Plaintiff v Defendant

1 This proceeding arose as a result of disputes between the parties in relation to the proper construction of two loan agreements. The first was subject to two separate deeds of variation and a registered mortgage of land securing payment. There were also issues with respect to various dealings between the parties with respect to those agreements and the mortgage. In addition to the mortgage obligations, the loans were also secured by a debenture charge and personal guarantees.

2 The issues originally raised in these proceedings were considerably broader than those ultimately brought to trial. The issues were narrowed prior to trial as a result of agreement following a mediation conducted by Efthim AsJ. This left for determination at trial the issues which I have outlined in general terms, together with a claim by Cave Investments Pty Ltd ("Cave Investments"), as plaintiff by counterclaim, against Paul Grant Linsdell, Peter Thomas Nolan and Kevin Martin McGuire, as second, third and fourth defendants by counterclaim respectively, as guarantors of the obligations of Shepparton Projects Pty Ltd ("Shepparton Projects") under the second and subsisting loan agreement which was entered into in the latter part of 2006.

3 The first loan agreement, the two deeds of variation of that agreement, and the second loan agreement, were all made between Cave Investments, as the lender, and Shepparton Projects, as the borrower. Peter Thomas Nolan, Kevin Martin McGuire and Paul Grant Linsdell were also parties to each of these agreements, in their capacity as guarantors. For convenience, they are simply referred to as "the Guarantors".

4 The first loan agreement is dated 29 September 2004 ("the 2004 Loan Agreement"). This agreement was followed by the two deeds of variation, the first dated 17 November 2005 ("the 2005 Deed of Variation"), and the second dated 6 March 2006 ("the 2006 Deed of Variation"). The 2006 Deed of Variation was followed later in the same year by the second loan agreement which is dated 21 December 2006 ("the 2006 Loan Agreement"). The principal sum of $3,454,000, as provided for in the 2004 Loan Agreement, was secured by a mortgage of the property known as Lot 1 Goulburn Valley Highway, Kialla West which is noted as being the land more particularly described in Certificate of Title Volume 10010 Folio 958 (and is described in the 2004 Loan Agreement as 'the Land') between Shepparton Projects, as mortgagor, and Cave Investments, as mortgagee. This mortgage was registered in Dealing AD 433993N in the Office of Titles. For convenience it is referred to as "the SPM mortgage". As is noted in further detail in the reasons which follow, the SPM mortgage was initially a first mortgage but as a result of further financing arrangements it became a second mortgage to a mortgage of the land to the National Australia Bank ("the NAB").

5 Finally, I note that the Registrar of Titles is named as the second defendant in the primary claim in these proceedings. The Registrar did not participate in these proceedings and is, as might be expected, named as a party simply for the purpose of binding the Registrar to any orders which might have been made affecting the land title register under the Transfer of Land Act 1958 (Vic).

6 The 2004 Loan Agreement states, in recital C, that Shepparton Projects will utilise the present advance of $3,454,000 to purchase the Land for the purpose of a sub-division into 81 lots.

7 The "Principal Sum" to which the provisions of the 2004 Loan Agreement are directed is defined in paragraph 2(a) of that agreement to mean:

"'Principal Sum' means the Present Advance and each and all sums of money in which the Borrower may now or hereafter be indebted or liable or contingently indebted or contingently liable to the Lender on any account whatever including (without limiting the generality of the foregoing) any monies or damages now or hereafter owing or payable by the Borrower under, pursuant to or in connection with this agreement."

The expression "the Present Advance" is not defined in the definition provisions of clause 2 of the 2004 Loan Agreement, but its definition, in effect, is achieved by the provisions of Item 5 of Schedule I of that agreement which provides as follows:

"The Present Advance: The sum of $3,454,000.00 paid as follows:-

$500,000 paid on the 4th June 2004

$280,000 paid on the 29th day of September 2004

$2,520,000.00 paid on the 23rd day of November 2004

$154,000.00 paid on the 23rd day of November 2004."

8 The covenants for the repayment of principal and interest are contained in clause 5 of the 2004 Loan Agreement, as follows:

"The Borrower covenants with the Lender as follows:

(a) to repay to the Lender the Principal Sum at the time or times specified in Item 7 of Schedule 1

(b) to pay interest to the Lender upon the Present Advance at the rate and at the times specified in Item 9 of Schedule 1 under the heading 'Interest' and, unless otherwise agreed, to pay interest upon any other monies forming part of the principal sum outstanding from the time or times that the same is advanced or paid or has become recoverable by the Lender at the rate payable in respect of the Present Advance such interest to accrue and be payable from day to day from the time on which it becomes payable in accordance with the said Item 9;

(c) that the monies received by the Lender from the Borrower unless the Lender otherwise determines in writing or express provision is otherwise made shall be applied first in or towards satisfaction of accrued interest (if any) and, secondly, in or towards satisfaction of the principal sum;

(d) to repay to the Lender on demand any costs incurred and other monies which the Lender may see fit to pay to remedy any default of the Borrower hereunder or under the Guarantee;

(e) to give or procure to be given as soon as practicable after the signing of this agreement the Guarantee."

As a result of the provisions of Items 7 and 8 of Schedule I of the agreement Shepparton Projects was required to repay the "principal sum" on 29 September 2006, two years from the date of the 2004 Loan Agreement, but was entitled to pay some or all of the principal sum at any time prior to that date.

9 The provisions of clause 4 of the 2004 Loan Agreement provide for the securing of the obligations as between Shepparton Projects and Cave Investments, although somewhat circuitously there is a reference to the provisions of the agreement itself. Clause 4 provides:

"The covenants and obligations of the Borrower and the payment of the principal sum and interest (if any) thereon will be secured by:

(a) the Security;

(b) this Agreement; and

(c) the Guarantee to be given by the Guarantors."

The form of guarantee is provided for in clause 6 of the 2004 Loan Agreement, with reference to the form of guarantee set out in Schedule II to that agreement.

The reference to the "Security" is a reference to a first registered mortgage over the land.[1]

10 The form of guarantee provided for in Schedule II of the 2004 Loan Agreement is, unsurprisingly given the provisions of that agreement, directed to financial obligations. The scope of the guarantee is cast in the following terms:

"..hereby irrevocably and unconditionally jointly and severally guarantee to the lender the due and punctual payment by the Borrower of all amounts whatever are owing under or as a result of this said agreement and the due and punctual performance of all obligations and undertakings and provisions contained in the said agreement and hereby indemnifies and shall keep indemnified the lender..."

The acknowledged conditions upon which the guarantee was given include the following:

"(a) if the Principal Sum and any interest is not paid by the Borrower in accordance with the said agreement the Guarantors will pay such part of the Principal Sum and interest as is outstanding to the Lender immediately upon receipt of demand ..."

11 Both the 2004 Loan agreement and the 2006 Loan Agreement contain provisions designed to operate if any one or more of eight events of default occur. These provisions are contained in clause 7 of both agreements. The events of default are specified in paragraphs (a) to (h) of both sets of provisions. Both sets of provisions have a dual operation, in the sense that the happening of any one or more of the specified events of default renders the guarantee enforceable and accelerates the repayment obligations of Shepparton Projects as the borrower. Acceleration occurs in that the whole of the "Principal Sum" outstanding at the time of default "shall become forthwith repayable at the option of the Lender" on the happening of any one or more of such events and "without the necessity of any notice or demand". In view of the importance of these provisions, clause 7 is set out in full:

"Notwithstanding anything contained elsewhere in this agreement the Guarantee shall become enforceable and the whole of the Principal Sum remaining outstanding shall become forthwith repayable at the option of the Lender on the happening of any one or more of the following events without the necessity of any notice or demand:

(a) if default is made by the Borrower in the due and punctual payment of any part of the Principal Sum or Interest (if any) thereon at any time due and payable by the Borrower to the Lender under the Repayment Programme;

(b) If default by made by the Borrower in the observance or performance of any of its covenants or obligations to the Lender herein contained in any other account or transaction between the Lender on the one hand and the Borrower on the other hand;

(c) if the Borrower shall stop or suspend payment or state an intention to do so if any cheque drawn by the Borrower payable to the Lender or its solicitors shall be dishonoured or not be met on presentation for payment;

(d) if the Guarantor commits an act of bankruptcy within the meaning of the Bankruptcy Act 1966 of the Commonwealth;

(e) if any distress or execution for an amount exceeding Five Thousand Dollars ($5,000.00) be issued against the assets of the Borrower and is not satisfied within 14 days;

(f) if the Borrower shall make a composition or arrangement with its creditors or if a liquidator, administrator or receiver is appointed in relation to the affairs or assets of the Borrower;

(g) if the Borrower, without the prior consent of the Lender creates or purports to create any mortgage charge over any of the Borrower's property;

(h) if the Guarantor defaults in any of its obligations under the Guarantee and/or any agreement whatsoever entered into by the Guarantor with the Lender."

