Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors

Procedural history

1. These proceedings have come before the Court on numerous occasions, with a number of procedural issues and interlocutory steps raised by the parties. A summary of the procedural background can conveniently be found in a judgment of Ward CJ in Equity: Winau Aust Pty Ltd v LCC Property Development Pty Ltd [2019] NSWSC 499.
2. For present purposes the following history will suffice: 1. This matter first came before Lindsay J ex parte in the duty list on 31 May 2018, where leave was granted to the plaintiffs to file their Summons. 2. On 11 October 2018 Hallen J made orders in chambers, including inter alia that the Mortgagees pay, or cause their agents to pay, the proceeds of sale of the Lands into a controlled monies account. 3. On 1 November 2018, the plaintiffs were granted leave to file a Statement of Claim ("SOC"), which was filed on 12 November 2019 and as a result of which the parties became: 1. Winau Aust Pty Ltd (First Plaintiff) 2. Shunjiyuan Investments Pty Ltd (Second Plaintiff) 3. 183 Eastwood Pty Ltd ATF Eastwood Unit Trust (Third Plaintiff) 4. LCC Property Development Pty Ltd (First Defendant) 5. Scott Chan (Second Defendant) 6. Ippin Textiles Pty Ltd (Third Defendant) 7. Jia He Family Investments Pty Ltd (Fourth Defendant) 8. M Wang Family Pty Ltd (Fifth Defendant) 9. Pollux Trading Pty Ltd (Sixth Defendant) 10. Capital Empire Pty Ltd (Seventh Defendant) 11. CK Consulting Pty Ltd (Eighth Defendant) 12. Registrar General of Titles (NSW) (Ninth Defendant) 13. Alan Lee Walker (Tenth Defendant) 14. Mark Raymond Hutchins (Eleventh Defendant) 1. On 31 January 2019 Registrar Walton made orders that the proceeds of sale referred to in paragraph [8(2)] above were to be paid into Court. 2. The plaintiffs were subsequently granted leave to file a Further Amended Statement of Claim ("FASOC"), which was filed on 5 August 2019. The FASOC removed the sixth, seventh, tenth and eleventh defendants (as identified in paragraphs [8(3)(i), (j), (m) and (n)] above) from the proceedings. Although now only seven defendants joined, CK Consulting Pty Ltd ("CKC") and the Registrar General continued to be identified in the proceedings as the eighth and ninth defendants respectively. The FASOC raised numerous causes of action, one of which was the plaintiffs' entitlement to the proceeds of sale of the Lands. 3. The matter was set down before me in the Applications List on 11 October 2019, including to hear an Amended Notice of Motion filed by the Mortgagees on 12 August 2019 (the "Mortgagees' Amended Motion"). The Mortgagees' Amended Motion sought three categories of relief: the summary dismissal of the plaintiffs' claim; alternatively, a strike-out of certain parts of the plaintiffs' pleading; and then consequentially the release to the Mortgagees of the proceeds of sale held in Court. 4. At the conclusion of the hearing on 11 August 2019 I indicated to the parties that I had come to the view that the plaintiffs' case on the construction of the Mortgages raised a triable issue. Noting that the issue had been presented as one of construction, I raised with the parties whether they wished to consider converting what had been an interlocutory argument into a final one by means of a separate question. To enable that to occur, the proceedings (including the Mortgagees' Amended Motion) were subsequently stood over for further directions before me on 28 October 2019.
3. On 28 October 2019, I made orders generally in a form agreed by the relevant parties pursuant to Rule 28.2 of the Uniform Civil Procedure Rules 2005 (NSW) for the determination of a separate question concerning the rights inter se of 183 Eastwood and the Mortgagees to the monies held in Court (being approximately $6,725,000 at the time). The question for consideration was: Whether, properly construed, the Registered Mortgage (being the mortgages referred to in paragraphs 35 and 37 of the Amended Statement of Claim) secure anything in favour of the Mortgagees against the Lands (being the real property referred to in paragraphs 3 and 37 of the Amended Statement of Claim) and against the proceeds of sale of the Lands, which proceeds are now held in Court. (the "Separate Question").
4. As recorded by way of notation to the orders I made on that day, 183 Eastwood and the Mortgagees agreed that: 1. if the Court determines that the Mortgages secure anything in favour of the Mortgagees, then the monies are to be paid out of Court to them in an amount to be determined by the Court, but not being less than $6,100,000; but 2. if the Court determines that the Mortgages secure nothing, then the monies are to be paid out of Court to 183 Eastwood.
5. 183 Eastwood and the Mortgagees further agreed that for the purposes of these proceedings, they would be bound by the facts contained in the following material that was put before the Court: 1. the affidavit of Dominic Lim (affirmed 1 April 2019); 2. the affidavit of Christina Jabbour (sworn 19 July 2019) and Exhibit "CJ-03" (contained at pp 256-326 of the Court Book marked as Exhibit P1 on 11 October 2019 ("Exhibit P1")); and 3. 183 Eastwood's Statement of Facts dated 2 October 2019 (contained at pp 363-369 of Exhibit P1) and which 183 Eastwood and the Mortgagees identified as agreed facts for the purpose of the hearing and determination of the Separate Question.
6. The Separate Question was set down for hearing on 28 November 2019. The claim for relief set out in prayer 3 of the Mortgagees' Amended Motion (being the order for payment out to the Mortgagees) was also listed for hearing on the same date.
7. During the hearing on 28 November 2019, Mr H Altan, Counsel for the Registrar General, identified two additional questions for consideration by the parties: 1. Ownership of the bank account into which the Mortgagees advanced the loan monies - who did the bank account belong to? 2. Indefeasibility of obligations under a guarantee - was the alleged fraudster's personal liability under the guarantee created by a covenant in the Mortgages rendered indefeasible by registration of the Mortgages?
8. Following that hearing, I directed further written submissions (including any subsequent submissions in reply) be provided on the two additional questions identified in the preceding paragraph.

The parties

1. It is appropriate to provide some detail - all of which derives from the agreed material the parties relied upon - as to the respective parties to the proceedings, both those formally joined to the proceedings as well as other key individuals who are important to understanding the factual background.

First, Second and Third Plaintiffs

1. The third plaintiff, 183 Eastwood, was incorporated on 31 July 2016. 183 Eastwood was established by a group of investors as a property development company to purchase sites and develop multi-storey unit blocks in the suburb of Eastwood, NSW.
2. On 29 August 2016, the Eastwood Unit Trust (the "Unit Trust") was declared and settled. It is not necessary to identify all unit holders for the Unit Trust, however they included: 1. Winau Aust Pty Ltd (the First Plaintiff), with 8 ordinary units; 2. Shunjiyuan Investments Pty Ltd ATF Shunjiaxiang Trust (the Second Plaintiff), with 11 ordinary units; and 3. LCC Property Development Pty Ltd ("LCC") (the First Defendant), with 46 ordinary units.
3. On the same day, 183 Eastwood was appointed as the trustee of the Unit Trust.
4. Also on 29 August 2016, Mr Eric Naijing Lin and Mr John Tak Ching Lau were appointed as the directors of 183 Eastwood. Mr Steven Ju was appointed as the company secretary. Mr Lin and Mr Lau each held 50% of the shares in 183 Eastwood.
5. In September 2016, 183 Eastwood entered into three contracts for the sale of lands in writing to purchase the Lands on behalf of the Unit Trust. 183 Eastwood purchased the Lands unencumbered for a total consideration of $7,500,000 from funds contributed by the unit holders.
6. 183 Eastwood became the registered proprietor of the Lands on 25 February 2017.
7. Since October 2016, 183 Eastwood had been carrying out works in preparation for the development of the Lands. These works included site preparation, making development applications and the selling of housing units off the plan.

First Defendant - LCC Property Development

1. As set out in paragraph [17(3)] above, LCC is a unit holder in the Unit Trust, for which 183 Eastwood was appointed as trustee. The directors of LCC were Mr Lin and Mr Chan.

Second Defendant - Mr Chan

1. Mr Chan had been a business partner of Mr Lin. It was through this connection that Mr Chan first came to know of the existence of the Unit Trust, 183 Eastwood and, in particular, the Lands.

Third, Fourth and Fifth Defendants - the Mortgagees

1. Ippin Textiles Pty Ltd, Jia He Family Investments Pty Ltd and M Wang Family Pty Ltd (the third, fourth and fifth defendants, and together the Mortgagees) were introduced to Mr Chan through a mortgage broker. They had no prior connection with him and had no knowledge of Mr Chan's alleged wrongdoing.

Eighth Defendant - CK Consulting Pty Ltd

1. CKC is a business registered with the Australian Securities and Investments Commission ("ASIC"), acting as an agent for companies making lodgements to ASIC.
2. CKC assisted Mr Chan in lodging various documents with ASIC in January 2018, which facilitated Mr Chan's alleged wrongdoing. There is no suggestion that CKC was a knowing participant in that conduct.

Ninth Defendant - Registrar General

1. The plaintiffs joined the Registrar General to the proceedings for the alternative purpose of making a claim on the Torrens Assurance Fund (the "Fund") pursuant to s 129 of the Act on the basis that they, the plaintiffs, have been deprived of the Lands as a consequence of Mr Chan's fraud.
2. The Registrar General initially opposed the plaintiffs' application to join it to the proceedings, submitting that any such claim on the Fund (even if all of the allegations made by the plaintiffs in support of that claim were made out) was not available by operation of the disentitling provision set out in s 129(2)(o) of the Act. Any claim on the Fund remains to be resolved.

The uncontested facts

1. As set out in paragraph [11] above, for the purposes of these proceedings, 183 Eastwood and the Mortgagees agreed to be bound by the facts contained in certain evidentiary materials put before the Court. Relevantly, this included identifying the Plaintiffs' Statement of Facts as agreed facts for the purpose of the hearing and determination of the Separate Question. What follows derives from the agreed materials.

