Balanced Securities Ltd v Dumayne Property Group Pty Ltd
[2017] VSCA 61
•23 March 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0082
| BALANCED SECURITIES LIMITED (ABN 54 083 514 685) | First Appellant |
| BALANCED APPLICATION PTY LTD (ACN 116 175 047) | Second Appellant |
| v | |
| DUMAYNE PROPERTY GROUP PTY LTD (ACN 122 056 535) | First Respondent |
| GEOFFREY ERNEST DUMAYNE | Second Respondent |
| JENNIFER ANNE DUMAYNE | Third Respondent |
| JUSTIN WILLIAM PAUL DUMAYNE | Fourth Respondent |
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| JUDGES: | WHELAN, FERGUSON JJA and CAMERON AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 16 February 2017 |
| DATE OF JUDGMENT: | 23 March 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 61 |
| JUDGMENT APPEALED FROM: | [2016] VCC 546 (Judge Kennedy) [2016] VCC 1387 (Judge Anderson) [2016] VCC 1439 (Judge Anderson) |
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CONTRACT – Successive facility agreements in respect of same loan facility – Whether second facility agreement replaced or merely amended first facility agreement – Manifest intention of parties, objectively ascertained, that second facility agreement constitute entire agreement – Second facility agreement replaced first facility agreement.
CONTRACT – Construction – Whether facility agreement came within meaning of ‘mortgage documents’ – ‘Interest Commencement Date’ and ‘Repayment Date’ governed by ‘despatch’ of mortgage documents – ‘Mortgage documents’ not ‘despatched’ until facility agreement sent to borrower.
CONTRACT – Whether first facility agreement had contractual ‘life’ until it was terminated by second facility agreement – Second facility agreement replaced first facility agreement – No continuing operation of first facility agreement.
CONTRACT – Borrowers’ contractual obligation to pay costs – No entitlement to costs where nothing in fact owed.
PRACTICE AND PROCEDURE – Statutory interest – What constitutes a ‘demand’ – Assertion of right and intention to sue sufficient – Supreme Court Act1986 s 58.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Dr O Bigos | Thomson Geer |
| For the Respondents | Mr J Tsalanidis with Mr R J Boadle | Kalus Kenny Intelex |
WHELAN JA
FERGUSON JA
CAMERON AJA:
In 2011 Balanced Securities Limited (‘Balanced’) offered to lend $7,500,000 to Dumayne Property Group Pty Ltd (‘Dumayne’) to finance a development in Toorak. The terms were agreed and loan and security documentation was couriered to Dumayne. The documents were delivered on 13 January 2012 under cover of a letter dated 12 January 2012.[1] The documents were executed by Dumayne and other relevant parties and were returned to Balanced in February 2012. One of the documents executed by Dumayne was a Facility Agreement (‘the first Facility Agreement’). That agreement provided for a loan term of 18 months commencing on the ‘Interest Commencement Date’, which was defined as the earlier of seven days after ‘the despatch of mortgage documents’ or upon any advance by Balanced. The expression ‘mortgage documents’ was undefined.
[1]It was common ground at trial and before us that the letter was couriered on 13 January 2012.
Dumayne then requested Balanced to alter the terms of the loan. Balanced agreed. Balanced sent to Dumayne a second Facility Agreement (‘the second Facility Agreement’) on 20 March 2012 which made the alterations Dumayne had requested. The term of the loan under the second Facility Agreement was 15 months. The provisions governing the commencement of the term were the same as in the first Facility Agreement. That is, the term began on the ‘Interest Commencement Date’ which was the earlier of seven days after ‘the despatch of mortgage documents’ or upon any advance. The second Facility Agreement was executed and settlement of the loan occurred on 28 March 2012.
In 2013 a dispute arose between Dumayne and Balanced as to when the term of the loan expired and when repayment of the principal fell due. Balanced maintained the term of the loan had commenced on 19 January 2012,[2] seven days after the date of the letter under cover of which the bundle of documents which included the first Facility Agreement had been delivered. Thus, the term would conclude and repayment would be due on 19 April 2013. Dumayne maintained the term of the loan had commenced on 27 March 2012, seven days after delivery of the second Facility Agreement. Thus, the term would conclude and repayment would be due on 27 June 2013.
[2]The applicant accepts that on any view this date was ‘1 day out’ and it should have been 20 January being 7 days after the letter was actually couriered: Applicants, ‘Amended Written Case’, 6 October 2016, 6 [19] n 48.
The loan was repaid on 27 June 2013.[3] At settlement, Dumayne paid a total sum of $521,509.05 under protest, in addition to the principal and other amounts due. Balanced claims to be entitled to that additional sum on the basis that the term of the loan had commenced on 19 January 2012 and had been due to be repaid on 19 April 2013. Balanced had refused to discharge its security unless the additional sum was paid.
[3]The agreed summary settled by the Registrar states that the loan was repaid on 27 June 2013, although the correspondence between the parties, to which we will later refer, suggests it was 26 June 2013.
Dumayne issued proceedings in the County Court against Balanced seeking recovery of the amounts paid in June 2013 which would not have been payable if the repayment date was what Dumayne contended it to be, together with damages. Balanced and a related company brought a counterclaim against Dumayne and certain related parties who were guarantors. Dumayne’s solicitors issued a separate proceeding to recover its costs and Dumayne brought a counterclaim in that proceeding against its solicitors which was premised on the assumption that Balanced was correct as to the repayment date. Dumayne conceded that if Dumayne was correct as to the repayment date its solicitors should have judgment for their fees.
The parties to the proceeding instituted by Dumayne against Balanced agreed that resolution of what was described as the ‘repayment date issue’ had the capacity to significantly reduce the matters in contention. Accordingly, an order was made on 9 May 2016 for the determination of the following questions:
(a)What was the ‘Repayment Date’ (as defined) of the loan (Loan) made by Balanced Securities Limited to Dumayne Property Group Pty Ltd which was repayable in 2013?
(b) Was the Loan repaid by the ‘Repayment Date’?
Determination of those questions required the resolution of two issues. The first was whether the second Facility Agreement amended the first Facility Agreement or supplanted it. The second was what constituted ‘the despatch of mortgage documents’.
Dumayne succeeded before Judge Kennedy (as she then was) in the County Court on the preliminary questions. By an order of 24 May 2016, she answered the questions:
(a) 27 June 2013
(b) Yes.
She published her reasons on the same date (‘PQ Reasons’).[4]
[4][2016] VCC 546.
Judge Kennedy reached these conclusions because she determined, first, that the second Facility Agreement had supplanted the first Facility Agreement, and, secondly, that the ‘mortgage documents’ had not been ‘despatched’ within the meaning of the second Facility Agreement until that agreement itself had been sent by Balanced to Dumayne. Accordingly, the relevant ‘despatch’ was on 20 March 2012, the ‘Interest Commencement Date’ was 27 March 2012, and the ‘Repayment Date’ was 15 months later on 27 June 2013.
Consequent upon the determination of the preliminary questions, on 20 September 2016, Judge Anderson in the County Court gave Dumayne summary judgment in the sum of $521,509.05 and published reasons for that order (‘SJ Reasons’).[5] In a separate decision, Judge Anderson ordered Balanced to pay Dumayne interest pursuant to s 58 of the Supreme Court Act 1986 in the sum of $172,400.14 (‘Interest Reasons’).[6]
[5][2016] VCC 1387.
[6][2016] VCC 1439.
Balanced now seeks leave to appeal all three relevant orders, being the determination of the preliminary questions, the summary judgment, and the interest order.
The application for leave to appeal was argued and heard on the basis that if leave were granted the Court would determine the appeal forthwith.
In summary, our conclusions are:
1.The trial judge was correct in finding that the second Facility Agreement had supplanted the first Facility Agreement, that the relevant ‘despatch’ was on 20 March 2012, and that the ‘Repayment Date’ was 27 June 2013, substantially for the reasons she gave. The application for leave had a real prospect of success and leave to appeal should be granted on these issues but the appeal should be dismissed.
2.The proposed grounds concerning the summary judgment did not have a real prospect of success and leave to appeal should be refused.
3.Leave to appeal should be granted on the proposed ground concerning the order for interest but the appeal should be dismissed.