12 It will also be noted that the provisions of clause 7 are prefaced by the words "Notwithstanding anything contained elsewhere in this agreement". An introduction in this form is usually taken to mean that the provisions which follow are pre-eminent and prevail over any other provisions in the agreement in which they are contained. It was not suggested otherwise with respect to the 2004 Loan Agreement. However, Shepparton Projects submitted that these words did not have the effect of subjecting the repayment programme provisions of Schedule II of the 2006 Loan Agreement to these provisions. This submission was on the basis that clause 7 is in the nature of a "boiler plate" or "standard form" provision which should yield to what was said to the "particular" agreement contained in that Schedule II. That is an issue which is discussed below in relation to the operation of the 2006 Loan Agreement.

13 Finally, in relation to the provisions of the 2004 Loan Agreement, I note that clause 12 further emphasises and makes provision in aid of the recited purpose of the "present advance" as being to purchase the Land for the purpose of subdivision.[2] The provisions of clause 12 are as follows:

"The Lender and the Borrower acknowledge that the Borrower intends to develop and subdivide the security property described in Item 10 of the Schedule and hereto into 81 separate residential lots. The Lender agrees to consent to the development and subdivision and will, in its capacity as mortgagee, do all things and sign all documents as may be reasonably required to enable the development and subdivision to proceed. The Borrower will pay all reasonable costs associated with obtaining the consent of the Lender to any part of the development or subdivision requiring the Lender's consent. The Borrower intends to sell the developed lots and will repay to the Lender on the settlement of each sale the sum of $60,000.00 per allotment plus deferred interest for such allotment provided the subdivision contains 81 allotments. In the event the sub-division contains less than 81 allotments the amount of repayment shall be increased by a percentage equal to the percentage reduction in the number of allotments. The Lender will provide a partial discharge of its mortgage at each settlement to enable the settlement to proceed which shall be prepared at the Borrower's expense."

Additionally, although the relationship between clause 12 and the repayment provision of Items 7 and 8 of Schedule I of the 2004 Loan Agreement is not spelt out, the effect of sales of developed allotments in the subdivision is to render Shepparton Projects liable to pay Cave Investments the sum of $60,000 on the sale of each allotment. This sum is subject to the proviso that the subdivision contains 81 allotments. As will be seen from clause 12, in the event that the subdivision contains less than 81 allotments, provision is made for an increase of the amount of repayments 'by a percentage equal to the percentage reduction in the number of allotments'. There was corresponding obligation on Cave Investments to provide a partial discharge of its mortgage at each settlement, to enable the settlement of each allotment to proceed.

14 As time went on, it apparently became necessary for the parties to vary some of the provisions of the 2004 Loan Agreement. The first set of changes is contained in the 2005 Deed of Variation.

15 Although the sum advanced under the provisions of the 2004 Loan Agreement was not varied, the manner in which it was to be advanced was varied to extend the period beyond the last payment date provided for under the original agreement. That is, from 23 November 2004 to a date after 15 February 2006, being the date of "issue by the City of Greater Shepparton of a Statement of Compliance in relation to stage 1 of the Plan of Subdivision in O.P.S. 539137R".[3] Consequently, the date for repayment was extended from two years to three years, subject to the other provisions to which reference has been made, and consequential adjustments were made to the interest provisions. Additionally, the sum to be repaid to Cave Investments on settlement of the sale of each allotment, as provided for in clause 12 of the 2004 Loan Agreement, was increased from $60,000 per lot to $65,000 per lot.

16 The purpose of the loan was further emphasised by the addition of a new clause 14, in the following terms:

"Purpose of Loan

The Borrower acknowledges that any funds advanced under this agreement are to be used solely for the purpose of the acquisition, development, subdivision and sale of the Borrowers property at 7635 Goulburn Valley Highway, Kialla being more particularly the land described in the Certificate of Title Volume 10010 Folio 958 and for no other purpose."

Seemingly consistently with the expressed purpose of the loan, detailed reporting requirements were added which included details of payments, cash flow and details of lot sales on a monthly basis. The 2005 Deed of Variation made provision for a new Clause 15 in the following terms:

"Reporting

Commencing from the date of this Deed of Variation and within 2 weeks of the end of each month, the Borrower shall provide a written monthly report to the Lender advising of the progress of the development of the property referred to in clause 14 of this agreement and, without limiting the generality of the information to be provided to the Lender will as a minimum provide:

1. A cheque register in relation to all payments made for the month in respect of the development;
2. Details of cash flow in respect of the development including a copy of the bank statement for the month;

1. Provide details of all Lot sales for the month including a copy [of] each contract of sale;

1. Provide information as to the progress of any construction works being undertaken at the property. This will include details of progress claims made by subcontractors for the month and details of any outstanding progress claims; and
2. Provide details of projected expenditure for a period of three (3) months following the date of reporting including an assessment of costs to complete the project."

17 Finally, the 2005 Deed of Variation provided for additional "security" by amending clause 4 of the agreement to include provision for the securing of the payment of the principal sum and interest under the 2004 loan agreement by "a first registered fixed and floating charge over the assets of the Borrower [Shepparton Projects] in favour of the Lender [Cave Investments] ...".[4]

18 The 2006 Deed of Variation is in much shorter form than the 2005 Deed of Variation. Its effect is to increase the "Present Advance" from $3,454,000 to $4,404,000 and, further, to vary the priority ranking of the mortgage from that of a first registered mortgage to that of a second registered mortgage because, as the evidence indicates, this was required to accommodate additional financing for the subdivision project by the NAB (which required its financing to be secured by a registered first mortgage). The variations made by the 2006 Deed of Variation were not to take effect until Shepparton Projects had repaid the sum of $1,500,000 to Cave Investments under the provisions of the 2004 loan agreement "at which time the Lender [Cave Investments] shall provide to the Borrower [Shepparton Projects] a discharge of its existing mortgage to be replaced by the mortgage now contemplated by the agreement as varied herein".

19 The structure of the 2006 Loan Agreement is similar to that of the 2004 Loan Agreement, except that an additional schedule, Schedule II (Repayment Programme), was added, together with the provisions with respect to the purpose of the loan and reporting, which are the additional clauses 14 and 15, respectively, added by the 2005 Deed of Variation to the 2004 Loan Agreement.[5]

20 The recitals to the 2006 Loan Agreement are slightly different to those contained in the 2004 Loan Agreement. Recital C of the earlier agreement stated that Shepparton Projects would utilise the "Present Advance" to purchase the Land for the purposes of a subdivision into 81 lots. This was omitted in the 2006 Loan Agreement. It would seem that the purposive provisions of clause 13 of the 2006 Loan Agreement were thought to have rendered this recital unnecessary.

21 The covenants for repayment are, as in the earlier agreement, contained in clause 5 of the 2006 Loan Agreement, and are in the same terms. The definition of "principal sum" in paragraph 2(a) is in the same terms as the earlier agreement as is the definition of "repayment program", save with an alteration in the reference to the item number in Schedule I. As was the case with the 2004 Loan Agreement, these provisions are, in terms of language, directed to the payment of money, rather than to the performance of obligations which do not involve payment of money.

22 The provisions of clause 4 which are directed to the securing of the obligations of Shepparton Projects under the 2006 Loan Agreement, are substantially the same as the provisions of clause 4 as amended by the 2005 Deed of Variation, but are cast in more detail, as follows:

"The covenants and obligations of the Borrower and the payment of the principal sum and interest (if any) thereon will be secured by:

(a) this agreement; and

(b) the Guarantee to be given by the Guarantor;

(c) a second registered fixed and floating Debenture Charge over the assets of the Borrower in favour of the Lender and guaranteed by the Guarantor; and

(d) registered mortgage over all of the Borrower's right, title and interest in and to the property situate known as "Riviera Park" being the land formerly described in Certificate of Title Volume 10010 Folio 958 and being all of the lots not yet alienated in Plan of Subdivision 539137R Kialla West, Victoria."

