Helicopter Fleet Management v Ellison

[1999] NSWSC 320

CITATION:	Helicopter Fleet Management v Ellison [1999] NSWSC 320
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	3909 of 1997
HEARING DATE(S):	17 and 18 March 1999
JUDGMENT DATE:	18 March 1999
PARTIES :	Helicopter Fleet Manager Pty. Ltd. (First Plaintiff) Edward Alan Green (Second Plaintiff) Geoffrey McNeil Ellison (First Defendant) LNE Cunneen & Co Pty. Limited (Second Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr. D. Smallbone (Plaintiffs) Mr. G.A. Sieb (Defendants)
SOLICITORS:	Hawthorn Cuppaidge & Badgery (Plaintiffs) Henry Davis York (Defendants)
CATCHWORDS:	PERSONAL PROPERTY - Ownership and possession - whether interest of purchaser absolute interest or security interest
CASES CITED:	In re Connelly Brothers Ltd (No 2) [1912] 2 Chancery 25 Abbey National Building Society v Cann (1991) 1 AC 56 Sogelease Australia Pty. Ltd. v Boston Australia Pty. Ltd. (1991) 26 NSWLR 1
DECISION:

- 12 -

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY, 18 MARCH 1999

3909/97 - HELICOPTER FLEET MANAGEMENT PTY LTD & ANOR v GEOFFREY McNIEL ELLISON & ANOR

JUDGMENT

1 HIS HONOUR: The question to be decided in this action is whether the plaintiff, Helicopter Fleet Management Pty Ltd (HFM) or the first defendant, Mr Ellison, is entitled to possession of a helicopter engine serial No CAE 835487 which had been placed in a Hughes 500C helicopter serial No VHFHL (FHL) the property of a company, Goldwatch Pty Ltd (Goldwatch).

Facts
2 Goldwatch by deed dated 20 November 1995, charged certain property by way of fixed and floating charge in favour of Paradise Helicopters (Cairns) Pty Limited. By deed dated 30 July 1997, Paradise Helicopters (Cairns) Pty Limited appointed Mr Ellison receiver and manager of the property of Goldwatch subject to the charge.
3 Mr and Mrs Lanham at the relevant times were the directors and shareholders of Goldwatch. At that time they apparently carried on a helicopter services business under the name of Paradise Helicopters, which is not shown to be connected with the company of that name. At an earlier time Goldwatch conducted the business of Paradise Helicopters, but that is of little importance.
4 Goldwatch originally purchased the helicopter FHL in 1991. It seems to have suffered various vicissitudes. It was involved in a forced landing in 1995 when its engine failed. A replacement engine was hired or leased from Hawker de Havilland Pty Limited at a cost of $180 per flying hour. During a service, the compressor from that engine was removed by the maintenance technicians, Aircraft Technicians of Australia Pty Ltd (ATA). The compressor was sent for repair but was apparently beyond repair and thereafter the helicopter stood grounded at Caloundra airport from about November 1996 until March 1997.
5 In early 1997 Mr Castles, the managing director of ATA, was asked by Mr Lanham to source a new engine for him, presumably meaning for Goldwatch. He made various inquiries and located a number of engines and ultimately located the engine under litigation here, which was available through Yunger Aviation Services in Victoria. He sent details to Mr Lanham and recommended its purchase. At that time Paradise Helicopters owed his company a considerable amount and he said that he would only have further dealings if he was paid the full amount and would not deliver the engine without full payment. He or his company appear to have acted as principal, purchasing the engine from Yunger Aviation Services and obtaining delivery of it from that company on a deposit of $20,000.
6 The purchase price from ATA was $83,000. There was a subsequent sum of close to $4,000 paid for the installation of the engine. Those moneys were paid to ATA as to $40,000 by Mr Green, the second plaintiff and a director of the plaintiff, and as to the balance of $43,000, together with the subsequent installation costs by the second defendant.
7 Mr Cunneen, the controlling force of the second defendant, is a man who is involved in the flight business and who had previous dealings with Mr Green. Mr Green had had prior dealings with Mr and Mrs Lanham, having lent them $150,000 earlier in 1997 to enable them or their company to purchase another helicopter.
8 The plaintiff does not claim beneficial ownership in the engine in question, but rather claims that it is the legal owner holding the engine upon trust for Mr Green and L & C Cunneen & Co Pty Limited, the second defendant.
9 Upon being appointed receiver, Mr Ellison became aware of a claim by Mr Green, or the first plaintiff, as to ownership of the engine. He asked for proof of entitlement. Mr Green's solicitor wrote to him on 13 August 1997 setting out the terms of the agreement which were, in short, that Mr Green on behalf of the first plaintiff, which at that time was called Microy Investments Pty Ltd, and Mr Lanham on behalf of Goldwatch, agreed that Helicopter Fleet Management would purchase the engine for $82,000 with an installation fee of $1,000; that Goldwatch would re-finance both the helicopter and engine and by that re-financing would purchase from HFM the engine for $83,000, and that until such time as that was done, Mr Green would have the right on behalf of the first plaintiff to use the helicopter free of hire charges and that Goldwatch would pay HFM $160 per week for the engine.
10 Mr Green repeated this in much the same terms in an affidavit he swore on 20 October 1997. He also said that the plaintiff had paid the $83,000 and explained this by saying he regarded the plaintiff as his. When I say "the plaintiff as his", I mean the plaintiff Helicopter Fleet Management. That hardly helped him because the second defendant had paid more, but nevertheless that was what was said in the affidavit.
11 The invoice for the engine from ATA was dated 26 March 1997. The customer is shown as Microy Investments. Microy Investments Pty Limited was the plaintiff's former name. This is the only document giving evidence of the plaintiff's title or of transfer of title. The payment details are set out on that document.
12 On 24 April 1997 Microy Investments wrote to the second defendant as follows:

