Johnson v Synnex Australia Pty Ltd; Johnson v Leader Computers Pty Ltd (No 2) - [2017] SASCFC 165

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
JOHNSON v SYNNEX AUSTRALIA PTY LTD; JOHNSON v LEADER COMPUTERS PTY LTD (NO 2)
[2017] SASCFC 165
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Blue and The Honourable Justice Evans)
8 December 2017
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES
REAL PROPERTY - TORRENS TITLE - MORTGAGES, CHARGES AND ENCUMBRANCES - CHARGES AND ENCUMBRANCES
EQUITY - GENERAL PRINCIPLES - EQUITABLE ESTATES AND INTERESTS - GENERALLY - NATURE OF EQUITABLE ESTATES AND INTERESTS
Appeal against dismissal of appeal against order by a Master that the respondent Synnex recover its costs of action out of the appellant’s monies in the suitors fund.
The appellant and Mr Johnson owned a family home at Hove. Mr Johnson gave guarantees in favour of each respondent in respect of the liabilities of the Johnsons’ company supported by an equitable charge over his property.
The respondents in separate actions obtained declarations declaring void a transfer by Mr Johnson to the appellant of his half interest in the Hove property and orders under s 69 of the Law of Property Act 1936 (SA) that the property be sold and the net proceeds paid into court to abide the further orders of the Court.
Synnex conceded that Leader’s charge being first in time had priority over its charge and the respondents sought orders for payment out of the proceeds of the sale of Mr Johnson’s share of the house such that Leader’s debt received priority with an order that Synnex’s costs be paid out of the appellant’s share. A Master made an order that Synnex’s costs be paid out of the appellant’s share. An appeal against that order to a Judge of the District Court was dismissed.
The appellant appeals on the ground that the Master erred in making the order because Leader’s and Synnex’s charges ranked equally dollar for dollar.
Held by Blue J (Kourakis CJ and Evans J agreeing) dismissing the appeal:
1. The original orders made by the trial Judge did not create new charges but merely recognised the existing equitable charges (at [94]).
2. The original orders did not alter the pre-existing priority as between the two charges and did not order that they rank equally dollar for dollar (at [103]).
3. Upon payment of the proceeds into the suitors fund, the equitable charges were not converted into beneficial ownership of the proceeds in equal shares in Leader and Synnex (at [118]).
4. By seeking and obtaining payment out of the suitors fund, Synnex did not elect to enforce its charge and obtain equitable ownership of half of the monies comprising Mr Johnson’s share (at [123]).
5. Appeal dismissed (at [129]).

JOHNSON v SYNNEX AUSTRALIA PTY LTD; JOHNSON v LEADER COMPUTERS PTY LTD (NO 2)
[2017] SASCFC 165
Full Court: Kourakis CJ, Blue and Evans JJ
KOURAKIS CJ:

I would dismiss the appeal for the reasons given by Blue J. I make the following additional observation.
This appeal has proceeded on the premise that the order of the trial Judge for sale pursuant to s 69 of the Law of Property Act 1936 (SA) (the LPA) was properly made on the application of the respondents because the making of that order has not been appealed.
Blue J has set out the history of the common law writ of partition in [64] to [69] of his reasons. In the 17^th century, Chancery also entertained bills for partition because of the cumbersome procedures of the common law. As a result the common law writ fell into disuse and was eventually abolished in 1834.[1] Equity’s jurisdiction followed that of the common law and included partition of more limited estates including leaseholds. The scope of Chancery’s equitable jurisdiction to order partition was extended to the feudal form of leasehold known copyhold in 1840.   However, a suit for partition at common law, and in equity, could only be maintained by a person entitled to an estate in possession.[2]
[1]    E. Foster, The Law of Joint Ownership and Partition of Real Estate, London, Stevens, 1878 at pp 107-109.
[2]    E. Foster, The Law of Joint Ownership and Partition of Real Estate, London, Stevens, 1878 at p 150.
In that historical context the better construction of s 69 of the LPA may be that in omitting any reference to who may maintain the suit the section assumes the continuation of the position in equity that only persons with estates in possession could bring an action for partition. Even though the references to parties and persons interested in the property in ss 69-71 of the LPA suggest the contrary, it may be that those references are premised on a distinction between those persons who can maintain an action for partition, and others whose interests may nonetheless be affected by it. From early on in the history of suits for partition, the interests of third parties posed difficulties.
The point of this historical excursus is that the doubt about the standing of persons holding a mere charge to maintain an action for partition serves to emphasise that the nature of the remedy, and the very purpose of Part 8 of the LPA, is to provide a mechanism, either by partition or monetary realisation, for the apportionment of interests in the property and not to enforce charges over those interests.
Accordingly, the order for sale effected a conversion of the property from land to money in order to facilitate the apportionment of the property according to the interests held in it. No charge was lost, subsumed or created by that order. Every person with an interest was at liberty to claim as much or as little of his or her entitlement to it as they wished, subject only to such modifications or limitations as equitable principles and doctrines might impose
BLUE J:
This is an appeal against a judgment of a District Court Judge dismissing an appeal against an order by a Master that the respondent Synnex Australia Pty Ltd (Synnex) recover its costs of action out of the appellant’s monies in the suitors fund.
The appellant Fay Johnson and her husband Robert Johnson owned a family home at Hove. Mr Johnson guaranteed the liabilities of Arcom Computers Pty Ltd (Arcom) supported by an equitable charge over his property in favour of the respondent Leader Computers Pty Ltd (Leader). Mr Johnson later guaranteed the liabilities of Arcom supported by an equitable charge over his property in favour of Synnex.
Leader and Synnex each sued Mr and Mrs Johnson in separate actions for declarations that a transfer by Mr Johnson to Mrs Johnson of his half interest in the Hove property was void pursuant to section 86 of the Law of Property Act 1936 (SA) (the Act) and that Mr Johnson’s half interest in the property was charged by equitable charge to secure its debt.
The trial Judge made the declarations and made orders in each action pursuant to section 69 of the Act that the property be sold and the net proceeds paid into court to abide the further orders of the Court to give effect to the judgment. The Judge declared or ordered that Synnex’s costs of action also formed the subject of its charge, ordered that Mrs Johnson also pay Synnex’s costs in the Synnex action and ordered that Mr and Mrs Johnson pay Leader’s costs in the Leader action.
Leader and Synnex applied in each action to a Master for orders for payment out of the monies in court representing Mr Johnson’s share of the proceeds. Leader claimed and Synnex conceded that Leader was entitled to priority because its charge was created first in time. Mr and Mrs Johnson contended that Mr Johnson’s share of the proceeds belonged in equity equally to Leader and Synnex and that Synnex was obliged to recover its costs out of its half share of Mr Johnson’s share before recovering any costs from her.
The Master made an interim order by consent for payment of half of Mr Johnson’s share to Leader and approximately quarter of Mr Johnson’s share to Synnex on the basis that this was consistent with the parties’ respective contentions.
The Master ultimately delivered reasons for judgment rejecting the Johnsons’ contention and ordered in each action that Synnex’s costs be paid out of Mrs Johnson’s share, inviting submissions from or agreement by the parties on further orders to implement his reasons for judgment.
A Judge dismissed the Johnsons’ appeal against the Master’s orders in each action. Mrs Johnson appeals against the dismissal of those appeals.
The following issues are raised by the appeals:
1.Did the trial Judge’s orders create new charges into which the original equitable charges merged and which ranked equally dollar for dollar?
2.If not, did the trial Judge order that the original equitable charges were to rank equally dollar for dollar?
3.If not, upon payment of the net proceeds into the suitors fund, were the charges converted by an act of enforcement or realisation into beneficial ownership of the proceeds in equal shares in pro tanto satisfaction of the underlying debts?
4.If not, by seeking and obtaining payment out of the suitors fund, did Synnex elect to enforce the charge and obtain equitable ownership of half of the monies comprising Mr Johnson’s share?
Background
In 1997 Mr and Mrs Johnson incorporated Arcom to sell and provide services for computers. The Johnsons were the joint shareholders and Mr Johnson was the sole director.
In January 2006 the Johnsons jointly purchased a property at Hove.
