The Trust Co (Nominees) Ltd v Banksia Securities Ltd

EQUITY - Trusts - Interpretation - Presumption that specific provisions prevail over general provisions in event of inconsistency - Analysis of which clause is more specific by reference to object or intention of contract - Margetson v Glynn [1892] 1 QB 337; Glynn v Margetson & Co [1893] AC 351; William Sindall plc v Cambridgeshire County Council [1993] EWCA Civ 14; [1994] 1 WLR 1016, considered - Appeal allowed.

1 This application for leave to appeal concerns the interpretation of provisions of a trust deed. Unhappily the trust deed is not well drafted. The argument at the hearing proceeded on the basis that some violence needed to be done to the deed in order to resolve the issue between the parties, the question being which of the competing interpretations involved the least violence.

2 The trust deed was executed by the applicant and the respondent on 12 December 1994. Under the deed, the applicant was appointed trustee. The deed provided for the respondent to issue debenture stock to investors. The deed made provision for the respondent to repay principal, together with interest and premium, either directly to the debenture holders or to the applicant on their behalf, and for the payment of fees and expenses to the applicant. It also provided for priority in respect of such payments, which is the issue now in dispute.

3 On 25 October 2012, at the respondent's request, the applicant appointed receivers and managers to the respondent. The applicant performed various functions associated with the receivership, in its capacity as trustee. It submitted a fee proposal in respect of that work to the receivers on 9 January 2013. The receivers took legal advice and on 10 December 2013 executed an agreement to pay the applicant additional remuneration in the amount of $3,050,812 'in consequence of enforcing the [trust deed] for the period from 25 October 2012 to 31 August 2013'. The agreement noted that payment of that sum would occur following consultation with the respondent's debenture holder committee and, if necessary, Court approval.

4 The committee mentioned in the letter had been established by the receivers to act as a 'sounding board' for the receivers on various decisions and to represent the views of debenture holders generally. It subsequently took the view that no payment should be made to the applicant without a direction from the Court. On 18 June 2014, the receivers wrote to the applicant advising it of that fact and foreshadowing an application to the Court for directions.

5 On 24 June 2014, the Court made orders winding up the respondent in insolvency and appointing liquidators.

6 On 27 March 2015, the liquidators caused the respondent to file a writ against the applicant in the Trial Division. A statement of claim alleging contraventions of the Corporations Act 2001 (Cth) and claiming damages was filed on 25 May 2015.

7 On 18 September 2015 the applicant issued a demand to the respondent in the sum of $3,050,812 and advised that if payment was not made and the applicant was required to approach the Court it would seek additional remuneration totalling $3,960,163 together with costs.

8 On 17 December 2015 the receivers and managers commenced a proceeding in the Commercial Court seeking directions pursuant to s 424 of the Corporations Act as to whether the respondent was justified in paying the additional remuneration to the applicant. Following directions hearings and the exchange of written submissions, the judge decided that the question whether the trust deed permitted payment of the additional remuneration in priority to the claims of debenture holders should be determined, by way of preliminary question,[1] in the proceeding commenced by the liquidators, so as to bind all parties prior to further consideration of the receivers' application for directions.

9 The preliminary question was formulated as follows:

On the proper construction of the Trust Deed for First Ranking Debenture Stock dated 12 December 1994 (as amended from time to time) (Trust Deed) between Banksia Securities Ltd (formerly North Central Securities Limited) and Trust Company (Nominees) Limited ABN 14 000 154 441 (formerly Permanent Nominees (Aust) Ltd), does cl 18.04 thereof permit payment to the Trustee for additional remuneration as provided for in cl 18.02 of the Trust Deed in priority to the payments set out in cl 16.01(e) and (f) of the Trust Deed?

10 On 21 June 2016, the judge answered the preliminary question in the negative.[2]

11 The trust deed recited, among other things, that the respondent had the power to issue 'securities of all kinds' and that the applicant had agreed to act as trustee 'for the consideration hereinafter expressed'. The deed provided for a procedure for the issue of debenture stock by the respondent. The debenture holders were deemed to be the beneficial owners of the debenture stock held by them. The respondent covenanted to pay the applicant principal and interest in respect of the stock, provided that the respondent was required to make such payments direct to debenture holders unless the applicant requested otherwise. These moneys, along with any other moneys payable to the applicant or any debenture holder under the deed, were defined as the 'Moneys Hereby Secured'. The respondent gave the applicant a first floating charge over its undertaking, property, rights and assets in respect of the payment of those moneys. The undertaking, property and assets charged under the deed were defined as the 'Mortgaged Property'.

12 The respondent's request that the applicant appoint receivers and managers (described in the deed as a 'Controller') was an event entitling the applicant to enforce its security pursuant to the deed and to insist that the moneys hereby secured became immediately due and payable.[3] The trust deed entitled the applicant to appoint receivers upon this same event, as it did. 25 October 2012 was accordingly an 'Enforcement Date' for the purposes of the trust deed. The trust deed made the following provision in respect of enforcement generally:

15.01 After an Enforcement Date the Trustee may by writing appoint or remove a Controller of the Mortgaged Property or several Controllers of several parts of the Mortgaged Property and in the case of the removal, retirement or death of any such Controller may appoint another in his place. In addition to and not in substitution for the rights and powers conferred upon Controllers and mortgagees by law (including the Law) in any place where any part of the Mortgaged Property may be situated the following provisions shall (to the full extent permitted by law) have effect:

(a) the appointment of a Controller may be made either before or after the Trustee enters into or takes possession of the Mortgaged Property;

