Meldov Pty Ltd v Bank of Queensland [2015] NSWSC 378 | Case summary

Contractual obligation to repay

The Bank submits that the Di Pietros were contractually liable to repay the Additional Funds to the Bank for any one of one general and three particular reasons under the VRCL Facility. If it is established that the Di Pietros owed a contractual obligation to repay the Additional Funds to the Bank, then Meldov does not dispute that such obligation would be secured by the First Mortgage.
Generally, the Bank submits that the First Mortgage secures under Memorandum, cl 4.1 "all money which … you owe us", and that following the mistaken payment of the Additional Funds, the Di Pietros did 'owe' that money to the Bank within the ordinary meaning of the word 'to owe'. The Oxford Dictionary defines "owe" as "to have an obligation to pay or repay (something, especially money) in return for something received". The Bank submits that reference to the nature or circumstances of the debt is unnecessary.
Meldov argues that the type and character of the debt incurred is important, relying in part on certain guidelines expressed in Young J's decision in Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146 ("Estoril") for that proposition. Those guidelines are considered below. Meldov further submits that there is no express provision in the Memorandum to the effect that the First Mortgage secures an obligation of the kind the Di Pietros owed here: a liability to make restitution of an amount mistakenly paid to the Di Pietros.
But the Bank submits in the alternative that if one does look at the circumstances the debt arises contractually under the VRCL Facility. It is not necessary to describe these alternative arguments because the Court has decided the case in the Bank's favour on its principal argument. But some brief observations are made here now about these alternative arguments.
Firstly, the Bank submits that the Additional Funds may be characterised as an additional advance under the VRCL Facility, a facility secured by the First Mortgage. If the Additional Funds are an advance under the VRCL Facility, the drawdown of that advance exceeded the limit of the VRCL Facility. Therefore the Bank submits a contractual obligation to repay the Additional Funds arose immediately under the VRCL Facility, cl 2.4, which provides: "You may only request a drawdown on the facility limit if: (a) the amount requested; and (b) the total amount owing on your facility account, including any advances previously drawn down by you, does not exceed the facility limit or reduced facility limit. If a drawdown is made and it does exceed the facility limit or reduced facility limit you must immediately pay to us the amount by which the total amount owing on your facility account exceeds the facility limit or reduced facility limit."
Secondly, the LOC General Conditions, cl 7.5 (and VRCL General Conditions, cl 13.5) expressly provides for the repayment of advances made under the LOC in various circumstances, including where an advance is made "because of an error": "We may subsequently adjust debits and credits to the account, and the balance owing on your account, as to accurately reflect the legal obligations of you and us (for example, because of an error or because a cheque is dishonoured). If we do this, we may make consequential changes (including to interest charges).
In my view the "legal obligations" referred to in this clause really only direct the Court back to the underlying legal position. Clauses so worded do not create obligations.
The LOC is an agreement covered by the First Mortgage within the meaning of 'any agreement covered by this mortgage' in Memorandum, cl 1. LOC General Conditions, cl 5.1 provides that the borrower must pay "the amount of credit and all other amounts borrowed from" the Bank. LOC General Conditions, Part D cl 1.3 is the same as the VRCL Conditions, cl 2.4: it provides for any amount drawn in excess of the facility limit to be repaid, as follows: "2.4 You may only request a drawdown on the facility limit if: (a) the amount requested; and (b) the total amount owing on your facility account, including any advances previously drawn down by you, does not exceed the facility limit or reduced facility limit. If a drawdown is made and it does exceed the facility limit or reduced facility limit you must immediately pay to us the amount by which the total amount owing on your facility account exceeds the facility limit or reduced facility limit."
Thirdly, the Bank submits that the Di Pietros drawing down the Additional Funds by cheque from the LOC where the amounts drawn down exceeded the amount provided for under the facility, should be construed as a request by the mortgagors, the Di Pietros, for an advance on loan from the Bank. On 29 November 2007, the Di Pietros and the Bank agreed that the LOC limit would be $1,627,500. The mistaken crediting of the Additional Funds to the LOC raised the LOC beyond this agreed credit amount. The Bank submits that the second and fourth 'established principles' concerning the relationship of banks and their customers summarised in Andrews v Australia and New Zealand Banking Group Ltd (2011) 211 FCR 53 ("Andrews") at [81] - [82] (and recently affirmed in Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 at [93]) are applicable here: "It is trite that the relationship between a banker and a customer is in contract: Foley v Hill (1848) 2 HL Cas 28. Such contracts have been described as: … ordinary commercial contracts to be construed and applied according to their terms, and in accordance with a 'basic principle of the common law of contract … that parties to a contract are free to determine for themselves what primary obligations they will accept'. Williams and Glyn's Bank v Barnes [1981] Com LR 205 at 209 (quoting Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848) cited with approval in Narni Pty Ltd v National Australia Bank [2001] VSCA 31 at [19]. Unsurprisingly, the contractual terms are important; it is a contract usually with many terms (Joachimson v Swiss Bank Corporation [1921] 3 KB 110 at 127) but from which the following core banking law principles derive: 1. A savings or deposit account is in law a loan to the banker: Pearce v Creswick (1843) 2 Hare 286; Dixon v Bank of New South Wales (1896) 17 LR (NSW) Eq 355; Khan v Singh [1936] 2 All ER 545. The bank borrows the money and proceeds from the customer and undertakes to repay them on demand. The bank's undertaking includes a promise to pay any part of the amount due against the written order of the customer addressed to the branch of the bank where the account is kept: Joachimson at [127]. Conversely, the bank will not pay any part of the amount due to the customer without such an order or some other compulsion or entitlement recognised by law; 2. The issue of a cheque by a customer, or the giving of a payment instruction or withdrawal request to its bank, which would have the effect of overdrawing a customer's account, is construed as a request by the customer for an advance or loan from the bank, and the bank has a discretion to approve or disapprove the loan: Cuthbert v Robarts, Lubbock & Company [1909] 2 Ch 226 at 233; Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677 at 699-700; Ryan v Bank of New South Wales [1978] VR 555 at 577; Narni Pty Ltd v National Australia Bank Ltd [1998] VSC 146 at [37] and Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [21]; 3. A written order by a customer which requires the bank to pay a greater amount than the balance standing to the credit of the customer may be declined. There is no obligation on the bank to pay a cheque unless there is a sufficient balance in the account to pay the entire amount or unless overdraft arrangements have been made which are adequate to cover the amount of the cheque: Bank of New South Wales v Laing [1954] AC 135 at [154]; Office of Fair Trading v Abbey National plc [2008] EWHC 875 (Comm) at [45] and Narni [2001] VSCA 31 at [12]; 4. If a customer with no express overdraft facility draws a cheque which causes his account to go into overdraft, the customer, by necessary implication, requests the bank to grant an overdraft on its usual terms as to interest and other charges: Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 at 982. See also Weaver GA and Craigie CR, The Law Relating to Banker and Customer in Australia, (Thompson Lawbook Co) at [2.140] (update 62)."
The Di Pietros, drew cheques for payment beyond the agreed credit amount of the LOC. So "by necessary implication", the Bank submits, they requested the Bank to grant any necessary overdraft or loan on its usual terms as to interest and other charges to meet the cheques when presented. The Bank accepted those requests by permitting the cheques to be met. The funds were therefore drawn on the usual terms as to interest and other charges. This was an agreement within the meaning of 'an agreement covered by this mortgage' and thus an obligation secured by the First Mortgage.
As to the Bank's first argument, Meldov denies that the mistaken payment of the Additional Funds can be characterised as an advance. Meldov submits that an advance is a consensual, not an accidental, paying of money. This argument is dealt with below.
As to the Bank's second argument, Meldov submits that the Bank's contractual power to "adjust debits and credits to the account" does not allow the Bank to take away from the Court the question of whether money is due under a restitutionary claim or not. The power only extends to allowing the account to "accurately reflect the legal obligations" of the Di Pietros and the Bank. The defendant cannot adjust the amount owing under the account and turn only a potentially successful but undetermined restitutionary claim into a debt by simply altering accounting entries. I accept Meldov's submission on this issue.
To the Bank's third argument, Meldov denies that that the mortgagors' drawing down the Additional Funds from the LOC by cheques has the contractual effect for which the Bank contends. Unlike the situation contemplated in the fourth principle in Andrews, in my view Meldov's submission is persuasive that the evidence shows that the LOC did not actually go into overdraft when the Di Pietros drew on the Additional Funds. Therefore, no contractual agreement to repay the Additional Funds is necessarily implied on Andrews principles, because there was no overdrawing beyond agreed limits.

Restitutionary Obligation to Repay

The Bank also submits that the Additional Funds are captured by Memorandum, cl 4.1 not only as a contractual debt owed by the mortgagors to the Bank but also as an obligation owed in restitution. Meldov does not deny the existence of such a restitutionary obligation, but denies that the First Mortgage secures such obligations.
The First Mortgage's Memorandum contains the terms of a commercial contract between the Di Pietros and the Bank. The principles of interpretation of commercial contracts were recently summarised by the High Court in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35] per French CJ, Hayne, Crennan and Kiefel JJ: "Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'" (citations omitted).
The Bank submits that a conventional application of those principles is required here. And the 'all moneys' clause in Memorandum, cl 4.1 should be construed by reference to the context in which it appears and by reference to the commercial purpose which the words were intended to serve. The relevant intention of the parties is to be ascertained from the language used.
The application of those principles has often been judicially considered in the context of mortgage "all moneys" clauses. In Olympic Holdings Pty Ltd v Windslow Corporation Pty Ltd (in liq) (2008) 36 WAR 342 ("Olympic") at [43] (Buss JA, Steylter P agreeing), after reviewing the authorities on "all moneys" clauses, Buss JA concluded that: "all of the authorities may be reconciled on the basis that each of them involved the construction of particular instruments of security 'by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve'".
Meldov's principal submission may be shortly stated. Meldov submits that the all moneys clause in the Memorandum should be read as only covering obligations of "the same character as the Bank's agreed advance". Meldov further submits that a debt owing by reason of a restitutionary claim in consequence of a mistaken payment is not a debt "of the same type or character" as that arising from an agreed advance of funds. The latter is a consensual obligation arising from a mutually contemplated advance of funds. The former is a non-consensual and involuntary obligation contemplated by neither party.
Meldov founds its submission on the decision of Young J (as his Honour then was) in Estoril. There his Honour summarised what he described as nine "guidelines" applicable to the construction of the construction of "all moneys" clauses (or, as his Honour called them, "dragnet clauses"). His Honour noted that the guidelines, Northern American in origin, were applicable to Australian conditions. But he emphasized that "it all depends on the construction of the individual mortgage". The guidelines that Young J set out at 13,151 - 13,152, are reproduced below. Meldov relies in particular on the third and fourth guidelines: "(1) The mortgage will only secure advances made or debts incurred in the future if the past debts are identified. (2) Only debts of the same type or character as the original debt are secured by the mortgage. (3) A dragnet clause will often cover future debts only if documents evidencing those debts specifically refer back to the clause. (4) If the future debt is separately secured it may be assumed that parties did not intend that it also be secured by the dragnet mortgage. (5) The clause is inapplicable to debts which were originally owed by the mortgagor to third parties and which were assigned to or purchased by the mortgagee. (6) If there are several joint mortgagors only future debts on which all of the mortgagors are obligated or at least of which all were aware will be covered by the dragnet clause. (7) Once the original debt has been fully discharged, the mortgage is extinguished and cannot secure future loans. (8) If the mortgagor transfers the land to a third party, any debts which the original mortgagor incurs thereafter are not secured by the mortgage. (9) If the real estate is transferred by the mortgagor advances subsequently made to the transferee are not secured by the mortgage even if the transferee expressly assumed the mortgage."
Young J provided further guidance (at 13,154) in Estoril, as to the occasions for the local application of these guidelines, stating that: "I do not think that one can say in New South Wales that if a mortgagee chooses to use wide words and legal jargon that it runs the risk that the mortgage will be construed against it under the contra proferentem rule. However, in my view it is valid to say in Australia that when one sees a mortgage in wide words and, as I believe is the situation in the instant case, one would get absurdities if one read the wide words literally, one should pause to see whether the parties intended when they entered into the mortgage that it should cover the circumstance which has now arisen. … I also believe that it is fair to say that in many cases the Court will come to the view as stated in proposition (2) above. However, that is a very different thing from saying that there is some general rule that mortgages must be construed as if they were limited to debts of the same type as those for which the mortgage was originally taken out. Furthermore, equity's view of mortgages in Australia does not appear to be as tender as equity's attitude to them in Iowa and Arkansas."
Young J further discussed the proper construction of "all moneys" clauses in Australia and New Zealand Banking Group Ltd v Comer (1993) 5 BPR 11,748 at 11,758, where his Honour said: "It seems to me that the way courts approach these very wide all obligations mortgages is to read them down so that the wide words have some operation but do not include situations that would never have been contemplated by the ordinary mortgagor by the use of the words".
Estoril has been followed at first instance. In Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96 ("Modular Design") Santow J followed Young J's approach in Estoril to the construction of an "all moneys" clause and (at 101-102) cited Young J's nine guidelines. In Modular Design, Santow J also approved of approaching the interpretation of an "all moneys" type of clause with a predisposition against a wide interpretation which would "lead to consequences where the equity of redemption would be impeded or constrained". Santow J noted in Modular Design that "[c]learly such predisposition may be rebuttable where the language is sufficiently clear and the equity of redemption not directly clogged". The idea of approaching the task of construction with a predisposition towards or against a certain outcome has been questioned since Modular Design.
Meldov also cites Fountain v Bank of America National Trust and Savings Association (1992) 5 BPR 11,817 ("Fountain") as supporting its contentions. In Fountain the Court of Appeal found that a guarantee given by a debtor in 1981 was secured by the "all moneys" clauses in a 1976 loan. The Court held (at 11,819-20) that "all moneys" clauses "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". The relevant "all moneys" clauses in the mortgage were as follows: (3) … [the debtee] shall furnish upon demand such security in such form and value as may be required by [the debtee] from time to time in amounts and values sufficient at all times in your opinion to secure any of [the debtor's] obligations to [the debtee] whether contingent, future or otherwise. (4) … this is a continuing agreement and all the rights, powers, and remedies hereunder shall apply to all [the debtor's] past, present, future and contingent obligations and liabilities to [the debtee], including those arising under successive transactions which shall either continue existing obligations and liabilities, increase or decrease them or from time to time create new obligations or liabilities after any or all prior obligations and liabilities have been satisfied …
Gleeson CJ (with whom Kirby P agreed) reasoned to the conclusion that the debtee could demand security for the later guarantee in the following way at 11,820: "The critical question, it seems to me, is whether, on the true construction of the document and in the events that have occurred, the transaction of 1981 and the obligation that existed in 1981 were within the purview of clauses 3 and 4 of the 1976 agreement. Some assistance in answering that question is obtained from the introductory words of the 1976 agreement and the reference therein to the giving of credit to Mr Fountain and the performance of banking services for Mr Fountain. A concept of performing banking services is somewhat elastic. However, whilst I would regard the introductory words of the agreement as being a useful aid to an understanding of the purpose and scope of the 1976 contract I would not regard those words as a hard and fast definition of the scope. It is necessary to inquire in particular whether the transaction in 1981, that is to say a borrowing of money by Energy Systems Holdings Ltd from the bank and the associated guarantee given to the bank by Mr Fountain and other officers, was "a successive transaction" within the meaning of clause 4. It has been submitted on behalf of the appellant that the obligations referred to in clause 3 are confined to obligations undertaken in the 1976 agreement itself. In my view such a conclusion cannot be sustained. Clause 4 in terms refers to the creation of new obligations or liabilities at some future time. The successive transactions referred in clause 4 by hypothesis include transactions that might create obligations or liabilities not created by the 1976 contract. If it were otherwise, they would not be referred to as new obligations or liabilities and the concept of that creation would not be apposite. Accordingly, when one turns to the reference in the concluding words of cl 3 "the obligations whether contingent, future or otherwise", one does so in the light of the provisions of cl 4 and the references in cl 4 to successive transactions creating new obligations. The Court has been favoured with very scant information about the 1981 transaction. However, in my view we know enough about it safely to conclude that it was a transaction of a kind within the purview of the ongoing banking arrangements the subject of the 1976 agreement and the obligation arising out of that transaction was also an obligation within the purview of the 1976 contract."
In construing the all moneys clauses in Fountain Gleeson CJ considered whether the transactions sought to be captured by the clause were "within the purview of the ongoing banking arrangements the subject of" the original agreement containing the "all moneys" clauses. In my view this question Gleeson CJ posed in Fountain can be usefully posed in the present case.
Meldov next cites Smith v Australia and New Zealand Banking Group Ltd (1996) NSW ConvR 55-774 ("Smith") in which Kirby P considered the Estoril guidelines. Meldov submits that Kirby P gave the Estoril guidelines in the following terms (at 55,937): "I have no quarrel with the "guidelines" which Young J identified in this and earlier cases. However, they only take a court so far. In the end, it is necessary for the person construing the mortgage to give meaning to the "all moneys" clause having regard to the actual language used, as construed in context and for the purposes, of the agreement between the parties".
In my view, Smith provides commentary upon and indicates caution in applying, rather than support for, the Estoril guidelines. Kirby P noted in Smith that any judicial predisposition towards construing "all moneys" clauses narrowly should be resisted given the availability of legislative, common law and equitable remedies in the case of unfair, misleading or deceptive securities (at 55,937): "The availability, now, of legislation which is protective of consumers of commercial credit is reason for avoiding any lingering judicial temptation to adopt a construction of the "all moneys" clause which is unduly strained and narrow. Parliament has provided means of relief for such cases. The common law and equity provide other means. No such exemption was sought, or would have been appropriate, in this case."
In Smith, the Court of Appeal considered the following two Estoril guidelines that Young J had considered at first instance: "One of the general rules of construction of all money mortgages or guarantees is that, if there was an existing liability at the time when the mortgage was entered into, one normally expects that this will be identified and not just left to be included in the all moneys clause. Another guideline is that unless there is some indication of the facts and circumstances to the contrary, one normally expects the parties' intention to be that once the original debt for which the charge was given is paid, then the charge becomes extinguished and is not available as the source of a security for a liability which crystallises after that date".
The Court in Smith held that if the Estoril guidelines were left to one side, that on ordinary principles of construction the parties should be taken to have intended the words in the "all moneys" clause of the mortgage to have the wide effect that they would naturally bear. Priestley JA said (at 55,938): "If the confirmations of the applicability of the two guidelines are therefore to be left out of account, the question simply becomes one of construction. Young J acknowledged that the guidelines he referred to were "just that, a method of approaching construction of a mortgage in its factual matrix". I see no reason why ANZ would have had any intention to restrict the extremely widely drawn words of its mortgage debenture in the way required by Young J's first guideline. The words are very wide; they are very particular; to my mind very obviously deliberately so. YDSI at no time claimed they were unfair. There was no hint that they were not in accordance with the parties' agreement. The word rectification was not mentioned. No suggestion of overreaching was made. In all the circumstances I can see no reason for construing the words in a sense other than I think they were intended to bear and which in ordinary meaning they did bear".
The parties' submissions in these proceedings directed the Court to the 5 February 1996 decision of Smith as reported at (1996) NSW ConvR 55-774. However, it appears that due to a mistake of fact in that judgment, the Court of Appeal withdrew those reasons and issued a revised judgment on 21 November 1996, which is reported at (1999) NSW ConvR 55-884. The revised judgment (Smith v Australia and New Zealand Banking Group Ltd (1999) NSW ConvR 55-884) expresses the point in similar terms. As Priestley JA said (at 56,909): "As will appear, with respect to Young J's resort to his guidelines, I think the text of the document, in its context as a bank document which no-one has sought to set aside or rectify, governs its meaning, rather than the guidelines".
Next Meldov cites Jageev Pty Ltd v State Bank of New South Wales (No 2) (1996, 23 August 1996, Sperling J, unrep) ("Jageev"). In Jageev Sperling J, like Young J in Estoril, read down an "all moneys" clause, which Sperling J accepted on a literal reading would cover a liability of any kind owed to the bank. Sperling J seems to have felt obligated in Jageev by the guidelines set in Estoril and following cases to read the clause down (at 4): "The most general terminology will be read down to the extent that the principles, to which I have referred, require that to be done."
The Bank points out that Sperling J's application of the Estoril guidelines in Jageev was doubted in Murphy; Re Bankrupt Estate of: Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46 ("Donnelly"). Hill J in Donnelly held (at 52) in the absence of a rule that "all moneys" clauses be read contra proferentem, that is against the interests of the mortgagee responsible for drafting the clause, said that: "… there is no principle of common law that requires a clause in a bank mortgage to be construed in any way differently from any other document. The task of construction is to give effect to the intention of the parties as reflected in the language used. However, no doubt context and circumstances are relevant to the task".
In Donnelly (at 54) Hill J noted that the Estoril guidelines had "not received enthusiastic endorsement from the New South Wales Court of Appeal", citing Fountain and Smith. Hill J therefore did not follow Estoril in Donnelly and found that the "all moneys" clause secured the relevant debt, which had arisen as an obligation to the bank in that case as a result of theft or misappropriation. Hill J found that the mortgage's language was clear, having been deliberately drawn with great width in order to ensure so far as was possible that any moneys owing to the bank were secured, howsoever the obligations may have arisen. His Honour held that Estoril would not require an "all moneys" clause to be read down if its language actually covered a given factual situation. Hill J set out (at 53) the following relevant principles as applicable in New South Wales: "(1) There is no principle of law that an all moneys clause should be read down merely because it is to be found in a document prepared by a bank. In particular there is no contra proferentem rule to be adopted; cf Hall v Westpac Banking Corp (1987) 4 BPR 9578. (2) A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. The question is whether the situation falls within the contemplation of the clause as written. (3) Particularly, notions of fairness, justice or reasonableness are matters relevant to questions which might arise under the Contracts Review Act, or in equity where unconscionability is suggested. They are not notions as such relevant to the question of construction. (4) An all moneys clause is to be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve. But otherwise the intention of the parties is to be ascertained from the language which they have used."
When considering these authorities in their chronological order it is appropriate to mention at this point that the Bank relies upon Ronan v ANZ Banking Group Ltd (2000) 2 VR 531 ("Ronan"), a decision of the Victorian Court of Appeal. The appellants in Ronan had put at issue whether a mortgage over property belonging to a father, initially granted in order to secure his family partnership's trading account, also secured loans made to the partnership after the mortgagee had been made aware of the father's death. Ormiston and Batt JJA held (at [52]) that on principle an "all moneys" clause in a mortgage which secured "all loans advances credits and banking accommodation together with interest thereon" by a mortgage, "should be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve, but otherwise the intention of the parties is to be ascertained from the language used…". Meldov notes in its submissions that their Honours had not been taken to Estoril, given their statement that "… [s]ave for reference to some statements of general principle and to Macrae and one other case mentioned below, counsel cited no cases at all on the meaning and effect of the relevant clauses in the mortgage". Meldov submits that it is not surprising that the Victorian Court of Appeal did not consider the application of the Estoril guidelines, and that Ronan should not be relied on for the proposition that reference to Estoril is unnecessary when considering "all moneys" clauses.
Meldov next relies upon Cuzeno RVM Pty Ltd v Overton Investments [2002] NSWSC 88; (2002) 10 BPR 19,425 ("Cuzeno"), as an example of a case where Palmer J followed Estoril to read down an "all moneys" clause so it did not secure contingent liabilities which had not crystallised by the date the parties agreed the mortgage was to be repaid. Citing Fountain, Estoril and Smith, Palmer J said (at [55]): "… 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 Overon 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".
In my view, Cuzeno can be read not so much as an example of reading down an "all moneys" clause under the Estoril guidelines but as applying orthodox principles of construction to an "all moneys" clause.
Much the same can be said in my view in relation to the next decision, Oversea Chinese Banking Corporation v Malaysian Kuwaiti Investment Co Sdn Bhd [2003] VSC 495. There Redlich J considered whether the mortgage at issue was, at the time of its execution, intended to secure further advances that might be made pursuant to a subsequent agreement. His Honour considered the principles applicable to the construction of "all moneys" clauses at [31] - [37], including the Estoril guidelines, and noted at [36] that: "Whilst the guidelines enunciated by Young J will be of some assistance in the interpretive task, the "all moneys" clause must be construed in the light of the actual language used and having regard to the context in which this mortgage came to be executed and its commercial purpose".
The Court of Appeal in this State has recently referred to the Estoril guidelines in Rich v Westpac Banking Corporation [2014] NSWCA 136 ("Rich"). Both Ward and Emmett JJA referred in their judgments to the appellant's reliance upon the guidelines. But each of their Honours found that particular language of the relevant contractual documents made unequivocally clear that those guidelines could not apply (at [38] - [42] per Ward JA and at [89] - [95] per Emmett JA). The closest the Court came to approving the Estoril guidelines was at [94], where Emmett JA stated in relation to what is the fourth guideline that "At best, [it] could be no more than a presumption". In my view the discussion of the Estoril guidelines did not appear in anyway determinative in Rich, which again was an application of the well-established principles of construction.
Rich was an application for leave to appeal from Bellew J's judgment in Westpac Banking Corporation v Cvitanovic as Trustee of the Bankrupt Estate of Rich [2013] NSWSC 1759. Counsel for the applicant before Bellew J in that case relied upon the second, third, fourth and seventh of the Estoril guidelines to read down the relevant "all moneys" clause. Bellew J noted the Estoril approach, including Young J's emphasis that "it all depends on the construction of the individual mortgage", had been taken in several cases. Bellew J's analysis of the application of the "all moneys" clause to monies advanced subsequently by the respondent to the deceased established that the Estoril guidelines were not directly applicable in that case. Meldov's submission that Bellew J applied the Estoril guidelines puts the matter rather too highly in my view. His Honour certainly referred to the guidelines but found that they did not apply upon the construction of the individual mortgage.
Finally Meldov relied upon Perpetual Trustee Co Ltd v Moussa [2013] NSWSC 131 ("Moussa"), McCallum J found in Moussa that the relevant mortgage would on its true construction not have secured a liability for restitution of moneys mistakenly-paid due to a fraud. Although this was not the basis upon which her Honour decided the case. The relevant loan agreement and mortgage were accepted in Moussa to have been forged by the mortgagor's son without the mortgagor's knowledge. The mortgagee sought to argue that the mortgagor was nevertheless liable to make restitution for the amounts advanced, since the son had directed the amounts to be applied for the mortgagor's benefit.
McCallum J accepted the mortgagee's argument that the key clause 1.1 was a clause which delimited the mortgagee's interest in the land and hence attracted indefeasibility. However, in the alternative her Honour considered whether the "all moneys" clause in the relevant mortgage would otherwise secure a liability to make restitution, such liability potentially having arisen on the facts. Her Honour found that it would not.
The operative "all moneys" clause in Moussa did not secure a particular amount of money, but rather charged the land with "the amount owing", which was defined in the following way: "amount owing means, at any time, all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or an agreement covered by this mortgage. Without limiting this definition, it includes money owing (or which will or may be owing) to us in our capacity as an assignee because we have taken an assignment of an agreement covered by this mortgage or this mortgage itself, and whether or not: (a) you were aware of the assignment or consented to it; or (b) the assigned obligation was secured before the assignment; or (c) the assignment takes place before or after this mortgage is delivered."
The mortgagor's promise to repay "the amount owing" in Moussa was not clearly stated in the contractual documents. McCallum J found the clearest expression of that promise in the following provisions which relate to the general obligations that the mortgagor assumed and the consequences of default: "Clause 1.1: "By signing this mortgage you undertake certain obligations as mortgagor. You also give us rights concerning you and the property - for example, if you do not comply with your obligations, we may take possession of the property, sell it and sue you for any remaining money you owe us." Clause 18 "When are you in default?" "you are in default if: you do not pay the amount owing on time; or you do something you agree not to do, or you don't do something you agree to do, under this mortgage or an agreement covered by this mortgage; or you are another person gives us incorrect or misleading information (including through your declarations under clause 1.6) in connection with this mortgage or an agreement covered by this mortgage; or we reasonably believe you or another person has acted fraudulently in connection with this mortgage or an agreement covered by this mortgage; or you or another person is in default under another security interest given in respect of the amount owing or withdraws from it or breaches its terms; or ... you or another person does not carry out in full an undertaking given in connection with this mortgage or an agreement covered by this mortgage, within the period specified, or within seven days if no period is specified." Clause 19 "What can happen then?" "19.1 If you are in default and we choose to enforce this mortgage, we must give you a notice. (You must have been in default for one day or more before we may do this.) The notice must: (a) state that you are in default; and (b) specify a period of grace of at least 31 days. 19.2 The law (including statute law governing the exercise of our power of sale as mortgagee and, if applicable, a Consumer Credit Code) requires us to give you certain information before enforcing this mortgage. We may include that information in the notice under clause 19.1 or another notice. 19.3 During the period of grace given under clause 19.1, you are allowed to correct any default that can be corrected. If you do not correct that default within that period or if there is a default that cannot be corrected, then, to the extent it is not already due for payment, the amount owing becomes immediately due for payment at the end of the grace period without further notice. In addition, we may then do one or more of the following as well as anything else the law allows us to do as mortgagee: (a) sue you for the amount owing; (b) take possession of the property (We may remove personal possessions and either abandon them or store them without being liable to you. If we store them and you do not reclaim them within a reasonable time, we may dispose of them and use the proceeds towards paying the amount owing.); (c) do anything an owner or receiver of the property could do, including improving, selling or leasing it; and (d) appoint a receiver to do any of those things and anything else the law allows a receiver to do. ..."
McCallum J considered the nature of the liability in restitution to pay a sum of money at [47] - [51]. Firstly, her Honour found that the liability may be described as a 'debt', citing Deane J's statement in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 ("Pavey") at 255. Her Honour found that there was "no reason in principle why the Real Property Act should be construed so as to preclude the creation of a charge on land to secure the payment of such a debt", that is, a restitutionary debt. Secondly, her Honour considered that the perhaps most significant aspect of the nature of a restitutionary debt was that it is one that is "imposed rather than agreed, assumed or implied", citing K Mason, JW Carter and GJ Tolhurst, Mason & Carter's Restitution Law in Australia (2nd ed 2008, LexisNexis Butterworths) at 75. Thirdly, her Honour found that the imposition of the debt "turns on an evaluative judgment of the court". The payment of money under an operative and causative mistake of fact will establish a prima facie liability in restitution, however liability also requires that there are no recognised circumstances that would make an order for restitution unjust.
Her Honour also found that it was "conceivable that an appropriately drafted covenant in a mortgage could secure the payment of such a liability", but no such clause appeared in the Moussa mortgage: at [52].
In light of those findings and the principles derived from Estoril and Cuzeno at [55], McCallum J found that the terms of the mortgage, which emphasised that the parties intended to secure only voluntarily assumed obligations, did not secure an involuntarily imposed liability in restitution (at [56]-[59]): "Clause 1.1 is relevant in this context, indicating an intention to secure voluntarily assumed obligations. As submitted with some force by Mr Crossland, who appeared for [the mortgagor], a liability to make payment in restitution can only have come about completely contrary to the intention of the parties, and indeed due to the collapse of those intentions. The default provisions in the mortgage also point to an intention to secure obligations deliberately assumed by agreement. Clause 18 is firmly infused with the notion of debt subject to an agreed regime for repayment. In particular, clause 18(a) provides that the mortgagor is in default if she does not pay the amount owing "on time". As submitted on behalf of [the mortgagor] and the Registrar General, those words provide strong support for finding an objective intention that any "amount owing" must be owed pursuant to some agreement or arrangement between the parties delineating an agreed time for payment. Clause 18(b) reinforces that conclusion. Similarly, clause 19 (dealing with the means of enforcement in the event of default) speaks on the assumption of an agreed debt; specific amounts of money due at particular times; an obligation to make payments the lateness of which can be rectified during a period of grace and so on. A consideration of those principles points to the conclusion that the "all moneys" definition in the present case does not extend to include any liability in restitution. The definition of "amount owing" in my view sits uncomfortably with the notion of a liability in restitution, which is not of the same type or character as the debt the mortgage evidently sought to secure. There is nothing in the transaction documents to indicate that a potential liability in restitution was within the objective contemplation of the parties at the time the mortgage was executed. On the contrary, so far as the terms of the transaction documents reveal, the commercial purpose of the transaction was to secure the funds advanced in accordance with the loan agreement purportedly entered into between [the mortgagee] and [the mortgagor]. "
Meldov therefore submits that the Memorandum does not secure a liability in restitution to repay amounts, because: 1. an involuntary, non-consensual restitutionary debt is not a debt "of the same type or character" as that arising from an agreed, mutually-contemplated advance of funds; 2. there is no term in the Memorandum, the LOC, the VRCL Facility or any other contractual documents entered into between the defendant and the Mortgagors which specifically identify as secured either mistaken payments particularly or involuntary and non-consensual obligations generally; 3. The default provisions in the Memorandum (clauses 22 and 23) are in relevantly similar terms to clauses 18 and 19 of the Moussa mortgage. As in Moussa, these terms strengthen the impression that the parties contemplated only consensual obligations deliberately assumed under agreement would be secured.

Meldov Pty Ltd v Bank of Queensland

At a glance

Court

Decision date

Before

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Judgment (9 paragraphs)

Parties

Cases Cited (15)

Cited By (3)