Fuji Xerox Australia Pty Limited v Thoi
[2018] VSC 483
•29 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S CI 2017 04400
| FUJI XEROX AUSTRALIA PTY LIMITED (ACN 000 341 819) | Plaintiff |
| v | |
| CUONG VINH THOI AND OTHERS | Defendants |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 and 15 August 2018 |
DATE OF JUDGMENT: | 29 August 2018 |
CASE MAY BE CITED AS: | Fuji Xerox Australia Pty Limited v Thoi |
MEDIUM NEUTRAL CITATION: | [2018] VSC 483 |
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CONTRACT – Interpretation – Principles of construction of commercial contract – What was the amount of the debt assigned under a deed of assignment?
PROPERTY – Whether the assignment of a mortgage also vests rights under separate loan agreements in the assignee – Effect of s 46 of Transfer of Land Act 1958 (Vic) - French v Queensland Premier Mines Pty Ltd [2006] VSCA 287 considered.
CONVEYANCING – Whether mortgagee entitled to recover interest for period between settlement and clearance of cheque.
DEBTOR and CREDITOR – Principles to be applied when a cheque is accepted in payment of a debt.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | A T Strahan | Polczynski Robinson |
| For the First and Second, and Fourth to Eighth Defendants | No appearance | - |
| For the Third Defendants | M W Shand QC with R J Boadle | Michael Flemming and Associates |
HIS HONOUR:
By an amended originating motion filed 26 June 2018, the plaintiff seeks declarations and orders with respect to the priority of its claims under unregistered mortgages over:
(a)the land in Certificate of Title volume 5012 folio 227 at 467 Victoria Street, Abbotsford, Victoria (‘the Victoria Street property’); and
(b)the land in Certificate of Title volume 66067 folio 247 at 23 James Street, Abbotsford, Victoria.
The matter was listed for trial on 14 August 2018. On 15 August 2018, I ordered nunc pro tunc that the trial would determine the following preliminary questions:
(a)On the proper construction of the Deed of Assignment, did the reference to the Debt operate as at the date of execution of the Deed as a reference to:
(i)the amount to be actually received by NAB as consideration for its assignment of the Assigned Property as defined in the Deed; or
(ii)the aggregate of all amounts owing under the NAB Facilities immediately prior to the date of execution of the Deed of Assignment?
(b)Upon execution of the Deed, was the amount owing secured by the Mortgage as at the date of execution of the Deed the amount in (i) or (ii) above?
Where –
·NAB means the National Australia Bank Ltd
·Deed of Assignment means the Deed of Assignment dated 28 September 2017 at pp 1-13 of the court book
·NAB Facilities means the facility agreements between the NAB and various borrowers appearing at pp 194-220, 224-252 and 254-279 of the court book
·Mortgage means the mortgage assigned by NAB under the Deed of Assignment
·Amount owing has the meaning in the Memorandum of Common Provisions at p 49 of the court book.
In respect of preliminary question (a), my answer is the amount referred to in part (i); and in respect of question (b), my answer is the amount referred to in part (i). My reasons are below.
Background
For the purposes of answering the preliminary questions, the following facts are not contested.
On 8 January 2007, the first defendant was registered as the proprietor of the Victoria Street property.
On the same date, the Mortgage was registered on the title of the Victoria Street property by the NAB.
On 9 February 2015, the plaintiff lodged a caveat on the title of the Victoria Street property claiming an interest as chargee.
The Mortgage secured NAB facilities (‘the NAB Facilities’) approved in the following letters of offer:
(a)Letter dated 17 November 2010 from the NAB to Xtreem Pty Ltd approving the following facilities:
Facility type Limit
NAB business overdraft $200,000Market rate facility $200,000.[1]
[1]As varied by Letter of Advice dated 12 January 2014.
(b)Letter dated 17 November 2010 from the NAB to the first defendant and Mr H V Thoi:
Facility type Limit
Market rate facility $200,000.
(c) Letter dated 1 July 2010 from the NAB to the first defendant:
Facility type Limit
Market rate facility $1,540,000.
(together, Xtreem Pty Ltd, the first defendant and Mr H V Thoi are referred to as the ‘NAB Debtors’).