(b) the Controller may be invested by the Trustee with such of the powers, authorities and discretions as are conferred upon the Trustee by this Deed which could be exercised by a Controller as the Trustee may think expedient;

(c) unless specifically restricted by the Trustee the Controller may exercise as Controller all the powers, discretions and authorities vested in the Trustee by this Deed (including Clauses 14 and 17) and all the powers, discretions and authorities exercisable by a Controller pursuant to the Law;

(d) the Controller shall in the exercise of his powers, authorities and discretions comply with any directions given by the Trustee;

(e) the Trustee may from time to time determine the remuneration of the Controller on or any basis and direct payment of the same out of the Mortgaged Property;

(f) the Trustee may (without being bound to do so) at any time require the Controller to give security for the due performance of his duties as Controller and may fix the nature and the amount of such security;

(g) unless directed otherwise by the Trustee all monies received by the Controller shall be paid to and held by the Trustee on account of the Monies Hereby Secured and applied or held as directed in Clause 16;

(h) the Trustee may pay any monies comprised in the Mortgaged Property to the Controller to be applied for the purposes of this Deed and the Trustee may from time to time determine what funds the Controller may keep in hand for such purposes; and

(i) the Controller shall be the agent of the relevant Group Member which shall be solely responsible for his acts and defaults and (subject to Clause 15.01(e)) for his remuneration.

13 Clause 16 relevantly provided for the application of moneys received by the applicant, in the following terms:

(b) any sale, management of business or otherwise from or out of the Mortgaged Property (except money received by the Trustee and required for managing the business of a Group Member),

shall be applied after the payment of prior encumbrances (if any) and after the setting aside of any monies to which the Trustee is not entitled by virtue of the Charges;

(c) first in payment of all costs, charges and expenses properly incurred by the Trustee in the exercise of any powers contained in this Deed or otherwise in the execution of the trusts of this Deed and any interest payable thereon;

(d) secondly in payment of that part of any fee due and payable pursuant to Clause 18.01;

(e) thirdly in payment pari passu of all principal and premium (if any) monies owing in respect of the Debenture Stock (other than Security Stock) and in payment (subject to Clause 5.08(f)(i) of all amounts (other than interest) owing in respect of Security Stock;

(f) fourthly in payment of all interest owing or accrued in respect of the Debenture Stock whether such interest has or has not then become payable;

(g) fifthly in payment of the remainder of any due and payable fee pursuant to Clause 18.01; and

(h) thereafter the monies (including the part thereof (if any) set aside as aforesaid) shall be applied in accordance with Clause 16.02.

PROVIDED ALWAYS that if the Trustee is of the opinion that sufficient funds to pay principal and premium (if any) monies owing in respect of Debenture Stock will be available, interest in respect thereof may be paid before such principal and premium (if any) monies have been repaid.

16.02 All monies received by the Trustee otherwise than from or out of the Mortgaged Property shall be applied;

(a) first in payment of the amounts specified in Clause 16.01(c);[4]

(b) secondly in payment of any due and payable fee pursuant to Clause 18;

(c) thirdly in payment pari passu of all principal and premium monies owing in respect of the Stock; and

(d) fourthly in payment of all interest owing or accrued in respect of Stock whether such interest has or has not then become payable,

in each case, to the extent to which they have not been paid pursuant to Clause 16.01 and thereafter the monies shall be held in trust for the Company PROVIDED ALWAYS that if the Trustee is of the opinion that sufficient funds to pay principal and premium (if any) monies owing in respect of Stock will be available, interest in respect thereof may be paid before such principal and premium (if any) monies have been paid.

14 Clause 17 dealt with the trustee's powers, rights and responsibilities. It relevantly provided for an indemnity in the following terms:

17.05 Without prejudice to any right of indemnity given to trustees by any applicable law, the Trustee and every Controller, attorney, manager, agent or other person appointed by it pursuant to this Deed shall be entitled to be indemnified out of the Mortgaged Property and by the Company and each Guarantor in respect of all liabilities and expenses incurred by them in the execution or purported execution of the trusts or powers constituted or conferred by this Deed and against all actions, proceedings, costs, claims and demands in respect of any matter or thing done or omitted or in any way relating to this Deed other than a claim arising out of their negligence or wilful neglect or default and the Trustee may retain and pay out of any monies in its hands arising therefrom (in priority to any claim by any Debentureholder) all sums necessary to effectuate and satisfy such indemnity.

15 Clause 18 provided for the fees and expenses of the trustee. It is necessary to set it out in full:

18.01 The Company shall pay to the Trustee by way of remuneration for its services as Trustee an annual fee payable half-yearly not later that [sic] the last day of January and July in each year on the amount of Issued Stock as at 30th June and 31st December in each year PROVIDED THAT the fees payable by the Company at the date of this Deed and until otherwise amended shall be in accordance with the fees letter issued by the Trustee to the Company dated 8th November, 1994 and PROVIDED FURTHER that the fee payable in respect of every halfyearly period shall be deemed to accrue from day to day and PROVIDED FURTHER that the scale for the time being in force for the calculation of the fee payable under this Paragraph may be reviewed:

(i) not earlier than the 30th day of June, 1999 and thereafter at intervals of not less than five (5) years from the date on which the written notice requesting the last review was given by the Trustee or the Company; or

(ii) at any time by agreement between the Trustee and the Company;

and if in consequence of any such review the Trustee and the Company agree in writing to vary such scale THEN the scale as so varied shall be the basis for the calculation of such fee and such fee as so calculated shall accrue from the date agreed upon in writing by the Trustee and the Company PROVIDED FURTHER that if in consequence of any such review no agreement is reached between the Trustee and the Company then the scale which was the subject of such review shall continue in force until varied by agreement in consequence of a subsequent review hereunder;

(c) such additional and other remuneration as may from time to time be mutually agreed by the Company and the Trustee.

18.02 The Company after an Enforcement Date will also pay on demand such additional remuneration as shall be commensurate with any additional duties and responsibilities performed or undertaken by the Trustee in consequence of enforcing this Deed as shall from time to time be agreed between the Company (or any Controller or liquidator thereof) and the Trustee and in the absence of agreement such additional remuneration shall be the amount (if any) by which commission calculated in accordance with the scale of commission for the time being lawfully chargeable by trustee companies in Victoria on any corpus sum actually received by the Trustee would exceed the amount of the recurrent fee payable pursuant to Clause 18.01 in respect of the half-yearly or other agreed period in which sums (if any) are received by the Trustee PROVIDED HOWEVER that where any sum to which this Clause 18.02 would apply if it were paid to the Trustee is paid direct to Debentureholders and not to the Trustee such sum shall be deemed to be received by the Trustee for the purposes of this Clause 18.02.

18.03 Without limiting the generality of the other provisions of this Deed the Company covenants that it will pay to the Trustee on demand all costs, charges and expenses whatsoever (including solicitor and client as well as party and party costs) necessarily incurred by or on behalf of the Trustee and any stamp duty, financial impost, tax or other duty or tax whatsoever which may be payable from time to time:

(a) in connection with the preparation, execution, registration, stamping and administration of this Deed or of any prospectus inviting subscription for Stock pursuant to this Deed;

(b) in connection with any breach in the observance or performance by any Group Member of any of the covenants, obligations, conditions and provisions of this Deed notwithstanding that such breach may also constitute a breach or contravention of or non-compliance with any law, whether statutory or otherwise;

(c) in connection with preparations for the convening and holding of any meeting of Debentureholders and the carrying out of any directions or resolutions of Debentureholders;

(d) in connection with any amendment or proposed amendment of this Deed or any question relating to the construction of this Deed; and

(e) in connection with any costs necessarily incurred by the Trustee in carrying out its duties and obligations under this Deed.

18.04 IT IS HEREBY COVENANTED DECLARED AND ACKNOWLEDGED BY THE COMPANY that all remuneration, fees, payments, costs, charges and expenses referred to in this Clause 18 shall be part of the Monies Hereby Secured and shall remain payable until the trusts hereof shall be finally wound up and whether or not a Controller shall have been appointed or the trusts hereof be in the course of administration by or under the order of any court AND IT IS HEREBY FURTHER DECLARED AND ACKNOWLEDGED that the Trustee may retain and pay to itself in priority to any claim by any Debentureholders all such remuneration, fees, payments, costs, and charges and expenses out of any monies for the time being in its hands upon the trusts of this Deed or in the hands of any Controller appointed by the Trustee pursuant to this Deed.

16 Finally, cl 23 provided for debenture holders to sue the respondent in respect of any default in the redemption or payment of principal, premium (if any) or interest moneys on any stock, subject to certain exceptions including where the trustee had determined or become bound to enforce the charges or the rights of debenture holders.

17 The issue at the heart of the dispute between the parties is whether the amount claimed by the applicant by way of additional remuneration is only to be paid, as an amount falling under cl 16.01(h), read with cl 16.02(b), after payment of all principal, premium (if any) and interest on debenture stock under cls 16.01(e) and (f), or whether the applicant is entitled under cl 18.04 to pay itself such remuneration in priority to any claim by debenture holders including a claim for principal, premium or interest.

18 The trial judge began by reciting the relevant principles of interpretation, in particular: that words should be given their natural meaning; that a commercial agreement should be construed in a businesslike manner; that an agreement should be interpreted to avoid absurdity; and that a document must be read as a whole, with a view to harmonising inconsistencies.[5]

19 The judge began his analysis with cl 16.01. He described the 'waterfall' in cl 16.01, explaining cl 16.01(g) on the basis that the payment regime may be carried out over a period of time, thereby creating remainders.[6] He stated that the effect of cl 16.01(h) was to extend the cl 16.01 waterfall by adding the levels in cl 16.02.[7] The judge noted that cl 16.02(b) referred to cl 18 as a whole, whereas cl 16.01(d) referred specifically to cl 18.01.[8] He considered that the additional levels of the cl 16.01 waterfall sought to ensure that all moneys received by the trustee were paid out and, consequently, any further fees to which the trustee was entitled apart from the basic fee under cl 18.01 should also be addressed. The judge held that cls 16.01 and 16.02 were 'carefully and deliberately drawn' and that the language of the provisions, as manifested in the clear distinction drawn between cl 18.01 (in cl 16.01(g)) and cl 18 (in cl 16.02(b)), had to be given effect.[9]

20 The judge then considered cl 17.05, noting that it was broad in scope. The indemnity applied to the trustee and every Controller, attorney, manager or other person the trustee appointed. The judge held that the word 'claim' in cl 17.05 referred to 'a broad range of claims in the context of civil litigation'.[10]

