Geoffrey Niels Handberg (in his capacity as administrator of Australian Risk Analysis Pty Ltd) v Chacmol Holdings Pty Ltd

REASONS FOR JUDGMENT 1 In 1995 the second applicant, then called Australian Underwriting Agencies Pty Ltd (AUA), entered into a contract to purchase from the first respondent Chacmol Holdings Pty Ltd (Chacmol) an insurance consultancy business for the sum of $5 million. The purchase price was payable over five years with interest. The purchase price and a pre-existing debt of $378,000 then owed by AUA as to Chacmol were to be secured by a charge given by AUA. The Deed of Charge executed contains an "all monies" clause. Subsequent advances were made by Chacmol to AUA. On 19 October 2003 Chacmol purported to appoint a receiver of the assets of AUA pursuant to the charge. 2 On 10 May 2004 Finkelstein J directed that certain questions be tried separately pursuant to O 29 r 2 of the Federal Court Rules. The central issue is whether the all monies clause has the effect of securing only the purchase price and the pre-existing debt of $378,000 or whether it also extends to secure the subsequent advances. If the former is the case, it is common ground that those monies, together with interest, were repaid by May 2001. 3 The Contract of Sale is dated 11 May 1995. It recites that Chacmol has for some time carried on the business of insurance consultants under the name Project Marketing Aust at specified premises in Canberra and that Chacmol has agreed to sell and AUA has agreed to purchase the business, goodwill and business name together with the plant and equipment set out in the annexure. 4 Clause 1 is as follows: "(a) The vendor shall sell and the purchaser shall purchase the Business for the sum specified in schedule item 7 which shall be payable as specified in schedule item 8 and apportioned as specified in schedule item 9. (b) In addition to the sale price referred to item 7 of the schedule the purchaser shall repay to the vendor the sum of $378,000 being the balance of a loan from the vendor to the purchaser (the pre-existing debt) as at 31 March 1995. (c) The sale price together with the pre-existing debt shall be repaid by sixty (60) monthly instalments as specified in schedule item 8." Schedule item 7 is the sale price of $5 million. Item 8 is as follows: "Payment of sale price and of pre-existing debt: as set forth in a related Acknowledgement of Debt executed by the vendor and purchaser on the date of this agreement." 5 The Acknowledgement of Debt is a deed dated 22 May 1995 between Chacmol and AUA as follows: "RECITAL: A. The Purchaser has requested the Vendor to accept payment of the amount specified in Item 3 ('the Sale Price') by monthly instalments and the Purchaser acknowledges that it is indebted to the Vendor for the Sale Price. B. The Purchaser acknowledges that it is additionally indebted to the Vendor for the amount specified in Item 4 ('the pre-existing debt'). C. The parties have this day executed a Contract for Sale of Business. D. The 'principal sum' where used herein shall mean the total of the sale price and the pre-existing debt. CLAUSES: In consideration of the Vendor agreeing to accept payment of the Sale Price by instalments at the request of the Purchaser, the parties agree: 1. The Purchaser will repay to the Vendor the Principal Sum by sixty (60) monthly instalments in accordance with Schedule B, together with interest thereon, the first such monthly instalment of principal and interest to be made on or before the 30th day of April 1995. 2. So long as the Principal Sum or any part thereof shall remain due by the Purchaser to the Vendor, the Purchaser shall pay to the Vendor interest calculated thereon at the rate charged from time to time during the currency of this Agreement by Westpac Banking Corporation or its successors known as the Indicator Lending Rate published from time to time in Australian national daily newspapers. 3. In the event that the Purchaser shall default in payment to the Vendor of any payment of principal or interest hereunder the Vendor may then demand repayment of the Principal Sum and interest thereon payable pursuant to this Deed whereupon the balance of principal and interest shall immediately become due and payable and the lender may then recover the amount thereof from the Purchaser. 4. At any time during the currency of this agreement the Purchaser may repay to the Vendor the amount of the Principal Sum and interest then outstanding or any part thereof and interest shall abate on any amount or amounts so paid. 5. Subject to the consent of Westpac Banking Corporation Limited the Purchaser will execute a Deed of Floating Charge in favour of the Vendor to secure to the Vendor the Purchaser's obligations hereunder." 6 Item 3 specifies the Sale Price as $5 million and item 4 the Pre-existing debt as $378,000. 7 Minutes of a meeting of the directors of AUA held on 19 April 1995 record the following resolutions: " 1. It was resolved to acquire the insurance consultancy business of Chacmol Pty Limited (formerly known as Project Marketing (Australia) Pty Limited) based in the Australian Capital Territory at an agreed purchase price of $5,000,000.00 2. It was resolved to pay the purchase price of the business to the vendor over a period of 5 years on agreed terms. 