Olympic Holdings Pty Ltd v Windslow Corporation Pty Ltd (in liq) - [2008] WASCA 80

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: OLYMPIC HOLDINGS PTY LTD -v- WINDSLOW CORPORATION PTY LTD (in liq) [2008] WASCA 80

CORAM: STEYTLER P
BUSS JA
EM HEENAN AJA

HEARD: 10 OCTOBER 2007

DELIVERED : 10 APRIL 2008

FILE NO/S: CACV 112 of 2006

BETWEEN: OLYMPIC HOLDINGS PTY LTD (ACN 009 127 404)
Appellant
AND
WINDSLOW CORPORATION PTY LTD (in liq) (ACN 096 537 549)
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :HASLUCK J
Citation  :WINDSLOW CORPORATION PTY LTD (In Liq) -v- OLYMPIC HOLDINGS PTY LTD [2006] WASC 158
File No  :CIV 1357 of 2006

Catchwords:

Mortgage - All moneys clause - Mortgagee defined as mortgagee and its assigns - Mortgagee assigned mortgage and secured moneys to third party - Whether all moneys clause secured outstanding indebtedness incurred by mortgagor to assignee before the assignment - Whether all moneys clause secured outstanding indebtedness incurred by mortgagor to assignee after the assignment - Proper approach to the construction of the all moneys clause - Whether declaratory relief should be granted

Legislation:

Corporations Act 2001 (Cth), Pt 5.7B
Property Law Act 1969 (WA), s 20
Transfer of Land Act 1893 (WA), s 3

Result:

Appeal allowed in part
Declaration made by the primary judge varied

Category: A

Representation:

Counsel:

Appellant: Mr J A Thomson
Respondent: Mr G D Cobby

Solicitors:

Appellant: Q Legal
Respondent: Christensen Vaughan

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

Bank of New Zealand v Development Finance Corp of New Zealand [1988] 1 NZLR 495
Brace v Duchess of Marlborough (1728) 2 P Wms 491; 34 ER 829
Burke v Dawes [1938] HCA 6; (1938) 59 CLR 1
Chacmol Holdings Pty Ltd v Handberg [2005] FCAFC 40; (2005) 215 ALR 748
Chambers v Goldwin (1804) 9 Ves 254; 32 ER 600; [1803‑13] All ER Rep 255
Chase Corporation (Australia) Pty Ltd v North Sydney Brick & Tile Co Ltd (1994) 35 NSWLR 1
Coleman v Winch (1721) 1 P Wms 775
Commercial Bank of Tasmania v Jones [1893] AC 313
Creasy's Grain Enterprises Pty Ltd v Clarke & Barwood Lawyers Colac Ltd [2004] VSC 77
Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146
Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817
Heames v Bance (1748) 3 Atk 629
Holroyd v Marshall (1862) 10 HL Cas 191; 11 ER 999
Hopkinson v Rolt (1861) 9 HL Cas 513; 11 ER 829
Irby v Irby (1855) 22 Beav 217; (1855) 52 ER 1091
Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757
Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641
Kova Establishment v Sasco Investments Ltd [1998] 2 BCLC 83
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
Marsh v Lee (1670) 2 Ventr 337; 86 ER 473
Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293
McVeigh v National Australia Bank Ltd [2000] FCA 187
Mercantile Credits Ltd v Australian & New Zealand Banking Group Ltd (1988) 48 SASR 407
Morret v Paske (1740) 2 Atk 52; (1740) 27 ER 429
Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9
OBG Ltd v Allan [2001] Lloyds Rep Bank 365
Oceanic Life Ltd v Glowtide Pty Ltd (Unreported, NSWSC, 50031/1996, 25 July 1997)
Oversea‑Chinese Banking Corporation Ltd v Malaysian Kuwaiti Investment Co [2003] VSC 495
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Philip Arthur McGaveston v NMFM Mortgages Ltd [2002] NZCA 312
Philos Pty Ltd v National Bank of Australasia (1976) 5 BPR 11810
Pile v Pile (1875) 23 Wr 440
R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536
Re Arcade Hotel Pty Ltd [1962] VR 274
Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46
Re Clark's Refrigerated Transport Pty Ltd (In Liq) [1982] VR 989
Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96
Re Quest Cae Ltd [1985] BCLC 266
Richardson v Horton (1843) 7 Beav 112
Ronan v ANZ Banking Group Ltd (2000) 2 VR 531
Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214
Smith v Australia & New Zealand Banking Group Ltd (1996) NSW Conv R 55‑774
Smith v Australia and New Zealand Banking Group Ltd (Unreported, NSWCA, CA40392/95, 10 July 1995)
St George Bank Ltd v McTaggart [2007] WASC 150
Stanhope v Verney (1761) 2 Ed 81; 28 ER 826
Tailby v Official Receiver (1888) 13 App Cas 423
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
West v Williams [1899] 1 Ch 132
Westpac Banking Corporation v Adelaide Bank Ltd [2005] NSWSC 517
Zell v Commonwealth Bank of Australia (1998) ANZ Conv R 570

STEYTLER P: I agree with Buss JA.
BUSS JA: In 2002, the respondent (Windslow) borrowed funds from HSBC Bank Australia Ltd (the Bank). Those funds were secured by a registered mortgage of real property and two fixed and floating charges (the Securities). Each Security included an 'all moneys' clause.
By a deed of assignment (the Deed of Assignment) dated 19 April 2005 and made between the Bank and the appellant (Olympic), the Bank assigned to Olympic, and Olympic accepted an assignment of:
(a)all the right, title and interest of the Bank in and to, relevantly, all amounts in respect of which Windslow was indebted to the Bank as at 19 April 2005, and which were secured by all or any of the Securities;
(b)the Securities; and
(c)the full benefit and advantage of all rights, powers, authorities and discretions of the Bank conferred upon or vested in the Bank by virtue of the indebtedness and the Securities.
As at 19 April 2005, the amount of the indebtedness (owing by Windslow to the Bank) was $304,220.28.
Windslow was not a party to the Deed of Assignment, but notice of the assignment was given to it.
At all material times after 30 June 2002, Windslow was indebted to Olympic in an aggregate amount of about $500,000 ‑ $600,000 (excluding the indebtedness assigned under the Deed of Assignment). According to Olympic, this indebtedness arose under a running account between Windslow and Olympic, pursuant to which moneys were advanced and repaid. Windslow does not accept that there was, in fact, a running account.
On 14 June 2005, Mr Giovanni Carrello was appointed liquidator of Windslow.

The proceedings before the learned primary judge

In 2006, Windslow commenced proceedings in the Supreme Court against Olympic, by originating summons, for a declaration that each of the Securities, on its proper construction, does not secure the repayment of any debt incurred by Windslow to Olympic either before or after the assignment by the Bank to Olympic.

The originating summons, as amended, was heard by Hasluck J. The evidence before his Honour comprised, principally, an affidavit of Mr Carrello sworn 13 April 2006, and an affidavit of Mr Peter Bacich (a director of Windslow before the appointment of Mr Carrello as liquidator, and the sole director and secretary of Olympic) sworn 7 June 2006. Based on the affidavit evidence, his Honour made these findings, relevantly:
(a)Olympic paid $304,220.28 to the Bank pursuant to the Deed of Assignment, being the consideration for the assignment.
(b)After the execution of the Deed of Assignment, Olympic asserted that the Securities secured not merely the indebtedness owing by Windslow to the Bank as at 19 April 2005 (which indebtedness became owing to Olympic as the Bank's assignee), but also the indebtedness incurred by Windslow to Olympic either before or after 19 April 2005 under the alleged running account.
(c)Olympic's assertion resulted in Windslow paying to Olympic after the execution of the Deed of Assignment amounts, in aggregate, exceeding $304,220.28. Indeed, Mr Carrello deposed to his belief that Olympic had received not less than $629,129 from the realisation of Windslow's assets after 19 April 2005. This assertion was not contradicted by Mr Bacich. It appeared therefore to be common ground between the parties that Windslow paid to Olympic after 19 April 2005 amounts substantially in excess of $304,220.28.
Hasluck J decided that the Securities did not secure:
(a)pre‑existing or other debts owing by Windslow to Olympic before the assignment of the Securities; or
(b)debts allegedly incurred and owing by Windslow to Olympic after the assignment of the Securities.
His Honour made a declaration that:
On their true construction each of [the Securities] do not secure the repayment of any debt incurred by [Windslow] to [Olympic] prior to or after the assignment of the Securities by [the Bank] to [Olympic], and secure only the repayment of the debt of $304,220.28 the subject of [the Deed of Assignment].
The parties were agreed before Hasluck J that his Honour should determine only the relevant issues of construction; that is, whether the Securities secured Windslow's indebtedness to Olympic on the alleged running account (whether incurred before or after the assignment). No issue arose before his Honour as to the manner in which payments by Windslow were or should have been appropriated. The parties intended that after his Honour had determined the issues of construction, an account should be taken and any questions concerning appropriation should be resolved in the course of that procedure. Also, the parties did not litigate before his Honour whether the alleged running account in fact existed, the impact (if any) of the law relating to insolvency, or any priority questions (including questions relating to tacking) as between Olympic and any other secured creditors of Windslow.
When Hasluck J made the declaration, his Honour also made orders to facilitate the taking of the account.
Olympic has appealed against Hasluck J's judgment.
According to Olympic, on a proper construction of the Securities, each of them secures not only the amount which Windslow owed to the Bank as at the date of the Deed of Assignment (namely, $304,220.28), but also all indebtedness owing by Windslow to Olympic on the alleged running account (whether incurred before or after the assignment).