On 7 March 2016, the NAB served the following notices on the first defendant:
(a)Default notice claiming the following sums from the first defendant as guarantor of Xtreem Pty Ltd:
Facility Amount owing
Business overdraft $218,058.81
Market rate facility $309,828.44.
(b) Notice of cancellation of the following facility:
Facility Amount owing
Market rate facility $157,482.35.
(c)Default notice pursuant to s 76 of the Transfer of Land Act 1958 with respect to the Mortgage for the following facility:
Facility Amount owing
Market rate facility $1,258,833.88.
By contract executed 26 April 2017, the first defendant agreed to sell the Victoria Street property to certain purchasers on the following terms:
(a) Price $3,800,000.
(b) Deposit of $380,000 payable on signing.
(c) Balance of $3,420,000 payable on settlement date being 24 October 2017.
By email of 25 July 2017 to the third defendant (‘Morelend’), the NAB stated that the payout figure for the NAB Facilities as at that date was $2,519,487.56.
By email of 12 September 2017 to DSA Law, the NAB’s solicitors confirmed that as at 1 September 2017 the payout figure for the NAB Facilities was $2,030,450.78, calculated as follows:
Cuong and Hieu Thoi Market Rate Facility $157,741.42
Xtreem Pty Ltd Business Cheque Account $386,757.97
Xtreem Pty Ltd Market Rate Facility $310,459.24Cuong Thoi Market Rate Facility $1,175,492.15.
On 28 September 2017, the relevant transaction (‘the Transaction’) was settled and consisted of:
(a) the execution of:
(i) Loan Agreement;
(ii) Deed of Assignment;
(iii) Deed of Acknowledgement and Variation; and
(iv)Transfer of Mortgage;
(together ‘the Transaction Documents’) and
(b) the payment by Morelend to the NAB of the sum of $2,054,645.31.
Each of the Transaction Documents is considered in turn, below.
Loan Agreement
The Loan Agreement was executed by Morelend and That Print Shop Pty Ltd (‘the Borrower’) and endorsed with a guarantee from the first defendant, the second defendant and Hieu Vinh Thoi (who were the directors of the Borrower). The relevant terms included the following:
(a) ‘Subject to the terms of this agreement, [Morelend] shall, upon the request of the Borrower, provide Advances to the Borrower up to the amount of the Commitment [being $3,450,000] (subject to the Retention Amount, refer to Item 5) by way of cash advance(s) on the Drawdown Date(s) on the terms and subject to the conditions set out in this agreement. The Advances will be provided to the Borrower by way of bank cheque[s] payable to the Assignor NAB and any balance as directed by [Morelend] or as to (sic) the Borrower directs in writing’ (Clause 3.1).
(b) Item 5, which defined ‘Loan Purpose’ as:
The Commitment is the sum of $3,450,000.00, which shall be disbursed by [Morelend], firstly to pay such sums as [Morelend] determines with National Australia Bank Ltd (NAB) as payable to give effect to a Deed of Assignment between the Borrower, NAB and [Morelend], and secondly in accordance with [Morelend’s] Disbursement Authority and thirdly at its discretion. An amount of approximately $1,200,000.00 is to be retained by [Morelend] in a Bank Account (or should it direct, not drawn down), to better secure [Morelend] during the term whilst any part of the Commitment plus any costs fees or interest due hereunder is outstanding and which may be applied by [Morelend] in its sole discretion towards any sum owed to it.
(c) ‘The Borrower must use the Advances for the Loan Purpose’ (Clause 3.2).
(d) ‘The Borrower acknowledges and agrees with [Morelend] that the Advances will be secured by the Security and the mortgages to the full extent of all Advances or money due hereunder’ (Clause 4).
(e) The Security and Securities were defined to include ‘the securities given or assigned [to Morelend], listed in Item 9 of the Schedule’ (Clause 1).
