Edwards Industrial Products Pty Ltd v Thwin and Zaw

[2025] WASC 48

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   EDWARDS INDUSTRIAL PRODUCTS PTY LTD -v- THWIN AND ZAW [2025] WASC 48

CORAM:   LUNDBERG J

HEARD:   12 FEBRUARY 2025

DELIVERED          :   20 FEBRUARY 2025

FILE NO/S:   CIV 1623 of 2024

BETWEEN:   EDWARDS INDUSTRIAL PRODUCTS PTY LTD

Plaintiff

AND

KYAE HMONE THWIN

First Defendant

EDWARD MAUNG ZAW

Second Defendant

Catchwords:

Leases - Equitable charge - Whether charging clause in Contract to Lease gave rise to an immediate equitable charge in favour of the plaintiff lessor as against the defendant lessees - Consideration of the requirements to establish an equitable charge - Held that no immediately enforceable equitable charge came into existence given the express language of the charging clause and absence of valuable consideration - Turns on own facts

Leases - Subsequent execution of a formal Lease which did not contain the charging clause - Lease operated as a deed - Whether execution of the Lease effected the continuing legal effect of the charging clause in the Contract to Lease - Consideration of the operation of the doctrine of merger of instruments - Consideration of the effect of the integration clause in the Lease - Proper construction of the commercial instruments as a whole - Held that the objective intention and logic of the instruments was such that the charging clause in the Contract to Lease ceased to have effect upon the execution of the Lease - Turns on own facts

Bankruptcy - Operation of s 58(5) of the Bankruptcy Act 1966 (Cth) - Parties accepted that equitable charge (if valid and continuing) would remain in force and effect notwithstanding bankruptcy of the defendants

Legislation:

Bankruptcy Act 1966 (Cth), s 58
Corporations Act 2011 (Cth), s 127
Property Law Act 1969 (WA), s 9
Transfer of Land Act 1893 (WA), s 68(1A)

Result:

Action dismissed

Category:    B

Representation:

Counsel:

Plaintiff	:	T O Coyle
First Defendant	:	M Holler
Second Defendant	:	M Holler

Solicitors:

Plaintiff	:	Rowe Bristol Lawyers
First Defendant	:	Butcher Paull & Calder
Second Defendant	:	Butcher Paull & Calder

Case(s) referred to in decision(s):

Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833

Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [2017] VSC 499

Coghlan v SH Loch (Australia) Ltd (1987) 61 ALJR 289

Commissioner of Taxation of the Commonwealth v Sara Lee Household & Body Care (Australia) Pty Limited [2000] HCA 35; (2000) 201 CLR 520

Donau Pty Ltd v ASC AWD Shibuilder Pty Ltd [2019] NSWCA 185; (2019) 101 NSWLR 679

EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78

Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 611

JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112

Knight Sugar Co. Ltd. v. Alberta Railway & Irrigation Co [1938] 1 All ER 266

Leggott v Barrett (1880) 15 Ch D 306

MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152

Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633

Morris Finance Ltd v Brown [2017] FCAFC 97

Morris Finance Ltd v Commonwealth Bank of Australia [2017] VSC 260

Players Pty Ltd v Clone Pty Ltd [2006] SASC 118

Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146

Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24; [2019] AC 119

Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd [2012] SASCFC 21

Svanosio v McNamara and Another [1956] HCA 55; (1956) 96 CLR 186

Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93

Twidale v Bradley [1990] 2 Qd R 464

Vango Mining Limited v Zuleika Gold Limited [2024] WASCA 54

Zaccardi v Caunt [2008] NSWCA 202

Table of Contents

A.       Introduction

B.        An overview of the action

The instruments relevant to the action

The issues arising at trial

Relief sought

C.       Factual findings

Properties

The Contract to Lease

The Lease

Events occurring in and from 2019

D.       The parties' submissions

Plaintiff's submissions

Defendants' submissions

E.        Relevant principles

Contractual construction

Creation of an equitable charge

Doctrine of merger

Entire agreement clauses

F.        Disposition

Whether the charging clause was effective to create the Pleaded Equitable Charge?

Whether the Pleaded Equitable Charge continued following execution of the Lease?

G.       Conclusion and orders

LUNDBERG J:

A.     Introduction

1. This action was commenced by writ of summons filed on 27 May 2024 and heard at trial on 12 February 2025.  No witnesses were called by the parties at trial.  The evidence was solely documentary in nature.

2. It is apparent that the parties, their solicitors and their counsel have all conducted this matter in a commendably efficient manner, proceeding through the interlocutory phases of the litigation consistent with the goal of elimination of unnecessary delays, as is expressed in O 1 r 4A of the Rules of the Supreme Court 1971 (WA) (RSC).

3. The action itself concerns a lease arrangement over a commercial property in Kenwick and a dispute between the plaintiff lessor and the defendant lessees as to whether an equitable charge was created over the defendants' land in favour of the plaintiff.  The defendants' land is a residential property located in Gosnells. 

4. The plaintiff contends the equitable charge secured payment of the outstanding money owed by the defendants under the commercial lease.  The plaintiff asserts the charge survived the bankruptcy of the defendants.[1]  The plaintiff says it has brought these proceedings with a view to recovering the amount claimed against the defendants as lessees under the commercial lease, by recourse to the equitable charge.[2]

   [1] The defendants accept that, if the equitable charge is established, then the plaintiff was a secured creditor for the purposes of s 58(5) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).  That is, the defendants' bankruptcy will not operate to extinguish the plaintiff's rights in rem against their property.

   [2] Plaintiff's submissions dated 30 January 2025 (PS) [1].

5. At the conclusion of the trial I reserved my decision. 

6. These are my reasons for refusing the relief which is sought by the plaintiff.

B.     An overview of the action

The instruments relevant to the action

1. There are two commercial instruments of relevance to these proceedings.

2. First, there is a written contract to lease dated 16 April 2014, in relation to a property in the Perth suburb of Kenwick, described as 'Contract to Lease Commercial/Industrial Premises by Offer and Acceptance'.[3]  I will refer to this as the Contract to Lease. 

   [3] Exhibit P1; and Amended Statement of Claim dated 10 October 2024 (ASOC) [3].

3. Second, there is a formal lease concerning the same property in Kenwick, which was executed as a deed by the plaintiff and the defendants around 6 weeks later, on or around 1 June 2014.[4]  I will refer to this as the Lease.

   [4] Exhibit P2; and ASOC [6].

4. The plaintiff pleads that, by execution of the Contract to Lease the defendants granted an equitable charge in favour of the plaintiff over any land owned by the defendants at that time, or at any time in the future, as security for the repayment obligations arising under the proposed formal lease (the Pleaded Equitable Charge). 

5. The charging clause relied upon by the plaintiff is found at cl 7.2 of the Contract to Lease, which states:

   7.2The Guarantors and the Lessee jointly and severally agree to charge any other land in which they have a partial or full interest as owner both now and at any time in the future in favour of the Lessor as security for repayment of any money due and payable to the Lessor under the lease.  If a Lessee is in default of its obligations pursuant to the lease, the Guarantor and the Lessee agree that the Lessor will be entitled to register an absolute caveat against their land until the default is remedied.

6. There is no equivalent clause to cl 7.2 within the Lease itself.  I observe that the plaintiff did not plead a claim for rectification of the Lease.

The issues arising at trial

1. There were two primary issues addressed at trial.  

2. First, whether cl 7.2 of the Contract to Lease gave rise to an immediate equitable charge, being the Pleaded Equitable Charge.  This involves a question of construction of the instrument. 

3. Second, in the event an equitable charge arose upon execution of the Contract to Lease, the second issue was whether that charge survived and formed part of the concluded agreement in the form of the Lease, or whether it ceased to exist upon execution of the Lease.  The plaintiff pleads that the charge survived the entry into and execution of the Lease by the parties.  The defendants contend by their pleading that the charge ceased its operation, either by reason of the failure to restate the charge in the Lease and through the doctrine of merger, or by reason of the effect of cl 20.3 of the Lease which contains an entire agreement clause.  These are all fundamentally questions of construction, having regard to the terms of both instruments executed by the parties.

4. In the event the Court concludes that the Pleaded Equitable Charge was validly created by the Contract to Lease and continued in force and effect after execution of the Lease, the defendants accept that the Pleaded Equitable Charge remained in force and effect notwithstanding the bankruptcy of the defendants.[5]

   [5] PS [4]; and Defendants' submissions dated 3 February 2025 (DS) [4].

