SMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KirBY P, PRIESTLEY and SHELLER JJA 30 November 1995, 5 February 1996 MORTGAGES — "all moneys" clause — banker/customer mortgage — proper approach to construction — whether should be narrowly construed or according to terms — guidelines for construction — held: Clause to be construed according to its language which was deliberate, particular, not unfair and intentionally broad. BANKING AND BANKERS — security instruments — mortgage — "all moneys" clause — proper approach to construction- held: According to terms. CONTRACT — written contract mortgage- proper approach construction — "all moneys" clause. WORDS AND PHRASES — "all moneys". MORTGAGES — "all moneys" clause — width of language of — proper approach to construction of — whether such clauses should be "read down" — whether such clauses should be given their ordinary ample meaning — suggested guidelines for construction of*all moneys" clauses in mortgages — held: (Priestley JA; Kirby P and Sheller JA concurring): BANKS AND BANKING — security instruments — mortgages — "all moneys' clause — meaning of- proper approach to construction of — whether should be read down — whether to be given meaning according to ordinary denotation of the words used. CONTRACT — construction — banker/customer — mortgage — "all moneys" clause. WORDS and PHRASES — "all moneys". (1) The primary duty of a court is to give effect to the meaning of an "all moneys" clause, as any other legal instrument, according to its terms, understood in the context. Fountain v Bank of America National Trust and Savings Association (1992) 5 BPR 11817 (NSWCA) applied; Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13146 (NSWSC); Re Modular Design Group Pty Limited (Receiver and Manager Appointed) (In Liq) (1994) 35 NSWLR 96 (SC); Bank of India v Transcontinental Commodity Merchants Limited [1982] QB 506; Catley Farms Limited v ANZ Banking Group [NZ] Ltd [1982] 1 NZLR 430 (HC) considered; (2) The words of the particular "all moneys" clause in question were very wide, very particular, deliberately so, were not claimed to be unfair and should be given the ordinary meaning which their wide language bore; (3) Upon this basis the appellant was subrogated to the Bank's right as a secured creditor in regard to the Bank's payment to the debtor's Bank; (4) Appeal allowed. ORDERS 1.Appeal upheld; 2.Orders of Young J in the Equity Division of the Supreme Court, set aside; 3.Declaration made in terms of paral 1(1)(a) of the appellant's statement of claim; 4.The second and third respondents to pay the appellant's costs in the Court of Appeal and in the Equity Division; and 5.In respect of the costs of the appeal, the second and third respondents to have a certificate under the Suitors' Fund Act 1951. Kirby P The "all moneys" clause is a common feature of modern mortgage practice. 2 UNREPORTED JUDGMENTS APPROACH TO CONSTRUCTION OF "ALL MONEYS" CLAUSE From a commercial viewpoint, the purpose of the "all moneys" clause is to provide protection to a mortgagee in respect of all moneys which the mortgagee has paid, or becomes liable to pay, for or on account of the mortgagor. The opinion has been expressed that, with the increasing use of "cross co-lateralisation" it is likely that the problems presented by "all moneys" clauses will increase in the future. See L Aitken, "The All-Moneys Clause and Dragnet Problems" (1995) 11 Aust Banking L Bulletin #1, 6, 8.Parties, their advisers and ultimately courts are required by such clauses to struggle to resolve the competition between the typically very wide language of the clause and the natural inclination to confine any general contractual provision to the circumstances known to the parties at the time of their agreement or reasonably within their contemplation. In an attempt to bring a little rigour and predicability into the operation of "all moneys" clauses in mortgages, courts and academic writers in this country, and overseas, have sought to provide a number of rules of thumb or "guidelines" to suggest the approach that should be taken to the operation of such clauses. As Young J pointed out in Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13146 (97441), at 13151, there is a great deal of writing in the United States of America about so-called "dragnet clauses" and the need to read them down. See eg G Nelson and I Whitman, Real Estate Finance Law, second ed, 1988, 899ff. The last mentioned text explains the approach which is often taken: "A mortgagor might naively execute upon his house a mortgage containing a dragnet clause and consequently find himself locked into that particular lender for the rest of his life... Dragnet clauses are generally upheld, but because their apparent coverage is so broad and because