Lightwave Enterprises Pty Ltd v Keywest Investments Pty Ltd
[2007] WADC 99
•19 JUNE 2007
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS
LOCATION: PERTH
CITATION: LIGHTWAVE ENTERPRISES PTY LTD -v- KEYWEST INVESTMENTS PTY LTD & ANOR [2007] WADC 99
CORAM: EATON DCJ
HEARD: 16 MAY 2007
DELIVERED : 19 JUNE 2007
FILE NO/S: CIV 517 of 2006
BETWEEN: LIGHTWAVE ENTERPRISES PTY LTD
Plaintiff (Judgment Creditor)
AND
KEYWEST INVESTMENTS PTY LTD
Defendant (Judgment Debtor)BANK OF WESTERN AUSTRALIA
Claimant
Catchwords:
Interpleader summons - Claimant holding fixed and floating charge - Judgment Creditor asserting vendor's lien - Determination of competing interests
Legislation:
Civil Judgments Enforcement Act 2004
Result:
Claimant must have priority over Judgment Creditor
Representation:
Counsel:
Plaintiff (Judgment Creditor) : Ms P A Martino
Defendant (Judgment Debtor) : Ms B K Callanan
Claimant: Mr R P Solomons
Solicitors:
Plaintiff (Judgment Creditor) : P A Martino
Defendant (Judgment Debtor) : Williams Handcock
Claimant: Bankwest Legal
Case(s) referred to in judgment(s):
Hewett v Court (1983) 149 CLR 639
EATON DCJ: In this matter the judgment creditor, as plaintiff, commenced action in this Court by writ of summons filed on 17 March 2006 against the judgment debtor as defendant. Accompanying the writ was a statement of claim seeking specific performance of an agreement alleged to have been made on 2 November 2005 whereby the judgment creditor sold to the judgment debtor a business known as the Attfield Tavern at Maddington for a purchase price of $925,000 subject to the value of stock being determined by a stock‑take. The business included goodwill, plant and equipment and stock. The judgment creditor's claim against the plaintiff was that the latter had failed to pay for the stock at valuation in the sum of $127,068.23.
On 13 April 2006 the defendant to the writ filed a defence and counterclaim alleging that the plaintiff had misrepresented the revenue of the business. The plaintiff applied for summary judgment and on 16 May 2006, Deputy Registrar Hewitt upheld that application and entered judgment for it against the defendant. On 19 May 2006, the judgment debtor appealed that decision. It appears that the appeal has not been prosecuted.
On 10 July 2006, the judgment creditor applied for an enforcement order. On that day a Property (Seizure and Sale) Order was made. On 10 July 2006 the Sheriff, in execution of that order, seized certain goods from the Attfield Tavern. On 11 August 2006 the Bank of Western Australia (herein after referred to as "the claimant") gave notice to the Sheriff that it had a claim against the goods seized. On 14 August 2006 the claimant gave notice to the judgment creditor that it held a fixed and floating charge over the assets of the judgment debtor, encompassing all the stock, plant and equipment, furniture and fittings of the Attfield Tavern.
On 28 September 2006 the Sheriff filed an interpleader summons as between the judgment creditor, the judgment debtor and the claimant. By that summons, the parties are required to state the nature and particulars of their respective claims to the property seized. The primary issue on the interpleader summons is the determination of the competing claims to the property by the claimant and the judgment creditor, the judgment debtor having, it appears, failed to lay claim to that property. The matter was initially listed before and heard by Deputy Registrar Harman on 1 March 2007. At the conclusion of the hearing he reserved his decision. During consideration of the matter it came to his attention that he did not have jurisdiction to determine the matter. It now falls to me to do so. By consent, I was to do so on the papers filed and having regard to the transcript of the hearing before the Deputy Registrar.
In an affidavit sworn 29 March 2006, in support of its application for summary judgment, Peter Francis Plank, the sole director of the judgment creditor, deposed to the fact that on 29 November 2005 Lightwave Enterprises Pty Ltd had entered into a written agreement with Keywest Investments Pty Ltd for the sale of the business known as the Attfield Tavern. Mr Plank deposed to the fact that settlement of the sale of the business took place on 30 January 2006 and that the judgment debtor took possession of it on that day. Also, on that day, a stock‑take occurred to determine the value of stock and the final payment to be made by the judgment debtor to the judgment creditor in that regard.