"Engine for VH-FHL
Reference is made to the following moneys used to purchase the engine serial number now installed in the above helicopter: $40,000 provided by Allan Green and $46,000 provided by your company.

I hereby acknowledge that until total funds of $86,000 have been fully paid to the respective providers above, the ownership of the said engine remains jointly with Allan Green and L & E Cunneen & Co Pty Limited. I further acknowledge that the installation of the said engine for VH-FHL is on account of rental only and may be terminated and withdrawn by the owners of the engine without notice or reservation."

13 This letter was signed by Mr Green as director of Microy Investments Pty Ltd. Whatever else its effect was, it would certainly show that Microy Investments (later HFM) was not the beneficial owner of the engine.
14 Mr Cunneen was acquainted with Mr and Mrs Lanham. He was aware of the negotiations for the purchase of the engine. He said that he was prepared to participate in this with Mr Green, provided that Mr Green paid the first $40,000, that he would then pay the $46,000, and that Microy Investments Pty Limited must acknowledge that the engine's ownership remain with him and Mr Green until it was fully paid for in any subsequent sale. He said that the next steps were to send a fax confirming payment of the deposit, such a fax to state that the invoice was in the name of Microy Investments and to obtain written instructions for the taking of the purchase moneys and that he would then bank the remaining funds as directed, which is stated in the deed. He said that all these requirements were attended to. Mr Lanham said that Goldwatch held a meeting of directors and shareholders at which it was resolved as follows:-

Resolved that Ross Lanham be authorised to negotiate with Microy Investments Pty Ltd for the installation of an engine for VH-FHL upon the best terms that he can.

Further, that it is understood that the ownership of such engine would remain with Microy Investments Pty Ltd."

