Telfer v Fairfax

Basic chronology

1. The primary facts relevant to this dispute are not in issue, and it will assist in understanding the manner in which the court has been required to resolve the issues between the parties to set out those facts briefly in chronological form.
2. 26 July 2010. Carolyn and Lyall entered into the Deed.
3. 2 August 2010. As required by the Deed, Carolyn borrowed $400,000 on the security of her apartment at Drummoyne, and spent about $337,500 paying off two debts owed by Lyall that were secured on the Northmead Property. Carolyn asserts that she used the balance of the $400,000 to pay additional debts owed by Lyall, but that is partly challenged by Mark.
4. 11 August 2010. Carolyn lodged a caveat against the title to the Northmead Property to protect the interest that she claims in these proceedings. Carolyn claimed that she was entitled to: "An equitable interest as chargee of the estate in fee simple of Lyall Vincent Telfer". She relied upon the Deed as having created that equitable interest.
5. 25 August 2010. The Deed required Lyall to sell an excavator owned by him by this date and to apply the proceeds in partial repayment of the debt borrowed by Carolyn pursuant to the Deed. Lyall did in due course sell the excavator, but there is an issue as to whether he used the proceeds to repay Carolyn's debt.
6. 31 March 2011. Mark and Lyall entered into the Contract. Mark paid the deposit of $25,000, which was released to Lyall in accordance with the Contract. The Contract was conditional on Mark selling his own house at 37 Hammers Road Northmead.
7. 28 April 2011. Mark exchanged contracts to sell his house at Northmead.
8. 11 May 2011. Carolyn's solicitors provided a payout figure for the proposed settlement of the Contract to take place on 27 May 2011 in the sum of $431,259.45, and simultaneous settlements were booked for the contracts for the sale of the two properties.
9. 14 May 2011. Lyall died.
10. 20 May 2011. Carolyn vacated the Northmead Property and Mark took possession. This apparently took place at the request of and with the authority of Neil Telfer, Lyall's brother, who claimed that Lyall had appointed him as his executor under a codicil to Lyall's will.
11. 27 May 2011. Completion of the contract for the sale of Mark's property took place, but the Contract was not completed due to the need to obtain probate of Lyall's estate.
12. 26 July 2011. The Deed required Lyall to sell the Northmead Property by this date, and to apply the proceeds in reduction of the debt borrowed by Carolyn pursuant to the Deed. The required sale had not occurred by this date, because the Contract had not been completed.
13. 21 October 2011 to 13 June 2014. During this period litigation took place in the Supreme Court between Neil and Carolyn concerning Neil's entitlement to the grant of probate of Lyall's will as executor nominated in the codicil. Slattery J held that Neil was not entitled to a grant of probate because Lyall had not signed the codicil. In due course the Court of Appeal upheld the decision of Slattery J on this issue, although it also varied the order for costs that his Honour had made.
14. 12 December 2012. Carolyn sold her Drummoyne apartment in order to pay off her mortgage, as she was unable to continue to service it.
15. 4 November 2013. Mr Fairfax was appointed as administrator of Lyall's estate.
16. November 2013 to December 2014. Correspondence ensued between the solicitors for Carolyn, Mark and Mr Fairfax concerning the requirements for settlement of the Contract, which included the issue of whether Mark was required to pay an occupation fee for his occupation of the Northmead Property pursuant to the terms of the Contract. No resolution of this issue had been reached by the end of the period.
17. 18 September 2014. Mark and Mr Fairfax appear to have agreed that Mark would settle the Contract by paying the full amount of an occupation fee required by clause 42.1 of the Contract. Mark informed Mr Fairfax that he aimed to confirm his finance approval and settle the Contract by 30 September 2014.
18. 17 December 2014. These proceedings were commenced by Carolyn filing her statement of claim.
19. 15 and 16 October 2015. The trial of the proceedings was conducted.

The effect of the Deed

1. Mark does not challenge the validity of the Deed. He claims, however, that it does not have the effect for which Carolyn contends, both as to the nature of the debts that it secures, and as to the nature of the charge that it creates.
2. The deed dated 26 July 2010 between Lyall and Carolyn is short, and it is appropriate that the operative parts of the deed be set out in full: DEFINITIONS Lyall's property: "means" the house property at 39 Hammers Road, Northmead NSW. Carolyn's property: "means" the home unit at 5/337 Victoria Place, Drummoyne NSW. RECITALS: A. Lyall's property is currently encumbered by a Mortgage to RHG Mortgage Corporation Ltd and Caveat in favour of Rinker Australia Pty Ltd and the total debts secured by that Mortgage and that Caveat are currently about $337,500. B. Lyall has been unable to service the debts secured over his property and Carolyn has offered to raise the required funds to discharge Lyall's debts by way of taking a loan from the Bendigo and Adelaide Banks in the sum of $400,000, to be secured over her property, and the funds raised to be used to discharge Lyall's debts, on the conditions and terms set out in this Deed. THIS DEED WITNESSES 1. Lyall, through his solicitor, will obtain current payout figures from RHG Mortgage Corporation Ltd and Rinker Australia Pty Ltd, based on an expected settlement date of 2 August 2010. 2. Carolyn will, through her solicitor, arrange for the settlement of her Mortgage advance also for 2 August 2010. 3. Both settlements will be arranged if possible simultaneously but otherwise on the same day, such that by close of business on that day Carolyn's Mortgage advance will have been settled and the funds therefrom firstly applied to discharge the Mortgage and Caveat registered over Lyall's property. The Certificate of Title Folio 9/20060, together with Discharge of Mortgage AB883054 and withdrawal of Caveat AD774593 are to remain in the possession and control of Carolyn's solicitor, who will lodge them for registration, together with the Caveat referred to in clause 6(c) hereof. 4. Any remaining funds available from the Mortgage advance to Carolyn will then be used to pay the registration fees on the Discharge of Mortgage and withdrawal of Caveat re Lyall's property and any other costs involved. Thereafter the Certificate of Title for Lyall's property is to be held by Carolyn's solicitor pending the repayment by Lyall of the debt between Carolyn and the Bendigo and Adelaide Banks and reimbursement of the monies paid by Carolyn on Lyall's behalf, and consequent on this Deed. 5. Carolyn will service her loan by the rent she expects to receive from the Drummoyne property, and, if needed, their own wage. 6. In consideration of Carolyn encumbering her property with the Mortgage to Bendigo and Adelaide Banks and making the funds produced thereby available to pay out Lyall's debts, Lyall:- a. Undertakes to sell the excavator the subject of the finance agreement with Rinker Australia Pty Ltd and to apply the funds of that sale towards the reduction of Carolyn's Mortgage debt, within 30 days of the date of this Deed. b. Undertakes to sell the property 39 Hammers Road, Northmead NSW, within 12 months of the date of this Deed and to apply from the proceeds thereof all the funds required to firstly repay Carolyn's debt to Bendigo and Adelaide Banks and also to reimburse Carolyn for each of the Mortgage Payments which she will have made to Bendigo and Adelaide Banks in that period, and to reimburse her for all the costs and expenses which she has incurred and will incur in firstly establishing the loan facility, servicing the loan, and then discharging that facility, including all legal costs, registration fees and the like. c. Consents to Caveat being lodged over the Title to his property, pursuant to this Deed, to secure Carolyn's interest in it and her entitlement to be reimbursed all the money that she has agreed to raise and pay on Lyall's behalf. 7. Both parties acknowledge that they have been independently legally advised on their rights and obligations pursuant to this Deed, and have entered into this deed after receiving and considering that advice. EXECUTED AS A DEED

