Bank of Melbourne Ltd v CBFC Leasing Pty Ltd & Ors [1991] QSC 157

IN THE SUPREME COURT OF QUEENSLAND Writ No. 937 of 1991 Before Mr Justice McPherson S.P.J. BETWEEN: BANK OF MELBOURNE LIMITED Plaintiff AND: C.B.F.C. LEASING PTY. LIMITED First Defendant AND: COMMONWEALTH BANK OF AUSTRALIA Second Defendant· AND: THEORGE PTY. LIMITED Third Defendant JUDGMENT - McPHERSON S.P.J. Delivered the Eighteenth day of June 1991 CATCHWORDS Mortgage - Mortgagee and mortgagor - Subject matter of mortgage - Fixtures - Air conditioning systems installed in commercial building - Object and means of aff ixation - Whether fixtures saleable by mortgagee. Counsel: Bland for the Plaintiff L. Bowden for the Defendant Solicitors: Connolly Suthers for the Plaintiff Bowdens for the First Defendant Hearing Date: 14 June 1991 -- 1 of 14 -- IN THE SUPREME COURT OF QUEENSLAND Writ No. 937 of 1991 BETWEEN: BANK OF MELBOURNE LIMITED Plaintiff AND: C.B.F.C. LEASING PTY. LIMITED First Defendant AND: COMMONWEALTH BANK OF AUSTRALIA Second Defendant AND: THEORGE PTY. LIMITED Third Defendant JUDGMENT - McPHERSON S.P.J. Delivered the Eighteenth day of June 1991 "Pacific Place" is a three level commercial building situate at 402 Shute Road, Airlie Beach. It is depicted in the photograph ex. 1 . _ It is divided into off ices for letting to tenants. The registered proprietor of the building is the third defendant Theorge Pty. Ltd. which by registered instrument dated 4 March 1990 mortgaged the property to Bank of Melbourne Limited, which is the plaintiff in this action. The third defendant has defaulted under the mortgage, and the plaintiff is proposing to sell the property. The offices in various levels of the building are provided with air conditioning equipment and with carpets. They were supplied to the registered proprietor under written hiring agreements dated 11 August 1988 and 19 April 1989 entered into -- 2 of 14 -- 2 with C.B.F.C. Leasing Pty. Ltd., which is the first defendant. C. B. F. C. has claimed the air conditioning equipment as its property. It originally also claimed the carpets, but this claim has since been abandoned because the carpets in the building now do not correspond with those installed. If the air conditioning equipment belongs to C.B.F.C., and the Bank as mortgagee sells it along with the building, the Bank will be liable to C.B.F.C. for damages for conversion. On the other hand, if the equipment is part.of the building and the Bank removes it and sells the building without it, the price obtainable on sale will be diminished, and the Bank may face a claim from the third defendant as mortgagor for failing to exercise its power of sale properly. The sale by auction has been advertised to be held on Wednesday next 19 June 1991, and it is therefore essential that the right to the air conditioning equipment be decided before then. On behalf of C. B. F. C. Mr Bowden submitted that the matter ought not to be decided on an application such as this because - there are substantial questions of fact involved. He was, however, unable to identify any such issue of fact to my satisfaction. In the circumstances I consider it proper to determine the application, which is for a declaration that the air conditioning equipment is a fixture and so subject to the registered mortgage in favour of the plaintiff. The air conditioning equipment was installed by the firm A.E. Smith Wyllie. Mr F.R. Larsen who supervised its installation, and who recently inspected it again, deposes that it consists of air conditioning units, air cooled condensers of -- 3 of 14 -- 3 different makes and types, and ductwork and diffusers. With the exception of the latter, the equipment was delivered and installed in about August 1988 after the building was completed. A further air conditioning unit and condenser was supplied in March 1989. On behalf of the plaintiff, a Mr Lloyd, who is also a refrigeration and air conditioning mechanic, inspected the equipment on 21 May 1991. Except in one small respect there is no discernible conflict between the facts as deposed to by Lloyd and by Larsen. Lloyd describes the equipment as follows. First there is on the ground floor an Email ducted split system air conditioner. It comprises (a) an outdoor condenser unit connected to (b) an indoor unit, to which (c) metal ducting is attached by means of flexible tubing and gril-les. The outdoor condenser unit (a) is attached to the concrete roof of the building by means of four dynabolts, which embody a metal sleeve that expands when the bolt is screwed into a hole drilled into the concrete. The refrigerant lines are copper-welded to both outdoor condenser unit and indoor unit and are attached to the building by U-brackets and dynabolts. The indoor unit (b) is attached to the concrete ceiling of the ground floor above an area of fixed suspended ceiling. Lloyd says it is attached by means of dynabolts, whereas Larsen says they are dynasets : this represents the extent of the conflict between those two deponents; but little turns on it because with both forms of attachment the unit is capable of being unscrewed and removed. The metal ducting (c) is connected to the indoor unit by four nuts and bolts and to the concrete ceiling by six dynabolts at -- 4 of 14 -- 4 three metre intervals. The flexible tubing is attached to the metal ducting and to the outlets and return grille