Relevant sequence of events
A mortgage broker named Centenary Advisory Group Pty Ltd (‘Centenary’), acting on behalf of Dumayne, applied to Balanced for the loan of $7,500,000 in October 2011. Balanced sent Dumayne a letter of offer dated 24 October 2011, which Dumayne accepted.
By a letter dated 12 January 2012 the solicitor for Balanced, David Geer, sent to the solicitors for Dumayne, Rennick & Gaynor, 26 documents. The letter and the enclosed documents were delivered by courier the following day. The documents enclosed included the first Facility Agreement, a debenture deed, a mortgage over the property to be developed, a builder’s side agreement, an ‘Acknowledgment’, an ‘Authority and Undertaking’, and a variety of declarations, certificates and other documents. The ‘Acknowledgement’ was to be signed by the two directors of Dumayne. Under this document the two directors acknowledged and warranted
that we have received the Facility Agreement, Mortgage of Land, copies of Memoranda of Common Provisions AA356 and AA689 and ancillary documents (collectively the ‘Mortgage Documents’) and have read and understood the contents of same. The true purport, nature and effect of the Mortgage Documents and our obligations thereunder have been fully explained to us by our solicitor, who is witness to this Acknowledgement prior to us signing same.
The ‘Authority and Undertaking’ authorised Balanced to complete and date all the ‘transaction documents’.
We will consider the terms of both the first and the second Facility Agreement in detail below. Suffice to note at this stage that under the first Facility Agreement the term of the loan was 18 months, and the facility limit was $7,500,000, of which $1,200,000 was an allowance for interest and $5,200,000 an allowance for construction, leaving a balance of funds available at settlement of $1,100,000, from which was to be deducted a loan approval fee of 1.5 percent plus GST ($123,750), one-quarter’s interest in advance ($41,112.50), David Geer’s costs and disbursements, a brokerage fee to Centenary and other fees.
By a letter dated 6 February 2012, Rennick & Gaynor returned the executed documents to David Geer. Two persons who had been named as guarantors had been struck out.
Later in February 2012, Centenary advised the relevant credit manager at Balanced that there was a finance shortfall. The parties then negotiated a solution. It was agreed that the term of the $7,500,000 loan from Balanced would be reduced from 18 months to 15 months. This reduced the interest allowance from $1,200,000 to $900,000 and increased the amount available at settlement. An additional facility from a lender named Optima Funding Pty Ltd, a company related to Balanced, for an advance of $520,000 for a 15 month term, was also arranged.
On 20 March 2012, David Geer wrote to Rennick & Gaynor. It is necessary to set out the terms of that letter in full. Omitting formal parts, it read:
We confirm that we have received advice from our client regarding your client’s request to amend the terms of the above loan.
Our client is agreeable to amendment of loan terms for the above matter as following:
·Loan term amended from 18 months to 15 months; and
·Interest allowance amended from $1,200,000 to $900,000.
We hereby attach up to date Facility Agreement with the above amended terms noted for signature by your clients.
This Agreement will supersede any previous agreement signed by your client in relation to this transaction.
The second Facility Agreement was enclosed with that letter.
The executed second Facility Agreement was dated 28 March 2012. The builder’s side agreement and the debenture deed, which had been executed and returned in February, were each also dated 28 March 2012. Balanced dated these agreements acting under the ‘Authority and Undertaking’, which had also been executed and returned in February. The dating was important because both the builder’s side agreement and the debenture deed were premised upon, and made provisions by reference to, a facility agreement ‘dated on or about the date’ of the agreement and deed respectively.[7]
[7]The builder’s side agreement defines ‘Facility Agreement’ as the Facility Agreement ‘dated on or about the date of this Agreement’. The debenture deed secures advances: ‘pursuant to the Facility Agreement between the Chargor and the Chargee dated on or about the date of this Deed’.
In Balanced’s own accounts it commenced charging interest on 19 January 2012. The fact that it had done so was set out on statements which were forwarded by Balanced to Dumayne from time to time. Evidence was led at the trial that Balanced allocated funds when a commitment was made and its business model required that it be able to charge interest to a borrower as soon as that allocation occurred.[8]
[8]Transcript of Proceedings (9 May 2016) 106–9, evidence of Stephen James Hodges (Balanced Senior Credit Manager).
In March 2013, the dispute as to when the principal of the loan was repayable began.
Balanced always maintained that the ‘Interest Commencement Date’ was 19 January 2012 and that the loan was accordingly repayable on 19 April 2013.
Dumayne’s solicitors, Rennick & Gaynor, initially proposed an agreed extension to the loan. Balanced adopted the position that if an extension was to occur the facility should be ‘rolled over’ in accordance with the provisions of the second Facility Agreement. Rennick & Gaynor then contended that the date of ‘despatch’ of the mortgage documents was 20 March 2012 and that accordingly the ‘Repayment Date’ was 27 June 2013. Balanced contested that position.
By a letter dated 8 May 2013, Balanced advised Dumayne that it had extended the term of the loan under provisions which were the same in each of the facility agreements and which applied if repayment was not made on the ‘Repayment Date’, which Balanced contended to be 19 April 2013.
When the loan was repaid in June 2013 Balanced refused to discharge its security unless the disputed additional payments due under the provisions by which Balanced had purported to extend the loan were made. In addition, Balanced required Dumayne to pay $50,000 by way of security for legal costs which it was anticipated Balanced would incur because Dumayne had indicated that it would take court proceedings to resolve the dispute.
Terms of the Facility Agreements
The terms of the first Facility Agreement and the second Facility Agreement are identical, save for the definition of the ‘Accommodation Period’, the definition of the ‘Interest Allowance’, and clause 5.4 concerning the capitalisation of interest. The ‘Accommodation Period’ in the first Facility Agreement is 18 months; in the second it is 15 months. The ‘Interest Allowance’ in the first Facility Agreement is $1,200,000; in the second it is $900,000. Clause 5.4 of the first Facility Agreement provides for capitalisation of $1,200,000 interest; in the second the sum is $900,000. As explained, it was these alterations to the commercial terms which had led to the preparation and execution of the second Facility Agreement.
Clause 2.1 of each agreement provides for the granting of a loan facility of an amount not exceeding the ‘Facility Limit’, which is defined by each agreement as $7,500,000. Clause 2.2 of each agreement provides that that facility ‘shall [be] subject to the terms hereof and commence on the Interest Commencement Date and shall expire on the Repayment Date’.
Each of the first Facility Agreement and the second Facility Agreement have been drafted so as to make it clear that the relevant financial accommodation is being provided on the terms of that written agreement and on no other basis, and all relevant obligations are expressed to be owed pursuant to the terms of that written agreement. Clauses 2.1 and 2.2 have been referred to already. References to ‘this Agreement’ appear in almost every other provision. It is unnecessary to quote the many provisions which make it clear the entire contract is intended to be embodied in the written document, and which provide that all relevant obligations are owed pursuant to the terms of the written document, because clause 21.4 expressly so provides. It reads:
This Agreement (including any document referred to herein) supersedes all prior representations, arrangements, understandings and agreements between the parties relating to the subject matter hereof and sets forth the entire complete and exclusive agreement and understanding between the parties hereto relating to the subject matter of this Agreement.
Further, clause 21.16 provides:
The parties acknowledge that the Recitals are true and correct and shall form part of this Agreement.
The Recitals read as follows:
AThe Borrower and the Guarantors have requested the Lender to make financial accommodation available to the Borrower and the Guarantors subject to the terms of this Agreement.
BThe financial accommodation has been requested from the Lender to assist the Borrower with the construction of the Project.
CThe Lender has agreed to provide a facility to the Borrower as requested subject to the execution of this Agreement and the fulfilment of the terms and conditions contained herein.
Each of the first Facility Agreement and the second Facility Agreement define the expression ‘Interest Commencement Date’ as
the earlier of:
(a)7 days after the despatch of mortgage documents to the Borrower; or
(b) upon any Advance by the Lender to the Borrower.
They each define ‘Repayment Date’ as
the date of expiry of the Accommodation Period or such other date as may be agreed between the parties.
