Johncorp Industries v Sussman
[2001] NSWSC 519
•20 June 2001
CITATION: Johncorp Industries v Sussman [2001] NSWSC 519 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 2748/01 HEARING DATE(S): 29 & 30 May, 15 June 2001 JUDGMENT DATE:
20 June 2001PARTIES :
Johncorp Industries Pty Ltd (P)
Alexander Sussman and Louise Roseanne Sussman (D)JUDGMENT OF: Austin J
COUNSEL : G Sirtes (P)
V R W Gray (D)SOLICITORS: Alan Parszos & Associates (P)
G J McKimm (D)CATCHWORDS: MORTGAGES - construction of 'all monies' clause - whether mortgage secured loan previously made to one mortgagor and others - whether mortgage secured guarantee by mortgagors and another of that previous loan LEGISLATION CITED: Real Property Act 1900 (NSW) ss 74K and 74O CASES CITED: Fraser v Power [2000] NSWSC 257
Malouf v O'Donohoe [2001] NSWSC 335
Richards v The Commercial Bank of Australia (1971) 18 FLR 95DECISION: Declaration that the mortgage extends to the defendants' obligation under Deed of Guarantee with respect to the previous loan
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONAUSTIN J
WEDNESDAY 20 JUNE 2001
JUDGMENT2748/01 JOHNCORP INDUSTRIES PTY LTD V ALEXANDER SUSSMAN AND LOUISE ROSEANNE SUSSMAN
1 HIS HONOUR: The principal relief sought in these proceedings is as follows:
‘A declaration that the mortgage dated 13 August 2000 extends to sums loaned by the Plaintiff to Alexander Sussman under the Deed of Loan between the Plaintiff and (inter alia) the first-named male defendant dated 15 May 1998’.
2 The case arose out of an urgent ex parte application to extend a caveat lodged by the plaintiff in respect of the defendants' land at 21 Myrtle Street Botany. The caveat asserted an equitable interest by virtue of a loan agreement dated 15 May 1998. As indicated by the decision of Young J in Malouf v O'Donohoe [2001] NSWSC 335, there are difficulties in the path of a plaintiff who seeks an ex parte order to extend a caveat under s 74K of the Real Property Act 1900 (NSW). Following the approach taken by his Honour in that case, the plaintiff sought and obtained, instead, an ex parte order under s 74O of the Real Property Act to permit it to lodge a fresh caveat in exactly the same form as the caveat which was about to expire, on condition that the new caveat be withdrawn by the plaintiff by a stated time unless extended by further order.
4 The question of construction is whether a mortgage granted on 13 August 2000 (‘the Mortgage’) secures the obligation of the first defendant, Mr Sussman, to repay a loan of $1,850,000 plus interest, made under a Deed of Loan dated 15 May 1998 (‘the First Deed’).3 When the matter came before me on the return date of the summons, it emerged that the issue in the proceedings was an issue of construction of the mortgage. With the consent of the parties, I heard the case on a final rather than an interlocutory basis, extending the initial ex parte order so that the new caveat is required to be withdrawn this afternoon unless I make a further order.
The construction of the first deed
6 The following clauses should be noted:5 By the First Deed, the plaintiff as lender agreed to make advances and provide facilities and accommodation to three persons collectively described as ‘the Borrower’, namely The Satellite Group (Wentworth Street) Pty Ltd, Alexander Sussman (the first defendant) and A Sussman Construction Pty Ltd. The Borrower's obligations were guaranteed by two other individuals in circumstances not presently relevant.
‘4. As security for the advances, facilities and accommodation the Borrower and the Guarantor shall execute or procure to be executed in favour of the Lender all such mortgages, charges, guarantees and other deeds and assurances as may be required by the Lender from time to time in its absolute and unfettered discretion (all of which are herein called or included in the expression ‘Collateral Security’) and the Borrower and Guarantor hereby charge to the Lender the properties and assets referred to in such Collateral Security. In particular, the Borrower will initially cause to be executed in favour of the Lender a mortgage or mortgages over the land in the Second Schedule hereto and a guarantee of repayment of the principal sum advanced for not less than $1,850,000 from the Westpac Banking Corporation.’ [The Second Schedule referred to a second ranking mortgage over the property known as 11A Wentworth Street, Point Piper.]
