Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors (No 2)

1. [1]

   Between October and December 2019, the Court received submissions (oral and written) in connection with this dispute concerning entitlement to the proceeds of sale of the Lands currently paid into Court.

2. [2]

   The parties had agreed that their dispute could be resolved by the Court answering this separate question:

3. [3]

   By its judgment published on 22 April 2020, the Court answered the question “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”: Winau Aust Pty Ltd & Ors v LCC Property Development Pty Limited & Ors [2020] NSWSC 434 (the “Principal Judgment”).

4. [4]

   These reasons assume a familiarity, and should be read with, the Principal Judgment as an addendum to that judgment. Defined terms in the Principal Judgment have the same meaning in these reasons.

5. [5]

   The parties subsequently consented to a regime whereby they could make brief, additional written submissions to enable the resolution of a submission which the Mortgagees contend was made by them at the hearing which led to the Principal Judgment, but which was not dealt with in the Principal Judgment (the “Indefeasible Acknowledgement Argument”). In summary, that submission was that clause 2.3 of the MCP contained a freestanding acknowledgement of receipt by 183 Eastwood of the Principal Amount, which clause obtained the benefit of indefeasibility upon registration so that the Mortgages secured the Mortgagees’ right to repayment of the Principal Amount against the Lands. Clause 2.3 of the MCP provided:

6. [6]

   The Court has now received those additional written submissions from each of the plaintiffs, Mortgagees and Registrar General, prepared by Mr F Lim, Solicitor, Mr V Bedrossian of Counsel and Mr H Altan of Counsel respectively. As with the Principal Judgment, the other parties to these proceedings took no part in this aspect of the proceedings.

7. [7]

   The Court does not accept the Mortgagees’ Indefeasible Acknowledgement Argument because, on its proper construction, clause 2.3 of the MCP is not an acknowledgement of receipt of the Principal Amount and is silent on the question of repayment. Clause 2.3 is a “performance clause” (as opposed to an “acknowledgement clause”) setting out the basis of 183 Eastwood’s agreement therein referred to, which is conditional upon receipt of the Principal Amount. “Received” in clause 2.3 means “actually received” or, if that be incorrect, “to be received”. As the Court found in the Principal Judgment, 183 Eastwood did not, in fact or law, ever receive the Principal Amount (or any other sum) from the Mortgagees.

8. [8]

   Accordingly, the Court’s answer to the Separate Question remains “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”.

Procedural history

1. [9]

   Two days after publication of the Principal Judgment – and before the Court had made any orders giving effect to the Principal Judgment – the solicitors for the Mortgagees inquired by email to my Associate, copied to the other active parties, whether I would make directions in relation to a proposed notice of motion that sought:

2. [10]

   It will be recalled (see paragraph [8(6)] of the Principal Judgment) that the matter first came before me as a strike out or summary judgment application by the Mortgagees. It is true to say that in their respective written submissions for that application, the parties briefly engaged on clause 2.3 of the MCP. The Mortgagees referred to it in their submissions as part of their argument (without suggesting it was dispositive in and of itself) and the plaintiffs responded by referring to Perpetual Trustees Victoria Limited v Cox [2014] NSWCA 328 (“Perpetual Trustees v Cox”) to the effect that a clause such as clause 2.3 would not be construed as extending to moneys not in fact received by 183 Eastwood.

3. [11]

   In their written submissions in chief for the hearing of the Separate Question on 28 November 2019 (which is the subject of the Principal Judgment), the plaintiffs set out clause 2.3 of the MCP and went on:

4. [12]

   The Mortgagees’ written submissions for the hearing of the Separate Question, prepared in response to the plaintiffs’ submissions, made no reference to clause 2.3 of the MCP. In particular, it did not feature as part of either the Mortgagees’ “short construction point” (see Principal Judgment at [76]) or “longer construction point” (see Principal Judgment at [79]). Given that silence, it is unsurprising that both the subsequent submissions of the Registrar General and the plaintiffs’ submissions in reply made no reference to clause 2.3 of the MCP.

