National Bank of A/asia Ltd v Mason

The respondents brought an action in the Supreme Court of Queensland against the present appellant seeking a declaration of the rights of the parties under this mortgage, and in particular a declaration that "upon the true construction of the said bill of mortgage in the events which have happened neither the plaintiffs nor Option Underwriters Ltd. are obliged to pay to the National Bank of Australasia Ltd. any sum of money pursuant to cl. 1 thereof". Upon a motion for judgment without pleadings under O. 18, r. 4 of the Rules of the Supreme Court of Queensland, Andrews J. rejected the submissions of the bank that there were issues of fact for trial, and gave judgment on the motion, making the declaration sought. The judge was also of the view that the bill of mortgage should be discharged, but observed that this would go further than the plaintiffs' claim required. The bank has appealed to this Court, and has argued that the judge was in error in his view of the respondents' liabilities under cl. 1 and cl. 17 of the mortgage, and under cll. 1 and 4 of two guarantees which I shall later describe.

It is not disputed that all moneys owing by the company under its overdraft on the bank account were paid during March 1974, and that from that time the account has shown a nil balance. The respondents have asserted that the account was closed at the company's request, and further, that there was in fact a settled account which showed no sum to be due by the company. In my opinion, it is doubtful whether either of these claims is fully warranted on the material before the Court. However, I have no need to decide finally on this matter in coming to the view that the appeal must fail.

Given that the account on its face has ceased to show any liability of the company to it, the appellant, in refusing to discharge the mortgage given by Mr. and Mrs. Mason, has relied upon a situation which has arisen regarding three cheques credited to that account. That situation is as follows. On 10th June 1971, Mr. Mason deposited three cheques to the credit of the company. These were credited to the account, and the proceeds collected by the appellant. Two of the cheques were made payable to "Pacific Income Fund" and were crossed marked "not negotiable", while the other cheque was made payable to "Pacific Income Fund Nominees Pty. Ltd." and was crossed marked "not negotiable, a/c payee only". Mr. Mason, as on behalf of the payees, had indorsed these cheques to the company. The appellant had accepted the cheques thus indorsed. Subsequently, Pacific Income Fund and Pacific Fund Nominees Pty. Ltd. disputed Mr. Mason's authority to indorse the cheques and commenced suits in the Supreme Court of New South Wales against the appellant for conversion of the cheques. I gather Mr. Mason continues to assert his authority to indorse the cheques. These actions are still awaiting trial. These two companies have also brought suits against Mr. Mason and the company in the Supreme Court of Queensland for moneys had and received in respect of the same three cheques. It appears that these actions are still pending.

The appellant thus faces a possibility that in the future it may find itself liable to pay sums up to $15,000 as a result of having collected the proceeds of the three cheques. It claims that if this occurs, it will be entitled to debit the account of the company with the amount recovered against it by the payees of the cheques up to the amount of such cheques, and to succeed in an action against the company or Mr. Mason for those amounts. The appellant submits that this possibility is a contingent liability of the company within the scope of the guarantee and that the amount which the appellant may be required to pay is now secured by the mortgage. Consequently, the appellant submits that under the terms of the mortgage it is entitled to keep the security on foot.

The guarantees to which reference is made were in identical terms respectively signed by the respondents on 30th August 1971. The guarantees were given "In consideration of the Bank making advances or otherwise giving credit to (a) Option Underwriters Limited " Each guarantee had an upward limit of liability of $6,000. The relevant clauses thereof are 1 (i) and 4, which I set out below:

