New South Wales Supreme Court CITATION : B & B Budget Forklifts Pty Ltd v CBFC Ltd & 2 Ors [2008] NSWSC 271 HEARING DATE(S) : 18/03/08, 19/03/08 JUDGMENT DATE : 1 April 2008 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Plaintiff's claim for declaratory relief dismissed with costs CATCHWORDS : MORTGAGES - competing security interests - distinction between floating charge and fixed charge - nature of "purchase money security" - CORPORATIONS - corporate finance - competing registered charges - whether priority according to time of registration displaced Conveyancing Act 1919, s 111(2)(b) LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss 262, 263(1)(a)(ii), 265, 279, 280, Real Property Act 1900, s 57(2)(b) CATEGORY : Principal judgment Abbey National Building Society v Cann [1991] 1 AC 56 Agnew v Commissioner of Inland Revenue [2001] UKPC 28; [2001] 2 AC 710 Boambee Bay Pty Ltd v Equus Financial Services Ltd (1991) 26 NSWLR 284 Composite Buyers Ltd v State Bank of New South Wales (1990) 3 ACSR 196 Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901 Illingworth v Houldsworth [1904] AC 355 Mathieson v Wahlen (1928) 28 SR (NSW) 189 CASES CITED : North Western Shipping & Towage Co Pty Ltd v Commonwealth Bank of Australia (1993) 118 ALR 453 Re Brightlife Ltd [1987] Ch 200 Re Bunbury Foods Pty Ltd [1985] WAR 126 Re Connolly Bros Ltd (No 2) [1912] 2 Ch 25 Re Spectrum Plus Ltd [2005] UKHL 41; [2005] 2 AC 680 Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 Security Trust Co v Royal Bank of Canada [1976] AC 503 Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR 1 Wilson v Kelland [1910] 2 Ch 306 B & B Budget Forklifts Pty Limited - Plaintiff PARTIES : CBFC Limited - First Defendant Peter Hillig (in his capacity as administrator of Smeaton Forklifts Pty Limited) - Second Defendant Smeaton Forklifts Pty Ltd - Third Defendant FILE NUMBER(S) : SC 5448/07 COUNSEL : Mr D D Knoll - Plaintiff Mr M B J Lee - First Defendant SOLICITORS : Diamond Conway - Plaintiff John O'Sullivan - First Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY 1 APRIL 2008 5448/07 B & B BUDGET FORKLIFTS PTY LIMITED v CBFC LIMITED & 2 ORS JUDGMENT Background 1 The question to be decided in these proceedings is which of two security interests in property of the second defendant ("Smeaton") ranks ahead of the other. One derives from a charge created by Smeaton in favour of the plaintiff ("B&B"), the other from a charge created by Smeaton in favour of the first defendant ("CBFC"). 2 It is accepted by all parties that, whereas the two charges formerly affected certain tangible property of Smeaton, they now affect money to the extent of $572,950, being the net proceeds of the sale of that property. Smeaton is now subject to creditors voluntary winding up as a sequel to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth). The fund of $572,950 is held by Smeaton's liquidator. 3 The contest is between B&B and CBFC. On no view of matters will any part of the fund accrue to the benefit of Smeaton (or its creditors). The liquidator's solicitor appeared when the matter was called on for hearing but was, at his request, excused. Smeaton took no part in the hearing. Evidence was led and submissions made on behalf of B&B and CBFC only. The charges and the statutory provisions 4 Each charge is, by virtue of s 262 of the Corporations Act, a registrable charge. Each was registered accordingly under s 265. B&B's charge was registered on 27 May 2004, even though bearing a date some five months earlier (23 December 2003). CBFC's charge, dated 12 March 2007, was registered on 12 April 2007. 5 It is common ground between B&B and CBFC that s 280 of the Corporations Act causes B&B's charge (first registered) to take priority over CBFC's charge (subsequently registered), unless that result is displaced in one of two ways. CBFC maintains that the result is displaced. B&B says that it is not. 6 It is convenient, at this point, to set out the relevant provisions of the Corporations Act, being s 279 and s 280: " 279 Priorities of charges (1) Subject to this section, sections 280 to 282, inclusive, have effect with respect to the priorities, in relation to each other, of registrable charges on the property of a company. (2) The application, in relation to particular registrable charges, of the order of priorities of charges set out in sections 280 to 282, inclusive, is subject to: (a) any consent (express or implied) that varies the priorities in relation to each other of those charges, being a consent given by the holder of one of those charges, being a charge that would otherwise be entitled to priority over the other charge; and (b) any agreement between those chargees that affects the priorities in relation to each other of the charges in relation to which those persons are the chargees. (3) The holder of a registered charge, being a floating charge, on property of a company is taken, for the purposes of subsection (2), to have consented to that charge being postponed to a subsequent registered charge, being a fixed charge that is created before the floating charge becomes fixed, on any of that property unless: (a) the creation of the subsequent registered charge contravened a provision of the instrument or resolution creating or evidencing the floating charge; and (b) a notice in respect of the floating charge indicating the existence of the provision referred to in paragraph (a) was lodged with ASIC under section 263, 264 or 268 before the creation of the subsequent registered charge. (4) Where a charge relates to property of a kind or kinds to which a particular paragraph or paragraphs of subsection 262(1) applies or apply and also relates to other property, sections 280 to 282, inclusive, apply so as to affect the priority of the charge only in so far as it relates to the first-mentioned property and do not affect the priority of the charge in so far as it relates to the other property. (5) Sections 280 to 282, inclusive, do not apply so as to affect the operation of: (a) the Copyright Act 1968 ; or (b) the Designs Act 1906 ; or (c) the Life Insurance Act 1995 ; or (d) the Patents Act 1952 ; or (e) the Trade Marks Act 1955 . 280 General priority rules in relation to registered charges (1) A registered charge on property of a company has priority over: (a) a subsequent registered charge on the property, unless the subsequent registered charge was created before the creation of the prior registered charge and the chargee in relation to the subsequent registered charge proves that the chargee in relation to the prior registered charge had notice of the subsequent registered charge at the time when the prior registered charge was created; and (b) an unregistered charge on the property created before the creation of the registered charge, unless the chargee in relation to the unregistered charge proves that the chargee in relation to the registered charge had notice of the unregistered charge at the time when the registered charge was created; and (c) an unregistered charge on the property created after the creation of the registered charge. (2) A registered charge on property of a company is postponed to: (a) a subsequent registered charge on the property, where the subsequent registered charge was created before the creation of the prior registered charge and the chargee in relation to the subsequent registered charge proves that the chargee in relation to the prior registered charge had notice of the subsequent registered charge at the time when the prior registered charge was created; and (b) an unregistered charge on the property created before the creation of the registered charge, where the chargee in relation to the unregistered charge proves that the chargee in relation to the registered charge had notice of the unregistered charge at the time when the registered charge was created." CBFC's contentions 7 B&B's charge, as the first created and registered, may, in the ordinary course, be expected to enjoy priority. It is therefore for CBFC, in practical terms, to show that the interest arising from its subsequent security has priority. CBFC says that there are two alternative bases on which, in the particular circumstances of this case, its interest, although arising from a charge subsequently created and registered, must, despite s 280, be recognised as enjoying priority over B&B's charge. 8 The first general contention of CBFC is that the priority that s 280 would otherwise afford to B&B's charge as the first to be registered is denied (and B&B's charge is postponed to CBFC's charge by operation of s 279(2)) because s 279(3) caused to arise a deemed consent of B&B to postponement. 9 The alternative basis on which CBFC contends that the priorities are not as prescribed by s 280 proceeds by the following steps: first, CBFC's subsequently created and subsequently registered charge was taken as security for money advanced to Smeaton in order that it might complete the purchase of chattels; second, that Smeaton, with the aid of the money, acquired legal title to the chattels, but subject to the charge so taken by CBFC; and, third, that what became subject to B&B's pre-existing floating charge was therefore the title of Smeaton encumbered by CBFC's charge. On that basis, it is said, CBFC acquired what is sometimes called a "purchase money security" which was not "fully competing" with B&B's pre-existing charge, so that the scheme of priorities created by s 280 and related provisions does not apply and CBFC's charge has priority over B&B's charge. 10 The first contention – that is, the contention centred on s 279 – is supportable only if two conditions are met. The first is that the "unless" specification in paragraphs (a) and (b) of s 279(3) is not satisfied, in that both of the elements necessary to preclude what would otherwise be the operation of s 279(3) do not exist. There is no dispute on this aspect. It is accepted that, although the situation mentioned in s 279(3)(a) exists, no notice answering the description in s 279(3)(b) was lodged with ASIC (the Form 309 in fact lodged had a mark in the "no" box rather than the "yes" box against the question, "If the charge is a floating charge or a fixed and floating charge, is the creation of subsequent charges restricted or prohibited?"). As a result, the position is not as described in s 279(3)(b). The "unless" specification in s 279(3) therefore does not operate. 