5. The pleadings and submissions filed by the parties identified an additional question, as to whether the plaintiff was entitled to interest on the outstanding sum from 19 December 2019 at the rate of 15% per annum pursuant to cl 4.2 of the Lease (when read with item 13 of the Schedule to the Lease), or at 6% pursuant to s 32 of the Supreme Court Act 1935 (WA).[6]  The defendants conceded this point in their trial submissions, accepting that the rate of 15% applies.[7]  I therefore need not say anything further on the issue.

Relief sought

[6] PS [42].

[7] DS [46].

1. The plaintiff seeks declaratory relief and orders as follows:

   A. A declaration that by their execution of the Contract to Lease on 14 April 2014, the defendants granted an equitable charge (Equitable Charge) in favour of the plaintiff over any land owned by them at that time or at any time in the future as security for repayment obligations arising under the proposed formal lease of the [Kenwick Property].

   B. A declaration that the Equitable Charge secured payment obligations owed by the defendants pursuant to the formal lease of the Kenwick Property executed on around 1 June 2014.

   C. A declaration that the Equitable Charge attaches to the [Gosnells Property].

   D. Orders pursuant to section 55 of the Property Law Act 1969 enforcing the Equitable Charge by orders for sale of the Gosnells Property to recover the Claim Amount plus further accrued interest and costs.

2. No counterclaim was filed by the defendants.

C.     Factual findings

1. The factual compass of the dispute is quite narrow.  The facts are uncontroversial and were largely admitted on the pleadings.  My findings are as follows:

Properties

1.At all material times, the plaintiff was the owner of the commercial property situated at Unit 2, 30 Royal Street in the Perth suburb of Kenwick (the Kenwick Property).[8]   The defendants intended to use this property for running a business of bumper repairs.

[8] ASOC [1]; Amended Defence dated 24 October 2024 (AD) [1].

2.At all materials times, the defendants were the owners of a property situated at 89 Lauterbach Drive in Gosnells (the Gosnells Property), to which the plaintiff says the equitable charge is attached.[9]

[9] ASOC [2]; and AD [1].

The Contract to Lease

3.On 16 April 2014, I find that a Contract to Lease[10] was executed by the plaintiff and the defendants, by which the parties agreed the terms on which the plaintiff would grant a formal lease of the Kenwick Property to the defendants.[11]  There is no dispute as to the express terms of the Contract to Lease.  The dispute is as to their effect.

[10] Exhibit P1.

[11] ASOC [3]; and AD [1].

4.The parties to the Contract to Lease are the plaintiff and the defendants, with the defendants being identified as both the lessees and the guarantors.[12] 

[12] Item 1 and Item 2 of the First Schedule to the Contract to Lease.

5.The Contract to Lease is marked on the first page with the logo for Ray White Commercial Burswood, with that organisation's contact details also appearing.  The instrument was entered into by a Ray White entity as the agent for the plaintiff.  The Contract to Lease contains 6 pages of clauses, followed by a first schedule and a second schedule, with execution pages thereafter, and a privacy consent page signed by the defendants.  In total, the instrument is 13 pages in length.

6.Within the first schedule, many of the items have been completed in handwriting and initialled by the parties, although some items were completed electronically and have not been changed or altered by handwriting.

7.The defendants have characterised the Contract to Lease as a 'standard form pre-printed written agreement'.[13]  I accept that characterisation as accurate.  The document has a number of hallmarks of being a standard document, including having regard to the logo and details of the real estate company on the first page, with only limited information germane to the parties having been completed within the document electronically (and then, only within the First Schedule not in the body of the contract), and the majority of the document being generic in nature. 

[13] DS [7].

8.The guarantee clause in the Contract to Lease is found in cl 7.1:

7.GUARANTORS, SECURITY BOND AND BANK GUARANTEE

7.1In consideration of the Lessor accepting the Lessee's Offer To Lease at the request of the Guarantors, the Guarantors named in Item 1 of the First Schedule (jointly and severally if more than one) unconditionally guarantee the due and punctual payment to the Lessor and performance of the Lessee's obligations pursuant to this Contract and will indemnify the Lessor and keep the Lessor indemnified in respect of all monies which the Lessee becomes liable to pay to the Lessor and the performance of all term, covenants, conditions and stipulations pursuant to this Contract

9.The charging clause relied upon by the plaintiff is found at cl 7.2 of the Contract to Lease, which I have extracted above.

10.Clause 20 of the Contract to Lease is headed 'Preparation of Lease Documents'.  This clause sets out the process by which the parties would prepare and execute the formal lease instrument.  It relevantly provides as follows:

20.PREPARATION OF LEASE DOCUMENTS

20.1Upon acceptance of this Offer the Lessee authorises the Agent to instruct the Lessor's solicitors to prepare a Lease agreement in the form used by the Lessor and incorporating the terms and conditions of this Offer.

20.2The Lessor or the Lessor's Agent shall provide to the Lessee a draft of the Lease ("Draft Lease") within seven (7) days of Acceptance of this Contract.

20.3 The Lessee or their representative must within seven (7) days of receipt of the Draft Lease provide in writing any requested amendments to the terms and conditions of the Draft Lease, except for variations to the terms, conditions and Special Conditions agreed in this Contract, to the Lessor to the Lessor's Agent. If the Lessee does not provide any requested amendments to the Draft Lease within seven (7) days of being provided the Draft Lease then it shall be deemed that the Lease is acceptable to the Lessee and the Lessor or the Lessor's Agent will provide the Lease document for execution by the Lessee and Guarantor/s (if any).

20.4 The Lessor is under no obligation to agree to any requested variations to the Draft Lease.

20.5 The Lessee hereby agrees to ensure that the Lessee and the Guarantor/s (if any) will execute the Lease and return it to the Lessor or the Lessor's Agent along with payment of the Lessor's reasonable solicitor's cost for the Lease preparation within seven (7) days of receipt of the Lease and if the Lease is not so returned then the Lessee will be in default of this Contract and the Lessor or the Lessor's Agent may immediately terminate the Lease by written notice and the Lessee will have no claim against the Lessor or the Lessor's agents for damages.

20.6The Lessee must, prior to taking possession of the Premises, execute a Lease which includes the terms contained in the First Schedule to this offer and any other terms and conditions which the Lessor's solicitors may reasonably deem appropriate or necessary.  (emphasis added)

11.Clause 22 is headed 'Binding Document'.  It states:

22.BINDING DOCUMENT

22.1It is agreed that once duly signed by the respective parties this document is a binding agreement to enter into a lease on the terms and conditions in this Offer.

22.2Until a binding lease is executed, this offer to lease will be a binding document against the Lessee.

12.Clause 24 is headed 'Priority of Terms'.  It relevantly provides:

24.PRIORITY OF TERMS

24.1In the event of a draft lease being appended to this Contract or provided to the Lessee subsequent to the Acceptance of this Contract, the covenants of the draft lease take priority over the terms of this Contract with the exception of those principle [sic] terms and conditions which are physically entered upon this Contract.

The Lease

13.On 1 June 2014, I find that the plaintiff and the defendants executed the formal lease (referred to above as the Lease)[14] of the Kenwick Property for a term of 5 years with options to renew for two 3-year terms, at a commencing rent of $60,000 p.a., and otherwise on the terms set out in the Lease.[15]  Again, there is no dispute as to the express terms which constitute the Lease instrument.

[14] Exhibit P2.

[15] ASOC [6]; and AD [1].

14.The plaintiff expressly pleads that the Lease was executed 'pursuant to the Contract to Lease', which is admitted by the defendant.[16]

[16] ASOC [6]; and AD [1].

15.The Lease instrument appears to have been prepared by a firm of solicitors, as appears on the cover page.  The Lease is a comprehensive instrument, containing 25 clauses and is 38 pages in length, including the cover page and the execution pages. 

16.I find that the Lease was executed as a deed.  This is apparent from the execution pages, which expressly indicate the instrument was executed as a deed, from the inclusion of recitals on the first page of the instrument, from the opening operative terms following the recitals which confirm the instrument is a 'deed', and the use of the term 'deed' throughout the instrument (such as in cl 1.18).[17]

[17] In accordance with s 9 of the Property Law Act 1969 (WA) and s 127 of the Corporations Act 2001 (Cth).

17.The Lease has not been dated, but it is not disputed it was entered into on 1 June 2014 and I so find.

18.There are some minor handwritten alterations to the schedule to the Lease, which are not material to the dispute.[18]

[18] See items 13 and 14 to the Lease.

