Adelaide Bank Ltd v Property Builders Pty Ltd

Adelaide Bank Ltd v Property Builders Pty Ltd - [2009] NSWSC 849 - NSWSC 2009 case summary — Zoe

[15]

and the signature of be Michael Phontos appears followed by his name and the words "Sole Director". 6 I am informed that Peter Phontos has died and no claim is made against him in the proceedings. 7 On 31 October 2006, and pursuant to the accepted letter of offer, Property Builders executed a mortgage to Eurofinance. Annexure "A" to the Mortgage contained clauses related to the loan. It commenced by saying: "In consideration of $2,400,000 the " Principal Sum " lent or to be lent to the Mortgagor at the request of the Mortgagor, the Mortgagor covenants with the Mortgagee as follows." 8 Clause 2 contained definitions which identified "the Guarantor" as Michael Phontos and Peter Phontos, and defined "Collateral Documents" as including the documents specified in Item 2 of the Schedule. Those two documents were a Deed of Guarantee from the guarantors and: "2. Letter of Offer from the Mortgagee to the Borrower/Mortgagor dated 10 October 2006 and any supplemental or replacement Loan Offer." 9 Clause 3 entitled "Principal Repayment" provided: "The Mortgagor must pay to the Mortgagee the outstanding Principal Sum, and the balance, if any, of the Debt on the date specified in Item 3." 10 The "Principal Sum" was identified as being $2,400,000. There is no definition of "Debt" in the mortgage itself although it was given a meaning in the Memorandum Number 2367091 which was incorporated into the mortgage by clause 1 of annexure "A" to the mortgage. "Debt" was there defined as meaning: "all money owing by You to the Mortgagee now or in the future on any account. The Debt includes any money due or possibly due by You to the Mortgagee as a result of any arrangement including any loans made to You or guarantees given by You to the Mortgagee, and includes any loss or damage suffered by the Mortgagee as a result of those arrangements…" 11 The Memorandum also provided in Clause 2.01: " You must pay the Debt to the Mortgagee on the dates agreed between You and the Mortgagee . Usually, this agreement appears in one or more letters of offer or terms and conditions applying to transactions. If there is no agreement, You must pay the Debt to the Mortgagee on demand." 12 Part 4 of the Memorandum dealt with default. Clause 4.01 relevantly provided: " Default generally occurs if You fail to do something You are obliged to do, …. If any one or more of the following occur the Mortgagee may decide default has occurred. (a) Any clause of the Mortgage is not complied with. (b) There is default of any term of any loan agreement or other agreement relating to the Debt.

[41]

Was the debt assigned? 44 The Defendants resist the application for summary judgment on two principal bases. First, it is said that the evidence discloses that the loan itself was not assigned to the Plaintiff but to AIF2. The effect is that there is no default under the mortgage to the new mortgagee (the Plaintiff) to justify an order for possession. Secondly, it is said that no notice of the assignment was given to the debtor prior to the commencement of the proceedings. In support of the first matter, the Defendants point particularly to the documents that I have detailed in paras 23, 24, 27, 29, 30, 35 and 36 as showing that AIF2 became the new lender of the money. They further submit that the registration of the Transfer of the Mortgage does not transfer with it the debt that was owed by Property Builders to Eurofinance. 45 On the other hand, the Plaintiff submits that s 51 Real Property Act 1900 results in the assignment of the debt to the Plaintiff along with the assignment of the mortgage effected by the Transfer of Mortgage instrument which was registered. Section 51 provides: "Upon the registration of any transfer, the estate or interest of the transferor as set forth in such instrument, with all rights, powers and privileges thereto belonging or appertaining, shall pass to the transferee, and such transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which the transferee would have been subject and liable if named in such instrument originally as mortgagee, chargee or lessee of such land, estate, or interest." 46 The Defendants point to what is said by the High Court in Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81. The High Court was there considering what may be regarded as the equivalent provision being s 62 of the Land Title Act 1994 in Queensland. That section relevantly provides: "(1) On registration of an instrument of transfer for a lot or an interest in a lot, all the rights, powers, privileges and liabilities of the transferor in relation to the lot vest in the transferee.

[47]

