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[2025] NSWSC 1589
General information, not legal advice.
Supreme Court of NSW
2025-12-19
Bennett J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Constantine v Pates [2025] NSWSC 1589
Hearing dates: 2-3 October 2025
Date of orders: 19 December 2025
Decision date: 19 December 2025
Jurisdiction: Equity
Before: Bennett J
Decision: (1) The Statement of Claim is dismissed.
(2) The plaintiff is to pay the defendants’ costs.
(3) The Exhibits are to be returned.
Catchwords: CONTRACTS — Construction — Deed under which parties agreed that interests in two residential properties held by plaintiff were to be transferred to defendants in consideration of a sum of $700,000 to enable plaintiff to comply with court orders — Where recitals to deed expressly contemplate second defendant would need to take out a loan secured by a mortgage over one of the residential properties the subject of the deed to fund $700,000 payment to plaintiff — Where the other residential property was held by plaintiff and first defendant as tenants in common in equal shares — Where deed requires first defendant to transfer back to plaintiff his half-share in the property once “the loan” is repaid and “the mortgage” is discharged — Whether second defendant refinancing its loan triggered obligation of first defendant to transfer back to plaintiff his half share in the property he jointly held with plaintiff — Construction of “the loan” and “the mortgage”
Cases Cited: Banque Commerciale SA (En Liqn) v Akhil Holdings Limited (1990) 169 CLR 279; [1990] HCA 11
GE Commercial Corporation (Australia) Pty Ltd v Wallis [2015] NSWSC 704
Jingalong Pty Ltd v Todd [2015] NSWCA 7
Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206
Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5
Southern Cross Assurance Co Ltd v Australian Provincial Assurance Association Ltd (1935) 53 CLR 618; [1935] HCA 56
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 209 CLR 165; [2004] HCA 52
Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2019) 100 NSWLR 432; [2019] NSWCA 135
Category: Principal judgment
Parties: Christine Constantine (Plaintiff)
Stergos Pates (First Defendant)
Hygia Pty Ltd (Second Defendant)
Representation: Counsel:
J Mee (Plaintiff)
GM McGrath (Defendants)
Solicitors:
Andrew Lee Laywers (Plaintiff)
Culleton Lawyers (Defendants)
File Number(s): 2023/00143372
Publication restriction: Nil
The dispute between the parties is centred around the construction of a single clause of a deed entered into by them. The ultimate question is whether one party must now transfer its half-share of a property back to another party.
The plaintiff, Christine Constantine, and the first defendant, Stergos Pates, are sister and brother. The second defendant, Hygia Pty Ltd (Hygia), is a company through which the first defendant and his wife, Dr Vanitha Visvalingam, carry on a sleep medicine practice. The first defendant and Dr Visvalingam are the only directors and shareholders of the company.
The parties (including Hygia) entered into a Deed of Family Arrangement dated 22 May 2018 (the Deed). The Deed concerned the plaintiff’s interest in two residential properties. One property is located at X XXXXX Road, Marrickville, New South Wales, with folio identifier X/X (the Marrickville Property). The other is located at X XXXXX Avenue, Kingsgrove, New South Wales, with folio identifier X/X (the Kingsgrove Property).
The Deed required:
the second defendant to provide the plaintiff with the sum of $700,000 for the purpose of the plaintiff complying with an order of the Federal Circuit Court of Australia (FCC) (as it was then known);
the plaintiff to transfer the Marrickville Property to Hygia; and
the plaintiff to transfer a half-share in the Kingsgrove Property to the first defendant, such that the plaintiff and first defendant would hold that property as tenants in common in equal shares.
In the Deed, the parties acknowledged that Hygia’s payment of $700,000 was to be financed and secured by Hygia taking out a mortgage on the Marrickville Property. Consequently, on 22 May 2018, Hygia received a loan from the ANZ Bank with account number XXXX-XXXXX (the ANZ Loan). Shortly after the loan account was opened, a mortgage in favour of the ANZ Bank was registered against the Marrickville Property, identified as XXXXXXXXX (the ANZ Mortgage).
The Deed provides that “upon the repayment of the loan and discharge of the mortgage by [Hygia] over the Marrickville Property”, the first defendant was to transfer his half interest in the Kingsgrove Property back to the plaintiff.
What has triggered these proceedings is a refinancing transaction by the defendants. The ANZ Loan was paid out, and Hygia received a new loan from the NAB with account number XX XXX XXXX (the NAB Loan). Further, the ANZ Mortgage was discharged and a new mortgage over the Marrickville Property in favour of the NAB was registered, identified as XXXXXXXX (). Settlement took place on 1 March 2022.
The plaintiff relied on two affidavits sworn by her, one sworn on 31 July 2023 and one sworn on 31 July 2024.
A copy of the Deed was annexed to the affidavit of the plaintiff sworn on 31 July 2023 (see at [7]) as Annexure B. Missing from the copy of the Deed as annexed, was Annexure A to the Deed, which comprised a copy of an earlier deed which I have called the 2007 Deed (see below). A copy of the 2007 Deed was tendered by the defendants and marked as a separate exhibit.
The significance of the need to include in the evidence all annexures to the Deed is that when considering the “context” of such a document, the entire text of the Deed as well as any other deed, other document or statutory provision referred to in the text of the Deed is to be considered (see [63] below).
The defendants relied on four affidavits sworn by the first defendant (on 28 September 2023, 31 October 2023, 9 July 2024 and 24 September 2025), and on an affidavit by Dr Visvalingam sworn on 31 October 2023.
Only the first defendant was required for cross-examination.
I record that in the course of cross-examination of the first defendant, there were instances where the witness indicated that he did not understand the question. At one point I raised with counsel my concern that the witness was not understanding the questions as they were too abstract and suggested the witness may benefit from a more concrete form of questions to assist his comprehension (TR P41 L36-P42 L6). For other reasons, counsel did not pursue that line of questioning (TR P42 L8-10).
More generally, the first defendant appeared to me to be doing his best to answer the questions asked of him. I note there were no submissions made by the plaintiff to the contrary nor was the issue of the first defendant’s credit or reliability raised otherwise.
What is set out below was largely not in dispute, but to the extent it was, the following should be taken as my findings as to what occurred.
In relation to the Background to the Deed section below, for the purposes of the construction task before the Court, these facts and circumstances will be facts and circumstances found to be known to the parties at the time of executing the Deed.
The Marrickville Property was a family property. The first defendant gave oral evidence that this was the home in which he and the plaintiff grew up.
The mother and father of the plaintiff and the first defendant, Despina Pates (the mother) and Vasilios Pates (the father), lived together in the Marrickville Property. After the father died in 1997, the mother continued to live in the Marrickville Property by herself. The evidence does not reveal precisely how the Marrickville Property was owned prior to the father’s death, though the first defendant gave evidence under cross-examination that the property was always in the mother’s name. It is not in dispute that the mother was the sole proprietor of the Marrickville Property immediately before the Marrickville Property first came into the plaintiff’s proprietorship.
In or about 2006, the first defendant met Dr Visvalingam. They married in 2007. The affidavit evidence goes into some detail as to what happened to the relationship between the first defendant, and the mother and the plaintiff around that time, but none of that detail is necessary to traverse. Suffice it to say, it seems that the first defendant and Dr Visvalingam became, to use the first defendant’s own words, “estranged” from the plaintiff and the mother.
It was in 2007 when the Marrickville Property was transferred to the plaintiff. On 25 October 2007, the mother and the plaintiff entered into a “Deed of Family Arrangement” (the 2007 Deed), whereby the mother agreed to transfer to the plaintiff her right, title and interest in the Marrickville Property. There is no evidence or suggestion by either party that any consideration was paid for the transfer. However, the parties to the 2007 Deed agreed that the mother would have “the right to occupy and live in the premises exclusively for the remainder of her life until such time as the [mother] permanently vacates the [Marrickville Property]”. The plaintiff was also responsible for the payment of the costs of maintenance and upkeep, council rates, water rates, insurance premiums and any other statutory fees and charges in relation to the Marrickville Property.
As noted already, the 2007 Deed is expressly referred to in and attached to the Deed as Annexure A.
It seems that in 2017, the plaintiff and the former husband decided to separate. It was in the context of this separation that the plaintiff sought the first defendant’s assistance as the plaintiff was not in a financial position herself to raise funds to buy out the former husband’s interest in the Kingsgrove Property, in the circumstances outlined below. Even though the plaintiff was the owner of the Marrickville Property, this was of limited assistance to her when needing to raise funds: she was unable to sell it as it was subject to a right of residence in favour of the mother (PWS [10]).
