Police and Nurses Credit Society Ltd v National Australia Bank Ltd
[2005] WASCA 68
•6 APRIL 2005
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION: POLICE & NURSES CREDIT SOCIETY LTD -v- NATIONAL AUSTRALIA BANK LTD [2005] WASCA 68
CORAM: MURRAY J
MCKECHNIE J
SIMMONDS J
HEARD: 9 NOVEMBER 2004
DELIVERED : 6 APRIL 2005
FILE NO/S: FUL 9 of 2004
BETWEEN: POLICE & NURSES CREDIT SOCIETY LTD
Appellant (Defendant)
AND
NATIONAL AUSTRALIA BANK LTD
Respondent (Plaintiff)
FILE NO/S :FUL 10 of 2004
BETWEEN :POLICE & NURSES CREDIT SOCIETY LTD
Appellant (Interested Party)
AND
MICHAEL JOSEPH PATRICK RYAN AND IAN CHARLES FRANCIS
First Respondents (Plaintiffs)THE WESTGROUP PTY LTD (RECEIVERS & MANAGERS APPOINTED)
Second Respondent (Defendant)
ON APPEAL FROM:
For File No : FUL 9 of 2004
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :PULLIN J
Citation :RYAN & ANOR -v- WESTGROUP PTY LTD (RECEIVERS AND MANAGERS APPOINTED) [2004] WASC 1
File No :COR 289 of 2003, CIV 2159 of 2003
For File No : FUL 10 of 2004
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram :PULLIN J
Citation :RYAN & ANOR -v- WESTGROUP PTY LTD (RECEIVERS AND MANAGERS APPOINTED) [2004] WASC 1
File No :COR 289 of 2003, CIV 2159 of 2003
Catchwords:
Mortgages and charges - Debenture - Construction of document - Any instrument or order made under any statute, regulation, rule, ordinance or by-law - Turns on own facts
Legislation:
Airports (Transitional) Act 1996 (Cth)
Airports Act 1996 (Cth), Div 3, s 34, s 34A, s 34B, s 34C, s 34D
Airports Regulations 1997 (Cth), reg 2.04, reg 2.05, reg 2.09, cl 18, cl 22(10)
Result:
Appeal dismissed
Category: B
Representation:
FUL 9 of 2004
Counsel:
Appellant (Defendant) : Mr M J McCusker QC & Mr D J Pratt
Respondent (Plaintiff) : Mr C G Colvin SC & Mr J A Thomson
Solicitors:
Appellant (Defendant) : Phillips Fox
Respondent (Plaintiff) : Mallesons Stephen Jaques
FUL 10 of 2004
Counsel:
Appellant (Interested Party) : Mr M J McCusker QC & Mr D J Pratt
First Respondents (Plaintiffs) : Mr C G Colvin SC & Mr J A Thomson
Second Respondent (Defendant) : Mr C G Colvin SC & Mr J A Thomson
Solicitors:
Appellant (Interested Party) : Phillips Fox
First Respondents (Plaintiffs) : Mallesons Stephen Jaques
Second Respondent (Defendant) : Mallesons Stephen Jaques
Case(s) referred to in judgment(s):
Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425
Azevedo v The Secretary, Department of Primary Industries (1992) 106 ALR 683
Chapmans Ltd v Australian Stock Exchange Ltd (1994) 123 ALR 215
Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37
Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ Ins Cas 61‑568
Ryan & Anor v Westgroup Pty Ltd (Receivers and Managers Appointed) [2004] WASC 1
Swiss Bank Corporation v Lloyd's Bank Ltd [1979] 1 Ch 548
Swiss Bank Corporation v Lloyd's Bank Ltd [1982] AC 584
Case(s) also cited:
Arturi v Zupps Motors Pty Ltd (1980) 49 FLR 283
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99
Blizzard v O'Sullivan (1994) 1 Qd R 112
Chittick v Ackland (1984) 53 ALR 143
General Newspapers Pty Ltd & Ors v Telstra Corporation (1993) 45 FCR 164
Herman v Gill (1921) 24 WALR 10
Hutchins v Commissioner of Taxation (1996) 65 FCR 269
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
R v Toohey; Ex Parte Meneling Station Pty Ltd (1982) 158 CLR 327
Re Michael; Ex parte WMC Resources Ltd (2003) 27 WAR 574
Rye v Rye (1962) AC 496
Wallis v Downard-Pickford (North Queensland) Pty Ltd (1994) 179 CLR 388
Wik Peoples v State of Queensland (1996) 187 CLR 1
MURRAY J: These two appeals, FUL 9 of 2004 from the decision of Pullin J in the action CIV 2159 of 2003, and FUL 10 of 2004 from the same decision of his Honour in COR 289 of 2003, were heard together, appropriately because the original proceedings before Pullin J were heard together and his Honour delivered the one judgment on the issue raised in the two pieces of litigation, which was the same issue, his Honour then making orders separately in the two pieces of litigation.
The action CIV 2159 of 2003, the subject of the appeal FUL 9 of 2004, was an action by National Australia Bank Ltd against Police & Nurses Credit Society Ltd seeking a declaration that upon the sale or other disposition of the leasehold interests of Westgroup Pty Ltd, the Bank is entitled to the proceeds in priority to the Credit Society pursuant to the terms of a debenture granted by Westgroup to the Bank on 28 August 1995. The debenture created both fixed charges and floating charges over the whole of the undertaking of the mortgagor, Westgroup, and so it provided as security, a charge over proprietary interests acquired in future, as well as those presently held, by Westgroup.
