- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Geoff Sharpe Pty Limited v M&E Fitzgerald Holdings Pty Ltd and Ors  QSC 225
GEOFF SHARPE PTY LIMITED
ACN 000 757 602
M & E FITZGERALD HOLDINGS PTY LTD
ACN 056 249 060
FITZGERALD, Elizabeth Anne and FITZGERALD, Michael William
ACN 056 249 060 as trustee of the Fitzgerald Family Trust
SC No 6419 of 2009
Supreme Court at Brisbane
18 June 2010
15, 16, 17 and 18 June 2010
Margaret Wilson J
CORPORATIONS – CHARGES, DEBENTURES AND OTHER BORROWINGS – GENERALLY – FLOATING CHARGES AND CRYSTALLISATION THEREOF – where first defendant was placed in voluntary administration – where plaintiff given leave to proceed pursuant to s 440D of the Corporations Act 2001 (Cth) – where administrator given notice of the trial but elected not to defend the proceeding – where plaintiff was owner of land – where a hotel was erected on land and first defendant and another were lessees of the premises – where plaintiff as lender and first and third defendant as borrowers and second defendants as guarantors, entered into a loan agreement – where first defendant as mortgagor and plaintiff as mortgagee entered into a mortgage debenture – where plaintiff gave notice to first defendant of default under the loan agreement and mortgage debenture, and crystallisation of the charge created by the mortgage debenture over specific assets – where plaintiff claims $3,027,705.17 as "moneys hereby secured" within the meaning of the loan agreement – where mortgage debenture secured repayment of "moneys hereby secured", which were defined in schedule 3 of the mortgage debenture by reference to the loan agreement – where by clause 5 of the mortgage debenture the mortgagor charged, "all and singular its undertaking and all its property and assets real and personal, whether at Law or in Equity, whatsoever and wheresoever both present and future..." – where by clause 6 the charge operated as a fixed and specific charge over assets in schedule 7 and a floating charge over all other property and assets in the mortgaged premises – where there was no property set out in schedule 7 – where mortgage debenture did not contain any provision for automatic crystallisation on default – where plaintiff seeks a declaration of a floating charge over land pursuant to mortgage debenture, and a declaration that land is charged with repayment of $3,927,705.15 pursuant to loan agreement – whether those moneys are due and owing pursuant to loan agreement – whether by the mortgage debenture the first defendant granted the plaintiff a floating charge over all its assets and undertaking to secure repayment of moneys owing pursuant to the loan agreement
Corporations Act 2001 (Cth), s 440D
Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corporation (1984) 9 ACLR 269, cited
Relwood Pty Ltd v Manning Homes Pty Ltd (No 2)  2 Qd R 197, cited
N J Thompson for the plaintiff.
T N Dobinson (sol) for the first defendant.
E A Fitzgerald (not a lawyer) for the second defendants.
Lehns Lawyers for the plaintiff.
Preston Law for the first defendant.
HER HONOUR: This is the matter of Geoff Sharpe Pty Ltd v. M & E Fitzgerald Holdings Pty Ltd for judgment.
The plaintiff seeks judgment against the first and third defendants for –
(A) the sum of $3,927,705.17 as particularised in paragraphs 23 and 24 of the Statement of Claim, being moneys owing pursuant to a loan agreement less the repayment referred to in paragraph 25, together with interest;
(B) a declaration that by virtue of the mortgage (being the agreement dated 6 February 2006 entitled "Mortgage Debenture") the first defendant granted to the plaintiff a floating charge pursuant to paragraphs 5 and 6 of that mortgage over its estate and interest in the following lands, being lot 111 on SP100727, County of Ward, Parish of Gilston and contained in Title Reference 50270797 and charged them with repayment of the moneys referred to in (A);
(C) a declaration that the mortgage secures to the plaintiff all moneys due and owing under the loan agreement between the parties dated 6 February 2006;
(D) costs on a solicitor and own client basis. After the proceeding was commenced, indeed, on the eve of trial, M & E Fitzgerald Holdings Pty Ltd was placed in voluntary administration. I record having given the plaintiff leave to proceed pursuant to section 440D of the Corporations Act.