19.The Lease does not contain an express charging clause, either in the terms which appear in the Contract to Lease, or at all. 

20.The Lease contains an entire agreement clause which is in the following terms:

20.EXCLUSIONS AND LIMITATIONS

20.3The parties agree that this Lease records the entire agreement between them and this Lease supersedes any express or implied representation given or made by the Landlord prior to this Lease becoming enforceable by any party.

Events occurring in and from 2019

21.It is admitted that the term of the Lease was not renewed after the expiry of the initial 5 year term, and the defendants as lessees abandoned the Kenwick Property on 1 April 2019.[19] 

22.It is further admitted that a written demand was made by the plaintiff, by letter sent in or about November 2019, claiming monies due under the Lease.  The defendants admit they did not pay (and have not paid) the amount claimed or any part thereof.[20]  For the purposes of this action, the parties have agreed that the principal amount of money owing by the defendants under the Lease, as of 20 November 2019, was $68,000.[21]  

23.On 20 November 2019, the plaintiff lodged a caveat against the title to the Gosnells Property claiming an interest as chargee.  This is admitted.[22]

24.On 13 December 2019, the defendants entered into bankruptcy and the amount demanded was included in the bankruptcy as a debt owing to the plaintiff.  The defendants were subsequently discharged from bankruptcy on 14 December 2022.[23]

[19] AD [6] and [7].

[20] ASOC [11] - [13] and [17]; and AD [8] - [10] and [13].

[21] PS [2]; and DS [2].

[22] ASOC [14]; and AD [11].

[23] ASOC [15] and [16]; and AD [12].

D.     The parties' submissions

Plaintiff's submissions

1. The plaintiff submits that the requirements for the creation of an equitable charge have been satisfied.[24]

   [24] PS [8].

2. The plaintiff contends that even a contractual clause which provides that the charging party 'will charge' property as security for payment obligations, may nonetheless still create an immediate charge.[25]

   [25] PS [8].

3. All of the elements for the establishment of an immediate enforceable charge are satisfied in the present case, according to the plaintiff.[26]  That is, there was a present intention to grant a charge, it is in writing, and there is sufficient identification of definite ascertainable property.  Further, sufficient consideration is apparent, at least upon the parties entering into the Lease.[27]

   [26] PS [9].

   [27] PS [9].

4. Next, the plaintiff submits that the doctrine of merger, having regard to the subsequent execution of the Lease by the parties, did not bring about cessation of the Pleaded Equitable Charge.[28]  Rather, it is said to follow from the charging clause 'having immediate operation on its terms with express post completion (execution of the Lease) effect, in contradistinction to the other terms which were only to come into force upon completion', that merger did not apply so as to extinguish the Pleaded Equitable Charge, absent a restatement in the Lease.[29]

   [28] PS [10] - [14].

   [29] PS [14].

5. Finally, the plaintiff has addressed the operation of the entire agreement clause which is found in the Lease (see cl  20.3).  The plaintiff explains in its submissions why the failure of the Lease to restate or replicate the charging clause is not an obstacle to the relief it seeks.  The plaintiff's submissions, in part, read as follows:

   [31]There is a sharp differentiation of the Charging Clause from the other terms of the Contract to Lease in that while the Charge arose upon execution of the Contract to Lease so as to apply to future indebtedness under the formal lease, none of the other terms of the Contract to Lease had any effect until such time as the Lease was executed.  It follows from this distinction that while it makes sense for the other terms to take effect as lease terms by being restated in the formal lease, this is not apposite for the Equitable Charge which has already taken effect and secures such indebtedness as might arise under the subsequently executed formal lease.

   [32]While the Contract to Lease contains a guarantee, this had to be restated in the Lease because of the wording of clause 7.1 of the Contract to Lease which provides for a guarantee of payment and other obligations 'under this Contract'.  In contrast, the Charging Clause refers to defaults pursuant to and under the formal lease.  Hence, restatement of the guarantee, unlike the Charging Clause, was required to be included in the Lease for the guarantee to take effect.

   [33]The upshot is that the Replication Requirement [explained in par 24 of the submissions] applies to all of the terms of the Contract to Lease save for the Charging Clause. 

Defendants' submissions

1. The defendants submit that the charging clause in the Contract to Lease, cl 7.2, did not manifest the necessary intention to create an immediate charge.[30]  It is asserted that the charge would not secure anything at that time, nor was there any consideration given.

   [30] DS [5].

2. Further, the defendants submit that, contextually, as part of a pre-printed standard form agreement to lease prepared by a real estate agent, the clause should be construed as:[31]

   …a statement of intention to agree to charge land in future if a formal lease was later concluded (creating payment obligations under a lease), and in the formal lease a charging provision was included as security for those payment obligations.

   [31] DS [5].

3. The defendants correctly submit that, if the Court finds that an equitable charge did not arise under cl 7.2 of the Contract to Lease, then that is the end of the dispute and no relief would flow in favour of the plaintiff.  However, if the Court finds an equitable charge did arise under cl 7.2, then the next issue is whether that charge survived and became part of the concluded entire agreement as to a lease.[32]

   [32] DS [6].

4. In this regard, the defendants contend that the Contract to Lease merged in the making of the Lease.[33]  That is, the 'real completed contract' is to be found in the deed of Lease alone, and the agreement to lease cannot be used for the purpose of enlarging or modifying that 'real completed contract'.[34] 

   [33] DS [8].

   [34] DS [8].

5. The defendants' submissions, in part, state:[35]

   [13]An equitable charge (if one had arisen immediately under cl 7.2 of the Contract to Lease) was not part of the completed entire agreement in the later Lease.

   [14]That outcome is the result of: (a) merger of the executory agreement to lease in the Contract to Lease with the later deed of Lease, (b) the entire agreement clause at clause 20.3 of the Lease, (c) the absence of a charging provision in the Lease and (d) cl 24.1 of the Contract to Lease providing that the covenants of the draft lease take priority over the terms of this Contract.  There are other terms and conditions from the Contract to Lease that appear in the Lease, but not a charging provision.

   [35] DS [13] - [14].

E.     Relevant principles

1. I intend to apply the following principles in determining the issues raised by the parties to this action.

Contractual construction

1. The questions raised in this action require both the Contract to Lease and the Lease to be construed by the application of the orthodox principles of construction.  The parties were not in disagreement as to those principles, which were recently restated by the Court of Appeal in Vango Mining Limited v Zuleika Gold Limited:[36]

   [36] Vango Mining Limited v Zuleika Gold Limited [2024] WASCA 54 [39] - [44] (Buss P and Seaward J).

   [39] The proper construction of a commercial contract is to be determined objectively having regard to its text, context and purpose or objects.  The provisions of the contract are to be understood objectively by reference to what a reasonable businessperson would have understood them to mean.  The hypothetical reasonable businessperson must be placed in the position of the parties.  The court considers from that perspective the circumstances surrounding the contract and the commercial purpose or objects sought to be achieved by it. See Electricity Generation Corporation v Woodside Energy Ltd; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd; Rinehart v Hancock Prospecting Pty Ltd; Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd.

   [40] In Electricity Generation Corporation [35], French CJ, Hayne, Crennan and Kiefel JJ made these observations in relation to ascertaining what the hypothetical reasonable businessperson would have understood by the terms of a commercial contract:

   [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'.  As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'. (footnotes omitted)

   See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd; Simic v New South Wales Land and Housing Corp.

   [41] A commercial contract must be construed as a whole. The words of a clause in the contract are to be given the most appropriate meaning which they can legitimately bear.  A court must have regard to all of the provisions of the contract with a view to achieving harmony among them.  If more than one construction of a clause is open having regard to the text, context and purpose or objects of the contract as a whole, the court will prefer a construction that will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust. See Australian Broadcasting Commission v Australasian Performing Right Association Ltd; Zhu v Treasurer of the State of New South Wales; Electricity Generation Corporation [35].

   [42] In Fitzgerald v Masters, Dixon CJ and Fullagar J said, '[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency'. See also Adams v Lambert; Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq).

   [43] Where a word or an expression is defined in a commercial contract the court will give effect to the definition.  The proper course is to read the text of the definition into the relevant clause and then to construe the relevant clause having regard to the contract as a whole. Ordinarily, the purpose of a definition in a commercial contract is to attribute the meaning agreed upon by the parties to the relevant word or expression and to avoid unnecessary and lengthy repetition of the text of the definition in the contract. See, generally, Halford v Price; Kelly v The Queen.

