Bristow v Saulsman
[2009] WASC 111
•5 MAY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BRISTOW -v- SAULSMAN [2009] WASC 111
CORAM: LE MIERE J
HEARD: 13 NOVEMBER 2008
DELIVERED : 5 MAY 2009
FILE NO/S: CIV 1147 of 2005
BETWEEN: ANNE COLLINGWOOD BRISTOW
ROBERT JAMES HAWKES AND MARGARET HELEN HAWKES
RAYMOND LESLIE GORDON AND PATRICIA ANN GORDON
EDWARD BOLTON JENNINGS AS TRUSTEE FOR THE JENNINGS FAMILY TRUST
PETER McEVOY AND ANNE JUDITH McEVOY
LORELEI ANNE NOTTAGE AS TRUSTEE FOR THE ROSEVILLE TRUST
RONALD ANTHONY PHILLIPS
RAEBURN INVESTMENTS PTY LTD (ACN 058 600 463)
GEORGE ALFRED SHARP
GEOFFREY BASTIAN AND ENID BASTIAN
NARAYANASAMY GOVINDARAJOO AND JANE GOVINDARAJOO
JANET MARIE KELSALL
JUNE DOLORES McLAUGLIN AS TRUSTEE FOR THE McLAUGLIN SUPERANNUATION FUND
LACHLAN CRAIG SIMMS
DIANA MARY VITALI
First PlaintiffsPATRICIA ELSIE EVELYN ABERNETHY
ARI NOMINEES PTY LTD (ACN 008 925 880)
SUSAN LESLIE CATTANEO
FRANK FREDERICK CULLEN
RODNEY ROYSTON EDMEADES AS NEXT FRIEND OF THOMAS ROYSTON EDMEADES
ANTHONY MICHAEL ERRINGTON AND LYNNETTE EVELYN ERRINGTON
RONALD JOHN RIGG AND URSULA RIGG
REGINALD SMITH
JACK EDWIN IAN THOMSON AND LETITIA MACILVENNA THOMSON AS TRUSTEE FOR THE THOMPSON FAMILY SUPERANNUATION FUND
DENELLE PTY LTD AS TRUSTEE FOR THE B P MOPPET FAMILY TRUST (ACN 008 782 250)
ROSS McRAE AND ROSS McRAE AS EXECUTOR OF THE ESTATE OF HAZEL McRAE DECEASED
AUDREY ROSE ROBINSON
GRAHAM FLINTOFF
RUSSELL STANLEY STEPHENSEN AND VALERIE WILMOT JULIA STEPHENSEN
Second PlaintiffsAYOT PTY LTD AS TRUSTEE FOR THE HERIOT SADD FAMILY TRUST (ACN 009 077 472)
JOHN GRAYDON EDDY AND JOHN GRAYDON EDDY AS NEXT FRIEND OF OLIVE ROSEMARY EDDY
LUCY ILLIDGE
IVAN HOLDINGS PTY LTD AS TRUSTEE FOR THE STODDARD SUPERANNUATION FUND (ACN 009 195 644)
KEITH DOUGLAS JOHNSON AND MARGARET HILL MURRAY JOHNSON
PELHAM PATRICK MANN AND MARGARET PATRICIA MANN
METAIN PTY LTD AS TRUSTEE FOR THE METAIN TRUST (ACN 072 452 825)
PETER McCABE
WILLIAM REYNOLDS AND MARGARET ELSIE REYNOLDS AS TRUSTEE FOR THE REYNOLDS SUPERANNUATION FUND
MARY SANDLAND
MICHELE ANDREA SAW
PETER SEMAN AND DORIS JEAN SEMAN
CHARLES FRANCIS SWEETING
BIRRALEE NOMINEES PTY LTD (ACN 008 814 226)
COLIN JAMES MULLINS AS NEXT FRIEND OF CLIFFORD JAMES MULLINS
GEOFFREY LAURENCE CAHIF AND MARION CAHIF AS TRUSTEE FOR THE CAHIF FAMILY TRUST
BRIAN DAVID CARVER AND GLENDA MARGARET CARVER AS TRUSTEE FOR THE CHOUHADA PTY LTD PRIVATE SUPERANNUATION FUND
DOUGLAS JOHN CRUICKSHANK AND ESMEE JOY CRUICKSHANK
JANET CAROLYN FERDANDES AS NEXT FRIEND OF TOME FRANSISCO ALELUIA FERNANDES
MARCELINA FERDANDES
BRIAN VINCENT O'CONNOR AND COLLEN JOYCE O'CONNOR
MARIE LENORE WHEATLEY
Third PlaintiffsRICHBILL PTY LTD AS TRUSTEE OF THE DUCK FAMILY SUPERANNUATION FUND (ACN 065 185 882)
ELAINE TRIX BURGESS AS EXECUTRIX OF THE ESTATE OF OWEN GERALD BURGESS AND ELAINE TRIX BURGESS
LESLIE ARTHUR WOODRUFF AND MARGARET JUNE WOODRUFF
MICHAEL FRANCIS FARNWORTH AND EUNICE FARNWORTH
IAN CAMPBELL GRAHAM AND BETHWYN GRAHAM
HARMUT HESSER
MARIA DEL CARMEN JACKSON (AS EXECUTRIX OF THE ESTATE OF GARTH EDWARD JACKSON (DECEASED))
BASIL FRANCIS KENT (AS EXECUTOR OF THE ESTATE OF KATHLEEN KENT (DECEASED))
FRANK WILLIAM LAWRENCE AND BERYL LEAH LAWRENCE
WALTER BASIL PEACOCK AND GRACE LILIAN PEACOCK