1. (i) The guarantor will pay to the Bank on demand (whether the customer is then in default or not) all moneys which are now owing or which may from time to time hereafter be owing to the Bank or remain unpaid from the customer on any account or in any manner whatsoever whether alone or jointly or in conjunction with any other person or corporation and whether as principal or surety or otherwise directly or indirectly and whether contingently or otherwise including all moneys which the Bank (whether requested so to do or not) has already advanced or paid or become liable to pay or may hereafter advance or pay or become liable to pay to for or on account of the customer whether along or jointly or in conjunction with any other person or corporation and whether by direct advances or by reason of the Bank accepting or paying or discounting any order draft cheque promissory note bill of exchange or other engagement in respect of which the customer or any other person whose indebtedness to the Bank is intended to be hereby secured may be liable in any manner whatsoever and which have already been or may hereafter be accepted discounted or paid for or on behalf of or at the request of the customer or by reason of the Bank as a result of any other transaction entered into by the Bank for or on behalf of or at the request of the customer being at any time the holder of any order draft cheque promissory note bill of exchange or other engagement whether such orders drafts cheques prommissory notes bills of exchange or other engagements have matured or not or by issuing or confirming any letter of credit or by entering into any bond indemnity or guarantee or otherwise incurring liabilities contingently or otherwise for or on behalf of or at the request of the customer and all interest at the usual and prevalent rate charged by the Bank for the time being or from time to time in similar transactions whether capitalised or current and bank charges owing or remaining unpaid to the Bank from the customer and all costs charges and expenses which may be incurred by the Bank (including those referred to in Clause 11 hereof and also including costs as between solicitor and client in or about any actual or attempted exercise or enforcement of any power right or remedy hereby conferred on the Bank) or which the Bank may incur owing to default in payment of any money intended to be secured by (inter alia) this guarantee and all other interest moneys and other liabilities referred to in Clause 11 hereof and not otherwise covered in this sub-clause.

4. This guarantee shall apply to and secure any ultimate balance due or remaining unpaid to the Bank and the Bank may enforce this security against the guarantor notwithstanding that any bills or other instruments covered by it may be in circulation or outstanding. This guarantee shall be determinable by the guarantor as to further liability only on the terms of the guarantor making full provision up to the limit of the guarantee for any liabilities or obligations on the part of the Bank on the customer's account arising out of some order draft cheque promissory notice bill of exchange or other engagement outstanding contingent or accruing at the time of the guarantor giving notice of determination and for any moneys then due and payable or which within seven days thereafter may become due and payable to the Bank by the customer under any guarantee. Except as aforesaid the liability of the guarantor shall cease and determine as to future liabilities.

Looking firstly at the words of the mortgage, the parts most favourable to the bank in cl. 1 are those creating an obligation to pay "all and every sums or sum of money which the bank has already advanced or paid or is liable to pay or may hereafter advance or pay or become liable to pay". However, it was conceded that these words must be "included" within and thus governed by the opening words of the clause which provide that the obligation is "to pay to the Bank all moneys which are now or may from time to time hereafter be owing in any manner by the Mortgagor or by Option Underwriters Ltd.". Evidently, to fall within this language, there must be a sum of money "owing" to the bank, that is to say, presently due either by the mortgagors or the company.

It is, to my mind, clear that the payments by the bank which come within the operation of this clause are payments made by the bank on behalf of the mortgagors or of the company. What may yet become payable by the bank to the payees of the cheque will not be money paid or payable on behalf of the mortgagors or of the company and so within the express words of the mortgage. It will be money paid by the bank on its own behalf because of its own actions in clearing the cheque, wrongfully if the payees succeed in their actions. The fact that the bank, having paid such moneys, may have a right of action against the company does not mean that the moneys were paid to the payees on behalf of the company within the meaning of the clause in the bill of mortgage. In my opinion they will not have been so paid.

Thus in my opinion, the possible liability of the bank on its own account to pay moneys to the payees of the cheque cannot be regarded as money which the bank may become liable to pay within the meaning of cl. 1. In any case, the mortgage, as I have pointed out, only secures money owing or which becomes owing and unpaid.