In December 2007 Arcom applied to Leader for a credit trading account. Mr Johnson executed a director’s guarantee and indemnity (the Leader guarantee). Clause 6 of the Leader guarantee provided that Mr Johnson charged all freehold and leasehold land to secure his liability under the guarantee (the Leader charge).
In May 2009 Arcom applied to Synnex for a credit trading account. Mr Johnson executed a director’s guarantee (the Synnex guarantee). The Synnex guarantee provided that Mr Johnson charged all right title and interest in land to secure his liability under the guarantee (the Synnex charge).
On 19 October 2010 Mr Johnson appointed Mr Jorgenson as administrator of Arcom.
On 20 October 2010 the Johnsons lodged at the Lands Titles Office for registration a transfer by Mr Johnson to Mrs Johnson of his half interest in the Hove property (the transfer).
On 28 October 2010 Leader instituted an action in the District Court against Mr and Mrs Johnson and the Registrar-General of South Australia seeking judgment against Mr Johnson for the amount owing under the Leader guarantee, a declaration that the transfer was void under section 86 of the Act and a declaration that Mr Johnson’s interest in the Hove property was charged to secure Leader’s debt (the Leader action).
On 11 March 2011 Synnex instituted an action in the District Court against Mr and Mrs Johnson and the Registrar-General seeking judgment against Mr Johnson for the amount owing under the Synnex guarantee, a declaration that the transfer was void under section 86 of the Act and a declaration that Mr Johnson’s interest in the Hove property was charged to secure Synnex’s debt (the Synnex action).
In November 2011 Mr Johnson was declared bankrupt. Leader and Synnex subsequently obtained leave from the Federal Court to proceed against Mr Johnson and join his bankruptcy trustee as an additional defendant on condition that any money judgment against Mr Johnson would only be enforced against their securities and not otherwise without leave. Leader and Synnex each subsequently joined Mr Johnson’s bankruptcy trustee as an additional defendant, but the trustee took no substantive part in the trial.
In July and December 2012 and January and February 2013 the trial of the Leader and Synnex actions proceeded concurrently (the first hearing).
In May 2013 the trial Judge delivered reasons and made orders in each action declaring the transfer void under section 86 of the Act.[3]
[3] Leader Computers P/L v Johnson; Synnex Australia P/L v Johnson [2013] SADC 72.
Mrs Johnson appealed to the Full Court against the orders in each action. Each appeal was dismissed.[4] Mrs Johnson applied for leave to appeal to the High Court against the dismissal of each appeal. Special leave was refused.
[4] Johnson v Leader Computers Pty Ltd; Johnson v Synnex Australia Pty Ltd v Johnson [2014] SASCFC 14.
In the meantime in June and August 2013 the Judge heard submissions on the other orders that should be made consequentially on the reasons for judgment (the second hearing). Again the actions were heard concurrently.
Leader and Synnex each sought orders in their own action under section 69 of the Act for the sale of the Hove property. The Johnsons contended that the Court had no power to direct the sale of the whole of the Hove property because a “person interested” within the meaning of section 69 does not extend to a person holding an equitable charge over the interest of a tenant in common (or joint tenant). This contention was ultimately rejected by the trial Judge.
In February 2014 the trial Judge delivered reasons:
·    determining the amount of the debt owing by Mr Johnson to Leader at $225,136[5] plus interest at the contractual rate;
·    upholding the Leader charge in respect of principal and interest but not legal costs;
· upholding Leader’s application under section 69 of the Act for an order for sale of the Hove property;
·    determining the amount of the debt owing by Mr Johnson to Synnex at $89,083 plus interest at 6.5 per cent per annum;
·    upholding the Synnex charge in respect of principal and interest and legal costs; and
· upholding Synnex’s application under section 69 of the Act for an order for sale of the Hove property.[6]
[5]    All dollar figures referred to herein are rounded to the nearest whole dollar.
[6]    Leader Computers P/L v Johnson; Synnex Australia P/L v Johnson (No 2) [2014] SADC 23.
In March and April 2014 the trial Judge heard submissions on the orders to be made in light of the Judge’s reasons for judgment and on interest and costs issues (the third hearing).
On 3 April 2014 the trial Judge made orders in the Leader action (the Leader judgment) that the Court ordered and declared (amongst others) that:
1.Leader recover against Mr Johnson the amount of $348,011 (principal and interest pursuant to the Leader guarantee) (the Leader judgment sum);[7]
4.Mr Johnson’s interest in the Hove property is charged by way of equitable charge in favour of Leader with payment of the judgment sum and interest accruing on the principal of $225,136 from 3 April 2014;
5.Mr and Mrs Johnson jointly and severally pay Leader’s costs of action excluding one day of hearing on a party-party basis (the Leader costs of action);
6-10.the Hove land be sold by Mr and Mrs Johnson in a manner agreed with Leader and Synnex and in default of agreement as determined by a Master (the sale order);
11.the net proceeds of the sale be paid into Court to the credit of the Leader and Synnex actions there to abide the further orders of the Court to give effect to the judgment (the proceeds order).
[7] This was a provable debt in the bankruptcy and not payable by Mr Johnson personally but in any event leave to proceed had been granted on condition that any money judgment against Mr Johnson would only be enforced against Leader’s security.
On 3 April 2014 the Judge made orders in the Synnex action (the Synnex judgment) that the Court ordered and declared (amongst others) that:
1.Synnex recover against Mr Johnson the amount of $108,976 (principal and interest pursuant to the Synnex guarantee) (the Synnex judgment sum);[8]
4.Mr Johnson’s interest in the Hove property is charged by way of equitable charge in favour of Leader with payment of the judgment sum, interest accruing on the principal of $89,083 from 3 April 2014 and Synnex’s costs of action (together with Synnex’s costs of its caveat and the Federal Court leave to proceed action);
5.Mrs Johnson pay Synnex’s costs of action to be adjudicated on a solicitor and own client basis (the Synnex costs of action);
6-10.the Hove land be sold by Mr and Mrs Johnson in a manner agreed with Leader and Synnex and in default of agreement as determined by a Master (the sale order);
11.the net proceeds of the sale be paid into Court to the credit of the Leader and Synnex actions there to abide the further orders of the Court to give effect to the judgment (the proceeds order).
[8] This was a provable debt in the bankruptcy and not payable by Mr Johnson personally but in any event leave to proceed had been granted on condition that any money judgment against Mr Johnson would only be enforced against Synnex’s security.
On 1 May 2014 the trial Judge delivered reasons for judgment in relation to the interest and costs issues the subject of the Leader and Synnex judgments.[9]
[9] Leader Computers P/L v Johnson; Synnex Australia P/L v Johnson (No 3) [2014] SADC 71.
On 31 July 2014 Synnex lodged with the District Court a short form bill of costs for adjudication of the Synnex costs of action. On 14 October 2014, by an exchange of correspondence between solicitors, the quantum of those costs was ostensibly agreed at $145,006. Later a dispute emerged whether the quantum had been agreed on behalf of Mrs Johnson (according to Synnex) or Mr and Mrs Johnson (according to the Johnsons) and whether in light of that difference an agreement had in fact been reached.
In the meantime the Johnsons had signed a contract of sale of the Hove property pursuant to the sale orders. The Johnsons signed a transfer of the property to the purchaser and settlement took place in October 2014 with net proceeds paid to the vendors of $958,941.
On 31 October 2014 the net proceeds of $958,941 were paid into the Suitors Fund (the suitors fund) of the District Court pursuant to the proceeds orders (the suitors fund monies). It was and is common ground that:
· $479,470 was attributable to Mrs Johnson’s half interest in the Hove property and belonged beneficially to Mrs Johnson (Mrs Johnson’s share); and
· $479,470 was attributable to Mr Johnson’s bankruptcy trustee’s half interest in the Hove property (Mr Johnson’s share).
However a dispute developed whether Mr Johnson’s share belonged beneficially to Mr Johnson’s bankruptcy trustee subject to proprietary claims against that interest including the Leader and Synnex charges (according to Leader and Synnex) or belonged beneficially to Leader and Synnex in equal shares (according to Mrs Johnson).
