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High Court of Australia |
QUEENSLAND FORESTS LTD. v. UNION-FIDELITY TRUSTEE CO. OF AUSTRALIA LTD. [1967] HCA 26; (1967)
117 CLR 1
Construction and Interpretation
High Court of Australia
Barwick C.J.(1), McTiernan(1), Kitto(2), Taylor(1) and Windeyer(1) JJ.
CATCHWORDS
Construction and Interpretation - Bonds issued to finance timber growing - Rights of bondholders' trustee under trust deed against grower - Land sold with timber standing thereon.
HEARING
Brisbane, 1967, June 6;DECISION
September 7.2. As appears from the case stated the respondent was, pursuant to a deed of 29th July 1927, the trustee for the holders of some 18,000 "A" series bonds, each of a face value of 5 pounds, which were issued by the appellant. In purported pursuance of the deed the respondent, upon a winding-up order being made with respect to the appellant, claimed the right to enter into the possession of some 3,000 acres of land (including the 914 acres previously mentioned), being the whole of the lands referred to in the deed as Section A lands, and, with the consent of the respondent, sold 914 acres thereof for a price of 12,500 pounds which, after necessary deductions and adjustments, returned 10,580pounds 18s. 7d. net. The dispute between the parties is as to how much, if any, of this sum may properly be retained by the respondent. According to the answers given by the Full Court the appellant is not entitled to any part of this sum and the respondent is entitled to it wholly. (at p4)
3. Briefly the principal object of the appellant seems to have been to carry on, with finance made available to it by Series A bondholders, the business of growing timber on the Section A land and marketing the "produce of the land" for the benefit, at least initially, of the bondholders. We do not set out all the conditions endorsed on each bond but it is necessary to mention that, by these conditions, the company undertook that the whole of the "A" land should be regenerated, cultivated and afforested with trees of commercial value according to the best principles and practice of forestry cultivation and afforestation within a period of five years from the sale of the first bond. The net proceeds of all sales, realization, marketing and conversion were to be paid from time to time immediately upon the receipt thereof by the appellant to the respondent in trust for and on behalf of the bondholders. By condition 9 it was provided that the bondholders should be entitled to receive from the trustee the net proceeds derived from the sale, realization, marketing and conversion of produce from the said Section A, paid to the trustee as aforesaid until a sum of 100 pounds in the aggregate for each 5 pounds bond in Series A should have been paid to the bondholders, respectively, when the said bonds should be deemed to be fully paid and satisfied and should be deemed to be cancelled. The bonds were expressed to be subject to the deed of trust and to all and every the trusts agreements terms conditions and provisos "therein and herein set out". By condition 17 the company charged the "A" land in priority to all other charges, encumbrances and liabilities of the company whatsoever with the due performance and fulfilment by the company of each and all of its obligations and liabilities under the bond and consented to the trustee lodging a caveat under The Real Property Acts forbidding the registration of any instrument affecting such land and the estate and interest of the company absolutely until all the said bonds should have been paid and fully satisfied "as thereinbefore specified". (at p5)
4. These provisions make it clear that the moneys to which the bondholders were to become entitled were "the net proceeds derived from the sale realization marketing and conversion of produce from the said Section "A" until an aggregate sum of 100 pounds had been paid in respect of each bond. (at p5)
5. By cl. 4 of the deed, also, the appellant charged the land comprised in
Section A in priority to all other charges and encumbrances
and liabilities of
the company whatever with the due performance and fulfilment by the company of
each and all of its obligations
and liabilities under the said bonds and
consented also to the lodging of a caveat. It also undertook by cl. 5 not to
sell, mortgage,
encumber or otherwise charge the documents of title relating
to Section A nor any part thereof and not to lease, or agree to lease,
