FEDERAL COURT OF AUSTRALIA

Edlan Pty Ltd v McIntyre [1999] FCA 523

REAL PROPERTY – equitable lien – whether a lien arose in favour of the vendor as security for a promise to assume a responsibility to a third party.

Real Property Act (NSW)

Buckland v Pocknell [1843] 60 ER 157 considered

Davies v Littlejohn (1923) 34 CLR 174 considered

Hewett v Court (1983) 149 CLR 639 considered

Makreth v Symmons [1808] 33 ER 778) cited

Shirlaw v Taylor (1991) 102 ALR 551 considered

Wossidlo v Catt (1935) 52 CLR 301 considered

EDLAN NO. 54 PTY LIMITED v AURO ROMANO McINTYRE

NG 292 of 1998

JUDGE:          BEAUMONT J.

DATE:            29 APRIL 1999

PLACE:          SYDNEY

THE COURT ORDERS THAT:

1.                  Edlan’s claim for a declaration that it is entitled to a charge or lien over the “Riverview Lodge” property is refused.

2.                  Liberty is reserved to the respondent to apply for further relief in respect of caveat No. 3554658.

3.                  The applicant pay the respondent’s costs of this proceeding.

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

REASONS FOR JUDGMENT

BEAUMONT J:

INTRODUCTION

1                     These reasons should be read in conjunction with my reasons dated 11 September 1998 in proceedings NG 672 of 1996 between parties including the present parties dealing with the “Riverview Lodge” transaction claim.  I then ordered, inter alia, that on this claim Mr McIntyre pay Edlan No. 54 Pty Limited (“Edlan”) the sum of $505,476.43, and reserved liberty to Edlan to apply for interest.  Edlan did so apply.  On 8 February 1999, I held that Edlan was entitled to interest.  On 25 February 1999 I ordered that Mr McIntyre pay interest to Edlan in the amount of $61,363.45.

2                     The origin of this particular matter is a summons filed by Edlan in the Supreme Court of New South Wales on 14 January 1998 seeking, inter alia, an order for the extension of a caveat lodged by it against dealings in the lands under the Real Property Act (NSW) known as “Riverview Lodge” (“the Property”).  The Supreme Court ordered that the proceeding be cross-vested to this Court.

3                     Edlan’s caveat claims an equitable interest being a lien to secure the sum of $505,476.43 agreed to be paid by the registered proprietor to the caveator in consideration of the transfer of the Property from the caveator to the registered proprietor.

4                     It is common ground that extension of the caveat now depends upon whether Edlan has a valid equitable lien.

5                     At a directions hearing, Edlan indicated that the substantive relief it would seek was (1) a declaration that it was entitled to an equitable charge or lien upon the Property to secure the payment to it of the sum of $505,476.43, together with the interest ordered;  and (2) appropriate consequential relief.  It was also ordered, by consent, that the evidence in the earlier proceedings be evidence in this matter.

EDLAN’S CASE

6                     Edlan’s case involved the taking of two steps, one factual, the other one of law.

7                     As to the facts, Edlan points to the following circumstances, mentioned in my earlier reasons, none of which could seriously now be disputed by Mr McIntyre (who, it will be recalled, has not given evidence):

·                    In August 1990, Edlan was the registered proprietor of the Property and its beneficial owner.

·                    At that time, Edlan owed an amount exceeding $900,000 to Westpac Banking Corporation, which was secured by registered mortgage on the Property.  (As at 25 July 1990 the amount of that debt was $914,838.75.)

·                    On 4 September 1990, Edlan transferred the Property to Mr McIntyre in consideration of a promise by Mr McIntyre that he would assume responsibility for the debt owed to Westpac.  (In my earlier reasons, reference is made (at pp 6 – 7) to the provision (cl 3(a)) in the Share Sale Agreement dated 31 August 1990) to the effect that the Property was to be transferred to Mr McIntyre “in consideration of [Mr McIntyre] assuming responsibility for the loan from Westpac”.)