On the facts of the present situation the respondents' liability under the guarantees could only augment their liability under the mortgage - which liability is the sole concern of this action - if there was a sum presently due by the guarantors so as to be money owing by them as mortgagors "on any account". In this connexion the relevant words of the guarantees would be considered. The nature of the bill of mortgage and of the guarantees is in relevant respects quite different. The one secures money due and the other both present and future liabilities. The phrases of the clauses of the guarantees to which I referred are wider than those of the mortgage, since the "guarantor will pay to the Bank on demand all moneys which may from time to time hereafter be owing to the Bank or remain unpaid from the customer on any account whatsoever whether contingently or otherwise including all moneys which the Bank may hereafter become liable to pay or for on account of the customer". Once again the opening words "moneys owing" govern all the subsequent elaborations of the events under which liability arises, although in this instance such moneys may be owed "contingently or otherwise". As I have indicated any accrued liabilities under the guarantee become moneys owing both by the guarantor and by the company and can be included in the moneys secured by the mortgage; and thus be ground for refusing to discharge the mortgage. The sole question in this appeal therefore is whether the judge at first instance was in error in concluding that from the facts concerning the three cheques, there were no moneys "owing" to the bank in the terms of the mortgage, or even "owing contingently" under the guarantee.

Counsel for the appellant argued that a present liability of the company to pay to the appellant what it may yet pay to the payees of the cheques arises out of the contractual relationship of banker and customer, and also of banker and guarantor. Thus, it is said that there is a present obligation on the customer and the guarantor to pay the bank any amount for which the bank has become liable in conversion as a result of its having collected a cheque deposited by the customer to whose account the cheque was credited. This obligation, it is said, is a present liability which is contingent on the happening of such event. In the present circumstances, it was claimed the Court can assess the proximity of the events triggering the bank's right to recover from the customer, and can hold that the amount is "owed" or at least "owed contingently".

The relevant contractual obligation of the customer is to pay to the bank the balance due to the bank at the time of the bank's demand for payment of the account, it resting on the bank to establish that balance; just as the obligation of the bank is to pay to the customer on demand the balance of the account, it being upon the customer to establish the existence and amount of that balance. No doubt the bank, having refunded to the payees the amounts of the several cheques, would be entitled to debit their amount to the account of the customer, if the account is still on foot. It is also true that if the account should have been closed, the bank could sue the customer for the amount of the cheques. In that case, the cause of action would arise out of the combination of the facts that the customer's account had been credited with the amount of the cheques, and that the bank had properly paid to the payee the amount of the cheques because of the lack of authority to indorse them to the customer. But that right of action would not arise, in my opinion, ex contractu in the sense of a promise to pay that amount paid by the bank, but out of an obligation created by the law because of the events occurring during and consequent upon the relationship of banker and customer. The obligation of the customer to pay will arise when the bank has properly repaid the payees of the cheques and not before.

There is therefore a prime difficulty with the appellant's submission that there is presently a contingent liability within the meaning of the guarantee for the amount the appellant may have to refund to the payees of the cheques. Granted the ultimate liability of the customer, there does not seem to me to be any present liability or obligation which can be embraced in the description "moneys which may be owing to the Bank from the customer on any account whether contingently or otherwise including all moneys which the Bank may become liable to pay on account of the customer ". I have already pointed out that the moneys if paid by the appellant to the payees of the cheques will not have been paid on account of the customer: just as the proceeds of the cheques were not received on account of the customer but on the bank's own account.

In my opinion, the possibility that the company will have to pay to the appellant the amount paid by it to the payees of the cheques cannot be regarded as moneys "owing contingently". Nor, in my opinion, can that amount be properly described as a contingent liability of the company. That description is not satisfied by the fact that money may become owing upon the occurrence of some event. There must be some present obligation to pay out of which the money may become due. The stress is upon the word "owing", which imports some existing obligation though it may be imperfect until an event within its purview occurs.

