Credit Corporation (Fiji) Ltd v Sutton [2012] FJHC 1000; HBC44.2010 (29 March 2012)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

Civil Action No.: HBC 44 OF 2010

BETWEEN:

CREDIT CORPORATION (FIJI) LIMITD,
a duly incorporated liability company having its registered office at Suva in the Republic of the Fiji Islands.
PLAINTIFF

AND:

BRUCE SUTTON and LISA APTED
both of Suva in the Republic of Fiji Islands,
Chartered Accountants and Receivers and Managers of Eagle Ridge Investment (Fiji) Limited.
FIRST DEFENDANTS

AND:

EAGLE RIDGE INVESTMENT (FIJI) LIMITED
a limited liability company having its registered office at Level 8, Dominion House, Thompson Street, Suva in the Republic of the Fiji Islands.
SECOND DEFENDANT

COUNSELS : Mr Viren Kapadia of Sherani & Co. for the Plaintiff
Mr Paul M Nowell of Cromptons for the First Defendants

Date of Hearing : 1st February 2012
Date of Judgement : 29th March 2012

RULING/JUDGEMENT

BACKGROUND

Statement of Claim

1. Credit Corporation (Fiji) Limited (Plaintiff) filed its claim against Bruce Sutton and Lisa Apted who are the Chartered Accountants and Receivers and Managers (1st Defendants) of Eagle Ridge Investment (Fiji) Limited and Eagle Ridge Investment (Fiji) Limited (2nd Defendant). As per Statement of Claim 1st Defendants were appointed on 3rd January 2008 as Receivers and Managers of 2nd Defendant by National Bank of Fiji Limited trading as Colonial National Bank Ltd pursuant to a Deed of Charge dated 11th December 2004 given by 2nd Defendant (hereinafter called and referred to as Colonial Bank).
   
2. The Second Defendant is a Limited liability Company engaged in the business of manufacturing milk powder and ice cream.
   
3. The Plaintiff had granted a facility borrowing of $512,604 to the 2nd Defendant for the specific purpose of purchasing an ice cream making plant with all other necessary machinery (hereinafter called and referred to as the ice cream plant).
   
4. The plaintiff states in the Statement of Claim the ice cream plant was purchased for the 2nd Defendant by the Plaintiff pursuant to a commercial invoice no. ABS 064567 dated 17th January 2007 in the sum of USD 450,000 from Agribest Australia Pty Limited.
   
5. 2nd Defendant gave a specific Mortgage of a Bill of Sale security dated 30th April 2007 to secure the borrowing to the Plaintiff over the ice cream plant which was registered with the Registrar of Companies on or about 8th May 2007.
   
6. The 2nd Defendant made default in payment of the loan and the Plaintiff had issued notice of default to the Second Defendant on 9th August 2007, and on the Bill of Sale Plaintiff is entitled to take the possession of the ice cream plant and sell same to recover the monies.
   
7. Subsequently, First Defendants were appointed as Receivers and Managers of the 2nd Defendant by Colonial Bank, and January 2008 the 1st Defendants took the possession of all equipments including Ice Cream plant at the factory premises of the 2nd Defendant subject to the specific charge of a Bill of Sale to the Plaintiff.
   
8. At a meeting held on 8th February 2008, Plaintiff requested the Second Defendant to return the said ice cream plant but the 1st Defendants refused to do so.
   
9. Although the Plaintiff requested through its Solicitors to return the ice cream plant through the solicitors of 1st Defendants refused to hand over the possession of said ice cream plant and thereby wrongfully deprived the plaintiff of the possession.
10. The First Defendants proceeded to sell the said ice cream making plant and caused loss and damages to the Plaintiff.
    
11. Plaintiff in its Statement of Claim prays for:
    
    • (a) $430,994.50 as at 25th February 2010 being the balance amount due and owing to the loan outstanding or the value of said ice cream making plant;
    • (b) Damages for conversion;
    • (c) Interest at 25% per annum from 25th February 2010;
    • (d) Costs.
      

