Morris Finance Ltd v Free

[2017] NSWSC 1417

Supreme Court

New South Wales

Medium Neutral Citation:	Morris Finance Ltd v Free [2017] NSWSC 1417
Hearing dates:	7 July 2017
Date of orders:	19 October 2017
Decision date:	19 October 2017
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	(1) Pursuant to the Court’s inherent jurisdiction, the land identified in Schedule A (“the Property”) be sold by the plaintiff subject to the supervision of the Court. (2) By way of order ancillary to order 1, the third and fourth defendants deliver up vacant possession of the Property to the plaintiff on or before 31 January 2018. (3) Leave is granted to the plaintiff to issue a Writ of Possession forthwith, such writ not to be executed earlier than 2 February 2018. (4) The plaintiff shall conduct the sale by public auction or, if not sold at auction, by private sale, and pay the proceeds of sale in the following order: (a) first, for all the proper costs and expenses relating to the sale of the Property; (b) second, as to any remaining proceeds of sale after payment in accordance with order 4(a), the whole of the amount due to the fifth defendant pursuant to registered mortgage 8421415; (c) third, as to any remaining proceeds of sale after payment in accordance with order 4(b), the whole of the amount due to the plaintiff in discharge of its interest in the Property; (d) fourth, as to any remaining proceeds, such sum shall be paid as to half to the first defendant and as to the other half to the second defendant (with the effect that the first and second defendants shall each receive an equal share of such moneys). (5) The plaintiff shall act at all times in relation to the selling of the Property in accordance with the duties owed by a mortgagee in exercising a mortgagee’s power of sale. (6) Prior to offering the Property for sale, the plaintiff shall consult with and obtain advice from a real estate agent or valuer before seeking to fix a reserve sale price of the Property. (7) The plaintiff is appointed to transfer the Property to the purchaser(s) thereof to effect the sale and the plaintiff is granted the power to transfer the Property and all the interests of the first defendant, second defendant, third defendant and/or fourth defendant in the Property to the purchaser(s), subject only to the registered mortgage of the fifth defendant. (8) Liberty to the parties, including the plaintiff, to apply, on 3 days’ notice in writing, for such further or other orders as may be necessary or appropriate concerning the implementation of these orders or for any necessary or appropriate variation to these orders. (9) For the purpose of entering the order for possession and the entry of any writ of possession in accordance with these orders, transfer the proceedings (other than the remaining issue as to costs) to the Possession List in the Common Law Division of this Court. (10) Reserve the question of costs and direct the plaintiff and the first defendant to file and serve brief written submissions on costs within 14 days of the date of these orders, with a view to costs then being dealt with on the papers.
Catchwords:	EQUITY – Equitable charges and liens – Creation – Whether lease agreement contained language sufficient to create a charge   EQUITY – Equitable charges and liens – Remedies – Judicial sale – Whether court has power to make an order for possession as ancillary to a primary order for judicial sale
Legislation Cited:	Bankruptcy Act 1966 (Cth), s 58(3) Civil Procedure Act 2005 (NSW), s 20 Personal Properties Securities Act 2009 (Cth), ss 12, 13 Real Property Act 1900 (NSW) Moneylenders Act 1958 (Vic)
Cases Cited:	Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25 AVCO Financial Ltd v White [1977] VR 561 Berrington v Evans (1839) 3 Y. & C. Ex 384; 160 ER 751 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Boutros v Nationwide Capital Pty Ltd [2013] NSWCA 246 Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd [2016] NSWSC 1344 Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 Chateau Constructions (Aust) Ltd v Zepinic [No 5] [2010] NSWSC 265 Clark v Raymor (Brisbane) Pty Limited (No 2) [1982] Qd R 790 Cradock v Scottish Provident Institution (1893) LT 380 Corozo Pty Ltd v Total Australia Ltd [1987] 2 Qd R 11 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 El-Kazzi v Kassoum [2009] NSWSC 99 Evans v Advertising Department Pty Ltd [2009] VSC 587 Fremoult v Dedire (1718) 1 P Wms 431; 24 ER 458 In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 In re Cosslett (Contractors) Ltd [1998] Ch 495 In re Kelcey; Tyson v Kelcey [1899] 2 Ch 530 In the matter of Swan Service Pty Limited (in liquidation) [2016] NSWSC 1724 Koovousis v Tony, trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218 Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 Mango Media Pty Ltd v Mertes [2006] NSWSC 1460 Melbourne Property Group Pty Ltd v SC Australia Pty Ltd [2013] VSC 701 Morris Finance Limited v Free (No 2) [2016] NSWSC 1064 Morris Finance Limited v Free, Trustee of the Property of Neil Warren Brown, a Bankrupt [2016] NSWSC 516 Morris Finance Ltd v Brown [2016] NSWCA 343 Morris Finance Ltd v Brown [2017] FCAFC 97 Mount Bruce Mining Pty Ltd v Wright Prospecting Ltd (2015) 256 CLR 104; [2015] HCA 37 National Provincial & Union Bank of England v Charnley [1924] 1 KB 431 Nationwide Capital Pty Ltd v Boutros Constructions Pty Ltd [2012] NSWSC 1472 Nationwide Capital v Boutros Constructions [2013] NSWSC 976 New Beach Apartments Pty Ltd v Epic Hotels Pty Ltd [2007] NSWSC 474 Noble Solutions Pty Ltd v Young [2013] NSWSC 1371 Palk v Mortgage Services Funding PLC [1993] Ch 330 RCD Super Fund Pty Ltd t/as Trustee for Red Gum Super v Morris [2016] NSWSC 83 Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134 Sood v Christianos [2008] NSWSC 1018 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Williams v Lucas (1789) 2 Cox Eq Cas 160; 30 ER 73 Yarrangah v National Australia Bank Ltd [1999] NSWSC 97
Texts Cited:	K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) J McGhee (ed), Snell’s Equity (33rd ed, Sweet & Maxwell) ELG Tyler, PW Young and CE Croft, Fisher and Lightwood’s Law of Mortgage (3rd Australian Edition, 2014, LexisNexis)
Category:	Principal judgment
Parties:	Morris Finance Ltd (Plaintiff) Stewart William Free, trustee of the property of Neil Brown (First defendant) Official Trustee in Bankruptcy, trustee of the property of Caroline Brown (Second defendant) Neil Brown (Third defendant) Caroline Brown (Fourth defendant) Holiday Coast Credit Union Ltd (Fifth defendant)
Representation:	Counsel: V Bedrossian (Plaintiff) I J King (First defendant)   Solicitors: Smith Leonard Fahey (Plaintiff) CLH Lawyers (First defendant)
File Number(s):	2015/00330173
Publication restriction:	Nil

Judgment

1. HER HONOUR: Before me for hearing on 7 July 2017 was an application, by way of further amended summons filed on 30 June 2017, by the plaintiff (Morris Finance) for orders for the judicial sale of a property in Coopernook, NSW (the Coopernook Property) and ancillary orders for possession of the said property.

2. Prior to their respective bankruptcies, the third and fourth defendants (Mr and Mrs Brown) held the title to the Coopernook Property in equal shares. The first and second defendants are the persons who have been appointed as trustee of the bankrupt estate of Mr and Mrs Brown, respectively. The respective sequestration orders were made on 17 June 2013 (in the case of Mr Brown) and on 25 August 2015 (in the case of Mrs Brown). The second defendant, Mrs Brown’s trustee in bankruptcy, has filed a submitting appearance in the proceedings. There was no appearance (and no attendance at the hearing) by or on behalf of Mr or Mrs Brown and it is not clear whether they remain in occupation of the Coopernook Property.

3. The fifth defendant (Holiday Coast Credit Union Ltd (Holiday CCU)) is the first registered mortgagee in respect of the Coopernook Property. It, too, has filed a submitting appearance in these proceedings.

4. The proceedings were commenced in November 2015 but the final hearing was delayed in circumstances where there was an issue as to whether Morris Finance required leave pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth) to commence and pursue these proceedings (see Morris Finance Limited v Free, Trustee of the Property of Neil Warren Brown, a Bankrupt [2016] NSWSC 516; Morris Finance Ltd v Brown [2016] NSWCA 343; and Morris Finance Ltd v Brown [2017] FCAFC 97). The upshot of those earlier decisions is that leave was not so required (contrary to the position taken at an earlier stage by Mr and Mrs Brown, and by Mr Brown’s trustee in bankruptcy). For present purposes, the only relevance of that initial dispute is to explain the concern on the part of Morris Finance to avoid further proceedings that might arise if there were to be an obstruction by Mr and Mrs Brown to the sale of the property (assuming orders for judicial sale are granted) and insofar as there may be an issue as to costs (including as to the costs of the determination of the separate question as to whether leave was required – see Morris Finance Limited v Free (No 2) [2016] NSWSC 1064 – Morris Finance having been ordered to pay the costs of each of the first defendant, Mr Brown and Mrs Brown in respect of the determination of the separate question).

5. In summary, Morris Finance contends that it has the benefit of an equitable charge against the Coopernook Property, which secures unpaid moneys under a commercial lease agreement entered into with Mr Brown (whose obligations thereunder were guaranteed by Mrs Brown). It now seeks to enforce that equitable charge. For the first defendant, Mr Brown’s trustee in bankruptcy, attention has been drawn to authorities which suggest that an order for possession is not available in relation to the power of sale of an equitable charge (the usual procedure being for the equitable chargee to appoint a receiver, which receiver can take possession as an incident of the receiver’s powers). It is submitted that it is necessary for this Court to be satisfied that an order for possession is available as an incident of its inherent jurisdiction to order judicial sale of the Coopernook Property (T 26.27-30).

6. For the reasons that follow, I have concluded that: Morris Finance has an equitable charge over Mr Brown’s half-share of the Coopernook Property and is entitled to enforce that charge; it is appropriate in the circumstances to order that the Coopernook Property be sold subject to the supervision of the Court; and it is open to the Court (and, in the circumstances, appropriate) to make an order, ancillary to the primary order for judicial sale, that Mr and Mrs Brown give vacant possession of the Coopernook Property to Morris Finance.

Background

7. By a standard form agreement dated 3 January 2012 (the Lease Agreement), Mr Brown entered into an agreement with Morris Finance in respect of certain goods (defined in cl 1 by reference to item 2 of the Schedule to the Lease Agreement as being a used 2004 Scania 6x4 Prime Mover, a 1995 Freightliner FLC112 Tipper Truck, and a used 1990 Hamelex Aluminium Dog Trailer). The goods in question (which appear to comprise industrial or commercial equipment) were, pursuant to the Lease Agreement, acquired by Morris Finance which then leased that equipment to Mr Brown.

8. On the same day, Mrs Brown executed a written guarantee of Mr Brown’s financial obligations under the Lease Agreement (the Guarantee).

9. The value of the goods in question was agreed as being $87,180.56 (see item 2 of the Schedule to the Lease Agreement). Its residual value was agreed to be $1 (plus GST). Mr Brown was required to make an initial payment or instalment of $5,000 and thereafter 47 instalments of $2,781.77 each. The current dispute arises because Mr Brown has failed to pay instalments owing in respect of the goods since about July 2012 (at which time his outstanding liability to Morris Finance was about $110,000).

10. A credit of $75,969.00 was applied against Mr Brown’s debt in October 2012 (see Exhibit D to the affidavit of Glynn Sadler sworn 9 November 2015). It is submitted that it may be inferred that this amount represented the net proceeds of sale of the leased goods.

11. As at 27 July 2015, both Mr Brown and Mrs Brown, as guarantor, were indebted to Morris Finance in an amount exceeding $40,000 (see affidavit of Glynn Sadler at [10]), not including the costs of these proceedings (which are also secured under the Lease Agreement). They remain indebted to Morris Finance. As at about February 2016, the debt claimed as owing to Holiday CCU was calculated at approximately $193,000. There is evidence to suggest that the Coopernook Property is valued in the order of at least $300,000 (see affidavit of Christopher Yam sworn 10 February 2016).

Relevant terms of the Lease Agreement

12. Clause 1 of the Lease Agreement contains a series of definitions. As adverted to above, “the goods” are defined as “the goods specified in item 2 of the schedule”. Clause 1.2 provides that any reference within the Lease Agreement to “this agreement” includes the Schedule.

13. Clause 2 of the Lease Agreement deals with the retention of title to the goods, as follows:

2. Title of Goods

Title to the goods shall at all times remain in the lessor and nothing contained herein or permitted pursuant hereto shall confer on the lessee any right or property or interest or proprietary interest in the goods other than as a lessee in accordance with the terms of this agreement. [my emphasis]

14. Clauses 6 and 7 contain a series of covenants by the lessee including, relevantly:

6. Lessees Covenants

The lessee agrees:

…

6.9   that he has no authority to give any security or lien over or in respect of the goods whatsoever and that he will nto during the continuance of this agreement purport to give any security or lien over or in respect of the goods.

7. Further covenants of the lessee

...

7.8    to ensure that the goods remain at the location specified in item 4 of the schedule and obtain the consent in writing of the lessor if the goods are to be taken outside Australia for a period of time in excess of 28 days; and

…

7.10   not to assign any rights accruing to the lessee under this agreement without the consent in writing of the lessor, and

7.11   to notify the lessor of the address at which the goods are to be primarily located should that address differ from that stated in item 4 of the schedule, and

…

7.13   at the expiration of this agreement to deliver up the goods to the lessor at the address of the lessor set out above or such other address as the lessor may nominate from time to time …

15. Clause 17 confers a power of attorney on the lessor in the following terms:

17. Power of Attorney

17.1    For the consideration as set forth within this agreement and to better secure [sic] the proprietary interest of the lessor hereunder and the performance of each and every obligation owed to the lessor hereunder and by way of security the lessor is hereby irrevocably granted and given power and irrevocably appointed the true and lawful attorney (with the power from time to time to appoint and remove a substitute or substitutes) of the lessee while any part of the moneys owing remain outstanding (of which fact possession of this agreement or a duplicate hereof shall be conclusive evidence) in the name of the lessee or in the name of the lessee and the lessor to do any one or more of the following acts, matters or things namely;

(a)   to do any act or sign, seal, deliver or execute any document to carry out or in connection with the exercise of all or any of the powers herein contained or implied;

…

(d)   to execute a mortgage in the lessor’s usual standard form or in the standard form of the Law Institute of VIC, QLD, NSW, SA mortgage as it exists from time to time (including a registrable mortgage of real property where required) over all or any of the charged property and or to exercise any powers exercisable by the lessee in respect of the charged property. [my emphasis]

17.2   The lessee authorises and consents to the Lessor taking all action necessary to give effect to clause 17.1 including without limitation the lodgement of a caveat upon the title of the lessee’s real property. [my emphasis]

16. Clause 18 of the Lease Agreement then provides as follows:

Charged Property

As security for the due and punctual payment of the rent and/or the moneys owing and the due and punctual performance and observance of the terms of this agreement the lessee as beneficial owner hereby charges in favour of the lessor all of his right, title and interest in and to the charged property and all property here after to be held or acquired by the lessee in addition to the charged property as specified in item 7 of the schedule.

17. The first defendant accepts that cll 17 and 18 “expressly and clearly” grant Morris Finance an equitable charge. The dispute is whether it extends to Mr Brown’s interest in the Coopernook Property (in particular, whether the purported charge is sufficiently certain to be, or is otherwise as a matter of law enforceable as, an equitable charge over his interest in that property).

18. The governing law of the Lease Agreement is that of Victoria and the parties have consented to the jurisdiction of the courts of that State (cl 20.2). Nothing, however, turns on this. Morris Finance submits, and the first defendant did not suggest otherwise, that the applicable law in relation to the creation of an equitable charge is relevantly the same as that in New South Wales. I agree. See, for example, AVCO Financial Ltd v White [1977] VR 561 at 563-564, where Gillard J cites the judgment of Romer J in Cradock v Scottish Provident Institution (1893) LT 380 at 382, the same passage being cited in this Court by Black J in In the matter of Swan Service Pty Limited (in liquidation) [2016] NSWSC 1724 at [281].

19. Clause 20.3 contains a severance clause:

Any provision of this agreement which is prohibited, unenforceable, void or invalid shall only to the extent of such prohibition, unenforceability, violability or invalidity by [sic] excised from this agreement and where permitted by law shall not affect the validity or enforceability of the remaining provision [sic] of this agreement.

The Schedule to the Lease Agreement

20. Turning to the Schedule to the Lease Agreement, which, as noted above, forms part of the contract, it contains 7 items.

21. Item 1 is headed “Lessee” and contains details such as the name of the lessee, his Australian Business Number, his address and his telephone number. The address there noted is the Coopernook Property. Item 2, to which I have referred above, is headed “Goods” and contains a description of the three items of equipment as well as details (such as the quantity, model, registration, engine and VIN numbers and net price).

22. Item 3, headed “The Instalments” and “Term of Lease” sets out the number and amount of instalments payable (though it does not expressly identify the term of lease).

23. Item 4, headed “Location of Goods During Term of Lease”, contains the address of the Coopernook Property.

24. Item 5 specifies the residual value (“$1.00 plus GST”).

25. Item 6 contains the following, under the heading “Supplier of Goods”:

Scania Truck from Thompsons Truck Sales. Freightliner Truck & Hamelex Trailer are a Sale & Lease Back paying out Morris Finance Limited.

26. Finally, item 7 of the schedule, headed “The Charged Property”, contains the words “As Above”.

Issues in dispute

27. Morris Finance has identified the issues in dispute as being the following:

1. first, whether the provisions of the Lease Agreement provide Morris Finance with the benefit of an equitable charge over the half-share of the Coopernook Property to which the first defendant (that is, Mr Brown’s trustee in bankruptcy) would otherwise be entitled;

1. second, whether the discretion to order the judicial sale of the Coopernook Property should be exercised (to which should be added the question raised in argument at the hearing as to whether the Court has power in its inherent jurisdiction to make an order for possession ancillary to an order for judicial sale and whether it ought do so in the present case); and

2. third, whether Morris Finance is entitled to the net proceeds of sale (including after paying out Holiday CCU’s mortgage debt) otherwise attributable to Mr Brown’s half-share in the Coopernook Property.

28. Morris Finance says that it is not in dispute that Mrs Brown validly and effectively granted it an equitable charge over her half-share in the Coopernook Property as security for her obligations under the Guarantee; nor that there remain moneys owing to Morris Finance under the Lease Agreement and that the liability of Mr and Mrs Brown extends to the costs and expenses (on a solicitor/client basis) incurred by Morris Finance in these proceedings. It further says that a sale of the Coopernook Property ought to result in Holiday CCU’s debt being paid out in full, thus not prejudicing the interests of the first registered mortgagee (something I would infer from the fact that Holiday CCU has filed a submitting appearance).

Relevant principles

29. As to the applicable principles concerning equitable charges, such a charge has been described as a security whereby “only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security” (AVCO Financial Services at 563). An equitable charge does not involve a transfer of title or possession and it can exist over real or personal property, whether legal or equitable (see In re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 226 (Lord Hoffmann); Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; [2000] HCA 25 at [7]).

30. Whereas an equitable lien is imposed by operation of law (or, perhaps more precisely, “by operation of equity”), an equitable charge is a creature of intention (see J McGhee (ed), Snell’s Equity (33rd ed, Sweet & Maxwell) at [44-004]; see also, Morris Finance Ltd v Brown [2017] FCAFC 97 at [38]). As Black J observed (at [281]) in Swan Service, such a charge “can be created where property is expressly or constructively made liable, or appropriated to, the discharge of a debt and the charge is given a right of realisation by judicial process” (see also, ELG Tyler, PW Young and CE Croft, Fisher and Lightwood’s Law of Mortgage (3rd Australian Edition, 2014, LexisNexis) at [2.3]); National Provincial & Union Bank of England v Charnley [1924] 1 KB 431 at 449-450; Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 at [68]-[69] (Darke J)).

31. More recently, in Roberts v Investwell Pty Ltd (in liq) [2012] NSWCA 134, Bathurst CJ said (at [29]) that:

What is clear from the authorities is that for either an equitable mortgage or equitable charge to come into existence there must be an intention to create an immediate proprietary interest or immediate right of recourse to identifiable, present, or in the case of a charge, future property.

noting (at [31]) that the question there depended on the construction of the clause in question:

If the provision on its true construction confers an immediate equitable interest in particular property, or grants an immediate right of recourse to present or future property, then the grantee will be secured to the extent of his or her interest in, or right to, the property. If it does not, the creditor will be unsecured.

32. The proper approach to contractual interpretation is not in dispute in the present proceeding. The intention of the parties in creating by their contract certain rights and liabilities is to be ascertained objectively (see Mount Bruce Mining Pty Ltd v Wright Prospecting Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]; French CJ, Nettle and Gordon JJ; see also, Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184). As French CJ, Hayne, Crennan and Kiefel JJ noted in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]:

The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach … will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties ... intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”. [citations omitted]

33. As to the power to order a judicial sale of land registered under the Real Property Act 1900 (NSW), that power arises from the Court’s inherent jurisdiction in equity and, in considering whether such an order should be granted, the Court is exercising a discretion (see Catherine Margaret Thorn, as executrix of the Estate of the late Betty McAuley v Ian Geoffrey Boyd and Dawn Kathleen Boyd [2016] NSWSC 1344 at [62] and the authorities cited therein).

34. In Thorn v Boyd, Sackar J noted (at [63]) that judicial sale is not a remedy of last resort but, rather, it is the standard remedy of an equitable chargee seeking to enforce the chargee’s equitable interest (referring to Sood v Christianos [2008] NSWSC 1018 at [16]; Mango Media Pty Ltd v Mertes [2006] NSWSC 1460 at [31]; Chateau Constructions (Aust) Ltd v Zepinic [No 5] [2010] NSWSC 265 at [72]). While accepting that an equitable chargee is entitled to an order for sale as of right upon default, his Honour also noted that an order for judicial sale should only be made in special or exceptional circumstances – “often where a mortgagor or equitable chargor is unfairly prejudiced” (see [63]-[64]; referring for the last proposition to Koovousis v Tony, trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218 at [20]-[21]; New Beach Apartments Pty Ltd v Epic Hotels Pty Ltd [2007] NSWSC 474 at [25]; Palk v Mortgage Services Funding PLC [1993] Ch 330 at 344; Yarrangah v National Australia Bank Ltd [1999] NSWSC 97 at [37]). In Koovousis, Lindsay J indicated that the need for special or exceptional circumstances is properly to be understood as identifying a requirement where an order for judicial sale is sought over the objection of a prior mortgagee ([20]-[21]). (There is no such objection here.)

Is there an enforceable equitable charge?

Submissions

35. Morris Finance submits that there are four places in cll 17 and 18 of the Lease Agreement which point to the existence of an equitable charge over the Coopernook Property. In particular, it is submitted that examination of cl 18 (literally and also in light of the commercial operation of the Lease Agreement) demonstrates that any contention that the agreement purported to grant an equitable charge only over “the goods” and only over any “future property” is plainly wrong.

36. First, it points to cl 17. It is submitted that cl 17 makes clear that Morris Finance was to have the benefit of an equitable proprietary interest in the Coopernook Property. Attention is drawn to cl 17.1(d), which authorises Morris Finance under a power of attorney:

… to execute a mortgage … (including a registrable mortgage of real property where required) over all or any of the charged property and or to exercise any powers exercisable by the lessee in respect of the charged property. [my emphasis]

37. It is argued that there would be no reason to refer to a “registrable mortgage of real property” if an equitable interest in the Coopernook Property was not intended (T 10-11).

38. (Pausing here, I note that this argument is not necessarily decisive, insofar as the terms of cl 17.1(d) are also consistent with the first defendant’s contention that cl 18 only captures real and personal property acquired after execution of the Lease Agreement.)

39. Second, Morris Finance draws attention to its entitlement to lodge a caveat under cl 17.2. It accepts that a mere entitlement to lodge a caveat may not always give rise to an equitable charge, but emphasises two matters: first, the specificity of the clause (it being a caveat expressly for the purpose of giving effect to cl 17.1, which confers a power of attorney “better [to] secure the proprietary interest of the lessor” under the lease (my emphasis) along with the lessee’s obligations under the agreement); and, second, that cl 17.2 must be viewed in the context of the entire agreement, which makes clear that it is not an entitlement to lodge a caveat merely to obstruct any action against Morris Finance’s interest but, rather, as security in recognition of an equitable interest (T 11.15-23).

40. (I interpose to note, in relation to the first of those matters, that the “proprietary interest” of the lessor under the lease referred to is also capable of being a reference to “the goods” themselves – cl 2 expressly providing that title remained with Morris Finance as lessor and that no “property or interest or proprietary interest” therein was to pass to the lessee otherwise than in accordance with the Lease Agreement.)

41. Third, Morris Finance emphasises the reference to a “beneficial owner” in cl 18. It points out that this reference could not be to the chargor (that is, Mr Brown) as beneficial owner of “the goods” (title to which, by virtue of cl 2, remained at all times in Morris Finance as lessor). Therefore it is said that this reference must be to the chargor as beneficial owner of other property, which Morris Finance says includes the Coopernook Property (T 11). It is also noted that cl 18 states that the beneficial owner “hereby charges” (my emphasis), this contemplating an immediate grant of a security interest.

42. Fourth, Morris Finance emphasises the specific components of cl 18. Broadly, it distinguishes between the general charging component of the clause (whereby the lessee charged “all of his right, title and interest in and to the charged property and all property here after to be held or acquired”) and the additional charging component (emphasising in particular the words “in addition to the charged property as specific in item 7 of the schedule”) (T 12.1-12.8). It is suggested (see written submissions at [29](c); T 11.44) that this in turn breaks down into a threefold distinction between present property, future property, and then, “in addition”, the specific property (not necessarily different from the property covered by the first two categories) of the lessee:

As security for the due and punctual payment of the rent and/or the moneys owing and the due and punctual performance and observance of the terms of this agreement the lessee as beneficial owner hereby charges in favour of the lessor all of his right, title and interest in and to the charged property and all property here after to be held or acquired by the lessee in addition to the charged property as specified in item 7 of the schedule.

43. Morris Finance argues that an item of real property is plainly still “property” and submits that there is no need for an equitable charge to distinguish between personalty and realty; all “property” is covered by the charging clause. It argues that the more general charging words (“all of his right, title and interest in and to the charged property”) are clearly intended to operate above and beyond the specific item listed in “item 7 of the schedule”.

44. In other words, it is submitted that reference to item 7 may, on the final analysis, be unnecessary, insofar as the Coopernook Property is captured by the general charging words themselves (see written submissions at [36]).

45. (Again, I interpose to note that, while it may be accepted that cl 18 contains distinct components and that it purports to charge property other than that identified in item 7, to point to the first portion – that is, the general charging words – is merely to restate the problem; i.e., what is the “charged property”? Moreover, in its written submissions (at [29](c); cf T 12.47) Morris Finance appears to accept that the words “all property here after to be held or acquired” relate to “future property”, not present property, and in oral submissions accepted that the Coopernook Property was already held by Mr and Mrs Brown as at the date of execution and was therefore not “future property” (T 12.34-36). If so, it would seem that Morris Finance is necessarily forced to rely upon the first limb of the general charging words, or else the meaning of “As Above” in item 7 of the Schedule. I will come to this in due course. For present purposes, I simply note that the suggestion that “all property here after to be held” encapsulates only future property is by no means clear.)

46. Turning to the Schedule itself (and thus the meaning of item 7), Morris Finance submits that the separate reference at the end of cl 18 to “the charged property as specified in item 7 of the schedule” is readily understood as being a reference to the real property (namely, the Coopernook Property). It is submitted, in effect, that if one enquires as to the meaning of “As Above” in item 7, the first time that one reaches anything that might meaningfully be identified as the charged property is item 4 (item 6, being the identification of the supplier of the goods; item 5, identifying the “residual value”), which as noted earlier is headed “Location of Goods During Term of Lease” and identifies the Coopernook Property (T 8.21-8.47).

47. In response to the suggestion that “As Above” takes one further up the Schedule to item 2 (“The Goods”), Morris Finance submits that it makes no commercial sense within this agreement because the goods in question were always owned by it (as expressly acknowledged in cl 2 of the Lease Agreement) and hence it makes no sense for it to seek security by way of a charge over the same goods it always owned (T 9.4-11). It points out that item 2 is headed “The Goods” and not “The Charged Property”. Moreover, Morris Finance emphasises that, throughout the Lease Agreement, the leased goods are referred as “goods” and nowhere as the “charged goods” or as “charged property”. It argues that there is a simple reason for this: namely, that the leased goods were leased (reference again being made to cl 2 of the Lease Agreement). Morris Finance makes the point that Mr Brown could not grant an equitable charge over property which he did not own and that, in any event, cl 6.9 (which, it is observed, refers to the goods as “The Goods” and not as “The Charged Property”) contains a covenant by the lessee (that is, Mr Brown) that:

He has no authority to give any security or lien over or in respect of the goods whatsoever and that he will not during the continuance of his agreement purport to give any security or lien over or in respect of the goods. [my emphasis]

48. In any event, as adverted to above, it is submitted that a number of other provisions of the Lease Agreement make clear, expressly or constructively, that there was to be an equitable charge over real property owned by Mr Brown (and hence that there is no need to rely upon item 7 and the words “As Above” as the only source for an identification of the property subject to the charge) (T 9.13-17).

49. As a final matter, Morris Finance observes that item 1 of the Schedule identifies the lessor’s address as being the Coopernook Property. It is said that, as a matter of commercial construction, it would be strange if not “very unorthodox” that the wife of the lessee (that is, Mrs Brown) would charge her half interest in the property but that it was not intended for the actual lessee (that is, Mr Brown) to charge his own half interest in that property (T 13). (In response to this, the first defendant points out that there is nothing on the actual face of the Lease Agreement identifying the nature of the relationship between Neil Warren Brown and Caroline Brown (T 23.48-24.8).)

First defendant’s submissions

50. The first defendant accepts that cll 17 and 18 “expressly and clearly” grant Morris Finance an equitable charge, but disputes that these clauses grant Morris Finance a charge over the Coopernook Property. The first defendant also accepts that the drafting parties contemplated that real property might be charged under the standard form of the Lease Agreement. However, it is argued that, because cl 17.1(d) refers to “charged property” specifically, it follows that, to be charged, the real property would need to be listed in item 7 of the Schedule or else be real property acquired after the date of the Lease Agreement (on the basis that the Lease Agreement does not otherwise provide for any alternative definition of the “charged property” referred to in cll 17 and 18).

51. The first defendant submits that the language of the Lease Agreement is insufficient to create a charge over the land. Reference is made to Fisher and Lightwood’s Law of Mortgage at [2.4] and [2.7], which relevantly state the following:

The property over which the charge exists must be clear. This is because the property must be appropriated to meet the charge: see, for example, Brown, Shipley & Co v Kough (1885) 29 Ch D 848 …

Just as a mortgage of all a mortgagor's ‘real and personal property whatsoever and wheresoever’ may be supported if it is possible at the time when the charge is sought to be enforced to identify the property mortgaged (see 1.34), so the same seems to apply to a charge. However, it is suggested there must be a limit and that a charge over all the real and personal property over which the chargor owns or may hereafter acquire may be too wide.

…

Not even a charge will be created where no particular land is mentioned in the agreement; or where the agreement is only for a personal security, with power to call for a real security. …

Again, not even a charge will be created where it otherwise appears to be intended to rely upon the agreement and not any security (see, for example, Collins v Plumber (1709) 1 P Wms 104; 24 ER 313; Berrington v Evans (1839) 3 Y & C Ex 384; 160 ER 751); nor where the agreement is not based on valuable consideration: Re Earl of Lucan (1890) 45 Ch D 470.

…

The charge must be a present charge of specified property either already in the chargor's possession or such as he or she may afterwards acquire or derive from a specified source: see 2.4 and Metcalfe v Archbishop of York (1836) 6 Sim 224; 58 ER 577; affirmed (1836) 1 My & Cr 547; 40 ER 547; Buller v Plunkett (1860) 1 John & H 441; 70 ER 819 and Murphy v Wright (1992) 5 BPR 11,73. [my emphasis]

52. The first defendant submits that there is a distinction between the construction of charging clauses which bind all the chargor’s land and those that bind an unspecified portion of the chargor’s land (reference being made to the judgment of Connolly J in Corozo Pty Ltd v Total Australia Ltd [1987] 2 Qd R 11). The first defendant argues that a failure to specify either all of the land currently held or a particular parcel of land renders an equitable charge unenforceable (T 19.41-42).

53. The first defendant submits that the phrase “charged property” (as found in item 7 of the Schedule) does not sufficiently specify the Coopernook Property. It said that at no point in the Lease Agreement is the Coopernook Property identified as real property intended to be secured under the Lease Agreement (T 14.47-48); instead, the Coopernook Property is only identified as the address of the lessor (in item 1 of the Schedule) or as the location of the goods during the term of the lease (in item 4 of the Schedule), that latter reference being clarified by cl 7.11 (which states that the lessee has an obligation to notify the lessor of the address at which the goods are to be primarily located, should that address differ from that stated in item 4 of the Schedule) and cl 7.13 (providing that the lessee deliver up the goods to the lessor at the address of the lessor as set out, or such other addresses as the lessor may nominate from time to time).

52. (In reply submissions, Morris Finance emphasises that the authorities make clear that a charge can arise either expressly or constructively upon a construction as to the fair meaning of an agreement and what it was that the parties intended, as with any other commercial contract (T 29.7-15).)

53. The first defendant submits that cl 18 necessarily refers to item 7 of the Schedule (T 15.14). Two arguments were advanced in this context: first, that the statement “As Above” is so vague or uncertain as to be void or unenforceable (see T 15-16; 21.6-23); and second, in the alternative, that the words “As Above” should be interpreted as a reference to the goods the subject of the Lease Agreement (T 21.30-34).

54. In relation to the first argument, reference is made to Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 135 where Kirby P, as his Honour then was, after emphasising that a court will endeavour to uphold agreements and avoid frustrating the parties’ wishes so far as those wishes may be ascertained, went on to say that:

… the court will not do so, where, in effect, it is asked to spell out, to an unacceptable extent, that to which the parties have themselves failed to agree. Nor will the court clarify that which is irremediably obscure. …

57. The first defendant submits that “the natural meaning of “As Above” would be to refer to the item specified above (which I take to mean the preceding item) in the Schedule, which although referring in terms to the supplier of the goods, nonetheless specifically identifies each of the goods the subject of the lease (T 23.32-33). It is said that this is no less natural a reading than if it were treated as a reference to item 4, being the location of the goods (T 23). The first defendant poses a counter-factual (namely that the location of the goods is described by reference to property not owned by the lessee) as a means of illustrating what it maintains is the inappropriateness of any preliminary assumption that “As Above” refers to item 4 (T 23.40-42).

58. The first defendant’s primary position is that (by reference to the severance provision in cl 20.3) it is open to the Court to conclude that item 7 is so vague as to be unenforceable, in which case it is said that item 7 and cl 18 (to the extent that no “charged property” is identified as being subject to cl 18) can be excised from the Lease Agreement (T 15-16). In argument, however, it was accepted that (even if the submission as to “As Above” were to be accepted) cl 18 may still have operation insofar as it gives security over all property “here after to be held or acquired by the lessee in addition to the charged property”. Accordingly, the first defendant’s ultimate position was that the excision contended for should only be of item 7 of the Schedule (T 15.41).

59. The first defendant argues that in the face of the ambiguity inherent in the words “As Above”, as found in the Schedule, this would have been a case in which extrinsic evidence would have been admissible so as to confirm the understanding of the parties as to the meaning of the phrase (T 21.17-21). It is argued that, in the absence of such evidence, a finding that the reference is “irredeemably obscure” (T 21.21-23) (which I assume is a typographical error and that the intent was to echo the language in Biotechnology Australia – i.e., “irremediably obscure”).

60. As to the second argument raised by the first defendant in relation to the Schedule, reference is again made to Biotechnology Australia, this time to Kirby P’s articulation (at 136) of certain principles which may be relevant when faced with ambiguous and uncertain clauses; in particular the proposition that:

… Where a contract provides a term containing a specified range of possibilities, a court, rather than avoiding the contract will hold the party to providing at least the minimum provision in the range, that is to say the one which is the most favourable to it. This is what occurred in Lewandowski v Mead Carney-BCA Pty Ltd [1973] 2 NSWLR 640 at 643. The contract had provided for the payment of a salary in the range of $7,000 to $9,000 per annum. This Court (Jacobs P; Hardie and Bowen JJA concurring) held that the effect of the agreement between the parties was to prescribe the minimum of $7,000 so that the contract was not void for uncertainty.

61. The first defendant invites the Court to take guidance from this principle and adopt the first defendant’s interpretation (namely, that item 7 refers to the goods subject to the Lease Agreement) (T 21.30-34). In response to the asserted commercial absurdity of such an interpretation (insofar as it is suggested that this interpretation would mean that the lessee is effectively charging the lessor’s own property, in view of cl 2 of the Lease Agreement) it is submitted that any absurdity is met by consideration of the potential operation of the Personal Properties Securities Act 2009 (Cth) (the PPSA Act) and any relevant transitional provisions (T 23.5-14; T 21.39ff).

62. The first defendant submits that the PPSA Act might apply to this lease agreement (reference being made to the definition of a “security interest” in s 12 and the meaning of a “PPS Lease” in s 13 of the PPSA Act) and argues that one should bear in mind the remedies that might be asserted against the lessor of a PPS lease (T 21.41-22.24). In reply submissions, counsel for Morris Finance pointed out that one might have expected there to be reference to such legislation if it was indeed in the parties’ contemplation (T 28-29) and noted that no argument based on the PPSA had previously been advanced.

63. I interpose to note that the reference made by the first defendant to the PPSA was said to be an ancillary point, not determinative of the issue. The PPSA is a “notice-based” system. PPSA registration does not of itself create a security interest nor does registration constitute an encumbrance. Whether personal property is in fact encumbered by a claimed security interest as registered on the PPSR must be determined by reference to the underlying transaction claimed to have given rise to the security interest in question. Insofar as the first defendant invokes the spectre of the PPSA to suggest that it is not illogical that a charge might have been granted in favour of the lessor over property in respect of which it retained title, it was not explained how reliance on transitional provisions in later legislation to construe an earlier contract would be appropriate. I need say nothing further on the vexed topic of the operation of that legislation.

64. Putting the meaning of the Schedule to one side, the first defendant accepts that cl 18 would be a valid charge in relation to after acquired property of any kind (T 18.20) and does not deny that if the Coopernook Property had been acquired after the date on which the Lease Agreement was signed it would be captured by cl 18 as “here after held or acquired” property (T 17.16-18). What is not accepted is that cl 18 is a valid charge in relation to real property held at the time the lease agreement was entered into and which continued to be held by the lessor (such as the Coopernook Property) (T 18.22-26).

65. As I understand the argument, it is submitted by the first defendant that (putting aside the reference in cl 18 to item 7 of the Schedule) there is a clear intention that the subject of the charge provided for in cl 18 is not currently held property but, rather, is property that will be held; i.e., that the clause evinces a future intention (see T 20.42-44). That gains some support from the future tense used in the phrase “to be held or acquired” (my emphasis). In relation to the more general charging words (“all of his right, title and interest in and to the charged property”), as noted above, the first defendant argues that an effective equitable charge in relation to presently held real property requires that property to be specified (T 20.48-21.2).

66. As a final matter, the first defendant contrasts the language used in the lease agreement with the guarantee of the lessee’s obligations executed by Mrs Brown. That guarantee describes the land charged under the guarantee by reference to “all the interest of the Guarantor in any freehold land in Australia”.

Determination as to the existence of an equitable charge

67. It is clear that by cl 18 the parties intended to create an immediate equitable charge (thereby securing payment of any rent or moneys owing under the lease agreement, and the lessee’s performance of his obligations). It is the subject matter of the charge which is disputed.

68. I accept that cl 18 contains distinct components. The difficulty lies in identifying the number of those components and whether the property that each was intended to charge has been sufficiently identified.

The meaning of “As Above” in item 7

69. As adverted to above, Morris Finance accepts that reliance upon the reference to item 7 of the Schedule may be unnecessary. Nonetheless, it is convenient to begin with a consideration of the meaning of that reference and in particular with the meaning of the words “As Above” in item 7.

70. The relevant portions of the Schedule have been set out above. The drafting is obscure, to say the least. In their literal sense, the words “As Above” purport to capture property set out at an earlier point in the Schedule. One difficulty is that there is nothing in item 7 to delimit that reference (for example, there is nothing limiting that reference to a specific item or class of items, or to a type of property or class of property). Another difficulty is the absurdity of treating “As Above” as referring to everything set out above item 7. Clearly something narrower is meant.

71. Of the items listed above item 7, only three (item 6, Supplier of goods; item 4, Location of goods during term of lease; and item 2, Goods) can plausibly be construed in a manner consistent with the item being the subject of the words in item 7. The consequence is that the subject of the reference must either be “the goods” or the Coopernook Property (unless, of course, the difficulties with either reading are sufficient to compel a conclusion that item 7 is void for uncertainty).

72. To read “As Above” as a reference to the immediately preceding item is not implausible and, absent certain features of the Lease Agreement (such as cl 2), I may have been inclined to prefer that construction. However, I am not persuaded that the reference in item 7 is to “the goods” themselves. The schedule cannot be read in isolation; it is entitled the “Lease Agreement Schedule” (my emphasis) and is expressly incorporated into the Lease Agreement (see cl 1.2). Clause 2 of the Lease Agreement is a powerful indication that the subject of the charge was not “the goods” themselves. Clause 6.9 (which provides that the lessee “has no authority to give any security or lien over or in respect of the goods”) provides further support for this conclusion. (While it might perhaps have been argued that one should read into cl 6.9 the words “any [further] security or lien” – the argument being that the balance of cl 6.9 envisages a prohibition on granting security to third parties during the term of the lease, as distinct from the postulated charge granted to the lessor in s 18 – no such argument was put at the hearing and it would go beyond mere construction of the contract.)

73. A further feature of the agreement in support of the conclusion that “As Above” does not refer to the goods is that, as Morris Finance emphasised, the Lease Agreement nowhere describes the goods as “charged property” or as “charged goods”.

74. However, although the conclusion that “As Above” does not capture “the goods” might seem to warrant the further conclusion that the subject of the words in item 7 is the Coopernook Property, there are some difficulties. As the first defendant points out, that property is only listed as the location of the goods (it being conceivable that the location could have been identified as real property not beneficially owned by the lessee, the consequence in that case being that that property would be unlikely to be the intended subject matter of the charge) or as the address of the lessee (and, in being so listed, it is not listed as a standalone item itself). Further, insofar as cl 18 refers to “the charged property” as being property of which the lessee is “beneficial owner”, there is nothing within the Lease Agreement itself to suggest that either the location of the goods or the land listed as the lessee’s address was to be taken as property that was in fact property beneficially owned by the lessee. Moreover, if it was indeed the parties’ intention, by cl 18, to create a charge in respect of specific real property as identified in an attached schedule, item 7 does not do so with any great degree of clarity.

75. There is accordingly some force in the submission that item 7 should be treated as uncertain (or the relevant aspects of cl 18 as incomplete) and thus severable. However, difficulty in ascertaining the intention of the parties, or in identifying the meaning of particular provisions, is to be distinguished from there being an absence of such intention or meaning (see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 437).

76. Identifying the Coopernook Property (as set out in item 4 and again in item 1) as the intended subject of the words “As Above” in item 7 is a reasonably open interpretation of the Schedule. This is not a document in which numerous items of real or personal property, all equally capable of being the subject of the reference, are listed “above” item 7, nor is it one in which the structure of the document itself precludes identifying property described therein (here, the Coopernook Property) as the subject of the words “As Above” (the Coopernook Property being twice listed “above” item 7, and being referred to in isolation in item 4).

77. The counterfactual postulated by the first defendant does not assist greatly, since (had the location of the goods or the address of the lessee in fact been different from the intended property to be charged) it would have been open to the parties to have inserted a different entry for item 7 to reflect that (thus making it not illogical that the parties might have chosen “As Above” as a short form reference to the property to which reference had above been made, albeit there as identifying the location of the goods). In other words, the fact that the Coopernook Property happened to be both the location of the goods and the address of the lessee does not preclude or make illogical the conclusion that it was intended also to be the charged property.

78. These matters, when considered in view of cl 2 (which strongly suggests that “the goods” is to be excluded from consideration as the subject of the words in item 7), leave an intended reference to the Coopernook Property as a reasonably open interpretation of item 7. While I accept that the content of item 7 is not helpfully phrased, I cannot accept that it is so obscure as to warrant a conclusion that it is to be excised from the agreement. Rather, there is an interpretation of cl 18 (and thus of item 7 of the Schedule) which is reasonably open, being a construction which can stand alongside the other provisions of the Lease Agreement and which is supported by those provisions; for example, by the reference to a “registrable mortgage” over “the charged property” in cl 17.1(d) and the reference to a “beneficial owner” in cl 18 (if, as I suggest below, cl 18 is to be read as comprised of not three but two distinct limbs). At this point it is necessary to have closer regard to the balance of cl 18.

The meaning of the balance of cl 18

79. Putting to one side the reference in cl 18 to item 7 of the Schedule, the question arises whether the language of the Lease Agreement would of itself be sufficient to create a charge over the Coopernook Property. This arises because, if I am wrong in the preliminary conclusion that item 7 was intended to refer to the Coopernook Property, then it is necessary for Morris Finance to rely upon the balance of the clause for its contention that that property was relevantly charged by the Lease Agreement.

80. It is clear that cl 18 was intended to create a charge in respect of property other than that identified in item 7. However, the question is whether it is sufficiently precise in its terms in that regard. Reference can be made to early authority in relation to such a difficulty.

81. In Fremoult v Dedire (1718) 1 P Wms 431; 24 ER 458, where a testator covenanted to settle “lands that should be of the value of £60 per annum, upon his wife for her life”, Lord Chancellor Parker held that the covenant:

…did not specially bind any lands; wherefore, as touching that, the wife must come in only as a specialty creditor with the other specialty creditors. … And in order to settle the quantum of this demand, let the Master set an estimate on the wife’s estate for life, viz. at so many years’ purchase, and then the wife to come in as a creditor by specialty, for so much money. [my emphasis]

82. In Williams v Lucas (1789) 2 Cox Eq Cas 160; 30 ER 73, where a testator had promised to repay a loan “and to give a security by mortgage of lands for the same when required” (see 74), it was argued that, certain land being the only real estate owned by the testator (and thus the only land in respect of which he could grant a security), this land must be the subject of the charge (at 74). This argument was seemingly rejected, the Chief Baron of the Exchequer (with whom the Court agreed) holding that:

… this case could not be distinguished from Freemoult v. Dedire; that the creditor had taken a personal security, reserving to himself the power of calling for a real security, which however he had not done, and therefore it was impossible to say that this debt was a charge on any particular lands. [my emphasis.]

83. In Berrington v Evans (1839) 3 Y. & C. Ex 384; 160 ER 751, creditors called upon an indenture under which there was a covenant that:

…in the event of the non-payment of the debts so as aforesaid covenanted to be paid by the said Sir Watkin Lewes, he hereby engages to sell so much of his estates as shall be found necessary for that purpose. (see 752) [my emphasis.]

84. It was argued for the covenant creditors that the covenant charged the land of Sir Watkin Lewes, giving rise to an encumbrance upon his property, notwithstanding that no estate was specifically named (at 753). It was argued for certain other creditors that this was a mere personal engagement and not a direct lien upon the land; it was “a security not called into action”, and that in the cases relied upon by the covenant creditors the chargor had “positively and unequivocally bound himself to settle the whole or a portion of his lands” (at 754). Alderson B held that the provision did not create any equitable charge (at 754):

It does not appear to me that the covenant entered into by Sir Watkin Lewes was anything more than a personal undertaking; but even if it were, the case of Williams v Lucas (1 P.W. 430, n) shews that the words of it are too general to create a specific lien upon his lands. [my emphasis.]

85. What emerges from Fremoult, Williams and Berrington is a requirement of certainty in the creation of an equitable charge at least in respect of realty, though it appears that this question of certainty arose in circumstances where the agreement was properly characterised as one where the parties intended not the immediate creation of an equitable charge but, rather, the conferral of a power to call for a real security. As the passage from Fisher and Lightwood’s Law of Mortgage (extracted above) suggests, however, there nonetheless remains a need to identify the land intended to be subject to the equitable charge. The scope of that requirement is an issue in the present case.

85. In In re Kelcey; Tyson v Kelcey [1899] 2 Ch 530 the purported charge was in the following terms:

I the undersigned Francis Finn ... do hereby charge all my real and personal estate whatsoever and wheresoever and of what nature or kind soever the same may be or consist with the payment to Sarah Anne Foord of Smeeth … of the sum of 2500l. this day lent and advanced by her to me … [my emphasis.]

87. Kekewich J characterised the clause as one concerned with property existing as at the date of charge alone (as distinct from future property) (at 522). His Honour rejected the submission that the charge was contrary to public policy on account of its broad scope (at 534). His Honour’s judgment was accepted by Thomas J (with whom Campbell CJ and Andrews SPJ relevantly agreed) as correctly representing the law in Clark v Raymor (Brisbane) Pty Limited (No 2) [1982] Qd R 790 at 790 (the relevant provision there providing that “[t]o secure payment to you of any amounts outstanding I charge all of my property both real and personal with the amount of my indebtedness until discharged”) and at least assumed to be so by Connolly J in Corozo at 18. Support for this view is also found in AVCO Financial v White, where Gillard J was asked to consider whether the following provision of a contract of loan entered into between a registered moneylender and Mr and Mrs White created an equitable charge over certain real property (see 562):

As further security for the payment of the loan and interest I agree, in consideration of and as from the making of the loan, to charge (as beneficial owner) all freehold and leasehold interest in the land which I may now have or during the currency of the loan may acquire, including (without limiting the generality of the foregoing) the property situated at 5 Stewart Street, Moonee Ponds, Vic. [my emphasis]

88. His Honour commenced by describing the nature of an equitable charge (at 563) and then proceeded (at 564-565) to scrutinise closely the terms of the charging provision (noting that, as a contract regulated by the Moneylenders Act 1958 (Vic), it was to be construed strictly). His Honour concluded as follows (at 565):

… It will be noted that the charge was granted generally over all freehold and leasehold interests in the land, which the grantee may have at the time of the agreement or during the currency of the loan. It might well be thought that this was too vague and so wide as not to be enforced in or by a court of equity. But this view was rejected by Kekewich, J., who, having been faced with a similar provision said "This created an estate in equity which might take precedence over a purchaser". (See In Re Kelcey; Tyson v Kelcey, [1899] 2 Ch 530, at p. 534. See also London County Bank v Tomkins, [1918] 1 KB 515; Re Lesser; National Trustees v Lesser, [1944] VLR 210. Compare Re Rothermere, [1943] 1 All ER 307.) Having regard to these authorities I have come to the conclusion that the plaintiff did have an equitable charge over any interest in any real property owned by Mr. and Mrs. White, for their several interests. It therefore created an interest in the property on the several interests in land owned by Mr. and Mrs. White respectively.

89. Standing back from these cases, Connolly J in Corozo drew the following distinction (at 18):

A promise to give a real security without identifying the land gave no charge on particular land: Fremoult v. Dedire (1718) 1 P.Wms. 429; 24 E.R. 458; Williams v. Lucas (1789) 2 Cox 160; 30 E.R. 73; Berrington v. Evans (1839) 3 Y. & C. Ex. 384; 160 E.R. 751. On the other hand a promise to give a security over all one’s land stands on a different footing.

90. On this approach, the question is whether cl 18 amounts to a promise to give a real security without identifying the relevant land with sufficient certainty (in which case no charge was created) or whether it amounts to a promise to grant security over all of the lessee’s (that is, Mr Brown’s) property (there nonetheless remaining a question as to whether the clause was intended to charge realty then held by Mr Brown and which continued to be held by him).

91. Insofar as cl 18 purports to charge all of the lessee’s “right, title and interest in and to the charged property”, there is no difficulty in terms of scope; the difficulty lies in the identification of the contemplated property (a difficulty to which I shall come shortly). Insofar as cl 18 purports to charge “all property here after to be held or acquired by the lessee”, Re Kelcey and AVCO Financial v White suggest that it is not unenforceable on account of its scope (though I note that it is broader in scope than the clauses in either of those cases).

92. The present question is whether this limb of cl 18 was intended to cover real property then held (and which continued to be held) by the lessor. The nub of the question turns on the inclusion of “here after”.

93. On the one hand, if it be assumed that a reference to a charge over “after-acquired property” would not charge property held at the time of the creation of the charge, the express inclusion of “here after” before those words (specifically, property “here after to be held or acquired”, rather than property “to be held or acquired”) arguably takes the matter further. On this view, by “here after” is meant “from now on” in the sense of property held (or acquired) “as at this present moment and into the future”. In support of this it might be argued that the phrase “held or acquired” is not a legal doublet (“to hold” and “to acquire” having distinctive meanings) and hence that the inclusion of “acquired” was intended to extend the class of charged property beyond property held by the lessee as at the date of execution (such as the Coopernook Property). Such an argument does have some difficulties, however, Property “here after to be held”, in isolation, could itself conceivably refer to property “held” at a future time, insofar as it is arguable that for property “to be held” assumes it has in some sense first been “acquired”. Moreover, it may be said that this approach pays insufficient regard to the words “to be” held or acquired. On a plain reading, those words do indeed have a sense of futurity about them. This makes it necessary to consider an alternative construction.

94. On the other hand, it may be that by “here after” was meant “from now on” in the sense of property acquired (or held) “after this present moment”, thereby excluding the immediate present by implication. This reading gives weight to the inference that the present moment, the date of execution (the “here” in “here after”), was intended by the drafter to create a temporal distinction by reference to which the charge was to take effect.

95. In El-Kazzi v Kassoum [2009] NSWSC 99, a charging clause was expressed in the following terms (see [9]):

As additional security for the due and punctual payment of all amounts due under the Loan Agreement and to ensure compliance with all covenants to be performed by the borrowers, the borrowers as beneficial owners do hereby charge in favour of the lender all the separate right title and interest to all real estate held or hereafter to be held by them and consent to a caveat or other registration instrument being lodged to register such charge. [my emphasis.]

96. In respect of such a clause, the express inclusion of “held or” in “held or hereafter to be held” was arguably intended by the drafter to extend (or at least clarify the extent of) the scope of the clause, so as to ensure that it was understood that property currently held by the chargor at the date of execution was indeed to be charged. By a similar process of reasoning, a reference simply to property “here after to be held” might be thought to point towards the opposite construction, namely that it was not intended to encompass property then held. Also perhaps pointing towards a similar conclusion, I note that the present clause can also be distinguished from the charging clause upheld in AVCO Financial v White (“may now have or … may acquire”).

97. It is plain that a phrase such as “property here after to be held or acquired”, like all phrases, will take its meaning from the context in which it appears. In the present case, regard must be had to cl 18 in its entirety and to the fact that the words are to be found in a standard form contract. In K Lewison and D Hughes, The Interpretation of Contracts in Australia (2012, Lawbook Co) at [4.08], the idea that courts recognise the desirability of certainty and are therefore reluctant to disturb an established construction of a standard form of commercial agreement is extracted from the authorities. This Court was not referred to any prior judicial consideration of the use of the phrase “held or acquired” in cases such as the present.

98. Examining the Lease Agreement as a whole, I consider that there must be some meaningful work given to the word “held” as distinct from “acquired”. To treat the word solely as a reference to property “acquired” in the future seems to me to render the word “held” otiose for practical purposes. I accept that the words “held or acquired” might, in certain contexts, function as no more than a legal doublet. In the present context, I consider that they do more. The clause refers to “all property here after to be held or acquired”, not merely to property “to be acquired” or even to property “here after to be acquired”. I accept that the words “to be held” (my emphasis) contain a sense of futurity, but to my mind the express inclusion of “here after” carries one back to the time of grant and then into the future (that is, it captures property held as from the time of grant).

99. Accordingly, although with some hesitation, I consider the better construction of these words (that is, the one giving effect to the objective intention of the parties, ascertained from the Lease Agreement as a whole as including a desire that the lessor acquire the benefit of real security) is that the clause contemplated the charging of property “held” at the time of the agreement and continuing to be “held” thereafter, as well as property “acquired” after the agreement.

100. That leads me to consider whether such a conclusion (namely, that “here after” demonstrates an intention to charge currently-held real property, which would plainly include the Coopernook Property) would be consistent with the distinctions drawn in cl 18. As Morris Finance itself contends, cl 18 possesses distinctive components (though by accepting this I do not mean to suggest that the clause should be dissected into fragments or pedantically construed; I mean rather to give effect to distinctions the drafting parties themselves appear to have drawn). Clause 18 has been set out earlier but can usefully here be repeated. It relevantly provides that:

… the lessee as beneficial owner hereby charges … all of his right, title and interest in and to the charged property and all property here after to be held or acquired by the lessee … [my emphasis]

101. This would seem to envisage a distinction between “the charged property” and “property here after to be held or acquired”. There is accordingly some difficulty in the conclusion that the latter phrase encompasses the former (to the extent that it be assumed that the former phrase, “the charged property”, refers to real property – such as the Coopernook Property – then held by Mr Brown), insofar as it elides a distinction expressly drawn by the parties themselves. That said, the difficulty may be resolved if it be accepted that these are distinct but nonetheless overlapping categories, the parties having intended to construct a comprehensive charging clause.

102. A difficulty with the suggestion by Morris Finance that cl 18 contains three distinct limbs is that the phrase “the charged property” is nowhere defined, other than in the concluding portion of cl 18 (and there by reference to item 7 of the schedule). However, one reading of cl 18 is that (contrary to the apparent position of Morris Finance) it has not three but two limbs:

… the lessee as beneficial owner hereby charges … all of his right, title and interest in and to the charged property and all property here after to be held or acquired by the lessee in addition to the charged property as specified in item 7 of the schedule. [my emphasis]

103. On this view, cl 18 charges “all of [the lessee’s] right, title and interest in and to the charged property” as specified in item 7. The words “in addition to” then operate so as to clarify that the charge created by cl 18 was not simply one in respect of present property (specifically, “the charged property” as defined in item 7), but rather was also intended to charge “property here after to be held or acquired by the lessee”. In short, when read holistically, the final phrase (“as specified in …”) serves as a definition of a term (“the charged property”) already twice used in the clause. Support for this construction is found in the fact that “charged property” is only ever defined by reference to item 7. This construction is consistent with the words “as beneficial owner” if item 7 is taken to refer to the Coopernook Property. If it is accepted that cl 18 has two rather than three limbs, this construction provides further support for the conclusion that item 7 cannot be intending to charge “the goods” themselves (and that it in fact refers, albeit obliquely, to the Coopernook Property).

104. However, what if cl 18 is to be read as having three distinct limbs? If it is also assumed that the middle portion (property “here after to be held or acquired”) refers to future property alone (a position seemingly accepted by Morris Finance in written submissions, though not in oral submissions), and that cl 18’s reference to item 7 is insufficiently certain (or renders cl 18 impermissibly incomplete) and that that limb is therefore unenforceable, Morris Finance would be forced to rely upon the first limb of the clause (namely, that the lessor charges “all of his right, title and interest in and to the charged property”).

105. Absent the concluding portion of cl 18, there is little if anything in the Lease Agreement giving content to the words “the charged property”. The definite article suggests that specific property (whether real or personal) is in contemplation. True it is that cl 17.1(d) envisages a “registrable mortgage” over real property “where required” over “all or any of the charged property”, but that merely restates the problem of identifying that which the parties intended to be subject to the charge. The Coopernook Property is only ever noted as the location of the goods or as the lessee’s address.

106. As adverted to earlier, in Williams v Lucas it was expressly argued that, certain land being the only real estate owned by the alleged chargor, that land must of necessity be the subject of the contemplated charge. It is not entirely clear whether that case turned on rejection of this argument (though there was reference to the impossibility of saying that the debt was “a charge on any particular lands”). If Morris Finance were indeed forced solely to rely upon the first limb of cl 18, in view of the authorities referred to above (in particular the elucidation by Connolly J in Corozo of the distinction drawn in the authorities and the view of the learned authors of Fisher and Lightwood’s Law of Mortgage), it might be difficult positively to conclude that there had been a sufficient manifestation of intention to charge the Coopernook Property. That is because (if it be assumed that the second limb relates to future property and the third limb is void for uncertainty) it may be difficult to treat the first limb of cl 18 as standing in the same category as charging clauses which purport, like that in Re Kelcey, to charge all of a person’s existing real or personal property; the first limb of cl 18 is instead more naturally read as a narrower clause which envisions a charge over specific property (and which, in view of the assumed construction of the remaining limbs of cl 18, leaves that specific property wholly undefined). However, I note this only for completeness, given that I have not concluded that Morris Finance is forced solely to rely upon the first limb of cl 18.

Conclusions

107. In my opinion, cl 18 is most naturally read as containing two (potentially overlapping) limbs. By cl 18 the parties intended to create an equitable charge over “the charged property” (obliquely but – for the reasons identified above – sufficiently defined in item 7 of the Schedule as the Coopernook Property, being property of which the lessee was “beneficial owner”) and in addition to charge “all property here after to be held or acquired” by the lessee (which second limb itself has two components – the “here after to be held” and the “here after to be acquired” property).

108. There are no strong textual indications against the view that the parties intended cl 18 to be a comprehensive clause with overlapping limbs; on the contrary, its broad language points in that direction. I therefore do not see an inconsistency in finding that the Coopernook Property was the intended reference in item 7 (the conclusion reached above) and in concluding in the alternative that “here after to be held or acquired” would (in the context of this particular Lease Agreement) have otherwise created an equitable charge over real property held by the lessee at the date of execution and continued to be held thereafter, such as the Coopernook Property.

109. I am fortified in these conclusions by a consideration of two recent Victorian cases dealing with the creation of equitable charges. In Evans v AdvertisingDepartment Pty Ltd [2009] VSC 587, the question was whether the following clause of a loan agreement created an equitable charge over a property in Armadale, Victoria (see [6]):

It is a term of this agreement (and a condition subsequent to the Lender making the Initial Advance) that the Borrower shall procure and maintain until the Lender shall have received 100 cents in the dollar of the Redemption Sum, in a form acceptable to the Lender such legally enforceable (and registered if so required) mortgages, guarantees and/or indemnities and other securities for payment of the Redemption Sum or any part thereof as are, in the Lender's unfettered discretion required by the Lender, and that all obligations required to be performed by any party with respect thereto are duly and punctually performed.

The Borrower acknowledges the Lender's caveatable interest in respect of the redemption Sum under this agreement and confirms the Lender's rights and entitlements to lodge such caveats in respect of the Redemption Sum until the Lender shall have received 100 cents in the dollar of the Redemption Sum. [my emphasis]

110. Vickery J observed (at [23]) that there is no required form for an equitable charge, but that an instrument must indicate the party's intention that the relevant property should constitute a security (referring to AVCO Financial v White). His Honour noted (at [24]-[25]) that in AVCO Financial v White, there had been express reference to a class of property (namely, “all freehold and leasehold interest in the land which [the chargor] ...may now have or during the currency of the loan may acquire”). His Honour then referred (at [29]) to In re Cosslett (Contractors) Ltd [1998] Ch 495, where Millet LJ (as his Lordship then was) said (at 508) that:

It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt or other obligation of the chargor or a third party, so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability. [my emphasis]

111. Vickery J remarked (at [30]) that in Australia however “precise definition of the property to be attached is not an invariable requirement for an equitable charge”. I would respectfully agree with this proposition, though I would emphasise the words “precise definition” (and observe that, when read in such a light, there does not seem to be any real tension with Millet LJ’s formulation). His Honour returned to the charging clause in question, noting that it was “widely cast” and referred to “no specific property or class of property” (see [31]). His Honour then asked whether it was “meaningless, illusory or void for uncertainty” (at [31]). After noting the relevant authorities, his Honour reasoned as follows (at [35]-[36]):

In the present case, the entitlement of the lender, under clause 9, such that it is, is to be granted on [sic] “unfettered discretion” to take such security as it thinks fit and in such form as it thinks fit. The entitlement arises not on default, but upon entry into the agreement, and remains until the loan is paid out in full. Further, pursuant to the “entitlement”, the lender has the right to register a caveat on real property which is Torrens Title land owned by the borrower or made available to the borrower for the purpose of securing the loan.

In my reasons delivered ex tempore on 2 December 2009 following the hearing of argument in this matter, I expressed the opinion that clause 9 of the loan agreement was too uncertain to give rise to any equitable or legal interest in the property in favour of Advertising. I have reconsidered that view. In my opinion, clause 9 of the agreement gives to the lender an entitlement, so long as moneys are outstanding under the loan, to claim an equitable charge over Torrens Title land owned by the borrower during the currency of the loan. This entitlement may be exercised by the lender lodging a caveat against such property, as was done in this case. Clause 9 manifests an intention of the parties to achieve this consequence, and the agreement when read as a whole shows an intention by the parties to it that, at least Torrens Title property owned by or made available to the borrower during the currency of the loan, could constitute security for the loan, and would do so once a valid caveat was lodged in respect of such property.

…

In my opinion, clause 9 of the loan agreement in this case, which is relied upon by the caveator, was capable of giving rise to an equitable charge in the property in favour of Advertising upon the lodging of the caveat. [my emphasis]

112. As I read his Honour’s judgment, the provision was read as creating not an immediate equitable charge, but rather as conferring a power (and generating a corresponding liability) to create such a charge. It would seem therefore that the case stood in a similar category to Fremoult, Williams and Berrington, with his Honour’s evident conclusion being that specification by reference to the lodging of a caveat (a reference to Torrens Title land by implication) provided sufficient certainty. Evans v Advertising Department relevantly demonstrates that a court will endeavour (in accordance with established principle) to give meaning to the parties’ objectively ascertained intention and while cl 18 stands in a different category (cl 18 providing that the lessee “hereby charges” property), the present lease agreement also confers (in cl 17.2) an entitlement to lodge a caveat and speaks (in cl 17.1(d)) of a “registrable mortgage” over “the charged property” (which coheres with construing item 7 as a reference to the Coopernook property).

113. Another recent illustration is Melbourne Property Group Pty Ltd v SC Australia Pty Ltd [2013] VSC 701, where the relevant charging provision was as follows (see [46]):

To better secure the Loan the Borrowers and Guarantors hereby charge any land or assets which the Borrowers and Guarantors or their related parties may from time to time own and if required to do so by the Lender shall at the cost of the Borrowers give to the Lender, Caveats and Registered Mortgages in the favour of the Lender over the said land or over any other land owned by the Borrowers and any associated costs to secure the Loan Amount. The Borrowers and Guarantors agree to assist the Lender in obtaining any First Mortgagee’s or other encumbrance consent to enable any mortgage to be registered on Title including all the Lender’s legal costs (on a solicitor — own client indemnity basis) in relation to and incidental to the lodging and removal or withdrawal of any charge by the Lender on such land. Collateral security also applies to any and all additional security.

…

Upon the Loan Amount being repaid in full, the Lender shall provide a Release of Charge over the Borrowers to register with the Australian Securities and Investments Commissions (ASIC). [my emphasis]

114. Although acknowledging the “awkward language” of the provision, Derham AsJ held that the parties clearly intended to create a charge (at [65]). Given the reference to future activity on the part of the borrower, his Honour concluded (at [67]-[68]) that there was “both a present charge and an agreement for consideration to give a mortgage in registrable form in the future if the lender requires it” and that in either case, this gave rise to a charge over the relevant property at the relevant time.

115. Finally, for completeness, I do not consider that a comparison between the language of the Lease Agreement and that of the Guarantee assists in the construction of the former. It certainly does not preclude the construction I have reached. In circumstances where the documentation used appears to have been in standard form (and not well drafted), any expectation of consistency would be little more than a forlorn hope.

Discretion to order judicial sale (and any ancillary orders)

116. If, as I have found, Morris Finance has the benefit of an equitable charge, then in circumstances where there is no apparent dispute that there has been default under the Lease Agreement and moneys are owing to Morris Finance (and the debt is accumulating, both because of interest accruing and also because of the costs of these proceedings) and where the first registered mortgagee does not object to the sale of the Coopernook Property, there is consequently no substantive matter that would weigh against the grant of relief of the kind sought by Morris Finance the relief which it seeks.

117. While there is no evidence as to potential obstruction of the judicial sale (for example, there is no evidence of an intention to obstruct a sale by refusing to vacate the land), I accept that the history of these proceedings has been somewhat tortured (initially due to the stance adopted by Mr and Mrs Brown, as I understand it). It is not in the interests of the just quick and cheap resolution of the real issues in dispute, nor would it pay proper regard to the need for proportionality of costs, to leave open (so far as can sensibly now be addressed) matters necessary for the orderly implementation of the orders to be made. Therefore, I propose as an ancillary order to make the order for possession. If that occasions any perceived harshness or unfairness to Mr or Mrs Brown, then an application can be made by him or her in the ordinary course.

118. However, a question arises as to whether it is open to the court to make an order in such terms. During the course of the hearing, the first defendant drew the Court’s attention to several authorities, the effect of which, it was said, was that an order for possession is not available in relation to the power of sale of an equitable chargee (T 5.35). It was submitted that it was necessary for this Court to be satisfied that an order for possession was available as an incident of its inherent jurisdiction to order judicial sale of the Coopernook property before making any such order (T 26.27-30).

119. The first defendant drew the Court’s attention to the recent decision of White J (as his Honour then was) in RCD Super Fund Pty Ltd t/as Trustee for Red Gum Super v Morris [2016] NSWSC 83. In that case, the plaintiff sought a declaration that the first defendant had charged her property and orders for possession of the property and its judicial sale. White J accepted (at [5]) that the agreement to provide a second registered mortgage (see [2]-[3]) amounted to the grant of a charge, and held that the plaintiffs were entitled to the declaration sought. His Honour then said the following (at [6]-[9]):

But there are substantial difficulties in respect of the balance of the substantive relief sought by the plaintiffs. They seek "consequent upon order one an order for possession of the property". No basis for making an order for possession has been established. In King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 13 BPR 25,077 Campbell J (as his Honour then was) observed (at [125]-[126]) that a registered second mortgagee of Torrens Land can bring proceedings for ejectment, but by contrast a mere equitable chargee of land has no right to possession, citing Garfitt v Allen (1887) 37 Ch D 48 at 50. His Honour continued (at [127]) that where the mortgage contains a promise by the mortgagor to give up possession upon default, then an equitable mortgagee is entitled to a declaration that it is entitled to possession once there has been default, and in appropriate circumstances could obtain an order in the nature of specific performance to enforce that promise by requiring the mortgagor to give up possession.

In this case, neither the loan agreement nor the mortgage includes any such promise. As an equitable chargee does not, merely by virtue of that security, have an entitlement to possession, there is no power to make the order sought requiring the first defendant to give up vacant possession.

The order for judicial sale is expressed in the notice of motion only to be sought consequent upon the making of an order requiring the first defendant to provide vacant possession. As an order requiring delivery up of possession will not be made, the plaintiffs, as I understand their application, do not press a claim for judicial sale.

I think it unlikely in any event that an order for judicial sale should be made if the Court were not able to ensure that vacant possession could be delivered up to a purchaser on completion. [my emphasis.]

120. As is clear from the italicised passage RCD Super Fund concerned an application for an order for possession and, consequent thereupon, an order for judicial sale. The present case is different; it concerns an order for judicial sale and, ancillary to that, an order for possession.

121. Both the first defendant and Morris Finance referred to Boutros v Nationwide Capital Pty Ltd [2013] NSWCA 246. In that case, a company (Nationwide Capital Pty Ltd (Nationwide)) lent $965,000 to another company (Boutros Constructions Pty Ltd (Boutros)) pursuant to a deed of loan and a deed of charge. The loan was not repaid and Nationwide commenced proceedings. The matter came before Windeyer AJ, who made orders for judicial sale (see Nationwide Capital Pty Ltd v Boutros Constructions Pty Ltd [2012] NSWSC 1472). No order for possession was sought at this time (though his Honour observed (at [56]) that “this might follow from the order sought for judicial sale”). Nationwide then filed a notice of motion seeking orders for vacant possession of the property. That motion was heard by McDougall J, who ordered that Boutros provide Nationwide with vacant possession and gave leave for the issue of a writ of possession in respect of the property (see Nationwide Capital v Boutros Constructions [2013] NSWSC 976).

122. Boutros then filed a motion seeking to have the orders made by McDougall J stayed and a summons seeking leave to appeal the whole of his Honour’s decision. Gleeson JA dismissed Boutros’ motion. His Honour was of the view that it was not reasonably arguable that McDougall J had erred in ordering Boutros to give up vacant possession to Nationwide (see [47]). His Honour relevantly held: first, that Nationwide was acting as the Court’s agent for sale, the (unchallenged) orders of Windeyer AJ having expressly provided that the sale was to be subject to the supervision of the Court (at [39]-[41]); and, second, that the relief granted by McDougall J was on the basis that it was ancillary to the earlier judicial sale orders (at [35]; [47]). Gleeson JA also noted a distinction in the authorities between, on the one hand, a necessary order ancillary to a primary order for judicial sale (necessary, for example, to enable a purchaser to obtain vacant possession on completion), and, on the other hand, a right of an equitable mortgagee to obtain possession as against an equitable mortgagor for the purpose of preserving a security (for example, by receiving rents and profits or entering into a lease of the mortgage property) (see [42]-[44]). Relevantly, Gleeson JA also observed (at [35]) that the relief granted by McDougall J was neither an order for possession of the type provided by s 20 of the Civil Procedure Act 2005 (NSW), nor an order in the nature of specific performance of a covenant in an unregistered mortgage to give possession upon default.

123. The first defendant in the present proceedings sought to distinguish Boutros on the basis that it concerned an application by an equitable mortgagee not an equitable chargee (referring to [23] of Gleeson JA’s judgment). As I understood the submission, it was that there is a distinction between an equitable mortgage and an equitable charge for the purposes of whether an order for possession may be made on account of it being incidental to the jurisdiction to make an order for judicial sale (T 26.23-25). No authority was advanced in support of that position and Noble Solutions Pty Ltd v Young [2013] NSWSC 1371 would seem to be against it. In that case, McDougall J held (albeit with some “considerable hesitation” in view of the loan documents in question) that the plaintiff had an equitable charge (at [17]-[18]). His Honour then said the following (at [24]):

The plaintiff has sought possession of the property. I think the better view is that an equitable mortgagee or chargee does not have a legal right to possession. However, there are authorities (including, for what it is worth, a decision of my own) which suggest that an order for possession may be made as an incident of ordering judicial sale. Since the matter is somewhat questionable, that is the course I propose to take. Thus, it seems to me, being satisfied (as on balance I am) that an order for judicial sale should be made, I think it is appropriate to order, as an incident of that sale, that the first and second defendants give the plaintiff vacant possession of the property.

124. In my opinion, it is open to a Court to make an order for possession insofar as it is ancillary to an order for the judicial sale of property. Both Boutros and Nobel Solutions v Young support this proposition.

125. Nothing was put before me as to the time by which vacant possession (as an ancillary order to the order for judicial sale) should be granted (other than insofar as that appeared in the proposed short minutes of order handed up at the hearing). I am conscious of the fact that any delay adds to the interest accruing on the outstanding amount under the Lease Agreement and hence erodes the security. I am also conscious that requiring vacant possession in a short timeframe may well cause hardship to Mr and Mrs Brown. In the circumstances, balancing those matters, I consider that somewhere just over in the order of three months should be allowed for vacant possession to be provided.

126. For the purposes of entering the order for possession the proceedings will be formally transferred to the Possession List at the time of the making of these orders, other than in respect of the extant costs issues.

Third issue identified by Morris Finance

127. There were no submissions directed to the issue as to the entitlement of Morris Finance to the net proceeds realised after the payment out of sums due under Holiday CCU’s mortgage. There was also no dispute as to the outstanding debt owed to Morris Finance.

128. In respect of the form of orders sought by it, Morris Finance has agreed that it shall be bound to act at all times in relation to the selling of the Coopernook Property in accordance with the duties owed by a mortgagee in exercising a mortgagee’s power of sale and has made provision as to the payment of the remaining proceeds of sale (after payment out in discharge of the amounts due to the fifth defendant and to it) to be paid to the first and second defendants in equal shares. There was no objection by the first defendant to the proposed terms of the order. With minor changes, those orders should be made.

Costs applications

129. Morris Finance has sought to reserve the question of costs to be dealt with after the outcome of its application. It has identified four costs issues as arising for determination: first, whether the costs order made against Morris Finance by Darke J in respect of the separate question determination ought to be varied and, if so, how; second, how the costs of the proceedings ought to be borne; third, to the extent that Morris Finance ought ultimately to be successful in obtaining any costs orders against the first defendant, whether those orders ought to be framed so as to cast a personal liability for those costs upon the first defendant, that is, Mr Brown’s trustee; and fourth, the extent to which any of the above costs orders ought to be made on an indemnity basis.

130. Given the potential complications in addressing those issues it is appropriate that directions be made for the parties to file written submissions on those costs issues, with a view to them being determined on the papers.

Orders

131. For the above reasons I make the following orders:

1. Pursuant to the Court’s inherent jurisdiction, the land identified in Schedule A (“the Property”) be sold by the plaintiff subject to the supervision of the Court.

2. By way of order ancillary to order 1, the third and fourth defendants deliver up vacant possession of the Property to the plaintiff on or before 31 January 2018.

3. Leave is granted to the plaintiff to issue a Writ of Possession forthwith, such writ not to be executed earlier than 2 February 2018.

4. The plaintiff shall conduct the sale by public auction or, if not sold at auction, by private sale, and pay the proceeds of sale in the following order:

1. first, for all the proper costs and expenses relating to the sale of the Property;

2. second, as to any remaining proceeds of sale after payment in accordance with order 4(a), the whole of the amount due to the fifth defendant pursuant to registered mortgage 8421415;

3. third, as to any remaining proceeds of sale after payment in accordance with order 4(b), the whole of the amount due to the plaintiff in discharge of its interest in the Property;

4. fourth, as to any remaining proceeds, such sum shall be paid as to half to the first defendant and as to the other half to the second defendant (with the effect that the first and second defendants shall each receive an equal share of such moneys).

5. The plaintiff shall act at all times in relation to the selling of the Property in accordance with the duties owed by a mortgagee in exercising a mortgagee’s power of sale.

6. Prior to offering the Property for sale, the plaintiff shall consult with and obtain advice from a real estate agent or valuer before seeking to fix a reserve sale price of the Property.

7. The plaintiff is appointed to transfer the Property to the purchaser(s) thereof to effect the sale and the plaintiff is granted the power to transfer the Property and all the interests of the first defendant, second defendant, third defendant and/or fourth defendant in the Property to the purchaser(s), subject only to the registered mortgage of the fifth defendant.

8. Liberty to the parties, including the plaintiff, to apply, on 3 days’ notice in writing, for such further or other orders as may be necessary or appropriate concerning the implementation of these orders or for any necessary or appropriate variation to these orders.

9. For the purpose of entering the order for possession and the entry of any writ of possession in accordance with these orders, transfer the proceedings (other than the remaining issue as to costs) to the Possession List in the Common Law Division of this Court.

10. Reserve the question of costs and direct the plaintiff and the first defendant to file and serve brief written submissions on costs within 14 days of the date of these orders, with a view to costs then being dealt with on the papers.

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Decision last updated: 17 April 2018