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[2013] NSWSC 1611
Supreme Court of NSW
2013-08-08
Lindsay J
Original judgment source is linked above.
INTRODUCTION 1The plaintiff alleges, and the defendants deny, that, in agreeing to make himself personally answerable to the plaintiff for debts of a company to which, at his request and the request of others, the plaintiff supplied building materials on credit, the first defendant (in accordance with principles governing the law of contract or estoppel by conduct) must be taken as having granted in favour of the plaintiff a security interest in land held by him (as registered proprietor) on trust for third party interests including, but not limited to, himself.
FACTS 2Two parcels of land (one at Pyrmont, the other at Balmain) comprise the subject matter of the proceedings. The land at Pyrmont (being the land contained in folio identifier 16/SP77975) was registered in the name of the first defendant at and before the time, in or about March 2008, he entered into a contractual relationship with the plaintiff. He became the registered proprietor of the Balmain land (more particularly, the land contained in folio identifier 26/SP35012) in or about October 2008. 3The trust (known as "The Balmain Waters Unit Trust") upon which the first defendant has held the Pyrmont land since before March 2008 is a unit trust constituted by a deed made on or about 19 July 2007. 4The trust (known as "The Serendipity Discretionary Trust") upon which the first defendant has held the Balmain land is a discretionary trust, constituted by a deed made on or about 8 August 2007. 5Both parcels of land were acquired by the first defendant as a trustee. He is one of four unit holders in the Balmain Waters Unit Trust, and one of two objects of the Serendipity Discretionary Trust. 6Upon his acquisition of each parcel of land he was registered, under the Real Property Act 1900 NSW, as the proprietor of an estate in fee simple. 7His status as a trustee is not, and never has been, made apparent on the title to the land. That is because: (a) by s 82, the Real Property Act directs that the Registrar General shall not, generally, record in the Register maintained under the Act any notice of trusts; (b) no caveat has ever been lodged against the title of either parcel of land (under s 74F of the Real Property Act) recording a claim to an equitable estate or interest referable to the respective trusts upon which the first defendant held the land; and (c) in the case of the Serendipity Discretionary Trust, the entitlement of an object of the trust is generally (as explained in JD Heydon and MJ Leeming (eds), Jacobs' Law of Trusts in Australia (Lexis Nexis Butterworths, 7th ed, 2006) paras [314] and [2315]) an entitlement to due administration of the trust rather than an interest in trust property. 8The first defendant remains registered as the proprietor of both parcels of land notwithstanding that, by a deed made on 30 April 2012, he retired as the trustee of the Serendipity Discretionary Trust and his father (the second defendant) was appointed as the new trustee of that trust. 9On or about 17 June 2011 the plaintiff lodged a caveat (bearing registered number AG299932) on the respective titles of both parcels of land. On the title to the Balmain land, it ranks behind a mortgage (numbered AE271604) in favour of St George Bank Limited. It is not the subject of any material prior dealing registered on the title to the Pyrmont land. 10The caveat claims the following "estate or interest" in both parcels of land: "As equitable chargee under an equitable charge which secures all monies owing or payable or becoming owing or payable by [the first defendant] to [the plaintiff] ...." That entitlement is said to have arisen by virtue of an "Agreement dated 25 March 2008" between the plaintiff and the first defendant. 11The presence of the caveat on the title to the Balmain land currently prevents registration of the second defendant as the registered proprietor of the land as the new trustee, in lieu of the first defendant as trustee, of the Serendipity Discretionary Trust. 12Upon a consideration of parties associated with the defendants who might have an equitable interest in the Pyrmont land, allowance must be made for a written Agreement dated 29 August 2007 executed, inter alia, by the first defendant as trustee for the Serendipity Discretionary Trust (described in the Agreement as "the Lender") and by the first defendant as the trustee of the Balmain Waters Unit Trust (described in the Agreement as "the Borrower"). The former appears to have lent the latter a sum of money against a promise to repay the loan and (as recorded in clause 7 of the Agreement) the grant of a "security interest or mortgage" in the Pyrmont land. That security entitlement, if it subsists, is not the subject of any caveat lodged against the title of the Pyrmont land. 13The company for which the first defendant agreed to make himself personally answerable went into liquidation on or about 9 May 2012. A fair inference from the way these proceedings have been conducted, but not one necessary to be drawn for the proper determination of the proceedings, is that the first defendant cannot meet his personal liability to the plaintiff without the plaintiff, directly or indirectly, having recourse to the land held on trust by the first defendant. Counsel for the defendants contended that the proceedings focus attention on the general question of who it is that must bear the loss of the company going into liquidation. 14The controversy between the parties focuses upon circumstances in which "the Agreement dated 25 March 2008" alleged in the plaintiff's caveat came into existence, and the proper construction of its terms. 15In March 2008 the first defendant executed two documents which, pieced together, reflect a standard form of documentation (a copy of which is Exhibit P4) that the plaintiff required to be completed by trading entities which applied to it for a "Monthly Credit Account". 16The standard form documentation made provision, on six numbered pages, for the following classes of material: (a)Under the heading "Application for a Monthly Credit Account" (on pages numbered 1 and 2), space was allowed for identification of the applicant, particulars of "directors, proprietors and partners" associated with the applicant, details of property, credit references and financial (balance sheet) information. (b)Under the heading "Terms and Conditions of Sale" (on pages 2-4) appeared, in 18 clauses, the "Terms and Conditions of Sale" applicable to "the sale of goods or services" by the plaintiff to its customers. (c)Under the heading "Agreement" (on page 4) appeared, in four clauses, provision for supporters of the applicant to make acknowledgements and (via clauses 3 and 4) to accept liability for debts incurred by the applicant to the plaintiff. (d)Under the heading "Guarantee and Indemnity" ('Guarantee') and Charge" (on pages 4-6), provision was made, in 16 clauses, for "Guarantors" to act as sureties for the applicant in dealings with the plaintiff. (e)Under the heading "Account Details" (on page 6), provision was made for the insertion of information about the applicant, the amount of credit required of the plaintiff and processes of the plaintiff upon a consideration of the application. 17In its pro forma format (Exhibit P4), the six pages of this documentation were joined together with folds that assisted in identification of the several pages. On the reverse side of page 1 was page 2. On the reverse side of page 3 was page 6. On the reverse side of page 4 was page 5. 18The version of the contract documentation signed by the first defendant, and his fellow directors of the Applicant company, comprises pages that have been, along the folds, severed from each other. The evidence does not disclose the circumstances in which, the time at which, or by whose hand the pages formerly joined together became separate. Neither side of the record suggests that anything turns on the fact of separation. 19On 18 March 2008 the first defendant and his co-directors of the Applicant signed an Application for a Monthly Credit Account comprising six pages. It was prepared for their signature by Narelle Pate, an employee of the company responsible for dealing with accounts. She dealt with the logistics of completing the form, presenting it to the company's directors (including the first defendant) for signature and keeping a copy of the signed form as submitted to the plaintiff. 20On the first page, the names of the first defendant and his two co-directors were particularised as "directors, proprietors and partners" associated with the Applicant company. On the fourth page all three directors signed the "Agreement" comprising four paragraphs. The first defendant's two co-directors were named on page 4 as "Guarantors" of the Applicant and they signed their names, in that capacity, at the end of the "Guarantee" (comprising 16 clauses) on page 6. 21On 18 March 2008, although he signed the "Agreement" on page 4, the first defendant was not named as a "Guarantor" (and he did not sign the "Guarantee" set out) on pages 4-6. 22On 25 March 2008 an officer of the plaintiff attended upon the first defendant, advised him that the Application for a Monthly Credit Account was "missing a page", presented him with a blank form of page 6 (with its reverse side, page 3), and asked him to complete that "missing page" and to return it to the plaintiff in support of the application for credit. The plaintiff's officer did not give him, or invite him to consult, any of the six pages of the pro-forma documentation other than page 6 (with page 3 on its reverse side). 23The first defendant gave the "missing page" to Ms Pate and asked her (in so many words, but no more) to complete it, by the insertion of his personal details, so that he could sign it. 24This she did by inserting the first defendant's name on the "missing page" (a blank form of page 6) under the heading "Signature of Guarantor" and under the heading "Particulars of Guarantor". She added incidental detail and dated it "25/03/2008", and returned it to the first defendant for signature. 25The first defendant then, without objection or further inquiry, signed the "missing page" as completed, and his signature was witnessed by the officer of the plaintiff who had presented it to him for completion and execution. Nothing more of any consequence passed between them. 26When, on 25 March 2008, Ms Pate completed the "missing page" subsequently signed by the first defendant on that date, she had available to her a copy of the full documentation, signed by the first defendant on page 4, submitted to the plaintiff on or about 18 March 2008. 27She does not now recall whether, on 25 March 2008, she consulted her copy of that documentation when she completed the "missing page". 28However, at the time of completing the "missing page" and returning it to the first defendant for his signature, she understood that the page (as completed by her) handed to the first defendant for his signature named him as a "Guarantor" of the Applicant company in support of its application to the plaintiff for credit. 29Upon its receipt of the "missing page" signed by the first defendant, the plaintiff proceeded in the ordinary course of its business to assess, and in due course to grant, the company's application for a monthly credit account based upon an application form (Exhibit P2) comprising the six pages incorporating signatures dated 18 March 2008 and the additional page 6 (with its reverse side, a further copy of page 3) bearing the first defendant's signature dated 25 March 2008. 30Neither side of the record attributes significance to the timing of the plaintiff's grant of the application for a monthly credit account, though an analysis of the process of contract formation suggests that it was either: (a) upon the formal grant of the application; or (b) upon the first occasion thereafter that goods were supplied to the Applicant company on credit, that the contract, or contracts, upon which the plaintiff sues the first defendant came into existence. 31Upon a consideration of the questions presented for the Court's determination, nothing turns on the precise times at which the plaintiff received the documentation signed by the first defendant (on 18 and 25 March 2008), granted the application for a monthly credit account or supplied goods on that account. Importance attaches to the sequence of events, but not the dates upon which particular events took place. The plaintiff received and acted upon the documentation signed by the first defendant; it acted upon that documentation both by opening a monthly credit account and by supplying goods on credit; and it did so without any disclaimer of the contractual documentation submitted to it, relevantly, by the first defendant. Subject to closer consideration of the legal effect (if any) of the documentation dated 25 March 2008, that was sufficient to establish a contractual relationship with the first defendant: Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534E and 535A-E. 32In advancing a claim in estoppel, as an alternative to its claim in contract, the plaintiff reinforces its contention that it relied upon the first defendant's representation to it that he was a guarantor of the Applicant company by pointing to the fact that it relied upon the documentation signed by the first defendant in granting to the Applicant company, from time to time, increases in its credit limit. 33It was by a letter dated 9 May 2008 that the plaintiff formally advised the company that its application had been granted, with a credit limit of $30,000. 34That credit limit was, from time to time, revised upwards. The precise sequence of events is not clear. However, a letter dated 12 September 2008 addressed by the company to the plaintiff requested an increase in the credit limit from $150,000 to $300,000. An internal record of the plaintiff bearing the dates 12 August 2011 and 8 September 2011 evidences, at about that time, approval of a request by the company for an increase in the credit limit from $400,000 to $500,000. 35The latter document also records that factors taken into account by the plaintiff in granting an increase in the credit limit were: (a) the first defendant's ownership of the subject land at Balmain and Pyrmont; and (b) the existence of the caveat lodged by the plaintiff against the title of that land on or about 17 June 2011. 36Despite inconsequential gaps in the time line, the evidence establishes as a fact that, in granting the application for a credit account made to it in or about March 2008, and in subsequently granting requests for an increase in the Applicant company's credit limit, the plaintiff, in possession of the documentation signed by the first defendant on 18 and 25 March 2008: (a) believed that that documentation entitled it to a security interest in the subject land; and (b) held that belief, and acted upon it, in reliance on that documentation. 37The evidence also establishes that, by his continuing association with the Applicant company as a director, the first defendant acquiesced in the plaintiff's reliance upon the documentation he signed (including the documentation signed on 25 March 2008) as a foundation for credit extended to the Applicant company on an ongoing basis. 38The fact that the Applicant company has gone into liquidation, and that the plaintiff has been compelled to look to the first defendant to make good its loss on trade with the company, supports a finding that it would suffer detriment if the first defendant were to be permitted, in these proceedings, to disclaim liability arising from his signing of the documentation dated 25 March 2008. 39In that documentation, the first defendant is not named as one of the Guarantors of the Applicant immediately under the heading "Guarantee and Indemnity ('Guarantee') and Charge" on page 4, but he is named as a "Guarantor" on that copy of page 6 signed by him. 40The first defendant does not dispute that, by his signature dated 18 March 2008, he agreed with the plaintiff to be bound, according to their tenor, by clauses 3 and 4 of the Agreement recorded on page 4 of the plaintiff's pro forma documentation. 41There is a live dispute about the proper construction of clause 3 because the plaintiff contends, and the defendants deny, that it extends to a security interest in the two parcels of land held by the first defendant as a trustee. 42The plaintiff contends, and the defendants deny, that the first defendant is also bound by clauses 14 and 15 of the Guarantee (found on page 5 of the plaintiff's pro forma documentation) notwithstanding that a copy of that page was not presented to the first defendant for his consideration, and it was not consulted by him, at the time he signed the "missing page" (page 6) on 25 March 2008. 43The first defendant contends that it was incumbent on the plaintiff to bring clauses 14 and 15 to his actual attention before his signature of the "missing page" if his signature on the "missing page" was to give rise to any security interest in favour of the plaintiff in the parcels of land held by him as a trustee. 44So far as is material, the terms of the "Agreement" signed and dated by the first defendant and his co-directors (incorporating clauses 3 and 4) are in the following terms (with emphasis added): "AGREEMENT In consideration of the Supplier [the plaintiff] providing or continuing to provide goods and/or materials... 3. In consideration of the acceptance of this application by the Supplier and as an essential condition of the terms of supply, we [the three named directors of the Applicant company, including the first defendant] jointly and each of us severally charge all of my, our, and its real property both present and future and wheresoever situated with the amount of my, our and its (as the case may be) indebtedness to the Supplier on any account whatsoever, from time to time and each person shall immediately upon demand being made on he, she or it by the Supplier, sign all documents and do all things that the Supplier may reasonably require to be signed and done to further secure to the Supplier the amount of such indebtedness to the Supplier including but not limited to such guarantee and or indemnity instruments in such terms as are required by the Supplier and such mortgage or mortgages (including, without limitation, a mortgage in the terms contained in the approved Form "M' published by the Law Institute of Victoria or any revision or replacement of that form) over any real property (whether acquired before or after the date of this agreement) containing such covenants as are required by the Supplier of such bills of sale or mortgage debentures over any or all items of personal property as are listed in any section of this document detailing any assets of mine/ours, before or after approval of credit by the Supplier and each of us hereby irrevocably appoints the Supplier, each manager and each credit manager from time to time of the Supplier, each successor for the Supplier, each assignee of the Supplier, each manager and each credit manager from time to time of each successor and such assignee and each of them severally to be the duly constituted attorney of each of us to execute in our several names and as our several acts and deeds any documents including, without limitation, any mortgage or mortgages of real property, bills of sale, mortgage debentures or any like documents and Consents to any Caveats as the Supplier may wish to lodge against any dealings in any real property of mine/ours in any titles office and to do all acts and execute any documents necessary to give effect to and/or register any of the foregoing and undertake to not object to the lodging of any such caveat or take any steps to remove any such caveat. "Real property" includes estates and interests including leasehold. I/We hereby authorise any officer, partner or employee of any solicitors or agents engaged by the Supplier or any of the Supplier's officers or employees as referred to previously in this clause to sign any stamp duties form on my/our behalf so as to stamp any form required to withdraw any caveat lodged by the Supplier over any of my/our real property. 4. If the applicant [for credit] is an incorporated body: In consideration of and as an essential condition of the acceptance of this application by the Supplier I/we the undersigned do jointly and severally with the incorporated body and in our own names: (a) accept liability to the Supplier for the payment as principal debtor of all monies owed by the incorporated body to the Supplier from time to time and waive all rights as a mere surety which may be inconsistent therewith and hereby guarantee to the supplier payment of all such monies. (b) bind the incorporated body and warrant our authority to bind the incorporated body. I/We hereby acknowledge, affirm and agree that I/We have read the preceding terms and conditions of sale and the terms of this Agreement and fully understand and comprehend same and certify the information supplied herein as the basis for you to grant credit is true and correct. SIGNED and sealed by/on behalf of the Customer [the Applicant company]." 45Upon an assumption that the "Guarantee" signed and dated by the first defendant's co-directors on 18 March 2008 can be read as a composite document with the "missing page" signed and dated by the first defendant on 25 March 2008, the terms of the "Guarantee", so far as are material, are as follows (with emphasis added): "GUARANTEE AND INDEMNITY ("GUARANTEE") AND CHARGE In consideration of [the plaintiff] its Subsidiary and Associated Companies trading under various firm names or styles ["The Supplier") agreeing at the request of [the first defendant's two co-directors] ("the Guarantor") to commence or continue to supply to [the Applicant company] ("the Customer") on credit or otherwise goods and/or services from time to time on the terms and conditions imposed from time to time by the Supplier on the Customer the Guarantor (jointly and severally if more than one) agrees with the Supplier as follows: .... 14. Where the Guarantor is a trustee: (a) The Guarantor agrees to forthwith produce a stamped copy of the trust deed (with all amendments) if and when requested by the Supplier; (b) The Guarantor warrants that he, she or it has full power and authority for the benefit and purposes and objects of the trust to enter into this guarantee on behalf of the trust and that he she or it (as the case may be) (and that the trust and all of its real or personal property) shall be bound by the terms of this Guarantee both personally and as trustee irrespective of whether or not the guarantor discloses to the Supplier that the guarantor is a trustee at the time of entering into this Guarantee. 15. To better secure the payment of all monies which the Guarantor may become liable to pay to the Supplier hereunder, and as an essential condition of this guarantee, the Guarantor charges all of its interest in real property both present and future and wheresoever situated with the amount of the guarantor's indebtedness to the Supplier on any account whatsoever from time to time and shall, immediately upon demand being made on the Guarantor by the Supplier, sign all documents and do all things that the Supplier may reasonably require to be signed and done to further secure to the Supplier the amount of any indebtedness owed to the Supplier from time to time by the Customer or Guarantor including, but without being limited to, such mortgage or mortgages (including, without limitation, a mortgage in the terms contained in the approved Form "M" published by the Law Institute of Victoria or any revision or replacement of that form) over any real property (whether acquired before or after the date of this guarantee) containing such covenants as are required by the Supplier and such bills of sale or mortgage debentures over any or all items of personal property as are listed ain any section of this guarantee giving details of assets. The Guarantor (and if more than one then jointly and each of them severally) irrevocably appoint(s) the Supplier, each Manager and each Credit Manager from time to time of the Supplier, each successor of the Supplier, each assignee of the supplier and each of them severally to be the duly constituted attorney of each Guarantor to execute in the name of each Guarantor and as each Guarantor's several act and deed any documents including without limitation, any mortgage or mortgages of real property, bills of sale, mortgage debentures or any like documents and Consents to any Caveats as the Supplier may wish to lodge against any dealings in the real property of the Guarantor in any Titles Office (and if more than one Guarantor, the real property of each Guarantor severally and the real property of each combination of Guarantors) and to do all acts and execute any documents necessary to give effect to and/or register any of the foregoing. Each Guarantor undertakes to not object to the lodging of any such caveat or take any steps to remove any such caveat. "Real property" includes estates and interests including leasehold. I/We hereby also authorise any officer, partner or employee of any solicitors or agents engaged by the Supplier or any of the Supplier's officers or employees as referred to previously in this clause to sign any stamp duties form on my/our behalf so as to stamp any form required to withdraw any caveat lodged by the Supplier over any of my/our real property. ... 46To the extent to which they can, or must, be read in the context of page 1 of the Application for a Monthly Credit Account the proper construction of these provisions may, arguably, be informed by references to the concept of a "trust" found on page 1 of the Application. Even if the six pages of documentation are viewed as embodying distinct, separate contracts, the whole of the documentation (representing the Application for a Monthly Credit Account) is part of the surrounding circumstances known to all contracting parties and, therefore, available as an aid to construction of each contract: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352. No party has contended otherwise. Both sides of the record have referred to the whole document in exegesis of each part. 47There were five references to the concept of a "trust" on page 1 of the Application. 48The first three were directed towards the question whether the Applicant for credit was itself a trustee; they appeared in the introductory provisions of the Application, above the space reserved for "Particulars of Directors, Proprietors and Partners". The third of those references invited the Applicant to disclose the nature of the trust associated with it; more particularly, whether the trust was a "discretionary trust" or a "unit trust". 49The last two of the five references appeared in the space reserved for "Particulars of Directors, Proprietors and Partners". The first of those comprised a notation to the following effect: "Directors, proprietors and partners who act as trustees for a family trust must indicate by marking 'T' in the 'Trust' column". The last of the references comprised the word "Trust" in a column adjacent to a space provided for insertion of the personal details of each "director, proprietor and partner". 50Insofar as page 1 of the printed form of the Application called for disclosure of a trust relationship, it was left blank. In particular, no "T" was recorded against the name of the first defendant indicating that he was acting "... as [trustee] for a family trust". 51Although it may not inform the proper construction of clauses 3 and 4 of the Agreement (on page 4 of the plaintiff's pro forma documentation) or clauses 14-15 of the Guarantee (on page 5), because unknown to the plaintiff at the time documentation was signed by the first defendant in March 2008 or whenever it was thereafter that the parties entered into a contractual relationship, a determination of all questions in dispute in these proceedings requires a notation that it is common ground that the respective trust deeds constituting the Balmain Waters Unit Trust and the Serendipity Family Trust each conferred on the first defendant, as trustee, powers sufficient to enable him to bind the trust by entry into an agreement containing provisions such as those found in clauses 3-4 of the Agreement and clauses 14-15 of the Guarantee. 52The powers conferred on the first defendant as trustee by the trust deeds include a power expressed in terms similar to clause 10.01 of the trust deed considered in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 60, as well as other provisions supportive of the agreement between the parties on this point. There is, I am satisfied, a reasonable foundation for acting upon the parties' agreement that each of the trust deeds empowered the first defendant to bind trust assets in favour of the plaintiff should that be the intendment of the provisions of the "Agreement" and the "Guarantee" under consideration. 53An observation associated with this one is the absence, in these proceedings, of any allegation that, by signing the Agreement on 18 March 2008, or by signing the "missing page" of the Guarantee on 25 March 2008, the first defendant acted in breach of his obligations as a trustee.
The Nature and Ambit of Questions in Dispute 54The principal questions for determination in these proceedings focus on two interrelated topics: (1) Contract formation - Whether the terms of the contractual relationship between the plaintiff and the first defendant incorporate clauses 14-15 of the Guarantee (found, physically, in the first of the two contractual forms signed by the first defendant but only incorporated in the contract, or contracts, made between the parties if the second of the forms signed by the first defendant was, objectively, intended to incorporate them). (2) Contract construction - Whether, upon a proper construction of clauses 14-15 of the Guarantee or clauses 3-4 of the Agreement, the first defendant must be taken to have granted to the plaintiff a security interest in the land of which he was, or may become, a trustee. 55As has been foreshadowed (in paragraphs 32-37) above, a secondary contention of the plaintiff is that, if the documentation signed by the first defendant on 25 March 2008 did not give rise to a contract between the parties incorporating clauses 14-15 of the Guarantee, the first defendant is nevertheless bound by the operation of an estoppel by conduct from denying that he contracted with the plaintiff on those terms. 56The parties are agreed on the consequences that flow from the Court's determination of the questions in dispute. 57A determination in favour of the defendants will, in substance, result in dismissal of the proceedings and, if necessary, an order for withdrawal of the plaintiff's caveat. 58A determination in favour of the plaintiff will, in substance, result in a grant of two types of relief: (a) declarations to the effect that the plaintiff is entitled to a charge over the two parcels of land of which the first defendant is the registered proprietor; and (b) an order for specific performance by the first defendant of a contractual obligation to execute a mortgage over that land. 59Significance may attach to the distinction between an equitable charge and an equitable mortgage because the remedies available to an equitable mortgagee are more extensive than those available to an equitable chargee: Fisher and Lightwood's Law of Mortgage (2nd Aust ed, Lexis Nexis Butterworths, 2005) para [2.7], citing Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 at 594-597; The Broken Hill Proprietary Company Ltd v Commissioner for Stamp Duties [1998] 1 Qd R 452 at 459. 60If the plaintiff is entitled to a charge (with or without an entitlement to a mortgage), the parties are agreed that there is no need for the Court, in these proceedings, to quantify the amount of the charge or to consider the means by which any charge might be enforced. The parties are agreed that any rights they may have referable to those questions are to be reserved for determination, if necessary, in other proceedings. 61The focus of the current proceedings is on whether the plaintiff has a security interest in the subject land. It is not on whether (as is acknowledged) the first defendant has a personal liability to the plaintiff in debt. Nor is it on the form of any mortgage to which the plaintiff may be entitled; if the plaintiff is entitled to a mortgage, the parties are agreed on its terms. 62The parties are agreed that no question about competing priorities arises in the proceedings: (a)The defendants have not suggested that "the Serendipity Discretionary Trust" (or, more particularly, any person representing, or associated with, it) has an estate or interest in the Pyrmont land by virtue of funding provided from the resources of that Trust in the acquisition of the land. On the contrary, the defendants have conceded that, if the plaintiff succeeds in establishing a security interest in the Pyrmont land, the title deed to the land can be made available by them for registration of a mortgage in favour of the plaintiff. They accept that, if the Serendipity Discretionary Trust has an equitable interest in the Pyrmont land, the charging clause(s) in the plaintiff's documentation is (are) sufficiently broad to encompass it. (b)There is no dispute between the parties to the proceedings that any mortgage to which the plaintiff may be entitled over the Balmain land must rank behind the mortgage of St George Bank Limited (not a party) presently registered on the title and any relief granted in favour of the plaintiff must accommodate that prior encumbrance. 63The necessity for joinder of the second defendant in the proceedings arises from the facts, initially disputed but ultimately accepted by the plaintiff, that: (a) the land registered in the name of the first defendant was acquired by him, and is held by him, on trust; and (b) since the first defendant's entry into contractual relations with the plaintiff, the defendants have executed a deed whereby the first defendant has retired, and the second defendant has been appointed, as trustee of the Serendipity Discretionary Trust. 64Nothing turns on the nature or terms of the two trusts. The fact that one is a unit trust and the other is a discretionary trust does not impact upon the character of dealings between the plaintiff and the first defendant that are the subject of consideration in this judgment. The plaintiff dealt with the first defendant. To the extent that he acted as a trustee he was duly authorised by the terms of both trust instruments to do so. 65Acceptance by the defendants that the separate trust deeds governing the trusts of which the first defendant is or has been trustee both contain provisions authorising the trustee to grant a security interest (such as that claimed by the plaintiff) over trust property focuses attention on the identified questions about contract formation and contract construction, uncomplicated by disputation about the interplay of contract law and the law of trusts. 66The critical importance of the question about contract formation arises from the fact that (unlike clauses 3-4 of the "Agreement") clauses 14-15 of the "Guarantee" take colour from a statement at the beginning of clause 14 ("Where the Guarantor is a trustee...") that marks out the scope of their operation. Clauses 14-15 of the Guarantee are more readily amenable, than are clauses 3-4 of the Agreement, to a construction that the terms of the contract, or contracts, made between the plaintiff and the first defendant extend to the grant of a security interest in land held by the first defendant as trustee for third party interests. 