Seka Pty Ltd (In Liq) v Fabric Dyeworks (Aust.) Pty Ltd

Re: SEKA PTY. LTD. (IN PROVISIONAL LIQUIDATION)
And: FABRIC DYEWORKS (AUST.) PTY. LTD.
No. Q G3002 of 1991
FED No. 153
Liens - Corporations
(1991) 9 ACLC 646/4 ACSR 455
28 FCR 574

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Liens - whether alleged customary lien can exist where inconsistent with express contractual term.

Corporations - whether possessory lien a "registrable charge" - right to retain possession and use property contrasted with right to take possession - whether power of sale converts possessory lien into registrable charge.

Corporations Law, ss.262, 263, 266

HEARING

BRISBANE

#DATE 16:4:1991

Counsel for the applicant: Mr D.B. Fraser

Solicitors for the applicant: Cleary and Hoare

Counsel for the respondent: Mr D.R.G. Pestorius

Solicitors for the respondent: Conwell Kirby and Lilley

(town agents for Barker Gosling)

ORDER

The application be dismissed.

The applicants pay the respondent's costs of and incidental to the proceedings, to be taxed.

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

JUDGE1

By these proceedings as presently constituted, liquidators of Seka Pty. Ltd. ("Seka") claim a declaration that a certain lien for dyeing charges, asserted by the respondent over Seka's fabric, is void against them, and other final relief. The application was filed on 13 March last and since then two applications for interlocutory injunctions have been made; the first was unsuccessful and the second successful. It is unnecessary to discuss the reasons for those decisions.

The trial was on affidavit, subject to directions excluding evidence relating to quantum, as well as any evidence as to the existence or otherwise of an alleged lien by custom. The purpose of the order for trial in that form was to enable what appeared to be the legal questions as to the respondent's liability to be tried, in such a way as to avoid the necessity of the parties' going to the expense of preparing evidence as to disputed facts. The applicants say that as a matter of law, evidence as to a customary lien would be irrelevant.
On 20 February 1991, an application was filed in the Supreme Court of Queensland seeking the winding up of the applicant company, and a winding up order was made on 25 March. At material times, the respondent carried out dyeing work on fabric which the applicant company caused to be supplied to it for that purpose. That work was carried out under written contractual terms which are referred to below. Under those terms, the respondent became entitled to a lien on the fabric in question, and it asserts that lien in these proceedings. The liquidators, while conceding that the respondent would otherwise be entitled to a lien, say that by reason of provisions of the Corporations Law, the respondent cannot set up the lien against them and that any sale of the applicant company's fabric made by the respondent in reliance on the lien would be unlawful.
The provisions of the Corporations Law on which the liquidators rely are s.266, which makes certain registrable charges void against liquidators, and s.468, which avoids certain dispositions of property by a company made after the commencement of a winding up. The statement of claim expressly relies upon the former provision, but not upon the latter. In my view, the absence of any reference in the statement of claim to s.468 of the Corporations Law does not assist the respondent; the question is whether the facts pleaded and proved bring s.468 into operation.
No question is raised as to events before the filing of the application to wind up. It is common ground that some of the fabric was sold after the commencement of the winding up - i.e. after 20 February 1991; the amount realised does not appear. It is also common ground that the respondent retains some of Seka's fabric, claiming to do so as lienee.
On 28 March 1991, the respondent lodged with the Australian Securities Commission, for registration, details of a charge in a sum of nearly $0.5 million; it does not concede that a charge, based on the facts set out above, is registrable, but lodged as a precaution. As I understand the respondent's case, it says the relevant liens to which the attempt to register relates came into existence within the 45 day period mentioned in s.263(1) of the Corporations Law.
Custom
Pleadings have been delivered. It is convenient to consider first an issue as to an alleged customary lien. The respondent says its lien by custom is not registrable because it is one "arising by operation of law": s.262(2)(a). The defence sets up a custom in the following terms:

"The trade custom between dyers and their customers is to do business on the basis the dyers have a lien over goods in their possession owned by their customers until payment of the balance of the general account as between the dyer and the customer and in the event of the failure of the customer to pay the dyer has a right to sell the customer's goods and credit the proceeds to the outstanding balance of the dyer's general account".

The respondent foreshadowed calling a great deal of evidence to establish the custom but, as has been mentioned above, the order for trial excluded such evidence for the time being because the liquidators contended it to be irrelevant. Their counsel, Mr D.B. Fraser, said the express contractual terms are inconsistent in some respects with the custom set up and the former must prevail.
I agree with Mr Fraser's submission. The matter is complicated by the fact that the express contractual terms are themselves mutually inconsistent. They are in two parts. One set of clauses consists of provisions standard in the trade and the others are, to use the respondent's expression, "customised" - provisions specially designed for the respondent. An example of their inconsistency is that the standard conditions give the lienee a right of sale if the account is not paid within 21 days of demand, whereas the other conditions allow a sale after an amount has become owing and remains unpaid for 14 days. But both are inconsistent with the alleged custom, which simply gives a right to sell on the failure of the customer to pay, without any requirement to wait a specific time. In some other respects also, the custom alleged differs significantly from the express lien. The answer which the respondent's counsel suggested to this apparent difficulty was based on the fact that the "customised" express lien includes the following:

"The rights granted to F.D.W. (the respondent) by this condition shall be in addition to any right of lien to which F.D.W. may be entitled by law or equity and shall not prejudice or effect (sic) F.D.W.'s right at any time to recover any such amount or part thereof which at that time is owing unpaid or unsatisfied from the Customer or Owner or any other person liable therefore" (sic).

In my opinion, this provision does not assist the respondent, as to the inconsistency between the standard express lien and the alleged custom. But ignoring that, reliance on the portion quoted begs the question; there can be a customary lien only if its terms are consistent with the parties' contract so there is no "right of lien to which F.D.W. may be entitled by law". The rule that the custom set up be consistent with the terms of the express contract was not in dispute and sufficient authority for it is to be found in the remarks of the High Court in Con-Stan Industries of Australia Pty. Ltd. v Norwich Winterthur Insurance (Australia) Ltd. (1986) 160 CLR 226 at 237. Here, to adopt the expressions used by the High Court -

"... the presumed intention of the parties, on which the importation of the custom rests ... must yield to their actual intention as embodied in the express terms of the contract, regardless of whether the contract is written or oral".

Any presumption that the parties intended a lien on customary terms is rebutted by the proof - indeed, the agreement - that they contracted for a lien on other terms.

Mr Fraser also pointed out that it was held in In Re Molton Finance Ltd. (1968) 1 Ch 325 that a claim to a common law lien on title deeds deposited as security can have no independent existence, apart from the equitable mortgage or charge created by the deposit. It was, further, held that when the latter failed for non-registration, then the former fell with it. It appears to me unnecessary to decide whether, for similar reasons, the alleged customary lien is defeated if the express lien is void against the liquidators for non-registration. It is enough to hold, as I do, that the alleged customary lien cannot be set up in the face of the express contractual lien whose terms are inconsistent with the custom.
It should be added that there was no contention that the express lien should be held to fail for uncertainty - i.e., because of the inconsistency of the two sets of provisions - and I proceed on the assumption that counsel made that the contract is one which is not "so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention": Scammell v Ouston (1941) AC 251 at 268, cited in The Upper Hunter County District Council v Australian Chilling and Freezing Co. Ltd. (1968) 118 CLR 429 at 437.
Registrability
Mr Pestorius argued for the respondent that the lien created by the terms of the contracts under which the dyeing was done is not a "registrable charge". It is not one unless it falls within the description in s.262(1)(d) of the Corporations Law, namely:

"a charge on a personal chattel, including a personal chattel that is unascertained or is to be acquired in the future, but not including a ship registered in an official register kept under an Australian law relating to title to ships".

Section 262(3) explains the notion of "charge on a personal chattel" in the relevant paragraph as follows:

"The reference in paragraph (1)(d) to a charge on a personal chattel is a reference to a charge on any article capable of complete transfer by delivery, whether at the time of the creation of the charge or at some later time, and includes a reference to a charge on a fixture or a growing crop that is charged separately from the land to which it is affixed or on which it is growing, but does not include a reference to a charge on:

(a) a document evidencing title to land;

(b) a chattel interest in land;

(c) a marketable security;

(d) a document evidencing a thing in action; or

(e) stock or produce on a farm or land that by virtue of a covenant or agreement ought not to be removed from the farm or land where the stock or produce is at the time of the creation of the charge".

Both of these provisions are the same as those in the Companies Code which came into force in 1981. Prior to 1981, the corresponding provisions had defined the nature of the relevant charge as being one -

"... created or evidenced by an instrument which, if executed by an individual, would be invalid or of limited effect if not filed or registered as ..."

a bill of sale under the appropriate State legislation: see s.100 of the 1961 Companies legislation.

When the various legislatures produced the 1981 uniform scheme, it seemed, no doubt, desirable to define the relevant type of charge in terms which made unnecessary reference to the varying State Bills of Sales Acts. This is not to say that one should construe the present language as if it were the same as that which it supplanted; but reference to the history of the provisions and the wording adopted both tend to suggest that it was unlikely that the concepts which were used in filling out the meaning of the older legislation were intended to be entirely abandoned. The authorities on the legislation in the form it had prior to 1981 are still likely to be of assistance in determining the meaning of the expression "charge" in this context. According to Needham J. in Re Trendent Industries Pty. Ltd. (in liq) (1983) 1 ACLC 980 at 987:

"... possessory liens, as such, do not constitute charges registrable under sec.100 ... because they depend for their existence on possession, whereas a charge exists regardless of possession".

His Honour was speaking of the 1961 legislation. The questions raised before me are whether this statement is correct and whether it applies equally to the corresponding provision of the present legislation.

In Great Eastern Railway Co. v Lord's Trustee (1909) AC 109, the question arose whether, for the purposes of the English Bills of Sale Act 1878, there was an agreement conferring "a right in equity to any personal chattels or to any charge or security thereon ..." (115). The appellants claimed a lien for the price of coal carriage, which was held not to be within the Act; the coal in question was in the possession of the lienees and that was thought decisive.
A similar question arose in Wrightson v McArthur and Hutchisons (1919), Ltd. (1921) 2 KB 807. There the defendant, which was indebted to the plaintiff, gave possession of certain goods to the plaintiff to secure the debt. Again, the question was whether there was a mortgage or charge requiring registration under the companies legislation. Rowlatt J. held there was not; he was of the view that there was no charge because there was a right conferred by delivery of possession (816).
A case particularly relied on by Mr Pestorius is the decision of the New Zealand Court of Appeal in Waitomo Wools (N.Z.) Ltd. v Nelsons (N.Z.) Ltd. (1974) 1 NZLR 484. One of the questions there decided was whether a particular sort of lien, in favour of a wool scourer, created a charge requiring registration under the New Zealand Companies Act 1955. It was held that the lien was a general one, giving a right to retain all of the customer's wool, whether or not it had been scoured and whether or not it included wool for which scouring had been paid.
Richmond J., with whose reasons the other Judges agreed, drew a distinction between a possessory lien and an equitable lien, on the basis that the latter exists independently of possession (490). It was pointed out for the appellant that the law gave the Court a discretionary power to order a sale of goods the subject of a possessory lien, but the Court of Appeal held that that circumstance did not make the lien a charge. The Court of Appeal pointed out that there was an express power of sale in the Great Eastern Railway case, as indeed there was; the clause is set out at p 110 of the report in (1909) AC
Counsel for the liquidators said that the Waitomo case was decided on a statute which made registrability depend upon whether the charge was one requiring registration under the New Zealand Chattels Transfer Act 1924. That is so, but the principal ground of decision, considered quite separately, was whether there was a "charge".
In Re Vital Learning Aids Pty. Ltd. and the Companies Act (1979) 2 NSWLR 442, Kearney J. arrived at a conclusion consistent with that in Waitomo. The question there was whether a lien asserted by a customs agent required registration under the 1961 companies legislation. That in turn depended, as I have mentioned, on whether it required registration under the relevant bills of sale legislation. The present significance of the case is that Kearney J. accepted, as I understand his Honour's reasons, that, in general, a lien with a concomitant power of sale is not to be equated to a charge.
In Young v Matthew Hall Mechanical and Electrical Engineers Pty. Ltd. (1988) 13 ACLR 399, there was under consideration a right to retain possession of property conferred by a document which also expressly gave charges. Brinsden J. held that the document was severable and that the right to retain possession did not require registration under the 1981 Companies Code. His Honour accepted the "essential distinction between a charge and a possessory lien" (404), that being that the former does not necessarily involve possession "whereas a possessory lien does involve possession and will indeed be lost if possession is lost" (404).
In the Western Australian case, a clause in the relevant document (19.5(c)) gave the holder of the security the right to take possession of certain property and to use it - also, in certain circumstances, to sell it. That was held to amount to a charge (404), but the Judge also took the view that a right to retain possession and use property is not a charge but a possessory lien.
In my respectful opinion, the general view of Needham J. mentioned above, that possessory liens do not require registration under the companies legislation, was correct as to the 1961 legislation and remains correct. I have had more difficulty with the proposition that that is so even when there is a power of sale. Mr Fraser contended that the lien in question here intrudes into rights of ownership and certainly that is true insofar as a sale is provided for. Mr Fraser also referred to authorities in which, for the purposes of other legislation, somewhat similar transactions have been held to create charges: see, for example, Official Assignee of Madras v Mercantile Bank of India, Limited (1935) AC 53 at 64. But the reason for the conclusion to which I have come, namely that this lien is not to be treated as a charge, is that at the time s.266 was enacted, the distinction between a possessory lien and a charge was fairly well established in relevant contexts. It appears to me unlikely that, in the Corporations Law, the word "charge" in s.262(1)(d) was intended to have a meaning different from that which had come to be accepted under the corresponding part of older legislation.
I have also noted that the conclusion appears not to be inconvenient. Where a security is created, the time for registration starts to run under s.263 of the Corporations Law even if no money has been lent. On that reasoning, the time for registration of the lien here in question, if it were registrable, would have run from when the parties laid down the basis of their dealings; that occurred years ago. Another possibility is that each contract to do dyeing must, in such circumstances, be registered, on the basis that, like a vendor's lien, the dyer's lien comes into existence when the contract is made, not when the work is done: cf. In Re Birmingham Deceased; Re Savage v Stannard (1959) Ch 523. On either view, the result is unsatisfactory: registration of the original lien document would give no indication as to what goods were subject to the security and registration of all the contracts would, at least in some cases, be rather burdensome.
It is also to be noted that a creditor (other than the respondent) who searched the register is not likely to have been misled by the absence of any reference to this lien, over property not in the lienor's possession.
Summary
It is my view that the alleged custom is excluded and the respondent stands or falls on the express lien. But, in my opinion, the rights of the lienee did not constitute a "charge" within the meaning of s.262(1)(d) of the Corporations Law because the respondent lienee's right is essentially a right to retain possession against the lienor; I am also of the view that the circumstance that the express lien gives a right of sale does not convert the lien into a "charge" within the meaning of the statute.
The result is that the application fails and must be dismissed with costs.

[1991] FCA 153

16 APRIL 1991