The administrator was given notice of the trial but elected not to defend the proceeding. Counsel for the plaintiff relied upon the pleadings, the oral evidence of Mr Sharpe (the plaintiff's managing director) and documentary evidence, in particular, a loan agreement dated 6 February 2006, a mortgage debenture of the same date and a notice of default dated 10 December 2007.
The plaintiff was the owner of land at Burleigh Heads. There was a hotel called the Cove Tavern erected on it. Pub Group Pty Ltd and M & E Fitzgerald Holdings Pty Ltd were lessees of the premises.
On or about 6 February 2006 the plaintiff as lender, Pub Group Pty Ltd, Pub Group Pty Ltd as trustee for Pudda's Family Trust, the first defendant and the third defendant as borrowers and the second defendants and Anthony Parmenter as guarantors, entered into a loan agreement which was Exhibit 4 in this proceeding.
Also on that date the first defendant as mortgagor and the plaintiff as mortgagee entered into a mortgaged debenture, Exhibit 5 in this proceeding.
On or about that date the plaintiff advanced $560,000 to the borrowers pursuant to the loan agreement.
In May 2006 Mr Sharpe had discussions with Mr Parmenter (on behalf of Pub Group Pty Ltd) and Mrs Fitzgerald, one of the second defendants (on behalf of the first defendant) about a joint venture agreement. Heads of agreement were drawn up. The joint venturers were to borrow funds to allow them to acquire up to 20 gaming machine authorities. The gaming machines were to be placed in the hotel. It was necessary for them to submit a tender to the Public Trustee. The heads of agreement were premised on their acquiring up to 20 authorities and bidding up to a certain amount per authority.
In about June 2006 the plaintiff, Pub Group Pty Ltd and the first defendant borrowed $5,861,000 from BankWest which they applied as follows.
Payment of plaintiff’s indebtedness to Suncorp $2,100,000.00
Repayment of loan to plaintiff$ 560,000.00
Repayment of borrowers’ BankWest loan$ 550,000.00
Purchase price gaming machine authorities for Cove Tavern$2,356,000.00
Cove Tavern working capital$ 205,000.00
Borrowing fees including stamp duty$ 90,000.00
On or about 31 August 2006 the plaintiff advanced the further sum of $452,000 to the borrowers. That was to be repaid in 12 months and included $52,000 prepaid interest.
In fact, the joint venturers were successful in securing only 11 gaming machine authorities and they had to pay substantially more per authority than they had budgeted for. Subsequently they decided to bid for a second tranche of authorities with a view to building up to a total of 20.
In or about May 2007 the plaintiff, Pub Group Pty Ltd and the first defendant borrowed a further $1,981,000 from BankWest.
At a meeting held on or about 10 July 2007 attended by Mr Sharpe, Mr Parmenter and Mrs Fitzgerald it was orally agreed that the joint venture between the plaintiff and the borrowers in respect of the Cove Tavern was at an end, that the borrowers were to be entitled to the Cove Tavern business conducted by the joint venture, and that the borrowers were to be responsible for the payment of loan liabilities of the joint venture apart from those attributable solely to the plaintiff.
As a result, the plaintiff was responsible for $2.1 million of the liability to BankWest and the first defendant and Pub Group Pty Ltd were responsible for the balance of $5.742 million.
The first defendant failed to repay the plaintiff the $452,000 due by 31 August 2007.
In December 2007 the plaintiff gave notice to the first defendant of default under the loan agreement and mortgage debenture, and crystallisation of the charge created by the mortgage debenture over specific assets including the land referred to in the claim for relief ("the Main Beach land").
The plaintiff made further advances to the borrowers as follows:
19 January 2008$10,000
22 January 2008$15,000
to allow them to meet interest obligations to BankWest.
The plaintiff sold the freehold on which the hotel business was conducted. On settlement on 15 February 2008, $5,758,504.68 of the sale proceeds was paid to BankWest.