183 Eastwood

1. I have already set out the facts concerning the incorporation of 183 Eastwood and the purchase of the Lands in paragraphs [16] to [22] above.
2. For reasons that will become evident, it is important to refer here to the bank account 183 Eastwood opened with the St George Bank in its name on or about 5 September 2016 (the "St George Bank Account"), shortly after the company was incorporated. Only Messrs Lin, Lau and Ju were authorised to operate the St George Bank Account.
3. 183 Eastwood did not open or operate any other bank account.

Mr Chan obtained loan approval

1. On or about 22 January 2018, Mr Chan engaged a mortgage broker, Titan Lending Group Pty Ltd, to apply for a loan of $4,500,000 in the name of 183 Eastwood.
2. On or about 22 January 2018, Titan issued a loan approval, sent to Mr Chan, on the following terms: 1. The sum of $4,500,000 (the "Loan Amount") would be advanced by the Mortgagees for a period of 6 months; 2. interest would be payable on the Loan Amount of 2.4% per month; and 3. the Loan Amount would be secured by: 1. a mortgage over the Lands; and 2. personal guarantees from Mr Lin and Mr Lau.

Mr Chan's conduct

1. On or about 23 January 2018, without the knowledge or approval of Messrs Lin, Lau or Ju, Mr Chan caused the lodgement of a Form 484 (dated the same date) that purported to inform ASIC that: 1. Mr Lin and Mr Lau had ceased to be the directors of 183 Eastwood; 2. Mr Ju had ceased to be the secretary of 183 Eastwood; 3. Mr Chan had been appointed the sole director and secretary of 183 Eastwood. (the "Officer Change Notice").
2. On 24 January 2018, Mr Chan opened a Westpac bank account in the name of 183 Eastwood ("Westpac Bank Account"). Despite bearing the name "183 Eastwood", Mr Chan opened the Westpac Bank Account without the knowledge and approval of Mr Lin and Mr Lau. Mr Chan is the only person who controlled or otherwise had access to the Westpac Bank Account.
3. On 25 January 2018, without the knowledge or approval of Messrs Lin, Lau or Ju, Mr Chan caused the lodgement of a Form 484 (dated the same date) that purported to inform ASIC that: 1. Mr Lin had ceased to hold 50 Ordinary shares in 183 Eastwood; 2. Mr Lau had ceased to hold 50 Ordinary shares in 183 Eastwood; and 3. Mr Chan now held 100 Ordinary share in 183 Eastwood. (the "Share Change Notice").
4. Also on 25 January 2018, without the knowledge or approval of Messrs Lin, Lau or Ju, Mr Chan lodged an application with the NSW Lands Registry Services (NSW) for replacement Certificates of Title for the Lands. These replacement certificates were subsequently issued, printed and made available to Mr Chan for collection.
5. The Court accepts that at no point did Messrs Lin, Lau or Ju sign any documents or provide any authorisation for the matters referred to in paragraphs [36] to [39] above. Further, in relation to the Officer Change Notice and Share Change Notice in particular, the Court accepts: 1. Mr Chan engaged CKC to prepare and/or lodge both these Notices without the knowledge or approval of Messrs Lin, Lau or Ju; and 2. The signatures of Mr Lin or Mr Lau on various documents to effect the lodgement of these notices (and to record the alleged transactions referred to in the Notices) were forged by Mr Chan.

Execution and registration of the Mortgages

1. On or about 29 January 2018, without the knowledge or approval of Messrs Lin, Lau or Ju, Mr Chan (in his purported capacity as the sole director and secretary of 183 Eastwood) executed the Mortgages over the Lands in favour of the Mortgagees to secure the advance described in the Mortgages as being for $4,000,000. Mr Chan also executed the personal guarantee that formed part of the Mortgages.
2. On 29 January 2018, without the knowledge or approval of Messrs Lin, Lau or Ju, Mr Chan signed cheque directions purportedly on behalf of 183 Eastwood authorising the Mortgagees to remit the available loan amount of $3,804,300 into the Westpac Bank Account (the "Cheque Directions").
3. In accordance with the Cheque Directions, the sum of $3,791,266.88 was remitted into the Westpac Bank Account by the Mortgagees in 2 instalments: 1. $1,000,000 on 31 January 2018; and 2. $2,791,226.88 on 5 February 2018.
4. It is not disputed by the parties that the funds were paid into the Westpac Bank Account. For completeness, it is also convenient to pause here and note that the St George Bank Account statement of 183 Eastwood for the period 24 January 2018 to 31 March 2018 shows that no part of the funds advanced by the Mortgagees was paid into the St George Bank Account.
5. On or about 6 February 2018, the Mortgagees registered the Mortgages and the common provisions to each mortgage. The relevant terms and conditions are set out commencing at paragraph [53] below.
6. At no point did Messrs Lin, Lau or Ju cause 183 Eastwood, or authorise Mr Chan, to borrow on 183 Eastwood's behalf any sum of money from the Mortgagees or to enter into the Mortgages.

Discovery

1. On 15 February 2018, 183 Eastwood's accountant informed Mr Lin that a caveat had been lodged by Capital Empire Pty Ltd against the Lands. Mr Lin then engaged GEA Lawyers to conduct enquiries into the reason for that caveat. Through the enquiries made by GEA Lawyers, Messrs Lin, Lau and Ju became aware of what Mr Chan had allegedly done.

Notice of default and seizure of the Lands

1. No repayments were made to the Mortgagees. Consequently, on or about 6 June 2018, the Mortgagees served a purported Notice of Default on 183 Eastwood in respect of the Mortgages. They subsequently purported to exercise their power of sale.
2. On or about 6 September 2018, the Mortgagees entered into a contract of sale to sell the Lands to Rong Sheng Eastwood Pty Ltd ("Rong Sheng") for $6,880,000 (the "Lands Sale Contract").
3. On 11 October 2018 the parties agreed to orders being made by Hallen J (see paragraph [8(2)] above), allowing the Lands Sale Contract to settle, and Rong Sheng to become the registered proprietor of the Lands, with the proceeds of sale to be held in a controlled monies account. As set out in paragraph [8(4)] above, these funds were subsequently paid into Court.
4. 183 Eastwood has been placed into receivership and the development project it sought to undertake on the Lands has failed. 183 Eastwood, all unit holders in the Unit Trust and the Mortgagees are all facing significant losses.
5. Mr Chan was arrested by the NSW Police on 17 May 2019 and charged with offences arising from his alleged conduct which I have set out above. He was refused bail. His charges had not been heard at the time of the hearings before me.

Terms and conditions of the Mortgages

1. The Mortgages are in identical terms, each relating to one of the parcels that comprise the Lands. It was accepted that Mr Chan (in his purported capacity as the sole director of 183 Eastwood) had signed the schedule to the Mortgages in favour of the Mortgagees. He had also signed them in his own right as a guarantor.
2. The Mortgages as registered relevantly comprised by express incorporation: 1. A three page document headed "Mortgage"; 2. A 41 page registered Memorandum of Common Provisions (the "MCP") which itself defined "Schedule A" to mean "the schedule to this Memorandum marked "Schedule A" which forms part of this Mortgage"; and 3. A four page "Schedule A" incorporated as follows (in addition to the definition in the MCP). There was what was described in the three page mortgage document a "Redacted Schedule A" which itself contained a special condition that included "This is a redacted version of Schedule A…This Mortgage shall be interpreted as though all the provisions of Schedule A are set out at length in this Mortgage save if for any reason Schedule A is or becomes wholly or partly void, voidable or unenforceable in which case this Redacted Schedule A replaces Schedule A". The four page Schedule A itself contained this term: "This is Schedule A to [the MCP] (Memorandum) and shall be interpreted as though all of the provisions set out in the Memorandum are set out at length in this Schedule".
3. The three page mortgage was executed by Mr Chan purportedly on behalf of 183 Eastwood and described as "Sole director/Secretary". The MCP contained no execution clauses. Schedule A was executed by Mr Chan purportedly on behalf of 183 Eastwood, which was described in a printed heading as "Borrower/Debtor/Mortgagor" (all of which were defined terms in the Mortgages) and by Mr Chan personally, under a printed heading "Guarantor/Debtor/Mortgagor" (all of which were defined terms in the Mortgages).
4. I will next set out the terms and conditions of the Mortgages relevant to the determination of the Separate Question.

The three page mortgage document

1. Each of the three page mortgage documents included: Mortgagor Name 183 EASTWOOD PTY LTD ACN XXXXXXXXX ____________________________________________________________________ Mortgagee Name IPPIN TEXTILES PTY LTD AS JOINT TENANT ACN XXXXXXXXX Name JIA HE FAMILY INVESTMENTS PTY LTD AS JOINT TENANT ACN XXXXXXXXX Name M WANG FAMILY PTY LTD AS JOINT TENANT ACN XXXXXXXXX ____________________________________________________________________ The mortgagor mortgages the estate and/or interest in Lands specified in this mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions. Terms and conditions of this Mortgage (a) Document Reference [The registered number of the MCP] (b) Additional terms and conditions. Redacted Schedule A Principal Amount $4,000,000.00 Higher Rate of Interest 6 % per month Lower Rate of Interest 2.5% per month Specified Interest Regime Interest Regime A (clause 5.11) _____________________________________________________________ Special Condition This is a redacted version of Schedule A between Ippin Textiles Pty Ltd ACN XXXXXXXXX, Jia He Family Investments Pty Ltd ACN XXXXXXXXX as trustee for Jia He Trust, M Wang Family Pty Ltd ACN XXXXXXXXX as trustee for Wang Family Trust and 183 Eastwood Pty Ltd dated on or about the same date as this Mortgage. This Mortgage shall be interpreted as though all the provisions of Schedule A are set out at length in this Mortgage save if for any reason Schedule A is or becomes wholly or partly void, voidable or unenforceable in which case this Redacted Schedule A replaces Schedule A.
2. The Mortgages were in typescript, except for the words reproduced in italics above.

