Adelaide Bank Ltd v Property Builders Pty Ltd

Consolidated Trust v Naylor (1936) 55 CLR 423 French v Queensland Mines Pty Ltd [2006] VSCA 287 Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 CASES CITED : International Leasing Corp Ltd v Aiken [1967] 2 NSWR 427 McIntosh v Shashoua (1931) 46 CLR 494 Numeth v Reachcord Pty Ltd (1998) 9 BPR 16, 557 Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5

TEXTS CITED : O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed (1996) LBC.

PARTIES : Adelaide Bank Ltd (Plaintiff) Property Builders Pty Ltd (Defendant)

COUNSEL : M J Cohen (Plaintiff & Third Defendant) J Stevenson SC & V Whittaker (First & Second Defendants)

SOLICITORS : Bansgroves Lawyers (Plaintiff & Third Defendant) Carlisle Attorneys (First & Second Defendants)

• 18 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

014452/08 ADELAIDE BANK LTD v PROPERTY BUILDERS PTY LTD

JUDGMENT 1 This is an application for summary judgment by the Plaintiff in proceedings that claim possession against the First Defendant and a judgment against the First and Second Defendants for the principal sum loaned together with interest.

The original loan 2 By letter of 10 October 2006 Eurofinance Capital Limited (the Third Defendant) ("Eurofinance") offered to lend the sum of $2,400,000 to the First Defendant Property Builders Pty Ltd ("Property Builders") for a period of nine months. The guarantors of the loan were to be Michael Phontos and Peter Phontos and the solicitors for the borrower were said to be: "Phontos Legal Attn Michael Phontos" 3 Condition 3 said: "Customer's acknowledgment that this proposed mortgage may be transferred to Advance Investment Finance No. 2 Pty Limited and onto Adelaide Bank Limited". 4 At the bottom of the letter there was a section headed "Memorandum of Acceptance" underneath which was written: "We hereby accept Eurofinance Capital Limited's offer as herein described and subject to the terms and conditions herein set forth dated this 12 th day of October 2006."

There was then space for the common seal to be fixed in the presence of a director and secretary but that part of the letter was left blank. 5 Immediately underneath the signatures of Michael Phontos and Peter Phontos appear as guarantors. Underneath that, in handwriting, the following appeared: "Executed by Property Builders P/L ACN 094 832 792 in accordance with section 127 of the Corporations Act 2001"

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.

(e) You fail to pay any person (including other banks etc) any money by due date." 13 Clause 4.02 of the Memorandum set out the Mortgagee's rights on default which included the following actions: "(a) Demand and require immediate payment of the Debt;

(b) Exercise any right, power or privilege conferred by any law, the Mortgage, or any collateral security;

(c) … (i) eject You or any other occupants from the Land and take possession of the Land." 14 Clause 6.04 headed "How the Mortgagee Can Deal With the Mortgage" provided: "The Mortgagee may assign or otherwise deal with the Mortgage in any way it wishes. You must sign anything and do anything the Mortgagee reasonably requires to enable any dealing with the Mortgage. Of course, any dealing with the Mortgage does not change Your obligations under the Mortgage." 15 Clause 6.06 provides: "(a) your obligations under the Mortgage continue irrespective of anything which happens to You, the Debt, or anything else. For example, the obligations continue if you die or are made bankrupt, if you are a partnership and the partnership ends or the members change, or if you are a company and it is wound up." 16 On the same day (31 October 2006) a Deed of Guarantee was signed by (relevantly) Michael Phontos ("the Guarantor"). Although the actual signed guarantee cannot be located it is not disputed that it was in the form of the guarantee annexed to the affidavit of Yianni Socratous from Eurofinance sworn 12 August 2008. 17 Clause 2 headed "This is a continuing guarantee" contained the following: "2.3 This guarantee continues despite any change in the amount of money owed by the Borrower to the Lender, or any change in the interest rates on that money. This guarantee continues even if the terms and conditions relating to the money due by the Borrower to the Lender are varied or anything else that happens in relation to the Debt. The obligations continue even though the Debt is repaid and then readvanced.

2.4 Your obligations continue even if for any reason the Borrower is not required to meet its obligation to pay the Debt (including where the Loan Documents become unenforceable), so that despite anything that may happen, You will ensure the Lender is paid the Debt." 18 Clause 6.3 provided that a certificate signed by the Lender as to an amount payable to the Lender was conclusive and binding on the Guarantor. 19 Clause 6.6 headed "How the Lender can deal with this Guarantee" provided: "The Lender may assign or otherwise deal with this guarantee in any way it wishes. You must sign anything and do anything the Lender reasonably requires to enable any dealing with this Guarantee. Of course, any dealing with this Guarantee does not change Your obligations under this Guarantee." 20 The loan appears to have been made to enable the development of a property at 110-112 Twin Road, North Ryde by the building of a block of 5 units and the registration of a strata plan. The repayment date for the principal sum loan was 1 July 2007 but the money was not repaid on that day. 21 The strata plan was registered on 26 October 2007. On 16 November 2007 unit 4 was sold with Eurofinance receiving $545,321.11 and on 25 January 2008 unit 2 was sold with Eurofinance receiving $569,786.84.

The loan is rolled over 22 On 31 March 2008 Eurofinance wrote to Property Builders saying that they were prepared to roll over the existing loan facility. The amount to be rolled over was $1,528,602 and was to be lent for a 3 month period expiring on 1 July 2008. Because of the sale of units 2 and 4, the security for the roll over facility was to be a registered first mortgage over units 1, 3 and 5. This further offer was accepted by the signature of Michael Phontos. 23 On 2 May 2008 at 4:30pm there was a meeting of the Directors of Eurofinance. A resolution was passed as follows: "In accordance with the company practice of freeing up funds in Eurofinance Capital Ltd and in accordance with the letter of offer to Property Builders Pty Ltd dated 10 th October 2006, the following loan is to be transferred to Advance Investment Finance No. 2 Pty Ltd under their facility with Adelaide Bank Ltd." 24 At 4:32pm on the same day there was a meeting of the Directors of Advance Investment Finance No. 2 Pty Ltd ("AIF2"), the Directors being identical with those who met as Directors of Eurofinance. A Resolution was passed as follows: "In accordance with the company practice of freeing up funds in Eurofinance Capital Ltd and in accordance with the letter of offer to Property Builders Pty Ltd dated 10 th October 2006, the following loan was accepted to be transferred to Advance Investment Finance No. 2 Pty Ltd under their facility with Adelaide Bank Ltd." 25 On 6 May 2008, Colin Sherry, a Director and the General Manager of Eurofinance sent an email to Anthony Woods at Gadens headed "Property Builders Pty Ltd". The email relevantly said: "As discussed, please arrange transfer of the above mortgage to ABL . We would like to settle on Thursday so if we can have your certification by tomorrow, that would be appreciated.

Please note there are only 3 remaining titles/units. The current principal is $1,528,601.69." (emphasis added) 26 The following day (7 May) Mr Woods prepared and sent to Mr Sherry a Solicitor's Certificate identifying the lender as "Adelaide Bank Ltd (Advance Investment Finance No. 2 Pty Ltd)", the Borrower as Property Builders and the Guarantor as Michael Phontos and Peter Phontos. The security referred to Lots 1, 3 and 5 at 110 Twin Road and the facility amount was $1,528,601.69. The Certificate asked for transfer to the Gadens Lawyer's Trust Account of that amount and it then said: "The cheques requested on settlement are as follows:

1. Advance Investment Finance No. 2 Pty Ltd - $1,528,601.69." 27 On the same day a document called "Schedule 4 Funding Notice" was signed on behalf of AIF2 by Mr Sherry (who was a Director and General Manager of Eurofinance as well as a Director of AIF2) and another Director of both companies, Mr Jim Socratous, and addressed to Adelaide Bank Ltd. It said: "This is an irrevocable notice under clause 4.1(1) of the Facility Agreement dated 21 March 2005 (the Facility Agreement ) between Advance Investment Finance No. 2 Pty Ltd and the Bank.

… 1. We require funding of $1,528,601.69 on 8/5/2008 being one Business Day after the date of this Funding Notice. 2. The funding is to be used for the following loan:

Name of Account: Gadens Lawyers Trust Account" 28 There is a settlement cheque request on Gaden's letterhead referring to Property Builders with the settlement date 9 May 2008. The document says: "Funds coming from: Adelaide Bank Ltd

It refers to a telegraphic transfer to NAB in relation to the account of Eurofinance. 29 On 9 May 2008 Gadens deposited into the account of Eurofinance with National Australia Bank the amount of $1,413,956.56 (the difference between this figure and $1,528.601.69 is described as "Retained Subordination" in a letter from a company called AB Management Pty Limited to AIF2). 30 There is a letter dated 9 May 2008 from Gadens to Mr Colin Sherry at AIF2. The letter has as part of its heading a reference to the lender who is described as "Adelaide Bank Ltd (Advance Investment Finance No. 2 Pty Ltd)" and the borrower being Property Builders. The letter said: "We confirm that $1,413,956.56 was transferred to your account today.

