Farrow Mortgage Services Pty Ltd v Collins & Anor [1993] QSC 255

:f-el\i- {_ _ _ 1 jc- fir State Reporting Bu~e~r;s n '--· . D 0 . ·~Jt:LL ..• F.i!.L ~ ' TRANSCRIPT OF PROCEEDINGS (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.) SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION DERRINGTON J No 1190.of 1991 FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) and NOEL LESLIE COLLINS and LORNA JUNE COLLINS BRISBANE .. DATE 07/09/93 JUDGMENT 1 Plaintiff Defendant -- 1 of 27 -- ~ '. 070993 ham (Derrington J) HIS HONOUR: There is judgment for the plaintiff against the defendants in the sum of $509,515, which includes interest. The defendants are to pay the plaintiff's costs of and incidental to the action, including reserve costs, if any, to be taxed. 10 I publish my reasons. 20 () 30 40 ( I 50 60 JUDGMENT 2 -- 2 of 27 -- () () IN THE SUPREME COURT OF QUEENSLAND No. 1190 of 1991 BETWEEN: AND: FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) NOEL LESLIE COLLINS and LORNA JUNE COLLINS JUDGMENT DERRINGTON J. Delivered the Seventh day of September 1993 Plaintiff Defendants Minute of Order: Counsel: Solicitors: Judgment for the plaintiff against defendants in the sum of $509,515, includes interest payable to this date the loan. the which under The defendants are to pay the plaintiff's costs of and incidental to the action, including reserve costs (if any) to be taxed. J. Bell for the Plaintiff M. Cooke Q.C. & P.Flanagan for the Defendants Messrs Carter Newell for the Plaintiff Messrs Graham Davies & Associates T/A for Messrs Mcivor Coghlan for the Defendants Hearing Dates: 21st, 22nd and 23rd July, 1993. -- 3 of 27 -- 0 .. ' IN THE SUPREME COURT OF QUEENSLAND BETWEEN: AND: FARROW MORTGAGE SERVICES PTY LTD (IN LIQUIDATION) No. 1190 of 1991 Plaintiff NOEL LESLIE COLLINS and LORNA JUNE COLLINS Defendants JUDGMENT DERRINGTON J. 0 Delivered the Seventh day of September 1993 This is an action by a finance company to recover from the defendants as guarantors the balance of moneys due and 0 · g b th · r co ("the company") w1n y e1 mpany to the plaintiff in O repayment of a loan. The loan was secured by a mortgage of the development properties by the company, a mortgage of some private property by the defendants, the mortgage document 0 including a deed of surety upon which the plaintiff also relies, and the defendants' guarantee of the company's mortgage which is the primary source of the plaintiff's claim. These documents will be referred to later in greater detail. There is no issue as to the mathematical features of the sum claimed, as amended, and it is convenient before setting out the relevant facts to state briefly the nature of the issues raised in defence. The arguments delivered orally departed substantially from the written submissions and the -- 4 of 27 -- 2 following attempts to restate the sum of both. They depend largely upon the evidence of their witness, Mr Collins. The principal point alleges that the plaintiff wrongly demanded a certain interest payment from the company and upon its failure to pay it purported, again wrongly, to accelerate the payment of capital; that acting without power because the relevant triggers to its power did not exist, it also seized and disposed of the company 1 s assets to its loss; and that this wrongful conduct constituted a "breach of a condition precedent or fundamental term" of the mortgage and guarantee which released the company from its obligations under the mortgage and consequently the defendants from their guarantee. This proposition is founded upon three different claims concerning the amount of interest, if any, which was owing or on which the plaintiff could rely in the demand which it m~de leading to the seizure and sale. First there is a claim that a sum of $19,833.30 which was received by the plaintiff from the company was wrongly credited as a capital repayment rather than as a payment of interest; and that if it had been properly allocated there would have been no default on the company 1 s part because this sum either alone or with other sums in dispute would have been sufficient to meet the relevant interest payment as it became due. The second claim for the purposes of·this point is that the interest due at that time should in this exercise be limited to that calculated in a defective statement of account favouring the company, rather than upon a correct assessment. That defective statement had been provided by the plaintiff to 0 0 0 0 -- 5 of 27 -- 3 the company but there is no evidence that any party relied on it to his, her or its prejudice, and there was no substantial argument, as distinct from mere assertion, supporting the proposition. It should be disregarded. Thirdly it is claimed that because the whole or part of the loan in respect of one of the two funded projects was never advanced, the plaintiff should have credited to the company the whole or part of an establishment fee for the 0 loan, and again that this would have been sufficient to meet its interest