   [44] The surrounding circumstances known to the parties may be used in construing a commercial contract. However, the subjective intentions of the parties may not be used in construing the contract. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd; Victoria v Tatts Group Ltd; Cherry v Steele-Park. (footnotes and citations omitted)

2. As to the process of construction itself, in JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2],[37] a plurality of the Court explained that the 'court's task in determining the legal meaning of a written contract involves weighing up the different considerations based on text, context and purpose'.   Further, the Court indicated that this process often 'necessitates an iterative approach checking each of the rival meanings against the other provisions of the instrument and investigating their respective commercial consequences'.[38]

   [37] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112 [139] (Buss P and Vaughan JA) (JKC Australia).

   [38] JKC Australia [139].

3. Where a commercial transaction is implemented by several contracts or documents, all of the contracts or documents may be read together for the purpose of ascertaining their proper construction and legal effect, at least where those instruments are executed contemporaneously or within a short period: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd.[39] 

   [39] EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78 [104] (Buss JA, as his Honour then was, with Owen and Newnes JJA agreeing).

4. Further, the circumstance in which the parties to an existing contract enter into a further contract by which they vary the original contract was the subject of consideration by the High Court in Commissioner of Taxation of the Commonwealth v Sara Lee Household & Body Care (Australia) Pty Limited.[40]  The plurality held that, in those circumstances, the parties will have made two contracts.  The plurality continued as follows, endorsing the statement of Taylor J in Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd[41] that the determining factor must always be the intention of the parties as disclosed by the later agreement:

   [22]…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.

   [23]In Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 at 44 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."

   [24]That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd (1983) 57 ALJR 442 at 448-449; 46 ALR 437 at 448. It accords with principle and with authority (eg Morris v Baron and Company [1918] AC 1; British and Beningtons, Ld v N W Cachar Tea Co & Ors [1923] AC 48; United Dominions Corporation (Jamaica) Ltd v Shoucair [1969] 1 AC 340).

Creation of an equitable charge

[40] Commissioner of Taxation of the Commonwealth v Sara Lee Household & Body Care (Australia) Pty Limited [2000] HCA 35; (2000) 201 CLR 520.

[41] Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93.

1. Charges are creatures of equity and enforceable only in equity.  An equitable charge is described as an example of a pure hypothecation.[42]

   [42] See the references cited in Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [2017] VSC 499 [40] (Robson J) (Carter Holt Harvey).

2. It has been held that an equitable charge 'usually arises by agreement between the parties under which the property charged is made liable for or is appropriated to securing the performance or discharge of the relevant contractual obligation'.[43] 

   [43] Morris Finance Ltd v Brown [2017] FCAFC 97 [38] (Beach, Markovic and Moshinsky JJ).

3. There is no transfer of title or possessory interest in the charged property.  The right or remedy of a chargee is to 'enforce its equitable charge by a judicial order for sale (with an ancillary order for possession), or the appointment of a receiver'.[44]

   [44] Morris Finance Ltd v Brown [38].

4. The requirements to establish an equitable charge were restated by Derham AsJ in Morris Finance Ltd v Commonwealth Bank of Australia,[45] and were not in dispute between the parties.  By reference to established authority, his Honour set out the requirements as follows:[46]

   [32]The requirements for the creation of an equitable charge are:

   (a) an intention to create a charge;

   (b) if over land, the presence of writing;

   (c) the existence of definite ascertainable property, including future property, over which it is contemplated that the charge will exist; and

   (d) where consideration is necessary, consideration

   [45] Morris Finance Ltd v Commonwealth Bank of Australia [2017] VSC 260.

   [46] Morris Finance Ltd v Commonwealth Bank of Australia [32].

5. As to the first of these requirements, it is necessary that there be a manifestation by the parties of an immediate intention to charge and not merely a promise to charge in the future.  This issue was explored in Carter Holt Harvey, a decision of Robson J in the Supreme Court of Victoria.  His Honour was called upon to consider whether a written guarantee and indemnity created a valid equitable charge.  The factual setting in that case requires some explanation.

6. As between Carter Holt Harvey Woodproducts (Australia) Pty Ltd (CHH) and a company known as Amerind Pty Ltd (Amerind), a Terms of Sale and Security Agreement had been executed by which CHH supplied plywood and other products to Amerind in the course of its business.  This supply agreement ran for some 14 years, commencing in May 2000.  It appears that in June 2003, the director of Amerind Pty Ltd (a Mr David) executed a written guarantee and indemnity in favour of CHH, to guarantee the moneys owed by Amerind to CHH.  The written guarantee and indemnity included a charging clause in the following terms:

   2.6AThe Guarantor will charge in favour of CHH all estates and interest in any land and any other assets whether tangible in [sic] intangible in which they now have any legal or beneficial interest or in which they later acquire any such interest, with payment of all monies owed by the customer and agree upon request, to execute a registrable instrument transferring to CHH the Guarantors estate and interest by way of security. (emphasis added)

7. While there were two agreements under analysis in Carter Holt Harvey (the supply agreement and the director's guarantee and indemnity), they operated simultaneously with each other, and one was not in replacement for the other (as is the case in the present action). 

8. His Honour considered whether the use of the word 'will' in the charging clause precluded a conclusion as to the creation of a present charge.  His Honour concluded that the temporal requirement indicated by the word 'present' is that the intention to create a charge must be found, not the hypothecation of the property which is to be the subject of the charge.[47] On analysis, his Honour concluded that the language used did not preclude a positive finding that a present charge has been created, in the circumstances:

   [56] The liquidator submits that an intention to create an immediate charge is not created with the word 'will', as that is an agreement to do something in the future (in this case, obligation to charge the relevant assets) and that an agreement to do something in the future does not create a present charge, and does not evidence a clear intention to create a charge

   [57]In response, Mr Gronow contends that the clause is similar to that in question in Re Roberts; Ex parte Australian Telecom Employees Credit Cooperative v Taylor, where use of 'shall' was considered sufficient to create a charge. Mr Gronow submits 'shall' is of immaterial difference to 'will', as both are terms of compulsion and are expressions of intention and obligation. Mr Gronow says that 'will' imposes a present and future obligation.

   [58] Mr Gronow submitted that the present clause is similar to that in Avco v White, where Gillard J held that the contract was sufficient in that it disclosed an intention that the property owned constituted security for the loan and therefore Avco had an equitable charge over the property.

   [59] In my opinion, 'will charge' conveys the manifestation by Mr David of an immediate intention to charge and does not involve a promise to charge in the future. The fact that the charge may not be enlivened until credit was extended to Mr David by CHH does not mean that Mr David did not manifest the present intention to create a charge.

   [47] Carter Holt Harvey [40] (Robson J).

1. Robson J also addressed the requirement for consideration.  His Honour noted that this must be valuable and executed.[48]  Ultimately, his Honour found there was sufficient consideration based on the subsequent supply of credit by CHH to Amerind Pty Ltd, being a company owned and controlled by Mr David.[49]  His Honour accepted that a promise to enter into a transaction could not itself constitute valuable consideration, but the actual advance of money pursue to a request made contemporaneously with or prior to a guarantee would be sufficient. 

   [48] Carter Holt Harvey [45] - [46] (Robson J); Morris Finance Ltd v Commonwealth Bank of Australia [31] and [32] (Derham AsJ).

   [49] Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [65] and [69].

2. The foregoing proposition is apparent from the decision of the Privy Council in Coghlan v SH Loch (Australia) Ltd,[50] an authority to which Robson J referred, being an appeal from a decision of the New South Wales Court of Appeal.  The instrument in Coghlan was a 'guarantee and indemnity', which was expressed to be made 'in consideration of your readiness ... to entertain and in your discretion to accede to or refuse requests by me or by us'. 

   [50] Coghlan v SH Loch (Australia) Ltd (1987) 61 ALJR 289 (Privy Council) (Coghlan).

3. In the opinion of the Council, given by Lord Oliver of Aylmerton, the issue of consideration was addressed as follows:[51] 

   As to the question of consideration, Rogers J. was clearly right in holding that the mere “readiness ... to entertain ... a request” was no consideration and their Lordships have found themselves unable to accept the reasoning of McHugh J.A. on this point.  It is, however, entirely clear that although the mere promise to consider or entertain a request cannot of itself constitute a valuable consideration for the sureties' promise, the actual advance of money in response to a request does provide a consideration for the sureties' liability.   Leaving aside for the moment the question, upon which both Rogers J. and McHugh J.A. agreed, of what type of request is, as a matter of construction, sufficient to give rise to a guaranteed liability, Mr Bennett has submitted that the respondent's claim founders immediately on the rock of consideration for there was, he submits, no evidence of any request made either by the appellants or by Industries subsequent to the date of the guarantee for the provision of finance for Products.   Insofar as there was any request made by Industries, it took place prior to the execution of the guarantee and was therefore a past consideration.