The evidence and the pleadings do not provide a great level of detail as to the facts that were the genesis for the making of the Deed. What seems to have happened is that in the context of the proceedings by which the plaintiff and the former husband were being separated, the Kingsgrove Property was put up for auction in around mid-2017. The plaintiff says this auction was arranged by the former husband as he wanted the money he was entitled to under the orders that had been made in the family law proceedings between himself and the plaintiff. The property was passed in at auction.
Potentially before, but certainly not long after, the plaintiff made contact with the first defendant for help. The first defendant agreed to help the plaintiff in some way financially, in the context of the plaintiff’s separation. At least from about August 2017, the earliest of the correspondence in evidence, the plaintiff (through the solicitor representing her in the family law proceedings with the former husband) and the first defendant (initially by himself, then through his own solicitor) began negotiations as to potential arrangements between the parties concerning the Kingsgrove and Marrickville Properties.
The next event with a firm date was the FCC making consent orders in the proceedings concerning the plaintiff’s separation from the former husband. Those orders were made on 23 November 2017, according to the pleadings. Those orders required the plaintiff to:
pay the former husband $270,000 in consideration of receiving his interest in the Kingsgrove Property (ie, to buy him out); and
pay approximately $390,000 to Bankwest to enable the discharge of the mortgage in Bankwest’s favour that had been granted over the Kingsgrove Property.
The first defendant and the plaintiff, through their respective legal representatives, continued their negotiations.
On 22 May 2018, as recounted earlier in these reasons, the parties entered into the Deed.
The first defendant gave evidence that the reason for the second defendant becoming a party to the Deed was because the second defendant would, of the three parties, be “in the best position to get a loan from a bank given its income stream” (TR P38 L8-11).
“RECITALS:
A. The Transferor and Transferee 1 are siblings. Transferee 2 is a company of which the Transferee 1 and Transferee’s wife are directors. The Mother is the mother of the Transferee 1 and Transferor and resides at 332 Illawarra Road, Marrickville NSW being Folio Identifier 1/2336 (“the Marrickville Property”).
B. Up and until 25 October 2007 the Mother was the owner and occupier of the Marrickville Property (and had been so since her purchase of same around 1957 or 1958).
C. The Mother entered into a Deed of Family Arrangement with the Transferor on 25 October 2007 in which she transferred all her right, title and interest in the Marrickville Property to the Transferor on the basis that the Mother was granted the right to occupy and live in the Marrickville Property exclusively for the remainder of her life until such time as the Mother permanently vacated the Marrickville Property.
D. The Transferor is also a 50% owner in the property at 4 Bykool Avenue, Kingsgrove NSW being Folio Identifier 4/20665 (“the Kingsgrove Property”) – the other 50% owner is her ex-husband, Ioannis Constantine – and the Transferor resides there with her three (3) children. Pursuant to Orders of the Federal Circuit Court of Australia (“the FCC”) dated 23 November 2017, the Transferor has to do the following acts:
(a) Pay the sum of $270,000.00 to Ioannis Constantine in consideration for receiving his interest in the Kingsgrove Property; and
(b) Discharge the Mortgage owing to Bankwest and secured against the Kingsgrove property [sic] in the approximate sum of $390,000.00.
E. The Transferee 2 [sic] is prepared to provide the Transferor the sum of $700,000.00 for the purpose of complying with the Order of the FCC for which the Parties acknowledge Transferee 2 will take out a mortgage on the Marrickville Property.”
“F. In consideration for providing such funds given Transferee 2 is taking out a further Mortgage and bears the risk if he cannot afford to repay same (in addition to the risk that the Mother would face if he was to default on any mortgage to the Marrickville Property) the Transferor is prepared to transfer all of her right, title and interest in the Marrickville Property to Transferee 2 and all her right, title and interest in the Kingsgrove Property to Transferee 1. The Parties acknowledge that the Transferor will subsequently on payment of $270,000.00 to Ioannis Constantine acquire all his right, title and interest in the Kingsgrove Property. For avoidance of doubt and noting Recital G, the Kingsgrove Property will ultimately be held by the Transferor and Transferee 1 as tenants in common in equal shares.
G. Upon the repayment of the loan and discharge of the mortgage by the Transferee 2 over the Marrickville Property, Transferee 1 will transfer his interest in the Kingsgrove Property to the Transferor.”
Recital H contemplates that the parties might agree to sell the Kingsgrove Property prior to Hygia “repaying the loan and discharging the mortgage” (which has not occurred to date).
Recital I provides that for the purposes of the Deed, the parties agreed that the value of the Kingsgrove Property was $1,150,000 and the Marrickville Property $1,400,000.
There are 16 clauses in the Operative Part.
Clause 1 sets out the obligation on the part of the plaintiff to transfer to the second defendant the Marrickville Property for the sum of $700,000, and to transfer to the first defendant her interest in the Kingsgrove Property.
Clause 2 sets out the responsibility of the first and second defendants for the payment of stamp duty in relation to the transfers of the Kingsgrove Property and Marrickville Property, respectively.
It is cl 3 that refers to the 2007 Deed and refers to its location at Annexure A to the Deed. The terms of the clause provide that “on and with effect from” the date of the transfer of the Marrickville Property to the second defendant, the 2007 Deed was “novated” to the second defendant such that the second defendant then assumed all duties and responsibilities owed by the plaintiff to the mother.
The word “novated” is typically used in the context of the making of a new contract and extinguishing obligations under the old one (GE Commercial Corporation (Australia) Pty Ltd v Wallis [2015] NSWSC 704 at [12] (Adams J)). It may be (without needing to decide) that this is what was contemplated here, although it will be further noted that the mother, who was a party to the 2007 Deed, was not a party to the Deed. No party made any submissions in relation to this issue, and whether what has occurred was technically an assignment or a novation does not matter.
Clause 4 sets out responsibilities in relation to the Kingsgrove Property. The plaintiff and the first defendant were to be (and are) equally responsible for all costs relating to “maintenance repair and upkeep”, as well as for the payment of other associated outgoings.
Clause 5 is in the following terms:
“5. The Transferor must not lodge a caveat on the title of the Kingsgrove Property within 30 days of the date of this Deed. The Transferor indemnifies Transferee 1 from and against all loss and damage, including consequential loss, suffered by Transferee 1 on account of any caveat lodged by or on behalf of the Transferor the title of the Kingsgrove Property [sic]. For avoidance of doubt, the Transferor may lodge a caveat on the Kingsgrove Property after 30 days from the date of this Deed.”
“6. In respect of the Kingsgrove Property, the Transferor and Transferee 1 agree that:
(a) Upon the repayment of the loan and discharge of the mortgage by the Transferee 2 over the Marrickville Property, the Transfer 1 must transfer to the Transferor all his right title and interest in the Kingsgrove Property from Transferee 1 to the Transferor.
(b) …
…
7. In respect of the mortgage over the Marrickville Property, Transferee 1 and Transferee 2:
(a) Confirm that they have financial capacity to repay the mortgage; and
(b) Undertake to repay the mortgage in full using their best commercial efforts as soon as practicable such that Transferee 1 transfers his interest in the Kingsgrove Property to the Transferor.”
On 22 May 2018, as mentioned earlier, Hygia received funds under the ANZ Loan. An “ANZ Business Loan Statement” for the period 22 May 2018 to 29 June 2018 records an opening balance of $0.00 for the period, and then a “loan drawdown” of $800,000, such that on that day the balance was “800,000.00DR”.
On 5 June 2018, a lump sum of $30,000 was credited to the ANZ Loan. As at 5 June 2019, the balance of the ANZ Loan was recorded as “770,000.00DR”. Over time various payments are recorded in relation to the ANZ Loan, being payments in relation to interest only, save for particular repayments of the principal referred to below (noting it was an interest only loan until 22 May 2023).
After the mortgage in Bankwest’s favour over the Kingsgrove Property was discharged, the former husband was paid out, and the relevant transfers were effected, the ownership of the properties was as follows:
The Marrickville Property was (and remains) owned solely by the second defendant.
The Kingsgrove Property was (and remains) owned by the plaintiff and first defendant as tenants in common, in equal shares.
Events before and around 1 March 2022 are significant as it is at this time the plaintiff claims that cl 6(a) was engaged thus triggering the requirement for the first defendant to transfer back to the plaintiff his share of the Kingsgrove Property (TR P17 L6-8)
Following the lump sum payment of $30,000 referred to above at [50], interest payments continued to be made into the ANZ Loan, as recorded in the statements concerning the ANZ Loan.
As at 22 September 2020, the balance of the ANZ Loan was recorded as “770,000.00DR”, following the interest payment made for September 2020.
