Evans Deakin & Co Pty Ltd v Kiaiser Engineers and Constructors Inc [1968] Qd R 378

Evans v Bartlam (HL) (1937) 2 All ER 646

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Harper v Gray & Walker (A firm) & Ors [1985] 1 WLR 1196

L'Estrange v F Graucob Ltd [1934] 2 KB 394

Pitman v Crum Ewing (1911) AC 217

R A Lister & Co Shipping & Ors v E G Thomson (Shipping) Ltd & Anor (No 2) [1987] 1 WLR 1614

St Andrews Property Holdings Pty Ltd v Harfouche, unreported; SCt of WA; Library No 7926; 8 November 1989

Stott v West Yorkshire Road Car Co Ltd (1971) 3 All ER 534

Symon & Co v Palmer Stores (1903) Ltd [1912] 1 KB 259

The State of Western Australia v Rothmans of Pall Mall (Aust) Ltd [2001] WASCA 25

1 MASTER SANDERSON: This is the return of two applications by parties designated the cross-claimant and the cross-defendant in which each seeks summary judgment against the other. The applications arise in a slightly unusual way and the approach adopted with the consent of all parties is slightly unusual. The aim has been to determine what is a significant issue between the parties without the need for a full trial. Earlier in these proceedings the plaintiff applied for summary judgment against the first and second defendants. It was successful as against the first defendant: see First Industry Corp v Goh & Anor [2002] WASC 143. This decision provides useful background as to the dispute between the plaintiffs and the defendants. I will not repeat the facts set out in these earlier reasons.

2 It is convenient to approach this matter by looking at the statement of claim of the cross-claimant and the defence of the cross-defendant. The statement of claim of the cross-claimant is dated 1 August 2003. By par 1 of the statement of claim the cross-plaintiff is identified. Paragraphs 2 through to 5 deal with what has commonly been referred to as "the first agreement". It is pleaded that was entered into on 10 April 2001 with the plaintiff as lender and the first defendant as borrower and debtor. The second defendant was the guarantor of the obligations of the first defendant. The amount borrowed was US$329,000 and that sum, together with interest, was repayable on 31 December 2001. The first agreement also dealt with 681,818 shares in Sanford Ltd which, it is said, were to be security for the loan and which were to be registered in the name of the first defendant or the first third party. It is these shares that are the subject of the present dispute. Clause 2.2 of the first agreement is relevant to the present dispute. However, before dealing specifically with that clause, it is as well to deal with what is defined in the statement of claim as "the second agreement". The two agreements stand together.

3 The second agreement is also said to have been executed on 10 April 2001 and once again the plaintiff was the lender and the first defendant was the borrower and debtor, and the second defendant was guarantor. The second agreement acknowledged that the first defendant had borrowed from the plaintiff an amount of $US63,500 and that interest had accrued on that sum. The first defendant undertook to repay the loan, together with outstanding interest, as at 31 December 2001. Once again, by virtue of cl 2.2, the first defendant undertook to arrange security over the Sanford shares registered in his name, or in the name of the first third party if requested to do so by the plaintiff.

4 Paragraph 10 of the statement of claim pleads that the first defendant failed to pay both the first loan amount and the second loan amount, that summary judgment was entered against the first defendant and that an appeal from that decision was unsuccessful. By par 12 it is pleaded that the debt remains unpaid. By par 13 the cross-claimant pleads that at all material times the first third party held the Sanford shares "as nominee for the first defendant". By par 14 and 15 it is pleaded that by letter dated 11 January 2002 the plaintiff requested the first defendant to perfect the security over the Sanford shares. By par 16 the cross-claimant pleads that on or about 12 August 2002 the first defendant instituted third party proceedings against the first third party, claiming that the first third party held the Sanford shares on trust for the first defendant absolutely. It is further pleaded by par 17 that on or about 16 April 2003 the parties agreed that the Sanford shares would be sold and the proceeds would be paid into a joint account held by solicitors for the first third party and the plaintiff. By way of relief the cross-claimant seeks first a declaration that the first defendant provide the plaintiff with the security provided for in cl 2.2 of the first agreement and the second agreement, and second, a declaration that the money held in the joint account be retained, pending the provision of security by the first defendant.

5 It is worth pausing at this point to say that although the cross-claimant sought declaratory relief and an injunction, really what the parties were seeking was a determination as to who had the right to the funds held in the joint account. As the argument proceeded it was common ground that if the cross-claimant had the right to call for the provision of security over the shares, then it would be presently entitled to the funds held in the solicitor's joint account consequent upon liquidation of the shares. In reality, that is the reason why this matter has been approached in the way that it has. The parties simply want a determination of who is entitled to the funds held in the joint account so they can move on.

6 The amended defence of the cross-defendant is dated 25 August 2003. It is unnecessary to go through the defence in detail. Three matters are put against the cross-claimant's claim. First, it is said that cl 2.2 of both agreements (and the clauses are in identical terms) is void for uncertainty. Alternatively, it is said that the clause only required that the Sanford shares be held in the name of Healthy Skin Pte Ltd. As that was done, the obligations of the cross-defendant were discharged and the cross-claimant is not entitled to the relief it seeks. Thirdly, it is said that on its proper construction, cl 2.2 did not create an equitable mortgage in favour of the cross-claimant in any specific shares and in particular, did not create an equitable mortgage over the shares held in trust by the third party. This last point is put in two different ways in the pleading (in par 3(d) and par 9A), but each of these two pleas is to the same effect.

