These proceedings arise out of a dispute between the parties to a commercial agreement concerning subcontracting arrangements for building work. The plaintiff has obtained judgment against the defendant (as a guarantor) and seeks to have an equitable charge recognised on the defendant's half share of another property as security for his obligations under the judgment.
The agreement between the parties is recorded in a document styled "Deed" which is dated 19 January 2021. The Deed has been the subject of earlier proceedings in the Court which were begun in 2022. Hmelnitsky J delivered his principal judgment, in which he dealt with all of the substantive claims made in the proceedings, on 17 May this year: Allspec Constructions and Project Management Pty Ltd v Jana Pty Ltd [2024] NSWSC 592 ("J1").
The background to the Deed appears at J1 [6]-[14]. The defendant, Mr Azizi, is, or was at the relevant time, a building contractor and developer. His contracting operations were conducted through two companies referred to by his Honour as "Trinity" and "Trinco".
The plaintiff company, Allspec Constructions and Project Management Pty Ltd ("Allspec"), is controlled by Mr Joseph Elia. Mr Elia is a building subcontractor. He and Allspec were retained to undertake subcontracting work for Trinity and Trinco beginning in 2020.
Among the projects which were the subject of the subcontracting arrangement, was a development project at Stoney Creek Road, Bexley. The property in question was owned by a company named Jana Pty Ltd ("Jana"). That company was owned, or, at least, controlled, by Mr Azizi. In the period leading up to the execution of the Deed, invoices were issued by Mr Elia or by Allspec to Trinity and Trinco totalling $1.107 million. Of these invoices, only $625,000 were paid.
The Deed is described by Hmelnitsky J at J1 [41]-[60]. As his Honour remarked, it was extraordinarily badly drafted. But among other things, it referred to a "Guarantee" being provided by "Guarantors".
Trinity and Trinco are under external administration. The purpose of the 2022 proceedings was to enforce the Deed against Jana and Mr Azizi personally as guarantors. But his Honour found that on a proper interpretation of the Deed, the reference to the Guarantors was to Mr Azizi alone.
There was also uncertainty about what liabilities the Deed, on its proper interpretation, secured. The provisions of the Deed in this regard were confusing and inconsistent. His Honour ultimately found that the only liability covered by Mr Azizi's guarantee was a liability to pay certain invoices totalling $49,000. As a result, his Honour gave judgment against Mr Azizi personally in the sum of $49,000 plus interest. The claims in the proceedings were otherwise dismissed.
In reaching this conclusion, his Honour applied a well-known principle governing the interpretation of guarantees and indemnities, namely that an ambiguous contractual provision should be construed in favour of the surety. The principle is set out in the judgment of the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561: see J1 [122]-[123].
The trigger for the present proceedings was a caveat which was lodged in the name of Allspec on a property at Ettalong, a half share of which is owned by Mr Azizi. The interest claimed by the caveat was described as a "charge" by virtue of the Deed. The details supporting the claim were:
An equitable charge pursuant to clause 8.60 of the Deed dated 19 January 2021 between Anthony Azizi as Guarantor and the Caveator.
The caveat was lodged on 8 March this year, shortly before the hearing before Hmelnitsky J. The present proceedings were begun in the name of Allspec after a lapsing notice was served.
An application was made in the Duty List for an extension of the caveat, which came before me for hearing earlier today. Counsel for Mr Azizi indicated that the extension was opposed on the ground that, as a matter of interpretation of the Deed, Allspec had no caveatable interest in the Ettalong property. But rather than proceed with a contested interlocutory application, in response to a suggestion by the Court, counsel indicated that Mr Azizi was prepared to proceed on the basis that the Court would determine Allspec's claim for final relief.
Allspec's summons was defective, in that the relief sought referred only to maintaining the caveat and there was no claim for final relief to vindicate the substantive interest claimed on Allspec's behalf: see Orsini v Habambo [2024] NSWSC 289 at [40]-[50] and the cases there cited. But this difficulty was overcome by amendment and the matter went ahead as a final hearing of Allspec's substantive claim for relief.
On the face of it, the present issue could have been raised and dealt with in the proceedings before Hmelnitsky J. That would have saved time for the Court and substantial costs for the parties. But no Anshun point (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) was taken on behalf of Mr Azizi, and the question of what, if any, security interest Allspec has pursuant to the Deed must therefore be decided.
Clause 8.60, referred to in Allspec's caveat, is in the following terms:
"Security" means any security, guarantee or other obligation under any document, contract for sale or this Deed. The Guarantors charge to the Subcontractor or its nominee all of Guarantors right, title and interest in any real property located in NSW and consents to the Subcontractor and or its nominee registering caveats over the titles to the properties. The Subcontractor and the Guarantor's agree that this clause is intended to create an equitable interest in the properties.
The contention for Allspec was that cl 8.60 created an equitable charge over all real property owned by Mr Azizi in New South Wales including his half share of the Ettalong property. In its summons, as amended at the hearing, Allspec claimed a declaration to that effect, together with an order for sale to give effect to its security.
The principles governing equitable securities of this type was set out by Bathurst CJ in Roberts v Investwell Pty Ltd [2012] NSWCA 134 at [25]-[31]. An agreement for valuable consideration to give security, which is specifically enforceable, creates an equitable security of the relevant type.
The argument by counsel for Allspec was that cl 8.60 created an equitable charge under that principle. The argument focused in particular on the second and third sentences of the clause. Counsel submitted that an intention to create such a charge was clear, and indeed express, in the language.
One requirement of such a charge is that the debt for which the property is security must be identified: see Roberts at [26]. Counsel acknowledged that there was no express identification of the debt which was the subject of the security. But counsel submitted that, as a matter of implication, the debt had to be, or at least include, Mr Azizi's obligations under the Deed. Otherwise, counsel submitted, cl 8.60 would be meaningless.
Counsel for the defendant raised three points in answer to these submissions. The first point focused on the first sentence of cl 8.60. Counsel argued that the clause was definitional only. The term "Security" which appears in the first sentence is only picked up in one other clause of the Deed (cl 8.27), and that clause did not create any security obligation in support of Mr Azizi's obligations. The clause provided:
"Enforcement of Guarantee" - means this Deed is a primary obligation of each Guarantor and is in addition to and not in substitution for any other Security which the Subcontractor or its nominee may hold or have recourse to in respect of the Guaranteed Moneys and, may be enforced without first having recourse to any such Security and without taking any steps or proceedings against the Head Contractor or Guarantors whether pursuant to such Security or otherwise and notwithstanding that any other Security shall be in whole or in part unenforceable by reason of any rule of law or equity.
Counsel submitted, as I understood his argument, that, in its context, cl 8.60 should not be understood as creating any security obligation in support of the unsecured liability of Mr Azizi as guarantor.
Counsel's second point focused on the failure of cl 8.60 to specify the debt which was to be the subject of the charge. Counsel submitted that the failure to do so rendered the second and third sentences of the clause void for uncertainty even if the Court would otherwise have treated them as operative provisions.
This submission was reinforced by counsel's third point, which was that the Ankar principle required the Court to read down Mr Azizi's security obligation. Counsel argued that, having regard to the terms of the Deed, the Court could not be satisfied that any debt had been intended to be the subject of the charge.
It is true that the first sentence of cl 8.60, considered on its own, reads like a typical definitional provision. The clause is surrounded by a large number of other clauses which similarly begin with what, at first sight, appear to be defined terms. But many of those other clauses, when they are read in full, actually contain operative provisions. An example of this is cl 8.58:
"Rights Independent" - the Subcontractor and or its nominee may enforce its rights under this Deed independently from any other person.
When this clause is read as a whole, the reference to "Rights Independent", which at first sight appears to be a definition, really performs the function of a heading.
In my view, similar comments apply to cl 8.60. The first sentence may be definitional but the second and third sentences are, as a matter of grammar, expressed in operative terms. Those two sentences should be read accordingly. To put it another way, there is no justification for ignoring apparently operative clauses (provided some meaning can be attached to them, a question to which I will come) merely because of the ham-fisted way in which the surrounding provisions of the Deed have been drafted.
Certainly the context means that the operative provisions in the second and third sentences of cl 8.60 are far from prominent for a reader. But Mr Azizi signed the Deed and that is prima facie evidence of his agreement to all of its terms including those which only emerge from a repeated or detailed analysis of the text. In the proceedings before Hmelnitsky J, a duress defence had been pleaded but no case of any substance in support of that defence was presented at trial. Nor in these proceedings has any defence of non est factum or claim for rectification been put forward. I therefore reject the first point made by counsel for Mr Azizi.
