Cuzeno RVM Pty Ltd v Overton Investments Pty Ltd

1 By its Further Amended Statement of Claim, the Plaintiff ("Cuzeno") seeks a declaration that it is presently entitled to a discharge of a Mortgage which it gave to the Defendant ("Overton") to secure payments and obligations arising under a Contract whereunder Overton sold to Cuzeno a property comprising a large retirement village. 2 Prior to 29 June 2000 Overton was the registered proprietor of "The Heritage Retirement Village" at Bernard Road, Padstow. The residents of the village occupied their apartments under ninety-nine year leases between Overton as lessor and themselves as lessees. Residents acquiring apartments paid a substantial lump sum to a trustee appointed under a Trust Deed. However, under the leases they were also required to pay to Overton, as lessor and manager of the village, contributions towards the outgoings for the operation and maintenance of the village ("the Outgoings"). 3 From late 1992 or early 1993 onwards Overton and many of the village residents were in dispute over the amount of Outgoings which Overton sought to compel them to pay under their leases. These residents refused to pay all of the amounts to which Overton claimed to be entitled. A multiplicity of legal proceedings ensued: in the Local Court, in the New South Wales Residential Tenancies Tribunal, in the NSW District Court, in the Administrative Law and Equity Divisions of the NSW Supreme Court, in the NSW Court of Appeal, in the Federal Court of Australia including the Full Court and, ultimately, in the High Court. 4 It is not necessary to go into further detail as to the history and outcome of these proceedings. It is sufficient for present purposes to say that by mid-2000, the residents involved in the proceedings had, in very broad terms, been generally unsuccessful and there were judgments, including costs orders, outstanding against them. By mid-2000, unpaid Outgoings, whether or not the subject of judgments or awards, and costs orders in favour of Overton and interest thereon, were said to exceed $3M. 5 By a Contract for Sale dated 14 April 2000, Overton agreed to sell to Cuzeno for the sum of $6.5M the land upon which the village was constructed together with Overton's business as manager of the retirement village and certain assets employed in the carrying on of that business. The Contract provided that $2M of the purchase price would be left outstanding as a loan from Overton to Cuzeno and would be secured by a Mortgage in a form annexed to the Contract. 6 As I have noted, as at that time the amount of unpaid Outgoings, including costs orders and interest, said to be owing by the village residents to Overton exceeded $3M. This amount came to be known as "the Resident Debts". In the Contract for Sale the parties provided mechanisms for the collection and payment of the Resident Debts. 7 The Contract for Sale was completed on 29 June 2000 and on that date Cuzeno executed a Mortgage over the subject land to secure the balance of purchase price of $2M, together with other monies. The form of the Mortgage, as executed, was not in accordance with the form annexed to the Contract for Sale. Cuzeno and its solicitors say that they were not aware of the changes to the form of the Mortgage which had been made by Overton's solicitors after exchange of contracts. That assertion is disputed by Overton and its solicitors. 8 The Mortgage required Cuzeno to pay "the whole of the Mortgage Debt" (as defined) by 29 September 2001. Cuzeno has paid the whole of the amount of $2M left outstanding as the balance of the purchase price under the Contract for Sale and says that it has tendered payment of that part of the Resident Debts which it has collected since the date of completion. However, Overton has refused to discharge the Mortgage unless and until the whole of the Resident Debts, including interest, is paid in full.

9 In broad terms, the questions for determination are:

• whether the Mortgage secures payment by Cuzeno of the whole of the amount defined in the Contract for Sale as the Resident Debts, regardless of whether Cuzeno has received from the residents, in one form or another, any payment in respect of the Resident Debts or whether it secures payment only of such monies as have actually been received by Cuzeno on account of Resident Debts as at the time stipulated in the Mortgage for payment of the Mortgage Debt;

• whether the Mortgage should be rectified by conforming it precisely to the terms which appeared in the form of the Mortgage annexed to the Contract for Sale;

• whether Overton, as mortgagee, is entitled to refuse consent to the surrender of a resident's lease unless Cuzeno, by exercising certain rights under the lease, obtains from that lessee and pays to Overton such sum as Overton might determine that it wishes to receive as that lessee's contribution to outstanding Resident Debts.

10 The Heritage Retirement Village was established pursuant to a Trust Deed dated 31 December 1985. Pursuant to that Deed, Overton was appointed Manager of the Village. Overton, as registered proprietor of the land upon which the Village was constructed, granted ninety-nine year leases to residents in accordance with the provisions of the Trust Deed. 11 The leases require residents to pay a lump sum, called the "Lease Price", to the Trustee in consideration for the acquisition of a lease. Seventy-five percent of the Lease Price is referred to as the "Lease Deposit". The remaining 25% of the Lease Price is referred to as "Total Rent" and can, for most purposes, be regarded as five years' monthly rental paid in advance. The Trustee retains 2.5% of the Lease Deposit but the balance of the Lease Price is lent by the Trustee to Overton, free of interest and unsecured. The loan is repayable, subject to some adjustments, upon termination of the lease. 12 The Trust Deed provides that upon a lessee's death or upon surrender of a lease the lessee or the lessee's estate is entitled to a refund of the Lease Deposit and, if applicable, part of the rent. By Clause 13(3) it is the responsibility of the Manager under the Trust Deed, i.e. Overton prior to 29 June 2000, to make payment of refunds to a lessee who has died or surrendered his or her lease. Clause 13(5) provides for certain adjustments to the Lease Deposit which is to be refunded to the surrendering lessee or his or her estate, but contains a proviso that if a lessee has failed to pay to the Manager the lessee's contributions towards Outgoings as and when they fall due and payable, then the aggregate of such accrued Outgoings (together with any interest due thereon) in arrears at the time of the termination of the lease shall be deducted from the amount of the Lease Deposit which is refundable to the surrendering lessee or his or her estate. 13 By Clause 5 of the lease, the lessor is entitled to levy on the lessee contributions in respect of Outgoings in amounts and at times determined by the lessor. By Clause 5(h) all contributions in respect of Outgoings levied by the lessor are to become due and payable within seven days of receipt of notice of the levy and unpaid contributions of Outgoings may be recovered as a debt due to the lessor in any Court of competent jurisdiction, or "at the lessor's election irrevocably deducted from the Monies Owing or Lease Deposit or Refund" . In other words, the provisions of the lease in this respect mirror the relevant provisions of the Trust Deed which enable the lessor, as Manager, to deduct unpaid Outgoings from a lessee's entitlement to refund upon a surrender of the lease or upon the lessee's death.

14 Although in the Contract for Sale there is no express assignment by Overton to Cuzeno of the Resident Debts owing to Overton at the date of completion, and no part of the consideration payable by Cuzeno is attributable to any interest which it is to acquire in the Resident Debts, Clause 50.1 of the Contract provides: "The purchaser as owner of the Resident Debts upon completion agrees as follows."

This otherwise curious assertion is explained, according to Mr Gleeson SC who appeared with Mr McInerney for Overton, by the fact that Overton's solicitors believed that the effect of s.117 of the Conveyancing Act 1919 would be that upon sale of the reversion in the land to Cuzeno the "rent reserved" by the residents' leases would be automatically vested in Cuzeno and that "rent reserved" included outstanding debts of the residents in respect of contributions to Outgoings. Consequently, it was thought that after completion of the sale only Cuzeno would be entitled to sue the residents to recover Resident Debts then outstanding. Whether or not this is correct in law does not matter because the remaining provisions of Clause 50 of the Contract contain express terms which, although very confusingly drafted, are designed to re-vest in Overton the ownership of, and entitlement to sue for, the Resident Debts. 15 Clause 50 is in the following terms: " 50. RESIDENT DEBTS

50.1 The purchaser as owner of the Resident Debts upon completion agrees as follows.

50.2 The purchaser must pay to the vendor the total amount, if any, received by the purchaser on account of the Resident Debts. Any money received by the purchaser on account of the Resident Debts must be paid to the vendor within 14 days of receipt by the purchaser.

50.3 The purchaser must exercise its rights as landlord on termination or surrender of a Lease to recover any Resident Debt relating to that Lease. Any amount so recovered must be paid to the vendor within 14 days of receipt by the purchaser.

50.4 The purchaser authorises the vendor to take action (including legal action) in the vendor's name for the recovery of the Resident Debts. For this purpose the purchaser acknowledges that the Resident Debts will be due jointly and severally to the purchaser and the vendor by virtue of an automatic transfer immediately after completion assigning to the vendor an interest as tenant in common with the purchaser in the Resident Debts such that either the vendor or the purchaser are entitled to recover the Resident Debts.

50.5 Despite the joint ownership of the Resident Debts, the purchaser agrees that the entire amount recovered in respect of the Resident Debts belongs to the vendor.

50.6 All Resident Debts relating to a Lease or Car Parking Licence will rank and operate at law and in equity ahead of any other debt owed to the purchaser by the tenant or licensee or any guarantor under that Lease or Car Parking Licence. Any money received by the purchaser in exercising its rights as landlord on termination or surrender of a Lease must be applied in the following manner and in the following order of priority. (a) First, towards payment of any Resident Debts relating to that Lease. (b) Second, the balance, if any, to the purchaser.

50.7 The purchaser must comply with any reasonable request of the vendor to assist the vendor in connection wit the collection of any Resident Debts.

50.8 The purchaser must notify the vendor immediately it becomes aware of any of the following events: (a) the death of any tenant under any Lease; (b) the grant of letters of administration in respect of any tenant under any lease; (c) the grant of probate in respect of any tenant under any Lease; or (d) the name, address or contact details of an executor or administrator of the estate of any tenant under any Lease or of that tenant's next of kin.

50.9 The purchaser acknowledges that: (a) as at 20 March 2000 the total of the Resident Debts was $3,061,066.68; (b) before the date of this contract it has inspected the aged trial balance relating to the Resident Debts and that this identifies the amount of Resident Debt owed to the vendor by each tenant under the Leases; (c) the total of the Resident Debts may change between 20 March 2000 and completion.

50.10 The parties agree that the amount of Resident Debts on completion will be determined by the vendor in accordance with the Leases and any court orders or judgments and will be delivered to the purchaser on completion. The amount so determine [sic] will constitute the Resident Debts for the purpose of this contract subject always to the accrual of interest on the Resident Debts to the actual date of repayment.

50.11 The purchaser may not raise any objection, requisition, question or claim for compensation, delay completion or rescind this contract in respect of any matter disclosed in or contemplated by this clause.

50.12 If the purchaser enters into a contract for sale of all or any part of the property, that contract must provide that: (a) the provisions of this clause apply mutatis mutandis to the purchaser under that contract; and (b) the purchaser under that contract must enters [sic] into a Deed with Overton Investments Pty Limited under which it agrees to assume all of the rights and obligations of the purchaser contained in this clause.

50.13 This clause does not merge on completion." 16 "Resident Debts" is defined to mean: "(a) any court order debts or judgment debts awarded in favour of the vendor against any tenants or any guarantors under the [sic] any of the Leases (including any orders for costs or amounts determined after completion to be paid by way of costs which have not been invoiced to the tenants pursuant to the terms of the Leases) plus any interest accrued on any of them pursuant to the Leases and the Trust Deed to the actual date of repayment;

(b) any unpaid Outgoings or other amounts owing to the vendor as landlord under any of the Leases or as Manager under the Trust Deed up to the actual date of completion and any interest accrued on such amounts pursuant to the Leases and the Trust Deed up to the date of repayment; and

(c) any money owing to the vendor by a licensee under any of the Car Parking Licences to the actual date of completion and any interest on such amounts up to the date of repayment;

and the term "Resident Debts" includes all or any part of the Resident Debts;" 17 Clause 52.3 provides that Cuzeno is to be solely responsible for the payment of any Refund and any Lease Deposit or any other money payable to any lessee under any of the Leases or on termination or surrender of any of the Leases. 18 Clause 66 provides that $2M of the purchase price is to be left outstanding as a loan by Overton to Cuzeno, secured by a first mortgage over the property. The mortgage is required to be in the form attached to the Contract as Annexure "L". A Guarantee by Cuzeno's directors is also required to be given in a form annexed.

19 The particular provisions of the Mortgage as executed by the parties are set out in Annexure "A" to a Land Titles Office RPA form; the general provisions are set out in Memorandum No.I264748 filed in the Land Titles Office and incorporated in the Mortgage by reference ("Memorandum I"). Clause 1 of Annexure "A" provides that "if there is any conflict between the provisions of this Mortgage and the Memorandum, the provisions of this Mortgage prevail" . 20 The remaining substantive clauses of Annexure "A" require close consideration and should be set out in full. They are as follows: "3 Principal payment The Mortgagor must pay the Mortgagee the outstanding Principal Sum, and the balance, if any, of the Mortgage Debt on the date specified in Item 3. [The date specified in Item 3 is, in effect, 29 September 2001.]

4 Payment of interest Without prejudice to the Mortgagor's obligation to pay the whole of the Mortgage Debt on the date specified in Item 3, the Mortgagor must pay interest on the amount outstanding under this Mortgage on daily balances at 10.5% per annum, computed from the date in Item 4 payable on the last day of each calendar month.

5 Early Repayment The Mortgagor may repay this Debt at any time without penalty upon payment to the Mortgagee of the Principal Sum, any other moneys payable under this Mortgage and interest (if any is payable) to the date of repayment only.

6 What does this Mortgage secure? This Mortgage secures payment to the Mortgagee of the Principal Sum, any money owing to the Mortgagee by the Mortgagor under the Collateral Documents, and all other money payable under this Mortgage on any account whatever."

"Collateral Documents" are defined as meaning the Contract for Sale and a Guarantee. 21 The relevant terms of Memorandum I are as follows.

"Mortgage Debt" is defined as meaning: "… all money actually or contingently payable by the Mortgagor to the Mortgagee under the Mortgage, any Collateral Documents, or clause 1.1 of this memorandum, and includes any part of that money.

Clause 1.1 provides: "ALL DEBTS The Mortgagor on demand must pay to the Mortgagee the money described in this clause. The Mortgage secures payment of all money which the Debtors whether directly, indirectly, contingently, or otherwise are or become liable at any time either alone, jointly, or severally to pay to … the Mortgagee …"

Clause 1.8(a) prohibits the Mortgagor from accepting the surrender of any lease without the Mortgagee's prior written consent. Clause 1.25 requires the Mortgagor to comply with its obligations under the Collateral Documents and provides that default under a Collateral Document is default under the Mortgage. Clause 3.4 provides that a certificate signed by the Mortgagee "as to an amount payable to the Mortgagee in connection with the Mortgage is conclusive and binding on the Mortgagor as to the amount stated in it or anything else."

22 On 26 and 27 March 2001 Cuzeno informed Overton that it wished to discharge the Mortgage pursuant to its entitlement to make early repayment under Clause 5 of Annexure "A" to the Mortgage. For that purpose, Cuzeno requested Overton to advise the pay-out figure. On 27 March 2001 Overton's solicitors responded, saying that the "Mortgage Debt" as defined included, inter alia, the Resident Debts as defined in the Contract for Sale. However, they did not advise the amount of the pay-out figure. 23 By letter dated 4 June 2001 Cuzeno's solicitors denied that the Resident Debts were secured by the Mortgage. They asserted that the Mortgage secured the Principal Sum (i.e. the balance of $2M of the purchase price), interest on the Principal Sum and "any part of the Resident Debt actually received by our client" . Cuzeno offered to pay those amounts and required a discharge of the Mortgage in return. 24 By letter dated 6 June 2001 Overton's solicitors repeated that the Mortgage secured the whole of the Resident Debts, regardless of whether or not any part had been received by Overton and asserted, further, that Cuzeno was in breach of a number of its obligations under the Mortgage. By letter dated 6 July 2001, Cuzeno's solicitors advised Overton's solicitors that Cuzeno intended to commence proceedings in the Supreme Court in order to determine the dispute between the parties. 25 On 27 September 2001, Cuzeno's solicitors wrote to Overton's solicitors noting that repayment under the Mortgage was due on 29 September 2001, advising that Cuzeno was ready, willing and able to pay the balance of the Principal Sum, noting that $1.5M had already been paid by Cuzeno to Overton in reduction of the sum secured under the Mortgage and requesting a calculation of the final pay-out figure in time for settlement of the discharge of the Mortgage on the following day. 26 On the same day Cuzeno's solicitor, Mr Shehadie, attended at the offices of Overton's solicitors and tendered a bank cheque in favour of Overton for $631,884.13 and a cheque for costs in favour of Overton's solicitors in the sum of $285. The tender was not accepted. 27 Also on 27 September Overton's solicitors sent to Cuzeno a document purporting to be a certificate pursuant to Clause 3.4 of Memorandum I to the Mortgage stating that "the amount payable to discharge the Mortgage on 29 September 2001 is $6,030,649.70" .

28 In accordance with Clause 50.10 of the Contract, Overton's solicitors advised that the amount of Resident Debts as at the date of settlement, 29 June 2000, was $3,568,198.72. However, they said that this amount "does not contain any component of interest payable or chargeable under the Leases or the Trust Deed or by Court Order before or after completion" . The purported certificate given by Overton under Clause 3.4 of Memorandum I as at 29 September 2001 stating Resident Debts at $6,030,649.70 gives no explanation as to how that figure was calculated. 29 A director of Overton, Mr James, states in his affidavit of 1 November 2001 (paras. 79-85) that "[t]he Resident Debt, as at 29 September 2001 is $4,730,126.67, to which must be added the costs of litigation between Overton and the Residents and the claims for damages that Overton has against the Residents. These amounts have not been quantified" . 30 Mr James does not explain how the figure of $6,030,649.70 appearing in the purported certificate under Clause 3.4 was calculated, nor does he explain what is the relationship, if any, between that figure and the calculations to which he refers in his affidavit. 31 However, it appears clear from Mr James' affidavit that the figure of $4,730,126.67 for Resident Debts as at 29 September 2001 is far from a precise calculation; indeed, it involves a substantial degree of estimation, if not outright guesswork. Further, it is clear that if Overton's construction of the Mortgage is correct, so that "Mortgage Debt" includes the whole amount of the Resident Debts as defined in the Contract, whether or not any part of it is received by Cuzeno, then it would be utterly impossible for anyone ever to have produced a figure which could even pretend to be a calculation as at 29 September 2001 of the amount of that Mortgage Debt together with interest thereon, which Cuzeno could pay so as to entitle itself to a discharge. This is so for the following reasons. 32 First, the figure of $4,730,126.67 itself includes "a component [unspecified in amount] of cost assessment payable in relation to cost order [sic] in Equity Division Proceedings 1181 of 1997, which amount was outstanding as at 29 June 2000" : affidavit of Mr James, 1 November 2000, para 82(a). Exhibit "JEJ25" to the affidavit shows that the costs have not yet been assessed, although a bill of costs has been filed. 33 Second, Mr James states that "[i]nterest on the Resident Debt from 29 June 2000 is added to the Resident Debt pursuant to clause 5(h) and clause 17(b) of the Lease. The interest figure as at 29 September 2001 is $1,134,018.49" : affidavit para 82(b). No explanation is given in the affidavit as to how the interest has been calculated. Exhibit "JEJ30" to Mr James' affidavit merely shows columns of figures which do not really assist in enabling one to understand exactly what has been done. In particular it is not clear whether interest has been calculated upon some, and if so what, figure estimated as costs of proceedings number 1181 of 1997 said to be outstanding as at 29 June 2000. Further, Exhibit "JEJ30" shows an opening balance of Resident Debts as at 29 June 2000 of $3,462,963.09. This is to be contrasted with the figure of $3,568,198.72 which Overton's solicitors, by letter dated 29 June 2000, stated as the amount of Resident Debts at that date. I note that the latter figure is stated not to include any component of interest, but it does not appear whether or not the former figure includes interest. An attempted explanation of the difference between the figures given by Mr James in his affidavit does not quantify any of the adjustments which he makes so that it is impossible to verify any of his calculations. 34 Third, included in the Resident Debts, according to Mr James, is an amount in respect of costs orders made in favour of Overton in litigation between it and the residents of the village. Mr James estimates that amount at $921,820: affidavit para 82(c). Exhibit "JEJ25" shows that of the seven sets of proceedings referred to, costs have apparently been awarded in only two, amounting to a total of $15,700. Mr James does not state the qualifications which enable him to estimate the amount of costs which will be allowed on assessment in final taxation so as to arrive at his total estimate for such assessed costs of $921,820. 35 Fourth, it is obvious that much of the current litigation between Overton and the residents of the village is far from over. Further substantial costs, including costs of appeals, are certain to be incurred. Whether Overton will retain the benefit of all costs orders so far made in its favour remains to be seen. 36 Fifth, Mr James adds to Resident Debts damages to which Overton has been held entitled in proceedings 1181 of 1997 by reason of the residents having obtained an interim injunction against Overton which was later dissolved. The enquiry as to damages has been referred to a Master in the Equity Division, but the proceedings have not yet been given a date for hearing. Mr James estimates that the amount of the damages which Overton would recover is between $600,000 and $700,000, but he gives no particulars of the damage suffered by Overton or of the basis upon which he has made his calculation: affidavit para 85(a). What damages may be assessed and whether that amount will survive appeal remain to be seen. 37 Sixth, Mr James says that there must be added to the Resident Debts "litigation costs and other orders which may be made against the residents in the District Court Proceedings, the Federal Court Proceedings, and the High Court Proceedings" : affidavit para 85(b). He gives no estimate of those "costs and other orders" . In view of the likely continuation of proceedings in all those Courts for a considerable time to come, including appeals therefrom, it would be completely impossible for anyone to give a meaningful estimate. 38 Seventh, Mr James adds to Resident Debts interest under s.95 of the Supreme Court Act 1970 (NSW) which Overton seeks to recover in proceedings 13313 of 2001 against the residents who were parties to proceedings 1181 of 1997: affidavit para 85(c). These separate proceedings seek interest on the costs orders made in proceedings 1181 of 1997. As the costs to which Overton is entitled in the latter proceedings have not yet been assessed it is impossible to quantify the amount of interest which Overton would recover if these proceedings are successful. Mr James, however, estimates the interest to be in the order of $53,000, although he gives no particulars as to how he arrives at this assessment. 39 Eighth, Mr James says that there must be added to Resident Debts "litigation costs and other orders which may be made against the residents in the Residential Tribunal Proceedings" : affidavit, para 85(d). He gives no details of the proceedings nor any estimate of these costs.

40 Overton says that Cuzeno is not entitled to a discharge of the Mortgage until all of the following have occurred:

• Overton has received all sums which can now, and in the unlimited future, fall within the definition of Resident Debts;

• Cuzeno has paid to Overton all amounts for which Cuzeno may be liable if Overton can establish that Cuzeno has breached any covenant in the Mortgage;

• Cuzeno has paid to Overton all amounts for which Cuzeno may become liable if it breaches any covenant in the Mortgage at any time in the future until the whole of the Resident Debts is paid; and

• Cuzeno has fully performed all of its obligations under Clauses 50.2, 50.3 and 50.7 of the Contract for Sale relating to collection and payment to Overton of Resident Debts. 41 In support of this contention, Overton relies upon Clause 6 of Annexure "A" to the Mortgage, which secures "any money owing under the Collateral Documents" . The Collateral Documents include the Contract for Sale and the Guarantee. Money owing under the Contract for Sale, says Overton, includes money already collected by Cuzeno from lessees on account of Resident Debts up to 29 June 2001. It also includes money which Overton alleges Cuzeno should have collected from residents by 29 June 2001, but failed to collect. Further, and most importantly, it includes money which will become owing by Cuzeno to Overton if and when other lessees come to surrender their leases in the future, and if and when Cuzeno complies with its obligation under Clause 50.3 to deduct amounts on account of Resident Debts from refunds due to those lessees under the Trust Deed and their leases. 42 Overton also relies upon the words in Clause 6: "Money payable under this Mortgage on any account whatever" . Those words, says Overton, pick up the definition of "Mortgage Debt" in Memorandum I so that the Mortgage secures not only payments which at any particular time are identifiable and quantifiable as owing by Cuzeno to Overton, but also all monies which Cuzeno "contingently (is) or become(s) liable at any time" to pay to Overton. All that component of the Resident Debts which cannot be quantified either as at 29 June 2001 or now, but which has been identified by Mr James as being necessary to add to Resident Debts, is money for which Cuzeno is, or may become, contingently liable. Certainly, says Overton, quite apart from anything else, money which Cuzeno is contingently liable to pay to it includes money which Cuzeno must deduct from refunds which will become due to lessees who die or surrender their leases. As the leases are for periods of ninety-nine years, it is certain that, whether by death or surrender, refunds to lessees or their estates will become due and Cuzeno's obligation under Clause 50.3 of the Contract for Sale to collect Resident Debts from those refunds will crystallise. 43 Overton concedes that if its construction of "Mortgage Debt" is correct the words of Clauses 3, 4 and 5 of Annexure "A" to the Mortgage cannot be given literal effect: the whole of the Mortgage Debt cannot be paid on 29 September 2001 or at any earlier time. Accordingly, says Overton, one must qualify those clauses in the following way. 44 In Clause 3, the obligation to pay "the balance, if any, of the Mortgage Debt on the date specified" must be read as an obligation to pay " such part of the balance, if any, of the Mortgage Debt as Cuzeno has received or for which was obliged to account on the date specified". In Clause 4, the obligation "to pay the whole of the Mortgage Debt on the date specified" must be read as an obligation to pay " such part of the whole of the Mortgage Debt as Cuzeno has received, or for which Cuzeno was liable to account on the date specified". 45 Similarly, in Clause 5 the entitlement to early repayment must be read as an entitlement to pay " such part of any other monies payable under this Mortgage as Cuzeno has received or for which Cuzeno was liable to account ". An alternative submission is that if Cuzeno wants to avail itself of a right to early repayment and, as well, to obtain a discharge of the Mortgage then it may choose to pay out the Principal Sum together with the whole of the Resident Debts in such amount as Overton certifies under Clause 3.4 of Memorandum I. For example, if Cuzeno had wished to pay out the whole of the Mortgage Debt on 29 September 2001 it could have done so upon payment of the Principal Sum plus the amount certified by Overton as being the Resident Debts as at that date, $6,030,649.70.

46 The difference between the respective contentions of Overton and Cuzeno is this: while they agree that as at 29 September 2001 the Mortgage secured, in addition to the Principal Sum and interest thereon, that part of the Resident Debts which Cuzeno had by then actually received, Cuzeno says that that is the whole of the Mortgage Debt secured by the Mortgage, so that payment of that amount entitles it to a discharge, whereas Overton says that that amount is only part of the Mortgage Debt. Overton says that if that part of the Mortgage Debt is not paid on 29 September 2001 then Cuzeno is in breach of the Mortgage so that Overton may exercise its power of sale. But prompt payment of only part of the Mortgage Debt on 29 September 2001 cannot entitle Cuzeno to a discharge of the Mortgage. 47 I am not able to accept Overton's contention that the Mortgage secures all monies falling within the definition of Resident Debts, whether or not those monies have been received by Cuzeno as at 29 June 2001. In my opinion, on its true construction the Mortgage secures, in addition to the Principal Sum and interest thereon:

• that part of the Resident Debts which Cuzeno has actually received in accordance with Clauses 50.2 and 50.3 of the Contract for Sale but has not yet paid to Overton by the due date for payment of the Mortgage, i.e. 29 September 2001;

• interest on such amounts of Resident Debts received by Cuzeno in accordance with Clauses 50.2 and 50.3 of the Contract for Sale, at the rate specified in Clause 4 of Annexure "A" to the Mortgage calculated from the time of receipt until the time of payment to Overton;

• that part of Resident Debts, if any, which Cuzeno has, prior to 29 September 2001, failed to collect upon termination or surrender of a lease, in breach of Clause 50.3 of the Contract for Sale;

• interest on any amount referred to in the foregoing sub-paragraph.

My reasons for this construction are as follows. 48 First, effect must be given to the clear words of Clauses 3 and 4 of Annexure "A" to the Mortgage, which state that "the balance of the Mortgage Debt" and "the whole of the Mortgage Debt" must be paid on 29 September 2001. In order that Cuzeno may comply with this obligation and avoid default under the Mortgage, the whole of the Mortgage Debt must be quantifiable as at 29 September 2001. On the construction which I adopt, that calculation is straightforward. On the construction which Overton advances, it is impossible - Cuzeno simply cannot comply with its obligations to pay the whole of the Mortgage Debt on the due date. 49 Second, effect must be given to Clause 5 of Annexure "A", which gives Cuzeno a right to repay "this Debt" (which I take to mean "the Mortgage Debt") at any time by payment of "any other moneys payable under this Mortgage" . On the construction which I adopt, this right of early repayment is readily exercisable by Cuzeno because the calculation of Resident Debts "payable" by Cuzeno is made simply by substituting the date of early repayment for 29 September 2001 and ascertaining what amount of Resident Debts has been collected, or ought to have been collected by Cuzeno by that date. On the construction which Overton advances, this calculation is impossible, so that the right of early repayment conferred by Clause 5 is illusory. 50 The alternative submission put by Overton, i.e. that Cuzeno may obtain a discharge by paying the whole of whatever Overton certifies to be the amount of outstanding Resident Debts produces a result which is, commercially, a little unusual. To obtain early discharge Cuzeno would have to pay whatever Overton says the amount of outstanding Resident Debts is, although that amount must necessarily be arrived at by a great deal of guesswork, incapable of checking or verification. Neither the Contract for Sale nor the Mortgage provides that if the whole of outstanding Resident Debts is paid by Cuzeno to Overton, Cuzeno is to receive an assignment from Overton of that part of the Resident Debts which is still due from residents to Overton. Payment of outstanding Resident Debts by Cuzeno is not made for and on behalf of residents, at their request. Accordingly, payment of all outstanding Resident Debts by Cuzeno would not discharge the liabilities of the residents to Overton. Overton would be entitled to pocket the whole amount of outstanding Resident Debts received from Cuzeno and to continue to recover those same amounts from residents. The residents could not plead payment by Cuzeno in bar. I have not been able to persuade myself that this right of double recovery on the part of Overton was really what the parties intended by Clause 5. 51 Third, in order to support its construction of the Mortgage, Overton must rely upon the implication of words of qualification in Clauses 3, 4 and 5 of Annexure "A", as I have observed in paragraphs 43-45. It is not permissible to imply words in a contract which contradict the express words of the contract: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, at 26; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, at 346-5, 404. Clauses 3 and 4 of Annexure "A" require the " whole of the Mortgage Debt" to be paid by 29 September 2001. "Whole" means "whole": to imply words having the effect of making "whole" mean "part" is simply to contradict the express words of the Mortgage. 52 Fourth, effect must be given to the words of Clause 6 of Annexure "A" to the Mortgage, which states that the Mortgage secures "monies owing to [Overton] by [Cuzeno] under [the Contract for Sale] " . "Owing" must mean "owing by Cuzeno as at the date for payment under Clauses 3 and 4 of Annexure "A" of the whole of the Mortgage Debt, i.e. 29 September 2001". Despite the obtuse wording of Clause 50 of the Contract for Sale, it seems tolerably clear that Cuzeno never assumes liability under the Contract for Sale to Overton for the whole of the Resident Debts, whether or not any part is received by Cuzeno. The Resident Debts remain liabilities of the residents and are "owing" by the residents to Overton; the only part of Resident Debts which ever becomes "owing" by Cuzeno to Overton under the Contract for Sale is such part of the Resident Debts which Cuzeno itself receives pursuant to Clauses 50.2 and 50.3. Accordingly, the only part of Resident Debts which can be "owing" by Cuzeno to Overton as at the date for payment of the whole of the Mortgage Debt, i.e. 29 September 2001, is that part which it has received but has not yet paid on to Overton or which it has failed to collect under Clause 50.3 by that time. 53 Fifth, effect must be given to the words of Clause 6 of Annexure "A", which secure all other monies "payable under this Mortgage" . "Payable", like "owing", must mean "payable by Cuzeno as at the date for payment of the whole of the Mortgage Debt under Clauses 3 and 4". For the reasons given above, the only part of the Resident Debts which is "payable" by Cuzeno as at 29 September 2001 is that part which it has received but not yet paid on to Overton or has failed to collect by that time in breach of its obligations under Clause 50.3 of the Contract for Sale. 54 Sixth, in so far as there is any conflict between the provisions of Annexure "A" of the Mortgage and the provisions of Memorandum I, the provisions of Annexure "A" prevail: Clause 1 Annexure "A". The definitions of "Mortgage Debt" in Memorandum I include contingent liabilities which, according to Mr James' evidence, make it impossible to quantify "the whole of the Mortgage Debt" which Cuzeno must pay as at 29 September 2001. The definitions of "Mortgage Debt" in Memorandum I are therefore in conflict with the clear and express provisions of Clauses 3, 4, 5 and 6 of Annexure "A" and must give way to those clauses. 55 Finally, while the words of the "all monies" definition of "Mortgage Debt" in Memorandum I, read in isolation from the circumstances in which the Mortgage was executed, are wide enough to produce the result for which Overton contends, it is axiomatic that an "all monies clause" such as is in the standard printed conditions in Memorandum I must be construed by reference to the context of the transaction in which the clause appears and by reference to the commercial purpose of the transaction which the clause is intended to serve: Fountain v Bank of America National Trust & Savings Association (NSWCA 23 October 1992, per Gleeson CJ at 6, 7); Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146 at 13,151 per Young J; Smith v ANZ Banking Group Ltd (NSWCA, 5 February 1996, per Kirby P). 56 The context of the mortgage transaction is to be found in the Contract for Sale. Overton is to leave $2M of the purchase price outstanding as a loan to Cuzeno, secured by a first registered mortgage over the land, as expressly provided in Clause 66.1. The Mortgage is to be in the form of Annexure "L", as provided by Clause 66.2. The only reference to a mortgage in the Contract is in Clause 66, which is concerned solely with "Vendor Finance". 57 It is significant that Clause 50 does not expressly require the obligations of Cuzeno to pay money received from residents to be secured by the Mortgage which is to be entered into pursuant to Clause 66.1. It is also significant that while Clause 50.12 requires Cuzeno to procure that a purchaser of the land from it will covenant with Overton to assume all of Cuzeno's obligations under Clause 50, the new purchaser is not to be required to execute a mortgage over the land to secure performance of those obligations. In other words, while the personal covenants of Cuzeno under Clause 50 are to run with the land so long as Resident Debts are outstanding, the Contract for Sale does not require that any mortgage security to ensure performance of those covenants is to run with the land. 58 The purpose which the "all monies" clause in Memorandum I is intended to serve is to give effect to the particular terms of the Mortgage upon which the parties have agreed in Annexure "A". As I have said earlier, the express provisions of Clauses 3 and 4 require payment of the whole of the Mortgage Debt by 29 September 2001. The "all monies" clause in the Memorandum must be construed in a way which effects that purpose, not in a way which negates it. If one construes the references in the definition of "Mortgage Debt" to contingent liabilities as being references only to such liabilities which are contingent as at the date of execution of the Mortgage but which have crystallised into actual liabilities as at the date for payment specified in Annexure "A", then the purpose of Clauses 3 and 4, as well as the right of early repayment conferred by Clause 5, is effectuated. On the other hand, if one construes the references to contingent liabilities as including liabilities which are still contingent as at the stipulated date for payment, then the purposes of Clauses 3, 4 and 5 of Annexure "A" are defeated. 59 Accordingly, I am of the view that the context of the mortgage transaction and the purpose which the "all monies" clause in Memorandum I is designed to serve indicate that the "all monies" clause cannot be construed as securing payment by Cuzeno of contingent liabilities which have not crystallised by 29 September 2001. 60 For these reasons I uphold the construction of the Mortgage advanced by Cuzeno.

61 Cuzeno seeks rectification of the Mortgage by deleting therefrom Memorandum I and substituting the Memorandum which was originally incorporated in Annexure "L" to the Contract for Sale ("Memorandum U"). Memorandum U contains a definition of what is secured by the Mortgage which is not significantly different from the definition of Mortgage Debt in Memorandum I. 62 It is unnecessary for me to decide whether the Mortgage should be rectified as sought because I have upheld Cuzeno's construction of the Mortgage as executed. Nevertheless, for the sake of completeness, I should say that the claim for rectification fails. The evidence is clear that while Cuzeno and its solicitors did not appreciate that Overton's solicitors had substituted Memorandum I for Memorandum U in the execution copies of the Mortgage documents, the substitution by Overton's solicitors was deliberate and intentional. There was no common mistake by the parties in the manner in which they expressed the terms of their agreement.

Whether Cuzeno is entitled to an immediate discharge

63 Cuzeno has paid to Overton the whole of the Principal Sum and interest and says that it has paid or tendered all of the amounts which it has received on account of Resident Debts. Cuzeno asserts that it has, for some time past, been entitled to a discharge of the Mortgage. It claims damages for Overton's wrongful refusal to discharge the Mortgage. 64 Overton says that, even if Cuzeno's construction of what was secured by the Mortgage is correct, Cuzeno was not entitled to a discharge of the Mortgage on 29 September 2001 or earlier because Cuzeno had committed numerous breaches of the Mortgage covenants entitling Overton to damages, payment of which is also secured under the Mortgage. The alleged breaches of covenant are summarised in paragraphs 88 and 89 of Mr James' affidavit of 1 November 2001, and in paragraphs 8 and 9 of his affidavit of 8 February 2002. This evidence is in the form of general allegations and it is disputed by Cuzeno. 65 The parties did not contest these issues before me and made no submissions concerning them. I gather that whether or not the issues need to be resolved may depend largely on the outcome of the contest as to the correct construction of the Mortgage. 66 In paragraph 47 I have set out my conclusions as to what the Mortgage secures and what Cuzeno has to pay to obtain a discharge. If, after consideration of these reasons the parties are still in dispute as to whether or not Cuzeno has ever been entitled to a discharge and as to the consequences if it was so entitled, then I will give directions for the trial of that dispute when the matter is brought back for the settling of Short Minutes of Order. I have in mind a Reference under Part 72 of the Supreme Court Rules .

The content of Cuzeno's obligations under Clause 50

67 The last issue between the parties is whether Overton is, or was at any material time, entitled to refuse its consent under Clause 1.8(a) of Memorandum I to the surrender of a lease unless Cuzeno, by exercising its rights under Clause 13(5) of the Trust Deed and Clause 5(h) of the Lease, deducts from the amount refundable to the lessee such amount as Overton determines that it wishes to receive as the lessee's contribution to Resident Debts. 68 It may well be that this issue will be of little further significance to the parties because the Mortgage may well be discharged very shortly and Overton's right as mortgagee to refuse consent to a surrender of the lease will come to an end. But the answer to the question may have a bearing on whether Cuzeno has committed breaches of any Mortgage covenants prior to 29 September 2001. Further, even after the Mortgage is discharged Cuzeno's obligations under Clauses 50.3 and 50.7 of the Contract for Sale will continue so that it is important for the parties to know what is the content of Cuzeno's obligations under Clause 50. 69 The evidence shows that Overton has refused its consent to surrenders of leases unless Cuzeno deducts from refunds due to lessees under the Trust Deed and the leases various sums stated by Overton to be the contributions which it requires from the surrendering lessees towards Resident Debts. A particular instance of such a refusal is the surrender of the lease for Unit 44A, the lessees of which are the executors of the estate of the late Mrs Renaud. The executors entered into a contract to "sell" the unit, which in reality involves the surrender of the existing lease, the granting of a new lease to the "purchaser", and the return to the executors of the refund due under the Trust Deed and the lease. The consent of Overton was sought to the surrender. 70 By letter dated 12 October 2001 Overton sought, as a condition of its consent, payment of $85,858.62 being as to $35,858.62 "the balance of contributions to Outgoings … excluding damages and costs orders" . The remaining $50,000 was said by Overton's solicitors to be the amount which Overton had determined was the late Mrs Renaud's "share" of a total amount of $793,000 which the estate was "either actually and contingently, solely or jointly and severally liable for in relation to the litigation with [Overton] ignoring continuing interest accruing on these amounts" . This liability of the estate was said to be part of the Resident Debts secured under the Mortgage. 71 It is clear that the sum of $50,000 required by Overton as a condition of its consent to the surrender of the lease is not, and does not pretend to be, a calculation of a precisely ascertainable sum owing by Mrs Renaud's estate, determined in accordance with the provisions of the Trust Deed and the lease. It is nothing more than a figure arbitrarily chosen by Overton as the amount which it wants to receive as a condition of its consent to the surrender of the lease. 72 Mr Gleeson SC says, quite rightly, that there is nothing wrong with that: a mortgagee cannot be compelled to consent to a lease or to a surrender or assignment of a lease of mortgaged property and is free to impose any condition it likes upon its consent to the dealing, so long as the condition does not amount to a clog on the equity of redemption: Thanes Pty Ltd v Custom Credit Corporation Ltd (1985) 5 BPR 11,955 per Young J. 73 Accordingly, it is not to the point to say, as Cuzeno does, that the Trust Deed and the lease do not entitle Cuzeno to deduct Resident Debts, as defined by the Contract for Sale, from a lessee's entitlement to a refund on surrender or termination of a lease. The point is that Overton is free to require payment of whatever amount it likes as the condition upon which it will consent to a surrender. Cuzeno has not submitted that the exaction of such a payment as a condition of consent to a surrender is a clog on its equity of redemption and I do not see how the imposition of such a condition could have that character. 74 Of course, Overton's power to refuse consent to a surrender of a lease subsists only as long as the Mortgage is not discharged. After discharge, however, Cuzeno remains bound by the covenants contained in Clauses 50.2, 50.3 and 50.7 of the Contract for Sale. Do those covenants oblige it to deduct from refunds to lessees who surrender or terminate their leases whatever amount Overton states it wants as a contribution to outstanding Resident Debts? 75 In my opinion, the answer is no. The critical clause is Clause 50.3, which provides that Cuzeno "must exercise its rights as landlord on termination or surrender of a lease to recover any Resident Debt relating to that lease" . Whatever "rights as landlord" Cuzeno has against a lessee on surrender or termination are defined by the Trust Deed and the lease, not by the terms of the Contract for Sale to which the lessees are, of course, strangers. 76 Accordingly, Clause 50.3 can be construed only as requiring Cuzeno to exercise whatever rights of deduction it in fact has under Clause 13(5) of the Trust Deed and Clause 5(h) of the lease. Under those clauses Cuzeno, as lessor, can deduct only overdue contributions to "Outgoings" as defined in the Trust Deed and in the lease. The definition of "Outgoings" in Clause 5(c) of the lease is by no means co-extensive with the definition of Resident Debts in the Contract for Sale. Further, the amount of "Outgoings", and whether they have been validly levied by Overton, seems not yet finally determined by the litigation between Overton and the lessees. 77 Accordingly, in my opinion, Cuzeno cannot be required by Overton under Clause 50.3 of the Contract for Sale to deduct any amount from refunds due to lessees unless that amount is either agreed as between Cuzeno and the relevant lessee, or else is finally determined by a Court. 78 Clause 50 does not require Cuzeno itself to prosecute proceedings for the determination and recovery of any amounts forming part of the Resident Debts; indeed, Clause 50.4 entitles Overton to commence and prosecute those proceedings. 79 I do not think that the obligation of Cuzeno under Clause 50.7 to "comply with any reasonable request of [Overton] to assist [Overton] in connection with the collection of any Resident Debts" requires Cuzeno, if requested by Overton, to deduct from refunds due to lessees under the Trust Deed and the leases amounts which exceed the deductions which are authorised under the Trust Deed and the leases. Nor do I think that that clause obliges Cuzeno to engage itself in litigation with the lessees, at Cuzeno's expense, to recover Resident Debts for the sole benefit of Overton. 80 In the result, before Overton can insist on Cuzeno complying with its obligations under Clause 50.3 in the case of any particular surrender of a lease, Overton will have to establish, by agreement with the lessee or by litigation, what is the amount which Cuzeno is entitled to deduct under the terms of the Trust Deed and the lease.

81 Cuzeno is entitled to a declaration to the effect of Prayer 1C of the Further Amended Statement of Claim, subject to the modifications appearing in these reasons. 82 The claim for rectification of the Mortgage fails. 83 If necessary, I will give directions for the trial of such issues as remain between the parties in order to determine whether, and if so when, Cuzeno was entitled to a discharge of the Mortgage, whether Cuzeno is entitled to damages for Overton's wrongful refusal to discharge the Mortgage, and as to the amount of such damages, if any. 84 I will stand the matter over for a short time to enable the parties to bring in Short Minutes of Order to reflect these reasons. I will then hear argument as to costs. - oOo -

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