repayment. Alternatively to the argument that there was no interest 0 instalment owing, it is claimed that the amount shown in a notice given under s. 84 of the Property Law Act 1974 to the company as a defaulting mortgagor was inaccurate and of no effe.ct. It. was a necessary step prior to the·· plaintiff's entry into possession of the mortgaged property. The claim continues that because the Act was not complied with the 0 subsequent seizure and sale were unlawful and void and that this is the breach releasing the defendants from the 0 guarantee. This argument assumes without admitting that the· company was in default but not in the sum ·mentioned in the notice. The defendants did not all~ge nor pro*e any loss to the company by reason of this · allegedly wrong exercise of the power of sale, nor had the company ever taken any action to restrain the plaintiff or to claim damages f6r any wrongful action. \ / I / -- 6 of 27 -- 4 A further defence of a different nature depends upon the proposition that under the arrangement to which the guarantee applied, the plaintiff was to lend the company $1.72 million, but that as it turns out that full sum was never advanced. It is claimed that this alone defeats the guarantee which was predicated upon a loan to that full amount. Alternatively, it is argued that the plaintiff's failure to advance the . full amount was a breach of its obligations to the company. That failure is said to have consisted of withholding, deferring or totally refusing to make advances in respect of one of the two projects to be financed. There is a cognate argument partly based upon estoppel. It alleges that knowing that the company intended to undertake the two projects interdependently, particularly as to finance, the plaintiff either represented or promised that its funding would support their contemporaneity and that the company relied upon such a representation or promise to its detriment when, it is alleged, there was a total refusal to continue to fund the Tewantin project. Therefore, it is argued, the plaintiff is somehow estopped from claiming repayment of its debt from or is somehow in breach of its obldgations to the company; and the defendants are accordingly discharged from liability. It is also alleged that the plaintiff was guilty of misleading and deceptive conduct in representing that it would advance the money in this way when at the time of the representation it knew that it would not do so. 0 0 0 0 -- 7 of 27 -- 0 0 0 0 5 More interesting is the final ground of defence that the company's default related to a "rollover" of the original debt and that this constituted a new loan to which the defendants' guarantee did not apply. Subject to the above issues, the plaintiff's case has been properly proved, and there is no suggestion to the contrary. The plaintiff's only witness as to the merits of the issues raised by the defendants, Mr Edge, was honest. He was also reliable except for some difficulties of memory. Even as to the latter, he was reasonably reliable. Only Mr Collins was called on behalf of the defendants in respect of substantive issues. He conducted the entire business on behalf of the company in these transactions and on behalf of his wife and himself in respect of their guarantee and..other securities. He .was honest enough, but the nature of his answers and his demeanour indicated serious unreliability. Apart from matters of memory, as to which he had considerable difficulty, it was also apparent that he was unconsciously rationalising his evidence in many respects. He had difficulty in distinguishing his private wishes or his proposals from the concluded terms agreed to. Perhaps this was due to his habit, as revealed in the witness box, of concentrating on what interested him without regard to what the other person was saying. He also seemed to be confusing the events of different occasions or mixing them. The history of the matter with an explanation· of these issues is as follows. control of Mr Collins. The company was a builder under the In 1988 it had two blocks of land at -- 8 of 27 -- 6 Wishart and Tewantin which it wished to develop with finance of $1.72 million to be lent by the plaintiff to the company. It proposed to subdivide and sell its land ~t Wishart, but on the land-at Tewantin it intended to erect a block of units to be sold. At first it hoped to sell at least half of these units "off the plan" and then to erect the building to facilitate the sale of the rest. These developments were to be generally contemporaneous and the projected cashflow chart showed the Tewantin building development to be partly funded from sales of the Wishart land in the sense that payment to the plaintiff of the proceeds of those sales would keep the company's drawings against the total facility below its limit. Mr Collins knew that the plaintiff was acting upon a "loan to valuation ratio" of seventy-five percent, and that under the company's mortgage which set out the terms of the loan the plaintiff had full discretion as