The relevant provisions of the Securities

The 'all moneys' clause in the mortgage is embodied in the definition of 'Secured Money'. By cl 1.1, in the mortgage, unless the contrary intention appears, 'Secured Money' means:
all amounts which at any time for any reason or circumstances in connection with any agreement or arrangement between the Mortgagor and the Bank or any transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor, and whether at law, in equity, under statute or otherwise (and whether or not of a type within the contemplation of the parties at the date of this mortgage):
(a)are payable, are owing but not currently payable, are contingently owing, or remain unpaid by the Mortgagor to the Bank on any account whatsoever; or
(b)have been advanced or paid by the Bank:
(i)at the express or implied request of the Mortgagor; or
(ii)on behalf of the Mortgagor; or
(c)have been advanced or paid by the Bank or which the Bank is liable to pay by reason of any act or omission of the Mortgagor; or
(d)are reasonably foreseeable as likely, after that time, to fall within any of paragraphs (a), (b) or (c) above,
but does not include an amount which is payable under a covenant or stipulation which is void under section 261 of the Income Tax Assessment Act 1936 (Cwlth).
This definition applies irrespective of the capacity of the Mortgagor or the Bank, whether the Mortgagor or Bank is liable as principal debtor or surety or otherwise, whether the Mortgagor is liable alone, or jointly, or jointly and severally with another person, whether the Bank is the original obligee or an assignee of the Secured Money and whether or not the assignment took place before or after the delivery of this mortgage or the Mortgagor consented to or was aware of the assignment or the assigned obligation was secured.
The other relevant provisions of the mortgage are these:
(a)By cl 1.1, in the mortgage, unless the contrary intention appears, 'Bank' means:
the person or persons specified as 'the Bank' in this mortgage and includes, without limitation, the person or persons specified as 'the Mortgagee' in this mortgage.
In the mortgage, the Bank is specified as 'the Mortgagee'.
(b)By cl 1.2(f), in the mortgage, unless the contrary intention appears:
the word 'person' includes an individual, a firm, a body corporate, an unincorporated association or an authority and references to any person include the person's executors, administrators, successors, substitutes (including, without limitation, persons taking by novation) and assigns;
(c)Clause 2.1 made provision for the payment of the Secured Money by the Mortgagor to the Bank:
The Mortgagor must pay the Secured Money to the Bank without set‑off or counterclaim and without deductions for any tax or other governmental charges:
(a)on the date fixed for payment of that amount under any written agreement between them; or
(b)if no date for payment is so fixed, on demand in writing by the Bank.
Payment of part of the Secured Money shall not affect the Mortgagor's liability for the remainder.
(d)Clauses 2.3 and 2.4 are concerned with the payment of interest on the Secured Money. They provide:
2.3If the Mortgagor need not otherwise pay interest on the Secured Money, then the Mortgagor agrees to pay interest on the Secured Money from the date when it becomes due for payment and thereafter during the period that it remains unpaid, on demand or at other times determined by the Bank calculated on the relevant daily balances.
2.4Interest payable under this clause will accrue at the base lending rate established by the Bank from time to time (or, where the relevant Secured Money is outstanding in a currency other than Australian Dollars, at the Bank's relevant cost of funds) plus 5% per annum. Interest so accrued will accrue daily and will be compounded and turned into principal monthly until the overdue amount is paid in full.
(e)Clause 2.7 is concerned with the payment of interest if a liability under the mortgage becomes merged in a judgment or order:
If a liability under this mortgage becomes merged in a judgment or order, then the Mortgagor agrees to pay interest to the Bank on the amount of that liability as an independent obligation. This interest accrues from the date the liability becomes due for payment both before and after the judgment or order until it is paid, at a rate that is the higher of the rate payable under the judgment or order and the rate referred to in clause 2.4.
(f)Clause 22 is concerned with set‑off, and provides:
At its sole discretion the Bank may at any time apply (without notice) any credit balance in any currency in any account of the Mortgagor with the Bank towards satisfaction of any amount then payable by the Mortgagor to the Bank. The Mortgagor authorises the Bank in the name of the Mortgagor to do anything (including, without limitation, to execute any document or effect the conversion of any currency) that is required for such purpose.
(g)Clause 25.1(n) provides:
The liabilities under this mortgage of the Mortgagor and the rights under this mortgage of the Bank, a Receiver or an attorney appointed under this mortgage are not affected by anything which might otherwise affect them at law or in equity including, without limitation, one or more of the following (whether occurring with or without the consent of a person):
…
(n)an assignment of rights in connection with the Secured Money;
…
(h)Clause 32 provides:
The Mortgagor may not assign or otherwise dispose of or deal with its rights under this mortgage. The Bank at any time may do any of those things as the Bank sees fit. The Bank may disclose to a potential assignee or other person who is considering entering into contractual relations with the Bank in connection with this mortgage all information about the Mortgagor, any related document and any party to any Security Documents and the transactions contemplated thereby as the Bank considers appropriate.
Each of the fixed and floating charges contains provisions which are not materially different from those in the mortgage which I have set out at [14] ‑ [15] above. It is convenient and sufficient, in these reasons, to refer solely to the provisions of the mortgage.

The reasons of the learned primary judge

The learned primary judge considered that the critical provisions of the mortgage were the definition of 'Secured Money', the definition of 'the Bank', the definition of 'person' and the provisions of cl 32. His Honour construed the definition of 'Secured Money':
At a first glance, the definition of 'secured money', when considered in conjunction with the obligation to pay established by cl 2.1 of the Memorandum, certainly suggests that the moneys sought to be secured are moneys advanced by the Bank to the borrower, and that the commercial purpose intended to be served is to secure moneys advanced by the Bank to the borrower, not to secure moneys which are owed or might be owed by the borrower (in this case Windslow) to third party creditors.
There are various indications that the term 'secured money' is defined broadly with a view to ensuring that the Bank is covered in all possible situations which could arise, whether arising out of a conventional lending situation or otherwise. At first blush, the subject matter of the transaction appears to be essentially the securing of moneys belonging to the Bank which are advanced by the Bank to the borrower.
I recognise in theoretical terms that it may be a matter of indifference to a bank as to whether it is repaid by the borrower, or paid out by some other means. It could therefore be of advantage to a bank to create a marketable security of sorts which is capable of assignment to third parties with the capacity to pay out a debt due to the bank, and which has features that might be attractive to an assignee (such as provision for the assignee's debt to be added to the bank debt). However, there are few signs in the present instrument that the document was intended to serve this purpose.
To my mind, it is significant in that respect that the crucial definition provision speaks of 'any transaction entered into or undertaken by the Bank at the request (express or implied) of the mortgagor'. The words 'at the request' of the mortgagor suggest that the commercial purpose which the document was intended to serve was the provision of funds to a customer of the Bank in response to the customer's request with arrangements being made for any advances made by the Bank to be secured. Further, the words 'on any account whatsoever' appear in the context of provision for payment 'by the mortgagor to the Bank'. This, again, suggests that what is being spoken of is a payment in respect of moneys advanced by the Bank on any account maintained by the borrower with the Bank [58] ‑ [61].
His Honour then examined the significance of the definition of 'the Bank' in the context of the definition of 'Secured Money':
I do not consider that the term 'the Bank' when considered in the context of the definition of the term 'secured money' can be construed to include 'any assignee of the Bank'. This is not provided for expressly. It is true that the term 'person' is said to embrace any assigns, but that is only where a contrary intention is not shown. I am of the view that, as to the issue before me, a contrary intention has been shown because the term 'Bank' is defined essentially to mean the person specified in the mortgage, namely, HSBC Bank. This is one of many instances where it is clear that the term 'person' cannot be used in substitution for a specific reference to the Bank [62].
His Honour then construed cl 32:
It is against this background that one comes to cl 32 of the Memorandum of Provisions concerning assignments. One has to construe that clause in order to arrive at an understanding of what exactly was assigned to Olympic under and by virtue of the Deed of Assignment. Clause 32 allows the Bank at any time as the Bank sees fit to assign or otherwise dispose of or deal with 'its rights under this mortgage'. It follows from earlier discussion that, in my view, the Bank's rights under the mortgage are confined to securing moneys advanced by the Bank to the borrower which are payable or will become payable to the Bank on any of its accounts. The securities, the subject of the assignment, do not extend to debts payable to a third party such as a debt of the kind contended for in the present case which is said to be due by Windslow to Olympic under and by virtue of arrangements for a running account [63].

His Honour therefore concluded that the amounts secured by the mortgage and the other Securities are limited to those amounts advanced by the Bank in connection with 'the agreement reflected in [the Securities]' [64]. He held that there is no basis for expanding the definitions of either 'the Bank' or 'Secured Money' so as to include pre‑existing or other debts owed by Windslow to Olympic as an assignee of the Securities, or so as to include debts claimed to have been incurred after the Deed of Assignment was executed [64].

The ground of appeal

The sole ground of appeal, with relevant supporting particulars, reads:
The learned primary Judge erred in law in construing the term 'Bank' in the definition of 'Secured Money' in each of the instruments referred to below as not including any assignee of the 'Bank'.
Particulars
The learned primary Judge erred in law in his construction in that he:
(a)construed the Instruments by reference to a presumed commercial purpose of the Instruments, namely that they were intended 'to secure moneys advanced by the Bank to the borrower, not to secure moneys which are owed or might be owed by the borrower (in this case Windslow) to third party creditors': [58];
(b)deduced that his construction was what the parties intended, by reading each definition of 'Secured Money' without regard to the provision in each Instrument that references to a person include a person's assigns: [61].

Olympic's submissions in support of the appeal

Counsel for Olympic submitted that there is no principle that contractual language should be interpreted by reference to the commercial object of the transaction in that such a principle involves circularity, namely, the commercial object can only be derived from the meaning of the contractual language. It was asserted that the learned primary judge erred in that he adopted a process of circular reasoning commencing with the presumed commercial object of the Securities. According to Olympic, the true principle is that if a construction of a contract frustrates its object or is an affront to business common sense, then the construction in question will be rejected.
It was submitted, on behalf of Olympic, that the object of the Securities would not be frustrated if they were construed to provide 'extended security to the Bank's assigns'. If the primary object of the Securities is to secure amounts advanced by the Bank, this object would still be achieved on the construction which Olympic asserts. Further, Olympic's construction is not an affront to business common sense. The Securities expressly provided that the Bank could assign its rights.
Counsel for Olympic submitted that authorities which suggest that 'all moneys' clauses should be construed and limited in accordance with the learned primary judge's approach to construction were 'out of step' with the modern emphasis of construing contractual provisions according to their plain and ordinary meaning.
Finally, Olympic contended that the learned primary judge based his preferred construction upon the terms of the definition of 'Secured Money', and 'left aside' the provision that a reference to a person includes that person's assigns. According to Olympic, his Honour failed to construe the Securities as a whole and, in particular, failed to give 'full effect' to the provision relating to assigns.

The course of argument before this court

During oral argument before this court, issues were raised by the court with counsel for Olympic which went beyond the basis on which the learned primary judge decided the proceedings, and beyond the submissions put against Olympic by counsel for Windslow. Counsel for Olympic accepted, properly, that he had not been prejudiced by the manner in which the issues in the appeal had been developed in the course of argument.

