MacDonald and Elizabeth MacDonald continued to occupy the flats which they had converted to form a single dwelling. Flat 4 is situated above flat 1 in the building 82-84 Bower Street. That summons was dismissed with Young J holding that there was no tenancy in common in the shares in the corporation held by the defendants and further that 66G relief was not available in respect of their interest as occupiers of the two flats.
25 Although not necessary to the decision, Young J also held that the rights of occupancy conveyed by the articles of association of the corporation attached to the registered holder of the relevant shares, and not to an entity entitled to be a holder, such as the bank as holder of the equitable charges which had crystallised in respect of the subject shares.
26 Of the joint occupancy of the two flats Young J observed as follows:27 The conclusion reached by Young J was expressed as follows:
“There is no evidence of any agreement between them to do this but one must imply that there was an agreement. One must also imply that it was an agreement terminable at the will of either party on reasonable notice.”
“61 (4) Result. As things have turned out, it is not necessary for me to consider whether I have any useful discretion which might be exercised in favour of the defendants. It is also unnecessary to consider whether Flat 1 can be part of the property passed to the trustees for sale because it is used in conjunction with Flat 4.
62 Although I have found against the Plaintiff Bank, my decision is on the statutory cause of action contained in s 66G of the Conveyancing Act 1919. There may well be some in personam rights which the Bank can deploy in order to get the result it wishes to obtain. However, as there are at least two other pieces of litigation pending between the parties, probably the less I say about extraneous matters the better.”
28 At the time of the hearing of these applications the bank had not given any notice to Elizabeth MacDonald, in terms, terminating any agreement she may have with MacDonald relating to occupancy of flat 1 other than the steps taken in the 97 proceedings and the 99 proceedings.
29 Further, although the bank holds executed transfers in blank of the shares held by MacDonald and Elizabeth MacDonald, and has the power under the subject security documents to complete those transfers as agents for the defendants, it has not sought to act on those transfers so as to become registered holder of the shares in the corporation held by either of the defendants.
30 MacDonald became a bankrupt on 3 June 1997. The solicitor for the trustee in bankruptcy of MacDonald’s bankrupt estate informed the bank’s solicitors by letter of 29 May 2000 as follows:
“We acknowledge receipt of your faxed letter of 16th May, 2000. The position stated by our client in its letter of the 24th August , 1999 remains unchanged. You will be aware as a result of Mr. Macdonald’s bankruptcy, his interest in the shares in 82-84 Bower Street Pty. Limited has vested in the Official Trustee. Accordingly, you are requested to account to our client for any surplus arising from a sale of such shares.’
31 The trustee has declined to take any other interest in the proceedings.
32 By Notice of motion filed 21 June 2000 the bank moved for the following orders:
“1. An order granting leave to the plaintiff to join 82-84 Bower Street Pty Limited (ACN 002 330 707) as a defendant to these proceedings.
2. An order that the first defendant deliver up to the plaintiff within one month from the date on which this order is made vacant possession of the land comprised in Flat 1, of Lot 5 in Deposited Plan 8075 and commonly known as Flat 1, 82-84 Bower Street, Manly NSW 2095.
3. An order granting leave to the plaintiff forthwith to issue a Writ of Possession in respect of the said land, such writ not to be enforced until after the expiration of the said one month period.”
33 That is the motion in respect of which I granted leave to amend, so as to be a motion in each of the 97 proceedings and the 99 proceedings. Those motions came on for hearing on 14 July 2000.
34 In support of the motions there was read the affidavit of Iain Malcolm Stevens sworn 29 May 2000 and his further affidavit sworn 20 June 2000. In opposition to the motions there was read the several affidavits of Elizabeth MacDonald, those being ones sworn 29 June 2000, 13 July 2000 and two sworn 10 July 2000, and the affidavit of Deborah Jean Searle sworn 13 July 2000.
35 On the hearing I granted leave to Martin Watts to appear on behalf of both defendants: in the case of Elizabeth MacDonald, on the basis of her claimed interest in the occupancy of flat 1 and, in the case of MacDonald, on the basis of his claimed interest in that occupancy as the holder of group A shares in the corporation: neither the bank nor the trustee in bankruptcy having moved to become registered holder of the shares.
36 In relation to the leave granted to counsel to appear for MacDonald, that was given on the undertaking of counsel to file a Notice of Appearance on behalf of MacDonald. At the time of the completion of the hearing of submissions that undertaking had not been satisfied, partly because a Notice of Ceasing to Act had not been filed so as to permit entry of appearance by counsel. Proceeding to judgment in these motions is done on the basis that the undertaking of counsel will be complied with.
37 On 14 July 2000 the matter was part heard and adjourned to 20 July 2000. Prior to that adjournment I made an order in terms of paragraph 1 of the notice of motion and drew the attention of the parties to the desirability of addressing the nature of the applications: in particular, whether they should be treated as applications merely seeking enforcement of the default judgments against MacDonald in each of the 97 proceedings and the 99 proceedings, or whether they were motions seeking summary relief by way of enforcement of the subject security documents. Much of the evidence adduced and the submissions could be seen as going to the latter form of relief only.
38 Moreover, it was apparent that the terms of the orders sought departed from the terms of the default judgments given against MacDonald. Presumably, this was done to bring the orders more in line with the nature of the bank’s entitlements under the equitable charges and with the Court of Appeal’s expressed views about the inappropriateness of the issuing of writs of possession in relation to rights of occupation of the kind claimed by MacDonald under the articles of association of the corporation. (See Danzey & Ors -v- Nevada Pty Ltd, Unreported, 22 May 1997).
39 On the resumption of hearing on 20 July 2000, I ruled that the applications could be treated as ones including applications to discharge and/or vary the terms of the default judgments given against MacDonald.
40 It is conceded by counsel for the defendants that an application to set aside or vary a judgment or order under Pt 40 r 9 may be made by the party in whose favour such a judgment has been given. This accords with the decision of Needham J in Douglass -v- Gillman (1990) 19 NSWLR 570.
41 The affidavit evidence adduced on behalf of the bank proved the continued occupation of flat 1 by MacDonald: the terms of the equitable charges the subject of the 97 proceedings and the 99 proceedings: the articles of association of the corporation evidencing the rights of occupancy attaching to the shares held by the first defendant: the terms of the home loan, of the commercial loans and of the equitable charges given in respect of those facilities: the demands made upon the first defendant by the bank in relation to moneys due under those facilities and proving the amount of indebtedness as at 29 May 2000 as totalling approximately $600,000.
42 In her affidavits Elizabeth MacDonald deposed to the facts that she resided with MacDonald and their three children in flats 1 and 4 which had “been incorporated into a two-story family home”: that the flats had been renovated so that one flat is uninhabitable as a residence without the other: by inference, that the work to convert flats 1 and 4 took place shortly before August 1991.
43 As to the work of conversion of the flats, Elizabeth MacDonald deposed to the extent of that work as follows:
“4. The work to convert Flats 1 and 4 was not extensive but it involved putting in stairs to join the two Flats and making the upstairs bedroom in Flat 1 into a living room. I believe in total it cost about $10,000. The work was paid for by my husband. I asked my husband:
“How much did the conversion work for Flats 1 and 4 cost?”
He replied: “About $10,000. The builder was paid around August 1991.””
44 Much of the other evidence adduced through the affidavits of Elizabeth MacDonald related to the circumstances in which the loans and security documents came into existence.
45 During the course of submissions on 20 July 2000 counsel for the defendants sought a further adjournment on the basis of the applications being treated as ones to discharge and/or vary default judgments against the first defendant. Those submissions are recorded and the application was rejected as lacking any substance.
46 The bank’s applications are brought, in so far as they seek an enforcement of the default judgments against the first defendant, pursuant to Pt 40 r 4 (2) which is in the following terms:
“ 4 (2) Where a judgment or order requires a person to do an act forthwith or forthwith upon a specified event or to do an act but does not specify a time within which he is required to do the act, the Court may, by order, require him to do the act within a specified time.”
47 The ambivalence of the position of the bank on the applications is to be found in the written submissions of senior counsel that place the applications on two bases: one by way of enforcement of the default judgments against MacDonald pursuant to Pt 40 r 4(2) and second, on the basis that MacDonald has no defence to the bank’s claim under the subject equitable charges. On either basis it is submitted that the bank is entitled to enforcement of its judgment for possession by the issuing of a writ of possession.
48 As to the position of Elizabeth MacDonald, it is the bank’s contention that she has no standing in either of these applications as she had no interest in flat 1: that, at its highest, she is merely a licensee at will in respect of the occupancy of flat 1 - an interest that could only have arisen after the equitable charges had crystallised in respect of MacDonald’s shares and of which the bank had no notice.
49 However one approaches the relief sought by the bank, I think it is clear that the terms of the default judgments were to some extent inappropriate for the enforcement of the rights the subject of the bank’s equitable charges. So far as is relevant the articles of association of the corporation provided for rights of occupancy attaching to group A shares as follows:50 The provisions of the equitable charge are not free from problems of construction. The recitals were, so far as is relevant, in the following terms:
“(b) The holding of the said group of shares will entitle the holder thereof to the right to occupy one of the units and /or the garage in the property known as 82-84 Bower Street and hereinafter specified as available for a holder of such group of shares for such time as he is the holder of such group of shares.
(c) The units and garage in the said building available for the holders of the aforesaid groups of shares will be as follows:
Group of Shares Designation of Unit or Garage
A Flat No 1
…
(d) The right to occupancy in respect of Groups of shares A to D inclusive is conditional upon:
(i) That the holder shall have the right of sub-leasing the said home to a tenant approved by the Board. Provided always that such approval shall be withheld only in the event of such proposed sub-tenant being of unsound mind or being an undischarged bankrupt or being in the opinion of the Board a person of bad character.”
…
51 When one goes to the schedule to identify “the premises referred to in the schedule,” one finds that the schedule is expressed in the following way:
“WHEREAS the Mortgagor is registered or entitled to be registered in the share register of the Company referred to in the schedule hereto (hereinafter called the Company) as the holder of the shares in the schedule hereto (such shares hereinafter called the Schedule Shares)
AND WHEREAS under the provisions of the Articles of Association of the Company the holder for the time of the Schedule Shares has full right subject to the provision of the said Articles of Association to use and enjoy the premises referred to in the schedule hereto (such premises hereinafter called the Property)
52 The convenants of the equitable charge included the following:
“72612 ordinary shares in 82-84 Bower Street Pty Limited being shares numbered 1,2 and 14 to 72623 inclusive…”
That schedule is sufficient description for the first of the recitals quoted above, but deficient in respect of the second of those recitals.
“F. It is further hereby agreed and declared that without
limiting the generality of the foregoing convenants:-
1. The Bank is entitled during the currency of this security to possession of share certificates issued in the Mortgagor’s name for the Mortgaged Premises and to enable the Bank to obtain physical possession of the said share certificates the Mortgagor has delivered or will deliver to the Bank:-
The Transfer of Shares in the form of the Annexure marked “C” hereto executed by the Mortgagor may be held by the Bank to further perfect this security and that on the Bank’s power of sale arising the Bank may complete and act on same.
(a) an instrument of transfer of the Mortgaged Premises in a form approved by the Company wherein the Mortgagor is the sole transferee of the Mortgaged Premises; and
(b) the share certificates for the shares the subject of the said instrument of transfer; and
(c) any document evidencing the Company’s approval of the transfer of the Mortgaged Premises to the Mortgagor; and
(d) an executed Notice of Charge in the form of the annexure marked “B” hereto.
…
10. Upon the Bank’s power of sale becoming exerciseable the Mortgagor will give and deliver up to the Bank on demand vacant possession of the Property and the exclusive use occupation and enjoyment thereof subject to the terms and conditions appearing in the Articles of Association of the Company.
11. The Mortgagor will not without the written consent of the Bank assign sub-let or part with possession of the Property or consent to any assignment, letting or sub-letting thereof by the Company.”
53 It is not in dispute that the bank’s power of sale has arisen under the equitable charge. It has been submitted on behalf of the defendants that, upon the proper construction of the equitable charge, the power sale of sale is exerciseable over the “Property”, meaning the shares as described in the schedule. This construction, it is said flows from the above quoted recital which refers to the “right to use and enjoy the premises referred to in the schedule”, namely, the “Property”. As noted above, the schedule simply describes the shares held by MacDonald. Although a strict reading of the terms of the equitable mortgage could lend some weight to that construction, it is a construction which leads to an absurdity. Clearly, such a construction was not intended.
54 Upon a proper construction of the equitable charge the premises referred to are those the occupation of which attaches to the shares in the Schedule and the obligation of MacDonald to give possession to the bank under clause 10 is vacant possession of those premises.
55 Even that construction calls for a reading down of the obligation so as to have due regard to the nature of the occupation rights held by MacDonald as holder of the group A shares. Strictly speaking, he has no right of possession, as distinct from a right of occupation. In those circumstances I think the word possession in the equitable charge should be read as referring to the physical possession of the premises represented by MacDonald’s occupation of it.
56 However, so construed it is the defendants’ contention that, first, a writ of possession is inappropriate and may not issue in respect of such an interest and, second, the nature of that right of physical occupation is not amenable to an order to deliver up such right of occupation to the bank: that right attaching only to the holder of the shares and being inalienable in MacDonald’s hands, save only for “the right of sub-leasing…to a tenant approved by the Board” of the corporation.
57 If that construction is correct it would have implications on the claimed right of occupancy of Elizabeth MacDonald in relation to flat 1, there being no suggestion that her residential use of flat 1 has the subject of any approval by the Board.
58 However, I see no reason why the nature of the possession in cl 10 of the equitable charge may not be made the subject of an order varying the judgments by default entered against MacDonald in each of the 97 and 99 proceedings. I think clause 10 was clearly intended to work that way. It makes little sense to apply it only to a situation where the bank has become the registered holder of the relevant shares. In that circumstance, MacDonald would have no right of occupation and there would be nothing for him to deliver to the bank.
59 In other words, I think clause 10 was intended to operate at a time when the bank was entitled to become the registered holder by reason of MacDonald’s default entitling the bank to exercise its power of sale under the equitable charge. In those circumstances clause 10 operates to require MacDonald to deliver to the bank his physical occupation of flat 1, described in clause 10 as vacant possession.
60 The Court of Appeal in Danzey had occasion to consider the form of an order in which leave was given to issue a writ of possession in respect of residential premises, the occupation of which attached to the holder of shares in the company owning the building in which the residential premises were situated. In Danzey the court was of the opinion that an amendment of the orders of the trial judge was necessary, as the subject matter of the writ was “not an area where a writ of possession ought to issue”.
61 In that case the holder of the shares purported to lease the unit, the right of occupation of which attached to those shares, notwithstanding a provision in the articles of association as follows:62 The relevant article of association conferring the right of occupation on the holder of shares was Article 22. In relation to that article the Court of Appeal observed as follows:
“No holder of a group of shares shall let, part with possession of or give any licence or right to occupy the unit in respect of which he has the exclusive use under these Articles without the prior approval of the board in writing. The Board may decline to give any such approval without assigning any reason therefore.”
“Counsel for the appellants conceded that Article 22 did not create the relationship of landlord and tenant as between Nevada Pty Ltd and Mr Danzey. It follows that the right of possession to unit 102 remained at all times with Nevada Pty Ltd and that Mr Danzey had a contractual right only, that contractual right being of exclusive use of the premises. It also follows that as Mr Danzey had no right of possession in the land, he had no estate in the land which he could let.”
63 The orders made by the Court of Appeal provided that the parties to whom the holder of shares had purported to sub-let the unit be ordered to deliver up vacant possession to the company. I think it is consistent with the reasoning advanced earlier in these reasons that the Court of Appeal treated the delivery up of occupancy of the subject unit by the purported sub-lessees as a delivery up of vacant possession.
64 It has been argued on behalf of the defendants that the only person entitled to occupation of flat 1 under the articles of association of the corporation is MacDonald, as holder of the group A shares. I think that is correct and represents the view taken by Young J in the 66G judgment.
65 However, it does not follow, in the circumstances of this case, that the bank may not enforce the default judgments obtained against MacDonald, albeit in altered form, to match the nature of MacDonald’s interest as holder of the group A shares and as a debtor in default within the meaning of the subject equitable charges.
66 The terms of the default judgments are strictly not appropriate to the nature of the rights of MacDonald as the holder of the group A shares.
67 Counsel for the defendants has opposed any variation of those orders on the basis of the principles expressed by McLelland J in Brimaud -v- Honeysett Instant Print Pty Ltd (Unreported 19 September 1998) in the following terms:
“…rules of practice have been developed in accordance with which the discretionary power of the Court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature (as to which see e.g. Wilkshire v Commonwealth (1976) 9 ALR 325) and injunctions (or undertakings) made or given by agreement and without contest “until further order” (as to which see e.g. Warringah Shire Council v Industrial Acceptance Corporation - McLelland J 22 November 1979 unreported).
In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application…”
68 I think it is evident from that statement that the bank is not required to found its application to vary the default judgments on “a material change of circumstances ….or the discovery of new material…”
69 In its notice of motion, the bank has recognised, to some extent, the inappropriateness of the terms of the default judgments obtained in the 97 proceedings and the 99 proceedings and has sought relief in a form more akin to the nature of the order as varied in Danzey.
70 I think the appropriate order is that MacDonald deliver up to the bank vacant possession of the premises known as flat 1 in 82-84 Bower Street, Manly, within one month of the making of this order.
71 I have used the expression “vacant possession” to match the phrase in clause 10 of the subject security which can only refer to physical occupation of flat 1. Further, I think an order in those terms accords with the approach of the Court of Appeal in Danzey.
72 I think it is clear from the reasons given that it is inappropriate to order the issuing of a writ of possession in aid of the order for the delivery up of vacant possession of flat 1. I think that position is reinforced by Pt 42 r 4 of the Supreme Court Rules which makes it clear that a writ of possession is appropriate only in respect of enforcement of a judgment for possession of land which bears the meaning given to ‘land’ by sec 19 of the Supreme Court Act 1970.
73 In the course of the reasons for the 66G judgment Young J observed that the conversion of flats 1 and 4 into one residential unit must have involved some agreement between MacDonald and Elizabeth MacDonald permitting her use of those premises. However, it is not suggested that that use was the subject of any approval by the corporation under Article 1 C(d)(i). In my view, at its highest, the evidence adduced on behalf of the defendants reflects nothing more than a licence terminable at will, and to that extent, in my view, any claimed interest of that kind by Elizabeth MacDonald in respect of the occupancy of flat 1 should not preclude the making of the order proposed in these reasons.
74 I think it is necessary to proceed by way of discharge of the default judgments and the substitution therefor of an order appropriate to the nature of the interests of MacDonald in flat 1, having regard to the reasoning of Needham J in Douglass.
75 In that case, Needham J had occasion to consider the ambit of the power to vary where a judge at first instance purported to vary an order by the addition of orders for the purpose of enforcement. Needham J examined the concept of variation in that context as follows:76 Accordingly, the orders I propose to make are that the default judgments be set aside and in substitution therefor orders in each of the 97 and the 99 proceedings be made as follows:
“The second matter which concerned me was whether the addition to the orders made by Hodgson J in the form of enforcement of the order could be said to be an act of varying the original order. Counsel has referred me to two decisions, first of all a decision of the Full High Court in R v Tonkin; Ex parte Federated Ship Painters’ and Dockers’ Union of Australia (1954) 92 CLR 526, where the question was whether a new term could be placed in an award under a power given by s 49 of the Conciliation and Arbitration Act 1904 (Cth) to vary the terms of an award. A conciliation commissioner had added a term prohibiting bans, limitations or restrictions. It was alleged in the case that he had acted beyond power because that went beyond variation.
Sir Owen Dixon, giving the judgment of the Court, pointed out that the expression “terms of an award” was much wider than “clauses” and His Honour added (at 528):
“…The expression in truth appears to refer to the whole contents of the award as those contents prescribe the rights and obligations of the persons governed by the award or affected by it. The word ‘vary’ is one which no doubt in different contexts may have different meanings. In s 49 there is a distinction drawn between setting aside an award or any of the terms of an award and varying any of the terms of an award. But the distinction made, at all events in words, between setting aside and variation, can carry no restriction upon the meaning of ‘variation’ beyond showing that it refers to a change in some part of the award. Probably it is enough to say that to vary the terms of the award is to change them in part whether by addition, by excision, by modification or by substitution or by qualification or otherwise.”
The other decision was one of the Full Court of the Supreme Court of South Australia in R v Industrial Court (SA); Ex parte Mount Gunson Mines Pty Ltd (1982) 30 SASR 504, 2 IR 336. That case arose under industrial legislation, and the Supreme Court judge hearing the application to quash an order of the Industrial Magistrate relating to dismissal quashed the order and ordered that the company re-employ the employee. It was argued that his Honour had exceeded his power given by s94(2)(a) of the Industrial Conciliation and Arbitration Act 1972 (SA) “to confirm, quash or vary the order or decision appealed from.” The Full Court rejected the application holding that the trial judge had power to make the order which he did.
In the judgment of Mitchell J (at 512; 340) she referred to R (Conway) v Justices of County Tyrone [1906] 2 IR 164, in which Andrews J defined the powers of the court to confirm, vary or reverse an order in the following way:
“ ‘Confirm’ requires no explanation, ‘vary’, in my opinion, means alter in part, as distinguished from discharging the whole order appealed against and making a wholly different one; and ‘reverse’ in my opinion imports more than ‘discharge’ and means ‘change to the contrary’.”
Mitchell J continued (at 512-513;340)
“The Shorter Oxford English Dictionary defines the transitive verb ‘to vary’ as meaning ‘to cause to change or alter; to introduce changes or alterations into’. As an illustration of the verb with that meaning it gives the following:- “The court, after such notice, may vary such order in such manner as it may think fit.” The dictionary meaning does not accord with that given by Andrews J, in that there is no suggestion that the change or alteration must be a change or alteration only in part. In Scott Pools Pty Ltd v Salisbury Corporation (1979) 22 SASR 406 at 412, Jacobs J was of the opinion that the word ‘varied’, appearing in Order 58, Rule 16(1) of the Rules of the Supreme Court, empowered the Court to discharge an order of the Planning Appeal Board and substitute a different order for it. I think that the same meaning must be given to the word ‘vary’ appearing in s 94 (2) (a) of the Industrial Conciliation and Arbitration Act.”
If the conclusion of Jacobs J in the case there referred to be correct (see Scott Pool Pty Ltd v Salisbury City Corporation (1979) 22 SASR 406 at 412; 42 LGRA 366 at 372-373) it seems to me that Pt 40, r 9(3) should be similarly construed.
Accordingly, what I propose is that I should discharge the order made by Hodgson J and make an order which includes the terms of that order, but also includes a term which would provide, on failure of the defendant to comply with the terms of that order, a right in the plaintiff to have appointed a trustee for sale of the premises.”
77 In the case of the 99 proceedings:
1. That the first defendant deliver up to the plaintiff within one month from the date on which this order is made vacant possession of the premises known as flat 1, 82-84 Bower Street, Manly, New South Wales.2. That the defendant pay the costs of these proceedings.
That the first defendant pay the plaintiff the sum of $599,026.33 together with interest from 29 May 2000 calculated in accordance with the affidavit of Iain Malcolm Stevens sworn 29 May 2000. I direct the plaintiff to bring in short minutes of orders with interest so calculated to give effect to these reasons for judgment.
78 It does not follow that the bank’s rights in relation to occupation of flat 1 are exhausted by these proposed orders, or must wait until the final determination of these proceedings. It is within the power of the bank to become the registered holder of the shares of MacDonald which will carry with it the right to occupy flat 1 under the articles of association of the corporation. To the extent that there are any subsisting rights of occupation by Elizabeth MacDonald in relation to flat 1, for the reasons given, I am of the view that it is within the power of the bank to bring that interest to an end.
79 At one point in the proceedings counsel for the defendants relied upon the operation of sec 58(1) and (2) of the Bankruptcy Act 1966 (Cth) which is in the following terms:80 In my view those provisions have little to do with this application in the light of the security held by the bank. In any event, s 58(2) has no application. There is no requirement within the meaning of s 58(2) for the registration of the group A shares in the name of the trustee. Moreover the submissions of counsel for the defendants pays no regard to the provisions of s 58(5) which provides:
“(1) Subject to this Act, where a debtor becomes a bankrupt:
(a) the property of the bankrupt, not being after-
acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; and
(b) after-acquired property of the bankrupt vests,
as soon as it is acquired by, or devolves on, the bankrupt, in the Official Trustee or, if a registered trustee is the trustee of the estate of the bankrupt, in that registered trustee.
(2) Where a law of the Commonwealth or of a State or Territory of the Commonwealth requires the transmission of property to be registered and enables the trustee of the estate of the bankrupt to be registered as the owner of any such property that is part of the property of the bankrupt, that property, notwithstanding that it vests in equity in the trustee by virtue of this section, does not so vest at law until the requirements of the law have been complied with.
“Nothing in this section affects the right of a secured creditor to realise or otherwise deal with his or her security.”
81 Having regard to the view I have reached as to the bank’s entitlement to an order for vacant possession, it follows I think that much of the evidence adduced by the parties on these applications has little or no relevance to the exercise of the court’s discretion to discharge or vary the default judgments.
82 It has been submitted on behalf of the defendants, as a matter of discretion, that there is no utility in making the orders sought as the only effectual possession that can be obtained by the bank is by becoming the holder of the group A shares. While, doubtless, there will be continued disputation between the bank and Elizabeth MacDonald in relation to her use of either flat 1 or 4 for residential purposes, I think the history of this matter dictates the making of an order in relation to flat 1 as a first step in providing the bank with vacant premises preparatory to sale.
83 Elizabeth MacDonald has deposed to the nature of the work performed in relation to the conversion of flats 1 and 4 into one residential unit as resulting in “one flat [being] uninhabitable as a residence without the other”. I think that assertion should be treated with circumspection having regard to her further evidence that conversion simply consisted of the creation of a stairway linking the two units at a comparatively modest cost.
84 Elizabeth MacDonald declined to make herself available for cross examination on her affidavits, notwithstanding notice to attend for cross examination being given by the bank. Objection was taken to the reading of her affidavits on that basis. However, I declined to reject her affidavits on that basis. Having regard to the unsatisfactory form of Elizabeth MacDonald’s evidence, I doubt that much would be required to preserve the physical integrity of flats 1 and 4 as discrete residential units.
85 At one point in his submissions, counsel for MacDonald contended that the default judgments were made without power and were of no effect having regard to the nature of the underlying interests of the bank and of MacDonald in flat 1. Those judgments have been in place for several years without any challenge to their efficacy by MacDonald. I see no merit in that contention.
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