3. It was resolved to grant a Floating Charge to the vendor subject to the consent of Westpac Banking Corporation Limited, to secure the debt to the vendor. 4. It was resolved to execute a Contract of Sale of Business and Acknowledgement of Debt to give effect to the foregoing resolution." 8 Minutes of a meeting of the directors of Chacmol, the date of which is illegible, recording the following resolutions: "1. It was resolved to sell the insurance consultancy business of the company to Australian Underwriting Agencies Pty Limited for an agreed sale price of $5,000,000.00 2. It was resolved to allow the purchaser to pay the full purchase price over a period of 5 years on agreed terms 3. It was resolved to execute all necessary documents in the Australian Capital Territory, to put the sale into effect." 9 On 13 April 1995 Messrs Wood Fussell, the solicitors for Chacmol, wrote to Mr Barry Johnston, the Chairman of Chacmol (and also a director of AUA), a letter enclosing "the following documents in final form for execution by Chacmol and AUA". The documents referred to were the Contract of Sale, the Acknowledgement of Debt, the minutes of directors' meetings of AUA and Chacmol and another letter not relevant for present purposes. Wood Fussell's letter continued: "We shall forward the floating Deed of Charge and related ASC documents upon receiving the written consent of Westpac as first charge holder, you may care to follow upon our written request to Dick Fuller for the consent." Mr Dick Fuller was apparently an officer of Westpac. 10 The obtaining of consent from Westpac took longer than expected and it was not until 24 June the following year that AUA and Chacmol executed the Deed of Charge. The Deed of Charge was in the following terms: "WHEREAS - 1. By Contract of Sale of Business dated 11 May 1995 the Vendor agreed to sell and the Purchaser agreed to buy the business of the Vendor. 2. By Deed datedday of April 1995 ("Acknowledgment of Debt") the Vendor has agreed to accept the payment of the debt over a period of five years being the purchase price of the business referred to in recital 1 above. 3. The Purchaser has agreed to enter into these presents for the purpose of securing the repayment of the said debt. NOW THIS DEED WITNESSETH that in pursuance of the said agreement and in consideration of the premises the Purchaser DOTH HEREBY charge ALL AND SINGULAR its undertaking and all its assets whatsoever and wheresoever both present and future including (without prejudice to the generality) its unsold shares, uncalled capital and unpaid calls for the item being and including all present and future book debts of the Purchaser (which undertaking assets and premises are hereinafter for brevity referred to as 'the mortgaged premises') with the payment to the Vendor in full free of exchange of ALL MONEYS now owing or payable or hereafter to become owing or payable to the Vendor by the Purchaser either alone or jointly with any person on any account whatsoever ALSO ALL MONEYS which the Vendor has paid or shall be or become liable to pay to for or on account of the Purchaser either alone or jointly as aforesaid either by direct advances or by reason of the Vendor paying any moneys for or on behalf of the Purchaser or entering into any bond, indemnity or guarantee for or on behalf of the Purchaser either alone or jointly as aforesaid ALSO ALL MONEYS which the Vendor shall pay or become liable to pay in connection with or incidental to preparing or completing these presents and any other documents given or to be given to the Vendor as collateral security herewith or investigating or perfecting the title to the mortgaged premises or exercising or attempting to exercise any power, right or remedy of the Vendor hereunder or on account of or arising out of any default by the Purchaser or by any guarantor for the Purchaser herein contained or on the part of the guarantor or other person and contained in any guarantee or other collateral security as aforesaid also interest on all such moneys and obligations as aforesaid at the rate from time to time agreed upon between the Vendor and the Purchaser pursuant to the Acknowledgment of Debt such interest to be computed from the time or respective times of such moneys being paid or becoming due and to accrue from day to day and to be added to the principal or quarterly balances and to become thenceforth part of the facility and to bear interest accordingly (all of which moneys, obligations, liabilities and interest are hereinafter referred to as 'moneys hereby secured' AND the Purchaser HEREBY COVENANTS with the Vendor as follows - A. THAT the Purchaser will pay the Vendor all moneys which are or may become owing to it by the Purchaser under or pursuant to the Acknowledgment of Debt and duly and punctually observe every other obligation on its part expressly contained or implied in the Acknowledgment of Debt." There follow a number of covenants dealing with such matters as rates and taxes, repairs etc. These cover some six A4 pages. 