   Their Lordships find themselves unable to accept this submission.  The consideration is not to be found in the making of the request but in the accession to it and there is, in their Lordships' view, no reason why an advance of money pursuant to a request made contemporaneously with or prior to the guarantee should not constitute a good consideration for the sureties' promise to pay.

   [51] Coghlan v SH Loch (Australia) Ltd (292).

4. As to the third requirement identified by Derham AsJ in Morris Finance Ltd v Commonwealth Bank of Australia, the necessity for the existence of definite ascertainable property will be satisfied even though the property is not in existence when the charge is created - future or after-acquired property may be sufficient.[52]

Doctrine of merger

[52] Carter Holt Harvey Woodproducts (Australia) Pty Ltd v David [40].

1. Merger in this sense does not refer to the merger of estates, nor the merger of causes of action into judgments, but rather is a reference to merger in relation to consecutive instruments concerning the same subject matter. 

2. It is now well-established that where parties to a simple contract (whether that be oral or in writing) later execute a deed for the purpose of carrying out their agreement, the simple contract will thereby be discharged and become merged in the deed.[53]  This doctrine will preclude the parties from invoking their previous agreement for the purpose of modifying the contract later expressed in the deed.

   [53] Leggott v Barrett (1880) 15 Ch D 306 (James LJ).

3. The doctrine is often seen operating in relation to contracts for sale of land followed by conveyance on completion.  Typically, all the provisions of the contract which the parties intend should be performed by the conveyance are merged in the conveyance, and all the rights of the purchaser in relation thereto are satisfied.[54]  There may, however, be provisions of the contract which, from their nature, or from the terms of the contract, survive after completion (and which are not merged into and extinguished by the conveyance instrument being executed).[55] 

   [54] Knight Sugar Co. Ltd. v. Alberta Railway & Irrigation Co [1938] 1 All ER 266, 269 (Lord Russell of Killowen, speaking for the Privy Council) (Knight Sugar).

   [55] Knight Sugar (269).

4. The source of the principle is typically said to be the decision of Lord Justice James in the English Court of Appeal in Leggott v Barrett,[56] a decision of some antiquity.  Its antiquity is apparent not only from its factual setting, involving a firm of ironmongers in Bradford, but also from the medieval decision of the Court of Appeal which follows it in the Chancery reports.[57] 

   [56] Leggott v Barrett (1880) 15 Ch D 306.

   [57] In re Dicconson (A Lunatic) (1880) 15 Ch D 16, a case concerning the sale of a lunatic's property in Wigan under the Lunacy Regulation Act 1858 (16 & 17 Vict. c.70).

5. Its antiquity aside, the facts of Leggott v Barrett are nonetheless instructive.  The plaintiff and defendant signed an agreement in July 1879 for dissolution of their partnership as ironmongers.  One of the partners, Obadiah Barrett, was to retire from the business and not commence business as an ironmonger either on his own account of in partnership with any other person, among other stipulations in the agreement.  The assets, debts and goodwill of the partnership were to be taken by Mr Leggott, who would continue in business. 

6. The initial agreement provided that a proper deed of dissolution would be prepared and signed.

7. A formal deed was duly executed in November 1879.  The deed contained a number of the provisions which had been included in the original agreement, including restraints upon Mr Barrett.  The deed did not include a provision to the effect that Mr Barrett would 'retire from the business'.

8. Mr Leggott became aware that Mr Barrett had continued in business as an ironmonger, in Leeds, in partnership with another businessman.  It was apparent that Mr Barrett was dealing with customers of the former partnership.

9. Sir George Jessell MR heard the matter at first instance and granted an injunction in favour of Mr Leggott.  The Master of the Rolls found Mr Barrett had been dealing with customers of the old partnership and had solicited their custom.  The injunction appears to have been founded on the provision within the initial agreement (which was not replicated in the second agreement) to the effect that Mr Barrett would 'retire from the business'.  The continuing operation or authority of that particular clause in the initial agreement was thus at the core of the case.

10. The Court of Appeal upheld the appeal.  James LJ held the formal deed was the 'real completed contract' and the absence of any covenant in the formal deed to the effect that Mr Barrett would 'retire from the business' was decisive.[58]  There was nothing in the formal deed from which an agreement could be implied not to deal with any person or persons who had been a customer or customers of the former partnership.  Absent that covenant, the injunctive relief could not be supported.  Brett LJ agreed with the principle expressed by James LJ, and agreed with the result, but could not see any difference of substance between the instruments.[59]  Similarly, Cotton LJ did not regard the instruments as being different, in substance, and gave the absent clause little weight, but nonetheless agreed in the result.[60]

    [58] Leggott v Barrett (309 – 310).

    [59] Leggott v Barrett (311 – 312).

    [60] Leggott v Barrett (314 – 315).

11. Although the majority of the Court (Brett and Cotton LJJ) appeared to regard the absent clause as less significant, both James and Brett LJJ expressed themselves in support of a very clear principle of law.  James LJ expressed the principle as follows:[61]

    I think it is very important, according to my view of the law of contracts, both at Common Law and in Equity, that if parties have made an executory contract which is to be carried out by a deed afterwards executed, the real completed contract between the parties is to be found in the deed, and that you have no right whatever to look at the contract, although it is recited in the deed, except for the purpose of construing the deed itself.  You have no right to look at the contract either for the purpose of enlarging or diminishing or modifying the contract which is to be found in the deed itself.

    [61] Leggott v Barrett (309).

12. Brett LJ expressed his agreement with the decision of James LJ, as follows:[62]

    I entirely agree with my Lord that where there is a preliminary contract in words which is afterwards reduced into writing, or where there is a preliminary contract in writing which is afterwards reduced into a deed, the rights of the parties are governed in the first case entirely by the writing, and in the second case entirely by the deed; and if there be any different between the words and the written document in the first case, or between the written agreement and the deed in the other case, the rights of the parties are entirely governed by the superior document and by the governing part of that document.

    [62] Leggott v Barrett (311).

13. The principle operates not as a presumption, as I apprehend it, and remains subject to an assessment of the objective intention of the parties, to be determined from the text, context and purpose of the instruments in question, the nature of the transaction, and the subject matter of the particular provisions in question.[63]  This is not a subjective enquiry.  The relevance of the parties' intention is confirmed by the plurality decision of the High Court in Svanosio v McNamara and Another.[64]

    [63] Sekisui Rib Loc Australia Pty Ltd v Rocla Pty Ltd [2012] SASCFC 21 [57] - [61] (Sulan J, with David and Peek JJ agreeing) (Sekisui Rib Loc).

    [64] Svanosio v McNamara and Another [1956] HCA 55; (1956) 96 CLR 186, 206 (McTiernan, Williams and Webb JJ).

14. Where the subsequent instrument is the subject of a statutory registration requirement, the position requires closer examination.  So much is apparent from the decision of Cooper J in Twidale v Bradley.[65]  His Honour concluded that, given the terms of the Real Property Act 1861 (Qld), until registration of a transfer by assignment of a registered lease, neither the deed of assignment nor the executed memorandum of transfer, operated to transfer any legal leasehold estate.

    [65] Twidale v Bradley [1990] 2 Qd R 464.

15. In the present case, no issue of registration arises. Pursuant to s 68(1A) of the Transfer of Land Act 1893 (WA), a lease with a term of not more than 5 years is not required to be registered, although such an instrument may be registered if the term is greater than 3 years. The point of difference observed by Cooper J therefore does not arise.

16. A number of further authorities were cited by both counsel on the doctrine of merger.  It is only necessary to address some of those authorities.

17. The decision of the Full Court of South Australia in Sekisui Rib Loc is instructive.  In that matter, a business sale agreement contained various schedules, each of which recorded the terms of a particular transaction, such as a sub-licence.  It was submitted by the respondent that the parties' obligations under the business sale agreement, at least in so far as the subject matter of the agreements appearing in the various schedules were concerned, merged on completion.  The respondent further contended that this could only be displaced to the extent that the agreement provided for the parties' obligations to survive completion. 

18. There were, however, particular clauses in the business sale agreement which are expressly intended to survive completion.  It was argued for the appellant that 'the very fact that some clauses expressly speak of continuing after completion and other clauses do not, indicate that these other clauses were not contemplated as extending after completion'.[66]  The appellant further argued that there was nothing in the agreement which said that once the four later contracts had been entered into there was an obligation to keep them in the same form, or to keep them at all.

    [66] Sekisui Rib Loc [54] (Sulan J).

19. The appellant submitted that there were multiple provisions in the business sale agreement relating to post-completion obligations and the doctrine of merger did not apply as the appellant was not seeking to enforce a term which may have merged.[67]

    [67] Sekisui Rib Loc [56] (Sulan J).

20. Sulan J, with whom David and Peek JJ agreed, accepted the force of the appellant's arguments.  His Honour concluded that there appeared to be no relevant application of merger in the case given that the business sale agreement 'raised a number of interlocking obligations, arising both before and after completion'.  In his Honour's view, it was not the intention of the parties for these obligations to be carried out merely via the schedules and it would be 'an artificial exercise to purport to merge only those obligations of the [business sale agreement] the subject matter of which appear in the schedules, as well as to distinguish between certain clauses which do and do not refer to pre and post completion obligations'.[68]

    [68] Sekisui Rib Loc [61] (Sulan J).

21. Another example in the authorities cited by the parties which is useful to examine is that of Rialto Sports Pty Limited v Cancer Care Associates Pty Limited,[69] a decision of the New South Wales Court of Appeal.  The appellant in that case had entered into four contracts for sale with 4 different purchasers, in respect of lots in a commercial strata building in Sydney.  These were 'off the plan' contracts for sale, entered into prior to the completion of the building.  The purchasers sued the appellant in contract in respect of the rectification costs arising from defects in the cladding and waterproofing, in summary.  The purchasers relied on the special condition in the contracts for sale that required the appellant to construct and complete the building in a proper and workmanlike manner.

    [69] Rialto Sports Pty Limited v Cancer Care Associates Pty Limited [2022] NSWCA 146 (Rialto Sports).

22. The appellant denied the claim on several grounds, including on the basis that the special conditions as to good workmanship merged on completion.  That argument was rejected by Gleeson JA, with Bell CJ and Macfarlan JA agreeing.  There are two aspects of the Court's reasoning to be noted.

23. First, Gleeson JA considered the argument that the contracts for sale contained some clauses which expressly stated they would survive completion, although there was no such indication in relation to the good workmanship provision.  His Honour considered this was not determinative.  In any event, there was a clause within the contracts which provided that the provisions of the contract 'which are intended to have application after Completion' continue to apply from completion.  The reference point employed in this clause, according to his Honour, was the parties' intentions, not whether the provisions in the contract 'identified in express terms that they will not merge on completion'.[70]

    [70] Rialto Sports [90] (Gleeson JA).

24. Second, his Honour examined the subject matter of the obligations.  His Honour referred to the duality inherent in the contracts for sale.  First, and primarily, his Honour noted the promise by the appellant as vendor 'to convey to the purchaser title to the identified lot in an unregistered strata plan, which was part of the land the subject of identified lot(s) in a Deposited Plan'.[71]  Additionally, there was the promise by the appellant as vendor that it would 'construct or cause to be constructed the building in which the identified lot was situated in a proper and workmanlike manner in accordance with the plans and specifications approved by the Council/ the Development Consent'.[72]  His Honour concluded:

    [97]This duality about the contracts for sale is significant.  The obligation on the part of Rialto to convey title to the identified lot in the unregistered strata plan could not continue beyond completion, so that the obligations as to title undertaken by Rialto in the contracts of sale must be regarded as merging in the transfer, if not at the time of completion, then no later than the time of its being registered: Australian Conference Association v Carter [1988] ANZ ConvR 516; (1988) NSW ConvR 55-435; BC8700959 at 17 (Powell J).

    [98]The same, however, cannot be said of the secondary obligation undertaken.  Whilst the parties made no express statement that the good workmanship obligations did not merge on completion, the nature of the subject matter of the obligations is such that one can readily conclude that it was intended that these special conditions should survive completion.  As the respondents correctly submitted, performance of Rialto's covenant as to good workmanship is not something which the purchaser could investigate prior to completion, like investigating the vendor's title.

    [71] Rialto Sports [96] (Gleeson JA).

    [72] Rialto Sports [96] (Gleeson JA).

25. Accordingly, his Honour rejected the merger argument in relation to the good workmanship provision.  In support of this analysis, his Honour cited several authorities, including the earlier decision of the New South Wales Court of Appeal in Zaccardi v Caunt,[73] in support of the following proposition:

    [94]It is well established that the right to enforce a vendor's obligation to construct a building on the property in the manner set out in the contract, is a right 'collateral' to the conveyance which does not merge on completion.  This is because the nature of the subject matter of the right is one that the parties did not intend to merge in the transfer on completion.

    [73] Zaccardi v Caunt [2008] NSWCA 202 [35] (Campbell JA, Allsop P and Barr J agreeing).

26. In Zaccardi v Caunt, Campbell JA explained that:

    There are examples of contractual provisions concerning which the parties have made no express statement that the provision is not to merge on completion, but from the nature of the subject matter the court has been able to conclude that it was not intended that the clause should merge on completion: Pallos v Munro (1970) 92 WN (NSW) 797 (vendor's covenant to comply with council notices survives completion); Palmer v Johnson (1884) 13 QBD 351 (purchaser's right to compensation surviving transfer); Gaut v Patterson [1931] NSWStRp 40; (1931) 31 SR (NSW) 612 (vendor's covenant to build house in workmanlike manner survives completion); Hancock v BW Brazier (Anerley) Ltd [1966] 1 WLR 1317 (same as Gaut); Lawrence v Cassel [1930] 2 KB 83 (same as Gaut); Hissett v Reading Roofing Co Ltd [1969] 1 WLR 1757 (vendor's covenant to give vacant possession survives completion).

27. The decision of the South Australian Full Court in Players Pty Ltd v Clone Pty Ltd[74] was also cited by counsel.  That was one of the many decisions between the protagonists involved in the proposed agreement to lease the Planet Hotel in Pirie Street in Adelaide.  The Court had cause in that case to consider the legal effect of a formal lease which was entered into after the parties had executed an agreement to lease.  As counsel for the defendant observed, there was a rectification claim pleaded in that matter, and so in some respects the decision examines the conduct of the parties and the manner in which the negotiations were conducted.[75]  The analysis of Doyle CJ in that case must be viewed in this light and it is unnecessary in my view to delve further into the decision.

Entire agreement clauses

[74] Players Pty Ltd v Clone Pty Ltd [2006] SASC 118 (Doyle CJ, Sulan and Layton JJ agreeing).

[75] Players Pty Ltd v Clone Pty Ltd [3] and [125].

1. Entire agreement clauses, which are sometimes described as integration clauses, come in different shapes and sizes.  There is no uniform format or content for these clauses, as emphasised by the plaintiff in its submissions.  Examples of such clauses can be seen in the article by Professors Peden and Carter, 'Entire Agreement - and Similar - Clauses',[76] to which my attention was drawn by the plaintiff's counsel. Some care is needed, then, before applying general propositions to individually drafted entire agreement clauses. As a general proposition, such clauses are intended to achieve contractual certainty about the terms agreed by the parties and nullify prior collateral agreements relating to the same subject-matter.[77] 

   [76] E Peden and J W Carter, Entire Agreement - and Similar - Clauses (2007) 22 Journal of Contract Law 1.

   [77] Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24; [2019] AC 119 [14] (Lord Sumption), referring also to 'no oral modification' clauses.

2. Drawing, in part, from the parties' submissions, the following propositions may be noted in relation to the effect and operation of entire agreement clauses, in general terms.

3. The usual effect of such a clause is to exclude evidence outside the instrument 'either to prove terms additional to what different from the written instrument or collateral contracts or to construe the instrument in a way different from the meaning to be inferred solely from its terms'.[78]  The inclusion of such a clause may also be taken to mean that the parties 'have merely expressly avowed that the totality of the contract, about the relevant subject matter, is to be found within the four corners of the document'.[79]

   [78] MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152, 156 (Davies JA). See also McPherson JA at 154 (Moynihan J agreeing).

   [79] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833 [440] (Allsop J, as his Honour then was).

4. Such clauses have limits.  Ordinarily, they will not prevent the admission of evidence of pre-contractual conduct in support of a claim of rectification,[80] or equitable estoppel.[81]  It has been contended that entire agreement clauses cannot prevent regard being had to context forming part of 'surrounding circumstances'.[82] 

   [80] MacDonald v Shinko Australia Pty Ltd.

