Cod Factors Pty Ltd v Roberts

[1991] TASSC 116

Serial No B2/1991
List "B"

COURT:  SUPREME COURT OF TASMANIA

CITATION:              COD Factors Pty Ltd v Roberts [1991] TASSC 116; B2/1991

PARTIES:  COD FACTORS PTY LTD
  v
  ROBERTS, Michael Ryamond
  ROBERTS, Judith Anne

FILE NO/S:  M364/1989
DELIVERED ON:  13 February 1991
JUDGMENT OF:  Green CJ

Judgment Number:  B2/1991
Number of paragraphs:  16

Serial No B2/1991
List "B"
File No M364/1989

COD FACTORS PTY LTD v MICHAEL RAYMOND
AND JUDITH ANNE ROBERTS

REASONS FOR JUDGMENT  GREEN CJ

13 February 1991

1. Pursuant to s146 of the Land Titles Act 1980 the applicant applied as mortgagee for an order for possession of land owned by the respondents and a summons was issued calling upon the respondents to show cause why the court should not order that possession of the land be given to the applicant.

1. The memorandum of mortgage included the following covenants:

"IN CONSIDERATION of the Mortgagee at the request of the Mortgagor accepting offers or any offer now or hereafter made to the Mortgagee by M R Holdings Pty Limited trading as 'Easyfind Tasmania' (hereinafter called 'the Creditor') of 22 York Street, Launceston in accordance with the debt factoring agreement between the Mortgagee and the Creditor made on the 19th day of December 1985 (which agreement is hereinafter called 'the Principal Agreement') being an offer or offers for the sale of debts which have or shall hereafter become due to the Creditor by any of its customers (which customers are hereinafter called 'the Debtors'). The mortgagor hereby covenants with the mortgagee as follows:–

The Mortgagor firstly, for the purpose of securing to the mortgagee the payment of the Moneys Hereby Secured (as hereinafter defined) hereby mortgages to the mortgagee all the estate and interest of the mortgagor in the land described above.

SECONDLY, covenants with the Mortgagee as follows:

1         That the Mortgagor will pay to the Mortgagee the said Moneys Hereby Secured in the manner and at the time hereinafter set forth.

......

11       PRINCIPAL AND INTEREST

The Mortgagor shall –

(a)upon demand in writing by the Mortgagee pay and satisfy the Moneys Hereby Secured (as hereinafter defined) in accordance with the provisions of the Principal Agreement or any other agreement whether written or oral for the time being or from time to time in force between the Mortgagee and the Creditor in respect of the Moneys Hereby Secured or any part or parts thereof

(b)pay on demand interest on the Moneys Hereby Secured at the rate of Twenty per centum (20%) per annum calculated daily from the happening of any Event of Default (as hereinafter defined) until all the Moneys Hereby Secured shall have been paid and satisfied

PROVIDED THAT notwithstanding anything herein contained the Moneys Hereby Secured (including interest due thereon) shall immediately become payable at the option of the Mortgagee upon the happening of any Event of Default hereunder without the necessity for any written notice of demand."

The memorandum of mortgage also contains the following clause:

"12      INTERPRETATION

(a)       In this Mortgage unless the context otherwise requires –

IMPROVEMENTS shall mean each and every building and other fixtures now or hereafter erected upon or attached to and forming part of the Mortgaged Land.

CREDITOR shall mean M R Holdings Pty Limited.

GUARANTOR shall mean any person who has now or may hereafter have guaranteed to the Mortgagee payment of

FACTORED DEBTS shall mean all book debts of the Creditor which have been or shall hereafter be assigned by the Creditor to the Mortgagee.

DEBTORS shall mean all customers of the Creditor who owe debts to the Creditor for goods and/or services provided to them by the Creditor which debts have been assigned to the Mortgagee.

MONTH shall mean calendar month.

MORTGAGED LAND shall include each and every part thereof and interest therein and the Improvements.

MORTGAGOR shall mean and include the Mortgagor his executors administrators successors and permitted assigns.

MORTGAGEE shall mean and include the Mortgagee his executors administrators successors and assigns.

