Iarriccio v Lai Investments Pty Ltd No. Scciv-01-1664

IARRICCIO & ORS v LAI INVESTMENTS PTY LTD
[2003] SASC 54
Full Court: Doyle CJ, Perry and Debelle JJ

DOYLE CJ. I have read the reasons of Perry J. I agree that the appeal and cross-appeal should be dismissed. I agree with the reasons given by Perry J.
I add the following brief comments.
The case is a difficult one.
Mr Slattery, counsel for the respondent on the appeal and for the appellant on the cross-appeal, mounted a strong submission. There is force in the submission that he put. As he argued, Mr Lai wanted as much security as could be obtained. He told his accountant, Mr Brooks, that that is what he wanted. Mr Brooks understood that. Mr Lai believed that that was what he was getting. Mr Brooks, and the purchasers of the business, or at least one of them, knew that the deed of charge, the deed of guarantee and the mortgages contained a reference to “moneys hereby secured” which was subject to a broad definition.
The trial Judge found that having regard to that definition, the moneys secured by those instruments extended to moneys due under the Lease of Goods and the Lease of Premises.
But there was also evidence to support the Judge’s finding that the defendants in the District Court, the appellants in this Court on the appeal and the respondents to the cross-appeal, believed that the security they were giving in their personal capacity was a security only in respect of moneys advanced by Mr Lai, and not in respect of moneys that might become due under the Lease of Goods or the Lease of Premises. There was also evidence to support the Judge’s conclusion that Mr Lai, when the security was given, must have had the same belief. There was other material supporting this conclusion. The evidence given by Mr Brooks, Mr Lai’s accountant, supported the case against Mr Lai, notwithstanding the submissions put forward by Mr Slattery on this point.
My view is that the findings that the trial Judge made were open to him on the evidence. The findings are not inconsistent with objective facts, nor are they findings that are outweighed by the preponderance of the evidence. This is a case in which the trial Judge’s assessment of the witnesses was a significant factor. This is not to say that the trial Judge’s assessment of the witnesses was decisive, but in my opinion it was a case in which his impression of the witnesses was important.
I do not accept the criticisms made by Mr Slattery of the trial Judge’s reasoning. In particular, I do not accept his submission that the trial Judge mistakenly acted on an uncommunicated assumption made by the appellants (on the appeal) and Mr Brooks as to the effect of the guarantee and mortgage. The effect of the trial Judge’s finding is that these documents, as drawn, went further than the parties had intended.
I am not satisfied that the Judge erred in relation to the appeal or in relation to the cross-appeal.
This is a case which could have gone either way at trial. Nevertheless, as I have said, it has not been shown that the trial Judge erred.
PERRY J. This is an appeal from a judgment following a trial in the District Court. The trial judge ordered that a deed of guarantee and two memoranda of mortgage be rectified by deleting certain clauses from them, and declared that the Registrar General of Deeds (“the Registrar-General”) be at liberty to register discharges of two other mortgages.
The appellants, with the exception of Lai Industries Pty Ltd (“Lai Industries”), together with the Registrar-General were the defendants in the District Court action. Before trial, on the application of the defendants, Lai Industries was added as a plaintiff by counterclaim. The other plaintiffs by counterclaim were the defendants with the exception of the Registrar-General.
The appellants do not seek to disturb the orders to which I have referred, which were made on their counterclaim in the District Court action. Rather they complain that the trial judge erred in failing to order rectification of another instrument, namely a deed of charge over its assets given by Lai Industries in favour of the respondent, Lai Investments Pty Ltd (“Lai Investments”).
By a notice of cross-appeal, Lai Investments, which was the plaintiff in the District Court proceedings, complains that the trial judge erred in making the declaration and the orders for rectification. It seeks an order quashing the declaration and orders. It claims that in lieu thereof an order should be substituted granting it the relief sought by it in its statement of claim. The substance of that relief was a declaration that the two discharges of mortgage were void, or that they should be avoided.
Background
In 1973, Carlos Lai (“Mr Lai”) established a business for the manufacture of industrial electrical switchboards. At some time he and his wife Maria Bertilla Lai (“Mrs Lai”) incorporated Lai Investments, which took over the conduct of the business.
At all relevant times Mr Lai was managing director and Mrs Lai a director of Lai Investments.
Lai Investments purchased land at Athol Park from which the business was conducted. By 1995, Lai Investments employed some 17 persons, which included the appellant Peter McElligott (“Mr McElligott”), Mr Lai’s niece Manuela Lai (“Ms Lai”) and the appellant Giovanni Iarriccio.
In 1995, Mr Lai resolved to dispose of the business with a view to retiring. In July of that year, he discussed with Mr McElligott the possibility of what is sometimes described as a senior management “buy out”. In order to consider the matter, Mr McElligott obtained financial information, including valuations of Lai Investments’ business and assets, with the assistance of Ian Ross Brooks (“Mr Brooks”).
Mr McElligott then approached a bank seeking the necessary finance for a takeover of the business on behalf of himself, Ms Lai and another senior employee. The approach was unsuccessful, and the matter did not proceed further at that stage.
The question of a possible take-over was revived in 1996 when Mr Lai floated a proposal in which he would, in effect, provide vendor finance. At that stage, Mr Iarriccio, together with Mr McElligott and Ms Lai, expressed interest in a transaction along the lines then suggested by Mr Lai.
In the events which happened, a transaction was agreed to, evidenced by documents executed on 2 July 1996. Those documents may be described as follows:
(a)A sale agreement pursuant to which Lai Investments agreed to sell and Lai Industries agreed to buy the business conducted by Lai Investments for a purchase price of $412,084, on the footing that the sale would be fully financed by the vendor.
(b)A loan agreement by which Lai Investments agreed “to provide vendor finance to [Lai Industries] to assist with the purchase of the business and for working capital purposes of [Lai Industries] on the terms and conditions of this agreement”.
(c)A deed of charge by Lai Industries to Lai Investments over all its property and assets to secure the repayment of the “moneys hereby secured” (as defined).
(d)A deed of guarantee by Mr McElligott, Mr Iarriccio and Ms Lai, and Mr and Mrs McElligott as trustees of the McElligott family trust, and Mr and Mrs Iarriccio as trustees of the Iarriccio family trust, to the plaintiff pursuant to which the guarantors guaranteed “the due and punctual payment by [Lai Industries] to [Lai Investments] of the “moneys hereby secured” (as defined).
(e)Two mortgages, being a mortgage by Mr and Mrs Iarriccio to Lai Investments over the land in two certificates of title, and a mortgage by Mr and Mrs McElligott to Lai Investments over the land in three other certificates of title. Each mortgage was executed in consideration of Lai Investments “extending or agreeing to extend credit or accommodation” to Lai Industries. Pursuant to the mortgages, the mortgagor, Lai Industries, guaranteed the “due and punctual payment” by [Lai Industries] to [Lai Investments] of “the moneys hereby secured” (as defined).
(f)A document entitled “Lease of Goods” which provided for the lease by Lai Investments to Lai Industries of various specified goods for a total rent of $382,894.80, to be paid by 120 equal consecutive monthly instalments of $3,190.79 each. The lease includes a “Personal Guarantee” executed as a deed by Mr McElligott, Mr Iarriccio and Ms Lai guaranteeing the payment by Lai Industries, and compliance by Lai Industries with Lai Industries’ obligations under the lease.
(g)A lease of the land upon which the business was conducted for a term of ten years from 1 July 1996 for a rental of $49,600 per annum (subject to review), payable monthly in advance. The lease includes “a director’s guarantee” executed as a deed by Mr McElligott, Mr Iarriccio and Ms Lai in substantially similar terms to the guarantee included in the lease of goods.
I will refer later to the manner in which the expression “the monies hereby secured” is defined in the documents.
At trial, Lai Investments contended that the mortgages and the debenture charge not only secured repayment of the moneys lent by Lai Investments to Lai Industries pursuant to the loan agreement, being the purchase price and working capital, but also secured the liability of Lai Industries pursuant to the lease of plant and equipment and the lease of premises.
The appellant’s case at trial was that on a proper construction of the various instruments, they applied only to Lai Industries’ liability to Lai Investments for the moneys lent to Lai Industries by Lai Investments, or if that was not so, the instruments should be rectified to so provide.
On 27 April 2000, Lai Industries paid to Lai Investments $159,349.56 which was the balance then owing with respect to the purchase price and the moneys lent for working capital, that is, the moneys advanced under the loan agreement. Lai Investments thereupon delivered to Lai Industries discharges of the mortgages.
I turn to the definition of the expression “the monies hereby secured”.
Except for different descriptions of the parties to them, and other differences which are not relevant to the issues which now need to be addressed, the deed of charge, the deed of guarantee and each of the mortgages defined “the moneys hereby secured” to be (in the case of the mortgages the “debtor” being Lai Industries):
“‘1.1all moneys now owing or payable or hereafter to become owing or payable by the Debtor either alone or jointly with any other person to the mortgagee whether by way of repayment of principal, payment of interest or of fees, costs, charges or expenses or otherwise in respect of any loan or advance which the mortgagee has made or may presently or from time to time later make to the Debtor or to the Debtor jointly with any other person or under or by virtue of any agreement or obligation entered into by the Debtor or the Debtor jointly with any other person or under or by virtue of any agreement or obligation entered into by the Debtor or the Debtor jointly with any other person with respect to any such loan or advance; and also
