Tilley v Egan

[2000] QCA 359

[2000] QCA 359

COURT OF APPEAL

PINCUS JA
THOMAS JA
JONES J

Appeal No 2235 of 2000

JOHN GORDON TILLEY AND OTHERS         Appellants/Defendants

and

BRIAN THOMAS EGAN                     Respondent/Plaintiff

BRISBANE

..DATE 04/09/2000

JUDGMENT

PINCUS JA:  This is an appeal from dismissal by his Honour Judge Skoien of an application for summary judgment.  The view which his Honour took, after a commendably careful examination of the facts and the law, was that there was nothing worth sending to trial.

The argument which the appellants advance is based, in essence, upon two aspects of the matter which I will mention in more detail; they are, briefly, that his Honour was wrong in the conclusions which he drew on what might be called the Hamilton v. Hunter point and his Honour was wrong in the conclusions which he drew on the execution point. 

The claim of the plaintiff in the suit, the plaintiff now being the respondent, was for recovery of possession of certain cattle, damages for their detention and damages for their conversion.  The basis of the plaintiff's claim for recovery of possession of cattle is that the plaintiff held a security which took priority over any security held by the defendants, now appellants.

The plaintiff's claim is based upon a security which was taken by him in respect of legal fees on 17 September 1998.  And the claim of the appellants is based upon a security which was taken, so they say, earlier than the security of the respondent.  The issues which the Judge had to determine included those which I have mentioned. 

The execution point was that according to the argument of the respondent, which was the applicant before his Honour, the security relied upon by the appellants was never executed, nor did it come into existence as a security in any other way.  Another issue which his Honour had to deal with - although not the only other one - was that, the appellants contended, the respondent's security should not take priority to theirs - indeed, that the respondent's security was invalid, because it was executed by a mortgagor in favour of the mortgagee when the mortgagee knew that the mortgagor was in financial trouble, and that there was a floating charge over its property, and that the execution of the security in question, that dated 17 September 1998, would not be a proper exercise of the company's powers.

I propose to deal first of all with the execution point and firstly to mention what was said about it by his Honour in a judgment which, as I said and I stress, was one of an exemplary character as regards the thoroughness with which the facts and law were dealt with.  His Honour said at paragraph 18:

"A more fundamental problem in the defendants' case is that the evidence establishes that the instrument of charge which they registered was not signed by anyone on behalf of the company.  It was obviously intended to be signed by its 'sole director/secretary' Geoffrey Robert Paul Smith but for unexplained reasons he did not do so."

There was some discussion about the intention of Mr Smith at the hearing today and it is clear, and I do not think it is seriously contested, that the inference is at least open that when he did what he did by way of signature, Mr Smith intended to execute the instrument of charge.  The learned primary Judge's judgment goes on to discuss the execution which was done by Mr Smith, and I will not quote from it but simply direct attention to pages 17, 18 and 35 of the record. 

At pages 17 and 18 there appears what is self-described as a Form 309 under the Corporations Law. It contains the assertion that a charge was created on 30 January 1998 and that the charge was created by instrument. Underneath that there appear the words "mortgage debenture - see annexure B". At the foot of the page there appears the signature of Mr Smith, the sole director, as is common ground, of the mortgagor.

On the following page there appears as a second alternative in the first section a statement:

"I verify the annexure marked 'B' of 15 pages is a true copy of the instrument(s) creating or evidencing the charge and I witnessed the execution by the chargor of the instrument(s)." 

And a little lower down, again there appears the signature of Mr Smith as the sole director.  Now at the end of the Form 309 and as annexure to it, there appears annexure B which is referred to in the form, and that consists in a copy of the mortgage debenture relied upon by the appellants.   At page 35 there is a schedule listing the names of the mortgagees and at the foot it says, "This is annexure 'B' of fifteen (15) pages referred to in Form 309", and again it is signed by Mr Smith as the director/secretary of the mortgagee. 

It is true, as Mr Morrison QC pointed out on behalf of the respondents, that this is a signature which is referable to the character of the annexure as an annexure to Form 309.  Nevertheless, it does appear upon the last page of the copy of the mortgage debenture.  It is not therefore correct to say that the mortgage debenture does not bear the signature of the sole director.  It does bear that signature. 

Now, I return to what the learned primary Judge said about this matter.  After discussing the documents which I have already mentioned, his Honour goes on to say that registration does not perfect an imperfect charge; that appears to be common ground.  He dismisses the claim that part performance solves the problem.  And he poses this question:

"Can a corporation create a charge by an unsigned document so as to permit the chargee to rely on that document to the detriment of others who deal with the corporation?  In my view that cannot be the case." 

That is, strictly speaking, inaccurate; as I have said the document does bear that signature, although Mr Morrison points out that it is in another connection.  The essence of the matter appears to me to be this:  that it is clear enough that a strong inference is open, that by appending his signature to a document annexed to the copy of the mortgage debenture, namely a Form 309, and by appending
his signature to the last page of the mortgage debenture,
Mr Smith intended to execute the mortgage debenture. 

Is it a case, then, in which a person intending to execute a document signs in the wrong place?  Mr Morrison would say no; it is a case where he has merely signed the form; he has not signed, intending to do so, the mortgage debenture at all.  The other point that was taken by Mr Morrison and stressed by him was that the Court heard nothing from
Mr Smith.  Mr Smith did not make an affidavit, nor did he give any oral evidence before the learned primary Judge.  It appears to me that the circumstances in which this document came into existence, now some little time ago, would when investigated at the trial make the whole matter clearer.  As I have said, there is an inference open that Mr Smith signed intending to execute, but when the circumstances are gone into more thoroughly, one may determine whether that is correct and, secondly, one may determine why it is that, if he had that intention, he did not carry it out. 