These provisions are also directed to securing the payment of money, as are the provisions of clause 6, which relate to the guarantor's covenants and the form of personal guarantee provided for in Schedule III. These provisions are in the same form as a the corresponding provisions in clause 6 and Schedule II of the 2004 Loan Agreement.

23 The major changes made by the 2006 Loan Agreement were the revision of the repayment and repayment date provisions of items 7 and 8, respectively, as contained in Schedule I, and provision for an entirely new "Repayment Programme" by way of a new Schedule II. The provisions of revised items 7 and 8 of Schedule I, and Schedule II, are as follows:

"Item 7

Repayment: The Borrower shall repay the principal sum in the manner and at the time stipulated in the repayment programme (which programme is set out in Schedule II) provided that the parties may by supplemental agreements vary the terms of the said repayment programme.

Item 8

Repayment date: The date upon which the last of the Borrower's obligations set out in Schedule II is completed."

"SCHEDULE II

(Repayment Programme)

Upon the execution of this agreement the sum of $1,000,000.00.

A. Within ninety (90) days of the date of this agreement the transfer to the Lender of Lots 1, 2 and 3 in Plan of Subdivision No 539137R and being more particularly the land described in Certificates of Title Volume 10957 Folio 554, Volume 10957 Folio 555 and Volume 10957 Folio 556. The consideration for each of the lots transferred will be $150,000.00 inclusive of GST by which amount the principal amount shall be reduced upon the completion of each transfer.

B. Within sixty (60) days of the sale by Peter Thomas Nolan to the Lender of the property situate at and known as 7647 Goulburn Valley Highway being the service station/roadhouse for the amount of $750,000.00 inclusive of GST. At settlement the Lender will pay up to a maximum of $620,000.00 to repay the loan to Peter Thomas Nolan from the National Australia Bank Limited currently secured by mortgage over that property and the difference between the loan amount and the sum of $750,000.00 will be reduced from the principal amount owing hereunder.

C. On a date in the discretion of the National Australia Bank as first mortgagee or upon the discharge of the first mortgage the transfer to the Lender of Lots 22, 23, 24, 25, 26, 27, 43, 44, 45, 46, 47 and 48 in Stage 2 and Lots 51 and 52 in Stage 3 of Plan of Subdivision No 539137R. The consideration for each of the lots transferred will be $150,000.00 inclusive of GST by which amount the principal amount shall be reduced upon the completion of each transfer.

D. As to any balance remaining after the transfer of the last of the Lots in accordance with clause C of this Schedule within six (6) months of that last transfer.

For the avoidance of doubt as to the balance which may be owed at any time the parties agree:-

1. The present advance of $3,680,000.00 comprises the principal amount of $3,054,000.00 plus deferred interest of $626,000.00.
2. The repayments under this Schedule II will be applied firstly against the principal amount and then in payment of any outstanding interest.
3. At the completion of the payment of $1,000.000.00, the transfer of Lots 1, 2 and 3 in Plan of Subdivision No 539137R and the sale of the property at 7647 Goulburn Valley Highway, Kialla the amount outstanding will be $2,100,000.00 comprising an outstanding initial principal amount of $1,474,000.00 and deferred interest of $626,000.00"

24 Paragraph C of Schedule II needs to be read having regard to events at or about the time of the 2006 Deed of Variation when arrangements were made for further financing of the subdivision development by the NAB on the basis that it would take a first registered mortgage of the Land to secure its funding.

25 As noted previously, the default provisions of the 2006 Loan Agreement are contained in clause 7 and these provisions are identical to the clause 7 default provisions contained in the 2004 Loan Agreement.[6]

26 Subsequent to the 2006 Loan Agreement there was a series of letters and facsimile transmissions, primarily between Cave Investments and Mr Peter Window of Cornwall Stodart Lawyers, who was for most of the relevant time apparently acting for both parties, in relation to a proposal to settle outstanding obligations under the 2006 Loan Agreement. In essence, it was a proposal whereby Cave Investments would be paid $500,000 in cash, together with a transfer of some lots of the subdivided land, rather than all of the 14 lots referred to in paragraph C of Schedule II of that agreement.

27 The correspondence appears to have reached its high point in a letter dated 12 September 2008 from Herbert Geer, solicitors then acting for Cave Investments, to Cornwall Stodart, lawyers apparently acting then solely for Shepparton Projects. In that letter it was asserted, on behalf of Cave Investments, that the parties had agreed that Shepparton Projects would pay Cave Investments the sum of $500,000 in cash on or before 31 August 2008 and transfer an agreed number of subdivided lots to Cave Investments to satisfy the balance owed, also by 31 August 2008. It appears that these lots were to be valued on the same basis as provided for in paragraph C of the 2006 Loan Agreement.

28 In any event, this agreement was denied by Shepparton Projects, which asserted its rights in accordance with the 2006 Loan Agreement, free of any such further agreement. This chapter was apparently closed when, by facsimile transmission dated 24 November 2008 from Cave Investments to Shepparton Projects, a demand for interest was made. This was followed by a letter dated 4 February 2009 from Madgwicks, the then solicitors for Cave Investments, to Shepparton Projects, demanding payment, in cash, of the whole of the principal sum and interest owing under the 2006 Loan Agreement.

29 Although the provisions of the 2004 Loan Agreement and the two subsequent deeds of variation provide part of the history of the development of the provisions of the 2006 Loan Agreement, the 2006 Loan Agreement supersedes the previous agreement and its variations. Consequently, I now turn to the proper construction of the provisions of the 2006 Loan Agreement.

30 The issue of the proper construction of the 2006 Loan Agreement arises with respect to the operation of the default provisions contained in clause 7 of that agreement. The operation of clause 7, and the effect of other provisions of the 2006 Loan Agreement, depend principally upon whether the acceleration provisions, which might operate on the occurrence of one or more of the default events specified in paragraph (a) to (h) of clause 7, alter the nature of the performance required under the repayment programme provided for in Schedule II, or whether clause 7, once triggered, operates merely to alter the time for performance. This, in turn, raises the nature of the obligations under the repayment programme specified in Schedule II. Consequently, the question is, in summary, whether the Schedule II requirements are confined to obligations to pay money, or whether they can extend beyond obligations merely for the payment of money.

31 Shepparton Projects submitted that the word "repayable" as used in the chapeau to clause 7 must take its meaning from paragraph 5(a) of the 2006 Loan Agreement. Paragraph 5(a) contains a covenant by Shepparton Projects, as borrower, "to repay to the Lender [Cave Investments] the principal sum at the time or time specified in Item 7 of Schedule I". Shepparton Projects submitted that the only monetary payment, apart from interest, discussed or contemplated by the parties under the repayment programme was the payment of $1,000,000 referred to in paragraph A of Schedule II, some of which was paid on 22 December 2006. As to the remaining matters the subject of the repayment programme provided for in Schedule II, Shepparton Projects submitted that the acceleration provisions of clause 7 could only have the effect of bringing forward the time for performance of those other obligations, but would not, as a result of its operation, have the effect of converting those other obligations, which were said to be non-monetary in the sense of not requiring monetary payments, into obligations which did require monetary payments. In relation to the provisions of paragraph D of Schedule II, which requires the payment of any balance remaining after the transfer of the last of the lots in accordance with clause C within six months of that last transfer, Shepparton Projects submitted that if all lots were transferred as contemplated by paragraph C there would be no balance remaining in relation to which paragraph D could operate. Hence, Shepparton Projects submitted, the only monetary obligation provided for in Schedule II was the payment of $1,000,000 made on execution of the 2006 Loan Agreement.

32 Cave Investments, on the other hand, submitted that the obligations under the repayment programme, provided for under paragraph 5(a), Item 7 of Schedule I in accordance with the repayment programme set out in Schedule II of the 2006 Loan Agreement, provided for monetary obligations only. In support of these submissions, reliance was placed on the language of the 2006 Loan Agreement, in terms of particular provisions and on the basis of the construction of the agreement as a whole, and also having regard to "common sense commerciality".

