Emu Brewery Mezzanine Ltd (in liq) v Australian Securities and Investments Commission - [2006] WASCA 105

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: EMU BREWERY MEZZANINE LTD (IN LIQ) -v- AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION [2006] WASCA 105

CORAM: MCLURE JA
PULLIN JA
BUSS JA

HEARD: 20 FEBRUARY 2006

DELIVERED : 15 JUNE 2006

FILE NO/S: FUL 182 of 2004

BETWEEN: EMU BREWERY MEZZANINE LTD (IN LIQ) (ACN 104 639 410)
Appellant
AND
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :SIMMONDS J
Citation  :AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION -v- EMU BREWERY MEZZANINE LTD [2004] WASC 241
File No  :COR 120 of 2004, CIV 1623 of 2004

Catchwords:

Corporations - Fundraising - Promissory notes - Notes issued by the appellant pursuant to an information memorandum - Whether the contract between the appellant and each investor included an implied undertaking to repay which was independent of the promise to pay contained in the notes - Notes issued by the appellant on terms which conferred on the appellant a right of early repayment - Right of early repayment conferred by the contract between the appellant and each investor - Right of early repayment not contained or referred to in the notes - Whether the notes issued by the appellant were "promissory notes" as defined in s 89(1) of the Bills of Exchange Act 1909 (Cth) and for the purposes of par (d) of the definition of "debenture" in s 9 of the Corporations Act 2001(Cth)

Legislation:

Bills of Exchange Act 1909 (Cth), s 13(1), s 14(1), s 16, s 34, s 37(a), s 41, s 64(1), s 89, s 92, s 93, s 94, s 95
Corporate Law Economic Reform Program Act 1999 (Cth)

Corporations Act 2001 (Cth), s 9, s 283AB(1), s 283AC, s 471B, s 601EB, s 601ED, s 700, s 718, s 721, s 761A, Ch 5C, Ch 6D, Pt 6D.2

Result:

Cross-appeal dismissed

Category: A

Representation:

Counsel:

Appellant: No appearance
Respondent: Mr C G Colvin SC & Mr A R Beech SC

Solicitors:

Appellant: Freehills
Respondent: Darren Jackson

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

Akbar Khan v Attar Singh (1936) 2 All ER 545
Alexander v Thomas (1851) 16 QB 333
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101
Australian National Nominees Pty Ltd v GPC No 11 Pty Ltd [2004] NSWSC 773
Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) (2003) 177 FLR 147
Balck v Pilcher (1909) 25 TLR 497
Chicago Railway Equipment Co v Merchants' National Bank of Chicago (1890) 136 US 268, 10 SCt 999
Claydon v Bradley [1987] 1 WLR 521
Cohen v Quigley (1899) 15 WN (NSW) 307
Coles Myer Finance Ltd v Federal Commissioner of Taxation (1993) 176 CLR 640
Creative Press Ltd v Harman [1973] IR 313
Crouch v The Credit Foncier of England, Ltd (1873) LR 8 QB 374
Dagger v Shepherd [1946] KB 215
Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1
Glasscock v Balls (1889) 24 QBD 13
Good v Walker (1892) 61 LJQB 736
Goodwin v Robarts (1876) 1 App Cas 476
Gore v Octahim Wise Ltd [1995] 2 Qd R 242
Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177
Hornal v Neuberger Products Limited [1957] 1 QB 247
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Hyundai Elevator Co Ltd v Liftronic Pty Ltd, unreported; CA SCt of NSW; Mahoney, Priestley and Handley JJA; 9 December 1994
In re Tewesbury Gas Co [1911] 2 Ch 279
J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435
Jacobs v Batavia and General Plantations Trust Ltd [1924] 2 Ch 329
John Burrows Ltd v Subsurface Surveys Ltd [1968] SCR 607
KHR Financings Ltd v Jackson (1977) SLT (Sh Ct) 6
Loxton v Moir (1914) 18 CLR 360
MacLeod Savings & Credit Union Ltd v Perrett [1981] 1 SCR 78
Mattison v Marks (1875) 31 Mich 421
Mohamedally v Miso (1957) 58 NLR (Ceylon) 457, PC
Morley v Culverwell (1840) 7 M & W 174
Mortgage Insurance Corporation v Commissioner of Inland Revenue (1888) 21 QBD 352
Norman v Federal Commissioner of Taxation (1962) 109 CLR 9
Re National Savings Bank Association (Hebb's Case) (1867) LR 4 Eq 9
Ross v Allis‑Chalmers Australia Pty Ltd (1981) 55 ALJR 8
Rumball v Metropolitan Bank (1877) 2 QBD 194
Salot v Naidoo 1981 (3) SA 959
Standard Credit Corporation Ltd v Kleyn 1988 (4) SA 441
Stenning v Radio and Domestic Finance Limited [1961] NZLR 7
Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128
Torkington v Magee [1902] 2 KB 427
Vidler v Sallaway (1862) 1 SCR (NSW) 246
Wenzel v Australian Stock Exchange Ltd (2002) 125 FCR 570
Weszak Beleggings (EDMS) BPK v Venter [1972] 1 SALR 730
Williamson v Rider [1963] 1 QB 89
Wragge v Sims Cooper & Co (Australia) Pty Ltd (1933) 50 CLR 483

Case(s) also cited:

City Link Melbourne Limited v Commissioner of Taxation (2004) 141 FCR 69
de Pedro v Young (1940) 42 WALR 79
Elias v George Sahely & Co (Barbados) Ltd [1983] 1 AC 646
Harvey v Edwards Dunlop (1927) 39 CLR 302
Konstas v Southern Cross Pumps & Irrigation Pty Ltd, unreported; Fed C of A; 3 July 1996

MCLURE JA: I have had the advantage of reading the judgment to be published by Buss JA. I agree that ground 2 of the cross‑appeal should be dismissed for the reasons he gives. However, I differ from him on the first ground of appeal. The facts and other relevant background material are detailed in his judgment and not repeated here unless necessary for an understanding of these reasons.
In 2003, Emu Brewery Mezzanine Pty Ltd published an Information Memorandum inviting investors to participate in a fundraising proposal under which the appellant would issue promissory notes with an aggregate face value of $35,000,000 ("the Information Memorandum"). The proceedings below and the appeal were conducted on the basis that the appellant (Emu Brewery Mezzanine Ltd) and Emu Brewery Mezzanine Pty Ltd are the same company. The Australian Securities and Investments Commission (the respondent) commenced proceedings in this Court for a declaration that, inter alia, in the circumstances set out in the Information Memorandum, the appellant had offered to issue securities to investors without preparing, lodging or providing to investors a disclosure document as required by Pt 6D.2 of the Corporations Act 2001 (Cth) ("the Act"). In the alternative, the respondent sought a declaration that, in the circumstances set out in the Information Memorandum, the appellant operated a managed investment scheme without complying with the requirements of Ch 5C of the Act.
The learned primary Judge, Simmonds J, found there was no offer of securities and accordingly the appellant was not required to comply with Ch 6D of the Act, but that the appellant operated a managed investment scheme to which Ch 5C applied.
The appellant appealed from the primary Judge's decision that it operated a managed investment scheme. The respondent cross‑appealed from the primary Judge's decision that there was no offer of securities to which Pt 6D.2 applied.
The appeal was subsequently discontinued with the consent of the parties. The only matter before this Court was the cross‑appeal. However, the appeal and cross‑appeal are interrelated because if the appellant's conduct involved an offer of securities, the managed investment scheme provisions of the Act do not apply: see par (j) of the definition of managed investment scheme in s 9 of the Act and Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) (2003) 177 FLR 147 at 150 ‑ 151. The appellant was not represented at the hearing of the cross‑appeal.
The central issue in the first ground of appeal is whether the appellant, in publishing the Information Memorandum inviting investors to participate in the fundraising proposal, made an "offer of securities" for the purposes of Ch 6D of the Act. An offer of securities is defined to include inviting applications for the issue or purchase of securities: s 700(2) of the Act. "Securities" in Ch 6D has the same meaning as it has in Ch 7 (s 700(1)). Security is defined in s 761A of the Act. It was common ground that the relevant part of the definition of security is "a debenture of a body".
The term "debenture" is defined in s 9 of the Act as follows:
"[D]ebenture of a body means a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a charge over property of the body to secure repayment of the money. However, a debenture does not include:
…
(d)an undertaking to pay money under a promissory note that has a face value of at least $50,000 … "
This definition of debenture, which focuses on the legal right to repayment of a debt, was inserted by the Corporate Law Economic Reform Program Act 1999 (Cth). It replaced a definition of debenture that reflected the common law. The common law focussed on the document issued by a company acknowledging or creating a debt. Although at common law the term debenture defies accurate definition, it excludes negotiable instruments: Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 at 195 ‑ 196. The document evidencing the debt was intended to be transferable and there is authority that it should contain all the terms that bind the parties and transferees: In re Tewesbury Gas Co [1911] 2 Ch 279 at 284. However, even at common law, a promise contained in a prospectus that was omitted from a debenture could give rise to a collateral contract, the consideration for which was the plaintiff's agreement to take the debentures: Jacobs v Batavia and General Plantations Trust Ltd [1924] 2 Ch 329.
The first ground of appeal assumes the promissory notes issued pursuant to the Information Memorandum are promissory notes for the purpose of the exclusion in the definition of debenture.
The respondent contended that on the proper construction of the Information Memorandum: (1) there was a loan agreement between the appellant and each person who invested money with the appellant ("investor"); (2) the loan agreement created a debtor‑creditor relationship between the appellant and the investor and included a promise by the appellant to repay its indebtedness to the investor; and (3) the appellant's promise to repay the debt under the loan agreement was in addition to the appellant's obligation to pay under the promissory note.
A promissory note is defined in s 89(1) of the Bills of Exchange Act 1909 (Cth) as an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer.
A promissory note is an instrument, the contents of which consist substantially of a promise to pay a definite sum of money and of nothing else: Mortgage Insurance Corporation v Commissioner of Inland Revenue (1888) 21 QBD 352 at 358. However, a promissory note will not be invalid by reason only that it contains a pledge of collateral security (s 89(3)). A promissory note must come into existence for the purpose only of recording an agreement to pay money and nothing more; serious embarrassment would be caused in commerce if the negotiable net were cast too wide: Akbar Khan v Attar Singh (1936) 2 All ER 545 at 550 per Lord Atkin. It is not unusual for a promissory note to co‑exist with another underlying agreement.
As there are very limited defences to a claim based on a promissory note (and other bills of exchange), such claims are usually enforceable summarily. Because of the availability of summary enforcement mechanisms, promissory notes are used as a form of security: Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128 at 134, 135, 142; Wragge v Sims Cooper & Co (Australia) Pty Ltd (1933) 50 CLR 483; Stenning v Radio and Domestic Finance Limited [1961] NZLR 7. In Stock Motor Ploughs, the respondent gave two promissory notes as collateral security for two instalments under a hire purchase agreement between the appellant and the respondent. As stated by Dixon J (at 135), the legal consequence was that the respondent had two independent obligations to pay the same money. The obligations were separate, concurrent, secured the same sum and were enforceable in any order.
The respondent's contention was that the loan agreement and promissory note gave rise to two independent obligations to pay the same debt, only one of which obligations was excluded from the definition of debenture. The respondent must first demonstrate that there is an agreement between the appellant and each investor, the terms of which go beyond the terms of the promissory note. The promissory notes materially provided:

"PROMISSORY NOTE Promissory Note No:

Expiry Date: 36 months from the Issue Date
Issue Date: ________2003

Emu Brewery Mezzanine Pty Ltd ('Emu Brewery Mezzanine') promises to

pay [insert name and address of investor] ('the Investor'):

(a) the sum of $________________ (the 'Principal Sum'); and
(b) interest ('Interest')
in accordance with the terms set out below.