Statement of Defence of 1st Defendants

12. Admits the averments in para 1, 2 and 3 of the Statement of Claim.
    
13. Deny the averments in para 4, 5, 6 having no knowledge of same and put the plaintiff to strict proof thereof.
    
14. 1st Defendants admitted the para 7 of the Statement of Claim and further pleads 1st Defendants were appointed as Receivers and Managers on 3rd January 2008 under the Debenture dated 11th December 2004, and they entered the premises of the 2nd Defendant at Walu Bay and deny the rest of allegations made by the Plaintiffs in its Statement of Claim.
    
15. First Defendants answering to para 8 of the Statement of Claim admitted meeting took place at their office with the Plaintiff on 8th February 2008 and they refused to give the possession of the said ice cream plant and informed the Plaintiff the Defendants would retain the plant pursuant to the said Debenture and their appointment of letter dated 11th March 2008.
    
16. Answering para 9 of the Statement of Claim except that the letters mentioned there in being written and received and other allegations contained in para 9 are denied by the First Defendants.
    
17. 1st Defendants admit that the Ice Cream plant was sold by them exercising the powers as Receivers and Managers under the Debenture dated 11th December, 2004. The other allegations contained in para 8 is denied by the 1st Defendants.
    
18. Para 11 of the Statement of Claim is also being denied.
    

Proceedings

19. Orders on summons for directions filed on 8th July 2010, verifying the documents of Plaintiff and First Defendants were filed, and Pre-trial Conference minutes was filed on 24/12/2010.
    
20. Pleadings filed on 28/1/2011.
    

Present Issue

21. Case was called before me on 11th October 2011 and hearing was fixed on 11th February 2012.
    
22. When the matter was taken up before me, Mr Viren Kapadia – Counsel appeared for the Plaintiff and Mr Paul M. Nowell – Counsel appeared for the 1st Respondent.
    
23. It was submitted by the Counsel, Mr Kapadia that further proceedings of this case will be dependent upon the issue of Priority over the Documents i.e. Floating debenture was issued on 3rd January 2004 on all present and future assets of the company and there after Bill of Sale was executed by the company in favour of the Plaintiff on 30th April 2007. Before proceeding to trial, Counsels, Mr Kapadia and Mr Paul M Nowell agreed to try this issue of priority as preliminary issue.
    
24. I too consider the issue of priority as a preliminary issue, for the reason that outcome of the case is dependent upon this issue of priority.
    
25. As I stated in paragraph 24, the Courts should take into account the following:
    
    • (a) As to whether the Deed of Charge (Debenture Mortgage) dated 11th December 2004 executed by the Second Defendant favouring National Bank of Fiji Limited trading as Colonial National Bank take priority over the Mortgage of the Bill of Sale dated 30th April 2007 executed by Second Defendant favouring the Plaintiff;
      
    • (b) The decision on Priority made by court pertaining to the above issue will be vital to further proceedings of the case.
      
26. There is no contest over execution of Deed of Charge (Debenture Mortgage) dated 11th December 2004, favouring Colonial Bank and the Mortgage of the Bill of Sale dated 30th April 2007 over the Ice Cream making plant as a security for the loan advanced to the 2nd Defendant. These are agreed facts at the Pre-trial conference.
    
27. It is also an agreed fact at the Pre-trial conference that the First Defendants were appointed on 3rd January 2008 as the Receivers and Managers of the Second Defendant by the Colonial Bank.
    
28. It is also agreed between the parties the Ice Cream plant was in the possession of the First Defendants and the said Ice Cream plant was sold by the First Defendants.
    
29. Since above matters on facts being agreed between the parties, I have to decide the priority issue with regard to the documents and to decide whether Plaintiff is entitled to claim on the Bill of Sale in the present case.
    

Submissions by the Plaintiff

30. Plaintiff counsel in his submission drawn attention of the Court to following 3 documents in the Agreed Bundle of documents:
    
    • (a) Document No. 3 which is the Debenture of Colonial Bank dated 11th December, 2004;
      
    • (b) Document No. 8 which is the letter of offer dated 11th April 2007 by the Plaintiff to the 2nd Defendant;
      
    • (c) Document No. 9 which is the Bill of Sale dated 30th April 2007 of the Plaintiff given by the 2nd Defendant Company;
      
    • (d) In addition to the above documents, the Plaintiff submit that the commercial invoice dated 10th August 2006 which was tendered by the 1st Defendant's Counsel on the hearing date i.e. (on 1st February, 2012) is not an agreed document. This document is marked as Defendant's document No. 1.
      