It appears that the judgment debtor applied to the claimant for funds to enable it to complete the purchase. On 25 November 2005, the claimant wrote to the judgment debtor offering a loan facility totalling $850,000 to assist with the purchase of the leasehold of the business. The offer was made on the basis that there would be personal guarantees by the directors of the judgment debtor and that there would be a first ranking, registered fixed and floating charge over the judgment debtor's assets and undertakings. That offer was accepted. In consequence the judgment debtor, on 19 January 2006, entered into a document entitled "fixed and floating charge". On 27 January 2006, the claimant lodged a notice in respect of the charge on the property of Keywest Investments Pty Ltd under the provisions of the Corporations Act 2001. By the charge, the judgment debtor charged all secured property in favour of the claimant to secure the punctual payment of the monies advanced by the claimant to the judgment debtor. The charge document defined "secured property" to mean all the judgment debtor's interest in all its property, anywhere (real and personal, and present and future).
What the judgment debtor purchased was the business known as the Attfield Tavern, including its goodwill, its plant and equipment and stock. The agreement for purchase incorporated the Australian Business Brokers Association (Inc.) 2002 General Conditions of Sale. Clause 5 of those conditions provided that title to and property in the business until the possession date remains solely with the vendor and passes to the purchaser on and from the possession date. The term "business" refers to the business, the subject of the agreement, including the assets which include the plant and the stock. According to the general conditions "possession date" means the date for possession stated in the agreement. The agreement stipulates that the possession date is "upon settlement". As mentioned, settlement, according to the vendor, took place on 30 January 2006, but the agreement for sale specified settlement date as being "on or before 12.12.2005" and that possession should be "on settlement". According to the general conditions "settlement date" means the date for settlement stated in the agreement and "settlement" means completion of the sale and purchase of the business under condition 7. It follows that "settlement date" does not mean the date upon which settlement actually took place, but rather the date stipulated in the agreement. Possession, however, is stipulated to be upon settlement which, according to the general conditions, is when the sale and purchase of the business is completed under condition 7. In this case, therefore, title and possession were to pass on settlement, which means, in this case, that title and possession did not pass until 30 January 2006 when actual settlement occurred. That is when, in fact, the purchaser took possession of the business.
What was the nature of the purchaser's interest in the property prior to actual settlement taking place? From the point of agreement and payment of deposit, the purchaser had an equitable interest in the business and its assets, notwithstanding that it had not paid the balance of the purchase price. That interest became a legal interest in that property on 30 January 2006. Given the terms of the charge, the purchaser's interest in the business both before and after settlement, were subject to the charge granted by it to the claimant. The nature of its interest changed as at 30 January 2006. It is clear that after that date the status of the vendor changed on that day when both property and possession in the plant, equipment and stock passed to the purchaser. The vendor became a creditor for the value of the stock according to the stock-take, that amount being payable within 30 days.
A charge is a form of security for the payment of a debt or performance of an obligation, consisting of the right of a creditor to receive payment out of some specific fund or out of the proceeds of the realisation of specific property. A floating charge remains dormant until either the entity giving the charge has made default and the entity holding the security has taken some step to realise its security or the entity giving the charge has ceased to be a going concern. Up to that moment, the charge does not attach to any particular asset, but when the moment arrives, it crystallises and attaches as a specific security with priority over unsecured creditors as at such date. A floating charge is an equitable charge.
In an affidavit sworn 26 September 2006 the Sheriff deposes to having executed the Property (Seizure and Sale) Order on 1 August 2006. In an annexure to that affidavit the Sheriff indicated the items seized in execution. The items appeared to be in the nature of plant and equipment rather than stock–in–trade. Counsel for the claimant submitted that the property seized by the Sheriff was "fixed charge property". The judgment creditor conceded that the stock relating to the business fell within the definition of "floating charge property" in the charge agreement. The judgment creditor submitted that the stock of the business or a part of it has been seized by the Sheriff. Initially, counsel for the claimant submitted that stock had not been seized.
As a result of the uncertainty as to what had been seized by the Sheriff I requested and received a supplementary affidavit in support of the Sheriff's interpleader summons sworn by him on 6 June 2007. In that affidavit he clarified the content of the earlier affidavit sworn on 26 September 2006. It is clear that a Sheriff's officer carried out execution of the Property (Seizure and Sale) Order on 1 August 2006. At the premises visited by the Sheriff's officer there was not only plant and equipment but also perishables including alcohol, beer, wine and spirits either packaged or in bulk containers. At the time, the Sheriff's officer did not make a list of all stock‑in‑trade at the premises but required that the custodian of the premises and of the stock‑in‑trade sign an undertaking. Annexed to the Sheriff's supplementary affidavit is a Seizure Notice under the provisions of the Civil Judgments Enforcement Act 2004. The custodian of the property seized, including the stock‑in‑trade, gave to the Sheriff's officer a written undertaking, pending withdrawal or satisfaction of the order, to safely keep the seized property in his or her custody, free of any charge, not to remove the seized property or permit its removal by any persons from the place of seizure unless authorised by the Sheriff and to inform any person who may visit his or her premises for the purpose of levying any other execution that the Sheriff is already in possession of the seized property and to notify the Sheriff immediately of any such visit. The custodian further acknowledged that the Sheriff or his officers, pending withdrawal or satisfaction of the Property (Seizure and Sale) Order had the legal authority to re‑enter the premises as and when considered necessary for the purpose of inspecting the seized property or completing the execution of the Property (Seizure and Sale) Order. The Sheriff, in his supplementary affidavit, deposed to the fact that, the custodian having given, in addition to the written undertaking, an oral undertaking to replace the stock‑in‑trade as it was sold or consumed. The Sheriff's officers have since conducted four inspections of the seized property held at the premises on 3 November 2006, 23 March 2007, 23 May 2007 and 31 May 2007. At the time of the last inspection all property seized remained on the premises with the exception of some minor items which had been removed due to general wear and tear. It is clear from the foregoing that what was seized pursuant to the Property (Seizure and Sale) Order on 1 August 2006 was not just the plant and equipment of the business but also the stock‑in‑trade in the form of perishables. The latter was left in the custody of the person with possession of those items who gave certain undertakings, both written and oral, to the Sheriff's officer in relation to his or her dealings with stock‑in‑trade.
The principal submission of the judgment creditor before Deputy Registrar Harman was that the interest of the claimant with respect to stock seized was the subject of a floating charge and, in consequence, the claimant had no fixed interest as at 1 August 2006. The Sheriff, therefore, was entitled to seize the stock.
The fixed and floating charge dated 19 January 2006 is to operate as a fixed charge over all fixed charge property and as a floating charge over all floating charge property. Fixed charge property includes the chargor's interest (legal or equitable) both present and future in:
"(a)all real property (freehold and leasehold), all buildings and fixtures and all proceeds of sale of any of them;
(b)plant, machinery and equipment;
. . .
(d)goodwill;
. . ."
Floating charge property is said to be all secured property that is not fixed charge property. The judgment creditor's submission appears to be that to the extent that the goods seized by the Sheriff were stock as opposed to plant and equipment they were floating charged property, not falling within the definition of fixed charge property.
Clause 2.5 of the fixed and floating charge provides that the charge will cease to operate as a floating charge and will operate as a fixed charge automatically and immediately if:
(a)the chargor ceases or threatens to cease to carry on its business;
(b)an insolvency event occurs in respect of the chargor;
(c)the charge is enforced;
(d)the chargor fails to pay any taxes such that a government agency might have priority over a floating charge; or
(e)the bank gives a notice to the chargor in relation to the floating charge property of conversion from one category to another.
The phrase "insolvency event" is defined to include circumstances where a judgment, order or security is enforced, or becomes enforceable, against any property of the chargor. It does seem to me that the application of 10 July 2006 by the judgment creditor for an enforcement order following upon summary judgment is such an event. It follows that the charge granted by the judgment debtor in favour of the claimant ceased to operate as a floating charge and commenced to operate as a fixed charge with respect to secured property which was not then fixed charge property. It does, therefore, seem to me to be the case that the property seized by the Sheriff whether it be plant and equipment and/or stock was fixed charge property at the time of seizure.
A further submission made by counsel for the judgment creditor was that, as from the date of contract (2 November 2005), a vendor's lien existed over the assets of the business to the extent that the purchase price, in full, would not be paid at settlement. In fact, the parties to the agreement for sale of the Attfield Tavern specifically agreed:
"It has been mutually agreed by the vendor and purchaser that payment for stock in full (at the value assessed by the independent stock‑taker) shall be made thirty days after settlement date."
The vendor's lien is a form of equitable lien. In Hewett v Court (1983) 149 CLR 639 Deane J said at 663:
"An equitable lien is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness … Though called a lien it is, in truth, a form of equitable charge over the subject property … in that it does not depend upon possession and may, in general be enforced in the same way as any other equitable charge, namely by sale in pursuance of Court order or, where the lien is over a fund, by an order for payment thereout. … Generally speaking, the established examples of equitable lien are between parties in a contractual or quasi‑contractual relationship. The best known are the liens which equity recognises as arising to secure the actual or potential rights of a vendor and purchaser under a contract for the sale of real estate to payment or the balance of the purchase price (vendor's lien) or to repayment of instalments of purchase price (purchaser's lien) … If, under such a contract, the property has passed and the whole or part of the purchase price remains unpaid, the vendor will, in the absence of express or implied agreement to the contrary, enjoy the benefit of an equitable lien over the land sold to secure the payment to him of the unpaid purchase price."
As already observed in this case property and possession of the plant and equipment and stock passed from the vendor to the purchaser on 30 January 2006. What remained to be paid was the value of stock to be determined in accordance with the stock‑take on that day. By cl 6.6 of the general conditions, a vendor agrees to sell and the purchaser agrees to purchase the marketable stock of the business at the value thereof at settlement (as estimated in the sum set out in the agreement) subject, in effect, to the stock‑take. Clause 7.6 of the general conditions provides that, at settlement, the vendor's representative is to hold the estimated value of the stock as stakeholder until the value of the stock is agreed under Condition 6.6. That would require, in the case of the agreement in this matter, that the vendor's representative, at settlement, hold the sum of $125,000 as stakeholder pending the result of the stock‑take. It does seem to me that the parties to the contract expressly agreed to depart from the general conditions by providing, as they did, that payment for the stock, in full, would be made 30 days after settlement date. That agreement was made in the context of a contract which provided that property and possession would pass to the purchaser on settlement. Deane J in Hewett v Court (supra) identified (at p 668)what he considered to be the circumstances sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. They are:
(i)that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it;
(ii)that that property be specifically identified and appropriated to the performance of the contract; and
(iii)that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscionably or unfairly if he were to dispose of the property to a stranger without the consent of the other party or without the actual or potential liability having been discharged.
The contract between the parties was clearly subject to finance with the lender stipulated to be Bankwest at Cannington. It follows, in my view, that the vendor contemplated that the purchaser would be borrowing in order to complete the purchase of the business. It follows that the vendor would have been fully aware that the finance provider would require security and that that security would attach to the assets of the business, in particular, the assets readily capable of disposition.
In "Meagher, Gummow and Lehane's Equity, Doctrines and Remedies", 4th ed by Meagher, Heydon and Leeming the authors state at [9‑030]:
"At least from the time of delivery by a vendor of possession of property (under a specifically enforceable contract: Hewett v Court (1983) 149 CLR 639 at 649‑50; 46 ALR 87 at 93‑4; cf at 664ff; 105 and see [3‑205]) without receipt of the whole of the purchase money, the vendor has an equitable lien for the purchase money, still unpaid, unless a contrary intention appears."
In the matter before me there does seem to be a compelling argument to support the proposition that the parties manifested in their agreement a contrary intention. The authors further state (at [9‑035]):
"In certain circumstances a third party financing the purchaser may be subrogated to the lien of the vendor. For the third party to assume the lien the vendor would have retained if the price had remained unpaid, is it sufficient that the third party advances money to the purchaser and that the vendor is paid? The affirmative is asserted by Halsbury's Laws of England, 4th ed, Vol 28, par 570, but has been denied by Hudson J in Evandale Estates Pty Ltd v Keck [1963] VR 647 at 652. In his Honour's opinion an equity in the third party lender arises only when it at least appears 'from the whole circumstances of the transaction' that it was the intention of the parties that the lender should have security over the property for his loan. Having made the loan upon this understanding, it would be inequitable to deny him the security for which he stipulated, and the appropriate manner in which to give it to him is by subrograting him to the position of the vendor.': at 652 Thus there will be no subrogation if the true nature of the transaction were simply the creation of an unsecured loan, because to grant subrogation would be to put the lender in a better position than that for which he bargained when he advanced his money: Paul v Speirway Ltd (in liq) [1976] Ch 220 at 232; [1976] 2 All ER 587 at 598. Where subrogation is permitted, the parties prejudiced by the subrogation are of course the purchaser and his unsecured creditors for otherwise the lender's expectations would be disappointed and he would rank only with the general body of creditors. The inducement of security and the action upon it makes it fraudulent for the purchaser to deny that the vendor's lien persists now in the hands of the lender; and the unsecured creditors of the purchaser can be in no better position than he. The lender may have stipulated a legal security and he gets only an equitable lien, but this is the best means equity has available of treating the purchaser as fulfilling his inducement. As between the vendor and the purchaser the lien is spent when the vendor receives the purchase money, but such lien being a creature purely of equity, there is no obstacle to equity treating it as still effective as between the purchaser and the lender. …"
Counsel for the judgment creditor submits that the equitable lien arose by virtue of the contract dated 2 November 2005 and takes precedence over the charge entered into between the judgment debtor and the claimant on 19 January 2006, registered on 27 January 2006. Counsel for the judgment creditor submits, therefore, that the judgment creditor has a lien over the stock, plant and equipment of the business and that it would be just for me to order that the plant and equipment in addition to the stock be sold pursuant to the order obtained by the judgment creditor. Counsel for the claimant submits that, if there is a vendor's lien arising in these circumstances, the claimant's registered charge has priority over it.
The primary question to be determined is whether, in the circumstances, a vendor's lien should be implied and if it is to be implied whether it should take priority over the claimant's security. As mentioned, the judgment creditor expressly agreed that the purchase of the business would be subject to the judgment debtor obtaining finance. The financier nominated was Bankwest. It was, therefore, well within the contemplation of the judgment creditor that the financier would require security, in all probability, over the assets of the business. The judgment creditor might have insisted upon protection of its position by strict compliance with the general conditions which would have involved, at settlement, its representative holding, as stakeholder, the estimated amount of stock at valuation, stipulated in the contract as being $125,000. The judgment creditor and the judgment debtor expressly departed from that particular provision of the general conditions. In my view it would be entirely inappropriate and commercially untenable to allow the judgment creditor now to assert an equitable interest in property passed to the judgment debtor in order to secure payment of the balance of the purchase price (being the valuation of stock) and to defeat the rights of the claimant.
Given that strict compliance with the general conditions would have secured the judgment creditor's position and that it agreed to depart from that compliance it is now, in my view, unconscionable that the judgment creditor seek to assert an equitable right in the form of a vendor's lien. The judgment creditor sued and obtained judgment under the contract without asserting the existence of any equitable interest or security. The judgment creditor now seeks to assert, as against the claimant, a vendor's lien which it submits, has priority over the claimant's registered interest. If there were such a lien the claimant would in my view, be subrogated to the position of the judgment creditor. In the circumstances however, I conclude that to imply a vendor's lien would be inequitable.
It follows from the foregoing that I propose to determine this matter in favour of the claimant. That means that if the Sheriff is to dispose of the seized property by sale then the claimant should have priority over the judgment creditor. In other words, the proceeds of sale should be disbursed, first, in settlement of the debt due to the claimant and the balance thereafter paid to the judgment creditor. I will hear counsel as to the precise terms of orders to be made.
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