On 18 November 2014 Synnex filed an interlocutory application seeking an order that the judgment sum plus judgment interest totalling $114,101 be paid out of Mr Johnson’s share. Synnex also sought an order pursuant to section 8 of the Enforcement of Judgments Act 1991 (SA) (the Enforcement Act) that Mrs Johnson’s share be charged with the Synnex costs of action.[10]
[10] Synnex also sought an order pursuant to section 8 of the Enforcement Act that Mrs Johnson’s share be charged with $17,647 being Synnex’s taxed costs of the High Court application for special leave and the certified costs of the appeal to the Full Court. However these costs were agreed and paid by Mrs Johnson shortly after the application was issued and they can be ignored.
On 20 November 2014 Leader filed an interlocutory application seeking an order that the judgment sum plus judgment interest totalling $353,188 be paid out of Mr Johnson’s share and the balance thereof continue to be held to abide the further orders of the Court to give effect to the judgments.
The parties filed written submissions in respect of the November 2014 applications. Leader contended that its charge, being created first in time, had priority over Synnex’s charge. Synnex conceded this.

On 13 April 2015 a Master heard argument on the applications (the fourth hearing). Leader reiterated its contention and Synnex reiterated its concession that Leader’s charge had priority over Synnex’s charge. However, the Johnsons contended that on settlement of the sale of the Hove property and payment into the suitors fund of the proceeds Mr Johnson’s share was beneficially owned as to 50 per cent ($239,735) by Leader and as to 50 per cent ($239,735) by Synnex.
During the hearing, the parties agreed that all parties’ positions would be sufficiently preserved if in the interim $239,735 was paid out to Leader and $108,976 was paid out to Synnex. This was consistent with Leader’s position as it would leave $130,759 being more than sufficient to cover the shortfall of $108,276 in payment of the Leader judgment debt. It was consistent with the Johnsons’ position that Leader and Synnex should each receive no more than $239,735 out of the suitors fund.
On 13 April 2015 the Master made orders by consent that out of the suitors fund monies $239,735 be paid out to Leader and $108,976 be paid out to Synnex. The Master referred to the trial Judge the contested aspects of the interlocutory applications in anticipation that an application might be made to vary the judgments pursuant to rule 242 of the District Court Civil Rules 2006 (SA) (which did not transpire).
On 8 May 2015 Leader filed an interlocutory application seeking amongst other things:
· an enquiry and order and directions for payment out of the balance of the suitors fund monies;
· a declaration that the Leader charge had priority over the Synnex charge;
· an order pursuant to section 8 of the Enforcement Act that Mrs Johnson’s share be charged with payment of the Leader costs of action.
On 9 June 2015 the trial Judge returned consideration of all interlocutory applications to the Master.
In July and November 2015 the Master heard argument on the interlocutory applications (the fifth hearing). The parties reiterated their contentions summarised at [42] above. Mrs Johnson told the Master that she would submit to an order for payment out of her share to Leader of the Leader costs of action ordered by the trial Judge on 3 April 2014. Mrs Johnson told the Master that she would submit to an order for payment out of her share to Synnex of the Synnex costs of action ordered by the trial Judge on 3 April 2014 if and only if the Master rejected her contention that Synnex already beneficially owned half of Mr Johnson’s share and was obliged to recover the Synnex costs of action first out of that share. As a result of these concessions, Leader and Synnex did not pursue their applications under section 8 of the Enforcement Act for a charge over Mrs Johnson’s share to secure their costs entitlements.
On 10 February 2016 the Master delivered reasons for judgment. The Master rejected the Johnsons’ contention that upon settlement of the sale of the Hove property and payment of the proceeds into the suitors fund the Leader and Synnex charges merged into beneficial ownership of Mr Johnson’s share in equal shares. The Master accepted the contention by Leader and Synnex that the Leader and Synnex charges became charges over Mr Johnson’s share of the monies just as they had been charges over his half share in the Hove property. As between Leader and Synnex the Master held that it was appropriate to act on Synnex’s concession that Leader’s charge ranked in priority to Synnex’s charge. The Master held that it was appropriate to order that the Synnex costs of action be paid out of Mrs Johnson’s share.
On 10 February 2016 the Master made orders in the same terms in the Synnex action (the Synnex orders) and the Leader action (the Leader orders) including amongst others the following orders:
1.That the plaintiff Synnex in [the Synnex action] is to recover its costs entitlements as ordered by [the trial Judge] on 3 April 2014, in the first instance, from that portion of the monies paid into the suitors fund on 31 October 2014 representing the half interest in those proceeds beneficially held by the second defendant Mrs Johnson and any interest or accretion thereon; and, thereafter, in the event of a shortfall, from the other portion of those monies paid into the suitors fund on 31 October 2014
2.Permission to the parties, if so advised, to
a.make further submissions as to the precise terms of the order to give effect to the reasons pronounced herein; or,
b.to agree upon the terms of orders that give effect to these reasons and proceed by consent e-application as to those terms (without prejudice to the right to appeal against those orders).
3.That two thirds of the costs of an [sic] incidental to the applications [dated 20 November 2014 and 8 May 2015] in the Leader Action and all of the costs of an [sic] incidental to the application [dated 18 November 2014] in the Synnex Action are awarded in favour of the plaintiffs against the second defendant.
Order 1 was made on the basis of the conditional concession by Mrs Johnson referred to at [47] above because the Master rejected her submissions about the beneficial ownership of Mr Johnson’s share being the condition to which her concession was subject.
On 1 March 2016 Mr and Mrs Johnson filed a notice of appeal in the Synnex action against orders 1 and 3 of the Synnex orders and a notice of appeal in the Leader action against orders 1 and 3 of the Leader orders.
As a result of the appeals, the parties did not either agree upon or make submissions as to the terms of orders to give effect to the Master’s reasons as contemplated by paragraph 2 of the Master’s orders. It followed from the Master’s reasons that orders would need to be made:
·    determining the post-judgment interest that had accrued on the Leader judgment sum and ordering payment out of Mr Johnson’s share of the Leader judgment sum and post-judgment interest;
·    determining the post-judgment interest that had accrued on the Synnex judgment sum and ordering payment out of Mr Johnson’s share of the Synnex judgment sum and post-judgment interest;
·    quantifying the Leader costs of action and ordering payment thereof out of Mrs Johnson’s share;
·    quantifying the Synnex costs of action and ordering payment thereof out of Mrs Johnson’s share.
In April and May 2016, the appeal Judge heard the appeals (the sixth hearing). One counsel (previously counsel for Synnex alone), instructed by different solicitors, appeared for Leader and Synnex in both actions. At all previous hearings separate counsel appeared for Leader and Synnex in the separate actions. Counsel for the respondents contended that the appeal was substantively premature because no orders addressing the matters summarised at [52] above had been made as contemplated by order 2 made by the Master on 10 February 2016.
On 15 June 2016 the appeal Judge delivered reasons for judgment dismissing the appeals in each action.[11]
[11] Johnson v Leader; Johnson v Synnex [2016] SADC 58.
Basic principles of property law
To understand the issues argued by the parties at first instance and on appeal, it is necessary to outline some basic principles of property law, primarily equitable principles. These principles to the extent described below are not in dispute.
Equitable charges
An equitable charge over an interest in land (or other property) can be created by the owner charging the owner’s interest in the land in favour of the chargee to secure a debt.[12]
[12] Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 595 per Buckley LJ (with whom Brandon and Brightman LJJ agreed); Porter v Bonariggo [2009] VSC 500 at [71] per Vickery J; Morris Finance Ltd v Brown [2017] FCAFC 97 at [38] per Beach, Markovic and Moshinsky JJ.
An equitable charge is a species of property because it is enforceable against the owner and also against any subsequent owner except a person deriving title from the owner for value and without notice of the equitable charge[13] or becoming the registered proprietor of land under the Real Property Act 1886 (SA) other than by forgery or in certain circumstances fraud.[14]
[13] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5^th ed, 2014) [8-230].
[14] Real Property Act 1886 (SA) sections 69-71.
If the owner of property the subject of an equitable charge sells the property and converts it into money (the proceeds of sale) or other property, the charge attaches to the substituted property in accordance with the equitable rules of tracing.[15]
[15] Foskett v McKeown [2001] 1 AC 102 at 128 per Lord Millet.
