In the matter of C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises Pty Ltd; AF Gazzana v Nadalan Enterprises Pty Ltd

[2012] NSWSC 676

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of C & L Cameron Pty Ltd - GB Gazzana v Nadalan Enterprises Pty Ltd; AF Gazzana v Nadalan Enterprises Pty Ltd [2012] NSWSC 676
Hearing dates:	31 May, 1 June 2012
Decision date:	19 June 2012
Jurisdiction:	Equity Division - Duty List
Before:	Ward J
Decision:	Respective applications dismissed
Catchwords:	PRACTICE AND PROCEDURE - application for payment out of moneys presently held in Court - fund represents surplus proceeds after mortgagee sale of property then jointly owned by applicants/cross-respondents - applicants have established a prima facie entitlement to the fund - whether established that the respondent does not have an interest in the fund - HELD - not satisfied on evidence before the Court that the applicants have established that the respondent has no valid claim PRACTICE AND PROCEDURE - cross-application by respondent that moneys remain in Court subject to determination of District Court proceedings against the applicants/cross-respondents - seeking freezing order or an injunction in protection of their claimed proprietary interest in the funds - test for freezing order looks to whether reasonable apprehension that fund will be dissipated in frustration of the Court process - distinction between application for injunction in aid of a proprietary right - OBITER - no basis established for freezing order - had there been an order for payment out of any of the funds, injunction to protect interest in the fund pending final hearing of claim by Nadalan Enterprises would have been granted
Legislation Cited:	Conveyancing Act 1919 (NSW) Duties Act 1997 (NSW) Real Property Act 1900 (NSW) Stamp Duties Act 1920 (NSW) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	A v C (No 1) [1981] 1 QB 956 ACN 075 911 410 Pty Ltd (t/as Acuity Funding) v Almaty Pty Ltd [2011] NSWSC 333 ANZ v Maunder [2009] NSWSC 1356 Arnautovic t/as Jirsch Sutherland & Co v Cvitanovic (as trustee of the Bankrupt Estate of Adrian Lawrence Rosee) [2011] FCA 809 Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433 Avco Financial Services Ltd v Commonwealth Bank of Australia (1989) 17 NSWLR 679 Badman v Drake [2008] NSWSC 968 Beeby v Official Assignee of Pickering and Pickering [1953] NZLR 832 Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34 Boral Bricks Pty Ltd v Davey & Ors [2010] QSC 131 Boral Recycling Pty Ltd v Wake [2009] NSWSC 712 Cardile v LED Builders Pty Limited [1999] 1 HCA 18 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Clark Equipment Credit Australia Limited v Kiyose Holdings Pty Limited (1989) 21 NSWLR 160 Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661 Di Bello v De Costi Seafoods (Holdings) Pty Ltd [2005] NSWCA 267 Electricity Meter Manufacturing Co v Manufacturers' Products Pty Ltd (1930) 30 SR (NSW) 422 Finn v Carelli [2007] NSWSC 261 Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067 Frigo v Culhaci (Unreported, NSWCA, 17 July 1998) Hope v Hope [1977] 1 NZLR 582 Huntlee Pty Ltd v Sweetwater Action Group Inc [2011] NSWCA 378 laconis v Lazar [2007] NSWSC 1103 Jackson v Richards [2005] NSWSC 630 James Thane Pty Limited v Conrad International Hotels Corp [1999] QCA 516 Jinhong Design & Construction Pty Ltd v Yi Nuo Xu [2012] NSWSC 523 Lake v Crawford (No 2) [2010] NSWSC 419 McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218 McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534 McKensey v Hewitt [2004] NSWSC 636 Moseley v Cressey's Co (1865) LR 1 Eq 405 National Commercial Banking Corporation of Australia Limited v Cheung (1983) 1 ACLC 1326 NEC Information Systems Australia Pty Limited v Linton (Unreported, NSW Supreme Court, 17 April 1985, Wood J) Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344 Official Trustee v D'Jamirze (1999) 48 NSWLR 416 Paul Ernest Simmons v Protective Commissioner of NSW also known as NSW Trustee and Guardian [2012] NSWSC 455 PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 Perpetual Nominees Limited v Taouk & Anor [2009] NSWSC 605 Print National Pty Limited v Helps [2007] NSWSC 1050 Re Commonwealth Bank of Australia [20091 NSWSC 81 Rodick v Gandell (1852) 1 De GM & G 763 Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27 Scottish Amicable Life Assurance Society v Reg Austin Insurance Pty Limited (1995) 9 ACLR 909 at 923 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 Spencer v Commonwealth of Australia (2010) 241 CLR 118 Stephens v Debney (1959) 60 SR (NSW) 468 Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196
Texts Cited:	J Phillips and J O'Donovan, The Modern Contract of Guarantee (2010, 2nd ed) P W Young, C Croft and M L Smith, On Equity (2009)
Category:	Interlocutory applications
Parties:	Giovanni (John) Gazzana (Applicant/Respondent) Antonio (Tony) Gazzana (Applicant/Respondent) Nadalan Enterprises Pty Ltd (Respondent/Applicant)
Representation:	Counsel: B Pluznyk (Applicants/Respondents) R Quickenden (Respondent/Applicant) Solicitors: G P Legal (Applicants/Respondents) Felicio Law Firm (Respondent/Applicant)
File Number(s):	12/058509

Judgment

1. HER HONOUR: Referred to me for hearing in the duty list on 17 May 2012 was an application, by Notice of Motion filed 1 May 2012, by Giovanni Gazzana (also known as John Gazzana) seeking payment out of moneys from a fund presently held in Court. In the same proceedings. John's brother, Antonio Gazzana (also known as Tony Gazzana), has filed an application (on 3 May 2012) seeking similar relief. There is no conflict between the two applications, as each brother seeks payment of only half of the funds held in Court. Those moneys represent the surplus proceeds after a mortgagee sale of a property at Calga then jointly owned (as tenants in common in equal shares) by the Gazzana brothers.

1. Prior to the mortgagee sale, Nadalan Enterprises had lodged a caveat over the property claiming an equitable interest in the property by virtue of an instrument described as a Credit Application dated 4 September 2008.

1. After satisfaction of the debt owing to the registered mortgagee (C&L Cameron), there were surplus funds in the order of $234,596.66. Those moneys were paid into Court and these proceedings were commenced by the mortgagee to enable a determination to be made as to how the surplus funds were to be distributed having regard to s 58(3) of the Real Property Act 1900 (NSW). The mortgagee has taken no further part in the proceedings.

1. When the matter came before me in the duty list, Nadalan Enterprises maintained that the hearing of Mr John Gazzana's application (which was the only application initially being pressed on that date) should await the hearing of District Court proceedings that had been commenced by Nadalan Enterprises against the Gazzana brothers (and a deregistered company through which they had carried on business - Nature Springs Pty Ltd - in relation to moneys claimed to be owing by each of them pursuant to a guarantee of the debts of the company.

1. Counsel for the Gazzana brothers (Mr Pluznyk) maintained that the issue raised in Mr John Gazzana's application (namely, as to whether Nadalan Enterprises had any beneficial interest in Mr John Gazzana's share of the proceeds of sale) was a discrete issue that should be determined now (notwithstanding that a claim on the very guarantee that is said to found the claimed equitable interest is being made in the District Court proceedings). (Mr Pluznyk referred in this regard to the limited nature of the equitable jurisdiction of the District Court and submitted that it did not have jurisdiction to deal with the payment out of moneys held in this Court).

1. There being nothing to suggest that these proceedings were not properly brought by the mortgagee (in circumstances where there was an issue as to who was entitled to the funds) and, on its face, Mr John Gazzana's application appearing to be regularly brought, it seemed to me that the motion should be heard. Insofar as it required John to establish that there were no competing claimants with valid claims to the fund (in order to prove his entitlement to the claimed moneys) it was incumbent on me to determine the issues so raised. On that occasion, I understood Counsel for Nadalan Enterprises (Mr Quickenden) in principle to accept at least the last proposition, though he maintained that this would then require him to be permitted to test the evidence of the applicants (including by cross-examination, as subsequently occurred). In particular, it was said that the defendant needed the opportunity to demonstrate its contention that Mr Tony Gazzana had signed the Credit Application (on which Nadalan Enterprises principally relies for its claim that there is an equitable charge over the funds in Court) for his brother, John, and that, even if that were not the case, there was an oral contract of guarantee that gave rise to an equitable charge in the present case. (It also became apparent on that date that if, such a payment-out application were to be successful, Nadalan Enterprises wished to seek an order in the nature of a freezing order in relation to any funds payable out to either of the Gazzana brothers in any event.)

1. Accordingly, I gave leave for the filing in Court on that occasion of the defendant's Notice of Motion for freezing orders; made directions for the service of any evidence in that regard; and listed the three Notices of Motion for hearing on 31 May and 1 June 2012 (a 'one day plus' estimate having been given by Counsel for the respective parties). (As it was, the hearing of the respective applications occupied almost two days.)

Notices of Motion

1. The respective Notices of Motion ultimately before me for hearing were:

(i) the initial Notice of Motion filed 1 May 2012 by Mr John Gazzana, seeking (inter alia) an order pursuant to Rule 55 of the Uniform Civil Procedure Rules (NSW) for payment out to him of $117,298.33 (being one half of the amount held in Court) and interest thereon, together with pre-judgment interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) for the period from 25 January 2012 (when the sale occurred) to the date interest commenced to accrue on the moneys paid into Court;

(ii) the Notice of Motion filed 3 May 2012 by Mr Tony Gazzana seeking in essence the same relief (and hence the balance of the moneys presently held in Court); and

(iii) an Amended Notice of Motion filed 24 May 2012 by Nadalan Enterprises principally seeking orders that the moneys paid into Court by the mortgagee remain in Court pending the outcome of the District Court proceedings and, pursuant to Rule 25.14 of the Uniform Civil Procedure Rules, that the Gazzana brothers be restrained from "taking any steps to release" the said moneys pending the outcome of those proceedings. (Other orders, for the transfer of the District Court proceedings to this Court and for the payment out of the moneys to Nadalan Enterprises, though sought in the Amended Notice of Motion, were not pressed when the motion came to be heard.)

Issues

1. On the determination of the respective applications, the following issues arose:

(i) whether the matters required for payment out of the moneys held in Court to one or both of the Gazzana brothers have been established (these including a consideration as to whether they have established that there is no competing claimant with a valid claim to a beneficial interest in the fund in question); and

(ii) whether, if an order for payment out of part or all of the proceeds were to be (or would otherwise have been) made, the funds or part of them should be retained in Court by way of preservation of a fund in which Nadalan Enterprises claims an equitable interest or otherwise made the subject of a freezing order in favour of Nadalan Enterprises.