Debts covered by Deed

1. I will consider first the issue of the nature of the debts secured by the Deed. The issue is whether (as Mark contends) the Deed only secures the amount required for Carolyn to repay the two debts owed by Lyall referred to in Recital A, which were secured over the Northmead Property, or whether (as Carolyn contends) it also secures additional debts of Lyall that were repaid out of the unused portion of the $400,000.
2. Mark's argument starts by noting that Recital A refers to the two debts of about $337,500 and describes them as "the total debts secured by that Mortgage and that Caveat".
3. Recital B then refers to Lyall as having been unable to service "the debts secured over his property" and that Carolyn has offered to raise the required funds "to discharge Lyall's debts" by borrowing the amount of $400,000 "and the funds raised to be used to discharge Lyall's debts".
4. To this point the natural way to read the two recitals is that every reference to "the debts" or to "Lyall's debts" in Recital B is a reference to "the total debts" set out in Recital A. The question is whether, in fact, construing the whole of the Deed in its context, the words "discharge Lyall's debts" in recital B encompass any other of Lyall's debts that were repaid out of the $400,000.
5. The reader of the two recitals would, however, notice that the amount to be borrowed was $400,000, which was likely to be more than necessary to repay the two secured debts (even if allowance is made for the various additional costs that the Deed contemplates would be paid out of the $400,000).
6. Clause 3 deals with the steps required to be taken on settlement of Carolyn's mortgage and the discharge of the mortgage and the caveat that created securities over the Northmead Property. The $400,000 borrowed by Carolyn was firstly to be applied "to discharge the Mortgage and Caveat".
7. Clause 4 then requires that "any remaining funds from the Mortgage advance" be used to pay the registration fees on the discharge of mortgage and withdrawal of caveat "and any other costs involved". Clause 4 then provides for the certificate of title to be held "pending the repayment by Lyall of the debt between Carolyn and the Bendigo and Adelaide Banks and reimbursement of the monies paid by Carolyn on Lyall' (sic) behalf, and consequent on this Deed".
8. The first obligation to be paid by Lyall is the debt that Carolyn owes to the bank. That, literally, is the balance outstanding of the $400,000 plus any accumulated interest and fees. It may be that the primary reason for the borrowing of the $400,000 was to repay the $337,500 that was secured on the Northmead Property, plus associated costs, but literally clause 4 requires Lyall to pay the whole of Carolyn's outstanding debt to the bank.
9. The last part of clause 4 adds a requirement that Lyall reimburse "the monies paid by Carolyn on Lyall' behalf". These words are capable of extending to any payments made by Carolyn on Lyall's behalf, even if not expressly contemplated by the recitals in the Deed.
10. The chapeau to clause 6 describes the consideration provided by Carolyn as the encumbering of her property "and making the funds produced thereby available to pay out Lyall's debts". It would, of course, be possible to construe the general expression "Lyall's debts" as being intended to refer back only to the two secured debts identified in Recital A. However, the fact is that the expression is general, and is capable of applying to any debts of Lyall other than the two secured debts.
11. Clause 6(a) requires Lyall to apply the funds from the sale of the excavator "towards the reduction of Carolyn's Mortgage debt"; that is, the amount of $400,000 that is still outstanding, and any other amount payable by Carolyn to the bank.
12. Clause 6(b) also requires Lyall to use the proceeds of sale of the Northmead Property "firstly to repay Carolyn's debt to Bendigo and Adelaide Banks". This again is a reference to the balance of the $400,000, plus any other monies owed to the bank.
13. In addition, however, clause 6(b) requires Lyall to reimburse Carolyn for each of the Mortgage payments "which she will have made…in that period, and to reimburse her for all of the costs and expenses which she has incurred and will incur in firstly establishing the loan facility, servicing the loan, and then discharging that facility, including all legal costs, registration fees and the like".
14. Finally, clause 6(c) refers to Carolyn's "entitlement to be reimbursed all the money that she has agreed to raise and pay on Lyall's behalf" being secured by the caveat.
15. In my view, notwithstanding the apparent significance of the two debts owed by Lyall secured on the Northmead Property being identified in the recitals as "the debts", there are important features of the Deed that require the conclusion that on its proper construction its operation is not limited to those two debts.
16. This conclusion springs primarily out of the following two aspects of the Deed. First, it repeatedly and clearly requires Lyall to repay the whole of the debt owed by Carolyn to the bank; that is, the $400,000 (even though the whole of that amount would not be necessary to discharge the two debts secured on the Northmead Property), that was owed by Carolyn to the bank at the date of repayment, plus outstanding interest and fees. Secondly, Lyall is also required to reimburse Carolyn for each of the mortgage payments that she will have to make to the bank.
17. The combined effect of these two provisions is to make Lyall liable to make all of the payments that he would have been obliged personally to make if he had borrowed the $400,000 from the bank. It is as if Carolyn was his nominee, and was allowing her property in the Drummoyne apartment to be used as a third-party security for Lyall's borrowing of the $400,000. Of course, the security was not a third-party one, as Carolyn agreed to make herself the only party personally liable to the bank.
18. This basis for construing the Deed is reinforced to some extent by the fact that it does not contain any provision that requires Lyall to pay interest to Carolyn. The Deed proceeds on the assumption that Lyall will repay all of Carolyn's obligations to the bank, and that will be the end of the matter.
19. In those circumstances, as Lyall was required by the Deed to repay the whole of the $400,000, and as the whole of that amount may not have been necessary to repay the $337,500 debt plus costs, the more commercial and practical way to interpret the words "the monies paid by Carolyn on Lyall' behalf" in clause 4 and "Lyall's debts" in the chapeau to clause 6 is as if they refer to the two debts secured over the Northmead Property plus any other debts of Lyall's that he wished to have repaid out of the balance of the $400,000.
20. The identification of any additional debts covered by the Deed would involve proof that an additional debt owed by Lyall had been repaid out of the balance available from the $400,000.

