FEDERAL COURT OF AUSTRALIA McVeigh, in the matter of Piccolo v National Australia Bank Ltd [2000] FCA 187 MORTGAGES – general principles of construction – mortgage given to support guarantee used to obtain banking facilities – whether charging clause to be read down in light of consideration clause – whether guarantee and principal credit agreement relevant in construing mortgage – scope of liability under "all moneys" clause in guarantee – whether extension of further facilities to borrower contemplated by guarantor – whether guarantor's obligation discharged by extension of further facilities – effect of clause in guarantee preserving liability notwithstanding subsequent variations to principal agreement CONTRACTS – construction and interpretation of contracts – circumstances in which separate instruments are to be construed together – separate instruments part of one transaction – instruments not all between same parties – all parties aware of content of all instruments Bankruptcy Act 1966 (Cth), s 30(1), s 58 Transfer of Land Act 1958 (Vic), s 74, s 91A, s 91B Commissioners of Inland Revenue v Raphael [1935] AC 96 referred National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1311 cited Bank of India v Patel [1982] 1 Lloyd's Rep 507 cited National Bank of New Zealand Ltd v West [1978] 2 NZLR 451 cited Geelong Building Society (in liq) v Encel [1996] 1 VR 594 discussed Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, cited Goldshede v Swan (1847) 1 Exch 154 cited Charrington & Co Ltd v Wooder [1914] AC 71, cited Cambridge Credit Corp Ltd v Lombard Australia Ltd (1977) 136 CLR 608 cited Davidson v Sydney County Council Employees' Credit Union Ltd [1979] 1 NSWLR 41 cited Smith v Chadwick (1882) 20 ChD 27 discussed Manks v Whiteley [1912] 1 Ch 735 referred Whiteley v Delaney [1914] AC 132 cited Joint Stock Bank v Mortimer (1867) 6 SCR(NSW) 248 discussed Bank of India v Trans Continental Commodity Merchants Ltd [1982] 1 Lloyd's Rep 506 cited Catley Farms Ltd v ANZ Banking Group (NZ) Ltd [1982] 1 NZLR 430 cited Panebianco v Bendigo Bank Ltd [1999] VSC 50 cited Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46 referred Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 cited Burke v State Bank of New South Wales Ltd (1994) 37 NSWLR 53 cited Re Clarke's Refrigerated Transport Pty Ltd (in liq) [1982] VR 989 cited Estoril Investments Pty Ltd v Westpac Banking Corp (1993) 6 BPR 13,146 referred Australia & New Zealand Banking Group Ltd v Comer (1993) 5 BPR 11,748 referred Jageev Pty Ltd v State Bank of New South Wales (No. 2) (unreported, SC(NSW), Sperling J, 26 March 1996) referred Radin v Commonwealth Bank of Australia [1998] FCA 1361 referred Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 cited Scarf v Jardine (1882) 7 AppCas 345 cited Leader v Duffey (1888) 13 AppCas 294 cited Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989 cited Glynn v Margetson & Co [1893] AC 351 cited Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 cited Addis v Burrows [1948] 1 KB 444 cited Gesellschaft Burgerlichen Rechts v Stockholms Rederiaktiebolag Svea (The Brabant) [1967] 1 QB 588 cited Gibson v Minet (1791) 126 ER 326 cited Doheny v United States Fidelity & Guaranty Co 34 FSupp 888 (DMont 1940) cited Bowersock Mills & Power Co v Commissioner of Internal Revenue 172 F2d 904 (10th Cir 1949) cited Kurz v United States 156 FSupp 99 (SDNY 1957) referred Gordon v Vincent Youmans Inc 358 F2d 261 (2nd Cir 1965) cited Hampton Roads Shipping Association v International Longshoremen's Association 597 FSupp 709 (EDVa 1984) cited LCI Communications Inc v Wilson 700 FSupp 1390 (WDPa 1988) cited Western United Life Assurance Co v Hayden 64 F3d 833 (3rd Cir 1995) cited Martuccio v Commissioner of Internal Revenue 30 F3d 743 (6th Cir 1994) referred Hallmark Insurance Administrators Inc v Colonial Penn Life Insurance Co 697 FSupp 319 (NDIll 1988) referred Parcels of Land v Snavely 1999 Ohio App Lexis 2398 (Ohio Ct App, Clark Cty 1999) referred Schlein v Gairoard 127 NJL 358, 22 A2d 539 (1941) referred Peterson v Miller Rubber Co 24 F2d 59 (8th Cir 1928) referred McCulloch v Canadian Pacific Railway Co 53 FSupp 534 (DMinn 1943) referred Von Lange v Morrison-Knudsen Co Inc 460 FSupp 643 (MDPa 1978) referred Black v T M Landis Inc 280 Pa Super 621, 421 A2d 1105 (1980) referred Emporia State Bank & Trust Co v Mounkes 214 Kan 178, 519 P2d 618 (1974) referred Massachusetts Bonding & Insurance Co v Feutz 182 F2d 752 (8th Cir 1950) cited Mayfair Farms Holding Corp v Krucant Enterprises Co 166 A2d 585 (NJSuper 1960) cited Lewison, The Interpretation of Contracts 2nd Ed. (1997) Morrison, Norton on Deeds 2nd Ed. (1981) Chitty on Contracts 28th Ed. (1999) Chitty on Contracts 27th Ed. (1999) Halsbury's Laws of Australia vol 10, "Deeds and other Instruments" Moss & Marks, Rowlett on Principal and Surety 5th Ed. (1999) 17A American Jurisprudence 2d, Contracts par 388 17A Corpus Juris Secundum, Contracts par 298 Restatement, Second, Contracts par 202(2) Berna Collier, "'All Debts' Clauses is Commercial Contracts of Guarantee: Principles of Construction and Limitations on the Ambit of Clauses of this Nature" (1998) 24 Monash University Law Review 7 IN THE MATTER OF JOHN PETER PICCOLO; DEAN ROYSTON McVEIGH v NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) & ANOR V 200 of 1999 HEEREY, FINKELSTEIN and KENNY JJ MELBOURNE 28 FEBRUARY 2000 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V200 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF JOHN PETER PICCOLO BETWEEN: DEAN ROYSTON MCVEIGH (Trustee of the Bankrupt Estate of John Peter Piccolo) Appellant AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) First Respondent POOLE LEVY & APPEL PTY LTD (ACN 004 952 738) Second Respondent JUDGES: HEEREY, FINKELSTEIN and KENNY JJ DATE OF ORDER: 28 FEBRUARY 2000 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the first respondent's costs, including reserved costs. 3. The second respondent file and serve submissions on the question of costs, including indemnity costs, on or before 3 March 2000. 4. The appellant and the first respondent file and serve submissions in reply on or before 10 March 2000. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 200 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF JOHN PETER PICCOLO BETWEEN: DEAN ROYSTON McVEIGH (Trustee of the Bankrupt Estate of John Peter Piccolo) Appellant AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) First Respondent POOLE LEVY & APPEL PTY LTD (ACN 004 952 738) Second Respondent JUDGES: HEEREY, FINKELSTEIN and KENNY JJ DATE: 28 FEBRUARY 2000 PLACE: MELBOURNE REASONS FOR JUDGMENT HEEREY J: 1 The respondent National Australia Bank Ltd (the Bank) provided to Poole Levy & Appel Pty Ltd (the Company) a bill facility, a fully drawn loan account and certain other banking facilities. 2 As security the Company provided a guarantee and indemnity for $1,050,000 by John Peter Piccolo and his wife Sharon Denise Piccolo supported by a mortgage over their home at 20 Kooyongkoot Road, Hawthorn. Mr Piccolo was subsequently made bankrupt. The appellant, the trustee of Mr Piccolo's bankrupt estate, sought declarations that the mortgage of Mr Piccolo's joint interest in the property was null and void to the extent that it secured the Company's liability under the banking facilities. 3 The appellant appeals from Sundberg J's dismissal of the application. The Bank's letter of offer By a letter dated 29 August 1995 addressed to the Managing Director of the Company the Bank offered certain banking facilities. Relevantly for present purposes the letter stated: "Re: BANKING FACILITIES Further to our recent discussions, we are pleased to advise that the National Australia Bank Limited (hereinafter referred to as 'the Bank') has agreed to offer the banking facilities as detailed in this letter to Poole Levy & Appel Pty Ltd (hereinafter referred to as 'the Company'). The banking facilities are offered subject to normal banking terms and conditions together with those specifically detailed in this letter which are in addition to, but not in substitution of any terms and conditions contained in supporting loan security documentation. FACILITIES - POOLE LEVY & APPEL PTY AS TRUSTEE FOR THE ROSIN POOLE LEVY & APPEL UNIT TRUST Overdraft Limit : $50,000 (Fifty Thousand Dollars) Expiry Date : 31st August 1996 Account Operation To be fully fluctuating in accordance with agreed working needs. Overdraft Limit No excess above the approved limit will be allowed on the account. Interest Rate The nominal rate payable under the Overdraft facility is variable and is linked to movements in the Bank's Base Lending Rate. … Fees A Line Fee is applicable to the Overdraft facility and will be debited to your account half yearly in arrears, during March and September. The fee is variable at the Bank's discretion and is currently $400. … Bills Accepted/Discounted (Floating &/or Fixed) Limit : $1,000,000 (One Million Dollars). Expiry Date : 31st August 1996 Purpose : Repayment of Commonwealth Bank in terms of legal arrangement which has been entered into by the company. Discount Rate : National Australia Bank Limited Bill Rate of the Day. Facility Fee : 2.25% p.a. payable monthly in advance for the term of these facilities. Then to revert to half yearly in advance. Tenor of Bills : At your option in the range of 30 to 185 days. Specific Conditions : Terms and conditions of this facility are fully detailed in attached Bill Facility letter of Offer SECURITY Security for the above facilities will be as follows: · Registered Mortgage Debenture executed by Poole, Levy & Appel Pty Ltd As Trustee For Poole, Levy & Appel Unit Trust over the whole of the assets of the Company and the Trust, including goodwill and uncalled capital and called but unpaid capital. (Relative policy of fire insurance over stocks and stores is to form part of this security). · Guarantee and Indemnity for $1,050,000 given by John Piccolo and Sharon Piccolo supported by · Registered Mortgage over property situate at 20 Kooyongkoot Road, Hawthorn. … Acceptance Your acceptance of this offer (and all terms and conditions relating to these facilities, as detailed herein and is associated documentation) may be indicated by provision of Minutes of Directors Meeting acknowledging your acceptance of this offer on behalf of the company in its capacity as trustee. An application fee of $5,250 shall be payable on acceptance of these facilities. We are pleased to have been able to assist and should you have any queries please do not hesitate to contact us. Yours faithfully Colin Caffyn Business Banking Manager" The Guarantee 4 On 16 September 1995 Mr and Mrs Piccolo signed a document described as Guarantee and Indemnity. This document was a printed form. The opening pages are headed "Details of guarantee and indemnity" and contain spaces for names and address of the parties and other details. "The customer" was stated to be the Company "as trustee for the Rosin Poole Levy & Appel Unit Trust". "The Guarantor" was stated to be Mr and Mrs Piccolo. Under the heading "What the guarantor undertakes to pay" the "Basic liability" was stated to be (1) $1,050,000 in Australian currency, plus (2) interest accrued, plus (3) bank fees costs and charges, plus (4) any amount in connection with fixed rate facilities. The "Additional liability" was stated to be certain further costs, interest and amounts due in connection with foreign currencies. The "Maximum Liability" was said to be the total of the Basic liability plus the Additional liability. 5 Under the heading "Part A Background to the Guarantee and Indemnity" the following appears: "Reason for it 1. By signing this document, you ask us to give or to continue giving credit and banking facilities to the customer, whether alone or with any other person, and you give us this guarantee and indemnity in return for our agreeing to do so. …. What you acknow- ledge in signing it 3. You acknowledge that (a) All the terms and conditions of this guarantee and indemnity are set out in these provisions Under the heading "Part B What you undertake to pay" it is stated: "What is your maximum liability? 5. The maximum amount for which you are at risk under this guarantee and indemnity is the total of: (a) the amounts set out under basic liability in the Details; plus (b) the amounts set out under additional liability in the Details. What you guarantee: your basic liability6.1 You guarantee that the customer will pay us all the amounts which the customer owes us at any time. You agree to pay us any amounts which the customer owes us up to the basic liability as at the time we demand that you pay them to us. 6.2 The amounts which the customer owes us at any time are: (a) All amounts which at that time we have advanced or paid or have become liable to advance or pay, for any reason; (i) to or on behalf of the customer; or (ii) at the express or implied request of the customer; or (iii) because of any act or omission of the customer; or (iv) because of any act or omission of ours at the express or implied request of the customer." 6 Under Part D "The extent of your obligation" it is stated: "A continuing liability 13.1 This guarantee and indemnity is a continuing security for all the amounts which the customer owes us. It is not discharged by any intermediate payment or settlement of accounts. 13.2 Your obligations under this guarantee and indemnity are not affected by anything that might otherwise affect them under the law relating to sureties, including: … (f) a variation or extension to, or a stopping, replacement or refusal of any credit, banking facilities or other arrangement (including our granting or increasing any credit or banking facilities above the basic liability) given to the customer… or with any other person, whether with or without your consent or knowledge; or (g)the fact that we transact any business with or on account of the customer alone or with any other person whether with or without your consent or knowledge; or" The Mortgage 7 By a mortgage under s 74 of the Transfer of Land Act 1958 (Vic) dated 18 September 1995 Mr and Mrs Piccolo mortgaged their property to the Bank. Relevantly the mortgage provided: "The Mortgagor mortgages to the Mortgagee the estate and interest specified in the land described subject to the registered encumbrances affecting the land and any created by dealings lodged for registration prior to the lodging of this Mortgage with the payment of the Secured Amounts and agrees as set out in this Mortgage. 8 There follow the title particulars and the name and address of Mr and Mrs Piccolo (Mortgagor) and the name of the Bank (Mortgagee). The date is stated to be 18 September 1998. The mortgage then continues: ______________________________________________________________ "The provisions contained in Memorandum of Common Provisions retained by the Registrar of Titles in No. AA291 ('Memorandum') are incorporated in this Mortgage. ______________________________________________________________ The Mortgagor agrees with the Bank as Follows: 1. A reference to 'this Mortgage' in this instrument of Mortgage, the Memorandum, and any annexure to this Mortgage is a reference to the Mortgage constituted by this instrument of Mortgage, the Memorandum and any annexure to this Mortgage. Words defined in the Memorandum have the same meaning when used in this instrument of Mortgage and any annexure to this Mortgage. The Mortgagor acknowledges that he has received and read a copy of the Memorandum prior to executing this Mortgage. 2. The Mortgagor acknowledges giving this Mortgage and incurring obligations and giving rights under this Mortgage in consideration of the Bank providing or agreeing to provide loans, advances and other banking accommodation to or at the request of the Mortgagor ______________________________________________________________ The Mortgagor agrees with the Bank as follows: 1. 'the Secured Amounts' when used in the preamble to this cover sheet means 'the moneys hereby secured' as defined in the Memorandum for the purposes of this mortgage; and 2. on demand in writing made to the Mortgagor by the Bank the Mortgagor will pay the moneys hereby secured provided that where it is agreed in writing between the Mortgagor and the Bank that the payment of the moneys hereby secured or any part should be made other than on demand at any time (the Mortgagor not having defaulted or being in default) the Bank agrees not to make demand for so much of the moneys hereby secured as is affected by such agreement except in accordance with that agreement or this mortgage." The Memorandum of Common Provisions was not attached to the mortgage. It was lodged with the Registrar of Titles pursuant to s 91A of the Transfer of Land Act 1958 (Vic) and became incorporated in the mortgage by virtue of s 91B. It included the following: "35. In the Mortgage, unless the contrary intention appears – … 'the moneys hereby secured' means all moneys and amounts at the date of the Mortgage or at any time hereafter falling within one or more of the following descriptions: (a) moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor, whether alone or jointly with any other person and whether as principal or surety; (b) moneys which the Bank, whether requested so to do or not, has advanced or paid or become liable to pay to or for or on account of or on behalf of the Mortgagor; (c) the amount of any orders, drafts, cheques, promissory notes, bills of exchange and other instruments in respect of which the Mortgagor is or may become liable in any manner whatsoever and which – (i) have been accepted, endorsed, discounted or paid by the Bank for or on behalf of or at the express or implied request of the Mortgagor; or (ii) are held by the Bank as a result of any other transaction entered into by the Bank for or on behalf of or at the express or implied request of the Mortgagor, whether they have matured or not; (d) moneys payable for stamp duties (including any credit or rental business duty and loan instruments duty and any like duty paid or payable by the Bank on or in respect of any loan or advances or banking accommodation provided or to be provided to or at the request of the Mortgagor) and for discounts, postages, commissions, charges, exchanges, re-exchanges and expenses according to the usage and course of business of the Bank from time to time; … (f) moneys and amounts which – … (h) interest due or accruing under clause 36 hereof or turned into principal under that clause, AND it is agreed and specifically acknowledged that – (A) in this definition each reference to the Mortgagor includes a reference (where the context so permits) to any other person whose indebtedness to the Bank is intended to be secured by the Mortgage; and (B) the security constituted by the Mortgage extends and applies to and in relation to each and every item referred to in each paragraph and sub-paragraph of this definition." Mr Piccolo is made bankrupt 9 The Company proceeded to use the facilities provided by the Bank. But on 9 May 1996 Mr Piccolo became bankrupt on his own petition and the Official Trustee became trustee of his estate. On 20 May the Bank learned of this and immediately cancelled the Company's overdraft. But following representations by the Company's accountant the Bank agreed to provide further facilities. On 11 July 1996 the Bank forwarded a further letter of offer to the Company. It was in substantially the same form as the August 1995 letter except that · the overdraft limit was described as "Reinstatement of limit"; · the guarantee and mortgagee were to be security only for the bill facility; · there was to be a Business Mastercard facility of $10,000; · there was to be a Flexilink facility of $200,000; · it was a condition precedent that the guarantors sign a letter acknowledging that the guarantee continued to secure the bill facility. 10 The expiry date of all facilities was 31 August 1996, the same as that specified in the earlier letter. Although the Commonwealth Bank had by then been repaid, the purpose of the bill facility was still expressed to be the repayment of that bank. On 12 July Mr and Mrs Piccolo signed a letter acknowledging that the guarantee continued to secure the bill facility. On the same day the Company's directors resolved to accept the Bank's offer. On 22 July a bill for $1 million was drawn down with a maturity date of 21 August. Further bills for the same amount were drawn down on 21 August (maturity 20 September) and 20 September (maturity 21 October). In both instances Mr Piccolo signed, on behalf of the company, instructions for the Bank to make the draw downs. 11 On 30 September the appellant became trustee of Mr Piccolo's bankrupt estate. 12 On 29 October 1996 the Bank wrote a further letter of offer to the company. This was in the same form as that of 11 July save that instead of a bill facility it offered a fully drawn advance of $1 million and the guarantee and supporting mortgage were to be security only for that advance. Expiry date of the facilities was 31 August 1997. That offer was accepted by the Company's directors on 21 November 1996. The appellant's claim 13 The appellant sought declarations and injunctions under s 30(1) of the Bankruptcy Act 1966 (Cth). The declarations were that the mortgage was null and void to the extent that it secured obligations under the facilities of July, August and September 1996, the guarantee and the October 1996 facility. The appellant also sought a declaration that the Bank was not a secured creditor within s 58(5). Injunctions were sought restraining the Bank from acting upon or realising the mortgage to the extent that it secured the facilities mentioned. The decision of the primary judge 14 His Honour held that the first cl 2 of the mortgage did not cut down the ambit of the charging clause. He rejected the appellant's argument that the mortgage did not apply because there had been no request by the appellant as trustee of Mr Piccolo's estate. His Honour considered that liability attached to the mortgagor whether or not there had been a request by the mortgagor for the advance of monies to the Company. It was therefore not necessary for his Honour to deal with the Bank's alternative argument that the various facilities in 1996 were not new transactions but were implemented pursuant to the initial agreement. 15 His Honour then considered the argument whether any of the 1996 transactions so varied the terms of the initial agreement between the Bank and the company that the guarantors were discharged. His Honour applied cl 13.2(f) of the guarantee. He held that the agreement in July 1996 was a new agreement rather than a variation or extension of the initial agreement. However he was satisfied that it was a "replacement" of banking facilities within cl 13.2(f). Argument on appeal 16 On the appeal counsel for the appellant again argued that the mortgage was limited to financial accommodation extended to the company at the request of the mortgagor. The mortgage could not, it was said, be read as supporting the new arrangements made. It was limited to the two facilities granted in September 1995. Conclusion 17 The Bank's offer of 29 August 1995 was made to the Company. It was the Company that had to arrange the production of the guarantee and mortgage for which the Bank stipulated. If the documentation which the Bank subsequently required the guarantors to execute extended beyond the terms of the letter of offer, that was a matter between the guarantors and the Bank. In any event, the Bank's letter of offer expressly stated that the terms in the letter were "in addition to, but not in substitution of any terms and conditions contained in supporting loan security documentation". 