Vista Capital v Hussain & Ors

COUNSEL : S. Velik (Sol) (Plaintiff) D. Knaggs (Sol) Defendants

SOLICITORS : Velik Solicitors (Plaintiff) Cross Law (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

15409/05 VISTA CAPITAL PTY LIMITED v FAHMI HUSSAIN & ORS

JUDGMENT 1 HIS HONOUR: By statement of claim filed on 21 November 2005 the plaintiff, Vista Capital Pty Limited, claimed possession of premises from the defendants, Fahmi and Marej Hussain, and the plaintiff also sought to recover advances allegedly made to the defendants totalling $310,000. It was contended that these advances were secured by mortgages over the subject premises, namely two units in Cowper Wharf Road, Woolloomooloo. The plaintiff succeeded in obtaining judgment for possession and the writ of possession that issued has been executed. 2 There were in place three registered mortgages over the subject premises, the first mortgage being in favour of the Commonwealth Bank and the second and the third mortgages being in favour of the plaintiff. The properties have been sold and the bank has recovered what was due to it. The balance of the proceeds of sale are retained in an interest bearing bank account pending determination of the proceedings on foot between the plaintiff and the defendants. 3 On 8 February 2007 an order was made for the separate determination of the issue as to whether the sums advanced by the plaintiff to the defendants were secured by way of mortgage. This issue was squarely raised by part of the relief sought by the defendants by way of cross claim. There the defendants seek a declaration in these terms: "That neither of the loan agreements is secured by registered mortgage AB448902F or B4489901H between the Hussains and Vista." 4 The point at issue before me is a narrow one. There is no issue but that the plaintiff advanced the money to the defendants by two advances, the first of $260,000 and the second of $50,000. The issue is whether payment of those advances was secured by the registered second and third mortgages. 5 The relevant documentation was exhibited to the affidavit of Dimitri Amargianitakis sworn 17 May 2006: (i) On 21 September 2004 the defendants signed a loan agreement for an amount of $260,000. That agreement provided for interest at 2.5% per month for the term of the loan and there was a default rate of 4%, for which provision was made also. The term of the loan was expressed to be three calendar months from the date of draw down. The agreement contained the following provision as to security: "The following will be security for this contract. A second Mortgage in registerable form secured by a Caveat to be registered on title Folio Identifiers 39/SP61766 and 8/SP61618 and known as 108/4-6 Cowper Wharf Road, Woolloomooloo with a minimum value of $1,200,000.00. Loan to Commonwealth Bank to be capped at $650,000." (ii) The mortgage document is undated but it identifies the defendants as the mortgagors and recites that they mortgage to the mortgagee (it is agreed that Pakair Pty Limited named as the mortgagee was the predecessor of the plaintiff) "all the mortgagor's estate and interest" in the property mortgaged, and it records that the defendants covenant with the mortgagee "that the provisions set out in the annexure and/or memorandum specified below are incorporated in this mortgage: · Annexure A hereto; · Memorandum No. Q860000" The property mortgaged is identified consistently with the description in the loan agreement.

(iii) Annexure A is signed by the defendants, and in this document they acknowledge "giving this mortgage and incurring obligations and giving rights under it for valuable consideration received from us " (emphasis added).

(iv) Memorandum Q860000 is the next annexure. Like Annexure A, this annexure does not state the principal sum advanced or the term of the loan but it does make provision in para 5 for certain costs and expenses being deemed to be principal sums covered by the security. Then, in cl 6 there is provision for what is to occur in the event of default in payment "at the respective times and in the manner shown in the mortgage" of the principal sum. It is to be observed in connection with cl 6 that the mortgage itself is silent as to the time and manner of payment. 6 As to the later advance of $50,000, there is similar documentation:

(i) There is a loan agreement making provision for the loan amount of $50,000 and the term of the loan and the interest payable under the loan. There is also a security provision in terms identical to that referable to the earlier loan agreement.