to the rate of advance of the instalments of the loan. During the negotiations for the loan, although the plaintiff knew of the company's intentions to proceed with the two developments contemporaneously and interdependently, there was no representation or conduct by it amounting to misleading or deceptive conduct, whether express or by implication, as the defendants would suggest. It was plainly accepted between the parties that the proposed programme of work and advances was dependent upon the attainment by the company of its own cash-flow projections, and if this had been achieved ·the 0 0 0 0 -- 9 of 27 -- 7 advances would probably have been forthcoming as provisionally planned. As it turned out, it was not achieved and so it is not surprising that the rate of advances of the loan was varied by the plaintiff. Moreover, and significantly, the matter became important only after the loan was extended on 15th January 1990 and it was made clear to Mr Collins then as part of the terms of the extension that further advances on both projects 0 would not be made contemporaneously and that those on the Tewantin project would not be provided until after the Wishart project had been fully sold. As it will be seen the plaintiff 0 was entitled to do this under the terms of paragraph 23.1.8 of the mortgage which was the subject of the defendants' 0 0 guarantee. That paragraph provides: "The , Advance shall be made to the Mortgagor· and/ orthe Debtor by the Mortgagee in such instalments as the Mortgagee may in its absolute discretion ·from time to time determine, having regard to the progress of the construction of the building or improvements towards completion and to the work remaining to be done, and any such instalment may be paid to the builder or contractor employed in the construction but the Mortgagee may retain out of the final payment for a period of three ( 3) calendar months from the date the construction of the building fences or improvements are completed, a sum not exceeding 2. 5% of the contract price for the construction to be used in making good any defects in workmanship which may appear in the constructionduring those three (3) months. The defendants' contention that the mere granting of the original loan with knowledge by the plaintiff of the company's hopes for the progress of the scheme · led to any such representation as that suggested cannot be supported. ·The evidence of Mr Collins to the contrary results either from his -- 10 of 27 -- 8 present rationalisation or from his self-induced misconception at the time.· The plaintiff gave no indication, express or by implication, that it would make the advances in that way no matter how badly the company was faiiing to meet its expectations; or that it would bind itself in any way in this respect contrary to the discretion given to it by the mortgage. Consequently there is no substance to that allegation and the questions whether such a defence is available to the defendants and whether it is statute-barred are academic. 0 The loan of $1.72 million was granted for a year and included a sum for the repayment of the year's interest in 0 advance. This was debited against the loan account as soon as it was raised so that no question of interest payment appeared in that period. The loan also included a component for an "establishment fee" of $200, 000 payable by the company to the plaintiff in respect of the raising of the loan. The precise nature of this fee· was not identified in evidence, but it seems to have been computed upon the basis of $1 00, 000 for each· of ·the projects, although in the dealings between the parties it was never treated as other than a total . figure. This is consistent with the global nature of the amount of the loan though it related to distinct developments. Again by the implied consent of the company the payment of the fee was effected by the debit of the sum of $200,noo against the loan account at the commencement of the loan. · . The claim of the defence is that the company's indebtedness should have. been reduced by $100,000 being the 0 0 -- 11 of 27 -- 0 0 0 0 9 full reimbursement of that part of the establishment fee relating to the Tewantin project because of the alleged breach by the plaintiff of its obligations to make all of the promised advances in respect of that project. Alternatively it says that some proportionate part of the fee should be refunded because only a proportion of this component of the loan agreed to was advanced. Again these are claims which the company itself has never made or pursued, nor did it raise them as any form of defence, counter-claim or set-off when the plaintiff moved against it. However, quite apart from that, there is just no serious evidence supporting the imputation of this relief to the company, the benefit of which would pass to the defendants. This deficiency of evidence relates not only the nature of the fee which would indicate the basis on which it was payable and refundable, but also the merits of the case, that is, evidence to show that any refund would be justified. If, as the name implies, the purpose of the fee was to reimburse the plaintiff for the costs to it of investigating the loan, organising the formalities, paying any commission for the introduction of the business, and . arranging the availability and supply of funds, then it may well have fully earned the fee. Further, it had already made some advances in respect of that component of the loan, such as the payment of the building fee which was eventually recovered, and it was clearly put to considerable· trouble in supervising .the progress of the project although it may not have made full advances in respect of it. Moreover, at the relevant time it -- 12 of 27 -- 10 was still ready to provide the money in suitable circumstances albeit subject to deferral.. Not surprisingly, the defendants have led no relevant evidence on this point and there is nothing in it. When the period of the original loan expired, there was what was described at the time by the plaintiff and apparently accepted by . the company as an "ex tens ion" of the loan in the form of what was called a "rollover". The · defendants now describe it as a new loan to which the guarantee does not apply, but the plaintiff claims that as an extension it is a 'variation' of the original loan as provided for in the guarantee (ell. 4 (a}, 4 ( c}} and in the mortgage defining the loan as referred to in the guarantee. The defendants concede that if the transaction was an extension of the existing loan, there is,nothing in the point. The transaction was limited to the same basic sum but with express provision for an addition for one prepaid interest instalment. The rate of interest was increased, and there were some variations, including provision for the payment of the interest by instalments and setting the times when interest was to be charged and the instalments were to be paid. As it has already been mentioned, there was also a special condition that: "Consideration for funding of Tewantin Project will not be given until all lots in Wishart Development have been sold and settled, with Farrow Corporation receiving full nett sales proceeds. Funding for the unit development will depend on a satisfactory Loan to Valuation Ratio at the time." 0 0 0 0 -- 13 of 27 -- 0 0 0 0 11 . While these terms certainly differed from those in the original loan, clearly the transaction was expressed in such a way as to conform with an extension of the original loan where that was appropriate, e.g., the form of expression of. the amount of the loan. The differences were consistent with variations of its terms and conversely the terms were not expressed in any way that might be expected if it were a new loan. These differences must be read in conjunction with clause 41 . 9 of the mortgage to which the guarantee referred. It provided as follows: "Right to Vary the Limit of the Advance The mortgagee may from time to time increase or otherwise vary the limit (if any) and types of advances and accommodation to the debtor or otherwise amend or vary or add to or agree to any amendment or variation of or addition to the contracts or other ·arrangements now or from time to time hereafter in force between the mortgagor and the debtor, or replace the same with new contracts or arrangements, and may transact any business with or on account of the debtor at its absolute discretion ... " For its part, the guarantee referred to "the payment by the Borrower to the Lender of any or all moneys whatsoever payable by the Borrower to the Lender pursuant to the said mortgage ... "and is wide enough to encompass this transaction as an extension. Consequently both the description of the original loan and the guarantee provided for an extension, and it is in this factual context that the nature of this transaction must be regarded. Had the loan been a new one distinct from that mentioned in the mortgage, it is doubtful whether it would have come within the range of "moneys payable pursuant to the -- 14 of 27 -- 1 2 said mortgage," as the guarantee refers to, or as a "variation of any security" or "variation of the terms of the mortgage'', as ell .. 4(a) and 4(c) , provide, despite the breadth of the meaning. of the term, "variation". (See Chitty on Contracts 26 ed. vol 1, para 1600; Guarantee - Phillips & 0' Donovan 2 The Modern Contract of ed. 298.) However that term certainly extends to any extension of the loan. The expression "rollover" is equivocal, but there are some indicators as to its nature which also help to define it. For example it may be noted that no establishment fee was charged. This is not as inferentially powerful as it might have been, for a number of the usual components of an establis~ment fee would be expected to have been absent even in the event of a new loan; but in that event it might also have been expected that at least some charge would have been justifiable under that head. Further there was no discussion as to the provision of any security for the moneys advanced. In these· circumstances this suggests an understanding between the parties that the transaction came within the terms of the mortgage despite the .. alternative possibility that the plaintiff just did not recognise the point. Together all these circumstances strongly imply that the arrangement was made pursuant to the above provision of the mortgage and was an extension of the loan, as it was described in the documentation. As an extension of the loan, with variations, was contemplated by the mortgage it is difficult to. understand how or why the rollover should not come within 0 0 0 0 -- 15 of 27 -- 0 0 0 0 13 this description. Conversely there is no basis for finding otherwise. The defendants are probably correct when they argue that the plaintiff cannot rely on matters discussed during negotiations for the guarantee and mortgage but only those terms contained in them. That does not save them because the terms which support the plaintiff's case are sufficiently covered in those documents. The statement made in negotiations which the plaintiff would promote in argument would have strengthened its case but was not necessary to it. Accordingly the defendants' claim to escape on this ground must fail. After the first loan was granted the company had proceeded with both developments but they did not advance as planned. _ The Wishart development was delayed. by-· rain ·arid by difficulties with the planning authority. When eventually the earthworks on the land began, the costs were seriously in excess of the estimates upon which the loan was granted. Moreover, the cumulative delays postponed· the company's receipt of the proceeds of sales of the subdivision and its marketing of it was damaged by competition from a new and larger subdivision nearby. In the meanwhile the company did some preliminary work on the Tewantin development and submitted plans for the proposed building to the building authority. Associated with this the plaintiff paid building fees of $19,833.30 to that authority on behalf of the company as part of the loan. However, th~ company's attempts to sell units off the plan were completely -- 16 of 27 -- 14 unsuccessful and Mr Collins learned that purchasers would no longer purchase units in this way. General buyer interest in real estate also fell off and so the company's plan for the advance sale of some of the units was no longer viable. It therefore changed its plan and decided to erect the building to a certain stage first in order to promote sales, and when sufficient of these had been secured it would complete the building. However, because of the overrun of expenses on the Wishart property and because of the deterioration of the real estate market, the plaintiff declined to make any further advances for the development of the Tewantin development at that stage, as it was entitled to do under para. 23.1.8 of the mortgage which has been set out above. That was the position. when the loan was extended and the provision for actual deferral was expressly stated as part of the terms of the extension. The defendants allege that the plaintiff refused to grant any further advance on the loan in respect of the Tewantin project at all, even though the full amount of the $1.72 million had not been drawn; but although the relevant officers of the plaintiff were seriously contemplating that course, they were. also contemplating mere deferral until the completion of the Wishart sales. A total refusal was never finally decided or .communicated to the company or the defendants. Only deferral was discussed with Mr Collins as a concluded decision. It is therefore not necessary to discuss further the subsidiary point of estoppel raised by the defence 0 0 0 0 -- 17 of 27 -- 0 15 upon the basis that there had been a total refusal; - but even if there had been, it_ would not have amounted to an estoppel. For one thing, the plaintiff had the right under the mortgage to vary the loan, even by way of such a total refusal if it so decided. However the defendants have also argued that even the deferral of the funding for that project was wrong because to that time the total funding had not reached seventy-five per cent of the "on completion" value of both projects. In negotiations the plaintiff had told the company that in total it would provide funds to that level. () At the time when the plaintiff deferred further advances on the Tewantin project the mathematical calculation upon which it relied was based on seventy-five percent of the value of the work done to that time or remaining to be done on the Wishart project and not its final value as completed. The advances already made or still to be made on the Wishart () project exceeded seventy-five per cent of the base figure 0 used. This exercise was perfectly normal and correct because it was used as the basis for the plaintiff's decision· in respect of the rate of the advances which it would make under the loan, which lay in its discretion. Provisionally it was - willing to make a total loan up to the full amount of seventy- five percent of the "on completion value" in due course but it was perfectly consistent and properly prudent that the rate of the advances should be limited to instalments that represented seventy-five percent of the value of- the work done to date-- within the extended meaning indicated. _ -- 18 of 27 -- 16 The defendants' argument implies that the plaintiff was oblig~d to lend the whole of the specified sum irrespective of the amount of work done and perhaps even if none was to be done at all. It seems -to assume that the plaintiff's obligations under the loan agreement were fixed in accordance with what the parties hoped would be the case if everything went according to plan; but of course that is not so and the terms coincide with what might be expected in allowing to the plaintiff the flexibility of a discretion to accommodate to mischance as in fact occurred. This proposition of the defendants cannot be and is not right. 0 Quite apart from that, the defendants themselves cannot 0 rely on- negotiations and in the absence of any rectification are confined to the terms of the contract which has no provision supporting the defendants' proposition. In any case,_ even the evidence of the negotiations did not support their proposition. There is nothing in this point either. Subs-equently, because of the deferral the company obtained from the building authority a refund of the fee of $19,833.30 referred to above. Because the original payment had been received from the plaintiff the building authority made the refund cheque payable to it, but sent it to the compan~.· A dispute then arose between the plaintiff and the company as to its disposal. The plaintiff claimed the right to. receive it and to apply it against the capital of the loan because it was a. refund ·of moneys which had been paid out of capital. Through its solicitor the company wanted to retain it for its own use. 0 0 -- 19 of 27 -- 0 17 The plaintiff succeeded in its ·argument and·· the company handed over the cheque which was credited against capital drawings. The defendants now allege that .it succeeded because it acted unfairly by threatening to refuse to meet its own dishonoured cheques which had been paid to contractors of the company, and that it did this knowing that due to its unhappy economic position the company was forced to comply. Alternatively they claim that when handing over the cheque the company required that the sum be appropriated against interest. The evidence of Mr Collins on these subjects is typical 0 of his unreliability and it should not be accepted. According to the correspondence, which was focussed on this issue 1 the plaintiff threatened that while it would meet the dishonoured cheques it would make no further · advances under the loan unless the refund was paid to it. This is totally different. 0 0 The company's solicitor did not complain that the pl~d:ntiff was wrongfully threatening to refuse to meet the dishonoured cheques, as Mr Collins now alleges. The correspondence is all against him for, if the plaintiff had been acting ·as he now suggests the company's solicitor would sfir~ly have complained about it. It was not argued for the defendants that· the plaintiff could not properly threaten to act as it did, no doubt because it was entitled to do so under the mortgage. Moreo~er, its demand was reasonable in all the circumstances, for the financial difficulties of the company and the need for future capital for the loan to be preserved made this approach -- 20 of 27 -- 18 prudent. · · It was a reasonable demand but even if it had been somewhat·· harsh, that would not have amounted to the improper pressure which is necessary for such a transaction to be set aside on this ground: cf. Wardley Australia Ltd v. McPharlin ( 1984) 3 Butterworth' s Property Reports, 97214; Crescendo Management Pty Ltd v. Westpac Banking Corpn (1988) 19 N.S.W.L.R. 40,45; Barton & Armstrong (1973) 2 N.S.W.L.R. 598, 634; Eguitycorp Financial Services Ltd v. Eguitycorp (1992) 9 A.C~S.R. 199, 232. As to the defendants' claim that the company handed over the cheque on condition that it be appropriated against interest, again this is not consistent with the correspondence. In his letters, the company's solicitor sought to have other moneys applied against interest, but did not make any such claim in respect of the subject moneys. Because it was entitled to apply such a payment to capital under the terms of . the mortgage and because when the company' s· solicitors finally paid over the money they did not require that it be . paid to interest, the plaintiff was entitled to allocate it to capital repayment: Clayton's case ( 1816) 1 Mer 529 at 572; Deeley v Lloyds -Bank Ltd [ 1912] A.C.756; Weaver & Craigie - Banker & Customer in Australia - Vol 1 para. 7, ,870; Chitty on Contracts 26 ed. para. 1535. Consequently, the accounts. in. this respect were correct, and the defendants' claim is wrong• Even· if .the sum had. been applied as the defendants contend for, it would