21 Turning to cl 18.04, the judge held that it did not displace the clear words of cl 16.01. He applied the presumption that general provisions must give way to specific provisions in cases of inconsistency.[11] In his view, cl 18.04 was the more general provision and cl 16.01 the more specific, for several reasons. First, cl 18.04 applied to any moneys coming into the hands of the trustee from any source, whereas cl 16.01 was limited to moneys from the sources mentioned in cl 16.01(a) and (b).[12] Secondly, the language of cl 16.01 was specific, especially in distinguishing between cl 18.01 in cl 16.01(g) and cl 18 as a whole in cl 16.02(b).[13] Thirdly, cl 18.04 used the general words 'any claim', whereas cl 16.01 used the more specific word 'payment'. The reference to 'claim' in cl 18.04 applied to claims other than claims for principal or interest, as any other interpretation would negate cl 16.01.[14] This view was reinforced by the use of 'claim' in cl 17.05, mentioned above.[15] The judge held that the ability of debenture holders to sue the respondent under cl 23.01 did not shed light on the meaning of 'claims' in cl 18.04. Among other things, that ability was circumscribed once a Controller was appointed and the ability to sue the respondent lay instead with the trustee.[16] Those words had to be read down to exclude claims or entitlements the subject of cls 16.01 and 16.02.

22 The judge rejected the argument that the construction put forward by the respondent, and which he adopted, worked a 'commercial absurdity'. The trustee was not required to perform additional duties after an Enforcement Date but could choose instead to appoint a Controller, whose remuneration and expenses had priority under cls 16.01 and 16.02.[17] Moreover, the absurdity argument failed to have regard to the generality of the word 'claim' in cl 18.04 (and cl 17.05).[18]

23 The applicant seeks leave to appeal on four grounds, namely that in construing cl 18.04 and cl 16.01, the trial judge erred in the following ways:

(a) by finding that a construction of the word 'claim' in cl 18.04 other than that adopted would have the effect of negating the provisions of cl 16.01, and by failing to find that cl 16.01 and cl 18.04 could and should operate consistently on the basis that the reference in cl 16.01(d) to that part of any fee due and payable pursuant to cl 18.01 included the additional remuneration agreed by the Company and the Trustee pursuant to cl 18.02;

(b) by finding that cl 18.04 was a 'general provision' which must be construed so as to give primacy to, and reconcile its operation with, the 'more specific provisions' of cl 16.01;

(c) by adopting a construction of cl 18.04 that failed to pay sufficient regard to the natural and ordinary meaning of the words used in the context in which they appeared;

(d) by adopting a construction of cl 18.04 (and cl 16.01) that produced an unreasonable result or worked commercial inconvenience, and which also rendered otiose the trustee's right to remuneration in cl 18.02, in circumstances where a reasonably available alternative construction that would avoid such results was available.

24 Ground (a) is a new argument that was not advanced before the trial judge. The applicant contends that the additional remuneration it sought fell within cl 16.01(d). That clause refers to 'that part of any fee due and payable pursuant to Clause 18.01'. Clause 18.01(c) provides for payment of 'such additional and other remuneration as may from time to time be mutually agreed by the Company and the Trustee'. The applicant submitted that the provisions in cl 18.02 for payment of additional remuneration constituted a mutual agreement of the kind referred to in cl 18.01(c). This relationship between cls 18.01(c) and 18.02 was reflected by the use of the phrase 'from time to time ... agreed' in both clauses. The applicant submitted that reading the provisions in this way rendered cls 16.01 and 18.04 harmonious and conformed with all other relevant canons of interpretation. The respondent accepted at the hearing of the application for leave to appeal that it would be open to the applicant to rely on this argument by way of appeal.

25 The applicant submitted further that the judge was wrong to hold that cl 16.01 was the specific provision and cl 18.04 was more general; in fact, the reverse was true. His analysis was said to be wrong in two respects. First, cl 16.01, when read together with cl 16.02 by reason of cl 16.01(h), applied to all moneys coming into the hands of the trustee. In that respect, it was no more specific than cl 18.04, which applied to money in the trustee's hands upon the trusts of the deed, or in the hands of a Controller. Secondly, the judge's analysis focussed on the moneys to which cls 16.01 and 18.04 applied. Instead, he should have focussed on the entitlements to which cls 16.01 and 18.04 extended. Both provisions had priority of payments as their subject matter. Considered in this light, cl 18.04 was the more specific, as it was concerned with priority for the trustee's remuneration, fees, payments, costs, charges and expenses under cl 18, specifically vis-à-vis debenture-holders, whereas cl 16.01 was concerned with priorities among a wide range of payments, including principal, premium, interest and trustee costs, charges, expenses and fees.

26 The applicant further contended that the judge was wrong to rely on the meaning of 'claim' as it appeared on two occasions in cl 17.05, as 'claim' in that context dealt with claims against the trustee (or a Controller or other person appointed by it) for which it was indemnified by the respondent. Those claims had nothing to do with the claims under cl 18.04, being claims by debenture holders to the trust fund. 'Claim' was, however, used a third time in cl 17.05, as part of a phrase that also appears in relevantly identical terms in cl 18.04 ('in priority to any claim by any Debentureholder'[19]). Here, the applicant submitted, 'claim' must refer to a claim by a debenture holder against the trust fund for principal, premium or interest (which claims might 'compete' with the claims of the trustee). Neither the judge nor the respondent had identified any claim that a debenture holder might have that would compete with a claim by the trustee for remuneration, other than a claim for principal, premium and interest. The word 'claim' naturally extended to those things.