5. [13]

   At the hearing on 28 November 2019, Mr Bedrossian referred to clause 2.3 of the MCP in passing at T15:46 and T16:4-5. However, most pertinently for present purposes, after referring to what I understood to be his “short construction point” and “longer construction point”, Mr Bedrossian (at T2:34) raised what he described as, in effect, another way to get to the end result for which he contended. This required him “asking my friends a question through your Honour” (T2:35).

6. [14]

   Mr Bedrossian then referred to Mr Lim’s submissions and this exchange occurred (T3.17-T4.14):

7. [15]

   After some further exchanges, Mr Bedrossian then put the submission which it was said the Court had failed to consider in the Principal Judgment (T10:20-40):

8. [16]

   Mr Bedrossian again referred to this argument (without expressly referring to clause 2.3) at T28:4-43.

9. [17]

   It was common ground that neither the plaintiffs nor the Registrar General responded to Mr Bedrossian’s specific argument about clause 2.3 of the MCP in their oral submissions at the hearing.

10. [18]

    Because:

    1. (1)

       the Indefeasible Acknowledgement Argument had been sufficiently raised by Mr Bedrossian’s oral submissions set out in paragraph [15] above;

    2. (2)

       the Principal Judgment did not engage, in terms, with what is now framed as the Indefeasible Acknowledgement Argument; and,

    3. (3)

       no final orders had yet been made to give effect to the Principal Judgment,

11. [19]

    The course which the Court suggested was:

    1. (1)

       The parties identify with precision in writing those parts of their submissions, whether written or in the transcript, which dealt with the Mortgagees’ contention that clause 2.3 of the MCP contained an acknowledgement of receipt by the mortgagor company of the Principal Amount, which clause obtained the benefit of indefeasibility upon registration; and

    2. (2)

       The Court issue a supplementary judgment dealing expressly and only with that contention.

12. [20]

    After some consideration, the Court’s suggestion was refined to the parties agreeing to a timetable which I ordered on 27 April 2020 for the filing and service of concise, additional written submissions directed solely to the Indefeasible Acknowledgement Argument (referred to in those orders as the “limited issue”).

13. [21]

    For completeness, I should record that there was some debate in the parties’ submissions about whether what was being done was under UCPR Pt 36 r 36.16 or r 36.17 (the latter being the “slip rule”). Given the parties consented to what occurred, it is not necessary to resolve this issue. However, it seems to me clear that where a Court inadvertently does not consider a party’s argument, that is an error or failure that is beyond the clerical or similar error covered by the slip rule. It is a matter of substance going to the proper fulfilment of the judicial function rather than a mere slip. Such a failure is cured, if necessary, by leave being granted to reopen under r 36.16 or in the inherent jurisdiction. Against the possibility that the matter goes further and the jurisdictional basis assumes significance, the Court will make an order nunc pro tunc granting the parties leave pursuant to r 36.16 to reopen solely in relation to the Indefeasible Acknowledgement Argument by making the submissions referred to in the Court’s orders of 27 April 2020.

Submissions

1. [22]

   The Mortgagees submit that the Indefeasibility Acknowledgement Argument, if accepted by the Court, alters the analysis in the Principal Judgment, is consequently dispositive of the plaintiffs’ claim and alters the conclusion reached in the Primary Judgment to one in favour of the Mortgagees.

2. [23]

   The Indefeasibility Acknowledgement Argument may be summarised as:

   1. (1)

      Where an acknowledgement of the advance of funds is recorded in a registered Torrens title mortgage, the mortgagee obtains an indefeasible entitlement to payment of those monies from the security property.

   2. (2)

      The acknowledgement in clause 2.3 of the MCP is in plain terms:

   3. (3)

      Because both the plaintiffs’ and Registrar General’s position was premised upon there being no “acknowledgement” in the Mortgages, the Indefeasibility Acknowledgement Argument is entirely dispositive of their claims.