7 The place to begin is with cl 2.2. It is in the following terms:

"If requested by the Lender, the Borrower will arrange for the Loan to be secured by shares in Sanford Limited of Level 6, 225 St Georges Tce, Perth WA 6000 Australia registered in the name of the Borrower or Healthy Skin Pte Ltd of 9 Raffles Place, #12-01, Republic Plaza S048619, Singapore ('Healthy Skin'). The number of Sanford Ltd Shares held by Healthy Skin is 681,818."

8 It must be said that this clause is not a model of drafting. It was not drafted by solicitors and it shows. There is a tension between the first and the second sentences of the clause. The first sentence could be read as offering the borrower an alternative. If a request is made by the lender, the borrower can either arrange security over shares in Sanford Ltd he owns, or over shares in the name of Healthy Skin. The second sentence of the clause goes on to define the number of shares held by Healthy Skin but says nothing about shares held by the first defendant. The question is whether this tension within the clause is sufficient to render it void for uncertainty.

9 In written submissions dated 11 September 2003, counsel for the cross-defendant maintained that there were at least three possible interpretations of cl 2.2 (par 3 of the submissions). Counsel suggested these were:

1. The position maintained by the cross-claimant that the agreement was that specific shares held by Healthy Skin are secured by the agreement and are subject to an equitable security (not specified) over those shares.

2. As proposed by the cross-defendant was that all the agreement required the first defendant to do was to place the shares in the name of Healthy Skin.

3. Alternatively to the other two possible interpretations, that there was no specific shares covered by the agreement at all.

10 Counsel went on to suggest that cl 2.2 should be seen only as an agreement to agree. It was submitted that the terms of the clause left so much unstated that it was necessary for the Court to effectively write the contract for the parties and this was impermissible. It was said that in these circumstances the clause should be regarded as void for uncertainty. Reference was made to Cheshire & Fifoot, Law of Contract, 6th ed, pars 157 - 165.

11 On behalf of the cross-claimant it was said that the clause was clear in its meaning. Further, it was said that the courts will adopt a construction which will preserve the validity of the contract. Reference was made to the decision of Meehan v Jones [1982] HCA 52; (1981) 149 CLR 571 per Mason J at 589.

12 I am satisfied that cl 2.2 is not so uncertain as to render it void. As I have said, it could have been better drafted. But reading the clause in conjunction with the rest of the document, it is clear that what was intended was that the first defendant would provide security over the Sanford shares held by Healthy Skin if called upon to do so. The parties, by virtue of the second sentence of the clause, set out the number of shares held by Healthy Skin so that there would be no misunderstanding. If by some chance the same shares had been in the name of the first defendant, then he would have been obliged, pursuant to the provisions of the clause, to provide security. In my view it is inconsistent with the terms of the clause and of the agreement as a whole to suggest as the cross-defendant does that the shares to be the subject of the security were not specified.

13 The second question then is whether or not the terms of the clause amount to an equitable mortgage over the shares in favour of the cross-claimant. I am satisfied that is the effect of the clause. The clause itself does not create any security. What it does is gives a right to the cross-claimant to require the cross-defendant to provide security over the shares. It is true that there is no way of knowing precisely the form that security would take. However, that question appears not to be an issue between the parties. No doubt the security, if called for, would be relatively simple. The shares would continue to be held by Healthy Skin unless and until there was a default by the cross-defendant under the terms of either the first loan agreement or the second loan agreement. If there was such default, the cross-claimant would be entitled to realise the shares to satisfy any claim. There is no reason why the cross-claimant could not have asked the cross-defendant to provide the security even after default under the loan agreements had occurred.

14 Although there is limited utility in attempting to interpret one idiosyncratic agreement by reference to other agreements referred to in decided cases, some support for the views I have expressed is to be found in the decision of Re Roberts; Ex parte Australian Telecom Employees Credit Cooperative v Taylor [1982] FCA 152; (1982) 84 FLR 88. In that case, a loan agreement signed by the debtor contained the following conditions:

"(8) The member shall execute an Equitable charge in favour of the Society over the member's interest in the property situated at ... to secure repayment of the loan and interest thereon, such equitable charge to contain such covenants and conditions as the Society shall require and to be prepared and registered at the expense of the member.

(9) The member agrees to the lodging of a caveat over his property with the Credit cooperative as security against his loan and agrees to pay all costs involved in same."

15 The Court held that although no caveat was lodged and no other documentation was prepared, the loan agreement constituted a charge over the debtor's interests in the property as the debtor had done everything needed to entitle the applicant to require him to execute an equitable charge in the form chosen by the applicant. There are some material differences between the position in that case and in this. Not least of all, the Cooperative had specified that the security was to be in a form acceptable to it. As I have indicated, there is nothing in cl 2.2 to indicate the form of security. Nonetheless, I am satisfied that the requirements of the clause - that is, that the cross-defendant provide security over the shares held by Healthy Skin - is sufficiently clear to render it enforceable.

16 The authorities seem to indicate that in a situation such as this, there are only two requirements to establish an equitable charge: first, intention and secondly, the existence of definite ascertainable property. These principles are drawn from the cases of White v Conroy (1921) 21 SR (NSW) 257 and Montagu v Earl of Sandwich (1885) 32 Ch D 525. The wording of the clause does not, in my view, leave any room for doubt on either of these two issues. It is clear then, I think, that the effect of the clause was to create an equitable charge over the shares held by Healthy Skin. Of course, the existence of that equitable charge only arose when demand was made by the cross-claimant, but it is common ground that the demand was made.

17 As the shares have been realised by agreement and what now exists is a fund held in a joint account, it follows from what I have said that I am satisfied the cross-claimant is entitled to those funds. I think that is the logical and proper outcome of the agreement reached between the parties. Accordingly it is appropriate that I enter judgment for the cross-claimant against the cross-defendant. I will hear the parties as to the precise form of orders and as to costs.