FRANCIS JOHN CHARLES POAT AND RUTH ELEANOR POAT AS TRUSTEE OF THE POAT SUPERANNUATION FUND
SKIJORING NOMINEES PTY LTD (ACN 009 103 173)
Fourth PlaintiffsAND
THURSTON JOHN SAULSMAN
Defendant
Catchwords:
Contract - Construction and interpretation - Construction of mortgage - Turns on own facts
Legislation:
Nil
Result:
Preliminary questions answered in favour of plaintiffs
Category: B
Representation:
Counsel:
First Plaintiffs : Mr R E Birmingham QC & Mr P J Hannan
Second Plaintiffs : Mr R E Birmingham QC & Mr P J Hannan
Third Plaintiffs : Mr R E Birmingham QC & Mr P J Hannan
Fourth Plaintiffs : Mr R E Birmingham QC & Mr P J Hannan
Defendant: Mr D Grace QC
Solicitors:
First Plaintiffs : Williams Ellison
Second Plaintiffs : Williams Ellison
Third Plaintiffs : Williams Ellison
Fourth Plaintiffs : Williams Ellison
Defendant: Denis Meagher
Case(s) referred to in judgment(s):
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424
Ankar Pty Ltd v National Westminster Finance Australia Ltd (1987) 162 CLR 549
Rava v Logan Wines Pty Ltd [2007] NSWCA 62
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52
LE MIERE J: Each of the first plaintiffs advanced money to Dasford Holdings Pty Ltd (Dasford) and entered into a deed of mortgage dated 2 February 1998 (the mortgage) with Dasford, Brian Joseph Bowler (Bowler), Kevin Arthur Pownall (Pownall) and the defendant. The mortgage was for a term of one year from 23 January 1998. The first plaintiffs say that the borrowers failed to repay the sum due, or any part thereof, by 22 January 1999. The first plaintiffs say that on the proper construction of the mortgage the defendant is liable to pay to them the money advanced to Dasford together with interest and any other sums due under the mortgage. The first plaintiffs claim payment from the defendant of the amount due under the mortgage. The defendant says that on a proper construction of the mortgage he is not liable to pay to the plaintiffs the sums claimed or any amount.
The action concerns four claims made by four sets of plaintiffs against the defendant. Each of the first, second, third and fourth plaintiffs advanced a different sum to Dasford and entered into a separate instrument of mortgage with Dasford, Bowler, Pownall and the defendant. Each of the mortgages is in relevantly identical terms. On 28 November 2007 the court ordered that there be a trial of a preliminary issue to determine the construction issue. The preliminary issue relates only to the construction of the mortgage between the first plaintiffs, Dasford, Bowler, Pownall and the defendant. However, the construction of the mortgage as determined by the court will apply to each of the mortgages the subject of this action.
The mortgage
The mortgage is in a form approved by the Registrar of Titles. Page 1 of the form contains a number of boxes in which are inserted, amongst other things, a description of the land mortgaged, which consists of five lots on a strata plan. Another box states that the mortgagor is Dasford. Another box specifies the Principal Sum secured to be $900,000. The boxes headed 'Repayment of Principal Sum', 'Rate of Interest' and 'Payment of Interest' all state 'as provided in the covenants of this mortgage'.
