Culloden (50) Pty Ltd, Re [1991] QSC 101

n 0 0 0 IN THE SUPREME COURT OF QUEENSLAND Before Mr. Justice Mackenzie Counsel: Solicitors: IN THE MATTER of the Companies (Queensland) Code -and- No. 847 of 1990 IN THE MATTER of CULLODEN (SO) PTY. LTD. (Receivers and Managers Appointed) JUDGMENT - MACKENZIE J. Delivered the 10th day of April, 1991. J. Muir Q.C. and Miss. B. Springer for applicant. R. Douglas for respondent. MacGillivray & Co. for applicant. Blake Dawson Waldron for respondent. Hearing date: 18th March, 1991. -- 1 of 7 -- C) 0 0 0 IN THE SUPREME COURT OF QUEENSLAND IN THE MATTER of the Companies (Queensland) Code -and- No. 847 of 1990 IN THE MATTER of CULLODEN (SO) PTY. LTD. (Receivers and Managers Appointed) JUDGMENT - MACKENZIE J. Delivered the 10th day of April, 1991. The applicant, Natwest Australia Bank Limited ("Natwest"), seeks a declaration that, to the extent that it has not been released, a Mortgage Debenture executed by Culloden (SO) Pty. Ltd. ("Culloden") in favour of Natwest has priority over a fixed and floating charge executed by Culloden in favour of State Bank of New South Wales ("State Bank"). It also seeks a declaration that as mortgagee it is entitled to have possession of and deal with the motor vessel "Brilliance" owned by Culloden. There is no dispute that the respective instruments were duly executed, and registered on the 2nd May, 1986 and the 6th February, 1990 respectively. The issue is whether the motor I vehicle "Brilliance" was subject to the former having regard to a partial release dated the 26th September, 1989 and recorded by the N.C.S.C. on the 6th February, 1990. The relevant portion of the memorandum of release is the following:- -- 2 of 7 -- 2 "The part of the property described in the schedule was released from the charge. SCHEDULE The assets of the company's business conducted thereon under the name or style of 'Ashmore Tavern' Ashmore including the goodwill of such business, licensed victualler's license, plant, furniture, fixtures, fittings, chattels and stock in trade pertaining to the said business." Natwest's security extended to the whole of the undertaking property and assets of Culloden both present and future. It was not suggested by either party that the main business interest of Culloden was other than the conducting of the Ashmore Tavern. However there was some dispute as to whether certain residences 0 which were held by the company and, more importantly, the motor (J vessel to which these proceedings relate were an adjunct to the conduct of the business of the tavern. That becomes of critical importance having regard to the terms of the partial release which I have quoted above. I also note that before the time of the partial release Culloden had executed deeds of indemnity and guarantee and acknowledgments relating to further advances on the 11 th October, 0 1988 and 23rd April, 1989 respectively, in which it was Q acknowledged that the security already provided to Natwest was secur~ty for the guarantees and indemnities which Culloden had given in respect of an associated company Bonza 20 Pty. Ltd. ( "Bonza"). That company had hotel interests in northern New South Wales. There was a further acknowledgment in respect of further advances to Bonza executed on the 11th November, 1989. The State Bank's charge arose in consequence of a refinancing exercise by Culloden, the relevant document having -- 3 of 7 -- n 0 C) 3 been executed on the 25th September, 1989. The State Bank'~ charge was lodged on the 6th February, 1990 at the N.C.S.C. The motor vessel in question was purchased in about October 1989. The purchase price was $430,000.00 plus freehold title to a parcel of land at Ashmore. The circumstances of the purchase are not, it seems to me, greatly in dispute. When the refinancing was done by the State Bank there was a sum of money which had been calculated by reference to a debt of $500,000.00 owed to Westpac Banking Corporation. Although there is a dispute as to whether the subsequent events happened at the dictation of the State Bank or not, the facts clearly are that a dispute had arisen between Mr. Giuffre, a director of Culloden, and Westpac as to the amount owing to Westpac. The money advanced by Natwest that related to the Westpac debt had been put on deposit with the State Bank but then a dispute arose between Mr. Giuffre and the State Bank about the deduction of moneys from that sum to meet other obligations to the State Bank. Thereupon Mr. Giuffre withdrew those funds and purchased the vessel "Brilliance". He said that the vessel was purchased with the intention of sale at a profit, he having bought it at about $120,000.00 less than the current market price. He hoped that Westpac would be paid out in