Forsyth v Kench

[2002] TASSC 21

[2002] TASSC 21

CITATION:                 Forsyth v Kench [2002] TASSC 21

PARTIES:  FORSYTH, Brian John

FORSYTH, Margaret Edith
v
KENCH, Grant Edward

FOSTER, Michael Graeme

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  APPELLATE
FILE NO/S:  M300/2001
DELIVERED ON:  2 May 2002
DELIVERED AT:  Hobart
HEARING DATES:  29 April 2002
JUDGMENT OF:  Crawford J

CATCHWORDS:

Interpretation - General rules of construction of instruments - Where inconsistencies - In general - Inconsistency between different portions of mortgage - Whether later clause contradicted earlier clause creating obligation - Whether earlier clause prevails.

Forbes v Git [1922] 1 AC 256, referred to.
Aust Dig Interpretation [7]

Interpretation - Admissibility of extrinsic evidence in relation to instruments - When evidence admissible - To prove intention of parties - Latent ambiguity - Mortgage - Evidence of conversations prior to execution - Evidence of understanding of parties - Whether admissible and relevant to question of interpretation of mortgage.

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981 - 1982) 149 CLR 337, applied.
Aust Dig Interpretation [24]

REPRESENTATION:

Counsel:
             Appellants:  P W Tree
             Respondents:   C M Schokman
Solicitors:
             Appellants:  Rae & Partners
             Respondents:  Piggott Wood & Baker

Judgment Number:  [2002] TASSC 21
Number of Paragraphs:  17

Serial No 21/2002
File No M300/2001

BRIAN JOHN FORSYTH and MARGARET EDITH FORSYTH
v GRANT EDWARD KENCH and MICHAEL GRAEME FOSTER

REASONS FOR JUDGMENT  CRAWFORD J

2 May 2002

1. On 14 January 2002, the Master ordered that on or before 15 February 2002, the appellants give possession to the respondents of premises described in the folio of the Register, Vol 108305, Folio 1, unless by that date all money due under Memoranda of Mortgage B649633, B708117, B755179 and B867956 was paid.  From that order an appeal has been brought and these are my reasons for determining it.  I note that on 21 February the Master extended the date for possession to 22 March.  It has not since been extended, which means that if I dismiss the appeal, the time for giving up possession has expired.

1. Proceedings were commenced when, by an originating application, the respondents applied for an order pursuant to the Land Titles Act 1980, s146(1), for possession, relying on an alleged default in the payment of money secured by the mortgages. The respondents maintain that loans totalling $621,500 were made to the appellants, the loans were secured by the four mortgages, it was a term of each mortgage that the principal would be repaid by the appellants upon a demand being made by the respondents, a demand for repayment of the principal was made and the appellants have not repaid it. The only issue between the parties is whether in fact the respondents were entitled to demand repayment of the principal. I refer to the reasons for judgment of the Master in Kench v Forsyth [2002] TASSC 1 for more information concerning the facts.

1. The form of the mortgages was prescribed by the Land Titles Regulations 1981, reg33, to be in accordance with Form 19 in Sch1.  The form provided for information concerning a description of the land, the estate being mortgaged, the mortgagors and the mortgagees to be inserted in boxes.  The form then sought information concerning the principal sum, the rate of interest to be paid and how the interest was payable.  Concerning the principal sum, the form asked, in the margin, "How and when Principal sum is to be repaid".  At the time of the execution of each of the mortgages, the response to that question had been inserted as "On demand".  The obvious meaning of those two words was that the appellants would have to repay the principal sum secured by the mortgage if the respondent demanded that it be repaid. 

1. After providing for the insertion of the information to which I have referred, each of the mortgages then contained the following words, which are part of the prescribed Form 19:

"In consideration of the above principal sum lent to the Mortgagor by the Mortgagee (receipt of which sum is acknowledged) the Mortgagor ¾

firstly, for the purpose of securing to the Mortgagee the payment in the manner mentioned above of the principal sum and interest on that sum, hereby mortgages to the Mortgagee all the estate and interest of the Mortgagor in the land described above."

1. Immediately above had been inserted details of the interest rate and the dates upon which, each quarter, interest was to be paid, and immediately above that was the provision to which I have referred, stating that the principal sum was to be repaid "On demand".  The provision that the principal was to be repaid if the respondents demanded it was confirmed by the passage I have cited.

1. Next, and immediately following the word "secondly", there were inserted 28 covenants by the appellants, the first of which is particularly relevant.  The provision, in each mortgage, was as follows:

"secondly, covenants with the Mortgagee as follows:

1    That the Mortgagor will pay to the Mortgagee the said principal sum in the manner and at the time above set forth."

1. The plain meaning of that covenant was also that the appellants covenanted to pay to the respondents the principal on demand, because that was what was "above set forth".

1. However, the appellants seek to rely on the concluding term in each mortgage, which was as follows:

"thirdly it is hereby agreed that during the term of this mortgage the principal monies together with any interest and any other monies secured and payable hereunder shall be payable on demand if the Mortgagor should:-

(a)commit any act of bankruptcy, convene any meeting of the creditors of the Mortgagor, execute any assignment for the benefit of his creditors or enter into or make any scheme of arrangement or if the Mortgagor is a company be wound up or placed under official management, appoint a receiver in respect of any of its assets file a petition for the purpose of considering its winding up or placement under official management or enter into any scheme of arrangement otherwise than for the purpose of amalgamation or reconstruction;

(b)Cause or procure or suffer or permit the Mortgagor's effects to be seised or taken in execution; or

(c)Cause or procure or suffer to permit any judgment to be entered or writ of execution to be issued against or affecting the said land or any part of it."

1. That clause was referred to by counsel as the thirdly clause.  It is the appellants' case that it operates to qualify their liability to repay the principal on demand and that as none of the events specified in it had occurred, the respondents had no right to demand repayment and the demand they did make, by notice issued last August, was ineffective.  There being no default, no order for possession can be made, on the appellants' case.

1. The terms of the thirdly clause do not conflict literally with the earlier provisions that the principal would be repaid by the appellants on demand.  However, as pointed out by the appellants' counsel, if that is so, the thirdly clause is otiose, for if the respondents may demand repayment of the principal whenever they choose to do so, there is no need for the thirdly clause at all.  It was submitted therefore that the apparent primary right to make a demand at any time must be read down by the thirdly clause so as to give the right to demand only when one of the events specified in it occurs.

1. I would accept the appellants' argument if instead of the words "On demand" on the first page of the mortgages there had been inserted words indicating that such demand could only be made for one of the reasons specified in the thirdly clause.  But no such indication was given.  In my opinion, the correct and reasonable interpretation of the mortgage is that the earlier provision meant what it said, that the principal was to be repaid on demand.  The thirdly clause may have added nothing, except to emphasise the right of the respondents to make a demand if any of the specified events occurred, but I am not persuaded that it should be interpreted as limiting the earlier and apparently unrestricted provision granting a right to make a demand at any time.  There was nothing in the thirdly clause expressing an intention to qualify that provision.

1. I add that the loans were obviously commercial ones, and I consider it unlikely that a lender would be prepared to make a loan of such a large sum of money for an unlimited period of time with the possibility of no right to demand repayment arising at any time in the distant future.

1. The Master pointed out that if the thirdly clause qualified the earlier provision for repayment on demand, the circumstances in which the respondents might recover payment upon demand is limited so significantly as to make the duration of the loans effectively at the will of the mortgagors whilst they hold the land.  As the Master said, the practical effect is to destroy the earlier stipulation that the respective loans would continue only at the will of the mortgagee.  When viewed in that light, the provisions were inconsistent with each other.  In that circumstance, the Master applied a rule of instruction referred to by Lord Wrenbury when delivering judgment for the Privy Council in Forbes v Git [1922] 1 AC 256 at 259:

"The principle of law to be applied may be stated in few words.  If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails.  In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later.  Thus if A covenants to pay 100l and the deed subsequently provides that he shall not be liable under his covenant, that later provision is to be rejected as repugnant and void, for it altogether destroys the covenant.  But if the later clause does not destroy but only qualifies the earlier, then the two are to be read together and effect is to be given to the intention of the parties as disclosed by the deed as a whole.  Thus if A covenants to pay 100l and the deed subsequently provides that he shall be liable to pay only at a future named date or in a future defined event or if at the due date of payment he holds a defined office, then the absolute covenant to pay is controlled by the words qualifying the obligation in manner described."

1. Counsel for the appellants did not submit that there is no such rule of interpretation.  As pointed out by the Master, it was recognised by the High Court in Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151 and has been applied to deeds as well as to contracts not under seal. See Lyon v Sullivan (1891) 7 WN (NSW) 104, Producers and General Finance Corporation Ltd v Dickson (1938) 40 WALR 34 and Maile v Jennings [1956] VLR 45.

1. With respect, my interpretation of the mortgages is reached without recourse to such a rule, for I do not see that the clauses contain such an apparent and unresolvable inconsistency as to require its application.  However, if I am wrong about that, the Master was right when he applied the rule in the respondents' favour.

1. At the hearing of the appeal, but not before the Master, the appellants sought to rely on affidavits sworn by them and by Philip Grear McGee.  Counsel for the respondents objected to some parts of those affidavits on the ground of inadmissibility.  Essentially what the appellants sought to establish from the disputed parts was that it was represented to them and they believed, before they executed the mortgages, that the respondents would only be entitled to make a demand for repayment of the principal if one of the events in the thirdly clause occurred.  In my opinion, the appellants are not entitled to rely on those parts of the affidavit.  On the authority of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981 - 1982) 149 CLR 337, particularly at 352, evidence is not admissible of the actual intentions and expectations of a party to a contract. Such statements and actions are superseded by, and merge in, the contract itself. The parol evidence rule excludes them, except in an action for rectification.

1. The appeal will be dismissed.