Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (No 2) - [2005] SASC 105

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ANDREW GARRETT WINE RESORTS & ANOR v NATIONAL AUSTRALIA BANK LTD (NO 2)
Judgment of The Honourable Justice Gray
23 March 2005
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - REMEDIES OF THE MORTGAGEE - ENTRY INTO POSSESSION
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - THE MORTGAGE - PROPERTY SECURED
TAXES AND DUTIES - STAMP DUTIES - WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE - MORTGAGE
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
Application by second plaintiff seeking to set aside an order for possession - order concerned property owned the first and second plaintiffs known as Springwood Park - funds advanced by National Australia Bank said to be secured by mortgage over Springwood Park - second plaintiff asserted that the National Australia Bank was not secured by the mortgage over Springwood Park - clause of National Australia Bank mortgage incorporated clause from a prior mortgage which second plaintiff claimed had been discharged and secured no monies - second plaintiff claimed order for possession had been based on a mortgage that provided no security - defendant claimed that terms incorporated in prior mortgage for the purpose of avoiding double impost of stamp duty.
Consideration of factual background - consideration of construction of mortgage - discussion of principles of construction of contracts - consideration of intention of parties - consideration of antecedent transactions - discussion of extrinsic evidence rule - consideration of 'business common sense' rule - consideration of Stamp Duties Act 1923 (SA) - discussion of stamp duty and substituted security.
Held - having regard to the contract as a whole, the context in which the contract was formed and the intention of the parties, the purpose of the National Australia Bank mortgage was to give security over Springwood Park to National Australia Bank for monies advanced and to be a substitute mortgage to avoid the impost of double stamp duty - National Australia Bank retains security over Springwood Park - mortgage secured all monies owed - personal covenants remain in place - the National Australia Bank mortgage provides National Australia Bank with rights of possession over Springwood Park in the event of default - application dismissed.
Stamp Duties Act 1923 (SA) s 5(2), Schedule 2; Real Property Act 1886 (SA) s 129A, referred to.
Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank [2004] SASC 348; Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60; Burns Philp Hardward Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642; B & B Constructions (Aust) Pty Ltd v Brian A Cheesman & Associates Pty Ltd (1994) 35 NSWLR 227; Wilson v Anderson (2002) 213 CLR 401; Chatenay v The Brazilian Submarine Telegraph Co Ltd [1891] 1 QB 79; Pioneer Shipping Ltd v B.T.P. Tioxide Ltd [1982] AC 724; Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Bettini v Gye (1876) 1 QBD 183; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288; Mendi & Co v Ropner & Co [1913] 1 KB 27; J Kitchen & Sons Pty Ltd v Stewart's Cash & Carry Stores (1942) 66 CLR 116; Pan Foods Co Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579; Concut Pty Ltd v Worrell (2000) 176 ALR 693; Schuler (L.) A.G. v Wichman Machine Tool Sales Ltd [1974] AC 235; Toomey v Eagle Start Insurance [1994] 1 Lloyd's Rep 516; Doe d. Hiscocks v Hiscocks [1839] 5 M & W 363; Smith v Thompson [1849] 8 CB 44; Stardown Investments Pty Ltd v Comptroller of Stamps (Victoria) (1983) 15 ATR 180; Jones v Commissioners of Inland Revenue [1895] 1 QB 484; Commercial Banking Company of Sydney Ltd v Love & Anor (1974-1975) 133 CLR 459; Smith v Chadwick (1882) 20 Ch D 27; Glynn v Margetson & Co [1893] AC 351; Holroyd v Marshall (1862) 10 HLC 191; Simultaneous Colour Printing Syndicate v Foweraker [1901] QB 771; Taylor v Wheeler (1706) 91 ER 388; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Hooker Town Developments Ltd v Director of War Services Homes (1973) 47 ALR 320; Slee v Warke (1949) 86 CLR 271; Bacchus Marsh Concentrated Mild Co Ltd (in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"Substituted security"

ANDREW GARRETT WINE RESORTS & ANOR v NATIONAL AUSTRALIA BANK LTD (NO 2)
[2005] SASC 105
Civil
GRAY J:
Introduction

This is an application by the second plaintiff Averil Gay Garrett seeking to set aside an order for possession made by a learned Judge of this Court on 26 July 2004.
Mrs Garrett and Andrew Garrett Wine Resorts Pty Ltd (‘Garrett Wine Resorts’), formerly known as M.O.L. Pty Ltd, were the registered owners of a property known as Springwood Park. Andrew Morton Garrett is the husband of Mrs Garrett.
The general history of this action is set out in the judgment of the Full Court in Andrew Garrett Wine Resorts Pty Ltd v National Australia Bank.[1] That Court dealt with a number of appeals including an appeal against the order for possession challenged again by this application. It is convenient to recall the history of proceedings as recorded in that judgment:[2]
[1] [2004] SASC 348
[2] [2004] SASC 348 at [4] – [12]
In about June 2002 the National Australia Bank advanced $1.5 million to interests associated with Andrew Garrett. The advance was secured. The securities included a mortgage over Springwood [Park]. It is acknowledged by the registered owners [Mrs Garrett and Garrett Wine Resorts] that the advance of $1.5million has not been repaid. Later, further monies were advanced to the interests associated with Mr Garrett. These included the amount of $47,000.00 secured by a further mortgage over Springwood [Park]. A further sum of $600,000.000 was advanced in or about January 2003.
The National Australia Bank has established that at least $1.5 million was due and payable. As mortgagee the bank was entitled to take possession and sell Springwood [Park]. Section 137 of the Real Property Act 1886 (SA) provides:
The mortgagee or encumbrancee, upon default in payment of the principal sum, interest, annuity, or rent-charge, secured by any mortgage or encumbrance, or any part thereof, may enter into possession of the mortgaged or encumbered land and receive the rents and profits thereof, or may distrain upon the occupier or tenant of the land under the power hereinafter contained, or may from time to time let the said land for any term not exceeding one year, or may bring an action for recovery of the land either before or after entering into the receipt of the rents and profits, or making any distress as aforesaid, and either before or after any sale of the land shall be effected under the power of sale given or implied in his mortgage or encumbrance.
The National Australia Bank first gave notice in respect of a claim for $2.1 million. A master made an order for possession. An appeal was lodged. A Judge of this court considered that there was a triable issue arising in respect of the amount of the debt claimed to be due. The learned Judge took the view that it was arguable that by the bank’s notice more was claimed than was due. The Judge considered that the validity of the notice raised a triable issue. In these circumstances the appeal was allowed.
An injunction was granted as follows:
Save and except for the making of a demand in compliance with Section 55A of the Law of Property Act for the sum of $1.5million pursuant to the mortgage dated 21 June 2002 and any claim made on pleadings in the consolidated proceedings until further order the National Australia Bank Limited is restrained from making any demand or taking any steps to enforce any rights with respect to the following mortgages whether by itself or by its agents or employees and whether directly or indirectly:
Registered Mortgage Number 9374752 dated 21 June 2002.
Registered Mortgage Number 9617285 dated 29 May 2003
The injunction was granted on terms that past and ongoing interest on the mortgage be paid.