the mortgagor is often unaware of the presence or implications, the courts tend to construe them narrowly against the mortgagee.... The guiding principle in the construction of a 'dragnet' clause in a mortgage is the determination of the intention of the parties. The question frequently resolves itself into whether, in view of the surrounding circumstances and the language employed in the mortgage, the parties intended the security of the mortgage to operate upon a pre-existing or subsequently created indebtedness not specifically described in the mortgage." Nelson and Whitman, above at 900ff, suggests nine guidelines which operate under the overriding rule that a court's duty is to give effect to the language of the clause. In State Bank of South Australia v Macintosh, unreported, 31 May 1995 and in the present case, Young J attempted to derive guidelines for the proper approach of an Australian court to the equivalent clauses. So long as the overriding duty of the court is remembered, such an approach is sensible. It is a contribution by courts to consistent decision- making and the avoidance of litigation. His Honour said in this case: "One of the general rules of construction of all money mortgages or guarantees is that, if there was an existing liability at the time when the mortgage was entered into, one normally expects that this will be identified and not just left to be included in the all moneys clause. Another guideline is that unless there is some indication of the facts and circumstances to the contrary, one normally expects the parties' intention to be that once the original debt for which the charge was given is paid, then the charge becomes extinguished and is not available as the source of a security for a liability which crystallises after that date." URJ SMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (Kirby P) 3 In support of the last mentioned guideline, Young J referred to State Bank of Albany v Fioravanti, 417 NE (2d) 60 (1980) (NY) and McGlaun v South West Georgia Production Credit Association 352 SE (2d) 558 (1987) (Ga SC). There is authority in Australia which supports a general approach to the construction of*'all moneys" clauses in mortgages in such a way as to confine their operation. See eg Fountain v Bank of America National Trust and Savings Association (1992) 5 BPR 11817 (NSWCA) (97410); Richards v Commercial Bank of Australasia Ltd (1971) 18 FLR 95 (FC); Re Clark's Refrigerated Transport Pty Ltd (In Liq) [1982] VR 989 (VSC), 995; Re Modular Design Group Pty Ltd (1994) 35 NSWLR 96 (SC); and Woods v Commonwealth Bank of Australia (1990) 5 BPR 11521, 11526. However, the scope for differences of view can be seen in the respective opinions of Gleeson CJ (with whom I agreed) and of Meagher JA, in dissent, in Fountain (above). Behind the inclination of the courts in England and Australia to narrow the operation of "all moneys" clauses lies nothing so crude as emotional sympathy for the borrower and a feeling that corporate lenders are generally perfectly well able to protect themselves by express provisions. Instead, it is the recognition of the reality of mortgage instruments which Lord Macnaughton described nearly a century ago in these terms: "No-one, I am sure, by the light of nature, ever understood an English mortgage of real estate." See Samuel v Jarrah Timber and Wood Paving Corporation Ltd [1904] AC 323 (HL), 326. The intervening years have led to little, if any, simplification. On the contrary, word processors now regurgitate complexity and verbiage. In Richards, Fox J quoted from Holden on Security for Bankers Advances, 4th ed, 1964, 41: "Probably the most striking feature about the mortgage forms used by the banks is that they are remarkably long and, at first sight, complicated documents. The main reason for this is that they have been drafted by the bank's legal advisers in such a way as lo confer every possible advantage upon the banks and to deprive the customers (so far as is legally possible to do so) of every conceivable benefit which would otherwise be secured to them at common law or by statute." Fox J in Richards at 99-100 added these further comments: "Tt surely is a sad commentary on the operation of our legal system that a borrower should be expected to execute a document which only a person of extraordinary application and persistence would read which, if read, is virtually incomprehensible and which, in any event, has a legal effect not disclosed by its language." If these considerations explain the tendency of some courts in Australia and England to read down or confine "all moneys clauses", the explanation for a like tendency on the part of courts in the United States is suggested to be rather more basic. Aitken (above), commenting on the United States cases cited by Young J, remarks (above, 7): "Tf one were to make any critical comment on this catena of authority it would be that all the cases are from what might be characterised as agrarian populist jurisdictions in which one would naturally expect that out-of-state eastern lenders would not receive overly sympathetic treatment from the borrowing farmers' courts." 4 UNREPORTED JUDGMENTS I have no quarrel with the "guidelines" which Young J identified in this and earlier cases. However, they only take a court so far. In the end, it is necessary for the person construing the mortgage to give meaning to the "all moneys" clause having regard to the actual language used, as construed in context and for the purposes, of the agreement between the parties. There is competing authority in this country and overseas, which supports the proposition that courts should simply give the wide words of an "all moneys" clause their ordinary meaning and are not authorised to confine those words by considerations of fairness, unequal bargaining power or sympathy for borrowers' vulnerability etc. See eg Rudd and Son Ltd; Re Fosters and Rudd Ltd (1986) 2 BCC 98, 955 (Eng CA), 98, 959; Bank of India v Trans-continental Commodity Merchants Ltd [1982] 1 Lloyds R506; Catley Farms Ltd v ANZ Banking Group (NZ) Ltd [1982] 1 NZLR 430 (SCNZ), 440, 446. This approach is frequently underpinned by recognition of the fact, as Mahoney JA pointed out in Hall and Anor v Westpac Banking Corporation, unreported, Court of Appeal (NSW) 8 September 1987, at 4 that: "Traditionally a mortgage document is drawn to cover a multitude of possible events." When I turn to the task of giving meaning to the "all moneys" clause in the present case, I am in agreement with the conclusion which Priestley JA has reached. It was not suggested that the "all moneys" clause or the conduct or the Bank in relation to its security it was in any way unfair, misleading or deceptive. In this respect the case is to be distinguished from Re Ferdinando; Ex parte Australia and New Zealand Banking Group Ltd v Official Trustee in Bankruptcy (1993) 42 FCR 243. See P Short, "Securities and Mortgages" in Banking and Finance Law and Practice, September 1994, 211. The availability, now, of legislation which is protective of consumers of commercial credit is reason for avoiding any lingering judicial temptation to adopt a construction of the "all moneys" clause which is unduly strained and narrow. Parliament has provided means of relief for such cases. The common law and equity provide other means. No such exemption was sought, or would have been appropriate, in this case. Upon a true construction of the very wide words of the "all moneys" clause here in question, it secured Australia and New Zealand Banking Group's interests under its guarantee. Accordingly, that Bank was not obliged to agree to the request by Yusen Daley Smith International Pty Ltd for a discharge. I agree with the answers which Priestley JA gives to the four questions posed by Young J. I also agree with his Honour's reasons. ORDERS The result is that the orders which Priestley JA has proposed should be made. Priestley JA On or about 6 April 1995 Mr Smith (the appellant) began proceedings in the Equity Division against Australia and New Zealand Banking Group Ltd (the first respondent or ANZ), Mr Binet (the second respondent or the liquidator) and Yusen Daley Smith International Pty Ltd (In Liquidation) (the third respondent or YDSI). At the time the proceedings at first instance began, the appellant was a creditor of YDSI in the sum of at least $1.325m. His case raised the issue whether he was a secured creditor, as he claimed, or unsecured, as the second and third respondents asserted. The proceedings were heard by Young J on I and 2 May 1995. On 16 June 1995 he dismissed them and ordered the appellant to pay the costs of the other parties. URJSMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (Priestley JA) 5 The appellant then initiated an appeal which relied on two grounds. The liquidator and YDSI filed a notice of contention. On proper notice of the appeal ANZ took no part in it. I will return to the grounds argued by the parties in this court after stating the circumstances leading up to the appellant's claim. In the first half of 1989 the appellant and Mr K Daly were directors and equal shareholders in Daly Smith Corporation Pty Ltd (DSC) which conducted a warehousing and transport business. Negotiations took place with a Japanese shipping company, Nippon Yusen Kabushiki Kaisha (NYK), for a joint venture. Agreement was reached and the way in which the venture was to be carried out was settled by two contracts made on 30 June 1989. By one contract (the purchase agreement), DSC agreed to sell its business to YDSI for $3.8m million. (YDSI then had a different name - it changed to YDSI on 10 August 1989). The other contract was a shareholders' agreement. The parties were New Wave Transport (Australia) Pty Ltd (NWT) a subsidiary of NYK, Mr Smith and Mr Daly. This agreement was subject to completion of the purchase agreement. It provided that NWT would become a 50% shareholder in YDSI, and Mr Smith and Mr Daly each 25% shareholders. The shareholders' agreement stated in Recital C that the parties had arranged for YDSI to borrow $3.8m and to purchase DSC's business. The shareholders' agreement made detailed provision for the manner of YDSI's conduct of its business and management of its affairs. What was arranged in connection with YDSI's borrowing of the purchase price of $3.8m was - (i) Bank of Tokyo Australia Limited (BOT) agreed to provide a loan facility of $3.8m to YDSI upon provision of certain securities, which were duly provided, being items mentioned in (ii), (iii) and (iv) following; (ii) NYK was to provide a Letter of Comfort to a maximum of $2.65m, being 50% of the facility amount of $3.8m plus accrued interest; (iii) NWT was to provide a Letter of Guarantee likewise covering $2.65m. This guarantee was given by ANZ on 5 July 1989 after it obtained the document referred to in (v) following from YDSI; (iv) Another Bank Guarantee was to be provided, likewise covering $2.65m. (v) by a document addressed to ANZ, dated 4 July 1989, executed under the seal of YDSI, that company applied to ANZ to execute a guarantee for $2.65m in favour of BOT. In consideration of ANZ giving such guarantee YDSI asked ANZ to debit its account with any amount paid to BOT by ANZ under the requested guarantee. (This document was referred to by Young J, and generally in argument in this court as a guarantee. Mr Jacobson QC, for the respondents, said that it was not strictly speaking a guarantee, and was known in some circles as a "suicide bond". It will be convenient to call it a guarantee nonetheless.) On 5 July 1989 YDSI drew down the $3.8m from BOT and paid the purchase price for the business. Shortly afterwards YDSI sought overdraft facilities from ANZ for purposes separate from those for which the ANZ guarantee of 5 July 1989 in favour of BOT had been given. ANZ agreed to the request taking as security a mortgage debenture, dated 23 October 1989 and registered 28 November 1989, which charged all YDSI's assets: "\.. with the payment to the Bank on demand... all and every sums and sum of money loans and advances heretofore lent or made by the Bank... or which may now or hereafter be lent or made by the Bank to or for the use or accommodation 6 UNREPORTED JUDGMENTS or at the request of the Mortgagor and for the time being remaining unpaid on any account or in any way whatsoever: AND ALSO all moneys which the Bank... has paid or become liable to pay or which the Bank shall pay or become liable to pay to for or on account of the Mortgagor ALSO all moneys owing or to become 5 owing by the Mortgagor in respect of any other... advances" CL32 of the mortgage debenture provided, in part: "...these presents shall be a continuing security notwithstanding any settlement of account intervening payment or other matter or thing whatsoever until a final discharge hereof shall have been given to the Mortgagor... " 10 On6 August 1992 YDSI ceased to be in overdraft with ANZ. On one view of the construction of the mortgage debenture this meant that YDSI could then have called for its discharge. On another view, it could not have been required to discharge it while its contingent liability under its guarantee to BOT remained on foot. Although it may not be relevant, ANZ at this time took the latter view: see 15 ANZ's letter of 10 November 1992 to the appellant, annexure JJ to Mr Binet's affidavit of 19 April 1995. Although I am not aware of any documentation of it in the appeal papers, it appears to have been accepted between YDSI, the appellant and Mr Daly, that the appellant and Mr Daly would each accept responsibility for half whatever 20 jiability might arise under YDSI's guarantee to ANZ of 4 July 1989. Accordingly when in early 1994 (apparently after discussions of one or two of the shareholders buying out one or two of the others in circumstances which it was not necessary to explore for the purposes of the case) it was proposed that the ANZ guarantee of 5 July 1989 (para(v) above) should be replaced by two guarantees for $1.325m each, and the appellant and Mr Daly should each give a guarantee for that amount to ANZ, in place of YDSI's guarantee of 4 July 1989, the appellant (and other necessary parties) agreed. The form used for the guarantee to ANZ was the same as that in 1989. It was dated 13 April 1994. Like the earlier one it began with the printed words "To facilitate my/our business transactions with (a)...". The (a) referred to a sidenote which said "Insert name of Department, etc. to whom guarantee... is to be given". In each the name "Bank of Tokyo" was inserted. Unlike the earlier one however, it was signed by Mr Smith and contained no reference to YDSI, except that a note at its foot required a copy of the form of guarantee to be issued by ANZ to be attached. A copy was attached, dated 22 April 1994. The presently material part was as follows: "AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD BANK GUARANTEE 49 Guarantee content confirmed (Sgd) T Smith (Customer to sign in accordance with authority for operations on the account) 45 BANK COPY To: BANK OF TOKYO AUSTRALIA LTD (the principal) For: YUSEN DALY SMITH INTERNATIONAL PTY LTD (the customer) Australia and New Zealand Banking Group Ltd (the Bank) asks the Principal to accept this Undertaking in connection with a contract or agreement between 50 the Principal and Customer for LONG TERM LOAN OVER SEVEN (7) YEARS URJSMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (Priestley JA) 7 In consideration of the Principal accepting this Undertaking, at the request of the Bank in substitution for an earlier Undertaking dated 5 July 1989 previously issued by the Bank to the intent that the total amount payable remains unchanged, the Bank undertakes unconditionally to pay the Principal on written demand from time to time any sum or sums to an aggregate amount not exceeding One Million Three Hundred and Twenty Five Thousand Dollars Only ($1,325,000.00)***** The Bank will pay this amount or any parts of it to the Principal on demand without reference to the Customer and even if the Customer has given the Bank notice not pay the money, and without regard to the performance or non- performance of the Customer or Principal under the terms of the contract or agreement." It was common ground that parallel documents came into existence in regard to Mr Daly's obligation. The next presently relevant event directly affecting the appellant was that on 6 October 1994 BOT made demand on ANZ for $1,325m under the guarantee and was paid on the same day. By letter dated the same day ANZ notified the appellant of the demand and payment. The letter said that in accordance with the indemnity the appellant had given to ANZ his loan account with ANZ had been charged with the sum of $1.325m. The letter asked him to discuss arrangements concerning repayment of this loan. Prior to the demand by BOT the Japanese interests in the joint venture had been giving the appellant's position careful consideration: see the memos of 28, 29 and 20 September 1994 at AB 165-169. It appears to have been in connection with this consideration that by fax sent on 28 September 1994 YDSI asked ANZ to have the mortgage debenture "removed, preferably by 4 October 1994". ANZ replied by letter of the same date, referring to the request for removal and saying: "... we have now instructed our solicitors to proceed accordingly noting that 4 October 1994 is your preferred date of completion. We will advise you upon removal of charge." Noted on YDSI's copy of its fax of 28 September 1994 was: "Contacted P. Turner 30/9/94 9:15 am ph 227 1437. He said the charge would be removed next week but not by the 4/10/94 as they have to retrieve records from central filing." By letter of 30 September 1994, Mr Turner of ANZ wrote to Gadens Ridgeway, as follows (leaving out formal parts): "YUSEN DALY SMITH INTERNATIONAL PTY LTD ACN 003 715 062 RELEASE FROM A CHARGE Further to the recent telephone conversation with our Garry Mueller, would you please prepare the necessary documentation and proceed with releasing our charge over the abovementioned company. Our records indicate the charge being a Registered Mortgage Debenture NO 54468, however, since we have been unable to locate the security documents this information has not been confirmed." Next was a fax from YDSI to ANZ dated 6 October 1994: "Further to my fax Dated 28 September 1994. Please confirm the charge has been removed. If it has not been what has to be done and what is your best estimate on timing." On ANZ's copy of this fax appears the note: "Telephoned 7/10/94 advised that our solicitors preparing forms". 8 UNREPORTED JUDGMENTS Then by fax dated 10 October 1994 from YDSI to ANZ: As a Director of Yusen Daly Smith International Pty Ltd has applied to the Supreme Court for the company to be liquidated ANZ should not incur any more cost on removing the charge referenced in my letter 6 October 1994." On ANZ's copy of this appears: "Too late. Already done". Finally, by letter dated 11 October 1994 Gadens Ridgeway wrote to ANZ: "CUSTOMER YUSEN DALY SMITH INTERNATIONAL PTY LTD We have prepared the enclosed "Discharge or release of property from a charge" form and a "Satisfaction Piece - full discharge" document(s) on the following basis: 1. There are no guarantor or borrowers who will have an ongoing obligation to ANZ who have not consented to the release of this security. 2. The facilities will be cleared in full on discharge. Should there be any guarantors who should consent to the discharge and should you require us to prepare appropriate consent forms - please advise. You should retain in your security packets all documents upon which loan security duty is paid to ensure a credit is available in the future if required. Noted on this is "R 12/10/94 GM Please now hold given YDSI last corro. From YDSI's fax of 10 October 1994 it appears that proceedings were commenced for the winding up of YDSI at about that date. A winding up order was made on 13 March 1995 and the second respondent appointed liquidator. In an affidavit by him read before Young J he said that a preliminary assessment of YDSI's financial position as at 18 April 1995 showed estimated assets of $5.223m and liabilities $22.319m. This did not take into account contingent claims against YDSI of $1.18m or the costs of liquidation. Some of the assets were debts the collectibility of which was doubtful. 'Young J decided against the appellant's claim to be a secured creditor (by subrogation to ANZ's mortgage debenture) by reference to four questions: 1.Was the guarantee of 13 April 1994 given by Mr Smith on his own behalf or on behalf of YDSI? 2.What was the status of YDSI's mortgage debenture to ANZ at the time of payment of ANZ's debt? 3.Did s3(1) of the Law Reform (Miscellaneous Provisions) Act 1965 assist Mr Smith? 4.Was the overriding intention of the parties such that Mr Smith would in any event be barred from recourse to YDSI's assets to secure his guarantee to BOT? A good deal of time was spent at first instance on question 1. Young J's conclusion was that the guarantee was that of the appellant. He also said he could not see on any version the appellant was doing anything else than guaranteeing YDSTIs liability. Perhaps; but he was certainly also guaranteeing ANZ's liability to BOT for part of YDSI's debt to that bank. It may not matter, because Young J concluded on this point by saying that the appellant paid ANZ as a surety and was "entitled to be subrogated to whatever securities the ANZ had". Assuming he was right that the appellant was the guarantor to ANZ and not YDSI, in my opinion that conclusion was plainly right. In answering question 2 Young J relied on two separate points for concluding that the mortgage debenture of October t989 was not available to the appellant under the doctrine of subrogation. These two points became the main matters argued in the appeal. UR.SMITH v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD (Priestley JA) 9 The first point was that as a matter of construction the mortgage debenture did not charge YDSI's assets with payment to ANZ of any amount for which it became liable pursuant to a contingent liability to pay a debt of YDSI's when that contingent liability was in existence when the mortgage debenture was given and not mentioned in it. He was of the view that such a situation fell within "one of the general rules of construction of all moneys mortgages". He thought a second guideline also applied which was that: "... one normally expects the parties' intention to be that once the original debt for which the charge was given is paid, then the charge becomes extinguished and is not available as the source of a security for a liability which crystallises after that date." As to the first guideline, Young J thought that the fact that ANZ never treated the contingent liability to BOT as secured under the charge confirmed its applicability. This argument seems to me to be unavailable in view of ANZ's earlier mentioned letter of 10 November 1992 which shows as plainly as can be that at that date at any rate ANZ did treat the contingent liability as secured inter alia by the mortgage debenture. ANZ's attitude mew have changed later, but even that is doubtful in view of their solicitors' letter of 11 October 1994. (This letter reads to me like good advice from lawyers more aware of the possible pitfalls than the ANZ officers had been; the draft "satisfaction piece" was not unconditional; the officers' indications to YDSI of willingness to discharge the mortgage debenture seem to me (from the scanty evidence) to have been conditional on obtaining advice from the solicitors; and the officers would not have been likely to disregard that advice). If in fact the attitude of the relevant ANZ officers did change, there is nothing to explain why. It may not have been because of any view of the legal situation. It may just as easily have been due to the manoeuvrings recorded at 167-169 (see especially para4 and para5 on 169) of the appeal papers. There is no evidence upon which any legitimate inferences can be based. The situation provides a good example why, if post contractual conduct can be used in construction of a contract, it must, in circumstances like the present, be used with great care: see the discussion in Hide and Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310, especially at 330B. Young J thought the application of the second guideline was also reinforced by ANZ's indication that it acceded to YDSI's request for a discharge; but the same reasons I have given in regard to the confirmation of the first guideline seem to me to deprive this argument also of any force. If the confirmations of the applicability of the two guidelines are therefore to be left out of account, the question simply becomes one of construction. Young J acknowledged that the guidelines he referred to were "just that, a method of approaching construction of a mortgage in its factual matrix". One aspect of the matrix is that ANZ gave the guarantee to BOT on 5 July 1989 and the report from Mr Timms (AB 86), which must have taken some time to prepare, to Mr Brennan of Central 2000, was dated 21/09/89. 1 see no reason why ANZ would have had any intention to restrict the extremely widely drawn words of its mortgage debenture in the way required by Young J's first guideline. The words are very wide; they are very particular; to my mind very obviously deliberately so. YDSI at no time claimed they were unfair. There was no hint that they were not in accordance with the parties' agreement. The word rectification was not mentioned. No suggestion of overreaching was made. In all the circumstances I can see no reason for construing the words in a sense other than I think they were intended to bear and which in ordinary meaning they did bear. 10 UNREPORTED JUDGMENTS In the result I do not agree with the first point relied on by Young J as to the availability of the mortgage debenture for subrogation purposes. As to the second point, it loses force if the first point is unavailable. In my view, because the charge did secure ANZ's liability under its guarantee, ANZ was not obliged to agree to YDSI's request for discharge on 28 September 1994; it did not then either discharge or bind itself in equity to discharge the mortgage debenture by any particular date; in the event it did not discharge the mortgage debenture and the stage was never reached when it ought to have been done; equity will not therefore treat it as if it had been done. My conclusion on Young J's second question is therefore that the appellant was subrogated to ANZ's right as a secured creditor of YDSI in regard to ANZ's payment of $ 1.325m to BOT. This conclusion makes it unnecessary to consider question 3. Young J had no need to answer question 4. He indicated that he thought the point taken by the liquidator and me third respondent had some force, but did not examine it in any depth, or decide it. In this court the second and third respondents sought to support it in their written submissions, but in the oral argument expressly abandoned it. I need therefore say nothing more about it. In my opinion the appeal should be upheld, the orders of Young J set aside and a declaration made in terms of paral1(1)(a) of the appellant's statement of claim (AB 3). The appellant should have its costs here and below borne by the second and third respondents. The argument before this court proceeded on the footing that if the appellant succeeded, orders such as I have just indicated would be made but there was no argument about their detail. As at present advised I think what I have suggested is appropriate and that final orders should be made in that form. To guard against the possibility that there are problems I am not at the moment aware of I would reserve liberty to apply in regard to the form of orders only, within fourteen days of the delivery of the court's reasons and pronouncement of its orders. Sheller JA I agree with Priestley JA. 1.Appeal upheld; 2.Orders of Young J in the Equity Division of the Supreme Court, set aside; 3.Declaration made in terms of paral1(1)(a) of the appellant's statement of claim; 4.The second and third respondents to pay the appellant's costs in the Court of Appeal and in the Equity Division; and 5.In respect of the costs of the appeal, the second and third respondents to have a certificate under the Suitors' Fund Act 1951. Counsel for the appellant: DF Jackson QC/RW Cameron Solicitors for the appellant: McLaughlin and Riordan Counsel for 2nd and 3rd respondents: P Jacobsen QC/JE Thomson Solicitors for the 2nd and 3rd respondents: Blake Dawson Waldron