MURPHY and ANOR v WRIGHT [1992] NSWCA 168

MURPHY and ANOR v WRIGHT

SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

PRIESTLEY, HANDLEY and SHELLER JJA 10 April 1992, 19 October 1992

[1992] NSWCA 168

GUARANTEE — OPTION

GUARANTEE — ambiguity — uncertainty.

GUARANTEE — option in favour of creditor on default to attach guaranteed debt to property of guarantor — construction.

OPTION — categories not closed — option to create equitable charge by attaching debt to property — manner of exercise.

A guarantee of a loan provided in cl12 that on default by the Borrowers the Lender was entitled to attach the debt due to any of the assets of the Guarantor, and that the Lender might register a caveat against any property registered in the name of the Guarantor. The Borrowers defaulted, and the Lender lodged a caveat against certain land of the Guarantor. The Equity Division held that the Lender did not have a charge over the land and ordered the caveat to be removed. On appeal — Held: (Priestley and Handley JJA, Sheller JA dissenting) allowing the appeal:-

(1) Although an ambiguous provision in a guarantee must be construed in favour of the guarantor, such a provision

should not be held to be meaningless or uncertain except as a last resort.

(2) The clause attempted to confer an option on the Lender, exercisable after default by the Borrowers, to create a charge over property of the Guarantor to secure the debt guaranteed.

(3) The option was valid in relation to Torrens Title land because the clause specified the manner of its exercise viz: by the lodgment of a caveat.

(4) The Lender had an equitable charge over the subject property as security for the debt guaranteed.

ORDERS

1. Appeal allowed with costs.

2. Set aside the orders of Brownie J.

3. In lieu declare that on the true construction of the Deed of Guarantee of 22 April 1988 and in the events that have happened the appellants are entitled to an equitable charge over the property comprised in Folio Identifier 122/10650 as security for the debts owed by the respondent as guarantor of principal debts of Solfa Pty Ltd and Cadomet Pty Ltd pursuant to the Deed of Loan of 22 April 1988 as amended by Deed dated 15 August 1988.