If there is a contest between two or more equitable charges or more generally between two or more equitable interests, priority is determined between the holders of the competing equitable interests in accordance with equitable rules of priority.[16] The first rule and the starting point is that, absent circumstances giving rise to an exception, priority is afforded to the equitable interest created first in time.[17] There are several exceptions each comprising recognised circumstances in which it would be inequitable as between the competing interest holders to afford priority by reference to time.[18] For example, if the first equitable interest holder engages in conduct that leads a subsequent interest holder to believe that there is no relevant prior equitable interest, the latter acts to his or her detriment by reason of the conduct and it would be unconscionable for the former to assert priority based on time, the equitable interest of the latter will have priority over the former to the necessary extent (a form of estoppel).[19]
[16] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5^th ed, 2014) Chapter 8.
[17] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5^th ed, 2014) [8.005] and [8.015].
[18] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5^th ed, 2014) [8.030] to [8.080].
[19] R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (5^th ed, 2014) [8.055].
Unlike a mortgage in respect of which a power of sale of the mortgaged property by the mortgagee in certain circumstances upon default by the mortgagor is conferred by the terms of the mortgage or by statute, a chargee has no power to sell the charged property upon default by the chargor.[20] However a court of equity has power on application by a chargee to order the sale of the charged property with the proceeds of sale paid into court and to give directions concerning the disposition of the proceeds.[21]
[20] Morris Finance Ltd v Brown [2017] FCAFC 97 at [38]-[39] per Beach, Markovic and Moshinsky JJ.
[21] Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 595 per Buckley LJ (with whom Brandon and Brightman LJJ agreed); Avco Financial Services Ltd v White [1977] VR 561 at 563-564 per Gillard J.
Alternative remedies
Where a creditor has available two different remedies to recover his or her debt, in general the creditor can pursue one remedy and not the other, or both remedies concurrently or both remedies successively.[22]
[22] China and South Sean Bank Ltd v Tan Soon Gin [1990] 1 AC 536 at 545 per Lord Templeman (delivering judgment on behalf of the Privy Council comprised of Lords Keith of Kinkel, Templeman, Ackner, Oliver of Alymerton and Goff of Chieveley); Mailman v Challenge Bank Ltd (1991) 5 BPR 11,721 at 11,727-11,728 per Sheller JA (with whom Gleeson CJ and Handley JA agreed).
Where a creditor recovers or becomes beneficially entitled to payment of an amount as a result of the pursuit of one remedy, the creditor must give credit for that amount to the debtor when pursuing another remedy for the same debt.
Property in common ownership
Where property (land or other tangible property) is in common ownership (joint tenancy or tenants in common), each co-owner has concurrent rights of ownership and possession of the whole property. The co-owners can agree to partition the property whereby the first co-owner conveys his or her ownership of part of the property to the other in return for conveyance by the second co-owner of his or her ownership of the balance of the property. Common law courts historically had jurisdiction to order partition against the will of a co-owner only in the very limited case of coparceners (multiple female heirs inheriting property from an intestate deceased).[23]
[23] Lexis Nexis, Halsbury's Laws of England (5th ed), vol 102 (at October 2016) Wills and Intestacy, 'Intestate Succession' [546].
In 1539 the Partition Act 1539 (Eng & Wales) provided that all joint tenants and tenants in common were compellable by writ of partition in the Court of Chancery in like manner and form as coparceners were compellable at common law.[24] In 1540 the Partition Act 1540 (Eng & Wales) extended the operation of the 1539 Act to the interests of tenants for life or for a term of years.[25] This legislation was received in South Australia in 1836 pursuant to the common law.
[24] An Act for Joint Tenants and Tenants in Common 31 Hen VIII chapter 1.
[25] An Act for Joint Tenants for Term of Life or Years 32 Hen VIII chapter 32.
In 1881 the Partition Act 1881 (SA) vested in the Supreme Court power where a decree for partition might have been made to direct instead a sale of the property and give all necessary or proper consequential directions.[26]
[26] This Act was modelled on the Partition Act 1868 (UK) and Partition Act 1876 (UK).
In 1936 the Act repealed the 1881 Act and replaced it with Part 8 of the Act. The Act was later amended to extend the jurisdiction conferred on the Supreme Court to the District Court and in certain circumstances the Magistrates Court.
Section 69 of the Act largely re-enacted section 3 of the 1881 Act. Section 69 now provides:
69—Power to order partition or sale instead of partition
(1)On any application for partition the court may order a partition of the said land or other property, and may give all necessary or proper consequential directions.
(2)On any such application if it appears to the court that, by reason of the nature of the property, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of some of those parties, or of any other circumstance, a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them, the court may, if it thinks fit, on the request of any of the parties interested, and notwithstanding the absence, dissent or disability of any others of them, direct a sale of the property accordingly, and may give all necessary or proper consequential directions.
Section 70 largely re-enacted section 4 of the 1881 Act. Section 70 effectively provides that if the party or parties interested seeking a sale comprise one moiety or upwards in the property (effectively 50 per cent or more), a sale should be directed unless there is good reason to the contrary.
Section 72 and 73 provide for notice to and participation by all parties interested in the property. They provide:
72—Notice to interested parties
(1)Notice of every application for partition shall be served on all other parties interested in the property unless the court otherwise directs.
(2)Any party served with notice may attend the proceedings.
(3)The court may direct such inquiries as to the nature of the property and the persons interested therein and other matters as it thinks necessary or proper with a view to an order for partition or sale.
(4)If it appears to the court that notice of the application cannot be served on all parties interested in the property, or cannot be served without undue delay or expense disproportionate to the value of the property the court may dispense with the service of notice of the application on any person or class of person specified in the order dispensing with service.
(5)The court may direct advertisements to be published in such manner as the court thinks fit, calling on all persons interested to come in and establish their claims within a time limited by the advertisements.
(6)If an order is made by the court dispensing with service or for the publication of advertisements, all parties interested shall be bound by the proceedings in the application, whether they are within or without the jurisdiction of the court (including persons under any disability) as if they had been served with notice.
73—Proceedings where service is dispensed with
Where an order is made under the preceding section dispensing with service, and property is sold by order of the court, the following provisions shall have effect, subject to any contrary order of the court:
(a)the proceeds of sale shall be paid into court to abide the further order of the court;
(b)the court shall, by order, fix a time, at the expiration of which the proceeds will be distributed, and may from time to time, by further order, extend that time
(c)the court shall direct such notices to be given by advertisements or otherwise as it thinks best adapted for notifying to any persons who may not have previously come in and established their claims, the fact of the sale, the time of the intended distribution, and the time within which a claim to participate in the proceeds must be made;
(d)if at the expiration of the time so fixed or extended the interests of all the persons interested have been ascertained, the court shall distribute the proceeds in accordance with the rights of those persons;
(e)if at the expiration of the time so fixed or extended the interests of all the persons interested have not been ascertained, and it appears to the court that they cannot be ascertained, or cannot be ascertained without undue delay or expense disproportionate to the value of the property or of the unascertained interest, the court shall distribute the proceeds in such manner as appears to the court to be most in accordance with the rights of the persons whose claims to participate in the proceeds have been established, whether all those persons are or are not before the court, and with such reservations (if any) as to the court may seem fit in favour of any other persons (whether ascertained or not) who may appear from the evidence before the court to have any prima facie rights which ought to be so provided for, although such rights may not have been fully established, but to the exclusion of all other persons, and thereupon all such other persons shall by virtue of this Part be excluded from participation in those proceeds on the distribution thereof, but notwithstanding the distribution any excluded person may recover from any participating person any portion received by him of the share of the excluded person.
Mrs Johnson has always accepted that a “person interested” within the meaning of section 69 includes an equitable chargee holding a charge over the whole of the property in question. Mrs Johnson argued during the second hearing before the trial Judge that a chargee holding a charge over the interest of one tenant in common is not a “person interested” within the meaning of section 69. The trial Judge rejected that contention.[27] Mrs Johnson accepts that, because she did not appeal against the orders for sale made by the trial Judge under section 69, she is obliged to accept that for the purposes of the actions Leader and Synnex had standing to seek orders for sale under section 69 and the orders were properly made.