11 The questions which by the order of Finkelstein J are to be tried as separate questions are as follows: "1. Does the deed of floating charge dated 24 June, 1996 and made between the second applicant and the first respondent stand as security only for the repayment of the pre-existing debt of $378,000.00 (with any interest) and the sale price of $5,000,000.00 (with any interest), referred to in the acknowledgment of debt, a copy of which is exhibited "GNH-9" to the Affidavit of Geoffrey Niels Handberg sworn on 13 April 2004? 2. Have the debts secured by the floating charge been repaid to the first respondent? 3. Is the first respondent obliged to deliver to the second applicant a memorandum in the form prescribed by s 269 of the Corporations Act 2001 acknowledging that the liability or liabilities secured by the charge have been paid? 4. (a) Did the first respondent, purporting to act as mortgagee, take possession or assume control of the property of the second applicant? (b) If yes to (a), on what date did the first respondent take possession or assume control of property of the second applicant? (c) Was the first respondent entitled to take possession or assume control of the property of the second applicant? 5. (a) Did the first respondent appoint the second respondent receiver of the property of the second applicant? (b) Did the second respondent accept appointment as receiver of the property of the second applicant? (c) If yes to (a) or (b), did the second respondent take possession or assume control of the property of the second applicant as receiver and, if so, on what date? (d) Is the appointment of the second respondent as receiver of the property of the second applicant: a. valid; or b. of no effect?" 12 In my opinion, the Contract of Sale, Acknowledgement of Debt and Deed of Charge were entered into to effect one object and are to be construed as one instrument and read together. The principle is stated in Chitty on Contracts 27th Edition (1997) at par 12-.057 in these terms: "Several instruments made to effect one object may be construed as one instrument, and be read together, but so that each will have its distinct effect in carrying out the main design. Thus a lease and counterpart are two documents relating to one transaction and a palpable mistake in the lease may be corrected by reference to the counterpart, just as it might by reference to other parts of the lease itself. 'Where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to the case as if they were one deed'. [Manks v Whiteley [1912] 1 Ch 735 at 754] Yet although the words 'contemporaneously executed' there is no doubt that this is not essential, so long as the court, having regard to the circumstances, comes to the conclusion that the series of documents represents a single transaction between the same parties." 13 The very nature of what happened, the purchase of a business with the price being payable by instalments and the securing of that debt and the pre-existing debt over the assets of the purchaser, of itself indicates that it is but one transaction. Moreover, on their face each of the documents refers to at least one of the others. The Contract of Sale refers to "a related Acknowledgement of Debt". The Acknowledgement of Debt refers to the Contract of Sale and to the execution of a Deed of Charge subject to the consent of Westpac. The Deed of Charge refers to the Contract of Sale and the Acknowledgement of Debt. True it is there was an unusually long delay until the Deed of Charge was executed, but this delay was plainly not contemplated by the parties in April/May 1995, nor was there any suggestion that the delay was the fault of vendor or purchaser. Had AUA refused to execute the Deed of Charge, Chacmol could have obtained a court order compelling it to do so. Each of the documents by itself would not have been sufficient to achieve the object of the parties and it was plain, in the words of Fletcher Moulton LJ in Manks v Whiteley at 762, that each document was executed on the faith of all the others being executed also. 14 Once the three documents are treated as part of the one transaction, there is an obvious conflict. The Contract of Sale refers to payment of the sale price and the pre-existing debt as set forth in the Acknowledgement of Debt. The latter document speaks of "the principal sum" (the sale price and the pre-existing debt) and the securing of "the purchaser's obligations hereunder", those obligations being payment of the principal sum and interest thereon. However, the Deed of Charge read literally appears to secure "all monies now owing or payable or hereafter to become owing or payable" to Chacmol by AUA and also many other liabilities, for example payments and advances made by Chacmol on behalf of AUA. 15 This is a case where the general words of the all monies clause have to be read down and confined to what is the object of the transaction. The applicable principle is stated by the High Court in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112. In that case the general words of a release were read down and confined to the matters forming the subject of the disputes which the deed recited. Dixon CJ, Fullagar, Kitto and Taylor JJ said at 131: "The question is whether upon a proper interpretation of the deed the general release clause should be restrained to matters in dispute within the meaning of these recitals. The question depends