15 This resolution is said to have been passed at a meeting of shareholders of Goldwatch at Caloundra airport on 10 March 1997.
16 It is somewhat strange that the copy of the minutes did not turn up until 1998. Mrs Lanham explains this by saying it was in the office of her solicitors for other litigation. It is true that there are no other minutes of meetings of directors or shareholders in the company documents apart from the originating documents. However, I am not able to find that the minutes were created after the event to support the claim here, and in the long run that was not put.
17 While the agreement was for a payment by Goldwatch of $160 per week, in fact payment of $366 a month was made to Mr Green and nothing was paid to the second defendant. $160 per week would have been a return of 10 per cent a year on the invested sum. $366 per month was somewhat in excess of Mr Green's share as a beneficial owner in part of the engine so far as income based on $160 per week was concerned.
18 Mr Green said that he did not realise the amount being paid was wrong. I do not accept that evidence. Mr Cunneen's evidence was to the effect that he did not really worry. He was prepared to leave everything to Mr Green and relied upon him as a business partner to see that he obtained a proper return on his investment in due course for his company, the second defendant. To some extent I think that supports the plaintiff's case of ownership rather than being entitled to income from loan funds.
19 Mrs Lanham said that it was always intended that HFM would purchase the engine and the helicopter, that is why the resolution was passed about the engine, although she has agreed that Mr Cunneen wanted that done in any event. I am uncertain about that evidence when it is seen together with the date of the resolution. Mrs Lanham said that she did not note the interest of HFM in the engine on the insurance policy at the time but would have done that on renewal. She said the sum insured covered the engine in any event. She said that she always expected that Mr Green would obtain finance to buy the helicopter and that there had been some negotiations for a licence agreement with him to show to the bank to obtain funds. Her evidence was clearly given and clearly supported the plaintiff's story. I accept it. It is quite apparent that there was little chance of Goldwatch or Mr and Mrs Lanham being able to raise the funds to re-finance the helicopter if that was required and to purchase the engine.
20 HFM says it is the legal owner of the engine. It says that it acquired it as trustee for Mr Green and the second defendant, who paid the purchase moneys to ATA on the invoice which is in evidence.
21 The defendant's case is:-

1. That the true transaction was one of mortgage.

2. That the mortgage was not registered.

3. That the receiver is entitled to priority under his charge in accordance with the now Section 280(1)(c) of the Corporations Law.

23 It is necessary to look at the transaction. On its face, payment was made by those parties claiming the equitable interest to ATA as then owner. Unless they did this on behalf of Goldwatch, that company had no interest in the engine. It is clear that there was some arrangement for Goldwatch to obtain ownership on payment of the sum of $83,000, but there is no evidence to support any claim of an assignment by Goldwatch to HFM, subject to an equity of redemption. The right to obtain possession on payment of the $83,000 together with a monthly payment which would equate to 10 per cent which was, on the evidence, a low return for the use of an engine, even taking into account the rights of Mr Green to free use of the helicopter, does not necessarily mean that the transaction was one of loan.
24 At best, so far as the case of the receiver is concerned, I do not think it could amount to any absolute assignment by ATA as agent for Goldwatch to the plaintiff subject to an agreement for defeasance by HFM in favour of Goldwatch. The company minutes and the evidence of Mr Castles is against this.
25 Mr Castles, who really is a disinterested party in this case, made it perfectly clear that he had no interest, and by that I would take it to mean he had little interest in dealing with Goldwatch. Mr Green asked for the invoice to be made out to Microy, according to Mr Castles, because he said he was financing the purchase. That is not sufficient to show the transaction was one of loan, particularly as there is no document of assignment by way of loan.
26 It is perfectly understandable why the receiver had doubts about the transaction and it is right to say that I did not find all the evidence of Mr Green very convincing, he was at times clearly being very careful in the way he expressed himself. But it was not claimed the transaction was a sham. What is said is that in substance it was a security arrangement. That was not made out. I should add that the parties had been shown to be well acquainted with security documents. Had that been the transaction, it is at least likely that it would have been documented as such an arrangement.
27 It would follow from what I have said that HFM is entitled to succeed. However, I should deal with the claim of the receiver to possession on the basis that he has the prior interest pursuant to section 280(1)(c) of the Corporations Law.
28 The receiver was appointed under the charge deed. There is no evidence of any event of default which would bring into play the crystallisation of the floating charge making it a legal charge, but that is really not relevant. I proceed on the basis of the claim of the receiver to a fixed charge encompassing the interest of Goldwatch in, amongst other things, "engines and personal property." I consider that what would have become subject to the charge would have been the equity on redemption in the engine and not the engine itself.
29 It is clear that Goldwatch did not have the ability to purchase the engine with its own funds. The purchase moneys were, in fact, provided by those persons with whom HFM says it holds the engine in trust. The principle which has been set out in various cases which establishes that a purchaser who can only compete by borrowing money for the security of which he is bound to grant a mortgage to the lender immediately upon execution of the conveyance in his favour can only, in reality, be said to have acquired an encumbered legal interest in the property in question, clearly applies in this case. That principle is generally thought to have commenced or been laid down first in the case of In re Connelly Brothers Ltd(No 2) [1912] 2 Ch 25.
30 It has been much more recently approved by the House of Lords in Abbey National Building Society v Cann (1991) 1 AC 56 and followed in this State in Sogelease Australia Pty Ltd v Boston Australia Pty Ltd (1991) 26 NSWLR 1.
31 On the basis that it is the equity of redemption in the engine which was subject to the charge, if there were a charge, the case of the receiver for priority would fail in any event as the engine itself would not be subject to the charge but the interest of the chargor in it when it was acquired would be subject to the charge. As I have held that this is not necessary to the decision, it perhaps is not necessary to go further other than to say that if it were that the plaintiff held a security interest, no action would be required unless HFM were shown to have done something incompatible with such interest. That is, however, not a matter which arises on the pleadings in this action.
32 The result of this is that the first plaintiff is entitled to an order for delivery up of the engine and an inquiry before the Master as to damages.
33 This is what I propose to do, unless anyone says otherwise:-