[27] Leader Computers P/L v Johnson; Synnex Australia P/L v Johnson (No 2) [2014] SADC 23 at [111]-[117].
The Master’s reasons for judgment

The Master gave lengthy reasons for judgment for his decision. They included the following passages:
Both Leader and Synnex are agreed that Leader enjoys the benefit of a charge over the money in the suitors fund which either
a.has a priority over the charge of Synnex; or
b.can be treated as if it did have that priority because
i.Synnex can choose not to resort to that charged sum for its costs; or
iiSynnex and Leader can agree to Leader having priority
The defendants do not agree with the position of Leader and Synnex. They contend that there is no priority established between them as a matter of law and that they rank equally. Further, that upon sale of the Hove property and payment into Court both Leader and Synnex have been paid in equity, and, there is no room for them to agree priority between themselves, or, for Synnex to elect to access another fund (Mrs Johnson’s share).
…
… I consider that I am entitled to interpret the orders of [the trial Judge] made on 3 April 2014 within the context of her reasons in Leader Computers Pty Ltd v Johnson & Others and Synnex Australia Pty Ltd v Johnson & Others (No 2) [2014] SADC 23.
The making of the order for the sale, whilst not specifically referring to Part 8 of the Law of Property Act, was clearly one made in light of the reasons delivered approximately two months before hand.
I have an abundant satisfaction that
a.in making the order for sale of the Hove property on 3 April 2014 her Honour was relying on Part 8 of the Law of Property Act 1936;
b.the sale which occurred was as a result of an exercise of the jurisdiction conferred by Part 8 of that Act upon her Honour; and
c.the payment into Court on 31 October 2014 was a payment in of the type envisaged in Section 73(a) of the Law of Property Act 1936 and paragraph 11 of the orders made in both Actions.
…
In my view, the key features of the suite of orders of 3 April 2014 are as follows:
a.      the orders are not entirely interdependent;
b.      the order for sale of the Hove property was in a discrete paragraph and did not link back to the declaration of the charge (made in another paragraph of the suite of orders);
c.      the orders which declared a charge “by way of equitable charge” regarding the interest of the first defendant in the subject land were merely declaratory (i.e. they had no operational effect above and beyond the making of a declaration regarding an equitable charge);
d.      the ultimate order for sale did not pertain exclusively to the charge granted by the first defendant (although that was part and part only of the material upon which her Honour relied in making the order); and
e.      the monies resulting from the sale comprised a fund which is a joint fund representing the interests of the equitable chargor (Mr. Johnson) and the second defendant (Mrs Johnson – who, prior to 3 April 2014 – had not charged her interest in the Hove property).
Thus, the orders said nothing, in their terms, about how the declared charge would relate to the sale of the whole of the property and the fund realised upon sale.
This is especially significant when it is borne in mind that neither plaintiff enjoyed the benefit of a charge regarding the cost liability of the second defendant Mrs Johnson at the time of the first suite of orders made on 3 April 2014. Notwithstanding this, the order for sale was made, which, out of necessity, included the sale of the interest of Mrs Johnson.
These features are sufficient to cause me to reject the contention that upon sale of the Hove property the plaintiffs realised their security interest against the first defendant, and, in equity, therefore, effectively, achieve payment upon the sale of the whole of the property.
…
Given her Honour’s detailed consideration of Part 8 of the Law of Property Act 1936 and the exercise by her of a power of sale, pursuant to those provisions, it is in my view fallacious to make submissions as if the making of the order for the sale of the property was solely grounded upon the declaration of the equitable charge.
…
I accept the submission that upon the sale, the equitable charge held by the plaintiffs over the land, then attached to the fund produced upon sale and paid into the suitors fund.
Nonetheless, the ability of the plaintiffs to receive those funds depends on the further orders envisaged by [the trial Judge] to give effect to “the judgment”.
That judgment, as I have said, comprised a number of aspects of which did not relate to the charge – which was declared at the same time as many other orders were made.
Thus, I conclude that both Synnex and Leader have equitable charges over the fund resulting from the sale of Mr Johnson’s interest in the Hove property.
Subject to a consideration of all claimants, both Synnex and Leader have the right, pursuant to the orders of [the trial Judge], if they so wish, to seek an order for payment out of the monies to which they were entitled under the equitable charges.
That said, it does not follow that they have already achieved a payment in equity by the mere facts of the sale and subsequent payment into Court.
…
As was put on behalf of Leader: there could, theoretically, be many claimants in the funds which might be identified by the processes envisaged in Sections 72 and 73 Part 8 of the Law of Property Act. Hypothetically, they could include, for example, the Australian Taxation Office who may have an interest by virtue of a statutory right (which is neither equitable nor a common law interest).
…
In my view, the orders gave an inchoate right, should the plaintiff Synnex wish, to have its costs paid out of the first defendant’s share because the charge was found to extend to cover the costs liability.
I do not consider that that occurrence of a sale and the payment of proceeds into court amounts to an actual payment to Synnex of the yet to be crystallised amount for costs.
I accept the submission that Synnex in fact has at least two options available to it to have its costs paid should it wish, as it does, to rely on paragraph 11 of the orders made by [the trial Judge].
72             The Master identified two alternative bases to justify his conclusion. First Synnex and Leader were entitled to reach agreement between themselves as to their respective priorities in relation to Mr Johnson’s share. Secondly in 2014 Mrs Johnson granted a mortgage in favour of Synnex and Leader securing amongst other things the Synnex and Leader costs of action[28] and Synnex was entitled to payment of its costs of action out of Mrs Johnson’s share pursuant to the covenants contained in that mortgage notwithstanding that it had been discharged at settlement of the sale of the Hove property.
[28] As the price of the grant of a stay of execution pending Mrs Johnson’s application for special leave to appeal to the High Court.
It is not necessary to consider these two alternative bases for reasons which will appear.
The appeal Judge’s reasons for judgment
The appeal Judge upheld the Master’s decision.
The appeal Judge set out the history leading up to the making of order 1 by the Master on 10 February 2016. The Judge found that order 1 was made on the basis of the conditional concession by Mrs Johnson that, if (which she denied) Synnex was not obliged to recover the Synnex costs of action first out of Mr Johnson’s share, she would submit to an order for payment out of her share to Synnex of the Synnex costs of action coupled with the Master’s rejection of Mrs Johnson’s submissions about the beneficial ownership of Mr Johnson’s share. There is no challenge to this finding and it was clearly correct for the reasons given at [50] above.
The appeal Judge referred to a submission by Synnex and Leader that the appeal was premature because no orders had been made to reflect the Master’s reasons for judgment as envisaged by order 2. However, having heard submissions over three days, the Judge concluded that those activities should not be wasted and that Mrs Johnson’s arguments the subject of the appeal should be determined on their merits.
77 The appeal Judge agreed with the reasoning of the Master. The Judge said:
[Counsel for the Johnsons] argued before the Master that priority was established by the judgement of [the trial Judge]. He argued that the judgment gave no priority to either plaintiff and that the court having decided nothing about priority the result was that Leader and Synnex ranked equally. [Counsel for the Johnsons] had submitted to the Master that the opportunity which the plaintiffs had to vary the priority of their respective charges ended with the making of the concurrent orders which they prepared and presented to [the trial Judge] on 3 April 2014.
…
The present position is that Leader claims priority, Synnex does not challenge the claim whereas the appellants claim that the charges are of equal priority.
The priority of the charges was not determined by the order of [the trial Judge] but remains to be determined by reference to the underlying facts. Her Honour’s decision does not determine that priorities were equal; she made no finding.
There was no argument on the appeal as to the priorities. The parties simply stated their respective positions. The information before the court indicates that the Leader charge was first in time. Leader was first to lodge a caveat. Unless something has happened to vary the priorities what is important is the date when the equitable charges were created. The parties can agree to vary the priority of charges but there is no evidence that happened in this case apart from the concession that Synnex has made.
I do not accept the argument of [counsel for the Johnsons] that the priorities are equal because of the terms of the order of [the trial Judge]. The terms of her Honour’s order leave it open for priority to be determined in accordance with the usual rules.
The Master observed that [counsel for Leader] had submitted to him that Synnex had an unfettered choice with regard to their security, that Synnex had elected to give priority to Leader and that the Master should abide that decision. He submitted that the defendants were irrelevant to the enquiry which the Master was charged with having to make. I respectfully agree with that submission. Third parties cannot vary existing priorities between different charges.
…
[Counsel for the Johnsons] said that the appellants argument was that Synnex, having elected to enforce its security and having realised that security, was bound to apply the Remaining Amount (as defined) to its costs and was not entitled to abandon it or seek alternative recourse against Mrs Johnson.
That argument is based on the proposition, which I have rejected, that Mr Johnson’s share should be divided in two.
…
I reject the argument of the appellants that Leader and Synnex had been paid either when the property was sold or the money was paid into court. At the time of payment into court Synnex had not received any payment. The money was in the suitors fund awaiting the directions of the court. Payment to Synnex would only occur when actual payment is made following a direction of the court.
[Counsel for Synnex and Leader] argued that Synnex was not obliged [to] seek payment of the costs only under the security given by Mr Johnson by way of equitable charge over the Hove property…
The Master accepted the argument of Mr Edmonds-Wilson that Synnex was entitled to make its own decision about the means of enforcement of the judgement and to do so contemporaneously, successively, or, simultaneously, or not at all… The Master also accepted the argument that Mrs Johnson is not entitled to tell the plaintiff to recover its costs judgement in a particular order, or, to seek payment only from the first defendant under the charge before recourse to her interest in the monies in the suitors fund… He accepted that Synnex can make a decision not to engage in disputation with Leader concerning priority and the assertion that its equitable charge has priority over Synnex’s charge… Again I respectfully agree.
…
On the basis of the finding that Synnex is not required to apply the remainder of Mr Johnson’s share in reduction of Mrs Johnson’s liability for the costs of Synnex the "agreement" reached in the course of the argument before the Master is unqualified.
I accept that when the Master made the order in paragraph 1 he was doing no more than to give effect to a promise by Mrs Johnson. On that basis the genesis of the order in paragraph 1 is clear. It was not an order determined by the Master but it was the recital [of] an agreement which had been reached in the course of argument. It is unnecessary to consider whether order 1 of the Master’s orders was made pursuant to the Enforcement of Judgements Act or some other statutory provision. Through her counsel Mrs Johnson had indicated she would give effect to such an order.
…
In my opinion the fact that Synnex had exercised its charge over the assets of Mr Johnson to recover the judgment sum would not require Synnex to apply the remainder of the trustee’s share towards Synnex’s costs or preclude Synnex from looking to Mrs Johnson for payment of its costs.
For the purposes of this appeal the question of priority between the charges of Leader and Synnex does not arise. The Master was correct when he said that it was open to Leader and Synnex to agree an order of priority between themselves. In those circumstances it was open to Leader to recover so much of the share of the trustee in bankruptcy as was necessary to satisfy its debt. By reason of the conceded priority Leader is not confined to one half of Mr Johnson’s share.
…
In my opinion the appellants have not shown that the learned Master fell into error.
There are two passages in the reasons for judgment in which the appeal Judge said that the parties were agreed that the joint tenancy of Mr and Mrs Johnson had been severed and that the monies paid into court were held as to one half for Mr Johnson’s bankruptcy trustee and one half for Mrs Johnson. Mrs Johnson contends that this was a fundamental misconception by the appeal Judge because she strenuously argued that Mr Johnson’s share was held as to one half by Leader and one half by Synnex. However, having regard to the context in the whole reasons for judgment it is clear that the appeal Judge was only referring to the historical origin and ownership of the monies in court rather than treating Mrs Johnson as conceding the fundamental plank of her argument. In any event, the question for this Court on appeal is whether the appeal Judge was correct in upholding the Master’s conclusion regardless of whether the appeal Judge misunderstood Mrs Johnson’s submissions.
The arguments on appeal
Mrs Johnson largely reiterates on appeal the contentions that she advanced before the Master and the appeal Judge.
Mrs Johnson contends that, whatever may have been the position in terms of priority as between the original Leader and Synnex charges, the Leader and Synnex judgments resulted in the charges ranking equally dollar for dollar. Mrs Johnson puts this contention in two alternative ways. First she contends that the original charges merged into new judicial charges declared by paragraph 4 of the Leader and Synnex judgments. Those new judicial charges ranked equally dollar for dollar (as opposed to ranking in accordance with the priority of the original charges or ranking pari passu to the amount secured). Secondly she contends in the alternative that, on the proper construction of the Leader and Synnex judgments, the original Leader and Synnex charges were ordered to rank equally dollar for dollar. In both cases she relies on the maxim “equity is equality”.
Mrs Johnson contends in the alternative that, upon settlement of the sale of the Hove property and payment of the net proceeds into the suitors fund the charges were converted by the act of enforcement or realisation into ownership of the proceeds thereof.
Mrs Johnson contends in the further alternative that, if the original or new charges still existed over the monies when paid into the suitors fund, by seeking and obtaining payment out of the suitors fund on 13 April 2015 Synnex and Leader elected to enforce their charges and obtained equitable ownership of half of the monies comprising Mr Johnson’s share of the monies in the suitors fund.
Synnex and Leader take issue with each of Mrs Johnson’s contentions.
During the hearing of the appeal, the Court enquired whether Mrs Johnson was making the following series of contentions (the subrogation contentions) in the alternative to the above contentions:
·    if the Synnex costs of action are paid out of Mrs Johnson’s share pursuant to order 1 made on 10 February 2016, she will be entitled to contribution of 50 per cent (or some other percentage) from Mr Johnson’s bankruptcy trustee;
·    Mrs Johnson would thereupon be subrogated to Synnex’s secured rights under the Synnex charge over the balance of Mr Johnson’s share and could assert against Leader whatever priority Synnex had vis a vis Leader in relation to the balance of Mr Johnson’s share;
·    the Synnex charge has priority over the Leader charge.
Mrs Johnson initially indicated that she wished to advance the subrogation contentions on appeal. She suggested that she might be entitled to contribution from Mr Johnson’s bankruptcy trustee of 100 per cent or in default that she would be entitled to 50 per cent. Leader and Synnex indicated that, if Mrs Johnson advanced such contentions on appeal, they would contend that Mr Johnson’s bankruptcy trustee was entitled to contribution from her of 100 per cent and further that on an assessment on the merits Leader’s charge had priority over Synnex’s charge because it was the first in time (the priority merits contention).
Ultimately Mrs Johnson elected not to advance the subrogation contentions on appeal. It was recognised that, if the appeal should be dismissed, there was a possibility that Mrs Johnson might seek to advance the subrogation contentions after the matter had returned to the District Court and, if she were permitted to do so, Leader and Synnex in turn might seek to advance the priority merits contention.
The effect of the Leader and Synnex judgments
Were new judicial charges created and the original charges merged?
Mrs Johnson’s first contention is that, by paragraph 4 of the Leader and Synnex judgments, the trial Judge created new judicial charges; the original Leader and Synnex charges merged into the new judicial charges; and the new judicial charges ranked equally dollar for dollar.
Consideration of the first and second limbs of Mrs Johnson’s contention requires construction of the orders made by the trial Judge on 3 April 2014. It is common ground that the orders are to be construed objectively, as at the time that they were made and by reference to their text, context and evident purpose in a similar manner to construction of a contractual term or statutory provision. The context of the orders includes the trial Judge’s reasons for judgment, the issues between the parties as defined by the pleadings and other relevant background facts known to the parties and the trial Judge.
The first limb of Mrs Johnson’s contention is that by paragraph 4 of the Leader and Synnex judgments the trial Judge created new judicial charges.
In clause 6 of Part 2 of its statement of claim identifying the relief sought, Synnex sought a declaration that Mr Johnson’s interest in the Hove property “is charged by way of equitable charge in favour of” Synnex pursuant to the Synnex guarantee. The chapeau to the orders comprising the Synnex judgment says that the Court “orders and declares” the matters set out in the 13 paragraphs comprising the substantive orders. The only paragraph capable of being a declaration is paragraph 4 which is expressed in terms that mirror clause 6 of the relief claimed, namely that Mr Johnson’s interest in the Hove property “is charged by way of equitable charge in favour of” Synnex. This demonstrates that paragraph 4 of the Synnex judgment is a declaration of existing rights rather than the creation of a new charge.