Nature of charge created by Deed

1. The next issue that requires consideration is the identification of the nature of the charge created by the Deed on its proper construction.
2. Mark contends that the Deed, relevantly, only creates a charge over the net proceeds of the sale of the Northmead Property required by clause 6(b); in this case under the Contract.
3. In the course of the hearing I asked counsel for Mark whether it was Mark's case that the terms of clause 6(b) of the Deed had the effect that Mark's interest under the Contract had priority over the prior interest of Carolyn under the Deed, because the obligation to enter into the Contract affected the equality of the equities, so that the second in time should prevail. Counsel advised the court that this was not the basis of Mark's argument. Rather, that argument was based simply upon the proper construction of the Deed.
4. It must be noticed that, while clause 6(b) does oblige Lyall to sell the Northmead Property within 12 months, it says nothing about the price or the terms upon which the property should be sold. It does not limit Lyall's obligation to sell the Northmead Property to a price and terms that would ensure that Lyall's obligations to Carolyn under the Deed were met.
5. Further, clause 6(b) is only one of three methods provided for in clause 6 as to how Lyall is required to pay the amounts required to be paid under the Deed, in consideration of Carolyn encumbering her property and making the funds produced thereby available to pay out Lyall's debts.
6. There are a number of provisions in the Deed that are capable individually of creating charges to secure Carolyn's entitlements under the Deed.
7. First, clause 4, in requiring the certificate of title for the Northmead Property to be held by Carolyn's solicitor pending the repayment and reimbursement referred to in that clause may have created an equitable mortgage by deposit of title deeds (or its modern equivalent, by deposit of the certificate of title).
8. In Theodore v Mistford Pty Ltd [2005] HCA 45; (2005) 221 CLR 612 the High Court said (footnotes omitted): [22] The respondents support the declaratory relief in their favour given by the Court of Appeal by reliance upon a basic proposition. This may be stated in the terms used by Maitland in the thirteenth of his "Lectures on Equity". He said that the Court of Chancery had enabled people to create equitable mortgages without any writing at all and added: An equitable mortgage (enforceable by an order for foreclosure or for sale) can be made by a deposit of title deeds if they were deposited with intent that the land which they concern shall be security for the payment of a debt. [23] In the present case, there were no direct dealings between the appellant and the respondents but, the respondents submit, this provides no fatal objection to their case. They say the findings of fact establish two sufficient planks for their case. First, Mrs Theodore had the necessary intention to deposit the duplicate certificate of title as security for her son's indebtedness under the Sale Contract and, secondly, to effectuate that intention she conferred an actual authority on her son, in broad terms encompassing his subsequent dealing with the duplicate certificate of title to procure settlement of the Sale Contract. These submissions should be accepted and the appeal dismissed. We turn to explain why this is so. [24] Several preliminary matters are to be noted. First, given the findings as to the intention of Mrs Theodore, this is not a case which tests the proposition in some of the leading English texts. that from a relationship of debtor and creditor and the delivery of title deeds the court will presume an intention to create a security, a presumption to be rebutted only by proof that the deposit was made on other grounds. However, it may be noted that this proposition does have the formidable support of Lord Macnaghten. In delivering the reasons of the Privy Council in Bank of New South Wales v O'Connor. Lord Macnaghten said: It is a well-established rule of equity that a deposit of a document of title without either writing or word of mouth will create in equity a charge upon the property to which the document relates to the extent of the interest of the person who makes the deposit. In the absence of consent that charge can only be displaced by actual payment of the amount secured. Before the fusion of law and equity a Court of Equity would undoubtedly have restrained the legal owner of the property from recovering his title deeds at law so long as the charge continued, and now when law and equity are both administered by the same Court if there be any conflict the rules of equity must prevail.
9. Clause 4, in clear and explicit terms, authorises Carolyn's solicitor to hold the certificate of title "pending the repayment by Lyall of the debt between Carolyn and Bendigo and Adelaide Banks and reimbursement of the monies paid by Carolyn on Lyall' behalf, and consequent on this Deed". That is a self-contained provision that refers to the entirety of Lyall's payment obligation under the Deed and entitles the solicitor to hold the certificate of title pending payment.
10. In my view on its proper construction clause 4 creates a charge over the Northmead Property by deposit of the modern equivalent of the title deed.
11. Next, clause 6(c), in my view, creates an equitable charge over the Northmead Property on the principles discussed by the Court of Appeal in Murphy v Wright (1992) 5 BPR 11,734 and Troncone v Aliperti (1992) 6 BPR 13,291, and the many cases that have followed those authorities. It is not necessary to engage in subtle considerations in this case about whether the authority granted by the registered owner of the land to lodge a caveat over its title implies an equitable charge, because clause 6(c) expressly states that the purpose of the lodgement of the caveat will be "to secure Carolyn's interest in it", and the only possible interest can be her equitable mortgage, whether created by clause 4, or by clause 6(c) itself.
12. I therefore reach the conclusion that clause 4 and clause 6(c), either separately or when read together, creates an equitable charge over the Northmead Property to secure performance by Lyall of his obligations under the Deed.
13. It does not, however, follow that Mark was entirely in error in his claim that the Deed creates a charge over the proceeds of sale of any contract entered into by Lyall in performance of his obligations under clause 6(b) of the Deed. In my view such a charge was created. Where I differ from the submissions made by Mark is in my view that this was not the only charge created by the Deed
14. Clause 6(b), in my view, creates a charge over the proceeds of sale under the Contract, as the Deed identified a specific fund that was to be applied in the reimbursement of Carolyn. As I said in Sotiropoulos v Sotiropoulos [2015 NSWSC 855 at [104] to [106]: [104] A charge may be created over real property by a charge or direction in a settlement, will or other instrument, whereby the property is expressly or constructively made liable or specifically appropriated to the discharge of a debt: Fisher & Lightwood's Law of Mortgage (Australian edition) [2.2]. [105] In Jackson v Richards [2005] NSWSC 630; (2005) 12 BPR 23,091 White J said: [17] The critical question is whether it should be inferred that the parties intended that if the Drummoyne property were to be sold, the defendant's share of the proceeds of sale were to be kept separate from his other assets, and the costs paid from that separate fund. [18] An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it. (Rodick v Gandell (1852) 1 De GM & G 763 at 777, 778; 42 ER 749 at 754). However, for this principle to apply, there must be a specific fund from which the debt owing is to be paid. In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, Buckley LJ said (at 595): If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor. [19] For such a charge to be created by an agreement to pay a debt out of a fund to come to the debtor, the parties must have agreed that the debtor would keep the fund separate from his other assets. (Moseley v Cressey's Co (1865) LR 1 Eq 405 at 409). [106] See also Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of Halsted (Bankrupt) [2011] FCA 1242.
15. I acknowledge that one possible consequence of the obligation imposed upon Lyall by clause 6(b) is that he might enter into a contract for the sale of the Northmead Property for a particular price, and then find that, when the time came to complete that contract, he could not complete because Carolyn's solicitor held the certificate of title, and Carolyn had the benefit of a caveat over the property, and she declined to permit the contract to be completed because the net proceeds of sale would not be sufficient to pay all of the moneys that the Deed required to be paid for her benefit. There is, in my view, nothing commercially strange or inequitable about that result. The parties to the Deed clearly contemplated that the value of the Northmead Property, perhaps when added to the value of the excavator, would be sufficient to cover Lyall's obligations to Carolyn under the Deed. The Deed left it to Lyall to ensure that the Northmead Property was sold on terms that would permit him to discharge all of his obligations. It would be an entirely uncommercial way to construe the Deed to do so in a way that gave Lyall the power pro tanto to destroy the effectiveness of the securities created by the Deed by contracting to sell the Northmead Property at a price that was insufficient to enable him to discharge those obligations.