We have already referred to the diverging definitions of the ‘Accommodation Period’. The first Facility Agreement specifies 18 months from the ‘Interest Commencement Date’; the second 15 months.
Under clause 4.1, each agreement (subject to certain other provisions) provides that the Borrower is to repay the Lender on the ‘Repayment Date’. By clause 4.4 each agreement provides that if repayment is not made on the ‘Repayment Date’, additional interest charges and ‘rollover’ fees are payable. These are the disputed amounts which Balanced required Dumayne to pay before it would agree to release its security in June 2013 (in addition to the $50,000 security for costs).
Each agreement provides for the calculation and payment of interest in clause 5. Clause 5.1 provides:
Interest shall be calculated and payable on the amount drawn down from time to time by the Borrower to the Lender in accordance with the following provisions.
Clause 5.3 provides:
The Borrower acknowledges that the Lender has made the Facility available to the Borrower as from the Interest Commencement Date and so for the purpose of calculation of interest the first interest period shall commence on the Interest Commencement Date and the Borrower agrees to pay interest from the Interest Commencement Date.
Clause 7 of each agreement has the heading ‘Securities’. Clause 7.1 provides that in consideration of the lender making the facility available the borrower and the guarantors have agreed to provide the lender with the ‘Securities’. Each agreement defines the expression ‘Securities’. It is defined as a first registered mortgage over the property to be developed, a debenture deed, a builder’s side agreement, ‘this Agreement’, any letter of offer, and any charge created by deposit.
Clause 7.2 provides that the facility is to be secured by the ‘Securities’. Under clause 7.3, the borrower and the guarantors charge ‘any real estate property’ that they currently own with their obligations. Clause 7.5 then provides:
Upon its execution by the Borrower, this Agreement shall create a Mortgage and a Charge in favour of the Lender over the Mortgaged Property.
The expression ‘Mortgaged Property’ is defined to mean the property or properties over which the lender holds ‘the Securities’.
Clause 7.7 provides:
In the event of any inconsistency between the provisions of this Agreement and any of the Securities the provisions of this Agreement shall prevail.
Judgment on the preliminary questions
The first substantive issue addressed by the trial judge in the PQ Reasons was whether the second Facility Agreement had ‘replaced’ the first Facility Agreement. In relation to the principles to be applied, the judge quoted this Court’s decision in Schreuders v Grandiflora Nominees Pty Ltd (‘Schreuders v Grandiflora’).[9] Her Honour also cited a decision of the New South Wales Court of Appeal, being Hillam v Iacullo.[10]
[9][2016] VSCA 93 [18]–[19], quoted in PQ Reasons [50]–[51].
[10](2015) 90 NSWLR 422, cited in PQ Reasons [52].
In the trial, evidence had been adduced concerning what were said to be ‘admissions’ made by Rennick & Gaynor to the effect that the second Facility Agreement had ‘amended’ the first. The trial judge was not satisfied that this evidence was admissible for the purpose of determining the question of whether the second Facility Agreement had supplanted the first,[11] but held that even if it was admissible the subjective views of lawyers were of very limited utility.[12]
[11]PQ Reasons [55].
[12]Ibid [56].
The trial judge found that the second Facility Agreement was intended to replace the first Facility Agreement. Acting in accordance with what she considered to be the principles set out in Schreuders v Grandiflora, she reached that conclusion by determining the objective intention of the parties as disclosed by the terms of the later agreement. In this respect she relied upon the structure of the two agreements as a whole and the fact that the second Facility Agreement embodied ‘a wholly new consolidated version’[13] of the relevant contract. She found that by the terms of the second Facility Agreement it was clear that the relevant facility had been granted only pursuant to that agreement. In that respect she referred to clause 2.2. She rejected the proposition that there were two agreements each providing for a facility of $7.5 million.[14] She found that
there was nothing left in the (original) First Facility Agreement which was not wholly covered by the Second Facility Agreement.[15]
[13]Ibid [57].
[14]Ibid [56]–[60].
[15]Ibid [60].
Balanced contended before the trial judge that the changes between the two agreements were of a ‘small degree’. The trial judge rejected that contention finding that the changes were ‘not inconsequential’.[16] Further, citing Hillam v Iacullo,[17] the trial judge held that it was clear that the subsequent agreement was intended to deal with the very same advances for which provision had been made in the first.[18]
[16]Ibid [62].
[17](2015) 90 NSWLR 422.
[18]PQ Reasons [63].
The trial judge concluded that in any event, the issue was put ‘beyond doubt’ by the express words of clause 21.4, which we quoted earlier.[19]
[19]Ibid [64]–[66].
The trial judge then considered the question of what was the ‘Repayment Date’, which turned on the issue of when, pursuant to the terms of the second Facility Agreement, the ‘mortgage documents’ had been ‘despatched’ to the borrower. That date would determine the defined ‘Interest Commencement Date’ from which the ‘Accommodation Period’ was to be measured.
The trial judge quoted a passage from the judgment of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.[20] The trial judge found that the ‘mortgage documents’ were not ‘despatched’ until the second Facility Agreement itself was dispatched. The factors which led her to reach this conclusion were the following:
[20](2015) 256 CLR 104, 116–17 [46]–[51] quoted in PQ Reasons [71].
·It was not possible for a borrower to understand its obligations under the mortgage without the operative facility agreement.[21]
·The operative facility agreement (which was the second one) would govern the terms and conditions on which the mortgage and other securities would be provided.[22]
·Clause 7.5 of the second Facility Agreement itself purported to create a mortgage, and clause 7.7 provided that to the extent of any inconsistency between the provisions of the second Facility Agreement and any of the securities, the second Facility Agreement would prevail.[23]
·It would be a ‘commercial nonsense’ for the ‘Interest Commencement Date’ to be triggered on a date prior to the ‘despatch’ of all the ‘mortgage documents’, and, in the circumstances, the ‘mortgage documents’ had to include the operative facility agreement. Otherwise, the ‘Interest Commencement Date’ could occur prior to the terms of the facility being provided to the borrower.[24]
·The fact that Balanced’s internal funding arrangements required that funds be set aside as soon as there was a commitment was not relevant.[25]
·Clause 5.1, properly construed, meant that Balanced would not have been entitled to charge interest from 20 January 2012 in any event.[26]
·The ‘Acknowledgment’ expressly included the ‘Facility Agreement’ within the term which it defined as the ‘Mortgage Documents’.[27]
[21]PQ Reasons [78].
[22]Ibid [79]–[81], [84].
[23]Ibid [82]–[83].
[24]Ibid [85]–[86].
[25]Ibid [87]–[88].
[26]Ibid [89]–[90].
[27]Ibid [94].
The trial judge concluded:
I am therefore of the view that the ‘mortgage documents’ included the Second Facility Agreement. Given this was not despatched until 20 March, it followed that the Interest Commencement Date was 27 March (being 7 days later).
It further follows that the Repayment Date was 27 June 2013 (being 15 months later).[28]
[28]Ibid [95]–[96].
Submissions and proposed grounds of appeal in relation to the preliminary questions
There are five proposed grounds of appeal in relation to the judgment determining the preliminary questions. They are:
(1)The learned judge erred in holding that the Facility Agreement dated 28 March 2012 ‘wholly replaced’, rather than varied or amended, the earlier (undated) Facility Agreement, consequently holding that the earlier Facility Agreement was inoperative.
(2)The learned judge erred in failing to find (but merely assuming) that the earlier (undated) Facility Agreement was a binding contract.
(3)The learned judge erred in failing to have regard to the parties’ post-contractual conduct in characterising the effect of the 28 March 2012 Facility Agreement which ought to have led to the finding that the Facility Agreement dated 28 March 2012 merely varied or amended the earlier (undated) Facility Agreement, rather than wholly replacing it.
(4)The learned judge erred in holding that the ‘despatch of mortgage documents’ (for the purpose of the definition of Interest Commencement Date) occurred on 20 March 2012, rather than 13 January 2012.
(5)The learned judge erred in failing to find that at the time of entering into the contract Dumayne (by its broker) knew, or could reasonably be assumed to have known, Balanced’s commercial purpose for commencing their entitlement to accrue interest when funds were committed.
In support of the proposed grounds concerning the issue of whether the second Facility Agreement had supplanted or merely amended the first Facility Agreement, the applicants contended in its written case that the trial judge had wrongly failed to address the full circumstances of the dealings between the parties and had erroneously focused almost entirely upon the text of the second Facility Agreement. The applicants submitted that there had only ever been a single finance transaction, that a binding obligation had been entered into by the parties constituted by the first Facility Agreement, and that the dealings between the parties which resulted in the need to alter the terms of the first Facility Agreement clearly revealed that the second Facility Agreement amended an existing concluded contractual relationship rather than supplanting it.
It was submitted that the judge had placed too much reliance on Schreuders v Grandiflora and had failed to have regard to High Court authority indicating that it was not only the text but also the surrounding circumstances that needed to be examined in order to ascertain the parties’ intentions. In that respect Concut Pty Ltd v Worrell (‘Concut v Worrell’)[29] was cited.
[29](2000) 176 ALR 693.
The applicants submitted that the judge had wrongly construed the ‘entire understanding’ provision in clause 21.4 of the second Facility Agreement. It was submitted that that clause ought to be read as referring to ‘this Agreement [having amended the earlier Agreement]’. It was submitted that the ‘Interest Commencement Date’ having already occurred, could not be undone or be made to disappear.
The applicants submitted that the New South Wales decision in Hillam v Iacullo was distinguishable on the basis that the divergence between the terms of the two agreements in that case was considerable, in marked contrast to the position here.
Finally, it was submitted in the applicants’ written case that the trial judge had wrongly failed to have regard to Dumayne’s admissions that the second Facility Agreement had amended the first, and had wrongfully failed to take into account the fact that Dumayne had never complained about the commencement of interest on 19 January 2012 or otherwise taken issue with the fact that the ‘Interest Commencement Date’ had occurred in January 2012.
In relation to the issue of what constituted the ‘despatch of mortgage documents’, the applicants submitted that a reasonable business person would have understood that expression as referring to what had occurred on 13 January 2012. It was also submitted that the amendments constituted by the second Facility Agreement could not ‘reset’ the ‘Interest Commencement Date’ which had already been fixed pursuant to the first Facility Agreement.
In its written case the applicants submitted that the trial judge had made several errors in construing the expression ‘despatch of mortgage documents’. She had wrongly suggested that a facility agreement was necessary in order to understand what was secured by the real property mortgage, when the terms of the loan were contained in schedule 1 of the mortgage. She had wrongly equated ‘mortgage documents’ with the defined expression ‘Securities’, and had wrongly placed weight on clause 7.5 of the second Facility Agreement which itself could not effect a mortgage over Torrens land as it was not in registerable form. She had wrongly proceeded on the basis that the ‘Interest Commencement Date’ would not be triggered if some but not all of the ‘mortgage documents’ were ‘despatched’ there being no reason why that could not occur when the ‘vast bulk’ of such documents were sent. She had wrongly placed significance on the fact that the borrower would not know the extent of its obligations until the facility agreement was provided which in this case ignored the fact that the relevant terms had been provided in January 2012. She had wrongly found that the evidence as to Balanced’s internal funding arrangements was not significant. She had misconstrued clause 5 of the Facility Agreement. Finally, she had had insufficient regard to the terms of the letter of 12 January 2012 itself and to the obvious fact that the sending of that suite of documents ‘comfortably fits’ the description ‘despatch of the mortgage documents’.
In its oral submissions, the applicants submitted that the critical issue was not so much whether the second Facility Agreement replaced or amended the first, but rather when ‘the despatch of mortgage documents’ had occurred, whichever view one took of the effect of the second Facility Agreement. The use of the definite article ‘the’ in each agreement was said to be a recognition of the fact that it was envisaged that there would only be one despatch, which, it was submitted, ought to have been held to be what had occurred in January.
In oral submissions counsel for the applicants emphasised the fact that throughout all the relevant dealings there had only ever been one finance facility. As to Concut v Worrell, counsel said that the applicants’ reliance on context was not an attempt to rely on anything other than what is permissible in accordance with the recognised tenets of contractual construction. Counsel said the relevance of the evidence of Balanced’s internal accounting for interest was that it provided the ‘commercial rationale’ for the provisions in the facility agreements concerning the ‘Interest Commencement Date’ whereby the risk of delay in settlement of a loan was borne by the borrower, and that this was a matter known to both parties.
The respondents submitted in its written case that the trial judge had been right to focus upon the terms of the second Facility Agreement when determining whether it had amended or supplanted the first Facility Agreement. It relied upon Schreuders v Grandiflora and also Commissioner of Taxation (Cth) v Sara Lee Household & Body Care Australia Pty Ltd (‘FCT v Sara Lee’).[30] The respondents supported all of the trial judge’s conclusions on the ‘despatch of mortgage documents’, and on the determination of the preliminary questions generally, for the reasons which she had given.
[30](2000) 201 CLR 520, 533–4 [22]–[24].
In oral submissions senior counsel for the respondents submitted that the dating of the debenture deed and the builder’s side agreement, and the consequent interconnection between those agreements and the Second Facility agreement, was a further significant factor revealing that the judge had been correct in finding that the second had ‘wholly replaced’ the first.
Amend or Supplant — Relevant authorities
An appropriate starting point is the High Court decision in FCT v Sara Lee.
The case concerned the imposition of capital gains tax and a relevant issue was the date upon which a particular disposition had occurred. There was an agreement of 31 May 1991, and a subsequent agreement of 30 August 1991. The effect of the second agreement was contentious.
The general nature of the issue which arises where there is a valid binding agreement and the transaction is then made subject to a second valid binding agreement, was addressed in some detail in the judgment of Gleeson CJ, Gaudron, McHugh and Hayne JJ. It merits quotation in full. Their Honours said:
When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists. In the present case, if the effect of what occurred on 30 August 1991 had been to rescind the agreement of 31 May 1991, then that would go a long way towards providing an answer to the appellant's argument that the assignment which occurred on 30 August was pursuant to the agreement of 31 May, with whatever that entails for the application of Pt IIIA of the Act.
In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vict) Pty Ltd Taylor J said:
‘It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.’
That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd. It accords with principle and with authority.
It is clear that the parties to the agreements of 31 May and 30 August 1991 did not intend that the agreement of 31 May should be wholly rescinded. That is apparent from a number of the provisions of the 30 August agreement. … [Particular provisions of the 30 August agreement are then referred to] … The manifest intention of the parties was not that the agreement of 31 May 1991 should be wholly rescinded and replaced by a new agreement, but that the rights and liabilities under, and the mode of performance of, the agreement, should be varied in certain respects.[31]
[31]Ibid 533–4 [22]–[25] (citations omitted). The other judge, Callinan J, adopted the same approach citing the same authorities in much shorter compass: 545–6 [81].
The High Court returned to the issue again very soon in Concut v Worrell.[32] In that case, the relevant issue concerned an employee dismissed for misconduct. He had initially been employed under an oral agreement, and a written service agreement had then been entered into. The issue of how these two agreements interacted was critical.
[32](2000) 176 ALR 693.
In a joint judgment, Gleeson CJ, Gaudron and Gummow JJ, addressed the decision in FCT v Sara Lee in detail.[33] Their Honours concluded that in the case before them the majority of the Queensland Court of Appeal had made an error in finding that the written service agreement had discharged the prior oral contractual relationship. They reached this conclusion because ‘the text of the service agreement itself, as well as the surrounding circumstances, indicate that such a conclusion would not be in accord with the manifest intention of the parties’.[34] Their Honours then considered specific provisions of the written service agreement and concluded that ‘the employment relationship continued but was supplemented by the terms of the service agreement’.[35]
[33]Ibid 698–9 [18]–[19].
[34]Ibid 699 [20].
[35]Ibid 669 [21]–[22].
McHugh J adopted the analysis of Gleeson CJ, Gaudron and Gummow JJ, and the separate analysis of Kirby J to which we turn in a moment, on this issue.[36]
[36]Ibid 703–4 [41].
Kirby J addressed the same issue, reaching the same conclusion. As to the approach to be adopted, he said:
Problems of the present kind are usually resolved by the law of contract by reference to the imputed intention of the parties to the contractual relations, as expected here in the successive oral and written agreements. Of course, that ‘intention’ is to be ascertained objectively.[37]
[37]Ibid 709 [56].