or part
with possession of Section A or any part thereof, without the consent in
writing of the trustee first had and obtained. Clauses
16 and 17 are of
importance in the case and we set them out in full:
"16. If default shall be made in the performance observance
or fulfilment of any covenant condition agreement or provision
binding on the Company under the Trust Deed, or under the
said Bond or Bond Certificate or if the Company shall cease
to carry on business or if an Order shall be made or effective
resolution passed for the winding up of the Company or if a
receiver of the Company's undertaking or any part thereof
shall be appointed and such appointment shall in the opinion
of the Trustee be prejudicial to the interest of the holders
of Bonds or Certificates of Purchase the Trustee in his discretion
shall have power and be entitled to enter upon and take
possession of the whole of the lands in Section A and which
are subject to the charge hereby created and may in the like
discretion sell call in collect and convert into money the said
land or any part thereof and the produce of any kind thereof
and the moneys due therefor to the Company with full power
to sell the land and any of the premises and the timbers and
any produce thereof either together or in parcels or separately
and either by public auction or private contract and either
for a lump sum or for a sum payable by instalments or for a
sum on account and a mortgage or charge for the balance
and with full power upon every such sale to make any special
or other stipulations as to title which the Trustee shall deem
proper and with full power to buy in or rescind or vary any
contract for sale of the said premises or any part thereof and
to resell the same without being responsible for any loss which
may be occasioned thereby and for the purposes aforesaid
or any of them the Company hereby irrevocably appoints
the Trustee to be the attorney of the Company and in the
name and on behalf of the Company to sign execute and do
any assurances plans of subdivision and things which the
Trustee shall deem advisable in exercise of the powers herein
conferred on them. Provided always that the receipt of the
Trustee for the purchase money or moneys upon any such sale
or sales shall discharge the persons taking the same from all
liability as to the application thereof and the purchaser or
purchasers shall not be bound to enquire whether any default
as aforesaid has been made nor as to the regularity or otherwise
of any such sale or sales which shall so far as regards the
purchaser or purchasers be deemed to be within the aforesaid
powers and be sold accordingly."
"17. The Trustee shall hold the money to arise from
any such sale calling in, collection or conversion upon trust
that he shall thereout in the first place pay or retain the costs
charges and expenses incurred in or about the execution of
the same or otherwise in relation to these presents including
the remuneration of the Trustee and shall apply the residue
of such moneys in or towards payment to the Bond or Bond
Certificate holders pari passu in proportion to the amount
payable to them respectively in respect of the Bonds or Bond
Certificates of Purchase held by them respectively of all
sums payable to them respectively in respect of the said
Bonds and Bond Certificate and shall pay any surplus of any
such moneys to the Company or its successors or assigns." (at p6)
6. We also mention cl. 6 of the deed under which the company was to be
entitled to be reimbursed out of the net proceeds of any
sales realization
marketing and conversion of the timber produce and any other produce of any
kind of Section A in respect of onehalf
of what are therein referred to excess
"rates taxes or assessments". For the purpose of the clause such excess rates
taxes or assessments
appear to be the amount of any rates or taxes levied on
the land in excess of the amount levied in the year 1927. We mention this
because the last sentence of cl. 6 provides that any payments as aforesaid in
respect of such excess rates taxes and assessments
by the trustee out of the
net proceeds of any sale realization and marketing or conversion shall not be
deemed to be any payment
in respect of any bond and that "Bondholders of
Series A shall notwithstanding be entitled to receive one hundred pounds for
each
five pound Bond in Series A as specified in paragraph nine of the Bond".
