Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd - [2007] NSWSC 10

No judgment structure available for this case.

Reported Decision:
61ACSR 82
207 FLR 163
(2007) 25 ACLC 95

New South Wales

Supreme Court

CITATION: Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10

HEARING DATE(S): 05/10/06

JUDGMENT DATE :
29 January 2007

JURISDICTION: Equity Division
Corporations List

JUDGMENT OF: Barrett J

DECISION: Declaratory relief refused

CATCHWORDS: CORPORATIONS - voluntary administration - administrator's lien for debts and remuneration - whether equitable lien can be asserted in addition to statutory lien - whether equitable lien may enjoy higher priority than corresponding statutory lien - whether, in the circumstances, any separate equitable lien enjoyed priority over interest of legal mortgagee

LEGISLATION CITED: Corporations Act 2001 (Cth), Chapter 2K, Part 5.3A, ss.437A. 439A, 443A, 443D, 443E, 443F, 556,
Fires Prevention (Metropolis) Act 1774 (Imp)
Real Property Act 1900

CASES CITED: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64
Dean-Willcocks v Nothintoohard Pty Ltd (2005) 53 ACSR 587
Dean-Willcocks v Nothintoohard Pty Ltd [2006] NSWCA 311
Lockwood v White (2005) 11 VR 402
Re Universal Distributing Co Ltd (1933) 48 CLR 171
Shirlaw v Taylor (1991) 31 FCR 222
Sinnott v Bowden [1912] 2 Ch 414
Weston v Carling Constructions Pty Ltd (2000) 35 ACSR 100

PARTIES: William James Hamilton and Pino Fiorentino - Plaintiffs
Donovan Oates Hannaford Mortgage Corporation Limited - First Defendant
Perfection Developments Pty Limited (in Liquidation) - Second Defendant
Lloyd & Lloyd Pty Limited, Kentona Pty Limited, Offshore Printing Pty Limited, Hodkinson Holdings Pty Limited, Sirius Capital Pty Limited, Smartspace Developments Pty Limited - Third Defendants

FILE NUMBER(S): SC 3807/06

COUNSEL: Mr J.T. Svehla - Plaintiffs
Mr S.M. Golledge - First Defendant

SOLICITORS: RBHM Commercial Lawyers - Plaintiffs
Donovan Oates Hannaford - First Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

MONDAY, 29 JANUARY 2007

3807/06 WILLIAM JAMES HAMILTON & ANOR v DONOVAN OATES HANNAFORD MORTGAGE CORPORATION LIMITED & 2 ORS

JUDGMENT

1 The plaintiffs, Mr Hamilton and Mr Fiorentino, were formerly the administrators under a voluntary administration pursuant to Part 5.3A of the Corporations Act 2001 (Cth) of the second defendant, Perfection Developments Pty Limited (which I shall call “the company”). The first defendant, Donovan Oates Hannaford Mortgage Corporation Limited (which I shall call “DOHM”), was granted security over the company’s assets before the appointment of the plaintiffs as administrators. In these proceedings, the plaintiffs assert an interest in property of the company ranking, in point of security, in priority to the security interest of DOHM. DOHM resists that claim and maintains that its interest takes priority over any interest of the plaintiffs.

2 The company undertook a residential flat development on land at Guildford. On 18 December 2003, the company created in favour of DOHM a mortgage of that land, which mortgage was duly registered under the provisions of the Real Property Act 1900. At the same time, the company granted to DOHM an equitable mortgage and floating charge over its assets generally. That security was duly registered under Chapter 2K of the Corporations Act. Both these securities stood as security for all moneys owing by the company to DOHM. It will be convenient to refer to them as the “land mortgage” and the “general charge” respectively.

3 More than two years later, on 10 March 2006, this court made a winding up order in respect of the company and appointed Mr Porter as liquidator. By that time, the residential flat building was almost completed. Shortly after becoming liquidator, Mr Porter appointed the plaintiffs to be voluntary administrators of the company under Part 5.3A. That appointment was made on 23 March 2006 as part of a plan to permit consideration of a deed of company arrangement proposal. Creditors later approved such a proposal and the company executed a deed of company arrangement on 18 May 2006. The plaintiffs thereupon became deed administrators. The deed was terminated on 15 June 2006.

4 On 5 April 2006, DOHM, as mortgagee, took physical possession of the residential flat site, which was virtually the only asset of the company. The building was by then very close to completion. DOHM later obtained judgment for possession and, exercising its power of sale, began to sell the individual home units. The plaintiffs withdrew caveats to allow the sale of units to proceed. This was done in accordance with an agreement noted by the court on 24 July 2006. Under that agreement, DOHM caused moneys to be isolated in a controlled moneys account pending determination of the plaintiffs’ claims and it was agreed that the entitlement the plaintiffs claimed in respect of the land would be regarded as attaching to the moneys.

5 Although the proceedings will now determine ownership of the moneys in the controlled moneys account, the question of entitlement is to be addressed by reference to interests in the company’s land.

6 The plaintiffs’ summons seeks various relief in respect of the company’s land. The first claim is a claim for a declaration that the plaintiffs have a valid equitable interest by way of equitable lien securing the sum of $18,968.58 and having priority over the interests of DOHM, the company and the subsequent mortgagees named as third defendants. Argument proceeded on the basis that, although subsidiary claims are advanced in the summons, the one to which I have referred is the only one requiring adjudication. It was also accepted that, in view of the sums and values involved, the only relevant contest is that between the plaintiffs and DOHM.

