Whiteley v Hodge

[2000] NSWSC 866

CITATION:	Whiteley v Hodge [2000] NSWSC 866
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2051/00
HEARING DATE(S):	23 & 24 August 2000
JUDGMENT DATE:	24 August 2000
PARTIES :	Mely Meia Whiteley (P) Russell John Hodge (D)
JUDGMENT OF:	Hamilton J

COUNSEL :	T A Kolomyjec (P) A K Ottesen (D)
SOLICITORS:	Virginia Odtojan & Associates (P) Owen Hodge Lawyers (D)
CATCHWORDS:	CONTRACTS [120] - General contractual principles - Construction and interpretation of contracts - Other matters - Admissibility of extrinsic evidence - Parol evidence rule - Ambiguity exception - Ambiguity of word "sale" resolved with aid of extrinsic evidence.
LEGISLATION CITED:	Conveyancing Act 1919 s 163F(2) Supreme Court Rules 1970 Pt 31 r 2
CASES CITED:	Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Darin Nominees Pty Ltd v Franklin's Self Serve Pty Ltd [1999] NSWCA 209 Prenn v Simmonds [1971] 1 WLR 1381 Riordan Smith Line v Hansen-Tangen [1976] 1 WLR 989
DECISION:	Questions as to interpretation of mortgage answered.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

THURSDAY, 24 AUGUST 2000

2051/00 MELY MEIA WHITELEY v RUSSEL JOHN HODGE

EXECUTOR OF THE ESTATE OF THE LATE GWENDOLINE DAISY WHITELEY

JUDGMENT

HIS HONOUR:

1 In these proceedings I have ordered under Part 31 r 2 of the Supreme Court Rules 1970 that the following questions be determined separately from and before any other questions in these proceedings:

(1) Whether the transfer registered No 5804053 from Geoffrey Ian Whiteley (“the husband”) and the plaintiff to the plaintiff of the house property at 4 Lily Court Glenmore Park (“the property”) constituted a sale of the property for the purposes of clause 4.1 of the mortgage dated 31 March 1993 (“the mortgage”) by the husband and the plaintiff to the husband’s mother Gwendoline Daisy Whiteley (“the mother”).

(2) Whether the valuation of the subject property obtained for Australian Home Loans Limited (“AHL”) and dated 22 December 1998 (“the AHL valuation”) is a determination of value for the purposes of clause 1.2 of the mortgage.

(3) Whether the mother was and the defendant as her executor is bound to a valuation of $245,000 of the property by Richardson & Wrench in November 1996 (“the R&W valuation”) for the purposes of clause 1.2 of the mortgage or for any other purpose by anything done under a power of attorney granted to the husband, Victor Gordon Whiteley and Lynette Evelyn Murphy on 3 August 1991 (“the power of attorney”).

2 The circumstances in which these questions arise are as follows. In 1991 the husband and the plaintiff were married and living together. The mother was aged and needing accommodation and care. In these circumstances the husband and the plaintiff bought the property which contained separate accommodation in which the mother could live. They took title as joint tenants. The mother lent to the husband and the plaintiff moneys totalling $170,267 in connection with this purchase. After the purchase, she in fact went and lived in the separate accommodation contained in the property. She granted power of attorney to her three children on 3 August 1991. That power of attorney was a general power of attorney containing a clause in standard form that it would continue to be effective even if after its execution she suffered loss of capacity through unsoundness of mind. In that regard it bore an appropriate certificate under section 163F(2) of the Conveyancing Act 1919. After naming the donees of the power, it added the words “any two to act jointly”.

3    To secure to the mother the moneys she had lent the husband and the plaintiff executed the mortgage in her favour. It was in registrable form but has never been registered. It described the husband and the plaintiff as “the mortgagor”. It stipulated $170,267 as the principal sum secured. It contained the following material provisions:

“1.2 Mortgage Debt : The ‘mortgage debt’ means all money actually or contingently payable by the Mortgagor to the Mortgagee under this mortgage being the amount equal to:
The principal sum divided by $264,506.00 multiplied by V
Where V = the value of the mortgaged land as determined by a registered valuer appointed by the mortgagee, the cost of such valuation to be borne by the mortgagor and form part of the mortgage debt.
…
4.1 The Mortgagor will pay to the Mortgagee the mortgage debt or so much thereof as shall remain unpaid immediately upon the sale of the mortgaged land or upon the death of the mortgagee whichever is the earlier.
4.2 It is expressly agreed and declared that should the Mortgagor sell or otherwise dispose of the equity of redemption in the mortgaged land the full amount of the mortgage debt shall become immediately due and payable.”