Background

1. The factual background to the present applications is as follows.

• Nature Springs

1. As at 2008, as noted above, each of the Gazzana brothers (to whom, for convenience and without intending any disrespect, I will refer as Tony and John respectively) held a one half interest in a property at Calga from which (through a company of which they were the shareholders and directors, Nature Springs Pty Ltd) a spring water distribution business was run.

1. It seems not to be disputed that in the running of that business John's role was principally that of maintenance of the machinery or equipment and that Tony took responsibility for business and financial matters, such as the preparation of paperwork (tax returns and the like), dealings with the company's bankers and business negotiations. John accepted in general terms that Tony did the paperwork for him on behalf of the company and that he, John, did not get involved in the "business" side of the company. By way of example, I note the following exchanges in cross-examination of John (at T 12):

Q. When you say as far as you know, are you saying that you didn't have the knowledge of the business of Nature Springs like Tony did?

A. No, because I never really got involved in the business.

Q. You really left things up to Tony, didn't you?

A. Well most of the paperwork and the financial side of it, yes.

and (at T 13):

Q. Tony conducted that business on your behalf, is that right?

A. We ran it together. I done the maintenance and he did the business side of it.

1. However, the basis on which, as between Tony and John in their personal capacity (as opposed to as directors of the company), financial matters relating to the company were dealt with was not clear and, having regard to the informal way in which the business dealings in relation to Nadalan Enterprises seem to have been conducted, there is no suggestion that either paid much attention as to how it was, from a legal point of view, that Tony was able to exercise any corporate responsibility on behalf of John or to make any particular decisions on John's behalf in relation to the business. (The evidence adduced for the defendant to the effect that John habitually agreed with Tony's decisions says little, if anything at all, in my view as to whether, in any particular instance, Tony acted with John's authority to bind him personally to matters in relation to the business.) The relevance of this issue is as to the extent of Tony's authority, if any, to act on behalf of John (and to commit John to personal liability) in relation not simply to the company's affairs in general but as to the particular transactions in issue in these proceedings.

1. John professed little knowledge as to various aspects of the business (such as the basis on which Tony may have signed documents submitted to ASIC or had submitted invoices to debtors of the company or the like (see T 13); or as to the assets owned by the company (T 11); or as to dealings that his brother had with the company's banker (T 17); or to dealings with Nadalan Enterprises in relation, in particular, to a water tanker owned in 2008 by Nature Springs). In part, such ignorance may have been self-serving in the context of the present applications. Nevertheless, in general, John appeared to accept that Tony had authority to deal with business transactions on behalf of the company (though adamantly denying that Tony had the authority to sign the Credit Application on his, i.e. John's, behalf). There was the following exchange from T 13:

Q. You said, Mr Gazzana, that Tony did the paperwork for you on behalf of the company, is that right?

A. Yeah, but it depends what we're talking about. What paperwork and what I signed, because I never gave anyone authority to sign on my behalf.

...

Q. When you said that you gave Tony the authority to deal with financial matters, what were you talking about? [I interpose to note that if this is a reference to the evidence given at the foot of T 12, then what the witness said, having regard to the question asked of him, was that he "left most of the paperwork and the financial side of it" up to Tony - not expressly that he had given Tony authority as such]

A. Like I said before, I never got involved in the business side of it.

...

Q. Tony had your authority to do that [issue invoices to the supplier], didn't he?

A. Well that was his part in the business, yes.

...

Q. But he had your authority to deal, on the company's behalf, with business transactions, didn't he?

A. Well, as far as I know, but I never knew the business transactions he had with Mr Redford.

Q. Well is the answer to my question yes, that he did have your authority to deal on behalf of the company with business transactions?

A. On certain matters, yes.

Q. And that authority included business transactions between your company and Redford's company, didn't it?

A. Yeah, but I'm saying I had no knowledge of it at the time.

Q. You wouldn't have had knowledge of a lot of business dealings that your company had, would you?

A. Yes it's like I said before I never got involved on the business side of it.

Q. Because you had given that authority and consent to Tony, hadn't you?

A. Well, that was the way it was, yes. (my emphasis)

1. What John consistently denied, perhaps not surprisingly in light of the issues in dispute in this application, was that Tony was authorised to bind him personally to particular contractual arrangements (such as the arrangement recorded or put in place by the signing of the Credit Application to which I will shortly refer and the dealings with the water tanker). I come back to this issue in due course.

• Nadalan Enterprises

1. Nadalan Enterprises is a company that carries on business as a distributor of plastic products (such as bottles and caps). Mr Alan Redford is the general manager of that business and (as Mr Quickenden drew to my attention at the commencement of his cross-examination of the applicants) was in attendance in Court throughout the hearing as someone with the authorisation to represent the company. (As to his attendance in Court during the cross-examination of the applicants, I indicated that if he were the controlling mind of Nadalan Enterprises then I had no objection to him remaining in Court during the cross-examination of the witnesses though that might be, as ultimately it was, the subject of submissions as to the weight to be placed on his evidence if he did so).

1. Nevertheless, Mr Redford (to whom I will similarly refer, for convenience, as Alan) is not a director or shareholder of the company (the sole director and shareholder being his wife) though he seems to have been the relevant decision-maker of the company. Mr and Mrs Redford's daughter, Kimberley, also worked in the office of the business (at Somersby) at the relevant time (and had done so for some time previously).

• 2008

1. During 2008, Nature Springs had a distribution arrangement under which it supplied spring water to a large soft-drink manufacturer. During the course of 2008, that manufacturer foreshadowed its intention not to renew that arrangement at the end of 2008. Whether or not Nature Springs was already in financial difficulty during 2008 (something that Tony denied but which Mr Quickenden maintains was the case), it does not appear to be disputed that the forthcoming termination of that arrangement was a matter of some concern (as that seems to have been the principal source of revenue for the company) and, at least during the latter part of 2008, consideration was given as to what would be the ongoing nature (if any) of the business operations then being conducted by the Gazzana brothers through Nature Springs.

1. During the latter half of 2008, there were discussions between Alan and one or both of the Gazzana brothers as to matters related to the respective businesses of Nature Springs and Nadalan Enterprises. There is conflicting evidence as to the content of those discussions (and as to the length of time the Gazzana brothers had known Alan). Nevertheless, on the accounts of both Alan and Tony, those discussions included what was to happen with a water tanker then owned by Nature Springs (which had been used by it in its spring water distribution business) and as to the possibility of business arrangements then being entered into between the two companies for the acquisition of bottles/caps by Nature Springs from Nadalan Enterprises and/or the supply of spring water by Nature Springs to Nadalan Enterprises.

1. For present purposes, for the reasons I set out below, it is not necessary finally to determine in all respects which of the conflicting accounts of the relevant conversations in relation to the tanker and the business arrangements is the more credible overall (and in light of the existing District Court proceedings it is not appropriate that I do so). Suffice it to say, nevertheless, that there were inconsistencies in the evidence given on each side and that I found none of the witnesses particularly compelling.

1. The relevant factual issues for present purposes are as to the circumstances in which the Credit Application was signed and as to whether there was an oral guarantee by John and/or Tony of some or all of the company's debts that extended to the giving of a charge over the brothers' interests in the property.

• Tanker

1. As noted above, during 2008 Nature Springs had a water tanker. According to Alan, Nadalan Enterprises acquired the tanker from Nature Springs (for the sum of $80,000) and agreed to rent it back to Nature Springs for four years at a monthly return of $4,550 (which he said was slightly less than the market rental or "commercial rental rate" for such a vehicle) (at [18]). Alan deposed that at his premises in September 2008, Tony and John said words to the effect that they wanted to sell their water tanker to pay their debts and suggested that he buy it and rent it back to them. (He also says that in that conversation they offered to buy bottles from him and that he told them that they would have to be personally liable therefor.) Alan also deposed that the ultimate agreement in relation to the tanker included an arrangement that Nature Springs could buy the vehicle back for the residual value at the end of the hire purchase arrangement.

1. Alan said that in that conversation one or both of Tony said that "we will need a credit account but will pay for the bottles out of income from sales". (The suggestion that it was John who made reference to a credit account seems unduly formal having regard to the tenor of his evidence in cross-examination. Tony may well have appreciated the need for credit, but the opening of a "credit account" seems more likely to have been a requirement of Alan, particularly since he apparently then immediately produced a pro forma credit application. Moreover, a statement that bottles would be paid for out income from sales, and hence the suggestion that the credit would be necessary only to cover a start-up period when sales did not produce the income to cover the invoices, seems inconsistent with an application for credit of up to $100,000.)

1. Alan said that he told Tony and John that he would need a personal guarantee for "all debts" and that "the debts" would need to be secured on the Calga property (at Peats Ridge), to which he says "one or both of them" said "Of course yes that is fine. We have plenty of equity in the property". (It is this conversation on which the equitable charge claim against John essentially rests, at least insofar as it is based on the Credit Application that Tony signed or the alleged oral guarantee.) Alan also said (though the weight that can be placed on a generalised assertion of this kind is not great) that on other occasions around that time "individually or together" Tony or John said words to the same effect.

1. Pausing there, the context in which the conversation recorded at [11] of Alan's affidavit is put (on Alan's own account of events) seems to be that the credit was sought in relation to the purchase of bottles (not the obligations that he says were or were to be assumed in relation to the tanker). I note that Alan says he uses words to the effect "all debts". It is not clear, however, whether objectively ascertained, the intention of the parties was that the proposed credit arrangement was to encompass arrangements with the water tanker. (The ambit of the credit arrangement and the Gazzana brothers' understanding of the arrangement are matters which will be relevance to the Trade Practices Act defences foreshadowed in respect of the guarantee claim in the District Court.)

1. Insofar as Alan's affidavit at [16] (read subject to weight) deposed to "Other conversations like this occurred when Tony and John would say they were personally responsible to Nadalan Enterprises for their company's orders and debts"; and at [27] (, which I only provisionally read) deposed that "verbal answers were given many times by John and Tony Gazzana about outstanding debts" and that "we will honour our debt", statements of that kind go not to the provision of security for the debts as opposed to an unsecured promise to honour or be responsible for the company's debts.

1. Throughout his affidavit evidence, Alan is imprecise about who it was, of the two brothers, that said various things (to which, in general, his evidence seems to be that the other always agreed). When questioned on that, Alan was quite testy. While it is not surprising that there would be imprecision in recollection about who said what to whom in conversations some time ago, there is some significance to this in circumstances where Nadalan Enterprises seeks to hold John personally liable as guarantor on a document that he did not personally sign (or alternatively on an alleged oral guarantee). The imprecision in Alan's evidence casts serious doubt on whether Nadalan Enterprises will be in a position ultimately to establish to the requisite degree of probability that John personally guaranteed the debts that Alan says he did and even further that he agreed to grant a charge over his interest in the Calga property for that purpose. For present purposes, however, it is for the Gazzana brothers to establish that there is no valid claim to an equitable charge or lien over the funds income.

1. According to Tony, the arrangement reached with Alan was, in effect, that Nadalan Enterprises would assist in the provision (to Nature Springs or to the Gazzanas) of finance raised on security of the vehicle but that Nature Springs was to retain ownership of the tanker and would assume the obligation to meet the monthly rent instalments (of $2,006.69 per month, not $4,550). (John says that he was not aware of whatever dealings there were between Alan and Tony in relation to the tanker. Both he and Tony say that, at some stage during the period in question, John was ill and living with their sister.)

1. As far as the contemporaneous documentation is concerned, there was in evidence the front page of a Commercial Hire Purchase Agreement between BOQ Equipment Finance Limited, as financier, and Nadalan Enterprises, as hirer, in relation to the purchase of what I understand to be the tanker in question, for the sum of $80,000 inclusive of GST. Under that agreement there was provision for 48 rent instalments in total (each of $2,006.69). A tax invoice was issued on Nature Springs' letterhead to Nadalan Enterprises for the supply of such a vehicle in the amount of $80,000 and requesting payment by bank cheque to Perpetual Trustee Company Limited (to whom, I gather, Nature Springs owed various amounts). There was also a copy of a bank cheque dated 15 October 2008 in that amount. It appears that the vehicle remained registered at all relevant times in the name of Nature Springs.

1. Pausing there, the payment of the BOQ funds to Perpetual, not Nature Springs, might support a finding that what Nadalan Enterprises was doing was (as Tony in effect contends) assisting Nature Springs with finance, on the basis that Nature Springs would repay the borrowing in monthly instalments matching the hire purchase fees (consistent with the vehicle remaining in Nature Springs' name and with Nature Springs also being invoiced (as it was) for the fees incurred in the establishment of the hire purchase arrangement itself). I note, however, that Alan was adamant that the cheque was paid to Perpetual at Tony's insistence.

1. For the period from September 2008, Nadalan Enterprises invoiced Nature Springs the amount of $2,006.69 each month. It is accepted by the Redfords that this was rental for the tanker (not supplies of bottles, for example, nor the provision to Nadalan Enterprises of water as such). There was no invoice issued for the difference between that amount ($2,006.69) and the amount that Alan says was in fact the agreed rental for the vehicle (the $4,550). Nor is there any reference to the additional amounts in the handwritten notes that were prepared by Kimberley (on an unknown date and, she says, for her own purposes) as to outstanding amounts owing by Nature Springs. That said, I can place little weight on the notes (other than noting that they may point to a lack of any understanding by Kimberley at that stage that there was any further rental fee beyond the $2,006.69, casting doubt on her testimony on the present application) as it is not clear that they represent any final acknowledgment by Nadalan Enterprises as to the debt position between Nadalan Enterprises and Nature Springs.

1. In the District Court proceedings, Nadalan Enterprises claims that all of the monthly rent invoices (i.e. the $2,006.69 amounts) are outstanding and has also made a claim for the difference between those amounts and the (higher) rental it claims was agreed (together with other amounts). Kimberley's working notes, whatever their status, do not record any invoices prior to 2009 being outstanding.

1. Tony is adamant that the $2,006.69 invoices (or at least some of them) were paid by way of a "contra" or offset against money owing to him for work he performed for Nadalan Enterprises (though it was ultimately conceded by him that he had not commenced work for Nadalan Enterprises until some time in 2009).

1. Put to him in cross-examination was a bundle of tax issues issued by Nature Springs to Nadalan Enterprises for supply of spring water to Nadalan Enterprises. Tony suggested there were in fact invoices for his labour, falsely noted (at, he says, Alan's request) as supply of goods. There is nothing to support this assertion.

• Credit Application

1. This brings me to the document which lies at the heart of the principal claim in the present dispute - a document (which appears to be a standard form typed document used in Nadalan Enterprises' business) headed "Account Application" signed by Tony. It is this document on which Nadalan Enterprises relied, when it lodged its caveat over the Calga property, for the equitable interest claimed by it (and one of the three bases on which it asserts a valid beneficial claim to the moneys now held in Court).

1. The document is on Nadalan Enterprises' letterhead. On the coversheet it is headed (in bold print and enlarged capitals) as an "Account Application". Under this heading, appear the words (also in bold print but in smaller capitals) "Terms and Conditions of Sale". There is a statement as to retention of title "until all goods supplied ... are fully paid for" at the foot of that coversheet. On its face, therefore, it appears to be a pro forma document for use in connection with the supply of goods (not necessarily of services) by Nadalan Enterprises.

1. On the second of the three page document, also on Nadalan Enterprises' letterhead, is the heading "Application For Credit Account". There then follow (on this and the following page) four sections (A) - (D), with a space headed "For Office Use Only" on the bottom right hand half of the last page.

1. Section (A) relates to details of the applicant, leaving space for matters such as trading name, ARBN, address and nature of its business. The form also provides in this section for the applicant to specify of the maximum monthly credit sought (by ticking one of six boxes).

1. There is no dispute that Tony completed the credit application. He acknowledged that it was his handwriting. The trading name of the applicant was noted as "Nature Springs Pty Ltd" and the credit limit sought was up to $100,000. (I note that although, in the District Court proceedings, Nadalan Enterprises has pleaded (and Alan has verified) that there was an agreement that Nature Springs would have a credit account up to a maximum of $100,000 per month for purchases and services from Nadalan Enterprises, the approval noted by Alan on the Credit Application form was for only a $50,000 limit.) (Alan's explanation that a $100,000 credit limit had been agreed because in his mind he was prepared to agree to that if the payments were made on time was not persuasive.)

1. Section (B) contains a heading (in bold type face and capitalised) as follows:

IF APPLICANT IS A PTY LTD COMPANY THIS FORM WILL BE CONSIDERED AS A PERSONAL GUARANTEE.

1. There then appears, in ordinary type face, the following (the words in italics are those completed in handwriting by Tony, other than Alan's signature as witness):

WE, the said

(Director's name)           (Director's name)

Company Directors, in consideration of the Creditor granting credit to :

Nature Springs PTY LTD.

HEREBY JOINTLY AND SEVERALLY guarantee the Creditor the due payment of all debts to be paid by the said:

Nature Springs PTY LTD.

AND IT IS AGREED that this Guarantee shall be a continuing guarantee for credit to:

Nature Springs PTY LTD.

AND IT IS FURTHER AGREED that the property at [Calga] is offered for security as guarantee for credit to:

Nature Springs PTY LTD.

DATED this 4/9/2008 day of September 2008

SIGNED by the said A F Gazzana    and  

(Director's name)      (Director's name)

Antonio F Gazzana

(Director)                   (Director)

A C Redford             

(Witness)                   (Witness)

1. The form was signed only by Tony (whose signature was purportedly witnessed by Alan). The space for the signature of the second director (John) was left blank.

1. On the following page, section (C) provided for default of the company directors and business premises. Section (D) required three trade references to be completed. There was also a section marked "For Office Use Only", which was completed in handwriting by Alan, included a limit of "$50,000", and was signed and dated 10 September 2008.

1. I say above that the document was "purportedly" witnessed by Alan because Alan's account (supported in substance by his daughter) was that the form was given by him to Tony at the meeting on 4 September 2008 (they say in John's presence) and then taken away by Tony, who later returned it completed. (Alan denied that Tony returned it that same day.) If so, Alan cannot actually have witnessed the appendage by Tony of his signature on the document, though Alan seems to have signed the document in the capacity as witness. (Though a minor point, it may support Tony's account that he signed the form then and there rather than taking it away and returning it, as signed later.)

• Stamp Duty

1. The Credit Application was lodged for stamping on 18 December 2011 and seems to have been assessed on the basis that it secured an amount of $101,000. (Mr Pluznyk submitted that this supports the proposition that the real amount of the Nadalan Enterprises claim is $101,000 (or $111,000) and not the $250,000 claimed in the District Court at Gosford. Mr Quickenden objected to any such submission on the basis that the lodgement documents were admitted on a limited basis.

1. I place no weight on the time (or amount) for which the application was stamped, as going to whether that involved any admission as to the quantum of the debt then claimed by Nadalan Enterprises (which was the import of Mr Quickenden's objection to this evidence). However, I did raise the question as to whether the document needed to be up-stamped if it were to be relied upon as giving rise to an equitable charge to secure monies in excess of $101,000 (namely, the $255,000 now claimed in the District Court proceedings).

1. Mr Quickenden denied that there was any such liability but proffered (and I accepted) an undertaking from his client that if there is a liability to up-stamp the Credit Application document (which it is contended constitutes an equitable charge over the monies presently held in Court and secures the debt presently claimed in the District Court proceedings), Nadalan Enterprises will submit the document to the Commissioner for up-stamping.

1. In this regard I note that s 211 of the Duties Act 1997 (NSW) concerns the effect of failing to pay duty on a mortgage:

Consequences of non-payment of duty

A mortgage on which duty is required by this Chapter to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid. (my emphasis)

1. For the purposes of s 211 (and Ch 7 of the Duties Act), a mortgage is defined by s 205:

What is a mortgage?

For the purposes of this Chapter, an instrument is a "mortgage" if it is:

(a) a security by way of mortgage or charge over property wholly or partly in New South Wales at the liability date, or

(c) a security by way of a transfer or conveyance of any property in New South Wales that is held in trust to be sold or otherwise converted into money, redeemable before such a sale or conversation either by express stipulation or otherwise, except where the transfer or conveyance is made for the benefit of creditors who accept the transfer or conveyance in full satisfaction of debts owed to them, or

(d) an instrument that, on the deposit of documents of title to property in New South Wales or instruments creating a charge on property in New South Wales, becomes a mortgage or evidence the terms of a mortgage.

[Note: (b) is omitted in the legislation]

1. Section 304 deals with the question whether an instrument evidencing a dutiable transaction can be admitted into evidence.

1. The effect of s 211, therefore, is that if duty has only been paid for a mortgage sum less than the sum Nadalan Enterprises now claims is secured by the mortgage, the mortgage will be enforceable only to the extent of the lesser sum upon which duty has been paid. (Evidence of compliance with the undertaking proffered by Nadalan Enterprises through Mr Quickenden would be required in this regard.)

1. With respect to a document on which no duty, or an inadequate amount of duty had been paid, McDougall J held in Boral Recycling Pty Ltd v Wake [2009] NSWSC 712, in the context of an application for the extension of a caveat, in which it was necessary to establish that when lodged there was a caveatable interest, (at [12]) that:

Not having been stamped, the consequences prescribed by s 211 must follow. A mortgage that is required to be stamped is enforceable only to the extent of the amount secured by it on which duty has been paid. In this case, no duty having been paid, the relevant amount, for the purposes of s 211(1) is zero. (my emphasis)

1. There is some dispute in the authorities as to whether allowing the matter to stand down so as to pay the appropriate duty on the instrument would have any effect for the purposes of a determination of the existence at the relevant time of a proprietary interest (Neoform Developments and Interiors Pty Ltd v Town and Country Marketing Pty Ltd [2002] NSWSC 344, Boral Recycling, McKensey v Hewitt [2004] NSWSC 636; Arnautovic t/as Jirsch Sutherland & Co v Cvitanovic (as trustee of the Bankrupt Estate of Adrian Lawrence Rosee) [2011] FCA 809). The question arises before me only in the context that (until up-stamped) the Credit Application would at most seem to be enforceable as a charge only to the amount of $101,000.

1. In Jirsch, Katzmann J referred to Boral Recycling, before considering a number of cases which held that, under the Stamp Duties Act 1920 (NSW), the effect of subsequent stamping was retrospective and the instrument was valid ab initio (Electricity Meter Manufacturing Co v Manufacturers' Products Pty Ltd (1930) 30 SR (NSW) 422; Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359; Official Trustee v D'Jamirze (1999) 48 NSWLR 416). Her Honour noted that Hodgson CJ in Eq, as his Honour then was, had said (at 426-527 in D'Jamirze) that:

Plainly, this means that an unstamped instrument is not of absolutely no effect until stamped... Until stamped, an instrument has whatever effect is consistent with the proposition that, if stamped, it be fully effective ab initio. To put this another way, Shepherd must mean that an instrument is effective from the start, conditionally upon being stamped before relied on in court, or alternatively, from the start carries the potentiality of being so effective.

1. Where the dispute has arisen in the context of caveats, the question is relevant in that if no enforceable interest arises until the claimed interest is enforceable, then retrospective stamping or registration does not mean there was a caveatable interest when lodged (ACN 075 911 410 Pty Ltd (t/as Acuity Funding) v Almaty Pty Ltd [2011] NSWSC 333 at [18]).

1. Katzmann J (referring there to CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384) noted the predecessor to s 211 under the previous legislation (then being s 84(4)), which was considered in McCallum (aka Hain) v National Australia Bank [2000] NSWCA 218, and concluded (at [52]-[53]) that:

Section 211 does not use the word "unless". This might point to a deliberate legislative intention to overcome the interpretation given to s 29. But the language is not clear. It certainly does not exclude the possibility of "retroactive operation". And the inconvenience of the alternative interpretation to which Heydon J referred in McCallum remains. The Explanatory Note on the Duties Bill is silent on the question. And there is nothing in the second reading speech that throws any light on it. The Minister delivering the second reading speech, the Hon RJ Debus MP, said that the main purpose of the legislation was to replace the Stamp Duties Act with "simple, clear and equitable legislation drafted in contemporary language and modern style": Hansard, Legislative Assembly, 12 November 1997, p 1612. He said nothing about the question of enforceability of unstamped mortgages.

Whatever the reason for the change in the statutory language concerning the unenforceability of mortgages, I very much doubt that the change from "unenforceable unless it has been stamped" to "unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid" was intended to have the effect that the mortgage was only enforceable from the time of stamping and not retrospectively from the time of execution, contrary to the previous authorities. In the light of the authorities, if the effect were to prevent a mortgage from operating ab initio one might have expected either the substitution of "unless" with "until" or some express statement to the effect that the stamping only operated prospectively. I am therefore inclined to follow the approach in McCallum and to hold that s 211 operates retrospectively to make the charge enforceable from the time it was executed.

1. On both views of s 211, a later stamping has at least prospective effect. If, in the present case, a greater debt is claimed to be secured by the Credit Application than that upon which duty has been paid (being a sum greater than that shown on the face of the instrument stamped), then Nadalan Enterprises is liable (on its undertaking) to pay the difference between the duty paid and the duty which would be payable on a mortgage securing the greater sum. This would have the prospective effect that the entire mortgage debt is the enforceable at least from the date of payment of the difference in duty. (Until up-stamped, any equitable charge would be enforceable only to the amount so stamped - a matter that may well be of significance in the District Court proceedings.)

• Circumstances in which credit application signed

1. Tony's evidence is that the credit application form was given to him at the end of a 12 hour shift working at Nadalan Enterprises and that he completed and signed it on the spot. There is a dispute between the Redfords on the one hand and the Gazzanas on the other as to whether John was present at the meeting in which the credit application form was given to Tony. (Both the Redfords are adamant that John was present at the meeting but they differ as to the time of day when the meeting took place and as to how the men were seated at the table during that discussion.) It seems Kimberley herself was not part of the meeting as such, but was in and out of the room.

1. John denies any knowledge of the credit application form or guarantee contained therein and denies that he authorised his brother to sign the form on his behalf. John's affidavit of 17 April 2012 at [8] deposes that "I never signed the credit application" and at [9] that "I was not present when Tony signed it". John further says that he was not aware that Tony was going to sign it and first became aware when the proceedings were commenced in the District Court.

1. The evidence of Tony in relation to the signing of the credit application is replete with inconsistencies (he says he signed the form at the end of a 12 hour shift but the evidence, ultimately conceded, was that he did not commence work with Nadalan Enterprises until 2009); he denied having given a personal guarantee (though the form expressly provides for one and, elsewhere in his cross examination, he conceded he had given a guarantee); he said at one stage that the form had been signed in 2009 not 2008 and backdated (but there is nothing to suggest why the form would have been backdated and, since Alan's signature bears a 2008 date, if it were the case that the form had been backdated this would have required both he and Tony to have participated in that). It is difficult to accept Tony's evidence that the document was signed at the end of a 12 hour shift or that it was signed in 2009 and backdated (though the supply of bottles may not have commenced until some time after 2008). Tony argued (in the witness box) that there would be no reason to sign a credit application some 12 months to 2 years in advance of when they were going to be able to set up their own business. However, there is no evidence as to the set-up time then contemplated for any Gazzana brothers' business independent of the previous soft-drink distributor (other than Tony's assertions).

1. Alan's evidence, however, itself also contains inconsistencies - there was no compelling explanation as to why the tanker would remain registered in Nature Spring's name if Nadalan Enterprises was the owner (and such an arrangement might well have come as a surprise to the financier had it known that was the case); nor is there any compelling explanation as to why monthly invoices for the rental of the tanker would be issued in the sum of $2,006.69 if the actual rental was $4,550. I was taken to no documentation to show that Nadalan Enterprises had treated the tanker as an asset in its books or that it had recorded the rental liability as a liability in the higher amount.

1. Kimberley (who was adamant that she could remember verbatim the conversations referred to in her affidavit but was unable to recall other matters related to the conversations and who had a tendency to retract or qualify answers - such as the time when the document was returned signed by Tony and when she looked at it and filed it - suggesting that her recollection was not as precise as she wished to suggest) gave evidence that Tony and John had said in her presence that Tony would sign the credit application on behalf of his brother but, if so, there seems no reason why she would have later felt the need to point this out to Alan as she says she did (and the evidence that she did so was inconsistent with Alan's own evidence as to when he first learnt that the document had not been signed by John).

1. Kimberley said that she was aware at about the time (i.e. around September 2008) that John's signature was not on the document and that she drew this to her father's attention.

Q. In fact, there was no discussion in relation to John not signing that particular part?

A. I would have had a conversation with my father. He was the one that did the trade references on it.

Q. He told you it was all right for John not to sign it?

A. Yeah.

Q. Did you raise it with your father that John hadn't signed it?

A. Yes.

Q. You did?

A. Yes I did. If you look at it, he hasn't signed it. I would have asked.

Q. Did you tell Alan that it wasn't signed?

A. Yes.

Q. What is he say?

A. If you read the account from, it says--

Q. No I'm asking you what did he say?

A. Yeah, John hasn't signed it. Tony signed it on his behalf.

Q. He said those words?

A. Yes.

Q. That's what he said to you?

A. (Nodded) To the best that I can recall.

Q. To the best of your recollection he may not have said that at all.

...

A. He may or may not have. I don't remember.

1. Alan's affidavit (as adverted to above) deposed to him not being aware of this until much later. At [14] Alan said "I assumed it had been signed by both directors. I didn't look at it at the time".

Q. You expected that application to be signed by both John and Tony?

A. Normally that's the case, yes.

Q. Did you look to see if it was signed by both of them?

A. No.

Q. It was so obvious that it wasn't signed by both of them, wasn't it?

A. Well I was only concerned with the credit check. [I note this is an example of the witness giving an explanation not answering the question which characterised much of John and Tony's evidence and was the subject of criticism by Mr Quickenden in relation to that evidence]

...

Q. While making those [credit] inquiries you just didn't bother to check to see whether John Gazzana signed it?

A. I didn't bother to check because both of them had assured me that they were going to give a guarantee. [an answer seemingly inconsistent with the first answer noted above]

1. Alan's shared assumption that the document had been signed by both John and Tony is inconsistent with Kimberley having drawn it to Alan's attention at the time (and her evidence that Alan said that was all right because Tony was signing for John). Alan deposes at [28] that at no time during the meetings with Tony/John did John and Tony inform him that John had not signed the credit application form. (On Kimberley's evidence that would not have been necessary as she had already drawn it to his attention.) (Moreover, if what Nadalan Enterprises seeks to draw from the assertion that neither Tony nor John had pointed out that John had not signed the document was some form of acknowledgement by John that he was bound by it, far more would be required as to what was said and in what context it was said for any such conclusion to be drawn.)

1. Kimberley also said:

Q. You didn't contact John Gazzana to get him to sign that part, did you?

A. No, he contacted me before and said Tony would fill it in and bring it back so, no, I didn't contact him afterwards for Tony to sign it.

1. There was no reference to any such conversation in her affidavit and this evidence had the impression of being an explanation offered on the spot in the face of the apparent inconsistency in her evidence on this point.

1. A further inconsistency is that Alan verified the Statement of Claim in the District Court proceedings in which it is alleged that a $100,000 credit limit was agreed on 4 September 2008. At T 106/7, Alan confirmed that the affidavit attached to that statement of claim verified that there was an agreement on 4 September that there would be a credit account up to a maximum of $100,000 per month, but then accepted that the credit application was approved for only half that amount:

Q. The credit application is an application for $100,000 a month, but only $50,000 a month was approved. That was approved not on 4 September?

A. Well, technically you are right. The application was for $100,000 that they put in, yes.

Q. Your swear in your affidavit, which was annexed to the statement of claim, that $100,000 a month was approved, and that is incorrect?

A. It is, I had approved $50,000 to myself. My thinking was that if they paid the account, if it was good, that they'd have the $100,000. (my emphasis)

1. On the document (consistent with Alan's evidence as to the steps he took for credit/trade reference checks) the credit application was not accepted until some time after 4 September 2008. Hence, on normal principles of offer and acceptance, the contract would not have come into existence until 10 September 2008 at the earliest (and arguably not until acceptance of the offer was communicated or goods were supplied under the contract if that be taken as an implied acceptance of the offer).

• Outstanding amounts?

1. As adverted to earlier, tendered in evidence by Mr Pluznyk (and admitted over Mr Quickenden's objection) were some handwritten notes by Kimberley, on the face of which there is no reference to any invoices being outstanding for a period in 2008. One of these notes suggested that the amount outstanding as at November 2011 was around $78,000 plus the "payout figure". Kimberley explained in the witness box what she had understood by a "pay-out" figure at the time the note was written. Later, she confirmed that:

A. Okay. Pay-out figure is the balance of the figures on the tanker, so that's if you were to confirm, that's the pay-out figure, I have to call the bank and see the amount that's left owing. That's the pay-out figure. The balance also owing on any of the rental.

...

A. There is still owing. It says without pay out figure on tanker. So anything relating to tanker is not there. There is still stuff still missing. I don't - that's what that means. It's not a final figure.

...

A. Okay. So yes, without pay out figure from the Bank of Queensland on the tanker, the repayments, yes, and any of rentals owing on the tanker. Anything to do with tanker. (my emphasis)

1. Tony says these were notes made when he asked Kimberley what was outstanding and that they were given to him (something that of itself would not seem implausible). Kimberley denies this and says she would not have given handwritten notes to Tony. At T 92, when Tony was asked how he came to have the handwritten notes by Kimberley in his possession (they being attached to his most recent affidavit on 25 May 2012), his response was:

A. Well occasionally I would go to the office and receive the invoices from their company. I told her up to that stage exactly how much did our company owe Nadalan Enterprises. She did write down every detail. She put everything in order, which we both agreed.

1. Tony maintained that he was 100% sure of that and responded testily (when it was put to him that he had taken the documents from the offices of Nadalan Enterprises knowing that nobody knew he had taken them) "Don't be stupid. His daughter gave them to me. How would I get in their drawers?".

1. I have already indicated that I cannot place any real weight on these notes, as it is not apparent that they represented anything more than working papers (of a kind Kimberley maintains she regularly made in the course of her work at Nadalan Enterprises, for her own purposes, to check what was owing). No doubt the significance of the notes may emerge when there is more evidence of the manner in which Kimberley carried out her role in the office and a comparison can be made with other such documents.

1. In any event, what the notes suggest, at most, is that when Kimberley (for her own purposes, as she says on her evidence) prepared these notes, she either did not understand there to be any arrangement for rental at the increased figure or did not appreciate that this amount should be included in these calculations. A payout figure on the hire purchase agreement itself would presumably not involve more than the residual value (however that might be calculated by the financier) and any arrears under that agreement. It is hard to see how a financier would have a basis to seek a pay-out figure at a higher rental amount than specified in the agreement. Kimberley's explanation of what she meant by "payout figure" in this regard was not to my mind convincing if what was suggested was that there was a "payout figure" as such that was over and above what was provided for in the hire purchase agreement.

1. Kimberley appeared to concede that a calculation of any more moneys owing to Nadalan Enterprises in relation to the rental of the tanker could have been calculated (although she said it may have taken a while). She agreed that (assuming the increased rental figure of around $5,000) it would be a simple matter of taking away the sum of $2,006.69 from the increased rental figure and multiplying it by an amount of months, but did not accept that the only reason why the payout figure was blank in her notes was because it meant contacting the bank and obtaining a payout figure from the bank.

• Authority

1. At least by 2011, it seems there were issues as to the financial position of Nature Springs, culminating in steps taken by the registered mortgagee to exercise its rights of sale in relation to the property. Tony accepts that he was resisting the exercise by the mortgagee of its power of sale (though not that he behaved improperly in so doing).

1. In the context of the forced sale, possession of the water tanker was given to Alan (whether for safe-keeping, for convenience, for settlement of Nature Springs' debts or because Nadalan Enterprises is the true owner thereof, is not clear). In due course the Gazzana brothers signed an authority for the distribution of the proceeds of sale and provided that to the mortgagee's solicitors.

1. Annexure E to Alan's affidavit is a copy of a document headed "Authority", signed by each of John and Tony, dated 25 January 2012 (the date of the mortgagee sale). On its face, this is a direction to the mortgagee and its solicitors authorising them as to the manner in which to pay the surplus proceeds of sale of the Calga property. The second of the payments listed in the Authority is "as to the sum of $111,606.25" to Nadalan Enterprises. (Tony in the witness box was at pains to emphasise that this sum reflected the addition of the sum borrowed in relation to the tanker, plus the (unpaid) hire purchase instalments and the amount he says was attributable to the supply by Nadalan Enterprises of bottles - around $15,000. Alan's position was that the sum represented a compromise of the debt owing which was well in excess of that.)

1. Relevantly, the Authority includes the notation "(a) Nadalan Enterprises Pty Ltd currently holds a charge over the vehicle, repayment of the loan is to be contingent with release of the charge". The vehicle to which reference is made in that notation is not identified but there is no suggestion that there was any other vehicle than the tanker which was part of the disputed arrangements between Nadalan Enterprises and Nature Springs.

1. Alan (at [24]), in a paragraph which was only provisionally read in the first instance (on the basis that there was a query as to whether it breached without prejudice privilege) deposed to a conversation in about November 2011 when he says there was an agreement to settle the debt for an amount of $111,600.26, provided that Nature Springs also agreed to supply spring water to Nadalan Enterprises at rate of 0.010 cents per litre up to $200,000. (In the witness box Tony seemed to understand the questions on this topic as going to a suggestion that water would be provided free of charge altogether, which is not what I had understood the conversation as deposed to in Alan's affidavit on its face to mean. Hence it seemed to me that there was some confusion on this aspect and the weight that should be attached to Tony's evidence on this issue was affected by that confusion.)

1. In any event, what both Tony and Alan seem to accept is that at around the time of the sale there was discussion (if not a final agreement) that Nature Springs would pay an amount of $111,600.26 to settle whatever were (or were contended to be) its outstanding debts to Nadalan Enterprises (with or without an arrangement for provision of spring water in addition). As I noted, Tony appeared to be arguing his case in the witness box in his answers on this issue. Nevertheless, the particularity of the figure in the Authority (ending in a sum of 26c) certainly suggests that it was reached by reference at least in part to instalments of $2,006.69 rather than the rounded up $4,550 figure. However, it is difficult to draw any final conclusion as to the composition of the total sum and, in any event, a willingness to accept payment of a lesser sum in satisfaction of a debt would not amount to an admission that the debt itself was no more than that lower amount.

1. No reliance is placed on this Authority (at least in the present application though the same cannot necessarily be said for the District Court proceedings) as recording or reflecting an agreement for payment of the sum noted in the Authority (Mr Quickenden noting that his client was not a party to the execution of the Authority). However, reliance is placed by Nadalan Enterprises on this document itself giving rise to an equitable lien over the funds in Court (a claim which I consider in due course below).

1. As to the reference in the Authority to a "charge" over the vehicle, it is by no means clear what was intended thereby. Nadalan Enterprises asserts ownership of the vehicle, not a charge over the vehicle. It might well be the case that the bank providing funds for its acquisition had a charge of some kind under the hire purchase arrangements. If the notation suggests that the release of the charge was to benefit Nature Springs (or the Gazzana brothers) then presumably it would be consistent with them at that stage having an understanding (whether or not that be correct) that the vehicle remained in their ownership but had been secured in some fashion for the debt owing under the hire purchase arrangements.

1. John's evidence was that he played no part in the discussions as to what happened to the tanker at or around the time of the mortgagee sale because he was living with his sister at the time. He suggested that Tony and Alan might have reached an agreement for the tanker to be taken in settlement of Nature Springs' debts. Tony suggested that it was in order to remove the vehicle from the property in advance of the forced sale.

1. Whatever the actual arrangements in relation to the removal of the tanker to Alan's property, the Authority seems to me clearly to impose a condition on the payment directions referable to the release of a security interest (or claim) in respect of the tanker. If so, then it cannot be described as an unconditional direction to pay out the proceeds in question.

• Caveat/Sale of Property

1. A caveat was lodged by Nadalan Enterprises on 5 December 2011 claiming an equitable interest in the land arising out of a charge over the land by the registered proprietor, that interest said to be arising from the Credit Application.

1. The sale of the property by the mortgagee in possession occurred on 25 January 2012. (Mr Quickenden places weight on the apparent resistance by one or both of the Gazzana brothers to the mortgagee sale (as evidenced by the narrations contained in the bill of costs of the mortgagee's solicitors - Exhibit A) as going to their credit on the present application. I consider this later.)

• District Court proceedings

1. District Court proceedings were commenced by Statement of Claim filed on 5 March 2012. A copy of that pleading was in evidence. Nadalan Enterprises claims the sum of $255,255.24. (Although Nature Springs is joined as a party, it is currently deregistered. The claim cannot be pursued against it without an application for re-registration of the company and hence that part of the claim at least at present would seem to be liable to be struck out.)

1. The claim is described as a claim in debt, contract, guarantee and loan agreement for purchase of a truck (the water tanker to which reference has been made above). Breach of contract is alleged against Nature Springs by the failure to pay invoiced amounts totalling $105,260.26. The claim against the Gazzana brothers is for breach of an agreement (pleaded as a term of the credit agreement) that they guarantee the cost of "purchases" recorded in [6] of the pleading. The tanker rental invoices are included in that amount. (It seems now to be conceded by Alan that these could not be described as "purchases".)

1. Further or in the alternative, there is an allegation that in about July 2009 Nadalan Enterprises agreed to lend Nature Springs moneys to further its spring water business and a further loan of $6,340 (in breach of which it is said that the defendants have not repaid any of the loan moneys).

1. Still further (and also expressed to be in the alternative) there are two additional agreements alleged - the first, between the parties for the rental of the water tanker (purchased by Nadalan Enterprises for the sum of $80,000) at a sum of $4,550 per month and for the payment of registration insurance repair and maintenance costs for 4 years (for which Nadalan Enterprises claims the sum of $143,654.98 being $2,992.81 x 48); and the second being an agreement for the payment of $111,600.26 from the proceeds of sale of the Calga property and the provision of spring water to meet the balance of the debt of $200,000 (based on a rate of 0.010 cents per litre).

Credibility of witnesses

1. Before turning to the legal issues, I make the following observations as to the respective witnesses.

1. Tony had a tendency to be confrontational with the cross-examiner and argumentative in the witness box; John and Alan, while less so, were nevertheless also argumentative at times. Both John and Tony had a tendency to proffer explanations for matters rather than addressing the particular questions put to them and displayed some circularity and inconsistency in their evidence. Nevertheless, criticism could also be levelled (though, again, to a lesser extent) of Alan in that regard.

1. My impression was that, on John's part, the circularity in some of his evidence was due to his anxiety to impress upon the Court his denial of anything to do with the signing or authorisation of the Credit Application or any arrangement with the tanker (and hence he tended not to focus on the precise question) rather than attempting to avoid the questions put to him.

1. By way of example of John's attitude in the witness box, I note that at T 16, when Mr Quickenden pressing witness as to a question earlier asked as to his understanding of a particular document, there was the following exchange:

Q. Mr Gazzana, I'm not asking you the question whether you have seen that document before, I'm not asking you that question, do you understand that?

A. What are you asking?

Q. That's not your business?

A. To a point it is my business.

1. To be fair to John, it seems to me difficult to suggest that it is not relevant for the witness to know what question he or she is being asked and expected to answer. However, it indicates an assertive attitude evident in other answers, such as:

Q. The record will show?

A. It doesn't matter about the record. I'm telling you how it is.

1. What seems more relevant to note in relation to John's evidence was that he had a tendency to conflate questions and his answers were circular in content at times.

1. As to his tendency to answer the question he thought he was asked and not the question itself, or added to an answer with a justification of his own, there are a number of examples (with the relevant answers italicised below) - for example, from T 17:

Q. That's Tony's writing, isn't it?

A. Well it is not my writing, no.

...

Q. Can you listen to the question?

A. Yes, I'm listening. You asked if that was my writing [which I interpose to note was not the question], I said no. You said, "Is that Tony's writing?" I said, "Yes."

Q. That's Tony's writing?

A. Yes, as far as I know.

Q. Do you think there is a doubt that it is Tony's writing, do you?

A. Well I'm saying that it looks like his writing, yes.

...

Q. That's Tony's signature, is it not?

A. Yeah, that's his signature, but there is no signature of mine there.

Q. Did I ask you that?

A. No, but I'm telling you that.

...

Q. Do you recognise that as Mr Redford's writing?

A. That looks like his writing, yes.

Q. You have known Mr Redford for many years, haven't you?

A. Not as long as my brother has.

Q. Do you understand I wasn't asking you how long your brother had known him, I was asking how long you knew him?

A. I answered the question.

Q. No, you didn't?

A. I said not as long as my brother knew him.

Q. Did I ask you how long your brother had known him?

A. I don't know how long my brother has known him.

1. As to the circularity or inconsistency of his answers (and a tendency on John's part to speculate as to what did or did not happen):

Q. That was Tony's province, wasn't it?

A. Well he was the one doing the deals with him. Not me.

Q. Sorry, I haven't finished. You gave Tony authority to deal with the tanker on behalf of your company, didn't you?

A. I didn't give him any authority on the tanker, because like I said before, I had no idea what was happening with it. As far as I knew, we owned it. That was probably a dealing that him and my brother, Mr Redford and my brother, had going together.

1. As to Tony, he had a tendency to make broad assertions and denials from which he was then forced to withdraw. So, for example, his denial of knowledge as to the alleged personal guarantee (that he seemed to bolster by the assertion that he had never given one before, although he accepted that he had had previous knowledge of other charges and agreed that he had been involved in negotiations for the fixed and floating charge given to the financiers on behalf of the company). He also seemed ready to level allegations as to dishonesty against Alan (in which he seems to have been prepared to be complicit):

Q. Listen to this question if you didn't hear the last one. The tax invoices include amounts of money paid by Nadalan to your company?

A. That's right.

Q. For springwater?

A. No, not only for springwater it was for labour. He said make it under springwater to replace labour because it's a benefit to his company to treat it as a tax deduction. He has got no proof of finish product of springwater. Your client has got no proof of finished product.

Q. So those documents--

A. Yes.

Q. Are false?

A. That's right.

Q. And you wrote them?

A. That's right.

Q. And you say that it was at Mr Redford's suggestion?

A. That's right.

Q. I put it to you it was at your own suggestion?

A. You put that, but he is a very pushy person and beggars didn't have a choice. We were employed by him, so you do what the boss requests.

1. Also:

Q. Mr Gazzana, you were very familiar with financial transactions such as personal guarantees, weren't you?

A. That's right.

Q. And you have been familiar with personal guarantees for many many years, haven't you?

A. Not really, because it was the first one we ever, I ever signed. And we always honoured our words we always pay our commitments, paid who we were dealing with.

Q. Are you saying the first personal guarantee you ever signed--

A. Apart from banks.

Q. Sorry I haven't finished. The first personal guarantee you ever signed was the one that Mr Redford gave you?

A. Apart from banks or private lending, yes.

Q. So before Mr Redford asked you to sign a person guarantee you had already done that with other financial transactions?

A. Only with banks or private lending.

Q. It doesn't matter who with. You had already done it by the time Mr Redford asked you to do it, hadn't you?

A. Like I said with banks or private lending. No other manufacturing company ever made me do personal guarantees.

Q. So you were fully aware that you were personally guaranteeing the debts of your company when you signed the guarantee for Mr Redford, weren't you?

A. We always honoured our commitments. We always paid everyone. [Pausing there, Tony's insistence that they had always honoured commitments and always paid everyone, suggests that what he is more likely to have said to Alan during the discussions was a similar promise and not that he would put his property up as security for any proffered guarantee]

Q. You personally guaranteed your company's debts to Nadalan, didn't you?

A. Me myself, yes.

1. Tony also seemed not to listen carefully to questions put to him. For example:

Q. You didn't have your own equipment to make bottles, did you, in 2008?

A. Well, there's about 10 packaging companies that do make bottles so Mr Redford is not the only one. We thought by exchanging business you buy water we buy bottles.

Q. Do you remember the question?

A. Yes.

Q. What was the question?

A. You're saying that I needed bottles and I'm saying your client is not the only one that makes bottles in this planet.

Q. That wasn't the question. The question was you didn't have your own facilities to make bottles in 2008?

A. No.

1. Tony's evidence was criticised by Mr Quickenden as "prolix, confused and unresponsive", adopting the words of White J in Jackson v Richards [2005] NSWSC 630 at [12]). I accept that (when recalled for further cross-examination on the second day) Tony's evidence became increasingly confused. In general, my impression of the manner in which Tony gave evidence was that he was inclined to make broad assertions without much thought to what he was being asked (and that not much weight should be placed on his 'off-the-top of his head' assertions).

1. I suspect that the manner in which both Tony and John answered questions put to them may have been due to their level of education and in part to impatience on their part. Nevertheless, it was difficult to place much reliance on their recollection of events due to the inconsistencies in their evidence and the vagueness of some of their stated recollections.

1. However, Alan, in turn, did not always limit himself to answering the questions put to him, also from time to time giving an explanation for his conduct and, as did the Gazzanas, engaging in a speech in answer to questions. There were inconsistencies in his evidence and I similarly found his evidence to be not particularly reliable.

1. As to Mr Ian Gilbert, (who gave evidence for Nadalan Enterprises and is Kimberley's future father-in-law) I found his evidence to be even less helpful than that of the Gazzana brothers and Alan. It is apparent that there is little love lost between Mr Gilbert and Tony. Mr Gilbert made clear that he has an ongoing (separate dispute) with the Gazzana brothers as to moneys that he says they promised he would be paid. He was confrontational and argumentative in cross-examination; and his evidence was general in content. See, for example, at T 168:

Q. Can I just stop you there. Are you saying that they [John and Tony] both spoke at the same time using exactly the same words?

A. Don't be stupid. Of course they are not going to speak at the same time.

Q. Well then, at some stage either John or Tony was talking to you by himself?

A. Okay. Okay. I spoke to John. I spoke to Tony. Tony answered, John backed him up.

Q. What did Tony say to you?

A. He said he would pay me on a regular basis every 14 days. John agreed to it.

Q. When you say John agreed to it, what words did he use?

A. He said that he would agree to paying the money. I am not going to say word for word. I can't remember that.

Q. You can't remember--

A. Listen, don't put words into my mouth. Don't try and change things. I know on the day I spoke to the two of them. I had concerns about getting paid. As it turns out, I had good concerns for it. They didn't pay me. And of course here we are today for another reason.

and, later, went so far as to accuse the cross-examiner of dishonesty: "You put what you like. The fact is you are lying. They are lying."

1. Kimberley, in contrast, gave her evidence timidly and almost invariably with a questioning inflection (that conveyed the impression, whether or not justified, that there was some doubt or hesitation as to the answers she was giving). With some of her evidence, it was not clear whether she was in fact giving evidence as to what she recalled happening or as to what she assumed would have happened (see, for example, the evidence as to what was done by her in relation to the filing of the completed Credit Application at T 136ff).

1. Mr Quickenden pointed to the contradictions between the evidence of Tony and John such as, for example, their evidence as to whether John had told Tony to sell the tanker; as to whether John knew of any business transactions with Nadalan Enterprises; and as to how long the brothers had known Alan. Mr Quickenden noted that John had agreed with much of Alan's recollection of conversations other than in relation to the personal guarantee.

1. I accept that there were contradictions and inconsistencies that permeated much of the evidence (but it seems to me that neither side is immune from criticism in relation to this issue).

1. Mr Quickenden further submitted that the account that Alan had given was wholly plausible and that the account the Gazzanas had given was wholly implausible. Leaving aside the advocate's flourish, what is being suggested is that it made sense that Nature Springs, facing the need to find an alternative means of income in light of the forthcoming cessation of its existing distribution arrangements, would have engaged in a conversation with Nadalan Enterprises as to the possibility of the two companies doing business with each other and that even the most inexperienced businessman (who already has a system of credit requiring the provision of security in the form of personal guarantees and charges over property) would require such an arrangement.

1. I have no difficulty accepting that it would have made sense for Nature Springs to seek to explore other business opportunities (and Tony himself accepted that there had been consideration given to setting up a business of their own); similarly, that it would not be surprising for Alan to require the Gazzanas, if they were seeking to buy plastic products from Nadalan Enterprises, to require that the company enter into a credit agreement of the kind for which the company's standard documents provided. What that does not establish, however, is that in the present case what was in fact put in place was an arrangement that bound John to the giving of a personal guarantee in the absence of his signature on the critical document.

1. An equally plausible explanation for events would be that Alan provided the form to Tony (whether or not in John's presence) and that he simply failed to check whether John had separately committed to the giving of the guarantee by signing the form (whether or not John had verbally promised to do so is not relevant when looking to see if he is in fact bound by a document not signed by him though it might give rise to other claims against him).

1. As to the evidence that Tony and John were at the meeting together on 4 September 2008 and that John said Tony would sign the credit application on his behalf, this seems inconsistent with the occasions on which John did separately sign business documents (such as the Authority and the security granted to the mortgagee itself) and at least some of the evidence from Kimberley emerged for the first time in cross examination in seeming justification for her conduct or lack thereof.

1. The other evidence that was said by Mr Quickenden to give an insight into the credit of Tony was exhibit A in these proceedings (said to be testimony to improper efforts by Tony to try and stop the mortgagee from selling the Calga property). Tony seemed to acknowledge that he had done what he could to resist the sale (though he did not admit to harassment or intimidation in this regard). In the bill of costs rendered by the mortgagee's solicitor, I was taken to the following entries (having made it clear that I did not consider it appropriate for it to be suggested that I read through the document as a whole without any indication as to the entries on which reliance was sought to be placed for this submission):

• at p 33, a reference to an attendance in conference with C Cameron "Instructing as to visit to his home by AF Gazzana who made several allegations and threats. Requesting he and his witness make separate statements. He advising as to past dishonoured cheques and supplying copies of cheques and statements. 45 minutes";

• at p 53, an entry to "Perusing email letter from Ray White...considering action" and later on that page an entry reading "Letter to the solicitor...breach of undertakings";

• at p 72, an entry reading "Telephone call with senior counsel...advising".

1. Ultimately, whether or not Tony behaved in an inappropriate or intimidatory fashion vis a vis the mortgagee seems to me to be a different issue from that as to whether his account of the conversations in question should be believed.

1. It was submitted by Mr Quickenden that an oral guarantee would give rise to an equitable charge if put in the form in which Alan gave evidence it was, namely that he was told that they had equity in the Calga property and that that would be a means for him to recover any debt is what he said in his affidavit. In this regard, the evidence by Alan of a promise to provide the Calga property as security for the guarantee (and, indeed, the evidence as to the promise to guarantee the debts) was based on his generalised recollection that one or other of the two brothers, in about August/September 2008, agreed when he said to them that he would need "a personal guarantee" for all debts and that the debts would need to be secured on the property at Peats Ridge. Subsequent statements to the effect that "we pay our debts" or "we will honour our debts" (whether or not, as Mr Pluznyk contends, they were unaccompanied by consideration) do not in my view suffice to amount to a guarantee let alone a promise to secure any such guarantee.

1. There are at least two areas of uncertainty in relation to this. First, that conversation, on Alan's version, related to a request for the purchase of bottles. Therefore, any promised guarantee arising out of that conversation would arguably be limited to a guarantee of debts in relation to the supply of bottles. Secondly, there is doubt as to whether a statement to the effect 'fine, we have plenty of equity in the property' is to be understood as an agreement to provide security for the performance of obligations to guarantee the payment of debts by the company.

1. Even more uncertain is what John himself did or did not say in relation to the guarantee (even assuming that the Redfords are correct and that he was at the meeting in September 2008). Alan's evidence is hardly conclusive in this regard (since he cannot remember who said what) and therefore there must be a real doubt as to the ability of Nadalan Enterprises to establish a claim to an equitable charge on the basis of this one conversation.

1. However, the relevant question for present purposes is whether I can be satisfied to the requisite degree of proof, that there is no valid claim of this kind at all. I am unable so to conclude. It seems to me that there is a prospect, however slim that might presently seem to be, that Nadalan Enterprises will ultimately be able to persuade the Court (once all the evidence has been considered) that the parties' dealings including the giving by John of an oral guarantee together with a promise to secure the performance of the guarantee over his share of the Calga property.

(c) Authority

1. The third basis on which Nadalan Enterprises asserts its claim to a beneficial interest in the funds is that there has been an appropriation of a specific fund (the proceeds of sale for payment of the debts claimed to be owing to Nadalan Enterprises).

1. An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it (Rodick v Gandell (1852) 1 De GM & G 763 at 777-8; Jackson v Richards). In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, Buckley LJ said (at 595):

If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor.

1. In Jackson at [19], White J noted that for such a charge to be created by an agreement to pay a debt out of a fund to come to the debtor the parties must have agreed that the debtor would keep the fund separate from his other assets (citing Moseley v Cressey's Co (1865) LR 1 Eq 405 at 490). In the present case, there is no doubt that there is a separate fund (that being the fund held in Court).

1. The question whether the moneys in Court have been appropriated for payment of the debts (whatever they may be proved to be) of Nature Springs turns on the construction of the Authority document.

1. The first point to note is that it does not purport to do more than direct the payment of a specified sum out of the proceeds of sale. Therefore, to the extent that the proceeds of sale form a specified fund (which they clearly did) out of which payment of a debt is appropriated, it is only the sum of $111,600.26 of that fund which would appear to be so charged.

1. Second, there is an issue as to the effect of the notation contained at the foot of that document. On its face it appears to place a condition on the release of funds in accordance with the Authority (and the condition can only be construed as applying to the release of funds to Nadalan Enterprises). Assuming that there is such a condition (and on its face the notation seems to impose one), the question then arises as to whether a conditional appropriation, or an appropriation of a specific fund to the payment of a debt on which there is imposed a condition, can give rise to an equitable lien. (Further, if it does, there is a question as to whether this would be a lien over half of each brother's share of the proceeds or a lien over the whole of the proceeds but enforceable only to the amount stipulated.)

1. It was submitted by Mr Quickenden (without reference to authorities) that the Authority would operate as an equitable charge or lien over the fund, even if the Authority properly construed does operate conditionally. Mr Pluznyk (also without reference to any authority on this particular point) submitted that the only time that an intention to charge the fund can be discerned is that time at which there is a 'release' of the charge and the return of the tanker to the Gazzana brothers).

1. In relation to this issue, I note that in Jackson, White J drew a distinction between the position where there was an appropriation of a particular fund for payment of a debt (giving rise to an equitable lien over the fund) and an agreement as to the event upon which money was to be paid (which does not give rise to such a lien). The effect of the direction given in the Authority, when read with the notation, seems to me to bring the present case closer to that where there is an agreement as to the time at which or event upon which moneys are to be paid (though I accept that there is nothing on the face of the Authority that indicates that this was reached by way of agreement with Nadalan Enterprises). I do not consider there to be an unconditional appropriation of the fund for payment of the moneys in circumstances where there is a condition to be satisfied before payment out of the fund of those moneys (and the need for certainty as to the identification of the fund and its appropriation to the debt seem to me to point against the conclusion that a conditional appropriation can create a charge over the fund).

1. In any event, even if a conditional appropriation were sufficient to create an equitable lien, here the very condition imposed by the Authority is disavowed by Nadalan Enterprises and therefore any appropriation of the fund must logically be rendered unworkable. Given the position of Nadalan Enterprises that there is no charge over the tanker that would be capable of release, and given that the Authority in its terms appears to provide that there was to be no payment out of the funds without such a release, the arrangement there contemplated cannot be brought to fruition. (Another way of testing this issue is to point to the incongruity of Nadalan Enterprises refusing to accept that the condition noted on the Authority can be fulfilled but at the same time maintaining that the funds are charged thereby - which, logically, would mean that the funds would potentially remain the subject of a perpetual charge.)

1. Therefore, on the material before me, I am not satisfied that the Authority operates as an equitable lien over the funds now in Court (or that, if it does by means of the conditional appropriation of the funds, it is open to Nadalan Enterprises to assert the benefit of the equitable lien without accepting the condition to which it is made subject.)

Conclusion as to (i)

1. For the reasons set out above, I am of the view that, in light of the signed Credit Application, Tony is not in a position to establish at this stage that there is no valid claim by Nadalan Enterprises to a proprietary interest in his share of the proceeds of sale of the Calga property. While I find that John is not personally bound as a guarantor by the signing of the Credit Application, I am nevertheless left in some doubt as to whether, once all the evidence is before the District Court, Nadalan Enterprises might be able to establish a claim to an equitable charge over John's share of the fund based on an oral guarantee supported by an oral promise to secure the performance of that guarantee over the Calga property. While I have real doubts as to whether, on the evidence before me, Nadalan Enterprises would satisfy the onus of proof that it will in due course bear on that issue, for present purposes I am not satisfied that there is no possibility that a valid claim will be established of the kind asserted by it in relation to the alleged oral guarantee. (Had the matter turned solely on the Authority, I would have held that there was no valid claim to a proprietary interest in the funds based thereon.)

(ii) Applications by Nadalan Enterprises

1. In view of the decision I have reached as to the Gazzana brothers' applications, it is not strictly necessary to consider the applications made by Nadalan Enterprises for the moneys to be retained in Court and to restrain the applicants dealing with those moneys. However, for completeness I will briefly indicate what my findings would have been had the issue arisen for determination.

1. Although the Amended Notice of Motion specifically invokes only Rule 25.14 of the Uniform Civil Procedure Rules, in the course of submissions the applications by Nadalan Enterprises to restrain the payment out of the moneys to the Gazzana brothers were identified as being based on Rules 25.3 and 25.15 as well as 25.14(b). Those Rules deal, respectively, with applications to preserve a fund in respect of which a proprietary interest is claimed and applications for freezing orders.

1. There is a distinction between the two circumstances, as noted in A v C (No 1) [1981] 1 QB 956, by Robert Goff J, as his Lordship then was, and as recognised by Lloyd J in PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158 and by Brereton J in Badman v Drake [2008] NSWSC 968.

1. The purpose of an injunction of the former kind is to preserve a specific fund, which is the subject matter of the proceedings, not to prevent the dissipation of assets out of which a judgment debt might ultimately be met. As Brereton J noted in Badman, the basis of the distinction between the two types of case is that in the first the concern is that, absent a preservation order, the very subject matter of the proceedings might be dissipated before the hearing and equity would then have been invoked in vain (or, as was said in PCW, quoting Templeman LJ in an earlier case, "it is the concern of any court of equity to see that the stable door is locked before the horse has gone"). Whereas in the latter type of case (where the claim is not to a proprietary interest in a specific fund) the concern is as to abuse of the Court's process. (For the distinction between a claim for a Mareva injunction and an injunction in aid of a proprietary claim, Brereton J in Badman also referred to Australian Receivables Ltd v Tekitu Pty Ltd [2008] NSWSC 433, at [28] and McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, at [5]).)

1. What must be established for such relief must, therefore, take into account the purpose for which the relief is sought. In this case of preservation of an asset over which a proprietary interest is claimed, one is looking to the identification of the specific fund and whether there is a serious question be tried as to the interest claimed in that fund (as well as to the adequacy of damages and the balance of convenience). In the case of an application for a freezing order, one looks to whether there is a reasonable apprehension of dissipation or removal of assets or use of the dispositive power so as to frustrate or abuse the process of the Court.

1. Here, as Mr Pluznyk emphasised, Nadalan Enterprises has led no evidence that the applicants are intending to dispose of assets so as to frustrate the ability of the defendant later to enforce any judgment. Rather, Mr Quickenden has placed reliance on the lack of other assets from which to enforce any later judgment. Alan, in his affidavit has expressed his concern that if money is released to the applicants then any judgment obtained in the District Court will not be satisfied. The significance of this is that, to the extent that the relief sought is in the nature of a freezing order, Nadalan Enterprises has not established the foundation for such an order. (The position is different in relation to the injunction sought in aid of a claimed proprietary right, hence the need to differentiate clearly between the two applications.)

1. In Cardile v LED Builders Pty Limited [1999] 1 HCA 18, the plurality said at [51] that the function of a Mareva injunction is not to "provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency".

1. In TZ Ltd v ZMS Investments Pty Ltd [2010] NSWSC 196, Barrett J (as his Honour then was) said at [26]:

A general law freezing order is warranted only if, in the words of Bryson J in Acquasun Pty Ltd v Coverdale Ram Pty Ltd [20001 NSWSC 1146, there has been "conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way".

1. Similar statements are to be found in made in Perpetual Nominees Limited v Taouk & Anor [2009] NSWSC 605 per Hoeben J, as his Honour then was, citing Frigo v Culhaci (Unreported, NSWCA, 17 July 1998) and Finn v Carelli [2007] NSWSC 261 per Brereton J at [5]). (The Court's practice note in relation to such applications recognises that the grant of a freezing order is an extraordinary interim remedy - Supreme Court Practice Note General 14, at 5-6.)

1. Therefore, the fact that (as Mr Quickenden submitted) there is no evidence that either applicant can meet any judgment other than from the funds paid into Court (leaving aside Tony's assertion in the witness box that there is plant and machinery worth some $500,000 available to the applicants), is not sufficient to warrant a freezing order. A lack of assets to meet a judgment is not the basis for the grant of a freezing order, as noted above.

1. During the course of cross-examination of Tony, Mr Quickenden formally sought an undertaking from the applicants not to dispose of, deal with, or otherwise encumber the property to which Tony had referred in the witness box (namely the plant and equipment which he said had been acquired by he and his brother personally and which he asserted was worth half a million dollars) until after the determination of Nadalan Enterprises' claim in the District Court proceedings. No such undertaking was forthcoming.

1. However, the refusal to provide an undertaking of that kind is also not sufficient to ground an application for a freezing order. In that regard, Mr Pluznyk points to what was said in Lake v Crawford (No 2) [2010] NSWSC 419 by Harrison J (reiterating that the jurisdiction to grant freezing orders is not intended to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution but, rather, is founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or judgment debtor from embarking on a course of conduct that would have the effect of defeating the Court's jurisdiction and noting that the fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process). What his Honour there emphasised was that in the case before him there was no dealing that had the characteristics of an attempt to avoid the reach of these proceedings such as the dissipation or disposal of assets or anything similar. At [24], his Honour said:

Moreover, nothing arguably or apparently untoward, suspicious or surreptitious attends anything that the first defendant has done. To adopt the plaintiff's contention that the unanswered request for assurances and undertakings gives rise to an adverse inference against the defendants upon the basis of which this Court should act would be blatantly and inappropriately to reverse the onus of proof. The plaintiff's evidence has not reached the stage that requires the defendants to do anything more in an evidentiary sense than to remain silent. That is what they have done. (my emphasis)

1. I am not satisfied that Nadalan Enterprises has established a basis for any freezing order to be made. Its application in that regard (as Mr Pluznyk noted) rests on no more that the impecuniosity of the Gazzana brothers and their refusal to provide an undertaking in relation to any encumbrance or dealing with equipment they claim to own. There is no evidence to show that there is a reasonable apprehension that any moneys released will be dissipated in a manner designed to frustrate the processes of the Court.

1. The other basis on which the preservation orders were sought was in aid of the claim to a proprietary interest in the said moneys as a specific fund of moneys. Those moneys are the subject of a claimed equitable charge or lien by Nadalan Enterprises. That charge extends over the whole of the respective shares of the surplus (to the extent of the debts claimed to be secured by it). The lien, however, would arguably extend over only that part of the fund appropriated to meet the payment out (which is a lesser sum than the amount held in Court).

1. Rule 25 (3) provides that in proceedings concerning the right of any party to a fund the Court may order that the fund be paid into Court or otherwise secured. Mr Quickenden emphasised that all that is sought by Nadalan Enterprises is for the moneys to remain in Court until the outcome of the District Court proceedings. He submitted that it was not in the interests of justice that Nadalan Enterprises be required to go to the expense of presenting without having those funds secured in court pending that outcome. With respect, that seems to me to beg the question somewhat. The risk that a judgment (obtained after the expense of proving one's case in a contested hearing) may later not be able to be satisfied out of the unsuccessful party's assets cannot be uncommon in litigation. The real question here is as to whether there is a serious question to be tried that Nadalan Enterprises has a proprietary interest in the funds held in Court and then whether the other prerequisites for injunctive relief in the form of a preservation order have been met.

1. In Tony's case, I have concluded that there is a serious question to be tried as to the claimed equitable charge (when reaching the conclusion that I could not be satisfied that there was no valid claim to an equitable charge based on the Credit Application). In the case of John, there remains in my mind doubt as to whether (once all the evidence of the transactions between the parties is before the District Court) it will be found that John not only gave an oral guarantee for the debts of Nature Springs but also agreed to charge his share of the Calga property as security for those debts (or for his performance under the oral guarantee) so as to give rise to an equitable charge on the second of the bases contended for on this application. Though on the evidence before me this seems a weak claim, it cannot be said that there is not a question to be tried on that issue (and hence it cannot be said at this stage that there is no valid claim by Nadalan Enterprises to an equitable charge on this basis).

1. As to the balance of convenience, other than the prejudice that Nadalan Enterprises might not be able later to enforce a judgment if the funds representing John's share were to be paid out of Court, there was little evidence of prejudice on either side (though the initial application was pressed by Mr Pluznyk on the basis of hardship, as I recall). (Obviously, if there is a concern as to the financial position of the Gazzana brothers then that weighs in favour of the grant of an injunction in aid of the claimed equitable charge, since otherwise the horse may have bolted, to adopt Templeman LJ's words.)

1. In considering the balance of convenience in this context, I note the concern of the Court (on payment-out applications) to ensure that moneys are paid to the correct claimant. Hence the need for strict proof of matters such as identification of and notification to other potential claimants. Where the substantive disputes between the parties will fall to be determined in the District Court proceedings (which Nadalan Enterprises has undertaken expeditiously to prosecute), I consider that the balance lies in favour of the preservation of the funds in Court until there has been a final determination of the claims made by Nadalan Enterprises (and the Gazzana brothers' defences thereto).

1. For those reasons, had I found otherwise in relation to the first issue, I would have granted the relief sought for the preservation of the funds in Court (as relief in aid of the proprietary interests claimed by Nadalan Enterprises) on the usual undertaking of Nadalan Enterprises as to damages, until the determination of the District Court proceedings or further order.

Conclusion

1. As summarised earlier, in relation to the application made by John for payment out of his half share of the proceeds of sale, while I am satisfied that Nadalan Enterprises has no valid claim to an equitable charge over John's share of those proceeds arising from the Credit Application (because I am not satisfied that Tony signed credit application on behalf of John or with the authority to commit John personally thereto), I cannot exclude the possibility that Nadalan Enterprises may establish its claim to such an interest based on the alleged oral guarantee in September 2008 for payment of debts that is said to have included an agreement to provide security over property to secure that guarantee. (As to the 2012 Authority signed by John, I consider that this was nor more than a conditional appropriation of the settlement proceeds as a fund out of which the specified sum could be made if a release of the charge over the tanker were to be provided. I am not satisfied that it gives rise to an equitable lien over John's share of proceeds, particularly where the condition to which payment of the debts out of that fund is made subject was not accepted by Nadalan Enterprises.)

1. As to Tony's application, in light of the signed Credit Application I cannot be satisfied that Nadalan Enterprises has no valid claim to a beneficial interest in his share of the proceeds (subject to whatever defences Tony may be able to raise in due course to that claim, including defences as to the quantum of the debts claimed to be owing to Nadalan Enterprises). I am not in a position to make a final determination in relation to that claim and, where there are already proceedings on foot in the District Court to determine those issues, it is not appropriate for me to make any further comment thereon.

1. The applications by John and Tony should therefore dismissed (though without prejudice to their ability to make further such applications once the District Court proceedings have been determined).

1. As to the applications for preservation for the fund presently held in Court, had I found otherwise on the applications for payment out of the funds to John and/or Tony, I would not have been satisfied on the evidence that there should be a freezing order in respect of those funds. I would have considered that there was a basis to grant an injunction in aid of the claimed proprietary right to those funds at least in relation to the claim against Tony's share of the proceeds by reference to the Credit Application and, on balance, to the claim against John's share of the funds on the basis of the alleged oral guarantee (though that claim is relatively weak on the evidence presently before me). In that regard, I am conscious of the exhortation for strict proof of the matters required for payment out, lest there be an incorrect payment made of the funds in Court.

Orders

1. For the reasons set out above, I order as follows:

(1)   I dismiss the applications by each of John Gazzana and Tony Gazzana for payment out to each of a half share of the surplus proceeds of sale of their Calga property that are presently held in Court.

(2)   I dismiss the application for injunctive relief by Nadalan Enterprises in respect of the preservation of the funds in Court pending the determination of the District Court proceedings between the respective parties.

1. I note that the dismissal of the applications by the Gazzana brothers is without prejudice to their ability (once the District Court proceedings have been determined) to seek orders for the payment out of any funds to which they are found in those proceedings to be entitled or to which Nadalan Enterprises does not establish a proprietary interest in those proceedings.

1. I will hear any submissions as to costs.

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Decision last updated: 19 June 2012