Salta Constructions Pty Ltd v St George Bank - [2014] VSCA 289

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2014 0008
SALTA CONSTRUCTIONS PTY LTD	Appellant
v
ST GEORGE BANK, A DIVISION OF WESTPAC BANKING CORPORATION LIMITED	Respondent

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JUDGES:	WARREN CJ, TATE and BEACH JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	12 November 2014
DATE OF JUDGMENT:	19 November 2014
MEDIUM NEUTRAL CITATION:	[2014] VSCA 289
JUDGMENT APPEALED FROM:	[2013] VSC 685 (Judd J)

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GUARANTEE – Obligation secured by mortgage – Whether demand made under guarantee – Notice of default – Whether notice of default constituted a demand for payment – Whether demand required before mortgagee could apply proceeds of sale of secured property in discharge of guarantor’s liability.

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APPEARANCES:	Counsel	Solicitors
For the Appellant	Mr R M Garratt QC with Mr T D Best	Logie-Smith Lanyon
For the Respondent	Mr D A Savage QC with Mr B Carew	Gadens

WARREN CJ
TATE JA
BEACH JA:

Introduction

This case concerns a dispute between the appellant (‘Salta Constructions’) and the respondent (‘St George’) over the proceeds of the sale of a mortgaged property (‘the property’) situated at 22 Delhi Street, West Perth. The property was sold by receivers appointed by St George under a contract of sale dated 18 July 2012 (later novated to St George) for a price of $20 million. Settlement of the sale occurred on 16 November 2012. Following settlement, St George retained the proceeds of sale as monies it claimed it was owed pursuant to certain loans and guarantees and pursuant to the terms of a first mortgage (‘the mortgage’) granted to it in December 2003 by First State Developments (WA) Pty Ltd (‘FSDWA’).

Subsequent to the grant of the mortgage to St George, in 2009 two further mortgages were granted over the property by FSDWA. These mortgages were granted to Salta Constructions. In the proceeding below, Salta Constructions sought orders the substance of which would have resulted in a payment to it of part of the proceeds of sale of the property pursuant to its mortgages.

The central issue at trial concerned the application of the principles in Hopkinson v Rolt.[1] There were also issues concerning the proper construction of the mortgage, and the construction and effect of a notice of default dated 3 August 2012 (‘the notice of default’) that had been served by St George on FSDWA.
[1](1861) 9 HL Cas 514.

After a two day trial, a judge of the Commercial Court rejected Salta Constructions’ Hopkinson v Rolt case and upheld St George’s argument concerning the construction and effect of the notice of default. In the result, the proceeding brought by Salta Constructions was dismissed.

In this appeal, Salta Constructions seeks an order setting aside the judgment below and a declaration that there be an accounting of the balance of the proceeds of sale of the property. No issue is taken with the judge’s conclusions in respect of the Hopkinson v Rolt part of the case. The central issues in the appeal concern the proper construction of the mortgage,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2014] VSCA 289
Decision Date: 19 November 2014

CaseChat Overview and Summary

In the Federal Court of Australia, Salta Constructions Pty Ltd, the mortgagor, sued St George Bank, the mortgagee, over the interpretation of a guarantee agreement. The central dispute revolved around the conditions under which the bank could apply the proceeds from the sale of the mortgaged property to discharge the guarantor's liability. The bank claimed that it had the right to apply the sale proceeds directly to the guarantor's obligation without making a formal demand for payment. The mortgagor argued that a formal demand was necessary before the bank could discharge the guarantor's liability by applying the proceeds.

The court needed to determine whether the notice of default sent by the bank to the guarantor constituted a demand for payment under the guarantee agreement, and if such a demand was a prerequisite for the bank to apply the sale proceeds to the guarantor's liability. This involved interpreting the terms of the guarantee and the associated notice of default. The court considered whether the notice of default sufficiently communicated a demand for payment or if it merely informed the guarantor of the default. The outcome hinged on whether this notice of default satisfied the requirement for a formal demand as stipulated in the guarantee agreement.

The court concluded that the notice of default did not constitute a demand for payment under the guarantee agreement. It held that a formal demand was required before the bank could apply the proceeds of sale to discharge the guarantor's liability. The notice of default was insufficient because it did not explicitly demand payment from the guarantor. Consequently, the bank could not apply the sale proceeds to discharge the guarantor's obligation without first making a formal demand. This decision underscores the importance of precise wording in guarantee agreements and the necessity for clear communication of demands for payment.

The court ordered that the bank could not apply the proceeds of the sale of the mortgaged property to discharge the guarantor's liability until a formal demand for payment was made. This ruling clarified the rights and obligations of the parties under the guarantee agreement, ensuring that the mortgagor was not prejudiced by the bank's inability to apply the proceeds without proper notice.

Orders