Terranova v Secure Funding Pty Ltd

[2015] WASCA 229

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   TERRANOVA -v- SECURE FUNDING PTY LTD [2015] WASCA 229

CORAM:   MARTIN CJ

NEWNES JA
MURPHY JA

HEARD:   1 OCTOBER 2015

DELIVERED          :   17 NOVEMBER 2015

FILE NO/S:   CACV 31 of 2015

BETWEEN:   SALVATORE TERRANOVA

ANGELINA TERRANOVA
Appellants

AND

SECURE FUNDING PTY LTD
Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :MASTER SANDERSON

Citation  :SECURE FUNDING PTY LTD -v- TERRANOVA [2014] WASC 476

File No  :CIV 2214 of 2014

Catchwords:

Mortgages - Priority of mortgages - Extent to which subsequent mortgagee enjoys priority under the terms of a deed of priority - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 58 r 10
Transfer of Land Act 1893 (WA)

Result:

Appeal dismissed

Category:    B

Representation:

Counsel:

Appellants:     Mr M C Goldblatt

Respondent:     Mr M F Holler

Solicitors:

Appellants:     Lawton Gillon

Respondent:     Norton Rose Fulbright Australia

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

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

MARTIN CJ: 

Summary

1. Angelina Terranova and Salvatore Terranova appeal from a decision of the master in which he made declarations with respect to the proper construction and effect of a deed of priority executed by Mr and Ms Terranova, Secure Funding Pty Ltd (the New Mortgagee) (the respondent) and others.  In particular, the master made declarations as to the extent of the priority enjoyed by the New Mortgagee under securities which it held as against the interests held by Mr and Ms Terranova under securities which they held over the same property, and made various ancillary and consequential orders to give effect to his conclusions.

2. For the reasons which follow, the master's conclusions as to the proper construction and effect of the securities held by the New Mortgagee were correct and this appeal should be dismissed.

The proceedings at first instance

1. The New Mortgagee commenced proceedings by originating summons purportedly issued pursuant to the provisions of O 58 r 10 of the Rules of the Supreme Court 1971 (WA). Although the issues raised by the originating summons involved the proper construction and effect of a series of documents, being essentially the securities granted in favour of the New Mortgagee, the relief sought went beyond relief of the character ordinarily granted on a summons for construction under O 58 r 10. The relief sought included declaratory relief with respect to a matter of fact, being essentially the balance owing to the New Mortgagee by the grantors of the securities and in respect of which the New Mortgagee was entitled to priority, and various consequential orders with respect to the distribution of the proceeds of sale of a property over which the New Mortgagee held a mortgage, and a further order that Mr and Ms Terranova discharge their securities over that property in the event that the proceeds of sale are distributed as directed by the court. As no party has suggested, either at first instance or on appeal, that the relief sought by the New Mortgagee went beyond relief properly available on a construction summons issued pursuant to O 58 r 10, it is unnecessary to give any consideration to that question.

2. In support of its application, the New Mortgagee relied upon an affidavit sworn by a solicitor acting on its behalf, to which various documents were attached.  Mr and Ms Terranova relied upon an affidavit sworn by Mr Terranova.  The originating summons was listed for hearing by the master on the basis that the evidence-in-chief of each party would comprise the affidavits to which I have referred.[1]  Neither deponent was required for cross‑examination, and the facts established by the affidavit evidence adduced were not contentious, either before the master or on appeal.

   [1] The reasons given by the master suggest that the master may have erroneously thought that the matter came before him on an application for summary judgment, but nothing turns on this.

The facts

1. The facts which follow are taken from the affidavits to which I have referred and are consistent with the findings made by the master.  The particular provisions of the securities granted to the New Mortgagee upon which the case turns will be considered in the context of my evaluation of the respective positions adopted by the parties.  The facts which follow provide the general context for that evaluation.  No party suggests that there is a particular fact or circumstance extrinsic to the terms of the securities which assists in the construction of the securities.

2. Ms Patrizia Terranova is the wife of Mr Antonio Terranova.  Mr Antonio Terranova is the son of Mr and Ms Terranova.  In 2005, Ms Patrizia Terranova became the registered proprietor of a property in Malaga, and Ms Patrizia Terranova and Mr Antonio Terranova became the registered proprietors of another property in Carine. 