The correct approach to construction

The construction of a written contract is concerned with ascertaining what a reasonable person would have understood the parties to mean. Consideration should ordinarily be given not only to the language of the document, but also to the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said:
This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 - 462 [22]) [40].
Also see Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 [11]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22]; Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757, 773 ‑ 774.
In Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817, the Court of Appeal of New South Wales construed a clause in a mortgage which required the mortgagor to provide additional security, if required by the mortgagee, to secure his obligations to the mortgagee 'whether contingent, future or otherwise' and 'including those arising under successive transactions'. After the mortgage was executed, the mortgagee made a loan to a company which was guaranteed by the mortgagor. The mortgagor asserted that he was not required to provide additional security in that the clause in question should be construed as confined to the transaction the subject of the original mortgage. Gleeson CJ (Kirby P agreeing) held that the mortgagor was bound to provide additional security. His Honour said that the critical clauses in the mortgage must be construed and confined in their operation by reference to the context in which they appeared and by reference to the commercial purpose which they were intended to serve. The words 'successive transactions', by hypothesis, included transactions that might create obligations or liabilities not created by the transaction the subject of the original mortgage. It followed that the obligation to provide additional security was not confined to the transaction the subject of the original mortgage and extended to the guarantee. Also see Zell v Commonwealth Bank of Australia (1998) ANZ Conv R 570 (Mason P, Handley and Stein JJA agreeing); McVeigh v National Australia Bank Ltd [2000] FCA 187 [83] (Kenny J); Chacmol Holdings Pty Ltd v Handberg [2005] FCAFC 40; (2005) 215 ALR 748 [97] ‑ [106] (North and Dowsett JJ).
In Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46, 49 ‑ 54, Hill J examined the 'guidelines' identified by Young J in Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146, 13,151 ‑ 13,152 in relation to the construction of 'all moneys' clauses in instruments of security. Hill J concluded that the 'guidelines' suggested by Young J had 'hardly [been] given a ringing endorsement' by the Court of Appeal of New South Wales in Smith v Australia & New Zealand Banking Group Ltd (1996) NSW Conv R 55‑774 (53). His Honour added that, following Smith, he should treat the 'guidelines' as not requiring him to read down the 'all moneys' clause under consideration in Re Bankrupt Estate of Murphy if its language actually covered the situation (54). Hill J then set out several principles which his Honour thought were accepted law in New South Wales:
(1)There is no principle of law that an all moneys clause should be read down merely because it is to be found in a document prepared by a bank. In particular there is no contra proferentem rule to be adopted; cf Hall v Westpac Banking Corp (1987) 4 BPR 9578.
(2)A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. The question is whether the situation falls within the contemplation of the clause as written.
(3)Particularly, notions of fairness, justice or reasonableness are matters relevant to questions which might arise under the Contracts Review Act, or in equity where unconscionability is suggested. They are not notions as such relevant to the question of construction.
(4)An all moneys clause is to be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve. But otherwise the intention of the parties is to be ascertained from the language which they have used (54 ‑ 55).
In Re Bankrupt Estate of Murphy, Hill J posed the question to be decided on the facts of that case:
the real question, to paraphrase Gleeson CJ in Fountain, is whether on the true construction of the mortgage and in the events which have occurred, the obligation of Ms Murphy to repay moneys which she had stolen falls within the language of the all moneys clause. In my view it does (55).
His Honour's reasoning, in support of this conclusion, was as follows:
The language of the mortgage is quite clear. It is drawn with great width and deliberately so, no doubt to ensure as far as is possible that any moneys owing to the bank are secured, howsoever the obligation may arise. It was no doubt not in contemplation by the bank, and probably not by Ms Murphy at the time of entering into the mortgage, that she would steal money and in the result come to be in a position where she was required to repay moneys to the bank. But that can hardly be the test. The real question is whether the language of the mortgage is wide enough to encompass liability to the bank arising as a result of theft or misappropriation. In my view, it is. The case is not one where the result of a literal application of the language of the mortgage would be to yield absurdity. Nor is the case one where the clause to be construed is itself ambiguous. To read down the extreme width of the present all moneys clause so that it would not apply beyond the initial banking transaction which it secured, would be to treat virtually the whole of para A of memorandum No T340042 and likewise the separate memorandum as being redundant. There is no principle of law or construction which requires or permits such a course to be taken (55).

Comparable decisions

It is useful, by way of comparison, to examine the decisions in Re Clark's Refrigerated Transport Pty Ltd (In Liq) [1982] VR 989, Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641, Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96, Oceanic Life Ltd v Glowtide Pty Ltd (Unreported, NSWSC, 50031/1996, 25 July 1997), OBG Ltd v Allan [2001] Lloyds Rep Bank 365 and Philip Arthur McGaveston v NMFM Mortgages Ltd [2002] NZCA 312.
In Re Clark's Refrigerated Transport, a finance company made advances on the security of an 'all moneys' mortgage. The 'all moneys' clause in the instrument of mortgage provided that the moneys secured included:
all moneys now or hereafter to become owing or payable to the Mortgagee by the Mortgagor either alone or on a joint partnership account or on any account whatsoever;
The 'all moneys' clause contained other provisions. After the presentation of a winding up petition against the mortgagor, the holding company of the finance company/mortgagee assigned to the finance company/mortgagee debts owing by the mortgagor to the holding company. The finance company/mortgagee claimed that the mortgage secured the assigned debts. Brooking J held that the relevant clause in the 'all moneys' mortgage, which I have set out above, was ambiguous in that 'account' may mean nothing more than 'ground' or 'reason', or it may require, if nothing more, at least some transaction between the mortgagor and the finance company/mortgagee (995). Later, his Honour said that there were other reasons for adopting the view that the words of the 'all moneys' clause which followed, 'on any account whatsoever', limited the provision to debts or liabilities arising from some transaction between the mortgagor and the finance company/mortgagee:
In the first place, considering the matter generally and without regard to the detailed provisions of the particular instruments here in question, I cannot help thinking that when a person gives an 'all obligations' mortgage or debenture he does not ordinarily contemplate that the property the subject of the security will secure not only his present and future obligations to the mortgagee or debenture holder but also any debt or liability of his which may be assigned by a third person to the secured creditor. It does seem strange that a man may lock up his counting-house and go home for the night, in the comfortable knowledge that his only secured creditor is his banker, to whom he owes a trifling sum secured by the usual boundless bank instrument, and unlock the door in the morning to find that, by virtue of assignments of the large but unsecured debts owed by him to his fellow merchants, and indeed to the butcher, the baker and the candlestick maker, all his unsecured debts have gone to feed his banker's insatiable security, so that every one of his debts is now secured. But whether or not it is permissible to approach the question with a predisposition towards the view that the grantor of an 'all obligations' mortgage or debenture does not contemplate that assigned debts and liabilities may be used to swell 'the moneys hereby secured', I find in the particular documents employed in this case indications that no such swelling was intended [995 ‑ 996].
In Katsikalis, the salient facts were these. In 1982, the appellant borrowed money from the respondent. In 1984, the appellant borrowed money from Elders Lensworth Finance Ltd on the security of an 'all moneys' mortgage. In 1987, Elders assigned its rights under the mortgage to the respondent. The Full Court of the Supreme Court of Queensland held, by a majority, that the mortgage, on its proper construction, did not secure the repayment of the money which the appellant had borrowed from the respondent in 1982. In other words, the mortgage did not secure the pre‑existing debt owing by the appellant to the respondent as assignee of the mortgage originally granted to Elders. Thomas J (who, with Andrews CJ, constituted the majority) said:
The point that has troubled me is whether the present question is answered simply by a process of construction of the clause, or whether it is answered by holding that an assignee cannot obtain that which the assignor did not himself have. In the end I think it depends upon the words used in the mortgage. To take a simple example, there would be no difficulty if the mortgage identified a debt (such as that then owed by [the appellant] to [the respondent]). Nor would there be any difficulty if future debts between those same parties were included (viz. 'all debts owed by [the appellant] to [the respondent], present or future'). Equally, [the appellant] could mortgage his property to cover such present and future liability, and the right to present and future security could similarly be assigned by the party entitled to its benefit (Holroyd v. Marshall (1862) 10 H.L.C.; 11 E.R. 999; Tailby v. Official Receiver (1888) 13 App. Cas. 523). What is lacking in the present mortgage is a clear indication that pre-assignment debts owed by the mortgagor to the unnamed assignee are to be secured by the mortgage.
In the end then it is a matter of construction.
If a mortgagor stipulates clearly enough in his mortgage that he is transferring to the mortgagee (and the mortgagee’s assigns) certain present and future rights or that he is agreeing to make himself and his property liable for certain states of account between himself and other persons who are not named but who may in due course be identified, then upon the fulfilment of those events his liability to the mortgagee (or the mortgagee’s assignee) may be enforced against him. In short, if he does so in clear enough language, a mortgagor may grant rights which, if certain events happen, may produce extreme and unforeseen disadvantages.
It is only because on strict construction the mortgage does not cover the liability sought to be enforced, and possibly because of the state of the evidence as to the status of the original obligation, that [the respondent] fails to show any further obligation upon [the appellant] to pay additional moneys before entitlement to redeem the mortgages [651 ‑ 652].
In Re Modular Design Group, Santow J held that an 'all moneys' mortgage should be interpreted with a 'predisposition' towards the view that the mortgagor does not contemplate assigned debts and liabilities being used to swell the moneys secured by the mortgage. However, such predisposition may be rebuttable where the language of the mortgage is sufficiently clear, and the equity of redemption is not directly clogged. In the case before Santow J, guarantees and equitable mortgages containing 'all moneys' clauses were granted to a bank to secure the indebtedness of various borrowers to the bank. Subsequently, the bank assigned the guarantees and mortgages. The mortgages included provisions which extended the definition of the mortgagee/bank to include any of its assigns. The borrowers owed other indebtedness to the parties to whom the bank assigned the securities, but were not parties to the assignment or otherwise involved in it, apart from receiving notice of the assignment. His Honour concluded:
in the present circumstances to permit the charge, without the chargor's consent, to cover the assignee's pre‑assignment indebtedness, or for that matter, indebtedness arising post‑assignment from a pre‑assignment contingent liability on the assignee's part, merely by reason of an extended definition of Bank and a generally drawn 'all obligations', clause is to impede the mortgagor in exercising its equity of redemption and thus to constitute a clog. It is also unfair or unconscionable for the assignee, as mortgagee, thereby to obtain such a collateral advantage. I further conclude that no consent was given to that consequence [104].
In Oceanic Life, Permanent Trust Company Ltd sold its estate and interest under certain leases of real property to Glowtide Pty Ltd for $18 million. The agreement for sale provided for vendor finance of $15 million. At completion, Glowtide granted to Permanent a mortgage of the leases to secure, among other amounts, the balance of the purchase price. Glowtide also gave other security to Permanent, namely, a charge over goods, plant and equipment. Messrs Ratcliffe, Tuck and Taylor executed a guarantee in favour of Permanent under which they guaranteed the due and punctual payment by Glowtide of the money secured by the mortgage. On 3 November 1994, the appellant, Oceanic Life Ltd, paid Permanent an amount equal to the then amount owing by Glowtide, Permanent assigned to Oceanic the mortgage, the charge and the debt they secured, and there was a variation of the mortgage to secure to Oceanic a principal sum of $13 million. On 22 November 1994, Permanent assigned to Oceanic the benefit of the guarantee, and a transfer of the mortgage was subsequently registered under the Land Titles Act 1994 (Qld). Glowtide failed to repay the $13 million to Oceanic on the due date (28 April 1995) or at all. In proceedings in the Supreme Court of New South Wales various questions were litigated, including whether the guarantee caught Glowtide's liability to Oceanic.