We mention this provision because some reliance was placed
on its concluding
words to show that the sum of 100 pounds was to be paid in respect of each
bond even though the proceeds of the
"produce" of the land was not sufficient
to enable this to be done. But we think that the provision was not intended to
produce and,
indeed, is incapable of producing, this result; it is simply a
subsidiary provision designed to ensure that no amount paid by the
respondent
out of the proceeds of the "produce" on account of excess rates, should be
taken into account in determining whether the
sum of 100 pounds had been paid
in respect of each bond. The provision may, therefore, be put on one side. (at
p7)
7. In the Full Court it was accepted that, so long as the appellant's normal
operations were continuing, all that the bondholders
were to be entitled to
were the proceeds of the sale of produce from the land and that their rights
were to be fully satisfied when
100 pounds had been paid from this source in
respect of each bond. But upon examination of cll. 16 and 17 of the deed it
was considered
that in the events provided for (i.e. those specified in cl.16)
"a substituted right is given", by which expression I take the Full
Court to
mean, a right in the bondholders, upon a winding-up or the appointment of a
receiver, or upon the appellant ceasing to carry
on business, to receive the
unpaid balance of 100 pounds in respect of each bond out of the land,
notwithstanding that the proceeds
of the "produce" of the land had not been
sufficient to enable that amount to be paid in respect of each bond. This
conclusion was
reached by an examination of the four events upon which the
respondent's right, as trustee, to take possession of and sell the land,
arose. They were:
(a) if default is made by the company in the performance of any obligation
under the bond or deed; (b) if the company ceases
to carry on business;
(c) if an order is made or an effective resolution is passed for the winding
up of the company; and (d) if
a receiver is appointed of the company's
undertaking which appointment is in the opinion of the trustee prejudicial to
the interest
of the bondholders. (at p7)
8. It was pointed out that each of these events had a common characteristic - in each case it might be thought that the bondholders' rights were in jeopardy. In case (a) it was said, in effect, that the position was clear; moneys were payable to the trustee for the benefit of the bondholders and had not been paid. But what of the other cases where no such situation was postulated? Accordingly, it was said, that if the argument of the appellant to the effect that the bondholders were entitled to the benefit of the produce of the land, and no more in any event, were to be accepted, the result might well produce a futility. "The argument", it was said by the Full Court, "means that, if the power of sale is exercised on the basis that the company has ceased to carry on business or is being wound up, the trustee sells the land, pays the expenses of the sale and its commission, and hands over the residue to the company." It appeared to that Court to be "quite futile to give a power of sale to the trustee for the bondholders which could benefit only the trustee - in respect of its commission; and the company - which would get the capital value of the land back, free from the caveat". It was upon this view that the Court considered that upon any of the specified events a substituted right arose for the benefit of the bondholders. (at p8)
9. But with respect to their Honours this line of reasoning appears to be fallacious. It is true that upon the happening of any of the events (b), (c) and (d) the respondent might not be in default in respect of its covenant to pay to the trustee the proceeds of the "produce" of the land. Yet it might be thought necessary that the trustee should have a right to enter into possession pursuant to cl. 16 in order to protect the interests of the bondholders. It might appear that at the relevant time the respondent had on hand for sale stocks of "produce", or, that it had sold "produce" and the purchase money was outstanding and, in these circumstances, it would clearly be in the interests of the bondholders that the trustee should receive the proceeds rather than that they should fall into the hands of a liquidator or the receiver. Or, indeed, it might appear that it was necessary, in order to protect the bondholders' interests, for the trustee to go into possession and sell the "produce" as distinct from the land itself. Such a sale might be accomplished by the trustee by causing the timber to be cut and selling it, or, by a contract for the sale of the timber and an agreement for its severance "before sale or under the contract of sale" (see definition of "goods" in The Sale of Goods Act of 1896 (Q.)). Such a course might be necessary in order to avert a sale of the appellant's assets by a liquidator or upon the appellant ceasing to carry on business. Indeed, we should think that the powers given by cl. 16 of the deed "to sell . . . the produce of any kind thereof" and "to call in . . . moneys due therefor to the Company" were intended to cover just such situations. (at p8)