3. [24]

   In further support of their position that the Indefeasibility Acknowledgement Argument alters the analysis in the Principal Judgment, the Mortgagees contend that if an advance of funds is acknowledged (as they submit has been done in clause 2.3), then there is no longer any distinction between “pay” and “repay” requirements. The Mortgagees submit that a necessary corollary of this is that the plaintiffs’ reliance upon Perpetual Trustees v Cox is misplaced because:

   1. (1)

      In that case, Leeming JA (with whom Macfarlan and Emmett JJA agreed) placed emphasis upon the requirements for “repayment” set out in that mortgage. In contrast, the MCP instead identifies an obligation to “pay” or make “payment” as evidenced through clause 2.3, as well as the clause “most closely accompanying” it, clause 2.1. This obligation to “pay” or make “payment” creates a freestanding payment obligation upon 183 Eastwood as the mortgagor company (as referred to by Leeming JA at [77]).

   2. (2)

      In addition to the freestanding payment obligation expressly upon 183 Eastwood, the covenant (on the part of the defined Debtor) in clause 3.1 is also in terms requiring 183 Eastwood “to pay the Secured Money” (as opposed to “repay”).

   3. (3)

      In Perpetual Trustees v Cox, the cheque direction was forged, meaning that the advance of funds was not in accordance with the loan agreement. The Mortgagees submit this can be distinguished from the current proceedings where:

4. [25]

   Finally, the Mortgagees submitted that clause 2.3 also disposes of the plaintiffs’ argument that there was never a “Commencement Date” and, therefore, no “Final Repayment Date” (which argument the Court accepted at Principal Judgement [120]). The Mortgagees contend that the acknowledgement of an advance in clause 2.3 means there was a commencement date, which was 31 January 2018, being the earlier of the two dates on which the Loan Amount was remitted into the Westpac Bank Account by the Mortgagees (see Principal Judgment [43]).

5. [26]

   It is convenient to deal with the plaintiffs’ and Registrar General’s submissions together. This is done with no disrespect intended to the careful way in which they were each put by Mr Lim and Mr Altan, but reflects that generally they adopted and supported similar positions in their contention that any further consideration of clause 2.3 does not alter the outcome in the Principal Judgment.

6. [27]

   The plaintiffs’ and Registrar General’s position relied on two essential conclusions in the Principal Judgment.

7. [28]

   First, for the purposes of the definition of “Principal Amount” in the MCP, they drew attention that the Court had concluded that there was never an “amount advanced by the Lender to the Debtor, the repayment of which is secured by this Mortgage”, with the term “Debtor” in “Principal Amount” having been found to mean only 183 Eastwood (referring to [118], [132], [139] and [151] of the Principal Judgment).

8. [29]

   Nor could the Mortgagees rely on funds being received by Mr Chan because the money paid pursuant to the Cheque Directions had been paid into the Westpac Bank Account (which was not 183 Eastwood’s). In any event, Mr Chan had not purported to sign the Cheque Directions in his personal capacity. Funds advanced in reliance on the Cheque Directions had not been advanced in accordance with the Mortgages and therefore were not secured by them.

9. [30]

   Both the plaintiffs and Registrar General referred, inter alia, to the Court’s finding that the Mortgage were “all monies” mortgages and that in order to enable enforcement, the Mortgagees had to prove that an actual amount which was capable of ascertainment had been advanced.

10. [31]

    In seeking to demonstrate that this could not be proved, the plaintiffs referred to the Court of Appeal’s findings in Provident Capital Ltd v Printy [2008] NSWCA 131 (“Printy”), which dealt with the effect of registration of two forged mortgages. The plaintiffs contended that the Mortgages were similar to the “first mortgage” in Printy, which provided an “obligation to pay the secured money as provided in any related agreement”. The plaintiffs referred to what was said by Basten JA (with whom Tobias and McColl JJA agreed) who held at paragraph [50] that there was no default in the payment of the “secured money” in the “first mortgage” (emphasis added):

11. [32]

    In addressing the Mortgagees’ submission that the Indefeasibility Acknowledgement Argument disposes of the “pay” and “repay” requirements, both the plaintiffs and Registrar General submitted that this takes the Mortgagees’ position no further. The Registrar General drew attention to the fact that both clauses 2.1 and 2.3 contain the term “Secured Money”, which in turn is defined to include the “Principal Amount”, referring to the Court’s finding that “repayment” in the definition of “Principal Amount” is a reference to an amount that has actually been advanced. Referring again to the decision in Printy, the plaintiffs further contended it was immaterial which word was used, as neither clause specified the amounts and times for making payments and therefore do not constitute a “freestanding obligation” (as contended by the Mortgagees).

12. [33]

    The second of the Court’s conclusions relied upon is that a reasonable person would not have considered it a sensible or commercial outcome, on the construction of the MCP as a whole, that the security under the Mortgages would be effective to give rights over property 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 (Principal Judgment at [145]).

13. [34]

    As contended by Mr Lim in the plaintiffs’ written submissions, the only commercially sensible construction of the words valuable consideration “received by it” in clause 2.3 should be “to be received by [183 Eastwood]”. This construction was said to be fortified by the words “including by the advance of the Principal Amount”, which should be construed to mean a future advance because (as was agreed by the parties) when the Mortgages were signed, the Principal Amount had not been advanced – a fact of which the parties must have been aware.

14. [35]

    Mr Altan, for the Registrar General, put a different emphasis on the construction of “received” in clause 2.3. In his submission, to read clause 2.3 consistently with how the Court had construed the MCP in the Principal Judgment meant that “received” had to be construed as actually received.

15. [36]

    Mr Altan submitted (at paragraph 11 of the Registrar General’s written submissions) that what the Mortgagees are seeking to do in the Indefeasibility Acknowledgement Argument is to treat clause 2.3 as an “acknowledgement of receipt”, with 183 Eastwood acknowledging that it has received funds from the Mortgagees. However, properly construed, clause 2.3 is a “performance clause” whereby 183 Eastwood is promising to perform obligations for “valuable consideration received”, conditional upon the Principal Amount (or any part thereof) being received by 183 Eastwood.

16. [37]

    Both the plaintiffs and Registrar General contend that the obligations which 183 Eastwood promised to fulfil in clause 2.3 never came into effect because it never received any funds. Accordingly, any further consideration of clause 2.3 is futile and would not alter the outcome in the Principal Judgement as contended by the Mortgagees.

Consideration

1. [38]

   For the following reasons, the Court does not accept the Mortgagees’ submission that clause 2.3 creates a “freestanding obligation” on 183 Eastwood to repay the funds advanced by the Mortgagees, which obligation was secured by the Mortgages and thereby gained the benefit of indefeasibility. In explaining why the Court rejects the Mortgagees’ submission, it is necessary to begin with four introductory observations.

2. [39]

   First, each case turns on the proper construction of the particular covenant. However, because the parties refer to them, it is useful to set out the clauses considered in Printy and in Perpetual Trustees v Cox. The relevant clause in the “second mortgage” considered in Printy is set out in the first instance judgment (Printy v Provident Capital Limited [2007] NSWSC 287) (emphases added):

3. [40]

   The clause under consideration in Perpetual Trustees v Cox was:

4. [41]

   In paragraph [77] of his judgment in Printy, Leeming JA observed that “The covenant on which Perpetual relies is quite different from the second mortgage in Printy. There, the mortgage itself created a free-standing obligation to repay $50,000 within 12 months, independently of the loan documentation: see at [44] of the reasons at first instance.”