31. Summary of the facts of the case is also mentioned in the written submissions which were detailed by me earlier in this ruling.
    
32. Plaintiff's contention is that the Defendant's document No. 1 is tendered at the trial date does not change the position and that the Plaintiff's specific Bill of Sale displaces the general mortgage debenture and rank in priority as it is on the agreed facts as a purchase money security.
    
33. Plaintiff counsel states that for the following reasons, Court should not give any weightage to the Commercial invoice dated 10th August 2006 marked as Defendant's Document No. 1:
    
    • (a) It does not confirm legal title has passed from the Chinese Company (Exporter) to the Second Defendant;
      
    • (b) There is no evidence to establish that there had been a payment on this invoice at the relevant time;
      
    • (c) The Defendant's document No. 1 is forwarded late in the proceedings;
      
    • (d) The First Defendants have not disclosed the document earlier and it does not tie with any of the agreed facts and documents in this case.
      
34. The Plaintiff's counsel had detailed relevant clauses in the Debenture of Charge (Mortgage) executed by the Second Defendant in favour of Colonial Bank dated 11th December, 2004.
    
35. Specifically, attention of the Court is drawn to Clause 3, 6.1(b) (i), Clause 9(d) and submits that in terms of Condition 9(d) and submits that floating charge was made fixed charge by crystallisation.
    
36. The Plaintiff also submits as per page 2 of the Agreed bundle of documents, Plaintiff purchased the ice cream plant for the 2nd Defendant from Agribest Australia Pty Ltd for the sum of AUS $450,000 and it is also an agreed fact in para 6 of the Pre Trial Conference minutes of the parties.
    
37. It is stated that the 1st Defendants have now sold the ice cream plant to another company and nothing was disclosed to the plaintiff with regard to actual sale price of the items.
    
38. Plaintiff also has drawn attention to Halsbury Volume 7(2) with regard fixed charge and quoted the Judgement Illingworth vs Houldsworth [1904] UKLawRpAC 40; (1904) A.C. 355 at page 358.
    
39. It is further submitted in Lexis Nexis NZ Limited the law of New Zealand Companies para 126 quoting the case Illingworth vs Houldsworth defines the floating charge.
    
40. In case of Illingworth vs Houldsworth, it was stated how a floating charge becomes a fixed equitable charge on crystallisation. Further several pages of Lexis Nexis was described and quoted Re. Victoria Steamboats Ltd. In this instance, it was submitted the crystallisation of the floating charge to a fixed charge occurred happening of a certain event, i.e. on appointment of First Defendants as Receivers and Managers on 3rd January 2008.
    
41. With regard to priority of security on crystallisation plaintiff submitted the court should pay attention to the rules in case of Dearle vs Hall (1828) 3 Russ 1 39/ER 475, [1823 – 34] ALL ER Rep 28. Appointment of Managers and Receivers on 3rd January 2008 and specific Bill of Sale was registered on 30th April 2007. Plaintiff submits crystallisation of Colonial Bank debenture took place after appointment of Managers and Receivers.
    
42. Submissions also made on the issue of Priority of Purchase Money Security by quoting Wilson vs Kelland [1910] 2 Ch 30 6 and submitted it was established "purchase money security takes priority over an earlier general charge", even if the vendor has notice of Debenture previously given by the company.
    
43. Further cases too were referred by the Learned Counsel for Plaintiff on the issue of Purchase Money Security in cases of Abbey National Building Society vs Cann which was quoted in the case of Australian Guarantee Corporation (NZ) Ltd vs Nicholson [1996] 1 NZLR 167.
    
44. Plaintiff submitted up to 1991 in similar instances borrowing from a third party, when present and future properties of the borrower is subject to a general charge. Security of the asset was subject of conflicting opinions; which was resolved in the House of Lords decision of Abbey National Building Society vs. Cann. It was submitted House of Lords decision of Abbey National Building Society was adopted by Chief Justice Eichellbaum in Australian Guarantee Corporation (NL) Ltd vs Nicholson Chief Justice Eichellbaum held [1996] 1 NZLR 167 that:
    

"A purchase money security prevailed over a general debenture because the company obtained the legal estate subject to the lenders equitable charge, which sprang into existence as soon as the legal estate passed to the company. The debenture holders' charge floated only on to what the company had obtained a property already subject to the lenders interest. The fee simple had never belonged to the company in an unencumbered state, not even for the theoretical moment of time".

(a) Plaintiff's contention is principal adopted in Australian Guarantee Corporation should be applied in the present case too. Colonial Bank's debenture was subject to the Plaintiff's specific Bill of Sale;

(b) The assets and chattels never belonged to the Second Defendant in an unencumbered not even for theoretical moment of time;

(c) The ice cream plant was not owned by the Second Defendant in an unencumbered form as it was from inception subject to equitable interest of the Plaintiff who had financed its purchase and took security over it.

45. Under 4.7; 4.8 and 4.9 of the written submission, counsel dealt extensively in the case of Australian Guarantee Company (NZ) Ltd.
    
46. Citing B & B Budget Forklifts Pty Limited vs CBFC Ltd and 2 others [2008] NSWSC 271 [1st April 2008] in New South Wales Supreme Court his Lordship Baret J's statement was quoted and Plaintiff submitted Second Defendant could have never owned the ice cream plant unencumbered because it was already subject to the specific Bill of Sale of the Plaintiff or at least an equitable interest of the Plaintiff who was financing its purchase so that scintilla temprons principal was displaced.
    
47. Plaintiff's counsel submitted this court should take the approach of Australian Guarantee Corporation (NZ) Ltd vs Nicholsen and B & B Budget Forklifts Pty Ltd CBFC Ltd & Others where Abbey National Building Society vs Cann decision was adopted.
    
48. It was the contention of the Plaintiff's counsel this court should determine whether the debenture dated 11th December 2004 is displaced because of the "purchase money security" of the specific bill of sale dated 30th April 2007 of the Plaintiff.
    
49. Summarising the submissions, plaintiff's counsel stated:
    
    • (a) Prior Debenture dated 11th December 2004 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 the competing claims for priority with respect to single subject matter;
      
    • (b) If the court decides priority is not displaced by "purchase money security" the court should consider since the floating charge on the debenture registered on 15th October 2005 was crystallised only on 3rd January 2007 when the 1st Defendants were appointed as Managers and Receivers of the 2nd Defendant. The crystallisation was on 3rd January 2008 and plaintiff's specific bill was dated 30th April 2007. In the circumstances there is no charge created over the bill of sale, by the General Debenture.
      
50. As such, counsel concluded this submission:
    
    • (i) "Purchase money security" of the Plaintiff's Bill of Sale dated 30th April 2007 displaces the Debenture dated 11th December 2004;
      
    • (ii) In the alternative crystallisation was on 3rd January 2008 and Colonial Bank's Debenture becomes an equitable charge which ranked lower;
      

Submissions on behalf of the 1st Defendants

51. Prior to considering the submissions made by the 1st Defendants, I observe in the written submissions 1st Defendant's counsel refers to the Charge created in favour of Bank of South Pacific Ltd (BSP). However, I am inclined to refer the submissions made on behalf of BSP since at no stage court record indicates BSP in place of Colonial Bank and no material available in the case record that Colonial Bank name changed to Bank of South Pacific Ltd (BSP). Plaintiff's submissions referred to as Colonial Bank and I decided to refer BSP as Colonial Bank wherever submissions refers to BSP to avoid any confusion.
    
52. The Learned counsel had raised summary of the issues in his submissions:
    
    • (a) Credit Corporation claim is that Colonial Bank charge is, in respect of the ice cream plant, a floating charge which must yield to the Bill of Sale and this position is incorrect;
      
    • (b) Credit Corporation claims it has the benefit of 'Purchase money security' in terms of the AGC vs Nicholson (AGC's case) referred in Plaintiff's submissions and 1st Defendants states:
      
      • (i) In the present case 'purchase money security' approach cannot be applied. The facts of this case is different from AGC's case, reason being the ice cream plant was not totally funded by Credit Corporation;
        
      • (ii) Majority stake of the purchase money was contributed by Eagle Ridge (2nd Defendant) subject to Colonial Bank charge. For this reason Credit Corporation cannot take up position Colonial Bank charge not to prevail over the Bill of Sale or have, at worst, equal standing with the Bill of Sale proportionate to Colonial Bank's contribution to the purchase price of Ice Cream Plant;
        
      • (iii) If Eagle Ridge's contribution to the purchase price was itself borrowed from Colonial Bank under its general borrowing facilities whatever the rights Credit Corporation itself has as a charge under Bill of Sale must themselves be subject to Colonial Bank's proportional rights as a lender.
        
