Vrkic v Otta International

[2003] NSWSC 433

CITATION:	Vrkic v Otta International [2003] NSWSC 433
HEARING DATE(S):	21 May 2003
JUDGMENT DATE:	5 June 2003
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	First defendant has an unregistered equitable mortgage, which has priority to later unregistered equitable mortgage of second defendants. Money in court ordered to be paid out to first defendant.
CATCHWORDS:	MORTGAGES - priority of estates, debts and encumbrances - whether a particular set of documents confers an unregistered equitable mortgage
LEGISLATION CITED:	Real Property Act 1900 Trustee Act 1925
CASES CITED:	Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1997) 42 NSWLR 409 Elderly Citizens Homes of South Australia Inc v Balnaves (1998) 72 SASR 210 Fitzgerald v Masters (1956) 95 CLR 420 Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 Hoyts Pty Ltd v Spencer (1919) 27 CLR 133 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429
PARTIES :	Danny Vrkic, as liquidator of Entervin Pty Limited (in liq) - Plaintiff Otta International Pty Ltd - First Defendant Martin Junker and Irene Bondarew - Second Defendants
FILE NUMBER(S):	SC 5419/02
COUNSEL:	No appearance - Plaintiff M Cohen - First Defendant R W Tregenza - Second Defendants
SOLICITORS:	No appearance - Plaintiff Unrepresented - First Defendant Peter Winters & Co - Second Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

5 JUNE 2003

5419/02 DANNY VRKIC, AS LIQUIDATOR OF ENTERVIN PTY LTD (IN LIQ) v OTTA INTERNATIONAL PTY LTD & ORS

JUDGMENT

HIS HONOUR:

Nature of the Proceedings

1 Entervin Pty Ltd (in liq) was the registered proprietor of land known as 4 Wall Avenue, Asquith. Each of the first defendant (“Otta”) and the second defendants (Ms Bondarew and Mr Junker) claim to hold equitable mortgages over that property. These proceedings concern the nature of the rights which each of those defendants has over the property, and the respective priorities of those rights.

Procedural Background to these Applications

2 The plaintiff in these proceedings, Mr Vrkic, is the liquidator of Entervin Pty Ltd. He sold the Asquith property, and paid out a registered first mortgagee of that property. He was aware that Entervin Pty Ltd had purported to agree to mortgage the Asquith property on numerous occasions to people other than the first mortgagee, and that the claims of the people to whom Entervin Pty Ltd had agreed to mortgage it would more than exhaust the amount remaining from the net proceeds of sale after paying out the first mortgagee. He was also aware that there were disputes between at least some of these people as to the respective priority of their rights. Mr Vrkic recognised that he was a trustee of the proceeds of sale remaining in his hands after payment out of the first mortgagee for whoever might have been the subsequent encumbrancers, in their order of priority, but did not know what their order of priority was. In these circumstances he availed himself of section 95 Trustee Act 1925, which enables a trustee to pay money into court.

3 On 5 December 2002 the court made orders for the payment of a little over $130,000 into court (being a sum ascertained after paying from the net proceeds of sale the liquidator’s remuneration for realisation of the Asquith property, the liquidator’s legal costs in relation to the proceeds of sale of the Asquith property, and the liquidator’s legal costs of the application under section 95). The court directed that the liquidator serve a copy of the orders on each of the people concerning whom the liquidator had notice of a possible agreement to mortgage the Asquith property, that any person making a claim in relation to the net proceeds of sale paid into court file a Notice of Appearance within 28 days after service of the orders on him or her, that upon the filing of such a Notice of Appearance that person would become a defendant in the proceedings, and that the plaintiff be excused from further appearance or participation in the proceedings upon that service being effected.

4 Service having been effected as directed, three claims were made to the fund in court. Those claims were made by Otta, Ms Bondarew and Mr Junker, and by a Mr and Mrs Watson. Since making their claim, Mr and Mrs Watson have elected not to pursue it any further. The applications which I heard related, therefore, only to the respective rights inter se of Otta on the one hand, and the second defendants on the other. Each of those parties filed a Notice of Motion seeking, under section 98(3) Trustee Act 1925, payment out to it of the money which was paid into court, together with any accrued interest.

Otta’s Documentation

5 Otta is the trustee of the Otta International Pty Ltd Superannuation Fund. Its managing director is Mr Thomas Terei. He was attracted by an advertisement in the Sydney Morning Herald which sought investors to provide funds for use in property development projects, and offered a 30% return. Mr Terei, through responding to that advertisement, came to meet a Mr John Bradshaw. Mr Terei decided to cause Otta to invest in a development of nine warehouses at lot 222 Derby Street, Silverwater, which Mr Bradshaw was organising through various corporate entities.