This Note is non‑negotiable and non‑transferable.

The Principal Sum plus 2% will be paid on the Expiry Date.

Interest will be paid at the rate of 12% per annum on a monthly basis in

arrears."

The respondent contended that the Information Memorandum invited the investors to lend money to the appellant to finance a particular property development on the basis of promises by the appellant to arrange particular securities that would mitigate the risk of lending.
The front page of the Information Memorandum represents that it is published by the appellant and "the Westpoint Group" being defined in the Information Memorandum as Westpoint Corporation Pty Ltd and its associated entities. The Information Memorandum states that the Westpoint Group had arranged the acquisition of the Emu Brewery East Site ("the Site"), the specific location and title details of which are provided. The nature and timing of the proposed development on the Site are also detailed; it is to be a combination of apartments (the majority of which were to be contained in three proposed high‑rise towers), office and retail complexes. The construction of the first tower (the Mounts Bay tower) was scheduled to commence in mid‑2004 and would take approximately 24 months to complete. The Information Memorandum continues:
"The Mezzanine Funding being raised pursuant to this Information Memorandum will be utilised to settle the land acquisition and carry out all the preliminary design work and pre‑sale marketing. The Mezzanine Funding will initially have a first ranking charge over the project, reverting to second ranking when senior debt is introduced. It is planned that the Mezzanine Funds will either be repaid through the refinancing of the project shortly before the commencement of construction, or from the proceeds of the sale of the first Mounts Bay Tower.
This Information Memorandum has been prepared to assist investors considering participating in the $35 million Promissory Notes Issue by [the appellant] a special purpose company specifically established for this purpose.
[The appellant] is seeking to raise $35 million to lend Emu Brewery Developments Pty Ltd as trustee for the Emu Brewery Trust … , the principal project company, to assist in the funding of the project. The funds raised will be allocated partly towards the purchase of the property as well as pre‑construction development expenses that include consultants, marketing, advertising, selling and other project establishment costs." (emphasis added)
After referring to the promissory note funds to be raised, the interest rate, the investment period, and the minimum investment, there is a reference to security as follows:
"The issue is of unsecured Promissory Notes in a special purpose company, [the appellant]. [The appellant] will have a 2nd ranking mortgage over the property and 2nd charge over the Trust. In addition the Westpoint Group will provide a guarantee to the investors for all interest and capital payments due."
The Information Memorandum continues:
"Promissory Notes by nature are unsecured, however, the lending risk will be mitigated by issuing the Notes from a special purpose company which will have security over the project as noted in the financing structure below.

As you will see from the structure diagram, the Senior Debt Provider will hold a first ranking mortgage over the property and a first ranking charge over the Trust … [The appellant] will hold a second ranking fixed and floating charge over the Trust and a second ranking mortgage over the property. In addition, [the Westpoint Group] will provide a guarantee to [the appellant] up until the redemption of all Promissory Notes and satisfaction of all interest payments due under those Promissory Notes." (emphasis added)

Subsequently it is stated that "[t]o ensure absolute compliance with the loan arrangements between [the appellant] and the Trust and that investors interests are always considered, [the appellant] has an independent board of directors and is audited by KPMG".
Whether a statement (be it of fact, intention or opinion) is promissory, is determined objectively by reference to the whole of the relevant circumstances: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. Gibbs CJ said in that case (at 61 ‑ 62):
"If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. In the present case [the respondent], who made his statements fraudulently, had, of course, no intention that they should amount to contractual undertakings, but he could not rely on his secret thoughts to escape liability, if his representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained objectively; it 'can only be deduced from the totality of the evidence': Heilbut, Symons & Co. v. Buckleton [1913] A.C. 30, at p. 51."
If an intelligent bystander would reasonably infer that a contractual promise was intended, that would suffice even though neither party in fact had it in mind: Hornal v Neuberger Products Limited [1957] 1 QB 247 at 256 per Denning LJ.
A statement may be on a matter of importance upon which the representee was intended to and did rely without being promissory: J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435. In that case, the vendor of a boat and engine, in the course of pre‑contractual negotiations, provided his estimate of the speed the boat would reach if powered by a particular engine. The High Court described the statement as an expression of opinion as the result "of approximate calculation based on probability" which tended against the inference of a promise that the boat would in fact achieve the nominated speed. Statements of opinion on future matters are less likely to be found to be promissory even if they induce entry into a contract.
In Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1, the statement in issue was of an intention in relation to a future matter. The statement was to the effect "that the total disability benefit under the provisions [the insurer's agent] was recommending for inclusion in his existing and new policy would be payable to [the appellant] if he suffered an injury or illness which left him physically incapable of carrying on his occupation as a self‑employed builder". Gibbs CJ said (at 5):
"The question whether the statements constituted a collateral contract depends on the intention of the parties … In the present case the statements were not promissory in form –– they purported to be descriptive or explanatory of one of the terms of the formal written contracts into which the parties proposed to enter. I find it impossible to say that either of the parties actually intended that the statements should constitute a term of the contracts between them or … that an objective inference can be drawn that they did so intend. The statements were representations and nothing more."

Because the outcome in each case depends upon inferences drawn from the circumstances as a whole, the authorities provide only very general guidance in the determination of the question whether a statement is promissory. Relevant considerations include the language used by the parties, whether the statements are of fact, intention or opinion and whether the statement describes or identifies the characteristics of the subject matter of the contract. Where the statements concern future matters, it is relevant to consider whether the representor has control (or the capacity to control) those matters.
There can be no doubt in this case as to the appellant's subjective intention. It was to attempt to avoid the application of the Act by bringing itself within the promissory note exclusion in the definition of debenture. However, the appellant's subjective intention is irrelevant. Further, the objectively determined intention must depend upon matters of substance rather than form. The fact that the document is labelled an "Information Memorandum" is a matter to be considered in objectively determining the parties' intention but is not determinative.
The appellant makes unequivocal and unqualified statements in the Information Memorandum as to:
(1)the specific and exclusive purposes for which the funds lent by investors to the appellant are to be used. In particular, the funds are to be on‑lent by the appellant to the Trust to be applied by the Trust in the acquisition of the Site and for pre‑construction development expenses including preliminary design work and presale marketing for the proposed development on the Site; and
(2)the security to be obtained by the appellant from the Trust and the Westpoint Group in consideration for the loan to the Trust, being a first ranking charge over the Trust until the introduction of "senior debt" and thereafter:
(a)a second ranking mortgage of the Site;
(b)a second ranking charge over the Trust; and
(c)a guarantee from the Westpoint Group.
The purpose of the loan and the security are interdependent. There could be no obligation in relation to security without an obligation as to purpose. The language in and content of the "Information Memorandum" are consistent with an assurance of performance in relation to both the purpose for which the funds are to be used and the security to be provided to the appellant. That is conveyed in a number of ways. First, the use of the word "will", in context, means that the appellant had resolved to act in accordance with its statements. Secondly, the appellant is stated to be a single purpose company. Thirdly, and perhaps most significantly, the appellant identifies the means by which compliance with the loan arrangements between the appellant and the Trust is to be ensured. It is implicit in this statement, and not contradicted elsewhere, that the appellant intended to be bound by its statements as to purpose and security. Further, there is no relevant uncertainty in the formulation of the obligations (as to which, see the robust approach in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd (2000) 22 WAR 101) and no legal or practical impediment to the appellant performing in accordance with the assurances. Settlements of this nature involving three or more parties are a common feature in the financing of property and development transactions. The language in and content of the Information Memorandum in this case are materially different to that considered in Australian National Nominees Pty Ltd v GPC No 11 Pty Ltd [2004] NSWSC 773.
I am satisfied that an intelligent bystander would reasonably infer that a contractual promise was intended in relation to the purpose of, and security for, the funds invested by the investors.
I am also satisfied that there was an underlying transaction between the appellant and the investors which is appropriately described as a loan agreement. In ascertaining the terms of the loan agreement, regard can be had to the terms of the promissory note. However, as the promissory note must be primarily an unconditional promise to pay money, any underlying transaction can form no part of the terms of the promissory note. Indeed, there is nothing on the face of the promissory note to indicate that the investors had lent money to the appellant. The nature of the underlying transaction is simply not disclosed. Yet the fact that the parties contemplated a loan transaction is confirmed in the statement in the explanatory memorandum that the investors' lending risk would be mitigated by the fact that the appellant would have security over the Site

and the ultimate borrower, the Trust. The loan agreement is the underlying transaction to which the promissory note is complementary.