The next relevant authority is the decision of the New South Wales Court of Appeal in Hillam v Iacullo.[38]
[38](2015) 90 NSWLR 422.
Hillam v Iacullo concerned loan agreements. Two lenders and a borrower entered into three successive loan agreements. The primary judge held that the lenders had failed to perform their obligations under the third loan agreement and accordingly could not insist upon a payment that was due under that agreement. The judge held, however, that the second loan agreement had remained on foot and the lenders were entitled to a payment under that agreement.
The judgment of the New South Wales Court of Appeal was delivered by Leeming JA, with whom Basten and Ward JJA agreed.
The parties in Hillam v Iacullo had characterised, or mischaracterised, the relevant issue as being one of novation. Leeming JA reviewed the historical position and said the relevant issue was whether the parties had agreed by implication that their rights and obligations under the second loan agreement were wholly discharged and replaced by the third loan agreement, or whether the third loan agreement had merely varied those rights leaving the parties with the ability to enforce the second loan agreement.[39] Leeming JA cited and relied upon FCT v Sara Lee, Concut v Worrell and Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (‘Tallerman’).[40]He concluded that the relevant issue turned on ‘discerning the (objective) intention of the parties’.[41]
[39]Ibid 433 [50]–[52].
[40](1957) 98 CLR 93.
[41]Hillam v Iacullo (2015) 90 NSWLR 422, 434 [57].
The critical factor in determining that issue in Hillam v Iacullo was the fact that the third loan agreement expressly dealt with the very same advances for which provision had been made in the second loan agreement. The second loan agreement had to be treated as being discharged because the third agreement dealt with the same subject matter but in a different way and it was impossible that both should be performed. This conclusion was reached by consideration of the terms of the two agreements.[42]
[42]Ibid 435 [58]–[63].
Leeming JA went on:
Although most of the matters referred to above are plain and unambiguous, the court was asked to turn to the context. It is necessary to do so. As Jordan CJ said, with the agreement of Stephen and Maxwell JJ, in Newcombe v Newcombe (1934) 34 SR(NSW) 446 at 451:
‘It must be remembered that however plain and unambigious words may be in themselves they are always capable of being controlled by an inconsistent context’.[43]
[43]Ibid 435–6 [64].
Leeming JA concluded that there was nothing in the context which displaced the textual considerations.[44]
[44]Ibid 436 [66].
Leeming JA relevantly concluded as follows:
What mattered ultimately was whether the legal rights generated by the second loan agreement were inconsistent with those resulting from the third. The third loan agreement, being a more recent, formally executed distillation of the parties’ rights and obligations, which was inconsistent with those arising under the second loan agreement, brought the second loan agreement to an end.
For all of those reasons, this is a case where following the execution of the third loan agreement dealing with the whole of the amounts lent and promised to be lent … that document and none of its predecessors governed the parties’ rights and obligations. [45]
[45]Ibid 437 [73]–[74].
Finally, the issue arose in this Court in a very different context in Schreuders v Grandiflora.[46] The issue there concerned the construction of a trust deed and a deed of variation.
[46][2016] VSCA 93.
Before turning to the effect of the deed of variation this Court restated some general principles concerning contractual construction. A passage from the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd was quoted emphasising that a court’s primary duty when construing a written contract is to discover the intention of the parties ‘from the words of the instrument in which the contract is embodied’.[47] This Court continued:
When objectively assessing the meaning of a contractual provision, it is sometimes permissible for the court to have regard to the surrounding circumstances known to the parties at the time the contract was executed. However, if an expression in a contract is unambiguous or susceptible to only one meaning, evidence of surrounding circumstances cannot be adduced to contradict that meaning.[48]
[47](1973) 129 CLR 99, 109.
[48]Schreuders v Grandiflora [2016] VSCA 93 [15] (citations omitted).
This Court quoted the decision in Tallerman, also cited FCT v Sara Lee and Hillam v Iacullo, and continued:
Where the parties enter into an agreement and then enter into a second agreement which varies the first agreement, it may be necessary for the court to determine whether the second agreement brings an end to the first agreement and replaces it with the second, or whether the effect is that the first agreement remains, subject to variation.
The question whether an amending agreement supersedes rather than varies the principal agreement depends on the objective intention of the parties to the amending agreement as disclosed by the wording of that agreement.[49]
[49]Ibid [18]–[19] (citations omitted).
From these authorities, the following relevant principles emerge:
(1)The relevant issue is whether the subsequent agreement amends the earlier agreement or brings it to an end and replaces it (FCT v Sara Lee).
(2)The earlier agreement may be brought to an end either expressly or by implication (Tallerman and FCT v Sara Lee).
(3)The issue is to be resolved by ascertaining the manifest intention of the parties (FCT v Sara Lee and Concut v Worrell).
(4)The manifest intention of the parties is to be ascertained objectively by the construction of the subsequent agreement, having regard to the relevant context of that agreement where it is permissible to do so in accordance with the ordinary principles of contractual construction (Concut v Worrell, Hillam v Iacullo, Schreuders v Grandiflora).
(5)A potentially critical factor militating in favour of a conclusion that the manifest intention of the parties, objectively ascertained, was to bring the earlier agreement to an end and replace it, is where the terms of the two relevant agreements deal with the same subject matter in different and inconsistent ways (Hillam v Iacullo).
Amend or supplant — analysis
The trial judge concluded that the second Facility Agreement was intended to bring the first Facility Agreement to an end and replace it. We agree. Our reasons are as follows:
(1)Both agreements covered the same subject matter. The loan facility regulated by each of them was the same facility. As both counsel emphasised, there was only ever one facility. The second Facility Agreement regulated the facility in a different and inconsistent way to the first. Clauses 2.1 and 2.2 expressly provided that the facility was to be provided under the terms of that second agreement. Under that second agreement the ‘Repayment Date’ was different to that under the first because the ‘Accommodation Period’ was different. The capitalised interest provisions were different, one providing for $900,000 and the other $1,200,000. Both of the agreements could not be performed. The obligations they imposed were different and inconsistent.
(2)The second Facility Agreement had clearly been drafted to constitute the entire agreement, comprehensively governing the parties’ rights and obligations in relation to the facility. The drafting which reflects that intention pervades the agreement, but it was expressly so provided in clause 21.4. It was also made clear in the Recitals which, by clause 21.16, were agreed to be true and correct.
(3)The fact that the second Facility Agreement had ‘wholly replaced’ the first is the only conclusion which is consistent with the terms of the debenture deed and the builder’s side agreement, and with the clear and unequivocal interrelationship between those two agreements and the facility agreement that Balanced dated 28 March 2012, which is the second Facility Agreement.
Contrary to the submissions of the applicants, in our view the trial judge correctly construed clause 21.4.
Hillam v Iacullo is not distinguishable. It is directly on point. As in Hillam v Iacullo, the two agreements here dealt with the very same advance in different and inconsistent ways. They could not each be performed. The rights and obligations under the first were wholly discharged and replaced by the second which thereafter governed the parties’ rights and obligations.
The trial judge correctly approached the relevant issue. She sought to ascertain the intention of the parties, objectively, by the construction of the second Facility Agreement. The terms of the second Facility Agreement were too clear to admit of any variation by reference to ‘context’. Even if it were accepted that in this case she ought to have had regard to the ‘context’ (which we do not accept to be the case), the letter of 20 March 2012 written by Balanced’s solicitor was an insuperable obstacle to any different conclusion. The letter could not be clearer in stating that the intention was that the second Facility Agreement would ‘supersede any previous agreement’.
As to what are said to be ‘admissions’ by the solicitors for Dumayne, the issue of construction here is clear. Solicitors’ expressed views on the issue are neither relevant nor of assistance.
When was the ‘Interest Commencement Date’? When were the ‘Mortgage Documents despatched’?