MONEYS HEREBY SECURED shall mean and include so much as shall for the time being remain unpaid of:

(i)all Factored Debts which are now or may hereafter become owing to the Mortgagee by Debtors

(ii)all fees charges expenses refunds as referred to in the Principal Agreement and other moneys which are or may hereafter become owing to the Mortgagee by the Creditor pursuant to the Principal Agreement

(iii)all moneys which the Mortgagee shall pay or become liable to pay in connection with or incidental to exercising or attempting to exercise any power right or remedy of the Mortgagee hereunder or on account of or arising out of any default by the Mortgagor any Guarantor or the Creditor in duly performing or observing any of the covenants on his part contained or implied in any Security or the Principal Agreement."

1. Although clause 12 is not preceded by 11 other clauses but by 11 mortgagor's covenants it should be read as one of the general clauses of the mortgage.

1. The principal agreement referred to in the memorandum of mortgage comprised what is called a Factoring Deed made between M R Holdings Pty Ltd, the applicant and the respondents pursuant to which the applicant purchased debts from M R Holdings Pty Ltd in consideration of a fee payable by M R Holdings Pty Ltd to the applicant. Under the deed the applicant was obliged to pay to M R Holdings Pty Ltd a percentage of the value of the debts it accepted and retain the balance in what was called a retention fund which was to be used for various defined purposes including the satisfaction of unpaid factored debts. Counsel accept that the respondents have no liability under the Principal Agreement.

1. Counsel for the respondents advanced a number of arguments some of which were abandoned during the hearing. In the end the essential submissions relied upon by the respondents were that the mortgage upon which the applicant relies is not a mortgage for the purposes of the Land Titles Act 1980 and that in the alternative it has not been shown that the respondents have defaulted in the payment of any money secured by the mortgage as required by s146 of the Land Titles Act 1980.

1. Counsel for the respondents submitted that as the respondents have no liability under the principal agreement they can have no liability under clause 11(a) of the mortgage as that only applies to a demand to "pay and satisfy Moneys Hereby Secured ... in accordance with the provisions of the Principal Agreement" (my emphasis). In the alternative counsel submitted on two grounds that even if the respondents had an obligation to pay "the moneys hereby secured" that obligation was not a debt within the meaning of "mortgage" in s3 of the Land Titles Act.

1. Counsel argued that "moneys hereby secured" should be construed as moneys owing by M R Holdings Pty Ltd to the applicant pursuant to their liability as guarantors under the factoring deed which was a liability to pay unliquidated damages not a debt. In the alternative counsel submitted that if "moneys hereby secured" refers to debts which have been assigned under the factoring deed and are owing to the applicant no mortgage can be founded upon it as there is no certainty of parties, the level of indebtedness or when such indebtedness might arise.

1. The mortgage is a difficult document to construe but it is not necessary for me to attempt to construe the whole instrument. I am solely concerned with determining whether the requirements of s146 of the Land Titles Act 1980 have been satisfied.

1. I reject the respondents' submission that they have no liability under the mortgage because they have no liability under the factoring deed. Acceptance of counsel's submission would entail the conclusion that the mortgage was inefficacious from the moment of its execution. Whatever might be its obscurities and inconsistencies the mortgage instrument plainly contemplates the possibility of the respondents having some liability to the applicant and if it is reasonably open to me to do so I should give the mortgage a construction which gives it some effect rather than a construction which virtually gives it no practical effect. I do not regard the words "in accordance with the provisions of the principal agreement" appearing in clause 11 as defining or determining the liability of the respondents under the mortgage. The respondents have no liability to pay anything under the principal agreement so that to construe clause 11 as meaning that the respondents have an obligation to pay on demand moneys owing by them pursuant to the principal agreement would be meaningless because there never can be any such moneys owing by the respondents.

1. I do not accept the submission that the respondents' liability to the applicant is to pay unliquidated damages rather than a debt. Upon demand being made by the applicant or upon the happening of an "Event of Default" as defined in the mortgage the respondents become liable to pay the "Moneys Hereby Secured". "Moneys Hereby Secured" means inter alia debts which have been assigned under the principal agreement to the applicant and which remain owing by the debtor to the applicant. The liability of the respondents is not a collateral undertaking to answer for the debts of M R Holdings Pty Ltd or of a debtor whose debt has been assigned but a primary liability to the applicant which arises by virtue of the mortgage when a demand is made or an "Event of Default" occurs. The quantum of the amount owing may relate to the amount of the debts which have been assigned but that does not convert the obligation to that of a guarantor. See O'Donovan and Phillips, The Modern Contract of Guarantee at pp19–26.