·                    On 4 September 1990, Edlan paid an amount of $505,476.43 to Westpac in reduction of the debt owed to Westpac.  Mr McIntyre knew of this payment but did not reimburse Edlan.

·                    On 3 October 1990, the transfer of the Property to Mr McIntyre was registered.

8                     It is then submitted, on behalf of Edlan, that it must follow as a matter of law that a vendor’s lien in its favour to secure the sum of $505,476.43 (and interest thereon) was thereby created “unless expressly negatived” (my emphasis), and there was no evidence here that it was so negatived.  Edlan relies upon the following observations of Isaacs J in Davies v Littlejohn (1923) 34 CLR 174 (at 185):

“The doctrine of ‘vendor’s lien’ is one created by equity as part of a scheme of equitable adjustment of mutual rights and obligations applying, unless negatived, to every ordinary contract of sale of land.  In In re Thackwray and Young’s contract Chitty J. says:- ‘As is well known, where there is a contract for sale which is valid and can be specifically performed the equitable interest in the lands at once passes to the purchaser subject to his payment of the money, and, on the other hand, the vendor has a lien on the land for the unpaid purchase-money.”  (Emphasis added).

9                     An alternative, wider argument based upon “general considerations of justice” is also advanced for Edlan.  It is submitted that Edlan would be entitled to an equitable lien even in the absence of a specific agreement to create a vendor’s lien.  Reliance is placed here upon the observations of Deane J in Hewett v Court (1983) 149 CLR 639 (at 667 and following) (to be mentioned further below) cited by a Full Federal Court in Shirlaw v Taylor (1991) 102 ALR 551.  There, Sheppard, Burchett and Gummow JJ said (at 557 – 558):

“In Hewett v Court (CLR at 667 and following), Deane J referred to the treatment of the subject in Pomeroy’s Equity Jurisprudence, 5^th ed, 1941.  The view is there expressed (§1239) that in addition to equitable liens arising from contractual dealings in property, equity may raise liens based… upon general considerations of justice… .”  (Emphasis added).

CONCLUSIONS ON EDLAN’S CLAIM FOR RELIEF

(a)               The principles

10                  Although their application can, in some circumstances, be a difficult matter for the Court’s judgment, the relevant general principles in this area are well settled by the course of authority in the High Court of Australia, itself following a well established line of English authority commencing with a series of decisions of Lord Eldon.

11                  The observations of Isaacs J in Davies, above, have already been noted.

Knox CJ there said (at 181):

“The rule to be applied seems to be that, where a vendor delivers possession of land to a purchaser without receiving the purchase-money, equity gives the vendor a lien on the land for the money unless there is something in the transaction itself, or in the circumstances, leading to a clear and manifest inference that the intention of the parties is otherwise…”.  (Emphasis added).

12                  It will be noted that there is no requirement that only an express provision, as Edlan’s argument assumes, will negative the existence of a lien:  an inference drawn from the circumstances of the case at hand may also indicate that no lien was in truth intended.  In Davies itself, it was held that the creation of a lien was inconsistent with the scheme of the applicable Crown Lands legislation.

13                  In Wossidlo v Catt (1935) 52 CLR 301, land was transferred in consideration of a covenant to pay the transferor an annuity for life.  It was held that the transferor must be taken to have intended to rely on the personal covenant and that she had no lien on the land for the unpaid portion of the annuity.

Rich J said (at 308):

“[Any contrary] intention is to be gathered from the words of the contract and the inferences from the nature of the transaction in question.  In the normal course conveyance and payment are synchronous, but the price may take any form, and if it consists in the giving of a covenant it is ‘paid’ when the covenant is given, notwithstanding that the covenant may itself involve the making of payment.  When the consideration is an agreement to pay a life annuity, it is natural to infer that the vendor annuitant relied upon the covenant as the substitution for the property.  A life annuity involves a series of recurrent payments extending over a quite unknown time.  No doubt it has a present value, but the vendor has not stipulated for its present value, but for the annual payments.  By parting immediately with the legal estate a vendor in an ordinary case, where the price is a definite sum, may be regarded as anticipating the completion of the transaction by payment.  But in the case of a life annuity a very different intention is to be inferred from his part in with the legal estate….”  (Emphasis added).