The trial judge concluded that the ‘mortgage documents’ were not ‘despatched’ until the second Facility Agreement itself was sent to Dumayne on 20 March 2012. Again, we consider that the trial judge was correct in this conclusion. Our reasons are as follows:
(1)The second Facility Agreement is the comprehensive repository of the terms of the loan facility. It is the most fundamental document in the transaction. It is the repository of the obligations which are secured by the mortgage of the development property and the debenture deed. Some terms of the loan facility are also in schedule 1 of the mortgage, but not all of them, and, in any event, the terms of the facility agreement prevail over those of the mortgage (clause 7.7).
(2)The second Facility Agreement itself purports to create a mortgage in clause 7.5. For that reason alone it is aptly described as a ‘mortgage document’. The applicants’ contention that the trial judge’s reliance on clause 7.5 was an error because that clause could not create a mortgage over Torrens land as it is not in registrable form is to be rejected for two reasons. First, the relevant inquiry is the meaning to be given to the term ‘mortgage documents’ and the expressed effect of clause 7.5 is significant regardless of its legal effect. Second, an agreement to create a mortgage of Torrens land, even if unregistrable, can be effective to create an equitable mortgage.[50]
(3)The fundamental characteristic of a ‘mortgage’ is that it provides a lender with security. The second Facility Agreement defines the term ‘Securities’ and includes the facility agreement itself in that definition.
(4)Once it is accepted that the applicable facility agreement is one of the ‘mortgage documents’, the ‘mortgage documents’ are not ‘despatched’ until all of the documents, including the facility agreement, are ‘despatched’. Any different approach can only lead to a level of uncertainty that could not have been intended. It would also lead to an unfair outcome, which could not be the parties’ manifest intention (objectively ascertained), in that the facility would be on foot (retrospectively presumably) before its full terms were provided to the borrower.
(5)The ‘Acknowledgment’ drafted by Balanced includes the first Facility Agreement within the defined term ‘Mortgage Documents’.
(6)Reliance on the letter dated 12 January 2012 as constituting the relevant ‘despatch’ is tenable only if the letter of 20 March 2012, whereby one of the key documents was ‘superseded’, is ignored.
[50]Edward I Sykes and Sally Walker, The Law of Securities (Lawbook, 5th ed, 1993) 315–16.
It might be accepted that the trial judge misconstrued clause 5 in relation to the obligation to pay interest, but in our opinion any such misconstruction has no relevant effect on the outcome.
Conclusion on proposed grounds concerning PQ Reasons
The applicants’ proposed grounds had a real prospect of success and leave to appeal should be granted but the appeal on those grounds should be dismissed.
Summary judgment application — proposed grounds
An application on behalf of Dumayne for summary judgment against Balanced, based upon the determination of the preliminary questions, was heard by Judge Anderson. Judge Anderson gave Dumayne judgment against Balanced for the sum of $521,509.05, being the disputed amount Balanced had insisted that Dumayne pay in June 2013. The sum paid included additional interest, a ‘roll over’ fee, and an amount of $50,000 by way of security for costs.
Balanced seeks leave to appeal on the following proposed grounds:
(1)Judge Anderson’s summary judgment was based upon the correctness of Judge Kennedy’s decision, which was incorrect.
(2)Judge Anderson erred in holding that the effect of Judge Kennedy’s decision was to preclude Balanced from setting off sums of $123,750 and $280,312.50, being a loan approval fee and three months interest.
(3)Judge Anderson erred in holding that the effect of Judge Kennedy’s decision was to preclude Balanced from having any judgment sum reduced by $50,000, being the security for Balanced’s legal fees.
(4)Alternatively, to the extent that Judge Anderson correctly characterised the effect of Judge Kennedy’s decision, Judge Kennedy’s decision was in error in that Balanced continued to have rights under the first Facility Agreement.
We have already dealt with the first proposed ground and leave to appeal on that proposed ground will be refused.
In relation to the second proposed ground, the argument put to Judge Anderson, and repeated on the application for leave to appeal, is that the first Facility Agreement had been binding and that it had had a contractual ‘life’ until it was terminated by the second. The loan approval fee of $123,750 and the first three months interest of $280,312.50, due under the first Facility Agreement, remained due after the second Facility Agreement was executed, and those sums should be deducted from the amount for which summary judgment was given. On the application before us it was submitted that, at the least, this argument had a ‘real prospect of success’ and should not have been summarily rejected.
The argument was rightly rejected by Judge Anderson. The two facility agreements regulated the same facility, on different and inconsistent terms. Judge Kennedy rightly found that the manifest intention of the parties, objectively ascertained, was that the second Facility Agreement supplanted the first. Once the second Facility Agreement came into existence, it comprehensively and completely sets out the applicable terms of the facility. There was no room for the continuing operation of any of the provisions of the first Facility Agreement. The borrower was not required to pay two loan approval fees and, once the facility had been comprehensively dealt with by the second Facility Agreement, was only required to pay interest pursuant to the terms of that agreement.
It was appropriate for Judge Anderson to make this determination on a summary judgment application. All of the relevant material was before him. His conclusion necessarily followed from Judge Kennedy’s determination of the preliminary questions. Leave to appeal on this proposed ground should be refused.
The third proposed ground concerns the $50,000 payment as security for legal costs. Balanced sought that sum as security for the legal costs it would incur in contending for, what has transpired to be, an incorrect analysis of the contractual arrangements.
The parties were given leave to file and serve further written submissions on this issue after the hearing of the application.
Balanced submitted that it had a contractual entitlement to be paid, on demand, its legal costs under clause 6.2(a)(ii) of both the first Facility Agreement and the second Facility Agreement. Before Judge Anderson, Balanced relied only on the first Facility Agreement.[51] Balanced submitted that this contractual right was ‘supplemented’ by clause 11 of the Memorandum of Common Provisions incorporated into the relevant mortgage and that it ‘also reflected the common law right of Balanced, as mortgagee, to costs reasonably and properly incurred by it in any action by or against it in relation to the mortgage, or in ascertaining or defending its rights, preserving the security or recovering the mortgage debt’. Balanced submitted that it had acted reasonably and properly throughout, and that it ought not to be deprived of its costs unless it had acted in a manner which was unreasonable or irrational or unfounded. In support of these contentions, Balanced relied principally on passages in the third Australian edition of Fisher & Lightwood’s Law of Mortgage.[52]
[51]SJ Reasons [19].
[52]E L G Tyler, P W Young and C E Croft, Fisher & Lightwood’s Law of Mortgage (LexisNexis Butterworths, 3rd ed, 2014). The passages cited and relied upon are those at 857–9 [40.1], [40.3], 860–1 [40.9].
The respondents submitted that Judge Anderson had been correct in dismissing the claim to retain the sum of $50,000 as the argument put to him was that that sum was due under the first Facility Agreement. This agreement had been supplanted by the second Facility Agreement. The respondents submitted that, in any event, the $50,000 was not recoverable under clause 6.2(a)(ii) because the costs were referable to Balanced defending its contravention of the facility agreement rather than its enforcement of it. The respondents also submitted that the claim ought to be rejected because otherwise Balanced would be obtaining a benefit under the second Facility Agreement on account of their own breach of it and would be taking advantage of their own wrongdoing.
Clause 6.2 of each of the facility agreements relevantly provides as follows:
The Borrower shall pay to the Lender on demand:
(a)the sum of all the costs, expenses and outgoings of the Lender of and incidental to:
…
(ii)any actual or contemplated enforcement of this Agreement or the Securities or the actual or contemplated exercise preservation review or consideration of any rights powers or remedies under this Agreement or the Securities …
Balanced’s reliance on clause 11 of the Memorandum of Common Provisions which is said to ‘supplement’ clause 6.2(a)(ii), appears to be an entirely new argument. In any event, clause 11 addresses the exercise or attempted exercise of rights or powers conferred by the mortgage. No such issue arose here.
Balanced contended that clause 6.2(a)(ii) of the facility agreements reflected the position at common law and relied in that respect upon passages from Fisher & Lightfoot’s Law of Mortgage.[53] A relevant passage from that text, not relied upon by Balanced, reads as follows:
If the mortgagee institutes a foreclosure action and upon the taking of accounts it is shown that nothing was due at the commencement of the proceedings, the mortgagee must bear the whole expense of the action; similarly if the mortgagee drives the mortgagor to institute an action under like circumstances.[54]
[53]Ibid.
[54]Ibid 861 [40.10].
The authorities cited by the text in support of that proposition are Binnington v Harwood,[55] and Barlow v Gaines.[56]
[55](1825) Turn & R 477; 37 ER 1184.
[56](1856) 23 Beav 244; 53 ER 95. Note, Fisher & Lightwood’s Law of Mortgage cites this case as Morris v Islip (1856) 23 Beav 244; 53 ER 95.
In Binnington v Harwood, a mortgagee (with others) took proceedings seeking (among other things) an order for the sale of a mortgaged property. Upon the taking of accounts it was found that the mortgagee had already been overpaid. The Master of the Rolls (Lord Gifford) ordered the mortgagee to pay the costs of so much of the relevant proceeding as related to the mortgage. There was in that case a finding that the mortgagee had ‘misconducted’ himself.
In Barlow v Gaines, the Master of the Rolls (Sir John Romilly), after referring to the fact that ordinarily a mortgagor must meet the costs of a mortgagee’s suit, continued on:
But if the mortgagor had alleged and proved that the mortgagee was fully paid off, at the filing of the bill, the mortgagee ought not to have put the mortgagor to file a bill at all, and the mortgagee would then have to pay the costs of the suit.[57]
[57]23 Beav 245, 246; 53 ER 95, 96.
The authorities cited in the passages in Fisher & Lightfoot’s Law of Mortgage upon which the applicant relied were cases such as Cotterell v Stratton[58] where the general rule that a mortgagee taking action to enforce a mortgage was entitled to its costs in the absence of oppressive or unconscientious conduct was stated. But the law always recognised that the position was different where the mortgagee had refused to accept what was in fact truly owed. In Cottrell v Finney[59] Sir W M James LJ said:
The rule of the Court is, as laid down in Cotterell v Stratton, that the mortgagee is entitled to his security … that is, the cost of a redemption suit or foreclosure suit — unless the mortgagee has either refused or has been offered the full sum due to him, in which case he loses all subsequent interest, and all costs, and is made liable to pay costs; or unless the Court sees that the conduct of the mortgagee has been oppressive …[60]
[58](1872) LR 8 Ch App 295.
[59](1874) LR 9 Ch App 541.
[60]Ibid 551–2 (citation omitted).
Rule 63.26 of the Supreme Court (General Civil Procedure) Rules 2015 also expresses the general rule concerning a mortgagee’s entitlement to costs (‘[u]nless the Court otherwise orders’). Williams Civil Procedure quotes the above passage from Sir W M James LJ’s judgment in Cottrell v Finney in the commentary to that rule.[61]
[61]LexisNexis Butterworths, Civil Procedure: Victoria [63.26.25].
The position at common law is correctly stated in Fisher & Lightwood’s Law of Mortgage.[62] If proceedings are instituted either by the mortgagee, or by the mortgagor if forced to do so by the mortgagee, and it is found that nothing is in fact owing, the general rule under which the mortgagee is entitled to costs would not apply and the mortgagee would ordinarily be required to pay the mortgagor’s costs.
[62]Tyler, Young and Croft, above n 52, 861 [40.10].
We turn back then to clause 6.2(a)(ii).
Clause 6.2(a)(ii) provides that Balanced should have its costs of enforcing the facility agreement or of exercising, preserving or considering the rights, powers or remedies provided for by the agreement. The $50,000 costs it demanded and seeks to retain are not costs incurred in relation to any of those things. On the claims by Balanced in relation to which the $50,000 was demanded and paid, nothing was owed by Dumayne. Balanced was not enforcing, exercising, preserving or considering any right which it had under the applicable facility agreement. No such right existed. Nothing was relevantly owed.
Balanced was not entitled to retain the $50,000 under clause 6.2(a)(ii). It would not have been entitled to it at common law. Judge Anderson was right to reject the claim.
Leave to appeal should be refused on this proposed ground.
The alternative fourth proposed ground must be rejected for the same reasons as the first proposed ground has been rejected.
Conclusion on summary judgment application
Leave to appeal should be refused in relation to the summary judgment.
The order for interest
The final proposed ground of appeal is that Judge Anderson erred in holding in the Interest Reasons that a ‘demand’ had been made by a letter dated 5 June 2013, and in awarding Dumayne interest under s 58 of the Supreme Court Act 1986 as a consequence.
Judge Anderson annexed to the Interest Reasons five letters which had passed between the solicitors for Dumayne, Rennick & Gaynor, and Balanced and its solicitor, David Geer, leading up to the repayment. Relying upon this Court’s decision in AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (‘Lucas’),[63] the Oxford definition of the term ‘demand’, the description of a ‘demand’ by Walker J in Re Colonial Finance, Mortgage, Investment and Guarantee Corporation Ltd (‘Colonial Finance’),[64] and observations made by Kirby J in Victorian WorkCover Authority v Esso Australia Limited (‘VWA v Esso’),[65] Judge Anderson concluded that a ‘demand’ for the purpose of s 58 had been made by a letter from Rennick & Gaynor to David Geer dated 5 June 2013.
[63][2009] VSCA 310.
[64](1905) 6 SR (NSW) 6.
[65](2001) 207 CLR 520, 546.
It is first necessary to review the relevant correspondence, which Judge Anderson annexed to the Interest Reasons and relied upon.
By a letter dated 18 April 2013 to Balanced, Rennick & Gaynor asserted that the commencement date of the loan was 27 March 2012 and said that their client was confident that if the matter were pursued ‘a Court would likely find in its favour’. The letter then suggested a compromise as an alternative to litigation.
By the letter dated 5 June 2013, which Judge Anderson found constituted the ‘demand’, Rennick & Gaynor set out its position concerning the repayment date in some detail to David Geer. It is unnecessary to refer to the contents of that part of the letter, save to say that it contended that the repayment date was 27 June 2013. At the end of the letter a proposal to resolve the ‘impasse’ was made, and the letter relevantly concluded as follows:
If we do not receive a response within 7 days from the date of this letter, we are instructed to issue proceedings for determination of the dispute.
David Geer responded by a letter dated 12 June 2013. He contested the analysis set out by Rennick & Gaynor. Relevantly his letter concluded:
We note in your letter that your client intends to litigate.
Accordingly, my client requires security for the costs it will incur in defending the threatened proceedings in the sum of $50,000 and accordingly as at 26 June 2013 and in order for my client to discharge it’s [sic] security it will require the following Bank Cheques:
1.$7,387,066.77 made payable to Balanced Securities Limited; and
2.$50,000 made payable to Balanced Securities Limited
…
I note that the amount referred to in 2 above is my clients best estimate as to its costs in defending the threatened proceeding.
By a letter dated 24 June 2013, David Geer confirmed the amounts Balanced required at a settlement then proposed for Wednesday 26 June 2013.
The final letter is dated 26 June 2013 and is from Rennick & Gaynor to David Geer. Omitting formal parts, the letter reads as follows:
We are instructed by our client that it is effecting settlement today, under protest. The basis of our protest has been outlined to you in our letter dated 5 June 2013.
To that end, we note that $50,000 is being provided to Balanced Securities Limited (‘Balanced’) as security for its costs (‘the Security’).
We confirm your advice that if our client notifies Balanced that it will not pursue its claim, then our client is entitled to reimbursement of the Security, less any reasonable legal fees incurred by Balanced.
Judge Anderson found that a demand had been made by the letter of 5 June 2013, given the following circumstances:
(a) The parties were in dispute as to when the loan was repayable.
(b) Dumayne was anxious to repay the loan by the date it considered to be the due date.
(c) Balanced would only settle if the disputed additional sums were paid.
(d) Rennick & Gaynor’s letter of 5 June 2013 anticipated that at settlement Balanced would require payment of a ‘rollover fee’ and ‘interest at the higher rate’.
(e) The rollover fee and the interest were imposed.
(f) An additional sum of $50,000 as security for costs was required which was referable to the proceedings Rennick & Gaynor had threatened.
(g) The letter of 5 June 2013 threatened the issue of legal proceedings if a response to the proposal contained in that letter was not received within seven days.
(h) David Geer’s letter of 12 June noted Dumayne’s intention to litigate and sought $50,000 as security for costs as a consequence.
