CORINDI BLUEBERRY GROWERS PTY LID (RECEIVER AND MANAGER APPOINTED) v SHEPHARD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL HANDLEY, SHELLER and POWELL JJA 15 May 1995, 15 May 1995 [1995] NSWCA 97 EQUITABLE INTERESTS — PRIORITIES In 1984 the first appellant, a registered proprietor of land, contracted to sell it to the first respondents. The purchasers paid the bulk of the purchase money and were let into possession but did not complete. In 1991 the registered proprietor granted an equitable charge to the second respondent which was registered with the Australian Securities Commission but not under the Real Property Act. In 1993 the chargee appointed receivers and managers of the assets and undertaking of the first appellant. The trial judge held that the purchasers' were entitled to priority over the charge. On appeal Held: The trial judge was correct. Handley JA This is an appeal by the registered proprietor of the subject land and a financier which holds an equitable charge over its assets and undertaking from a judgment of Young J who held that the equitable interest of the first respondents as purchasers under an uncompleted contract had priority over the charge. On 29 June 1984 the proprietor contracted to sell the land to the first respondents in subdivision for $13,000. In due course the subdivision was registered and the proprietor acquired a good title to the subject lots. The respondents were let into possession although the purchase price had not yet been paid in full. There is no dispute that only $1,400 remains outstanding, although this is subject to adjustments for outgoings. In 1991 the vendor executed an equitable charge over its assets and undertaking which was registered with the Australian Securities Commission. The chargee has no registered title to the subject land under the Real Property Act. The proprietor later committed an event of default under its charge and the chargee appointed receivers and managers on 14 March 1993. This stimulated the purchasers into taking steps to secure completion of the contract but provoked a dispute as to priorities between them and the chargee. The purchasers sued for specific performance and Young J made a general order for specific performance, ordered the chargee to withdraw its caveat and declared that the interest of the purchasers had priority over the interest of the chargee. The dispute before the Court concerns the priorities between holders of equitable interests. The equitable interest of the purchasers pre-dates by some seven years the equitable interest of the chargee. Prima facie, therefore, the purchasers are entitled to priority and the rights of the chargee attach only to the balance of purchase money due on completion. Mr Robinson, who appeared for the appellants, sought to displace this prima facie position by relying upon the recognised entitlement of a vendor prior to completion to use the subject property as security for a debt. This right and the limitations on it were considered by McLelland J in Shanahan v Fitzgerald 2 UNREPORTED JUDGMENTS (1982) 2 NSWLR 613. I have no hesitation in accepting his Honour's analysis but his Honour indicated with his usual clarity that the vendor was not entitled to exercise such a right if this would prejudice the purchaser's rights under the contract of sale. In the present case where the rights of both parties are equitable, the vendor's right recognised in Shanahan v Fitzgerald takes the appellants no distance at all towards the reversal of the decision of the trial judge. The general principle stated by Westbury LC in Phillips v Phillips [1862] 4 De GF and J 208 at 215 (45 ER 1164 at 1166) is "that every conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person entitled merely in equity passes only that which he is justly entitled to and no more". See also Latec Investments v Hotel Terrigal (1965) 113 CLR 265 at 278. The vendor remains the proprietor but it has not attempted to dispose of that legal interest. The transaction between the proprietor and the chargee took effect only in equity and operates as a conveyance or transfer of an equitable interest in the proprietor's property. It follows that as between the purchasers and the chargee the chargee only acquired title to the beneficial interest retained by the vendor when the charge was granted. This does not mean that the charge did not attach to the property as a whole but it was necessarily postponed to the prior interest of the purchasers. Mr Robinson sought to gain support from recent statements in the High Court including that by Deane J in Kern Corporation v Walter Reid Trading Pty Ltd and Ors (1987) 163 CLR 164 at 191, that the equitable rights of a purchaser under a contract of sale are commensurate with his rights to specific performance, and that the vendor is not a trustee for the purchaser until all the purchase money has been paid. The qualified nature of the purchaser's equitable rights may be fully accepted but the difficulty for the chargee is that it only has an equitable interest and one which is in no sense superior to that of the purchasers. In my opinion the purchasers have the prior equity which they are entitled to enforce against their vendor, and that equity also entitles them to relief against the chargee which holds the later equity. For these reasons I would propose that the appeal be dismissed with the usual consequences. Sheller JA I agree. Powell JA I also agree. Handley JA: The order of the Court will be appeal dismissed with costs. Appeal dismissed with costs. Counsel for the appellant: D ROBINSON Solicitors for the appellant: GADENS RIDGEWAY Counsel for the respondent: NL McCAFFERY Solicitors for the respondent: MUSGRAVE and MALCOLM