New South Wales Supreme Court CITATION : Singleton & Anor v Percy & Anor [2000] NSWSC 889 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 3370/00 HEARING DATE(S) : 29-30 August 2000 JUDGMENT DATE : 30 August 2000 Neil Geoffrey Singleton (First Plaintiff) Benonyx Pty Limited (Receiver & Manager Appointed In Liquidation) (Second Plaintiff) PARTIES : v Graham Henry Percy (First Defendant) Wendy Joan Percy (Second Defendant) JUDGMENT OF : Brownie AJ COUNSEL : Mr R Angyal (Plaintiffs) Mr M Hadley (Defendants) SOLICITORS : The Argyle Partnership (Plaintiffs) Andrew P Quigley & Co (Defendants) CATCHWORDS : The case turns on its facts LEGISLATION CITED : N/A CASES CITED : N/A DECISION : See paragraph 29 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BROWNIE AJ WEDNESDAY 30 AUGUST 2000 3370/00 - NEIL GEOFFREY SINGLETON & ANOR v GRAHAM HENRY PERCY & ANOR JUDGMENT 1 HIS HONOUR: This case has been brought on before me for hearing in circumstances of urgency so that, understandably, the evidence is somewhat imprecise at points. Loosely speaking, the plaintiffs are members of what I will call the Harvey interests, the defendants members of what I will call the Percy interests. 2 The Percy interests are cotton growers in the Narromine area and the Harvey interests acted as financiers providing finance in the Percy interests. The defendants, Mr and Mrs Percy, appear to have been the directors of and the shareholders in Benonyx Pty Limited, which is now in liquidation. Benonyx appears to have been the owner of a property called "Beemery". 3 The defendants assert, and the plaintiffs appear to accept, that generally speaking a partnership trading under the name Percy Developments carried on the business of cotton growing at "Beemery" and at other properties. The partners in that partnership were Benonyx and Mr and Mrs Percy. It is said that the interests of these partners in the partnership were seventy-five per cent, 12.5 per cent and 12.5 per cent respectively, although it is not clear whether these are percentages of capital interest or income interest or both. 4 Exhibit B is an agreement dated 30 September 1998 made between Gretta Nominees Pty Limited as trustee for the Harvey Superannuation Fund as lender and Benonyx as borrower. It recites the making of a loan agreement on 1 December 1997 whereby the lender agreed to provide money to the borrower to pay for the growing of cotton on various properties during the 1997/98, 1998/99 and 1999/2000 seasons. Other evidence refers to farming agreements apparently for those three seasons. None of these agreements is directly in evidence. I do not complain about these matters, I just record them to the extent they are presently relevant. 5 Generally speaking, I take it to be common ground that commencing in late 1997 the Harvey interests provided financial assistance to the Percy interests and from time to time the Harvey interests took various securities. This litigation concerns the legal effect of these securities so far as they operated in the early part of this year. 6 By deed dated 30 September 1998 titled "Fixed Charge" made between Benonyx as the chargor and Gretta Nominees as the chargee, Benonyx created in favour of Gretta Nominees a fixed charge over certain assets. Clause 2 was in these terms: "2. Charge. 2.1 Charge and provision to secure the due and punctual payment of the secured moneys. The chargor as beneficial owner charges in favour of the chargee all its rights, title and interest in, to, under or derived from the charged property. 2.2 Priority. The charge created by clause 2.1 is a first ranking charge except in relation to three John Deere 9965 cotton pickers and a Big Rig Combine listed in annexure A in respect of which it is a second ranking charge. 2.3 Fixed Charge. This charge operates as a fixed charge over all the chargor's right title and interest, legal or equitable, both present and future in, to, under or derived from the assets listed in annexure A including all of the chargor's interest in the Cotton Crops. " 7 Annexure A to that deed is divided up into four numbered sections. Section 1 commences: "First charge over the following plant and equipment", and it lists a large number of items of plant and equipment. Sections 2 and 3 commence with the words "Second charge, after" named financiers, and those sections list other items of plant and equipment. 8 Section 4 reads:- "First charge over all of the interest of the chargor in the Cotton Crops." 9 Clause 1.1 in this deed defined "charged property" as meaning the assets of the chargor listed in annexure A, including all of the chargor's interest in the Cotton Crops. It also defined the expression " Cotton Crops" as meaning all crops of irrigated cotton grown by the chargor for the 1998/99 and subsequent seasons on properties anywhere in Australia. 10 There were other provisions in the deed to which the parties referred in argument, but I think that it is sufficient to say that it is common ground that as matters stood after the execution of this deed the cotton crop on the property "Beemery" was part of the charged property. 11 The heart of the defendants' case seems to lie in the premise that a deed of variation dated 26 June 1999 made between Benonyx and Gretta Nominees varied the terms of the fixed charge on 30 September 1998 so as to exclude the cotton crops from the property the subject of a charge. 12 Clause 3.1 of the deed of variation substituted a new annexure A for the annexure A to the Fixed Charge. That is, it substituted a new detailed list of items of plant and equipment. In one sense it simply updated the old list so as to add new items acquired by Benonyx and to remove other items which presumably had been disposed of by Benonyx. The new list contained some additional information but nothing turned on that. More significantly, the new annexure A omitted any division of the list of assets into sections. It omitted any reference to prior charges except that it incidentally recorded that some sums of money were owing in respect of some items and it omitted all reference to the crops. Significantly, it omitted section 4 of the old annexure in its entirety. 13 It is this last omission which seems to constitute the essence of the defendants' case now. They say that from the date of the execution of the deed of variation, 26 June 1999, Gretta Nominees held no security over the cotton crop then growing or any future cotton crop which grew on "Beemery". 14 The present litigation concerns a fund of money obtained by selling the 1999/2000 crop from that property. 15 Before coming to this detail I should observe that clause 3.2 of the deed of variation provides that the parties to the deed acknowledge and agree that the fixed charge as varied by the deed of variation is and continues to be in full force and effect. The plaintiffs stressed this and, in particular, those provisions in the fixed charge that specifically created a charge over the "charged property". Clause 1.1 defined that expression in the way that I have already mentioned so that on the plaintiffs' argument the deed of variation, adapting the Fixed Charge to the extent it was unchanged, continued to explicitly create a charge over the cotton crops. 16 Pausing here and considering just these security documents in the context established by the evidence, I note that the defendants contend that the omission of the cotton crops from annexure A to the deed of variation was deliberate, so that it should be inferred now that the parties intended that the charge which once existed over the crops be extinguished. On the other hand, the plaintiffs contend that the omission of the cotton crops from the new annexure A was accidental, so that no such intention should be inferred. 17 There is no evidence at all, it seems to me, to support either of those propositions, so that I am left to construe the two deeds by themselves, although in the light of such extrinsic evidence as there is, none of which helps as to whether the omission was deliberate or accidental. Perhaps the truth is that the omission was deliberate so far as the Percy interests were concerned and accidental so far as the Harvey interests were concerned, but I do not think that this inference can be drawn either. 18 Principle tells me to look at the documentary record and to work out from those documents what the parties intended, or at least what they should be taken to have intended. The records seem to me to be rather unsatisfactory in this respect but, on the whole, I conclude that the plaintiffs' contention should be accepted. In particular, whilst there is an obvious distinction between the old annexure A and the new annexure A, the deed of variation by its terms affirmed the continued operation of the old deed except to the extent that it was varied. Provisions such as clauses 2.1 and 2.3 were not varied, it seems to me. 19 That conclusion seems to me to substantially dispose of the case. Its practical effect is that there was a fixed charge given by Benonyx over the 1999/2000 crop, that is to say, the crop grown on "Beemery" during that season. 20 In 1999 Benonyx granted to Mr Harvey a Real Property Act mortgage over the property "Beemery", which was in due course registered. On 10 February 2000 Mr Harvey appointed the first plaintiff, Mr Singleton, receiver and manager pursuant to the mortgage. On the same day Gretta Nominees appointed Mr Singleton receiver and manager pursuant to the terms of the fixed charge. At that time there was a cotton crop growing on "Beemery". Mr Singleton took the view that money needed to be spent protecting that crop. Disputes arose, the detail of which need not be mentioned. Many of those disputes were resolved by a deed of settlement dated 31 March 2000. The parties to that deed include Mr Harvey, Mr Singleton and Gretta Nominees from the Harvey interests and Mr and Mrs Percy and Benonyx from the Percy interests. 