Undertakings were noted as follows:
The plaintiffs by counsel undertake to abide by any order of the Court or a Judge may make as to damages in case the Court or a Judge shall hereafter be of the opinion that any person shall have sustained any by reason of this order which the plaintiffs ought to pay.
Within 14 days of this order, the plaintiffs pay into Court outstanding interest pursuant to the terms of the bill facility dated 3 January 2003 from 21 July 2003 to 29 February 2004 of $195,864.23.
The plaintiffs are to pay into Court interest falling due under the bill facility dated 3 January 2003 at the end of each consecutive calendar month the first payment being due on 31 March 2004 until the determination of the consolidated proceedings or further order.
The Judge also directed that there be an early trial of the action.
Although the undertakings do not refer to the rate of interest to be paid, the transcript of proceedings records that Andrew Garrett Wine Resorts Pty Ltd and Mrs Garrett by their counsel acknowledged that they would pay interest at the default rate. The Judge proceeded to grant the injunction on this basis.
Payments of past interest were made at the default rate. Ongoing monthly interest repayments at the default rate were made. However, after several months the payments of interest ceased. There were delays in setting the matter down for trial. In the meantime the National Australia Bank had issued a notice of default claiming $1.5 million, the amount of the admitted debt.
The National Australia Bank then made application to discharge the injunction and for an order for possession having regard to:
the failure to pay the default interest;
delays in setting the matter down for trial;
the new notice of default in respect of $1.5million admitted debt.
The Judge granted the National Australia Bank’s application, discharged the injunction and made an order for possession. In his reasons dated 28 July 2004 the Judge observed:
In my opinion, it is no longer appropriate to restrain the Bank from enforcing any rights it has under the mortgages. It was a condition of the relief granted that Resorts and Mrs Garrett pay interest falling due under the bill facility dated 3^rd January 2003 at the end of each consecutive calendar month. Resorts and Mrs Garrett have not made the payment due at the end of June, and it is clear from the evidence and the submissions made to me that they will not be in a position to make the payment due at the end of July. Before me, Resorts and Mrs Garrett were able to put the matter no higher than to say that they may be able to pay the interest instalments in the future. They were unable to specify any date by which they may be able to pay outstanding interest. In those circumstances I do not think it appropriate to continue the injunction. The trial of Action No 127 of 2004 is listed for November 2004. For the reasons I have already given, I do not think the fact that the date for trial is later than might have been anticipated is a reason not to discharge the injunction. In any event, the injunction must be discharged because I cannot be satisfied that interest will be paid by Resorts and Mrs Garrett on a date in the near future or at all.
The Full Court concluded:
When the admitted facts are considered they allow the conclusion that at the very least the National Australia Bank advanced $1.5million, secured over Springwood. That debt is outstanding. This has been acknowledged. Demands have been made for repayment. In the ordinary course, if a mortgagor wishes to avoid an order for possession, payment of the debt, either to the bank or into court is a necessary precondition to a grant of relief. Neither has occurred. In these circumstances, in accordance with the decision in Inglis,[3] the orders made by the Judge were appropriate orders.
[3] (1972) 126 CLR 161
Following the delivery of the Full Court decision, it was asserted in the present application that the National Australia Bank advance of $1.5 million was not secured by mortgages over Springwood Park. It was claimed that the order for possession made by the learned Judge followed an application made relying on a mortgage that did not provide any relevant security and did not form a legitimate basis for the making of the application for possession or the order for possession of 26 July 2004.
It was against this background that Mrs Garrett sought to re-open the attack on the order for possession of 26 July 2004. The application raises a number of issues, however both parties urged the Court to resolve one issue as a preliminary matter. That issue concerned the construction of terms of one of the mortgages over Springwood Park. In these reasons that mortgage is described as the first National Australia Bank mortgage.
If the interpretation contended for by the National Australia Bank prevails then it was accepted that Mrs Garrett’s application must be dismissed. If, on the other hand, the interpretation advanced by Mrs Garrett is preferred, further issues would arise for consideration. In the latter event, those further issues would include the determination of whether an equitable mortgage arose, whether rectification could be pursued and whether an estoppel arose against Mrs Garrett. In the circumstances it is appropriate to determine the preliminary issue.
Before embarking on a discussion and resolution of the issue concerning the construction of the terms of the first National Australia Bank mortgage it is necessary to address the background facts. Agreed documents were tendered to the Court. A number of affidavits were also read. Limited aspects of that affidavit material were contentious. However, it has not been necessary to resolve those contentious matters. The facts recounted in these reasons were either accepted, or not challenged having regard to the contents of the agreed documents.
The Factual Background
In 1994 Mr and Mrs Garrett resided at a property at Glen Osmond, known as Arranmore. On 30 June 1994 Mr and Mrs Garrett granted a mortgage (Arranmore mortgage) over the whole of the Arranmore property to the Bank of South Australia (Bank SA). The Arranmore mortgage, when registered, was subject to three prior registered mortgages to Bank SA.
The Arranmore mortgage was the subject of a number of stampings relating to stamp duty. A perusal of the mortgage discloses that the document was separately stamped from time to time to a total security of $2,350,000.00.
Bank SA advanced other monies to corporate bodies associated with the Garretts as well as to Mr and Mrs Garrett. It appears that as at 9 November 1998 there had been advances totalling $4,585,000.00.
Later in these reasons it will be necessary to discuss the terms of the Arranmore mortgage in more detail, but for the moment it is relevant to record the terms of clause 1, which provided:
Except as varied or excluded by these covenants the Mortgagor shall observe and perform the terms, conditions and covenants expressed or implied in the Memorandum of Standard Terms and Conditions of Mortgage deposited in the Registrar General’s Office as number 7663874 (the “Memorandum”) which provisions as varied or excluded by these covenants are deemed to be incorporated in this instrument.
The Memorandum of Standard Terms and Conditions of Mortgage deposited in the Registrar General’s office formed part of the documents tendered to this Court.
In 1996 Mr and Mrs Garrett relocated from Arranmore to Springwood Park. On 17 July 1996 the Arranmore mortgage and the three prior mortgages were discharged by Bank SA. The discharge was as to land only. The discharges were registered at the Lands Titles Office on 26 July 1996. A declaration by an officer of Bank SA accompanied the application to register the discharges and recorded that the debt due under the mortgages had been paid in full. Bank SA retained the duplicate mortgages.
On 29 November 1996 Mrs Garrett and Garrett Wine Resorts executed a mortgage over Springwood Park in favour of Bank SA. That mortgage was registered on 16 January 1997. The mortgage was stamped as collateral security, initially for $1.6 million with up-stamping to $1.91 million then $1.95 million, and finally to $2.35 million. The prime security was identified as being a fixed and floating charge of 4 November 1996 from Garrett International Investments Pty Ltd to Bank SA. That charge was not in evidence before this Court.
On 16 January 1997 the transfer of Springwood Park to Mrs Garrett and Garrett Wine Resorts was registered at the Lands Titles Office. The transfer discloses that the property was transferred to Garrett Wine Resorts as to 23 undivided 26^th parts and to Mrs Garrett as to 3 undivided 26^th parts.
On 9 May 2000 Mrs Garrett and Garrett Wine Resorts granted a mortgage to N M Rothschild & Sons (Rothschild). As a result, as at 21 June 2000 Springwood Park was subject to two mortgages: the first to Bank SA and the second to Rothschild. In addition, Bank SA held the Arranmore mortgage, discharged as to land only. The Arranmore mortgage was still used for the purposes of stamp duty.