Rich J went on to say (at 308):

“The obvious purpose of transferring the legal estate to the person undertaking the liability to pay the annuity is to invest him with complete enjoyment of the ownership of the land, legal and beneficial, including the power of alienation.  The vendor, in bargaining for a personal covenant only to pay the annuity, has impliedly shown that it is upon this she is content to rely.  Had it been otherwise the annuity might have been charged or secured over the land quite effectively either at law or in equity.”  (Emphasis added).

Starke J said (at 309):

“… the form the transaction took indicates that Tony Wossidlo was to rely upon the covenant for payment of her annuity, and not upon any lien over the property (Buckland v Pocknell).”  (Emphasis added).

14                  The facts in Buckland v Pocknell [1843] 60 ER 157 were similar to those in Wossidlo.  Shadwell V-C, following Lord Eldon in another annuity case (Mackreth v Symmons [1808] 33 ER 778), held that there was no lien.  Shadwell V-C noted (at 159) Lord Eldon’s view that a lien is given “for the purpose of supporting the truth and justice of the case”, and said (at 159):

“Where the consideration is to be money paid down, and the money, in fact, is not paid, but a conveyance is made as if it had been paid, and that is all;  or, if there be, in addition to it, the giving merely of a note or bond, still, in substance, the vendor has not that which, in point of justice, he ought to have;  and, therefore, a Court of Equity considers the holder of the land by means of the conveyance as a trustee of the money for the vendor, which is to be made good out of the land itself:  because the land never would have been parted with but for the sake of the money.

Now, in this particular case the question is whether it does not appear, on the face of the deeds, that the party who contracted to sell the land, that is, Edward Sawyer, has got that which he contracted to have.  Adverting to the mode in which the conveyances are made, my opinion is that it would be quite wrong, because it would be contrary to what appears to have been the agreement of the parties, to hold that, after the deeds were executed, any lien remained for the annuities.”  (Emphasis added).

In Wossidlo, Dixon J said (at 310):

“The lien of an unpaid vendor arises by operation of law, but its existence is commonly ascribed to the fact that he does not intend to transfer the beneficial ownership of his estate except in exchange for the stipulated price.  Where an owner of land transfers it in exchange for a contractual promise on the part of the transferee to pay a life annuity, and does not secure the annuity over the land or take it in the form of a rent charge, it seems difficult to regard the transaction as one to which the doctrine can apply so as to give rise to a vendor’s lien”.

After referring Lord Eldon’s decision in Mackreth, Dixon J said (at 311):

“[Lord Eldon’s] view, particularly in transactions of modern times, seems more in keeping with the intention of the parties, and, in my opinion, it is more consonant with a correct application of principle.  Where a covenant, or other contractual obligation for a life annuity is taken by a transferor in exchange for a transfer of a legal estate in land, and the annuity is not expressly secured over the land, it is difficult to understand him as intending to invest the transferee with full beneficial ownership only when and if the annuity is paid.  His intention is evident to take the obligation of the covenant in exchange for his land, and to depend upon it for the repayment of his annuity.”  (Emphasis added).

15                  See also Reliance Finance Corporation Pty Ltd v Heid (1982) 1 NSWLR 466 per Hope JA (at 477 – 478).

16                  Hewett v Court, above, was a case of a purchaser’s, not a vendor’s, lien.

Gibbs CJ said (at 645):

“A vendor’s lien for unpaid purchase money has been said to be founded on the principle that ‘a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration’:  Mackreth v. Symmons.  The lien of a purchaser for the purchase money that he has paid to the vendor on a sale that has gone off through no fault of the purchaser may perhaps rest on the converse principle that he who has agreed to convey property in return for a purchase price will not be allowed to keep the price if he fails to make the conveyance.  At all events, the rule has been said to be founded on ‘solid and substantial justice’:  Rose v. Watson.  In each of these cases the vendor or the purchaser, as the case may be, is treated as a secured creditor (cf.  Combe v. Lord Swaythling – the lien is the security for the money which is justly due.”