10. These considerations, to our minds, displace the reasoning which led the Full Court to the conclusion that in the events which happened the trustee was entitled to be paid out of the proceeds of the sale of the land an amount sufficient to return to the individual bondholders in the aggregate 100 pounds in respect of each bond despite the fact the proceeds of the sale of the "produce" had not been, and were not, sufficient to return that aggregate amount in respect of each bond. Condition 9 of the bond, in our opinion, exclusively indicates the source of the moneys out of which the bondholders were to be entitled to receive up to the sum of 100 pounds for each 5 pounds bond. Clause 17 of the deed, it seems to us, picks up this limitation in providing for the payment to the bondholders "pari passu in proportion to the amount payable to them respectively in respect of the Bonds . . . held by them respectively of all sums payable to them respectively in respect of the said Bonds . . . ". Nothing in the grant to the trustee of powers with respect to the land, in our view, enlarged or changed the source out of which the bondholders were entitled to be paid any part of the 100 pounds maximum per bond. To us it is clear that all that the respondent was entitled to receive out of the proceeds of the sale of the land for the account of the bondholders was an amount which represented the proceeds of the sale of the "produce" of the land. (at p9)
11. The next question may be posed after it is pointed out that, as appears in the special case, it was agreed between the parties that of the "total purchase price of 12,500 pounds received by the defendant on the aforesaid sale of portion of the Section A lands the sum of 3,206 pounds should be apportioned to standing timber and the balance of the first-mentioned sum should be apportioned otherwise to the said lands". This agreement was made without any admission that the standing timber constituted "produce" and the question is whether any part of the consideration is now held as and for proceeds of the produce of the land. (at p9)
12. The facts show that the sale made by the respondent with the consent of the appellant was a sale of 914 acres of the land, which, of course, meant as far as the purchaser was concerned, the land in its then present state. As between the parties to the contract no doubt, the land included the growing timber. Land does not, of course, always include emblements but it seems clear that growing trees, even though planted for the purpose of producing timber, are, as between vendor and purchaser, part of the land on which they are planted (In re Ainslie; Swinburn v. Ainslie (1885) 30 Ch D 485 ). But to apply this concept rigidly to determine the rights of the parties in this case would be to disregard their plainly evident intention. Under cl. 16 of the deed the respondent was authorized to "sell . . . and convert into money the said land or any part thereof and the produce of any kind thereof . . . with full power to sell the land . . . and the timbers and any produce thereof either together or in parcels or separately". It seems to us that the sale, made as it was with the consent of the appellant, may well be regarded, as between the parties, as a sale of the land and produce together and that it was not incumbent upon the respondent, in order to protect the interests of the bondholders, to sell the land and produce separately. In these circumstances it should be held that the respondent is entitled, in addition to the sum of 6,143 pounds which admittedly was payable to the respondent for the benefit of the bondholders as and for proceeds of earlier sales of "produce" of the land, to the further sum of 3,206 pounds less a proportion of the agent's commission on the sale but not of the amounts payable in respect of adjustments of land tax and rates. Since this means that after provision is made for the payment of the sum of 6,143 pounds, the parties' interests in the balance of the sale price will be approximately equal, the agent's commission should be borne equally by them and, accordingly, the further amount to which the respondent is entitled is 3,037pounds 5s. (at p10)
13. The remaining point is concerned with the question whether the caveat lodged by the respondent pursuant to the deed ought to remain on the register. However we can see no valid reason why it should be removed. The bondholders have not received, and will not out of the amount now in question receive, an aggregate amount sufficient to retire the bonds and the appellant, it seems, still holds more than 2,000 acres of "A" section land. We have no evidence as to the state of this land and, accordingly, there seems to be no reason why the caveat should not remain. (at p10)
14. For the reasons which we have given the appeal should, in our view, be
allowed, the order of the Full Court discharged and,
in lieu thereof,
questions (b), (c) and (e) answered as follows:
(b) the appellant is entitled to 1,400pounds 13s. 7d. ($2801.36) being part
of the sum of 10,580pounds 18s. 7d.; (c) the respondent
is entitled to
9,180pounds 5s. ($18360.50) being part of the sum of 10,580pounds 18s. 7d; and
(e) the respondent is entitled, in
the circumstances, to have the caveat
remain on the register. (at p10)
15. In the unusual circumstances of the case the costs of the case in the Supreme Court should be borne by the appellant and the costs of the appeal by the respondent. (at p10)