6 On 15 February 2001 Mr Terei and Mr Bradshaw met. Mr Bradshaw handed Mr Terei a letter reading:

“Herewith is a full set of documents as listed below:
One Deed of Equity Participation
Share Issue Form No.207
2nd Mortgage Document
One Caveat
2nd Mortgage Document Wall Avenue Asquith (unregistered)
Share Certificate.”

7 That letter was accompanied by the documents referred to in it. Those documents were already executed by Mr Bradshaw and the various entities which he controlled who were parties to them. Mr Terei checked the documents, was satisfied with them, and wrote a cheque for $100,000. Mr Bradshaw gave him a receipt, on the letterhead of Entervin Pty Ltd, made out to Otta, for the sum of $100,000.

8 The “Deed of Equity Participation” (“the Otta Deed”) shows signs of having been adapted from a document drafted by a lawyer. It is expressed to be made on the 15th day of February 2001. It has four parties – Otta, Entervin, Sunfix Pty Ltd (“Sunfix”), and Mr Bradshaw. It contains the following recitals:

“A. ENTERVIN has entered into a contract for and is proceeding with the completion of the purchase and development of the property described in Item 2 of Schedule 1 (the DEVELOPMENT).”

Item 2 of Schedule 1 identified Lot 222 Derby Street, Silverwater. The recitals continued:

B. SUNFIX is the developing Company for the Project and receives all the profits.
C. ENTERVIN is arranging finance for the purchase and will be the mortgagor in respect for the property.
D. Following completion ENTERVIN will be entitled to register the property subject to mortgages to finance.
E. ENTERVIN has arranged a loan from AAA Law Mortgages of 332 Pitt Street, SYDNEY, NSW.
(Hereinafter referred to as the 1st Mortgagee) to assist with the DEVELOPMENT.
F. OTTA has agreed to procure and provide certain funds to assist with the DEVELOPMENT
G. The Parties have agreed to appoint BRADSHAW as the manager of the DEVELOPMENT.”

9 The Otta Deed contained the following clauses:

“1.1 The parties herein before mentioned hereby constitute themselves Participants for the acquisition, management, development and disposal of the DEVELOPMENT in accordance with the terms hereof (The entire development venture hereinafter called “the DEVELOPMENT”).
2.1 This Deed shall commence on the date of the issue of the shares in SUNFIX and shall continue until the DEVELOPMENT is completed, all warehouses are sold and all net profits are distributed to all Participants as per guaranteed return agreed.
3.1 ENTERVIN shall cause to be advanced by a bank or other recognised financial institution monies required for the DEVELOPMENT.
3.2 Any monies advanced pursuant to paragraph 3.1 hereof shall be secured by the way of a first registered mortgage over the property (hereinafter referred to as “The Mortgage”).

10 It was also contemplated that people other than Otta would provide money for the development, up to a maximum of $400,000.

11 Clause 4A of the Otta Deed contained provisions for the division of the profits of the development. It gives rise to some problems of construction, because it is not clear whether the word “Participants” in that clause should mean just the entities who are party to the Otta Deed or whether it should also include the people other than Otta who contribute funds to the development. However, as there have been no profits from the development, those difficulties of construction are of no importance. Clause 4A.6 provides:

“All net capital profits are hereinafter defined shall be divided between the Participants in the proportion as they agree subject to OTTA being entitled in priority against all Participants to the money set out in Item 1 of Schedule 1.”


Item 1 of Schedule 1 provides:

“Name & Address	Principal	Return	Total
Otta International Pty Ltd Superannuation Fund ABN 98554367877 73 Carrington Road, Wahroonga NSW 2076	$100,000	$30,000	$130,000 being guaranteed capital and profit


OTTA is guaranteed to receive the return of the Principal plus 30% on the Principal amount in 12 months or on completion of project, whichever comes first.
SUNFIX PTY LIMITED controls all monies from the project mentioned in Items 2 & 3 and, receives all money paid by the 1st Mortgage Lender, ENTERVIN and OTTA.”

Clause 4B.1 provides:

“All moneys due to OTTA under this Deed are jointly and severally due and owing to OTTA by all the other parties to this Deed.”

12 Clause 15 of the document is a clause which is clearly garbled. As it appears in the document, it is a single sentence of continuous typing. However, here I shall set it out broken into three portions, which I will later in these reasons refer to as the first, second and third parts of Clause 15.

“The parties hereto agree that this agreement represents the whole agreement between them
and all proper representations, negotiations, memoranda, letters or other correspondence between them to the extent to which they are inconsistent with the terms of this agreement shall be exhaustive and conclusive as to the rights of the parties between themselves
save only for any further document or agreement which brought into existence as a consequence of this agreement and pursuant to its terms.”

13 The document which was handed to Mr Terei on 15 February 2001, and described in the covering letter as “second mortgage document”, was a single page document in the standard form of a mortgage suitable for registration under the Real Property Act 1900. That form is one which has blanks intended to be filled in to identify the land being mortgaged, and the mortgagor. The standard form then continues:

“mortgages to the mortgagee all the mortgagor’s estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in annexure / memorandum No. filed in the Land Titles Office are incorporated in this mortgage.
Encumbrances (if applicable): 1. 2. 3.

The form then has provision for identifying the mortgagee. It concludes with execution clauses.

14 The “second mortgage document” handed over on 15 February had the space for the land title filled in by identifying the land at Silverwater. The space for identifying the mortgagor was filled in with the name of Entervin. The space for identifying the mortgagee was filled in by identifying Otta. Other blanks in the standard form were filled in so that it read:

“Mortgages to the mortgagee all the mortgagor’s estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in annexure A /memorandum No Q860000 filed in the Land Titles Office are incorporated in this mortgage.
Encumbrances (if applicable): 1. 2. 3.

15 There was no document actually annexed to the mortgage, and no document which bore a marking saying that it was annexure A to that mortgage. That mortgage was not dated.

16 The document referred to in the covering letter as “second mortgage document Wall Avenue Asquith (unregistered)” was, similarly, a single page standard form mortgage, suitable for registration in the Land Titles Office under the Real Property Act 1900. That form had had blanks filled in to identify the land mortgaged as the Wall Street Asquith property, the mortgagor as Entervin, and the mortgagee as Otta. The other blanks in the form were filled in so as to read:

“mortgages to the mortgagee all the mortgagor’s estate and interest in the land specified above, and covenants with the mortgagee that the provisions set out in annexure A /memorandum No. Q860000 filed in the Land Titles Office are incorporated in this mortgage.
Encumbrances (if applicable): 1. 2. 2nd Mortgage 3. ”

17 As with the mortgage of the Silverwater land, there was no document actually annexed to this mortgage, nor was there any document which bore an annotation on it saying that it was annexure A referred to in that mortgage. This mortgage document relating to the Asquith land was dated 15th February 2001.

18 Both the mortgages were already executed by Entervin, under seal, at the time Mr Terei received them. On 15 February 2001 they were also executed on behalf of Otta.

19 Otta sought repayment of its principal from Mr Bradshaw in late February 2002, without success. Mr Bradshaw died on 14 April 2002. On 19 June 2002 Mr Vrkic was appointed as administrator of various companies which had been controlled by Mr Bradshaw, including Entervin. The creditors of the group of companies controlled by Mr Bradshaw resolved on 11 September 2002 that the group companies be placed into liquidation. Otta has not received any money from Entervin, or any other person or company in connection with the investment it made on 15 February 2001.

The Documentation of the Second Defendants

20 The second defendants became parties to two lengthy documents, each entitled on its cover page “Loan and Guarantee Agreement”, and each entitled on its first page “Deed of Equity Participation”. They also received three executed forms of mortgage of Real Property Act land.

21 The first of those Deeds named on its cover page Sunfix Pty Ltd as “Borrower/Developing Company”, Ms Bondarew and Mr Junker as “Lender” Entervin as “Guarantor”, and Mr Bradshaw as “Guarantor”. The introductory portion of the Deed identified that it was made on 23rd day of March 2001, and identified the parties as being Ms Bondarew and Mr Junker, Sunfix, Entervin, and Mr Bradshaw. Clause 1.1 contained a definition of:

“(b) Development as per Schedule 1”

Schedule 1 included the following:

“ ITEM 2. THE PROPERTY
Address: LOT 222 OR 81-83 DERBY STREET, SILVERWATER NSW.
ITEM 3. THE DEVELOPMENT
Description of Project: 9 WAREHOUSES”

Clause 1.1 continued:

(c) Fixed Fee means the sum of $70,000.00 free of any taxes or charges, present or future relating to the Development.
(d) Participants means above mentioned parties
(f) Loan means a loan made available to the Borrower by the Lender on the terms of this Agreement.
(g) Principal Sum means $200,000.00
(h) Property means Lot 222, 81-83 Derby Street, Silverwater, NSW, Folio Identifier Lot 222 in the plan proposed subdivision of Silverwater Estate
(j) Security means unregistered second Mortgage over 4 Wall Avenue, Asquith until the completion of the purchase of the Property referred in Item 2, Schedule 1. Then a joint registered second Mortgage over the Property will be issued to all the Lenders (Participants) being the Second Mortgage over the Development.
(l) Termination Date means whichever is the earliest of the date of settlement of the sale of the Property and 12 months from the date of this Agreement.
(m) Total owing means the Principal Sum and the Fixed Fee together with all other moneys lent by the Lender to the Borrower hereunder and all other money owing or which becomes owing by the Borrower to the Lender hereunder or under any other agreement in writing between, inter alia, the Lender and the Borrower (including but not limited to interest or other costs or charges payable hereunder).
3.1 The Lender agrees to lend and the Borrower agrees to borrow the Principal Sum and covenants with the Lender that he will repay to the Lender so much of the Principal Sum and the Fixed Fee as shall remain outstanding on the Termination Date.
4.1 The Borrower will repay to the Lender the Principal Sum on the Termination Date.
5.1 In consideration of the Lender providing the Loan to the Borrower the Borrower has agreed to Pay the Lender the Fixed Fee upon the earlier of;
(a) repayment of the Principal Sum to the Lender; and
(b) the termination Date
6.3 Prior to the Lender advancing the Principal Sum to the Borrower, the Borrower will give to the Lender security in the form of a second ranking Mortgage over the property (in the form acceptable to the lender) as a security for the payment to the Lender of the Total Owing and also as security for the due performance of the Borrowers other obligations thereunder.
7A The Borrower has entered into a contract for and is proceeding with the completion of the purchase and development of the property described in Item 2 of the SCHEDULE 1 (the Development).
B. SUNFIX Pty Ltd is the developing Company for the Project and receives all the profits.
C. The Borrower is arranging finance for the purchase and will be the mortgagor in respect of LOT 222 ….. 81-83 DERBY STREET, SILVERWATER NSW for the property.
D. Following completion The Borrower will be entitled to register the property subject to mortgages finance.
E. The Borrower has arranged a loan from AAA LAW Mortgages (Hereinafter referred to as the 1st Mortgagee) to assist with the development.
F. The Lender has agreed to assist with the Development. Such funds will be secured by an unregistered second mortgage over 4 Wall Avenue, Asquith, until the completion of the purchase of the property referred to in Item 2, Schedule 1 (the Development). Where upon the Borrower will grant The Lender a registered joint second mortgage over the said development. The joint second Mortgage will be registered immediately following the registration of the transfer and the first Mortgage.
8.1 The Parties herein before mentioned hereby constitute themselves as Participants for the acquisition, management, development and disposal of the development in accordance with the terms hereof.
10.1 The Borrower shall cause to be advanced by a bank or other recognized financial institution monies required for the development.
10.2 Any monies advanced pursuant to paragraph 7.c hereof shall be secured by the way of a first registered mortgage over the property (hereinafter referred to as “The Mortgage”).
10.4 The Lender will loan to the Developing Company $200,000.00 for the DEVELOPMENT.
10.5 The Borrower shall be responsible to provide or procure any further monies (apart from those monies provided by The Lender set out in Item 1 of the Schedule 1) required for the acquisition, and the maintenance of the property and the development and its maintenance.

11.1. The Guarantors unconditionally and irrevocably guarantee payment to the Lender of the total owing.
11.2 If the Borrower does not pay the Total Owing (or any part thereof) to the Lender on time and in accordance with this Agreement the Guarantors agree to pay the Total Owing to the lender on demand from the Lender (whether or not a demand has previously been made on the Borrower.

22 Clause 22 of the document was an “Entire Agreement” clause in exactly the same garbled wording as Clause 15 of the Otta Deed.

23 Schedule 1 Item 1 of that Deed read:

“Name & Address	Loan	Fixed Fee	Total Owing
IRENE BONDAREW MARTIN FRANCIS JUNKER	$200,000.00	$70,000.00	$270,000.00 being guaranteed capital and Fixed Fee 62 WALLIS AVENUE


STRATHFIELD 2135
IRENE BONDAREW and MARTIN FRANCIS JUNKER is guarantee to receive the return of the Loan being $200,000.00 plus a Fixed Fee of $70,000.00 in 12 months or on completion of project, whichever comes first.

SUNFIX Pty Ltd controls all monies from the project mentioned in Items 2 & 3 and receives all money paid in by the 1st Mortgage and the Lender.”

24 The only clauses of the Deed which referred Item 1 of Schedule 1 were Clauses 10.5 and Clause 14.3, neither of which is relevant to resolving the problem presently before the Court.

25 The second lengthy document which Ms Bondarew and Mr Junker entered on that day was in identical terms to the document I have just set out, save for the following:

1. The first page identified the parties as being Sunfling Pty Ltd as the “Borrower/Developing Company” , For The Good Times Superannuation Fund ABN 46 133 646 764 ( “Martin Francis Junker ”) as the “Lender” , Entervin as Guarantor, and Mr Bradshaw as Guarantor.

2. The parties identified on the first page of the Deed were the same as those which had been identified on the cover page.

3. Schedule 1, Item 2, identified the property as 39 Tryon Road, Lindfield NSW.

4. Clause 1.1 defined “Fixed Fee” as “the sum of $30,000 free of any taxes or charges, present or future relating to the Development” .

5. There was no Clause 1.1(g) (the provision which, in the first deed, had contained the definition of Principal Sum.

6. The definition of “Property” in paragraph 1.1(h) was that appropriate to 39 Tryon Road, Lindfield.

7. Clause 7C was altered to refer to the property at 39 Tryon Road, Lindfield. (However Clause 7B still, anomalously, provided that Sunfix was the developing company for the project and received all the profits.)

8. Clause 7H provided that “the loan shall return a Fixed Fee of $30,000” .

9. Clause 10.4 provided that “the Lender will loan to the Developing Company $100,000 for the DEVELOPMENT” .

That document was executed under seal by Sunfling, and Entervin. It was also executed by Mr Bradshaw, by Mr Junker (expressed to be acting “For The Good Times Superannuation Fund ABN 46 133 646 764”) , and by Ms Bondarew (notwithstanding that she was not named as a party to the deed).

26 Schedule 1 item 1 of that Deed was:

“Name & Address	Loan	Fixed Fee	Total Owing
FOR THE GOODS TIMES SUPERANNUATION FUND ABN 46 133 646 764 (MARTIN FRANCIS JUNKER)	$100,000.00	$30,000.00	$130,000.00 being guaranteed capital and Fixed Fee 62 WALLIS AVENUE


STRATHFIELD 2135
FOR THE GOOD TIMES SUPERANNUATION FUND (MARTIN FRANCIS JUNKER) is guarantee to receive the return of the Loan being $100,000.00 plus a Fixed Fee of $30,000.00 in 12 months or on completion of project, whichever comes first.

SUNFIX Pty Ltd controls all monies from the project mentioned in Items 2 & 3 and receives all money paid in by the 1st Mortgage and the Lender.”

27 Schedule 1 item 2 identified “the Property” as 39 Tryon Road, Lindfield.

28 Schedule 1 item 3 identified “the Development” as:

“Description of Project:
Proposed “Tuscan Style” two storey rendered residence and single storey residence fronting Valley Lane
TWO (2) by 3 Bedroom Homes”

29 The three forms of Real Property Act mortgage each identified Mr Junker and Ms Bondarew as the mortgagee. One of the mortgages was expressed to be given by Sunfix over the Silverwater land. Another was expressed to be given by Entervin over the Asquith land. The third was expressed to be given by Sunfling over the Lindfield land. The body of each of the mortgages had its blanks filled out in exactly the same way as quoted in paragraph 14 above. In relation to each of the mortgages, there was no document annexed to it, and no document which expressly stated that it was the document referred to as annexure A in any of the mortgages. The forms of mortgage which named Sunfix and Entervin as mortgagors were each executed by those companies under their respective common seals. The form of mortgage said to be given by Sunfling purports to be signed on behalf of the mortgagor, but there is no corporate seal, and no witnessing of that signature. Each of the mortgages is dated 23/3/01.

30 None of these mortgages was registered.

31 The sum of $300,000 was handed over to Mr Bradshaw on 23 March 2001, in the form of two cheques – one cheque for $200,000 payable to Sunfix Pty Ltd (drawn on the joint account of Ms Bondarew and Mr Junker), and another for $100,000 payable to Sunfling Pty Ltd. The second defendants have received no return whatsoever from anyone in connection with these investments.

32 Because of the fairly close similarity between the form of the two Deeds entered by the second defendants, it is sufficient for the purposes of the arguments in this case to consider only the terms of the first of those Deeds.

Outline of the Arguments of Otta and the Second Defendants

33 Otta claims that the documents it received and executed on 15 February 2001 confer on it an equitable mortgage over the Asquith land, securing the repayment of the sum of $130,000, together with interest which has accrued thereon since the date that $130,000 became payable. Otta submits that, even if the second defendants are also entitled to an equitable mortgage over the Asquith land to secure the $300,000 which they advanced, Otta’s equitable mortgage is earlier in time, and there has been no postponing conduct on Otta’s part to deny it the priority which prima facie arises from having the equitable interest which is first in time: Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265 at 276; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326; Elderly Citizens Homes of South Australia Inc v Balnaves (1998) 72 SASR 210.