1. The liability of the respondents is not to pay an amount by way of unliquidated damages. As counsel for the respondents properly accepted, a mortgage may secure a contingent debt or a debt payable at some future time and still be regarded as securing a debt. The determination of the amount payable by the respondents may require calculation or reference to the amount of any debts which have been factored but it is an ascertainable amount not an amount of damages requiring assessment. The nature of the liability considered in Alexander v Ajax Insurance Co Ltd [1956] VLR 436 which was relied upon by counsel for the respondents was quite different from the liability of the respondent in this case. In that case the liability of the defendant company was held to include a liability to pay what amounted to unliquidated damages because it included a liability to indemnify the plaintiff in respect of his loss which depended upon inter alia the "fair value" of goods and possibly the amount of consequential loss per Sholl J at p450. Counsel for the respondents also relied upon the following observations made in Moschi v LEP Air Services Ltd [1973] AC 331 at p348:

"It follows from the legal nature of the obligation of the guarantor to which a contract of guarantee gives rise that it is not an obligation himself to pay a sum of money to the creditor, but an obligation to see to it that another person, the debtor, does something; and that the creditor's remedy for the guarantor's failure to perform it lies in damages for breach of contract only."

However as is pointed out at p397 of the work by O'Donovan and Phillips to which I have already referred:

"... the comments in Moschi v LEP Air Services Ltd although expressed in general terms, should be confined to the special facts of that case. There the guarantee related to the payment of a debt by instalments. The creditor terminated the principal contract upon an early default by the principal and claimed the outstanding amounts from the guarantor. Neither the principal nor the guarantor was ever under an obligation to pay the agreed sum because the principal contract was terminated before the due date for payment of the relevant instalments. Thus, on the facts, the claim was properly framed in damages rather than as an action on the guarantee for a money sum, which, of course, is not available if the duty to pay has not arisen. But in the usual case of a guarantee of a simple debt the principal will simply be in default of the obligation to pay which has already arisen under the terms of the principal contract, and the correct form of action will be an action on the guarantee for a money sum."

1. In my view there is no substance in the submission that the mortgage is unenforceable because of uncertainty as to the parties or the indebtedness of the respondents. There is no uncertainty about the parties and there is machinery by which the indebtedness of the respondents can be determined at any particular time with certainty.

1. Clause 20(b) of the mortgage provides as follows:

"A certificate purporting to be signed by an Officer Of the Mortgagee or sealed by the Mortgagee stating as at any date or dates any one or more of the following:

(i)the amount owing or contingently owing to the Mortgagor hereunder;

(ii)the occurrence of any Event Of Default;

(iii)the occurrence or existence of any other act matter or thing relevant to this Mortgage."

1. In evidence before me is a certificate purporting to have been made pursuant to clause 20(b) and purporting to have been signed by a Director of the applicant which states inter alia that an Event of Default has occurred and that the amount owing by the respondents to the applicant is $147,291.70. Clause 20(b)(i) appears to contain a drafting error as presumably "mortgagor" should read "mortgagee". However even if the applicant cannot rely upon clause 20(b)(i) it can rely upon clause 20(b)(iii) as a statement of the amount owing under the mortgage is plainly a statement about "the ... existence of (a) matter or thing relevant to this mortgage".

1. None of the evidence before me persuades me that I should not accept the statements made in the certificate. Nothing put to me persuades me that if I have a discretion to order that these proceedings should proceed by way of a trial that I should make such an order in this case. Nothing put to me persuades me that if I have a general discretion to refuse the relief sought by the applicant that I should do so in this case.

1. I am satisfied that the respondents have made default in the payment of money secured by a mortgage. I order that possession of the land and premises comprised in Certificate of Title Volume 2129 Folio 15 be given by the respondents to the applicant. I shall hear counsel further as to the time and the exact amount due which should be specified in that order.