O'Callaghan v Custom Credit Corporation Ltd

[1999] WASCA 70

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT  :   THE FULL COURT (WA)

CITATION:   O'CALLAGHAN & ORS -v- CUSTOM CREDIT CORPORATION LTD & ORS [1999] WASCA 70

CORAM:   KENNEDY J

PIDGEON J
WHEELER J

HEARD:   4 DECEMBER 1998

DELIVERED          :   23 JUNE 1999

FILE NO/S:   FUL 6 of 1998

BETWEEN:   PETER JOHN O'CALLAGHAN

JOHN JOSEPH HEDIGAN
ALLAN JAMES MYERS
ALEX CHERNOV
Appellants

AND

CUSTOM CREDIT CORPORATION LTD
First Respondent

ALAN EDSON LEDGER
Second Respondent

CHARLES ANTHONY CANDLIN FEAR
Third Respondent

Catchwords:

Mortgages - Mortgage of leasehold - Appointment of receivers by mortgagee - Rights of owner of property under mortgage - Whether mortgagee or receivers adopted lease

Legislation:

Nil

Result:

Appeal dismissed

Representation:

Counsel:

Appellants:     Mr S P Whelan QC & Ms T A Dodds-Streeton

First Respondent           :     Mr M J McCusker QC & Mr K L Christensen

Second Respondent       :     Ms C J McClure QC

Third Respondent         :     Ms C J McClure QC

Solicitors:

Appellants:     Freehill Hollingdale & Page

First Respondent           :     Tottle Christensen

Second Respondent       :     Blake Dawson Waldron

Third Respondent         :     Blake Dawson Waldron

Case(s) referred to in judgment(s):

Carnovale v State Bank of New South Wales, unreported; SCt of NSW; 3 November 1992

Halpern v Martin (1986) 10 ACLR 539

O'Callaghan & Ors v Custom Credit Corporation Ltd & Ors, unreported; SCt of WA (Anderson J); Library No 970709; 17 December 1997

Stolworthy v Sancroft (1864) 33 LJ Ch 708

Case(s) also cited:

Abbey National Building Society v Maybeech Ltd [1985] Ch 190

Re J W Abbott & Co (1913) WN 284

American Express International Banking Corp v Hurley [1985] 3 All ER 564

Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211

Australian Mutual Provident Society v Geo Myers & Co Ltd (in liq) (1931) 47 CLR 65

Re Botibol [1947] 1 All ER 26

Brash Holdings v Katile (1994) 13 ACSR 504

Re British Investments and Development Co Pty Ltd (1979) ACLC 40-522

Cholmeley School Highgate (Wardens and Governors) v Sewell [1894] 2 QB 906

The Church of England Collegiate School of St Peter v Chesser House Pty Ltd (1993) ANZ Conv R 110

Codelfa Construction Pty Ltd v State Rail Authority NSW (1982) 149 CLR 337

Consolidated Entertainments Ltd v Taylor [1937] 4 All ER 432

Egerton v Jones [1939] 2 KB 702

Gaskell v Gosling [1896] 1 QB 669

Gomba Holdings UK Ltd v Homan [1986] 1 WLR 1301

Gooch v London Banking Association (1886) 32 Ch D 41

Re Good's Lease [1954] 1 All ER 275

Grand Junction Co Ltd v Bates [1954] 2 QB 160

Hand v Blow [1901] 2 Ch 721

Hay v Swedish & Norwegian Railway Company Ltd (1892) 8 TLR 775

Jones v Dunkel (1959) 101 CLR 298

Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 22 ACSR 169

Re Leyland DAF Ltd [1994] 4 All ER 300

Re New Oriental Bank Corp (No 2) [1895] 1 Ch 753

Olsson v Dyson (1969) 120 CLR 365

Peat Marwick Ltd v Consumers' Gas Co (1980) 113 DLR (3d) 754

Powdrill v Watson [1994] 2 All ER 513

Powdrill v Watson [1995] 2 All ER 65

Ratford v Northavon District Council [1986] 3 All ER 193

Richards v Overseers of Kidderminster [1896] 2 Ch 212

Robinson Printing Co Ltd v Chic Ltd [1905] 2 Ch 123

Rogers v Rice [1892] 2 Ch 70

Sheahan v Air Con Serve Pty Ltd (1995) 64 SASR 258

Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407

James Smith & Sons (Norwood) Ltd v Goodman [1936] Ch 216

Thomas v Todd [1926] 2 KB 511

Titoki Farms Ltd v Lei Jay Catering Ltd (1987) 3 NZCLC 96-145

Re Vimbos Ltd [1900] 1 Ch 470

1. KENNEDY J:  Notwithstanding the careful argument advanced by Mr Whelan QC, for the reasons expressed by Wheeler J, which I have had the benefit of reading in draft, I am not persuaded that the learned trial Judge fell into error.