On 16 October 2020, the first defendant and his wife transferred the amount of $695,000 into the ANZ Loan. Following this transaction, the balance of the ANZ Loan was recorded as “75,000.00DR”.
By 31 December 2021, it appears a further $37,000 of repayments were made in relation to the ANZ Loan, as on that date the balance recorded is “38,000.00DR” (not all the statements concerning the ANZ Loan were in evidence). On 7 February 2022, a redraw from the ANZ Loan took place for the amount of $762,000. Following this transaction on 7 February 2022, the balance of the ANZ Loan was recorded as “800,000.00DR”.
The refinancing transaction which has caused this litigation, as described in [7] above, occurred in March 2022. In the ANZ Business Loan Statement for the period 31 December 2021 to 1 March 2022, on 1 March 2022, a “transfer” is recorded, with the words “from settlement funds 1809702 refinance” printed underneath the heading to the line item. An amount of $800,618.30 was credited to that account, resulting in a zero balance at the end. The final item in the statement was “loan closed”. It is this transaction that was said by the defendants (DWS [35]), and the plaintiff (TR P11 L8) to constitute the “refinance” and, on the plaintiff’s case, to trigger the operation of cl 6(a). I note that on the same day, Hygia’s loan account with NAB was opened, with $770,000, the funds comprising the NAB Loan, debited to Hygia on 2 March 2022.
The legal principles to be applied are not in dispute.
The defendants, in their written submissions, cited the “often quoted statement” from the High Court of Australia in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 209 CLR 165; [2004] HCA 52 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ):
“… The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction [Pacific Carriers Ltd v BNP Paribas (2004) 2018 CLR 451 at 461-462 [22]].”
“[13] The construction of a contract is to be determined objectively. See Mount Bruce Mining Pty Limited v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116 [42] to 117 [52].
[14] There is a limitation on the use of ‘surrounding circumstances’ in that they do not permit the Court to substitute for the terms of the 2018 Deed some different form of agreement based upon acceptance, or otherwise, of conflicting evidence about conversations in negotiations: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347-353. …”
There appeared to be no dispute between the parties that the principles to be applied for the construction of a Deed are the same principles that are applied in the construction of a contract (Mercanti v Mercanti (2016) 50 WAR 495; [2016] WASCA 206 at [70] (Buss P); see also Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2019) 100 NSWLR 432; [2019] NSWCA 135 at [70] (Leeming JA, Bathurst CJ and McCallum JA agreeing); Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5 at [9]-[10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ)).
As cited by the defendants in DWS [13] as quoted in [61] above, in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 (Mount Bruce), French CJ, Nettle and Gordon JJ stated at [46]-[52] (omitting citations):
“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.
[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
[52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.”
“… That being the case, the issue for the Court really now is simply in those circumstances which I've outlined whether the condition for retransfer is satisfied, recognising that those circumstances include that Mr Pates in fact does not have a right to deal with the Kingsgrove property [on this submission, see [90]-[95] below] In relation to the interpretation of this deed, clearly it's not a well-drafted document.
The question as to the relevance of surrounding circumstances which I anticipate both of us will address your Honour during objections, I think it would be fair to say that both parties are in broad agreement that ultimately the orthodox principles of interpretation apply, which fundamentally it's the words that fall to be interpreted, but the surrounding circumstances are relevant. As to the question in the law as to the ambiguity gateway or whether that's necessary, it would be my submission that this deed is sufficiently ambiguous that there is scope to have regard to surrounding circumstances in terms of the facts that were known to the parties and the general context and the general purpose.”
“The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (In liq.), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, e.g., Browne v. Dunn; Mount Oxide Mines.”
By her Statement of Claim (SOC) filed on 4 May 2023 the plaintiff seeks a declaration that the plaintiff is entitled to a transfer by the first defendant to the plaintiff of all of the first defendant’s right, title and interest in the Kingsgrove Property. The plaintiff also seeks an order that the first defendant do all things necessary on his part to perform and carry into effect the transfer provided for in cll 6(a) and 7 of the Deed.
There are 16 paragraphs to the “Pleadings and Particulars” section of the SOC. Many of those paragraphs set out background matters and are uncontroversial. Of the 16 paragraphs, in their Defence filed on 27 July 2023 (Defence), the defendants admit paragraphs 1, 2, 3, 4, 5, 6, 7, 8 and 10.
In relation to the remaining paragraphs of the SOC, paragraphs 9, 11, and 12 refer to the terms of the Deed and actions that were said to be taken in accordance with the Deed.
The key paragraphs around which the issue before the Court has been framed by the parties are paragraphs 13 and 14 of the SOC. Those paragraphs plead as follows:
“13. On or about 1 March 2022, the Loan was repaid and the Mortgage was discharged.
14. By reason of the matters pleaded in paragraphs 3-13 inclusive above, the Plaintiff thereupon became entitled to a transfer to her of the First Defendant’s interest in the Kingsgrove Property.”
“9. The Deed contained covenants to the effect set out below:
...
(b) The Second Defendant would raise the amount of $700,000 by loan using the Marrickville Property as security for such loan (the Loan).
…”
In isolation, the term “Loan” could be referring to any loan of $700,000 received by Hygia as contemplated in the Deed. But given the way it is used in paragraph 13 (and in paragraph 10, which pleads Hygia “borrowed the Loan”), it could also be referring to the specific loan taken out by Hygia in 2018, being the ANZ Loan.
By contrast, “Mortgage” as defined in paragraph 10 is a clear reference to the first mortgage registered over the Marrickville Property in May 2018 (ie, the ANZ Mortgage).
Of paragraphs 13 and 14 of the SOC, the defendants pleaded the following in reply:
“13. The defendants deny that the loan was repaid on or about 1 March 2022 or ever and deny that the mortgage in the true sense was discharged and otherwise do not admit paragraph 13 of the statement of claim.
14. The defendants deny paragraph 14 of the statement of claim.
…
17. On the true construction of the 2018 deed, the refinance of the loan by the defendants and grant of a further mortgage was not a repayment of the loan and discharge of the mortgage in terms of clause 6(a) of the 2018 deed.”
The terms of the Defence as filed rely on an alleged collateral agreement between the plaintiff and defendants (paragraphs 21-23). In substance, the defendants pleaded that there was an agreement between the parties that if the defendants could not meet the loan repayments from their own income, then the plaintiff agreed to the sale of the Kingsgrove Property and to the use of the proceeds of sale to pay off whatever outstanding balance there was.
In the course of the plaintiff’s opening, the Court was informed that the defendants no longer relied on the collateral agreement (TR P8 L6-7). The defendants later confirmed this to be the case (TR P42 P8-13).
The respective cases of the parties were conducted on this basis.
“I will be submitting in due course that if there ever was any agreement, implied or otherwise, which the plaintiff denies in any event, that it [the Kingsgrove Property] could be sold in preference to Marrickville in order to protect the mother's interest in not being kicked out of her home, the mother is now deceased and so if and to the extent that that ever was a consideration such consideration has now fallen away.
I do say that that is part of your Honour's task in approaching this deed; what was the commercial purpose of the transfer and is there currently or any further commercial purpose of the transfer? In the plaintiff's submission the answer to that question is ‘No’.”
“Moving on from the housekeeping there, my learned friend's opening, which I did not wish to interrupt, appears to have departed in a number of respects from the pleading. I want to make it absolutely clear that the defendants do not accept this. The only issue according to the defendants on the pleadings is found in paras 13 and 14 of the pleading and those paragraphs are at p 5 of the court book. They relate to whether on one particular date, 1 March 2022, the loan was repaid and the mortgage was discharged and whether as a result the plaintiff became entitled to a transfer to her of the first defendant's interest.
The subsequent death of the mother of the plaintiff and first defendant occurred long after and was notified to the plaintiff even longer after that, but it has nothing to do with the issue in this case, which is defined by the pleadings.
… The case is such that the defendants do not agree at all to any expansion of the case to cover anything that is not pleaded. That would be highly unfair to the defendants in that the defendants do not have the opportunity to provide extensive evidence of the financial position of the Hygia company and Mr Pates up to date and really address any other un‑pleaded matters.”
I accept the defendants’ concerns as to the raising of further and new issues without having pleaded and particularised them, and note those objections raised to be wholly consistent with the principles set out in Banque above. As a part of the fundamental notice and thus procedural fairness issues that arise, the defendants have not had the opportunity to put on evidence that would meet the issues raised.
This issue has particular significance when the plaintiff seeks a finding on an issue that was not raised in her SOC and, as a consequence, where no (or no adequate) evidence has been filed in relation to it. To the extent that some evidence relevant to otherwise unpleaded issues may have been filed, I accept the evidence overall would be incomplete in relation to those unpleaded issues, given it was not included to squarely meet a pleaded claim.
Following the submissions set out above, the plaintiff sought to amend her SOC and plead the death of the mother as a fact (TR P16 L14-15).
To this the defendants indicated they did not dispute the mother had passed away, asserting there was no requirement to amend the SOC to include that fact. However, they also said that “[i]f the intention is to expand the case beyond the pleaded case, we object. In fact, we would object anyway. There’s no ground for it” (TR P16 L18-21 and see TR P17 L1-20).
In the result, there was no formal amendment to the SOC. However, there was also no dispute that the mother had died.
The defendants’ submissions as to the limited scope of the pleadings is also of particular relevance to the plaintiff’s submissions going to the broad financial circumstances of the first and second defendants at the time the Deed was executed, as well as in 2022, together with the plaintiff’s submissions going to cl 7 and what is later referred to as the “imminence issue”. These issues are addressed below.
“In the proper construction of the deed, is reference to ‘the loan’ and ‘the mortgage’ limited to reference to the first loan only and the first mortgage only that the second defendant is to take out in relation to the Marrickville Property?”
“[1.] On the proper construction of the deed as a whole and having regard to the purpose of the transfer of the Kingsgrove property under the deed, Is the reference to ‘the repayment of the loan and discharge of the mortgage’ in clause 6A, as a precondition for the retransfer of the Kingsgrove [P]roperty, limited to the first loan and the first mortgage taken out by Hygia over the Marrickville [P]roperty?
[2.] In the events that have happened, has that precondition now been satisfied?”
“Whether a reasonable person, knowing the surrounding circumstances known to the parties[,] would read the words of cl 6A to conclude that Hygia and Mr Pates could not refinance the Hygia debt as they did on 1 March 2022 without triggering the obligation to transfer.”
“Your Honour will also see that there is no right in this deed for Mr Pates to deal with the Kingsgrove property. Your Honour might also observe that there's no restriction on it either, but the very real restriction of course is that because he was obliged to retransfer it he obviously couldn't do anything with it, unless specifically authorised by the deed, that would be inconsistent with that retransfer. Clearly he wouldn’t have the right to sell or transfer to someone else his half because then he would be in breach of the cl 7 which required the retransfer.
The same would apply to the mortgage. If he mortgaged it and then a bank exercised its power of sale over the property then that would in turn put Mr Pates in breach of cl 7. Your Honour would infer that in those circumstances there in fact was no right on the behalf of Mr Pates to deal with the interest in the Kingsgrove [P]roperty that had been given to him. Your Honour would've observed in the pleadings and specifically in the defendants' defence that the defendant pleaded a collateral agreement in relation to what could be done with the Kingsgrove [P]roperty.” (emphasis added)
“No limitations since mother deceased: To the extent that the above imposed effective limitations (legal, moral or otherwise) on Hygia selling the Marrickville Property, such limitations are no longer subsisting, since Despina is now deceased.”
The submission is also extended to include the significance of the death of the mother, as already cited at paragraph [77] above (TR P12 L45-P13 L1-5) and reproduced again below, this time with emphasis added:
“I will be submitting in due course that if there ever was any agreement, implied or otherwise, which the plaintiff denies in any event, that it could be sold in preference to Marrickville in order to protect the mother's interest in not being kicked out of her home, the mother is now deceased and so if and to the extent that that ever was a consideration such consideration has now fallen away.
I do say that that is part of your Honour's task in approaching this deed; what was the commercial purpose of the transfer and is there currently or any further commercial purpose of the transfer? In the plaintiff's submission the answer to that question is ‘No’”.
Consistent with this approach taken by the plaintiff, the plaintiff sought to cross-examine the first defendant as to his own (subjective) views as to his purpose in requiring as a part of the Deed having half of the Kingsgrove Property in his name. She suggested that having 50% of the Kingsgrove Property in his name was “of no use” to the first defendant both in 2018 and at the time of the hearing (TR P40-42). Many questions around this issue were objected to and not allowed by me given I did not consider them relevant to the construction task before me.
When the first defendant was asked questions on this issue which were allowed or not objected to, he made clear that his subjective purpose for having half of the Kingsgrove Property in his name was as “security” for the Marrickville Property (see TR P41).
In the end, the plaintiff’s submissions did not clarify what the significance was to the construction of cl 6(a) of the first defendant not having a right to “deal” with the Kingsgrove Property. This being so, I do not propose to address the question of whether the first defendant could “deal” with the Kingsgrove Property.
Furthermore, I do not accept that the Court ought properly consider whether there is currently any commercial purpose of the transfer, including any consideration of the significance of the recent death of the mother. Apart from the obvious issue that the Court does not have before it any proper evidence in order to address this issue (as this issue has never been pleaded or particularised, as observed earlier), as a matter of law I do not consider that to do so forms part of the construction task before the Court.
“The significance of this, from the plaintiff's perspective, is this shows is that the parties were easily able to move money around between accounts. In relation to cl 7 of the deed to which I referred your Honour previously, which referred to representations as to financial capacity and undertakings to repay the loan as soon as practicable, we do say that this is a significant piece of evidence in relation to that.”
“That redraw is quite separate from the 1 March transaction, which is the refinance. I will be elaborating on that in closing but just to flag that the plaintiff does contend that this indicates that there was a lot of, effectively, moving money around between accounts.”
The plaintiff submits that cl 7 of the Deed provides context to cl 6 and submits there is effectively a representation by the defendants that they have financial capacity, and an undertaking by the defendants to repay “the mortgage” in full, using their best efforts, as soon as practicable (TR P11 L35-40, PWS [17](b)-(d)).
The plaintiff submits that objectively understood, the promise to “repay the mortgage in full … as soon as practicable” was a promise to pay the mortgage “imminently”, especially in light of the defendants’ confirmation by cl 7 that they have financial capacity to “repay the mortgage” (the plaintiff submitted this representation demonstrated they already had the financial capacity to pay the mortgage in full). Seven years having passed since the Deed was entered into, the plaintiff submits the contemplated time for repayment, be it “imminently” after the Deed was entered into or “as soon as practicable” thereafter (whatever the precise content of that term), had passed. It was suggested the Court did not necessarily need to find precisely how long the parties had contemplated the defendants would take to repay the loan for which the Marrickville Property was security, however the Court would need to find that in any event that period had expired now. This was referred to as the “imminence issue” (TR P11 L42-49, [12](g)), and it was submitted that a question for the Court was “[h]as it [the period in which the defendants should repay “the loan”] expired now?” (TR P12 L9).
As part of her submissions in relation to cl 7, the plaintiff stated that the ability of the defendants to repay any loan is relevant to the Court’s construction of the Deed (TR P12 L15-21).
In the course of cross-examining the first defendant, and in the context of multiple (understandable) objections on behalf of the defendants to a line of questions going to the financial circumstances of the first defendant in 2022 and currently, the plaintiff gave the following explanation of the relevance of an inquiry into cl 7, despite the parties agreeing the focus of the question before the Court was in relation to cl 6(a) (TR P31 L17-24):
“[Clause] [s]even tells your Honour that it was contemplated that it would be imminent and in the sort of time frame in which has actually occurred, for a start, and it also tells your Honour that, contrary to the defendant’s assertions that it was relevant to only the financial situation of Hygia’s ability to pay off that mortgage, rather it was the entirety of the parties’ financial situation in terms of their ability to pay it off, such that as it was paid off in the circumstances constituted the sorts of paying off that was contemplated by cl 7.”
Later cross-examination by the plaintiff again sought to focus on transactions made by the defendants after the Deed was entered into, the apparent purpose of which was to establish a failure by the defendants to adhere to the promises made in cl 7, to which an objection was made by the defendants, including that, “[t]his is an entirely different case” (TR P38 L43-P39 L26).
The defendants submitted that the plaintiff’s suggestion the loan had to be repaid “imminently” “just does not recognise the reality of the Deed”, which was “contingent on events” (TR P61 L46-50). I will address whether cl 7 contemplates an “imminent” repayment by Hygia of whatever loan it was to take out later, as part of considering cl 7 as context to cl 6(a).
The defendants also submitted that, realistically, a circumstance known to the parties at the time was that it was not going to be possible to generate an income from the Marrickville Property until the mother had died or else had gone into a nursing home. Although the parties could not know this at the time, the mother lived another seven years and resided at home for much of that period (TR P65 L1-6). Based on this, it was submitted it was unlikely that anyone would have realistically expected an imminent repayment (TR P65 L10-18), and that a reasonable person would have thought that reasonable commercial efforts would have been made to repay the loan that was taken out, as the defendants undertook to do in the Deed (TR P65 L46).
In terms of the question of construction before the Court, I do not accept it is relevant whether the time for the defendants to have repaid the loan and discharged the mortgage has now expired, if cl 7 even provides for a specific time period for the defendants to fulfil their obligation to repay. The finding sought was not pleaded, nor does the inquiry arise when having regard to the legal principles outlined above, and the terms of the main issue as defined above (separately from considering the terms of cl 7 of the Deed as part of the context to cl 6(a)). I decline to make any findings on this issue.
To the extent I am wrong on this and the question does form a part of the task of construction, I would still decline to make any findings in relation to the question posed. The reason for this is because the Court does not have a proper evidentiary basis on which to make any finding. For example, the Court would need to hear submissions on what constitutes “best commercial efforts” and, as part of this, would be required to evaluate and consider evidence of the financial circumstances of the defendants over time. There is no, or no adequate, evidence before the Court on this issue in order to undertake this assessment.
The real issue before the Court is whether a reasonable person in the position of the parties would have understood the meaning of the words “the repayment of the loan and discharge of the mortgage” in cl 6(a) of the Deed, as limited to the repayment of the first loan and the discharge of the first mortgage taken out by the second defendant over the Marrickville Property, such that any refinancing by the second defendant would trigger the obligation of the first defendant to transfer his share of the Kingsgrove Property to the plaintiff.
The submissions made by the parties are set out below, together with the Court’s consideration and determination on the issue.
The plaintiff’s contention is that on the plain language of cl 6(a), read in conjunction with Recital E, “the loan” and “the mortgage” referred to were the specific loan and specific mortgage that the second defendant first took out with ANZ immediately following the execution of the Deed, which was repaid and discharged, respectively, on 1 March 2022 (PWS [17](a)).
The plaintiff submitted that “the text is always the starting point and there are a number of provisions in the Deed that are relevant and must be read together, including, … [the] extensive recitals in the Deed” (TR P47 L31-34). In this, the plaintiff noted there was no definition or explanation of “the loan” or “the mortgage” in the Deed and that those terms appear for the first time in the recitals.
Specifically, within the text of cl 6(a), the plaintiff claimed it was significant that the terms were in the form of “the loan” and “the mortgage”, using the definite article. However, it is not the case the definite article was exclusively used. Recital E referred to the acknowledgement by the parties that the second defendant “will take out a mortgage on the Marrickville Property”, and Recital F refers to “any mortgage to [sic] the Marrickville Property” (emphasis added to both quotes). The defendants adverted to Recital F in their oral submissions (TR P63 L40-47).
More generally, the plaintiff submitted that the natural and ordinary meaning of the words is that the loan and the mortgage referred to in cl 6(a) were the ones that were entered into soon after the Deed was executed (TR P50 L35-37).
I do not accept this submission. For one thing, it might be questioned whether recourse to the “ordinary and natural meaning” of “the loan” and “the mortgage” is even helpful in this case. The defendants did not argue that the ANZ Loan or the ANZ Mortgage were not, respectively, a loan or a mortgage under the Deed. Rather, their case is that the pairs of words “the loan” and “the mortgage” refer to something more than a specific loan or mortgage. Second, I see no reason that the natural and ordinary meaning of the words, without more, would convey that “the loan” and “the mortgage” refer only to the loan received and mortgage granted by Hygia soon after the Deed was entered into. The expressions “the loan” and “the mortgage” could refer to a particular loan and mortgage, as submitted by the plaintiff. However, it seems to me that the words could also naturally refer to the indebtedness incurred by the second defendant, as the defendants contend. The word “the”, in qualifying each of “loan” and “mortgage”, could be read as being a specific reference to the borrowings and security over the Marrickville Property obtained by the second defendant contemplated by the Deed, without cl 6(a) being triggered by reference to a specific loan agreement or mortgage instrument.
I am of the view that the text alone does little to assist in determining what a reasonable person in the position of the parties would understand the text in cl 6(a) to mean. As submitted, the Deed does not contain any definition of the terms “the loan” and “the mortgage”. While I accept that those words ought to be given their ordinary and natural meaning ( (1935) 53 CLR 618 at 636; [1935] HCA 56 (Rich, Dixon, Evatt and McTiernan JJ)), for the reasons stated in the previous paragraph, it is not clear that the words even have a single natural or ordinary meaning, as the plaintiff contends.
When considering context, the plaintiff submitted that of the recitals, Recital E first mentions “a mortgage”. I accept that, as the plaintiff submitted, the reference to “a mortgage” realistically also carries with it an implied reference to a loan for which “a mortgage” would be security. The plaintiff explained that “a loan was for the purposes of the payment of that money as secured by a mortgage on [the Marrickville Property]” (TR P47 L40-49). “That money” refers to the sum of $700,000 which the Recital mentions, being the sum Hygia was prepared to provide the plaintiff to enable her to comply with the FCC’s orders (the substance of which is set out in [30] above).
To the extent I am to consider the words used in cl 6(a) in the context of reference to “a mortgage” in Recital E, I am of the view that a reasonable person would understand the words “the loan” and “the mortgage” in cl 6(a) to be references to any loan and any mortgage. The reason for this is because Recital E explains that in order to provide the plaintiff with the $700,000, the second defendant will take out “a mortgage” on the Marrickville Property. In this, I am of the view that a reasonable person would understand that in order for the second defendant to be able to provide the plaintiff with the $700,000, the second defendant was required to incur debt by way of a loan, secured by a mortgage. I see no basis for a reasonable person to limit their understanding of the words used in cl 6(a) as reference to the “first loan” or “first mortgage” taken out after the Deed is executed, in circumstances where it can be understood from Recital E that the second defendant will go into debt in order to provide the $700,000. Further, and as a matter of logic, this incurred debt might well exist beyond the initial entry into the first loan and the first mortgage taken out in relation to a debt after the Deed is entered into. In my view, it is unrealistic to think otherwise, in particular, where the party taking out the loan was a company and where commercial considerations, such as seeking the best interest rates on any loan, will be paramount.
This reasoning assumes that a reasonable person will understand that when a company (or natural person) takes out a loan, secured by a mortgage, that at some point that company (or natural person) may consider it prudent, financially responsible and advantageous to refinance, for example, in circumstances where interest rates change and it may be commercially advantageous to do so. With this understanding, I am of the view a reasonable person would understand the references to “the loan” and “the mortgage” as a reference to the underlying indebtedness, and that that indebtedness might well attach to more than one loan (or mortgage) in the context of refinancing before repayment is achieved. I am of the view a reasonable person would have this understanding. On this issue, the following exchange took place with counsel for the plaintiff (TR P51 L43-P52 L9) (emphasis added):
“HER HONOUR: What about the issue of interest rates? Wouldn't your construction mean that whatever the first loan was, if there was a change in interest rates and that was the trigger of the desire to refinance that, that this company would be bound to stick with a sort of an interest rate that was not a good one? Would that be in the contemplation of the parties that, I mean, somebody who took on a loan and a mortgage would have an eye on the ball in relation to interest rates and it might be open to them to refinance on that basis?
MEE: I would suggest that is the sort of circumstance that the parties would need to renegotiate. It may be that a reasonable person in that circumstance might approach and say, "Look, we think that this is within the terms originally contemplated". That certainly never happened. Certainly circumstances may arise under any contract where something might happen which one person things is within what was intended and another doesn't, and that's the very situation where one would expect to be some kind of correspondence or disclosure, even negotiation. There was none of that.”
The response by the plaintiff did not explicitly argue that to refinance would not have been in the contemplation of the parties at the time the Deed was executed, but rather argued that renegotiation would be required if the occasion arose.
On the issue of refinancing and interest rates, the following submissions were made by the defendants in reliance on the evidence that the interest charged on the loan went from 4.03% to 2.45% following the refinance (TR P62 L49-P63 L32):
“To address the interest rate point …
So it's an interest only loan and the criticism that only the interest was paid doesn't really make sense. In an interest only loan it's all you can pay without penalty - well, generally…
Your Honour will see there the opening interest rate on the borrowing is 4.03%. Things were, in a sense, pretty good then. ...
… Your Honour will there find the first page of Hygia's new account with the National Australia Bank. Your Honour will see halfway down the page under the date "2 March 2022", "Please note your debit interest rates are 2.45%", a reduction of 1.58% per annum, was obtained by this refinance. In percentage terms, of course, that's colossal. But even in dollar terms it's a substantial benefit for all concerned.
It is submitted that no reasonable person would say that this would retrigger the transfer obligation and indeed, given the realities of where finance and Australia was on 1 March 2022, would have stopped cold Mr Pates and Hygia doing anything other than going on paying 60 or 70% more interest than that. So it is submitted that before the loan was restricted in this way to the ANZ Bank's interest only high rate for the times, then clear and specific language would be required in the deed given the structure of the deed, which included the cl 11 obligation to go on.”
Events post-dating the Deed do not affect the construction of it. The last paragraph of the transcript passage just quoted has, perhaps unintentionally, the makings of a submission that “the realities of where finance and Australia was on 1 March 2022”, or the fact that there were cheaper loan products available on the market years after 2018, should somehow affect the Deed as it would have been understood in 2018. To the extent that was being submitted, so much should be rejected. At the very least, it would be unrealistic to contend the reasonable person in the position of the parties in 2018 would have any foresight into the financial conditions or loan products market for a period so long after the Deed was entered into.
Of significance in the construction of the Deed is whether a reasonable person would have understood that within the period of the operation of the Deed, the second defendant may wish to refinance to, for example, take advantage of more attractive interest rates. I am of the view that a reasonable person in the position of the parties at the time of the Deed would have understood this to be the case. For this reason, I consider the context of the words in the Deed provided by Recital E support a construction that the words of cl 6(a) mean any loan and any mortgage referable to the indebtedness incurred by the second defendant on account of the contemplated payments to the plaintiff, and accept the submission of the defendants that clear and specific language would have been required to bind the second defendant to the first loan and first mortgage only, such that a refinancing would trigger the obligation to retransfer the Kingsgrove Property.
The second point of context raised by the plaintiff was Recital F, where she suggested this recital was the only one that addressed the question “[f]or what purpose was the Kingsgrove [P]roperty transferred?” (TR P48 L1-12). It is this recital that explicitly refers to the second defendant bearing “the risk if [it] cannot afford to repay [a further mortgage]”. Of this the plaintiff submitted, “it does indicate that the purpose of the transfer of the Kingsgrove [P]roperty was to some extent about risk if Hygia could not afford to pay it back” (TR P48 L14-16). It is Recital F that also refers to the “risk that the Mother would face if [Hygia] were to default on any Mortgage to [sic] the Marrickville [P]roperty”.
The plaintiff says the terms of Recital F are significant for two reasons. First, she submitted that on the face of the Deed there is reference to a consideration of the second defendant not being able to afford to repay a loan. Secondly, she submits in the recital there was a reluctance on the part of the parties to enter into an agreement that could expose their mother to being removed from the Marrickville Property (TR P48 L25-48).
The plaintiff further acknowledged that the terms of this recital were consistent with “some real super concern” that the Marrickville Property was not sufficient security for a loan (of $700,000), and that “the only apparent indication on the face of this Deed” was because “the parties wanted to protect the mother from being booted out” (TR P49 L1-5).
On this latter consideration, that is, the need to protect the mother from being removed from the Marrickville Property, the plaintiff submitted (TR P49 L5-9):
“So whatever the parties considered or might have been deemed to consider in relation to the purpose of the Kingsgrove [P]roperty that purpose is no longer the case, if it ever was such a purpose. I do say that is relevant to the construction of the deed because all of these things appear on the face of the deed.”
The death of the mother is not relevant to the question of construction at the centre of this case.
I accept that Recital F goes to the purpose of the Deed, and thus will address the submissions raised in relation to this recital below.
In her submissions, the plaintiff drew support from cl 5, prohibiting the plaintiff from lodging a caveat on the Kingsgrove Property within 30 days of the Deed (but not thereafter), stating the provision was “curious”. Of this the plaintiff noted the clause had been drafted by lawyers and suggested the clause indicated that the first defendant had in contemplation doing “something” with the Kingsgrove Property. The plaintiff further acknowledged that the clause may have had a particular purpose but submitted that there was no evidence on this issue and so there was only so much the Court could do in terms of the limited evidence (TR P49 L11-21).
In relation to the context of the terms of cl 5, the defendants submitted that it “wasn’t a sort of innocent game of cards of shuffling caveats” (TR P59 L44-45). The defendants submitted that “there is only one point of a caveat, and that was to stop someone obtaining priority by obtaining or creating an interest in land, legal or equitable”, and “that the Court would say the new registered proprietor of half of the Kingsgrove Property was able and had a free reign to create a mortgage or charge over the land for 30 days, this being at least the initial period when he would need to finance it” (TR P59 L44-P60 L3). The defendants further submitted (TR P60 L5-12):
“That was what Kingsgrove was for. That's a part anyway of why it had value. It wasn't clear at the time they put this together whether Mr Pates and Hygia would be able to secure without two mortgages. They were always going to mortgage Marrickville. The wording of 6A says that. The wording of [clause] five by inference, and fairly obvious inference, we would submit, makes it clear that in addition it would be possible for Mr Pates to mortgage Kingsgrove. Does it mean, as it were, that the window closes after Mrs Constantine gets the right to put on a caveat? No. She never did.”
The defendants also said that the consequence of cl 5 is that it was within the contemplation of the parties that there may be two mortgages referable to the Deed, and thus “the mortgage” must be read “in a wider way” (TR P61 L1-3).
I do not accept the submissions of the defendants on this issue. Of course, I should prefer a construction of cl 5 (as relevant to the construction of cl 6(a)) that would avoid it otherwise being rendered redundant: Jingalong Pty Ltd v Todd [2015] NSWCA 7 at [79] (Sackville AJA, Meagher and Leeming JJA agreeing). But cl 5 itself has a clear operation in preventing the plaintiff from lodging a caveat on the title of the Kingsgrove Property for thirty days from the date of the Deed, before removing the restriction thereafter. Thus, neither the plaintiff’s nor the defendants’ constructions of cl 6(a) would render cl 5 redundant. I agree with the plaintiff’s submissions that the most that could be said about cl 5 is that it suggests the first defendant had in contemplation doing “something” with the Kingsgrove Property. The defendants did not point to anything that would support their contentions that cl 5 was put in for the purpose of allowing for the possibility of the Kingsgrove Property being mortgaged. Even if I had accepted the defendants’ submissions as to the purpose of cl 5, I would not have accepted that this alone would help suggest cl 6(a) contemplated multiple loans and mortgages. The defendants did not address why “the mortgage” and “the loan” in cl 6(a) would include any mortgage or loan referable to the Kingsgrove Property, in circumstances where the Deed only ever expressly refers to a loan and mortgage in relation to the Marrickville Property. Accordingly, cl 5 is of little assistance in construing cl 6(a).
“Imminence: Under clause 7 of the Deed, both [the first defendant] and Hygia effectively confirmed that they already had the financial capacity to repay the mortgage, and undertook to repay it as soon as practicable (that is, imminently). This tells against any interpretation that the re-transfer would only occur many years into the future, once Hygia no longer arranged its affairs such that it was in debt under any loan. Rather, the parties contemplated that the re-transfer would occur imminently, and in any event in the circumstances that have now occurred.”
I have already referred to the imminence issue above (at [84], [99]-[107]) in the context of the plaintiff seeking to rely on the mother’s death and post-Deed evidence, none of which had been pleaded.
The ultimate significance of this submission is that if a reasonable person would understand that the repayment was to occur imminently, this would support a construction of the words of cl 6(a) that only the first loan and first mortgage was contemplated by the Deed, and any subsequent loans or mortgages from a refinancing would not have been contemplated.
In her closing submissions, the plaintiff returned to the imminence issue, again in the context of her submissions in relation to cl 7, on which there was significant reliance (TR P 51 L15-23):
“I say that cl 7 suggested that this would be done imminently. The concept of refinancing suggests there'll be quite some time, whereas what can be read from the clause is that this is going to happen very soon. Perhaps imminently or soon or as soon as practical are rubbery words. They could mean different things to different people. Different views might reasonably be taken as to how soon those words might mean, but, as I sort of posed at the beginning, what we now have is a deed entered into, you know, getting close to 7.5 years ago. The question then will be before the Court is has that period now expired, whatever the period?”
In relation to the last question posed as to current circumstances, I have already declined to make any determination on this issue (see [106] above).
More specifically in relation to the construction task before the Court, the plaintiff submits that on the face of the Deed there is no mention of a loan for a certain period. However, she submitted that inferences can be drawn from cl 7 as to the periods the parties had in mind (TR P50 L25-30).
It was contended by the plaintiff that if refinancing were to be included as a part of the parties’ understanding of the loan and the mortgage, that they would have said something about the length and “some kind of substitution” (TR P50 L45-47).