(i) The letter of 26 June 2013 by Rennick & Gaynor recorded the fact that the demanded payments were being made under protest and stated that the basis of the protest had been outlined in the letter of 5 June 2013.
Demand under s 58 — relevant authorities
This Court in Lucas recorded the fact that s 58 of the Supreme Court Act is derived from the Civil Procedure Act 1833 (UK).[66] That Act provided for the recovery of interest in circumstances which included:
[F]rom the Time when Demand of Payment shall have been made in Writing, so as such Demand shall give Notice to the Debtor that Interest will be claimed from the Date of such Demand until the Time of Payment …[67]
[66]3 & 4 Will IV c 42.
[67]Ibid s 28.
That provision differed from s 58 of the Supreme Court Act because it conflated the making of a demand for payment with the requirement that the debtor be notified that interest would be claimed. UK decisions such as Mowatt v Lord Londesborough (‘Mowatt’)[68] illustrate the way in which these two requirements were intertwined under the UK Act. Notwithstanding that significant difference, authorities decided under the UK Act do assist in relation to the present inquiry in one particular respect. In Ward v Eyre (‘Ward’)[69] it was held that a statement to a debtor that an amount was due (without more) did not constitute a ‘demand’, whereas in Geake v Ross (‘Geake’)[70] it was held that such a statement coupled with a statement that proceedings to recover the sum due would be taken if the account was not settled by a specified date was held to constitute a ‘demand’.
[68](1854) 3 El & Bl 307; 118 ER 1156.
[69](1880) 15 Ch D 130.
[70](1875) 44 LJCP 315.
Turning to s 58 of the Supreme Court Act, the principal authority is this Court’s decision in Lucas. There were a number of issues dealt with by this Court in that case. One issue concerned s 58 and whether one party, AJ Lucas, had made a ‘demand’ upon another, MacDow. The letter which was relied upon by AJ Lucas relevantly read as follows:
Under clause 24.4 MacDow are obliged to make payment to AJ Lucas[.] MacDow are required to provide indicative values under Clause 24.4 (a) & (b) for discussion. AJ Lucas will provide claims for discussion under 24.4 (c) to (f) including claims for the cost of variations to date. These claims will be provided by Friday 26th September 2003.
…
AJ Lucas considers it to be in both parties’ interests to have a frank discussion about the termination process and the procedures to follow.
The Court in Lucas first referred to observations of Kirby J in VWA v Esso. Those observations were to the effect that the relevant legislative provisions providing for interest to be awarded had the ‘beneficial purpose’ of compensating parties who had been obliged to take proceedings to recover money, and who had been ‘kept out of moneys’ they could otherwise have used or earned interest on. The provisions should accordingly not be given a ‘narrow meaning’.[71] The Court quoted passages from Walker J’s judgment in Colonial Finance as to the nature of the demand. One of the quoted passages reads:
That letter is not a demand within the meaning of the guarantee; there must be a clear intimation that payment is required to constitute a demand; nothing more is necessary, and the word ‘demand’ need not be used; neither is the validity of a demand lessened by its being clothed in the language of politeness; it must be of a preemptory character and unconditional, but the nature of the language is immaterial provided it has this effect.[72]
[71]VWA v Esso (2001) 207 CLR 520, 546–7, quoted and adopted in Lucas [2009] VSCA 310 [170]–[171].
[72](1905) 6 SR(NSW) 6, 9, quoted in Lucas [2009] VSCA 310 [175].
The Court referred to decisions on the UK Act, including Mowatt, Geake and Ward.[73] The Court observed that words which would not suffice to constitute a demand for the purpose of a guarantee (which was the issue in Colonial Finance) might be sufficient for the purposes of s 58 of the Supreme Court Act.[74]
[73]Lucas [2009] VSCA 310 [179].
[74]Ibid [180].
The Court in Lucas concluded that the particular letter under consideration was not a ‘demand’. The Court characterised it as an attempt to ‘open a discussion between the parties’. Section 58 was held not to apply.
A further decision of relevance is this Court’s decision in Salta Constructions v St George Bank (‘Salta’).[75] Like Colonial Finance, that case concerned the question of whether a demand had been made under a guarantee. The decision in Salta is of assistance for two reasons.
[75](2014) 45 VR 245.
First, the Court in Salta considered the general issue of the way in which notices of different kinds ought to be construed. It adopted observations of Brooking J (as his Honour then was) in Catley v Watson,[76] of Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co,[77] and of this Court in MLW Technology Pty v May[78] to the effect that notices and such documents should be construed objectively, the issue being how a reasonable recipient would have understood them taking into account ‘the relevant objective contextual scene’.[79]
[76][1983] V ConvR ¶54–003, 62 115.
[77][1997] AC 749, 767–71.
[78][2005] VSCA 29 [78]–[82].
[79]Salta (2014) 45 VR 245, 253–4 [27]–[28].
The second reason why the decision in Salta is of assistance is that this Court there held that a notice of default which had specified the default, had set out what was required to remedy it, and had set out the consequences of a failure to remedy it including the commencement of enforcement proceedings, did constitute a demand under a guarantee. A relevantly similar conclusion had been reached some years earlier by Williams J in the Supreme Court of Queensland in Australia & New Zealand Banking Group Ltd v Sammon.[80]
[80](1984) Q ConvR 54–148.
Finally, it is noteworthy that two Tasmanian authorities have adopted the same approach as was adopted in the UK in Ward and Geake. The mere statement of an amount due was held not to constitute a ‘demand’,[81] whereas a statement of the amount due combined with a threat to institute proceedings was held to constitute a ‘demand’.[82] The legislation in Tasmania is relevantly the same as in Victoria.
[81]Clark v Eski Ice Pty Ltd [1985] TASSC 12.
[82]New Imperial Pty Ltd v Falls Holdings Pty Ltd [1992] TASSC 100.
Was there a ‘demand’?
When Dumayne paid the sums in contention it expressly did so ‘under protest’. The words ‘under protest’ do not have a distinct technical meaning.[83] The term derives its meaning from the context. The letter of 26 June 2013 stated that the ‘basis’ of the protest was that outlined in the letter of 5 June 2013. That letter had set out Dumayne’s position, which has been vindicated in substance in this proceeding, and advised that in the absence of a response proceedings would be issued. The subsequent correspondence, particularly the demand for $50,000 security for costs, reveals that Balanced understood the communications which had occurred to constitute an assertion of an entitlement by Dumayne to recover the contentious amounts once paid and an intention to issue proceedings in order to do so.
[83]Re Massey (1845) 8 Beav 458, 462 (Langdale MR) cited in John B Saunders (ed), Words and Phrases Legally Defined (Butterworths, 3rd ed, 1990) 346–7.
In the circumstances, in our view, the letter of 26 June 2013 combined with the letter of 5 June 2013, did constitute a demand within the meaning of s 58 of the Supreme Court Act. Judge Anderson held that the demand was made on 5 June 2013. We do not agree that the relevant demand was made then. In our view the demand was constituted by the letter of 26 June 2013 in the context of what had gone before, particularly the letter of 5 June 2013. Judge Anderson only allowed interest from 26 June 2013, so his order was correct, in our view.
As soon as the contentious payments were made, Balanced was liable to refund the contentious amounts to Dumayne. Dumayne had asserted, and was asserting, that it was entitled to recover those contentious amounts, and that it would institute proceedings to do so. In our view, the authorities reveal that that is a sufficient ‘demand’.
In the letter of 26 June 2013 provision was made for the eventuality that Dumayne might change its mind and not pursue its claim. We do not interpret that as a retraction of the ‘demand’. It was not argued before us that it was a retraction.
Conclusion on the proposed ground concerning the Interest Reasons
The proposed ground concerning the Interest Reasons had a real prospect of success and leave to appeal should be granted. The appeal, however, should be dismissed.
Overall conclusions
Our conclusions are that leave to appeal should be refused on the proposed grounds listed as 5.6, 5.7, 5.8 and 5.9 on the application for leave to appeal (proposed grounds concerning the summary judgment), and that leave should be granted on the proposed grounds listed as 5.1, 5.2, 5.3, 5.4 and 5.5 (proposed grounds concerning the preliminary questions) and on proposed ground 5.10 (proposed ground concerning interest) but that the appeal should be dismissed.
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