(f) Item 9 of the Schedule provided as follows:
Item 9 — Security
First registered Mortgage of Land over 467 Victoria Street Abbottsford, Victoria (more particularly described in Certificate of Title Volume 05012 Folio 227) and a second Mortgage over 23 James Street Abbotsford Victoria (more particularly described in Certificate of Title Volume 06067 Folio 247). The first mortgage is to be assigned to [Morelend] by National Australia Bank Ltd A.B.N.12 004 004 023, pursuant to a Deed of Assignment of debts and securities dated on or about the date of this document together with any other Charges, guarantees or securities given from time to time (including the Transfer of Mortgage No AE827303P over 467 Victoria Street Abbottsford Victoria 3067 (more particularly described in Certificate of Title Volume 5012 Folio 227).
Deed of Assignment
The Deed of Assignment was executed by the NAB, Morelend and the NAB Debtors:
(a) The ‘Background’ to the Deed was recited as follows:
ANAB advanced the funds to the [NAB Debtors] under the Facilities which were secured by, amongst other things, the Mortgage.
BIn consideration of Morelend paying an amount equal to the Debt to NAB, NAB has agreed to assign the Assigned Property with the consent of the [NAB Debtors].
(b) The relevant terms of the Deed included the following:
(i)‘On the date of execution of this Deed, Morelend must pay an amount equal to the Debt to NAB …’.
(ii) ‘Upon payment of the entire amount of the Debt to NAB … NAB will immediately and absolutely assign the whole of its legal and beneficial right, title and interest in and to the Assigned Property to Morelend …’
(iii)Debt was defined as ‘all amounts owing under the Facilities as at a point in time’, where ‘the Facilities’ were defined as the NAB Facilities identified in paragraph [8] above.
(iv)The Assigned Property was defined to mean:
(i) the Mortgage; and
(ii)NAB’s legal and beneficial right, title and interest in and to the Debt.
Deed of Acknowledgement and Variation
The Deed of Acknowledgement and Variation was executed by Morelend of one part and the Borrower of the second part and Xtreem Pty Ltd, the first defendant, Hieu Vinh Thoi, the second defendant, Creative Soft Pty Ltd and Xtreem Print and Display Pty Ltd as guarantors of the other part. It recites that Morelend has agreed to enter into the Deed of Assignment in consideration of the Borrower and the guarantors providing the acknowledgements and covenants. The definition of ‘Morelend Debt’ includes ‘the amount of the Consideration paid by [Morelend] to NAB’, but makes no reference to the NAB Facilities Debt.[2]
[2]CB 41.
Transfer of Mortgage
The Transfer of Mortgage from the NAB to Morelend was for a consideration of $2,054,645.31. The transfer was registered on the same day as it was signed.
The assigned Mortgage had been executed by the first defendant on 13 September 2006 and incorporated a Memorandum of Common Provisions retained by the Registrar of Titles in No AA986.
The Memorandum of Common Provisions relevantly provided as follows:
(a)The purpose of the Mortgage was to secure to the Bank the payment of the amount owing (Clause 1.1).
(b)The amount owing is defined to include relevantly ‘all amounts which at that time you owe, or are liable for, to any assignee of the Bank because the assignee performs an agreement or exercises a right the Bank had before the time of the assignment (Clause 46(e)).
(c)Bank is defined to mean the NAB ‘and its successors and transferees’ (Clause 46).
Following the Transfer of Mortgage being lodged for registration, the plaintiff, as caveator, was served with a notice under s 90 of the Transfer of Land Act 1958.
On 1 November 2017, McMillan J ordered that the registration of the Transfer of Mortgage (among other documents) be delayed pursuant to s 90(2) of the Transfer of Land Act 1958.
On 10 November 2017, Morelend served notices on the first defendant with respect to the Victoria Street property pursuant to s 76 of the Transfer of Land Act 1958.
By notice of possession to the first defendant dated 22 January 2017, Morelend notified the first defendant that it had entered into possession of the Victoria Street property. On the same day, the first defendant consented to Morelend exercising a power of sale of the Victoria Street property.
By the statement of adjustments for the settlement date of 31 January 2018, the balance due to the vendor Morelend (allowing for the deposit paid of $380,000) was $3,398,076.24. After payments to various authorities the balance of the funds were distributed as follows:
Morelend $2,794,272.62
Morelend’s solicitors $ 538,606.54
From the deposit and the amount retained at settlement, Morelend alleges that it is entitled to retain the sum of $2,794,272.62 plus the following further sums:
Additional interest payable pending clearance of settlement cheque (31/01/18 – 5/02/18)
$6,731.17
Interest accrued in respect to Mr Cuong Thoi’s $1.5m facility secured by the property (137719972)
$93,264.90
Morelend Finance reasonable costs in accordance with Memorandum of Common Provisions AA09986 relating to Default and administration
$19,761.00
Professional legal fees (gross) incl. GST, recovery of possession, sale, court proceedings and outgoings including Counsel fees and other disbursements
$79,086.59
On account of contingent liability of litigation. Funds are retained in an interest bearing account in the name of our client pending resolution of litigation in the Supreme Court
$175,000.00
Total
$373,843.66
With the exception of the item ‘Additional interest payable pending clearance of the settlement cheque’, it is agreed that the determination of Morelend’s entitlements to the above sums will be affected by the answer to the preliminary questions. Accordingly, the trial at first instance has been limited to determination of the preliminary questions and the item ‘Additional interest payable pending clearance of the settlement cheque’.
By letter dated 1 May 2018 to the Senior Master, Morelend’s solicitors paid into Court the balance of settlement moneys being $544,762.88, in respect of which Morelend makes no claim.[3]
[3]CB 342.
Plaintiff’s submissions
Counsel for the plaintiff submitted as follows:
(a) On a plain reading of the Deed of Assignment, the amount of the Debt was the sum of $2,054,645.31, being the amount paid by Morelend to the NAB for the assignment (‘the Consideration Amount’) — not the amount owing under the NAB Facilities (‘the NAB Facilities Debt’), which was greater than the Consideration Amount.
(b) Morelend’s agreement in cl 5 of the Deed that ‘NAB need not sign or do anything after the assignment contemplated in this Deed in connection with the enforcement of the Mortgage or the other Assigned Property’ was not consistent with the construction submitted by Morelend. If the Deed of Assignment contemplated the assignment of the NAB Facilities Debt, the NAB’s assistance would have been necessary to enable the NAB Facilities Debt to be calculated.
(c) Morelend’s submission required the word ‘Debt’ in the Deed to have two different meanings being:
(v) the NAB Facilities Debt in the definition of Assigned Property; and
(vi)the Consideration Amount in the recitals and sub-cll 2(a)–(b).
(d) As at 11 September 2016, NAB had agreed to accept $2,030,450.78 in discharge of its secured interest at settlement. Accordingly, there is no sound commercial reason why the mortgagor first defendant would be prepared to incur a liability of approximately $750,000 more than the amount that the NAB was prepared to accept in full satisfaction of its rights under the NAB Facilities.
Accordingly, Morelend’s entitlement was to retain from the settlement moneys only the Consideration Amount, interest and other expenses due under the Loan Agreement.
Morelend’s submissions
Senior counsel for Morelend submitted that Morelend was entitled to retain from the settlement money the NAB Facilities Debt as at the date of the Deed, together with interest and other expenses due from that date. It was submitted that this was the proper construction of the Deed of Assignment because ‘Debt’ was defined in the Deed as ‘all amounts owing under the Facilities as at a point in time’.
Senior counsel for Morelend disputed the plaintiff’s submission that such a construction would require two interpretations for the word ‘Debt’ within the Deed. He submitted that the fact that Morelend paid less than ‘the entire amount of the Debt to NAB’ (as it was required to do under cl 2(b)), was explicable on the basis that the NAB accepted less than the NAB Facilities Debt to which it was entitled.
Alternatively, if the Debt did mean the Consideration Amount, Morelend was entitled to recover the amount of the NAB Facilities Debt under the Mortgage for the following reasons:
(a)Pursuant to cl 2(b) of the Deed of Assignment, the NAB assigned to Morelend the Assigned Property, which included both:
(i)the NAB’s interest in the Debt; and
(ii)the Mortgage.
(b)The Mortgage security and the personal obligation to repay the Debt are contractually independent of each other[4] and therefore (even if the personal obligation to repay the Debt was limited to the Consideration Amount), pursuant to s 46 of the Transfer of Land Act 1958 (Vic), the assignment of the Mortgage independently transferred the right to recover the amount due to the NAB, which had been secured by the Mortgage.