By May 2002 the Garrett interests were well advanced in negotiation with National Australia Bank with a view to that bank becoming their financier. Part of the agreement ultimately reached with National Australia Bank was that Bank SA would be paid all outstanding loans.
On 7 June 2002 National Australia Bank wrote to Bank SA in the following terms:
We refer to the above mutual client – as you are aware The National is taking over financing for this client. As a matter of urgency we request that you advise mortgage and title details for property at Mount Baker [sic] Road, Brownhill Creek, known as Springwood Park Estate to enable us to prepare our security documents.
On 11 June 2002 National Australia Bank, in a further letter to Bank SA, advised:
We wish to confirm that we have approved facilities to re-finance borrowings held at your office over property known as Springwood Park Estate, being Certificates of Title Volume 5324/475, 5344/326 and 5348/15.
In addition, we intend to request the transfer of your Prime Stamped Mortgage (s). Please arrange for a copy of this document(s) to be faxed to us URGENTLY, showing the amounts of stamp duty paid and the state in which stamp duty has been paid.
On the same day Bank SA responded:
I refer to your facsimile dated 11 June 2002 regarding the refinance of the above customer’s facilities.
A copy of the prime stamped document is attached for your information.
The discharged mortgage has been prime stamped in South Australia to $2,350,000 for debts ino [sic] A M & A G Garrett at The Garrett Family Trust.
…
Please forward your Deed of Assignment [sic] as soon as possible to enable timely settlement.
The arrangement between the banks was that Bank SA’s then debt of approximately $340,000.00 would be paid, that a deed of assignment would be executed assigning the prime stamped document, the Arranmore mortgage, from Bank SA to National Australia Bank and that the other mortgages held by Bank SA over Springwood Park would be discharged.
The reason for the assignment of the Arranmore mortgage was to provide National Australia Bank with the benefit of the prime stamped document for stamp duty purposes. Once the assignment took effect, it was the intention of National Australia Bank to substitute another mortgage for the Arranmore mortgage and thereby, in accordance with stamp duty guidelines, avoid the double impost of stamp duty. For reasons that will appear later, the process followed to avoid the impost of double stamp duty has relevance when considering the terms of the National Australia Bank mortgage.

The agreement with National Australia Bank involved the bank advancing $1.5 million to Mr and Mrs Garrett as trustees of the Andrew Garrett Family Trust. It was agreed that a portion of those monies would be used to repay part of the Rothschild debt. A further term of the agreement was that guarantees would be provided in favour of National Australia Bank by Mrs Garrett and Garrett Wine Resorts. Mrs Garrett had obligations both as a primary debtor in respect to the advance of $1.5 million as well as guarantor. National Australia Bank required, and Mrs Garrett and Garrett Wine Resorts agreed, that the guarantees would be secured by a mortgage over Springwood Park. It is the construction of this mortgage which is the subject of dispute in these proceedings.
On 21 June 2002, Mrs Garrett and Garrett Wine Resorts executed a memorandum of mortgage in favour of National Australia Bank over Springwood Park. This is the mortgage described earlier as the first National Australia Bank mortgage. The mortgage was registered and was described as being subject to the Rothschild mortgage. The mortgage provided:
In consideration of the Mortgagee having provided or agreeing to provide or agreeing to continue to provide to or at the request of the Mortgagor loans advances and other banking accommodation the Mortgagor covenants and agrees that on demand in writing being made to the Mortgagor by the Mortgagee the Mortgagor will pay the amount owing provided that where it is agreed in writing between the Mortgagor and the Mortgagee that the payment of the amount owing or any part thereof should be made other than on demand at any time (the Mortgagor not having defaulted or being in default) the Mortgagee agrees not to make demand for so much of the amount owing as is affected by such agreement except in accordance with that agreement or this Mortgage.
The consideration provided by Mrs Garrett and Garrett Wine Resorts was expressed in the following terms:
For the consideration aforesaid the Mortgagor
(1) MORTGAGES TO THE MORTGAGEE the estate and interest specified above in the land above described, subject to the above encumbrances.
(2) covenants and agrees with the Mortgagee as follows:
(a) to observe and perform and be bound by the covenants, obligations, provisions and stipulations contained in the Commercial Mortgage Memorandum of Common Provisions No. 9114600 (“the Memorandum”) which covenants, obligations, provisions and stipulations are deemed to be incorporated herein and as part of the Mortgage now created and the Mortgagor acknowledges that the Mortgagor has received and read a copy of the Memorandum prior to executing this Mortgage.
(b) Notwithstanding any other provisions of the Mortgage it shall be security only for the payment to the Mortgagee of the monies which are purported to be secured by
Memorandum of ~~DISCHARGE~~ MORTGAGE NO. 7752654 DATED 30/06/1994 GIVEN BY ANDREW MORTON GARRETT AND AVERIL GAY GARRETT for which this document is given in substitution.[4]
to the Mortgagee and for the payment to the Mortgagee of all monies, costs, charges and expenses which the Mortgagee shall pay, incur or sustain in connection with the exercise or attempted exercise of any right, power or authority which becomes exercisable upon any breach or non observance of any covenant contained in this Mortgage or in connection with the protection upkeep or management of the mortgage property and interest thereon.
[4] the document contains hand written additions which have been included in italics in this quote
The construction of clause (2)(b) is critical to this case.
A deed of priority was entered into by National Australia Bank and Rothschild. The effect of the deed was to give National Australia Bank priority over Rothschild to the extent of $1.5 million.
As earlier observed, National Australia Bank required a deed of assignment from Bank SA. That deed was entered into on 21 June 2002. Recitals to the deed include the following:
The Chargor [Andrew Morton Garrett and Averil Gay Garrett] has previously granted the Assigned Security [the Arranmore mortgage] in favour of the Assignor [Bank SA].
The Assignor has agreed to assign the Assigned Security to the Assignee [National Australia Bank] and the Assignee has agreed to pay the Purchase Price to the Assignor in accordance with the terms of this deed.
The Chargor consents to the assignment and has agreed to give the acknowledgments in this deed.
The operative assignment was in the following terms:
The Assignor, with effect from and including the Assignment Date, assigns to the Assignee absolutely and free from all encumbrances the Assigned Debt, the Assigned Security and all the benefits, rights, powers, authorities and discretions of the Assignor under and by virtue of the Assigned Debt or the Assigned Security, or both the Assigned Debt and the Assigned Security, for the Purchase Price.
The Purchase Price will be paid by the Assignee to the Assignor on the Assignment Date by an unendorsed bank cheque.
Mr and Mrs Garrett provided the following acknowledgments, warranties and representations:
The Chargor by its execution of this deed hereby:
(a) acknowledges that:
(i) it has received notice of the assignment referred to in clause 3 of this deed;
(ii) at the Assignment Date it is indebted to the Assignor under the Assigned Security in the amount of the Purchase Price;
(iii) the Assigned Security is a continuing security, secures the Assigned Debt and will secure any loan, advance, credit or financial accommodation provided or to be provided by the Assignee, as assignee of the benefit of the Assigned Security;
(iv) as at the date of this deed the Assignor is not in default in any way relating to the Assigned Debt or the Assigned Security, and the Chargor undertakes that it will not raise any defence based on any act or omission of the Assignor in respect of any action for recovery by the Assignee.
