Hyde Management Services Pty Ltd v FAI Insurances Ltd

[1979] HCA 22

HIGH COURT OF AUSTRALIA

Barwick C.J., Gibbs, Stephen, Mason and Aickin JJ.

HYDE MANAGEMENT SERVICES PTY. LTD. v. F.A.I. INSURANCES LTD.

(1979) 144 CLR 541

30 May 1979

Contract—Deeds

Contract—Loan—Covenant to repay principal sum or so much as shall remain outstanding on a specified date—Right of borrower to repay principal before that date. Deeds—Construction—Appendix—Deed of loan—Draft mortgage to be executed by surety for borrower—Relevance to construction of deed.

Decisions

May 30.
The following written judgments were delivered: -
BARWICK C.J. The current history of this matter and the relevant terms of the deed between the parties in respect of which the question to be resolved arises are set out in the reasons for judgment prepared by my brother Mason which I have had the advantage of reading. (at p542)

2. I agree with my brother's conclusion that the appeal from the Supreme Court of Queensland should be dismissed and with my brother's reasons for that conclusion. (at p542)

3. I wish, however, to add an observation on my own behalf. An agreement to repay money lent on a day certain imports, in my opinion, two consequences; first, that the lender may not demand payment before that day; and, second, that the borrower may not, without the concurrence of the lender, repay the whole or any part of the money borrowed before that day. (at p542)

4. The presence of the words in the promise to repay in this case: "or so much thereof as shall then remain outstanding", does not negative or displace either of these consequences. These words perform a useful function to accommodate the content of the promise to repay to the circumstances which may obtain at the date for repayment. They are insufficient to create any right in the borrower to bring about any circumstance which will have reduced the amount to be repaid. Because of their utility to cover what I might call adventitious circumstances affecting the amount to be repaid on the due date, they are a commonplace amongst conveyancers. They are uniformly to be found, as my brother points out, in conveyancing precedents for promises or covenants to repay a loan on a fixed date. (at p543)

5. Thus, although, as is pointed out in my brother's reasons, there were in this transaction between these parties circumstances in contemplation which, without the borrower having a right of earlier repayment, could have effected a reduction in the amount of the loan before the due date for payment, I would have reached the conclusion that this appeal should be dismissed had there been no such circumstances. I would have done so because the presence of the formula "or so much thereof as shall then remain outstanding" or an equivalent expression is insufficient to found a right in the borrower to repay the whole or any part of the loan before the agreed date for repayment. (at p543)

GIBBS J. I am in agreement with the reasons contained in the judgment of Mason J., and would dismiss this appeal. (at p543)

STEPHEN J. I would dismiss this appeal for the reasons appearing in the judgment of Mason J. (at p543)

MASON J. The issue in this appeal from the Full Court of the Supreme Court of Queensland is whether the appellant borrower is entitled to repay to the respondent lender and compel it to accept the principal sum owing under a loan agreement before 25th November 1981, the date on which the borrower covenanted to repay the principal sum or so much thereof as shall then remain owing. The primary judge (Connolly J.) held that it was so entitled. The Full Court decided that it was not. (at p543)

2. The statute law of Queensland contains no provision conferring a right on a mortgagor to pay the principal before the contractual date for repayment: cf. s. 93 of the Conveyancing Act, 1919 (N.S.W.), as amended; s. 153B of the Liquor Act, 1912 (N.S.W.), as amended. The issue is therefore to be determined by reference to the terms of the loan agreement. (at p543)

3. The rule at common law and in equity is that the borrower has no right to repay principal before the day named for repayment in the loan agreement, unless the agreement itself gives him such a right. If before the contractual date for repayment a mortgagor tenders to his mortgagee the principal outstanding, interest up to the contract date and costs, the latter is not bound to accept the money and to reconvey the security. So in Brown v. Cole (1845) 14 Sim 427 (60 ER 424) Shadwell V.C. refused to make a decree for redemption before the day appointed for that purpose had arrived, holding that a mortgagor cannot, before the time limited for payment to the mortgagee expires, insist on acceptance of a tender of the principal or take proceedings to redeem. (at p544)

4. To the same effect was the decision of Luxmoore J. in Knightsbridge Estates Trust Ltd. v. Byrne (1938) Ch 741 . There a mortgage provided for the repayment of principal and interest by eighty half-yearly instalments. There was the usual proviso in case of default. The plaintiff's mortgagors, being desirous of redeeming the property by the repayment of principal, sought a declaration that they were entitled to redeem at any time on giving six months' notice. It was held that they were not so entitled. Luxmoore J. said (1938) Ch at p 756 :
"It is I think settled law that if A agrees with B in consideration of a loan from B to A to repay that loan with interest on a fixed future date, B cannot sue A for repayment of the loan before the arrival of that date, nor can A compel B to accept repayment of it before that date has arrived."
His Lordship referred to the speech of Lord Parker in Kreglinger (G. &C.) v. New Patagonia Meat and Cold Storage Co. Ltd. (1914) AC 25, at pp 47-48 where his Lordship, after referring to a mortgage which provided for reconveyance on payment of a sum of money on a specified date, said two events might happen - (a) payment on this date and (b) failure to pay on this date, in which event an equity to redeem arose. His Lordship went on to say, "Till this date had passed there was no equity to redeem." (at p544)

5. By cl. 1 of a deed executed on 25th November 1976 the lender covenanted and agreed with the borrower that it would lend to the borrower the sum of $300,000 on certain terms and conditions set out in the deed. By cl. 2 (a) the borrower covenanted that "the borrower will repay to the lender the principal sum or so much thereof as shall then remain outstanding on the twenty-fifth day of November, 1981". The borrower also convenanted to pay interest "on the principal sum or so much thereof as shall from time to time be owing and remain outstanding by the borrower" at the rate of 20 per cent per annum, reducible to 16 per cent per annum on prompt payment (cl. 2 (b)), to pay legal costs and disbursements reasonably and properly incurred (cl. 2 (c)), to cause nominated sureties to execute and deliver to the lender a deed of guarantee in the form contained in Appendix "A" for (inter alia) "the due and punctual payment of all principal interest and other moneys payable or to become payable by the borrower to the lender hereunder" (cl. 2 (d)) and to cause the sureties to execute and deliver bills of mortgage in the form contained in Appendix "B" over certain parcels of land (cl. 2 (e)). (at p545)

6. By cl. 2 (f) (I) it was provided -
"The occurrence of any event detailed in Clause (f) (II) hereof shall constitute default and thereupon the lender shall be entitled at its option to make demand by notice in writing to the borrower for the immediate payment of the principal sum or so much of the principal sum as shall then remain outstanding and upon the service of such notice the principal sum or so much thereof as shall then remain outstanding shall become immediately due and payable by the borrower to the lender."
A variety of events were specified in cl. 2 (f) (II) as events which should constitute default for the purposes of cl. 2 (f) (I). These events included the appointment of a receiver and the exercise of a power of foreclosure and a power of sale. (at p545)

7. The principal question is whether the date mentioned in cl. 2 (a), namely, 25th November 1981, is the fixed date for repayment or whether it nominates the last day by which the borrower is obliged to pay the principal, the borrower being at liberty to make earlier payment at its discretion. The lender says that it is a loan for a fixed term. The borrower contends that it is a loan for a maximum term. The borrower submits that the word "on" means "on or before", "by" or "not later than". Alternatively it submits that even if the word "on" is to be literally construed, the context and other provisions in the agreement indicate that the borrower is entitled to make earlier repayment if it so chooses. (at p545)

8. In support of its two submissions the borrower relies heavily on the references to the principal sum "or so much thereof as shall (then) remain outstanding" in cll. 2 (a), 2 (b) and 2 (f) (I) as indicating that payments in reduction of principal may be made before 25th November 1981. So much may be conceded. What the borrower then says, and this I do not accept, is that these provisions point to the existence of a contractual right or entitlement in the borrower under the deed to make such payments if it chooses so to do. (at p545)

9. The references to so much of the principal as shall remain outstanding may be adequately explained on other grounds. In the first place, they are apt to apply to payments which the lender voluntarily accepts, though it is not obliged to do so. Indeed, if the covenant to pay interest in cl. 2 (b) were expressed as an absolute obligation to pay interest on the entire principal sum to the date nominated for repayment and not in the form in which it is now expressed, the borrower would undertake a liability to pay interest on the whole of the principal up to 25th November 1981, notwithstanding earlier acceptance by the lender of payment of the whole or part of the principal. The references in cll. 2 (a) and 2 (f) (II) do not serve quite the same purpose, for of them it may be said that the legal rights and liabilities of the parties are not materially altered by the inclusion of the references. However, their inclusion has the result that the deed more accurately reflects the obligation which the covenant imposes upon the borrower, its obligation being in the events contemplated not to pay the whole of the principal on the appointed day but only so much of it as then remains outstanding. (at p546)

10. The lender also relies on certain provisions in Appendix "B" to the deed, being the form of bill of mortgage to be executed and delivered by the sureties pursuant to the provisions of cl. 2 (e) of the deed. The Full Court held, wrongly in my opinion, that, for the purpose of construing the deed, resort could not be had to the appendices because the instruments when executed would be the words of persons other than the parties to the deed. With respect, this was to overlook the fact that the instruments were appended to the deed in the form in which they were required to be executed. The instruments were therefore expressed in language settled by the parties to the deed. Accordingly, it is legitimate to interpret the deed by reference to events for which the parties had made provision in the instruments contained in the appendices. (at p546)

11. The bill of mortgage empowered the lender to appoint a receiver in the event of default in payment of principal or interest or in case of breach of the covenants or conditions in the mortgage or in the deed (cl. 13). This clause conferred various powers on the receiver, including a power of sale, and it required the receiver to apply all moneys received by him in various ways, one of which was, "In payment to the mortgagee of the moneys hereby secured" (par. (f)). (at p546)

12. Clause 15 of the bill of mortgage empowered the lender to insure the mortgaged premises, the mortgagors being liable to repay on demand to the lender the amounts paid by way of premium. The clause goes on to provide -

"All moneys which may be received by virtue of any such policy shall be applied at the option of the mortgagee either in payment or reduction of the moneys owing hereunder notwithstanding that the time for payment of principal moneys shall not have arrived and notwithstanding any reduction in principal money interest shall nevertheless continue to be payable until the whole of the capital interest and other moneys payable hereunder shall have been paid such interest being calculated until the next succeeding monthly day for the payment of interest on the amount ascertained to be due on the preceding monthly day and thereafter on the amount ascertained to be due on the monthly day next succeeding the receipt by the mortgagee of any such money."

This provision furnished a means by which the principal sum might be reduced before 25th November 1981 otherwise than by the voluntary acceptance by the lender of a payment made by the borrower. The same comment may be made of cl. 24 of the bill of mortgage. It provided that, in the event of a resumption of the mortgaged property, compensation would be paid to the lender, which is then entitled to apply the moneys as if they had arisen from a sale in the exercise of the mortgagee's power of sale. (at p547)

13. Accordingly, the references in the deed to so much of the principal as shall remain outstanding are susceptible of an explanation very different from that contended for by the borrower. They provide for the reduction of principal either by early payments voluntarily accepted by the lender or by the application before 25th November 1981 of moneys becoming available under the bill of mortgage given by the sureties. There is therefore no basis for giving the references the particular operation which the borrower seeks to attribute to them. (at p547)

14. It is significant that the accepted conveyancing precedents for mortgages do not regard similar forms of words as carrying a right to early repayment of principal: see Australian Encyclopaedia of Forms and Precedents, 2nd ed., vol. 9, p. 139, where, under the heading "TO REPAY PRINCIPAL on fixed date (Alternative Form)", there is to be found this clause:
"That the mortgagor will pay to the mortgagee the principal sum or so much thereof as shall remain unpaid on the day of 19 ."
On p. 140, under the heading "TO REPAY PRINCIPAL on fixed date with right for mortgagor to repay earlier", there is a clause which expressly confers on the mortgagor the right to make earlier repayment in specified amounts after giving specified notice of his intention so to do. See also Encyclopaedia of Forms and Precedents, vol. 14, p. 452. (at p547)

15. Likewise, in the United States it is evidently the practice to include a specific prepayment clause in a mortgage when it is intended to give the mortgagor a right to make early repayment. American Jurisprudence, 2d, vol. 55, p. 438 states:
"The general rule is that in the absence of any waiver by a mortgagee of his right to insist on strict compliance with the contract, the mortgagor may not exercise his right of redemption before maturity. Thus, a mortgagor generally has no right to insist that the mortgagee accept payment prior to the date of maturity, in the absence of a prepayment clause." (at p548)

16. It will be seen, therefore, that the borrower's argument in this case would, if accepted, have far-reaching consequences. It would not only give the references to so much of the principal as shall remain outstanding the effect of a specific clause providing for early repayment, but it would confer upon the borrower very much greater latitude than is ordinarily conferred upon a borrower by a specific clause of that type. Although the borrower here seeks to make early repayment of the entire principal outstanding, the argument which it advances is such that, if accepted, it would entitle a borrower to make payments in such amounts and at such times as he might choose, without his being under any obligation to give advance notice of his intention to the lender. The lender would thereby be subjected to considerable inconvenience and would be deprived of the opportunity to make adequate and timely arrangements for the prompt reinvestment of the moneys thereby repaid, a consideration to which the courts have hitherto attached considerable importance in cases in which repayment after the due date for redemption is made. (at p548)

17. Thus, if a mortgagor does not redeem by the contract date and is thereby in default, the rule of equity is that he cannot redeem without notice: he must give six months' notice of his intention to redeem (Smith v. Smith (1891) 3 Ch 550 ), so as to give the mortgagee an opportunity to find another investment. The inflexibility of the six months rule was criticized by Maugham J. in Cromwell Property Investment Co. Ltd. v. Western and Toovey (1934) Ch 322, at pp 331-332 . For these reasons I would dismiss this appeal. (at p548)

AICKIN J. I have had the advantage of reading the reasons for judgment prepared by my brother Mason in this appeal. I agree with his reasons and his conclusion that the appeal should be dismissed. (at p548)

Orders

Appeal dismissed with costs.