3. In early 2007, Mr and Ms Terranova advanced a total of $2.75 million to their son and daughter‑in‑law.  In July 2007, mortgages in favour of Mr and Ms Terranova were registered against the titles to each of the Malaga and Carine properties securing all advances made by Mr and Ms Terranova to their son and daughter‑in‑law.

4. Ms Patrizia Terranova granted mortgages over the Malaga property in favour of other lenders in order to secure advances made to her and her husband.  Those mortgages were also registered against the title to that land.

5. In February 2008, Patrizia and Antonio Terranova entered into a loan agreement with the New Mortgagee with respect to an advance of $2.6 million, which included fees and charges.  That advance was secured by mortgages dated 14 March 2008 granted by Ms Patrizia Terranova over the Malaga property, and by Ms Patrizia Terranova and Mr Antonio Terranova over the Carine property, in favour of the New Mortgagee.  Those mortgages were registered against the title of each of those properties.

6. On 26 March 2008, the New Mortgagee, Mr and Ms Terranova, Mr Antonio Terranova and Ms Patrizia Terranova, and the two other secured lenders to whom I have referred entered into a deed of priority.  The proper construction and effect of that deed was the issue which had to be determined by the master and is the issue which must be determined in this appeal.

7. Shortly after execution of the deed of priority, the New Mortgagee advanced funds to Patrizia and Antonio Terranova pursuant to the loan agreement.  Thereafter Mr and Ms Terranova made further advances to their son and daughter‑in‑law, which at least arguably fall within the scope of the mortgage securities which they held over the Malaga and Carine properties.

8. In June 2009, Patrizia and Antonio Terranova entered into an agreement with the New Mortgagee to vary and extend the terms of the loan agreement.  The variations to the loan agreement altered the rate of interest payable on outstanding funds following an event of default and made provision for the payment of additional fees in certain circumstances.

9. In 2013, the Carine property was sold.  The net proceeds from the sale of the property, being $1,192,853.97, were paid to the New Mortgagee in reduction of the amount owing to the New Mortgagee by Patrizia and Antonio Terranova.

10. Patrizia and Antonio Terranova have defaulted in payment of the amounts due under the loan agreement to the New Mortgagee.  As a consequence, pursuant to the terms of the loan agreement, interest has been charged to their account at the higher rate applicable following an event of default, and certain other fees and charges have been debited to their account pursuant to the terms of the loan agreement.  The master assessed and declared that as at 8 January 2015 the amount due from Patrizia and Antonio Terranova to the New Mortgagee under the terms of the loan agreement, including interest charged at the default rate applicable under that agreement as varied, and including the fees and charges applicable under the loan agreement as varied, after allowing for payments made in reduction of the amount owing, including the proceeds of sale from the Carine property, was $2,768,980.56.  The master declared that the New Mortgagee was entitled to priority in that amount as at 8 January 2015 over any security interests held by Mr and Ms Terranova.

The master's reasons

1. One of the grounds of appeal asserts that the reasons given by the master for his conclusions are inadequate.  However, notwithstanding that ground of appeal, it is unnecessary to refer to the master's reasons in any detail for a number of reasons.

2. First, it is clear from the master's reasons that he accepted the construction of the security documents for which the New Mortgagee contends.  As I will refer to that construction in some detail in the context of my consideration of the parties' submissions on appeal, it is sufficient to note that the master accepted that construction, for reasons which he gave.

3. Second, in both written and oral submissions, counsel for Mr and Ms Terranova asserted that as there were no contentious issues of fact, this court was at no disadvantage, as compared to the master, in deciding the issue to be determined and should decide that issue for itself.  Counsel for the New Mortgagee did not submit otherwise.  It follows that consideration of the reasons given by the master would be a distraction from the determination of the issue which will resolve this appeal.

4. Third, the assertion that the master's reasons are inadequate is without substance.  In his reasons, the master clearly set out the process of reasoning which supported the construction for which the New Mortgagee contends, and his acceptance of that process of construction.

The parties' contentions

The New Mortgagee's contentions

1. The New Mortgagee contends, and the master held, that in the exercise of its securities, including in particular the mortgage security which it holds over the Malaga property, it is entitled to priority as against Mr and Ms Terranova in the full amount of the debt due to the New Mortgagee by Patrizia and Antonio Terranova calculated in accordance with the terms of the loan agreement and which is the amount secured by the mortgage.  The process of construction which is said to support that conclusion commences, appropriately, with the deed of priority.