primarily upon the application of the prima facie canon of construction qualifying the general words of a release by reference to particular matters which recitals show to be the occasion of the instrument. But it is also affected by the general tenor of the deed. It is unnecessary to say more about the canon of construction or to discuss further the contents of the deed. As to the first, all that remains is to apply the principle that prima facie the release should be read as confined to the matters forming the subject of the disputes which the deed recites. As to the second, such indications as can be found in the provisions of the deed point rather in the same direction. The detailed character of the terms of the settlement, the careful readjustment of rights, the specific reference to the debt of H C Grant and his wife and its discharge and the particularity of the allocation of things and contracts between the companies do not favour the view that a general release was intended going outside the actual area of dispute." 16 I do not accept the respondents' argument that their Honours were confining themselves to some special rule of construction applicable only to releases. No rational reason was advanced why releases should be different from all other legal instruments in this regard. Rather Grant is an example of courts construing an instrument as a whole and, in order to give effect to the intention of the parties (objectively determined), reading down general words to give effect to the intention so manifested rather than reading them literally. 17 Another example is the well-known case of Glynn v Margetson [1893] AC 351. Oranges were shipped on board under a bill of lading which stated that the ship was then "lying in the Port of Malaga, and bound for Liverpool, with liberty to proceed to and stay at any port or ports and any station in the Mediterranean, Levant, Black Sea, or Adriatic or on the coast of Africa, Spain, Portugal, France, Great Britain and Ireland, for the purpose of delivering coals, cargo, or passengers, or for any other purpose whatsoever." 18 This clause was contained in the printed part of the bill. The name of the port of shipment was left blank in the form and inserted in writing. The ship left Malaga and proceeded to a port some 350 miles to the east. She there took on board more cargo and then retraced her course to Valencia and thence to Liverpool. Due to the longer than anticipated voyage the oranges arrived in a damaged condition. The House of Lords held that the printed clause did not excuse the shipowner. Lord Hershell LC said at 355: "Where general words are used in a printed form which are obviously intended to apply, so far as they are applicable, to the circumstances of a particular contract, which particular contract is to be embodied in or introduced into that printed form, I think you are justified at looking at the main object and intent of the contract and in limiting the general words used, having in view that object and intent." 19 Senior counsel for the respondents argued that Glynn v Margetson was distinguishable on the basis that it was confined to conflicts between a printed form and written insertions. However, while no doubt that circumstance was important, I think the general principle is wider, as is shown by Grant.In any event, I think the Deed of Charge in the present case can be treated as analogous to a printed form. Judicial notice can be taken of the fact that for many years legal documents have been produced by word processors in which a standard form is taken and amendments or insertions made to a very detailed pro forma document to accommodate details of the particular transaction concerned. It seems inherently unlikely that the Deed of Charge in the present case was prepared by somebody from Messrs Wood Fussell sitting down to a blank piece of paper, like a poet composing a sonnet. 20 There is high authority where the foregoing approach has been applied in the particular case of all monies clauses. In Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 at 11,819 Gleeson CJ, with whom Kirby P agreed, said in relation to all monies clauses in a bank mortgage: "They must be confined in their operation by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve." 21 Likewise in the Full Court of the Federal Court in In the Matter of John Peter Piccolo; McVeigh v National Australia Bank Limited [2000] FCA 187 Kenny J, after noting at [77] her agreement with Finkelstein J that in construing the mortgage in that case it was appropriate to consider the whole of the arrangement that was in the contemplation of the parties - the mortgagors and guarantors, the lender and the borrower -went on at [83] to quote and adopt the statement of Gleeson CJ referred to above. 22 While senior counsel for the respondents understandably laid great stress on the literal meaning of the all monies clause in the Deed of Charge, the logical consequence of that argument is that an all monies clause, which is usually only too clear when read in isolation, could never be read down. Plainly that is not the law. 23 I conclude therefore that the all monies clause is to be confined as contended for by the applicants. The questions will be answered as follows: