Chacmol Holdings Pty Ltd v Handberg

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FEDERAL COURT OF AUSTRALIA

Chacmol Holdings Pty Limited v Handberg (in his capacity as Administrator of Australian Risk Analysis Pty Limited) [2005] FCAFC 40

PRACTICE AND PROCEDURE - Appeal - Leave to - From interlocutory judgment - Answers given to questions set down for a preliminary hearing - Relevant considerations - Well-settled principles - Caution to be exercised in hearing questions as preliminary matters - Leave granted.

CONTRACT - Meaning and operation of an all moneys clause in a Deed of Charge - Three instruments executed to effect sale of business - Contract of Sale - Deed of Acknowledgement of Debt - Deed of Charge - Not contemporaneously executed - Unusually long delay until execution of Deed of Charge - Fixed charge - Floating charge - Basic and significant distinction between fixed and floating charge - All moneys clause - Usual terms of all moneys clauses - Principles of construction of contract - Objective approach - Conflict between recital and operative clause - Operative clause unambiguous - Operative clause prevails - Appeal allowed.

Federal Court Rules O 29 r 2(a)

Décor Corp Pty Limited v Dart Industries Ltd (1991) 33 FCR applied
Neimann v Electronic Industries Ltd [1978] VR 431 applied
Grant v John Grant & Sons Pty Limited (1954) 91 CLR 112 discussed
Glynn v Margetson [1893] AC 351 referred to
Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11 referred to
Buchler v Talbot [2004] 2 AC 298 approved
Fire Nymph Products Pty Ltd v Heating Centre Pty Ltd (in liq) (1992) 7 ACSR 365 approved
Re Bankrupt Estate of Donnelly v Commonwealth Bank of Australia Ltd  (1996) 140 ALR 46 referred to
Leggott v Barrett (1880) 15 Ch D 306 at 309 applied
MacKenzie v Duke of Devonshire (1896) AC 400 at 406 approved
Inland Revenue Commissioners v Raphael (1935) AC 96 approved
O’Loughlin v Mount (1998) 71 SASR 206 discussed
Equuscorp Pty Limited v Glengallan Investments Pty Limited [2004] HCA 55 applied
State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 applied
McVeigh, In the Matter of Piccolo v National Australia Bank Ltd [2000] FCA 187 distinguished
Manks v Whiteley (1912) 1 Ch 735 distinguished
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337 discussed
Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 distinguished
Re Clark’s Refrigerated Transport Pty Ltd (In Liquidation) [1982] VR 989 referred to

Chitty on Contracts, 27th edn, Sweet & Maxwell, London, 1994
K. Lewison The interpretation of contracts, Sweet and Maxwell, London 1989
J. O’Donovan and J.C. Phillips, The modern contract of guarantee Law Book Co, Sydney, 1992
Sir Frederick Pollock Principles of contract, 3rd ed, Stevens & Sons, London, 1929
Norton on Deeds 2nd edn (1928), Sweet and Maxwell, London
Halsbury’s Laws of Australia, vol 10

CHACMOL HOLDINGS PTY LIMITED (ACN 008 605 892) AND MATTHEW LEE JOHNSTON v GEOFFREY NIELS HANDBERG (IN HIS CAPACITY AS…

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Details
Case
[2005] FCAFC 40
Decision Date

CaseChat Overview and Summary

In the case of Chacmol Holdings Pty Ltd v Handberg, the appellant, Chacmol, sought to appeal an interlocutory decision made by the primary Judge. Chacmol argued that it had the right to be paid as a secured creditor under a Deed of Charge, and if the decision was not overturned, it would be left to rank as an unsecured creditor. The central issue in the case was whether the Deed of Charge secured any additional funds provided by Chacmol to the second respondent, ARA, after the execution of the Contract of Sale and the Deed of Acknowledgment of Debt. The primary Judge had ruled that the Deed of Charge only secured the obligations listed in the Deed of Acknowledgment of Debt, excluding any subsequent advances made by Chacmol to ARA.

The court found that the primary Judge had erred in excluding evidence that was relevant to the case. The evidence in question was intended to demonstrate that the parties had contemplated further advances by Chacmol to ARA at the time of executing the contract, acknowledgment, and deed. The court concluded that this evidence was relevant to rebut the assertion that the three documents constituted a single transaction, and that the "all moneys" clause in the deed should only include ARA's obligations under clause 5 of the acknowledgment. The court also found that the primary Judge had misapplied the principle that several instruments made to effect one object may be construed as one instrument and read together.

As a result of the errors made by the primary Judge, the appeal was allowed, and the orders of the primary Judge were set aside. The matter was remitted to be heard in accordance with the court's reasons. The respondents were ordered to pay the appellants' costs of the appeal.

Orders

Orders of the court

1. Leave be granted to the Appellants to appeal from the interlocutory judgment of primary Judge.

2. Appeal allowed.

3. Orders of primary Judge set aside.

4. Matter remitted for hearing in accordance with these reasons.

5. The Respondents pay the Appellants’ costs of this appeal.

Background

Background to the litigation

The appellants contend that the proposed appeal involves an interlocutory decision on a point of substance with practical consequences and of a final nature, in that if the decision of the primary Judge is not set aside, the first appellant (“Chacmol”) will be deprived of its alleged rights as a secured creditor under a Deed of Charge, and will only rank as an unsecured creditor in the payment of claims for debts owed by the second respondent (“ARA”).FACTUAL BACKGROUND In 1995 ARA (then known as Australian Underwriting Agencies Pty Ltd) agreed to purchase from Chacmol an insurance consultancy business for the sum of $5 million. This amount was payable over five years with interest. The purchase price and a pre-existing debt of $378,000 then owed by ARA to Chacmol, were to be secured by a charge given by ARA. The Deed of Charge, which in fact was executed more than one year later, contains an “all monies” clause. It appears from the judgment of the primary Judge that after the date of the Contract of Sale of 11 May 1995, and the Deed of Acknowledgment of Debt of 22 May 1995, further advances were made by Chacmol to ARA. On 19 October 2003 Chacmol purported to appoint a receiver to the assets of ARA in accordance with the terms of the Deed of Charge. The present dispute turns on the question of whether monies advanced by Chacmol to ARA subsequent to the execution of the Contract of Sale and the Deed of Acknowledgment of Debt are secured by the Deed of Charge which was executed on 24 June 1996. The Contract of Sale of 11 May 1995 recites that Chacmol has for some time carried on the business of insurance consultants under the name Project Marketing Australia at specified premises in Canberra, and that Chacmol has agreed to sell, and ARA has agreed to purchase, the business, goodwill and business name, together with the plant and equipment set out in the annexure. Clause 1 is as follows:“(a)The Vendor shall sell and the Purchaser shall purchase the Business for the sum specified in Schedule Item 7 which shall be payable as specified in Schedule Item 8 and apportioned as specified in Schedule Item 9.(b)In addition to the Sale Price referred to Item 7 of the Schedule the Purchaser shall repay to the Vendor the sum of $378,000.00 being the balance of a loan from the Vendor to the Purchaser (the pre-existing debt) as at 31 March 1995.(c)The sale price together with the pre-existing debt shall be repaid by sixty (60) monthly instalments as specified in Schedule Item 8.”Schedule Item 7 is the sale price of $5 million. Item 8 is as follows:“Payment of Sale Price and of pre-existing debt: As set forth in a related Acknowledgement of Debt executed by the Vendor and Purchaser on the date of this agreement.” The Deed of Acknowledgement of Debt between Chacmol and ARA is dated 22 May 1995 and provides as follows:“RECITAL:A.The Purchaser has requested the Vendor to accept payment of the amount specified in Item 3 (‘the Sale Price’) by monthly instalments and the Purchaser acknowledges that it is indebted to the Vendor for the Sale Price.B.The Purchaser acknowledges that it is additionally indebted to the Vendor for the amount specified in Item 4 (‘the pre-existing debt’).C.The parties have this day executed a Contract for Sale of Business.D.The ‘principal sum’ where used herein shall mean the total of the sale price and the pre-existing debt.CLAUSES:In consideration of the Vendor agreeing to accept payment of the Sale Price by instalments at the request of the Purchaser, the parties agree:1.The Purchaser will repay to the Vendor the Principal Sum by sixty (60) monthly instalments in accordance with Schedule B, together with interest thereon, the first such monthly instalment of principal and interest to be made on or before the 30th day of April 1995.2.So long as the Principal Sum or any part thereof shall remain due by the Purchaser to the Vendor, the Purchaser shall pay to the Vendor interest calculated thereon at the rate charged from time to time during the currency of this Agreement by Westpac Banking Corporation or its successors known as the Indicator Lending Rate published from time to time in Australian national daily newspapers.3.In the event that the Purchaser shall default in payment to the Vendor of any payment of principal or interest hereunder the Vendor may then demand repayment of the Principal Sum and interest thereon payable pursuant to this Deed whereupon the balance of principal and interest shall immediately become due and payable and the lender may then recover the amount thereof from the Purchaser.4.At any time during the currency of this agreement the Purchaser may repay to the Vendor the amount of the Principal Sum and interest then outstanding or any part thereof and interest shall abate on any amount or amounts so paid.5.Subject to the consent of Westpac Banking Corporation Limited the Purchaser will execute a Deed of Floating Charge in favour of the Vendor to secure to the Vendor the Purchaser’s obligations hereunder.”

Evidence

Evidence Before The Court

At first instance the ARA parties submitted that the contract, the acknowledgment and the deed constituted one transaction and that they should be construed as one. They further submitted that, adopting such an approach, the “all moneys” clause should be construed as securing only the obligations identified in cl 5 of the acknowledgment, namely the purchase price, the pre-existing debt and interest. The Chacmol parties challenged the assertion that there was but one transaction and in any event, disputed the ARA parties’ submissions as to the proper construction of the documents. It was not suggested that the doctrine of merger was of any relevance. There was no prayer for rectification of the deed.EXCLUDED EVIDENCE At the hearing, the Chacmol parties sought to lead evidence in order to demonstrate that at the time of execution of the deed, and perhaps at the time of execution of the contract and acknowledgment, the parties contemplated further advances by Chacmol to ARA. Heerey J excluded the evidence upon two bases: firstly, that it went only to the subjective intentions of the parties at the time of executing the contract, the acknowledgment and/or the deed; and secondly, that the Chacmol parties had not provided the evidence in advance of the hearing, contrary to directions which had been given as to the conduct of the matter. In our view the evidence was relevant to rebut the ARA parties’ plea, in par 11 of the amended points of claim, that the contract, the acknowledgment and the deed constituted a single transaction. This plea was the basis of the assertion that all three documents should be construed as one, which assertion was, in turn, the basis for the ARA parties’ submission that the “all moneys” clause should be construed as including only ARA’s obligations under cl 5 of the acknowledgment. Whether or not the deed, the contract and the acknowledgment constituted one transaction was, substantially, a question of fact. It was for the ARA parties to establish that fact. Recitals 1, 2 and 3 of the deed undoubtedly suggested that it was executed to secure payment of a pre-existing debt. However the “all moneys” clause suggested that the deed was not so limited. The Chacmol parties proposed to argue that as ARA and Chacmol contemplated further advances to ARA when they executed the deed (containing the “all moneys” clause), it should be inferred that they intended that the deed would secure repayment of such further advances as well as the obligations referred to in cl 5 of the acknowledgment. If so, then the deed was relevant to transactions other than those constituted by the contract and the acknowledgment. In that case, it could hardly be appropriate to construe it as comprising one transaction with the contract and the acknowledgment. If one accepts that the ARA parties’ approach to the construction of the deed was arguable (to which question we will return), then it follows that the Chacmol parties were entitled to lead evidence tending to disprove the factual basis upon which that approach depended.

Decision

Reasons for decision

TAMBERLIN, NORTH AND DOWSETT JJ
As we have said, Heerey J also rejected the evidence upon the ground that it had not been provided in advance of the hearing. However, when the true purpose of the evidence is identified, it can be seen that it was arguably of considerable importance to the Chacmol parties’ case. Only rarely would such evidence be excluded for procedural reasons. See State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 at 154. The Chacmol parties seek to appeal against the exclusion of this evidence. We are inclined to think that there is substance in their criticism of his Honour’s decision. However, as we have come to the conclusion that they should succeed for other reasons, it is not necessary that we decide this aspect of the case.THE JUDGMENT AT FIRST INSTANCE At first instance Heerey J adopted the following approach:®the contract, the acknowledgment and the deed were entered into to effect one object and should therefore to be construed as one instrument and read together;®there is an obvious conflict between the obligation imposed upon ARA by cl 5 of the acknowledgment and the “all moneys” clause in the deed; and®the “all moneys” clause should be ‘read down and confined to what is the object of the transaction’. His Honour considered that a number of lines of authority justified this approach. They included:®cases cited in Chitty on Contracts 27th edition (1997) at par 12-057 to support the proposition that:“Several instruments made to effect one object may be construed as one instrument, and be read together … .”;®cases concerning the construction of releases;®cases concerning general words in printed forms; and®cases concerning the construction of “all moneys” clauses. On appeal, the ARA parties also argued that the operation of the “all moneys” clause was ambiguous and should be construed having regard to the recitals in the deed. We will deal with each of these matters separately.THE CONTRACT AND ACKNOWLEDGMENT The deed referred to both the contract and the acknowledgment. It secured “repayment” of a debt. Recital 2 indicated that the debt in question represented the sale price of the business pursuant to the contract referred to in recital 1. According to recital 2, the arrangements for payment were to be found in the acknowledgment. To the extent that the deed secured performance of obligations imposed by those documents, it was necessary to refer to them in order to determine the extent of such obligations. However the ARA parties’ argument, accepted by Heerey J, went further. It was based upon the following passage which appears at par 12-057 in Chitty on Contracts, 27th edition, at par 12-065 of the 28th edition and at par 12-067 of the 29th edition:‘Several instruments made to effect one object may be construed as one instrument, and be read together, but so that each shall have its distinct effect in carrying out the main design. Thus, a lease and counterpart are two documents relating to one transaction and a palpable mistake in the lease may be corrected by reference to the counterpart, just as it might by reference to other parts of the lease itself. “Where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to the case as if they were one deed.” Yet although the words “contemporaneously executed” have been used, there is no doubt that this is not essential, so long as the court, having regard to the circumstances, comes to the conclusion that the series of documents represents a single transaction between the same parties.’

Ratio Decidendi

Legal Principle Established

Established by: TAMBERLIN, NORTH AND DOWSETT JJ

Full text does not contain this section.