due course when the dispute with it was resolved and a profit realised. As it turned out Mr. Giuffre's hopes in that regard did not materialise because at the time when Culloden defaulted in respect of its obligations to the State Bank the vessel had not been sold. It appears that neither Natwest nor the State Bank -- 4 of 7 -- 4 were aware until somewhat after the purchase that the vessel had been acquired. The receivers on behalf of the State Bank were appointed on the 10th July, 1990. The receiver, having been made aware of the existence of the vessel, took possession of it. On the 1st August, 1990 Bonza was served with a notice of default and demand to borrower and on the 31st October, 1990 Natwest served on Culloden a notice of exercise of power of sale. The property ref erred to in the schedule of the notice comprised all the assets and undertakings of the company_excluding those referred to in the partial release. \ ~ 0 It was accepted by both the applicant and the respondent Q that the question for me to decide was whether the vessel fell within the description of the property contained in the release and that that was essentially a factual question. The respondent did analyse the terms of the release with a view to establishing that the vessel constituted an asset of the company's business. It was submitted that the company had only one business, the conduct of the Ashmore Tavern, and that any other commercial activity was merely incidental thereto. Because the vessel had been paid for and la~gely maintained, although not totally, by Culloden from funds generated for the purpose of the conduct of the Ashmore Tavern and was used by servants or agents of the Ashmore Tavern the proper view was that it was an asset of the business of the tavern. The use of the residences to which I have previously referred by Mr. Giuffre and other staff members of the tavern on a rent-free basis was, it was submitted, indicative that all of c/ -- 5 of 7 -- 0 C) 0 5 Culloden' s assets were assets of the tavern business. Mr. Giuffre on the other hand, said that, at least in the case of the residence used by him, he preferred to keep it occupied because he believed that an occupied residence would eventually sell more readily than one that was unoccupied. There was evidence before me both orally and by affidavit as to the nature of the use of the vessel, its maintenance and the circumstances pertaining to its moorings. While the evidence does indicate that funds used in these respects were largely but not wholly Culloden's and that the use of the vessel was largely confined to usage by Mr. Giuffre and people invited by him, most of whom were staff members at the hotel, I am unable to conclude that the vessel is properly described as belonging to the business of the Ashmore Tavern. On the evidence, the vessel was on the market. In the meantime, the use made of the vessel by Mr. Giuffre was social in character. I accept that there is no sufficient basis for finding any commercial element related to the tavern in its use or that its use was intended to promote the tavern, or that its use was a form of recompense for the employees who were occasionally invited aboard by Mr. Giuffre. The proper characterisation on the evidence before me is that its purchase represented an opportunistic attempt to make a quick profit with money that had become available in the circumstances set out above, although as it turned out such profit did not materialise because the vessel was not able to be sold at a suitable price. It was not purchased as an asset of the tavern. It is true that the money with which it was purchased -- 6 of 7 -- 6 had become available as part of the refinancing of the debt of Culloden but in my view the purchase would not have occurred had the portion of the money calculated by reference to the debt to Westpac not become available for investment due to the disagreement with Westpac. In those circumstances I am compelled to the view that the applicant must succeed. Accordingly I declare to the extent that it has not been released the Mortgage Debenture executed by Culloden (SO) Pty. Ltd. in favour of Natwest Australia Bank Limited and registered on the 2nd May, 1986 as Charge No. BC860907 as priority over a fixed and floating charge executed by Culloden (SO) Pty. Ltd. in favour of State Bank of New South Wales and registered on the 6th (~ February, 1990 as Charge No. BC900677. I further declare that Natwest Australia Bank Limited as mortgagee under the first charge is entitled to have possession of and deal with the motor vessel "Brilliance" owned by Culloden (SO) Pty. Ltd. The respondent is ordered to pay the applicant's costs including reserved costs if any to be taxed. u -- 7 of 7 --