Terranova v Secure Funding Pty Ltd
[2014] WASC 208
•12 JUNE 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: TERRANOVA -v- SECURE FUNDING PTY LTD [2014] WASC 208
CORAM: ALLANSON J
HEARD: 6 JUNE 2014
DELIVERED : 12 JUNE 2014
FILE NO/S: CIV 1720 of 2014
MATTER :An Application pursuant to Sections 103 and 104 of the Civil Judgments Enforcement Act 2004 in relation to a property (seizure and delivery) order dated 25 March 2014
BETWEEN: SALVATORE TERRANOVA
ANGELINA TERRANOVA
PlaintiffsAND
SECURE FUNDING PTY LTD
First DefendantPATRIZIA TERRANOVA
Second Defendant
Catchwords:
Property law - Application to prevent enforcement of property (seizure and delivery) order - Parties executed a deed of priority regarding their securities - Construction of deed - Turns on own facts
Legislation:
Civil Judgments Enforcement Act 2004 (WA), s 103, s 104
Transfer of Land Act 1893 (WA), s 106, s 108, s 116
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiffs: Mr I R Gillon
First Defendant : Mr M F Holler
Second Defendant : Mr G Grasa
Solicitors:
Plaintiffs: Lawton Gillon
First Defendant : Norton Rose Fulbright Australia
Second Defendant : GG Legal
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7
Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd [1999] HCA 20; (1999) 196 CLR 245
Partridge v McIntosh & Sons Ltd [1933] HCA 38; (1933) 49 CLR 453
Re Real Estate and Business Agents Supervisory Board; ex parte Cohen [1999] WASCA 47
ALLANSON J: These proceedings were commenced by originating summons, filed 27 May 2014. The plaintiffs, Salvatore and Angelina Terranova, seek orders including a declaration that they are entitled to possession of a property situated at 23 Harris Road, Malaga in priority to the first defendant. The plaintiffs also seek orders to prevent the enforcement of a property (seizure and delivery) order dated 25 March 2014 issued by this court on application by the first defendant, Secure Funding Pty Ltd, in respect of the Malaga property.
This action originally came before me on 28 May 2014 on an interlocutory application by the plaintiffs to prevent the pending enforcement by the sheriff of the property (seizure and delivery) order. The underlying dispute is of sufficiently limited compass that, at the suggestion of counsel for the first defendant and with the agreement of the plaintiff, the matter was programmed through to an early hearing of the originating summons. The second defendant is currently incurring a substantial daily interest charge to the first defendant, and an early resolution is called for.
The evidence
The evidence is found in three affidavits and their attachments:
1.affidavit of Salvatore Terranova, filed on behalf of the plaintiffs in the interlocutory proceedings, dated 26 May 2014;
2.affidavit of Nicolas Robert White, filed on behalf of the first defendant in the interlocutory proceedings, dated 27 May 2014;
3.supplementary affidavit of Mr White dated 3 June 2014.
The attachments to the affidavits include the relevant agreements upon which the decision in this action depends.
The facts
The second defendant, Patrizia Terranova, is the daughter‑in‑law of the plaintiffs. She is the registered proprietor of the Malaga property. The second defendant appeared by a solicitor, but did not seek to be heard in the action.
The plaintiffs hold two registered mortgages securing (initially) two separate sums which total $2,750,000. Since the mortgages were executed, further sums have been advanced by the plaintiffs and those sums may also be secured by the mortgages. It is not necessary in this action to decide the total amount secured.
The Malaga property is formally described as Lot 57 on Plan 42776 and being the whole of the land comprised in certificate of title volume 2584 folio 733. The certificate of title shows the following encumbrances in order of priority:
1the mortgages to the plaintiffs, each registered on 20 July 2007;
2.a mortgage to the first defendant, registered on 2 April 2008;
3.a mortgage to Boral Resources (WA) Ltd, registered on 2 April 2008.
Caveats have been lodged on the title by Boral Resources (on 2 April 2008), the plaintiffs (on 5 August 2009), and Boral Formwork and Scaffolding Pty Ltd (on 3 September 2009). A memorial under s 76 of the Taxation Administration Act 2003 (WA) was lodged on 30 November 2009.
