Panebianco v Bendigo Bank Limited [1999] VSC 50

11. At the time when the mortgages were executed, the plaintiff's husband Francesco Panebianco ("Mr Panebianco") was, and had been since August 1981, a manager in the employ of the second defendant. He was dismissed by the defendant on 7 May 1998. He has admitted to an officer of the defendant that he made a number of unauthorised transactions on customer accounts, totalling more than $999,000. He has also admitted creating accounts for customers which were not official bank accounts and did not pass through the defendant's records or systems. The matter is under investigation by the Victoria Police, and Mr Panebianco has been charged with four counts of theft in relation to which he is currently on bail. It appears that those four charges are to be withdrawn and further charges laid. The defendant has already made good to customers more than $253,347 in respect of misappropriations committed by Mr Panebianco, and intends to issue proceedings against him or to seek a restitution order. It has not been possible to determine what has become of the misappropriated funds.

14. Mr Garratt, for the defendant, submitted that whatever may be the effect of section 19 of the Employee Relations Act 1992 (Vic), and subsequently of section 521 of the Workplace Relations Act 1996 (Cth), on the common law position as to the liability of an employee to an employer for contravention of an employment agreement, Mr Panebianco is liable or indebted to the defendant for substantial amounts of money. I did not understand Mr Holzer, for the plaintiff, to dispute Mr Garratt's submission.

17. As at 1 December 1998, the amount outstanding under the mortgages was $122,882.68 (it is not clear whether that is the amount of principal only or included interest and costs, but the question is not of significance in the context). The mortgaged property was valued in 1993 at some $310,000. The plaintiff wishes to refinance her loan by borrowing from another financial institution, the loan to be secured by a registrable first mortgage over the land. To do this, she will need to be able to provide to the other institution a discharge of both the existing mortgages to the defendant. By a letter from her solicitors dated 6 October 1998, she gave written notice to the defendant of her intention to discharge the mortgages. That letter refers to previous correspondence. It is to be assumed that it was understood at the time between the parties that the intention of the plaintiff was to tender, with a view to obtaining a discharge, the balance of the principal sums together with interest and costs in accordance with the terms of the mortgages. By letter of 21 October 1998, the solicitors for the defendant replied:

The mortgage [sic] held by our client is [sic] an all moneys mortgage providing security for all sums owing to our client by Mr or Mrs Panebianco.

Mr Panebianco is the subject of criminal proceedings in respect of activities which allegedly occurred when he was a manager employed by our client. Our client anticipates suffering a loss as a result of those activities. In the circumstances, a discharge will not be provided.

22. Save for dates, amounts and interest rates, the two mortgages are in identical terms. The plaintiff as mortgagor covenants "to observe and perform the provisions contained in the Memorandum of Common Provisions retained by the Registrar of Titles in number AA357 (`the Memorandum')". The expression "the Debtor" is defined as meaning the plaintiff and Mr Panebianco, both of whom executed each mortgage, and the Memorandum provides that that expression is a reference to them jointly and severally. In the mortgages, "the Debtor" covenants to be bound by "the provisions on behalf of the Debtor contained in the Memorandum". The matter turns on the interpretation of the provisions of the Memorandum, and the relevant provisions are considered below.

25. Clause 2.11 of the Memorandum entitles the mortgagor and the debtor to repay "the balance of the moneys hereby secured" at any time, with interest, on the conditions there set out. It is not in issue that if there is no amount remaining secured by the mortgage, the mortgagor is entitled to a discharge of the mortgage, as to which see Graham v Seal (1918) 88 LJ Ch 31. Therefore the question is, what are "the moneys hereby secured".

28. That expression is defined at considerable length in clause 1 of the Memorandum, in a list of items beginning with "the Principal Sum" (defined in the mortgages themselves and originally totalling $280,000). The significant provisions are items (d) and (f) of the definition, which read, so far as relevant:

(d) All other money . . . for which the Mortgagor and the Debtor or either of them is now or may hereby or hereafter become liable or indebted to the Mortgagee and without intending to limit the application of this clause, shall include:

[a long list of moneys, chiefly related to the loan, such as the mortgagee's legal expenses of the preparation and discharge of the mortgage]

(f) All other moneys which the Mortgagee has advanced, paid or become liable to advance or pay to, for, or on account of or on behalf of the Mortgagor or the Debtor . . .

Mr Holzer did not suggest that the breadth of the opening words of item (d) should be read down by virtue of the relationship of most of the amounts listed under that heading to the original loans which constituted the principal sum.

35. The submission of Mr Garratt was that that definition of "the moneys hereby secured" must include any amounts for which Mr Panebianco is indebted to the defendant as a result of the matters set out in paragraph 4 above, and accordingly that the defendant is entitled to refuse a discharge of the mortgages on tender merely of the principal sum, interest and costs. He referred, in addition to the definition set out above, to clause 2.13 of the Memorandum as indicating the width of the expression "the moneys hereby secured". That provision empowers the mortgagee to appropriate moneys paid by the mortgagor or the debtor:

either towards any moneys which shall be payable by the Mortgagor or the Debtor or for which the Mortgagor or the Debtor is responsible or liable to pay to the Mortgagee (either as principal or surety or otherwise) whether secured or unsecured or in or towards any moneys owing or payable under this Mortgage and in such order of priority as the Mortgagee shall . . . think fit . . . and so that failing such appropriation . . . such moneys . . . shall be applied first in or towards any unsecured debt or liability of the Mortgagor or the Debtor owing to the Mortgagee or any Related Corporation of the Mortgagee . . .

39. There appears to be a conflict between that provision, referring to "any unsecured debt or liability of the Mortgagor or the Debtor owing to the Mortgagee . . ." and item (d) of the definition of "the moneys hereby secured", bringing within the scope of the security constituted by the mortgage "All other money . . . for which the Mortgagor and the Debtor or either of them is now or may hereby or hereafter become liable or indebted to the Mortgagee". However, the ordinary meaning of either provision prima facie is that the mortgagee is entitled to require payment of such moneys before discharging the mortgage.

42. Mr Holzer relied on a line of cases in which single judges of the Supreme Court of New South Wales have relied on American authorities which have held that provisions in bank mortgages purporting to have the effect described above ("all moneys clauses") should be read down. Young J in Estoril Investments Pty Ltd v Westpac Banking Corp [1993] 6 BPR 13,146 at 13,151-2 set out certain "guidelines", the second of which was, "Only debts of the same type or character as the original debt are secured by the mortgage." Sperling J in Jageev Pty Ltd v State Bank of New South Wales (No 2) (unreported, delivered on 23 August 1996_)_ held that that there was an expectation that a mortgage taken by a bank would be confined to securing only liabilities arising from the banking business, and that the width of an all moneys clause should be read down accordingly.

45. Mr Holzer submitted, in reliance on both Young J and Sperling J, that when the mortgage was executed, it was not in the contemplation of the parties that Mr Panebianco would engage in fraudulent activities, resulting in his owing money to the defendant. The task of the court was to ascertain and apply the intention of the parties. The parties could not have intended that the amount owing by Mr Panebianco to the defendant would be included in the moneys secured by the mortgages.

48. Those authorities were considered by Hill J in the Federal Court in Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1966) 140 ALR 46. The facts in that matter were similar to those before me, save that the property was owned and mortgaged jointly by the employee of the mortgagee bank and her husband. The employee stole from the bank, subsequently became bankrupt, and on the sale of the property the bank claimed to be secured in respect of the sum misappropriated as well as the original loan. This claim was disputed by the trustees of the bankrupt estate. The relevant provisions of the mortgage, while expressed differently, were to similar effect as those in the present case.

51. After carefully considering a number of New South Wales cases, both at first instance and in the Court of Appeal, Hill J concluded (at 54):

The difficulty in the present case is that the New South Wales Court of Appeal has, despite the comments of Sperling J, hardly given a ringing endorsement to what has been said by Young J. It must, however, be acknowledged that their Honours have fallen somewhat short of saying that the approach to interpretation advocated by his Honour was wrong.

I think that following [the NSW Court of Appeal in Smith v Australia & New Zealand Banking Group Ltd (1996) NSW Conv R 55-774, on appeal from Young J] I should treat the guidelines suggested by Young J as not requiring me to read down the all moneys clause if its language actually covers the situation. The guidelines find no real support in the actual reasons of the members of the Court of Appeal.

After setting out certain principles which, in His Honour's view, were accepted law in New South Wales, he continued:

This having been said, the real question . . . is whether on the true construction of the mortgage and in the events which have occurred, the obligation of Ms Murphy to repay moneys which she had stolen falls within the language of the all moneys clause. In my view it does.

The language of the mortgage is quite clear. It is drawn with great width and deliberately so, no doubt to ensure as far as is possible that any moneys owing to the bank are secured, howsoever the obligation may arise. It was no doubt not in contemplation by the bank, and probably not by Ms Murphy at the time of entering into the mortgage, that she would steal money and in the result come to be in a position where she was required to repay moneys to the bank. But that can hardly be the test. The real question is whether the language of the mortgage is wide enough to encompass liability to the bank arising as a result of theft or misappropriation. In my view it is. The case is not one where the result of a literal application of the language of the mortgage would be to yield absurdity. Nor is the case one where the clause to be construed is itself ambiguous. To read down the extreme width of the present all moneys clause so that it would not apply beyond the initial banking transaction which it secured, would be to treat [the provisions there corresponding to those cited in paragraphs 9 and 10 above] as being redundant. There is no principle of law or construction which requires or permits such a course to be taken.

It follows that I would find that the bank's mortgage extended on its proper construction to include amounts which Ms Murphy became obliged to repay to the bank as a result of Ms Murphy forging the signature of customers and thus withdrawing moneys from their accounts, notwithstanding that the mortgage was originally entered into on the basis of providing security to the bank for advances made available to Ms Murphy and her husband.

61. I would, with respect, adopt the passages which I have cited from the judgment of Hill J as equally applicable to the construction of the mortgage with which I am concerned. Mr Holzer submitted that Murphy was distinguishable on the basis that the plaintiff is the sole registered proprietor of the mortgaged land, whereas in Murphy the bank employee and her spouse were joint registered proprietors. However, I do not see that as a relevant distinction. In any case, the plaintiff and Mr Panebianco, as joint and several debtors, were equally bound by the terms of the mortgages, including the terms of the Memorandum.

64. Accordingly, I find that the mortgages extend, on their proper construction, to secure any moneys which may be owing by Mr Panebianco to the defendant as a result of his activities which are described in paragraph 4 above. The claim of the plaintiff accordingly fails. Counsel may wish to make submissions as to costs.