Of the submissions made in relation to cl 7 more generally, I do not accept the submission that this clause represents an undertaking on the part of the defendants to repay “the loan” imminently. Whilst I accept that it is cl 7 that will be of primary relevance when considering any timing of repayment, I am of the view that the undertaking by the defendants to “repay the mortgage in full using their best commercial efforts as soon as practicable” does not dictate imminent repayment (whatever that might mean). For example, “best commercial efforts” could conceivably contemplate refinancing in circumstances where it would be commercially advantageous to do so, in which case, repayment within the meaning of the Deed will take place beyond the repayment of the first loan and refinancing with another.
In reply to the plaintiff’s submissions that cl 7 contemplated the defendants would repay whatever loan they took out imminently, the defendants submitted they “could take out any loan they wanted and repay it any way or time they wanted within the broad limits of the need to repay any loan using their best commercial efforts” (TR P64 L33-36). In terms of the surrounding circumstances known to the parties at the time of the execution of the Deed, the defendants submitted (TR P65 L8-17):
“… it would have been unlikely in 2018 that anyone would realistically expect an imminent repayment because Marrickville was a millstone around Hygia's head and in fact a lighter millstone but still a millstone, was found in the obligation to pay half of Kingsgrove's insurance and other payments, rates and the like. In those circumstances to try to create a timing - adverb - in a situation where there's a perfectly straightforward, intelligent set of rules that relate to the obligation to repay and how it will be discharged and when it will be discharged, which is when the events described had happened, is not something in my submission the Courts would do.”
I accept the submissions of the defendants on this issue. Where it is clear that the second defendant was required to obtain a loan in order to provide the plaintiff with the $700,000, rather than, for example, providing that sum out of cash reserves, such that it can be inferred that the first defendant did not have the cash reserves to provide the $700,000 either, and in circumstances where the defendants had additionally taken on the further financial responsibility of meeting new obligations in relation to half of the Kingsgrove Property (the first defendant) and the whole of the Marrickville Property (the second defendant), to suggest a reasonable person in the parties position would understand that repayment was to be imminent is fanciful.
Given this, I do not accept the submission that a reasonable person would understand that the repayment was to occur imminently, and accordingly, do not accept that the terms of cl 7(b) support a construction of the words “the loan” and “the mortgage” in cl 6(a) which mean those expressions refer only to the first loan received by and first mortgage granted by the second defendant.
Related to this, the plaintiff noted that cl 7 refers to both the first and second defendants, and submitted (TR P51 L38-41):
“What was contemplated was that however they arrange their affairs, if it was refinancing between the parties, that's really not the plaintiff's concern. The concern is however they do that, however they choose to do that, once it's paid off, it's paid off.” (emphasis added)
In this, the plaintiff appears to accept that it will have been understood by the parties that there may be refinancing between the first and second defendant, but not any refinancing which involved third parties, such as a bank.
I observe that what the plaintiff means by “refinancing between the parties” is not immediately clear. There was no loan between the first and second defendant. At the very least, the evidence does not establish there was.
The plaintiff’s submissions do not articulate why it is significant that the first and second defendants could arrange their financial affairs between them as they saw fit. If the submission is that because the defendants could rearrange their finances between them, there was no need for the Deed to contemplate Hygia ever refinancing the initial loan it took on, then I reject this submission.
I accept that the understanding of a reasonable person in the position of the parties of cl 7 is as the plaintiff submits, being that it is a matter for the first and second defendants as to how they choose to go about the repayment of any loan, and that it is not a concern of the plaintiff as to how they go about this.
However, I do not accept that the understanding of a reasonable person would be to limit any refinancing to that only “between” the first and second defendant. In my view, there is no reason to think that a reasonable person in the parties’ positions would understand that any potential refinancing would not include refinancing involving a bank.
The plaintiff submitted that the parties entered into the Deed in order to assist the plaintiff to buy out her former husband and keep the residence at Kingsgrove in which she lived (PWS [5]).
I have already set out the submissions made by the plaintiff in relation to the issue of purpose, in that she relied on the terms of Recital F as central to the purpose inquiry.
On the issue of the purpose of the Deed as a whole the defendants submitted that, for the plaintiff, there were many purposes and objects which the Deed set out to achieve. These included (TR P56 L29-P57 L3):
the plaintiff obtaining, eventually, outright ownership of 100% of the Kingsgrove Property;
facilitating the plaintiff’s compliance with the FCC orders, namely to make the payments she was ordered to make;
having the first defendant buy out the plaintiff’s ex-husband;
enabling the plaintiff and her family to live in the Kingsgrove Property undisturbed in the interim until she obtained outright ownership;
enabling the plaintiff to become owner of the Kingsgrove Property free of any mortgage;
having the first defendant pay one half of the expenses of the Kingsgrove Property, including maintenance, repair, upkeep, rates, insurance and other statutory fees and charges, which would include land tax, until the plaintiff could obtain outright ownership of the home;
having the first defendant pay stamp duty on the transfer of the Kingsgrove Property;
having the first defendant pay stamp duty on the transfer of the Marrickville Property; and
freeing the plaintiff of the burden of her paying the expenses of the Marrickville Property for the mother and to have the knowledge that the defendants would pay them for the duration of the mother’s life or occupation of that Property.
The defendants also suggested there were purposes which were “joint” between the first defendant and the plaintiff. These joint purposes were said to be as follows (TR P56 L3-14):
facilitating the mother living in the Marrickville Property for her life or until she was no longer able to live there; and
having the first defendant, practically speaking, bear the burden of paying the expenses of the Marrickville Property, including maintenance, repair, upkeep, rates, insurance and other statutory fees and charges on Marrickville in order to make sure the mother could live there.
The defendants also cited the objectives of the defendants. First, the second defendant would acquire the remainder interest in the Marrickville Property, at a cost of $700,000. Second, the first defendant would obtain protection against the substantial risks of financial disaster for the first and second defendants’ incomes if anything happened to disturb or damage or end Hygia’s sleep medicine business. It was this purpose which was acknowledged as being the most contentious. The defendants submitted that this “protective or insurance” aim can be found specifically at Recitals E, F, G, and H, of which F is the most important, as well as in the operative clauses, in particular cll 6(a) and 6(b), along with cll 5, 7 and 11 (TR P57 L36-39).
“the Court would accept that the object of this very unusual transaction insofar as it related to the transfer of the Kingsgrove half-interest to [the first defendant] was to provide some ‘protection’, or something in the nature of insurance to [the first defendant] and Hygia against disaster if the Hygia business income stopped.”
In terms of the nature of the potential “protection” that might have been provided, the defendants pointed to cl 5 of the Deed, stating the Court could find that the purpose of that clause was to enable the new registered proprietor to create a mortgage or charge over the land for 30 days, this being at least the initial period when the defendants would need to finance it (TR P60 L1-3). That is, it was contemplated by the parties that in addition to any mortgage over the Marrickville Property, a further mortgage over the Kingsgrove Property might also be required to provide security to raise funds (TR P60 L5-12, P61 L1-9).
Except as already discussed above in relation to considering cl 5 as part of the context to cl 6(a), I accept the various purposes of the Deed as set out by the defendants, including those purposes in relation to the plaintiff, joint purposes, and the purposes of the defendants. In the context of considering the various purposes of the Deed, I consider that a reasonable person would have understood that the words in cl 6(a) are not limited to the first loan and first mortgage only.
To some extent, many of the purposes of the Deed identified by the defendants do not clearly point one way or another as to the scope of the expressions “the loan” and the “mortgage”. However, what might be described as the “protective” purpose of the transfer of a half-share of the Kingsgrove Property points, in my opinion, in the defendants’ favour. The Kingsgrove Property is expressly characterised as consideration for the risk taken on by the defendants in mortgaging the Marrickville Property. So much is in fact reinforced by Recital G and cl 6(a) itself. Once the risk posed to the defendants by “the loan” and “the mortgage” no longer exists, the security provided by the Kingsgrove Property is no longer necessary, hence why it is to be transferred back to the plaintiff (unlike the Marrickville Property). Recital H and cl 6(b) also somewhat support the notion that the purpose of the first defendant being given a half-share in the Kingsgrove Property was protective in nature (for the defendants). By contemplating that any sale proceeds from the Kingsgrove Property, if any sale was to occur, would be used first to repay “the loan” and discharge “the mortgage” over the Marrickville Property, the Deed again shows how the parties saw the Kingsgrove Property, namely as a kind of insurance against Hygia otherwise being unable to service “the loan”.
