Hornsby Shire Council v Salmar Holdings Pty Ltd [1972] HCA 26; (1972) 126 CLR 52 (14 April 1972)

HIGH COURT OF AUSTRALIA

HORNSBY SHIRE COUNCIL v. SALMAR HOLDINGS PTY. LTD. [1972] HCA 26; (1972) 126 CLR 52

Local Government (N.S.W.)

High Court of Australia

Barwick C.J.(1), McTiernan(2), Menzies(3), Owen and Walsh(4) JJ.

(THE RIGHT HONOURABLE MR JUSTICE OWEN died before the delivery of judgment in this case.)

CATCHWORDS

Local Government (N.S.W.) - Proclamation declaring residential district - Prohibition of erection of building for use for purposes of any trade - Private convalescent hospital - Whether "trade" - "Business" and "trade" - Local Government Act, 1919 (N.S.W.), as amended, s. 309 (1) (c).

HEARING

Sydney, 1972, March 22; April 14. 14:4:1972

APPEAL from the Supreme Court of Queensland.

DECISION

February 25

The following written judgments were delivered : -

BARWICK C.J. The relevant parts of a trust deed by which assets of provided by stockholders and the facts which have given rise to this litigation are fully set out in the reasons for judgment prepared by my brother Menzies which I have had the advantage of reading. The question is whether two sums of money, the proceeds of debts due to the company, which have come to the hands of the receiver and manager of the company in Queensland are assets of the company in Queensland charged with the payment of money to the stockholders. (at p603)

2. The charge was a floating charge which became a fixed charge before these moneys came to hand in Queensland. The appellant's submission has been that the charge was limited to those assets which before it became a fixed charge were in Queensland and employed by the company in its business activities in that State. (at p603)

3. The question, however, which the litigation raises must be answered by construction of the language of the trust deed by which the charge was created. It is the description of the property charged, rather than the nature of the charge created, which will supply the answer. After consideration I have come to the conclusion that the sums of money in question do fall within the description of the property charged. That description included present and future assets of whatsoever kind in the State of Queensland. The only limitation on the generality of that description was the location of the asset. That description, in my opinion, was just as applicable and operative when the charge became a fixed charge as it was when the charge remained a floating charge. The language of the description cannot be construed in my opinion as limited to those assets in Queensland which were at any time subject to the floating charge. Upon the charge becoming a fixed charge it spoke for the future according to its terms. Thus after-acquired property became charged as it came into existence in Queensland, or came within Queensland. It cannot matter, in my opinion, whence such property was derived. The description merely requires it to be an asset of the company situate in Queensland. (at p603)

4. I therefore agree with the conclusions which my brother Menzies has reached and I agree generally with the reasons he gives. However, while I agree that much of the reasoning of Russell and Sellers L.JJ. in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (1963) 1 WLR 1324 ; (1963) 3 All ER 613 supports the above-mentioned conclusion, I would not wish to be taken as accepting the decision of the majority of the members of the Court of Appeal in that case. I see a significant difference between the facts of that case and this in that the moneys in question here were derived from debts due to the company itself. The precise matter decided in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (1963) 1 WLR 1324 ; (1963) 3 All ER 613 remains for me an open question. (at p603)

5. In my opinion the order made by the Supreme Court of Queensland (1970) Qd R 245 was right and this appeal should be dismissed. (at p603)

McTIERNAN J. I agree that the appeal should be dismissed. I am of the same opinion as the Chief Justice. (at p604)

MENZIES J. This appeal is concerned with competing rights

to two sums of money, $12,328.34 and $1,479.22, received in Queensland by one Chadwick in his capacity as receiver and manager of the property of Australian Factors (Queensland) Pty. Ltd. (which I shall call "the company") mortgaged under a trust deed of 23rd November 1962, in favour of lenders called stockholders. The first payment was received in discharge of debts owing to the company in Victoria ; the second payment was received in discharge of debts owing to the company in the Australian Capital Territory. It was mutually agreed by the parties that the debts were "at 13th March, 1964" - the date of Chadwick's appointment as receiver and manager - "property of the company situate outside the State of Queensland and the State of New South Wales". The significance of this lies in the terms of cl. 12 (a) of the trust deed. That provision is as follows :