As the underlying loan agreement imposes contractual obligations on the appellant that are outside the scope of the promissory note, it must have been intended to give rise to a debtor‑creditor relationship that carried with it an independent implied obligation to repay the debt. Were it otherwise, the investors' entitlement to repayment would be governed solely by the terms of the promissory note notwithstanding any repudiatory breach of the loan agreement. That cannot have been intended. It is also a term of the loan agreement that the appellant is entitled to repay the loan before the date specified in the promissory note.
The final issue is whether a loan agreement containing terms relating to purpose and security as well as an obligation to repay indebtedness can be a debenture. Debenture is defined as "a chose in action that includes an undertaking by the body to repay as a debt" money lent to the body. A chose in action is a personal right of property which can only be claimed or enforced by action as distinct from taking physical possession: Loxton v Moir (1914) 18 CLR 360 at 379 per Rich J; Torkington v Magee [1902] 2 KB 427 at 430; Starke, Assignments of Choses in Action in Australia (1972) at 1 ‑ 9. The loan agreement is a chose in action or perhaps more accurately, gives rise to a number of choses in action including the debt and other rights of action arising under the contract: Loxton v Moir at 379; Norman v Federal Commissioner of Taxation (1962) 109 CLR 9 at 26. There is nothing in the statutory definition of debenture which expressly or impliedly excludes rights of action arising out of contractual terms relating to the purpose of, or security for, the money lent to the body, or makes the presence of such rights inconsistent with the existence of a debenture.
For these reasons, I conclude that the loan agreement is a debenture in which event, in the circumstances set out in the Information Memorandum, the appellant made an offer of securities for the purposes of Ch 6D of the Act. However, as I am in the minority, it is unnecessary for me to formulate the orders I would make.
PULLIN JA: I have had the opportunity of reading the drafts of the reasons for decision of McLure and Buss JJA. I agree with Buss JA. However, in view of the difference between them concerning ground 1, I add the following observations concerning that ground.

The Information Memorandum by its title indicates that it is dedicated to the provision of information concerning what is described on the cover as a "$35 Million Promissory Notes Issue". It provides, within the body of the document, an executive summary explaining the reasons for raising the funds. It explains that the "Mezzanine Funding" raised pursuant to the Information Memorandum "will" be utilised to settle land acquisition and carry out preliminary design work and pre‑sale marketing. It explains that the Mezzanine Funding "will initially have a first ranking charge over the project, reverting to second ranking when senior debt is introduced."
This is given more meaning in the section headed "The Promissory Note Offer", which explains that the appellant would be seeking to raise $35 Million to let another company (Emu Brewery Developments Pty Ltd as trustee for the Emu Brewery Trust, the principal project company) assist in the funding of the project. It sets out the "investment period" which is said to be "from the date of issue of Promissory Notes until Expiry Date …" It represents that the appellant "will" have a second ranking mortgage over the property and a second ranking charge over the trust, and further represents that the "Westpoint Group" would provide a guarantee to the investors for all interest and capital payments due.
It further informed potential investors that the promissory notes were "by nature … unsecured" and then represented that the lending risk "will" be mitigated by issuing the notes from a "special purpose company" which would have security over the project in the form of the charge and mortgage and guarantee referred to earlier.
Under a section dealing with risk factors, investors were again informed that promissory notes are by their nature unsecured, and once again made the representation that this lending risk "will" be mitigated by the appellant taking security. To further reassure investors, there was a representation that the appellant had an independent board of directors and that the company was audited by KPMG. The document concluded with a Promissory Note Application Form and a proforma of the promissory note.
In my opinion, it is not possible to draw out of this the creation of a chose in action (independent of the promissory note) that included an undertaking by the appellant to repay, as a debt, the money which was to be advanced in exchange for the promissory note. Counsel for the respondent placed great store on the repeated appearance of the word "will" and submitted that this was the "language of promise". In my

opinion, the word in its context is no more than an expression of resolve or, in some instances, of future likelihood. The impression created by a reading of the whole document is that representations are made to induce readers to advance funds in exchange for a promissory note.

BUSS JA: In 2003 Emu Brewery Mezzanine Pty Ltd published a document entitled "Information Memorandum: Mezzanine Finance $35 million Promissory Notes Issue" ("the Information Memorandum"). The proceedings before this Court were conducted on the basis that Emu Brewery Mezzanine Pty Ltd was the former name of the appellant, and that the appellant had changed its status from a proprietary to a public company.
In the Information Memorandum the appellant invited investors to participate in a fundraising proposal under which the appellant would issue promissory notes with an aggregate face value of $35,000,000.
More than 20 investors accepted the invitation, and paid money to the appellant pursuant to the Information Memorandum.
The appellant issued instruments to each of the investors who participated in the fundraising. These instruments were described as "promissory notes". It is convenient, in these reasons, to refer to the instruments as "notes". The face value of each note exceeded $50,000, and the aggregate face value of all notes issued by the appellant to the investors exceeded $5,000,000.
The funds raised by the appellant were lent by it to Emu Brewery Developments Pty Ltd ("the Developer") as trustee of the Emu Brewery Trust ("the Trust"). The purpose of the loan was to assist the Developer in financing preliminary expenses and costs relating to the proposed development and construction of apartment, office and retail complexes on land known as the Emu Brewery East site at the western end of the Perth central business district.
The loan was secured by:
(a)A second-ranking mortgage over the Emu Brewery East site;
(b)A second-ranking charge over the present and future assets and undertaking of the Developer; and
(c)A guarantee from Westpoint Corporation Pty Ltd and related entities.

The proceedings

The respondent commenced proceedings against the appellant in the Supreme Court. Relevantly, for the purposes of this cross‑appeal, the respondent claimed relief against the appellant, as follows:
(a)A declaration that the conduct of the appellant in offering to issue and issuing securities to investors in the circumstances set out in the Information Memorandum without:
(i)entering into a trust deed in compliance with s 283AB(1) of the Corporations Act 2001 (Cth) ("the Act");
(ii)appointing a trustee in compliance with s 283AC of the Act;
(iii)preparing a disclosure statement in accordance with Pt 6D.2 of the Act;
(iv)lodging the disclosure document with the respondent in accordance with s 718 of the Act; and
(v)providing a copy of the disclosure document to investors in accordance with s 721 of the Act,
contravened the Act;
(b)Alternatively to par (a), a declaration that the conduct of the appellant in inviting investors to subscribe for the notes to be issued by the appellant on the basis of the Information Memorandum, without registering a managed investment scheme under s 601EB, in accordance with s 601ED of the Act, contravened the Act.
On 1 June 2004 Owen J (as his Honour then was) directed that certain questions of law be stated for the opinion of a Judge of the Supreme Court. Relevantly, for the purposes of this cross‑appeal, these questions included:
(a)Whether the notes issued by the appellant to the investors were "promissory notes" for the purposes of s 89 of the Bills of Exchange Act 1909 (Cth);
(b)Whether the notes were "promissory notes" for the purposes of par (d) of the definition of the term "debenture" in s 9 of the Act;
(c)Whether the conduct of the appellant in issuing the notes was subject to the requirements of Ch 6D of the Act;
(d)If not, whether the notes were an "interest in a managed investment scheme", as defined in s 9 of the Act;
(e)If so, whether the issue of the notes was subject to the requirements of Ch 5C of the Act.
These (and other) questions were heard and determined by Simmonds J. His Honour concluded, relevantly for the purposes of this cross‑appeal, that:
(a)The notes were promissory notes for the purposes of s 89 of the Bills of Exchange Act;
(b)The notes were promissory notes for the purposes of par (d) of the definition of the term "debenture" in s 9 of the Act;
(c)The conduct of the appellant in issuing the notes was not subject to the requirements of Ch 6D of the Act;
(d)The notes were an "interest in a managed investment scheme", as defined in s 9 of the Act;
(e)The issue of the notes was subject to the requirements of Ch 5C of the Act, but "subject to the other terms of the application of those requirements not addressed in the Case Stated".

The appeal and the cross‑appeal

The appellant appealed from the judgment of the learned Judge on various grounds. Subsequently, however, by consent, this Court ordered that the appeal be discontinued.
The respondent cross‑appealed. The cross‑appeal was argued by counsel on behalf of the respondent, but the appellant did not appear by counsel or otherwise. Shortly prior to the hearing of the cross‑appeal, the appellant went into liquidation. The liquidators gave their consent to this Court granting leave under s 471B of the Act to the respondent proceeding with the cross‑appeal. An order was made to that effect.

The grounds of the cross-appeal

The respondent contended that the answers to the questions in the case stated, as set out in par 47 above, should be set aside, and instead the questions be answered, as follows:
(a)The notes were not promissory notes for the purposes of s 89 of the Bills of Exchange Act;
(b)The notes were not promissory notes for the purposes of par (d) of the definition of the term "debenture" in s 9 of the Act;
(c)The conduct of the appellant in issuing the notes was subject to the requirements of Ch 6D of the Act;
(d)The notes were not an "interest in a managed investment scheme", as defined in s 9 of the Act; and
(e)Not applicable.
The amended grounds of the cross‑appeal, on which the respondent relied at the hearing of the cross‑appeal, were these:
"1.The trial judge erred in fact and law in finding that there was no implied undertaking to repay the monies invested that was separate from the undertaking to pay in the documents issued by the appellant ('the Notes') [28] and [36]. The trial judge should have found that the subscription of monies by an investor to the appellant in response to the Information Memorandum and the acceptance of those monies by the appellant created an agreement between the investor and the appellant a term of which was that the appellant would repay the investor's money.
2.The trial judge erred in law in finding that the Notes were promissory notes [72]. The trial judge should have found that they were not promissory notes because the time for repayment expressed in the Notes was uncertain in that the appellant could in its discretion make part payment at any time prior to the expiry date."
After the hearing, the respondent sought leave to re‑amend ground 2, as follows:
"The trial judge erred in law in finding that the Notes were promissory notes [72]. The trial judge should have found that they were not promissory notes because:
(a)the time for repayment expressed in the Notes was uncertain in that the appellant could in its discretion make part payment at any time prior to the expiry date; alternatively
(b)(i) an instrument or instruments said to constitute a promissory note within the definition in s89(1) must be in writing, signed by the maker and must contain the terms comprising the elements of the definition in s89(1);
(ii)the time for payment of the sum the subject of what is said to be a promissory note is an essential element of the definition in s89(1) of promissory note and so must be part of the 'writing' 'signed by the maker' of the promissory note within that definition;
(iii)the objective intention of the parties (namely the appellant and an investor) was that the Notes be issued on terms which included the terms on the application form and enumerated as 1 and 2 (AB 88D), which included, by term 2, a term respecting time for payment, namely a discretionary power in favour of the appellant permitting early repayment in part or in whole;
(iv)the application form was not referred to in the Notes and nor was it signed by the appellant."
The appellant's solicitors informed this Court that the liquidators of the appellant did not oppose the proposed re‑amendment. In the circumstances, leave to re‑amend should be granted.