To give cl 6(a) a construction that would trigger the obligation in it after the first loan is repaid and first mortgage is discharged in the circumstances of a refinancing, being the construction the plaintiff submits should be given, thwarts this protective purpose. The defendants would still be facing the risk from a loan secured by a mortgage referable ultimately to the debt incurred by the defendants to fund the payment to the plaintiff yet would not have the benefit of the security provided by the first defendant’s half share in the Kingsgrove Property. The idea the Kingsgrove Property would be further security for the defendants is reflected throughout many parts of the Deed. By contrast, the defendants’ construction of cl 6(a) is consistent with this purpose. Given the plaintiff’s construction would appear to me to thwart what appears to be a key purpose of the Deed, and especially that of the transfer of a half-share in the Kingsgrove Property to the first defendant, this weighs against the plaintiff’s construction in favour of the defendants’ construction.
In closing, the defendants relied on the extensive obligations that the defendants were taking on under the Deed and submitted that a reasonable person looking at the Deed and the circumstances known to the parties at the time would understand that the defendants were not locked into a specific individual loan taken out by the second defendant, secured by a specific individual mortgage over the Marrickville Property (TR P62 L27-32).
I accept this submission. Without leaving the terms of the Deed itself, Recital F clearly contemplates, and thus the parties to the Deed clearly acknowledged, risks and concerns in relation to the second defendant not being able to afford to repay a loan.
I further accept that given the newly acquired obligations for the defendants under the Deed, in terms of providing the $700,000 (Recital E, cl 1(a)) and payment of stamp duty on both property transfers (cl 2) up front, but also, in terms of the ongoing obligations in relation to the outgoings for both the Marrickville Property and the Kingsgrove Property (cll 3 and 4), that some level of flexibility, and indeed potential for Hygia to refinance, would have been understood as necessary by a reasonable person reading the Deed and having regard to the circumstances known by the parties at the time. I agree it would be harsh (and not as understood by a reasonable person) to interpret the Deed to mean that the defendants were locked into the first loan (and thus the first mortgage) that was taken out, and that the Deed locked the second defendant out of obtaining a loan with a better interest rate without triggering the need to transfer under cl 6(a). At the very least, given the significant ongoing financial obligations of the defendants (both in relation to the Kingsgrove Property, and in taking on the plaintiff’s obligations in the 2007 Deed concerning the Marrickville Property), an inability to refinance would be somewhat inconsistent with the intent expressed in the Deed that the plaintiff have the Kingsgrove Property returned to her as soon as practicable, insofar as the inability to refinance meant the defendants might have to take longer to pay off the first loan and first mortgage whilst also having to deal with their other simultaneous obligations regarding both properties.
It was submitted that the “open texture” of the Deed as a whole was incompatible with the imposition of extra restrictions on the meaning of words, including whether there could be more than one mortgage (TR P63 34-38).
The plaintiff submitted that the defendants had suggested the Deed left it “open to grant as many mortgages over [the Marrickville Property] as [they] please[d] for as long as [they] like[d] with absolutely no limitation” (TR P67 35-38). She submitted it would be an “outrageous interpretation of the Deed that no reasonable person could come to” (TR P67 L44-46).
I do not accept that the defendants could simply grant as many mortgages or take out as many loans as they please, nor that they could do so for however long they want. A reasonable person would understand that reasonable commercial efforts would have to be made. A reasonable person having regard to cl 7 (and possibly cl 11) would understand that there were limits on the extent to which refinancing could occur.
The plaintiff finally submitted that if the Court did not accept her construction of cl 6(a), then the parties would be left with uncertainty in relation to whether there is any limitation on the meaning of the clause, in the sense of whether the defendants “can just keep doing this forever and ever until they die?”.
To the extent that cl 6(a) itself does not explicitly impose a temporal limit on the time within which any loan is to be repaid, I am of the view that the terms of cl 7(a) provide that guidance. That is, that the defendants undertook to repay the loan (noting the clause only refers to “the mortgage”) using their best commercial efforts as soon as practicable.
To the extent there is disagreement between the parties as to what conduct on the part of the defendants does or does not amount to “best commercial efforts”, and as to what “as soon as practicable” means, that is not an issue before the Court in these proceedings.
If the plaintiff had been successful in obtaining the declaration sought (contrary to the conclusion I have set out above), an order for specific performance was sought in the form of a transfer of the Kingsgrove Property pursuant to cll 6(a) and 7 of the Deed. In support of the claim for specific performance, the plaintiff submitted that damages were not an adequate remedy, noting the Kingsgrove Property is the plaintiff’s home and that this outcome was always contemplated by the Deed.
The defendants made brief oral submissions on the appropriate orders, in which they raised many issues which were said to justify giving the first defendant “a lengthy period” to transfer the Kingsgrove Property back (TR P66 L24-50). The plaintiff did not address the form of relief.
Had I needed to address whether specific performance should be refused on discretionary grounds, or the appropriate form of relief, I would have considered that I did not have sufficient evidence before me to address those questions and would have sought further submissions and evidence from the parties on those issues. At the very least, given it was raised on the defendants’ submissions, I would need further material going to the time that would have been necessary to give to the defendants to undertake any specific performance granted.
For the reasons set out above, I make the following orders:
The Statement of Claim is dismissed.
The plaintiff is to pay the defendants’ costs.
The Exhibits are to be returned.
**********
Constantine
Pates [2025] NSWSC 1589
(1990) 169 CLR 279
(2016) 50 WAR 495
(2015) 256 CLR 104
(2002) 240 CLR 45
(1935) 53 CLR 618
(2004) 209 CLR 165
(2019) 100 NSWLR 432
(2004) 2018 CLR 451
(1982) 149 CLR 337
From here, each side’s principal contention can be shortly stated. The plaintiff’s case is that by reason of the repayment of the ANZ Loan and the discharge of the ANZ Mortgage, she is now entitled to have the first defendant’s interest in the Kingsgrove Property transferred back to her as the condition for that transfer back has been fulfilled. The defendants’ case is that simply substituting one loan obligation and mortgage for another was not a “repayment of the loan and discharge of the mortgage” under the Deed. Rather, they say those terms should be understood as a reference to the indebtedness to be incurred by Hygia on account of the contemplated payments to the plaintiff.
Ms J Mee of counsel appeared for the plaintiff. Mr GM McGrath of counsel appeared for the defendants. Each of Ms Mee and Mr McGrath provided written submissions (PWS and DWS respectively) and oral submissions in closing.
For the reasons set out below, I consider that the plaintiff is not presently entitled to a transfer back to her of the first defendant’s half-share in the Kingsgrove Property. It follows that the Statement of Claim must be dismissed.
The key terms of the Deed are extracted below.
Of course, cl 6(a) must be considered with regard to the broader context of the Deed: Mount Bruce at [46] (French CJ, Nettle and Gordon JJ). This means that even if I am wrong to not accept the plaintiff’s submission as to what the natural and ordinary meanings of “the loan” and “the mortgage” are, those ordinary meanings would in any event be a starting point.
Of all of the recitals and clauses, the starting point was said to be Recital F. This recital was said to specifically identify the transfer of the interest in the Kingsgrove Property as being a part of the consideration for the risk (if unable to repay) to the first and second defendants in incurring “the loan” and granting “the mortgage” referred to in the Deed.
The defendants submitted that the risks to the defendants were real. It was clear from the Deed, including Recital E, that the second defendant was expected to borrow most or all of the money on mortgage security to fund the transactions, “so that [the plaintiff’s] transactions and troubles would be sorted out safely for [the mother]” (TR P58 L1-2). In this, it was recognised that it was all debt, with no equity, and the second defendant faced ongoing substantial expenses, many of them not tax deductible, to look after the family. Moreover, no rental income could be obtained from the Marrickville Property given the mother was living there.
In sum, the defendants submitted (TR P58 L37-41):
More generally, I accept the submissions of the defendants and consider that a reasonable person in the position of the parties, and knowing the surrounding circumstances, would understand that the second defendant may need to refinance. This may be for reasons inherently connected to the Deed, for example the ongoing obligations in relation to the two properties, but also for other reasons, such as seeking a better interest rate (TR P62-63).
By way of summary, the defendants submitted that nothing in any way suggests to a reasonable person that the identity of the mortgagee, the nature of the borrowing, or the funding of the obligations was of any relevance or interest to the plaintiff at all (TR P67 L7-8). I accept this submission. As much was conceded by the plaintiff in relation to cl 7, where the plaintiff acknowledged that how the first and second defendants arranged their affairs (between themselves) was really not the plaintiff’s concern (TR P51 L38-41). Whilst this was perhaps the subjective view submitted on behalf of the plaintiff, I am of the view that objectively, a reasonable person in the position of the parties would consider that how the defendants went about incurring and repaying the debt was not relevant to performance of their obligations in accordance with the Deed, except to the extent they might affect the defendants’ fulfilment of their undertaking to use “their best commercial efforts” to ensure the indebtedness incurred on account of the Deed was ultimately repaid.