27 Next, the applicant contended that in dealing with the submission that the respondent's construction produced an absurdity the judge did not set out any reasons for concluding that no absurdity arose. The judge stated that detriment could be avoided by appointing a Controller to do post-Enforcement Date work. The applicant contended that it would be odd to provide the trustee with an express mechanism for payment of additional remuneration, but to adopt a construction that rendered resort to that mechanism redundant. Moreover, the judge ignored the fact that the trustee had a range of non-delegable duties under pt 2L of the Corporations Act and would inevitably have to perform work in supervising any Controller that it appointed.

28 The applicant submitted that there was no reason to suppose that the trustee was to act gratuitously. The deed provided for remuneration of the trustee, which was to play an important social function for which the Corporations Act provided.[20] The deed contemplated that the trustee should receive the remuneration for its work for which the deed stipulated. That was especially so given that cl 18.02 expressly

28 provided for such remuneration after an Enforcement Date, which was the very time when questions of priority could be expected to be most important.

29 The respondent adopted the analysis of the trial judge. It urged the Court to apply the plain language of cl 16, which made it plain that the trustee's basic fee under cl 18.01 fell within cl 16.012 (d) and (g), and that its fee for work after an Enforcement Date under cl 18.02, or other fees under the remainder of cl 18, came to be paid later under cl 16.02(b).

30 As indicated, the respondent conceded in oral submissions that it would suffer no prejudice if this Court were to consider the applicant's new argument relating to cl 18.02.[21] However, it contended that the trust deed distinguished in cl 18 between basic and additional remuneration, and that the additional remuneration was payable pursuant to cl 16.02(b), whereas only the basic fee was payable under cl 16.01(d). The distinction would be destroyed if an agreement for post-Enforcement Date remuneration automatically fell under cl 18.01.

31 The respondent reiterated the contention, accepted by the trial judge, that cl 16.01 was specific and cl 18.04 was general, as the former dealt with priorities in the distribution of the respondent's Mortgaged Property or after appointment of a Controller, whereas the latter related to the securing of 'remuneration, fees, payments, costs and charges', 'whether or not a Controller is appointed or the trusts hereof be in the course of administration'. Moreover, 'claim' in cl 18.04 was broader than 'payment' in cl 16.01. The trust deed used the word 'claim' to mean something different from 'payment'.

32 The respondent contended that cl 17.05 was concerned with the trustee's indemnity in relation to liability and expenses and was peripheral to the construction of cls 16.01 and 18.04. However, the claims of debenture holders over which cl 17.05 gave the trustee's indemnity priority were claims other than for principal, premium and interest, such as claims for breach by the trustee of its statutory or other

32 obligations. While such a claim may yield the same quantum as a claim for principal, premium and interest, it was a claim for damages rather than a claim in debt, and was therefore different in character.

33 The respondent contended that no commercial absurdity arose on its construction, and that the applicant's own argument for absurdity failed to take account of the principle that a trustee is expected not to profit from its role. It was not commercially absurd for the trust deed to provide that the trustee had a lesser priority in respect of fees for additional work performed in circumstances where the debenture holders were likely to receive less than their stipulated payments.

34 As each of the proposed grounds of appeal impugns the judge's construction of cls 16.01 and 18.04, it is convenient to consider them together.

35 The proper approach to the interpretation of the trust deed is not in doubt. In short, the rules of construction of contracts apply also to trusts.[22] For present purposes, two statements of principle regarding the construction of contracts will suffice. In Electricity Generation Corporation v Woodside Energy Ltd four members of the High Court said:[23]

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,[24] 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 a commercial nonsense or working commercial inconvenience'.

36 Gibbs J stated in Australian Broadcasting Commission v Australasian Performing Right Association Ltd:[25]

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop,[26] which, although spoken in relation to a will, are applicable to the construction of written instruments generally ...

37 The principles stated by Gibbs J are not in doubt, notwithstanding that they were enunciated in a dissenting judgment. It will immediately be apparent that the task of rendering the trust deed in the present matter entirely harmonious is beset with difficulty. However, it may be noted that Gibbs J did not suggest that harmony can always be achieved, rather that it is the object to be pursued in the course of construction.

38 If read literally, cls 16.01 and 18.04 provide for different results. Each party offered textual readings which, with respective degrees of ingenuity, resulted in the provisions being reconciled. Alternatively, each party submitted that one provision was simply to be read as operating subject to the other.

39 It can be said at once that neither party's textual arguments pointed to a compelling resolution of the issue in dispute. First, the applicant's argument with respect to cl 18.01(c), if accepted, would have the result that fees for additional remuneration after an Enforcement Date would invariably fall under cl 18.01 as well as under cl 18.02. An immediate difficulty would arise, because cl 18.02 itself operates in part upon the basis that the fee under cl 18.01 is capable of independent identification. That is because, in the absence of specific agreement under cl 18.02, a default fee is payable calculated in part by reference to the 'recurrent fee payable pursuant to' cl 18.01. The different headings in cl 18 also suggest that fees under cl 18.02 are different from, rather than being a subset of, the fees for which cl 18.01 provides. In addition, as will already be apparent, the language of cl 16 treats fees under cl 18.01 differently from fees payable otherwise under cl 18. For these reasons, the applicant's argument that the fees for additional remuneration for which cl 18.02 provides are, at the same time, part of the basic fee under cl 18.01 cannot be sustained.[27]

40 Next, in addition to the arguments already mentioned, at the hearing of the application for leave to appeal the applicant also placed weight on cl 15.01(g). The argument was that, after the appointment of a Controller, moneys received by the Controller were to be applied as directed under cl 16 'unless directed otherwise by the Trustee'. It was submitted that this indicated that the provisions of cl 16 could give way to those in cl 18 if the trustee so directed. This was said to fit with the permissive language of cl 18.04, by which the trustee 'may' retain and pay to itself remuneration etc in priority to any claim by any debenture holders. In other words, cl 18.04 depended on the same election that cl 15.01(g) contemplated.

41 This construction is coherent, in so far as there is nothing in the trust deed that plainly contradicts it. On the other hand, at face value it assigns a great deal of work to a somewhat obscure provision. The construction also, to some extent, begs the question as to the basis upon which the trustee could direct otherwise. The power to give such a direction would necessarily be informed by the purpose for which the power is given, which in turn may require identification of the primary operation of the relevant provisions of the trust deed. In summary, the construction advanced may plausibly reflect the intended operation of the trust deed, but it is still necessary to identify that intention by reference to the remaining provisions of the deed before that conclusion could safely be drawn.

42 Finally, the respondent sought to read down the word 'claim' in cl 18.04, so that the claims of debenture holders in respect of which the trustee's right to remuneration etc took priority did not include claims to principal, premium and interest. As outlined above, this argument depended in part upon construing 'claim', where first and second appearing in cl 17.05, as describing claims made in the course of civil litigation. This use of 'claim' was then contrasted with 'payment' in cls 16.01 and 16.02 to argue that the references to 'claim' excluded claims for the payment of principal, premium and interest. This argument is not especially convincing. It depends on the presumption that the draftsperson used the word 'claim' consistently across the trust deed.[28] The presumption is rebutted not only by the myriad failings of the drafting but by the evidently different uses of the word 'claim' in cl 17.05 itself, where the expression 'any claim by any Debentureholder' (allied to the expression found in cl 18.04) may be contrasted with the collective reference to 'actions, proceedings, costs, claims and demands'. The former expression on a natural reading contemplates a claim for principal, premium and interest. On the other hand, again, if the intention of the trust deed is found to require that cl 16 be read to take precedence over cl 18.04, the narrow construction of 'claim' would be effective to achieve that result.

43 The competing constructions of the parties then turned to questions of context and purpose, revolving in particular around which of the two provisions was more general and which more specific. At the risk of repetition, the applicant characterised cl 18.04 as dealing specifically with the trustee's right to remuneration, fees and expenses under cl 18, whereas cl 16 dealt with the question of priorities generally, of which the trustee's position was only an aspect. The respondent submitted that cl 16 dealt discretely with each of the trustee payments for fees and expenses, in contrast to cl 18.04 which treated all such payments in a single global provision.

44 The parties further proceeded in their arguments by reference to considerations of commercial sense or, more accurately, absurdity. The applicant contended that it must have been intended that the trustee would actually receive remuneration for additional work undertaken after the appointment of a Controller. The respondent countered that it was exactly at such a time that priorities mattered and the interests of the debenture holders would be expected to be protected against further claims by the trustee.

45 Because construction proceeds by reference, among other things, to the object of the trust deed, the above arguments cannot be treated in isolation. While either of the competing clauses might conceivably be designated as the more general or specific, that designation can only usefully be made while bearing in mind the object of the deed itself.[29] That is illustrated by reference to the authorities concerning the interpretation of contracts according to the characterisation of competing provisions as general or specific respectively.

46 The principle traditionally called generalibus specialia derogant, or its obverse generalia specialibus non derogant, by either of which specific provisions will be given effect in preference to general provisions, or specific provisions are given greater weight than general provisions applying to the same subject matter, has been

46 described as reflecting 'sound common sense'.[30] On the other hand, when it is open to debate which provision is the more general and which the more specific, the utility of the principle is correspondingly limited. Hoffman LJ made the converse point in William Sindall plc v Cambridgeshire County Council, that the 'rule is particularly apposite if the effect of general words would otherwise be to nullify what the parties appear to have contemplated as an important element in the transaction'.[31]

47 In Margetson v Glynn,[32] the English Court of Appeal construed a bill of lading under which the plaintiff shippers had shipped a cargo of oranges on board the defendant shipowners' steamer. The bill of lading stated that the goods were shipped on board the steamship in question,

now lying in the port of Malaga, bound for Liverpool, with liberty to proceed to and stay at any port or ports, in any rotation, in the Mediterranean, Levant, Black Sea, or Adriatic, or on the coasts of Africa, Spain, Portugal, France, Great Britain and Ireland, for the purpose of delivering coals, cargo, or passengers, or for any other purpose whatsoever.

48 The ship carried the oranges about 350 miles from Malaga to Burriana on the northeast coast of Spain, then retraced its course back to Valencia and then went on to Liverpool. The oranges arrived in a damaged state. The shipowners contended that the trip to Burriana was undertaken in accordance with the bill of lading.

49 The Court of Appeal disagreed. Lord Esher MR stated that the first thing which a shipper and shipowner must agree upon is the voyage, the object of the shipper being to have goods carried from one place to another.[33] The liberty that had been granted was therefore a liberty with regard to the voyage. The liberty did not permit the shipowners to go upon what was 'in substance another and an absolutely different voyage', only to travel slightly out of the course of the voyage agreed.[34] Bowen LJ was of the same opinion, holding that 'so soon as the parties have agreed upon the voyage ... the definition of the voyage must, as a matter of business, cut down the general words to what is fairly applicable to the voyage that has been agreed upon and defined'.[35] He concluded:[36]

The real question is, what is the true construction of this bill of lading; and once more the Court, I think rightly and acting on sound commercial instincts, will insist upon limiting general words by the object of the contract as ascertained from the contract itself.