The deed of priority

1. As I have noted, the deed of priority was executed by the New Mortgagee, Mr and Ms Terranova, Patrizia and Antonio Terranova, and two other secured creditors of Patrizia and Antonio Terranova. 

2. The recitals to the deed record that the New Mortgagee has agreed to make financial accommodation available at the request of Patrizia and Antonio Terranova on the security specified in item 1 of the schedule to the deed, being the securities described in the deed as the 'New Mortgagee's Securities'.  Item 1 of the schedule to the deed provides particulars of those securities, being the mortgages granted by Patrizia Terranova over the Malaga property, and by Patrizia and Antonio Terranova over the Carine property, in favour of the New Mortgagee.

3. The recitals to the deed also record that the parties to the deed holding security over the property of Patrizia and Antonio Terranova have agreed to regulate the priorities as between their respective securities on the terms set out in the deed.

4. Clause 3 of the deed of priority provides that notwithstanding a list of matters, including the order in which the securities were executed, lodged for registration or registered, the securities to which reference is made in the deed:

   [W]ill rank and operate at law and in equity so as to confer:

   (i)first priority on the New Mortgagee's securities up to and including the amount specified in Item 5;

   (ii)…

5. Item 5 in the schedule to the deed is headed 'New Mortgagee's Priority'.  It is in the following terms:

   $2,600,000.00 plus interest, costs, fees, charges, duties, and expenses (including legal expenses) which may be debited to the account under the terms of the New Mortgagee's Securities including:

   (a)any increased costs due to changes in reserve or capital adequacy requirements;

   (b)the amount of any expense, loss, damage, or liability including loss of profits incurred by the New Mortgagee arising from early repayment or default;

   (c)where interest has not been paid on due date capitalised interest and interest at the higher rate payable under the New Mortgagee's Securities,

   for all the New Mortgagee's Securities (not each individual Security in the New Mortgagee's Securities).

6. So, in general and perhaps imprecise terms, under the terms of the deed of priority, the New Mortgagee is given first priority, as against other secured creditors, in the amount 'which may be debited to the account under the terms of the New Mortgagee's Securities'.  The New Mortgagee's Securities are the mortgages granted to the New Mortgagee over the Malaga and Carine properties.  As the Carine property has been sold, and that mortgage discharged, the critical question becomes the identification of the amount 'which may be debited to the account under the terms of' the mortgage over the Malaga property granted to the New Mortgagee.  This much is common ground as between the parties.

The mortgage over the Malaga property

1. The mortgage over the Malaga property granted in favour of the New Mortgagee is in a form which is registerable under the Transfer of Land Act 1893 (WA) and has in fact been registered under that Act. In the form which provides the cover sheet for the mortgage, in addition to identifying the land, the parties and prior encumbrances registered over the land, the form specifies the principal sum secured to be the amount of $2.6 million, and the rate of interest to be 15%. The mortgage also incorporates the memorandum of provisions filed by the New Mortgagee with the Department of Land Information. That memorandum of provisions is applicable to all mortgages in favour of the New Mortgagee into which it is incorporated by reference.

2. The memorandum has been prepared in terms which might be described as 'plain English' addressed to the mortgagor.  Under the heading 'What you undertake in this mortgage', Item 1 of the memorandum relevantly provides:

   1.1By signing this mortgage you undertake certain obligations.  You also give us rights concerning you and the property - for example, if you do not comply with your obligations, we may take possession of the property, sell or otherwise deal with it, and sue you for any remaining money you owe us.

   1.2…

   1.3You agree to pay us on demand that part of the amount owing specified in the demand.  However, as long as you are not in default, this is subject to any contrary agreement in writing between you and us.

   1.4You may require us to release the property from this mortgage if there is no amount owing.  However, even if the amount owing is repaid, the property remains mortgaged to us until we actually release it from this mortgage.

3. In the memorandum, italic print is used to identify terms which are defined.  Clause 30.2 of the memorandum defines 'amount owing' in the following terms:

   30.2amount owing means, at any time, all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or any other transaction document.  Without limiting this definition, it includes money owing (or which will or may be owing) to us in our capacity as an assignee because we have taken an assignment of a transaction document or this mortgage itself, and whether or not:

   ·you were aware of the assignment or consented to it; or

   ·the assigned obligation was secured before the assignment; or

   ·the assignment takes place before, at the same time as, or after this mortgage is delivered.

4. The expression 'transaction document' is not defined in the memorandum of provisions.  However, cl 30.1 of that memorandum provides:

   30.1a term which has a defined meaning in the loan agreement has the same meaning when used in this mortgage unless it is expressly defined in this mortgage when the meaning in this mortgage prevails.

5. The expression 'loan agreement' is defined by cl 30.2 in the following terms:

   loan agreement means the loan agreement dated on or about the date of this mortgage between us and one or more of the obligors.

6. As will be seen, the expression 'transaction document' is a term defined in the loan agreement executed by Patrizia and Antonio Terranova shortly before Patrizia Terranova executed the mortgage over the Malaga property.

The loan agreement

1. The loan agreement between Patrizia and Antonio Terranova and the New Mortgagee comprises two documents - a schedule containing specific terms applicable to the particular loan, and standard terms and conditions to which reference is made in the schedule.

2. The schedule records that the amount of the loan is to be $2.6 million, which includes fees and charges in the amount of $61,886.60.  The schedule further provides that the interest rate applicable to the loan is to be a variable rate, being the rate applicable to similar variable rate loans made by the New Mortgagee from time to time.  As at the date of the schedule, the interest rate was 15%.  However, the schedule also provides that the default rate at any time is to be the variable interest rate plus a margin of 4% per annum.  As I have noted, that margin was varied by the subsequent variation to the loan agreement, to which I will refer below.

3. The schedule further provides that the term of the loan was to be a period of one year commencing from and including the 'settlement date', a term defined in the standard terms and conditions to mean the date upon which any part of the principal amount of the loan is first lent to the borrower.

4. The standard terms and conditions of the loan agreement adopt the same style as the memorandum of provisions of mortgage used by the New Mortgagee - namely, the style of plain English addressed to the borrower.

5. Item 4 of the standard terms and conditions is headed 'What you must pay and when'.  Clause 4.1 provides:

   4.1You must repay us all amounts you borrow from us and you must pay us interest charges, our fees and charges and government charges and any enforcement expenses.

6. Item 8 of the standard terms is headed 'If you are in default'.  Clause 8.1 lists the circumstances which give rise to a default.  Under the heading 'Higher interest charges', cl 8.4 provides:

   The obligor must pay interest charges at a higher rate - the default rate - on the balance owing on your loan account and any other amount which is due for payment under the transaction documents whilst you are in default.

7. As with the memorandum of standard conditions of mortgage, the use of italicised print denotes that the words used comprise a defined term.  The expression 'balance owing on your loan account' is defined by cl 17 of the standard terms to mean:

   [A]t any time, the difference between all amounts credited and all amounts debited to you under this agreement at that time plus any amounts outstanding but not credited or debited to you at that time less any amounts credited or debited to you but not cleared by the banking system at that time. …

8. The same clause defines the expression 'transaction documents' to mean:

   [T]his agreement, all securities and any other document that we notify you to be a transaction document.

9. The word 'security' is defined by cl 17 of the standard terms to mean each security interest described in the schedule under the heading 'Security'.  The schedule refers to mortgage securities over the Carine and Malaga properties under the heading 'Securities'.

The loan variation

1. As I have noted, in June 2009 Patrizia and Antonio Terranova agreed with the New Mortgagee to vary the terms of the loan agreement.  The agreed variations included an amendment to the provision in the schedule relating to the default rate of interest, so that the default rate was thereafter the variable rate plus a margin of 6% per annum.  The variation also entitled the New Mortgagee to levy additional charges in certain defined circumstances.  The documents comprising the loan variation agreement are expressly stated to constitute 'transaction documents' for the purposes of the loan agreement.

1. The New Mortgagee submits that these documents, read together, disclose a consistent, coherent and sensible commercial scheme.  Under that scheme, the New Mortgagee is given first priority in respect of the amount 'which may be debited to the account under the terms' of the Malaga mortgage.  The Malaga mortgage obliges the mortgagor to pay the 'amount owing' on demand, and secures the mortgagor's interest in the mortgaged property in favour of the New Mortgagee until there is no 'amount owing'.  Although the Malaga mortgage document itself does not expressly refer to the debiting of any account, the Malaga mortgage does define the term 'amount owing' to mean all money owed under the mortgage or any other 'transaction document'.  As terms defined in the loan agreement are to be given the same meaning when used in the mortgage, the term 'transaction document' in the mortgage must be given the meaning which it is given in the loan agreement, and therefore includes the loan agreement itself, and the agreement to vary the loan agreement.  Thus, the 'amount owing' which is secured by the mortgage is the amount owing under the loan agreement as varied.

2. The amount owing under the loan agreement as varied is the amount calculated in accordance with the definition given to the expression 'balance owing on your loan account' being, in essence, the difference between all amounts credited and all amounts debited to the account of the borrower under the loan agreement.  Thus, the reference in item 5 of the deed of priority to the amount of principal plus other amounts debited to the account under the terms of the Malaga mortgage is to be construed as a reference to the amount secured by that mortgage which is in turn assessed by reference to the balance of account owing as defined in the loan agreement.

3. So, the reference to 'the account' in item 5 of the deed of priority is entirely explicable if the item is read with both the Malaga mortgage and the loan agreement, but inexplicable if read only with the Malaga mortgage, which makes no express reference to any 'account'.  Similarly, the express reference in item 5 to interest payable at 'the higher rate' is only explicable if read in conjunction with both the Malaga mortgage and the loan agreement, because the Malaga mortgage itself makes no reference to a differential rate of interest in the event of default.  Further, the New Mortgagee submits that reading item 5 of the deed of priority in the context of both the Malaga mortgage and the loan agreement is entirely consistent with the natural and ordinary meaning of the words used in the security documents because the amount secured by the Malaga mortgage is the amount owing under the mortgage document itself, or under any other 'transaction document', and therefore includes any amount owing under the loan agreement as varied.

Mr and Ms Terranova's contentions

1. Mr and Ms Terranova contend, in effect, that the New Mortgagee only has first priority in respect of amounts due under the mortgage, read without reference to the loan agreement.  This contention, if accepted, would mean that the New Mortgagee would only have priority in an amount calculated by reference to the rate of interest specified in the mortgage document - namely, 15%, that interest would not be compounded, and that amount would not include the various charges which the New Mortgagee is able to levy under the loan agreement as varied.  Mr and Ms Terranova are unable to quantify the amount in respect of which the New Mortgagee would have first priority calculated by reference only to the Malaga mortgage, and without reference to the loan agreement, and contend that the amount would have to be recalculated.  It is, however, clear from the statements of account tendered in evidence that if interest is applied to the balance outstanding from time to time at the flat rate of 15% and calculated without compounding, and the fees and charges levied by the New Mortgagee under the loan agreement are excluded from consideration, the amount in respect of which the New Mortgagee would have first priority under the deed of priority would be significantly less than the amount calculated by reference to the loan agreement.

2. In support of the contention advanced on behalf of Mr and Ms Terranova, reliance is placed upon the terminology in item 5 of the deed of priority, which confers priority in respect of amounts which may be debited 'under the terms of', relevantly, the Malaga mortgage.  It is submitted that if the parties intended that the New Mortgagee would have first priority in respect of all amounts able to be debited under the loan agreement, they would have said so, and they did not.

3. This submission must be rejected for a reason which can be stated quite simply.  The amount secured by the Malaga mortgage expressly includes any amount owing under the loan agreement, because of the definition of the expression 'amount owing' in the mortgage.  It would therefore have been otiose, and entirely unnecessary, to refer to any amount due under the loan agreement in item 5 of the deed of priority because all such amounts are secured by the Malaga mortgage.

4. Reliance is also placed on the decision in Chan v Cresdon Pty Ltd[2] in support of the contention advanced on behalf of Mr and Ms Terranova.  That case concerned a claim by a lessor against guarantors who had guaranteed the performance by the lessee of its obligations 'under this lease'.  The lease was for a term of five years, but it was not registered under the Real Property Act 1861 (Qld) with the result that it was not 'effectual to pass any estate or interest in' the land.[3]  However, the lessee's entry into possession and payment of rent created a tenancy at common law.  The question for determination was whether the obligations of the lessee under the tenancy at common law were obligations 'under this lease' and therefore within the scope of the guarantee.  The High Court held[4] that the lessee's obligation to pay rent did not arise 'under this lease' and was not therefore the subject of the guarantee.

   [2] Chan v Cresdon Pty Ltd (1989) 168 CLR 242.

   [3] Section 43 of the Real Property Act 1861 (Qld).

   [4] Toohey J dissenting.

5. Reliance is placed on the following passage from the judgment of the majority:[5]

   [T]he obligation to pay rent under that covenant in the common law tenancy at will was not, in our opinion, an obligation 'under this lease' …  The implied or imputed common law tenancy at will was distinct from the unregistered lease which, as will be seen, s 43 rendered ineffectual as a tenancy at common law.  The word 'under', in the context in which it appears, refers to an obligation created by, in accordance with, pursuant to or under the authority of, the lease.  The obligation which arose under the common law tenancy at will does not answer this description.