67Both clause 3 of the "Agreement" and clause 15 of the "Guarantee" include a charging provision, but clauses 14-15 of the Guarantee (read together) expressly contemplate both a field of operation in which a signatory (a guarantor) is a trustee and provision of a mortgage in support of a charge. 68At a high level of abstraction, the questions for determination might be thought to raise a policy question: Which of two parties engaged in the making of a contract (one of which prepares contractual documentation and the other of which adopts it by signature) bears the risk of informality in the process of attending to execution of the documentation? 69It is easy to imagine that the present dispute would not have arisen had the parties sat down together, talked through the documentation under consideration, and signed it at one and the same time. 70That is not what happened here. The plaintiff presented its standard form documentation to the first defendant, for signature, in two parts. He signed both, on separate occasions, without any close reflection at any time, on the terms of the documentation he signed. 71The parties are agreed that the task for the Court is to apply an objective standard to both the question of the terms of the contract, or contracts, made by the parties and the question of how those terms are to be construed. Both appeal to observations of the High Court of Australia, in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 177 [35] et seq, which mandate this approach. 72The parties are divided on the effect of the first defendant's execution of the second of the two sets of contractual documentation presented to him for signature. 73At the plaintiff's end of the spectrum of possible outcomes, the proceedings are no different from a case in which a party signs a single document embodying all the terms of a contract. The signing party must be taken to have signified its assent to those terms, and to have held out to other parties that it has done so: Equuscorp Pty Ltd v HGT Investments Pty Ltd (2004) 218 CLR 472 at 483[33] - 484[36]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 180[42] - 183[48]. 74At the defendants' end of the spectrum, the proceedings need to be approached in much the same way as the classic "ticket cases" (personified by Parker v South Eastern Railway Co. (1877) 2 CPD 416 and Thornton v Shoe Lane Parking Limited [1971] 2 QB 163): The party presenting a document to another in expectation of its terms being incorporated in a contract between the parties must, at or before the time any contract is made, have taken steps reasonably sufficient to bring home to the recipient of the document the existence of the terms sought to be relied upon. 75The present proceedings lie between the competing ends of the spectrum: Should the first defendant, by his second signature, be determined, objectively, to have assented to the terms (namely, clauses 14 - 15 of the Guarantee) relating to the provision of security found in the first set of documentation presented to him notwithstanding that, at no time, did they subjectively, at least directly, come to his attention? Applying an objective standard, what intention is to be attributed to the first defendant in relation to his second signature? In colloquial terms, objectively what would a reasonable person think he was doing when he signed the second set of documentation? 76The first defendant's answer to that question is that he thought he was doing no more than signing a page "missing" from the form of application for credit made by his company to the plaintiff. 77The plaintiff's answer is that the words on the page signed by the first defendant on that second occasion cannot, objectively, be read otherwise than calling for the first defendant to assent to the proposition that he was to be a guarantor of the company's debts and, moreover, that his guarantee was to be secured on terms found, physically, in the first set of documentation he signed. 78The evidence establishes that on each of the two occasions the first defendant signed contractual documentation he entrusted the task of completing it to Ms Pate, a trusted work colleague. She inserted his personal details in the documentation, at his request, and presented it to him for his signature. 79Several layers of complexity can be put aside upon a determination of the parties' dispute: (1) There is no allegation, on either side of the record in these proceedings, that the process of contract formation was attended by misleading or deceptive conduct or any other impediment to a free and voluntary entry into contractual relations. (2) Nor is there any allegation on the part of the defendants that the plaintiff's pro forma documentation was of such a nature (eg, because of small print) that clauses 14-15 of the Guarantee could not reasonably be taken to have come to the attention of any person to whom they were submitted for signature. (3) The parties accept that the subject matter of the proceedings is a simple contract, not a deed, notwithstanding that the execution clause on the "missing page" signed by the first defendant on 25 March 2008 commenced with a formula ("signed, sealed and delivered") not uncommonly associated with characterisation of a document as a deed. It follows from this that the parties accept that it was not their intention that the Guarantee operate as a deed. (4) Whatever may be found to be the terms upon which the parties entered into a contractual relationship, the defendants do not contend that no consideration moved from the plaintiff in support of the promises found (upon a proper interpretation of the contractual documentation) to have been made by the first defendant. 80Recognition that the parties' dispute does not enter upon this territory focuses attention on the mechanics of contract formation and the construction of contractual documentation.
Contract Formation 81On an application of the reasoning in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 177 [35] et seq, and imbued with the importance there attached to the due operation of objective standards, key indicators in the facts of these proceedings favour a finding that the "page 6" document bearing the first defendant's signature and the date 25 March 2008 must be read, objectively, as binding him to the plaintiff, as a guarantor of the Applicant company, on the terms set forth in the "Guarantee" incorporating pages 4-6 of the pro forma documentation (Exhibit P4) signed by the first defendant's co-directors on 18 March 2008. 82"Page 6" was signed by the first defendant voluntarily and, by him, voluntarily returned to the plaintiff's representative with the first defendant's personal details, ostensibly as a guarantor, inserted by a member of his staff (albeit an employee of the Applicant company) at his request. At the time this was done, that member of staff had access to the documentation signed by the Applicant, and its directors, on 18 March 2008. 83The form of "page 6" is such that, read in isolation, it makes no sense unless read with preceding numbered pages. Any even remotely critical reading of it at the time it was presented to the first defendant for completion, signature and return must, objectively, have invited any reasonably intelligent person to inquire about the whereabouts of the preceding pages and, absent production of them, to refuse to sign anything. 84By his uncritical completion, signature and return of "page 6" to the plaintiff, the first defendant must be taken, objectively, either to have known that he was signing a document, as a guarantor, accepting the terms of the Guarantee set out on pages 4-6 of the plaintiff's pro forma document, as signed by his co-directors on 18 March 2008, or, at least, to have accepted the risk that the plaintiff would, objectively, process the Applicant company's application for a credit account on the basis that he was offering himself as a guarantor of the company. 85By returning "page 6" to the plaintiff, apparently signed by him in the character of a guarantor on the terms signed by his co-directors as guarantors on 18 March 2008, the first defendant must be taken, objectively, to have represented to the plaintiff that it could, and should, as it did, process the applicant company's application for a credit account on the basis that he had agreed to be a guarantor of the company. 86In doing this, the first defendant knew that the "page 6" document signed by him was a commercial document, intended to be relied upon by the plaintiff in making a decision about whether or not to open a credit account, and in due course to provide credit, in favour of the Applicant company. 87Against all these facts favouring a finding for the plaintiff, the defendants' case rises not much beyond a bare assertion that (in signing a completed form of "page 6" characterising him as a guarantor and in delivering it to the plaintiff) he thought he was doing no more than signing a page "missing" from the form of application for credit made by the Applicant company to the plaintiff. That contention is, in itself, confirmatory of the first defendant's knowledge that the document was commercial in character and part of other documentation which the Applicant company, and he, invited the plaintiff to rely upon in making a commercial decision. 88Inescapably, on an application of objective standards, the first defendant must be taken to have bound himself to the plaintiff on terms that included clauses 14-15 of the Guarantee (on page 5 of the plaintiff's pro forma documentation). 89It is not necessary, in these proceedings, to make a determination, in terms, about which side of the record must bear the risk of informality in the process attending to execution of the documentation that passed between them. On an application of the High Court's reasoning, without entering independently upon questions about risk allocation, the first defendant must be taken to have accepted the risk by the course he adopted. 90There is no injustice in that. The first defendant must be taken to have voluntarily assumed the risk of any inattention given by him to the documentation he signed. Objectively, by its presentation of a copy of "page 6" to the first defendant for signature, so soon after related documentation was signed and at a time when the documentation was of current interest, the plaintiff took steps reasonably sufficient to bring home to the first defendant the existence of the terms of the Guarantee sought now to be relied upon by the plaintiff. 91The fact that the first defendant proffered to the plaintiff a signed document through which he, implicitly, made a representation of his availability as a guarantor, and the associated fact that the plaintiff relied upon that representation, together establish a foundation upon which the first defendant might be found liable to the plaintiff as a guarantor by operation of principles of estoppel: Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387. In that context, the plaintiff's detrimental reliance on the first defendant's conduct (whether characterised as a representation or some other form of encouragement) has significance. 92In the context of principles governing contract, the fact of "detrimental reliance" by the plaintiff on the first defendant's conduct does not have the same significance. On the bargain theory of contract prevailing in Australia (as established by Australian Woollen Mills Pty Limited v Commonwealth (1954) 92 CLR 424 at 456-457, as confirmed by McHugh JA in Beaton v McDivitt (1987) 13 NSWLR 162 at 181-182), the plaintiff's detrimental reliance is an element unnecessary for a finding of contractual liability in the first defendant. The necessary, and sufficient, finding of fact establishing the first defendant's liability in contract is that, objectively, there was an agreement between the parties; an agreement in which, in return for the plaintiff opening a credit account in favour of the Applicant company, the first defendant agreed to serve as a guarantor of the company in favour of the plaintiff.
Contract Construction 93On the findings I have made, the first defendant is bound to the plaintiff on terms that include clauses 14-15 of the "Guarantee" (on p 5 of the plaintiff's pro forma documentation). 94In any event, the first defendant does not dispute that he is bound to the plaintiff on terms that include clauses 3-4 of the "Agreement" (on p 4 of the pro forma documentation). 95A question for the Court is whether, upon a proper construction of those clauses, the first defendant must be taken to have granted to the plaintiff a security interest in the land of which he was, or became, a trustee. 96The defendants invite the Court to construe the contract documentation strictly against the plaintiff, resolving any ambiguity in favour of the first defendant as a surety of the Applicant company: Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561. 97Accepting that invitation, of the contractual documentation under review clauses 3-4 of the Agreement does (but clauses 14-15 of the Guarantee do not) lend themselves to the defendants' construction. 98They contend for a proposition that where the documentation refers to "all" the "real property" of the surety - including "estates and interests" of the surety - it should be read as limited to the surety's beneficial interest in property. 99Putting the point differently, the defendants contend that the Court should conclude that trust assets were not being offered as security. 100Put this way, the argument between the parties returns, more or less, to their argument about contract formation, and the guidance offered by Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at 179[40]. The process of contractual construction appeals to the same objective standard of intention encountered in dealing with contract formation: Byrnes v Kendle (2011) 243 CLR 253 at 284[98] - 286[101]. Viewed objectively, what would a reasonable person in a position of the plaintiff have been led to believe, by the conduct of the first defendant in executing the contractual documentation, having regard to surrounding circumstances known to the parties, and the purpose and object of the transaction? 101Whether the first defendant contracted with the plaintiff in his capacity as a trustee, or prospective trustee, as well as in his personal capacity depends upon an objective assessment of intention having regard to all the circumstances of the particular case: Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773 at 774 and 776-777. 102Perhaps the strongest point available to the defendants is the fact that the first defendant did not disclose any trust to the plaintiff when invited to do so by the layout of the first page of the contract documentation: the formal "Application for a Monthly Credit Account". 103The first three references to a trust on that page related to whether the Applicant company was a trustee. It was not. Those provisions of the Application did not require disclosure of the first defendant's participation in a trust. 104The fourth reference to a trust on the first page of the documentation was found in the space, entitled "Particulars of Directors, Proprietors and Partners", provided for disclosure of information about individuals associated with the applicant for a credit account. Three "notes" under that heading read as follows: "1. Must be completed for all directors, proprietors and partners. 2. Directors, proprietors and partners who act as trustees for a family trust must indicate by marking 'T' in the 'Trust" column. 3. Marital status must be indicated by marking 'Y' for yes or 'N' for no in the 'Spouse' column." 105The "Trust Column" in the documentation signed by the first defendant was left blank. 106The defendants contend that that fact should be taken as an indication that the property of which the first defendant was trustee was not offered as security for the indebtedness of the Applicant company. 107However, the terms of Note 2 do not readily accommodate that contention. The word "must" is critical as an indication of an expectation on the part of the plaintiff that a person in the position of the first defendant was under an obligation to disclose the existence of a trust, not that such a person could choose whether or not to make a disclosure. 108This perspective is reinforced by the terms in which clauses 3-4 of the Agreement and clauses 14-15 of the Guarantee are expressed. 109It is also reinforced by an appreciation that the general purpose and object of the documentation executed by the first defendant and returned by him to the plaintiff was to allow the plaintiff, with the benefit of such inquiries it might make about the credit worthiness of the Applicant for a credit account and those standing behind the applicant, to decide whether to grant the application. 110Having regard to both text and context, the conclusion I have reached is that, on their proper construction: (a) clauses 14-15 of the "Guarantee" operate to charge the land of which the first defendant is a trustee, not forgetting the defendants' concession that each trust instrument authorised him to grant security over trust assets; but (b) clauses 3-4 of the "Agreement" do not. 111Turning, first, to clauses 14 and 15 of the "Guarantee": (a)As its introductory words state, clause 14 applies "where the Guarantor [an expression that includes the first defendant] is a trustee". That terminology is not, in terms, limited to a case in which the existence of a trust has been disclosed in the company's Application for a Monthly Credit Account" (on page 1 of the pro forma documentation). (b)A particular object of the documentation, read as a whole, was to secure for the benefit of the plaintiff, as a prospective creditor, the comfort of as much security as reasonably practical in return for the provision of credit. There is no basis for reading down the opening words of clause 14. (c)Clause 14(b) expressly contemplates that this is so in its concluding words. The warranty contained in the sub-clause is predicated on a contractual intention that trust property is bound by the Guarantee. (d)The charge for which clause 15 provides in its introductory lines attaches to "all of [a Guarantor's] interest in real property" and the expression "real property" is defined as including "estates and interest". The language may be inelegant, but the contractual intention apparent in clause 14 is equally apparent, and confirmed, in clause 15. 112Turning, then, to clauses 3 and 4 of the "Agreement": (a)Clause 4 operates to impose on the first defendant an obligation as a principal debtor for the indebtedness of the Company. (b)The words of charge in clause 3 are stated broadly, without express confinement to property in which a signatory to the Agreement has a personal, beneficial estate or interest. The first defendant agreed to charge "all of my... real property", etc, with the expression "real property" again defined as including "estates and interest". (c)However, clause 3 is ambiguous. It could be read as confined in its intendment to charge only property in which a signatory had a beneficial interest or as extending to trust property: Corozo Pty Ltd v Total Australia [1988] 2 Qd R 366 at 371-376; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 51-52. (d)That being so, the contrasting terminology used in clause 3, as compared with clauses 14-15 of the "Guarantee" leads me to conclude that clause 3 was not intended to operate as a charge on the trust assets. 113By entering into the Guarantee, incorporating clauses 14-15, the first defendant agreed to charge in favour of the plaintiff all his real property (including property held by him as a trustee), both present and future, in consideration of the plaintiff's provision of credit to the Applicant company. The fact that consideration moved from the plaintiff in return for the promise to charge future property is sufficient to bind property when acquired by the first defendant: Palette Shoes Pty Ltd (In Liquidation) v Krohn (1937) 58 CLR 1 at 16-17 and 26-27; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 24-25; Murphy v Wright (1992) 5 BPR 11, 734 at 11, 737-11, 739. The defendants did not contend otherwise. Nothing turns on the fact that the first defendant acquired the Balmain land (as trustee for the Serendipity Discretionary Trust) after the date upon which the first defendant, on the findings I have made, entered a contract of guarantee with the plaintiff.
CONCLUSION 114The plaintiff is entitled to relief of the character described in paragraph 58; namely: (a) declarations to the effect that it is entitled to a charge over both the Pyrmont land and the Balmain land; and (b) an order for specific performance by the first defendant of a contractual obligation to execute a mortgage over each parcel of land. That relief might provide for steps to be taken towards registration of the mortgages but, in the case of the Balmain land, it must accommodate the first registered mortgage of St George Bank Limited. 115Given the parties' co-operation in definition of the questions for determination by the Court, I propose to allow them a reasonable opportunity to bring in short minutes of orders to give effect to these Reasons for Judgment. 116I invite submissions as to the costs of the proceedings.
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: 07 November 2013
Crane Distribution Limited
Minnicelli
(1987) 162 CLR 549
(2011) 243 CLR 253
(1982) 149 CLR 337
(1992) 8 WAR 42
(1988) 14 NSWLR 523
(2004) 218 CLR 472
(1963) 109 CLR 9
(1937) 58 CLR 1
(2004) 219 CLR 165
(1988) 164 CLR 387
(1954) 92 CLR 424
(1987) 13 NSWLR 162