It is clear that the intention of the mortgage was not only to secure the debt to the mother but to ensure that if there were capital gain from the subsistence of the mortgage then she should receive a part of that capital gain proportionate to her “investment” in the property.

4    In 1994 the marital relationship between the husband and the plaintiff unfortunately broke down. That led to proceedings between them in the Family Court of Australia. In relation to the settlement of their property affairs orders were made in the Family Court on 10 October 1994, the precise terms of which are not now material, and were by consent varied by further order of the Family Court on 7 December 1998 (“the varying order”). Although the varying order was made by consent, there is no appearance in this matter, as there sometimes is, that the Family Court orders were engineered in any way for the purpose of avoiding obligations or affecting other people's entitlements. There is no reason to think that they were other than a settlement negotiated at arm’s length of a real dispute between the husband and the plaintiff concerning their property rights as a result of the breakdown of the marriage. The material terms of the varying orders are as follows:

“1 That the orders made by the Family Court of Australia on 10 October 1994 (‘the orders’) be varied as follows:
(a) That order 4 be discharged and that the wife pay to the husband within sixty days from today’s date the sum of $30,000.00.
(b) That order 6(ii) of the orders be discharged as and from the date of payment referred to in (a) above.
(c) That upon such payment the husband sign all papers and documents to assign to the wife his right title and interest in property 4 Lily Court Glenmore Park (the home) to the wife subject to the mortgage to Gwendoline Whiteley (‘the mother’) of $170,267.00 (‘the mortgage’).
(d) In the event that the wife refuses to pay the said sum of $30,000.00 within the said period of sixty days then order 8 of the orders shall apply
(e) That the husband shall use his best endeavours and any powers that he has under Power of Attorney to extend the mortgage for a period of one year from today's date.
(f) That the wife shall cause the mortgage to be discharged within one year from today's date, in the event that the wife is unable or unwilling to discharge the mortgage on or before the 7th December 1999 the following shall apply:
(i) That the wife shall list the home for auction sale within six weeks from the 7th December 1999 with an agent agreed upon by the parties and failing such agreement by an agent determined by the President of the Real Estate Institute of New South Wales at the request of either party, at a reserve price determined by such agent and the proceeds of sale shall be paid as follows:
(a) Payment of legal costs and disbursements (the Solicitor to act on the sale being appointed by the President of the Law Society of New South Wales at the request of either party), payment of agent's commission and advertising expenses.
(b) Payment of the mortgage together with interest to the mother at the rate of 6% per annum calculated from 7th June 1999 to the date of repayment.
(c) Payment of the net balance to the wife or as she may direct or be otherwise [sic] be liable.”

5    Prior to the making of the varying order the husband had written to the plaintiff on 14 March 1997 as follows:

“In discussions with my brother and sister, we have determined that our mother will not be able to return to live at Glenmore Park and, because of various recent and potential future changes to retirement home entry costs, our mother's recently improved mobility and her pending need for a different level and/or location of care, it is now appropriate that her investment in 4 Lily Court, Glenmore Park be released as soon as possible.
Should you wish to purchase the property, please obtain sufficient funds to retire the unregistered mortgage over the property that is held by my mother, according to the terms of that mortgage. You will also need to purchase my share of the title as defined in our property Terms of Settlement which is registered with the Family Court.
You will recall that, last November or thereabouts, you had the property valued by Richardson and Wrench, Penrith at $245,000. This amount should be used as the title value as it was provided by a registered property valuer acting under the authority of the President of The Real Estate Institute. The valuation seems fair and realistic.
If you do not wish to exercise your option to purchase, then please arrange for the property to be immediately listed for sale so that my mother's funds can be available with minimum delay and her accommodation options can be more appropriate to meet her current and future requirements.”

6    The varying order having been made in December 1998, a transfer of the property by the husband and the plaintiff to the plaintiff was prepared and executed on 25 March 1999 (“the transfer”). The transfer was thereafter registered No 4804053 and a copy is Ex C. After the transfer, the plaintiff raised various sums by way of mortgage over the property. The property was sold by the plaintiff at auction on 19 February 2000 for $315,000, which sale was settled in April 2000.

7    Although the R&W valuation is not in evidence, it is common ground that there was a valuation or appraisal of the property by Richardson and Wrench in 1996 in the sum of $245,000, which was used for the purpose of negotiations between the husband and the plaintiff towards the resolution of their affairs and adopted as the value of the property for the purpose of the agreement embodied in the varying order. The AHL valuation was prepared by Nicole Rochester and Allison Rook of Hodder Rook & Associates of North Sydney and dated 22 December 1998. That valuation gave the “market value” of the property as $330,000. It was directed to AHL and was clearly, from its terms, obtained for the purposes of a proposed borrowing by the plaintiff from AHL, which it is clear never took place. I infer that the valuation was made on a mortgagee basis.