5. [42]

   The comparison between the clauses in Printy and Perpetual Trustees v Cox makes clear that for the purposes of a submission such as the Indefeasible Acknowledgement Argument, there must be both an acknowledgement of receipt of a specified sum and the promise to repay. The identification of a specified sum is necessary to ensure that, in this case, the relevant clause “delimits” the estate or interest conferred by the mortgage: PT Limited v Maradona Pty Ltd (1992) 25 NSWLR 643 at 679 per Giles J (as his Honour then was).

6. [43]

   Second, clause 2.3 of the MCP must be construed in context and not in isolation. The immediately relevant context is clauses 2.1 to 2.3. Clauses 2.4 and following go on to deal with obligations of the “Debtor”. Clauses 2.1 to 2.3 provide:

7. [44]

   Third, while the prima facie effect of the definition of “Mortgagor” in clause 1.1 of the MCP when read with Schedule A means the “Debtors” - 183 Eastwood and Mr Chan - that definition is expressed in the chapeau to clause 1.1 to be “unless the context otherwise requires”. In clauses 2.1 to 2.3 the context does otherwise require, so that “Mortgagor” refers only to 183 Eastwood. Only 183 Eastwood had an estate or interest in the Lands such that it was capable of granting mortgages over the Lands. If there was any doubt about that conclusion, it is made clear by the provisions of clause 2.2.

8. [45]

   Fourth, it follows from the preceding observation that clause 2.3 should be read as:

9. [46]

   Against the background of those observations, I turn to the proper construction of clause 2.3 and why I do not accept the Indefeasible Acknowledgement Argument.

10. [47]

    To the extent that the comparison helps to make the point, it is to be immediately noted that unlike the clause in Printy, clause 2.3 does not contain the words “acknowledge” or “acknowledgment” or the words “pay” or “repay”. The need to consider the words “pay” or “repay” only arises by taking into account clause 2.1 and the definition of the Principal Amount as being part of the “Secured Money” referred to in clause 2.1(a). That observation is in and of itself sufficient to demonstrate that clause 2.3 cannot properly be described in any way as “freestanding”.

11. [48]

    Similarly, the reference to “Obligations” requires going outside clause 2.3 to consider all of the other terms of the Mortgages because of how that term is defined in clause 1.1 (see Principal Judgment [59]) and determining whether, on the proper construction of those terms, an obligation to repay has arisen. In this case, the Court has determined this last mentioned issue against the Mortgagees.

12. [49]

    I interpolate that there is a clear logic in the way the author of the Mortgages has used the word “repayment” in the definition of Principal Amount, but speaks of the liability to “pay” the Secured Money. The Principal Amount is, by definition, advanced by the lender to the borrower or at the borrower’s direction, so that it makes sense to speak of that amount being repaid. On the other hand, the “Secured Money”, of which the Principal Amount is only one component, includes various categories of money payable other than by way of repayment (for example, interest).

13. [50]

    The reference to “valuable consideration” in clause 2.3 does not assist the Mortgagees. It is undefined. It is certainly not recorded as a specific sum of money by reference to which the estate or interest conferred by the Mortgages by way of charge over the Lands can be delimited. To the extent the valuable consideration expressly consists of the Principal Amount, then, as the Court has already determined in the Principal Judgment, the Mortgages will only secure what was in fact advanced to 183 Eastwood in accordance with the terms of the Mortgages. As the Court has also already found in the Principal Judgment, there was no advance of any funds to 183 Eastwood in accordance with the terms of the Mortgages. There was no suggestion from any party that this case was concerned with anything other than the Principal Amount.

14. [51]

    Next, I do not accept that “received” in clause 2.3 constitutes, on its proper construction, some form of acknowledgement that the valuable consideration (including the Principal Amount) had in fact been received. I reach that conclusion in either of two ways.