   [81] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd.

   [82] Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633 [130] (Leeming JA, Ward and Emmett JJA agreeing).

5. To the extent to which decisions of various Australian courts have, over the years, eroded the force and effect of entire agreement clauses, that approach has been criticised in an extra-curial article written by his Honour Justice Jackman, prior to his appointment.[83]  Counsel for the defendant drew my attention to that article. 

   [83] I M Jackman, Some judicial fallacies concerning entire agreement clauses (2015) 89 ALJ 791.

6. Within that article, his Honour discusses the English decision of Inntrepreneur Pub Co (GL) v East Crown Ltd.[84]  The following passage from Lightman J's decision in that case is said to embody the approach in the United Kingdom and to identify the vices to which entire agreement clauses are directed:[85]

   The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing [sic - thrashing] through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty.  The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search.  For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document.  The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract 28th ed Vol 1 para 12-102: it is to denude what would otherwise constitute a collateral warranty of legal effect.

   [84] Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's Rep 611.

   [85] Inntrepreneur Pub Co (GL) v East Crown Ltd [7].

7. Returning to the journal article first referred to above, authored by Professors Peden and Carter, the learned authors explain several aspects of these clauses which are pertinent to the present case:[86]

   The extent of integration achieved by an express entire agreement clause (or similar provision) is always a matter of intention to be determined by construction. There are two issues [the second is not presently relevant].

   First, does the document integrate the entire contract or only part of it? This will necessarily depend on the wording of the clause.  Although it is in theory possible to have an entire agreement clause which applies to part only of the contract, this must in practice be rare.  Accordingly, the effect of such provisions will usually be to integrate the whole contract in the document.  On the other hand, where the bargain comprises more than one contract, it is quite possible that the intention of the parties is merely to integrate that aspect of the bargain dealt with in the document in which the entire agreement clause is contained.

   [86] E Peden and J W Carter, Entire Agreement - and Similar - Clauses (2007) 22 Journal of Contract Law 1, 6.

8. These observations accord with established authority.

F.     Disposition

1. Having regard to the factual findings set out above, and the relevant principles I have outlined, I turn to address the issues arising in the action.

Whether the charging clause was effective to create the Pleaded Equitable Charge?

1. The first issue to address is whether the charging clause in cl 7.2 of the Contract to Lease was effective to create the Pleaded Equitable Charge.  The four elements identified in Morris Finance Ltd v Commonwealth Bank of Australia require examination in this regard.

2. The first requirement is that there should be an immediate intention to create a charge.  A statement of a future intention to create a charge will not be sufficient in this regard. 

3. I accept that the use of the language 'agree to charge' does not wholly undermine the plaintiff's contention.  Often times parties can use such language to capture a present intention.  The use of the term 'agree' in a contractual instrument may also be redundant, in any event.  The inclusion of the phrase 'agree to charge' should not be seen in isolation though.  The entirety of the charging clause, and the circumstances, must be examined.

4. In my view, the use of the phrase 'agree to charge' (as opposed to 'will charge' or 'hereby charge'), the subsequent reference to money due and payable 'under the lease',[87] and the reference to a default 'pursuant to the lease', provide support for the defendants' contentions.

   [87] Meaning the formal lease to be executed in the future.

5. That is, these aspects of the language used in the charging clause tend to indicate an objective intention that the charge would be effective only upon the Lease being executed, either by reason that the parties would include the charge within the terms of the Lease itself (as they did with many other terms from the Contract to Lease), or because cl 7.2 would survive the merger argument raised by the defendants and continue to operate.  A conclusion that the operation of the charge was to be delayed would strongly tell against an immediate intention to create a charge.

6. The significance which can be accorded to the decision and reasoning in Carter Holt Harvey, that the phrase 'will charge' does not preclude a positive finding of an immediate intention, is lessened when the factual context of that authority is examined.  As earlier noted, while there were two instruments involved in Carter Holt Harvey, the agreements operated simultaneously and not in sequence as in the present case.  Where the circumstances involve a later instrument which replaces an earlier instrument, the significance of the phrase 'agree to charge' takes on a strong flavour of futurity, in my opinion.

7. As noted above, the subsequent language in the clause, which refers to the 'lease', rather than the 'Contract', which is the language used in some other clauses, is significant.  The objective intention conveyed by this language is that the charge identified in the clause will become effective once the Lease has been executed, and the charge will secure repayment of moneys owing under the Lease and, where the lessees are in default of their obligations under the Lease, the lessor will be entitled to enforce the charge and be entitled to register an absolute caveat.

8. A conclusion that the charge was intended to be effective upon the formal lease being executed accords with the broader context of the arrangement between these parties as emerges from the instruments, in that until the Lease was executed, there would be no reason, or at least no adequate reason, for the charge to be in effect.  Once the Lease was executed, the charge would operate to provide additional security to the plaintiff lessor.

9. In my view, the language of the clause does not support the conclusion contended for by the plaintiff and I consider the plaintiff has failed to demonstrate the first element identified in Morris Finance Ltd v Commonwealth Bank of Australia.

10. There was no dispute between the parties as to the existence of the second and third elements, being the presence of writing and the existence of definite ascertainable property over which the charge will exist.  I conclude that those elements are satisfied.

11. As to the final element, that of consideration, I accept the submission advanced by the defendant in this regard that the agreement to enter into the lease in the future was insufficient.  There must be valuable consideration to support the charge at the time at which the Contract to Lease was executed and when the charge was said to be in immediate operation (a conclusion which I have rejected above). 

12. I do not regard anything said in Carter Holt Harvey or Coghlan as suggesting to the contrary.  In neither of those cases was the Court concerned with a scenario involving a replacement instrument.

13. Accordingly, I consider the plaintiff has failed to establish that the Pleaded Equitable Charge came into operation at the time the Contract to Lease was executed and prior to the Lease being executed.  That conclusion is sufficient to dispose of the plaintiff's claim and to deny it the remedies which are sought.

14. I shall however proceed to address the second issue, in the event I am wrong on the first issue.

Whether the Pleaded Equitable Charge continued following execution of the Lease?

1. Assuming, contrary to my earlier conclusion, that the Pleaded Equitable Charge arose upon execution of the Contract to Lease, it is necessary to consider whether that charge survived and formed part of the concluded agreement in the form of the Lease, or whether it ceased to exist upon execution of the Lease. 

2. As to this second issue, the submissions of the parties addressed whether the charge ceased by reason of the failure to restate the charge in the Lease and through the doctrine of merger, or through the operation of cl 20.3 of the Lease which contains an entire agreement clause, or whether (in the alternative to these conclusions) it continued in operation following the execution of the Lease.

3. In my view, rather than separately address the arguments concerning the doctrine of merger and the effect of entire agreement clauses, the proper approach is to undertake a construction exercise in respect of the terms, context and purpose of the agreements, having regard to the matters just mentioned, rather than to address those matters as independent or isolated principles.  The objective intention of the parties, understood in this way, is the primary focus of the enquiry.

4. Adopting this approach, it is next appropriate to identify the critical and relevant features of the agreements and to explain their significance to the construction exercise.  There are numerous features of the agreements which are of significance, in my view, and some of which overlap.

5. First, the Contract to Lease is a simple contract which, by virtue of cl 20 of that agreement, was objectively intended by the parties to be overtaken by a formal lease instrument.

6. Second, a formal lease instrument was ultimately prepared, consistent with the process contemplated by cl 20 of the Contract to Lease, and was executed as a deed.  The Lease is a comprehensive document, some 38 pages in length, containing 25 clauses, and has all the hallmarks of being a self-contained instrument, binding the parties to the terms set out therein.  Indeed, the Lease commences with the words:[88]

   The Landlord LEASES the Premises to the Tenant for the Term SUBJECT to the payment of the Rent to the Landlord and SUBJECT to the other terms and conditions in this deed.

   [88] Lease, page 1.  See also the recitals, which refer to ‘the terms and conditions contained in this Lease’.

7. Third, the process contemplated by cl 20 of the Contract to Lease permitted the defendant lessees to request amendments to the draft lease (cl 20.3), but ultimately the plaintiff lessor was under no obligation to agree to any of the variations (cl 20.4).  The mandatory terms which were required to be included in the draft lease were those set out in the first schedule to the Contract to Lease (cl 20.6), but the plaintiff lessor had the contractual ability to include other terms and conditions which its solicitors reasonably deemed appropriate or necessary (cl 20.6).  The mandatory terms to be incorporated into the formal lease did not include the charging clause in cl 7.2 of the Contract to Lease.  