33 Cave Investments noted that as of the date of execution of the 2006 Loan Agreement, Shepparton Projects was indebted to Cave Investments for the "Present Advance", defined in Item 5 of Schedule I as the sum of $3,680,000. Reference was also made to the definition of "principal sum" contained in paragraph 2(a) of that agreement, noting the reference in that definition to "the Present Advance and each and all sums of money in which the borrower [Shepparton Projects] may now or hereafter be indebted or liable ...". In other words, it was submitted that the primary obligation of Shepparton Projects, as borrower, under the 2006 Loan Agreement was to repay the principal sum, a fixed sum of money, plus interest due from time to time in accordance with the agreement, minus any money that Shepparton Projects had repaid in the meantime. Reference was also made to the provisions of paragraph 5(b), which contains a covenant by Shepparton Projects, as borrower, to pay interest on the "Present Advance" at the rate of nil for the first 12 months and thereafter at the rate of 8% per annum payable 6 monthly in arrears.[7]

34 Cave Investments made reference in its submissions to paragraphs A to D of the repayment programme specified in Schedule II and noted the concluding part of that Schedule which in these paragraphs states that the present advance of $3,680,000 comprises the principal amount of $3,054,000 plus deferred interest of $626,000 and that repayments under Schedule II would be applied firstly against the principal amount and then in payment of any outstanding interest.[8] In particular, Cave Investments made reference to the provisions of paragraph 3 of the concluding provisions which provides, in effect, that the amount outstanding upon completion of the payment of $1,000,000, the transfer of three lots, and the transfer of the service station is an amount of money, namely the sum of $2,100,000. Cave Investments submitted that on the construction contended for by Shepparton Projects there was no point in the parties attributing individual consideration to each of the separate titles to land referred to in the provisions of Schedule II. In substance, Cave Investments submitted, the construction offered by Shepparton Projects makes the provisions operate as or amount to a contract for the transfer of land, rather than a loan agreement. Cave Investments instead submitted that it was plain that the reason for the stipulation of values for the land referred to in Schedule II was so that the principal sum could be determined as a dollar figure from time to time. This, Cave Investments said, enabled two things; first the calculation of interest and, second, the determination of the liability of Shepparton Projects in the event that the default provisions of clause 7 were triggered. Cave Investments also submitted that nowhere in the 2006 Loan Agreement is the "principal sum" defined to include transfers of land at nominal values in exchange for monies owed.

35 Turning to the construction of the agreement as a whole, Cave Investments submitted that in addition to the SPM mortgage over the Land (and also a second registered fixed and floating debenture charge over the assets of Shepparton Projects), the covenants and obligations of Shepparton Projects, and the payment of the principal sum and interest, are also secured by a guarantee executed by the directors of Shepparton Projects, the guarantors. Reference was made to the nature of the guarantee provided in accordance with Schedule III, titled "Form of Deed of Guarantee", and also to the conditions to which reference has already been made.[9] In relation to the conditions contained in paragraph (a) of the Form of Deed of Guarantee Cave investments emphasised, that reference is made in these provisions to a situation where "... the principal sum and any interest is not paid by the Borrower [Shepparton Projects] in accordance with the said agreement, the Guarantor will pay such part of the principal sum and interest as it outstanding ...".

36 On this basis Cave Investments advanced the proposition that as the guarantee imposed monetary obligations on the guarantors, and was intended, as is clear from the provisions of clause 4 of the 2006 Loan Agreement, to secure the obligations of Shepparton Projects under that agreement, it must follow that the obligations which are being secured by "monetary" guarantee must, themselves, be obligations of a monetary nature. Cave Investments submitted that this position is also reflected in clause 7, which provides for the enlivening of the guarantee and the acceleration of payments in the event of specified defaults. In particular, reference was made to the chapeau to clause 7 which includes the passage "the Guarantee shall become enforceable and the whole of the principal sum plus any accrued interest outstanding shall become forthwith repayable ...". It was submitted that what becomes repayable by the guarantors upon default pursuant to clause 7 is the "principal sum plus any accrued interest remaining outstanding". Cave Investments submitted that the "principal sum" is a sum of money; not blocks of land given nominal values in lieu of money. In doing so, it relied upon the definition "principal sum", and the reference to the sum of money constituting the "Present Advance" as set out in Item 5 of Schedule I of the 2006 Loan Agreement. Cave Investments further submitted that it would be nonsensical if, pursuant to the 2006 Loan Agreement, the guarantors became liable upon default by Shepparton Projects, to pay the "principal sum" by way of blocks of land given nominal values, where the guarantors did not own any of the blocks of land set out in paragraph C of Schedule II of the agreement - and thus were not in a position to control the ownership or transfer of these blocks of land to Cave Investments. In summary, it was said that what is enlivened by default under the provisions of clause 7 of the agreement is the immediate payment of money by the guarantors to Cave Investments, in the amount of the "principal sum" then outstanding.

37 Cave Investments further submitted that the construction contended for by Shepparton Projects was uncommercial and lacks commercial common sense.

38 In this vein, Cave Investments submitted that both paragraphs B and C of the repayment programme provided for in Schedule II of the 2006 Loan Agreement focus upon events potentially wholly beyond the control of Shepparton Projects, as the borrower or mortgagor. Cave Investments further submitted that it does not make commercial sense, in the event of default, to accelerate the obligation of the borrower or mortgagor, to require the doing of something dependent upon matters beyond its control. Rather, it submitted, a common sense commercial construction of the agreement between the parties would see the following arise:[10]

• The parties acknowledged indebtedness in a principal sum which included unpaid interest under previous agreements, but afforded the mortgagor 12 months interest free;

• During that 12 months, the mortgagor was afforded an opportunity (and in part was obliged to) repay the principal sum by way of transfer of land. If that could be effected within 12 months, no interest would be payable;

• The parties recognised that the NAB discharge of mortgage or agreement might take some time, and might not be obtained in relation to all titles at the same time. Therefore the parties identified that each of the 14 titles ought have a notional value attributed to it; and

• In the event of default, depending upon the number of titles which had been transferred, it was then a relatively easy matter to calculate the outstanding principal sum, so as to fix the amount of the liability of both the mortgagor and guarantor.

39 It was submitted that such a construction produced a workable, common sense, commercial agreement.

40 Continuing, Cave Investments submitted that if the construction advanced by Shepparton Projects were to prevail then, upon an event of default, Cave Investments, as lender and mortgagee, could elect to require the immediate transfer to it of all land not yet transferred. In the event that this land could not be transferred, it was said that presumably the plaintiff would say that the remedy of the lender or mortgagee would lie in termination of the agreement for breach, with a consequent right to damages. Cave Investments consequently submitted that in the context of an agreement which is said to be a loan agreement, supported by a mortgage, charge and guarantees, this would be a most unlikely bargain.

41 In my opinion, Cave Investments is correct in its submissions that the position advanced by Shepparton Projects with respect to the proper construction of the provisions of the 2006 Loan Agreement would represent a most unlikely bargain. The approach of Shepparton Projects does not take account of the fundamental position that the 2006 Loan Agreement, supported as it is by a registered mortgage (the SPM mortgage), charge and guarantees, is a secured lending arrangement. As a secured lending arrangement containing a covenant to repay the principal sum with interest, the prime obligation is an in personam obligation in the form of a debt recoverable by curial proceedings, together with interest in accordance with the agreement between the parties.[11] In my view, it is very clear from the nature of loan agreements and secured obligations of this type that, at least in the absence of very clear language, it could not be supposed likely that the parties would contemplate obligations which would, if breached, only sound in contractual damages, with or without an associated right of termination of the agreement.

42 Another difficulty with the approach to construction argued for by Shepparton Projects was the argument that after the payment of the sum of $1,000,000 and the execution of the 2006 Loan Agreement, the only remaining obligations under Schedule II were non-monetary. This was said to be because if all 14 lots were transferred at the agreed value per lot, provided for under paragraph C of Schedule II, there would be no monetary balance remaining to be paid under the provisions of paragraph D of that schedule. In my opinion, this argument, rather than supporting the position of Shepparton Projects, supports the position advanced by Cave Investments. I say this because, assuming the position advanced by Shepparton Projects is correct as a matter of arithmetic, this would leave paragraph D of Schedule II with no work to do. This is, of course, at odds with a basic rule of construction that a written document is to be construed as a whole, and a construction which gives each and every part of that document work to do is to be preferred over a construction which does not do this and leaves provisions or parts of provisions redundant.[12] The construction advanced by Cave Investments would leave work for paragraph D to do. It would require the payment in money by Shepparton Projects of any balance of the "principal sum" remaining unpaid where an insufficient number of the lots specified in paragraph C had been transferred at the agreed rate of $150,000 per lot inclusive of GST as a credit or "deemed" payment of the "principal sum".