In relation to this case, in circumstances sufficiently described in the judgments of McKechnie and Simmonds JJ, Westgroup acquired a proprietary interest in land at Perth International Airport. Westgroup became a sublessee of the land in July 1997. Later, in early 2002, the Credit Society took a mortgage by way of a subdemise of the sublease. Later again, the first respondents in FUL 10 of 2004, Messrs Ryan and Francis, purported to enter into possession of the property of Westgroup as receivers and managers appointed under its debenture by NAB.
The litigation in COR 287 of 2003 is an application under s 418A of the Corporations Act 2001 (Cth). Essentially, in that litigation, so far as presently relevant, Messrs Ryan and Francis seek a declaration that they validly entered into possession or assumed control of the leasehold interest of Westgroup in the land at Perth International Airport under the terms of the debenture provided by Westgroup to NAB. The question is one of priority of interest and it can be seen that although the Credit Society was not a party to the application under the Corporations Act, it was the person vitally interested in the outcome of that litigation as well as in the action brought by originating summons by NAB directly against it.
If the sublease interest of Westgroup was subject to the charge granted under the debenture, then NAB would have priority over the Credit Society to the extent of the liability under the debenture and Messrs Ryan and Francis would be entitled to an order declaring that they had lawfully entered into possession or control of the interest of Westgroup by way of sublease in the land at Perth International Airport. Pullin J took that view and made the declarations sought by the plaintiffs in both pieces of litigation, rejecting the argument that the debenture did not apply to the proprietary interest of Westgroup under the sublease. These appeals by the Credit Society seek to overturn that conclusion, essentially presenting to the Full Court the arguments run unsuccessfully before Pullin J.
What was at issue was a point of construction of the debenture. Clause 41 deals with suspension of the charge. Clause 41.1 is in the following terms:
"41.1Suspension
If, without consent, approval, notification or condition or other required action (each a 'Requisite Step') being obtained, made, satisfied or carried out ('Completed'), a Statute prohibits any property or asset of the Mortgagor from being charged or provides that if such property or asset is charged, this Deed is void:
(a)this Deed does not operate to charge that property or asset unless and until the Requisite Step has been Completed with respect to the property or asset concerned; and
(b)the Mortgagor undertakes diligently to make all applications, pay all costs and expenses and do all things necessary to have the Requisite Step Completed in relation to all the property and assets concerned."
The terms of cl 41.4 should also be noticed:
"41.4No prejudice to Security
Nothing in this Clause 41 prejudices the operation of this Deed in relation to any property or asset of the Mortgagor which is not prohibited by Statute from being charged, or the charging of which would not result in this Deed being void."
The argument of the Credit Society turns on whether the sublease is a "Statute" within the meaning of the debenture. The definition clause is cl 1.1. It says the term "Statute":
"means any statute, regulation, rule, ordinance or by‑law and includes any instrument or order made under any of them."
It is convenient to note at this point that at its broadest an "instrument" may be simply described as a formal legal document. The sublease is undoubtedly an instrument in that sense, and so the question is whether, for the purpose of cl 41.1, the sublease is an instrument "made under" a statute or regulation so as itself to be deemed for the purposes of the debenture to be a Statute.
If it is, then by cl 18.4 of the sublease, the sublessee, Westgroup covenanted not to mortgage or otherwise encumber its interest under the sublease without the prior consent in writing of the lessor, which it was common ground had not been sought or obtained before the grant of the debenture. In that event, so the argument goes, the sublease, a Statute within the meaning of the debenture, prohibited Westgroup from encumbering its interest under the sublease, which it did by way of the mortgage by subdemise, without the consent of the sublessor. In that event, under cl 41.1, the debenture does not operate to charge the property in question without the consent required by the sublease. In that case, the Credit Society argues, the consent not having been obtained, its priority in relation to the asset the subject of the sublease, is secured under the mortgage by way of subdemise.
The arguments advanced on both sides have been thoroughly rehearsed and considered by Simmonds J in particular. I need not canvass them again. I agree that it is abundantly clear that the question of construction of the instrument must be resolved having regard to its terms as a whole and the object and purpose of the debenture to secure to the NAB an effective and full operation of its fixed and floating charge over the assets and undertakings of Westgroup so as to provide, in cases where the operation of the debenture would not be defeated by illegality, adequate security in respect of the advances made by NAB: Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 per Owen J at 430 – 431 [24], and the cases there cited.
To my mind, however, there is no ambiguity in the instrument. Its terms are clear and the argument for the appellant fails at the threshold question whether the sublease is an instrument made under a statute and/or regulations so as to attract the operation of cl 41.1.
The sublease was certainly granted under and pursuant to the terms of the headlease to Westralia Airports Corporation which covered the land in question. Under cl 10 of the lease, so far as material, the lessee was not to grant any sublease, "which is inconsistent with any prohibition on sub‑leasing … set out in the regulations to the Airports Act … ." The various relevant provisions of the Airports Act 1996 (Cth) and the Airports Regulations 1997 (Cth) are discussed in detail by McKechnie and Simmonds JJ. Section 34 of the Act provides that the Regulations made under the Act may prohibit specified kinds of subleases. Section 34A provides that the Regulations may prohibit specified kinds of terms from being included in subleases and s 34B provides that the Regulations may require specified kinds of terms to be included in subleases.
There is no provision of the Act which in terms authorises the lessee to grant a sublease, whether generally, or containing (or not containing) specific terms. The provisions in the Airports Regulations are written consistently with those sections. Regulation 2.04 refers to s 34(1) of the Act and provides that various kinds of subleases are prohibited absolutely or unless a declaration is made by a statutory official under Regulation 2.05. Under Regulation 2.09, various terms are prescribed for the purposes of s 34B(1) of the Act as being required to be inserted in subleases.
The appellant argues that these provisions impliedly authorise the making of a sublease. In my respectful opinion, they do not. They simply recognise the capacity which a lessee may have to grant a sublease and they operate by prohibiting the exercise of that contractual power, or by regulating the manner of its exercise. No provision authorises the grant of the sublease and therefore it is not realistic, in my opinion, to talk in terms of the sublease being "made under" the Act or Regulations. That is sufficient to dispose of the case.
However, before departing from it, I should say that, in my view, that conclusion is consistent with the context of the debenture which contains provisions which lead me to the view that by the word "instrument" in the definition of "Statute", the parties intended to refer to a statutory instrument made under a statute or other form of statutory enactment referred to in the definition, rather than an instrument in the sense of a formal legal document without more.
In the first place, it will be noted that the definition of "Statute" is defined to "mean" a statute, regulation, rule, ordinance or by‑law, all legislative processes of various kinds, and "includes" any instrument or order made under any of them. To my mind, that, without more, carries the implication that a relevant type of instrument or order will be one
authorised or empowered by the legislation in question, a statutory instrument or order in the sense that it is provided for by the legislation as an expression of legislative power.
That interpretation is, to my mind, reinforced by the interpretation cl 1.2(b) which provides that unless the contrary intention appears in the instrument:
"a reference to a Statute includes any consolidation, amendment, re‑enactment or replacement of it;"
Again, the implication is that when one is talking about a Statute which is an instrument, the processes of change to which the interpretation clause refers are described in words apt to refer to a legislative process.
By cl 6.1(f), the mortgagor under the debenture enters into the usual undertaking to comply with, and to cause each of its subsidiaries to comply with, "all laws and the requirements of all authorities relating to their respective businesses, or to the use, occupation, ownership, state or condition" of any mortgaged property, or the undertaking. In that context, by the interpretation cl 1.2(k), the word "law", "includes any Statute". So for the avoidance of doubt, the obligation to comply with all relevant laws is widened by taking advantage of the extended definition of a law which the definition of "Statute" imports. So far as a law which is an instrument is concerned that reinforces the conclusion as to the relevant nature of the instrument to which I have referred.
For those reasons, I would dismiss both appeals.
MCKECHNIE J: These appeals together raise the meaning of the phrase "any statute, regulation, rule, ordinance or by‑law and includes any instrument or order made under any of them" as appears in the definition of "Statute" in cl 1.1 of the debenture given by Westgroup Pty Ltd to the National Australia Bank on 28 August 1995.
In July 1997 the Commonwealth leased land at Perth International Airport to Westralia Airports Corporation Pty Ltd. Westralia Airports Corporation then sub‑leased the land to Westgroup. On 11 February 2002 the Police & Nurses Credit Society took a mortgage by way of a sub‑demise over the sub‑lease.
The short issue which arises is whether the debenture which charged the undertaking of Westgroup Pty Ltd "and all its property and assets whatsoever and wheresoever both present and future" covers the
sub‑lease. The trial Judge held that the sub‑lease was not an instrument made under a statute.
The relevant clauses of the debenture
The issue is first and foremost the ascertainment of the true intention of the parties and the words they used in creating the debenture by reference to the language employed. The following definitions and clauses in the debenture are relevant.
Under the Definitions cl 1.1 "Mortgaged Property" means:
"… the undertaking of the Mortgagor and all its property and assets whatsoever and wheresoever both present and future including:
(a)the goodwill of its business; and
…"
"Statute" means:
"… any statute, regulation, rule, ordinance or by‑law and includes any instrument or order made under any of them."
Under the Interpretation provisions 1.2(k):
"the word 'law' includes any Statute; and…"
Clause 41:
"41. Suspension of Charge
41.1Suspension
If, without any consent, approval, notification or condition or other required action (each a 'Requisite Step') being obtained, made, satisfied or carried out ('Completed'), a Statute prohibits any property or asset of the Mortgagor from being charged or provides that if such property or asset is charged, this Deed is void:
(a)this Deed does not operate to charge that property or asset unless and until the Requisite Step has been Completed with respect to the property or asset concerned; and
(b)the Mortgagor undertakes diligently to make all applications, pay all costs and expenses and do all things necessary to have the Requisite Step Completed in relation to all the property and assets concerned.
41.2Prohibited Charges
Subject to Clause 41.1, this Deed does not operate to charge any property or asset of the Mortgagor that is prohibited by Statute from being charged in the manner contemplated by this Deed or which, if charged by this Deed, would cause this Deed to be void.
