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Allen's Asphalt Pty Ltd v SPM Group Pty Ltd

 

[2009] QCA 134

Reported at [2010] 1 Qd R 202

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Allen’s Asphalt P/L v SPM Group P/L [2009] QCA 134

PARTIES:

ALLEN’S ASPHALT PTY LTD
ACN 103 076 508
(plaintiff/respondent)
v
SPM GROUP PTY LTD
ACN 072 761 212
(defendant/appellant)

FILE NO/S:

Appeal No 8682 of 2008

SC No 4528 of 2007

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

22 May 2009

DELIVERED AT:

Brisbane 

HEARING DATE:

24 February 2009

JUDGES:

McMurdo P, Muir JA and Daubney J

Separate reasons for judgment of each member of the Court, Muir JA and Daubney J concurring as to the order made, McMurdo P dissenting

ORDER:

Appeal dismissed with costs

CATCHWORDS:

REAL PROPERTY – TORRENS TITLE – CAVEATS AGAINST DEALINGS – WHO MAY LODGE AND WHAT INTEREST IS SUFFICIENT – PARTY TO A MORTGAGE OR A CHARGE – where, in connection with a prospective sale of goods by the respondent to the appellant, the appellant executed a credit agreement form in which the appellant agreed to charge all its "equitable interest in freehold or leasehold property" – where, in response to the appellant’s account being overdue, the respondent lodged a caveat in respect of a parcel of the appellant’s land – where the appellant applied to have the caveat removed – where application for removal was dismissed – whether the primary judge erred in not ordering the removal of the caveat – whether the primary judge erred in failing to consider whether there was a sufficient likelihood of success of the respondent’s claim to justify preservation of the status quo – whether the balance of convenience favoured the retention of the caveat – whether the primary judge erred in finding that a caveatable interest had been created by the agreement

Land Title Act 1994 (Qld), s 122, s 126(4), s 126(5), s 127, s 128, s 129  

Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415, cited

Clark v Raymor (Brisbane) Pty Limited [No 2] [1982] Qd R 790, cited

Cradock v Scottish Provident Institution (1893) 69 LT 380, cited

Eng Mee Yong v Letchumanan [1980] AC 331, cited Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, cited

Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; [1992] HCA 22, cited

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25, cited Re Burman's Caveat [1994] 1 Qd R 123; [1993] QCA 252, cited

Re Jorss' Caveat [1982] Qd R 458, cited

Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548, cited

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors (2004) 219 CLR 165; [2004] HCA 52, cited

Walsh v Lonsdale (1882) 21 Ch D 9, cited

COUNSEL:

M J Foley for the appellant

A Lyons for the respondent

SOLICITORS:

Connor Hunter for the appellant

Conomos Lawyers for the respondent

  1. McMURDO P: Unlike Muir JA and Daubney J, I would allow this appeal.  These are my reasons, which can be stated more briefly than otherwise as Muir JA has fully set out the relevant facts and issues.

The background to this appeal

  1. The appellant defendant, SPM Group Pty Ltd, which I shall call SPM, entered into a credit agreement with the respondent plaintiff, Allen’s Asphalt Pty Ltd, which I shall call Allens, so that SPM could purchase building materials from Allens. Under the terms of that agreement, SPM agreed "to charge all their equitable interest in freehold or leasehold property". Allens claimed that SPM exceeded its terms of credit under the agreement and on 28 February 2007 lodged a caveat over SPM’s land to secure the alleged debt. Ultimately, the debt was only $3,158.44 and related solely to Allens’ legal costs. On 25 May 2007, Allens filed a claim against SPM in the Supreme Court for a declaration that it held an interest as equitable chargee of the land, and orders under s 99(2) Property Law Act 1974 (Qld) that the property be sold and that SPM deliver up vacant possession within 30 days.  Further or in the alternative Allens claimed $3,158.44 together with interest and indemnity costs.  Allens did not serve the claim on SPM.
  1. On 23 July 2008, Allens filed an application in the Trial Division of this Court under Uniform Civil Procedure Rules 1999 (Qld) r 24 for an order that the claim filed on 25 May 2007 be renewed from 25 May 2008 to 25 May 2009.  It served this application on SPM.  SPM responded by filing an application, to be heard together with Allens’ application, for orders that Allens’ caveat over SPM’s land be removed; that Allens’ claim be struck out; and that judgment be given in the proceedings for SPM with indemnity costs.  Both applications were heard and determined on 7 August 2008. 
  1. The judge was understandably concerned that Allens had brought an action for such a small amount in the Supreme Court instead of in the Magistrates Court.  The dispute between the parties as to whether SPM was liable to pay Allens the money claimed and interest on it should be determined, his Honour considered, in the Magistrates Court.  If successful in the Magistrates Court, Allens could then move against SPM under its security and bring its claim in the Supreme Court for a declaration that it has an actual charge over SPM’s property, and for orders to sell SPM’s land and direct the proceeds towards the satisfaction of its claimed debt.  For those reasons, the judge refused to renew Allens’ Supreme Court claim. 
  1. The judge considered, however, that, under the credit agreement by which SPM agreed "to charge all their equitable interest in freehold or leasehold property" Allens arguably had an interest which it could protect by caveat over SPM’s property. For those reasons, the judge dismissed SPM’s application to have the caveat removed.
  1. The judge ordered that Allens pay three-quarters of SPM’s costs of Allens’ application to be assessed on the standard basis and struck out Allens’ Supreme Court action.
  1. In his ex tempore reasons, the judge did not advert to the effect of his orders being that Allens would not have "a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat"[1] "within 3 months after the lodgment of the caveat".[2]

Should the caveat have been removed once the court proceeding claiming the caveatable interest was struck out?

  1. SPM appeals from the orders of 7 August 2008 contending that the judge erred in refusing to order the removal of the caveat when Allens’ court proceeding, which it relied on to establish its caveatable interest, had been or was to be struck out. Allens has not appealed from the order striking out its claim.
  1. The statute law in Queensland relating to caveats is discretely contained in the Land Title Act 1994 (Qld) ("the Act") Pt 7 Div 2 which, appropriately, is titled "Caveats".  The division makes provision for the requirements of caveats;[3] for who may lodge a caveat[4] and for the method of giving notice to a caveator.[5]  The registrar of titles must give written notice of lodgment of a caveat to those affected by it.[6]  A caveat prevents registration of a subsequent instrument affecting the land[7] until the caveat lapses or is cancelled, rejected, removed or withdrawn.[8]  A caveat may be withdrawn.[9]  If a caveator does not want a caveat to lapse, the caveator must "start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat … within 3 months after the lodgment of the caveat".[10]  The registrar may remove a caveat that has lapsed from the freehold land register.[11]  A caveatee may at any time apply to the Supreme Court for an order that a caveat be removed.[12]  The registrar may cancel a caveat if satisfied of certain matters.[13]  A further caveat with the same caveator can never be lodged in relation to the interest on the same, or substantially the same, grounds stated in the original caveat unless the leave of a court of competent jurisdiction to lodge a further caveat has been granted.[14]  A person who lodges a caveat without reasonable cause must compensate anyone suffering resulting loss or damage.[15] 
  1. The provisions of Div 2 Pt 7 of the Act, most relevantly s 126(4), do not in their terms state that a caveat lapses in circumstances where a caveat has been lodged for more than three months and a proceeding has been started in a court of competent jurisdiction but struck out. Despite this hiatus in these provisions, that must be the intended effect of the scheme relating to caveats in Div 2 Pt 7 of the Act, at least absent a contrary agreement or other compelling reason. Under the scheme, a caveat acts as "an injunction against registration of an inconsistent dealing otherwise than in accordance with the caveat so as to enable, in the ultimate analysis, a determination of the conflicting claims": Leros Pty Ltd v Terara Pty Ltd;[16] Barry v Heider.[17]  The scheme contemplates that a caveat should not be lodged over land for more than three months without the caveator commencing proceedings in a court of competent jurisdiction to establish the interest it claims under the caveat.[18]  The nature of a caveat and the clear legislative intention to be inferred from Div 2 Pt 7 of the Act is that a caveat more than three months old should ordinarily be removed where there is no "proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat".[19]
  1. The primary judge was faced with a difficult situation. His Honour astutely appreciated that Allens’ actions were "in a sense, premature and certainly heavy-handed to move to sell up a commercial property for such a small debt in the absence of compelling evidence that [SPM] is insolvent".[20]  In this respect, it is of interest that had SPM been an individual s 83 Consumer Credit Code (Qld) may have prevented Allens from taking such action without consent of the court.  On the other hand, his Honour identified the reality that Allens appeared under its agreement with SPM to have an interest which it was arguably entitled to protect by caveat over SPM’s land.  Once the judge determined, however, that Allens’ claim should be struck out, the judge should also have acceded to SPM’s claim to remove the caveat.  Lodging a caveat over another's land is a significant interference with their proprietary rights.  This is recognised by s 130 of the Act which provides for compensation to be paid by a person who lodges a caveat without reasonable cause.  Under the scheme in Div 2 Pt 7 of the Act, a caveator must start and maintain a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat.  The striking out of Allens’ Supreme Court action meant that Allens had no proceeding in a court of competent jurisdiction to establish the interest it claimed under the contract.  The judge, therefore, should have granted SPM’s application to remove Allens’ caveat.  If it was successful in its Magistrates Court action against SPM and needed to exercise its rights under the credit agreement over SPM’s property, it could apply to the court to lodge a further caveat under s 129(2).
  1. I wholeheartedly endorse Muir JA's observations that the parties and their legal advisors should immediately make every effort to settle this dispute. The complex and no doubt expensive litigation arising from it bears no proportionality to the disagreement it concerns: about $3,000 of legal fees.
  1. I would allow the appeal, set aside the order dismissing SPM’s application for the removal of a caveat lodged by Allens to secure its charge and instead order that the caveat be removed. I would also order that Allens pay SPM’s costs of and incidental to the appeal and the original applications on the standard basis.
  1. MUIR JA:  The appellant defendant appeals against an order of a judge of the Supreme Court in which the learned judge dismissed the appellant's application to remove a caveat over a parcel of the appellant's land lodged by the respondent.  The respondent's application to renew a claim filed by it on 25 May 2007 claiming a declaration of the existence of an equitable charge in favour of the respondent over the land and payment by the appellant of $3,158.44 was also dismissed.
  1. Before addressing the grounds of appeal, it is useful to state the relevant facts. In connection with the prospective sale of goods by the respondent to the appellant, the appellant executed a credit application form which set out the terms and conditions upon which the respondent would contract with the appellant. It is undisputed that the form contains the terms of agreement between the parties. It relevantly provides:

"CREDIT ACCOUNT TERMS AND CONDITIONS

'The terms and conditions set out in this form will apply to credit extended by Allen's Asphalt and any of its related bodies corporate (as defined by the Corporations Act 2001) or assigns, and your signed application will be evidence of your agreement to that effect.

2.OVERDUE ACCOUNTS

a)Any amount not paid by the due date will at, the discretion of the Supplier, be subject to interest charged at 1½% above the overdraft rate applicable to amounts in excess of $100,000 as charged by the National Australia Bank Limited and calculated on monthly balances.

b)The Customer agrees to pay all legal costs, stamp duty where applicable, and any expenses incurred by the Supplier in connection with the recovery of amounts overdue.

c)The Customer agrees to charge all their equitable interest in freehold or leasehold property.  The Customer agrees to deliver to the Supplier, within seven (7) days of demand, a properly executed Memorandum of Mortgage in a form approved by the Supplier and which includes a covenant providing that interest may be charged on all outstanding monies at rates set from time to time by Section 94 of the Supreme Court Act 1970 (NSW), and otherwise in accordance with Memorandum 0860000, registered at the office of the Registrar General in Sydney."

  1. On 28 February 2007, the appellant's account with the respondent being overdue to the extent of about $5,254.92, the respondent lodged a caveat in respect of land registered in the name of the appellant. The caveatable interest claimed was "equitable chargee of an estate in fee simple." On 1 March 2007 the respondent's solicitors wrote to the directors of the appellant, demanding payment of $7,630.51, being the sum of $5,254.92 plus interest and costs. In an affidavit filed on behalf of the appellant in the proceeding, it was sworn that a cheque for $5,254.92 was paid by the appellant to the respondent on 5 March 2007 and that the amount of the cheque was debited to the appellant's account on 5 March 2007.
  1. On 5 April 2007 the respondent's solicitors wrote to the appellant offering on behalf of their client to withdraw the caveat and waive interest on the condition that the appellant pay $1,800, being part of the costs incurred by the respondent. Mr Boland, a director of the appellant, in an email of 10 April 2007 to Mr Spittle, then a manager of the respondent, alleged that a fortnight previously, Mr Spittle had told him in the course of a telephone conversation that the solicitors had acted without the respondent's instructions, that the caveat would be removed immediately and that, in effect, the claim for monies in excess of the purchase price of the goods was "an internal blunder."
  1. On 11 April, Mr Spittle sent an email to Mr Boland which did not comment on Mr Boland's claims.  It asserted that the respondent was pursuing recovery of outstanding monies in accordance with its standard procedures.
  1. Another director of the appellant, Mr Bennett, emailed Mr Spittle on 17 April 2007 acknowledging that the appellant's account had been in arrears. He complained that the respondent's accounts department had given no indication that legal action was imminent. He complained also of legal action having been taken after the outstanding balance of the account had been reduced to $5,000. The $1,800 was not paid and on 17 May 2007 the respondent's solicitors sent a letter to the appellant demanding payment of $3,138.51. That demand was not met and in order to prevent the caveat from lapsing, the respondent filed a claim in the Supreme Court on 25 May 2007 but did not serve it on the appellant.
  1. Mr Bennett wrote to the respondent's solicitors on 24 May 2007, responding to their letter of 17 May 2007 asserting, inter alia, that the credit agreement had been varied by conduct. It was denied that the appellant was in arrears under the new or varied agreement and it was asserted that it was doubtful that "the charging clause" covered costs. The appellant, in a letter of 28 May 2007 to the respondent's solicitors denied that the respondent had a caveatable interest in the appellant's land as the Memorandum of Mortgage provided for in clause 2(c) was never required. The letter claimed that the agreement was at an end.
  1. I now turn to the grounds of appeal.

The primary judge erred in not ordering the removal of the caveat – the appellant's submissions

  1. The scheme of the Land Title Act 1994 (Qld) ("the Act") is that a caveat which may be lodged under s 122 of the Act lapses after three months pursuant to s 126(4)(a) unless the caveator "start[s] a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat."  It is implicit that the proceeding must not only be started but must remain on foot.  In the circumstances under consideration the caveat cannot be removed.  An application to the Registrar of Titles to cancel the caveat under s 128 is doomed to failure as the Supreme Court refused to remove the caveat.  Any application under the Judicial Review Act 1991 (Qld) for review of a decision of the Registrar not to cancel the caveat would be to a Supreme Court judge, who would be unlikely, for reasons of judicial comity, if not estoppel, to interfere with such a decision. 
  1. The scheme of the Act contemplates that a caveat acts as a statutory injunction to prevent the registration of instruments affecting the land pending resolution of a dispute in court. It does not contemplate a non-consent caveat existing without the support of a proceeding in a court of competent jurisdiction.

The primary judge erred in not ordering the removal of the caveat – the respondent's submissions

  1. The primary judge accepted the respondent's unchallenged evidence that if its application to renew the writ was refused, it would commence fresh proceedings. If the respondent does not commence such proceedings, the appellant may apply under s 127 to the Supreme Court to remove the caveat. It is not the case that the statutory scheme does not contemplate a non-consent caveat for which there is no outstanding proceeding. That is the normal position when a caveat is filed before the commencement of proceedings. The statutory scheme also contemplates that a caveat will remain on a title where there has been a proceeding in which the caveator has failed at first instance but obtains a stay pending lodgement and determination of an appeal. If the statutory scheme permits retention of a caveat after dismissal of proceedings on the merits, it must contemplate also retention of a caveat after dismissal on procedural grounds.

Consideration

  1. The language of s 126 of the Act is clear. It provides that a caveat lodged without the consent of the caveatee lapses unless proceedings to establish the interest claimed are commenced in a court of competent jurisdiction within three months of the date of lodgement.
  1. Neither s 126 nor any other provision of the Act stipulates that if proceedings are commenced within time but come to an end, the caveat thereby lapses. Any conclusion to the contrary would require, impermissibly, that s 126(5) be read as if it contained before the words "the caveat lapses" the following additional words, or words to similar effect, "or if a proceeding commenced within the time required by sub-section (4) is concluded for any reason and there is not extant any other such proceeding."
  1. Counsel for the appellant relied on authorities which establish that a caveat is like "a statutory injunction of an interlocutory nature restraining the caveatee from dealing with the land pending the determination by the court of the caveator's claim to title to the land, in an ordinary action brought by the caveator against the caveatee for that purpose."[21]
  1. Reliance was placed also on the observations of Mason CJ, Dawson and McHugh JJ in Leros Pty Ltd v Terara Pty Ltd[22] that:

"The purpose of a caveat, as stated earlier, is to operate as an injunction against registration of an inconsistent dealing otherwise than in accordance with the caveat so as to enable, in the ultimate analysis, a determination of the conflicting claims."

  1. Their Honours had said earlier[23] that:

"That is because the purpose of a caveat against dealings is to operate as an injunction to the Registrar-General to prevent registration of dealings forbidden by the caveat until notice is given to the caveator so that he or she has an opportunity to oppose such registration." (footnote omitted)

  1. But these pronouncements about the role of a caveat do not warrant the reading into the Act of additional words which would materially alter the effect of its provisions. It is not the case that the role of the caveat, as explained in the authorities, will not be able to be fulfilled properly or may be subverted unless the appellant's construction is accepted: a construction, I might add, which is not derived from particular words in the relevant sections but from what is perceived to be the unfortunate consequences of permitting a caveat to exist in the absence of proceedings brought to confirm the interest claimed.
  1. The appellant's fears are unfounded. The Supreme Court has ample power under s 127 to remove a caveat which ought not remain.  It is not correct, as the appellant's counsel argues, that the primary judge's failure to remove the caveat would ensure that no further application to remove it would have no prospects of success.  A witness swore on the respondent's behalf at first instance that if the claim was not renewed another claim would be filed.  If that was not done, any judge deciding a further application to remove the caveat would be making a decision on a factual basis which differed substantially from that before the primary judge.  The appellant would be able to point to delay on the respondent's part and would derive obvious assistance from the principles earlier discussed.

The primary judge erred in failing to consider properly or at all whether there was a sufficient likelihood of success of the respondent's claim to justify the preservation of the status quo

  1. It is submitted on behalf of the appellant that the reasoning of the primary judge did not include any assessment of the "sufficient likelihood of success" and, in any event, the respondent's claim was struck out and had no prospect of success.
  1. The respondent's contentions in this regard are that the primary judge considered the respondent's prospects of success. He found that:
  1. "the respondent 'has got an interest which it can protect by caveat over the [appellant's] property;'
  1. the respondent had the benefit of a charging clause arising out of an agreement between the parties;
  1. the appellant had failed to pay the respondent monies due on account of interest and costs;
  1. the appellant disputed liability by a 'claim that they had an arrangement with the [respondent] pursuant to which they were not to pay interest';
  1. the dispute was one that merited determination in a Court, albeit another Court."
  1. It is submitted that all of these findings were supported by the evidence and, in particular, there was an admission that payment was overdue. Interest was thus payable. There was also evidence also that costs had been paid by the respondent which were fair and reasonable. The finding that there was a dispute that merited determination in a court was, if anything, unduly favourable to the appellant as the appellant's claims, denied by the respondent, were based on an assertion in an email and were not the subject of sworn evidence.

Consideration

  1. There is no merit in this ground. The primary judge made the findings listed in paragraph [33]. The merits of findings (a) and (b) are discussed later.
  1. It is obviously correct that as a consequence of the striking out of the claim, the respondent could not succeed on the claim. But the respondent did have prospects of succeeding in fresh proceedings which it was anticipated would be brought to secure the relief claimed in the defunct claim.
  1. As subsequent discussion shows, the respondent had a case which was plainly arguable.

The primary judge erred in failing to consider properly or at all whether the balance of convenience favoured the retention of the caveat

  1. The matters relied upon on behalf of the appellant to show that the balance of convenience favoured the removal of the caveat were, the modest amount of the sum claimed which was in the jurisdiction of the Small Claims Tribunal, the absence of notice to the caveatee before lodgement of the caveat, and the lack of evidence that the appellant was unable to pay the amount claimed.
  1. On behalf of the respondent it was submitted that the balance of convenience favoured the respondent as the removal of the caveat would leave the appellant free to deal with its land by disposing of it or granting other charges which might take priority over that held by the respondent. It was submitted also that the appellant offered no undertaking not to deal with the land prejudicial to the respondent's interests and that the appellant was seeking "to be relieved of the consequences of its agreement which included the charging clause". Counsel also pointed to the respondent's ability to seek leave under s 129 of the Act to lodge a further caveat.[24]

Consideration

  1. The primary judge did not refer to the balance of convenience in terms but it is far from clear that he did not address it. The matters relied on by the appellant to demonstrate that the balance of convenience favoured it were the lack of prior warning of the caveat, the modest amount in issue and the lack of evidence of the appellant's inability to pay. The reasons make it plain that his Honour was concerned that the sum in issue was disproportionate to the likely costs of recovery. With that in mind, he refused to renew the claim. The reasons refer to "the absence of compelling evidence that the defendant is insolvent", disclosing that the primary judge had regard to the appellant's financial position. And it is plain that his Honour took into account the respondent's contractual claim for a security and the possible loss of priority if the caveat were to be removed. It thus appears that the primary judge considered the issues of substance relevant to the due determination of the balance of convenience upon which the appellant relied.
  1. The failure to give notice to the caveatee before lodgement of the caveat may have been ill considered but it does not appear to me to have anything to do with either the balance of convenience or the exercise of any discretion. The appellant does not assert that if it had been informed of the respondent's intention to lodge the caveat it would have paid the disputed monies.
  1. The "lack of evidence" of the appellant's capacity to pay is relevant, but not particularly helpful to the appellant. The appellant was in the best position to give evidence of its financial position, but the affidavit material goes no further than asserting "it is in fact not the case, that the SPM debt could not be 'fully recovered' ".  Yet, the appellant accepts that, for some weeks if not months, it was in arrears in the payments required under the agreement.  That suggests either a cavalier attitude towards its obligations or that it was in financial difficulties.  The appellant's case that it was gradually reducing its indebtedness with the acquiescence, if not the approval of the respondent, suggests the latter.
  1. The modest amount of the respondent's claim is a relevant consideration, but there are others which, to my mind, tilted the balance of convenience in favour of the respondent. The parties' bargain was that the monies owing under the agreement be secured. The caveat prevented that security being eroded or lost. The respondent did not attempt to have the appellant execute and deliver a Memorandum of Mortgage. Its registration would have avoided the need for a caveat but the preparation, execution and registration of the Memorandum of Mortgage would have involved the appellant in additional expense.
  1. There was no evidence before the primary judge that the appellant wished to deal with the land and, as counsel for the respondent submitted, there was no undertaking offered by the appellant not to deal with the land pending resolution of the dispute or earlier order. Nor did the appellant pay the disputed sum into court or make any offer in that regard.
  1. Both parties accepted that once the respondent had shown a serious question to be tried or a triable issue, it was appropriate that the application to remove the caveat be decided by reference to where the balance of convenience lay.[25]  If it is correct, which I doubt, that the primary judge did not give due consideration to the balance of convenience, it is plain that there was no error in the primary judge's conclusion.

The primary judge erred in finding that the charging clause in the agreement gave rise to a caveatable interest

  1. The contentions put forward by the appellant's counsel were as follows. Clause 2(c) contains a two-step process. The first step is an agreement by the customer "to charge all their equitable interest in freehold or leasehold property". The second step sets out the mechanism for doing so, namely, delivery of a properly executed Memorandum of Mortgage within seven days of demand. The heading under which the charging clause appears is "Overdue Accounts", not "Overdue Amounts", such as, for example, interest and costs. At best, the equitable charge consequently attaches to "Overdue Accounts", not interest and costs. For the latter to be included in the charge "an equitable mortgage would be necessary", but an equitable mortgage has not arisen as no demand to execute a Memorandum of Mortgage has been made.

Consideration

  1. The appellant's contentions do less than justice to equitable principles and the language of the agreement. In accordance with what is known as the doctrine in Walsh v Lonsdale,[26] an agreement for consideration to execute a mortgage or charge over certain property when required creates an equitable mortgage or charge.[27]  The applicable equitable principle or maxim is that "equity looks on that as done which ought to be done."  Whether those words create a charge over the appellant's land depends on determining the intention of the parties.  That intention is to be determined objectively by reference to "what a reasonable person would have understood [the words] to mean".[28]  And to ascertain that "normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction".[29]  Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract.[30]  It is appropriate also to refer to the following often quoted observations of Romer J in Cradock v Scottish Provident Institution:[31] 

"To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used.  It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property there referred to should constitute a security."

  1. Clause 2(c) contains an agreement by the appellant to charge all its "equitable interest in freehold or leasehold property". It commences with the words "The Customer agrees to charge" and it identifies the property to be charged. There is no good reason for qualifying the first sentence of clause 2(c) by reference to the second sentence. That sentence provides the respondent with the means of obtaining a Memorandum of Mortgage with express enforcement provisions should the respondent deem such further protection necessary or desirable. It is unlikely, in my view, that the contractual intention behind clause 2(c) was that the respondent be denied the protection of a charge after supplying goods until such time as a Memorandum of Mortgage was demanded or entered into. That would tend to ensure, contrary to the appellant's interests, that the respondent would call for the execution of a Memorandum of Mortgage immediately in the event of default or even before that. The charging provision is extremely broad in its ambit but that is not an impediment to its validity or enforceability.[32] 
  1. Clause 2(a) provides for interest to accrue on unpaid monies at a specified rate. Under clause 2(b) the appellant agrees to pay all expenses incurred by the respondent "in connection with recovery of amounts overdue". Clause 2(c), the last of the three sub-clauses in clause 2, contains an agreement by the appellant to charge its freehold and leasehold property. Clause 2(c) also provides for the Memorandum of Mortgage to include a covenant "providing that interest may be charged on all outstanding monies at rates set from time to time by Section 94 of the Supreme Court Act 1970 (NSW), and otherwise in accordance with Memorandum 0860000 …".  Those words, perhaps, assist the argument that no charge is created until execution of the Memorandum of Mortgage, as it seems curious that the Memorandum of Mortgage would provide for an interest rate different from that in clause 2(a). 
  1. I do not consider, however, that the stipulation of two interest rates provides much assistance to the appellant. However clause 2(c) is construed, the agreement provides for two interest rates. The clause 2(a) rate applies until the mortgage takes effect and there is nothing untoward in the charge created by clause 2(c) securing payment of interest which accrued at the clause 2(a) rate prior to the grant of the mortgage.
  1. Clause 2(c) does not identify expressly what is secured by the charge. But consideration of the agreement as a whole, which is both desirable and necessary, does not leave one in any doubt on the point. The agreement deals with only one category of payment by the appellant in addition to the category provided for in each of clauses 2(a) and 2(b): payment for goods purchased by it. It is inconceivable that a reasonable person with the background knowledge of the parties[33] would conclude that the charge agreed to be given by clause 2(c) did not secure the payment of the outstanding balance of the appellant's account.  It is scarcely less conceivable that such a person would not understand the charge to be in respect of the clause 2(a) and 2(b) monies also.  There could be no sensible commercial purpose for differentiating between the categories of obligation when considering the provision of security.
  1. The second sentence of clause 2(c) provides for interest on "all outstanding monies". It is thus implicit that the Memorandum of Mortgage is to secure payment of "all outstanding monies". There is no sensible reason why the charge and mortgage would secure payment of different monies. And "outstanding monies" is an apt description of the three categories of monies required to be paid under the agreement.
  1. A related argument advanced on behalf of the appellant was that as an equitable charge conferred an interest in land it was "required to be created by writing pursuant to section 11(1)(a) Property Law Act 1974" (footnote deleted). Clause 2(c), it was asserted, "contains no writing as to what the land is charged with" and "is therefore insufficient to create an interest in land…". There is no substance in this point either. As appears from earlier discussion, the agreement creates a charge securing payment to the respondent of the monies owing to it under the agreement.
  1. Another of the appellant's contentions was that no interest was due or payable until the respondent exercised a discretion to charge interest under clause 2(a) and that the agreement was terminated by the appellant's letter to the respondent of 28 May 2007. Whether the letter could effect termination of the agreement must depend on whether the respondent was in breach of its contractual obligations to the extent necessary to give rise to a right on the part of the appellant to bring the agreement to an end. Also, the argument fails to take into account the principle that the termination of a contract does not divest or discharge rights which were acquired unconditionally prior to termination.[34]  It is unnecessary however to investigate precisely what interest or costs may have been secured at the time of the hearing at first instance.  It is plain that if the appellant's arguments based on waiver or relinquishment of rights do not succeed, some relevant costs were incurred and there was some accrued interest.

Conclusion

  1. For the above reasons, the appellant has failed to show that the exercise of the primary judge's discretion miscarried. I would dismiss the appeal with costs. It is to be hoped that the parties and their legal advisors now exert themselves to compromise the dispute and conclude this unfortunate piece of litigation. The application of a little goodwill and commonsense would have prevented, what at one stage was a dispute over $1,800, blossoming into a controversy involving progressively higher sums of money.
  1. DAUBNEY J: I respectfully agree with the reasons for judgment of Muir JA and with the orders that the appeal be dismissed with costs.

Footnotes

[1] Land Title Act 1994 (Qld), s 126(4)(a).

[2] Land Title Act 1994 (Qld), s 126(4)(a)(ii).

[3] Land Title Act 1994 (Qld), s 121.

[4] Land Title Act 1994 (Qld), s 122.

[5] Land Title Act 1994 (Qld), s 131.

[6] Land Title Act 1994 (Qld), s 123.

[7] Land Title Act 1994 (Qld), s 124(1), subject to the matters listed in s 124(2) and s 124(3) to (5).

[8] Land Title Act 1994 (Qld), s 124(1)(a).

[9] Land Title Act 1994 (Qld), s 125.

[10] Land Title Act 1994 (Qld), s 126(4)(a)(ii).  Under s 126(6) the caveator is taken to have complied with s 126(4)(a) if a proceeding has been started in a court of competent jurisdiction to establish the interest claimed under the caveat before the caveat was lodged.

[11] Land Title Act 1994 (Qld), s 126(7).

[12] Land Title Act 1994 (Qld), s 127.

[13] These are listed in Land Title Act 1994 (Qld), s 128(1)(a) to (c).

[14] Land Title Act 1994 (Qld), s 129(2).

[15] Land Title Act 1994 (Qld), s 130.

[16] (1991) 174 CLR 407, Mason CJ, Dawson and McHugh JJ at 422.

[17] (1914) 19 CLR 197, Isaacs J (as he then was) at 221.

[18] Land Title Act 1994 (Qld), s 126(4).

[19] Land Title Act 1994 (Qld), s 126(4).

[20] Allen's Asphalt Pty Ltd v SPM Group Pty Ltd SC No 4528 of 2007; 7 August 2008; p 4.

[21] Eng Mee Yong v Letchumanan [1980] AC 331 at 335 referred to, with approval, in Re Jorss' Caveat [1982] Qd R 458 at 464 and Re Burman's Caveat [1994] 1 Qd R 123.

[22] (1992) 174 CLR 407 at 422.

[23] (1992) 174 CLR 407 at 419.

[24] Oversea-Chinese Banking Corporation Limited v Becker [2004] 1 Qd R 409.

[25] Re Jorss' Caveat [1982] Qd R 458 at 464 – 465 and Re Burman's Caveat [1994] 1 Qd R 123.

[26] (1882) 21 Ch D 9.

[27] Swiss Bank Corporation v Lloyds Bank Ltd [1979] Ch 548; Clark v Raymor (Brisbane) Pty Limited [No. 2] [1982] Qd R 790 at 795 and Sykes and Walker, The Law of Securities (5th ed, 1993) p197-198.

[28] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.

[29] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.

[30] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912.

[31] (1893) 69 LT 380 at 382.

[32] Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415.

[33] See Toll (FGCT) Pty Ltd  v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.

[34] McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476 – 477; Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 370, 380 and Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129 at 1134 – 1136 and 1141 – 1142.

Close

Editorial Notes

  • Published Case Name:

    Allen's Asphalt P/L v SPM Group P/L

  • Shortened Case Name:

    Allen's Asphalt Pty Ltd v SPM Group Pty Ltd

  • Reported Citation:

    [2010] 1 Qd R 202

  • MNC:

    [2009] QCA 134

  • Court:

    QCA

  • Judge(s):

    McMurdo P, Muir JA, Daubney J

  • Date:

    22 May 2009

Litigation History

Event Citation or File Date Notes
Primary Judgment - - -
Appeal Determined (QCA) [2009] QCA 134 22 May 2009 -

Appeal Status

{solid} Appeal Determined (QCA)