8. Importantly, there are clauses in the Lease which were not included in the initial Contract to Lease.  I refer to the obligations to maintain the property found in cl 9.1 and cl 9.4 of the Lease.  There is an additional obligation to clean the premises upon determination of the term, found in cl 9.8.  Further, an obligation was imposed on the defendants to pay interest on outstanding rental payments, which appears in cl 4.2 and item 13 of the Schedule to the Lease.  Further still, the Contract to Lease included a security bond in the sum of $15,000, which was modified to be a bank guarantee in the same amount within the Lease itself.

9. So, while no evidence was adduced at trial as to the process by which the draft lease was prepared, and as to how the formal Lease came to be executed, the contractual process just outlined carries real significance in my view.  It strengthens the significance of the inclusion of additional terms not found in the original Contract to Lease, and the omission of terms which were in the original Contract to Lease.

10. Fourth, and allied to the point just made, the charging clause in cl 7.2 of the Contract to Lease was not included in the formal Lease, and no equivalent clause was included.  The omission of the clause carried real significance in my view.

11. Fifth, by virtue of cl 22.1 of the Lease, the Lease became binding on the parties upon its execution.  In addition, it is evident from cl 22.2 of the Contract to Lease that that instrument would be binding only until the formal lease was executed. 

12. Sixth, the parties agreed, by virtue of cl 24 of the Contract to Lease, that the covenants in the Lease, once it was executed, would take priority over the terms of the Contract to Lease, other than those terms physically entered upon the Contract to Lease.  This latter exception, in effect, refers to the terms in the Special Conditions.  The terms of cl 24 strengthen the objective intention evident from the instruments that the Lease was to replace the Contract to Lease, other than with limited exceptions.  Objectively, the parties did not contemplate that, for the duration of the long term lease, stretching over at least 5 years, and perhaps over 11 years, they would need to have regard to two instruments to identify their rights and obligations.  The intention, evident from at least cl 24 of the Contract to Lease, is that the legal relationship of these parties would be governed by the formal lease, once it was executed.

13. Seventh, the Contract to Lease is a standard form document produced by the real estate agents who were acting in the matter.  The presence of the charging clause in such an instrument carries less significance than would otherwise be the case had it been demonstrated that the Contract to Lease was a bespoke document.  In contrast, as outlined above, it is apparent that the formal Lease was prepared by solicitors pursuant to a process by which the parties were permitted to include further terms and to remove terms, albeit with the plaintiff lessor having the stronger bargaining (and drafting) position by virtue of cl 20.6.  In these circumstances, the omission of the charging clause from the Lease, again, assumes real significance in my opinion.

14. Eighth, no evidence has been adduced to explain the omission of cl 7.2 from the Lease.  The absence of such evidence, in light of the matters outlined above, is a further significant feature of the case.

15. Ninth, the Contract to Lease and the Lease itself deal with the same subject matter, being a long term lease of the same commercial property in Kenwick. 

16. Tenth, the Lease incorporates an entire agreement or integration clause, in cl 20.3 thereof.  That clause is in simple terms, and is certainly not an example of an expansive integration clause.  Nonetheless, the Court ought give significance to the agreement of the parties that the formal Lease 'records the entire agreement between them'.

17. Eleventh, it may reasonably be inferred that the omission of the charging clause in the Lease formed part of a broader re-assessment by the parties of the security aspects of the lease arrangement. 

18. In this regard, it is noteworthy that the original arrangement included a guarantee given by the defendant lessees (cl 7.1 and cl 7.3 of the Contract to Lease), which was not included in the Lease (cl 1.14 and item 3 of the Schedule, which states 'Nil' adjacent to the identification of a guarantor).  Provisions pertinent to a guarantee are found in the Lease (cl 24), but by virtue of item 3 of the Schedule they will not be operative.  Ultimately, it might reasonably be inferred that the plaintiff lessor accepted that the inclusion of a guarantee from the very persons who were already liable as lessees, was simply unnecessary.  That inference is not critical to my analysis - what I regard as important is that the security arrangements were modified by the time the formal Lease came to be executed.   

19. Further, as earlier noted, the parties adjusted the security bond, in cl 7.4 and cl 7.5 of the Contract to Lease (and item 10 to the First Schedule), to be a bank guarantee in the Lease, in the same amount (cl 7.1 and item 12 of the Schedule).

20. It is evident from the foregoing that the parties altered the security arrangements which were to operate under the Lease (relative to the Contract to Lease).  The omission of the charging clause in these circumstances, again, assumes significance in my view when assessing the objective intention of these parties.

21. Against the foregoing matters, it must be accepted that there is express language within the charging clause which indicates it was intended to survive the execution of the formal Lease.  As counsel for the plaintiff explained, the clause refers to moneys payable 'under the lease' and 'obligations pursuant to the lease', in contradistinction to references elsewhere in the Contract to Lease to 'this Contract' (cl 6.3 and cl 7.1 of the Contract to Lease).  This choice of language by the parties appears to be deliberate.  Indeed, I have earlier concluded that the charging clause was intended to operate upon the formal Lease being executed – it was not intended to be an immediately operative provision.

1. Ultimately, however, this language must be assessed against the other indicia which I have identified.  When those matters are assessed, I consider the objective intention of the parties, as appears from the whole of the Contract to Lease and the Lease, and having regard to the nature of the commercial arrangement underlying the instruments, was that the real completed contract was the formal Lease itself, which was intended to wholly replace the Contract to Lease.  The case therefore fits within the principle expressed by James LJ in Leggott v Barrett, as to the merger of instruments, such that the plaintiff lessor cannot look to the original contract for the purpose of enlarging the obligations found in the subsequently executed deed.  In simple terms, the contract here merged into the deed.

2. The present case can be distinguished from Rialto Sports and Sekisui Rib Loc, in which more complex arrangements were concerned and in which certain clauses expressly indicated they would survive completion or which by their subject matter it was apparent they were intended to survive merger.  Further, the inherent duality of the obligations which Gleeson JA identified in Rialto Sports is not evident in the present case.

3. Nor does the present case have any similarities to the examples mentioned by Campbell JA in Zaccardi v Caunt. 

4. It is significant in my view that the parties were entering into a long term commercial lease arrangement over a single property, which was not a complex-structured business arrangement such as in Sekisui Rib Loc.  The charging clause in the Contract to Lease could well have been included in the formal Lease, in conjunction with the other security-related provisions which can be found in that instrument. 

5. There is much to be said for the view that, where a single site commercial lease is concerned, and where the parties have executed an agreement to lease which is intended to be replaced by a formal instrument, the parties' rights and obligations over the term of the lease, and any extensions to that term, are to be found within the formal lease instrument, absent clear and compelling language to the contrary.  To require the parties to search through the prior, largely superseded, agreement to identify rights and obligations which may have continuing effect, would be a commercially impractical approach and likely to generate confusion, and lead to greater disputation between parties to commercial leases. 

6. The plaintiff's preferred construction of these instruments strikes me as commercially unworkable.  I recognise there can be pitfalls associated with the judicial imposition of concepts of commerciality when construing agreements, as observed by Bell P in Donau Pty Ltd v ASC AWD Shibuilder Pty Ltd.[89]  Those pitfalls are less pronounced when the commercial instruments are not complex and, indeed, where the Court is dealing with a common place business arrangement, such as in the present case.

   [89] Donau Pty Ltd v ASC AWD Shibuilder Pty Ltd [2019] NSWCA 185; (2019) 101 NSWLR 679 [58] (Bell P, Basten JA agreeing).

7. The doctrine of merger of instruments does not, as I have earlier observed, operate as a presumption.  The objective intention of the parties must be determined.  There are numerous features of these instruments, including the integration clause, which lead to the conclusion, in my respectful view, that the parties should be taken to have intended to replace the Contract to Lease with the Lease, such that the omission of the charging clause in the latter instrument has the effect that it (that is, the charging clause) ceased to have any operation upon the execution of the Lease.  The objective logic of the circumstances strongly supports that result.

G.     Conclusion and orders

1. In my view, the Contract to Lease did not create an equitable charge.  If I am wrong in that conclusion, and the Contract to Lease did give rise to an immediately enforceable equitable charge, I would nonetheless conclude that the charge did not survive the execution by the parties of the Lease.

2. For the foregoing reasons, I would decline to grant the plaintiff the relief which it seeks.  I will dismiss the action and hear from the parties as to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

IR

Associate to the Hon Justice Lundberg

20 FEBRUARY 2025