41.3Certain Clauses to Apply
Subject to Clause 41.1 and 41.2, any reference in this Deed to the Mortgaged Property includes any property or asset which is not charged by this Deed by virtue of this Clause 41.
41.4No Prejudice to Security
Nothing in this Clause 41 prejudices the operation of this Deed in relation to any property or asset of the Mortgagor which is not prohibited by Statute from being charged, or the charging of which would not result in this Deed being void."
The respondents argue that the definition of "statute" should be interpreted as being confined to instruments that are expressions of legislative power. It points to the use of that expression in other provisions; for example, under cl 6.2(g) "Negative Undertakings", cl 17.4 "Powers of Receiver", cl 18 "Application of Moneys", cl 23.4 "No Set‑Off or Counterclaim", cl 27 "Additional Rights", cl 32.2, cl 33 and cl 34.
The submission is that the word "Instrument" in the definition is to be read as denoting an exercise of legislative power. It is not to be read in a manner that includes contractual or property instruments.
I am inclined to accept these submissions but they retain an element of circularity because if, properly construed, the sub‑lease, contrary to the finding of the trial Judge, is an expression of legislative power then it is caught by the definition.
The airports legislation
There are three of relevance: the Airports (Transitional) Act 1996, the Airports Act 1996 and the Airports Regulations 1997. The background to the Acts were explained by the trial Judge in Ryan & Anor v Westgroup Pty Ltd (Receivers and Managers Appointed) [2004] WASC 1 at [11] to [14].
By Div 3 of the Airports Act the Commonwealth is given the power to grant airport leases. It is not in issue that the Commonwealth leased land at Perth International Airport to Westralia Airports Corporation Pty Ltd. Sub‑Division C of Div 6 contains s 34 entitled "Regulations may prohibit subleases of airport leases" and provides by s 34(2):
"A sublease of an airport lease must not be granted or varied in contravention of those regulations."
Section 34A empowers the making of regulations which prohibit specified kinds of terms from being included in subleases of an airport lease, while s 34B permits regulations which may require that specified kinds of terms must be included in subleases of an airport lease. Section 34C and s 34D empower the making of regulations in respect of trusts and beneficial ownership. In each case s 34A and s 34B specify:
"(2)A sublease of an airport lease must not be granted or varied in contravention of those regulations.
(3)If a purported grant or variation contravenes subsection (2), it is of no effect."
The effect of those paragraphs is to render a lease which contravenes the regulations ineffectual.
The Airports Regulations 1997 cover subleases. By reg 2.04 certain enumerated subleases of an airport lease are prohibited. By reg 2.05 there is power in the Secretary to declare, by instrument, that the sub‑regulation does not prohibit the sublease.
By reg 2.09 certain mandatory terms in sub‑leases are required.
The lease between the Commonwealth and Westralia Airports Corporation Pty Ltd
By cl 10 of the lease entitled "sub‑leasing" the lease provided:
"(a)The Lessee must not grant any sub‑lease or licence which is inconsistent with any prohibition on sub‑leasing or licensing set out in the regulations to the Airports Act or, unless the Lessor agrees otherwise in writing, with any written commitment sought and obtained from the Lessee by the Lessor in relation to sub‑leasing which specifies this clause 10.
(b)Without limiting sub‑clause 10(a), the Lessee must not permit a sub‑lease or license granted under this Lease to be held by a trust without the written approval of the Lessor."
The sub‑lease between Westralia Airports Corporation Pty Ltd and Westgroup
The sub‑lease complied with the Airports Regulations. It was expressly made subject to the Commonwealth conditions which were defined as set out in the Second Schedule and included the Airports Act 1996 and the Airports Regulations 1997.
In relation to cl 18 "Assignment, subleases and mortgages":
"…
18.4Mortgaging – The Lessee (sic) [Sublessee] shall not mortgage or otherwise encumber its interest in this Lease without the prior consent in writing of WAC (which will not be unreasonably withheld by WAC)."
This is a fundamental term of the sub‑lease, breach of which would be deemed to be a fundamental breach relating to assignment, sub‑leasing or otherwise of the premises. By cl 22(10) the Airports Regulations were incorporated as a mandatory term of the sub‑lease.
It is common ground that the consent of Westralia Airports Corporation Pty Ltd to the debenture was not obtained.
Issues
It is not in issue that the head lease was made under statute (the Airports (Transitional) Act 1996) within the meaning of cl 1.1 of the debenture. The issue is whether the sub‑lease is within the meaning of cl 1.1 of the debenture. If the sub‑lease is within cl 1.1 of the debenture then the sub‑lease is excluded from property covered by the debenture. The immediate difference is that the lease is expressly made under the Airports (Transitional) Act 1996. The purpose of that Act is to empower the Commonwealth to enter into the lease. The appellants contend that the sub‑lease is impliedly authorised under the Airports Act 1996 and the regulations to which reference has been made. It is submitted that what is being conveyed by the sub‑lease is not contractual rights but proprietary rights which owe their existence to the legislation under which the head lease was created.
What is an instrument?
The Macquarie Dictionary defines "instrument" relevantly as:
"A formal legal document as a contract, promissory note, deed, grant etc."
The ordinary English meaning is:
"a formal legal document, whereby a right is created or confirmed, or a fact recorded; a formal writing of any kind, as an agreement, deed, charter or record, drawn up and executed in technical form."
The Shorter Oxford Dictionary definition just quoted was adopted in Azevedo v The Secretary, Department of Primary Industries (1992) 106 ALR 683.
There may be a special meaning attributed to "instruments" in a statutory context. In such context the word can denote documents which have a legislative expression of power. Chapmans Ltd v Australian Stock Exchange Ltd (1994) 123 ALR 215 is of interest. Chapmans applied for a review of the decision of the Australian Stock Exchange to remove its name from the official list on the Stock Exchange. The question which arose for consideration was whether the listing rule or the listing agreement between a member of the Stock Exchange and the Exchange is an "instrument" within the meaning of the Administrative Decisions (Judicial Review) Act 1977 (Cth). What the Judge described as the real matter for decision was whether the decisions of the Stock Exchange were made under an enactment. Beaumont J held at 223 ‑ 224:
"I have difficulty in accepting the applicant’s submission. In my opinion, neither the listing rules nor the listing agreement is an 'instrument' within the meaning of the ADJR Act. I accept that it may be that an approval given by the minister pursuant to s 769 of the Law or a disallowance by the minister pursuant to s 774 of the Law may be characterised as an 'instrument' for present purposes but this is another matter and, in any event, such decisions are plainly made under an Act being the Law itself. Nor is this a case, as was Ansett, where an agreement is made a schedule to a statute.
It is true that, by s 36E(4) of the SIA, reference is made to the listing rules but, in my view, this reference should not be treated as giving force and effect to those rules. Rather, as I would interpret the legislative scheme, the legislature has assumed that the listing rules and, for that matter, any listing agreement, derive their force and effect from the law of contract. In essence, in my view, the 1987 legislative scheme identified the listing rules but did not give them force and effect within the meaning of the authorities in the present area.
It is also true that the legislative scheme establishes a regime which permits a degree of regulation by public authorities in the public interest…
…
In my view, the relationship between the applicant and the respondent, as originally established, was plainly contractual. Although the 1987 legislative amendments conferred upon the authorities a considerable degree of power to regulate the securities industry, the statutory amendments then made did not alter the fundamental character of the relationship between the present parties. The source of that relationship is and remains their contract." [cfc]
In my respectful view the reasoning of Beaumont J is correct and can be adapted to this case.
The sub‑lease is not an instrument made under a statute, in the sense that it is provided by the statute, given force by the statute, or made with
permission. True it is that the Airports Act and the Airports Regulations substantially regulate the content of sub‑leases to the extent of rendering non‑complying sub‑leases ineffectual. However, Westralia Airports Corporation Pty Ltd is not a Commonwealth authority. It requires no statutory power to enter into the sub‑lease, even though, if it enters into a sub‑lease, the terms are regulated. The fact that the sub‑lease is so regulated does not convert it into an instrument or order made under any statute. "Under" in the circumstances cannot be equated to "subject to" because neither the Airports Act nor the Airports Regulations do more than regulate the terms of any contract which may be entered into between Westralia Airports Corporation Pty Ltd and a sub‑lessee. The sub‑lease is not subject to any expression of legislative power for its formation or implementation. The source of the relationship between the lessee over the sub‑lease is contractual. If a sub‑lease fails to conform to the regulations it is simply ineffectual.
In my opinion the trial Judge was correct for the reasons he gave and these appeals should be dismissed.
SIMMONDS J: The appeals in these two matters arise out of a deceptively simple question of the interpretation of a contract, in the form of a fixed and floating charge mortgage Debenture over the whole undertaking of the chargor. If the clause whose application is in issue was engaged, thereby excluding certain property from the relevant charge, then the appellant in FUL 9 of 2004, which is also the appellant in interest in FUL 10 of 2004, the Police & Nurses Credit Society ("the Credit Society"), has a claim to the property free of any competing claim by the chargee under the Debenture, the respondent in FUL 9 of 2004, National Australia Bank ("NAB"). Further, the first respondents in FUL 10 of 2004, Michael Joseph Patrick Ryan and Ian Charles Francis, who were appointed under the Debenture as the receivers and managers of the undertaking of the second respondent, Westgroup Pty Ltd, the chargor under the Debenture, had no right to assume control of the property in question.
In his judgment of 14 January 2004 on the issue of construction so posed, his Honour Pullin J concluded that the clause was not engaged.
How the Question of Construction Arises
On 28 August 1995, Westgroup entered into a Debenture with NAB. Under the Debenture, fixed and floating charges were provided for over the "Mortgaged Property" of Westgroup, where "Mortgaged Property" was defined as "the undertaking of the Mortgagor [Westgroup] and all its
property and assets whatsoever and wheresoever both present and future". By lease dated 1 July 1997 the Commonwealth leased to Westralia Airports Corporation Pty Ltd the site of Perth Airport. By an undated "Lease" (in fact, a sublease) Westralia Airports Corporation Pty Ltd subleased a portion of that site to Westgroup. The Sublease does not bear a date, but does bear a stamp duty notation of 12 April 2001.