(b) warrants and represents to the Assignee that:
(i) it has received no prior notice of the assignment or transfer of the Assigned Debt or the Assigned Security;
(ii) no event of default (or event which with the giving of notice or passage of time would constitute an event of default) has occurred and is subsisting under the Assigned Security or under any loan documents relating to the Secured Monies, and the Assigned Security remains in full force and effect;
(iii) the Assigned Security is legal, valid and binding and is enforceable against the Chargor in accordance with its terms;
(iv) the Assigned Security has been duly stamped to secure at least the principal amount of the Assigned Debt;
(v) except as disclosed in writing to the Assignee before the date of this deed, there is no mortgage, charge or other encumbrance in existence over the property the subject of the Assigned Security which ranks in priority to the Assigned Security; and
(vi) the Chargor is not entitled to claim as against the Assignee any right of set off or other equity in respect of the Assigned Debt.
The Chargor:
(c) covenants and agrees with the Assignee that:
(i) it will pay to the Assignee the Assigned Debt and all monies due and to become due or secured or intended to be secured under the Assigned Security (which money will, after the Assignment Date, include in addition to the Assigned Debt all principal, interest and other costs, charges and expenses in respect of which the Chargor is or becomes indebted to the Assignee), at the times and in the manner stated in the Assigned Security or as may be otherwise agreed in writing between Chargor and the Assignee, or in default of such agreement, on demand;
(ii) unless and until the same are or have been expressly varied by agreement in writing between the Chargor and the Assignee, it is and will remain liable to, and must perform and observe the covenants, agreements and obligations contained in the Assigned Security which are to be performed and observed by the Chargor as if the Assignee was party to the Assigned Security in lieu of the Assignor.
Mr and Mrs Garrett agreed to pay “all stamp duty assessed in relation to this Deed”.
Under the deed of assignment, the assigned security was identified as the Arranmore mortgage. A memorandum of transfer of the Arranmore mortgage in favour of the National Australia Bank was also forwarded.
On 28 June 2002 National Australia Bank discharged the Arranmore mortgage, both as to land and as to monies secured. This was one of the requirements of the Stamp Duties Office as a necessary precondition to the Commissioner’s preparedness to treat a substitute mortgage as not subject to an impost of stamp duty a second time. The first National Australia Bank mortgage entered into on 21 June 2002 by Mr and Mrs Garrett was the substitute mortgage for the Arranmore mortgage
In December 2002 the Garrett interests sought further borrowings from National Australia Bank. An agreement was reached for the further advance of $600,000.00. This was effected by extending the bill facility in favour of Mr and Mrs Garrett as trustees of the Andrew Garrett Family Trust from $1.5 million to $2.1 million. Guarantees were provided by Garrett Wine Resorts and Mrs Garrett and were secured by mortgage. As part of the arrangement, extra security was provided through Springwood Park. To this end it was necessary for the Rothschild mortgage to be discharged. This duly occurred. The discharge of the Rothschild mortgage was forwarded by an officer of the Andrew Garrett group of companies to National Australia Bank.
As observed in the Full Court reasons, the initial order for possession made by a master of this Court related to a claim for $2.1 million. The learned judge at first instance considered that there was an arguable case that the amount of the debt was $1.5 million, not $2.1 million. For this reason, the judge allowed the appeal and set aside the order for possession made by the master. The judge subsequently made a further order for possession which was the order the subject of the Full Court appeal and the order now sought to be set aside. The judge’s order for possession related to the claim of National Australia Bank for $1.5 million. As observed by the Full Court, that debt was acknowledged to be secured by the guarantee granted by Mrs Garrett and Garrett Wine Resorts and was admitted to be in default. Before the Full Court it was acknowledged that the first National Australia Bank mortgage provided security in respect of the advance of $1.5 million. This acknowledgement was made, it is now said, without full knowledge of the facts.
It is against this factual background that the construction of the first National Australia Bank mortgage comes to be considered.
Counsel for Mrs Garrett acknowledged to this Court that his client was indebted to National Australia Bank to the extent of $1.5 million, that she was in default and that her indebtedness was both as primary debtor and as guarantor. The question to be determined is whether the first National Australia Bank mortgage provided security for that amount and provided a proper basis for the order for possession of 26 July 2004.
Consideration of the Issues Raised
The Intention of the parties
The construing of a contract is the determination by a court of the intention of the parties in relation to the meaning of words used[5] and the legal effect of their meaning.[6] The object of construing is to give effect to the mutual intentions of the parties as to the legal obligations they assumed by the words used in the contract.[7] In Pioneer Shipping Ltd v B.T.P Tioxide Ltd Lord Diplock observed: [8]
The object sought to be achieved in construing any commercial contract is to ascertain what were the mutual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they ... chose to express them; ...
[5] Life Insurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 78; Burns Philp Hardward Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 at 645; B & B Constructions (Aust) Pty Ltd v Brian A Cheesman & Associates Pty Ltd (1994) 35 NSWLR 227 at 243-4; Wilson v Anderson (2002) 213 CLR 401 at 418
[6] Chatenay v The Brazilian Submarine Telegraph Co. Ltd [1891] 1 QB 79 at 85
[7] Pioneer Shipping Ltd v B.T.P Tioxide Ltd [1982] AC 724
[8] Pioneer Shipping Ltd v B.T.P Tioxide Ltd [1982] AC 724 at 736
Generally speaking, “intention” for the purposes of construction refers to the objective intention of the parties, as expressed in the contract. It is presumed that the intention expressed in the contract corresponds to the parties’ actual intention. Consequently, as a general rule, the parties cannot give evidence to the court as to what their intention was at the time of entering into the contract. The object of construction is to ascertain the presumed intention of the parties.
The intention of the parties is to be ascertained from the language used in the contract, which is to be considered having regard to the surrounding circumstances or the factual matrix of the transaction and the object or purpose of the contract.[9] This principle was described by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales as follows:[10]
… when the issue is which of two or more possible meanings is to be given to a contractual provision we look not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intention of the parties and for the very good reason that an investigation of those matters would not only be time consuming but would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.
[9] Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98
[10] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352
When construing the words of a contract it is appropriate to have regard to the following principles:
-the meaning of the word or words is to be determined in the context of the whole contract;[11]
-a common sense approach is taken to the interpretation of commercial contracts;[12]
-it is presumed that the parties did not intend the terms of their contract to operate in an unreasonable way;
-determining the meaning of words goes beyond linguistic meaning and concerns the legal effect of the term.