11 That leaves the second condition. It is accepted that, at the time of the creation and registration of CBFC's charge, the then existing registered charge held by B&B was a floating charge that had not become fixed. In relation to the s 279 matter, therefore, the question is whether CBFC's charge is, as referred to in s 279(3) a "fixed charge". That question is contentious. 12 In relation to the alternative contention advanced by CBFC (that is, that the two charges are not "fully competing"), the parties take opposing views. CBFC argues that the principles emerging from cases to which I shall come operate to produce the result that it has a "purchase money security" and that that security and B&B's prior floating charge are not "fully competing". B&B's position is that CBFC's charge is in truth not a "purchase money security" but, even if it is, the decided cases that regard that type of charge as not "fully competing" with a charge of the kind B&B holds do not correctly reflect the law. Either way, B&B says, s 280 is left to take its normal course and to afford priority to its prior registered charge over CBFC's subsequently registered charge. The issues 13 There are accordingly three central issues for consideration. The first is whether CBFC's charge is, as referred to in s 279(3), a "fixed charge". If it is, the need to address the other two issues does not arise. 14 The second issue, however, is whether CBFC's charge is "fully competing" with B&B's charge in the sense to which I have referred. Third (and if the second question, having arisen, is resolved on the basis that the two charges are not "fully competing"), there is a question as to the correctness of the analysis in the decided cases and whether the principles for which they stand should be accepted and applied. The factual context 15 Smeaton conducted a plant hire business in the course of which it let forklift trucks on hire to persons wishing to use such vehicles. In 2003, Smeaton acquired from B&B a forklift hire business that had been carried on by B&B. Smeaton purchased the goodwill of the business for a price of $1 million, while B&B's fleet of forklift trucks was, at Smeaton's request, sold by B&B to for $1.7 million St George Bank Ltd which immediately leased the fleet to Smeaton. Payment of the $1 million payable by Smeaton to B&B for goodwill was deferred and secured by a charge given by Smeaton to B&B. It is that charge that is in issue in these proceedings. 16 Several years later, in February 2007, Smeaton purchased the forklift fleet from St George. Smeaton used, for this purpose, funds borrowed by it from CBFC. The proceeds of the borrowing were paid by CBFC direct to St George at Smeaton's direction. Smeaton granted to CBFC two charges to secure payment of moneys owed by it to CBFC. It is one of these charges that is in issue in these proceedings. 17 Although the transaction of February 2007 was as I have just outlined, Mr Knoll of counsel who appeared for B&B preferred to describe it as a "refinancing" transaction. 18 Smeaton became subject to voluntary administration under Part 5.3A of the Corporations Act on 31 October 2007. As I have said, it is now subject to creditors voluntary winding up. The terms of the respective charges 19 B&B's charge was created on 23 December 2003. It is a charge affecting the whole of the assets and undertaking of Smeaton including book debts and uncalled capital. That property is charged with the payment of both a principal sum specified in the charge (being the $1 million to which reference has already been made) and all other moneys owing or to be owing by Smeaton to B&B. Although there is no operative provision stating the nature of the charge, clause 1, which is the charging clause, is headed, "Property subject to the Floating Charge". That, coupled with the absence of any provision precluding resort to headings in construing the document, leads to the conclusion that the charge is, in terms, intended to be a floating charge. As I have said, the parties accept that characterisation and it is common ground that B&B's charge is a floating charge. 20 There were, as I have said, two charges given by Smeaton to CBFC. Only one is relied on in these proceedings. It is evidenced by two documents: the Equipment Loan Schedule (which I shall call "the loan schedule") and the Usual Terms and Conditions Equipment Loan and Goods Schedule. Each document makes express reference to the other and makes it clear that the two together constitute the contract or security for the particular transaction. The second document contains numbered clauses. When I refer to clauses by number, the references are to clauses of that document, unless otherwise indicated. 