The MCP

1. The MCP included: 1. Interpretation 1.1. Definitions. In the Mortgage, unless the context otherwise requires: "Borrower" means the Person name in Schedule A as the Borrower; … "Commencement Date" means the earlier date of: (a) the specified [sic] in Schedule A as the commencement date; or (b) the date when the Principal Amount - (or any part thereof) is advanced by the Lender to the Debtor (or at the Debtor's direction), whichever date is the earlier; … "Debtor" means the Borrower and/or the Mortgagor as the case may be: (a) where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor, (b) where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several; … "Final Repayment Date" means the date specified in Schedule A as the final repayment date for the Debtor to the pay to the Lender all of the Secured Money; … "Guarantee" means a guarantee given by a Guarantor in accordance with the requirements of clause 28; "Guarantor" means the Person or Persons named in Schedule A as the guarantor and being the person that has provided a Guarantee to the Lender; … "Memorandum" means this Memorandum of Common Provisions, including all the Schedules hereto; … "Mortgagor" means the person named in Schedule A as the Mortgagor; … "Obligation" means all obligations, covenants, conditions, stipulations, warranties, guarantees, undertakings, assurance and agreements (whether present or future and whether express or implied) arising under or imposed by this Mortgage or by operation of Legislation or law as a result of the grant by the Mortgagor of this Mortgage; … "Overriding Intent" means the overriding intent of the parties in entering into this Mortgage namely that the Lender will be able to recover from the Debtor and/or from the Mortgaged Property any and all amounts forming part of the Secured Money or any other amounts that the Lender is entitled to under this Mortgage; … "Principal Amount" means the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage and, if no amount is specified in Schedule A as the "Principal Amount", that expression shall mean any amount advanced by the Lender to the Debtor, or to any other person at the Debtor's direction, on any transaction or any amount advanced, whether directly or indirectly associated with the grant of this Mortgage; … "Secured Money" means the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever and includes, without limitation: (a) the Principal Amount; … 1.2. In this Mortgage: … (f) the use of the words "includes" or "including" is not to be taken as limiting the meaning of the words preceding it; … 1.3. This Memorandum and each of its terms shall be construed in accordance with and to give full effect to the Overriding Intent. 1.4. No rule of construction applies to the disadvantage of a party to this Mortgage because that party was responsible of [sic] the preparation of this Mortgage. … 2. Creation of security in the Mortgaged Property 2.1. The Mortgagor hereby grants to the Lender a mortgage of the Mortgaged Property to secure: (a) the payment (including the punctual payment) of the Secured Money or any part thereof; and (b) the performance, including the punctual performance, of all of the Obligations … 2.3. The Mortgagor agrees that it is granting to this Mortgage and that it agrees to perform all of the Obligations for valuable consideration received by it and/or by the Borrower from the Lender with the Mortgagor's knowledge and consent including by the advance of the Principal Amount. … 3. Debtor's covenants to pay and perform Obligations 3.1. The Debtor covenants that the Debtor: (a) shall pay the Secured Money (or any part thereof) to the Lender: (i) in accordance with the terms of this Mortgage and by the end of the Term; or (ii) if no time for payment is specified, immediately on demand by the Lender; … 8. Debtor's Representations and Warranties … 8.7 The Debtor, if it is a corporation: (a) is duly incorporated under the laws of its place of incorporation; (b) has the power and authority to enter into this Mortgage and is doing so in good faith and for a proper purpose. (c) has undertaken and complied with all necessary corporate requirements to ensure that this Mortgage is enforceable and binding on it; (d) will received a benefit for the benefit as a result of the advance by the Lender of the Principal Amount and that benefit will also ensure for the benefit of all of the shareholders of the Corporation; and (e) will not be in breach of its constitution or any agreement between the shareholders of the Corporation in entering into this Mortgage and agreeing to perform all of the Obligations. … 28. The Guarantee 28.1 The provisions of this clause 28 apply when a person executes this Memorandum as a Guarantor. … 28.5 The Guarantor agrees to guarantee to the Lender and indemnify the Lender as to: (a) the payment by the Debtor of the Secured Money (or any part thereof) in accordance with the terms of this Mortgage; (b) the performance and compliance by the Debtor with all of the Obligations. 28.6 The Guarantor agrees that if the Debtor fails, refuses or neglects to: (a) pay the Secured Money (or any part thereof) to the Lender; or (b) meet any of the Obligations - the Lender may demand that the Guarantor pay to the Lender: (i) the amount that the Debtor fails to pay to the Lender, and/or (ii) any amount that will result in the Lender being fully indemnified for the Debtor's failure to meet any of the Obligations. 28.7 The Guarantor agrees that: (a) to the extent (if any) that this Guarantee may be void or unenforceable for any reason; or (b) if any of the Obligations of the Debtor pursuant to this Mortgage may not be or cease to be enforceable against the Debtor - the Guarantor agrees to indemnify the Lender in respect of any loss or damage, costs or expenses suffered by or occasioned to the Lender as a result of any of the matters in paragraphs (a) or (b) above. … 28.9 This Guarantee shall be a continuing guarantee and accordingly shall be irrevocable and shall remain in full force and effect until the Lender notifies the Guarantor that it is no longer liable under this Guarantee. 30. General Provisions … 30.2 The Debtor agrees that this Mortgage is governed by, and to be construed in accordance with, the law for the time being in force in the place where the Mortgaged Property is located. …"

Schedule A

1. Schedule A set out the following relevant provisions: Borrower(s) 183 Eastwood Pty Ltd ACN XXXXXXXXX … Commencement Date [Blank] … Final Repayment Date On the same day which is 5 months after the Commencement Date. … Debtor(s) 183 Eastwood Pty Ltd ACN XXXXXXXXX, Scott Chan … Guarantor Scott Chan … Mortgagor(s) Means the Debtor(s) … Principal Amount $4,000,000

The law

1. The parties accepted that answering the Separate Question was solely a question of the proper construction of the Mortgages. I propose to briefly set out the relevant legal principles as to construction, before dealing in turn with each of the issues raised by the parties, addressing the respective submissions put forward by the plaintiffs, Mortgagees and Registrar General.
2. The relevant legal principles were not in dispute. In relation to the construction of a commercial contract, the High Court said in Electricity Generation Corporation v Woodside Energy Ltd (2004) 251 CLR 640 ("Electricity Generation Corporation"), at [35] per French CJ, Hayne, Crennan and Kiefel JJ: "…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…". As Arden LJ observed in Re Golden Key Ltd, 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."
3. Where the construction of a forged mortgage is in question: 1. Sackville JA (with whom Allsop P and Campbell JA agreed) said in Perpetual Trustees Victoria Limited v English & Anor [2010] NSWCA 32 at [11]-[13]: "Later authorities in Australia and New Zealand, while acknowledging that registration of a forged mortgage confers an indefeasible title on the registered mortgagee (unless the mortgagee has been guilty of fraud), have pointed out that there is a further question to be answered, at least where the contest is between the innocent registered proprietor and the mortgagee. That question is whether the indefeasibility of the mortgagee's title effectively validates all the terms of what otherwise would be a void instrument and, if not, what is the test for identifying the provisions of the mortgage that can be enforced against the estate or interest of the innocent registered proprietor. In order to answer that question, courts have generally proceeded on the basis that it is a question of construction of the mortgage as to whether it grants the mortgagee a security interest that can be enforced against the Lands (including the interest of the defrauded registered proprietor). This has often involved the courts in a minute analysis of the language of complex mortgage documentation that is unlikely to have been read, let alone understood by a mortgagor. By hypothesis, the innocent registered proprietor in a case of forgery will not have even had a chance to read the documentation on which his or her fate as a proprietor will rest. The problem has been compounded by the tendency of institutional lenders to rely on ever more complex documentation that is designed to ensure that they have security, not merely for a specified sum advanced to the borrowers, but for any moneys advanced to or due by then, whether in the past or in the future. These "all moneys" clauses require reference not only to the mortgage instrument itself, but to other documents which themselves may be forged. The irony is that as lenders draft ever-wider clauses they make themselves more vulnerable to the effects of forgery. This is because all moneys clauses may depend for their effectiveness on the validity of antecedent instruments that have not been, and indeed cannot be registered under the Torrens system. Since forgery renders such instruments void under the general law, the indefeasibility provisions of the RP Act may not protect the mortgagee." 1. In Sabah Yazgi v Permanent Custodians Ltd [2007] NSWCA 240 at [24], Beazley JA (as her Honour then was) referred to the decision of Young CJ in Eq (as his Honour then was) in Perpetual Trustees Victoria Limited & Anor v Tsai [2004] NSWSC 745: "His Honour then dealt with the question of the extent of that indefeasibility, adopting the question posed by Campbell J in Small v Tomassetti: "indefeasibility for what?" Young CJ in Eq pointed out that the answer to that question depended upon the wording of the covenants in the particular mortgage. He said that under the "old fashioned form of mortgage" there was a statement of the sum that had been lent and an acknowledgement that the moneys had been so lent. Thus, when those matters were stated in the body of the mortgage document, the production of the mortgage document itself constituted prima facie evidence of the existence of the debt. However, where there was no statement of the amount lent in the mortgage (as in an 'all monies' mortgage), proof of the indebtedness and that the indebtedness was secured by the mortgage had to be established in some other way."

The parties' submissions

1. The parties' submissions may be conveniently divided into three topics: 1. What did the Mortgages secure? 2. The Westpac Bank Account. 3. Mr Chan's guarantee.

Plaintiffs' submissions

1. The bedrock of the plaintiffs' submission is that the Mortgages, although indefeasible upon registration, secured nothing because - irrespective of what the Mortgages say - no money was ever advanced to nor received by 183 Eastwood. That is, without any advance to 183 Eastwood pursuant to the terms of the Mortgages, there is simply nothing to which the alleged debt can attach.
2. The plaintiffs' submissions why the Mortgages secure nothing can be summarised as follows: 1. The MCP defines "Commencement Date" as "the earlier of the date specified in Schedule A or the date when the Principal Amount or any part thereof is advanced by the Lender to the Debtor or at the Debtor's direction, whichever is the earlier". 2. Schedule A has no commencement date. 3. "Principal Amount" is defined in the MCP "as the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor… and, if no amount is specified in Schedule A as the "Principal Amount", that expression shall mean any amount advanced by the Lender to the Debtor, or to any other person at the Debtor's direction". 4. 183 Eastwood did not receive any part of the Principal Amount allegedly advanced by the Mortgagees pursuant to the Mortgages and the terms of the MCP. 5. Clause 2.3 of the MCP provides: "The Mortgagor agrees that it is granting this Mortgage and that it agrees to perform all of the Obligations for valuable consideration received by it and/or by the Borrower from the Lender with the Mortgagor's knowledge and consent, including by the advance of the Principal Amount". 6. 183 Eastwood did not receive any valuable consideration for granting the Mortgages and therefore, it does not have to comply with any Obligations (as defined) under the Mortgages (including the MCP). 7. The Mortgagees were not entitled to enforce the Mortgages until they had actually advanced the Principal Amount or part of the Principal Amount to 183 Eastwood. 8. 183 Eastwood cannot be liable to repay the Principal Amount to the Mortgagees if they, the Mortgagees, did not advance this amount to 183 Eastwood or at its direction to another person.
3. In particular, the plaintiffs relied on Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328 ("Perpetual Trustees v Cox"). In that case, the debt of $598,500 was stated in the mortgage itself, with an acknowledgment of receipt by the borrowers. However, $253,000 of the debt was never received by the borrowers but was instead paid to their mortgage broker pursuant to a payment direction not signed by the borrowers.
4. In Perpetual Trustees v Cox, the relevant clause in the Memorandum of Common Provisions provided: "You acknowledge giving this mortgage and incurring obligations and giving rights under it for valuable consideration of $598,500 received from Us which You agree to repay together with interest and Expenses in accordance with the Memorandum of Common Provisions."
5. In what is a similar argument to that adopted by the plaintiffs, in his written submissions dated 6 November 2019, Mr Lim noted that the borrowers in Perpetual Trustees v Cox argued that they could not be liable for what they did not receive. Mr Lim submitted that the primary judge and Court of Appeal agreed with this reasoning, with Leeming JA (with whom Macfarlan and Emmett JJA agreed) saying (emphasis added): "74. Perpetual's strongest argument was that its decision to include the amount of $598,500 in the mortgage itself, with an acknowledgement of receipt by the Borrowers, pointed to the mortgage standing as security for the whole amount, even if it were never paid to the Borrowers, and was advanced without complying with the agreement between the parties. 75. I would reject Perpetual's primary submission on construction, for four reasons. First, it seems plain by reason of the defined term "this mortgage" and the repeated references to incorporation that this particular covenant is directed to monies advanced and to be repaid in accordance with some existing or future agreement between borrower and lender. … 78. Secondly, as much is confirmed by the operative verb on which Perpetual relies: "repay". There is no good reason to give that ordinary word a strained meaning referable to "repaying" amounts never paid by Perpetual in the first place to or at the direction of the Borrowers. … 80. Fourthly, suppose Perpetual (or its solicitors) mistakenly transferred the funds to the wrong recipient. I cannot see why in those circumstances the mortgage should receive a strained construction so as to burden the Borrowers' Lands (and in addition create an obligation upon the Borrowers to "repay") in respect of an amount they had never received by reason of the lender's own mistake. And I cannot see how the constructions for which Perpetual contends could treat fraud by Ms Maloney any differently."
6. The plaintiffs argued that 183 Eastwood did not receive any part of the Principal Amount allegedly advanced by the Mortgagees pursuant to the Mortgages and the terms of the MCP: 1. At all material times, 183 Eastwood only had the one St George Bank Account, which was opened on 1 September 2016. 2. Schedule A provides that the "Final Repayment Date" is "the same day which is 5 months after the "Commencement Date". 3. The MCP defines the Commencement Date as "the earlier of the date specified in Schedule A or the date when the Principal Amount or any part thereof is advanced by the Lender to the Debtor or at the Debtor's direction, whichever is earlier". 4. Schedule A has no commencement date and, for the reasons set out above in paragraph [66], 183 Eastwood never received the Principal Amount advanced to the Westpac Bank Account.
7. Further, it was submitted by the plaintiffs that nowhere in the Mortgages did the mortgagor (purportedly 183 Eastwood) expressly acknowledge receipt of the Principal Amount.

Mortgagees' submissions

1. The Mortgagees submitted that the Separate Question should be answered in the affirmative. The Mortgagees pressed for the release of the entirety of the proceeds of sale to them, rejecting any suggestion that 183 Eastwood had any basis to contend that any of those funds ought to be held back from the Mortgagees.
2. Mr Bedrossian referred to the judgment of Davies J in Bay Bon Investments Pty Ltd v Sultana [2015] NSWSC 1797 at [26]-[30], which provides a summary of the position concerning indefeasibility of registered mortgages under s 42 of the Real Property Act, including in circumstances of alleged fraud by persons other than the mortgagee.
3. He contended that while it was certainly correct that the mortgagee must have provided the funds, which are said to be secured by the mortgage, that did not mean that the monies advanced by the mortgagee must have reached the registered proprietor of the mortgaged property. Reliance was placed on this observation of Pagone J in Solak v Bank of Western Australia Ltd [2009] VSC 82 at [16]: "It is inherent in any forgery that the victim of the forgery has not assumed contractual obligations upon which he or she can be sued personally. It is, therefore, not an answer to the consequences of indefeasibility that there may be no personal obligations assumed by the true owner of the Lands where the covenant to pay is identified by the mortgage."
4. The proper construction of the Mortgages can be ascertained by at least two different construction routes, both being submitted by Mr Bedrossian as "a straightforward mechanical process of tracing through contractual provisions" in the MCP and Schedule A.
5. The Mortgagees submitted that the first of these routes - "the short construction point" - leaves it entirely clear that the Mortgages expressly identified the secured obligation as including the obligation to pay $4,000,000, that being an obligation that was rendered indefeasible upon the registration of those Mortgages. This argument was made through the following sequence of references:

• On the front page of each registered mortgage… there appears the following: "The mortgagor mortgages the estate and/or interest in Lands specified in his mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage, and covenants with the mortgagee to comply with those terms and conditions." … Principal Amount $4,000,000.00
• Clause 2.1 of the Memorandum… states: "The Mortgagor hereby grants to the Lender a mortgage of the Mortgaged Property to secure: (a) the payment (including the punctual payment) of the Secured Money or any part thereof"; and (b) the performance, including the punctual performance, of all of the Obligations.
• "Secured Money" is defined as including "without limitation" the Principal Amount.
• "Principal Amount" is defined as meaning "the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor…" (emphasis supplied). Further to this use of the expression "stipulated", the following should be noted: (a) "Stipulated" makes clear that there is no need to prove the amount of the advance. Rather, it is "stipulated". (b) The Australian Oxford Dictionary (2nd ed, 2004) defines "stipulate" as meaning inter alia: 1 demand or specify as part of a bargain or agreement.
• Schedule A… repeats the identification (as per the front page of each of the Mortgages) of the Principal Amount as being "$4,000,000".

1. In response to the plaintiffs' submission that there is no acknowledgement in the Mortgages that the Principal Amount was advanced, Mr Bedrossian submitted this was overcome by the word "stipulated" in the definition of "Principal Amount" itself, as set out in the MCP. It was the Mortgagees' submission that the world "stipulated" required in the current case no more than showing an agreement to provide the funds (as opposed to actually providing them): "…the actual definition of "Principal Amount" in the Memorandum contains just such an acknowledgement, it being "stipulated" that the amount of $4.0 million had been advanced by the Lender to the Debtor". (paragraph [40] of Mr Bedrossian's written submissions on the Separate Question)
2. Reliance on the terms "Lender" and "Debtor" also goes to the second of the construction routes put forward by the Mortgagees - being "the longer construction point". The consequence of this argument was said to be that the Mortgages secure the payment obligations not only of 183 Eastwood, but also those of Mr Chan himself.
3. The "longer construction point" relied on these steps:

• "Principal Amount" is defined… as meaning "the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor…" (emphasis supplied).
• "Debtor" is defined… as meaning "the Borrower and/or the Mortgagor".
• "Mortgagor" is defined… as meaning "the person named in Schedule A as the Mortgagor".
• In Schedule A "Mortgagor(s)" is defined as "Means the Debtor(s)".
• In Schedule A "Debtor(s)" is defined as meaning "183 Eastwood Pty Ltd ACN XXX XXX XXX, Scott Chan". This can only mean that they are joint and several debtors. See also the fact of the separate execution of that document by Mr Chan in his personal capacity as "Guarantor/Debtor/Mortgagor", as well as on behalf of 183 Eastwood in its capacity as "Borrower/Debtor/Mortgagor".
• By clause 2.1 of the MCP the Mortgages operated as security also for "the performance, including the punctual performance, of all of the Obligations".
• "Obligation" is defined as meaning "all obligations, covenants, conditions, stipulations, warranties, guarantees, undertakings, assurances and agreements… arising under or imposed by this Mortgage.
• In clause 3.1 of the Memorandum there is recorded an express covenant by the Debtor that the Debtor "shall pay the Secured Money (or any part thereof) to the Lender… (i) in accordance with the terms of this Mortgage and by the end of the Term.
• "Term" is defined as meaning "the period from the Commencement Date to the Final Repayment Date".
• "Commencement Date" is defined as meaning: "…the earlier date of: (a) the specified in Schedule A as the commencement date; or (b) the date when the Principal Amount (or any part thereof) is advanced by the Lender to the Debtor (or at the Debtor's direction), whichever date is the earlier."
• It is not in dispute that the loan monies were advanced by the Mortgagees on 31 January 2018 (as to $1.0million) and on 5 February 2018 (as to $2,791,226.88) (citation omitted). Further to this, the following might be noted: (i) It is also not in dispute that the loan monies advanced by the Mortgagees were transferred into a bank account in the name of 183 Eastwood. The Mortgagees submitted that this satisfied such, if any, obligation to put the loan funds into the hands of 183 Eastwood. (ii) In any event, 183 Eastwood contended that the monies were effectively transferred into the possession of Scott Chan. By reason of the terms of the MCP, Mr Chan was one of the defined debtors, so that his obligation to pay (or repay) those funds was secured by the Registered Mortgages.
• "Final Repayment Date" is defined as meaning "the date specified in Schedule A as the final repayment date for the Debtor to pay to the Lender all of the Secured Money".
• The Schedule A document defines the Final Repayment Date as being "the same day which is 5 months after the Commencement Date"…