As to counsel's second and third points, in Orsini I referred to some of the authorities in this Court concerning the interpretation of provisions entitling a party to lodge a caveat over nominated property. Neither party expressed any disagreement with what I said, and counsel were content for me to adopt it as the starting point in the present case. The relevant passage is at [52]-[53]:
…In Troncone v Aliperti (1994) 6 BPR 13,291, the Court of Appeal held that the grant of an authority to lodge a caveat conferred, as a matter of contractual implication, an estate or interest in the land sufficient to support the caveat. Earlier, in Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314, a case where there was a clause expressly precluding the owner from "removing" the caveat, and the owner made an application to have the Court remove it (rather than causing a lapsing notice to issue), McLelland J held the clause effective to defeat the application. In his Honour's view, ousting the owner's statutory entitlement to apply for removal of a caveat was not contrary to public policy.
But such implications do not arise in every case. In Redglove Projects v Ngunnawal Local Aboriginal Council [2004] NSWSC 880, White J held that, on the true construction of the contract in that case, there was an implied obligation on the owner, but that obligation was only an obligation not to deal with the land in question without the consent of the caveator: see [18]. This did not create an interest in land which would support a caveat, although it would presumably have supported the grant of an injunction against the registered proprietor. And in Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489, Bryson AJ declined to interpret a contractual entitlement to lodge a caveat as imposing any additional obligation on the owner at all. In his Honour's view, all the owner was doing by agreeing to the caveat being lodged was accepting the practical inconvenience of getting the caveat removed: at [62]-[63].
Clause 8.60 (from this point forward I will refer only to the second and third sentences, for convenience) does much more than simply permit the lodgement of a caveat on the Ettalong property. The second sentence expressly states that Mr Azizi charges his property, and the third sentence records an express agreement that cl 8.60 is intended to create an equitable interest in those properties.
The clause does clearly manifest an intention to create a charge. The beneficiary of the charge is also clear: it is Allspec (or Allspec's nominee, but that alternative does not need any further consideration for the purposes of this judgment).
Counsel for Mr Azizi accepted that, as a matter of necessary implication, the charge to which cl 8.60 refers is a charge which secures debts owed to Allspec. The only question is whether it also, likewise by necessary implication, means or at least includes, debts owed by Mr Azizi to Allspec under the Deed.
One of the basic principles which govern the interpretation of commercial contracts is that the Court should be astute not to deprive such contracts of commercial force by an over-technical approach to interpretation. Especially is this so where the contract is expressed in loose or clumsy language.
The deficiency in drafting in the Deed means that this principle applies with particular force in the present case. If I were to accept the argument from counsel for Mr Azizi, the operative provisions of cl 8.60 would have no effect at all.
I think that approach has minimal attraction in the present case. The Deed is full of references (indeed over-full of references) to the Guarantee, which was clearly an important part of the parties' bargain. Provision of adequate security to support the guaranteed obligations would likewise have been a matter of considerable commercial significance. The parties have gone to the trouble of addressing that question and specifying the nature of the security interest to be created (a charge).
If counsel had been able to point to two possible interpretations of the clause, one of which was less extensive and one of which was more extensive, the rule could readily have been applied. But what counsel was really asking me to do was to use the rule so as to read cl 8.60 down to the point of extinction.
In my view, that is a different matter entirely. It is hardly surprising that counsel was unable to identify a possible construction of cl 8.60 under which Mr Azizi would not be liable for a judgment debt but would be liable for some other debt. That is because Mr Azizi's obligations have already been read down to the bare minimum in Hmelnitsky J's judgment.
For these reasons, I conclude that Allspec has established that it is entitled to an equitable charge over Mr Azizi's half share in the Ettalong property so as to secure the judgment debt.
(The parties addressed the Court on the form of final orders and costs)
The orders of the Court are:
1. Declare that the plaintiff has an equitable charge over the defendant's half share of the property located at XXX Broken Bay Road, Ettalong, New South Wales, folio identifier XXXXXXXX as security for the judgment in favour of the plaintiff against the defendant in the sum of $49,038.05 given by the Court on 17 May 2024 in proceedings 2022/48635.
2. Reserve liberty to the plaintiff to apply for orders for the enforcement of the charge the subject of declaration (1) including orders for the sale of the property or the defendant's half share in it, such liberty to be exercised within 28 days.
3. Grant leave to the plaintiff, to the extent required, to lodge a further caveat on the property notifying the interest the subject of declaration (1).
4. Direct that within 7 days the plaintiff withdraws caveat AT885288.
5. Order the defendant pay the plaintiff's costs of the proceedings to date.
[2]
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.
Decision last updated: 25 July 2024
Parties
Applicant/Plaintiff:
Allspec Construction and Project Management Pty Ltd