      • (iv) It was further submitted better policy approach in Fiji in any event is to stay with the certainty of the established hierarchy of priorities established by the principle that the first in time prevails.
        
53. Material facts in this case are detailed in the 2nd para of the submission and stated these facts are agreed facts.
    
54. In para 3 in the written submissions, certain queries with regard to agreed facts are being questioned which will be addressed in my findings.
    
55. 4th paragraph states the document marked as Defendants document No. 1 marked with objection by the counsel for the plaintiff on the last date of the case. Submission of this document will be dealt with in my findings.
    
56. It was submitted the position taken up by the Credit Corporation in its submission para 4.1 the Colonial Bank charge became fixed when receivership occurred is incorrect.
    
57. It was submitted that Credit Corporation possibly believes that fixed charge over a future asset must of necessity be a floating charge until crystallisation. This is incorrect.
    
58. Quoting Credit Corporation's own authority Halsbury's definition counsel submitted fixed charge as a charge that:
    

"without more fastens on ascertained and definite property or property capable of being ascertained and defined. It was submitted future plant and machinery is and defined and subjected to a fixed charge"

59. It is stated in the submissions quoting Halsbury, the following are typical assets to a floating charge:
    
    • (a) Receivables (which may be converted to cash);
      
    • (b) Stock in trade (which may be converted to cash);
      
    • (c) Cash (which may be converted to other assets).
      
60. In this regard, Counsel had submitted quoting case of Re: Cimex Tissues Ltd (1995) 1 BCCC 409 at 420 on floating and fixed charges.
    
61. Further submitted Colonial Bank Charge was at all times, under Clause 6.1 a fixed charge over:
    

"all present and future real and lease hold property uncalled capital engines machinery plant .................."

62. At the time Eagle Ridge acquired title to ice cream plant, Colonial Bank charge became fixed. Not at the time of Receivership para 4.2 and 4.3 of Credit Corporation's submissions is irrelevant.
    
63. There is a contest between two equal security interests, one general (Colonial Bank Charge) and one specific (Bill of Sale). Standard rule determining priorities between a equal security interest is that first in time prevails (Referred times and Halsbury volume 16 para 759). It was submitted Eagle Rich granted the Bill of Sale over Ice Cream Plant to Credit Corporation, it must have obtained the title to it at which point Colonial Bank charge attached to the Ice Cream Plant. Credit Corporation should overcome this ruling.
    

Reply to Credit Corporation Purchase Money Security Interest Argument by the First Defendants in the Submission

64. The cases quoted by the Credit Corporation in support of their argument of Purchase Money Security Colonial Bank has analysed the cases and submitted the following:
    
    • (a) Abbey National case no money being advanced by the competing priority parties and as such this case to decided on different circumstances;
      
    • (b) In AGC's case court specifically noted that AGC had refinanced Sovereign's Debt in respect of the printing machine. Therefore, the General Debenture holder could genuinely be said never to have funded the disputed asset;
      
    • (c) In the Sogelease case careful funding was by the Financier of the Purchase price of the asset in dispute;
      
    • (d) B & B case too the full funding by CBFC of the purchase price of the asset by taking into consideration the above cases it was submitted in the present case Credit Corporation funded on 47% of the purchase price and they don't have the opportunity to take priority over the general lender who has relied on the certainty of the General Charge.
      