On pages 3 ‑ 11 are a series of covenants preceded by the following clause:
IN CONSIDERATION of the above principal sum (which together with all additions to such sum made by virtue of or in accordance with the covenants herein contained or implied is hereinafter referred to as 'the Principal Sum') now due and owing or to become due and owing by the Mortgagor and the person or persons (if any) named and described in Item 1 of the Schedule or any one or more of them to the Mortgagee the Mortgagor for the purpose of securing the payment in manner hereinafter provided of the Principal Sum and interest thereon at the rate referred to herein and all other moneys intended to be hereby secured and the observance and performance of the covenants and conditions herein contained mortgages to the Mortgagee the estate and interest hereinbefore specified in the land described above subject however to the encumbrances as shown hereon (if any) AND the Mortgagor and the person or persons (if any) named and described in Item 1 of the Schedule (who are together with the Mortgagor hereinafter called 'the Borrower') hereby jointly and each of them severally covenant with the Mortgagee as follows:
There then follow a series of covenants commencing with the following:
1.To repay to the Mortgagee the Principal Sum upon demand of the Mortgagee PROVIDED THAT if the Borrower shall for the term specified in Item 2 of the Schedule duly and punctually pay the interest payable hereunder and all other moneys herein made payable on demand and shall also duly observe and perform the covenants and conditions herein contained and by the Transfer of Land Act 1893 and Amendments implied herein then and in such case the Mortgagee shall not make such demand nor will call in or take steps to enforce payment of the Principal Sum before the expiration of the said term PROVIDED HOWEVER that the Borrower shall not be at liberty to pay off the Principal Sum or any part thereof before the expiration of the said term unless the Borrower shall pay the whole of the Principal Sum together with interest accrued to the date of repayment and as a premium an additional amount equivalent to that specified in Item 3 of the Schedule.
2.To pay to the Mortgagee at the place specified in Item 4 of the Schedule or to such other place as the Mortgagee may from time to time direct and so long as the Principal Sum or any part thereof shall remain unpaid interest on the Principal Sum …
On page 12 is the schedule. Item 1 lists the persons described in the terms of the mortgage as 'the person or persons (if any) named and described in Item 1 of the schedule' and described by the parties as the Item 1 persons. They are the defendant, Bowler and Pownall.
Page 13 of the mortgage is the attestation sheet. Dasford, the defendant, Bowler and Pownall all executed the mortgage in the box headed 'Mortgagors sign here'.
The preliminary issue
On 28 November 2007 the court ordered:
1.The following issue be determined as a preliminary issue, whether, on the proper construction of the mortgage referred to in paragraph 1A of the statement of claim, the monies comprising the Principal Sum as defined therein are referable to monies then due and owing (or to become due and owing) to the mortgagee by:
(a)the mortgagor only; or
(b)the Item 1 persons only; or
(c)either the mortgagor only or any one of the Item 1 persons only; or
(d)the mortgagor and any one or more of the Item 1 persons.
2.The construction of the mortgage in paragraph 1 hereof as determined by this Honourable Court on the preliminary issue set out in paragraph 1 above is to apply to each of the mortgages pleaded in paragraphs 8, 16 and 24 respectively of the Further Substituted Re‑Amended Statement of Claim.
The mortgage referred to in [1A] of the statement of claim is the mortgage entered into by the first plaintiffs, Dasford, the defendant, Bowler and Pownall. The mortgages pleaded in [8], [16] and [24] of the further substituted re‑amended statement of claim are the mortgages entered into by the second plaintiffs, third plaintiffs and fourth plaintiffs respectively with Dasford, the defendant, Bowler and Pownall.
In the course of the hearing of the preliminary issue the parties agreed that the court should determine the following further issue as a preliminary issue:
On a proper construction of the mortgage is the defendant liable in circumstances where the Principal Sum secured thereby was advanced to Dasford only?
The issue in overview
The first plaintiffs, who I will hereafter refer to as the plaintiffs, say that on a proper construction of the mortgage the Principal Sum is referable to monies then due and owing by the mortgagee (Dasford), the Item 1 persons (the first defendant, Bowler and Pownall) or any one or more of the mortgagee or the Item 1 persons. The plaintiff says that on a proper construction of the mortgage the defendant is liable to pay to the plaintiffs the Principal Sum, that is $900,000 plus interest due under the mortgage.
The defendant says that the Principal Sum refers to a sum advanced to the mortgagor and one or more of the Item 1 persons but does not refer to a sum advanced to the mortgagor alone. The defendant says that in circumstances where the Principal Sum secured was advanced to Dasford only the defendant is not liable to pay or repay that sum, or any part of it, with or without interest, to the plaintiffs.
Principles of construction
The mortgage is a commercial agreement. Its meaning is to be ascertained objectively. That is, the meaning of the terms of the mortgage is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purposes and object of the transaction: Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52, [40].