We enclose our tax invoice for this matter." 31 The tax invoice was also addressed to Mr Sherry at AIF2 and was headed as follows: "Lender: Adelaide Bank Ltd

Borrower: Property Builders Pty Ltd Principal Security: Lots 1, 3 and 5 110 Twin Road, North Ryde, NSW."

Similarly, on the remittance slip attached to the invoice, Adelaide Bank is described as the Lender and AIF2 is described as the Manager. 32 There is a Transfer of Mortgage dated 9 May 2008 in respect of Lots 1, 3 and 5 in SP77529 which is the relevant strata plan. The transferor is Eurofinance and the transferee is Adelaide Bank Ltd. 33 According to the evidence of Yianni Socratous there was failure on the part of Property Builders to pay interest on 1 June 2008 amounting to $17,664.77 and there was a failure to repay the principal sum loaned on 1 July 2008. A s 57 Notice was given on 8 July 2008. 34 There is in evidence a Statement of Account on the letterhead of AIF2 in respect of Property Builders dated 31 July 2008. It discloses that on 9 May 2008 there was a "new Contract Payment" of $1,528,601.69 so that the debit balance on that date equalled that amount. 35 Also on 31 July 2008 AIF2 wrote to Property Builders saying that they had been forced to increase further their interest rates on all loans by .15% pa from 1 August 2008. 36 On or about 23 September 2008 an undated letter was posted to Property Builders from a firm of chartered accountants called Pace Rowlands Bell. The letter relevantly said: "We are writing as the auditor of Advance Investment Finance No. 2 Pty Limited.

As part of our normal audit procedures, we request that you confirm your liability to our above-named client as of 30 June 2008.

On 1 October 2008 another letter from AIF2 to Property Builders gave notice of an interest rate decrease on the loan.

Notice of assignment 37 On 21 August 2008 a letter addressed to: "Att: Michael Phontos Phontos Legal"

was sent by the solicitors for the Plaintiff making reference to a letter dated 6 August 2008 from Michael Phontos which (the letter said): "implies you act for Property Builders Pty Ltd and Michael Phontos. Please confirm by return this is the case." 38 The letter then enclosed a notice said to be pursuant to s 12 Conveyancing Act 1919 and asked for confirmation that the firm was instructed to accept service. The letter in fact enclosed a number of documents in identical terms except for the address of the person to whom it was directed. Each letter was marked "Att: Michael Phontos" at each of units 1, 3 and 5, 110 Twin Road as well as to unit 4, 18 Hancott Street, North Ryde. In each case the notice was as follows: " RE: Adelaide Bank Ltd enforcement of mortgage to Property Builders Pty Ltd

Security 1: Unit 1/110 Twin Road, North Ryde. Folio: 1/SP77529. Security 2: Unit 3 1/110 Twin Road, North Ryde. Folio: 3/SP77529.

Security 3: Unit 5 1/110 Twin Road, North Ryde. Folio: 5/SP77529.

This is a notice pursuant to s 12 Conveyancing Act 1919. We hereby notify you as guarantor under the Agreement, that the Agreement, in its entirety, has been assigned to Adelaide Bank Ltd in accordance with the terms of the Letter of Offer. Your obligations pursuant to the Guarantee are therefore owed to Adelaide Bank Ltd.

the Agreement - the Agreement between Eurofinance Capital Ltd and Property Builders Pty Ltd, Michael Phontos and Peter Phontos consisting of the following documents: 1. mortgage over the above security properties dated 31 October 2006 (the "mortgage")

2. letter of offer dated 10 October 2006 (the "letter of offer")

3. deed of guarantee dated 31 October 2006 (the "guarantee")

4. memorandum 2367091 (the "Memorandum")" (italics added) 39 It appears that the letter referred to in para 37 above and the letter in para 38 above addressed to 1/110 Twin Road were faxed on 21 August 2008 to Michael Phontos. So much appears from a facsimile transmission report showing that 2 pages, the first of which was the letter in para 37 above, were faxed at 17:47 hours on that day. Mr Phontos admits to receiving a 2 page facsimile and confirms that it consisted of the letter in para 37 and the letter addressed to Michael Phontos at unit 1/110 Twin Road which is set out in para 38. 40 The Plaintiff issued its Statement of Claim on 27 August 2008. 41 Mr Phontos says that on 29 August 2008 he received a letter by fax from the Plaintiff's solicitors addressed to him at his firm at 4/18 Hancott Street, Ryde saying: "We refer to our letter dated 21 August 2008 and note you have not accepted service of the s 12 notice addressed to Michael Phontos.

