NEW SOUTH WALES COURT OF APPEAL
CITATION:
Kimberley Securities Limited v Esber [2008] NSWCA 301
FILE NUMBER(S):
40150/08
HEARING DATE(S):
13/11/08
JUDGMENT DATE:
25 November 2008
PARTIES:
Kimberley Securities Limited (Appellant)
Marcel Esber (First Respondent)
Casanda Pty Limited (Second Respondent)
JUDGMENT OF:
Allsop P Macfarlan JA Gyles AJA
LOWER COURT JURISDICTION:
Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):
SC 50110/06
LOWER COURT JUDICIAL OFFICER:
McDougall J
LOWER COURT DATE OF DECISION:
31/10/07
LOWER COURT MEDIUM NEUTRAL CITATION:
Investmentsource v Knox Street Apartments [2007] NSWSC 1214
COUNSEL:
B A Coles QC, G A Sirtes SC (Appellant)
T G R Parker SC, S Fendekian (Respondents)
SOLICITORS:
Landerer & Co Lawyers (Appellant)
Sachs Gerace Lawyers (Respondents)
CATCHWORDS:
MORTGAGES
Construction
whether mortgages in suit secured liability of mortgagors as guarantors or principal indebtedness of third party
where mortgages interdependent upon another agreement and executed at the same time as the documents including a mortgage
Construction
extent to which extrinsic circumstances can be taken in to account in construing mortgages
Surety
whether mortgages ought to be construed in favour of mortgagors as sureties
LEGISLATION CITED:
CATEGORY:
Principal judgment
CASES CITED:
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424
Ayoub v Euphoric Pty Ltd [2004] NSWCA 457; (2004) 12 BPR 22,735
Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Energy World Corporation Ltd v Maurice Hayes and Associates Pty Ltd [2007] FCAFC 34; (2007) 239 ALR 457
Fitzgerald v Masters (1956) 95 CLR 420
Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235
Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Prenn v Simmonds [1971] 1 WLR 1381
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436; 186 ALR 289
Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165
TEXTS CITED:
Spigelman CJ, “From Text to Context: Contemporary Contractual Interpretation” (2007) 81 Australian Law Journal 322
Sir Kim Lewison, The Interpretation of Contracts, 4th ed (2007) Sweet & Maxwell
DECISION:
Appeal dismissed with costs.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40150/08
ALLSOP P
MACFARLAN JA
GYLES AJATuesday 25 November 2008
KIMBERLEY SECURITIES LIMITED V MARCEL ESBER
Judgment
ALLSOP P and MACFARLAN JA: We have had the advantage of reading the reasons in draft of Gyles AJA. We agree with the orders proposed by his Honour and, subject to the following qualification and comments, with his Honour’s reasons. We have used abbreviations as explained in his Honour’s reasons.
The qualification we have relates to [38] of his Honour’s reasons which deals…
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- Kimberley Securities Ltd v Esber [2008] NSWCA 301
- Case
- [2008] NSWCA 301
- Decision Date
CaseChat Overview and Summary
The court was required to determine the proper construction of the mortgages, specifically the clause governing the monies to be secured. This involved considering the extent to which extrinsic circumstances could be taken into account in construing the mortgages, and whether any ambiguity should be resolved in favour of the mortgagors, who were acting as sureties. The parties agreed that the relevant clause could not be applied as written, acknowledging a mistake, but neither party sought rectification.
The court approached the matter as one of construction, focusing on the meaning of the words used in the mortgages rather than speculating on the parties' unexpressed intentions. It found that attempts to rely on the sequence of drafting prior to the execution of the mortgages were of little assistance and that the available inferences from extrinsic evidence were equivocal. Applying principles of contractual interpretation, particularly in cases of inconsistency, the court referred to the approach of Dixon CJ and Fullagar J in *Fitzgerald v Masters*, which allows for the correction of words where necessary to avoid absurdity or inconsistency. The court concluded that the mortgages secured the respondents' liabilities as guarantors, and that the fees in question were excluded from the "Guaranteed Moneys."
The appeal was dismissed, and the respondents were awarded their costs.
Orders
Orders of the court
Appeal dismissed with costs.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
It was submitted for the respondents that to change the identity of the party whose obligations are secured by a mortgage is a change of substance not to be lightly effected by construction. It was also submitted that any ambiguity as to the liabilities falling within a security should be construed in favour of the surety, referring to Ayoub v Euphoric Pty Ltd [2004] NSWCA 457; (2004) 12 BPR 22,735 per McClellan AJA at [41].Consideration The task at hand is construction of the mortgages, not rectification of the mortgages. Put another way, the question is the meaning of the words that do appear rather than speculation as to what the parties might have done if their minds had been turned to the issue. There is an air of unreality about this case. Both parties are agreed that the clause in the mortgages in suit that governs the monies to be secured by the mortgages cannot be applied according to its terms. It is clear enough that this is the result of a mistake of one kind or another. However, neither party has sought rectification. Thus, there is no evidence of the nature of the mistake nor as to the actual intention of the parties. Each side seeks to resolve the issue by construction. The faint attempt by counsel for the respondents to glean support from the sequence of drafting that preceded 7 December 2000 is of little assistance. It is at least doubtful whether that exercise is permissible if it is posed as relevant to ascertaining the actual intention of the parties. If it is not so posed, then the relevance of it is difficult to discern. The scope and application of the exception to the general rule in the passage from the judgment of Mason J in Codelfa referred to by counsel for the respondents are controversial (cf per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 76 ALJR 436; 186 ALR 289 at [39]). In any event these facts do not neatly fit within it. However the exercise leads nowhere because the available inferences are equivocal as to the point at issue, as is so often the case with extrinsic evidence. It would be unsafe to draw any conclusions from unexplained drafting changes. Ultimately each of the respondents/Mortgagors was a Guarantor and the fees were excluded from the “Guaranteed Moneys”. We were referred to the well known passage from the judgment of Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427:“There is a superficial difficulty in cl. 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon. No real difficulty, however, is created. Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency. Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon. What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl. 8 must be read as if it said "consistent" or "not inconsistent”."That passage was recently referred to by Basten JA in Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [28]–[29]. We were also referred to the analysis of “Mistakes and Inconsistencies” in chapter 9 of Sir Kim Lewison, The Interpretation of Contracts, 4th ed (2007) Sweet & Maxwell at 345ff.