Messrs Ratcliffe and Tuck argued that the assigned debt constituted by the debt owed by Glowtide to Permanent, and assigned by Permanent to Oceanic, was outside the scope of the mortgage and the guarantee. Giles CJ (of the Commercial Division) rejected this argument. His Honour said:
I can see no reason for holding that [the assigned debt] is outside the scope of the mortgage or the guarantee. The debt was part of the Principal Sum and explicitly, and unexceptionally, part of the Secured Monies. The guarantor explicitly, and unexceptionally, guaranteed repayment of the Secured Monies. The debt, the mortgage and the guarantee were all explicitly, and unexceptionally, assignable, and expressed to include assignees as mortgagee and creditor. They were duly assigned. The words are clear, and it cannot have been intended that the contemplated event of assignment would render the security and the guarantee ineffective (75).
Messrs Ratcliffe and Tuck also argued that an amount of $143,771.81 advanced by Oceanic to Glowtide at or after the assignment was not caught by the guarantee. Giles CJ described the submission on behalf of Messrs Ratcliffe and Tuck as follows:
The submission was put in varying language, but its essence was that an 'all obligations' provision in a guarantee or mortgage should be construed with a predisposition towards the view that it was not intended to catch assigned debts and liabilities. Unless this was done, it was said, the guarantee or mortgage would be an article of commerce enduring in perpetuity, being assigned from one creditor to another and catching debts and liabilities not in existence, even unknown to the law, at the time the guarantee or mortgage was given, to the consternation of the guarantor or mortgagor. So in the present case, the definition of Secured Monies in the mortgage, and the scope of the guarantee, should be confined so as to extend only to money which Glowtide might become liable to pay to Permanent, as distinct from any assignee of Permanent (73).
Messrs Ratcliffe and Tuck relied upon the decisions in Re Clark's Refrigerated Transport, Kitsikalis, Re Modular Design Group and Fountain. After referring to those decisions, Giles CJ said:
The cases on which Messrs Ratcliffe and Tuck relied were concerned with documents, facts and questions different from those in the present case. So far as they qualify the application of all obligations provisions to assigned debts, that is because they are to be construed 'by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve' (Fountain v Bank of America per Gleeson CJ). It has recently been affirmed in Smith v Australia and New Zealand Banking Group Ltd (CA, 21 November 1996, unreported) that the words of the guarantee or mortgage, rather than any 'guidelines' which had been distilled (including guidelines for confining all obligations provisions, see Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146 at 13151-2; re Modular Design Group Pty Ltd at 100-102), govern its meaning. In that case it was held that an all obligations provision, although very wide, was obviously deliberately so, and that there was no reason for construing the words in a sense other than that which they were intended to bear and in ordinary meaning did bear. I do not think that the predisposition for which Messrs Ratcliffe and Tuck argued should be adopted, which is not to say that according to ordinary principles of construction (including by reference to context and commercial purpose, see Fountain v Bank of America) assigned debts will not in appropriate cases be found to be outside the scope of a guarantee or mortgage (74 ‑ 75).
Giles CJ held that the guarantee caught Glowtide's liability to Oceanic for the $143,771.81. His Honour's reasoning was as follows:
It should be remembered that the further advance of the $143,771.81 was made or given at or after assignment of the mortgage to Oceanic. The events were part of one transaction, rather than look at them in strict sequence they should be viewed as taking effect in the manner intended by the parties, and the intention clearly was that the mortgage be assigned to Oceanic and then varied by agreement between Oceanic and Glowtide (the deed of variation) to secure the whole of the $13 million. In conformity with that intention, it would not be right to treat the $143,771.81 as an assigned debt, and the cases on which Messrs Ratcliffe and Tuck relied are distinguishable. It was a debt originally owed to an assignee, and the question is whether the context (or anything else relevant to construction) meant that 'Mortgagee' in para (d) did not, in accordance with the definition, include the assigns of Permanent. It could be argued that the definition is adequately explained by an intention that the assigns should stand in the place of Permanent as to accrued rights of Permanent, relevantly rights from transactions between Glowtide and Permanent. But where the mortgage was expressly capable of assignment, there is no sufficient reason to deny an intention that the mortgagor and the (new) mortgagee by assignment should be able to agree upon an increased loan and have the further advance secured by the existing mortgage. There is no question of perpetual duration of the mortgage, or an increase in the amount secured, outside the control of the mortgagor.
It is necessary to consider the guarantee as well as the mortgage. The guarantee was by Glowtide's directors of Glowtide's obligations, directed to Glowtide's obligations under the mortgage. Glowtide's obligations could be increased, relevantly by its receiving further advances. Relating the submission to the guarantee, it would have been that the guarantee extended only to further advances made or given by Permanent to Glowtide, and did not extend to further advances made or given by an assignee from Permanent. The answer to the submission in this respect is of the same nature as the answer to its prior manifestation. Given the clear terms of the mortgage and the guarantee, there is no sufficient reason to deny an intention that the mortgagor and the (new) mortgagee by assignment should be able to agree upon an increased loan and have the further advance secured by the existing mortgage, with the guarantee continuing and catching the increased obligation. In my opinion the guarantee of Messrs Ratcliffe and Tuck also caught Glowtide's liability to Oceanic for the $143,771.81 and interest referable thereto (77 ‑ 78).
In OBG, an 'all moneys' mortgage granted in favour of a bank contained a definition of 'the bank' which included its successors in title. The mortgage was transferred by the bank to a third party. Judge Maddocks held that the transfer did not cause pre‑existing unsecured indebtedness of the mortgagor to the assignee to become charged on the mortgaged property in circumstances where the mortgagor was not a party to the assignment and had not agreed to the pre‑existing unsecured indebtedness becoming secured. Also see Re Quest Cae Ltd [1985] BCLC 266 and Kova Establishment v Sasco Investments Ltd [1998] 2 BCLC 83, where it was held, on a proper construction of the instrument of security in question, that an 'all moneys' clause in a mortgage did not convert into a secured obligation an unsecured indebtedness of the mortgagor to a third party which was assigned by the third party to the mortgagee.
In McGaveston, the Court of Appeal of New Zealand referred to cases which have involved 'mix and match arguments' relating to the assignment of securities and debts which, prior to assignment, were not related. In some cases, the secured creditor accepts an assignment of pre‑existing unsecured debt and then asserts that the assigned debt is within the purview of its security. In other cases, an unsecured creditor accepts an assignment of an existing security and then contends that the pre‑existing unsecured debts owing to the creditor are within the purview of the security. The Court of Appeal stated that 'mix and match arguments', if successful, are subversive of commercial expectations in several respects including as between the debtor and the secured creditor, as between secured creditors, as between secured creditors and unsecured creditors, and in a liquidation context as between a liquidator and unsecured creditors [17]. The court then noted that 'mix and match arguments' have usually been addressed by the courts as turning upon the proper construction of the instrument of security in question [18]. The court also referred to the decision of Thorp J in Kerr v Ducey [1994] 1 NZLR 577, where his Honour adopted the expression 'time‑bomb' (which was used in Kitsikalis (650)) in dealing with a 'mix and match argument' [26]. Thorp J said:
The 'time-bomb' analogy, indicating that the future significance of such a right would not be foreseeable by a mortgagor at the time of execution of the mortgage, signals a proper matter for concern to a Court expected to endeavour to interpret commercial documents so as to give them commercial efficacy. If the claimed right is created by a standard form all obligations security, that result would add considerably to the problems of many borrowers who have entered into such documents in knowing the extent of the security they have granted, which would be variable without their control or knowledge. In my view, the Court should, as was the single Judge in Re Clark's Refrigerated Transport and the majority in Katsikalis, be slow to infer such an intention [585].
The Court of Appeal suggested that a review of the cases indicated that the courts have 'little appetite' for 'mix and match arguments', and added:
this to the point where there is now, plainly, a predisposition on the part of Judges against a construction that would permit such an argument to succeed, see for instance Re Modular Design Group Pty Ltd at 102 [26].

The merits of the appeal: approach to construction

In my opinion, there is no circularity of reasoning involved in objectively ascertaining the meaning of a provision in a written contract by reference to the language of the contract, and also taking into account, as part of the process of construction, the surrounding circumstances known to the parties when the contract was formed, and the apparent purpose and object of the transaction.
The apparent purpose and object of the transaction will usually be inferred from the express and implied terms of the written contract and any admissible evidence as to the surrounding circumstances. Also, if the making of the written contract is regulated by statute, the legislative purpose which is discernible from the statute may have some bearing upon the issues of construction.
In my respectful opinion, Gleeson CJ's statement, in Fountain, that 'all moneys' clauses are to be construed 'by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve', is entirely consistent with the approach to general contractual construction enunciated by the High Court in Toll [40].
The ambit or reach of an 'all moneys' clause in an instrument of security is to be determined according to ordinary principles of contractual construction (including those applicable to the resolution of an ambiguity); in particular, by reference to the language of the clause in the context of the express and implied terms of the instrument as a whole, the surrounding circumstances known to the parties when the instrument was executed, and the apparent purpose and object of the transaction. The task of construing an 'all moneys' clause is not to be approached with a 'predisposition' as to its intended ambit or reach. So, there is no 'predisposition' that an instrument of security is not intended to secure pre‑assignment unsecured indebtedness of a mortgagor to an assignee of the original mortgagee, and is not intended to secure an unsecured indebtedness of a mortgagor to a third party which is assigned by the third party to the mortgagee after the execution of the instrument. In any case, whether or not indebtedness of the kind I have just mentioned is secured by an 'all moneys' clause depends on the language of the clause, construed in the context of the instrument of security as a whole, any admissible evidence as to the surrounding circumstances, and the apparent purpose and object of the transaction.
Although my review of several of the Australian decisions (Fountain, Re Bankrupt Estate of Murphy, Re Clark's Refrigerated Transport, Kitsikalis, Re Modular Design Group and Oceanic Life) indicates some variance in approach; for example, Thomas J in Kitsikalis appears to have adopted a 'strict construction' of the mortgage in question and Santow J in Re Modular Design Group held that an 'all moneys' mortgage should be interpreted with a 'predisposition' towards the view that the mortgagor did not contemplate assigned debts and liabilities being used to swell the moneys secured by the mortgage, all of the authorities may be reconciled on the basis that each of them involved the construction of particular instruments of security 'by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve': Fountain, (11,819 ‑ 11,820) (Gleeson CJ). Also see Oceanic Life, (74 ‑ 75) (Giles CJ).

The merits of the appeal: the crucial issue and the approach to its determination

The crucial issue in the appeal is whether, on a proper construction of the Securities:
(a)pre‑existing or other debts owing by Windslow to Olympic before the assignment, or before Windslow received notice of the assignment, of the Securities; and
(b)debts allegedly incurred and owing by Windslow to Olympic after the assignment, or after Windslow received notice of the assignment, of the Securities,
are within the scope of the definition of 'Secured Money'.
That issue must be determined not only by reference to the language of the definition of 'Secured Money', but also by reference to the language of the Securities as a whole and, further, the purpose and object which the security transaction was apparently intended to achieve. There was no evidence before the learned primary judge as to the surrounding circumstances known to Windslow and the Bank when the Securities were executed. The proper construction of the Securities must be determined as at the date of their execution, and the common intention to be objectively ascertained is that of Windslow and the Bank.

The merits of the appeal: pre‑assignment indebtedness

The opening words of the definition of 'Secured Money' are of critical importance. They provide that 'Secured Money' means:
all amounts which at any time for any reason or circumstances in connection with any agreement or arrangement between the Mortgagor and the Bank or any transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor, and whether at law, in equity, under statute or otherwise (and whether or not of a type within the contemplation of the parties at the date of this mortgage) …
These opening words govern or control the meaning to be ascribed to the balance of the clause.
It is apparent, from the opening words of the definition, that an amount which answers the description set out in para (a), (b), (c) or (d) of the definition will not be part of the 'Secured Money', unless it is also an amount which:
(a)is payable, is owing but not currently payable, is contingently owing, or remains unpaid, etcetera (within para (a) of the definition); or
(b)has been advanced or paid, etcetera (within para (b) of the definition); or
(c)has been advanced or paid, etcetera (within para (c) of the definition); or
(d)is reasonably foreseeable as likely, after that time, to fall within any of para (a), (b) or (c) above (within para (d) of the definition),
in connection with an agreement or arrangement between the Mortgagor and the Bank or any transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor, etcetera.
In other words, an amount will not fall within the ambit or reach of the definition of 'Secured Money' unless the amount is within para (a), (b), (c) or (d) of the definition, and also becomes owing or payable, etcetera, in connection with an agreement or arrangement between the Mortgagor and the Bank or a transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor.
It is immaterial whether an agreement, arrangement or transaction referred to in the opening words of the definition arises 'at law, in equity, under statute or otherwise', and it is also immaterial whether the agreement, arrangement or transaction in question was of 'a type within the contemplation of the parties' when the Securities were executed.
The last paragraph of the definition of 'Secured Money' reads:
This definition applies irrespective of the capacity of the Mortgagor or the Bank, whether the Mortgagor or Bank is liable as principal debtor or surety or otherwise, whether the Mortgagor is liable alone, or jointly, or jointly and severally with another person, whether the Bank is the original obligee or an assignee of the Secured Money and whether or not the assignment took place before or after the delivery of this mortgage or the Mortgagor consented to or was aware of the assignment or the assigned obligation was secured.
This last paragraph will be of particular significance where the Bank becomes entitled to an amount by virtue of the assignment by a third party to the Bank of an unsecured indebtedness owing by the Mortgagor to the third party. That circumstance is, in essence, the converse of the circumstance which gave rise to the proceedings before Hasluck J and in this appeal. Where the Bank becomes entitled to an amount by virtue of the assignment by a third party to the Bank of an unsecured indebtedness owing by the Mortgagor to the third party, the amount assigned will be within the definition of 'Secured Money', and will be secured by the Securities, if that amount is within para (a), (b), (c) or (d) of the definition, and also becomes owing or payable, etcetera, in connection with an agreement or arrangement between the Mortgagor and the Bank or a transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor:
(a)notwithstanding that the Bank became entitled to the amount by virtue of an assignment, and not as the original lender, creditor or obligee;
(b)whether or not the assignment took place before or after the execution of the Securities;
(c)whether or not the Mortgagor consented to or was aware of the assignment; and
(d)whether or not the amount was secured before it was assigned.
The requirement, in the opening words of the definition, that the assigned amount become owing or payable, etcetera, in connection with an agreement or arrangement between the Mortgagor and the Bank or a transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor, may be reconciled with the statement, in the last paragraph of the definition, that the definition applies whether or not the Mortgagor consented to or was aware of the assignment. For example, there may be an agreement, arrangement or transaction within the opening words which confers on the Bank authority or permission, in general terms, to accept an assignment of an unsecured indebtedness owing by the Mortgagor to a third party, without the Bank or the Mortgagor contemplating, at least at that time, the particular assignment made subsequently.
The last paragraph of the definition does not, however, deal with the circumstance which gave rise to the proceedings before Hasluck J and in this appeal; namely, whether an assignment of the Securities by the Bank to a third party causes pre‑existing unsecured indebtedness of the Mortgagor to the assignee to become secured, where the Mortgagor was not a party to the assignment and did not, as part of the assignment transaction, agree that the Securities or the assignment should have that operation or effect.

In my opinion, on a proper construction of the Securities, pre‑existing or other debts owing by Windslow to Olympic before the assignment, or before Windslow received notice of the assignment, of the Securities are not within the scope of the definition of 'Secured Money'. My reasons are as follows.
First, whether or not pre‑existing or other debts owing by Windslow to Olympic before the assignment, or before Windslow received notice of the assignment, are within the scope of the definition must be determined by construing the Securities (including by reference to the apparent purpose and object of the security transaction) as at the date of their execution.
Secondly, after the execution of the Securities and before the execution of the Deed of Assignment, the sole entity within the defined terms 'the Mortgagee' and 'the Bank' was the Bank. In other words, Olympic did not come within the defined terms 'the Mortgagee' or 'the Bank', for any purpose or within any provision of the Securities, until the Deed of Assignment was executed.
Thirdly, after the execution of the Securities and before the execution of the Deed of Assignment, none of the unsecured indebtedness owing from time to time by Windslow to Olympic was within the definition of 'Secured Money'.
Fourthly, the opening words of the definition of 'Secured Money', which require, relevantly, that an amount become owing or payable, etcetera, in connection with an agreement or arrangement between the Mortgagor and the Bank or a transaction entered into or undertaken by the Bank at the request (express or implied) of the Mortgagor, contemplate that:
(a)the agreement, arrangement or transaction in question will be made between the Mortgagor and the entity which, as at the time when the relevant agreement, arrangement or transaction is made, entered into or undertaken, falls within the defined terms 'the Mortgagee' and 'the Bank' (whether as an original party or as a party consequent upon an assignment); and
(b)there will be a nexus between the relevant agreement, arrangement or transaction on the one hand and the relevant amount which becomes owing or payable, etcetera, on the other; that is, the relevant amount will become owing or payable in consequence of or otherwise in connection with that agreement, arrangement or transaction.
The unsecured indebtedness owing by Windslow to Olympic before the assignment, or before Windslow received notice of the assignment, of the Securities, did not become owing or payable in consequence of or otherwise in connection with an agreement, arrangement or transaction made, entered into or undertaken upon or after Olympic fell within the defined terms 'the Mortgagee' and 'the Bank' (as a result of the assignment).
Fifthly, the context of each of the Securities as a whole, and not merely the natural and ordinary meaning of the language of the definition of 'Secured Money', is against a construction to the effect that upon the assignment of the Securities to a third party, pre‑existing unsecured indebtedness of the Mortgagor to the assignee automatically and immediately falls within the definition, and becomes secured. In particular, as regards the broader context:
(a)The statement in cl 1.2(f) of the mortgage that, in the mortgage, unless the contrary intention appears, references to any person include, relevantly, the person's assigns, is, in the present case, a slender and inadequate basis for inferring that, at the time of execution of the Securities, the common intention, objectively ascertained, of Windslow and the Bank was that indebtedness of the kind in question should automatically and immediately fall within the definition of 'Secured Money' upon the Bank assigning its rights to a third party.
(b)When the definition of 'Secured Money' refers expressly to the Bank, and implicitly to the Bank's assignee, it is referring, in the case of the assignee, to the circumstances which pertain after the assignment.
(c)The defined terms 'the Mortgagee' and 'the Bank' do not (implicitly or otherwise) extend to or include a third party who has not received an assignment of the Bank's rights, even though, later, that third party may take an assignment.
(d)The defined terms 'the Mortgagee' and 'the Bank' do not (implicitly or otherwise) embrace any and all creditors of the Mortgagor (except the Bank) as at the time of execution of the Securities, or any and all persons who subsequently become creditors of the Mortgagor, in circumstances where the Bank's rights have not been assigned to any or all of them.
Sixthly, by contrast with the present case (where the Bank assigns the Securities to a third party), the definition of 'Secured Money' expressly and specifically deals with the situation where the Bank becomes entitled to an amount by virtue of the assignment by a third party to the Bank of an unsecured indebtedness owing by the Mortgagor to the third party.
Seventhly, it would be curious, and unlikely, that the Bank and Windslow intended, at the time of execution of the Securities, that cls 2.3, 2.4 and 2.7 of the mortgage, which are concerned with interest on the 'Secured Money', and cl 22 of the mortgage, which is concerned with set‑off, should apply in respect of any and all unsecured, pre‑assignment indebtedness of Windslow to a third party who might subsequently receive an assignment of the Bank's rights under the Securities, even though, for example, the indebtedness in question does not carry interest.
Eighthly, cl 32 of the mortgage empowers the Bank, in effect, to 'assign or otherwise dispose of or deal with its rights under this mortgage'. The 'rights' of the Bank under each of the Securities comprise, relevantly:
(a)its right, upon default by the Mortgagor, to demand payment from the Mortgagor of the 'Secured Money'; and
(b)its rights, upon default by the Mortgagor, to realise its security, including by selling the secured property and applying the net proceeds of sale in or towards discharging the Mortgagor's obligation to pay the Bank the 'Secured Money'.
Clause 32 does not empower the Bank to assign any right or interest except the Bank's rights under the mortgage. Obviously, those rights and interests do not include the rights and interests of a third party with respect to an unsecured, pre‑assignment indebtedness owing by the Mortgagor to the third party.
Ninthly, none of the express or implied terms of the Securities and none of the admissible evidence before the learned primary judge suggests that the apparent purpose and object of the security transaction between the Bank and Windslow contemplated that the Securities would have an operation or effect different from that determined by construing the natural and ordinary meaning of the language of the definition of 'Secured Money' in the context of the Securities as a whole.
For the reasons I have given, the learned primary judge was, with respect, correct in deciding that the Securities do not secure pre‑existing or other debts owing by Windslow to Olympic before the assignment of the Securities (or before Windslow received notice of the assignment).

The merits of the appeal: post-assignment indebtedness

It is unnecessary to repeat, in the context of 'post‑assignment indebtedness', my earlier analysis of the definition of 'Secured Money' or the other provisions of the Securities.
In my opinion, on a proper construction of the Securities, debts allegedly incurred and owing by Windslow to Olympic after the assignment of the Securities (including after Windslow received notice of the assignment) are not within the scope of the definition of 'Secured Money', unless those debts were incurred or became owing or payable, etcetera, within para (a), (b), (c) or (d) of the definition, in consequence of or otherwise in connection with an agreement or arrangement between Windslow and Olympic, or a transaction entered into or undertaken by Olympic at the request (express or implied) of Windslow, after:
(a)the Deed of Assignment was executed; and
(b)notice of the assignment was given to Windslow.
In other words, debts allegedly incurred and owing by Windslow to Olympic after the assignment of the Securities (including after Windslow received notice of the assignment) will fall within the scope of the definition of 'Secured Money' if those debts were incurred or became owing or payable, etcetera, within para (a), (b), (c) or (d) of the definition, in consequence of or otherwise in connection with an agreement or arrangement between Windslow and Olympic, or a transaction entered into or undertaken by Olympic at the request (express or implied) of Windslow, after the Deed of Assignment was executed and notice of the assignment was given to Windslow.
I consider, with respect, that the declaration made by the learned primary judge does not accurately describe the circumstances in which the Securities may secure debts allegedly incurred and owing by Windslow to Olympic after the assignment of the Securities.

The basis for my decision in the appeal

I have decided the appeal based on my opinion as to the proper construction of the Securities. No issue was raised before the learned primary judge or this court as to the application of general principles of equity. It is therefore unnecessary to examine the reasoning of Santow J in Re Modular Design Group to the effect that, at least in the circumstances of that case, an 'all moneys' clause impeded the mortgagor in exercising its equity of redemption, and thus constituted a clog.

As I have mentioned, no issue arose before the learned primary judge as to the manner in which payments were or should have been appropriated. Also, the parties did not litigate before his Honour whether the alleged running account in fact existed, the impact (if any) of the law relating to insolvency, or any priority questions (including questions relating to tacking) as between Olympic and any other secured creditors of Windslow. It is therefore inappropriate for this court to make any observations in relation to those matters.
The parties to the proceedings before the learned primary judge and to this appeal comprised Olympic and Windslow. Neither Windslow's liquidator nor any other secured creditor of Windslow than Olympic, was joined.
There is no reasonable basis for this court, in the exercise of its discretion, to decline to grant appropriate declaratory relief in relation to the issues litigated between Olympic and Windslow. An appropriate declaration would, of course, be binding only as between Olympic and Windslow and their respective privies, and would not prejudice the rights of others. For example, the declaration would not affect the impact on Olympic's rights under the Securities, properly construed, of the law relating to insolvency, or any priority questions (including questions relating to tacking) as between Olympic and any other secured creditors of Windslow.