The terms of the Information Memorandum

The Information Memorandum was divided into sections, with headings. The relevant sections, for the purposes of this cross‑appeal, are these:
(a)Executive Summary;
(b)The Promissory Note Offer;
(c)Westpoint;
(d)Risk Factors;
(e)Custodianship;
(f)Property Description;
(g)Development Proposal;
(h)Sales and Marketing Strategy; and
(i)Project Costs.
The Information Memorandum also included a document described as a "Promissory Note Application Form".
The section headed "Executive Summary" provides, relevantly:
"The Mezzanine Funding being raised pursuant to this Information Memorandum will be utilised to settle the land acquisition and carry out all the preliminary design work and pre‑sale marketing. The Mezzanine Funding will initially have a first ranking charge over the project, reverting to second ranking when senior debt is introduced. It is planned that the Mezzanine funds will either be repaid through the refinancing of the project shortly before the commencement of construction, or from the proceeds of the sale of the first Mounts Bay Tower."

The section headed "The Promissory Note Offer" provides, relevantly:
(a)"This Information Memorandum has been prepared to assist investors considering participating in the $35 million Promissory Notes Issue by [the appellant], a special purpose company specifically established for this purpose."
(b)"[The appellant] is seeking to raise $35 million to lend [to the Developer as trustee of the Trust], the principal project company, to assist in the funding of the project. The funds raised will be allocated partly towards the purchase of the property as well as pre‑construction development expenses that include consultants, marketing, advertising, selling and other project establishment costs."
(c)"The issue is of unsecured Promissory Notes in a special purpose company [the appellant]. [The appellant] will have a 2^nd ranking mortgage over the property and 2^nd ranking charge over the Trust. In addition, the Westpoint Group will provide a guarantee to the investors for all interest and capital payments due."
(d)"Investors will receive interest of 12% per annum payable monthly in arrears plus a flat 2% payable with the repayment of capital on the Expiry Date of the Promissory Note: 36 months from the issue date."
(e)"Each Promissory Note must have a minimum face value of $50,000 and is issued in accordance with the Bills of Exchange Act 1909 (Cth). Promissory Notes are not securities as defined by the Corporations Act (Section 9 'Debentures') and therefore are not covered by the Corporations Act."
(f)"Promissory Notes by nature are unsecured, however, the lending risk will be mitigated by issuing the Notes from a special purpose company which will have security over the project as noted in the financing structure below."
(g)"As you will see from the structure diagram, the Senior Debt Provider will hold a first ranking mortgage over the property and a first ranking charge over the Trust (the First Ranking Security). [The appellant] will hold a second ranking fixed and floating charge over the Trust and a second ranking mortgage over the property. In addition, Westpoint Corporation Pty Ltd and associated entities ('the Westpoint Group') will provide a guarantee to [the appellant] up until the redemption of all Promissory Notes and satisfaction of all interest payments due under those Promissory Notes."
The section headed "Westpoint" contains information relating to:
(a)the role of the Westpoint Group as "development manager" of the project;
(b)the experience of the Westpoint Group in relation to the completion of other development projects and the management of retail and commercial properties throughout Australia;
(c)the Westpoint Group's approach to financial management including the minimisation of financial risk;
(d)the Westpoint Group's internal management structure; and
(e)the manner in which the Westpoint Group distributes "financial products" to its clients.
The section headed "Risk Factors" provides, relevantly:
(a)"Investors should be aware that there are certain risks involved in participation in this Promissory Note Issue. Whilst the Promissory Notes are by their very nature unsecured, the lending risk will be mitigated by [the appellant] (the special purpose company issuing the notes) having the second ranking mortgage over the property, a second ranking charge over the trust and the guarantee by the Westpoint Group."
(b)"Neither the Westpoint Group nor any of the parties associated with the Emu Brewery Development can guarantee the performance of the development. There are a number of factors, which may have an impact on the profitability of the development. Some of these factors are set out below, but this list is not exhaustive and investors should read this Information Memorandum carefully and consult their professional advisers before deciding whether to apply for Promissory Notes.
…"
(c)"…
Should any of the above factors have an adverse impact on the development, the ability of the Trust to repay the senior debt and the second ranking debt to the special purpose company [the appellant] may be affected. The ability of [the appellant] to then pay the interest and repay the capital when the Promissory Notes fall due for payment will then be dependent on the calling of the Westpoint guarantee. A brief description of the strength of the Westpoint Group is found under Section 3 of this document."
The section headed "Custodianship" contains information relating to each of the directors of the appellant, and states:
"As previously mentioned, [the appellant] is a single purpose company specifically established for this offering. To ensure absolute compliance with the loan arrangements between [the appellant] and the Trust and that investors' interests are always considered, [the appellant] has an independent board of directors and is audited by KPMG."
The section headed "Property Description" contains information relating to the Emu Brewery East site.
The section headed "Development Proposal" contains information relating to a development approval issued by the City of Perth in respect of the Emu Brewery East site, and a proposed amendment to be sought to that approval.
The section headed "Sales and Marketing Strategy" contains information relating to the proposed marketing of the development upon completion, and the proposed sales prices for properties within the development.
The section headed "Project Costs" provides, relevantly, that the construction phase of the project is scheduled to commence in mid‑2004 and the total cost of the project is A$143,600,000.

The terms of the "Promissory Note Application Form"

The "Promissory Note Application Form" contained in the Information Memorandum is headed, as follows:
"EMU BREWERY MEZZANINE PTY LTD
ACN 104 639 410
PROMISSORY NOTE APPLICATION FORM
Expiry Date: 36 months from the Issue Date."
The form then provides:
"I/We apply for a Promissory Note of $________
The Promissory Note issued will be under the terms and conditions and in the same form as that noted on the reverse."
The form makes provision for an applicant to complete his, her or its name and address and provide contact details. Provision is also made for details to be inserted of payments enclosed with the form and of the tax file number or exemption of the applicant.
The form then provides:
"Applicant's Undertaking
The Applicant agrees to the issue of each Promissory Note by [the appellant] on the following terms:
1.The Applicant will not demand payment on each Promissory Note until the Expiry Date as referred to in the Promissory Note,
2.Part payment of the face value of each Promissory Note may be made at the sole discretion of [the appellant] at any time before the expiry date."
At the foot of the form there is provision for signature or execution by the applicant. The form is stated to be "[e]xecuted as a deed".
On the reverse of the "Promissory Note Application Form" is an instrument in, relevantly, these terms:

"PROMISSORY NOTE Promissory Note No:

Expiry Date: 36 months from the Issue Date
Issue Date: ________2003

Emu Brewery Mezzanine Pty Ltd ('Emu Brewery Mezzanine') promises to

pay [insert name and address of investor]

('the Investor'):

(a) the sum of $________________ (the 'Principal Sum'); and
(b) interest ('Interest')
in accordance with the terms set out below.

This Note is non‑negotiable and non‑transferable.

The Principal Sum plus 2% will be paid on the Expiry Date.

Interest will be paid at the rate of 12% per annum on a monthly basis in

arrears.

Payable at: Signed by:

Emu Brewery Mezzanine Pty Ltd

Emu Brewery Mezzanine Pty Ltd

c/- Westpoint Management Limited

Level 9, Paragon CBD

160 St Georges Tce, Perth WA 6000

____________ __________
Secretary/Director Director"

The form of notes actually issued

The appellant issued a note pursuant to the Information Memorandum in, relevantly, this form:

"PROMISSORY NOTE

Promissory Note No:  8518
Expiry Date:  21 August 2006
Issue Date:  21 August 2003

Emu Brewery Mezzanine Pty Ltd ('Emu Brewery Mezzanine Pty Ltd')

promises to pay R & L Andrew Pty Ltd ATF R & L Andrew Superannuation

Fund ('the Investor') of 13 Gertrude Street Sunshine VIC 3020 Australia:

(a) The sum of $71,000 ('the Principal Sum'); and
(b) Interest ('Interest')

in accordance with the terms set out below.

This Note is non negotiable and non transferable.
The Principal Sum plus 2% will be paid on the Expiry Date.
The Interest will be paid at the rate of 12% per annum on a monthly basis in

arrears.

Payable at: Signed

Emu Brewery Mezzanine Pty Ltd Emu Brewery Mezzanine Pty Ltd

c/o Emu Brewery Mezzanine Pty Ltd by:

Level 9, 160 St Georges Terrace

PERTH WA 6000

_______________   ____________
Secretary/Director    Director
Graeme Rundle        Richard Beck
_______________ ____________
Name   Name"

The note was signed on behalf of the appellant by Mr Beck, one of its directors, and Mr Rundle, its company secretary.

In the proceedings, the parties agreed that all notes issued by the appellant pursuant to the Information Memorandum were, in all material respects, in this form.