On 26 March 2008, the first defendant and the plaintiffs (and others) executed a Priority Deed with regard to their securities. This is the central document in these proceedings and I will return to it in detail later. For the present, I note that the securities held by the first defendant included a registered mortgage over the Malaga property, and a mortgage granted by the second defendant and her husband over another property (the Carine property). The plaintiffs hold mortgages over the same two lots in Malaga and Carine.
On 10 September 2012, the solicitors for the first defendant gave notice to other security holders (OneSteel and Boral Resources) under cl 7(b) of the Priority Deed (see below) that:
1.Antonio Terranova and Patrizia Terranova had defaulted under the mortgage;
2.the first defendant had issued default notices and the mortgagors had failed to remedy the default; and
3.the first defendant had instructed them to commence legal proceedings for repayment of the money and possession of the properties.
On 19 January 2014, a registrar of this court made orders in CIV 2750 of 2012, an action by Secure Funding against Patrizia Terranova and Antonio Terranova, that:
1.Secure Funding be given vacant possession of the Malaga property within seven days of the entry of the order.
2.Judgment be entered in favour of Secure Funding against Patrizia Terranova for the amount of $2,977,488.46, as at 10 April 2013, and interest on that sum from 10 April 2013 until the date of payment of judgment at the rate of 19% per annum, being a daily rate of $1549.93, plus costs, charges and expenses under the Loan Agreement.
3.Antonio Terranova and Patrizia Terranova pay Secure Funding's costs of the action on a solicitor and own client basis.
On or about 21 May 2014, the first named plaintiff became aware that the sheriff would be taking possession of the Malaga property the following day. He thought that someone else taking possession of the land could compromise the security that he and his wife held for repayment of the amounts they had advanced. On 22 May 2014, the plaintiffs appointed agents to exercise their rights under the mortgages, and instructed them to take possession of the Malaga property. The plaintiffs' agents were in possession when an officer from the sheriff's office attended. That crystallised the dispute as to who was entitled to possession of the land, and whether the sheriff could enforce the property (seizure and delivery) order on behalf of the first defendant.
Over 420 days have passed since 10 April 2013. During that period, the amount owing to the first defendant has been reduced by the sale of the Carine property, which resulted in payment to the first defendant of $1,192,853.97. In his supplementary affidavit, Mr White deposes that the sum of $2,382,445.90 was outstanding at 2 June 2014. He does not depose to the daily rate of interest on the balance.
The plaintiffs' mortgages
The two mortgages to the plaintiffs are in the same terms. Each includes a mortgage of the 'Additional Security Property' (the Carine property) to the plaintiffs.
By cl 9(b), the mortgagor may not create or suffer to exist any security interest over the land without first obtaining the consent of the mortgagee.
Clause 11 defines the events of default under the mortgage. They include:
(e)the holder of a mortgage or charge over any of the property of the Mortgagor enforces, or attempts to enforce, any right under that mortgage or charge;
(f)a Security Interest over property of the Mortgagor becomes enforceable or is enforced;
…
(k)execution is levied on, or other lawful process is issued against, any property of the Mortgagor;
…
(o)judgment is obtained against the Mortgagor in any court which remains unsatisfied for twenty eight days from its date and without lodgement of notice of appeal having been made within the proper time.
By cl 12, if an event of default occurs, the Mortgagee may demand immediate repayment of the money secured and exercise any of the Mortgagee's powers under the mortgage. The Mortgagee's powers are set out in cl 13, and include:
(e)The Mortgagee will, on the occurrence of an Event of Default, have the following powers in respect of the Land:
(i)to take possession of, collect, and get in the Land;
(ii)to lease or licence property;
…
(vi)to sell or concur in selling property …
By cl 12(f), the Mortgagee may exercise the Mortgagee's powers without proof of default, whether or not the default continues, and notwithstanding any neglect or previous waiver by the Mortgagee. The Mortgagee need not allow any time to lapse before exercising any Mortgagee's power unless such lapse of time is required by law: cl 12(g). Delay in exercising any Mortgagee's power will not operate as a waiver of that power, and single or partial exercise of any power does not preclude any other or further exercise of that power or the exercise of any other: cl 12(i), (j).
The first defendant's mortgage
On 18 February 2008, Antonio and Patrizia Terranova executed a commercial loan agreement with the first defendant for an amount of $2.6 million (including fees and charges included in the loan amount). Securities for the loan were mortgages over the Carine property and the Malaga property, and a guarantee by AT Concrete Pty Ltd.