On or about 11 February 2002, the Credit Society took a mortgage by way of subdemise of the interest of Westgroup under the Sublease. Subsequently, Messrs Ryan and Francis were appointed receivers and managers of the undertaking of Westgroup under the Debenture, and they went into possession of the lease and licence interests of the company.
In one set of proceedings, COR 289 of 2003, Messrs Ryan and Francis sought a declaration that they had validly entered into possession of the lease and licence interests I have referred to. In separate proceedings, CIV 2159 of 2003, NAB sought a declaration binding the Credit Society that on sale or disposal by Westgroup of its leasehold interest, NAB was entitled to the proceeds in priority to the Credit Society to the extent that the proceeds did not exceed the moneys due to NAB under the Debenture. By judgment of 14 January 2004, his Honour Pullin J granted both sets of declarations.
The Question of Construction
Before his Honour, the issues in both COR 289 of 2003 and CIV 2159 of 2003 resolved themselves to the question of whether or not cl 41.1 of the Debenture applied to the premises of which Messrs Ryan and Francis had taken possession, and in respect of the proceeds of any sale of which, under the Debenture, the priority dispute between NAB and the Credit Society arose.
Clause 41.1 of the Debenture is as follows:
"If, without any consent, approval, notification or condition or other required action (each a 'Requisite Step') being obtained, made, satisfied or carried out ('Completed'), a Statute prohibits any property or asset of the Mortgagor from being charged or provides that if such property or asset is charged, this Deed is void:
(a)this Deed does not operate to charge that property or asset unless and until the Requisite Step has been Completed with respect to the property or asset concerned; and
(b)the Mortgagor undertakes diligently to make all applications, pay all costs and expenses and do all things necessary to have the Requisite Step Completed in relation to all the property and assets concerned."
The question of construction is whether or not this clause meant the Debenture did not operate to charge the sublease. The question arose because of the breadth of the Definition of "Statute" in the Debenture, and because of the terms of the sublease.
The Debenture defines "Statute" in cl 1.1 as "any statute, regulation, rule ordinance or by‑law and includes any instrument or order made under any of them". The sublease cl 18.4 provides that Westgroup "shall not mortgage or otherwise encumber its interest in this lease without the prior consent in writing of [Westralia Airports Corporation] which will not be unreasonably withheld by [Westralia Airports Corporation]". It is accepted for the purpose of these proceedings that the consent of Westralia Airports Corporation had not been obtained as the clause provided.
As no other requisite step was referred to for the purpose of these proceedings, the question of construction resolved itself into whether the approval of Westralia Airports Corporation under cl 18.4 of the sublease was a "Requisite Step", which in its turn required that the sublease be a "Statute" for the purposes of cl 41.1 of the Debenture. In Pullin J's judgment, he concluded that the sublease was not a "Statute". Although he was of the view that the sublease was an "instrument" for the purposes of the phrase, in the definition of "Statute" in cl 1.1, "includes any instrument or order made under any of [a statute, regulation, rule, ordinance or by‑law]" (at [16] of his reasons), it was not "made under" any of the listed types of written law (at [20]).
To understand the case for the proposition that the sublease was a "Statute" for the purpose of Debenture cl 1.1, it is necessary to understand the statutory framework within which the lease to Westralia Airports Corporation, and the Sublease by it to Westgroup, might be situated.
The Statutory Framework
This framework provided for the privatisation of the 22 airports then owned and operated by the Federal Airports Corporation. This was accomplished under two pieces of legislation, the Airports Act 1996 (Cth) and the Airports (Transitional) Act 1996 (Cth). It appeared from the submissions made to us, and from the judgment of Pullin J, that these airports were meant to pass out of government hands, as ongoing businesses with their staff and management in place, to private entities. For this purpose, the Transitional Act provides the machinery for the transfer of the airports from the Federal Airports Corporation to the Commonwealth, and from the Commonwealth to private parties. The Airports Act empowers the Commonwealth to grant an airport lease (s 13), as does the relevant provision of the Transitional Act (s 22).
As to subleases, Part II Div 6, subdivision (c) of the Airports Act, headed "Subleases and licences", provides that regulations may prohibit specified kinds of subleases of an airport lease, and that subleases of an airport lease in contravention of the regulations are to be "of no effect": s 34. The Act goes on to say that regulations may prohibit specified kinds of terms from being included in subleases (s 34A), and they may also require that specified kinds of terms be included in subleases (s 34B). Further, the regulations may provide that the sublessee of an airport lease must not dispose of the sublease by way of declaration of trust (s 34C), and that a beneficial interest in a sublease must not be transferred independently of the legal interest of the sublease (s 34D).
The Airport Regulations 1997 (Cth) under the Airports Act prohibits certain kinds of subleases (reg 2.04), while allowing for the Secretary (to the relevant Commonwealth Department) to declare that the relevant prohibition does not apply to a particular "proposed dealing" (reg 2.05). Further, the regulations provide for certain mandatory terms to be included in subleases (reg 2.09), and prohibit dealings with subleases of the sort referred to in s 34C and s 34D of the Act (cl 2.10). There is a provision for relief from the latter prohibition (reg 2.11).
It would seem to be the case, then, that there was express statutory provision for the Commonwealth leasing the premises in question here to Westralia Airports Corporation. Although there is no corresponding express statutory power in respect of subleases, there are extensive provisions regulating them, which include provisions for their invalidation.