"12. (a) The Company as beneficial owner hereby by way

of First Charge charges in favour of the Trustee the

undertaking

of the Company and all its real and personal property

and assets and rights whatsoever and wheresoever situate

both present and future in the State of Queensland and the

State of New South Wales including its uncalled and called

but unpaid capital for the time being by way of floating

security with the payment of : -

(i) the principal and interest moneys from time to time

payable in respect of the Issued Stock and

(ii) all other moneys for the time being owing on the

security of this Deed

PROVIDED HOWEVER that the real or other property of the

Company both present and future which is now or which (in

accordance with the provisions of this Deed) may hereafter

be comprised in any specific security by way of mortgage or

encumbrance ranking prior in point of security to the charge

hereby created shall be deemed to be hereby charged subject

to such specific security." (at p604)

2. The appellants, who were plaintiffs in the proceedings in the

Supreme Court of Queensland, are the company and the administrator of a scheme of arrangement made by the company in December 1966. The respondent, who was the defendant in the proceedings in the Supreme Court of Queensland, is the receiver and manager of the company appointed under the scheme of arrangement to whom Chadwick has accounted for the two sums of money received as aforesaid. He therefore represents the stockholders secured by the trust deed. (at p604)

3. The Full Court of the Supreme Court of Queensland, upon a special case, answered a question submitted to it to the effect that the defendant is the party to the proceedings entitled to the two sums (1970) Qd R 245 . It is the correctness of this answer that is now in question. (at p605)

4. Counsel for the appellants made two submissions. The first is that, because the only property charged was the property of the company "in the State of Queensland and the State of New South Wales", any property outside those States was altogether excluded from the operation of the deed, so that moneys received at any time from the realization of such property would, notwithstanding their being brought into Queensland, remain outside the charging effect of the trust deed. According to this submission, if the company had, while it was a going concern, sold land in Victoria and brought the proceeds into Queensland, those proceeds would not have been assets of the company in Queensland for the purposes of the deed. (at p605)

5. This submission I reject. Clause 12 (a) of the trust deed does not exclude property of the company outside Queensland and New South Wales and its proceeds from the operation of the deed ; it provides for the charging of all assets in Queensland and New South Wales both present and future. Proceeds of the realization of property outside Queensland, when brought into Queensland, are assets situated in Queensland and prima facie then fall within the charge. The Full Court did not have to consider this submission. In my opinion it is not possible, in the face of the language of cl. 12 (a), to accept it. (at p605)

6. The second submission is of a more limited character. It is that, when, on 13th March 1964, Chadwick was appointed receiver and manager of the company, the security created by the trust deed ceased to be a floating security and became a fixed security upon assets then in the States of Queensland or New South Wales, and incapable of imposing any charge upon any future assets of the company, or any assets of the company then outside Queensland and New South Wales but subsequently becoming situate in one or other of these States. The final step in this argument the Full Court rejected. (at p605)

7. I propose to consider the problem first as a matter of the construction of the trust deed without resort to authority. (at p605)

8. Clause 12 (a) does create a charge "by way of floating security" and it is true that, when, on 13th March 1964, a receiver and manager was appointed, the deed was no longer capable of charging future assets by way of floating security. On that date the security crystallized and assets, which had, up to then, been subject to a floating charge, became subject to a fixed charge. Any charge that the deed could impose upon assets not at that date charged would also be a fixed charge. It would be wrong, however, to consider the trust deed as doing no more than creating a floating charge. Of course, it provided for a fixed charge which, in due course, was imposed by virtue of its operation. This was not the effect of cl. 12 (a) by itself. Clause 14 (a) and (b) provides :

"14. (a) Until the security constituted by this Deed becomes

enforceable as hereinafter provided the Trustee shall permit

the Company to hold and enjoy all the mortgaged property

and to carry on therein and therewith its present business or

any of the other businesses authorised by its Memorandum of

Association.

(b) If the security constituted by this Deed becomes

enforceable the Trustee may at its discretion without any

such request as is next hereinafter mentioned and (subject to

any prior direction given by resolution passed at a general

meeting of Stockholders) shall upon the request in writing

signed by the holder or holders of not less than one-fifth in

value of the Issued Stock or upon the passing of a resolution

of the Stockholders directing it so to do (but in any such case

without any further consent on the part of the Company)

enter upon or take possession of the mortgaged property or

any part of it and if it thinks fit carry on the Company's

business with all the powers of an absolute owner . . ." (at p606)

9. The provision envisaged in cl. 14 (a) by the words "as hereinafter provided" is cl. 15, by which it is provided that the security shall become enforceable in a number of events starting with (a) and proceeding to (y). This specification is followed by a proviso as follows :

"Provided always and notwithstanding anything in this

Deed contained but without prejudice to any of the provisions

hereof the Trustee may at any time upon the happening of

any of the events mentioned in this Clause 15 by notice in

writing to the Company convert the floating charge hereby

created into a fixed charge." (at p606)