[11] Bettini v Gye (1876) 1QBD 183 at 188; Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641; Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 299
[12] Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300; Mendi & Co v Ropner & Co [1913] 1 KB 27 at 32; J Kitchen & Sons Pty Ltd v Stewart’s Cash & Carry Stores (1942) 66 CLR 116; Pan Foods Co Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579 at 584; Concut Pty Ltd v Worrell (2000) 176 ALR 693 at 708-9
Where ambiguity arises within a contract such that a term could have two primary meanings, each of which could be adopted without distortion of the language,[13] the court may have regard to direct evidence of the intentions of the parties. After evidence of the circumstances surrounding the making of the contract has been tendered, extrinsic evidence is admissible to resolve an ambiguity.[14] In such a situation, the extrinsic evidence does not vary or contradict the written instrument - it supplements or explains it. Extrinsic evidence may include direct evidence of the intention of the parties; for example, evidence of negotiations between the parties, previous dealing between them and direct evidence as to what was in their minds at the time.[15]
[13] Schuler (L.) A.G v Wichman Machine Tool Sales Ltd [1974] AC 235; Toomey v Eagle Start Insurance [1994] 1 Lloyd’s Rep 516 at 520
[14] Doe d. Hiscocks v Hiscocks [1839] 5 M & W 363; Smith v Thompson [1849] 8 CB 44
[15] Lord Cheyney’s case [1591] 6 Co Rep 68
Stamp Duty on Mortgages
To understand the commercial circumstances that surround the first National Australia Bank mortgage it is necessary to have regard to the operation of the relevant provisions of the Stamp Duties Act 1923 (SA). It was submitted by counsel for National Australia Bank that the reference to the Arranmore mortgage in clause (2)(b) of the first National Australia Bank mortgage was for the purpose of satisfying the requirements of Exemption 1 of Schedule 2 of the Stamp Duties Act.
As the first National Australia Bank mortgage was executed in June 2002, it is necessary to have regard to the Stamp Duties Act as in force at that date. Pursuant to section 5(2) of the Stamp Duties Act, every person who executed a dutiable instrument was liable to pay duty on that instrument. Pursuant to Schedule 2 of the Stamp Duties Act, the first National Australia Bank mortgage constituted an “instrument” for the purposes of section 5.[16] Consequently having executed the first National Australia Bank mortgage, the mortgagors were liable to pay any duty chargeable on the instrument.[17]
[16] Schedule 2 identifies “Mortgage, Bond, Debenture, Covenant, Warrant of Attorney to confess and enter up judgment” as a class of instruments attracting ad valorem duty.
[17] Counsel for the National Australia Bank submitted that by virtue of the Common Provisions Mortgage clause 21.1(b) (forming part of the first National Australia Bank mortgage), even if the bank was otherwise liable to pay duty on the first National Australia Bank mortgage the mortgagors have a contractual obligation to reimburse the defendant and to pay that duty.
Schedule 2 of the Stamp Duties Act identified a number of exceptions to the operation of section 5(2). Exemption 1 relevantly provided:
Every collateral or auxiliary or additional or substituted security … where the principal or primary security is chargeable with duty as a mortgage, … and is duly stamped as such.
In other words, the Stamp Duties Act exempted certain types of collateral securities from ad valorem duty. In order to satisfy the requirement of this exemption, the instrument had to characterise the relevant mortgage as “collateral or substituted” and be able to identify a “principal or primary security”. Apart from the passage quoted above from Schedule 2, the Stamp Duties Act does not define what constitutes “principal or primary security” or what transactions are “collateral or substituted”. The meaning of these terms remained a question of fact.[18] Such a decision was to be made objectively, however, subjective elements such as the intention of the parties could be taken into account.[19] In Jones v Commissioners of Inland Revenue “collateral security” was described as an instrument which secures “a right already acquired under some other instrument or power”.[20]
[18] Stardown Investments Pty Ltd v Comptroller of Stamps (Victoria) (1983) 15 ATR 180 at 183, 186-187
[19] Stardown Investments Pty Ltd v Comptroller of Stamps (Victoria) (1983) 15 ATR 180 at 183, 186-187
[20] Jones v Commissioners of Inland Revenue [1895] 1 QB 484 at 494
In the present case National Australia Bank undertook a number of steps in an attempt to reduce the amount of stamp duty to be paid by the Garrett interests on the first National Australia Bank mortgage. First, the Arranmore mortgage was assigned to National Australia Bank. Under the Arranmore mortgage numerous forms of security were provided to Bank SA by personal covenants owed by Mr and Mrs Garrett, a guarantee and a mortgage over Springwood Park. Secondly, National Australia Bank and the Garrett interests executed a new mortgage over Springwood Park, designed to secure the advances made. This constituted the first National Australia Bank mortgage. The first National Australia Bank mortgage was expressed in terms of a substitute mortgage in order to bring the instrument within the meaning of “collateral security” in Schedule 2 of the Stamp Duties Act. In effect, the security clauses from the previous Arranmore mortgage were incorporated to become part of the first National Australia Bank mortgage.

The steps undertaken by the parties in order to execute a substitute mortgage as part of an effort to facilitate re-finance were said to be common practice. Counsel for National Australia Bank submitted that at a policy level, the Stamp Duties Act recognised that refinancing was not a circumstance for which the borrower ought to be liable to pay stamp duty. In Commercial Banking Company of Sydney Ltd v Love & Anor the High Court considered the re-stamping of a mortgage and whether sufficient stamp duty had been paid to cover part of an overdraft. Barwick CJ observed:[21]
The Act imposes a duty on instruments, not on transactions. It does not purport to avoid any transaction for want of the payment of stamp duty on an instrument. But it seeks principally to withhold the assistance of the courts in enforcing the instrument or in aiding the transaction where use of the instrument is necessary in proceedings in court or in an arbitration.
…
I agree with the conclusion of all those judges of the Supreme Court of South Australia who held [in In re Dehy Fodders (Australia) Pt Ltd; Winter v Bank of Adelaide [1973] 4 SASR 538] that the restamping of the bank’s security was effective so that the bank could assert the security, as between the parties to the security, for the full amount which the restamping covered, notwithstanding the fact that a lesser amount of duty had been paid in the first instance. Zelling J, though otherwise in dissent, agreed ... with that proposition.
[21] Commercial Banking Company of Sydney Ltd v Love & Anor (1974-1975) 133 CLR 459 at 472
Counsel for National Australia Bank submitted that this consideration of the purpose of the Stamp Duties Act indicates how mortgages were treated by the Stamp Duties Commissioner and commercial institutions. It was contended that the steps undertaken by National Australia Bank with respect to the first National Australia Bank mortgage were consistent with general corporate practice and in line with the practical application of the Stamp Duties Act.
Surrounding Instruments
It was further submitted by counsel for National Australia Bank that the first National Australia Bank mortgage ought to be construed having regard to the circumstance that it did not exist as an independent instrument. It was said that the first National Australia Bank mortgage was one of a series of instruments giving effect to a single lending transaction. Counsel submitted that the intention of the parties ought to be ascertained by considering the instruments together and as a series.[22]
[22] Smith v Chadwick (1882) 20 ChD 27 at 62-63
The first National Australia Bank mortgage was executed by way of performance of an antecedent contractual obligation on the part of the Garrett interests. That antecedent contractual obligation was brought about by a number of instruments including:
Letter of Offer of 24 May 2002
On 24 May 2002 National Australia Bank wrote to Mr Garrett offering facilities to Mr and Mrs Garrett as trustees of the Andrew Garrett Family Trust. The facility offered was limited to $1.5 million. The securities outlined in the letter of offer were described as follows:
Guarantee & Indemnity for $1,500,000.00 given by Andrew Garrett Wine Resorts Pty Ltd as trustee for the Springwood Park Unit Trust, Andrew Morton Garrett and Averil Gay Garrett supported by:
Registered Mortgage over Certificate of Title Volume 5324 Folio 475, Certificate of Title Volume 5344 Folio 326 and Certificate of Title Volume 5348 Folio 15 being property situated at Mount Barker Road, Brownhill Creek (Known as Springwood Park Estate).