Ground 1

Chapter 6D of the Act regulates fundraising by the offer and sale of "securities". In Ch 6D, "securities" has the same meaning as it has in Ch 7. By s 761A, which is part of Ch 7, "security" is defined to include, relevantly, "a debenture of a body".
In s 9 of the Act, unless the contrary intention appears, "debenture" of a body means:
"a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body. The chose in action may (but need not) include a charge over property of the body to secure repayment of the money. However, a debenture does not include:
…
(d)an undertaking to pay money under a promissory note that has a face value of at least $50,000; or
…"
The learned Judge construed the Information Memorandum and the form of the notes issued by the appellant pursuant to the Information Memorandum, and concluded, at [36]:
" … the only 'undertaking to repay' for the purposes of s 9 of the Corporations Act 2001 'debenture' is that involved in the Notes."
The respondent submitted to this Court that his Honour misconstrued the documents. It asserted that:
" … upon a proper construction of the [Information Memorandum] if the offer or invitation in the [Information Memorandum] is accepted by an investor completing the application form and subscribing monies and those monies are accepted by the appellant, a loan agreement is brought into existence between the appellant and the investor that obliges the appellant to perform the promises in the [Information Memorandum] and implement the mezzanine financing structure. This loan agreement is a chose in action that is independent of the Note and includes a promise to repay the monies invested that is separate from the promise to pay under the Notes. The Notes are simply a part of the security offered to the investor."
The respondent referred to Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128, where promissory notes were issued as collateral security for instalments payable under a hire‑purchase agreement. Dixon J said, at 135:
"The bailee or hirer of the chattels, besides contracting under the hire‑purchase agreement to pay to the bailor or owner the instalments of hire or rent, made in his favour as payee a promissory note for the amount of each instalment and delivered the note to him as a collateral security for the payment of the instalment. The legal consequence was to bring into existence two independent obligations to pay the same sum of money. Each obligation requires the same person to do the same act so that by performing one he performs the other. He must make, in respect of each instalment, a single not a double payment, but he incurs a double obligation to make it. The obligations are collateral in the sense that they are separate, concurrent, secure the same sum, rank equally and are enforceable in any order."
The respondent argued, in its written submissions, that there were statements in the Information Memorandum which supported its submissions relating to ground 1, as follows:
"(a)the use of the words 'Mezzanine Finance' on the cover of the [Information Memorandum];
(b)the detailed description of the property development to be undertaken using the investors' funds;
(c)the description in the Executive Summary of the 'Mezzanine Funding being raised' pursuant to the [Information Memorandum] and how it will be 'repaid' …;
(d)the statement that promissory notes by nature are unsecured, however, 'the lending risk' will be mitigated by issuing the Notes from a special purpose company which will have security over the project as noted in the financing structure set out in the [Information] Memorandum …;
(e)the description of the securities to be provided in the 'financing structure' up until redemption of the Notes and satisfaction of all interest payments due under the Notes …;
(f)the description of the products offered as 'property investment products' …;
(g)the statement that the lending risk of investors will be mitigated by the appellant (described as the special purpose company issuing the Notes) having the securities described …; and
(h)the statements describing how the funds invested will be advanced to a development company and the steps taken by the appellant to ensure 'absolute compliance' with the loan arrangements between the appellant and the developer and that investor interests are always considered."
If there was a loan agreement between the appellant and each investor which included an implied undertaking to repay the moneys paid by the investor to the appellant, and the implied undertaking and the promise to pay contained in the note issued to each investor were independent obligations to repay those moneys, then, according to the respondent:
(a)par (d) of the definition of "debenture" did not apply; and
(b)the appellant engaged in fundraising by the sale and offer of "securities" in contravention of Ch 6D of the Act.
It is convenient, before examining and construing the Information Memorandum and the notes issued by the appellant to the investors, to review the authorities which have articulated the proper approach for determining whether pre‑contractual statements are promissory or representational.

The authorities relating to whether pre‑contractual statements are promissory or representational

In J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435, the High Court considered whether a statement made in the course of negotiations for the construction of a motor boat was promissory or representational. During the negotiations the plaintiff requested the defendant's manager to place in writing his views upon various engines that might be used in the boat. The defendant set out in a letter details in relation to three types of engines and made recommendations in favour of one engine, of which the "estimated speed" was stated to be 15 miles per hour. The plaintiff ordered a boat with the engine recommended by the defendant. A written contract was executed in which no reference was made to the capacity of the boat to attain any particular speed. The boat supplied to the plaintiff was not capable of a speed in excess of 12 miles per hour. The plaintiff sued the defendant for breach of warranty, alleging that the representation in relation to "estimated speed" was a condition or warranty of the contract, alternatively that it was a collateral warranty to the contract. The Full Court of the Supreme Court of Victoria held that the representation was a collateral warranty by the defendant that the boat would attain a speed of approximately 15 miles per hour. An appeal to the High Court was allowed. Barwick CJ, Kitto, Menzies, Owen and Walsh JJ said, at 442 ‑ 443:
"The Full Court seems to have thought it sufficient in order to establish a collateral warranty that without the statement as to the estimated speed the contract of purchase would never have been made. But that circumstance is, in our opinion, in itself insufficient to support the conclusion that a warranty was given. So much can be said of an innocent representation inducing a contract. The question is whether there was a promise by the appellant that the boat would in fact attain the stated speed if powered by the stipulated engine, the entry into the contract to purchase the boat providing the consideration to make the promise effective. The expression in De Lassalle v. Guildford [1901] 2 KB 215, at p 222 that without the statement the contract in that case would not have been made does not, in our opinion, provide an alternative and independent ground on which a collateral warranty can be established. Such a fact is but a step in some circumstances towards the only conclusion which will support a collateral warranty, namely, that the statement so relied on was promissory and not merely representational.
When the letter which we have quoted was written, the negotiations for the construction and delivery of the boat were incomplete. On receipt of the letter there were three courses open to the respondent. He could have required the attainment of the speed to be inserted in the specification as a condition of the contract; or he could have sought from the appellant a promise - however expressed, whether as an assurance, guarantee, promise or otherwise - that the boat would attain the speed as a prerequisite to his ordering the boat; or he could be content to form his own judgment as to the suitable power unit for the boat relying upon the opinion of the appellant of whose reputation and experience in the relevant field he had, as the trial judge found, a high regard. Only the second course would give rise to a collateral warranty."
Whether a statement is promissory or representational depends upon the intention of the parties, and their intention is to be ascertained objectively from the totality of the evidence. See Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, at 61 ‑ 62. The distinction between a representation on the one hand and a promise on the other is, however, fine, and the distinction is difficult to apply. See Ross v Allis‑Chalmers Australia Pty Ltd (1981) 55 ALJR 8, at 11 ‑ 12.
In Hyundai Elevator Co Ltd v Liftronic Pty Ltd, unreported; CA SCt of NSW; Mahoney, Priestley and Handley JJA; 9 December 1994, Priestley JA said, at 19:
"… the question whether the words used were promissory over and above being representational is to be decided objectively. The subjective intentions of the parties, if they could be known, would not be conclusive. If both had in fact had it in mind that the statements were promissory, then it is very likely that this understanding would have been manifested so that a reasonably intelligent bystander would have recognised that a binding promise was being offered; but, if there were no outward manifestation of the internal understanding it would be for the court to decide from whatever communications had passed between the parties whether or not the statements were promissory: cfTaylor v Johnson (1983) 151 CLR 422 at 428 ‑ 429."
In Australian National Nominees Pty Ltd v GPC No 11 Pty Ltd [2004] NSWSC 773 the plaintiffs lent money to the first or second defendant in response to invitations to the public, contained in information memoranda, to lend money to those defendants. The loans were to be secured by promissory notes. The plaintiffs contended that the terms embodied in the information memoranda were terms of the contracts of loan evidenced by the promissory notes. Einstein J held that the terms of the information memoranda were merely representational. His Honour was unable to discern from the information memoranda an objective intention that the words upon which the plaintiffs relied were promissory in character.

The contracts between the appellant and the investors in relation to the notes

By the "Promissory Note Application Form", each investor applied to the appellant for a note in a specified amount, and agreed to the issue of the note on the following terms:
(a)the investor would not demand payment of the note until the expiry date referred to in the note; and
(b)the appellant would be entitled, at its discretion, to make part payment of the face value of the note before the expiry date.
The "Promissory Note Application Form" stated that the note applied for by each investor would be issued "under the terms and conditions and in the same form as that noted on the reverse". The form of note on the reverse of the application form included a promise by the appellant to pay an amount to be inserted (being the amount specified by the investor in the application form), and interest on that amount.
In my opinion, upon:
(a)an investor completing and signing a "Promissory Note Application Form";
(b)the investor sending to the appellant the application form and a cheque for the amount of the note "applied for"; and
(c)the appellant communicating to the investor acceptance of the investor's offer to provide credit accommodation in accordance with the completed and signed application form (unless the investor had waived the necessity for communication of acceptance),
a contract was formed between the investor and the appellant for the provision of credit accommodation on terms set out in the completed and signed application form (including the terms set out in the form of note on the reverse of the application form). Compare Wenzel v Australian Stock Exchange Ltd (2002) 125 FCR 570 at 582 ‑ 583 [57] ‑ [58]; Re National Savings Bank Association (Hebb's Case) (1867) LR 4 Eq 9 at 11 ‑ 12.

The nature of the appellant's liability under the notes

By signing and issuing each note (in the form which the parties agreed was issued to each of the investors), the appellant engaged that it would pay the note according to its tenor. See s 94(a) of the Bills of Exchange Act and see also Coles Myer Finance Ltd v Federal Commissioner of Taxation (1993) 176 CLR 640 at 659 ‑ 660, where Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ explained, in an income tax context, the nature of the liability of the maker of a promissory note, as follows:
"By making the promissory note, the maker engages that he will pay it according to its tenor. The obligation to pay at a future time created by such a note is clearly a present liability, there being no necessity [where a note is not in the body of it made payable at a particular place: s 93(3) of the Bills of Exchange Act] for presentment of the note for the maker to be liable to pay out the note at maturity. When the maker gives a note for the purpose of obtaining finance, the maker promises to pay a fixed amount to the payee at a future date in consideration of the immediate payment by the payee of the lesser sum. Once the maker receives that payment, the maker immediately owes the face value of the note, even though that amount is not payable until the date of maturity."

Was there an implied undertaking to repay which was independent of the promise to pay contained in the notes?