The amounts secured by the Deed

1. It is now necessary to decide the amount that is secured by the Deed.
2. It follows from the construction of the Deed that I have preferred above, that the various charges that it created secured Lyall's obligations (a) to repay Carolyn's obligation to the bank; (b) to reimburse her for all of the mortgage payments that she made to the Bank; and (c) to reimburse her for all of the costs and expenses which she incurred. More generally, Lyall was required to pay or reimburse all of the payments that he would have been required to pay if he had been the borrower. Put another way, in practical effect Lyall was required to save Carolyn harmless from her undertaking to personally borrow the moneys required by Lyall.
3. The Deed did not take effect as if Lyall had borrowed from Carolyn the amount necessary to discharge the two debts secured on the Northmead Property, as well as any other amounts that Lyall needed to repay out of the balance of the $400,000.
4. Strictly, Lyall had to repay the whole of the $400,000, and if it happened that not all of that $400,000 needed to be drawn down by Carolyn to pay Lyall's debts, and the various other costs, the balance would simply sit in the bank and ultimately would not be required to be repaid by Carolyn or Lyall.
5. Nonetheless, an issue arose at the hearing as to the amount that Lyall was required to pay under the Deed, and this issue extended to identifying the total amount of Lyall's debts that had been repaid by Carolyn out of the $400,000.
6. On 16 May 2012, Carolyn's solicitors wrote a letter setting out the amounts that Carolyn claimed were secured under the Deed. It appears that the letter was written in the probate proceedings to which I have referred above.
7. The letter listed the following payments which I take were claimed to have been paid out of the $400,000: HOLCIM (Australia) Pty Ltd $10,000 RHG Mortgage Corporation Ltd $334,809.63 Whitehead Cooper Williams $1698.40 Shad Partners $467.50 Australian Mortgage Options $350 Land and Property Information $291 Kemp Strang $396 Carol Telfer $51,919.47 Total $399,835
8. In addition, the letter claimed that there was a fee of five dollars for every trust cheque and a fee of $15 for every bank cheque, giving a total of $65. There was also a settlement fee of $100. The reference to Carol Telfer is a reference to Carolyn.
9. After the evidence was read and Carolyn was cross-examined, it was necessary for counsel for Mark to make a forensic decision as to which components of this claim he believed that he could properly contest on the evidence. That task was not without difficulty, because in various respects the evidence was arguably incomplete.
10. During submissions Mark's counsel handed to me a hand written list that sets out the components of the claim that were not contested, and the components that were contested. The total amount that Mark allowed was $338,177.53. That was the total claimed in the solicitors' letter of $399,835 less the amounts of $10,000 and $51,919.47. Mark also allowed the two sums of $65 and $100.
11. As I understand it, Mark contested the amount of $51,919.47 on the basis that it was a payment to Carolyn. Carolyn gave evidence concerning the significance of the amount of $51,919.47 in pars 29 to 36 of her 12 June 2015 affidavit. She said that that amount was paid into her Commonwealth Bank account on about 31 July 2010. She referred to a list at pages 3 and 4 of her solicitors' letter. As I understand the evidence, Carolyn has marked five of the entries as "excluded" to mean that those payments were not made for Lyall's purposes. Carolyn exhibited to her affidavit all of her bank statements. She specifically identified payments of $11,596, $4,000, $5,000 and $20,000 (total $40,596) as being payments against credit cards or to pay wages to Lyall's employees. The $5,000 payment related to MasterCard account in the joint names of Carolyn and Lyall. Though the account was joint, it was still a debt of Lyall's. As I understand Carolyn's evidence, however, she asserted that all of the other small sums were payments for Lyall's purposes, although she did not give detailed evidence concerning the nature of the payments. On my calculation the total of the payments, other than the excluded payments, was $55,539.35.
12. Mark challenged the payment of $10,000 to HOLCIM (Australia) Pty Ltd because it was not specifically identified in the Deed. It follows from the construction of the Deed that I have preferred that it was not necessary for particular debts to be specified in the Deed, provided it can be inferred that Lyall requested that the debt be repaid out of the balance of the $400,000.
13. Mark also relied upon evidence given by Carolyn before Slattery J as being admissions against her interests. One payment identified by Mark was a payment of $20,000 off a Coles Myers credit card. However, Carolyn said that that credit card account was used by Lyall for business and for personal use.
14. Carolyn also said that she used $10,000 to pay out her debt, and "the rest was used on Lyall's things". However, there is no reference to an amount of $10,000 in the list of payments on pages 3 and 4 of Carolyn's solicitors' letter.
15. As I understand Carolyn's case, she says that she ultimately paid more than the balance of the $400,000 for Lyall's purposes, where necessary from her own funds. While the evidence is not precise or entirely clear, I would not accept Carolyn's admission that she used $10,000 to repay a debt of her own as having the effect that $10,000 should be deducted from the $400,000. Even if that happened (as to which there was no documentary evidence) the evidence is consistent with other payments made on behalf of Lyall having made up that amount.
16. As I have found above, the practical effect of the Deed was that Carolyn agreed to borrow $400,000 in her own name to enable Lyall to repay a number of major debts, but also to use the balance to pay sundry obligations to alleviate his financial difficulties. It is not at all surprising that some of the money was used to pay a significant number of relatively minor debts, and that those payments were made by arrangement between Carolyn and Lyall without any formal documentation being created to record or explain the payments.
17. The real question is not whether Carolyn has tendered evidence that clearly and positively establishes that each and every payment was made at the request of Lyall to discharge some debt owed by Lyall. In fact, under the Deed Carolyn agreed to borrow the $400,000 to discharge Lyall's debts, and Lyall agreed to repay the $400,000 to the bank. In those circumstances the question would be whether Mark has demonstrated that particular payments were not made at Lyall's request, so that Carolyn could not enforce payment of the amount against Lyall's estate in reliance on the Deed.
18. Carolyn gave evidence that Lyall did not make any payments under the Deed before his death, and that Lyall did not make any payments towards the mortgage or improvements in respect of the Drummoyne apartment.
19. Mark asked the court to infer that in fact some repayments had been made. This submission was based solely on the evidence given by Mark that Lyall had asked for his consent to sell certain assets that they jointly used in their plumbing business, and Mark's evidence that the assets had been sold. There was no direct evidence concerning the amount of the proceeds of sale or that the proceeds have been used to make payments to Carolyn or to the bank. Mark did not formally plead in his defence that Lyall had repaid any of the amounts due under the Deed, and in all of these circumstances I find his evidence inadequate to establish that Lyall had made any payments required by the Deed before his death.
20. I am prepared to accept Carolyn's evidence, as the only person who was a witness to how the $400,000 was dispersed, and the only person in a position to say whether or not Lyall had made any payments required of him under the Deed.
21. With all respect to her, Carolyn did not present as a sophisticated witness. She left school at age 15, and worked in various retail jobs. Since 1998, she has worked as a pharmacy assistant. She has no tertiary education. Carolyn plainly suffers relatively extreme restrictions on mobility. She sat in a wheelchair throughout the hearing. She needed the physical assistance of a number of persons to enter and leave the witness box. There was no evidence that Carolyn's physical circumstances have impaired her cognition. However, from my observation it did appear that Carolyn's physical disabilities are likely to have impaired the acuteness of her understanding of questions asked of her in the witness box, and her capacity to give complicated answers. Notwithstanding these difficulties, I am satisfied that Carolyn did her best to answer the questions put to her honestly. I formed the view, however, that some caution should be observed in using her own answers against her interests, as I consider that, while she was trying to give truthful answers, she only understood and was able to answer questions at a level of some generality.
22. I therefore find on the balance of probabilities Carolyn applied $400,000 of the money she borrowed pursuant to the Deed for Lyall's purposes, with the result that he became liable to repay that debt to the bank.
23. Carolyn relied upon the evidence of Mr Ian Paul, a forensic accountant, to prove the amount of the debt now owed by Lyall's estate to Carolyn.
24. The instruction given by Carolyn's solicitors to Mr Paul was in the following terms: Consequently, we asked you to first calculate the amount payable under the Deed from July 2010 to 12 December 2012. Secondly, in the absence of any formula in the Deed, we asked you to apply the statutory interest rates applied by the Courts pursuant to the relevant legislation, as applied to the debt as it stood on 12/12/2012 to date. Our understanding is that the relevant rate is 4% above the Reserve Bank Cash Rate at any time, but we ask you to please check that in the course of your calculation.
25. I note there is some confusion in this case as to whether Carolyn repaid the bank on 7 December 2012 (as alleged in her statement of claim) or 12 December 2012 (as stated in this instruction to Mr Paul). The difference is insignificant, and it will be most convenient to accept 12 December 2012 as the correct date).
26. Mr Paul was in effect asked to construe the Deed and then calculate the amount payable by Lyall's estate under it, and as the Deed does not appear to include any express obligation on Lyall to pay interest on unpaid monies, to calculate an amount of interest at pre-judgment rates under the Civil Procedure Act.
27. I did not admit Mr Paul's evidence on the issue of the proper construction of the Deed, as that is a legal question for the court, and one that falls outside Mr Paul's expertise. I did, however, admit Mr Paul's evidence on the basis of assumptions implied in the evidence as to the proper construction of the Deed, and then the identification and computation of various amounts based upon the records made available to him by Carolyn. By reference to her records, Mr Paul identified all of the payments made by Carolyn to the bank, all interest and fees, and legal fees, and he applied his accounting expertise to determine the amount payable by the estate on a particular assumption as to the effect of the Deed, while attempting to ensure that there was no double counting. I explained to counsel for Mark that I would expect him to identify any false assumptions made by Mr Paul as to how the Deed operated, and to advise the court about any steps in Mr Paul's reasoning process as to which there was a genuine issue. Counsel ultimately advised me that Mark did not challenge the derivation of figures made by Mr Paul from the underlying documents, or his calculations.
28. Mr Paul derived two alternative 'scenarios' concerning the amount owed by Lyall's estate to Carolyn as at 12 December 2012. The first yielded a total of $509,508.83, and the second $475,947.33. These amounts were respectively set out in Tables 5 and 6 of Mr Paul's primary report.
29. Scenario 1 assumed an interpretation of the Deed to the effect that all loan repayments, fees and interest were to be reimbursed to Carolyn, irrespective of any apparent double counting (par 4.11). Scenario 2 assumed an interpretation of the Deed to the effect that only the loan repayments, legal fees and the amount of the mortgage discharge were to be reimbursed to Carolyn (par 4.12). Mr Paul said: "This approach effectively removes the apparent double counting entailed in the Scenario 1 methodology".
30. To derive the sum of $509,508.83 Mr Paul added the total loan repayments, total interest and fees, total legal fees, the amount of the loan discharge of $400,000, and then deducted an amount described as "capitalised fees/interest". To derive the sum of $475,947.33, Mr Paul simply added all of the loan repayments made by Carolyn, the legal fees that she paid, and the total amount paid on the discharge of the loan.
31. Mr Paul explained in par 4.3 that he thought that the Deed may be interpreted in one of two ways, and then said in par 4.4: "Prefaced upon my understanding of the Deed the amount of the loan payments are not to be offset against the amount of the principal or fees/interest". He then said in par 4.3 that it is arguable that there should be a credit for these payments against principal and capitalised fees/interest as otherwise there is effectively a double counting of Carolyn's reimbursement.
32. Unfortunately, Mr Paul was not called as a witness to explain the reasoning behind these two approaches, and accordingly he was not cross-examined. Counsel for both parties had difficulty in explaining the difference between the two approaches adopted by Mr Paul. This is an unfortunate outcome, as Mr Paul, being an accountant, should not have been asked to give expert evidence concerning the proper construction of the Deed.
33. The position reached is therefore that the parties have effectively accepted Mr Paul's calculations, but those calculations are based upon two different scenarios as to the proper construction of the Deed, and there is some doubt as to Mr Paul's reasoning concerning how he has determined each of the scenarios. The precise problem is to understand what Mr Paul means when he says that Scenario 1 involves an element of double counting, as Mr Paul has not illuminated his observations by a practical explanation of how the double counting may arise.
34. It is therefore necessary for me to revert to the terms of the Deed. Although the terms of the payment obligation imposed upon Lyall are expressed in a number of places in the Deed in slightly different wording, in my view the Deed required Lyall to pay the whole of the balance on Carolyn's loan account on the date of repayment, plus the total of the amounts that Carolyn had paid in the meantime as instalments against her mortgage, plus all costs incurred by Carolyn.
35. In my view this obligation is most aptly described by Mr Paul's Scenario 2 in Table 6 of his principal report.
36. Doing the best I can, Scenario 1 appears to involve an exercise that is not readily fitted into the wording of the Deed. Mr Paul has assumed that the capital amount of $400,000 was repaid at the time the loan was discharged, and he has then separately determined loan repayments and the amount of interest and fees imposed by the bank on the original borrowing to $400,000. Although Mr Paul's reasoning is not transparent, it is reasonably apparent that some of the loan repayments made by Carolyn will have been in respect of interest, and if the amount of interest charged by the bank is added separately to the total, there may be double counting.
37. Although I have reached this conclusion with some doubt, I have concluded that the appropriate amount of the debt owed by Lyall's estate as at 12 December 2012 was $475,947.33. I am reinforced in that conclusion by the consideration that it was Carolyn's obligation to prove the amount owed, and any doubts should be resolved in favour of Mark. Furthermore, even if not clearly expressed, Mr Paul's own concern about Scenario 1 involving apparent double counting is a reason to prefer the alternative.

Compensation for breach of the Deed

1. Mr Paul calculated that the total interest payable on the amount of $475,947.33 at the court's pre-judgment rate up to 16 June 2015 was $79,669.02. In a supplementary report Mr Paul calculated that the amount of interest on the same basis up to 12 October 2015 was $90,009.46, and that at the rates applying at that time the interest was accruing at $84.76 per day.
2. Carolyn's claim for interest gives rise to two questions; first, whether she is entitled to interest under the Deed; and secondly, if so, what the relevant rate of interest should be. Carolyn will be entitled to interest against Mr Fairfax under s 100 of the Civil Procedure Act in any event, and the real question is whether the obligation of Lyall's estate to pay interest is secured by the charge created by the Deed. (I was informed during the hearing that the Northmead Property is the only significant property in Lyall's estate, so it will probably not avail Carolyn to establish that the estate owes her any unsecured debt for interest).
3. I start from the proposition that the Deed does not contain any express obligation upon Lyall to pay interest to Carolyn consequently upon any default in payment required by the Deed.
4. The next question that should be addressed is whether the Deed contains an implied term that would require Lyall to pay interest on any overdue payments. If such a term were to be implied, it would be necessary for it to specify the amount of interest payable. The decision of the House of Lords in Cook v Fowler (1874) LR 7 HL 27 has been accepted by a number of authorities in Australia as establishing that, where an agreement that creates a debt does not expressly provide for the payment of interest by the debtor upon default in repayment of the debt on the due date, a term is not to be implied that interest will be payable after that date: see Re Andersons Seeds Ltd [1971] 2 NSWLR 120 per Street J (as his Honour then was) at 122; Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 6 BPR 14,053, (1994) NSW Conv R 55 - 731 per McClelland CJ in Eq; Kyleast Pty Ltd v Yogoat Pty Ltd (In Liq) unreported, 20 November 1995 BC9506745 per Simos J; Lai v Gong (1997) 8 BPR 15,837 per Young J (as is Honour then was); and by the Full Court of the Supreme Court of Western Australia in Hardie v Shadbolt [2004] WASCA 175.
5. However, Cook v Fowler also establishes that, where the agreement that creates the debt does not expressly require the debtor to pay interest following default in the timely repayment of the debt, the creditor will be entitled to be paid damages by way of compensation for the debtor's breach of the agreement: see for example Re Andersons Seeds at 123.
6. In the present case Carolyn did not claim damages in her statement of claim. Instead, she claimed in par 7 of her claim for relief interest on the whole of the amount due to her from 7 December 2012 under s 100 of the Civil Procedure Act. This same problem occurred in the Hawkesbury Valley Developments case, and McClelland CJ in Eq took the view that he should entertain an application by Custom Credit to amend the statement of claim to claim damages, on the basis that further submissions could then be made on the question of interest by way of damages. His Honour deferred proceeding to a final determination of that issue until it could be addressed by the parties. As Carolyn's claim for interest under s 100 of the Civil Procedure Act will have substantially the same effect as an equivalent claim for damages, and as I propose to ask the parties to bring in short minutes of order in any event, I will take the same course in this case as McClelland CJ in Eq took.
7. In the present case the Deed did not stipulate any rate of interest to be applied in respect of any outstanding obligation of Lyall. The practical reason for that was that the Deed required Lyall to repay Carolyn's obligation to the bank, in the manner that I have described above, rather than requiring Lyall to repay Carolyn personally as if indebted to her, which may have created the basis for imposing some interest obligation.
8. Street J in Re Andersons Seeds accepted the following statement of principle by Lord Cairns LC in Cook v Fowler at [32]-[33]: "Any claim, in the nature of a claim for interest after the day up to which interest was stipulated for, would be a claim really, not for a stipulated sum and interest, but for damages, and then it would be for the tribunal before which that claim was asserted to consider the position of the claimant, and the sum which properly, and under all the circumstances, should be awarded for damages. No doubt, prima facie, the rate of interest stipulated for up to the time certain might be taken, and generally would be taken, as the measure of interest, but that would not be conclusive. It would be for the tribunal to look at all the circumstances of the case, and to decide what was the proper sum to be awarded by way of damages."
9. In many cases, such as Re Andersons Seeds, where the agreement has provided for a commercially fair rate of interest, it will be a relatively straightforward matter for the court to decide that the appropriate rate of interest to compensate the creditor for being kept out of its money after the due date for repayment of the debt, will be the agreed rate of interest applicable during the term of the debt. However, the court is required in the manner described by Lord Cairns to determine a proper sum to reflect the real loss suffered by the creditor, and that may be done by using a different rate of interest than that agreed between the parties, where the agreement does provide for a particular rate of interest during the currency of the loan.
10. Plainly, in the present case, the Deed does not provide for any rate of interest that might be taken into account in determining the proper amount to compensate Carolyn. In fact, as I have noted, the Deed does not in strict terms create a debt payable by Lyall to Carolyn. Rather, Lyall was required by clause 6(b) of the Deed to repay Carolyn's debt to the bank within 12 months of the date of the Deed. His failure to perform that covenant was a breach of the Deed entitling Carolyn to compensation no less than if Lyall had failed to repay a debt that he owed to Carolyn on time.
11. The authorities establish that it may be proper for the court, on the facts of the particular case, to use the court rate for pre-judgment interest, such as is provided for in s 100 of the Civil Procedure Act, as the basis for calculating the amount of compensation to be payable to the creditor, or as a benchmark for calculating that amount after making appropriate adjustments. In Hawkesbury Valley Developments, McClelland CJ in Eq observed that the creditor was not necessarily entitled to damages calculated on the basis of the 21% per annum interest rate provided for in the agreement. As Young J explained in Lai v Gong, McClelland CJ in Eq held that the appropriate rate was the rate then set out in Schedule J to the Supreme Court Rules. In Lai v Gong itself Young J decided that it was appropriate to adopt a rate that was 2% per annum less than the court rate because the parties to the loan were not in a commercial relationship. In Hardie v Shadbolt the Full Court adopted that then statutory rate of 6% per annum.
12. Notwithstanding that the relationship between Carolyn and Lyall was not a commercial one, Mark did not make any submission that the rate of interest to be used for the purpose of calculating the damages payable by Lyall should be less than the rate stipulated by s 100 of the Civil Procedure Act. However, that may only have been because Carolyn did not make a claim for damages, and Mark did not strictly have an interest in the determination of the amount of interest payable by Mr Fairfax as administrator of Lyall's estate, if that interest was not secured by the charge created by the Deed. Notwithstanding the presence of some doubt as to why Mark did not challenge the appropriateness of the statutory rate of interest, I have come to the conclusion that it will be proper in this case for the court to assess the compensation payable to Carolyn using that rate. It appears that when Lai v Gong was decided, the statutory rate was relatively high in historical terms. Young J adopted a rate of 9% per annum by reducing the statutory rate by 2%. In the present case, Mr Paul has calculated interest payable under s 100 of the Civil Procedure Act at rates between 6.5% and 7.5% per annum. Even though the Deed does not record a commercial transaction between Carolyn and Lyall, the court should take into account the fact that the consequence of the breach of clause 6(b) has been that Carolyn has lost the right to receive rent from her apartment, and also the likely appreciation in the capital value of that property. Doing the best I can in the circumstances, it seems to me to be reasonable to accept that interest calculated at rates between 6.5% and 7.5% per annum will not overstate the amount of her loss. Further, given the relatively small sum likely to be involved, it is preferable for the court to decide the issue now once and for all.
13. Therefore, the Deed required Lyall's estate to pay $475,947.33 on 12 December 2012, and Carolyn is entitled to compensation from the estate for the damage she has suffered as a result of the failure to make that payment. The amount to which she is entitled was $90,009.46 up to 12 October 2015. She is entitled to additional compensation equal to the rate of interest allowed under s 100 of the Civil Procedure Act between that date and the date that she is paid the money to which she is entitled. That latter date will occur either when the Northmead Property is sold by means of a judicial order for sale, or the Contract is completed and Mark pays to Carolyn the amount secured by the Deed. I therefore cannot estimate the time when Carolyn will receive her payout for the purpose of making an allowance for the additional compensation Carolyn is entitled to receive in the nature of interest between the date of judgment and the time of payment.
14. As will appear below, the relevant time will depend upon whether Mark elects to complete the Contract by paying the amount that Carolyn is entitled to receive before she is required to deliver the certificate of title and withdraw the caveat, or whether it is necessary for an order to be made for the judicial sale of the Northmead Property.
15. It will accordingly be necessary to defer the computation of the final amount to which Carolyn is entitled until the time when final orders are made. This is an issue that the parties should consider when they bring in short minutes of order.

Security for compensation

1. As Carolyn will be unlikely to recover any part of the judgment entered in her favour against Lyall's estate that is not secured by the charge created by the Deed, the crucial question is likely to be whether the charge covers any amount of damages that Mr Fairfax as administrator of Lyall's estate is ordered to pay to Carolyn.
2. The answer to that question will depend upon the proper construction of the Deed. The answers to the same question in other cases based upon agreements that create securities in different terms to those contained in the Deed are unlikely to be helpful. In Re Andersons Seeds the relevant charge was found to secure payment of the damages to the creditor, but that was relatively clear as the instrument in question provided that the equitable mortgage secured all monies that may become payable of any kind whatever. On the other hand in Tricontinental Corporation Ltd v Associated Securities Ltd (1981) 6 ACLR 122 and Kyleast Pty Ltd v Yogoat Pty Ltd (In liq) the courts held that, on the particular wording of the securities in those cases the security did not cover the damages awarded for late payment of the debts. The documents in those cases are so different from the terms of the Deed that they offer no assistance in the present case.
3. It will be appropriate to commence by making a number of observations about the circumstances in which Carolyn and Lyall entered into the Deed. The principle that is to be applied to the construction of the relevant terms of the Deed is as stated in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] (French CJ and Hayne, Crennan and Kiefel JJ) (citations omitted): [35] … [t]his court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
4. See Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 310 ALR 113 at [71] and [73] - [85]; and Stratton Finance Pty Ltd v Webb [2014] FCAFC 110 at [40]. I am required to have regard to the background and the context in which the Deed was executed, whether or not it contains any provisions that are ambiguous, or capable of bearing more than one meaning.
5. Relevant background circumstances are that Carolyn and Lyall were a married couple; Lyall's health was deteriorating at the time that the deed was entered into; he was in financial difficulties, and Carolyn agreed to make her own personal asset available to enable Lyall to have the money he needed to meet his various obligations, pending his ability to sell assets to cover his debts, including primarily the Northmead Property.
6. As I have said above, the Deed does not strictly take effect as if Carolyn agreed to borrow $400,000 and lend the money to Lyall. Carolyn agreed to borrow the $400,000 on the security of her own personal property, and to use the money to repay Lyall's debts. Lyall was obliged by the deed to repay Carolyn's obligations to her bank, to reimburse her for her own mortgage repayments in the interim, and to reimburse her for her costs.
7. On an overall basis the deed did not contemplate that Carolyn would be in any way out of pocket as a result of her agreement to assist Lyall, but on the other hand she would not make any profit out of the arrangement.
8. The parties to the Deed (as well as the drafter) evidently did not contemplate that Lyall would not perform his obligations under the Deed, so the Deed does not deal expressly with the consequences of default.
9. Furthermore, understandably, the Deed does not expressly contemplate the consequences of Lyall dying before he has performed his obligations under the Deed, or the possibility that the need for probate or administration of his will would affect the time when Lyall's estate could honour its obligations under the Deed.
10. In all of these circumstances the question is whether the wording of the Deed has the effect that the charge that it created secures payment to Carolyn of any amount of damages that Lyall is required to pay to Carolyn for breach of covenant in failing to repay Carolyn's debt to the bank on time.
11. In my view there are three parts of the Deed that may on their proper construction give Carolyn a security that covers Lyall's obligation to compensate Carolyn for breach of covenant.
12. The first is contained in par 4, which creates the equitable mortgage by deposit of title deeds, and speaks of the certificate of title being retained by Carolyn's solicitors "pending the… reimbursement of the monies paid by Carolyn on Lyall' behalf, and consequent on this Deed".
13. The second is contained in clause 6(b), which creates an equitable charge over the net proceeds of sale of the Northmead Property, and requires Lyall "to reimburse her for all of the …expenses she…will incur in…discharging the facility…"
14. The third is contained in clause 6(c), whereby a charge is created over the Northmead Property by the terms in which Lyall consented to Carolyn lodging a caveat against the title, and whereby Carolyn's interest in the Northmead Property is actually described in terms "to secure Carolyn's interest in it and her entitlement to be reimbursed all the money that she has agreed to raise and pay on Lyall's behalf".
15. Thus, each of the terms of the Deed that contain wording capable of creating an equitable charge in favour of Carolyn depend upon the concept of "reimbursement".
16. The standard meaning for the word "reimburse" is given in the Macquarie Dictionary in the following terms: verb (t) (reimbursed, reimbursing) 1. to make repayment to for expense or loss incurred. 2. to pay back; refund; repay.
17. The primary meaning of the expression would appear to involve a repayment of some expense or loss actually incurred. The reference to "expense" would cover an obligation that had arisen, whether or not that obligation had actually been paid. The word "loss" is in my view capable of extending to damage, in the ordinary sense contemplated by the law as being a consequence of a breach of duty, even though the person who has suffered the loss has not actually been required to pay out money in consequence of it.
18. In Zürich Australian Insurance Ltd v Fruehauf Finance Corporation Pty Ltd (1993) 7 ANZ Ins Cas 61-177, Gleeson CJ (with whom Kirby P and Sheller JA agreed) said: Senior counsel for the appellants has placed strong reliance on the words "reimburse" and "directly resulting" in the coverage clause to limit the scope of the policy. Those words, however, do not alter the view that I have formed. The Macquarie Dictionary gives, as the primary meaning of "reimburse", "to make repayment to for expense or loss incurred ". The word is one whose meaning varies according to its context. It is not limited to a simple refund of money by a recipient. Indeed, in the context of the present insurance, it cannot possibly have that meaning. There can be no question of the insurer reimbursing the insured in that narrow sense of the term. The only money the insured paid to the insurer was the premium. In the context of a policy of insurance, and a promise by an insurer to pay money to an insured in certain circumstances, the word "reimburse" has a meaning akin to "indemnify". Indeed, in Webster's New International Dictionary (1957, at 2100) the word is said to mean "to indemnify, as to reimburse one for his losses". The words "directly resulting" draw attention to the proximate cause of the loss sustained. In the circumstances of the present case I consider that Brownie J was right to hold that the cover provided by the policy was not limited to the amount of $3,545,732. It extended to the principal amounts the subject of the finance made available by the respondent to the Pescatore group. Greater difficulty arises in relation to that part of the respondent's claim that involves interest charges incurred by the respondent in raising the working capital involved in the monies advanced to or for the benefit of the Pescatore group. However, from a commercial viewpoint, making good the respondent's losses following its dealings with the Pescatore group would involve compensation either by recoupment of the investment cost (ie opportunity cost) of being deprived of money which could have been invested at interest or recoupment of the borrowing cost (ie expense), being interest payable on borrowed money. (Hungerfords v Walker (1990) 171 CLR 125 at 143 per Mason CJ and Wilson J). This is only another way of saying that the respondent suffered a loss over and above the principal sums involved.
19. Although this decision arose in a completely different context to the present, the observation made by the Chief Justice that the word "reimburse" is one whose meaning varies in accordance with its context is wide enough to apply to the present case. In my view in this case the concept of reimbursement provided for in the Deed is akin to the notion of making good, in the sense that Lyall's overall obligation was to ensure that, by his compliance with the terms of the Deed, Carolyn was not out of pocket as a result of her accommodating him by putting up her own property as security for a loan taken out by her to be applied entirely for Lyall's benefit. Although the parties may have not turned their minds to it, had they contemplated the consequences of Lyall's failure to comply with clause 6(b) in a timely way, they ought reasonably to have appreciated that Carolyn may not have been able to fund the mortgage on her apartment indefinitely, and that if she was required to sell her apartment to pay out the mortgage as a consequence of Lyall's breach, she would lose the benefit of being able to rent her apartment and the enjoyment of possible capital gains. I am satisfied that the concept of reimbursement as used in the Deed is wide enough to capture losses of this type by Carolyn, as otherwise the operation of the Deed would not effectively put Carolyn in the position that she would have been in if Lyall had performed his covenants under the Deed.
20. Accordingly, I find that on the proper construction of the Deed, the charges which it creates secure the amount of compensation to which Carolyn is entitled as well as the debt owed to Carolyn of $475,947.33 as at 12 December 2012.