21 After identifying the parties as Smeaton (referred to as "Borrower" or "I") and CBFC (referred to as "Lender" or "you"), the loan schedule states the amount of the loan, the total amount of interest, the number of monthly payments, the amount of each such payment and the amount of a final payment. Fees and charges are also stated. In Item E of the loan schedule, under the heading "Goods and Security", appears the following: " GOODS and Security Description of security A first mortgage over the GOODS mentioned below. Guarantee by Tamarist Pty Limited ACN 069 983 259 of 72 Badgerys Creek Road Bringelly NSW 2556, John William Van Heeswyk of 72 Badgerys Creek Road Bringelly NSW 2556 and Joanne Van Heeswyk of 72 Badgerys Creek Road Bringelly NSW 2556 Description of GOODS (include new/used, engine/serial numbers, VIN, registration numbers where appropriate) See Annexure 'A' Address at which GOODS are to be kept 72 Badgerys Creek Road Bringelly NSW 2556" 22 The annexure A describes 122 separate forklift truck items by unit number, make (often Nissan or Toyota), model, year and serial number. The "Goods" are the 122 specifically identified forklift trucks. 23 The loan schedule concludes: "By signing this SCHEDULE, and delivering it to you: · I offer to enter a CONTRACT as set out in the SCHEDULE and the UTC, and charge the GOODS referred to in item E to you as SECURITY for the payment of the AMOUNTS OWING under the CONTRACT. · I declare that the credit to be provided tome under the CONTRACT is to be applied wholly or predominantly for business or investment purposes (or for both purposes). Notwithstanding any other provision hereof, this CONTRACT shall take effect from the time you accept the offer." 24 There are provisions about payments by Smeaton and costs and charges. Clause 8, headed "How this contract affects me and the goods", is as follows: "8.1 By signing this CONTRACT I: (a) charge the GOODS to you; (b) undertake certain obligations; and (c) give you rights (i) against me; and (ii) concerning the GOODS. 8.2 I am liable for all the obligations under this CONTRACT both separately on my own and jointly with any one or more other PERSONS named in this CONTRACT as Borrower. 8.3 When there is no AMOUNT OWING, you will release the GOODS from this CONTRACT." 25 Clause 9 is headed "Your declarations". It contains declarations by Smeaton as to present and past matters. Clause 10, "Complying with this contract", is as follows: "10.1 I must ensure that I am not in default under this CONTRACT. I must also carry out on time all my obligations under the CONTRACT, including the obligation to pay any of the AMOUNT OWING. 10.2 When you release the GOODS from this CONTRACT, the following will continue to apply: (a) my obligation to pay the AMOUNT OWING; (b) clause 23.3; and (c) clauses 14.1 and 26, but only to the extent necessary to ensure your full rights under clause 23.3." 26 Clause 11, "Looking after the goods", imposes obligations on Smeaton, including the following in paragraph (e): "not permanently move the GOODS from the PERMANENT LOCATION without your consent." 27 Undertakings by Smeaton appear in clause 10, "Dealing with the goods": "I undertake that I will not, without your consent: (a) sell the GOODS; (b) mortgage the GOODS; (c) change the GOODS; (d) let the GOODS; (e) hire the GOODS; (f) deposit the GOODS with another PERSON as SECURITY for the payment of money or the performance of an obligation; or (g) otherwise dispose of the GOODS." 28 Clause 18 specifies events of default. Clause 19, "What can happen then?", begins by saying that CBFC need not make funds available. It continues: "19.2 If I am in default and you choose to enforce this CONTRACT, in most cases you must give me a notice before doing so. The notice must: (a) tell me what the default is; (b) require me to fix the default (if it can be fixed) within the period stated in the notice; and (c) contain any other information the law requires you to give me. 19.3 For the purpose of any law relating to giving default notices prior to enforcement of mortgages: (a) which requires that I must be in default for a certain period of time before you give me the notice and allows the period to be fixed in the CONTRACT, the period is fixed at one day; (b) which allows this CONTRACT to limit the period of time in which I must fix a default, the period (which must be at least one day) is the period set by the notice; or (c) which allows the parties to a mortgage to agree that the CONTRACT may be enforced without giving a notice, I agree that you need not give me a notice before beginning enforcement proceedings against me. 19.4 If you have given me a notice under clause 19.2 or 19.3 and: · I do not fix the default within the time allowed in the notice, or · the default cannot be fixed, then, at any time after the time stated in the notice elapses you may: (a) decide without further notice to me, that the AMOUNT OWING is due and payable immediately; (b) take possession of the GOODS; (c) sell the GOODS and receive the proceeds of sale; (d) appoint in writing any person (or any two or more persons jointly or severally, or jointly and severally) to be receiver of the GOODS, as my agent, with power: (i) to take possession of the GOODS and sell or concur in selling all or any of them (whether or not the receiver has taken possession) by any means; (ii) to do all things necessary to comply with any of my obligations under this CONTRACT; (iii) to do anything, without limitation, the receiver thinks expedient in your interests; and (iv) with your written consent, to delegate any of the receiver's powers; and/or (e) do anything else the law allows you to do. You may do any or all of the above things in any order." 29 Reference should also be made to the following definition of "Goods" in clause 33: "GOODS means one or more of the following which the context allows: · the GOODS described in this CONTRACT; · any GOODS I acquire in replacement or substitution for the GOODS described in this CONTRACT; · any GOODS I acquire as additional parts for the GOODS described in this CONTRACT; · any interest in the GOODS." The character of CBFC's charge 30 The question to be decided is whether CBFC's charge is, as referred to in s 279(3), a "fixed charge". That term is not defined by the Corporations Act, but it is made clear that "fixed charge" and "floating charge" are mutually exclusive categories: see, for example, s 263(1)(a)(ii) ("… whether the charge is a fixed charge, a floating charge or both a fixed and floating charge"). General law concepts are reflected in the statutory scheme, so that a "fixed charge" is a charge "that without more fastens on ascertained and definite property or property capable of being ascertained and defined": Illingworth v Houldsworth [1904] AC 355 at 358 per Lord Macnaghten. (Lord Scott of Foscote observed in Re Spectrum Plus Ltd [2005] UKHL 41; [2005] 2 AC 680 at [79] that it is best to avoid the description "specific charge" as a synonym for "fixed charge"). 31 As was pointed out by the Privy Council in Agnew v Commissioner of Inland Revenue [2001] UKPC 28; [2001] 2 AC 710 at [32], the task of deciding whether a particular charge is a fixed charge or a floating charge involves a two stage process. The court must first construe the document and seek to gather from the parties' language their intentions regarding their respective rights and obligations. Once those rights and obligations have been identified, the court must, at the second stage, decide the legal characterisation dictated by the rights and obligations. As their Lordships said: "If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it." 32 The focus at the second stage is thus upon the respective characteristics, in terms of the parties' rights and liabilities, of a fixed charge and a floating charge. The feature of a fixed charge that is not shared by a floating charge is that "the security whenever it has once come into existence, and been identified or appropriated as a security, shall never thereafter at the will of the mortgagor cease to be a security. If at the will of the mortgagor he can dispose of it and prevent its being any longer a security, although something else may be substituted more or less for it, that is not a 'specific'": Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 288-289 per Vaughan Williams LJ. A fixed charge attaches and continues to attach unless and until released by the chargee. 33 In the case of a floating charge, by contrast, the security does not fasten on or attach to the subject matter except at and by virtue of crystallisation, pending which the chargor is free to appropriate and dispose of that subject matter in the ordinary course of business, for example, by selling or consuming it. As Lord Scott put it in Spectrum Plus (above) at [112], "the hallmark of a floating charge and a characteristic inconsistent with a fixed charge is that the chargor is left free to use the assets subject to the charge and by doing so to withdraw them from the security". Crystallisation is the process by which, as a matter of contract, either express or implied (see Re Brightlife Ltd [1987] Ch 200), that freedom is terminated and a floating security is converted into a fixed security. It is a process foreign to a security that is from inception fixed and attaches in such a way as to preclude appropriation or disposal of the subject matter, whether by sale, consumption or otherwise and whether in the ordinary course of business or otherwise. 