The defendant submits that if a term of the mortgage is ambiguous, it should be construed contra proferentem, that is, against the party by whom, or in whose interests, it was formulated or included. The mortgage was prepared by Lawton Gillon Tydde, solicitors and lodged by Blackburne & Dixon Pty Ltd, a finance broker. There is no evidence of on whose behalf Lawton Gillon Tydde and Blackburne & Dixon Pty Ltd prepared and lodged the mortgage. It may be argued that the covenant to repay is included in the mortgage in the interest of the plaintiff and so any ambiguity in the covenant should be construed against the plaintiff.
In Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, [17] Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ affirmed the principle stated in Ankar Pty Ltd v National Westminster Finance Australia Ltd (1987) 162 CLR 549 that:
At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety (561).
That principle is one that might apply to the construction of the mortgage in that if the plaintiffs' construction is correct then the defendant is a surety for any sum loaned by the plaintiff to Dasford alone.
In Rava v Logan Wines Pty Ltd [2007] NSWCA 62, [51] Campbell JA said that the principle of construction referred to in Andar is an aspect of the contra proferentem rule. Campbell JA went on to make the following comments:
It needs to be recalled that the contra proferentem rule is just one rule of construction. It needs to be used bearing in mind the fundamental purpose of construction of a document, namely, to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it.
Further, it is to be used along with other aids that the law recognises for the construction of a document. Other such aids for construction of a document include the one that says that a contract that has been entered in a business context and is elliptical or ambiguous should be not read in a way that is commercially unlikely to be what the parties intended: Australian Broadcasting Commission v Australian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300; The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437. Closely allied principles are ones whereby a construction should be avoided if it leads to a capricious and unreasonable result (Australian Broadcasting Commission at 109) and whereby if a contract is open to two constructions it will receive that construction which will avoid consequences that are capricious, unreasonable, unjust or inconvenient (TCN Channel 9 v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146).
Further, it is not a legitimate use of the contra proferentem rule to say that two meanings of a particular contractual provision are possible and hence the meaning unfavourable to the proferens should be chosen if one of those meanings is an unrealistic or unlikely construction of the contract ‑ North v Marina at [75] and cases there cited. Rather, the contra proferentem rule is to be used only where the document is otherwise ambiguous, and it is a principle of last resort: North v Marina at [76] ‑ [78] and cases there cited.
Where it is understood in that way, the application of the principle for construction of guarantees and indemnities that was adopted by the High Court in Andar does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction.
Background of the transaction
The parties have chosen not to lead any evidence of the objective background of the transaction, its factual matrix and its genesis and aim. The only contextual material before the court is that which appears from the mortgage itself, the pleadings and some matters agreed between the parties during the course of the hearing.
The parties agree that the sum of $900,000 was advanced by the plaintiffs to Dasford alone. The plaintiffs did not advance any money to the defendant or any of the other Item 1 persons.
The defendant signed the mortgage as a director of Dasford as well as in his own capacity. It may therefore be inferred that the defendant was a director of Dasford when the mortgage was executed.
The meaning of the terms of the mortgage must be ascertained from its text and the nature of the document in the context of the sparse factual matrix to which I have referred.
Textual analysis
The clause preceding the numbered paragraphs of the mortgage may conveniently be described as consisting of three parts. The first part was described by the parties as a preamble or the consideration clause. It consists of the following words:
IN CONSIDERATION of the above principal sum (which together with all additions to such sum made by virtue of or in accordance with the covenants herein contained or implied is hereinafter referred to as 'the Principal Sum') now due and owing or to become due and owing by the Mortgagor and the person or persons (if any) named and described in Item 1 of the Schedule or any one or more of them to the Mortgagee …
The second part described by the parties as the operative part or mortgaging clause consists of the words:
the Mortgagor for the purpose of securing the payment in manner hereinafter provided of the Principal Sum and interest thereon at the rate referred to herein and all other moneys intended to be hereby secured and the observance and performance of the covenants and conditions herein contained mortgages to the Mortgagee the estate and interest hereinbefore specified in the land described above subject however to the encumbrances as shown hereon (if any) …
The third part described by the parties as the covenanting clause consists of the words:
AND the Mortgagor and the person or persons (if any) named and described in Item 1 of the Schedule (who are together with the Mortgagor hereinafter called 'the Borrower') hereby jointly and each of them severally covenant with the Mortgagee as follows …
The covenanting clause and the covenants which follow give rise to a series of covenants. The mortgage provides that the mortgagor and the Item 1 persons 'jointly and each of them severally covenant' with the mortgagee. The words 'each of them' refers to each of the mortgagor and the Item 1 persons. Each of the Item 1 persons, including the defendant, make the covenants jointly and severally with each other and with the mortgagor. The defendant covenants jointly and severally with the mortgagor and each of the other Item 1 persons, to repay to the mortgagee the Principal Sum in accordance with cl 1 and to pay interest in accordance with cl 2.