10. Clause 18 commences as follows :

"The Trustee at any time after the security hereby

constituted

becomes enforceable may by writing appoint or remove

a receiver of the mortgaged property or any of it . . ." (at p606)

11. The deed makes provision for the application of "All moneys

received by the Trustee from any sale management of business or otherwise from or out of the mortgaged property or under or by virtue of this Deed" and it is only if and when stockholders have been satisfied that the company becomes entitled to any part of the mortgaged property or its proceeds : see cl. 36. (at p607)

12. The trust deed is, therefore, as I have said, one which created a floating charge, and, in the events which have happened, a fixed charge to provide for the payment to stockholders of the money loaned and interest thereon. I find nothing in the deed which limits its operation to assets of the company in Queensland or New South Wales before or at the time the charge, in accordance with the terms of the deed, changed from a floating charge to a fixed charge. If it should so happen the company is found with assets in Queensland or New South Wales at any time whilst the trust deed continued to operate, I find nothing in its terms to exclude those assets from the operation of the deed. I therefore reject the argument that assets must have been subject to a floating charge under the deed before they can be regarded as subject to a fixed charge, once the deed operated to impose such a charge. If a company borrows money and gives a charge in favour of the lenders, it is not, I think, for the Court to be astute to limit the operation of the deed creating the charge to reduce, in favour of the company, the security of the lenders. An assignment of future assets, such as this deed makes, does not, in the absence of clear language so providing, lose its efficacy as an assignment when the deed has the character of a fixed charge. See Palette Shoes Pty. Ltd. (In Liq.) v. Krohn [1937] HCA 37; (1937) 58 CLR 1, at p 26 . Thus later payments for goods previously sold would fall within its provisions, as would payments of the character of those held to be part of a company's income in Federal Commissioner of Taxation v. Squatting Investment Co. Ltd. [1954] UKPCHCA 2; (1954) 88 CLR 413 , notwithstanding that there had been no right to receive them before the charge became a fixed charge. (at p607)

13. A suggestion was made that cl. 12 (b) should be read as though the only assets affected thereby were those employed in the undertaking of the company when it was a going concern. The words of the clause deny this, for the word "its" is clearly enough a reference to the company and not to the undertaking. Moreover, cl. 12 (b) charges uncalled and called but unpaid capital which falls outside what is ordinarily regarded as assets employed in a business undertaking. (at p607)

14. What the language of the deed warrants, the authorities support. N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (1963) 1 WLR 1324 ; (1963) 3 All ER 613 , is a decision of the Court of Appeal very much in point. There a debenture created what was expressed to be a floating charge (cl. 1). As to this Russell L.J. said :

"Reliance was placed on condition no. 1 as showing that

property of the company first coming into existence after the

appointment of the receiver and manager - in this case the

chose in action consisting of the debt now sued upon - was

not made subject to any charge : put shortly it was argued

that since the phrase used is 'as regards all other the property

and assets of the company a floating security,' and since no

security on any assets could be described as floating once the

receiver and manager was appointed, therefore the phrase

'all other the property and assets' must be construed as

excluding any asset thereafter first coming into existence.

This argument seems to me to be as invalid as it is subtle."

(1963) 1 WLR, at p 1336 ; (1963) 3 All ER, at p 621 (at p608)

15. Clause 3 charged all the company's property and assets, present

and future, with the payments secured. Clauses 1 and 3 together have the same effect as cl. 12 (a) in the trust deed under consideration. As to cl. 3 Russell L.J. said :

"There is under cl. 3 a charge on all future assets of the

company without restriction : that amounts to an agreement

for valuable consideration to charge all such future assets,

which agreement enables equity to fasten a charge on those

future assets when they arise : and every such equitable

charge as it arises operates as an equitable assignment to the

debenture-holders of that asset : see, for example, Durham

Brothers v. Robertson, per Chitty L.J.,

(1898) 1 QB 765, at p 769

, and the references

to assignment in Biggerstaff v. Rowatt's Wharf Ltd.

(1896) 2 Ch 93

. The

fact that this charge is a floating charge cannot, it seems to

me, operate to exclude assets from the agreement to charge.

That particular quality of the charge (or agreement to charge)

only means that its full operation is, so to speak, in suspense

until certain events occur, and when such an event occurs the

charge (or agreement to charge) loses that suspended quality.

That in no way justifies the conclusion that the field of the

charge is in any way restricted : it only means that after this

particular quality disappears equity will fasten the charge

directly upon all assets thereafter coming into existence as

soon as they do so."