Conclusion

I would allow the appeal to the extent of varying the terms of the declaration made by the learned primary judge to reflect my reasons as to the circumstances in which debts allegedly incurred and owing by Windslow to Olympic after the assignment of the Securities (including after Windslow received notice of the assignment) may fall within the scope of the definition of 'Secured Money'.
Otherwise, I would dismiss the appeal.
Counsel should be heard as to the precise form of the orders.
EM HEENAN AJA: In the manner in which this appeal was conducted and argued, two main issues arise for determination by this court; namely:
1.Did the assignment of the mortgage and other securities (to be mentioned) from the HSBC Bank (the Bank) to the appellant result in the appellant obtaining security not only for the advances

made under that mortgage, but also for separate and distinct advances previously made by the appellant to the respondent on a separate running account which had previously been unsecured?

2.Did the assignment of the mortgage and other securities from the Bank to the appellant, as described, give security for post‑assignment advances made by the appellant to the respondent after notice of the assignment had been given to the respondent?

The relevant terms of these securities, including especially the definitions of the 'Bank' and of 'Secured Money' are set out in the reasons of Buss JA and I therefore, need not repeat them.
The principal submission for the appellant is that the 'all moneys clauses' in the security documents, together with the definition of the 'Bank' extending to include all or any assigns, meant that following upon the assignment the appellant became secured for all advances which it had ever made or would ever make to the respondent (including the pre‑assignment unsecured debt due on the balance of the running account between the two companies).
Hasluck J held and declared that the effect of the assignment gave no security to the appellant for its collateral loans to the respondent, whether past or future and confined the effect of the assigned securities to providing security for the debt owing by the respondent to the Bank at the date of the assignment and no more.
Although not mentioned at first instance, it cannot be doubted that, on the assignment of such a security, the assignee only takes the balance due to the assignor at the date of the assignment, regardless of whether or not the security was originally for a higher amount - Chambers v Goldwin (1804) 9 Ves 254; 32 ER 600; [1803‑13] All ER Rep 255.

Background

The respondent, Windslow Corporation Pty Ltd (Windslow) was a company engaged in property development. It was associated with another company, apparently controlled by the same or similar interests; namely the appellant, Olympic Holdings Pty Ltd (Olympic). Mr P B Bacich was a director of Windslow and he was also the sole director and secretary of Olympic. In late 2002 Windslow sought and obtained financial accommodation from the Bank.
Advances were made by the Bank to Windslow and these were secured by a mortgage and by a fixed and floating charge, both dated 16 October 2002, and, later, by a second fixed and floating charge dated 6 December 2002. These three security instruments imposed obligations upon Windslow in comparable, if not identical terms. Nothing turns on any differences between the provisions of the three security instruments. Importantly, each contained a provision providing that the Bank might assign the security documents to a third party or parties and that the definition of the Bank (as lender) included all or any assignees.
By 19 April 2005 Windslow was indebted to the Bank in a total amount of $304,220.28 for the financial accommodation provided under these securities.
The appellant, Olympic, because of its association with Windslow, also provided financial accommodation or engaged in commercial transactions with the respondent and so it is alleged, maintained a running account of the state of the mutual obligations between those two companies arising from these inter‑company dealings. The existence of the alleged running account between the two parties is disputed by the respondent but as that is an issue which will be determined elsewhere in these proceedings, as will emerge, it is unnecessary to scrutinise that controversy. Rather, the approach below and accepted to be appropriate on this appeal, is to assume the existence of the alleged running account between the companies. This assumption nevertheless has some implications for the resolution of the second main issue on this appeal - but these can presently be left for later attention. By April 2005 the state of the running account, so the appellant alleges but the respondent denies, was that Windslow was indebted to Olympic for $587,734.87 upon the balance of the many mutual dealings brought to account between them.
During the first half of 2005, Windslow was experiencing financial difficulties and ceased business on 19 April 2005. That is the date of the assignment which I am about to describe when, as already mentioned, it was indebted to the Bank under the three securities for $304,220.28. What then happened was that Olympic paid out the Bank for the whole amount of the secured liability due by Windslow, that is, the $304,220.28 and by deed of that date, made between the Bank and Olympic (but not Windslow), all the Bank's securities were assigned to Olympic which then took the benefit of the security assigned. The question in this litigation is what was the extent and measure of the benefit of that assigned security so taken at that time by Olympic?
The subsequent history is that Windslow paid to Olympic an amount of approximately $629,000 after the assignment. There is no evidence before this court, or before Hasluck J, as to how it was intended, or accepted, that this payment should be appropriated. It seems at this point that the extent of the alleged indebtedness by Windslow to Olympic was, at least:
(a)the secured debt due under the assigned mortgage $304,220.28
(b)the alleged balance of the alleged running account $587,734.87
$891,955.15
This issue of appropriation remains to be resolved between the parties and it may have significant potential consequences. For example, if the $629,000 repayment had been appropriated in part towards the satisfaction of the debt secured by the mortgage, then that debt would be satisfied and the security would lapse (at least to that extent). If however, the payment was appropriated pro rata in favour of the alleged debt on the running account and the balance towards part satisfaction of the mortgage debt then, to the extent that the mortgage debt remained unsatisfied, it would continue in existence and be secured by the three instruments mentioned. Other possibilities from these questions of appropriation also arise.
The next material step in the history is that Windslow was placed in liquidation on 14 June 2005 after going into administration on 2 May 2005. The liquidator appointed thereafter began to scrutinise payments made by Windslow in the period before the liquidation. Payments to an unsecured creditor such as Olympic, made in the six month period prior to the commencement of the winding up would, arguably be voidable preferences and reclaimable by the liquidator. On the other hand, payments made by Windslow to Olympic during this period in satisfaction of secured liabilities would not be reclaimable so long as the creditor (Olympic) relied upon its security.
Disputes have arisen between Windslow's liquidator and Olympic over claims by the liquidator that moneys are due by the respondent to the appellant as a result of the liquidation, including a dispute over whether or not any part of the $629,000 paid by Windslow to Olympic after the date of the assignment is recoverable by the liquidator. Mr Bacich, now in his role as the alter ego of Olympic, is asserting that none of that money is recoverable by the liquidator because all of it, when paid, was covered by the securities which had been assigned to Olympic by the Bank. This is, so the submission goes, because these securities, upon their proper construction, have the effect of charging, not merely the existing liability between Windslow and the Bank, but also the previously unsecured liability by Windslow to Olympic, both as to past and future indebtedness under the unsecured running account. Although there was no direct evidence before Hasluck J, or in this appeal, the approach of the parties is that the accounts which were to be taken would almost certainly reveal that there had been further advances made by Olympic to Windslow after the date of the assignment so that the question of whether or not these assigned securities covered post‑assignment advances made, not by the Bank, but by Olympic, is still a live issue.

In the present case it is unnecessary to do more than notice this controversy because in this case there is no doubt that HSBC securities which were assigned to Olympic created legal charges over the assets of the chargor, and that any indebtedness arising from the disputed running account between the two companies also constitutes a legal and not merely an equitable right.
In Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293, Holland J held that the rule in Hopkinson v Rolt applied to Torrens system mortgages. This development appears to be doctrinally sound as this aspect of tacking is not dependent upon the doctrine of estates: Oversea‑Chinese Banking Corporation Ltd v Malaysian Kuwaiti Investment Co [2003] VSC 495 [72] (Redlich J); R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536 (Anderson J). However, it has thereafter been assumed that all aspects of the doctrine of tacking apply to Torrens system mortgages, and see, for example, Philos Pty Ltd v National Bank of Australasia (1976) 5 BPR 11810 (Bowen CJ in eq); Bank of New Zealand v Development Finance Corp of New Zealand [1988] 1 NZLR 495; Mercantile Credits Ltd v Australian & New Zealand Banking Group Ltd (1988) 48 SASR 407. This assumption is said to raise considerable theoretical difficulties: Tyler ELG, Young PW and Croft C, Fisher & Lightwood's Law of Mortgage (2nd Australian ed, 2005) [4.34].
One difficulty raised by Sykes [462] concerns the fact that a second mortgage under the Torrens system is usually registered and therefore represents a legal rather than an equitable interest. Sykes asserts that there is no reason why the entire tacking doctrine should not apply in respect of Torrens system land, subject to restrictive legislation. However, since the doctrine has equitable origins he says that it should be inapplicable where the subsequent mortgage is registered. If this is incorrect, a further issue arises; namely, whether the Torrens register would operate to give constructive notice of the subsequent mortgage: see Re Arcade Hotel Pty Ltd [1962] VR 274.

Application to the present case

A broad construction of the 'all moneys' clause in the present case appears to have an effect analogous to one or more of the forms of tacking. In the first instance, the acquisition of the mortgage by assignment is similar to tacking pursuant to the doctrine of tabula in naufragio. Secondly, the purported securing of loans subsequent to the assignment is analogous with the tacking of further advances. Since the doctrine of tacking appears to remain in effect in Western Australia, subject to the potential limitations described, it would appear that a broad construction of the 'all moneys clause' would be consistent with the doctrine.
There is, however, one significant impediment to the above analogy. Namely, the appellant prior to the acquisition of the mortgage by assignment, was not a secured creditor of the respondent. Although tacking of unsecured debts has been allowed in certain circumstances (eg to avoid circuity of action), it is not allowed so as to disturb the existing priorities: Pile v Pile (1875) 23 Wr 440; Morret v Paske (1740) 2 Atk 52; (1740) 27 ER 429 and Irby v Irby (1855) 22 Beav 217; (1855) 52 ER 1091.
The cases in which a claimant was, in effect, allowed to tack an unsecured debt to a secured debt as exceptions to the rule largely concern instances in the administration of estates where the realty descended to the heir at law and the personalty to another where the heir (also the assignee of a personal debt), without assignment of the personal debt seeks to redeem the mortgage - as was the case in Coleman v Winch (1721) 1 P Wms 775, or where the holder of the unsecured debt obtains a judgment and has access to the land by virtue of an elegit as in Morret v Paske, or again because of entitlement by descent to both realty and personalty by the one person as in Heames vBance (1748) 3 Atk 629. In those cases the heir who took the land by descent had also to pay the deceased's bond when seeking to redeem the mortgagee although an assignee of the equity of redemption need not do so. As was said by Lord Langdale MR in Richardson v Horton (1843) 7 Beav 112, 123:
The difference which arises from the alienation appears strongly in the case of a mortgagor becoming subsequently indebted to the mortgagee on bond, and then dying. The heir cannot himself redeem the mortgage without paying the bond; but the assignee of the equity of redemption from the heir may redeem the mortgage without paying the bond (Coleman v Winch, 1 P Williams 775) - see also Thomas v Thomas (1856) 2341.
In Brace v Duchess of Marlborough the Master of the Rolls held, inter alia, that if a creditor by judgment, statute or recognisance buys in the first mortgage, he shall not tack it to his judgment, because he did not lend his money on credit of the land and has no present right therein nor can be called a purchaser. In that case a puisne judgment creditor bought in the first mortgage without notice of the second mortgage when he let his money on the judgment, and the question was, whether this puisne judgment creditor should tack and unite his judgment to the first mortgage so as to gain a preference on his judgment before the mesne mortgage. The Master of the Rolls held that he could not.
Despite this, in the comparable case of St George Bank Ltd v McTaggart [2007] WASC 150, the plaintiff who sought to secure advances made after acquiring the first mortgage, was able to do so, based on a literal construction by Newnes J of the 'all moneys provision' in the mortgage document (at [27]). An application of the principles in that case to the present circumstances would seem to allow the appellant to secure any advances made after the date when notice of assignment was given to Windslow and thereby postpone the interest of any intervening incumbrancer in the absence of notice of such an interest (see [32] ‑ [45] for a discussion on what amounts to notice for the purposes of the rule in Hopkinson v Rolt). There is no question, however, in the instant case of any intervening secured creditors.

Tacking of prior unsecured debts

Apart from the exceptional cases referred to above, there has been no authority cited or discovered which supports the proposition that prior unsecured advances by an independent third party creditor can be tacked to a mortgage taken by assignment from such a creditor containing an 'all moneys' clause.
The question nevertheless, is whether or not this should be permitted by application of the provisions of the security documents if, properly construed, they are sufficiently wide enough to include such prior advances from the independent third party as coming within the 'all moneys' clause. There can be no doubt that to allow such unsecured advances to be tacked to a mortgage in such circumstances is to confer a significant advantage on the prior unsecured creditor. The present case starkly illustrates how such advantages prefer the tacking creditor to other unsecured creditors and, subject to possible action taken by the liquidator under the provisions of pt 5.7B of the Corporations Act 2001 (Cth), would allow the unsecured creditor to retain moneys which otherwise would have to be disgorged to the liquidator on demand.
If such a right exists for the creditor claiming the benefit of tacking one must ask when and how it arose. It seems that the conversion of the unsecured liability to a secured liability by virtue of the asserted application of the doctrine of tacking must occur, if it occurs at all, when the unsecured creditor acquires, by assignment or purchase, subrogation or otherwise the mortgage or security containing the 'all moneys' clause. It could not possibly arise before then because until that point the claiming creditor had no security from the debtor at all. If the conversion from the unsecured to a secured liability occurs at that point, that must constitute some species of transaction, if for no other reason than to determine the order of priorities between other secured creditors. That being so, questions of priority and any issue about whether or not the conversion amounts to a void or voidable transaction or preference would need to be ascertained by having regard to the facts and circumstances prevailing at that date.
The next question is how the conversion from unsecured to secured status of the debt occurs, if indeed it does. No assent to the conversion was given by the debtor nor did the debtor receive any consideration or other advantage in return for this diminution in its rights. From the point of view of the creditor who took the assignment, any consideration for the assignment was given to the assignor of the securities.
The most that can be said on the part of the creditor is that the original charges contained this inchoate potential, to extend to advances made by other creditors separate in nature and distinct in time from any advances made by the original mortgagee. If the appellant's argument is correct, this potential is sufficient to squeeze out not only intervening mortgagees but to advance this unsecured creditor against all other unsecured creditors of the debtor at the time - including those in an insolvency which in this case soon followed. This is enough to show that the capacity to convert unsecured interests to secured interests by a process not involving the specific grant of any new security by the debtor has considerable potential to prejudice third parties who would never have the means of knowing of the risk to which they were exposed, or of protecting themselves from that risk were they somehow to become aware of what was occurring or had occurred.
In the classic examples of tacking by tabula in naufragio, the justification for the tacking is the acquisition by the subsequent incumbrancer of the legal estate held by the first mortgagee whose security is acquired or assigned. The unification of the legal estate with the equitable interest held under the subsequent mortgage meant, that the acquiring mortgagee had priority over intervening puisne mortgagees by operation of the doctrines of estates and of merger. Nothing like that occurs when a claimant, having no equitable estate in the property sought to be charged acquires a mortgagee's interest giving a statutory charge but not the fee simple of the property secured.
A case dealing with an issue very similar to the present is the decision of the Full Court of the Supreme Court of Queensland in Katsikalis v Deutsche Bank (Asia) AG [1988] 2 Qd R 641. There a borrower was indebted under a mortgage containing an 'all moneys' clause. The debtor was also indebted to another bank, Deutche Bank, under a loan which was unsecured. The mortgagee assigned to Deutche Bank its rights under the mortgage and when the debtor sought to redeem that mortgage, Deutche Bank demanded tender not only of the moneys secured by the mortgage but the separate moneys which had been advanced by it previously without security contending that they had become secured by the assignment to it of the 'all moneys' mortgage. Deutche Bank's demand to be fully secured was rejected by a majority: Andrews CJ and Thomas J with de Jersey J dissenting; on the basis that in the absence of a clear stipulation that the mortgage was to secure any pre‑existing debt of an assignee of the mortgage, on its true construction the mortgage did not secure the repayment of the money borrowed from Deutche Bank. Andrews CJ based his conclusion to this effect on a construction of the terms of the mortgage which confined the secured liability to the original advance or advances made by the assignor indicating that the clearest of language would be needed to justify a contrary conclusion. The learned chief justice however expressed reservations about the capacity of such a mortgage to extend to debts given by third parties observing, at 647 ‑ 648:
This I would contend at least consistently supports the view that the debt assigned was the debt as between mortgagor and the original mortgagee as secured by the mortgage. In any event the contractual aspect at once gives rise to questions of consideration and privity which on any answer available here do not benefit the respondent's case. It is the fact that upon registration a bill of mortgage acquires the status of a deed (see s 35 of the Real Property Act 1861 (Qld)) but this does not alter the contractual effect of the covenants or the contractual basis of the transaction either substantively or as a matter of interpretation.
Assuming that the mortgage, for the consideration moving from mortgagee to mortgagor could have been drawn to include an 'all moneys' covenant to provide that debts to assignees on any account would be secured upon assignment of the mortgage, the validity of which I very much doubt but do not consider it necessary to decide, I would comment that the mortgagor would have been a party to this but that as things stand it has not been done in any of the mortgages being considered.
Thomas J, who also rejected the claim that the assigned mortgage secured other previous advances to the debtor from the assignee, concluded that this result was achieved simply by a process of construction because it was possible for a mortgagor, if he so intended, to mortgage his property to cover present and future liabilities and that the right to present and future security could similarly be assigned by the party entitled to its benefit: Holroyd v Marshall (1862) 10 HL Cas 191; 11 ER 999 and Tailby v Official Receiver (1888) 13 App Cas 423. Thomas J went on to observe:
If a mortgagor stipulates clearly enough in his mortgage that he is transferring to the mortgagee (and the mortgagee's assigns) certain present and future rights or that he is agreeing to make himself and his property liable for certain states of account between himself and other persons who are not named but who may in due course be identified, then upon the fulfilment of those events his liability to the mortgagee (or the mortgagee's assignee) may be enforced against him. In short, if he does so in clear enough language, a mortgagor may grant rights which, if certain events happen, may produce extreme and unforseen disadvantages.
de Jersey J, dissenting, was disposed to extend a wider application to the all moneys clause in the particular securities there under consideration, in the light of the approach to such clauses taken by Brooking J in Re Clark'sRefrigerated Transport Pty Ltd [1982] VR 989 at 995 ‑ 996.
I have previously noted how the extended operation of the doctrine of tacking propounded by the appellant has the capacity to distort the priorities arising from the system of registered charges adopted in the Torrens system legislation and particularly in the Transfer of Land Act 1893 (WA) (TLA) of this state. Certainly this would be the effect of a third or subsequent mortgagee obtaining by purchase or assignment the mortgage of a first registered mortgagee which contained an 'all moneys' clause if the present argument of the appellant were to be accepted. That appears to me to run counter to the system of priorities of charges by registration which the TLA accepts. By s 3 of the TLA all 'laws, statutes, acts, ordinances, rules, regulations and practice whatsoever so far as inconsistent with this Act shall not apply or be deemed to apply to land whether freehold or leasehold which will be under the operation of this Act'. There have been some uncertainties voiced about the scope of this exclusionary provision (see Whalan DJ, The Torrens System in Australia (1982) at 23 ‑ 24). It seems to me that it places limitations on the scope of the doctrine of tacking at least to the extent asserted by the appellant in the present case. Whalan considers the tabula in naufragio doctrine to be inconsistent with the Torrens system and at 170 ‑ 171, submits that tacking in the sense of a subsequent mortgagee being able to obtain priority over a prior mortgage by tacking his mortgage on to the first mortgage has no application to registered mortgages of Torrens land in the other seven jurisdictions (except Queensland).
Importantly, in Matzner v Clyde Securities Ltd (a decision which appears to have been accepted and applied by the High Court in Sibbles v Highfern Pty Ltd), Holland J held that the rule in Hopkinson v Rolt does not depend upon the doctrine of estates in land under old system titles and in appropriate cases, applies to land under a Torrens system statute. Secondly, Holland J held that the Hopkinson v Rolt rule has no application where the mortgagee is bound to make, and the mortgagor is bound to accept, advances made after the date of the second mortgage, nor will it apply in that particular case, if for no other reason, because the advances under the first mortgage had the effect of increasing, not decreasing, the value of the mortgaged property. Perhaps the most significant conclusion of Holland J was that the rule in Hopkinson v Rolt, and for that matter the doctrine of tacking, did not depend entirely upon the doctrine of the system of estates under general law land but, rather, rested primarily on considerations of justice and fair dealing as between the mortgagor and the mortgagees, and as between competing mortgagees.
These considerations do not detract from, but rather in my view enhance, the conclusion that the possibility of tacking for pre‑existing unsecured advances should not be permitted because of the effect which it may have potentially to distort a settled system of priorities and third party interests.
I therefore agree with Hasluck J that these securities did not expand to cover past advances made by Olympic to Windslow prior to the assignment and I would dismiss the appeal to that extent. The question of post‑assignment advances made to Windslow knowingly, that is, after notice of the assignment was given, raises more awkward considerations but their effect on unknown third parties is also by no means inconsiderable.
So I turn to the question of whether or not post‑assignment advances made by the assignee to Windslow are covered by the security of the mortgage under the 'all moneys' clause. The appellant in the present case, accepting the application of the rule in Hopkinson v Rolt, submits, alternatively, that if the prior advances are not covered by the security, then subsequent advances will be covered after notice of the 'all moneys' clause and its effects has been given to intervening creditors or mortgagees and particularly in the present instance, to this debtor. Accordingly, the appellant claims security under the assigned mortgage and securities for advances made after notice of the assignment was given to Windslow on the basis that Windslow can therefore be presumed to know that, because of the 'all moneys' clause favouring the mortgagee, further advances by the assignee of the mortgagee would stand in the same status.
Again the question is when and how such charges arose because those questions are relevant to issues of priority and any claims by liquidators or others that the transaction might have amounted to a voidable disposition or be reclaimable in the event of an insolvency. Again the answer must be that the transaction occurred either upon the date of the assignment or, perhaps more plausibly, on the date of the first subsequent advance (see Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214. The potential for this to cause harm to intervening secured creditors and unsecured creditors remains as potent as before except, that in this case, if the assigned mortgage/charges were registered and available for search on the public register then the potential for this to occur might be discernable to by intervening secured creditors.
An astute puisne mortgagee or creditor might search at the land titles office or at ASIC in order to protect his or her or its interests. This is, however, drawing a very long bow because any diligent inquirer or potential creditor, on searching the register and reading the 'all moneys' clause would probably be left with the impression that it would be prior advances by the specified mortgagee which might be protected by the security, unless extraordinarily astute. The contention advanced by the appellant is that the potential for the securing of future advances is in effect open ended and bears no relationship to the value of the property offered by security and can be availed of by any assignee however remote and in respect of advances which may have little, if anything, to do with the purpose of the original secured loan or the value of the property offered by way of security. Again, with respect, this appears to me to have the potential to subvert the established order of priorities and to advantage a creditor at the very time when intervening secured creditors, third parties and potential liquidators most need protection.

