The Supreme Court of Queensland recently had to decide a priority
dispute between a secured creditor and a judgment creditor (see Brava
Trading Pte Ltd v Leybourne Nominees Pty Ltd & Anor [2012] QSC 328,
a decision by Philippides J).
The plaintiff,
(“Brava Trading”) held a registered mortgage debenture provided by the second
defendant, (“Brava Marine”), now in liquidation. The first defendant,
("Leybourne") obtained default judgment against Brava Marine for
outstanding rent in the sum of $66,366.69.
Leybourne
issued an enforcement warrant directed to the National Australia Bank (NAB). On
20 July 2009, the NAB debited the sum of $67,321.53 from the trading account of
Brava Marine, and drew a cheque in favour of Leybourne.
Subsequently,
Brava Marine applied to set aside the default judgment obtained by Leybourne.
It was given leave to defend and the sum of $67,321.53 from the NAB was ordered to be
retained in Leybourne's solicitors' trust account.
Subsequently again a receiver was appointed over the assets of Brava
Marine pursuant to the Charge, and then Brava Marine was wound up and
liquidators appointed.
Leybourne was
granted leave to proceed against Brava Marine in the District Court proceeding
and it obtained another judgment against Brava Marine.
Issues
The issues for
determination were:
1. Whether, by
reason of the crystallisation of the registered charge, Brava Treading was
entitled to the moneys deposited into the trust account in priority to
Leybourne? That raised the issue of whether there was an event of default and,
if so, what effect the crystallised security interest had?
2. Did the
enforcement warrant create a security interest, which gave Leybourne priority
to the fund?
3. Were any
rights Brava Trading had as chargee over Brava Marine lost upon the completion
of the process of execution against the NAB?
The court
concluded that:
1. The issue of
a winding up application on 20 July 2009 was an event of default crystallising
the Charge (based upon the terms of the Charge document); and more importantly,
2. Leybourne did not acquire any interest in or entitlement to the
trust moneys prior to crystallisation of the Charge on 20 July 2009.
Relying on old
authorities, the court concluded: If prior to the crystallizing of the floating
charge a judgment creditor receives judgment from the garnishee, then the mere
existence of the floating charge is not sufficient to give the mortgagee a
right to the debt. The debt must be an actual security under the charge by its
crystallization before payment to the judgment creditor.
The court concluded that when the Charge crystallised, Brava Marine
became a trustee of the moneys for Brava Trading. The subsequent payment of the
moneys into the solicitors’ trust account to give effect to the order did not
derogate from Brava Trading’s then existing entitlement pursuant to the
crystallised Charge. After the making of the order, the funds paid into the
solicitors’ trust account remained subject to any pre-existing beneficial
interest of Brava Trading arising from the crystallisation of its Charge which
rendered Brava Marine a trustee of the debt. The payment of the moneys into the
solicitors’ trust account, albeit that it was made pursuant to a court order,
did not alter the entitlement that Brava Trading already had to the moneys.
Conclusion
A judgment does not give a creditor any security in priority to a secured creditor, provided that secured creditor's security has crystallized. It is therefore important to ensure that any charge relied on as a security includes very broad 'events of default'. That way the charge will crystallize before judgment is obtained by an unsecured creditor. As a result, a secured creditor will be able to collect any proceeds of execution obtained by the judgment creditor.
W G Stark
Hayden Starke Chambers
No comments:
Post a Comment