21 On a date in the early part of this year, not clearly established by the evidence, Benonyx, represented by Mr Singleton as receiver and manager, created a crop lien over the crop grown on "Beemery" in favour of Elders Rural Services Limited. That was done so as to provide Elders with security for money which it then advanced to Benonyx so as to enable Benonyx, through Mr Singleton, to protect the crop. Later this year the crop was harvested and then ginned by Auscott Limited, or perhaps some company associated with Auscott. Auscott now holds a sum of money representing the net proceeds of the cotton sold by Benonyx to Auscott or one of its associated companies. Claims have been made to that money by the plaintiff, by the defendants and by Elders. Auscott is apparently content to abide by the result of this litigation. The plaintiffs are apparently content for the money to be paid to Elders. 22 For the reasons I have given, I conclude that the plaintiffs are entitled to the declarations sought in paragraphs 1 and 2 of the summons, subject perhaps to some fine tuning. 23 I should say a few more things, however. The plaintiffs have argued other points which are recorded in the written submissions which I will leave with the file. They contended that the mortgage in favour of Mr Harvey operated to provide him with the benefit of that mortgage over the crop. The mortgage was in conventional form, mortgaging in favour of the mortgagee the whole of the mortgagor's estate and interest in the land, but it also annexed a document of some twenty-nine pages of conditions. Clause 1.1 of those conditions defined the expression "property" as meaning, amongst other things, the land the subject of the mortgage and all natural resources on the land, and the plaintiffs argue that this included the crop the subject of the mortgage. It seems to me that this submission is somewhat problematical in that I do not see a substantive provision in the mortgage which uses the word "property" in a way which helps the plaintiffs in this regard. On the other hand, it seems, for the moment at least, likely that at common law the crop which was growing at the time that the mortgagee entered into possession formed part of the land and was therefore covered by the mortgage without more. These matters were not argued in great detail and I express no concluded view about them. 24 Next the plaintiffs contended that recitals E and F to the deed of settlement created issue estoppels in favour of Gretta Nominees and Mr Harvey binding Benonyx and barring Benonyx from denying the validity of the fixed charge in favour of Gretta Nominees and the mortgage in favour of Mr Harvey respectively. 25 The defendants responded by submitting that those recitals did not take the plaintiffs far enough. The relevant terms were that each of the two secured creditors "holds security for the indebtedness of Benonyx." My inclination is towards thinking that the defendants are on the stronger ground here. The question is not whether the secured creditor in question held any security, but what that expression meant in a practical sense. 26 There were other issues debated which turn on the evidence about which I do not think I need say anything. The defendants sought in substance to assert an entitlement on behalf of the Percy Development partnership to the whole of the money now held by Auscott or, alternatively, to twenty-five per cent of that money. 27 For the reasons I have given, I do not accept this but, at worst, from the perspective of the plaintiffs, the position seems to me to be that Benonyx, through its receiver and manager Mr Singleton, expended money for the protection of the crop. That includes all the money now claimed by Elders and it seems to me that that sum has to be paid before what is left of the net proceeds of the crop are distributed amongst the partners in the Percy Development partnership. 28 I conclude that the plaintiffs generally succeed and should be entitled to costs. (Counsel addressed). 29 I make the following declarations: 1. I declare that the plaintiffs are entitled as against the defendants to the money now held by Auscott Limited or Auscott Marketing Pty Limited, being the proceeds of the ginning of the 1999/2000 cotton crop grown on "Beemery" New South Wales. 2. I declare that the plaintiffs are entitled to apply the whole of that money in discharge of all amounts owing by the first plaintiff to Elders Rural Services Limited ahead of any claim by the first and second defendants. I grant liberty to any party to apply upon three days' notice. I order the defendants to pay the plaintiffs' costs. ********** Last Modified: 09/27/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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