Evans, Richard --- "Court upholds "all money" clauses" [1997] LawIJV 8; (1997) 71(1) The Law Institute Journal 21

• Court Upholds ‘all moneys’ clauses

Court Upholds ‘all moneys’ clauses

The decision of the Federal Court upholding the effectiveness of "all moneys" clauses has been hail¬ed as a win for financial insti¬tutions - but consumer law¬yers are playing down its significance.

In Donnelly v Common-wealth Bank (delivered on 26 September 1996), Justice Hill found against the appellant, who argued that the all moneys clause of a mortgage - which secures the lender for all money which may event¬ually be owed to it, not just the amount of the mortgage - should be "read down", in line with several recent decisions of the NSW Supreme Court.

The case involved a bank¬rupt former employee of the Commonwealth Bank, who had embezzled nearly $58,000 from the bank when she worked there.

The bank was seeking to recover the amount embezzled under the all moneys clause of the home mortgage which the former employee had taken with the bank. However, counsel for the administrator of the employee's estate argued that the all moneys clause should be interpreted to secure only debts of "the same type or character" as the original debt.

Justice Hill said of the argument that the all moneys clause should be "read down": "One must ask what is the basis for such a proposition of law . . . Once the possible appli¬cation of the contra prefer¬entem rule [that any ambiguities be interpreted un¬favourably to the drafter] is put to one side, then there is no principle of common law that requires a clause in a bank mortgage to be construed in any way differently from any other document."

Justice Hill also disagreed with previous decisions which had suggested that the expect¬ations of the parties at the time of signing the mortgage should be taken into account. A search for such intention, he said,

"will invariably involve mere speculation. How one ascertains the expectation of the parties to a bank mortgage, other than from the language they have used, I do not understand."

The clear intent of the drafter of the all moneys clause was that the bank was covered in all possible situations, Justice Hill said.

"Why then should not the language used be determin¬ative of the issue?
"The only possible explan¬ation for applying a special rule of construction to the interpretation of an all moneys mortgage is the fact that a bank is party to it. But that is no principle of law, it is a principle of prejudice."

There was ample scope for relief from unfair or uncon¬scionable contracts both in legislation and at common law, Justice Hill said, and no extra protection for consumers was necessary.

Ron Schaffer, a partner with Clayton Utz in Sydney who works in banking litigation, said the decision was an im¬portant endorsement of a con¬cept which was one of the cornerstones on which financ¬ial institutions base their lending practices.

He said that the NSW Supreme Court's earlier decis¬ions had limited the circum¬stances in which lenders could rely on the all moneys clause.

"Now, without expressly say¬ing that those decisions were wrong, the Federal Court has intimated as much and given lenders reason to have renew¬ed faith in such clauses," he said.
"What this means is that so long as the wording of the clause is clear, then the words will be interpreted on their ordinary meaning, that there is no need to read it down.
"An all moneys clause means that if you default on payments on any moneys owed to us, then we can call on any security you have given us. It is a very sim¬ple concept really, something which people should be able to understand."

Mr Schaffer said that it was difficult to say how much con¬cern about the weakening of all moneys clauses there had been among financial institut¬ions.

"But what this decision does is make it a little easier for lawyers advising the banking sector.
"Before, they would come to us and ask whether the all moneys clause could be relied on, and we would have to say, well it depends a bit on the judge's interpretation.

"Now we can be more confident that the clause will be interpreted on its ordinary meaning."

However, Rob Williams, a lawyer with the Consumer Credit Legal Service, said that the significance of Justice Hill's decision should not be overstated.

"Legally this decision gives the banks some joy, but it doesn't mean they can go around flogging products containing an all moneys clause without being very care¬ful about how they market them," he said.
"This decision means the court will apply the ordinary meaning of all parts of a mortgage document. This is despite the fact that most consumers wouldn't know head or tail of what these clauses mean.
"This is problematic, particularly if the consumer has not been made aware that their house can be sold if they fall behind on some other loan - and this Service has seen many cases where this has happened."

Mr Williams said that the new Consumer Credit Code would make all moneys clauses more difficult for banks to rely on.

"The Code does allow all moneys clauses, but it also requires them to be in plain English. This is a big require¬ment, particularly when there are some all moneys clauses at the moment which are 600 words long, without any pun¬ctuation.
"But the real problem with mortgages is how they are marketed, how they are sold on the doorstep and what the con¬sumer is told at that point. The Credit Code will mean that financial institutions will have to be very careful how they go about marketing these prod¬ucts."

RICHARD EVANS