‘6. In this Deed unless the context otherwise requires -
(a) references to person [sic] include corporations and vice versa;
(b) words importing the singular number shall include the plural number and vice versa; ...
(e) every agreement or undertaking expressed or implied by which more persons than one agree or undertake any obligation and/or derive any benefit in terms of this Deed shall bind and/or ensure [sic] for the benefit of such persons jointly and each of them severally.’
‘10. The within Deed and any security expressed to be collateral to this Deed shall also secure to the Lender all moneys whatsoever which the Lender may lend, pay or advance or become liable to lend pay or advance, for or on account of the Borrower or any of the Guarantors under any of the aforesaid securities or on any account whatsoever and the Lender shall not be obliged to discharge any of such collateral securities unless and until all moneys payable thereunder and hereunder and on all accounts whatsoever have been fully paid and satisfied and all covenants, agreements and obligations fully performed observed and satisfied.’
7 The plaintiff's uncontested evidence is that the sum of $1,850,000, together with interest at the rate of 14% since 15 July 2000, is owing by the Borrower under the First Deed.
8 Mr Sussman was one of the three persons referred to as ‘the Borrower’ under the First Deed. By clause 2 of the First Deed ‘the Borrower’ promised to pay the principal sum together with interest. By clause 4 ‘the Borrower’ promised to execute all such mortgages as the Lender may require from time to time, ‘as security for the advances, facilities and accommodation’. There was a particular promise to execute a mortgage over a property in Point Piper, but that is irrelevant because the Mortgage relates only to the property at 21 Myrtle Street Botany.
10 If there had been, at any time, a security ‘expressed to be collateral to this Deed’, then by virtue of clause 10 of the First Deed that security would secure to the Lender all moneys which the Lender may subsequently have lent ‘for or on account of the Borrower ... or any account whatsoever’, and the Lender would not have been obliged to discharge any such security until all moneys payable on all accounts whatsoever had been fully paid. However, there is no evidence that any security ‘expressed to be collateral’ to the First Deed was ever given over 21 Myrtle Street Botany. Certainly the Mortgage of 13 August 2000 was not so expressed.9 The promises of ‘the Borrower’ to repay the principal sum and to execute further securities were undertakings, by more persons than one, of obligations under the First Deed, and consequently by virtue of clause 6 (e) the undertakings bound each of the three persons comprising the Borrower jointly and severally. But it does not appear, on the evidence, that the plaintiff ever invoked clause 4 of the First Deed by requiring Mr Sussman to grant a mortgage over 21 Myrtle Street Botany as security for the advances, facilities and accommodation granted to the Borrower under the First Deed. If it had done so, Mr Sussman could have granted security only over his interest in that property, of which he was co-owner with his wife, the second defendant. She was not party to the First Deed.
The construction of the Second Deed
11 On 13 August 2000 another Deed of Loan (the Second Deed) was entered into. This time the parties were the plaintiff as Lender and Mr Sussman and A Sussman Construction Pty Ltd, collectively called ‘the Borrower’. Mr and Mrs Sussman and a company called A & L Sussman Pty Ltd were collectively called ‘the Guarantor’.
12 The provisions of the Second Deed are very similar to, but not identical with, the First Deed. Only $27,000 is owing under it. Clauses 4, 6 and 10 are identical with those clauses in the First Deed, except that in the Second Deed, the Second Schedule refers to a second ranking mortgage over the property at 21 Myrtle Street Botany and a third ranking mortgage over a property at 150 Burns Bay Road Lane Cove. Since Mr and Mrs Sussman are two of the three guarantors under the Second Deed, the provisions of the deed concerning guarantees are relevant, when read together with the separate Deed of Guarantee that I shall describe. Thus, clause 11 prevents ‘the Guarantor’ from being entitled to claim the benefit of any securities, or receive any distributions from the estate of the Borrower, until the Lender receives all moneys then or subsequently owing by the Borrower.