It is for this reason that I prefer and adopt with respect the construction of the definition of 'Moneys Secured' reached by Buss JA to identify those post‑assignment advances by Olympic which may, by these 'all moneys' clauses, perhaps become secured. Applying that construction to identify which, if any, of those post‑assignment advances to Windslow which may have become so secured is a process which, in my view, could possibly be undertaken in the accounting which is yet to be completed. Again, however, there are in my view other considerations which may affect the posed question of whether or not the assigned mortgage and other securities result in Olympic being a secured creditor of Windslow in respect of those advances after the assignment even if they do come within the construction so adopted.
The wider considerations described and the need for protection of third parties mean that the language in the security documents should be construed having regard to its commercial purpose and the origin of the particular mortgage transaction.
When it comes to subsequent advances it is untenable to suggest that each advance constitutes a new mortgage - Sibbles v Highfern Pty Ltd (221 ‑ 222) (Mason CJ, Dawson, Toohey and Gaudron JJ). In rejecting such a submission their Honours said:
The argument was based upon a conclusion which it was said could be drawn from expressions used in some of the cases dealing with the old rule in Hopkinson v Rolt (supra): see also Bradford Banking Co v Briggs (1886) 12 App Cas 29; Union Bank of Scotland v National Bank of Scotland (1886) 12 App Cas 53. That rule concerned the tacking of future advances to a debt covered by an existing mortgage (not being a mortgage obliging the mortgagee to make future advances, but cf. West v Williams [1899] 1 Ch 132 and Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293). It denied to a mortgagee to whom property was mortgaged to secure advances already made priority for further advances over a subsequent mortgage made with notice before the further advances were given, even if the first mortgage, to the knowledge of the subsequent mortgagee, was expressed to be security for further advances. That is to say, the prior mortgagee could not tack if at the time of the further advances he had notice, actual or constructive, of the subsequent mortgage. Tacking was abolished in England by s 94 of the Law of Property Act 1925 (UK) but exceptions were preserved in relation to future advances. …
The restriction upon the tacking of future advances has a particular effect upon a bank mortgage given to cover an overdraft in a current bank account when it is combined with the rule in Claytons Case (1816) 1 Mer 572; 35 ER 781. That rule presumes that payments made in reduction of a debt are intended to be applied consecutively in discharge of the items making up the debt. Where notice of a second mortgage is given, subsequent payments into the account are applied to reduce the overdraft existing at the time of the notice and, in effect, for the benefit of the subsequent mortgagee: Deeley v Lloyds Bank Ltd [1912] AC 756. The subsequent mortgagee takes subject to the overdraft only at that time, that is to say, not subject to future advances, and the reduction of the overdraft correspondingly improves his security. If the overdraft is paid off, then any subsequent indebtedness will be by way of future advances and the Bank mortgage will be postponed entirely in relation to the subsequent mortgage, although the Bank mortgage does not cease to be effective between the Bank and its customer, the mortgagor: London & County Banking Co v Ratcliff (1881) 6 App Cas 722 at 737. It is for the purpose of excluding the rule in Claytons Case that bank mortgages to secure overdraft facilities contain a clause, as does the mortgage in this case in cl 10, declaring the security to be a continuing one and giving the Bank a discretion in the application of payments into the account in satisfaction of the customer's indebtedness.
In referring to the rule in Hopkinson v Rolt (223), their Honours adopted and applied the observations of Chitty LJ in West v Williams [1899] 1 Ch 132 at 146:
The principle on which these decisions are founded appears to me to be, that a mortgagee cannot obtain a charge on property which is no longer the mortgagor's to charge, and which the mortgagee knows at the time when he makes his further advance is no longer the property of the mortgagor. No charge arises for a further advance until it is actually made.
This then brings me to the three recent decisions of Oversea‑Chinese Banking Corporation Ltd v Malaysian Kuwaiti Investment Co [2003] VSC 495; Westpac Banking Corporation v Adelaide Bank Ltd [2005] NSWSC 517 and St George Bank Ltd v McTaggart [2007] WASC 150. It is convenient to deal with each in turn.
In Oversea‑Chinese Banking Corporation Ltd, Redlich J was required to consider whether a bank security under a mortgage for further advances was to be postponed to the equitable interest of purchasers taking an interest in the land because of the application of the rule in Hopkinson v Rolt. His Honour discussed that rule at [67] ‑ [95] and concluded that the rule prevented the Bank from taking security for the subsequent advances in priority to the purchaser's interest.
Oversea‑Chinese Banking Corporation Ltd was cited with approval by Habersberger J in Creasy's Grain Enterprises Pty Ltd v Clarke & Barwood Lawyers Colac Ltd [2004] VSC 77 where an approach to an 'all moneys' clause, and the relationship of three simultaneous mortgages, was approached by viewing the commercial context and purpose of the transactions at the time they were entered into. At [13] Habersberger J accepted the proposition of Redlich J in Oversea‑Chinese Banking Corporation Ltd that 'the "all moneys" clause must be construed in the light of the actual language used and having regard to the context in which this mortgage came to be executed and its commercial purpose' saying further that 'his Honour was there following what had been said in earlier cases, including in the joint judgment of Ormiston and Batt JJA in Ronan v ANZ Banking Group Ltd (2000) 2 VR 531 [52] that:
The clauses in the mortgage that are in question should be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve, but otherwise the intention of the parties is to be ascertained from the language used; Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia (1996) 140 ALR 46 (Hill J); cf also Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, 510; though it is to be remembered that the mortgage is a standard conveyancing document as opposed to a single or specific business agreement.
In St George Bank Ltd v McTaggart Newnes J held that further advances under a first mortgage were secured and took priority over the interests of a second mortgagee. At issue in those proceedings was whether the rule in Hopkinson v Rolt requiring the absence of notice of the second mortgage for the advances to be secured could be satisfied by constructive as opposed to actual notice. His Honour said at [34]:
In Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd [1984] 2 NSWLR 128, Kearney J considered the authorities to that time and concluded that the underlying basis for the rule in Hopkinson v Rolt was that it would be inequitable - that is, it would constitute actual equitable fraud - on the part of a first mortgagee to claim priority in respect of further advances made when it had notice of an intervening equity. As the rule was based on the doctrine of equitable fraud, the first mortgagee must have actual, not simply constructive, notice of a subsequent mortgage. His Honour held that the lodgement of a caveat by a subsequent mortgagee did not constitute adequate notice to affect the first mortgagee's entitlement to priority. See, too, Beachquest Pty Ltd v Interstate Mortgage and Investments Pty Ltd [2001] QSC 512 at [41]
Newnes J went on to discuss subsequent decisions which indicated that the view that actual notice was required have not received universal assent. Having done so, however, his Honour then concluded at [45]:
Assuming for present purposes that something less than actual notice is sufficient, I do not, therefore, consider it is necessary to decide whether, for the purposes of the rule in Hopkinson v Rolt, the degree of notice which will invoke the rule extends beyond that suggested by Anderson J in R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd to the more general description of the doctrine of constructive notice given in Meagher Gummow and Lehane, or to some point between those two. In the present case, there is nothing to suggest that the plaintiff had any actual notice of the second defendant's mortgage, or of the caveat, or that the circumstances were such that it should be deemed to have had knowledge of the second defendant's mortgage. There is also nothing to suggest that there was any conduct on the part of the plaintiff designed to prevent receipt of actual notice of the later encumbrance, nor was there anything to put the plaintiff on inquiry or to suggest that a reasonable person in the plaintiff's position would have made inquiry. There is nothing to suggest that the plaintiff had any reason to think that such a security might exist.
This led his Honour to the conclusion that the subsequent advances made by the first mortgagee were covered by the security of that instrument and ranked in priority to the second defendant's mortgage. So it can be seen that the decision in St George's Bank v McTaggart is to the effect that subsequent advances under a first mortgage were covered by the security and ranked in priority to the interests of the second mortgagee where there was no notice, actual or constructive, by the first mortgagee of the second encumbrance at the date of the advances. That really does not advance the position in the present case to any degree other than to illustrate that further advances made by the original lender under an 'all moneys' clause will be covered by the security in the absence of notice of a second mortgagee.
Returning to the facts of the present litigation: Olympic and Windslow were related companies effectively controlled by the same director, Mr P B Bacich. The original assignment of the charges from the Bank to Olympic was procured and negotiated with Mr Bacich's knowledge. The payment by Windslow to Olympic of the $629,000 said to be secured by the assigned mortgages was also apparently procured and effected with Mr Bacich's knowledge. To the extent, yet to be determined, that that payment included the repayment of post‑assignment advances made by Olympic to Windslow, that too must be regarded as having been apparently done at the instance and with the knowledge of Mr Bacich whose knowledge, in that respect, was the knowledge of Olympic. Similarly, post‑assignment advances by Olympic to Windslow were apparently given and received by both companies again with the knowledge and assent of Mr Bacich. Although it is not appropriate to make any concluded finding in this respect because the account may yet need to be retaken, there seems to be a likelihood that post‑assignment advances by Olympic to Windslow were made and accepted with notice by Windslow of the assignment and therefore of the 'all moneys' clauses in the assigned charges.
The indications, therefore, are that the requirements of the rule in Hopkinson v Rolt to allow the alleged post‑assignment advances to be covered by the 'all moneys' clauses and so secured under the assigned charges have been satisfied. However, in the situation which prevailed at 19 April 2005 with the imminent financial collapse of Windslow looming, there is the possibility that some or all of this was done by Olympic to gain a security, and hence a preference, at the expense of unsecured creditors. If that were so then other considerations would arise such as the potential voidability of the transaction under the provisions of pt 5.7B of the Corporations Act.
In relation to subsequent advances made by the assignee of the security containing an 'all moneys' clause the doctrine seems to rest upon the need for adequate notice of the effect of such advances being given to a puisne mortgagee or another third person affected. The appellant here says that notice of the assignment together with the taking of subsequent advances by Windslow satisfies this requirement for notice but there is no evidence before the court that this was appreciated or that subsequent advances were accepted on that basis. As the question of constructive notice in such circumstances as an adequate ground for securing the subsequent advances is very much an open question, this does not seem to me to be a suitable occasion to conclude that these subsequent advances were made with the requisite degree of notice. In any event, proof of advances made with notice of the effect that they would become secured must certainly rest upon Olympic and there is nothing in the evidence in this case to indicate that that has been offered let alone established.
At this point it therefore appears to be inadvisable to make any secured final declaration or order which might have the effect of impinging upon such a challenge to the transaction in the accounting which might yet be made by the liquidator. It is sufficient to conclude that, questions of voidable or preferential transactions apart, subsequent advances (if any) made by Olympic to Windslow after the latter had received notice of the assignment on or after 19 April 2005 would be secured under the assigned charges, if they came within the terms of the definition of 'Secured Money' as explained by Buss JA. As the results of the accounting have yet to be finalised and because the issue of appropriation has been deferred, I consider that no declaration about post‑assignment advances should be made because the position of whether or not moneys are owing and whether or not there may be claims on behalf of third parties remains uncertain.
I would therefore vary the orders made by Hasluck J only to the extent of refraining to make any declaration on the second issue at this time.