KITTO J. In 1927 the appellant company, being entitled to certain parcels of land in Queensland, initiated with respect to one such parcel called Section A, which was of an area of 3,000 acres, a scheme for financing the planting and growing thereon of trees of potential commercial value and for the ultimate sale of the produce thereof. The scheme in its essentials was for the sale by the company to members of the public of a series of 18,000 so-called bonds for 5 pounds each, the application of the resulting moneys by the company for the planting of the trees, their maintenance and protection until realization and their conversion into money, and the application of the ultimate net proceeds of the produce in paying the bondholders 100 pounds for each bond. The mutual rights and obligations of the company, a trustee for the bondholders (namely the respondent) and the bondholders themselves were created by three instruments or classes of instruments: a trust deed made between the company and the trustee, the bonds, and what were called bond certificates. The certificates were issued to persons who agreed to purchase bonds on terms of deferred payment, and they conferred rights which were so similar in all relevant respects to those given by the bonds that for the purposes of this judgment it is sufficient to speak of both bonds and certificates as bonds. (at p11)
2. The appeal is against a decision of the Supreme Court of Queensland (Full Court) determining, in answer to certain questions submitted by a special case, a dispute as to the respective rights of the company and the trustee in a state of affairs that existed in 1964. (at p11)
3. The lands of Section A had long since been duly planted with trees, and some of the timber produced had been sold in the period from 1940 to 1961; but when, in 1963, an order for the winding up of the company was made by the Supreme Court some timber still remained standing on the land. Upon the winding-up order being made the trustee claimed to be entitled under the trust deed to enter upon and take possession of the land and to sell both land and produce. The liquidator resisted the claim, and a modus vivendi was adopted by which, without any concession by the company that the trustee had the rights alleged, the trustee was allowed to sell off a portion of the land, together with the standing timber thereon, for a price of 12,500 pounds, the company and the trustee agreeing that of this sum 3,206 pounds should be apportioned to the standing timber and the balance to the land. The company had received and not paid over to the trustee a sum of 6,143 pounds which the trustee claims as being net proceeds of earlier sales of timber from Section A, and the company agrees that the claim is correct. The trustee has a caveat upon the title to so much of the land as is still unsold and resists a contention by the liquidator that the caveat should be withdrawn. Thus in 1964 two matters arose for decision and have now to be decided, namely whether the trustee was and is entitled as against the company to the whole or any part of the 12,500 pounds, in addition to the 6,143 pounds; and whether the trustee still had and has as against the company any rights with respect to the unsold residue of Section A or the timber standing thereon. (at p12)
4. The Supreme Court has held as to the first matter that the trustee is entitled to be paid 10,580pounds 18s. 7d., being the net proceeds of sale of the portion of Section A that was sold under the modus vivendi, viz. 12,500 pounds, less expenses, commission and adjustment of rates and taxes in accordance with the deed; and it has held as to the second matter that the trustee still has enforceable rights against the remaining portion of Section A and is entitled to maintain the caveat on the title for their protection. (at p12)
5. Whether the decision is right is a question depending upon the true interpretation of the trust deed, including the "conditions" of the bonds the whole of which the trust deed incorporates. It is by no means an easy question, for the two documents have to be read together and neither is free from obscurities of expression. (at p12)
6. I turn therefore to the documents. By the deed, the office and functions of the trustee were announced in a recital as being those of trustee for and on behalf of all purchasers of the bonds, and the company covenanted with the trustee to observe the obligations undertaken by it as set out in the bonds. It covenanted with every reasonable despatch to regenerate, cultivate and preserve indigenous trees existing on Section A and plant and afforest the same with trees of commercial value according to the best principles and practice of forestry cultivation, and to complete these operations in respect of the whole 3,000 acres within five years of the sale of the first bond: (deed, cll. 1, 3). By the conditions of the bonds, the company undertook the obligation of placing the area under the care of expert sylviculturists within twelve months, and of safeguarding and protecting the trees after the early stages of cultivation and afforestation and until they should be "marketed, converted or otherwise disposed of" for the benefit of the bondholders: (conditions (3) and (4)). It was to be entitled, no doubt in order to meet the expense of performing these obligations, to keep for itself two-thirds of what it should receive for the bonds. The remaining one-third of the bond moneys it undertook to pay to the trustee to be applied in two parts. A separate fund of 15,000 pounds was to be created, and this fund (with interest) was to be paid to the company in equal yearly instalments from the fifth to the end of the twentieth years after 1st June 1927, to provide and be applied for the company's expenses in maintaining and protecting the trees: (condition (5)). The balance of the one-third of the bond moneys was to be held in trust until such time after 1st June 1939 as the company should determine to "sell realize or otherwise convert" the produce of Section A, or the trustee (by direction of the majority of the bondholders) should direct the company to do so in default of the company doing so within one year after 1st June 1947 (the end of the period in which the 15,000 pounds was to be paid to the company for the maintenance and protection of the trees). In either of those events the company was to be at liberty to utilize the fund (the balance of the one-third of the bond moneys) to establish "pulp mills, timber mills and/or such other business or enterprise" as it might deem necessary to ensure the "sale, realization, marketing and conversion" of the produce of Section A under conditions most favourable to the bondholders: (condition (6)). From the gross proceeds the company was to deduct costs, charges and expenses of these operations and a commission for itself of five per cent for its direction and supervision thereof: (conditions (7) and (8)). The net proceeds thus arrived at (subject to reimbursement to the company of one-half of any excess there might be of rates and taxes on Section A over those levied in 1927: (deed, cl. 6) were to be paid to the trustee "in trust for and on behalf of the bondholders" (bonds, condition (8)), and the bondholders were to be entitled to receive them "until a sum of one hundred pounds in the aggregate for each five pound bond (and not inclusive of any interest on any payments) shall have been paid to the Bondholders respectively". The bonds were then to be deemed "fully paid and satisfied" and to be cancelled, and the bondholders were otherwise to have no further or other claim on or against the company or its funds or assets: (condition (9)). The inference seems to be, though it was not expressly provided, that any surplus of the net proceeds was to go to the company. (at p13)
7. Thus the primary rights of the bondholders as to the return they should get for their investment were conferred in terms which assumed that the trees would be ready to be turned into money by 1st June 1948 at the latest, that the bond moneys would suffice to pay for all that had to be done by the company up to the time when realization was determined upon and for the setting up of the means of milling and marketing, and that the net proceeds of sale would at least suffice to pay the bondholders 100 pounds in retirement of every 5 pounds bond. The company did not bind itself to pay the 100 pounds or promise that the net proceeds of the sale of produce would be sufficient to provide that sum; but neither did it in terms restrict the right of the bondholders to getting the 100 pounds per bond out of the moneys to arise from such sale. It is true that those moneys and no other moneys or property of any kind were made a source from which the 100 pounds should be paid in the event of the afforestation scheme being carried to its contemplated fruition by the company; but it does not follow from that that if the plan for the company to tend the growth on the land and market the produce should fail, as by the company defaulting in performance of its obligations or ceasing to carry on business or going into liquidation or having a receiver appointed so as to prejudice the rights of the bondholders, the bondholders should still have only the proceeds of any produce to look to for making up their payments to the 100 pounds level. What should happen in any of these events was left for specific provision to be made later in the deed. One or other of them might occur at a time when the growth on the land was too young to be commercially useful, or even when there was no growth at all; and the provisions I have mentioned were inappropriate to that kind of situation. Their purpose was to regulate the bondholders' participation in the successful outcome of the afforestation scheme, not their rights in the event of its failure. This distinction should, I think, be observed in the interpretation of condition (9). It is observed if the words of that condition be given their literal meaning. A wider meaning, limiting the rights of the bondholders to payment out of the proceeds of produce in all eventualities, is not their literal meaning and in my opinion has nothing to support it. (at p14)
8. The provision that was made for the situation which would arise in any of the frustrating events (if I may so describe the events I have mentioned) was contained in cll. 16 and 17 of the deed. The trustee was empowered, if any of those events should happen, to enter upon and take possession of the whole of the lands in Section A which were subject to the charge, and to sell, call in, collect and convert into money the said land or any part thereof and the produce thereof and the moneys due therefor to the company (cl. 16), and was required to hold the money to arise therefrom upon trust to pay or retain thereout its costs, charges or expenses and remuneration and apply the residue in or towards payment to the bondholders pari passu of all sums payable to them respectively in respect of the bonds, and pay any surplus to the company (cl. 17). The power of sale was expressly made exercisable with respect to the land and the timber and any produce, either together or in parcels or separately (cl. 16). The deed thus treated the land and the timber (or other produce) as separate subjects for realization in order to provide money for application in accordance with cl. 17, the question whether they should be realized separately or together being left for the discretionary judgment of the trustee, a judgment which would necessarily be exercised in the interests primarily of the bondholders. (at p15)
9. It happened that the sale the trustee made was of land and timber together, and as a matter of real property law the proceeds were of course proceeds of a sale of land; but it would, I think, be contrary to sound principles of construction, and would attribute to the parties (the company and the trustee) a most improbable intention, to read the deed as intending to make the rights of the bondholders dependent upon the manner in which the trustee should exercise its discretion as to the method of realization. For this reason I would reject one of the contentions which have been submitted on behalf of the company, namely that the right of the bondholders to receive any part of the proceeds of a sale made by the trustee was intended to be conferred with respect only to the proceeds of produce sold separately from the land, so that a sale of the two together, though authorized as a method of serving the interests of the bondholders, would defeat their right to get any benefit from the produce. If it were to be assumed that upon a sale of land and timber by the trustee the bondholders are not intended to receive the proceeds of the entire sale (up to the limit of 100 pounds), I should not think it logically possible, consistently with the intention exhibited by cl. 16, to give any other effect to cl. 17 in its application to a sale of land and timber for a single price than one which makes it necessary to find as a fact how much of the net proceeds is truly attributable to the timber, and award the trustee that sum out of the total net proceeds for payment to the bondholders. (at p15)
10. Only two views seem to me to compete for acceptance as to the rights the bondholders were to have if any of the frustrating events should occur and the trustee should sell any of the land with standing timber thereon. One is that the bondholders were intended, even in the situation that would arise upon failure of the scheme in one of the ways that cl. 16 mentioned, to have no source from which they might receive up to 100 pounds per bond except the net proceeds of any realization by their trustee of the produce, and that accordingly they are not entitled to receive more from the sale that has been made than the 3,206 pounds (the portion of the proceeds which by agreement was attributed to the timber sold by the trustee) will provide after deducting therefrom the appropriate part of the expenses etc. which reduced the total proceeds of 12,500 pounds to 10,580pounds 18s. 7d. The other view is that, the scheme having broken down, the bondholders were intended to receive up to 100 pounds per bond out of the whole proceeds of any sale the trustee might make, whether of land or produce or both. If the power of sale had been given in respect of produce only, the first view would plainly be the more reasonable, and the words in cl. 17 of the deed, "apply the residue of such moneys in or towards payment to the Bond . . . holders pari passu . . . of all sums payable to them respectively in respect of the said Bonds . . .", might well be construed as referring to all sums which under condition (9) of the bonds would have been payable by the trustee to the bondholders as net proceeds of realization if the company itself had sold the produce. But if the bondholders were not intended to get anything out of the proceeds of sale of land, why was their trustee given a power to sell the land, separately as well as together with the timber? The answer has been suggested that some net proceeds of earlier sales of produce by the company might still be unpaid to the trustee for distribution among the bondholders, and it might have been intended that the land could be sold to raise that money. But it was not only in that kind of situation that the power of sale was made exercisable. That would be an exceptional case, and in fact it would carry its own remedy. To me it seems a conclusive consideration that the trustee is empowered to sell the land, with or without produce. To sell it in order to do what with the proceeds? The trustee, as one needs to bear constantly in mind, is trustee for the bondholders primarily; and the inference seems to me irresistible that the proceeds (after proper deductions) are to go to the bondholders to some extent. To define the extent is the office of the concluding words of cl. 16: "until" - it is the same word as in condition (9) of the bonds - "until the said Bonds . . . have been paid and fully satisfied as specified in the said Bonds . . .". That is to say, surely, until, in the language of condition (9), "a sum of one hundred pounds in the aggregate for each five pound Bond . . . shall have been paid to the Bondholders respectively". Condition (9) does not say "shall have been paid thereout" - out of the proceeds of realization of produce - but simply "shall have been paid to the Bondholders respectively". These, in my opinion, are the words of condition (9) which show the force of the expression, "all sums payable to them", in the direction to the trustee in cl. 17 to make payments to the bondholders. They show that it means all sums which have still to be paid if the situation is to be reached "when the said Bonds shall be deemed to be fully paid and satisfied". (at p17)