not have met the interest payment which was then due, so that the company would still have been in 0 0 0 0 -- 21 of 27 -- 0 0 0 0 19 default. A sum of approximately $800 would still have been outstanding because when the refund cheque was received the total interest payable was $20,617. By the time the plaintiff took action on this default there was further default in respect of another interest payment due and owing in the sum of $19,937, making a total of $20,721 on the defendants' figures. But of course the true figure was larger by $19,833.30. Pursuant to this default, the plaintiff took steps to obtain possession of the mortgaged properties by service of a notice of exercise of power of sale under s.84 of the Property Law Act 197 4. Relevar1tly it referred to arrears of the interest then due and payable which it stated to be the.sum of $24, 984. Although the true amount due was in excess of $40, 000. op and the amount so claimed was much less because of a substantial accounting error favouring the company~ it is this incorrect statement in the notice which is the target of the defendants' submissions, based upon their claims as · to sums which they say should have been credited against interest. As it has been explained, whatever the attribution of the· $19,833.30, the amount of arrears stated in the notice was not correct. Because it had been properly· applied to capital, then the amount claimed in the notice was less .than the amount actually owing, and the defendants. could not ·and do not make any complaint of that. It is necessary however to explain again in this context how their other arguments relevant to -- 22 of 27 -- 20 this issue of interest payable at the time of the s.84 notice ar,e incorrect . The claim to use. the erroneous accounts which had been issued at that time by the plaintiff favouring the company has already been discountenanced. Their only other claim in this respect is for a refund and application against interest of the whole or part of $100,000 being one half of the establishment fee which they claim to be attributable to the Tewantin project. , This argument has already been shown to be in error, and in any case the amount claimed in respect of it by the company's solicitor was never attributed by him to anything and it was certainly not attributed by the company to interest. All of the defendants' arguments on this topic therefore fail with the result that the company's indebtedness exceeded the amount claimed in the notice, a defect which cannot affect its validity. That should be an end to the point, but it may be desirable to discuss the result had the defendants succeeded in their claim that the refund of building fees of $19,833.30 should have been applied to interest. Assuming this, they would still have been obliged to show that the amount claimed in the notice was excessive to such a degree as to vitiate it. It would then have followed, they say, that by proceeding to seizure and sale of the mortgaged property without a valid notice the plaintiff was in breach of a "condition precedent or fundamental term" of the guarantee. As it has been demonstrated above if the payment in dispute is allowed against interest, then by the time of the 0 0 0 0 -- 23 of 27 -- "6 0 0 21 issue of the notice the . company would . still have been in default in the sum of $20,721 as compared with the $24,984 referred to in the notice, an excess of $4,263. As to the consequences of an excessiv~ claim, in Clarke v. Japan Machines (Australia) Pty Ltd [1984] 1 Qd. R. 404, Thomas J. in writing the leading judgment of the court, said at p.413: "Accordingly the position may be summarised as follows. Where a default in the payment of principal and interest (or both) is relied on, s.84(1) requires an amount to be specified. An error in specification of the appropriate sum will not be the end of the matter. A question of· fact and degree is involved in every case. The most relevant factors determining validity will be the extent of the error, and the capacity of the notice to give the mortgagor a reasonable opportunity to do what he is obliged to do. Three of the cases discussed above (Campbell, Clyde and Stephenson Developments) afford good examples of errors which did not invalidate the notices; however, the Mir Bras Proiects case upheld a notice which contained errors so large and fundamental as to make it difficult to reconcile with the·other cases." In that case, there was uncertainty as to whether there () had been an acceleration of repayment of capital, there was an error with an enormous scope, and the mortgagor was not given any clear lead on the nature of the obligation which the CJ mortgagee was asserting, or any clear apprehension of what it would achieve by paying a sum that bore no direct relationship to the sum it owed the mortgagee. The present hypothetical case does not betray the same errors and difficulties for the mortgagor as that. While the discrepancy would not have been a trivial sum, neither was it grossly inordinate on a comparative scale. Further in the case cited above, Thomas J also said at p.413: "Obviously a, notice which materially misleads the recipient as to the -- 24 of 27 -- / 22 nature of the debt demanded will be invalid. 