But to come to the essence of the matter for present purposes, I remain unconvinced that the signatures which were made, although not appropriate in the circumstances, cannot arguably suffice to constitute execution of the mortgage document.  That is, it appears to me to be an arguable question whether or not those signatures give the appellants a case and I am of the opinion that that question would be most appropriately determined in the context of a trial.  

The second point which I have referred to is a rather more complex one and is what I call the Hamilton v. Hunter point.  In essence, what the Judge said at paragraphs 39 and following paragraphs is that the line of authority of which Hamilton v. Hunter (1982) 7 ACLC 295 is an example gives rise to an argument against the respondent as to the validity of the charge which was taken by him.

And the essence of the argument is this:  that a person who knows that the respective mortgagor is in financial trouble, and knows that its assets are the subject of a floating charge, may be subject to the argument that a fixed charge taken subsequent to the floating charge cannot take priority, because it is and is known to be not in the ordinary course of the business of the mortgagor.  In the present case, the security which in fact existed if the appellants succeed on the execution point says in clause 5 that the charge operates as floating charge as regards all other assets thereby charged but:

"... so that the company shall not (save as hereinafter mentioned) be at liberty to create any mortgage or charge ranking in priority to or pari passu with this security or to sell or otherwise dispose of any of the property hereby charged by way of fixed and specific charge except with the consent in writing of the mortgagee."

So far as I can see, if that operated and Mr Morrison's client, the respondent, knew about it, then it would go close to bringing the Hamilton v. Hunter line of authority into operation.  Of course, as Mr Morrison points out, on the evidence before the learned primary Judge, the document from which I have just quoted was not known to the respondent, but it does appear that he knew of an earlier floating charge; that is a document which is not in the record, and we do not know what its contents are.

It may be, however, that an argument is available to the appellants that if, as the Judge thought, the solicitor for the company, the respondent, well knew of the financial position of the company and knew that it was in serious financial trouble, and if the solicitor understood that there was a floating charge in existence and assumed that it contained some restriction upon the execution of such a document as he proposed to take by way of security, then it may not matter that he has misidentified the prior security currently in force and it may not matter that he does not appreciate that the security currently in force is in rather different terms and has not chargees identical to the earlier security.

To put that more simply, the matter has been argued before us on the assumption that the respondent cannot be affected by the circumstance of his knowledge of a prior debenture, being a floating charge, and by his knowledge of the poor financial position of the client, unless he both understands correctly which is the prior debenture and understands correctly who are the prior mortgagees.  That seems to me plainly to be an arguable point.

The essence of the matter then is that in my opinion the matter should go to trial - of course, on such points as ultimately appear in the pleadings - but certainly on two points:  namely, the question of whether or not the appellants have advanced a case that the debenture upon which they rely was executed; and, secondly, upon the point that the respondent may be affected by notice of prior security, making the security which he proposed to take in circumstances of pending insolvency one of dubious validity and, more simply, that the security which the respondent took was not within the company's power, in the circumstances, to give.

For these reasons, I would set aside (and I do so with great deference to the learned primary Judge) his Honour's order and order in lieu that the application for summary judgment be dismissed.  I would order the respondent to pay the costs here and below.

THOMAS JA:  I agree.  This case involves a contest in priority between two alleged chargees.  The decision in question gave judgment for the plaintiff whose alleged charge was later in point of time then that of the defendant.  Each party advanced arguments suggesting that the other party's charge was invalid.

The material filed by both parties in the proceedings before the learned District Court Judge was quite limited.  The material included an admission by the sole director of the company that the company had bound itself to the debenture that was proved in its unsigned state.  The signatures on various pages which have been referred to by Mr Justice Pincus were affixed on the same day as the minutes of the company meeting that gave him express instructions of authority to sign such a document. 

It seems to me to be reasonably arguable that some of the signatures to which reference has been made were intended by the company to effect execution of the charge in question.  That permits it to be argued that the company became bound and it seems to be common ground that registration under section 309 was actually effected.  It seems to me then that there is a serious question to be tried that the defendant's charge exists and that third parties such as the respondent canot avoid its effect. 

I do not think it necessary to add to what Mr Justice Pincus has said in relation to questions as to whether the plaintiff's charge might be invalid by reason of a possible case that it was taken other than in the ordinary course of business.  If that question is arguable as the learned chamber judge thought it was, it would prevent the plaintiff from obtaining a judgment, and therefore raise a triable issue whether or not the defendant had a valid charge.

It seemed to me that the further the arguments of
Mr Morrison (who argued ably on behalf of the respondent seeking to uphold the judgment) proceeded, the more clearly it emerged that this is a case that ought to go to trial.

I accordingly agree with the orders that Mr Justice Pincus has proposed.

JONES J:  I agree with the reasons which have been offered by Mr Justice Pincus and Mr Justice Thomas and with the orders that are proposed.

...

PINCUS JA:  Having heard Mr Morrison's argument on costs, we propose to alter our order about costs; the respondent will have to pay the costs of the appeal including costs reserved on the application for leave to appeal, but as to the costs below, the order will be, instead of the one previously made:  that the costs of the application for summary judgment be the appellants' costs in the suit, with the exception of the costs of the first day's hearing before the District Court (which was adjourned) and there will be no order for costs as to that adjournment.

...

PINCUS JA: We do not propose to grant a certificate under the Appeal Costs Fund Act.

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