I turn now to consider the statements in the Information Memorandum relied on by the respondent (and set out in par 78 above):
(a)In my opinion, the words "Mezzanine Finance" on the cover of the Information Memorandum are descriptive or explanatory of the finance sought to be raised, namely, finance which would be "middle ranking".
(b)The Information Memorandum gives a detailed account of the development which will be constructed with, amongst other amounts, the credit accommodation to be provided by the investors. In my opinion, this passage is descriptive or explanatory of the project which was intended to be carried out on the Emu Brewery East site.
(c)The statement relied on by the respondent in the section headed "Executive Summary" is as follows:
"The Mezzanine Funding being raised pursuant to this Information Memorandum will be utilised to settle the land acquisition and carry out all the preliminary design work and pre‑sale marketing. The Mezzanine Funding will initially have a first ranking charge over the project, reverting to second ranking when senior debt is introduced. It is planned that the Mezzanine Funds will either be repaid through the refinancing of the project shortly before the commencement of construction, or from the proceeds of the sale of the first Mounts Bay Tower."
In the section headed "Risk Factors" it is revealed that:
"Development funding from a senior lender or lenders on acceptable terms has yet to be negotiated and is a prerequisite to the successful completion of the project."
It is apparent from these passages that:
(i)The duration of the first ranking charge depended on the timing of the introduction of the senior debt;
(ii)The project could not be completed unless senior debt, on acceptable terms, was available;
(iii)No agreement existed for the provision of senior debt; and
(iv)The proposed source of the money required to repay the Mezzanine Funding was dependent on either the project being refinanced prior to construction or the first Mounts Bay Tower being constructed and sold.
In the section headed "Executive Summary" it is stated:
"Construction of the first Mounts Bay Tower is scheduled to commence in mid 2004 and will take approximately 24 months to complete."
(d)A statement relied on by the respondent in the section headed "The Promissory Note Offer" is as follows:
"Promissory Notes by nature are unsecured, however, the lending risk will be mitigated by issuing the Notes from a special purpose company which will have security over the project as noted in the financing structure below."
The "financing structure" gives a general description of the type and ranking of security which the Developer as trustee of the Trust will grant to the "Senior Debt Provider" and the appellant. The identity of the Senior Debt Provider is not stated. As I have mentioned, in the section headed "Risk Factors" it is stated that the terms of the senior debt financing have not yet been negotiated. The detailed terms of the security arrangements as between the Developer as trustee of the Trust and the appellant are not recorded. The priority arrangements in relation to the securities to be held by the "Senior Debt Provider" and the appellant are not referred to beyond the general statement that the "Senior Debt Provider" will hold first ranking securities and the appellant will hold second ranking securities.
(e)A further statement relied on by the respondent in the section headed "The Promissory Note Offer" is as follows:
"[The appellant] will hold a second ranking fixed and floating charge over the Trust and a second ranking mortgage over the property. In addition, Westpoint Corporation Pty Ltd and associated entities ('the Westpoint Group') will provide a guarantee to [the appellant] up until the redemption of all Promissory Notes and satisfaction of all interest payments due under those Promissory Notes."
My observations in subpar (d) above in relation to the security arrangements apply to this statement.
(f)In the section headed "Westpoint" it is stated that the Westpoint Group "controls the supply and is therefore able to offer property investment products with a higher return and lower risk profile than many other property investment groups". In my opinion, the statement that the products offered are "property investment" products is descriptive of their general nature.
(g)The statement relied on by the respondent in the section headed "Risk Factors" is as follows:
" … the lending risk will be mitigated by [the appellant] (the special purpose company issuing the Notes) having the second ranking mortgage over the property, a second ranking charge over the trust and the guarantee by the Westpoint Group."
My observations in subpar (d) above in relation to the security arrangements apply to this statement.
(h)The statement relied on by the respondent in the section headed "Custodianship" is as follows:
" … [the appellant] is a single purpose company specifically established for this offering. To ensure absolute compliance with the loan arrangements between [the appellant] and the Trust and that investors' interests are always considered [the appellant] has an independent board of directors and is audited by KPMG."
This is a general statement in relation to corporate governance.
In my opinion, the statements in the Information Memorandum relied on by the respondent were not intended, objectively, to have contractual force. Some of the statements are imprecise and lack detail, and others are merely explanatory or descriptive. The absence of precision and detail is more consistent with the statements as a whole being intended, objectively, to be representations. No doubt, the sole or dominant purpose of the statements was to induce potential investors to invest in the promissory note issue. However, even if the investors were induced to invest in reliance on the statements, that circumstance would not, in itself, be sufficient to support a conclusion that the statements were intended, objectively, to be promissory. In my opinion, the statements were not, either individually or collectively, the subject matter of an assurance. They conveyed representations, but did not constitute enforceable promises.
As I have mentioned, a contract was formed between each investor and the appellant for the provision of credit accommodation on the terms set out in the completed and signed "Promissory Note Application Form" (including the terms set out in the form of note on the reverse of the application form). The terms of the contract did not, however, include the statements in the Information Memorandum relied on by the respondent.
In my opinion, the contract between the appellant and each investor did not include an implied undertaking to repay which was independent of the promise to pay contained in the notes. Although the appellant made a promise in each note to pay the amount of the note on the expiry date, the appellant did not undertake a separate or distinct contractual obligation to pay the same amount.
Ground 1 of the cross‑appeal fails.

Ground 2

The parties agreed at trial that the term "promissory note" in par (d) of the definition of "debenture" in s 9 of the Act means a promissory note within the meaning of the Bills of Exchange Act 1909 (Cth).
The learned Judge said, at [43]:
"There is an issue on the authorities for Australia whether a document, otherwise a promissory note, can have that status if it is expressed in terms that 'part payment of the face value of each Promissory Note may be made at the sole discretion of [the obligor] at any time before the expiry date': Emu Brewery Mezzanine Information Memorandum at page 19; … This is the language counsel agreed bound the investors who received the Notes."
His Honour added, at [44]:
"The issue in the authorities resolves to this. Were the documents in the form of the Notes here a 'promissory note' because there was a 'fixed future time' in the Notes, being their respective 'expiry date' entries, despite their being qualified by the partial prepayment option, and despite whatever effect such a qualification would have on a negotiable form of such a note? … "
The appellant's right to make part payment of the face value of each note at any time before the expiry date was referred to in the "Promissory Note Application Form" and conferred by the contract which was formed between each investor and the appellant. The right was not conferred by, or, indeed, even referred to in, the notes actually issued by the appellant.
The learned Judge reviewed the authorities, and concluded, at [72] ‑ [73]:
"I am … of the view that the law on promissory notes is in accordance with the dissenting judgment of Ormerod LJ in [Williamson v Rider [1963] 1 QB 89] (putting aside the contingency in [Crouch v The Credit Foncier of England Ltd (1873) LR 8 QB 374], on which I do not need to pronounce a final view), and the decision of the Supreme Court of Canada in [John Burrows Ltd v Subsurface Surveys Ltd [1968] SCR 607]. I must, with respect, differ from the contrary view of Williams J of the Supreme Court of Queensland in [Gore v Octahim Wise Ltd [1995] 2 Qd R 242]. As in Burrows, it does not matter whether the option of pre‑payment included partial pre‑payment.
That is, the Notes … are indeed promissory notes for the purpose of s 89 of the Bills of Exchange Act 1909, and, therefore, the exclusion to the definition of 'debenture' in s 9 of the Corporations Act 2001, par (d) is capable of application to them. Accordingly, the Notes are not cases of a 'security' within s 761A of that Act."
The respondent argued, in its written submissions, that:
"… the Notes are not promissory notes within the exception [in par (d) of the definition of 'debenture'] because they do not provide a certain date for repayment as required by the Bills of Exchange Act 1909 (Cth)."
Two issues arise for consideration:
(a)If a note specifies a date on which the maker is obliged to repay the principal, but also confers on the maker a right, in its discretion, to make payments from time to time on account of principal prior to that date, does the existence of the right mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act?
(b)If a note has the characteristics specified in subpar (a) above, and the right to make early payments on account of principal is not conferred by the note but is embodied in a separate agreement to which the maker and the original payee are parties, does the existence of the right mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act?

If a note specifies a date on which the maker is obliged to repay the principal, but confers on the maker a right of early repayment, does the existence of the right mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act?

I will assume, in analysing this issue, that the note does not contain words prohibiting transfer or indicating an intention that it should not be transferable (as contemplated by s 13(1) of the Bills of Exchange Act).
The "codification" of the law relating to bills of exchange is described in "Riley's Annotated Bills of Exchange Act and Cheques and Payment Orders Act", 4th ed, The Law Book Company Ltd, 1994, at pages 11 ‑ 13. The learned author states, relevantly, at page 11:
"By 1878 there had developed a body of English law relating to bills of exchange, cheques, and promissory notes which was contained in some 2,500 cases and seventeen statutes. It was peculiarly adapted to codification, because it was so largely precise and formal. In that year Mr (later Sir) Mackenzie Chalmers published a Digest of this law. He subsequently received instructions from organizations of bankers and merchants to prepare a draft Bill, which was introduced into Parliament in a form which did little more than codify the existing law. It was referred to Select Committees of both Houses, a few amendments were made which altered the law or settled doubtful points, and the Bill duly became the Bills of Exchange Act, 1882 …
… By 1890 all the Australian Colonies had passed Acts closely following it, and it has now been adopted in substance by most of the English‑speaking world. The Parliament of the Commonwealth of Australia … enacted in 1909 the Bills of Exchange Act 1909, which on coming into force superseded, with respect to bills of exchange, cheques, and promissory notes drawn or made thereafter, the relevant existing State legislation. …"
Section 89(1) of the Bills of Exchange Act defines a promissory note, as follows:
"A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to or to the order of a specified person, or to bearer."
Section 89 appears in Pt IV of the Act. The Part is headed "Promissory notes".
Section 95 of the Act, which also appears in Pt IV, provides, relevantly:
"(1)Subject to the provisions in this Part and except as by this section provided, the provisions of this Act relating to bills of exchange apply, with the necessary modifications, to promissory notes.
(2)In applying those provisions, the maker of a note shall be deemed to correspond with the acceptor of a bill, and the first indorser of a note shall be deemed to correspond with the drawer of an accepted bill payable to drawer's order.
…"
The provisions of the Act relating to bills of exchange are contained in Pt II. The Part comprises ss 8 ‑ 77A.
Section 14(1) of the Act provides:
"The sum payable by a bill is a sum certain within the meaning of this Act, although it is required to be paid with, by or according to, as the case requires, any one or more of the following, namely:
(a)interest or bank charges; or
(b)stated instalments; or
(c)stated instalments, with a provision that upon default in payment of any instalment the whole shall become due; or
(d)an indicated rate of exchange, or a rate of exchange to be ascertained as directed by the bill."
By s 16:
"A bill is payable at a determinable future time within the meaning of this Act which is expressed to be payable:
(a)at a fixed period after date or sight; or
(b)on or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening may be uncertain.
An instrument expressed to be payable on a contingency is not a bill, and the happening of the event does not cure the defect."
There is controversy in the authorities as to whether a note which specifies a date on which the maker is obliged to repay the principal, but confers on the maker a right, in its discretion, to make payments from time to time on account of principal prior to that date, is a "promissory note" for the purposes of s 89 or a corresponding provision in the legislation of other jurisdictions.
The learned Judge referred to and considered these authorities: Vidler v Sallaway (1862) 1 SCR (NSW) 246; Crouch v The Credit Foncier of England, Ltd (1873) LR 8 QB 374; Balck v Pilcher (1909) 25 TLR 497; Williamson v Rider [1963] 1 QB 89; John Burrows Ltd v Subsurface Surveys Ltd [1968] SCR 607; Weszak Beleggings (EDMS) BPK v Venter [1972] 1 SALR 730; Claydon v Bradley [1987] 1 WLR 521; Gore v Octahim Wise Ltd [1995] 2 Qd R 242.
In Vidler the plaintiff sued on an instrument under which the defendant promised to pay the plaintiff or bearer a specified sum "on or before September, 1861". Stephen CJ held that the instrument was not a promissory note. His Honour said, at 247:
"… in my opinion, this instrument is not a promissory note at all, but an agreement by the defendant to pay this money in all September, that is on any day in September, at the defendant's option, and would be satisfied by a tender of payment by the defendant, on any day before the end of that month. But the uncertainty as to the day of payment prevents this instrument from operating as a promissory note."
Wise J agreed in substance with the Chief Justice. Milford J dissented. His Honour said, at 247:
"Although I do not consider the case free from doubt, the tendency of my opinion is that the words 'on or before September,' ought to be construed most unfavourably to the party using them, and, therefore, that the instrument is a promissory note payable on the first day of September."
In Crouch a company, Credit Foncier, issued debentures. In each debenture it promised:
"… subject to the conditions indorsed on this debenture … to pay to the bearer [a specified amount] on the 1st of May, 1872, or upon any earlier day upon which this bond shall be entitled to be paid off or redeemed, according to the … printed conditions indorsed hereon …"
The conditions provided, relevantly, for some of the debentures to be redeemed at an earlier date. Those of the debentures which were to be redeemed earlier were to be determined by lot. One of the debentures issued by Credit Foncier was stolen. Later, it was purchased by the plaintiff. The defendants refused to pay the debenture to the plaintiff. A question of law was reserved for the Court, namely, whether the plaintiff could maintain an action for payment of the debenture, notwithstanding that the debenture had been stolen and that the plaintiff derived title from the thief. Blackburn J delivered the judgment of the Court. His Lordship said, at 384:
"… the contract of the Credit Foncier is not merely to pay the money, but also to cause a portion of the bonds to be drawn in the stipulated manner; and anyone entitled to sue on the contract contained in this instrument would be entitled to sue for damages, if the company did not fairly give him his chance of having his bond drawn according to the stipulated conditions. And it is obvious that such a contract as that cannot be a promissory note."