15. [52]

    First, I prefer the Registrar General’s submission that “receive” when read in the context of the reference to Principal Amount at the end of the clause, and as part of the “Secured Money” referred to in clause 2.1, must mean “actually received”. I accept the Registrar General’s characterisation of clause 2.3 as a “performance clause” (as opposed to an “acknowledgement clause”) setting out the basis of 183 Eastwood’s agreement therein referred to, which is conditional upon receipt of the Principal Amount. If the Principal Amount is not received it is difficult to conceive of how any other obligations would arise. Putting this conclusion another way, clause 2.3 does not acknowledge receipt, but rather anticipates receipt of valuable consideration in the traditional sense of the word “anticipate”, namely doing something in advance of a foreseen event, in this case offering the agreements referred to in clause 2.3 in the expectation that the valuable consideration would be received.

16. [53]

    While I prefer the Registrar General’s construction of “received”, if that is wrong, I alternatively accept the plaintiffs’ submission that it should be construed as meaning “to be received”. There can be no doubt on the basis of the agreed facts (see paragraphs [41] and [42] of the Principal Judgment) that at the time the Mortgages were executed by Mr Chan, no funds had been purportedly advanced. The advancing of the funds depended upon the execution of the Cheque Directions which the Court can readily infer occurred immediately after the execution of the Mortgages.

17. [54]

    The point is that at the moment of execution of the Mortgages, Mr Chan and the plaintiffs would undoubtedly have been aware that funds had not been advanced at that time. It follows that the fact that the funds had not been advanced at the time the Mortgages were executed is a matter of context or background which the Court can take into account in construing “received”, whether or not the need to construe the word is said to arise due to an ambiguity: Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548. Knowing that funds had not been advanced prior to execution of the Mortgages, in my respectful view a reasonable business person looking at clause 2.3 would have understood it to be referring to valuable consideration including the Principal Amount that was to be received by 183 Eastwood after it had executed the Mortgages.

18. [55]

    The foregoing disposes of the Mortgagees’ argument concerning the proper construction of clause 2.3. I turn to the balance of the Mortgagees’ contentions.

19. [56]

    I reject the Mortgagees’ submission that the plaintiffs’ reliance on Perpetual Trustees v Cox was misplaced. I adhere to what I said in paragraph [141] of the Principal Judgment.

20. [57]

    I reject the Mortgagees’ submissions insofar as they rely on Mr Chan having signed the Cheque Directions as constituting payment at the “Debtor’s direction” for the purposes of the definition of “Principal Amount” because Mr Chan was one of the Debtors in his own right. These submissions were made in the context of the Mortgagees’ attempt to distinguish Perpetual Trustees v Cox. For the reasons referred to in paragraphs [125] to [132] and [139] of the Principal Judgment, the Court finds that “Debtor” wherever it appears in the definition of “Principal Amount” must mean only 183 Eastwood and not Mr Chan. In any event, it is clear that Mr Chan was not signing the Cheque Directions in his personal capacity. He was purporting to do so in his capacity as a director of 183 Eastwood. I explained in paragraph [112] of the Principal Judgment why Mr Chan’s signing of the Cheque Directions was not the act of 183 Eastwood.

21. [58]

    Finally, it also follows from the foregoing that I reject the Mortgagees’ contention, contrary to the conclusion reached in paragraph [121] of the Principal Judgment, that there was a “Commencement Date” and therefore a “Final Repayment Date”. Even if, contrary to the views which the Court has reached, clause 2.3 did contain an acknowledgment of receipt of the Principal Amount, it would beg the question of when it was received. It would not assist in determining the “Commencement Date”, which necessarily must be an actual date.

Conclusion

1. [59]

   Because the Court rejects the Indefeasible Acknowledgement Argument, the Court’s answer to the Separate Question remains “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”.

2. [60]

   The parties will be given a further opportunity to consider what orders should be made to bring the determination of the Separate Question to a conclusion, including as to costs. In the meantime, as foreshadowed in paragraph [21] above, the Court makes this order: