Nathanwood P/L v Texona P/L

[1993] FCA 814

IN THE FEDERAL COURT OF AUSTRALIA )	No. QG 112 of 1993
QUEENSLAND DISTRICT REGISTRY	)
GENERAL DIVISION	1

BETWEEN: NATHANWOOD PTY. LIMITED and

BEAUDESERT DEVELOPMENTS PTY. LTD.

Applicants

AND:  TEXONA PTY. LIMITED

First Respondent

AND:	ALAN VICTOR ELLIS and
SUSANNE ELIZABETH ELLIS

Second Respondents

AND :  TEXONA PTY. LIMITED

First Cross Applicant

AND :  ALAN VICTOR ELLIS

Second Cross Applicant

AND:  SUSANNE ELIZABETH ELLIS

Third Cross Applicant

AND :  NATHANWOOD PTY. LIMITED and
BEAUDESERT DEVELOPMENTS PTY. LTD.

Cross Respondents

1. The application dismissed.

MINUTES OF ORDERS

JUDGE MAKING ORDER:	Drummond J
DATE OF ORDER:	9 November, 1993
WHERE MADE:	Brisbane

THE COURT ORDERS THAT:  16 NOV 1993

1. The applicants pay the respondents' costs of an incidental to the application to be taxed.

NOTE :  Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRATJIA )	NO. QG 112 of 1993
QUEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	)

BETWEEN: NATHANWOOD PTY. LIMITED and

BEAUDESERT DEVELOPMENTS PTY. LTD.

Applicants

AND :  TEXONA PTY. LIMITED

First Respondent

AND :	ALAN VICTOR ELLIS and
SUSANNE ELIZABETH ELLIS

Second Respondents

AND :  TEXONA PTY. LIMITED

First Cross Applicant

AND :  ALAN VICTOR ELLIS

Second Cross Applicant

AND:  SUSANNE ELIZABETH ELLIS

Third Cross Applicant

AND :  NATHANWOOD PTY. LIMITED and
BEAUDESERT DEVELOPMENTS PTY. LTD.

Cross Respondents

Coram:	Drummond J
Date
--	9 November, 1993

Place: Brisbane

REASONS FOR JUDGMENT

This is an application by the applicants in action QG 112 of 1993 in this court for an order pursuant to s . 74K the Real Prouertv Act (NSW) extending the operation of a caveat lodged by the applicants over land at Ballina in New South Wales owned by the respondents to this application who are the second and third respondents in the Federal Court action. The applicants contended, in reliance on S. 4(1) the Jurisdiction of Courts (Cross-Vestina) Act (NSW) and the decision in Andel Ptv. Ltd. v Centurv Car Care Ptv. Ltd. (1989) AN2 Convey. R. 252 that the Federal Court has jurisdiction to grant the relief sought here. The respondents

did not challenge this. I propose to follow Andel.

The applicants commenced action QG 112 of 1993 earlier this year against a company of which the male respondent is a director, and against the male and female respondents. The action arises out of an arrangement they entered into whereby the applicants engaged the male respondent to act as their project manager for the purpose of building a vessel. Mr. Nichols, a director of the applicant companies, has deposed to the facts concerning this arrangement and which are the basis of the applicants' claim

in the Federal Court action: 

"I first had contact with the Second Respondents, Mr and Mrs Ellis, and their company, Texona Pty Limited, when I obtained a quotation from them through their firm, Ballina Boat Building Industries, for the construction of a catamaran in September 1988. As a result of that quote and subsequent discussion with Mr and Mrs Ellis, the Applicant companies entered into an agreement with Mr Ellis on 24 November 1989 for the construction of the said Catamaran by Mr Ellis, pursuant to plans which I had drawn. At the same time I reached agreement with Mr and Mrs Ellis for the lease of their land at Ballina, on which land the boat was to be constructed at a monthly rental of $1,842.66. I

also reached agreement with them at that time for the lease from Texona Pty Limited of plant and equipment owned by Texona for use in construction of the vessel, at a weekly rental of $1,000.00 for eighteen months.

At the time of my discussion with Mr Ellis as to the terms of the proposed agreement for the building of my vessel, and lease of his boat yard and plant and equipment for that purpose, Mr Ellis told me and I verily believe the same to be true that, because of the size of the vessel to be constructed, and the requirement of the relevant Government Authority that the vessel be built inside a shed, that it would be necessary for a new shed to be constructed on his land, of sufficient size to house the vessel during construction. On behalf of the Applicants I reached agreement with Mr Ellis, on behalf of Mr and Mrs Ellis, to advance sufficient moneys to the Second Respondents so as to enable the construction of the boat shed. The estimate given to me by Mr Ellis at that time and which I verily believed to be true was that for the construction of the said boat shed it would cost a maximum of $50,000.00."

Mr. Nichols proceeded to exhibit to his affidavit the three agreements embodying the arrangement which have been described as an employment agreement, a loan agreement (which provides for the lease of the second respondents' land to the applicants) and an equipment lease agreement. Under these arrangements, the respondents were required to complete construction of the vessel by 24 May, 1991. It was not until

much later that the vessel was in fact completed.

The lease of the second respondents' land was for a term of 18 months from 24 November, 1989. The applicants acquired no other interest in the second respondents' land under the express provisions of the loan agreement. The original arrangement contained in the three agreements made on

24 November, 1989 was varied, the variations being documented

in an agreement of 10 May, 1990, between the applicants and the second respondents. It is this last mentioned agreement on which the applicants rely to support their caveat, the original agreements of 24 November, 1989 having expired on 24 May, 1991 at the end of the 18 month period provided for in the agreement.

The shed and an associated slip way were built on the second respondents' land at a cost of $241,353, well in excess of the $50,000.00 estimate originally provided by the male respondent to Mr. Nichols. All these moneys were provided to the second respondents by the applicants. Mr. Nichols says:

"The shed and associated slip way erected by the
-.Second Respondents using money lent by the
Applicants represents a major part of the value of
the property. The premises are used by the

Respondents for their boat building business, and

they utilise the shed and slip way facilities."

In the action, the applicants' claim, among other to the applicants the sum of $241,353.00 and, secondly, a	things, firstly, an order requiring the respondents to repay
declaration that the respondents hold their interest in their Ballina land subject to an equitable lien in favour of the applicants to secure repayment by the second respondents of the said $241,353.00 or, alternatively, that they hold it upon a constructive trust in favour of the applicants to secure repayment of that same sum.
In their caveat, the applicants gave the following particulars of the interest they claimed in the second respondents' land:

"An equitable interest arising out of an equitable lien evidenced in writing by an agreement dated 10 May 1990 to secure repayment to the caveators by the registered proprietor of the sum of $241,353.62 advanced by the caveators to the registered proprietors between 1 November 1991 and 7 December 1993 by virtue of the instrument referred to below namely 'an agreement dated 10 May 1990, the parties to which are described as the Partnership of Moreton Bay Island Developments, [the applicants1 Allan Victor Ellis [the male second respondent] Texona Proprietary Limited [the first respondent] and Allan Victor Ellis and Susan Elizabeth Ellis [the second respondents]' in the action."

There is no dispute that an equitable lien would amount to an interest in the second respondents' land sufficient to support their caveat. It is necessary now to turn to the agreement of 10 May 1990. By clause l(c) it is provided:

"It is expressly acknowledged and agreed that MOBID

behalf of the Partnership [the second respondents]	[the applicants] has provided loan funds to or on
for the purpose of constructing a boat building shed on the premises. It is also agreed that the excess over the sum of $90,000 shall be treated as cost over-runs, which are to be repaid to MOBID by the Partnership."

By clause l(d):

"It is also expressly agreed between the Parties that should the Agreements be terminated prior to the expiration thereof the shed construction loan of $90,000 (together with an unpaid cost over-runs in relation thereto) advanced by MOBID to the Partnership shall be repayable in full within thirty (30) days of the date of termination."

The agreements referred to in this clause are the three agreements to which I have already referred. Under the heading "Employment Agreement", clause 2(b) of the agreement of 10 May 1990 provides:

"Notwithstanding the Employee's i . e . Mr. Ellis' statutory entitlement to be paid for such things as hours worked in excess of 40 hours per week, tea money, etc, it is hereby expressly agreed between the Employer [the applicants] and the Employee that the Employee waives all and any rights to such entitlements, on the basis that at the expiration of the Employment Agreement (and provided that construction of the vessel is completed at that date), MOBID shall release the partnership absolutely from all and any liability to repay the sum of $90,000 advanced to it by way of shed construction loan."

Although much of what Mr. Nichols says is disputed by Mr. Ellis in his very lengthy affidavit, to which I was not referred by either counsel in argument, it is common ground that the critical question of present relevance is whether the	applicants have shown that there is a serious question to be	tried that they have the interest in the second respondents'
land described in their caveat. If the applicants' own evidence is incapable of establishing this, then the applicants must fail. I therefore approach the case by having regard only to the applicants' evidence on this issue.
Counsel for the applicants based his argument that the applicants had shown that they had the requisite interest on clauses l(c) and l(d) of the agreement of 10 May, 1990, to which I have referred. I was not referred to any authority to support the applicants' proposition that these clauses gave rise to an equitable lien over the second and third respondents' land to secure repayment to the applicants of the $241,353.00 already mentioned. Rather, counsel for the applicants' argument was simply that because the applicants asserted that clauses l(c) and l(d) of the agreement of 10 May gave rise to an equitable lien over the land, there must necessarily be a serious question to be tried as to whether that was so. Counsel for the respondents also did not find it necessary to refer in his submissions to any authority on the significance of the agreement of 10 May, 1990.
The agreements referred to in clause l(d) of the agreement of 10 May, 1990 expired, according to what Mr. Nichols says in paragraph 8 of his affidavit, on 24 May, 1991.
They were not terminated but expired by effluxion of the 18
month period which was expressed to run from 24 November, 1989. Clause l(d) thus never came into effect because none of the three agreements of 24 November, 1989 was "terminated prior to the expiration thereof". Clause 2(b) of the agreement did not come into effect either because the ship was not completed by the date of expiration of the employment agreement, that is, by 24 May, 1991. The second respondents cannot therefore rely on this clause to release them from liability to repay $90,000.00, being part of the $241,353.00 advanced by the applicants to the second respondents "by way of shed-construction loan". It follows from a reading of particularly clauses l(c) and 2(b) that the agreement operates to require the second and third respondents to repay the whole of the $241,353.00 provided to the second and third respondents as loan funds for the purpose of constructing the shed on the second and third respondents' premises which were leased to the applicants from 24 November, 1989 to 24 May, 1991. Whether the agreement so contained might be unenforceable as a penalty with respect to the $90,000.00 earmarked as the male respondent's personal remuneration, or with respect to some part of the $90,000.00, was not the subject of argument and it is unnecessary to pursue this question. The loan would be repayable on demand, no time for repayment being fixed by the agreement of 10 May, 1990.
But that the applicants may, on their evidence (and that is all I am referring to in expressing these views) have
a good-money claim against the second and third respondents for the $241,353.00 does not necessarily mean that they have
the equitable interest they refer to in their caveat by way of security for repayment of those moneys.
In Fisher and Lightwood's "Law of Mortaaae", 10th Ed., at p. 5, under the heading Equitable Lien it is said:

"A lien is a right conferred by law, and not by contract, upon a person to retain possession of, or to have a charge upon, the real or personal property of another, until certain demands are satisfied."

In Sykes and Walker, The Law of Securities, 5th Ed.,

at p. 199, the authors say:

"The equitable lien differs from the equitable charge mainly in mode of creation. It arises by implication of law in certain circumstances. . . . The equitable lien arises purely from implication of law. An "agreement for a lien" is indistinguishable from an equitable charge."

I do not think that the fact that the equitable proprietary right that the applicants claim they have in their caveat as a right pursuant to the agreement of 10 May, 1990 cannot therefore constitute an equitable lien in the proper sense of that term should prevent their obtaining the relief sought, provided the agreement confers on them an equitable charge over the land. The term "lien" is often used in practice to describe a right which arises by way of express contractual grant. See also Hewett v Court (1983) 149 C.L.R.

639 at 663.

In Fisher and Lightwood, at p. 22, under the heading "Eauitable Charaes", the authors say:

"A charge is a security whereby real or personal property is appropriated for the discharge of a debt or other obligation but which does not pass either an absolute or a special property in the subject of the security to the creditor nor any right of possession, but only ia right of realisation by judicial process in case of non payment of the

debt. "

Before a charge will arise, real or personal
property must be expressly or constructively made liable or

specifically appropriated to the discharge of a debt or other

burden. In Sykes and Walker, at p. 196, the authors say:

"[Allthough the requirements in relation to the type of language appropriate to a charge are very liberal, it is of course still necessary that more should exist than a mere contractual arrangement."

The authors, by way of illustration of this proposition, refer to a decision of the Queensland Full Court, Freewav Mutual Ptv. Ltd. v Tavlor (1978) 22 A.L.R. 281. There the position was that a company, Hamilton, owned a property subject to a mortgage in favour of Union Fidelity Trustee Company. Hamilton, as mortgagor, defaulted and Union Fidelity as mortgagee called up the loan. At the mortgagor's request an arrangement was entered into whereby the mortgagee agreed to accept $3,000.00 each calendar month from the mortgagor to be credited towards the moneys owing. The mortgagor then borrowed the $3,000.00 each month which it needed to perform

Freeway Mutual pursuant to an agreement entered into in June

this agreement from Freeway Mutual. The moneys were lent by

1975 between Freeway Mutual and the mortgagor. It was agreed that those moneys were to be returned to Freeway Mutual upon the sale of the mortgagor's property and immediately after Union Fidelty's first mortgage had been paid out. The sale of the property took place and Freeway Mutual was repaid $25,000.00, being the total of the amount lent in accordance with the agreement. However, the liquidator of Hamilton contended successfully that the payment of $25,000.00 to Freeway Mutual out of the proceeds of the sale of the mortgagor company's land was a voidable preference. In the course of his judgment, Hoare J, with whom the other members of the court agreed, dealt with what is involved in the creation of an equitable charge at 285-6:

"The construction of a contract made by informal arrangements such as that made where the loan with which we are now concerned was made, necessarily involved some difficulty."

And I interpolate that the same comments are applicable to the arrangements here in question, including the agreement of 10 May, 1990. His Honour then continued:

"It seems to me that what was agreed was no more than that when Hamilton View Pty Ltd effected a sale of "Mayfield" and when the moneys owing to the mortgagee had been paid, then the advance of $25,000 would immediately be repaid. The agreement provided for the time of payment, but it had nothing to say as to any security being given to the lender. Had there been an intention to create a charge one would have expected words creating such a charge with

reasonable clarity."

While clause l(c) of the agreement of 10 May, 1990 clearly enough imposes on the second respondents an obligation to repay the loan moneys, in my opinion, it does nothing more than that. I can find nothing in the language of clause l(c) in the context of the agreement that suggests that the land formerly, but no longer, leased by the applicants from the second and third respondents, was intended to be available for

the discharge for the indebtedness of the second and third respondents to the applicants. The clause confers on the applicants a mere contractual entitlement to repayment of the loan moneys. It therefore cannot operate to confer on them any interest in the second respondents' land. They have no caveatable interest. The application must be dismissed.

I certify that this and the preceding
11 pages are a true copy of the
reasons for judgment herein of the

Honourable Mr. Justice Drummond.

Associate:

Date :  9 November, 1993