11. Is there elsewhere in the documents anything inconsistent with the conclusion that the proceeds of a trustee's sale of land as well as a sale of produce are available for the satisfaction of the bonds by payment of 100 pounds each? The first reference to the right of the bondholders to receive payments is in cl. 4 of the deed, where the company charges the lands of Section A with the due performance and fulfilment of its obligations and liabilities under the bonds and consents to the trustee's lodging the caveat: the caveat, the deed provides, is to forbid the registration of any instrument affecting the lands "until the (bonds) have been paid and fully satisfied as specified in the said Bonds . . .". This is plainly a reference to condition (9) of the bonds and that provision requires careful reading. It is the clause which entitles the bondholders to receive the net proceeds of realization of the produce of Section A "until" 100 pounds for each 5 pounds bond shall have been paid. It goes on: "when" (i.e. when the bondholders shall have received 100 pounds for each 5 pounds bond) "the bonds shall be deemed to be fully paid and satisfied". So the caveat is to forbid the registration of instruments until 100 pounds has been paid for each 5 pounds bond - it does not say out of the proceeds of the produce, but simply "has been paid". (at p17)
12. The second place where the bondholders' right to money is mentioned is at the end of cl. 6 of the deed, where condition (9) of the bonds is again referred to. The deed there provides, with respect to payments which the trustee may make to the company in respect of rates and taxes, that the bondholder shall notwithstanding be entitled to receive one hundred pounds for each five pound bond "as specified in paragraph nine of the Bond". In the appellant's argument before us it was contended that this means that the bondholder is in all eventualities to receive his 100 pounds out of the proceeds of the produce and not otherwise. But that, as I have said, is not what condition (9) of the bonds provides. It provides for payments out of the net proceeds "until" the 100 pounds shall have been paid, and all that cl. 6 of the deed appears to mean is that the trustee's payments on account of rates and taxes are not to be counted in ascertaining whether the bondholder has received his 100 pounds. (at p17)
13. Finally it should be mentioned that condition (1) of the bond provides in respect of the entire series of bonds that they are all to share equally in the whole of the net proceeds of the produce without any preference or priority as between themselves. The function of these words seems to be no more than to proclaim equality among the bonds in respect of the proceeds arising from sale of the produce when and assuming that the scheme reaches fruition by the contemplated steps. (at p18)
14. It is, then, going beyond what the documents provide in the places I have mentioned to say, as the appellant says, that the rights of the bondholders to a return of 100 pounds for their investment was limited, for all purposes and in all eventualities, to a right to receive the net proceeds of the produce only, until the 100 pounds should have been paid. That was their right if the produce should be converted into money by the company upon performance of the obligations it undertook for the due carrying of the scheme to completion; but having charged the land with the due performance of those obligations, the company gave the trustee powers for the enforcement of the charge, with the evident intention, as it seems to me, that the resulting moneys should provide the 100 pounds which the bondholders had been led to expect that the scheme would yield them. In my opinion the true meaning of cl. 17 of the deed is that the whole proceeds of sales made by the trustee, whether of land, of produce or of both together, are payable to the trustee until each 5 pounds bond has been satisfied by payment of 100 pounds to the holder. It follows that in my opinion the trustee is entitled to keep his caveat on the title to the unsold land. (at p18)
15. For these reasons, which accord substantially with those of the Supreme Court, I am of opinion that the decision below was correct and the appeal should be dismissed. (at p18)
ORDER
Appeal allowed. Order of the Full Court discharged. Questions (b), (c) and (e) answered as follows:(b) the appellant is entitled to 1,400pounds 13s. 7d. ($2,801.36)
being part of the sum of 10,580pounds 18s. 7d.;
(c) the respondent is entitled to 9,180pounds 5s. 0d. ($18,360.50)
being part of the sum of 10,580pounds 18s. 7d.; and
(e) the respondent is entitled, in the circumstances, to
have the caveat remain on the register.
Order that the respondent's costs in the Supreme Court be paid by the
appellant and the appellant's costs of the appeal be paid
by the respondent.
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