43 The date by which the "principal sum" is to be repaid is, in my view, not clear either on the basis of the submissions of Shepparton Projects or Cave Investments. The provisions of the 2006 Loan Agreement to which reference has been made do not specify any final date. All that the parties are left with is a requirement under paragraph D of Schedule II that any balance remaining after the transfer of the last of the lots in accordance with clause C is to be paid within six months of that last transfer. Cave Investments in its submissions appears to draw some comfort as a result of the 12 month interest-free period provided for under paragraph 5(b) and Item 9 of the 2006 Loan Agreement. However, in my view, these provisions do not assist. It is clearly contemplated that interest may be payable after that 12 month period. In the absence of a specific provision, it would follow, in my opinion, that the provisions of paragraph C of Schedule II must be read subject to an implication that if Shepparton Projects is to take advantage of these provisions then it must do so within a reasonable time in all the circumstances. The operation of paragraph C being fixed on this basis the final date for repayment of the "principal sum" would be six months hence as a result of the operation of paragraph D. Nevertheless, this does not affect the issue between the parties as to the nature of the repayment obligations under Schedule II and, hence the operation of the default provisions under clause 7.

44 Cave Investments alleged that Shepparton Projects was twice in default under the 2006 Loan Agreement. The first default was the failure to provide monthly reports in accordance with clause 14 of the agreement on any occasion. This default was admitted by Shepparton Projects. The second default relied upon by Cave Investments was the failure by Shepparton Projects to pay interest which fell due under the agreement on 21 June 2008.

45 The interest due on 21 June 2008 was not paid at the time Mr Paul Cave wrote a letter on behalf of Cave Investments to Mr Paul Linsdell on behalf of Shepparton Projects, dated 9 July, though apparently sent by facsimile on 10 July 2008. The letter was not elegantly drawn but does appear to make reference to the 2006 Loan Agreement, and also to an agreement dated 23 May 2008. Omitting formal parts the letter (referred to as "the 10 July 2008 letter") is as follows:

"RE: LOAN AGREEMENT 9/7/08

...

In the last few years we had many agreements, hopefully this is the last one. Reluctantly I have to accept 14 blocks in lieu of $2.1 M in cash

Pursuant to a previous agreement 8% from 21/2/07 to 21/5/08 $84k

Pursuant to paragraph 4 of the agreement 23/5/08 c.c. enc 10% - 3 mth = $52.5k

Total interest payable $136,500 (7 DAYS PLEASE) [the parenthesis and contents apparently written in Mr Paul Cave's hand]

Please DISCHARGE the first mortgage from the NAB

DELIVER original copy of titles registered owner SHEPPARTON P/I and first Mortgage to CAVE INVETMENT P/L [sic]

Please FINALIZE the above immediately

Paul Cave"

46 Cave Investments in its submissions noted that the 10 July 2008 letter contains the sentence "reluctantly I have to accept 14 blocks in lieu of $2.1m in cash". It also noted that the letter made a claim for interest in the sum of $84,000, although it was said to have accrued as at 21 May 2008, which is clearly incorrect. It further submitted that there is also a clearly incorrect claim for interest at 10% for three months. Cave Investments conceded in its submissions that the effect of the letter was simply to require the payment of outstanding interest as at that date, no later than 17 July 2008.

47 Cave Investments submitted that upon Shepparton Projects' default in the payment of interest on 21 June 2008, it had power to demand immediate payment of the principal sum then unpaid in accordance with clause 7 of the 2006 Loan Agreement. It submitted that in this sense it had a right of election.[13] The position of Shepparton Projects, on the other hand, was that the 10 July 2008 letter constituted an election by Cave Investments not to demand immediate payment of the principal sum then outstanding under the provisions of clause 7, given the reference to accepting 14 blocks in lieu of $2.1 million in cash. Cave Investments submitted that if this were correct then Cave Investments could not later elect to demand immediate payment in relation to that particular default.[14] It submitted that, nevertheless, a later default would give rise to a new power to demand immediate payment.

48 In relation to the question of election, Cave Investments submitted that the onus of proving election is on the party so asserting.[15] In this context, Cave Investments submitted that for there to be an election, the conduct of the party said to be electing must be unequivocal in the sense that it is consistent only with the exercise of one of two distinct sets of relevant rights.[16] Cave Investments submitted that, properly construed, the 10 July 2008 letter is, insofar as it refers to the Land, not an unequivocal election but is, rather, simply a recognition of the then existing position, without any intention to affirm that position more broadly.[17] Further, Cave Investments submitted that this position must be contrasted with the actual exercise of a right, and in no relevant sense does the 10 July 2008 letter exercise a right. Rather, Cave Investments submitted, it simply extends the time for the payment of interest until 17 July 2008, and otherwise reserves the position of Cave Investments.

49 In my opinion Cave Investments is correct in its submission with respect to the characterisation of the effect of the 10 July 2008 letter. Previous correspondence and dealings between the parties indicate that Mr Paul Cave, through Cave Investments, was keen to receive a prompt cash repayment from Shepparton Projects for monies which had been loaned to it.[18] Nevertheless, in my view a fair reading of the 10 July 2008 letter is that it is a letter with respect to outstanding interest and its effect is to provide an extension of time until 17 July 2008 for Shepparton Projects to pay interest due under the 2006 Loan Agreement. I accept the submissions by Cave Investments that an extension of time of this nature does not involve a waiver generally, but is properly construed as only a waiver to the extent of substituting the extended time for the original time for payment of interest as provided for under the agreement, and not thereby destroying the essential character of that time provision.[19]

50 Following the 10 July 2008 letter there was a meeting between the parties on 17 July 2008. There was no dispute that during that meeting an incorrect sum of money was tendered by way of an interest payment, said to be pursuant to the 2006 Loan Agreement. This payment was refused. The sum offered was $70,000, rather than the sum of $84,000, which was due as at 21 June 2008 under the agreement. Additionally, Shepparton Projects expressed its intention to seek to satisfy its obligations under the 2006 Loan Agreement by tender of transfers of the 14 lots of land referred to in paragraph C of Schedule II of the agreement in the then near future. Reiterating its submissions on the 10 July 2008 letter, outlined above, Cave Investments submitted that nothing that occurred at the 17 July 2008 meeting constituted any unequivocal exercise of rights by it which were inconsistent with the retention of a right to exercise its powers under clause 7 of the agreement.

51 There was a further meeting on 30 July 2008, and there appears to be no dispute as to what occurred:[20]

• Mr Linsdell and Mr McGuire provided photographs of original documents held in the plaintiff's solicitors office;
• They indicated that the plaintiff was in a position to transfer the blocks of land as the NAB had agreed to discharge its mortgage;
• They tendered an incorrect sum for interest then outstanding;
• Mr Paul Cave indicated that he wanted cash and not land;
• The defendant sought to justify its conduct by reference to the December 2006 agreement being "old".

52 Cave Investments submitted that the conduct of Mr Paul Cave on behalf of Cave Investments at the 30 July 2008 meeting in asserting that the "old" agreement was no longer binding should be seen as an assertion on its behalf that it was no longer bound to accept transfers of lots of land under Schedule II of the 2006 Loan Agreement. It further submitted that this was a correct statement of the position, assuming that the intention of Cave Investments was to exercise its option under clause 7 of that agreement (which it said it did, by demanding cash rather than land).

53 Shepparton Projects submitted that the issue that arises as a result of the 30 July 2008 meeting and antecedent correspondence and conversations between the parties is whether Mr Paul Cave on behalf of Cave Investments, by his words and conduct, made it clear to Shepparton Projects that tendering performance in accordance with Schedule II of the 2006 Loan Agreement would be futile, and would not be accepted because Cave Investments insisted that it did not want a transfer of the 14 lots to it under paragraph C of that Schedule. Cave Investments, on the other hand, contended that Mr Paul Cave's conduct on its behalf on 30 July 2008 constitutes an election under clause 7 of the 2006 Loan Agreement, which was made in response to an available event or events of default.

54 Shepparton Projects submitted that Cave Investments' refusal to accept the transfer of the lots, which it said occurred on 30 July 2008, had the effect of dispensing with any requirement that Shepparton Projects tender transfers of the lots the subject of paragraph C of Schedule II or any further performance under the provisions of the 2006 Loan Agreement until such time as Cave Investments might intimate that it would accept a transfer of the lots. Shepparton Projects also said that the dispensation of further performance had the effect that interest ceased to run from the time of the refusal on 30 July 2008. In this respect, it is noted that Shepparton Projects had not paid the interest which was then payable on 17 July 2008, as a result of the dealings and correspondence to which reference has been made. Further, Shepparton Projects submitted that refusal of the transfers was not and could not have been an election to accelerate under clause 7 of the 2006 Loan Agreement, and was not premised on a contractual right to be paid money under that agreement. Rather, it was said, it was a complete repudiation of that agreement.

55 In support of these submissions, Shepparton Projects made reference to a conversation on 9 July 2008 between Mr Paul Cave and Mr Kevin McGuire, one of the guarantors, in which Mr McGuire says that Mr Cave said "get me the 14 titles and we're all done". Further, the evidence of Mr Peter Nolan and Mr McGuire was that on 9 July 2008 Cave Investments agreed to take lots 49 and 50 in substitution for lots 50 and 51 in the subdivision. Reliance was also placed on the 10 July 2008 letter from Cave Investments, to which reference has already been made, and the conversation which took place between Mr Paul Cave and Mr Kevin McGuire on 17 July 2008.

56 In my opinion, the evidentiary matters relied upon by Shepparton Projects in support of its submissions as to the effect of the refusal by Cave Investments to accept transfers of the lots referred to in paragraph C of Schedule II of the 2006 Loan Agreement do not support the position for which it contends. The evidence upon which it relies goes to conversations with Mr Paul Cave on or before 10 July 2008 and prior to the extended date, namely 17 July 2008, upon which interest was payable under the 2006 Loan Agreement, as a result of the extension of time flowing from the 10 July 2008 letter. Consequently these conversations took place in an environment in which, apart from the monthly reporting requirements under clause 14 of the agreement, Shepparton Projects was not then in default and might have sought to rely upon the lot transfer provisions of paragraph C of Schedule II. However, during the course of the meeting on 17 July 2008, Shepparton Projects failed to pay interest then due and was, consequently, in default under the agreement. The evidence as to the precise content and timing of conversations on 17 July 2008 is not entirely clear from the witness statements which were relied upon in the course of the hearing, and the position was not clarified further as Cave Investments did not lead evidence. In this respect Shepparton Projects relied upon witness statement accounts of its own witnesses[21] and tendered a witness statement of Mr Paul Cave dated 10 September 2010 as an admission against interest. In this situation it would, in my view, be entirely artificial to conclude that Mr Cave's refusal of the tender of $70,000 by way of an interest payment, because it was not a payment in full of interest then due, took place before there was any discussion of the transfer of the lots and that, consequently, this conversation is to be taken as a reaffirmation of the then continued operation of paragraph C of Schedule II, or a waiver or some other indication that Cave Investments did not intend to rely upon its rights under the agreement, particularly under the acceleration provisions of clause 7.

57 Consequently, in my view, the position on 17 July 2008 was that Shepparton Projects remained in breach of the 2006 Loan Agreement with respect to the payment of interest under paragraph 5(b) of that agreement and, further, it continued to be in breach of the monthly reporting requirements. Clause 14 of the agreement required a written monthly report within two weeks of the end of each month containing the information specified in that clause. It was common ground that monthly reports had never been provided. However, arguments in relation to waiver or estoppel against Cave Investments insisting upon compliance with these provisions in the absence of reasonable notice to Shepparton Projects that it required compliance with these requirements, were not pursued. In any event, the breach with respect to interest payments remained. As events unfolded, after 30 July 2008 Shepparton Projects made no further attempts to provide interest payments, either with respect to the payment which was originally due on 21 June 2008 or of the instalment which was due to be paid on 21 December 2008.

58 A further matter in relation to the 30 July 2008 meeting which should be specifically noted, is that Shepparton Projects did not claim or submit that the purpose of that meeting was other than to make arrangements for what was described as a final settlement of its obligations under the 2006 Loan Agreement as a result of the NAB providing discharges of its registered first mortgage over the first lots referred to in paragraph C of Schedule II of that agreement. Shepparton projects relies upon Mr Paul Cave's refusal of settlement arrangements on behalf of Cave Investments as repudiatory conduct on the part of Cave Investments, rather than the valid exercise of the option to accelerate the obligations of Shepparton Projects to repay the whole of the principal sum and accrued interest in accordance with clause 7 of the 2006 Loan Agreement. In my view, there is an inherent difficulty with this submission in relation to the position advanced by Shepparton Projects.

59 In order to establish repudiatory conduct Shepparton Projects must establish that Cave Investments clearly and unequivocally communicated its intention not to perform the 2006 Loan Agreement according to its terms, as repudiation is not lightly to be inferred.[22] This communication must, of course, be to, or come to the notice of, Shepparton Projects. In the present context, the clear communication relied upon was said to be Mr Cave's refusal to accept a transfer of the lots of land, instead of a payment of money representing the unpaid principal and interest. On the other hand, Shepparton Projects submitted that Cave Investments had not exercised its option to accelerate obligations under clause 7 of the Agreement. In my opinion, if Mr Cave's refusal of the lots of land was sufficiently clear to amount to repudiatory conduct, then it must follow that if at the relevant time Cave Investments was entitled to exercise the option to accelerate under clause 7 of the agreement, then this conduct is also sufficiently clear and certain to amount to a valid exercise of the option to accelerate under clause 7. Consequently, the only question is whether at the time the option to accelerate was purportedly exercised by Cave Investments it was then entitled to do so. For the preceding reasons and those which follow I am of the opinion that Cave Investments was so entitled.

60 Cave Investments submitted that it had a right to require the payment of the principal sum under the 2006 Loan Agreement, in money (as opposed to lots of land). Cave Investments further submitted that its intimations at the 30 July 2008 meeting, that it would not be prepared to settle on any basis which involved a transfer of land, did not mean it was intimating that it would refuse to settle obligations under that agreement and discharge the SPM mortgage on a basis which was consistent with the exercise of its option under clause 7 of that agreement. Further, it was common ground that the conduct of Shepparton Projects at the 30 July 2008 meeting did not involve an actual tender. Cave Investments noted, in this respect, that Shepparton Projects' performance as of that time was deficient in that:

• No discharge of mortgage was provided for execution by Cave Investments;

• The original documents, namely the transfers of lots and discharges of mortgage from National Australia Bank were not available but, rather, it was anticipated that settlement would occur, presumably at a solicitors office, at some later time or date;

• The tender of $70,000 by way of interest was an inadequate sum as the sum of $84,000 was then due and payable by way of interest; and

• Clearly there was a liability to pay interest which had accrued since 21 June 2008.

61 In relation to the tender issue it was submitted by Shepparton Projects that from the moment the NAB handed over discharges of its mortgage with respect to the various lots the subject of paragraph C of Schedule II, together with the duplicate certificates of title to those lots, to Shepparton Projects, it held those titles on trust for Cave Investments. Consequently, Shepparton Projects submitted that its debt to Cave Investments of the principal sum then unpaid was, in equity, immediately discharged either on the basis of an application of the equitable doctrine of conversion or the maxim or principle of equity that "equity regards that as done which ought to be done". Consequently, it said, no issue as to acceleration of obligations under clause 7 of the 2006 Loan Agreement could arise because as at 30 July 2008 the transfer of the lots to Cave Investments, as contemplated in paragraph C of Schedule II, had already taken place, at least in equity. The position of Cave Investments was, in summary, that this approach ought to be rejected as being at odds with the terms of the 2006 Loan Agreement, properly construed. Further, it said that, in any event, an actual tender of transfers, discharges of the NAB mortgage, and certificates of title for each of the lots, would be required for the purposes of paragraph C of Schedule II before the discharges of mortgages by the NAB to Shepparton Projects could have any effect on the operation of Schedule II or the right of Cave Investments to accelerate its obligations under clause 7 of the agreement.

