New South Wales Supreme Court CITATION : Alanbert Pty Ltd v Bulevi Pty Ltd [2000] NSWSC 470 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4528/97 HEARING DATE(S) : 26 May 2000 JUDGMENT DATE : 26 May 2000 Alanbert Pty Limited (P1) Bernoth Realty Pty Ltd (P2) PARTIES : Cecil Alan Bernoth (P3) Bulevi Pty Ltd (D1) Davhand Pty Ltd (D2) JUDGMENT OF : Hamilton J COUNSEL : C A B Fairbairn (P1-3) R K Weaver (D1 & 2) SOLICITORS : John Saroff & Company (P1-3) Watson Mangioni (D1 & 2) CATCHWORDS : CONTRACTS [3] - General contractual principles - Offer and acceptance - Matters not giving rise to binding contract - Vagueness and uncertainty - Introductory - Right to second mortgage given by contract for sale of land - Whether term so incapable of any definite or precise meaning that Court unable to attribute any particular contractual intention. Alanbert Pty Ltd v Bulevi Pty Ltd [2000] NSWSC 261 Brown v Gould [1972] Ch 53 CASES CITED : Hammond v Vam Ltd [1972] 2 NSWLR 16 Murphy v Wright (1992) NSW ConvR 55-652 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 DECISION : Plaintiff entitled to second mortgage over balance of subject land. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J FRIDAY, 26 MAY 2000 4528/97 ALANBERT PTY LIMITED & ORS v BULEVI PTY LIMITED & ANOR JUDGMENT HIS HONOUR: 1 This is a hearing in which one outstanding question in these proceedings has been dealt with. That question was referred to in the last paragraph, [48], of my earlier judgment delivered in this matter: Alanbert Pty Ltd v Bulevi Pty Ltd [2000] NSWSC 261 ("my judgment"); expressions defined in my judgment are used in the same sense in this judgment. I was correct in recording in [48] that this matter had been agitated during the trial, although it had rather dropped from sight at the time of final submissions. 2 The matter is a claim by the plaintiff that it is entitled to be granted by the defendants a mortgage over the land. The claim does fall within the pleadings. Whilst the mortgage is not specifically mentioned in terms in the pleadings, the second further amended statement of claim ("the statement of claim") does specifically allege special conditions A to Q of the March 1994 contracts; the relevant condition here is special condition N. In prayer 1 of the statement of claim the plaintiff prays in general terms for specific performance as well as asking for specific performance in a particular regard. The relief now sought is, in effect, an order by way of specific performance of the March 1994 contracts. In my view it can be granted under the pleadings as they stand, perhaps with some aid from Part 40 r 1 of the Rules. In any event the defendants' objection to the relief is not on a procedural basis but on a lack of substantive entitlement to it. 3 The most difficult issue that arises on consideration of this matter is whether special condition N in reality ever did and now does entitle the plaintiff to a second mortgage over the land. The land in actual fact held by the defendants has now shrunk to the last large lot, Lot 13, all other lots having been sold either by the parties or by a first mortgagee. Special condition N and the context in which it appears are as follows - and I quote from the special conditions to the March 1994 contracts which are agreed to be in force: "M Disbursement of sales proceeds. The Purchase moneys from the sales of Lots 1- 10 shall be disbursed as follows: a) Commissions shall be paid to the selling agents as set out in Condition K. b) An incentive shall be paid, if applicable, as set out in Condition K. c) The balance of purchase moneys ($225,000) shall be paid to the Vendors at the rate of $25,000 upon the completion of the sale of each lot. N The Purchasers shall raise no objection to Alanbert Pty Limited holding a registered second mortgage over the subject property, provided such mortgage presents no impediments to the first mortgage." 4 Special condition N is quite strange in form. It does not in terms refer to the purchasers, who were to become registered proprietors, granting a mortgage to the plaintiff, but in terms speaks of them raising no objection to such a mortgage. However, the context in which the situation arose was that the plaintiff was to, and did, transfer title to the land to the purchaser without being paid the full purchase price. Special condition N is in immediate juxtaposition to special condition M, which specifically deals with the manner of payment of the balance of purchase moneys of $225,000. The holding of a mortgage over the land by the plaintiff could only arise upon transfer of the land by the plaintiff to the purchasers. Upon that transfer, the purchasers would become the only possible grantors of such a mortgage, since up to that time the plaintiff itself would continue to be the registered proprietor of the land. I have already had occasion to say in my judgment (see [4]) something about the informality and confusion of the documentation relating to these transactions. I have also said something recently (see JDM Investments Pty Ltd v Todbern Pty Ltd [2000] NSWSC 349 [31]) of the importance of courts doing their best to give effect to documents which, although in unsatisfactory form, are clearly intended to constitute commercial transactions between parties, and collected some of the authorities: Brown v Gould [1972] Ch 53 at 57; Hammond v Vam Ltd [1972] 2 NSWLR 16 at 18; Murphy v Wright (1992) NSW ConvR 55-652 at 59,733; Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436 - 437. In the circumstances, in my view the best interpretation that can be given to special condition N is that it amounted to a promise by the purchasers on request to give to the plaintiff after transfer of the land a mortgage to secure the balance of the purchase price of $225,000, or so much thereof as might from time to time remain outstanding. In my view the proviso means that that mortgage need not be given if at the time it was required, its giving would be an impediment to the first mortgage, which it was contemplated the purchasers would grant to raise a loan to finance the subdivision. 5 Under the March 1994 contracts Lots 11 and 12 were to be the subject of retransfer by the purchasers to the plaintiff after subdivision, but they have now been sold by the first mortgagee, so that the plaintiff is entitled to their proceeds, rather than the retransfer of the lots in specie. It was suggested in argument that the mortgage should also extend to secure the payment of those moneys. However, I do not believe that it was contemplated between the parties at the time the March 1994 contracts were entered into, or the time the special conditions were agreed to, that the situation would ever arise where Lots 11 and 12 were sold and converted into a fund, and I do not believe that in the circumstances special condition N can be construed as intending to give a mortgage to secure the payment of that fund by the purchasers to the plaintiff. 6 Mr Weaver, of counsel for the defendants, makes three objections to the plaintiff's case concerning the mortgage. The first is that special condition N ought not be construed as giving the plaintiff such a right, which argument I have already dealt with. The second objection was that the right, if ever created, was abrogated or destroyed by the execution of the August 1995 deed, the efficacy of which I have upheld in my judgment. The argument is that the arrangements between the parties were somehow globally rearranged by the August 1995 deed, so that the right to the mortgage, it not being specifically mentioned in the August 1995 deed, is to be taken to have been abrogated by it. In my view, this argument is without substance. The rearrangement effected by the August 1995 deed was in relation to very limited subject matters, effectively the grant of a new loan facility by the defendants to the plaintiff and a change in the regime as to interest for which the plaintiff was to be liable. That deed should not in my view be construed as altering the rights arising from the March 1994 contracts further than necessary, and I do not believe it is in any way a necessary effect of that deed that the plaintiff's right to a second mortgage should be affected. 7 The third objection taken by Mr Weaver concedes the existence of the right to a mortgage but proceeds on the basis that, as it has turned out, the right has no substance. He says that that arises from the proviso to special condition N, namely, that the "second mortgage presents no impediment to the first mortgage". That in itself is a very vague and unsatisfactory way of delineating the limits of the right to the second mortgage. However, it does not seem to me that the granting of a second mortgage at this stage, it never having previously been granted and existing only in agreement, could be said to present any impediment to the first mortgage. 8 In this regard, it was suggested that there was a prohibition in the first mortgage against the granting of further mortgages, so that the execution of a second mortgage, even without its registration, would be a breach of the first mortgage. However, there are a number of problems with that argument. First of all, the first mortgage in the form in which it is in evidence contains no such prohibition. It is suggested that the prohibition is in instrument Q860000 which is indeed referred to in the registered first mortgage. That instrument registered under the Real Property Act 1900 is not in evidence. This case has dragged on and on. The parties have been given opportunity after opportunity to bring in any evidence they wanted to. I have received further evidence regarding this outstanding question from both sides even today. The matter was recently stood over to today specifically to give the parties a final opportunity to bring in all evidence relating to this subject matter. Instrument Q860000 has not been brought in. Mr Weaver has asked for a further adjournment to give an opportunity to bring it in, but, in light of all the history of this case, I decline to allow the matter to run on any further and I have refused that application. I have been asked to assume that instrument Q860000 contains some such prohibition because such a clause is common in first mortgages. I am not prepared to make an assumption that instrument Q860000 contains any such prohibition, and much less so as to its precise terms. 9 However, even if it contained some sort of prohibition as between the parties to the first mortgage against a second mortgage, I do not think that is of much moment now. The first mortgage is in default. Its currency has not been extended beyond 1 July 1998. The principal is therefore due and the evidence shows there is some $59,000 principal still owing. The mortgage is clearly in default at the present time; nobody's rights would be affected by the grant of a second mortgage at this stage, or the declaration of entitlement to one, even if there were a clause as between the mortgagors and the first mortgagee prohibiting one, as to which I have already said there is no evidence in any event. 10 The other way in which Mr Weaver argues that the second mortgage which is claimed would constitute or has constituted an impediment is that he claims that the default under the first mortgage arose because a variation of the mortgage to extend its term beyond 1 July 1998 was prevented by a caveat maintained over the land by the plaintiff in support of its right to a second mortgage and its refusal to remove that caveat. I am unable to accede to that view. Certainly in my view the proviso means that the second mortgage, if granted, should not impede either the defendants in maintaining a first mortgage or the mortgagee under that mortgage in enforcing its rights. Although there have been a number of applications concerning caveats in this case, and their existence and form, at no stage have the defendants come to the Court and asked it to remove a caveat of the plaintiff to permit the registration of a variation extending the term of the first mortgage beyond 1 July 1998. It seems to me, on my interpretation of the clause, that had that application been made by the defendants they would have undoubtedly succeeded in it. The plaintiff, of course, would have a right to replace the caveat protecting its second mortgage after the first mortgage was so varied. Ms Reid, the solicitor for the mortgagee, makes a bold statement in an affidavit that it was by reason of the existence of the plaintiff's claim to have a second mortgage, its caveat, or its attitude, that the first mortgage was not extended and the default occurred. That statement does not seem to me to be sound or justified, and the existence of a second mortgage in favour of the plaintiff does not seem to me to be an impediment to the first mortgage by preventing its variation to extend the term, which could have always been achieved by the appropriate mechanism. 11 In those circumstances, in my view the plaintiff did obtain a right under special condition N to have a second mortgage over the land granted to it by the defendants. 12 The balance of the financial obligations between the parties is left unclear after the delivery of my judgment. There are various enquiries that need to be held, as I indicated in [47], for the countervailing claims between the plaintiff on the one hand and the defendants on the other to be quantified, so that any necessary judgment may be entered after the balance of those claims is struck. In those circumstances it is is not clear that the defendants' obligation to pay $225,000 as the balance of the purchase moneys, the subject matter of the plaintiff's right to a second mortgage, has been discharged. In those circumstances, in my view, the plaintiff is at present entitled to be granted, if need be, a second mortgage in appropriate terms over Lot 13, being the portion of the land remaining in the ownership of the defendants. 13 At the heel of the hunt, Mr Fairbairn, of counsel for the plaintiffs, has raised a question relating to the existence on the title of mortgage U134854 in favour of the registered proprietors themselves. That matter has not been debated in argument before me, and I do not intend to deal with it in this judgment. 14 No orders have been made consequent upon my judgment, pending the determination of the outstanding question which I have now disposed of. I now direct that short minutes be brought in to give effect to my judgment, and to this judgment that I have now delivered. It is desirable that the title to the land should now be cleaned up. The matters of mortgage U134854 and any outstanding caveats may be dealt with in the minutes and any argument necessary concerning those matters can be had before me when the short minutes are brought in. Directions will then be made for determination of all outstanding questions relating to the costs of the proceedings. …oOo… Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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