Against this background, it was submitted for the Credit Society that the sublease was impliedly authorised by the Airports Act. This implied authorisation, it was said, could be put on either of two bases. One is that an authorisation is a necessary concomitant of an (expressly) authorised lease, absent a statutory withholding of such authority. The other is that the regulation of sub-leasing implies an authorisation to sublease consistently with that set of regulatory provisions. In either case, a statutory authority to sublease was established, and this was sufficient to show that the Sublease was an "instrument … made under" the Act, and therefore a "Statute" for the purposes of Debenture cl 1.1. It did not matter, on this argument, whether or not the Sublease was, as Pullin J concluded, "not brought into existence, produced by, or constituted by the legislation" (at [19]).
In the alternative, it was submitted for the Credit Society that "made under" should be read in the same sense as "subject to", which meant that, even if the legislation did not impliedly authorise the making of subleases, it so extensively regulated them as to make them "subject to", and therefore, "made under", the legislation.
On either approach, it was submitted for the Credit Society, a "businesslike interpretation" of the Debenture could be given to cl 41.1, contrary to the submissions for NAB, Messrs Ryan and Francis and Westgroup (see respondents' submissions, par 10), which are returned to below. A prohibition in a legal document like a statutorily authorised sublease might by operation of the statute jeopardise the validity of the sublease, altogether apart from the question whether it was capable of making the Debenture "void" in terms of cl 41.1. Thus, the interpretation proffered by counsel for the Credit Society was in the interests of both Westgroup and NAB.
It was put for the Credit Society that this interpretation of "Statute" in Debenture cl 1.1 was consistent with the other uses of the word in the Debenture, in cl 6.1(g), cl 17.4(d), cl 18.1, cl 23.4(c)(ii), cl 27(a), cl 32.2(b) and (c), cl 33 and cl 34(a). Reference was also made to cl 1.2(b) and (k), both of which, it was submitted, could be read consistently with the interpretation put forward. I note the other provision referred to in this connection, cl 1.2(k), which indicates "unless the contrary intention appears: … the word 'law' includes any Statute". While that provision seems to me to point away from the interpretation put forward for the Credit Society, account should also be taken of the prefatory words "unless the contrary intention appears".
I am of the view, however, that the interpretation contended for by counsel for the Credit Society is not correct, although for reasons that depart in some respects from the approach taken by Pullin J.
Interpreting Clause 41.1
It is necessary, as counsel for all parties appeared to me to accept, that the question of construction be approached in terms that it is a commercial document we are construing, and that the construction should, as far as possible, be a businesslike one, in the sense of according "with common sense, facilitating commerce, containing costs and securing public confidence in the courts": Manren Ltd v Royal & Sun Alliance Insurance Australia Ltd (2003) 12 ANZ Ins Cas 61‑568 (Vic CA), per Callaway JA, at [12], 12 Ins Cas 61‑568 at 76,679, Batt JA and Chernov JA concurring; Seddon N C and Ellinghaus M P, "Cheshire & Fifoot's Law of Contract", 8th Australian ed, LexisNexis Butterworths, 2002, at [10.31], [10.32]).
I have already quoted the definition of "mortgaged property" in cl 1.1 of the Debenture, referring to "the undertaking of Mortgagor and all its property and assets whatsoever and wheresoever both present and future" with the specific inclusions common in documents of this nature. This is for the purpose I also indicated, from the Debenture cl 4.1 and cl 4.2, of a fixed charge over present and future "estate, right, title and interest of the mortgagor in and to" the listed forms of property (cl 4.1), and the floating charge over "all the Mortgaged Property which is not charged by way of fixed charge" (cl 4.2). This indicates with reasonable clarity the intention of an instrument of charge of a whole undertaking kind to cover all of that undertaking with at least the exception mapped out in cl 41. This is confirmed by cl 41.4, which states "nothing in this Clause 41 prejudices the operation of this Deed in relation to any property or asset of the Mortgagor which is not prohibited by Statute from being charged, or the charging of which would not result in this Deed being void". While this does not, of itself, resolve the scope of the definition of "Statute" in cl 1.1, I agree with the submission of counsel for NAB, Messrs Ryan and Francis and Westgroup that it points towards a consideration which might help resolve the uncertainty or ambiguity arising out of the phrase "instrument or order made under" in cl 1.1: see the approach to the interpretation of language of the parties in a contract where that language is ambiguous referred to in Seddon and Ellinghaus (supra), [10.34].
The alternative meaning contended for by counsel for the NAB, Messrs Ryan and Francis and Westgroup, would have us focus attention on the phrase "instrument or order", in the light of the listing of the five specific forms of written law that preceded it in cl 1.1, "statute, regulation, rule, ordinance or by‑law". The meaning contended for was of a legal document that was an expression of legislative power. Such a legal document was one capable of giving rise to a question of illegality in cases where a "Requisite Step" from cl 41.1 had not been complied with. On this interpretation, "instrument" in cl 1.1 would take a more restricted meaning than that used by Pullin J in his judgment, of "a formal legal document" (at [16]).
It was put by counsel for the Credit Society that this did violence to the wording of cl 41.1 which distinguished between a "Statute" that "prohibits" the charging of property or an asset from a "Statute" that "provides that if such property or asset is charged, this Deed is void". I disagree. Whether or not the illegality makes the Debenture itself void or voidable, it would at least raise the issue of the validity of attempts to charge the relevant property or asset.