34 The essential distinction between a fixed charge and a floating charge was described in these terms by Lord Walker of Gestingthorpe in Spectrum Plus (above) at [138] and [139]: "… Under a fixed charge the assets charged as security are permanently appropriated to the payment of the sum charged, in such a way as to give the chargee a proprietary interest in the assets. So long as the charge remains unredeemed, the assets can be released from the charge only with the active concurrence of the chargee. The chargee may have good commercial reasons for agreeing to a partial release. If for instance a bank has a fixed charge over a large area of land which is being developed in phases as a housing estate (another example of a fixed charge on what might be regarded as trading stock) it might be short-sighted of the bank not to agree to take only a fraction of the proceeds of sale of houses in the first phase, so enabling the remainder of the development to be funded. But under a fixed charge that will be a matter for the chargee to decide for itself. Under a floating charge, by contrast, the chargee does not have the same power to control the security for its own benefit. The chargee has a proprietary interest, but its interest is in a fund of circulating capital, and unless and until the chargee intervenes (on crystallisation of the charge) it is for the trader, and not the bank, to decide how to run its business." 35 It was accepted by the parties that, as a matter of fact, Smeaton had, despite the CBFC charge (and, in particular, clause 8(d)), let the several forklift trucks on hire in the course of conducting its plant hire business. Smeaton thus parted with possession of individual units from time to time as it allowed hirers to take them to their own premises or work sites where forklifts were needed. Correspondence at the time the charge was created suggests that CBFC consented to this course of action. Ownership, of course, remained at all times with Smeaton, even though hirers were given possession for particular periods. The evidence shows that Smeaton did not sell or dispose of any of the 122 forklift trucks after entering into the agreement with CBFC; at all events, it is not suggested that any was sold or disposed of. 36 The apparent freedom of Smeaton to let the forklift vehicles on hire was said by B&B to bespeak a floating charge rather than a fixed charge. I do not accept that submission. Smeaton at no time had – or suggested by its actions that it considered itself to have – a right to dispose of or consume the subject vehicles regardless of CBFC's charge. The fact that the goods leave the chargor's possession or control is beside the point in determining whether the charge is a floating charge or a fixed charge. The question is whether the chargor has a right to put the goods beyond the operation of the charge without some form of release by the chargee. Letting of the vehicles on hire did not produce that result; nor did it imply any right or ability of the chargor to do so. Property may continue subject to a fixed security even though for the time being in the possession of a third party. A mortgage of a shopping centre is not floating, rather than fixed, because a succession of tenants is in possession of the individual shops. 37 B&B next points, in this connection, to the second dotted paragraph in the definition of "Goods" in clause 33 (see paragraph [29] above). It is submitted that that part of the definition shows a mutual intention that the charge should affect goods not owned by Smeaton at the time of the charge's creation but later acquired "in replacement or substitution for" goods already affected. It is thus recognised, according to the submission, that, notwithstanding the charge, goods may be turned over by the chargor so that after-acquired goods come to be substituted for or to replace goods that were originally the subject of the contract, with the latter goods being put beyond the reach of the charge simply by the chargor's disposal of them. 38 It is clear that the aspect of the definition of "Goods" in the second dotted paragraph contemplates that the charged goods may come to include replacement or substituted goods. It is quite possible for a fixed charge to comprehend not only present chattels but also future chattels. In Boambee Bay Pty Ltd v Equus Financial Services Ltd (1991) 26 NSWLR 284 at 290, Mahoney JA observed that the fact that a charge attaches not merely to property held by the company at the time of the charge's creation but also to property acquired by the company during the term of the agreement does not lead to the conclusion that an immediate charge on present property was not created. 39 Even though the aspect of the definition of "Goods" now under discussion contemplates that the charge may operate upon and in relation to after-acquired goods, it does not follow that it also contemplates that the chargor has licence to dispose of any part of the "Goods". The reference to goods acquired "in replacement or substitution for" goods within the ambit of the charge does not imply any such licence in relation to goods already charged. To contemplate that replacement goods will come to be encumbered by the charge (which is all the part of the definition in question actually does) is not to contemplate that the chargor has a right to extract pre-existing goods or that express release of the replaced items is unnecessary. Replacement may become necessary or desirable because goods initially encumbered have been scrapped or destroyed. It may also become necessary or desirable because the chargee has released goods initially encumbered so that they may be sold. The purpose of the relevant part of the definition is to avoid the need for a new charge to be taken as and when replacement or substituted goods are acquired by the chargor. It has nothing to say on the subject of withdrawal of goods from the operation of the agreement. 40 It was next submitted on behalf of B&B that the CBFC agreement contemplates crystallisation which, as I have said, is the process peculiar to the floating charge by which it becomes a fixed charge. This submission is based on clauses 19.2 and following of the contract (see paragraph [28] above). The submission is, in substance, that the charge contains an express crystallisation clause so that, whether or not an event has occurred which might of its nature effect crystallisation (such as cessation of business, appointment of a receiver or taking possession as mortgagee), crystallisation will occur if notice is given under clause 19.2, so that, at that time and not before, the charge will have effect as a fixed or specific charge. 41 I do not accept that submission. It is true that each of clause 19.2 and clause 19.3 contemplates that, in case of default, the chargee will (or may) give written notice to the chargor. But the purpose of a notice under clause 19.2 is stated in that clause itself, that is, to inform the chargor what the default is and to afford an opportunity for the chargor to rectify the default (if it is of a kind that can be rectified). Clause 19.3 is concerned with "default notices prior to enforcement of mortgages", being notices under "any law relating to giving such notices". The notices contemplated by that clause are notices such as might be called for by s 57(2)(b) of the Real Property Act 1900 or s 111(2)(b) of the Conveyancing Act 1919 in cases to which those provisions apply. Each type of notice thus has a particular purpose that has nothing to do with conversion of a floating security into a fixed security. There is simply no basis on which it could be concluded that the giving of a notice of either kind affects the nature of the charge or brings about any form of crystallisation of a floating charge. 42 CBFC's charge is, according to its own terms, a "first mortgage over" the 122 forklift trucks described by unit number, make, model, year and serial number in the annexure A to the loan schedule. Those specific items of property are charged to CBFC "as security for the payment of the amounts owing under the contract". There is an express prohibition on selling, mortgaging and otherwise disposing of the goods. Consequences of CBFC's release of goods from the charge are stated. There is no permission, express or implied, for the chargor to dispose of or consume the goods or to deal with them free them from the charge. In case of default, there is a power for CBFC as chargee to take possession of the goods and to sell them, provided that contractual provisions with respect to giving of notices to the chargor have first been complied with. 43 CBFC's charge is and has always been a fixed charge. None of the matters to which reference has been made on behalf of B&B provides any sound basis for regarding it as a floating charge. Conclusion on s 279(3) 44 It is, as I have said, accepted that the notice lodged in respect of B&B's charge did not contain an indication of the kind mentioned in paragraph (b) of s 279(3). The "unless" part of s 279(3) therefore does not stand in the way of the conclusion, dictated by that section, that B&B (the holder of a registered charge, being a floating charge) is to be regarded as having consented to postponement of that charge to "a subsequent registered charge, being a fixed charge that is created before the floating charge becomes fixed". 45 It is clear that CBFC's charge was created before B&B's charge became fixed and was, compared with B&B's charge, "a subsequent registered charge". The conclusion that CBFC's charge is a "fixed charge" therefore supplies the last element necessary to the operation of s 279(3). 46 It follows that B&B is deemed by s 279(3) to have consented, for the purposes of s 279(2), to its charge being postponed to CBFC's charge, with the result that, by virtue of s 279(2) the order of priority according to order of registration that would otherwise be dictated by s 280 is displaced and the interest created by CBFC's charge enjoys priority. The alternative argument 47 The conclusion I have just expressed is sufficient to cause the contest to be resolved in favour of CBFC and the claims of B&B to be dismissed. It is accordingly unnecessary to consider CBFC's alternative contention that its interest in the forklifts enjoys priority, in any event, because its charge is a "purchase money security". I nevertheless do so briefly and for the sake of completeness. 48 I begin with some matters of fact which I do not consider controversial. Immediately before the transactions of February 2007 to which Smeaton, St George and CBFC were parties, St George owned the fleet of forklift trucks and Smeaton had possession of them under the lease agreement between St George and Smeaton. CBFC agreed to lend money to Smeaton to enable Smeaton to purchase the fleet from St George. The two charges to be given by Smeaton to CBFC to secure repayment of the borrowed money were created (in the sense of being executed and delivered by Smeaton) before the purchase by Smeaton from St George was completed. Indeed, CBFC would have been exposed to risk had it made the loan proceeds available before receiving the fully executed charges from Smeaton. Of course, no moneys were secured by the charges at the point of their creation. They began to operate as security when CBFC later advanced the purchase moneys and, at Smeaton's request, paid them direct to St George. 49 The transaction between St George and Smeaton was in truth a sale. Although counsel for B&B sought to portray it as a "refinancing" (and it was, in commercial terms, of that character), that cannot alter its true nature as indicated by a proper analysis of the rights and obligations created. 50 In these circumstances, it should be recognised that Smeaton never acquired anything but a title encumbered by the CBFC security. The position is as described by Lord Oliver of Aylmerton in Abbey National Building Society v Cann [1991] 1 AC 56 at 93: "The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The 'scintilla temporis' is no more than a legal artifice …" 51 Lord Jauncey of Tullichettle said at 102: "In my view a purchaser who can only complete the transaction by borrowing money for the security of which he is contractually bound to grant a mortgage to the lender co instante with the execution of the conveyance in his favour cannot in reality ever be said to have acquired even for a scintilla temporis the unencumbered fee simple or leasehold interest in land whereby he could grant interests having priority over the mortgage or the estoppel in favour of prior grantees could be fed with similar results. Since no one can grant what he does not have it follows that such a purchaser could never grant an interest which was not subject to the limitations on his own interest." 52 It was thus recognised that, under the particular circumstances, the purchaser never holds an unencumbered title. While the particular case concerned land (and a different result might be dictated by Torrens system statutes), there is no reason why the principle does not apply equally to chattels. 53 The approach taken in the Abbey National case is consistent with earlier English authority: see, in particular, Wilson v Kelland [1910] 2 Ch 306, Re Connolly Bros Ltd (No 2) [1912] 2 Ch 25, Security Trust Co v Royal Bank of Canada [1976] AC 503, Coventry Permanent Economic Building Society v Jones [1951] 1 All ER 901. The same approach has been taken in Australia: see, for example, Mathieson v Wahlen (1928) 28 SR (NSW) 189; Re Bunbury Foods Pty Ltd [1985] WAR 126, Composite Buyers Ltd v State Bank of New South Wales (1990) 3 ACSR 196, Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR 1 and North Western Shipping & Towage Co Pty Ltd v Commonwealth Bank of Australia (1993) 118 ALR 453. 54 In Sogelease Australia Ltd v Boston Australia Ltd (above), Rogers CJ CommD had occasion to consider the operation of the principles with respect to "purchase money security" in the context of the system of priorities among charges created by the Companies (New South Wales) Code. Although somewhat differently expressed, the provisions of that legislation concerning priorities were in essence carried over into the Corporations Law and are now embodied in the Corporations Act. Rogers CJ CommD held that a purchase money security took precedence over a prior registered general charge. His Honour said that the two were not "competing" charges. By this he meant that the prior general charge only ever attached to the title already encumbered by the purchase money security, so that each security affected a different subject matter and there was no need to resolve competing claims for priority with respect to a single subject matter. 55 Were it necessary for me to deal with the alternative basis on which CBFC sought to make its case, I would accept the submissions of CBFC that, just as in the Sogelease case, the interest of CBFC under the specific security taken by it to secure purchase moneys advanced by it created a security interest superior, in point of priority, to Smeaton's earlier general charge. Furthermore, I would not accept the argument that the cases producing that result should not be followed. As to the matter of general principle, the analysis in Abbey National Building Society v Cann (above) is thorough and compelling. As to the operation of the Corporations Act priority provisions, the reasoning employed by Rogers CJ CommD in Sogelease is, in my respectful opinion, correct. Conclusion 56 The claim of B&B, as plaintiff, for declaratory relief will be dismissed with costs. There is no cross-claim but I was informed by counsel for CBFC that the liquidator of Smeaton had indicated that the fund in his hands would be disposed of according to the result expressed in my reasons for judgment. It should therefore be transferred to CBFC. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.