1.2all other moneys now or hereafter to become owing or payable to the Mortgagee by the Debtor either alone or jointly with any other person on any account whatsoever including (but without limiting the generality of the foregoing) all moneys which the Mortgagee pays or becomes actually or contingently liable to pay to for or on behalf of or for the accommodation of the Debtor either lone or jointly with any other person whether or not such payment is made or liability arises under or by virtue of the covenants and provisions hereof or from circumstances or transactions in connection therewith or by reason of the Mortgagee having already or hereafter become a party to any negotiable or other instrument or entered into any bond, indemnity or guarantee’-
The Mortgages provided, inter alia:-
‘19That the Mortgagor is not entitled to a discharge of this security at any time when there are any moneys which are then owing and payable but not then presently payable or which are then owing upon a contingency by the Mortgagor whether alone or jointly or jointly and severally with any other person or persons corporation or corporations to the Mortgagee on any account and for any reason and all such moneys shall be included in the Moneys Hereby Secured’.”
A similar clause appears in the Deed of Charge.
At trial, Lai Investments contended that clause 1.2 of the Definition of Moneys Hereby Secured, which for convenience may be referred to as the “all moneys clause”, should be construed to include Lai Industries’ liability to pay the rent and perform its other obligations under the goods lease and the lease of land. Lai Investments further contended that it followed that neither Lai Industries as debtor under the deed of charge, nor the personal appellants as mortgagors under their respective mortgages, were entitled to a discharge of the deed of charge or of any of the mortgages during the subsistence of the two leases.
The trial judge agreed that the “all moneys” clause, being clause 1.2 of the definition of “the moneys hereby secured” in the security documents, should be construed so as to extend to the liability arising under the leases.
His conclusion as to this aspect of the matter finds expression in the following two paragraphs from his reasons for judgment:
“115.In my opinion, within the context of the transaction documents and the commercial purpose which the clause is to be seen to serve having regard to all of the documents, the ‘all moneys’ clause cannot be construed to exclude a liability arising under the Leases.
116.The only question in my view is whether moneys owing, or to become owing or payable under the leases or either of them, are moneys for which Lai Industries is or becomes liable to pay ‘on any account whatsoever’. In my opinion viewing the transaction documents as each being part of the one transaction those words contemplate neither more nor less that there be the relationship of creditor and debtor between the plaintiff and Lai Industries upon an obligation to be found in one or more of the transaction documents. On that construction, the liability of Lai Industries under each of the leases is as a debtor to the plaintiff. I therefore conclude that the ‘all moneys’ clause extends to include the liability of Lai Industries as debtor to the plaintiff and the submissions of counsel for the defendants to the contrary must fail. It follows that the defendants were not entitled to, and the plaintiff was not obliged to provide, a discharge of the mortgages upon payment of the amount outstanding under the Loan Agreement.”
The trial judge then went on to deal with the submission of Lai Investments that the discharges of mortgage should be set aside on the ground of common mistake, the mistake being on the part of Mr Lai that there was an obligation on Lai Investments to discharge the mortgages on payment of the outstanding balance of the moneys lent under the loan agreement, and on the part of the appellants, a mistaken belief as to their entitlement to discharges of the mortgages upon the making of that payment.
After considering that aspect of the matter, the trial judge dismissed Lai Investments’ claim to set aside the discharges of mortgage on that ground.
Strictly it was unnecessary for him to deal with the contention at all, as he held separately that the deed of guarantee and the mortgages should be rectified by deletion of the second limb of the definition of “moneys hereby secured”. The effect of the rectification of those instruments was to render any consideration of the legitimacy of the discharges of mortgage by reference to the question of “common mistake”, otiose. Once rectified, the instruments took effect as though the “all moneys” clause had never appeared in them.
At all events, on the hearing of the appeal and cross-appeal, argument was confined to the questions whether or not proper grounds existed for the making of the order for rectification, and as to whether the order should have extended to the deed of charge. There was no challenge to the trial judge’s construction of the “all moneys” clause.
The trial judge’s conclusions as to the entitlement of the appellants to orders rectifying the deed of guarantee and the mortgages and the reason why he did not order rectification of the deed of charge as opposed to the deed of guarantee and the mortgages, appear in the following paragraphs of his reasons:
“144.I will not repeat my earlier findings. I am satisfied it has been proved by the defendants to the necessary degree that the common intention of Mr Lai, and therefore the plaintiff, and the defendants at the time the transaction documents were executed was that the Deed of Guarantee and the mortgages were given only to secure the moneys lent pursuant to the loan agreement. I would therefore hold that the defendants are entitled to the order they seek concerning those instruments, that is that the second limb of the definition of ‘moneys hereby secured’ be deleted.
145.Concerning the Deed of Charge, it is clear in my opinion from the evidence of Mr Lai and the defendants that the focus was upon the security being put up by the personal defendants. None of them had any real understanding of the Charge, and as I find gave no thought to it. In my view it cannot be found they had any common intention concerning the mortgage of Lai Industries’ assets different from that which appears in the Deed of Charge. I find that the defendants have failed to discharge the onus which must be satisfied before rectification of that Deed may be ordered, and accordingly the claim for rectification of it is dismissed.”
Factual findings as to the events leading up to the entry into the transaction
A central figure in the negotiations which led to agreement between the parties as to the terms of the transaction was Mr Brooks. He is a member of the firm of chartered accountants then known as Walker Wayland, now known as BKI Walker Wayland. Mr Brooks and his firm had acted for many years for Mr Lai and his business.
Mr Brooks’ evidence was that Mr Lai told him in late 1995 that he was interested in selling the business. Thereupon, Mr Brooks prepared a short summary of the assets and liabilities of the business. Thereafter he became involved in various meetings with Mr McElligott, Mr Iarriccio, Ms Lai and Mr Lai.
At first the discussions proceeded on the basis of bank finance being secured for a straight-out cash sale of the assets, but by March 1996 approaches to banks had been unsuccessful, and the alternative of a vendor-financed transaction was considered.
The original concept of the transaction was that it would be a straight-out vendor-financed sale for a consideration of about $600,000. However, this was renegotiated on the footing that the consideration be reduced to $400,000 which would be financed by the vendor, Lai Investments, which would also advance $300,000 on the loan agreement, and the purchasers would take a lease of the land and plant.
At all events, once the transaction was recast on the basis that it would be vendor-financed, Mr Brooks’ evidence was that he understood Mr Lai “wanted as much security ... as possible”. Mr Lai’s evidence was that he told Mr Brooks that he wanted by way of security “whatever they [the proposed purchasers] offered the banks”.
During the course of his cross-examination, Mr Brooks’ evidence includes the following passage:
“Q.It never changed, did it, that Mr Lai required the same securities; that is, he needed to have security over the whole of the assets and undertakings of the purchasers to ensure that his position was protected.
A.That’s right.
Q.You never received any different instructions than that, did you.
A.No.
Q.You didn’t see -
A.The legalities of the security were left to Lynch & Meyer. I prepared the information memorandum, which gave the general background information.
Q.I accept that. It’s not being put to you that you were responsible to draw the documents.
A.No.
Q.But I’m putting to you the propositions as to precisely where your involvement began and ended; all right.
A.Yes.
Q.I’m also just putting to you that, in fact, Mr Lai’s position never changed in relation to the securities he required, no matter how the deal was structured.
A.No, I don’t think that it did.
Q.Those securities, as you’ve written in your note of 13 March 1996, included debentures, personal guarantees and security over personal assets, which you would understand, I expect, to be mortgages.
A.Yes.
Q.Because that was the type of security that was being offered by the purchasers to the bank.
A.In general terms, yes.”
Later in his cross-examination Mr Brooks said:
“Q.Yes, but I understand your evidence to be that from its inception Mr Lai’s demand for security never changed; that is, the extent of the security.
A.Basically, that’s right, yes, and I encouraged him to take the best security he possible could take.
Q.Is that an expression that you used to him.
A.I think I probably did. I mean, this is a highly negatively geared transaction.
Q.Mr Lai was, effectively, putting these people into a business, wasn’t he.
A.Yes.
Q.Financing them.
A. Yes.
Q.That attitude, the attitude that you’ve just talked about in relation to the security, that was the attitude that pervaded your thoughts and Mr Lai’s thoughts from that time onwards, wasn’t it.
A. It was.
Q.That was the attitude that you took to any discussions that you had with Lynch & Meyer in relation to the securities that were to be drawn in support of the transaction.
A.Yes.
Q.You were going on in your answer to talk about putting into a documentary form what you thought was the intentions having regard to Mr Lai’s interests, and I think D3 is the first document that you produced. Would you have a look at that.
A.Yes, that’s correct.
Q.Just to get this absolutely clear, this document was not you instructing solicitors how to do things; this was the document that, as far as you were concerned, best expressed what you thought your instructions were.
A.Correct. I viewed it as it’s better to put it to the solicitors in writing, rather than sit there for two or three hours having them take down all this information in order to prepare these documents.
Q.The ultimate expression of that position became the letter of 13 May 1996 at p 26 of exhibit P1, the big volume in front of you.
A.Yes, that’s right.”

But MrBrooks’ evidence was that notwithstanding his advice to Mr Lai, he assumed that the security documents did not include security for any liability in respect of the leases of the goods and land, because he understood that commercially that was how such a transaction was commonly structured. However, it is clear from the evidence that he never passed on to Mr Lai his assumption in that respect, and Mr Lai did not at any stage qualify his instruction to Mr Brooks that he wanted the same level of security as had been offered to the banks.
Mr Brooks instructed solicitors, Lynch Meyer, to draw up the instruments required to implement the transaction, including the security documents.
He gave initial instructions to that firm by letter of 13 May 1996. Neither the letter nor various enclosed documents gave any specific instructions with respect to the nature of the security to be given.
The letter simply stated “security documentation will also be required in respect of the vendor finance”.
An enclosed documents headed “Vendor’s Information Schedule” contained the following details:

“Security offered by purchaser to vendor:

(i)

Vendor to take a registered first ranking charge over all of the assets of the purchaser company.

(ii)

Directors and shareholders except Manuela Lai, to provide guarantees up to a limit of their respective share of the total indebtedness to the vendor. Director shareholders share of indebtedness is to be in proportion to their shareholdings in Lai Industries Pty Ltd.

(iii)

Directors and shareholders of Lai Industries Pty Ltd, except Manuela Lai, to provide registered mortgages over their residences and any other real properties owned by them in the same proportion as in (ii) above. Details of properties owned by the directors and shareholders are set out at Appendix A.”

Lynch Meyer proceeded to draw up the various instruments. Draft documents evidencing the transaction were sent by Lynch Meyer to Mr Brooks under cover of a letter dated 24 May 1996. Mr Brooks forwarded them to Mr Lai, Mr McElligott, Mr Iarriccio and Ms Lai. The drafts contained the “all moneys’ clauses now in question.
On 12 June 1996, Mr McElligott consulted a solicitor, Mr Rodney Luker, for advice as to the transaction documents. Mr Luker is a senior legal practitioner experienced in commercial matters.
On that occasion Mr Luker did not tender any advice, but either then or shortly afterwards he received the draft documentation. Mr Luker obtained further information concerning the transaction in a telephone call to Ms Jankus of Lynch Meyer, who had drafted the documents.
On 20 June, after some further discussions with Ms Jankus and Mr Brooks, Mr Luker met with Mr McElligott. This was a meeting which extended over two hours, and according to Mr Luker’s evidence, they “worked through the documents”. His evidence was that he specifically advised Mr McElligott as to the “all moneys clause”. Although he first dealt with it by reference to the deed of charge, he explained that a substantially identical clause appeared in the deed of guarantee and the mortgages.
Part of his evidence in chief was:
“A..... It is always my practice to read that type of clause through with my client, or at least paraphrase it, work through it very carefully to gauge the level of a client’s understanding of the clause, and whatever the understanding, I give a level of advice that I see that is required in relation to the type of clause.
Q.What advice did you give in relation to this clause to Mr McElligott.
A.I advised him that the definition of ‘monies hereby secured’ is covered not only by para A, but also para B, and I went through with him that that definition includes ‘all other monies now or later to become owing, all payable to the mortgagee by the mortgagor, either alone or jointly’, and proceeded to work through the wording with him, explaining it to him very fully.
Q.Can you tell us what you said to him.
A.I can’t recall what I said to him.
Q.Is this clause B in a form which is one which you have come across frequently.
A.I consider that no two are alike, and hence the reason to be cautious, but it’s very similar to a lot of what I term all monies clauses that are used in the profession.
Q.If you look at the mortgages, relevantly the mortgage for Mr McElligott, I think that clause one of the mortgage is in relevantly identical terms to subclauses A and B of the deed of charge.
A.I haven’t re-read those clauses to determine whether or not they are identical. I recall that the definition of ‘the monies hereby secured’ was either the same or essentially very, very similar.
Q.I think there was a deed of guarantee, and I think that the guarantee also contains provisions, either identical to, or substantially identical to, the provisions of clauses A and B of the deed of charge.
A.That is my recollection.
Q.Did you explain any interconnection between the deed of charge, the guarantee, and the mortgage to Mr McElligott.
A.Yes, I did.
.............
Q.Did you express any view to Mr McElligott as to what obligations would be assumed by him on execution of the security documents at the time when settlement occurred.
A.I recall that I would have advised him in relation to his potential liability, unless it was limited.
Q.Liability in respect of what obligation.
A.‘The monies hereby secured’ as defined in the documents.
Q.Did you tell him what ‘the monies hereby secured’ in the documents meant in your view.
A.Yes, by reference back to the loan agreement, from what I can recall. I was still treating the documents as drafts, and I was somewhat suspicious that they were in final form, so to my way of thinking, I was advising him as to what might be the case, but very aware that the documents might also have to be changed, depending on what his instructions were.” (emphasis added)
Later in the course of his cross-examination, the following passage appears:
“Q.Would this be a correct summary of the position as you understood it, and if so, can you tell me how you understood it; at the time that Mr McElligott left your office on 20 June 1996, his understanding of the obligations which he was going to assume at the time settlement on the whole transaction would occur, would be that the liability, which was covered under the terms of any security document, being the mortgages, the deed of charge, that’s obviously the company liability, the loan agreement, and the agreement, was limited only to the amount of the loan under the loan agreement.
A.It was limited to ‘the monies hereby secured’ as defined in the loan agreement.
Q.Yes. That’s as far as his understanding would have gone.
A.Yes, I believe so.”
In fact the words “the monies hereby secured” quoted in the answer which appears in that passage do not appear in the loan agreement. But the purport of the answer was understood by the trial judge to mean that Mr Luker believed that the “all monies clause” in the security documents concerned only the monies the subject of the loan agreement and that the impression he had following his discussions with Mr McElligott was that the latter shared that understanding.
A conference with Lynch Meyer was arranged for 24 June 1996. Mr Luker originally believed that he would be instructed to attend the conference, but he received a message from Mr McElligott beforehand putting off his attendance. In fact the meeting on that date at Lynch Meyer was attended by Mr Brooks, Mr Lai, Mr McElligott and Ms Jankus of Lynch Meyer. There was no discussion as to the meaning of the words “vendor finance” or as to the meaning of the phrase “the monies hereby secured” in the security documents. Discussion focused on other aspects of the transaction.
In his evidence, Mr McElligott said that he had no recollection of receiving advice from Mr Luker as to the provisions in the deed of charge and the mortgages which defined “the monies hereby secured”. But he maintained that his understanding throughout was that the only moneys which were subject to the securities were the moneys which were borrowed to purchase the business and the money drawn down for working capital.
A particular finding of the trial judge with respect to Mr McElligott’s evidence as to his understanding of the transaction was attacked by Mr Slattery of counsel for the respondent. After referring to what he describes as the “successive vendor information schedules” which were prepared by Mr Brooks for the purpose, inter alia, of instructing the solicitors, the trial judge observed:
“101Mr Lai and Mr McElligott read each of those schedules: Mr McElligott said, and I accept, that his understanding from reading them and his discussions with Mr Brooks and Mr Lai was that the mortgages were to be security only for the moneys borrowed from the plaintiff and that was the agreement made with Mr Lai to be reflected in the transaction documents.” (emphasis added)
I think it is fair to say that the information schedules themselves could not provide a firm basis for any belief one way or the other on Mr McElligott’s part as to the extent of the security to be offered. But Mr McElligott’s evidence was in part that at the end of his meeting with Mr Luker his understanding was that the mortgages would secure “the loan moneys of $400,000 plus the work in progress plus any money to be drawn down for working capital”, but no other moneys.
Earlier in his evidence in chief, he referred to discussions which he said that he had had with Mr Brooks and Mr Lai in May 1996 as to the provision of security. He said that at a meeting between the three of them a list of Mr McElligott’s assets was provided. Part of his examination in chief then proceeded as follows:
“Q.By the time of discussions about the provision of security, had you provided a list of your assets.
A.Yes, we had. We provided our titles, a list of our titles I suppose you’d call it, and just general assets.
Q.What was said in relation to the giving of security over your personal assets.
A.Well, we were offering up our titles, they were going to take a mortgage over our titles for - to secure the vendor finance.
Q.Did anybody say to you what the vendor finance constituted.
..............
A.Vendor finance was for the loan money that Carlo was providing us, which was the 400,000 plus the working capital that we were going to draw down. Up to a limit of $300,000.
Q.What did Mr Lai say.
A.The same thing.”
In cross-examination on the same topic, he adhered to what he had said in examination in chief. But he agreed (as was the fact) that Mr Lai had not been cross-examined to suggest that such a conversation had taken place.
Given that the suggestion that such a conversation had taken place was not put to Mr Lai in examination or cross-examination and that Mr Brooks’ evidence was that he never passed on his understanding as to the extent of the security to any of the other parties to the transaction, the trial judge’s acceptance of Mr McElligott’s evidence on this topic, without dealing with those other matters, was quite properly the subject of criticism by Mr Slattery.
However, apart from the evidence of alleged discussions with Mr Brooks and Mr Lai on the topic, Mr McElligott gave consistent evidence that his belief as to the extent of the security was as found by the trial judge. Furthermore, as I have pointed out, Mr Luker’s evidence tends to support the conclusion that Mr McElligott had that understanding.
At the end of the day, it was for the trial judge to come to a view as to Mr McElligott’s state of mind and intention at the time he executed the transaction documents. There were a number of items of evidence on this topic for him to consider. He had the inestimable advantage of seeing and hearing the witnesses. Although his treatment of the evidence on this topic was not entirely satisfactory, with some hesitation, I would not be prepared to interfere with his finding that the state of mind of Mr McElligott was as he found it to be.
The learned trial judge’s finding as to the understanding of Mr Iarriccio appears in the following passage in his reasons for judgment:
“73Mr Iarriccio said he was provided with copies of the Vendor’s Information Schedules (Exhibit D3 and Exhibit P1 page 15) but ‘read very little of the documents’ or any documents. He said he did not see the draft transaction documents (Exhibit D14) although he was aware documents concerning the sale and purchase of the plaintiff’s business were provided to Mr McElligott who was to seek, and as Mr Iarriccio learned, he obtained, legal advice on behalf of all the ‘partners’. Mr Iarriccio said that on 2^nd July 1996 he signed, without reading, the transaction documents and there was no explanation to him of their legal effect but he intended to give security to the plaintiff for the loan of $400,000 and moneys borrowed for working capital. He said that at the time he signed the documents he did not understand he was giving a guarantee in respect of Lai Industries’ obligations under the Goods Lease or the Premises Lease.”
So far as Ms Lai is concerned, the learned trial judge appears to have accepted her evidence[1] that she was not involved in the negotiations which culminated in the purchase of the business by Lai Industries - “I just left it up to Carlo and Peter” - although she read and tried to understand the draft documents.
[1] I use the expression “appears to have accepted” here and elsewhere. I am driven to do so, as in his reasons for judgment the trial judge sets out lengthy summaries, including extracts from the transcript of the evidence of each of the witnesses in turn, not always stating what parts of it he accepted. I hesitate to criticise the trial judge on a matter of style, but it would have been better to have set out succinctly his findings of fact, rather than quoting the evidence so extensively, without always making it plain what part of it he accepted.
In particular, the learned trial judge quoted, and appears to have accepted, the following passage in her evidence:
“Q.You understood, I think, that your uncle was lending the money to buy the business.
A.Yes.
Q.And also lending the money of up to 300,000 for working capital.
A.Yes.
Q.Did you understand that to be a debt of the purchasing company.
A.Yes.
Q.Did you understand that you, Mr McElligott and Mr Iarriccio would be liable for that debt, if the company didn’t pay it.
A.Yes.
Q.At the time when you signed the documents, did you understand that they were providing security for any liabilities that the purchasing company assumed.
A.No.
Q.In particular, did you understand whether Mr McElligott or Mr Iarriccio provided any mortgage in respect of liabilities that might arise in the future, under, firstly, the goods lease, and secondly, the lease of property, the lease of the factory.
A. No.”
In summary, the learned trial judge accepted the evidence of those participants in the transaction other than Mr Lai and the respondent that their understanding was that neither the mortgages nor the charge over the assets of Lai Industries extended to secure repayment of the amounts due under the lease of the land and plant.
As for the respondent’s understanding, there is no doubt that Mr Lai was, as the trial judge points out in a passage to which I refer below, the “mind and will” of the respondent. His understanding was the respondent’s understanding.
Against that background, the evidence of Mr Lai and the trial judge’s findings as to his evidence assume critical importance. There could be no rectification of the documents evidencing the transaction unless all parties laboured under the same misapprehension as to the content of “the instrument in which the parties have mistakenly expressed their agreement”.[2]
[2] Meagher Gummow and Lehane Equity Doctrine and Remedies, 4^th ed (2002) page 886, para [26-010].
Mr Lai’s evidence was that he gave instructions to Mr Brooks to arrange for solicitors to prepare the necessary documentation. As for security, he told Mr Brooks that he wanted whatever they (the appellants) had offered the banks. He does not at any stage of his evidence say that he instructed Mr Brooks that he wanted the maximum security possible, or words to that effect, although as I have said, Mr Brooks’ evidence, which the trial judge accepted, was that that is what he advised Mr Lai and what his understanding was as to Mr Lai’s requirements.
Evidence that Mr Lai wanted what the appellants had offered the banks does not lead anywhere, as there is no evidence as to what security was offered to the banks, or what would have been required by the banks had the transaction proceeded with bank finance. Mr Lai admitted in cross-examination that no-one had told him what Mr McElligott, Mr Iarriccio and Ms Lai had offered the banks.
In his evidence in chief Mr Lai went no further than to reiterate that he had instructed Mr Brooks that he wanted whatever the other parties had offered the banks by way of security; that there was no discussion between him and the other parties as to the extent of the security; that he relied on the lawyers to draw up appropriate documentation with Mr Brooks’ assistance; and that he did not read the final documentation before signing it.
However, in the following passage in cross-examination he was more specific:
“Q.Is your understanding, when you came to sign the document, that the liability of Mr McElligott, and his family, or his family trust, and the liability of Mr Iarriccio, and his family trust, and the liability of Manuela Lai, was liability in respect of the purchase price of the business, and any moneys which were lent to the purchasing company by way of working capital.
A.Yes.
Q.That was the money which was described in the loan agreement.
A.Correct.
Q.That was the intended extent of their liability, wasn’t it.
A.No.
Q.I suggest to you that when the documents were signed you understood that the mortgages, which Mr and Mrs McElligott signed, and Mr and Mrs Iarriccio signed, were also limited to the moneys lent under the loan agreement.
A.No, not to my knowledge.
Q.I suggest that you knew that there were separate guarantees signed by Mr McElligott, Mr Iarriccio, and Manuela Lai, in respect, firstly, of liability under the lease of goods, and, secondly, for the liability under the lease of the property.
A.No, to me the liability was covering the - the mortgages were covering the lease as well, both leases.
Q.Where did you get that belief from.
A.From the original idea of sale, that everything would be included.
Q.When you say ‘the original idea of sale’, to what are you referring.
A.From the entire concept of me disposing of my business, and so to retire.”
Mr Lai’s evidence was that later he became angry when the appellants said they were looking for other premises which they said they might buy, on the footing that they would sub-lease his premises and pay the difference or shortfall of any rental to him. He regarded this as a breach of what he understood to be their verbal undertaking that they would purchase the premises at the end of the lease of the land.
Mr Lai said in evidence that later in April 2000, Mr Iarriccio rang and “asked me to discharge one mortgage because he wanted to pay Peter McElligott out and I said that when the loan account has been paid then it should be discharged, and I refused that”. He went on:
“Q.Did you say you would not do so.
A.Yes.
Q.Did you say why you wouldn’t do so.
A.Until the last moneys had been paid.”

He then referred to a subsequent phone call from Mr McElligott with a similar request to discharge the mortgages. Mr Lai’s evidence was that his reply was that he had 60 days within which to respond to any such request, and that he repeated that he did not intend to do so until “all the money” was paid.
The reference to a requirement for 60 days’ notice finds no support in the documentation. That he should have raised the issue indicates a degree of confusion on his part.
At all events, his evidence was that Mr McElligott also rang Mr Lai’s wife, who hung up on him because of her concern, which she shared with Mr Lai, that the indications were that they would not be buying the premises.
Mr Lai said that at that time, that is, in April 2000, he had retained Thompson Playford solicitors and had intended to consult them as to the request for a discharge, but that he did not do so, as eventually he ran out of time.
Be that as it may, the approaches from Mr Iarriccio and from Mr McElligott were followed up by a request from Mr Brooks that he execute a discharge of the mortgages. Soon after Mr Brooks approached Mr Lai to that end, on Thursday 20 April 2000 Mr Lai and his wife left for Kangaroo Island. At that stage he was aware, from what Mr Brooks had said, that Mr Iarriccio was involved in another transaction which required a discharge of the mortgages in question by 27 April 2000. Mr Lai’s evidence was that his response to being made aware of that was to repeat his requirement for 60 days’ notice.
While Mr and Mrs Lai were on Kangaroo Island, their daughter rang and passed on the contents of a letter of 20 April 2000 which Mr Lai’s daughter had received by fax from Lai Investments over the signature of Mr McElligott. The letter reiterated the request for the discharge of mortgages, denied that there was any requirement for 60 days’ notice, and referred to the fact that Mr McElligott had taken legal advice from a solicitor, as a result of which Lai Industries would hold Lai Investments responsible “for any legal costs or damages should the sale of [Iarriccio’s] ... property fail to proceed on time” due to a delay in the discharge of the mortgages.
Mr Lai’s evidence was that Mrs Lai was “afraid” of the legal system, and panicked as a result of their daughter’s advice as to the contents of the letter. His evidence was that Mrs Lai put pressure on him, as a result of which he returned to Adelaide, and on 27 April 2000 at Mr Brooks’ offices, he executed a discharge of the mortgages. He said that at the time he did so his judgment was “impaired”, and that he meant by that that he was confused and under pressure from his wife.
Mrs Lai gave evidence in which she explained that she had very little knowledge of Mr Lai’s business dealings as she did not participate in them. She said she remembered the phone call from her daughter while they were on Kangaroo Island. Her evidence was in part:
“I have a fear of the legal system. This to me meant that we would be involved in a legal fight and I did not want to be part of it or involved into it. It terrifies me. The aspect of this really, really upset me.”
She says that she pressured her husband to do what was being asked of him. During the course of her examination in chief she said that she told him, “If you don’t deliver those documents I’ll walk out”.
The learned trial judge’s findings as to Mr and Mrs Lai’s evidence appear in the following passages in his reasons for judgment:
“102Mr Lai deposed his understanding to be that the mortgages were security not only for the repayment of moneys lent to Lai Industries but also for all other liabilities of Lai Industries to the plaintiff. The first test of his understanding of the completed transaction was when he was approached by Mr Iarriccio to release from the mortgage Mr Iarriccio’s rented property. Mr Iarriccio’s evidence is that Mr Lai told him ‘No, pay off your loan and you can have the mortgage’. Mr Lai’s evidence of that conversation is that he said ‘... that when the loan account has been paid, then it should be discharged’. Mr Lai said he subsequently had a telephone call from Mr McElligott asking that the mortgages be discharged and he (Mr Lai) said ‘That I got sixty days to do that and I don’t intend to do it until they pay all the money’. Those passages in Mr Lai’s evidence and his belief that sixty days notice must be given to discharge the mortgages are totally inconsistent with his other evidence to the effect that the mortgages were not securities only for the moneys, the subject of the loan agreement, lent to Lai Industries and is evidence of his intention when the transaction documents were executed; M’Cormack v M’Cormack.[3] In cross-examination on the topic of the mortgages Mr Lai’s evidence shifted a number of times which in my assessment and observation of him, evinced defensiveness concerning, and reconstruction of, what he understood when the transaction documents were signed. An example is page 124:
[3] (1877) 1 LR Ir 119 at 125.
‘Q.Is it your understanding, when you came to sign the document that the liability of Mr McElligott and his family or his family trust, and the liability of Mr Iarriccio, and his family trust, and the liability of Manuela Lai, was liability in respect of the purchase price of the business and any moneys which were lent to the purchasing company by way of working capital.
A.Yes.
Q.That was the money which was described in the loan agreement.
A.Correct.
Q.That was the intended extent of their liability, wasn’t it.
A.No.
Q.I suggest to you that when the documents were signed you understood that the mortgages, which Mr and Mrs McElligott signed, and Mr and Mrs Iarriccio signed, were also limited to the moneys lent under the loan agreement.
A.No, not to my knowledge.’
103I find that Mr Lai understood the transaction to be reflected in the transaction documents was that the mortgages were to be security only for the repayment of moneys lent by the plaintiff to Lai Industries and the subject of the loan agreement. I do not accept his evidence to the contrary.
..............
105I am satisfied that to the extent Mr Lai or the defendants read and understood the draft or the final transaction documents, the view which I have found each of them had that the mortgages were security only for the moneys lent pursuant to the loan agreement, remained the same. Mr Lai’s understanding of that topic was, in my opinion, the plaintiff’s understanding; he was the mind and will of the plaintiff. Smorgon v Australia and New Zealand Banking Group Ltd.[4]”
[4] (1976) 134 CLR 457 at 481 per Stephen J.
Later in his reasons the learned trial judge referred to the faxed letter of 20 April 2000 sent by Mr McElligott to Mr Lai, which I have earlier referred to, and which preceded the execution by the respondent of the discharges of the mortgages.
After referring to that facsimile, the learned trial judge made the following observations:
“126I do not accept Mr Lai’s evidence that he was, personally, at all moved by the reference in the facsimile to a solicitor, to costs and the implication of litigation; he had already embarked on a course, with his own solicitors, which might well have involved litigation concerning his own complaints about Lai Industries’ alleged present or future breaches of the lease. In my view it was the direct challenge to his insistence that 60 days notice must be given which brought him to execute the discharges, but against the background of Mrs Lai’s reaction to the facsimile. ........
............
137I have already found that at the time the transaction documents were executed, Mr Lai’s, and therefore the plaintiff’s understanding was that the mortgages were security only for the moneys lent pursuant to the loan agreement and when the plaintiff was asked to discharge the mortgages, that was still the understanding. However, Mr Lai believed sixty days notice to repay had to be given. The facsimile dated 20 April 2000 dealt with that matter, correctly pointing out no such notice was required, and nominated another date for delivery of the discharge of mortgages in exchange for the outstanding balance of the moneys lent. It also included the impugned paragraph concerning legal advice.
138In my opinion, against the background of the communications, preceding the facsimile, concerning the discharge of the mortgages, the only misconception which Mr Lai had related to a requirement for notice; that having, accurately, been shown to be wrong, Mr Lai, albeit perhaps still not convinced that notice was unnecessary and considering he should seek legal advice (but only on that topic as I find), decided to provide the discharges of mortgage. Any misconception Mr Lai had, aside from the matter of notice, that the plaintiff was obliged to execute the discharges was entirely based upon his own understanding of the transaction - that is that the mortgages were security only for the moneys lent pursuant to the loan agreement. Insofar as the reference in the facsimile to legal advice was capable of being misleading or deceptive, and I am not persuaded that it was, it did not mislead him at all. His misconception of the plaintiff’s obligations was not caused or contributed to by the contents of the facsimile; it derived, as I have found, from his understanding of the transaction at the time the transaction documents were executed. ...........”
Having made those findings, the learned trial judge dealt specifically with the legal requirements for rectification in equity. His conclusions as to that were as follows:
141The defendants by their counterclaim seek an order for rectification of the Deed of Guarantee and the mortgages by the deletion of the second limb of the meaning of ‘moneys hereby secured’. There is also a similar claim concerning the Deed of Charge; I will deal with that in the final part of these reasons.
142It is not essential that there be proved an antecedent agreement before an order for rectification of an instrument may be granted.
‘It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention.’ Maralinga Pty Ltd v Major Enterprises Pty Ltd.[5]
143In proceedings for rectification clear and strong evidence (Australia Hotel Co Ltd v Moore[6]), or very strong proof (Kennedy v Scholl[7]), or convincing proof (Chamberlain v Thornton[8]) of the common intention is necessary. In Slee v Warke[9] the court cited with approval the following words of Simonds J (as he then was) in Crane v Hegeman-Harris Co Inc:[10]
‘Let it be clear that it is not sufficient to show that the written instrument does not represent their common intention unless positively also one can show what their common intention was.’
144I will not repeat my earlier findings. I am satisfied it has been proved by the defendants to the necessary degree that the common intention of Mr Lai, and therefore the plaintiff, and the defendants at the time the transaction documents were executed was that the Deed of Guarantee and the mortgages were given only to secure the moneys lent pursuant to the loan agreement. I would therefore hold that the defendants are entitled to the order they seek concerning those instruments, that is that the second limb of the definition of ‘moneys hereby secured’ be deleted.”
[5] (1973) 128 CLR 336 at 350 per Mason J.
[6] (1899) 20 LRNSW Eq at 155.
[7] (1905) 7 WLR 197.
[8] (1892) 18 VLR 192.
[9] (1949) 86 CLR 271.
[10] (1939) 1 All ER 662 at 665.
The trial judge’s findings as to Mr Lai’s evidence came under much criticism from Mr Slattery.
He submitted that the trial judge was wrong in suggesting that there were any inconsistencies in the relevant part of Mr Lai’s evidence, of which he gave an example which I have quoted above.
With respect to Mr Slattery, I think that the passage from Mr Lai’s evidence quoted by the trial judge did contain an inconsistency. Mr Lai appears at first to be agreeing that the liability which was secured was the “purchase price of the business and any moneys which were lent ... by way of working capital”, that is, the money described in the loan agreement, but then he appears to change tack, and suggests that that was not the full extent of their liability.
I accept, though, that this passage of evidence in cross-examination, standing alone, might be regarded as somewhat equivocal.
A more positive indication of a shift in his evidence was Mr Lai’s agreement at first that he responded to Mr Iarriccio’s request for a discharge of the mortgage by saying that he could have it when the loan account was paid, and then that he was entitled to 60 days’ notice before discharging the mortgages.
While I accept that the evidence indicates a degree of confusion on the part of Mr Lai as to what his legal rights were, it was open to the trial judge to take the view that Mr Lai’s responses to the initial request to discharge the mortgages was inconsistent with a belief, at least at that time, that he was entitled to refuse any discharge of the mortgages until the liability under the leases had been met.
I accept that evidence of Mr Lai’s state of mind four years after the execution of the instruments evidencing the transaction is not necessarily reliable evidence of what his state of mind was at the time of their execution. But just how much to make of this was entirely a matter for the learned trial judge who had the benefit of seeing and hearing the witnesses.
The case is unusual in that the transaction documents were circulated in draft and the parties had an adequate opportunity to peruse them, and in the case of the appellants, through Mr McElligott, who, to a large extent, negotiated on behalf of the appellants, they had the benefit of the advice of the solicitor Mr Luker, albeit incorrect advice. It is true also that a clause of the kind in question linking the personal securities offered by the appellants with the liability under the leases would not have been unusual, given the fact that the appellants were not providing any equity with respect to a transaction which was fully financed by the vendor.
However, those considerations do not necessarily provide an answer to a case for rectification, if, notwithstanding those matters, the Court is nonetheless satisfied that the parties have shared a common understanding as to the relevant aspect of the transaction and executed the documents in the mistaken impression that their understanding was correctly expressed in them.
Notwithstanding the fact that the trial judge’s treatment of the evidence as to Mr Lai’s state of mind at the relevant time is to some extent unsatisfactory, I would not be prepared to interfere with the conclusion ultimately reached by the trial judge as to this issue.
In those circumstances, given his findings, which I would not disturb, as to the state of mind of the other parties, no basis has been made out to interfere with his order granting rectification.
It follows that the cross-appeal should be dismissed.
As for the appeal, this raises the question of the correctness of the trial judge’s refusal to order rectification of the deed of charge.
In my view, notwithstanding the arguments put by Mr Howard for the appellants, the appellants’ contentions with respect to the appeal should be rejected. In particular, in my view, there was no sufficient evidence to indicate that the parties had applied their minds at all, prior to execution of the deed of charge, to its terms, let alone that they shared a common understanding that it would not extend to secure the liability under the leases. During the course of his argument, Mr Howard expressly accepted that the parties “didn’t turn their minds specifically to the deed of charge.”
He went on, however, to submit that the deed of charge should not be differentiated from either the guarantee or the mortgage with respect to the understanding of the parties as to the “all moneys clause”, as they were all, as he put it, “in the same bundle”.
But to justify the rectification of the deed of charge, cogent evidence would be necessary to indicate a specific understanding as to its contents shared by all parties to it and inconsistent with its terms.
As to the deed of charge, I agree with the conclusion reached by the trial judge in the following passage in his reasons:
“145Concerning the Deed of Charge, it is clear in my opinion from the evidence of Mr Lai and the defendants that the focus was upon the security being put up by the personal defendants. None of them had any real understanding of the Charge, and as I find gave no thought to it. In my view it cannot be found they had any common intention concerning the mortgage of Lai Industries’ assets different from that which appears in the Deed of Charge. I find that the defendants have failed to discharge the onus which must be satisfied before rectification of that Deed may be ordered, and accordingly the claim for rectification of it is dismissed.”
I would dismiss the appeal and the cross-appeal.
DEBELLE J. The relevant facts are set out in the reasons of Perry J which I have had the advantage of reading.
I agree with the substance of the reasons of Perry J for dismissing the appeal. I add that it is clear from the evidence that Lai Investments Pty Ltd (“Lai Investments”) sought to secure all payments due to it. Mr Lai made that view clear to Mr Brooks. There were only three sets of payments. They were the repayment of the loan to purchase the business and to provide working capital, the payment of the rent for the lease of the goods, and the payment of the rent for the lease of the land and premises. Mr Brooks instructed Messrs Lynch and Meyer to prepare the documents on behalf of Lai Investments. The instructions were given both orally and in writing. Lynch and Meyer included in each of the security documents, namely, the Deed of Charge, the Deed of Guarantee and in each of the Mortgages what, to all intents and purposes, was the same clause which defined the moneys secured by each document. In the Deed of Charge, the relevant clause was clause 1. By that clause, Lai Industries Pty Ltd (the Mortgagor) changed its undertaking with the repayment to Lai Investments (the Mortgagee) of
“(a)all moneys now owing or payable or later to become owing or payable to the Mortgagee by the Mortgagor either alone or jointly with another or other person whether by way of repayment of principal payment of interest or of fees costs charges or expenses or otherwise in respect of any loan or advance which the Mortgagee has made or may presently or from time to time later make to the Mortgagor or to the Mortgagor jointly with any other person or under or by virtue of any agreement or obligation entered into by the Mortgagor or the Mortgagor jointly with any other person with respect to any such loan or advance; and also
(b)all other moneys now or later to become owing or payable to the Mortgagee by the Mortgagor either alone or jointly with any other person on any account whatever including (but without limiting the generality of the foregoing) all moneys which the Mortgagor either alone or jointly with any other person may at any time or from time to time be liable to pay to the Mortgagee under or pursuant to any guarantee or indemnity which the Mortgagor either alone or jointly with any other person has given or may now or at any time later give in favour of the Mortgagee and also all moneys which the Mortgagee pays or becomes actually or contingently liable to pay to for or on behalf of or for the accommodation of the Mortgagor either alone or jointly with any other person whether or not such payment is made or liability arises under or by virtue of the covenants and provisions of this Deed of Charge or from circumstances or transactions in connection with this Deed of Charge or by reason of the Mortgagee having already or later become a party to any negotiable or other instrument or entered into any bond indemnity or guarantee;
all of which moneys are intended to be secured by this Deed and are below referred to as the ‘Moneys Hereby Secured’.” (Emphasis added.)
It is apparent that Lynch and Meyer drafted the documents in these terms to reflect the instructions of Mr Lai. It must be remembered that Mr Lai was intending to retire. He naturally would have wished to secure all payments due to him, whether those were repayments of moneys lent or payments due pursuant to each of the leases.

Sub-clause 1(a) secured repayment of the loan. If the submissions of the appellants were to succeed, the Deed of Charge would secure only the repayment of the loan. That would render the second of the clauses in the Deed of Charge entirely otiose without any work to do. It would be highly unlikely that it was intended to have no operation. The words in sub-clause 1(b) and especially the emphasised words are quite plain. They clearly state that the charge is security for all other moneys payable by Lai Industries to Lai Investments on any account whatsoever. The import of those words and in particular “on any account whatsoever” is wide. The words should be given their ordinary meaning and should not be read down: Smith v Australia and New Zealand Banking Group Ltd (1995) NSW Conv. R. 55-774; Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia (1996) 140 ALR 46 at 54 – 55. I have already identified the three kinds of payments due to Lai Investments. The first clause secured the repayment of the loan. The second clause is plainly intended to relate to the payments of rent under the two leases.
It is against that background that the evidence must be considered. That background reinforces the conclusion of the trial judge that the appellants did not discharge the burden of proving that the parties were all labouring under the common mistake when they executed the Deed of Charge.
The Cross-Appeal
Lai Investments sought to set aside the discharge of the two Mortgages on the ground that they were void for mistake. The Mortgagees defended that claim and, by counterclaim, sought, in the alternative, an order rectifying each of the Mortgages. The trial judge dismissed the plaintiff’s claim and allowed the counterclaim and ordered rectification. The respondent cross-appeals only against the order allowing the counterclaim and granting rectification.
A loan agreement was executed by the parties. It concerned the loan to purchase the business and to provide working capital. Clause 5 was in these terms:
“The Borrower hereby acknowledges that the Principal Sum and interest thereon are included as part of the moneys secured by:-
5.1a certain Deed of Charge bearing even date herewith (hereinafter called ‘the Primary Security’) made between the Borrower of the one part and the Lender of the other part whereby the Borrower has charged its whole undertaking property and assets with the due payment of all moneys now or at any time and from time to time owing or payable to the Lender on any account whatsoever.
5.2a guarantee Memorandum of Mortgage bearing even date herewith (‘Mortgage’) granted by Peter Geoffrey McElligott and Diana Josephine McElligott (‘the First Mortgagor’) to the Lender whereby the First Mortgagor has mortgaged the land comprised in Certificates of Title Register Book Volume 5071 Folio 992 and Volume 5169 Folios 594 and 716 with the due payment of all moneys now or at anytime and from time to time owing or payable to the Lender pursuant to this Agreement.
5.3a guarantee Memorandum of Mortgage bearing even date herewith (‘Mortgage’) granted by Giouvanni Iarriccio and Elizabeth Iarriccio (‘the Second Mortgagor’) to the Lender whereby the Second Mortgagor has mortgaged the land comprised in Certificates of Title Register Book Volume 5258 Folio 20 and Volume 3092 Folios 151 with the due payment of all moneys now or at anytime and from time to time owing or payable to the Lender pursuant to this Agreement.”
Although clause 5 lacks syntax, it is nevertheless clear, at least so far as clauses 5.2 and 5.3 are concerned, that the Mortgages are security only for the moneys lent pursuant to the loan agreement. The loan agreement related to the moneys lent by Lai Investments to purchase the business and to provide working capital.
The loan agreement is strong evidence of the common intent of the parties. When coupled with the evidence on which the trial judge relied, it establishes that there is no ground for interfering with the conclusion of the trial judge that he should rectify the mortgages. I would, therefore, dismiss the cross-appeal. It may be added that clause 5.1 lends further support to the reasoning dismissing the appeal. It is a further indication of intent that the Deed of Charge should be security for all three forms of payment due to Lai Investments.
For these reasons, I would dismiss both the appeal and the cross-appeal.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
1.    I use the expression “appears to have accepted” here and elsewhere. I am driven to do so, as in his reasons for judgment the trial judge sets out lengthy summaries, including extracts from the transcript of the evidence of each of the witnesses in turn, not always stating what parts of it he accepted. I hesitate to criticise the trial judge on a matter of style, but it would have been better to have set out succinctly his findings of fact, rather than quoting the evidence so extensively, without always making it plain what part of it he accepted.
2.    Meagher Gummow and Lehane Equity Doctrine and Remedies, 4^th ed (2002) page 886, para [26-010].
3.    (1877) 1 LR Ir 119 at 125.
4. (1976) 134 CLR 457 at 481 per Stephen J.
5. (1973) 128 CLR 336 at 350 per Mason J.
6.    (1899) 20 LRNSW Eq at 155.
7. (1905) 7 WLR 197.
8. (1892) 18 VLR 192.
9. (1949) 86 CLR 271.
10. (1939) 1 All ER 662 at 665.

“Security offered by purchaser to vendor:	(i)	Vendor to take a registered first ranking charge over all of the assets of the purchaser company.
(ii)	Directors and shareholders except Manuela Lai, to provide guarantees up to a limit of their respective share of the total indebtedness to the vendor. Director shareholders share of indebtedness is to be in proportion to their shareholdings in Lai Industries Pty Ltd.
(iii)	Directors and shareholders of Lai Industries Pty Ltd, except Manuela Lai, to provide registered mortgages over their residences and any other real properties owned by them in the same proportion as in (ii) above. Details of properties owned by the directors and shareholders are set out at Appendix A.”

[2003] SASC 54

24 February 2003