Re Rodeway Pacific International Limited v the Good Motel Company Pty Limited (In Liquidation) [1990] FCA 10 (30 January 1990)

FEDERAL COURT OF AUSTRALIA

Re: RODEWAY PACIFIC INTERNATIONAL LIMITED
And: THE GOOD MOTEL COMPANY PTY. LIMITED (in liquidation)
No. ACT G6 of 1989
FED No. 8
Contract

COURT

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Gallop(1), Jenkinson(1) and Von Doussa(1) JJ.

CATCHWORDS

Contract - construction of deed - recovery of money lent - equitable set-off

HEARING

CANBERRA
30:1:1990

Counsel for the Appellant : Mr G. Masterman QC and

Mr D. Emerson-Elliot

Solicitors for the Appellant : John Faulks & Co

Counsel for the Respondent : Mr I. Curlewis QC and
Mr D. Galbraith

Solicitors for the Respondent : Abbott Tout Russell Kennedy

ORDER

The appeal be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Appeal from a judgment of the Supreme Court of the Australian Capital Territory that the respondent recover an amount for money lent by the respondent to the appellant.

2. Two subjects of complaint were raised on the hearing of the appeal. (A number of the grounds of appeal was abandoned.) First, it was said that the moneys lent had not become re-payable because the time agreed as the time for re-payment had not yet arrived. The loans, of about $470,000, were made in 1985, before 30 June, on terms of which the evidence disclosed very little. By a deed dated 2 December 1985, recitals of which declared that the balance of the loans owing on 30 June 1985 was $449,333.00 and that "the loans were originally made free of interest," the respondent and the appellant covenanted as follows:

"1. The borrower will repay the principal sum
together with all interest then owing
thereon to the lender on the giving of
six months notice in writing delivered to
the borrower at its registered office.
2. Until such repayment the borrower shall
pay to the lender in such manner and at
such times as the lender may direct
interest at 12% per annum on the
principal sum calculated on monthly rests
from 1 July, 1985.
3. The borrower may at any time during the
term or currency of loan repay the
principal sum to the lender together with
all interest then due and payable up to
that date of payment and the lender shall
then release the borrower from its
obligations under this deed."

The expression "principal sum" is not defined in the deed, but may be taken, by construction of the deed, to signify the sum of $449,330.00 recited to have been owing on 30 June 1985. In November 1985 the respondent by debenture granted a charge over all its assets to Alliance Acceptance Co. Ltd., which on 5 September 1986 appointed two persons as receivers and managers of those assets, pursuant to powers conferred by the debenture. A letter dated 10 September 1986 from the receivers to the appellant, delivered at the appellant's registered office, was in these terms:

"RE THE GOOD MOTEL COMPANY PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED)
Take notice that Richard John Grellman and I
were appointed Receivers and Managers of the
above company on 5 September 1986.
We know that demand was made on you by Raymond
Dawson as Receiver and Manager appointed by
another creditor on 5th September 1986 for an
amount of $644,625 to be paid on or before
close of business on 8 September 1986 and that
that amount remains unpaid.
We hereby make demand for repayment of the
$644,625 payable by your company to The Good
Motel Company Pty Limited (Receivers and
Managers Appointed) by 5 pm on Friday 12
September 1986 at my Adelaide office 13
Grenfell Street Adelaide.
THE GOOD MOTEL COMPANY PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED)
J H Fielden
Receiver and Manager."

In his reasons for judgment the learned Chief Justice, by whom the action was tried, stated the opposed contentions which were repeated on the hearing of the appeal, and explained his resolution in favour of the respondent. He refers, in the passage We will quote, to the appellant by a name it formerly used : "Tourist Group". His Honour said:

"The first matter raised by way of defence is
that the loan is not repayable until after a
notice in writing requiring repayment at the
expiration of six months after the delivery of
such notice and that no such notice has been
given. To establish that defence Tourist
Group relies on clause 1 of the deed of 2
December 1985. The only notice given was that
given by the receiver of Good Motel in the
letter of demand dated 10 September 1986.
That was a notice which demanded payment by 12
September 1986, that is to say, within a
period of two days, and not six months. It
was submitted on behalf of Tourist Group that
the lapse of more than six months from the
giving of the notice together with the fact of
non-payment does not amount to compliance with
the condition that the loan is not repayable
until the lender has given six months notice
in writing delivered to the borrower at its
registered office in accordance with clause 1
of the deed of 2 December 1985. On the other
hand, it is submitted on behalf of Good Motel
that this clause on its proper interpretation
means that so long as the borrower gives
notice that it requires repayment of the loan,
then the monies lent become repayable at the
end of six months after the notice. Neither
party sought to rely upon any judicial
authority, and it may well be that resort to
other cases is of little assistance. The
nature of a notice to quit in the law of
landlord and tenant, for instance, is not to
the point. It seems to me that the
interpretation of clause 1 of the deed urged
on behalf of the plaintiff is the preferable
one. If the letter of demand had contained
words to this effect, that 'the lender gives
notice to the borrower that repayment of the
loan is required', then it is hard to see that
it would be arguable that the monies lent did
not become repayable six months after the
giving of the notice in accordance with clause
1. The notice that was in fact given
purported to require payment after the expiry
of two days, something to which the lender was
clearly not entitled. However, in my view,
that did not make the notice invalid. The
borrower was entitled to pay at any time
during the six months. The lender was not
entitled to sue for recovery of the money lent
until the expiry of six months. In my view
the document is to be read as a notice calling
upon the borrower to make repayment of the
monies lent in accordance with its obligations
under the deed and that obligation was to pay
at the end of six months after the receipt of
notice in writing. The notice in writing was
given, six months expired, and the lender
became entitled to repayment and the borrower
became liable to repay."