11 Here the company could have had no doubt as to the nature of the debt demanded·. because it was described as the interest then payable, and of course it knew that the amount claimed did not include the disputed credit for the refund of building fees. In· summary, any such defect would not have deprived the mortgagor of "a reasonable opportunity of doing what he (was) obliged to do". Accordingly the discrepancy would not have affected the validity of the notice, and the defendants would still have failed. As it turned out, the loan was terminated by reason of the company's default before the full $l.72 million was downdrawn, and this is the basis of the defendants' remaining defence. Although they do not challenge the plaintiff's right to withhold further advances after the company's default, they argue that the guarantee was given only in respect of a loan of that amount and because it did not reach that amount the guarantee has no application. The error of the argument is that while the preamble to the guarantee certainly refers to the proposed loan of that amount to be made at the request of the guarantors, in its operative part they agree to guarantee the loan secured by the mortgage. The loan secured by the mortgage clearly encompasses a loan of part only of the proposed total. Even the preamble indirectly refers to this by its reference to the provisions of the Bill of Mortgage which reference constitutes a qualification in the description of the loan. : 0 0 0 0 -- 25 of 27 -- 0 0 0 0 23 Where relevant the preamble says: "WHEREAS: (i) The Guarantor has requested the Lender to lend and advance to NOEL COLLINS·HOLDINGS PTY LTD (hereinafter called "The Borrower") the sum of ONE MILLION SEVEN HUNDRED AND TWENTY THOUSAND DOLLARS ( $1 , 7 2 0, 0 0 0 • 0 0 ) upon the covenants and conditions terms and stipulations set forth in a certain Bill of Mortgage .(hereinafter called "the mortgage") over certain real property in thefollowing Schedule:-" (Schedule inserted) " ( ii) The Lender has acceded to such request provided the Guarantor grants this Guarantee ( iii) The Guarantor has made himself fully aware of the covenants, conditions, terms and stipulations in the mortgage expressed or implied from the execution thereof." while the operative part reads: the "NOW THIS DEED WITNESSES that the Guarantor HEREBY UNDERTAKES AND GUARANTEES the payment by the Borrower tothe Lender of any or all moneys whatsoever payable by the Borrower to the Lender pursuant to the said mortgage and the observance and performance by the Borrower of the terms covenants and conditions in the mortgage expressed or implied and by the Borrower to be observed or performed ... " The request by the defendants to the plaintiff to make loan is quite different from the agreement between the plaintiff and the company for the loan, including the terms on which it was made. That was within the province of the company: cf. State Bank of South Australia v. Nicholls [1993] 1 V.R. 259, 276. If in the bill of mortgage the company agreed to terms which allowed for total advances of less than the full sum anticipated and provided the mortgage on those terms, then the guarantee of the loan according to the terms of the mortgage will encompass such a contingency. That is the position here. That the full sum anticipated was not advanced in the end provides no relief for the defendants. -- 26 of 27 -- 24 There has been a tendency in their arguments throughout this matter to confuse the relevant transaction when discussing loan dealings between the plaintiff and the company. While the guarantee is of course the primary document defining the liability of the defendants the correct transaction for present purposes is that which defines the obligations by the company to make payment in accordance ~ith the terms of the mortgage, for it is that which is the subject of the guarantee: cf. Hancock v. Williams (1942) 42 S.R.(NSW) 252, 259; Duncombe v. Australia & New Zealand Bank Ltd (1970) Qd. R. 202, 207-208 There is nothing in any of the many grounds advanced by the defendants. The failure of the company was due to its own incompetence anq external problems which saw the failure of its projects. This was in no way attributable to the plaintiff which acted within reasonable limits of prudence in its own affairs. This, of course, would not save it if the guarantee, which must be construed strictly, did not support its claim, but the plethora of points used to attack it were all insubstantial. Consequently there is judgment for the plaintiff against the defendants in the sum of $509,515, which includes interest payable to this date under the loan. The defendants are to pay the plaintiff's costs of and incidental to the action, including reserve costs (if any) to be taxed. 0 0 0 0 -- 27 of 27 --