7 The affidavit of Mr Hamilton sworn on 19 July 2006 makes it clear that the sum of $18,968.58 is wholly attributable to the period during which the plaintiffs were voluntary administrators, that is, before they became administrators of the deed of company arrangement. It consists of three components: remuneration of $14,173.50 at rates approved by creditors under s.449E, $3,073.52 for general out of pocket expenses and $1,721.56 for an insurance premium to be mentioned presently.

8 The plaintiffs’ claim to an equitable lien must be assessed in the light of their undoubted entitlement, as Part 5.3A administrators, to a statutory lien. It is necessary to consider the nature and extent of the statutory lien. That lien arises by operation of s.443F of the Corporations Act which is in these terms:

“ Lien to secure indemnity

(1) To secure a right of indemnity under section 443D, the administrator has a lien on the company’s property.

9 The reference in s.443F(1) to a right of indemnity must be understood in the light of s.443D:

“ Right of indemnity

10 The debts to which s.443D(1) refer (other than those involving a “remittance provision”) are principally those specified in s.443A(1) (being a provision in “Subdivision A”, that is, Subdivision A of Division 9 of Part 5.3A):

“ General debts

11 The right of indemnity under s.443D is, by s.443E, afforded a particular priority. It is sufficient, for present purposes, to quote s.443E(1):

“ Right of indemnity has priority over other debts

12 By virtue of these provisions, the plaintiffs have a statutory lien over the company’s property securing the s.443D right of indemnity. It is the contention of the plaintiffs that they enjoy, in addition to this statutory lien, an equitable lien arising by operation of general principles of equity. The perceived need of the plaintiffs to look beyond the statutory lien and to rely on an independently arising equitable lien seems to be a product of the provisions with respect to the priority enjoyed by the statutory lien. That is a matter to which I shall return.

13 The first question to be addressed is whether the plaintiffs have an equitable lien, that is, a lien distinct from the statutory lien under s.443F(1) in respect of a right to be indemnified. The claims to which the plaintiffs say that any such equitable lien attaches are not stated with particularity in any document. There are no pleadings. No written contentions or submissions were furnished to the court by the plaintiffs’ counsel. The parameters of the claim were, however, stated by counsel as follows:

“SVEHLA: Well, in terms of breaking it down into categories of steps taken, the work done in establishing title to and the mortgages over the property and debts outstanding, and the claims of the mortgagees; taking steps to insure the property; taking steps to obtain the final occupancy certificate and negotiating with the Parramatta Council, the certifier, the builder, the chair-lift installer in respect of that issue; ascertaining the situation, the present position of precompletion sale and taking steps for the sale, including entering into an agency agreement with L J Hooker; taking steps to retain solicitors to act on those sales and commercial arrangements and capping the fees for each unit; dealing with the first mortgagee, the second mortgagee; dealing with these matters and essentially putting together the structure by which completion would occur and sales would be effected. In respect of that, there's the fees of the plaintiff.

HIS HONOUR: When you say the fees, you mean their remuneration?

SVEHLA: Yes.

HIS HONOUR: Has that been fixed?

SVEHLA: Their remuneration in respect of the voluntary administration period was approved by the creditors at the second meeting. That was not a meeting which the first defendant participated in, having decided to exercise its control rights or--

HIS HONOUR: So this claim being pursued now extends to the remuneration as well as the outgoings of the various kinds you have described.

14 It thus appears that the plaintiffs are concerned with recovery of both remuneration for the period from 23 March 2006 to 5 April 2006 (being remuneration approved by creditors at the s.439A meeting) and a number of outgoings related to things done by them in clarifying the title position, insuring the property, attending to matters essential or reasonably incidental to bringing the development project and construction of the building to a conclusion, taking steps towards sale of units in the building (including retaining selling agents and solicitors) and, in general, “putting together the structure by which completion would occur and sales would be effected”.

15 It is, to my mind, clear that the plaintiffs, as administrators, took the several enumerated steps in due exercise of powers conferred on them by the Corporations Act. Under s.437A, they had control of the company’s business, property and affairs and were empowered to carry on the company’s business. All the steps to which I have referred were steps towards completion and marketing of the home units and therefore realisation of the benefits sought to be obtained from the company’s development project. They were all therefore steps in the carrying on of the company’s business.

16 It follows from this, first, that the plaintiffs, as administrators, became liable for the debts they incurred in taking those steps (s.443A(1)); second, that they were entitled to be indemnified out of the company’s property for those debts, as well as their remuneration (s.443D); third, that that right of indemnity took priority over all of the company’s unsecured debts and debts of the company secured by a floating charge on the company’s property (s.443E(1)); and, fourth, that that right of indemnity was secured on the company’s property by a statutory lien enjoying the right of priority specified in s.443F.

17 It is in this statutory context that the plaintiffs claim, in addition, an equitable lien over the whole of the company’s property arising by operation of law in accordance with principles most often associated with the judgment of Dixon J in Re Universal Distributing Co Ltd (1933) 48 CLR 171. It is therefore necessary to consider the question whether the undoubted existence of the statutory lien (given, by s.443F, a particular priority position) precludes any meaningful assertion of an equitable lien arising at general law. Reference was made, in that connection, to the decision of Young J (as he then was) in Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64. It was held in that case that Part 5.3A administrators were entitled to an equitable lien distinct from the statutory lien. Young J said (at p.71):

Corporations Law

18 The reference here to “equitable liens which would otherwise be held to exist by a court of equity” was, as his Honour made clear, a reference to an equitable lien of the kind described in Re Universal Distributing Co Ltd (above), that is, a lien to which an official who has incurred expenses in assembling a fund for the benefit of creditors is entitled in relation to the fund in priority to a secured creditor who derives benefit from the assembling of the fund. The lien arises from the principle that the fund itself must bear the costs of realisations and other actions involved in its creation, with those costs being satisfied out of the fund before striking the balance available to the secured creditor and thereafter to creditors generally.

19 The case before Young J concerned liability of a Part 5.3A administrator for conversion of goods sold in violation of the rights of the true owner. The liability the administrator thereby incurred was a liability in damages. Young J held that this was beyond the scope of the s.443D indemnity and, therefore, the s.443F lien. This was because the liability in damages was not covered by the words “debts for which the administrator is liable under Subdivision A”. Those words appear in s.443D and refer back to s.443A(1) which is concerned solely with “debts” as such. It was from that starting point – that is, that the particular liability, not being a “debt”, was not covered by the s.443E indemnity (and was therefore beyond the s.443F lien) – that Young J approached the question whether the administrator was entitled at general law to an equitable lien upon the company’s property as security for the liability to pay damages for conversion of goods.

20 As I read his judgment, Young J was concerned to make it clear that a Part 5.3A administrator was not confined to the statutory lien by some legislative intention that that lien should, as it were, cover the field and be the only available lien. In respect of claims not related to “debts”, the court recognised general law rights of the administrator permitting resort to the company’s property rather than seeing the liabilities become a burden upon the administrator’s own pocket.

21 Nothing in Young J’s judgment seems to me to suggest that an equitable lien arising according to general law equitable principles is somehow to be superimposed upon or made to operate beside the statutory lien, so that both secure the same right of the administrator to indemnity or recoupment out of company property. Suggestions to that effect may, however, be found in two other cases to which I now turn.

22 The first such case is Weston v Carling Constructions Pty Ltd (2000) 35 ACSR 100. Austin J there held that a Part 5.3A administrator had an equitable lien of the kind enjoyed by a receiver, liquidator or provisional liquidator, that is, a lien securing a right of indemnity to recover expenses and fees out of the property realised in the course of the receivership, liquidation or provisional administration. In relation to receivers, Austin J referred in particular to the decision of the Full Federal Court in Shirlaw v Taylor (1991) 31 FCR 222 and quoted this passage in the joint judgment of Sheppard, Burchett and Gummow JJ (at p.228):

“[I]n addition to equitable liens arising from contractual dealings in property, equity may raise liens based either upon general considerations of justice or upon the principle that he who seeks the aid of equity in enforcing some claim (eg in administration of assets) must admit the equitable rights of others directly connected with or arising out of the same subject matter.”

23 Having decided that a Part 5.3A administrator has an equitable lien of the kind that enjoyed by a receiver, liquidator or provisional liquidator, Austin J then directed attention to the statutory lien created by s.443F:

“There being an equitable lien arising out of the nature of the administrator's office and the services performed for creditors, what does the statutory lien conferred by s 443F add? In my opinion the statutory lien confirms the position at general law, but does not replace the equitable principles. True it is that the statute, in establishing a statutory lien, could limit or qualify its scope and (expressly or by implication) the scope of the equitable lien as well. But in my opinion there is nothing in Pt 5.3A that does so. The statutory lien is conferred in unqualified terms by s 443F. The words ‘subject to section 556’ qualify the priority of the administrator's statutory right of indemnity but not the scope of the statutory lien which supports it.

24 His Honour’s reference to the words “subject to section 556” is a reference to the part those words play in s.443F(1). By causing the priority afforded by s.443E to the administrator’s right of indemnity to be “subject to” s.556, the Act does not diminish the administrator’s right of recovery and recoupment. Rather, it indicates that, if any assets over and above those realised in the course of the voluntary administration are recovered by a subsequently appointed provisional liquidator or liquidator, the administrator’s priority of payment out of those additional assets in the subsequent winding up is governed by s.556.

25 The second case in which attention was given to the co-existence of the administrator’s equitable lien and the statutory lien under s.443F is Lockwood v White (2005) 11 VR 402, a decision of the Court of Appeal of Victoria. That case, like Weston v Carling Construction Pty Ltd, was concerned with the priority to be afforded in a winding up to the right of former administrators to be indemnified out of the company’s property for their remuneration and expenses incurred in the Part 5.3A administration. Winneke P (with whom Buchanan JA and Gillard AJA agreed) said (at p.417):

Weston’s

Shirlaw v Taylor

Shirlaw’s

Re Universal Distributing Co Ltd (in liq)

Shirlaw’s

Weston v Carling Constructions

26 It seems to be assumed in this passage that the statutory lien and the equitable lien arising in the manner derived from case law are or may be co-extensive. It is said of the equitable lien that it “makes the administrator a ‘secured creditor’ and, to the extent that it attaches, gives the administrator priority over the unsecured priority creditors referred to in s.556”. It is then said of the statutory lien conferred by s.443F upon the administrator that it “makes him a secured creditor for fees and expenses incurred; and in that sense entitles the administrator to precedence over the unsecured priority creditors listed in s.556 …”. Each lien is thus described in virtually identical terms, although in such a way as to accommodate the possibility that each may not secure precisely the same moneys as the other.

27 It was not necessary in either Weston v Carling Constructions Pty Ltd or Lockwood v White for the court to look beyond the position occupied by the administrator’s lien (whether general law or statutory) vis-à-vis the claims of unsecured creditors – both those afforded precedence in a winding up by s.556 and those enjoying no such priority. From the standpoint of their co-existence with the scheme for ranking unsecured debts in a winding up, the two types of lien were regarded as indistinguishable from one another. In the present case, by contrast, the relevant competition is competition between secured creditors. On the one hand, DOHM has the two securities I have called the “land mortgage” and the “general charge” – that is, a registered legal mortgage of the company’s land (being virtually its sole asset) and an equitable mortgage and floating charge over the company’s assets generally. Both the land mortgage and the general charge secure all moneys owing by the company to DOHM. On the other hand, the plaintiffs have the statutory lien created by s.443F(1) securing the right of indemnity in respect of remuneration and liability for debts and, on the basis of the observations in Weston v Carling Constructions Pty Ltd and Lockwood v White, are also to be regarded as the holders of an equitable lien securing the same right.

28 The question of the respective priorities of DOHM’s securities and the s.443F(1) lien is entirely a matter of statute. Section 443F(2) says that a s.443F(1) lien has priority over a “charge” only insofar as the s.443D right of indemnity has priority over debts secured by the “charge”. Each of DOHM’s land mortgage and its general charge is a “charge” within the s.9 definition of that expression. Section 443F(2), on its face, thus prescribes the priority enjoyed by the s.443F(1) lien in relation to both DOHM’s land mortgage and its general charge. That priority is, by operation of s.443F(2), such priority as the s.443D right of indemnity is given by s.443E(1). The priority afforded by s.443E(1) to the s.443D right of indemnity is, as regards other secured obligations, priority only over “debts of the company secured by a floating charge on the property of the company”: s.443E(1)(b).

29 In the present case, the moneys owed by the company to DOHM are, as stated in s.443E(1), “secured by a floating charge on property of the company”. DOHM’s general charge is a “floating charge” as defined by s.9. But those moneys are also secured by DOHM’s land mortgage which is not a “floating charge”. That circumstance raises the question whether, when s.443E(1)(b) speaks of “debts of the company secured by a floating charge on property of the company”, it is referring to debts that are secured solely in that way or has in contemplation debts that are secured both in the way described and in some other way (that being the position in this case).

30 It seems to me reasonably clear that s.443E(1) does not afford priority over debts secured by a fixed or specific security, whether or not the debts are also secured by a floating charge. In other words, the reference in s.443E(1)(b) to “debts of the company secured by a floating charge on property of the company” should be read as if “only” appears after ”secured”. This interpretation is in line with the intent outlined in the Harmer Report (The Law Reform Commission, “General Insolvency Inquiry”, 1989, Vol 1, para 93):

“The indemnity will not take priority over debts secured by fixed or specific securities, or over a debt or liability secured by a floating charge where a receiver or other person has taken possession of property under the terms of the charge before the administrator was appointed and the receiver or other person has continued in possession …”

31 The Harmer Report continues (also at para 93):

“The administrator will have a lien over the property of the company as a means of securing the indemnity, which will rank behind a fixed security but ahead of a floating security in the circumstances described above.”

32 This indicates the correctness of the interpretation according to which a fixed charge, even if securing the same moneys as a floating charge, will take priority over the statutory lien so that the moneys secured by both the fixed charge and the floating charge will be met out of the relevant property before the moneys secured by the statutory lien. This means, in the present case, that the company’s indebtedness to DOHM, being indebtedness secured by a fixed charge (the land mortgage), is senior to rights secured by the plaintiffs’ s.443F lien; and this is so even though the indebtedness to DOHM is also secured by DOHM’s floating charge.

33 In the light of this statutory specification as to the ranking inter se of DOHM’s land mortgage (and the moneys it secures) and the administrator’s statutory lien (and the moneys it secures), it becomes necessary to consider whether the same moneys as are secured by the plaintiffs’ statutory lien may also be regarded as secured by a general law lien which might, by application of equitable principles most recently discussed in Dean-Willcocks v Nothintoohard Pty Ltd [2006] NSWCA 311 (10 November 2006), be found to enjoy priority over DOHM’s land mortgage. In addressing that question, it is necessary to go back to the three cases concerning the availability of an equitable lien to a Part 5.3A administrator.

34 In Commonwealth Bank of Australia v Butterell (above), the equitable lien was seen as an adjunct or supplement to the statutory lien. I say this because the case was concerned with the administrator’s right to resort to company property to recoup liabilities beyond those covered by the statutory lien. Young J approached the matter by considering the availability of the statutory lien. Only when it appeared that that lien did not apply did his Honour address the question whether an equitable lien was available. In Weston v Carling Constructions Pty Ltd, Austin J approached the matter in a different way. He considered first the availability of the general law lien. His reason for proceeding in that manner was stated at p.103:

Shirlaw v Taylor

35 Having decided that a Part 5.3A administrator is entitled to an equitable lien over the company’s property, Austin J then turned his attention to the statutory lien, asking what, if anything, it added. The relevant part of the judgment is quoted at paragraph [23] above. His answer was that the statutory provisions confirm the position at general law and that the statutory lien “does not replace the equitable principles”. In the passage quoted, Austin J then addressed the possibility that the statute, in establishing the statutory lien, might limit or qualify the scope of both that lien and the equitable lien, either expressly or by implication. He expressed the opinion that nothing in Part 5.3A imposes any such limitation.

36 Austin J was not, however, considering any question concerning the ranking of either of the liens as against other securities affecting (or interests in) the company’s property. His concern was only with the position as against unsecured creditors, both those with claims preferred in a winding up by s.556 and those with claims not so preferred. There was therefore no occasion for Austin J to turn his mind to the comparative ranking of interests in the property. His Honour’s opinion that nothing in Part 5.3A limited or qualified the scope of either the statutory lien or the equitable lien must be understood accordingly. Because of the particular context, he was not expressing an opinion about the ranking, in point of security, of either species of lien in relation to other interests. Indeed, had he addressed that question, he would, of necessity, have referred to the particularly defined priority given by s.443F(2) to the statutory lien.

37 In Lockwood v White, the Court of Appeal of Victoria did no more than recognise the co-existence of the two forms of lien, albeit possibly as security for somewhat different moneys. That, of course, is consistent with Commonwealth Bank of Australia v Butterell. There was no discussion of the comparative ranking of the liens or the position occupied by either by comparison with other interests in the affected property.

38 In the present case, there is no suggestion that the rights and moneys secured by the equitable lien claimed by the plaintiffs are not the same rights and moneys as are secured by the statutory lien. That being so, the question is whether both liens are independently available – the statutory lien with the ranking, as against DOHM’s securities, dictated by s.443F(2) and the equitable lien with such ranking, as against DOHM’s securities, as might be created by the general law apart from s.443F(2).

39 I am of the opinion that the equitable lien cannot be recognised in these circumstances – or, more precisely, that the equitable lien cannot be recognised as existing in a form which makes it capable of enjoying some ranking, in point of security, that does not (or may not) correspond with the ranking prescribed by s.443F(2). I say this because to recognise that the equitable lien may operate, in relation to the rights secured by the statutory lien, in a way that attracts some priority or ranking superior to that dictated by s.443F(2) would be to deny the intended operation of that statutory provision. The general law lien enjoyed by a Part 5.3A administrator in respect of the company’s property should, in my view, be regarded principally as a means of affording protection in respect of rights of recoupment not secured by the statutory lien. Where precisely the same rights are secured by the statutory lien and by the equitable lien, the statutory specification of the ranking of the former, by comparison with other securities over and interests in the company’s property, must also affect the latter. This is because equity, in recognising any such equitable lien, would pay attention to the statutory context and the statutory intention concerning security for the particular moneys. Equity would not regard it as consonant with good conscience to recognise a priority which, because more beneficial than the statutory priority to the person asserting it, placed the persons against whom the priority was asserted in a position inferior to that which the statute intended them to occupy.

40 Because, according to the view I thus take, the equitable lien the plaintiffs have over the company’s land takes the same priority, in point of security, as the statutory lien created by s.443F(1) (being the priority stated in s.443F(2)), DOHM’s land mortgage, not being a floating charge as described in s.443E(1)(b), is not postponed by s.443E(1) so as to rank behind the equitable lien. DOHM’s land mortgage thus has priority over the equitable lien. On that basis, the plaintiffs are not entitled to the declaratory relief outlined at paragraph [6] above.

41 I proceed nevertheless to a consideration of the consequences of the view I do not favour, that is, that the general law equitable lien of a Part 5.3A administrator is not confined to the priority position occupied by the statutory lien, where the two operate as security for the same rights. According to that view, the plaintiffs’ general law lien, although equitable (and therefore of its nature subordinate, in point of security, to a legal interest), could, in certain circumstances, be seen to have attained priority over the legal interest represented by DOHM’s land mortgage. Whether it was entitled to such priority would depend on the application of principles explored and discussed by the Court of Appeal in Dean-Willcocks v Nothintoohard Pty Ltd (above). That case involved a receiver appointed out of court by the holder of a debenture. The question was whether the receiver’s right to be reimbursed for expenditures and remuneration was charged upon the property in his hands in such a way that the lien or charge enjoyed priority over a legal mortgage.

42 Beazley JA (with whom McColl JA agreed) referred, in the Dean-Willcocks case, to “the principle of salvage”. She quoted, in that connection, a passage in the joint judgment in Shirlaw v Taylor (above) at p.230:

In the Matter of Tharp

Re Berkeley Applegate (Investment Consultants) Ltd (In liq)

Harris v Conway

Re Marine Mansions Co

Scott v Nesbitt

Phipps v Boardman

Re Universal Distributing Co Ltd (In liq)

43 Beazley JA then said:

Re Universal Distributing Co

Pattison

44 Her Honour also recognised and accepted a somewhat wider “salvage” notion described in the judgment at first instance (Dean-Willcocks v Nothintoohard Pty Ltd (2005) 53 ACSR 587 at p.593):

Hewett v Court

Monks v Poynice Pty Ltd

Young v ACN 081 162 512 Pty Ltd (in liq)

45 Against this background, Beazley JA proceeded to hold (at [112]) that expenditures directed simply towards putting the receivers in a position where they might sell the property (which, in the long run, they did not do) were not within any relevant concept of salvage. In that case, as in this, a legal mortgagee eventually exercised its power of sale after a period during which it was contemplated that the receivers (or, in this case, administrators) might do so and preparations were made accordingly.

46 Beazley JA next (at [113] to [116]) addressed the possibility that the holder of the legal mortgage might have agreed to cede priority to the receivers in the way contemplated at paragraph 8-220 of “Meagher Gummow and Lehane’s Equity Doctrines and Remedies”, 4th edition 2002, by R P Meagher, J D Heydon and M J Leeming. One of the things that may bring about a finding that the holder of the legal estate has afforded priority to a subsequently created equitable interest is there described as “some assurance, declaration of trust or agreement” on the part of that holder. Beazley JA said of the concept:

“It is apparent that each of those expressions bears its technical meaning in law. In the case of ‘assurance’ what is meant is that there must be some ‘conveyance’ or ‘assurance’ – that is, some passing of an interest. Not only is that apparent from the fact that the other two concepts in the trilogy are legal terms, but the principle would not make sense otherwise. The purpose of the rule is to give effect to particular circumstances in which a legal interest will be postponed to a later equitable interest. Such a basic precept of law as is involved in a prior legal interest ceding priority to a later equitable interest could not be overcome by an indeterminate statement of comfort. In my opinion, the law requires something more.”

47 Spigelman CJ concurred in the analysis made by Beazley JA but emphasised its basis in “unconscientiousness”. He preferred not to view matters in terms of “salvage”. The Chief Justice said (at [7] – [8]):

48 In order to address these possibilities – both the “salvage” possibility and the possibility that DOHM, although holding a legal mortgage, may have ceded priority to the plaintiffs in respect of their equitable lien – it is necessary to look at the course of events which led up to and followed the appointment of the plaintiffs as Part 5.3A administrators on 23 March 2006.

49 Emails and letters of 17 and 20 March 2006 show that the plaintiffs played a central role in the initiation of a deed of company arrangement proposal. The proposal was eventually carried into effect when a deed was executed by the company on 18 May 2006. The appointment of Part 5.3A administrators by the liquidator was an essential first step. The plaintiffs’ solicitor made approaches to DOHM in connection with the proposal. The plaintiffs were, at that stage, acting on the instructions of the company’s sole director and assisting him with efforts to bring the company’s winding up to an end. The terms of the deed of company arrangement proposal were set out in a letter of 17 March 2006 from the plaintiffs’ solicitor to Mr Porter, the liquidator. That letter was apparently copied to DOHM since, on 20 March 2004, Mr Hannaford of DOHM wrote to the plaintiffs’ solicitor referring to his letter of 17 March 2006 to Mr Porter. Mr Hannaford’s letter will be mentioned in detail presently. Its main message was a foreshadowing of DOHM’s consent to the appointment of the plaintiffs as administrators. Thereafter, the plaintiffs’ solicitor set about obtaining consents from other interested parties and the plaintiffs were appointed administrators on 23 March 2006.

50 The plaintiffs engaged in correspondence with a company called Jaymark Investments Pty Ltd from 23 March 2006. Jaymark had had some prior arrangement with the company regarding marketing of the units in the development. It sought to make a similar arrangement with or through the plaintiffs. The plaintiffs, in turn, sought to ascertain what Jaymark might offer in the way of services. Jaymark approached the plaintiffs on 23 March 2006, the day on which they became the Part 5.3A administrators.

51 Also on that day, the plaintiffs sought from the company’s director details of insurances held by the company. It turned out that insurances had been allowed to lapse and that the building was uninsured. On 24 March 2006, the plaintiffs took prompt action to obtain insurance cover. They took steps to have an insurer with which they maintained liquidators’ insurance “effect interim coverage in accordance with the Aon Automatic Insurance Cover Facility”.

52 Having obtained this temporary insurance (described in one item of correspondence as “emergency cover”), the plaintiffs took steps towards investigating whether the lapsed insurances previously held by the company itself could be reinstated. A letter was sent by the plaintiffs to the relevant brokers on 27 March 2006. On 28 and 29 March 2006, brokers submitted insurance quotations to the plaintiffs. Insurance was, on 31 March 2006, effected with one of the parties by which quotations had been submitted. That party’s quotation contained the following under a heading “The Insured & Situation”:

53 In an invoice dated 5 April 2006, the insurance intermediary described the “type of policy” as “Body Corporate Insurance Package” and named the insured as “Perfection Developments Pty Ltd”. A section headed “Other parties” was marked “not applicable”.

54 The temporary insurance cover was cancelled at that time. A document dated 12 April 2006 produced by the temporary insurers (apparently in conjunction with an invoice for $1,721.56, the sum mentioned at paragraph [7] above) named the insured as the company only. The period of insurance was stated to be 23 March 2006 to 31 March 2006.

55 From 24 March 2006, the plaintiffs began to receive information and copies of correspondence in relation to action necessary to bring the residential flat building to a state where an occupancy certificate could be obtained, including supply of a chairlift the installation of which was essential to completion of the building. The certifying authority and the chairlift supplier were well advanced on their tasks by the time the plaintiffs came on to the scene, having been retained by the company before the winding up order. DOHM had also been involved in those matters, as is testified by a letter of 27 March 2006 from Mr Hannaford to one of the plaintiffs enclosing a form of letter which he asked the plaintiffs to send to Parramatta City Council. The letter conveyed a request by the company that the council consider accepting a $20,000 bond in respect of the installation of the chairlift so that an occupancy certificate might be issued before completion of that work. The plaintiffs sent such a letter on 27 March 2006. It was in exactly the terms requested by Mr Hannaford. There is no evidence that the letter bore fruit in any way.

56 On 31 March 2006, there was a meeting at the Guildford site. Among those present were Mr Hamilton (one of the plaintiffs), Mr Hannaford of DOHM, the company’s sole director, a representative of the builder and a representative of a subsequent mortgagee. Minutes of the meeting prepared by Mr Hamilton refer to matters concerning the requirements for the issue of a final occupancy certificate (including installation of the chairlift) and modification of a wall. There was also discussion and agreement on steps towards assessing the credentials of Jaymark, retention of moneys out of further unit sales to go towards the administrators’ costs and remuneration, the reserve prices for sales of units and the choice of solicitors to act on sales. Items requiring expenditure (involving the chairlift and the wall) were dealt with on the basis that the administrators would make the expenditures out of moneys provided by DOHM by way of “non recourse loan”.

57 The plaintiffs also devoted time and attention to preparations for the sale of units in the development. I have already mentioned the correspondence with Jaymark. In the early days of April 2006, the plaintiffs also corresponded with L J Hooker who had previously been retained by the company as selling agent. On 3 April, L J Hooker sent to the plaintiffs both the existing agency agreement and a suggested new agreement. The proposed new agreement was copied by the plaintiffs to other interested parties. There is no evidence that any such agreement was ultimately made with LJ Hooker or that that firm played any part in the selling program eventually undertaken by DOHM as mortgagee exercising power of sale.

58 On 4 April 2006, the solicitors whose potential retainer had been discussed at the meeting of 31 March sent the plaintiffs a letter setting out the proposed terms on which they would act on sales of units. An acceptance of the terms is dated 18 April 2006. There is no evidence that these solicitors acted when DOHM undertook its selling program.

59 All activities of the plaintiffs in relation to the completion of the building, marketing of the units and other matters concerning the real property ceased when DOHM went into possession on 5 April 2006.

60 It is the submission of the plaintiffs that all the actions taken by them, as just described, in the relatively short period from 23 March 2006 to 5 April 2006 involved care or preservation of the property of the company in such a way as to cause benefit to enure to DOHM. I did not understand the plaintiffs to say that their efforts entailed or contributed to realisation to the benefit of DOHM. Realisation was, of course, effected by DOHM in exercise of its power of sale. But, as the analysis by Spigelman CJ and Beazley JA in Dean-Willcocks v Nothintoohard Pty Ltd confirms, action by an official such as a receiver or Part 5.3A administrator to care for and preserve property may be sufficient to give rise to a right of reimbursement or recovery secured by equitable lien ranking in priority to an earlier legal mortgage.

61 It is the contention of DOHM that none of the actions and efforts of the plaintiffs contributed to the care or preservation of the property in such a way as to cause benefit to accrue to DOHM. Counsel for DOHM submitted that the steps taken by the plaintiffs were indistinguishable in nature from those considered in Dean-Willcocks v Nothintoohard Pty Ltd. It was submitted that the circumstances of that case were the same as those of this case and that the same result must follow. At the time this case was argued, the appeal to the Court of Appeal had been heard but not determined. Since the Court of Appeal endorsed the decision and reasoning at first instance, those submissions may now be taken to apply also to the decision in the appeal.

62 The only possible exception or difference DOHM was prepared to consider in this case relates to insurance. It is conceivable that if voluntary administrators arrange insurance of the company’s property, they might be regarded as having conferred benefit on a mortgagee of the property making it unconscientious for the mortgagee to insist on priority of security over the administrators’ claim to be protected for expenses and remuneration related to the conferring of the benefit. But analysis of that kind does not hold good in this case. On the evidence, both the temporary insurance from 24 March 2006 to 31 March 2006 and the longer term insurance from the latter date were such as to insure only the company’s interest in the residential flat building. There is nothing to suggest that DOHM was named in the policy of insurance or that its interest was insured.

63 The legal position in relation to insurance is as stated by Parker J in Sinnott v Bowden [1912] 2 Ch 414 at p.419:

Lees v. Whiteley

Poole v. Adams

Rayner v. Preston

64 There is not in New South Wales any legislation based on the Fires Prevention (Metropolis) Act 1774 (Imp) giving anyone with an interest in real property a right to require insurance moneys to be applied towards reinstatement of the property. Nor does the Imperial Act itself apply. It follows that if a building subject to mortgage is insured by the mortgagor in respect of the mortgagor’s interest alone so that the insurance does not extend to the mortgagee’s interest, that mortgagor may, in the event of the building’s destruction, simply pocket the insurance proceeds and decide not to rebuild. Insurance in the form taken out in this case by the plaintiffs for the company in its own name only therefore did not protect or preserve the property so as to benefit DOHM as mortgagee. By taking out the insurance, the plaintiffs no doubt protected the company against the adverse financial consequences of any destruction of the building, but that in no way protected or preserved the property itself.

65 The only other matter calling for attention is the letter of 27 March 2006 sent by the plaintiffs to Parramatta City Council. It is true that the plaintiffs sent that letter in an attempt to expedite the issue of the occupancy certificate. Such a result might have been regarded as something relevant to the care or preservation of the property, as it would have represented a concrete step along the way to achieving a position where the building could be occupied and realised. But there is no evidence that the request in the letter was agreed to or that the letter produced any such result (or any result at all).

66 I am of the opinion that none of the expenditure and effort of the plaintiffs in the period 23 March 2006 to 5 April 2006 protected, preserved or enhanced the company’s property or created any benefit for DOHM in relation to that property so as to make it unconscientious for DOHM not to acknowledge a right of the plaintiffs to be reimbursed and remunerated out of that property in priority to DOHM. The steps taken by the plaintiffs were not such as to give rise to an expectation that DOHM should be beholden to them for benefit or advantage conferred.

67 That leaves for consideration the question whether the plaintiffs’ equitable lien prevails over DOHM’s legal mortgage because DOHM ceded priority to the plaintiffs in the way discussed by Beazley JA in Dean-Willcocks v Nothintoohard Pty Ltd (see paragraph [46] above). The highest point the evidence reaches on this is the letter of 20 March 2006 from Mr Hannaford of DOHM to Mr Hamilton, one of the plaintiffs:

“I refer to your email correspondence sent Friday 17 March and attachments.

Subject to agreement being made as to the fees and expenses referred to at clause 2 of your letter of 17 March addressed to Moore Stephens, we expect that we would consent to the appointment of W J Hamilton and P Fiorentino as administrators of the company.

We will wait to hear further from you.”

68 The “letter of 17 March addressed to Moore Stephens” is a letter in which Mr Hamilton, acting for the sole director of the company, outlined to the liquidator the deed of company arrangement proposal. The reference by Mr Hannaford to “the fees and expenses referred to at clause 2” was a reference to a part of Mr Hamilton’s description of the terms of the proposed deed of company arrangement. Clause 2 was as follows:

“2. There be an agreement from the two (2) secured creditors to permit the DOCA to operate and for realisations from unit sales to partially meet the Administrators and Deed Administrators ongoing fees and expenses of managing the ongoing unit sales, before their repayment;”

69 Mr Hannaford’s letter of 20 March 2006 did no more than to point to a need for future agreement on the matter of the fees of administrators and deed administrators, at the same time expressing an expectation that DOHM would consent to the appointment of the plaintiffs as administrators. Nothing in the letter can possibly be construed as any form of agreement by DOHM to recognise claims of the plaintiffs for reimbursement and remuneration as enjoying priority, in point of security, over the claims secured by DOHM’s securities.

70 I should add that nothing else in the course of conduct leading up to the appointment of the plaintiffs as administrators or during the period 23 March 2006 to 5 April 2006 for which they were active in relation to the property indicates any agreement by DOHM to cede priority.

71 Even if, contrary to the opinion expressed at paragraph [39] above, the plaintiffs’ equitable lien was capable of having some priority superior to that given by statute to their s.443F lien, nothing in the facts of this case activates any of the general law principles by which any right secured by the equitable lien would be recognised as ranking in priority to the rights to payment secured by DOHM’s legal mortgage.

72 The plaintiffs’ claim for the declaratory relief outlined at paragraph [6] above must therefore be dismissed and the plaintiffs must pay the costs of the first defendant (DOHM). If any party is of the view that any further order is necessary or appropriate to bring the proceedings to a conclusion, that party should so inform my Associate within seven days.

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Citations

Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10

Most Recent Citation

Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) [2008] FCA 448

Cases Citing This Decision

19

Cussen and of Beechworth Land Estates Pty Ltd v Douglas Estate Holdings Pty Ltd [2019] NSWSC 1129

Cases Cited

10

Statutory Material Cited

3

Re Universal Distributing Co Ltd (In liq) [1933] HCA 2

CITATION:	Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC 10
HEARING DATE(S):	05/10/06
JUDGMENT DATE :	29 January 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Declaratory relief refused
CATCHWORDS:	CORPORATIONS - voluntary administration - administrator's lien for debts and remuneration - whether equitable lien can be asserted in addition to statutory lien - whether equitable lien may enjoy higher priority than corresponding statutory lien - whether, in the circumstances, any separate equitable lien enjoyed priority over interest of legal mortgagee
LEGISLATION CITED:	Corporations Act 2001 (Cth), Chapter 2K, Part 5.3A, ss.437A. 439A, 443A, 443D, 443E, 443F, 556, Fires Prevention (Metropolis) Act 1774 (Imp) Real Property Act 1900
CASES CITED:	Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 Dean-Willcocks v Nothintoohard Pty Ltd (2005) 53 ACSR 587 Dean-Willcocks v Nothintoohard Pty Ltd [2006] NSWCA 311 Lockwood v White (2005) 11 VR 402 Re Universal Distributing Co Ltd (1933) 48 CLR 171 Shirlaw v Taylor (1991) 31 FCR 222 Sinnott v Bowden [1912] 2 Ch 414 Weston v Carling Constructions Pty Ltd (2000) 35 ACSR 100
PARTIES:	William James Hamilton and Pino Fiorentino - Plaintiffs Donovan Oates Hannaford Mortgage Corporation Limited - First Defendant Perfection Developments Pty Limited (in Liquidation) - Second Defendant Lloyd & Lloyd Pty Limited, Kentona Pty Limited, Offshore Printing Pty Limited, Hodkinson Holdings Pty Limited, Sirius Capital Pty Limited, Smartspace Developments Pty Limited - Third Defendants
FILE NUMBER(S):	SC 3807/06
COUNSEL:	Mr J.T. Svehla - Plaintiffs Mr S.M. Golledge - First Defendant
SOLICITORS:	RBHM Commercial Lawyers - Plaintiffs Donovan Oates Hannaford - First Defendant