13 As the Borrower under the Second Deed, Mr Sussman and A Sussman Construction Pty Ltd were jointly and severally bound to repay principal and interest by virtue of clause 6 (e) of that instrument. Mr and Mrs Sussman and the company A & L Sussman Pty Ltd were jointly and severally liable to perform the obligations of the Guarantor under the Second Deed, also by virtue of clause 6 (e). The Borrower and the Guarantor were obliged by clause 4 to execute all mortgages required by the plaintiff ‘as security for the advances, facilities and accommodation’, and in particular, Mr and Mrs Sussman were required by that clause to grant a second ranking mortgage over 21 Myrtle Street Botany to the plaintiff for that purpose. In my opinion, the ‘advances, facilities and accommodation’ to which clause 4 of the Second Deed referred did not include the advances that had already been made to different parties as Borrower under the First Deed. Consequently, the obligation under clause 4 of the Second Deed to execute a mortgage over 21 Myrtle Street Botany was not an obligation to grant a mortgage over that property to secure the loan of $1,850,000 made under the First Deed.
15 That being so, the Mortgage secured ‘all moneys whatsoever which the Lender may lend ... or become liable to lend ... for or on account of the Borrower or any of the Guarantors under [the Mortgage] or any account whatsoever’. In my view, the words ‘may’, ‘become’ and ‘under’ are important words in clause 10. They indicate that the Mortgage secured only the principal sum and other money lent in future under the security of the Mortgage. On its proper construction, clause 10 is not capable of meaning that the Mortgage secured money that had previously been lent to parties including one of the Guarantors under a different instrument.14 The proper construction of clause 10 of the Second Deed is of critical importance. The first question is whether the Mortgage falls within the description, in clause 10, of ‘any security expressed to be collateral to this Deed’. Annexure A to the mortgage states that the security was given in accordance with the ‘Deeds of Loan and Guarantee of even date’. The drafting is very sloppy. Only one of the borrowers and none of the guarantors are mentioned. Nevertheless, I construe Annexure A as referring to the Second Deed and the Deed of Guarantee, since it appears that they were the only instruments executed on 13 August 2000 capable of falling within the description in Annexure A. That being so, Annexure A contains an acknowledgment that the mortgage security had been given ‘in accordance with’ those instruments. This wording does not literally express the Mortgage to be collateral to the Second Deed. However, in my view a mortgage made ‘in accordance with’ a deed of loan is properly described as a security ‘expressed to be collateral’ to the deed of loan, for the purposes of some such clause as clause 10. In the requisite sense, a mortgage granted in accordance with a contract of loan is collateral to the loan agreement.
16 Mr and Mrs Sussman and A & L Sussman Pty Ltd, together referred to as ‘the Guarantor’, also entered into a Deed of Guarantee in favour of the plaintiff as Lender on 13 August 2000. The following clauses should be noted:
The construction of the Deed of Guarantee
(b) The obligations of the Guarantor under this deed extend to any Guaranteed Moneys and any increase in the Guaranteed Moneys either of which arise as a result of:‘ 5.1 Amount of the Guaranteed Moneys
(a) This deed applies to the present and future amount from time to time of the Guaranteed Moneys.
(1) any agreement to which a Transaction Party and the Lender are party; or
(2) any amendment, supplement, renewal or replacement of any agreement referred to in clause 5.1 (b) (1); or
(3) the occurrence of any other thing.
(c) Clause 5.1 (b):
(1) applies regardless of whether the Guarantor is aware of, has consented to or is given notice of anything referred to in clause 5.1 (b); and
(2) does not limit the obligations of the Guarantor under this deed.’
‘ 1.1 DefinitionsIn this deed: ...