8    The mother died in December 1999 and Russell John Hodge, solicitor and the defendant in these proceedings, is her executor.

9    The summons in these proceedings was taken out on 10 April 2000. Both the plaintiff in that summons and the defendant in the cross-claim seek the determination of the amount which is in dispute and which ought have been paid to obtain a discharge of the mortgage. Sums totalling about $180,000 have already been paid to the defendant on account of the mortgage indebtedness. These payments exhausted the proceeds of sale of the property after payment out of the mortgage indebtedness incurred by the plaintiff after its transfer to her. Any additional sum properly owing under the mortgage remains to be paid by the plaintiff to the defendant.

Question (1) - Was the transfer a sale within the meaning of cl 4.1 of the mortgage?

10    There are two contending candidates for the date at which the mortgage debt became due. One is the mother's date of death. The sale by the plaintiff to an outside purchaser is not a candidate, since it succeeded the death. The transfer by the husband and the plaintiff to the plaintiff alone, however, preceded the death and is the other candidate. The question arises whether that transfer constituted “the sale of the mortgaged land” within cl 4.1 of the mortgage. Two questions arise as to the meaning of “sale” in this context.

11    The first question is whether the word “sale” refers to the transfer of the land, or to the pre-existing contract or arrangement under which the transfer was effected. In most contexts the "sale" of land is taken as referring to the date of contract rather than the date of completion or transfer. However, in the context of this document, the purpose of which appears on its face to be to ensure the return to the mother of the money lent by her for her to provide herself with other accommodation, it seems to me that, looked at objectively, what was in the contemplation of the parties was the time at which funds would become available from the transaction. I take “sale” in this context to refer to the transfer of the property rather than the entry into of an obligation to transfer it. Neither of the parties to these proceedings contended, or contended with any force, to the contrary.

12 The second question is whether what was in effect the transfer by the husband to the plaintiff of his half share in the property as joint tenant in consideration of the entry into and implementation of a binding property settlement under the Family Law Act 1975 (Cth) for a consideration which included no more than $30,000 in money, constituted a sale within the meaning of cl 4.1. Mr Kolomyjec, of counsel for the plaintiff, contended that it did. Miss Ottesen for the executor/defendant emphasised that the defendant was contesting the proceedings because of his view of his executorial duties in relation to an estate of which there are infant beneficiaries. Her primary contention was that there was no sale of the property within the meaning of cl 4.1 until the sale by the plaintiff alone to the outside purchaser, so that the date upon which the mortgage debt fell due was the date of the mother's death. Her secondary submission was that the transfer might be regarded as a sale, although this was not her preferred view as a matter of law.

13    There was debate during the hearing as to the extent to which the circumstances of the parties and the negotiations which occurred, leading up to the purchase of the property and the lending by the mother on mortgage for the purposes of that purchase, might be taken into account in the interpretation of the relevant clauses of the mortgage. A convenient starting point for the modern law in relation to these matters is in the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 at 1383 - 1385 and Riordan Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 995 - 996. The situation was authoritatively dealt with by the High Court of Australia in Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 - 353 per Mason J (as he then was). A most useful and compendious statement of the law to date is contained in the judgment of Powell JA in the Court of Appeal in Darin Nominees Pty Ltd v Franklin's Self Serve Pty Ltd [1999] NSWCA 209 at [35]. Considerations outside the document may only be resorted to where there is some lack of clarity in the terms of the document itself. That requirement, in my view, is met in this case, because, as I have already indicated, there is uncertainty as to the meaning of “sale”, both as to whether the reference is to completion of a pre-existing contract or arrangement, and as to whether only an arm’s length sale of the entire interest on commercial terms will suffice, or whether such a transaction as a transfer in pursuance of a family law settlement may suffice. I should say in relation to the transfer that, although the transaction may be regarded in effect as a transfer of a half interest from husband to wife, both in form and in legal substance the transaction was a transfer of the whole of the fee simple in the property from two joint tenants to one of them alone. It is, therefore, clearly a transaction that deals with the whole of the property, but the question remains whether the transfer in the circumstances in which it came into existence is a “sale” within the meaning of cl 4.1. Insofar as the negotiations between the husband, the plaintiff and the mother which preceded the purchase of the property and the borrowing in respect of it on mortgage are in evidence, I have not taken the content of the negotiations into account in construing the mortgage. In my view, it is not permissible so to do upon the authorities as referred to above. However, there being a lack of clarity, I have examined “the matrix of facts”, as Lord Wilberforce referred to it ([1971] 1 WLR at 1384), in which the transactions were made for the purpose of construing the instrument. It is clear from those facts, as set out in [2] above, that the purpose of the transaction that led to the mortgage was to provide accommodation for the mother and to make arrangements, if circumstances so changed that the availability of that accommodation was lost or endangered, for the mother to be able to recover her funds for the purpose of providing herself with accommodation elsewhere. This is one of the considerations that has led me to the conclusion that “sale” should in this document be regarded as referring to completion or transfer, rather than contract. Taking into account the words of cl 4.1 in the context of all the terms of the mortgage and bearing in mind the factual considerations to which I have referred, I am of the view that a broader rather than a narrower construction should be given to the word “sale” in cl 4.1. In my view, the transfer falls within the meaning of “sale” as used in that clause. Question (1) will be answered accordingly. It follows that the mortgage debt fell due on 25 March 1999.