18 The plain words of the guarantee and mortgage are conclusive against the appellant's argument. The guarantee appears to be a standard form document. In contrast to much traditional bank security documentation, it is clear and comprehensible. Clause 1 records the consideration. The guarantors are asking the Bank "to give or to continue giving credit and banking facilities [note the plural] to the customer" and the guarantors are to give the guarantee and indemnity "in return for (the Bank) agreeing to do so". The consideration for the guarantors executing the guarantee is the promise of the Bank to give facilities to the customer, both now and in the future. It is the Bank's promise which is the consideration. 19 Further, by cl 6.1 the guarantors' guarantee is that the customer will pay the Bank "all the amounts which the customer owes us at any time". 20 So the language of the guarantee is not confined to any particular form of bank facility or to the bank facility which happens to be the first one put in place. Still less is it limited to only those bank facilities which the Bank in the future is to grant to the customer at the express request of the guarantors. 21 This reading of the guarantee is in accordance with the underlying commercial reality. The customer is identified (the Company). The monetary limit is fixed ($1,050,000 plus interest). Within those parameters the ordinary expectation would be that banking arrangements between the Bank and its customer the Company would in all probability vary from time to time, but the guarantors' liability would remain. That being so, money owing by Mr Piccolo under the guarantee is money owing by him as surety and therefore within par (a) of the definition of "the monies hereby secured" in the memorandum of common provisions. Therefore that amount answers the description of "the Secured Amounts" for which the mortgage is security. 22 In my opinion it is not necessary to consider whether the 1996 arrangements were new or replacement arrangements. Nor is cl 13 of the guarantee relevant. That clause only operates to prevent what might otherwise be a discharge of the guarantor's obligation by reason of variation of arrangements with the customer. However for the reasons mentioned, the liability of the customer is the one expressly contemplated by the guarantee. Order 23 The appeal should be dismissed with costs, including reserved costs. 24 The Company has been joined as a respondent. Its solicitors have advised the Court that in the event of the appeal being unsuccessful they would seek to make submissions as to indemnity costs. Accordingly the second respondent should have leave to file and serve written submissions as to costs within seven days. The appellant and the first respondent should file written submissions within seven days thereafter. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 28 February 2000 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 200 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF JOHN PETER PICCOLO BETWEEN: DEAN ROYSTON McVEIGH (Trustee of the Bankrupt Estate of John Peter Piccolo) Appellant AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) First Respondent POOLE LEVY & APPEL PTY LTD (ACN 004 952 738) Second Respondent JUDGES: HEEREY, FINKELSTEIN and KENNY JJ DATE: 28 FEBRUARY 2000 PLACE: MELBOURNE REASONS FOR JUDGMENT FINKELSTEIN J: 25 This appeal principally concerns the proper construction of a mortgage granted by the bankrupt, John Peter Piccolo, and his wife, Sharon Denise Piccolo, over their family home. The mortgage was given to secure their obligations under a guarantee in favour of the respondent, National Australia Bank Limited ("NAB"). The meaning and effect of the guarantee is also the subject of this appeal. 26 The guarantee was given to answer certain liabilities of Poole, Levy & Appel Pty Ltd to NAB. Those liabilities were described in cl 6.1 as "all the amounts which the customer owes [NAB] at any time." By cl 6.2 those amounts were to include "all amounts which have [been] advanced … to or on behalf of the customer" and "all amounts for which … the customer is or may become actually or contingently liable to [NAB] for any reason". The maximum amount for which Mr and Mrs Piccolo were liable under the guarantee was $1,050,000. The mortgage charged the family home with the payment of "the Secured Amounts" which expression meant "the moneys hereby secured." That phrase was defined in a memorandum of common provisions. The memorandum was not annexed to the mortgage. It was lodged with the Registrar of Titles pursuant to s 91A of the Transfer of Land Act 1958 (Vic) and was incorporated in the mortgage by s 91B. The memorandum defines "the moneys hereby secured" to include: "(a) moneys owing or remaining unpaid to [NAB] in any manner or on any account whatsoever by the mortgagor whether alone or jointly with any other person and whether as principal or surety; (b) moneys which [NAB] … has advanced or paid … to or for or on account of or on behalf of the mortgagor; (c) the amount of any orders, drafts, cheques, promissory notes, bills of exchange and other instruments in respect of which the mortgagor is or may become liable in any manner whatsoever and which (i) have been accepted, endorsed, discounted or paid [NAB] for or on behalf of or at the express or implied request of the mortgagor or (ii) are held by [NAB] as a result of any other transaction entered into by [NAB] for or on behalf of or at the express or implied request of the mortgagor". 27 It is accepted by the parties to this appeal, the trustee of the bankrupt estate of Mr Piccolo and NAB, that unless the provisions of the guarantee and the mortgage to which reference has been made are read down the mortgage stands as valid security for a fully drawn advanced facility of $1,000,000 provided by NAB to the company. 28 This facility, however, was not granted when the security documents were executed. NAB had provided the company with a $50,000 overdraft facility and a $1,000,000 bill acceptance facility in September 1995 when the guarantee was given and the mortgage created. What is in issue is whether, having regard to the applicable principles for the construction of contracts, it is permissible to read down the provisions of the security documents so that the obligations thereby created are limited to the original facilities. 29 The starting point for the construction of any instrument is to look at the language used, not just to the particular words in question but at the whole of the instrument, to gather the intention of the parties: Leader v Duffey (1888) 13 App Cas 294. The words actually used must also be construed in light of the surrounding circumstances, such circumstances being proved by recitals (if any) or by extrinsic evidence: Inland Revenue Commissioners v Raphael [1935] AC 96; Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989. 30 In some cases it is also permissible to have regard to other instruments. Thus, where several instruments are made as part of one transaction they will be construed together and each will be construed with reference to the other. In Smith v Chadwick (1882) 20 Ch D 27, Jessel MR said (at 62-63): "that when documents are actually contemporaneous, that is, two deeds executed at the same moment, a very common case, or within so short an interval that having regard to the nature of the transaction the Court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed; and, of course, one deed between the same parties may be read to show the meaning of the sentence, and be equally read, although not contained in one deed, but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose." The rule applies whether the documents are executed contemporaneously or at different times: see Norton on Deeds 2nd ed (1928) at p 87-89 and the cases there cited. The reason for the rule is that when a series of documents is necessary to give effect to a single transaction each is executed on the faith of the others being executed and each is intended to operate only as part of that transaction and therefore, as a matter of substance, they should be regarded as one: Manks v Whiteley [1912] 1 Ch 735 at 754. 31 It seems that English law has only developed to the point where several instruments representing a single transaction may be read together if the documents are between the same parties: Smith v Chadwick, above, Chitty on Contracts 27th ed (1997) at par 12-057. This is also the position that has been taken in Australia: see Halsbury's Laws of Australia Vol 10, 'Deeds & Other Instruments' par 140-535(1) citing Smith v Chadwick. 32 This view is altogether too narrow. If accepted it would produce anomalous results. Take a common enough example not far removed from the present case. A lender is willing to make a loan if it is secured by a guarantee. The lender can implement the arrangement in one contract where the lender, the borrower and the guarantor are all parties. In this event it would be permissible to consider the whole instrument to ascertain the intention of all the parties. On the other hand, the lender may call for separate agreements to complete the transaction: a loan contract and a guarantee. The two instruments, when taken together, may contain precisely the same terms as the single agreement. But if the same parties rule is applied then neither contract could be construed by reference to the other to gather the parties' intentions. Such a result, arising from a mere drafting technique, has nothing to commend it. 33 In the United States the general rule is that, absent a contrary intention, instruments executed at the same time, by the same parties and for the same transaction should be considered and construed together: 17A American Jurisprudence 2nd par 388; 17A Corpus Juris Secondum par 298; Restatement, Contracts 2nd par 202(2). However, in that country it has been accepted that the several instruments need not be between the same parties if the contents were known to all: see eg Doheny v United States Fidelity & Guarantee Co 34 FSupp 888 (1940); Peterson v Miller Rubber Co of New York 24 F(2d) 59 (1928); Schlein v Gairoard 127 NJL 358 (1941); McCulloch v Canadian Pacific Railway Co 53 FSupp 534 (1943); Bowersock Mills & Power Co v Commissioner of Internal Revenue 172 F2d 904 (1949); Massachusetts Bonding & Insurance Co v Feutz 182 F2d 752 (1950); Mayfair Farms Holding Corp v Kruvant Enterprises Co 166 A2d 585 (1960) vacated on other grounds 173 A2d 905 (1961); Gordon v Vincent Youmans Inc 358 F2d 261 (1965); Von Lange v Morrison-Knudsen Co Inc 460 Fsupp 643 (1978); Black v Landis Inc 421 A2d 1105 (1980); LCI Communications Inc v Wilson 700 FSupp 1390 (1988); Hampton Roads Shipping Association v International Longshoremen's Association 597 FSupp 709 (1984); Hallmark Insurance Administrators Inc v Colonial Penn Life Insurance Company 697 FSupp 319 (1988); Western United Life Assurance Co v Hayden 64 F3d 833 (1995). In Kurz v United States 156 FSupp 99 (1957) Palmieri J explained (at 103-104): "New York law, which is applicable here, requires that all writings which form parts of a single transaction and are designed to effectuate the same purpose be read together, even though they were executed on different dates and were not all between the same parties. This is in accord with the general rule that where several instruments, executed contemporaneously or at different times, pertain to the same transaction, they will be read together, even though they do not expressly refer to each other. This canon of construction applies with particular force in situations where, as here, one document requires the execution of the second to accomplish its purpose. The rationale of the rule is that by construing the instruments together, the intent of the parties can be perceived and enforced. Its application is generally recognised to extend to instruments relating to the same subject matter even though some of the documents are executed by parties who have no part in executing the others." (citations omitted) A recent application of this principle can be found in Parcels of Land v Snavely Ohio App Lexis 2398 (1999), a decision of the Court of Appeals of Ohio handed down on 28 May 1999. There the rule was applied to read together a document containing generally accepted accounting principles and a guarantee. 34 There is no reason why this approach should not be followed in this country. It would avoid the anomalous results that I have described. It would more readily permit the court to ascertain the true intention of the contracting parties. It is consistent with the objectivist view of contract, namely that the intention of the parties should be gathered from what they say (write) and do and not what they think. It is not inconsistent with any ruling of the High Court. 35 What then are the relevant instruments which, when taken together, were executed to accomplish one agreed purpose? The first is the agreement to grant the banking facilities constituted by the letter of offer dated 29 August 1995 and the acceptance of that offer evidenced by the resolution of the directors of the company, the bankrupt and his wife, carried on 8 September 1995. The letter states that the facilities (the $50,000 overdraft and the $1,000,000 bill facility) were offered "subject to normal banking terms and conditions together with those specifically detailed in this letter". The letter specifies that the terms and conditions of the bill facility were described in the attached Bill Facility Letter of Offer. That attachment is also dated 29 August 1995 and is one of the transaction documents. The offer letter provides that one of the conditions that must be satisfied before a contract comes into existence or before any party's liable to perform obligations under the contract (the conditions are referred to as "conditions precedent") is the "[p]roper completion and execution of all documentation required for the facilities". Both the offer letter and the Bill Facility Letter of Offer stipulate that security is required for the facilities. In the offer letter the obligation is recorded in the following terms: "SECURITY Security for the above facilities will be as follows: Registered Mortgage Debenture executed by Poole, Levy & Appel Pty Ltd As Trustee For Poole, Levy & Appel Unit Trust over the whole of the assets of the Company and the Trust, including goodwill and uncalled capital and called but unpaid capital. (Relative policy of fire insurance over stocks and stores is to form part of this security). Guarantee and Indemnity for $1,050,000 given by John Piccolo and Sharon Piccolo supported by Registered Mortgage over property situate at 20 Kooyongkoot Road, Hawthorn." 36 The Bill Facility Letter of Offer provides, in cl 17, that NAB "shall not be obliged to accept any Bills presented for acceptance … unless the securities referred to in item 12 of the Schedule have been executed and have been delivered to [NAB] and remain in full force and effect in respect of all current Bills accepted by [NAB]". Item 12 of the schedule reads: "Securities 1. First Registered Mortgage over Residential Deed situate at 20 Kooyongkoot Road, Hawthorn 2. Registered Mortgage Debenture executed by Poole, Levy & Appel Pty Ltd over the whole of the assets of the company including goodwill and uncalled capital and called but unpaid capital." 37 On the basis of these provisions it is clear enough, indeed it could not be disputed, that the guarantee and the mortgage pertain to the same transaction; namely the agreement to grant the banking facilities. The debenture was also designed to accomplish the agreed purpose, but that document is not in evidence. It is also sufficiently established that the bankrupt and his wife, although not parties to each of the several instruments, were aware of their contents. They executed the mortgage and guarantee and, in their capacity as directors of the company, accepted the letter of offer. So the conditions for the application of the rule that several instruments should be read together have been satisfied in the case of the letter of offer, the Bill Facility Letter of Offer, the guarantee and the mortgage. 38 The first question that arises is whether, having regard to the contents of all of the transaction documents, the intention of the parties was that the guarantee that was given by the bankrupt and his wife was truly in respect of "all amounts which the customer owes [NAB]" including "all amounts which [NAB has] advanced or paid … to or on behalf of the customer; and all amounts for which … the customer is or may become actually or contingently liable to [NAB] for any reason" or whether those provisions are to be restricted in some way. 39 In this connection two further canons of construction should be mentioned. The first is that an instrument is not to be interpreted solely by reference to the ordinary meaning of words used if they are in conflict with the intent of the parties. Thus it is permissible to reject words, and even whole provisions, if they are inconsistent with the parties' intention or for other reasons: Glynn v Margetson & Co [1893] AC 351; Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361; National Bank of New Zealand v West [1978] 2 NZLR 451. 40 The second canon of construction, which is of less importance in this case than the first but should nevertheless be borne in mind, is that where an agreement is in a standard form containing general conditions and the parties also write in provisions in respect of their particular transaction, and there is inconsistency between the two, the written conditions prevail: Addis v Burrows [1948] 1 KB 444; Gesellschaft Burgerlichen Rechts v Stockholms Rederiaktiebolag Svea (The Brabant) [1967] 1 QB 588. 41 Returning to the facts of the case, the following features of the transaction documents should be noted. Some of them have already been mentioned. The offer letter provides that the two facilities will be granted to the company for a total accommodation of $1,050,000. The liability of the sureties under the guarantee is limited to $1,050,000. The guarantee is to be "supported" by a mortgage over the family home of the guarantors. The Bill Facility Letter of Offer fails to mention the guarantee as part of the required security. It refers only to the mortgage over the family home and the debenture over the assets of the company. I treat this omission as an error. The Bill Facility Letter of Offer provides that the securities therein mentioned (the mortgage and the debenture) must "remain in full force and effect in respect of" bills of exchange drawn under the facility. 42 When regard is had to these features of the transaction documents, being documents that must be construed as one, it is clear to me that it was not the intention of the parties that the liability of the guarantors was to be in respect of "all amounts which the customer owes [NAB]" up to $1,050,000 including "all amounts which … have [been] advanced or paid … to or on behalf of the customer; and all amounts for which … the customer is … actually or contingently liable to [NAB] for any reason". For example, it could not be said that it was the parties common intention that NAB could call upon the guarantors to pay an amount equal to the damages NAB might have sustained in consequence of some deceit practiced by the company. Nor could NAB require the guarantors to make good the company's share of any partnership losses in the unlikely event that NAB and the company undertook a partnership venture. In the particular context, imposition of such liabilities does not accord with the common intention of the parties although those liabilities do fall within the general words of cl 6. 43 The issue then is how is the wide language of cl 6 of the guarantee to be restricted, for the meaning must be restricted in order to give effect the true intention of the parties. In my opinion, cl 6 is to be limited in its application to the facilities described in the letter of offer. None of the provisions of the offer letter or any other transaction document, when read as if contained in a single instrument, suggest that the parties had in mind as the proper subject matter of the guarantee any liability apart from a liability for $1,050,000 arising under the two specifically mentioned facilities. 44 The obligations secured by the mortgage are also cast in wide terms. If uncontrolled each mortgagor's interest in the family home is charged with the payment of the indebtedness of the other mortgagor "on any account whatsoever". It would secure any monetary obligation whether or not incurred in connection with the two facilities. The mortgage does not even specify a limit on liability as does the guarantee. Thus, dependent upon the value of the family home, the liability of each mortgagor could well exceed $1,050,000. This is plainly not what the parties had in mind. First, the mortgage was to do no more than "support" the guarantee. But if the definition of "the moneys hereby secured" is to be given full scope, the mortgage does much more than "support" the guarantee. Second, it was not the intention of the parties to burden the family home with a liability in excess of $1,050,000. Yet this is precisely what the mortgage does if it is unrestricted. 45 In my opinion the intention of the parties as revealed by the transaction documents was that the mortgage would "support" a guarantee of the two original banking facilities to the full extent of those facilities, namely $1,050,000. To give effect to that intention it is necessary to read down the description of the amounts secured by the mortgage. 46 In reaching these conclusions, I have not overlooked a provision in the offer letter a portion of which I have already quoted. The full text of the provision is: "The banking facilities are offered subject to normal banking terms and conditions together with those specifically detailed in this letter which are in addition to, but not in substitution of any terms and conditions contained in supporting loan security documentation." It might be suggested that the effect of this statement (it may not be promissory, but is nevertheless relevant to construction) is to render it impermissible to cut down the provisions of the guarantee and mortgage which define the subject matter of those securities by reference to the offer letter. It is possible the provision prohibits a process of construction which involves the replacement (substitution) of a term in the guarantee or mortgage by a term in the offer letter, although I doubt it could have that effect in a case of repugnancy. At all events, discerning the intention of the parties by reference to the terms of the facility agreements as well as the surrounding circumstances does not involve the "substitution" of one term for another. Nor, for that matter, does it involve the addition of a term. The ascertainment of the intention of the parties from the language employed in the transaction documents and giving effect to that intention by a process of construction is not a matter with which the provision is concerned. 47 The second question to be addressed is whether the current indebtedness of the company to NAB falls within the subject matter of the mortgage. To understand how this issue arises it is necessary to make further reference to the facts. None of them are controversial. 48 According to the letter of offer the two facilities granted in September 1995 were to remain in force until 31 August 1996. As regards the bill facility, the Bill Facility Letter of Offer provides that the period during which bills may be drawn (30 August 1995 to 31 August 1996) could be extended to "such later date as the parties shall agree upon in writing". It also provides, by cl 16, that: "In the event that the Drawer should fail to pay to [NAB] the face value of any Bill … [NAB] may debit an account in the name of the Drawer … with the face value of each such Bill … . The overdrawn balance of such account shall bear interest at the rate calculated in accordance with item 11 of the Schedule from time to time." 49 Pursuant to the bill facility, bills were drawn between 19 October 1995 and 21 June 1996. Each bill had a maturity date of thirty days from the date it was drawn and was for $1,000,000. 50 On 9 May 1996 Mr Piccolo became bankrupt. When this was discovered, NAB cancelled the company's overdraft. However, NAB was requested to reinstate the overdraft and also to grant the company further facilities. On 11 July 1996 NAB forwarded a letter to the company offering to reinstate the overdraft and to provide it with two further facilities. Each facility was to remain in place until 31 August 1996. The letter stated that the security for all facilities, that is the reinstated overdraft, the bill facility and the new facilities, would be the debenture. The guarantee and the mortgage would only secure the bill facility. The offer was accepted. The guarantors executed a document by which they acknowledged that the guarantee continued to secure the bill facility. 51 Further bills were drawn between 22 July 1996 and 20 September 1996. Each bill was for $1,000,000. The final bill matured on 21 October 1996. Although the September bill was drawn after the expiry of the bill facility it is reasonable to assume that there was at least a tacit extension of the period of the facility. 52 The evidence discloses that on the day the final bill matured "the facility of $1m was debited to a fully drawn advance account in the name of [the company]". I take this to mean that the bill was paid with money provided by NAB albeit by book entry: Gibson v Minet (1791) 126 ER 326. This method of discharging the drawer's liability under the bill was contemplated by cl 16 of the Bill Facility Letter of Offer. 53 On 29 October 1996 NAB forwarded a further offer of banking facilities to the company. One of the facilities mentioned was a fully drawn advance for $1,000,000. It is common ground that the offer of the fully drawn advance facility related to the $1,000,000 that had been debited to the company's account on the maturity of the September bill. The offer was that the facility would be available until 31 August 1997. The interest to be paid on the facility was specified. As to repayment, the letter stated: "Principal Repayments of $50,000 per annum are to be paid by 31 August 1997. The ongoing level of annual principal repayments is to increase at each annual review." The letter also stated that the security for the fully drawn advance facility was to be the guarantee and the mortgage. Precisely when the offer was accepted is not clear. I assume that it was accepted shortly after the date of the offer. 54 In my opinion the bill facility was discharged by agreement no later than the acceptance of the 29 October 1996 letter of offer. By then, each bill that had been drawn had been discharged by payment. The only outstanding liability of the company was in respect of the sum of $1,000,000 that had been debited to the account of the company. The company was liable to pay that amount on demand, but no demand was made. Instead, NAB and the company made an agreement that this amount could be paid at the end of twelve months or later if the fully drawn advance facility was extended. This arrangement put an end to any obligation of the company under the original bill facility. The rights and obligations under the new agreement were in substitution for the earlier contract: Scarf v Jardine (1882) 7 App Cas 345 at 351. 55 I should mention that the trial judge arrived at the same conclusion in respect of the agreement constituted by the acceptance of the offer contained in the letter dated 11 July 1996. He found this to be a new agreement that discharged the obligations under the original facility. I do not disagree with his Honour's finding in this respect, but I have concentrated attention on the later agreement, because the position there is beyond argument. 56 It is not necessary to determine whether the guarantors are liable for the fully drawn advance facility that was granted in October 1996 by reason of their conduct. The essential question which arises on this appeal is whether the mortgage stands as security in respect of the liability of the guarantors apart from liability in respect of the original facility agreements. Or, to put the matter another way, what must be determined is whether the family home stands as security for any liability that the guarantors may have in respect of the fully drawn advance facility granted in October 1996. 57 I have already found that the mortgage does not go that far. Initially the obligation of the mortgagors related only to the two facilities granted in September 1995. NAB released the sureties from any responsibility in respect of the overdraft. It is possible that the sureties assumed responsibility to indemnify NAB in respect of the fully drawn advance, but the bankrupt had not charged his interest in the family home in respect of that facility. The facility did not exist before his bankruptcy and after bankruptcy the bankrupt had no power to charge the home, his interest having passed to his trustee. Certainly the trustee did not charge any assets of the bankrupt estate in favour of NAB. 58 Accordingly, I would allow the appeal, set aside the orders made by the trial judge and in lieu thereof I would declare that: 1. The mortgage dated 18 September 1995 a memorandum of which has been entered in the Register Book maintained by the Registrar of Titles upon Certificate of Title Volume 6105 Folio 044 does not in respect of the bankrupt's interest secure any liability that Poole, Levy & Appel Pty Ltd may have in respect of the fully drawn advance facility of $1,000,000. 2. NAB is not a secured creditor of the bankrupt. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 28 February 2000 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 200 OF 1999 ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA IN THE MATTER OF JOHN PETER PICCOLO BETWEEN: DEAN ROYSTON McVEIGH (Trustee of the Bankrupt Estate of John Peter Piccolo) Appellant AND: NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937) First Respondent POOLE LEVY & APPEL PTY LTD (ACN 004 952 738) Second Respondent JUDGES: HEEREY, FINKELSTEIN and KENNY JJ DATE: 28 FEBRUARY 2000 PLACE: MELBOURNE REASONS FOR JUDGMENT KENNY J: background 59 The circumstances giving rise to this appeal are set out in the judgments of Heerey and Finkelstein JJ, which I have had the benefit of reading in draft. For present purposes, it suffices to say that the dispute between the appellant, who is the trustee of the bankrupt estate of John Peter Piccolo, and the respondent, the National Australia Bank Limited ("the Bank"), arises out of an offer of financial accommodation by the Bank to its customer, Poole Levy and Appel Pty Ltd ("PLA"), in August 1995. That accommodation (a bill facility of $1,000,000 and an overdraft facility of $50,000) was granted upon the security of a mortgage debenture, a guarantee and indemnity ("the guarantee"), and a registered mortgage ("the mortgage") over property at Hawthorn in Victoria ("the Hawthorn property"). Mr Piccolo and his wife granted the guarantee and the mortgage. PLA granted the mortgage debenture. As it happened, Mr Piccolo became bankrupt in May 1996 and, in consequence, later that month, the Bank cancelled the overdraft facility. About seven weeks later, however, in July 1996, the Bank was prevailed upon to renew the overdraft facility and to grant business Mastercard and Flexibank facilities. The mortgage debenture became security for all facilities, including the bill facility. The bill facility alone was also secured by the guarantee and the mortgage. As will be seen from the reasons for judgment of Heerey and Finkelstein JJ, the Bank continued to provide financial accommodation, in one form or another, to PLA beyond October 1996. The final bill drawn and accepted matured on 21 October 1996 and, on that date, the Bank debited an account of PLA with the face value of the bill, namely, $1,000,000. On 29 October 1996, the Bank made a further offer of banking facilities to PLA, including a fully drawn advance for $1,000,000. Again, the offer referred to the mortgage debenture, guarantee and mortgage as security. The offer was accepted. It is common ground that the latter facility related to the $1,000,000 that had been debited to PLA's account in October 1996. 60 The appellant's case is that the mortgage did not secure the facilities provided by the Bank after 1995 and, in consequence, the Hawthorn property does not stand as security for any present liability. The appellant's written submissions relied for the most part on cl 2 of the mortgage (set out in the reasons for judgment of Heerey J). The security was, so the appellant submitted in written submissions and at first instance, only provided for advances (to PLA) that were actually requested by the mortgagors. After Mr Piccolo became bankrupt, the only person who, with Mrs Piccolo, could make a request for the purposes of cl 2 of the mortgage was, so the appellant's argument ran, Mr Piccolo's trustee in bankruptcy: cf Bankruptcy Act 1966 (Cth), s 58. Since the trustee had not made any relevant request, then the mortgage did not secure any of the facilities provided by the Bank to PLA after Mr Piccolo's bankruptcy in May 1996. The primary judge rejected this argument and, in my view, for reasons to be given, correctly so. At the hearing of the appeal, however, the appellant's argument took a different tack. The appellant submitted that the mortgage, construed as a whole and in context, did not cover the fully drawn advance facility granted in October 1996, and that the primary judge erred in so far as he held to the contrary. 61 The case for the Bank was, in essence, that the mortgage was an "all moneys" mortgage which secured all liabilities incurred by PLA to the Bank. Up until October 1996, the bills were drawn and accepted pursuant to the original bill facility granted in 1995 prior to Mr Piccolo's bankruptcy in 1996, with the result that the appellant's submission concerning cl 2 was beside the point. In any event, neither cl 2 nor any other part of the mortgage operated, so the Bank submitted, to restrict the charging clause of the mortgage. Even if the financial accommodation arrangements made in October 1996 (or earlier) were capable of affecting Mr Piccolo's obligations as guarantor, cl 13.2(f) (or cl 13.2(g)) of the guarantee and indemnity prevented, so the Bank said, any of those arrangements from discharging the guarantors' obligations. 62 The central question in this case is, what liabilities did the mortgage granted by the Piccolos over the Hawthorn property secure? 63 I begin with the observation that the primary judge found (and it was not contested on appeal) that the role of the mortgage was to support the guarantee. did cl 2 limit the scope of the charging clause? 64 Essentially for the reasons given by the primary judge, I too am of the view that cl 2 of the mortgage does not operate to limit the effect of the charging clause. The charging clause is clear. It reads: The Mortgagor mortgages to the Mortgagee the estate and interest specified in the land … with the payment of the Secured Amounts …. The expression "Secured Amounts" is defined in the instrument of mortgage to mean "the moneys hereby secured". That expression is, in turn, defined in cl 35 of the memorandum of common provisions (incorporated into the mortgage by virtue of s 91B of the Transfer of Land Act 1958 (Vic)) to mean, relevantly: All moneys and amounts at the date of the Mortgage or at any time hereafter falling within one or more of the following descriptions: (a) moneys owing or remaining unpaid to the Bank in any manner or on any account whatsoever by the Mortgagor, whether alone or jointly with any other person and whether as principal or surety …. By the instrument of mortgage, the mortgagor expressly and unambiguously agrees with the Bank to pay on demand "the moneys hereby secured". That obligation extends to any money owed by the mortgagor as surety. 65 Clause 2 is not expressed as an operative provision. Rather, it is, in terms, in the nature of a narrative provision, providing only that the mortgagor "acknowledges" giving the mortgage in consideration of the Bank providing banking accommodation "to or at the request of the Mortgagor": cf Commissioners of Inland Revenue v Raphael [1935] AC 96 at 135 and 144-145. I accept, as the primary judge held, that the preponderance of the authorities favours the view that a consideration clause is relevant but not determinative in construing a surety's obligations under a guarantee: see, e.g., National Bank of Nigeria Ltd v Awolesi [1964] 1 WLR 1311 at 1315; Bank of India v Patel [1982] 1 Lloyd's Rep 507 at 512, affd [1983] 2 Lloyd's Rep 298; National Bank of New Zealand Ltd v West [1978] 2 NZLR 451 at 458 and Geelong Building Society (in liq) v Encel [1996] 1 VR 594 at 601. These authorities are discussed with some care at pars 10-18 of the reasons for judgment of the primary judge. I refer to that discussion without repeating it. If, under a guarantee, a surety purports to assume an obligation which, though wide, is unambiguously expressed, then the obligation will not necessarily be limited by a consideration clause. According to the authorities just mentioned, whether or not the consideration clause limits the surety's obligation depends on the whole of the circumstances, including the language actually used in the guarantee. I agree with the primary judge that there is no reason why the same approach should not apply to a consideration clause in a mortgage. 66 Further, I accept, for the reasons stated below, that, in such a case as this, consideration is to be given to the guarantee in construing the mortgage. Although cl 6.2(a)(ii) and (iv) and 6.2(b)(ii) of the guarantee refer to amounts advanced at the expressed or implied request of the customer (PLA), there is nothing which supports the proposition that the amounts owing by the customer will be recoverable from the guarantors (the Piccolos) only if the advances were made at the mortgagors' request. On the contrary, cl 13.2(g) of the guarantee specifically provides that the guarantors' obligations under the guarantee are not affected by the fact that the Bank transacts business with the customer without a request by the guarantors being made. As the primary judge observed at par 20 of his reasons, the relevant part of cl 13.2(g) would have no useful work to do if the guarantee did not cover that liability at a primary level. If, as the primary judge held (and I accept), the mortgage was granted to support the guarantee, then, in any case of relevant doubt, the mortgage should be construed so as to effect that purpose. Accordingly, the mortgage is to be construed as securing advances to PLA, whether or not requested by the mortgagors (or the appellant). Clause 2 of the mortgage is to be read, in my view, as explaining how it was that the mortgage came to be given by the mortgagors to the Bank. It is not to be read as limiting the charging clause. what does the mortgage secure? (a) General principles of construction 67 Mortgages and guarantees are to be read as a whole, and not simply by reference to any one provision. The effect of the ordinary and grammatical meaning of one provision may well be qualified by the remainder of the instrument. These propositions are well-established: see e.g., Lewison, The Interpretation of Contracts, 2nd ed., (1997) par 6.02. If the language of an instrument of mortgage or guarantee may bear more than one meaning, then evidence of surrounding circumstances is admissible to assist in the interpretation of the instrument. Mortgages and guarantees are, in this respect, no different from other contracts: see e.g., Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352-3; Goldshede v Swan (1847) 1 Exch 154; Charrington & Co Ltd v Wooder [1914] AC 71 at 79 and 93; Cambridge Credit Corp Ltd v Lombard Australia Ltd (1977) 136 CLR 608 at 614; and Davidson v Sydney County Council Employees' Credit Union Ltd [1979] 1 NSWLR 41 at 54. (b) The mortgage as part of the whole transaction 68 In certain circumstances, it is appropriate to have regard to other documents forming part of the same transaction as the document which is to be construed. Lewison, in The Interpretation of Contracts, at par 2.03, says: A document executed contemporaneously with, or shortly after the primary document to be construed may be relied upon as an aid to construction, if it forms part of the same transaction as the primary document. See also Morrison et al, Norton on Deeds,2nd ed., (1981) at 87-89; Chitty on Contracts,28th ed., (1999) at par 12-065; and Halsbury's Laws of Australia, vol 10, "Deeds and other Instruments", at par 140-535(1). 69 An important question in this case, as Finkelstein J shows in his reasons for judgment, is whether the rule applies only where the relevant transactional documents are executed by the same parties. In Smith v Chadwick (1882) 20 ChD 27, affd (1884) 9 AppCas 187, Jessel MR accepted at 62-63 that a series of documents forming part of the one transaction are to be read together when [the] documents are actually contemporaneous, that is, two deeds executed at the same moment, a very common case, or within so short an interval that having regard to the nature of the transaction the Court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed; and, of course, one deed between the same parties may be read to shew the meaning of a sentence, and be equally read, although not contained in one deed, but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose. (Emphasis added) Manks v Whiteley [1912] 1 Ch 735 provides some limited support for a less restrictive view. In that case, Fletcher Moulton LJ (dissenting) stated that it was appropriate, in the circumstances of the case, to construe a deed of mortgage by reference to two other deeds executed at the one time which, though between different parties, were "beyond question … component parts of a single transaction": at 750, 754-755. His Lordship observed at 750: Had the transaction been carried out by a single deed to which all were parties purporting to effect their whole intention no question could have arisen. Unfortunately the lawyer employed indulged in what I cannot term otherwise than a piece of stupid ingenuity. No doubt a single deed properly drawn up so as to effect the whole intention of the parties must have been of a somewhat special form requiring care in drafting, and he thought he saw a way of carrying out the transaction which entailed only the use of deeds of common form. He therefore drew up and got the respective parties … to execute three several deeds … . His Lordship concluded at 754-755: [W]here several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to this case as if they were one deed. Each is executed on the faith of all the others being executed also and is intended to speak only as part of the one transaction, and if one is seeking to make equities apply to the parties they must be equities arising out of the transaction as a whole. It is not open to third parties to treat each one of them as a deed representing a separate and independent transaction for the purpose of claiming rights which would only accrue to them if the transaction represented by the selected deed was operative separately. The decision of the majority in Manks v Whiteley was later reversed by the House of Lords although on different grounds from that advanced by Fletcher Moulton LJ: see Whiteley v Delaney [1914] AC 132. (c) Application of the rule in cases of the present kind 70 Whether or not the rule ordinarily only permits transactional documents to be read together when between the same parties, it plainly has a wider application in cases of the present kind, where a question arises as to the extent of an obligation assumed by a surety or a mortgagor under a guarantee or mortgage. That is a consequence, I think, of the accepted rules of construction in the field. For example, Moss & Marks, Rowlatt on Principal and Surety, 5th ed., (1999) says, at p 84: The question whether a given liability is covered by a given guarantee must not be considered merely with reference to the extent and incidents of the liability itself, which is imposed upon the principal. It is also necessary that the transaction as a whole out of which it springs should be such as was contemplated by the surety. Examples of the application of these propositions are given at pp 84-85. In construing the extent of an obligation assumed by a surety, courts routinely consider, as Rowlatt shows, the nature of the whole transaction. Where a surety executes a guarantee or like instrument contemporaneously with the execution of other instruments by other parties (as for example, a borrower and a lender) in relation to the same transaction, the several instruments may be read together, even though the parties are not the same, providing the instruments were known to the other parties and were executed contemporaneously to accomplish a common purpose. 71 Geelong Building Society v Encel [1996] 1 VR 594 is a good illustration of the operation of the rule in this context. In that case, a loan by the Society was secured by a mortgage over property supported by Encel's guarantee. The guarantee was expressed to be in consideration of the Society "having agreed to make the advance referred to in the Mortgage". The "agreement" mentioned could not be wholly contained in the instrument of mortgage, since that instrument imposed no obligation on the lender to make any advance. In construing the terms of the obligation assumed by the surety, the Court considered not only the mortgage but also the Society's letter of offer to the borrower (a property developer), which had subsequently been accepted, and which set out the terms on which advances could be made. After referring to the passage from Rowlatt set out above, Tadgell J (with whom Ormiston and Ashley JJ agreed) observed at 600: [A]lthough the guarantee is to be construed in this case in accordance with its terms, to guarantee payment to the appellant of "the moneys secured as defined in the Mortgage and payable by the Mortgagor", it is material in ascertaining the respondent's liability to consider whether the mortgage and the guarantee alone set out the whole of the arrangement that was in the contemplation of the three parties – borrower, lender and surety. The letter of offer from the Society to the borrower stated that advances after the initial advance would only be made upon an architect's certificate. (The guarantee and the mortgage were executed on the day of the initial advance.) After considering the whole of the arrangement and, in particular, the Society's letter of offer to the borrower, the Court found that advances made by the Society when it had not received an architect's certificate did not fall within the guarantee. 72 As the passage from Rowlatt (which is set out above) indicates, the approach of the Court in Encel was not novel. An early example in Australian courts of essentially the same approach is Joint Stock Bank v Mortimer (1867) 6 SCR(NSW) 248. That case concerned the proper construction of a bond, initially sought by the Bank from Messrs Church & Kemp and executed between Mortimer as surety and Messrs Church & Kemp to secure "the payment of all moneys whatsoever". Liability on the bond was expressly limited to ₤2,000 and interest. There was no other explicit limitation. The Bank entered into an arrangement to make advances to Church & Kemp for a period of two years, that being the anticipated term of a partnership which was then to commence between them. Church & Kemp presented the bond given by Mortimer as security for the Bank's advances. The two years passed by and the partnership did not end. Instead, the partnership borrowed more money from the Bank. When Church & Kemp defaulted, the Bank sued Mortimer on his bond. Mortimer demurred upon the basis that the "bond sued on was executed by Church & Kemp, and received by [the Bank] as security; and was executed by [Mortimer] to secure advances made during the two years, and not for any longer period – whereas the advances, for repayment of which [the Bank is] suing, were made wholly after the expiration of that term". The Court upheld the demurrer. Stephen CJ stated: [T]he allegation may be considered sufficient for the purpose; for the bank could not enforce, from a mere surety (in the absence, at least, of a distinct contract to that effect), any payment for which his principal was not liable. And then the question comes simply to this; whether [Mortimer] can be held to the written terms of an obligation, which he entered into for Church & Kemp, and the bank accepted from them, with a different understanding. In other words, whether [the bank] – because of [Mortimer] having, as surety, knowingly executed a bond unlimited as to time, – can make him answerable for advances to the principal debtors, whensoever made, in the face of an agreement between the bank and the latter, that the bond should (as to them, at all events), be a security for advances only up to a limited period. We are of opinion, that [Mortimer] cannot be so held liable. If the bond is to be read, in the case of the principals, as a bond to secure the payment of sums lent during two years, the same words cannot be read differently against the surety. Their undertaking … was not, by the bond, to pay sums advanced at any time, although such was the tenor of the instrument; for the previous and still subsisting arrangement controlled its terms. In effect, the Court, in that case, construed the surety's obligations under the bond by reference to the terms of the initial loan arrangement made between the bank and the borrower, though the parties were different. Plainly enough, the bond and the initial advance were made contemporaneously in relation to the same transaction and were executed to accomplish a relevantly common purpose. (d) The operation of the rule in the United States 73 The position in the United States is not, for present purposes, significantly different from that in this country. There are cases which, as Finkelstein J observes, affirm the rule that where several instruments are made contemporaneously in relation to the same transaction, they may be read together, even though the parties are not the same, providing the instruments were known to the other parties and were executed contemporaneously to accomplish an agreed (or common) purpose. Reference may be made to the following: Doheny v United States Fidelity & Guaranty Co 34 FSupp 888 (DMont 1940), affd 123 F2d 746 (9th Cir 1941), cert den 315 US 817 (1942); Bowersock Mills & Power Co v Commissioner of Internal Revenue 172 F2d 904 (10th Cir 1949); Kurz v United States 156 FSupp 99 (SDNY 1957), affd 254 F2d 811 (2nd Cir 1958); Gordon v Vincent Youmans Inc 358 F2d 261 (2nd Cir 1965); Hampton Roads Shipping Association v International Longshoremen's Association 597 FSupp 709 (EDVa 1984), affd in part, vac in part 746 F2d 1015 (4th Cir 1984), cert den 471 US 1017 (1985), cert den 471 US 1102 (1985); LCI Communications Inc v Wilson 700 FSupp 1390 (WDPa 1988); and Western United Life Assurance Co v Hayden 64 F3d 833 (3rd Cir 1995). See also 17A American Jurisprudence 2d, Contracts par 388; 17A Corpus Juris Secundum, Contracts par 298; and Restatement, Second, Contracts, par 202(2). 74 It does not seem to me, however, that the position in the United States is necessarily more straightforward than in this country. The circumstances under consideration in the cases referred to above were diverse. The existence and scope of the rule varies, as a matter of State law, from State to State. Thus, for example, the rule has, on occasion, been limited to bipartite transactions: see e.g., Martuccio v Commissioner of Internal Revenue 30 F3d 743 (6th Cir 1994). In other cases, the rule, though acknowledged, has not been applied, for example, because the parties' true intent was ascertainable by looking at the one agreement without reference to another (Hallmark Insurance Administrators Inc v Colonial Penn Life Insurance Co 697 FSupp 319 (NDIll 1988)), or because the document to be construed was not in fact governed by another document (Parcels of Land v Snavely 1999 OhioApp Lexis 2398 (Ohio Ct App, Clark Cty 1999)). 75 Moreover, a number of the cases that recite the rule in fact concern instruments expressly referring to collateral agreements. For example, in Schlein v Gairoard 127 NJL 358, 22 A2d 539 (1941), the guarantee in question referred to "the existence of a certain option agreement concerning the right to purchase five hundred shares of stock of Kraeuter and Company Inc.". The option agreement, for its part, was specifically conditioned on the execution of the guarantee. It was in those circumstances that the Court determined that it would be appropriate to construe the two instruments as one contract. Other "incorporation by reference" cases include Peterson v Miller Rubber Co 24 F2d 59 (8th Cir 1928); McCulloch v Canadian Pacific Railway Co 53 FSupp 534 (DMinn 1943); Von Lange v Morrison-Knudsen Co Inc 460 FSupp 643 (MDPa 1978), affd 609 F2d 504 (3rd Cir 1979); and Black v T M Landis Inc 280 Pa Super 621, 421 A2d 1105 (1980). For the most part, Australian courts would, it seems to me, have reached similar results to courts in the United States if only because of these "incorporation by reference" clauses. 76 Notwithstanding the complexities in the approaches of courts in the United States, it is interesting to note that the rule is not uncommonly applied where questions arise about the scope of a surety's obligation under a guarantee or mortgage. In Emporia State Bank & Trust Co v Mounkes 214 Kan 178; 519 P2d 618 (1974) (which, like this case, concerned an "all moneys" or "dragnet clause") the Court interpreted the obligations covered by the guarantee agreement by reference to the principal contract between the borrower and the lender. Interestingly, in light of what I say below, the Court also said at 184, 623: [I]n the absence of clear, supportive evidence of a contrary intention a mortgage containing a dragnet type clause will not be extended to cover future advances unless the advances are of the same kind and quality or relate to the same transaction or series of transactions as the principal obligation secured or unless the document evidencing the subsequent advance refers to the mortgage as providing security therefor. (e) The mortgage is to be read with the other transactional documents 77 I am in agreement with Finkelstein J that, in construing the mortgage, it is appropriate to consider the whole of the arrangement that was in the contemplation of the parties – the mortgagors and guarantors, the lender, and the borrower. (As I have explained, this not only appears from the practice of courts in the United States, but also from the practice of courts in Australia.) Accordingly, in construing the mortgage, it is appropriate to consider the other instruments, made contemporaneously in relation to the same transaction, though not between the same parties, where all the parties can be taken to have known of the contents of all the relevant instruments. These other instruments were the letter of offer dated 29 August 1995 and its attachment (being the bill facility letter of offer), the acceptance of that offer (evidenced by the resolution of PLA's directors on 8 September 1995), and the guarantee. There was also the debenture but that was not in evidence. (f) The mortgage and guarantee covered banking facilities extended to PLA 78 The relevant terms of those documents are set out in the judgments of Heerey and Finkelstein JJ. As Finkelstein J observes, the terms of the letter of offer and its attachment establish that the guarantee and the mortgage form part of the arrangement pursuant to which the Bank granted financial accommodation to PLA. Plainly enough, the Piccolos, though not formally parties to the financial accommodation agreement between the Bank and PLA were aware of its content. It was they who, in their capacity as PLA's directors, accepted the Bank's letter of offer. 79 Let it be assumed (as the primary judge found) that the mortgage was intended by the parties to it to support the guarantee. There is nothing presently before the Court to indicate that the mortgage did not have that effect. As we have seen, the charging clause of the mortgage covers any moneys owing to the Bank by the mortgagors as guarantors. In other words, the scope of the liability under the mortgage should be construed as coextensive with that of the guarantee. The crucial question then becomes whether the guarantee is to be construed literally, as extending to "all the amounts which the customer owes" the Bank at any time, including "all amounts which [the Bank] has advanced or paid … for any reason" "to or on behalf of the customer", and "all amounts for which … the customer is or may become actually or contingently liable [the Bank] for any reason": guarantee, cl 6.1, 6.2. Or are those provisions to be read down? 80 In this case, the guarantee should, I think, be read down to cover those liabilities arising from the contractual grant of financial accommodation by the Bank to PLA. In reaching this conclusion, I rely upon much the same considerations as Finkelstein J does, although his Honour would read down those obligations still further. The relevant considerations, to my mind, include the following. The 1995 letter of offer provides for two facilities, namely an overdraft facility and a bill facility. Those facilities were to be granted to PLA for a total accommodation of $1,050,000. The letter of offer stated "[t]he banking facilities are offered subject to normal banking terms and conditions together with those specifically detailed in this letter which are in addition to, but not in substitution of any terms and conditions contained in supporting loan security documentation". The liability of the sureties under the guarantee is limited to $1,050,000. (Like Finkelstein J, I too treat the failure to mention the guarantee in the bill facility letter of offer as a mere mistake.) 81 I agree with Finkestein J that, when regard is had to the transaction documents, it cannot have been the parties' intention that the liability of the guarantors was to be in respect of "all the amounts which the customer owes" the Bank up to $1,050,000 including "all amounts which [the Bank] has advanced or paid … for any reason' "to or on behalf of the customer", and "all amounts for which … the customer is … actually or contingently liable to [the Bank] for any reason". As his Honour observed, it cannot have been the parties' agreed intention that the Bank would call upon the guarantors to pay an amount equal to any damages the Bank might sustain in consequence of, for example, the customer's deceit. It was, in my view, the parties' intention that the sureties' liability under the guarantee and the supporting mortgage would be confined to liabilities arising from the Bank's grant of financial accommodation to PLA. In all the circumstances of the case, it was reasonably to be expected that the guarantee, and the mortgage which supported it, would secure the repayment of advances made by the Bank to or on behalf of its customer and any interest which may have accrued on such advances under any contractual arrangements with the Bank. I consider that to have been the common intent of the relevant parties. (g) The approach to construction of "all moneys" clauses 82 This result accords, in my view, with the approach adopted in Australian courts to the construction of "all moneys" clauses, of which cl 6 of the guarantee and the charging clause of the mortgage (as relevantly defined) are examples. They are, plainly enough, intended by their authors to cover all eventualities. That may, however, not be the common intent of the parties at the point of execution. (For a critique of such clauses, see Berna Collier, "'All Debts' Clauses in Commercial Contracts of Guarantee: Principles of Construction and Limitations on the Ambit of Clauses of this Nature" (1998) 24 Monash University Law Review 7). 83 True it is that, on occasions, clauses of the present type have received a literal application: see, e.g., Bank of India v Trans Continental Commodity Merchants Ltd [1982] 1 Lloyd's Rep 506, Catley Farms Ltd v ANZ Banking Group (NZ) Ltd [1982] 1 NZLR 430, Panebianco v Bendigo Bank Ltd [1999] VSC 50, and Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46. In Re Murphy, Hill J held that the bank was entitled to rely on an "all moneys" clause in a mortgage, in order to recover moneys stolen from it by one of the mortgagors, who was also a bank employee. Equally, it is accepted that "all moneys" clauses in guarantees and mortgages are to be "confined in their operation by reference to the context in which they appear and by reference to the commercial purpose which they were intended to serve in": see Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11,817 at 11,819-11,820 per Gleeson CJ; Burke v State Bank of New South Wales Ltd (1994) 37 NSWLR 53 at 71 per Santow J, affd (1997) NSWConvR 55-814; and Re Clarke's Refrigerated Transport Pty Ltd (in liq) [1982] VR 989 at 995-996 per Brooking J. 84 There is no need to accept the entirety of the approach (and the guidelines) proposed by Young J in Estoril Investments Pty Ltd v Westpac Banking Corp (1993) 6 BPR 13,146 and other cases, in order to accept the proposition that, in many cases, an "all moneys" clause will not be construed to secure a debt of a fundamentally different character from the debt specifically contemplated by the parties at the time of entering the contract. In construing such a clause, a court confines its operation by reference to its context and commercial purpose. It is essentially those considerations which, in my view, lie at the heart of such cases as Estoril; Australia & New Zealand Banking Group Ltd v Comer (1993) 5 BPR 11,748 per Young J; and Jageev Pty Ltd v State Bank of New South Wales (No. 2) (unreported, SC(NSW), Sperling J, 26 March 1996); and which are consistent with the comments of Lindgren J in Radin v Commonwealth Bank of Australia [1998] FCA 1361 at pars 200-202. 85 Having regard to the context of the "all moneys" clause in the guarantee in this case (or, for that matter, in the mortgage) and to its commercial purpose as disclosed in the other transaction documents, I can readily accept that the clause would not secure tortious liability, or, indeed, some other liability disparate in kind to that arising from the provision of financial accommodation. But I am unable to accept that the clause would not secure liabilities for banking facilities provided to PLA, whether or not they were an overdraft facility, a bill facility, or a fully drawn advance facility. There are, plainly enough, a multiplicity of banking facilities which could provide the financial accommodation sought by PLA (of up to $1,050,000) and which would serve the same commercial purpose. It is reasonable to suppose that the Piccolos and the Bank anticipated that the need might arise for the original overdraft and bill facilities to be terminated and replaced by other facilities granting similar financial accommodation (as indeed was the case). As the facilities granted in July and October 1996 were, to my mind, no different in their essential character from those which had been originally granted, they fall, in my view, within the guarantee and the mortgage. That reflects what I regard as the common intent of the parties. did any event operate to discharge the guarantors' obligations? 86 The appellant would avoid liability under the guarantee if the guarantors were discharged from liability under the guarantee by reason of events after 1995. In the absence of any provision in the guarantee to the contrary, they will be so discharged if the subsequent transactions had "the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety": see Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 559. Let it be assumed, as the primary judge held, that the Mastercard facility, which was granted pursuant to the letter of offer of 11 July 1996, was a new loan facility. In this connection, the primary judge observed at par 23: A surety will be discharged by any variation in the principal agreement, unless the party seeking to enforce the guarantee can show either that the nature of the variation is beneficial to the surety or that it cannot in any circumstances increase the surety's risk. See Corumo Holdings Pty Ltd v Itoh Ltd (1991) 24 NSWLR 370 at 404. The Bank has not satisfied me that the addition of the Mastercard facility was "unsubstantial" or could not in any circumstances increase the guarantor's risk. The Bank did not, it seemed to me, seriously contest this. Counsel said "primary reliance is placed on" clause 13.2(f) and (g). Accordingly, unless these provisions preserve the guarantee, it will have been discharged upon the company's acceptance of the July facility. I appreciate, as the primary judge explained, that, in the circumstances of the case, the extension of the additional facilities increased the guarantors' risk. It is said by Rowlatt at p 90 that: [W]here a guarantee is given in general terms to cover the liabilities which are to result from a future course of dealing generically specified in the guarantee, the creditor can vary the course of dealing under which successive liabilities arise, so long as the course of dealing continues to be of the character coming within the scope of the guarantee, and no change is made in the terms of any liability after it is actually incurred and the guarantee is attached to it. The present may be such a case. It is, however, unnecessary to decide the matter, because I agree with the primary judge that cl 13.2(f) (set out in the reasons for judgment of Heerey J) preserves the guarantors' liability under the guarantee. 87 The agreement concluded between the Bank and PLA in July 1996 constituted, in my view, a "replacement" of banking facilities within the meaning of cl 13.2(f) of the guarantee. The banking facilities granted by the Bank to PLA in 1995 were, by virtue of the July 1996 agreement, relevantly replaced by the facilities referred to in the offer of 11 July 1996, which was subsequently accepted: cf Scarf v Jardine (1882) 7 AppCas 345 at 351. 88 The primary judge also held that the bill facility offered in July 1996 was offered on the same terms and conditions as those attached to the letter of offer of August 1995. That was not contested on appeal. The appellant contended, at first instance and on appeal, that each of the August, September and October facilities was provided pursuant to a new agreement. In relation to that submission, his Honour stated at par 30: If any of the later events would prima facie have discharged the guarantors, their liability is, in my view, preserved by clause 13.2(f) of the guarantee. As at the date of the August and September facilities the relations between the parties were governed by the July agreement. Clause 3 of the bill facility terms and conditions provided that the Bank had no obligation to accept bills having a maturity date later than the expiry date. Clause 6 enabled the company to draw a replacement bill with a face value equal to that of a maturing bill, and obliged the Bank to accept it, so long as the bill was drawn within the Availability Period and in compliance with the terms and conditions. In relation to the August facility, the Bank accepted a bill which under the terms and conditions it was not obliged to accept. That constituted a variation of the terms of the July agreement for the purposes of clause 13.2(f). The position is the same with the September facility. The Bank accepted a replacement bill notwithstanding that it was drawn outside the Availability Period. If the October facility was provided pursuant to clause 16, it was a facility provided pursuant to the July agreement and was not a new facility. If it was not so provided, it constituted a replacement facility within clause 13.2(f). I agree: see clauses 3, 6 and 16 of the bill facility terms and conditions, which are set out in the reasons for judgment of the primary judge. In particular, I agree that the grant of banking facilities, pursuant to the Bank's offer of 29 October 1996, which was accepted by PLA, constitutes a "replacement" of banking facilities within the meaning of cl 13.2(f) of the guarantee. Accordingly, the guarantors were not discharged from their liability under the guarantee by reason of the agreement made between the Bank and PLA in October 1996, or any prior agreement. 89 Hence, for the reasons given, I would dismiss the appeal with costs. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. Associate: Dated: 28 February 2000 Counsel for the Appellant: Mr B Shaw QC with Mr K Baker Solicitor for the Appellant: Cannizzo, Lau & Associates Counsel for the First Respondent: Mr A Archibald QC with Mr T North Solicitor for the First Respondent: Russell Kennedy Counsel for the Second Respondent: No appearance Solicitor for the Second Respondent: No appearance Date of Hearing: 27 August 1999 Date of Judgment: 28 February 2000