‘Guaranteed Moneys’ means all debts and monetary liabilities of the Debtor to the Lender on any account, and in any capacity irrespective of whether the debts or liabilities:
(a) are present or future;
(b) are actual, prospective, contingent or otherwise;
(c) are at any time ascertained or unascertained;
(d) are owed or incurred by or on account of the Debtor alone, severally or jointly with any other person;
(e) are owed to or incurred for the account of the Lender alone, or severally or jointly with any other person;
(f) are owed or incurred as principal, interest, fees, charges, Taxes, damages (whether for breach of contract or tort or incurred on any other ground), losses, costs or expenses, or on any other account;
(h) comprise any combination of the above ...’.(g) are owed or incurred to or for the account of any successor or assignee of the Lender; or
17 The issue is whether clause 5.1 extends the obligations of the Guarantor to the debt of $1,850,000 which Mr Sussman and A Sussman Construction Pty Ltd (inter alia) are jointly and severally liable to repay to the plaintiff. This depends upon whether that debt falls within the definition of ‘Guaranteed Moneys’, which in turn depends upon whether it is a liability ‘of the Debtor to the Lender’. In my opinion the debt is ‘Guaranteed Moneys’.
19 Since the liability of Mr Sussman and A Sussman Construction Pty Ltd to repay the $1,850,000 is ‘Guaranteed Moneys’, clause 5.1 (b) extends the obligations of the Guarantor (Mr and Mrs Sussman and A & L Sussman Pty Ltd) to that liability. As a matter of construction, subparagraphs (1) to (3) of clause 5.1 (b) relate only to an increase in Guaranteed Moneys, and it is therefore not necessary to consider them or the definitions of ‘Transaction Party ‘ and ‘Transaction Document’ to which they refer.18 Regrettably, there is no definition of ‘Debtor’ in the Deed of Guarantee or the Second Deed and there is some ambiguity as to whether ‘the Debtor’ designates Mr Sussman and A Sussman Construction Pty Limited together, or merely the company (to whom, according to a recital to the Deed of Guarantee, the money borrowed under the Second Deed was lent). However, it is unnecessary for me to resolve that ambiguity. Subparagraph (d) extends the definition to an amount owed by ‘the Debtor alone, severally or jointly with any other person’ (emphasis supplied). The word ‘severally’, appearing as it does after the word ‘alone’, can only refer to a case where ‘the Debtor’ is more than one person, so as to extend the definition of ‘the Debtor’, severally, to each of the persons who comprise ‘the Debtor’. Therefore, in my view, since the obligation to pay the $1,850,000 was owed under the First Deed by Mr Sussman and A Sussman Construction Pty Ltd jointly with a third party, and by each of them severally, that amount is ‘Guaranteed Moneys’ for the purposes of clause 5.1.
20 The plaintiff and Mr and Mrs Sussman entered into the Mortgage on 13 August 2000, the same day as the Second Deed and the Deed of Guarantee were entered into. The mortgage instrument was in the standard Real Property Act form although it was not registered. It granted security over the property at 21 Myrtle Street Botany. Annexure ‘A’ stated, in part:
The construction of the Mortgage
‘The mortgagor, Alexander and Louise Roseanne Sussman Hereby acknowledges that this security is given in accordance with the Deeds of Loan and Guarantee of even date between the Mortgagee as Lender and A Sussman Construction Pty Ltd as borrower pursuant to deed of guarantee of even date and the advance of the moneys hereinafter appearing to A Sussman Construction Pty Ltd.’
21 The mortgagors then covenanted to repay the principal sum of $300,000 on a stated date, together with interest, and to observe the provisions set forth in registered memorandum No E623508.
23 The registered memorandum contained the following provision:22 The registered memorandum provided (clause 1 (h)) that where there were two Mortgagors, the covenants by the Mortgagor bound them jointly and severally. Counsel for the plaintiff referred to clause 39 of the registered memorandum, which is expressed to take effect where the Mortgagor is not the Borrower and the Borrower is named in the Mortgage and referred to as ‘the Covenantor’. In my opinion, clause 39 does not apply because, although in this case the Mortgagor is not the Borrower, the Borrower is not named in the mortgage as ‘the Covenantor’.