(ii) Like the earlier mortgage, this mortgage is also undated. It has identical provisions to the earlier mortgage, and the like annexure A. It also incorporates reference to Memorandum Q860000. 7 The submission advanced by Mr Knaggs is that nowhere in either mortgage is the mortgage sum specified and nowhere in either mortgage is there any provision regarding repayment or the manner of repayment. It is submitted that it followed from these shortcomings in the mortgages that they were not effective to secure the advances. Mr Velik made submissions to the contrary. 8 I was referred to no authority directly in point. 9 The material I have been asked to consider makes it clear that there is no dispute concerning the payment of the advances to the defendants nor is there any dispute about the fact of default in repayment. The defendants had made only a modest repayment of approximately $15,000, as referred to in para 7 of the statement of claim. The default is admitted on the pleadings. The only issue then is whether the mortgages secured the advances. 10 I am satisfied from the material before me that the parties intended that the mortgages would secure the advances. There is an affidavit by Dimitri Amargianitakis of 30 January 2007 which evidences the plaintiff's intention. The deponent is a director of the plaintiff and describes the business of the plaintiff as including the provision of short term bridge funding. He said that the funds were advanced to the defendants in the course of that activity and that the plaintiff's intention was that the defendants' liability would be secured by mortgage over real property. In particular, it was intended that the defendants' liability would be secured by mortgage over the subject premises. Mr Amargianitakis was not required for cross examination on his affidavit, and I accept the content of the affidavit as affording unchallenged evidence as to the plaintiff's intention. 11 There is also abundant evidence inviting the conclusion which I reach that at the time of entering into the relevant loan transactions the defendants intended that the sums they borrowed would be secured by mortgage over the subject premises. Documents which evidence this intention are these:

(i) The loan agreement itself and the recital in it concerning security (para 5 above).

(ii) The recording in the loan agreement itself under the heading "Acceptance by Customer" of the acknowledgement that: "Each security I have given or will give which is referred to under 'Security' extends to this loan agreement when I accept it and that this loan agreement will be a contract covered by each security. I understand that the mortgaged or secured property will be at risk if I default under this loan agreement."

That acknowledgement was signed by both defendants. (iii) A further document signed by the defendants was headed "Acknowledgement of Legal Advice by Proposed Borrower/Mortgagor". By the terms of this acknowledgement the defendants noted receipt of legal advice from a solicitor concerning the loan and security documents, namely: (i) mortgage over [the subject premises]; (ii) memorandum registered number Q860000; (iii) loan agreement.

In that same document the defendants acknowledged that failure to comply with the conditions of the loan documents, including the obligations to pay principal and interest, have the result that the plaintiff may "after notice sell my property to recover the amount owing together with interest and other costs including legal costs…"

(iv) There is also a solicitor's certificate which evidences that Mr Maspero, solicitor, advised the defendants as to the mortgage and loan documents before the defendants signed those documents.

(v) There is a document headed "Undertaking and Acknowledgement" signed by the defendants in which it is recited that "the loan advanced shall be secured by way of registered second mortgage over the security property". In that same document, it is recorded that the defendants were obliged to provide a letter from the first mortgagee to the plaintiff consenting to the registration of the plaintiff's second mortgage. This was stated as being "an essential term" of the loan agreement between the plaintiff and the defendants. The same document noted that the plaintiff was entitled to lodge a caveat against the title to the security property pending registration of its mortgage.

(vi) The defendants also made a statutory declaration declaring that: "1. We are the Mortgagors/Borrowers referred to in a Mortgage of the property 108/4-6 Cowper Wharf Rd, Woolloomooloo in the State of New South Wales being the whole of the land comprised in Certificates of Title Folio Identifies 8/SP61618 and 39/SP61766 ('the :and') to Pakair Pty Limited (A.C.N. 055 709 709) ('the Mortgagee') in respect of a Loan of Two Hundred and Sixty Thousand dollars ($260,000.00)."

(vii) There is a letter, a copy of which is annexed to the affidavit of Dimitri Amargianitakis of 30 January 2007, which letter was written by the defendants to the manager of the Commonwealth Bank. The letter bears date 19 October 2004 and states: "We confirm that we have obtained a new mortgage from Pakair Pty Limited for $260,000 and paid out the loan to Albert Ling. We request that you provide us with a letter addressed to Pakair Pty Limited consenting the registration of the mortgage to Pakair Pty Limited and also produce the Certificate of Title Folio Identifier 39/SP61766 and 8/SP61619 to enable the registration of the mortgage."

This letter was clearly written in compliance with the undertaking referred to above. 12 The various loan documents to which I have referred all bear date 21 September 2004 (I exclude from this, of course, the letter written by the defendants to the Commonwealth Bank on 19 October 2004). The mortgage document itself is undated but it is to be noted that this document attracted stamp duty and bears an endorsement dated 23 September 2004 as to the stamp duty payable. This endorsement appears on the form in the section provided. It discloses duty was calculated on $260,000 which, of course, accords with the sum advanced under the first loan agreement. It is a compelling inference that execution of the mortgage preceded the assessment of the duty paid. 13 I referred earlier to there being similar documents for the third mortgage. It is to be noted that that mortgage is also undated but that it records for the purposes of duty that the principal sum advanced was $50,000. 14 Mr Velik very properly acknowledged that the usual procedure was for there to be a statement in the documents expressly incorporated in the mortgage as to the principal sum and the terms for repayment. It seems to me that prudence requires no less. However, the question here is whether, when that prudent course was not taken, it is proper to have regard to the evidence as to the intention of the parties in determining the issue here presented. 15 Mr Knaggs has presented brief written submissions confirming his submissions on 15 March. Mr Knaggs referred to s 56(1) of the Real Property Act which provides: "Whenever any land or estate or interest in land under the provisions of this Act is intended to be charged with, or made security for, the payment of a debt, the proprietor shall execute a mortgage in the approved form ." (Emphasis added) 16 Mr Knaggs submitted that the sub-section made it plain that where a mortgage was entered into in relation to land under the Real Property Act validity as a security required that the mortgage be in an approved form. He referred to the approved form. It does not, on the face of it, expressly require that the principal sum and the repayment provisions be expressed. It does, however, make provision for the incorporation in the mortgage document of covenants to be stated. Mr Knaggs submitted that the legislature contemplated and required that the mortgage, after incorporation of annexed documents, should spell out the loan and repayment provisions. He submitted that leaving the mortgage documents in the way in which the plaintiff's mortgage documents were left defeated the purpose of s 56(1). Hence, Mr Knaggs contended that the second mortgage was not effective to provide security for the sum advanced. A submission to the like effect was made concerning the third mortgage. 17 Mr Velik submitted that the subject mortgages are in the approved form, which does not spell out a requirement that the principal sum and the repayment provisions be stated either in the form or in documents which are expressly incorporated. 18 The issue now raised on behalf of the defendants has been raised belatedly. The defendants did not seek to raise this issue when faced with the plaintiff's claim for recovery of possession of the premises. The judgment for recovery of possession was a default judgment but Mr Knaggs properly acknowledged that when the defendants unsuccessfully sought to set that judgment aside, the point now raised was not brought forward as a possible ground of defence. Mr Velik submitted that the defendants are estopped from pursuing the issue now sought to be raised, and he referred to Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 as authority for the estoppel point. Plainly, if the issue now to be addressed is to be determined in the defendants' favour, it could have been relied upon as an arguable defence when the defendants sought to set the judgment for possession aside. 19 The estoppel issue was not raised in the hearing before me, but in later submissions, and Mr Knaggs has not addressed it. However, having regard to the conclusion I have reached on the principal issue which was addressed on behalf of both parties on the hearing before me, I do not find it necessary to deal with the estoppel issue. 20 I consider Mr Velik is correct in his submission that the approved form does not spell out a requirement that the principal sum and the repayment provisions must be stated either in the form itself or in documents which are expressly incorporated in the mortgage. 21 It is well settled that where a number of documents are executed at the same time relating to the same transaction, it is proper to construe the documents together to determine their effect. In Smith v Chadwick (1881-82) 20 ChD 27 Jessel MR referred to the doctrine as to contemporaneous documents, saying at 62-63: "…the doctrine as to contemporaneous documents rests on this, that when documents are actually contemporaneous, that is, two deeds executed at the same moment, a very common case, or within so short an interval that having regard to the nature of the transaction, the court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed…" 22 To the like effect in Manks v Whiteley (1912) 1 Ch 735, Fletcher Moulton LJ expressed the principle: "…that where several deeds are part of one transaction and are contemporaneously executed, they have the same effect for all purposes such as are relevant to this case as if they were one deed. Each is executed on the faith of all the others being executed also and is intended to speak only as part of the one transaction…" 23 I see no reason why in the present case regard cannot be had to the loan agreement, bearing in mind that it was one of the many documents executed by the defendants as earlier referred to and bearing in mind also the timing of its execution. 24 The decision in Nunn v Wily [2001] NSWSC 317 is in point. The mortgage, a schedule and a loan agreement were prepared at the same time and were executed together. The mortgage referred to "Annexures A and B hereto" but the schedule and the loan agreement were not identified as annexures. Austin J held that he could nevertheless treat those two documents as the documents sought to be identified in the mortgage. He said as to this (at [111]): "They were not labelled 'A' and 'B', but there can be no doubt, in my view, that they are the two annexures identified in the Mortgage. It is not necessary to rely on other extrinsic evidence in order reach this conclusion. But it is permissible to do so, because the absence of the letters 'A' and 'B' on the documents that accompanied the Mortgage gives rise to an ambiguity, and parol evidence is admissible to remove that ambiguity: Codelfa Construction , 352 per Mason J. In this case the evidence of Ms Bova that her normal practice was to identify the schedule and loan agreement as annexures A and B, but omitted to do so in this case, reinforces the conclusion which is otherwise available." 25 His Honour went on to say (at [112]): "While the Mortgage makes no reference to the loan agreement, it contains a covenant by the mortgagor to incorporate the annexures, one of which is the loan agreement. In my view, when those two documents are read together with the schedule, they purport to provide security with respect to the Principal Sum and interest identified by the loan agreement." 26 Earlier, his Honour said (at [108]-[109]): "108 Counsel for Mr Wily submits that the Mortgage and the loan agreement have been defectively drafted in various ways. In making his argument, he insists that the Mortgage and the loan agreement are very different documents both in nature and effect, and therefore it is not possible to overcome the deficiencies of one document by having recourse to the other. I disagree. 109 The approved form of mortgage under the Real Property Act does not necessarily contain all of the ingredients necessary for a valid mortgage. The form identifies the property and the parties and contains a charging clause, but does not deal with such matters as the amount secured over the property, repayment or interest. Some standard provisions of mortgage instruments have been extracted and registered as Memorandum Q860000, which is incorporated by reference into the Mortgage in this case: see Real Property Act, s 80A; Fisher & Lightwood's Law of Mortgage , at para [3.11]. It is common practice to set out the arrangements as to borrowing, repayment and interest in a loan agreement, or a schedule to the form of mortgage, or both. Where the mortgage on its face purports to incorporate another document by reference, or where it is clear that one or more collateral documents relate to the same transaction, it is necessary to construe the documents together in order to determine their legal effect: Smith v Chadwick (1880) 20 ChD 27, 62; Manks v Whiteley [1912] 1 Ch 735, 754 (on appeal, Whiteley v Delaney [1914] AC 132)." 27 The conclusion reached by Austin J (at [115]) was that upon the proper construction of the mortgage, the schedule and the loan agreement, the mortgage secured the payments in respect of certain specified debts even though there was a need to go to the loan agreement. 28 Returning to the present case, the mortgage incorporated Annexure A, and Annexure A acknowledged that the mortgage was given and obligations were incurred under it "for valuable consideration" received from the mortgagee. Whilst this annexure does not spell out the valuable consideration, the loan agreement does, and it seems to me that the loan agreement is to be looked at with the mortgage and Annexure A to determine the legal effect of these documents. 29 I observed earlier that there was similar documentation in the case of both advances. Hence, I conclude that the sums advanced by the plaintiff to the defendants were secured by the registered second and third mortgages.

The determination of the separate question 30 The sums advanced by the plaintiff to the defendants were secured by registered mortgages AB448901 and AB448902. 31 The question of costs is reserved.

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