1 Declare that the plaintiff is the legal owner of the engine CAE 835487.

2 Order that the first defendant deliver up such engine to the first plaintiff.

(Mr Smallbone requested that the engine be delivered to Lamington Avenue, Eagle Farm, Queensland.

Mr Seib opposed the application and submitted that this may require some further instructions on the question of storage costs.)

3 The first defendant give up the engine to the first plaintiff at Caloundra airport within seven days from this date.

4 I order that the matter be referred to a Master, Equity Division, to inquire into the damages suffered by the plaintiff as a result of the detention of the engine by the first defendant and that the Master enter judgment for the amount so found.

5 I order that the first defendant pay the plaintiff's costs of these proceeding up to and including the taking out of this order, excluding costs covered by any previous order.

6. I order the Master to determine the question of costs of the inquiry before him.

34 Has anyone anything to say about the form of these orders?
35 SMALLBONE: No, your Honour.
36 SEIB: The only matter subject to uncertainty at the moment, your Honour referred in your reasons to the receiver's not unreasonable position of not knowing why ownership was asserted.
37 In Order 3 there is, I think, implicit in that order a finding that we wrongfully detained the engine. I raise it because it seems to me that there may be potential scope for debate before the Master which possibly ought to be cleared up here as to whether or not, in fact, from 30 July the engine has been wrongfully detained in light of the information before the Court.
38 HIS HONOUR: I think it has been. You can understand why a person has doubts, but if he does not have the rights to it he does not have the rights to it. I do not mind cutting that out. It was intended to show it was not an abuse, if you like, of the receiver doing what he has done, but once you lose, you lose.
39 SEIB: I wouldn't seek to remove those passages.
40 HIS HONOUR: They are entitled to damages for wrongful detention which means he should not have it. The exhibits can be returned to the parties tendering them, to be retained by the solicitors and returned to Court if necessary for the Master's inquiry.
41 Mr Smallbone, the plaintiff should realise that it is the plaintiff's task to take out those orders and to take out a motion before the Master for directions to proceed on the inquiry. I hope that that won't be necessary. If it is, then it is your task, for nothing will happen until you do it.

I certify that paragraphs 1 to 41 are a true copy of the Reasons for Judgment given by Mr Justice Windeyer in matter 3909/97 Helicopter Fleet Management Pty. Ltd & Anor v Ellison & Anor

______________________________
Laurel Laurent
Associate to Mr. Justice Windeyer

18th March 1999.

**********

Last Modified: