Re Regis Towers Real Estate Pty Ltd

[2006] NSWSC 852

Reported Decision: 58 ACSR 523

New South Wales

Supreme Court

CITATION:	Re Regis Towers Real Estate Pty Ltd [2006] NSWSC 852
HEARING DATE(S):	04/08/06
JUDGMENT DATE :	23 August 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Direction that the administrator would be justified in treating one alleged mortgage as not conferring security and the second unregistered mortgage as a floating charge.
CATCHWORDS:	CONVEYANCING [233]- Mortgages and charges- Unregistered mortgage agreements for security of loan- Agreements did not specify what property was to be mortgaged- Ineffective- Mortgage gave mortgagee the right to appoint a receiver- In all the circumstances the relevant agreement is a floating charge. CORPORATIONS [73]- Floating or fixed charge- Differentiation.
LEGISLATION CITED:	Corporations Act 2001, ss 262(1), 262(7), 266, 439, 443A(1), 443D and 447D
CASES CITED:	In re Spectrum Plus Ltd [2005] 2 AC 680 Re GB Nathan & Co Pty Ltd (1991) 24 NSWLR 674 Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673
PARTIES:	Regis Towers Real Estate Pty Limited (Administrator Appointed) (P)
FILE NUMBER(S):	SC 6578/04
COUNSEL:	S G Finch SC and G M Colman (P)
SOLICITORS:	Corrs Chambers Westgarth (P)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Wednesday 23 August 2006

6578/04 – RE REGIS TOWERS REAL ESTATE PTY LIMITED

JUDGMENT

1 HIS HONOUR: Mr Murray Roderick Godfrey is administrator of Regis Towers Real Estate Pty Ltd ("the Company") having been appointed on 17 September 2004.

2 Unusually, the time by which the Company meeting under s 439 of the Corporations Act 2001 (popularly known as the "second meeting") must be concluded has been extended from time to time, currently to 30 September 2006. This is because of the special reason of the complications in realising what appears to be the Company's main asset rights connected with the Park Regis building at the corner of Campbell, Pitt and Castlereagh Streets Sydney.

3 The property was developed by the Meriton group of companies. On 20 April 1999, Meriton Apartments Pty Ltd entered into an agreement with the Company under which it agreed to cause the Owners Corporation to enter into with the Company a document described as a Caretaker-Manager Agreement ("CMA"). The agreement of 20 April 1999 is known as the Procurement Agreement and obliged the Company to pay $1.75 million for the grant of those rights. Another company in the Meriton Group provided finance to the Company to assist in paying the consideration under the Procurement Agreement. The advances were in two tranches, the first $770,000 was advanced on or about 6 August 1999 and the second on or about 3 December 1999 in the amount of $455,000. In proceedings 50140/02 Meriton Finance Pty Ltd obtained judgment against the Company in respect of this debt in the amount of $1,255,000.00.

4 The key question before me is whether the Meriton company is secured in respect of this debt.

5 I should point out that the current application is one made by the administrator under s 447D of the Corporations Act 2001 for directions. Accordingly, the result of this case will merely be to give directions to the administrator and will not be binding on other persons. Accordingly, the facts as set out in this judgment solely come from the administrator and the documents in his possession and it may possibly be that some other result might pertain if the evidence is different in contested proceedings even though this is unlikely.

6 The business of the Company as per the deed of agreement made with the Owners Corporation of the building on 6 August 1999 was:

(a) to act as caretaker/manager; and

(b) liberty to act as leasing and sales agency.

This latter business was described in clause 4 of the CMA as follows:

"The Caretaker may provide the following services as agent for owners of lots in the building, at their request and subject to the settlement between the Caretaker and the owners of the terms on which the services are to be provided:
(i) Buying, selling, leasing, assigning or otherwise disposing of lots within the strata scheme; and
(ii) Collecting rents payable in respect of any lease of lots within the strata scheme."

7 A document was created, seemingly to provide security for the first tranche of the loan from the Meriton company, a loan of $770,000. The document is in the Torrens title form. It has been stamped on the basis of initial total advances of $770,000. It is duly executed. However the box on page 1, in which one inserts the description of the land mortgaged, is left completely blank. The annexure to the mortgage is in what might be called mock plain English style. The word "I" is defined as "the mortgagor" and "Meriton" is defined as Meriton Finance Pty Ltd. "Land" is defined as "The real property the subject of this mortgage, including any improvements and all rights and interests that I have or may have in the common property." This, of course, is nonsense as no land is specified as being the subject of a mortgage, and indeed, it would not appear that the company had any interest in land. All it had were its rights under the CMA.

8 At the hearing I was very much assisted by Mr S G Finch SC who appeared for the administrator with Mr G M Colman of counsel. I agree with Mr Finch's submission that by itself this document is not one which the administrator can treat as being security for anything.

9 There does not seem to be any reported case where the court had to construe a mortgage where the property mortgaged was not specified. It would seem to me that Mr Finch must be correct that of itself it must be ineffective.

10 The second tranche of the loan was made in December 1999. A document again in the Torrens system form was created and it was stamped in respect of $455,000. Again, the box for "land mortgaged" was left blank. However, "land" was defined as "The Caretaker Management Rights the subject of this mortgage, including any improvements and all rights and interests that I have or may have in the common property". The annexure acknowledged that the mortgage is security for the payment to Meriton "of the monies hereby secured and for the performance of my obligations under this mortgage and under any related securities." "Related security" was defined as "any other security, guarantee or indemnity given to Meriton which secures the monies hereby secured, including the Credit Contract." "Credit Contract" was defined as "the credit contract between Meriton and me".

11 Clauses 12.1 and 12.2 of the December mortgage are in handwriting, and as far as can be read, are as follows:

"12.1 The provisions of this mortgage shall be read and construed in accordance with the terms of the Deed of Consent to Security entered into before the mortgagor and Meriton Apartments Pty Limited on 20 August 1999 and is [six words illegible] of that Deed
12.2 The mortgagor acknowledges that the monies advanced pursuant to clause this mortgage were done so for the purpose of financing the acquisition of the caretaker management rights."

12 The Deed of Consent to Security is undated but it is clear that the owners of the relevant strata plan affixed its seal on 6 August 1999. In a preamble headed "REASONS FOR THIS DEED" the following appears:

"The Owners Corporation has appointed the Caretaker to be the Caretaker Manager for the Owners Corporation under the terms of the Caretaker Manager Agreement. The Mortgagee has agreed to loan money to the Caretaker and is taking Security over the Manager Agreement. The Mortgagee has asked the Owners Corporation to consent to the Security so that the Mortgagee's rights under the security can be enforced on a default and the Mortgagee is given the opportunity to preserve the Caretaker Manager Agreement and so protect its Security."

13 Clause 3 of the deed, so far as is relevant, is:

"The Owners Corporation must not object if the Mortgagee takes possession of the Caretaker's Office or appoints a receiver to the Caretaker's business … . This deed is an authority for a person appointed under this clause 3.1 to conduct the letting business of the Caretaker. Any receiver appointed under the Mortgagee's security will be the agent of the Caretaker."

14 "Caretaker-Manager Agreement" is defined as meaning "the caretaking/letting agreement dated on or about the date of this deed between the Owners Corporation and the Caretaker … and includes any variations or extensions of the caretaking/letting agreement and any separate agreement authorising letting arrangements."

15 There is also a credit contract in existence, again undated. This indicates that credit of $1,225,000.00 is being lent at 8% per annum (interest only fixed for 3 years).

16 The credit contract provides:

" Security
You will provide a mortgage to Meriton to secure this contract.
The mortgage will be a first registered mortgage and will be over property known as:"

The form then on the five following lines uses the words address, suburb, lot, strata plan and folio identifier, but none of this is completed. Mr Finch submits that the significance of this was that the contemplated mortgage was to be over real property and not over the chose in action being the rights under the Caretaker Management Agreement. Likewise the clause on insurance refers to insuring the mortgaged property for the full reinstatement and replacement value.

17 I believe I need only refer to one other document, and that is a deed bearing date 24 May 2000 entitled "Deed of Acknowledgement". By the deed, the Company acknowledged its indebtedness to Meriton Finance Pty Ltd and that funds were advanced by that company to it which are not secured by real property but are secured by two unregistered mortgage agreements in the sums of $455,000.00 and $770,000.00 respectively together with interest.

18 The law requires registration of most mortgages and charges. Real property mortgages are registered under the Torrens system. Apart from them, most charges created by companies have to be registered with ASIC. One needs to be more precise than this, but for present purposes s 262(1)(a) makes it clear that a floating charge on the whole or a part of the property, business or undertaking of a company needs registration. Under s 266 of the Act a registrable charge on property of the company is void as a security on that property as against a liquidator or administrator.

19 Mr Finch SC for the administrator puts that the first mortgage document is of no validity at all for the reasons that have already been set out. He then puts that the December mortgage is really a floating charge and accordingly is void as against the administrator because of s 266 of the Corporations Act.

20 As Mr Finch acknowledges, it is often a very difficult matter to distinguish between a fixed charge on the one hand and a fixed and floating or floating charge on the other. Mr Finch referred to the 2nd Australian edition of Fisher & Lightwood's Law of Mortgages (Butterworths, Australia, 2005) para 8.13 where it is noted that the essence of a floating charge is that "It is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets", Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, 295 and see now also In re Spectrum Plus Ltd [2005] 2 AC 680.

21 In the instant case, if any property is charged it is either: (a) the Company's right to be caretaker and manager; or (b) that right plus the right to act as agent for unit owners who wish to sell or lease their unit or agent for purchasers who wish to buy a unit.

22 It seems relatively clear that after the mortgages were entered into, the Company continued to carry on its business in both those areas without interference. There was no requirement that monies collected should be banked into any specific account let alone a frozen account.

23 On the other hand, even bearing in mind that the drafter of the December 1999 mortgage seems to think that he or she was dealing with real property, clause 5.4 prohibits the mortgagor from selling, leasing, parting with possession, transferring or disposing of the property and that on default the mortgagee could take possession of the property. These are indications of a fixed mortgage but the way the terms and conditions are expressed generally, that is in a way which could only be meaningful if the mortgage was over real property, makes one not wish to place too much store by the actual words used in the mortgage document.

24 The Deed of Consent to Security provides in clause 3.1 for the appointment of a receiver to appoint a receiver to the caretaker's business including the letting business.

25 Mr Finch submitted that the documentation was all terribly muddled and whilst there was some indication that the charge was a fixed charge, when one reads the documentation as a whole, including the rights under the deed of consent, when one sees that the mortgagee has the right upon default to appoint a receiver over the caretaking aspect of the Company's operations and also its letting agency, one has to ask how could this be a fixed charge.

26 The decision as to whether a charge is fixed or floating is often an extremely difficult one to make and it is noticeable that in leading cases such as United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 and the decision of the House of Lords in the Spectrum Plus case, judges of the highest courts in the land have reached different conclusions on the construction of particular documents. In the instant case I have identified the principal provisions of the documents which give indications as to whether the charge is fixed or floating and indicated the prevailing test. It seems to me that on applying that test, we have here a floating charge rather than a fixed charge.

27 I gave leave to the administrator to file an amended interlocutory process after the oral hearing setting out the orders which he sought. Order 1 was that upon taking account of certain documents "the Administrator is justified in treating the document described in 1(b) above as operating, subject to any requirement for registration, as a fixed and floating charge". The document referred to in 1(b) was the December 1999 mortgage. Order 2 was a direction that the administrator was justified in treating the August 1999 "mortgage" as not securing any sum. Order 4 was a direction that upon taking account of certain documents and in the absence of evidence of registration, the administrator was justified in treating each relevant document as void.

28 Generally speaking, a fixed and a floating charge are an antithesis one to another, and a charge is either one or the other. However, one can have a situation where a charge covers two types of property and is a fixed charge with respect to one type of property and a floating charge as to another so that one can have a fixed charge over existing book debts and a floating charge over future book debts.

29 By fixed and floating charge I take it that Mr Finch means that it may be that the December 1999 charge is a fixed charge so far as the caretaker and management rights are concerned, but it is certainly a floating charge over the leasing and sales agency business.

30 Section 262(7) provides that if a single charge is within s 262(1), such as a floating charge, then if the instrument also charges other property including property that is of a kind to which none of the paragraphs of s 262(1) applies, then it is necessary for it to be registered.

31 Mr Finch has taken me thoroughly through the documents and in my view his construction must, for the purposes of advising to the administrator, be accepted.

32 Accordingly I make orders 1, 2 and 4 in the amended interlocutory process.

33 So far as costs are concerned, Mr Finch submits that they should be made on the trustee basis. Under the statute, s 443D an administrator is entitled to be indemnified out of the company's property for debts for which he or she is liable and for remuneration. This picks up s 443A(1) which makes an administrator liable for a debt he or she incurs in the purported performance of any of his or her functions or powers for services rendered. This probably includes legal costs of applications properly brought for directions. It would seem that this basis is usually appropriate in respect of an application for directions properly brought by a liquidator or administrator; cf Re GB Nathan & Co Pty Ltd (1991) 24 NSWLR 674.

34 Accordingly, I make order 6 in the amended interlocutory process providing for costs and expenses of the administrator on the indemnity basis. I give liberty to apply.

35 I note that although the administrator gave notice to the alleged mortgagee, the latter declined to take any part in respect of this hearing.

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