Accordingly, we have mailed the same to the address for service provided in the loan documentation." 42 Thereafter, Mr Phontos received a letter enclosing the Statement of Claim both sent by fax and then he received 4 letters, the text of which is set out in para 38 above addressed to him at each of units 1, 3 and 5, 110 Twin Road and unit 4/18 Hancott Street, Ryde. The letter was post marked 5 September 2008. 43 On 26 September 2008 unit 3 was sold with the Plaintiff receiving $586,789.24. In that regard, although the Amended Statement of Claim filed 25 March 2009 continued to seek possession of unit 3, the Notice of Motion for summary judgment claims possession only of the 2 remaining units owned by Property Builders being units 1 and 5.

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.

(2) Without limiting subsection (1), the registered transferee of a registered mortgage is bound by and liable under the mortgage to the same extent as the original mortgagee.

(4) In this section - rights , in relation to a mortgage or lease, includes the right to sue on the terms of the mortgage or lease and to recover a debt or enforce a liability under the mortgage or lease." 47 In some respects it might be thought that s 62 more clearly transferred to the transferee the right to sue for the debt secured by the mortgage in the same way as is sought to be done in the present case. However, Kiefel J (with whom the other member of the Court agreed) having examined some earlier decisions, concluded: "[55] … The primary concern of the Act, as reflected in s 62(1), is to convey the rights of the transferor in relation to their interest in "the lot", which is defined to mean land. In the case of a mortgage that interest arises from the instrument of mortgage. Sub-section (4) should be read with sub-s (1), since it is intended to further define the "rights" there referred to. It may then be inferred that it is concerned with rights arising from the instrument which creates the interest in land the subject of statutory transfer. The instrument of mortgage is the source of that interest and of the rights to sue for and recover moneys owing under it. The latter is confirmed by the words "under the mortgage" in sub-s (4). The word "under", with respect to an obligation "under this lease", has been held to refer to an obligation created by, in accordance with, pursuant to, or under the authority of the lease. … The two rights, to sue for and to recover a debt, arise from the same source. The words of the section provide no warrant for a construction which extends it to the right to recovery of a debt merely collaterally secured by the mortgage.

[56] The words of the section are plain. Neither the historical reason for the provision nor its purpose, of effectuating a transfer of both the security interest and the right to moneys arising from the mortgage transaction, supports a construction which extends the section to obligations arising otherwise than under the terms of the mortgage. It is no part of the purpose and function of a statute such as the Land Title Act to rewrite the bargain between transferor and transferee.

[60] The simple facts are that the debt sought to be recovered by Mr French arose under the loan agreements, not under the mortgages. Mr French was the assignee of the right to recover the moneys owing under the loan agreements; Marminta was not an assignee from him. He retained the right to sue for and recover those moneys from QPM and the Beckinsales [the original borrowers]. Section 62 of the Land Title Act did not operate to vest those rights in Marminta." 48 Two things might be thought to affect the relevance to the present case of the principle discussed in Queensland Mines. First, particular emphasis was placed on the words "under the mortgage" in s 62(4). Such words do not appear in s 51 although something similar appears in s 52 Real Property Act (discussed below). 49 Secondly, the factual situation differed from the present case in this sense. The covenant in the mortgage in Queensland Mines provided: "[4.1] The mortgagor should pay each amount included in the Secured Moneys to the Mortgagee: (a) on the date fixed for payment of that amount under any Facility Agreement; or (b) if no date for payment is so fixed on demand in writing by the Mortgagee. …"

The definition of "Secured Moneys" encompassed moneys "owing or payable… to the Mortgagee by the Mortgagor on any account …" and included "all Moneys now or hereafter payable to the Mortgagee pursuant to any Facility Agreement", the Facility Agreement being a separate loan agreement (see French v Queensland Mines Pty Ltd [2006] VSCA 287 at [18]). 50 In the present case, the amount loaned of $2,400,000, defined as the "Principal Sum" was said to be the consideration for the grant of the mortgage, and clause 3 required the outstanding Principal Sum and balance of the Debt to be repaid on the date specified in Item 3 of the Schedule, being 9 months from the date of the mortgage. 51 In Queensland Mines v French Kiefel J observed that none of the earlier decisions considered in that case: "were concerned with the question whether a covenant to repay in an agreement separate from the mortgage, but secured by it, is transferred upon registration by operation of the statute."

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.

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:

(1) The Plaintiff's Notice of Motion for summary judgment is dismissed.

(2) The Plaintiff is to pay the Defendants' costs of the Notice of Motion.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.