A special condition to the loan agreement was, 'Deed of Priority to be given in our favour by Salvatore & Angelina Terranova (documents to be prepared & provided at settlement by ourselves)'.
Clause 8 of the loan agreement set out when the borrower was in default. The events described in cl 8.1 are defined in cl 17 as an 'event of default'.
The security for the loan included a mortgage executed by Patrizia Terranova, as the registered proprietor of the Malaga property, on 14 March 2008. The terms of the mortgage are set out in a memorandum of common provisions. Relevantly by cl 21.2, after an event of default has occurred, the mortgagee may sue for the amount owing, appoint one or more receivers, and do anything that a receiver could do under cl 22.4. The powers of a receiver under cl 22.4 include the power to take or give up possession of the property as often as it chooses, to sever, remove and sell fixtures, and to do anything else the law allows an owner or a receiver of the property to do, and including improving, selling or leasing it.
The Priority Deed
The Priority Deed is dated 26 March 2008. The parties to it are:
1.the first defendant, as New Mortgagee;
2.Boral Resources and OneSteel, each of which held security over property of Antonio and Patrizia Terranova;
3.the plaintiffs, as Subsequent Mortgagee; and
4.Antonio and Patrizia Terranova, as Mortgagors.
Under the heading Background, the Priority Deed recites:
A.The New Mortgagee has at the request of the Mortgagors made available and/or proposes to make available financial accommodation on the security specified in Item 1 (New Mortgagee's Securities).
[B and C recite the financial accommodation made available by Boral and OneSteel, and the securities held]
D.The Subsequent Mortgagee has at the request of the Mortgagors made available and/or proposes to make available financial accommodation on the security specified in Item 4 (Subsequent Mortgagee's Securities).
E.The New Mortgagee, Boral, OneSteel and the Subsequent Mortgagee (the Lenders and each a Lender) have agreed to regulate the priorities between the New Mortgagee's Securities, Boral's Securities, OneSteel's Securities and the Subsequent Mortgagee's Securities (singularly and collectively called the Securities) on the terms set out in this Deed.
By cl 2(a), the Lenders consent to the execution and registration of the Securities.
Clause 3 is headed Priorities. It provides:
Despite:
(a)the order in which:
(i)the Securities are executed, lodged for registration or registered;
(ii)financial accommodation was or is made or becomes owing under the Securities actually or contingently;
(iii)bills of exchange are accepted, discounted, or rolled over; or
(iv)anything else occurs;
(b)anything contained in the Securities;
(c)the repayment in whole or in part from time to time of any of the money secured by the Securities;
(d)the furnishing or re‑furnishing of additional accommodation secured by the Securities;
(e)the fluctuation from time to time of the money secured by the Securities;
(f)any partial release of any of the Securities;
(g)any amendment or variation of the terms of any of the Securities;
(h)the appointment of any receiver, receiver and manager, liquidator, provisional liquidator, trustee, inspector, official manager, or similar person to the Mortgagors or to the whole or any part of its assets, undertaking or property or other steps being taken by the Lenders to enforce all or any part of the Securities;
(i)that any amount due to the Lenders is not immediately payable or is due contingently;
(j)that the financial accommodation is provided by way of bill facility or some other arrangement whereby the liability is periodically renewed, revived, or re‑established;
(k)any dealing or transaction on any account or of any kind between the Mortgagors and any other person;
(l)any rule of law or equity to the contrary or anything else; or
(m)notice of any matter specified in sub-clauses (a) to (l) of this clause;
the Securities will 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)second priority on Boral's Securities up to and including the amount specified in Item 6;
(iii)third priority on OneSteel's Securities up to and including the amount specified in Item 7;
(iii)fourth priority on the Subsequent Mortgagee's Securities up to and including the amount specified in Item 8;
(iv)thereafter absolute priority to the New Mortgagee's Securities for the balance of money thereby secured, if any.
[The repetition of par (iii) is in the original Deed.]
By cl 4, no Lender is obliged to marshal in favour of the other. Clause 4 also provides 'If either Lender's Securities become enforceable each Lender in its absolute discretion may determine the extent (if any) to which it will have recourse to any of the Securities'.