The correct analysis

By s 89(1) of the Bills of Exchange Act, the conditions with which an instrument must comply if it is to be a promissory note include, relevantly, that the instrument be an unconditional promise in writing by the maker "engaging to pay … at a fixed … future time, a sum certain in money". The "fixed … future time" refers to the time at which the maker has engaged or undertaken to pay. The "sum certain in money" refers to the amount which the maker has engaged or undertaken to pay at that time.
In my opinion, if an instrument contains an unconditional promise in writing to pay, on a specified future date, say 31 December 2006, a specified sum of money, say $100,000, the specified date will be a "fixed … future time", and the specified sum will be a "sum certain in money", within s 89(1). If the instrument also confers on the maker a right, in its discretion, to make payments from time to time on account of the $100,000 prior to 31 December 2006, it is necessary to consider whether that right affects the characterisation of:
(a)31 December 2006 as a "fixed … future time"; or
(b)the $100,000 as a "sum certain in money".
When the instrument is issued, the maker is obliged to pay at a "fixed … future time" (that is, on 31 December 2006) a "sum certain in money" (that is, the $100,000). If the maker exercises the right to repay early:
(i)the maker's obligation to pay at the "fixed … future time" will be wholly or partly discharged, as the case may be; and
(ii)the amount of the "sum certain in money" which is payable at that time will be extinguished or reduced, as the case may be.
In my opinion, the right to repay early does not render the maker's engagement or undertaking to pay at the "fixed … future time" a conditional or contingent engagement or undertaking. The right does not modify the maker's unconditional promise to pay at the time fixed by the instrument, but merely confers on it an option to make an early repayment or repayments in or towards discharge of the principal. As Beetz J noted in MacLeod, at 88 – 89 (correctly in my respectful opinion):
"With respect to the time of payment, such a note is even more certain than a note payable on demand since it states a definite date beyond which it cannot run."
Similarly, in my opinion, the right to repay early does not render uncertain the sum which the maker has engaged or undertaken to pay. As Beetz J observed in MacLeod, at 89 (again, correctly in my respectful opinion):
"There is no uncertainty as to the amount of principal payable: insofar as a holder in due course is concerned, the full amount is payable, less the amount of such prepayments as may have been acknowledged in writing on the instrument."
I turn now to consider whether a right of early repayment is inconsistent with, or renders illusory, the negotiable character of a promissory note.
Section 41 of the Bills of Exchange Act makes provision with respect to the negotiation of overdue or dishonoured bills. It provides, relevantly:
"(1)Where a bill is negotiable in its origin, it continues to be negotiable until it has been:
(a)restrictively indorsed; or
(b)discharged by payment or otherwise.
(2)Where an overdue bill is negotiated, it can only be negotiated subject to any defect of title affecting it at its maturity, and thenceforward no person who takes it can acquire or give a better title than that which the person from whom he took it had.
(3)A bill payable on demand is deemed to be overdue, within the meaning and for the purposes of this section, when it appears on the face of it to have been in circulation for an unreasonable length of time. What is an unreasonable length of time for this purpose is a question of fact.
(4)Except where an indorsement bears date after the maturity of the bill, every negotiation is prima facie deemed to have been effected before the bill was overdue.
…"
By s 64(1):
"A bill is discharged by payment in due course by or on behalf of the drawee or acceptor.
Payment in due course means payment made at or after maturity of the bill to the holder thereof in good faith and without notice that his title to the bill is defective."
Payment by the maker of a promissory note before maturity operates merely as a purchase of the note. It is not discharged. See Morley v Culverwell (1840) 7 M & W 174 at 182.
Section 92 makes provision with respect to promissory notes payable on demand. In particular, s 92(3) negatives the application of s 41(3) to such notes. It is in these terms:
"Where a note payable on demand is negotiated, it is not deemed to be overdue, for the purpose of affecting the holder with defects of title of which he had no notice, by reason that it appears that a reasonable time for presenting it for payment has elapsed since its issue."
Section 93 deals with the presentment of a promissory note for payment. In general, presentment for payment is not necessary to render the maker liable. Section 93(1) provides:
"Where a promissory note is in the body of it made payable at a particular place, it must be presented for payment at that place in order to render the maker liable. In any other case, presentment for payment is not necessary in order to render the maker liable."
Compare s 93(2) and s 93(3) in relation to an indorser. By s 93(2), presentment for payment is necessary in order to render the indorser of a note liable.
Section 94 provides, relevantly:
"The maker of a promissory note, by making it:
(a)engages that he will pay it according to its tenor; …
(b)… "
That is, the maker of a promissory note engages that he will pay in accordance with the exact words written on the note. See Good v Walker (1892) 61 LJQB 736.
In Glasscock v Balls (1889) 24 QBD 13 the defendant issued to one Wayman a promissory note payable to his order on demand as security for a debt. Subsequently, the defendant granted Wayman further security by way of a mortgage over certain property. Wayman realised the mortgage and thereby obtained repayment of the amount owing under the promissory note. Unfortunately, Wayman was permitted to retain the promissory note, and he later negotiated it to the plaintiff, who took in good faith and for value. The Court of Appeal held that the promissory note had not been paid, and that the plaintiff could recover upon it. Lord Esher MR said, at 15 ‑ 16:
"In this case the plaintiff sues the maker of a promissory note payable on demand as indorsee. It was admitted that the plaintiff was indorsee of the note for value without notice of anything that had occurred. The plaintiff cannot be said to have taken the note when overdue, because it was not shewn that payment was ever applied for, and the cases shew that such a note is not to be treated as overdue merely because it is payable on demand and bears date some time back. Under such circumstances prima facie the indorsee for value without notice is entitled to recover on the note. It lies on the defendant to bring the case within some recognised rule which would prevent such an indorsee from recovering upon the note. … If a negotiable instrument remains current, even though it has been paid, there is nothing to prevent a person to whom it has been indorsed for value without knowledge that it has been paid from suing. … [The case] must come under the general principle that the maker of the note, having issued it and allowed it to be in circulation as a negotiable instrument, is liable upon it to an indorsee for value without notice of anything wrong."
In Cohen v Quigley (1899) 15 WN (NSW) 307, it was argued that the mere fact that a promissory note payable on demand had been presented and dishonoured made it an overdue note, and that a subsequent indorsee who took the note without notice was affected by the equities attaching to it. The argument failed. Cohen J said, at 309:
"It appears to me that the whole matter may be stated shortly thus. To make an indorsee for value subject to defects of title, he must have notice. If the note is overdue on its face at the date of endorsement, or is noted as having been presented and dishonoured, that of itself gives the indorsee notice and puts him upon his inquiry. If the note be one payable on demand, the indorsee is not put upon his enquiry, by reason merely that it appears that a reasonable time for presentation has elapsed since its issue … and, therefore, the indorsee, if there be neither express notice nor anything on the face of the note to cause suspicion, takes it as a holder in due course …"
See also the advice of the Privy Council in Mohamedally v Miso (1957) 58 NLR (Ceylon) 457, PC at 460 ‑ 461; Kadirgamar, L "The Problem Promissory Note: A Question of Estoppel" (1959) 22 MLR 146.
In my opinion, where the maker of a promissory note exercises a right of early repayment which is conferred by the note itself, a holder in due course (within the meaning of s 34 of the Bills of Exchange Act) is obliged to accept early repayment made in accordance with the terms governing the exercise of the right.
I consider that the learned Judge (Simmonds J) was correct in stating, at [64]:
"… the holder in due course of a note bearing the qualification on its face would have to accept the possibility of subsequent prepayment in whole or in part: see Bills of Exchange Act 1909, s 94(a). This would not, however, strike at the note's negotiability. Rather, it would expose the holder to the risk of being paid out, if market interest rates began to fall, by a refinancing promisor."
In my opinion, where the maker of a promissory note exercises a right of early repayment which is conferred by the note itself, a holder in due course who takes the note after the repayment is made, but without any reason to believe that the right of early repayment has been exercised, is entitled to require the maker to pay the whole of the sum specified in the note. As Beetz J said in MacLeod, at 88 (correctly, in my respectful opinion):
"If the maker of such a note … pays part of the principal prior to maturity, he pro tanto discharges it and would be wise to have the partial discharge acknowledged in writing on the instrument. He would otherwise run the risk of paying twice should the note be delivered to a holder in due course who would have no reason to presume that the maker has availed himself of the prepayment privilege."
The learned Judge (Simmonds J) expressed a similar view at [63]:
"… it seems to me that it is not clear a duty of inquiry would arise simply from the presence on a negotiable note of a qualification represented by an option of prepayment of the sort here. The holder in due course could treat the fact the note had not been endorsed as paid or otherwise cancelled as indicating that there was no qualification by prior payment. This would be in the absence of any other circumstances which might give rise to a duty to inquire."
I have mentioned that, in general, presentment for payment is not necessary to render the maker of a promissory note liable, although presentment for payment is necessary in order to render an indorser liable. In my opinion, the right of the maker of a promissory note to make payment, other than upon presentation of the note, pursuant to a right of early repayment which is conferred by the note itself, does not introduce relevant uncertainty which is inconsistent with its negotiable character.
I therefore consider that where a promissory note confers on the maker a right of early repayment, that right is not inconsistent with, and does not render illusory, the negotiable character of the note.
The reasoning of Ormerod LJ in Williamson and the reasoning and decisions of the Supreme Court of Canada in John Burrows and MacLeod are, with respect, correct. I would follow that line of authority in preference to the line of authority represented by the decision of the majority in Williamson and the decisions in Weszak, Claydon and Gore.
I am therefore of the opinion that if a note specifies a date on which the maker is obliged to repay the principal, but also confers on the maker a right, in its discretion, to make payments from time to time on account of principal prior to that date, the existence of the right does not mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act.

If a note specifies a date on which the maker is obliged to repay the principal, but the maker has a right of early repayment which is not conferred by the note but is embodied in a separate agreement to which the maker and the original payee are parties, does the existence of the right mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act?

I will also assume, in analysing this issue, that the note does not contain words prohibiting transfer or indicating an intention that it should not be transferable (as contemplated by s 13(1) of the Bills of Exchange Act).
The respondent argued, in its written submissions, that:
"The question is whether the expression of a term as to the time for repayment in the Application form meant that the Note as issued was not a promissory note because the maker [that is, the appellant] had recorded the terms of the promise, in part, in writing that was not signed by the maker.
In order that there be a promissory note there must be identified a promise in writing, signed by the maker, which contains the other elements of the definition in s89(1). It may or may not be possible for the writing signed by the maker to incorporate by reference another document so that, together, the 2 documents contain all necessary elements. … However, in the respondent's submission, even assuming it to be open, that did not occur here – the Note made no reference to the Application form.
The respondent is not aware of authorities dealing specifically with the question of whether (and, if so, in what circumstances) the writing signed by the maker can, for the purposes of s89(1), or s8(1) which is in corresponding terms, incorporate by reference another document.
…
… in the respondent's submission the Application form is not incorporated by reference in the Note (nor is it separately signed) and so is not part of the writing signed by the appellant and therefore the promise of the maker concerning the time for repayment expressed in part in the Note and in part in the Application form is not signed by the maker.
…"
The respondent further submitted:
(a)the appellant's right of early repayment was in writing (namely, in the "Promissory Note Application Form"), but the writing was not signed by the appellant as the maker of the notes, and in consequence the notes were not "promissory notes" for the purposes of s 89 of the Bills of Exchange Act; and
(b)to conclude that each note, issued by the appellant, itself comprised a "promissory note" would "re‑make the terms of issue intended by the maker".
Chalmers & Guest on Bills of Exchange and Cheques, 16th ed, Sweet & Maxwell, London, 2005 suggest, at par 2‑007:
"It would seem that a bill must be a single instrument, though it could comprise more than one page."
The learned authors cite, in support of this proposition, KHR Financings Ltd v Jackson (1977) SLT (Sh Ct) 6. They also refer to the English equivalent of s 76 of our Act (Bills in a set).
In KHR Financings the salient facts were these. A promissory note occupied a central position on one side of a sheet of paper, there being forms for other obligations connected with the transaction above and below. The back of the sheet was blank. An endorsement of the promissory note was placed on the back of the sheet at the top of the page in such a position that only some of the lower parts of the letters in one signature encroached on that part of the sheet which formed the reverse side of the note. It was held that the requirements of the English equivalent of s 37(a) of our Act are not contravened merely because a paper has words other than those of the bill or promissory note on one side or the other. Sheriff Principal Reid QC, sitting as the Sheriff Court of South Strathclyde, said:
"I have come to the view that the purpose of the provision [that is, the English equivalent of our s 37(a)] is to enable a bill to operate as a negotiable instrument by ensuring that one piece of paper contains all the writing constituting the obligations of the bill and the names of the parties to it."
Professor R W Aigler examined similar and related issues in "Conditions in Bills and Notes", (1928) 26 Mich L Rev 471. He said, at 492:
"It is a familiar doctrine of general acceptance that contemporaneously executed documents, parts of the same transaction, are to be construed together. This principle is of undoubted soundness where it is claimed that the several instruments together make one simple contract. The propriety of its application is exceedingly doubtful when one of the papers is a formal contract, complete in itself, such as a bond or a note. A note and its securing mortgage are very truly parts of one transaction, but it does not by any means follow that they together make one contract. If every promissory note arising out of a transaction in which there are other documents so closely related in time and content that as a matter of simple contract law they should be read together, is to be construed with the other instruments as part thereof, the results are indeed far reaching. Every such note, regardless of its formal compliance with the requirements of negotiable paper would seem necessarily rendered non‑negotiable, indeed not a note at all, for it would be merely a part of a contract. Even though the status of the 'note' were to be determined by looking to the other documents to see whether the provisions therein make the promise conditional, the time of maturity uncertain, the amount uncertain, or whether there are extra undertakings that amount to offensive 'luggage' for a 'courier' such as a negotiable instrument has been said to be, still many documents generally supposed to be negotiable would fail to qualify as such."
Professor Aigler then added, at 492 ‑ 493:
"When it is judicially declared that the general principle of construction in the case of contemporaneously executed papers is applicable to a note and its securing mortgage or other related paper there appears always the qualification that this is true only as between the original parties and successors with notice, that if the note comes to the hands of a bona fide purchaser, it is to be treated as negotiable. If this means anything, it means that a paper that is not negotiable in its inception may become so in the hands of the purchaser. Whether an instrument is negotiable, it is submitted, is a matter of its form, and that is to be determined as of the time of its execution. An instrument negotiable to start with may, of course, cease to be negotiable, as by restrictive indorsement, but it never becomes negotiable if it was not so when issued. That the innocent purchaser may recover free of any difficulties raised by the provisions in the other documents because he is a holder in due course seems a begging of the question. The purchaser cannot be a holder in due course unless the instrument he takes is negotiable, and if it is only a part of a contract the terms of which are to be found in several papers, it clearly cannot be a negotiable instrument.
It is believed that the innocent purchaser may well be free of the difficulties contained in the other papers, but on the ground that the note is complete in itself, not merely part of a contract, and therefore negotiable. In the hands of a holder other than a holder in due course defenses based upon the provisions in the other documents would, of course, be available. In each case it would always be a proper matter of inquiry whether the claimed holder in due course took with or without notice of the other papers."

In my opinion, if a contract is made for the issue of promissory notes by one party as maker to the other party as original payee, and:
(a)the contract is evidenced in writing, but the writing is not signed by the party who is to be the maker of the notes;
(b)notes are issued pursuant to the contract;
(c)the maker has a right of early repayment which is included in the contract, but not in the notes;
(d)neither the contract nor the right of early repayment is referred to in the notes; and
(e)the notes are complete on their face,
the contract and the notes will be collateral instruments, but the provisions of the contract (including the right of early repayment) will not be part of the notes. Promissory notes may be issued as collateral security for money payable under an executory contract without the provisions of the contract becoming part of the notes themselves. Compare Stock Motor Ploughs at 132, 133, 135, 136, 142. In other words, the contract may confer rights and impose duties on the maker and the original payee in relation to the notes without the provisions which confer the rights and impose the duties becoming part of the notes. If, as I have indicated, the provisions of the collateral contract are not part of the notes, the mere fact that the maker of the notes has not signed the contract does not mean that the notes are not "promissory notes" for the purposes of s 89 of the Bills of Exchange Act.
Further, in my opinion:
(a)The original payee, as a party to the contract which conferred the right of early repayment, is obliged, by virtue of the contract, to accept early repayments from the maker under the notes.
(b)If the notes do not contain words prohibiting transfer, or indicating an intention that they should not be transferable, the notes will be negotiable prior to their discharge by payment or otherwise.
(c)A holder in due course, who takes the notes without notice of the maker's right of early repayment under the contract, is not obliged to accept any early repayments from the maker.
I am therefore of the opinion that if a note specifies a date on which the maker is obliged to repay the principal, but the maker has a right of early repayment which is not conferred by the note but is embodied in a separate agreement to which the maker and the original payee are parties, the existence of the right does not mean that the note is not a "promissory note" for the purposes of s 89 of the Bills of Exchange Act.
It is unnecessary, in the circumstances, to consider the position where a right of early repayment under a separate agreement between the maker and the original payee is referred to in the note. See, however, the discussion in Professor Aigler's article at 490 ‑ 499.

Were the notes which the appellant issued to the investors "promissory notes" for the purposes of s 89 of the Bills of Exchange Act?

The notes issued by the appellant to the investors:
(a)did not confer or refer to the right of early repayment embodied in the contract between each investor and the appellant for the provision of credit accommodation on the terms set out in the completed and signed "Promissory Note Application Form" (including the terms set out in the form of note on the reverse of the application form); and
(b)contained words prohibiting transfer, and were therefore not negotiable.
The appellant's right of early repayment did not render its engagement or undertaking to pay on the expiry date specified in each note a conditional or contingent engagement or undertaking. The right did not modify the appellant's unconditional promise to pay on the expiry date, but merely conferred on it an option to make an early repayment or repayments towards discharge of the principal. Further, the right of early repayment did not render uncertain the sum which the appellant had engaged or undertaken to pay.
The contract between each investor and the appellant was collateral to the note issued pursuant to the contract, but the provisions of the contract were not part of the note. Each note issued by the appellant was complete on its face. The mere fact that the appellant did not sign the completed "Promissory Note Application Forms", or any of them, does not mean that the notes were not "promissory notes" for the purposes of s 89 of the Bills of Exchange Act.
Each investor, as a party to the contract which conferred on the appellant the right of early repayment, was obliged, by virtue of the contract, to accept any early repayments which the appellant may have sought to make under the note issued to the investor.
I am therefore of the opinion that the existence of the right of early repayment in the contracts between the appellant and the investors does not mean that the notes issued by the appellant were not "promissory notes" for the purposes of s 89 of the Bills of Exchange Act.
The opinions I have expressed in relation to the notes issued by the appellant do not depend, to any extent, upon the existence of the words in the notes which prohibited transfer.
Ground 2 of the cross‑appeal fails.

Conclusion

I would dismiss the cross‑appeal.