62 In my opinion, the position put by Cave Investments is the correct one for these reasons which it advanced. Further, the position advanced by Shepparton Projects would, in my view, produce results with respect to the operation of the 2006 Loan Agreement which would not have been contemplated by the parties, and would require a highly artificial application of equitable doctrine or principles. If, as Shepparton Projects submitted, conversion took place and paragraph C of Schedule II was satisfied immediately once the NAB handed over discharges of its first mortgages to Shepparton Projects, its obligations under the agreement would be satisfied without Cave Investments, the lender, ever being aware of the position.

63 Further, and more importantly, if the provisions of paragraph C of Schedule II are to operate permissively, on the basis of the construction of the 2006 Loan Agreement and Schedule II as advanced by Cave Investments, then the position put by Shepparton Projects would have the effect of pre-empting the ability of Cave Investments to agree to transfers as thought appropriate. This would, in effect, turn these provisions into a contract for the sale of land at the option of Shepparton Projects in circumstances where Cave Investments is unable to refuse to take the lot or lots offered.

64 As a matter of construction it needs to be borne in mind that paragraph C of Schedule II provides for a consideration of $150,000 per lot, and not an overall consideration for all of the 14 lots. In my view, this emphasises that paragraph C is directed to the transfer of all or some of the lots subject to agreement between the parties. As indicated previously, this leaves work for paragraph D and, consequently, emphasises that agreement between the parties is required for the operation and application of paragraph C. Consequently, it is clear, in my view, that the equitable doctrine of conversion or the maxim referred to as argued by Shepparton Projects is not applicable.

65 Cave Investments made a further point in relation to evidence showing that Mr Paul Cave had indicated that he would accept a transfer of land, but indicated that he wanted cash and asserted that the 2006 Loan Agreement was invalid as it was, in mid-2008, two years old. It was conceded that any assertion that the 2006 Loan Agreement was void merely because it was "old" is not correct. Cave Investments submitted, however, that it can now support its election on the ground that clause 7 of the 2006 Loan Agreement gave it the right to demand the payment in money rather than land. Reference was made to the following statement of Greer J in Taylor v Oakes Roncoroni & Co (1922) 127 LT at 269: [23]

"It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, give a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not"

In my opinion, this rule is applicable in the present circumstances.

66 Cave Investments submitted that after 30 July 2008 there were three types of further breaches. The first was a continuing failure to pay interest which was due on 21 June 2008 (even assuming that the time for payment had been extended until 17 July 2008); a failure to provide monthly reports each and every month as required by clause 14 of the 2006 Loan Agreement; and the failure to pay interest due under that agreement on 21 December 2008.

67 In relation to the failure to pay interest due on 21 June 2008 or 17 July 2008 and the failure to pay interest due on 21 December 2008, the position of Shepparton Projects is that it was excused from further performance of the 2006 Loan Agreement after 30 July 2008. Its argument in this respect was on the basis that performance was dispensed with by Cave Investments because it expressly or impliedly intimated that further performance was useless.[24] It was submitted that the underlying principle is that the law will not permit a party to take advantage of its own wrong.[25] More specifically, Shepparton Projects submitted that the conduct of Cave Investments on 30 July 2008 was a clear repudiation of the 2006 Loan Agreement, and as a result it was clear that Cave Investments would not perform that agreement and, consequently, further performance of that agreement by Shepparton Projects was dispensed with; except perhaps the tendering of final performance in the form of transfers of 14 of the lots, and paying interest on the date that it ceased to run. Shepparton Projects submitted further that if Cave Investments was permitted to rely upon any breaches occurring after 30 July 2008 it would be taking advantage of its own wrong in repudiating the loan agreement on 30 July 2008. For the reasons indicated previously, I do not accept that the conduct of Mr Paul Cave on behalf of Cave Investments at the 30 July 2008 meeting constituted repudiatory conduct on its part. Rather, as indicated, I am of the view that Mr Cave's statements and conduct were a clear communication of the exercise of its option, under clause 7 of the 2006 Loan Agreement, being that the whole of the principal sum was due and payable together with outstanding interest. Consequently, there was no basis upon which the performance of the agreement by Shepparton Projects had been dispensed with.

68 Reference was made in the submissions by Cave Investments to a letter of 2 October 2008 from Cave Investments to Shepparton Projects. In particular, reference was made to the passage "Shepparton owes me $2.1 M CASH PLUS 8% interest since 21/12/07". Cave Investments said that also relevant is the commencement of the fifth paragraph of that letter "... as I am 81 I must enforce my legal rights ...". It submitted that the reference to cash can only be construed as an unequivocal assertion that the 2006 Loan Agreement operated to oblige Shepparton Projects to pay cash rather than land. The capitalised "CASH" emphatically demonstrates that intention. Cave Investments submitted that to the extent that there was not an election to accelerate on 30 July 2008, this therefore comprises the exercise of that option. It submitted that it was not to the point that no specific breaches were identified, as clause 7 does not require any notice or demand. In my opinion, Cave Investments is correct in the position put in relation to the 2 October 2008 letter, because as at that time Shepparton Projects continued to be in default with respect to payment of interest, had not provided monthly reports and had not tendered any transfers, discharges of mortgage or certificates of title with respect to the lots referred to in paragraph C of Schedule II of the agreement.

69 The same state of affairs with respect to the performance, or lack of it, by Shepparton Projects, under the 2006 Loan Agreement, continued into February 2009. There was, as indicated previously, a further default as a result of non-payment of interest due under the agreement on 21 December 2008. Against this background Madgwicks, the then solicitors for Cave Investments, gave notice of exercise of the option to accelerate payment of principal and accrued interest in a letter dated 4 February 2009. At this stage, at worst, this letter was, in my view, ineffective, as the option had already been exercised on 30 July 2008. In any event, it is apparent from its terms that it was given without prejudice to the then existing rights of Cave Investments and, further, the position with respect to performance of the agreement had not improved since 30 July 2008. Additionally, Cave Investments submitted that even if the events of 30 July 2008 meant that interest ceased to accrue, there remained an obligation on Shepparton Projects as of 21 December 2008 to pay interest that had accrued between 21 June and 30 July 2008.

70 Cave Investments submitted that there can be no doubt that on 21 December 2008 the 2006 Loan Agreement remained on foot and the plaintiff was obliged to pay further interest. It was said that, even on its own case, Shepparton Projects must concede that the liability at least encompassed interest that had accrued between 21 June and 30 July 2008. It was submitted that whilst an unaccepted repudiation might absolve the non-repudiating party from performing executory obligations, such as the nomination of a ship in Peter Turnbull v Mundus Trading Co,[26] that cannot absolve a party who thereafter seeks to enforce the agreement from complying with accrued liabilities, even if the time for satisfaction of them is deferred. It submitted that this is the kind of situation that confronted the House of Lords in Fercometal SARL v Mediterranean Shipping Co.[27] In that case Lord Ackner rejected the notion that the effect of an unaccepted repudiation permitted the non-repudiating party

"to affirm the contract and yet be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform"[28]

71 In any event, Cave Investments contended that the events of 30 July 2008 or thereafter, up until 4 February 2009, did not excuse Shepparton Projects from unperformed obligations that remained wholly executory because of the deficient intimation of tender, and particularly the inadequate interest that was proffered. It was submitted that there was never any subsequent intimation by Shepparton Projects that the properly calculated sum of interest (which was easily calculable under the 2006 Loan Agreement) would be paid. In this context it was observed that the precondition for the suspension of executory obligations was expressed by Kitto J in Peter Turnbull & Co Pty Ltd v Mundus Trading Company (Australasia) Pty Ltd[29] in the following terms:

"The principle, which applies whenever the promise of one party, A, is subject to a condition to be fulfilled by the other party, B, may, I think, be stated as follows. If, although B is ready and willing to perform the contract in all respects on his part, A absolutely refuses to carry out the contract and persists in the refusal until a time arrives at which performance of his promise would have been due if the condition had been fulfilled by B, A is liable to B in damages for breach of his promise although the condition remains unfulfilled".[emphasis added]

As I have found that Cave Investments exercised its option to accelerate under clause 7 of the 2006 Loan Agreement, rather than repudiated that agreement or otherwise refused to perform that agreement in any relevant sense, it follows that this precondition was not satisfied. Consequently, there were, as submitted by Cave Investments, at least two breaches that entitled it to exercise the option to accelerate under clause 7 of the 2006 Loan Agreement on 4 February 2009, on the basis indicated.

72 Cave Investments submitted that by the time the letter of 27 March 2009 from the solicitors acting for Shepparton Projects was sent, Cave Investments had exercised its option to accelerate, and so the offer to tender land rather than cash was ineffective to require it to accept any transfer of lots under paragraph C of Schedule II of the 2006 Loan Agreement and to discharge the SPM mortgage. For the reasons indicated I am of the view that this is correct.

73 There is no dispute that the principal sum outstanding under the 2006 Loan Agreement as secured by the SPM mortgage to Cave Investments is $2.1 million. Cave Investments submitted that it appears from the definition of "principal sum" that outstanding interest forms part of the principal and hence capitalises at six monthly rests. A calculation of that capitalised interest at 13 September 2010 is attached to the Defendant's Summary of Argument and shows a total figure for interest calculated on this basis at $501,993.81. This produces a total amount due as at that date of $2,601,993.81. Shepparton Projects did not make any submissions indicating disagreement with these figures or the interest calculations as submitted by Cave Investments on the basis of its position as to the proper construction of the 2006 Loan Agreement; a construction which I have substantially accepted for the reasons indicated. I will, however, reserve the question of the final calculation of principal and interest due for further submissions, if necessary, by the parties.

74 There is no evidence of any damage suffered by Cave Investments, other than the costs of pursuing enforcement of the 2006 Loan Agreement and the associated SPM mortgage and guarantee. It submitted, therefore, that its entitlement is to nominal damages for breach of the loan agreement and that it is entitled to a costs order on an indemnity basis. No other claim for damages was advanced. As neither the basis for a nominal damages claim, nor the basis of the costs order on an indemnity basis, was the subject of any detailed submissions by the parties at trial I reserve those issues for further submissions following publication of these reasons and hearing the parties in relation to the form of final orders.

75 Cave Investments submitted that there appeared to be no doubt that the guarantors are liable for the unpaid interest and that the only dispute in relation to their liability appeared to be as to whether the conduct of Cave Investments on 30 July 2008 by intimating that tender, were it ever made, by way of transfer of land, would be refused, somehow materially affected the position of the guarantors in a way that the guarantee should now be released. It submitted that this is not a proper characterisation of the events of 30 July 2008, and all that occurred was that the guarantor's liability, as expressly contemplated in the 21 December 2006 guarantee in the form of Schedule III of the 2006 Loan Agreement, arose. It further submitted that there was no material prejudice of a kind which vitiated the guarantees.

76 I do not understand this submission to have been opposed. It was accepted that the liability of the guarantors would, in the present circumstances, follow any liability of Shepparton Projects under the terms of the 2006 Loan Agreement, properly construed. In any event, I have considered the events of 30 July 2008 and indicated in my reasons my views as to the proper characterisation of what occurred at that meeting and its significance in terms of the agreement, and clause 7 in particular.

77 Issues were raised with respect to the conduct of Shepparton Projects in utilising a discharge of mortgage to its profit pursuant to an offer which was never accepted and in circumstances when no agreement was thereafter effected. Cave Investments submitted that Shepparton Projects took advantage of a document with which it had been entrusted, and that this conduct was sufficiently associated with any equity which it relied upon and so was of sufficiently disentitling character to justify the Court refusing to extend equitable relief to the plaintiff.

78 In other words, Shepparton Projects had "unclean hands". Shepparton Projects submitted that for conduct to be sufficient to give rise to "unclean hands" it must be "wanting in good faith".[30] It submitted that its conduct in relation to the events of 26 May 2008 was not wanting in good faith. It submitted that on the documentary evidence there was no agreement in relation to Cave Investments taking over the NAB first mortgage. Further, it said that to the extent that Cave Investments agitated that anything was agreed, it was in relation to the payment of $500,000 to it, and not in relation to the transfer of that mortgage. In any event, having regard to the position I have reached in relation to this matter, this issue does not now arise.

79 Issues were raised by Shepparton Projects in relation to the extent to which an order for taking of accounts of amounts due under the 2006 Loan Agreement and the securing SPM mortgage might also comprise an assessment of common law damages, with a view to having them set off against any sums due under the SPM mortgage by way of principal and interest. Cave Investments submitted that this was not a matter that was properly raised in the pleadings. It submitted, further, that there was no entitlement to, in effect, circumvent the common law approach to the assessment of damages under the guise of the taking of accounts in equity. Again, having regard to the position I have reached in this matter, this issue does not arise.

80 For the preceding reasons, there will be judgment for Cave Investments for the whole of the principal sum remaining outstanding plus interest thereon under the 2006 Loan Agreement and associated securities for the obligations under that agreement. Also, as indicated, I reserve the issue of final calculation of the principal sum and interest remaining outstanding, the question of nominal damages payable by Shepparton Projects for breach of the 2006 Loan Agreement, and the question of costs. I will hear from the parties in relation to these matters and the appropriate form of the orders.

[1] See the definition of "Security" in paragraph 2(a) of the 2004 Loan Agreement and Item 10 of Schedule I of that agreement.

[3] See clause 1 of the 2005 Deed of Variation.

[4] Paragraph 6 of the 2005 Deed of Variation, which amended paragraph 4.c of 2004 Loan Agreement.

[7] See paragraph 5(b) and Item 9 of Schedule I of the 2006 Loan Agreement.

[8] See paragraphs 1 and 2 of the concluding part of Schedule II of the 2006 Loan Agreement.

[9] See above, paragraphs 10 (2004 Loan Agreement) and 26 (2006 Loan Agreement).

[10] Defendant's Summary of Argument (13 September 2010), paragraph 21.

[11] See Tyler, Young and Croft, Fisher and Lightwood's Law of Mortgage 2nd Aust ed; 2005 [3.13].

[12] See Lewison, Interpretation of Contracts (4th ed; 2007), paragraph 7.03.

[13] See Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at 591 per Gummow, Hayne and Kiefel JJ.

[14] See Solid Investments Australia Pty Ltd v Clifford [2010] VSCA 59 at [37] per Mandie JA.

[15] Referring to Matthews v Smallwood [1910] 1 Ch 777 at 786-787 per Parker J; Cammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 878 per Lord Pearson.

[16] See Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 643-4 and 646 (per Stephen J).

[17] See Elder's Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd [1941] HCA 31; (1941) 65 CLR 603 at 618 per Rich ACJ, Dixon and McTiernan JJ; Sergant v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 643-644 per Stephen J, and 656 per Mason J and Khoury v GIO [1984] HCA 55; (1984) 165 CLR 622 at 633-4.

[18] In particular, see above, paragraphs 26 to 28.

[19] Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 at 53-55 per Kitto J.

[20] See Defendant's Summary of Argument (13 September 2010), paragraph 36.

[21] Kevin McGuire (affidavit dated 1 September 2010) and Paul Grant Linsdell (affidavit dated 12 September 2010).

[22] See Progressive Mailing House v Tabali [1985] HCA 14; (1985) 157 CLR 17 at 32-3 (Mason J).

[23] Referred to by Dixon J (as he then was) in Sheppard v Felt & Textiles Australia Ltd [1931] HCA 21; (1931) 45 CLR 359 at 378.

[24] Peter Turnbull & Co Pty Ltd v Mundus Trading Company (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 at 246-247 (per Dixon CJ); Mahoney v Lindsay (1980) 33 ALR 601 at 603; AVS Property Pty Ltd v McMaster [2010] FCAFC 81 at [24]- [26].

[25] See World Best Holdings Ltd v Sarker [2010] NSWCA 24 at [61].

[26] [1954] HCA 25; (1954) 90 CLR 235.

[27] [1988] 2 All ER 742.

[28] [1988] 2 All ER 742 at 751-2; to like effect is the useful discussion by Palmer J in Euphoric Pty Ltd v Ryledar Pty Ltd [2006] NSWSC 2 at [190] - [200].

[29] [1954] HCA 25; (1954) 90 CLR 235 at 250.

[30] Sang Lee Investment Co Ltd v Wing Kwai Investment Co Ltd [1983] UKPC 11; (1983) HKLR 197 at 208; cited in P W Young, C Croft and M L Smith, On Equity (2009), Thomson Reuters, Sydney, at [3.330].