This is confirmed by use of the verb “is” rather than “be”. This is further confirmed by the reference in paragraph 4 to the charge being an “equitable” charge, which necessarily refers to a charge arising in equity merely recognised by the Court rather than a judicial charge created by the Court.
In addition, there was no basis capable of justifying the creation by the trial Judge of a new judicial charge as opposed to declaring the existence of an equitable charge. The Judge had no power to create a charge other than pursuant to the Enforcement Act which was not invoked by Synnex in relation to Mr Johnson’s share. Moreover, the trial Judge’s reasons for judgment demonstrate beyond argument that the Judge recognised a pre-existing charge rather than created a new charge. The first limb of Mrs Johnson’s contention is not tenable.
The second limb of Mrs Johnson’s contention is that the original Leader and Synnex charges merged into the new judicial charges. This limb fails upon the failure of the first limb. In any event, it is clear that paragraph 4 of both judgments was not intended to and did not alter the pre-existing priorities (whatever they may have been) as between Leader and Synnex for the reasons given below. The second limb of Mrs Johnson’s contention is not tenable.
Mrs Johnson’s first contention must be rejected.
Did the judgments provide for equal ranking?
Mrs Johnson’s second contention is that on the proper construction of the Leader and Synnex judgments the original equitable Leader and Synnex charges were ordered to rank equally dollar for dollar.
Mrs Johnson accepts that the Synnex judgment does not expressly address the priority of the Synnex charge as between itself and the Leader charge but contends that it is necessarily implicit in the judgment. Mrs Johnson relies on the maxim “equity is equality” meaning that, when the respective interests of two persons having equitable interests in property are not specified, equity presumes that they are intended to be equal.[29]
[29] See Pascoe v Boensch [2008] FCAFC 147, (2008) 250 ALR 24 at [34] per Finn, Dowsett and Edmonds JJ.
There is an obvious rationale for the maxim “equity is equality” to apply when a settlor or testator creates a trust or equitable interests in property are otherwise created by voluntary act. However, for the reasons given above in the present case the trial Judge was not acting as a creator of equitable interests but as a declarer of pre-existing rights. The maxim “equity is equality” therefore has no application. On the contrary, when determining priorities between competing holders of equitable interests, equity does not proceed by according equality (either on a dollar for dollar or pari passu basis). As discussed above, the usual rule is that equity affords priority to the equitable interest first in time and when one of the exceptions to the usual rule applies equity affords priority to the subsequent equitable interest over the former equitable interest. In no case does equity accord equality.
Moreover, it is clear that paragraph 4 of both judgments was not intended to and did not alter the pre-existing priorities (whatever they may have been) as between Leader and Synnex. First, the Leader and Synnex judgments were given in separate actions and had independent operation. Synnex was not a party to the Leader action and Leader was not a party to the Synnex action. There was no lis between Leader and Synnex. Synnex sought a declaration as against Mr Johnson that it had an equitable charge entirely independently of Leader and Leader’s charge. Leader did not seek to be joined as a party to or intervene in the Synnex action or be heard as to the existence of the Synnex charge. Synnex did not seek to be heard as to the existence of the Leader charge. There was no vehicle for the Judge to determine the respective priorities of the Leader and Synnex charges.
Secondly no party raised for determination the relative priorities between Leader and Synnex and the trial Judge did not purport to determine them in her Honour’s reasons for judgment.
Thirdly there was no need at that point to determine respective priorities. Until Synnex’s costs of action were adjudicated and the Hove property was sold and the sale proceeds known, while it was foreseeable it was not inevitable that there would be a shortfall such that Leader and Synnex would not make full recovery of their debts secured by their charges.
Fourthly either the Leader charge had priority over the Synnex charge because it was first in time or the Synnex charge had priority over the Leader charge because an exception applied. On no account would the outcome of a priority determination have been that they had equal priority. No evidence was adduced and no submissions were advanced in support of the priorities being anything other than the usual rule that the Leader charge had priority as being first in time.
Fifthly, if the trial Judge had intended to deny Leader its prima facie priority because its charge was first in time, it would have been incumbent on the Judge to give notice to Leader and an opportunity for it to adduce evidence and make submissions. Conversely, if the orders comprising the judgments were drafted and agreed by the parties to reflect the trial Judge’s reasons for judgment, it is impossible objectively to attribute an intention to Leader that it forego its prima facie entitlement to priority.
Mrs Johnson’s second contention must be rejected.
Conversion from charge to ownership on settlement of sale
Mrs Johnson’s third contention is that, upon settlement of the sale of the Hove property and payment of the net proceeds into the suitors fund, the charges were converted by the act of enforcement or realisation into ownership of the proceeds thereof. The charges ceased to exist and were replaced by equitable ownership of the money in the suitors fund in equal shares in pro tanto satisfaction of the underlying debts.
Mrs Johnson submits that the Master’s reasoning does not cater for the necessary transition between the charge and equitable title and does not explain by what process the title of Mr Johnson’s bankruptcy trustee could be made to transition from the trustee to Leader and Synnex. Mrs Johnson submits that, if enforcement and realisation of Leader’s and Synnex’s charges does not occur on sale of the Hove property and payment of the proceeds into the suitors fund, it is hard to see how it ever occurs.
Mrs Johnson submits that the position is analogous to a sale by a mortgagee exercising a power of sale, in which case title to the proceeds of sale vests in the mortgagee immediately upon receipt. Mrs Johnson accepts that on a sale by an owner who pays monies into court to abide the determination of the Court as to security interests or on a sale by a first mortgagee who pays the surplus monies into court to abide the determination of the Court as to subsequent security interests the security interest of a security holder is only converted from a mortgage or charge into title to the proceeds upon an order for payment out of the proceeds. However, Mrs Johnson distinguishes the present case from those circumstances.
Section 69 of the Act confers on the Court a power to “give all necessary or proper consequential directions” (the consequential power). There is no doubt that this consequential power includes a power to direct that the proceeds of sale be paid into Court to abide further orders of the Court as to the disposition of the proceeds of sale (a proceeds disposition direction). Indeed it may be expected that such a direction will ordinarily be made because the alternative direction would be to permit the owner or owners of the property to receive and themselves determine the disposition of the proceeds.
In cases in which at the time of the sale order there is or may be a competition between persons identified as having an interest in the property (and hence the proceeds of sale) or there is any uncertainty whether other persons so interested have been identified and given notice or whether the owner or owners will correctly dispose of the proceeds of sale if given immediate control of them, the Court will almost inevitably be obliged to make a proceeds disposition direction. Otherwise there would be a risk that an interested person would suffer prejudice as a result of the orders made by the Court. Indeed it is likely to be a rare case in which, at the time of making the sale order, the Court could be sufficiently assured that it can leave disposition of the proceeds to the owner or fix entitlements at the time of the sale order.
Section 72 requires notice of an application for partition to be given to all interested parties. The purpose of notice is twofold. First an interested party may wish to appear on the application for partition or sale and support or oppose partition or sale. Secondly an interested party may wish to establish that party’s interest in the property and its proceeds if sold and seek directions to ensure that its interest is satisfied (so far as possible) out of those proceeds.
Section 73 prescribes the steps that the Court is required to take when the Court has dispensed with the need for service of notice under subsection 72(4) before making the sale order. It requires the Court to take steps to give notice to interested parties so that they can make submissions on the distribution of the proceeds. It is clear from the structure of Part 8 that section 73 only addresses one of the circumstances in which the Court will give directions concerning the distribution of proceeds of the sale. The consequential power conferred by section 69 empowers the Court to give such directions in every case in which it is necessary or desirable.
In those cases in which the Court directs a sale of the property pursuant to section 69 and directs that the proceeds be paid into court, the rationale for requiring the payment of the proceeds into court is to maintain the control of the Court over disposition of the proceeds so that the Court can later determine which persons are entitled to the proceeds in which amounts. In those cases, the interest of a chargee holding a charge over the property will not be converted into ownership of a portion of the proceeds of sale unless and until the Court makes an order for payment out of a specified amount to that chargee.
It is necessary to look to the terms of the orders made by the trial Judge under section 69 to determine whether the proceeds of sale representing Mr Johnson’s share were to vest immediately in Leader and Synnex in equal amounts as Mrs Johnson contends or were to be the subject of a subsequent determination and order for payment out as Leader and Synnex contend.
The Leader and Synnex judgments contain detailed provisions concerning marketing and sale of the Hove property, including provision for a Master to determine the reserve price and the price at which and terms on which the property was to be offered for sale by private treaty if not sold at auction and to execute a contract of sale or memorandum of transfer in default of execution by the Johnsons. Paragraph 11 of each judgment provides that the net proceeds of the sale are to be paid into court “there to abide the further orders of the Court to give effect to the judgment herein”.
Paragraph 11 of the judgments was necessarily a disposition of proceeds direction under which the Court was subsequently to determine the entitlements of persons interested to payment of the proceeds in respect of both Mr Johnson’s share and Mrs Johnson’s share. Paragraph 11 expressly provided for further orders to be made and for the disposition of the monies paid into Court to abide those further orders. Mrs Johnson contends that the reference to “the judgment herein” requires payment of Mr Johnson’s share to vest immediately in Leader and Synnex in equal amounts. That contention however relies upon her argument, already rejected, that it was an implied provision of the judgments that the Leader and Synnex charges were to rank equally.
In any event, when the judgment orders were made in April 2014, it was not known what sale price might be achieved on the sale of the Hove property. It was certainly foreseeable that Mr Johnson’s share of the net proceeds would exceed the amount secured by the combined Leader and Synnex charges, in which event Mr Johnson’s bankruptcy trustee would have been entitled to the balance. It is not a tenable construction of the judgment orders that the trial Judge intended to deny Mr Johnson’s bankruptcy trustee his true entitlements by directing in advance that the entirety of Mr Johnson’s share be divided equally between Leader and Synnex. Moreover, for the reasons given above it was manifestly not the intention of the trial Judge or the parties to determine in advance the respective priorities as between Leader and Synnex.
In addition, when the judgment orders were made in April 2014, it was not known whether there were any other equitable interests in the Hove property. It is impossible to attribute to the trial Judge an intention to preclude a third party being able to claim an interest in the sale proceeds by pre-emptively assigning ownership thereof in advance to Leader and Synnex.
It follows that by the operation of the judgment orders Leader and Synnex retained their equitable charges over the monies comprising Mr Johnson’s share in the suitors fund and those charges will only be converted into ownership upon orders being made for payment out to Leader and Synnex, which orders have not yet been made.
Mrs Johnson’s third contention must be rejected.
Conversion from charge to ownership on seeking and obtaining payment out
Mrs Johnson’s fourth contention is that, if the Leader and Synnex charges still existed over the monies when paid into the suitors fund, by seeking and obtaining payment out of the suitors fund on 13 April 2015, Synnex elected to enforce the charge and obtained equitable ownership of half of the monies comprising Mr Johnson’s share of the monies.
As far as Synnex seeking payment out is concerned, for the reasons given in the previous section Synnex could only obtain equitable ownership of any of the monies comprising Mr Johnson’s share upon an order being made for payment out. It follows that the mere fact that Synnex might have applied for payment out was incapable of vesting ownership in any of those monies in Synnex. In any event by its application made in November 2014 Synnex only sought payment out of $114,101. This would leave more than $365,000 (plus accrued interest) in the suitors fund which on any view exceeded the amount secured by the Leader charge and hence Synnex’s application for payment out was entirely consistent with Leader having priority.
As far as Synnex obtaining payment out of $108,976 on 13 April 2015 is concerned, this left more than $370,000 (plus accrued interest) in the suitors fund which on any view exceeded the amount secured by the Leader charge and hence Synnex’s obtaining payment out was entirely consistent with Leader having priority. Moreover, by 13 April 2015 Synnex had conceded that Leader’s charge had priority over its charge.
The fact that Synnex sought and obtained payment out of a sum that was consistent with Leader’s charge having priority is incapable of vesting ownership of half of Mr Johnson’s share in Leader. In any event, Synnex had no capacity by its own actions of vesting ownership of half of Mr Johnson’s share in itself in the absence of consent from Leader which had a competing claim over part of the same monies and from Mr Johnson’s bankruptcy trustee who had a residual claim to Mr Johnson’s share after satisfaction of the Leader and Synnex charges.
Mrs Johnson’s fourth contention must be rejected.
Exoneration
During the initial hearing of the appeal before Mrs Johnson decided not to advance the subrogation contentions on appeal, Mrs Johnson advanced a fifth contention. Mrs Johnson contended that under the exoneration principle a creditor having rights against two persons who are coordinately liable who abandons a security in respect of the liability of one of the persons exonerates the other person to the extent of the value of the security. Mrs Johnson contended that by seeking payment of its costs of action from Mrs Johnson instead of out of Mr Johnson’s share pursuant to its charge Synnex was abandoning its security and this exonerated Mrs Johnson to the extent of the value of that charge.
After Mrs Johnson decided not to advance the subrogation contentions on appeal, Leader and Synnex did not address the exoneration contention. In reply, Mrs Johnson again advanced the exoneration contention.
The exoneration contention depends upon Mrs Johnson having a right of contribution against Mr Johnson’s bankruptcy trustee. The contention that such a right of contribution exists was part of the subrogation contentions that Mrs Johnson chose not to advance on appeal and to leave to be addressed if advanced in the District Court. That choice precludes her advancing the exoneration contention on appeal.
In any event, it would be an essential element of the exoneration contention that Leader’s charge does not have priority over Synnex’s charge under an exception to the usual rule that the equitable interest first in time has priority over a later equitable interest (Mrs Johnson having failed on her contentions that the two charges rank equally). Mrs Johnson did not advance such a contention before the Master (or the appeal Judge or on appeal to this Court). If Mrs Johnson wished to contend that Synnex was abandoning its priority in breach of its obligations to her, it was incumbent on her to make and establish that contention.
If Mrs Johnson were permitted to advance the exoneration contention, it must be rejected.
Conclusion
The appeal must be dismissed.
Postscript: future steps in the actions
The principal debts owed by Mr Johnson to Leader and Synnex total a little over $300,000. Approximately 26 hearing days have been expended to date in the District Court and in this Court in the litigation between Leader and Synnex and the Johnsons. On any view, the legal costs incurred in the litigation are disproportionate to the amount in dispute. There is still a prospect of future litigation in the District Court and a future appeal to this Court.
In these circumstances it is desirable to make some observations about the future conduct of the litigation. These observations do not of course bind the parties or the District Court but may be of some assistance.
Orders need to be made by the Master addressing residual interest and costs issues pursuant to order 2 of the 10 February 2016 orders. It is to be hoped that the parties will agree on those orders but if not it may be expected that argument would be short and confined.
Orders need to be made by the Master for payment out of the monies in the suitors fund. Once the residual issues of interest and costs have been determined, it should only be necessary for arithmetic calculations to be made to reflect the Master’s reasons for judgment of 10 February 2016 and determination if necessary of the residual interest and costs issues. Such calculations should be able to be agreed. It may be expected that, notwithstanding the terms of order 1 made on 10 February 2016, the parties would agree, if there are any monies comprising Mr Johnson’s share left after satisfaction of Leader's charge, that the balance is to be paid to Synnex and then the balance of Synnex’s costs of action would be payable out of Mrs Johnson’s share pursuant to order 1 made on 10 February 2016.
When Synnex’s costs of action have been paid out of Mrs Johnson’s share, Mrs Johnson will need to decide whether she wishes to advance the subrogation contentions in the District Court. If she wishes to do so, she would need to obtain permission to file a counterclaim against Leader in the Leader action pleading the subrogation contentions including that the Synnex charge had priority over the Leader charge under an identified exception to the general first in time rule. If so, it would be desirable that the counterclaim proceed to trial as soon as possible.
EVANS J:

I agree with the reasons of Blue J.