17                  Deane J said (at 663) that an equitable lien which is, in truth, a form of equitable charge over property, is a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness;  while it arises by implication of some equitable doctrine applicable to the circumstances, its implication can be precluded or qualified by express or implied agreement of the parties.

18                  In the passage relied on in Shirlaw, Deane J went on (at 668) to identify the circumstances which, independently of agreement, are sufficient for the implication of an equitable lien between parties in a contractual relationship.  They included –

“(iii)  that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property… to a stranger without the consent of the other party or without the actual or potential liability having been discharged.”  (Emphasis added).

19                  It follows, in my opinion, that Edlan’s contention, that when the price is not paid, a vendor’s lien will be created, unless expressly negatived, fails to take into account the circumstance that the court may infer an intention to negative its creation.  As has been seen, the settled course of authority establishes that the creation by law of a lien can be precluded by the implied agreement of the parties.

20                  In written submissions and in oral argument, reference was made by Counsel for the parties to the circumstances in which a third party financing a purchaser may be subrogated to the lien of the vendor.  But these principles do not, in my view, bear upon the present question.

(b)               The application of the principles to the instant circumstances

21                  As has been noted, in cl 3(a) of the Share Sale Agreement, the parties specifically recorded the basis upon which the Property was to be transferred by Edlan to Mr McIntyre, that is, “in consideration of [Mr McIntyre] assuming responsibility for the loan from Westpac”.

22                  In my opinion, it is significant for present purposes that there was no suggestion in this formal documentation, which was prepared with the benefit of professional assistance, that Mr McIntyre’s assumption of responsibility should be secured.  In particular, there was no suggestion that it should be secured in favour of Edlan in some form over the Property.  Nor, to adopt the language of Deane J in Hewett, could it be said, in my view, that the relationship between any indebtedness and the Property was such that Mr McIntyre “would be acting unconscientiously or unfairly if he were to dispose of the property… to a stranger without the consent of [Edlan] and without the … liability having been discharged”.

23                  On the contrary, in my opinion, the present case should be viewed as analogous to the situation in Mackreth, Buckland and Wossidlo that, since the proper inference is that the creditor accepted, at the time, that the matter might go forward upon the footing that the giving of the promise to pay was sufficient, that is, that other security for the performance of the promise was not required, it was not appropriate, or just, that the law should, automatically and by implication, give rise to a lien over the Property to secure the liability.  To imply such a lien in the present circumstances would, I think, be unfair, especially in modern times where professional advice was readily available and in this case was used.  This is not, in any event, the ordinary case where payment in full upon completion may be anticipated.  Rather, the circumstances enable the inference to be drawn that Edlan was content to abide the outcome specifically contemplated by cl 3(a), that is, that Edlan would transfer the Property to Mr McIntyre in return for his promise albeit unsecured, that he would assume responsibility for the Westpac debt. 

24                  In short, the law should give effect to the parties’ own objectively evidenced intention by declining to imply a lien or charge.

25                  It follows that I would refuse Edlan’s claim that it is entitled to a charge or lien, and it will be so declared.  I will next hear the parties on whether any orders should now be made with respect to the caveat itself.

ORDERS

26                  I propose to make the following orders:

1.         Refuse Edlan’s claim for a declaration that it is entitled to a charge or lien over the “Riverview Lodge” property.

2.         Reserve liberty to the respondent to apply for further relief in respect of caveat No. 3554658.

3.         Order that the applicant pay the respondent’s costs of this proceeding.

Associate:

Dated:              29 April 1999