34 The second defendants submit that, as a matter of construction of the documents executed and received by Otta on 15 February 2001, Otta has not received any rights whatever which equity recognises in relation to the Asquith land. Alternatively, the second defendants submit that, if Otta has received any right which is recognised by equity, it is a mere equity, not an equitable interest; they submit that they received a true equitable interest on 23 March 2001, which has priority to the mere equity of Otta.

35 Otta counters these arguments not only by denying their correctness, but also by saying that,

(a) the right which the second defendants received over the Asquith property was a defeasible right, which has ceased to exist, and

(b) in any event, Ms Bondarew and Mr Junker have themselves engaged in disentitling conduct.

Does Otta have an Equitable Interest?

36 The basis on which the second defendants argue that Otta has no equitable interest in the Asquith property is that the RPA form of mortgage relating to the Asquith property does not identify the moneys the repayment of which is secured by any mortgage. This is because there is no “annexure A” to that document, and the terms of registered Memorandum Q860000 do not contain any clause, like the “all moneys” clause commonly found in mortgages, which identifies, even by description, the moneys which are secured by the mortgage. (The Memorandum contains various clauses which enable certain moneys spent by the mortgagee in consequence of a breach of the mortgage to be added to the amount secured by the mortgage, but Otta did not put any argument based on those clauses.)

37 Nor, say the second defendants, does any equitable interest arise from the document entitled “Deed of Equity Participation” dated 15 February 2001 which Otta executed. That document does not in express terms give or agree to give a mortgage in favour of Otta over the Asquith property. Nor does it seek to charge the whole of the property owned by Entervin, or in any other way agree to give a security over property of some general description which includes the Asquith land. Instead, the second defendants submit that the Otta Deed makes provision to secure repayment of the moneys advanced by Otta over the Silverwater property. Further, that Deed contains the “whole agreement” clause in Clause 15, which should be construed so as to prevent there being any other security.

38 I do not accept that the Deed executed on 15 February 2001 contains any provision giving security to Otta. The only provision of that Deed which creates a security is Clause 3.2. Clause 3.2 does not result in Otta receiving any security – instead, it is a provision that amounts advanced by a bank or financial institution under Clause 3.1 will be secured by a registered first mortgage over the Silverwater property.

39 Interpretation of a written contract involves:

“… the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”:

Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152 at [11] per Gleeson CJ, Gummow and Hayne JJ.

40 A contact is read in a way which will result in a sensible and businesslike meaning: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300 per Isaacs J; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 at 843-8. If a contract is open to two constructions it will receive that construction which will avoid consequences which are capricious, unreasonable, unjust or inconvenient; TCN Channel Nine Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, at 146. A fundamental principle is “… that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction”: Fitzgerald v Masters (1956) 95 CLR 420 at 437 per McTiernan, Webb and Taylor JJ. In the course of construing an instrument as a whole in this fashion, the court can engage in “… the rejection of repugnant words, the transposition of words, and the supplying of omitted words”: ibid.

41 Applying these priciples I do not accept the argument that there is no document which should properly be regarded as “annexure A” to the form of mortgage over the Asquith property given to Otta on 15 February 2001. If the argument of the second defendants in this respect were right, the entry into of the form of mortgage over the Asquith property on 15 February 2001 would be close to futile. (It would not be completely futile, because the mortgage would secure the amounts which the mortgagee paid on default by the mortgagor in observing covenants.) That is not a result that ought readily be arrived at. Rather, in my view, as a matter of construction the Otta Deed executed on 15 February 2001 is “annexure A” referred to in the mortgage. To the knowledge of both parties to the mortgage, the Otta Deed was handed to Mr Terei at the same time as the mortgage form, with both documents already executed by Entervin. Both the mortgage form, and the Deed, bear the same date. There is no other document which is a possible candidate for being “annexure A” to the RPA mortgage form. The Otta Deed and the mortgage form concerning Asquith are both, commercially, part of the same transaction, whereby Otta provided money for investment in the Silverwater development and, considering the documentation as a whole, it is fairly clear that Entervin and Otta intended that Otta would have an equitable mortgage over the Asquith property.

42 Once it is realised that the Otta Deed is “annexure A” to the RPA form of mortgage of the Asquith land, the construction of Clause 15 falls into place. In Clause 15, “this agreement” refers to not only the Otta Deed, but also to the mortgage to which that Deed is an annexure, and of which it is part.

43 So construed, the mortgage says, in substance, that Entervin mortgages the Asquith land, and covenants with Otta that it will pay the Principal of $100,000 plus 30% on that amount in 12 months or on completion of the project, whichever comes first. The document, so construed, confers on Otta an equitable interest in the Asquith land.

44 I would also accept that the Otta Deed is “annexure A” to the RPA form of mortgage of the Silverwater land. However, that view does not lead anywhere, so far as the problems presently before the court are concerned.

45 The second defendants submitted that Clause 15 of the Otta Deed ought be construed by inserting, in the second part of the clause, the words, “disregarded and that this agreement shall be” immediately before the word “exhaustive”. I accept that that is an appropriate way of construing Clause 15. However, once the Otta Deed is accepted as being “annexure A” to the form of mortgage, adopting that construction of Clause 15 does not assist the second defendants.

46 The second defendants also submitted that Clause 15 denied Otta the opportunity of relying upon the mortgage document as a collateral agreement as the form of mortgage was inconsistent with Clause 15: Hoyts Pty Ltd v Spencer (1919) 27 CLR 133; Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 11. Once the Otta Deed is accepted as being “annexure A” to the form of RPA mortgage of the Asquith land, it is no longer a separate agreement to the agreement contained in the form of mortgage. Thus, this argument also falls away.

Are the Rights of the Second Defendants Over the Asquith Land Defeasible?

47 Otta accepts that the express agreement in Clause 1.1(j) and 7F of the Deeds which the second defendants entered contained an express covenant to give an unregistered mortgage over the Asquith property, and therefore, at the time those deeds were entered, were effective to confer an equitable mortgage over the Asquith property. However, Otta argued, that mortgage has now come to an end.

48 Consideration of Clause 1.1(j), 6.3 and 7F of the Deeds entered by the second defendant makes clear that it was the contemplation of the parties that the mortgage given to the second defendants over the Asquith property would be an interim one, which would be replaced in due course, by a registered second mortgage to be given by Sunfix over the Silverwater property. Those Deeds proceed on the basis that the Silverwater property had not been obtained by Sunfix at the date the Deeds were entered.

49 A historical search of the title of the Silverwater land was tendered. It was tendered by the second defendants, on the explicit basis that it related only to their own case for payment out, and was not tendered against Otta. That search shows that it was only on 21 August 2001 that a transfer to a company connected with Mr Bradshaw of the Silverwater land was registered. The stamp duty on that transfer was paid on 26 July 2001, making it unlikely that settlement occurred any earlier than 26 July 2001. The transferee of the Silverwater land was Sunfix. (That Sunfix was the transferee was consistent with the documentation the second defendants entered, but contrary to the documentation which Otta entered, which contemplated that Entervin would be the transeree.)

50 Given the basis upon which this historical search was tendered, it is not open to me to take it into account in deciding whether the time during which Entervin agreed that the second defendants would have a mortgage over the Asquith property has now come to an end. The appropriate way of dealing with this argument, it seems to me, is to ignore that evidence arising from the historical search. That leaves the situation as being that Otta bears the onus of establishing that the event of defeasance, upon which the second defendants would cease to be entitled to a mortgage over the Asquith property, has occurred. Otta has not discharged that onus.

51 There is a question of construction about whether, in Clause 7F, the expression “until the completion of the purchase of the property referred to in Item 2 Schedule 1 (the Development)” refers to the time when Sunfix literally completes its purchase of the Silverwater property (ie, upon exchange of the appropriate documents and cheques between solicitors), or whether on the proper construction of Clause 7F the mortgage over the Asquith property is to continue until Sunfix grants the second defendants “a registered joint second mortgage over the said development”. On the approach I take to the question of the defeasibility of the second defendants’ interest in the Asquith property, it is not necessary to consider that question of construction – whatever the answer to the question of construction might be, Otta has not proved that that time has arrived. I conclude that each of the Deeds executed by the second defendants on 23 March 2001 confers an equitable mortgage over the Asquith property.

Is the Right of Otta Under the Otta Deed a Mere Equity?

52 The argument that the Otta Deed conferred a mere equity arose in argument in the context where the second defendants were contending that the mortgage over the Asquith property given to Otta, secured nothing. It was to the effect that, even if from the context in which the Otta Deed and the form of mortgage over the Asquith property were handed over, one might imply an agreement that the mortgage was intended to secure the obligations on the part of Entervin contained in the Otta Deed, that obligation was merely one arising from implication, and was not one which arose from a covenant in writing. The argument accepted that Otta had paid the $100,000, and hence had a claim to specific performance of that implied agreement, by virtue of the doctrine of part performance. However, if a litigant needs to invoke the doctrine of part performance to be able to enforce, in equity, an agreement to give an equitable mortgage, that agreement to give an equitable mortgage amounts to a mere equity, not an equitable interest: Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1997) 42 NSWLR 409 at 425.

53 That argument is, in my view, overcome if one accepts, as I do, that the obligation on Entervin to pay the $130,000 is not merely to be implied into the mortgage, but is expressly contained in it, in writing, by virtue of the Otta Deed being construed to be “annexure A” to the RPA form of mortgage.

Postponing Conduct on the Part of the Second Defendants?

54 In light of the reasoning so far, this argument will not affect the outcome of this case. However I should record it. Otta submitted that, even if Otta had a mere equity, the second defendants had engaged in postponing conduct, which ought result in their equitable interest (it being assumed for the purpose of the argument that they had an equitable interest) being postponed. Otta submitted that the postponing conduct arose from Clause 7F of the Deeds of the second defendant, in that the second defendants had been given, on 23 March 2001, the form of RPA mortgage executed by Sunfix over the Silverwater property. It was submitted that this was the “registered joint second mortgage” referred to in Clause 7F, and that by failing to register it when Sunfix acquired the Silverwater property the second defendants had engaged in postponing conduct.

55 An essential part of this argument is that Sunfix has become the registered proprietor of the Silverwater property. For reasons similar to those given in paragraphs 50 and 51 above I conclude that Otta bears the onus of proving that Sunfix became the registered proprietor of the Silverwater property, and that it has not discharged that onus. That is sufficient to dispose of the argument.

56 There are further questions of construction. One of them is whether the RPA mortgage over the Silverwater property given to the second defendants on 23 March 2001 was indeed the “joint second mortgage” referred to in Clause 7F of the second defendants’ Deed of 23 March 2001. In the circumstances where Clause 7F contemplates that the second defendants’ unregistered second mortgage over the Asquith property will come to an end at either (depending on which is the correct construction) the actual completion of the purchase of the Silverwater property, or the granting by Sunfix of a registered “joint second mortgage” over the Silverwater property, Otta needs to establish that the form of mortgage over the Silverwater property is indeed that “joint second mortgage” before this argument can succeed. If the correct answer to this question of construction is that the second defendants’ mortgage over the Asquith property ceases when the purchase of the Silverwater property has been completed (in the sense in which conveyancers use that expression) I have difficulty in seeing how the subsequent failure of the second defendants to register a joint second mortgage over Silverwater could be postponing conduct – their interest would have come to an end before they had the opportunity to engage in that allegedly postponing conduct. However, if the correct construction of Clause 7F were that the unregistered second mortgage over Asquith came to an end upon registration of the “joint second mortgage” over Silverwater, and if the correct construction of Clause 7F were that the mortgage given to the second defendants over the Silverwater property on 23 March 2001 was that “joint second mortgage”, then a difficult question of principle arises. It concerns whether failure of the second defendants to register the mortgage, even if the Silverwater property had been acquired by Sunfix, could as a matter of principle amount to conduct which postponed the interest of the second defendants in the Asquith property. Counsel were not able to show me any cases where conduct of the holder of an equitable interest could result in that equitable interest being postponed to an earlier mere equity. Given that the resolution of that question of principle will not alter the outcome of this case, I do not propose to go into it.

Result

57 No argument was put by the second defendant submitting that, if Otta had priority, its priority did not extend to the whole of the moneys now in court. I hold that Otta has an equitable interest over the Asquith property, which has priority to the equitable interest of the second defendants in the Asquith property. Otta is entitled to the payment out of the moneys in court.

58 The parties have not addressed me concerning costs. I propose to make an order for costs, on the assumption that the only relevant principle in making that order is that costs should follow the event. I recognise that this is an assumption I have adopted without argument. If either party wishes to submit that any other result should obtain, concerning costs, that party should make arrangements for the matter to be re-listed, upon not less than three days notice to the other party, before me within 28 days from the date of handing down these reasons for judgment. On that occasion I will consider any evidence and arguments which might be put forward concerning costs. To enable this process to be gone through, I propose to direct that the orders not be entered for 28 days from the date of handing down of these reasons.

1. The money paid into Court in these proceedings, together with any interest which has accrued on it, be paid out of court to the first defendant.

2. Second defendants to pay the cost of the first defendant.

3. Direct that these orders not be entered for 28 days.

**********

Last Modified: 06/12/2003