It seems to me that the terms of the mortgage in the present case are sufficiently distinguishable from the position in Queensland Mines . 52 One of the earlier cases discussed was Consolidated Trust Co Limited v Naylor (1936) 55 CLR 423. The issue in that case was whether a transfer of mortgage operated to give the transferee the right to sue a surety on a covenant of guarantee contained in the instrument of mortgage. The Court considered the terms of both s 51 and s 52 Real Property Act. Section 52 provides: "(1) By virtue of every such transfer, the right to sue upon any mortgage or other instrument and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof. …" 53 The judgment of Dixon and Evatt JJ said (at 434): "The statute is concerned with dealings in land and it is because a mortgage involves such a dealing that the statute prescribes how mortgages may be transferred and with what consequences. It is concerned with the mortgage transaction in its entirety as it affects the land, and, therefore, extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction. A surety's obligation stands in a different relation to the dealing. His liability is introduced by way of additional security. It is personal and, except as a result of subrogation, does not directly or indirectly affect the land. … In relation to transfers of mortgage secs. 51 and 52 should be understood as dealing only with rights, powers, privileges, debts and sums of money affecting the mortgage transaction as between mortgagor and mortgagee. 54 In Numeth v Reachcord Pty Ltd (1998) 9 BPR 16, 557 at 16561 Young J, following Naylor, held that although s 52 did not pass the benefit of a guarantee, it was otherwise comprehensive and" "indefeasibility does apply to the estate which is transferred and any rights which are so intimately connected with the estate transferred that they cannot be severed. In view of s 52, that must include the assignment of the debt." 55 In my opinion, by virtue of the terms of the mortgage in the present case and by reason of ss 51 and 52 Real Property Act as elucidated in Naylor and Numeth, the debt from Property Developers to Eurofinance was (subject to questions of notice) assigned to the Plaintiff. If, however, I am wrong in that view, the various documents to which I have referred show sufficiently that the loan was taken over by the Plaintiff acting through its Manager, AIF2. The documents show that Eurofinance was repaid the amount it was owed by virtue of the fresh funds that were obtained from the Plaintiff. These funds were obtained under a facility that the Manager, AIF2 had with the Plaintiff. The documents identified in paras 25, 26, 27, 28, 30 and 31 above sufficiently disclose that the lender repaying Eurofinance was Adelaide Bank and that AIF2 was, under a facility arrangement, managing that loan for Adelaide Bank. In those circumstances there was an assignment of the debt to the Plaintiff. 56 Moreover, clause 4.01(e) of the Memorandum incorporated into the Mortgage identified an occurrence of default as a failure of Property Developers "to pay any person … any money by due date". If, as the Defendants submit, the debt was not assigned to the Plaintiff but to AIF2, there was a failure to pay the money to AIF2, and by that default the undoubted Mortgagee, the Plaintiff, (as a result of the registration of the Transfer of Mortgage) was entitled to possession. 57 Even assuming, however, that there was an assignment of the debt from Eurofinance to the Plaintiff, it does not appear that express notice in writing has been given to Property Developers, and certainly not before the proceedings commenced. Only 2 letters were faxed from the Plaintiff's solicitors to any of the Defendants on 21 August 2008. Both were marked "Att: Michael Phontos" and only the second of them was or purported to be, a notice pursuant to s 12 Conveyancing Act 1919. The text of that letter is set out above in para 38. On its face it was not addressed to the first Defendant. In terms it was marked for the attention of Michael Phontos, the Second Defendant and it said that it notified him "as guarantor". The other letter asked Mr Phontos to confirm that he acted for Property Buiders, presumably so the Plaintiff's solicitors would know if they could serve him with the s 12 notice addressed to Property Builders. 58 He did not apparently respond but the Statement of Claim was then issued followed by the service of a number of further letters in the same form as that set out in para 38 above but all addressed to Mr Phontos and all referred to notifying him as the guarantor. 59 It is clear that it is not until express notice in writing is given under s 12 that the assignee obtains the legal right and the legal remedy to the debt: McIntosh v Shashoua (1931) 46 CLR 494 at 514-515; International Leasing Corp Ltd v Aiken [1967] 2 NSWR 427 at 448. The Plaintiff did not, therefore, have any legal right or remedy in respect of the debt nor, a fortiori, to a right to possession against the First Defendant based on that debt.

[48]

Was the guarantee assigned? 60 The further question to be determined is whether the guarantee was assigned. The loan offer contemplated that the mortgage might be transferred and that ultimately happened. The Deed of Guarantee in clause 6.6 allowed for the fact that the guarantee might be assigned and provided that that would not affect the guarantor's obligations. 61 The various letters dated 21 August 2008 notified Mr Phontos as guarantor "that the Agreement, in its entirety, has been assigned to Adelaide Bank" and "the Agreement" was defined as including the Deed of Guarantee. 62 There do not appear to be any documents which, on their face, assign the guarantee, nor do the documents to which I have already referred that relate to the assignment of the loan make reference to the assigning of the guarantee. 63 In those circumstances, the Plaintiff would have to show that the guarantee was impliedly assigned along with the principal contract to which the guarantee relates and, in such circumstances, it is a question of construction whether the benefit of the guarantee was intended to be assigned to the assignee. The assignee must show that the express assignment of the principal contract has impliedly carried with it the benefit of the guarantee. As mentioned above, the High Court made clear in Consolidated Trust v Naylor that ss 51 and 52 did not have the effect of assigning a guarantee when the mortgage was transferred. 64 The letter of 21 August does not prove that there has been an assignment of the guarantee. That assignment must be proved otherwise than by the letter merely giving notice of the assignment. The documents do not support the assignment of the guarantee. Although, as I have noted, clause 6.6 of the Deed of Guarantee contemplates that the lender may assign the guarantee and that the guarantor's obligations are not thereby changed, I do not think the presence of that clause alone is sufficient to infer that on any assignment of the debt the guarantee was itself assigned along with the debt: Cf International Leasing at 451 per Asprey JA, and see the criticism of Asprey JA's statement in Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 12 and by O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC at 509. The better view is that the presence of the clause allowing for assignment of the guarantee is not of itself sufficient to infer that the guarantee was assigned with the debt. 65 But in any event, the assignment of the debt was not, as I have held, effective because no notice in writing was given to the debtor as s 12 required. A guarantee cannot be assigned without the benefit of the principal obligation because otherwise "a creditor could effectively divorce the guarantor's liability from that of the principal debtor": Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 373. 66 Nor can the existence of a certificate pursuant to clause 6.3 of the Deed of Guarantee overcome the problem, as the Plaintiff submits. The Certificate enables the "Lender" to give a binding Certificate but the Lender is said to be "Eurofinance Capital Ltd" and the identity of the Lender as not including any assignee (and the Lender is not otherwise defined as including any assignee) is made clear by the terms of clause 6.6. The Certificate has in fact been given by the Plaintiff and not by Eurofinance. 67 Nor can the Certificate go any way to overcome the lack of notice to Property Developers in relation to the assignment of that debt because the Certificate relied upon is contained only in the Deed of Guarantee. 68 The result must be, certainly on an application for summary judgment, that the Plaintiff is not entitled to a judgment against the Second Defendant. 69 I make the following Orders:

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