OLYMPIC HOLDINGS PTY LTD -v- WINDSLOW CORPORATION PTY LTD (in liq) [2008] WASCA 80 (10 April 2008)

OLYMPIC HOLDINGS PTY LTD -v- WINDSLOW CORPORATION PTY LTD (in liq) [2008] WASCA 80 (10 April 2008) - WASCA 2008 case summary — Zoe

[59]

At a first glance, the definition of 'secured money', when considered in conjunction with the obligation to pay established by cl 2.1 of the Memorandum, certainly suggests that the moneys sought to be secured are moneys advanced by the Bank to the borrower, and that the commercial purpose intended to be served is to secure moneys advanced by the Bank to the borrower, not to secure moneys which are owed or might be owed by the borrower (in this case Windslow) to third party creditors.

There are various indications that the term 'secured money' is defined broadly with a view to ensuring that the Bank is covered in all possible situations which could arise, whether arising out of a conventional lending situation or otherwise. At first blush, the subject matter of the transaction appears to be essentially the securing of moneys belonging to the Bank which are advanced by the Bank to the borrower.

I recognise in theoretical terms that it may be a matter of indifference to a bank as to whether it is repaid by the borrower, or paid out by some other means. It could therefore be of advantage to a bank to create a marketable security of sorts which is capable of assignment to third parties with the capacity to pay out a debt due to the bank, and which has features that might be attractive to an assignee (such as provision for the assignee's debt to be added to the bank debt). However, there are few signs in the present instrument that the document was intended to serve this purpose.

To my mind, it is significant in that respect that the crucial definition provision speaks of 'any transaction entered into or undertaken by the Bank at the request (express or implied) of the mortgagor'. The words 'at the request' of the mortgagor suggest that the commercial purpose which the document was intended to serve was the provision of funds to a customer of the Bank in response to the customer's request with arrangements being made for any advances made by the Bank to be secured. Further, the words 'on any account whatsoever' appear in the context of provision for payment 'by the mortgagor to the Bank'. This, again, suggests that what is being spoken of is a payment in respect of moneys advanced by the Bank on any account maintained by the borrower with the Bank [58] - [61].

[88]

The point that has troubled me is whether the present question is answered simply by a process of construction of the clause, or whether it is answered by holding that an assignee cannot obtain that which the assignor did not himself have. In the end I think it depends upon the words used in the mortgage. To take a simple example, there would be no difficulty if the mortgage identified a debt (such as that then owed by [the appellant] to [the respondent]). Nor would there be any difficulty if future debts between those same parties were included (viz. 'all debts owed by [the appellant] to [the respondent], present or future'). Equally, [the appellant] could mortgage his property to cover such present and future liability, and the right to present and future security could similarly be assigned by the party entitled to its benefit (Holroyd v. Marshall (1862) 10 H.L.C.; 11 E.R. 999; Tailby v. Official Receiver (1888) 13 App. Cas. 523). What is lacking in the present mortgage is a clear indication that pre-assignment debts owed by the mortgagor to the unnamed assignee are to be secured by the mortgage.

In the end then it is a matter of construction.

If a mortgagor stipulates clearly enough in his mortgage that he is transferring to the mortgagee (and the mortgagee's assigns) certain present and future rights or that he is agreeing to make himself and his property liable for certain states of account between himself and other persons who are not named but who may in due course be identified, then upon the fulfilment of those events his liability to the mortgagee (or the mortgagee's assignee) may be enforced against him. In short, if he does so in clear enough language, a mortgagor may grant rights which, if certain events happen, may produce extreme and unforeseen disadvantages.

It is only because on strict construction the mortgage does not cover the liability sought to be enforced, and possibly because of the state of the evidence as to the status of the original obligation, that [the respondent] fails to show any further obligation upon [the appellant] to pay additional moneys before entitlement to redeem the mortgages [651 - 652].

[99]

It should be remembered that the further advance of the $143,771.81 was made or given at or after assignment of the mortgage to Oceanic. The events were part of one transaction, rather than look at them in strict sequence they should be viewed as taking effect in the manner intended by the parties, and the intention clearly was that the mortgage be assigned to Oceanic and then varied by agreement between Oceanic and Glowtide (the deed of variation) to secure the whole of the $13 million. In conformity with that intention, it would not be right to treat the $143,771.81 as an assigned debt, and the cases on which Messrs Ratcliffe and Tuck relied are distinguishable. It was a debt originally owed to an assignee, and the question is whether the context (or anything else relevant to construction) meant that 'Mortgagee' in para (d) did not, in accordance with the definition, include the assigns of Permanent. It could be argued that the definition is adequately explained by an intention that the assigns should stand in the place of Permanent as to accrued rights of Permanent, relevantly rights from transactions between Glowtide and Permanent. But where the mortgage was expressly capable of assignment, there is no sufficient reason to deny an intention that the mortgagor and the (new) mortgagee by assignment should be able to agree upon an increased loan and have the further advance secured by the existing mortgage. There is no question of perpetual duration of the mortgage, or an increase in the amount secured, outside the control of the mortgagor.

It is necessary to consider the guarantee as well as the mortgage. The guarantee was by Glowtide's directors of Glowtide's obligations, directed to Glowtide's obligations under the mortgage. Glowtide's obligations could be increased, relevantly by its receiving further advances. Relating the submission to the guarantee, it would have been that the guarantee extended only to further advances made or given by Permanent to Glowtide, and did not extend to further advances made or given by an assignee from Permanent. The answer to the submission in this respect is of the same nature as the answer to its prior manifestation. Given the clear terms of the mortgage and the guarantee, there is no sufficient reason to deny an intention that the mortgagor and the (new) mortgagee by assignment should be able to agree upon an increased loan and have the further advance secured by the existing mortgage, with the guarantee continuing and catching the increased obligation. In my opinion the guarantee of Messrs Ratcliffe and Tuck also caught Glowtide's liability to Oceanic for the $143,771.81 and interest referable thereto (77 - 78).

[243]

The argument was based upon a conclusion which it was said could be drawn from expressions used in some of the cases dealing with the old rule in Hopkinson v Rolt (supra): see also Bradford Banking Co v Briggs (1886) 12 App Cas 29; Union Bank of Scotland v National Bank of Scotland (1886) 12 App Cas 53. That rule concerned the tacking of future advances to a debt covered by an existing mortgage (not being a mortgage obliging the mortgagee to make future advances, but cf. West v Williams [1899] 1 Ch 132 and Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293). It denied to a mortgagee to whom property was mortgaged to secure advances already made priority for further advances over a subsequent mortgage made with notice before the further advances were given, even if the first mortgage, to the knowledge of the subsequent mortgagee, was expressed to be security for further advances. That is to say, the prior mortgagee could not tack if at the time of the further advances he had notice, actual or constructive, of the subsequent mortgage. Tacking was abolished in England by s 94 of the Law of Property Act 1925 (UK) but exceptions were preserved in relation to future advances. ...

The restriction upon the tacking of future advances has a particular effect upon a bank mortgage given to cover an overdraft in a current bank account when it is combined with the rule in Claytons Case [1815] EngR 77; (1816) 1 Mer 572; 35 ER 781. That rule presumes that payments made in reduction of a debt are intended to be applied consecutively in discharge of the items making up the debt. Where notice of a second mortgage is given, subsequent payments into the account are applied to reduce the overdraft existing at the time of the notice and, in effect, for the benefit of the subsequent mortgagee: Deeley v Lloyds Bank Ltd [1912] AC 756. The subsequent mortgagee takes subject to the overdraft only at that time, that is to say, not subject to future advances, and the reduction of the overdraft correspondingly improves his security. If the overdraft is paid off, then any subsequent indebtedness will be by way of future advances and the Bank mortgage will be postponed entirely in relation to the subsequent mortgage, although the Bank mortgage does not cease to be effective between the Bank and its customer, the mortgagor: London & County Banking Co v Ratcliff (1881) 6 App Cas 722 at 737. It is for the purpose of excluding the rule in Claytons Case that bank mortgages to secure overdraft facilities contain a clause, as does the mortgage in this case in cl 10, declaring the security to be a continuing one and giving the Bank a discretion in the application of payments into the account in satisfaction of the customer's indebtedness.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (259 paragraphs)

OLYMPIC HOLDINGS PTY LTD -v- WINDSLOW CORPORATION PTY LTD (in liq) [2008] WASCA 80 (10 April 2008)

Legislation Cited (6)

Cases Cited (14)