50 Similarly, Fry LJ referred to an 'ancient and well-established principle of construction ... applicable to all documents' and said:[37]

This principle is applicable wherever specific words are used to express the main object and intent of the instrument, and in some other parts general words are used which in their utmost generality would be inconsistent with and destructive of the main object of the contract. When the Court in dealing with a contract or document of any kind finds that difficulty, it always, so far as I know, follows this principle, that the general words must be limited so that they shall be consistent with and shall not defeat the main object of the contracting parties.

51 It can be seen that the principle applied in Margetson v Glynn turned on identifying the object of the contract as articulated in the specific words defining the voyage. The words of liberty were characterised as general in nature and read down accordingly. The case bears out the observation of Hoffmann LJ adverted to earlier, to the effect that the principle of construction is most apposite where the specific words contain an important element of the transaction. Moreover, the Court looked for the object of the contract, rather than just for words that could be characterised as specific. Had it not done so, it might just as readily have cast the words of liberty as specifically permitting a particular course to be taken in relation to the generally described voyage. On one view, it was the words of liberty that descended to particulars as to the manner in which the voyage might be undertaken. The case illustrates the importance of an objective or purposive analysis, rather than one which approaches the general/specific distinction in purely linguistic terms.[38]

52 The decision was upheld in the House of Lords.[39] The reasoning of their Lordships differed somewhat, in that reliance was placed also on the fact that the destination of the voyage was handwritten on the bill of lading whereas the words of liberty were part of the printed form. None the less, a similar analysis applied. Lord Herschell LC, for example, looked at 'the main object and intent of the contract' and limited 'the general words used, having in view that object and intent'.[40]

53 The approach taken in Margetson v Glynn suggests that the resolution of the question of construction now before the Court lies, not in identifying a specific and a general provision and then applying the principle giving the specific provision precedence, but in determining whether either of the competing provisions, taken alone, gives effect to an object important to the transaction which the trust deed embodies.

54 Clause 18.04, standing alone, ensures the right of the trustee to payment for work undertaken pursuant to the trust deed, including the basic fee provided for under cl 18.01 and the fee after enforcement under cl 18.02. It provides for those fees to be retained by the trustee in priority to any claim by any debenture holders. Read alone and giving the words their natural meaning, that priority extends to claims for principal, premium and interest. Any other 'claim' that debenture holders might

54 have could only be secondary to those primary entitlements which the trust deed contemplates.

55 There is every reason to regard ensuring the payment of the trustee as an important element of the trust deed. The purpose of the deed is to facilitate fund raising by the respondent through the issue of debentures. The trustee is an essential participant in that process, required by law to be a professional trustee.[41] It is in the nature of that status that the trustee will not act voluntarily but will be remunerated for its services. The respondent's appeal to the principle that trustees act gratuitously therefore cannot assist. The securing of the trustee's remuneration is properly seen as a fundamental part of the transaction by which the services of the trustee are secured, enabling the raising of funds to proceed.

56 A construction by which the words securing this arrangement are limited or denied effect is to be avoided if a contrary construction is available consistently with the objects of the deed. The respondent points to the suggested unlikelihood of the priority of debenture holders being deferred particularly in circumstances where their ability to recover principal, premium and interest is jeopardised - after the appointment of a Controller, when enforcement has commenced. It submits that the structure of cl 16 makes it apparent that the parties were concerned to protect the debenture holders in this very situation.

57 Under this argument, the appointment of a Controller makes a critical difference. Before such an event, each of cls 16.01 and 16.02 reveals an intention that the trustee be paid its fee in priority to payments to debenture holders. Clause 16.01 gives priority to the basic fee under cl 18.01, while cl 16.02 gives priority to fees under cl 18 generally.[42] After a Controller is appointed, it is contended that cl 16.02 applies by incorporation under cl 16.01(h) and the trustee's priority in respect of fees other than the basic fee is lost.

58 An aspect of this argument is that the 'waterfall' provisions in cls 16.01 and 16.02 are carefully drafted, as the judge held. With respect, this description is unduly generous. It is true that cl 16 refers to cl 18.01 and cl 18 distinctly, and that it descends to fine divisions among the various payments it covers. But in many respects its provisions are intractable. It divides the basic fee under cl 18.01 into a 'part' and a 'remainder' and treats each differently before providing again for the same subject matter through cl 16.02(b) (without the same division); it contains a typographical error in cl 16.02(a) already noted; it is unclear to what moneys cl 16.02 applies (if any); and as observed, cls 16.01 and 16.02 each give the trustee's fee priority ahead of principal, premium and interest and only purport to yield a different outcome when the two clauses have a combined operation. Most fundamentally, cl 16 stands in the deed in seeming indifference or ignorance of the plainly contrary provision in cl 18.04. In the circumstances, it is not possible to identify s 16 as the 'specific' provision by reference to any care or skill in its drafting. As already explained, it is instead necessary to look to the objects of the deed in order to resolve the matter.

59 In that regard, while it is possible to speculate that the parties intended to deprive cl 18.04 of operation in relation to the trustee's fees other than the basic fee, the terms of cl 18.02 suggest otherwise. It contemplates that the trustee may perform additional duties and undertake additional responsibilities in consequence of enforcing the trust deed, and stipulates payment of additional remuneration for the trustee in that event. A default basis for payment is provided for in the absence of contrary agreement. The purpose of enforcement action is the recovery of moneys from which payments can be made to the debenture holders. The deed contemplates the trustee assisting in that task and being paid for the work it undertakes in that regard. In the context of enforcement, as the respondent itself submitted, questions of priority are most relevant. Yet the respondent's construction would be apt to deny the ability of the trustee to actually receive the payments for which cl 18.02 provides.

60 In these circumstances, the outcome for which the respondent contends cannot be regarded as advancing an important element of the transaction or an object of the trust deed. For the reasons given, it runs counter to the deed's objects by undermining the ability of the trustee to be remunerated for its efforts on behalf of debenture holders. Properly construed, cl 18.04 is an important element of the transaction between the trustee and the respondent reflected in the trust deed, namely the securing of the trustee's remuneration, to which effect must be given by reading down cl 16. That should be done by reading cl 16 as being subject to the right of the trustee to retain and pay to itself its remuneration, fees, payments, costs, charges and expenses as provided under cl 18.04. As set out earlier, cl 15.01(g) can be read as contemplating that course. It is appropriate to construe it accordingly.

61 For these reasons, the application for leave to appeal should be granted and the appeal should be allowed. The preliminary question should be answered in the affirmative.

[1] See Supreme Court (General Civil Procedure) Rules 2015 r 47.04.

[2] Banksia Securities Ltd (recs and mgrs apptd) (in liq) v The Trust Co (Nominees) Ltd [2016] VSC 328 ('Reasons').

[3] The receivers and managers were a 'Controller', as then defined in the Corporations Law, within the meaning of the trust deed.

[4] The trust deed referred to cl 16.01(a), but the parties agreed that this was a typographical error and was to be treated as a reference to cl 16.01(c). See also Reasons [33].

[19] In cl 17.05, 'Debentureholder' is used in the singular form, whereas in cl 18.04 it is used in the plural. As counsel for the applicant pointed out, this discrepancy is of no moment once it is observed that in each case it is preceded by 'any'.

[20] See, eg, Corporations Act s 283AC.

[21] See Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 438 (Latham CJ, Williams and Fullagar JJ).

[22] Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, 286 [102] (Heydon and Crennan JJ); Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93 [12]-[15], [21]-[22] (Kyrou, Ferguson and McLeish JJA).

[23] [2014] HCA 7; (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan and Kiefel JJ) (most citations omitted). See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [46]-[48] (French CJ, Nettle and Gordon JJ), 132 [109] (Kiefel and Keane JJ), 134 [120] (Bell and Gageler JJ).

[24] [2009] EWCA Civ 636 [28].

[25] [1973] HCA 36; (1973) 129 CLR 99, 109.

[26] (1888) 39 Ch D 387, 393 (Stirling J).

[27] This conclusion absolves the Court from the need to address the curious numbering and ungrammatical placement of cl 18.01(c). It has been assumed, in the applicant's favour, that those matters can be overlooked.

[28] The presumption is not a strong one: Edyvean v Archer [1903] AC 379, 384 (Lord Macnaghten). Cf Ridgeway v Munkittrick (1841) 1 Dr & War 84, 93 (Lord St Leonards LC). There is authority suggesting that it only applies in cases of ambiguity: Robbins v Federal Commissioner of Taxation [1974] HCA 58; (1973) 129 CLR 332, 339 (Walsh J).

[29] See, in relation to statutory construction, Bank Officials' Association (South Australian Branch) v Savings Bank of South Australia [1923] ArgusLawRp 45; (1923) 32 CLR 276, 290 (Isaacs and Rich JJ), 299 (Higgins J).

[30] Hume Steel Ltd v A-G (Vic) [1927] HCA 24; (1927) 39 CLR 455, 466 (Higgins J). See also Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403 [171] (Wilcox J); Veolia Water Solutions & Technologies (Australia) Pty Ltd v Kruger Engineering Australia Pty Ltd [2007] NSWSC 46 [53] (McDougall J).

[31] [1993] EWCA Civ 14; [1994] 1 WLR 1016, 1024. See also Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220; (2009) 261 ALR 501, 558 [241] (Finn J).

[32] [1892] 1 QB 337.

[37] Ibid 344. The passage was endorsed by this Court in Plenary Research Pty Ltd v Biosciences Research Centre Pty Ltd [2013] VSCA 217 [45] (Garde AJA; Maxwell P and Tate JA agreeing), albeit in terms that suggested that it involved application of the principle expressio unius est exclusio alterius.

[38] See also Bankway Properties Ltd v Pensfold-Dunsford [2001] EWCA Civ 528; [2001] 1 WLR 1369, 1387 [67]-[70] (Pill LJ); Alexander v West Bromwich Mortgage Co Ltd [2016] EWCA Civ 496 [45]-[47] (Hamblen LJ; Sharp LJ and Sir Brian Leveson P agreeing).

[39] Glynn v Margetson & Co [1893] AC 351.

[40] Ibid 355; see also at 358 (Lord Halsbury LC). See also Australia and New Zealand Banking Group Ltd v Pan Foods Company Importers and Distributers Pty Ltd [1999] 1 VR 29, 52-3 [71] (Buchanan JA); Ansett Australia Holdings Ltd v International Air Transport Association [2006] VSCA 242; (2006) 60 ACSR 468, 479 [47] (Maxwell P); Richmond v Moore Stephens Adelaide Ltd [2015] SASCFC 147 [94] (Blue J; Kourakis CJ and Stanley J agreeing).

[41] Corporations Act s 283AC.

[42] It is not at all clear what separate role cl 16.02 is capable of playing, given the very wide definition of 'Mortgaged Property'. However, it must be assumed that it was thought able to have some operation independent of cl 16.01.