The term Principal Sum is defined to be 'the above principal sum now due and owing or to become due and owing by the Mortgagor and the person or persons (if any) named and described in Item 1 of the Schedule or any one or more of them to the Mortgagee' together with all additions to such sum made by virtue of or in accordance with the covenants contained in the mortgage. The 'above principal sum' is the sum of $900,000 set out on the first page of the mortgage document.
The words 'any one or more of them' refers to any one or more of the mortgagor and the person or persons (if any) named and described in Item 1 of the schedule. It is a strained meaning to say that the phrase 'any one or more of them' refers to the person or persons (if any) named and described in Item 1 of the schedule but not to the mortgagor.
The Principal Sum is defined to include not only the sum of $900,000 which had been advanced by the mortgagee to the mortgagor but also includes all additions to the sum of $900,000 made by virtue of, or in accordance with, the covenants contained or implied in the mortgage. Those covenants are covenants made by the mortgagor and the Item 1 persons jointly and severally. Clause 3 provides that the mortgagor and the Item 1 persons jointly and severally covenant to insure buildings on the mortgaged land. Clause 4 provides that the Borrower will pay rates and taxes and comply with regulations and orders. 'Borrower' is a defined term. It means the Item 1 persons together with the mortgagor. Clause 5 provides that if the Borrower fails to comply with the provisions of cl 4 to pay rates and taxes and comply with regulations and orders or defaults in effecting any insurance payable under cl 3 then the mortgagee may pay the rates and taxes and comply with the regulations or orders and effect the insurance and until repayment those sums shall be deemed to form part of the Principal Sum. Those provisions support the construction of the mortgage that the Principal Sum is an amount 'now due and owing or to become due and owing' by the mortgagor and the Item 1 persons or any one or more of the mortgagor and the Item 1 persons.
Commercial purpose
I can see no sensible commercial purpose in the construction for which the defendant contends. It is common ground that the plaintiff advanced $900,000 to Dasford alone. If the defendant's construction is correct then the covenant to repay in the mortgage does not even oblige Dasford to repay the money advanced to it alone. In my view such a construction is capricious and unreasonable.
Conclusion
The proper construction is that contended for by the plaintiff. By executing the mortgage each of Dasford, Bowler, Pownall and the defendant undertook a joint and several liability to repay the monies then due and owing, or as may become due and owing, to the plaintiff by any one or more of Dasford, Bowler, Pownall or the defendant.
The preliminary issue ordered to be tried was to determine whether on a proper construction of the mortgage the monies comprising the Principal Sum are referable to monies then due and owing (or to become due and owing) to the mortgagee by:
(a)the mortgagor only; or
(b)the Item 1 persons only; or
(c)either the mortgagor only or any one or more of the Item 1 persons only; or
(d)the mortgagor and any one or more of the Item 1 persons.
In the course of the hearing I suggested to counsel for the plaintiff that if the plaintiffs' construction is the proper construction then the preliminary issue should be answered by stating that on the proper construction of the mortgage the monies comprising the Principal Sum as defined therein are referable to monies then due and owing (or to become due and owing) to the mortgagee by the mortgagor and/or any one or more of the mortgagor or the Item 1 persons. Senior counsel for the defendant did not object to the preliminary issue being answered in that way if the court determined that to be the proper construction of the mortgage.
I answer the question raised by the preliminary issue as follows:
On the proper construction of the mortgage referred to in paragraph 1A of the statement of claim, the monies comprising the Principal Sum as defined therein are referable to monies then due and owing (or to become due and owing) to the mortgagee by the mortgagor and/or any one or more of the Item 1 persons.
In answering the question in that manner I intend that the Principal Sum refers to monies then due and owing or as may become due and owing to the mortgagee by any one or more of Dasford, Bowler, Pownall or Bristow.
I answer the further question raised by the parties during the hearing of the preliminary issue as follows:
On a proper construction of the mortgage the defendant is liable in circumstances where the Principal Sum secured thereby was advanced to Dasford only.
In answering that question the circumstances that I am addressing are that the plaintiffs advanced $900,000 to Dasford only and the amount advanced, together with interest, has not been repaid by Dasford or anyone else. This preliminary issue was not concerned with the issues raised by the defendant's alleged set‑off or counterclaim and I have not addressed any matters raised in the alleged set‑off or counterclaim.
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