Conclusion

1. I will invite the parties to bring in short minutes to reflect these reasons for judgment.
2. It will be necessary for the short minutes of order to deal not only with the relief to which Carolyn is entitled against both Mr Fairfax and Mark, but also the relief to which Mark is entitled under his cross claim against Mr Fairfax, as administrator of Lyall's estate.
3. It will be necessary for me to make a number of observations concerning the relationship between the relief to which Carolyn is entitled and that which the court should grant to Mark.
4. Carolyn and Mark both accepted that priority in this case is governed by the maxim: where the equities are equal, the first in time prevails, and Mark accepted that Carolyn's equity was first in time, and that the equities are equal. Mark's defence depended on the proper construction of the Deed (by which he sought to limit its effect), and questions of fact.
5. A submission was made on behalf of Carolyn that Mark's cross claim "relating to a lesser equity, should be dismissed with costs" (written submissions par 22). She also appears to submit that, as she has succeeded in her claim that the Deed created a charge that secures the obligations of Lyall's estate to her under the Deed, then the court should make an order for the judicial sale of the Northmead Property, and the effect of a sale pursuant to that order will be that the court will not be able to order Mr Fairfax to specifically perform the Contract in favour of Mark.
6. Those submissions are, with respect, misguided, as Mr Fairfax does not challenge the validity of the Contract, and accordingly he does not challenge Mark's claim to have an equitable interest in the Northmead Property, as the purchaser under a contract for sale who is entitled to an order for specific performance, subject to any other interest in the property that takes priority. There is no question in this case about the validity of Mark's claimed equitable interest, only its enforceability given the prior interest of Carolyn.
7. Carolyn asserted that the value of the Northmead Property in today's market is between $870,000 and $1,100,000, which is given some support by a property appraisal that gave that estimated value range, and an estimated value of $983,222 (Exhibit A).
8. During the course of submissions Mark's counsel handed to me a notional settlement adjustment sheet that set out, in a conventional way, the amount that Mark would have been required to pay to the estate if settlement of the Contract had taken place on 14 October 2015. The document allowed for a requirement that Mark was to pay $65,000 under special condition 42.1 for occupying the property. The amount required to be paid on settlement was $537,508.06. There was no evidence to support these calculations, and Mr Fairfax has not been given an opportunity to say whether or not he agrees with them. I cannot therefore act upon the document as if it was a valid determination of the amount that would have been payable by Mark on settlement if that had occurred on 14 October 2015. However, it was only given to me as an aid to submissions, and it seems to me to be useful if only as an indication of the approximate amount that Mark would be required to pay on settlement.
9. On the figures I have set out, Mark would be entitled to an order against Mr Fairfax that he specifically perform the Contract upon payment of an adjusted price of $537,508.06. However, as the Deed creates a charge over the Northmead Property as claimed by Carolyn, then Mark will have to pay Carolyn $565,956.79, plus some additional amount of damages to cover the period between 12 October 2015 and the date of payment, in order to pay out her prior claim. That would be an increase in the adjusted price payable under the Contract of a sum slightly more than $28,448.73.
10. If the Northmead Property has a value in the range suggested above, it should still be worthwhile for Mark to insist upon Mr Fairfax completing the Contract, even though Mark may be disappointed in having to pay to Carolyn a greater amount than is due under the Contract in order to ensure its completion.
11. This outcome will be, if Mark chooses to take that course, a natural result of the fact that Mark has an equitable interest in the Northmead Property under a contract of sale that is not challenged by Mr Fairfax.
12. Provided that Mark is prepared to pay out the amount to which the court finds Carolyn is entitled and which is secured by any charge created by the Deed, Mark will remain entitled to specific performance of the Contract, and the court will not make an order for judicial sale that would, if implemented, destroy Mark's right to have the Contract performed.
13. It is obvious that the court should do what it practically can to ensure that the entirety of all disputes concerning title to the Northmead Property is determined as soon as possible, and if that can be achieved, as part of the resolution of the present proceedings. That may involve the court making an order for specific performance of the Contract against Mr Fairfax on appropriate terms so that Mark will be able to enjoy as much of his equitable interest in the Northmead Property as will subsist after priority is given to Carolyn's interest.
14. Carolyn also made a submission that Mark was not entitled to an order for specific performance against Mr Fairfax, because Mark had not proved that he was now ready willing and able to complete the Contract. That is a matter for Mr Fairfax, and not Carolyn, who is not a party to the Contract. Carolyn's interest in the Northmead Property will be extinguished once she is paid the amounts secured by the charge created by the Deed. In any event, the real question will be whether Mark elects to require Mr Fairfax to specifically perform the Contract, now that he will have to pay a greater sum to achieve that result than the Contract required him to pay. No issue will arise as between Mark and Mr Fairfax as to whether Mark is ready willing and able to complete the Contract, as Mark will have to pay to Carolyn an amount greater than he is required to pay on completion of the Contract. Mark will either be able to pay the necessary sum to Carolyn, or he will not. If he pays the necessary amount, he should be entitled to have the Contract performed in his favour.
15. I direct the plaintiff to serve Mr Fairfax with a copy of these reasons for judgment, together with any draft short minutes of order that are proposed by either party. I will not be prescriptive but suggest that the plaintiff should invite Mr Fairfax to address his obligations as administrator of Lyall's estate; for the purpose of cooperating to facilitate the court making all such orders as may be necessary to ensure that this dispute is finally disposed of.
16. As requested by the parties, I will hear submissions as to the orders for costs that the court should make.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 February 2016