Further, this reading is, like the contrary one contended for by counsel for the Credit Society, consistent with the other references to "Statute" in the Debenture, and in the case of the definitions in cl 1.2(k) renders unnecessary resort to the qualifier "unless the contrary intention appears", although I do not believe that much can be made of that second aspect.
Likewise, the possibility of the construction advanced by counsel for NAB, Messrs Ryan and Francis and Westgroup derives some, but limited, support from the Interpretation Act 1984 (WA) s 5 "subsidiary legislation", which is "any proclamation, regulation, rule, local law, by‑law, order, notice, rule of court, town planning scheme, resolution, or other instrument, made under any written law and having legislative effect". Counsel for the Credit Society rightly stressed the last three words, "having legislative effect", as blunting the force of this reference.
With an ambiguity in meaning thus demonstrated, what can be said with respect to the commercial aspects of the two constructions? As counsel for NAB, Messrs Ryan and Francis and Westgroup pointed out, prohibitions in contractual instruments on the charging of certain property are common in commercial contexts and include negative pledge clauses in competing debentures, as well as covenants in leases dealing with assignments (absolute or by way of security) or subleasing. The authorities show that instruments granting interests contrary to such terms will not on that account be void, a matter of particular significance in relation to negative pledge clauses competing with after required clauses in mortgages: see Manchester Ship Canal Co v Manchester Racecourse Co [1901] 2 Ch 37 at 50 ‑ 51, Swiss Bank Corporation v Lloyd's Bank Ltd [1979] 1 Ch 548 at 570 ‑575 and on appeal, Swiss Bank Corporation v Lloyd's Bank Ltd [1982] AC 584; and, on leases, Butt P, "Land Law", 4th ed, LBC, 2001, at [15101]. The Debenture in this case, being of the whole undertaking kind as I have indicated, would have been meant to take full advantage of this law. On that view, it would only be in cases where the possible taint of illegality was in issue that the application of the Debenture would be arrested.
It is indeed the case, as counsel for the Credit Society contended, that the effect of the interpretation being considered here would give a narrower scope to cl 41.1 than the alternative. This would mean, in the circumstances of this case, where Westgroup's lessor, Westralia Airports Corporation, had not consented to the NAB Debenture, that the prohibition in the Sublease, cl 18.4, on mortgaging or otherwise encumbering the sublease interest would be breached. Such a breach would appear to be a "fundamental breach" of the Sublease, cl 21.
However, it is not apparent to me why this contention would be telling against finding an intention in the Debenture for cl 41.1 to have the broader scope, in the face of the other considerations I have referred to. In particular the contention would seem to press for as broad an interpretation of cl 41.1 as the words would allow, which would run counter to the whole undertaking character of the Debenture.
It is not the case, however, that the interpretation contended for by counsel for NAB, Messrs Ryan and Francis and Westgroup would, as was contended against it, stop short of allowing for a prohibition in a document like the Sublease whose contravention legislation made an offence, or a ground for invalidating the sublease interest. In such a case, the legislation operating on the prohibition would indeed engage cl 41.1, not because the Sublease was a "Statute", but because the offence or invalidating provision was in a "Statute" that referentially incorporated the Sublease provision.
It follows from the interpretation put forward by counsel for NAB, Messrs Ryan and Francis and Westgroup that it is not conclusive of coverage by "Statute" in cl 1.1 of the Debenture that the legislation of one of the five specific sorts in that definition expressly authorises a transaction to take place. Nor does it matter whether or not the legislation of its own force creates the relevant proprietary interest. What is critical to the coverage of "Statute" is the presence of legislation of one of the five specific sorts, "including" what amounts to delegated legislation or the exercise of decision‑making authority under such legislation, "including", that is, respectively, an "instrument or order". It would only be the engagement of controls, of the sort described in cl 41.1, in such legislation with such inclusions which could possibly give rise to an illegality concern.
It therefore would not matter whether or not the sublease here was impliedly authorised by the statute. Likewise, it would not matter whether or not the sublease was, in fact, itself a creature of statute rather than of the common law, which Pullin J in his judgment (see [20]) also indicated was a matter of irrelevance to the question before him. For what it is worth, it seems to me that the Sublease is indeed a matter of common law, and not itself authorised by the Airport Act or the Transitional Act. It is rather an arrangement made possible by a lease granted under them. I do not consider that this conclusion is affected by the resolution of the more difficult question of whether or not the Lease to Westralia Airports Corporation was a matter of common law. The source of the difficulty is Transitional Act, s 17, which allows for land to be leased by the Commonwealth to itself, assuming that provision applies here. I so consider in view of the Note to the provision, which seems to indicate that the legislation is dealing with the Commonwealth as a lessor and lessee at common law with that modification.
I have concluded that I prefer the interpretation advanced by counsel for NAB, Messrs Ryan and Francis and Westgroup, for the reasons I have indicated. It is reasonably open on the language of the definition of "Statute" in Debenture cl 1.1, it is consistent with the other terms of the Debenture, and it appears to me to be preferable in terms of the commercial realities of a Debenture like this one.
It follows that I would dismiss both appeals.
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