(1963) 1 WLR, at p 1337 ; (1963) 3 All ER, at p 621

Then, reading cll. 1 and 3 together, Russell L.J. said :

"Now condition 1 cannot in my judgment be regarded as

cutting down the field of the charge created by cl. 3. It

seems to me that it cannot be reasonably regarded otherwise

than as stating in terms that which upon its true construction

is to be derived from cl. 3. Condition 1 is merely stating in

terms the quality of the charge, involving suspense of its full

effect for a period : that is its function. To attribute to it

the effect of limiting and restricting the field of the agreement

to charge is in my judgment wholly to mistake its function.

'All other the property and assets of the company' in

condition

1 is, I consider, merely a reflection of 'all its property

and assets present and future' in cl. 3."

(1963) 1 WLR, at p 1337 ; (1963) 3 All ER, at p 621

With this judgment Sellers L.J. concurred. Donovan L.J. reached a different conclusion, but upon a very narrow basis, for in conclusion his Lordship said not that the charge did not give the debenture holders an interest in the moneys paid to the receiver - which is the appellants' contention here - but it did not give them "such an interest in the debt owed by the Witney Co. as should prevent the two debts being looked upon as mutual". (1963) 1 WLR, at p 1335 ; (1963) 3 All ER, at p 620 Furthermore, his Lordship acknowledged that, if the words of the deed were to be construed without limitation, he would have come to a contrary conclusion. Here I feel no complusion to limit the words of the deed which we are considering. Moreover, the case for those claiming under the trust deed here is much stronger than that of the debenture holders in the case cited. There the moneys which it was sought to bring within the debenture were trading debts becoming owing to the receiver in the course of his trading as the agent of the company. Here the moneys brought into Queensland were moneys owing to the company prior to the appointment of a receiver. The rationale of the dissenting judgment of Donovan L.J., viz. "If a receiver and manager carries on trading in this way, selling goods to a customer, I think he ought not to expect to be paid without paying what the company owe the customer", (1963) 1 WLR, at p 1335 ; (1963) 3 All ER, at p 620 has no application here. Nor, indeed, would it apply in any case where the holder of the security merely relied upon his security over assets and did not appoint a receiver and manager to conduct a business. (at p609)

16. The foregoing decision of the Court of Appeal has been cited by Professor Gower in Principles of Modern Company Law, 3rd ed. (1969), at p. 421 as authority for the proposition :

"The charge remains floating and the property liquid until

some default is made and the debentureholder takes steps to

enforce his security, or until winding up commences. When

that occurs the charge 'crystallizes' and is converted into

a normal fixed charge on the assets of the company at the

time of crystallization or which come into existence

thereafter."

With this I agree. (at p609)

17. The industry of counsel has discovered two other decisions which are said to be in point. They are In re Mackenzie Grant & Co. (1899) 1 WALR 116 and Wellington Woollen Manufacturing Co. Ltd. v. Patrick (1935) NZLR 23 . Neither decision seems to me to take the matter much further, but, so far as they go, each case supports the basic contention of counsel for the respondent that a deed creating a floating charge upon present and future assets does operate to charge assets coming to the company after the debenture has crystallized. (at p610)

18. An authority tending against the conclusion which commends itself to me is the unreported decision of McLelland C.J. in Eq. in Permanent Nominees Ltd. v. Australian Factors Ltd. (Receiver Appointed) Unreported (Supreme Court of New South Wales (McLelland C.J. in Eq.), 19th December 1966.) . There, in relation to a deed like that here under consideration, his Honour said :

"In the case of the inter-State debts the relevant time for

the purpose of considering whether they were or were not

assets which the receiver was entitled to receive and deal

with as part of the mortgaged property was in my opinion 13th

March 1964, the date of the appointment of the receiver.

Such of the debts as were then owed by debtors then resident

outside New South Wales and outside the Australian Capital

Territory were not part of the mortgaged property and not

subject to the charge."

His Honour did not have the advantage of a reference to N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (1963) 1 WLR 1324 ; (1963) 3 All ER 613 and, with respect, I differ from his conclusion. (at p610)

19. In my opinion the appeal should be dismissed. (at p610)

WINDEYER J. In my opinion the judgment of the Supreme

Court of Queensland delivered by Hart J. was correct. I agree in the reasons that my brother Menzies has given for dismissing this appeal. (at p610)

OWEN J. For the reasons given by my brother Menzies I am of opinion that the appeal should be dismissed. (at p610)

ORDER

Appeal dismissed with costs.