‘21. This Mortgage shall also secure to the Mortgagee all other moneys whatsoever which the Mortgagee may hereafter lend, pay or advance or become in any way liable to lend, pay or advance to, for or on the credit or for the accommodation or otherwise on the account of the Mortgagor or to for or on account for any other person upon the order or request or guarantee or under the authority of the Mortgagor OR which the Mortgagee may have heretofore lent, paid or advanced or become in any way whatsoever liable to lend, pay or advance to, for or on the credit or for the accommodation or otherwise on the account of the Mortgagor or to, for or on the account of any other person upon the order or request or guarantee or under the authority of the Mortgagor AND ALSO all moneys which the Mortgagee has paid or become liable to pay or which the Mortgagee may pay or become liable to pay to, for or an account of the Mortgagor either alone or jointly with any other or others and either by direct advances or by reason of accepting or paying or discounting any order, draft cheque, promissory note, bill of exchange or other engagement or by entering into any bond, indemnity or guarantee or otherwise incurring liabilities for or on behalf of the Mortgagor AND ALSO all moneys owing or to become owing by the Mortgagor in respect of any other loans, credits or advances or in respect of leasing arrangements or of any guarantee undertaking or obligation which has herebefore been given or incurred by the Mortgagor to the Mortgagee or which may hereafter be given or incurred by the Mortgagor to the Mortgagee and any and all such moneys shall be deemed to be added to the principal sum and the interest hereunder from the date of payment.’
24 This provision is also of critical importance. Relevantly to the present circumstances, clause 21 states that ‘this Mortgage shall also secure to the Mortgagee all other moneys whatsoever ... which the Mortgagee may have heretofore lent, paid or advanced ... to, for or on the credit or for the accommodation or otherwise on the account of the Mortgagor or to, for or on account of any other person upon the order or request or guarantee or under the authority of the Mortgagor AND ALSO all moneys which the Mortgagor has paid ... to, for or on account of the Mortgagor either alone or jointly with any other or others ... AND ALSO all moneys owing or to become owing by the Mortgagor in respect of ... any guarantee ... which has herebefore been given ... by the Mortgagor or to the Mortgagee or which may hereafter be given ... by the Mortgage to the Mortgagee ... ‘.
25 The ‘Mortgagor’ is identified in the instrument of mortgage as Mr and Mrs Sussman, and the registered memorandum defines ‘Mortgagor’ to include their executors, permitted assigns, administrators, transferees and successors in title. Nothing in the wording of the instrument of mortgage, Annexure A or the registered memorandum purports to identify as ‘the Mortgagor’ anyone other than Mr and Mrs Sussman. The $1,850,000 was lent to Mr Sussman and two others, and he was severally liable to repay it, but Mrs Sussman was not a borrower of that amount and (as far as the evidence goes) had no liability in respect of it until 13 August 2000, when the Deed of Guarantee was executed.
26 The defendants submitted that the words ‘the Mortgagor’ in clause 21 designate only Mr and Mrs Sussman together, and do not designate Mr Sussman separately from his wife. Consequently, according to this submission, the only previous loans which would be capable of being secured under clause 21 would be loans made to Mr and Mrs Sussman together. Therefore, putting to one side for the moment the application of clause 21 to guarantee obligations, the loan of $1,850,000 is (according to this submission) incapable of being secured by the Mortgage through the operation of clause 21.
27 The defendants' submission relies upon the decision of Simos J in Fraser v Power [2000] NSWSC 257. In that case several questions arose about the validity and effect of a mortgage granted by the plaintiff and her former husband to a bank. A submission considered by his Honour at paragraphs 24-43 of the judgment was that on its true construction, the mortgage secured only moneys owing jointly by the plaintiff and her husband, and since there were no such moneys, nothing was secured by the mortgage. Simos J accepted this submission. There, as here, the mortgage instrument used the expression ‘the Mortgagor’ even though there were two mortgagors, and identified the plaintiff and her husband as the Mortgagor. In his Honour's view, the covenant by the Mortgagor to pay moneys due was a covenant by the plaintiff and her former husband to pay moneys owing by them jointly to the Mortgagee, and was not a covenant to pay money owing to the Mortgagee by only one of them.
28 As in the present case, there was a clause providing that covenants by more persons than one would bind those persons jointly and severally. Simos J held that this clause merely created separate obligations on the part of the plaintiff and her former husband to discharge the joint obligations of the mortgagor. There was also a definition of ‘moneys hereby secured’ which included money payable by the mortgagor alone or with another person. Simos J held that the definition applied to obligations the plaintiff and her former husband jointly owed, together with another person or other persons, but did not extend the security to debts owed separately by one of the mortgagors.
29 Simos J relied on Richards v The Commercial Bank of Australia (1971) 18 FLR 95. As he pointed out, each case depends upon the construction of the particular mortgage under consideration. Nevertheless, the approach taken by Fox J in the latter case is consistent with the approach taken by Simos J. Fox J rejected the contention that the words ‘the mortgagor’ in the mortgage before him, referring to liability under guarantees and contracts, referred to ‘the mortgagors or either of them’.
31 Clause 21 purports to extend to moneys lent prior to the execution of the Mortgage in three situations, namely where money has been lent:30 Counsel for the plaintiff strenuously contended that these cases are distinguishable, because the present case relates to a mortgage to secure a loan to third parties and guarantees have been given by the mortgagors. In my respectful opinion, the approach to construction taken by Simos and Fox JJ in these cases is the correct approach, and requires that I should read and construe the provisions of the Mortgage according to their plain meaning. Here, however, clause 21 purports to extend to certain obligations undertaken by ‘the Mortgagor’ under guarantees, and as I shall explain, that aspect of clause 21 makes an important difference.
(a) to, for or on the credit or for the accommodation or otherwise on the account of the Mortgagor;
(b) to, for or on account of any other person upon the order or request or guarantee or under the authority of the Mortgagor;
(c) to, for or on account of the Mortgagor either alone or jointly with any other or others.
32 Having regard to the construction of the words ‘the Mortgagor’ adopted by Simos and Fox JJ, which I am content to follow in this respect, it appears to me that the loan of $1,850,000 made under the First Deed does not fall within any of these situations. As regards paragraph (a), it is evident that the prior loan was not made in favour of ‘the Mortgagor’ in any requisite sense.
33 As to paragraph (b), the prior loan was made in favour of another person (namely Mr Sussman and the two other borrowers), but there is no evidence that it was made ‘upon the order or request or guarantee or under the authority of the Mortgagor’. Mrs Sussman did not guarantee the prior loan. There was nothing in the evidence before me to indicate that she, or she and her husband together (as opposed to her husband acting together with others), ordered or requested or authorised the prior loan. Counsel for the plaintiff made an heroic submission to the effect that, because Mrs Sussman was at all relevant times a director and shareholder of A Sussman Construction Pty Ltd and A & L Sussman Pty Ltd, she must be taken to have authorised the loan, either by participating in a corporate decision to enter into the First Deed, or a corporate decision to enter into the Second Deed and the Deed of Guarantee, or by being aware of all relevant transactions as a director and not intervening to prevent them. However, the only evidence before me is that she participated as a director of A Sussman Construction Pty Ltd with respect to the First Deed, and there is no evidence that she gave any authority in her personal capacity.
35 But that is not the end of the matter. Clause 21 also purports to extend to ‘all moneys owing or to become owing by the Mortgagor in respect of ... any guarantee ... which has herebefore been given ... by the Mortgagor to the Mortgagee or which may hereafter be given ... by the Mortgagor to the Mortgagee ... ‘. I have held that the Deed of Guarantee, which was entered into either just before or just after the Mortgage on 13 August 2000, extends to the debt of $1,850,000. The Deed of Guarantee therefore created liabilities with respect to that debt, for both Mr and Mrs Sussman as well as A & L Sussman Pty Ltd. In my view, therefore, clause 21 had the effect of extending the Mortgage to that debt, as money owing by ‘the Mortgagor’ (that is, Mr and Mrs Sussman jointly and severally) in respect of a guarantee given by them to the plaintiff before or after the execution of the Mortgage.34 As to paragraph (c), the loan was ‘for or on the account of’ one-half of the two individuals comprising ‘the Mortgagor’, jointly with others, but it was not for or on the account of the Mortgagor at all.
36 My conclusion, upon the proper construction of the First and Second Deeds, the Deed of Guarantee and the Mortgage, is that the Mortgage did secure the loan of $1,850,000 - or more precisely, the Mortgagor’s guarantee obligation in respect of the loan. Consequently, the plaintiff is entitled to declaratory relief along the lines that it seeks, together with costs.
Conclusion
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