2. Mr Whelan summarised the two matters in issue in this appeal as being, first, the construction of what was said to be an agreement constituted by cl 16 of the deed of leasehold mortgage and, if the construction contended for by his clients should be accepted, secondly, the proper characterisation of the receivers' conduct.  The agreement which the appellants claimed existed between the first respondent and the appellants provided that, in certain specified circumstances, being circumstances where the lease was vulnerable to forfeiture, the first respondent had the right to elect to protect its security against the consequences of forfeiture of the lease, provided that it (or the receivers appointed by it) complied with all of the mortgagor's obligations under the lease, those obligations extending to all presently outstanding obligations and to all future obligations.  The conduct of the receivers referred to was that, as agents for the first respondent, they effected and manifested by their conduct, an election to comply with all of the mortgagor's present and future obligations.  Alternatively, it was contended that, if the second and third respondents' conduct did not constitute conduct rendering the first respondent liable under the agreement between it and the appellants, their conduct was such as to render the second and third respondents personally liable.

3. The terms of the deed no doubt pose a number of difficulties, not least by reason of a certain lack of consistency in expression.  The critical clause in the deed is the final clause.  The material portions of it are as follows:-

   "16.LESSOR'S CONSENT

   The Lessor by its execution hereof consents to the Mortgage of Leasehold herein contained and agrees with the parties hereto as follows:-

   16.1if at any time during the continuance of this document the Mortgagor shall enter into liquidation whether compulsory or voluntary not being a voluntary liquidation for the purpose of amalgamation or reconstruction or enter into an arrangement or composition for the benefit of its creditors then such action shall not be deemed to be a breach of the Lease if the Mortgagee or a Receiver of the Mortgagor shall comply with and perform all and singular the other terms and conditions on the Mortgagor under the Lease.

   16.2if at any time during the continuance of this document the Mortgagor shall:-

   16.2.1not pay any rents or fees due and payable to the Lessor pursuant to the terms of the Lease, or

   16.2.2omit to observe or perform any other covenants on the part of the Mortgagor to be observed or performed by the Mortgagor under the terms of the Lease,

   then such action shall not be deemed to be a breach of the Lease if the Mortgagee or a Receiver of the Mortgagor shall comply with and perform all and singular such terms and conditions on the part of the Mortgagor under the Lease.

   16.3in the event of any default by the Mortgagor as is referred to in Clause 8.1 of the Lease or otherwise such that the Lessor may re‑enter upon the Leased Premises (as referred to in the Lease) or any part thereof or otherwise determine the Lease then the Lessor agrees with the Mortgagee that it will not so re‑enter or otherwise determine the Lease until the Lessor has given to the Mortgagee seven (7) days prior notice in writing of such default by the Mortgagor (to the intent that the Mortgagee shall have the opportunity to remedy such default) and during such period the Mortgagee has not so remedied the default.

   16.4except as aforesaid, this consent shall in no way prejudice or affect the rights and powers of the Lessor under the Lease in the event of any default thereunder."

4. The actions in cl 16.2 which are not to be deemed to be (or deemed not to be) a breach of the lease are those actions of the mortgagor specified in cl 16.2.1 and cl 16.2.2, in the event that the mortgagee or receiver remedies those breaches.  I agree that the words at the end of cl 16.2, "all and singular such terms and conditions on the part of the mortgagor under the lease", relate back to the terms and conditions which have not been observed or performed by the mortgagor.  If the mortgagee or receiver does not remedy the mortgagor's breaches, then, of course, the deeming provision will cease to apply and it will be open to the appellants to exercise their ordinary remedies.  Clause 16.2, in my view, constitutes a concession made by the appellants to the mortgagee.  Clause 16.3 also amounts to a concession by the appellants, in that it requires them to give seven days' notice to the mortgagee to enable it, if it so desires, to remedy any default giving rise to their right of re‑entry.

5. Clause 16.4 is consistent with the view that the foregoing provisions of the clause grant concessions which may prejudice or affect the rights and powers of the appellants.  By that clause, the appellants are seeking to preserve their rights and powers in the event of any default, subject only to the concessions made by them in the earlier part of cl 16.  The fact that the appellants are making concessions is also consistent with the introductory words of the clause, in that the appellants agree with the parties to the mortgage, that is to say, with the parties identified in cl 1, the mortgagor and the mortgagee.  There is no covenant by the mortgagor or the mortgagee.

6. In my opinion, very much plainer language would be required to impose upon the mortgagee the most unusual obligations which the appellants now seek to impose upon it, cl 16.2 not in terms imposing any obligation upon the mortgagee.

7. It was common ground that, in the normal case, a receiver appointed by the mortgagee of a lease does not, by taking possession of the leased premises, become personally liable under the lease for the balance of its term.  Nor does the mortgagee who appoints the receiver incur any liability to the lessor.  In this case, there is no evidence of any election by the first respondent to comply with and perform "all and singular" the terms and conditions on the part of the lessee.  Nor is there any evidence that it undertook the entirety of the obligations of the lessee.  The receivers expressly disavowed any adoption of the lease either by themselves or by the first respondent.  They undertook only to pay the pro rata instalments for the period of use of the premises during their

administration.  I am in agreement with Anderson J that no adoption of the lease by any of the respondents has been demonstrated.

1. I would dismiss this appeal.

2. PIDGEON J:  I have read the reasons of Wheeler J.  I agree with those reasons and with the orders proposed.

3. WHEELER J:  The facts of this matter have been accurately and concisely summarised by Anderson J in O'Callaghan & Ors v Custom Credit Corporation Ltd & Ors, unreported; SCt of WA (Anderson J); Library No 970709; 17 December 1997.  For reasons which will shortly emerge, I take the view that it is not a useful task for me to attempt to restate a summary which I would in every respect adopt.  In order to understand this decision, it is therefore necessary to read it together with the reasons of Anderson J.

4. The grounds of appeal are very lengthy and repetitive.  The first 10 of the grounds rather suggest that the appellants have simply picked out each individual finding of his Honour the trial Judge and prefaced it with the words "The Learned Judge erred in law in finding....".  The final five grounds, which cover some seven pages, appear to be a repetition of all of the arguments advanced before his Honour by the appellants, coupled with an assertion that he erred in not accepting them.  In addition, there are a number of grounds - they being grounds 11 to 14 inclusive - all of which put in slightly different ways what is essentially the same proposition, that proposition being that his Honour took a particular view of the commercial reality of the transaction in issue which was unsupported by sufficient evidence.  The formulation of grounds of appeal in this way does not assist the Court to understand what the real point or points involved in the appeal may be.

5. Notwithstanding the very detailed argument advanced by counsel for the appellants, this is an appeal which may be very largely disposed of by finding that, having read his Honour's judgment, the appeal books, and the authorities relied upon by the appellants, the learned trial Judge's decision was correct for the reasons given by him.  There are however some aspects of the appeal which do not appear to have been canvassed in detail by his Honour, or which I would put somewhat differently, and I turn briefly to deal with them.

6. It is convenient to set out the text of the clauses of the agreement in issue here.  Essentially, the appellants who were lessors of a liquor store,

let it to Retail Equity Pty Ltd and Retail Equity mortgaged the lease to Custom Credit, the first respondent.  The lessors executed the mortgage of lease to manifest their consent to the mortgage, and that deed contained the following provision regulating the relationship between Custom Credit as mortgagee and the lessors:

"16.1if at any time during the continuance of this document the Mortgagor shall enter into liquidation whether compulsory or voluntary not being a voluntary liquidation for the purposes of amalgamation or reconstruction or enter into an arrangement for the benefit of its creditors then such action shall not be deemed to be a breach of the Lease if the Mortgagee or a Receiver of the Mortgagor shall duly comply with and perform all and singular the other terms and conditions of the Mortgagor under the Lease.

16.2if at any time during the continuance of this document the Mortgagor shall:

16.2.1not pay rents or fees due and payable to the Lessor pursuant to the terms of the Lease; or

16.2.2omit to observe or perform any other covenants on the part of the Mortgagor to be observed or performed by the Mortgagor under the terms of the Lease,

then such action shall not be deemed to be a breach of the Lease if the Mortgagee or a Receiver of the Mortgagor shall comply with and perform all and singular such terms and conditions on the part of the Mortgagor under the Lease."

1. It seemed to be accepted by all parties that the last paragraph of 16.2 is badly expressed to the extent that it reads "such action shall not be deemed to be a breach".  It seems to be accepted that more appropriate language would have been "shall be deemed not to be a breach".

2. The principal issue in this appeal is whether the appellants are correct in their assertion that the covenant in cl 6.2 to perform "all and singular such terms and conditions on the part of the mortgagor under the lease" means all presently outstanding and all future obligations under the lease so that in effect the mortgagee or receiver would step into the shoes of the mortgagor for the duration of the term of the lease.

3. A submission by the appellants as to the "commercial reality" of the transaction, which seems to have been made before his Honour as well as before us, was that the construction contended for by the appellants was necessary in order to make sense of the transaction; otherwise, it was argued, the appellants had agreed to restrictions on their rights of re-entry and would receive nothing worthwhile in return.  This proposition was fortified by an argument that the property may well be decreased in commercial value as a result of having been under receivership for a time, a proposition which was accepted as a matter of common experience by Rolfe J in Carnovale v State Bank of New South Wales, unreported; SCt of NSW; 3 November 1992. 

4. Anderson J noted, in response to this submission, that as a matter of commercial reality the lessors' consent to cl 16 gained them a letting of the property for 15 years at the rentals reserved, and a long term tenant with an established liquor retailing business.  His Honour also noted that the history of business receiverships is not "wholly dark", and that businesses do survive receiverships.

5. The appellants submit that there was no evidence before his Honour in relation to these facts.  So far as receivership is concerned, just as Rolfe J in Carnovale was able to take judicial notice of the fact that receivership may damage the value of a business, it seems to me that his Honour in this case was entitled to take judicial notice of the fact that some businesses survive receivership.  So far as the balance of his Honour's observations are concerned, I do not understand him to have found that the letting of the property to this particular tenant was a consideration which in fact motivated the appellants to enter into an agreement which otherwise was to their detriment; rather, his Honour seems to have been setting up this version of the "commercial reality" as a plausible view of the transaction entered into by the parties.  Such a plausible view being plainly open on the facts, it rebutted the appellants' contention that there was only one possible way of viewing the commercial reality.

6. Turning to the words of cl 16.2, the appellants place some weight on the expression "all and singular", for reasons which are not clear to me.  A perusal of texts on drafting reveals that the expression is generally considered to be an example of redundancy which is to be avoided.  For example Thornton's Legislative Drafting, 4th ed, at 98 refers to "all" as frequently used to "give a spurious kind of emphasis", and "all and singular" as an archaism to be avoided.  It is therefore my view that the expression "all and singular such terms" means nothing more than "such terms" and says nothing whatsoever about the period during which the terms must be performed.

7. The word "such" in the penultimate line of cl 16.2 is, however, significant.  This word is frequently used in legal documents to refer to a person or thing which has already been mentioned in order to avoid the need to refer again in full to that thing.  As Kindersley VC said in Stolworthy v Sancroft (1864) 33 LJ Ch 708:

   "Having described particular persons or things, a passage follows speaking of such persons and such things, meaning 'as aforesaid' referring to what has gone before".

8. The things already referred to in this context appear to be the non‑payment of rents or fees pursuant to the terms of the lease (16.2.1) or the omission to observe or perform any other covenant under the terms of the lease (16.2.2), which omissions are collectively described in 16.2 as "such action".  So understood, 16.2 provides that in the event the mortgagor breaches the lease by not paying rents or fees due and payable or by omission to observe or perform any other covenant, then there will be no re-entry if the mortgagee or a receiver of the mortgagor complies with and performs all terms which have been breached by the omissions described in 16.2.1 and 16.2.2.  To adopt this construction is not, as the appellants contend, to imply a temporal limitation into 16.2 which is not to be found in its express words; rather, it is to give to the word "such" appearing in that clause the meaning which its context requires.

9. This understanding of the expression "such terms and conditions" is also, I think, the answer to the appellants' contention that cl 16.1 is relevantly identical to cl 16.2, and that there are very substantial practical difficulties in an interpretation of cl 16.1 which does not require the mortgagee or a receiver of the mortgagor to step into the shoes of the mortgagor for the duration of the lease.  In 16.1, there is no breach if the mortgagee or a receiver of the mortgagor performs "the other terms and conditions of the mortgagor under the lease", those terms and conditions apparently being all terms and conditions other than those precluding liquidation or entry into an arrangement, and so on.

10. Finally, I note the appellant's argument that compliance with the covenant to pay rent necessarily involves undertaking the entire obligation, as that obligation is a single one incurred when the lease is executed and not an obligation accruing from time to time: Halpern v Martin (1986) 10 ACLR 539. No issue is taken with the proposition that a covenant to pay rent involves undertaking an entire obligation. However, it is to be noted that 16.2.1 refers to non-payment of rents or fees "due and payable", and the obligation to pay rent in the future is of course a contingent liability, with rent becoming "payable" only on particular dates as provided by the lease. The reference to "due and payable", coupled with the expression "such terms" is in my view to be understood as a requirement to ensure punctual payment of the rent as and when it falls due.

1. For the reasons which I have given, together with the reasons of his Honour the learned trial Judge, with which I entirely agree, this appeal must be dismissed.