   [5] Mason CJ, Brennan, Deane & McHugh JJ.

6. This decision does not support Mr and Ms Terranova's argument.  In Chan v Cresdon Pty Ltd the court identified two distinct potential sources of the lessee's obligation to pay rent.  One potential source was the obligation created by the execution of the lease document.  The other potential source was the obligation created by the lessee entering into possession and paying rent.  The guarantor had guaranteed performance of the former obligation by guaranteeing the performance of all obligations owed 'under this lease' but had not guaranteed the performance of the obligation arising under the common law tenancy.  Because the lease document was ineffective to pass any estate or impose any obligation until registered, the lessee's obligation to pay rent under the tenancy at common law was not an obligation falling within the scope of the guarantee.

7. The circumstances of the present case are quite different.  There are not two separate and discrete sources of the debt which is secured by the Malaga mortgage and in respect of which the New Mortgagee is given first priority by item 5 of the deed of priority.  The amount secured by the mortgage is to be found within the terms of the mortgage itself.  Those terms expressly incorporate any and all amounts owing to the New Mortgagee pursuant to the terms of the loan agreement.  There is and can only be one amount secured by the Malaga mortgage.  It is the amount which falls within the definition of the term 'amount owing' in the memorandum of provisions of mortgage.  Because that term expressly incorporates any amount owing under the 'transaction document', which includes the loan agreement, those amounts are, by definition, secured by the mortgage.

8. There are a number of other reasons why the contention advanced on behalf of Mr and Ms Terranova must be rejected.  First, it is not consistent with the natural and ordinary meaning of the words used in the security documents.  By their natural and ordinary meaning, the words used in item 5 of the deed of priority confer first priority upon the New Mortgagee in respect of the amount secured by the Malaga mortgage.  By the natural and ordinary meaning of the words used in the definition of 'amount owing' in the Malaga mortgage, the mortgage secures any and all amounts owing under any 'transaction document', including the loan agreement.  It follows that item 5 of the deed of priority confers first priority upon the New Mortgagee in respect of the amount secured by the Malaga mortgage, which includes all amounts owing under the loan agreement.

9. Second, unless item 5 of the deed of priority is read in the context of and by reference to the loan agreement, some of its express terms are inexplicable.  They include the express reference to the debiting of an account, when no reference to an account is made in the Malaga mortgage.  However, the loan agreement makes express reference to an account and obliges the borrower to pay the balance owing on that account.  Further, item 5 of the deed of priority makes express reference to the payment of interest at a higher rate when interest has not been paid on the due date.  The Malaga mortgage makes no reference to any differential rate of interest payable following default.  However, the loan agreement makes express reference to such a rate.  These terms therefore manifest a clear intention that the deed of priority is to be read with both the Malaga mortgage and the loan agreement, and that the New Mortgagee is given first priority in respect of the amount owing in accordance with both the Malaga mortgage and the loan agreement.

10. Third, acceptance of the contention advanced on behalf of Mr and Ms Terranova would have the consequence that the New Mortgagee would have first priority in respect of an amount which is different to the amount secured by the Malaga mortgage, because it would be calculated by reference only to the mortgage instrument, and without reference to the loan agreement, even though the Malaga mortgage by its express terms secures amounts due under the loan agreement.  Counsel for Mr and Ms Terranova was unable to suggest any reason why the parties might be thought to have intended to produce such an uncommercial circumstance, nor was counsel able to point to any words used in any of the security documents which would suggest that this was the intention of the parties other than the use of the word 'under' in item 5 of the deed of priority.  However, the emphasis placed in argument upon the use of that word in the deed of priority is misplaced for the reasons I have given.

Summary and conclusion

1. The construction which the New Mortgagee places upon the security documents is consistent with the natural and ordinary meaning of the language used and produces a consistent coherent and commercial outcome.  By contrast, the construction of the deed of priority for which Mr and Ms Terranova contend is not supported by the language used, or by the authority upon which reliance was placed and would produce an entirely uncommercial outcome.  The master was correct to adopt the construction for which the New Mortgagee contends and this appeal should be dismissed.

2. NEWNES JA:  I agree with Martin CJ.

3. MURPHY JA:  I agree with Martin CJ.