The power to appoint a receiver is regulated by cl 6:
(a)Each Lender must give the other Lenders at least 24 hours written notice before taking any step towards exercising the power under any of the Securities to appoint a Receiver in relation to the relevant property.
(b)Nothing in clause 6(a) requires any Lender to obtain the consent or approval of the other before exercising any power nor is compliance with the provisions of clause 6(a) a condition precedent to the exercise of that power.
(c)The Lenders may, by agreement, in any particular instance, waive compliance with clause 6(a).
If the Mortgagors default in payment of any money secured by any of the Securities, or do not comply with any term of the Securities, or if the money secured becomes immediately due and payable, then even if the Mortgagors are not in default by any other Lender under the other Securities, the money secured by the other Securities may be treated as having also become immediately due and payable: cl 7(a). This is subject to cl 7(b). Under cl 7(b), if the Mortgagors default under the New Mortgagee's Securities and the New Mortgagee wishes to take steps to enforce its Securities then it must provide details of the default to Boral and OneSteel, which will then have a period of 14 days from the date of notification to endeavour to procure rectification by the Mortgagors of that default. By cl 7(b)(iii):
If Boral or OneSteel does not procure the rectification of the default within the period specified in clause 7(b)(ii) or notifies the New Mortgagee that it will not procure the rectification of such default within 7 days, the New Mortgagee will be at liberty to exercise its rights under the New Mortgagee's Securities.
Clause 8 contains administrative provisions including, in cl 8.4, that the execution of the Deed is without prejudice to the rights, powers and remedies of the Lenders under the Securities.
The schedule to the Priority Deed describes the securities and priority of each Lender. By item 5, the New Mortgagee's Priority is described in these 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).
The plaintiffs' priority as Subsequent Mortgagee is described in item 8 as:
$2,750,000.00 plus interest, costs, fees, charges, duties, and expenses (including legal expenses) which may be debited to the Mortgagors' account under the terms of the Subsequent Mortgagee's Securities.
The issue and submissions
The plaintiffs contend that the Priority Deed gives priority to the first defendant only in respect of proceeds from any sale of the secured land. The first defendant asserts a priority in respect of all of the mortgagee's powers, including the entitlement to possession of the property so as to exercise the power of sale.
The parties agreed that the issue was one of construction, and were in agreement regarding the general principles governing interpretation of contracts, as summarised by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 ‑ 110. To the extent there was any divergence between the parties as to principle, it was one of emphasis, with the first defendant stressing the need for a 'businesslike' interpretation.
The statutory context
The Transfer of Land Act 1893 (WA) is part of the context in which the Priority Deed must be construed.
By s 106, a mortgage under the Act, when registered, has effect as a security but does not operate as a transfer of the land: see Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd [1999] HCA 20; (1999) 196 CLR 245 [21]. It confers no immediate right to possession upon the mortgagee: Partridge v McIntosh & Sons Ltd [1933] HCA 38; (1933) 49 CLR 453, 468. See also Re Real Estate and Business Agents Supervisory Board; ex parte Cohen [1999] WASCA 47 [53], [54]. Until a discharge of the whole of the money secured, or until a transfer upon a sale shall have been registered, the mortgagee has the same rights and remedies at law and in equity 'as he would have had or been entitled to if the legal estate in the land or term mortgaged had been actually vested in him with a right in the mortgagor of quiet enjoyment of the mortgaged land until default …': s 116.
Section 106 provides also for default, and for the mortgagee to serve on the mortgagor notice in writing to pay the money owing or to perform and observe the covenants in breach. By s 108, the mortgagee has a statutory power to sell where the default continues.
Although it does not directly bear on the construction issue in this case, I note that the plaintiffs served notice of default and acted to take possession of the Malaga property after the second defendant was no longer lawfully entitled to possession as a result of the judgment of 19 January 2014.
The plaintiffs' submissions
The plaintiffs argue that cl 3 of the Priority Deed is not ambiguous, and its plain meaning is to modify the priority of the parties only in respect of entitlement to proceeds from the sale of the land. In effect, notwithstanding the first defendant's entitlement, in priority to the other lenders, to $2.6 million (plus costs, fees, duties, charges and expenses), the plaintiffs as Subsequent Mortgagee can go into possession of the land so as to hinder the exercise by the first defendant of its powers under its mortgage.
The plaintiffs argue that their construction is based on the plain meaning of the words and grammar of cl 3. They submit that the only definition of the New Mortgagee's Priority, in item 5 of the schedule, is a dollar amount. Further, they submit that the first defendant's interpretation of cl 3 is not found in the words used in that clause or in any other clause in the deed. They submit that there is no reference in cl 3 or otherwise to entitlement to possession or to any other power, but only an entitlement to the monies on sale. The plaintiffs argue that, had the parties intended to give priority in the manner contended by the first defendant, the Priority Deed could quite simply have been expressed to give first priority in respect of the exercise of powers as well as in entitlement to proceeds.
The plaintiffs submit that the first defendant may caveat the plaintiffs' mortgages and, in the event of a mortgagee sale by the plaintiffs, the first defendant would have security in respect of their first priority to the proceeds from the sale of the property. Further, if the plaintiffs sold the property but did not properly account to the first defendant in accordance with the Priority Deed, the plaintiffs would be directly liable to the first defendant to breach of contract.
Finally, the plaintiffs submit that cl 3 involves the plaintiffs' subordinating their rights as the holders of the first registered security and is for the benefit of the first defendant. If the clause is ambiguous, and the ambiguity cannot be resolved, then it should be construed according to the rule of contra proferentum and against the party for whose benefit it is intended to operate.
In my opinion, it is not necessary to resort to the rule of contra proferentum as any uncertainty of meaning can be resolved.
The first defendant's submissions
The first defendant's position is summarised in a quote from the reasons of the plurality in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 [35], with which they begin their written submissions:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.
Where the plaintiffs focus on cl 3 of the Priority Deed, the first defendant submits that cl 7 is the key. In particular, it refers to cl 7(b)(iii), and the agreement of the parties in that clause that, after giving notice in accordance with the provisions of cl 7(b), it will be at liberty to exercise its rights under its securities.
The first defendant also refers to cl 3, and submits that it is an error to focus on the amount the first defendant may recover in priority to other lenders, and to fail to give full effect to the terms of the agreement that 'the Securities will rank and operate at law and in equity so as to confer first priority on the New Mortgagee's Securities up to and including [that amount]' (emphasis added).
In effect, the first defendant argues that its construction is based in the language used by the parties. To confine the first defendant's priority under the deed to the amount which the first defendant may recover in priority to the other lenders would fetter the operation of the securities ranking first under the Priority Deed.
Consideration
In my opinion, the submissions of the first defendant should be accepted. The Priority Deed was made in the context where a commercial lender was providing finance on the security of property already encumbered to members of the registered proprietor's family. The loan agreement contained, as a special condition, the requirement for a deed of priority.
The Deed provided, in cl 3, that the securities held by the first defendant would rank and operate at law and in equity so as to confer first priority on the New Mortgagee's Securities 'up to and including' the stated amount. In my opinion, a reasonable businessperson would understand the intention of the parties in agreeing to this provision was to give priority to the securities held by the first defendant, including the rights and powers conferred to enable the securities to be effective.
That construction is reinforced by cl 7. First, that clause does not require the plaintiff to give notice, and the opportunity to remedy the default, to the plaintiffs despite the subordination of their security under the Priority Deed. Second, cl 7(b)(iii) expressly provides for the first defendant to be at liberty to exercise its rights under its securities.
The plaintiffs say they intend to sell the land, and would attempt to achieve the best price possible for the benefit of all parties. I have no reason to doubt that is true. But that is not determinative. The effect of the plaintiffs' construction would be to leave the first defendant vulnerable to the actions of the plaintiffs, despite their agreement to subordinate their rights in the context where the first defendant was advancing finance in a substantial amount.
For those reasons I would dismiss the application by originating summons. In my opinion, the right to possession asserted by the plaintiffs is inconsistent with the first defendant's contractual right under the Priority Deed to priority in the operation of its securities, and to its right under the mortgage to enforce its securities.
The plaintiffs point to the fact that the first defendant will need to 'deal with them', to enable the discharge of their mortgages, should the first defendant wish to sell the property. Should an issue arise, the parties may then be heard regarding how to resolve any dispute, for example by the application of Property Law Act 1969 (WA) s 55(2).
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