In Community Development Pty. Ltd. v. Engwirda Construction Co. [5] , a decision much relied upon by the appellant, a building contractor entitled under a written contract to payment of the balance of the contract price together with the value of extra work done but subject to the certification thereof by a supervising architect, was held entitled to present a petition to wind up the building owner in the absence of such a certificate, and notwithstanding the presence in the building contract of a Scott v. Avery clause as to arbitration. The relevant statute gave "any creditor, including a contingent or prospective creditor" a right to petition for winding up. The builder claimed to have carried the contracted work to a state of practical completion. Kitto J., in the leading judgment, found a definition of Pennycuick J. of a contingent creditor satisfactory for the purposes then in hand [1] . That definition was "a person towards whom, under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date" (see Re William Hockley Ltd. ) [2] . As was emphasized in that judgment, the importance of that definition is its insistence on the presence of an existing obligation out of which the ultimate liability will grow. In that case, there was such an obligation, the promise of the building owner to pay the price of the extras, an obligation which was regarded as persisting throughout.

1. (1969) 120 C.L.R. 455. 2. (1969) 120 C.L.R., at p. 459. 3. [1962] 1 W.L.R. 555, at p. 558; [1962] 2 All E.R. 111, at p. 113.

But, in the present case, there does not exist, in my opinion, any such obligation, however much due to past and later events a liability may arise. As I have said, when it does, it will arise out of the facts and the past relationship.

In my opinion, cl. 17 of the bill of mortgage does not bear on the problems raised by the case. Further what I have said is related to the terms of the mortgage, and does not bear on what may prove to be the ultimate liability of the guarantors.

In my opinion, the declaration of the primary judge was properly made. The appeal has been conducted by the appellant on the footing that if its submissions failed, the mortgage ought to be discharged. I am of opinion that the indication of the primary judge in this sense was in accordance with the true legal position between the parties.

I would dismiss the appeal and affirm the judgment of the primary judge.

The appellant, the National Bank of Australasia Ltd., appeals from a decision of the Supreme Court of Queensland, Andrews J., declaring that neither the respondent mortgagors nor Option Underwriters Ltd., whose bank overdraft accommodation was secured by the respondents' mortgage, are obliged to pay the bank any sum of money pursuant to cl. 1 of that mortgage.

Since March 1974 the company's account has not been in overdraft; so that when Mr. and Mrs. Mason, the mortgagors, issued their writ in August 1974 seeking the above declaration no amount was then owed by the company to the bank. Issue of the writ had followed the bank's refusal to discharge the mortgage, a refusal founded upon the anticipation that the bank might in the future be found liable to third parties for the conversion of certain cheques deposited to the credit of Option Underwriters' bank account in 1971 and which the bank had collected on its behalf.

In 1971 Mr. Mason had deposited to the credit of the company's account three cheques, all marked "not negotiable" and one of them also marked "a/c payee only" and all made payable to third parties. Each bore an indorsement signed by Mason on behalf of the payee. The cheques were credited to Option Underwriters' account and their proceeds were collected by the bank. The payees contend that Mason had no authority so to indorse these cheques and to pay them into the company's account and in 1972 they instituted actions against the Masons and Option Underwriters and, later, against the bank alleging their conversion and seeking damages accordingly. These actions have not yet come on for trial and in the meanwhile the Masons sought to have their mortgage discharged; the bank declined to do so, asserting the existence of a contingent liability of Option Underwriters to it arising out of the action for damages pending against it.

In August 1971, some three months after the execution of the mortgage, the Masons had each given a guarantee to the bank in respect of Option Underwriters' account and the bank contends that these guarantees apply to this contingent liability and that the mortgage is a security supporting those guarantees. These are the circumstances which have led to the institution of the present proceedings by the Masons. The relief claimed in these proceedings is narrowly confined, being limited to the making of a declaration as to the rights of the parties under the mortgage.

The mortgage describes that which it secures as the payment and satisfaction of "moneys and liabilities hereinafter specified". Of the clauses which follow, cl. 1 alone is material. It contains a promise to pay to the bank on demand in writing "all moneys which are now or may from time to time hereafter be owing or remain unpaid to the Bank in any manner or on any account whatsoever" either by the Masons or by Option Underwriters. There follows a description of amounts included within the foregoing but this does not have the effect of enlarging the general description of that which is promised to be paid. The reference to moneys owing in the future, "from time to time hereafter", refers, clearly enough, to the period of time during which the mortgage subsists and can have no application to moneys which first become owing or unpaid to the bank after its discharge. It follows that the promise to pay is confined to moneys which at any time during the currency of the mortgage may properly be described as moneys which are "now owing or remain unpaid to the Bank".

Since nothing is currently owing to the bank the payment of which is secured by the mortgage it is clear that if it stood on its own the Masons would be entitled to have it discharged and would have been so entitled when they instituted the present proceedings. The only possible source of indebtedness to the bank is the liability which may arise should the payees of the three cheques recover damages against the bank and should the bank thereafter succeed against Option Underwriters in an action to recover from it the amount of the bank's liability in damages. As yet this source has not given rise to any debt falling within cl. 1 of the mortgage unless the terms of the guarantees can have that effect. I turn therefore to the guarantees.

The guarantees, each on the same printed form, obligate the guarantors, so far as presently relevant, to pay moneys which are "now owing" or which "may from time to time hereafter be owing to the Bank or remain unpaid from" Option Underwriters - cl. 1 (i). As in the mortgage, these words in the guarantee do not extend further than to describe moneys which at any time during the currency of the guarantee may be described as "now owing". However the remainder of cl. 1 (i) must be read, no easy task consisting as it does, of one unpunctuated sentence of over 450 words of small print which is presented to the reader in twenty-five closely set lines, each of excessive length. There the resolute and persevering may find, in the midst of much else, the phrase "and whether contingently or otherwise". Scrutiny of the grammatical construction of this lengthy sentence reveals that this phrase purports to enlarge the scope of the initial description of those moneys which the guarantor promises to pay to the bank. The guarantor's obligation, thus enlarged, purports to extend to paying to the bank on demand not simply moneys which at any time during the currency of the guarantee would ordinarily answer the description of being "now owing" but also moneys which at one and the same time are both "now owing" and also owing "contingently".

If this means that cl. 1 (i) extends to amounts which are at no time during the currency of the guarantee actually payable to the bank by the principal debtor, being payable only on a contingency, that is on "an event which may or may not occur" - In re Sutherland, Deceased, per Lord Guest [3] - this is indeed a curious form of guarantee. Thus the bank could demand payment from the guarantor of sums which have not yet become due to, and may never become due to, the bank from the principal debtor; it will, moreover, under cl. 1 (ii), be entitled to interest on those sums until paid by the guarantor. The liability of the guarantor will not be coextensive with that of the principal debtor but will in this respect notably exceed it.

A clue to the true meaning of the phrase is provided by a second reference to the bank incurring "liabilities contingently or otherwise" which occurs in a later part of cl. 1 (i). That part of the clause opens with the word "including" and must be intended either to provide examples of matters comprised within the general words of the earlier part of the clause or to extend somewhat their meaning. It can scarcely be intended to instance an operation of the guarantee at variance with and more restricted than that brought about by earlier parts of the clause. Yet this is its effect if the suggested meaning of those earlier parts be correct.

This second reference to contingent liabilities speaks of those incurred by the bank to third parties as a result of the issue by it, at the customer's instance, of a letter of credit, bond, indemnity, guarantee or the like. The incurring by the bank of these contingent liabilities would, if the suggested meaning of the clause's first reference to contingent liabilities be correct, result in immediate liability on the part of the guarantor. However in the second reference to contingent liabilities it is made clear that the guarantor's liability will in such a case only arise if at a later date the bank has actually paid or become liable to pay third parties under its letter of credit etc.

The differing effect of these two references to contingent liabilities is sufficient to occasion doubts as to the suggested meaning to be given to the early part of the clause.

Clause 4 provides a further aid to construction. It allows the guarantor to determine the further operation of the guarantee by the giving of notice of determination, but it is careful to except out of the guarantor's resultant freedom from further liability the case of liabilities of the bank on the customer's account which, while only contingent at the time of the giving of notice, arise out of certain specified types of engagement on the customer's behalf. As to these the guarantor must on determination make "full provision up to the limit of the guarantee". Yet if indeed the guarantee in fact extends to contingent liabilities as soon as they arise and whether or not the contingency ever occurs, this exception is unnecessary; the incurring by the bank of the merely contingent liability during the currency of the guarantee will render the guarantor liable under the guarantee as surely as will its incurring of an actual liability, subject only, perhaps, to difficulties of quantification in the event of an unliquidated contingent liability, and the guarantor's liability thus incurred will be unaffected by the subsequent giving of notice of determination.

The presence of the exception in cl. 4 contemplates, clearly enough, that but for its inclusion a guarantor would not become liable under his guarantee upon the bank incurring some merely contingent liability on the customer's account; only if the contingency were to occur before notice of determination takes effect would the guarantor, for the first time, become liable. Hence the need, met by the exception in cl. 4, to preserve the bank's rights against a guarantor should any contingent liability, earlier incurred, grow, after determination, into an actual liability.

To these considerations must be added the fact that it is, I think, a contradiction in terms to speak of "moneys now owing" and at the same time to seek to include therein moneys only owing on a contingency; yet this I regard as the effect of the first reference to "whether contingently or otherwise" in cl. 1 (i) if it be given the meaning which the bank must contend for. In Community Development Pty. Ltd. v. Engwirda Construction Co. [4] , Owen J. examined the authorities concerned with the meaning of a "contingent creditor" and "contingent liability"; these authorities, together with his Honour's own judgment and that of Kitto J. in that case, do, I think, support the view that the contradiction to which I refer is a real one.

What effect, then, should be given to "whether contingently or otherwise" where first appearing in cl. 1 (i)? The drafting of the rest of the clause does not lead one necessarily to look for any very elegant or precise use of language. In such a context the phrase must, I think, be taken to refer not to contingent events upon the happening of which moneys will, for the first time, become "now owing", but rather as descriptive of one instance of money being now owing, that is to say, where, in some transaction productive of liability only if some contingent event occurs, that even does occur. Thus the contingency which the clause refers to is not descriptive of the nature of the indebtedness of the bank but instead describes the contingent nature of the occasion which, the contingency having happened, has given rise to actual indebtedness.

Accordingly in my view, special provisions of cl. 4 apart, the Masons, as guarantors, are only liable to pay money to the bank under their guarantees when moneys have actually become owing to it from the principal debtor. This position had not arisen when this action was instituted by the Masons nor, apparently, is it yet the case. It follows that the guarantee cannot be relied upon by the appellant to make good its claim to be entitled to retain its mortgage security in force to satisfy a possible future claim against Option Underwriters.

It does not appear whether notices of determination of the guarantees has been given; this is perhaps because of the strangely narrow terms of the relief sought in the writ. The guarantors have, since before they instituted these proceedings, been in a position to give notice of determination and if they do so the exception to termination of future liability which cl. 4 contains will not apply. It is only to "liabilities or obligations on the part of the Bank on the customer's account arising out of some order draft cheque promissory note bill of exchange or other engagement outstanding contingent or accruing" that the exception applies, the guarantor being obliged to make full provision up to the limit of the guarantee in respect of such liabilities. But the possibility that the bank may be held liable in damages to the payees for conversion of the three cheques does not constitute either a liability or an obligation on the part of the bank "on the customer's account", that is, as I would read it, "on behalf of" Option Underwriters; nor does it in any relevant sense arise "out of some order draft cheque promissory note bill of exchange or other engagement" but, rather, out of the action of the bank in converting to its own use the payees' funds. That the bank was induced to do so at the instance of Mr. Mason or that in doing so it benefited Option Underwriters does not result in its liability or obligation to the payees assuming such a description.

Since Option Underwriters at present owes nothing to the bank and since the Masons remain free to determine their guarantees without there being any liability thereunder to the bank left subsisting after that determination, it follows that the existence of the guarantees in no way affects adversely the rights of the Masons under the mortgage. No moneys are owed under it, it secures nothing and its discharge may be insisted upon by the Masons.

It is for these reasons that I would dismiss this appeal.

The appeal is from a declaration by Andrews J. in the Supreme Court of Queensland that "upon the true construction of a bill of mortgage between the plaintiffs and the defendant, neither the plaintiffs nor Option Underwriters Ltd. are obliged to pay the defendant any sum of money pursuant to cl. 1 thereunder". The defendant referred to is the appellant, the National Bank of Australasia Ltd. The plaintiffs are the respondents, the Masons.

The facts are set out in the other judgments of this Court.

[The respondents] for the purpose of securing to the National Bank the payment and satisfaction of all the principal interest and other moneys and liabilities hereinafter specified do hereby jointly and severally covenant and agree with the Bank to pay to the Bank on demand in writing all moneys which are now or may from time to time hereafter be owing or remain unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor or by Option Underwriters Ltd including all and every the sums or sum of money (if any) which the Bank (whether requested so to do or not) has already advanced or paid or is liable to pay or may hereafter advance or pay or become liable to pay

That this Mortgage shall be deemed to be a running and continuing security notwithstanding any settlement of account or any other matter or thing whatsoever and shall remain in full force until a final discharge thereof shall have been executed by the Bank.

The critical words in the guarantee which the respondents entered into with the appellant are:

The Guarantors jointly and severally agree with and guarantee and indemnify you as follows:

(i) The Guarantor will pay to the Bank on demand all moneys which are now owing or which may from time to time hereafter be owing to the Bank or remain unpaid from the customer on any account whatsoever whether contingently or otherwise including all moneys which the Bank may hereafter become liable to pay to for or on account of the customer whether by direct advances or by reason of the Bank as a result of any other transaction entered into by the Bank for or on behalf of or at the request of the customer being at any time the holder of any order draft cheque promissory note bill of exchange or other engagement whether such orders drafts cheques have matured or not or otherwise incurring liabilities contingently or otherwise for or on behalf of or at the request of the customer.

4. This guarantee shall be determinable by the guarantor as to further liability only on the terms of the guarantor making full provision up to the limit of the guarantee for any liabilities or obligations on the part of the Bank on the customer's account arising out of some order draft cheque promissory note bill of exchange or other engagement outstanding contingent or accruing at the time of the guarantor giving notice of determination.

The customer referred to in the guarantee was Option Underwriters Ltd.

The possibility that a successful claim may be made by the bank against the respondents or Option Underwriters Ltd. in the future does not mean that there is now "money owing" by the respondents to the bank, contingently or otherwise. At the time the declaration was sought there was obviously no obligation on the part of either the respondents, or the company, to pay to the bank "any sum of money". The declaration was clearly correct.

There was some discussion before this Court on the questions of whether the respondents were entitled to determine the guarantee, and whether they were entitled to a discharge of the mortgage. These questions do not properly arise in the appeal. I am not satisfied that the respondents are entitled to determine the guarantee without making the full provision up to its limit in respect of the liability or obligation of the bank arising out of the cheques in accordance with cl. 4. If the liability of the bank to the drawer of the cheques is established as a result of judicial decision, this will be the liability of the bank itself (cf. the Bills of Exchange Act 1909-1973 (Cth) s. 88D which refers to the liability of the banker to the true owner of a cheque). This will not prevent it from also being a liability or obligation "on the part of the Bank on the customers account arising out of some cheque or other engagement" within the meaning of cl. 4. In my opinion, cl. 4 was intended to cover liabilities or obligations arising in circumstances such as these. It would be curious if it were not.

Questions may arise on the extent of such liability, the answers to which may depend on whether the liability of a bank in these circumstances is ultimately established and measured in an action for money had and received (as here) or in damages for conversion. They were not fully argued, and do not call for decision.