Pursuant to the oral agreement made on or about 10 July 2007, the first defendant and Pub Group Pty Ltd were indebted to the plaintiff in respect of the advances made by BankWest in the amount of $3,658,504.68 calculated as follows:
Amount paid to BankWest$5,758,504.68
less plaintiff's share$2,100,000.00
On 9 April 2009 and 22 May 2009 the plaintiff made demands on Pub Group Pty Ltd and the first defendant for repayment of -
$ 452,000.00Advanced 31 August 2006;
$ 20,000.00Advanced December 2007;
$ 10,000.00Advanced 19 January 2008;
$ 15,000.00Advanced 22 January 2008
$3,658,504.68Moneys paid to BankWest on 15 February 2008
$ 224,200.49 Interest
The sum of $452,000 was repaid to the plaintiff on 13 July 2009, leaving a balance of $3,927,705.17.
Pursuant to the loan agreement the plaintiff made a loan facility of $560,000 available to the borrowers. The agreement provided for the repayment of that amount together with interest in clauses 3.1 and 3.2 –
“3.1The Loan Facility shall be repaid on the Repayment Date.
3.2The Borrower hereby covenants with the Lender that:
3.2.1So long as any part of the moneys hereby secured remain owing the Borrower will pay to the Lender interest calculated monthly from the date of advance at the rate charged by Suncorp Metway Bank on overdraft facilities of a similar amount to the Loan Facility plus 0.25%.
3.2.2The Borrower will pay interest to the Lender on the Repayment Date. Interest will be calculated monthly and capitalised from the date hereof until the Repayment Date.
3.2.3The term ‘Repayment Date’ means whichever is the earlier of:
(a)30 June 2006; and
(b)the date upon which the Borrower as purchaser completes the purchase from the Lender as vendor of a one half (1/2) interest in land and improvements at 105 West Burleigh Road, Burleigh Heads in the State of Queensland and described as Lot 1 on SP 145332 County Ward Parish Gilston.”
That agreement also provided for further advances in clause 3.3 –
“3.3The Borrower may apply for and the Lender may in its discretion make any further advance which further advance the Lender is not obliged to make. Each further advance shall as from the day of each such advance be added to and shall become part of the moneys hereby secured and shall bear interest accordingly. Reference in other clauses hereof to the moneys hereby secured shall be construed as including any further advance. Each further advance shall be secured by the security as defined herein and by such further security as the Lender may require and the terms of this Agreement shall apply thereto except to the extent that the same are expressly excluded or modified in writing.”
It contained a wide definition of, "Moneys hereby secured" in clause 9.1. –
“…‘moneys hereby secured’ shall mean and include all moneys already advanced or paid or now or hereafter advanced or paid by the Lender to for or for the use or accommodation of or on behalf of the Borrower either alone or jointly with any other person or otherwise owing or payable now or hereafter by the Borrower either alone or jointly with any other person to the Lender on
any account or for any reason or in any manner whatsoever and without limiting any way whatsoever the generality of the foregoing:
9.1.1All moneys which the Lender is liable to lend, pay or advance or now or hereafter pays or becomes liable to pay or may possibly become liable to pay to for or for the use or accommodation of or on behalf of the Borrower either alone or jointly with any other person either by advances or by reason of the Borrower having already entered or hereafter entering into any engagement or bond whether a performance bond or any other bond whatsoever or indemnity or guarantee or undertaking or any other commitment or accepting endorsing paying or discounting any negotiable instrument whatever by which the liabilities be incurred on behalf of or at the request expressed or implied of the Borrower either alone or jointly with any other person whether such engagements bond indemnities guarantees undertakings or other commitments in negotiable instruments aforesaid shall have matured or not.
9.1.2All moneys whatsoever already lent or advanced or which the Lender now or hereafter lends or advances or is or becomes in any way whatsoever liable to lend or advance to for or for the use or accommodation of or on behalf of any other person upon the order direction or request, expressed or implied, or under the authority of the Borrower in any case whether the Borrower be acting alone or jointly with any other person.
9.1.3All moneys which the Lender is or shall be at liberty to debit and charge the Borrower on any account or for any reason either alone or jointly with any other person whether under the terms of any security held by or any other agreement with the Borrower and/or relating to the Lender now or hereafter either alone or jointly with any other person or under the conditions or provisions herein contained or otherwise.
9.1.4Interest upon all such moneys as aforesaid or on so much thereof as shall for the time being be owing or payable or remain unpaid at the
rate (or the acceptable rate if more than one rate applies) agreed upon in writing between the Lender and the Borrower; such interest shall accrue from day to day and shall be computed from the day or respective days of such moneys being paid or disbursed or becoming owing and be otherwise calculated and charged including as to the rate(s) charged the amounts upon which such rate(s) is/are charged the manner in which the interest is capitalised and in all other respects as agreed upon in writing from time to time between the Borrower and the Lender.
AND a reference herein to the moneys hereby secured shall include any part of the moneys hereby secured.”
The borrowers agreed to provide security in clause 5.1 as follows -
“5.1The Borrower covenants with the Lender that the covenants and obligations hereunder shall be secured by the giving of the following securities which shall be a condition precedent hereto:
5.1.2A charge (fixed and floating) over the assets of each Borrower.”
"Security" was defined as follows –
“’Security’ shall extend to any agreement or document now and from time to time which secures to the Lender the payment of moneys hereby secured or the performance of the obligations hereby secured and shall include any charge, lien, Encumbrance, Mortgage, Bill of Mortgage, Bill of Sale, Guarantee, bond, covenant, debenture, negotiable instrument, whether registered or unregistered, whether legal or equitable, in favour of the Lender securing moneys hereby secured or the performance or observance of the obligations hereby secured.”
The obligations of the entities comprising the borrower were joint and several. See clause 9.3.
I am satisfied that the $3,927,705.17 claimed by the plaintiff is comprised of "moneys hereby secured" within the meaning of the loan agreement.
The mortgage debenture secured repayment of “moneys hereby secured", which were defined in schedule 3 of the mortgage debenture as $560,000 and “the obligations of the Mortgagor under a certain Loan Agreement made between the Mortgagee of the First Part and the parties named in Schedule 4 of the Second Part". That was a reference to the loan agreement which is Exhibit 4 in this proceeding.
By clause 5 of the mortgage debenture the mortgagor charged, "all and singular its undertaking and all its property and assets real and personal, whether at Law or in Equity, whatsoever and wheresoever both present and future..."
By clause 6 the charge operated as a fixed and specific charge over assets in schedule 7 and a floating charge over all other property and assets in the mortgaged premises. There was no property set out in schedule 7.
Clause 6 provided –
“6.The charge hereby created shall (unless otherwise specified in Schedule 7) be a first charge on the mortgaged premises and shall operate as a fixed and specific charge as regards all those assets (if
any) enumerated and described in Schedule 7 and shall operate as a floating charge as regards all other property and assets included in the mortgaged premises hereby charged but so that the Mortgagor shall not (save as herein mentioned) be at liberty to create nor shall it attempt to create any mortgage charge bill of sale or lien over any part of its undertaking assets rights or property ranking in priority or pari passu with this security or to sell lease let or otherwise dispose of the property hereby charged by way of fixed and specific charge or any interest therein except with the consent in writing of the Mortgagee first had and obtained.”
The mortgage debenture did not contain any provision for automatic crystallisation on default. In the circumstances the charge would crystallise upon the occurrence of what Gough in Company Charges 2nd ed at page 232 has described as –
"(1)a business cessation event, including winding up and ceasing business operations as a going concern prior to winding up; and
(2)a chargee intervention event including appointment of a receiver or manager, taking possession as mortgagee, and obtaining an injunction against company dealings with the charged assets generally."
No such event has been pleaded.
In Relwood Pty Ltd v Manning Homes Pty Ltd (No 2)  2 Qd R 197 at 201, McPherson SPJ described the nature of a floating charge in these terms –
"Even before its crystallisation a floating charge is said to be an ‘existing’ or a ‘present’ charge: Evans v Rival Granite Quarries Limited  2 K.B. 979, at 994, 999; but its operation as a security on specific assets is deferred to the happening of a defined future event that will cause it to become a fixed security; ibid., at 999, per Buckley L.J. In the interim the chargee no doubt has rights at least as extensive as those of the assignee of future property described by Dixon C.J. in Palette Shoes Pty Ltd v Krohn (1937) 58 C.L.R. 1, 26-27; but even if it is then properly considered an ‘equity’, the right before crystallisation is nevertheless not (as Walton J. in Cairney v Back  2 K.B. 746, 752, seemed disposed to think) an equity of such a kind as to prevail in a competition with a proprietary interest in a particular asset. Not until crystallisation does the charge fix and attach specifically to any asset. Once it does so, the company becomes trustee of the asset for the benefit of the chargee as equitable mortgagee of that asset, and must deal with it accordingly."
Further, in Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corporation (1984) 9 ACLR 269 at 271 - 272 Helsham CJ in Eq said –
"... property the subject of a floating charge is nonetheless covered by a charge. I agree with what Holland J said in his reasons for judgment in Hamilton v Hunter (1982) 7 ACLR 295 at 306:
The judgments in some of the cases are expressed, and the plaintiff's argument was put, as if the mortgagee had no proprietary interest whatever in the assets the subject of a floating charge until ‘crystallisation’ occurred. I do not see why that should be so. The correct view would seem to me to be that from the commencement of a floating charge the mortgagee has an immediate and continuing equitable charge over the mortgagor's assets but it is subject to the right of the company to dispose of or deal with the assets free of or released from the charge to the extent that may properly be implied from the common intention of the parties that the company will continue to carry on its business or operations until the occurrence of some stipulated or contemplated event …
And Kay LJ said in Driver v Broad  1 QB 744 at 749: ‘That is the ordinary meaning of the term ‘floating security’. It does not mean that there is not to be a charge, and an immediate charge, on the property, but merely that, notwithstanding the existence of the charge on all the property, including the real property, of the company, power is reserved to dispose of the property if in the ordinary course of carrying on the company's business it becomes necessary to do so. The charge is none the less a charge because a power is reserved’, a passage quoted by Cozens-Hardy J in Wallace v Evershed  1 Ch 891 at 894 and followed by the words ‘It follows that, in my judgment, the debenture-holders have a charge upon the property from the moment the debentures are issued’; see also per O'Bryan J in Re Otway Coal Co Ltd  VLR 557 at 565."
At all material times the first defendant was the registered owner of the Main Beach land. The plaintiff seeks a declaration of a floating charge over that land pursuant to clauses 5 and 6 of the mortgage debenture, and a declaration that that land is charged with repayment of the $3,927,705.17 previously referred to.
I am satisfied that those moneys are due and owing pursuant to the loan agreement.
I am satisfied that by the mortgage debenture the first defendant granted the plaintiff a floating charge over all its assets and undertaking, including the Main Beach land, to secure repayment of moneys owing pursuant to the loan agreement.
Accordingly I make the following orders:
1. that there be judgment for the plaintiff against the first defendant in the sum of $3,927,705.17.
2. declare that the mortgage debenture as between the first defendant as mortgagor and the plaintiff as mortgagee executed on 6 February 2006 secures payment of the said sum to the plaintiff.
3. declare that pursuant to clauses 5 and 6 of the said mortgage debenture the first defendant granted the plaintiff a floating charge over all its assets and undertaking, including the land described as lot 111 on SP 100727 in the County of Ward Parish of Gilston and contained in title reference 50270797.
The plaintiff seeks costs on the indemnity basis pursuant to the loan agreement. Both the loan agreement (clause 3.4.2) and the mortgage debenture (clause 32) entitle the plaintiff on demand to costs incurred in the enforcement or protection of its rights on a solicitor and own client basis.
Accordingly, I further order:
4. that the first defendant pay the plaintiff's costs of and incidental to the proceeding to be assessed on the indemnity basis, but limited to a trial of two days.
- Published Case Name:
Geoff Sharpe Pty Limited v M&E Fitzgerald Holdings Pty Ltd and Ors
- Shortened Case Name:
Geoff Sharpe Pty Ltd v M&E Fitzgerald Holdings Pty Ltd
 QSC 225
M Wilson J
18 Jun 2010
No Litigation History