Equuscorp Pty Ltd v Jimenez & Ors No. Scciv-00-474

[2001] SASC 165

EQUUSCORP PTY LTD v JIMENEZ & ORS
[2001] SASC 165

1. PRIOR J:              The plaintiff financier made certain facilities available to four companies.  The terms of the facilities are recorded in four separate Discount Facility Deeds.  The first and second defendants are parties to each of the Deeds, being named as Guarantors in the Schedules to those Deeds.  The two defendants guarantee the due and punctual payment by the debtors of all monies due by them. 

2. Each deed contains a clause, 17.19.  That clause provides:

   “In the event of any default by the Guarantor hereunder the Guarantor hereby charges in favour of the Assignor all real and personal property in which it has any interest whether as registered proprietor, owner in fee simple, mortgagee, lessee, tenant, mortgagor, chargee, or otherwise and whether or not such interest is encumbered to the intent that the charge given by the Guarantor in favour of the Assignor shall vest in the Assignor as chargee the maximum interest which the Guarantor is able so to charge or the interest of the Guarantor in such land whichever be the greater.”

3. A master has ordered that the court determine, as a preliminary issue, whether the sub-clause should be read “so as to substitute the word ‘Company’ for the word ‘Assignor’ wherever it appears in the sub-clause.” 

4. I agree with the submission put on behalf of the plaintiff that clause 17.2 of the Deeds containing a guarantee by the Guarantors in favour of the plaintiff Company, the plain intent of clause 17.19 is to provide for the event of default by the Guarantors.  Read literally, the clause provides that if the Guarantor defaults in its obligations under the Deed – that is, in its obligations to the Company, all of the Guarantor’s property is charged in favour of the Assignor or debtor.  That cannot be correct.  The words “the Assignor” in that clause must, as a matter of construction, be read as “the Company”.  To construe the clause literally would have the effect that if the Company had to proceed against the Guarantor under the Guarantee, it would do so knowing that it was effectively denied recovery, because all of the Guarantor’s property is charged in favour of the debtor.  Such a result is absurd.  A mistake has been made.  The reference to “the Assignor” is an error.  It should be read as a reference to “the Company”. 

5. Authority abounds for the general proposition that words may generally be supplied, omitted or corrected in an instrument where it is clearly necessary in order to avoid absurdity[1].  The construction contended for is consistent with business commonsense[2].  A verbal slip has occurred.  The literal approach

   “produces a ridiculous commercial result based upon a review process which flouts commonsense.  The nature of the mistake and what was intended is sufficiently clear as to justify the Court in reading the document ‘as if’ the appropriate language had been used.”[3] 

   [1]Fitzgerald v Masters (1956) 95 CLR 420 at 426 – 427; Watson v Phipps (1986) 60 ALJR 1 at 3; Attorney-General (NT) v Maurice (1986) 72 ALR 231; Lisciandro v Official Trustee (1996) 139 ALR 689 at 699

   [2]Investors Compensation Scheme v West Bromwich Building Society (1998) 1 WLR 896; Antaios Compania Naviera SA v Salen Rederierna AB (1985) 1 AC 191 at 201

   [3]        Dockside Holdings v Rakio [2001] SASC 78 at [51]

6. I therefore order that the words “the Assignor” in clause 17.19 of the Deeds be construed as a reference to “the Company” as “the Company” is defined in those Deeds, being the plaintiff by its former name Equus Financial Services Ltd.

   JUDGMENT CITATIONS
   LISTED IN ORDER OF APPEARANCE IN JUDGMENT

   1.Fitzgerald v Masters (1956) 95 CLR 420 at 426 – 427; Watson v Phipps (1986) 60 ALJR 1 at 3; Attorney-General (NT) v Maurice (1986) 72 ALR 231; Lisciandro v Official Trustee (1996) 139 ALR 689 at 699

   2.Investors Compensation Scheme v West Bromwich Building Society (1998) 1 WLR 896; Antaios Compania Naviera SA v Salen Rederierna AB (1985) 1 AC 191 at 201

   3.     Dockside Holdings v Rakio [2001] SASC 78 at [51]