1. Mr Bedrossian stressed that the defined terms in the MCP must be accorded the definition expressly attributed to them by the contract itself, and that there was "no basis for the Court to ignore the definition of a term expressly identified by the contract and instead to apply an entirely different (and narrower) interpretation".
2. Pausing on the particular submission on the definition of "Debtor(s)" in Schedule A, Mr Bedrossian advanced that the reference to "183 Eastwood, Scott Chan" in the document was a clear identification of two separate debtors. This is to be contrasted with the alternative reading of that text as "183 Eastwood, Attention: Scott Chan".
3. As I understood Mr Bedrossian's submission, the Mortgagees contended that it did not matter if the Loan Amount advanced to the Westpac Bank Account was never received by 183 Eastwood. If it was received by Mr Chan in his capacity (albeit fraudulent) as director of 183 Eastwood, the Mortgagor's obligations under the Mortgages were nevertheless enlivened and there was an obligation to repay the debt secured by the Mortgages.
4. In response to this, both the Mortgagors and the Registrar General countered that the only commercially sensible construction of the word "Debtor" (where "Debtor" also means "Borrower" and/or the "Mortgagor") is for "Debtor" to mean only 183 Eastwood.

Registrar General's submissions

1. The Registrar General submitted that the answer to the Separate Question is that the Mortgages do not secure anything. The submissions of the Registrar General were generally to the same effect as the plaintiffs' and adopted their written submissions.
2. Mr Altan referred to the following dictum of Young CJ in Equity (as his Honour then was) in Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745, at [20]-[21] (emphasis supplied): "Under the old fashioned form of mortgage there was a statement of the principal sum lent and an acknowledgement that the money had been lent. The authorities show that the present type of problem was rarely likely to arise with that type or mortgage because the production of the security document was prima facie evidence of the existence of the debt … The modern clause, however, does not go that far especially in a facility mortgage requiring drawn downs to be made later. It would thus not seem that any of the traditional protections to mortgages apply to mortgagees who use this form of loan agreement and mortgage … It is clear that if no monies are lent under a mortgage then the mortgage is just completely void."
3. Mr Altan went on to submit with the plaintiffs that "the mere identification of [the Principal Amount] does not overcome the fact… that in the instant case, there is no acknowledgement in the Mortgages (including the Memorandum) that the Principal Amount was advanced" (emphasis in original).
4. Further, Mr Altan's submission noted that the MCP required "repayment" of the Principal Amount advanced. If there was no amount advanced to 183 Eastwood as the "Borrower" and "Mortgagor" under the Mortgages, then there was no money advanced to 183 Eastwood that could require "repayment".
5. In response to the Mortgagees' submission (set out at paragraph [81] above) that the definition of "Debtor(s)" in Schedule A is "183 Eastwood Pty Ltd ACN XXX XXX XXX, Scott Chan" (my emphasis) and subsequent reliance on the definition of "Mortgagor" in Schedule A as meaning "the Debtor(s)", the Registrar General similarly emphasised that Mr Chan only signed the Mortgage in his capacity as purported "Sole Director / Secretary" of 183 Eastwood. As Mr Altan set out in paragraph [8] of his submissions on the Separate Question: "…he [Mr Chan] is not a registered proprietor of the properties who was capable of granting the Mortgages, he is the "Guarantor" as defined in Schedule A, and the only named "Mortgagor" on the front page of each of the Mortgages is 183 Eastwood. For those reasons, whatever is meant by "183 Eastwood Pty Ltd ACN XXX XXX XXX, Scott Chan" in the definition of "Debtor(s)" in Schedule A, it cannot mean, on a proper construction of the Mortgage as a whole, that the Mortgage secured monies advanced to Chan instead of 183 Eastwood."

Submissions on the Westpac Bank Account

1. During the hearing on 28 November 2019, Mr Altan submitted that the real question, or the more "appropriate question", is who "owned" the money deposited by the Mortgagees into the Westpac Bank Account opened by Mr Chan in the name of "183 Eastwood". Put another way, to whom did the Mortgagees pay the monies that were deposited into that account?

Plaintiffs' submissions

1. Ms Sharpe, who appeared for the Plaintiffs at the 11 October 2019 hearing, submitted that the mere fact Mr Chan set up a bank account in the name of 183 Eastwood did not make it the company's bank account.
2. In his written submissions in reply on behalf of 183 Eastwood dated 10 December 2019, Mr Lim argued that the money remitted by the Mortgagees into the Westpac Bank Account did not belong to 183 Eastwood and was not its asset or property because: 1. It did not apply nor did the lawful directors authorise Mr Chan to apply for any loan from the Mortgagees. 2. Mr Chan was not an agent or officer of 183 Eastwood and did not have the authority to act for it to apply for any loan from the Mortgagees. 3. It did not direct the Mortgagees to remit the Principal Amount into the Westpac Bank Account. The Cheque Directions was signed by Mr Chan without the knowledge and authority of the lawful directors of 183 Eastwood. 4. Mr Chan was not an agent or officer of 183 Eastwood and did not have the authority to sign the Cheque Directions as such. 5. 183 Eastwood did not ratify Mr Chan's acts in applying for the loan or in opening the Westpac Bank Account.
3. By reason of the above, Mr Lim submitted that 183 Eastwood could not be beneficially entitled to the Principal Amount remitted by the Mortgagees.

Mortgagees' submissions

1. The Mortgagees submitted that the answer to the question of "who owned the money deposited into the Westpac bank account in the name of 183 Eastwood" was relatively straightforward - it was 183 Eastwood.
2. As was set out in the Mortgagees' Supplementary Submissions provided by Mr Bedrossian on 9 December 2019, the Mortgagees argued that the funds credited to the Westpac Bank Account were 'owned by' 183 Eastwood (both beneficially and legally): 7. A bank account named in such a way as to identify that it is a trust account is prima facie an account holding an asset (namely the chose in action in respect of the debt owed by the banker to the customer) for the benefit of the name beneficiary. See Re Gross; Ex parte Kingston (1871) 6 Ch App 632… … 9. The aforementioned principle has no different application in respect of the naming of a bank account in favour of a corporate entity (but without any reference to any trust). That is, the bank account (or the entitlement to the funds recorded as credits in that account) is presumed to 'belong to' the named account holder. 10. Even if the relevant question is framed as being one relating to the identity of the person/entity beneficially entitled to the funds deposited by the Mortgagees into that Westpac bank account in the name of 183 Eastwood, the answer remains the same. The monies were, legally and beneficially, owned by 183 Eastwood. This is because they were sourced from a borrowing secured against real property owned by 183 Eastwood and because they were paid into an account held in the name of 183 Eastwood.
3. The Mortgagees submitted that although this point was unnecessary to their case, the advance of monies into a bank account in the name of "183 Eastwood Pty Ltd" did constitute an advance of monies to 183 Eastwood. As was set out by Mr Bedrossian's submissions in respect of the Separate Question (emphasis in original): "48. Whether properly or improperly, Mr Chan took control of 183 Eastwood itself, being the separate legal entity which was and is registered under the Corporations Act 2001 (Cth). 49. It is entirely inaccurate to say that a bank account, which was opened in the name of 183 Eastwood, but at a time that the company was under control of a person who may not have been validly appointed as its director, is not actually a bank account of 183 Eastwood. For one thing, that would raise perilous (and illogical) questions as to whether property acquired in the name of corporate entities while under the control of disputed directors was ever really the property of that company. 50. Without intending to be unduly repetitive, it must be emphasised that Mr Cahn did not pretend to be 183 Eastwood. He really did utilise the legal entity known as 183 Eastwood. 51. In the above circumstances, the monies advanced by the Mortgagees was actually paid to 183 Eastwood, thus meaning that 183 Eastwood bore a primary and indisputable obligation, under the terms of the Mortgage and Memorandum, to pay the Principal Amount to the Mortgagees, with such obligation being secured by the Registered Mortgages.

Registrar General's submissions

1. Mr Altan set out the law and principles in support of the relationship between a bank and customer being essentially in contract. His submissions put that the corollary of this relationship is that: "[t]his necessarily implies an intention to contract which, if lacking, then a "customer" will not be able to claim the benefit of a banker-customer contract even though an account may have been opened in the "customer's" name: Robinson v MidLands Bank Ltd (1925) 41 TLR 402; Stoney Stanton Suppliers (Coventry) Ltd v MidLands Bank Ltd [1966] 2 Lloyd's Rep 373."
2. Mr Altan submitted that in circumstances where there was no contract between 183 Eastwood and Westpac, it cannot be said that the Westpac Bank Account belonged to 183 Eastwood: "…If a "contract" is purported to be entered into between a fraudster impersonating A, with B, any such contract is void and cannot under the law of contract impose any obligation on A or B. There would be no privity in that scenario with A, who knew nothing of the existence of the purported contract, and there would be no meeting of minds as to the terms of any such purported contract. A is a stranger to that purported contract and its terms. Equally, B could not be compelled to perform any obligations under that purported contract. B has not promised anything to A if in truth, any promise was made to someone impersonating A."
3. Further, Mr Altan submitted that nothing Mr Chan did in his dealings with Westpac could be traced back to the authority of 183 Eastwood: "In the instant case, there was no apparent authority given by 183 Eastwood. 183 Eastwood did nothing to represent or put Chan in a position to represent that he had the authority of 183 Eastwood to enter into a "contract" with Westpac and to open an account in the name of 183 Eastwood with Westpac."
4. He went on to submit: "There was a purported contract brought about by the fraud of Chan. Chan, by fraud, caused an account to be opened, and by fraud he caused money to be paid into it. He is personally liable to the Mortgagees for those fraudulent acts. That money has at all times, even when paid into the Westpac account as directed by Chan, remained the Mortgagee's money, due to the fraudulent circumstances in which it came to be paid. The mere payment by the Mortgagees of the monies into the account fraudulently opened by Chan in the name of 183 Eastwood did not result in any way in 183 Eastwood, which had no knowledge of the account, becoming entitled to that money. … There is no basis upon which 183 Eastwood, on the other had [sic], which had no knowledge the account or the monies and did nothing at all to cause the account to be opened or the monies deposited into, can be said to have been so entitled. There mere opening of a fraudulent account in its name did not give 183 Eastwood any such entitlement."

Submissions on Mr Chan's guarantee

1. During the hearing on 28 November 2019, Mr Altan raised for consideration whether the absence of the guarantor having an interest in the Lands meant that, insofar as the Mortgagees' rights may arise by virtue of the guarantee obligations of Mr Chan, the Mortgages do not in fact achieve indefeasibility.

Registrar General's submissions

1. It is convenient first to set out the Registrar General's submissions on this issue.
2. In Mr Altan's supplementary submissions, it was advanced that even if it is true (which it denied) that Mr Chan was a Debtor because he is a guarantor and had a contingent liability, his obligation as a guarantor was not secured by the Mortgages. Further, in any event, Mr Chan had no liability as a guarantor because the Lender did not "advance the Principal Amount to the Borrower" as required by Clause 28.3(a) of the MCP.
3. Mr Altan submitted in paragraph [15] of his written submissions on this issue that: "…it is well established that not every term of every document which is registered obtains indefeasible status, and that it is only the provisions which "delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to the registered proprietor" which become indefeasible upon registration: PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679. A personal covenant, such as a guarantee, does not "delimit or qualify the estate" in Lands and any provision in the Mortgages which purport to secure the obligations of Chan as guarantor are, as perfectly enforceable as they may otherwise be, accordingly, not capable of obtaining indefeasible status. A guarantee may be included in a mortgage, but gets no greater status by being registered: Perpetual Executors and Trustees Association of Australia Ltd v Hosken (Registrar of Titles) (1912) 14 CLR 286 at 294.

Plaintiffs' submissions

1. No oral submissions were advanced for the plaintiffs on this issue during the 28 November 2019 hearing. In the supplementary submissions of 183 Eastwood prepared by Mr Lim, the plaintiffs adopted and supported the submissions of the Registrar General, contending that Mr Chan's personal liability under the guarantee was not rendered indefeasible by registration of the Mortgages.

Mortgagees' submissions

1. The Mortgagees argued that this was an irrelevant issue, with none of the contentions put forward by the Mortgagees relying upon Mr Chan's personal guarantee being indefeasible.
2. Nevertheless, Mr Bedrossian submitted that the question properly put was not whether the personal guarantees of Mr Chan are rendered indefeasible, but "whether the definition of the monies and obligations secured under the Registered Mortgages included the personal obligations undertaken by Mr Chan". Mr Bedrossian submitted it was clear that the definition of monies secured by the Mortgages encompassed the monies owed by Mr Chan personally, thus causing the Lands to be security for their payment to the Mortgagees: "18. …The obligations of Mr Chan under that guarantee are primary obligations (including because Mr Chan is a "Debtor") and those obligations themselves fall within the definition of monies secured by the Registered Mortgages. As put in previous written submissions on behalf of the Mortgagees: (a) By clause 2.1 of the Memorandum…, the Registered Mortgages operated as security also for "the performance, including the punctual performance, of all of the Obligations." (b) "Obligation" is defined… as meaning "all obligations, covenants, conditions, stipulations, warranties, guarantees, undertakings, assurances and agreements… arising under or imposed by this Mortgage…""
3. Finally, the following submissions were advanced by the Mortgagees in respect of the Separate Question, which also go to the nature of Mr Chan's personal obligations secured by the Mortgages: 54. Paragraphs [80]-[82] of the Plaintiff's Submissions contend that Mr Chan's personal obligations are not secured by the Registered Mortgages. That argument must fail. For example: (a) Mr Chan executed the Mortgage document (specifically, the Schedule A document) as "Guarantor/Debtor/Mortgagor" (quite apart from his purported execution of the document on behalf of 183 Eastwood). Consequently, there is an express identification that Mr Chan's status as a party to the Registered Mortgages was as more than just the purported director of 183 Eastwood, but also as the Debtor. (b) In any event, by reason of the express terms of clause 2.1(b) of the Memorandum… and the broad definition of "Obligations"…, the "Guarantor's" obligations are also secured by the Registered Mortgages. (citations omitted)

Consideration

1. With one exception (see paragraph [157] below), the Court generally accepts the submissions put on behalf of the plaintiffs and the Registrar General. However, it seems to me that the Separate Question is most conveniently answered by considering the following issues: 1. Were any funds advanced to or at the direction of 183 Eastwood under the Mortgages? 2. The significance of the "Overriding Intent" 3. The definition of "Debtor" 4. Is anything secured by the Mortgages? 5. Mr Chan's guarantee

Were any funds advanced to or at the direction of 183 Eastwood under the Mortgages?

1. This might be described as a mixed question of fact and law. The undisputed primary fact is that the Mortgagees, purportedly pursuant to the Mortgages, paid $3,791,266.68 into the Westpac Bank Account. However, was this a payment to or at the direction of 183 Eastwood under the Mortgages? In arriving at the Court's negative answer to this question, it is necessary to address the parties' arguments about corporate personality and the nature of the Westpac Bank Account.
2. Turning first to the question of corporate personality, in my respectful opinion, it is necessary to begin with the basic principle that a company is a separate legal entity which comes into existence as a body corporate upon registration (Corporations Act 2001 (Cth) (the "CA"), s 119) and which has the legal capacity and powers of a natural person and all the powers of a body corporate (CA, s124). This status has the consequence that a company can only act by agents, who may themselves be natural or corporate persons. For the company to be bound by the acts of an agent, the agent must have the actual or ostensible authority of the company to do the relevant act.
3. The most familiar agents of a company are its directors and officers. The facts of this case do not require consideration of the board as an organ of the company. Setting aside for the sake of simplicity the extended definition in the CA of "director", generally a director is a natural person appointed to be a director in accordance with the CA or the company's constitution. It is an unremarkable exercise of a director's agency to open a bank account on behalf of the company of which they are a director.
4. In this case, there is no doubt that Mr Chan was not a duly appointed director of 183 Eastwood and had neither actual nor ostensible authority to do anything on its behalf. Put simply, his acts were not those of 183 Eastwood and could not, in law, be attributed to 183 Eastwood. Contrary to the argument put for the Mortgagees, Mr Chan was not 183 Eastwood, and when Mr Chan did something it was not 183 Eastwood doing it. For example, he did not have the actual or ostensible authority of 183 Eastwood to receive any advance from the Mortgagees on its behalf or sign the Cheque Directions on its behalf. Critically for the purposes of this case, nor did Mr Chan have any such authority to establish the Westpac Bank Account on behalf of 183 Eastwood.
5. It is convenient at this point to record that during the course of argument Mr Bedrossian made it clear that the Mortgagees were not relying on the assumption under ss 128 and 129 of the CA. They were, with respect, correct not to do so. For example, because the Officer Change Notice was signed by Mr Chan - who was not a properly appointed director or officer of 183 Eastwood - and submitted on his instructions, the information in those notices was not "information provided by the company" for the purposes of s 129(2) of the CA and therefore could not be relied upon: Wood v Inglis [2008] NSWSC 1147; (2008) 68 ACSR 420 at [90] - [95] per Barrett J (as his Honour then was).
6. Turning to the legal nature of a bank account, the Court accepts the Registrar General's submissions set out in paragraphs [96] to [99] above. It is something of a legal misnomer to speak of "owning a bank account" because a bank account is not a type of property. A bank account is, in its basic form, a series of entries in the books of account of a bank recording credits and debits made to the account of a customer in accordance with the terms of the banker-customer contract. While the name of the account may include the name of the customer, that is not conclusive, but will be prima facie, evidence that the named customer is a party to the banker-customer contract. Similarly, the description of an account as being "X in trust for Y" is not conclusive, but will be prima facie, evidence of the existence of a trust or that X is the trustee. However, such evidence can be rebutted. Just because an account is opened in someone's name does not necessarily mean that in law it is "their" bank account or that they are legally entitled to be paid the funds in that account where there is a credit balance.
7. In this case the banker-customer contract which gave rise to the Westpac Bank Account was not between 183 Eastwood and Westpac because Mr Chan had neither actual nor ostensible authority to enter into such a contract by opening an account in 183 Eastwood's name. Although not strictly relevant to this part of the analysis, it can be noted that even as between Westpac and 183 Eastwood, Westpac would not have been able to rely on the publicly available information that Mr Chan was a director of 183 Eastwood for the reasons identified in paragraph [113] above.
8. I accept the Registrar General's submission that this case is on all fours with two English Court of Appeal cases where moneys were paid into a bank account set up by a fraudster in the name of a company: Robinson v Midland Bank Limited (1925) 41 TLR 402 and Stoney Stanton Supplies (Coventry) Ltd v Midland Bank Limited [1966] 2 Lloyd Rep 373. The conclusion of Danckwerts LJ in the latter case (at 385) applies equally to the case at bar: "…the moneys which were paid into the Bank were not the company's moneys and there was never any relationship of customer and banker in regard to those moneys between the plaintiff company and the defendant bank".
9. The payment by the Mortgagees into the Westpac Bank Account was not a payment to 183 Eastwood because there was no banker-customer contract in place between Westpac and 183 Eastwood. Nor, to the extent the money fell into the hands of Mr Chan, could it be said that the money was thereby paid to 183 Eastwood. Mr Chan had no authority to receive it on behalf of 183 Eastwood. In the absence of a banker-customer contract between Westpac and 183 Eastwood, the money which the Mortgagees paid into the Westpac Bank Account remained the Mortgagees' until it was presumably withdrawn by Mr Chan purportedly as a director of 183 Eastwood.
10. This analysis means that for the purposes of the definition of "Principal Amount" in the MCP, there was never an "amount advanced by the Lender to the Debtor, the repayment of which is secure by this Mortgage". As I explain further below (see paragraph [139] below), the "Debtor" in this expression must mean the "Borrower" (183 Eastwood).
11. Even if this last conclusion is wrong, such that "Debtor" in this definition includes Mr Chan, this still would not mean there was an advance to Mr Chan. The definition on its proper construction must mean an advance under the Mortgage and it would be a nonsense to conclude that is what occurred in this case. Even if he was relevantly the "Debtor", the funds were not advanced to him under the Mortgage. Given the conclusion in paragraph [117] above that the money remained the Mortgagees' once paid into the Westpac Bank Account and on the facts agreed between the parties for present purposes, Mr Chan stole it. It was not, and could not on any view be said to have been, "advanced" to him.
12. It also follows from the foregoing that the Court accepts the plaintiffs' argument that there was never a "Commencement Date" and, therefore, no "Final Repayment Date". This means that 183 Eastwood was never in breach of a repayment obligation that entitled the Mortgagees to exercise their power of sale over the Lands. Nor was there any such breach which would enliven Mr Chan's obligations as guarantor.
13. This analysis means that, in the events which happened, the Mortgages did not secure anything and that it is 183 Eastwood and not the Mortgagees that is entitled to the proceeds of sale of the Lands currently paid into Court. This is sufficient to dispose of the Separate Question, but in deference to the arguments made and the possibility the matter may go further, I will set out my conclusions on the other issues.

The significance of the "Overriding Intent"

1. Before turning to the proper construction of the Mortgages, two preliminary issues should be addressed: the significance of the "Overriding Intent" and the definition of "Debtor".
2. It will be recalled that Clause 1.3 of the MCP provided that "This Memorandum and each of its terms shall be construed in accordance with and to give full effect to the Overriding Intent". Clause 1.1 of the MCP included: "Overriding Intent" means the overriding intent of the parties in entering into this Mortgage namely that the Lender will be able to recover from the Debtor and/or from the Mortgaged Property any and all amounts forming part of the Secured Money or any other amounts that the Lender is entitled to under this Mortgage".
3. In my view this clause adds nothing, or almost nothing, to the approach the Court takes to the construction of commercial contracts at general law, which necessarily takes into account the background and purpose of the contract objectively determined (see paragraph [62] above). Nevertheless, I have consciously taken it into account in construing the Mortgages. Clause 1.3 is an indication of the agreement of the parties as to how they are to be taken objectively as having understood their agreement and, as such, is an indicium for the Court in arriving at the proper construction of the Mortgages in accordance with the objective theory of contract. However, it is not a licence to abandon the well understood approach to contractual interpretation to reach an outcome that does not accord with that approach. In other words, if the Court comes to the view that, properly construed, X means "black", Clause 1.3 does not then require the Court to find it means "white" just because "white" may be thought better to reflect the "Overriding Intent".

The definition of "Debtor"

1. Because much of the argument focussed on "Debtor(s)" as identified in Schedule A, this aspect deserves particular attention. In Schedule A, "Debtor(s)" is recorded as "183 Eastwood Pty Ltd ACN XXX XXX XXX, Scott Chan". One question which can be immediately resolved is to express the Court's conclusion that the designation refers to 183 Eastwood and Mr Chan as two separate persons. It does not mean "183 Eastwood: attention Scott Chan". A straightforward and persuasive reason for this conclusion is that only four lines before in Schedule A, 183 Eastwood is listed as the Borrower without any reference to Mr Chan.
2. That point having been cleared away, it nevertheless seems to me, with respect, that the parties may have sometimes focussed their submissions too much on how the Debtors were listed in Schedule A rather than how "Debtor" was defined in the Mortgage as set out in clause 1 of the MCP. That definition is (emphases added): ""Debtor" means the Borrower and/or the Mortgagor as the case may be: (a) Where the Borrower and the Mortgagor are the same person the expression means both the Borrower and the Mortgagor. (b) Where the Borrower and the Mortgagor consists of more than one person, the liability of those persons under this Guarantee shall be joint and several."
3. In approaching this definition it must not be forgotten that the definition is itself part of an interpretation clause prefaced by the words "In the Mortgage, unless the context otherwise requires". These words are generally to be understood as a strong contractual indication that the definition is to be applied in almost all circumstances: Sir K Lewison, D Hughes "The Interpretation of Contracts in Australia", Law Book Co, 2012, 199-200.
4. The most important point to note for present purposes is that the collocation of "and/or" and "as the case may be" makes it clear that what "Debtor" means in any particular clause of the mortgage depends upon its context. The expression "and/or" was analysed by Santow J in Edmund-Jones Pty Ltd v Australian Women's Hockey Association Inc (1999) NSWSC 1014 at [211]-[214]. His Honour, one of Australia's pre-eminent commercial solicitors before his appointment to the Bench, had no difficulty in concluding "and/or" had a clearly understood meaning in commercial agreements, despite longstanding criticism of it as inelegant or worse. That meaning is "X or Y or both". In the context of the Mortgages, this meant that, depending on the context, "Debtor" could mean the Borrower (183 Eastwood) or the Mortgagor (183 Eastwood and Mr Chan), or the Borrower and the Mortgagor (although in this case that combination yields the same result as Mortgagor).
5. Neither of the sub-paragraphs appended to the definition of "Debtor" are relevant to the present case. Sub-paragraph (a) does not apply because the Borrower and the Mortgagor are not the same person, given that Schedule A defines the Mortgagors to mean the Debtors (183 Eastwood and Mr Chan) whereas the Borrower is only 183 Eastwood.
6. Sub-paragraph (b) also does not apply because, while the Borrower and the Mortgagor consist of more than one person, this case does not give rise to any need to apply the somewhat curious words that follow (emphasis added): "The liability of those persons under this Guarantee shall be joint and several". While it does not matter for present purposes, it is not easy to see how the reference to "this Guarantee" makes sense given that the only guarantor was Mr Chan. This is not a drafting mystery which the Court is required to solve.
7. The importance of fixing on the definition of "Debtor" in Clause 1 of the MCP rather than the presence of that word in Schedule A is emphasised when it is appreciated that unlike the definitions of "Mortgagor(s)" and "Borrower(s)", there is no definition of "Debtor" by reference to Schedule A, i.e. there is no definition to this effect: ""Debtor" means the Person named in Schedule A as the Debtor". There are definitions in the MCP for "Debtor's Address" and "Debtor's Email Address" as being specified in Schedule A. However, those matters do not in fact appear in Schedule A. The sole significance of the designation of "Debtor(s)" in Schedule A is the definition that "Mortgagor(s)" means the Debtor(s)".
8. Having drawn attention to this definition of "Debtor", it is then necessary to identify which of the three possible meanings of "Debtor" applies in any particular place. This will primarily depend upon the context in which it appears. However, that context must itself be assessed by reference to the nature of the commercial transaction which the Mortgages are intended to record, that intention being itself objectively determined, and taking into account Clause 1.3. All of the evidence points to only one conclusion in that regard, being that the Mortgages are intended to give effect to an entirely familiar and unremarkable transaction: a loan by a lender to a borrower company secured by, first, mortgages over the company's land, and, second, a guarantee by the company's (purported) director. This understanding is confirmed by clause 28.3(a) of the MCP (the guarantee) that "the Guarantor [Mr Chan]…enters into this Guarantee because it has a desire that the Lender [the third to fifth defendants] advance the Principal Amount to the Borrower [183 Eastwood only] under this Mortgage". The items in square brackets record the designations given to those parties in Schedule A. This understanding has informed the Court's approach to construing "Debtor" in any particular clause of the Mortgages.

Is anything secured by the Mortgages?

1. In the events which have happened, answering this question will be determined by asking whether, on their proper construction, the security constituted by the Mortgages has effect even when, as the Court has found, no funds were in fact or law advanced to 183 Eastwood under the Mortgages?
2. The Court accepts the submissions put on behalf of the plaintiffs as to why, on their proper construction, the Mortgages do not create an indefeasible security interest over the Lands in circumstances where there has been no advance to 183 Eastwood. However, the Court primarily takes a simpler route to reach that conclusion which focuses upon precisely what it is, on their proper construction, the Mortgages secure. In setting out that reasoning in what next follows, it will also be apparent why the Court rejects the Mortgagees' arguments based on the use of the word "stipulated" in the definition of "Principal Amount" in clause 1.1 of the MCP.
3. Turning first to the three page mortgage document (see paragraph [57] above), it specified that the "mortgagor mortgages the estate and/or interest in Lands specified in its mortgage to the mortgagee as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage". It follows that it is necessary to identify what is the "debt or liability described in the terms and conditions set out or referred to in this mortgage". Although a few lines later in "Redacted Schedule A", the "Principal Amount" is listed as $4,000,000, this does not in and of itself identify a debt or liability. It is necessary to look elsewhere.
4. That "elsewhere" is clause 2.1 of the MCP: "2.1 The Mortgagor hereby grants the Lender a mortgage of the Mortgaged Property to secure: (a) the payment (including the punctual payment) of the Secured Money or any part thereof; and (b) the performance, including the punctual performance, of all the Obligations."
5. It will be recalled that the "Secured Money" is defined in Clause 1.1. of the MCP to mean "the aggregate of all monies which the Debtor is, at any time may become, actually or contingently liable to pay the Lender for any reason or on any account whatsoever and includes, without limitation: (1) The Principal Amount". It is an "all monies" mortgage.
6. In their argument, the Mortgagees did not suggest that there was any particular sum which the Court should consider other than the "Principal Amount".
7. Two parts of the definition of "Principal Amount" are relevant. The first is that in clause 1.1 of the MCP, "Principal Amount" is defined to mean "the amount stipulated in Schedule A as the principal amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage". In this context, for the reasons given in paragraphs [125] to [132] above, in my opinion "Debtor" must mean only 183 Eastwood (the Borrower). (If I am wrong both about this and in my conclusion in paragraph [117] above that no money was "advanced" to Mr Chan, I nevertheless consider the possibility that it also means Mr Chan in paragraphs [151] to [157] below.)
8. However, I do not accept that "stipulated" has the effect for which the Mortgagees contend, being that the stipulation means that there is no need to prove that any amount has been advanced to 183 Eastwood. I do not accept that argument because it does not read "stipulated" in context. That context is provided by the words which follow, being "in Schedule A as the Principal Amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage" (emphasis added).
9. As it happens, and without suggesting that I am bound by the decision given that every contract must be construed according to its terms and in its context, I consider that the significance attached to the word "repay" by the Court of Appeal in Perpetual Trustees v Cox (see paragraph [69] above) compels the same result in the case at bar. It is the use of the word "repayment" which, in my respectful view, makes it clear that the reference to an amount "advanced by the Lender to the Debtor" means an amount that has actually been advanced. If the amount had not in fact been advanced, then it would make no sense to talk about its "repayment" being secured by the Mortgage.
10. This construction is fortified by the balance of the definition, which provides that if no amount is specified in Schedule A, then the expression is to mean "any amount advanced by the Lender to the Debtor …". This must refer to an actual amount that had been advanced because only such an amount would be capable of ascertainment for the purposes of enforcement. In reaching this conclusion, I make four further observations.
11. First, I accept as correct the Mortgagees' explication of the meaning of "stipulated" as "specified".
12. Second, I do not think my conclusion is in any way affected by the further stipulation or specification of $4,000,000 as the "Principal Amount" in Schedule A.
13. Third, the construction which the Court has preferred accords with the approach identified by the High Court in Electricity Generation Corporation (see paragraph [62] above). A reasonable business person looking at the Mortgages would, with or without Clause 1.3, have understood that their commercial purpose was to provide for a loan to be made to the borrower in return for security being provided to the lender (see paragraph [132] above). I do not think that such a reasonable business person would have considered it to be a sensible or commercial outcome that the security would be effective to give rights over the Lands to the Mortgagees even if no advance had been made to anyone at all or if, by error or otherwise, the funds had been provided to someone other than the intended borrower.
14. Fourth, I do not think that the requirement to construe the MCP "in accordance with and to give full effect to the Overriding Intent" warrants a different construction to that which I have reached. That is because the "Overriding Intent" relates to "any and all amounts forming part of the Secured Money or any other amounts that the Lender is entitled to under this Mortgage". Setting aside the circularity of the reference to "Secured Money", as I have set out in paragraph [124] above, I do not understand the requirement to give effect to the "Overriding Intent" to require words or phrases to be given meanings which they just cannot bear. With or without the "Overriding Intent", the use of "repayment" in the definition leads to the same interpretative outcome.
15. Against the possibility that this matter proceeds further, I should record that if I had accepted the construction advanced on behalf of the Mortgagees, I would necessarily have found that those provisions of the Mortgages had the benefit of the indefeasibility created by s 42(1) and (2) of the Act. That is because, pursuant to s 56 of the Act, a mortgage in the Torrens system operates as a statutory charge over the Lands or estate or interest in the Lands to the extent of the debt payment of which it secures. If what has occurred in this case fell, on its proper construction, within the definition of "Secured Moneys" as comprised by the "Principal Amount" having been advanced to 183 Eastwood, then those terms would be indefeasible because they "delimit or qualify the estate or interest or are otherwise necessary to assure that estate or interest to" the Mortgagees: PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679 per Giles J.

Mr Chan's guarantee

1. The final issue arises from the Mortgagees' submission that the Mortgages secure Mr Chan's obligations as guarantor.
2. The first point to note is that, for the reasons set out in paragraph [119] above, the funds were never advanced to Mr Chan pursuant to the terms of the Mortgage. Against that background, these further questions need to be answered: 1. Does Mr Chan have any obligation as guarantor in the events which have happened? 2. If the answer to question (1) is "yes", are those obligations secured by the mortgages? and 3. If the answer to (2) is "yes", does that obligation have the benefit of indefeasibility?
3. Mr Chan's obligations as guarantor are set out in clause 28 of the MCP: "28.5 The Guarantor agrees to guarantee the Lender and to indemnify the Lender as to: (a) the payment by the Debtor of the Secured Money (or any part thereof) in accordance with the terms of this Mortgage; (b) the performance and compliance by the Debtor with all of the Obligations. 28.6 The Guarantor agrees that if the Debtor fails, refuses or neglects to: (a) pay the Secured Money (or any part thereof) to the Lender; or (b) meet any of the Obligations - the Lender may demand that the Guarantor pay to the Lender: (i) the amount the Debtor fails to pay to the Lender; and/or (ii) any amount that will result in the Lender being fully indemnified for the Debtor's failure to meet any of the Obligations. 28.7 The Guarantor agrees that: (a) to the extent (if any) that this Guarantee may be void or unenforceable for any reason; or (b) if any of the Obligations of the Debtor pursuant to this Mortgage may not be or cease to enforceable against the Debtor - the Guarantor agrees to indemnify the Lender in respect of any loss or damage, costs or expenses suffered by or occasioned to the Lender as a result of any the matters in little (a) or (b) above."
4. The answer to the first question posed in paragraph [149] above is "no". Conformably with the view which I have expressed in paragraph [132] above, the proper construction of "Debtor" wherever it appears in the three sub-paragraphs just quoted, is a reference to the "Borrower", being 183 Eastwood. This is because in these clauses it would make neither commercial nor legal sense for there to be any identity between the "Guarantor" and the "Debtor". Because the funds have not been advanced in accordance with the terms of the Mortgage and no repayment obligation has arisen (see paragraphs [117] to [120] above), no matter has arisen in respect of which Mr Chan has a liability as Guarantor under the Mortgages. On the assumption that Mr Chan has fraudulently misappropriated the funds purportedly advanced under the Mortgages, Mr Chan has obligations at general law to repay that amount to the Mortgagees. However, they are not obligations derived from the Mortgage and do not meet the definition of "Obligation" in the Mortgages (see paragraph [59] above).
5. It is therefore not necessary for me to answer the other two questions posed in paragraph [149]. However, I will do so against the possibility that my answer to the first question is incorrect.
6. Assuming, contrary to the conclusion I have just expressed, Mr Chan has obligations as guarantor under the Mortgages, the next question posed in paragraph [149] above is whether those obligations are secured by the Mortgages. The answer to this depends upon clause 2.1 of the MCP: "2.1 The Mortgagor hereby grants to the Lender a mortgage of the Mortgaged Property to secure: (a) the payment (including the punctual payment) of the Secured Money or any part thereof; and (b) the performance, including the punctual performance, of all of the Obligations."
7. It may be accepted that under Schedule A, Mortgagor means the Debtors, prima facie being 183 Eastwood and Mr Chan. However, even allowing for the limiting effect of the expression "unless the context otherwise requires" (see paragraph [127] above) and the obligation in clause 1.3 to give full effect to the "Overriding Intent", in my respectful view the context plainly requires "Mortgagor" to be understood as 183 Eastwood, the Borrower. That is because it is only 183 Eastwood that can grant the mortgage over the Lands. Any other construction makes no commercial sense.
8. In my view, it also follows that what is secured by the grant of the Mortgages by 183 Eastwood is the payment by 183 Eastwood of the Secured Money and the performance by it of its Obligations for the purposes of clauses 2.1(a) and (b). The Court is fortified in this construction by the fact that as guarantor, Mr Chan is not required to pay the "Secured Money". His obligation under clause 28.6 is that if 183 Eastwood does not pay the "Secured Money", then under clause 28.6 Mr Chan must pay "the amount that the Debtor [which in this context must mean 183 Eastwood only as Borrower and not Mr Chan - see paragraph [151] above] fails to pay to the Lender" and "any amount that will result in the Lender being fully indemnified for the Debtor's [which, again, in this context must mean 183 Eastwood only as Borrower and not Mr Chan - see paragraph [151] above] failure to meet any of the Obligations". This division accords with the structure of clause 28.6 in 28.6(a) and (b) and then (i) and (ii) reflecting the purpose of the grant of security in clause 2.1, being in relation to the Secured Money (clause 2.1(a)) and the performance of the Obligations (clause 2.1(b)).
9. Finally, if I am wrong in relation to both of the foregoing conclusions, I turn to the question of indefeasibility. If Mr Chan does have any obligations as guarantor under the Mortgages, then the satisfaction of those obligations is secured by the Mortgages against the Lands (or the proceeds of sale of the Lands) because what, on this (contrary) view of the proper construction of clause 2.1, is included as being the subject of the security extends to Mr Chan's obligations as guarantor, because it "delimit(s) or qualif(ies) the estate or interest or (is) otherwise necessary to assure that estate or interest to" the Mortgagees: PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679 per Giles J.
10. In expressing this alternative conclusion if my primary views are wrong, I do not accept the plaintiffs' submission on this point. I acknowledge this conclusion is contrary to the view that generally guarantees are collateral personal obligations that do not obtain the benefit of indefeasibility. This view derives from Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 (see, for example, at 433 per Starke J) as noted by Gibbs J (as his Honour then was) in Mercantile Credits Ltd v Shell Co of Australia Ltd (1975-1976) 136 CLR 326 at 343. However, neither of those authorities suggests that the question is anything other than one of the proper construction of the relevant instrument in a given case. On this alternative hypothesis, the proper construction of clause 2.1 would have the effect set out in the preceding paragraph.

Conclusion

1. The Separate Question will be answered: "No - the Registered Mortgage does not secure anything in favour of the Mortgagees against the Lands and against the proceeds of sale of the Lands". The parties will be given an opportunity to consider what other orders should be made, including as to costs. 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: 22 April 2020