Letter of Priority of $1,500,000.00 provided to NAB from Rothschilds. This is to provide the Bank with a first ranking position, and unrestricted right up to the amount of priority given.
To include specific charge over all Water Licenses and Allocations which supply water to the properties.
The letter of offer contained a number of condition precedents, reporting covenants and negative pledge covenants.
Bill Facility 11 June 2002
By letter of, offer National Australia Bank offered a bill facility to the Garrett interests in respect of $1.5 million requiring a registered mortgage over Springwood Park.[23] In a letter dated 11 June 2002 from National Australia Bank to Bank SA, National Australia Bank requested the transfer of the Arranmore mortgage and confirmed the bill facility. As earlier observed, the letter included the following passage:
We wish to confirm that we have approved facilities to re-finance borrowings held at your office over property known as Springwood Park Estate, being Certificates of Title Volume 5324/475, 5344/326 and 5348/15.
In addition, we intend to request the transfer of your Prime Stamped Mortgages(s). Please arrange for a copy of this document(s) to be faxed to us URGENTLY, showing the amounts of stamp duty paid and the state in which stamp duty has been paid.
Priority Deed 21 June 2002
[23] Counsel for National Australia Bank submitted that this Bill Facility qualifies as an equitable mortgage over Springwood Park.
On 21 June 2002 National Australia Bank, Rothschild and the Garrett interests executed a priority deed. Pursuant to the deed Mrs Garrett and Garrett Wine Resorts executed in favour of National Australia Bank the Bank’s security. The “Bank’s security” was described in the deed as follows:
Memorandum of Mortgage Registered No. 8213956 dated 29 November 1996 from ANDREW GARRETT WINES RESORTS PTY LTD and AVERIL GAY GARRETT over the whole of the land comprised in Certificate of Title Register Book Volume 5324 Folio 475 and Volume 5344 Folio 326 and Volume 5348 Folio 15.
Under the deed, the order of priority was first, National Australia Bank’s security to the extent of all money advanced by it up to a total of $1.5 million plus interests and costs, and second, the Rothschild’s security.
Deed of Assignment and Transfer of Debt and Security 21 June 2002
On 21 June 2002, Bank SA, National Australia Bank and Mr and Mrs Garrett executed a deed of assignment and transfer of debt and security. This operated in respect of the Bank SA mortgage over Arranmore. In respect of the Bank SA mortgage over Arranmore, Mr and Mrs Garrett made a number of acknowledgements recorded in the deed. It was acknowledged that the Garrett interests had received notice of the assignment of the Arranmore mortgage and the amount of debt the mortgage secured and that the mortgage secured any loan, advance, credit or financial accommodation provided or to be provided by National Australia Bank. Mr and Mrs Garrett warranted that the assigned security was legal, valid and binding and was enforceable against them in accordance with its terms and that the assigned security had been duly stamped to secure at least the principal amount of the debt. Mr and Mrs Garrett further covenanted that they would pay to National Australia Bank the assigned debt and all monies due or secured under the assigned mortgage in accordance with the terms of the mortgage.
Discharge of Mortgage 12 June 2002
On 12 June 2002 the Arranmore mortgage, transferred from Bank SA to National Australia Bank, was discharged. The memorandum of discharge referred to the whole of the land and the money secured by the mortgage being discharged. Under the heading “Consideration” were contained the words “security in substitution”.
Bill Facility 3 January 2003
By letter of offer dated 3 January 2003, National Australia Bank agreed to advance a further $600,000 to the Garrett interests. This amount was to be added to the earlier advance of $1.5 million making a total of $2.1 million. Securities identified in the letter of offer were described as follows:
Guarantee & Indemnity for $2,100,000.00 given by Andrew Garrett Wine Resorts Pty Ltd ACN 064 792 221 and Averil Gay Garrett and Andrew Morton Garrett supported by:
Registered Mortgage over Certificate of Title Register Book Volume 5324 Folio 475, Volume 5344 Folio 326 and Volume 5343 Folio 15 being property situated at Mount Barker Road Brownhill Creek known as Springwood Park Estate.
Clause (2)(b) of the First National Australia Bank Mortgage
The primary question to be considered is the effect of the adoption of terms from the Arranmore mortgage into the first National Australia Bank mortgage.
As noted above, clause (2)(b) of the first National Australia Bank mortgage provided:
Notwithstanding any other provisions of the Mortgage it shall be security only for the payment to the Mortgagee of the monies which are purported to be secured by
Memorandum of ~~DISCHARGE~~ MORTGAGE NO. 7752654 DATED 30/06/1994 GIVEN BY ANDREW MORTON GARRETT AND AVERIL GAY GARRETT for which this document is given in substitution.
Counsel for Mrs Garrett submitted that the terms of clause (2)(b) were intended by the parties to refer to security over land. It was said that this was the ordinary and primary meaning of the term “security” in the context of a mortgage over land.
Counsel for Mrs Garrett submitted that the Arranmore mortgage was discharged as to land only in 1996. It was said that this was clearly indicated on the discharge of mortgage where the following panel of information appeared:

State whether WHOLE or PART of land in the Mortgage is being discharged

WHOLE

State whether WHOLE or PART of monies secured is being discharged

NOT APPLICABLE

Counsel for Mrs Garrett acknowledged that the purpose of the first National Australia Bank mortgage was to create rights over land in favour of National Australia Bank, but said that the legal effect of the terms of clause (2)(b) was to incorporate terms from the Arranmore mortgage that did not, and could not, provide any security over Springwood Park. Counsel for Mrs Garrett rejected the construction of clause (2)(b) advanced by National Australia Bank and submitted that “security” and “secured by” in clause (2)(b) meant security in the context of a mortgage over land. It was said that the insertion of clause (2)(b) into the mortgage had the effect of expressly limiting the amount secured by the first National Australia Bank mortgage to that secured by the Arranmore mortgage. It was said that as the Arranmore mortgage had been discharged, National Australia Bank was incapable of obtaining any better rights than those enjoyed by Bank SA under the discharged Arranmore mortgage. It followed that since the first National Australia Bank mortgage was security over land for no debt, it could not be used as a basis for a possession order. The consequence of this construction was that, as the Arranmore mortgage referred to in clause (2)(b) was discharged as to land and provided no security over land, National Australia Bank had no security over Springwood Park. Accordingly, it was contended that as the first National Australia Bank mortgage was expressly limited to the amount of debt “secured” by the Arranmore mortgage, it secured no debt.
Counsel for National Australia Bank submitted that the first National Australia Bank mortgage should be construed as a whole, having regard to its apparent purpose and to the series of documents of which it formed a part. Counsel emphasised that clause (2)(b) was inserted for the purposes of avoiding the double impost of stamp duty and that Mr and Mrs Garrett were aware of this at the time. It was said that clause (2)(b) was inserted in order to characterise the first National Australia Bank mortgage as “collateral security” and to prevent it from being dutiable on an ad valorem basis. Counsel submitted that clause (2)(b) was a provision of a common type that accorded with the language and practice of the Stamp Duties Act. It was said that clause (2)(b) operated as a proviso, rather than to “cut down” or qualify covenants in the mortgage instrument. Counsel submitted that as a result, clause (2)(b) in the first National Australia Bank mortgage provided National Australia Bank with security over Springwood Park for all monies advanced to the Garrett interests. It was submitted that if the interpretation suggested by counsel for Mrs Garrett was accepted, its effect would be so unreasonable that it must be rejected as not intended by the parties.
Counsel for Mrs Garrett finally submitted that it was National Australia Bank, not the Garrett interests, that determined which mortgage it wanted assigned to it by Bank SA and as a result of that determination, the first National Australia Bank mortgage left National Australia Bank with no security over Springwood Park. Accordingly the first National Australia Bank mortgage, expressly limited to the amount of debt “secured” by the Arranmore mortgage, did not secure the debt. Mrs Garrett could not be in default of the first National Australia Bank mortgage by failing to repay monies. The order for possession should be discharged.
When construing clause (2)(b) of the first National Australia Bank mortgage it is appropriate to have regard to its purpose and to give effect to the legal obligations the parties mutually intended to create as expressed by the words of the clause. In addition to the factual matrix surrounding the contract, the court may have regard to the commercial purpose of the contract.[24] In the present case, it is appropriate to have regard to the general commercial purpose of the mortgage instrument as well as the relevant provisions of the Stamp Duties Act and guidelines published by the Commissioner.
[24] Glynn v Margetson & Co [1893] AC 351
Clause (2)(b) could be described as an ambiguous clause. On the contentions of the parties the term “security” in the context of clause (2)(b) could have two primary meanings, each of which could be adopted without any necessary distortion of the language.[25] It is appropriate for the Court to have regard to extrinsic evidence to resolve this ambiguity. Such evidence includes evidence of the series of transactions giving rise to the first National Australia Bank mortgage, the other provisions of the mortgage, the relevant stamp duty implications and the general purpose of the mortgage instrument.
[25] Schuler (L.) A.G v Wichman Machine Tool Sales Ltd [1974] AC 235
When read as a whole, the first National Australia Bank mortgage imposed a number of obligations on the mortgagors. Those obligations included:
-that the mortgagors mortgage the estate or interest in the land described in the Schedule (Springwood Park);
-that the mortgagors give a covenant to comply with the Common Provisions Mortgage;
-an undertaking by the mortgagors, contained in the Schedule, that they will “pay the amount owing”;
-clause 44 of the Common Provisions Mortgage defines “the amount owing” by reference to eight distinct categories of money;
-clauses (1) and (2)(a), in conjunction with clause 44 of the Common Provisions Mortgage, constitute the mortgage as an “all monies” mortgage which secures all the monies identified in the definition of clause 44 of the Common Provisions Mortgage.
Pursuant to section 129A of the Real Property Act 1886 (SA) the provisions of the Common Provisions Mortgage were incorporated into the first National Australia Bank mortgage. When the obligations referred to above and the provisions of the Common Provisions Mortgage are considered, it is clear that the mortgagors intended to give security over Springwood Park in respect of all monies falling within the definition of clause 44 of the Common Provisions Mortgage. That clause relevantly provides:
[A]mount owing means, at any time, subject to 39.2(a):
(a) all amounts which at that time the Bank has advanced or paid, or has become liable to advance or pay, for any reason:
to you or on your behalf; or
at your express or implied request; or
because of any act or omission by you; or
because of any act or omission of the Bank at your express or implied request; and
(b) all amounts for which at that time you are or may become actually or contingently liable to the Bank for any reason, including all amounts for which you are or may become liable to the Bank in respect of any orders, drafts, cheques, promissory notes, bills of exchange, letters of credit, guarantees, indemnities, bonds, and other instruments or engagements (whether negotiable or not and whether matured or not) which:
have been drawn, issued, accepted, endorsed, discounted or paid by the Bank; or
are held by the Bank as a result of any transaction entered into by the Bank for, or on behalf of, or at your express or implied request;
…
It is not disputed that, during the course of this series of transactions, National Australia Bank advanced $1.5 million to the Garrett interests. Counsel for National Australia Bank submitted that it was the common intention of the parties that National Australia Bank would provide advances of $1.5 million, and later $600,000 in exchange for first mortgage security over Springwood Park for all monies advanced. Initially priority over Rothschild for $1.5 million was agreed, and later the Rothschild mortgage was discharged and the discharge held by National Australia Bank.
It should be noted that counsel for Mrs Garrett acknowledged that it was the intention of both parties that the first National Australia Bank mortgage provide the Bank with security over Springwood Park in exchange for monies advanced. During submissions on the hearing of this application the following exchange took place:
His Honour:  Your clients understood they [would be giving] security over Springwood, leaving aside the dollar amount to the National Australia Bank?
Counsel for Mrs Garrett:        Yes. …
His Honour:  No, I understand that. [that there is a dispute about the amount of debt secured] But effectively it was being advanced, a substantial sum, to be secured over Springwood?
...
Counsel for Mrs Garrett:                 That’s right. What they also understood was, they had secured an amount by the mortgage for an amount less than the value of Springwood Park, and if they had to pay it out, they would be able to get finance to do so, on that security.
His Honour:  At the basic level, this was a case where your clients understood that Springwood was going to be security in respect of an advance by the Bank?
Counsel for Mrs Garrett:        Yes.
His Honour:  If they default on that, then Springwood is liable to be sold?
Counsel for Mrs Garrett:        That’s correct.
The term “security” and its derivatives may have a narrow or a broad meaning. In its narrow meaning, for which Mrs Garrett contended, “security” denotes the right to resort to a particular fund or to a particular asset. In its broad meaning, for which National Australia Bank contended, “security” meant “any obligation created by any instrument”. It connoted an additional right, which tended to render more certain or probable the discharge of a debt or claim than if satisfaction were dependent only on the person primarily liable.
Counsel for National Australia Bank contended that both the Arranmore mortgage and the first National Australia Bank mortgage were “all monies” mortgages. Both mortgages picked up, among other things, not only direct advances to the customer, but also payments to third parties at the direction of the mortgagor; liabilities arising under guarantees; and liabilities arising under bills of exchange. It was said that the nature of the mortgage, the scope of the covenants within it, and the terms of the antecedent transaction documents, all point to an intention on the part of the parties to employ “security” in the broad sense.
Counsel for National Australia Bank submitted that National Australia Bank required rights over the land in order to give it priority over all unsecured creditors in the event of insolvency of the mortgagors of Springwood Park. Having rights over Springwood Park, as opposed to personal covenants only against Mrs Garrett, was said to be the only way National Australia Bank could satisfy the “acid test” for its security. It was contented that to construe “security” in these circumstances as conferring less than a proprietary interest would provide no protection to the bank’s position.

Counsel for National Australia Bank advanced the argument that registration of a mortgage under section 128 of the Real Property Act had the effect of creating a separate statutory charge over the land. It was said that as the mortgage of land is an interest in land, such a mortgage is a proprietary right which gives the secured creditor absolute priority in insolvency of the debtor. It was said that personal covenants supporting the obligation to pay did not give rise to such a priority.
The approach to the construction of the contract advanced by counsel for Mrs Garrett appears contrary to the underlying purpose of the first National Australia Bank mortgage when considered as an entire instrument and in light of the surrounding transactions. As earlier observed, a common sense approach needs to be taken to the construction of a contract which forms part of a commercial transaction. It is to be presumed that the parties did not intend their contracts to achieve unreasonable results and it is appropriate that the legal effect of a clause be commercially sensible and in line with commercial reality. This long-standing principle of construction was discussed by the High Court in Cohen & Co v Okerbry & Co Ltd[26] when Isaacs J adopted the remarks of Melish LJ:
Although it is true that the Court ought not to make a contract for the parties which they have not made themselves, yet a mercantile contract, which is usually expressed shortly, and leaves much to be understood, ought to be construed fairly and liberally for the purpose of carrying out the object of the parties.
Isaacs J then went on to observe[27]:
That does not, of course, mean you are to stretch its terms in favour of one party against the other; but, reading the two cases cited together, it means that the expressions, and particularly any elliptical expressions, in a mercantile contract are to be read in no narrow spirit of construction, but as the Court would suppose two honest business men would understand the words they have actually used with reference to their subject matter and the surrounding circumstances.
[26] (1917) 24 CLR 288 at 300
[27] (1917) 24 CLR 288 at 300
In Concut Pty Ltd v Worrell[28] the High Court considered this principle in the context of the construction of an employment contract. Kirby J observed that it was appropriate to view the construction of the contract in a “practical and business like way” and emphasised the need to have regard to “practical and commercial considerations” when determining the purpose of the contract and the meaning of its terms. [29]
[28] (2000) 176 CLR 693
[29] (2000) 176 CLR 693 at 709
In the present case, the construction of clause (2)(b) advanced by counsel for Mrs Garrett necessitates the conclusion that the first National Australia Bank mortgage provides National Australia Bank with no security over the funds advanced to the Garrett interests. Such a construction appears directly contrary to the intention of the parties, contrasts with commercial reality and offends commercial common sense. Having regard to the first National Australia Bank mortgage as a whole and the transactions giving rise to the mortgage, the evident purpose of the first National Australia Bank mortgage was to give security over Springwood Park to National Australia Bank in respect of monies advanced to or at the request or direction of the Garrett interests.
Conclusion
Having regard to the contract as a whole, the context in which the contract was formed and the intention of the parties, the apparent and self-evident purpose of clause (2)(b) in the first National Australia Bank mortgage was first, to give security over Springwood Park to National Australia Bank in respect of monies advanced to the Garrett interests and second, to be a substitute mortgage to avoid the impost of double stamp duty payable by the Garrett interests. The first National Australia Bank mortgage was in the usual Real Property Act form and contained numerous “standard terms”. It was clearly intended by the parties to be a registrable instrument.
The Arranmore mortgage was referred to by clause (2)(b) for the limited purpose of characterising the instrument as “collateral security” so as to meet the requirements of Exemption 1 in Schedule 2 of the Stamp Duties Act. As a result, the transaction constituting the first National Australia Bank mortgage between the Garrett interests and National Australia Bank was exempt from duty for the benefit of the Garrett interests. This was the direct intention of the parties at the time. The construction of clause (2)(b) as advanced by Mrs Garrett finds no support in the mortgage document as a whole, nor does it accord with the commercial common sense of the arrangements.
National Australia Bank retains security over Springwood Park. The Bank SA mortgage over Arranmore, discharged as to land only, secured all monies owed. The personal covenants remain in place. The first National Australia Bank mortgage provides National Australia Bank with rights of possession over Springwood Park in the event of default.
As a result, Mrs Garrett’s application for orders setting aside the order for possession made on 26 July 2004 and to restrain National Australia Bank from enforcing its rights under the first National Australia Bank mortgage is dismissed.
Outstanding Issues
Equitable Mortgage
It was submitted by counsel for National Australia Bank that an equitable mortgage over Springwood Park in favour of National Australia Bank was created by the acceptance of the offer of Bill Facilities on 11 June 2002 and 30 December 2003. It was said in those two transactions, for valuable consideration, the intending mortgagors entered into an enforceable agreement to give a mortgage.[30] Counsel for National Australia Bank submitted that even if there were some defect in the first National Australia Bank mortgage, National Australia Bank has an equitable mortgage over the property at Springwood Park.[31]
[30] Holroyd v Marshall (1862) 10 HLC 191; Simultaneous Colour Printing Syndicate v Foweraker [1901] QB 771
[31] Taylor v Wheeler (1706) 91 ER 388
Having regard to the conclusions reached on the construction of the first National Australia Bank mortgage it is unnecessary to consider the question of whether an equitable mortgage exists. Although it is not appropriate to resolve the issue, if the submission of Mrs Garrett were accepted, the established circumstances would strongly suggest the existence of an equitable mortgage.
Rectification
Counsel for National Australia Bank submitted that even if the construction of clause 2(b) of the first National Australia Bank mortgage advanced by Mrs Garrett was accepted, this was a case when an order for rectification would need to be made so that the mortgage instrument reflected the common intention of the parties. It was said that it was abundantly clear that it was the common intention of the parties that National Australia Bank would take a registered first mortgage over Springwood Park and that in any case, National Australia Bank was entitled to possession under an equitable mortgage.
Rectification of a contract may occur where the written terms agreed by the parties fail, by common mistake, to express the agreement accurately.[32] However, in order to justify rectification, an identical corresponding contractual intention must be demonstrated on both sides.[33] This concurrent intention must be shown to have been in existence at the moment of entry into the contract.[34]
[32] Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336
[33] Hooker Town Developments Ltd v Director of War Services Homes (1973) 47 ALR 320 at 323-324
[34] Slee v Warke (1949) 86 CLR 271 at 280
Counsel for National Australia Bank contended that the series of transactions giving rise to the first National Australia Bank mortgage and the commercial context in which it took place demonstrated that it was the identical intention of both parties to provide a registered mortgage in favour of National Australia Bank in exchange for funds advanced. It was said that this was further demonstrated by the binding promise entered into by the parties in the form of the Letter of Offer – Bill Facility of 11 June 2002.
Counsel for Mrs Garrett contended that rectification is not available in circumstances such as the present case where a party intended to use a particular form of words and did, but later discovered the legal meaning of the words was other than what they contended.[35] It was said that if National Australia Bank intended to use the words contained in clause (2)(b), which were later construed to have a legal meaning other than that which National Australia Bank contended, then rectification would not be available.
[35] Bacchus Marsh Concentrated Mild Co Ltd ( in liq) v Joseph Nathan & Co Ltd (1919) 26 CLR 410 at 451
Having regard to the conclusions reached on the construction of the terms of the first National Australia Bank mortgage it is unnecessary to resolve the issue of rectification. However, it is to be observed that the circumstances appear to suggest that, should the alternative construction of the first National Australia Bank mortgage advanced by Mrs Garrett be preferred, the terms ought to be rectified to reflect the true intention of the parties.
Conclusion
The application is dismissed.

State whether WHOLE or PART of land in the Mortgage is being discharged	WHOLE
State whether WHOLE or PART of monies secured is being discharged	NOT APPLICABLE