by adhesive tape. Also on the ground floor and in two first level offices are three free-standing Century air conditioning units and remote condensers. Two of the condensers are suspended underneath an external concrete balcony by means of bolting to a metal support frame that is in turn fixed to the balcony by means of bolts embedded in the concrete. The third condenser is attached to the roof by means of a metal frame fixed by dynabolts to the concrete. The refrigerant lines are copper welded to the condenser and indoor units and to the building in substantially the same way as in the case of the Email air conditioner; so are the metal ducting and the flexible tubing. The indoor units are free standing in that they are not attached directly to the building except by means of the refrigerant lines and the metal ducting. The third air conditioner is a Hitachi system in an office on level 2. It comprises an outdoor condenser attached by dynabolts to the concrete roof and connected to the indoor unit by two refrigerant lines by means of bolts and flare nuts, which seal when tightened. The refrigerant lines are attached to the building by metal cappings fixed by metal pins. The indoor unit of the Hitachi air conditioner is secured to the concrete ceiling by dynabolts. The fourth type of air conditioner also on the second level is a Carrier wall-mounted split-system. In this instance the condenser unit is secured to an external concrete balcony by -- 5 of 14 -- 5 means of dynabolts. It is connected by refrigerant lines with bolts and flare nuts to the indoor unit. The latter is screwed to a metal plate in turn secured to the internal wall of the building by nuts and bolts. Finally, there is in an office or offices on the second floor a National multi-evaporator split system and another Carrier room air conditioner. The latter is a single unit that is pop-riveted to an aluminium window frame and supported by metal brackets also pop-riveted to both the unit and the window frame. The National system comprises : (a) outdoor condenser unit fixed by nuts and bolts to a support bracket secured to an external wall by means of dynabol ts; ( b) refrigerant lines connected by means of bolts and flare nuts to each of three indoor units, the lines being secured to the floor by timber capping fixed by screws; and (c) three indoor units not attached to the structure of the building other than by means of the refrigerant lines. Lloyd and La_rsen agree that in order to remove the air conditioning systems, it would first be necessary to disconnect the electric power supply from both the outdoor condenser and indoor units. Lloyd adds that it would be necessary to decant the gas from the system. The refrigerant lines could then be removed by breaking or melting the copper welds, or cutting the lines attached by flare nuts. Subject to that, it is Larsen's opinion that removal could be effected without causing damage to the unit itself or to the building. Lloyd says that most of the outdoor condenser units are relatively large and heavy, and would require a crane to lift -- 6 of 14 -- 6 them from their positions. Larsen says they could be removed using duct lifters, which are small mobile hoists designed to lift ductwork up to three metres in length and having a rated capacity of 150 kgs. each. He considers that the Email, Century and Hitachi indoor units could, after disconnecting power, lines and ductwork, also be removed by using duct lifters. He estimates that two or at most three men would be required for this task, as against the five men that Lloyd estimates would be required. Trolleys would be needed to drop the Email indoor unit to the floor. They agree that in order to do so it would be necessary to cut portion of the suspended gyprock ceiling in the ladies' toilet in the ground floor office. That portion of the ceiling would have to be replaced. Lloyd predicts that it would take two men about a week to remove the Email system; about 20 hours to remove the three Century systems; about seven hours for the Hitachi system; five hours for the Carrier system; and ten hours for the National system. He estimates the likely cost at about $10,000. Larsen give no precise estimate of the time or cost involved in removing the units. He does not address the question of removing the metal ductwork included in the Email and Century systems, and I understand Mr Bowden to concede that this would be left in place. I turn now to the law. It was admirably summarised by Jordan C.J. in a passage in his Honour's judgment in Australian Provincial Assurance Co. Ltd. v. Coroneo (1938) 38 S.R. (N.S.W.) 700, 713-714, which has frequently been referred to in subsequent cases. That passage is as follows:- "A fixture is a thing once a chattel which has become in law land through having been fixed to land. The -- 7 of 14 -- 7 question whether a chattel has become a fixture depends upon whether it has been fixed to land, and if so for what purpose. If a chattel is actually fixed to land to any extent, by any means other than its own weight, then prime facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not : if it is not otherwise fixed but is kept in a position by its own weight, then prima facie it is not a fixture; and the burden of proof is on anyone who asserts that it is : Holland v. Hodgson (L.R. 7 C.P. 328 at 335). The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period: Holland v. Hodgson (L.R. 7 C.P. 328 at 336), or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose Vaudeville Electric Cinema Ltd. v. Muriset ([1923] 2 Ch. 74 at 87). In the former case, it is a fixture, whether it has been fixed for the better enjoyment of the land or building, or fixed merely to steady the thing itself, for the better use or enjoyment of the thing fixed; Holland v. Hodgson (L.R. 7 C.P. 328); Reynolds v. Ashby & Son ([1904] A.C. 466); Colledge v. H.C. Curlett Construction Co. Ltd. ([1932] N.Z.L.R. 1060); Benger v. Ouartermain ([1934] N.Z.L.R. s.13). If it is proved to have been fixed merely for a temporary purpose it is not a fixture: Holland v. Hodgson (L.R. 7 C.P. 328 at 337); Vaudeville Electric Cinema Ltd. v. Muriset ([1923] 2 Ch. 74 at 87). The intention of the person fixing it must be gathered from the purpose for which and the time during which user in the fixed position in contemplated: Hobson v. Gorringe ([1897] 1 Ch. 1982); Pukuweka Sawmills Ltd. v. Winger ([1917] N.Z.L.R. 81). If a thing has been securely fixed, and in particular if it has been so fixed that it cannot be detached without substantial injury to the thing itself or to that to which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intended Holland v. Hodgson (L.R. 7 C.P. 328 at 335)); Spyer v. Phillipson ( [1931] 2 Ch. 183 at 209-210). On the other hand, the fact that the fixing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts. In Pukuweka Sawmills. Ltd. v. Winger ( [ 1917] N.Z.L.R. 81 at 90, 91, 120), a bush tramway introduced on the land for the temporary purpose of removing logs in the course of timbergetting and clearing, and capable of ·being moved from place to place, was held not to be a fixture; notwithstanding that a relatively secure degree of fixation was necessary whilst the tramway was in use in any particular place. On the other hand, a wooden building, resting on land by its own weight but brought there for the purpose of being -- 8 of 14 -- 8 permanently used as a dwelling house, was held in Reidv. Smith (3 C.L.R. 656; 9 Austn. Digest 176) to be a fixture." In the present case the condenser units forming part of the Email, Century, Hitachi systems are al~ attached either to the concrete roof by means of dynabolts or bolted to frames in turn affixed to a concrete balcony by means of bolts embedded in the concrete. The National is attached by a bracket to a fixed window frame. The dynabol ts or bolts are capable of being unscrewed but that does not detract from the fact that the condensers are attached to the realty by more than their own weight, and so prima facie are to be considered fixtures. Of the indoor units, the Email unit is attached to the concrete ceiling above the ground floor, and it would require some cutting of the ceiling in order to remove it. The indoor .unit of the Hitachi _air conditioner is also bolted to the concrete ceiling. The indoor units of the three Century and the three National air conditioners are free-standing and not themselves directly affixed to the building structure. The Century units are, however, copper-welded to the refrigerant lines, which are attached to the building by brackets and dynabolts. In the case of the National air conditioners, the refrigerant lines are connected to the indoor units by bolts and flare nuts. In the circumstances, I consider I am justified in regarding the condensers, refrigerant lines and indoor units as integers of single systems, each of which must be looked at as a whole : see Craven v. Geal [1932] V.L.R. 172, 176-177, per Cussen A.C.J.; Pan Australian Credits (S.A.) Pty. Ltd. v. Kolim Pty. Ltd. (1981) 27 S.A.S.R. 353, 357, per Mathieson J.; Litz v. National -- 9 of 14 -- 9 Australia Bank Limited (1986 Qld. Sup. et. no. 780/1986 unrep.), per Connolly J., at pp. 10-11). "The whole of this equipment - air conditioning units, ducting of various types and registers" - is, as Mathieson J. expressed it, "a single unit or system and a working unit or system - each portion having its own function, and 'no portion can be separated from the rest and dealt with by itself"' : see Pan Australian Credits (S.A.) Pty. Ltd. v. Kolim Pty. Ltd. (1981) 27 S.A.S.R. 353, 357, citing Adams v. Medhurst & Sons Pty. Ltd. [1929) Tas. S.R. 48. The fact that a particular part might be removed and replaced by a substitute part without disturbing other parts does not in my view affect the conclusion that all parts were intended to function as a single system. Some part or parts of each were attached to the·structure of the building. The Carrier room air conditioner is exceptional because it is a single unit, which might be moved without affecting other elements; but even it is affixed by rivets to the window frame and supported by brackets riveted both to the unit and the window frame. In Litz v. National Australia Bank Limited Connolly J. thought that "the task is to identify the object with which the chattel is annexed even if the mode of annexation is merely by its own weight". Whether the annexation is intended to be temporary or permanent is ordinarily a relevant consideration. For this purpose the subjective intention of the person who affixes it is entitled to little if any weight. For that reason I consider that para. 1 4 of the affidavit of Mr Brady, and para. 5 of the affidavit of Mr Porter, both read on behalf of C.B.F.C., are largely, if not entirely, irrelevant. It is clear -- 10 of 14 -- 10 from both Holland v. Hodgson (1872) L.R. 7 C.P. 328, and Hobson v. Gorringe (1897] 1 Ch. 182, 193, that the intention or object of affixation or annexation must be determined from the objective circumstances, and that the existence of an agreement with the owner of the chattel for its hire or hire purchase is of little or no consequence in answering this inquiry. There is evidence that the air conditioning units might be expected to last only some 1 0 · to 1 5 years before requiring replacement, and that the building itself may be expected to outlast them. Mr Bowden submitted that this showed they were not intended to be permanent. We live, he said, in a "throw-away" society, in which use and replacement are a matter of course, in contrast to the nineteenth century, in which many of the leading cases were decided when machinery was built to last. Far from supporting the case for C.B.F.C., however, it seems to me that this consideration weighs against it. If the expected lifespan of the air conditioning systems is relatively short, it is all the more reason for supposing that ~hey were affixed with the intention of remaining with the structure for the duration of their useful working lives. In the present case the air conditioners, viewing them as single systems, were all attached at some point to the structure of the building, and are plainly intended to enhance or improve the building. They were not affixed to it simply for the more efficient use of the air conditioners as chattels. In that respect they differ from the many decided cases involving trade machinery, where the chattel had an independent utility or use apart from the building to which it was affixed primarily for -- 11 of 14 -- 1 1 reasons of stabilising it while working: cf. Holland v. Hobson (1872) L.R. 7 C.P. 328, 336-337. Air conditioning systems have no function or utility apart from buildings which they are designed to cool or heat, and so are necessarily associated with the use of some building of which they form an adjunct. Nowadays many buildings are so designed and constructed that they cannot be effectively used, particularly in the heat of Queensland summers, without an air conditioning system. The evidence here does not go so far as to show that that is so in the case of "Pacific Place", although Mr I.e. Baker, a local real estate agent at Airlie Beach, deposes in his affidavit that it would be extremely unusual for premises like these not to be fitted with standard air conditioning equipment, and, understandably, very difficult to sell them without it. My conclusion therefore is that the various components, taken together, of the air conditioning systems in "Pacific Place" are fixtures forming part of the building and land that the plaintiff mortgagee is entitled to sell. Although each instance of this kind involves determination of matters of fact, it is encouraging to find that in the case of air conditioning systems similar conclusions have been reached in two previous decisions in Australia: see Pan Australian Credits (S.A. Pty. Ltd. v. Kolim Pty. Ltd. ( 1981 ) 27 S. A. S. R. 353; and Belgrave Nominees Pty. Ltd. v. Barlin-Scott Airconditioning (Aust.) Pty. Ltd. [1984] V.R. 947. In response to this, Mr Bowden relied on Ellis v. Glover & Hobson Limited [1908] 1 K.B. 388. It concerned the right of an owner of trade machinery let on hire purchase to the mortgagor -- 12 of 14 -- 12 of premises to retake the machinery before the mortgagee resumed possession of the premises. Such a right is recognised by the authorities in circumstances that are considered in that case. It is, however, clear that the reason why it is recognised is that a mortgagor in possession with the consent of the mortgagee under an old system mortgage is regarded as being, at the very least, a tenant at will of the mortgagee, and as having in consequence the rights of a tenant including the right to remove trade fixtures before possession of the mortgaged premises is resumed: see Ellis v. Glover & Hobson Limited [1908] 1 K.B. 388, 396. The right of the owner of chattels hired to the mortgagor cannot be higher than those of the tenant himself : ibid, per Fletcher Moulton L.J. The entire doctrine is a branch of the law of landlord and tenant, where that relation is constituted and prevails between mortgagor and mortgagee. It was long ago held that the principle has no application to the relation between straight-forward mortgagor and mortgagee: see Clime v. Wood (1869) L.R.4 Ex. 328, which was a decision of the Exchequer Chamber referred to with approval in Hobson v. Gorringe [ 1897] 1 Ch. 182, 190. The present case is not one into which the right of a tenant to remove trade fixtures intrudes. The relation between the plaintiff Bank and the third defendant registered proprietor is nothing but that of mortgagor and mortgagee under the Torrens system. It may be added that an even shorter answer to Mr Bowden's submission on this point is that the air conditioning systems are not trade fixtures. -- 13 of 14 -- 13 The plaintiff is entitled to a declaration that all the i terns of air conditioning equipment in "Pacific Place" are fixtures. It is also entitled to an order for the costs of the motion and of the action. -- 14 of 14 --