(c)Because the amount due under the Mortgage to the NAB had been the NAB Facilities Debt, the assignment of the Mortgage had conveyed to Morelend the right to recover the NAB Facilities Debt from the proceeds of the sale of the mortgaged property.
[4]French v Queensland Premier Mines Pty Ltd [2006] VSCA 287 [13] (Maxwell P with whom Callaway and Redlich JJA agreed).
Principles of construction
To determine the meaning of the terms of a commercial contract, the Court will ask the question ‘What would a reasonable business person have understood those terms to mean?’[5] For the purpose of answering that question, ‘the reasonable businessperson [is] placed in the position of the parties’,[6] and the Court applies the following principles:
[5]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ).
[6]Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63 [16] (Kiefel, Bell and Gordon JJ).
(a) The terms are construed objectively and the subjective intentions of the parties are irrelevant.[7] A court ‘cannot receive evidence from one party as to its intentions and construe the contract by reference to those intentions’.[8]
[7]Ibid.
[8]DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429 (Stephen, Mason and Jacobs JJ).
(b) The Court will consider not only the text and the ordinary meaning but also:
(vii) the context, being the entire text of the contract including matters referred to in the text of the contract;[9] and
(viii) the commercial purpose and object of the contract.
[9]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45]–[47] (Santamaria, Ferguson and McLeish JJA).
The identification of the commercial purpose and object of a contract ‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating’.[10] For this purpose, the Court may have regard to the surrounding circumstances known to the parties.[11] It is entitled to assume ‘that the parties intended to produce a commercial result’; [12] and will avoid a construction that renders it ‘commercial nonsense or working commercial inconvenience’.[13]
[10]Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–966 (Lord Wilberforce) cited with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350 which in turn was cited by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52–3. Also see Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[11]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40].
[12]Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63 [17] (Keifel, Bell and Gordon JJ).
[13]Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559 at [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ); cited with approval in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35] (French CJ, Hayne , Crennan and Kiefel JJ); and Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85, 111 [78] (Gageler, Nettle and Gordon JJ).
Accordingly, the Court may ‘have regard to more than internal linguistic considerations’,[14] but ordinarily, where there is no ambiguity, the intention can be discerned by reference to the contract alone. As French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:
Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning’.[15]
[14]Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52 [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).
[15]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [48] (French CJ, Nettle and Gordon JJ).
The difference between the matters constituting the context and purpose, which may be referred to; and events, circumstances and things external to the contract, which may not, was explained by the plurality in the High Court as follows:
(a) A court may refer to ‘events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating’.[16]
(b) However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ are inadmissible.[17] Even though evidence of prior negotiations is admissible to establish objective known background facts and the subject matter of the contract, evidence of actual intentions and expectations is not receivable.[18]
Question (a): Did the Deed of Assignment assign the Consideration Amount or the NAB Facilities Debt?
[16]Ibid 117 [50].
[17]Ibid.
[18]However, evidence of mutual intention may be admissible ‘to negative an inference sought to be drawn from surrounding circumstances’. Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352-353 (Mason J).
In my opinion, the Transaction Documents, read in the context of the circumstances known to the parties, demonstrate that the commercial purpose of the Transaction was in substance a refinance of the NAB Facilities rather than a simple assignment of the NAB Facilities to Morelend. This conclusion is based upon the following:
(a) Under the Loan Agreement, Morelend advanced to the Borrower an amount sufficient to pay-out the NAB Facilities for the purpose of the NAB entering into the Deed of Assignment. Accordingly, it was the Borrower’s funds that repaid the NAB (not Morelend’s); and, under the Loan Agreement, the Borrower owed Morelend the amount so repaid.
(b) In my opinion, a reasonable business person would not read the Transaction Documents as intending to require the Borrower to apply the money loaned from Morelend to pay for the assignment of the NAB Facilities Debt for the benefit of Morelend. Such a construction would result in the entirely uncommercial consequence of Morelend being entitled to recover:
(ix) the Consideration Amount from the Borrower and its guarantors under the Loan Agreement; plus
(x) the Facility Debts from the NAB Debtors, under the Deed of Assignment.