Question (2) - Was the AHL valuation a determination of value for the purposes of cl 1.2 of the mortgage?

14    In relation to the relevant provision in cl 1.2 of the mortgage as to the determination of value, I should say at once that it is a provision of the mortgage which, in my view, is quite clear in its meaning on the face of the document. It refers to “the value of the mortgaged land as determined by a registered valuer appointed by the mortgagee” as being a factor in the determination of the amount of the mortgage debt when it fell due. It is quite clear to me that what is required is a valuation then or thereafter commissioned by the mortgagee at the mortgagor's expense and procured for the purpose of the clause. It seems to me that the appropriate value to be determined is the fair market value as at the relevant date. In making such a valuation it would certainly not fall for the valuer to bear in mind the different considerations which a valuer would properly bear in mind when valuing for the purposes of a prospective lender or mortgagee. Although Miss Ottesen pressed upon me the AHL valuation as operative for the purposes of cl 1.2 as being a valuation made close to the relevant time and establishing the market value of the property, in my view it is not a determination of value within cl 1.2. It was not obtained from a registered valuer appointed by the mortgagee, nor was it obtained for the purposes of cl 1.2 from a valuer aware that he or she was carrying out the exercise for the purposes of that clause. Question (2) must be answered accordingly.

15    I do not think it was put to me that the R&W valuation of $245,000 could qualify as a valuation for the purposes of cl 1.2. In any event, it equally clearly could not qualify. However, a different submission was put to me in relation to that valuation, to which I shall turn in considering the answer to Question (3).

Question (3) - Is the defendant in any way bound by any action on her behalf under the power of attorney?

16    Submissions were put to me by Mr Kolomyjec on behalf of the plaintiff, that the mother and her estate were in various ways bound by actions on her behalf under the power of attorney. The principal submission was to the effect that by the 1997 letter, whilst the R&W valuation did not qualify as a determination of value within the meaning of cl 1.2 of the mortgage, the husband must be taken to have bound the mother to that valuation. This involves the propositions that the husband must have had a discussion with his brother and sister as co-donees of the power of attorney and have been acting not only on his own behalf but with the concurrence of one or other of them to bind the mother to a valuation of $245,000 for the purposes of the transaction embodied in the varying order and carried out by the execution of the transfer in the succeeding year. On the evidence, in my view, no such conclusion can be drawn. There are at least two reasons why this is so. The husband did not purport to act in that letter, or in any other way shown upon the evidence, as his mother's attorney in anything that he said or did. Equally, whilst there is some reference to discussion with the co-donees of the power of attorney in the 1997 letter, there is certainly no indication in that letter, or anywhere else in the evidence, that either his brother or his sister joined with him in acting in this regard, or in any regard, under the power of attorney. The answer to Question (3), therefore, is that on the evidence no conclusion can be reached that the mother was, and the defendant is, in any way bound by anything done on behalf of the mother under the power of attorney.

17    Whilst it flows from what I have said that on the evidence there is not at present any determination of value for the purposes of cl 1.2 of the mortgage, there is nothing in that clause, or elsewhere in the mortgage, to limit the time at which or within which the mortgagee is entitled or required to appoint a registered valuer for the purposes of that clause. It seems to me, therefore, that there is no reason why her executor cannot remedy the matter by doing so now.

18    Short minutes of order should be brought in to give effect to my decisions stated in these reasons for judgment and to determine what further steps should be taken in the proceedings in consequence of the answers to the questions I have determined.

…oOo…

Last Modified: 11/03/2000