65. The counsel also had stated Purchase Money Security Interest should not be recognized in Fiji interalia:
    
    • (a) The decisions of cases cited are decided under different circumstances;
      
    • (b) Adopting PMS approach will result in confusion and uncertainty and will destroy the clear set of priority rules;
      
    • (c) Fiji is a small jurisdiction having 4 trading Banks and 3 asset Finance Companies;
      
    • (d) Trading Banks are servicing the companies as general lenders who secure their facilities general securities such as Colonial Bank charge asset financiers serve borrowers as financiers of specific assets securing their lending by way of hire purchase agreements or bills of sale;
      
    • (e) This rule of purchase money security will limit lending by Banks and also several other repercussions and create uncertainty.
      
66. Finally, 1st Defendants submitted the reasons set out in paragraph's 6-11: the court should take the following matters into consideration:
    
    • (a) Credit Corporation's (Plaintiff's) claim that Colonial Bank's charge is a floating charge and Credit Corporation charge is a fixed charge is incorrect;
      
    • (b) Purchase money security interest approach should be rejected on the basis that questions of facts and law is not strong enough to substantiate the position of Credit Corporation.
      

Plaintiff's submissions in reply

67. Plaintiff's counsel filed submission in reply to the 1st Defendant's submissions on 16th March 2012.
    
68. The submission made in reply is taken into consideration by me in my analysis.
    

Analysis, Findings and Conclusion

69. Firstly, I deal with document which was marked as Defendant's document (1) which was not in the agreed bundle of documents. This document is not taken into consideration by me for the findings of this case for the following reasons:
    
    • (a) The subject document is on Commercial invoice dated 10th August 2006 issued by Shandong Saixin informing Machinery Company to Eagle Ridge Investment (Pty) Ltd pertaining to Ice Cream processing plant; where 1st defendants had failed to establish any transaction being taken place on this document; In commercial world obtaining invoices at various stage is a common practice;
      
    • (b) Court cannot make assertion on a document which is not supported by facts and forwarded late in the proceedings;
      
    • (c) There is no evidence to establish there had been any payments on this invoice.
      
70. The 1st Defendants had stated Fiji should not adopt Purchase Money Security Principles because Fiji is a small jurisdiction and limited number of Banks and Finance Companies are in operation. As such there is uncertainty among lending Banks. I am inclined to accept this argument and state the courts should define principles of lending when a dispute arise. Certainly a developing economy should address the new principles of law rather than relying on the outdated principles of law. The development of a country depends on good legal environment. If courts definitive in directions on new concepts certainly financiers shall be more vigilant and adopt such directions. I conclude that there will be no general uncertainty by considering purchase money security principles in this case. If principles of purchase money security principles were not dealt by Fiji Courts up to now that should be the very reason to consider as to whether such principles could adopt in this case.
    
71. The arguments were placed by the counsel for the plaintiff in his reply:
    
    • (a) Colonial Bank's debenture dated 11th December 2004 could never acquired equitable title to the ice cream plant that came into existence under Bill of Sale dated 30th April 2007 after its purchased on moneys advanced by the Plaintiff and the Purchase Money Security interest takes priority over the Debenture;
      
    • (b) Colonial Bank's Debenture crystallised on appointment of the First Defendant's as Receivers and Manages to the 2nd Defendant on 3rd January 2008 as such Plaintiff's Bill of Sale dated 30th April 2007 takes priority over Colonial Bank's General Debenture.
      
72. In reply to the above arguments, First Defendants counsel argue on the following basis:
    
    • (a) Purchase Money Security approach should not be used in this case because the Plaintiff advanced only 47% of the purchase money;
      
    • (b) Colonial Bank's Debenture dated 11th December 2004 is a fixed charge and not a floating charge. As such it takes priority over Plaintiff specific Bill of Sale dated 30th April 2007.
      
73. On the argument of Plaintiff advancing 47% of the purchase price thus Purchase Money Security interest approach cannot be used, I considered the cases quoted by both parties, (same cases) in different context.
    
74. In my view, I agree Purchase Money Security is not dependent upon what percentage is made towards the purchase price of the security. What matters is the principles applicable for Purchase Money Security. I further state it's an agreed fact that in the minutes of Pre Trial Conference "Part A Agreed Facts item 6" states:
    

"6 – the Plaintiff pursuant to the Commercial Invoice No. ABS 40645671 dated 7th January 2007 purchase the ice cream making plant for the Second Defendant in the sum of AUS $450,000.00 from Agri Best Australia (Pty) Limited".