(c) However, the plaintiff’s construction is consistent with the principal purpose of the Deed of Assignment, being to ensure that the assignment of the Mortgage secures Morelend’s advances to the Borrower. The Loan Agreement specifically contemplates that advances made by Morelend would be secured by the assignment of the Mortgage. A commercial and practical result is achieved by the Deed of Assignment assigning to Morelend the same amount as is advanced under the Loan Agreement to be paid to the NAB, to ensure that this Consideration Amount is secured under the Mortgage.
I also accept the plaintiff’s submission that, on a plain reading, the Deed of Assignment equates the amount of the Debt with the amount being paid as consideration for the assignment.[19] Senior counsel for Morelend submitted that Morelend’s construction did not require that Debt had two different meanings within the Deed of Assignment (being the Consideration Amount and the NAB Facilities Debt) because it could be that Morelend did agree to pay to NAB the Facilities Debt; but it did not comply with the agreement and only paid the Consideration Amount. I do not accept this contention for the following reasons:
(a)If it was the intention of the parties to the Deed of Assignment that Morelend was obliged to pay the NAB the amount of the Facilities Debt under the Deed of Assignment, it is commercially inherently unlikely that the NAB would have accepted the substantially lower figure on the same day as the Transaction Documents were executed.
(b)An email exchange of 12 September 2017 demonstrates that the NAB’s indicative payout as at 11 September 2017 was $2,030,450.78 and the Loan Agreement itself records that ‘an amount of approximately $2,000,000 plus interest and costs is payable’ to the NAB.[20] This is about $750,000 less than the amount claimed to be actually due under the NAB Facilities. No explanation was offered as to why Morelend would enter into an agreement to pay an amount substantially in excess of the Consideration Amount when it was aware that the NAB was prepared to accept the lesser sum.
[19]Deed of Assignment, recital B and cll 2(a)–(b).
[20]Item 1 of the Schedule to the Loan Agreement indicates that the total payable to the NAB was expected to be approximately $2,200,000 because a balance of approximately $1,250,000 was to be retained from the Commitment of $3,450,000 after payment to the NAB.
Because the Court cannot have regard to post contractual conduct as an aid to construction of a contract,[21] counsel for Morelend submitted that I should not have regard to the fact that Morelend only paid the Consideration Amount for the purpose of construing whether the ‘Debt’ in the Deed of Assignment was a reference to that sum or the NAB Facilities Debt.
[21]FAI Traders v Savoy Plaza (1993) 2 VR 343, 350 (Brooking J); Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582 [35] (Gummow, Hayne and Kiefel JJ).
The principle is well established but the evidence, in this case, establishes that the Transaction including the payment of the Consideration Amount and the execution of the Transaction Documentation all occurred on 28 September 2017. In fact, the Transfer of Mortgage, which the NAB was only obliged to provide on payment of the Consideration Amount, was not only executed but registered on 28 September 2018. Accordingly, I consider that the fact that NAB accepted the Consideration Amount as the amount due under the Deed of Assignment is evidence of the surrounding circumstances known to the parties at the time of the Transaction.[22]
[22] Johnston v Brightstars Holding Company Pty Ltd[2014] NSWCA 150 [121] (Basten JA).
Counsel for Morelend relies upon the definition of ‘Debt’, which is ‘all amounts owing under the Facilities as at a point in time’. In my opinion, read in the context of the known circumstances and the Transaction Documents as a whole, the definition of Debt was intended to ensure that the amount accepted by the NAB was in satisfaction of all amounts owed under the NAB Facilities; and that the NAB Debtors would not have any residual liability to the NAB. In the context of the Transaction, this was the Consideration Amount, which the NAB accepted in full discharge of its entitlements.
In my opinion, construing the underlying Transaction as a refinance rather than a simple assignment is also consistent with the following:
(a) The NAB Debtors were parties to the Deed of Assignment. If it was only intended that the NAB would assign its Facilities Debt to Morelend, the NAB Debtors could simply have been notified of the assignment in accordance with s 134 of the Property Law Act 1958.
(b) A fact known to the parties was that the mortgaged property was the subject of a contract of sale for the sum of $3,800,000 which was due to settle within a month, on 24 October 2017. No explanation was offered as to why the NAB Debtors would, in these circumstances, be prepared to incur a liability of approximately $750,000 more than what the NAB was prepared to accept in full satisfaction of its rights under the NAB Facilities.
(c) The Deed of Acknowledgment and Variation makes no reference to the amount of the debt to Morelend being referable to the NAB Facilities Debt but rather to ‘the amount of the Consideration paid by [Morelend] to NAB’.
(d) Clause 5 of the Deed of Assignment, which provided that ‘NAB need not sign or do anything after the assignment contemplated in this Deed in connection with the enforcement of the Mortgage or the other Assigned Property’, would create practical and commercial difficulties if it was proposed that Morelend would be enforcing the NAB Facilities.
Accordingly, I find that, on a proper construction of the Deed of Assignment, the reference to Debt was a reference to the amount actually paid to the NAB by Morelend as consideration for its assignment of the Assigned Property as defined in the Deed (in other words, the Consideration Amount not the NAB Facilities Debt).
Question (b): Did the assignment of the Mortgage of itself convey the right to recover the NAB Facilities Debt?
I reject Morelend’s contention that, if the assignment of the Debt only assigned the Consideration Amount, Morelend was nonetheless entitled to recover the NAB Facilities Debt from the proceeds of the sale of the Victoria Street property under the assigned Mortgage.
Observing that the Deed of Assignment assigned two things (NAB’s interest in the Debt and the Mortgage), senior counsel for Morelend relied on the decision of the Court of Appeal in French v Queensland Premier Mines Pty Ltd[23] as support for the proposition that ‘[t]he mortgage security and the personal obligation to repay are … conceptually, and contractually, independent of each other’.[24]
[23][2006] VSCA 287 (Maxwell P, Callaway and Redlich JJA).
[24]Ibid [13] (Maxwell P, with whom Callaway and Redlich JJA agreed).
In French v Queensland Premier Mines Pty Ltd, the Court of Appeal considered the effect of a transfer of a mortgage without an assignment of the loan agreements secured by the mortgage.
A simplified summary of the relevant facts is as follows:
(a) Queensland Premier Mines had borrowed sums under loan agreements and secured its obligations to repay under an ‘all moneys’ mortgage over land. The mortgage contained a promise to pay moneys ‘owing or payable … to the Mortgagee by the Mortgagor on any account’ and included ‘all moneys now or hereafter payable by the Mortgagee pursuant to any Facility Agreement [which included the loan agreements]’.
(b) The original mortgagee and lender assigned both the mortgage and the underlying loan agreements to French; and French later assigned the mortgage, but not the separate loan agreements, to a company related to Queensland Premier Mines.
(c) French sued Queensland Premier Mines for the amount due under the loan agreements.
(d) Queensland Premier Mines contended that the effect of s 62 of the Land Title Act 1994 (Qld)[25] was that the assignee of the mortgage was vested with the right to recover under the loan agreements because under s 62(4) ‘the right to recover a debt or enforce a liability under the mortgage’ vested in the transferee.
[25]The equivalent of Transfer of Land Act 1958 (Vic) s 46; Real Property Act 1900 (NSW) s 52; Real Property Act 1886 (SA) s 151; Transfer of Land Act 1893 (WA) s 83; Land Titles Act 1980 (Tas) s 60; Land Titles Act (ACT) s 78; Land Title Act 2000 (NT) s 62.
The Court of Appeal rejected the contention of Queensland Premier Mines, and found that French retained the right to sue under the loan agreements because:
(a) the debt French sought to enforce arose under the loan agreements, and not under the mortgage;[26]
(b) the covenant to pay the ‘Moneys Secured’ under the mortgage was ‘purely collateral’;[27] and
(c) without an assignment of the loan agreements, there was no money payable to the mortgagee/assignee, and the mortgage was empty and ‘liable to be discharged’.[28]
[26][2006] VSCA 287 [54] (Maxwell P), [83] (Callaway JA) and [90] (Redlich JA).
[27]Ibid [83] (Callaway JA).
[28]Ibid [63] (Maxwell P).
The decision of the Court of Appeal was upheld by the High Court in Queensland Premier Mines Pty Ltd v French.[29]
[29](2007) 235 CLR 81 (Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ). See 101–2 [56]–[60] (Keifel J, with whom all members of the Court agreed).
In my opinion, Morelend’s argument derives no support from these decisions. As I have found that the NAB only assigned to Morelend the Consideration Amount and not the NAB Facilities Debt, the decisions of the Court of Appeal and the High Court make it clear that the fact that the NAB also assigned the Mortgage does not vest a right to recover the NAB Facilities Debt in Morelend.
Section s 46(1) of the Transfer of Land Act 1958 (Vic) relevantly provides:
By virtue of every such transfer the right to sue upon any instrument and to recover any debt sum of money annuity or damages thereunder (notwithstanding that it constitutes a chose in action) and all interest in any such debt sum annuity or damages shall be transferred so as to vest at law as well as in equity in the transferee thereof …
Although there are differences in wording, similarly to s 62 of the Land Title Act 1994 (Qld), s 46 of the Transfer of Land Act 1958 limits the right to sue to ‘any debt sum of money annuity or damages thereunder’ — that is under the instrument (in this case the Mortgage). It was not submitted on behalf of Morelend that a different conclusion would result under s 46 of the Transfer of Land Act 1958.
Is Morelend entitled to claim additional interest payable pending clearance of the settlement cheque?
Morelend, as mortgagee in possession, sold and settled the sale of the Victoria Street property on 31 January 2018. After settlement, the funds were deposited into Morelend’s account on Thursday 1 February 2018. It is alleged that the funds were not available until Tuesday 6 February 2018 and Morelend claimed $6,731.17 for the period from 31 January to 6 February 2018, calculated by reference to Morelend’s default interest rate.
The law with respect to payment by cheque is as follows:
(a)Although a cheque is not legal tender, it is sufficient payment if it is accepted without objection.[30]
(b)If so accepted, the cheque ranks as an actual payment from the time it is given and the payment is complete when the cheque is accepted by the creditor.[31]
(c)Unless there is evidence that the cheque is intended to be accepted in discharge of the debt,[32] the payment is subject to a condition subsequent such that, if it is dishonoured, the claim for the debt revives.[33]
[30]George v Cluning (1979) 28 ALR 57, 62 (Mason J with whom Aickin J agreed).
[31]National Australia Bank v KDS Construction Services Pty Ltd (1987) 163 CLR 668, 676 (Mason CJ, Brennan, Deane, Dawson and Toohey JJ).
[32]In which case, if it is dishonoured, the creditor is restricted to an action on the cheque. Wardle v Agricultural and Rural Finance Pty Ltd [2012] NSWCA 107 [159] (Campbell JA with whom Barrett JA and Sackville AJA agreed).
[33]Tilley v Official Receiver in Bankruptcy (1960) 103 CLR 529, 532 (Dixon CJ).
Apart from the fact that no admissible records were produced in support of Morelend’s contentions on this issue, I reject this claim because Morelend received the cheque on 31 January 2017, which was duly honoured; and accordingly the Loan Agreement was repaid as at 31 January 2017.
Orders
I propose to order as follows:
(a) The answers to the preliminary questions are as follows:
Question 1
On the proper construction of the Deed of Assignment, did the reference to the Debt operate as at the date of execution of the Deed as a reference to:
(i)the amount to be actually received by NAB as consideration for its assignment of the Assigned Property as defined in the Deed; or
(ii)the aggregate of all amounts owing under the NAB Facilities immediately prior to the date of execution of the Deed of Assignment?
Answer 1
The amount to be actually received by NAB as consideration for its assignment of the Assigned Property as defined in the Deed.
Question 2
Upon execution of the Deed, was the amount owing secured by the Mortgage as at the date of execution of the Deed the amount in (i) or (ii) above?
Answer 2
The amount owing secured by the Mortgage as at the date of execution of the Deed was the amount in (i) referred to in Question 1 above.
(b) I find that the plaintiff is not entitled to recover additional interest payable pending clearance of the settlement cheque.
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