3. There was no evidence or submission that the appellant's directors were influenced by the terms of the letter dated 10 September 1986 to an erroneous understanding of any matter, whether of fact or law, except in so far as the submissions on behalf of the appellant at trial and on the hearing of the appeal might be supposed to found an inference that those directors had a mistaken belief about the legal effect of delivery of the letter. But such an inference cannot in our opinion be drawn.

4. In our opinion the inclusion in the letter of the words "by 5 pm on Friday 12 September 1986" does not have the result that the letter cannot satisfy the requirement of clause 1 of the deed which is expressed by the words "on the giving of six months notice in writing delivered to the borrower at its registered office." We think the requirement may be satisfied by a notice which expresses a demand for payment, whether or not a time for payment is specified in the notice. If a time later than six months after delivery were specified as the time for payment, that specified time would be the time at which the appellant would be obliged to make the covenanted payment. If a time six months or less than six months after delivery were specified, the obligation would arise six months after delivery. To construe clause 1 thus is to give to the borrower the whole benefit which can be seen from the language of the clause to have been intended : not less than 6 months' warning of the occurrence of the obligation to repay.

5. The other subject of complaint was an equitable set-off pleaded by the appellant and rejected by the trial judge. The appellant has at all material times been the principal shareholder in the respondent, which is a company incorporated in the Australian Capital Territory, and for the winding-up of which the Supreme Court of that Territory made an order on 7 October 1986. When in November 1985 Alliance Acceptance Co. Ltd. ("Alliance") was granted a charge over the respondent's assets the respondent was conducting a motel business on land in the Territory of which it held a sub-lease from the Crown lessee. A mortgage of that sub-lease was granted to Alliance at the time when the charge was granted, both mortgages to secure repayment of money lent or to be lent to the respondent by Alliance. At the same time the appellant by deed guaranteed performance of the respondent's obligations to Alliance. By a deed dated 30 October 1986, to which Alliance and two subsidiaries of the appellant were the parties, Alliance released the appellant from liability to it under that guarantee, released the respondent from further liability to it for the money lent, discharged the mortgage of the respondent's sub-lease and assigned to one of the appellant's two subsidiaries plant, equipment, furniture, fittings and stock on hand on the land where the respondent was conducting the motel business, being assets which had been subject to the debenture charge. The assignee of the fixtures and chattels, Port Lincoln Motel Pty. Ltd., thereupon took over the conduct of the motel business, and the unexpired term held by the respondent under the sub-lease was assigned by the respondent to Port Lincoln Motel Pty. Ltd. in February 1987. The other subsidiary, Asian Pacific International Ltd., convenanted to pay $203,000.00 to Alliance and delivered to Alliance on execution of the deed an unconditional and irrevocable "Bank Guarantee" in favour of Alliance. After the deed was executed payments aggregating $208,396.40 were made to Alliance in performance of the covenant to pay $203,000.00 and of a subsidiary covenant for interest. It was that sum which the appellant claimed to set off against the respondent's claim for money lent. The learned Chief Justice was not persuaded to find that the appellant had paid the sums, either directly to Alliance or to Asian Pacific International Ltd., by which the sums had been paid to Alliance if the appellant had not paid them. It was not submitted on the hearing of the appeal that there was evidence, oral or documentary, of the fact of payment by the appellant, either to Alliance or to Asian Pacific International Ltd. But there were circumstances, it was submitted, from which payment by the appellant should be inferred. When the association between Asian Pacific International Ltd. ("API") and the appellant commenced API was controlled by persons who were, like the persons who then controlled the appellant, engaged in the conduct of motel businesses by several companies, and the association between API and the appellant was formed in implementation of an agreement between those two groups of persons that they would combine their activities in that field of business. Those who had controlled API became shareholders in the appellant and API became a subsidiary of the appellant in implementation of that agreement. Both API and Port Lincoln Motel Pty. Ltd. executed the deed dated 30 October 1986 at the direction of the appellant, by which they were controlled in the conduct of that combined business activity. Although not a party to the deed, the appellant had guaranteed the respondent's performance of the respondent's obligation to repay Alliance the money lent, and the giving of that guarantee was recited in the extensive recitals of the deed, the correctness of which "in every particular" the parties expressly acknowledged, and Alliance by the deed released the appellant from liability to it under that guarantee. The money covenanted to be paid to Alliance, and in fact paid to Alliance, was money which before execution of the deed the appellant had been obliged under its guarantee to pay Alliance. In those circumstances the inference should, it was submitted, be drawn that the money was paid by the appellant.

6. There was no evidence that the appellant had paid the money, or had incurred an indebtedness to API in respect of that company's payment of the money, to Alliance. There was no evidence as to whether any contractual or quasi-contractual obligation had been imposed on the appellant in consequence of payment of the money by API. In those circumstances no inference of the kind suggested can in our opinion be drawn. The evidence is consistent with several hypotheses. One is that it was Port Lincoln Motel Pty. Ltd., not the appellant, which gave API consideration for the payment to Alliance by API. The learned Chief Justice's conclusion that the suggested set-off was not established was in our opinion correct.

7. We would dismiss the appeal with costs.