This agreed fact nullifies the argument by the 1st Defendants that 47% of the purchase price is paid by the Plaintiff. First Defendants have agreed that Ice Cream making plant is purchased by the Plaintiff for the Second Defendant. It is my contention that even if the ice cream plant is funded by the 2nd Defendant it was agreed the ownership lies with the Plaintiff until total amount due to the Plaintiff is fully settled. No Banking or financial institution will advance total purchase price of an equipment since such equipment shall depreciate in value over a period of time, in a forced sale situation. The intention of the lending institution is to recover the outstanding in full. In my view ownership passes to the borrower (even if he had advanced part of the monies for purchase) only on settlement of the monies to the lender. I also have taken into consideration the decision made in the case of Australian Guarantee Corporation (NZ) Ltd vs Nicholson (1996) NZLR 167. Accordingly, 1st Defendant's argument of since Plaintiff advancing only 47% of the money's and Purchase Money Security interest approach cannot be applied, fails. I hold Purchase Money Security Principle can be applied in this case.

75. Further as I stated earlier in my findings the Defendant's Document 1 Commercial invoice which, was not in the agreed bundle of documents and was filed later in the proceedings. Further I state 1st Defendants have agreed at Pre-Trial Conference minutes under Part A. Agreed facts the ice cream plant the invoice relating to purchase of ice cream plant is issued by Agribest Australia (Pty) Ltd as such Defendant's Document No. 1 does not carry any weightage in this case.
    
76. Having hold that purchase money security principles are applicable in the present case as decided in Abbey National Building Society vs Canns it was argued by the Counsel for the First Defendant's the facts in Abbey National Building Society case is different to the present case. I don't agree with 1st Defendant's contention and state this Court only considers the principles adopted in the said case not the facts.
    
77. House of Lords decision in Abbey National Building Society vs Cann cleared the conflicting situation prevailed up to 1991 when there was a general charge on present and future assets how to decided on an asset bought after that, financed by a third party upon security of the asset. I quote case Australian Guarantee Corporation (NZ) Ltd vs Nicholson, Chief Justice Echelbaum held that:
    

"A purchase money security prevailed over a general debenture because the company obtained the legal estate subject to the lender's equitable charge; which sprang into existence as soon as the legal estate passed to the company. The debenture holder's charge floated only on to what the company had obtained a property already subject to lender's interest. The fee simple had never belonged to the company in an unencumbered state, not even for the theoretical moment of time................ (emphasis mine)

78. In the present case, the ice cream plant was not owned by the second defendant in an unencumbered form and from the date of purchase subject to equitable interest of the Plaintiff who financed its purchase.
    
79. The First Defendants argued on this matter stating that in the case of Australian Guarantee Company the printing machine originally funded by Sovereigns was settled by Australian Guarantee Company and the Nicholson's general charge was after that. When Sovereign's Debt was settled (after Nicholson's general charge) by Australian Guarantee Company it got the priority over Nicholson's charge. The first Defendant's position was such a situation was not arisen in this case and Purchase Money Security interest cannot be adopted in the present case. However, I don't agree with this argument. The case was decided on the basis that who funded the purchase of the printing machine and the rights of the funder for purchase devolves on the re-financier over prior general charge holder. In such circumstances when courts concluded purchase money security interest is applicable, the First Defendant's argument fails. Simply it means if purchase money security principles can be applied to the subsequent financier then the plaintiff position in this case is more strengthened.
    
80. In para 3 of the 1st Defendant's submissions, the two issues raised therein are not matters to be considered in this case. Why the payment is made in advance prior to granting a loan in further 3 months time is entirely a matter of discretion of the Plaintiff.
    

Same discretion can be exercised by the Plaintiff of deciding on the security to be obtained whether Hire Purchase or Bill of Sale. Different Financial institutions adopt different methods to obtain security documentation. This argument does not raise any serious issue to be considered by this Court for the First Defendants.

81. The question of whether the charge created by Debenture of Colonial Bank is a fixed or floating charge. On perusal of the Deed of Charge under clause 3, it is stated:
    

"It is hereby agreed where used in the security the expression Mortgage Property means all and singular the undertaking and property of the Mortgage and all its assets what so ever both present and future including its uncalled capital for the time being."

The 2nd Defendant never had the title to the Ice Cream Plant and as such I hold that Colonial Bank had no right over the ice cream plant on its charge.

82. Under Clause 6.1, of the Debenture Charge (Debenture Mortgage) indicates Banks security that was floating and fixed in terms of Clause 6(a) (1). However, upto crystallisation of the Debenture in January 2008 on appointment of Managers and Receivers the Second Defendant had all control over the Capital borrowed from the Bank. In the circumstances Colonial Bank had the proprietary interest on the securities made out of the Capital borrowed. On perusal of the rights and obligations of the Colonial Bank and 2nd Defendant, it is clear that the Bank has created a floating charge. Further Colonial Bank had allowed 2nd Defendant to utilize the assets at his discretion. This shows the actual charge created is floating charge. In this regard I quote the statement by their Lordships in Agnew vs Commissioner of Inland Revenue [2001] UKPC 28 [2001] 2 AC 710 which is a case referred to in B & B Budget Forklifts Pty Ltd vs CBFC Ltd:
    

"If their intention properly gathered from the language of the instrument, is to grant the company rights in respect of charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge, however, have chosen to describe it".

83. In my view real distinction between floating and fixed charges are:
    
    • (a) Floating charges - the borrower is allowed to deal with the assets freely without the control from the lender for its benefit until the charge intervene in the affairs of the company which point the crystallisation of the charge occurs;
      
    • (b) Fixed charges – the lender will not allow the borrower to deal with the assets freely; and rights and obligations should be clearly defined to that effect in the Debenture charge (Mortgage) document.
      
84. In the present case, Colonial Bank charge became fixed charge only at the point of appointment of Managers and Receivers in January 2008 by which floating charged because a fixed charge. By this time Bill of Sale was registered by the Plaintiff and obtained the priority. The Colonial Bank's claim that it has the priority over the Ice Cream Plant under a fixed charge fails. 1st Defendants have quoted Re Cimex Tissues Limited [1995] 1 BCLC 409 at 420 in this regard which I too took into consideration arriving at above conclusion.
    

CONCLUSIONS

85. I hold that:
    
    • (a) Purchase Money Security interest of Plaintiff's Bill of Sale dated 30th April 2007 displaces the Colonial Bank's Debenture dated 11th December 2004;
      
    • (b) The crystallisation of Debenture Charge was (appointment of Managers and Receivers) on 3rd January 2008 and became an equitable charge which ranked lower in priority to the Bill of Sale dated 30th April 2007. Plaintiff succeeded in its argument on this alternative ground too.
      

Having concluded as stated above, I enter the Judgement on the Plaintiffs claim making the following orders:

(a) The First Defendants are ordered to pay total sum recovered by sale of the ice cream plant (the sale price was not divulged to court) up to a maximum of $430,994.50, (amount claimed in the Statement of Claim) or if the sale price of the ice cream plant is less than $430,994.50 such less amount recovered by sale of the ice cream plant;

(b) The First Defendants are ordered to pay interest to the Plaintiff interest from the date of sale of the ice cream plant up to the date of this Judgement on the amount ordered in para (a) Calculated at the average annual interest rate paid by Commercial Banks for their fixed deposit holders during the said period. This order is made considering the First Defendants are only Managers and Receivers of Second Defendant and the monies received by sale of Ice Cream Plant was with First Defendants and had the benefit of the monies realised on sale of the ice cream plant;

(c) 1st Defendants are also ordered to pay the Plaintiff interest at the rate of 4% per annum on the total aggregate amount due as at date of this Judgement until Judgement sum is fully settled;

(d) It is ordered Plaintiff is not entitled to any damages for conversion;

(e) It is ordered Plaintiff is not entitled to interest at the rate of 25% per annum and entitled to an interest as detailed in para (b) above;

(f) It is further ordered since this case is decided on the basis of Purchase Money Security, satisfaction of the above orders favouring the plaintiff shall be treated as total settlement of the liability to the Plaintiff by the Defendants and the Plaintiff is not entitled to claim any further sum from the Defendants;

(g) Ordered parties should bear their own costs.

Delivered on 29th March, 2012

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[C. Kotigalage]
JUDGE